Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Mar. 15, 2019 | Jun. 30, 2018 | |
Document and Entity Information | |||
Entity Registrant Name | TORCHLIGHT ENERGY RESOURCES INC | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2018 | ||
Amendment Flag | false | ||
Entity Central Index Key | 0001431959 | ||
Current Fiscal Year End Date | --12-31 | ||
Entity Public Float | $ 73,042,665 | ||
Entity Common Stock, Shares Outstanding | 71,695,865 | ||
Entity Filer Category | Accelerated Filer | ||
Entity Emerging Growth Company | false | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Current Reporting Status | Yes | ||
Entity Voluntary Filers | No | ||
Entity Well-known Seasoned Issuer | No | ||
Document Fiscal Year Focus | 2018 | ||
Document Fiscal Period Focus | FY |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash | $ 840,163 | $ 1,051,720 |
Accounts receivable | 179,702 | 596,141 |
Production revenue receivable | 294,715 | 142,932 |
Prepayments - development costs | 146,422 | 1,335,652 |
Prepaid expenses | 60,980 | 39,506 |
Total current assets | 1,521,982 | 3,165,951 |
Oil and gas properties, net | 36,565,461 | 25,579,279 |
Office equipment, net | 4,076 | 15,716 |
Other assets | 6,362 | 6,362 |
TOTAL ASSETS | 38,097,881 | 28,767,308 |
Current liabilities: | ||
Accounts payable | 729,806 | 762,502 |
Funds received pending settlement | 0 | 520,400 |
Accrued payroll | 816,176 | 695,176 |
Related party payables | 45,000 | 45,000 |
Due to working interest owners | 54,320 | 54,320 |
Accrued interest payable | 553,370 | 202,050 |
Total current liabilities | 2,198,672 | 2,279,448 |
Unsecured promissory notes, net of discount and financing costs of $702,217 at December 31, 2018 and $795,017 at December 31, 2017 | 11,862,080 | 7,269,281 |
Note payable after one year | 6,000,000 | 3,250,000 |
Asset retirement obligation | 14,353 | 9,274 |
Total Liabilities | 20,075,105 | 12,808,003 |
Commitments and contingencies | ||
Stockholders' equity: | ||
Preferred stock, par value $0.001, 10,000,000 shares authorized; -0- issued and outstanding at December 30, 2018 and December 31, 2017 | 0 | 0 |
Common stock, par value $0.001 per share; 150,000,000 shares authorized; 70,112,376 issued and outstanding at December 30, 2018 63,340,034 issued and outstanding at December 31, 2017 | 70,116 | 63,344 |
Additional paid-in capital | 107,266,965 | 99,403,654 |
Accumulated deficit | (89,314,305) | (83,507,693) |
Total stockholders' equity | 18,022,776 | 15,959,305 |
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ 38,097,881 | $ 28,767,308 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
ASSETS | ||
Discount on Convertible promissory notes noncurrent | $ 702,217 | $ 795,017 |
Preferred Stock, par value | $ 0.001 | $ 0.001 |
Preferred Stock, shares authorized | 10,000,000 | 10,000,000 |
Preferred Stock, shares issued | 0 | 0 |
Preferred Stock, shares outstanding | 0 | 0 |
Common Stock, par or stated value | $ 0.001 | $ 0.001 |
Common Stock, shares authorized | 150,000,000 | 150,000,000 |
Common Stock, shares issued | 70,112,376 | 63,340,034 |
Common Stock, shares outstanding | 70,112,376 | 63,340,034 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Revenue | ||
Oil and gas sales | $ 1,282,362 | $ 570,499 |
Cost of revenue | (806,158) | (173,187) |
Gross income | 476,204 | 397,312 |
Operating expenses: | ||
General and administrative expense | (4,053,062) | (3,652,970) |
Depreciation, depletion and amortization | (1,173,752) | (100,156) |
Loss on settlement | (369,439) | 0 |
Impairment loss | (139,891) | 0 |
Total operating expenses | (5,736,144) | (3,753,126) |
Other income (expense) | ||
Interest and accretion expense | (547,710) | (346,050) |
Interest income | 1,038 | 454 |
Consulting income | 0 | 2,781,500 |
Total other income (expense) | (546,672) | 2,435,904 |
Loss before income taxes | (5,806,612) | (919,910) |
Provision for income taxes | 0 | 0 |
Net loss | $ (5,806,612) | $ (919,910) |
Loss per share: | ||
Basic and Diluted | $ (0.09) | $ (0.02) |
Weighted average shares outstanding: | ||
Basic and Diluted | 68,134,745 | 59,623,105 |
CONSOLIDATED STATEMENT OF STOCK
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - USD ($) | Common Stock | Additional Paid-in Capital | Accumulated Deficit | Total |
Begining balance, shares at Dec. 31, 2016 | 55,096,503 | |||
Begining balance, amount at Dec. 31, 2016 | $ 55,100 | $ 89,675,488 | $ (82,587,785) | $ 7,142,803 |
Issuance of common stock for services, shares | 507,897 | 507,897 | ||
Issuance of common stock for services, amount | $ 508 | 579,246 | $ 579,754 | |
Issuance of common stock for lease interests, shares | 6,420,395 | |||
Issuance of common stock for lease interests, amount | $ 6,421 | 6,805,941 | 6,812,362 | |
Issuance of common stock for Note conversion, shares | 1,007,890 | |||
Issuance of common stock for Note conversion, amount | $ 1,008 | $ 1,007,890 | ||
Issuance of common stock for cash, less Underwriting/Offering Costs, shares | 0 | |||
Issuance of common stock for cash, less Underwriting/Offering Costs, amount | $ 0 | |||
Issuance of common stock for note payment in kind, shares | 0 | |||
Issuance of common stock for note payment in kind, amount | $ 0 | |||
Issuance of common stock in warrant exercise, shares | 307,349 | 307,349 | ||
Issuance of common stock in warrant exercise, amount | $ 307 | 242,993 | $ 243,300 | |
Warrants issued for services | 161,560 | 161,560 | ||
Stock options issued for services | 931,544 | 931,544 | ||
Net loss | (919,910) | (919,910) | ||
Ending balance, shares at Dec. 31, 2017 | 63,340,034 | |||
Ending balance, amount at Dec. 31, 2017 | $ 63,344 | 99,403,654 | (83,507,693) | $ 15,959,305 |
Issuance of common stock for services, shares | 450,000 | 450,000 | ||
Issuance of common stock for services, amount | $ 450 | 544,550 | $ 545,000 | |
Issuance of common stock for cash, less Underwriting/Offering Costs, shares | 5,750,000 | 5,750,000 | ||
Issuance of common stock for cash, less Underwriting/Offering Costs, amount | $ 5,750 | 6,043,984 | $ 6,049,734 | |
Issuance of common stock for note payment in kind, shares | 172,342 | 172,342 | ||
Issuance of common stock for note payment in kind, amount | $ 172 | 220,852 | $ 221,024 | |
Issuance of common stock in warrant exercise, shares | 400,000 | 400,000 | ||
Issuance of common stock in warrant exercise, amount | $ 400 | 199,600 | $ 200,000 | |
Warrants issued for services | 510,575 | 510,575 | ||
Stock options issued for services | 343,750 | 343,750 | ||
Net loss | (5,806,612) | (5,806,612) | ||
Ending balance, shares at Dec. 31, 2018 | 70,112,376 | |||
Ending balance, amount at Dec. 31, 2018 | $ 70,116 | $ 107,266,965 | $ (89,314,305) | $ 18,022,776 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOW - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Cash Flows From Operating Activities | ||
Net loss | $ (5,806,612) | $ (919,910) |
Adjustments to reconcile net loss to net cash from operations: | ||
Stock based compensation | 1,340,324 | 1,151,061 |
Accrued interest payable in stock | 228,057 | 0 |
Amortization of debt issuance costs | 268,917 | 188,342 |
Accretion of note discounts | 216,732 | 103,044 |
Depreciation, depletion and amortization | 1,173,752 | 100,156 |
Net settlement offset | (100,561) | 0 |
Impairment loss | 139,891 | 0 |
Change in: | ||
Accounts receivable | (3,400) | 7,305 |
Production revenue receivable | (151,783) | (135,607) |
Prepayments - development costs | 1,189,230 | (752,305) |
Prepaid expenses | (21,474) | (12,676) |
Other assets | 0 | 12,000 |
Accounts payable and accrued liabilities | 14,116 | 519,818 |
Accrued interest payable | 344,287 | 204,364 |
Net cash from operating activities | (1,168,524) | 465,592 |
Cash Flows From Investing Activities | ||
Investment in oil and gas properties | (12,149,916) | (9,460,830) |
Acquisition of office equipment | 0 | 2,182 |
Net cash used in investing activities | (12,149,916) | (9,458,648) |
Cash Flows From Financing Activities | ||
Issuance of common stock, net of in offering costs | 6,049,734 | 0 |
Proceeds from promissory notes | 4,107,149 | 10,541,475 |
Repayment of promissory notes | (3,250,000) | (2,509,500) |
Proceeds from notes payable | 6,000,000 | 0 |
Proceeds from warrant exercise | 200,000 | 243,300 |
Net cash from financing activities | 13,106,883 | 8,275,275 |
Net decrease in cash | (211,557) | (717,781) |
Cash - beginning of period | 1,051,720 | 1,769,501 |
Cash - end of period | 840,163 | 1,051,720 |
Supplemental disclosure of cash flow information: (Non Cash Items | ||
Increase in accounts payable for property development costs | 133,189 | 375,000 |
Common stock issued for financing costs | 0 | 279,754 |
Common stock issued for mineral interests | 0 | 6,812,362 |
Accounts payable increase-Investment in oil and gas properties | 0 | 375,000 |
Common stock issued for partial payment of unpaid compensation | 59,000 | 0 |
Common stock issued in conversion of promissory notes | 0 | 1,007,890 |
Common stock issued for payment in kind on notes payable | 221,024 | 0 |
Cash paid for interest | $ 1,519,573 | $ 813,652 |
1. NATURE OF BUSINESS
1. NATURE OF BUSINESS | 12 Months Ended |
Dec. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
NATURE OF BUSINESS | Torchlight Energy Resources, Inc. (“Company”) 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”). As a result of the transactions effected by the Exchange Agreement, at closing TEI became our wholly-owned subsidiary, and the business of TEI became our sole business. TEI was incorporated under the laws of the State of Nevada in June 2010. We are engaged in the acquisition, exploitation and/or development of oil and natural gas properties in the United States. We operate our business through our subsidiaries Torchlight Energy Inc., Torchlight Energy Operating, LLC, and Hudspeth Oil Corporation, Torchlight Hazel LLC, and Winkler Properties LLC. |
2. GOING CONCERN
2. GOING CONCERN | 12 Months Ended |
Dec. 31, 2018 | |
GOING CONCERN | |
GOING CONCERN | At December 31, 2018, the Company had not yet achieved profitable operations. We had a net loss of $5,806,612 for the year ended December 31, 2018 and had accumulated losses of $89,314,305 since our inception. We expect to incur further losses in the development of our business. The Company had a working capital deficit as of December 31, 2018 of $676,690. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent on its 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) obtain 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. These consolidated financial statements have been prepared assuming that the Company will continue as a going concern and therefore, the financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amount and classifications of liabilities that may result from the outcome of this uncertainty. |
3. SIGNIFICANT ACCOUNTING POLIC
3. SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2018 | |
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. 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 Basis of presentation Certain reclassifications have been made to the 2017 consolidated financial statements to make them consistent with the 2018 presentation. Total stockholders’ equity and net loss are unchanged due to these reclassifications made in cash flow statement. Risks and uncertainties Concentration of risks Fair value of financial instruments 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. Cash and cash equivalents - Accounts receivable As of December 31, 2017 accounts receivable included $419,839 the Company computed as being due from Husky Ventures with respect to the sale of Chisholm Trail properties in 2015 and in dispute as part of the Husky legal action in process at that dates. Additionally, a payment of $520,400 made by Husky Ventures which is also disputed by the Company had been included in current liabilities captioned “Funds received pending settlement”. The Company settled the matter with Husky during the quarter ended June 30, 2018. Oil and gas properties 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. Unevaluated properties are reviewed for impairment at least quarterly and are determined through an evaluation considering, among other factors, seismic data, requirements to relinquish acreage, drilling results, remaining time in the commitment period, remaining capital plan, and political, economic, and market conditions. Gains and losses on the sale of oil and gas properties are not generally reflected in income unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves. 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. Capitalized interest – Depreciation, depletion, and amortization Ceiling test 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. Asset retirement obligations 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. Income taxes 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. Company tax returns remain subject to Federal and State tax examinations. 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. Share-based compensation The Company accounts for stock option awards using the calculated value method. The expected term was derived using the simplified method provided in Securities and Exchange Commission release Staff Accounting Bulletin No. 110, which averages an awards weighted average vesting period and contractual term for “plain vanilla” share options. The Company accounts for any forfeitures of options when they occur. Previously recognized compensation cost for an award is reversed in the period that the award is forfeited. The Company also issues equity awards to non-employees. The fair value of these option awards is estimated when the award recipient completes the contracted professional services. The Company recognizes expense for the estimated total value of the awards during the period from their issuance until performance completion. In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting The Company values warrant and option awards using the Black-Scholes option pricing model. Revenue recognition The Company’s revenue is typically generated from contracts to sell natural gas, crude oil or NGLs produced from interests in oil and gas properties owned by the Company. Contracts for the sale of natural gas and crude oil are evidenced by (1) base contracts for the sale and purchase of natural gas or crude oil, which document the general terms and conditions for the sale, and (2) transaction confirmations, which document the terms of each specific sale. The transaction confirmations specify a delivery point which represents the point at which control of the product is transferred to the customer. These contracts frequently meet the definition of a derivative under ASC 815, and are accounted for as derivatives unless the Company elects to treat them as normal sales as permitted under that guidance. The Company elects to treat contracts to sell oil and gas production as normal sales, which are then accounted for as contracts with customers. The Company has determined that these contracts represent multiple performance obligations which are satisfied when control of the commodity transfers to the customer, typically through the delivery of the specified commodity to a designated delivery point. Revenue is measured based on consideration specified in the contract with the customer, and excludes any amounts collected on behalf of third parties. The Company recognizes revenue in the amount that reflects the consideration it expects to be entitled to in exchange for transferring control of those goods to the customer. Amounts allocated in the Company’s price contracts are based on the standalone selling price of those products in the context of long-term contracts. Payment is generally received one or two months after the sale has occurred. Gain or loss on derivative instruments is outside the scope of ASC 606 and is not considered revenue from contracts with customers subject to ASC 606. The Company may in the future use financial or physical contracts accounted for as derivatives as economic hedges to manage price risk associated with normal sales, or in limited cases may use them for contracts the Company intends to physically settle but do not meet all of the criteria to be treated as normal sales. Producer Gas Imbalances. Basic and diluted earnings (loss) per share – Environmental laws and regulations Recent accounting pronouncements 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 – |
4. OIL & GAS PROPERTIES
4. OIL & GAS PROPERTIES | 12 Months Ended |
Dec. 31, 2018 | |
Oil Gas Properties | |
OIL & GAS PROPERTIES | The following table presents the capitalized costs for oil & gas properties of the Company as of December 31, 2018 and 2017: 2018 2017 Evaluated costs subject to amortization $ 11,664,586 $ 5,022,129 Unevaluated costs 31,746,477 26,100,749 Total capitalized costs 43,411,063 31,122,878 Less accumulated depreciation, depletion and amortization (6,845,602 ) (5,543,599 ) Total oil and gas properties $ 36,565,461 $ 25,579,279 Unevaluated costs as of December 31, 2018 include cumulative costs on developing projects including the Orogrande, Hazel, and Winkler projects in West Texas. The Company identified impairment of $2,300,626 in 2017 related to its unevaluated properties. Although we had no recognized impairment expense in 2017, the Company has adjusted the separation of evaluated versus unevaluated costs within its full cost pool to recognize the value impairment related to the expiration of unevaluated leases in 2017 in the amount of $2,300,626. The impact of this change will be to increase the basis for calculation of future period’s depletion, depreciation and amortization to include $2,300,626 of cost which will effectively recognize the impairment on the Consolidated Statement of Operations over future periods. The $2,300,626 has also become an evaluated cost for purposes of future period’s Ceiling Tests and which may further recognize the impairment expense recognized in future periods. The impact of this cost reclassification at March 31, 2018 was a recognized impairment expense of $139,891. No additional impairment adjustment was required through December 31, 2018. Due to the volatility of commodity prices, should oil and natural gas prices decline in the future, it is possible that a further 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. Orogrande Project, West Texas On August 7, 2014, we entered into a Purchase Agreement with Hudspeth Oil Corporation (“Hudspeth”), McCabe Petroleum Corporation (“MPC”), and Gregory McCabe, our Chairman. Mr. McCabe was the sole owner of both Hudspeth and MPC. Under the terms and conditions of the Purchase Agreement, at closing, we purchased 100% of the capital stock of Hudspeth which holds certain oil and gas assets, including a 100% working interest in approximately 172,000 mostly contiguous acres in the Orogrande Basin in West Texas. As of December 31, 2017, leases covering approximately 133,000 acres remain in effect. This acreage is in the primary term under five-year leases that carry additional five-year extension provisions. As consideration, at closing we issued 868,750 restricted shares of our common stock to Mr. McCabe and paid a total of $100,000 in geologic origination fees to third parties. Additionally, Mr. McCabe has, at his option, a 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 among Hudspeth, MPC and Mr. McCabe. We believe all drilling obligations through December 31, 2018 have been met. On September 23, 2015, Hudspeth entered into a Farmout Agreement with Pandora Energy, LP (“Pandora”), Founders Oil & Gas, LLC (“Founders”), and for the limited purposes set forth therein, MPC and Mr. McCabe, for the entire Orogrande Project in Hudspeth County, Texas. The Farmout Agreement provided that Hudspeth and Pandora (collectively referred to as “Farmor”) would assign to Founders an undivided 50% of the leasehold interest and a 37.5% net revenue interest in the oil and gas leases and mineral interests in the Orogrande Project, which interests, except for any interests retained by Founders, would be reassigned to Farmor by Founders if Founders did not spend a minimum of $45.0 million on actual drilling operations on the Orogrande Project by September 23, 2017. Under a joint operating agreement also entered into on September 23, 2015, Founders was designated as operator of the leases. On March 22, 2017, Founders, Founders Oil & Gas Operating, LLC, Founders’ operating partner, Hudspeth and Pandora signed a Drilling and Development Unit Agreement (the “DDU Agreement”), with the Commissioner of the General Land Office, on behalf of the State of Texas, and as approved by the Board for Lease of University Lands, or University Lands, on the Orogrande Project. The DDU Agreement has an effective date of January 1, 2017 and required a payment from Founders, Hudspeth and Pandora, collectively, of $335,323 as the initial consideration fee. The initial consideration fee was paid by Founders in April 2017 and was to be deducted from the required spud fee payable to us at commencement of the next well drilled. The DDU Agreement allows for all 192 existing leases covering approximately 133,000 net acres leased from University Lands to be combined into one drilling and development unit for development purposes. The term of the DDU Agreement expires on December 31, 2023, and the time to drill on the drilling and development unit continues through December 2023. The DDU Agreement also grants the right to extend the DDU Agreement through December 2028 if compliance with the DDU Agreement is met and the extension fee associated with the additional time is paid. Our drilling obligations began with one well to be spudded and drilled on or before September 1, 2017, and increased to two wells in year 2018, three wells in year 2019, four wells in year 2020 and five wells per year in years 2021, 2022 and 2023. The drilling obligations are minimum yearly requirements and may be exceeded if acceleration is desired. The DDU Agreement replaces all prior agreements, and will govern future drilling obligations on the drilling and development unit if the DDU Agreement is extended. The Company drilled three wells during fourth quarter, 2018. There are two vertical tests wells in the Orogrande Project, the Orogrande Rich A-11 test well and the University Founders B-19 #1 test well. The Orogrande Rich A-11 test well was spudded on March 31, 2015, drilled in the second quarter of 2015 and was evaluated and numerous scientific tests were performed to provide key data for the field development thesis. We believe that future utility of this well may be conversion to a salt water disposal well in the course of further development of the Orogrande acreage. The University Founders B-19 #1 was spudded on April 24, 2016 and drilled in the second quarter of 2016. The well successfully pumped down completion fluid in the third quarter of 2016 and indications of hydrocarbons were seen at the surface on this second Orogrande Project test well. We believe that future utility of this well may be conversion to a salt water disposal well in the course of further development of the Orogrande acreage. During the fourth quarter of 2017, we took back operational control from Founders on the Orogrande Project. We were joined by Wolfbone Investments, LLC, (“Wolfbone”), a company owned by Mr. McCabe. We, along with Hudspeth, Wolfbone and, for the limited purposes set forth therein, Pandora, entered into an Assignment of Farmout Agreement with Founders, (the “Assignment of Farmout Agreement”), pursuant to which we and Wolfbone will share the remaining commitments under the Farmout Agreement. All original provisions of our carried interest were to remain in place including reimbursement to us on each wellbore. Founders was to remain a 9.5% working interest owner in the Orogrande Project for the $9.5 million it had spent as of the date of the Assignment of Farmout Agreement, and such interests were to be carried until $40.5 million is spent by Wolfbone and us, with each contributing 50% of such capital spend, under the existing agreement. Our working interest in the Orogrande Project thereby increased by 20.25% to a total of 67.75% and Wolfbone then owned 20.25%. Founders was to operate a newly drilled horizontal well called the University Founders #A25 (at 5,540’ depth in a 1,000’ lateral) with supervision from us and our partners. The University Founders #A25 was spudded on November 28, 2017. During the month of April, 2018, we, MPC and Mr. McCabe were to assume full operational control including managing drilling plans and timing for all future wells drilled in the project. On July 25, 2018, we and Hudspeth entered into a Settlement & Purchase Agreement (the “Settlement Agreement”) with Founders (and Founders Oil & Gas Operating, LLC), Wolfbone and MPC, which agreement provides for Hudspeth and Wolfbone to each immediately pay $625,000 and for Hudspeth or the Company and Wolfbone or MPC to each pay another $625,000 on July 20, 2019, as consideration for Founders assigning all of its working interest in the oil and gas leases of the Orogrande Project to Hudspeth and Wolfbone equally. The assignments to Hudspeth and Wolfbone were made in July when the first payments were made. The payments to Founders in 2019 are not securitized. Future well capital spending obligations will require the same 50% contribution from Hudspeth and 50% from Wolfbone until such time as the $40.5 million to be spent on the project (as per our Assignment of Farmout Agreement with Founders) is completed. The Company estimates that there is still approximately $23 million remaining to be spent on the project until such time as the capital expenditures revert back to the percentages of the working interest owners. After the assignment by Founders (for which Hudspeth’s total consideration is $1,250,000), Hudspeth’s working interest increased to 72.5%. Additionally, the Settlement Agreement provides that the Founders parties will assign to the Company, Hudspeth, Wolfbone and MPC their claims against certain vendors for damages, if any, against such vendors for negligent services or defective equipment. Further, the Settlement Agreement has a mutual release and waivers among the parties. Rich Masterson, our consulting geologist, is credited with originating the Orogrande Project in Hudspeth County in the Orogrande Basin. With Mr. Masterson’s assistance, we have identified target payzone depths between 4,100’ and 6,100’ with primary pay, described as the WolfPenn formation, located at depths of 5,300 to 5,900’. Based on our geologic analysis to date, the Wolfpenn formation is prospective for oil and high British thermal unit (Btu) gas, with a 70/30 mix expected, respectively . Recently, the Company drilled three additional test wells in the Orogrande in order to stay in compliance with University Lands D&D Unit Agreement, as well as, to test for potential shallow pay zones and deeper pay zones that may be present on structural plays. At the time of this writing, the results have not been published. Hazel Project in the Midland Basin in West Texas Effective April 4, 2016, TEI acquired from MPC a 66.66% working interest in approximately 12,000 acres in the Midland Basin in exchange for 1,500,000 warrants to purchase shares of our common stock with an exercise price of $1.00 for five years and a back-in after payout of a 25% working interest to MPC. Initial development of the first well on the property, the Flying B Ranch #1, began July 9, 2016 and development continued through September 30, 2016. This well is classified as a test well in the development pursuit of the Hazel Project. We believe that this wellbore will be utilized as a salt water disposal well in support of future development. In October 2016, the holders of all of our then-outstanding shares of Series C Preferred Stock (which were issued in July 2016) elected to convert into a total 33.33% working interest in our Hazel Project, reducing our ownership from 66.66% to a 33.33% working interest. As of December 31, 2018, no shares of our Series C Preferred Stock were outstanding. On December 27, 2016, drilling activities commenced on the second Hazel Project well, the Flying B Ranch #2. The well is a vertical test similar to our first Hazel Project well, the Flying B Ranch #1. Recompletion in an alternative geological formation for this well was performed during the three months ended September 30, 2017; however, we believe that the results were uneconomic for continuing production. We believe that this wellbore will be utilized as a salt water disposal well in support of future development. We commenced planning to drill the Flying B Ranch #3 horizontal well in the Hazel Project in June 2017 in compliance with the continuous drilling obligation. The well was spudded on June 10, 2017. The well was completed and began production in late September 2017. Acquisition of Additional Interests in Hazel Project On January 30, 2017, we and our then wholly-owned subsidiary, Torchlight Acquisition Corporation, a Texas corporation (“TAC”), entered into and closed an Agreement and Plan of Reorganization and a Plan of Merger with Line Drive Energy, LLC, a Texas limited liability company (“Line Drive”), and Mr. McCabe, under which agreements TAC merged with and into Line Drive and the separate existence of TAC ceased, with Line Drive being the surviving entity and becoming our wholly-owned subsidiary. Line Drive, which was wholly-owned by Mr. McCabe, owned certain assets and securities, including approximately 40.66% of 12,000 gross acres, 9,600 net acres, in the Hazel Project and 521,739 warrants to purchase shares of our common stock (which warrants had been assigned by Mr. McCabe to Line Drive). Upon the closing of the merger, all of the issued and outstanding shares of common stock of TAC automatically converted into a membership interest in Line Drive, constituting all of the issued and outstanding membership interests in Line Drive immediately following the closing of the merger, the membership interest in Line Drive held by Mr. McCabe and outstanding immediately prior to the closing of the merger ceased to exist, and we issued Mr. McCabe 3,301,739 restricted shares of our common stock as consideration therefor. Immediately after closing, the 521,739 warrants held by Line Drive were cancelled, which warrants had an exercise price of $1.40 per share and an expiration date of June 9, 2020. A Certificate of Merger for the merger transaction was filed with the Secretary of State of Texas on January 31, 2017. Subsequent to the closing the name of Line Drive Energy, LLC was changed to Torchlight Hazel, LLC. We are required to drill one well every six months to hold the entire 12,000 acre block for eighteen months, and thereafter two wells every six months starting June 2018. Also on January 30, 2017, TEI entered into and closed a Purchase and Sale Agreement with Wolfbone. Under the agreement, TEI acquired certain of Wolfbone’s Hazel Project assets, including its interest in the Flying B Ranch #1 well and the 40 acre unit surrounding the well, for consideration of $415,000, and additionally, Wolfbone caused to be cancelled a total of 2,780,000 warrants to purchase shares of our common stock, including 1,500,000 warrants held by MPC, and 1,280,000 warrants held by Green Hill Minerals, an entity owned by Mr. McCabe’s son, which warrant cancellations were effected through certain Warrant Cancellation Agreements. The 1,500,000 warrants held by MPC that were cancelled had an exercise price of $1.00 per share and an expiration date of April 4, 2021. The warrants held by Green Hill Minerals that were cancelled included 100,000 warrants with an exercise price of $1.73 and an expiration date of September 30, 2018 and 1,180,000 warrants with an exercise price of $0.70 and an expiration date of February 15, 2020. Since Mr. McCabe held the controlling interest in both Line Drive and Wolfbone, the transactions were combined for accounting purposes. The working interest in the Hazel Project was the only asset held by Line Drive. The warrant cancellation was treated in the aggregate as an exercise of the warrants with the transfer of the working interests as the consideration. We recorded the transactions as an increase in its investment in the Hazel Project working interests of $3,644,431, which is equal to the exercise price of the warrants plus the cash paid to Wolfbone. Upon the closing of the transactions, our working interest in the Hazel Project increased by 40.66% to a total ownership of 74%. Effective June 1, 2017, we acquired an additional 6% working interest from unrelated working interest owners in exchange for 268,656 shares of common stock valued at $373,430, increasing our working interest in the Hazel project to 80%, and an overall net revenue interest of 74-75%. Mr. Masterson is credited with originating the Hazel Project in the Midland Basin. With Mr. Masterson’s assistance, we are targeting prospects in the Midland Basin that have 150 to 130 feet of thickness, are likely to require six to eight laterals per bench, have the potential for twelve to sixteen horizontal wells per section, and 200 long lateral locations, assuming only two benches. In April 2018, we announced that we have commenced a process that could result in the monetization of the Hazel Project. We believe the development activity at the Hazel Project, coupled with nearby activities of other oil and gas operators, suggests that this project has achieved a level of value worth monetizing. We anticipate that the liquidity that would be provided from selling the Hazel Project could be redeployed into the Orogrande Project. While this process is underway, we will take all necessary steps to maintain the leasehold as required. In May, the working interest partners in the Hazel Project drilled a shallow well to test a zone at 2500’. As of this filing, we continue to maintain the leases in good standing and continue to market the acreage in an effort to focus on the Orogrande Project. Winkler Project, Winkler County, Texas On December 1, 2017, the Agreement and Plan of Reorganization that we and our then wholly-owned subsidiary, Torchlight Wolfbone Properties, Inc., a Texas corporation (“TWP”), entered into with MPC and Warwink Properties, LLC (Warwink Properties) on November 14, 2017 closed. Under the agreement, TWP merged with and into Warwink Properties and the separate existence of TWP ceased, with Warwink Properties being the surviving entity and becoming our wholly-owned subsidiary. Warwink Properties was wholly owned by MPC. Warwink Properties owns certain assets, including a 10.71875% working interest in approximately 640 acres in Winkler County, Texas. Upon the closing of the merger, all of the issued and outstanding shares of common stock of TWP converted into a membership interest in Warwink Properties, constituting all of the issued and outstanding membership interests in Warwink Properties immediately following the closing of the merger, the membership interest in Warwink Properties held by MPC and outstanding immediately prior to the closing of the merger ceased to exist, and we issued MPC 2,500,000 restricted shares of our common stock as consideration. Also on December 1, 2017, MPC closed its transaction with MECO IV, LLC (” MECO”), for the purchase and sale of certain assets as contemplated by the Purchase and Sale Agreement dated November 9, 2017 among MPC, MECO and additional parties thereto (the “MECO PSA”), to which we are not a party. Under the MECO PSA, Warwink Properties received a carry from MECO (through the tanks) of up to $1,179,076 in the next well drilled on the Winkler County leases. A Certificate of Merger for the merger transaction was filed with the Secretary of State of Texas on December 5, 2017. Also on December 1, 2017, the transactions contemplated by the Purchase Agreement that TEI entered into with MPC closed. Under the Purchase Agreement, which was entered into on November 14, 2017, TEI acquired beneficial ownership of certain of MPC’s assets, including acreage and wellbores located in Ward County, Texas (the “Ward County Assets”). As consideration under the Purchase Agreement, at closing TEI issued to MPC an unsecured promissory note in the principal amount of $3,250,000, payable in monthly installments of interest only beginning on January 1, 2018, at the rate of 5% per annum, with the entire principal amount together with all accrued interest due and payable on January 1, 2021. In connection with TEI’s acquisition of beneficial ownership in the Ward County Assets, MPC sold those same assets, on behalf of TEI, to MECO at closing of the MECO PSA, and accordingly, TEI received $3,250,000 in cash for its beneficial interest in the Ward County Assets. Additionally, at closing of the MECO PSA, MPC paid TEI a performance fee of $2,781,500 in cash as compensation for TEI’s marketing and selling the Winkler County assets of MPC and the Ward County Assets as a package to MECO. Mr. Masterson is credited with originating the Winkler Project in the Delaware Basin. With Mr. Masterson’s assistance, we have identified Wolfcamp A and B, Upper Second Bone Spring and Lower Second Bone Spring formations within our acreage position. Addition to the Winkler Project As of May 7, 2018 our Winkler project in the Delaware Basin had begun the drilling phase of the first Winkler Project well, the UL 21 War-Wink 47 #2H. Our operating partner, MECO had begun the pilot hole on the project. The plan is to evaluate the various potential zones for a lateral leg to be drilled once logging is completed. We expect the most likely target to be the Wolfcamp A interval. The well is on 320 newly acquired acres offsetting the original leasehold we entered into in December, 2017. The additional acreage was leased by our operating partner under the Area of Mutual Interest Agreement (AMI) and we exercised its right to participate for its 12.5% in the additional 1,080 gross acres at a cash cost of $447,847 in July, 2018. Our carried interest in the first well, as outlined in the agreement, was originally planned to be on the first acreage acquired. That carried interest is being applied to this new well and will allow MECO to drill and produce potential revenues sooner than originally planned. The primary leasehold is a 320-acre block directly west of the current position and will allow for 5,000-foot lateral wells to be drilled. The well was completed and began production in October, 2018. Two additional wells are planned for development by MECO in 2019. In December, 2018, the Company began to take measures on its own to market the Warwink Project in an effort to focus on the Orogrande. |
5. RELATED PARTY PAYABLES
5. RELATED PARTY PAYABLES | 12 Months Ended |
Dec. 31, 2018 | |
RELATED PARTY PAYABLES. | |
RELATED PARTY PAYABLES | As of December 31, 2018 and 2017, related party payables consisted of accrued and unpaid compensation to one of our executive officers totaling $45,000. |
6. COMMITMENTS AND CONTINGENCIE
6. COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2018 | |
COMMITMENTS AND CONTINGENCIES | |
COMMITMENTS AND CONTINGENCIES | The Company has a noncancelable lease for its office premises that expires on November 30, 2019 and which requires the payment of base lease amounts and executory costs such as taxes, maintenance and insurance. Rental expense for lease was $82,075 and $84,197 for the years ended December 31, 2018 and 2017, respectively. Approximate future minimum rental commitments under the office premises lease are: Year Ending December 31, Rent To 2019 Expiration 88,605 Total $ 88,605 |
7. STOCKHOLDERS' EQUITY
7. STOCKHOLDERS' EQUITY | 12 Months Ended |
Dec. 31, 2018 | |
Stockholders' equity: | |
STOCKHOLDERS' EQUITY | Environmental matters 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 December 31, 2018 and 2017, 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. Common Stock During the years ended December 31, 2018 and 2017, the Company issued 5,750,000 and -0- shares of common stock, respectively, for cash of $6,049,734 and $-0-. During the years ended December 31, 2018 and 2017, the Company issued 450,000 and 507,897 shares of common stock, respectively, with total fair values of $545,000 and $579,754 as compensation for services. During the years ended December 31, 2018 and 2017, the Company issued -0- and 6,420,395 shares of common stock respectively, for lease interests with total fair values of $-0- and $6,812,362. During the year ended December 31, 2017 the Company issued 1,007,890 shares of common stock, in conversions of notes payable valued at $1,007,890. During the year ended December 31, 2018 the Company issued 172,342 shares of common stock, in payment in kind on notes payable valued at $221,024. During the year ended December 31, 2018 and 2017, the Company issued 400,000 and 307,349 shares of common stock, respectively, resulting from warrant exercises for consideration totaling $200,000 and $243,300. Warrants and Options During the years ended December 31, 2018 and 2017, the Company issued/vested 1,820,000 and 1,808,026 warrants and options with total fair values of $854,325 and $1,093,104, respectively, as compensation for services. A summary of warrants outstanding as of December 31, 2018 and 2017 by exercise price and year of expiration is presented below: Exercise Expiration Date in 2018 Price 2019 2020 2021 2022 2023 Total $ 0.70 - 420,000 - - - 420,000 $ 0.77 100,000 - - - - 100,000 $ 1.00 25,116 - - - - 25,116 $ 1.03 - - 120,000 - - 120,000 $ 1.08 37,500 - - - - 37,500 $ 1.14 - - - - 600,000 600,000 $ 1.21 - - - - 120,000 120,000 $ 1.40 - 1,121,736 - - 1,121,736 $ 1.50 - 100,000 - - 100,000 $ 1.64 - - 200,000 - - 200,000 $ 1.80 - 1,250,000 - - - 1,250,000 $ 2.00 - - 400,000 - - 400,000 $ 2.23 - 832,512 - - 832,512 $ 2.50 35,211 - - - - 35,211 $ 3.50 15,000 - - - - 15,000 $ 4.50 700,000 - - - - 700,000 $ 6.00 22,580 - - - - 22,580 $ 7.00 700,000 - - - - 700,000 1,635,407 3,624,248 820,000 - 720,000 6,799,655 Exercise Expiration Date in 2017 Price 2018 2019 2020 2021 Total $ 0.50 400,000 - - - 400,000 $ 0.70 - - 420,000 - 420,000 $ 0.77 - 100,000 - - 100,000 $ 1.00 - 25,116 - - 25,116 $ 1.03 - - - 120,000 120,000 $ 1.08 - 37,500 - - 37,500 $ 1.40 - - 1,121,736 1,121,736 $ 1.64 - - - 200,000 200,000 $ 1.73 100,000 - - - 100,000 $ 1.80 - - 1,250,000 - 1,250,000 $ 2.00 1,906,249 - - - 1,906,249 $ 2.03 2,000,000 - - - 2,000,000 $ 2.09 2,800,000 - - - 2,800,000 $ 2.23 - - 832,512 - 832,512 $ 2.29 120,000 - - - 120,000 $ 2.50 - 35,211 - - 35,211 $ 2.82 38,174 - - - 38,174 $ 3.50 - 15,000 - - 15,000 $ 4.50 - 700,000 - - 700,000 $ 6.00 523,123 22,580 - - 545,703 $ 7.00 - 700,000 - - 700,000 7,887,546 1,635,407 3,624,248 320,000 13,467,201 A summary of stock options outstanding as of December 31, 2018 and 2017 by exercise price and year of expiration is presented below: Exercise Expiration Date in 2018 Price 2019 2020 2021 2022 2023 Total $ 0.97 - - 259,742 - - 259,742 $ 1.10 - - - 800,000 - 800,000 $ 1.19 - - - - 600,000 600,000 $ 1.57 1,497,163 4,500,000 - - - 5,997,163 $ 1.63 - - - 58,026 - 58,026 $ 1.79 - 300,000 - - - 300,000 1,497,163 4,800,000 259,742 858,026 600,000 8,014,931 Exercise Expiration Date in 2017 Price 2018 2019 2020 2021 2022 Total $ 0.97 - - - 259,742 - 259,742 $ 1.10 - - - - 800,000 800,000 $ 1.57 - - 5,997,163 - - 5,997,163 $ 1.63 - - - 58,026 - 58,026 $ 1.79 - - 300,000 - - 300,000 - - 6,297,163 317,768 800,000 7,414,931 At December 31, 2018, the Company 2018 and 2017 had reserved 14,814,586 and 20,882,132 common shares, respectively, for future exercise of warrants and options. Warrants and options granted were valued using the Black-Scholes Option Pricing Model. The assumptions used in calculating the fair value of the warrants and options issued were as follows: 2018 Risk-free interest rate 2.15% - 2.83% Expected volatility of common stock 97% - 119% Dividend yield 0.00% Discount due to lack of marketability 20% Expected life of option/warrant 2.75 to 5 Years 2017 Risk-free interest rate 1.47% - 2.06% Expected volatility of common stock 106% - 122% Dividend yield 0.00% Discount due to lack of marketability 20% Expected life of option/warrant 2.75 to 5 Years |
8. INCOME TAXES
8. INCOME TAXES | 12 Months Ended |
Dec. 31, 2018 | |
Income Taxes | |
INCOME TAXES | The Company recorded no income tax provision for 2018 and 2017 because of losses incurred. The Company has placed a full valuation allowance against net deferred tax assets because future realization of these assets is not assured. The following is a reconciliation between the federal income tax benefit computed at statutory federal income tax rates and actual income tax provision for the years ended December 31, 2018 and 2017: Year ended Year ended December 31, 2018 December 31, 2017 Federal income tax benefit at statutory rate (1,221,483 ) $ (312,769 ) Permanent Differences 505 1,640 Annual reconciling adjustment 1,449,429 719,197 Change in valuation allowance (228,451 ) (9,186,334 ) Change in federal tax rate - 8,778,266 Provision for income taxes $ - $ - The tax effects of temporary differences that gave rise to significant portions of deferred tax assets and liabilities at December 31, 2018 and December 31, 2017 are as follows: December 31, 2018 December 31, 2017 Deferred tax assets: Net operating loss carryforward $ 11,968,500 $ 11,116,332 Stock based compensation 4,490,775 4,209,307 Other 371,636 302,042 Deferred tax liabilities: Investment in oil and gas properties (2,879,086 ) (1,447,405 ) Net deferred tax assets and liabilities 13,951,825 14,180,276 Less valuation allowance (13,951,825 ) (14,180,276 ) Total deferred tax assets and liabilities $ - $ - The Company had a net deferred tax asset related to federal net operating loss carryforwards of $56,992,857 and $52.934.915 at December 31, 2018 and December 31, 2017, respectively. The federal net operating loss carryforward will begin to expire in 2033. Realization of the deferred tax asset is dependent, in part, on generating sufficient taxable income prior to expiration of the loss carryforwards. The Company has placed a 100% valuation allowance against the net deferred tax asset because future realization of these assets is not assured. On December 22, 2017, the U.S. government enacted comprehensive legislation titled the Tax Cuts and Jobs Act. Generally, effective for years 2018 and beyond, it makes broad and complex changes to the Internal Revenue Code, including, but not limited to, reducing the federal corporate income tax rate from 35% to 21%. As of December 31, 2017 we made a reasonable estimate of the effects on our deferred tax assets and liabilities of the change in the corporate tax rate to be effective in 2018. The estimated amount is included our computation of net deferred tax assets and liabilities and the related valuation allowance. |
9. PROMISSORY NOTES
9. PROMISSORY NOTES | 12 Months Ended |
Dec. 31, 2018 | |
PROMISSORY NOTES | |
PROMISSORY NOTES | On April 10, 2017, we sold to investors in a private transaction two 12% unsecured promissory notes with a total of $8,000,000 in principal amount. Interest only is due and payable on the notes each month at the rate of 12% per annum, with a balloon payment of the outstanding principal due and payable at maturity on April 10, 2020. The holders of the notes will also receive annual payments of common stock at the rate of 2.5% of principal amount outstanding, based on a volume-weighted average price. Both notes were sold at an original issue discount of 94.25% and accordingly, we received total proceeds of $7,540,000 from the investors. We used the proceeds for working capital and general corporate purposes, which includes, without limitation, drilling capital, lease acquisition capital and repayment of prior debt. These 12% promissory notes allow for early redemption. The notes also contain certain covenants under which we have agreed that, except for financing arrangements with established commercial banking or financial institutions and other debts and liabilities incurred in the normal course of business, we will not issue any other notes or debt offerings which have a maturity date prior to the payment in full of the 12% notes, unless consented to by the holders. The effective interest rate is 16.15%. On April 24, 2017, we used $2,509,500 of the proceeds from this financing to redeem and repay a portion of the outstanding 12% Series B Convertible Unsecured Promissory Notes. Separately, $1,000,000 of the principal amount of the Series B Notes plus accrued interest was converted into 1,007,890 shares of common stock and $64,297 was rolled into the new debt financing. On February 6, 2018, we sold to an investor in a private transaction a 12% unsecured promissory note with a principal amount of $4,500,000. Interest only is due and payable on the note each month at the rate of 12% per annum, with a balloon payment of the outstanding principal due and payable at maturity on April 10, 2020. The holder of the note will also receive annual payments of common stock at the rate of 2.5% of principal amount outstanding, based on a volume-weighted average price. We sold the note at an original issue discount of 96.27% and accordingly, we received total proceeds of $4,332,150 from the investor. We used the proceeds for working capital and general corporate purposes, which includes, without limitation, drilling capital, lease acquisition capital and repayment of prior debt. This 12% promissory note allows for early redemption, provided that if we redeem before February 6, 2019, we must pay the holder all unpaid interest and common stock payments on the portion of the note redeemed that would have been earned through February 6, 2019. The note also contains certain covenants under which we have agreed that, except for financing arrangements with established commercial banking or financial institutions and other debts and liabilities incurred in the normal course of business, we will not issue any other notes or debt offerings which have a maturity date prior to the payment in full of the 12% note, unless consented to by the holder. The effective interest rate is 15.88%. On April 12, 2018, the holders of the notes described above received 172,342 shares of common stock as a payment in kind representing the annual payments of common stock due at the rate of 2.5% of principal amount outstanding as of April 10, 2018 based on a volume-weighted average price calculation. Promissory note transactions for the year ended December 31, 2018 and 2017 are summarized as follows: New borrowing $ 8,000,000 Original issue discount (460,000 ) Proceeds from borrowing 7,540,000 New note debt issuance costs (279,754 ) Accretion of discount and amortization of debt issuance costs 9,035 Unsecured promissory note balance - December 31, 2017 $ 7,269,281 New borrowing 4,500,000 Original issue discount (167,850 ) Proceeds from borrowing 4,332,150 New note debt issuance costs (225,000 ) Accretion of discount and amortization of debt issuance costs 485,649 Unsecured promissory note balance - December 31, 2018 $ 11,862,080 In connection with the transaction for the acquisition of Warwink Properties effective December 5, 2017, the Company borrowed $3.25 million from its Chairman, Greg McCabe on a three-year interest only promissory note bearing interest at 5% per annum. The Company paid $250,000 as a principal payment on June 20, 2018 and paid the remaining principal balance of $3,000,000 on October 19, 2018. See below. On October 17, 2018, we sold to certain investors in a private transaction 16% Series C Unsecured Convertible Promissory Notes with a total principal amount of $6,000,000. Interest and principal are due and payable on the notes in one balloon payment at maturity on April 17, 2020. The notes are convertible, at the election of the holders, into an aggregate 6% working interest in certain oil and gas leases in Hudspeth County, Texas, known as our “Orogrande Project.” After an analysis of the transaction and a review of applicable accounting pronouncements, management concluded that the notes issued on October 17, 2018 which contain a conversion right for holders to convert into a working interest in the Orogrande Project of the Company, meet a specific scope exception to the provisions requiring derivative accounting. The notes allow us to redeem them early only upon the event of a fundamental transaction, such as a merger or sale of substantially all our assets. The notes provide that the noteholders may accelerate and declare any and all of the obligations under the notes to be immediately due and payable in the event of default, such as nonpayment, failure to perform required conversions, failure to perform any covenant or agreement under the notes, an insolvency event, or certain defaults or judgments. As part of the sale of the of the notes, the noteholders required that McCabe Petroleum Corporation, a Texas corporation owned by our Chairman Gregory McCabe (“MPC”), provide them a put option whereby they have the right to have MPC purchase from them any unpaid principal amount due on the notes. Additionally, if there is a fundamental transaction, Mr. McCabe will be required to pay a fee to each noteholder that elects not to convert or require MPC to purchase the principal amount under the note, which fee will be equal to such noteholder’s pro-rata share of a total fee amount of $1,500,000. We received total proceeds of $6,000,000 from the sale of the notes, of which $3,000,000 was used to pay back the promissory note issued to MPC on December 1, 2017, which note was due on December 31, 2020. We used the remaining proceeds for working capital and general corporate purposes, which includes, without limitation, drilling and lease acquisition capital. Prior to entering into the above transactions, our Board of Directors formed a special committee composed of independent directors to analyze and authorize the transactions on behalf of Torchlight Energy Resources, Inc. and determine whether the transactions are fair to the company. In this role, the special committee engaged an independent financial consulting firm which rendered a fairness opinion deeming that the transactions were fair to the company, from a financial point of view, and contained terms no less favorable to the company than those that could be obtained in arm’s length transactions. |
10. ASSET RETIREMENT OBLIGATION
10. ASSET RETIREMENT OBLIGATIONS | 12 Months Ended |
Dec. 31, 2018 | |
ASSET RETIREMENT OBLIGATIONS | |
ASSET RETIREMENT OBLIGATIONS | The following is a reconciliation of the asset retirement obligation liability for the year ended December 31, 2018 and 2017: Asset retirement obligation – December 31, 2016 $ 7051 Accretion expense 216 Estimated liabilities recorded 2,007 Asset retirement obligation – December 31, 2017 $ 9,274 Accretion expense 390 Estimated liabilities recorded 4,689 Asset retirement obligation – December 31, 2018 $ 14,353 |
11. SUBSEQUENT EVENTS
11. SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2018 | |
SUBSEQUENT EVENTS | |
SUBSEQUENT EVENTS | In February and March, 2019 the Company raised a total of $2,000,000 from investors through the sale of 14% Series D Unsecured Convertible Promissory Notes. Principal is payable in a lump sum at maturity on May 11, 2020 with payments of interest payable monthly at the rate of 14% per annum. Holders of the notes have the right to convert principal and interest at any time into common stock at a conversion price of $1.08 per share. The Company has the right to redeem the notes at any time, provided that the redemption amount must include all interest that would have been earned through maturity. Additionally, the Company received $1,214,078 from the sale of common stock at $.80 per share during February and March, 2019. The offering included provisions for the cancellation of warrants to purchase common stock issued to the participants in the agreements in prior periods. |
3. SIGNIFICANT ACCOUNTING POL_2
3. SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2018 | |
Accounting Policies [Abstract] | |
Use of estimates | Use of estimates |
Basis of presentation | Basis of presentation Certain reclassifications have been made to the 2017 consolidated financial statements to make them consistent with the 2018 presentation. Total stockholders’ equity and net loss are unchanged due to these reclassifications made in cash flow statement. |
Risks and uncertainties | Risks and uncertainties |
Concentration of risks | Concentration of risks |
Fair value of financial instruments | Fair value of financial instruments 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. |
Cash and cash equivalents | Cash and cash equivalents - |
Accounts receivable | Accounts receivable As of December 31, 2017 accounts receivable included $419,839 the Company computed as being due from Husky Ventures with respect to the sale of Chisholm Trail properties in 2015 and in dispute as part of the Husky legal action in process at that dates. Additionally, a payment of $520,400 made by Husky Ventures which is also disputed by the Company had been included in current liabilities captioned “Funds received pending settlement”. The Company settled the matter with Husky during the quarter ended June 30, 2018. |
Oil and gas properties | Oil and gas properties 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. Unevaluated properties are reviewed for impairment at least quarterly and are determined through an evaluation considering, among other factors, seismic data, requirements to relinquish acreage, drilling results, remaining time in the commitment period, remaining capital plan, and political, economic, and market conditions. Gains and losses on the sale of oil and gas properties are not generally reflected in income unless the gain or loss would significantly alter the relationship between capitalized costs and proved reserves. 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. |
Capitalized interest | Capitalized interest – |
Depreciation, depletion and amortization | Depreciation, depletion, and amortization |
Ceiling test | Ceiling test 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. |
Asset retirement obligations | Asset retirement obligations 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. |
Income taxes | Income taxes 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. Company tax returns remain subject to Federal and State tax examinations. 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. |
Share-based compensation | Share-based compensation The Company accounts for stock option awards using the calculated value method. The expected term was derived using the simplified method provided in Securities and Exchange Commission release Staff Accounting Bulletin No. 110, which averages an awards weighted average vesting period and contractual term for “plain vanilla” share options. The Company accounts for any forfeitures of options when they occur. Previously recognized compensation cost for an award is reversed in the period that the award is forfeited. The Company also issues equity awards to non-employees. The fair value of these option awards is estimated when the award recipient completes the contracted professional services. The Company recognizes expense for the estimated total value of the awards during the period from their issuance until performance completion. In June 2018, the FASB issued ASU 2018-07, Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting The Company values warrant and option awards using the Black-Scholes option pricing model. |
Revenue recognition | Revenue recognition The Company’s revenue is typically generated from contracts to sell natural gas, crude oil or NGLs produced from interests in oil and gas properties owned by the Company. Contracts for the sale of natural gas and crude oil are evidenced by (1) base contracts for the sale and purchase of natural gas or crude oil, which document the general terms and conditions for the sale, and (2) transaction confirmations, which document the terms of each specific sale. The transaction confirmations specify a delivery point which represents the point at which control of the product is transferred to the customer. These contracts frequently meet the definition of a derivative under ASC 815, and are accounted for as derivatives unless the Company elects to treat them as normal sales as permitted under that guidance. The Company elects to treat contracts to sell oil and gas production as normal sales, which are then accounted for as contracts with customers. The Company has determined that these contracts represent multiple performance obligations which are satisfied when control of the commodity transfers to the customer, typically through the delivery of the specified commodity to a designated delivery point. Revenue is measured based on consideration specified in the contract with the customer, and excludes any amounts collected on behalf of third parties. The Company recognizes revenue in the amount that reflects the consideration it expects to be entitled to in exchange for transferring control of those goods to the customer. Amounts allocated in the Company’s price contracts are based on the standalone selling price of those products in the context of long-term contracts. Payment is generally received one or two months after the sale has occurred. Gain or loss on derivative instruments is outside the scope of ASC 606 and is not considered revenue from contracts with customers subject to ASC 606. The Company may in the future use financial or physical contracts accounted for as derivatives as economic hedges to manage price risk associated with normal sales, or in limited cases may use them for contracts the Company intends to physically settle but do not meet all of the criteria to be treated as normal sales. Producer Gas Imbalances. |
Basic and diluted earnings (loss) per share | Basic and diluted earnings (loss) per share – |
Environmental laws and regulations | Environmental laws and regulations |
Recent accounting pronouncements | Recent accounting pronouncements 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 – |
4. OIL & GAS PROPERTIES (Tables
4. OIL & GAS PROPERTIES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Oil Gas Properties Tables Abstract | |
Schedule of Oil and Gas Properties | 2018 2017 Evaluated costs subject to amortization $ 11,664,586 $ 5,022,129 Unevaluated costs 31,746,477 26,100,749 Total capitalized costs 43,411,063 31,122,878 Less accumulated depreciation, depletion and amortization (6,845,602 ) (5,543,599 ) Total oil and gas properties $ 36,565,461 $ 25,579,279 |
6. COMMITMENTS AND CONTINGENC_2
6. COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Commitments And Contingencies | |
COMMITMENTS AND CONTINGENCIES | Year Ending December 31, Rent To 2019 Expiration 88,605 Total $ 88,605 |
7. STOCKHOLDERS' EQUITY (Tables
7. STOCKHOLDERS' EQUITY (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
STOCKHOLDERS' EQUITY (TABLES) | |
Summary of warrant activity | Exercise Expiration Date in 2018 Price 2019 2020 2021 2022 2023 Total $ 0.70 - 420,000 - - - 420,000 $ 0.77 100,000 - - - - 100,000 $ 1.00 25,116 - - - - 25,116 $ 1.03 - - 120,000 - - 120,000 $ 1.08 37,500 - - - - 37,500 $ 1.14 - - - - 600,000 600,000 $ 1.21 - - - - 120,000 120,000 $ 1.40 - 1,121,736 - - 1,121,736 $ 1.50 - 100,000 - - 100,000 $ 1.64 - - 200,000 - - 200,000 $ 1.80 - 1,250,000 - - - 1,250,000 $ 2.00 - - 400,000 - - 400,000 $ 2.23 - 832,512 - - 832,512 $ 2.50 35,211 - - - - 35,211 $ 3.50 15,000 - - - - 15,000 $ 4.50 700,000 - - - - 700,000 $ 6.00 22,580 - - - - 22,580 $ 7.00 700,000 - - - - 700,000 1,635,407 3,624,248 820,000 - 720,000 6,799,655 Exercise Expiration Date in 2017 Price 2018 2019 2020 2021 Total $ 0.50 400,000 - - - 400,000 $ 0.70 - - 420,000 - 420,000 $ 0.77 - 100,000 - - 100,000 $ 1.00 - 25,116 - - 25,116 $ 1.03 - - - 120,000 120,000 $ 1.08 - 37,500 - - 37,500 $ 1.40 - - 1,121,736 1,121,736 $ 1.64 - - - 200,000 200,000 $ 1.73 100,000 - - - 100,000 $ 1.80 - - 1,250,000 - 1,250,000 $ 2.00 1,906,249 - - - 1,906,249 $ 2.03 2,000,000 - - - 2,000,000 $ 2.09 2,800,000 - - - 2,800,000 $ 2.23 - - 832,512 - 832,512 $ 2.29 120,000 - - - 120,000 $ 2.50 - 35,211 - - 35,211 $ 2.82 38,174 - - - 38,174 $ 3.50 - 15,000 - - 15,000 $ 4.50 - 700,000 - - 700,000 $ 6.00 523,123 22,580 - - 545,703 $ 7.00 - 700,000 - - 700,000 7,887,546 1,635,407 3,624,248 320,000 13,467,201 |
Summary of stock options outstanding | Exercise Expiration Date in 2018 Price 2019 2020 2021 2022 2023 Total $ 0.97 - - 259,742 - - 259,742 $ 1.10 - - - 800,000 - 800,000 $ 1.19 - - - - 600,000 600,000 $ 1.57 1,497,163 4,500,000 - - - 5,997,163 $ 1.63 - - - 58,026 - 58,026 $ 1.79 - 300,000 - - - 300,000 1,497,163 4,800,000 259,742 858,026 600,000 8,014,931 Exercise Expiration Date in 2017 Price 2018 2019 2020 2021 2022 Total $ 0.97 - - - 259,742 - 259,742 $ 1.10 - - - - 800,000 800,000 $ 1.57 - - 5,997,163 - - 5,997,163 $ 1.63 - - - 58,026 - 58,026 $ 1.79 - - 300,000 - - 300,000 - - 6,297,163 317,768 800,000 7,414,931 |
Assumptions used in calculating the fair value of the warrants | 2018 Risk-free interest rate 2.15% - 2.83% Expected volatility of common stock 97% - 119% Dividend yield 0.00% Discount due to lack of marketability 20% Expected life of option/warrant 2.75 to 5 Years 2017 Risk-free interest rate 1.47% - 2.06% Expected volatility of common stock 106% - 122% Dividend yield 0.00% Discount due to lack of marketability 20% Expected life of option/warrant 2.75 to 5 Years |
8. INCOME TAXES (Tables)
8. INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Schedule of Income Taxes: | |
Schedule of Effective Income Tax Rate Reconciliation | Year ended Year ended December 31, 2018 December 31, 2017 Federal income tax benefit at statutory rate (1,221,483 ) $ (312,769 ) Permanent Differences 505 1,640 Annual reconciling adjustment 1,449,429 719,197 Change in valuation allowance (228,451 ) (9,186,334 ) Change in federal tax rate - 8,778,266 Provision for income taxes $ - $ - |
Schedule of Deferred Tax Assets and Liabilities | December 31, 2018 December 31, 2017 Deferred tax assets: Net operating loss carryforward $ 11,968,500 $ 11,116,332 Stock based compensation 4,490,775 4,209,307 Other 371,636 302,042 Deferred tax liabilities: Investment in oil and gas properties (2,879,086 ) (1,447,405 ) Net deferred tax assets and liabilities 13,951,825 14,180,276 Less valuation allowance (13,951,825 ) (14,180,276 ) Total deferred tax assets and liabilities $ - $ - |
9. PROMISSORY NOTES (Tables)
9. PROMISSORY NOTES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Promissory Notes | |
Summary of promissory notes | New borrowing $ 8,000,000 Original issue discount (460,000 ) Proceeds from borrowing 7,540,000 New note debt issuance costs (279,754 ) Accretion of discount and amortization of debt issuance costs 9,035 Unsecured promissory note balance - December 31, 2017 $ 7,269,281 New borrowing 4,500,000 Original issue discount (167,850 ) Proceeds from borrowing 4,332,150 New note debt issuance costs (225,000 ) Accretion of discount and amortization of debt issuance costs 485,649 Unsecured promissory note balance - December 31, 2018 $ 11,862,080 |
10. ASSET RETIREMENT OBLIGATI_2
10. ASSET RETIREMENT OBLIGATIONS (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
ASSET RETIREMENT OBLIGATIONS (Tables) | |
Schedule of asset retirement obligation liability | Asset retirement obligation – December 31, 2016 $ 7051 Accretion expense 216 Estimated liabilities recorded 2,007 Asset retirement obligation – December 31, 2017 $ 9,274 Accretion expense 390 Estimated liabilities recorded 4,689 Asset retirement obligation – December 31, 2018 $ 14,353 |
2. GOING CONCERN (Details Narra
2. GOING CONCERN (Details Narrative) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Going Concern Accumulated Losses | ||
Accumulated deficit | $ (89,314,305) | $ (83,507,693) |
Working Capital deficit | $ (676,690) |
3. SIGNIFICANT ACCOUNTING POL_3
3. SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Significant Accounting Policies {1} | ||
Capitalized interest on unevaluated properties | $ 2,020,019 | $ 1,010,868 |
Shares issuable exercise of outstanding warrants and options | 14,814,586 |
4. OIL & GAS PROPERTIES (Detail
4. OIL & GAS PROPERTIES (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Oil Gas Properties Details Abstract | ||
Evaluated costs subject to amortization | $ 11,664,586 | $ 5,022,129 |
Unevaluated costs | 31,746,477 | 26,100,749 |
Total capitalized costs | 43,411,063 | 31,122,878 |
Less accumulated depreciation, depletion and amortization | (6,845,602) | (5,543,599) |
Total oil and gas properties | $ 36,565,461 | $ 25,579,279 |
4. OIL & GAS PROPERTIES (Deta_2
4. OIL & GAS PROPERTIES (Details Narrative) | 12 Months Ended |
Dec. 31, 2017USD ($) | |
Oil Gas Properties Details Narrative Abstract | |
Impairment expense oil and gas properties | $ 2,300,626 |
5. RELATED PARTY PAYABLES (Deta
5. RELATED PARTY PAYABLES (Details Narrative) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Related Party Transactions payments due to related party | ||
Related party payable accrued and unpaid compensation to one of the executive officers | $ 45,000 | $ 45,000 |
6. COMMITMENTS AND CONTINGENC_3
6. COMMITMENTS AND CONTINGENCIES (Details) | Dec. 31, 2018USD ($) |
Commitments And Contingencies Details Abstract | |
2019 | $ 88,605 |
Total | $ 88,605 |
6. COMMITMENTS AND CONTINGENC_4
6. COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Commitments And Contingencies Details Narrative Abstract | ||
Rental expense | $ 82,075 | $ 84,197 |
7. STOCKHOLDERS' EQUITY (Detail
7. STOCKHOLDERS' EQUITY (Details) - shares | Dec. 31, 2018 | Dec. 31, 2017 |
Exercise Price 1 | ||
Outstanding warrants and stock options | 420,000 | 400,000 |
Exercise Price 2 | ||
Outstanding warrants and stock options | 420,000 | 420,000 |
Exercise Price 3 | ||
Outstanding warrants and stock options | 100,000 | 100,000 |
Exercise Price 4 | ||
Outstanding warrants and stock options | 25,116 | 25,116 |
Exercise Price 5 | ||
Outstanding warrants and stock options | 120,000 | 120,000 |
Exercise Price 6 | ||
Outstanding warrants and stock options | 37,500 | 37,500 |
Exercise Price 7 | ||
Outstanding warrants and stock options | 600,000 | |
Exercise Price 8 | ||
Outstanding warrants and stock options | 120,000 | |
Exercise Price 9 | ||
Outstanding warrants and stock options | 1,121,736 | 1,121,736 |
Exercise Price 10 | ||
Outstanding warrants and stock options | 100,000 | 200,000 |
Exercise Price 11 | ||
Outstanding warrants and stock options | 200,000 | 200,000 |
Exercise Price 12 | ||
Outstanding warrants and stock options | 100,000 | |
Exercise Price 13 | ||
Outstanding warrants and stock options | 1,250,000 | 1,250,000 |
Exercise Price 14 | ||
Outstanding warrants and stock options | 400,000 | 1,906,249 |
Exercise Price 15 | ||
Outstanding warrants and stock options | 2,000,000 | |
Exercise Price 16 | ||
Outstanding warrants and stock options | 2,800,000 | |
Exercise Price 17 | ||
Outstanding warrants and stock options | 832,512 | 832,512 |
Exercise Price 18 | ||
Outstanding warrants and stock options | 120,000 | |
Exercise Price 19 | ||
Outstanding warrants and stock options | 35,211 | 35,211 |
Exercise Price 20 | ||
Outstanding warrants and stock options | 38,174 | |
Exercise Price 21 | ||
Outstanding warrants and stock options | 15,000 | 15,000 |
Exercise Price 22 | ||
Outstanding warrants and stock options | 700,000 | 700,000 |
Exercise Price 23 | ||
Outstanding warrants and stock options | 22,580 | 545,703 |
Exercise Price 24 | ||
Outstanding warrants and stock options | 700,000 | 700,000 |
Total | ||
Outstanding warrants and stock options | 6,799,655 | 13,467,201 |
Total | Expiring in the year 2019 | ||
Outstanding warrants and stock options | 1,635,407 | 1,635,407 |
Total | Expiring in the year 2020 | ||
Outstanding warrants and stock options | 3,624,248 | 3,624,248 |
Total | Expiring in the year 2021 | ||
Outstanding warrants and stock options | 820,000 | 320,000 |
Total | Expiring in the year 2022 | ||
Outstanding warrants and stock options | ||
Total | Expiring in the year 2023 | ||
Outstanding warrants and stock options | 720,000 | |
Total | Expiring in the year 2018 | ||
Outstanding warrants and stock options | 7,887,546 |
7. STOCKHOLDERS' EQUITY (Deta_2
7. STOCKHOLDERS' EQUITY (Details 1) - shares | Dec. 31, 2018 | Dec. 31, 2017 |
Exercise Price 1 | ||
Stock Options Outstanding | 259,742 | 259,742 |
Exercise Price 2 | ||
Stock Options Outstanding | 800,000 | 800,000 |
Exercise Price 3 | ||
Stock Options Outstanding | 600,000 | |
Exercise Price 4 | ||
Stock Options Outstanding | 5,997,163 | 5,997,163 |
Exercise Price 5 | ||
Stock Options Outstanding | 58,026 | 58,026 |
Exercise Price 6 | ||
Stock Options Outstanding | 300,000 | 300,000 |
Total | ||
Stock Options Outstanding | 8,014,931 | 7,414,931 |
Total | Expiring in the year 2019 | ||
Stock Options Outstanding | 1,497,163 | 0 |
Total | Expiring in the year 2020 | ||
Stock Options Outstanding | 4,800,000 | 6,297,163 |
Total | Expiring in the year 2021 | ||
Stock Options Outstanding | 259,742 | 317,768 |
Total | Expiring in the year 2022 | ||
Stock Options Outstanding | 858,026 | 800,000 |
Total | Expiring in the year 2023 | ||
Stock Options Outstanding | 600,000 | |
Total | Expiring in the year 2018 | ||
Stock Options Outstanding | 0 |
7. STOCKHOLDERS' EQUITY (Deta_3
7. STOCKHOLDERS' EQUITY (Details 2) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Dividend yield | 0.00% | 0.00% |
Discount due to lack of marketability | 20.00% | 20.00% |
Minimum [Member] | ||
Risk-free interest rate | 2.15% | 1.47% |
Expected volatility of common stock | 97.00% | 106.00% |
Expected life of warrant | 2 years 9 months | 2 years 9 months |
Maximum [Member] | ||
Risk-free interest rate | 2.83% | 2.06% |
Expected volatility of common stock | 119.00% | 122.00% |
Expected life of warrant | 5 years | 5 years |
7. STOCKHOLDERS' EQUITY (Deta_4
7. STOCKHOLDERS' EQUITY (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Assumptions used in calculating the fair value of the warrants issued are as follows: | ||
Issuance of common stock for cash, shares | 5,750,000 | 0 |
Issuance of common stock for cash, amount | $ 6,049,734 | $ 0 |
Issuance of common stock for services, shares | 450,000 | 507,897 |
Issuance of common stock for services, amount | $ 545,000 | $ 579,754 |
Warrants issued for services, shares | 1,820,000 | 1,808,026 |
Warrants issued for services, amount | $ 854,325 | $ 1,093,104 |
Issuance of common stock - lease interests, shares | 0 | 6,420,395 |
Issuance of common stock - lease interests, amount | $ 0 | $ 6,812,362 |
Issuance of common stock in warrant exercise, shares | 400,000 | 307,349 |
Issuance of common stock in warrant exercise, amount | $ 200,000 | $ 243,300 |
Reserved Future Exercise of Warrants and options | $ 14,814,586 | $ 20,882,132 |
Warrants issued/vested | 0 | 0 |
Issuance of common stock for note payment in kind, shares | 172,342 | 0 |
Issuance of common stock for note payment in kind, amount | $ 221,024 | $ 0 |
8. INCOME TAXES (Details)
8. INCOME TAXES (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Tax Reconciliation and provision for income taxes | ||
Federal income tax benefit at statutory rate | $ (1,221,483) | $ (312,769) |
Permanent Differences | 505 | 1,640 |
Annual reconciling adjustment | 1,449,429 | 719,197 |
Change in valuation allowance | (228,451) | (9,186,334) |
Change in federal tax rate | 0 | 8,778,266 |
Provision for income taxes | $ 0 | $ 0 |
8. INCOME TAXES (Details 1)
8. INCOME TAXES (Details 1) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Deferred tax assets: | ||
Net operating loss carryforward | $ 11,968,500 | $ 11,116,332 |
Stock based compensation | 4,490,775 | 4,209,307 |
Other | 371,636 | 302,042 |
Deferred tax liabilities: | ||
Investment in oil and gas properties | (2,879,086) | (1,447,405) |
Net deferred tax assets and liabilities | 13,951,825 | 14,180,276 |
Less valuation allowance | (13,951,825) | (14,180,276) |
Total deferred tax assets and liabilities | $ 0 | $ 0 |
8. INCOME TAXES (Details Narrat
8. INCOME TAXES (Details Narrative) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Income Taxes Operating loss carryforwards | ||
Net deferred tax asset related to federal net operating loss carryforwards of | $ 56,992,857 | $ 52,934,915 |
9. PROMISSORY NOTES (Details)
9. PROMISSORY NOTES (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Promissory Notes Details Abstract | ||
Unsecured promissory note balance - December 31, 2017 | $ 7,269,281 | |
New borrowing | 4,500,000 | 8,000,000 |
Original issue discount | (167,850) | (460,000) |
Proceeds from borrowing | 4,332,150 | 7,540,000 |
New note debt issuance costs | (225,000) | (279,754) |
Accretion of discount and amortization of debt issuance costs | 485,649 | 9,035 |
Unsecured promissory note balance - December 31, 2018 | $ 11,862,080 | $ 7,269,281 |
10. ASSET RETIREMENT OBLIGATI_3
10. ASSET RETIREMENT OBLIGATIONS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
ASSET RETIREMENT OBLIGATIONS RECONCILIATION | ||
Asset Retirement Obligation, Begining | $ 9,274 | $ 7,051 |
Estimated liabilities recorded | 390 | 2,007 |
Accretion Expense | 4,689 | 216 |
Asset Retirement Obligation, Ending | $ 14,353 | $ 9,274 |