REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
Board
of Directors and Stockholders
FieldPoint
Petroleum Corporation and Subsidiaries
We have
audited the accompanying consolidated balance sheet of FieldPoint
Petroleum Corporation and subsidiaries (the “Company”)
as of December 31, 2016, and the related consolidated statements of
operations, changes in stockholders’ equity and cash flows
for the year then ended. These consolidated financial statements
are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor
were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, 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. An audit also includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our
opinion.
In our
opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
FieldPoint Petroleum Corporation and subsidiaries as of December
31, 2016, and the results of their operations and their cash flows
for the year then ended, in conformity with U.S. generally accepted
accounting principles.
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements, the
Company has suffered recurring losses, and has a working capital
deficit. This raises substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in
regard to these matters also are discussed in Note 2. The
consolidated financial statements do not include any adjustments
that might result from the outcome of this
uncertainty.
/s/
Hein & Associates
LLP
Dallas,
Texas
March
31, 2017
FIELDPOINT PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
ASSETS
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
Cash and cash
equivalents
|
$
408,656
|
$
880,067
|
Accounts
receivable:
|
|
|
Oil and natural gas
sales
|
366,939
|
321,500
|
Joint interest
billings, less allowance for doubtful accounts of approximately
$237,000 each period
|
260,816
|
243,106
|
Income taxes
receivable
|
25,057
|
8,776
|
Prepaid expenses
and other current assets
|
48,998
|
37,837
|
Total current
assets
|
1,110,466
|
1,491,286
|
|
|
|
PROPERTY
AND EQUIPMENT:
|
|
|
Oil and natural gas
properties (successful efforts method)
|
33,753,833
|
41,288,964
|
Other
equipment
|
117,561
|
111,750
|
Less accumulated
depletion, depreciation and impairment
|
(27,425,652
)
|
(34,147,053
)
|
Net property and
equipment
|
6,445,742
|
7,253,661
|
|
|
|
INCOME
TAX RECEIVABLE – LONG TERM
|
157,227
|
-
|
|
|
|
OTHER
ASSETS
|
-
|
25,000
|
|
|
|
Total
assets
|
$
7,713,435
|
$
8,769,947
|
|
|
|
LIABILITIES AND
STOCKHOLDERS’ EQUITY
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
Line of credit -
current
|
$
2,761,632
|
$
6,478,333
|
Accounts payable
and accrued expenses
|
897,101
|
1,139,596
|
Oil and natural gas
revenues payable
|
427,859
|
461,227
|
Asset retirement
obligation - current
|
146,066
|
41,438
|
Total current
liabilities
|
4,232,658
|
8,120,594
|
|
|
|
ASSET
RETIREMENT OBLIGATION
|
1,678,420
|
1,700,469
|
Total
liabilities
|
5,911,078
|
9,821,063
|
|
|
|
COMMITMENTS AND CONTINGENCIES
(Notes 2,
9 and 10)
|
|
|
STOCKHOLDERS’ EQUITY
:
|
|
|
Common stock, $.01
par value, 75,000,000 shares authorized;
11,596,229 and
11,153,947 shares issued, respectively; and 10,669,229 and
10,226,947 outstanding, respectively
|
115,962
|
111,539
|
Additional paid-in
capital
|
13,715,668
|
13,532,871
|
Accumulated
deficit
|
(10,062,381
)
|
(12,728,634
)
|
Treasury stock,
927,000 shares, each period, at cost
|
(1,966,892
)
|
(1,966,892
)
|
Total
stockholders’ equity (deficit)
|
1,802,357
|
(1,051,116
)
|
Total liabilities
and stockholders’ equity
|
$
7,713,435
|
$
8,769,947
|
See accompanying notes to these consolidated financial
statements.
F-4
FIELDPOINT PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
REVENUE:
|
|
|
Oil and natural gas
sales
|
$
2,942,660
|
$
2,696,857
|
Well operational
and pumping fees
|
2,901
|
5,047
|
Disposal
fees
|
90,571
|
99,017
|
Total
revenue
|
3,036,132
|
2,800,921
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
Production
expense
|
2,181,377
|
2,509,206
|
Depletion and
depreciation
|
698,337
|
1,103,340
|
Impairment of oil
and natural gas properties
|
-
|
53,899
|
Accretion of
discount on asset retirement obligations
|
105,000
|
109,000
|
General and
administrative
|
1,164,015
|
1,240,539
|
Total costs and
expenses
|
4,148,729
|
5,015,984
|
|
|
|
OPERATING
LOSS
|
(1,112,597
)
|
(2,215,063
)
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
Interest
income
|
201
|
801
|
Interest
expense
|
(204,703
)
|
(259,156
)
|
Gain on sale of oil
and natural gas properties
|
3,831,837
|
-
|
Miscellaneous
|
494
|
271
|
Total other income
(expense)
|
3,627,829
|
(258,084
)
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
2,515,232
|
(2,473,147
)
|
|
|
|
INCOME TAX EXPENSE –
CURRENT
|
(6,206
)
|
-
|
INCOME TAX BENEFIT –
DEFERRED
|
157,227
|
-
|
|
|
|
TOTAL
INCOME TAX BENEFIT
|
151,021
|
-
|
|
|
|
NET
INCOME (LOSS)
|
$
2,666,253
|
$
(2,473,147
)
|
|
|
|
INCOME (LOSS) PER SHARE
:
|
|
|
BASIC
|
$
0.25
|
$
(0.27
)
|
DILUTED
|
$
0.25
|
$
(0.27
)
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
BASIC
|
10,656,506
|
9,040,085
|
DILUTED
|
10,656,506
|
9,040,085
|
See accompanying notes to these consolidated financial
statements.
F-5
FIELDPOINT PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
For the Years Ended December
31, 2017
and
2016
|
|
|
Retained
Earnings (Accumulated)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BALANCES
, January 1,
2016
|
9,807,101
|
$
98,070
|
$
13,001,447
|
$
(10,255,487
)
|
927,000
|
$
(1,966,892
)
|
$
877,138
|
|
|
|
|
|
|
|
|
Issuance of common stock, net of
costs
|
1,326,846
|
13,269
|
517,874
|
-
|
-
|
-
|
531,143
|
|
|
|
|
|
|
|
|
Stock
compensation
|
20,000
|
200
|
13,550
|
-
|
-
|
-
|
13,750
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
-
|
-
|
(2,473,147
)
|
-
|
-
|
(2,473,147
)
|
|
|
|
|
|
|
|
|
BALANCES
, December 31,
2016
|
11,153,947
|
111,539
|
13,532,871
|
(12,728,634
)
|
927,000
|
(1,966,892
)
|
(1,051,116
)
|
|
|
|
|
|
|
|
|
Issuance of common stock, net of
costs
|
442,282
|
4,423
|
182,797
|
-
|
-
|
-
|
187,220
|
|
|
|
|
|
|
|
|
Net income
|
-
|
-
|
-
|
2,666,253
|
-
|
-
|
2,666,253
|
|
|
|
|
|
|
|
|
BALANCES
, December 31,
2017
|
11,596,229
|
$
115,962
|
$
13,715,668
|
$
(10,062,381
)
|
927,000
|
$
(1,966,892
)
|
$
1,802,357
|
See accompanying notes to these consolidated financial
statements.
F-6
FIELDPOINT PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net income
(loss)
|
$
2,666,253
|
$
(2,473,147
)
|
Adjustments to
reconcile net income (loss) to net cash provided by (used in)
operating activities:
|
|
|
Depletion and
depreciation
|
698,337
|
1,103,340
|
Impairment of oil
and natural gas properties
|
-
|
53,899
|
Accretion of
discount on asset retirement obligations
|
105,000
|
109,000
|
Stock compensation
expense
|
-
|
13,750
|
Gain on sale of oil
and natural gas properties
|
(3,831,837
)
|
-
|
Deferred income tax
benefit
|
(157,227
)
|
-
|
Changes in current
assets and liabilities:
|
|
|
Accounts
receivable
|
(63,149
)
|
192,966
|
Income taxes
receivable
|
(16,281
)
|
14,666
|
Prepaid expenses
and other current assets
|
(11,161
)
|
29,399
|
Accounts payable
and accrued expenses
|
(93,379
)
|
(9,574
)
|
Oil and natural gas
revenues payable
|
(33,368
)
|
1,600
|
Net cash used in
operating activities
|
(736,812
)
|
(964,101
)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
Additions to oil
and natural gas properties and other equipment
|
(166,725
)
|
(165,291
)
|
Proceeds from the
sale of oil and natural gas properties
|
3,961,607
|
11,037
|
Net cash provided
by (used in) investing activities
|
3,794,882
|
(154,254
)
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
Net proceeds from
issuance of common stock
|
187,220
|
531,143
|
Payments on line of
credit
|
(3,716,701
)
|
-
|
Net cash provided
by (used in) financing activities
|
(3,529,481
)
|
531,143
|
|
|
|
NET
DECREASE IN CASH AND CASH EQUIVALENTS
|
(471,411
)
|
(587,212
)
|
|
|
|
CASH AND CASH EQUIVALENTS
, beginning of
year
|
880,067
|
1,467,279
|
|
|
|
CASH AND CASH EQUIVALENTS
, end of the
year
|
$
408,656
|
$
880,067
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
Cash paid during
the year for interest
|
$
272,120
|
$
256,1733
|
Cash paid during
the year for income taxes
|
$
20,214
|
$
4,117
|
Change in accrued
capital expenditures
|
$
58,498
|
$
98,671
|
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
Organization and Nature of Operations
FieldPoint
Petroleum Corporation (the “Company”, “we”
or “our”) is incorporated under the laws of the state
of Colorado. We are engaged in the acquisition, operation and
development of oil and natural gas properties, which are located in
Louisiana, New Mexico, Oklahoma, South Central Texas and Wyoming as
of December 31, 2017 and 2016.
Consolidation Policy and Basis of Presentation
The
accompanying consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the
United States of America and include the accounts of the Company
and its wholly owned subsidiaries, Bass Petroleum, Inc., and Raya
Energy Corp. All material intercompany accounts and transactions
have been eliminated in consolidation.
Cash and Cash Equivalents
We
consider all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. At times,
we maintain deposit balances in excess of FDIC insurance limits. We
have not experienced any losses in such accounts and believe we are
not exposed to any significant credit risk on cash and cash
equivalents.
Oil and Natural Gas Properties
Our oil
and natural gas properties consisted of the following at December
31:
|
|
|
Mineral interests
in properties:
|
|
|
Unproved
properties
|
$
250,217
|
$
850,000
|
Proved
properties
|
9,762,108
|
13,433,966
|
Wells and related
equipment and facilities
|
23,741,508
|
27,004,998
|
Total
costs
|
33,753,833
|
41,288,964
|
Less accumulated
depletion, depreciation and impairment
|
(27,319,847
)
|
(34,059,585
)
|
|
$
6,433,986
|
$
7,229,379
|
We
follow the successful efforts method of accounting for our oil and
natural gas producing activities. Costs to acquire mineral
interests in oil and natural gas properties, to drill and equip
exploratory wells that find proved reserves, to drill and equip
development wells and related asset retirement costs are
capitalized. Costs to drill exploratory wells are capitalized
pending determination of whether the wells have found proved
reserves. If we determine that the wells have not found proved
reserves, the costs are charged to expense. There were no
exploratory wells capitalized pending determinations of whether the
wells found proved reserves at December 31, 2017 or 2016.
Geological and geophysical costs, including seismic studies and
costs of carrying and retaining unproved properties are charged to
expense as incurred.
We
capitalize interest on expenditures for significant exploration and
development projects that last more than six months while
activities are in progress to bring the assets to their intended
use. Through December 31, 2017, we have capitalized no
interest costs because our exploration and development projects
generally last less than six months. Costs to maintain wells and
related equipment are charged to expense as incurred.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
On the
sale or retirement of a complete unit of a proved property, the
cost and related accumulated depletion and depreciation are
eliminated from the property accounts, and the resulting gain or
loss is recognized. On the sale of a partial unit of proved
property, the amount received is treated as a reduction of the cost
of the interest retained.
Capitalized amounts
attributable to proved oil and natural gas properties are depleted
by the unit-of-production method of proved reserves using the unit
conversion ratio of 6 Mcf of gas to 1 bbl of oil. Depletion and
depreciation expense for oil and natural gas producing property and
related equipment was $680,000 and $1,084,000 for the years ended
December 31, 2017 and 2016, respectively.
Unproved oil and
natural gas properties that are individually significant are
periodically assessed for impairment of value, and a loss is
recognized at the time of impairment by providing an impairment
allowance. No impairment of unproved properties was recorded during
the years ended December 31, 2017 and 2016.
Capitalized costs
related to proved oil and natural gas properties, including wells
and related equipment and facilities, are evaluated for impairment
based on an analysis of undiscounted future net cash flows. If
undiscounted cash flows are insufficient to recover the net
capitalized costs related to proved properties, then we recognize
an impairment charge in income from operations equal to the
difference between the net capitalized costs related to proved
properties and their estimated fair values based on the present
value of the related future net cash flows, which is a
non-recurring fair value measurement classified as Level 3 in the
fair value hierarchy. We recorded no impairment on our proved oil
and natural gas properties during the year ended December 31, 2017,
but recorded impairment of $53,899 during the year ended December
31, 2016.
On the
sale of an entire interest in an unproved property for cash or cash
equivalent, gain or loss on the sale is recognized, taking into
consideration the amount of any recorded impairment if the property
had been assessed individually. If a partial interest in an
unproved property is sold, the amount received is treated as a
reduction of the cost of the interest retained.
Oil and Natural Gas Sales Receivable
Oil and
natural gas sales receivable principally consist of accrued oil and
natural gas sales proceeds receivable and are typically collected
within 20 to 56 days. We ordinarily do not require collateral for
such receivables, nor do we charge interest on past due balances.
We periodically review accounts receivable for collectability and
reduce the carrying amount of the accounts receivable by an
allowance. The allowance for doubtful accounts was approximately
$237,000 at December 31, 2017 and 2016. As of December 31, 2017,
our accounts receivable were primarily with several independent
purchasers of our crude oil and natural gas production. At December
31, 2017, we had balances due from three customers which were
greater than 10% of our accounts receivable related to crude oil
and natural gas production. These three customers accounted for 66%
of accounts receivable at December 31, 2017. At December 31, 2016,
we had balances due from three customers which were greater than
10% of our accounts receivable related to crude oil and natural gas
production. These three customers accounted for 69% of accounts
receivable at December 31, 2016. In the event that one or more of
these significant customers cease doing business with us, we
believe that there are potential alternative customers with whom we
could establish new relationships and that those relationships will
result in the replacement of one or more lost
customers.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Joint Interest Billings Receivable and Oil and Natural Gas Revenues
Payable
Joint
interest billings receivable represents amounts receivable for
lease operating expenses and other costs due from third party
working interest owners in the wells that the Company operates. The
receivable is recognized when the cost is incurred and the related
payable and the Company’s share of the cost is recorded. We
often have the ability to offset amounts due against the
participant’s share of production revenue from the related
property.
The
Company uses the reserve for bad debt method of valuing doubtful
joint interest billings receivable based on historical experience,
coupled with a review of the current status of existing
receivables. The balance of the reserve for doubtful accounts,
deducted against joint interest billings receivable to properly
reflect the realizable value was approximately $237,000 at December
31, 2017 and 2016.
Oil and
natural gas revenues payable represents amounts due to third party
revenue interest owners for their share of oil and natural gas
revenue collected on their behalf by the Company. The payable is
recorded when the Company recognizes oil and natural gas sales and
records the related oil and natural gas sales
receivable.
Other Property
Other
assets classified as property and equipment are primarily office
furniture and equipment and vehicles, which are carried at cost.
Depreciation is provided using the straight-line method over
estimated useful lives ranging from three to five years. Gain or
loss on retirement or sale or other disposition of assets is
included in income in the period of disposition. Depreciation
expense for other property and equipment was $18,337 and $19,340
for the years ended December 31, 2017 and 2016,
respectively.
Asset Retirement Obligations
Our
financial statements reflect our asset retirement obligations,
consisting of future plugging and abandonment expenditures related
to our oil and natural gas properties, which can be reasonably
estimated. The asset retirement obligation is recorded at fair
value on a discounted basis as a liability at the asset's
inception, with an offsetting increase to producing properties on
the consolidated balance sheets. Significant inputs to determining
fair value include applying a credit adjusted risk free rate which
is a Level 3 measurement in the fair value hierarchy. Periodic
accretion of the discount of the estimated liability is recorded as
an expense in the consolidated statements of
operations.
The
following is a reconciliation of the Company’s asset
retirement obligations for the years ended December
31:
|
|
|
Asset retirement
obligation at January 1,
|
$
1,741,907
|
$
1,812,980
|
Accretion of
discount
|
105,000
|
109,000
|
Liabilities settled
during the year
|
(15,170
)
|
(180,073
)
|
Liabilities
sold
|
(42,418
)
|
-
|
Revision in
estimated cash flows
|
35,167
|
-
|
Asset retirement
obligation at December 31,
|
1,824,486
|
1,741,907
|
Less: current asset
retirement obligations
|
(146,066
)
|
(41,438
)
|
Long-term asset
retirement obligations
|
$
1,678,420
|
$
1,700,469
|
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
Income
taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due, if
any, plus net deferred taxes related to differences between the
bases of assets and liabilities for financial and income tax
reporting. Deferred tax assets and liabilities represent the future
tax consequences of those differences, which will either be taxable
or deductible when the assets and liabilities are recovered or
settled. Valuation allowances are recognized to limit recognition
of deferred tax assets where appropriate. Such allowances may be
reversed when circumstances provide evidence that the deferred tax
assets will more likely than not be realized.
In
November 2015, the FASB issued Accounting Standards Update No.
2015-17 – Balance Sheet Classification of Deferred Taxes that
simplifies the presentation of deferred income taxes on the balance
sheet. Under the new standard, deferred tax assets and liabilities
are classified as noncurrent on the balance sheet. This new update
is effective for financial statements issued for fiscal years
beginning after December 15, 2016, (and interim periods within
those fiscal years), with early adoption permitted and allows
prospective or retrospective application. The Company adopted this
accounting standard update prospectively as of January 1, 2016. The
adoption of this standard had no impact on the consolidated balance
sheet as of December 31, 2016.
On
December 22, 2017, the President of the United States signed into
law what is informally called the Tax Cuts and Jobs Act of 2017
(the “Act”), a comprehensive U.S. tax reform package
that, effective January 1, 2018, among other things, lowered the
corporate income tax rate from 35% to 21%, repealed the Alternative
Minimum Tax and made the AMT credit refundable. Accounting rules
require companies to recognize the effects of changes in tax laws
and tax rates on deferred tax assets and liabilities in the period
in which the new legislation is enacted. We recorded a total income
tax benefit of $157,227 in the year ended December 31, 2017, the
amount of our AMT credit that will be refundable in tax years
beginning after 2017. We also reassessed the realizability of our
deferred tax assets but determined that it continues to be more
likely than not that the deferred tax assets will not be utilized
in the future and continue to record a full valuation allowance of
the deferred tax assets.
As we
do not have all the necessary information to analyze all income tax
effects of the Act, this is a provisional amount which we believe
represents a reasonable estimate of the accounting implications of
this tax reform. We will continue to evaluate the Act and adjust
the provisional amounts as additional information is obtained. The
ultimate impact of tax reform may differ from our provisional
amounts due to changes in our interpretations and assumptions, as
well as additional regulatory guidance that may be issued. We
expect to complete our detailed analysis no later than the fourth
quarter of 2018.
Production Taxes and Ad Valorem Taxes
Production taxes
and ad valorem taxes are included in production expense. Total
production and ad valorem taxes were $348,195 and $330,722 for the
years ended December 31, 2017 and 2016, respectively.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Use of Estimates and Certain Significant Estimates
The
preparation of the Company’s financial statements in
conformity with accounting principles generally accepted in the
United States of America requires the Company’s management to
make estimates and assumptions that affect the amounts reported in
these financial statements and accompanying notes. Actual results
could differ from those estimates. Significant assumptions are
required in the valuation of proved oil and natural gas reserves,
which as described above may affect the amount at which oil and
natural gas properties are recorded. The Company’s allowance
for doubtful accounts is a significant estimate and is based on
management’s estimates of uncollectible receivables. The
asset retirement obligations require estimates of future plugging
and abandonment expenditures. It is at least reasonably possible
these estimates could be revised in the near term and the revisions
could be material.
Our
estimates of proved reserves materially impact depletion and
impairment expense. If proved reserves decline, then the rate at
which we record depletion expense increases, reducing net income. A
decline in estimates of proved reserves may result from lower
prices, evaluation of additional operating history, mechanical
problems at our wells and catastrophic events such as explosions,
hurricanes and floods. Lower prices also may make it uneconomical
to drill wells or produce from fields with high operating costs. In
addition, a decline in proved reserves may impact our assessment of
our oil and natural gas properties for impairment.
Our
proved reserve estimates are a function of many assumptions, all of
which could deviate materially from actual results. As such,
reserve estimates may vary materially from the ultimate quantities
of oil and natural gas actually produced.
Revenue Recognition
The
Company uses the sales method of accounting for oil and natural gas
revenues. Under this method, revenues are based on actual volumes
of oil and natural gas sold to purchasers. The volumes of natural
gas sold may differ from the volumes to which the Company is
entitled based on its interest in the properties. Differences
between volumes sold and volumes based on entitlements create
natural gas imbalances. Material imbalances are reflected as
adjustments to reported natural gas reserves and future cash flows.
There were no material natural gas imbalances as of December 31,
2017 and 2016.
We
recognize revenue when crude oil and natural gas quantities are
delivered to or collected by the respective purchaser. Title to the
produced quantities transfers to the purchaser at the time the
purchaser receives or collects the quantities. Prices for such
production are defined in sales contracts and are readily
determinable based on certain publicly available indices. The
purchasers of such production have historically made payment for
crude oil and natural gas purchases within 20 to 56 days. We
periodically review the difference between the dates of production
and the dates we collect payment for such production to ensure that
accounts receivable from those purchasers are
collectible.
As
previously discussed, we sold our crude oil and natural gas
production to several independent purchasers. During the year ended
December 31, 2017, we had sales of 10% or more of our total oil and
natural gas sales revenue to four customers which represented 63%
of total oil and natural gas sales revenue for the year. During the
year ended December 31, 2016, we had sales of 10% or more of our
total oil and natural gas sales revenue to three customers which
represented 69% of total oil and natural gas sales revenue for the
year.
Comprehensive Income
The
Company has no elements of comprehensive income other than net
income.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Share-Based Compensation
We
measure and record compensation expense for all share-based payment
awards to employees and directors based on estimated fair values.
Additionally, compensation costs for share-based awards are
recognized over the requisite grant-date service period based on
the grant-date fair value.
Financial Instruments
The
Company’s financial instruments are cash, accounts receivable
and payable and long-term debt. Management believes the fair values
of these instruments, with the exception of the long-term debt,
approximate the carrying values, due to the short-term nature of
the instruments. Management believes the fair value of long-term
debt also reasonably approximates its carrying value, based on
expected cash flows and interest rates.
Recently Issued Accounting Pronouncements
The
FASB issued ASU 2016-09, “Compensation – Stock
Compensation”, simplifying the accounting for share-based
payment transactions including the income tax consequences,
classification of awards as either equity or liabilities and
classification on the statements of cash flows. Under the new
standard, all excess tax benefits and tax deficiencies (including
tax benefits of dividends on share-based payment awards) should be
recognized as income tax expense or benefit on the statements of
income. Under current GAAP, excess tax benefits are recognized in
additional paid-in capital while tax deficiencies are recognized
either as an offset to accumulated excess tax benefits, if any, or
on the statements of income. The new accounting guidance is
effective for annual periods beginning after December 15,
2016. Early adoption is permitted in any interim or annual
period. Certain provisions require retrospective/modified
retrospective transition while others are to be applied
prospectively. Management adopted ASU 2016-09 effective January 1,
2017. The adoption of this standard did not have a material impact
on the consolidated financial statements.
In
February 2016, the FASB issued Update No.
2016-02, “Leases”, to increase transparency and
comparability among organizations by recognizing lease assets and
lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. This authoritative guidance
is effective for fiscal years beginning after December 15, 2018,
and interim periods within those fiscal years. The Company is still
evaluating the impact of this guidance on its consolidated
financial statements.
In
November 2016, the FASB issued Accounting Standards Update No.
2016-18, “Statement of Cash Flows: Restricted Cash”, to
require amounts generally described as restricted cash and
restricted cash equivalents to be included with cash and cash
equivalents when reconciling the beginning-of-period and
end-of-period total amounts shown on the statement of cash flows.
The guidance is effective for the annual period ending after
December 15, 2017, and interim periods within those fiscal years,
using a retrospective transition method to each period presented.
The Company adopted the new standard December 31, 2017, and it did
not impact our consolidated statement of cash flows.
In May
2014, the FASB issued Accounting Standards Update No. 2014-09,
“Revenue from Contracts with Customers”. Under this new
standard, revenue is recognized at the time goods or services are
transferred to a customer for the amount of consideration the
entity expects to be entitled in exchange for the specific goods or
services.
We have completed a detailed
review of our individual purchaser contracts and adopted this
standard on January 1, 2018, using the modified retrospective
approach. Adoption of this standard did not have a significant
impact on our consolidated statements of operations or cash flows
and prior period financial statements will not be restated.
Additional disclosures will be required to describe the nature,
amount, timing and uncertainty of revenue and cash flows from
contracts with customers, beginning with our Form 10-Q for the
three months ended March 31, 2018.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2.
Liquidity and Going Concern
Our
accompanying consolidated financial statements have been prepared
assuming that we will continue as a going concern, which
contemplates realization of assets and the satisfaction of
liabilities in the normal course of business for the twelve-month
period following the date of these consolidated financial
statements are issued. Continued low oil and natural gas prices
during 2017 and 2016 have had a significant adverse impact on our
business, and as a result of our financial condition, substantial
doubt exists that we will be able to continue as a going
concern.
As of December 31,
2017 and 2016, the Company has a working capital deficit of
approximately $3,122,000 and $6,629,000, respectively, primarily
due to the classification of our line of credit as a current
liability. The line of credit provides for certain financial
covenants and ratios measured quarterly which include a current
ratio, leverage ratio, and interest coverage ratio
requirements. The Company is out of compliance with all three
ratios as of December 31, 2017, and we do not expect to regain
compliance in 2018. A Forbearance Agreement was executed in
October 2016 and amended on December 29, 2017, and March 30, 2018,
as discussed below
.
Citibank is in a
first lien position on all of our properties. Citibank lowered our
borrowing base from $11,000,000 to $5,500,000 on December 1, 2015,
and lowered it again to $2,761,632 on December 29,
2017.
In
October 2016, we executed a sixth amendment to the original loan
agreement, which provides for Citibank’s forbearance from
exercising remedies relating to the current defaults including the
principal payment deficiencies. The Forbearance Agreement ran
through January 1, 2018, and required that we make a $500,000 loan
principal pay down by September 30, 2017, and adhere to other
requirements including weekly cash balance reports, quarterly
operating reports, monthly accounts payable reports and that we pay
all associated legal expenses. Furthermore, under the agreement
Citibank may sweep any excess cash balances exceeding a net amount
of $800,000 less equity offering proceeds, which will be applied
towards the outstanding principal balance.
On
December 29, 2017, we executed a seventh amendment to the original
loan agreement and first amendment to the forbearance, which
reduced our borrowing base to our current loan balance of
$2,761,632 and it provided for Citibank’s forbearance from
exercising remedies relating to the current defaults including the
principal payment deficiencies. The Forbearance Agreement ran
through March 31, 2018, and required that we adhere to certain
reporting requirements such as weekly cash reports and pay all of
the fees and expenses of the Lender’s counsel invoiced on or
before the effective date. On March 30, 2018, we executed an eighth
amendment to the original loan agreement and second amendment to
the forbearance which extended it to June 30, 2018. The terms of
the second amendment remain the same as under the first amendment
to the forbearance.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
To
mitigate our current financial situation, we are taking the
following steps. We are actively meeting with investors for
possible equity investments, including business combinations. We
are continuing our effort to identify and market all possible
non-producing assets in our portfolio to maximize cash in-flows
while minimizing a loss of cash flow. We are also investigating
other possible sources to refinance our debt as we continue to pay
down our outstanding senior debt balance with a minimal effect on
cash flow and our assets by selling properties that are
non-producing or low producing. Finally we are continuing
discussion with various individuals and groups that could be
willing to provide capital to fund operations and growth of the
Company.
The
Company was not in compliance with the NYSE MKT continued listing
standards and received an official delisting notice on November 16,
2017, and it could have a significant adverse impact on our ability
to raise additional capital.
Our
warrants were also delisted from the NYSE American (formerly NYSE
MKT) on November 17, 2017, and then expired March 23,
2018.
Our
shares are now traded on the over-the-counter market under the
symbol FPPP which is more volatile than the Exchange and may result
in a continued diminution in value of our shares. The delisting
also resulted in the loss of other advantages to an exchange
listing, including marginability, blue sky exemptions and
others.
3.
Oil and Natural Gas Properties
The
Company sold its interest in several properties during the year
ended December 31, 2017. The Company sold its net interest in non-
producing leasehold, and net interest in the Hermes, Cronos and
Mercury wells which were not economic to our interests. The Company
also sold its net interest in the unproved Bilbrey acreage that was
held by production. The gross proceeds from the sale of our net
interest in these two properties was $2,145,000. The Company sold
401 net acres of non-producing leasehold in Lea County, New Mexico.
The gross proceeds from the sale of our net interest in these
properties was $1,200,000. We also sold our interest in the Apache
Bromide field for $603,607 net of liabilities of $296,393. We sold
our interest in Rush Springs for $11,700. We recognized total gains
of $3,831,837. We continue to evaluate our portfolio for other
properties to divest in order to regain compliance with our
bank’s debt covenants. In December 2016, the Company assigned
its interests in the Giddings Field, Fayette County, Texas to
another operator in exchange for the plugging
liability.
The
Company made no purchases of oil and natural gas properties during
the years ended December 31, 2017 and 2016. The Company did not
drill or complete any development wells during 2017 and
2016.
The
Company had no impairment to properties during the year ended
December 31, 2017. The Company recorded impairment charges of
$53,899 during the year ended December 31, 2016, as a result of
writing down the carrying value of certain properties to fair
value. In order to determine the amounts of the impairment charges,
the Company compares net capitalized costs of proved oil and
natural gas properties to estimated undiscounted future net cash
flows using management's expectations of economically recoverable
proved reserves. If the net capitalized cost exceeds the
undiscounted future net cash flows, the Company impairs the net
cost basis down to the discounted future net cash flows, which is
management's estimate of fair value. In order to determine the fair
value, the Company estimates reserves, future operating and
development costs, future commodity prices and a discounted cash
flow model utilizing a 10 percent discount rate. The estimates used
by management for the fair value measurements utilized in this
review include significant unobservable inputs, and therefore, the
fair value measurements are classified as Level 3 of the fair value
hierarchy.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4.
Fair Value Measurements
The
Company follows fair value measurement authoritative guidance,
which defines fair value, establishes a framework for using fair
value to measure assets and liabilities, and expands disclosures
about fair value measurements. The authoritative accounting
guidance defines fair value as 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.
The statement establishes a hierarchy for inputs used in measuring
fair value that maximizes the use of observable inputs and
minimizes the use of unobservable inputs by requiring that the most
observable inputs be used when available. Observable inputs are
inputs that market participants would use in pricing the asset or
liability developed based on market data obtained from sources
independent of the Company. Unobservable inputs are inputs that
reflect the Company’s assumptions of what market participants
would use in pricing the asset or liability developed based on the
best information available in the circumstances. The hierarchy is
broken down into three levels based on the reliability of the
inputs as follows:
●
Level
1 – Quoted prices are available in active markets for
identical assets or liabilities as of the reporting
date.
●
Level 2:
Quoted prices in active markets for similar assets and liabilities,
quoted prices for identical or similar instruments in markets that
are not active, and model-derived valuations whose inputs are
observable or whose significant value drivers are
observable.
●
Level
3 – Pricing inputs include significant inputs that are
generally less observable from objective sources. These inputs may
be used with internally developed methodologies that result in
management’s best estimate of fair value. The fair value of
oil and gas properties used in estimating our recognized impairment
loss represents a non-recurring Level 3 measurement.
Financial and
non-financial assets and liabilities are to be classified based on
the lowest level of input that is significant to the fair value
measurement. The Company’s assessment of the significance of
a particular input to the fair value measurement requires judgment
and may affect the valuation of the fair value of assets and
liabilities and their placement within the fair value hierarchy
levels.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
following tables present the Company’s financial and
non-financial assets and liabilities that were accounted for at
fair value as of December 31, 2017 and 2016, and their
classification within the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
Proved
properties
(1)
|
$
-
|
$
-
|
$
-
|
Unproved
properties
(1)
|
$
-
|
$
-
|
$
-
|
|
|
|
|
|
|
|
|
|
|
Proved properties
(1)
|
$
-
|
$
-
|
$
82,806
|
Unproved properties
(1)
|
$
-
|
$
-
|
$
-
|
___________________________
|
|
(1)
|
This
represents non-financial assets that are measured at fair
value on a nonrecurring basis due to impairments. This is the fair
value of the asset base that was subjected to impairment and does
not reflect the entire asset balance as presented on the
accompanying balance sheets. Please refer to the
Proved Oil and Gas Properties
and
Unproved Oil and Gas
Properties
sections below for additional
discussion.
|
Proved Oil and Gas Properties
Proved
oil and natural gas properties are evaluated for impairment and
reduced to fair value whenever events and circumstances indicate
the carrying value exceeds the sum of the undiscounted cash flows.
We estimate the expected net future cash flows of our oil and
natural gas properties using management's expectations of
economically recoverable proved reserves and compare such future
net cash flows to the carrying amount of our oil and natural gas
properties to determine if the carrying amount is recoverable. If
the carrying amount exceeds the estimated undiscounted future cash
flows, we adjust the carrying amount of the oil and natural gas
properties to their fair value. We estimated the fair value of the
proved oil and gas properties and equipment using a discounted cash
flow model, which is a non-recurring Level 3 fair value
measurement. Significant inputs used to determine the fair value
include estimates of (i) future sales prices for oil and gas
based on NYMEX strip prices, (ii) pricing adjustments for
differentials, (iii) production costs, (iv) capital
expenditures, (v) future oil and gas reserves to be recovered
and the timing thereof, and (vi) discount rate. The Company
impaired two proved oil and gas properties which had a total
carrying value of $136,705 to the fair value of $82,806 for the
year ended December 31, 2016. The carrying value was less than the
fair market value of the proved oil and gas properties as of
December 31, 2017.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Unproved Oil and Gas Properties
Unproved oil and
gas property costs are evaluated for impairment and reduced to fair
value when there is an indication that the carrying costs may not
be fully recoverable.
The fair value
of unproved oil and gas properties used in estimating our
recognized impairment loss represents a non-recurring Level 3
measurement.
To measure the fair value of unproved
properties, the Company used inputs including, but not limited to,
future development plans, risk weighted potential resource
recovery, remaining lease life and estimated reserve values. The
carrying value was less than the fair market value of the unproved
oil and gas properties as of December 31, 2017 and
2016.
The
Company has a line of credit with a bank with a borrowing base of
$2,761,632 and $5,500,000 at December 31, 2017 and 2016,
respectively. The amount outstanding under this line of credit was
$2,761,632 at December 31, 2017, and was $6,478,333 at December 31,
2016, which was $978,333 over the borrowing base at December 31,
2016.
The
agreement requires quarterly interest-only payments until maturity
on March 31, 2017. The interest rate is based on a LIBOR or Prime
option. The Prime option provides for the interest rate to be prime
plus a margin ranging between 1.75% and 2.25% and the LIBOR option
to be the 3-month LIBOR rate plus a margin ranging between 2.75%
and 3.25%, both depending on the borrowing
base usage. Currently,
we have elected the LIBOR interest rate option in which our
interest rate was approximately 5% and 4% as of December 31, 2017
and 2016, respectively. The commitment fee is .50% of the unused
borrowing base.
The
line of credit provides for certain financial covenants and ratios
which include a current ratio that cannot be less than 1.10:1.00, a
leverage ratio that cannot be more than 3.50:1.00, and an interest
coverage ratio that cannot be less than 3.50:1.00. The Company is
out of compliance with all three ratios as of December 31, 2017 and
2016, and is in technical default of the agreement. The
Company made payments of $3,716,701 toward the loan balance during
the year ended December 31, 2017. Citibank lowered our borrowing
base from $5,500,000 to $2,761,632 on December 29, 2017, which was
equal to our outstanding loan balance at December 31, 2017.
Citibank is in a first lien position on all of our
properties.
In
October 2016, we executed a sixth amendment to the original loan
agreement, which provides for Citibank’s forbearance from
exercising remedies relating to the current defaults including the
principal payment deficiencies. The Forbearance Agreement ran
through January 1, 2018, and required that we make a $500,000 loan
principal pay down by September 30, 2017, and adhere to other
requirements including weekly cash balance reports, quarterly
operating reports, monthly accounts payable reports and that we pay
all associated legal expenses. Furthermore, under the agreement
Citibank may sweep any excess cash balances exceeding a net amount
of $800,000 less equity offering proceeds, which will be applied
towards the outstanding principal balance.
On
December 29, 2017, we executed a seventh amendment to the original
loan agreement and first amendment to the forbearance, which
reduced our borrowing base to our current loan balance of
$2,761,632 and it provided for Citibank’s forbearance from
exercising remedies relating to the current defaults including the
principal payment deficiencies. The Forbearance Agreement ran
through March 31, 2018, and required that we adhere certain
reporting requirements such as weekly cash reports and pay all of
the fees and expenses of the Lender’s counsel invoiced on or
before the effective date. On March 30, 2018, we executed an eighth
amendment to the original loan agreement and second amendment to
the forbearance which extended it to June 30, 2018. The terms of
the second amendment remain the same as under the first amendment
to the forbearance.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
In
addition to our revolving line of credit with Citibank, N.A., the
Company also has two irrevocable standby letters of credit with
Citibank securing our well plugging liabilities of various operated
wells in the amounts of $25,000 and $30,000. These letters of
credit automatically renew every year and were most recently
renewed in May 2017.
Our
provision for income taxes comprised the following (expense)
benefit during the years ended December 31:
|
|
|
Current:
|
|
|
Federal
|
$
-
|
$
-
|
State
|
(6,206
)
|
-
|
Total
current
|
(6,206
)
|
-
|
|
|
|
Deferred:
|
|
|
Federal
|
157,227
|
-
|
State
|
-
|
-
|
Total
deferred
|
157,227
|
-
|
|
|
|
Total income tax
provision
|
$
151,021
|
$
-
|
Total
income tax (expense) benefit differed from the amounts computed by
applying the U.S. Federal statutory tax rates and estimated state
rates to pre-tax income for the years ended December 31, 2017 and
2016 as follows:
|
|
|
Statutory rate
(benefit)
|
(34
%)
|
(34
%)
|
State taxes, net of
federal benefit
|
(1
%)
|
(2
%)
|
Permanent
differences
|
(1
%)
|
1
%
|
Impact of U.S. tax
reform
|
(36
%)
|
-
|
Change in valuation
allowance on deferred tax assets
|
78
%
|
35
%
|
Effective rate
(benefit)
|
6
%
|
(0
%)
|
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Deferred tax assets
and liabilities are the result of temporary differences between the
financial statement carrying values and tax bases of assets and
liabilities. The Company’s deferred tax assets were reduced
in full by a valuation allowance due to our determination that it
is more likely than not that some or all of the deferred tax assets
will not be realized in the future. Significant components of net
deferred tax assets and liabilities are:
|
|
|
|
|
Deferred tax
assets:
|
|
|
Asset retirement
obligation
|
$
434,000
|
$
569,000
|
Allowance for
doubtful accounts
|
57,000
|
87,000
|
Stock compensation
and other
|
(1,000
)
|
(4,000
)
|
Alternative minimum
tax credit carryforward
|
-
|
157,000
|
Difference in
depreciation, depletion and capitalization methods – oil and
gas properties
|
(161,000
)
|
555,000
|
Net operating loss
carryforward
|
1,320,000
|
2,216,000
|
Total deferred tax
assets
|
1,649,000
|
3,580,000
|
Valuation allowance
on deferred tax assets
|
(1,649,000
)
|
(3,580,000
)
|
Total deferred tax
assets, net of valuation allowance
|
-
|
-
|
|
|
|
Deferred tax
liability:
|
|
|
Difference in
depreciation, depletion and capitalization methods – oil and
gas properties
|
-
|
-
|
Total deferred tax
liabilities
|
-
|
-
|
|
|
|
Net deferred tax
liability
|
$
-
|
$
-
|
Our net
deferred tax assets and liabilities are recorded as
follows:
|
|
|
Non-current
asset
|
$
-
|
$
-
|
Non-current
liability
|
-
|
-
|
Total
|
$
-
|
$
-
|
The
Company had no material uncertain tax positions as of December 31,
2017 and 2016.
The
decrease in deferred tax assets before the valuation allowance was
primarily due to the federal tax rate decreasing from 34% to 21%
under the Tax Cuts and Jobs Act signed into law in 2017. Also, the
Company had an AMT credit of approximately $157,000 for alternative
minimum tax paid in prior years that will be refundable under the
same tax reform act.
At
December 31, 2017, the Company expects to have net operating loss
carryforwards of approximately $5.6 million which expire at various
dates from December 31, 2035 to 2036. As a result of the net
operating losses, our deferred tax assets exceeded our deferred tax
liabilities. Since it is more likely than not that the tax benefits
will not be utilized, the Company established a valuation allowance
of $1,649,000 and $3,580,000 against our deferred tax assets for
the years ended December 31, 2017 and 2016,
respectively.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
Company’s policy regarding income tax interest and penalties
is to record those items as general and administrative expense.
During the years ended December 31, 2017 and 2016, there were no
significant income tax interest and penalty items in the income
statement, nor as a liability on the balance sheet at December 31,
2017 and 2016.
The
Company files income tax returns in the U.S. federal jurisdiction
and various state jurisdictions. Generally, the Company is no
longer subject to U.S. federal or state income tax examination by
tax authorities for years before 2014. The Company is not currently
involved in any income tax examinations.
7.
Earnings (Loss) Per Share
Basic
earnings per share are computed based on the weighted average
number of shares of common stock outstanding during the year.
Diluted earnings per share take common stock equivalents (such as
options and warrants) into consideration using the treasury stock
method. The Company distributed warrants as a dividend to
stockholders as of the record date, March 23, 2012. The Company had
7,177,010 warrants outstanding with an exercise price of $4.00 at
December 31, 2017 and 2016. The Warrants expired on March 23, 2018.
The dilutive effect of the warrants for the twelve months ended
December 31, 2017 and 2016, is presented below.
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
2,666,253
|
$
(2,473,147
)
|
|
|
|
Weighted average
common stock outstanding
|
10,656,506
|
9,040,085
|
Weighted average
dilutive effect of stock warrants
|
-
|
-
|
Dilutive weighted
average shares
|
10,656,506
|
9,040,085
|
|
|
|
Loss per
share:
|
|
|
Basic
|
$
0.25
|
$
(0.27
)
|
Diluted
|
$
0.25
|
$
(0.27
)
|
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We
approved a stock warrant dividend of one warrant per one common
share in March 2012. The warrants have an exercise price of $4.00
and are exercisable over 6 years from the record date. Our warrants
were delisted from the NYSE American (formerly NYSE MKT) on
November 17, 2017, and then expired on March 23, 2018. The
following table summarizes the warrant activity for the year ending
December 31, 2017:
|
|
Weighted
Average Exercise Price
|
Weighted
Average Expected Life (Years)
|
|
|
|
|
Outstanding,
December 31, 2016
|
7,177,010
|
$
4.00
|
1.25
|
Issued
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Exercised during
temporary modification period
|
-
|
-
|
|
Expired
|
-
|
-
|
|
Outstanding,
December 31, 2017
|
7,177,010
|
$
4.00
|
0.25
|
The
Company entered into an “at will” employment agreement
with Phillip Roberson as President and CFO for a three year period
beginning July 1, 2014. As a signing bonus, Mr. Roberson is
entitled to receive a total of 50,000 shares of common stock, of
which 10,000 shares were immediately vested. Ten thousand shares
were received and vested at each of the six month, twelve month,
eighteen month, and twenty four month anniversary dates of the
commencement date. The fair value of this stock grant was $275,000
of which $13,750 was recognized as non-cash stock compensation
expense during the twelve months ended December 31, 2016. The
signing bonus grant was fully vested on July 1, 2016. Mr. Roberson
will be entitled to receive, as part of his annual compensation, on
his third anniversary date 5,000 shares, on his fourth anniversary
date 6,000 shares, on his fifth anniversary date 7,000 shares, on
his sixth anniversary date 8,000 shares, on his seventh anniversary
date 9,000 shares, and each annual anniversary date thereafter
10,000 shares. Mr. Roberson declined the 5,000 shares he was to
receive on his third anniversary date, July 1, 2017.
On August 12,
2016, the Company entered into a binding Stock and Mineral Purchase
Agreement (the “SMPA”) with HFT Enterprises, LLC (the
“Buyer”) in order to provide liquidity to the Company.
The original closing date of September 30, 2016, was extended to
November 3, 2016, by mutual consent. The Buyer purchased in two
equal tranches, a number of newly-issued shares of common stock of
the Company equal to 19.9% of the total number of issued and
outstanding shares of the Company, as measured on the date of the
Agreement, for a price of $0.45 per share (the shares to be
purchased, the “Shares”). The first tranche was
purchased on November 3, 2016, for gross proceeds of $398,053 paid
in consideration of 884,564 shares of unregistered common stock.
Half of the second tranche was purchased on December 29, 2016, for
gross proceeds of $199,027 paid in consideration of 442,282 shares
of unregistered common stock. The remaining 442,282 shares of the
second tranche were purchased in January 2017 for gross proceeds of
$199,027 paid in consideration of 442,282 shares of unregistered
common stock. Costs incurred by the Company to issue the stock was
$65,937 for the year ended December 31, 2016. The shares are
restricted shares that are also not registered under the Securities
Act of 1933, as amended (the “Securities Act”), and
therefore the Buyer must hold the Shares indefinitely unless they
are registered with the Securities and Exchange Commission and
qualified by state authorities, or an exemption from such
registration and qualification requirements is available. Also, the
Buyer was granted the right to nominate one member of the Board of
Directors.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
We are
engaged in oil and natural gas exploration and production and may
become subject to certain liabilities as they relate to
environmental cleanup of well sites or other environmental
restoration procedures as they relate to the drilling of oil and
natural gas wells and the operation thereof. In our acquisition of
existing or previously drilled well bores, we may not be aware of
what environmental safeguards were taken at the time such wells
were drilled or during such time the wells were operated. Should it
be determined that a liability exists with respect to any
environmental clean up or restoration, the liability to cure such a
violation could fall upon the Company. No claim has been made, nor
are we aware of any liability which we may have, as it relates to
any environmental cleanup, restoration or the violation of any
rules or regulations relating thereto.
10.
Commitments and Contingencies
As of
December 31, 2017 and 2016, we had a $30,000 outstanding standby
letter of credit in favor of the State of Wyoming as a plugging
bond. As of December 31, 2017 and 2016, we had a $25,000
outstanding letter of credit in the favor of the Bureau of Land
Management. Citibank has requested that we leave at least $60,000
in cash in a Citibank account to cover our plugging bond line of
credit since the Company is in technical default on our line of
credit as of December 31, 2017.
In January 2014, the Company entered into a two
year operating lease for office space in Austin, Texas, which was
renewed for another two years until January 31, 2018.
On
February 1, 2018, the Company executed an amendment to extend the
lease until July 31, 2018. Rent expense under this lease was
approximately $45,100 and $40,300 for the years ended December 31,
2017 and 2016, respectively. As of December 31, 2017, minimum
future rentals during 2018 on this non-cancelable operating lease
are $25,563.
The
Company entered into an “at will” employment agreement
with Phillip Roberson as President and CFO for a three year period
beginning July 1, 2014, with a beginning base salary of $200,000
annually. Beginning January 1, 2015, the Board of Directors may in
its sole discretion award an annual performance based bonus award
to Mr. Roberson.
At the
October 23, 2015, meeting the Board adopted a measure effective as
of January 1, 2016, to temporarily accept voluntary reductions in
annual retainers for executive and all non-executive directors by a
total of approximately $75,000 per year until such time as economic
conditions shall improve and the Board determines that the
voluntary reductions shall cease. All of these voluntary reductions
shall be retroactively reinstated and payable in the case of (and
only in the case of) a Change of Control Event.
Occasionally, we
are involved in various legal and regulatory proceedings arising in
the normal course of business. Management cannot predict the
outcome of these proceedings with certainty and does not believe
that an adverse result would be material to the Company’s
financial position or results of operations.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11.
Oil and Gas Producing Activities
The
following table sets forth the costs incurred for oil and natural
gas property activities of the Company:
|
|
|
|
|
Costs incurred in
oil and natural gas producing activities:
|
|
|
Acquisition of
unproved properties
|
$
-
|
$
-
|
Acquisition of
proved properties
|
-
|
-
|
Exploration
costs
|
-
|
-
|
Development
costs
|
160,914
|
162,001
|
Total costs
incurred
|
$
160,914
|
$
162,001
|
The
following table includes certain information regarding the results
of operations for oil and natural gas producing
activities:
|
|
|
|
|
Revenues
|
$
2,942,660
|
$
2,696,857
|
Expenses
|
|
|
Production
expense
|
2,181,377
|
2,509,206
|
Depletion and
depreciation
|
698,337
|
1,103,340
|
Impairment of oil
and natural gas properties
|
-
|
53,899
|
Accretion of
discount on asset retirement obligations
|
105,000
|
109,000
|
Total
expenses
|
2,984,714
|
3,775,445
|
Loss before income
taxes
|
(42,054
)
|
(1,078,588
)
|
Income tax benefit,
net of valuation allowance
(1)
|
-
|
-
|
Results of
operations for oil and natural gas producing activities (excluding
corporate overhead and interest costs)
|
$
(42,054
)
|
$
(1,078,588
)
|
(1)
Reflects the
Company’s effective tax rate.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12.
Disclosures About Oil and Gas Producing Activities
(Unaudited)
The
following table summarizes changes in the estimates of the
Company’s net interest in total proved reserves of crude oil
and condensate and natural gas and liquids, all of which are
domestic reserves. There can be no assurance that such estimates
will not be materially revised in subsequent periods.
|
|
|
|
|
|
Balance, January 1,
2016
|
405,773
|
787,942
|
Revisions of
previous estimates
|
68,592
|
88,490
|
Extensions and
discoveries
|
80,742
|
-
|
Sale of
reserves
|
-
|
-
|
Purchase of
minerals in place
|
-
|
-
|
Production
|
(64,881
)
|
(119,920
)
|
Balance, December
31, 2016
|
490,226
|
756,512
|
Revisions of
previous estimates
|
33,784
|
86,221
|
Extensions and
discoveries
|
-
|
-
|
Sale of
reserves
|
(42,085
)
|
(19,657
)
|
Purchase of
minerals in place
|
-
|
-
|
Production
|
(53,913
)
|
(111,816
)
|
Balance, December
31, 2017
|
428,012
|
711,260
|
|
|
|
Proved developed
reserves, December 31, 2017
|
428,012
|
711,260
|
Proved developed
reserves, December 31, 2016
|
490,226
|
756,512
|
Proved
oil and natural gas reserves are the estimated quantities of crude
oil, condensate, natural gas and natural gas liquids which
geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. Proved developed
oil and natural gas reserves are reserves that can be expected to
be recovered through existing wells with existing equipment and
operating methods. The above estimated net interests in proved
reserves are based upon subjective engineering judgments and may be
affected by the limitations inherent in such estimation. The
process of estimating reserves is subject to continual revision as
additional information becomes available as a result of drilling,
testing, reservoir studies and production history, and market
prices for oil and natural gas. Significant fluctuations in market
prices have a direct impact on recoverability and will result in
changes in estimated recoverable reserves without regard to actual
increases or decreases in reserves in place.
Year Ended December 31, 2016
The
average natural gas price used in our proved reserves estimate at
December 31, 2016, was $2.96 per Mcf. The average oil price used in
our proved reserves estimate at December 31, 2016, was $35.26 per
barrel. We did not drill any new wells, or purchase or sell any
reserves during the year ended December 31, 2016.
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Year Ended December 31, 2017
The
average natural gas price used in our proved reserves estimate at
December 31, 2017, was $2.98 per Mcf. The average oil price used in
our proved reserves estimate at December 31, 2017, was $47.03 per
barrel. We did not drill any new wells or purchase any reserves
during the year ended December 31, 2017. We sold one unproved
property, one non-producing property, and three producing
properties.
Standardized Measure of Discounted Future Net Cash
Flows
The
standardized measure of discounted future net cash flows at
December 31, 2017 and 2016, relating to proved oil and natural gas
reserves is set forth below. The assumptions used to compute the
standardized measure are those prescribed by the Financial
Accounting Standards Board and, as such, do not necessarily reflect
our expectations of actual revenues to be derived from those
reserves nor their present worth. The limitations inherent in the
reserve quantity estimation process are equally applicable to the
standardized measure computations since these estimates are the
basis for the valuation process.
The
standardized measure of discounted future net cash flows relating
to proved oil and natural gas reserves and the changes in
standardized measure of discounted future net cash flows relating
to proved oil and natural gas reserves were prepared in accordance
with prescribed accounting and SEC standards. Future cash inflows
were computed by applying the unweighted, arithmetic average of the
closing price on the first day of each month for the 12-month
period prior to December 31, 2017 and 2016, to estimated future
production. Future production and development costs are computed by
estimating the expenditures to be incurred in developing and
producing the proved oil and natural gas reserves at year end,
based on year-end costs and assuming continuation of existing
economic conditions.
Future income tax
expenses are calculated by applying appropriate year-end tax rates
to future pre-tax net cash flows relating to proved oil and natural
gas reserves, less the tax basis of properties involved. Future
income tax expenses give effect to permanent differences, tax
credits and loss carryforwards relating to the proved oil and
natural gas reserves. Future net cash flows are discounted at a
rate of 10% annually to derive the standardized measure of
discounted future net cash flows. This calculation procedure does
not necessarily result in an estimate of the fair market value of
our oil and natural gas properties.
|
|
|
|
|
|
|
|
|
|
Future cash
inflows
|
$
24,866
|
$
21,081
|
Future production
costs
|
(13,105
)
|
(11,418
)
|
Future development
cost
|
(86
)
|
(131
)
|
Future income
taxes
|
(1,848
)
|
(105
)
|
|
|
|
Future net cash
flows
|
9,827
|
9,427
|
10% annual
discount
|
(4,202
)
|
(3,926
)
|
|
|
|
Standardized
measure of discounted future net cash flows
|
$
5,625
|
$
5,501
|
FIELDPOINT PETROLEUM CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The
following are the principal sources of change in the standardized
measure of discounted future net cash flows, in
thousands:
|
|
|
|
|
Balance, beginning
of year
|
$
5,501
|
$
7,011
|
Sales of oil and
natural gas produced, net of production costs
|
(696
)
|
(188
)
|
Sale of
reserves
|
(573
)
|
-
|
Extensions and
discoveries
|
-
|
740
|
Net changes in
prices and production costs
|
1,820
|
(3,149
)
|
Net changes in
future development costs
|
41
|
(19
)
|
Revisions and other
changes
|
139
|
434
|
Accretion of
discount
|
557
|
705
|
Net change in
income taxes
|
(1,164
)
|
(33
)
|
Balance, end of
year
|
$
5,625
|
$
5,501
|
13.
Subsequent Events (unaudited)
On
January 12, 2018, one of our purchasers, First River Energy, LLC
(“FEL’) declared bankruptcy and we filed a proof of
claim of approximately $27,000 for December crude oil production
that FEL did not pay us for, although the crude oil was picked up
by FEL. We believe that we will be reimbursed for these funds
through the bankruptcy process and we have accrued a receivable for
this amount.
On
February 26, 2018, the Company was served by Trivista Operating,
LLC, which is controlled by one of our major shareholders,
Natale Rea (2013) Trust,
for
the non-payment of approximately $107,000 in outstanding Joint
Interest Billings plus attorney fees and court costs. The Company
has hired its own counsel and has answered this suit. The amounts
under this claim are represented in our currently accrued lease
operating expenses and accounts payable.
* * * *
* * *