The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
Note 1 Relationship with and Ownership by Camber Energy, Inc.
In February 2020, the Company entered into a merger agreement with Camber Energy, Inc.(“Camber”); the agreement was subject to numerous conditions. On December 23, 2020 Camber acquired a 51% interest in Viking and this merger agreement was terminated. On January 8, 2021 Camber acquired an additional interest in the Company resulting in Camber owning approximately 62% of the outstanding common shares of the Company. As a result, since December 23, 2020 Viking has been a majority-owned subsidiary of Camber. The December 2020 and January 2021 transactions and a new merger agreement in February 2021 are described further below. References below to the Company’s various debt arrangements are described further in Note 7.
December 23, 2020 Transaction
On December 23, 2020, the Company entered into a Securities Purchase Agreement with Camber, pursuant to which Camber acquired (“Camber’s Acquisition”) 26,274,510 shares of Viking common stock (“Camber’s Viking Shares”), constituting 51% of the common stock of Viking, in consideration of (i) Camber’s payment of $10,900,000 to Viking (the “Cash Purchase Price”), and (ii) cancelation of $9,200,000 in promissory notes issued by Viking to Camber (“Camber’s Viking Notes”). Pursuant to the purchase agreement, Viking is obligated to issue additional shares of Viking common stock to Camber to ensure that Camber shall own at least 51% of the common stock of Viking through July 1, 2022.
In connection with Camber’s Acquisition, the Company and Camber terminated their previous merger agreement, dated August 31, 2020, as amended, and Camber assigned its membership interests in one of Viking’s subsidiaries, Elysium Energy Holdings, LLC, back to Viking. Also in connection with Camber’s Acquisition, effective December 23, 2020, Camber (i) borrowed $12,000,000 from an institutional investor; (ii) issued the investor a promissory note in the principal amount of $12,000,000, accruing interest at the rate of 10% per annum and maturing December 11, 2022 (the “Camber Investor Note”); (iii) granted the Investor a first-priority security interest in Camber’s Viking Shares and Camber’s other assets pursuant to a pledge agreement and a general security agreement, respectively; and (iv) entered into an amendment to Camber’s $6,000,000 promissory note previously issued to the investor dated December 11, 2020 (the “Additional Camber Investor Note”), amending the acceleration provision of the note to provide that the note repayment obligations would also not accelerate if Camber has increased its authorized capital stock by March 11, 2021 (and Camber increased its authorized capital stock in February of 2021 as required). In order to close Camber’s Acquisition, effective December 23, 2020, Viking entered into a Guaranty Agreement, guaranteeing repayment of the Camber Investor Note and the Additional Camber Investor Note.
On December 23, 2020, the Camber Investor Note was funded, and Viking and Camber closed Camber’s Acquisition, with Camber paying the Cash Purchase Price to Viking and cancelling Camber’s Viking Notes, and Viking issuing Camber’s Viking Shares. At the closing, James Doris and Frank Barker, Jr., Viking’s CEO and CFO, were appointed the CEO and CFO of Camber, and Mr. Doris was appointed a member of the Board of Directors of Camber.
Extinguishment of $18.9 million promissory note
On January 8, 2021, the Company entered into another purchase agreement with Camber pursuant to which Camber agreed to acquire an additional 16,153,846 shares of Company common stock (the “Shares”) in consideration of (i) Camber issuing 1,890 shares of Camber’s Series C Redeemable Convertible Preferred Stock to EMC Capital Partners, LLC (“EMC”), one of the Company’s lenders which held a secured promissory note issued by the Company to EMC in the original principal amount of $20,869,218 in connection with the purchase of oil and gas assets on or about February 3, 2020 (the “EMC Note”); and (ii) EMC considering the EMC Note paid in full and cancelled pursuant to the Cancellation Agreement described below.
Simultaneously, on January 8, 2021, the Company entered into a Cancellation Agreement with EMC (the “Cancellation Agreement”) pursuant to which the Company agreed to pay $325,000 to EMC, and EMC agreed to cancel and terminate in the EMC Note and all other liabilities, claims, amounts owing and other obligations under the Note. At the same time, Camber entered into a purchase agreement with EMC pursuant to which (i) Camber agreed to issue 1,890 shares of Camber’s Series C Redeemable Convertible Preferred Stock to EMC, and (ii) EMC agreed to enter into the Cancellation Agreement with the Company to cancel the EMC Note.
These January 8, 2021 transactions will be reflected in the Company’s financial statements for the quarter ending March 31, 2021.
February 2021 Merger Agreement with Camber
On February 15, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Camber. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, a newly-formed wholly-owned subsidiary of Camber (“Merger Sub”) will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Camber.
Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share: (i) of common stock, par value $0.001 per share, of the Company (the “Viking Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares owned by Camber, the Company and Merger Sub, will be converted into the right to receive one share of common stock of Camber; and (ii) of Series C Convertible Preferred Stock of the Company (the “Viking Preferred Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one share of Series A Convertible Preferred Stock of Camber (the “Camber Series A Preferred Stock”). Each share of Camber Series A Preferred Stock will convert into 890 shares of common stock of Camber (subject to a beneficial ownership limitation preventing conversion into Camber common stock if the holder would be deemed to beneficially own more than 9.99% of Camber’s common stock), will be treated equally with Camber’s common stock with respect to dividends and liquidation, and will only have voting rights with respect to voting: (a) on a proposal to increase or reduce Camber’s share capital; (b) on a resolution to approve the terms of a buy-back agreement; (c) on a proposal to wind up Camber; (d) on a proposal for the disposal of all or substantially all of Camber’s property, business and undertaking; (f) during the winding-up of Camber; and/or (g) with respect to a proposed merger or consolidation in which Camber is a party or a subsidiary of Camber is a party. Holders of Viking Common Stock and Viking Preferred Stock will have any fractional shares of Camber common stock or preferred stock after the Merger rounded up to the nearest whole share.
At the Effective Time, each outstanding Company equity award, will be converted into the right to receive the merger consideration in respect of each share of Viking Common Stock underlying such equity award and, in the case of Company stock options, be converted into vested Camber stock options based on the merger exchange ratio calculated as provided above (the “Exchange Ratio”).
The Merger Agreement provides, among other things, that effective as of the Effective Time, James A. Doris, the current Chief Executive Officer of both the Company and Camber, shall serve as President and Chief Executive Officer of the Combined Company following the Effective Time. The Merger Agreement provides that, as of the Effective Time, the Combined Company will have its headquarters in Houston, Texas.
The Merger Agreement also provides that, during the period from the date of the Merger Agreement until the Effective Time, each of Camber and Company will be subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative acquisition proposals, subject to customary exceptions. Company is required to hold a meeting of its stockholders to vote upon the adoption of the Merger Agreement and, subject to certain exceptions, to recommend that its stockholders vote to adopt the Merger Agreement. Camber is required to hold a meeting of its stockholders to approve the issuance of Viking Common Stock and Viking Preferred Stock in connection with the Merger (the “Share Issuance”).
The completion of the Merger is subject to customary conditions, including (i) adoption of the Merger Agreement by Camber’s stockholders and approval of the Share Issuance by Camber’s stockholders, (ii) receipt of required regulatory approvals, (iii) effectiveness of a registration statement on Form S-4 for the Camber common stock to be issued in the Merger (the “Form S-4”), and (iv) the absence of any law, order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) subject to certain exceptions, performance by the other party of its obligations under the Merger Agreement and (iii) the absence of any material adverse effect on the other party, as defined in the Merger Agreement.
Additional closing conditions to the Merger include that in the event the NYSE American determines that the Merger constitutes, or will constitute, a “back-door listing”/“reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the Effective Time.
The Merger Agreement can be terminated (i) at any time with the mutual consent of the parties; (ii) by either Camber or Company if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the Merger; (iii) by either Company or Camber if the Merger shall not have been consummated on or before August 1, 2021; (iv) by Camber or Company, upon the breach by the other of a term of the Merger, which is not cured within 30 days of the date of written notice thereof by the other; (v) by Camber if Company is unable to obtain the affirmative vote of its stockholders for approval of the Merger; (vi) by Company if Camber is unable to obtain the affirmative vote of its stockholders required pursuant to the terms of the Merger Agreement; and (vii) by Company or Camber if there is a willful breach of the Merger Agreement by the other party thereto.
The Merger Agreement contains customary indemnification obligations of the parties and representations and warranties.
Note 2 Nature of Business and Going Concern
Viking Energy Group, Inc. (“Viking” or the “Company”) is engaged in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. Since the beginning of 2019, the Company has had the following related activities:
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·
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On May 1, 2019, the Company’s subsidiary, Mid-Con Development, LLC sold all of its interests in the oil and gas assets Mid-Con Development, LLC owned in Ellis and Rooks Counties, Kansas, consisting of working interests in approximately 41 oil leases comprising several thousand acres.
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|
|
|
|
·
|
On May 10, 2019, Petrodome Louisiana Pipeline LLC ("Petrodome LA"), a subsidiary of the Company’s subsidiary, Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres.
|
|
|
|
|
·
|
On February 3, 2020, Elysium Energy, LLC (“Elysium”), a wholly-owned subsidiary of Viking’s subsidiary, Elysium Energy Holdings, LLC (“Elysium Holdings”) (which was majority-owned by Viking at the time), acquired interests in certain oil and gas properties located in Texas and Louisiana. The assets purchased included leases, working interests, and over-riding royalty interests in oil and gas properties in Texas (approximately 72 wells) and Louisiana (approximately 55 wells), along with associated equipment. On February 4, 2020, Elysium hedged 75% of the estimated oil and gas production associated with the newly acquired assets for 2020, 60% of the estimated production for 2021 and 50% of the estimated production for the period between January 2022 to July 2022. Theses hedges have a floor of $45 and a ceiling ranging from $52.70 to $56 for oil, and a floor of $2 and a ceiling of $2.425 for natural gas.
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The Company’s consolidated financial statements included herein have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company generated a net loss of $63,988,245 for the year ended December 31, 2020 (the “2020 Loss”) as compared to a net loss of $19,390,850 for the year ended December 31, 2019. The 2020 Loss was comprised of, among other things, certain non-cash items, including: (i) Impairment of Oil & Gas Properties in the amount of $37,500,000 attributable in part to low commodity prices throughout 2020 due to the COVID-19 pandemic and certain geo-political factors; (ii) Stock Based Compensation of $5,625,302; (iii) Accretion of Asset Retirement Obligation of $1,111,266; (iv) Depreciation, Depletion & Amortization of $13,513,735; and (v) Change in Fair Value of Derivatives of ($5,485,573).
As of December 31, 2020, the Company has a stockholders’ deficit of $16,302,163 and total Long-Term Debt of $111,753,164. On or about January 8, 2021, the equity position of the Company was improved by the extinguishment of Long-Term Debt and accrued expenses of approximately $18,900,000 through the issuance of common stock (see Note 1).
As of December 31, 2020, the Company has a working capital deficiency of approximately $35,000,000. The largest component of current liabilities creating this working capital deficiency is a term loan agreement with a face value of approximately $33.6 million as of December 31, 2020.
Management believes it will be able to continue to leverage the expertise and relationships of its operational and technical teams to enhance existing assets and identify new development and acquisition opportunities in order to improve the Company’s financial position. The Company may have the ability, if it can raise additional capital, to acquire new assets in a separate division from existing subsidiaries. Also, as a majority-owned subsidiary of Camber Energy, Inc. (“Camber”), the Company might be able to benefit from Camber’s national stock exchange platform to access additional capital sources.
None the less, recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had and may continue to have a negative impact on the Company’s financial position and results of operations. Negative impacts could include but are not limited to: The Company’s ability to sell our oil and gas production, reduction in the selling price of the Company’s oil and gas, failure of a counterparty to make required hedge payments, possible disruption of production as a result of worker illness or mandated production shutdowns, the Company’s ability to maintain compliance with loan covenants and/or refinance existing indebtedness, and access to new capital and financing.
These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to develop additional acquisition opportunities, and to obtain the necessary financing to meet its obligations and repay its liabilities arising from business operations when they come due. Management believes the Company will be able to continue to develop new opportunities and will be able to obtain additional funds through debt and / or equity financings to facilitate its development strategy; however, there is no assurance of additional funding being available. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.
Note 3 Summary of Significant Accounting Policies
a) Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for consolidated financial information and with the instructions to Form 10-K as promulgated by the Securities and Exchange Commission (the "SEC"). Accordingly, these consolidated financial statements include all of the disclosures required by generally accepted accounting principles for complete consolidated financial statements.
b) Basis of Consolidation
The financial statements presented herein reflect the consolidated financial results of the Company, its wholly owned subsidiaries, Mid-Con Petroleum, LLC, Mid-Con Drilling, LLC, and Mid-Con Development, LLC, which were all formed to provide a base of operations for properties in the Central United States, and Petrodome Energy, LLC, Ichor Holdings, LLC, Ichor Energy, LLC, Ichor Energy (TX), LLC, and Ichor Energy (LA), LLC., Elysium Energy Holdings, LLC, and its wholly owned subsidiaries, Elysium Energy, LLC, Elysium Energy TX, LLC, Elysium Energy LA, LLC, Pointe A La Hache, L.L.C., Potash, L.L.C., Ramos Field, L.L.C., and Turtle Bayou, L.L.C., all based in Houston, Texas which provides a base of operations to facilitate property acquisitions in Texas, Louisiana and Mississippi. All significant intercompany transactions and balances have been eliminated.
c) Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to impairment of long-lived assets, fair value of commodity derivatives, stock-based compensation, asset retirement obligations, and the determination of expected tax rates for future income tax recoveries.
The estimates of proved, probable and possible oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved and unproved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proved, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.
d) Financial Instruments
Accounting Standards Codification, “ASC” Topic 820-10, “Fair Value Measurement” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820-10, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measurement. The carrying amounts reported in the consolidated balance sheets for deposits, accrued expenses and other current liabilities, accounts payable, derivative liabilities, amount due to director, and convertible notes each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
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•
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Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
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•
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Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
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•
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Level 3: inputs to the valuation methodology are unobservable and significant to the fair value measurement.
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Assets and liabilities measured at fair value as of and for the year ended December 31, 2020 are classified below based on the three fair value hierarchy described above:
Description
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Quoted
Prices in
Active
Markets for
Identical Assets
(Level 1)
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|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant Unobservable
Inputs
(Level 3)
|
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Total Gains
(Losses)
|
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|
|
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Financial Assets
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|
|
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Commodity Derivative
|
|
|
-
|
|
|
|
1,220,209
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|
|
|
-
|
|
|
|
6,227,390
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|
|
|
$
|
-
|
|
|
$
|
1,220,209
|
|
|
$
|
-
|
|
|
$
|
6,227,390
|
|
|
|
|
|
|
|
|
|
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|
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|
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Financial liabilities
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
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|
Commodity Derivative
|
|
|
-
|
|
|
|
893,458
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|
|
|
-
|
|
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|
(741,818
|
)
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|
|
$
|
-
|
|
|
$
|
893,458
|
|
|
$
|
-
|
|
|
$
|
(741,818
|
)
|
Assets and liabilities measured at fair value as of and for the year ended December 31, 2019 are classified below based on the three fair value hierarchy described above:
Description
|
|
Quoted
Prices in
Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
|
Significant Unobservable
Inputs
(Level 3)
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|
|
Total Gains
(Losses)
|
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Financial Assets
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Commodity Derivative
|
|
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-
|
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-
|
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-
|
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-
|
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Financial liabilities
|
|
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|
|
|
|
|
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|
|
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|
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Commodity Derivative
|
|
|
|
|
|
|
5,158,822
|
|
|
|
-
|
|
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|
(3,308,880
|
)
|
|
|
$
|
-
|
|
|
$
|
5,158,822
|
|
|
$
|
-
|
|
|
$
|
(3,308,880
|
)
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The Company has entered into certain commodity derivative instruments containing swaps and collars, which management believes are effective in mitigating commodity price risk associated with a portion of its future monthly natural gas and crude oil production and related cash flows. The Company does not designate its commodities derivative instruments as hedges and therefore does not apply hedge accounting. Changes in fair value of derivative instruments subsequent to the initial measurement are recorded as change in fair value on derivative liability, in other income (expense). The estimated fair value amounts of the Company’s commodity derivative instruments have been determined at discrete points in time based on relevant market information which resulted in the Company classifying such derivatives as Level 2. Although the Company’s commodity derivative instruments are valued using public indices, as well as the Black-Sholes model, the instruments themselves are traded with unrelated counterparties and are not openly traded on an exchange.
In a commodities swap agreement, the Company trades the fluctuating market prices of oil or natural gas at specific delivery points over a specified period, for fixed prices. As a producer of oil and natural gas, the Company holds these commodity derivatives to protect the operating revenues and cash flows related to a portion of its future natural gas and crude oil sales from the risk of significant declines in commodity prices, which helps reduce exposure to price risk and improves the likelihood of funding its capital budget. If the price of a commodity rises above what the Company has agreed to receive in the swap agreement, the amount that it agreed to pay the counterparty is expected to be offset by the increased amount it received for its production.
The Company has also entered into collar agreements related to oil and gas production with established floors and ceilings. Upon settlement, if the current market price of the commodity is below the floor, the Company receives the difference. Conversely, if the current market price of the commodity is above the ceiling at settlement, the Company pays the excess over the ceiling price.
Although the Company is exposed to credit risk to the extent of nonperformance by the counterparties to these derivative contracts, the Company does not anticipate such nonperformance and monitors the credit worthiness of its counterparties on an ongoing basis.
The derivative assets were $1,220,209 and $0 as of December 31, 2020 and December 31, 2019 respectively, and the derivative liabilities were $893,458 and 5,158,822 as of December 31, 2020 and December 31, 2019 respectively. The change in the fair value of the derivative assets and liabilities for the year ended December 31, 2020 consisted of an increase of $6,379,031 associated with commodity derivatives existing at the beginning of 2020 and a decrease of $893,458 associated with the new commodity derivative related to Elysium’s acquisition on February 3, 2020.
The table below is a summary of the Company’s commodity derivatives as of December 31, 2020:
Natural Gas
|
|
Period
|
|
Average
MMBTU
per Month
|
|
|
Fixed
Price per
MMBTU
|
|
|
|
|
|
|
|
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Swap
|
|
Dec-18 to Dec-22
|
|
|
118,936
|
|
|
$
|
2.715
|
|
Collar
|
|
Mar 20 / Aug 22
|
|
|
196,078
|
|
|
$2.00 / $2.43
|
|
|
|
|
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|
|
|
|
|
|
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Crude Oil
|
|
Period
|
|
Average
BBL per
Month
|
|
|
Price
per BBL
|
|
|
|
|
|
|
|
|
|
|
|
|
Swap
|
|
Dec-18 to Dec- 22
|
|
|
24,600
|
|
|
$
|
50.85
|
|
Collar
|
|
Feb 20 to Dec 20
|
|
|
16,278
|
|
|
$45.00 / $54.20
|
|
Collar
|
|
Jan 21 to Dec 21
|
|
|
10,135
|
|
|
$45.00 / $56.00
|
|
Collar
|
|
Jan 22 to July 22
|
|
|
6,934
|
|
|
$45.00 / $52.70
|
|
e) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid investment securities that have original maturities of three months or less. At December 31, 2020 and December 31, 2019, the Company has cash deposits in excess of FDIC insured limits in the amounts of $3,726,783 and $4,163,360 respectively.
Restricted cash in the amount of $3,862,756 as of December 31, 2020 consists of $2,243,485 held by Ichor Energy, LLC and/or its subsidiaries and $1,619,271 held by Elysium Energy, LLC and/or its subsidiaries.
Pursuant to the Term Loan Credit Agreement to which Ichor Energy LLC and its subsidiaries are parties, following March 31, 2019 the company is required at all times to maintain a minimum cash balance of $2,000,000 (the “MLR”). Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, the company is required to pay the lenders, as an additional principal payment on the debt, any cash in excess of (i) the MLR and (ii) any funds necessary for the capital expenditures contemplated to be expended in the next six-month period by an approved plan of development (“APOD Capex Amount”). At December 31, 2020, the restricted cash did not exceed the MLR and the APOD Capex Amount.
Pursuant to the Term Loan Credit Agreement to which Elysium Energy, LLC and its subsidiaries are parties, all receipts are to be deposited to a lockbox account under the control of the administrative agent, and then subsequently transferred for operations to the company’s bank accounts, all of which are subject to deposit account control agreements. The aggregate amount of unencumbered cash held in any Operating Account is not to be less than (a) $1,000,000 for the period commencing on December 31, 2020 through and including April 29, 2020, (b) $1,750,000 for the period commencing on April 30, 2021 through and including June 29, 2021, and (c) $2,500,000 for the period commencing June 30, 2021 through and including the Maturity Date. Commencing with the quarter ended September 30, 2020, the company is required to make mandatory prepayments of principal equal to 75% of Excess Cash Flow as defined in the agreement.
f) Accounts receivable
Accounts receivable consist of oil and gas receivables. The Company evaluates these accounts receivable for collectability and, when necessary, records allowances for expected unrecoverable amounts. The Company has recorded an allowance for doubtful accounts of $217,057 at December 31, 2020 and December 31, 2019.
g) Oil and Gas Properties
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized. General and administrative costs related to production and general overhead are expensed as incurred.
All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. Unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in loss from operations before income taxes.
h) Limitation on Capitalized Costs
Under the full-cost method of accounting, we are required, at the end of each reporting date, to perform a test to determine the limit on the book value of our oil and natural gas properties (the “Ceiling” test). If the capitalized costs of our oil and natural gas properties, net of accumulated amortization and related deferred income taxes, exceed the Ceiling, this excess or impairment is charged to expense. The expense may not be reversed in future periods, even though higher oil and natural gas prices may subsequently increase the Ceiling. The Ceiling is defined as the sum of:
(a) the present value, discounted at 10 percent, and assuming continuation of existing economic conditions, of 1) estimated future gross revenues from proved reserves, which is computed using oil and natural gas prices determined as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month hedging arrangements pursuant to SAB 103, less 2) estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, plus
(b) the cost of properties not being amortized; plus
(c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, net of
(d) the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties.
i) Oil and Gas Reserves
Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
j) Income (loss) per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding and adjusted by any effects of warrants and options outstanding during the period. At December 31, 2020 and 2019 there were 17,646,154 and 9,394,993 common stock equivalents that were anti-dilutive, respectively.
k) Revenue Recognition
Sales of crude oil, natural gas, and natural gas liquids (NGLs) are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of oil, gas, or NGLs at a delivery point, as negotiated within each contract. Each barrel of oil, million BTU (MMBtu) of natural gas, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the time between delivery and when payments are due is not significant.
The following table disaggregates the Company’s revenue by source for the years ended December 31, 2020 and 2019:
|
|
Years Ended
|
|
|
|
December 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Oil
|
|
$
|
24,070,203
|
|
|
$
|
32,030,490
|
|
Natural gas and natural gas liquids
|
|
|
9,360,895
|
|
|
|
6,019,879
|
|
Settlements on Hedge Contracts
|
|
|
6,009,454
|
|
|
|
(3,757,339
|
)
|
Other income
|
|
|
826,228
|
|
|
|
299,820
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
40,266,780
|
|
|
$
|
34,592,850
|
|
l) Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences are expected to reverse.
The Company recognizes deferred tax assets and liabilities to the extent that we believe that these assets and/or liabilities are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
In assessing the realizability of its deferred tax assets, management evaluated whether it is more likely than not that some portion, or all of its deferred tax assets, will be realized. The realization of its deferred tax assets relates directly to the Company’s ability to generate taxable income. The valuation allowance is then adjusted accordingly.
m) Stock-Based Compensation
The Company may issue stock options to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing costs. The cost of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.
The fair value of stock options and warrants is determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instrument. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.
The following table represents stock warrant activity as of and for the year ended December 31, 2020:
|
|
Number
of Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual Life
|
|
|
Aggregate
Intrinsic
Value
|
|
Warrants Outstanding – December 31, 2019
|
|
|
4,958,882
|
|
|
|
2.34
|
|
|
5.6 years
|
|
|
|
-
|
|
Granted
|
|
|
4,452,527
|
|
|
|
0.48
|
|
|
7.9 years
|
|
|
|
-
|
|
Exercised
|
|
|
(78,166
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited/expired/cancelled
|
|
|
(2,222,222
|
)
|
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants Outstanding – December 31, 2020
|
|
|
7,111,021
|
|
|
$
|
0.99
|
|
|
5.7 years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding Exercisable – December 31, 2020
|
|
|
7,111,021
|
|
|
$
|
0.99
|
|
|
5.7 years
|
|
|
$
|
-
|
|
The Company issued 63,709 common shares from the exercise of 78,166 warrants during the year ended December 31, 2020.
n) Impairment of long-lived assets
The Company is required to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally determined by using the asset's expected future discounted cash flows or market value. The Company estimates fair value of the assets based on certain assumptions such as budgets, internal projections, and other available information as considered necessary. There is no impairment of long-lived assets during the years ended December 31, 2020 and 2019.
o) Accounting for Asset Retirement Obligations
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount the Company will incur to plug, abandon and remediate its producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties.
The following table describes the changes in the Company’s asset retirement obligations for the year ended December 31, 2020:
|
|
Year ended
December 31,
2020
|
|
|
Year ended
December 31,
2019
|
|
|
|
|
|
|
|
|
Asset retirement obligation – beginning
|
|
$
|
3,538,637
|
|
|
$
|
4,413,465
|
|
Oil and gas purchases
|
|
|
1,514,328
|
|
|
|
94,796
|
|
Adjustments through disposals and settlements
|
|
|
-
|
|
|
|
(1,361,106
|
)
|
Accretion expense
|
|
|
1,111,266
|
|
|
|
391,482
|
|
|
|
|
|
|
|
|
|
|
Asset retirement obligation – ending
|
|
$
|
6,164,231
|
|
|
$
|
3,538,637
|
|
p) Undistributed Revenues and Royalties
The Company records a liability for cash collected from oil and gas sales that have not been distributed. The amounts get distributed in accordance with the working interests of the respective owners.
q) Subsequent events
The Company has evaluated all subsequent events from December 31, 2020 through the date of filing of this report.
Note 4. Oil and Gas Properties
As discussed in Note 2, on February 3, 2020, the Company, through its subsidiary Elysium Energy, LLC (“Elysium”) completed an acquisition of working interests in certain oil and gas leases in Texas and Louisiana. The aggregate consideration transferred for the working interests of $29,496,356 substantially consisted of (i) the net proceeds from the Company’s borrowings on February 3, 2020 with various lenders represented by 405 Woodbine, LLC and Camber Energy, Inc., less (ii) the net effect of the resolution of February 3, 2020 on all amounts outstanding under the Company’s December 2018 promissory note with RPM Investments in exchange for a new note with EMC Capital Partners, LLC (including the pay-down of such new note as a result of the post-closing adjustments). See Note 7 to the consolidated financial statements for further information on all of these borrowings. The aggregate consideration has been allocated to the fair value of assets and liabilities as follows:
Fair Value of Assets and Liabilities
|
|
|
|
|
|
|
|
Oil and Gas Properties
|
|
$
|
31,808,823
|
|
Asset retirement obligations assumed
|
|
|
(1,514,328
|
)
|
Undistributed revenue obligation assumed
|
|
|
(798,139
|
)
|
|
|
|
|
|
|
|
$
|
29,496,356
|
|
The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the year ended December 31, 2020:
|
|
December 31,
2019
|
|
|
Adjustments
|
|
|
Impairments
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed producing oil and gas properties
|
|
|
|
|
|
|
|
|
|
|
|
|
United States cost center
|
|
$
|
76,532,985
|
|
|
$
|
27,319,089
|
|
|
$
|
(22,500,000
|
)
|
|
$
|
81,352,074
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(7,608,544
|
)
|
|
|
(9,039,777
|
)
|
|
|
-
|
|
|
|
(16,648,321
|
)
|
Proved developed producing oil and gas properties, net
|
|
$
|
68,924,441
|
|
|
$
|
18,279,312
|
|
|
$
|
(22,500,000
|
)
|
|
$
|
64,703,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped and non-producing oil and gas properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States cost center
|
|
$
|
56,168,428
|
|
|
$
|
6,040,841
|
|
|
$
|
(15,000,000
|
)
|
|
$
|
47,209,269
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(5,350,753
|
)
|
|
|
(4,405,833
|
)
|
|
|
-
|
|
|
|
(9,756,586
|
)
|
Undeveloped and non-producing oil and gas properties, net
|
|
$
|
50,817,675
|
|
|
$
|
1,635,008
|
|
|
$
|
(15,000,000
|
)
|
|
$
|
37,452,683
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oil and Gas Properties, Net
|
|
$
|
119,742,116
|
|
|
$
|
19,914,320
|
|
|
$
|
(37,500,000
|
)
|
|
$
|
102,156,436
|
|
Primarily as a result of the COVID-19 pandemic and falling oil prices during the year ended December 31, 2020, the Company recognized an impairment of oil and gas properties of $37,500,000 which is included in the accompanying Consolidated Statement of Operations.
The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the year ended December 31, 2019:
|
|
December 31,
2018
|
|
|
Adjustments
|
|
|
Impairments
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proved developed producing oil and gas properties
|
|
|
|
|
|
|
|
|
|
|
|
|
United States cost center
|
|
$
|
81,936,721
|
|
|
$
|
(5,403,736
|
)
|
|
$
|
-
|
|
|
$
|
76,532,985
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(604,735
|
)
|
|
|
(7,003,809
|
)
|
|
|
-
|
|
|
|
(7,608,544
|
)
|
Proved developed producing oil and gas properties, net
|
|
$
|
81,331,986
|
|
|
$
|
(12,407,545
|
)
|
|
$
|
-
|
|
|
$
|
68,924,441
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undeveloped and non-producing oil and gas properties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States cost center
|
|
$
|
51,973,719
|
|
|
$
|
4,194,709
|
|
|
$
|
-
|
|
|
$
|
56,168,428
|
|
Accumulated depreciation, depletion and amortization
|
|
|
(1,480,813
|
)
|
|
|
(3,869,940
|
)
|
|
|
-
|
|
|
|
(5,350,753
|
)
|
Undeveloped and non-producing oil and gas properties, net
|
|
$
|
50,492,906
|
|
|
$
|
324,769
|
|
|
$
|
-
|
|
|
$
|
50,817,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Oil and Gas Properties, Net
|
|
$
|
131,824,892
|
|
|
$
|
(12,082,776
|
)
|
|
$
|
-
|
|
|
$
|
119,742,116
|
|
Note 5. Related Party Transactions
The Company’s CEO and director, James Doris, has incurred expenses on behalf of, and made advances to, the Company in order to provide the Company with funds to carry on its operations. Additionally, Mr. Doris has made several loans through promissory notes to the Company, all accruing interest at 12%, and payable on demand. On December 21, 2020, the Company modified the exercise price of 1,666,667 previously issued common stock warrants from $0.30 to $0.001 per share. As of December 31, 2020, the total amount due to Mr. Doris for these loans is $559,122.
The Company’s CFO, Frank W. Barker, Jr., renders professional services to the Company through FWB Consulting, Inc., an affiliate of Mr. Barker’s for $20,000 per month. As of December 31, 2020, the total amount due to FWB Consulting, Inc. is $221,968 and is included in accounts payable. On December 21, 2020, the Company modified the exercise price of 555,556 previously issued common stock warrants from $0.25 to $0.001 per share. On December 31, 2020, the Company granted 1,333,333 common stock warrants to Mr. Barker with an exercise price of $0.001 per share. Additionally, the Company rented on a short-term basis, residential property from Mr. Barker during 2020 for $30,000 to facilitate corporate operations.
On December 31, 2020, the Company granted 44,444 common stock warrants with an exercise price of $0.001 per share to Lawrence Fisher, a member of the Board of Directors.
On December 31, 2020, the Company granted 66,667 common stock warrants with an exercise price of $0.001 per share to David Herskovits, a member of the Board of Directors.
During the year ended December 31, 2020, Troy Caruso and various entities affiliated with Mr. Caruso owned in aggregate more than 10% of the Company’s outstanding common stock. As of December 31, 2020, the ownership percentage has decreased below 10%. Mr. Caruso and his affiliates have provided funding under certain of the Company’s private placements, and consulting services. During the three months ended June 30, 2020, the Company repaid all short-term borrowings due to Mr. Caruso and certain of his affiliated entities which were advanced between September 30, 2019 and February 7, 2020, which included the issuance of 1,994,952 common shares at a fair value of $2,748,504. During the three months ended September 30, 2020, one of these affiliated entities was issued 286,099 common shares for services at a fair value of $321,657. Also, during the three months ended September 30. 2020, certain of these affiliated entities made two loans to the Company in the form of convertible promissory notes totaling $2,089,000. The Company issued 123,167 common shares upon execution of one of the notes and 1,897,948 common shares upon exercising the conversion privileges of both. As of December 31, 2020, Mr. Caruso and affiliated entities hold $650,000 of the Company’s convertible debt offering which commenced on February 18, 2020 and is included in long term debt.
Also see Note 1, with respect to transactions with Camber Energy, Inc.
Note 6. Equity
(a) Preferred Stock
The Company is authorized to issue 5,000,000 shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”), of which 50,000 have been designated as Series C Preferred Stock (the “Series C Preferred Stock”). Pursuant to the amended Certification of Designation of the Series C Preferred Stock filed on December 22, 2020, each share of Series C Preferred Stock entitles the holder thereof to 37,500 votes on all matters submitted to the vote of the stockholders of the Company. Notwithstanding, so long as Camber Energy, Inc. owns or is entitled to own at least 51% of the outstanding shares of Common Stock of the Company and James Doris remains a director and Chief Executive Officer of Camber, each share of Preferred Stock shall not be entitled to any votes on matters submitted to a vote of the stockholders of the Company. Each share of Series C Preferred Stock is convertible, at the option of the holder, at any time after the date of issuance of such share, at the office of the Company or any transfer agent for such stock, into 37,500 shares of fully paid and non-assessable common stock. However, upon any business combination or merger between Camber and Viking such that Camber acquires substantially all of the outstanding Common Stock or substantially all of Viking’s assets, the Company shall ensure that the Preferred Stock is convertible into the greater of: (i) 25,000,000 common shares of Camber (or a number of preferred shares of Camber convertible into such number of common shares of Camber); or (ii) that number of common shares of Camber that 25,000,000 shares of Common Stock would be convertible or exchange into in the Combination (or a number of preferred shares of Camber convertible into such number of common shares of Camber).
(b) Common Stock
On January 5, 2021 the Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada to effect a reverse split of our common stock at a ratio of 1-for-9 (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each nine (9) pre-split shares of common stock outstanding were automatically combined into one (1) new share of common stock. Unless otherwise stated, all share and per shares numbers in this Annual Report on Form 10-K have been adjusted to reflect the Reverse Stock Split.
During the year ended December 31, 2020, the Company issued shares of its common stock as follows:
|
·
|
2,462,818 shares of common stock issued for services valued at fair value on the date of the transactions, totaling $3,158,771.
|
|
·
|
63,709 shares of common stock pursuant to the exercise of 78,111 warrants.
|
|
·
|
2,320,101 shares of common stock issued as discount on debt valued at fair value on the date of the transaction totaling $2,444,244.
|
|
·
|
26,285,517 shares of common stock issued pursuant to subscription agreements for $20,107,925
|
|
·
|
84,446 shares of common stock issued for interest at fair value on the date of the transaction totaling $115,959.
|
|
·
|
3,572,870 shares of common stock issued pursuant to debt conversions at stipulated contract rates totaling $4,350,146.
|
|
·
|
2,905,698 shares of common stock issued as reduction of debt and accrued expenses, valued at fair value on the date of the transaction totaling $4,110,250, and resulting in a loss on financing settlements of $931,894.
|
During the year ended December 31, 2019, the Company issued shares of its common stock as follows:
|
·
|
686,793 shares of common stock issued for services valued at fair value on the date of the transaction totaling $783,782.
|
|
·
|
405,561 shares of common stock issued to satisfy accrued interest valued at fair market value at the date of the transaction totaling $620,508.
|
|
·
|
2,111,817 shares of common stock issued pursuant a warrant exercise for the reduction of debt in the amount of $1,900,635.
|
|
·
|
267,778 shares of common stock issued pursuant to the exercise of warrants in the amount of $241,000.
|
|
·
|
217,973 shares of common stock issued pursuant to cashless exercise of warrants.
|
(c) Noncontrolling Interest
As described in Note 7 to the consolidated financial statements, on February 3, 2020 and June 26, 2020, Viking borrowed $5.0 million and $4.2 million respectively from Camber Energy, Inc. As additional consideration for each loan, Viking assigned Camber 25% and 5% (respectively) of the membership interests in Elysium Energy Holdings, LLC. At the time of assignments, the fair value of each such interest was zero.
The following schedule discloses the effects of changes in the Company’s ownership interest in its subsidiaries on the Company’s equity for the year ended December 31, 2020:
Noncontrolling interest - December 31, 2019
|
|
$
|
-
|
|
|
|
|
|
|
Transfers to the noncontrolling interest
|
|
|
|
|
Recognition of noncontrolling interest at fair value
|
|
|
-
|
|
|
|
|
|
|
Net loss attributable to noncontrolling interest
|
|
|
1,996,511
|
|
|
|
|
|
|
Change from net income attibutable to Viking Energy Group, Inc and transfers to from noncontrolling interest
|
|
$
|
1,996,511
|
|
As discussed in Note 1, as of December 31, 2020, the noncontrolling interest was assigned back to the Company.
Note 7. Long-Term Debt and Other Short-Term Borrowings
Long term debt and other short-term borrowings consisted of the following at December 31, 2020 and 2019:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During June through December of 2018, the Company borrowed $9,459,750 from private lenders, and exchanged $5,514,000 of amounts due lenders from prior borrowings as well as $191,250 in accrued interest, pursuant to a 10% Secured Promissory Note with 50% of the principal convertible into the Company’s common stock at $0.20 per share, all principal and accrued interest payable on the maturity date of December 31, 2020 (“the 2018 Convertible Notes”). The notes are secured by the Company’s membership interests in its subsidiaries, Petrodome Energy, LLC, Mid-Con Petroleum, LLC, Mid-Con Drilling, LLC, and Mid-Con Development, LLC. The balance shown is net of unamortized discount of $0 at December 31, 2020 and $2,086,008 at December 31, 2019. A majority of these lenders are also Viking shareholders.
|
|
|
-
|
|
|
|
11,163,357
|
|
|
|
|
|
|
|
|
|
|
On June 13, 2018, the Company borrowed $12,400,000 pursuant to a revolving line of credit facility with a maximum principal amount of $30,000,000 from Crossfirst Bank, bearing interest 1.5% above a base rate equal to the prime rate of interest published by the Wall Street Journal. Principal is payable at $100,000 monthly through the maturity date of January 5, 2022, at which time all remaining unpaid principal and accrued interest is due. The loan is secured by a mortgage on all of the oil and gas leases of Petrodome Energy, LLC and its subsidiaries, a security agreement covering all of Petrodome Energy, LLC’s assets and a guaranty by Viking Energy Group, Inc. The balance shown is net of unamortized discount of $0 at December 31, 2020 and $34,411 at December 31, 2019
|
|
|
6,490,000
|
|
|
|
7,655,589
|
|
|
|
|
|
|
|
|
|
|
On December 28, 2018, to facilitate the acquisition of certain oil and gas assets, the Company, through its subsidiary, Ichor Energy LLC, entered into a Term Loan Credit Agreement with various lenders represented by ABC Funding, LLC as administrative agent. The agreement provided for a total loan amount of $63,592,000, bearing interest at a rate per annum equal to the greater of (i) a floating rate of interest equal to 10% plus LIBOR, and (ii) a fixed rate of interest equal to 12%, payable monthly on the last day of each calendar month, commencing January 31, 2019. Principal payments are made quarterly at 1.25% of the initial loan amount, commencing on the last business day of the fiscal quarter ending June 30, 2019. On June 3, 2020, the Term Loan Credit Agreement was amended to reduce the permitted Asset Coverage Ratio for the fiscal quarters ending March 31, 2020, June 30, 2020 and September 30, 2020 from 1.35:1.00 to 1.15:1.00. Additionally, the First Amendment revises the interest rate under the Term Loan for the period from May 16, 2020 a per annum interest rate (i) if, as of the last day of the immediately preceding fiscal quarter, the Asset Coverage Ratio is less than 1.50:1.00, then the interest rate is the greater of (x) a floating rate of interest equal to 11.00% plus LIBOR, and (y) a fixed rate of interest equal to 13.00%, or (ii) if, as of the last day of the immediately preceding fiscal quarter, the Asset Coverage Ratio is greater than or equal to 1.50:1.00, then the interest rate is the greater of (x) a floating rate of interest equal to 10.50% plus LIBOR and (y) a fixed rate of interest equal to 12.50%. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the Term Loan, approximately $12,000,000 of oil and gas development projects approved by the lender, and distributions to the Company of $65,000 per month for general and administrative expenses, and a quarterly tax distribution at the current statutory rates. Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, Ichor Energy, LLC is required to pay, as an additional principal payment on the debt, any cash in excess of the MLR and the APOD Capex Amount. To the extent not previously paid, all loans under the Loan Agreement shall be due and payable on the December 28, 2023 (the Maturity Date). The loan agreement contains prepayment penalties through December 28, 2021 and “make-whole” obligations through December 28, 2020. In addition, at maturity (or sooner under certain circumstances which include prepayment of the loan or sale of Ichor Energy, LLC) the lenders will receive a payment approximating 7% of the fair value of Ichor Energy, LLC at that time; such amount is not estimable. Obligations under the loan agreement are secured by mortgages on the oil and gas leases of Ichor Energy, LLC and all of its subsidiaries, a security agreement covering all assets of Ichor Energy, LLC, and a pledge by Ichor Holdings of all if the membership interests in Ichor Energy LLC. The balance shown is net of unamortized discount of $2,626,915 at December 31, 2020 and $3,507,364 at December 31, 2019.
|
|
|
51,400,794
|
|
|
|
53,699,940
|
|
On December 28, 2018, the Company issued a 10% secured promissory note in the amount of $23,777,948, payable to RPM Investments, secured by 100% of the membership interests of Ichor Energy Holdings, LLC. All accrued interest and unpaid principal were due on the earlier of (i) the date the Company or one of its affiliates completes an acquisition with one or more of the sellers for a purchase price equal to or greater than $50,000,000 or (ii) January 31, 2020. This note was secured by a pledge of all of the membership interests of Viking’s wholly-owned subsidiary, Ichor Energy Holdings, LLC. On February 3, 2020 in connection with an acquisition of oil and gas interests this note (including all unpaid accrued interest of $2,625,346) was settled and replaced with a new note.
|
|
|
-
|
|
|
|
23,777,948
|
|
|
|
|
|
|
|
|
|
|
On February14, 2019, the Company executed a promissory note payable to CrossFirst Bank in the amount of $56,760 for the purchase of transportation equipment, bearing interest at 7.15%, payable in 60 installments of $1,130, secured by a vehicle, with a maturity date of February 14, 2024.
|
|
|
38,397
|
|
|
|
48,658
|
|
|
|
|
|
|
|
|
|
|
On July 24, 2019, the Company through its wholly owned subsidiary, Mid-Con Petroleum, LLC, executed a promissory note payable to Cornerstone Bank in the amount of $2,241,758, bearing interest at 6%, payable interest only for the first year, then payable in 59 installments of $43,438, with a final payment due on a maturity date of July 24, 2025. The note is secured by a first mortgage on all of the assets of Mid-Con Petroleum, LLC and a guarantee of payment by Viking Energy Group, Inc. The balance shown is net of unamortized discount of $21,758 at December 31, 2020 and $26,538 at December 31, 2019.
|
|
|
2,220,001
|
|
|
|
2,215,221
|
|
|
|
|
|
|
|
|
|
|
On July 24, 2019, the Company through its wholly owned subsidiary, Mid-Con Drilling, LLC, executed a promissory note payable to Cornerstone Bank in the amount of $1,109,341, bearing interest at 6%, payable interest only for the first year, then payable in 59 installments of $21,495, with a final payment due on a maturity date of July 24, 2025. The note is secured by a first mortgage on all of the assets of Mid-Con Drilling, LLC and a guarantee of payment by Viking Energy Group, Inc. The balance shown is net of unamortized discount of $21,697 at December 31, 2020 and $26,464 at December 31, 2019.
|
|
|
1,036,982
|
|
|
|
1,032,215
|
|
|
|
|
|
|
|
|
|
|
On February 3, 2020, in connection with an acquisition of oil and gas interests, the Company executed a secured promissory note in the amount of $20,869,218, payable to EMC Capital Partners, LLC, subject to revision to the extent of any post-closing adjustment payments in connection with the acquisition. Such payments were to be applied to reduce the balance owing under the promissory note. During April 2020 the Company received post-closing adjustment payments in the amount of $5,277,589 which were applied to the note balance. This note replaced the secured promissory dated December 18, 2018 in favor of RPM Investments. This note bears interest at 10% and is payable along with the full amount of principal on June 11, 2021 and is secured by a pledge of all of the membership interests of Viking’s wholly-owned subsidiary, Ichor Energy Holdings, LLC. On January 8, 2021, as discussed in Note 1, this debt was extinguished by the issuance of equity and is therefore classified as noncurrent on the consolidated balance sheet at December 31, 2020.
|
|
|
15,591,629
|
|
|
|
-
|
|
On February 3, 2020, to facilitate the acquisition of certain oil and gas assets, the Company, through one of its subsidiaries, Elysium Energy, LLC, entered into a Term Loan Credit Agreement with various lenders represented by 405 Woodbine, LLC as administrative agent. The agreement provides for a total loan amount of $35,000,000 at a 4.0% original issue discount. bearing interest at the prime rate plus seven and three quarters percent (7.75%) payable monthly. Principal payments are due beginning on May 1, 2020, and on each month thereafter at one percent (1%) of the then-outstanding balance, and to the extent not paid on the maturity date of August 3, 2022. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the Term Loan, oil and gas development projects approved by the lender, and a cost allocation of $150,000 per month for general and administrative expenses of the Company. The Borrower shall have the right at any time to prepay all or a portion of the Loan Balance. The loan agreement contains a prepayment penalty of 5% of any voluntary prepayment of principal through February 3, 2021 and 3% of any voluntary prepayment of principal on or between February 3, 2021 and February 3, 2022. Commencing with the quarter ended September 30, 2020 the Borrower is required to make mandatory prepayments of principal equal to 75% of Excess Cash Flow as defined in the agreement without any prepayment penalty fees. The loans are secured by mortgages on the oil and gas leases of Elysium Energy, LLC and its subsidiaries, a security agreement covering all assets of Elysium and its subsidiaries, and a pledge of all of Elysium’s membership interests. The balance shown is net of unamortized discount of $3,148,106 at December 31, 2020.
|
|
|
30,493,630
|
|
|
-
|
|
|
|
|
|
|
|
|
|
On or about February 18, 2020, the Company commenced an offering of securities consisting of a subordinated, secured, convertible debt instrument with equity features. The notes bear interest at 12%, payable quarterly, contain a conversion entitlement to convert all or a portion of the amount outstanding into common shares of the Company at $1.35 per share, and provide for the issuance of 16,667 common shares of the Company for every $100,000 exchanged or advanced. As security, the holders received, pari passu with all other holders, a pledge of the Company’s membership interest in Elysium Energy Holdings, LLC, and, as soon as the Company’s obligations to EMC Capital Partners, LLC are satisfied, a pledge of the Company’s membership interest in Ichor Energy Holdings, LLC. Any unpaid principal and interest is due on the maturity date of February 11, 2022. The balance shown is net of unamortized discount of $1,504,868 as of December 31, 2020.
|
|
|
4,182,136
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
On April 18, 2020, the Company entered into an unsecured promissory note with Crossfirst Bank in the principal amount of $149,600 related to the CARES Act Payroll Protection Program. This note is fully guaranteed by the Small Business Administration and may be forgivable provided that certain criteria are met. The interest rate on the loan is 1%, and the note has a two-year maturity. The Company is required to make payments on the remaining principal of the note net of any loan forgiveness beginning February 18, 2021.
|
|
|
149,600
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On July 1, 2020 the Company received a loan of $150,000 from the U.S. Small Business Administration. The loan bears interest at 3.75%, and is payable in monthly installments of at $731 monthly beginning 12 months from the date of the note, with the remaining principal and accrued interest due 30 years from the date of the note.
|
|
|
150,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
111,753,164
|
|
|
|
99,592,928
|
|
Other short-term borrowings – with related parties:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On September 30, 2019, the Company received $910,000 under an agreement that requires the Company to make 28 weekly payments aggregating $1,237,600 through April 13, 2020. On December 23, 2019, the Company received an additional $242,750 under a replacement agreement that requires the Company to make 25 weekly payments aggregating $1,620,000 through June 15, 2020. The balance shown is net of the maximum discount of $413,445 at December 31, 2019.
|
|
|
-
|
|
|
|
1,141,755
|
|
|
|
|
|
|
|
|
|
|
On October 3, 2019, the Company received $480,200 under an agreement that requires the Company to make 28 weekly payments aggregating $666,400 through April 20, 2020. The balance shown is net of the maximum discount of $132,289 at December 31, 2019.
|
|
|
-
|
|
|
|
423,111
|
|
|
|
|
|
|
|
|
|
|
On December 23, 2019, the Company received $2,939,970 under an agreement that requires the Company to make 25 weekly payments aggregating $4,050,000 through June 15, 2020. The balance shown is net of the maximum discount of $1,110,030 at December 31, 2019.
|
|
|
-
|
|
|
|
2,855,368
|
|
|
|
|
|
|
|
|
|
|
Other short-term borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
On November 26, 2019, the Company received $200,000 from an individual. The advance was non-interest bearing and payable on demand.
|
|
|
-
|
|
|
|
200,000
|
|
|
|
|
|
|
|
|
|
|
Total long-term debt and other short-term borrowings
|
|
|
111,753,164
|
|
|
|
104,213,162
|
|
Less current portion
|
|
|
(32,977,368
|
)
|
|
|
(19,225,045
|
)
|
|
|
$
|
78,775,796
|
|
|
$
|
84,988,117
|
|
Principal maturities of long-term debt for the next five years and thereafter are as follows:
Twelve-month period ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
Principal
|
|
|
Unamortized Discount
|
|
|
Net
|
|
2021
|
|
$
|
38,307,719
|
|
|
$
|
5,330,351
|
|
|
$
|
32,977,368
|
|
2022
|
|
|
30,270,710
|
|
|
|
1,098,738
|
|
|
|
29,171,972
|
|
2023
|
|
|
48,894,410
|
|
|
|
879,388
|
|
|
|
48,015,022
|
|
2024
|
|
|
716,890
|
|
|
|
9,529
|
|
|
|
707,361
|
|
2025
|
|
|
708,643
|
|
|
|
5,339
|
|
|
|
703,304
|
|
Thereafter
|
|
|
178,137
|
|
|
|
-
|
|
|
|
178,137
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
119,076,509
|
|
|
$
|
7,323,345
|
|
|
$
|
111,753,164
|
|
Loan Covenants
Pursuant to the terms of the Revolving Line of Credit Facility executed on June 13, 2018 with CrossFirst Bank for a maximum principal amount of $30,000,000, the Company is required to provide on a quarterly basis, certain information to the Bank relative to operational performance of the Borrowers, to include internally prepared consolidated financial statements, hedge reports, and a compliance certificate. At December 31, 2020, the Company is in compliance with these loan covenants.
Pursuant to the terms of the Term Loan Credit Agreement executed on December 28, 2018 with various lenders in the initial amount of $63,592,000 (and as amended in June 2020), the Company is required to provide, periodically to the lenders, certain information (including restrictive financial ratios) regarding the financial and operational performance of the related assets, accompanied by a compliance certificate. At December 31, 2020, the Company is in compliance with these loan covenants.
Pursuant to the terms of the Term Loan Credit Agreement executed on February 3, 2020 with various lenders in the initial amount of $36,458,333, the Company is required to periodically provide the lenders certain information (including restrictive financial ratios) regarding the financial and operational performance of the related assets, accompanied by a compliance certificate. The Company was in compliance with all loan covenants except certain mid-year financial ratios at June 30, 2020; in August 2020, the Company (i) obtained a waiver from the lenders of such noncompliance as of June 30, 2020 and (ii) modified and added certain covenants to the Term Loan Credit Agreement. The Company is in compliance with all applicable covenants in the agreement at December 31, 2020. Given current difficult and volatile economic conditions, the Company has continued to classify this debt as a current liability in the accompanying Consolidated Balance Sheet at December 31, 2020 as the Company is uncertain as to its ability to comply with all of the covenants in the future.
Note 8. Commitments and contingencies
Office lease
In April 2018, the Company’s subsidiary, Petrodome Energy, LLC entered into a 66-month lease for 4,147 square feet of office space for the Company’s corporate office in Houston, Texas. The annual base rent commenced at $22.00 per square foot, and escalates at $0.50 per foot each year through expiration of the lease term. Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease expense was $116,573 and $96,304 for the years ended December 31, 2020 and 2019.
Legal matters
From time to time the Company may be a party to litigation involving commercial claims against the Company. Management believes that the ultimate resolution of these matters will not have a material effect on the Company’s financial position or results of operations.
In April of 2019, the staff (the “Staff”) of the SEC’s Division of Enforcement notified the Company that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against the Company, as well as against its CEO and its CFO, for alleged violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder during the period from early 2014 through late 2016. The Staff’s notice is not a formal allegation or a finding of wrongdoing by the Company, and the Company has communicated with the Staff regarding its preliminary determination. The Company believes it has adequate defenses and intends to vigorously defend any enforcement action that may be initiated by the SEC.
Note 9. Income Taxes
The Company has estimated net operating loss carry forwards of approximately $44,200,000 and $27,800,000 as of December 31, 2020 and 2019, respectively. The potential benefit of these net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not that it will utilize the net operating losses carried forward in future years. T In December 2017, tax legislation was enacted limiting the deduction for net operating losses from taxable years beginning after December 31, 2017 to 80% of current year taxable income, eliminating net operating loss carrybacks for losses arising in taxable years ending after December 31, 2017, and allowing net operating losses to be carried forward indefinitely. On March 27, 2020 the Coronavirus Aid Relief, and Economic Security Act was enacted which modified the prior legislation to allow 100% of the net operating losses arising in tax years 2018, 2019, and 2020 to be carried back five years. The Company does not have taxable income available in the carryback period. Net operating losses originating in taxable years beginning prior to January 1, 2018 are still subject to former carryover rules. The net operating loss carryforwards generated prior to this date of approximately $11,000,000 will expire between 2021 through 2038.
The current and deferred income tax expense (benefit) consists of the following for the years ending December 31, 2020 and 2019:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Current
|
|
|
|
|
|
|
Federal
|
|
$
|
(3,430,038
|
)
|
|
$
|
(3,174,242
|
)
|
State
|
|
|
|
|
|
|
-
|
|
Total current tax expense (benefit)
|
|
|
(3,430,038
|
)
|
|
|
(3,174,242
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax timing differences
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(10,004,343
|
)
|
|
|
(894,687
|
)
|
State
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in valuation allowance
|
|
|
13,434,381
|
|
|
|
4,068,929
|
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit)
|
|
$
|
-
|
|
|
$
|
-
|
)
|
The components of deferred tax assets and liabilities as of December 31, 2020, and 2019 is as follows:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
NOL carry forwards
|
|
$
|
9,273,296
|
|
|
$
|
5,843,257
|
|
Bad debt reserves
|
|
|
77,896
|
|
|
|
77,896
|
|
Impairment of oil and gas assets
|
|
|
8,278,289
|
|
|
|
403,289
|
|
Unrealized loss
|
|
|
695
|
|
|
|
695
|
|
Derivative losses
|
|
|
149,982
|
|
|
|
1,301,952
|
|
Book tax depletion difference
|
|
|
4,333,842
|
|
|
|
2,233,842
|
|
Share based compensation
|
|
|
3,637,737
|
|
|
|
2,456,423
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
25,751,736
|
|
|
|
12,317,354
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Derivative gains
|
|
|
(121,947
|
)
|
|
|
(121,947
|
)
|
Bargain purchase gain
|
|
|
(5,674,498
|
)
|
|
|
(5,674,498
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(5,796,445
|
)
|
|
|
(5,796,445
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets - before valuation allowance
|
|
|
19,955,291
|
|
|
|
6,520,909
|
|
Less valuation allowance
|
|
|
(19,955,291
|
)
|
|
|
(6,520,909
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax asset (liability) - net
|
|
$
|
-
|
|
|
$
|
-
|
|
A reconciliation of the federal and state statutory income tax rates to the Company’s effective income tax rate applicable to income before income tax benefit from continuing operations is as follows for the years ended December 31, 2020 and 2019:
|
|
December 31,
2020
|
|
|
December 31,
2019
|
|
|
|
|
|
|
|
|
Continuing operations
|
|
|
|
|
|
|
Expected provision at US statutory rate
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
State income tax net of federal benefit
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Other items effecting timing differences
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Valuation allowance
|
|
|
21.00
|
%
|
|
|
21.00
|
%
|
|
|
|
|
|
|
|
|
|
Effective income tax rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
The Company files income tax returns on a consolidated basis in the United States federal jurisdiction. As of December 31, 2020, the tax returns for the Company for the years ending 2017 through 2019 remain open to examination by the Internal Revenue Service. The Company and its subsidiaries are not currently under examination for any period.
As a result of the company becoming a majority-owned subsidiary of Camber as discussed in Note 1, the Company has undergone an ownership change as defined in Section 382 of the Internal Revenue Code, and the Company’s tax net operating loss carry forwards generated prior to the ownership change will be subject to an annual limitation, which could reduce or defer the utilization of these losses.
Note 10. Subsequent Events
Certain subsequent events are described in Note 1 to the consolidated financial statements.
Also subsequent to December 31, 2020, the Company issued 360,918 shares of common stock in exchange for services.
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES – (unaudited)
The following supplemental unaudited information regarding Viking’s oil and gas activities is presented pursuant to the disclosure requirements of ASC 932. Viking’s oil and gas activities are located in the United States.
Results of Operations
|
|
United States
|
|
|
|
2020
|
|
|
2019
|
|
Sales
|
|
$
|
40,266,780
|
|
|
$
|
35,465,093
|
|
Lease operating costs
|
|
|
(19,075,749
|
)
|
|
|
(13,076,020
|
)
|
Depletion, accretion and impairment
|
|
|
(52,125,001
|
)
|
|
|
(11,327,928
|
)
|
Net
|
|
$
|
(30,933,970
|
)
|
|
$
|
11,061,145
|
|
Oil and Gas Production and Sales by geographic area for the years ended December 31, 2020 and 2019:
Reserve Quantity Information
The supplemental unaudited presentation of proved reserve quantities and related standardized measure of discounted future net cash flows provides estimates only and does not purport to reflect realizable values or fair market values of the Company’s reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, significant changes to these estimates can be expected as future information becomes available.
Proved reserves are those estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods.
Estimated Quantities of Proved Reserves
|
|
United States
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Proved Developed, Producing
|
|
|
12,483,138
|
|
|
|
7,672,566
|
|
Proved Developed, Non Producing
|
|
|
3,471,570
|
|
|
|
1,980,157
|
|
Total Proved Developed
|
|
|
15,954,708
|
|
|
|
9,652,723
|
|
Proved Undeveloped
|
|
|
3,340,107
|
|
|
|
4,172,167
|
|
|
|
|
|
|
|
|
|
|
Total Proved
|
|
|
19,294,815
|
|
|
|
13,824,890
|
|
Petroleum and Natural Gas Reserves
Reserves are estimated remaining quantities of oil and natural gas and related substances, 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.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves
The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves were prepared in accordance with provisions of ASC 932 - Extractive Activities - Oil and Gas. Future cash inflows at December 31, 2020 and 2019 were computed by applying the unweighted, arithmetic average of the closing price on the first day of each month for the 12-month period prior to December 31, 2020 and 2019 to estimated future production. Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing the proved oil and natural gas reserves at year-end, based on year-end costs and assuming continuation of existing economic conditions.
Future income tax expenses are calculated by applying appropriate year-end tax rates to future pretax net cash flows relating to proved oil and natural gas reserves, less the tax basis of properties involved. Future income tax expenses give effect to permanent differences, tax credits and loss carry forwards relating to the proved oil and natural gas reserves. Future net cash flows are discounted at a rate of 10% annually to derive the standardized measure of discounted future net cash flows. This calculation procedure does not necessarily result in an estimate of the fair market value of the Company’s oil and natural gas properties.
The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the year ended December 31, 2020 and 2019 are as follows:
|
|
United States
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Future cash inflows
|
|
$
|
457,438,654
|
|
|
$
|
541,243,657
|
|
Future production costs
|
|
|
(202,285,561
|
)
|
|
|
(156,167,716
|
)
|
Future development costs
|
|
|
(32,860,370
|
)
|
|
|
(42,539,780
|
)
|
Future income tax expense
|
|
|
(8,424,790
|
)
|
|
|
(38,772,674
|
)
|
|
|
|
|
|
|
|
|
|
Future net cash flows
|
|
|
213,867,933
|
|
|
|
303,763,487
|
|
10% annual discount for estimated timing of cash flows
|
|
|
(96,141,109
|
)
|
|
|
(135,523,587
|
)
|
|
|
|
|
|
|
|
|
|
Standardized measure of DFNCF
|
|
$
|
117,726,824
|
|
|
$
|
168,239,900
|
|
Changes in Standardized Measure of Discounted Future Net Cash Flows
The changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the years ended December 31, 2020 and 2019 are as follows:
|
|
United States
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Balance - beginning
|
|
$
|
168,239,900
|
|
|
$
|
244,557,095
|
|
Net changes in prices and production costs
|
|
|
(73,153,013
|
)
|
|
|
(49,623,771
|
)
|
Net changes in future development costs
|
|
|
(1,958,490
|
)
|
|
|
502,197
|
|
Sales of oil and gas produced, net
|
|
|
(21,191,031
|
)
|
|
|
(22,389,073
|
)
|
Extensions, discoveries and improved recovery
|
|
|
-
|
|
|
|
-
|
|
Purchases of reserves
|
|
|
40,667,910
|
|
|
|
25,556,000
|
|
Sales of reserves
|
|
|
-
|
|
|
|
(12,106,298
|
)
|
Revisions of previous quantity estimates
|
|
|
(37,825,326
|
)
|
|
|
(67,757,693
|
)
|
Previously estimated development costs incurred
|
|
|
1,935,328
|
|
|
|
3,636,007
|
|
Net change in income taxes
|
|
|
17,851,559
|
|
|
|
24,288,680
|
|
Accretion of disccount
|
|
|
11,987,326
|
|
|
|
28,884,619
|
|
Other
|
|
|
11,172,661
|
|
|
|
(7,307,863
|
)
|
|
|
|
|
|
|
|
|
|
Balance - ending
|
|
$
|
117,726,824
|
|
|
$
|
168,239,900
|
|
In accordance with SEC requirements, the pricing used in the Company’s standardized measure of future net revenues is based on the 12-month un-weighted arithmetic average of the first-day-of-the-month price for the period January through December for each period presented and adjusted by lease for transportation fees and regional price differentials. The use of SEC pricing rules may not be indicative of actual prices realized by the Company in the future.