RICHFIELD OIL & GAS (ROIL) 10-Q 2013 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____________ to

Commission File Number 000-54576

RICHFIELD OIL & GAS COMPANY

(Exact name of registrant as specified in its charter)

Nevada	35-2407100
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

175 South Main Street, Suite 900

Salt Lake City, UT 84111

(Address of principal executive offices)

(801) 519-8500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x    No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨	Accelerated Filer ¨
Non-Accelerated Filer ¨ (Do not check if a smaller reporting company)	Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨    No x

The issuer had 39,493,664 shares of common stock outstanding as of November 14, 2013.

TABLE OF CONTENTS

		Page
PART I. FINANCIAL INFORMATION		2
Item 1.	Financial Statements (Unaudited)	2
	Condensed Consolidated Balance Sheets (Unaudited) September 30, 2013 and December 31, 2012	2
	Condensed Consolidated Statements of Operations (Unaudited) For the Three Months and Nine Months Ended September 30, 2013 and 2012	3
	Condensed Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended September 30, 2013 and 2012	4
	Notes to Condensed Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II. OTHER INFORMATION		29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 6.	Exhibits	30
SIGNATURES		31

1

 

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

RICHFIELD OIL & GAS COMPANY

Condensed Consolidated Balance Sheets (Unaudited)

September 30, 2013 and December 31, 2012

	September 30,		December 31,
	2013		2012
ASSETS
Current assets
Cash and cash equivalents	$	98,753	$	286,013
Restricted Cash		1,639,403		-
Accounts receivables		140,006		387,803
Deposits and prepaid expenses		56,670		390,750
Total current assets		1,934,832		1,064,566
Properties and equipment, at cost - successful efforts method:
Proved properties		7,285,103		6,581,725
Unproved properties		14,114,018		14,164,053
Well and related equipment		1,680,809		1,024,972
Accumulated depletion, depreciation and amortization		(1,118,278)		(923,083)
		21,961,652		20,847,667
Other properties and equipment		219,231		236,212
Accumulated depreciation		(202,265)		(188,411)
		16,966		47,801
Total assets	$	23,913,450	$	21,960,034
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	2,150,209	$	1,578,510
Accrued expenses and other payables		2,355,581		1,368,276
Current portion of notes payable		1,510,238		1,487,419
Convertible notes payable, net of discount of $288,475 and $0 at 9/30/13 and 12/31/12, respectively		2,524,085		1,352,560
Capital lease obligations		-		15,748
Derivative liability		1,354,503		-
Total current liabilities		9,894,616		5,802,513
Long-term liabilities
Notes payable, net of current portion		-		1,674,691
Asset retirement obligations		461,788		482,157
Total long-term liabilities		461,788		2,156,848
Total liabilities		10,356,404		7,959,361
Commitments and contingencies
Stockholders' equity
Common stock, par value $.001; 250,000,000 authorized; 39,158,830 shares and     32,518,192 shares issued and outstanding at 9/30/2013 and 12/31/2012, respectively		39,159		32,518
Additional paid-in capital		50,779,079		45,147,563
Accumulated deficit		(37,261,192)		(31,179,408)
Total stockholders' equity		13,557,046		14,000,673
Total liabilities and stockholders' equity	$	23,913,450	$	21,960,034

See the accompanying notes to condensed consolidated financial statements

2

RICHFIELD OIL & GAS COMPANY

Condensed Consolidated Statements of Operations (Unaudited)

For the Three and Nine Months Ended September 30, 2013 and 2012

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Revenues
Oil and natural gas sales	$	254,554	$	217,852	$	772,394	$	666,750
Total revenues		254,554		217,852		772,394		666,750
Operating expenses
Production expenses		205,312		214,664		653,758		580,679
Production taxes		10,741		7,915		29,957		24,069
Exploration		32,292		28,239		103,843		108,638
Lease expiration		109,292		7,261		156,229		21,431
Depletion, depreciation, amortization and accretion		88,477		72,824		271,627		186,506
General and administrative expenses		1,087,997		778,812		3,275,525		3,643,019
Asset retirement obligation expenses		25,094		-		161,601		-
Loss (gain) on sale of assets		-		(7,954)		16,130		(433,849)
Total expenses		1,559,205		1,101,761		4,668,670		4,130,493
Loss from operations		(1,304,651)		(883,909)		(3,896,276)		(3,463,743)
Other income (expenses)
Gain on settlement of liabilities		-		3,570		30,367		20,769
Loss on extinguishment of debt		(472,349)		-		(1,103,702)		-
Loss on derivative valuation		(287,571)		-		(287,571)		-
Interest and finance expenses		(255,663)		(238,516)		(798,286)		(644,773)
Interest income		850		31		850		52,338
Total other income (expenses)		(1,014,733)		(234,915)		(2,158,342)		(571,666)
Loss before income taxes		(2,319,384)		(1,118,824)		(6,054,618)		(4,035,409)
Income tax provision		-		-		(1,567)		(400)
Net loss	$	(2,319,384)	$	(1,118,824)	$	(6,056,185)	$	(4,035,809)
Net loss per common share - basic and diluted	$	(0.06)	$	(0.04)	$	(0.17)	$	(0.14)
Weighted average shares outstanding – basic and diluted		38,255,935		28,584,164		35,339,019		28,138,646

See the accompanying notes to condensed consolidated financial statements

3

RICHFIELD OIL & GAS COMPANY

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Nine Months Ended September 30, 2013 and 2012

	Nine Months ended
	September 30,
	2013		2012
Cash flows from operating activities:
Net loss	$	(6,056,185)	$	(4,035,809)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depletion, depreciation, amortization and accretion		271,627		187,560
Asset retirement obligation release on plugged wells		(39,000)		-
Gain on settlement of liabilities		(30,367)		(35)
Loss on extinguishment of debt		1,103,702		-
Loss on derivative liability		287,571		-
Capitalized interest on notes payable		16,317		8,456
Amortization of pre-paid interest		6,164		83,256
Lease expirations		156,229		21,431
Loss (gain) on sale of assets		16,130		(433,849)
Amortization of debt discounts		50,098		221,467
Issuance of common stock, options and warrants for services and other expenses		1,115,884		1,407,238
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivables		311,247		(153,458)
Decrease (increase) in deposits and prepaid expenses		294,711		-
Decrease (increase) in other assets		-		(112,111)
Increase (decrease) in accounts payable		187,102		486,824
Increase (decrease) in accrued expenses and other payables		1,570,122		115,342
Increase (decrease) in due to directors		-		(27,934)
Increase (decrease) in due to related parties		-		(61,246)
Net cash used in operating activities		(738,648)		(2,292,868)
Cash flows from investing activities:
Investment in oil and gas properties, including wells and related equipment		(1,077,978)		(1,344,976)
Investment in other properties and equipment		-		(13,434)
Proceeds from sale of assets		354,700		2,271,678
Net cash provided by (used in) investing activities		(723,278)		913,268
Cash flows from financing activities:
Proceeds from notes and convertible notes payable		1,921,811		100,000
Payments on notes and convertible notes payable		(68,372)		(649,461)
Restricted cash for settlement of note and litigation (see NOTE 15 LEGAL PROCEEDINGS)		(1,639,403)		-
Proceeds from related party notes payable		-		50,000
Payments on related party notes payable		-		(304,909)
Payments on capital lease obligation		(15,748)		(23,298)
Proceeds from issuance of convertible preferred stock		-		285,000
Proceeds from issuance of warrants		7,378		272,115
Proceeds from issuance of common stock - net of issuance costs		1,069,000		1,764,750
Net cash provided by financing activities		1,274,666		1,494,197
Net increase (decrease) in cash and cash equivalents		(187,260)		114,597
Cash and cash equivalents - beginning of period		286,013		37,157
Cash and cash equivalents - end of period	$	98,753	$	151,754
Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	14,569	$	84,758
Cash paid during the period for income taxes	$	1,567	$	-
Non-cash financing and investing activities:
Purchase of oil and gas properties and conversion of JIB receivables billed to working     interest holders through issuance of common stock and warrants	$	8,500	$	547,363
Capitalized oil and gas properties included in accounts payable	$	938,973	$	-
Purchase of properties through exchange of property and reduction of payables and     notes payable	$	71,332	$	230,000
Sale of oil and gas properties for return of common stock	$	45,625	$	539,277
Cancellation of lease in full satisfaction of accounts payable	$	-	$	180,000
Conversion of pre-paid expenses, payables, and notes payable through issuance of     common stock	$	3,084,084	$	550,000
Conversion of accounts payable through issuance of note payable	$	21,000	$	186,229
Capitalized accrued interest on notes payable	$	-	$	152,657
Derivative liability on common stock issued	$	344,572	$	-
Conversion of notes payable through issuance of convertible notes payable	$	-	$	1,328,000
Conversion of convertible notes payable through issuance of notes payable	$	-	$	1,117,500
Amortization of plugged wells	$	41,766	$	-
Capitalized asset retirement obligations	$	30,892	$	-
Write down of asset retirement obligation on sold properties	$	18,839	$	-

See the accompanying notes to condensed consolidated financial statements

4

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1     ORGANIZATION AND NATURE OF BUSINESS

Richfield Oil & Gas Company (the “Company,” “Richfield” or “ROIL”) is a Nevada corporation headquartered in Salt Lake City, Utah which was incorporated on April 8, 2011. The Company is engaged in the exploration, development and production of oil and natural gas in the states of Kansas, Oklahoma, Utah and Wyoming. The Company’s common stock trades on the OTCQX under the symbol “ROIL”.

Contemporaneously with ROIL’s incorporation, the Company merged (the “HPI Merger”) with its predecessor company, Hewitt Petroleum, Inc., a Delaware corporation which was incorporated on May 17, 2008 (“HPI”). In connection with the HPI Merger, HPI was merged out of existence and the Company assumed all of the assets and liabilities of HPI and the Company became the parent company of HPI’s two wholly owned subsidiaries, Hewitt Energy Group, Inc., a Texas corporation (“HEGINC”) and Hewitt Operating, Inc., a Utah corporation (“HOPIN”). The Plan of Merger required that all HPI common stock be exchanged on a one-for-one basis for ROIL common stock and that ROIL assume all of the liabilities of HPI as of the effective date of the HPI Merger. As a result, the Company’s historical financial statements are a continuation of the financial statements of HPI. In addition, effective March 31, 2011, HPI entered into a Stock Exchange Agreement with Freedom Oil & Gas, Inc., a Nevada corporation (“Freedom”), which called for the exchange of stock in HPI for all of the outstanding stock of Freedom (the “Freedom Acquisition”). Upon completion of the Freedom Acquisition, it became a wholly owned subsidiary of the Company from March 31, 2011 until June 20, 2011 when Freedom was merged into ROIL with ROIL being the surviving entity.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, HEGINC and HOPIN. All significant intercompany transactions and balances have been eliminated in consolidation.

The Company has been involved in leasing, exploring and drilling in Kansas, Oklahoma, Utah and Wyoming since its formation. The Company is participating in over 39,000 acres of leasehold, seismic surveys, and numerous drilling projects in these states.  The Company uses proven technologies and drilling and production methods that are both efficient and environmentally sound.

NOTE 2     GOING CONCERN

The Company’s condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations causing negative working capital, in that current liabilities exceed current assets, and the Company has negative operating cash flows, which raise substantial doubt about the Company’s ability to continue as a going concern. The Company sustained a net loss for the nine months ended September 30, 2013 of $6,056,185 and a net loss for the year ended December 31, 2012 of $7,993,196, and has an accumulated deficit of $37,261,192 as of September 30, 2013.

The Company intends to make its planned capital expenditures in order to continue its drilling programs, but does not have sufficient realized revenues or operating cash flows in order to finance these activities internally. As a result, the Company intends to seek financing in order to fund its working capital and capital expenditure needs.

The Company has been able to meet its short-term needs through loans from officers and third parties; sales of working interest in its oil and gas properties; and private placements of equity securities.  The Company may seek additional funding through sales of working interest in its oil and gas properties; the issuance of debt; preferred stock; common stock; or a combination of these items. Any proceeds received from these items could provide the needed funds for continued operations and drilling programs. The Company can provide no assurance that it will be able to obtain sufficient additional financing that it needs to develop its properties and alleviate doubt about its ability to continue as a going concern. If the Company is able to obtain sufficient additional financing proceeds, the Company cannot be certain that this additional financing will be available on acceptable terms, if at all. To the extent the Company raises additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

5

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 3     SIGNIFICANT ACCOUNTING POLICIES

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The financial statements included herein were prepared from the records of the Company in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Regulation S-X and S-K. In the opinion of management, all adjustments, of a normal recurring nature that are considered necessary for a fair presentation of the interim financial information, have been included. However, operating results for the periods presented are not necessarily indicative of the results that may be expected for a full year. The Company’s annual report on Form 10-K includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Form 10-Q. There have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company’s annual report on Form 10-K.

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of oil and gas reserves, assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates are reasonable, actual results could differ from these estimates. The Company evaluates its estimates on an on-going basis and bases its estimates on historical experience and on various other assumptions the Company believes to be reasonable under the circumstances. Although actual results may differ from these estimates under different assumptions or conditions, the Company believes that its estimates are reasonable. The Company’s activities are accounted for under the successful efforts method.

Loss Per Common Share

Basic earnings per share (“EPS”) is computed by dividing net income (loss) (the numerator) by the weighted-average number of common shares outstanding for the period (the denominator).  Diluted EPS is computed by dividing net income (loss) by the weighted-average number of common shares and potential common shares outstanding (if dilutive) during each period.  Potential common shares include common shares to be issued related to warrants outstanding, convertible debentures, stock options, and stock pending issue under the ratchet provision.  The number of potential common shares outstanding is computed using the treasury stock method.

As the Company has incurred losses for the nine months ended September 30, 2013 and 2012, the potentially dilutive shares are anti-dilutive and are thus not added into the loss per share calculations. As of September 30, 2013 and 2012, there were 12,959,062 and 3,553,591 potentially dilutive shares, respectively.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation. Such reclassifications had no impact on net loss, statements of cash flows, working capital or equity previously reported.

Financial Instruments and Concentration of Risks

The Company’s financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of their immediate or short-term maturities.

Substantially all of the Company’s accounts receivable result from oil and gas sales and joint interest billings (“JIBs”) to third parties in the oil and gas industry.  This concentration of customers and joint interest owners may impact the Company’s overall credit risk in that these entities may be similarly affected by changes in economic and other conditions. As of September 30, 2013, 67% of the accounts receivable balance resulted from three entities. For the nine months ended September 30, 2013, 98% of the revenues resulted from producing wells in Kansas, and for the nine months ended September 30 2012, all of the revenues resulted from producing wells in Kansas.

6

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4      OIL AND NATURAL GAS PROPERTIES

Acquisitions for the nine months ended September 30, 2013

In January 2013, the Company purchased two leases in the HUOP Freedom Trend Prospect: (i) a lease totaling 111 net acres with a term of 10 years for a payment of $1,664 per year; and (ii) the City of Fountain Green Lease totaling 206 net acres with a term of 10 years and includes the right to use surplus city water for a one-time payment of $140,000.

In May 2013, the Company purchased two 5 year leases with a 5 year option to renew in the HUOP Freedom Trend Project totaling 1,328 acres for $74,387. As part of the consideration for the leases the Company issued 10,000 shares of common stock valued at $8,000 or $0.80 per share with the balance of $66,387 paid in cash.

In May 2013, the Company purchased a 10 year lease in the HUOP Freedom Trend Prospect totaling 422 acres with annual payments of $6,329.

In June 2013, the Company purchased a 5 year lease with a 5 year option to renew in two new prospects in the Central Utah Overthrust totaling 1,707 acres for $59,729 in cash.

Divestitures for the nine months ended September 30, 2013

In March 2013, the Company sold a 20.0% working interest in the Wasatch National Forest #16-15 Well to two unaffiliated investors for a total of $145,626 with payments of $120,000 in cash and $25,626 through the return and cancelation of 25,626 shares of Common Stock valued at $1.00 per share.

In June 2013, the Company sold a 2.0% working interest in the Moroni #1 AXZH Well and in the surrounding 20,000 acres in the Independence Project for a total of $240,000, with payments of $220,000 in cash and $20,000 through the return and cancelation of 27,778 shares of Common Stock valued at $0.72 per share.

In July 2013, the Company sold a 2.0% ORRI in the Pine Springs/Edwin Prospect in the Central Utah Overthrust to an unaffiliated investor for $70,000 cash. As additional consideration for the sale, the Company granted warrants to purchase up to 70,000 shares of Common Stock with an exercise price of $1.00 that expire in July 2014.

7

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5     NOTES PAYABLE

Notes Payable consists of the following:

	September 30,		December 31,
	2013		2012
Note Payable, interest at 12.0% per annum, monthly payments of $7,500, due October 2013, secured by a 5.00% working interest in certain HUOP Freedom Trend Prospect leases.	$	-	$	750,000
Note Payable, interest at 10.0% per annum, monthly payments of $3,200, secured by a 1.00% working interest in certain HUOP Freedom Trend Prospect leases.		-		366,709
Note Payable, interest at 7.5% per annum, monthly payments of $1,949, due January 2014, secured by vehicle.		14,012		24,759
Note Payable, interest at 10.0% per annum, monthly payments of $15,000, due June 2014, secured by a 10.00% working interest in certain HUOP Freedom Trend Prospect leases.		581,327		716,327
Note Payable, interest at 10.0% per annum, monthly payments of $5,000, secured by a 1.00% working interest in certain HUOP Freedom Trend Prospect leases.		-		87,056
Note Payable, interest at 0.0% per annum, monthly payments of $1,500, due on demand, unsecured.		-		7,380
Note Payable, interest at 8.0% per annum, monthly payments of $10,000, due on demand, unsecured.		94,701		115,879
Note Payable, interest at 10.0% per annum, secured by certain new leases, rights, and interests in the Central Utah Overthrust Project.		-		250,000
Note Payable, interest at 6.0% per annum, quarterly payments of $50,000, due January 2014, secured by a 10.00% working interest in the Liberty Prospect.		439,000		589,000
Note Payable, interest at 0.0% per annum, unsecured.		-		190,000
Note Payable, interest at 0.0% per annum, due on demand, unsecured		15,000		-
Note Payable, interest at 10.0% per annum, secured by a 1.00% working interest in certain HUOP Freedom Trend Prospect leases.		-		65,000
Note Payable, interest at 12.0% per annum, due on demand, secured by a 10.00% working interest in the Liberty Prospect.		66,198		-
Note Payable, interest at 12.0% per annum, due on demand, secured by a 10.00% working interest in the Liberty Prospect.		50,000		-
Note Payable, interest at 12.0% per annum, due on demand, secured by a 10.00% working interest in the Liberty Prospect.		50,000		-
Note Payable, interest at 8.0% per annum, due on demand, secured by a working interest in certain Kansas leases.		100,000		-
Note Payable, interest at 8.0% per annum, due on demand, secured by a working interest in certain Kansas leases.		100,000		-
Total Notes Payable		1,510,238		3,162,110
Less: Current Portion (includes demand notes)		(1,510,238)		(1,487,419)
Long-Term Portion	$	-	$	1,674,691

8

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6     CONVERTIBLE NOTES PAYABLE

Convertible Notes Payable consists of the following:

	September 30,		December 31,
	2013		2012
Note Payable, interest at 12.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of $2.50 per common share, unsecured.	$	52,560	$	52,560
Note Payable, interest at 10.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of $2.50 per common share, secured by certain Kansas Leases and 10.00% working interest in certain Fountain Green Project Leases (see NOTE 15 LEGAL PROCEEDINGS).		1,300,000		1,300,000
Note Payable, interest at 10.0% per annum, due March 2014, convertible into common shares of the Company at a conversion rate of $0.60 per common share subject to a ratchet adjustment provision (see NOTE 10 COMMON STOCK), secured by a working interest in certain Kansas and Wyoming leases.		1,310,000		-
Note Payable, interest at 10.0% per annum, due March 2014, convertible into common shares of the Company at a conversion rate of $0.60 per common share subject to a ratchet adjustment provision (see NOTE 10 COMMON STOCK), secured by a working interest in certain Kansas and Wyoming leases.		150,000		-
Total Convertible Notes Payable		2,812,560		1,352,560
Less: Unamortized Debt Discount		(288,475)		-
Less: Current Portion (includes demand notes)		(2,524,085)		(1,352,560)
Long-Term Portion	$	-	$	-

NOTE 7     OPERATING LEASES

The Company leases office space in Salt Lake City, Utah (“Premises Lease”) which consists of approximately 5,482 square feet.  The Company has a prepaid security deposit of $11,122.  The Company entered into a five year and five month lease effective September 1, 2013. The annualized lease obligations for the period September 1, 2013 to August 31, 2014 is $67,155 with annualized lease obligations for the subsequent 4 years in the amount of $115,122. For the nine months ended September 30, 2013 and 2012, the Premises Lease payments were $89,482 and $80,827, respectively. 

The Company leases a printer, copier and fax machine. The Company entered into a new lease with new equipment for 36 months commencing January 11, 2013. The monthly lease payment on the new lease is $654. For the nine months ended September 30, 2013 and 2012, the office machine lease payments were $5,897 and $2,295, respectively.

NOTE 8      ASSET RETIREMENT OBLIGATIONS

FASB ASC 410 requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable. Under this method, when liabilities for dismantlement and abandonment costs, excluding salvage values, are initially recorded, the carrying amount of the related oil and gas properties is increased. The fair value of the ARO asset and liability is measured using expected future cash outflows discounted at the Company’s credit-adjusted risk-free interest rate. Accretion of the liability is recognized each period using the interest method of allocation, and the capitalized cost is depleted using the units of production method. Should either the estimated life or the estimated abandonment costs of a property change materially upon the Company’s periodic review, a new calculation is performed using the same methodology of taking the abandonment cost and inflating it forward to its abandonment date and then discounting it back to the present using the Company’s credit-adjusted-risk-free rate. The carrying value of the asset retirement obligation is adjusted to the newly calculated value, with a corresponding offsetting adjustment to the carrying cost of the related asset.

9

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the Company’s asset retirement obligation transactions recorded in accordance with the provisions of FASB ASC 410 during the nine months ended September 30, 2013:  

	September 30,
	2013
Beginning asset retirement obligation, as of December 31, 2012	$	482,157
Liabilities incurred in the current period		17,294
Liabilities settled in the current period		(57,839)
Accretion of discount on asset retirement obligations		6,578
Revisions of previous estimates		13,598
Ending asset retirement obligations, as of September 30, 2013	$	461,788

NOTE 9     PREFERRED STOCK

As of September 30, 2013 and December 31, 2012, the Company had 50,000,000 shares of preferred stock authorized at a par value of $0.001 per share and had no shares of preferred stock issued or outstanding.

NOTE 10     COMMON STOCK

During the nine months ended September 30, 2013, the Company issued 1,166,750 shares of common stock to unaffiliated investors and one director for cash of $1,069,000 at a price between $0.80 and $2.50 per share. In addition, the Company granted warrants to purchase up to 765,375 shares of common stock with an exercise price between $1.00 and $2.50 per share that expire between April 2013 and June 2014. Subsequent to the original issuance, warrants that were granted with an exercise price of $2.50 per share were repriced to $1.00 per share and warrants that expired in April 2013 were extended to December 2013 (see NOTE 11 WARRANTS TO PURCHASE COMMON STOCK).

During the nine months ended September 30, 2013, the Company issued 4,037,768 shares of common stock to unaffiliated debt holders at a negotiated price between $0.60 and $0.80 per share for the extinguishment or reduction of notes payable, accrued interest, extension and conversion incentives, and issuance of new debt. The fair value of these shares at the time of issuance was $2,473,119. In addition, the Company granted warrants to purchase up to 3,032,853 shares of common stock with an exercise price of $1.00 that expire between April 2014 and December 2014.

During the nine months ended September 30, 2013, the Company issued 10,000 shares of common stock at a negotiated price of $0.80 per share as partial consideration for the purchase of two leases in the HUOP Freedom Trend Project. The fair value of these shares at the time of purchase was $8,500.

During the nine months ended September 30, 2013, the Company issued 1,102,064 shares of common stock at a negotiated conversion price between $0.80 and $2.50 per share to creditors, consultants, directors, officers and other employees as payment for outstanding payables. The fair value of the shares at the time of conversion was $888,807. In addition, the Company granted warrants to certain consultants to purchase up to 21,250 shares of common stock with an exercise price of $1.00 that expire in June 2014.

During the nine months ended September 30, 2013, the Company issued 288,473 shares of common stock at a negotiated price between $0.80 and $2.50 per share to consultants and directors as compensation for services. The shares issued were fully vested and the fair value of the shares issued in the amount of $250,798 was expensed on the date of grant.

During the nine months ended September 30, 2013, the Company issued 61,209 shares of common stock to two unaffiliated investors as the result of a ratchet provision on stock that was purchased for $5.00 per share that required the Company to issue additional shares of stock at no cost to the investor to make the effective price per share $2.50.

10

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

During the nine months ended September 30, 2013, two unaffiliated investors returned 25,626 shares of common stock, valued at $25,626, or $1.00 per share, and paid us $120,000 in cash to purchase a 20.00% working interest in our Wasatch National Forest #16-15 Well for a total value of $145,626. The shares were returned to the Company and subsequently cancelled.

The Company has 2,396,222 shares of common stock outstanding which were issued between May 2013 and June 2013 pursuant to written subscription agreements. As part of the agreements, a ratchet provision was included that in the event the Company sells shares of common stock or convertible securities at any time prior to December 31, 2013 at a price per share less than $0.80, the Company contractually agrees to issue an additional amount of shares of common stock to make the effective price of the shares of common stock equal to the price per share of common stock that were sold for less than $0.80. Further, the Company has 2,530,357 shares of common stock outstanding which were also issued between June 2013 and September 2013 pursuant to written subscription agreements. As part of the agreements, a ratchet provision was included that in the event the Company sells shares of common stock or convertible securities at any time prior to December 31, 2013 at a price per share less than $0.60, the Company contractually agrees to issue an additional amount of shares of common stock to make the effective price of the shares of common stock equal to the price per share of common stock that were sold for less than $0.60.

These ratchet provisions are accounted for under the provisions of FASB ASC 815 which dictate the provisions to be accounted as embedded derivatives. These standards require the Company to determine the fair value of the ratchet provision and record a corresponding derivative liability in the financial statements. (See NOTE 13 FAIR VALUE). As of September 30, 2013, the Company is required to issue 798,741 shares of common stock under the terms of the $0.80 ratchet provision. The Company intends to issue these shares before December 31, 2013.  

NOTE 11     WARRANTS TO PURCHASE COMMON STOCK

As of September 30, 2013, there were 5,685,964 warrants to purchase shares of common stock outstanding and fully vested. These warrants have an exercise price between $1.00 and $5.00 per share and expire at various times between December 2013 and September 2015. 

During the nine months ended September 30, 2013, certain previously issued warrants with an exercise price between $2.50 and $5.00 were modified to an exercise price of $1.00 and warrants that had an expiration date of April 2013 were modified to expire in December 2013. The fair value of the modification in the amount of $162,894 was expensed during the nine months ended September 30, 2013.

During the nine months ended September 30, 2013, warrants totaling 4,451,478 for shares of common stock were granted.

Of the total warrants granted during the nine months ended September 30, 2013, 765,375 warrants were granted in conjunction with private placements of common stock for cash proceeds (see NOTE 10 COMMON STOCK) that have an exercise price of $1.00 per share and expire between December 2013 and June 2014.

The remaining 3,686,103 warrants granted during the nine months ended September 30, 2013, were issued in conjunction with the extinguishment of certain debt and in conjunction with the payment for services. These transactions are accounted for by the Company under the provisions of FASB ASC 470 and 505. These standards require the Company to determine the fair value of the warrants.  The Company uses the Black-Scholes option valuation model to calculate the fair value of warrants at the date of grant.  Warrant pricing models require the input of highly subjective assumptions, including the expected price volatility.  For warrants granted, the Company used a variety of comparable and peer companies as well as its own stock trading history to determine the expected volatility. The Company believes the use of peer company data fairly represents the expected volatility it would experience if the Company was more actively publicly traded in the oil and gas industry over the contractual term of the warrants. Changes in these assumptions can materially affect the fair value estimate. 

During the nine months ended September 30, 2013, the Company has determined the fair value of the 3,686,103 warrants granted to be $632,651, of which $595,774 has been expensed in the period.

11

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited) 

The following is the weighted average of the assumptions used in calculating the fair value of the warrants granted during the period using the Black-Scholes model:   

	Nine Months Ended
	September 30, 2013
Fair market value	$	0.63
Exercise price	$	1.00
Risk free rates		0.12	%
Dividend yield		0.00	%
Expected volatility		112.51	%
Contractual term		1.00 Years

The weighted-average fair market value at the date of grant for warrants granted are as follows:

Fair value per warrant	$	0.1716
Total warrants granted		3,686,103
Total fair value of warrants granted	$	632,651

The following table summarizes the Company’s total warrant activity for the nine months ended September 30, 2013:

					Weighted-
					Average
			Weighted-		Remainder
			Average		Contractual
	Warrants		Exercise Price		Term in Years
Warrants outstanding as of December 31, 2012		2,166,874	$	2.58		1.32
Granted		4,451,478	$	1.00		1.00
Exercised		-		-		-
Forfeited/Expired		(932,388)		-		-
Warrants outstanding as of September 30, 2013		5,685,964	$	1.29		0.82

NOTE 12     EMPLOYEE STOCK OPTIONS

In May 2013, the Company announced the appointment of Alan D. Gaines as Chairman of the Board of Directors and as part of his compensation package, the Company awarded Mr. Gaines 3,500,000 common stock options with an exercise price of $1.00 and expire in May 2020. The options vest 50% upon the earlier of six months or the Company obtaining funding in excess of $3 million, 25% after one year and 25% after two years. The Company accounts for employee stock options according to FASB ASC 718 which requires the Company to calculate the fair value of the stock option on the date of grant and amortize over the vesting period of the options.

The following are the assumptions used in calculating the fair value of the options granted on May 6, 2013 using the Black-Scholes model:   

Fair market value	$	0.80
Exercise price	$	1.00
Risk free rate		0.11	%
Dividend yield		0.00	%
Expected volatility		71.29	%
Expected life		4.08 Years

The Company used a variety of comparable and peer companies to determine the expected volatility. The Company believes the use of peer company data fairly represents the expected volatility it would experience if the Company was more actively publicly traded in the oil and gas industry over the expected life of the options. The Company has no historical data regarding the expected life of the options and therefore used the simplified method of calculating the expected life. The risk free rate was calculated using the U.S. Treasury constant maturity rates similar to the expected life of the options, as published by the Federal Reserve. The Company has no plans to declare any future dividends.

12

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

The following table summarizes the Company’s total option activity for the nine months ended September 30, 2013:

					Remaining
	Options		Exercise Price		Term in Years
Options outstanding as of December 31, 2012		-		-		-
Granted		3,500,000	$	1.00		7.00
Exercised		-		-		-
Forfeited/Expired		-		-		-
Options outstanding as of September 30, 2013		3,500,000	$	1.00		6.60

Outstanding and exercisable stock options as of September 30, 2013 are as follows:

Options Outstanding					Options Exercisable
Number of	Remaining				Number of
Options	Life		Exercise		Options		Exercise
Outstanding	(Years)		Price		Exercisable		Price
3,500,000		6.65	$	1.00		-		-

The estimated fair value of the Company stock options, less expected forfeitures, is amortized over the options vesting period on the straight-line basis. The Company recognized the following equity-based compensation expenses during the nine months ended September 30, 2013:

	Nine Months Ended
	September 30, 2013
Stock based compensation expense	$	489,628
Income tax benefit recognized related to stock-based compensation		-
Income tax benefit realized from the exercising and vesting of options		-

As of September 30, 2013, there was $1,100,390 of total unrecognized compensation cost with a remaining vesting period of 1.60 years.

As of September 30, 2013, the intrinsic value of outstanding and vested stock options was as follows:

	September 30, 2013
Intrinsic value – options outstanding		-
Intrinsic value – options exercisable		-
Intrinsic value – options exercised		-

NOTE 13     FAIR VALUE

FASB ASC 820 defines fair value, establishes a framework for measuring fair value under U.S. generally accepted accounting principles and enhances disclosures about fair value measurements.  Fair value is defined under FASB ASC 820 as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.  Valuation techniques used to measure fair value under FASB ASC 820 must maximize the use of observable inputs and minimize the use of unobservable inputs.  The standard describes a fair value hierarchy based on three levels of inputs, with the first two inputs considered observable and the last input considered unobservable, that may be used to measure fair value as follows:

13

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

⋅ Level one — Quoted market prices in active markets for identical assets or liabilities;

⋅ Level two — Inputs other than level one inputs that are either directly or indirectly observable; and

⋅ Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company has one liability measured at fair value on a recurring basis, which consists of ratchet provisions in connection with certain issuances of the Company’s common stock (see NOTE 10 COMMON STOCK). As of September 30, 2013 this provision had an estimated fair value of $1,354,503. The Company has no assets that are measured at fair value on a recurring basis.

The following table presents information about our derivative liability, which was our only financial instrument measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2013:

Balance at December 31, 2012	$	-
New Derivative Liability		1,066,932
Transfers to (from) Level 3		-
Total (gains)losses included in earnings		287,571
Issuances		-
Balance at September, 2013	$	1,354,503

The fair value of this provision was calculated using the Geometric Brownian Motion methodology with a risk neutral Monte Carlo approach using level three inputs. Assumptions used to calculate the fair value of the ratchet provisions were as follows:

	September 30,
	2013
Expected term in years		.12 years
Risk-free interest rates		0.02	%
Volatility		133.10	%
Dividend yield		0.00	%

In addition to the assumptions above, the Company also takes into consideration whether or not the Company would participate in another round of financing and if that financing is registered or not and what that stock price would be for the financing at that time. The Company will continue to adjust the derivative liability for changes in fair value until the ratchet provision expires on December 31, 2013.

NOTE 14     RELATED PARTY TRANSACTIONS

Certain Relationships and Related Transactions

A. Douglas C. Hewitt, Sr., Chief Executive Officer and a Director

An affiliate of Douglas C. Hewitt, Sr., Chief Executive Officer and a Director, is a party to the following transactions with the Company for the nine months ended September 30, 2013 as described below.

The D. Mack Trust

⋅    Mr. Hewitt is the sole beneficiary of The D. Mack Trust, an irrevocable trust established by Mr. Hewitt on May 15, 2009. As of September 30, 2013, the D. Mack Trust had ORRIs ranging from 0.50% to 3.625% in 1,636 net acres leased by the Company in Kansas and Oklahoma. The D. Mack Trust received $16,772 and $12,489 in royalties for the nine months ended September 30, 2013 and 2012, respectively, from the overriding royalty interests.

14

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

B. Joseph P. Tate, a Director

Joseph P. Tate, a Director, is a party to the following transaction with the Company for the nine months ended September 30, 2013:

⋅    As of September 30, 2013, Mr. Tate had a 12.50% landowner overriding royalty interest in 1,816 acres within our HUOP Freedom Trend Prospect that we purchased from him prior to him becoming a director. Mr. Tate did not receive any royalties during the nine months ended September 30, 2013 and 2012 relating to his overriding royalty interest.

⋅    In May 2013, Mr. Tate purchased 250,000 shares of common stock of the Company for cash in the amount of $200,000, or $0.80 per share. The shares are subject to a ratchet provision that in the event the Company sells shares of common stock or convertible securities at any time prior to December 31, 2013 at a price per share less than $0.80, the Company shall issue an additional amount of shares of common stock to make the effective price of the shares of common stock equal to the price per share of common stock that were sold for less than $0.80. In addition, the Company granted warrants to Mr. Tate to purchase up to 125,000 shares of common stock with an exercise price of $1.00 that expire in May 2014 (see NOTE 10 COMMON STOCK).

C. Alan D. Gaines, Chairman of the Board

Alan D. Gaines, Chairman of the Board of Directors, is a party to the following transaction with the Company for the nine months ended September 30, 2013:

⋅    In May 2013, the Company announced the appointment of Alan D. Gaines as Chairman of the Board of Directors and as part of his compensation package, the Company awarded Mr. Gaines 3,500,000 common stock options with an exercise price of $1.00 and expire in May 2020. The options vest 50% upon the earlier of six months or the Company obtaining funding in excess of $3 million, 25% after one year and 25% after two years (see NOTE 12 EMPLOYEE STOCK OPTIONS).

NOTE 15     LEGAL PROCEEDINGS

Nostra Terra Oil & Gas Company v. Richfield Oil & Gas Company

On February 1, 2012, Nostra Terra Oil & Gas Company (“NTOG”) filed an action against the Company, HPI, HEGINC, and HEGLLC in the Twenty-Third Judicial District Court of Russell County, Kansas (the “Court”). The complaint alleges that the Company defaulted on its repayment obligations under a note and security agreement, dated April 13, 2011, in the principal amount of $1,300,000 and accrued interest at 10% per annum (the “Note”). On April 2, 2013, NTOG obtained a judgment against the Company in the principal sum of $1,300,000 plus $245,040 in accrued interest through March 1, 2013 (the “Judgment”). In addition, NTOG is claiming amounts for legal fees and production costs. Between May 2, 2013 and September 9, 2013 the Company deposited the sum of $1,639,403 with the Court for the payment of the Judgment, additional accrued interest, and all legal fees and production costs. At a hearing on September 11, 2013 the Court released all writs of execution and or garnishments pursuant to the Judgment. The Court has set December 18, 2013 for determination that all amounts due pursuant to the Judgment have been paid. The obligations due and owing under this note and security agreement are fully accounted for in the Company’s financial statements as of September 30, 2013. The liability of $1,300,000 has been included in the Company’s financial statements under “Convertible notes payable” and the interest, legal fees and production expense amounts have been included in the Company’s “Accrued expenses and other payables”. Notwithstanding the foregoing, the Company has maintained its cross-claim against NTOG for intentional interference with our business relations and accounting.

Litigation in the Ordinary Course

We may become involved in litigation from time to time relating to claims arising in the ordinary course of our business. We do not believe that the ultimate resolution of such claims would have a material effect on our business, results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material effect on our business, results of operations, financial condition and cash flows.

15

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 16     SUBSEQUENT EVENTS

In October 2013, the Company issued 147,000 shares of common stock to a consultant as compensation for services.The shares issued are fully vested and the fair value of the shares on the date of issuance was $58,800.

In October 2013, the Company issued 187,834 shares of common stock to a note holder pursuant to a conversion notice to convert $34,862 in principal and interest in accordance with the terms of the note.The shares were issued at a conversion rate of $0.19 per share and the fair value of the shares on the date of issuance was $88,282.

In October 2013, at a hearing regarding our litigation with NTOG, the Court ordered $1,150,000 of the amount held by the Court to be distributed to NTOG. The remaining balance of the funds will continue to be held pending the outcome of the hearing on December 18, 2013. The Court also ordered the immediate transfer of operations three wells from NTOG to the Company.

In October 2013, the Company sold a 51.25% working interest in the Wasatch National Forest #16-15 well located in Wyoming to two unaffiliated investors for $512,500 with payments of $112,500 in cash and the cancellation of $400,000 of notes payable.

16

ITEM 2.      MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist in understanding our results of operations and our financial condition.Our consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q contains additional information that should be referred to when reviewing this material. Certain statements in this discussion may be forward-looking. These forward-looking statements involve risks and uncertainties, which could cause actual results to differ from those expressed in this report.

Forward-Looking Statements

The statements contained in this quarterly report on Form 10-Q that are not historical facts represent management’s beliefs and assumptions based on currently available information and constitute “forward-looking statements.” These statements include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. These forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include but are not limited to the following:

· uncertainty regarding our ability to raise the funds necessary to pay our current liabilities and carry out our business plan;

· the continuing adequacy of our capital resources and liquidity including, but not limited to, access to borrowing capacity;

· the availability (or lack thereof) of acquisition, disposition or combination opportunities;

· domestic and global supply and demand for oil and natural gas;

· sustained or further declines in the prices we receive for oil and natural gas;

· the geologic quality of our properties with regard to, among other things, the existence of hydrocarbons in economic quantities;

· uncertainties about the estimates of our oil and natural gas reserves;

· our ability to increase our production of oil and natural gas income through exploration and development;

· our ability to successfully apply horizontal drilling techniques and tertiary recovery methods;

· the number of well locations to be drilled, the cost to drill, and the time frame within which they will be drilled;

· the effects of adverse weather on operations;

· drilling and operating risks;

· the ability of contractors to timely and adequately perform their drilling, construction, well stimulation, completion and production services;

· the availability of equipment, such as drilling rigs and related equipment and tools;

· changes in our drilling plans and related budgets;

· uncertainties associated with our legal proceedings and their outcome;

· the effects of government regulation, permitting, and other legal requirements;

· uncertainties regarding economic conditions in the United States and globally;

· difficult and adverse conditions in the domestic and global capital and credit markets; and

· other factors discussed under “Item 1A – Risk Factors”.  

You can often identify these and other forward-looking statements by the use of words such as “may,” “will,” “could,” “would,” “should,” “expects,” “plans,” “anticipates,” “estimates,” “intends,” “potential,” “projected,” “continue,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

These statements are based on current expectations and assumptions regarding future events and business performance and involve known and unknown risks, uncertainties and other factors that may cause industry trends or our actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements.

Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We will assume no obligation to update any of the forward-looking statements to conform these statements to actual results or changes in our expectations, except as required by law. You should not place undue reliance on these forward-looking statements.

17

Overview of our Business

We are an independent oil and gas exploration and production company with projects in Kansas, Oklahoma, Utah and Wyoming. The focus of our business is acquiring, retrofitting and operating or selling oil and gas assets and related production.We have three primary strategic directions:

· We use our research technology to identify prospective properties in Kansas and Oklahoma that were initially developed between the 1920s and 1950s, but which may be subject to further development through the use of more modern production techniques. We refer to these properties as our “Mid-Continent Project,” which currently includes 2,506 gross (2,375 net) acres. We have identified significant oil and natural gas reserves from these early exploration properties, many of which were previously underdeveloped due to inefficient and antiquated exploration and production methods and low commodity prices. In most cases these wells were developed and left fallow by major oil and gas companies. Using current technology and methodologies, we have successfully developed both production and proved reserves within these fields, and we intend to continue to pursue this strategy in the future.

· We have three properties on the Utah–Wyoming Overthrust, including one property containing a well that we are in the process of refurbishing in order to place it into production. We currently own or lease 2,311 gross (2,303 net) acres on the Utah-Wyoming Overthrust, near the border between northern Utah and south-western Wyoming.We refer to these properties as our “Utah-Wyoming Overthrust Project.” We intend to conduct additional development activities with respect to our Utah-Wyoming Overthrust Project.

· We have conducted a limited amount of exploration for oil and natural gas reserves in the Central Utah Overthrust region, where we are participating in 34,211 gross (13,306 net) acres.We refer to these properties as our “Central Utah Overthrust Project.” We and our partners intend to conduct drilling operations, acquire additional acreage and to conduct further exploration activities with respect to our Central Utah Overthrust Project.

Our approach to acquiring leases and developing producing properties focuses on three types of development activities:

· Activities involving the identification, acquisition and development of leases of property in which oil or natural gas is known to exist. 

· Activities involving low or moderate exploration and development risk. These include leases of property where oil and natural gas has been produced in the past but there are no existing wells.

· Activities involving the acquisition of properties where it is reasonably believed that potential hydrocarbon values exist based on analysis involving geochemical, radiometric, gravitational and seismic data. This may include projects that have never been drilled or tested for oil and natural gas in the past. 

We have developed a database to evaluate wells that are on record in our Kansas areas of operation. The database contains extensive well records, including information on historic production, seismic data, geological data, well depth, well logs and drilling records, and where available, handwritten driller notes concerning rock formation depths and other relevant information. This system has been developed internally from data obtained from appropriate state agencies and private organizations. The database enables us to identify potential bypassed hydrocarbons throughout the state of Kansas.

Through statistical modeling and data evaluation, we believe greater oil and natural gas reserves exist and can be found, measured and produced in areas where initial reserves were previously found but abandoned prior to full development. We believe that with our current technologies and systems, acquiring and developing older fields mitigates exploration risk and is a safe and predictable method of managing our business.

18

Production History

The following table presents information about our produced oil volumes during the three and nine months ended September 30, 2013 compared to the three and nine months ended September 30, 2012. We did not produce natural gas during these time periods. As of September 30, 2013, we were selling oil from a total of 16 gross wells (15.2 net), compared to 14 gross wells (12.3 net) as of September 30, 2012.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Net Production:
Oil (Bbl)		2,534		2,271		8,392		7,451
Average Sales Price:
Oil (per Bbl)	$	100.46	$	95.93	$	92.04	$	89.48
Average Production Costs:
Oil (per Bbl)	$	81.02	$	94.52	$	77.90	$	77.93

Depletion of Oil and Gas Properties

Our depletion expense is driven by many factors, including certain costs incurred in the development of producing reserves, production levels and estimates of proved reserve quantities. Our depletion expense totaled $28,000 and $94,031 for the three months and nine months ended September 30, 2013 compared to $32,005 and $80,113 for the three and nine months ended September 30, 2012.

The following table presents our depletion expenses per barrel of oil for the three and nine months ended September 30, 2013 and 2012.

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2013		2012		2013		2012
Depletion of Oil (per Bbl):	$	11.05	$	14.09	$	11.20	$	10.75

Results of Operations

The following presents an overview of our results of operations for the three and nine months ended September 30, 2013, compared to the three and nine months ended September 30, 2012.

Three Months Ended September 30, 2013 Compared to the Three Months Ended September 30, 2012

Average Daily Production.Our net oil production for the three months ended September 30, 2013 averaged approximately 27 Bopd after royalties compared to approximately 25 Bopd for the three months ended September 30, 2012. The increase in production in 2013 over 2012 is primarily due to five new wells added in Kansas and Wyoming partially offset by the temporary shut-in of wells and other temporary well repair downtime and normal production decline.

Oil Revenues.Our oil revenues increased by $36,702, or 16.8%, from $217,852 for the three months ended September 30, 2012 to $254,554 for the three months ended September 30, 2013. The increase in revenue is due to an increase of 263 barrels of oil produced for the three months ended September 30, 2013 over the same period in 2012, equating to an increase of $25,230 and an $4.53 increase in the weighted average price per barrel sold for the three months ended September 30, 2013, equating to an increase of $11,477.

19

Net Loss on Earnings Per Share. We realized a net loss of $2,319,384, or $0.06 per basic and diluted share of common stock, for the three months ended September 30, 2013, compared to a net loss of $1,118,824, or $0.04 per basic and diluted share of common stock for the three months ended September 30, 2012. The higher net loss of $1,200,560 was due mainly to the loss on extinguishment of debt, loss on the derivative valuation of our ratchet provision and higher interest and finance expenses incurred to extend the due dates of debt during the three months ended September 30, 2013.

Operating Expenses. Total operating expenses were $1,559,205 for the three months ended September 30, 2013 compared to $1,101,761 for the three months ended September 30, 2012. The $457,444 or 41.5% increase in operating expenses was due primarily to an increase in general and administrative expenses of $309,185 and an increase in lease expirations of $102,031.

Production Expenses. Our production expenses for the three months ended September 30, 2013 were $205,312, or $81.02 per barrel of oil, compared to $214,664, or $94.52 per barrel of oil, for the three months ended September 30, 2012, which represents a $9,352 or 4.4% decrease.The overall production expenses decreased slightly due to fewer repair costs on our wells.Our cost per barrel for the three months ended September 30, 2013 continues to remain above the industry averages due to our fixed costs, such as electricity, personnel and related expenses, and the cost of maintaining our 26 current non-producing wells including eight salt water disposal wells that are underutilized. We expect our fixed costs on a per barrel basis will decline as we place into production our non-producing wells.

Exploration Expenses. Exploration expenses increased 14.4%, or $4,053, from $28,239 for the three months ended September 30, 2012 to $32,292 for the three months ended September 30, 2013. We have not performed a significant amount of work on our undeveloped Utah prospects as we continue to focus our resources on our proved properties in Kansas and Wyoming.

Lease Expiration. Lease expirations increased $102,031 or 1,405.2% from $7,261 for the three months ended September 30, 2012 to $109,292 for the three months ended September 30, 2013.The expense for the three months ended September 30, 2013 was due to $30,058 in leases that expired and $79,234 for future leases that will expired in the HUOP Freedom Trend prospect in Utah. These leases were either over the current market value for their renewal or did not have a renewal option.The Company intends to enter into new leases on all expired acreage.

Depletion, Depreciation, Amortization and Accretion. We recorded depletion, depreciation, amortization and accretion of $88,477 during the three months ended September 30, 2013 compared to $72,824 during the three months ended September 30, 2012. The increase of 21.5%, or $15,653, was mainly due to increased depreciation of $19,080 during the three months ended September 30, 2013 on our well and office equipment as a result of $762,938 in equipment additions since September 30, 2012.Depletion expense decreased by $4,005 as a result of a decrease in the depletion cost per barrel partially offset by an increase in overall production volumes.The remaining increase of $578 is due to accretion of the discount on our asset retirement obligation.

General and Administrative Expenses. General and administrative expenses were $1,087,997 for the three months ended September 30, 2013 compared to $778,812 for the three months ended September 30, 2012. The increase of $309,185, or 39.7%, was mainly attributable to $305,381 in employee stock compensation recognized during the three months ended September 30, 2013.The general and administrative expenses were $782,616, net of $305,381 in non-cash stock compensation, and $691,428, net of $87,384 in non-cash stock compensation, for the three months ended September 30, 2013 and 2012, respectively.

Asset Retirement Obligation Expense. We had $25,094 in asset retirement obligation expenses for the three months ended September 30, 2013 compared to zero for the three months ended September 30, 2012.This increase is due to the additional costs for finishing the plugging of three wells in Kansas during the three months ended September 30, 2013 that exceeded the asset retirement obligation liability for those three wells.These wells had been shut-in since our purchase of the leases.They were if very poor mechanical condition that was unknown to us prior to starting our rework operations.

Other Income (Expenses). Total other income and expenses during the three months ended September 30, 2013 was a net expense of $1,014,733 compared to a net expense of $234,915 for the three months ended September 30, 2012 representing an increase of $779,818 or 332.0%.

20

 

Loss on Extinguishment of Debt.For the three months ended September 30, 2013, we incurred a loss on the extinguishment of debt in the amount of $472,349.This is a non-cash expense and is the result of our continuing effort to reduce our debt through conversions to common stock with a ratchet provision and warrants.

Loss on Derivative Valuation. The Company incurred a loss of $287,571 on the derivative valuation of the ratchet provision on certain shares of common stock.This is a non-cash expense determined by the change in the fair value of the provision for the three months ended September 30, 2013.

Interest and Finance Expenses.For the three months ended September 30, 2013, we incurred interest and finances expenses of $255,663 compared to $238,516 for the three months ended September, 2012. The increase of $17,147 in 2013 over 2012 is due to an increase of $131,315 in interest expense mainly due to incentive payments for new debt issued and payments made to extend due dates on notes payable during the three months ended September 30, 2013, offset by a decrease of $114,168 in interest expense from the issuance of preferred stock during the three months ended September 30, 2012.The interest and finance expenses were $73,907, net of $181,756 in non-cash stock and warrant issuances and $209,297, net of $29,219 in non-cash stock and warrant issuances for the three months ended September 30, 2013 and 2012, respectively.

Nine Months Ended September 30, 2013 Compared to the Nine Months Ended September 30, 2012

Average Daily Production.Our net oil production for the nine months ended September 30, 2013 averaged approximately 31 Bopd after royalties compared to approximately 27 Bopd for the nine months ended September 30, 2012. The increase in production in 2013 over 2012 is primarily due to five new wells added in Kansas and Wyoming partially offset by the temporary shut-in of wells and other temporary well repair downtime and normal production decline.

Oil Revenues.Our oil revenues increased by $105,644 or 15.8% from $666,750 for the nine months ended September 30, 2012 to $772,394 for the nine months ended September 30, 2013. The increase in revenue is due to an increase of 941 barrels of oil produced for the nine months ended September 30, 2013 over the same period in 2012, equating to an increase of $84,201 and a $2.56 increase in the weighted average price per barrel sold for the nine months ended September 30, 2013, equating to an increase of $21,443.

Net Loss on Earnings Per Share. We realized a net loss of $6,056,185, or $0.18 per basic and diluted share of common stock for the nine months ended September 30, 2013 compared to a net loss of $4,035,809, or $0.14 per basic and diluted share of common stock for the nine months ended September 30, 2012. The higher net loss of $2,020,376 was due mainly to the loss on extinguishment of debt, loss on the derivative valuation on our ratchet provision, higher interest and finance expenses incurred to extend the due dates of debt, and a lower gain on the sale of assets during the nine months ended September 30, 2013.

Operating Expenses. Total operating expenses were $4,668,670 for the nine months ended September 30, 2013 compared to $4,130,493 for the nine months ended September 30, 2012. The $538,177 or 13.0% increase in operating expenses was due primarily to a decrease in the gain on sale of assets of $449,979, an increase in lease expirations of $134,798, an increase in asset retirement expenses of $161,601 and a net increase in all other operating expenses of $159,293, offset by a decrease in general and administrative expenses in the amount of $367,494.

Production Expenses. Our production expenses for the nine months ended September 30, 2013 were $653,758, or $77.90 per barrel of oil, compared to $580,679, or $77.93 per barrel of oil, for the nine months ended September 30, 2012, which represents a $73,079 or 12.6% increase.The overall production expenses increased mainly due to one time repair costs incurred on our Wasatch National Forest #16-15 Well that were necessary after it was put into production. This increase was partially offset by a large one time repair charge in our Perth field during 2012 that we did not incur in 2013. Our cost per barrel for the nine months ended September 30, 2013 continues to remain above the industry averages due to our fixed costs, such as electricity, personnel and related expenses, and the cost of maintaining our 26 current non-producing wells including eight salt water disposal wells that are underutilized. We expect our fixed costs on a per barrel basis will decline as we place into production our non-producing wells.

Exploration Expenses. Exploration expenses decreased 4.4%, or $4,795, from $108,638 for the nine months ended September 30, 2012 to $103,843 for the nine months ended September 30, 2013. We have not performed a significant amount of work on our undeveloped Utah prospects as we continue to focus our resources on our proved properties in Kansas and Wyoming.

21

Lease Expirations. Lease expirations were $156,229 for the nine months ended September 30, 2013 compared to $21,431 for the nine months ended September 30, 2012.This increase of $134,798, or 629.0%, was mainly due to one lease that we were unsuccessful in renewing due to excessive terms requested by the landowner in Kansas, as well as $30,058 in leases that expired and $79,234 for future leases that will expired in the HUOP Freedom Trend prospect in Utah. These leases were either over the current market value for their renewal or did not have a renewal option.The Company intends to enter into new leases on all expired acreage in Utah.

Depletion, Depreciation, Amortization and Accretion. We recorded depletion, depreciation, amortization and accretion of $271,627 during the nine months ended September 30, 2013 compared to $186,506 during the nine months ended September 30, 2012. The increase of 45.6%, or $85,121 was mainly due to increased depreciation of $68,430 during the nine months ended September 30, 2013 on our well and office equipment as a result of $762,938 in equipment additions since September 30, 2012.Depletion expense increased by $13,918 as a result of an increase in overall production volumes with a shift to more production in the Koelsch and South Haven fields that have a higher depletion cost per barrel.The remaining increase of $2,773 is due to accretion of the discount on our asset retirement obligation.

General and Administrative Expenses. General and administrative expenses were $3,275,525 for the nine months ended September 30, 2013 compared to $3,643,019 for the nine months ended September 30, 2012. The $367,494 or 10.1% decrease was attributable to a $458,619 decrease in compensation to consultants, directors, officers and other employees and a $192,332 decrease in bad debt expense during the nine months ended September 30, 2013 compared to 2012, offset by a $347,490 increase in legal and audit fees in 2013 over 2012 and a net decrease of $64,033 in all other expense items.The general and administrative expenses were $1,999,475, net of $1,276,050 in non-cash stock compensation, and $2,259,681, net of $1,383,338 in non-cash stock compensation, for the nine months ended September 30, 2013 and 2012, respectively.

Asset Retirement Obligation Expenses. We had $161,601 in asset retirement obligation expenses for the nine months ended September 30, 2013 compared to zero for the nine months ended September 30, 2012.This increase is due to the cost for plugging three wells in Kansas during the nine months ended September 30, 2013 exceeded the asset retirement obligation liability for those three wells.These wells had been shut-in since our purchase of the leases.They were in very poor mechanical condition that was unknown to us prior to starting our rework operations.

Gain (Loss) on Sale of Assets. During the nine months ended September 30, 2013 we had a $16,130 net loss on sale of assets compared to a $433,849 net gain on sale of assets for the nine months ended September 30, 2012. This resulted in a decrease of $449,979, or 103.7%. The loss on sale of assets in 2013 is attributable to the sale of certain well equipment and office equipment. The gain on sale of assets in 2012 is attributable to the sale of a 21% working interest in the Prescott lease and a 5% carried interest in the Perth Field.

Other Income (Expenses). Total other income and expenses during the nine months ended September 30, 2013 was a net expense of $2,158,342 compared to a net expense of $571,666 for the nine months ended September 30, 2012 representing an increase of $1,586,676 or 277.6%.

Loss on Extinguishment of Debt.For the nine months ended September 30, 2013, we incurred a loss on the extinguishment of debt in the amount of $1,103,702.This is a non-cash expense and is the result of our effort to reduce our debt through conversions to common stock with a ratchet provision and warrants.

Loss on Derivative Valuation. The Company incurred a loss of $287,571 on the derivative valuation of the ratchet provision on certain shares of common stock.This is a non-cash expense determined by the change in the fair value of the provision for the nine months ended September 30, 2013.

Interest and Finance Expenses. For the nine months ended September 30, 2013, we incurred interest and finances expenses of $798,286 compared to $644,773 for the nine months ended September 30, 2012. The $153,513 increase in 2013 over 2012 is due to an increase of $162,894 in expenses associated with the modification of previously issued warrants, an increase of $120,280 in interest expense mainly due to incentive payments for new debt issued and payments made to extend due dates on notes payable during the nine months ended September 30, 2013, offset by a decrease of $129,661 in interest expense from the issuance of preferred stock during the nine months ended September 30, 2012.The interest and finance expenses were $316,182, net of $482,104 in non-cash stock and warrant issuances and $482,025, net of $162,748 in non-cash stock and warrant issuances for the nine months ended September 30, 2013 and 2012, respectively.

22

Liquidity and Capital Resources

Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of common and preferred stock, short-term borrowings and selling working interests in our oil and natural gas properties. In the future, we expect to generate cash from sales of crude oil from production from our existing wells and new wells we intend to develop. Until cash provided by our operations is sufficient to cover our expenses and execute our development plans, we intend to continue to finance our operations through additional debt or equity financings, if available.

The following table summarizes our total current assets, total current liabilities and working capital deficiency as of September 30, 2013 compared to December 31, 2012: 

	September 30,		December 31,
	2013		2012
Current Assets	$	1,934,832	$	1,064,566
Current Liabilities		9,894,616		5,802,513
Working Capital Deficiency	$	(7,959,784)	$	(4,737,947)

Cash and cash equivalents were $98,753 as of September 30, 2013, compared to $286,013 as of December 31, 2012.Changes in the net cash provided by and (used in) our operating, investing and financing activities for the Nine months ended September 30, 2013 and 2012 are set forth in the following table:

	Nine  Months Ended				Net Cash
	September 30,				Increase
	2013		2012		(Decrease)
Net cash used in operating activities	$	(738,648)	$	(2,292,868)	$	1,554,220
Net cash provided by (used in) investing activities		(723,278)		913,268		(1,636,546)
Net cash provided by financing activities		1,274,666		1,494,197		(219,531)
Increase (decrease) in cash and cash equivalents	$	(187,260)	$	114,597	$	(301,857)

Net cash from operating activities is derived from net income from operations adjusted for non-cash items, changes in the balances of accounts receivables, deposits and prepaid expenses, accounts payables, accrued expenses and other payables.For the nine months ended September 30, 2013, we used net cash in operating activities in the amount of $738,648 compared to $2,292,868 for the nine months ended September 30, 2012.This increase in net cash of $1,554,220 from 2012 to 2013 was primarily due to an increase in accrued expenses and other payables of $1,454,780 offset by a net increase of $99,440 from all other operating items.

Net cash from investing activities is derived from the proceeds and disbursements from sales and purchases of oil and gas properties, including wells and related equipment. For the nine months ended September 30, 2013, we used cash for investing activities in the amount of $723,278 compared having cash provided by investing activities in the amount of $913,268 for the nine months ended September 30, 2012.This decrease in net cash of $1,636,546 was primarily due to a decrease in the proceeds from sale of oil and gas assets in the amount of $1,916,978 offset by the purchase of fewer oil and gas properties and other equipment in the amount of $280,432. In 2012, we sold working interests in our Kansas properties to provide significant funding for our activities.

Net cash from financing activities is derived from the proceeds from the issuance of equity securities and notes and convertible notes payable reduced by payments on our notes and convertible notes payable. For the nine months ended September 30, 2013, we had an increase in net cash from financing activities of $1,274,666 compared to an increase in net cash of $1,494,197 for the nine months ended September 30, 2012, resulting in a decrease of $219,531 in our net cash period over period.This decrease is due primarily to a decrease of $1,245,487 in cash raised through the issuance of equity securities in 2013 from 2012 and an increase of $1,639,403 in restricted cash (see NOTE 15 LEGAL PROCEEDINGS), offset by the increase of $1,771,811 in cash raised through new debt issuances and a decrease in payments on our notes payable, convertible notes payable, and capital leases in the amount of $893,548.

23

Satisfaction of our cash obligations for the next 12 months and our ability to continue as a going concern

Our operations do not produce significant cash flow and we rely almost exclusively on external sources of liquidity.As of September 30, 2013, we have a $7,959,784 working capital deficiency and we need additional funding to pay our current liabilities, continue as a going concern and execute our business plan. We have historically addressed working capital deficiencies through frequent private sales of stock and warrants for cash, exchanges of stock and warrants in satisfaction of liabilities or for services, issuing short- and long-term promissory notes and sales of our assets. We will continue to depend on these and other external sources of liquidity for the foreseeable future. If we cannot obtain the necessary capital to pay our current liabilities, we may be subject to litigation and foreclosure proceedings. We will also need to obtain additional funding to make our planned capital expenditures.If we are unable to secure such additional funding, we will be unable to pursue our plans, we may have to cease or significantly curtail our operations, including our plans to acquire additional acreage positions and development activities. Our ability to raise additional capital is critical to our ability to continue to operate our business. 

Our ability to secure liquidity in the form of additional financing or otherwise is crucial for the execution of our plans and our ability to continue as a going concern. Our current cash balance, together with cash anticipated to be provided by operations, will not be sufficient to satisfy our anticipated cash requirements for normal operations and capital expenditures for the foreseeable future. Economic conditions continue to be weak and global financial markets continue to experience significant volatility and liquidity challenges. These conditions may make it more difficult for us to obtain financing.

Our independent registered public accounting firm’s report on our December 31, 2012 financial statements expresses doubt about our ability to continue as a going concern. The report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern due to substantial losses from operations, negative working capital, negative cash flow, and the lack of sufficient capital, as of the date the report was issued, to support our planned capital expenditures to continue our drilling programs through 2013 or later. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should we be unable to continue as a going concern.

We are not currently generating significant revenues, and our cash and cash equivalents will continue to be depleted by our ongoing development efforts as well as our general and administrative expenses. Until we are in a position to generate significant revenues, we will need to continue to raise additional funds to continue operating as a going concern. We may seek this additional funding through the issuance of debt, preferred stock, equity or a combination of these instruments. We may also seek to obtain financing through the sale of working interests in one or more of our projects. We cannot be certain that funding from any of these sources will be available on reasonable terms or at all. If we are unable to secure adequate funds on a timely basis on terms acceptable to us, we may have to cease or significantly curtail our operations including our plans to acquire additional acreage positions and development activities.

Over the next twelve months, we do not expect our existing capital and anticipated funds from operations to be sufficient to sustain our planned expansion. Consequently, we intend to seek additional capital to fund growth and expansion through equity financings, debt financings and/or credit facilities. We have no assurance that such financing will be available, and if available, the terms under which such financing would be given.

Our lack of significant operating history makes predictions of future operating results difficult. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in an early stage of development, particularly companies in the oil and gas exploration industry. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks we must, among other things, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and attract, retain and motivate qualified personnel. We have no assurance that we will be successful in addressing such risks, and the failure to do so would have a material adverse effect on our business prospects, financial condition and results of operations.

24

 

Effects of Inflation and Pricing

The oil and gas industry is cyclical and the demand for goods and services by oil field companies, suppliers and others associated with the industry put significant pressure on the economic stability and pricing structure within the industry. Typically, as prices for oil and natural gas increase all other associated costs increase as well. Conversely, in a period of declining prices, associated cost declines are likely to lag and may not adjust downward in proportion to the declining prices. Material changes in prices also impact our current revenue stream, estimates of future reserves, impairment assessments of oil and natural gas properties, and values of properties in purchase and sale transactions. Material changes in prices can impact the value of oil and gas companies and their ability to raise capital, borrow money and retain personnel. While we do not currently expect business costs to materially increase, higher prices for oil and natural gas could result in increases in the costs of materials, services and personnel. 

Critical Accounting Policies

The establishment and consistent application of accounting policies is a vital component of accurately and fairly presenting our consolidated financial statements in accordance accounting principles generally accepted in the United States of America (“GAAP”), as well as ensuring compliance with applicable laws and regulations governing financial reporting. While there are rarely alternative methods or rules from which to select in establishing accounting and financial reporting policies, proper application often involves significant judgment regarding a given set of facts and circumstances and a complex series of decisions.

Asset Retirement Obligations

We have significant obligations to plug and abandon our oil and natural gas wells and related equipment. Liabilities for asset retirement obligations are recorded at fair value in the period incurred. The related asset value is increased by the same amount. Asset retirement costs included in the carrying amount of the related asset are subsequently allocated to expense as part of our depletion calculation.

Estimating future asset retirement obligations requires us to make estimates and judgments regarding timing, existence of a liability, as well as what constitutes adequate restoration. We use the present value of estimated cash flows related to our asset retirement obligations to determine the fair value. Present value calculations inherently incorporate numerous assumptions and judgments, which include the ultimate retirement and restoration costs, 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 present value of our existing asset retirement obligation liability, a corresponding adjustment will be made to the carrying cost of the related asset.

Revenue Recognition

Revenue from the sale of crude oil, natural gas and natural gas liquids is recorded when the significant risks and rewards of ownership of the product is transferred to the buyer, which is usually when legal title passes to the external party. For crude oil and natural gas liquids, delivery generally occurs upon pick up at the field tank battery and natural gas delivery occurs at the pipeline delivery point. Revenue is not recognized for the production in tanks, or oil in pipelines that has not been delivered to the purchaser. Revenue is measured net of discounts and royalties. Royalties and severance taxes are incurred based on the actual price received from the sales. We use the sales method of accounting for natural gas balancing of natural gas production, and we would recognize a liability if the existing proven reserves were not adequate to cover the current imbalance situation. For all periods reported, we had no natural gas production.

Stock-Based Compensation

We have accounted for stock-based compensation under the provisions of FASB ASC 718. This standard requires us to record an expense associated with the fair value of stock-based compensation over the period in which it is earned, typically the vesting period. We use the Black-Scholes option valuation model to calculate the value of options and warrants at the date of grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate.

25

Stock Issuance

We record the stock-based awards issued to consultants and other external entities for goods and services at either the fair market value of the goods received or services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in FASB ASC 505.

Income Taxes

We account for income taxes under FASB ASC 740. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.

The tax effects from an uncertain tax position can be recognized in the consolidated financial statements only if the position is more likely than not of being sustained if the position were to be challenged by a taxing authority. We have examined the tax positions taken in our tax returns and determined that there are no uncertain tax positions. As a result, we have recorded no uncertain tax liabilities in our consolidated balance sheet.

Oil and Gas Properties

We account for oil and natural gas properties by the successful efforts method. Under this method of accounting, costs relating to the acquisition of and development of proved areas are capitalized when incurred. The costs of development wells are capitalized whether productive or non-productive. Leasehold acquisition costs are capitalized when incurred. If proved reserves are found on an unproved property, leasehold costs are transferred to proved properties. Exploration dry holes are charged to expense when it is determined that no commercial reserves exist. Other exploration costs, including personnel costs, geological and geophysical expenses and delay rentals for oil and natural gas leases, are charged to expense when incurred. The costs of acquiring or constructing support equipment and facilities used in oil and natural gas producing activities are capitalized. Production costs are charged to expense as incurred and are those costs incurred to operate and maintain our wells and related equipment and facilities.

Depletion of producing oil and natural gas properties is recorded based on units of production. Acquisition costs of proved properties are depleted on the basis of all proved reserves, developed and undeveloped, and capitalized development costs (wells and related equipment and facilities) are depleted on the basis of proved developed reserves. As more fully described below, proved reserves are estimated by our independent petroleum engineer and are subject to future revisions based on availability of additional information. Asset retirement costs are recognized when the asset is placed in service, and are depleted over proved reserves using the units of production method.

Oil and natural gas properties are reviewed for impairment when facts and circumstances indicate that their carrying value may not be recoverable. We compare net capitalized costs of proved oil and natural gas properties to estimated undiscounted future net cash flows using management’s expectations of future oil and natural gas prices. These future price scenarios reflect our estimation of future price volatility. If net capitalized costs exceed estimated undiscounted future net cash flows, the measurement of impairment is based on estimated fair value, using estimated discounted future net cash flows based on management’s expectations of future oil and natural gas prices. We have recorded no impairment on any of our properties.

Unproven properties that are individually significant are assessed for impairment and if considered impaired are charged to expense when such impairment is deemed to have occurred.

The sale of a partial interest in a proved oil and natural gas property is accounted for as normal retirement and no gain or loss is recognized as long as this treatment does not significantly affect the units-of-production depletion rate. If the units-of-production rate is significantly affected, then the sale is accounted for as the sale of an asset, and a gain or loss is recognized. The unamortized cost of the property or group of properties is apportioned to the interest sold and interest retained on the basis of the fair values of those interests. A gain or loss is recognized for all other sales of producing properties and is included in the results of operations. The sale of a partial interest in an unproved property is accounted for as a recovery of cost when substantial uncertainty exists as to recovery of the cost applicable to the interest retained. A gain on the sale is recognized to the extent the sales price exceeds the carrying amount of the unproved property. A gain or loss is recognized for all other sales of nonproducing properties and is included in the results of operations.

26

Oil and Gas Reserves

The determination of depreciation, depletion and amortization expense as well as impairments that are recognized on our oil and natural gas properties are highly dependent on the estimates of the proved oil and natural gas reserves attributable to our properties. Our estimate of proved reserves is based on the quantities of oil and natural gas which geological and engineering data demonstrate, with reasonable certainty, to be recoverable in the future years from known reservoirs under existing economic and operating conditions. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation, and judgment. For example, we must estimate the amount and timing of future operating costs, production taxes and development costs, all of which may in fact vary considerably from actual results. In addition, as the prices of oil and natural gas and cost levels change from year to year, the economics of producing our reserves may change and therefore the estimate of proved reserves may also change. Any significant variance in these assumptions could materially affect the estimated quantity and value of our reserves.

The information regarding present value of the future net cash flows attributable to our proved oil and natural gas reserves are estimates only and should not be construed as the current market value of the estimated oil and natural gas reserves attributable to our properties. Thus, such information includes revisions of certain reserve estimates attributable to our properties included in the prior year’s estimates. These revisions reflect additional information from subsequent activities, production history of the properties involved and any adjustments in the projected economic life of such properties resulting from changes in oil and natural gas prices. Any future downward revisions could adversely affect our financial condition, our borrowing ability, our future prospects and the value of our common stock.

Use of Estimates

The preparation of financial statements under GAAP in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to proved oil and natural gas reserve volumes, certain depletion factors, future cash flows from oil and natural gas properties, estimates relating to certain oil and natural gas revenues and expenses, valuation of equity-based compensation, valuation of asset retirement obligations, estimates of future oil and natural gas commodity pricing and the valuation of deferred income taxes. Actual results may differ from those estimates.

Jumpstart Our Business Startups Act (“JOBS Act”), adopted January 3, 2012

We qualify as an “emerging growth company,” as defined in Section 2(a) of the Securities Act as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are permitted to rely on exemptions from various reporting requirements including, but not limited to, the requirement to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes–Oxley Act of 2002, and the requirement to submit certain executive compensation matters to shareholder advisory votes such as “say on pay” and “say on frequency.”

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company up to the fifth anniversary of our first registered sale of common equity securities, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

27

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by FASB that we adopt as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our financial statements upon adoption.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

ITEM 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we have elected not to provide the disclosures required by this item.

ITEM 4.CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of September 30, 2013. Based on this evaluation, the CEO and CFO have concluded that, as of September 30, 2013, our disclosure controls and procedures were effective, in that they ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes made in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended September 30, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control framework and processes are designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

Our internal control over financial reporting includes those policies and procedures that:

· pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

· provide reasonable assurance that transactions are recorded properly to allow for the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors;

· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements; and

· provide reasonable assurance as to the detection of fraud.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system will be met.In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events.Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions.

28

Our management, under the supervision and with the participation or our CEO and CFO conducted an evaluation of our internal control over financial reporting and concluded that, as of September 30, 2013, such internal control over financial reporting is effective.In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. This quarterly report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.Additionally, management’s report was not subject to attestation by our registered public accounting firm pursuant to the rules of the SEC that permit us to provide only management’s report in this quarterly report.

PART II.OTHER INFORMATION

ITEM 1.LEGAL PROCEEDINGS

Nostra Terra Oil & Gas Company v. Richfield Oil & Gas Company

On February 1, 2012, Nostra Terra Oil & Gas Company (“NTOG”) filed an action against the Company, HPI, HEGINC, and HEGLLC in the Twenty-Third Judicial District Court of Russell County, Kansas (the “Court”). The complaint alleges that the Company defaulted on its repayment obligations under a note and security agreement, dated April 13, 2011, in the principal amount of $1,300,000 and accrued interest at 10% per annum (the “Note”).On April 2, 2013, NTOG obtained a judgment against the Company in the principal sum of $1,300,000 plus $245,040 in accrued interest through March 1, 2013 (the “Judgment”).In addition, NTOG is claiming amounts for legal fees and production costs.Between May 2, 2013 and September 9, 2013 the Company deposited the sum of $1,639,403 with the Court for the payment of the Judgment, additional accrued interest, and all legal fees and production costs.At a hearing on September 11, 2013 the Court released all writs of execution and or garnishments pursuant to the Judgment. The Court has set December 18, 2013 for determination that all amounts due pursuant to the Judgment have been paid. The obligations due and owing under this note and security agreement are fully accounted for in the Company’s financial statements as of September 30, 2013. The liability of $1,300,000 has been included in the Company’s financial statements under “Convertible notes payable” and the interest, legal fees and production expense amounts have been included in the Company’s “Accrued expenses and other payables”. Notwithstanding the foregoing, the Company has maintained its cross-claim against NTOG for intentional interference with our business relations and accounting.

Litigation in the Ordinary Course

We may become involved in litigation from time to time relating to claims arising in the ordinary course of our business. We do not believe that the ultimate resolution of such claims would have a material effect on our business, results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material effect on our business, results of operations, financial condition and cash flows.

ITEM 1A.RISK FACTORS

As a smaller reporting company, we have elected not to provide the disclosures required by this item.

ITEM 2.   UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following summarizes all sales of our unregistered securities during the quarterly period ended September 30, 2013.The securities listed in each of the below referenced transactions were (i) issued without registration and (ii) were issued in reliance on the private offering exemptions contained in Sections 4(2), 4(5) and/or 3(b) of the Securities Act and on Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws as a transaction not involving a public offering. No placement or underwriting fees were paid in connection with these transactions.Proceeds from the sales of these securities were used for general working capital purposes.The securities are deemed restricted securities for purposes of the Securities Act.

29

Sales of Common Stock

During the quarterly period ended September 30, 2013, the Company issued 1,861,250 shares of common stock to unaffiliated debt holders for a negotiated price between $0.60 and $0.80 per share for the extinguishment or reduction of notes payable, accrued interest, extension and conversion incentives and new debt.The fair value of these shares at the time of issuance was $977,154.

During the quarterly period ended September 30, 2013, the Company issued 1,565 shares of common stock to an unaffiliated investor as the result of a ratchet provision on stock that was purchased for $5.00 per share that required the Company to issue additional shares of stock at no cost to the investor to make the effective price per share $2.50.

Warrant and Stock Option Issuances

During the quarterly period ended September 30, 2013, the Company granted warrants in connection with extinguishment or reduction of debt and issuance of new debt to purchase up to 1,666,260 shares of common stock with an exercise price of $1.00 per share, which expire between June 2014 and December 2014.

During the quarterly period ended September 30, 2013, the Company granted warrants to an unaffiliated investor as additional consideration for the sale of a 2.0% ORRI in the Pine Springs/Edwin Prospect in the Central Utah Overthrust to purchase up to 70,000 shares of common stock with an exercise price of $1.00 per share, which expire in July 2014.

ITEM 6.   EXHIBITS

The list of exhibits in the Exhibit Index to this quarterly report is incorporated herein by reference.

30

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RICHFIELD OIL & GAS COMPANY
Dated: November 14, 2013		By:	/s/ DOUGLAS C. HEWITT, SR.
		Douglas C. Hewitt, Sr.
		Chief Executive Officer
Dated: November 14, 2013		By:	/s/ GLENN G. MACNEIL
		Glenn G. MacNeil.
		Chief Financial Officer

31

EXHIBIT INDEX

Exhibit
Number	Description
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS*	XBRL Instance Document
101.SCH*	XBRL Taxonomy Extension Schema Document
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document
*	Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 and 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

32