NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1.
Nature of Business, Organization and Basis of Preparation and
Presentation
FieldPoint
Petroleum Corporation (the “Company”,
“FieldPoint”, “our”, or “we”)
is incorporated under the laws of the state of Colorado. The
Company is engaged in the acquisition, operation and development of
oil and natural gas properties, which are located in Louisiana, New
Mexico, Oklahoma, Texas, and Wyoming.
The
condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. generally accepted
accounting principles have been condensed or omitted. However, in
the opinion of management, all adjustments (which consist only of
normal recurring adjustments) necessary to present fairly the
financial position and results of operations for the periods
presented have been made. These condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the
Company's Form 10-K filing for the year ended December 31,
2017.
2.
Liquidity and Going Concern
Our
condensed consolidated financial statements for the six months
ended June 30, 2018 and 2017, were 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 issuance
of these consolidated financial statements. Continued low oil and
natural gas prices during 2017 and 2018 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
June 30, 2018, and December 31, 2017, the Company has a working
capital deficit of approximately $2,865,000 and $3,122,000,
respectively, primarily due to the classification of our line of
credit as a current liability. Citibank is in a first lien position
on all of our properties. On December 1, 2015, Citibank lowered our
borrowing base from $11,000,000 to $5,500,000 and lowered it again
to $2,761,632 on December 29, 2017. Our borrowing base was lowered
again on June 30, 2018, to $2,585,132. 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 June 30, 2018, and we do not expect to regain
compliance in 2018. A Forbearance Agreement was executed in
October 2016 and amended on December 29, 2017, March 30, 2018, and
June 30, 2018, as discussed below.
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 $2,761,632, our loan balance at
December 31, 2017, and 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 remained the same as under the first amendment
to the forbearance. On July 25, 2018, we executed a ninth amendment
to the original loan agreement and third amendment to the
forbearance which extends it to September 30, 2018. The terms of
the second amendment increased the interest rate 2% and reduced our
borrowing base $176,500 to our current loan balance of $2,585,132.
All other terms remain the same as under the first amendment to the
forbearance.
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 American continued
listing standards and received an official delisting notice on
November 16, 2017, which could have a significant adverse impact on
our ability to raise additional capital
since we are no longer eligible to register
securities on Form S-3 or undertake at-the-market offerings under
Rule 415
.
Our
warrants were also delisted from the NYSE American 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.
Our
ability to continue as a “going concern” is dependent
on many factors, including, among other things, our ability to
comply with the covenants in our existing debt agreements, our
ability to cure any defaults that occur under our debt agreements
or to obtain waivers or forbearances with respect to any such
defaults, and our ability to pay, retire, amend, replace or
refinance our indebtedness as defaults occur or as interest and
principal payments come due. Our ability to continue as a going
concern is also dependent on raising additional capital to fund our
operations and ultimately on generating future profitable
operations. While we are actively involved in seeking new sources
of working capital, there can be no assurance that we will be able
to raise sufficient additional capital or to have positive cash
flow from operations to address all our cash flow needs. Additional
capital could be on terms that are highly dilutive to our
shareholders. If we are not able to find alternative sources of
cash or generate positive cash flow from operations, our business
and shareholders may be materially and adversely
affected.
3.
Recently Issued Accounting
Pronouncements
In
February 2016, the FASB issued Accounting Standards 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
currently evaluating the provisions of this guidance and assessing
its impact in relation to the Company's leases.
4.
Revenue
Recognition
On
January 1, 2018, the Company adopted Accounting Standards
Codification (“ASC”) Topic 606 “Revenue from
Contracts with Customers” (“ASC 606”) using the
modified retrospective approach, which only applies to contracts
that were not completed as of the date of the application. The
adoption did not require an adjustment to operating retained
earnings for the cumulative effect adjustment and does not have a
material impact on the Company’s ongoing consolidated balance
sheet, statement of operations, statement of stockholders’
equity or statement of cash flows.
The
Company recognizes revenues from the sales of oil, natural gas and
natural gas liquids (“NGL”) to its customers in
accordance with the five-step revenue recognition model prescribed
in ASC 606. Specifically, revenue is recognized when the
Company’s performance obligations under contracts with
customers (purchasers) are satisfied, which generally occurs with
the transfer of control of the products to the purchasers. Control
is generally considered transferred when the following criteria are
met: (i) transfer of physical custody, (ii) transfer of title,
(iii) transfer of risk of loss and (iv) relinquishment of any
repurchase rights or other similar rights. Given the nature of the
sales, revenue is recognized at a point in time based on the amount
of consideration the Company expects to receive in accordance with
the price specified in the contracts. Consideration under the
marketing contracts is typically received from the purchaser one to
two months after production and, as a result, the Company is
required to estimate the amount of production that was delivered to
the purchaser and the price that will be received for the sale of
the product. The Company records the differences between estimates
and the actual amounts received for product sales once payment is
received from the purchaser. Such differences have historically not
been significant as the Company uses knowledge of its properties
and their historical performance, spot market prices and other
factors as the basis for these estimates. At June 30, 2018, the
Company had receivables related to contracts with customers of
$379,530.
The
following table summarizes revenue by major source for the three
and six months ended June 30, 2018 and 2017. There was no impact
related to the adoption of ASC 606 as compared to the previous
revenue recognition standard, ASC Topic 605, “Revenue
Recognition” (“ASC 605”):
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
Oil
|
$
540,408
|
$
789,683
|
$
965,416
|
$
1,510,356
|
|
Natural Gas and
NGL
|
52,204
|
91,292
|
93,043
|
185,347
|
|
Total oil, natural
gas and NGL
|
$
592,612
|
$
880,975
|
$
1,058,459
|
$
1,695,703
|
Oil Contracts
. Under its oil sales contracts, the Company
sells oil at the delivery point specified in the contract and
collects an agreed-upon index price, net of pricing differentials.
At the delivery point, the purchaser takes custody, title and risk
of loss of the product and, therefore, control as defined under ASC
606 passes at the delivery point. The Company recognizes revenue at
the net price received when control transfers to the
purchaser.
Natural Gas and NGL Contracts
. The majority of the
Company’s natural gas and NGL is sold at the lease location,
which is generally when control of the natural gas and NGL has been
transferred to the purchaser, and revenue is recognized as the
amount received from the purchaser.
The
Company does not disclose the value of unsatisfied performance
obligations under its contracts with customers as it applies the
practical exemption in accordance with ASC 606. The exemption, as
described in ASC 605-10-50-14(a), applies to variable consideration
that is recognized as control of the product is transferred to the
purchaser. Since each unit of product represents a separate
performance obligation, future volumes are wholly unsatisfied and
disclosure of the transaction price allocated to remaining
performance obligations is not required.
5.
Oil and Natural Gas
Properties
No
wells were drilled or completed during the three or six months
ended June 30, 2018 or 2017. The Company made no purchases of oil
and natural gas properties during the quarter ended June 30, 2018
or 2017.
In the
three months ended June 30, 2018, the Company sold its net interest
in the Buchanan wells and associated acreage in the Spraberry field
that were not economic to our interests. The gross proceeds for the
Buchanan properties was $370,000 and the Company recognized a gain
of $345,399. In the six months ended June 30, 2017, the Company
sold its net interest in the Hermes, Cronos and Mercury wells.
These wells were not economic to our interests. We also sold our
net interest in the unproved Bilbrey acreage that was held by
production. The gross proceeds from the sale of our net interest in
these properties was $2,145,000 and we recognized a gain of
$2,030,477.
On a
quarterly basis, the Company compares our most recent engineering
reports to forward strip pricing as of the end of the quarter and
production to determine impairment charges, if needed, in order to
write 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.
Based on its current circumstances, the Company has not recorded
any impairment charges during the three or six months ended June
30, 2018.
6.
Earnings Per Share
Basic
earnings per share are computed based on the weighted average
number of shares of common stock outstanding during the period.
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. The warrants expired March 23, 2018. The
dilutive effect of the warrants for the six months ended June 30,
2018 and 2017, is presented below.
|
|
For the Three
Months Ended
June
30,
|
For the Six Months
Ended
June
30,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
179,263
|
$
1,747,186
|
$
(31,510
)
|
$
1,338,135
|
|
|
|
|
|
|
|
Weighted average
common stock outstanding
|
10,669,229
|
10,669,229
|
10,669,229
|
10,643,571
|
|
Weighted average
dilutive effect of stock warrants
|
-
|
-
|
-
|
-
|
Dilutive weighted
average shares
|
10,669,229
|
10,669,229
|
10,669,229
|
10,643,571
|
|
|
|
|
|
|
|
Earnings (loss) per
share:
|
|
|
|
|
|
Basic
|
$
0.02
|
$
0.16
|
$
(0.00
)
|
$
0.13
|
|
Diluted
|
$
0.02
|
$
0.16
|
$
(0.00
)
|
$
0.13
|
7.
I
ncome
Taxes
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 was 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. The refund is reported as a long-term asset
in other assets on the balance sheet.
The
Company 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 a result, no income tax benefit was recognized by the
Company for the three or six months ended June 30, 2018, or the
year ended December 31, 2017. The Company had no income tax expense
for the three or six months ended June 30, 2018. For the three and
six months ended June 30, 2017, the Company recognized $3,846 in
state income tax expense, which is less than a 1% income tax rate.
This rate differs from the statutory federal and state rate due to
net operating losses from prior years.
8.
Line of Credit
The
Company has a line of credit with a bank with a borrowing base of
$2,585,132 at June 30, 2018, and $2,761,632 at December 31, 2017.
The amount outstanding under this line of credit was $2,585,132 at
June 30, 2018, and $2,761,632 at December 31, 2017.
The
amended loan agreement requires quarterly interest-only payments
until expiration. 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% as of June 30, 2018, and
December 31, 2017. On July 25, 2018, we executed a ninth amendment
to the original loan agreement and third amendment to the
forbearance which increased the interest rate 2% for the term of
the loan through September 30, 2018.
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 June 30, 2018, and
December 31, 2017, and is in technical default of the agreement.
Citibank is in a first lien position on all our properties and
assets.
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 $2,761,632, our loan balance at
December 31, 2017, and 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 were the same as under the first amendment to
the forbearance. On July 25, 2018, we executed a ninth amendment to
the original loan agreement and third amendment to the forbearance
which extends it to September 30, 2018. The terms of the second
amendment increased the interest rate 2% and reduced our borrowing
base $176,500 to our current loan balance of $2,585,132. All other
terms remain the same as under the first amendment to the
forbearance.
9.
Stockholders’ Equity
We
approved a stock warrant dividend of one warrant per one common
share in March 2012. The warrants had an exercise price of $4.00
and were 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.
Phillip
Roberson, President and CFO, was awarded, as part of his annual
compensation, on his third anniversary date 5,000 shares, and will
receive 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. However, Mr.
Roberson declined the 5,000 and 6,000 shares that would have been
awarded on his third and fourth anniversary dates, July 1, 2017 and
2018, respectively. On August 10, 2018, the Compensation Committee
ratified the automatic extension of Mr. Roberson’s contract
to July 1, 2019.
10.
Related Party
During
2018, the Company received netted Joint Interest Billing statements
from Trivista Operating, LLC for approximately $78,000. This
amount was netted against disputed outstanding invoices which
Trivista claims were acquired from the prior operator.
Trivista Operating, LLC is believed to be controlled by Natale
Rea, who owns approximately 6.98% of the Company’s common
stock through control of 2390530 Ontario Inc. and Natale Rea (2013)
Family Trust.
11.
Legal Proceedings
As previously disclosed in the Company’s
Current Report on Form 8-K dated May 8, 2018, the Company is a
party to a civil action captioned
Trivista
Operating, LLC v. Bass Petroleum, Inc. and Fieldpoint Petroleum
Corporation, Cause No. 16,539
in the District Court
of Lee County, Texas, 335 Judicial District (the “Trivista
Litigation”).
Trivista filed suit for non-payment of
outstanding disputed invoices of $107,000 plus attorney fees and
court costs on February 26, 2018. Trivista Operating LLC is
controlled by one of our major shareholders,
Natale Rea (2013) Family Trust.
The Company
disputes that it has any liability to the plaintiff in that action
and intends to vigorously defend same.
12.
Subsequent Events
The Company is a party to a civil action
captioned
A.C.T.
Equipment Company, LLC v. Fieldpoint Petroleum Corporation, Cause
No. 21,191
in the
109
th
Judicial
District Court of Andrews, Andrews County, Texas (the “A.C.T.
Litigation”).
A.C.T. filed suit for non-payment of
outstanding disputed invoices of $18,832 plus attorney fees and
court costs on July 24, 2018.
The Company disputes
that it has any liability to the plaintiff in that action and
intends to vigorously defend same.
PART I