| SIGNIFICANT ACCOUNTING POLICIES | Basis of Presentation The financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US
GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Management’s
Estimates and Assumptions The preparation
of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities as of the balance sheet date, and revenues and expenses for the period then ended. Actual results
could differ significantly from those estimates. Oil and Gas
Property Payments and Exploration Costs The Company follows
the full cost method of accounting for natural gas and oil operations. Under the full cost method all costs incurred in the acquisition,
exploration and development of natural gas and oil interests are initially capitalized into cost centers on a country-by-country
basis. The Company’s current cost center is located in Canada. Such costs include land acquisition costs, geological and
geophysical expenditures, carrying charges on non-producing properties, costs of drilling and overhead charges directly related
to acquisition, exploration and development activities. Costs capitalized,
together with the costs of production equipment, are depleted and amortized on the unit-of-production method based on the estimated
net proved reserves, as determined by independent petroleum engineers. The accounting standards require that the average, first-day-of-the-month
price during the 12-month period before the end of the year rather than the year-end price, must be used when estimating whether
reserve quantities are economical to produce. This same 12-month average price is also used in calculating the aggregate amount
of (and changes in) future cash inflows related to the standardized measure of discounted future net cash flows. Costs of acquiring
and evaluating unproved properties are initially excluded from depletion calculations. These unproved properties are assessed
periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to
be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion calculations. Under full cost
accounting rules, capitalized costs, less accumulated amortization and related deferred income taxes, shall not exceed an amount
(the ceiling) equal to the sum of: (i) the after tax present value of estimated future net revenues computed by applying current
prices of oil and gas reserves to estimated future production of proved oil and gas reserves as of the date of the latest balance
sheet presented, less estimated future expenditures (based on currents costs) to be incurred in developing and producing any proved
reserves computed using a discount factor of ten percent and assuming continuation of existing economic conditions; (ii) the cost
of properties not being amortized; and (iii) the lower of cost or estimated fair value of unproved properties included in the
costs being amortized. If unamortized costs capitalized within a cost center, less related deferred income taxes, exceed the ceiling,
the excess shall be charged to expense and separately disclosed during the period in which the excess occurs. Amounts thus required
to be written off shall not be reinstated for any subsequent increase in the cost center ceiling. On an annual
basis management evaluates the carrying value of the Company’s leases and associated assets and assesses them for impairment,
considering historical experience and other data such as primary lease terms of the properties, average holding period of unproved
properties, geographic and geologic data, and also the commodity price forecast. As of December 31, 2016, the Company decided
to fully impair certain of its assets primarily relating to unproved leases and legacy wells for a total impairment of $7,831,570.
As of December 31, 2015, no impairment was recognized. Cash and Cash
Equivalents The Company considers
all highly liquid investments purchased with a maturity of 90 days or less to be cash equivalents. The Company maintains cash
and cash equivalent balances with financial institutions that may exceed federally insured limits. There were no cash equivalent
balances for the years ended December 31, 2016, 2015 or 2014. GST Receivables Goods and Services
Tax (GST) receivables are presented net of an allowance for doubtful accounts. Receivables consist of goods and services input
tax credits. The allowance for doubtful accounts on GST receivables was $nil at December 31, 2016, 2015 and 2014. Impairment
of Long-lived Assets In accordance
with ASC 360, Property, Plant and Equipment, Asset Retirement
Obligations In accordance
with ASC 410, Asset Retirement and Environmental Obligations, Income Taxes The Company follows
the asset and liability method of accounting for income taxes whereby deferred tax assets and liabilities are recognized for the
future tax consequences of differences between the financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. If it is determined that the realization of the future tax benefit is not more likely than not, the
Company establishes a valuation allowance. Foreign Exchange Translation The Company's
functional currency is the Canadian dollar, but reports its financial statements in US dollars. The Company translates its Canadian
dollar balances to US dollars in the following manner: Assets and liabilities have been translated using the rate of exchange
at the balance sheet date. Equity transactions have been translated at historical rates. The Company’s results of operations
have been translated using the average daily exchange rate for the fiscal year. Translation gains or losses resulting from the
changes in the exchange rates are accumulated as other comprehensive income or loss in a separate component of stockholders' equity. All amounts included
in the accompanying financial statements and footnotes are stated in U.S. dollars. Derivative
Financial Instruments The Company reviews
the terms of its equity instruments and other financing arrangements to determine whether there are embedded derivative instruments
that are required to be accounted for separately as a derivative financial instrument. Also, in connection with the issuance of
financing instruments, the Company has issued freestanding warrants that are accounted for as derivative instrument liabilities
because they are exercisable in a currency other than the functional currency of the Company and thus do not meet the “fixed-for-fixed”
criteria of ASC 815-40-15. The warrants are exercisable in United States dollars and the Company’s functional currency is
the Canadian dollar. Derivative financial
instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities,
the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in
the fair value reported as charges or credits to income. For option and warrant-based derivative financial instruments, the Company
uses the Black-Scholes option pricing model to value the derivative instruments. Any exercise
or cancellation of an equity instrument which meets the classification of a derivative financial instrument is trued-up to fair
value at that date and the fair value of the exercised instrument is then re-classed from liability to additional paid in capital. The classification
of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at
the end of each reporting period. If reclassification is required, the fair value of the derivative instrument, as of the determination
date, is reclassified. Any previous charges or credits to income for changes in the fair value of the derivative instrument are
not reversed. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether
or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date. Stock Options
The Company measures
all employee stock-based compensation awards using a fair value method on the date of grant and recognizes such expense in its
consolidated financial statements over the requisite service period. The Company uses the Black-Scholes pricing model to determine
the fair value of stock-based compensation awards on the date of grant. The Black-Scholes pricing model requires management to
make assumptions regarding option lives, expected volatility, and risk free interest rates. The Company accounts
for non-employee stock-based awards in accordance with the provision of ASC 505, “Equity Based Payments to Non-Employees”
(“ASC 505”), which requires that such equity instruments are recorded at their fair value on the measurement date.
The measurement of stock-based compensation is subject to periodic adjustment as the underlying equity instruments vest. The Company
uses the Black-Scholes pricing model to determine the fair value of stock-based compensation awards. The Black-Scholes pricing
model requires management to make assumptions regarding option lives, expected volatility, and risk free interest rates. The Company uses
historical data to estimate option exercise, forfeiture and employee termination within the valuation model. For non-employees,
the expected term of the options approximates the full term of the options. The risk-free interest rate is based on a treasury
instrument whose term is consistent with the expected term of the stock options. The Company has not paid and does not anticipate
paying dividends on its common stock; therefore, the expected dividend yield is assumed to be zero. In addition, accounting standard
requires companies to utilize an estimated forfeiture rate when calculating the expense for the reporting period. Based on its
best estimate, management applied the estimated forfeiture rate of nil in determining the expense recorded in the accompanying
Statements of Operations and Comprehensive Income (Loss). Expected volatilities
are calculated using the historical volatility of the Company’s stock. When applicable, the Company will use historical
data to estimate option exercise, forfeiture and employees’ termination within the valuation model. For non-employees, the
expected term of the options approximates the full term of the options. Earnings (Loss)
Per Share of Common Stock Basic earnings
(loss) per share of common stock is computed by dividing net income (loss) available to common shareholders by the weighted-average
number of common shares outstanding for the period. Diluted earnings per share of common stock reflect the potential dilution
that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted
in the issuance of common stock that then shared in the earnings of the Company. Dilutive potential common shares are calculated
in accordance with the treasury stock method, which assumes that proceeds from the exercise of all warrants and options are used
to repurchase common stock at market value. The amount of shares remaining after the proceeds are exhausted represents the potentially
dilutive effect of the securities. See Note 10 “Earnings Per Share” for further details. Fair Value
of Financial Instruments The book values
of GST receivables, notes receivable, accounts payable and accrued expenses approximate their respective fair values due to the
short-term nature of these instruments. The fair value hierarchy under GAAP distinguishes between assumptions based on market
data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
· Level one
· Level two
· Level three Determining
which category an asset or liability falls within the hierarchy requires significant judgment. We evaluate our hierarchy disclosures
each balance sheet date. Liabilities measured at fair value are summarized as follows as of:
Fair Value Measurement at Fair Value Measurement at Fair Value Measurement at
December
31, 2016 December
31, 2015 December
31, 2014
Using Using Using
Level
3 Total Level
3 Total Level
3 Total
Liabilities:
Derivative liabilities $ 779,796 $ 779,796 $ 1,153,491 $ 1,153,491 $ 4,482,296 $ 4,482,296 The Company measures
and reports the fair value liability for warrants with a strike price currency different than the functional currency of the Company
on a recurring basis. The fair value liabilities for warrants have been recorded as determined utilizing the Black-Scholes option
pricing model. A slight change in an unobservable input like historical volatility could have a significant impact on the fair
value measurement of the derivative liabilities. See Note 5 “Derivative Liabilities” for further discussion of the
inputs used in determining the fair value. Comprehensive
Income (Loss) Comprehensive
income (loss) is defined to include all changes in equity except those resulting from investments by owners and distributions
to owners. The Company's items of other comprehensive income (loss) are foreign currency translation adjustments. Related Party Transactions A related party
is generally defined as (i) any person who holds 10% or more of the Company’s securities and their immediate families, (ii)
the Company’s management, (iii) someone who directly or indirectly controls, is controlled by or is under common control
with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction
is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. New Accounting
Pronouncements From time to
time, new accounting pronouncements are issued by the Financial Accounting Standards Board (“FASB”) that are adopted
by the Company as of the specified effective date. Unless otherwise discussed, management believes that the impact of recently
issued standards did not or will not have a material impact on the Company’s consolidated financial statements upon adoption. In February
2015, the FASB issued ASU 2015-02, Amendments to the Consolidation Analysis In August
2015, the FASB issued ASU 2014-15, Presentation of Financial Statements Going Concern (Subtopic 205-40) - Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern. Currently, there is no guidance in U.S. GAAP about management’s
responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern or
to provide related footnote disclosures. The amendments in this update provide that guidance. The amendments are intended to reduce
diversity in the timing and content of footnote disclosures. The amendments require management to assess an entity’s ability
to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards.
Specifically, the amendments (1) provide a definition of the term “substantial doubt,” (2) require an evaluation every
reporting period, including interim periods, (3) provide principles for considering the mitigating effect of management’s
plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s
plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment
for a period of one year after the date that the financial statements are issued (or available to be issued). The amendments in
this update are effective for annual periods ending after December 15, 2016, and early adoption is permitted. The Company adopted
this guidance during the year ended December 31, 2016. Refer to Note 2 “Ability to Continue as a Going Concern” for
further information. In November
2015, FASB issued ASU No. 2015-17,” Balance Sheet Classification of Deferred Taxes”. ASU No. 2015-17 requires
that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. ASU No.
2015-17 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within
those fiscal years. The Company adopted this ASU No. on January 1, 2016 and its adoption did not have a material impact on the
Company’s financial position and results of operations. In March
2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment
Accounting. Under ASU No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional
paid-in capital (“APIC”). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense
or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement
that excess tax benefits be realized before companies can recognize them. ASU No. 2016-09 also requires companies to present excess
tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU No.
2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception
to liability classification for shares used to satisfy the employer’s statutory income tax withholding obligation. An employer
with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of
taxes owed using the maximum statutory tax rate in the employee’s applicable jurisdiction(s). ASU No. 2016-09 requires a
Company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding
obligation as a financing activity on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash
flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments
by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting
the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for reporting periods
beginning after January 1, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. The
Company adopted this on January 1, 2016. The Company has evaluated the impact of ASU No. 2016-09 and has determined that the adoption
of the impact of forfeitures, net of income taxes, will not have a material impact on the Company’s future financial statements. In
February 2017, the FASB has issued ASU No. 2017-05, Other Income – Gains and Losses from the Derecognition of Nonfinancial
Assets (Subtopic 610-20) This is effective
for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. In
August 2016, the FASB issued ASU No. 2016-15 which addresses how certain cash receipts and cash payments are presented and classified
in the statement of cash flows with the objective of reducing existing differences in the presentation of these items. The amendments
in ASU No. 2016-15 are to be adopted retrospectively and will become effective in the first quarter of fiscal 2019. The Company
is evaluating the impact of adopting this standard on its consolidated statement of cash flows. We do not expect the adoption
of this standard to have a material effect on our consolidated financial statements and related disclosures. In
November 2016, the FASB issued ASU No. 2016-18 which require that a statement of cash flows explain the change during the period
in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. As
a result, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash
equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The
amendments do not provide a definition of restricted cash or restricted cash equivalents. The guidance is effective for
annual reporting periods after December 15, 2017, and interim periods within those fiscal years. The amendments should be applied
using a retrospective transition method to each period presented. The Company is evaluating the impact of adopting this standard
on its consolidated statement of cash flows. There are
no other recently issued accounting pronouncements that are expected to have a material impact on our financial condition, results
of operations or cash flows. |
