Summary of Significant Accounting Policies | 12 Months Ended |
Dec. 31, 2014 |
Accounting Policies [Abstract] | |
Summary of Significant Accounting Policies | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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Principles of Consolidation |
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The accompanying consolidated financial statements include the accounts of Glori Energy Inc. and its wholly-owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. |
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Use of Estimates |
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The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. |
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Cash and Cash Equivalents |
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The Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. |
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Concentrations of Credit Risk |
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The Company maintains its cash in bank deposits with financial institutions. These bank deposits, at times, exceed Federal Deposit Insurance Corporation limits of $250,000 per depositor. The Company monitors the financial condition of the financial institutions and has not experienced any losses on such accounts. The Company is not party to any financial instruments which would have off-balance sheet credit or interest rate risk. |
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The Company derived service revenues from eight customers during 2012, eleven customers during 2013, and fifteen customers during 2014. The following is a reconciliation of the customers that exceeded 10% of total service revenues in each of those periods: |
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| | Percentage of service revenues |
Year ended December 31, |
Customer | | 2012 | | 2013 | | 2014 |
A | | 12 | % | | 14 | % | | * | |
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B | | 16 | % | | * | | | 36 | % |
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C | | 15 | % | | — | | | — | |
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D | | 19 | % | | 20 | % | | 17 | % |
E | | 12 | % | | * | | | — | |
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F | | 11 | % | | — | | | — | |
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G | | * | | | 20 | % | | — | |
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H | | — | | | 16 | % | | — | |
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I | | * | | | — | | | 10 | % |
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J | | — | | | * | | | 10 | % |
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* Revenues were less than 10% for the period. |
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Management does not believe that these customers constitute a significant credit risk. |
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The Company had outstanding receivables related to service revenues from seven customers as of December 31, 2013 and four customers as of December 31, 2014. The following is a reconciliation of the customers that exceeded 10% of total accounts receivable from service revenues as of each of these dates: |
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| | Percentage of outstanding | | | | | |
accounts receivable from service revenues December 31, | | | | | |
Customer | | 2013 | | 2014 | | | | | |
A | | 13% | | — | | | | | |
B | | 10% | | — | | | | | |
D | | 19% | | — | | | | | |
I | | — | | 19% | | | | | |
J | | 20% | | — | | | | | |
K | | — | | 54% | | | | | |
L | | * | | 27% | | | | | |
M | | 23% | | — | | | | | |
* Receivables were less than 10% for the period. |
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Oil and natural gas sales are made on a monthly basis or under short-term contracts at the current area market price. The Company would not expect that the loss of any purchaser would have a material adverse effect upon its operations. Additionally management does not believe any of our purchasers constitute a significant credit risk. For the year ended December 31, 2014, there were two purchasers that accounted for 57% and 39% of total oil revenue. For the years ended December 31, 2012 and 2013, all of the Company’s oil production was bought by a single purchaser. The Company sells its natural gas to a different purchaser than that of its oil sales. Natural gas sales did not exceeded 10% of total oil and gas revenues for the year ended 2014. Prior to 2014, the Company had no natural gas sales. At December 31, 2014, the Company had a $900,000 receivable for December oil sales from a single oil purchaser. |
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The Company also engages in NYMEX swaps with a third party company (See NOTE 8). |
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Accounts Receivable |
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Accounts receivable consists of amounts due in the ordinary course of business, from companies engaged in the exploration of oil and gas and from third party purchasers of the Company's oil and natural gas production. The Company performs ongoing credit evaluation of its customers and generally does not require collateral. Allowances are maintained for potential credit issues as they arise through management’s analysis of factors such as amount of time outstanding, customer payment history and customer financial condition. The Company has incurred inconsequential credit losses since inception. |
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Inventory |
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Inventory is stated at average cost and consists primarily of raw materials in the form of chemicals and finished goods that have been blended as part of the Company’s AERO nutrient system. |
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Oil and Natural Gas Properties |
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The Company follows the successful efforts method of accounting for oil and gas operations whereby the cost to acquire mineral investments in oil and gas properties, to drill successful exploratory wells, to drill and equip development wells and to install production facilities are capitalized. Certain exploration costs, including unsuccessful exploratory wells and geological and geophysical costs, are charged to operations as incurred. The Company’s acquisition and development costs of proved oil and gas properties are amortized using the units-of-production method, at the field level, based on total proved reserves and proved developed reserves as estimated by independent petroleum engineers. |
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Other Property and Equipment |
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Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and depreciated over the remaining useful lives of the associated assets, and repairs and maintenance costs are charged to expense as incurred. When property and equipment are retired or otherwise disposed, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is included in the results of operations for the respective period. |
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Depreciation and amortization for long-lived assets are recognized over the estimated useful lives of the respective assets by the straight-line method as follows: |
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Laboratory and manufacturing facility | | 5 years or the remaining term of the lease, whichever is shorter | | | | | | | |
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Laboratory and field service equipment, office equipment and trucks | | 5 years | | | | | | | |
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Computer equipment | | 3 years | | | | | | | |
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Impairment of Long-Lived Assets |
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The Company reviews the recoverability of its long-lived assets, such as property, equipment and oil and gas properties, when events or changes in circumstances occur that indicate the carrying value of the asset or asset group may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset or asset group from the expected future pre-tax cash flows (undiscounted) of the related operations. Individual assets are grouped for impairment purposes at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows of other groups of assets, generally on a field-by-field basis for oil and gas properties. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. |
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The Company deferred costs incurred for a planned initial public offering (“IPO”) of common stock prior to and during 2012, including legal and other professional fees. The registration statement was withdrawn in 2012 due to market conditions, and as a result, the Company recorded a write-off of the deferred costs of $1,492,000 during 2012. |
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During 2013, the Company had deferred offering costs for a C-1 preferred stock offering initially planned for the fourth quarter 2013. These costs, in the amount of $126,000, were written off as the Company abandoned the offering in pursuit of alternate financing through the Merger (see NOTE 3). |
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The Company impaired its proved-oil and gas properties for the fiscal years ended December 31, 2013 and 2014. The Company uses a discounted future cash flow approach based on the proved and probable reserves at estimated future prices based on the futures commodities prices less regional discounts to calculate the value of the reserves at fiscal year-end to perform the impairment analysis. The write off during the fiscal year ended December 31, 2013 was the result of a decline in proved reserves on the Company’s 2013 fiscal year end reserve report from the 2012 fiscal year end reserve report for the Etzold Field. The decline arose from the Company’s decision to abandon the development of proved undeveloped reserves in the field as results indicated these reserves would be uneconomic to produce. The impairment in 2014 was a result in a sharp decline in oil prices. The reduction in asset value of proved oil and gas properties of $2,190,000 and $13,160,000 represents the impairment amounts incurred in 2013 and 2014, respectively, which are shown as impairment of oil and gas properties on the consolidated statement of operations. |
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Derivatives |
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The Company uses derivative instruments in the form of commodity price swaps to manage price risks resulting from fluctuations in commodity prices of oil associated with future production. These derivative instruments are recorded on the balance sheet at fair value as assets or liabilities and the changes in the fair value of derivatives are recorded each period in current earnings. Fair value is assessed, measured and estimated by obtaining the NYMEX futures oil commodity pricing. Gains and losses on the valuation of derivatives and settlement of matured commodity derivatives contracts are included in gain (loss) on commodity derivatives in other income within the period in which they occur. |
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Asset Retirement Obligation |
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The Company recognizes the present value of the estimated future abandonment costs of its oil and gas properties in both assets and liabilities. If a reasonable estimate of the fair value can be made, the Company will record a liability for legal obligations associated with the future retirement of long-lived assets that result from the acquisition, construction, development and/or normal operation of the assets. The fair value of a liability for an asset retirement obligation is recognized in the period in which the liability is incurred. The fair value is measured using expected future cash outflows (estimated using current prices that are escalated by an assumed inflation rate) discounted at the Company’s credit-adjusted risk-free interest rate. The liability is then accreted each period until it is settled or the asset is sold, at which time the liability is reversed and any gain or loss resulting from the settlement of the obligation is recorded. The initial fair value of the asset retirement obligation is capitalized and subsequently depreciated or amortized as part of the carrying amount of the related asset. The Company has recorded asset retirement obligations related to its oil and gas properties. There are no assets legally restricted for the purpose of settling asset retirement obligations. |
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Financial Instruments |
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Financial instruments consist of cash and cash equivalents, accounts receivable, accounts payables, long-term debt, derivatives, and warrants. The carrying values of cash and cash equivalents and accounts receivable and payables approximate fair value due to their short-term nature. Derivatives are recorded at fair value (see NOTE 7 and NOTE 8). |
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Net Loss Per Share |
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Basic net loss per share is computed using the weighted-average number of shares of common stock outstanding during the period. In periods that have income, basic net earnings per common share is computed under the two-class method per guidance in Accounting Standards Codification (ASC) 260, Earnings per Share. The two-class method is an earnings allocation formula that determines earnings per share for each class of common stock and participating security according to dividends declared (or accumulated) and participation rights in undistributed earnings. Under the two-class method, basic earnings per common share is computed by dividing net earnings attributable to common shares after allocation of earnings to participating securities by the weighted-average number of common shares outstanding during the year. However, in periods of net loss, participating securities other than common stock are not included in the calculation of basic loss per share because there is no contractual obligation for owners of these securities to share in the Company’s losses, and the effect of their inclusion would be anti-dilutive. Diluted earnings (loss) per common share is computed using the two-class method or the if-converted method, whichever is more dilutive (see NOTE 10). |
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Diluted net loss per share is the same as basic net loss per share for all periods presented because any potentially dilutive common shares were anti-dilutive. Such potentially dilutive shares are excluded from the computation of diluted net loss per share when the effect would be to reduce net loss per share. Therefore, in periods when a loss is reported, the calculation of basic and diluted loss per share results in the same value. |
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Revenue Recognition |
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Oil and natural gas revenues are recognized when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectibility of the revenue is probable. Revenues from natural gas production are recorded using the sales method. When sales volumes exceed the Company’s entitled share, production imbalance occurs. If production imbalance exceeds the Company’s share of the remaining estimated proved natural gas reserves for a given property, the Company records a liability. The Company has no significant gas imbalances as of December 31, 2013 and 2014. |
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Service revenues are recognized when all services are concluded in accordance with the contract. The Company’s service contracts typically include a single contract for each phase of service. During the initial phase known as Reservoir Analysis and Treatment Design (the “Analysis Phase”), the Company samples the target field and evaluates project feasibility and nutrient formulation by assessing field characteristics such as geology, microbial environment and geochemistry of the oil and water. The completion of the Analysis Phase contract typically coincides with the delivery of a report of findings to the customer at which point the Analysis Phase revenues are recognized. Once the viability of the AERO System is demonstrated in the Analysis Phase, a new contract is executed for the Field Deployment Phase. During the Field Deployment Phase the AERO System is initiated in the oil field to stimulate the indigenous microbes in the oil bearing reservoir. The Field Deployment Phase revenues are recognized ratably over the Field Deployment Phase injection work timeline. |
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Previous to 2014, the majority of the Company’s revenues for AERO services were executed under a single contract which covered both Analysis Phase and Field Deployment Phase work. The single contract for both services resulted in lack of commercial evidence that the Analysis Phase services provided value on a stand-alone basis and thus both services were viewed as a single unit-of-accounting under ASC 605, Revenue Recognition: Multiple-Element Arrangements. In accordance with this guidance, the Company deferred revenue received in the Analysis Phase and recognize this revenue and the Field Deployment Phase revenue uniformly over the Field Deployment Phase injection timeline. Any termination of the project after the completion of the Analysis Phase would result in the immediate recognition of that portion of the revenues outlined in the contract. |
As of December 31, 2013 and 2014, the Company had deferred revenues of approximately $1,753,000 and $653,000 respectively, pursuant to contracts requiring substantial future performance. |
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Science and Technology |
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The Company expenses all science and technology costs as incurred. The science and technology work performed predominantly relates to the Analysis Phase and the fees are primarily made up of employee compensation, lab supplies and materials, legal fees, and corporate overhead allocations. |
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Income Taxes |
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The Company accounts for income taxes using the asset and liability method wherein deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and to net operating loss carry forwards, measured by enacted tax rates for years in which taxes are expected to be paid, recovered or settled. A valuation allowance is established to reduce deferred tax assets if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. |
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The Company follows ASC 740, Income Taxes (“ASC 740”), which creates a single model to address accounting for the uncertainty in income tax positions and prescribes a minimum recognition threshold a tax position must meet before recognition in the consolidated financial statements. |
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The Company’s tax years 2005 through 2014 remain open and subject to examination by the Internal Revenue Service (“IRS”) and are open for examination until the expiration of statute of limitations under the IRS Code. |
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Stock-Based Compensation |
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Since the initiation of the 2006 Stock Option and Grant Plan, the Company has recorded all share-based payment expense associated with option awards in accordance with ASC 718, Compensation - Stock Compensation. Accordingly, the Company selected the Black-Scholes option-pricing model as the most appropriate method to value option awards and recognizes compensation cost, as determined on the grant date, on a straight-line basis over the option awards’ vesting period. |
Fair Value of Financial Instruments |
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FASB standards define fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The standard also establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value: |
Level 1 – Quoted prices in active markets for identical assets or liabilities. |
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Level 2 – Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; or other inputs that are observable or can be corroborated by observable market data. |
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Level 3 – Unobservable inputs that are supported by little or no market activity and that are financial instruments whose values are determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant judgment or estimation. |
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If the inputs used to measure the financial assets and liabilities fall within more than one level described above, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. |
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Accounting for Sales Tax |
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The Company uses the net method for accounting for sales taxes charged to customers and accordingly does not include sales or similar taxes as revenues; the Company does include sales and similar taxes paid as part of the cost of goods or services acquired. |
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Deferred Offering Costs |
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The Company has capitalized certain costs such as legal fees incurred related to the merger with Infinity Cross Border Acquisition Group (see NOTE 3). |
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Reclassifications |
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Certain 2012 and 2013 amounts related to oil and gas revenues, service revenues, oil and gas operations, service operations and depreciation, depletion and amortization have been reclassified for comparative purposes. |