Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2016 | Oct. 25, 2016 | |
Document And Entity Information | ||
Entity Registrant Name | Yuma Energy, Inc. | |
Entity Central Index Key | 81,318 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2016 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Is Entity a Well-known Seasoned Issuer? | No | |
Is Entity a Voluntary Filer? | No | |
Is Entity's Reporting Status Current? | Yes | |
Entity Filer Category | Smaller Reporting Company | |
Entity Common Stock, Shares Outstanding | 3,775,636 | |
Document Fiscal Period Focus | Q3 | |
Document Fiscal Year Focus | 2,016 |
CONSOLIDATED BALANCE SHEETS (Un
CONSOLIDATED BALANCE SHEETS (Unaudited) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
CURRENT ASSETS: | ||
Cash and cash equivalents | $ 1,831,928 | $ 5,355,191 |
Accounts receivable, net of allowance for doubtful accounts: | ||
Trade | 2,942,948 | 2,829,266 |
Officers and employees | 65,153 | 75,404 |
Other | 338,461 | 633,573 |
Commodity derivative instruments | 1,016,583 | 2,658,047 |
Prepayments | 321,237 | 704,523 |
Other deferred charges | 29,921 | 415,740 |
Total current assets | 6,546,231 | 12,671,744 |
OIL AND GAS PROPERTIES (full cost method): | ||
Not subject to amortization | 15,336,916 | 14,288,716 |
Subject to amortization | 205,331,835 | 204,512,038 |
Subtotal | 220,668,751 | 218,800,754 |
Less: accumulated depreciation, depletion and amortization | (134,312,088) | (117,304,945) |
Net oil and gas properties | 86,356,663 | 101,495,809 |
OTHER PROPERTY AND EQUIPMENT: | ||
Land, buildings and improvements | 2,795,000 | 2,795,000 |
Other property and equipment | 3,497,948 | 3,460,507 |
Total | 6,292,948 | 6,255,507 |
Less: accumulated depreciation and amortization | (2,361,010) | (2,174,316) |
Net other property and equipment | 3,931,938 | 4,081,191 |
OTHER ASSETS AND DEFERRED CHARGES: | ||
Commodity derivative instruments | 177,724 | 1,070,541 |
Deposits | 414,064 | 264,064 |
Other noncurrent assets | 0 | 38,104 |
Total other assets and deferred charges | 591,788 | 1,372,709 |
TOTAL ASSETS | 97,426,620 | 119,621,453 |
CURRENT LIABILITIES: | ||
Current maturities of debt | 29,800,000 | 30,063,635 |
Accounts payable, principally trade | 6,378,942 | 7,933,664 |
Commodity derivative instruments | 74,331 | 0 |
Asset retirement obligations | 243,711 | 70,000 |
Other accrued liabilities | 2,593,813 | 1,781,484 |
Total current liabilities | 39,090,797 | 39,848,783 |
OTHER NONCURRENT LIABILITIES: | ||
Asset retirement obligations | 8,571,895 | 8,720,498 |
Commodity derivative instruments | 4,432 | 0 |
Deferred taxes | 144,700 | 1,417,364 |
Other liabilities | 7,467 | 30,090 |
Total other noncurrent liabilities | 8,728,494 | 10,167,952 |
EQUITY: | ||
Preferred stock | 10,828,603 | 10,828,603 |
Common stock, no par value (300 million shares authorized, 3,628,991 and 3,591,731 issued) | 142,724,775 | 141,858,946 |
Accumulated other comprehensive income (loss) | 0 | 0 |
Accumulated earnings (deficit) | (103,946,049) | (83,082,831) |
Total equity | 49,607,329 | 69,604,718 |
TOTAL LIABILITIES AND EQUITY | $ 97,426,620 | $ 119,621,453 |
CONSOLIDATED BALANCE SHEETS (U3
CONSOLIDATED BALANCE SHEETS (Unaudited) (Parenthetical) - $ / shares | Sep. 30, 2016 | Dec. 31, 2015 |
Statement of Financial Position [Abstract] | ||
Common Stock, No Par Value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized | 300,000,000 | 300,000,000 |
Common Stock, shares, Issued | 3,628,991 | 3,591,731 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
REVENUES: | ||||
Sales of natural gas and crude oil | $ 3,151,626 | $ 4,649,009 | $ 9,207,636 | $ 14,756,582 |
Net gains (losses) from commodity derivatives | 447,936 | 3,893,650 | (407,828) | 3,267,239 |
Total revenues | 3,599,562 | 8,542,659 | 8,799,808 | 18,023,821 |
EXPENSES: | ||||
Lease operating | 1,798,868 | 2,718,919 | 5,692,077 | 9,168,260 |
Re-engineering and workovers | 132,708 | 1,136 | 132,708 | 555,628 |
Marketing cost of sales | 0 | 234,507 | 0 | 434,189 |
General and administrative - stock-based compensation | 189,211 | 338,619 | 909,309 | 2,210,950 |
General and administrative - other | 1,581,619 | 1,873,484 | 5,742,824 | 5,389,859 |
Depreciation, depletion and amortization | 1,711,043 | 3,123,812 | 6,178,248 | 11,020,278 |
Asset retirement obligation accretion expense | 107,760 | 170,209 | 318,016 | 499,766 |
Impairments | 0 | 0 | 11,015,589 | 4,927,508 |
Other | 6,612 | (274,329) | (10,173) | 444,320 |
Total expenses | 5,527,821 | 8,186,357 | 29,978,598 | 34,650,758 |
INCOME (LOSS) FROM OPERATIONS | (1,928,259) | 356,302 | (21,178,790) | (16,626,937) |
OTHER INCOME (EXPENSE): | ||||
Interest expense | (245,359) | (131,114) | (974,403) | (337,499) |
Other, net | 10,745 | 14,055 | 17,311 | 35,521 |
Total other income (expense) | (234,614) | (117,059) | (957,092) | (301,978) |
NET INCOME (LOSS) BEFORE INCOME TAXES | (2,162,873) | 239,243 | (22,135,882) | (16,928,915) |
Income tax expense (benefit) | (47,429) | 329,653 | (1,272,664) | (3,605,839) |
NET INCOME (LOSS) | (2,115,444) | (90,410) | (20,863,218) | (13,323,076) |
PREFERRED STOCK: | ||||
Dividends paid in cash, perpetual preferred Series A | 0 | 320,626 | 0 | 940,315 |
Dividends in arrears, perpetual preferred Series A | 320,625 | 0 | 961,877 | 0 |
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON STOCKHOLDERS | $ (2,436,069) | $ (411,036) | $ (21,825,095) | $ (14,263,391) |
EARNINGS (LOSS) PER COMMON SHARE ADJUSTED FOR OCTOBER 26,2016 1-FOR-20 REVERSE STOCK SPLIT: | ||||
Basic | $ (0.67) | $ (0.11) | $ (6.04) | $ (4.03) |
Diluted | $ (0.67) | $ (0.11) | $ (6.04) | $ (4.03) |
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING ADJUSTED FOR OCTOBER 26, 2016 1-FOR-20 REVERSE STOCK SPLIT: | ||||
Basic | 3,628,683 | 3,580,163 | 3,611,241 | 3,539,755 |
Diluted | 3,628,683 | 3,580,163 | 3,611,241 | 3,539,755 |
CONSOLIDATED STATEMENTS OF COMP
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (Unaudited) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Consolidated Statements Of Comprehensive Income Loss | ||||
NET INCOME (LOSS) | $ (2,115,444) | $ (90,410) | $ (20,863,218) | $ (13,323,076) |
OTHER COMPREHENSIVE INCOME (LOSS): | ||||
Commodity derivatives sold | 0 | 0 | 0 | (119,917) |
Less income taxes | 0 | 0 | 0 | (46,168) |
Commodity derivatives sold, net of income taxes | 0 | 0 | 0 | (73,749) |
Reclassification of loss on settled commodity derivatives | 0 | 9,971 | 0 | 41,525 |
Less income taxes | 0 | 3,839 | 0 | 15,987 |
Reclassification of loss on settled commodity derivatives, net of income taxes | 0 | 6,132 | 0 | 25,538 |
OTHER COMPREHENSIVE INCOME (LOSS) | 0 | 6,132 | 0 | (48,211) |
COMPREHENSIVE LOSS | $ (2,115,444) | $ (84,278) | $ (20,863,218) | $ (13,371,287) |
CONSOLIDATED STATEMENTS OF CHAN
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Unaudited) - USD ($) | PERPETUAL PREFERRED STOCK | COMMON STOCK, NO PAR VALUE: | ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS): | ACCUMULATED EARNINGS (DEFICIT): | Total |
Beginning Balance, Amount at Dec. 31, 2014 | $ 9,958,217 | $ 137,469,772 | $ 38,801 | $ (67,195,800) | $ 80,270,990 |
Beginning Balance, Shares at Dec. 31, 2014 | 507,739 | 3,456,993 | |||
Sales of stock, Amount | $ 870,386 | $ 1,363,160 | 2,233,546 | ||
Sales of stock, shares | 46,857 | 67,373 | |||
Restricted stock awards vested, Amount | $ 3,171,477 | 3,171,477 | |||
Restricted stock awards vested, Shares | 83,806 | ||||
Buy back of shares from vested stock awards, Amount | $ (300,732) | (300,732) | |||
Buy back shares from vested stock awards, Shares | (16,441) | ||||
Stock appreciation rights issued, not vested | $ 155,269 | 155,269 | |||
Comprehensive income (loss) from commodity derivative instruments, net of income taxes | (38,801) | (38,801) | |||
Series A perpetual preferred stock cash dividends | (1,047,191) | (1,047,191) | |||
Net loss | (14,839,840) | (14,839,840) | |||
Ending Balance, Amount at Dec. 31, 2015 | $ 10,828,603 | $ 141,858,946 | 0 | (83,082,831) | 69,604,718 |
Ending Balance, Shares at Dec. 31, 2015 | 554,596 | 3,591,731 | |||
Restricted stock awards vested, Amount | $ 725,573 | 725,573 | |||
Restricted stock awards vested, Shares | 51,929 | ||||
Buy back of shares from vested stock awards, Amount | $ (74,422) | (74,422) | |||
Buy back shares from vested stock awards, Shares | (14,669) | ||||
Stock appreciation rights issued, not vested | $ 214,678 | 214,678 | |||
Net loss | (20,863,218) | (20,863,218) | |||
Ending Balance, Amount at Sep. 30, 2016 | $ 10,828,603 | $ 142,724,775 | $ 0 | $ (103,946,049) | $ 49,607,329 |
Ending Balance, Shares at Sep. 30, 2016 | 554,596 | 3,628,991 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Reconciliation of net loss to net cash provided by (used in) operating activities | ||
Net loss | $ (20,863,218) | $ (13,323,076) |
Impairment of oil and gas properties | 11,015,589 | 0 |
Impairment of goodwill | 0 | 4,927,508 |
Depreciation, depletion and amortization of property and equipment | 6,178,248 | 11,020,278 |
Accretion of asset retirement obligation | 318,016 | 499,766 |
Stock-based compensation net of capitalized cost | 909,309 | 2,210,950 |
Amortization of other assets and liabilities | 518,478 | 209,904 |
Deferred tax expense (benefit) | (1,272,664) | (3,608,239) |
Bad debt expense increase (decrease) | (10,173) | 787,264 |
Unrealized losses on commodity derivatives | 2,613,044 | 1,847,371 |
Other | 0 | (342,944) |
Changes in current operating assets and liabilities: | ||
Accounts receivable | 201,854 | 4,411,640 |
Other current assets | 383,286 | (77,453) |
Accounts payable | (1,471,397) | (13,938,649) |
Other current liabilities | 783,551 | 1,095,356 |
Other noncurrent assets and liabilities | (108,618) | 0 |
NET CASH USED IN OPERATING ACTIVITIES | (804,695) | (4,280,324) |
CASH FLOWS FROM INVESTING ACTIVITIES: | ||
Capital expenditures on property and equipment | (2,588,455) | (11,211,634) |
Proceeds from sale of property | 340,603 | 30,442 |
Decrease in short-term investments | 0 | 1,170,868 |
NET CASH USED IN INVESTING ACTIVITIES | (2,247,852) | (10,010,324) |
CASH FLOWS FROM FINANCING ACTIVITIES: | ||
Change in borrowing on line of credit | 0 | 6,800,000 |
Proceeds from insurance note | 0 | 813,562 |
Payments on insurance note | (263,635) | (579,005) |
Line of credit financing costs | (132,659) | (215,141) |
Net proceeds from sale of common stock | 0 | 1,363,160 |
Net proceeds from sale of perpetual preferred stock | 0 | 870,386 |
Cash dividends to preferred shareholders | 0 | (940,315) |
Common stock purchased from employees | (74,422) | (300,732) |
Other | 0 | (31,485) |
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | (470,716) | 7,780,430 |
NET DECREASE IN CASH AND CASH EQUIVALENTS | (3,523,263) | (6,510,218) |
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD | 5,355,191 | 11,558,322 |
CASH AND CASH EQUIVALENTS AT END OF PERIOD | 1,831,928 | 5,048,104 |
Supplemental disclosure of cash flow information: | ||
Interest payments (net of interest capitalized) | 354,344 | 73,342 |
Interest capitalized | 395,244 | 750,107 |
Supplemental disclosure of significant non-cash activity: | ||
(Increase) decrease in capital expenditures financed by accounts payable | $ 83,325 | $ 2,979,301 |
1. BASIS OF PRESENTATION
1. BASIS OF PRESENTATION | 9 Months Ended |
Sep. 30, 2016 | |
Accounting Policies [Abstract] | |
1. BASIS OF PRESENTATION | These consolidated financial statements are unaudited; however, in the opinion of management, they reflect all adjustments necessary for a fair presentation of the results for the periods reported. All such adjustments are of a normal recurring nature unless disclosed otherwise. The notes to the consolidated financial statements have been condensed and do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. These consolidated financial statements should be read in conjunction with the consolidated financial statements as of and for the year ended December 31, 2015 and the notes thereto included with the Annual Report on Form 10-K/A of Yuma Energy, Inc., a California corporation (the “Company”) filed with the Securities and Exchange Commission (“SEC”) on May 23, 2016. On October 26, 2016, the shareholders of the Company approved, among other proposals, (i) the conversion (the “Series A Conversion”) of the 9.25% Series A Cumulative Redeemable Preferred Stock, no par value per share of the Company (the “Series A Preferred Stock”), into common stock, no par value per share of the Company (the “common stock”), at a rate of 35 shares of common stock for each share of Series A Preferred Stock; (ii) the reincorporation of the Company from California to Delaware pursuant to a merger (the “Reincorporation Merger”) of the Company with and into Yuma Energy, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Yuma Delaware”); and (iii) the merger (the “Merger”) of Yuma Merger Subsidiary, Inc., a Delaware corporation and wholly owned subsidiary of Yuma Delaware (“Merger Subsidiary”), with and into Davis Petroleum Acquisition Corp., a Delaware corporation (“Davis”) with Davis surviving as a wholly owned subsidiary of Yuma Delaware. The Company issued approximately 19,411,000 shares of common stock as a result of the Series A Conversion. Immediately following the Series A Conversion, each share of common stock was exchanged for one-twentieth of one share of common stock, $0.001 par value per share of Yuma Delaware (the “Yuma Delaware Common Stock”) as part of the Reincorporation Merger. The shares outstanding presented in this quarterly report on Form 10-Q have been retroactively adjusted to account for the 1-for-20 reverse stock split. See Note 15 – Subsequent Events, for a discussion of the Reincorporation Merger and the Merger. Restatement Background On May 11, 2016, the Company determined that there were non-cash errors in the computation of its income tax provision and the recording of its deferred taxes related to its asset retirement obligations, its stock based compensation, its allocation of the purchase price in the Pyramid merger and resultant amount of goodwill, the tax amortization of that goodwill, the tax treatment of expenses related to the Pyramid merger, the incorrect roll forward of the historic net operating losses and the difference in the book and tax basis in its properties. As a result, the Company’s computation of its income tax provision and the net amount of its deferred tax liability were restated for the years ended December 31, 2015, 2014 and 2013 and the applicable quarterly periods in 2015 and 2014. As a result, management, the Audit Committee and the Board of Directors determined after consideration of the relevant facts and circumstances, that the Company’s consolidated financial statements as of December 31, 2015 and 2014, and for the years ended December 31, 2015, 2014 and 2013 contained within the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”), and the financial data included in its interim consolidated financial statements set forth in its quarterly reports on Form 10-Q for the quarter ended September 30, 2014, and for all subsequent quarters through the quarter ended December 31, 2015, should be restated, and that such financial statements previously filed with the SEC, should no longer be relied upon. As a result, on May 23, 2016, the Company filed Amendment No. 1 to its Annual Report on Form 10-K for the year ended December 31, 2015 (the “Amended Filing”). Prior period financial information in this Form 10-Q has been amended where necessary to reflect the restatement. Additional information regarding the restatement is contained in the Amended Filing. Therefore, this Form 10-Q should be read in conjunction with the Amended Filing. |
2. LIQUIDITY CONSIDERATIONS AND
2. LIQUIDITY CONSIDERATIONS AND GOING CONCERN | 9 Months Ended |
Sep. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
2. LIQUIDITY CONSIDERATIONS AND GOING CONCERN | The Company has borrowings which require, among other things, compliance with certain financial ratios. Due to operating losses the Company has sustained during recent quarters as a result of the prolonged weak commodity price environment and other factors, the Company was not in compliance with the trailing four quarter funded debt to EBITDA financial ratio covenant under its credit facility at September 30, 2015, December 31, 2015, March 31, 2016, June 30, 2016 and September 30, 2016, its current ratio as of June 30, 2016 and September 30, 2016, as well as its EBITDA to interest expense ratio as of December 31, 2015, March 31, 2016, June 30, 2016 and September 30, 2016. In addition, the Company was not in compliance due to its going concern opinion at March 31, 2016 and June 30,2016 , as well as its failure to maintain a certain financial bank as its principal depository bank. On May 20, 2016, the Company remedied its compliance with regard to the depository bank. On December 30, 2015, the Company’s wholly owned subsidiary, Yuma Exploration and Production Company, Inc. (“Exploration”) entered into the Waiver, Borrowing Base Redetermination and Ninth Amendment (the “Ninth Amendment”) to the credit agreement which provided for a $29.8 million conforming borrowing base, with an automatic reduction to $20.0 million on May 31, 2016, and waived the compliance with the trailing four quarter funded debt to EBITDA and EBITDA to interest expense financial ratio covenants or any other events of default under the credit facility for the quarters ended September 30, 2015 and December 31, 2015. On June 6, 2016 and effective as of May 31, 2016, Exploration entered into the Waiver and Tenth Amendment to the credit agreement as amended by the Waiver and Amendment to the Waiver and Tenth Amendment dated August 25, 2016 (the “Tenth Amendment”), which maintained the borrowing base at $29.8 million and automatically reduced the borrowing base to $20.0 million on the earliest of (i) September 23, 2016, if the registration statement on Form S-4 (the “Form S-4”) filed with the SEC pursuant to the pending Merger Agreement had not been declared effective by such date; (ii) the date that was forty-seven days after the date the Form S-4 had been declared effective by the SEC; (iii) October 31, 2016; and (iv) in the event of the termination of the merger agreement. As of September 30, 2016, the Company had a working capital deficit of $32.5 million inclusive of the Company’s outstanding debt under its credit facility, which was fully drawn with no additional borrowing capacity available. Upon the closing of the Merger discussed in Note 15 – Subsequent Events, the outstanding balance under the credit facility was assumed by Yuma Delaware in a new credit facility. Under the new credit facility, which was entered into in connection with the Merger, Yuma Delaware is in compliance with the credit facility. This new credit facility supersedes the Company’s previous credit agreement and non-compliance matters discussed above. |
3. ACCOUNTING STANDARDS
3. ACCOUNTING STANDARDS | 9 Months Ended |
Sep. 30, 2016 | |
Accounting Standards | |
3. ACCOUNTING STANDARDS | Not Yet Adopted In October 2016, the Financial Accounting Standards Board (“FASB”) issued ASU 2016-16, “Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory,” which requires an entity to recognize the income tax consequences of an intra-entity transfer of an asset other than inventory when the transfer occurs and eliminates the exception for an intra-entity transfer of an asset other than inventory. This ASU is effective for annual and interim periods beginning in 2018 and is required to be adopted using a modified retrospective approach, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Financial Statements. In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which provides clarification on how certain cash receipts and cash payments are presented and classified on the statement of cash flows. This ASU is effective for annual and interim periods beginning in 2018 and is required to be adopted using a retrospective approach if practicable, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact on its Consolidated Statement of Cash Flows. In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which seeks to simplify accounting for share-based payment transactions including income tax consequences, classification of awards as either equity or liabilities, and the classification on the statement of cash flows. The new standard requires the Company to recognize the income tax effects of awards in the income statement when the awards vest or are settled. The guidance is effective for fiscal years beginning after December 15, 2016. Early adoption is permitted and if an entity early adopts the guidance in an interim period, any adjustments must be reflected as of the beginning of the fiscal year that includes that interim period. The Company is currently evaluating the impact of adopting this standard on its Consolidated Financial Statements. In February 2016, the FASB issued ASU 2016-02, “Leases,” a new lease standard requiring lessees to recognize lease assets and lease liabilities for most leases classified as operating leases under previous GAAP. The guidance is effective for fiscal years beginning after December 15, 2018 with early adoption permitted. The Company will be required to use a modified retrospective approach for leases that exist or are entered into after the beginning of the earliest comparative period in the financial statements. The Company is currently evaluating the impact of adopting this standard on its Consolidated Financial Statements. In January 2016, the FASB issued ASU 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities,” which changes certain guidance related to the recognition, measurement, presentation and disclosure of financial instruments. This update is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is not permitted for the majority of the update, but is permitted for two of its provisions. The Company is evaluating the new guidance and has not determined the impact this standard may have on its Consolidated Financial Statements. In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606),” an update which removes inconsistencies in existing standards, changes the way companies recognize revenue from contracts with customers, and increases disclosure requirements. The guidance requires companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. In March 2016, the FASB issued guidance which provides further clarification on the principal versus agent evaluation. The guidance is effective for annual and interim periods beginning after December 15, 2017. The standard is required to be adopted using either the full retrospective approach, with all prior periods presented adjusted, or the modified retrospective approach, with a cumulative adjustment to retained earnings on the opening balance sheet. The Company is currently evaluating the level of effort needed to implement the standard, the impact of adopting this standard on its Consolidated Financial Statements, and whether to use the full retrospective approach or the modified retrospective approach. Recently Adopted In April 2015, the FASB issued ASU 2015-03, “Interest – Imputation of Interest (Subtopic 835-30) – Simplifying the Presentation of Debt Issuance Costs,” an update that requires debt issuance costs to be presented in the balance sheet as a direct reduction from the associated debt liability. In August 2015, the FASB subsequently issued ASU 2015-15, “Interest – Imputation of Interest (Subtopic 835-30) – Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements,” a clarification as to the handling of debt issuance costs related to line-of-credit arrangements that allows the presentation of these costs as an asset. The standards update is effective for interim and annual periods beginning after December 15, 2015. The Company has debt costs associated with its line-of-credit only; therefore, this standard had no impact on its Consolidated Financial Statements. These costs remain an asset on the Company’s Balance Sheet. In February 2015, the FASB issued ASU 2015-02, “Consolidation (Topic 810) – Amendments to the Consolidation Analysis,” an amendment to the guidance for determining whether an entity is a variable interest entity (“VIE”). The standard does not add or remove any of the five characteristics that determine if an entity is a VIE. However, it does change the manner in which a reporting entity assesses one of the characteristics. In particular, when decision-making over the entity’s most significant activities has been outsourced, the standard changes how a reporting entity assesses if the equity holders at risk lack decision making rights. This standard is effective for the Company for annual periods beginning after December 15, 2015 and early adoption is permitted, including in interim periods. The Company adopted this standard’s update, as required, effective January 1, 2016. The adoption of this standard’s update did not have a material impact on its Consolidated Financial Statements. |
4. FAIR VALUE MEASUREMENTS
4. FAIR VALUE MEASUREMENTS | 9 Months Ended |
Sep. 30, 2016 | |
Fair Value Disclosures [Abstract] | |
4. FAIR VALUE MEASUREMENTS | Certain financial instruments are reported at fair value on the Consolidated Balance Sheets. Under fair value measurement accounting guidance, fair value is defined as the amount that would be received from the sale of an asset or paid for the transfer of a liability in an orderly transaction between market participants, i.e., an exit price. To estimate an exit price, a three-level hierarchy is used. The fair value hierarchy prioritizes the inputs, which refer broadly to assumptions market participants would use in pricing an asset or a liability, into three levels. The Company uses a market valuation approach based on available inputs and the following methods and assumptions to measure the fair values of its assets and liabilities, which may or may not be observable in the market. Fair Value of Financial Instruments (other than Commodity Derivatives, see below) Derivatives Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques, and at least one significant model assumption or input is unobservable. Fair value measurements at September 30, 2016 Significant Quoted prices other Significant in active observable unobservable markets inputs inputs (Level 1) (Level 2) (Level 3) Total Assets: Commodity derivatives – oil $ - $ 1,194,307 $ - $ 1,194,307 Liabilities: Commodity derivatives – gas $ - $ 78,763 $ - $ 78,763 Fair value measurements at December 31, 2015 Significant Quoted prices other Significant in active observable unobservable markets inputs inputs (Level 1) (Level 2) (Level 3) Total Assets: Commodity derivatives – oil $ - $ 3,442,693 $ - $ 3,442,693 Commodity derivatives – gas - 285,895 - 285,895 Total assets $ - $ 3,728,588 $ - $ 3,728,588 Derivative instruments listed above include swaps, reverse swaps and three-way collars. For additional information on the Company’s derivative instruments and derivative liabilities, see Note 5 – Commodity Derivative Instruments. Debt Asset Retirement Obligations (“AROs”) |
5. COMMODITY DERIVATIVE INSTRUM
5. COMMODITY DERIVATIVE INSTRUMENTS | 9 Months Ended |
Sep. 30, 2016 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
5. COMMODITY DERIVATIVE INSTRUMENTS | Objective and Strategies for Using Commodity Derivative Instruments While these instruments mitigate the cash flow risk of future reductions in commodity prices, they may also curtail benefits from future increases in commodity prices. The Company elected to discontinue hedge accounting for all commodity derivative instruments beginning with the 2013 financial year. The balance in other comprehensive income (“OCI”) at year-end 2012 remained in accumulated other comprehensive income (“AOCI”) until the original hedged forecasted transaction occurred. The last of these contracts expired in December 2015 and the Company’s AOCI balance is now zero. No mark-to-market adjustments for commodity derivative contracts are made to AOCI, but instead are recognized in earnings. As a result of discontinuing the application of hedge accounting, the Company’s earnings are potentially more volatile. See Note 4 – Fair Value Measurements for a discussion of methods and assumptions used to estimate the fair values of the Company’s commodity derivative instruments. Counterparty Credit Risk Commodity derivative instruments open as of September 30, 2016 are provided below. Natural gas prices are New York Mercantile Exchange (“NYMEX”) Henry Hub prices, 2016 crude oil prices are Argus Light Louisiana Sweet (“LLS”), and 2017 crude oil prices are NYMEX West Texas Intermediate (“WTI”). 2016 2017 Settlement Settlement NATURAL GAS (MMBtu): Swaps Volume 105,475 - Price $ 2.646 * - 3-way collars Volume - 248,023 Ceiling sold price (call) - $ 3.280 * Floor purchased price (put) - $ 2.946 * Floor sold price (short put) - $ 2.381 * CRUDE OIL (Bbls): Put spread Volume 31,547 - Floor purchased price (put) $ 62.27 - Floor sold price (short put) $ 40.00 - 3-way collars Volume 10,630 113,029 Ceiling sold price (call) $ 47.15 $ 77.00 Floor purchased price (put) $ 40.00 $ 60.00 Floor sold price (short put) $ 30.00 $ 45.00 *Price is a weighted average Derivatives for each commodity are netted on the Consolidated Balance Sheets as they are all contracts with the same counterparty. The following table presents the fair value and balance sheet location of each classification of commodity derivative contracts on a gross basis without regard to same-counterparty netting: Fair value as of September 30, December 31, 2016 2015 Asset commodity derivatives: Current assets $ 1,420,921 $ 3,069,115 Noncurrent assets 326,656 1,841,120 1,747,577 4,910,235 Liability commodity derivatives: Current liabilities (478,669 ) (411,068 ) Noncurrent liabilities (153,364 ) (770,579 ) (632,033 ) (1,181,647 ) Total commodity derivative instruments $ 1,115,544 $ 3,728,588 Sales of natural gas and crude oil on the Consolidated Statements of Operations are comprised of the following: Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Sales of natural gas and crude oil $ 3,151,626 $ 4,649,009 $ 9,207,636 $ 14,756,582 Gain realized from sale of commodity derivatives - - - 4,030,000 Other gains (losses) realized on commodity derivatives 488,409 432,825 2,205,216 1,084,610 Unrealized gains (losses) on commodity derivatives (40,473 ) 3,460,825 (2,613,044 ) (1,847,371 ) Total revenue from natural gas and crude oil $ 3,599,562 $ 8,542,659 $ 8,799,808 $ 18,023,821 A reconciliation of the components of accumulated other comprehensive income (loss) in the Consolidated Statements of Changes in Equity is presented below: Nine Months Ended Year Ended September 30, 2016 December 31, 2015 Before tax After tax Before tax After tax Balance, beginning of period $ - $ - $ 63,091 $ 38,801 Sale of unexpired contracts previously subject to hedge accounting rules - - (119,917 ) (73,749 ) Other reclassifications due to expired contracts previously subject to hedge accounting rules - - 56,826 34,948 Balance, end of period $ - $ - $ - $ - |
6. ASSET IMPAIRMENTS
6. ASSET IMPAIRMENTS | 9 Months Ended |
Sep. 30, 2016 | |
Asset Impairments | |
6. ASSET IMPAIRMENTS | Oil and natural gas prices have remained low in the first three quarters of 2016 and, as a result, the Company recognized a non-cash asset impairment charge of $11,015,589 to write down oil and gas properties for the three months ended June 30, 2016. In addition, the Company recognized a non-cash asset impairment of $4,927,508 to write off goodwill for the three months ended June 30, 2015. The Company did not incur an impairment for the three months ended September 30, 2016. |
7. PREFERRED STOCK
7. PREFERRED STOCK | 9 Months Ended |
Sep. 30, 2016 | |
Preferred stock [Abstract] | |
7. PREFERRED STOCK | The Company’s shares of 9.25% Series A Cumulative Redeemable Preferred Stock, no par value per share, with a liquidation preference of $25.00 per share (the “Series A Preferred Stock”), traded on the NYSE MKT under the symbol “YUMAprA” prior to the Series A Conversion. Holders of the Series A Preferred Stock were entitled to receive, when, as and if declared by the Board of Directors, cumulative dividends at the rate of 9.25% per annum (the dividend rate) based on the liquidation price of $25.00 per share of the Series A Preferred Stock, payable monthly in arrears on each dividend payment date, with the first payment date of December 1, 2014. The Series A Preferred Stock is presented in the permanent equity section of the financial statements. Due to the current depressed commodity price environment, as well as other factors which have adversely affected the Company’s cash flows and liquidity, the monthly dividends on the Series A Preferred Stock were suspended beginning with the month ended November 30, 2015. Pursuant to the Company’s credit facility, the Company was precluded from making dividend payments on its Series A Preferred Stock. The Company’s articles of incorporation as of September 30, 2016 provided that any unpaid dividends will accumulate. While the accumulation did not result in presentation of a liability on the balance sheet, the accumulated dividends were deducted from the Company’s net income (or added to its net loss) in the determination of income (loss) attributable to common shareholders and, as appropriate, the corresponding computation of earnings (loss) per share. As of September 30, 2016, the Company had accumulated a total of $1,175,628 in unpaid preferred stock dividends, attributable to the Series A Preferred Stock. As part of the Reincorporation Merger, the Series A Preferred Stock, including all of the accumulated and unpaid dividends, was converted into common stock. See Note 15 – Subsequent Events for additional information. |
8. EARNINGS (LOSS) PER COMMON S
8. EARNINGS (LOSS) PER COMMON SHARE | 9 Months Ended |
Sep. 30, 2016 | |
EARNINGS (LOSS) PER COMMON SHARE ADJUSTED FOR OCTOBER 26,2016 1-FOR-20 REVERSE STOCK SPLIT: | |
8. EARNINGS (LOSS) PER COMMON SHARE | Earnings (loss) per common share is computed by dividing earnings or losses attributable to common stockholders by the weighted average number of shares of common stock outstanding during the period. Potential common stock equivalents are determined using the “if converted” method. Potentially dilutive securities for the computation of diluted weighted average shares outstanding (adjusted for the 1-for-20 reverse stock split as described in Note 15 – Subsequent Events) are as follows: Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Restricted Stock Awards 74,261 78,716 99,315 68,691 Restricted Stock Units - 4,771 - 4,771 74,261 83,487 99,315 73,462 For the three months ended September 30, 2016 and the three months ended September 30, 2015, adjusted earnings were losses, therefore common stock equivalents were excluded from the calculation of diluted net loss per share of common stock, as their effect was anti-dilutive. RSUs were settled in cash during April 2016 and are therefore no longer potentially dilutive. |
9. DEBT AND INTEREST EXPENSE
9. DEBT AND INTEREST EXPENSE | 9 Months Ended |
Sep. 30, 2016 | |
Debt Disclosure [Abstract] | |
9. DEBT AND INTEREST EXPENSE | September 30, December 31, 2016 2015 Variable rate revolving credit agreement payable to Société Générale, CIT Bank, NAC, and LegacyTexas Bank, maturing October 31, 2017, secured by the stock of Exploration and its interest in POL, and guaranteed by The Yuma Companies, Inc. $ 29,800,000 $ 29,800,000 Installment loan due February 29, 2016, originating from the financing of insurance premiums at 3.74% interest rate. - 108,894 Installment loan due June 11, 2016, originating from the financing of insurance premiums at 3.76% interest rate. - 154,741 29,800,000 30,063,635 Less: current portion (29,800,000 ) (30,063,635 ) Total long-term debt $ - $ - The Company has borrowings which require, among other things, compliance with certain financial ratios. Due to operating losses the Company has sustained during recent quarters as a result of the prolonged weak commodity price environment and other factors, the Company was not in compliance with the trailing four quarter funded debt to EBITDA financial ratio covenant under its credit facility at September 30, 2015, December 31, 2015, March 31, 2016, June 30, 2016 and September 30, 2016, its current ratio as of June 30, 2016 and September 30, 2016, as well as its EBITDA to interest expense ratio as of December 31, 2015, March 31, 2016, June 30, 2016 and September 30, 2016. In addition, the Company was not in compliance due to its going concern opinion at March 31, 2016 and June 30, 2016, as well as its failure to maintain a certain financial bank as its principal depository bank. On May 20, 2016, the Company remedied its compliance with regard to the depository bank. On December 30, 2015, Exploration entered into the Ninth Amendment to the credit agreement which provided for a $29.8 million conforming borrowing base, with an automatic reduction to $20.0 million on May 31, 2016, and waived the compliance with the trailing four quarter funded debt to EBITDA and EBITDA to interest expense financial ratio covenants or any other events of default under the credit facility for the quarters ended September 30, 2015 and December 31, 2015. On June 6, 2016 and effective as of May 31, 2016, Exploration entered into the Tenth Amendment as amended on August 25, 2016,, which maintained the borrowing base at $29.8 million and automatically reduced the borrowing base to $20.0 million on the earliest of (i) September 23, 2016, if the Form S-4 filed with the SEC pursuant to the pending Merger Agreement had not been declared effective by such date; (ii) the date that was forty-seven days after the date the Form S-4 had been declared effective by the SEC; (iii) October 31, 2016; and (iv) in the event of the termination of the merger agreement. As of September 30, 2016, the Company had a working capital deficit of $32.5 million inclusive of the Company’s outstanding debt under its credit facility, which was fully drawn with no additional borrowing capacity available. Upon the closing of the Merger discussed in Note 15 – Subsequent Events, the outstanding balance under the credit facility was assumed by Yuma Delaware in a new credit facility. Under the new credit facility, which was entered into in connection with the Merger, Yuma Delaware is in compliance with the credit facility. This new credit facility supersedes the Company’s previous credit agreement and non-compliance matters discussed above. The following summarizes interest expense for the three and nine months ended September 30, 2016 and 2015. Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Credit agreement $ 323,735 $ 314,177 $ 841,112 $ 835,584 Credit agreement commitment fees - 6,301 - 31,460 Amortization of credit agreement loan costs 60,489 73,146 518,479 209,903 Insurance installment loan - 4,400 1,961 9,597 Other interest charges 3,066 39 8,095 1,062 Capitalized interest (141,931 ) (266,949 ) (395,244 ) (750,107 ) Total interest expense $ 245,359 $ 131,114 $ 974,403 $ 337,499 |
10. MERGER WITH PYRAMID OIL COM
10. MERGER WITH PYRAMID OIL COMPANY AND GOODWILL | 9 Months Ended |
Sep. 30, 2016 | |
Business Combinations [Abstract] | |
10. MERGER WITH PYRAMID OIL COMPANY AND GOODWILL | On September 10, 2014, a wholly owned subsidiary of Pyramid merged with and into Yuma Energy, Inc., a Delaware corporation (“Yuma Co.”), in exchange for 66,336,701 shares of common stock (prior to the 1-for-20 reverse stock split as described in Note 15 – Subsequent Events) and Pyramid changed its name to “Yuma Energy, Inc.” (the “Pyramid merger”). As a result of the Pyramid merger, the former Yuma Co. stockholders received approximately 93% of the then outstanding common stock of the Company and thus acquired voting control. Although the Company was the legal acquirer, for financial reporting purposes the Pyramid merger was accounted for as a reverse acquisition of Pyramid by Yuma Co. The transaction qualified as a tax-deferred reorganization under Section 368(a) of the Internal Revenue Code of 1986, as amended (the “Code”). The Pyramid merger was accounted for as a business combination in accordance with ASC 805 Business Combinations (“ASC 805”). ASC 805, among other things, requires assets acquired and liabilities assumed to be measured at their acquisition date fair values. Goodwill represents the excess of the purchase price over the estimated fair value of the assets acquired net of the fair value of liabilities assumed in an acquisition. Certain assets and liabilities may be adjusted as additional information is obtained; but no later than one year from the acquisition date. The provisions of ASC 350, on Intangibles – Goodwill and Other require that intangible assets with indefinite lives, including goodwill, be evaluated on an annual basis for impairment, or more frequently if events occur or circumstances change that could potentially result in impairment. The goodwill impairment test requires the allocation of goodwill and all other assets and liabilities to reporting units; however, the Company has only one reporting unit. The drop in crude oil prices and the resulting decline in the Company’s common share price since the Pyramid merger caused the Company to test goodwill for impairment at June 30, 2015. Goodwill was determined to be fully impaired and as a result, the balance of $4,927,508 was written off at that time. |
11. INCOME TAXES
11. INCOME TAXES | 9 Months Ended |
Sep. 30, 2016 | |
Income Tax Disclosure [Abstract] | |
11. INCOME TAXES | The following summarizes the income tax expense (benefit) and effective tax rates: Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Consolidated net income (loss) before income taxes $ (2,162,873 ) $ 239,243 $ (22,135,882 ) $ (16,928,915 ) Income tax expense (benefit) (47,429 ) 329,653 (1,272,664 ) (3,605,839 ) Effective tax rate 2.2 % 138 % 5.7 % 21.3 % The differences between the U.S. federal statutory rate of 34% and the Company’s effective tax rates for the three and nine months ended September 30, 2016 and 2015 are due primarily to state taxes and nondeductible expenses. In addition, September 30, 2016 was impacted by the expected valuation allowance on our deferred tax asset at year-end, which affected our expected annual effective tax rate and the tax effect of nondeductible stock compensation. The Company knows of no uncertain tax positions and has no unrecognized tax benefits for the nine months ended September 30, 2016 or September 30, 2015. Valuation allowances are established when the Company determines it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. As of September 30, 2016, the Company anticipates that it will have a net deferred tax asset at year-end 2016, for which a valuation allowance will be required. The Company has considered the effect of the valuation allowance in the current period in determining its expected annual effective tax rate to record tax expense for the period ending September 30, 2016. No valuation allowance was established as of September 30, 2015. |
12. CONTINGENCIES
12. CONTINGENCIES | 9 Months Ended |
Sep. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
12. CONTINGENCIES | Certain Legal Proceedings From time to time, the Company is party to various legal proceedings arising in the ordinary course of business. While the outcome of lawsuits cannot be predicted with certainty, the Company is not currently a party to any proceeding that it believes, if determined in a manner adverse to the Company, could have a potential material adverse effect on its financial condition, results of operations, or cash flows. Amanda Olivier, et al. v. Nabors Drilling USA, L.P., and Yuma Exploration and Production, Inc. On July 9, 2014, Nabors Drilling USA, L.P. and other Nabors entities and Yuma Energy, Inc. and several of its wholly owned subsidiaries were named in a lawsuit filed in the District Court of Harris County, Texas, in the 80th Judicial District, concerning the death of an employee of Timco Services during the drilling of the Crosby 12-1 well. All of the Yuma-related entities, except for Yuma Exploration and Production, Inc., were voluntarily dismissed from the lawsuit by the Plaintiffs. The Company has tendered its defense to its liability insurance carriers who are responding. There has been one unsuccessful mediation session. Depositions are still ongoing. Defense counsel intends to file a motion seeking dismissal of the claims against Exploration, which is currently being finalized. Management believes that the Company is not liable, and has adequate insurance to meet any potential claim from this suit. Ontiveros v. Pyramid Oil, LLC, Yuma Energy, Inc. et al In September 2015, a suit was filed against the Company and Pyramid Oil LLC styled Mark A. Ontiveros and Louise D. Ontiveros, Trustees of The Ontiveros Family Trust dated March 29, 2007 vs. Pyramid Oil, LLC, et al., Case Number 15CV02959 in the Superior Court of California, County of Santa Barbara, Cook Division. In the suit, the plaintiffs allege that the 1950 Community Oil and Gas Lease between them and Pyramid Oil LLC has expired by non-production. The Company claims that the lease is still in effect, as there is no cessation of production time frame set out in the lease; production had temporarily ceased, but was still profitable when measured over an appropriate time period; and the Company was conducting workover operations on a well on the lease in an effort to re-establish production when served with the quit claim deed demand from the plaintiff’s attorney. All present owners of the minerals covered by the 1950 Community Oil and Gas Lease, with the exception of the plaintiffs, have executed amendments signifying their concurrence that the 1950 Community Oil and Gas Lease is still in force and effect. On June 23, 2016, Pyramid Oil LLC filed a First Amended Cross Complaint against Texican Energy Corporation and Everett Lawley alleging interference with contractual relations and prospective economic relations, and violation of the California Uniform Trade Secrets Act. The parties are presently in the process of document discovery. Yuma Energy, Inc. v. Cardno PPI Technology Services, LLC Arbitration On May 20, 2015, counsel for Cardno PPI Technology Services, LLC (“Cardno PPI”) sent a notice of the filing of liens totaling $304,209 on the Company’s Crosby 14 No. 1 Well and Crosby 14 SWD No. 1 Well in Vernon Parish, Louisiana. The Company disputed the validity of the liens and of the underlying invoices, and notified Cardno PPI that applicable credits had not been applied. The Company invoked mediation on August 11, 2015 on the issues of the validity of the liens, the amount due pursuant to terms of the parties’ Master Service Agreement (“MSA”), and PPI Cardno’s breaches of the MSA. Mediation was held on April 12, 2016; no settlement was reached. On May 12, 2016, Cardno filed a lawsuit in Louisiana state court to enforce the liens; the Court entered an Order Staying Proceeding on June 13, 2016, ordering that the lawsuit “be stayed pending mediation/arbitration between the parties.” On June 17, 2016, the Company served a Notice of Arbitration on Cardno PPI, stating claims for breach of the MSA billing and warranty provisions. On July 15, 2016, Cardno PPI served a Counterclaim for $304,209 plus attorneys’ fees. The parties are currently engaged in the arbitrator selection process. Management intends to pursue the Company’s claims and to defend the counterclaim vigorously. Environmental Remediation Contingencies As of September 30, 2016, there were no known environmental or other regulatory matters related to the Company’s operations that were reasonably expected to result in a material liability to the Company. The Company’s operations are subject to numerous laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Board of Commissioners of the Southeast Louisiana Flood Protection Authority-East, et al. v. Tennessee Gas Pipeline Company, LLC, et al. Exploration, a subsidiary of the Company, has been named as one of 97 defendants in a matter entitled Board of Commissioners of the Southeast Louisiana Flood Protection Authority – East, Individually and As the Board Governing the Orleans Levee District, the Lake Borgne Basin Levee District, and the East Jefferson Levee District v. Tennessee Gas Pipeline Company, LLC, et al., Civil District Court for the Parish of Orleans, State of Louisiana, No. 13-6911, Division “J” - 5, now removed as Civil Action No. 13-5410, before the United States District Court, Eastern District of Louisiana. Plaintiff filed the suit on July 24, 2013 seeking damages and injunctive relief arising out of defendants’ drilling, exploration, and production activities from the early 1900s to the present day in coastal areas east of the Mississippi River in Southeast Louisiana. The suit alleges that defendants’ activities have caused “removal, erosion, and submergence” of coastal lands resulting in significant reduction or loss of the protection such lands afforded against hurricanes and tropical storms. Plaintiff alleges that it now faces increased costs to maintain and operate the man-made hurricane protection system and may reach the point where that system no longer adequately protects populated areas. Plaintiff lists hundreds of wells, pipelines, and dredging events as possible sources of the alleged land loss. Exploration is named in association with 11 wells, four rights-of-way, and one dredging permit. The suit does not specify any deficiency or harm caused by any individual activity or facility. Although the suit references various federal statutes as sources of standards of care, plaintiff claims that all causes of action arise under state law: negligence, strict liability, natural servitude of drain, public nuisance, private nuisance, and as third-party beneficiary under breach of contract. The Company tendered its defense to its liability insurance carriers, who are responding. On February 13, 2015, the federal judge adjudicating the matter granted defendants “Joint Motion to Dismiss for Failure to State a Claim Under Rule 12(b)(6)”, thereby dismissing plaintiff’s claims with prejudice in the matter. On February 20, 2015, the Board of Orleans filed a notice of appeal to the U.S. Fifth Circuit. On February 29, 2016, oral arguments were held regarding the appeal, but as of July 31, 2016, no ruling on the appeal has been made. The Company will continue to contest plaintiff’s legal arguments and factual assertions. At this point in the legal process, no evaluation of the likelihood of an unfavorable outcome or associated economic loss can be made; therefore no liability has been recorded on the Company’s books. Vintage Assets, Inc. v. Tennessee Gas Pipeline, L.L.C. et al. On October 24, 2016, Texas Southeastern Gas Gathering Company (“TGG”), a subsidiary of the Company, was named as a defendant in an action by Vintage Assets, Inc. in the United States District Court for the Eastern District of Louisiana. Vintage claims that its property, located in Plaquemines Parish, has been damaged by the widening of canals used by the defendants. Between 1953 and 1970, the defendants’ predecessors received multiple right-of-way servitudes on Vintage’s property, which authorized the construction and operation of pipelines and dredge canals. The defendants dredged canals and laid pipelines pursuant to the rights of way agreements. Vintage alleges that its property has suffered damage because of defendants’ failure to maintain the pipeline canals and banks. Further Vintage alleges that this failure has caused ecological damages and loss of acreage due to erosion. The action is currently scheduled for trial in September 2017. Management intends to defend the plaintiffs’ claims vigorously and has notified its insurance carrier of the claim. TGG sold all of its assets to High Point Gas Gathering in 2010. At this point in the legal process, no evaluation of the likelihood of an unfavorable outcome or associated economic loss can be made; therefore no liability has been recorded on the Company’s books. The Parish of St. Bernard v. Atlantic Richfield Co., et al On October 13, 2016, two subsidiaries of the Company, Exploration and Yuma Petroleum Company (“YPC”), were named as defendants, among several other defendants, in an action by the Parish of St. Bernard in the Thirty-Fourth Judicial District of Louisiana. The petition alleges violations of the State and Local Coastal Resources Management Act of 1978, as amended, in the St. Bernard Parish. The Company has notified its insurance carrier of the lawsuit. Management intends to defend the plaintiffs’ claims vigorously. At this point in the legal process, no evaluation of the likelihood of an unfavorable outcome or associated economic loss can be made; therefore no liability has been recorded on the Company’s books. Audits Louisiana, et al. Escheat Tax Audits The States of Louisiana, Texas, Minnesota, North Dakota and Wyoming have notified the Company that they will examine the Company’s books and records to determine compliance with each of the examining state’s escheat laws. The review is being conducted by Discovery Audit Services, LLC. The Company has engaged Ryan, LLC to represent it in this matter. The exposure related to the audits is not currently determinable. Louisiana Severance Tax Audit The State of Louisiana, Department of Revenue, notified Exploration that it was auditing Exploration’s calculation of its severance tax relating to Exploration’s production from November 2012 through March 2016. The audit relates to the Department of Revenue’s recent interpretation of long-standing oil purchase contracts to include a disallowable “transportation deduction,” and thus to assert that the severance tax paid on crude oil sold during the contract term was not properly calculated. Exploration is currently waiting on the Department of Revenue’s final audit results. The exposure related to this audit is not currently determinable. |
13. GREATER MASTERS CREEK FIELD
13. GREATER MASTERS CREEK FIELD AREA | 9 Months Ended |
Sep. 30, 2016 | |
Greater Masters Creek Field Area | |
13. GREATER MASTERS CREEK FIELD AREA | During the first quarter of 2016, the Company shut-in 14 Austin Chalk wells in Beauregard, Rapides and Vernon Parishes, Louisiana due to low oil and natural gas prices. Since production was not restarted from these wells, the associated leases have expired, reducing the Company’s proved reserves from year-end 2015 by approximately 1,629 MBoe, acreage by 22,021 gross (18,140 net) acres, operated proved undeveloped locations by three, and operated non-proved undeveloped locations by seven. In addition, during the first quarter of 2016, the Company received notice from the operator of certain wells in Rapides and Vernon Parishes, Louisiana, that certain wells in which the Company has an interest were shut-in due to current economic conditions. The operator has since sold its interest. The subsequent operator has not restarted production from eight of these wells, and the leases associated with the shut-in wells have expired, reducing the Company’s acreage by 4,686 gross (1,389 net) acres. In April 2016, a party to the participation agreement dated July 31, 2013 relating to the Company’s Greater Masters Creek Area exercised its option to participate under the participation agreement for a four percent working interest. On April 4, 2016, the Company entered into an amendment effective March 1, 2016 to an oil and gas lease in the Greater Masters Creek Field area with a certain mineral owner for acreage that was not held by production as of March 31, 2016. The total acreage is approximately 25,139 acres and, by virtue of the Company conducting certain location clean-up operations, the lease has now been extended until December 31, 2016. This extension is subject to certain additional performance criteria, including the posting of a bond to cover P&A costs for wells located on this mineral owner’s property, and plugging and abandoning six of the mineral owner’s wells by December 31, 2016 at an estimated net cost of $426,000. The lease may be extended until June 30, 2017 by paying a rental of $628,450, or by spudding a new well before December 31, 2016. If the leased acreage expires, the Company’s proved reserves from year-end 2015 would be reduced by approximately 5,096 MBoe, the number of operated proved undeveloped locations and operated non-proved locations would be reduced by 13 and 16, respectively. |
14. TEXAS SOUTHEASTERN GAS MARK
14. TEXAS SOUTHEASTERN GAS MARKETING COMPANY | 9 Months Ended |
Sep. 30, 2016 | |
Texas Southeastern Gas Marketing Company | |
14. TEXAS SOUTHEASTERN GAS MARKETING COMPANY | As of January 1, 2016, the Company decided to discontinue the operations of Texas Southeastern Gas Marketing Company due to the limited volumes of natural gas that it marketed, as well as the costs associated with accounting for the entity. Texas Southeastern Gas Marketing Company is not a significant subsidiary, and this discontinuation of operations does not represent a strategic shift in business for the Company. |
15. SUBSEQUENT EVENTS
15. SUBSEQUENT EVENTS | 9 Months Ended |
Sep. 30, 2016 | |
Subsequent Events [Abstract] | |
15. SUBSEQUENT EVENTS | The Company is not aware of any subsequent events which would require recognition or disclosure in the financial statements, except as noted below or already recognized or disclosed in the Company’s filings with the SEC. Davis Agreement and Plan of Merger and Reorganization On October 26, 2016, the shareholders of the Company approved, among other proposals, (i) the conversion (the “Series A Conversion”) of the 9.25% Series A Cumulative Redeemable Preferred Stock, no par value per share of the Company (the “Series A Preferred Stock”), into common stock, no par value per share of the Company (the “common stock”), at a rate of 35 shares of common stock for each share of Series A Preferred Stock; (ii) the reincorporation of the Company from California to Delaware pursuant to a merger (the “Reincorporation Merger”) of the Company with and into Yuma Energy, Inc., a Delaware corporation and wholly owned subsidiary of the Company (“Yuma Delaware”); and (iii) the merger (the “Merger”) of Yuma Merger Subsidiary, Inc., a Delaware corporation and wholly owned subsidiary of Yuma Delaware (“Merger Subsidiary”), with and into Davis Petroleum Acquisition Corp., a Delaware corporation (“Davis”) with Davis surviving as a wholly owned subsidiary of Yuma Delaware. The Company issued approximately 19,411,000 shares of common stock as a result of the Series A Conversion. Immediately following the Series A Conversion, each share of common stock was exchanged for one-twentieth of one share of common stock, $0.001 par value per share of Yuma Delaware (the “Yuma Delaware Common Stock”) as part of the Reincorporation Merger. New Credit Facility Upon the closing of the Merger discussed above, the entire outstanding balance under the credit facility was assumed by Yuma Delaware in a new credit facility (“the Credit Agreement”). The Credit Agreement provides for a $75.0 million 3-year revolving credit facility with SG Americas Securities, LLC (“SG Americas”) as Lead Arranger and Bookrunner, SocGen as Administrative Agent and the lenders party thereto. The Credit Agreement replaces the Company’s existing credit agreement. The initial borrowing base of the Credit Agreement is $44.0 million, and is subject to redetermination as of January 1, 2017 as well as April 1st and October 1st of each year. As of October 26, 2016, Yuma Delaware had approximately $39.5 million outstanding under the Credit Agreement. The incremental $9.7 million of debt outstanding at October 26, 2016 under the new Credit Agreement from the Company’s outstanding debt balance of $29.8 million at September 30, 2016 was primarily the result of paying off Davis’ outstanding debt balance of $9.0 million at Bank of America, accrued interest under the old credit facilities, as well as fees associated with the new Credit Agreement. All of the obligations under the Credit Agreement, and the guarantee of those obligations, are secured by substantially all of the assets of Yuma Delaware and customary financial covenants have been made. |
4. FAIR VALUE MEASUREMENTS (Tab
4. FAIR VALUE MEASUREMENTS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Fair Value Disclosures [Abstract] | |
Fair value measurements by hierarchy | Fair value measurements at September 30, 2016 Significant Quoted prices other Significant in active observable unobservable markets inputs inputs (Level 1) (Level 2) (Level 3) Total Assets: Commodity derivatives – oil $ - $ 1,194,307 $ - $ 1,194,307 Liabilities: Commodity derivatives – gas $ - $ 78,763 $ - $ 78,763 Fair value measurements at December 31, 2015 Significant Quoted prices other Significant in active observable unobservable markets inputs inputs (Level 1) (Level 2) (Level 3) Total Assets: Commodity derivatives – oil $ - $ 3,442,693 $ - $ 3,442,693 Commodity derivatives – gas - 285,895 - 285,895 Total assets $ - $ 3,728,588 $ - $ 3,728,588 |
5. COMMODITY DERIVATIVE INSTR24
5. COMMODITY DERIVATIVE INSTRUMENTS (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Commodity derivative instruments | 2016 2017 Settlement Settlement NATURAL GAS (MMBtu): Swaps Volume 105,475 - Price $ 2.646 * - 3-way collars Volume - 248,023 Ceiling sold price (call) - $ 3.280 * Floor purchased price (put) - $ 2.946 * Floor sold price (short put) - $ 2.381 * CRUDE OIL (Bbls): Put spread Volume 31,547 - Floor purchased price (put) $ 62.27 - Floor sold price (short put) $ 40.00 - 3-way collars Volume 10,630 113,029 Ceiling sold price (call) $ 47.15 $ 77.00 Floor purchased price (put) $ 40.00 $ 60.00 Floor sold price (short put) $ 30.00 $ 45.00 |
Schedule of derivative assets and liablities | Fair value as of September 30, December 31, 2016 2015 Asset commodity derivatives: Current assets $ 1,420,921 $ 3,069,115 Noncurrent assets 326,656 1,841,120 1,747,577 4,910,235 Liability commodity derivatives: Current liabilities (478,669 ) (411,068 ) Noncurrent liabilities (153,364 ) (770,579 ) (632,033 ) (1,181,647 ) Total commodity derivative instruments $ 1,115,544 $ 3,728,588 |
Sales of natural gas and crude oil | Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Sales of natural gas and crude oil $ 3,151,626 $ 4,649,009 $ 9,207,636 $ 14,756,582 Gain realized from sale of commodity derivatives - - - 4,030,000 Other gains (losses) realized on commodity derivatives 488,409 432,825 2,205,216 1,084,610 Unrealized gains (losses) on commodity derivatives (40,473 ) 3,460,825 (2,613,044 ) (1,847,371 ) Total revenue from natural gas and crude oil $ 3,599,562 $ 8,542,659 $ 8,799,808 $ 18,023,821 |
Schedule reconciliation of the components of accumulated other comprehensive income (loss) in the Consolidated Statements of Changes in Equity | Nine Months Ended Year Ended September 30, 2016 December 31, 2015 Before tax After tax Before tax After tax Balance, beginning of period $ - $ - $ 63,091 $ 38,801 Sale of unexpired contracts previously subject to hedge accounting rules - - (119,917 ) (73,749 ) Other reclassifications due to expired contracts previously subject to hedge accounting rules - - 56,826 34,948 Balance, end of period $ - $ - $ - $ - |
8. EARNINGS (LOSS) PER COMMON25
8. EARNINGS (LOSS) PER COMMON SHARE (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
EARNINGS (LOSS) PER COMMON SHARE ADJUSTED FOR OCTOBER 26,2016 1-FOR-20 REVERSE STOCK SPLIT: | |
Potentially dilutive securities | Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Restricted Stock Awards 74,261 78,716 99,315 68,691 Restricted Stock Units - 4,771 - 4,771 74,261 83,487 99,315 73,462 |
9. DEBT AND INTEREST EXPENSE (T
9. DEBT AND INTEREST EXPENSE (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Debt Disclosure [Abstract] | |
Debt | September 30, December 31, 2016 2015 Variable rate revolving credit agreement payable to Société Générale, CIT Bank, NAC, and LegacyTexas Bank, maturing October 31, 2017, secured by the stock of Exploration and its interest in POL, and guaranteed by The Yuma Companies, Inc. $ 29,800,000 $ 29,800,000 Installment loan due February 29, 2016, originating from the financing of insurance premiums at 3.74% interest rate. - 108,894 Installment loan due June 11, 2016, originating from the financing of insurance premiums at 3.76% interest rate. - 154,741 29,800,000 30,063,635 Less: current portion (29,800,000 ) (30,063,635 ) Total long-term debt $ - $ - |
Schedule interest expense | Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Credit agreement $ 323,735 $ 314,177 $ 841,112 $ 835,584 Credit agreement commitment fees - 6,301 - 31,460 Amortization of credit agreement loan costs 60,489 73,146 518,479 209,903 Insurance installment loan - 4,400 1,961 9,597 Other interest charges 3,066 39 8,095 1,062 Capitalized interest (141,931 ) (266,949 ) (395,244 ) (750,107 ) Total interest expense $ 245,359 $ 131,114 $ 974,403 $ 337,499 |
11. INCOME TAXES (Tables)
11. INCOME TAXES (Tables) | 9 Months Ended |
Sep. 30, 2016 | |
Income Taxes Tables | |
Schedule income tax expense (benefit) and effective tax rates | Three Months Ended Nine Months Ended September 30, September 30, 2016 2015 2016 2015 Consolidated net income (loss) before income taxes $ (2,162,873 ) $ 239,243 $ (22,135,882 ) $ (16,928,915 ) Income tax expense (benefit) (47,429 ) 329,653 (1,272,664 ) (3,605,839 ) Effective tax rate 2.2 % 138 % 5.7 % 21.3 % |
4. FAIR VALUE MEASUREMENTS (Det
4. FAIR VALUE MEASUREMENTS (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Total assets | $ 1,194,307 | $ 3,728,588 |
Commodity derivatives - oil | ||
Total assets | 1,194,307 | 3,442,693 |
Commodity derivatives - gas | ||
Total assets | 285,895 | |
Total Liabilities | 78,763 | |
Quoted prices in active markets (Level 1) | ||
Total assets | 0 | 0 |
Quoted prices in active markets (Level 1) | Commodity derivatives - oil | ||
Total assets | 0 | 0 |
Quoted prices in active markets (Level 1) | Commodity derivatives - gas | ||
Total assets | 0 | |
Total Liabilities | 0 | |
Significant other observable inputs (Level 2) | ||
Total assets | 1,194,307 | 3,728,588 |
Significant other observable inputs (Level 2) | Commodity derivatives - oil | ||
Total assets | 1,194,307 | 3,442,693 |
Significant other observable inputs (Level 2) | Commodity derivatives - gas | ||
Total assets | 285,895 | |
Total Liabilities | 78,763 | |
Significant unobservable inputs (Level 3) | ||
Total assets | 0 | 0 |
Significant unobservable inputs (Level 3) | Commodity derivatives - oil | ||
Total assets | 0 | 0 |
Significant unobservable inputs (Level 3) | Commodity derivatives - gas | ||
Total assets | $ 0 | |
Total Liabilities | $ 0 |
5. COMMODITY DERIVATIVE INSTR29
5. COMMODITY DERIVATIVE INSTRUMENTS (Details) | Dec. 31, 2017bblMMBbls$ / bbl$ / MMBTU | Dec. 31, 2016bblMMBbls$ / bbl$ / MMBTU | |
Swaps | |||
Natural Gas (MMBtu): | |||
Volume | MMBbls | 105,475 | ||
Price(NYMEX) | $ / MMBTU | [1] | 2.646 | |
3-Way Collars | |||
Natural Gas (MMBtu): | |||
Volume | MMBbls | 248,023 | ||
Ceiling sold price (call) (NYMEX) | $ / MMBTU | [1] | 3.280 | |
Floor purchased price (put) (NYMEX) | $ / MMBTU | [1] | 2.946 | |
Floor sold price (short put) (NYMEX) | $ / MMBTU | [1] | 2.381 | |
Crude Oil: | |||
Volume | bbl | 113,029 | 10,630 | |
Ceiling sold price (call) (WTI) | 77 | 47.15 | |
Floor purchased price (put) (WTI) | 60 | 40 | |
Floor sold price (short put) (WTI) | 45 | 30 | |
Put Spread | |||
Crude Oil: | |||
Volume | bbl | 31,547 | ||
Floor Purchased Price (put)(LLS) | 62.27 | ||
Floor sold price (short put) (LLS) | 40 | ||
[1] | Price is a weighted average |
5. COMMODITY DERIVATIVE INSTR30
5. COMMODITY DERIVATIVE INSTRUMENTS (Details 1) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Asset commodity derivatives: | ||
Current assets | $ 1,420,921 | $ 3,069,115 |
Noncurrent assets | 326,656 | 1,841,120 |
Total | 1,747,577 | 4,910,235 |
Liability commodity derivatives: | ||
Current liabilities | (478,669) | (411,068) |
Noncurrent liabilities | (153,364) | (770,579) |
Total | (632,033) | (1,181,647) |
Total commodity derivative instruments | $ 1,115,544 | $ 3,728,588 |
5. COMMODITY DERIVATIVE INSTR31
5. COMMODITY DERIVATIVE INSTRUMENTS (Details 2) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Commodity Derivative Instruments Details 2 | ||||
Sales of natural gas and crude oil | $ 3,151,626 | $ 4,649,009 | $ 9,207,636 | $ 14,756,582 |
Gain realized from sale of commodity derivatives | 0 | 0 | 0 | 4,030,000 |
Other gains (losses) realized on commodity derivatives | 488,409 | 432,825 | 2,205,216 | 1,084,610 |
Unrealized gains (losses) on commodity derivatives | (40,473) | 3,460,825 | (2,613,044) | (1,847,371) |
Total revenue from natural gas and crude oil | $ 3,599,562 | $ 8,542,659 | $ 8,799,808 | $ 18,023,821 |
5. COMMODITY DERIVATIVE INSTR32
5. COMMODITY DERIVATIVE INSTRUMENTS (Details 3) - USD ($) | 9 Months Ended | 12 Months Ended |
Sep. 30, 2016 | Dec. 31, 2015 | |
Derivative Instruments and Hedging Activities Disclosure [Abstract] | ||
Balance, beginning of period, before tax | $ 0 | $ 63,091 |
Balance, beginning of period, after tax | 0 | 38,801 |
Sale of unexpired contracts previously subject to hedge accounting rules before tax | 0 | (119,917) |
Sale of unexpired contracts previously subject to hedge accounting rules after tax | 0 | (73,749) |
Other reclassifications due to expired contracts previously subject to hedge accounting rules, before tax | 0 | 56,826 |
Other reclassifications due to expired contracts previously subject to hedge accounting rules, after tax | 0 | 34,948 |
Balance, end of period, before tax | 0 | 0 |
Balance, end of period, after tax | $ 0 | $ 0 |
6. ASSET IMPAIRMENTS (Details N
6. ASSET IMPAIRMENTS (Details Narrative) - USD ($) | 9 Months Ended | |
Sep. 30, 2016 | Sep. 30, 2015 | |
Asset Impairments Details Narrative | ||
Oil and gas impairment | $ 11,015,589 | $ 0 |
Impairment of goodwill | $ 0 | $ 4,927,508 |
8. EARNINGS PER COMMON SHARE (D
8. EARNINGS PER COMMON SHARE (Details) - shares | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Earnings Per Common Share Details | ||||
Restricted Stock Awards | 74,261 | 78,716 | 99,315 | 68,691 |
Restricted Stock Units | 0 | 4,771 | 0 | 4,771 |
Total | 74,261 | 83,487 | 99,315 | 73,462 |
9. DEBT AND INTEREST EXPENSE (D
9. DEBT AND INTEREST EXPENSE (Details) - USD ($) | Sep. 30, 2016 | Dec. 31, 2015 |
Total Debt | $ 29,800,000 | $ 30,063,635 |
Less: current portion | (29,800,000) | (30,063,635) |
Total long-term debt | 0 | 0 |
Variable rate revolving credit facility payable [Member] | ||
Total Debt | 29,800,000 | 29,800,000 |
Installment loan due February 29, 2016 [Member] | ||
Total Debt | 0 | 108,894 |
Installment loan due June 11, 2015 [Member] | ||
Total Debt | $ 0 | $ 154,741 |
9. DEBT AND INTEREST EXPENSE 36
9. DEBT AND INTEREST EXPENSE (Details 1) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Debt Disclosure [Abstract] | ||||
Credit agreement | $ 323,735 | $ 314,177 | $ 841,112 | $ 835,584 |
Credit agreement commitment fees | 0 | 6,301 | 0 | 31,460 |
Amortization of credit agreement loan costs | 60,489 | 73,146 | 518,479 | 209,903 |
Insurance installment loan | 0 | 4,400 | 1,961 | 9,597 |
Other interest charges | 3,066 | 39 | 8,095 | 1,062 |
Capitalized interest | (141,931) | (266,949) | (395,244) | (750,107) |
Total interest expense | $ 245,359 | $ 131,114 | $ 974,403 | $ 337,499 |
11. INCOME TAXES (Details)
11. INCOME TAXES (Details) - USD ($) | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2016 | Sep. 30, 2015 | Sep. 30, 2016 | Sep. 30, 2015 | |
Income Taxes Tables | ||||
Consolidated net income (loss) before income taxes | $ (2,162,873) | $ 239,243 | $ (22,135,882) | $ (16,928,915) |
Income tax expense (benefit) | $ (47,429) | $ 329,653 | $ (1,272,664) | $ (3,605,839) |
Effective tax rate | 2.20% | 138.00% | 5.70% | 21.30% |