NOTES
TO
CONSOLIDATED FINANCIAL STATEMENTS
September
30, 2006 and 2005
1.
Summary of Significant Accounting Policies
Description
of Business
- Texhoma Energy, Inc. was originally incorporated as Pacific
Sports Enterprises, Inc. in 1998. Texhoma is engaged in the
exploration for and the production of hydrocarbons, more commonly known as
the
exploration and production of crude oil and natural gas.
In
November 2004, Texhoma acquired a 40% interest in Black Swan Petroleum Pty.
Ltd.
and its wholly owned subsidiary, Black Swan Petroleum (Thailand) Ltd.
(“BSP”). BSP held a 100% interest in a large offshore petroleum
concession located in the Gulf of Thailand, adjacent to the Eastern Thai
coastline, in water depths averaging 20 meters. The terms of the
acquisition included issuance of Company stock which resulted in a change in
control of Texhoma.
The
Company has also entered into a 6% participation agreement for the exploration
and development of an area in Louisiana in December 2004.
Organization
and Basis of Presentation
– Texhoma’s securities are registered with the
Securities and Exchange Commission in the United States of America and its
securities currently trade under the symbol “TXHE.PK” on the pink
sheets.
The
financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America.
Use
of Estimates
– Texhoma’s financial statement preparation requires that
management make estimates and assumptions which affect the reporting of assets
and liabilities and the related disclosure of contingent assets and liabilities
in order to report these financial statements in conformity with accounting
principles generally accepted in the United States of America. Actual
results could differ from those estimates.
The
primary estimates made by management included in these financial statements
are
the impairment reserves applied to various long-lived assets and the fair value
of its stock tendered in various non-monetary transactions.
Cash
and Cash Equivalents -
Cash includes all highly liquid investments that are
readily convertible to known amounts of cash and have original maturities of
three months or less.
Restricted
Cash –
Texaurus maintains the residual cash from the proceeds of the Laurus
Fund note in a restricted account for as long as Texaurus shall have any
obligations to Laurus. Texaurus may request authorization from Laurus
for access to these funds for the consummation of acquisitions of oil and gas
assets. In addition, the note repayment terms of the
Laurus funding, provide that 80% of the net oil and gas receipts shall be used
to repay interest and principal on the then outstanding note
balance. Laurus is authorized to transfer such funds to its account,
where it is held and applied to the accrued interest and note
payable.
Foreign
Currency Translation -
During the relevant periods, Texhoma’s investment in
the BSP assets and liabilities were translated from Thailand and Australian
currency into U.S. currency by use of exchange rates in effect at the balance
sheet date. Revenues and expenses were translated utilizing the exchange rates
in effect on the date they were included in income or using weighted-average
exchange rates. Capital accounts were translated using the exchange rates in
effect when the foreign entity’s capital stock was acquired or
issued. Gains or losses on translating the Thailand currency and
Australian currency into U.S. currency were reported in Minority Interest in
Exploration Costs. Foreign currency transaction gains and losses were included
in net income in the period the exchange rate changed. Translation or
transaction
gains
or
losses were not material to the financial statements. The currency
translations are in accordance with Statement of Financial Accounting Standards
(“SFAS”) No. 52
Foreign Currency Translation
, (FAS
52). Resulting translation adjustments are reflected in the
accumulated other comprehensive items component of shareholders’
equity.
Fair
Value of Financial Instruments -
SFAS No. 107,
Disclosures about Fair
Values of Financial Instruments
(FAS 107), requires disclosing fair values
to the extent practicable for financial instrument, which are recognized or
unrecognized in the balance sheet. For certain financial instruments, including
cash, accounts payable, and accrued expenses and short term debt, it was assumed
that the carrying value does not materially differ from fair
value. The fair value of debt was determined based upon current rates
at which Texhoma could borrow funds with similar maturities
remaining.
Property
and Equipment-
Property and equipment are recorded at cost less impairment.
Depreciation is computed using the straight-line basis over the estimated useful
lives of the assets at the rates in the accompanying table.
|
Asset
Category
|
Depreciation/
Amortization
Period
|
|
|
|
|
Building
|
30
Years
|
|
|
|
|
Plant
& Equipment
|
7
Years
|
|
|
|
|
Production
Tooling
|
$10
per unit
|
|
|
|
|
Automotive
Equipment
|
5
Years
|
|
|
|
|
Office
Equipment
|
5
to 3 Years
|
Texhoma’s
subsidiary purchased oil and gas property interests on March 28, 2006 with
ownership of their portion of the oil and gas production from the Barnes Creek
and Edgerly properties becoming effective January 1, 2006. Depletion
is computed based upon the estimated remaining proved reserves as determined
by
a third party petroleum and geology consulting firm. Based upon those
estimations, the total proven reserves for the Barnes Creek leasehold were
73,310 barrels of oil with 62,364 remaining at September 30, 2006, the property
was depleted at the rate of 14.9% for the period of acquisition through year
end. The Edgerly leasehold had total proven reserves of 210,574
barrels of oil and an estimated remaining 199,526 barrels, and depletion of
4.9%
was reported for the year ended September 30, 2006. The Little White
Lakes leasehold purchased effective April 1, 2006 had total estimated proven
reserves of 27,673 with 21,919 estimated remaining at September 30, 2006 with
reported depletion of 20.8%.
Oil
and Natural Gas Exploration and Development -
BSP records its exploration
operations in accordance with SFAS 19,
Financial Accounting and Reporting by
Oil and Gas Producing Companies
(FAS 19). Exploration involves identifying
areas that may warrant inspection and/or examination of specific areas that
indicate they may possess the presence of oil and gas reserves, including the
drilling of exploration wells and collecting seismic data.
BSP
adopted “Successful Efforts” accounting for exploration costs as defined in FAS
19. Under this method, geological and geophysical costs, the costs of
carrying and retaining undeveloped properties such as delay rentals, ad valorem
taxes on properties, legal costs for the title defense, maintenance of land
and
lease records, and dry and bottom hole contributions are charged to expense
as
incurred. The cost of drilling exploratory wells is capitalized,
pending determination of whether the well can produce
hydrocarbons. If it is determined the well has no commercial
potential, the capitalized costs, net of any salvage value are
expensed.
If
it is
determined subsequent to a financial reporting period and prior to the issuance
of financial statements for that reporting period, that an exploratory well
has
not found commercially exploitable hydrocarbons, any costs incurred through
the
end of that reporting period, net of salvage value, must be written off in
that
prior period under FASB Interpretation No. 36,
Accounting for Exploratory
Wells in Progress at the End of the Period
(FAS 36).
Equity
Method of Accounting for Investments in Common Stock -
The equity method of
accounting for investments in Common Stock when the ownership is 50 percent
or
less of the voting stock of the enterprise is governed by APB Opinion No. 18,
The Equity Method of Accounting for Investments in Common Stock
(APB
18). It states that use of the equity method of accounting for an
investment is required if the investor exercises significant influence over
the
operating and financial policies of the investee. APB 18 includes
presumptions, based on the investor’s percentage of ownership, as to whether the
investor has that ability.
In
accordance with APB No. 18, Texhoma treated its 40% ownership in BSP under
the
equity method of accounting and recorded the investment, adjusted by net losses
of $1,245,000. In March 2005 Texhoma received a final drilling report
and the Board of Directors voted to agree with recommendations to abandon and
plug the well. An impairment loss of $464,441 was recorded for the
investment
(see note 2 Concession).
Long-Lived
Assets
- The Company's accounting policy regarding the assessment of the
recoverability of the carrying value of long-lived assets, including property,
equipment and purchased intangible assets with finite lives, is to review the
carrying value of the assets if the facts and circumstances suggest that they
may be impaired. If this review indicates that the carrying value will not
be
recoverable, as determined based on the projected undiscounted future cash
flows, the carrying value is reduced to its estimated fair value.
Income
Taxes
- Management evaluates the probability of the realization of its
deferred income tax assets. The Company has estimated a $2,466,000
deferred income tax asset at September 30, 2006 relating to net operating loss
carryforwards and deductible temporary differences. Of that amount,
an estimated $931,000 is related to the net operating loss generated for the
year ended September 30, 2006. Management determined that
because the Company has not yet generated taxable income, because of the change
in control that has occurred in the past and the fact that certain losses have
been generated outside of the United States, it is more likely than not that
a
tax benefit will not be realized from these operating loss carryforwards and
deductible temporary differences. Accordingly, the
deferred income tax asset is offset by a full valuation allowance.
If
the
Company begins to generate taxable income, management may determine that some
or
all of the deferred income tax asset may be recognized. Recognition
of the asset could increase after tax income in the future. The net
operating tax loss carry forward of approximately $3,100,000 expires from 2011
to 2025. The future utilization of the net operating losses is
uncertain.
Loss
Per Share
- Per SFAS No. 128,
Earnings per Share
(FAS 128),
earnings per share (or loss per share), is computed by dividing the earnings
(loss) for the period by the weighted average number of common stock shares
outstanding for the period. Diluted earnings (loss) per share
reflects the potential dilution of securities by including other potential
common stock, including stock options and warrants, in the weighted average
number of common shares outstanding for the period, if
dilutive. Therefore because including options and warrants issued
would have an anti-dilutive effect on the loss per share, only the weighted
average (loss) per share is reported.
Share-Based
Payment
- In December 2004, the FASB issued SFAS No. 123R,
Accounting for Stock-Based Compensation
(FAS 123(R)), which supersedes
APB 25. Accordingly, Texhoma is required to measure all stock-based
compensation awards using a fair value method and recognize such expense in
its
financial statements as services are performed. In addition, the adoption of
FAS
No. 123(R) will require additional accounting related to the income tax effects
and additional disclosure regarding the cash flow effects
resulting
from share-based payment arrangements. FAS No. 123(R) became effective for
small
business issuers as of the first interim or annual reporting period that begins
after December 31, 2005.
The
effects of the adoption of FAS No. 123(R) on Texhoma’s results of operations and
financial position are dependent upon a number of factors, including the number
of employee stock options outstanding and unvested, the number of stock-based
awards which may be granted in the future, the life and vesting features of
stock-based awards which may be granted in the future, the future market value
and volatility of Texhoma’s stock, movements in the risk free rate of interest,
award exercise and forfeiture patterns, and the valuation model used to estimate
the fair value of each award.. In addition, Texhoma utilizes restricted stock
units as a key component of its ongoing employee stock-based compensation plan.
These awards generally are recognized at their fair value, equal to the quoted
market price of Texhoma’s common stock on the date of issuance, and this amount
is amortized over the vesting period of the shares of restricted stock held
by
the grantee
Non-monetary
Exchange
- In December 2004, the FASB issued SFAS No. 153,
Exchanges of Non-monetary Assets, an amendment of APB Opinion
No. 29
(FAS 153)
,
The amendments made by FAS 153
eliminate the exception for non-monetary exchanges of similar productive assets
and replace it with a general exception for exchanges of non-monetary assets
that do not have commercial substance. A non-monetary exchange has commercial
substance if the future cash flows of the entity are expected to change
significantly as a result of the exchange. The provisions of this statement
became effective for non-monetary asset exchanges occurring in Texhoma’s fourth
quarter of 2005. The adoption of FAS 153 did not have a material impact on
Texhoma’s financial statements.
Conditional
Asset Retirement
- In March 2005, the FASB issued FASB Interpretation (FIN)
No. 47,
Accounting for Conditional Asset Retirement Obligations–an
Interpretation of SFAS 143
(FIN 47). FIN 47 clarifies the timing
of liability recognition for legal obligations associated with the retirement
of
a tangible long-lived asset when the timing and/or method of settlement are
conditional on a future event. FIN 47 is effective no later than
December 31, 2005 and did not impact the Company’s financial
statements.
Foreign
Earnings Repatriation Provision within the American Jobs
- In December
2004, the FASB issued FASB Staff Position (“FSP”) No. FAS 109-2,
Accounting
and Disclosure Guidance for the Foreign Earnings Repatriation Provision within
the American Jobs Creation Act of 2004
(FSP FAS 109-2)
.
The
American Jobs Creation Act (“AJCA”) introduces a special one-time dividend
received deduction on the repatriation of certain foreign earnings to a U.S.
taxpayer (“repatriation provision”), provided certain criteria are met. FSP FAS
109-2 provides accounting and disclosure guidance for the repatriation
provision. Texhoma completed its evaluation of this FSP and decided not to
repatriate foreign earnings under these provisions as it would not be beneficial
to Texhoma.
Accounting
Changes and Error
Corrections - In May 2005, the FASB issued SFAS
No. 154
, Accounting Changes and Error Corrections
(FAS
154)
.
This statement replaces APB Opinion No. 20,
Accounting Changes
, and SFAS No. 3,
Reporting Accounting
Changes in Interim Financial Statements,
and changes the requirements for
the accounting and reporting of a change in accounting principle. This statement
applies to all voluntary changes in accounting principles. It also applies
to
changes required by an accounting pronouncement in the unusual instance that
the
pronouncement does not include specific transition provisions. When a
pronouncement includes specific transition provisions, those provisions should
be followed. FAS 154 requires retrospective application to prior periods’
financial statements of voluntary changes in accounting principles. FAS 154
is effective for accounting changes and corrections of errors made during 2007,
beginning on January 1, 2007. Texhoma does not believe the adoption of FAS
154
will have a material impact on its financial statements.
Inventory
Cost
- In November 2004, the FASB issued SFAS No. 151
,
Inventory Costs—an Amendment of ARB No. 43, Chapter 4
(FAS
151)
.
FAS 151 amends Accounting Research Bulletin (“ARB”) No. 43,
Chapter 4, to clarify that abnormal amounts of idle facility expense,
freight, handling costs, and wasted materials (spoilage) should be
recognized as current-period charges. In addition, this statement requires
that
allocation of fixed production overheads to the costs of conversion be based
on
the normal capacity of the production facilities. The provisions of this
statement are effective for inventory costs incurred beginning in
Texhoma’s
first quarter of 2006. Texhoma does not believe that the adoption of FAS 151
will have a material impact on its financial statements.
2.
CONCESSION
Texhoma
had a 40% interest in BSP which owned an exploration concession located in
the
Gulf of Thailand. The concession was signed on March 3, 1999 and
allowed for three exploration periods of three years each (the second and third
periods are optional) followed by a possible twenty-year production period
to
develop commercial hydrocarbons found during the exploration phase.
At
the
time of the acquisition of Black Swan by Texhoma, the shareholders of Black
Swan
were then comprised of Texhoma (40%), Dormley Pty. Ltd. (36%), Capersia Pte.
Ltd. (14%) and Nuenco NL (10%), respectively. In January 2005,
Capersia and Dormley acquired Nuenco’s interest. Due to the ownership
division, although Texhoma was a minority percentage owner, the Company
controlled the majority of the joint venture and as such reported its interest
on a consolidated basis. As a result of the unsuccessful outcome the
investment was expensed in the third quarter 2005. The acquisition of
Black Swan was recorded by Texhoma at $464,441, based upon its 40% ownership
interest, which amount was included in the June 30, 2005 write down during
the
year ended September 30, 2005.
The
work
program for the First Obligation Period included reprocessing seismic data,
acquisition of a 300 sq. km. 3D-seismic program and the drilling of one well.
With Thai Government approval, the commitment well was postponed to the 3
rd
year of
the Second
Obligation Period (ending March 2, 2005). In accordance with
the terms of the Concession, Black Swan Thai was required to drill two wells
and
expend $400,000 on other work-programs prior to March 2, 2005. The
obligations were fulfilled in the first half of 2005 upon the Concession being
relinquished to the Thai government after it was determined the exploration
efforts and the drilling were unsuccessful.
In
March
2005 the board of directors voted to plug and abandon the concession and
Thailand oil exploration. The Company still owed $1,115,000 in unpaid
past cash calls and contributions to the joint venture. The unpaid
cash contribution was forgiven and paid by the remaining joint venture
members. The Company has no commitment or contingency for those
unpaid cash calls and contributions as represented by prior
management. In August 2005 Texhoma’s Board elected to withdraw its
support for continued exploration with BSP and write off its investment
effective June 30, 2005.
On
January 20, 2006, we divested our shareholding in Black Swan Petroleum Pty.
Ltd.
and Black Swan Petroleum (Thailand) Limited by transferring such shares to
Pacific Spinner Limited. Pacific Spinner had, pursuant to a Letter Agreement,
agreed to use its best efforts to further sell such shares and to pay us 20%
(twenty percent) of any proceeds received from such sale. However, the Company
has learned that Black Swan has deregistered itself as an active company in
Australia and Black Swan Thai has gone into voluntary receivership with little
chance of the Company receiving any further benefit from the
divestment
3. PROPERTY
AND EQUIPMENT
Texhoma and
its subsidiary, Texaurus Energy, Inc. acquired oil and gas leasehold properties
at a cost of $11.191 million during the year ended September 30,
2006. During the year $916,000 of those acquisitions proved to be
unsuccessful and were written off for the financial statement
presentation. In addition, third party engineering reports projected
that the future value of the Little White Lake interest retained significantly
less future value than was reflected in the depleted amount per the balance
sheet at September 30, 2006 and as such recorded an impairment of $2,682,000
for
the year.
4. SHARE
CAPITAL
Stock
for Services Compensation Plan
- In accordance with Texhoma’s Stock for
Services Compensation Plan, on August 26, 2004, the Company filed a registration
statement on Form S-8 with the Securities and Exchange Commission, for
registration under the Securities Act of 1933 of Securities to Be Offered to
Employees Pursuant to Employee Benefit Plans to register the shares of common
stock under
Texhoma’s Plan
in an amount of up to 11,000,000 pre forward split shares and 44,000,000 post
forward split shares at various exercise prices. The Board of
Directors is authorized, without further approval; to issue shares of common
stock under the plan from time to time of up to an aggregate of 44,000,000
post
forward split shares of the Company’s common stock.
Common
Stock
- On October 5, 2004, Texhoma issued 1,584,064 shares of common stock
(6,336,256 shares subsequent to the forward split) in settlement of
approximately $161,700 in debt with a former director of the
Company. Texhoma recorded $284,500 as an expense. The
Company issued 1,900,000 shares of common stock (7,600,000 shares subsequent
to
the forward split) in settlement of $38,000 in debt with a consultant of the
Company; Texhoma recorded $504,800 in expenses.
On
November 4, 2004, the Company issued 14,000,000 shares of restricted common
stock (56,000,000 post forward split shares) for the acquisition of a 40%
shareholding interest in the capital of Black Swan. The acquisition
was accounted for using the equity method of accounting, and was the only
operation recorded as an investment in Black Swan.
In
February, March and August 2005, the Company issued 6,000,000 (post forward
split shares) shares of restricted common stock for proceeds of
$600,000. These proceeds were used to fund portions of the cash call
for the oil and gas operation in Thailand.
Forward
Stock Split
- On October 14, 2004, Texhoma approved a 4:1 forward stock
split of its common stock. The forward stock split, which was
effected on November 9, 2004, increased Texhoma’s issued and outstanding shares
from 25,203,063 shares to 100,812,252 shares of common stock. The
Statements of Stockholders’ Equity was reclassified as of September 30, 2004 to
reflect the 4:1 forward stock split.
In
March
2006, our former Executive Chairman and Director, Frank Jacobs subscribed for
7,500,000 shares of our common stock at $0.04 per share, for aggregate
consideration of $300,000, which funds were immediately used by us in connection
with the Closing of the Kilrush Property (described below).
On
March 28, 2006, Texaurus closed the
purchase of certain interests from Structured Capital in exchange
for a) two million five hundred thousand dollars ($2,500,000) and b)
the issuance of 37,500,000 shares of our common stock at $0.04 per
share.
In
March
2006, the Company issued 1,062,500 warrants to purchase 1,062,500 shares at
$0.04 cents per share and expiring in five years. The warrants were
issued to Energy Capital Solutions in consideration for raising capital for
the
Company. In addition, up to 10,625,000 warrants to purchase Texhoma
common stock at $0.04 per share, expiring in five years, as well as 961 warrants
at $0.001 per share to purchase common shares of Texaurus Energy, Inc., a wholly
owned subsidiary of Texhoma, at any time following Texhoma’s repayment of all
obligations were issued to Laurus Master Fund Ltd.
On
April
10, 2006, Texhoma Energy, Inc. (the "Company") entered into a Debt Conversion
Agreement with Lucayan Oil and Gas Investments, Ltd., a Bahamas corporation,
formerly Devon Energy Thai Holdings, Ltd. ("LOGI"). The Company and
LOGI agreed to convert $160,000 of the $895,000 which LOGI was owed into an
aggregate of 4,000,000 shares (or one (1) share for each $0.04 of debt
converted) of newly issued shares of the Company's restricted common stock.
The
Director and 50% owner of LOGI is Max Maxwell, who became a Director of the
Company on April 10, 2006, President of the Company on April 12, 2006, and
Chief
Executive Officer of the Company on June 5, 2006, and resigned as President,
Chief Executive Officer and Director on May 1, 2007.
On
May
15, 2006, Lucayan Oil and Gas Investments, Ltd. ("LOGI") provided the Company
notice of its desire to convert its $735,000 Promissory Note into 18,375,000
shares of the Company's common stock. The Company's Board of Directors approved
such issuance on May 18, 2006.
In
June
2006, the Company accepted subscriptions for 3,175,000 shares of its common
stock at $0.08 share for $254,000 in cash. The Company also granted
warrants to purchase 3,175,000 shares at $0.15 per share expiring in one
year.
In
June
2006, the Company accepted subscriptions for 1,000,000 shares of our common
stock at $0.08 per share for $80,000 in cash and the Company also granted
warrants to purchase 1,000,000 shares with an exercise price of $0.15 per
share expiring in one year.
In
conjunction with the acquisition of three of the Sunray properties, we issued
375,000 shares of common stock and granted warrants to purchase 375,000 shares
at an exercise price of $0.15 per share expiring in one year.
In
July
2006 the Company accepted subscriptions for 1,000,000 shares of our common
stock
at $0.08 per share for $80,000 in cash and the Company also granted warrants
to
purchase 1,000,000 shares with an exercise price of $0.15 per share
expiring in one year.
In
September, 2006 the Company accepted subscriptions for 625,000 shares of our
common stock at $0.08 per share for $50,000 and the Company also granted
warrants to purchase 625,000 shares with an exercise price of $0.15 per
share expiring in one year.
On
September 19, 2006, Mr. Brian Alexander decided not to seek re-election as
a
director of the Company and as a result, In connection with monies we owed
Mr.
Alexander in director and consulting fees, 300,000 shares of restricted common
stock were issued to Mr. Alexander in lieu of cash.
5. STOCK
OPTIONS
On
June
1, 2006, the Company's Board of Directors approved the grant of an aggregate
of
10,000,000 options to the Company's then officers, Directors and employees,
pursuant to the Company's 2006 Stock Incentive Plan (the "Plan"). All of the
options were at an exercise price of $0.13 per share, which was equal to the
average of the highest ($0.125) and lowest ($0.111) quoted selling prices of
the
Company's common stock on June 1, 2006, multiplied by 110%. The options were
granted to the following individuals in the following amounts:
|
|
o
|
Max
Maxwell, our former president and Director was granted 750,000 qualified
options and 3,250,000 non-qualified options (for 4,000,000 total
options),
which options were to vest at the rate of 500,000 options every three
months, with the qualified options to vest first, in consideration
for
services to be rendered to the Company as the Company's president
and
Director. The options were to expire if unexercised on June 1, 2009,
or at
the expiration of three months from the date of the termination of
his
employment with the Company. All of Mr. Maxwell’s options have
since expired unexercised;
|
|
|
o
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Frank
Jacobs, our former Director was granted 4,000,000 non-qualified options,
which options were to vest at the rate of 500,000 options every three
months, in consideration for services to be rendered to the Company
as the
Company's Director. The options were to expire if unexercised on
June 1,
2009, or at the expiration of three months from the date of the
termination of his employment with the Company. Mr. Jacobs
resigned from the Company effective June 14, 2007, and as such all
2,000,000 of his vested options expired unexercised on September
14,
2007;
|
|
|
o
|
Brian
Alexander, our former Chief Financial Officer and Director was granted
1,000,000 non-qualified options, which options vested upon Mr. Alexander's
execution of a deed of release and settlement between Mr. Alexander
and
the Company in connection with his resignation from his positions
as the
Company's Chief Financial Officer and Director. The options expired
unexercised on July 1, 2007; and
|
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|
o
|
Mr.
Terje Reiersen then working as a consultant to the Company was granted
1,000,000 non-qualified options, which options were to vest at the
rate of
250,000 options every three months, in consideration for consulting
services to be rendered to the Company in connection with corporate
advice
in relation to a secondary listing amongst other things. The options
were
to expire if unexercised on June 1, 2009, or at the expiration of
three
months from the date of the termination of his employment with the
Company. All of Mr. Reiersen’s options have since expired
unexercised.
|
Additionally,
on June 1, 2006, the Board of Directors approved the issuance of 2,000,000
options to another consultant to the Company in consideration for investor
relations services rendered to the Company. The options granted to the
consultant were not granted pursuant to the Plan. The options have an exercise
price of $0.13 per share, vest at a rate of 250,000 options every three months
and expire if unexercised on June 1, 2009.
The
following is a summary of the option activity during the year ended September
30, 2006:
|
|
|
Number
|
|
|
Average
|
|
|
|
|
Of
|
|
|
Exercise
|
|
|
|
|
Options
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at October 1, 2005
|
|
|
-
|
|
|
|
-
|
|
|
Granted
|
|
|
12,000,000
|
|
|
$
|
0.13
|
|
|
Balance
at September 30, 2006
|
|
|
12,000,000
|
|
|
$
|
0.13
|
|
Compensation
costs associated with the issuance of options to purchase shares of common
stock
to employees, directors or consultants is measured at fair value at the date
of
issuance based upon the options vested and expensed during the current
period.
During
the third quarter, we granted a total of 12,000,000 options to
purchase shares at $0.13 per share to our employees, directors and consultants
2,000,000 of which had a term of three years, and 10,000,000 of which had a
term
of the earlier of (a) three years, or (b) three months from the date of such
employees and directors termination of employment with the Company. As
of September 30, 2006, 2,500,000 of the options were
vested. Based on our knowledge as of the date of this filing, we have applied
a
forfeiture rate of 90% to the vested options. We accrued
$12,964 in expense for options in our current financial statements. The trading
price of our stock was $0.09 per share on September 30, 2006. The
Black-Scholes option model with the following assumptions: weighted
average risk-free interest rate of 4.25%, estimated volatility of 127%,
weighted-average expected life of two years and no expected dividend yield,
resulted in a fair value per option of $0.0518.
6. ACQUISITIONS
On
November 5, 2004, the Board of Directors completed the agreement with Capersia
Pte. Ltd. to acquire a 40% interest of Black Swan Petroleum Pty. Ltd. (“Black
Swan”) for 14,000,000 new investment shares (56,000,000 shares subsequent to the
forward split explained above) of Texhoma common stock. As previously
described above, Texhoma recorded the value of this acquisition at $464,441,
and
the Company has since disposed of its interest in Black Swan.
On
or
about December 10, 2005, the Company entered into a 6% participation agreement
with the "Clovelly Joint Venture.” On February 2, 2006, we executed a
Sale and Purchase Agreement (the “Clovelly SPA”) with Sterling Grant Capital,
Inc. pursuant to which we acquired a further 5% (five percent) working interest
in the Clovelly South prospect located in Lafourche Parish,
Louisiana. We funded Clovelly SPA through a Joint Operating
Agreement, the issuance to Sterling Grant of 2,000,000 shares of Company common
stock and payment of $15,000.
On March 15, 2006, Texhoma’s
wholly-owned subsidiary, Texaurus Energy, Inc., which was
formed in March 2006
as a Delaware corporation ("Texaurus"), entered into a
Sales and Purchase Agreement with Structured Capital
Corp., a Texas corporation to purchase certain oil and gas leases in Vermillion
Parish, Louisiana, which represent a 10%
working interest (7.3% net revenue interest) in such leases. The
agreed purchase price of the Little White Lake Property was a) two million
five
hundred thousand dollars ($2,500,000) and b) the issuance of 37,500,000 shares
of our common stock. This purchase had an effective date of April 1,
2006.
On
March 28, 2006, with an effective
date of January 1, 2006, Texaurus closed a Sales &
Purchase Agreement to purchase certain interests from Kilrush
Petroleum, Inc. in Allen Parish, Louisiana and Calcasieu Parish,
Louisiana, for
aggregate consideration of $5,225,000. Texaurus
paid the $5,225,000 purchase price with proceeds received from its sale of
the
Secured Term Note with Laurus Master Fund, Ltd. (“Laurus”).
On
March
28, 2006 Texaurus entered into a Securities Purchase Agreement and a
Registration Rights Agreement, issued a Common Stock Purchase Warrant;
entered into a Master Security Agreement with Laurus; and sold Laurus a
Secured Term Note in the amount of $8,500,000 as well as
various other agreements. Additionally, in connection with the
closing, we issued Laurus Common Stock Purchase Warrants to purchase up to
10,625,000 shares of Texhoma common stock and up to 49% of Texaurus’ common
stock.
In
March
2006, the Company issued 1,062,500 warrants to purchase 1,062,500 shares at
$0.04 cents per share and expiring in five years. The warrants were
issued to Energy Capital Solutions for raising capital for the
Company.
A
Letter
of Intent was executed by Texhoma on April 28, 2006, agreeing to participate
in
a 25% working interest in the exploration of the Bayou Choctaw oil and gas
project, located in Iberville Parish, Louisiana. In July 2006, Texhoma
executed a new Letter of Intent increasing its agreement of participation to
41.667% in the project. Texhoma identified that the exposure
was in excess of its corporate guidelines and assigned its right to the interest
to Morgan Creek Energy Corp. in exchange for $250,000 and 200,000 shares of
Morgan Creek Energy.
On
May
31, 2006, Texhoma entered into six (6) participation agreements to purchase
various oil and gas leases from Sunray Operating Company LLC (“Sunray”). In June
and August 2006, Texhoma closed the purchase of three (3) of the participation
agreements, entering into Assignments and Bill of Sales for purchase from Sunray
the following Leases:
|
|
|
Leases
covering approximately 196 acres of land in Brazoria County, Texas.
In the
purchase, Texhoma
acquired an undivided 37.5% interest, subject to existing overriding
royalty interests equal to 25% of 8/8. Additionally, Sunray is
entitled to a five-eighth of eight-eighths (62.5% of 8/8) working
interest, proportionally reduced at
payout.
|
|
|
|
Leases
covering approximately 20 acres of land in Brazoria County, Texas.
In the
purchase, Texhoma acquired an undivided 35% interest in the leases,
subject to existing overriding royalty interests equal to 25% of
8/8.
|
|
|
|
Leases
covering approximately 280 acres of land in Brazoria County, Texas.
In the
purchase, Texhoma acquired an undivided 72.5% interest in the leases,
subject to existing overriding royalty interests equal to 28% of
8/8.
Texhoma simultaneously sold a 42.5% interest leaving a 30%
interest.
|
|
|
|
Texhoma
declined to participate in the purchase of the leases covering
approximately 80 acres in Brazoria County. In September 2006, this
well
was a dry hole and participation in subsequent wells was
declined. However, Texhoma continues to hold a 12.5% back in
Working Interest.
|
|
|
|
Two
leases for another 160 acre site and a 60 acre site which were
subsequently declined by Texhoma, retaining a 12.5% back in Working
Interest.
|
In
conjunction with the acquisition of three of the Sunray properties, we issued
375,000 shares of common stock and granted warrants to purchase 375,000 shares
of common stock at an exercise price of $0.15 per share expiring in one
year. Subsequent to the acquisition of the Sunray properties, we
executed an agreement to sell a percentage of our working interest in the
properties to Matrixx, thereby reducing our cash investment and liability for
future cash calls. Additionally, we agreed to pay Sunray $113,161 in
cash, of which $50,624 remained outstanding as of October 31, 2007.
In
September 2006, drilling on the properties acquired in the Sunray agreement
proved to be unsuccessful and the investment was retired.
7.
RELATED PARTIES
Texhoma,
Black Swan, and Black Swan Thai had management and directors in common with
its
shareholders. At the end of 2004, Mr. Frank Jacobs was a director and the CEO
of
Black Swan and Black Swan Thai and on January 25, 2005 became a director and
the
CEO of Texhoma Energy, Inc., and has subsequently resigned. Mr. Brian
Alexander was the CFO of Black Swan and Black Swan Thai as well as a director
and the CFO of Texhoma; however Mr. Alexander has subsequently
resigned.
On
October 1, 2003 the Company had approximately $7,300 of outstanding advances
payable to Henry Rolling, a former officer. On September 30, 2004 the
Company received further advances of $431,000 from Mr. Rolling and subsequently
issued 5,177,488 shares of its common stock for the settlement of $350,000
of
advances payable.
During
the three months ended December 31, 2004, $161,700 of debt was settled by the
issuance of 6,336,256 post split shares of common stock, which left an
approximately $18,000 consulting fee outstanding payable to a former director
of
Texhoma, which amount has subsequently been written off.
On
December 7, 2004, the Company borrowed $50,000 from a related party, MFS
Technology. The loan is evidenced by a convertible promissory note, see
Note 8 for additional information.
On
or
about December 10, 2005, the Company entered into a 6% participation agreement
with the "Clovelly Joint Venture," of which ORX Resources, Inc. is the Operator.
Our former President and Director Max Maxwell served as Vice President of the
Operator at the time we entered into the participation agreement. On
February 14, 2006 the Company increased its working interest to 11% through
the
purchase of a further 5% working interest in this property from Sterling
Grant. We funded this additional interest through a Joint Operating
Agreement, issuance to Sterling Grant of 2,000,000 shares of Texhoma common
stock at $0.04 per share and payment of $15,000.
On March 24,
2006, Mr. Jacobs, the Company’s former Chief Executive Officer, subscribed for
7,500,000 shares of the Company's common stock at $0.04 per share,
for an aggregate consideration of $300,000, which funds were immediately used
by
the Company as a portion of the consideration
paid by the Company for the purchase of certain oil and gas interests from
Kilrush Petroleum, Inc., located in Allen
Parish, Louisiana and Calcasieu Parish, Louisiana.
On
April
10, 2006, Texhoma entered into a $735,000 Debt Conversion Agreement with Lucayan
Oil and Gas Investments, Ltd., a Bahamas corporation ("LOGI"). Texhoma
owed $895,000 to LOGI as of the date of
the Debt Conversion Agreement in
connection with money advanced to the Company
in March 2005 for the fulfillment of a portion of the cash call
commitments for the drilling by Black Swan Thai. Pursuant to the Debt
Conversion Agreement, the Company and LOGI agreed to convert
$160,000 of the $895,000
of which LOGI was owed into an aggregate of 4,000,000
shares (or one (1) share for each
$0.04 of debt converted) of newly issued
shares
of
the Company's restricted common stock. Mr. Max Maxwell, our former President
is
a 50% owner of LOGI.
On May 15, 2006,
LOGI provided the Company notice of its desire
to convert its $735,000 Promissory Note, which amount remained from LOGI’s Debt
Conversion Agreement entered into with Texhoma in April 2006, into
18,375,000 shares of the Company's common stock and as a
result of such conversion, which shares were subsequently issued to
LOGI.
On June 1, 2006,
the Company's Board of Directors approved the issuance of an
aggregate of 10,000,000 options to the Company's officers, directors
and
employees, pursuant to the Company's
2006 Stock Incentive Plan and an additional 2,000,000 options for a
consultant. All options expire if unexercised on June 1, 2009, or
three (3) months from the date of the termination of employment with the
Company.
All
options were issued at an exercise price of $0.13 per share, which was equal
to
the average of the highest ($0.125) and lowest ($0.111) quoted selling prices
of
the Company’s common stock on June 1, 2006, multiplied by
110%. Options of 4,000,000 were granted to Max Maxwell and Frank
Jacobs, and options of 1,000,000 were granted to Brian Alexander, and Terje
Reiersen. On June 7, 2006, the Board of Directors approved the grant
of an additional 1,000,000 options to Peter Wilson, which amount was later
amended to include 2,000,000 options, which expire if unexercised on June 1,
2009.
On
September 19, 2006, Mr. Brian Alexander decided not to seek re-election as
a
director of the Company due to other business and work
commitments. In connection with monies we owed Mr. Alexander in
director and consulting fees, 300,000 shares of restricted common stock were
issued to Mr. Alexander in lieu of cash. In addition Mr. Alexander’s
vesting was accelerated such that his options were fully vested with a new
expiration date of June 1, 2007. Mr. Alexander and the Company
executed a letter of Mutual Release when Mr. Alexander resigned as an officer
and director of the Company on September 27, 2006. Mr.
Alexander did not exercise his option rights and those options expired on June
1, 2007.
In
March
2007, Capersia Pte. Ltd. transferred 10,000,000 of its shares of Texhoma stock
to Pacific Spinner Ltd.
Mr.
Maxwell resigned from the Company on May 1, 2007, did not exercise any of his
option rights and as a result all option grants expired on August 1,
2007. Frank Jacobs resigned on June 14, 2007 and his options expired
unexercised on September 14, 2007.
In
June
2007, Valeska Energy Corp. entered into a management agreement with Texhoma
for
a minimum period of three months. Mr. William Simmons is the Chief
Executive Officer of Valeska. In exchange for these services, Valeska
was issued 15,200,000 shares of Texhoma’s stock as payment and
retainer. On June 8, 2007, Capersia transferred 1,000,000 shares of
Texhoma stock to Mr. William Simmons and 1,000,000 shares to Valeska Energy,
Corp.
In
July
2007, 500,000 shares were issued to Mr. Ibrahim Nafi Onat in consideration
for
his entry into a consulting agreement with us.
On
or
about August 13, 2007, we entered into a Second Amendment to Management Services
Agreement with Valeska Energy Corp. (“Valeska” and the “Second
Amendment”).
Pursuant
to the Second Amendment, we and Valeska agreed to extend the term of the
Management Services Agreement until September 30, 2008, and to pay Valeska
the
following consideration in connection with agreeing to perform the services
required by the original Management Services Agreement, and in consideration
for
allowing Daniel Vesco and William M. Simmons to serve as Directors of the
Company, bringing on personnel to assist the Company with the day to day
operations of the Company, and helping bring the Company current in its filings
(the “Services”):
|
|
|
1,000
shares of the Company’s Series A Preferred
Stock;
|
|
|
|
A
monthly fee of $20,000 per month during the extended term of the
Second
Amendment, plus reasonable and actual costs incurred by Valeska (or
individuals or designees brought on by Valeska, including lodging,
car
rental and telephone expenses therewith) in connection with such
Services;
|
|
|
|
10,000,000
restricted shares of the Company’s common stock; and
|
|
|
|
60,000,000
options to purchase shares of the Company’s common stock, which shall have
a cashless exercise provision, shall be valid for a period of three
years
from their grant date, and had an exercise price of $0.02 per share,
equal
to greater than 110% of the trading price of the Company’s common stock on
the Pinksheets on the day of such
grant.
|
All
of
the above transactions may have been entered into at terms which may not have
been available to unrelated parties.
8. NOTES
PAYABLE AND CONVERTIBLE LOANS
On
December 7, 2004, the Company borrowed $50,000 from a related
party. The loan is evidenced by a convertible promissory
note. The loan bears interest at 5% per annum calculated 6 months
after the advancement of funds. $25,000 was due on June 7, 2005 and
the remaining balance, plus interest was due on December 7, 2005. The
loan has not been repaid, extended or converted. The lender has the option
during the term of the loan, and any extension, to convert the principle and
interest into shares of common stock at a conversion price of $0.30 per
shares.
As
discussed earlier, in March 2005, the Company received $895,000 from LOGI to
fund Black Swan Thailand oil and gas exploration. This loan was later
converted into 22,375,000 shares of common stock in accordance with the
agreement between the Company and LOGI (See Related Party).
The
Laurus Master Fund, Ltd (“Laurus”) note accrues interest at the Prime Rate plus
two percent (2.0%) as published in The Wall Street Journal, but shall not at
any
time be less than eight percent (8.0%). Payments of accrued interest
and principal equal eighty (80%) of the Net Revenue paid to Texaurus in respect
of oil, gas and/or other hydrocarbon production in which Texaurus has an
interest and each payment is applied first to accrued interest due and then
to
the principal balance of the note.
In
conjunction with the purchase of the Little White Lake oil and gas property,
we
executed a short term note payable with Polaris Capital in the amount of
$2,500,000 to be repaid through the funding provided by Laurus. The
note was repaid in April 2006 from the funds received from Laurus.
On
April
10, 2006, Texhoma Energy, Inc. (the "Company") entered into a Debt Conversion
Agreement with Lucayan Oil and Gas Investments, Ltd., a Bahamas corporation,
formerly Devon Energy Thai Holdings, Ltd. ("LOGI"). The Company owed $895,000
to
LOGI as of the date of the Debt Conversion Agreement in connection with money
received by the Company for the drilling in Thailand in March 2005, which debt
was transferred by Fidelio Business, S.A. and Quick Assets and Cash Corp. (Bank
Sal Oppenheim) to LOGI in November 2005. Pursuant to the Debt Conversion
Agreement, the Company and LOGI agreed to convert $160,000 of the $895,000
which
LOGI was owed into an aggregate of 4,000,000 shares (or one (1) share for each
$0.04 of debt converted) of newly issued shares of the Company's restricted
common stock. The Director and 50% owner of LOGI is Max Maxwell, who became
a
Director of the Company on April 10, 2006, President of the Company on April
12,
2006, and Chief Executive Officer of the Company on June 5, 2006, and resigned
as President, Chief Executive Officer and Director on May 1, 2007.
On
April
10, 2006, the Company entered into a convertible note with LOGI evidencing
the
$735,000 of debt which remained outstanding. The convertible note provided
that
LOGI could convert the $735,000 debt into Company common stock at the rate
of
one share of common stock for each $0.04 of outstanding debt. In
May 2006, LOGI converted the $735,000 remaining under the
Promissory Note into 18,375,000 shares of the Company's common
stock.
9. NET
LOSS PER SHARE
Restricted
shares and warrants are included in the computation of the weighted average
number of shares outstanding during the periods presented. The net
loss per common share is calculated by dividing the consolidated loss by the
weighted average number of shares outstanding during the
periods. Because we report net losses, the inclusion of options and
warrants in the calculation would be anti-dilutive, and they are excluded from
the computation presented in the financial statements.
10. WARRANTS
The
following is a summary of the warrant activity during the year ended September
30, 2006:
|
|
|
|
|
|
Weighted
|
|
|
|
|
Number
|
|
|
Average
|
|
|
|
|
Of
|
|
|
Exercise
|
|
|
|
|
Warrants
|
|
|
Price
|
|
|
|
|
|
|
|
|
|
|
Outstanding,
October 1, 2005
|
|
-
|
|
|
-
|
|
|
Granted
|
|
|
11,687,500
|
|
|
$
|
0.04
|
|
|
Granted
|
|
|
5,175,000
|
|
|
$
|
0.15
|
|
|
Outstanding
at September 30, 2006
|
|
|
16,862,500
|
|
|
$
|
0.074
|
|
Costs
attributable to the issuance of share purchase warrants are measured at fair
value at the date of issuance and expensed with a corresponding increase to
additional Paid-in-Capital at the time of issuance. When the warrant
is exercised, the receipt of consideration is an increase in common share
capital and Paid-in-Capital.
During
the year, we granted 4,800,000 warrants in conjunction with subscriptions of
our
common stock,. Another 375,000 warrants were granted as part of the
consideration given for the Sunray purchase. Additionally, a total of
11,687,500 warrants were granted to Laurus and related parties in conjunction
with the $8,500,000 funding to further our oil and gas property
acquisitions.
The
trading price of our stock was $0.09 per share on September 30,
2006. Warrants were originally issued at $0.04 and $0.15 per share
with a weighted average price of $0.074 per share. The Black-Scholes
option model with the following assumptions: weighted average
risk-free interest rate of 4.25%, estimated volatility of 127%, weighted-average
expected life of 3.1 years and no expected dividend yield, resulted in a fair
value per warrant of $0.0701.
The
fair
value of the warrants granted and vested during the year, based upon the
Black-Scholes option pricing model was $1,165,211 and as such we reflected
the
expense incurred in our current financial statements.
The
earnings per share presentation reflects only the weighted average loss per
share, because including the warrants when a loss is being reported has an
anti-dilutive effect on earnings (loss) per share calculations.
11.
COMMITMENTS AND CONTINGENCIES
As
discussed previously, management wound down Black Swan’s operations in Thailand
and Australia after unsuccessful drilling in the Concession. A
determination has not been made as to the financial or legal consequence to
Texhoma or its officers or its shareholders, for subsequent obligations, if
any,
to persons or governmental entities which may arise from doing business or
owning or leasing property in Thailand and Australia.
12. SUPPLEMENTAL
OIL AND GAS INFORMATION (UNAUDITED)
The
following supplemental information regarding the oil and gas activities of
Texhoma Energy, Inc. is presented pursuant to the disclosure requirements
promulgated by the SEC and Statement of Financial Standards (“SFAS”) No. 69,
Disclosures About Oil and Gas Producing Activities.
The
following estimates of reserve quantities and related standardized measure
of
discounted net cash flows are estimates only, and are not intended to reflect
realizable values or fair market values of the Texhoma’s reserves. Texhoma
emphasizes that reserve estimates are inherently imprecise and that estimates
of
new discoveries are more imprecise than producing oil and gas properties.
Additionally, the price of oil has been very volatile and downward changes
in
prices can significantly affect quantities that are economically recoverable.
Accordingly, these estimates are expected to change as future information
becomes available and these changes may be significant.
Proved
reserves are estimated reserves of crude oil and natural gas that 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 reserves are those expected to be recovered through
existing wells, equipment and operating methods.
The
standardized measure of discounted future net cash flows is computed by applying
year-end prices of oil and gas (with consideration of price changes only to
the
extent provided by contractual arrangements) to the estimated future production
of proved oil and gas reserves, less estimated future expenditures (based on
a
year-end costs) to be incurred in developing and producing the proved reserves,
less estimated future income tax expenses. The estimated future net cash flows
are then discounted using a rate of 10% per year to reflect the estimated timing
of the future cash flows.
Capitalized
Costs Related to Oil and Gas Activities
Aggregate
capitalized costs at September 30, 2006 relating to Texhoma's crude oil and
natural gas producing activities, including asset retirement costs and related
accumulated DD&A are shown below:
|
Unproved
properties
|
|
$
|
-
|
|
|
Proved
properties
|
|
|
9,318,395
|
|
|
Less
accumulated DD&A and impairment reserve
|
|
|
3,983,768
|
|
|
|
|
|
|
|
|
Net
capitalized costs
|
|
$
|
5,334,627
|
|
Costs
Incurred in Oil and Gas Activities
Costs
incurred in connection with Texhoma's crude oil and natural gas acquisition,
exploration and development activities are shown below:
|
September
30, 2006
|
|
|
|
|
|
|
|
|
|
Property
acquisition
|
|
|
|
|
Unproved
|
|
$
|
-
|
|
|
Proved
|
|
|
9,318,395
|
|
|
Exploration
|
|
|
916,000
|
|
|
Development
|
|
|
-
|
|
|
|
|
|
|
|
|
Total
costs incurred
|
|
$
|
10,234,395
|
|
|
September
30, 2005
|
|
|
|
|
|
|
|
|
|
Property
acquisition
|
|
|
|
|
Unproved
|
|
$
|
-
|
|
|
Proved
|
|
|
-
|
|
|
Exploration
|
|
|
1,709,234
|
|
|
Development
|
|
|
-
|
|
|
|
|
|
|
|
|
Total
costs incurred
|
|
$
|
1,709,234
|
|
Results
of Operations for Producing Activities
The
following schedule includes only the revenues from the production and sale
of
gas, oil, condensate and Natural Gas Liquids (“NGLs”). The income tax expense is
calculated by applying the current statutory tax rates to the revenues after
deducting costs, which include Depletion, Depreciation & Amortization
(“DD&A”) allowances, after giving effect to permanent differences. Due to
significant net operating loss carryforwards related to producing activities,
income taxes have not been provided at September 30, 2006. The results of
operations exclude general office overhead and interest expense attributable
to
oil and gas activities.
|
|
|
2006
|
|
|
2005
|
|
|
Net
revenue from production
|
|
$
|
2,258,425
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Production
costs
|
|
|
1,321,119
|
|
|
|
-
|
|
|
DD&A
|
|
|
1,301,574
|
|
|
|
-
|
|
|
Impairment
reserve
|
|
|
2,682,194
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
costs
|
|
|
5,304,887
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
before income tax
|
|
|
(3,046,462
|
)
|
|
|
(-
|
)
|
|
|
|
|
|
|
|
|
|
|
|
DD&A
rate per Barrel of Oil Equivalency “BOE”
|
|
|
4.18
|
|
|
|
n/a
|
|
|
|
|
|
|
|
|
|
|
|
|
DD&A
and impairment rate per BOE
|
|
|
12.79
|
|
|
|
n/a
|
|
Proved
Reserves
The
following reserve schedule summarizes Texhoma's net ownership interests in
estimated quantities of proved oil reserves and changes in proved reserves,
all
of which are located in the continental United States. Reserve estimates for
crude oil contained below were prepared by RA Lenser & Associates, Inc.,
independent petroleum engineers.
|
Proved
reserves:
|
|
Equivalent
bbls
|
|
|
Balance
- September 30, 2005
|
|
|
-
|
|
|
Revisions
of previous estimates
|
|
|
-
|
|
|
Purchases
of minerals in place
|
|
|
311,558
|
|
|
Extensions,
discoveries and other additions
|
|
|
-
|
|
|
Production
|
|
|
(27,750
|
)
|
|
|
|
|
|
|
|
Balance,
September 30, 2006
|
|
|
283,808
|
|
Standardized
Measure of Discounted Future Net Cash Flows
The
following table presents the standardized measure of future net cash flows
from
proved oil reserves in accordance with SFAS No. 69. All components of the
standardized measure are from proved reserves, all of which are located within
the continent of the United States. As prescribed by this statement, the amounts
shown are based on prices and costs at September 30, 2006, and assume
continuation of existing economic conditions. Future income taxes are based
on
year-end statutory rates, adjusted for tax
credits
and carryforwards. A discount factor of 10 percent was used to reflect the
timing of future net cash flows. Extensive judgments are involved in estimating
the timing of production and the costs that will be incurred through the
remaining lives of the fields. Accordingly, the estimates of future net revenues
from proved reserves and the present value thereof may not be materially correct
when judged against actual subsequent results. Further, since prices and costs
do not remain static, and no price or cost changes have been considered, and
future production and development costs are estimated to be incurred in
developing and producing the estimated proved oil reserves, the results are
not
necessarily indicative of the fair market value of estimate proved reserves,
and
the results may not be comparable to estimates by other oil
producers.
|
Future
cash inflows
|
|
$
|
16,014,020
|
|
|
Future
production costs
|
|
|
(3,299,660
|
)
|
|
Future
development costs
|
|
|
(542,250
|
)
|
|
Future
income tax expenses
|
|
|
(-
|
)
|
|
|
|
|
|
|
|
Future
net cash flows
|
|
|
12,172,110
|
|
|
10%
annual discount for estimated timing of cash flows
|
|
|
3,486,959
|
|
|
|
|
|
|
|
|
Standardized
measure of discounted future cash flows
|
|
$
|
8,685,151
|
|
The
standardized measure of discounted future net cash flows as of September 30,
2006 was calculated using $62.91 per barrel of oil and $6.42 per thousand cubic
feet (“mcf”) of gas.
Sources
of Changes in Discounted Future Net Cash Flows
Principal
changes in the aggregate standardized measure of discounted future net cash
flows attributable to Texhoma's proved crude oil reserves, as required by SFAS
No. 69, at September 30, 2006 are set forth in the table below. There was
no production or proved reserves for the year ended September 30,
2005.
|
Standardized
measure of discounted future net cash flows
|
|
|
|
|
September
30, 2005
|
|
$
|
-
|
|
|
Purchases
of minerals in place
|
|
|
9,996,000
|
|
|
Changes
in estimated future development costs
|
|
|
(81,000
|
)
|
|
Sales
of oil and gas, net of production
|
|
|
(937,000
|
)
|
|
Revisions
of previous quantity estimates
|
|
|
(615,000
|
)
|
|
Accretion
of discount, other
|
|
|
337,000
|
|
|
Standardized
measure of discounted future net cash flows
|
|
|
|
|
|
September
30, 2006
|
|
$
|
8,685,000
|
|
13.
SUBSEQUENT EVENTS
On
October 10, 2006, ORX Resources, Inc., operator of the Clovelly Prospect well,
notified Texhoma that the jointly owned well had been plugged and abandoned
on
September 23, 2006.
On
or
about October 19, 2006, we issued a Promissory Note to Mr. Frank Jacobs, our
then Director, in the amount of $493,643.77, which amount represented funds
advanced to the Company by Mr. Jacobs during the 2006 calendar year and
management fees owed to Mr. Jacobs for his services to the Company during the
2006 calendar year (the “Jacobs' Note”). The Jacobs' Note bears interest at the
rate of 6% per annum until paid, and is payable by the Company at any time
on
demand. The Jacobs' Note may be pre-paid at any time without penalty. Any
amounts not paid on the Jacobs' Note when due shall bear interest at the rate
of
15% per annum.
On
or
about June 5, 2007, we entered into an Agreement with Jacobs Oil & Gas
Limited (“Jacobs”), pursuant to which Jacobs agreed that no interest would be
due from us and/or accrue on the principal or accrued interest to date on his
outstanding Promissory Note for the period of one (1) year from the date of
the
Agreement and that he would not try to collect the principal and/or accrued
interest on such note for a period of one (1) year.
The
Company also entered into a Security Agreement with Mr. Jacobs pursuant to
which
the Company assigned 200,000 shares of the common stock of Morgan Creek Energy
Corp., which shares were held by the Company, to Mr. Jacobs as security for
the
money that is owed to Mr. Jacobs under the Jacobs' Note.
In
March
2007, Capersia Pte. Ltd. transferred 10,000,000 of its shares of Texhoma stock
to Pacific Spinner Ltd.
In
May
2007, 4,800,000 shares of our common stock, at $0.0125, were subscribed for
in
consideration for $60,000.
In
May
2007, Valeska Energy Corp. entered into a management agreement with Texhoma
for
a minimum period of three months. Mr. William Simmons is the Chief
Executive Officer of Valeska. In exchange for these services, Valeska
was issued 15,200,000 shares of Texhoma’s stock as payment and
retainer. On June 8, 2007, a Capersia transferred 1,000,000 shares of
Texhoma stock to Mr. William Simmons and 1,000,000 shares to Valeska Energy
Corp.
In
June
2007, 18,000,000 shares of our common stock were purchased at $0.0125
per share by Hobart Global Ltd., a British Virgin Islands corporation in
exchange for $225,000.
In
July
2007, additional shares of common stock were sold to Camecc A/S, a Norwegian
company for $12,500 or $0.0125 per share and another 500,000 shares were issued
to Mr. Ibrahim Nafi Onat in consideration for his entry into a Consulting
Agreement with us.
On
or
about August 13, 2007, we entered into a Second Amendment to Management Services
Agreement with Valeska Energy Corp. (“Valeska” and the “Second
Amendment”).
Pursuant
to the Second Amendment, we and Valeska agreed to extend the term of the
Management Services Agreement until September 30, 2008, and to pay Valeska
the
following consideration in connection with agreeing to perform the services
required by the original Management Services Agreement, and in consideration
for
allowing Daniel Vesco and William M. Simmons to serve as Directors of the
Company, bringing on personnel to assist the Company with the day to day
operations of the Company, and helping bring the Company current in its filings
(the “Services”):
|
|
|
1,000
shares of the Company’s Series A Preferred Stock;
|
|
|
|
A
monthly fee of $20,000 per month during the extended term of the
Second
Amendment, plus reasonable and actual costs incurred by Valeska (or
individuals or designees brought on by Valeska, including lodging,
car
rental and telephone expenses therewith) in connection with such
Services;
|
|
|
|
10,000,000
restricted shares of the Company’s common stock; and
|
|
|
|
60,000,000
options to purchase shares of the Company’s common stock, which shall have
a cashless exercise provision, shall be valid for a period of three
years
from their grant date, and had an exercise price of $0.02 per share
which
was greater than 110% of the trading price of the Company’s common stock
on the Pinksheets on the day of such
grant.
|
14.
GOING CONCERN ISSUES
We
cannot
provide any assurances that the Company will be able to secure sufficient funds
to satisfy the cash requirements for the next 12 months. The inability to secure
additional funds would have a material adverse effect on the
Company.
These
financial statements are presented on the basis that the Company will continue
as a going concern. Other than the previously disclosed
impairments, no adjustments have been made to these financial statements to
give
effect to valuation adjustments that may be necessary in the event the Company
is not able to continue as a going concern. The effect of those
adjustments, if any, could be substantial.
The
accompanying financial statements have been prepared in conformity with
accounting principles generally accepted in the United States of America which
contemplate continuation of the Company as a going concern. The
Company incurred net losses from operations of $5, 443,000 for the current
fiscal year and has incurred $12,817,000 in cumulative
losses. Further, the Company has inadequate working capital to
maintain or develop its operations, and is dependent upon funds from its
stockholders and third party financing.
These
factors raise substantial doubt about the ability of the Company to continue
as
a going concern. The financial statements do not include any
adjustments that might result from the outcome of these
uncertainties. There is no assurance that the Company will receive
the necessary loans required to funds its exploration plans.
*
* * * *
* * * *