Document_and_Entity_Informatio
Document and Entity Information | 6 Months Ended | |
Jun. 30, 2014 | Aug. 14, 2014 | |
Document and Entity Information | ' | ' |
Entity Registrant Name | 'TORCHLIGHT ENERGY RESOURCES INC | ' |
Document Type | '10-Q | ' |
Document Period End Date | 30-Jun-14 | ' |
Amendment Flag | 'false | ' |
Entity Central Index Key | '0001431959 | ' |
Current Fiscal Year End Date | '--12-31 | ' |
Entity Common Stock, Shares Outstanding | ' | 20,411,639 |
Entity Filer Category | 'Smaller Reporting Company | ' |
Entity Current Reporting Status | 'Yes | ' |
Entity Voluntary Filers | 'No | ' |
Entity Well-known Seasoned Issuer | 'No | ' |
Document Fiscal Year Focus | '2014 | ' |
Document Fiscal Period Focus | 'Q2 | ' |
CONSOLIDATED_CONDENSED_BALANCE
CONSOLIDATED CONDENSED BALANCE SHEETS (USD $) | Jun. 30, 2014 | Dec. 31, 2013 |
Current assets: | ' | ' |
Cash | $1,053,571 | $1,811,713 |
Accounts Receivable | 330,976 | 429,699 |
Production revenue receivable | 777,989 | 0 |
Note receivable | 294,318 | 0 |
Prepayments - development costs | 824,383 | 9,144 |
Prepaid expenses | 39,000 | 0 |
Total current assets | 3,320,237 | 2,250,556 |
Investment in oil and gas properties, net | 26,316,900 | 13,038,751 |
Office Equipment | 61,706 | 11,604 |
Debt issuance costs, net | 625,980 | 920,947 |
Goodwill | 447,084 | 447,084 |
Other Assets | 74,894 | 74,379 |
TOTAL ASSETS | 30,846,801 | 16,743,321 |
Current liabilities: | ' | ' |
Accounts payable | 3,479,071 | 985,123 |
Accrued liabilities | 240,000 | 0 |
Related party payables | 90,000 | 90,000 |
Convertible promissory notes, net of discount of $2,355,084 | 5,952,513 | 0 |
Notes payable within one year | 674,690 | 753,904 |
Due to working interest owners | 528,438 | 580,484 |
Interest payable. | 277,084 | 309,498 |
Total current liabilities | 11,241,796 | 2,719,009 |
Convertible promissory notes, net of discount of $587,010 at June 30, 2014 and $5,500,462 at December 31, 2013 | 2,610,490 | 4,802,711 |
Asset retirement obligation | 25,975 | 24,382 |
Commitments and contingencies | ' | ' |
Stockholders' equity: | ' | ' |
Common stock, par value $0.001 per share; 75,000,000 shares authorized; 20,440,210 issued and outstanding at June 30, 2014 16,141,765 issued and outstanding at December 31, 2013 | 20,440 | 16,142 |
Additional paid-in capital | 35,776,392 | 21,978,616 |
Warrants outstanding | 7,505,270 | 3,043,420 |
Accumulated deficit | -26,333,562 | -15,840,959 |
Total stockholders' equity | 16,968,540 | 9,197,219 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $30,846,801 | $16,743,321 |
CONSOLIDATED_CONDENSED_BALANCE1
CONSOLIDATED CONDENSED BALANCE SHEETS PARANTHETICALS (USD $) | Jun. 30, 2014 | Dec. 31, 2013 |
BALANCE SHEETS PARANTHETICALS | ' | ' |
Discount of Convertible promissory notes current | $2,355,084 | ' |
Discount on Convertible promissory notes noncurrent | $587,010 | $5,500,462 |
Common Stock, par or stated value | $0.00 | $0.00 |
Common Stock, shares authorized | 75,000,000 | 75,000,000 |
Common Stock, shares issued | 20,440,210 | 16,141,765 |
Common Stock, shares outstanding | 20,440,210 | 16,141,765 |
CONSOLIDATED_CONDENSED_STATEME
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS (USD $) | 3 Months Ended | 6 Months Ended | ||
Jun. 30, 2014 | Jun. 30, 2013 | Jun. 30, 2014 | Jun. 30, 2013 | |
Revenue: | ' | ' | ' | ' |
Oil and gas sales | $1,630,035 | $160,882 | $2,273,005 | $390,086 |
Royalty | 9,799 | 9,304 | 48,964 | 9,304 |
Cost of revenue | -397,184 | -93,021 | -576,235 | -161,021 |
Gross income | 1,242,650 | 77,165 | 1,745,734 | 238,369 |
Operating expenses: | ' | ' | ' | ' |
General and administrative expenses | 1,318,179 | 1,581,102 | 7,139,247 | 2,114,651 |
Depreciation, depletion and amortization. | 628,372 | 237,737 | 962,703 | 354,584 |
Total operating expenses | 1,946,551 | 1,818,839 | 8,101,950 | 2,469,235 |
Other income (expense) | ' | ' | ' | ' |
Interest income | 6 | 40 | 56 | 40 |
Interest and accretion expense | -2,226,957 | -566,458 | -4,136,444 | -735,459 |
Total other income (expense) | -2,226,951 | -566,418 | -4,136,388 | -735,419 |
Net loss before taxes | -2,930,852 | -2,308,092 | -10,492,604 | -2,966,285 |
Provision for income taxes | 0 | 0 | 0 | 0 |
Net (loss) | ($2,930,852) | ($2,308,092) | ($10,492,604) | ($2,966,285) |
Loss per share:Basic and Diluted | ($0.17) | ($0.17) | ($0.68) | ($0.22) |
Weighted average shares outstanding: Basic and Diluted | 15,334,868 | 13,758,277 | 17,184,891 | 13,614,318 |
CONSOLIDATED_CONDENSED_STATEME1
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (USD $) | 6 Months Ended | |
Jun. 30, 2014 | Jun. 30, 2013 | |
Cash Flows From Operating Activities | ' | ' |
Net (loss) | ($10,492,604) | ($2,966,285) |
Adjustments to reconcile net loss to net cash from operating activities: | ' | ' |
Stock based compensation | 4,753,686 | 1,352,005 |
Accretion of convertible note discounts | 3,158,850 | 574,895 |
Depreciation, depletion and amortization | 962,703 | 354,584 |
Change in: | ' | ' |
Accounts receivable | 85,677 | -37,156 |
Note receivable | -294,318 | 0 |
Production revenue receivable | -777,989 | ' |
Prepayment of development costs | -824,383 | ' |
Prepaid expenses. | -29,856 | -28,228 |
Debt isssuance costs amortization | 373,732 | -601,101 |
Other assets | -515 | 0 |
Accounts payable and accrued liabilities | 2,408,948 | -166,439 |
Related party payable | 0 | 19,852 |
Due to working interest owners | -52,046 | 0 |
Asset retirement obligation | 1,593 | 0 |
Interest payable | -22,900 | 107,587 |
Net cash used in operating activities | -749,422 | -1,390,286 |
Cash Flows From Investing Activities | ' | ' |
Investment in oil and gas properties, net, | -10,789,519 | -3,879,519 |
Acquisition of office equipment | -53,960 | 0 |
Net cash used in investing activities | -10,843,479 | -3,879,519 |
Cash Flows From Financing Activities | ' | ' |
Proceeds from sale of common stock | 7,220,291 | 0 |
Proceeds from issuance of convertible notes | 3,197,500 | ' |
Proceeds from warrant exercise | 379,982 | 0 |
Proceeds from promissory notes | 36,986 | 6,041,800 |
Repayment of promissory notes | 0 | -51,000 |
Net cash provided by financing activities | 10,834,759 | 5,990,800 |
Net increase (decrease) in cash | -758,142 | 720,995 |
Cash - beginning of period | 1,811,713 | 63,252 |
Cash - end of period | 1,053,571 | 784,247 |
Non cash transactions: | ' | ' |
Common stock issued for services | 168,577 | 0 |
Warrants issued in connection with promissory notes | 405,016 | 914,449 |
Warrants issued for services | 4,663,865 | 0 |
Beneficial conversion feature on promissory notes | 195,466 | 1,827,100 |
Liabilitities assumed-purchase of properties | 0 | 1,809,572 |
Sale of properties for note receivable | 0 | 990,000 |
Common stock issued for mineral interests | 3,225,629 | 0 |
Capitalized interest cost | 0 | 32,335 |
Common stock issued in conversion of promissory notes | 1,995,575 | 0 |
Common stock issued in warrant exercises | 380,000 | 0 |
Asset retirement obligation | $0 | $0 |
1_NATURE_OF_BUSINESS
1. NATURE OF BUSINESS | 6 Months Ended |
Jun. 30, 2014 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ' |
NATURE OF BUSINESS | ' |
Torchlight Energy Resources, Inc. was incorporated in October 2007 under the laws of the State of Nevada as Pole Perfect Studios, Inc. (“PPS”). From its incorporation to November 2010, the company was primarily engaged in business start-up activities. | |
On November 23, 2010, we entered into and closed a Share Exchange Agreement (the “Exchange Agreement”) between the major shareholders of PPS and the shareholders of Torchlight Energy, Inc. (“TEI”). At closing, the TEI shareholders transferred all of their shares of TEI common stock to us in exchange for an aggregate of 9,444,500 newly issued shares of our common stock. This transaction was recorded as a reverse acquisition for accounting purposes where TEI is the accounting acquirer. The assets and liabilities of PPS were recorded at fair value of $0. The Company recorded $447,084 of goodwill which represents the estimated fair value of the consideration exchanged. Also at closing of the Exchange Agreement, certain of the former PPS shareholders transferred to us an aggregate of 14,400,000 shares of our common stock for cancellation in exchange for aggregate consideration of $270,000. Upon closing of these transactions, we had 12,251,420 shares of common stock issued and outstanding. The 9,444,500 shares issued to the TEI Stockholders at closing represented 77.1% of our voting securities after completion of the Exchange Agreement. | |
As a result of the transactions effected by the Exchange Agreement, at closing (i) TEI became our wholly-owned subsidiary, (ii) we abandoned all of our previous business plans within the health and fitness industries and (iii) the business of TEI became our sole business. TEI is an energy company, incorporated under the laws of the State of Nevada in June 2010. It is engaged in the acquisition, exploration, exploitation and/or development of oil and natural gas properties in the United States. | |
On December 10, 2010, we effected a 4-for-1 forward split of our shares of common stock outstanding. All owners of record at the close of business on December 10, 2010 (record date) received three additional shares for every one share they owned. All share amounts reflected throughout this report take into account the 4-for-1 forward split. | |
Effective February 8, 2011, we changed our name to “Torchlight Energy Resources, Inc.” In connection with the name change, our ticker symbol changed from “PPFT” to “TRCH.” | |
The Company is engaged in the acquisition, exploration, development and production of oil and gas properties within the United States. The Company’s success will depend in large part on its ability to obtain and develop profitable oil and gas interests. | |
2_GOING_CONCERN
2. GOING CONCERN | 6 Months Ended |
Jun. 30, 2014 | |
GOING CONCERN | ' |
GOING CONCERN | ' |
These consolidated financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. | |
At June 30, 2014, the Company has negative working capital of $7,921,559, had not yet achieved profitable operations, had accumulated losses of $26,333,562 since its inceptionand expects to incur further losses in the development of its business, which casts substantial doubt about the Company’s ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management’s plan to address the Company’s ability to continue as a going concern includes: (1) obtaining debt or equity funding from private placement or institutional sources; (2) obtaining loans from financial institutions, where possible, or (3) participating in joint venture transactions with third parties. Although management believes that it will be able to obtain the necessary funding to allow the Company to remain a going concern through the methods discussed above, there can be no assurances that such methods will prove successful. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. |
3_SIGNIFICANT_ACCOUNTING_POLIC
3. SIGNIFICANT ACCOUNTING POLICIES | 6 Months Ended | ||
Jun. 30, 2014 | |||
Accounting Policies [Abstract] | ' | ||
Significant Accounting Policies | ' | ||
The Company maintains its accounts on the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America. These interim period unaudited financial statements should be read in conjunction with the audited financial statements and footnotes which are included as part of the Company’s Form 10-K for the year ended December 31, 2013. Accounting principles followed and the methods of applying those principles, which materially affect the determination of financial position, results of operations and cash flows are summarized below: | |||
Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and certain assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ from these estimates. | |||
Basis of presentation—The financial statements are presented on a consolidated basis and include all of the accounts of Torchlight Energy Resources Inc. and its wholly owned subsidiary, Torchlight Energy, Inc. All significant intercompany balances and transactions have been eliminated. | |||
Risks and uncertainties – The Company’s operations are subject to significant risks and uncertainties, including financial, operational, technological and other risks associated with operating an emerging business, including the potential risk of business failure. | |||
Concentration of risks – The Company’s cash is placed with a highly rated financial institution, and the Company periodically reviews the credit worthiness of the financial institutions with which it does business. At times the Company’s cash balances are in excess of amounts guaranteed by the Federal Deposit Insurance Corporation. | |||
Fair value of financial instruments – Financial instruments consist of cash, accounts receivable, notes receivable, accounts payable, notes payable to related party and convertible promissory notes. The estimated fair values of cash, accounts receivable, notes receivable, accounts payable and notes to related party approximate the carrying amount due to the relatively short maturity of these instruments. The carrying amounts of notes receivable and convertible promissory notes approximate their fair value giving affect for the term of the note and the effective interest rates. | |||
For assets and liabilities that require re-measurement to fair value the Company categorizes them in a three-level fair value hierarchy as follows: | |||
· | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. | ||
· | Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration. | ||
· | Level 3 inputs are unobservable inputs based on management’s own assumptions used to measure assets and liabilities at fair value. | ||
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. | |||
Accounts receivable – Accounts receivable consist of uncollateralized oil and natural gas revenues due under normal trade terms, as well as amounts due from working interest owners of oil and gas properties for their share of expenses paid on their behalf by the Company. Management reviews receivables periodically and reduces the carrying amount by a valuation allowance that reflects management’s best estimate of the amount that may not be collectible. As of June 30, 2014 and December 31, 2013 no valuation allowance was considered necessary. | |||
Investment in oil and gas properties – The Company uses the full cost method of accounting for exploration and development activities as defined by the Securities and Exchange Commission (“SEC”). Under this method of accounting, the costs of unsuccessful, as well as successful, exploration and development activities are capitalized as properties and equipment. This includes any internal costs that are directly related to property acquisition, exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities. Gain or loss on the sale or other disposition of oil and gas properties is not recognized, unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves. | |||
Oil and gas properties include costs that are excluded from costs being depleted or amortized. Oil and natural gas property costs excluded represent investments in unevaluated properties and include non-producing leasehold, geological and geophysical costs associated with leasehold or drilling interests and exploration drilling costs. The Company allocates a portion of its acquisition costs to unevaluated properties based on relative value. Costs are transferred to the full cost pool as the properties are evaluated over the life of the reservoir. | |||
Capitalized interest - The Company capitalizes interest on unevaluated properties during the periods in which they are excluded from costs being depleted or amortized. During the six months ended June 30, 2014, the Company capitalized $13,190 of interest on unevaluated properties. | |||
Depreciation, depletion and amortization –The depreciable base for oil and natural gas properties includes the sum of all capitalized costs net of accumulated depreciation, depletion and amortization (“DD&A”), estimated future development costs and asset retirement costs not included in oil and natural gas properties, less costs excluded from amortization. The depreciable base of oil and natural gas properties is amortized on a unit-of-production method. | |||
Ceiling test – Future production volumes from oil and gas properties are a significant factor in determining the full cost ceiling limitation of capitalized costs. Under the full cost method of accounting, the Company is required to periodically perform a “ceiling test” that determines a limit on the book value of oil and gas properties. If the net capitalized cost of proved oil and gas properties, net of related deferred income taxes, plus the cost of unproved oil and gas properties, exceeds the present value of estimated future net cash flows discounted at 10 percent, net of related tax affects, plus the cost of unproved oil and gas properties, the excess is charged to expense and reflected as additional accumulated DD&A. The ceiling test calculation uses a commodity price assumption which is based on the weighted arithmetic average of the price on the first day of each month for each month within the prior 12 month period and excludes future cash outflows related to estimated abandonment costs. The Company did not recognize impairment on its oil and gas properties during the quarter ended June 30, 2014, nor any prior period. Due to the volatility of commodity prices, should oil and natural gas prices decline in the future, it is possible that a write-down could occur. | |||
Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids, which geological and engineering data demonstrate with reasonable certainty to be recoverable from known reservoirs under existing economic and operating conditions. The independent engineering estimates include only those amounts considered to be proved reserves and do not include additional amounts which may result from new discoveries in the future, or from application of secondary and tertiary recovery processes where facilities are not in place or for which transportation and/or marketing contracts are not in place. Estimated reserves to be developed through secondary or tertiary recovery processes are classified as unevaluated properties. | |||
The determination of oil and gas reserves is a subjective process, and the accuracy of any reserve estimate depends on the quality of available data and the application of engineering and geological interpretation and judgment. Estimates of economically recoverable reserves and future net cash flows depend on a number of variable factors and assumptions that are difficult to predict and may vary considerably from actual results. In particular, reserve estimates for wells with limited or no production history are less reliable than those based on actual production. Subsequent re-evaluation of reserves and cost estimates related to future development of proved oil and gas reserves could result in significant revisions to proved reserves. Other issues, such as changes in regulatory requirements, technological advances and other factors which are difficult to predict could also affect estimates of proved reserves in the future. | |||
Gains and losses on the sale of oil and gas properties are not generally reflected in income. Sales of less than 100% of the Company’s interest in the oil and gas property are treated as a reduction of the capital cost of the field, with no gain or loss recognized, as long as doing so does not significantly affect the unit-of-production depletion rate. Costs of retired equipment, net of salvage value, are usually charged to accumulated depreciation. | |||
Goodwill - Goodwill represents the excess of the purchase price over the fair value of the net identifiable tangible and intangible assets of acquired companies. Goodwill is not amortized; instead, it is tested for impairment annually or more frequently if indicators of impairment exist. | |||
Goodwill was $447,084 as of June 30, 2014 and December 31, 2013, and was acquired on November 23, 2010 in connection with the Company’s reverse acquisition (Note 1). | |||
Asset retirement obligations – Accounting principles require that the fair value of a liability for an asset’s retirement obligation (“ARO”) be recorded in the period in which it is incurred if a reasonable estimate of fair value can be made, and that the corresponding cost be capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its then-present value each subsequent period, and the capitalized cost is depleted over the useful life of the related asset. Abandonment cost incurred is recorded as a reduction to the ARO liability. | |||
Inherent in the fair value calculation of an ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance. Settlements greater than or less than amounts accrued as ARO are recorded as a gain or loss upon settlement. | |||
Asset retirement obligation activity is disclosed in Note 10. | |||
Share-based compensation– Compensation cost for equity awards is based on the fair value of the equity instrument on the date of grant and is recognized over the period during which an employee is required to provide service in exchange for the award. Compensation cost for liability awards is based on the fair value of the vested award at the end of each period. | |||
Revenue recognition – The Company recognizes oil and gas revenues based on production date. When production is sold at a fixed or determinable price, persuasive evidence of an arrangement exists, delivery has occurred and title has transferred, and collectability is reasonably assured any revenue adjustments for volume variances are recognized. | |||
Basic and diluted earnings (loss) per share - Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed in the same way as basic earnings (loss) per common share except that the denominator is increased to include the number of additional common shares that would be outstanding if all potential common shares had been issued and if the additional common shares were dilutive. The Company has not included potentially dilutive securities in the calculation of loss per share for any periods presented as the effects would be anti-dilutive. | |||
Environmental laws and regulations – The Company is subject to extensive federal, state and local environmental laws and regulations. Environmental expenditures are expensed or capitalized depending on their future economic benefit. The Company believes that it is in compliance with existing laws and regulations. | |||
Recent accounting pronouncements – In May 2011, the FASB issued updated accounting guidance related to fair value measurements and disclosures. This guidance includes amendments that clarify the application of existing fair value measurement requirements, in addition to other amendments that change principles or requirements for measuring fair value and for disclosing information about fair value measurements. This guidance is effective for annual periods beginning after December 15, 2011. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements. | |||
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements. | |||
In September 2011, the FASB issued guidance that amends and simplifies the rules related to testing goodwill for impairment. The revised guidance allows an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination whether it is more likely than not that the fair value of reporting unit is less than its carrying amount. The results of this assessment will determine whether it is necessary to perform the currently required two-step impairment test. Under this update, an entity also has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the two-step goodwill impairment test. This guidance is effective for annual periods beginning after December 15, 2011. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements. | |||
Other recently issued or adopted accounting pronouncements are not expected to have, or did not have, a material impact on the Company’s financial position or results from operations. | |||
Subsequent events – The Company evaluated subsequent events through August 14, 2014 the date of issuance of the financial statements. Subsequent events are disclosed in Note 11. |
4_RELATED_PARTY_PAYABLES
4. RELATED PARTY PAYABLES | 6 Months Ended |
Jun. 30, 2014 | |
RELATED PARTY TRANSACTIONS | ' |
RELATED PARTY PAYABLES | ' |
As of June 30, 2014 related party payables consisted of accrued and unpaid compensation to two of our executive officers totaling $90,000. |
5_COMMITMENTS_AND_CONTINGENCIE
5. COMMITMENTS AND CONTINGENCIES | 6 Months Ended |
Jun. 30, 2014 | |
COMMITMENTS AND CONTINGENCIES | ' |
COMMITMENTS AND CONTINGENCIES | ' |
The Company is subject to contingencies as a result of environmental laws and regulations. Present and future environmental laws and regulations applicable to the Company’s operations could require substantial capital expenditures or could adversely affect its operations in other ways that cannot be predicted at this time. As of June 30, 2014 and December 31, 2013, no amounts had been recorded because no specific liability has been identified that is reasonably probable of requiring the Company to fund any future material amounts. |
6_STOCKHOLDERS_EQUITY
6. STOCKHOLDERS' EQUITY | 6 Months Ended | ||||||||||||||||||||||||||||||
Jun. 30, 2014 | |||||||||||||||||||||||||||||||
Stockholders' equity: | ' | ||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY | ' | ||||||||||||||||||||||||||||||
The Company’s Articles of Incorporation do not authorize the Board of Directors to issue any shares of preferred stock. As of June 30, 2014 there were no issued and outstanding shares of preferred stock and there were no agreements or understandings for the issuance of preferred stock. | |||||||||||||||||||||||||||||||
During the quarter ended June 30, 2014, the Company issued 447,155 shares of Common Stock for cash of $1,650,000. | |||||||||||||||||||||||||||||||
During the quarter ended June 30, 2014, the Company issued 50,180 shares of Common Stock as compensation for services valued at $161,202. | |||||||||||||||||||||||||||||||
During the quarter ended June 30, 2014, the Company issued 100,000 shares of Common Stock for exercise of warrants. | |||||||||||||||||||||||||||||||
During the quarter ended June 30, 2014 the Company issued 579,285 shares of Common Stock in conversions of convertible note principal of $1,013,750 and 5,437 shares for interest of $9,514 on convertible notes. | |||||||||||||||||||||||||||||||
During the quarter ended June 30, 2014, the Company issued 912,845 shares of Common Stock for mineral interests valued at $3,225,629. | |||||||||||||||||||||||||||||||
A summary of warrants and stock options outstanding as of June 30, 2014 by exercise price and year of expiration is presented below: | |||||||||||||||||||||||||||||||
Exercise | Expiration Date in | ||||||||||||||||||||||||||||||
Price | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Total | ||||||||||||||||||||||||
$ | 1.75 | 80,000 | 855,000 | 1,135,714 | - | - | 2,070,714 | ||||||||||||||||||||||||
$ | 2 | - | - | 1,035,271 | 126,000 | 1,696,380 | 2,857,651 | ||||||||||||||||||||||||
$ | 2.09 | 2,800,000 | 2,800,000 | ||||||||||||||||||||||||||||
$ | 2.5 | 225,000 | 50,000 | 100,000 | - | - | 375,000 | ||||||||||||||||||||||||
$ | 2.75 | 250,000 | 250,000 | ||||||||||||||||||||||||||||
$ | 2.82 | 38,174 | 38,174 | ||||||||||||||||||||||||||||
$ | 3 | 100,000 | 100,000 | ||||||||||||||||||||||||||||
$ | 5 | - | - | 25,000 | 20,000 | 45,000 | |||||||||||||||||||||||||
$ | 6 | 577,501 | 142,111 | 719,612 | |||||||||||||||||||||||||||
305,000 | 905,000 | 2,645,985 | 146,000 | 5,112,055 | 142,111 | 9,256,151 | |||||||||||||||||||||||||
At June 30, 2014 the Company had reserved 9,256,151 shares for future exercise of warrants. | |||||||||||||||||||||||||||||||
Warrants issued in relation to the promissory notes issued (see note 9) were valued using the Black-Scholes Option Pricing Model. The assumptions used in calculating the fair value of the warrants issued are as follows: | |||||||||||||||||||||||||||||||
Risk-free interest rate | 0.78% | ||||||||||||||||||||||||||||||
Expected volatility of common stock | 191% - 247% | ||||||||||||||||||||||||||||||
Dividend yield | 0.00% | ||||||||||||||||||||||||||||||
Discount due to lack of marketability | 20% to 30% | ||||||||||||||||||||||||||||||
Expected life of warrant | 3 – 5 years |
7_INVESTMENT_IN_OIL_AND_GAS_PR
7. INVESTMENT IN OIL AND GAS PROPERTIES | 6 Months Ended | ||||||||
Jun. 30, 2014 | |||||||||
Extractive Industries [Abstract] | ' | ||||||||
7. INVESTMENT IN OIL AND GAS PROPERTIES | ' | ||||||||
The following table presents the investment in oil and gas properties of the Company as of June 30, 2014 and December 31, 2013: | |||||||||
6/30/14 | 12/31/13 | ||||||||
Evaluated costs subject to amortization | $ | 20,490,274 | $ | 9,484,014 | |||||
Unevaluated costs | 7,989,540 | 4,758,806 | |||||||
Total capitalized costs | 28,479,814 | 14,242,820 | |||||||
Less accumulated depreciation, depletion and amortization | (2,162,914 | ) | (1,204,069 | ) | |||||
Net capitalized costs | $ | 26,316,900 | $ | 13,038,751 | |||||
Unevaluated costs as of June 30, 2014 include $656,647 associated with the Company’s interest in the Coulter #1 well. The Coulter #1 wells is undergoing production and test operations with the goal of removing sufficient water from the wellbore to allow production of natural gas. Other unevaluated costs are related to accumulated mineral lease costs. | |||||||||
In April 2013, we entered into an agreement to acquire certain assets of Xtreme Oil & Gas, Inc. of Plano, Texas (“Xtreme”). Included in that agreement were the Smokey Hills Prospect in McPherson County, Kansas, the Cimarron Area Hunton Project in Logan County, Oklahoma, and an interest in a salt water disposal facility in Seminole, Oklahoma. Total consideration for all the properties was $1.6 million. | |||||||||
During the second quarter, 2014 the Company acquired additional interest in Hunton properties in exchange for 902,845 shares of common stock valued at $3,193,029. This acquisition increased the percentage ownership in leased acreage and working interests in various Hunton wells. | |||||||||
8_INCOME_TAXES
8. INCOME TAXES | 6 Months Ended |
Jun. 30, 2014 | |
Income Taxes | ' |
Income Tax Disclosure | ' |
Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carry forwards. Deferred 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 tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is established to reduce deferred tax assets if it is more likely than not that the related tax benefits will not be realized. The Company has placed a 100% valuation allowance against the net deferred tax asset because future realization of these assets is not assured. | |
Authoritative guidance for uncertainty in income taxes requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an examination. Management has reviewed the Company’s tax positions and determined there were no uncertain tax positions requiring recognition in the consolidated financial statements. The Company’s tax returns remain subject to federal and state tax examinations for all tax years since inception as none of the statutes have expired. Generally, the applicable statutes of limitation are three to four years from their respective filings. | |
Estimated interest and penalties related to potential underpayment on any unrecognized tax benefits are classified as a component of tax expense in the statement of operation. The Company has not recorded any interest or penalties associated with unrecognized tax benefits for any periods covered by these financial statements. | |
As of December 31, 2013 the Company had federal net operating loss carry forwards of approximately $12.6 million available to offset future taxable income, and has incurred additional taxable losses during 2014. These loss carry forwards will expire in various years through 2032, if not previously utilized. Utilization of these net operating loss carry forwards is dependent, in part, on generating sufficient taxable income prior to the expiration of such loss carry forwards. In addition, the Company’s ability to utilize its net operating loss carry forwards may be substantially limited or eliminated pursuant to Internal Revenue Code Section 382. | |
9_PROMISSORY_NOTES
9. PROMISSORY NOTES | 6 Months Ended |
Jun. 30, 2014 | |
PROMISSORY NOTES | ' |
Promissory Notes | ' |
On December 18, 2012, the Company exchanged $412,500 of outstanding convertible promissory notes for new 12% Series A Secured Convertible Promissory Notes (“12% Notes”) described below. The 12% Notes were issued as part of a larger offering with senior liens on the Company’s oil and gas properties. In order to induce the holders of the previously outstanding convertible promissory notes to exchange such promissory notes and to relinquish their priority liens on the Company’s oil and gas properties in favor of all 12% Convertible Promissory Note holders, the Company agreed to grant the note holders a total of 235,714 four year warrants to purchase common stock at $1.75 per share, valued at $240,428, and 235,714 four year warrants to purchase common stock at $2.00 per share, valued at $233,357. The total of these warrants, $473,785, is reflected as debt issuance costs on the balance sheet, as these costs relate to the larger offering of 12% Convertible Promissory Notes. | |
On December 18, 2012, the Company issued $690,000 of 12% Notes to new investors. The 12% Notes are due and payable on March 31, 2015 and provide for conversion into common stock at a price of $1.75 per share and include the issuance of 8,000 warrants for each $70,000 of principal amount purchased. The warrants carry a five year term and have an exercise price of $2.00 per share. They were valued at $137,340, which is reflected as a discount on the 12% Notes, to be amortized over the life of the debt under the effective interest method. Since the conversion price on the 12% Notes was below the market price of the Company’s common stock on the date of issuance, this constitutes a beneficial conversion feature. The amount is calculated as the difference between the market price of the common stock on the date of closing and the effective conversion price as adjusted by the discount for the warrants issued. The amount of the beneficial conversion feature was $390,600, and is also reflected as a discount on the 12% Notes. The fair value of the 12% Notes is determined utilizing Level 2 measurements in the fair value hierarchy. | |
During the year ended December 31, 2013, the Company issued an additional $10,895,773 in principal value of 12% Notes. Such notes carry the same terms as described above. In connection therewith, the Company also issued a total of 1,308,082 five-year warrants to purchase common stock at an exercise price of $2.00 per share. The value of the warrant shares was $1,917,158 and the amount recorded for the beneficial conversion feature was $5,770,654. These amounts were recorded as a discount on the 12% Notes. In addition, the Company engaged a placement agent to source investors for the majority of these additional notes. This placement agent was paid a fee of 10% of the principal amount of the notes plus a non-accountable expense reimbursement of up to 2% of the principal raised by the agent. The placement agent also received 552,057 warrants to purchase common shares at $2.00 per share for a period of three years, valued at $614,163. All the amounts paid to the placement agent have been included in debt issuance costs and will be amortized into interest expense over the life of the 12% Notes. | |
The 12% Notes described above have a first priority lien on all of the assets of the Company. | |
During the quarter ended June 30, 2014, the Company issued an additional $3,197,500 in principal value of 12% Series B Convertible Unsecured Promissory Notes. The 12% Notes are due and payable on June 30, 2017 and provide for conversion into common stock at a price of $4.50 per share and include the issuance of one warrant for each $22.50 of principal amount purchased. The Company issued a total of 142,111 of these five-year warrants to purchase common stock at an exercise price of $6.00 per share. The value of the warrant shares was $405,016 and the amount recorded for the beneficial conversion feature was $195,466. These amounts were recorded as a discount on the 12% Notes. |
10_ASSET_RETIREMENT_OBLIGATION
10. ASSET RETIREMENT OBLIGATIONS | 6 Months Ended | ||||
Jun. 30, 2014 | |||||
ASSET RETIREMENT OBLIGATIONS | ' | ||||
ASSET RETIREMENT OBLIGATIONS | ' | ||||
The following is a reconciliation of the asset retirement obligation liability through June 30, 2014: | |||||
Asset retirement obligation – January 1, 2012 | $ | 11,369 | |||
Adjustment to estimated liability | 693 | ||||
Accretion expense | 552 | ||||
Asset retirement obligation – December 31, 2012 | $ | 12,614 | |||
Estimated liabilities recorded | 10,407 | ||||
Accretion Expense | 1,361 | ||||
Asset retirement obligation – December 31, 2013 | $ | 24,382 | |||
Accretion Expense | 534 | ||||
Asset retirement obligation – March 31, 2014 | $ | 24,916 | |||
Accretion Expense | 1,059 | ||||
Asset retirement obligation – June 30, 2014 | $ | 25,975 | |||
11_SUBSEQUENT_EVENTS
11. SUBSEQUENT EVENTS | 6 Months Ended |
Jun. 30, 2014 | |
SUBSEQUENT EVENTS | ' |
SUBSEQUENT EVENTS | ' |
On August 7, 2014, we entered into a Purchase Agreement with Hudspeth Oil Corporation (“Hudspeth”), McCabe Petroleum Corporation (“MPC”) and Greg McCabe. Mr. McCabe is the sole owner of both Hudspeth and MPC. Under the terms and conditions of the Purchase Agreement, at closing, we will purchase 100% of the capital stock of Hudspeth which will holds certain oil and gas assets, including a 100% working interest in 172,000 mostly contiguous acres in the Orogrande Basin in West Texas. This acreage is in the primary term under five-year leases that carry additional five-year extension provisions. As consideration, at closing we will issue 868,750 shares of our common stock to Mr. McCabe and pay a total of $100,000 in geologic origination fees to third parties. Additionally, Mr. McCabe will have an optional 10% working interest back-in after payout and a reversionary interest if drilling obligations are not met, all under the terms and conditions of a participation and development agreement. Closing of the transactions contemplated by the Purchase Agreement is to take place on or before September 23, 2014. | |
3_SIGNIFICANT_ACCOUNTING_POLIC1
3. SIGNIFICANT ACCOUNTING POLICIES (POLICIES) | 6 Months Ended | ||
Jun. 30, 2014 | |||
SIGNIFICANT ACCOUNTING POLICIES (POLICIES) | ' | ||
Use of estimates | ' | ||
Use of estimates – The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and certain assumptions that affect the amounts reported in these consolidated financial statements and accompanying notes. Actual results could differ from these estimates. | |||
Basis of presentation | ' | ||
Basis of presentation—The financial statements are presented on a consolidated basis and include all of the accounts of Torchlight Energy Resources Inc. and its wholly owned subsidiary, Torchlight Energy, Inc. All significant intercompany balances and transactions have been eliminated. | |||
Risks and uncertainties | ' | ||
Risks and uncertainties – The Company’s operations are subject to significant risks and uncertainties, including financial, operational, technological and other risks associated with operating an emerging business, including the potential risk of business failure. | |||
Concentration of risks | ' | ||
Concentration of risks – The Company’s cash is placed with a highly rated financial institution, and the Company periodically reviews the credit worthiness of the financial institutions with which it does business. At times the Company’s cash balances are in excess of amounts guaranteed by the Federal Deposit Insurance Corporation. | |||
Fair value of financial instruments | ' | ||
Fair value of financial instruments – Financial instruments consist of cash, accounts receivable, notes receivable, accounts payable, notes payable to related party and convertible promissory notes. The estimated fair values of cash, accounts receivable, notes receivable, accounts payable and notes to related party approximate the carrying amount due to the relatively short maturity of these instruments. The carrying amounts of notes receivable and convertible promissory notes approximate their fair value giving affect for the term of the note and the effective interest rates. | |||
For assets and liabilities that require re-measurement to fair value the Company categorizes them in a three-level fair value hierarchy as follows: | |||
· | Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities. | ||
· | Level 2 inputs are quoted prices for similar assets and liabilities in active markets or inputs that are observable for the asset or liability, either directly or indirectly through market corroboration. | ||
· | Level 3 inputs are unobservable inputs based on management’s own assumptions used to measure assets and liabilities at fair value. | ||
A financial asset or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. | |||
Accounts receivable | ' | ||
Accounts receivable – Accounts receivable consist of uncollateralized oil and natural gas revenues due under normal trade terms, as well as amounts due from working interest owners of oil and gas properties for their share of expenses paid on their behalf by the Company. Management reviews receivables periodically and reduces the carrying amount by a valuation allowance that reflects management’s best estimate of the amount that may not be collectible. As of June 30, 2014 and December 31, 2013 no valuation allowance was considered necessary. | |||
Investment in oil and gas properties | ' | ||
Investment in oil and gas properties – The Company uses the full cost method of accounting for exploration and development activities as defined by the Securities and Exchange Commission (“SEC”). Under this method of accounting, the costs of unsuccessful, as well as successful, exploration and development activities are capitalized as properties and equipment. This includes any internal costs that are directly related to property acquisition, exploration and development activities but does not include any costs related to production, general corporate overhead or similar activities. Gain or loss on the sale or other disposition of oil and gas properties is not recognized, unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves. | |||
Oil and gas properties include costs that are excluded from costs being depleted or amortized. Oil and natural gas property costs excluded represent investments in unevaluated properties and include non-producing leasehold, geological and geophysical costs associated with leasehold or drilling interests and exploration drilling costs. The Company allocates a portion of its acquisition costs to unevaluated properties based on relative value. Costs are transferred to the full cost pool as the properties are evaluated over the life of the reservoir. | |||
Capitalized interest | ' | ||
Capitalized interest - The Company capitalizes interest on unevaluated properties during the periods in which they are excluded from costs being depleted or amortized. During the six months ended June 30, 2014, the Company capitalized $13,190 of interest on unevaluated properties. | |||
Depreciation, depletion and amortization | ' | ||
Depreciation, depletion and amortization –The depreciable base for oil and natural gas properties includes the sum of all capitalized costs net of accumulated depreciation, depletion and amortization (“DD&A”), estimated future development costs and asset retirement costs not included in oil and natural gas properties, less costs excluded from amortization. The depreciable base of oil and natural gas properties is amortized on a unit-of-production method. | |||
Ceiling test | ' | ||
Ceiling test – Future production volumes from oil and gas properties are a significant factor in determining the full cost ceiling limitation of capitalized costs. Under the full cost method of accounting, the Company is required to periodically perform a “ceiling test” that determines a limit on the book value of oil and gas properties. If the net capitalized cost of proved oil and gas properties, net of related deferred income taxes, plus the cost of unproved oil and gas properties, exceeds the present value of estimated future net cash flows discounted at 10 percent, net of related tax affects, plus the cost of unproved oil and gas properties, the excess is charged to expense and reflected as additional accumulated DD&A. The ceiling test calculation uses a commodity price assumption which is based on the weighted arithmetic average of the price on the first day of each month for each month within the prior 12 month period and excludes future cash outflows related to estimated abandonment costs. The Company did not recognize impairment on its oil and gas properties during the quarter ended June 30, 2014, nor any prior period. Due to the volatility of commodity prices, should oil and natural gas prices decline in the future, it is possible that a write-down could occur. | |||
Proved reserves are estimated quantities of crude oil, natural gas, and natural gas liquids, which geological and engineering data demonstrate with reasonable certainty to be recoverable from known reservoirs under existing economic and operating conditions. The independent engineering estimates include only those amounts considered to be proved reserves and do not include additional amounts which may result from new discoveries in the future, or from application of secondary and tertiary recovery processes where facilities are not in place or for which transportation and/or marketing contracts are not in place. Estimated reserves to be developed through secondary or tertiary recovery processes are classified as unevaluated properties. | |||
The determination of oil and gas reserves is a subjective process, and the accuracy of any reserve estimate depends on the quality of available data and the application of engineering and geological interpretation and judgment. Estimates of economically recoverable reserves and future net cash flows depend on a number of variable factors and assumptions that are difficult to predict and may vary considerably from actual results. In particular, reserve estimates for wells with limited or no production history are less reliable than those based on actual production. Subsequent re-evaluation of reserves and cost estimates related to future development of proved oil and gas reserves could result in significant revisions to proved reserves. Other issues, such as changes in regulatory requirements, technological advances and other factors which are difficult to predict could also affect estimates of proved reserves in the future. | |||
Gains and losses on the sale of oil and gas properties are not generally reflected in income. Sales of less than 100% of the Company’s interest in the oil and gas property are treated as a reduction of the capital cost of the field, with no gain or loss recognized, as long as doing so does not significantly affect the unit-of-production depletion rate. Costs of retired equipment, net of salvage value, are usually charged to accumulated depreciation. | |||
Goodwill | ' | ||
Goodwill - Goodwill represents the excess of the purchase price over the fair value of the net identifiable tangible and intangible assets of acquired companies. Goodwill is not amortized; instead, it is tested for impairment annually or more frequently if indicators of impairment exist. | |||
Goodwill was $447,084 as of June 30, 2014 and December 31, 2013, and was acquired on November 23, 2010 in connection with the Company’s reverse acquisition (Note 1). | |||
Asset retirement obligations | ' | ||
Asset retirement obligations – Accounting principles require that the fair value of a liability for an asset’s retirement obligation (“ARO”) be recorded in the period in which it is incurred if a reasonable estimate of fair value can be made, and that the corresponding cost be capitalized as part of the carrying amount of the related long-lived asset. The liability is accreted to its then-present value each subsequent period, and the capitalized cost is depleted over the useful life of the related asset. Abandonment cost incurred is recorded as a reduction to the ARO liability. | |||
Inherent in the fair value calculation of an ARO are numerous assumptions and judgments including the ultimate settlement amounts, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the fair value of the existing ARO liability, a corresponding adjustment is made to the oil and gas property balance. Settlements greater than or less than amounts accrued as ARO are recorded as a gain or loss upon settlement. | |||
Asset retirement obligation activity is disclosed in Note 10. | |||
Share-Based Compensation | ' | ||
Share-based compensation– Compensation cost for equity awards is based on the fair value of the equity instrument on the date of grant and is recognized over the period during which an employee is required to provide service in exchange for the award. Compensation cost for liability awards is based on the fair value of the vested award at the end of each period. | |||
Revenue Recognition | ' | ||
Revenue recognition – The Company recognizes oil and gas revenues based on production date. When production is sold at a fixed or determinable price, persuasive evidence of an arrangement exists, delivery has occurred and title has transferred, and collectability is reasonably assured any revenue adjustments for volume variances are recognized. | |||
Basic and Diluted Earnings (Loss) Per Share | ' | ||
Basic and diluted earnings (loss) per share - Basic earnings (loss) per common share is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings (loss) per common share is computed in the same way as basic earnings (loss) per common share except that the denominator is increased to include the number of additional common shares that would be outstanding if all potential common shares had been issued and if the additional common shares were dilutive. The Company has not included potentially dilutive securities in the calculation of loss per share for any periods presented as the effects would be anti-dilutive. | |||
Environmental laws and regulations | ' | ||
Environmental laws and regulations – The Company is subject to extensive federal, state and local environmental laws and regulations. Environmental expenditures are expensed or capitalized depending on their future economic benefit. The Company believes that it is in compliance with existing laws and regulations. | |||
Recent accounting pronouncements | ' | ||
Recent accounting pronouncements – In May 2011, the FASB issued updated accounting guidance related to fair value measurements and disclosures. This guidance includes amendments that clarify the application of existing fair value measurement requirements, in addition to other amendments that change principles or requirements for measuring fair value and for disclosing information about fair value measurements. This guidance is effective for annual periods beginning after December 15, 2011. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements. | |||
In May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09 that introduces a new five-step revenue recognition model in which an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU also requires disclosures sufficient to enable users to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers, including qualitative and quantitative disclosures about contracts with customers, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract. This standard is effective for fiscal years beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating the new guidance to determine the impact it will have on its consolidated financial statements. | |||
In September 2011, the FASB issued guidance that amends and simplifies the rules related to testing goodwill for impairment. The revised guidance allows an entity to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination whether it is more likely than not that the fair value of reporting unit is less than its carrying amount. The results of this assessment will determine whether it is necessary to perform the currently required two-step impairment test. Under this update, an entity also has the option to bypass the qualitative assessment for any reporting unit in any period and proceed directly to performing the two-step goodwill impairment test. This guidance is effective for annual periods beginning after December 15, 2011. The adoption of this guidance did not have a material effect on the Company’s consolidated financial statements. | |||
Other recently issued or adopted accounting pronouncements are not expected to have, or did not have, a material impact on the Company’s financial position or results from operations. | |||
Subsequent Events | ' | ||
Subsequent events – The Company evaluated subsequent events through August 14, 2014 the date of issuance of the financial statements. Subsequent events are disclosed in Note 11. |
6_STOCKHOLDERS_EQUITY_Tables
6. STOCKHOLDERS' EQUITY (Tables) | 6 Months Ended | ||||||||||||||||||||||||||||||
Jun. 30, 2014 | |||||||||||||||||||||||||||||||
STOCKHOLDERS' EQUITY (TABLES) | ' | ||||||||||||||||||||||||||||||
Summary of warrant activity | ' | ||||||||||||||||||||||||||||||
Exercise | Expiration Date in | ||||||||||||||||||||||||||||||
Price | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | Total | ||||||||||||||||||||||||
$ | 1.75 | 80,000 | 855,000 | 1,135,714 | - | - | 2,070,714 | ||||||||||||||||||||||||
$ | 2 | - | - | 1,035,271 | 126,000 | 1,696,380 | 2,857,651 | ||||||||||||||||||||||||
$ | 2.09 | 2,800,000 | 2,800,000 | ||||||||||||||||||||||||||||
$ | 2.5 | 225,000 | 50,000 | 100,000 | - | - | 375,000 | ||||||||||||||||||||||||
$ | 2.75 | 250,000 | 250,000 | ||||||||||||||||||||||||||||
$ | 2.82 | 38,174 | 38,174 | ||||||||||||||||||||||||||||
$ | 3 | 100,000 | 100,000 | ||||||||||||||||||||||||||||
$ | 5 | - | - | 25,000 | 20,000 | 45,000 | |||||||||||||||||||||||||
$ | 6 | 577,501 | 142,111 | 719,612 | |||||||||||||||||||||||||||
305,000 | 905,000 | 2,645,985 | 146,000 | 5,112,055 | 142,111 | 9,256,151 | |||||||||||||||||||||||||
Assumptions used in calculating the fair value of the warrants | ' | ||||||||||||||||||||||||||||||
Risk-free interest rate | 0.78% | ||||||||||||||||||||||||||||||
Expected volatility of common stock | 191% - 247% | ||||||||||||||||||||||||||||||
Dividend yield | 0.00% | ||||||||||||||||||||||||||||||
Discount due to lack of marketability | 20% to 30% | ||||||||||||||||||||||||||||||
Expected life of warrant | 3 – 5 years |
7_INVESTMENT_IN_OIL_AND_GAS_PR1
7. INVESTMENT IN OIL AND GAS PROPERTIES (Tables) | 6 Months Ended | ||||||||
Jun. 30, 2014 | |||||||||
Capitalized Costs (Table): | ' | ||||||||
Capitalized Costs (Table) | ' | ||||||||
6/30/14 | 12/31/13 | ||||||||
Evaluated costs subject to amortization | $ | 20,490,274 | $ | 9,484,014 | |||||
Unevaluated costs | 7,989,540 | 4,758,806 | |||||||
Total capitalized costs | 28,479,814 | 14,242,820 | |||||||
Less accumulated depreciation, depletion and amortization | (2,162,914 | ) | (1,204,069 | ) | |||||
Net capitalized costs | $ | 26,316,900 | $ | 13,038,751 |
10_ASSET_RETIREMENT_OBLIGATION1
10. ASSET RETIREMENT OBLIGATIONS (Tables) | 6 Months Ended | ||||
Jun. 30, 2014 | |||||
ASSET RETIREMENT OBLIGATIONS (Tables) | ' | ||||
Reconciliation of the asset retirement obligation liability | ' | ||||
Asset retirement obligation – January 1, 2012 | $ | 11,369 | |||
Adjustment to estimated liability | 693 | ||||
Accretion expense | 552 | ||||
Asset retirement obligation – December 31, 2012 | $ | 12,614 | |||
Estimated liabilities recorded | 10,407 | ||||
Accretion Expense | 1,361 | ||||
Asset retirement obligation – December 31, 2013 | $ | 24,382 | |||
Accretion Expense | 534 | ||||
Asset retirement obligation – March 31, 2014 | $ | 24,916 | |||
Accretion Expense | 1,059 | ||||
Asset retirement obligation – June 30, 2014 | $ | 25,975 |
10_ASSET_RETIREMENT_OBLIGATION2
10. ASSET RETIREMENT OBLIGATIONS (Tables) | 6 Months Ended | ||||
Jun. 30, 2014 | |||||
ASSET RETIREMENT OBLIGATIONS (Tables) | ' | ||||
Asset retirement obligation | ' | ||||
Asset retirement obligation – January 1, 2012 | $ | 11,369 | |||
Adjustment to estimated liability | 693 | ||||
Accretion expense | 552 | ||||
Asset retirement obligation – December 31, 2012 | $ | 12,614 | |||
Estimated liabilities recorded | 10,407 | ||||
Accretion Expense | 1,361 | ||||
Asset retirement obligation – December 31, 2013 | $ | 24,382 | |||
Accretion Expense | 534 | ||||
Asset retirement obligation – March 31, 2014 | $ | 24,916 | |||
Accretion Expense | 1,059 | ||||
Asset retirement obligation – June 30, 2014 | $ | 25,975 |
2_Going_Concern_Details_Narrat
2. Going Concern (Details Narrative) (USD $) | Jun. 30, 2014 |
Going Concern Accumulated Losses | ' |
Accumulated Losses since inception | $26,333,562 |
6_STOCKHOLDERS_EQUITY_Details
6. STOCKHOLDERSb EQUITY (Details) | 6 Months Ended |
Jun. 30, 2014 | |
Exercise Price 1.75 | 2,070,714 |
Exercise Price 2.00 | 2,857,651 |
Exercise Price 2.09 | 2,800,000 |
Exercise price 2.50 | 375,000 |
Exercise price 2.75 | 250,000 |
Exercise price 2.82 | 38,174 |
Exercise price 3.00 | 100,000 |
Exercise price 5.00 | 45,000 |
Exercise price 6.00 | 719,612 |
Outstanding warrants | 9,256,151 |
Expiring in the year 2014 | ' |
Exercise Price 1.75 | 80,000 |
Exercise Price 2.00 | ' |
Exercise Price 2.09 | ' |
Exercise price 2.50 | 225,000 |
Exercise price 2.75 | ' |
Exercise price 2.82 | ' |
Exercise price 3.00 | ' |
Exercise price 5.00 | ' |
Exercise price 6.00 | ' |
Outstanding warrants | 305,000 |
Expiring in the year 2015 | ' |
Exercise Price 1.75 | 855,000 |
Exercise Price 2.00 | ' |
Exercise Price 2.09 | ' |
Exercise price 2.50 | 50,000 |
Exercise price 2.75 | ' |
Exercise price 2.82 | ' |
Exercise price 3.00 | ' |
Exercise price 5.00 | ' |
Exercise price 6.00 | ' |
Outstanding warrants | 905,000 |
Expiring in the year 2016 | ' |
Exercise Price 1.75 | 1,135,714 |
Exercise Price 2.00 | 1,035,271 |
Exercise Price 2.09 | ' |
Exercise price 2.50 | 100,000 |
Exercise price 2.75 | 250,000 |
Exercise price 2.82 | ' |
Exercise price 3.00 | 100,000 |
Exercise price 5.00 | 25,000 |
Exercise price 6.00 | ' |
Outstanding warrants | 2,645,985 |
Expiring in the year 2017 | ' |
Exercise Price 1.75 | ' |
Exercise Price 2.00 | 126,000 |
Exercise Price 2.09 | ' |
Exercise price 2.50 | ' |
Exercise price 2.75 | ' |
Exercise price 2.82 | ' |
Exercise price 3.00 | ' |
Exercise price 5.00 | 20,000 |
Exercise price 6.00 | ' |
Outstanding warrants | 146,000 |
Expiring in the year 2018 | ' |
Exercise Price 1.75 | ' |
Exercise Price 2.00 | 1,696,380 |
Exercise Price 2.09 | 2,800,000 |
Exercise price 2.50 | ' |
Exercise price 2.75 | ' |
Exercise price 2.82 | 38,174 |
Exercise price 3.00 | ' |
Exercise price 5.00 | ' |
Exercise price 6.00 | 577,501 |
Outstanding warrants | 5,112,055 |
Expiring in the year 2019 | ' |
Exercise Price 1.75 | ' |
Exercise Price 2.00 | ' |
Exercise Price 2.09 | ' |
Exercise price 2.50 | ' |
Exercise price 2.75 | ' |
Exercise price 2.82 | ' |
Exercise price 3.00 | ' |
Exercise price 5.00 | ' |
Exercise price 6.00 | 142,111 |
Outstanding warrants | 142,111 |
6_STOCKHOLDERS_EQUITY_Details_
6. STOCKHOLDERSb EQUITY (Details 1) | 6 Months Ended |
Jun. 30, 2014 | |
Risk-free interest rate | 0.78% |
Expected volatility of common stock Minimum | 191.00% |
Expected volatility of common stock Maximum | 247.00% |
Dividend yield | 0.00% |
Minimum | ' |
Discount due to lack of marketability | '20% |
Expected life of warrant in years | '3 years |
Maximum | ' |
Discount due to lack of marketability | '30% |
Expected life of warrant in years | '5 years |
7_INVESTMENT_IN_OIL_AND_GAS_PR2
7. INVESTMENT IN OIL AND GAS PROPERTIES (Details) (USD $) | Jun. 30, 2014 | Dec. 31, 2013 |
Presents the capitalized costs as follows: | ' | ' |
Evaluated costs subject to amortization | $20,490,274 | $9,484,014 |
Unevaluated costs | 7,989,540 | 4,758,806 |
Total capitalized costs | 28,479,814 | 14,242,820 |
Less accumulated depreciation, depletion and amortization | -2,162,914 | -1,204,069 |
Net capitalized costs | $26,316,900 | $13,038,751 |
8_INCOME_TAXES_Details_Narrati
8. INCOME TAXES (Details Narrative) (USD $) | Dec. 31, 2013 |
Income Taxes Operating loss carryforwards | ' |
Net operating loss carryforwards | $12,600,000 |
10_ASSET_RETIREMENET_OBLIGATIO
10. ASSET RETIREMENET OBLIGATION (Details) (USD $) | 3 Months Ended | 12 Months Ended | ||
Jun. 30, 2014 | Mar. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2012 | |
Asset Retiremenet Obligation Details | ' | ' | ' | ' |
Asset retirement obligation | $24,916 | $24,382 | $12,614 | $11,369 |
Adjustment to estimated liability | ' | ' | 10,407 | 693 |
Accretion expense | 1,059 | 534 | 1,361 | 552 |
Asset retirement obligation | $25,975 | $24,916 | $24,382 | $12,614 |