Item 1.
Financial Statements
FieldPoint Petroleum Corporation
UNAUDITED
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
CURRENT
ASSETS:
|
|
|
Cash and cash
equivalents
|
$
281,375
|
$
408,656
|
Accounts
receivable:
|
|
|
Oil and natural gas
sales
|
405,702
|
366,939
|
Joint interest
billings, less allowance for doubtful accounts of
approximately $237,000 each period
|
256,878
|
260,816
|
Income tax
receivable
|
33,115
|
25,057
|
Prepaid expenses
and other current assets
|
75,277
|
48,998
|
Total current
assets
|
1,052,347
|
1,110,466
|
|
|
|
PROPERTY
AND EQUIPMENT:
|
|
|
Oil and natural gas
properties (successful efforts method)
|
33,791,838
|
33,753,833
|
Other
equipment
|
117,561
|
117,561
|
Less accumulated
depletion, depreciation and impairment
|
(27,790,078
)
|
(27,425,652
)
|
Net property and
equipment
|
6,119,321
|
6,445,742
|
|
|
|
OTHER
ASSETS
|
158,428
|
157,227
|
|
|
|
Total
assets
|
$
7,330,096
|
$
7,713,435
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
|
|
|
CURRENT
LIABILITIES:
|
|
|
Line of credit -
current
|
$
2,585,132
|
$
2,761,632
|
Accounts payable
and accrued expenses
|
789,890
|
897,101
|
Oil and gas
revenues payable
|
425,202
|
427,859
|
Asset retirement
obligation - current
|
139,470
|
146,066
|
Total current
liabilities
|
3,939,694
|
4,232,658
|
|
|
|
ASSET
RETIREMENT OBLIGATION
|
1,759,017
|
1,678,420
|
Total
liabilities
|
5,698,711
|
5,911,078
|
|
|
|
STOCKHOLDERS’
EQUITY:
|
|
|
Common
stock, $.01 par value, 75,000,000 shares authorized;
|
|
11,596,229 and
10,669,229 shares issued and outstanding, respectively
|
115,962
|
115,962
|
Additional paid-in
capital
|
13,715,668
|
13,715,668
|
Accumulated
deficit
|
(10,233,353
)
|
(10,062,381
)
|
Treasury stock,
927,000 shares, each period, at cost
|
(1,966,892
)
|
(1,966,892
)
|
Total
stockholders’ equity
|
1,631,385
|
1,802,357
|
|
|
|
Total liabilities
and stockholders’ equity
|
$
7,330,096
|
$
7,713,435
|
See accompanying notes to these
unaudited condensed consolidated financial
statements
.
2
FieldPoint
Petroleum Corporation
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
REVENUE:
|
|
|
|
|
Oil and natural gas
sales
|
$
565,975
|
$
682,703
|
$
1,624,434
|
$
2,378,406
|
Well operational
and pumping fees
|
1,262
|
1,263
|
5,932
|
3,786
|
Disposal
fees
|
30,412
|
17,175
|
63,864
|
57,066
|
Total
revenue
|
597,649
|
701,141
|
1,694,230
|
2,439,258
|
|
|
|
|
|
COSTS
AND EXPENSES:
|
|
|
|
|
Production
expense
|
265,141
|
453,605
|
773,879
|
1,761,123
|
Depletion and
depreciation
|
118,554
|
168,465
|
368,062
|
538,573
|
Accretion of
discount on asset retirement obligations
|
27,000
|
26,000
|
82,000
|
78,000
|
General and
administrative
|
285,488
|
283,968
|
873,546
|
847,910
|
Total costs and
expenses
|
696,183
|
932,038
|
2,097,487
|
3,225,606
|
|
|
|
|
|
OPERATING
LOSS
|
(98,534
)
|
(230,897
)
|
(403,257
)
|
(786,348
)
|
|
|
|
|
|
OTHER
INCOME (EXPENSE):
|
|
|
|
|
Interest
income
|
49
|
15
|
94
|
44
|
Interest
expense
|
(46,642
)
|
(40,621
)
|
(119,101
)
|
(173,952
)
|
Gain on sale of oil
and natural gas property
|
-
|
1,173,193
|
345,399
|
3,203,670
|
Miscellaneous
|
131
|
237
|
359
|
494
|
Total other income
(expense)
|
(46,462
)
|
1,132,824
|
226,751
|
3,030,256
|
|
|
|
|
|
INCOME
(LOSS) BEFORE INCOME TAXES
|
(144,996
)
|
901,927
|
(176,506
)
|
2,243,908
|
|
|
|
|
|
INCOME
TAX EXPENSE – CURRENT
|
(14,657
)
|
(822
)
|
(14,657
)
|
(4,668
)
|
INCOME
TAX BENEFIT (EXPENSE) – DEFERRED
|
20,191
|
-
|
20,191
|
-
|
TOTAL
INCOME TAX PROVISION
|
5,534
|
(822
)
|
5,534
|
(4,668
)
|
|
|
|
|
|
NET
INCOME (LOSS)
|
$
(139,462
)
|
$
901,105
|
$
(170,972
)
|
$
2,239,240
|
|
|
|
|
|
EARNINGS
(LOSS) PER SHARE:
|
|
|
|
|
BASIC
|
$
(0.01
)
|
$
0.08
|
$
(0.02
)
|
$
0.21
|
DILUTED
|
$
(0.01
)
|
$
0.08
|
$
(0.02
)
|
$
0.21
|
|
|
|
|
|
WEIGHTED
AVERAGE SHARES OUTSTANDING:
|
|
|
|
|
BASIC
|
10,669,229
|
10,669,229
|
10,669,229
|
10,652,218
|
DILUTED
|
10,669,229
|
10,669,229
|
10,669,229
|
10,652,218
|
|
|
|
|
|
See accompanying notes to these
unaudited condensed consolidated financial
statements
.
3
FieldPoint Petroleum Corporation
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS
|
For the Nine Months
Ended
|
|
|
|
|
|
|
|
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
Net income
(loss)
|
$
(170,972
)
|
$
2,239,240
|
Adjustments to
reconcile net income (loss) to net cash provided by (used in)
operating activities:
|
|
|
Depletion and
depreciation
|
368,062
|
538,573
|
Accretion of
discount on asset retirement obligations
|
82,000
|
78,000
|
Gain on sale of oil
and natural gas property
|
(345,399
)
|
(3,203,670
)
|
Deferred income tax
benefit
|
(20,191
)
|
-
|
Changes in current
assets and liabilities:
|
|
|
Accounts
receivable
|
(34,825
)
|
(82,558
)
|
Income tax
receivable
|
(8,058
)
|
(13,825
)
|
Prepaid expenses
and other current assets
|
(26,279
)
|
(21,130
)
|
Accounts payable
and accrued expenses
|
(8,429
)
|
23,035
|
Oil and gas
revenues payable
|
(2,657
)
|
(19,769
)
|
Net cash used in
operating activities
|
(166,748
)
|
(462,104
)
|
|
|
|
CASH
FLOWS FROM INVESTING ACTIVITIES:
|
|
|
Additions to oil
and natural gas properties and other equipment
|
(154,033
)
|
(349,069
)
|
Proceeds from sale
of oil and natural gas property
|
370,000
|
3,345,000
|
Net cash provided
by investing activities
|
215,967
|
2,995,931
|
|
|
|
CASH
FLOWS FROM FINANCING ACTIVITIES:
|
|
|
Payments on line of
credit - current
|
(176,500
)
|
(3,115,000
)
|
Net proceeds from
issuance of common stock
|
-
|
187,220
|
Net cash used in
financing activities
|
(176,500
)
|
(2,927,780
)
|
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
(127,281
)
|
(393,953
)
|
|
|
|
CASH AND CASH EQUIVALENTS,
beginning of
the period
|
408,656
|
880,067
|
|
|
|
CASH AND CASH EQUIVALENTS,
end of the
period
|
$
281,375
|
$
486,114
|
|
|
|
SUPPLEMENTAL
INFORMATION:
|
|
|
Cash paid during
the period for interest
|
$
72,459
|
$
200,758
|
Cash paid during
the period for income taxes
|
$
7,027
|
$
13,100
|
Change in accrued
capital expenditures
|
$
87,791
|
$
69,591
|
See accompanying notes to these
unaudited condensed consolidated financial
statements
.
4
FieldPoint
Petroleum Corporation
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 nine months
ended September 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
September 30, 2018, and December 31, 2017, the Company has a
working capital deficit of approximately $2,887,000 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 current ratio, leverage ratio, and interest coverage ratio
requirements. The Company is out of compliance with all three
ratios as of September 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, June
30, 2018 and September 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 Forbearance
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 Agreement,
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. This amended
Forbearance Agreement ran through March 31, 2018, and required that
we adhere to certain reporting requirements, such as weekly cash
reports, and pay all 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 Agreement which
extended it to June 30, 2018. The terms of the second amendment to
the Forbearance Agreement remained the same as under the foregoing
first amendment. On July 25, 2018, we executed a ninth amendment to
the original Loan Agreement and third amendment to the Forbearance
Agreement which extended it to September 30, 2018. The terms of the
ninth amendment to the Loan Agreement and third amendment to the
Forbearance Agreement increased the interest rate 2% and reduced
our borrowing base $176,500 to our current loan balance of
$2,585,132. On November 7, 2018, we executed our tenth amendment to
the Loan Agreement and fourth amendment to the Forbearance
Agreement which extended it to March 31, 2019. The terms of the
fourth amendment to the Forbearance Agreement remained the same as
the foregoing third agreement.
We are
taking the following steps to mitigate our current financial
situation. 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
discussions 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 NYSE 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 Loan Agreement, our
ability to cure any defaults that occur under our Loan Agreement 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.
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 adoption. 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 September 30, 2018,
the Company had receivables related to contracts with customers of
$405,702.
The
following table summarizes revenue by major source for the three
and nine months ended September 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
|
For the Nine Months
Ended
|
|
|
September
30,
|
|
|
|
|
|
Revenues
|
|
|
|
|
Oil
|
$
501,078
|
632,970
|
1,466,494
|
2,143,326
|
Natural Gas and
NGL
|
64,897
|
49,733
|
157,940
|
235,080
|
Total oil, natural
gas and NGL
|
$
565,975
|
682,703
|
1,624,434
|
2,378,406
|
|
|
|
|
|
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 nine months
ended September 30, 2018 or 2017. The Company made no purchases of
oil and natural gas properties during the quarters ended September
30, 2018 or 2017.
In the
nine months ended September 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 related to this property sale. In the
nine months ended September 30, 2017, the Company sold its net
interest in properties that were not economic to our interests, as
well as non-producing leasehold and unproved acreage that was held
by production. We recognized a gain of approximately $3,204,000
from the sale of these properties during the nine months ended
September 30, 2017.
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 nine months ended
September 30, 2018.
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 nine months ended September
30, 2018 and 2017, is presented below.
|
For the Three
Months Ended
September
30,
|
For the Nine Months
Ended
September
30,
|
|
|
|
|
|
|
|
|
|
|
Net income
(loss)
|
$
(139,462
)
|
$
901,105
|
$
(170,972
)
|
$
2,239,240
|
|
|
|
|
|
Weighted average
common stock outstanding
|
10,669,229
|
10,669,229
|
10,669,229
|
10,652,218
|
Weighted average
dilutive effect of stock warrants
|
-
|
-
|
-
|
-
|
Dilutive weighted
average shares
|
10,669,229
|
10,669,229
|
10,669,229
|
10,652,218
|
|
|
|
|
|
Earnings (loss) per
share:
|
|
|
|
|
Basic
|
$
(0.01
)
|
$
0.08
|
$
(0.02
)
|
$
0.21
|
Diluted
|
$
(0.01
)
|
$
0.08
|
$
(0.02
)
|
$
0.21
|
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 became effective January 1, 2018. The Act, 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. For the tax year
ended December 31, 2017, the Company owed $20,191 in alternative
minimum tax. The tax liability was reduced $18,990 by the AMT
credit from prior years, leaving a balance due of $1,201 on Form
1120. The net amount of AMT paid by the Company increased the AMT
credit refundable by $1,201 to $158,428. This refund is reported as
a long-term asset in other assets on the consolidated 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 nine months ended September 30, 2017. The
Company reported $14,657 income tax expense and $20,191 income tax
benefit, for net benefit of $5,534 for the three or nine months
ended September 30, 2018. The tax rate for the nine months ended
September 30, 2018, is approximately 3%, which differs from the
statutory federal and state rate due to net operating losses and
utilization of the AMT credit from prior years. For the three and
nine months ended September 30, 2017, the Company recognized $822
and $4,668, respectively, in state income tax expense, which is
less than 1% income tax rate. This rate differs from the statutory
federal and state rate due to net operating losses from prior
years.
The
Company has a line of credit with Citibank with a borrowing base of
$2,585,132 at September 30, 2018, and $2,761,632 at December 31,
2017. The amount outstanding under this line of credit was
$2,585,132 at September 30, 2018, and $2,761,632 at December 31,
2017.
The
line of credit 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 September 30, 2018 and December 31,
2017. On July 25, 2018, we executed a ninth amendment to the
original Loan Agreement which increased the interest rate 2% for
the term of the loan.
On November 7, 2018, we executed
the tenth amendment to the original Loan Agreement with no change
in borrowing rate from the ninth amendment to the original loan
agreement.
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 September 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 and a Forbearance Agreement, which provided 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 Forbearance 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 Agreement,
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 first amendment
to 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 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 Agreement
which extended it to June 30, 2018. The terms of the second
amendment to the Forbearance Agreement were the same as under the
foregoing first amendment. On July 25, 2018, we executed a ninth
amendment to the original Loan Agreement and third amendment to the
Forbearance Agreement, which extended it to September 30, 2018. The
terms of the ninth amendment to the Loan Agreement increased the
interest rate 2% and reduced our borrowing base $176,500 to our
current loan balance of $2,585,132. The terms of the third
amendment to the Forbearance Agreement remain the same as under the
foregoing second amendment. On November 7, 2018, we executed our
tenth amendment to the original Loan Agreement and fourth amendment
to the Forbearance Agreement which extended it to March 31, 2019.
The terms of the fourth amendment to the Forbearance agreement are
substantially the same as under the forgoing third
amendment.
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.
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.
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.
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 settled the
lawsuit on September 10, 2018, for a total payment of $13,500. An
Order Granting Dismissal with Prejudice was signed by the presiding
judge.
During
October 2018, the Company sold approximately 6,000 feet of used
surplus production tubing to an entity controlled by a shareholder,
Mike Herman, for $24,000. We believe this is a fair market price
for the tubing and did not have a facility to store it or any other
offers to purchase the tubing.
PART I
Item 2
.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with the
Company’s Condensed Consolidated Financial Statements, and
respective notes thereto, included elsewhere herein. The
information below should not be construed to imply that the results
discussed herein will necessarily continue into the future or that
any conclusion reached herein will necessarily be indicative of
actual operating results in the future. Such discussion represents
only the best present assessment of the management of FieldPoint
Petroleum Corporation.
General
FieldPoint
Petroleum Corporation derives its revenues from its operating
activities including sales of oil and natural gas and operating oil
and natural gas properties. The Company's capital for investment in
producing oil and natural gas properties has been provided by cash
flow from operating activities and from bank financing. The Company
categorizes its operating expenses into the categories of
production expenses and other expenses.
The
Company has temporarily suspended drilling and exploration
activities due to low commodity prices and has no near-term plans
at this time to continue development of the Taylor Serbin field.
Furthermore, we plan to limit any remedial work that does not
increase production and reduce general and administrative costs as
much as possible until commodity pricing improves. As we are out of
compliance with our revolving line of credit and our borrowing base
has been decreased, we do not expect to reinstate our drilling
programs until commodity prices and our cash flow
improve.
Going concern
We had
a net loss of $170,972 and net income of $2,239,240 for the nine
months ended September 30, 2018 and 2017, respectively and continue
to have negative operating cash flow in both periods. We expect
that the Company will continue to experience operating losses and
negative cash flow for so long as commodity prices remain
depressed. The audit report of our independent registered public
accountants covering our financial statements for the fiscal years
ended December 31, 2017 and 2016, include an explanatory paragraph
expressing substantial doubt as to our ability to continue as a
going concern. The financial statements have been prepared
"assuming that the Company will continue as a going concern”.
Our ability to continue as a going concern is dependent on raising
additional capital to fund our operations and ultimately on
generating future profitable operations. There can be no assurance
that we will be able to raise sufficient additional capital or have
positive cash flow from operations to address all of our cash flow
needs. 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.
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 Buyer purchased 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”). In November 2016, the
Buyer purchased for gross proceeds of $398,053 paid in
consideration of 884,564 shares of unregistered common stock. In
December 2016, the Buyer purchased for gross proceeds of $199,027
paid in consideration of 442,282 shares of unregistered common
stock. The remaining 442,282 shares were purchased in January 2017,
for gross proceeds of $199,027 paid in consideration of 442,282
shares of unregistered common stock. Euro Pacific Capital, Inc.
acted as the placement agent and garnered a fee of 5%. The SMPA
also granted the buyer, a related party after the purchase of the
stock, the right to nominate one member of the Board of
Directors.
The
Company was delisted from the NYSE American 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
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 and resulted in
the loss of other advantages to an exchange listing, including
marginability, blue sky exemptions and others.
In the
nine months ended September 30, 2018, the Company sold its net
interest in the Buchanan wells in the Spraberry field that were not
economic to our interests. The gross proceeds for the wells was
$370,000 and the Company recognized a gain of $345,399. The Company
used $176,500 of the proceeds to pay toward the principal balance
of our line of credit. During the nine months ended September 30,
2017, the company sold non-producing and non-economic assets and
used $3,115,000 of the proceeds to pay toward the principal balance
of our line of credit.
The
Company’s plans to mitigate our current financial situation
is in Note 2 – Liquidity and Going Concern in the financial
statements for the nine months ended September 30,
2018.
Results of Operations
Comparison of three months ended September 30, 2018, to the three
months ended September 30, 2017
|
Quarter Ended
September 30,
|
|
|
|
Revenue:
|
|
|
Oil
sales
|
$
501,078
|
$
632,970
|
Natural gas
sales
|
64,897
|
49,733
|
Total oil and
natural gas sales
|
$
565,975
|
$
682,703
|
|
|
|
Sales
volumes:
|
|
|
Oil
(Bbls)
|
8,176
|
14,233
|
Natural gas
(Mcf)
|
18,142
|
17,807
|
Total
(BOE)
|
11,200
|
17,201
|
|
|
|
Average sales
prices:
|
|
|
Oil
($/Bbl)
|
$
61.29
|
$
44.47
|
Natural gas
($/Mcf)
|
3.58
|
2.79
|
Total
($/BOE)
|
$
50.53
|
$
39.69
|
|
|
|
Costs and expenses
($/BOE)
|
|
|
Production expense
(lifting costs)
|
$
23.67
|
$
26.37
|
Depletion and
depreciation
|
10.59
|
9.80
|
Accretion of
discount on asset retirement obligations
|
2.41
|
1.51
|
General and
administrative
|
25.49
|
16.51
|
Total
|
$
62.16
|
$
54.19
|
Oil and
natural gas sales revenues decreased 17% or $116,728 to $565,975
for the three months ended September 30, 2018, from the comparable
2017 period. Average oil sales prices increased 38% to $61.29 for
the three months ended September 30, 2018, compared to $44.47 for
the period ended September 30, 2017. Average natural gas sales
prices increased 28% to $3.58 for the three months ended September
30, 2018, compared to $2.79 for the period ended September 30,
2017. Decreased oil and natural gas production, due in part to the
sale of fields that were noneconomic, accounted for a decrease in
revenue of approximately $269,000. Higher commodity prices for oil
and natural gas accounted for an increase in revenue of
approximately $152,000. We have temporarily suspended drilling and
exploration activity due to low commodity prices and expect our
volumes to decline in the coming quarters until drilling and
exploration activities are re-established.
Production
expense decreased 42% or $188,464 to $265,141 for the three months
ended September 30, 2018, from the comparable 2017 period. This was
primarily due to a decrease in workover activity and operating
costs associated with properties sold in 2017. Lifting costs per
BOE decreased $2.70 to $23.67 for the 2018 period compared to
$26.37 for the three months ended September 30, 2017, due mainly to
decreased workover activity and general decreases in costs and
lease operating expenses. We anticipate lease operating expenses to
decline slightly over the following quarters due to less
anticipated work over activity and a decrease in costs and lease
operating expenses associated with properties sold in 2017 which
had higher than average operating costs per BOE.
Depletion
and depreciation decreased 30% or $49,911 to $118,554 for the three
months ended September 30, 2018, versus $168,465 in the 2017
comparable period. This was primarily due to a lower depletable
base and lower production volumes during the three months ended
September 30, 2018.
General
and administrative costs increased 1% or $1,520 to $285,488 for the
three months ended September 30, 2018, from the three months ended
September 30, 2017. This was primarily attributable to an increase
in professional services. At this time, the Company anticipates
general and administrative expenses to remain stable in the coming
quarters.
Other
expense, net for the quarter ended September 30, 2018, was $46,462.
Interest expense was $46,642 for the three months ended September
30, 2018. Other income, net for the quarter ended September 30,
2017, was $1,132,824, which included gain on sale of oil and
natural gas properties of $1,173,193. Interest expense was $40,621
for the three months ended September 30, 2017.
Results of Operations
Comparison of nine months ended September 30, 2018, to the nine
months ended September 30, 2017
|
Nine Months Ended
September 30,
|
|
|
|
Revenue:
|
|
|
Oil
sales
|
$
1,466,494
|
$
2,143,326
|
Natural gas
sales
|
157,940
|
235,080
|
Total oil and
natural gas sales
|
$
1,624,434
|
$
2,378,406
|
|
|
|
Sales
volumes:
|
|
|
Oil
(Bbls)
|
24,380
|
44,947
|
Natural gas
(Mcf)
|
60,087
|
79,732
|
Total
(BOE)
|
34,395
|
58,235
|
|
|
|
Average sales
prices:
|
|
|
Oil
($/Bbl)
|
$
60.15
|
$
47.69
|
Natural gas
($/Mcf)
|
2.63
|
2.95
|
Total
($/BOE)
|
$
47.23
|
$
40.84
|
|
|
|
Costs and expenses
($/BOE)
|
|
|
Production expense
(lifting costs)
|
$
22.50
|
$
30.24
|
Depletion and
depreciation
|
10.70
|
9.25
|
Accretion of
discount on asset retirement obligations
|
2.38
|
1.34
|
General and
administrative
|
25.40
|
14.56
|
Total
|
$
60.98
|
$
55.39
|
Oil and
natural gas sales revenues decreased 32% or $753,972 to $1,624,434
for the nine months ended September 30, 2018, from the comparable
2017 period. Average oil sales prices increased 26% to $60.15 for
the nine months ended September 30, 2018, compared to $47.69 for
the nine months ended September 30, 2017. Average natural gas sales
prices decreased 11% to $2.63 for the nine months ended September
30, 2018, compared to $2.95 for the nine months ended September 30,
2017. Decreased oil and natural gas production and lower commodity
prices for natural gas accounted for a decrease in revenue of
approximately $1,058,000. Higher commodity prices for oil accounted
for an increase in revenue of approximately $304,000. We have
temporarily suspended drilling and exploration activity due to low
commodity prices and expect our volumes to decline in the coming
quarters until drilling and exploration activities are
re-established.
Production
expense decreased 56% or $987,244 to $773,879 for the nine months
ended September 30, 2018, from the comparable 2017 period. This was
primarily due to a decrease in unexpected workover activity and
operating costs. Lifting costs per BOE decreased $7.74 to $22.50
for the 2018 period compared to $30.24 for the nine months ended
September 30, 2017, due mainly to decreased workover activity and
general decreases in costs and lease operating expenses associated
with properties sold in 2017, which had higher than average
operating costs per BOE. We anticipate lease operating expenses to
decline slightly over the following quarters due to a decrease in
costs and lease operating expenses associated with properties sold
in 2017.
Depletion
and depreciation decreased 32% or $170,511 to $368,062 for the nine
months ended September 30, 2018, versus $538,573 in the 2017
comparable period. This was primarily due to a lower depletable
base and lower production volumes during the nine months ended
September 30, 2018.
General
and administrative costs increased 3% or $25,636 to $873,546 for
the nine months ended September 30, 2018, from the nine months
ended September 30, 2017. This was primarily attributable to an
increase in salaries and professional services. At this time, the
Company anticipates general and administrative expenses to remain
stable or increase slightly in the coming quarters.
Other
income, net for the nine months ended September 30, 2018, was
$226,751 which included gain on sale of oil and natural gas
properties of $345,399. Other income, net for the nine months ended
September 30, 2017, was $3,030,256, which included gain on sale of
oil and natural gas properties of $3,203,670. Interest expense was
$119,101 and $173,952 for the nine months ended September 30, 2018
and 2017, respectively.
Liquidity and Capital Resources
Cash
flow used in operating activities was $166,748 for the nine months
ended September 30, 2018, as compared to $462,104 of cash flow used
in operating activities in the comparable 2017 period. The decrease
in cash flows used in operating activities was primarily due to the
decrease in gain on sale of oil and natural gas properties during
the nine months ended September 30, 2018.
Cash
flow provided by investing activities was $215,967 for the nine
months ended September 30, 2018, due to proceeds from sale of oil
and natural gas properties of $370,000 offset by additions to oil
and natural gas properties and equipment of $154,033. Cash flow
provided by investing activities was $2,995,931 for the nine months
ended September 30, 2017, which included proceeds of $3,345,000
from the sale of oil and natural gas properties, offset by $349,069
in additions to oil and natural gas properties and
equipment.
Cash
flow used in financing activities was a payment of $176,500
principal on our credit facility during the nine months ended
September 30, 2018. Cash flow used in financing activities was
$2,927,780 primarily due to payment of $3,115,000 principal on the
line of credit that was partially offset by proceeds of $187,220
from the sale of common stock during the nine months ended
September 30, 2017.
We are
out of compliance with the current ratio, leverage ratio, and
interest coverage ratio required by our line of credit as of
September 30, 2018, and are in technical default of the
agreement. In October 2016, we executed a sixth amendment to the
original Loan Agreement and a Forbearance Agreement, which provided
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 Forbearance 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 Agreement,
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 first amendment
to 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 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 Agreement
which extended it to June 30, 2018. The terms of the second
amendment to the Forbearance Agreement were the same as under the
foregoing first amendment. On July 25, 2018, we executed a ninth
amendment to the original Loan Agreement and third amendment to the
Forbearance Agreement, which extended it to September 30, 2018. The
terms of the ninth amendment to the Loan Agreement increased the
interest rate 2% and reduced our borrowing base $176,500 to our
current loan balance of $2,585,132. The terms of the third
amendment to the Forbearance Agreement remain the same as under the
foregoing second amendment. On November 7, 2018, we executed our
tenth amendment to the original Loan Agreement and fourth amendment
to the Forbearance Agreement which extended it to March 31, 2019.
The terms of the fourth amendment to the Forbearance agreement are
substantially the same as under the forgoing third
amendment.
The
Company was delisted from the NYSE American 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
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.
Subsequent Events
During
October 2018, the Company sold approximately 6,000 feet of used
surplus production tubing to an entity controlled by a shareholder,
Mike Herman, for $24,000. We believe this is a fair market price
for the tubing and did not have a facility to store it or any other
offers to purchase the tubing.
PART
I