| Nature of the Business | Note 1 – Nature of the Business Business Foothills Exploration,
Inc., (“Company”, “Foothills Exploration” or “Foothills”) was incorporated in the State of
Delaware on May 13, 2010, under the name of “Key Link Assets Corp.” for the purpose of acquiring a portfolio of heavily
discounted real estate properties in the Chicago metropolitan area. The Company changed its focus and planned to acquire small
and medium sized grocery stores in non-urban locales that are not directly served by large national supermarket chains. On May 2, 2016, Foothills
Petroleum Inc., a Nevada corporation (“FPI”), acquired over 14.1 million pre-split (56.4 million post-split) shares
of the Company’s common stock constituting approximately 96% of our then issued and outstanding shares (“FPI Acquired
Shares”). As of May 16, 2016, we effected a 4:1 forward split of our shares of common stock. On May 27, 2016, the
Company entered into a Share Exchange Agreement with shareholders of FPI whereby we acquired all of the outstanding shares of FPI
in exchange for 4,500,000 shares of our common stock and also issued 1,503,759 shares of our common stock on automatic conversion
of debt (please see discussion below under Overview) for an aggregate of 6,003,759 shares of our common stock (the “Share
Exchange”). As a result of the Share Exchange, FPI became our wholly owned subsidiary and the FPI Acquired Shares were returned
to treasury and deemed cancelled. For accounting purposes, this transaction is being accounted for as a reverse acquisition and
has been treated as a recapitalization of the Company with FPI considered the accounting acquirer, and the financial statements
of the accounting acquirer became the financial statements of the registrant. The completion of the Share Exchange resulted in
a change of control. The FPI Shareholders obtained approximately 96% of voting control on the date of Share Exchange. FPI was the
acquirer for financial reporting purposes and the Company was the acquired company. The consolidated financial statements after
the acquisition include the balance sheets of both companies at historical cost, the historical results of FPI and the results
of the Company from the acquisition date. All share and per share information in the accompanying consolidated financial statements
and footnotes have been retroactively restated to reflect the recapitalization. Prior to the Share
Exchange, the Company had minimal assets and recognized no revenues from operations, and were accordingly classified as a shell
company. On June 24, 2016, the Company filed an amendment to our Current Report on Form 8-K originally filed on June 10, 2016,
indicating that we were no longer a shell company as defined by Rule 12b-2 of the Exchange Act. In light of closing the Share Exchange
transaction with the shareholders of FPI, the Company became actively engaged in oil and gas operations through its wholly owned
subsidiary. On December 12, 2016,
the Company entered into a participation agreement with Magna Operating, LLC, a privately held Houston-based independent exploration
and production company (“Magna Operating”), in relation to the Labokay prospect, covering approximately 240 acres in
Calcasieu Parish, Louisiana. As consideration for an assignment of interest in and to the leases and the prospect, Foothills Petroleum
Operating, Inc., a Nevada corporation and indirect wholly-owned subsidiary of the Company (“FPOI”), tendered to Magna
Operating the purchase price in the amount of $144,000. This amount covered FPOI’s share of the land, lease, and administrative
costs that Magna Operating incurred in generating and assembling the Labokay prospect as of November 15, 2016. As further consideration
for an assignment of working interest in and to the leases, FPOI agreed to participate in the cost, risk, and expense of drilling
the Labokay test well. The well was plugged and abandoned in February 2017. The Company has no immediate plans to engage in further
exploration and development activities in the U.S. Gulf Coast region. On December 30, 2016,
the Company acquired various oil and gas assets in Utah from Total Belief Limited, a wholly owned subsidiary of New Times Energy
Corporation Limited. These assets included certain oil and gas wells throughout the Uinta Basin in Utah on acreage with over 30
proven undeveloped drilling locations, additional non-operating interest in other leases, and access to approximately 6,000 acres
in the Uinta Basin with proven and probable reserves and existing infrastructure in place. Through the acquisition, Foothills also
obtained six shut-in wells in the Natural Buttes Field, Utah. The transaction provides Foothills with the rights to an agreement
to acquire up to 6,000+ acres and up to 16 shut-in oil and gas wells with proved and proved undeveloped reserves on Tribal lands
in the Uinta Basin. This acquisition delivers to the Company an additional 40% working interest in the Ladysmith Prospect covering
3,060 acres in the Greater Green River Basin, Wyoming, bringing the Company’s total working interest in the prospect from
35% (pre-acquisition) up to 75%. By this agreement,
the Company acquired 13,166,667 shares, constituting 55.63% of the outstanding shares of Grey Hawk Exploration, Inc. (“Grey
Hawk”), a British Columbia, Canada company. Grey Hawk owns a non-operated working interest in two non-producing wells in
the southern portion of the Natural Buttes Field. On December 30, 2016,
the Company also acquired the remaining 25% membership interest in Tiger Energy Partners International, LLC (“TEPI”)
from Green Stone Capital Partners Limited, a Cayman Islands limited liability company, in exchange for assumption of Greenstone’s
proportionate share of TEPI obligations and liabilities. On May 10, 2017, the
Company entered into a purchase and sale agreement (PSA), with an undisclosed seller, to acquire 67,330 gross acres (49,600 net
acres) held by production in Utah and Colorado. This acquisition was anticipated to close by or before June 30, 2017, such closing
being subject to traditional representations, warranties, covenants and adjustments including, but not limited to lien releases,
cures of any defective title matters, satisfaction of leases and amendments thereto. In August 2017, the parties by mutual agreement
terminated the PSA. On October 19, 2017, the Company announced
the acquisition of 21% working interest in two horizontal gas wells in the Uinta Basin from an undisclosed party .
Both wells are operated by EOG Resources, Inc. (NYSE: EOG). We expect total cost for our
21% working interest in both wells will be $3.2 million. Stagecoach 111-20H and Stagecoach
117-20H horizontal wells, both of which are now producing natural gas in commercial quantities. Both wells have
been Nature of Operations FPI, the Company’s
main operating subsidiary, was incorporated in Nevada in December 2015. Foothills is an independent oil and gas exploration company
with a focus on the acquisition and development of oil and gas properties in the Rockies and Gulf Coast. Foothills seeks to acquire
dislocated and underdeveloped oil and gas assets and maximize those assets to create shareholder value (the “Business”). The Company’s
principal obligations include:
● A debenture in the amount of $1,250,000, plus interest accruing at a rate of 9% per annum issued to Berwin Trading Limited (“Berwin”) with principal and interest due upon maturity on May 6, 2017. On May 5, 2017, the Company and Berwin agreed to extend the maturity date of the debenture to June 20, 2017, in return for an annual interest rate increase from 9% to 13.5% per annum for the life of the debenture. On November 3, 2017, Berwin agreed to defer repayment of this note to a later date, and acknowledged that the Company is not in default regarding this Debenture. Berwin also reaffirmed its belief that the Company will either extend or repay the obligation to their satisfaction. As partial consideration for the deferment, the Company issued Berwin 100,000 shares of its restricted common stock, valued at $48,000. The issuance of the shares in exchange for the maturity extension was treated as a modification of existing debt pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”). On February 28, 2018, Berwin and the Company agreed to extend the maturity date of the debenture to June 30, 2018, and as consideration for the extension, the Company agreed to compensate Berwin with 250,000 shares of restricted common stock. In addition, the parties agreed that if payment of said principal and interest due and payable is made late, then a penalty payment of $125,000 shall become due and payable to Berwin by the Company.
● A second debenture in the amount of $1,000,000, plus interest accruing at a rate of 9% issued to Full Wealth Investment Hong Kong Limited (“Full Wealth”) with principal and interest due upon maturity on or before May 5, 2017. On May 18, 2017, Full Wealth sold this note to Gold Class Limited, with accrued interest increased from 9% to 13.5% per annum for the life of the debenture. On June 1, 2017, Full Wealth acquired this note back from Gold Class and the Company issued a new debenture with a 60-day term and 10% interest per annum to Full Wealth. On August 14, 2017, we repaid $1,000,000 in principal and $20,000 in accrued interest and recorded remaining accrued interest in amount of $30,000 as gain on debt forgiveness.
● A promissory note in the amount of $6,000,000 to Total Belief Limited (“TBL”), a direct wholly-owned subsidiary of New Times Energy Corporation Limited, issued in connection with the assets acquired on December 30, 2016, with a maturity date of June 30, 2018. This promissory note recites that it accrues no interest during its term and is due and payable in full on or before its maturity date. Foothills recorded $342,804 imputed interest as debt discount. This amount of $342,804 was determined using the present value method based on the following assumptions: (i) adjusted interest rate 4% (ii) expected life of 1.5 years. During the year ended December 31, 2017, we amortized $228,536 debt discount into interest expense. The Company has reduced the value of its oil and gas properties in the proportion of the debt discount allocated to the Note.
● A convertible promissory note in amount of $50,000 was issued to an unrelated party on May 10, 2017, bearing an annual percentage rate of 10% with a term of 12 months, which is due on May 10, 2018. This note may, at the option of the lender, be converted at any time prior to September 7, 2017, into fully-paid, restricted and non-assessable shares of common stock of the Company at a price equal to 100% of the selling price of such common stock in a private placement to institutional and/or accredited investors initiated by the Company during the term of this note. On October 19, 2017, the Company agreed to extend the allowable conversion period provided under this convertible note until May 10, 2018. On November 7, 2017, the Company issued 50,000 warrants to purchase 50,000 shares of common stock of the Company at a strike price of $1.00 per share expiring on May 7, 2019. If the Company fails to pay the principal and accrued unpaid interest due and payable to Lender on or before the due date of the convertible note, then the Lender shall be provided the right to convert at either $0.665 per share or upon the same terms offered in FirstFire Opportunity Fund, LLC Note’s conversion options. The relative fair value of warrant was determined to be $3,381 on November 7, 2017, using the Black-Scholes option-pricing model based on the following assumptions: (i) volatility rate of 77%, (ii) discount rate of 0%, (iii) zero expected dividend yield, and (iv) expected life of 1.5 years. At December 31, 2017, $50,000 of principal was outstanding under the Note. The issuance of the warrants in exchange for the maturity extension was treated as a modification of existing debt pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”).
● A promissory note to Profit Well Limited, a Hong Kong limited liability company, issued on August 9, 2017, in the amount of $1,050,000. The promissory note bears an annual interest rate of 13.5% and was initially payable on September 8, 2017. The Company received the funds under the foregoing note on August 10, 2017. The funds received pursuant to the Note principally have been used to repay the Full Wealth debenture, dated June 1, 2017. On November 3, 2017, Profit Well Limited agreed to defer repayment of this note to a later date, and acknowledged that the Company is not in default regarding this Debenture. Profit Well Limited also reaffirmed its belief that the Company will either extend or repay the obligation to their satisfaction. As partial consideration for the deferment, the Company agreed to issue Profit Well Limited 100,000 shares of its restricted common stock, valued at $48,000. The issuance of the shares in exchange for the maturity extension was treated as a modification of existing debt pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”). On February 28, 2018, Profit Well and the Company agreed to extend the maturity date of the debenture to June 30, 2018, and as consideration for the extension, the Company agreed to compensate Profit Well with 200,000 shares of restricted common stock. In addition, the parties agreed that if payment of said principal and interest due and payable is made late, then a penalty payment of $100,000 shall become due and payable to Profit Well by the Company.
● A promissory note and three tranches of warrants issued on September 29, 2017, to an unaffiliated investor for an aggregate consideration of $250,000. This promissory note recites that it accrues no interest if paid when due and is due and payable on January 2, 2018. The obligations under the promissory note were personally guaranteed by Kevin J. Sylla, Executive Chairman of the Company. If principal is not paid on or before January 2, 2018, interest will accrue at the rate of 15% per year until paid. On November 6, 2017, the Company agreed to compensate the investor 75,000 shares of the Company’s restricted common stock in connection with a more favorable term of a note entered with FirstFire Opportunity Fund, LLC. On December 30, 2017, the Company and the investor agreed to extend the maturity date of this Note to January 23, 2018, in return for a payment at maturity of the principal, accrued interest as provided in the Note, plus 30,000 shares of the Company’s restricted common stock. Because the fair value of the shares was greater than 10% of the present value of the remaining cash flows under the Note, the issuance of the shares in connection with a more favorable term of a note entered with FirstFire Opportunity Fund, LLC. was treated as a debt extinguishment and reissuance of a new debt instrument pursuant to the guidance of ASC 470-50 “Debt – Modifications and Extinguishments” (“ASC 470-50”). Since January 23, 2018, the Company and the investor have been in ongoing discussions to extend the term of this Note. On March 28, 2018, the investor acknowledged that the Company is not in default
● 375,000 warrants to purchase 375,000 shares of common stock of the Company at a strike price of $0.665 per share expiring on September 29, 2019,
● 375,000 warrants to purchase 375,000 shares of common stock of the Company at a strike price of $1.25 per share expiring on September 29, 2020,
● 185,000 warrants to purchase 185,000 shares of common stock of the Company at a strike price of $2.00 per share expiring on September 29, 2020. The aggregate relative
fair value of three tranches of warrants was determined to be $105,000 on September 29, 2017, using the Black-Scholes option-pricing
model based on the following assumptions: (i) volatility rate of 94%, (ii) discount rate of 0%, (iii) zero expected dividend yield,
and (iv) expected life of 2-3 years. $2,536 imputed interest was recorded as debt discount. $2,536 was determined using the present
value method based on the following assumptions: (i) adjusted interest rate 4% (ii) expected life of 0.26 year. The aggregate value
of the warrants and imputed interest of $107,536 was considered as debt discount upon issuance and will be amortized as interest
over the term of the Note or in full upon the conversion of the Note. During the year ended December 31, 2017, the Company amortized
$105,272 of such discount to interest expense, and the unamortized discount as of December 31, 2017 was $2,264. At December 31,
2017, $250,000 of principal was outstanding under the Note. Each tranche of warrants
is subject to down round adjustment provisions if the Company during the term of that tranche issues additional securities for
consideration per share, after giving effect to fees, commission and expenses, that is less, or which on conversion or exercise
of the underlying security is less, than $0.665 per share (as adjusted for any change resulting from forward or reverse splits,
stock dividends and similar events). To satisfy most favored nation provisions in
previously entered securities purchase agreements that are triggered by the transaction described above, Company issued 136,015
shares of common stock and warrants to purchase 136,015 shares of common stock, in the aggregate, to certain investors who purchased
units from the Company, at a $1.00 per unit, with each unit consisting of one share and one warrant. See the Company’s Current
Report on the Form 8-K filed with the SEC on June 5, 2017. Of this amount, 100,752 shares and warrants to purchase 100,752 shares
of common stock will be issued to Wilshire Energy Partners LLC, an entity controlled by Kevin J. Sylla. The exercise price of these
investor warrants was adjusted to $0.665 per share. We measured the value of the effect of the down round feature as the difference
between the fair value of the financial instrument at an original exercise price of $1.50 and an adjusted exercise price of $0.665
and, as a result, $59,801 was recorded as down round feature as interest expense under ASC 260-10-30-1. Foothills determined the
amount of $59,801 using the Black-Scholes option-pricing model based on the following assumptions: (i) volatility rate of 94%,
(ii) discount rate of 0%, (iii) zero expected dividend yield, and (iv) expected life of 3 years.
● A convertible promissory note in the principal amount of $267,500, with net proceeds of $250,000 before giving effect to certain transactional costs including legal fees, was issued to FirstFire Opportunity Fund, LLC, on November 17, 2017. As part of this transaction the Company also issued:
● warrants having an 18-month term, to purchase 267,500 shares of the Company’s common stock at an exercise price of $1.00 per share and
● 60,000 shares of the Company’s restricted common stock.
The convertible note accrues interest of 8% per annum and is due and payable on August 17, 2018. The warrants are subject to adjustment in certain events such as forward or reverse stock splits or if subsequent financings are at terms that are more favorable to persons in subsequent issuances of securities. The convertible note agreements give the lender the right to convert the loan amounts due into common stock at a conversion price of $0.665 per share, subject to adjustment under certain events, and the Company has the option but not the obligation to repay the outstanding principal of the convertible note, in whole or in part, within six months from the closing date, by paying 115% of the principal amount then owing, plus any accrued and unpaid interest to avoid conversion under the convertible agreements. The convertible note may not be prepaid from 180 days after closing until maturity and is secured by a personal guaranty from the Company’s Executive Chairman, Kevin Sylla. The net proceeds of the convertible note will be used for general corporate and working capital purposes. No broker-dealer or placement agent was retained or involved in this transaction. See 8-K report filed with the SEC on November 17, 2017 for more information.
● A promissory note was issued on November 1, 2017, to the Law Offices of Aaron A. Grunfeld or its successors or assigns (the “Holder”), the Company’s outside general counsel, for a principal amount of $120,628.95 in exchange of legal services rendered, bearing an interest rate of 12% per annum and with a maturity date of June 30, 2018. From its inception
in December 2015 through the period ended December 31, 2017, Foothills produced limited revenues from its business and principal
properties and is currently an exploration stage company. Prior to January 2017, Foothills had minimal operations that were focused
mainly on administrative activities connected to the identification and evaluation of potential oil and gas prospects and other
potential leasehold acquisitions in our geographical areas of interest. As of December 31, 2017, Foothills had rights to 45,648
acres of oil and gas property in the state of Wyoming, excluding 6,115 acres of the Ironwood prospect that are subject to drilling
a well in 2017. Since the Company does not expect to drill a test well on the Ironwood prospect prior to the end of 2017, this
acreage will not be earned by the Company. During the period
ended December 31, 2017, the Company continued to evaluate, consider and perform due diligence on several prospective acquisitions
of producing oil and gas properties located in the U.S. Rocky Mountain region. On May 10, 2017, the Company entered into a purchase
and sales agreement (PSA) with an undisclosed seller to acquire approximately 49,600 net acres held by production in the Piceance
Basin in Utah and Colorado. The acquisition was anticipated to close on or before June 30, 2017, however the Company and seller
agreed to terminate the PSA by mutual agreement and the Company did not consummate the acquisition. For the period ended December
31, 2017, the Company also submitted several additional letters of intent and indications of interest to other prospective sellers
of producing assets, which unfortunately never progressed to the PSA stage of negotiations. Management continues to seek out and
evaluate potential joint ventures with industry partners and other prospective acquisitions of producing oil and gas assets, which
meet our criteria. We anticipate consummating one or more prospective acquisition of producing properties during the current fiscal
year, which will be accretive to earnings and provide a platform for future revenue growth. Going Concern The Company’s
unaudited condensed consolidated financial statements included elsewhere in this Annual Report have been prepared assuming that
it will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities
in the normal course of business. As reflected in the consolidated financial statements, the Company had an accumulated deficit
of $8,382,238 at December 31, 2017, and incurred a net loss of $6,407,644, and utilized net cash of $502,078 in operating activities
for the year ended. These factors raise substantial doubt about its ability to continue as a going concern. The consolidated financial
statements included elsewhere herein do not include any adjustments related to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities that might be necessary should the Company be unable to continue
as a going concern. Our financial statements reflect that our current liabilities exceed our current assets and it is possible
that the historical value of the assets that we record on our books may not be attained on a sale or other disposition for cash.
We require substantial additional operating capital to maintain current operations and to implement even a portion of our identified
acquisitions and workovers. Additional capital, if available at all, will likely be on onerous terms that are also dilutive to
our shareholders. No assurance can be given that we will obtain any additional capital. As a consequence, an investment in our
shares or other securities is extremely speculative and may result in a complete loss of your investment. Principles of Consolidation The financial statements include the accounts
of Foothills Exploration, Inc., and all of its direct and indirect wholly-owned subsidiaries including Foothills Petroleum Operating,
Inc., Foothills Exploration Operating, Inc., Foothills Exploration LLC, Tiger Energy Partners International, LLC, Tiger Energy
Operating, LLC and Tiger Energy Mineral Leasing, LLC. Intercompany balances and transactions have been eliminated in consolidation. Basis of Presentation and Functional Currency These consolidated financial statements and
related notes are presented in accordance with accounting principles generally accepted in the United States of America, and are
expressed in United States dollars (USD). Use of Estimate
and Assumptions The preparation of
financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities at the date(s) of the financial statements and the
reported amounts of revenues and expenses during the reporting period(s). Management bases its estimates on historical experience
and on various assumptions that are believed to be reasonable in relation to the financial statements taken as a whole under the
circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that
are not readily apparent from other sources. Management regularly evaluates the key factors and assumptions used to develop the
estimates utilizing currently available information, changes in facts and circumstances, historical experience and reasonable assumptions.
After such evaluations, if deemed appropriate, those estimates are adjusted accordingly. Actual results could differ from those
estimates. Significant estimates include those related to assumptions used in impairment testing of long term assets, accruals
for potential liabilities and valuing equity instruments issued for services. Actual results could differ from those estimates. Cash and Cash Equivalents Cash and cash equivalents include all highly
liquid debt instruments with maturity of three months or less when purchased. Restricted Cash Cash and cash equivalents
that are restricted as to withdrawal or use under the terms of certain contractual agreements are recorded in restricted cash in
the non-current assets section of our consolidated balance sheet. As of December 31, 2017, and 2016, the Company had restricted
cash of $240,000 and $240,000, respectively; this amount is being held in escrow for the benefit of the State of Utah for certain
properties located in Utah. These funds, currently being held in escrow, will be released to the Company once the Company finishes
its reclamation projects. Accounts receivable and allowance for doubtful
accounts Accounts receivable represent customer accounts
receivables. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company’s
estimate is based on historical collection experience, general economic environment trends, and a review of the current status
of trade accounts receivable. Management reviews its accounts receivable each reporting period to determine if the allowance for
doubtful accounts is adequate. Such allowances, if any, would be recorded in the period the impairment is identified. It is reasonably
possible that the Company’s estimate of the allowance for doubtful accounts will change. Uncollectible accounts receivables
are charged against the allowance for doubtful accounts when all reasonable efforts to collect the amounts due have been exhausted. Oil and Gas Properties The Company follows
the full cost method of accounting for its investments in oil and gas properties. Under the full cost method, all costs associated
with the exploration of properties are capitalized into appropriate cost centers within the full cost pool. Internal costs that
are capitalized are limited to those costs that can be directly identified with acquisition, exploration, and development activities
undertaken and do not include any costs related to production, general corporate overhead, or similar activities. Cost centers
are established on a country-by-country basis. Capitalized costs
within the cost centers are amortized on the unit-of-production basis using proved oil and gas reserves. The cost of investments
in unevaluated properties and major development projects are excluded from capitalized costs to be amortized until it is determined
whether or not proved reserves can be assigned to the properties. Until such a determination is made, the properties are assessed
annually to ascertain whether impairment has occurred. The costs of drilling exploratory dry holes are included in the amortization
base immediately upon determination that the well is dry. For each cost center,
capitalized costs are subject to an annual ceiling test, in which the costs shall not exceed the cost center ceiling. The cost
center ceiling is equal to: (i) the present value of estimated future net revenues computed by applying current prices of oil and
gas reserves (with consideration of price changes only to the extent provided by contractual arrangements) to estimated future
production of proved oil and gas reserves as of the date of the latest balance sheet presented, less estimated future expenditures
(based on current costs) to be incurred in developing and producing the proved reserves computed using a discount factor of ten
percent and assuming continuation of existing economic conditions; plus (ii) the cost of properties not being amortized; plus (iii)
the lower of cost or estimated fair value of unproven properties included in the costs being amortized; and less (iv) income tax
effects related to differences between the book and tax basis of the properties. If unamortized costs capitalized within a cost
center, less related deferred income taxes, exceed the cost center ceiling, the excess is charged to expense and separately disclosed
during the period in which the excess occurs. As of December 31,
2017, the Company recognized impairment of oil and gas property in amount of $1,479,230, during the year ended December 31, 2017. Capitalization
of Fixed Assets The Company capitalizes
expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1)
assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless
of cost, acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule
in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred. Office equipment –
3 years Vehicle(s) –
5 years Drilling and production
equipment – 7 years Oil and gas properties
– 20 years Asset Retirement
Obligations The asset retirement
obligation relates to the plug and abandonment costs when its wells are no longer useful. The Company determines the value of the
liability by obtaining quotes for this service and then estimating the increase it will face in the future. The Company then discounts
the future value based on an intrinsic interest rate that is appropriate. If costs rise more than what was expected there could
be additional future charges, however, Foothills monitors the costs of the abandoned wells and intends to adjust this liability
as required. Fair Value of Financial
Instruments For certain of the
Company’s financial instruments, including cash and equivalents, restricted cash, accounts receivable, accounts payable,
accrued liabilities and short-term debt, the carrying amounts approximate their fair values due to their short maturities. ASC
Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments
held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation
hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying
amounts reported in the consolidated balance sheets for receivables and current liabilities each qualify a |
