Condensed Notes to Consolidated Financial Statements
April 30, 2019
(unaudited)
NOTE 1 – ORGANIZATION AND BUSINESS OPERATIONS
Northern
Minerals & Exploration Ltd. (the “Company”) is an
emerging natural resource company operating in oil and gas
production in central Texas and exploration for gold and silver in
northern Nevada.
The
Company was incorporated in Nevada on December 11, 2006 under the
name Punchline Entertainment, Inc. On August 22, 2012, the
Company’s board of directors approved an agreement and plan
of merger to effect a name change of the Company from Punchline
Entertainment, Inc. to Punchline Resources Ltd. On July 12, 2013,
the stockholders approved an amendment to change the name of the
Company from Punchline Resources Ltd. to Northern Mineral &
Exploration Ltd. FINRA approved the name change on August 13,
2013.
On
November 22, 2017, the Company created a wholly owned subsidiary,
Kathis Energy LLC (“Kathis”) for the purpose of
conducting oil and gas drilling programs in Texas.
On
December 14, 2017, Kathis Energy, LLC and other Limited Partners,
created Kathis Energy Fund 1, LP, a limited partnership created for
raising investor funds.
On May
7, 2018, the Company created ENMEX LLC, a wholly owned subsidiary
in Mexico, for the purposes of managing and operating its
investments in Mexico including but not limited to the Joint
Venture opportunity being negotiated with Pemer Bacalar on
approximately 61 acres on the Bacalar Lagoon on the Yucatan
Peninsula. There was no activity from inception to
date.
The
Company is working on the following projects:
ENMEX Operations LLC – Wholly owned Subsidiary - Pemer
Bacalar – Resort Development Project
During
the quarter ended October 31, 2017, the Company entered into a
Letter of Intent with Pemer Bacalar SAPI DE CV (“Pemer
Bacalar”) on September 22, 2017 to examine the opportunity of
acquiring ownership in approximately 61 acres
(“Property”) on a freshwater lagoon near the community
of Bacalar, Mexico in the state of Quintana Roo for the purpose of
entering into a joint venture for the potential development of the
Property into a resort. On November 16, 2017, subsequent to the end
of the quarter, the Company entered into a Memorandum of
Understanding (“MOU”) in order to further conduct
due diligence toward this potential project. An amended MOU was
entered into on April 13, 2018 setting forth the conditions for
entering into a definitive agreement with Pemer Bacalar. The
amended MOU of April 13, 2018 expired on June 15, 2018; however.
The Company entered into a preliminary joint venture agreement (the
“Agreement”) on June 11, 2019 with a private Mexican
entity to work together on the raising of capital funds necessary
to build a 68 room Waterfront Hotel & Resort & 92
residential Jungle villas, Cenote Villas, 4 bars & restaurants,
clubhouse, tennis, aquatic center, wellness center & etc on a
beautiful property (the “Property”) situated on the
Caribbean coast of the Yucatan Peninsula, in the State of Quintana
Roo, Mexico. Under the terms of the Agreement Northern has the
right to participate for a 20% interest in the Property. The
Property consists of approximately 207.5 Acres +/- (84 Ha) and
3,444.8 ft (1050 meters) Lagoon front plus 1033.4 ft (315 meters)
waterfront.
Coleman County, Texas – Three well rework/re-completion
project
On
October 14, 2014, we entered into an agreement to acquire the 206.5
acre J.E. Richey oil and gas lease. This lease area has six known
productive formations. The existing three wells on the lease are
fully equipped. Beginning in May 2015 we started conducting
operations on the three wells to place them back into production.
The rework/re-completion was completed on July 28, 2015 and
production of oil and gas was established. Additional work was
conducted on J. E. Richey lease during the fiscal year ended July
31, 2018. No additional work was performed during the nine months
ended April 30, 2019. As of April 30, 2019, management determined
that the $96,000 asset carried on the balance sheet was impaired
resulting in a loss on impairment of $46,000.
Kathis Energy LLC – Wholly owned Subsidiary
The
Company created a wholly owned subsidiary, Kathis Energy LLC
(“Kathis”), on November 22, 2017 for the purpose of
conducting oil and gas drilling programs in Texas. The Company
agreed to assign to Kathis the Olson and Guy Ranch leases in
exchange for $126,500. Both of these oil and gas leases have
expired.
Jones County, Texas – Palo Pinto Reef project
During
the fiscal year ended July 31, 2016 the Company acquired the Olson
lease covering 160 acres in Jones County, Texas. This lease is 1.5
miles from the Strand Palo Pinto Reef Field which was discovered in
1940 and has produced 1,700,000 barrels of oil from 8 wells or
212,500 barrels of oil per well. The structure map on the Palo
Pinto shows a large buildup in the Palo Pinto Reef across the
southern portion of the lease. No work was performed during the
nine months ended April 30, 2019. The lease expired in April
2019.
Shackelford County, Texas – Guy Ranch Project
During
the fiscal year ended July 31, 2016 the Company acquired 692-acres
divided into two tracts Guy Ranch Lease in Shackelford County. The
Guy Ranch lease is located in the southern part of Shackelford
County. The Ranch has 32 wind turbines on it representing it is at
a structurally higher elevation. The principal targets for this
drilling prospect is the Patio (aka Palo Pinto Sand) and Morris
Sands the area is also known to be productive from three other
formations on the Guy Ranch acreage. This oil and gas lease expired
on December 16, 2018. All associated expenditures have been fully
expensed.
Riverside Prospects, Runnels County, Texas
On
October 20, 2017 the Company entered into an exclusive option
agreement with Murphree Oil Company to acquire drilling prospects
on four leases in Runnels County near the City of Ballinger, known
as the Riverside Prospects. During the quarter ended April 30,
2018, the Company, through its wholly owned subsidiary, Kathis
Energy LLC, (“Kathis”) paid the lease bonuses for
extending the oil and gas lease period on 548.76 acres covering the
Riverside Prospects. This acreage consists of 4 leases in a well
established area where oil and gas production was discovered during
1978 – 1983. On November 2, 2018 a fresh option agreement was
entered into for the Riverside Leases. The Option Agreement expired
on December 31, 2018.
89 Guy #4 Well – Cased Hole
On
April 16, 2018, Kathis Energy acquired the 89 Guy Well #4 located
on a 20-acre tract on the Guy Ranch property in Shackelford County,
Texas. The well is an abandoned cased well that was drilled in
October 2010 and completed in the Patio Sand at the interval of
3,144’ - 3,154’. The interval perforated (3,144 –
3,154’) is above the best productive part of the formation.
No work was conducted during the nine months ended April 30,
2019.
McClure 2B Gas Well – Producing
On
February 6, 2018 the Company acquired the McClure # 2B producing
gas well on a 40-acre oil & gas lease located in Palo Pinto
County near the Community of Graford, Texas. The McClure 2B well is
completed in the Strawn in the interval 2,882’ to
2,940’ and has produced in excess of 70 million cubic feet of
natural gas. No work was performed during the nine months ended
April 30, 2019.
Carter & Foster Wells – Producing
During
the fiscal year ended July 31, 2018 the Company acquired the Carter
and Foster wells located west of the Community of Atwell, Texas in
Callahan County. The Carter lease consists of 40 acres and has one
well. The Foster lease has 10 acres around each well of the three
wells, all of which are fully equipped with surface and subsurface
equipment. All four wells are completed in the Palo Pinto Limestone
formation at approximately 1,900 feet. No work was performed during
the nine months ended April 30, 2019.
Reeves Lease – Acreage – Palo Pinto Reef
Prospect
In
August 2018 the Company paid for the geological prospecting fees
for a Palo Pinto Reef prospect in Jones County. The Reeves lease
covers 160 acres and is located near Noodle, Texas in Jones County.
The projected depth of the Palo Pinto Reef is 4,300’. During
the quarter the third party that paid for the lease agreed to
return the lease bonus due to not being able to obtain all parties
signatures for obtaining a lease. The Company is seeking to recover
its geological fees paid in 2018.
Winnemucca Mountain Gold Property, Nevada
As
previously announced, on September 14, 2012, we entered into an
option agreement (as last amended on February 11, 2016) with AHL
Holdings Ltd., and Golden Sands Exploration Inc., wherein we
acquired an option to purchase an 80% interest in and to certain
mining claims, which claims form the Winnemucca Mountain Property
in Humboldt County, Nevada (“Property”). This
Winnemucca Mountain property currently is comprised of 138
unpatented mining claims covering approximately 2700
acres.
On July
23, 2018, the Company entered into a New Option Agreement with AHL
Holding Ltd & Golden Sands Exploration Inc.
(“Optionors”). This agreement provided for the payment
of $25,000 and the issuance of 3,000,000 shares of the
Company’s common stock and work commitments. The Company
issued the shares and made the initial payment of $25,000 per the
terms of the July 31, 2018 agreement. The second payment of $25,000
per the terms of the agreement was not paid when it became due on
August 31, 2018 causing the Company to default on the terms of the
July 23, 2018 agreement.
On
March 25, 2019 the Company entered into a New Option Agreement with
the Optionors. As stated in the New Option Agreement the Company
has agreed to certain terms and conditions to have the right to
earn an 80% interest in the Property, these terms include cash
payments, issuance of common shares of the Company and work
commitments.
During
the quarter ended April 30, 2019 the Company engaged an independent
geologist to conduct geological studies to prepare a recommendation
of a work program for the Winnemucca Property.
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The
Company’s unaudited condensed consolidated financial
statements have been prepared in accordance with accounting
principles generally accepted in the United States of America
(“U.S. GAAP”). The accompanying unaudited condensed
financial statements reflect all adjustments, consisting of only
normal recurring items, which, in the opinion of management, are
necessary for a fair statement of the results of operations for the
periods shown and are not necessarily indicative of the results to
be expected for the full year ending July 31, 2019. These unaudited
condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements and related
notes included in the Company’s Annual Report on
Form 10-K for the year ended July 31, 2018.
Use of estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results may differ from those
estimates.
Reclassifications
Certain
re-classifications have been made to the prior year financial
information to conform to the presentation used in the unaudited
financial statements for the nine months ended April 30,
2019.
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts
of the Company and its wholly-owned subsidiaries, Kathis Energy
LLC, Kathis Energy Fund 1, LLP and Enmex Operations LLC. All
financial information has been prepared in conformity with
accounting principles generally accepted in the United States of
America. All significant intercompany transactions and balances
have been eliminated.
Revenue Recognition
Revenue
is recognized when a customer obtains control of promised goods or
services and is recognized in an amount that reflects the
consideration that an entity expects to receive in exchange for
those goods or services. In addition, the standard requires
disclosure of the nature, amount, timing, and uncertainty of
revenue and cash flows arising from contracts with customers. The
amount of revenue that is recorded reflects the consideration that
the Company expects to receive in exchange for those goods. The
Company applies the following five-step model in order to determine
this amount: (i) identification of the promised goods in the
contract; (ii) determination of whether the promised goods are
performance obligations, including whether they are distinct in the
context of the contract; (iii) measurement of the transaction
price, including the constraint on variable consideration; (iv)
allocation of the transaction price to the performance obligations;
and (v) recognition of revenue when (or as) the Company satisfies
each performance obligation.
The Company only applies the five-step model to contracts
when it is probable that the entity will collect the consideration
it is entitled to in exchange for the goods or services it
transfers to the customer. Once a contract is determined to be
within the scope of ASC 606 at contract inception, the Company
reviews the contract to determine which performance obligations the
Company must deliver and which of these performance obligations are
distinct. The Company recognizes as revenues the amount of the
transaction price that is allocated to the respective performance
obligation when the performance obligation is satisfied or as it is
satisfied. Generally, the Company's performance obligations are
transferred to customers at a point in time, typically upon
delivery.
Revenues
are earned from the J.E. Richey Lease both in selling oil and gas
and from funds received for reworking the Concho Richey #1. We
began earning revenues in Q1 of 2015 from the J.E. Richey Lease.
Revenues resumed from the sale of oil and gas during the second
quarter of the 2016/17 fiscal year.
Long-Lived Assets
Property
consists of mineral rights purchases as stipulated by underlying
agreements and payments made for oil and gas exploration rights.
Our company assesses the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying value
may not be recoverable. When we determine that the carrying value
of long-lived assets may not be recoverable based upon the
existence of one or more indicators of impairment and the carrying
value of the asset cannot be recovered from projected undiscounted
cash flows, we record an impairment charge. Our company measures
any impairment based on a projected discounted cash flow method
using a discount rate determined by management to be commensurate
with the risk inherent in the current business model. Significant
management judgment is required in determining whether an indicator
of impairment exists and in projecting cash flows.
Mineral Property Acquisition and Exploration Costs
Mineral
property acquisition and exploration costs are expensed as incurred
until such time as economic reserves are quantified. Cost of lease,
exploration, carrying and retaining unproven mineral lease
properties are expensed as incurred. We have chosen to expense all
mineral exploration costs as incurred given that it is still in the
exploration stage. Once our company has identified proven and
probable reserves in its investigation of its properties and upon
development of a plan for operating a mine, it would enter the
development stage and capitalize future costs until production is
established. When a property reaches the production stage, the
related capitalized costs will be amortized over the estimated life
of the probable-proven reserves. When our company has capitalized
mineral properties, these properties will be periodically assessed
for impairment of value and any diminution in value.
Oil and Gas Properties
The
Company applies the successful efforts method of accounting for oil
and gas properties. The Company capitalizes asset acquisition costs
of mineral rights and leases. Unproved oil and gas properties are
periodically assessed to determine whether they have been impaired,
and any impairment in value is charged to expense. The costs of
proved properties will be depleted on an equivalent
unit-of-production basis in which total proved reserves will be the
base used to calculate depletion.
Basic and Diluted Earnings Per Share
Net
income (loss) per common share is computed pursuant to ASC
260-10-45,
Earnings per
Share—Overall—Other Presentation Matters
. Basic
net income (loss) per common share is computed by dividing net
income (loss) by the weighted average number of shares of common
stock outstanding during the period. Diluted net income (loss) per
common share is computed by dividing net income (loss) by the
weighted average number of shares of common stock and potentially
outstanding shares of common stock during the period. The weighted
average number of common shares outstanding and potentially
outstanding common shares assumes that we incorporated as of the
beginning of the first period presented.
As of
April 30, 2019, and 2018, the Company had 4,736,271 and 3,575,913
potentially dilutive shares; however, the diluted loss per share is
the same as the basic loss per share for the three and nine months
ended April 30, 2019 and 2018, as the inclusion of any potential
shares would have had an antidilutive effect due to our loss from
operations.
Recently Issued Accounting Pronouncements
The
Company has implemented all new accounting pronouncements that are
in effect. These pronouncements did not have any material impact on
the financial statements unless otherwise disclosed, and the
Company does not believe that there are any other new accounting
pronouncements that have been issued that might have a material
impact on its financial position or results of
operations.
NOTE 3 – GOING CONCERN
The
accompanying unaudited condensed consolidated financial statements
are prepared and presented on a going concern basis, which
contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. Accordingly, they do
not include any adjustments relating to the realization of the
carrying value of assets or the amounts and classification of
liabilities that might be necessary should the Company be unable to
continue as a going concern. Since inception to April 30, 2019, the
Company has an accumulated deficit of $2,889,371. The Company
intends to fund operations through equity financing arrangements,
which may be insufficient to fund its capital expenditures, working
capital and other cash requirements for the next twelve months.
These factors, among others, raise substantial doubt about the
Company’s ability to continue as a going concern. The
accompanying financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
NOTE 4 – MINERAL RIGHTS AND PROPERTIES
Beauregard Parish, Louisiana - North High Prospect
On
December 7, 2018, the Company entered into a Memorandum of
Understanding with EnergyFunders, LLC to set forth the terms and
conditions to jointly operate and pursue oil & gas projects. It
was mutually agreed to create EF NMEX 18, LP, in order to jointly
promote domestic oil and gas drilling projects. The first project
in which EnergyFunders and NMEX will participate is the drilling of
a seismic structure in the Beauregard Parish of Louisiana, known as
the Northside High Prospect. The target depth is 7,300 feet to test
the Cockfield (Yegua) Sand. Notable wells in the area have produced
more than 200,000 barrels of oil from a single well. Drilling of
this well is scheduled to begin during the summer of 2019. NMEX has
agreed to provide certain completion costs to acquire up to 8% of
the working interest in this well.
Coleman County, Texas – J.E. Richey Lease
On
October 14, 2014, the Company entered into a Terms of Farm-out
Agreement with Copper Basin Oil & Gas Inc. to acquire a working
interest in an oil and gas lease in the J.E. Richey lease, which
had 3 fully equipped wells, production flow lines, injection flow
line, Tank battery consisting of two 300 BBL tanks, one 210 BBL
tank with two separators. The Company agreed to acquire a 75%
working interest in the lease including the existing wells and
equipment.
The
total consideration that the Company must pay to acquire the 75%
working interest is estimated at $336,000, which amount includes
all work requirements, and common stock valued at $0.10 based upon
our current share price of $0.11 as at October 14, 2014. The Net
Revenue Interest is 56.25% and consists of approximately 206.5
acres, more or less, in Coleman County, Texas. This lease has no
depth limit.
On
March 20, 2015, the Company entered into a multi-well purchase and
sale agreement with EF VC2, LLC to sell a 37.5% working interest
(“WI”) in the 3 wells for total consideration of
$180,000. Under the terms of the agreement both parties will
receive a 50.0% of the WI revenue from these three wells until EF
VC2 recaptures their investment of $180,000 (defined as
“Payout”). After Payout EF VC2 will revert to a 37.5%
of the WI revenue for the remaining life of the production from the
three wells.
We were
successful in the re-completion of the Concho Richey #1 well on the
J.E. Richey Lease in the Gray formation in July 2015. The Concho
Richey well came in with initial production rates of 65 barrels of
oil per day and 100 MCF of gas per day. We hold a 25% working
interest in one producing well (“Concho Richey #1”) on
the lease and a 100% working interest in the remainder of the
206-acre J. E Richey Lease.
The
Concho Richey well was shut in due to a hole coming in to the
casing which was repaired in the quarter ended October 31, 2016. No
revenues were received during the quarter from the Concho Richey
well, subsequently repairs were made to the well. Repairs made to
the well to squeeze off the holes in the casing were successful.
Revenues from the sale of oil and gas resumed during the year ended
July 31, 2017. The Concho Richey #1 well is currently producing 5
barrels of oil and 31 MCF of gas per day.
During
August 2017 further work was conducted on the J.E. Richey #1 well
during August 2017, which determined the casing in this well was
beyond being repaired. A decision was made to plug this well. The
Richey #1 well was plugged on January 3, 2018.
Further
work is planned during the next fiscal year on the J. E. Richey
lease on well #3 in an effort to improve its production. No work
was conducted on the J.E. Richey Lease during the nine months ended
April 30, 2019.
Humbolt County, Nevada - Winnemucca Mountain Property
As
previously announced, on September 14, 2012, we entered into an
option agreement (as last amended on February 11, 2016) with AHL
Holdings Ltd., and Golden Sands Exploration Inc., wherein we
acquired an option to purchase an 80% interest in and to certain
mining claims, which claims form the Winnemucca Mountain Property
in Humboldt County, Nevada (“Property”). This
Winnemucca Mountain property currently is comprised of 138
unpatented mining claims covering approximately 2700
acres.
On July
23, 2018, the Company entered into a New Option Agreement with AHL
Holding Ltd & Golden Sands Exploration Inc.
(“Optionors”). This agreement provided for the payment
of $25,000 and the issuance of 3,000,000 shares of the
Company’s common stock and work commitments. The Company
issued the shares and made the initial payment of $25,000 per the
terms of the July 31, 2018 agreement. The second payment of $25,000
per the terms of the agreement was not paid when it became due on
August 31, 2018 causing the Company to default on the terms of the
July 23, 2018 agreement.
On
March 25, 2019 the Company entered into a New Option Agreement with
the Optionors. As stated in the New Option Agreement the Company
has agreed to certain terms and conditions to have the right to
earn an 80% interest in the Property, these terms include cash
payments, issuance of common shares of the Company and work
commitments.
During
the quarter ended April 30, 2019 the Company engaged an independent
geologist to conduct geological studies to prepare a recommendation
of a work program for the Winnemucca Property.
Jones County, Texas – Olson Lease
We had
a 100% interest in the 160-acre oil and gas Olsen lease located in
the north central part of Jones County, Texas. The principal target
formation is the Palo Pinto Reef. The Palo Pinto Reef is a known
productive formation in the area with a high yield of cumulative
oil production. An example in the area is the Strand Oil Field
which is a Palo Pinto Reef Oil Field. The field discovered in 1940,
consists of only 8 wells on approximately 160 acres produced a
total of 1,700,000 barrels of oil, an average of 212,500 barrels of
oil per oil well. The 160 Olson Lease lies approximately 1.5 miles
southeast of the Strand Palo Pinto Reef Oil Field. We hold 100% of
the working interest in this lease. The lease expired on April 27,
2019. No work was conducted on the Olson lease during the quarter
ended April 30, 2019. The Company had agreed to assign its interest
and rights to the 160-acre Olson Lease to Kathis Energy LLC, a
wholly owned subsidiary of the Company in exchange for a $60,500
loan.
Shackleford County, Texas – Guy Ranch
Lease
During
the fiscal year ended July 31, 2016 the Company acquired a 100%
working interest in a 692-acre Guy Ranch Lease divided into two
tracts. Tract 1 covers 480 acres and Tract 2 covers 212 acres. The
Ranch has 32 wind turbines on it representing it is at a
structurally higher elevation. The principal targets for this
drilling prospect is the Patio (aka Palo Pinto Sand) and Morris
Sands the area is also known to be productive from three other
formations on the Guy Ranch acreage.
The
first project on the Guy Ranch was to re-complete a cased well in
the Morris formation that was reportedly untested. The structure of
the deal was for a third party to pay 100% of the costs re-complete
the cased well in the Morris formation allocating 20 acres out of
the 450 acres in order to earn a 75% working interest in the cased
well. All records filed with the Texas Railroad Commission
supported that no attempt to produce from the Morris had been
performed. However, it was subsequently found out that in fact an
attempt was made to re-complete in Morris formation and such
attempt was unsuccessful due to an over stimulation of the Morris
with a large frac at high pumping rate. The well produced mostly
water. The 20 acres around the well was not assumed by the Company
or its third-party investors. The unused funds provided by the
third party will be allocated to a new well on the Guy Ranch Lease
with the third party being responsible for providing the balance of
the funds to drill and complete a new well in order to earn 75% of
the working interest.
During
the fiscal year ended July 31, 2018 the Company agreed to convey
the Guy Ranch lease to Kathis Energy LLC, its wholly owned
subsidiary, for its drilling program for the consideration of
$66,500.
In
March 2018 Kathis Energy LLC, our wholly owned subsidiary, staked
two drilling locations on the Guy Ranch and prepared one drilling
location. This drilling location is a direct offset to a Patio Sand
well that came in at 140 barrels per day. The Patio Sand is one of
the main producing formations in the area generally averages
between 25,000 and 75,000 barrels oil per well. The Morris Sand a
notable gas producer is known to produce up to 1.4 BCF gas from one
well and the Gardner is noted in this area to produce between
50,000 and 110,000 barrels per well. The Net Revenue Interest for
the Guy Ranch lease is 75%. The Guy Ranch Lease expired on December
16, 2018.
Shackelford County, Texas 89 Guy #4 Well – Cased
Well
The 89
Guy Well #4 is located on the Guy Ranch property in Shackelford
County. The well is an abandoned cased well that was drilled in
October 2010 and completed in the Patio Sand at the interval of
3,144’ - 3,154’. This interval produced 2 barrels of
oil and 20 thousand cubic feet of natural gas from a 100 sac gel
frac. The interval perforated (3,144 – 3,154’) is above
the best productive part of the formation. The cased well was
purchased from the mineral owner through an independent geologist
followed by an application to the Texas Railroad Commission to
assume liability of the case well. The application is still pending
approval.
Kathis
Energy has a 80% net revenue interest in the 20 acre lease with the
cased well and owns 100% of the working interest. Kathis has until
April 17, 2019 to bring the well back into production. Kathis paid
$22,500 for the cased well. No work was conducted on the Guy Ranch
cased well 89 Guy #4 during the nine months ended ended April 30,
2019.
Palo Pinto County, Texas - McClure 2B – Gas
Well
On
February 6, 2018 the Company acquired the McClure # 2B producing
gas well on a 40 -acre oil & gas lease located in Palo Pinto
County near the Community of Graford, Texas. The McClure 2B well
was drilled in 2006 to a total depth of 4,739’ and was
re-completed in the Strawn formation in January 2011. The McClure
2B gas well is among a large number of gas wells that are producing
in the area from the Strawn formation.
The
location of the McClure 2B gas well is 1 mile southwest of the
Community of Graford, Texas in Palo Pinto County on a 40 acre
tract. The lease is off a main county road and the lease road can
have washouts depending on the amount of rain as the McClure 2B gas
well is on top of a hill. There are two natural gas lines 1) high
pressure and the 2) is low pressure.
The
Company paid $25,000 for this gas well. The Net Revenue Interest
for the McClure lease is 75% and the lease is held by existing
production. The Company entered into an agreement with a third
party to acquire and rework/re-complete the well in one or more of
the other intervals in the Strawn formation in the well. As of the
date of this report no work has been conducted toward the
reworking/re-completing in this well. Upon the third party
recovering its investment the Company will receive 40% of the Net
Revenue Interest. No work was conducted on the McClure 2B, gas
well, during the nine months ended April 30, 2019.
Callahan County, Texas Carter & Foster Wells –
Producing:
History and Background:
The
wells on the Carter and Foster leases were drilled in 1992-93. Most
of the wells were treated with 5,000 gallons of 21% acid and
yielded initial rates of production of 40 barrels of oil per day
then gradually declined to 3 barrels per day by the end of the
first year. The wells now are 25 plus years old and are producing
90% or better oil cut in the fluid being produced. The production
is very nominal at the present time however no secondary acid
stimulation has been conducted since they were originally brought
into production in the early 1990s. All four wells on the Carter
and Foster leases are fully equipped and have their own production
facilities and have electricity to each of the wells. These wells
are marginal producing oil wells producing approximately 20 barrels
per month with little to no formation water. The objective is to
conduct a large multiple stage acid job on three of the four wells
to significantly enhance daily production rates.
The
Carter and Foster wells are located west of the Community of
Atwell, Texas in Callahan County. The Carter lease consists of 40
acres and has one well. The Foster lease has 10 acres around each
well of the three wells, all of which are fully equipped with
surface and subsurface equipment. The Carter and Foster have good
access to an all-weather county road and the lease roads provide
good access to each well.
The Net
Revenue Interest for the Carter lease is 75% and the lease is held
by existing production. The Net Revenue Interest for the Foster
lease is 60% and the lease is held by existing production. The
Company entered into an agreement with a third party to acquire and
rework Palo Pinto formation by conducting the multiple staged acid
jobs on three wells. During the year the Company has placed new
electric motors on all four wells, changed out the down hole pumps
and placed the wells into production. As of the date of this report
the Company has not conduced the multiple staged acid job on any of
the three wells. Upon the third party recovering its investment the
Company will receive 40% of the Net Revenue Interest. The Carter
and Foster leases/wells were acquired from an Officer of the
Company for total consideration of $1.00. No work was conducted on
the Carter/Foster leases during the nine months ended April 30,
2019.
Reeves Lease – Palo Pinto Reef – Jones County,
Texas
The
Company has paid for the geological prospecting fees for a Palo
Pinto Reef prospect in Jones County. The Reeves lease covers 160
acres and is located near Noodle, Texas in Jones County. The
projected depth of the Palo Pinto Reef is 4,300’. Excellent
well control by 6 Strawn wells provides evidence of a Palo Pinto
Reef showing a structure 48’ high to other wells. The nearest
Palo Pinto Reef well to the Reeves Lease made more than 150,000
barrels from one well.
The
lease bonus money of $28,000 was provided by a third party for a
two-year lease and the Company paid the geological prospect fee of
$10,000. It was verbally understood between the Company and third
party to promote this drilling prospect seeking to retain a carried
interest plus recoup the lease and prospect monies.
The Net
Revenue of the lease is 80%. The lease term is 2 years. Plans are
to deliver a 75% net revenue lease to a drilling partner retaining
an overriding royalty and a carried working interest in the
drilling in the well. During the quarter ended April 30, 2019, it
was discovered that not all of the minerals were leased resulting
in the lease not being available for transfer to a drilling
partner. Lease bonus money and geological fees paid are being
recaptured by both the Company and the third party during the third
quarter.
Riverside Prospects, Runnels County, Texas
On
October 20, 2017 the Company entered into an exclusive option
agreement with Murphree Oil Company to acquire drilling prospects
on four leases in Runnels County near the City of Ballinger, known
as the Riverside Prospects. During the quarter ended April 30,
2018, the Company, through its wholly owned subsidiary, Kathis
Energy LLC, (“Kathis”) paid the lease bonuses for
extending the oil and gas lease period on 548.76 acres covering the
Riverside Prospects. On November 2, 2018 a fresh option agreement
was entered into for the Riverside Leases. This acreage consists of
4 leases in a well established area where oil and gas production
was discovered during 1978 – 1983. The option expired on
December 31, 2018. All associated expenditures have been fully
expensed.
NOTE 5 – ACCRUED LIABILITIES
Accrued
liabilities consist of $349,000 for firm commitments on the
Winnemucca Property
,
$45,335 of accrued interest, $20,413 of accrued distribution and
royalty payments, $172,404 of monies received in advance for well
work to be performed and the acquisition of additional oil and gas
properties and $95,000 of investment funds to be used for the
development of future properties. The Company has partnered with
others whereby they provide all or a portion of the working capital
for either well to be completed on existing properties or towards
the acquisition of new properties.
NOTE 6 – CONVERTIBLE DEBT
On
August 22, 2013 the Company entered into a $50,000 Convertible Loan
Agreement with an un-related party. The Loan and interest are
convertible into Units at $0.08 per Unit with each Unit consisting
of one common share of the Company and ½ warrant with each
full warrant exercisable for one year to purchase one common share
at $0.30 per share. On July 10, 2014, a further $35,000 was
received from the same unrelated party under the same terms. On
July 31, 2018, this Note was amended whereby the principal and
interest are now convertible into Units at $0.04 per Unit with each
Unit consisting of one common share of the Company and ½
warrant with each full warrant exercisable for one year to purchase
one common share at $0.08 per share. The Loan shall bear interest
at the rate of Eight Percent (8%) per annum and matures on March
26, 2020. As of April 30, 2019, there is $85,000 and $41,468 of
principal and accrued interest, respectively, due on this
loan.
On
October 20, 2017, the Company executed a convertible promissory
note for $25,000 with a third party. The note accrues interest at
6%, matures in two years and is convertible into shares of common
stock at maturity, at a minimum of $0.10 per share, at the option
of the holder. As of April 30, 2019, there is $25,000 and $2,367 of
principal and accrued interest due on this loan, respectively. This
loan is due on October 20, 2019.
NOTE 7 – COMMON STOCK
During
the year ended July 31, 2018, the Company sold 16,559,000 shares of
common stock for total cash proceeds of $219,475; $20,000 of which
had not yet been received as of July 31, 2018. The $20,000 was
received in the quarter ended October 31, 2018. In addition,
1,000,000 shares of those sold were not issued as of July 31, 2018
and have therefore been credited to common stock to be issued. The
1,000,000 shares were issued in February 2019.
During
the nine months ended April 30, 2019, the Company issued 150,000
shares of common stock to two individuals as consideration for
their support with the Richey #2A project. The shares were valued
at $0.065 per share, the closing price on the date of grant, for
total non-cash expense of $9,750.
During
the nine months ended April 30, 2019, the Company sold 1,000,000
Units of its common stock for total cash proceeds of $50,000. Each
Unit consists of one common share and one-half share purchase
warrant exercisable for 2 years. Each whole share purchase warrant
has an exercise price of $0.15 per common share.
During
the nine months ended April 30, 2019, the Company sold 4,166,667
shares of common stock for total cash proceeds of $145,000. As of
April 30, 2019, 400,000 shares have not yet been issued by the
transfer agent and have therefore been credited to common stock to
be issued.
NOTE 8 – WARRANTS
Warrants
have been issued in conjunction with common stock issuances. During
the year ended July 31, 2018, the Company sold 2,730,000 Units of
its common stock for total cash proceeds of $136,500. During the
nine months ended April 30, 2019, the Company sold 1,000,000 Units
of its common stock for total cash proceeds of $50,000. Each Unit
consists of one common share and one-half share purchase warrant
exercisable for 2 years. Each whole share purchase warrant has an
exercise price of $0.15 per common share. The warrants were
evaluated for purposes of classification between liability and
equity. The warrants do not contain features that would require a
liability classification and are therefore considered equity. The
Black Scholes pricing model was used to estimate the fair value of
the Warrants issued with the following inputs:
|
Warrants
|
500,000
|
|
Exercise
Price
|
$
0.15
|
|
Term
|
|
|
Volatility
|
323
%
|
|
Risk Free Interest
Rate
|
2.61
%
|
|
Fair
Value
|
$
25,205
|
Using
the fair value calculation, the relative fair value between the
common stock and the warrants was calculated to determine the
warrants recorded equity amount of $25,205, accounted for in
additional paid in capital.
Activity
for the nine months ended April 30, 2019 and the year ended July
31, 2018 is as follows:
|
|
|
Weighted Average
Exercise Price
|
Weighted Average
Remaining Contract Term
|
|
Outstanding at July
31, 2017
|
150,000
|
$
0.10
|
1.50
|
|
Granted
|
1,865,000
|
0.15
|
1.47
|
|
Expired
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Exercisable at July
31, 2018
|
2,015,000
|
$
0.15
|
1.47
|
|
Granted
|
500,000
|
0.15
|
1.28
|
|
Expired
|
(150,000
)
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
|
Exercisable at
April 30, 2019
|
2,365,000
|
0.15
|
.90
|
NOTE 9 – RELATED PARTY TRANSACTIONS
On
April 16, 2017, the Company executed a promissory note for $15,000
with a shareholder. The note matures in two years and interest is
set at $3,000 for the full two years. As of April 30, 2019, there
is $13,500 and $1,125 of principal and accrued interest,
respectively, due on this loan.
For the
nine months ended April 30, 2019 and for the year ended July 31,
2018, total payments of $7,500 and $56,500, respectively were made
to an officer of the Company for consulting services. As of April
30, 2019, there is $22,500 credited to accounts
payable.
For the
nine months ended April 30, 2019 and for the year ended July 31,
2018, total payments of $45,000 and $26,500, respectively were made
to directors of the Company for consulting services. As of April
30, 2019, there is $30,000 credited to accounts
payable.
On July
31, 2018, Winona Webb, the wife of Ivan Webb, CEO, loaned the
Company $25,000 for general operating expenses. This loan was
repaid on August 2, 2018 with an additional $5,000 for interest and
a loan fee. On August 3, 2018, Mrs. Webb loaned the Company $30,000
which was repaid on August 21, 2018. On September 25, 2018, the
Company executed a loan agreement with Mrs. Webb for $6,800. The
loan is to be repaid by December 15, 2018, with an additional $680
to cover interest and fees. On October 10, 2018, the Company
executed a loan agreement with Mrs. Webb for $15,000. The loan was
to be repaid by December 15, 2018, with an additional $1,500 to
cover interest and fees. As of April 30, 2019, the Company owes
Mrs. Webb $20,930 and $2,180 of principal and interest,
respectively.
NOTE 10 – SUBSEQUENT EVENTS
Management
has evaluated subsequent events pursuant to the requirements of ASC
Topic 855, from the balance sheet date through the date the
financial statement were available to be issued, and has determined
that no material subsequent events exist other then the
following.
On May
7, 2018, the Company created ENMEX LLC, a wholly owned subsidiary
in Mexico, for the purposes of managing and operating its
investments in Mexico including but not limited to the Joint
Venture opportunity being negotiated with Pemer Bacalar on
approximately 61 acres on the Bacalar Lagoon on the Yucatan
Peninsula. There was no activity from inception to
date.