Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Apr. 02, 2019 | Jun. 29, 2018 | |
Document And Entity Information [Abstract] | |||
Entity Registrant Name | PetroShare Corp. | ||
Entity Central Index Key | 0001568079 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2018 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | Yes | ||
Is Entity's Reporting Status Current? | No | ||
Entity Filer Category | Non-accelerated Filer | ||
Entity Emerging Growth Company | true | ||
Entity Ex Transition Period | true | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Public Float | $ 26,430,396 | ||
Entity Common Stock, Shares Outstanding | 28,077,337 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2018 |
Consolidated Balance Sheets
Consolidated Balance Sheets - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Current assets: | ||
Cash | $ 2,636,943 | $ 713,924 |
Accounts receivable - joint interest billing | 495,911 | 828,583 |
Accounts receivable - joint interest billing - related party | 1,158,213 | 204,730 |
Accounts receivable - crude oil, natural gas and NGL sales | 11,659,479 | 1,412,612 |
Prepaid expenses and other assets | 178,259 | 26,795 |
Deferred financing fee, net | 0 | 251,389 |
Assets held for sale, net of costs to sell | 16,090,898 | 0 |
Total current assets | 32,219,703 | 3,438,033 |
Crude oil and natural gas properties - using successful efforts method: | ||
Proved crude oil and natural gas properties | 41,017,944 | 22,144,366 |
Unproved crude oil and natural gas properties | 2,055,752 | 1,919,335 |
Wells in progress | 1,194,114 | 9,858,262 |
Less: accumulated depletion, depreciation and amortization | (14,395,458) | (2,849,374) |
Crude oil and natural gas properties, net | 29,872,352 | 31,072,589 |
Property, plant and equipment, net | 115,350 | 168,411 |
Other assets | 357,070 | 233,871 |
TOTAL ASSETS | 62,564,475 | 34,912,904 |
Current liabilities: | ||
Accounts payable and accrued liabilities | 24,385,417 | 4,140,352 |
Accounts payable and accrued liabilities - related party | 7,624,877 | 589,496 |
Oil and gas revenue distributions payable | 2,501,095 | 148,103 |
Drilling advances - related party | 0 | 680,248 |
Asset retirement obligation | 843,796 | 288,784 |
Line of credit - related party | 0 | 5,000,000 |
Supplemental line of credit | 0 | 3,552,500 |
Derivative liability - secured credit facility | 241,800 | 0 |
Convertibles notes payable, net | 9,358,100 | 6,831,897 |
Credit facility, net | 20,182,264 | 0 |
Total current liabilities | 65,137,349 | 21,231,380 |
Long-term liabilities | ||
Credit facility, net | 0 | 4,896,565 |
Other long-term liabilities | 448,465 | 67,265 |
Asset retirement obligation | 1,246,151 | 834,660 |
Total liabilities | 66,831,965 | 27,029,870 |
Shareholders' equity (deficit): | ||
Preferred stock, $0.01 par value, 10,000,000 shares authorized, none issued or outstanding | 0 | 0 |
Common stock, $0.001 par value, 100,000,000 shares authorized, 28,089,765 and 27,718,802 shares issued and outstanding, respectively with 184,350 and 155,350 shares subject to vesting restrictions respectively | 28,090 | 27,719 |
Additional paid-in capital | 33,710,588 | 28,553,736 |
Accumulated deficit | (38,006,168) | (20,698,421) |
Total Shareholders' Equity (Deficit) | (4,267,490) | 7,833,034 |
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT) | $ 62,564,475 | $ 34,912,904 |
Consolidated Balance Sheets (Pa
Consolidated Balance Sheets (Parenthetical) - $ / shares | Dec. 31, 2018 | Dec. 31, 2017 |
Statement of Financial Position [Abstract] | ||
Preferred stock par value | $ 0.01 | $ 0.01 |
Preferred stock shares authorized | 10,000,000 | 10,000,000 |
Preferred stock shares issued | 0 | 0 |
Preferred stock shares outstanding | 0 | 0 |
Common stock par value | $ 0.001 | $ 0.001 |
Common stock shares authorized | 100,000,000 | 100,000,000 |
Common stock shares issued | 28,089,765 | 27,718,802 |
Common stock shares outstanding | 28,089,765 | 27,718,802 |
Consolidated Statements of Oper
Consolidated Statements of Operations - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
REVENUE: | ||
Total revenue | $ 20,403,967 | $ 11,107,574 |
COSTS AND EXPENSES: | ||
Lease operating expense | 1,415,453 | 722,799 |
Production taxes, gathering and marketing | 2,732,309 | 992,817 |
Exploration and abandonment costs | 580,881 | 61,693 |
Depletion, depreciation and amortization | 7,067,729 | 2,836,891 |
Accretion expense | 117,636 | 99,682 |
Asset retirement and plugging expense | (2,989) | 9,608 |
Loss on impairment of proved crude oil and natural gas properties | 9,896,807 | 0 |
General and administrative expense | 4,155,651 | 6,205,412 |
Total costs and expenses | 25,963,477 | 10,928,902 |
Operating income (loss) | (5,559,510) | 178,672 |
OTHER INCOME (EXPENSE): | ||
Other income (expense) | (102,165) | 39,381 |
Change in fair value derivative liability | 1,428,217 | 0 |
Interest expense | (13,074,289) | (9,293,782) |
Loss on conversion of notes payable | 0 | (1,771,650) |
Total other (expense) | (11,748,237) | (11,026,051) |
Net (loss) | $ (17,307,747) | $ (10,847,379) |
Net (loss) per share: | ||
Basic and diluted (in dollars per share) | $ (0.62) | $ (0.46) |
Weighted average number of shares outstanding: | ||
Basic and diluted (in shares) | 27,991,742 | 23,530,583 |
Crude Oil [Member] | ||
REVENUE: | ||
Total revenue | $ 16,809,145 | $ 8,719,793 |
Natural Gas Reserves [Member] | ||
REVENUE: | ||
Total revenue | 2,456,927 | 1,525,833 |
NGL Sales [Member] | ||
REVENUE: | ||
Total revenue | $ 1,137,895 | $ 861,948 |
Consolidated Statements of Chan
Consolidated Statements of Changes in Shareholders' Equity - USD ($) | Common Stock [Member] | Additional Paid In Capital [Member] | Retained Earnings [Member] | Total |
Beginning Balance, Shares at Dec. 31, 2016 | 21,964,282 | |||
Beginning Balance, Amount at Dec. 31, 2016 | $ 21,964 | $ 11,405,225 | $ (9,851,042) | $ 1,576,147 |
Issuance of common stock in connection with conversion of convertible notes payable, Shares | 4,814,265 | |||
Issuance of common stock in connection with conversion of convertible notes payable, Amount | $ 4,814 | 7,062,528 | 5,295,692 | |
Issuance of common stock for lease acquisition, Shares | 470,555 | |||
Issuance of common stock for lease acquisition, Amount | $ 471 | 846,529 | 847,000 | |
Issuance of common stock for loan extension, Shares | 250,000 | |||
Issuance of common stock for loan extension, Amount | $ 250 | 387,250 | 387,500 | |
Issuance of restricted shares, Shares | 219,700 | |||
Issuance of restricted shares, Amount | $ 220 | 155,111 | 155,331 | |
Beneficial conversion feature on convertible notes payable | 4,329,365 | 4,329,365 | ||
Warrants issued | 2,978,796 | 2,978,796 | ||
Share-based compensation | 1,388,932 | 1,388,932 | ||
Net (loss) | (10,847,379) | (10,847,379) | ||
Ending Balance, Shares at Dec. 31, 2017 | 27,718,802 | |||
Ending Balance, Amount at Dec. 31, 2017 | $ 27,719 | 28,553,736 | (20,698,421) | 7,833,034 |
Issuance of common stock in connection with conversion of convertible notes payable, Shares | 135,963 | |||
Issuance of common stock in connection with conversion of convertible notes payable, Amount | $ 136 | 203,811 | 203,947 | |
Issuance of common shares as compensation, Shares | 145,000 | |||
Issuance of common shares as compensation, Amount | $ 145 | 162,105 | 162,250 | |
Issuance of common stock for lease acquisition, Amount | 0 | |||
Issuance of restricted shares, Shares | 90,000 | |||
Issuance of restricted shares, Amount | $ 90 | 101,018 | 101,108 | |
Beneficial conversion feature on convertible notes payable | 2,272,775 | 2,272,775 | ||
Warrants issued | 1,521,451 | 1,521,451 | ||
Share-based compensation | 895,692 | 895,692 | ||
Net (loss) | (17,307,747) | (17,307,747) | ||
Ending Balance, Shares at Dec. 31, 2018 | 28,089,765 | |||
Ending Balance, Amount at Dec. 31, 2018 | $ 28,090 | $ 33,710,588 | $ (38,006,168) | $ (4,267,490) |
Consolidated Statements of Cash
Consolidated Statements of Cash Flows - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Cash flows from operating activities: | ||
Net (loss) | $ (17,307,747) | $ (10,847,379) |
Adjustments to reconcile net (loss) to net cash provided by (used in) operating activities: | ||
Depletion, depreciation and amortization | 7,067,729 | 2,836,891 |
Deferred rental liability | (23,625) | 6,526 |
Accretion of asset retirement obligation | 117,636 | 99,682 |
Accretion of debt discounts and deferred financing fee | 6,380,057 | 7,666,313 |
Loss on conversion of notes payable | 0 | 1,771,650 |
Stock-based compensation | 1,159,051 | 1,544,261 |
Change in fair value - derivative liability | (1,428,217) | 0 |
Default penalties incurred in connection with Sr. Secured Credit Facility | 3,670,375 | 0 |
Impairment of proved crude oil and natural gas properties | 9,896,807 | 0 |
Break-up fees in connection with abandonment of lease acquisition | 580,881 | 0 |
Bad debt expense | 131,395 | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable - joint interest billing | (66,470) | (588,132) |
Accounts receivable - joint interest billing - related party | 204,731 | 81,495 |
Accounts receivable - crude oil, natural gas and NGL sales | (10,246,868) | (1,233,376) |
Prepaid expenses and other assets | 130,164 | 961,048 |
Settlement of asset retirement obligations | (174,532) | 0 |
Accounts payable and accrued liabilities | 758,525 | 7,053,693 |
Accounts payable and accrued liabilities- related party | 2,123,621 | 589,496 |
Oil and gas revenue distributions payable | 2,352,992 | 3,578 |
Drilling advances - related party | (680,248) | 445,796 |
Net cash provided by (used in) operating activities | 4,646,257 | 10,391,542 |
Cash flows from investing activities: | ||
Additions of property, plant and equipment | 0 | (91,186) |
Development of crude oil and natural gas properties | (13,379,249) | (17,052,313) |
Acquisitions of unproved crude oil and natural gas properties | (507,181) | (3,202,380) |
Net cash (used in) investing activities | (13,886,430) | (20,345,879) |
Cash flows from financing activities: | ||
Repayment of supplemental line of credit | 0 | (3,552,500) |
Borrowings on secured credit facility, net | 11,163,192 | 0 |
Convertible notes issued for cash | 0 | 11,771,349 |
Net cash provided by financing activities | 11,163,192 | 8,218,849 |
Cash: | ||
Net increase (decrease) in cash | 1,923,019 | (1,735,488) |
Cash, beginning of period | 713,924 | 2,499,412 |
Cash, end of period | 2,636,943 | 713,924 |
Supplemental cash flow disclosure: | ||
Cash paid for interest, net of amounts capitalized of $2.2 million and $0.3 million as of December 31, 2018 and 2017 | 3,394,575 | 640,410 |
Non-cash investing and financing activities: | ||
Addition of oil and gas properties - Asset exchange agreement | 2,873,912 | 0 |
Accrued development costs of crude oil and natural gas properties | 16,015,992 | 1,719,481 |
Revisions and other non-cash charges in asset retirement obligation | 1,023,400 | 127,826 |
Conveyance of oil and gas properties - to satisfy debt and accounts payable | 2,052,500 | 4,683 |
Addition of property, plant and equipment through tenant improvement allowance | 0 | 84,460 |
Embedded derivative liability - secured credit facility | 1,670,017 | 0 |
Previous borrowings refinanced through credit facility | 6,500,000 | 0 |
Issuance of common stock warrants in connection with Secured Credit Facility | 1,521,451 | 0 |
Issuance of common stock warrants in connection with convertible notes payable | 0 | 2,978,796 |
Beneficial conversion feature in connection with convertible notes payable | 2,272,775 | 4,329,365 |
Issuance of common stock in connection with conversion of notes payable and accrued interest | 203,947 | 5,295,692 |
Conversion of notes payable and accrued interest to common stock | 0 | 7,067,342 |
Issuance of common stock in connection with lease acquisitions | 0 | 847,000 |
Issuance of common stock in connection with deferred financing fee | 0 | 387,500 |
Accounts payable paid with credit facility borrowings | 1,086,808 | 4,895,128 |
Financing fee paid through credit facility borrowings | $ 1,250,000 | $ 104,871 |
ORGANIZATION AND NATURE OF BUSI
ORGANIZATION AND NATURE OF BUSINESS | 12 Months Ended |
Dec. 31, 2018 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
ORGANIZATION AND NATURE OF BUSINESS | PetroShare Corp. (“PetroShare” or the “Company”) is a corporation organized under the laws of the State of Colorado on September 4, 2012 to investigate, acquire and develop crude oil and natural gas properties in the Rocky Mountain or mid-continent portion of the United States. Since inception, the Company has focused on financing activities and the acquisition, exploration and development of crude oil and natural gas prospects in the Denver-Julesburg Basin, or DJ Basin, in northeast Colorado. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION | 12 Months Ended |
Dec. 31, 2018 | |
Accounting Policies [Abstract] | |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION | Basis of Presentation The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The Company has no items of other comprehensive income or loss; therefore, its net income or loss is identical to its comprehensive income or loss. Principles of Consolidation The consolidated financial statements include the accounts and balances of the Company and its wholly-owned subsidiary, CFW Resources, LLC, a Colorado limited liability company. The Company’s undivided interests in joint operating ventures are proportionately consolidated. Use of Estimates The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, as well as the disclosure of contingent assets and liabilities. Estimated quantities of crude oil, natural gas and natural gas liquids are the most significant of the Company’s estimates. All reserve data used in the preparation of these consolidated financial statements are based on estimates. Reservoir engineering is a subjective process of estimating underground accumulations of crude oil, natural gas and natural gas liquids. There are numerous uncertainties inherent in estimating quantities of proved, probable and possible reserves. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, reserve estimates may be different from the quantities of crude oil, natural gas and natural gas liquids that are ultimately recovered. Other items subject to significant estimates and assumptions include, but are not limited to, the carrying amounts of crude oil and natural gas properties, accrued and unpaid revenues and unbilled costs, asset retirement obligations, deferred income tax liabilities and assets, including any associated valuation allowances, derivative liabilities, convertible notes payable and the Secured Credit Facility. Furthermore, valuation assumptions related to the Company’s stock-based compensation and fair value financial instruments require significant judgments and estimates. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment. The volatility of commodity prices results in increased uncertainty inherent in such estimates and assumptions. Actual results could be significantly different from the estimates. Income (or Loss) Per Common Share Basic earnings (or loss) per share is computed by dividing net income (or loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (or loss) per share is computed after considering the potential dilution from additional shares that would be issued pursuant to the conversion of debt, exercise of warrants, and fulfillment of outstanding equity awards. Any potentially dilutive securities that have an anti-dilutive impact on the per share calculation are excluded. During periods in which the Company reports a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the impact of all potentially dilutive securities would be anti-dilutive. The following table presents the number of potentially dilutive securities that were excluded from the calculation at December 31, 2018 and 2017: December 31, December 31, 2018 2017 Exercisable stock options 4,621,000 4,347,500 Warrants to purchase common stock 9,088,800 7,588,800 Shares underlying secured credit facility and convertible notes 23,489,786 6,372,066 Total 37,199,586 18,308,366 Cash, cash equivalents, and restricted cash During the periods presented herein, the Company had no cash equivalents or restricted cash. Revenue Recognition Oil sales Under the Company’s oil sales contracts, the Company sells oil production at the point of delivery and collects an agreed upon index price, net of pricing differentials. The Company recognizes revenue when control transfers to the purchaser at the point of delivery at the net price received. Payment is generally received from the customer in the month following delivery. Natural gas and natural gas liquids Under the Company’s natural gas sales processing contracts, the Company delivers commingled natural gas and natural gas liquids (NGLs) to a midstream processing entity. The midstream processing entity gathers and processes the various hydrocarbons and remits proceeds to the Company for the resulting sale. Under these processing agreements, the Company recognizes revenue when control transfers to the purchaser at the point of delivery. Payment is generally received from the customer one to two months following delivery. Revenue is recognized net of gathering and processing fees. Disaggregation of Revenue. Operating revenues 2018 2017 Crude oil sales $ 16,809,145 $ 8,719,793 Natural gas sales 2,456,927 1,525,833 NGL sales 1,137,895 861,947 Total Operating Revenues $ 20,403,967 $ 11,107,574 Accounts Receivable – Crude oil, natural gas and NGLs Accounts receivable – Crude oil, natural gas and NGLs consists of amounts due from customers for the sale of hydrocarbons. In general, settlements for hydrocarbon sales occur 30 to 90 days after the month in which the oil, natural gas or other hydrocarbon products were produced. Accounts Receivable – Joint interest billing Accounts receivable – Joint interest billing represents costs to be reimbursed by the Company’s working interest partners under joint operating agreements. Collateral is not required for such receivables, nor is interest charged on past due balances. However, should a working interest partner default on its obligation, the Company would have a claim against their future pro rata revenue and to any reserves attributable to the joint interest. Allowance for doubtful accounts The Company regularly reviews outstanding accounts receivable for indication that amounts may not be collectible. The Company’s allowance for doubtful accounts is based on analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. An allowance of $0.1 million and $nil was recorded as of December 31, 2018 and 2017, respectively. Capitalized Interest Costs The Company capitalizes interest costs as part of the historical cost of developing assets. Significant oil and gas investments in unproved properties and significant exploration and development projects including wells in progress that have not commenced production are assets that qualify for interest capitalization during the period that they are being prepared for their intended use. Capitalized interest is calculated by using the weighted average interest cost on the Company’s outstanding debt, including the accretion of interest expense associated with debt discounts. The interest costs capitalized into oil and gas properties totaled $2.2 million and $0.3 million for the years ended December 31, 2018 and 2017, respectively. Concentration of Credit Risk and Major Customers The Company is exposed to credit risk in the event of nonpayment by counterparties, a significant portion of which are concentrated in energy-related industries. The creditworthiness of customers and other counterparties is subject to regular review. The Company does not believe the loss of any single purchaser of its production would materially impact its operating results, as crude oil, natural gas, and NGLs are products with well-established markets and numerous purchasers in the Company’s operating region. The Company had the following major customers, which accounted for 10 percent or more of its total crude oil, natural gas, and NGL production revenue for at least one of the periods presented: For the Years Ended December 31, 2018 2017 Great Western Oil and Gas Company 40.5 % 22 % Rose Rock Midstream Crude LP 33.4 % - PDC Energy, Inc 20.6 % 71 % The Company maintains its primary bank accounts with a large, multinational bank that has branch locations in the Company’s areas of operations. Bank account balances periodically exceed federally insured limits. To mitigate risk of loss, the Company’s policy is to maintain its deposits with high quality financial institutions. Crude Oil and Natural Gas Properties The Company follows the successful efforts method of accounting for its crude oil and natural gas properties. Under this method of accounting, the costs incurred to acquire, drill, and complete productive wells, development wells, and proved properties are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel and other internal costs, geological and geophysical expenses, delay rentals for gas and oil leases, and costs associated with unsuccessful lease acquisitions are charged to expense as incurred. Costs of drilling exploratory wells are initially capitalized as wells in progress until the viability of the well is determined. Successful exploratory wells are capitalized, and unsuccessful exploratory wells are charged to expense. Proved Proved properties include all capitalized costs associated with proved developed and proved undeveloped reserves. Depletion, depreciation and amortization (“DDA”) of proved properties is calculated as a group of assets (properties aggregated based upon common attributes) using the units-of-production method. DDA of development costs, including capitalized tangible and intangible drilling costs, well equipment, and facilities costs, is based on the estimate of proved developed reserves. Similarly, DDA of proved leasehold costs, including proved undeveloped leases, is calculated using the same method based on the estimate of total proved reserves (both developed and undeveloped). Currently, the Company’s properties are located solely within the Wattenberg Field of the DJ Basin, which is considered one field for unit-of-production calculations. The Company based its determination upon certain common attributes, including geological structure, geographic proximity, cost environment, and similar operating practices. The Company periodically assesses its proved crude oil and natural gas properties for impairment. The impairment test compares the net capitalized costs of the properties to the estimated undiscounted future net cash flows. If the net capitalized costs exceed estimated future net cash flows, an impairment expense is recorded to reduce the carrying value of the property. The sale or other disposition of part of a proved property is reported as a normal retirement, under which no gain or loss is recognized, unless doing so significantly affects the unit-of-production amortization rate. Gains or losses are recorded in the statement of operations for all other divestiture activities. Unproved Unproved properties consist of costs to acquire unproved and unevaluated leases and other mineral assets. All acquisition costs are initially capitalized. When successful wells are drilled on unproved properties, the associated costs are reclassified as proved properties and depleted on a units-of-production basis. The Company periodically evaluates significant unproved properties for impairment based on remaining lease term, drilling results, reservoir performance, seismic interpretation or plans to develop acreage. Individually insignificant unproved properties are evaluated on a composite basis, and, when appropriate, are amortized as a group based on past success, experience and average lease-term lives. Exploration costs Geological and geophysical costs, including exploratory seismic studies, and the costs of carrying and retaining unproved acreage are expensed as incurred. Costs of seismic studies that are utilized in development drilling within an area of proved reserves are capitalized as development costs. Amounts of seismic costs capitalized are based on only those blocks of data used in determining development well locations. To the extent that a seismic project covers areas of both developmental and exploratory drilling, those seismic costs are proportionately allocated between development costs and exploration expense. Costs of drilling exploratory wells are initially capitalized, pending determination of whether the well contains proved reserves. If an exploratory well does not contain proved reserves, the costs of drilling the well and other associated costs are charged to expense. Costs incurred for exploratory wells that contain reserves, which cannot yet be classified as proved, continue to be capitalized if (a) the well has found a sufficient quantity of reserves to justify completion as a producing well, and (b) the Company is making satisfactory progress assessing the reserves and the economic and operating viability of the project. If either condition is not met, or if the Company obtains information that raises substantial doubt about the economic or operational viability of the project, the exploratory well costs are expensed. Property, Plant and Equipment Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the related assets. Expenditures for renewals and betterments which increase the estimated useful life or capacity of the asset are capitalized; expenditures for repairs and maintenance are expensed as incurred. Related Party Transactions The Company engages in a number of transactions with Providence Energy Operators, LLC (“PEO”) and its affiliates. PEO is a subsidiary of Providence Energy Corporation, a privately-held corporation based in Dallas, Texas. PEO is the beneficial owner of 11.6% of our outstanding common stock. We have a participation agreement that grants PEO the option to acquire up to a 50% interest and participate in any oil and gas development on acreage we obtain within an area of mutual interest (AMI) near our Southern Core area. To date, PEO has exercised its option under the participation agreement or otherwise participated or agreed to participate in all acreage acquisitions and drilling operations. As discussed elsewhere in this report, an affiliate of PEO is a major participant in our principal lender group through which we currently maintain a $25.0 million Secured Credit Facility. The Board of Directors is required to approve all significant related party transactions. Drilling Advances - Related Party The Company’s drilling advances consist of cash provided to the Company from its joint interest partners for planned drilling activities. Advances are applied against the joint interest partners’ share of costs incurred. Income Taxes The Company accounts for deferred income taxes under the asset and liability method whereby it recognizes deferred tax assets and liabilities based on the tax effects of temporary differences between the cost basis of assets and liabilities reported for financial reporting purposes compared to income tax reporting purposes using currently enacted tax rates. These differences will result in taxable income or deductions in future years when the reported amounts of the assets or liabilities are recorded or settled. Deferred tax assets are also recognized for future tax consequences attributable to operating loss carryforwards. The Company provides a valuation allowance for deferred tax assets when it does not consider realization of such assets to be more likely than not. The Company complies with authoritative accounting guidance regarding uncertain tax provisions. The entire amount of unrecognized tax benefit reported by the Company would affect its effective tax rate if recognized. The Company does not expect a significant change to the recorded unrecognized tax benefits in 2018. Asset Retirement Obligation The Company recognizes an estimated liability for future costs associated with the dismantlement, abandonment, or other restoration required when its oil and gas assets are retired or otherwise permanently removed from service. Calculation of an asset retirement obligation (“ARO”) requires estimates about several future events, including the estimated date of retirement, the costs to remove the asset from service, and inflation factors. The ARO is initially estimated based upon discounted cash flows over the life of the asset and is accreted to full value over time using the Company’s credit-adjusted risk-free interest rate. Upon initial recognition of an ARO, the carrying amount of the associated asset is increased by the same amount. The capitalized costs are included in the periodic calculation of DD&A and are subject to impairment testing. If the estimated timing or estimated cash flow of the ARO changes, an adjustment is recorded to both the ARO and the asset retirement cost. Assets Held for Sale We occasionally identify specific oil and gas properties that we wish to sell. At the end of each reporting period, we evaluate properties that might be sold to determine whether any should be reclassified as held for sale. The held-for-sale criteria include: a commitment to a plan to sell; the asset is available for immediate sale; an active program to locate a buyer exists; the sale of the asset is probable and expected to be completed within one year; the asset is being actively marketed for sale; and it is unlikely that significant changes to the plan will be made. If each of these criteria is met, the property is reclassified as held for sale on our consolidated balance sheets. We also compare the fair values of the properties held for sale to the net unamortized cost. If an impairment is indicated, the assets held for sale are recorded at fair value less costs to sell and impairment expense is recorded. Stock-Based Compensation The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards in accordance with ASC 718, “Stock Compensation.” The option-pricing model requires the input of highly subjective assumptions, including the option’s expected life, the price volatility of the underlying stock, and the estimated dividend yield of the underlying stock. The expected term of outstanding stock-based awards represents the period that stock-based awards are expected to be outstanding and is determined based on the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards. As there was insufficient historical data available to ascertain an expected term for these awards, the plain vanilla method was applied in calculating the expected term of the options. The Company’s common stock has limited Loans and Borrowings Borrowings are recognized initially at fair value, net of financing costs incurred, and subsequently measured at amortized cost. Any difference between the amounts originally recorded and the redemption value of the debt is recognized as interest expense in the consolidated statements of operations over the period to maturity using the effective interest method. Fair Value of Financial Instruments Fair value accounting, as prescribed in ASC Section 825, “Financial Instruments,” utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). The financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. As disclosed in Note 5, the Secured Credit Facility contained embedded elements that required identification and quantification of fair value. The estimated fair values as of February 1, 2018, the closing date of the facility, are presented in Note 5. As of December 31, 2018, the estimated fair values are presented in the following table: December 31, 2018 Registration rights penalty derivative liability $ (102,892 ) Share purchase option derivative liability (138,908 ) $ (241,800 ) The following table presents a roll-forward of the fair value of the derivative liabilities associated with the Company’s Secured Credit Facility, categorized as Level 3 for the year ended December 31, 2018. There were no comparable liabilities for the 2017 period: Year Ended December 31, 2018 Beginning balance $ - Additions (Note 5) (1,670,017 ) Gain included in earnings 1,428,217 Gain (loss) included in other comprehensive income - Ending Balance $ (241,800 ) Estimated Fair Value of Other Financial Assets and Liabilities The Company’s other financial instruments consist primarily of cash, accounts receivable, accounts payable, and various borrowings. Substantially all of the Company’s other financial instruments are classified as current assets or current liabilities. The carrying values of current assets and current liabilities are representative of their fair values due to their short-term maturities. Going Concern Assessment Pursuant to Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements – Going Concern” the Company has assessed its ability to continue as a going concern for a period of one year from the date of the issuance of these consolidated financial statements. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity may be unable to meet its obligations as they become due within one year from the consolidated financial statement issuance date. The uncertainty regarding the Company’s ability to continue as a going concern is based on it’s substantial near-term liabilities, continuing net losses and negative working capital, among other things which existed as of December 31, 2018. At December 31, 2018 the Company had a cash balance of approximately $2.6 million and other current assets of approximately $29.6 million including assets held for sale of $16.1 million, resulting in negative working capital of $32.9 million. The Company had net losses, including non-cash charges, of $17.3 million and $10.8 million for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 the Company was obligated to repay $9.4 million in principal plus accrued interest on outstanding convertible promissory notes, which payment was not made. The convertible notes are currently in default. The Company is also in default under the terms of the Secured Credit Facility (Note 5) and as a result $29.9 million, including the outstanding principal, accrued interest and penalties are due. On April 2, 2019, the Secured Lenders delivered their formal Notice of Default under the terms of the Secured Credit Facility. Some accounts payable obligations to vendors are past the due date and some of those vendors have filed liens or indicated an intent to file liens on certain of the Company’s assets. The net proceeds from the sale of the non-operated assets in February 2019 were applied by the Secured Lenders amounts allegedly owed to them. The Company has been unable to access the debt or equity markets to obtain any additional funding during 2018. Management has evaluated these conditions and determined that increased revenues from the Company’s operated properties may allow the Company to meet its ongoing operational obligations. However, to continue to execute its business plan, and meet its debt obligations, additional working capital will be required. As part of the analysis, the Company considered selective participation in certain operated drilling programs based on availability of working capital and the timing of production-related cash flows. There is uncertainty that management’s plans, if executed will allow the Company to meet all of its obligations. As a result, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued. The Company’s consolidated financial statements do not include any adjustments related to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard on revenue recognition that provides a single, comprehensive model that entities will apply to determine the measurement and timing of revenue to be recognized. The underlying principle is that an entity will recognize revenue for the transfer of goods or services to customers at the amount expected to be received in exchange for those goods or services. The standard outlines a five-step approach to apply the underlying principle: (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to separate performance obligations and (5) recognize revenue when or as each performance obligation is satisfied. The standard, known as Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) R ecent Accounting Pronouncements Leases In August 2017, the FASB issued ASU 2017-12 , Derivatives and Hedging (Topic 815), There are no other recently issued ASUs (issued through April 2, 2019 and not yet adopted by the Company) that are expected to have a material effect on the Company’s consolidated financial statements and related disclosures when they are adopted. |
PROPERTY, PLANT AND EQUIPMENT
PROPERTY, PLANT AND EQUIPMENT | 12 Months Ended |
Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | |
PROPERTY, PLANT AND EQUIPMENT | Property, plant and equipment balances were comprised of furniture, fixtures, and equipment and are shown below: December 31, 2018 2017 Property, plant and equipment $ 223,517 $ 223,517 Accumulated depreciation (108,167 ) (55,106 ) Total $ 115,350 $ 168,411 Depreciation expense recorded for the years ended December 31, 2018 and 2017 amounted to $53,061 and $46,778, respectively. |
CRUDE OIL AND NATURAL GAS PROPE
CRUDE OIL AND NATURAL GAS PROPERTIES | 12 Months Ended |
Dec. 31, 2018 | |
Extractive Industries [Abstract] | |
CRUDE OIL AND NATURAL GAS PROPERTIES | The Company’s crude oil and natural gas properties are located entirely within the State of Colorado in the United States of America. The net capitalized costs related to the Company’s crude oil and natural gas activities were as follows: As of December 31, 2018 2017 Proved oil and gas properties $ 41,017,944 $ 22,144,336 Unproved oil and gas properties (1) 2,055,752 1,919,335 Wells in progress (2) 1,194,114 9,858,262 Total capitalized costs 44,267,810 33,921,963 Accumulated DDA and impairment (14,395,458 ) (2,849,374 ) Net capitalized costs $ 29,723,352 $ 31,072,589 (1) Unproved oil and gas properties represent unevaluated costs the Company excludes from the amortization base until proved reserves are established or impairment is determined. (2) Costs from wells in progress are excluded from the amortization base until production commences. During the years ended December 31, 2018 and 2017, DDA expense was $7.0 million and $2.8 million, respectively. As discussed below, the Company recorded impairment charges of $9.9 million and lease abandonment charges of $0.6 million during the fourth quarter of 2018. Acquisitions and Divestitures, including Assets Held for Sale 2018 Activity During 2018, the Company completed an asset exchange that increased its working interest in its operated producing property in exchange for cash and cancellation of joint interest billing receivables. No gain or loss was recognized on the exchange. In June 2018, the Company executed two participation agreements with PEO whereby the Company agreed to acquire working interests in approximately 2,200 gross mineral acres for a total purchase price of $4.6 million (Note 11). The terms of the agreements allowed the Company to defer payment until December 31, 2018. As of December 31, 2018, the Company decided not to fund the agreement and recorded an abandonment charge of $0.6 million payable to PEO. Effective June 1, 2018, the Company completed a conveyance of property in lieu of payment transaction with Providence Energy Partners III (“PEP III”), one of its lenders. The exchange conveyed the Company’s working interests in four producing wells, eight wells in various stages of drilling and completion, 16 proposed wells and the underlying mineral leases (the "Ocho Assets"). The conveyance of properties represented full and final settlement of $2.1 million outstanding principal balance under the supplemental line of credit with PEP III (Note 5). PEP III is considered an affiliate of PEO. As the transaction represented the conveyance of part of an interest in a proved property and did not have a significant impact on the DDA calculation, it has been recorded as a normal retirement. The carrying cost of the oil and gas properties was $0.8 million. During the fourth quarter of 2018, as part of the plan to divest certain properties and improve liquidity, the Company began an active program to sell certain undeveloped properties along with some producing properties operated by other companies. As the plan did not represent a strategic shift, it did not qualify for accounting treatment as a discontinued operation. The Company evaluated the six criteria for classification of assets held for sale in accordance with FASB ASC 360-10-45-9. After the evaluation of these criteria, the assets were reclassified as Assets Held for Sale as of December 31, 2018. The proceeds from the February 27, 2019 sale of the Assets held for sale was $16.1 million after adjusting for anticipated costs to sell. As the net unamortized costs of the properties was $26.0 million, the Company recorded an impairment provision of $9.9 million for the year ended December 31, 2018. On February 27, 2019, the Company closed on the sale for price of $16.5 million, after adjustments to the purchase price for amounts owed to the buyer of approximately $8.4 million and title defects of $0.1 million offset by revenue receivable of $7.5 million and net of brokers fees of $0.3 million, net, proceeds amounted to $15.3 million which were remitted to the Company’s Secured Lenders. 2017 Activity On April 3, 2017, the Company completed an acquisition of oil and gas leases covering approximately 5,874 gross (1,462 net) acres in Adams and Weld Counties, Colorado. The seller reserved to itself all rights in the leases that exist below 50 feet above the top of the uppermost J Sand formation for those lands located in Township 7 North, Range 63 West in Weld County, Colorado. The acquisition was effective January 1, 2017. The net purchase price to the Company’s retained interest in the assets, following the Company’s working interest partner’s 50% participation in the transaction and a reduction in purchase price due to title defects, was $1.3 million. The Company paid $0.5 million of the Company’s net purchase price in cash, and $0.8 million was paid through the issuance of 450,000 shares of the Company’s common stock valued at $1.80 per share. On April 21, 2017, the Company acquired a 9.37% royalty interest covering approximately 145 net acres located in Adams County, Colorado for a net purchase price of $0.6 million following the Company’s working interest partner’s 50% participation in the transaction. The acquisition was effective April 1, 2017. In connection with the acquisition, the Company paid a finders’ fee of 20,555 shares of common stock valued at $1.80 per share to a lease broker. On May 9, 2017, the Company acquired 200 gross (70 net) acres in Adams County, Colorado for a net purchase price of $0.4 million following the Company’s working interest partner’s 50% participation in the transaction. The transaction was effective April 1, 2017. On September 15, 2017, the Company completed a purchase of additional oil and gas leases covering approximately 400 gross (200 net) acres. The gross purchase price was $0.4 million, or $0.2 million to the Company’s retained interest following the Company’s working interest partner’s 50% participation in the transaction. The location of the acreage is contiguous with that of the acreage acquired in the April 3, 2017 transaction described above. Costs Incurred in Crude Oil and Natural Gas Activities. December 31, 2018 2017 Exploration and abandonment costs $ 580,881 $ 61,693 Development costs 33,393,215 18,771,794 Acquisition of properties Proved 164,199 — Unproved 342,982 4,049,380 Total $ 34,481,277 $ 22,882,867 |
DEBT
DEBT | 12 Months Ended |
Dec. 31, 2018 | |
Debt Disclosure [Abstract] | |
DEBT | The following table presents account balances and activity for our various debt instruments as of December 31: Initial Supplemental Convertible Convertible Secured Line of Line of Notes Notes Credit Credit Credit 10% Series B Facility December 31, 2016 Principal Balance $ (5,000,000 ) $ (7,105,000 ) $ (1,942,600 ) $ - $ - December 31, 2016, Total, net $ (5,000,000 ) $ (7,105,000 ) $ (5,308 ) $ - $ - Principal Borrowings - - (8,057,400 ) (4,724,900 ) (5,000,000 ) Repayments - 3,552,500 - - - Conversions - - 5,166,800 - - Beginning Balance - Unamortized Debt Issuance Costs - Original Issuer Discount - - 204,703 - - Additions - - 804,750 205,211 104,871 Accretion - - (742,944 ) (36,887 ) (1,436 ) Ending - Unamortized Debt Issuance Costs - Original Issuer Discount - - 266,509 168,324 103,435 Beginning Balance - Unamortized Debt Issuance Costs - Beneficial Conversion Feature - - 1,030,762 - - Additions - - 4,272,867 56,500 - Accretion - - (3,978,881 ) (11,959 ) - Ending - Unamortized Debt Issuance Costs - Beneficial Conversion Feature - - 1,324,748 44,541 - Beginning Balance - Unamortized Debt Issuance Costs - Warrant Discount - - 701,827 - - Additions - - 2,978,791 - - Accretion - - (2,758,537 ) - - Ending - Unamortized Debt Issuance Costs - Warrant Discount - - 922,081 - - December 31, 2017, Principal Balance $ (5,000,000 ) $ (3,552,500 ) $ (4,833,200 ) $ (4,724,900 ) $ (5,000,000 ) December 31, 2017, Total, net $ (5,000,000 ) $ (3,552,500 ) $ (2,319,862 ) $ (4,512,035 ) $ (4,896,565 ) Principal Borrowings - - - - (20,000,000 ) Repayments 5,000,000 3,552,500 - - - Conversions - - 200,000 - - Beginning Balance - Unamortized Debt Issuance Costs - Original Issuer Discount - - 266,509 168,324 103,435 Additions - - - - 4,284,416 Accretion - - (266,509 ) (168,324 ) (1,789,664 ) Ending - Unamortized Debt Issuance Costs - Original Issuer Discount - - - - 2,598,187 Beginning Balance - Unamortized Debt Issuance Costs - Beneficial Conversion Feature - - 1,324,748 44,541 - Additions - - - - 2,272,775 Accretion - - (1,324,748 ) (44,541 ) (949,372 ) Ending - Unamortized Debt Issuance Costs - Beneficial Conversion Feature - - - - 1,323,403 Beginning Balance - Unamortized Debt Issuance Costs - Warrant Discount - - 922,081 - - Additions - - - - 1,538,943 Accretion - - (922,081 ) - (642,797 ) Ending - Unamortized Debt Issuance Costs - Warrant Discount - - - - 896,046 December 31, 2018, Principal Balance $ - $ - $ (4,633,200 ) $ (4,724,900 ) $ (25,000,000 ) December 31, 2018, Total, net $ - $ - $ (4,633,200 ) $ (4,724,900 ) $ (20,182,264 ) Line of credit On May 13, 2015, the Company entered into a Revolving Line of Credit Facility Agreement (“initial line of credit”, “Line of credit”) with PEO, a related party, which provided the Company with a revolving line of credit of up to $5.0 million. As of December 31, 2018, and 2017, the outstanding balance on the Line of credit was $0.0 and $5.0 million respectively. The Company had accrued interest was $0.0 and $0.5 million respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense of $0.3 million and $0.4 million respectively, related to the initial line of credit. Supplemental line of credit On October 13, 2016, the Company entered into a revolving line of credit facility agreement (the “supplemental line of credit”) with PEP III. PEP III is an affiliate of PEO. The supplemental line of credit permitted the Company to borrow up to $10.0 million to pay costs associated with its acquisition and development of oil and gas properties in the Wattenberg Field. Interest on the supplemental line initially accrued at the rate of 8% per year. The supplemental line of credit was amended on March 30, 2017, pursuant to which the Company agreed not to borrow additional amounts against the supplemental line of credit and to repay $3.6 million. On June 8, 2017, the Company entered into a letter agreement (“PEP III Agreement”) with PEP III and PEO, pursuant to which PEP III agreed to modify the Company’s supplemental line of credit. The PEP III Agreement extended the maturity date of the supplemental line of credit, including approximately $3.8 million in outstanding principal and accrued interest, from June 13, 2017 until December 27, 2017, and increased the interest rate on the supplemental line from 8% to 10%, effective June 8, 2017. The Company and PEO also agreed to amend the participation agreement between the Company and PEO, dated May 13, 2015 (“Participation Agreement”), in order to expand the area of mutual interest (“AMI”) established and granted PEP III an option to participate under the Participation Agreement. PEP’s option under the Participation Agreement expired when the line of credit was extinguished in June 2018. On December 21, 2017 in connection with the execution of a Letter Agreement (as described more fully below) the interest rate on the supplemental line of credit was increased to 15% and the maturity date was extended until June 30, 2018. On February 1, 2018, concurrent with the closing of the Secured Credit Facility (as described more fully below), $1.5 million of principal plus accrued interest was repaid on the supplemental line of credit. Effective June 1, 2018, the Company and PEP III closed on a transaction to exchange the Company’s interest in the Ocho Assets (Note 5) in full satisfaction of the remaining $2.1 million of outstanding principal balance on the supplemental line of credit. The Company accounted for this transaction as a retirement in accordance with ASC 932-360-40-3. As the retirement did not impact the unit-of-production amortization rate no gain or loss was recognized on the transaction. As of December 31, 2018, and 2017, the outstanding balance on the supplemental line of credit was $0.0 and $2.1 million respectively. The Company had accrued interest of $nil and $0.5 million respectively. During the years ended December 31, 2018 and 2017, the Company recorded interest expense of $0.1 million and $0.4 million respectively, related to the supplemental line of credit. 10% Convertible Notes On January 30, 2017, the Company completed the private placement of units consisting of convertible promissory notes (“Convertible Notes”) with an aggregate face value of $10.0 million and common stock purchase warrants. The Convertible Notes are unsecured, bear interest at 10% per year and were due and payable on December 31, 2018. At the option of the holders of the Convertible Notes, the principal amount and any accrued but unpaid interest are convertible into shares of the Company’s common stock at a conversion price of $1.50 per share. The Company received net proceeds of approximately $9.0 million from the private placement, after placement agent fees and other associated expenses. In accordance with ASC 470, “Debt”, the proceeds from the sale of the Convertible Notes was allocated between the conversion feature embedded in the Convertible Notes and the warrants attached to the notes based on the fair values of the debt instrument without the warrants, and of the warrants themselves, at the time of issuance. The fair value of the beneficial conversion feature (BCF) was $5.3 million and the fair value of the warrants was $3.7 million. Each of the fair value amounts were recorded as a reduction of the carrying value of the Convertible Notes and were amortized to interest expense using the effective interest method over the term of the Convertible Notes. In addition, warrants with an estimated fair value of $1.0 million were issued to the placement agent in connection with the offering. The placement agent warrants were recorded as a charge to additional paid-in capital. On October 16, 2017, in connection with the sales of Series B Unsecured Convertible Promissory Notes (“Series B Convertible Notes”) as described more fully below, $5.2 million in principal of the Convertible Notes and $0.1 million in accrued interest was converted into 4,814,265 shares of common stock at a conversion rate of $1.10 per share. The Company has recorded a loss on conversion of $1.8 million in connection with the reduction of the initial contractual conversion rate. As of December 31, 2018, and 2017, the Convertible Notes had an outstanding principal balance of $4.6 million and $4.8 million and accrued interest of $nil and $0.3 million respectively. Interest expense related to the notes for the years ended December 31, 2018 and 2017 was $0.5 million and $0.8 million. The 10% Convertible Notes were not paid as of December 31, 2018, and they remain outstanding and in default. Series B Convertible Notes In September and October 2017, the Company sold Series B Convertible Notes in the principal amount of $4.7 million. The Series B Convertible Notes are unsecured, bear interest at 15% per year, and were due and payable on December 31, 2018. At the option of the holders, the principal amount of the Series B Convertible Notes and any accrued but unpaid interest are convertible into shares of the Company’s common stock at a conversion price of $1.50 per share. The Company netted $4.5 million from the sale of the Series B Convertible Notes after expenses. In accordance with ASC 470, the fair value of the beneficial conversion feature of $56,500 has been recorded as a reduction of the carrying value of the Series B Notes and was amortized to interest expense using the effective interest method over the term of the Series B Notes. As of December 31, 2018, and 2017, the Series B Convertible notes had and outstanding balance of $4.7 million and $4.7 million and accrued interest of $nil and $0.2 million respectively. Interest expense related to the notes for the years ended December 31, 2018 and 2017 was $0.7 million and $0.2 million. The Series B Convertible Notes were not paid as of December 31, 2018, and they remain outstanding and in default. Secured Credit Facility On February 1, 2018, the Company closed on a $25.0 million Secured Credit Facility with Providence Wattenberg, LP and 5NR Wattenberg, LLC (“Secured Lenders”). Each of Providence and 5NR are affiliates of the Lenders under a Letter Agreement entered into by the Company on December 21, 2017, under which the Company borrowed $5.0 million. The obligation under the Secured Credit Facility includes the $5 million borrowed under the Letter Agreement and includes additional borrowings of $20.0 million. The following are the material terms of the Secured Credit Facility: ● Interest on the outstanding principal balance accrues at the base rate of 14% per year plus the greater of either 1% or US Dollar LIBOR (three-month tenor), but in no event greater than 17%, plus, in the event of default, penalty interest of 5%. Interest payments are due and payable each month commencing March 1, 2018. ● The Company paid a $1.25 million origination fee at the time of the closing and agreed to pay a $1.25 million underwriting fee on February 1, 2019. ● The borrowing is secured by a lien on all of the Company’s assets. ● All principal is due February 1, 2020 (“Maturity Date”). ● At any time, each Secured Lender may convert 20% of the outstanding principal balance into common stock of the Company at a conversion rate of $1.15 per share and 80% of the outstanding principal balance at a conversion rate of $1.55 per share. ● The Secured Lenders received warrants to purchase 1,500,000 shares of common stock of the Company at a price of $0.01 per share (Note 8). ● The Secured Lenders were granted the right to participate in any public or private securities offering by the Company, limited to 50% of securities offered until December 31, 2018, and 25% of any securities offered thereafter. ● Beginning on the maturity date and continuing until February 2021, the Secured Lenders were granted an option to purchase up to $25 million of the Company’s common stock at a 10% discount from the 30-day volume-weighted average trading price (“VWAP”) of the common stock at the time the option is exercised, but in no event shall the exercise price be less than $1.85 per share; and registration rights in connection with the common stock that may be issued upon exercise of the foregoing rights. ● The Borrower has the right to make an optional prepayment prior to the maturity date. Upon prepayment of the loan or upon certain events of default, the Company is subject to a “Make-Whole Premium” in the amount of 40% multiplied by the then-outstanding balance, less amounts paid for interest and certain fees paid by the Borrower under the Secured Credit Facility The Secured Credit Facility is subject to certain financial and restrictive covenants under which the Company’s failure to comply results in an event of default. The covenants include: ● The Company has agreed not to issue any equity securities or securities convertible into or exercisable for equity securities without the consent of Lenders, except for common stock issuable under the Company’s equity incentive plan, certain registered public offerings, common stock issuable in connection with certain convertible promissory notes and certain outstanding warrants; and ● Maintenance of a Total Leverage Ratio and a Present Value of Proved Developed Producing Reserves Coverage Ratio, as defined in the borrowing documents. The following table summarizes the use of the $20.0 million in additional borrowings under the terms of the Secured Credit Facility: Gross Proceeds $ 20,000,000 Payment of origination fee (1,250,000 ) Principal repayment on Initial Line of Credit (5,000,000 ) Principal repayment on Supplemental Line of Credit (1,500,000 ) Payment of accrued interest costs (1,086,808 ) Net Cash Proceeds $ 11,163,192 The Secured Credit Facility is considered a hybrid debt instrument with several elements that required identification and valuation. As the fair value of the embedded derivatives is not readily determinable through an active marketplace of identical instruments, the Company employed the Monte Carlo simulation valuation model to determine the fair value of the embedded derivative liabilities. It was determined that the rights to convert the debt into common shares contained a beneficial conversion feature that could be detached from the debt and valued as a component of equity. It was likewise determined that the warrants could be detached from the debt and valued as a component of equity. It was determined that the option to purchase shares at a 10% discount from VWAP represented a derivative liability that should be remeasured at fair value for each reporting period. The Company further determined that certain provisions of the agreement which provide for additional interest payments under certain conditions represent an additional compound derivative liability that should also be remeasured at fair value for each reporting period. The compound derivative liability included the Make-Whole Premium, Default Interest Penalty, and Registration Rights Penalty. For both the share purchase option and the additional interest provisions, a Monte Carlo simulation model was used to calculate estimates of fair value. The model was used as of February 1, 2018 to determine the initial valuation. In each interim reporting period subsequent to February 1, 2018, the model was updated to determine changes in the estimated values. The values allocated to each component of the debt instrument are set forth below; Secured Credit Facility, net of all discounts $ 16,786,981 Make whole premium derivative liability 14,698 Default interest penalty derivative liability 243,794 Registration rights penalty derivative liability 63,672 Share purchase option derivative liability 1,347,853 Stock purchase warrants 1,538,943 Beneficial conversion feature 2,272,775 Legal fees and other 231,284 Subtotal 22,500,000 Origination fee and Underwriting fee 2,500,000 Secured Credit Facility, face value $ 25,000,000 Defaults As of December 31, 2018, the Company was in default under certain provisions of the Secured Credit Facility including the inability of the Company to pay its debts or other obligations as they become due, a mechanic’s lien filed against the Company in Adams, County Colorado and for accounts payable outstanding for greater than 90 days. On February 1, 2019, the Company incurred another event of default by failing to pay the Secured Lenders a $1.3 million underwriting fee incurred in connection with the origination of the Secured Credit Facility. As a result of the defaults, the Company has accrued additional default penalty interest of $0.3 million at the penalty interest rate of an additional 5%, from the date of the first reported default on October 1, 2018 through December 31, 2018. The Company has accrued $3.4 million related to the embedded make-whole premium. As of December 31, 2018, $29.9 million in principal, penalty interest and amounts accrued for the make-whole premium are due and payable. On April 2, 2019, the Secured Lenders delivered their formal Notice of Default under the terms of the Secured Credit Facility. The Notice declared that all amounts outstanding were immediately due and payable. The Company is currently in negotiation with the Secured Lenders as to the impact and resolution of the defaults. |
ASSET RETIREMENT OBLIGATION
ASSET RETIREMENT OBLIGATION | 12 Months Ended |
Dec. 31, 2018 | |
Asset Retirement Obligation Disclosure [Abstract] | |
ASSET RETIREMENT OBLIGATION | For the purpose of determining changes in the amount of the asset retirement obligation during the year ended December 31, 2018, the Company assumed an inflation rate of 2% and a credit-adjusted risk-free interest rate ranging from approximately 14% to 21%. For the year ended December 31, 2017, the Company assumed an inflation rate of 2% and a credit-adjusted risk-free rate ranging from approximately 11% to 14%. For both years, assumed well lives are based upon engineering and economic data and approximate 30 years for new horizontal wells and shorter lives for the acquisition of older wells. The following table presents changes in the asset retirement obligation for the years ended: December 31, 2018 2017 Asset retirement obligation, beginning of year $ 1,123,444 $ 945,419 Liabilities settled (1) (192,996 ) (50,163 ) Liabilities incurred 58,511 91,999 Revisions in estimated cash flows 983,352 36,507 Accretion 117,636 99,682 Asset retirement obligation, end of year $ 2,089,947 $ 1,123,444 Current liability $ 843,796 $ 288,784 Long-term liability $ 1,246,151 $ 834,660 (1) Reflects liabilities settled through plugging and abandonment activities and divestitures of properties. The revisions in estimated cash flows during 2018 were primarily due to changes in estimates of costs for labor and materials related to the plugging and abandonment of wells and the shortening of the estimated lives of wells. |
ACCOUNTS PAYABLE AND ACCRUED LI
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | 12 Months Ended |
Dec. 31, 2018 | |
Payables and Accruals [Abstract] | |
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES | Accounts payable and accrued liabilities were comprised of the following amounts: December 31, 2018 2017 Trade payables and accrued liabilities $ 2,093,428 $ 1,544,112 Accrued interest payable - 876,455 Liabilities incurred in connection with acquisition of crude oil and natural gas properties 22,291,989 1,719,785 Total $ 24,385,417 $ 4,140,352 See Note 11 for related party liabilities. |
SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY | 12 Months Ended |
Dec. 31, 2018 | |
Equity [Abstract] | |
SHAREHOLDERS' EQUITY | Increase in share capital On March 15, 2019, at a special meeting, the shareholders approved an amendment to the Company’s Articles of Incorporation (“Amendment”) to increase the authorized common stock from 100,000,000 shares to 200,000,000 shares. The Amendment was effective on March 20, 2019 upon filing with the Colorado Secretary of State. Common Stock As of December 31, 2018, and 2017, the Company had 100,000,000 shares of common stock authorized with a par value of $0.001 per share. As of December 31, 2018, and 2017, the Company had 28,089,765 and 27,718,802 shares issued and outstanding, respectively. Activity for the year ended December 31, 2018 included the following: On February 23, 2018 the Company issued 70,000 shares of common stock, valued at $1.00 per share, in lieu of cash compensation. On March 12, 2018 the Company issued 135,963 shares of common stock in connection with the conversion of $200,000 of 10% convertible notes payable plus accrued interest. The shares were issued at the contractual rate of $1.50. On April 18, 2018 the Company issued 75,000 shares of common stock, valued at $1.23 per share, in connection with the appointment of three new members to its Board of Directors. On June 1, 2018 the Company issued 65,000 shares of common stock valued $1.40 per share to employees of the Company as compensation. The shares are subject to certain vesting restrictions, but all 65,000 shares have full voting rights and are eligible to receive dividends during the vesting period. On July 24, 2018 the Company issued 45,000 shares of common stock valued at $1.29 per share to an officer of the Company as compensation. The shares are subject to certain vesting restrictions, but all 45,000 shares have full voting rights and are eligible to receive dividends during the vesting period. Activity for the year ended December 31, 2017 included the following: ● On October 16, 2017, the Company issued 4,814,265 shares of common stock valued at $1.38 in conversion of $5.2 million of Convertible Notes and $0.1 million in accrued interest (Note 5). ● On September 23, 2017, the Company issued 250,000 shares of common stock valued at $1.55 to PEO in connection with the execution of a Letter Agreement. ● On various dates, in connection with the execution of four employment agreements and the employment of additional employees, the Company issued 219,700 shares of restricted stock. The shares are subject to certain vesting restrictions, but all 219,700 shares have full voting rights and are eligible to receive dividends during the vesting period. ● On April 3, 2017, the Company issued 470,555 shares valued at $1.80 per share in connection with the acquisitions of oil and gas assets. Preferred Stock As of December 31, 2018, and 2017, the Company had 10,000,000 shares of preferred stock authorized with a par value of $0.01 per share. As of December 31, 2018, and 2017, there were no shares of preferred stock issued or outstanding. Warrants The table below summarizes warrants outstanding as of December 31, 2018: Shares Underlying Exercise Price Outstanding Warrants Per Share Expiration Date Underwriter warrants 255,600 $ 1.25 11/12/2020 Investor warrants 6,666,600 $ 3.00 12/31/2019 Placement agent warrants 666,600 $ 1.50 12/31/2021 Secured Credit Facility warrants 1,500,000 $ 0.01 02/01/2020 Total 9,088,800 Activity for the year ended December 31, 2018 included the following: On February 1, 2018 in connection with the closing of the Secured Credit Facility, the Company issued 1,500,000 stock purchase warrants. The warrants are exercisable at $0.01 per share and expire on February 1, 2020 (Notes 5). Activity for the year ended December 31, 2017 included the following: ● On January 20, 2017 and January 30, 2017, the Company issued 537,260 warrants exercisable at $1.50 per share and expiring on December 31, 2021 in connection with a private placement (Note 5). ● On January 20, 2017 and January 30, 2017, the Company issued 5,371,579 warrants exercisable at $3.00 per share and expiring on December 31, 2019, also in connection with the private placement (Note 5). |
STOCK-BASED COMPENSATION
STOCK-BASED COMPENSATION | 12 Months Ended |
Dec. 31, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
STOCK-BASED COMPENSATION | On August 18, 2016, the Company’s Board of Directors adopted the Amended and Restated PetroShare Corp. Equity Incentive Plan (the “Plan”). The Plan terminates on August 17, 2026. Among other things, the Plan increased the number of shares of common stock reserved for issuance thereunder from 5,000,000 to 10,000,000 shares. The Company’s shareholders approved the Plan at the Company’s annual meeting of shareholders on September 8, 2016. During the year ended December 31, 2018, the Board of Directors granted non-qualified options to employees, directors and consultants of the Company under the Plan to acquire 790,000 shares of common stock. A summary of activity under the Plan for the years ended December 31, 2018 and 2017 is as follows: Weighted Remaining Average Contractual Number of Exercise Term Shares Price (Years) Outstanding, December 31, 2016 4,675,000 $ 0.76 5.39 Granted 422,000 $ 1.86 5.69 Exercised — — — Forfeited (100,000 ) — — Outstanding, December 31, 2017 4,997,000 $ 0.85 4.44 Exercisable, December 31, 2017 4,347,500 $ 0.74 4.48 Granted 790,000 0.93 4.07 Exercised — — — Expired (425,000 ) 1.00 — Forfeited (325,000 ) 1.35 3 Outstanding, December 31, 2018 5,037,000 $ 0.79 3.87 Exercisable, December 31, 2018 4,621,000 $ 0.75 3.86 The fair value of each stock-based award was estimated on the date of the grant using the Black-Scholes pricing model that incorporates key assumptions including volatility of the Company’s stock, dividend yield and risk-free interest rates. As the Company’s common stock has limited The table below summarizes assumptions utilized in the Black-Scholes pricing model for the years ended 2018 and 2017: December 31, December 31, 2018 2017 Expected option term—years 2.0-3.0 2.5 - 3.25 Risk-free interest rate 2.58%-2.81% 1.75%-1.93% Expected dividend yield — — Volatility 85%-100% 162% - 169% Forfeited — — During the years ended December 31, 2018 and 2017, the Company recorded stock-based compensation related to options of $0.7 million, and $1.4 million, respectively. Unvested stock-based option compensation at December 31, 2018 amounted to $0.1 million. |
PROVISION FOR INCOME TAXES
PROVISION FOR INCOME TAXES | 12 Months Ended |
Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | |
PROVISION FOR INCOME TAXES | The Company has analyzed filing positions in all of the federal and state jurisdictions where it is required to file income tax returns, as well as all open tax years in these jurisdictions. No uncertain tax positions have been identified as of December 31, 2018. The Company is in a position of cumulative reporting losses for the current and preceding reporting periods. The volatility of energy prices is not readily determinable by management. At this date, this fact pattern does not allow the Company to project sufficient sources of future taxable income to offset tax loss carry-forwards and net deferred tax assets. Under these circumstances, it is management’s opinion that the realization of these tax attributes does not reach the “more likely than not criteria” under ASC 740, “Income Taxes.” As a result, the Company’s deferred tax assets as of December 31, 2018 and 2017 are subject to a full valuation allowance. Net deferred tax assets and liabilities consist of the following components as of December 31, 2018 and 2017: Year Ended December 31, 2018 2017 Deferred tax assets - noncurrent: NOL carryover$ 5,385,347 $ 2,109,423 Stock based compensation 727,631 727,631 Asset retirement obligation 515,333 277,015 Charitable contribution 814 814 Allowance for doubtful accounts 29,321 — Total deferred tax assets $ 6,658,446 $ 3,114,883 Deferred tax liabilities - current: Property and equipment (9,405 ) (15,251 ) Impairment, intangible drilling costs and other exploration costs capitalized (1,205,247 ) (935,482 ) Debt discount - Beneficial conversion feature (326,321 ) (337,518 ) Derivative liabilities (352,165 ) — Total deferred tax liabilities (1,893,138 ) (1,288,251 ) Net deferred tax assets 4,765,308 1,826,632 Valuation allowance (4,765,308 ) (1,826,632 ) Net deferred tax assets $ — $ — The income tax provision differs from the amount of income tax determined by applying the US federal tax rate to the pretax loss from continuing operations for the years ended December 31, 2018 and 2017 due to the following: Year Ended December 31, 2018 2017 Tax at statutory federal rate $ (3,634,627 ) $ (3,688,109 ) Permanent difference 836,035 2,258,353 State taxes, net of federal (519,052 ) (331,474 ) Change in valuation allowance 3,499,090 396,256 Effect of the Tax Cuts and Jobs Act — 918,446 Other (181,446 ) 446,528 Provision (benefit) for income taxes $ — $ — At December 31, 2018, the Company had net operating loss carry-forwards of approximately $21.8 million that may be offset against future taxable income from the years 2019 through 2038. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry-forwards for federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry-forwards may be limited as to use in future years. The Company files income tax returns in the US federal jurisdiction and in the State of Colorado. The Company is currently subject to US federal, state and local income tax examinations by tax authorities since inception of the Company. ASC 740 requires the recognition of the tax effects of the of the Act for annual periods that include December 22, 2018. At December 31, 2018, the Company has made reasonable estimates of the effects on its existing deferred tax balances. The Company has remeasured certain federal deferred tax assets and liabilities based upon the rates at which they are expected to reverse in the future, which is generally 21 percent. The provisional amount recognized related to the remeasurement of its federal deferred tax balance was approximately $1.9 million, which was subject to a valuation allowance at December 31, 2018. The Company will continue to analyze the Tax Act and future IRS regulations, refine its calculations and gain a more thorough understanding of how Colorado is implementing this new law. This further analysis could potentially affect the measurement of deferred tax balances or potentially give rise to new deferred tax amounts. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 12 Months Ended |
Dec. 31, 2018 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | PEO The table below summarizes related party balances with PEO and its affiliates as of December 31: December 31, 2018 2017 Liabilities Revenue distribution payable and accrued liabilities $ (2,133,622 ) $ (589,496 ) Initial line of credit - (5,000,000 ) Secured Credit Facility (25,000,000 ) (5,000,000 ) Loan commitment fee – Secured Credit Facility (1,250,000 ) - Default penalty interest – Secured Credit Facility (312,500 ) - Make-whole premium Secured Credit Facility (3,347,874 ) - Break-up fee payable, participation agreement (580,881 ) - Assets Accounts receivable – joint interest billing 1,158,213 204,730 Initial Line of Credit As of December 31, 2018, there was no balance outstanding on the initial line of credit. As of December 31, 2017, the Company had an outstanding balance of $5.0 million and had accrued interest in the amount of $0.5 million. The outstanding principal balance of $5.0 million and accrued interest of $0.5 million were repaid on February 1, 2018 with proceeds from the closing of the Secured Credit Facility. Interest expense of $0.3 million was recognized related to the note and accretion of unamortized debt discount during the year ended December 31, 2017. Secured Credit Facility On February 1, 2018, the Company entered a Secured Credit Facility (Note 5) pursuant to which the Company borrowed $25 million from PEO affiliated entities. As of December 31, 2018, PEO beneficially owns approximately 11.6% of the Company’s outstanding common stock. As of December 31, 2018, included in accounts payable and accrued liabilities – related party are $1.3 million in underwriting fees payable which were due on February 1, 2019. Interest expense of $7.5 million was recognized related to the note and the accretion of debt discounts during the year ended December 31, 2018. In connection with the execution of the Secured Credit Facility, the Company issued 1.5 million warrants to purchase common stock of the Company to PEO affiliated entities (Note 8). As of December 31, 2018, the Company was in default with certain provisions of the Secured Credit Facility including the inability of the Company to pay its debts or other obligations as they become due, mechanics liens filed against the Company in Adams County, Colorado and for in occurrence of prohibited new debt related to accounts payable outstanding for greater than 90 days. On February 1, 2019 the Company incurred another event of default by failing to pay the Senior Secured Lender a $1.3 million underwriting fee incurred in connection with the origination of the Secured Credit Facility in February 2018. As a result of the defaults, the Company has accrued additional penalty interest of $0.3 million at the penalty interest rate of 5%, from the date of the first reported default October 1, 2018 through December 31, 2018. The Company has accrued $3.4 million related to the embedded make-whole premium, which, per the Agreement, is triggered upon the event of default. As of December 31, 2018, $29.9 million in principal, penalty interest, underwriting fee payable and amounts accrued for the make-whole premium are due and payable. On April 2, 2019, the Secured Lenders delivered their formal Notice of Default under the terms of the Secured Credit Facility. From December 31, 2018, until April 2, 2019, the Company was in negotiations with Secured Lenders to resolve the events of default, the negotiations continue. Accordingly, the Company did not retroactively accelerate the accretion of debt discounts recorded in connection with the Secured Credit Facility. Operations/PEO At December 31, 2018, the Company has recorded $1.1 million in Accounts receivable – joint interest billing – related party. This amount relates to amounts billed and unbilled to PEO related to its participation in the Company’s operated Shook drilling program and PEO’s ownership interest in the vertical wells that the Company operates. At December 31, 2018, the Company has recorded $1.8 million in royalties and revenue distribution payable to a related party. This amount relates to undistributed revenue from Company’s operated Shook pad and vertical wells. At December 31, 2018, the Company has recorded $0.6 million in abandonment costs payable, related to the Company’s election not to participate in a participation agreement related to the acquisition of leasehold acreage (Note 4). Convertible Notes In January 2017, the Company sold 10% Convertible Notes to a total of four employees and directors who collectively purchased 10% Convertible Notes in the aggregate principal amount of $0.2 million (Note 5), on the same terms and conditions as the other purchasers. On October 16, 2017, ten of the Company’s officers and directors converted 10% Convertible Notes in the aggregate principal amount of $0.7 million and accrued interest of $20,670 into 691,516 shares of common stock at $1.10 per share (Note 5). As of December 31, 2018, and 2017, the principal balance of the 10% Convertible Notes payable to employees and officers amounted to $80,000 and $80,000 respectively. Employees, officers and directors of the Company received cash interest payments $8,000 and $0.1 million related to 10% Convertible Notes during the years ended December 31, 2018 and 2017. Series B Convertible Notes In September and October 2017, the Company sold Series B Convertible Notes to ten of the Company’s officers and directors who collectively purchased $0.6 million in aggregate principal amount (Note 5), on the same terms and conditions as the other purchasers, with the exception that the Company did not pay commissions on these sales. Employees, officers and directors received cash interest payments of $0.1 million and $0.1 million during the years ended December 31, 2018 and 2017. As of December 31, 2018 and 2017, the outstanding principal balance of the Series B Convertible Notes payable to employees and directors amounted to $0.6 million and $0.6 million respectively. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
COMMITMENTS AND CONTINGENCIES | Operating Lease The Company leases its office facilities under a four-year non-cancelable operating lease agreement expiring in March 2021. The following is a schedule by year of future minimum rental payments required under the operating lease agreement: Year ending December 31, Amount 2019 $ 133,698 2020 137,658 2021 34,662 Total $ 306,018 Lease expense totaled $0.1 million and $0.1 for the years ended December 31, 2018 and December 31, 2017, respectively. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2018 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | On February 27, 2019, the Company completed the sale of nearly all its non-operated oil and natural gas assets. The assets sold include all non-operated horizontal wells in which the Company had an interest, as well as the leases on which those wells are located, oil, natural gas and other hydrocarbons produced from the leases on or after the effective date of the sale, related equipment, machinery, fixtures and other personal property, surface rights and contracts. The effective date of the sale was January 1, 2019. The net purchase price received for the assets was approximately $15.3 million in cash, net of closing costs, adjustments and broker’s fees. The proceeds of the sale have been applied the Secured Lenders against amounts allegedly owed under the Secured Credit Facility. See Note 4 for description of the impact of this sale on the December 31, 2018 consolidated financial statements. On March 15, 2019, at a special meeting, the shareholders approved an amendment to the Company’s Articles of Incorporation (“Amendment”) to increase the authorized common stock from 100,000,000 shares to 200,000,000 shares. The Amendment was effective on March 20, 2019 upon filing with the Colorado Secretary of State. On March 22, 2019, three members of the Board of Directors provided notice of their resignation from the Board. The resignations of Michael Allen, Joseph Drysdale and Cullen Schaar were effective immediately. None of the resignations expressed any disagreement with either the Company or its Board of Directors. At this time, the Board of Directors plans to continue its work with a reduced membership of six directors. On April 2, 2019, the Secured Lenders delivered their formal Notice of Default under the terms of the Secured Credit Facility. |
UNAUDITED CRUDE OIL AND NATURAL
UNAUDITED CRUDE OIL AND NATURAL GAS RESERVES INFORMATION | 12 Months Ended |
Dec. 31, 2018 | |
UNAUDITED CRUDE OIL AND NATURAL GAS RESERVES INFORMATION | |
UNAUDITED CRUDE OIL AND NATURAL GAS RESERVES INFORMATION | The estimate of reserves at December 31, 2018, presented below, were prepared by the independent engineering firm Cawley, Gillespie & Associates Inc. All reserves are located within the DJ Basin. Proved oil, natural gas and NGL reserves are the estimated quantities of oil, natural gas and NGLs which geological and engineering data demonstrate, with reasonable certainty, to be recoverable in future years from known reservoirs under economic and operating conditions (i.e., prices and costs) existing at the time the estimate is made. Proved developed oil, natural gas and NGL reserves are proved reserves that can be expected to be recovered through existing wells and equipment in place and under operating methods being utilized at the time the estimates were made. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than estimates of established proved producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available. Analysis of Changes in Proved Reserves. Natural Oil Gas NGL’s Total (Bbls) (Mcf) (Bbls) (BOE) Balance as of December 31, 2016 2,761,204 11,492,855 1,631,188 6,307,868 Revisions of previous estimates (388,211 ) 292,477 38,668 (300,797 ) Extensions and discoveries 839,738 4,183,757 631,149 2,168,180 Sales of reserves in place — — — — Improved recovery — — — — Purchase of reserves — — — — Production (188,529 ) (549,846 ) (50,111 ) (330,281 ) Balance as of December 31, 2017 3,024,202 15,419,243 2,250,894 7,844,970 Revisions of previous estimates 569,936 3,444,889 (877,172 ) 266,912 Extensions and discoveries 36,858 244,043 — 77,532 Sales of reserves in place (150,554 ) (820,564 ) (97,396 ) (384,710 ) Improved recovery — — — — Purchase of reserves 678 18,533 222 3,988 Production (287,984 ) (773,396 ) (66,986 ) (483,870 ) Balance as of December 31, 2018 3,193,136 17,532,748 1,209,562 7,324,822 Proved Developed Reserves, included above Balance as of December 31, 2016 260,284 1,788,895 181,655 740,088 Balance as of December 31, 2017 521,354 3,752,330 387,430 1,534,172 Balance as of December 31, 2018 1,187,985 6,300,116 672,725 2,910,729 Proved Undeveloped Reserves, included above Balance as of December 31, 2016 2,500,920 9,703,960 1,449,533 5,567,780 Balance as of December 31, 2017 2,502,847 11,666,911 1,863,465 6,310,797 Balance as of December 31, 2018 2,005,151 11,232,632 536,837 4,414,093 The values for the 2018 oil, natural gas and NGL reserves are based on the twelve-month arithmetic average of the first day of the month prices for the period from January through December 31, 2018. The unweighted arithmetic average first-day-of-the-month prices for the prior twelve months was $65.56 per barrel (West Texas Intermediate price) for crude oil and NGLs and $3.10 per MMBtu (Henry Hub price) for natural gas. All prices are then further adjusted for transportation, quality and basis differentials. The average resulting price used as of December 31, 2018 was $59.23 per barrel for oil, $3.64 per Mcf for natural gas and $24.28 per barrel for NGLs. The values for the 2017 oil, natural gas and NGL reserves are based on the twelve-month arithmetic average of the first day of the month prices for the period from January through December 31, 2017. The unweighted arithmetic average first-day-of-the-month prices for the prior twelve months was $51.34 per barrel (West Texas Intermediate price) for crude oil and NGLs and $2.98 per MMBtu (Henry Hub price) for natural gas. All prices are then further adjusted for transportation, quality and basis differentials. The average resulting price used as of December 31, 2017 was $45.03 per barrel for oil, $1.71 per Mcf for natural gas and $20.42 per barrel for NGLs. The values for the 2016 oil, natural gas and NGL reserves are based on the twelve-month arithmetic average of the first day of the month prices for the period from January through December 31, 2016. The unweighted arithmetic average first-day-of-the-month prices for the prior twelve months was $42.75 per barrel (West Texas Intermediate price) for crude oil and NGLs and $2.48 per MMBtu (Henry Hub price) for natural gas. All prices are then further adjusted for transportation, quality and basis differentials. The average resulting price used as of December 31, 2016 was $34.09 per barrel for oil, $2.69 per Mcf for natural gas and $14.44 per barrel for NGLs. For the year ended December 31, 2018, the Company reported extensions and discoveries of 77,532 BOE primarily from the recognition of reserves associated with new wells drilled by its working interest partners. There were also revisions to previous estimates to reflect net upward revisions of 266,912 BOE, primarily from the improved economics provided by the increased hydrocarbon pricing, somewhat offset by a negative revision in NGL quantities as certain previous engineering estimates were adjusted for revised production information received during 2018. For the year ended December 31, 2017, the Company reported extensions and discoveries of 2,168,180 BOE primarily as result of the conversion of 18 PUD locations in the Todd Creek Farms prospect area during 2017 coupled with the addition of new PUD locations due to economic field extensions adjacent to Company leases. The Company reported downward revisions of previous estimates of 300,797 BOE primarily related to the removal of uneconomic PUD locations. For the year ended December 31, 2016, the Company reported extensions and discoveries of 6,030,624 BOE as a result of drilling and completion activities during 2016. Additionally, during 2016 the Company purchased reserves of 287,999 BOE. Standardized Measure of Estimated Discounted Future Net Cash Flows to Proved Oil and Natural Gas Reserves (in thousands): The Company follows the guidelines prescribed in ASC 932, Extractive Activities-Oil and Gas for computing a standardized measure of future net cash flows and changes therein relating to estimated proved reserves. The following summarizes the policies used in the preparation of the accompanying oil, natural gas and NGL reserve disclosures, standardized measures of discounted future net cash flows from proved oil, natural gas and NGL reserves and the reconciliations of standardized measures from year to year. The information is based on estimates of proved reserves attributable to the Company’s interest in oil and gas properties as of December 31, of the years presented. These estimates were prepared by Cawley Gillespie & Associates, Inc., independent petroleum engineers. The standardized measure of discounted future net cash flows from production of proved reserves was developed as follows: (1) estimates are made of quantities of proved reserves and future periods during which they are expected to be produced based on year-end economic conditions; (2) the estimated future cash flows are compiled by applying the twelve-month average of the first-day-of-the-month prices of crude oil and natural gas relating to the Company’s proved reserves to the year-end quantities of those reserves; (3) the future cash flows are reduced by estimated production costs, costs to develop and produce the proved reserves and abandonment costs, all based on year-end economic conditions, plus Company overhead incurred; and (4) future net cash flows are discounted to present value by applying a discount rate of 10%. The assumptions used to compute the standardized measure are those prescribed by the FASB and the SEC. These assumptions do not necessarily reflect the Company’s expectations of actual revenues to be derived from those reserves, nor their present value. The limitations inherent in the reserve quantity estimation process, as discussed previously, are equally applicable to the standardized measure computations, since these reserve quantity estimates are the basis for the valuation process. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries and undeveloped locations are more imprecise than estimates of established proved producing oil and gas properties. The standardized measure of discounted future net cash flows does not purport, nor should it be interpreted, to present the fair value of the Company’s oil and natural gas reserves. An estimate of fair value would also take into account, among other things, the recovery of reserves not presently classified as proved, anticipated future changes in prices and costs and a discount factor more representative of the time value of money and the risks inherent in reserve estimates. The following summary sets forth the Company’s estimated future net cash flows relating to proved oil, natural gas and NGL reserves based on the standardized measure prescribed in ASC 932, Extractive Activities-Oil and Gas (in thousands): For the years ended December 31, 2018 2017 2016 Future cash inflows $ 282,293 $ 208,459 $ 148,596 Future cash outflows: Production cost (81,432 ) (48,929 ) (35,038 ) Development cost (53,980 ) (58,784 ) (37,667 ) Future income tax (21,534 ) (16,006 ) (5,802 ) Future net cash flows 125,347 84,740 70,089 Adjustment to discount future annual net cash flows at 10% (42,237 ) (35,054 ) (29,925 ) Standardized measure of discounted future net cash flows $ 83,110 $ 49,686 $ 40,164 The following are the principal sources of change in the standardized measure (in thousands): Changes in Standardized Measure of Estimated Discounted Future Net Cash Flows For the years ended December 31, 2018 2017 2016 Standardized measure, beginning of year $ 49,686 $ 40,164 $ — Sales of oil and gas, net of production cost (18,270 ) (9,392 ) (126 ) Net change in sales prices, net of production cost 35,308 10,263 489 Discoveries, extensions and improved recoveries 1,289 11,979 76,445 Change in future development costs (2,497 ) (4,050 ) (37,667 ) Development costs incurred during the period that reduced future development cost 19,415 1,144 — Sales of reserves in place (3,048 ) — — Revisions of quantity estimates 2,867 (559 ) — Accretion of discount 5,908 4,275 130 Net change in income tax (4,292 ) (6,810 ) (2,587 ) Purchase of reserves 15 — 6,021 Changes in timing of rates of production (3,271 ) 2,672 (2,541 ) Standardized measure, end of year $ 83,110 $ 49,686 $ 40,164 |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Policies) | 12 Months Ended |
Dec. 31, 2018 | |
Accounting Policies [Abstract] | |
Basis of Presentation | The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“US GAAP”). The Company has no items of other comprehensive income or loss; therefore, its net income or loss is identical to its comprehensive income or loss. |
Principles of Consolidation | The consolidated financial statements include the accounts and balances of the Company and its wholly-owned subsidiary, CFW Resources, LLC, a Colorado limited liability company. The Company’s undivided interests in joint operating ventures are proportionately consolidated. |
Use of Estimates | The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, as well as the disclosure of contingent assets and liabilities. Estimated quantities of crude oil, natural gas and natural gas liquids are the most significant of the Company’s estimates. All reserve data used in the preparation of these consolidated financial statements are based on estimates. Reservoir engineering is a subjective process of estimating underground accumulations of crude oil, natural gas and natural gas liquids. There are numerous uncertainties inherent in estimating quantities of proved, probable and possible reserves. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretation and judgment. As a result, reserve estimates may be different from the quantities of crude oil, natural gas and natural gas liquids that are ultimately recovered. Other items subject to significant estimates and assumptions include, but are not limited to, the carrying amounts of crude oil and natural gas properties, accrued and unpaid revenues and unbilled costs, asset retirement obligations, deferred income tax liabilities and assets, including any associated valuation allowances, derivative liabilities, convertible notes payable and the Secured Credit Facility. Furthermore, valuation assumptions related to the Company’s stock-based compensation and fair value financial instruments require significant judgments and estimates. Management evaluates estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic and commodity price environment. The volatility of commodity prices results in increased uncertainty inherent in such estimates and assumptions. Actual results could be significantly different from the estimates. |
Income (or Loss) Per Common Share | Basic earnings (or loss) per share is computed by dividing net income (or loss) by the weighted average number of common shares outstanding during the period. Diluted earnings (or loss) per share is computed after considering the potential dilution from additional shares that would be issued pursuant to the conversion of debt, exercise of warrants, and fulfillment of outstanding equity awards. Any potentially dilutive securities that have an anti-dilutive impact on the per share calculation are excluded. During periods in which the Company reports a net loss, diluted weighted average shares outstanding are equal to basic weighted average shares outstanding because the impact of all potentially dilutive securities would be anti-dilutive. The following table presents the number of potentially dilutive securities that were excluded from the calculation at December 31, 2018 and 2017: December 31, December 31, 2018 2017 Exercisable stock options 4,621,000 4,347,500 Warrants to purchase common stock 9,088,800 7,588,800 Shares underlying secured credit facility and convertible notes 23,489,786 6,372,066 Total 37,199,586 18,308,366 |
Cash, cash equivalents, and restricted cash | During the periods presented herein, the Company had no cash equivalents or restricted cash. |
Revenue Recognition | Oil sales Under the Company’s oil sales contracts, the Company sells oil production at the point of delivery and collects an agreed upon index price, net of pricing differentials. The Company recognizes revenue when control transfers to the purchaser at the point of delivery at the net price received. Payment is generally received from the customer in the month following delivery. Natural gas and natural gas liquids Under the Company’s natural gas sales processing contracts, the Company delivers commingled natural gas and natural gas liquids (NGLs) to a midstream processing entity. The midstream processing entity gathers and processes the various hydrocarbons and remits proceeds to the Company for the resulting sale. Under these processing agreements, the Company recognizes revenue when control transfers to the purchaser at the point of delivery. Payment is generally received from the customer one to two months following delivery. Revenue is recognized net of gathering and processing fees. Disaggregation of Revenue. Operating revenues 2018 2017 Crude oil sales $ 16,809,145 $ 8,719,793 Natural gas sales 2,456,927 1,525,833 NGL sales 1,137,895 861,947 Total Operating Revenues $ 20,403,967 $ 11,107,574 |
Accounts Receivable | Accounts Receivable – Crude oil, natural gas and NGLs Accounts receivable – Crude oil, natural gas and NGLs consists of amounts due from customers for the sale of hydrocarbons. In general, settlements for hydrocarbon sales occur 30 to 90 days after the month in which the oil, natural gas or other hydrocarbon products were produced. Accounts Receivable – Joint interest billing Accounts receivable – Joint interest billing represents costs to be reimbursed by the Company’s working interest partners under joint operating agreements. Collateral is not required for such receivables, nor is interest charged on past due balances. However, should a working interest partner default on its obligation, the Company would have a claim against their future pro rata revenue and to any reserves attributable to the joint interest. |
Allowance for doubtful accounts | The Company regularly reviews outstanding accounts receivable for indication that amounts may not be collectible. The Company’s allowance for doubtful accounts is based on analysis of historical bad debt experience, current receivables aging, and expected future write-offs, as well as an assessment of specific identifiable customer accounts considered at risk or uncollectible. An allowance of $0.1 million and $nil was recorded as of December 31, 2018 and 2017, respectively. |
Capitalized Interest Costs | The Company capitalizes interest costs as part of the historical cost of developing assets. Significant oil and gas investments in unproved properties and significant exploration and development projects including wells in progress that have not commenced production are assets that qualify for interest capitalization during the period that they are being prepared for their intended use. Capitalized interest is calculated by using the weighted average interest cost on the Company’s outstanding debt, including the accretion of interest expense associated with debt discounts. The interest costs capitalized into oil and gas properties totaled $2.2 million and $0.3 million for the years ended December 31, 2018 and 2017, respectively. |
Concentration of Credit Risk and Major Customers | The Company is exposed to credit risk in the event of nonpayment by counterparties, a significant portion of which are concentrated in energy-related industries. The creditworthiness of customers and other counterparties is subject to regular review. The Company does not believe the loss of any single purchaser of its production would materially impact its operating results, as crude oil, natural gas, and NGLs are products with well-established markets and numerous purchasers in the Company’s operating region. The Company had the following major customers, which accounted for 10 percent or more of its total crude oil, natural gas, and NGL production revenue for at least one of the periods presented: For the Years Ended December 31, 2018 2017 Great Western Oil and Gas Company 40.5 % 22 % Rose Rock Midstream Crude LP 33.4 % - PDC Energy, Inc 20.6 % 71 % The Company maintains its primary bank accounts with a large, multinational bank that has branch locations in the Company’s areas of operations. Bank account balances periodically exceed federally insured limits. To mitigate risk of loss, the Company’s policy is to maintain its deposits with high quality financial institutions. |
Crude Oil and Natural Gas Properties | The Company follows the successful efforts method of accounting for its crude oil and natural gas properties. Under this method of accounting, the costs incurred to acquire, drill, and complete productive wells, development wells, and proved properties are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel and other internal costs, geological and geophysical expenses, delay rentals for gas and oil leases, and costs associated with unsuccessful lease acquisitions are charged to expense as incurred. Costs of drilling exploratory wells are initially capitalized as wells in progress until the viability of the well is determined. Successful exploratory wells are capitalized, and unsuccessful exploratory wells are charged to expense. Proved Proved properties include all capitalized costs associated with proved developed and proved undeveloped reserves. Depletion, depreciation and amortization (“DDA”) of proved properties is calculated as a group of assets (properties aggregated based upon common attributes) using the units-of-production method. DDA of development costs, including capitalized tangible and intangible drilling costs, well equipment, and facilities costs, is based on the estimate of proved developed reserves. Similarly, DDA of proved leasehold costs, including proved undeveloped leases, is calculated using the same method based on the estimate of total proved reserves (both developed and undeveloped). Currently, the Company’s properties are located solely within the Wattenberg Field of the DJ Basin, which is considered one field for unit-of-production calculations. The Company based its determination upon certain common attributes, including geological structure, geographic proximity, cost environment, and similar operating practices. The Company periodically assesses its proved crude oil and natural gas properties for impairment. The impairment test compares the net capitalized costs of the properties to the estimated undiscounted future net cash flows. If the net capitalized costs exceed estimated future net cash flows, an impairment expense is recorded to reduce the carrying value of the property. The sale or other disposition of part of a proved property is reported as a normal retirement, under which no gain or loss is recognized, unless doing so significantly affects the unit-of-production amortization rate. Gains or losses are recorded in the statement of operations for all other divestiture activities. Unproved Unproved properties consist of costs to acquire unproved and unevaluated leases and other mineral assets. All acquisition costs are initially capitalized. When successful wells are drilled on unproved properties, the associated costs are reclassified as proved properties and depleted on a units-of-production basis. The Company periodically evaluates significant unproved properties for impairment based on remaining lease term, drilling results, reservoir performance, seismic interpretation or plans to develop acreage. Individually insignificant unproved properties are evaluated on a composite basis, and, when appropriate, are amortized as a group based on past success, experience and average lease-term lives. Exploration costs Geological and geophysical costs, including exploratory seismic studies, and the costs of carrying and retaining unproved acreage are expensed as incurred. Costs of seismic studies that are utilized in development drilling within an area of proved reserves are capitalized as development costs. Amounts of seismic costs capitalized are based on only those blocks of data used in determining development well locations. To the extent that a seismic project covers areas of both developmental and exploratory drilling, those seismic costs are proportionately allocated between development costs and exploration expense. Costs of drilling exploratory wells are initially capitalized, pending determination of whether the well contains proved reserves. If an exploratory well does not contain proved reserves, the costs of drilling the well and other associated costs are charged to expense. Costs incurred for exploratory wells that contain reserves, which cannot yet be classified as proved, continue to be capitalized if (a) the well has found a sufficient quantity of reserves to justify completion as a producing well, and (b) the Company is making satisfactory progress assessing the reserves and the economic and operating viability of the project. If either condition is not met, or if the Company obtains information that raises substantial doubt about the economic or operational viability of the project, the exploratory well costs are expensed. |
Property, Plant and Equipment | Property, plant and equipment are stated at cost, less accumulated depreciation. Depreciation is computed using straight-line method over the estimated useful lives of the related assets. Expenditures for renewals and betterments which increase the estimated useful life or capacity of the asset are capitalized; expenditures for repairs and maintenance are expensed as incurred. |
Related Party Transactions | The Company engages in a number of transactions with Providence Energy Operators, LLC (“PEO”) and its affiliates. PEO is a subsidiary of Providence Energy Corporation, a privately-held corporation based in Dallas, Texas. PEO is the beneficial owner of 11.6% of our outstanding common stock. We have a participation agreement that grants PEO the option to acquire up to a 50% interest and participate in any oil and gas development on acreage we obtain within an area of mutual interest (AMI) near our Southern Core area. To date, PEO has exercised its option under the participation agreement or otherwise participated or agreed to participate in all acreage acquisitions and drilling operations. As discussed elsewhere in this report, an affiliate of PEO is a major participant in our principal lender group through which we currently maintain a $25.0 million Secured Credit Facility. The Board of Directors is required to approve all significant related party transactions. |
Drilling Advances - Related Party | The Company’s drilling advances consist of cash provided to the Company from its joint interest partners for planned drilling activities. Advances are applied against the joint interest partners’ share of costs incurred. |
Income Taxes | The Company accounts for deferred income taxes under the asset and liability method whereby it recognizes deferred tax assets and liabilities based on the tax effects of temporary differences between the cost basis of assets and liabilities reported for financial reporting purposes compared to income tax reporting purposes using currently enacted tax rates. These differences will result in taxable income or deductions in future years when the reported amounts of the assets or liabilities are recorded or settled. Deferred tax assets are also recognized for future tax consequences attributable to operating loss carryforwards. The Company provides a valuation allowance for deferred tax assets when it does not consider realization of such assets to be more likely than not. The Company complies with authoritative accounting guidance regarding uncertain tax provisions. The entire amount of unrecognized tax benefit reported by the Company would affect its effective tax rate if recognized. The Company does not expect a significant change to the recorded unrecognized tax benefits in 2018. |
Asset Retirement Obligation | The Company recognizes an estimated liability for future costs associated with the dismantlement, abandonment, or other restoration required when its oil and gas assets are retired or otherwise permanently removed from service. Calculation of an asset retirement obligation (“ARO”) requires estimates about several future events, including the estimated date of retirement, the costs to remove the asset from service, and inflation factors. The ARO is initially estimated based upon discounted cash flows over the life of the asset and is accreted to full value over time using the Company’s credit-adjusted risk-free interest rate. Upon initial recognition of an ARO, the carrying amount of the associated asset is increased by the same amount. The capitalized costs are included in the periodic calculation of DD&A and are subject to impairment testing. If the estimated timing or estimated cash flow of the ARO changes, an adjustment is recorded to both the ARO and the asset retirement cost. |
Assets Held for Sale | We occasionally identify specific oil and gas properties that we wish to sell. At the end of each reporting period, we evaluate properties that might be sold to determine whether any should be reclassified as held for sale. The held-for-sale criteria include: a commitment to a plan to sell; the asset is available for immediate sale; an active program to locate a buyer exists; the sale of the asset is probable and expected to be completed within one year; the asset is being actively marketed for sale; and it is unlikely that significant changes to the plan will be made. If each of these criteria is met, the property is reclassified as held for sale on our consolidated balance sheets. We also compare the fair values of the properties held for sale to the net unamortized cost. If an impairment is indicated, the assets held for sale are recorded at fair value less costs to sell and impairment expense is recorded. |
Stock-Based Compensation | The Company uses the Black-Scholes option-pricing model to determine the fair-value of stock-based awards in accordance with ASC 718, “Stock Compensation.” The option-pricing model requires the input of highly subjective assumptions, including the option’s expected life, the price volatility of the underlying stock, and the estimated dividend yield of the underlying stock. The expected term of outstanding stock-based awards represents the period that stock-based awards are expected to be outstanding and is determined based on the contractual terms of the stock-based awards, vesting schedules and expectations of future employee behavior as influenced by changes to the terms of its stock-based awards. As there was insufficient historical data available to ascertain an expected term for these awards, the plain vanilla method was applied in calculating the expected term of the options. The Company’s common stock has limited |
Loans and Borrowings | Borrowings are recognized initially at fair value, net of financing costs incurred, and subsequently measured at amortized cost. Any difference between the amounts originally recorded and the redemption value of the debt is recognized as interest expense in the consolidated statements of operations over the period to maturity using the effective interest method. |
Fair Value of Financial Instruments | Fair value accounting, as prescribed in ASC Section 825, “Financial Instruments,” utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below: Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity). The financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels. As disclosed in Note 5, the Secured Credit Facility contained embedded elements that required identification and quantification of fair value. The estimated fair values as of February 1, 2018, the closing date of the facility, are presented in Note 5. As of December 31, 2018, the estimated fair values are presented in the following table: December 31, 2018 Registration rights penalty derivative liability $ (102,892 ) Share purchase option derivative liability (138,908 ) $ (241,800 ) The following table presents a roll-forward of the fair value of the derivative liabilities associated with the Company’s Secured Credit Facility, categorized as Level 3 for the year ended December 31, 2018. There were no comparable liabilities for the 2017 period: Year Ended December 31, 2018 Beginning balance $ - Additions (Note 5) (1,670,017 ) Gain included in earnings 1,428,217 Gain (loss) included in other comprehensive income - Ending Balance $ (241,800 ) |
Estimated Fair Value of Financial Assets and Liabilities Not Measured at Fair Value | The Company’s other financial instruments consist primarily of cash, accounts receivable, accounts payable, and various borrowings. Substantially all of the Company’s other financial instruments are classified as current assets or current liabilities. The carrying values of current assets and current liabilities are representative of their fair values due to their short-term maturities. |
Going Concern Assessment | Pursuant to Accounting Standards Update (“ASU”) 2014-15, “Presentation of Financial Statements – Going Concern” the Company has assessed its ability to continue as a going concern for a period of one year from the date of the issuance of these consolidated financial statements. Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity may be unable to meet its obligations as they become due within one year from the consolidated financial statement issuance date. The uncertainty regarding the Company’s ability to continue as a going concern is based on it’s substantial near-term liabilities, continuing net losses and negative working capital, among other things which existed as of December 31, 2018. At December 31, 2018 the Company had a cash balance of approximately $2.6 million and other current assets of approximately $29.6 million including assets held for sale of $16.1 million, resulting in negative working capital of $32.9 million. The Company had net losses, including non-cash charges, of $17.3 million and $10.8 million for the years ended December 31, 2018 and 2017, respectively. At December 31, 2018 the Company was obligated to repay $9.4 million in principal plus accrued interest on outstanding convertible promissory notes, which payment was not made. The convertible notes are currently in default. The Company is also in default under the terms of the Secured Credit Facility (Note 5) and as a result $29.9 million, including the outstanding principal, accrued interest and penalties are due. On April 2, 2019, the Secured Lenders delivered their formal Notice of Default under the terms of the Secured Credit Facility. Some accounts payable obligations to vendors are past the due date and some of those vendors have filed liens or indicated an intent to file liens on certain of the Company’s assets. The net proceeds from the sale of the non-operated assets in February 2019 were applied by the Secured Lenders amounts allegedly owed to them. The Company has been unable to access the debt or equity markets to obtain any additional funding during 2018. Management has evaluated these conditions and determined that increased revenues from the Company’s operated properties may allow the Company to meet its ongoing operational obligations. However, to continue to execute its business plan, and meet its debt obligations, additional working capital will be required. As part of the analysis, the Company considered selective participation in certain operated drilling programs based on availability of working capital and the timing of production-related cash flows. There is uncertainty that management’s plans, if executed will allow the Company to meet all of its obligations. As a result, there is substantial doubt about the Company’s ability to continue as a going concern within one year after the date the consolidated financial statements are issued. The Company’s consolidated financial statements do not include any adjustments related to the realization of the carrying value of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. |
Recently Accounting Pronouncements | In May 2014, the Financial Accounting Standards Board (“FASB”) issued a new standard on revenue recognition that provides a single, comprehensive model that entities will apply to determine the measurement and timing of revenue to be recognized. The underlying principle is that an entity will recognize revenue for the transfer of goods or services to customers at the amount expected to be received in exchange for those goods or services. The standard outlines a five-step approach to apply the underlying principle: (1) identify the contract with the customer, (2) identify the separate performance obligations in the contract, (3) determine the transaction price, (4) allocate the transaction price to separate performance obligations and (5) recognize revenue when or as each performance obligation is satisfied. The standard, known as Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers (Topic 606) R ecent Accounting Pronouncements Leases In August 2017, the FASB issued ASU 2017-12 , Derivatives and Hedging (Topic 815), There are no other recently issued ASUs (issued through April 2, 2019 and not yet adopted by the Company) that are expected to have a material effect on the Company’s consolidated financial statements and related disclosures when they are adopted. |
SUMMARY OF SIGNIFICANT ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Accounting Policies [Abstract] | |
Schedule of potentially antidilutive securities excluded from computation of earnings per share | December 31, December 31, 2018 2017 Exercisable stock options 4,621,000 4,347,500 Warrants to purchase common stock 9,088,800 7,588,800 Shares underlying secured credit facility and convertible notes 23,489,786 6,372,066 Total 37,199,586 18,308,366 |
Disaggregation of revenue | Operating revenues 2018 2017 Crude oil sales $ 16,809,145 $ 8,719,793 Natural gas sales 2,456,927 1,525,833 NGL sales 1,137,895 861,947 Total Operating Revenues $ 20,403,967 $ 11,107,574 |
Schedule of concentration of credit risk and major customers | For the Years Ended December 31, 2018 2017 Great Western Oil and Gas Company 40.5 % 22 % Rose Rock Midstream Crude LP 33.4 % - PDC Energy, Inc 20.6 % 71 % |
Schedule of derivative liabilities | December 31, 2018 Registration rights penalty derivative liability $ (102,892 ) Share purchase option derivative liability (138,908 ) $ (241,800 ) Year Ended December 31, 2018 Beginning balance $ - Additions (Note 5) (1,670,017 ) Gain included in earnings 1,428,217 Gain (loss) included in other comprehensive income - Ending Balance $ (241,800 ) |
PROPERTY, PLANT AND EQUIPMENT (
PROPERTY, PLANT AND EQUIPMENT (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Property, Plant and Equipment [Abstract] | |
Schedule of property and equipment | December 31, 2018 2017 Property, plant and equipment $ 223,517 $ 223,517 Accumulated depreciation (108,167 ) (55,106 ) Total $ 115,350 $ 168,411 |
CRUDE OIL AND NATURAL GAS PRO_2
CRUDE OIL AND NATURAL GAS PROPERTIES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Extractive Industries [Abstract] | |
Schedule of net capitalized costs | As of December 31, 2018 2017 Proved oil and gas properties $ 41,017,944 $ 22,144,336 Unproved oil and gas properties (1) 2,055,752 1,919,335 Wells in progress (2) 1,194,114 9,858,262 Total capitalized costs 44,267,810 33,921,963 Accumulated DDA and impairment (14,395,458 ) (2,849,374 ) Net capitalized costs $ 29,723,352 $ 31,072,589 |
Schedule of costs incurred in crude oil and natural gas activities | December 31, 2018 2017 Exploration and abandonment costs $ 580,881 $ 61,693 Development costs 33,393,215 18,771,794 Acquisition of properties Proved 164,199 — Unproved 342,982 4,049,380 Total $ 34,481,277 $ 22,882,867 |
DEBT (Tables)
DEBT (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Debt Disclosure [Abstract] | |
Summary of account balances and activity for various debt instruments | Initial Supplemental Convertible Convertible Secured Line of Line of Notes Notes Credit Credit Credit 10% Series B Facility December 31, 2016 Principal Balance $ (5,000,000 ) $ (7,105,000 ) $ (1,942,600 ) $ - $ - December 31, 2016, Total, net $ (5,000,000 ) $ (7,105,000 ) $ (5,308 ) $ - $ - Principal Borrowings - - (8,057,400 ) (4,724,900 ) (5,000,000 ) Repayments - 3,552,500 - - - Conversions - - 5,166,800 - - Beginning Balance - Unamortized Debt Issuance Costs - Original Issuer Discount - - 204,703 - - Additions - - 804,750 205,211 104,871 Accretion - - (742,944 ) (36,887 ) (1,436 ) Ending - Unamortized Debt Issuance Costs - Original Issuer Discount - - 266,509 168,324 103,435 Beginning Balance - Unamortized Debt Issuance Costs - Beneficial Conversion Feature - - 1,030,762 - - Additions - - 4,272,867 56,500 - Accretion - - (3,978,881 ) (11,959 ) - Ending - Unamortized Debt Issuance Costs - Beneficial Conversion Feature - - 1,324,748 44,541 - Beginning Balance - Unamortized Debt Issuance Costs - Warrant Discount - - 701,827 - - Additions - - 2,978,791 - - Accretion - - (2,758,537 ) - - Ending - Unamortized Debt Issuance Costs - Warrant Discount - - 922,081 - - December 31, 2017, Principal Balance $ (5,000,000 ) $ (3,552,500 ) $ (4,833,200 ) $ (4,724,900 ) $ (5,000,000 ) December 31, 2017, Total, net $ (5,000,000 ) $ (3,552,500 ) $ (2,319,862 ) $ (4,512,035 ) $ (4,896,565 ) Principal Borrowings - - - - (20,000,000 ) Repayments 5,000,000 3,552,500 - - - Conversions - - 200,000 - - Beginning Balance - Unamortized Debt Issuance Costs - Original Issuer Discount - - 266,509 168,324 103,435 Additions - - - - 4,284,416 Accretion - - (266,509 ) (168,324 ) (1,789,664 ) Ending - Unamortized Debt Issuance Costs - Original Issuer Discount - - - - 2,598,187 Beginning Balance - Unamortized Debt Issuance Costs - Beneficial Conversion Feature - - 1,324,748 44,541 - Additions - - - - 2,272,775 Accretion - - (1,324,748 ) (44,541 ) (949,372 ) Ending - Unamortized Debt Issuance Costs - Beneficial Conversion Feature - - - - 1,323,403 Beginning Balance - Unamortized Debt Issuance Costs - Warrant Discount - - 922,081 - - Additions - - - - 1,538,943 Accretion - - (922,081 ) - (642,797 ) Ending - Unamortized Debt Issuance Costs - Warrant Discount - - - - 896,046 December 31, 2018, Principal Balance $ - $ - $ (4,633,200 ) $ (4,724,900 ) $ (25,000,000 ) December 31, 2018, Total, net $ - $ - $ (4,633,200 ) $ (4,724,900 ) $ (20,182,264 ) |
Proceeds from secured credit facility | Gross Proceeds $ 20,000,000 Payment of origination fee (1,250,000 ) Principal repayment on Initial Line of Credit (5,000,000 ) Principal repayment on Supplemental Line of Credit (1,500,000 ) Payment of accrued interest costs (1,086,808 ) Net Cash Proceeds $ 11,163,192 |
Summary of secured credit facilitiy balance | Secured Credit Facility, net of all discounts $ 16,786,981 Make whole premium derivative liability 14,698 Default interest penalty derivative liability 243,794 Registration rights penalty derivative liability 63,672 Share purchase option derivative liability 1,347,853 Stock purchase warrants 1,538,943 Beneficial conversion feature 2,272,775 Legal fees and other 231,284 Subtotal 22,500,000 Origination fee and Underwriting fee 2,500,000 Secured Credit Facility, face value $ 25,000,000 |
ASSET RETIREMENT OBLIGATION (Ta
ASSET RETIREMENT OBLIGATION (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Asset Retirement Obligation Disclosure [Abstract] | |
Reconciliation of the asset retirement obligation | December 31, 2018 2017 Asset retirement obligation, beginning of year $ 1,123,444 $ 945,419 Liabilities settled (1) (192,996 ) (50,163 ) Liabilities incurred 58,511 91,999 Revisions in estimated cash flows 983,352 36,507 Accretion 117,636 99,682 Asset retirement obligation, end of year $ 2,089,947 $ 1,123,444 Current liability $ 843,796 $ 288,784 Long-term liability $ 1,246,151 $ 834,660 |
ACCOUNTS PAYABLE AND ACCRUED _2
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Payables and Accruals [Abstract] | |
Components of accounts payable and accrued liabilities | December 31, 2018 2017 Trade payables and accrued liabilities $ 2,093,428 $ 1,544,112 Accrued interest payable - 876,455 Liabilities incurred in connection with acquisition of crude oil and natural gas properties 22,291,989 1,719,785 Total $ 24,385,417 $ 4,140,352 |
SHAREHOLDERS' EQUITY (Tables)
SHAREHOLDERS' EQUITY (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Equity [Abstract] | |
Summary of warrants outstanding | Shares Underlying Exercise Price Outstanding Warrants Per Share Expiration Date Underwriter warrants 255,600 $ 1.25 11/12/2020 Investor warrants 6,666,600 $ 3.00 12/31/2019 Placement agent warrants 666,600 $ 1.50 12/31/2021 Secured Credit Facility warrants 1,500,000 $ 0.01 02/01/2020 Total 9,088,800 |
STOCK BASED COMPENSATION (Table
STOCK BASED COMPENSATION (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | |
Summary of stock option activity | Weighted Remaining Average Contractual Number of Exercise Term Shares Price (Years) Outstanding, December 31, 2016 4,675,000 $ 0.76 5.39 Granted 422,000 $ 1.86 5.69 Exercised — — — Forfeited (100,000 ) — — Outstanding, December 31, 2017 4,997,000 $ 0.85 4.44 Exercisable, December 31, 2017 4,347,500 $ 0.74 4.48 Granted 790,000 0.93 4.07 Exercised — — — Expired (425,000 ) 1.00 — Forfeited (325,000 ) 1.35 3 Outstanding, December 31, 2018 5,037,000 $ 0.79 3.87 Exercisable, December 31, 2018 4,621,000 $ 0.75 3.86 |
Summary of fair value assumptions | December 31, December 31, 2018 2017 Expected option term—years 2.0-3.0 2.5 - 3.25 Risk-free interest rate 2.58%-2.81% 1.75%-1.93% Expected dividend yield — — Volatility 85%-100% 162% - 169% Forfeited — — |
PROVISION FOR INCOME TAXES (Tab
PROVISION FOR INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Income Tax Disclosure [Abstract] | |
Components of deferred tax assets and liabilities | Year Ended December 31, 2018 2017 Deferred tax assets - noncurrent: NOL carryover$ 5,385,347 $ 2,109,423 Stock based compensation 727,631 727,631 Asset retirement obligation 515,333 277,015 Charitable contribution 814 814 Allowance for doubtful accounts 29,321 — Total deferred tax assets $ 6,658,446 $ 3,114,883 Deferred tax liabilities - current: Property and equipment (9,405 ) (15,251 ) Impairment, intangible drilling costs and other exploration costs capitalized (1,205,247 ) (935,482 ) Debt discount - Beneficial conversion feature (326,321 ) (337,518 ) Derivative liabilities (352,165 ) — Total deferred tax liabilities (1,893,138 ) (1,288,251 ) Net deferred tax assets 4,765,308 1,826,632 Valuation allowance (4,765,308 ) (1,826,632 ) Net deferred tax assets $ — $ — |
Schedule of income tax provision | Year Ended December 31, 2018 2017 Tax at statutory federal rate $ (3,634,627 ) $ (3,688,109 ) Permanent difference 836,035 2,258,353 State taxes, net of federal (519,052 ) (331,474 ) Change in valuation allowance 3,499,090 396,256 Effect of the Tax Cuts and Jobs Act — 918,446 Other (181,446 ) 446,528 Provision (benefit) for income taxes $ — $ — |
RELATED PARTIES (Tables)
RELATED PARTIES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Related Party Transactions [Abstract] | |
Summary of related party transactions | December 31, 2018 2017 Liabilities Revenue distribution payable and accrued liabilities $ (2,133,622 ) $ (589,496 ) Initial line of credit - (5,000,000 ) Secured Credit Facility (25,000,000 ) (5,000,000 ) Loan commitment fee – Secured Credit Facility (1,250,000 ) - Default penalty interest – Secured Credit Facility (312,500 ) - Make-whole premium Secured Credit Facility (3,347,874 ) - Break-up fee payable, participation agreement (580,881 ) - Assets Accounts receivable – joint interest billing 1,158,213 204,730 |
COMMITMENTS AND CONTINGENCIES (
COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
Commitments and Contingencies Disclosure [Abstract] | |
Operating lease agreement schedule | Year ending December 31, Amount 2019 $ 133,698 2020 137,658 2021 34,662 Total $ 306,018 |
UNAUDITED CRUDE OIL AND NATUR_2
UNAUDITED CRUDE OIL AND NATURAL GAS RESERVES INFORMATION (Tables) | 12 Months Ended |
Dec. 31, 2018 | |
UNAUDITED CRUDE OIL AND NATURAL GAS RESERVES INFORMATION | |
Schedule of changes in proved developed reserves | Natural Oil Gas NGL’s Total (Bbls) (Mcf) (Bbls) (BOE) Balance as of December 31, 2016 2,761,204 11,492,855 1,631,188 6,307,868 Revisions of previous estimates (388,211 ) 292,477 38,668 (300,797 ) Extensions and discoveries 839,738 4,183,757 631,149 2,168,180 Sales of reserves in place — — — — Improved recovery — — — — Purchase of reserves — — — — Production (188,529 ) (549,846 ) (50,111 ) (330,281 ) Balance as of December 31, 2017 3,024,202 15,419,243 2,250,894 7,844,970 Revisions of previous estimates 569,936 3,444,889 (877,172 ) 266,912 Extensions and discoveries 36,858 244,043 — 77,532 Sales of reserves in place (150,554 ) (820,564 ) (97,396 ) (384,710 ) Improved recovery — — — — Purchase of reserves 678 18,533 222 3,988 Production (287,984 ) (773,396 ) (66,986 ) (483,870 ) Balance as of December 31, 2018 3,193,136 17,532,748 1,209,562 7,324,822 Proved Developed Reserves, included above Balance as of December 31, 2016 260,284 1,788,895 181,655 740,088 Balance as of December 31, 2017 521,354 3,752,330 387,430 1,534,172 Balance as of December 31, 2018 1,187,985 6,300,116 672,725 2,910,729 Proved Undeveloped Reserves, included above Balance as of December 31, 2016 2,500,920 9,703,960 1,449,533 5,567,780 Balance as of December 31, 2017 2,502,847 11,666,911 1,863,465 6,310,797 Balance as of December 31, 2018 2,005,151 11,232,632 536,837 4,414,093 |
Schedule of standardized measure of discounted future net cash flows | For the years ended December 31, 2018 2017 2016 Future cash inflows $ 282,293 $ 208,459 $ 148,596 Future cash outflows: Production cost (81,432 ) (48,929 ) (35,038 ) Development cost (53,980 ) (58,784 ) (37,667 ) Future income tax (21,534 ) (16,006 ) (5,802 ) Future net cash flows 125,347 84,740 70,089 Adjustment to discount future annual net cash flows at 10% (42,237 ) (35,054 ) (29,925 ) Standardized measure of discounted future net cash flows $ 83,110 $ 49,686 $ 40,164 |
Schedule of changes in standardized measure of estimated discounted future net cash flows | For the years ended December 31, 2018 2017 2016 Standardized measure, beginning of year $ 49,686 $ 40,164 $ — Sales of oil and gas, net of production cost (18,270 ) (9,392 ) (126 ) Net change in sales prices, net of production cost 35,308 10,263 489 Discoveries, extensions and improved recoveries 1,289 11,979 76,445 Change in future development costs (2,497 ) (4,050 ) (37,667 ) Development costs incurred during the period that reduced future development cost 19,415 1,144 — Sales of reserves in place (3,048 ) — — Revisions of quantity estimates 2,867 (559 ) — Accretion of discount 5,908 4,275 130 Net change in income tax (4,292 ) (6,810 ) (2,587 ) Purchase of reserves 15 — 6,021 Changes in timing of rates of production (3,271 ) 2,672 (2,541 ) Standardized measure, end of year $ 83,110 $ 49,686 $ 40,164 |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENATION (Details) - shares | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Loss Per Share | ||
Potentially dilutive securities | 37,199,586 | 18,308,366 |
Stock Option [Member] | ||
Loss Per Share | ||
Potentially dilutive securities | 4,621,000 | 4,347,500 |
Warrants To Purchase Common Stock [Member] | ||
Loss Per Share | ||
Potentially dilutive securities | 9,088,800 | 7,588,800 |
Shares Underlying Secured Credit Facility and Convertible Notes [Member] | ||
Loss Per Share | ||
Potentially dilutive securities | 23,489,786 | 6,372,066 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Total revenue | $ 20,403,967 | $ 11,107,574 |
Crude Oil [Member] | ||
Total revenue | 16,809,145 | 8,719,793 |
Natural Gas Reserves [Member] | ||
Total revenue | 2,456,927 | 1,525,833 |
NGL Sales [Member] | ||
Total revenue | $ 1,137,895 | $ 861,948 |
SUMMARY OF SIGNIFICANT ACCOUN_6
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details 2) - Sales Revenue Net [Member] - Customer Concentration Risk [Member] | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Great Western Operating Company [Member] | ||
Concentration risk | 40.50% | 22.00% |
Rose Rock Midstream [Member] | ||
Concentration risk | 33.40% | 0.00% |
Pdc Energy Inc [Member] | ||
Concentration risk | 20.60% | 71.00% |
SUMMARY OF SIGNIFICANT ACCOUN_7
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details 3) | 12 Months Ended |
Dec. 31, 2018USD ($) | |
Summary Of Significant Accounting Policies And Basis Of Presentation | |
Beginning balance | $ 0 |
Additions | (1,670,017) |
Gain included in earnings | 1,414,871 |
Gain (loss) included in other comprehensive income | 0 |
Ending Balance | $ (241,800) |
SUMMARY OF SIGNIFICANT ACCOUN_8
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Accounting Policies [Abstract] | |||
Interest cost capitalized | $ 2,200,000 | $ 300,000 | |
Cash | 2,636,943 | 713,924 | $ 2,499,412 |
Other current assets | 29,600,000 | ||
Assets held for sale | 16,090,898 | 0 | |
Working capital | (32,900,000) | ||
Net (loss) | (17,307,747) | (10,847,379) | |
Convertibles notes payable, net | $ 9,358,100 | $ 6,831,897 |
PROPERTY, PLANT AND EQUIPMENT_2
PROPERTY, PLANT AND EQUIPMENT (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Property, Plant and Equipment [Abstract] | ||
Property, plant and equipment, gross | $ 223,517 | $ 223,517 |
Accumulated depreciation | (108,167) | (55,106) |
Property, plant and equipment, net | $ 115,350 | $ 168,411 |
PROPERTY, PLANT AND EQUIPMENT_3
PROPERTY, PLANT AND EQUIPMENT (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Property, Plant and Equipment [Abstract] | ||
Depreciation expense | $ 53,061 | $ 46,778 |
CRUDE OIL AND NATURAL GAS PRO_3
CRUDE OIL AND NATURAL GAS PROPERTIES (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 | |
Extractive Industries [Abstract] | |||
Proved oil and gas properties | $ 41,017,944 | $ 22,144,336 | |
Unproved oil and gas properties | [1] | 2,055,752 | 1,919,335 |
Wells in progress | [2] | 1,194,114 | 9,858,262 |
Total capitalized costs | 44,267,810 | 33,921,963 | |
Accumulated depletion, depreciation and amortization | (14,395,458) | (2,849,374) | |
Net capitalized costs | $ 29,872,352 | $ 31,072,589 | |
[1] | Unproved oil and gas properties represent unevaluated costs the Company excludes from the amortization base until proved reserves are established or impairment is determined. | ||
[2] | Costs from wells in progress are excluded from the amortization base until production commences. |
CRUDE OIL AND NATURAL GAS PRO_4
CRUDE OIL AND NATURAL GAS PROPERTIES (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Extractive Industries [Abstract] | ||
Exploration costs | $ 580,881 | $ 61,693 |
Development costs | 33,393,215 | 18,771,794 |
Acquisition of properties: | ||
Proved | 164,199 | 0 |
Unproved | 342,982 | 4,049,380 |
Total | $ 34,481,277 | $ 22,882,867 |
CRUDE OIL AND NATURAL GAS PRO_5
CRUDE OIL AND NATURAL GAS PROPERTIES (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
ACQUISITIONS | ||
Depletion, depreciation and amortization | $ 7,067,729 | $ 2,836,891 |
DEBT (Details)
DEBT (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Accretion | $ 6,380,057 | $ 7,666,313 | |
Initial Line Of Credit [Member] | |||
Balance at beginning of period | (5,000,000) | 0 | |
Borrowings | 0 | 0 | |
Repayments | 5,000,000 | 0 | |
Conversions | 0 | 0 | |
Balance at end of period | 0 | (5,000,000) | |
Total, net | 0 | (5,000,000) | $ (5,000,000) |
Initial Line Of Credit [Member] | Warrant [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 0 | 0 | |
Additions | 0 | 0 | |
Accretion | 0 | 0 | |
Ending - Unamortized Debt Issuance Costs | 0 | 0 | |
Initial Line Of Credit [Member] | Original Issuer Discount [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 0 | 0 | |
Additions | 0 | 0 | |
Accretion | 0 | 0 | |
Ending - Unamortized Debt Issuance Costs | 0 | 0 | |
Initial Line Of Credit [Member] | Beneficial Conversion Feature [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 0 | 0 | |
Additions | 0 | 0 | |
Accretion | 0 | 0 | |
Ending - Unamortized Debt Issuance Costs | 0 | 0 | |
Supplemental Line Of Credit [Member] | |||
Balance at beginning of period | (3,552,500) | 0 | |
Borrowings | 0 | 0 | |
Repayments | 3,552,500 | 3,552,500 | |
Conversions | 0 | 0 | |
Balance at end of period | 0 | (3,552,500) | |
Total, net | 0 | (3,552,500) | (7,105,000) |
Supplemental Line Of Credit [Member] | Warrant [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 0 | 0 | |
Additions | 0 | 0 | |
Accretion | 0 | 0 | |
Ending - Unamortized Debt Issuance Costs | 0 | 0 | |
Supplemental Line Of Credit [Member] | Original Issuer Discount [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 0 | 0 | |
Additions | 0 | 0 | |
Accretion | 0 | 0 | |
Ending - Unamortized Debt Issuance Costs | 0 | 0 | |
Supplemental Line Of Credit [Member] | Beneficial Conversion Feature [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 0 | 0 | |
Additions | 0 | 0 | |
Accretion | 0 | 0 | |
Ending - Unamortized Debt Issuance Costs | 0 | 0 | |
Convertible Notes Series A [Member] | |||
Balance at beginning of period | (4,833,200) | (1,942,600) | |
Borrowings | 0 | (8,057,400) | |
Repayments | 0 | 0 | |
Conversions | 200,000 | 5,166,800 | |
Balance at end of period | (4,633,200) | (4,833,200) | |
Total, net | (4,633,200) | (2,319,862) | (5,308) |
Convertible Notes Series A [Member] | Warrant [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 922,081 | 701,827 | |
Additions | 0 | 2,978,791 | |
Accretion | (922,081) | (2,758,537) | |
Ending - Unamortized Debt Issuance Costs | 0 | 922,081 | |
Convertible Notes Series A [Member] | Original Issuer Discount [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 266,509 | 204,703 | |
Additions | 0 | 804,750 | |
Accretion | (266,509) | (742,944) | |
Ending - Unamortized Debt Issuance Costs | 0 | 266,509 | |
Convertible Notes Series A [Member] | Beneficial Conversion Feature [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 1,324,748 | 1,030,762 | |
Additions | 0 | 4,272,867 | |
Accretion | (1,324,748) | (3,978,881) | |
Ending - Unamortized Debt Issuance Costs | 0 | 1,324,748 | |
Convertible Notes Series B [Member] | |||
Balance at beginning of period | (4,724,900) | 0 | |
Borrowings | 0 | (4,724,900) | |
Repayments | 0 | 0 | |
Conversions | 0 | 0 | |
Balance at end of period | (4,724,900) | (4,724,900) | |
Total, net | (4,724,900) | (4,512,035) | 0 |
Convertible Notes Series B [Member] | Warrant [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 0 | 0 | |
Additions | 0 | 0 | |
Accretion | 0 | 0 | |
Ending - Unamortized Debt Issuance Costs | 0 | 0 | |
Convertible Notes Series B [Member] | Original Issuer Discount [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 168,324 | 0 | |
Additions | 0 | 205,211 | |
Accretion | (168,324) | (36,887) | |
Ending - Unamortized Debt Issuance Costs | 0 | 168,324 | |
Convertible Notes Series B [Member] | Beneficial Conversion Feature [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 44,541 | 0 | |
Additions | 0 | 56,500 | |
Accretion | (44,541) | (11,959) | |
Ending - Unamortized Debt Issuance Costs | 0 | 44,541 | |
Secured Credit Facility [Member] | |||
Balance at beginning of period | (5,000,000) | 0 | |
Borrowings | (20,000,000) | (5,000,000) | |
Repayments | 0 | 0 | |
Conversions | 0 | 0 | |
Balance at end of period | (25,000,000) | (5,000,000) | |
Total, net | (20,182,264) | (4,896,565) | $ 0 |
Secured Credit Facility [Member] | Warrant [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 0 | 0 | |
Additions | 1,538,943 | 0 | |
Accretion | (642,797) | 0 | |
Ending - Unamortized Debt Issuance Costs | 896,046 | 0 | |
Secured Credit Facility [Member] | Original Issuer Discount [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 103,435 | 0 | |
Additions | 4,284,416 | 104,871 | |
Accretion | (1,789,664) | (1,436) | |
Ending - Unamortized Debt Issuance Costs | 2,598,187 | 103,435 | |
Secured Credit Facility [Member] | Beneficial Conversion Feature [Member] | |||
Beginning Balance - Unamortized Debt Issuance Costs | 0 | 0 | |
Additions | 2,272,775 | 0 | |
Accretion | (949,372) | 0 | |
Ending - Unamortized Debt Issuance Costs | $ 1,323,403 | $ 0 |
DEBT (Details 1)
DEBT (Details 1) | 12 Months Ended |
Dec. 31, 2018USD ($) | |
Debt | |
Gross proceeds | $ 20,000,000 |
Payment of origination fee | (1,250,000) |
Principal repayment on Initial Line of Credit | (5,000,000) |
Principal repayment on Supplemental Line of Credit | (1,500,000) |
Payment of accrued interest costs | (1,086,808) |
Net cash proceeds | $ 11,163,192 |
DEBT (Details 2)
DEBT (Details 2) | 12 Months Ended |
Dec. 31, 2018USD ($) | |
Debt Details 2Abstract | |
Secured Credit Facility, net of all discounts | $ 16,786,981 |
Make whole premium derivative liability | 14,698 |
Default interest penalty derivative liability | 243,794 |
Registration rights penalty derivative liability | 63,672 |
Share purchase option derivative liability | 1,347,853 |
Stock purchase warrants | 1,538,943 |
Beneficial conversion feature | 2,272,775 |
Legal fees and other | 231,284 |
Subtotal | 22,500,000 |
Origination fee and Underwriting fee | 2,500,000 |
Secured Credit Facility | $ 25,000,000 |
ASSET RETIREMENT OBLIGATION (De
ASSET RETIREMENT OBLIGATION (Details) - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | ||
Activity of asset retirement obligation | |||
Asset retirement obligation, beginning of period | $ 1,123,444 | $ 945,419 | |
Liabilities settled | [1] | (192,996) | (50,163) |
Liabilities incurred | 58,511 | 91,999 | |
Revisions in estimated liabilities | 983,352 | 36,507 | |
Accretion | 117,636 | 99,682 | |
Asset retirement obligation, end of period | 2,089,947 | 1,123,444 | |
Current liability | 843,796 | 288,784 | |
Long-term liability | $ 1,246,151 | $ 834,660 | |
[1] | Reflects liabilities settled through plugging and abandonment activities and divestitures of properties. |
ASSET RETIREMENT OBLIGATION (_2
ASSET RETIREMENT OBLIGATION (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Asset Retirement Obligation Disclosure [Abstract] | ||
Accretion expense | $ 117,636 | $ 99,682 |
ACCOUNTS PAYABLE AND ACCRUED _3
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Payables and Accruals [Abstract] | ||
Trade payables and accrued liabilities | $ 2,093,428 | $ 1,544,112 |
Accrued interest payable | 0 | 876,455 |
Liabilities incurred in connection with acquisition of crude oil and natural gas properties | 22,291,989 | 1,719,785 |
Total | $ 24,385,417 | $ 4,140,352 |
SHAREHOLDERS' EQUITY (Details)
SHAREHOLDERS' EQUITY (Details) | Dec. 31, 2018$ / sharesshares |
Warrants | |
Shares underlying outstanding warrants | 9,088,800 |
Underwriter Warrants [Member] | |
Warrants | |
Shares underlying outstanding warrants | 255,600 |
Warrants exercise price | $ / shares | $ 1.25 |
Investor Warrants [Member] | |
Warrants | |
Shares underlying outstanding warrants | 6,666,600 |
Warrants exercise price | $ / shares | $ 3 |
Placement Agent Warrants [Member] | |
Warrants | |
Shares underlying outstanding warrants | 666,600 |
Warrants exercise price | $ / shares | $ 1.50 |
Secured Credit Facility Warrants [Member] | |
Warrants | |
Shares underlying outstanding warrants | 1,500,000 |
Warrants exercise price | $ / shares | $ 0.01 |
SHAREHOLDERS' EQUITY (Details N
SHAREHOLDERS' EQUITY (Details Narrative) - $ / shares | Dec. 31, 2018 | Dec. 31, 2017 |
Equity [Abstract] | ||
Preferred stock par value | $ 0.01 | $ 0.01 |
Preferred stock shares authorized | 10,000,000 | 10,000,000 |
Preferred stock shares issued | 0 | 0 |
Preferred stock shares outstanding | 0 | 0 |
Common stock par value | $ 0.001 | $ 0.001 |
Common stock shares authorized | 100,000,000 | 100,000,000 |
Common stock shares issued | 28,089,765 | 27,718,802 |
Common stock shares outstanding | 28,089,765 | 27,718,802 |
STOCK-BASED COMPENSATION (Detai
STOCK-BASED COMPENSATION (Details) - $ / shares | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Number of Shares | |||
Outstanding options, beginning of period | 4,997,000 | 4,675,000 | |
Options granted | 790,000 | 422,000 | |
Options exercised | 0 | 0 | |
Options expired | (425,000) | ||
Options forfeited | (325,000) | (100,000) | |
Outstanding options, end of period | 5,037,000 | 4,997,000 | 4,675,000 |
Options exercisable | 4,621,000 | 4,347,500 | 3,010,000 |
Weighted Average Exercise Price | |||
Outstanding, beginning | $ 0.85 | $ 0.76 | |
Granted | 0.93 | 1.86 | |
Exercised | 0 | 0 | |
Expired | 1 | ||
Forfeited | 1.35 | 0 | |
Outstanding, ending | 0.79 | 0.85 | $ 0.76 |
Exercisable | $ 0.75 | $ 0.74 | $ .54 |
Remaining Contractual Term (Years) | |||
Outstanding, beginning | 4 years 5 months 23 days | 5 years 4 months 20 days | |
Outstanding, ending | 3 years 10 months 13 days | 4 years 5 months 8 days | 5 years 4 months 20 days |
Exercisable | 3 years 10 months 10 days | 4 years 5 months 23 days | 5 years 11 months 19 days |
STOCK-BASED COMPENSATION (Det_2
STOCK-BASED COMPENSATION (Details 1) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Risk-free interest rate, minimum | 2.58% | 1.75% |
Risk-free interest rate, maximum | 2.81% | 1.93% |
Expected dividend yield | 0.00% | 0.00% |
Volatility, minimum | 85.00% | 162.00% |
Volatility, maximum | 100.00% | 169.00% |
Forfeited | 0.00% | 0.00% |
Minimum [Member] | ||
Expected option term | 2 years | 2 years 6 months |
Maximum [Member] | ||
Expected option term | 3 years | 3 years 3 months |
STOCK-BASED COMPENSATION (Det_3
STOCK-BASED COMPENSATION (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Disclosure of Compensation Related Costs, Share-based Payments [Abstract] | ||
Stock-based compensation expense | $ 700,000 | $ 1,400,000 |
Unvested share based compensation | $ 100,000 |
PROVISION FOR INCOME TAXES (Det
PROVISION FOR INCOME TAXES (Details) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 |
Deferred tax assets - noncurrent: | ||
NOL carryover | $ 5,385,347 | $ 2,109,423 |
Stock based compensation | 727,631 | 727,631 |
Asset retirement obligation | 515,333 | 277,015 |
Charitable contribution | 814 | 814 |
Allowance for doubtful accounts | 29,321 | 0 |
Total deferred tax assets | 6,658,446 | 3,114,883 |
Deferred tax liabilities - current: | ||
Property and equipment | (9,405) | (15,251) |
Impairment, intangible drilling costs and other exploration costs capitalized | (1,205,247) | (935,482) |
Debt discount - Beneficial conversion feature | (326,321) | (337,518) |
Derivative liabilities | (352,165) | 0 |
Total deferred tax liabilities | (1,893,138) | (1,288,251) |
Net deferred tax assets | 4,765,308 | 1,826,632 |
Valuation allowance | (4,765,308) | (1,826,632) |
Net deferred tax assets | $ 0 | $ 0 |
PROVISION FOR INCOME TAXES (D_2
PROVISION FOR INCOME TAXES (Details 1) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Income Tax Disclosure [Abstract] | ||
Tax at statutory federal rate | $ (3,634,627) | $ (3,688,109) |
Permanent difference | 836,035 | 2,258,353 |
State taxes, net of federal | $ (519,052) | $ (331,474) |
Depletion, depreciation, amortization and impairment | 0.00% | 0.00% |
Change in valuation allowance | $ 3,499,090 | $ 396,256 |
Effect of the Tax Cuts and Jobs Act | 0 | 918,446 |
Other | (181,446) | 446,528 |
Provision (benefit) for income taxes | $ 0 | $ 0 |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Trade payables and accrued liabilities | ||
Related party transactions | $ (2,133,622) | $ (589,496) |
Initial line of credit | ||
Related party transactions | 0 | (5,000,000) |
Senior Secured Credit Facility | ||
Related party transactions | (25,000,000) | (5,000,000) |
Loan commitment fee - Senior Secured Credit Facility | ||
Related party transactions | (1,250,000) | 0 |
Default penalty interest - Senior Secured Credit Facility | ||
Related party transactions | (312,500) | 0 |
Accrued default penalties Senior Secured Credit Facility | ||
Related party transactions | (3,347,874) | 0 |
Participation agreement payable | ||
Related party transactions | (580,881) | 0 |
Accounts receivable | ||
Related party transactions | $ 1,158,213 | $ 204,730 |
RELATED PARTY TRANSACTIONS (D_2
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
Accrued interest | $ 0 | $ 876,455 | |
Accounts payable and accrued liabilities - related party | 7,624,877 | 589,496 | |
Accounts receivable - joint interest billing - related party | 1,158,213 | 204,730 | |
Royalties and revenue distribution payable | 1,800,000 | ||
Participation agreement payable | 600,000 | ||
Series A Convertible Notes | |||
Cash interest payments received | 8,000 | 100,000 | |
Series B Convertible Notes | |||
Cash interest payments received | 100,000 | 100,000 | |
Initial Line Of Credit [Member] | |||
Line of credit outstanding balance | 0 | 5,000,000 | $ 5,000,000 |
Accrued interest | 500,000 | ||
Interest expense, related party | 300,000 | ||
Secured Credit Facility [Member] | |||
Line of credit outstanding balance | 20,182,264 | $ 4,896,565 | $ 0 |
Interest expense, related party | 7,200,000 | ||
Accounts payable and accrued liabilities - related party | $ 1,300,000 |
COMMITMENTS AND CONTINGENCIES_2
COMMITMENTS AND CONTINGENCIES (Details) | Dec. 31, 2018USD ($) |
Commitments and Contingencies Disclosure [Abstract] | |
2019 | $ 133,698 |
2020 | 137,658 |
2021 | 34,662 |
Total | $ 306,018 |
COMMITMENTS AND CONTINGENCIES_3
COMMITMENTS AND CONTINGENCIES (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2018 | Dec. 31, 2017 | |
Commitments and Contingencies Disclosure [Abstract] | ||
Lease expense | $ 100,000 | $ 100,000 |
UNAUDITED CRUDE OIL AND NATUR_3
UNAUDITED CRUDE OIL AND NATURAL GAS RESERVES INFORMATION (Details) | 12 Months Ended | ||
Dec. 31, 2018BoeMcfbbl | Dec. 31, 2017BoeMcfbbl | Dec. 31, 2016Boebbl | |
Proved Reserves: | |||
Balance, beginning of year | 7,844,970 | 6,307,868 | |
Revisions of previous estimates | 266,912 | (300,797) | |
Extensions and discoveries | 77,532 | 2,168,180 | |
Sales of reserves in place | (384,710) | 0 | |
Improved recovery | 0 | 0 | |
Purchase of reserves | 3,988 | 0 | |
Production | (483,870) | (330,281) | |
Balance, end of year | 7,324,822 | 7,844,970 | |
Proved developed reserves (in volume) | 1,534,172 | 740,088 | |
Proved undeveloped reserves (in volume) | 4,414,093 | 6,310,797 | 5,567,780 |
Crude Oil [Member] | |||
Proved Reserves: | |||
Balance, beginning of year | 3,024,202 | 2,761,204 | |
Revisions of previous estimates | 569,936 | (388,211) | |
Extensions and discoveries | 36,858 | 839,738 | |
Sales of reserves in place | (150,554) | 0 | |
Improved recovery | 0 | 0 | |
Purchase of reserves | 678 | 0 | |
Production | (287,984) | (188,529) | |
Balance, end of year | 3,193,136 | 3,024,202 | |
Proved developed reserves (in volume) | 521,354 | 260,284 | |
Proved undeveloped reserves (in volume) | 2,005,151 | 2,502,847 | 2,500,920 |
Natural Gas Reserves [Member] | |||
Proved Reserves: | |||
Balance, beginning of year | Mcf | 15,419,243 | 11,492,855 | |
Revisions of previous estimates | Mcf | 3,444,889 | 292,477 | |
Extensions and discoveries | Mcf | 244,043 | 4,183,757 | |
Sales of reserves in place | Mcf | (820,564) | 0 | |
Improved recovery | Mcf | 0 | 0 | |
Purchase of reserves | Mcf | 18,533 | 0 | |
Production | Mcf | (773,396) | (549,846) | |
Balance, end of year | Mcf | 17,532,748 | 15,419,243 | |
Proved developed reserves (in energy) | Boe | 3,752,330 | 1,788,895 | |
Proved undeveloped reserves (in energy) | Boe | 11,232,632 | 11,666,911 | 9,703,960 |
NGL Sales [Member] | |||
Proved Reserves: | |||
Balance, beginning of year | 2,250,894 | 1,631,188 | |
Revisions of previous estimates | (877,172) | 38,668 | |
Extensions and discoveries | 0 | 631,149 | |
Sales of reserves in place | (97,396) | 0 | |
Improved recovery | 0 | 0 | |
Purchase of reserves | 222 | 0 | |
Production | (66,986) | (50,111) | |
Balance, end of year | 1,209,562 | 2,250,894 | |
Proved developed reserves (in volume) | 387,430 | 181,655 | |
Proved undeveloped reserves (in volume) | 536,837 | 1,863,465 | 1,449,533 |
UNAUDITED CRUDE OIL AND NATUR_4
UNAUDITED CRUDE OIL AND NATURAL GAS RESERVES INFORMATION (Details 1) - USD ($) | Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | Dec. 31, 2015 |
UNAUDITED CRUDE OIL AND NATURAL GAS RESERVES INFORMATION | ||||
Future cash inflows | $ 282,293 | $ 208,459 | $ 148,596 | |
Future cash outflows: | ||||
Production cost | (81,432) | (48,929) | (35,038) | |
Development cost | (53,980) | (58,784) | (37,667) | |
Future income tax | (21,534) | (16,006) | (5,802) | |
Future net cash flows | 125,347 | 84,740 | 70,089 | |
Adjustment to discount future annual net cash flows at 10% | (42,237) | (35,054) | (29,925) | |
Standardized measure of discounted future net cash flows | $ 83,110 | $ 49,686 | $ 40,164 | $ 0 |
UNAUDITED CRUDE OIL AND NATUR_5
UNAUDITED CRUDE OIL AND NATURAL GAS RESERVES INFORMATION (Details 2) - USD ($) | 12 Months Ended | ||
Dec. 31, 2018 | Dec. 31, 2017 | Dec. 31, 2016 | |
UNAUDITED CRUDE OIL AND NATURAL GAS RESERVES INFORMATION | |||
Standardized measure, beginning of year | $ 49,686 | $ 40,164 | $ 0 |
Sales of oil and gas, net of production cost | (18,270) | (9,392) | (126) |
Net change in sales prices, net of production cost | 35,308 | 10,263 | 489 |
Discoveries, extensions and improved recoveries | 1,289 | 11,979 | 76,445 |
Change in future development costs | (2,497) | (4,050) | (37,667) |
Development costs incurred during the period that reduced future development cost | 19,415 | 1,144 | 0 |
Sales of reserves in place | (3,048) | 0 | 0 |
Revisions of quantity estimates | 2,867 | (559) | 0 |
Accretion of discount | 5,908 | 4,275 | 130 |
Net change in income tax | (4,292) | (6,810) | (2,587) |
Purchase of reserves | 15 | 0 | 6,021 |
Changes in timing of rates of production | (3,271) | 2,672 | (2,541) |
Standardized measure, end of year | $ 83,110 | $ 49,686 | $ 40,164 |