NOTES
TO THE FINANCIAL STATEMENTS
December
31, 2016
NOTE
1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
Texas
South Energy, Inc. (the “Company”) was incorporated pursuant to the laws of the State of Nevada on March 15, 2010.
The Company is engaged in the oil and gas business. The Company has limited operating history and has earned nominal revenues
to date. The Company has devoted its activities to the acquisition of oil and gas assets. The Company has incurred losses since
inception of $9,034,293 as of December 31, 2016.
The
Company had established a fiscal year end of October 31; however, on March 3, 2017 the Company adopted a year end of December
31.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United
States of America (“U.S. GAAP”).
Cash
and Cash Equivalents
The
Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.
Use
of Estimates and Assumptions
The
preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period. While management believes that such
estimates are reasonable when considered in conjunction with the financial position and results of operations taken as a whole,
actual results could differ from those estimates, and such differences may be material to the financial statements.
Basic
and Diluted Net Loss per Share
The
Company computes loss per share in accordance with ASC 260, “Earnings per Share” which requires presentation of both
basic and diluted earnings per share on the face of the statement of operations. Basic loss per share is computed by dividing
net loss available to common shareholders by the weighted average number of outstanding common shares during the period. Diluted
loss per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive loss per share excludes
all potential common shares if their effect is anti-dilutive. The Company has no potential dilutive instruments and accordingly
basic loss and diluted loss per share are the same.
Fair
Value
In
accordance with the requirements of ASC 825 and ASC 820, the Company has determined the estimated fair value of financial instruments
using available market information and appropriate valuation methodologies. The fair value of financial instruments classified
as current assets or liabilities approximate their carrying value due to the short-term maturity of the instruments.
Income
Taxes
The
Company has adopted ASC 740 for reporting purposes. As of December 31, 2016, the Company had net operating loss carryforwards
of approximately $6,004,000 that may be available to reduce future years’ taxable income and will begin to expire in 2028.
Availability of loss usage is subject to change of ownership limitations under Internal Revenue Code 382. Future tax benefits
which may arise as a result of these losses have not been recognized in these financial statements, as their realization is determined
not likely to occur and accordingly, the Company has recorded a valuation allowance for the future tax loss carryforwards. The
Company believes that its income tax filing positions and deductions will more-likely-than-not be sustained on audit and does
not anticipate any adjustments that will result in a material adverse effect on the Company’s financial condition, results
of operations or cash flows. Therefore, no reserves for uncertain income tax positions have been recorded. The Company is subject
to income tax examinations by the U.S federal, state, or local tax authorities for years since inception to date.
Stock-based
Compensation
The
Company has not adopted a stock option plan and has not granted any stock options. Common stock has been granted to third parties
for services rendered (see Note 5 – Common Stock).
In
December 2004, the Financial Accounting Standards Board (“FASB”) issued ASC 718 “Compensation - Stock Compensation”
and 505-50 “Equity-Based Payments to Non-Employees.” This statement requires a public entity to expense the cost of
services received in exchange for an award of equity instruments. This statement also provides guidance on valuing and expensing
these awards, as well as disclosure requirements of these equity arrangements. The Company adopted ASC 718 and 505-50 upon creation
of the Company and expenses share based costs in the period incurred.
Accounting
for Oil and Gas Properties
The
Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated
with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, professional
fees incurred for the lease acquisitions, capitalized interest costs relating to properties, geological expenditures, and tangible
and intangible development costs (including direct internal costs), are capitalized into the full cost pool. When the Company
commences production from established proven oil and gas reserves, capitalized costs, including estimated future costs to develop
the reserves and estimated abandonment costs, will be depleted on the units-of-production method using estimates of proven reserves.
Investments in unproved properties and major development projects, including capitalized interest if any, are not depleted until
proven reserves associated with the projects can be determined. If the future exploration of unproven properties is determined
to be uneconomical, the amount of such properties is added to the capital costs to be depleted. As of December 31, 2016, the Company’s
oil and gas properties consisted of capitalized acquisition costs for unproved mineral rights.
Investment
Securities
Investment
securities are composed of 5 million shares of GulfSlope common stock, and are classified as “available-for-sale”.
Available-for-sale securities are adjusted to their fair market value with unrealized gains and losses, net of tax, recorded as
a component of accumulated other comprehensive income. Upon disposition of these investments, the specific identification method
is used to determine the cost basis in computing realized gains or losses, which are reported in other income and expense. Declines
in value that are judged to be other than temporary are reported in other comprehensive income and expense. During the year ended
October 31, 2016, the Company recorded a realized loss of $218,000 to adjust the investment securities to fair market value. In
February 2016, the GulfSlope shares were sold to a third party for $50,000.
Recent
Accounting Pronouncements
In
May 2014, the FASB issued its final standard on revenue from contracts with customers. The standard, issued as ASU No. 2014-09:
Revenue from Contracts with Customers (Topic 606)
by the FASB, outlines a single comprehensive model for entities to use
in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including
industry-specific guidance. The core principle of the revenue model is that “an entity recognizes revenue to depict the
transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to
be entitled in exchange for those goods or services.” ASU 2014-09 becomes effective for reporting periods (including interim
periods) beginning after December 15, 2017. Early application is permitted for reporting periods (including interim periods) beginning
after December 15, 2016. This new standard permits the use of either the retrospective or cumulative effect transition method.
Because the Company has no revenues, the new guidance is not expected to have a material impact on its financial statements and
related disclosures.
In
August 2014, the FASB issued Accounting Standard Update No. 2014-15, Presentation of Financial Statements Going Concern (Subtopic
205-40) which requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding
upon certain principles that are currently in U.S. auditing standards. Specifically, this standard provides a definition of the
term substantial doubt and requires an assessment for a period of one year after the date that the financial statements are issued
(or available to be issued). It also requires certain disclosures when substantial doubt is alleviated as a result of consideration
of management’s plans and requires an express statement and other disclosures when substantial doubt is not alleviated.
The standard is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and early
application is permitted. The Company is currently evaluating the accounting impact that this pronouncement will have on its financial
statements.
Other
new pronouncements issued but not effective until after December 31, 2016 are not expected to have a material impact on the Company’s
financial position, results of operations, or cash flows.
NOTE
3 – GOING CONCERN
The
Company’s financial statements are prepared in accordance with generally accepted accounting principles applicable to a
going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business.
Currently, the Company does not have sufficient cash, nor does it have operations or a source of revenue sufficient to cover its
operation costs and allow it to continue as a going concern. The Company has accumulated losses as of December 31, 2016, of $9,034,293.
The Company will be dependent upon the raising of additional capital through the best- efforts placement of its equity and/or
debt securities in order to implement its business plan. There can be no assurance that the Company will be successful in either
situation in order to continue as a going concern. These factors raise substantial doubt regarding the Company’s ability
to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification
of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
NOTE
4 – OIL & GAS PROPERTIES
On
January 22, 2014, the Company entered into a contract for sale with the owner of mineral interests in 86.69 acres in Lavaca County,
Texas (the “Acreage”) pursuant to which the Company acquired a 37.5% interest in the Acreage’s mineral rights,
including the oil and gas rights (the “Acquired Interest”). In exchange for the Acquired Interest, the Company paid
the seller $270,000 in cash and issued the seller 2,000,000 shares of the Company’s common stock, valued at $100,000. In
June 2016, the Company sold the Acreage and Acquired Interest to Mr. Askew, former director and chief executive officer, for $170,000,
paid through the reduction of $170,000 owed to Mr. Askew by the Company.
On
March 10, 2014, the Company entered into a farm out letter agreement with GulfSlope, relating to certain prospects (the “Prospects”)
located within 2.2 million acres of 3D seismic licensed and interpreted by GulfSlope. At the time the farm out agreement was entered
into, the Company’s chief executive officer and sole director, Mr. Askew, was also a director of GulfSlope. Mr. Askew resigned
as a director of GulfSlope effective March 27, 2014. Under the terms of the farm-out letter agreement as amended in September
2015, the Company acquired contractual rights to a 20% working interest in six prospects for aggregate consideration of $10,000,000,
of which the last installment of $1,800,000 was paid in September 2015. During the year ended October 31, 2015, the Company had
advanced $8,200,000 towards the acquisition of the mineral interests. The Company agreed to pay its proportionate share of the
net rental costs related to the Prospects. GulfSlope will be the operator of record and shall have the right to negotiate all
future joint operating agreements. The mineral interests are unproved as of December 31, 2016.
In
May 2016, we entered into a letter of intent with GulfSlope that sets out the terms and conditions of a farm-out arrangement to
develop certain shallow-depth oil and gas prospects located on offshore Gulf of Mexico blocks currently leased by GulfSlope. The
shallow prospects are located above 5,100 feet vertical depth on the Vermilion Area, South Addition Block 378 (“Canoe Shallow”)
and Vermilion Area, South Addition Block 375 (“Selectron Shallow”, and collectively with Canoe Shallow, “Shallow
Prospects”). We own a 70.7% working interest in the Shallow Prospects (with a third party owning a 16.8% working interest
and GulfSlope owning a 12.5% working interest) which we acquired in exchange for (i) cash payments of $400,000, (ii) the payment
of annual rental obligations of $63,147, and (iii) the agreement to fund, or cause to be funded, the costs for the drilling of
two shallow wells to be commenced no later than December 31, 2017. GulfSlope is currently the Operator of the first two wells.
Consummation of the transactions is subject to further negotiation, the execution and delivery by the parties of mutually acceptable
definitive agreements to include a participation agreement and the joint operating agreement, and the satisfaction of certain
additional conditions.
NOTE
5 – COMMON STOCK
During
September and October 2015, the Company received cash of $1,297,000 for the issuance of 64,850,000 shares at $0.02 per share.
The shares were issued in December 2015.
In
December 2015, the Company received cash of $105,000 for the issuance of 5,250,000 shares at $0.02 per share. Shares totaling
250,000 were issued in December 2015 and shares totaling 5,000,000 were issued in January 2016. In December 2015, the Company
issued 550,000 shares of common stock to a third party for services rendered. The stock was valued at $11,000.
In
June 2016, (i) John B. Connally III forgave $170,000 in accrued consulting fees for 8.5 million shares of Company common stock,
valued at $.02 per share, (ii) James M. Askew forgave $280,000 owed to him by the Company for 14.0 million shares of Company common
stock, valued at $.02 per share, and (iii) the Company issued a third party 10.0 million shares of Company common stock in connection
with a short-term line of credit.
In
July 2016, the Company issued 11,500,000 shares of common stock, of which 6,000,000 was issued for services rendered valued at
$0.02 per share, and 5,500,000 was issued for cash of $110,000 which proceeds from the private placement will be used for general
corporate purposes.
In
August 2016, the Company issued an aggregate of 50 million shares of its common stock at a purchase price of $0.02 per share receiving
gross proceeds of $1 million. The Company used the proceeds from the private placement for general corporate purposes.
On
June 17, 2016, the Company issued 625,000 shares of its common stock at a purchase price of $0.02 per share receiving gross proceeds
of $12,500, which proceeds were used for general corporate purposes.
Effective
July 29, 2016, the Company issued 7,000,000 shares of common stock at a purchase price of $0.02 per share receiving gross proceeds
of $140,000, which proceeds were used for general corporate purposes.
Effective
July 29, 2016, the Company issued 5,000,000 shares of common stock upon conversion of $100,000 principal amount of outstanding
indebtedness at a conversion price of $0.02 per share.
On
August 24, 2016, the Company issued 2,500,000 shares of common stock at a purchase price of $0.02 per share receiving gross proceeds
of $50,000, which proceeds were used for general corporate purposes.
On
December 12, 2016, the Company issued 500,000 shares of common stock at a purchase price of $0.02 per share receiving gross proceeds
of $10,000, which proceeds were used for general corporate purposes.
On
December 12, 2016, the Company issued 10,000,000 shares of common stock at a purchase price of $0.02 per share receiving gross
proceeds of $200,000, which proceeds were used for general corporate purposes.
On
December 29, 2016, the Company issued 1,000,000 shares of common stock at a purchase price of $0.02 per share receiving gross
proceeds of $20,000, which proceeds were used for general corporate purposes.
As
of December 31, 2016, the Company has not granted any stock options.
NOTE
6 – RELATED PARTY TRANSACTIONS
See
Note 4 for a description of the sale of Acreage and Acquired Interest by the Company in June 2016 to Mr. Askew.
In
October 2015, the Company entered into related party promissory note payable agreement with its director and chief executive officer
James Askew for $82,918. The principal and related accrued interest is payable on demand and bears interest at a fixed rate of
5% per annum. As of October 31, 2015, the outstanding principal balance was $17,918 and is included in ‘Due to related party’
on the Company’s balance sheet. This amount was paid in full in December 2015.
As
of December 31, 2016 and 2015 and October 31, 2016 and 2015, the Company had received advances from a prior director in the amount
of $52,152. The amounts due to the related party remain outstanding, unsecured due on demand and non-interest bearing with no
set terms of repayment. These advances are recorded within the ‘Due to related party’ line on the balance sheet.
In
September 2013, the Company entered into an employment agreement with its chief executive officer James Askew that was amended
to extend the term of the agreement to September 30, 2018. As of October 31, 2015, the Company had not paid Jim Askew $385,000
in accordance with his employment agreement and this amount is accrued within ‘Accrued expenses – related party’
on the balance sheet. During the year ended October 31, 2016, the Company made cash payments and issued Mr. Askew 14 million shares
of common stock in exchange for $280,000 of the accrued compensation. Additionally, in accordance with the employment agreement,
the Company paid Mr. Askew $420,000 for compensation and a $50,000 bonus for the fiscal year ended October 31, 2016.
During
the two month period ending December 31, 2015 the Company paid James Askew the outstanding principal balance discussed above.
During the two month period ending December 31, 2016, the Company paid him $105,000 in compensation, $9,000 in bonuses and $38,030
for expense reimbursements. A prepayment of the January, 2017 consulting agreement of $35,000 was included in the $105,000 compensation
payments.
During
the years-ended October 31, 2015 and 2016, the Company’s chief executive officer and sole director paid numerous vendors
on behalf of the Company. As of October 31, 2015 and 2016, the Company had $90,125 and $15,906, respectively, accrued within the
‘Accrued expenses – related party’ line on the balance sheet. This amount was paid in full in November 2016.
NOTE
7 – NOTES PAYABLE
Effective
June 2014, we borrowed a principal amount of $1,000,000 from a third party, which promissory note bears interest at a fixed rate
of 10% per annum. In June 2015, the maturity date was extended from June 30, 2015 to June 30, 2016 and the principal amount of
the note was increased to $1,100,000. On March 11, 2016, the maturity date the of the $1,100,000 note payable balance was extended
from June 31, 2016 to October 1, 2017. As of October 31, 2016 and 2015, the outstanding principal balance was $1,100,000 and $1,100,000
respectively and is included in ‘Notes payable’ as a current liability on the Company’s balance sheet.
In
October 2015, the Company entered into a note payable agreement with an accredited investor for $700,000, and in July 2016 a principal
amount of $100,000 of the note was converted into 5,000,000 shares of common stock. The note expires on October 1, 2017 and bears
interest at a fixed rate of 10% per annum. As of December 31, 2015 and October 31, 2015, the outstanding principal balance of
$700,000 is included in ‘Notes payable – long term’ and as of December 31, 2016 and October 31, 2016, the outstanding
principal balance of $600,000 is included in “Notes payable” as a current liability on the Company’s balance
sheet.
In
October 2015 and November 2015, the Company entered into related party promissory notes payable agreements with its director and
chief executive officer James Askew. In December 2015, the principal balances were paid in full by the Company (see Note 6 - Related
Party Transactions).
NOTE
8 – NOTES RECEIVABLE
In
October 2016, the Company loaned the principal amount of $47,138 to a third party under an interest free, demand promissory note
agreement for the purpose of travel expenses and rentals. Subsequent to October 31, 2016, the note was further increased to $68,498
as of December 31, 2016.
NOTE
9 – INCOME TAXES
The
Company follows ASC 740. Deferred income taxes reflect the net effect of (a) temporary difference between carrying amounts of
assets and liabilities for financial purposes and the amounts used for income tax reporting purposes, and (b) net operating loss
carryforwards. No net provision for refundable Federal income tax has been made in the accompanying statement of loss because
no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net operating loss carryforward
has been recognized, as it is not deemed likely to be realized.
The
provision for refundable federal income tax consists of the following for the periods ending:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Federal income tax
benefit at the statutory rate:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(715,000
|
)
|
|
$
|
(343,000
|
)
|
Change
in valuation allowance
|
|
|
715,000
|
|
|
|
343,000
|
|
Net
benefit
|
|
$
|
—
|
|
|
$
|
—
|
|
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
|
|
December
31, 2016
|
|
|
December
31, 2015
|
|
Deferred tax attributed:
|
|
|
|
|
|
|
|
|
Net
operating loss carryover
|
|
$
|
2,041,000
|
|
|
$
|
1,326,000
|
|
Less:
valuation allowance
|
|
|
(2,041,000
|
)
|
|
|
(1,326,000
|
)
|
Net
deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
At
December 31, 2016, the Company had an unused net operating loss carryforward approximating $6,004,000 that is available to offset
future taxable income; the loss carryforward will start to expire in 2028.
NOTE
10 – FAIR VALUE OF FINANCIAL INSTRUMENTS
The
Company adopted the FASB standard related to fair value measurement at inception. The standard defines fair value, establishes
a framework for measuring fair value and expands disclosure of fair value measurements. The standard applies under other accounting
pronouncements that require or permit fair value measurements and, accordingly, does not require any new fair value measurements.
The standard clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid
to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement
that should be determined based on assumptions that market participants would use in pricing an asset or liability. The recorded
values of long-term debt approximate their fair values, as interest approximates market rates. As a basis for considering such
assumptions, the standard established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value
as follows.
Level
1. Observable inputs such as quoted prices in active markets;
Level
2. Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level
3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
The
Company’s financial instruments are cash, accounts payable, and investment securities. The recorded values of cash and accounts
payable approximate their fair values based on their short-term nature.
Our
Level 2 asset consists of investment securities. The fair value of investment securities (common stock in GulfSlope) is based
on $0.01 per share, derived from recent GulfSlope private placement financing transactions. The GulfSlope common stock is thinly
traded, resulting in the private placement transactions providing the most reliable measurement. In February 2016, the Company
sold 5,000,000 shares of GulfSlope common stock with a cost value of $268,000 for cash proceeds of $50,000 and recorded a realized
loss of $218,000.
NOTE
11 – COMMITMENTS AND CONTINGENCIES
See
Note 6 for a discussion of Mr. Askew’s employment agreement and the Company’s financial obligations with respect thereto.
On
October 11, 2013, the Company entered into a consulting agreement with John B. Connally, III providing $10,000 cash compensation
per month, which expired in December 2016. As of October 31, 2015, the Company owed Mr. Connally $110,000 in accrued compensation,
which was paid as of October 31, 2016. During the fiscal year ended October 31, 2016, Mr. Connally was paid $120,000 in consulting
fees and a $5,000 bonus. During the two months ended December 31, 2016, Mr. Connally was paid $164,000 in compensation and bonuses.
During the two months ended December 31, 2015, no payments were made to Mr. Connally.
NOTE
12 – SUBSEQUENT EVENTS
In
January 2017, the Company issued (i) an aggregate of 14,250,000 shares of common stock for services rendered, (ii) 100,000,000
shares of common stock pursuant to the asset purchase agreement to Mr. Mayell, (iii) an aggregate of 92.1 million shares of common
stock pursuant to an executive officer and consultant, and (iv) an aggregate of 6,200,000 shares were issued to certain employees
and two consultants.
On
January 26, 2017, the Company issued to a third party 500,000 shares of common stock for a purchase price of $0.02 per share.
In February 2017, the Company issued an aggregate of 9,750,000 shares of common stock to third party investors at a purchase price
of $0.02 per share.
In
January 2017, the Company entered into an asset purchase agreement with Sydson Energy, Inc. (“Sydson Energy”) and
Sydson Resources, L.P. (“Sydson Resources” and collectively with Sydson Energy, “Sydson”), where Sydson
assigned to us certain onshore oil and gas assets and interests and certain tangible assets and additionally, certain employees
and a consultant of Sydson have agree to become employees and a consultant of the Company. Sydson is a private oil and gas company
with land operations in Texas and Louisiana that has been in business since 1982. The oil and gas assets include the following:
|
●
|
In the Bayou Bouillon
Field, St. Martin and Iberville Parishes, Louisiana, we acquired a 37.5% working interest in the Sugarberry South Project
comprising 420 acres with a net revenue interest of 70%. The property has two existing wells which have tested at over 400
BOPD (“Barrels of Oil Per Day”) combined from two (2) productive zones above 2,100’ with an additional shallower
zone behind pipe believed to contain approximately 30’ of oil pay and almost 60’ of gas pay. We expect to install
production facilities and drill additional development wells in this fault block and to drill up to three exploratory wells
in adjacent fault blocks targeted in the same zones. Through the Sydson transaction, we also are a party to letters of intent
to acquire up to a 45% working interest in an additional 1,000+ acres in the Bayou Bouillon area based on a proprietary 55
square mile 3-D seismic survey that demonstrates updip potential in existing reservoirs at about 10,000’. The downdip
wells in these same reservoirs have produced over 20 MMBO (“Million Barrels of Oil”) and 21 BCFG (“Billion
Cubic Feet of Gas”) from 59 completions. Our partner in the Bayou Bouillon project, and the owner of a 50% working interest
in the Bayou Bouillon acreage, is Thyssen Petroleum, USA, a privately held independent oil and gas exploration and production
company based in Houston, Texas and Monaco, France.
|
|
|
|
|
●
|
In Texas, we acquired
a 50% working interest in the undrilled acreage above 4,500’ in the West Tuleta Field, Bee County, Texas comprised of
approximately 1,800 gross acres and 900 net acres with a net revenue interest of approximately75%. The primary drilling objectives
are the Vicksburg and Hockley sands which are structurally high on this acreage to historic downdip production from these
sands totaling over 500,000 BO.
|
|
|
|
|
●
|
In the adjacent
Ray Field, also in Bee County, Texas, we acquired a 50% working interest in the undrilled, acreage on the Walton, Campbell,
and Ray leases comprising approximately 75 gross acres with a net revenue interest of approximately 75%. The primary drilling
objectives on this acreage are also the Vicksburg and Hockley sands updip to prior production, also above 3,700’.
|
|
|
|
|
●
|
In other areas of
Southeast Texas, we acquired an interest in a proprietary 85 square mile 3-D seismic survey targeting Lower Wilcox Sands at
approximately 10,000’. There are eight currently defined and mapped prospects in which we intend to acquire leases that
are apparent on the seismic data and match the geologic setting of three existing Lower Wilcox fields within the boundaries
of the survey.
|
|
|
|
|
●
|
Northwest of the
survey, we intend to acquire leases covering approximately 1,000 acres for horizontal projects above 6,000’ in the Austin
Chalk and Buda Lime formation. These projects are adjacent to substantial prior production and contain both conventional and
unconventional oil targets.
|
The
consideration payable by the Company to Sydson and affiliates was (i) 100 million shares of Company common stock to Michael J.
Mayell, (ii) (A) $250,000 through a promissory note due March 5, 2017 and (B) $1,250,000 through the payment by the Company of
Sydson’s obligations attributable to retained working interests in the oil and gas prospects conveyed to the Company, to
be paid by the Company at the time it pays its associated costs with respect to its ownership interests in such oil and gas prospects,
(iii) carried interests to casing point for its working interests on the first well in each of the West Tuleta prospect, Ray Field
prospect, one prospect under negotiation, and up to four wells in the Bayou Bouillon prospect to be paid by the Company at the
time it pays its associated costs with respect to its ownership interests in such oil and gas prospects, and (iv) a payment of
$500,000 for the seismic data at one prospect under negotiation after completion of the first well in such prospect.
The
Company entered into an employment agreement with Mr. Mayell on January 4, 2017 that terminates on December 31, 2019. Upon December
31 of each calendar year, commencing on December 31, 2017, the term shall be extended for one additional year, provided that neither
the Company nor Mr. Mayell notify the other on or prior to 90 days before the applicable December 31
st
date that either
party does not intend to extend this agreement. The Company shall pay to Mr. Mayell a base salary of $420,000 per annum and Mr.
Mayell shall be entitled to standard and customary benefits. Mr. Mayell has agreed to standard non-disclosure and non-competition
provisions. Upon termination of Mr. Mayell by the Company other than for cause, Mr. Mayell is entitled to receive three years
of his then compensation as severance.
The
Company entered into an employment agreement with John B. Connally III to serve as chairman of the board that began on January
5, 2017 and terminates on December 31, 2019. Upon December 31 of each calendar year, commencing on December 31, 2017, the term
shall be extended for one additional year, provided that neither the Company nor Mr. Connally notify the other on or prior to
90 days before the applicable December 31
st
date that either party does not intend to extend this agreement. The Company
shall pay to Mr. Connally a base salary of $420,000 per annum, issued him 65.1 million shares, and Mr. Connally shall be entitled
to standard and customary benefits. Mr. Connally has agreed to standard non-disclosure provisions. Upon termination of Mr. Connally
by the Company other than for cause, Mr. Connally is entitled to receive three years of his then compensation as severance.
James
M. Askew resigned as an executive officer and director of Texas South in January 2017 and entered into a consulting agreement
with the Company that began on January 5, 2017 and terminates on December 31, 2019, and such term shall be extended for an additional
one-year period upon December 31 of each calendar year, commencing on December 31, 2017, provided that neither the Company nor
consultant notify the other on or prior to 90 days before the applicable December 31
st
that either party does not intend
to extend this agreement. The Company shall pay to Mr. Askew $35,000 net per month and issued Mr. Askew 27 million shares of Company
common stock. Upon termination of Mr. Askew by the Company other than for cause, Mr. Askew is entitled to receive three years
of his then consulting compensation as severance.