UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 20-F
 
(Mark One)
         REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
         ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2019
OR
         TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
OR
         SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report __________

Commission file number: 000-17729
 
FEC RESOURCES INC.
(Exact name of Registrant as specified in its charter and translation of Registrant’s name into English)
 
Canada
(Jurisdiction of incorporation or organization)

Suite 2300, Bentall 5, 550 Burrard Street,
Vancouver, BC, V6C 2B5
 (Address of principal executive offices)

Paul Wallace, +61447296715,
Suite 2300, Bentall 5, 550 Burrard Street, Vancouver, BC, V6C 2B5
 (Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.
None

Securities registered or to be registered pursuant to Section 12(g) of the Act.
Common Stock, without par value
(Title of Class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None

Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
409,143,765 shares of Common Stock as of December 31, 2019
 

 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes    No
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.      Yes      No
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15 (d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days      Yes      No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes       No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:
 
 
 
Large accelerated filer 
Accelerated filer  
Non-accelerated filer  
Emerging growth company 
 
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act.  
 † The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
 
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
 
 
 
 
 
U.S. GAAP  
 
International Financial Reporting Standards as issued
by the International Accounting Standards Board  
 
Other  
 
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.      Item 17      Item 18
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).      Yes      No
 
 (APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.   Not Applicable




FEC RESOURCES, INC.
FORM 20-F
ANNUAL REPORT FISCAL YEAR 2019
 
 
 
Page
PART I
 
 
 
 
Identity of Directors, Senior Management and Advisers
5
Offer Statistics and Expected Timetable
5
Key Information
5
Information on the Company
13
Unresolved Staff Comments
20
Operating and Financial Review and Prospects
20
Directors, Senior Management and Employees
24
Major Shareholders and Related Party Transactions
28
Financial Information
29
The Offer and Listing
29
Additional Information
30
Quantitative and Qualitative Disclosure About Market Risk
32
Description of Securities other than Equity Securities
32
 
 
 
PART II
 
 
 
 
Defaults, Dividend Arrearages and Delinquencies
33
Material Modifications to the Rights of Security Holders and Use of Proceeds
33
Controls and Procedures
33
Audit Committee Financial Expert
35
Code of Ethics
35
Principal Accountant Fees and Services
36
Exemption from the Listing Standards for Audit Committee
36
Purchase of Equity Securities by the Issuer and Affiliated Purchaser
36
Changes in Registrant's Certifying Accountant
36
Corporate Governance
36
Mine Safety Disclosure
36
 
 
 
PART III
 
 
 
 
Financial Statements
37
Financial Statements
37
Exhibits
58
 
 
 
 
59
3

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 20-F (this “Annual Report”) contains forward-looking statements regarding future events and the future results of FEC Resources that are based on management’s current expectations, estimates, projections and assumptions about our business. Words such as “expects,” “anticipates,” “intends,” “plans,” “believes,” “sees,” “estimates” and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties and assumptions that are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in such forward-looking statements due to numerous factors, including, but not limited to, those discussed in "Operating and Financial Review and Prospects" and elsewhere in this Annual Report as well as those discussed from time to time in our other Securities & Exchange Commission filings and reports. In addition, such statements could be affected by general industry and market conditions. Such forward-looking statements speak only as of the date of this filing or, in the case of any document incorporated by reference, the date of that document, and we do not undertake any obligation to update any forward-looking statement to reflect events or circumstances after the date of this filing. If we update or correct one or more forward-looking statements, investors and others should not conclude that we will make additional updates or corrections with respect to other forward-looking statements.


4

CURRENCY

Unless otherwise stated, “$”, when used in this Form 20-F, refers to US dollars.

ITEM  1.   IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS.

Not applicable to Form 20-F filed as annual report.

ITEM 2.   OFFER STATISTICS AND EXPECTED TIMETABLE.

Not applicable to Form 20-F filed as annual report.

ITEM 3.  KEY INFORMATION.

The following is a summary of key information about our financial condition, capitalization and the risk factors pertaining to our business.

Currency Exchange Rates

Table No. 3(A)(1) below sets forth the rate of exchange for the Canadian Dollar at the end of each of the five (5) most recent fiscal years ended December 31, the average rates for each year, and the range of high and low rates for each year.  Table 3(A)(2) sets forth the high and low exchange rates for each month during the previous six (6) months.  The rate of exchange means the noon buying rate as posted by the Bank of Canada.  The Tables set forth the number of Canadian Dollars required under that formula to buy one (1) US Dollar.  The average rate means the average of the exchange rates on the last day of each month during the year.

Table No. 3(A)(1)
U.S. Dollar/Canadian Dollar
Currency Exchange Table No. 1
U.S. Dollar/Canadian Dollar
 
Average
High
Low
Close
Fiscal Year Ended 12/31/19
1.33
1.36
1.30
1.30
Fiscal Year Ended 12/31/18
1.30
1.36
1.23
1.36
Fiscal Year Ended 12/31/17
1.30
1.37
1.21
1.25
Fiscal Year Ended 12/31/16
1.32
1.46
1.25
1.34
Fiscal Year Ended 12/31/15
1.28
1.40
1.17
1.38

The current closing rate of exchange was 1.41 on March 26, 2020.
5


Table No. 3(A)(2)
U.S. Dollar/Canadian Dollar

 
9/19
10/19
11/19
12/19
01/20
02/20
High
1.33
1.33
1.33
1.33
1.32
1.34
Low
1.32
1.31
1.31
1.30
1.30
1.32

A.  Selected Financial Data

The following financial data summarizes selected financial data for our company prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”) for the five fiscal years ended December 31, 2019, 2018, 2017, 2016 and 2015.  The information presented below for the five year period ended December 31, 2019, 2018, 2017, 2016 and 2015 is derived from our audited financial statements.  The information set forth below should be read in conjunction with our audited annual financial statements and related notes thereto included in this annual report, and with the information appearing under the heading “Item 5 – Operating and Financial Review and Prospects”.

   
Year
Ended
12/31/19
(‘000) -
except per share data
   
Year
Ended
12/31/18
(‘000) -
except per share data
   
Year
Ended
12/31/17
(‘000) -
except per share data
   
Year
Ended
12/31/16
(‘000) -
except per share data
   
Year
Ended
12/31/15
(‘000) -
except per share data
 
Revenue
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Net (Loss) Income
 
$
(212
)
 
$
(218
)
 
$
1,803
   
$
(250
)
 
$
341
 
Net (Loss) Income Per Share
 
$
0.00
   
$
0.00
   
$
0.00
   
$
0.00
   
$
0.00
 
Diluted  Net (Loss) Income Per Share
 
$
0.00
   
$
0.00
   
$
0.00
   
$
0.00
   
$
0.00
 
Dividends Per Share
 
$
0.00
   
$
0.00
   
$
0.00
   
$
0.00
   
$
0.00
 
Weighted  Avg. Shares O/S (‘000)
   
409,144
     
409,144
     
409,144
     
411,275
     
439,144
 
Working Capital
 
$
(70
)
 
$
182
   
$
399
   
$
261
   
$
510
 
Resource Properties
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Long-Term Debt
 
$
-
   
$
-
   
$
-
   
$
-
   
$
-
 
Shareholders’ Equity
 
$
1,635
   
$
1,847
   
$
2,065
   
$
262
   
$
511
 
Share Capital
 
$
16,732
   
$
16,732
   
$
16,732
   
$
16,732
   
$
16,732
 
Capital Stock Shares  (‘000)
   
409,144
     
409,144
     
409,144
     
409,144
     
439,144
 
Total Assets
 
$
1,758
   
$
1,903
   
$
2,099
   
$
320
   
$
572
 

6


B. Capitalization and Indebtedness

This Form 20-F is being filed as an annual report under the U.S. Exchange Act and, as such, there is no requirement to provide any information under this item.

C. Reason for the Offer and Use of Proceeds

This Form 20-F is being filed as an annual report under the U.S. Exchange Act and, as such, there is no requirement to provide any information under this item.

D.  Risk Factors

General Business Risks

We Have Had a History of Operating Losses Which May Affect Our Ability to Continue Operations.

We had a net loss of ($211,683) during the year ended December 31, 2019 (2018 –$(217,665); 2017 – $1,803,036.   Total income in 2017 included an unrealized gain of $1,965,000 on the Company’s investment in Forum Energy Limited )”Forum Energy”).  Commencing in 2017, the Company accounted for its investment in Forum Energy as a financial instrument at fair value whereas previously this investment was accounted for on the equity basis.  This change resulted from dilution of the Company’s interest in Forum Energy as described below under section 4B – Business Overview – Recent Developments..  We have incurred operating losses in the previous fiscal years with our accumulated deficit totaling $18,155,082 as at December 31, 2019.   We also anticipate sustaining a loss from operations for the fiscal year ended December 31, 2020.  We have no sources of revenue in the year ended December 31, 2019 and in 2018 our only source of revenue has been from the sale of the Forum Energy shares and, historically, have only shown net income as a result of accounting for our equity share of profits in other companies in which we hold equity investments. As a result, we may not be able to sustain operations in the future without additional debt or equity financing.

Unless We Are Able To Invest in Companies That Discover Economically Recoverable Reserves in the Future, There is Substantial Doubt We Will Be Able to Continue Operations as a Going Concern in the Long Term.
Our business success is dependent upon our ability to benefit from the discovery economically recoverable reserves by companies we invest in, and for those companies to bring such reserves into profitable production.  The companies we invest in are  subject to a number of risks, including environmental risks, contractual risks, legal and political risks, fluctuations in the price of oil and gas, and other factors beyond our control.
The consolidated Financial Statements included herein have been prepared by management on the basis of accounting principles applicable to a “going concern”.  Management believes the “going concern” basis, which presumes the realization of assets and discharge of liabilities in the normal course of business for the foreseeable future, is appropriate.  We have experienced significant operating losses and cash outflows from operations in the years ended December 31, 2019, 2018 and 2017 and have no income other than that generated from interest on cash balances and the sale of FEP shares.  Our ability to continue as a “going concern” in the long term is dependent on benefiting from our investments and upon obtaining additional financing.  The outcome of these matters cannot be predicted at this time.

We Believe We Don’t Have Sufficient Working Capital to Support Our Business in 2020. We Will Need Additional Funds in Order to Sustain our Operations in Order to See if Our Investments Will be Successful and There is No Assurance that Such Funds Will Be Available As, If, and When, Needed.

Funds used in operations for the fiscal years ended December 31, 2019 and 2018 were $(147,062) and $(196,157), respectively.  We have been dependent upon the proceeds of the sale of FEP shares, equity and debt financing in addition to the disposition of assets to fund operations.  No assurances can be given that our actual cash requirements will not exceed our budget, that anticipated revenues will be realized, that, when needed, lines of credit will be available if necessary or that additional capital will be available to us.  There is no assurance that we will be able to obtain such additional funds on terms and conditions we may deem acceptable.  Failure to obtain such additional funds may materially and adversely affect our ability to acquire interests directly or indirectly in producing oil and gas and mineral properties.

On December 18, 2019 we announced that we were undertaking to complete a rights offering to existing shareholders to raise gross proceeds of $1,841,147.  To date only PXP, our parent company, has indicated an interest in taking up some or all of its rights.  There can be no guarantee that this rights offering will be successful or that enough funds will be raised to sustain operations. 
7


We Do Not Intend to Pay Dividends In the Foreseeable Future, and thus, You Should Not Expect to Receive Dividends.

We have paid no dividends on our common shares since inception, and do not plan to pay dividends in the foreseeable future. See "Description of Common Shares."

The Market Price of Our Common Shares Has Been, and Will Likely Continue to Be, Volatile.

The market price of our common shares has fluctuated over a wide range, and it is likely that the price of our common shares will fluctuate in the future.  Further, announcements regarding acquisitions, the status of corporate collaborations, regulatory approvals or other developments by us or our competitors could have a significant impact on the market price of our common shares.

The Value and Transferability of Our Shares May Be Adversely Impacted By the Limited Trading Market For Our Shares and the Penny Stock Rules. 

There is only a limited trading market for our shares on the Pink Sheets.  There can be no assurance that (a) we will be able to be listed again on the OTCQB, due to enhanced listing requirements that were implemented by OTC Markets in 2014, (b) this market will be sustained, or (c) that we will be able to satisfy any future trading criteria that may be imposed by the Financial Industry Regulatory Authority (“FINRA”).

In addition, holders of our common shares may experience substantial difficulty in selling their securities as a result of the “penny stock rules” which apply to  our common shares.  Under the penny stock rules, the Securities and Exchange Commission imposes additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse). For transactions covered by the rules, a broker-dealer must make a special suitability determination for the purchaser and transaction prior to the sale.  Consequently, the rules may affect the ability of broker-dealers to sell our securities, and also may affect the ability of purchasers of our stock to sell their shares in the secondary market.  It may also cause fewer broker-dealers to make a market in our common shares.

The Large Number of Shares Eligible For Future Sale By Existing Shareholders May Adversely Affect the Market Price For Our Common Shares.

Future sales of substantial amounts of common shares in the public market, or the perception that such sales could occur, could adversely affect the market price of our common shares.  At February 15, 2018 we had 409,143,765 common shares outstanding.  We currently have 238,207,423 shares eligible to be resold pursuant to Rule 144. We do not intend to include these common shares in a future Registration Statement to be filed with the United States Securities and Exchange Commission (“SEC”) pursuant to the Securities Act of 1933, registering the common shares for sale. If a decision was made to file a Registration Statement for these common shares. no prediction can be made as to the effect, if any, that sales of common shares or the availability of such shares for sale will have on the market prices of our common shares prevailing from time to time.  The possibility that substantial amounts of our common shares may be sold under SEC Rule 144 into the public market may adversely affect prevailing market prices for our common shares and could impair our ability to raise capital in the future through the sale of equity securities.

Your vote may not affect the outcome of any shareholder vote since our principal stockholder currently retains approximately 55% of our outstanding stock and this percentage may be increased as a result of our rights offering.

Specifically,  PXP Energy Corporation (“PXP”) (formerly Philex Petroleum Corporation) may be able to control the outcome of all stockholder votes, including votes concerning director elections, charter and by-law amendments and possible mergers, corporate control contests and other significant corporate transactions which may not be in the interests of all shareholders.

As of the filing date of this Annual Report, based on the information available to us, PXP beneficially owned 225 million Common Shares which represents approximately 54.99% of the total number of our Common Shares issued and outstanding; If no other security holders participate in the Rights Offering and assuming PXP took up all of its Rights then upon the closing of the Rights Offering, PXP would own approximately 78.57% of our Common Shares.

8


Foreign Laws, Rules and Environmental Regulations to Which Companies We Invest In  Are Subject May Adversely Affect Our Business Operations As Well As the Market Price For Our Stock.

The production of oil and gas and the extraction of minerals by companies we invest in or by ourselves is generally subject to extensive laws, rules, orders and regulations governing a wide variety of matters, including the drilling and spacing of wells, allowable rates of production, prevention of waste and pollution and protection of the environment.  In addition to the direct costs borne in complying with such regulations, operations and revenues may be impacted to the extent that certain regulations limit oil and gas and mineral production to below economic levels.  Although the particular regulations applicable in each jurisdiction in which operations are conducted vary, such regulations are generally designed to ensure that oil and gas operations are carried out in a safe and efficient manner, and to ensure that similarly-situated operators are provided with reasonable opportunities to produce their respective fair share of available crude oil, natural gas, and mineral reserves.  However, since these regulations generally apply to all oil and gas producers, we believe that these regulations should not put us at a material disadvantage to other oil, gas and mineral producers.

Operating Risks - Oil and Gas Exploration Investment Activities

We Do Not Currently Directly Own Assets That Provide Cash Flow  Our Failure to Find or Acquire Available Assets May Adversely Impact Our Business Operations.
We do not own any properties or investments  that provide cash flow.  Our cash flow and income, as well as our success are highly dependent on success in finding or acquiring cash flow through our investments and obtaining the financing necessary to acquire such investments.  We cannot assure shareholders that we will be able to acquire such investments, if any.

Exploring For and Producing Oil and Natural Gas and Minerals Are High-Risk Activities With Many Uncertainties That Could Adversely Affect Our Business, Financial Condition or Results of Operations.

Exploration and development of oil and gas and mineral resources involve a high degree of risk, and few properties which are explored are ultimately developed into producing properties.  There is no assurance that exploration and development activities of companies that we invest in will result in any discoveries of commercial bodies of oil, gas or minerals.  The long-term profitability of our operations will be, in part, directly related to the cost and success of exploration programs  of companies we invest in which may be affected by a number of factors.  Substantial expenditures are required to establish reserves through drilling, to develop processes to extract the resources, and, in the case of new properties, to develop the extraction and processing facilities and infrastructure at any site chosen for extraction.  Although substantial benefits may be derived from the discovery of a major deposit of oil, gas or minerals, no assurance can be given that natural resources will be discovered in sufficient quantities by companies we invest in to justify commercial operations or that the funds required for development can be obtained on a timely basis.

If Companies We Invest In Are Unable to Continue to Identify, Explore and Develop New Properties, Our Business Operations May Be Adversely Affected.

We expect that to be successful companies we invest in must continually acquire or explore for and develop new oil and gas reserves to replace those, if any, being depleted by production.  Without successful drilling or acquisition ventures, our indirect oil and gas assets, mineral assets and, properties and the revenues derived there from, if any, will decline over time.  To the extent we engage in drilling activities indirectly, such activities carry the risk that no commercially viable oil or gas production or mineral extraction will be obtained.  The cost of drilling, completing and operating oil and gas wells is often uncertain.  Moreover, drilling for oil and gas and minerals may be curtailed, delayed or cancelled as a result of many factors, including shortage of available working capital, title problems, weather conditions, environmental concerns, government prohibitions, shortages of or delays in delivery of equipment, as well as the financial instability of well operators, major working interest owners, and drilling and well servicing companies.  The availability of a ready market for oil and gas and minerals will depend on numerous factors beyond our control, including the demand for and supply of oil and gas and minerals, the proximity of natural gas reserves to pipelines, the capacity of such pipelines, the proximity of any smelting facilities in relation to any minerals found, fluctuations in seasonal demand, the effects of inclement weather, and government regulation.  New gas wells may be “shut-in” for lack of a market until a gas pipeline or gathering system with available capacity is extended into an area.
9

The Exploration and Development of Oil and Gas and Mineral Properties are Subject to Operating Hazards and Risks for Which We Will Be Uninsured.

Exploration for natural resources involves many risks, which even a combination of experience, knowledge and careful evaluation may not be able to overcome.  Operations in which we have an interest will be subject to all the hazards and risks normally incidental to exploration, development and production of resources, any of which could result in work stoppages, damage to persons or property and possible environmental damage.  These include the possibility of fires, earthquake activity, coastal erosion, explosions, blowouts, oil spills or seepage, gas leaks, discharge of toxic gas, over-pressurized formations, unusual or unexpected geological conditions and the absence of economically viable reserves.  These hazards may result in cost overruns, substantial losses, and/or exposure to substantial environmental and other liabilities.

Fluctuating Resource Prices May Adversely Impact Our Operations and Activities. 

The price of natural resources has traditionally been subject to wide fluctuations, particularly in recent years, and is affected by numerous factors beyond our control including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new extraction developments and improved extraction and production methods.  The effect of these factors on the price of oil and gas and minerals, and therefore, the economic viability of any investments we have or make in  exploration projects, cannot accurately be predicted.

If We Fail to Fulfill Our Obligations Under Our Purchase Option and Joint Venture Agreements, Not Only Will Our Operations Be Adversely Affected, But We May Lose Our Interest In the Property in Question.

We may, in the future, be unable to meet our share of costs incurred under joint venture agreements or other option or joint venture agreements to which we are, or may become a party, and we may have our interest in properties, in which we may acquire interests subject to such agreements, reduced as a result. Furthermore, if other parties to such agreements do not meet their share of such costs, we may be unable to finance the cost required to complete recommended programs.  In 2017, our interest in Forum Energy was diluted from 18.42% to 6.80% due to a subscription for new shares by other shareholders of Forum Energy  and the sale of 1,000,000 Forum Energy shares by us.

It Is Possible that Our Title for the Claims in Which We Have a Direct or Indirect Interest in Will Be Challenged By Third Parties.

Although we will attempt to ascertain the status of the title for any projects in which we have or will invest  in, there is no guarantee that title to such concessions will not be challenged or impugned.  In some countries, the system for recording title to the rights to explore, develop, and mine natural resources is such that a title opinion provides only minimal comfort that the holder has title.  Also, in many countries, claims have been made and new claims are being made by aboriginal peoples, and other countries claiming rights that call into question the property rights granted by the governments of those countries.  An example of this is the force majeure declared on SC72 because this contract area falls within the territorial disputed area of the West Philippine Sea which was the subject of an United Nations arbitration process between the Republic of Philippines and the People’s Republic of China.  On July 12, 2016, the Permanent Court of Arbitration in the Hague ruled in favor of the Philippines against China over territorial disputes in the South China Sea. China has rejected the ruling. It is uncertain whether this ruling will resolve the dispute between the parties
10

Reserve Estimates for Resources That May Be Reported By Companies We Invest In Are Dependent On Many Assumptions that May Ultimately Turn Out to Be Inaccurate.

Reserve estimates are imprecise and may be expected to change as additional information becomes available.  Furthermore, estimates of reserves of natural resources, of necessity, are projections based on engineering data and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures.  Reserve engineering is a subjective process of estimating underground accumulations of oil, gas and minerals that cannot be measured in an exact way and the accuracy of any reserve estimate is a function of the quality of available data of engineering and geological interpretation and judgment.  Accordingly, there can be no assurance that the information regarding reserves of natural resources, if any, set forth herein will ultimately be produced.

Any Resource Production of Companies That we Have Invested In May Be Adversely Affected By Factors Beyond Our Control.

The production and marketing of resources are affected by a number of competitive factors which are beyond our control and the effect of which cannot be accurately predicted.  These factors include crude oil and mineral imports, actions by foreign oil-producing nations and other mineral producers, the availability of adequate pipeline and other transportation facilities, the availability of equipment and personnel, the marketing of competitive fuels and minerals, the effect of governmental regulations, and other matters affecting the availability of a ready market such as fluctuating supply and demand.

Operations of Companies We Invest In Will Be Subject to Numerous Environmental Risks

Resource operations of companies we invest in, if any will be subject to compliance with applicable federal, state, and local laws and regulations controlling the discharge of materials into the environment, or otherwise relating to the protection of the environment.  We believe that there is a trend toward stricter standards of environmental regulation which will in all probability continue.  Compliance with such laws and standards may cause substantial delays and require capital outlays in excess of those anticipated, thereby adversely affecting our earnings and competitive position in the future.

Since We May Acquire Holdings In Properties In Less Developed Countries and Have Indirectly Acquired Holdings in Properties In Less Developed Countries, Our Operations May Be Adversely Affected By Risks Associated With the Political, Economic and Social Climate of the Countries In Which We Will Operate or Have Indirect Holdings

Since our indirect exploration and development activities will occur primarily in countries other than Canada and the United States, we may be affected by possible political or economic instability in those countries.  The risks include, but are not limited to, terrorism, military repression, extreme fluctuations in currency exchange rates, and high rates of inflation.  Changes in resource development or investment policies or shifts in political attitude in these countries may adversely affect our business. Operations of companies we invest in may be affected in varying degrees by government regulations with respect to restrictions on production, price controls, export controls, income taxes, expropriation of property, maintenance of claims, environmental legislation, land use, land claims of local people, water use and mine safety. The effect of these factors cannot be accurately predicted.  Exploration and production activities in areas outside of the United States and Canada are also subject to the risks inherent in foreign operations, including loss of revenue, property and equipment as a result of hazards such as expropriation, nationalization, war, insurrection and other political risks.

We Face Competition From Larger and Better Financed Companies Seeking to Acquire Properties In Our Sphere of Operation.
The resource industry is highly competitive, and our business could be harmed by competition from other companies.  Because resources are fungible commodities, the principal form of competition is price competition.  We will strive to insure companies we invest in maintain the lowest exploration and production costs possible to maximize profits.  In addition, we may compete for reserve acquisitions, exploration leases, licenses, concessions and marketing agreements against companies with financial and other resources substantially larger than we possess.  Many of our competitors have established strategic long term positions and maintain strong governmental relationships in countries in which we  may seek entry.

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We Currently Do Not Maintain Insurance Against Potential Losses and Unexpected Liabilities.

As previously stated herein, exploration for and production of resources can be hazardous, involving natural disasters and other unforeseen occurrences such as “blowouts”, “cratering”, fires and loss of well control, which can damage or destroy wells or production facilities, injure or kill people, and damage property and the environment.  We do not have such insurance coverage for companies we invest in; and, even if we were able to obtain such insurance coverage, there is no assurance that it would be adequate to protect against all operational risks, or subject to defenses or exclusions against insurance coverage.

We Are Dependent On Retaining Our Senior Management and Key Personnel.

To a large extent, we depend on the services of our senior management personnel.  These individuals have critical and unique knowledge of the areas of operations that facilitate the evaluation and acquisition of potential properties in our intended sphere of operations.  The loss of these experienced personnel, if that were to occur, could have a material adverse impact on our ability to compete in this region of the world.  We do not maintain any insurance against the loss of any management personnel.

Our Directors May Face Conflicts of Interest In Connection With Our Participation In Certain Ventures Because They Are Directors of Other Resource Companies.

Some of our directors participate in other resource companies and to the extent that such other companies may participate in ventures in which we may participate, our directors may have a conflict of interest in negotiating and concluding terms respecting the extent of such participation.  It is possible that due to our directors’ conflicting interests, we may be precluded from participating in certain projects that we might otherwise have participated in or we may obtain less favorable terms on certain projects than we might have obtained if our directors were not also the directors of other participating mineral resource companies.  In their effort to balance their conflicting interests, our directors may approve terms that are equally favorable to all of their companies as opposed to negotiating terms that may be more favorable to us, but adverse to their other companies.  Additionally, it is possible that we may not be afforded certain opportunities to participate in particular projects because such projects are assigned to our directors’ other companies for which the directors may deem the projects to have a greater benefit.

Our Security Holders May Not Be Able to Enforce U.S. Civil Liabilities Claims Thereby Limiting Their Ability to Collect on Claims Against Us.

We are incorporated in Canada and the majority of our directors and officers are nationals and/or residents of countries other than the United States.  All or a substantial portion of the assets of these persons are located outside the United States.  As a result, it may be difficult for you to effect service of process within the United States upon these persons.  In addition, there is uncertainty as to whether the courts of Canada would recognize or enforce judgments of United States courts obtained against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state thereof, or be competent to hear original actions brought in these countries against us or such persons predicated upon the securities laws of the United States or any state thereof.

As a Foreign Private Issuer, We Are Exempt From a Number Of U.S. Securities Laws And Rules Promulgated Thereunder And Are Permitted To File Less Information With The SEC Than U.S. Companies Must. This Will Limit The Information Available To Holders Of Our Shares
 
We currently qualify as a “foreign private issuer,” as defined in the SEC’s rules and regulations and, consequently, we are not subject to all of the disclosure requirements applicable to companies organized within the U.S. For example, we are exempt from certain rules under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), that regulate disclosure obligations and procedural requirements related to the solicitation of proxies, consents or authorizations applicable to a security registered under the Exchange Act. In addition, our officers and directors are exempt from the reporting and “short-swing” profit recovery provisions of Section 16 of the Exchange Act and related rules with respect to their purchases and sales of our securities. Moreover, we are not required to file periodic reports and financial statements with the SEC as frequently or as promptly as U.S. public companies. We are also not subject to Regulation FD under the Exchange Act, which would prohibit us from selectively disclosing material nonpublic information to certain persons without concurrently making a widespread public disclosure of such information. Accordingly, there may be less publicly available information concerning our company than there is for U.S. public companies.

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ITEM 4.  INFORMATION ON THE COMPANY

A.  Our Corporate History and Development.

We were incorporated on February 8, 1982 in British Columbia, Canada under the name Tylox Corporation.  Our continuance under the Canada Business Corporation Act resulted in, among other things, our name change, first in December 1991, to Tracer Petroleum Corporation, followed in July 2003, to Forum Energy Corporation.  On May 18, 2005, we changed our name to FEC Resources, Inc.  We have no subsidiaries.  .We currently hold 6.80% of the issued and outstanding capital of Forum Energy.

We are engaged in investment  into companies in the natural resource sector.

Our head office is located at Suite 2300, Bentall 5, 550 Burrard Street, Vancouver, BC, V6C 2B5.

B.  Business Overview

At this time, we do not have any significant revenue-generating assets, and as a result, we will rely upon issuance of new shares or debt  to fund ongoing operations.
Recent Developments

A final hearing on the merits and remaining issues of jurisdiction and admissibility was held from November 24-30, 2015 in The Hague regarding the area covered by Forum Energy’s 70% interest in Service Contract 72 Reed Bank.   On July12, 2016, the Permanent Court of Arbitration in the Hague ruled in favor of the Philippines against China over territorial disputes in the South China Sea. China has rejected the ruling. It is uncertain whether this ruling will resolve the dispute between the parties.
A Memorandum of Understanding on Cooperation on Oil and Gas Development between the Government of the Republic of the Philippines and the Government of the People’s Republic of China and dated November 20, 2018 (the “MOU”) was signed. The MOU states that the aforesaid governments
"…have decided to negotiate on an expedited basis arrangements to facilitate oil and gas exploration and exploitation in relevant maritime areas consistent with applicable rules of international law (hereinafter referred to as “the cooperation arrangements”)… The two governments will endeavour to agree on the cooperation agreements within twelve (12) months of this Memorandum of Understanding… This Memorandum of Understanding, and all discussions, negotiations and activities of the two governments or their authorized enterprises under or pursuant to this Memorandum of Understanding, will be without prejudice to the respective legal positions of both governments. This Memorandum of Understanding does not create rights or obligations under international or domestic law."
The situation regarding SC72 remains unchanged and that the force majeure with respect to exploration of SC 72 remains in place.

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In October 2019, the Philippines’ Department of Foreign Affairs (“DFA”) announced that the Philippines and China had officially convened an Intergovernmental Standing Committee that will supervise projects under the two countries’ joint oil and gas exploration in the West Philippines Sea. The DFA further announced that the Steering Committee held its first meeting in Beijing on October 28, 2019. Under the MOU, the Steering Committee will create one or more inter-Entrepreneurial Working Groups that will agree on entrepreneurial, technical and commercial aspects of cooperation on certain areas in the West Philippine Sea. China has appointed China National Offshore Oil Corporation (“CNOOC”) as representative to the Working Group(s). Forum Energy will be the representative to the Working Group that will be created for SC 72.

The Philippines

We are currently a holding company with an interest in Forum Energy, in which we own a 6.80% equity interest, owns the oil and gas rights over an 8,800 square-kilometer block located in the West Philippine Sea. In addition, Forum Energy holds interests in various other concessions located in the Philippines. This block is subject to a dispute between The Republic of the Philippines and the People’s Republic of China.

Forum Energy Plc. (“FEP”)/Forum Energy Limited (“Forum Energy”)

We currently own 6.80% of Forum Energy. Forum Energy was established through the consolidation in 2005 of the Philippine assets of FEC Resources, Inc. of Canada, and Sterling Energy Plc of the UK, into one corporate entity.  Forum Energy is a private company, which has participating interests in 11 oil and gas blocks in the Philippines through various subsidiaries.  Forum Energy’s subsidiaries are Forum Energy Philippines Corporation (“FEPCO”), Forum (GSEC101) Limited and 66.67% owned Forum Exploration Inc. (“FE”).

Forum Energy and ourselves are both ultimately under the control of PXP Energy Corporation (“PXP”) and are therefore affiliates.

On March 23, 2017, PXP announced that it had increased its shareholdings in Forum Energy from 48.8% to 69.5% through a debt conversion involving the issuance of 39,350,920 Forum Energy shares at a decreased price of US$0.30 per share.  On the same day, an independent third party purchased 6,666,667 newly issued Forum Energy shares at a price of US$0.30 per share for a total cash payment of US$2,000,000.  We did not participate in this financing transaction.  These two transactions resulted in the dilution of our interest in Forum Energy from 18.42% to 8.03%.  As a result of this dilution, the Company’s investment in Forum Energy ceased to be an equity investment.  As a result of the loss of significant influence, we recognized an unrealized gain of $1,965,000 in the statement of operations and comprehensive income for the revaluation and reclassification of the investment as available for sale during the year.  On December 6, 2017 we sold 1,000,000 Forum Energy shares to our parent company, PXP, for $0.30 per share.  As a result of the sale of the shares our interest in Forum Energy was reduced to 6.80%.

The following information related to PXP or Forum Energy has been provided to us by PXP or Forum Energy, as we do not have direct knowledge of such information.

PXP holds a 78.98% controlling interest in Forum Energy, with 72.18% held directly and 6.80% held indirectly through its 54.99% shareholding of the Company.  Forum Energy is a company incorporated under the laws of England and Wales with focus on the Philippines and has: (a) a 70% operating interest in SC 72 Recto Bank, which covers the Sampaguita natural gas discovery in offshore West Palawan, held through Forum (GSEC 101) Limited; (b) minority interests in the SC 6 and SC 14 sub-blocks in offshore Northwest Palawan, including a 2.27% interest in the producing Galoc field, held through FEPCO; and (c) a 100% operating interest in SC 40 North Cebu held through FEPCO’s 66.67%-held subsidiary FE.

A summary of Forum Energy’s interests are as follows:

SC Block
 % interest
 Currently  Producing
SC72 Recto Bank
70%
No
SC40 North Cebu
66.67%
No
SC14C-1 Galoc
2.27%
Yes
SC6A Octon
5.56%
No
SC6B Bonita
8.18%
No
SC14A Nido
8.46%
No*
SC14B Matinloc
12.40%
No*
SC14B-1 N. Matinloc
19.46%
No
SC14C-2 W. Linapacan
9.10%
No
SC14D Retention Area
8.16%
No
SC14 Tara
10%
No
*Ceased production on 01 April 2019.
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Following is a brief description of the properties of Forum Energy together with production details where appropriate.

SC 72 Recto Bank

Forum Energy’s principal asset is a 70% participating interest in SC 72 (previously Geophysical Survey and Exploration Contract No. 101 (“GSEC101”)), a petroleum license located in the Recto Bank offshore west of Palawan Island, the Philippines. The remaining 30% of SC 72 is owned by Monte Oro Resources & Energy Inc., a company incorporated in the Philippines, who is involved in a joint venture with Forum Energy with respect to SC 72.

On February 15, 2010, the GSEC 101 licence was converted to Service Contract 72 and Forum Energy immediately conducted geological and geophysical works to further evaluate the block and to fulfill its commitment to the government. SC 72 covers 8,800 square kilometers, which is 85% of the area covered by GSEC 101.

Exploration in the area began in 1970, and in 1976, gas was discovered in the Sampaguita structure following the drilling of a well. To date, a total of three wells have been drilled at the southwest end of the structure. Two of the wells tested gas at rates warranting further exploration.

In early 2011, Forum Energy acquired 2,202 line-km of 2D seismic, gravity, and magnetic data over SC 72 to further define leads. Also, 565 square kilometers of 3D seismic data were acquired over the Sampaguita field (the “Sampaguita 3D”).

The 2D seismic data were reprocessed in 2013 and were subsequently interpreted, aided by gravity-magnetics data that were interpreted by Fugro (in 2012) and Cosine, Ltd. (in 2015). In 2015, Arex Energy produced a report on the North Bank area and estimated the prospective resources to be significant enough to continue with exploration of the concession.

SC 72 has been under Force Majeure (“FM”) since 15 December 2014 due to the West Philippine Sea maritime dispute between the Republic of the Philippines and China.  Forum Energy will have 20 months upon lifting of the FM to drill two commitment wells.  The total cost of drilling these wells depends on a number of factors, the Company’s management estimates the total work to be between US$70 million and US$100 million. It is important to note that until an agreement has been reached as anticipated under the Memorandum of Understanding (“MOU”) referred to below with a Chinese partner, Forum Energy’s share of the cost cannot be determined.

On July 12, 2016, the Permanent Court of Arbitration in The Hague ruled in favor of the Philippines against China over territorial disputes in the West Philippine Sea. Although there are ongoing discussions between the two countries, it is uncertain when or how the matter of the maritime dispute will be settled with regards to SC 72.

In October 2018, Forum Energy started the Broadband and Pre-Stack Depth Migration (“PSDM”) reprocessing of the Sampaguita 3D seismic data with DownUnder GeoSolutions (“DUG”), a company based in Perth, Australia, as contractor. The reprocessing work was completed in June 2019 and costs around US$490,000 including quality control supervision.  The 2019 work program and budget submitted to the Department of Energy of the Philippines (the “DOE”) includes 3D seismic reprocessing and seismic interpretation followed by a contingent geotechnical survey over the proposed well locations to be drilled upon lifting of the FM.

On November 20, 2018, the MOU was signed between the Philippines and China governments which aims to develop a framework for oil and gas exploration in the West Philippines Sea.


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On December 21, 2018, Forum Energy through Forum (GSEC101) Limited, sent a formal request to the DOE to lift the FM imposed on SC 72.  A contingent revised work program and budget covering 2019-2020 was submitted at the same time which included drilling of two wells and the acquisition of seismic in the North Bank area.  As at the date of this Registration Statement, neither Forum Energy nor Forum (GSEC101) Limited have received a decision from the DOE.

In October 2019, the Philippines’ Department of Foreign Affairs (“DFA”) announced that the Philippines and China had officially convened an Intergovernmental Standing Committee that will supervise projects under the two countries’ joint oil and gas exploration in the West Philippines Sea. The DFA further announced that the Steering Committee held its first meeting in Beijing on October 28, 2019. Under the MOU, the Steering Committee will create one or more inter-Entrepreneurial Working Groups that will agree on entrepreneurial, technical and commercial aspects of cooperation on certain areas in the West Philippine Sea. China has appointed China National Offshore Oil Corporation (“CNOOC”) as representative to the Working Group(s). Forum Energy will be the representative to the Working Group that will be created for SC 72.

SC 40 North Cebu

A 100% operating interest in SC 40 is held by FEPCO’s 66.67% owned subsidiary FE.

SC 40 is located in the Visayan Basin in the central part of the Philippine Archipelago and covers an area of 340,000 hectares in the northern part of Cebu Island and adjacent offshore areas.  It contains the Libertad gas field and several other prospects.
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A land gravity survey was conducted in the municipalities of Daanbantayan and Medellin from April 2 to 27, 2018. A total of 94 gravity stations were acquired at a spacing of 200m to 500m.  The survey was divided into two (2) parts: grid and traverse. The grid program was designed with the objective of locating the apex of a high trend in the Dalingding area that was identified in previous gravity surveys. The traverse program, on the other hand, aimed to define faults through forward modeling and determine whether the mapped central depression is a graben or a trough.

The interpretation of the gravity data will be carried out in two stages. The first stage is a 3D inverse grid depth modeling which was undertaken by contractor Cosine Ltd. (“Cosine”). The final report for this work was submitted in late 2018. The second stage is a detailed stratigraphic 3D multi-sectional model to be done in-house by the Forum Energy technical team under Cosine’s quality control supervision. This latter stage is ongoing. The results will be correlated later with seismic data, where possible.

SC 14 C-1 Galoc

Block C-1 Galoc has an area of 164 square kilometers and contains the producing Galoc Oil Field.

Gross production for 2018 averaged 3,198 bopd [2017 – 4,003 bopd].  FEPCO’s share is approximately 73 bopd [2017 – 91 bopd].  For the first 9 months of 2019, the average gross production was 2,039 bopd [2018 – 3,240 bopd] wherein FEPCO’s share is approximately 46 bopd [2018 – 74 bopd].

On July 12, 2018, Tamarind Galoc Pte Ltd, a subsidiary of Singapore-based Tamarind Resources, acquired Nido Petroleum’s subsidiaries Galoc Production Company WLL (GPC) and Nido Production (Galoc) Pte Ltd, giving Tamarind 55.88% equity and operatorship of the Galoc Field.

Production forecasted for 2019 is approximately 970,000 barrels of oil.  Three (3) liftings are scheduled for 2019. The first lifting was completed on January 5, 2019 with a volume of 380,512 bbls.  The second lifting was completed on June 1, 2019 with a volume of 305,697 bbls. The third and final lifting was made in November 3, 2019 with targeted volume of 307,0552 bbls.

The Consortium is determined in extending the field life and optimizing the production performance of the Galoc Field.  GPC spearheaded the fabrication of a Condensate Recovery Unit (“CRU”) that will be installed onboard the Floating Production, Storage, and Offloading (“FPSO”) tanker in 2Q 2020. The CRU  is capable of recovering 15-20 barrels of condensate for every 1 million cubic feet of gas produced, while reducing Greenhouse Gas (CO2) emissions by 20-30%.

SC 6A Octon

SC 6A Octon covers an area of 1,080 square kilometers and contains the Octon field.

In 2018, Philodrill completed the seismic interpretation/mapping work on the northern sector of the block using the PSDM volume. The evaluation focused on the Malajon, Salvacion, and Saddle Rock prospects.  The Malajon and Saddle Rock closures were previously tested by wells which encountered good oil shows in the Galoc Clastic Unit (GCU) interval.  However, no tests were conducted in this interval due to operational constraints.

The 2019 work program includes the completion of seismic attribute analysis of the North Block of SC 6A to characterize the target reservoirs and determine their distribution in terms of porosity, thickness, and lithology. Philodrill will then conduct resource analysis, including computation of reserves, and preliminary well design and cost to mature a drilling location in the area.

A potential farminee has submitted a farm-in proposal to the JV that includes the formulation of a Field Development Plan for the Octon discovery via a tieback to the Galoc Intrepid FPSO. In return for the carry up to First Oil, the farminee will earn 55.88% interest in and assume operatorship of SC 6A. Forum and PXP’s interests will be reduced to 2.45% each upon completion of the farm-in. Development of the Octon field will only be economical if tied-back to Galoc’s production facilities located just 8 km away.  A draft farm-in agreement has been prepared and currently being negotiated by the SC 6A Consortium with the farminee.
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SC 6B Bonita

SC 6B Bonita covers an area of 533 square kilometers and contains the Bonita field.

An in-house evaluation completed by Operator Philodrill in early 2016 shows the East Cadlao Prospect has marginal resources which cannot be developed on a “stand-alone” basis. However, it remains prospective being near the Cadlao Field, which lies in another contract area.  In view of this, the JV has requested for the reconfiguration of SC 6B to append the Cadlao Field for possible joint development in the future.  On March 14, 2018, the DOE approved the annexation of Cadlao Block to SC 6B.

On 28 June 2018, Philodrill received DOE’s approval for the assignment of Trans-Asia’s relinquished participating interest in SC 6B to the remaining JV partners. As a result, Forum Energy’s interest in SC 6B has increased to 8.182%.

On October 17, 2019, the Farm-In Agreement (“FIA”), Deed of Assignment with transfer of operatorship from Philodrill to Manta Oil Company Ltd. (“Manta”) were approved by the DOE with the condition that Manta will be required to submit additional financial documents proving its capability to continue with the execution phase of the Cadlao Field Development before the end of the 18-month period upon approval. Cadlao has estimated Recoverable Reserves (P50) of 6.32 MMBO, while East Cadlao has estimated In-Place Prospective Reserves of 3.59 MMBO (best case).

Under the FIA, Manta will carry the JV up to First Oil to earn a 70% interest. Forum’s interest be reduced to 2.4546% upon completion of the farm-in.

SC 14A [Nido], SC 14B [Matinloc] & SC14B-1 [N. Matinloc]

Total production from the three fields for 2018 was 94,790 barrels (2017 - 125,755) for an average of 260 bopd (2017 – 345).  The portion of production attributable to Forum Energy was 9,722 barrels (2017 – 13,538).  Production in the Nido, Matinloc, and North Matinloc continued only until April 2019. From January to April 2019, the total production was 22,172 barrels [January to April 2018 – 38,671 barrels] for an average of 185 bopd [January to April 2018 – 322 bopd]. For January to April 2019, the production attributable to Forum Energy was 1,938 barrels [January to April 2018 – 4,059 barrels]. The Nido Field accounted for 93.06% of the total and the Matinloc Field contributed the remaining 6.94%.  Shell Philippines remained as the sole buyer for the crude.

In late 2018, the SC 14A and 14B joint ventures approved the plan to plug and abandon (P&A) the remaining nine (9) wells at the Nido, Matinloc, and North Matinloc Fields within the second quarter of 2019.  These fields have already reached their end of life, having been in production since the late 70’s-early 80’s.

From April to May 2019, seven (7) production wells in Nido (3 out of 5), Matinloc (3), and North Matinloc (1) were successfully plugged and abandoned. The two remaining Nido wells, A1 and A2, were only partially abandoned due to difficulties encountered during operations.  The P&A of these wells will be completed in 2020.

Partial stripping of production equipment on the AW, BW, AP, and Matinloc Platforms commenced in June 2019. The Department of National Defense-Armed Forces of the Philippines (“DND-AFP”) has indicated an interest to take-over the Nido and Matinloc Platforms in  later in 2019.  Discussions are ongoing among DOE, Philodrill and DND on the details of the planned takeover.
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SC14C-2 West Linapacan

Block C-2 has an area of 176.5 square kilometers and contains the West Linapacan “A” and “B” structures.

In 2018, the JV headed by Philodrill completed mapping and interpretation work on the 3D seismic data that was reprocessed in 2014. The study focused on the West Linapacan “B” structure, which was drilled in 1991.  The JV is studying options to develop the field.

The SC 14C2 and SC 74 consortia have a joint Rock Physics and Quantitative Interpretation (QI) studies over the West Linapacan and Linapacan areas using existing 3D seismic and well data.  The initial phase was carried out and completed in June 2019 by Ikon Science in Kuala Lumpur, Malaysia.  The next phase is an Inversion Study using a pilot area of at least 30 sq. km., which was completed in October 2019. The results of this phase is being reviewed by the two consortia. It will then be decided whether or not to proceed to the next and final phase, which is the inversion of the whole 3D dataset. The total project cost will be shared 50-50 by the two consortia.

Other sub-blocks in SC6 and SC14

Forum Energy will continue to participate in these sub-blocks which are mostly in the exploration phase.

Forum Energy Objectives and Strategy

The core objective of Forum Energy is to maximize the potential of its investments and its current licences to generate income, whilst at the same time continuing to reduce administrative expenses.

Forum Energy plans to achieve this by:

Development of SC72
Continued participation in Galoc
Continued review of exploration blocks to identify potential drilling targets
Continued review of administrative expenses

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Risk factors specific to Forum Energy

The Company is exposed to certain risk factors which are specific to its investment in Forum Energy.  These include the following:

Forum Energy’s cash inflows are dependent on the Galoc Field production and the economic life of this field is expected to end in 2021.  Forum Energy’s operations do not generate sufficient cash to fund new exploration work; therefore, in the event Forum Energy issued new capital to fund these costs, the Company’s interest in Forum Energy will be diluted.

Forum Energy is a closely held private company and there is a limited population of potential buyers for FEC’s relatively small interest in Forum Energy.

Forum Energy’s interest in its main asset SC72 could be diluted depending on the agreement reached, if any, between the Philippine and Chinese governments concerning the maritime dispute.

Further exploration work has to be completed on SC72 and SC40 to confirm the value of the resources within these properties.

In March 2017 Forum Energy, through a subsidiary, entered into an unsecured loan agreement with PXP that provides for a loan facility of up to US$6 million.  The balance outstanding at the end of 2017 was approximately US$5.5 million.  The loan facility has a term of three years and bears interest at LIBOR + 3.5% per annum.  There is no certainty that this loan facility will be renewed, in which case Forum Energy may issue new shares to settle this amount outstanding. Terms of the loan agreement do not include any right for PXP to convert an unpaid amount into new shares of Forum Energy.

For further details regarding Forum Energy, see its 2018 financial statement package at https://beta.companieshouse.gov.uk/company/05411224/filing- history

Please note that Forum Energy is not required to file its financial statement package with Companies House in the UK until September 30 following the end of its fiscal year which is December 31. Accordingly, the Forum Energy financial statement package for 2019 is not expected to be available until Q3 of 2020.

C.  Organizational Structure

We are part of a group of companies with our parent company being PXP . We have no subsidiaries.

ITEM  4A. UNRESOLVED STAFF COMMENTS

N/A

ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS.

We have experienced significant operating losses over the last few years, and as a result, our ability to continue as a going concern is dependent on achieving profitable operations and/or upon obtaining additional financing.

Our audited financial statements were prepared in accordance with IFRS as issued by the IASB, which are  different from US GAAP (refer to the Auditors’ Report dated March 27, 2020).

The Company is exposed to foreign currency fluctuations for general and administrative transactions denominated in Canadian Dollars. The majority of the Company’s cash is kept in U.S. dollars.   Cash held in Canadian dollars  is subject to exchange rate fluctuations between the Canadian dollars and the U.S. dollars.

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The following discussion and analysis of financial results should be read in conjunction with our Audited Financial Statements for the year ended December 31, 2019, together with the notes related thereto.  The discussion contains forward-looking statements that involve risks and uncertainties.  Such information, although considered reasonable by our management at the time of preparation, may prove to be inaccurate and actual results may differ materially from those anticipated in the statements made.

Fiscal year ended December 31, 2019 versus December 31, 2018

Our accounts show a loss for the year ended December, 2019 of $(211,683) or $0.00 per share, versus a loss  of  $(217,665) for the same period in 2018.  The difference was because of slightly lower overall general and administration expenses.
General and Administration expense were $213,561 for the year ended December 31, 2019 versus $222,326 for the same period in 2018.  Overall expenses were slightly lower than those experienced in the previous year.  Higher professional fees offset by reductions in listing and filing fees and office and miscellaneous costs accounted for the difference.  Professional fees were $56,773 for the year ended December 31, 2019 versus $44,836 for the same period in the previous year due to costs resulting from a shareholder complaint..  Listing and filing fees were $19,980 for the year ended December 31, 2019 versus $31,201 for the same period in the previous year.  The decrease was due to the fees associated with the application for the removal of the cease trade order against the Company in Alberta and British Columbia in 2018.  For the year ended December 31, 2019 travel expense was $Nil versus $8,691 for the year ended December, 2018.  The decrease was due to travel for the Company’s annual general meeting in 2018 that was not undertaken in 2019.  For the year ended December 31, 2019 foreign exchange loss was $3,403 versus a loss  of $22 for the year ended December 31, 2018.

Fiscal year ended December 31, 2018 versus December 31, 2017

We had a net loss for the year ended December 2018 of $(217,665) or $0.00 per share, versus income  of  $1,803,036 for the same period in 2017.  The difference was because of the $1,965,000 unrealized gain on the reclassification of Forum Energy shares as a result of our loss of significant influence.  Prior to the dilution, we accounted for our investment in Forum Energy using the equity method; following the loss of significant influence this investment is now classified as available for sale and is measured at fair value.
General and Administration expense were $222,326 for the year ended December 31, 2018 versus $166,263 for the same period in 2017.  Overall expenses were higher than those experienced in the previous year due to an increase in professional fees,  listing and filing fees and travel.  Professional fees were $44,836 for the year ended December 31, 2018 versus $10,641 for the same period in the previous year due to costs resulting from a shareholder complaint.  It is anticipated that professional fees will continue to be significantly higher for the coming quarters.  Listing and filing fees were $31,201 for the year ended December 31, 2018 versus $10,873 for the same period in the previous year.  The increase was due to the fees associated with the application for the removal of the cease trade order against the Company in Alberta and British Columbia.  For the year ended December 31, 2017, the Company was also able to negotiate a reduction in the audit fee for the previous year and received a credit.  For the year ended December 31, 2018 travel expense was $8,691 versus $Nil for the year ended December, 2017.  The increase was due to the costs associated with travel for the Company’s annual general meeting.  For the year ended December 31, 2018 foreign exchange loss was $22 versus a loss  of $10,393 for the year ended December 31, 2017.

Balance Sheet

Our current assets were $52,908 at December 31, 2019 versus $237,591 for the year ended December 31, 2018. The difference is mainly a result of the higher cash balance on December 31, 2018. Our  investment in Forum Energy was reflected at a carrying value of $1,665,000 in the financial statements as at December 31, 2019 and December 31, 2018.  Our assets reflect our investment in  Forum Energy on a fair value basis. The fair value of the investment in Forum Energy is reflected at $1,665,000 or US$0.30 per share based on the most recent arms’ length financing completed by Forum Energy.

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Liquidity and Capital Resources

Our working capital deficit at December 31, 2019 was $69,208 versus working capital surplus of $181,769 at December 31, 2018 and shareholders’ equity was $1,635,378 at December 31, 2019 (December 31, 2018 - $1,847,061).

Cash used in operating activities for the year ended December 31, 2019 was $147,062 versus $196,157 for the same period in 2018 mainly as a result of the differences described in the results of operations above.

Cash used in financing activities was $39,381 for the year ended December 31, 2019 versus $Nil for the year ended December 31, 2018 mainly related to costs paid related to a Rights Offering transaction that is expected to complete in 2020.

Cash provided by investing activities for the year ended December 31, 2019 and December 31, 2018 was $Nil

Capital Resources

We currently own 6.80% of Forum Energy.. If Forum Energy is required to raise additional funds through equity issuances then we would have to purchase our proportionate share of these equity issuances to maintain our current equity position.

We anticipate that we will require additional funds for working capital for the next twelve months from the date of this filing and we are evaluating options in order to raise the additional funds.  If we are unable to raise additional funds there is significant doubt that we will be able to continue as a going concern.
We announced on December 18, 2019 that our Board of Directors approved an offering to our existing shareholders (the "Rights Offering") of transferrable rights ("Rights") to purchase up to an additional 818,287,350 common shares of the Company ("Common Shares") to raise gross proceeds of up to approximately US$1,841,147. In connection with the Rights Offering, we filed with the U.S. Securities & Exchange Commission a registration statement on Form F-1 (the "Registration Statement") and prospectus (the "Prospectus") for the issuance of the Rights, the sale of Common Shares pursuant to the Rights Offering and the resale of such Common Shares.
Once the Registration Statement relating to the Rights Offering is effective, we will distribute to each eligible holder of our Common Shares forty (40) Rights for every twenty (20) Common Shares held as of the record date (the "Record Date"), which date will be determined once the Registration Statement is deemed effective. Each Right is to entitle the holder thereof to purchase one (1) Common Share at a price of US$0.00225 per Common Share (the "subscription Price"). The Subscription Price was determined by the Directors by reference to the recent trading activity of our Common Shares. We will not issue any fractional Common Shares in the Rights Offering, and all exercises of Rights will be rounded to the nearest whole Common Share. In addition, we will not issue fractional Rights or pay cash in lieu of fractional Rights.
The Rights may be exercised at any time during the subscription period, which period will be determined once the Registration Statement is effective. The Rights will expire if they are not exercised during the Rights Offering subscription period, unless we extend the Rights Offering subscription period.
We do not know if the Rights Offering will be successful as only our parent company has expressed an interest in participating.

22

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements.

Contractual Obligations

None
Critical Accounting Policies and Estimates
Basis of preparation and accounting policies
We have prepared our consolidated financial statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS represents standards and interpretations approved by the IASB and are comprised of IFRS, International Accounting Standards (“IAS’s”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC’s”) and the former Standing Interpretations Committee (“SIC’s”).. The consolidated financial statements have been prepared in accordance with IFRS standards and interpretations effective as of December 31, 2019.
Critical Accounting Estimates

The preparation of financial statements requires management to make certain judgments and estimates.  Changes in these judgments and estimates could have a material impact on our reported financial result and financial condition.

We make estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

The determination of the fair value of our investment in FEP is a significant accounting estimate.

Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustment to the carrying amounts of assets and liabilities recognized in the financial statements within the next financial year are discussed below:

i) Investments in Associates

We periodically or when circumstances change, reviews its investments in its associates to ascertain whether we has maintained significant influence over these investments and also, review whether there exists any evidence that the investments in associates are required to be impaired.

ii) Deferred tax assets and liabilities

Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. We recognize liabilities and contingencies for anticipated tax audit issues based on our current understanding of the tax law. For matters where it is probable that an adjustment will be made, we record our best estimate of the tax liability including the related interest and penalties in the current tax provision. We believe we have adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.

Functional Currency

We evaluated our functional currency and determined that the United States Dollar was our functional currency.  All accounts and transactions were converted into US dollars from the transition date to IFRS.  We  determined that the effective date of the change in functional currency under IFRS was March 11, 2003.
Share capital and investments were converted from January 1, 2003 as a result of the conversion to IFRS.
23


Recent  Accounting Related Pronouncements

New and amended IFRS standards that are effective for the current year

The following new standards, amendments and interpretations, which have not been early adopted in these financial statements may have an effect on the Company’s future results and financial position:

IFRS 16 Leases

IFRS 16, Leases (“IFRS 16”) will replace IAS 17, "Leases". IFRS 16 specifies how to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases, unless the lease term is 12 months or less or the underlying asset has a low value. The standard is effective for annual periods beginning on or after January 1, 2019. The Company does not have any lease agreements and the adoption of this standard did not impact its financial statements.

IFRIC 23 Uncertainty Over Income Tax Treatments

IFRIC 23 Uncertainty over income tax treatments issued by the IASB in June 2017, provides guidance as to when it is appropriate to recognize a current tax asset when the taxation authority requires an entity to make an immediate payment related to an amount in dispute. This interpretation applies for annual reporting periods beginning on or after January 1, 2019. The adoption of IFRIC 23 did not have any impact on the Company’s financial statements.

ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.

A.  Directors and Senior Management

The following table lists, as of the date of this report, the names, ages, functions and areas of experience in our operations of all our directors and Senior Management.  Each Director will serve until the next Annual General Meeting or until his/her successor is duly elected, unless his/her office is vacated in accordance with our charter documents.  Our executive officers serve at the pleasure of the Board of Directors.

Name
Age
Position/Area of Experience/Function
Paul Wallace (1) (2)
Claro Ramirez (1)
Lyle Brown (1) (3)
68
58
66
Director since November 2012, President and CEO since August 2015 and CFO since June 2015.
Director since October 2011
Director since October 2013
(1)
Member of Audit Committee in 2019.
(2)
Member of Compensation Committee in 2019
(3)
Member of the Corporate Governance Committee in 2019
Information About our Directors and Officers

Mr. Paul Wallace Chairman, President, Chief Executive Officer, and Chief Financial Officer

Mr. Paul Frederick Wallace is a Chartered Professional Accountant and member of the CPA Canada.  He was appointed as the Chief Financial Officer of Hong Kong based First Pacific Company Limited from 1995 to 1997 between 2003 and 2004 and between 2014 and 2015.  He was appointed Group Finance Director to the Sanctuary Group plc between 2005 and 2008. Mr. Wallace was Chief Executive Officer of Blue Ocean Wireless Limited between 2009 and 2011, and a Non-Executive Director of JPMorgan Global Emerging Markets Income Trust Plc between 2010 and 2015.  From March 2015 through April 2019, he was the Finance Director of Forum Energy, a Director of Pitkin Petroleum and Head of Finance of Goodman Fielder Pty Limited.
24


Mr. Claro Ramirez

Mr. Ramirez is a resident of Richmond, British Columbia, Canada and served as Senior Vice President of Philippine Long Distance Telephone Company (“PLDT”) until 2014 and President of First Coconut Manufacturing Inc, from 2014 to May 2018.

Mr. Lyle Brown

Mr. Brown is a resident of Vancouver, British Columbia, Canada.  He is a Chartered Professional Accountant and Partner of Culver & Co., an accounting firm, since 1991.  From June 10, 1998 to August 2019, Mr. Brown has served a director of Northern Lion Gold Corp. Mr. Brown has served as a director of New World Resource Corp since November 14, 2005. Both Northern Lion Gold and New World Resource are listed on the TSX-V and Frankfurt Stock Exchanges.  Mr. Brown is also a director of Nano One Materials Corp which is listed on the TSX-V and Frankfurt.

None of our directors and/or executive officers, or those persons to be appointed, have been the subject of any order, judgment, or decree of any governmental agency or administrator, or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority of such person or of any corporation of which he or she is a director and/or executive officer, to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining or enjoining any such person or any corporation of which he or she is an officer or director from engaging in or continuing any conduct, practice, or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security, or any aspect of the securities business, or of theft, or of any felony.

There are no arrangements or understandings between any two (2) or more directors or executive officers, pursuant to which he or she was selected as a Director or Executive Officer.  There are no family relationships between any two (2) or more of our directors or executive officers.

B.  Compensation.

We have recently agreed to pay our directors the following consulting fees or directors’ fees on a monthly basis:

Lyle Brown       $2,000
Paul Wallace     $1,000
Claro Ramirez   $1,000
None of our executive officers or directors received other compensation in excess of the lesser of US $25,000 or 10% of such Executive Officer's or Director’s cash compensation as reported in the compensation table below and all Executive Officers and directors as a group did not receive other compensation which exceeded US $25,000 times the number of persons in the group or 10% of the compensation reported in the compensation table below.

No funds were set aside or accrued by us during the year ending December 31, 2019 to provide pension, retirement or similar benefits for our directors or Executive Officers.  Except for the stock option program discussed below, we have no bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to the our directors or Executive Officers.

The following tables detail the compensation paid during fiscal year ended December 31, 2019 and 2018 to our directors and members of our administrative, supervisory or management bodies:

Director/Executive Officer Compensation

Director Compensation for Fiscal Year ended December 31, 2019

 
Directors/Officers
 
Salary
Option Exercise Net Market Value(1)
Total
Compensation
Claro Ramirez
$12,000
$0.00
$12,000
Lyle Brown
$24,000
$0.00
$24,000
Paul Wallace
$12,000
$0.00
$12,000
Total
$48,000
$0.00
$48,000
(1) “Option Exercise Net Market Value” is defined as the aggregate difference between the exercise price and the market value of the common stock on the date of exercise.”
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Director Compensation for Fiscal Year ended December 31, 2018

 
Directors/Officers
 
Salary
Option Exercise Net Market Value(1)
Total
Compensation
Claro Ramirez
$12,000
$0.00
$12,000
Lyle Brown
$24,000
$0.00
$24,000
Paul Wallace
$12,000
$0.00
$12,000
Total
$48,000
$0.00
$48,000
(1) “Option Exercise Net Market Value” is defined as the aggregate difference between the exercise price and the market value of the common stock on the date of exercise.”

Our Board may award special remuneration to any Director undertaking any special services on our behalf other than services ordinarily required of a Director.  Other than indicated above no Director received any additional compensation for his or her services including committee participation and/or special assignments.

Except for the stock option program discussed below, we have no bonus or profit sharing plans pursuant to which cash or non-cash compensation is or may be paid to the our directors or Executive Officers.

Options to Purchase Our Securities.

Options to purchase securities from us are granted to directors, officers and employees on terms and conditions acceptable to the relevant regulatory authorities.  We adopted a formal stock option plan on June 19, 2000.  There were no stock options outstanding on December 31, 2019 and none were issued or exercised in 2019 or 2018.

C.  Board Practices

We have an Audit Committee, a Compensation Committee and a Corporate Governance Committee.  No committee members receive additional compensation for serving on a committee and all committee members serve for a one year term.  All board members are elected at our Annual General Meeting to serve for one year or until their successor is appointed.

Audit Committee. The Audit Committee oversees the retention, performance and compensation of our independent auditors, and the establishment and oversight of our systems of internal accounting and auditing control.  Members of the Audit Committee in 2019 Lyle Brown, Claro Ramirez, and Paul Wallace.  New members of our Audit Committee for 2020 will  be appointed following our Annual and General Meeting of Shareholders.

Compensation Committee. The Compensation Committee reviews and makes recommendations to our Board concerning the terms of the compensation packages provided to our senior executive officers, including salary, bonus and awards under our stock option plan and any other compensation plans that we may adopt in the future.  Members of the Compensation Committee in 2019 were Paul Wallace, Lyle Brown and Claro Ramirez.  Members of our Compensation Committee for 2020 will  be appointed following our Annual and General Meeting of Shareholders.

Corporate Governance Committee. The Corporate Governance Committee meets with and discusses current disclosure issuances with our management personnel, directors, and with both our Canadian and United States counsel, to report to our Board any matters which should be the subject of either public disclosure or remedial action and to assist our Board in establishing reporting and disclosure procedures to ensure that we are in compliance with our disclosure and compliance obligations under applicable laws, rules and obligations.  Members of our Corporate Governance Committee in 2019 were Claro Ramirez and Lyle Brown.  Members of our Corporate Governance Committee for 2020 will  be appointed following our Annual and General Meeting of Shareholders,

D. Employees

As of December 31, 2019, we had no employees.
26


E.  Share Ownership

The following table lists as of March 1, 2020, the share ownership of our directors and executive officers.

The following table sets forth certain information as of March 1, 2020 regarding the ownership of our common stock by (i) each of our directors, (ii) each of our named executive officers, and (iii) all of our directors and executive officers as a group.  Except as otherwise indicated, the address of each person identified below is c/o FEC Resources Inc, Suite 2300, Bentall 5, 550 Burrard Street, Vancouver, BC, V6C 2B5 .  We believe that ownership of the shares by the persons identified below is both of record and beneficial and that such persons have sole voting and investment power with respect to the shares indicated.  Percentage of class in the following table is calculated individually based on the following formula: (shares directly or indirectly controlled + shares issuable on the exercise or conversion of various securities) / (total shares outstanding + shares issuable on the exercise or conversion of various warrant, debentures and options by the director or officer).  The total shares outstanding on March 1, 2020 was 409,143,765.

Name of Director and/or Officer and number of shares held:
Number of
Shares
Percent
of Class
Paul Wallace
-
-
Claro Ramirez
-
-
Lyle Brown
-
-
Number of shares held by all Directors and Officers as a group:
-
-

The particulars of the stock options granted to officers and directors are set forth in the preceding section entitled “DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.”  The particulars regarding convertible debentures and warrants acquired by certain officers and directors are as follows:

The following table lists the current directors, executive officers and employees to whom warrants to purchase our shares were sold and the number of share purchase warrants so sold as of the date of this report, as well as the number of share purchase warrants sold to directors and all employees as a group.

Warrants Held by Directors and Officers

Name
Number of Share Purchase Warrants
Exercise Price
Expiration Date
None
None
   

We are a publicly-owned corporation, the shares of which are owned by Canadian residents, U.S. residents, and residents of other countries.  Currently, we are not controlled directly or indirectly by any foreign government but are controlled by PXP Energy Corporation.

There are no arrangements, known to us, the operation of which may at a subsequent date result in a change in our control other than as noted above.

The above listed organizations and individuals have no special or separate voting rights than those rights held by our shareholders.
27


ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.  Major Shareholders

We are a publicly-owned corporation, the shares of which are owned by Canadian residents, U.S. residents, and residents of other countries.  We are controlled by PXP.  The following table provides the names and share ownership of those parties that have ownership of 5% or more of each class of our voting securities as of March 3, 2020 according to the information available to us

Name
Number of Shares Owned
Percent of Class
PXP Energy Corporation *
225,000,000
54.99
Asian Coast International
62,740,000
16.56

* These shares are registered to PXP.  Philex Mining purchased 200,000,000 shares in a private placement in December 2007 and 20,000,000 shares were purchased in a private transaction at the same time.  In April 2010, Philex Mining Corporation received a further 5,000,000 shares pursuant to a private placement at $0.50 per share.  In 2014 Philex Mining Corporation transferred the all of their shares to PXP.  No other significant changes in the ownership of our shares by PXP has occurred during the past three (3) years.

There are no arrangements, known to us, the effect of which may at a subsequent date result in a change in our control other than as noted in Item 5 Operating and Financial Review and Prospects.

As at March 3, 2020, management is not aware of any person holding a greater than 5% registered interest in any class of our voting securities other than as set forth above.  The above listed organizations and individuals have no special or separate voting rights than those rights held by our shareholders.

On March 3, 2020, the shareholders’ list showed 589 registered shareholders and 409,143,765 shares outstanding.  The number of shares held by U.S. residents was 47,237,571 representing 11.55% of the total issued and outstanding shares.  The total number of U.S. resident registered shareholders was 520.

B.  Related Party Transactions

During the year ended December 31, 2019 general and administrative expenses included key management personnel compensation totaling $48,000 (2018: $48,000; 2017: $48,000).

Related party transactions are measured at their exchange value.

* Note Item 7.C not required for this Annual Report.


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ITEM 8.   FINANCIAL INFORMATION

A.  Consolidated Financial Statements and Other Financial Information

We know of no pending legal or arbitration proceedings, including those relating to bankruptcy, governmental receivership or similar proceeding and those involving any third party against it, nor are we involved as a plaintiff in any material pending litigation.

We know of no pending proceedings to which any director, member of senior management, or affiliate is either a party adverse to us, or our subsidiaries, or has a material interest adverse to us. We have not declared any dividends for the last five (5) years, nor do we intend to declare any dividends in the foreseeable future.

B.  Significant Changes/Developments

None

ITEM 9. THE OFFER AND LISTING

A.  Listing Details and Markets

Our shares have traded on the OTC – Bulletin Board (“OTC.BB”) under the symbol “FECOF” since September 22, 1999 but in 2012 our shares were only listed on the Pink Sheets as a result of a lack of market makers.

The table below lists the high/low bid/ask prices on OTC.BB/Pink Sheets for our shares for each year within the five (5) most recent fiscal years.

NASDAQ Small Cap/OTC.BB/Pink Sheets Stock Annual Price History - Common Shares
(US Dollars)

Year Ended
High
Low
12/31/19
$0.02
$0.00
12/31/18
$0.05
$0.00
12/31/17
$0.02
$0.00
12/31/16
$0.01
$0.00
12/31/15
$0.01
$0.00

The table below lists the volume of trading and high/low bid/ask prices on Pink Sheets for our shares for each full quarterly period within the two most recent fiscal years and any subsequent periods.

Pinks Sheets Stock Trading Activity - Common Shares
(US Dollars)

Quarter Ended
Volume
High
Low
12/31/19
8,274,786
$0.00
$0.00
9/30/19
4,931,109
$0.01
$0.00
6/30/19
3,540,745
$0.01
$0.00
3/31/19
6,112,025
$0.02
$0.00
12/31/18
7,849,233
$0.02
$0.01
9/30/18
3,777,114
$0.02
$0.01
6/30/18
26,833,298
$0.05
$0.01
3/31/18
15,372,734
$0.02
$0.00

The table below highlights for the most recent six (6) months the high and low market prices for each month of our common shares on the Pink Sheets.
29

Pink Sheets Stock Monthly Price History - Common Shares
(US Dollars)

Month Ended
High
Low
Volume
2/29/20
$0.00
$0.00
1,070,089
1/31/20
$0.00
$0.00
465,901
12/31/19
$0.00
$0.00
7,939,340
11/30/19
$0.00
$0.00
305,046
10/31/19
$0.00
$0.00
30,400
9/30/19
$0.00
$0.00
1,011,629

Our shares are issued in registered form and the following information is taken from the records of Computershare Investor Services (located in Vancouver, British Columbia), the lead registrar and transfer agent for our common shares.

On March 3, 2020, the shareholders’ list showed 589 registered shareholders and 409,143,765 shares outstanding.  The number of shares held by U.S. residents was 47,237,571 representing 11.55% of the total issued and outstanding shares.  The total number of U.S. resident registered shareholders was 520.

Our shares are not registered to trade in the U.S. in the form of American Depository Receipts (ADR's) or similar certificates.

ITEM 10.  ADDITIONAL INFORMATION.

A.  Share Capital

Not applicable

B.  Memorandum and Articles of Association

Reference is hereby made to our Certificate of Continuance, and to our Bylaws, each of which is incorporated herein by reference to, respectively, Exhibit 3.1 and 3.2 to our Registration Statement on Form F-1, file number 33-81290.

C.  Material Contracts.

See "Item 4. Information About the Company."

D.  Exchange Controls

Investment Canada Act
The Investment Canada Act (the “ICA”) prohibits the acquisition of control of a Canadian business enterprise in Canada by non-Canadians without the prior consent of Investment Canada, the agency that administers the ICA, unless such acquisition is exempt under the provisions of the ICA.  Investment Canada must be notified of such exempt acquisitions.  The ICA covers acquisitions of control of corporate enterprises, whether by purchase of assets, shares or “voting interests” of an entity that controls, directly or indirectly, another entity carrying on a Canadian business.

Apart from the ICA, there are no other limitations on the right of non-resident or foreign owners to hold or vote securities imposed by Canadian law or our Certificate of Continuance.  There are no other decrees or regulations in Canada which restrict the export or import of capital, including foreign exchange controls, or that affect the remittance of dividends, interest or other payments to non-resident holders of our securities except as discussed in “Taxation”, below.
30


E.  Taxation

The following is a summary of the principal Canadian federal income tax considerations generally applicable in respect of our common stock.  The tax consequences to any particular holder of common stock will vary according to the status of that holder as an individual, trust, corporation or member of a partnership, the jurisdiction in which that holder is subject to taxation, the place where that holder is resident and, generally, according to that holder's particular circumstances.  This summary is applicable only to holders who are resident in the United States; have never been resident in Canada; deal at arm's length with us; hold their common stock as capital property; and who will not use or hold the common stock in carrying on a business in Canada.

This summary does not take into account provincial income tax consequences.  This summary assumes that the publicly announced proposals will be enacted as proposed with the effective dates set out therein; otherwise, this summary assumes that there will be no other changes in law whether by judicial or legislative action.

If a non-resident were to dispose of common stock to another Canadian corporation which deals (or is deemed to deal) on a non-arm's length basis with the non-resident, and which, immediately after the disposition, is connected with us (i.e. which holds shares representing more than 10% of the voting power and more than 10% of the market value of all of our issued and outstanding shares), the excess of the proceeds over the paid-up capital of the common stock sold will be deemed to be taxable as a dividend either immediately, or eventually, by means of a deduction in computing the paid-up capital of the purchasing corporation.

Under the Canadian Tax Act, a gain from the sale of common stock by a non-resident will not be subject to Canadian tax, provided the stockholder (and/or persons who do not deal at arm's length with the stockholder) has not held a “substantial interest” in our shares (25% or more of the shares of any class of our equity securities) at any time in the five (5) years preceding the disposition.  Generally, the Canadian-United States Tax Convention (the “Tax Convention”) will exempt from Canadian taxation any capital gain realized by a resident of the United States, provided that the value of the common stock is not derived principally from real property situated in Canada.

In the case of any dividends paid to non-residents of Canada, the Canadian tax is withheld by us, which remits only the net amount to the stockholder. By virtue of Article X of the Tax Convention, the rate of tax on dividends paid to residents of the United States is generally limited to 15% of the gross dividend (or 10% in the case of certain corporate stockholders owning at least 10% of our voting shares).  In the absence of the treaty provisions, the rate of Canadian withholding tax imposed on non-residents is 25% of the gross dividend.  Stock dividends received by non-residents of Canada from us are taxable by Canada as ordinary dividends.

This summary is of a general nature only and is not exhaustive of all possible income tax consequences.  It is not intended as legal or tax advice to any particular holder of common stock, and should not be so construed.  Each holder should consult his/her own tax advisor with respect to the income tax consequences applicable to him/her in his/her own particular circumstances.

F.  Dividends and Paying Agents

Not applicable

G.  Summary By Experts

Not applicable

H.  Documents on Display

The documents concerning us which are referred to in this Annual Report are either annexed hereto as exhibits (see Item 19) or may be inspected at our principal executive offices in North Sydney, Australia.

I.  Subsidiary Information

Not applicable
31


ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Currency Exchange Rate Sensitivity

In regards to transactional risk, our functional currency is the United States dollar and our activities are predominantly executed using both the U.S. and Canadian dollars.  We have done a limited number of financings, and we are not subject to significant operational exposures due to fluctuations in these currencies.  Our common shares are listed on the OTC.BB and are bought and sold in US dollars.  We have not entered into any agreements, or purchased any instruments, to hedge any possible currency risks at this time.

Interest Rate Sensitivity

We currently have no significant short-term or long-term debt requiring interest payments.  This does not require us to consider entering into any agreements or purchasing any instruments to hedge against possible interest rate risks at this time.  Our interest-earning investments are short-term.  Thus, any reductions in future income or carrying values due to future interest rate declines are believed to be immaterial.

Commodity Price Sensitivity

Our future revenue and profitability will be dependent, to a significant extent, upon prevailing spot market prices for gold, oil and gas.  In the past, gold, oil and gas prices have been volatile.  Prices are subject to wide fluctuations in response to changes in supply of, and demand for, gold, oil and gas, market uncertainty, and a variety of additional factors that are beyond our control.  We currently have no significant operating revenue.

ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES.

Not Applicable.

32

PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES.

None.

ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS. 

None.
ITEM 15.  CONTROLS AND PROCEDURES.

Disclosure Controls and Procedures
The Board has overall responsibility for reviewing our disclosure to ensure we provide full and plain disclosure to shareholders and other stakeholders.  The Board discharges its responsibilities through its committees, specifically with respect to financial disclosure.  The Audit Committee is responsible for reviewing our financial reporting procedures and internal controls to ensure full and accurate disclosure of our financial position.
Our Chief Executive Officer and Chief Financial Officer are responsible for designing internal controls over financial reporting or causing them to be designed under their supervision in order to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15 and 15d-15 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Annual Report (the "Evaluation Date") and concluded they are not effective as discussed below.
Management’s Annual Report on Internal Control Over Financial Reporting
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) and Rule 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company’s financial statements for external purposes in accordance with International Financial Reporting Standards.
As of December 31, 2019, management assessed the effectiveness of the Company’s internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls over financial reporting were not effective and that there were material weaknesses in our internal controls over financial reporting. The material weaknesses were an inability to detect the inappropriate application of IFRS guidance, as more fully described below, as the result of deficiencies that existed in the design or operation of our internal control over financial reporting.
33

The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under COSO and SEC rules were: (1) lack of a majority of independent directors on the Company’s board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) limited number of staff, not allowing for complete segregation of incompatible duties; and (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of IFRS and SEC disclosure requirements. The aforementioned material weaknesses were identified by the Company’s Chief Financial Officer in connection with the preparation of our financial statements as of December 31, 2019 and communicated the matters to our management and board of directors.
Management believes that the appointment of one or more independent directors, will remedy the lack of a majority of outside directors on the Company’s Board. In addition, management believes that preparing and implementing sufficient written policies and checklists will remedy the insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of IFRS and SEC disclosure requirements. Further, management believes that the hiring of additional personnel who have the technical expertise and knowledge will result in proper segregation of duties.
Any effort to increase the size of the Board of Directors, appoint independent directors or hire additional personnel is conditional upon the Company raising additional capital.
We will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the company to provide only the management’s report in this annual report.
Changes in Internal Control over financial reporting
During the year ended December 31, 2019, and subsequently there were no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting or that would require corrective action.
ITEM 16.  (RESERVED)
34


ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT

The Audit Committee is responsible for reviewing our financial reporting procedures, internal controls, and the performance of our auditors.  The Audit Committee is also responsible for reviewing all disclosure with respect to financial matters prior to filing or release and quarterly and annual Financial Statements prior to their approval by the full Board.  Members of the Audit Committee in 2019 were Lyle Brown, Claro Ramirez, and Paul Wallace.  New members of our Audit Committee for 2020 will  be appointed following our Annual and General Meeting of Shareholders.

Our Board has determined that it has at least one (1) financial expert serving on its Audit Committee.  This individual is Lyle Brown.  Mr. Brown is a Chartered Professional  Accountant and  Partner of Culver & Co., an accounting firm. Mr. Brown has significant experience in the review of financial statements and related information.

Mr. Brown would be regarded as independent.

ITEM 16B: CODE OF ETHICS.

We have adopted a formal “Code of Ethics” applicable to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.  We believe that the Code of Ethics is reasonably designed to deter wrongdoing and to promote:


1.
Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

2.
Full, fair, accurate, timely, and understandable disclosure in reports and documents that a registrant files with, or submits to, regulatory agencies and in other public communications made by the registrant;

3.
Compliance with applicable governmental laws, rules and regulations;

4.
The prompt internal reporting of violations of the standards to an appropriate person or persons identified in the standards; and

5.
Accountability for adherence to the standards of the Code of Ethics.

The Code of Ethics (in hard copy) is available for inspection in our headquarters during regular business hours and a copy can also be provided at no charge on request.

In addition, we practice corporate governance in accordance with rules and regulations in Canada.

Corporate Governance relates to the activities of the Board who are elected by and accountable to the shareholders, and takes into account the role of management who are appointed by the Board and who are charged with our on-going management.  Our Board encourages sound corporate governance practices designed to promote our well being and on-going development, having always as its ultimate objective our best long-term interests and the enhancement of value for all shareholders.  The Board also believes that sound corporate governance benefits our employees and the communities in which we operate.  The Board believes that our corporate governance policies and practices, outlined below, are appropriate and substantially consistent with the guidelines for improved corporate governance in Canada as adopted by the Toronto Stock Exchange.

To better fulfill and implement the Board’s corporate governance policies, we have established a Corporate Governance Committee.  The Corporate Governance Committee meets with and discusses current disclosure issuances with our management personnel, directors, and with both our Canadian and United States counsel, in order to not only report to the Board any matters which should be the subject of either public disclosure or remedial action, but also to assist the Board in establishing reporting and disclosure procedures to ensure that we are in compliance with our disclosure and compliance obligations under applicable laws, rules and obligations.  The members of the Corporate Governance Committee are Claro Ramirez and Lyle Brown.

35


ITEM 16C.  ACCOUNTANTS FEES AND SERVICES

Audit Fees

For the audit of the annual financial statements for the year ended December 31, 2019, an amount of $11,549 was accrued as a best estimate of fees to be billed by our external auditors Dale Matheson Carr-Hill Labonte LLP (“DMCL”). DMCL also charged $3,820 for review of our F1 rights offering filing and an additional amount of $4,976 was recorded under deferred transaction costs for the rights offering document review.  For 2018, DMCL charged total audit fees of $16,909 and BDO Canada LLP (“BDO”) charged $4,092 for the review of our 20-F.

Audit Related Fees

We did not incur any audit related fees in either of the two fiscal years for assurance and related services by BDO that are related to the performance of an audit or review of our financial statements.

Tax Fees

We did not incur any fees in either of the last two fiscal years for professional services rendered by DMCL or BDO for tax compliance, tax advise and tax planning.

All other fees

We did not incur any other fees in either of the last two fiscal years for products and services provided by DMCL or BDO, other than the services reported above under this Item 16C.
On February 15, 2018, our Audit Committee approved the appointment of Dale Matheson Carr-Hilton Labonte LLP to replace BDO Canada LLP.

ITEM 16D.  EXEMPTION FROM THE LISTING STANDARDS FOR AUDIT COMMITEE

 Not Applicable.

ITEM 16E. PURCHASE OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

 Not Applicable.

ITEM 16F.  CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT

Not Applicable

ITEM 16G. CORPORATE GOVERNANCE

 Not Applicable.

ITEM 16H.  MINE SAFETY DISCLOSURES

 Not Applicable.


36


PART III

ITEM 17.  FINANCIAL STATEMENTS.

We report under Item# 18.

ITEM 18.  FINANCIAL STATEMENTS.

The Auditors’ Report, financial statements and notes thereto, schedules thereto, as required under Item 18 are found immediately below.

     Financial Statements:


37




FEC RESOURCES INC.
Financial Statements

As of December 31, 2019 and 2018
and for each of the years in the three year period
ended December 31, 2019
(Expressed in United States dollars)


38


Report of Independent Registered Public Accounting Firm

To the shareholders and the board of directors of FEC Resources Inc.

Opinion on the Financial Statements
We have audited the accompanying statements of financial position of FEC Resources Inc. (the "Company") as of December 31, 2019 and 2018, the related statements of comprehensive income (loss), changes in equity and cash flows, for the years ended December 31, 2019, 2018, and 2017, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and its financial performance and its cash flows for the years ended December 31, 2019, 2018, and 2017, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 2 to the financial statements, the Company has disclosed certain conditions that raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in this regard are described in Note 2.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting in accordance with the standards of the PCAOB. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion in accordance with the standards of the PCAOB.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.


DALE MATHESON CARR-HILTON LABONTE LLP
CHARTERED PROFESSIONAL ACCOUNTANTS

We have served as the Company’s auditor since 2017
Vancouver, Canada
March 27, 2020

39

FEC RESOURCES INC.
Statements of Financial Position
Expressed in United States Dollars

   
December 31
2019
   
December 31
2018
 
ASSETS            
             
Current assets            
Cash (Note 6)
 
$
42,548
   
$
228,991
 
Receivables
   
3,072
     
2,045
 
Prepaid expenses
   
7,288
     
6,555
 
     
52,908
     
237,591
 
 
Non-current assets
               
Deferred transaction costs (Note 15)
   
39,381
     
-
 
Equipment (Note 7)
   
205
     
292
 
Investment in Forum Energy Limited (Note 8)
   
1,665,000
     
1,665,000
 
   
$
1,757,494
   
$
1,902,883
 

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities
Trade and accrued payables
 
$
122,116
   
$
55,822
 
     
122,116
     
55,822
 


Shareholders’ Equity
Share capital (Note 9)
   
16,732,397
     
16,732,397
 
Contributed surplus (Note 9)
   
3,058,063
     
3,058,063
 
Deficit
   
(18,155,082
)
   
(17,943,399
)
     
1,635,378
     
1,847,061
 
   
$
1,757,494
   
$
1,902,883
 

SIGNED ON BEHALF OF THE BOARD OF DIRECTORS BY:



“Paul Wallace”              Lyle Brown” 
Director  Director

The accompanying notes form an integral part of these financial statements
40


FEC RESOURCES INC.
STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
Expressed in United States Dollars


   
Year ended
December 31
2019
   
Year ended
December 31
2018
   
Year ended
December 31
2017
 
                   
General and administrative expenses
                 
General and administration (Notes 10 and 11)
 
$
213,561
   
$
222,326
   
$
166,263
 
Operating loss
   
(213,561
)
   
(222,326
)
   
(166,263
)
                         
Gain on reclassification of the investment in Forum Energy Limited (Note 8)
   
-
     
-
     
1,965,000
 
Interest income
   
1,878
     
4,661
     
4,299
 
Net and Comprehensive income (loss)
 
$
(211,683
)
 
$
(217,665
)
 
$
1,803,036
 
                         

Earnings (loss) per common share
- Basic and diluted
 
$
(0.00
)
 
$
(0.00
)
 
$
0.00
 
                         
Weighted average number of shares outstanding, basic and diluted
   
409,143,765
     
409,143,765
     
409,143,765
 


The accompanying notes form an integral part of these financial statements
41

FEC RESOURCES INC.
STATEMENTS OF CHANGES IN EQUITY
Expressed in United States Dollars
For the years ended December 31, 2019, 2018 and 2017

   
Share capital
   
Contributed surplus
   
Deficit
   
Total
 
                         
Balance January 1, 2019
 
$
16,732,397
   
$
3,058,063
   
$
(17,943,399
)
 
$
1,847,061
 
Total comprehensive loss for the year
   
-
     
-
     
(211,683
)
   
(211,683
)
Balance December 31, 2019
 
$
16,732,397
   
$
3,058,063
   
$
(18,155,082
)
 
$
1,635,378
 
                                 
   
Share capital
   
Contributed surplus
   
Deficit
   
Total
 
                         
Balance January 1, 2018
 
$
16,732,397
   
$
3,058,063
   
$
(17,725,734
)
 
$
2,064,726
 
Total comprehensive loss for the year
   
-
     
-
     
(217,665
)
   
(217,665
)
Balance December 31, 2018
 
$
16,732,397
   
$
3,058,063
   
$
(17,943,399
)
 
$
1,847,061
 
                                 
   
Share capital
   
Contributed surplus
   
Deficit
   
Total
 
Balance January 1, 2017
 
$
16,732,397
   
$
3,058,063
   
$
(19,528,770
)
 
$
261,690
 
Total comprehensive income for the year
   
-
     
-
     
1,803,036
     
1,803,036
 
Balance December 31, 2017
 
$
16,732,397
   
$
3,058,063
   
$
(17,725,734
)
 
$
2,064,726
 

The accompanying notes form an integral part of these financial statements
42



FEC RESOURCES INC.
STATEMENTS OF CASH FLOWS
Expressed in United States Dollars

   
Year ended
December 31
2019
   
Year ended
December 31
2018
   
Year ended
December 31
2017
 
                   
Cash used in                  
OPERATING ACTIVITIES                  
Net income (loss) for the year
 
$
(211,683
)
 
$
(217,665
)
 
$
1,803,036
 
                         
Non-cash items included in net income (loss)
                       
Amortization
   
87
     
126
     
178
 
Gain on reclassification of the investment in Forum Energy Limited
   
-
     
-
     
(1,965,000
)
Changes in working capital related to operating activities
Receivables
   
(1,027
)
   
(1,085
)
   
(81
)
Prepaid expenses
   
(733
)
   
590
     
(455
)
Trade and accrued payables
   
66,294
     
21,877
     
(24,691
)
Net cash used in operating activities
   
(147,062
)
   
(196,157
)
   
(187,013
)

INVESTING ACTIVITY
Proceeds from sale of Forum Energy Limited shares
   
-
     
-
     
300,000
 
Net cash provided by investing activity
   
-
     
-
     
300,000
 

FINANCING ACTIVITY
Deferred transaction costs
   
(39,381
)
   
-
     
-
 
Net cash used in financing activity
   
(39,381
)
   
-
     
-
 
                         
Net increase (decrease) in cash
   
(186,443
)
   
(196,157
)
   
112,987
 
Cash – beginning of the year
   
228,991
     
425,148
     
312,161
 
Cash – end of the year
 
$
42,548
   
$
228,991
   
$
425,148
 


The accompanying notes form an integral part of these financial statements
43

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)

Note 1   Corporate Information

FEC Resources Inc. (“FEC” or the “Company”) was incorporated under the laws of Alberta, Canada and is a holding Company with an interest in Forum Energy Limited (“FEP”).  The Company is listed in the United States on the OTC Pink (“OTC Pink”), having the symbol FECOF.

At December 31, 2019, the Company has a 6.8% interest in FEP. (Note 8).

The principal address of the Company is Suite 2300, Bentall 5, 550 Burrard Street, Vancouver, BC, V6C 2B5. The Company’s ultimate parent company is PXP Energy Corporation (formerly Philex Petroleum Corporation) (“PXP”) with a registered office at 2/F LaunchPad Reliance corner Sheridan Streets, Mandaluyong City, Philippines 1550.


Note 2   Basis of Preparation and Going Concern

a)
Statement of Compliance

These financial statements of the Company have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”).

The financial statements were authorized for issue by the Board of Directors on March 27, 2020.

b)
Basis of Measurement

The financial statements have been prepared on a historical cost basis and are presented in United States dollars, which is also the Company’s functional currency.

The preparation of financial statements in compliance with IFRS requires management to make certain critical accounting estimates.  It also requires management to exercise judgment in applying the Company’s accounting policies.  The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 5.

44


FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)

Note 2   Basis of Preparation and Going Concern (continued)

c)
Nature of Operations and Going Concern

As a holding company with an interest in FEP, the Company’s business is indirectly subject to risks inherent in oil and gas exploration and development operations. In addition, there are risks associated with FEP’s stage of operations and the foreign jurisdiction in which it or FEP may operate or invest. The Company has identified certain risks pertinent to its investment including: exploration and reserve risks, uncertainty of reserve estimates, ability to exploit successful discoveries, drilling and operating risks, title to properties, costs and availability of materials and services, capital markets and the requirement for additional capital, market perception, loss of or changes to production sharing, joint venture or related agreements, economic, political and sovereign risks, possibility of less developed legal systems, corporate and regulatory formalities, environmental regulation, reliance on strategic relationships, market risk, competition, dependence on key personnel, volatility of future oil and gas prices and foreign currency risk.  The Company has an accumulated deficit since inception of $18,155,082.
Management considers that the current economic environment is difficult and the outlook for holding companies invested in oil and gas exploration companies presents significant challenges in terms of raising funds through issuance of shares. To the extent necessary, the Company has relied on its ability to raise funds via dispositions of quantities of its shareholdings in FEP to PXP under terms that are consistent with the best interests of shareholders, in order to finance its operations. The Company has been successful in disposing quantities of its shareholdings in FEP in previous fiscal years. However, there can be no assurance the Company will continue to be able to dispose of quantities of its shares in FEP under suitable terms.  Currently management has no plans to sell any additional FEP shares.

Since the delisting of FEP from the London Stock Exchange, there is no liquidity via a public market for the FEP shares.  As the Company is wholly reliant on the information disclosed by PXP concerning the business of FEP, the Company may not be able to obtain information necessary to facilitate a wider sales process and may be reliant on significant shareholders of PXP for the disposition of any of its FEP shares.  Management has looked at all options including raising funds to operate and participate in future FEP financings by way of debt or equity financings.  Given the current share price of the Company, and given that any external financings may have been extremely dilutive, the Company has announced that it is undertaking a rights offering to raise funds to sustain operations however there can be no assurance that the rights offering will be successful. See Note 15.

Management has concluded that the combination of these circumstances gives rise to a material uncertainty that casts substantial doubt on the ability of the Company to continue as a going concern; therefore, the Company may be unable to realize its assets and discharge its liabilities in the normal course of business.

45


FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)
 
Note 3   Summary of Significant Accounting Policies

The accounting policies set out below have been applied consistently to all years presented in these financial statements.

a) Equipment

Recognition and Measurement

On initial recognition, property, plant, and equipment are recorded at cost, being the purchase price and directly attributable cost of acquisition or construction required to bring the asset to the location and condition necessary to be capable of operating in the manner intended by the Company. This includes the appropriate borrowing costs and the estimated present value of any future unavoidable costs of dismantling and removing items.  The corresponding liability is recognized within provisions.

Property, plant and equipment is subsequently measured at cost less accumulated depreciation less any impairment losses.

Depreciation

Equipment is carried at cost less accumulated depreciation. The Company depreciates its computer equipment at the rate of 30% per annum utilizing the declining balance method.

Depreciation methods, useful lives and residual values are reviewed at each financial year end and adjusted if appropriate.

Impairment

The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

b)
Foreign Currency Translation

The functional and presentation currency of the Company is the US dollar. Accordingly, foreign currency transactions and balances are translated as follows: (i) monetary assets and liabilities denominated in currencies other than the US dollar (“foreign currencies”) are translated into US dollars at the exchange rates prevailing at the balance sheet date; (ii) non-monetary assets denominated in foreign currencies and measured at other than fair value are translated using the rates of exchange at the transaction dates; (iii) non-monetary assets denominated in foreign currencies that are measured at fair value are translated using the rates of exchange at the dates those fair values are determined; and (iv) income statement items denominated in foreign currencies are principally translated using daily exchange rates, except for depreciation and depletion which is translated at historical exchange rates. Foreign exchange gains and losses are recognized in net (loss) earnings and presented in the statements of Comprehensive Income (Loss) in accordance with the nature of the transactions to which the foreign currency gains and losses relate. Unrealized foreign exchange gains and losses on cash and cash equivalent balances denominated in foreign currencies are disclosed separately in the statements of cash flows.
46

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)
 
Note 3   Summary of Significant Accounting Policies (continued)

c)
Income Taxes

Income tax expense comprises current and deferred tax. Current tax and deferred tax are recognized in net income except to the extent that it relates to a business combination or items recognized directly in equity or in other comprehensive loss/income.

Current income taxes are recognized for the estimated income taxes payable or receivable on taxable income or loss for the current year and any adjustment to income taxes payable in respect of previous years. Current income taxes are determined using tax rates and tax laws that have been enacted or substantively enacted by the year-end date.

Deferred tax assets and liabilities are recognized where the carrying amount of an asset or liability differs from its tax basis, except for taxable temporary differences arising on the initial recognition of goodwill and temporary differences arising on the initial recognition of an asset or liability in a transaction which is not a business combination and at the time of the transaction affects neither accounting nor taxable profit or loss.

Recognition of deferred tax assets for unused tax losses, tax credits and deductible temporary differences is restricted to those instances where it is probable that future taxable profit will be available against which the deferred tax asset can be utilized. At the end of each reporting year the Company reassesses unrecognized deferred tax assets. The Company recognizes a previously unrecognized deferred tax asset to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

d)
Earnings / Loss Per Share

Basic earnings/loss per share is computed by dividing the net income or loss applicable to common shares of the Company by the weighted average number of common shares outstanding for the relevant year.

Diluted earnings/loss per common share is computed by dividing the net income or loss applicable to common shares by the sum of the weighted average number of common shares issued and outstanding and all additional common shares that would have been outstanding, if potentially dilutive instruments were converted.

There were no dilutive instruments (consisting of shares issuable on the exercise of options and warrants) outstanding during the years ended December 31, 2019, December 31, 2018 and December 31, 2017.  Accordingly, there is no difference in the amounts presented for basic and diluted loss per share.

e)
Financial Instruments

The Company measures financial instruments at fair value at each reporting date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
47


FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)
 
Note 3   Summary of Significant Accounting Policies (continued)

e)
Financial Instruments (continued)

The Company uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:
Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities
Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable
Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of the reporting date.

Financial Assets

Measurement – initial recognition
Financial assets and financial liabilities are recognized in the Company’s statement of financial position when the Company becomes a party to the contractual provisions of the instrument.  On initial recognition, all financial assets and financial liabilities are recorded at fair value, net of attributable transaction costs, except for financial assets and liabilities classified as at fair value through profit or loss (“FVTPL”). The directly attributable transaction costs of financial assets and liabilities classified as at FVTPL are expensed in the period in which they are incurred.
Subsequent measurement of financial assets and liabilities depends on the classifications of such assets and liabilities.

Classification of financial assets
Amortized cost:
Financial assets that meet the following conditions are measured subsequently at amortized cost:
(i)
The financial asset is held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and

(ii)
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

48


FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)
 
Note 3   Summary of Significant Accounting Policies (continued)

e)
Financial Instruments (continued)

The amortized cost of a financial asset is the amount at which the financial asset is measured at initial recognition minus the principal repayments, plus the cumulative amortization using effective interest method of any difference between that initial amount and the maturity amount, adjusted for any loss allowance. Interest income is recognized using the effective interest method.
The Company's financial assets at amortized cost consists of cash.
Fair value through other comprehensive income ("FVTOCI"):
Financial assets that meet the following conditions are measured at FVTOCI:
(i)
The financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets, and
(ii)
The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

The Company's financial assets at FVTOCI include its investment in FEP (Note 8).
Equity instruments designated as FVTOCI:
On initial recognition, the Company may make an irrevocable election (on an instrument-by-instrument basis) to designate investments in equity instruments that would otherwise be measured at fair value through profit or loss to present subsequent changes in fair value in other comprehensive income. Designation at FVTOCI is not permitted if the equity investment is held for trading or if it is contingent consideration recognized by an acquirer in a business combination. Investments in equity instruments at FVTOCI are initially measured at fair value plus transaction costs. Subsequently, they are measured at fair value with gains and losses arising from changes in fair value recognized in other OCI. The cumulative gain or loss is not reclassified to profit or loss on disposal of the equity instrument, instead, it is transferred to retained earnings.
The Company has designated all investments in equity instruments that are not held for trading as FVTOCI.
Financial assets measured subsequently at fair value through profit or loss (“FVTPL”):
By default, all other financial assets are measured subsequently at FVTPL.
The Company, at initial recognition, may also irrevocably designate a financial asset as measured at FVTPL if doing so eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases.
Financial assets measured at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized in profit or loss to the extent they are not part of a designated hedging relationship.  The Company's financial assets at FVTPL include its account receivable arising from goods and services tax credits.
49

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)

Note 3   Summary of Significant Accounting Policies (continued)

e)
Financial Instruments (continued)

Financial liabilities and equity
Debt and equity instruments are classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument. An equity instrument is any contract that evidences a residual interest in the assets of the Company after deducting all its liabilities. Equity instruments issued by the Company are recognized at the proceeds received, net of direct issue costs. Repurchase of the Company’s own equity instruments is recognized and deducted directly in equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.
Classification of financial liabilities
Financial liabilities that are not contingent consideration of an acquirer in a business combination, held for trading or designated as at FVTPL, are measured at amortized cost using effective interest method.
Impairment of Financial Assets

At each reporting date the Company assesses whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or group of financial assets is deemed to be impaired, if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that event has an impact on the estimated future cash flows of the financial asset or the group of financial assets.

Financial Liabilities

Financial liabilities are classified as other financial liabilities, based on the purpose for which the liability was incurred, and comprise of trade payables and accrued liabilities. These liabilities are initially recognized at fair value net of any transaction costs directly attributable to the issuance of the instrument and subsequently carried at amortized cost using the effective interest rate method.  This ensures that any interest expense over the period to repayment is at a constant rate on the balance of the liability carried in the statement of financial position. Interest expense in this context includes initial transaction costs and premiums payable on redemption, as well as any interest or coupon payable while the liability is outstanding. Trade and other payables represent liabilities for goods and services provided to the Company prior to the end of the period which are unpaid.

50


FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)

Note 3   Summary of Significant Accounting Policies (continued)

f)
Share capital

Equity instruments are contracts that give a residual interest in the net assets of the Company. Financial instruments issued by the Company are classified as equity only to the extent that they do not meet the definition of a financial liability or financial asset. The Company’s common shares are classified as equity instruments. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

g)
Finance income and expenses

Finance expense comprises interest expense on borrowings, accretion of the discount on provisions and impairment losses recognized on financial assets.

Interest income is recognized as it accrues in profit or loss, using the effective interest method.

Foreign currency gains and losses, reported under finance income and expenses, are reported on a net basis.

Note 4   Standards, Amendments and Interpretations

The Company has prepared its financial statements in accordance with IFRS as issued by the International Accounting Standards Board (“IASB”). IFRS represents standards and interpretations approved by the IASB and are comprised of IFRS, International Accounting Standards (“IAS’s”), and interpretations issued by the IFRS Interpretations Committee (“IFRIC’s”) and the former Standing Interpretations Committee (“SIC’s”). The financial statements have been prepared in accordance with IFRS standards and interpretations effective as of December 31, 2019.

New and amended IFRS standards that are effective for the current year

The following new standards, amendments and interpretations, which have not been early adopted in these financial statements may have an effect on the Company’s future results and financial position:

IFRS 16 Leases

IFRS 16, Leases (“IFRS 16”) will replace IAS 17, "Leases". IFRS 16 specifies how to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring the recognition of assets and liabilities for all leases, unless the lease term is 12 months or less or the underlying asset has a low value. The standard was effective for annual periods beginning on or after January 1, 2019. The Company does not have any lease agreements and the adoption of this standard did not impact its financial statements.

IFRIC 23 Uncertainty Over Income Tax Treatments
IFRIC 23 Uncertainty over income tax treatments issued by the IASB in June 2017, provides guidance as to when it is appropriate to recognize a current tax asset when the taxation authority requires an entity to make an immediate payment related to an amount in dispute. This interpretation applies for annual reporting periods beginning on or after January 1, 2019. The adoption of IFRIC 23 did not have any impact on the Company’s financial statements.
51


FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)
Note 5   Critical Accounting Estimates and Judgments

The Company makes estimates and assumptions about the future that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. In the future, actual experience may differ from these estimates and assumptions.

The effect of a change in an accounting estimate is recognized prospectively by including it in comprehensive income/loss in the period of the change, if the change affects that period only, or in the period of the change and future periods, if the change affects both.

The determination of the fair value of the Company’s investment in FEP is a significant accounting estimate (Note 8).

Information about critical judgments in applying accounting policies that have the most significant risk of causing material adjustment to the carrying amounts of assets and liabilities recognized in the financial statements within the next financial year are discussed below:

i) Investments in Associates

The Company periodically or when circumstances change, reviews its investments in its associates to ascertain whether it has maintained significant influence over these investments and also, reviews whether there exists any evidence that the investments in associates are required to be impaired.

ii) Deferred tax assets and liabilities

Significant judgment is required in determining the provision for income taxes. There are many transactions and calculations undertaken during the ordinary course of business for which the ultimate tax determination is uncertain. The Company recognizes liabilities and contingencies for anticipated tax audit issues based on our current understanding of the tax law. For matters where it is probable that an adjustment will be made, the Company records its best estimate of the tax liability including the related interest and penalties in the current tax provision. The Company believes it has adequately provided for the probable outcome of these matters; however, the final outcome may result in a materially different outcome than the amount included in the tax liabilities.

Note 6   Cash

Cash held at banks earns interest at floating rates based on daily bank deposit rates.
52


FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)
Note 7   Equipment

Computer Equipment
 
December 31 2019
   
December 31 2018
   
December 31 2017
 
Cost
                 
Opening Cost
 
$
15,543
   
$
15,543
   
$
15,543
 
Additions
   
-
     
-
     
-
 
Ending Cost
   
15,543
     
15,543
     
15,543
 
                         
Accumulated Depreciation
                       
Opening Accumulated Depreciation
 
$
(15,251
)
 
$
(15,125
)
 
$
(14,947
)
Charge for the year
   
(87
)
   
(126
)
   
(178
)
Ending Accumulated Depreciation
   
(15,338
)
   
(15,251
)
   
(15,125
)
                         
Carrying Value
 
$
205
   
$
292
   
$
418
 

Note 8             Investment in Forum Energy Limited (”FEP”)

      i) Investment in FEP

 




The investment in FEP is summarized as follows:

     
Number of shares held
   
Amount
 
               
 
Balance December 31, 2017, 2018, and 2019
   
5,550,200
   
$
1,665,000
 

As at December 31, 2019, the Company’s interest in FEP was 6.80% (2018 – 6.80%).

FEP’s assets consist of interests in various petroleum service contracts (SC) in the Philippines, the most significant of which in terms of Prospective Resources is SC 72. On March 2, 2015, the Philippine Department of Energy (“DOE”) granted a force majeure on SC 72 because the contract area falls within the territorial disputed area of the West Philippine Sea. Under the terms of the force majeure, all exploration work at SC 72 was immediately suspended until the DOE notifies FEP that it re-commences exploration. As at December 31, 2019, the force majeure remains effective.

Determination of fair value

The investment in FEP represents an investment in a private company for which there is no active market and for which there are no publicly available quoted market prices.

The Company has classified its investment in FEP as Level 3 in the fair value hierarchy.

53


FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)

Note 8   Investment in Forum Energy Limited (”FEP”) (continued)

Determination of fair value (continued)

For purposes of determining fair value of the investment in FEP, the Company considered valuation techniques described in IFRS 13 – Fair Value Measurement. In respect of the investment in FEP, management considered the fair value of $1,665,000 previously recorded under IAS 32 – Financial Instruments to be indicative of the fair value of the investment in FEP upon the adoption of IFRS 9 as there have been no material changes in the circumstances that would change management’s assessment of fair value.

There were no transfers between level 3 and the other levels in the hierarchy during 2019 or 2018.

Note 9   Share Capital

a)
Authorized:

The Company is authorized to issue an unlimited number of common shares without par value and is authorized to issue an unlimited number of Class A and Class B preferred convertible redeemable voting shares without par value.

Issued:

 
Common Shares
 
Number
   
Amount
 
 
Balance, December 31, 2019 and December 31, 2018
   
409,143,765
   
$
16,732,397
 

No preferred shares have been issued.

b)
Nature and Purpose of Equity and Reserves

The reserves recorded in equity on the Company’s statements of financial position include Contributed Surplus and Deficit.

Contributed Surplus is used to recognize the value of stock option grants prior to exercise.

Deficit is used to record the Company’s change in deficit from income and losses from period to period.

c)
Share based payments:

The Company has established a stock option plan whereby options may be granted to its directors, officers, consultants, and employees.  The exercise price of each option equals the market price of the Company’s stock on the date of the grant and an option’s maximum term is five years.  The options vest immediately. There were no stock options outstanding on December 31, 2019 or December 31, 2018 and none were issued between January 1, 2017 and December 31, 2019.

54


FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)

Note 10    Related Party Transactions and Balances

During the year ended December 31, 2019, general and administrative expenses included key management personnel compensation totaling $48,000 (2018: $48,000; 2017: $48,000).

Note 10       General and administrative expenses

   
December 31, 2019
   
December 31, 2018
   
December 31, 2017
 
Professional fees
 
$
56,773
   
$
44,836
   
$
10,641
 
Bank charges
   
3,789
     
3,567
     
3,283
 
Listing and filing fees
   
19,980
     
31,201
     
10,873
 
Office and miscellaneous
   
21,016
     
25,883
     
22,895
 
Consulting (Note 10)
   
108,513
     
108,000
     
108,000
 
Amortization (Note 7)
   
87
     
126
     
178
 
Travel
   
-
     
8,691
     
-
 
Foreign exchange
   
3,403
     
22
     
10,393
 
   
$
213,561
   
$
222,326
   
$
166,263
 

Note 12    Income Taxes

Reconciliation of accounting and taxable income, for the years ended December 31 are as follows:

   
December 31, 2019
   
December 31, 2018
   
December 31, 2017
 
Income (loss) before income taxes
 
$
(211,683
)
 
$
(217,665
)
 
$
1,803,036
 
Tax expense (recovery) based on statutory rate of 27.0% (2018: 27.0%, 2017: 27.0%)
   
(57,000
)
   
(59,000
)
   
487,000
 
Non-deductible expenditures and non-taxable revenues
   
-
     
-
     
(265,000
)
Foreign currency adjustment on non-monetary items
   
-
     
-
     
(55,000
)
Adjustment to prior years provision versus statutory tax return
   
-
     
-
     
(567,000
)
Other
   
(7,000
)
   
1,000
     
-
 
     
(64,000
)
   
(58,000
)
   
(400,000
)
Changes in unrecognized deferred tax assets
   
64,000
     
58,000
     
400,000
 
Total income tax expense
 
$
-
   
$
-
   
$
-
 

The nature and tax effect of the temporary differences giving rise to the deferred tax assets and liabilities at December 31, 2019 and 2018 are summarized as follows:

   
December 31, 2019
   
December 31, 2018
 
             
Allowable capital losses
 
$
468,000
   
$
468,000
 
Non-capital losses
   
1,683,000
     
1,619,000
 
Capital assets and other
   
1,000
     
1,000
 
Investments
   
858,000
     
858,000
 
Unrecognized deferred tax assets
   
(3,010,000
)
   
(2,946,000
)
   
$
-
   
$
-
 

55


FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)

Note 12             Income Taxes (continued)

As at December 31, 2019, the Company had estimated non-capital losses for Canadian tax purposes of $6,232,000 that expire between 2026 to 2039 which may be carried forward to offset future years’ taxable income.

The potential benefit of these carry-forward non-capital losses has not been recognized in these financial statements as it is not considered probable that sufficient future taxable profit will allow the deferred tax asset to be recovered.

Note 13  Financial Instruments and Risk Management

The Company is exposed through its operations to the following financial risks:

-
Market Risk
-
Credit Risk
-
Liquidity Risk

In common with all other businesses, the Company is exposed to risks that arise from its use of financial instruments. This note describes the Company’s objectives, policies and processes for managing those risks and the methods used to measure them. Further quantitative information in respect of these risks is presented throughout these financial statements.

There have been no substantive changes in the Company’s exposure to financial instrument risks, its objectives, polices and processes for managing those risks or the methods used to measure them from previous years unless otherwise stated in the note.

General Objectives, Policies and Procedures

The Board of Directors has overall responsibility for the determination of the Company’s risk management objectives and policies and, whilst retaining ultimate responsibility for them, it has delegated the authority for designing and operating processes that ensure the effective implementation of the objectives and policies to the Company’s finance function. The Board of Directors receive quarterly reports from the Company’s Chief Financial Officer through which it reviews the effectiveness of the processes put in place and the appropriateness of the objectives and policies it sets. The overall objective of the Board is to set policies that seek to reduce risk as far as possible without unduly affecting the Company’s competitiveness and flexibility. Further details regarding these policies are set out below.

a)
Market Risk

Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk are comprised of foreign currency risk, interest rate risk and equity and commodity price risk.

Foreign currency exchange risk

The Company is exposed to foreign currency fluctuations for general and administrative transactions denominated in Canadian Dollars. The majority of the Company’s cash is kept in U.S. dollars.  As at December 31, 2019, the Company had an insignificant amount of cash denominated in Canadian dollars that was subject to exchange rate fluctuations between the Canadian dollar and the U.S. dollar. As at December 31, 2019, the Company held financial liabilities of $55,221 that are denominated in Canadian dollars that would be subject to exchange rate fluctuations between Canadian dollars and U.S. dollars.
56

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)

Note 13  Financial Instruments and Risk Management (continued)

General Objectives, Policies and Procedures (continued)

b)
Credit risk

The Company maintains cash deposits in one chartered Canadian bank which, from time to time, exceed the amount of depositor’s insurance available in each respective account.  Management assesses the financial condition of this bank and believes that the possibility of any credit loss is minimal. The maximum exposure of credit risk is the Company’s cash deposit $42,548 (2018: $228,991).

c)
Liquidity risk

Liquidity risk is the risk that the Company will not be able to meet its obligations as they fall due.  The Company does not generate cash from operations but rather, the Company will, from time to time, issue shares via equity placements, borrow funds from an affiliated company or undertake to sell a portion of its investment in the shares of FEP should it be necessary to raise funds. The Company manages liquidity by maintaining cash balances available to meet its anticipated operational needs. Liquidity requirements are managed based on expected cash flow to ensure that there is adequate capital to meet short-term and long-term obligations. The Company has in place a planning and budgeting process to help determine the funds required to support the Company’s normal operating requirements on an ongoing basis and its growth plans. At December 31, 2019, the Company’s accounts payable and accrued liabilities were $122,116, all of which fall due for payment within twelve months of the date of the statement of financial position.

The carrying values of accounts payable and accrued liabilities approximate their fair values due to the relatively short periods to maturity of the instruments.

Note 14  Capital Management 

The Company’s objectives when managing capital are to safeguard its ability to continue as a going concern, to provide an adequate return to shareholders, to meet external capital requirements on credit facilities and to support any growth plans.

The capital of the Company consists of the items included in shareholders’ equity and cash net of debt obligations. The Company monitors capital based on the debt to debt-plus-equity ratio. Debt is total debt shown on the balance sheet, less cash. Debt-plus-equity is calculated as debt shown on the balance sheet, plus total shareholders’ equity which includes share capital, warrants, contributed surplus and deficit. Currently the Company has no debt. The Company’s Board of Directors approves management’s annual capital expenditures plans and reviews and approves any material debt borrowing plans proposed by the Company’s management.

As at December 31, 2019, the company had no externally imposed capital requirements nor were there any changes in the company’s approach to capital management during the year.
57

FEC RESOURCES INC.
NOTES TO THE FINANCIAL STATEMENTS
December 31, 2019
(Expressed in United States Dollars)
Note 15  Subsequent Events
The Company announced on December 18, 2019 that its Board of Directors has approved an offering to its existing shareholders (the "Rights Offering") of transferrable rights ("Rights") to purchase additional common shares of the Company ("Common Shares") to raise gross proceeds of up to approximately US$1,841,147. In connection with the Rights Offering, the Company has filed with the U.S. Securities & Exchange Commission a registration statement on Form F-1 (the "Registration Statement") and prospectus (the "Prospectus") for the issuance of the Rights and Common Shares pursuant to the Rights Offering.
Once the Registration Statement relating to the Rights Offering is effective, the Company will distribute to each eligible holder of its Common Shares forty (40) Rights for every twenty (20) Common Shares held as of the record date (the "record Date"), which date will be determined once the Registration Statement is effective. Each Right is to entitle the holder thereof to purchase one (1) Common Share at a price of US$0.00225 per Common Share (the "Subscription Price"). The Subscription Price was determined by the Directors by reference to the recent trading activity of the Company's Common Shares. The Company will not issue any fractional Common Shares in the Rights Offering, and all exercises of Rights will be rounded to the nearest whole Common Share. In addition, the Company will not issue fractional Rights or pay cash in lieu of fractional Rights.
The Rights may be exercised at any time during the subscription period, which period will be determined once the Registration Statement is effective. The Rights will expire if they are not exercised during the Rights Offering subscription period, unless the Company extends the Rights Offering subscription period.
On January 22, 2020, the Company received $150,000 from its parent company, PXP Energy Corporation, as a working capital loan. The loan is non-interest bearing, unsecured and due on demand.
58

ITEM 19.  EXHIBITS

* Previously filed

SIGNATURES


The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this Annual Report on its behalf.

  FEC Resources Inc.
 
  (Registrant)
 
       
Date: March 30, 2020
By:
/s/Paul Wallace
 
    Paul Wallace
 
    President and Chief Executive Officer
 
       


58
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