Notes to the Condensed Consolidated Financial
Statements
March 31, 2020
|
1.
|
NATURE OF BUSINESS AND BASIS OF PRESENTATION
|
Nature of Business
Deep Well Oil & Gas, Inc. was originally
incorporated on July 18, 1988 under the laws of the state of Nevada as Worldwide Stock Transfer, Inc. (Worldwide Stock Transfer, Inc.
later changed its name to Allied Devices Corporation) and in connection with a plan of reorganization, effective on September 10, 2003,
the company was reorganized and changed its name to Deep Well Oil & Gas, Inc. (“Deep Well”).
These condensed consolidated financial
statements have been prepared showing the name “Deep Well Oil & Gas, Inc. (and Subsidiaries)” (“the Company”)
and the post-split common stock, with $0.001 par value.
Going Concern
The Company’s condensed consolidated
financial statements are prepared using generally accepted accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course of business. As of March 31, 2020, the Company has a working
capital deficit, and continues to have an accumulated deficit and has generated negative cash flows from operations. These factors raise
substantial doubt regarding the Company’s ability to continue as a going concern. In order to continue as a going concern and achieve
a profitable level of operations, the Company will need, among other things, additional capital resources and to develop a consistent
source of dependent upon the ability to raise equity or debt financing, and the attainment of profitable operations from the Company's
operations. The management of the Company is developing a strategy, which it hopes will accomplish this objective through short-term related
party loans and additional equity funding, which will enable the Company to operate for the coming year. The accompanying financial statements
do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Basis of Presentation
The interim condensed consolidated financial
statements included herein have been prepared by the Company, without audit and auditor review, pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared
in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) have been condensed
or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate so as to make the information
presented not misleading.
These interim condensed consolidated
financial statements follow the same significant accounting policies and methods of application as the Company’s annual consolidated
financial statements for the year ended September 30, 2019.
These statements reflect all adjustments,
consisting solely of normal recurring adjustments (unless otherwise disclosed) which, in the opinion of management, are necessary for
a fair presentation of the information contained therein. However, the results of operations for the interim periods may not be indicative
of results to be expected for the full fiscal year. It is suggested that these condensed consolidated financial statements be read in
conjunction with the audited consolidated financial statements and notes thereto included in the Company’s Annual Report on Form
10-K for the year ended September 30, 2019.
|
2.
|
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Consolidation
These interim condensed consolidated
financial statements include the accounts of two wholly owned subsidiaries: (1) Northern Alberta Oil Ltd. (“Northern”) from
the date of acquisition, being June 7, 2005, incorporated under the Business Corporations Act (Alberta), Canada; and (2) Deep Well Oil
& Gas (Alberta) Ltd., incorporated under the Business Corporations Act (Alberta), Canada on September 15, 2005. All inter-company
balances and transactions have been eliminated.
Crude oil and natural gas properties
The Company follows the full cost method
of accounting for oil sands properties pursuant to SEC Regulation S-X Rule 4-10. The full cost method of accounting for oil and gas operations
requires that all costs associated with the exploration for and development of oil and gas reserves be capitalized on a country by country
basis. Such costs include lease acquisition costs, geological and geophysical expenses, carrying charges on non-producing properties,
costs of drilling both productive and non-productive wells, production equipment and overhead charges directly related to acquisition,
exploration and development activities.
Under
the full cost method, oil and gas properties are subject to the ceiling test performed quarterly. A
ceiling test write-down is recognized in net earnings if the carrying amount of a cost centre exceeds the “cost centre ceiling”.
The carrying amount of the cost centre includes the capitalized costs of proved oil and natural gas properties, net of accumulated depletion
and deferred income taxes. The cost centre ceiling is the sum of (A) present value of the estimated future net cash flows from proved
oil and natural gas reserves using a 10 percent per year discount factor, (B) the costs of unproved properties not being amortized,
and (C) the lower of cost or fair value of unproved properties included in the costs being amortized; less (D) related income tax effects.
As of March 31, 2020, no ceiling test write-downs were recorded for the Company’s oil and gas properties.
Costs associated with unproved properties
are excluded from the depletion calculation until it is determined that proved reserves are attributable or impairment has occurred. The
Company's unproved properties are assessed annually for impairment. Costs that have been impaired are included in the costs subject to
depletion within the full cost pool.
Asset Retirement Obligations
The Company accounts for asset retirement
obligations by recording the fair value of the estimated future cost of the Company’s plugging and abandonment obligations. The
asset retirement obligation is recorded when there is a legal obligation associated with the retirement of a tangible long-lived asset
and the fair value of the liability can reasonably be estimated. Upon initial recognition of an asset retirement obligation, the Company
increases the carrying amount of the long-lived asset by the same amount as the liability. Over time, the liabilities are accreted for
the change in their present value through charges to oil and gas production and well operations costs. The initial capitalized costs are
depleted over the useful lives of the related assets through charges to depreciation, depletion, and amortization. If the fair value of
the estimated asset retirement obligation changes, an adjustment is recorded to both the asset retirement obligation and the asset retirement
cost.
Revisions in estimated liabilities can
result from revisions of estimated inflation rates, escalating retirement costs, and changes in the estimated timing of settling asset
retirement obligations. As of March 31, 2020, and September 30, 2019, asset retirement obligations amount to $475,861 and $500,392, respectively.
The Company has posted bonds, where required, with the Government of Alberta based on the amount the government estimates the cost of
abandonment and reclamation to be.
Financial, Concentration and Credit
Risk
The Company’s consideration or
related financial credit risk related to cash and cash equivalents depends on if funds are fully insured by either The Canada Deposit
Insurance Corporation (“CDIC”), or The Credit Union Deposit Guarantee Corporation (“CUDGC”) deposit insurance
limit. As of March 31, 2020, the Company has approximately $5,804 funds that are in excess of deposit insurance limits, which may have
financial credit risk. For the Company funds that are maintained in a financial institution which has its deposits fully guaranteed by
CUDGC, there is no financial credit risk.
The Company is not directly subject
to credit risk resulting from the concentration of its crude oil sales. For the period ending March 31, 2020 and March 31, 2019 the Company
recorded no oil sales.
Basic and Diluted Net Loss Per Share
Basic net loss per share amounts are
computed based on the weighted average number of shares actually outstanding. Diluted net loss per share amounts are computed using the
weighted average number of common shares and common equivalent shares outstanding as if shares had been issued on the exercise of the
common share rights, unless the exercise becomes antidilutive and then the basic and diluted per share amounts are the same. There were
no potentially dilutive securities excluded from the the diluted earnings per share calculation because their effect would be antidilutive.
Recently Adopted Accounting Standards
In February 2016, the FASB issued ASU
2016-02, “Leases (Topic 842),” requiring lessees to recognize lease assets and lease liabilities for most leases classified
as operating leases under previous U.S. GAAP. The guidance is effective for fiscal years beginning after December 15, 2018, with early
adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist or are entered into after
the beginning of the earliest comparative period in the financial statements. This ASU does not apply to the Company’s oil sand
leases. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements because
the Company has no leases that the new accounting standard applies to.
|
3.
|
OIL AND GAS PROPERTIES
|
The Company’s oil sands properties
under lease as of March 31, 2020, cover 19,610 gross acres (13,442 net acres) of land under seven oil sands leases. The lease expiration
dates of the Company’s oil sands leases are as follows:
|
1.
|
Out of 20,242 gross acres (13,284 net acres) under five oil sands leases that were set to expiry on July
10, 2018, 14,549 gross acres (8,571 net acres) were granted continuation under the Alberta Oil Sands Tenure regulations and have no set
expiry date. In November of 2017, the Company’s joint venture partner and operator of two of the five oil sands leases, submitted
two continuation applications to the Alberta Oil Sands Tenure division to apply to continue 7,591 gross acres (1,898 net acres) and in
January 2018, approval was received from Alberta Energy to continue 6,958 gross acres (1,740 net acres). In June 2018, the Company as
operator of three of these five oil sands leases, submitted three continuation applications to the Alberta Oil Sands Tenure division to
apply to continue another 7,591 gross acres (6,832 net acres) where resources were identified and in July 2018 and April 2019, approval
was received from Alberta Energy to continue 7,591 gross acres (6,832 net acres). Of these five oil sands leases that were set to expiry
on July 10, 2018, a total of 5,693 gross acres (4,713 net acres) expired without being continued. These expired lands were primarily areas
where the Company determined that there was no or limited exploitable resources. These continued leases are now held by the Company for
perpetuity, subject to yearly escalating rental payments until they are deemed to be producing leases;
|
|
2.
|
Out of 19,610 gross acres (17,649 net acres) under the three most northern oil sands leases that were
set to expire on August 19, 2019, 1,898 gross acres (1,708 net acres) were granted continuation under the Alberta Oil Sands Tenure regulations
and have no set expiry date. In August 2019, the Company as operator of these three most northern leases submitted one continuation application
to the Alberta Oil Sands Tenure division to apply to continue 1,898 gross acres (1,708 net acres) and in October 2019, approval was received
from Alberta Energy to continue 1,898 gross acres (1,708 net acres). Of these three most northern oil sands leases that were set to expiry
on August 19, 2019, a total of 17,712 gross acres (15,941 net acres) expired without being continued. These expired lands were primarily
areas where the Company determined that there was no or limited exploitable resources. This one partially continued lease is now held
by the Company for perpetuity, subject to yearly escalating rental payments until the lease is deemed to be a producing lease. See “Subsequent
Events” in the notes to the Condensed Consolidated Financial Statements for the period ending March 31, 2020 as disclosed herein;
and
|
|
3.
|
3,163 gross acres (3,163 net acres) under one oil sands lease are set to expire on April 9, 2024. The
Company will be applying to continue this lease into perpetuity.
|
Lease Rental Commitments
The Company has acquired interests in
certain oil sands properties located in North Central Alberta, Canada. The lease terms include certain commitments related to oil sands
properties that require the payments of yearly rents. As required by the amended Oil Sands Tenure Regulation of the Mines and Minerals
Act of Alberta continued oil sands leases past their expiry dates are subject to escalating rental payments in respect of each term year
of a continued lease that is designated as non-producing. Annual and escalating rent of continued leases are due at the beginning of each
term year. As of March 31, 2020, the following table sets out the estimated net payments due under lease rental commitments for non-producing
continued leases which could be as high as, until the leases are classified as producing continued leases:
|
|
(USD $)
|
|
|
(Cdn $)
|
|
2020
|
|
$
|
15,504
|
|
|
$
|
21,995
|
|
2021
|
|
$
|
19,048
|
|
|
$
|
27,022
|
|
2022
|
|
$
|
26,382
|
|
|
$
|
37,426
|
|
2023
|
|
$
|
26,382
|
|
|
$
|
37,426
|
|
2024
|
|
$
|
29,088
|
|
|
$
|
41,266
|
|
Subsequent
|
|
$
|
209,773
|
|
|
$
|
297,592
|
|
The Company follows the full cost method
of accounting for costs of oil properties. Under this method, oil and gas properties, for which no proved reserves have been assigned,
must be assessed at least annually to ascertain whether or not a write down should occur. Unproven properties are assessed annually for
potential write down.
Estimates of expected future cash flows
represent management’s best estimate based on reasonable and supportable assumptions. No write downs were recognized for the period
ended March 31, 2020.
Capitalized costs of proven oil properties
will be depleted using the unit-of-production method when the property is placed in production.
Many of the Company’s oil activities
are conducted jointly with others. The accounts reflect only the Company’s proportionate interest in such activities.
|
4.
|
CAPITALIZATION OF COSTS INCURRED IN OIL AND GAS ACTIVITIES
|
The following table illustrates capitalized
costs relating to oil producing activities for the six months ended March 31, 2020 and the fiscal year ended September 30, 2019:
|
|
March 31,
2020
|
|
|
September 30,
2019
|
|
Unproved Oil and Gas Properties
|
|
$
|
22,159,656
|
|
|
$
|
22,147,367
|
|
Accumulated Depreciation and Depletion
|
|
|
(112,643
|
)
|
|
|
(107,060
|
)
|
Net Capitalized Cost
|
|
$
|
22,047,013
|
|
|
$
|
22,040,307
|
|
Depreciation and depletion expense for
the six months ended March 31, 2020 and 2019 were $5,571 and $5,571 respectively.
|
5.
|
EXPLORATION ACTIVITIES
|
The following table presents information
regarding the Company’s costs incurred in the oil property acquisition, exploration and development activities for the six months
ended March 31, 2020 and the fiscal year ended September 30, 2019:
|
|
March 31,
2020
|
|
|
September 30,
2019
|
|
Acquisition of Properties:
|
|
|
|
|
|
|
Proved
|
|
$
|
–
|
|
|
$
|
–
|
|
Unproved
|
|
$
|
–
|
|
|
$
|
–
|
|
Exploration costs
|
|
$
|
12,289
|
|
|
$
|
75,580
|
|
Development costs
|
|
$
|
–
|
|
|
$
|
–
|
|
|
6.
|
SIGNIFICANT TRANSACTIONS WITH RELATED PARTIES
|
Accounts payable – related parties
were $6,218 as of March 31, 2020 (September 30, 2019 - $1,375) for expenses to be reimbursed to directors. This amount is unsecured, non-interest
bearing, and has no fixed terms of repayment.
As of March 31, 2020, officers, directors,
their families, and their controlled entities have acquired 53.96% of the Company’s outstanding common capital stock.
The Company incurred expenses $67,581
to one related party, Concorde Consulting, an entity controlled by a director, for professional fees and consulting services provided
to the Company during the period ended March 31, 2020 (March 31, 2019 - $67,941).
|
7.
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ASSET RETIREMENT OBLIGATIONS
|
The total future asset retirement obligation
is estimated by management based on the Company’s net working interests in all wells and facilities, estimated costs as determined
by the Alberta Energy Regulator to reclaim and abandon wells and facilities and the estimated timing of the costs to be incurred in future
periods. At March 31, 2020, the Company estimates the undiscounted cash flows related to asset retirement obligations to total approximately
$569,718 (September 30, 2019 - $610,291). The fair value of the liability at March 31, 2020 is estimated to be $475,861 (September 30,
2019 - $500,392) using a risk-free rate of 3.74% and an inflation rate of 2%. The actual costs to settle the obligation are expected to
occur in approximately 23 years.
Changes to the asset retirement obligation
were as follows:
|
|
March 31,
2020
|
|
|
September 30,
2019
|
|
Balance, beginning of period
|
|
$
|
500,392
|
|
|
$
|
493,467
|
|
Liabilities incurred
|
|
|
–
|
|
|
|
–
|
|
Effect of foreign exchange
|
|
|
(33,837
|
)
|
|
|
(11,081
|
)
|
Disposal
|
|
|
–
|
|
|
|
–
|
|
Accretion expense
|
|
|
9,306
|
|
|
|
18,006
|
|
Balance, end of period
|
|
$
|
475,861
|
|
|
$
|
500,392
|
|
Common Stock Issued and Outstanding
As of March 31, 2020, the Company had
outstanding 230,574,603 shares of common stock. See “Subsequent Events” in the notes to the Condensed Consolidated Financial
Statements for the period ending March 31, 2020, as disclosed herein.
On November 17, 2019, 600,000 stock
options previously granted on November 17, 2014 to one director expired unexercised.
The following is a summary of stock option activity as at
March 31, 2020:
|
|
Number of Underlying Shares
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Fair Market Value
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019
|
|
|
600,000
|
|
|
$
|
0.23
|
|
|
$
|
0.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired, November 17, 2019
|
|
|
(600,000
|
)
|
|
|
0.23
|
|
|
|
0.18
|
|
Balance, March 31, 2020
|
|
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, March 31, 2020
|
|
|
–
|
|
|
$
|
–
|
|
|
$
|
–
|
|
|
10.
|
CHANGES IN NON-CASH WORKING CAPITAL
|
|
|
Six months ended
|
|
|
Six months Ended
|
|
|
|
March 31,
2020
|
|
|
March 31,
2019
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
$
|
(10,324
|
)
|
|
$
|
(37,227
|
)
|
Prepaid expenses
|
|
|
15,100
|
|
|
|
(2,062
|
)
|
Accounts payable
|
|
|
48,763
|
|
|
|
(23,800
|
)
|
|
|
$
|
53,539
|
|
|
$
|
(63,089
|
)
|
Compensation to Executive Officers
Concorde Consulting, a company owned
100% by Mr. Curtis J. Sparrow, for providing services as Chief Financial Officer to the Company for $11,264 per month (Cdn $15,000 per
month).
Office Lease
On January 31, 2020, the Company renewed
its Edmonton office lease commencing effective on July 1, 2019 and expiring on June 30, 2020. Under the original office lease, the quarterly
payments due are as follows:
|
|
USD $
|
|
|
Cdn $
|
|
2020 Q3 (April - June)
|
|
$
|
3,500
|
|
|
$
|
4,965
|
|
See “Subsequent Events”
in the notes to the Condensed Consolidated Financial Statements for the period ending March 31, 2020, as disclosed herein.
Provident Premier Master Fund
Ltd. vs Northern Alberta Oil Ltd., Deep Well Oil & Gas (Alberta) Ltd., Andora Energy Corporation and MP Energy West Canada Corp.
On October 28, 2019, Provident Premier
Master Fund Ltd. (the “Plaintiff”), filed and served an Amended Statement of Claim against Northern Alberta Oil Ltd., Deep
Well Oil & Gas (Alberta) Ltd., Andora Energy Corporation and MP Energy West Canada Corp. (the “Defendants”) in the Court
of Queen’s Bench of Alberta Judicial District of Calgary. The Original Statement of Claim had been filed on November 1, 2018 but
the Company states that it was never served, so the Company was not aware of the claim until served with the Amended Statement of Claim.
The Plaintiff claims that on December 12, 2003, Nearshore Petroleum Corporation (“Nearshore”) entered into a royalty agreement
with Northern Alberta Oil Ltd. (“Northern”) in which Northern supposedly granted a 6.5% gross overriding royalty (the “Purported
GORR”) in all petroleum substances produced, saved and marketed from certain oil sands leases located within the Company's Sawn
Lake properties. The Plaintiff further claims that on September 22, 2006, Nearshore and Gemini Strategies LLC (“Gemini”) entered
into a royalty conveyance agreement whereby Nearshore sold 1% of the Purported GORR to Gemini. The Plaintiff further states that Gemini
acquired the 1% of the Purported GORR as agent for Provident, Grey K Fund LP (“Grey K”) and Grey K Offshore Fund Ltd. (“Grey
K Offshore”). The Plaintiff further claims that on September 22, 2006, Gemini delivered a notice of assignment, in accordance with
the 1993 Canadian Association of Petroleum Landmen Assignment Procedure (the “1993 CAPL”), to the grantors of the 1% of the
Purported GORR, novating Provident (66.67%, net 0.6667%), Grey K (19.33%, net 0.1933%) and Grey K Offshore (14%, net 0.14%) into the Purported
GORR agreement. The Plaintiff further claims that on September 2, 2009, any legal title in the Purported GORR beneficially owned by Grey
K and Grey K Offshore vested in the Crown in right of Alberta pursuant to Section 229(1) of the Business Corporations Act and pursuant
to section 15 of the Unclaimed Personal Property and Vested Property Act. The Plaintiff further claims that the Purported GORR was payable
by one or more of the Defendants to Provident and that the Defendants are in breach of the Purported GORR agreement by failing to pay
the Purported GORR. Despite the allegation within the claim that the Purported GORR was payable to each of Provident, Grey K and Grey
K Offshore, the only Plaintiff named in the Amended Statement of Claim is Provident and relief is only being sought by Provident in relation
to its purported 0.67% interest.
The Plaintiff seeks: 1) A declaration
that the Plaintiff is the legal owner of 0.67% of the Purported GORR payable on all oil sands produced from the lands which is payable
by one or more of the Defendants; 2) An accounting to determine the amount of the outstanding royalty of which judgment is estimated by
the Plaintiff to be in the amount of $70,490 ($100,000 Cdn); and 3) Interest and costs.
The Company continues to deny the validity
of the Purported GORR in the first instance. As well, if the Purported GORR was valid, which is denied, it was not a gross overriding
interest, but rather an overriding interest, which allowed for the deduction of operating and marketing costs. The Company plans to vigorously
defend itself against the Plaintiff’s claims. As at March 31, 2020, no contingent liability has been recorded, as a successful outcome
for the Plaintiff is not probable.
See “Subsequent Events”
in the notes to the Condensed Consolidated Financial Statements for the period ending March 31, 2020, as disclosed herein.
Loan
On
April 20, 2020, one of the Company’s Canadian subsidiaries, received a loan from that subsidiary's Canadian chartered bank in the
amount of $28,196 ($40,000 Cdn) as part of the Canadian government’s COVID-19 relief program. In addition, on December 18, 2020,
the Company’s Canadian subsidiary, received an additional $14,098 ($20,000 Cdn) under the same COVID relief program. Under
this loan program, eligible businesses receive a $40,000 Cdn interest-free loan until December 31, 2022. If $30,000 Cdn is repaid on or
before December 31, 2022, the remaining amount of the loan is eligible for complete forgiveness. If the loan is not repaid by December
31, 2022, it will be extended for an additional 3-year term bearing an interest rate of 5% per annum.
Office Lease
On June 24, 2020, the Company extended
the Edmonton office lease commencing effective on July 1, 2020 and expiring on June 30, 2021. Under the original office lease, the quarterly
payments due are as follows:
|
|
USD $
|
|
|
Cdn $
|
|
|
|
|
|
|
|
|
2020 Q4 (July - September)
|
|
|
3,500
|
|
|
|
4,965
|
|
2021 Q1 (October - December)
|
|
|
3,500
|
|
|
|
4,965
|
|
2021 Q2 (January - March)
|
|
|
3,500
|
|
|
|
4,965
|
|
2021 Q3 (April - June)
|
|
|
3,500
|
|
|
|
4,965
|
|
From March 14, 2020 thru to June 30,
2021, the Company did not utilize its office space, and therefore the Company did not renew its office lease on June 30, 2021. As previously
disclosed above in Note 11, due to COVID-19 and certain governmental restrictions and recommendations, the Company’s staff has continued
to work from home.
Effective February 2021, the Company
currently rents office and storage space on a month-to-month basis with no lease commitment effective February 2021. The quarterly payments
due are as follows:
|
|
USD $
|
|
|
Cdn $
|
|
|
|
|
|
|
|
|
2021 Q2 (January - March)
|
|
|
1,516
|
|
|
|
2,150
|
|
2021 Q3 (April - June)
|
|
|
2,273
|
|
|
|
3,225
|
|
Legal Actions
Provident Premier Master Fund
Ltd. vs Northern Alberta Oil Ltd., Deep Well Oil & Gas (Alberta) Ltd., Andora Energy Corporation and MP Energy West Canada Corp.
On October 22, 2020, Provident Premier
Master Fund Ltd. (the “Plaintiff”), filed and served a Second Amended Statement of Claim against Northern Alberta Oil Ltd.,
Deep Well Oil & Gas (Alberta) Ltd., Andora Energy Corporation and MP Energy West Canada Corp. (the “Defendants”) in the
Court of Queen’s Bench of Alberta Judicial District of Calgary. The Original Statement of Claim had been filed on November 1, 2018,
but the Company states that it was never served, so the Company was not aware of the claim until served with the first Amended Statement
of Claim filed with the Court of Queen’s Bench of Alberta Judicial District of Calgary on October 24, 2019. The Plaintiff claims
that on December 12, 2003, Nearshore Petroleum Corporation (“Nearshore”) entered into a royalty agreement with Northern Alberta
Oil Ltd. (“Northern”) in which Northern granted a 6.5% gross overriding royalty (the “Purported GORR”) in all
petroleum substances produced, saved and marketed from certain oil sands leases held by the Company located within the Company's Sawn
Lake properties. The Plaintiff seeks: 1) A declaration that the Plaintiff is the legal owner of 0.67% of the Purported GORR payable on
all oil sands produced from the lands which is payable by one or more of the Defendants; 2) As stated in Clause 18(b) of the Second Amended
Statement of Claim, an accounting to determine the amount of the outstanding royalty; 3.) Judgment or restitution in the amount determined
pursuant to clause 18(b) in the approximate amount of $70,490 ($100,000 Cdn) plus such further amounts as come due following the filing
of the action; and 4) Interest and costs.
On November 30, 2020, the Defendants
filed a Statement of Defence against the Plaintiff in the Court of Queen’s Bench of Alberta Judicial District of Calgary. The Defendants
continue to deny the validity of the Purported GORR in the first instance. As well, if the Purported GORR was valid, which is denied,
it was not a gross overriding interest, but rather an overriding interest, which allowed for the deduction of operating and marketing
costs.
December 21,2020, Northern Alberta Oil
Ltd., Deep Well Oil & Gas (Alberta) Ltd. (the “Third-Party Defendants”) filed a Statement of Defence to Third Party Claim
against the Plaintiff in the Court of Queen’s Bench of Alberta Judicial District of Calgary. The remedy sought by the Third-Party
Defendants is: 1.) the Third-Party Defendants ask that the Plaintiff’s claim against MP Energy West Canada Corp. and Andora Energy
Corporation be dismissed, with costs payable by the Plaintiff; and 2.) The Third-Party Defendants ask that no costs be payable in relation
to the Third-Party Claim.
The Defendants plan to vigorously defend
itself against the Plaintiff’s claims.
Andora Energy Corporation vs Northern
Alberta Oil Ltd. and Deep Well Oil & Gas (Alberta), Ltd.
On December 3, 2020, Andora Energy Corporation
(the “Plaintiff”), filed a Statement of Claim against Northern Alberta Oil Ltd. and Deep Well Oil & Gas (Alberta) Ltd.
(the “Defendants”) in the Court of Queen’s Bench of Alberta Judicial District of Calgary. The Company states that it
was first served with this Statement of Claim on January 26, 2021. The Plaintiff claims that the Defendants owe the Plaintiff $94,321
($133,808 Cdn) for unpaid joint interest billings. The Plaintiff seeks: 1.) Judgment, or alternatively damages, in the amount of the indebtedness,
or such further amounts as may be due and owing as at the date of trail; 2.) Interest on the amount found to be owing; 3.) Costs of this
action; and 4.) Such further and other relief as counsel may advise and the court deems just.
On February 17, 2021, the Defendants
filed a Statement of Defence against the Plaintiff in the Court of Queen’s Bench of Alberta Judicial District of Calgary. The Defendants
claimed that the Plaintiff owes monies to the Defendants for leases operated by the Defendants, and that the Defendants have a right to
off-set costs against any monies that may be owed to the Plaintiff’s.
On March 18, 2021, Andora Energy Corporation
(the “Plaintiff”), filed an Application for Summary of Judgment and Affidavit to support the Application for Summary of Judgment
against Northern Alberta Oil Ltd. and Deep Well Oil & Gas (Alberta) Ltd. (the “Defendants”) in the Court of Queen’s
Bench of Alberta Judicial District of Calgary. The Plaintiff seeks the repayment of outstanding joint interest billings pursuant to a
joint operating agreement between the parties (the “JOA”). The Plaintiff seeks an Order granting the following relief: 1.)
summary judgment in favour of Plaintiff as against the Defendant Northern Alberta Oil Ltd. in the amount of $92,489 ($131,209 Cdn); 2.)
summary judgment in favour of Plaintiff as the Defendant Deep Well Oil & Gas (Alberta) Ltd. in the amount of $13,894 ($19,710 Cdn);
3.) interest on the amounts pursuant to the contractual interest rate prescribed by the JOA, or alternatively, pursuant to the Judgement
Interest Act RSA 2000, c J-1; 4.) costs of this Action, including costs of this Application, on such basis as the Court deems appropriate;
and 5.) such further and other relief as counsel may advices and the Court may deem just.
On June 21, 2021, the Defendants filed
an Affidavit against the Plaintiff’s application for an order for Summary of Judgment against the Defendants in the Court of Queen’s
Bench of Alberta Judicial District of Calgary. The Defendants claim that the Plaintiff owes $120,912 ($171,531 Cdn) to the Defendants
for, but are not limited to, for expenses incurred on leases operated by the Defendants, and that the Defendants have a right to off-set
costs against any monies that may be owed to the Plaintiff’s.
On June 22, 2021, upon an application
by the Plaintiff for an order for Summary of Judgment against the Defendants and upon the Court reviewing the Affidavits filed by the
Plaintiff and Defendants and upon hearing counsel for the Plaintiff and counsel for the Defendants, the Court denied the Plaintiff’s
order for a Summary of Judgment against the Defendants.
The Defendants deny the Plaintiff’s
claim regarding all of the monies which are claimed to be owed to the Defendants by the Plaintiff. The Defendants plan to vigorously defend
itself against the Plaintiff’s claims, but has provided for some of the claimed amounts in the Company's books.
Common Stock Issued and Outstanding
As previously disclosed in the Company’s
annual report on Form 10-K for the year ending September 30, 2019, between June 8 to 10, 2018, five directors, two contractors and one
employee of the Company, exercised a total of 3,150,000 option shares at an exercise price of $0.05 by way of a cashless exercise to acquire
a total of 899,998 common shares of the Company. On June 19, 2018, one director of the Company acquired 300,000 common shares of the Company
upon exercising stock options, at an exercise price of $0.05 per common share for total gross proceeds to the Company of $15,000. All
of the stock certificates from the exercise of these stock options are held in escrow upon final approval and release by Management of
the Company. Subsequently, on June 8, 2021, Management of the Company determined that the conditions to issue the common shares were not
met and 1,199,998 common shares previously exercised in June of 2018 will be returned to treasury and $15,000 will be booked as a loan
from one director.
Oil and Gas Properties
Out of 19,610 gross acres (17,649 net
acres) under the three most northern oil sands leases that were set to expire on August 19, 2019, 1,898 gross acres (1,708 net acres)
of land covering three sections were granted continuation on October 8, 2019, under the Alberta Oil Sands Tenure regulations. Subsequently
it was determined that there were no exploitable resources on the 1,898 gross acres (1,708 net acres) that were granted continuation and
the Company has let this lease expiry as of August 19, 2020.
COVID-19 Relief
On March 11, 2020, the World Health
Organization assessed and characterized the novel coronavirus disease (“COVID-19”) as a pandemic. In an effort to contain
and mitigate the spread of COVID-19, many countries, including the Canada and the United States, have imposed unprecedented, but are
not limited to, restrictions on travel, social gathering, business closures, and including mandatory work from home measures unless the
employer determines a physical presence is required for operations effectiveness. On March 17, 2020, the province of Alberta, Canada,
declared a state of emergency due to COVID-19. Due to COVID-19 the Company implemented a work from home program for its staff beginning
on March 14, 2020. In 2020 and 2021, the Canadian federal government announced various COVID-19 relief programs which included but are
not limited to, loans, commercial rent and wage subsidies, to qualifying companies. The Company has or will apply for any relief program
that it qualifies for.