| Summary Of Significant Accounting Policies |
1.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Operations. Samson Oil & Gas Limited along with its consolidated subsidiaries (“Samson” or the “Company”), is engaged in the acquisition, exploration, exploitation and development of oil and natural gas properties with a focus on properties in North Dakota and Montana.
Going concern. These financial statements have been prepared on the going concern basis, which contemplates the continuity of normal business activities and the realization of assets and settlement of liabilities in the normal course of business. The Company incurred a net loss of $7.2 million and had net cash outflows from operating activities of $5.4 million for the year ended June 30, 2019. At June 30, 2019 , the Company’s total current liabilities of $43.3 million exceed its total current assets of $4.8 million. Its ability to continue as a going concern is dependent on the re-negotiation of debt, the sale of assets and /or raising further capital. These factors raise substantial doubt over the Company’s ability to continue as a going concern and therefore whether it will realize its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the financial report.
At June 30, 2019, the Company was in breach of several of its covenants related to the Credit Agreement (defined in Note 8 – Credit Facility), resulting in borrowings payable of $33.5 million being classified as current liabilities. It is currently negotiating with the Lender in an effort to obtain a waiver for the breach. As of the date of this report, no waiver has been received .
The Company is currently negotiating with a prospective party to divest its oil and gas assets , as well as, continuing to execute on its drilling and development plan, which it believes will result in proceeds that will sufficiently cover the Company’s obligations to the Lender and its other creditors. Although the Company is confident it will be able to successfully recognize amounts in excess of the carrying value of its oil and gas assets as a result of its ultimate divestment or , alternatively , through the successful development of its Foreman Butte project , there can be no assurances made that the Company will be able to successfully execute these plans. G iven the current financial situation it is possible that the Company may be forced to accept terms on these transactions that are less favorable than would be otherwise available.
Comparatives. These statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”).
Principles of Consolidation. The consolidated financial statements include the accounts of the Company and its subsidiaries, all of which are wholly owned. Significant intercompany balances and transactions have been eliminated in consolidation.
Certain amounts in prior year financial statements have been reclassified to current year presentation, and the reclassification had no impact on net loss.
Use of Estimates. The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Items subject to such estimates and assumptions include (1) oil and gas reserves; (2) cash flow estimates used in impairment tests of long–lived assets; (3) depreciation, depletion and amortization (“DD&A”); (4) asset retirement obligations (“ARO”); (5) assigning fair value and allocating purchase price in connection with business combinations; (6) accrued revenue and related receivables; (7) valuation of commodity and interest derivative instruments; (8) certain accrued liabilities; (9) valuation of share-based payments, (10) income taxes and (11) carrying value of exploration and evaluation expenditures. Although management believes these estimates are reasonable, actual results could differ from these estimates. The Company has evaluated subsequent events and transactions through the date of this report for matters that may require recognition or disclosure in these financial statements.
Business Segment Information. The Company has evaluated how it is organized and managed and has identified only one operating segment, which is the exploration and production of crude oil, natural gas and natural gas liquids (“NGL”). All of the Company's operations and assets are located in the United States, and all of its revenues are attributable to United States customers.
Revenue Recognition and Gas Imbalances. In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers ( Topic 606 ) (“ASU 2014-09”). Under the new standard, revenue is recognized when a customer obtains control of promised goods or services in an amount that reflects the consideration the entity expects to receive in exchange for those goods or services. The standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The FASB issued several additional ASUs related to ASU 2014-09 that provide clarified implementation guidance and deferred the effective date of ASU 2014-09. Effective July 1, 201 8 , the Company adopted ASU 2014-09 and all related ASUs using the modified retrospective transition method, which was applied to all active contracts as of the effective date. The adoption of ASU 2014-09 did not result in a change to current or prior period results nor did it result in a material change to the Company’s business processes, systems, or controls. However, upon adoption, the Company expanded its disclosures to comply with the disclosure requirements of ASU 2014-09. Please refer to Note 2 - Revenue from Contracts with Customers for additional discussion.
The Company uses the entitlement method of accounting for natural gas revenues. Under this method, revenues are recognized based on actual production of natural gas. The Company incurs production gas volume imbalances in the ordinary course of business. Net deliveries in excess of entitled amounts are recorded as liabilities, while net under–deliveries are reflected as assets. Imbalances are reduced either by subsequent recoupment of over– and under– deliveries or by cash settlement, as required by applicable contracts. The Company's production imbalances were not material at June 30, 2019 or 2018.
Cash and Cash Equivalents. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. The Company’s cash management process provides for the daily funding of checks as they are presented to the bank.
Restricted cash. ASU 2016-18 , Statement of Cash Flows (Topic 230): Restricted Cash) This ASU requires 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 Company has adopted this standard.
In accordance with the terms of our Credit Agreement, the C o mpany is required to have a Capital Reserve Amount (as defined in the Credit Agreement) equal to $1.0 million and a Debt Service Reserve Amount (as defined in the Credit Agreement) equal to approximately $1.1 million. These amounts are carried on the balance sheet as Restricted Cash - Required reserve amounts related to Credit Agreement .
Accounts Receivable. The components of accounts receivable include the following:
June 30
2019
2018
Oil and natural gas sales
$ 1,538,451
$ 1,159,905
Cost recovery from partners
650,885
768,281
Less provision for doubtful debts
(250,000)
(75,000)
Other
42,787
55,693
Total accounts receivable, net of nil allowance for doubtful accounts for June 30, 2019 and 2018
$ 1,982,123
$ 1,908,879
The Company's accounts receivable’s result from; (i) oil and natural gas sales to oil and intrastate gas pipeline companies, (ii) billings to joint working interest partners in properties operated by the Company, and (iii) settlements for derivatives with our counter-party. The Company's trade and accrued production receivables are primarily from operated oil and gas properties. A portion of its oil and natural gas revenues are from non-operated oil and gas properties, whereby, the operators of the various projects negotiate the sale of oil and gas to third parties on the Company’s behalf. Collectability is dependent upon the financial wherewithal of each entity and is influenced by the general economic conditions of the oil and gas industry. The Company records an allowance for doubtful accounts on a case by case basis once there is evidence that collection is not probable.
At June 30, 2019 and 2018, the Company recorded an allowance for accounts receivable of $175,000 and $75,000 , respectively.
Oil and Gas Properties.
Oil and gas properties and equipment consist of the following at June 30:
2019
2018
Proved properties, net of impairment
$ 39,666,294
$ 38,110,237
Work in progress
40,319
8,271
Less accumulated depreciation, depletion and amortization
(9,491,784)
(7,697,667)
$ 30,214,829
$ 30,420,841
Unproved acreage
$
-
$
-
The Company accounts for its oil and natural gas exploration and development costs using the successful efforts method. Geological and geophysical costs are expensed as incurred. Exploratory well costs are capitalized pending further evaluation of whether economically recoverable reserves have been found. If economically recoverable reserves are not found, exploratory well costs are expensed as dry holes. All exploratory wells are evaluated for economic viability within one year of well completion, and the related capitalized costs are reviewed quarterly.
Exploratory wells that discover potentially economic reserves in areas where a major capital expenditure would be required before production could begin and where the economic viability of that major capital expenditure depends upon the successful completion of further exploratory work in the area remain capitalized if the well finds a sufficient quantity of reserves to justify its completion as a producing well and the Company is making sufficient progress assessing the reserves and the economic and operating viability of the project.
The costs of development wells are capitalized whether productive or nonproductive. The provision for depletion of oil and gas properties is calculated on a field–by–field basis using the unit–of–production method. Mineral interests and leasehold acquisition costs are depleted over total proved reserves while costs of completed wells and related facilities and equipment are depleted over proved developed producing reserves.
If the estimates of total proved or proved developed reserves decline, the rate at which the Company records depreciation, depletion and amortization (DD&A) expense increases, which in turn reduces net earnings. Such a decline in reserves may result from lower commodity prices, which may make it uneconomic to drill for and produce higher cost fields. The Company is unable to predict changes in reserve quantity estimates as such quantities are dependent on the success of its development program, as well as future economic conditions. Changes in reserves are applied on a prospective basis.
As wells are drilled in a field with proved undeveloped reserves or unproved reserves, a portion of the acquisition costs are either re–designated as proved developed or expensed, as appropriate. In fields with multiple potential drilling sites, the Company determines the amount of the acquisition cost to re–designate or expense through a systematic and rational basis that considers the total expected wells to be drilled in that field.
The Company reviews its proved oil and gas properties for impairment whenever events and circumstances indicate that a decline in the recoverability of their carrying value may have occurred. The Company estimates the expected future cash flows of its oil and gas properties and compares these undiscounted future cash flows to the carrying amount of the oil and gas properties to determine if the carrying amount is recoverable. If the carrying amount exceeds the estimated undiscounted future cash flows, the Company will adjust the carrying amount of the oil and gas properties to fair value. The factors used to determine fair value include, but are not limited to, recent sales prices of comparable properties, the present value of future cash flows, net of estimated operating and development costs using estimates of reserves, future commodity pricing, future production estimates, anticipated capital expenditures and various discount rates commensurate with the risk associated with realizing the projected cash flows. Unproved oil and gas properties are assessed periodically for impairment on a field by field (consistent with the fields used for the calculation of depletion, depreciation and amortization) basis based on remaining lease terms, drilling results, reservoir performance, commodity price outlooks or future plans to develop acreage and allocate capital. When the Company has allocated fair values to significant unproved property (probable reserves) as the result of a business combination or other purchase of proved and unproved properties, it uses a future cash flow analysis to assess the property for impairment.
Gains on sales of proved and unproved properties are only recognized when there is no uncertainty about the recovery of costs applicable to any interest retained or where there is no substantial obligation for future performance by the Company. Impairment on properties sold is recognized when incurred or when the properties are held for sale and the fair value of the properties is less than the carrying value.
In determining whether an unproved property is impaired, the Company considers numerous factors including, but not limited to, current development and exploration drilling plans, favorable or unfavorable exploration activity on adjacent leaseholds, in-house geologists' evaluation of the lease, future reserve cash flows and the remaining lease term .
Exploration and evaluation costs including capitalized exploration written off and dry hole expenses
Exploration and evaluation assets are assessed for impairment when facts and circumstances indicate that the carrying amount of an exploration and evaluation asset may exceed its recoverable amount. When assessing for impairment consideration is given to, but not limited to, the following:
the period for which Samson has the right to explore;
planned and budgeted future exploration expenditure;
activities incurred during the year; and
activities planned for future periods.
If, after having capitalized expenditure under our policy, the Company concludes that it is unlikely to recover the expenditure by future exploitation or sale, then the relevant capitalized amount will be written off to the income statement.
During the fiscal years ended June 30, 2019, and 2018, we expensed $0 and $0.2 million, respectively, in deferred exploration expense.
Impairment
The Company had no impairment charges for the years ended June 30, 2019, and 2018.
Other Property and Equipment.
Other property and equipment, which includes leasehold improvements, office and other equipment, are stated at cost. Depreciation and amortization are calculated using the straight–line method over the estimated useful lives of the related assets, ranging from 3 to 25 years. Depreciation and amortization expense for the years ended June 30, 2019, and 2018, was approximately $30,000 and $85,000 , respectively.
Other property and equipment consist of the following at June 30:
2019
2018
Furniture, fittings and equipment
$ 930,173
$ 1,017,879
Less accumulated depreciation
(755,242)
(775,057)
$ 174,931
$ 242,822
Derivative Financial Instruments. The Company enters into derivative contracts, primarily collars, swaps and option contracts, to hedge future crude oil and natural gas production in order to mitigate the risk of market price fluctuations. All derivative instruments are recorded on the balance sheet at fair value. All of the Company's derivative counterparties are major oil companies. The Company has elected not to apply hedge accounting to any of its derivative transactions and consequently, the Company recognizes mark-to-market gains and losses in earnings currently, rather than deferring such amounts in other comprehensive income for those commodity derivatives that qualify as cash flow hedges.
Asset Retirement Obligations. The Company recognizes estimated liabilities for future costs associated with the abandonment of its oil and gas properties. A liability for the fair value of an asset retirement obligation and corresponding increase to the carrying value of the related long–lived asset are recorded at the time the well is spud or acquired.
Environmental. The Company is subject to extensive federal, state and local environmental laws and regulations. These laws and regulations, which regularly change, regulate the discharge of materials into the environment and may require the Company to remove or mitigate the environmental effects of the disposal or release of petroleum or chemical substances at various sites. Environmental expenditures are expensed or capitalized depending on their future economic benefit. Expenditures that relate to an existing condition caused by past operations and that have no future economic benefits are expensed. Liabilities for expenditures of a non–capital nature are recorded when environmental assessment and/or remediation is probable and the costs can be reasonably estimated. Such liabilities are generally recorded at their undiscounted amounts unless the amount and timing of payments is fixed or reliably determinable. The Company is not aware of any material noncompliance with existing laws and regulations.
Income Taxes. Deferred income tax assets and liabilities are recognized for the future income tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. Deferred income tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred income tax assets and liabilities of a change in income tax rates is recognized in income in the period that includes the enactment date. The measurement of deferred income tax assets is reduced, if necessary, by a valuation allowance if management believes that it is more likely than not that some portion or all of the net deferred tax assets will not be fully realized on future income tax returns. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, available taxes in carryback periods, projected future taxable income and tax planning strategies in making this assessment.
The Company recognizes the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than 50 % likelihood of being realized upon ultimate settlement.
Los s per Share. Basic loss per share are calculated by dividing net loss attributable to common stock by the weighted average number of shares outstanding for the period. Under the treasury stock method, diluted earnings per share is calculated by dividing net loss by the weighted average number of shares outstanding including all potentially dilutive common shares. In the event of a net loss, no potential common shares are included in the calculation of shares outstanding since the impact would be anti-dilutive. When the Company records a net loss, none of the loss is allocated to the unexercised stock options since the securities are not obligated to share in Company losses. Consequently, in periods of net loss, outstanding options will have no dilutive impact to the Company’s basic earnings per share.
Year ended June 30,
2019
2018
Net loss:
$ (7,148,031)
$ (6,038,866)
Basic and diluted weighted average common shares outstanding
328,300,044
328,300,044
Basic and diluted loss per common share – cents per share
(0.02)
(0.02)
Stock-Based Compensation. Stock-based compensation is measured at the estimated grant date fair value of the awards and is recognized on a straight-line basis over the requisite service period (usually the vesting period). The Company recognizes stock-based compensation net of an estimated forfeiture rate, and recognizes compensation expense only for shares that are expected to vest. Compensation expense is then adjusted based on the actual number of awards for which the requisite service period is rendered.
Foreign Currency Translation. The functional currency of Samson Oil & Gas Limited (Parent Entity) is Australian dollars, the reason for this being the majority of cash flows of the Parent Entity are denominated in Australian dollars. The functional and presentation currency of Samson Oil & Gas USA, Inc. (subsidiary) is U.S. dollars. The presentation currency of the Company is U.S. dollars. Transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year ended exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in profit and loss. Translation differences on assets and liabilities carried at fair value are reported as part of the fair value gain or loss. Translation differences on non-monetary assets and liabilities are recognized in other comprehensive income.
Business Combinations Samson applies the acquisition method in accounting for business combinations. The consideration transferred by the Company is calculated as the sum of the acquisition date fair value of assets transferred, liabilities incurred and any equity interests issued by the Company, which includes the fair value of any asset or liability arising from any contingent consideration arrangements. Acquisition costs are expensed as incurred. The Company treats the acquisition of oil and gas assets as a business combination.
The Company recognizes identifiable assets acquired and liabilities assumed in a business combination regardless of whether they have been previously recognized in the acquiree’s financial statements prior to the acquisition. Assets acquired and liabilities assumed are generally measured at their acquisition date fair values.
If the fair values of identifiable net assets exceed the sum calculated has the fair value transferred, the excess amount, a gain on bargain purchase) is recognized in the statement of operations immediately.
Recently Issued Accounting Pronouncements
ASU 2016-02, Leases (Topic 842) In January 2016, ASC 842 was issued, which provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements for both lessees and lessors. ASC 842 changes the current accounting for leases to eliminate the operating/finance lease designation and require entities to recognize most leases on the statement of financial position, initially recorded at the fair value of unavoidable lease payments, as a right of use asset and respective liability. The entity will then recognize depreciation of the lease assets and interest on the statement of profit or loss.
The Company operates predominantly as a lessee. The standard will affect primarily the accounting for its operating leases, with no significant impact expected for its finance leases. The new lease standard is effective for the Company on July 1, 2019, and will be adopted effective on that date using the simplified cumulative catch-up method. This adoption method will allow the presentation of previous comparative periods to remain unchanged, and an adjustment to the opening balance of retained earnings at July 1, 2019, will be made for the difference between the right of use asset and liability recorded. In addition, lease incentives will be rolled into the respective right of use asset, rather than recorded as a deferral. Upon adoption of the new standard, the Company intends to elect to apply hindsight in assessing the lease term, and to grandfather previous conclusions reached as to whether existing contracts are or contain leases. It continues to evaluate other practical elections, which may apply to individual asset classes and to portfolios of leases that contain similar characteristics. As of June 30, 2019, the Company had approximately $220,000 of contractual obligations related to its non-cancelable leases. The Company is in the process of evaluating those contracts as well as other existing arrangements to determine if they qualify for lease accounting under ASC 842. It is also in the process of implementing changes to its accounting policies, internal controls, and financial statements as a result of adoption of this standard. The Company will continue to assess the additional disclosures that will be required upon implementation of the standard. |
