During the three months ended June 30, 2007 the Company had no royalty revenues from its working interest in the Strachan property as compared to $8,585 for the corresponding period ending June 30, 2006.
The Company’s Operator has indicated that completion and testing of the Strachan Leduc well will commence once all partners in the venture are fully paid. The Company has paid all authorizations for expenditure that were presented by the Operator on this project. All the Company’s properties are geologically and physically independent of one another. They are all located in the Western Canadian Geologic Basin centred in Alberta, Canada.
The Strachan Property
On August 20, 2003, the Company entered into a purchase agreement to acquire 1% interest in a producing gas well, located at 2-2-38-9W5 Red Deer, Alberta, Canada. The gas production rate at the time of the acquisition fluctuated between 1.5 and 2 MMCF/Day (million cubic feet of gas per day). The Company’s senior management has
set out a rework program for this well. The rework program calls for an acid wash and acid stimulation of the producing formation. The Company has agreed to participate in the program. The program was completed on October 15, 2003 and as of October 20, 2003, the new production rates have stabilized at 2.66 MMCF/Day, representing a 40% increase over initial production rates.
In addition to the preceding acquisition, the Company entered into a purchase agreement to acquire 0.5% interest in 10 Sections (6,400 acres) of drilling rights offsetting Sct. 22-38-9W-5. These offsetting sections have identified seismic anomalies in multiple cretaceous pay zones. The purchase price of the property was $45,114
The Strachan Property – Leduc region
On September 23, 2005 Turner Valley Oil and Gas Inc. through its wholly owned subsidiary TV Oil and Gas Canada Limited, has entered into a farm-out agreement with Odin Capital Inc. of Calgary, Alberta.
The terms of the Farm-Out agreement are as follows:
In exchange for our paying 3.00% of all costs associated with drilling, testing and completing the test well (expected drilling cost – approx. $6.3 million Canadian to the 100% interest) on the property that is referred to as the Leduc Formation test well, we will have earned;
| 1) | In the spacing unit for the Earning Well, a 1.500% interest in the petroleum and natural gas below the base of the Mannville excluding natural gas in the Leduc formation, and a 3.00% interest in the natural gas in the Leduc formation before payout subject to payment of an Overriding Royalty which is convertible upon payout at the Royalty Owners option to 50% of our interest. |
| 2) | A 1.200% interest in the rights below the base line of the Shunda formation in Section 10,Township 38, Range 9W5M |
| 3) | A 0.966% interest in the rights below the base of the Shunda formation in sections 15 & 16,Township 38,Range 9W5M, down to the base of the deepest formation penetrated. |
On July 6th, 2006, the Company purchased an additional 2% from its Chairman & CEO for a total cost of $190,882. This transaction was completed on a dollar paid for dollar spent.
Additionally, the Company incurred $44,405 of further costs associated with the exploration of the well during the quarter.
The total costs are to date are $525,544 for our interest, under the terms of our agreement.
The Strachan Prospect is located 80 miles NW of Calgary, Alberta.
Mississippi Prospect
On August 23rd, 2006, the Company entered into a joint venture agreement with Griffin & Griffin Exploration, LLC. to acquire an interest in a drilling program comprising 50 natural gas and/or oil wells. The area in which the proposed wells are to be drilled is comprised of approximately 300,000 gross acres of land located between Southwest Mississippi and North East Louisiana. The proposed wells will be targeting the Frio and Wilcox Geological formations. The first 20 proposed wells are located within tie-in range of existing pipeline infrastructures. TurnerValley has agreed to pay 10% of all prospect fees, mineral leases, surface leases and drilling and completion costs to earn a net 8% share of all production zones to the base of the Frio formation and 7.5% of all production to the base of the Wilcox formation. Total Costs to date are $400,000.
After evaluating the Company’s future interest in this project, the Company has decided to assign all of its working interest to third parties for $400,000. From the outset, the Company’s intention was to fully participate in this project; however, the diminution in value of the Company’s investment in Win Energy determined that the Company could not continue in the Mississippi project.
General & Administrative Costs
General and administrative costs for the three months ended June 30, 2007 increased to $65,238, when compared to $44,036. The increase was caused by costs relating to rent and telephone expenditures for the period. The total costs including depletion for the three months ended June 30, 2007 was $67,825.
Net Loss for the three months ended June 30, 2007 was $(55,201) as compared to a Net Income of $199,824 for the corresponding period ending June 30, 2006. The increase in Net Loss was caused by the decrease in the Company’s investment in Win Energy Corp. (‘WIN”).
Liquidity
The Company’s net working capital deficit for the quarter ended June 30, 2007 increased to $(434,069), from a deficit for the year ended December 31, 2006 of $(418,555). The increase in working capital deficit was caused by increases in general overhead and the diminution in the value of its investment in Win Energy.
To date, we have not invested in derivative securities or any other financial instruments that involve a high level of complexity or risk. We expect that in the future, any excess cash will continue to be invested in high credit quality, interest-bearing securities.
We believe cash from operating activities, and our existing cash resources may not be sufficient to meet our working capital requirements for the next 12 months. We will likely require additional funds to support the Company’s business plan. Management intends to raise additional working capital through debt and equity financing. There canbe no assurance that additional financing will be available on acceptable terms, if at all. If adequate funds are not available, we may be unable to take advantage of future opportunities, respond to competitive pressures, and may have to curtail operations.
There are no legal or practical restrictions on the ability to transfer funds between parent and subsidiary companies. There are no known trends or uncertainties excepting those herein disclosed, that will have a material impact on revenues.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Form 10-Q Report for the Second Quarter ended June 30, 2007, has been signed below by the following persons on behalf of the Registrant and in the capacity and on the date indicated.
