Item 2. Management’s Discussion and Analysis
of Financial Condition and Results of Operations.
The following is management’s discussion
and analysis of certain significant factors that have affected aspects of our financial position and the results of operations
during the periods included in the accompanying Condensed Financial Statements. You should read this in conjunction with the discussion
under “Management's Discussion and Analysis of Financial Condition and Results of Operations” and the audited Financial
Statements for the year ended June 30, 2017, included in our Annual Report on Form 10-K and the Consolidated Financial
Statements included elsewhere herein.
Throughout this report, a barrel of oil or
“Bbl” means a stock tank barrel (“STB”) and a thousand cubic feet of gas or “Mcf” means a thousand
standard cubic feet of gas (“Mscf”).
Overview
We are an independent energy company
primarily engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties. Our
principal business is the exploration and development of oil and natural gas properties in the United States. In March 2016
we closed on an acquisition (the “Foreman Butte Acquisition”) of certain assets located in North Dakota and
Montana, which we refer to as the “Foreman Butte Project,” for a purchase price of $16 million. The acquired
assets were comprised of producing oil and gas wells, shut in wells and associated facilities. The wells are located in the
Madison and Ratcliffe formations. The majority of these wells are operated by us, however a number of non-operated wells were
also included in this package. We continue to concentrate our efforts on the operations of this field and the development of
the PUD drilling program in the Home Run field. Our development efforts are currently constrained, however, by our lack of
access to capital to fund any development activities. We have four current drilling permits for our Home Run field and
anticipate drilling our first PUD well as soon as we obtain the necessary funding through a refinance of our credit facility
or through the partial sale of our North Dakota and Montana assets, through there can be no assurance this will be
possible.
Our net oil production was 54,869 barrels of
oil for the quarter ended September 30, 2017, compared to 90,957 barrels of oil for the quarter ended September 30, 2016. Production
was high during the period ended September 30, 2016 due to flush production from a number of wells that were worked over towards
the end of June 2016 . This production has generally decreased in line with the expected decline curves. In light of recent weakness
and volatility in the oil price and our lack of access to capital, we have discontinued workovers on marginally economical wells
that stopped production during the period ended September 30, 2017. In addition, during the period ended September 30, 2017 two
of our more significant wells were shut in with surface facility issues. In particular, the R Field did not produce for 28 days
during the current quarter and the Evans well was shut in for 8 days.
Our net gas production was 8,578 Mcf for the
quarter ended September 30, 2017, compared to 68,580 Mcf for the quarter ended September 30, 2016. Coupled with the decrease in
natural gas production following our North Stockyard sale, one of our significant gas wells has been down since October 2016 while
undergoing workover operations. These workover operations were not successful and, as a result, this well was plugged and abandoned.
Associated gas produced in the Foreman Butte project area is not as significant as it was in the oil and gas properties previously
owned by the Company, therefore the increased gas production from the acquisition has not offset the decline from the sale.
For the three months ended September 30, 2017
and September 30, 2016, we reported a net loss of $1.7 million and a net loss of $0.5 million, respectively. The loss in the current
period reflects $0.6 million in depletion and amortization and $0.6 million in loss on derivative instruments.
Our ability to continue as a going concern
is dependent on the renegotiation of our credit facility with our primary lender to permit additional development of our oil and
gas properties or the monetization of some or all of those properties. We are engaged in discussions with our current lender concerning
a potential refinancing and with an investment banking firm concerning replacement of our current bank facility with non-bank financing.
We are also exploring to the possible sale of some or all of our producing oil and gas assets in North Dakota and Montana. In light
of our current financial position, we may be required to accept terms less favorable than would otherwise be available to us in
one or more of these transactions.
See “Results of Operations” below.
In the execution of our strategy, our management
is principally focused on economically developing additional reserves of oil and on maximizing production levels through exploration,
exploitation and development activities on a cost-effective basis.
Notable Activities and Status of Material
Properties during the Quarter Ended September 30, 2017 and Current Activities
Acquisition: Producing Properties
Foreman Butte Project, McKenzie County,
North Dakota
Mississippian Madison Formation, Williston
Basin
Samson 87% Operated Average Working Interest
We are continuing with our workover operations
to return several shut-in wells back to production in the Foreman Butte Project. A fluid-level/production efficiency study has
been completed on all the wells in the field to optimize well pump efficiency. We have discovered that many of the wells have sub-performing
pump stroke lengths and/or improperly sized pumping units as evidenced from high-fluid levels located inside the wells. Concurrently,
a number of wells with behind-pipe pay zones have been identified as recompletion candidates.
Our water flood pilot project for the Home
Run Field was recently approved by the NDIC and commenced October 1st. The waterflood pilot project utilizes an existing wellbore,
the Mays 1-20H, which is located on the flank of the field and is non-economic to produce for oil. The water flood is being used
to add pressure to the reservoir which should enhance the recovery of oil. The well performance in the offsetting wells will be
monitored to establish the viability of the flood. The water being used is produced formation water so that there is no chemical
compatibility issue. In essence the water is being returned to the reservoir from which it originated. Initially this water will
be trucked to the injector from the existing producing wells, but may be ultimately be pipelined. This waterflood will allow Samson
to turn back on many wells that have been shut-in for the past 2 years. These shut-in wells were previously uneconomic to produce
due to high water disposal costs.
The Home Run Field (also known as the Foreman
Butte Field) is the largest area oil field in our portfolio. It was developed on a 640 acre spacing pattern and our engineering
and geologic analyses have determined that only 3.2% of the original oil in place has been recovered to date. Given that oil fields
typically recover up to around 20% of their oil in place there would appear to be significant un-developed oil to be recovered
from this field.
Accordingly, we are planning to drill our first
development well early next year if we can obtain access to the necessary capital. The first lateral would test the Ratcliffe Formation
of the Mississippian Madison Group. Currently there are 20 Ratcliffe PUD locations identified. The second lateral would test an
undeveloped reservoir in the Mission Canyon Formation of the Mississippian Madison Group. This lateral could prove up a new oil
field with the potential for additional well locations (up to 20 vertical wells or 8 drill-out laterals). A 3,500 acre 4-way structural
closure has been mapped from an abundance of existing well control in the area. In 2004, the Banks 1-18H well was planned to be
drilled as a dual lateral into both the Ratcliffe and Mission Canyon reservoirs. The Mission Canyon lateral produced hundreds of
barrels of oil while the lateral was being drilled. But the well was ultimately completed as just a single lateral into the Ratcliffe
zone due to the operator being unable to remove a stuck whipstock that was set above the Mission Canyon lateral in order to drill
the Ratcliffe lateral. Assuming we obtain financing to drill, this history makes the Company highly optimistic about the prospects
for the currently planned Mission Canyon lateral.
Undeveloped Properties: Exploration
Activities
Hawk Springs Project, Goshen County, Wyoming
Permo-Penn Project, Northern D-J Basin
Samson 37.5% working interest
Following a delay due to bad weather in the
latter part of 2016, the recompletion of the Bluff #1-11 well has been further delayed due to our current focus on more capital
efficient projects in the Foreman Butte project area. The Jurassic Canyon Springs Formation will be perforated and flow tested
first. If this is unsuccessful, the Cretaceous Dakota Formation will subsequently be perforated and flow tested. This well will
be plugged and abandoned should these two operations be unsuccessful.
Cane Creek Project, Grand & San Juan
Counties, Utah
Pennsylvanian Paradox Formation, Paradox
Basin
Samson 100% Working Interest
We can exercise an option to lease 8,080 net
acres with Utah SITLA (Utah School and Institutional Trust Lands Administration) at a cost of $75 per acre before November 30,
2017. Should Samson not be able to access additional capital prior to the option expiration, it is likely that we let this expire.
We would have to write off the current carrying value of $0.2 million. This acreage is located in the heart of the Cane Creek Clastic
Play of the Paradox Formation along the Cane Creek anticline in Grand and San Juan Counties, Utah. The primary drilling objective
is the over-pressured and oil saturated Cane Creek Clastic interval. Recent reprocessing of the original Potash 3-D seismic survey
has improved the image of the subsurface. New prospects have been mapped and can potentially be drilled in the coming year.
Developed Properties: Drilling Activities
Rainbow Project, Williams County, North Dakota
Mississippian Bakken Formation, Williston Basin
Samson 23% and 52% working interest
Kraken Operating, LLC, the operator of the
Gladys 1-20H well, has been producing this well at an average rate of 45 BOPD and 63 MCFPD during the quarter.
Results of Operations
For the three months ended September 30, 2017,
we reported a net loss of $1.7 million compared to a net loss of $0.5 million for the same period in 2016.
The following tables set forth selected operating
data for the three months ended:
|
|
Three months ended
|
|
|
|
30-Sep-17
|
|
|
30-Sep-16
|
|
Production Volume
|
|
|
|
|
|
|
|
|
Oil (Bbls)
|
|
|
54,869
|
|
|
|
90,957
|
|
Natural gas (Mcf)
|
|
|
8,578
|
|
|
|
68,458
|
|
BOE (Barrels of oil equivalent - based on one barrel of oil to six Mcf of natural gas)
|
|
|
56,299
|
|
|
|
102,367
|
|
|
|
|
|
|
|
|
|
|
Sales Price
|
|
|
|
|
|
|
|
|
Realized Oil ($/Bbls)
|
|
$
|
47.10
|
|
|
$
|
39.43
|
|
Impact of settled derivative instruments
|
|
$
|
(2.29
|
)
|
|
$
|
(2.95
|
)
|
Derivative adjusted price
|
|
$
|
44.81
|
|
|
$
|
36.48
|
|
|
|
|
|
|
|
|
|
|
Realized Gas ($/Mcf)
|
|
$
|
5.74
|
|
|
$
|
2.08
|
|
|
|
|
|
|
|
|
|
|
Expense per BOE:
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
$
|
25.97
|
|
|
$
|
18.05
|
|
Production and property taxes
|
|
$
|
3.37
|
|
|
$
|
3.38
|
|
Depletion, depreciation and amortization
|
|
$
|
8.49
|
|
|
$
|
5.08
|
|
General and administrative expense
|
|
$
|
24.14
|
|
|
$
|
11.28
|
|
The following table sets forth results of operations
for the following periods:
|
|
Three months ended
|
|
|
|
|
|
|
30-Sep-17
|
|
|
30-Sep-16
|
|
|
1Q17 to 1Q16 change
|
|
Oil sales
|
|
$
|
2,584,521
|
|
|
$
|
3,586,208
|
|
|
$
|
(1,001,687
|
)
|
Gas sales
|
|
|
49,257
|
|
|
|
142,526
|
|
|
|
(93,269
|
)
|
Other liquids
|
|
|
1,579
|
|
|
|
15,033
|
|
|
|
(13,454
|
)
|
Interest income
|
|
|
58
|
|
|
|
115
|
|
|
|
(57
|
)
|
Gain on derivative instruments
|
|
|
-
|
|
|
|
443,356
|
|
|
|
(443,356
|
)
|
Other
|
|
|
178,658
|
|
|
|
165,943
|
|
|
|
12,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expense
|
|
|
(1,651,677
|
)
|
|
|
(2,194,315
|
)
|
|
|
542,638
|
|
Depletion, depreciation and amortization
|
|
|
(478,058
|
)
|
|
|
(519,883
|
)
|
|
|
41,825
|
|
Impairment
|
|
|
-
|
|
|
|
(244,480
|
)
|
|
|
244,480
|
|
Abandonement
|
|
|
(40,856
|
)
|
|
|
|
|
|
|
|
|
Exploration and evaluation expenditure
|
|
|
(3,173
|
)
|
|
|
(6,055
|
)
|
|
|
2,882
|
|
Accretion of asset retirement obligations
|
|
|
(80,171
|
)
|
|
|
(79,187
|
)
|
|
|
(984
|
)
|
Interest expense
|
|
|
(247,690
|
)
|
|
|
(623,393
|
)
|
|
|
375,703
|
|
Loss on derivative instruments
|
|
|
(667,395
|
)
|
|
|
-
|
|
|
|
(667,395
|
)
|
Amortization of borrowing costs
|
|
|
(28,950
|
)
|
|
|
(66,849
|
)
|
|
|
37,899
|
|
General and administrative
|
|
|
(1,359,287
|
)
|
|
|
(1,154,461
|
)
|
|
|
(204,826
|
)
|
Net loss
|
|
$
|
(1,743,184
|
)
|
|
$
|
(535,442
|
)
|
|
$
|
(1,166,886
|
)
|
Comparison of Quarter Ended September 30,
2017 to Quarter Ended September 30, 2016.
Oil and gas revenues
Oil revenues decreased from $3.6 million for
the three months ended September 30, 2016 to $2.6 million for the three months ended September 30, 2017, as a result of the decrease
in oil production. Oil production decreased from 90,957 barrels for the three months ended September 30, 2016 to 54,869 barrels
for the three months ended September 30, 2017. Production was higher during the period ended September 30, 2016 due to flush production
from a number of wells that were worked over towards the end of June 2016. Subsequent production has generally decreased in line
with the expected decline curves. In light of recent weakness and volatility in the oil price and our lack of access to capital,
we have discontinued workovers on marginally economical wells that stopped production during the period ended September 30, 2017.
In addition, during the period ended September 30, 2017, two of our more significant wells were shut in with surface facility issues.
In particular, the R Field did not produce for 28 days during the current quarter and the Evans well was shut in for 8 days.
The realized oil price increased from $39.43
per Bbl for the three months ended September 30, 2016 to $47.10. per Bbl (excluding the impact of derivatives) for the three months
ended September 30, 2017 following a recovery in the global oil price.
Gas revenues decreased from $0.1 million for
the three months ended September 30, 2016 to $0.05 million for the three months ended September 30, 2017. This decrease was due
to a decrease in production.
Sale of Assets
For the three months ended September 30, 2017
we recognized $0.2 million in profit on the sale of our working interest in a number of non operated wells in Wyoming. The wells
were sold for the value of the current accounts payable owed to the operator and the plugging liability.
There were no comparable sales for three months
ended September 30, 2016.
Exploration expense
Exploration expenditures for the quarter ended
September 30, 2017 and September 30, 2016 were less than $10,000 for either quarter.
Impairment expense
We did not recognize any impairment expense during the three months
ended September 2017. During the three months ended September 30, 2016 we recognized $0.2 million in impairment expense. The impairment
recognized in the prior quarter relates to a write down in the value of oil inventory held on the balance sheet related to our
accounting policy of the holding inventory at the lower of cost or net realizable value
Lease operating expense
Lease operating expenses (“LOE”)
decreased from $2.2 million for the quarter ended September 2016, to $1.5 million for the quarter ended September 30, 2017 due
to lower production. Costs per BOE, excluding the impact of the workovers and production taxes were $23.39 a barrel. Costs have
increased from $18.05 for the quarter ended September 30, 2016 due to increased salt water disposal costs in our Foreman Butte
project area. The wells in the Foreman Butte project area are also older wells than those we have previously owned and require
additional fresh water and hot oil cleanouts which increase in the operating costs of the wells. We are continuing to review our
lease operating expenses and will shut wells in that are not economic to produce in the current oil pricing environment. Production
also decreased during the quarter ended September 30, 2017, which partially contributed to the increase in per barrel LOE costs
as a fixed costs were distributed over a smaller number of barrels.
During the quarter ended September 30, 2017
we received approval for our water flood project in the Home Run Field from the North Dakota Industrial Commission. This should
lead to lower salt water disposal costs as this project involves injecting produced water (rather than disposing of it) in the
May’s well to increase reservoir pressure in the oil field, up dip of the injection well. Injection operations commenced
October 1
st
.
Depletion, depreciation and amortization
expense
Depletion, depreciation and amortization expense
decreased slightly from $0.5 million for the quarter ended September 30, 2016 to $0.45 million for the quarter ended September
2017. The decrease is due to a decrease in production.
General and administrative expense
General and administrative expense, excluding
share based payments of $0.2 million, remained consistent at $1.2 million for the quarter ended September 30, 2016 and September
30, 2017. We have been actively trying to reduce our general and administrative costs in recent periods. Effective October 1, 2017,
all staff and directors took 25% pay cuts in order to reduce salary costs. The cost of a number of consultants have also been reduced.
Cash Flows
The table below shows cash flows for the following
periods:
|
|
Three months ended
|
|
|
|
30-Sep-17
|
|
|
30-Sep-16
|
|
Cash (used in)/provided by operating activities
|
|
$
|
(168,709
|
)
|
|
$
|
71,198
|
|
Cash provided by/(used in) investing activities
|
|
|
(99,579
|
)
|
|
|
(1,140,872
|
)
|
Cash used in/(provided by) financing activities
|
|
|
450,000
|
|
|
|
-
|
|
Cash provided by operations decreased from
a net inflow of $0.1 million for the three months ended September 30, 2016, to a net outflow of ($0.2 million) for the three months
ended September 30, 2017. Cash receipts from customers increased decreased from $3.4 million for the three months ended September
30, 2016 to $3.0 million for the three months ended September 30, 2017, with an increase in price offset by a decrease in production.
Payments to suppliers and employees also remained flat at $2.7 million for the three months ended September 30, 2016 and 2017.
Payments for derivative instruments decreased slightly. Interest expense decreased slightly in the three months ended September
30, 2017 compared to the three months ended September 30, 2016. A decrease in the value of the credit facility from September 30,
2016 to September 30, 2017 was offset by an increase in the interest rate payable.
Cash used in investing activities decreased
from $1.1 million for the three months ended September 30, 2016 to outflow of $0.1 million for the three months ended September
30, 2017 following a cessation of significant activity in our Foreman Butte project, while we secure the additional capital needed
to exploit the PUD locations in this field. The cash outflow in the prior period relates to continued work in Foreman Butte field.
Cash provided by financing activities increased
from a cash inflow of $nil million for the three months ended September 30, 2016 to cash inflow of $0.5 million for the three months
ended September 30, 2017, following the drawdown of funds under our Mutual of Omaha Bank credit facility.
All options outstanding as at September 30,
2017 are currently out of the money.
Liquidity, Capital Resources and Capital
Expenditures
Our primary use of capital has been acquiring,
developing and exploring oil and natural gas properties. While we are planning for this to be our primary use of capital during
the remainder of fiscal 2017-2018, we cannot conduct any further development activities until we secure additional funding. There
can be no guarantee we will be able to secure this funding.
In January 2014, we entered into a $25.0 million
credit facility with our primary lender, Mutual of Omaha Bank, with an initial borrowing base of $8.0 million, which was increased
to $15.5 million in June 2014. In November 2014, the borrowing base was increased to $19.0 million, which was fully drawn prior
to the closing of the Foreman Butte Acquisition. In March 2016, our credit facility was amended to increase the borrowing base
to $30.5 million to partially fund the Foreman Butte Acquisition. An additional $4 million in financing was also provided by the
seller. This promissory note was paid off in May 2017. We were required under the amended credit agreement to repay Mutual of Omaha
$10 million by June 30, 2016. This was ultimately increased to $11.5 million and extended to October 31, 2016. The pay down was
achieved through the sale of our North Stockyard property for $14.95 million on October 28, 2016 and was made on October 31, 2016.
In May 2017, Mutual of Omaha agreed to repay
our outstanding promissory note to the seller of the Foreman Butte Acquisition through a term note in addition to our current facility.
This closed on May 5, 2017. Samson paid $0.45 million in interest from existing cash reserves, while Mutual of Omaha paid $4.0
million in principal.
As a result of this amendment to the credit
facility the interest changed from being based on LIBOR to the Wall Street Journal published Prime Rate (“Prime”).
The interest rate on the term loan is Prime plus 2.5% or approximately 6.5% and the credit facility is Prime plus 1.0% or 5%.
In June 2017, Samson and Mutual of Omaha Bank
agreed to extend both the $4 million term loan and our $19.45 million reserve base facility until October 2018. The previous maturity
date was October 31, 2017.
The current borrowing base is $24.0 million
and was fully drawn as at September 30, 2017. The additional borrowing base capacity has no additional restrictions on it.
The borrowing base under our credit facility
may be increased (up to the credit facility maximum of $50.0 million, which would require syndication of the loan) or decreased
in the future depending on the value of our reserves. Borrowing base redeterminations are performed by the lender every six months
based on our June and December reserve reports. We also have the ability to request a borrowing base redetermination at another
time, once a year.
In March 2016, the facility was extended to
$30.5 million to partly fund the Foreman Butte Acquisition. As a result of this amendment to the facility agreement, the following
changes were made to the original facility agreement:
|
·
|
The addition of more restrictive financial
covenants (including the debt to EBITDA ratio and the minimum liquidity requirement);
|
|
·
|
Increases in the interest rate and unused
facility fee;
|
|
·
|
The addition of a minimum hedging requirement
of 75% of forecasted production;
|
|
·
|
A requirement to reduce our general and
administrative costs from $6 million per year to $3 million per year;
|
|
·
|
A requirement to raise $5 million in equity
on or before September 30, 2016 (this was extended to November 15, 2016 and then effective November 10, 2016, Mutual of Omaha agreed
that this requirement had been met following the $1.4 million capital raise completed in April 2016 and by the application of retained
funds from the North Stockyard sale);
|
|
·
|
A requirement to pay down at least $10
million of the loan by June 30, 2016 (which was increased to $11.5 million and extended to October 31, 2016 in line with the closing
of the North Stockyard sale) and we repaid $11.5 million on October 31, 2016; and
|
|
·
|
The addition of a monthly cash flow sweep
whereby 50% of cash operating income will be used to repay outstanding borrowings under the Credit Agreement. To date, $0.1 million
in repayments have been made under this covenant.
|
The credit facility includes the following
covenants, tested on a quarterly basis:
|
·
|
Current ratio greater than 1
|
|
·
|
Debt to EBITDAX (annualized) ratio no
greater than 5.75 for the quarter ended March 30, 2016 through to September 30, 2016 reducing to 4.00 by September 30, 2017
|
|
·
|
Senior leverage ratio of no greater than
4.25 to 1 for the quarter ended June 30, 2016 reducing to 3.75 for the quarter ending December 31, 2016 and thereafter
|
|
·
|
Interest coverage ratio minimum of between
2.5 and 1.0
|
As at September 30, 2017 we are in breach of
all four of these covenants. We have requested waivers from Mutual of Omaha but there is no assurance that the waivers will in
fact be granted.
Our credit facility has been recorded as a current liability and
is due for repayment October 2018. If we do not meet the credit facility covenants, we will continue to ask for waivers on a quarterly
basis as necessary, though there can be no guarantee than any waiver will be granted. If we do not receive a waiver from the lender,
and we fail to cure any such noncompliance during the applicable cure period, the due date of our debt could be accelerated by
the lender. In addition, our failure to comply with these covenants under our credit facility would adversely affect our ability
to fund ongoing operations.
The funds drawn from our credit facility were
previously used to fund drilling in our North Stockyard project in North Dakota and, more recently, to partially fund the Foreman
Butte acquisition.
The uncertainties surrounding our capital resources
and requirements are further exacerbated by the variable results of our exploration and drilling program and changes in oil and
natural gas prices, either of which could lead us to accelerate or decelerate exploration and drilling activities. The aggregate
levels of capital expenditures for our fiscal year ending June 30, 2017, and the allocation of those expenditures, are dependent
on a variety of factors, including the availability of capital resources to fund those expenditures and changes in our business
assessments as to where our capital can be most profitably employed. Accordingly, the actual levels of capital resources and expenditures
and the allocation of those expenditures may vary materially from our estimates.
We are continually monitoring the capital resources
available to us to meet our future financial obligations, planned capital expenditure activities and liquidity. Our
future success in growing our proved reserves and production will be highly dependent on capital resources available to us and
our success in finding or acquiring such additional productive reserves.
Our main sources of liquidity during the three
months ended September 30, 2017 were cash on hand and a drawdown of $0.45 million from our Mutual of Omaha Bank credit facility.
During the prior four fiscal years, our three
main sources of liquidity were (i) borrowings under our credit facility, (ii) equity issued to raise $21.4 million and (iii) our
tax refund of $5.6 million from the Internal Revenue Service, received in February 2013. During the years prior to the fiscal year
ended June 30, 2012, our primary sources of liquidity were the sale of acreage and other oil and gas assets.
Our cash position as of September 30, 2017
increased slightly from June 30, 2017 largely due to a drawdown in our Mutual of Omaha Bank credit facility of $0.45 million.
In October 2016, we closed on the sale of our
North Stockyard project for $15.05 million. $11.5 million of the proceeds of the sale were used to pay down our credit facility
with Mutual of Omaha Bank. $0.2 million was used to close out a portion of our hedge positions to balance our hedge book following
the sale of production. The remaining $3.35 million, including the $1.0 million deposit paid in June 2016, was used for future
working capital
In April 2016, we issued 378,020,400 ordinary
shares at $0.0037 per ordinary share to raise gross proceeds of $1,398,675.
In April 2016, we also received cash of $725,000
from Halliburton following the settlement of our legal dispute with them.
If future production rates are less than anticipated,
and/or the oil price continues to deteriorate for an extended period, the value of our position in affected areas will decline,
our results of operations, financial condition and liquidity will be adversely impacted and we could incur material write-downs
of oil and gas properties. Our ability to continue operations could also be adversely affected. See the risk factors in our Annual
Report on Form 10-K for the fiscal year ended June 30, 2017. See also Part II, Item 1A of this report below.
Off-Balance Sheet Arrangements
Since our inception, we have not engaged in
any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.
Looking Ahead
We plan to focus on the following objectives
in the coming 12 months:
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Continued focus on cost savings and efficiency
across all aspects of the Company, including lease operating costs and general and administrative costs;
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Strengthening the balance sheet through
diligent capital management;
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The successful integration of the properties
and assets acquired in the Foreman Butte Acquisition, and the review and workover of such assets as capital becomes available;
and
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Renegotiation of our credit facility and
extend its term.
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Our ability to meet these objectives, depends
on our success in raising additional capital to fund the planned development of our oil and gas properties.