UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| (Mark One) |
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| x | QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 |
| |
| FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2017 |
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| ¨ | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF SECURITIES EXCHANGE ACT OF 1934 |
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| FOR THE TRANSITION PERIOD FROM _________ TO __________ |
Commission file number: 0-26402
THE AMERICAN ENERGY GROUP, LTD. |
(Name of registrant as specified in its charter) |
Nevada | | 87-0448843 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | |
20 Nod Hill Road Wilton, Connecticut | | 06897 |
(Address of principal executive offices) | | (Zip code) |
(Issuer’s telephone number 203/222-7315)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under section 12(g) of the Act:
Common Stock, Par Value $.001 Per Share
Check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the issuer has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes x No ¨
APPLICABLE ONLY TO CORPORATE ISSUERS
As of November 20, 2017, the number of Common shares outstanding was 70,832,862
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer | ¨ | | Accelerated filer | ¨ |
Non-accelerated filer | ¨ | (Do not check if a smaller reporting company) | Smaller reporting company | x |
THE AMERICAN ENERGY GROUP, LTD.
INDEX TO FORM 10-Q
PART I-FINANCIAL INFORMATION
THE AMERICAN ENERGY GROUP, LTD.
Balance Sheets (Unaudited)
| | September 30, | | | June 30, | |
| | 2017 | | | 2017 | |
Assets |
Current Assets | | | | | | |
Cash | | $ | 23,941 | | | $ | 70,254 | |
Prepaid expenses | | | 19,332 | | | | 27,801 | |
| | | | | | | | |
Total Current Assets | | | 43,273 | | | | 98,055 | |
| | | | | | | | |
Property and Equipment | | | | | | | | |
Office equipment | | | 25,670 | | | | 25,670 | |
Accumulated depreciation | | | (24,125 | ) | | | (24,012 | ) |
| | | | | | | | |
Net Property and Equipment | | | 1,545 | | | | 1,658 | |
| | | | | | | | |
Total Assets | | $ | 44,818 | | | $ | 99,713 | |
| | | | | | | | |
Liabilities and Stockholders’ Deficit |
Current Liabilities | | | | | | | | |
Accounts payable | | $ | 56,367 | | | $ | 57,013 | |
Note payable | | | 17,175 | | | | 25,833 | |
Accrued liabilities | | | 701,627 | | | | 646,146 | |
Notes payable – related parties | | | 300,000 | | | | 300,000 | |
| | | | | | | | |
Total Current Liabilities | | | 1,075,169 | | | | 1,028,992 | |
| | | | | | | | |
Non-Current Liabilities | | | | | | | | |
Notes payable – related parties, less current portion | | | 1,447,000 | | | | 1,447,000 | |
| | | | | | | | |
Total Liabilities | | | 2,522,169 | | | | 2,475,992 | |
| | | | | | | | |
Stockholders’ Deficit | | | | | | | | |
Common stock, par value $0.001 per share; | | | | | | | | |
authorized 80,000,000 shares; 70,832,862 and | | | | | | | | |
70,118,576 shares issued and outstanding, respectively | | | 70,833 | | | | 70,119 | |
Capital in excess of par value | | | 18,510,600 | | | | 18,461,314 | |
Accumulated deficit | | | (21,058,784 | ) | | | (20,907,712 | ) |
| | | | | | | | |
Total Stockholders’ Deficit | | | (2,477,351 | ) | | | (2,376,279 | ) |
| | | | | | | | |
Total Liabilities and Stockholders’ Deficit | | $ | 44,818 | | | $ | 99,713 | |
The accompanying notes are an integral part of these financial statements.
THE AMERICAN ENERGY GROUP, LTD.
Statements of Operations
For the Three Months Ended September 30, 2017 and 2016
(Unaudited)
| | 2017 | | | 2016 | |
| | | | | | |
Revenue – Oil and gas royalties | | $ | - | | | $ | - | |
| | | | | | | | |
General and Administrative Expenses | | | | | | | | |
Legal and professional | | | 44,226 | | | | 137,558 | |
Administrative salaries | | | 44,079 | | | | 20,560 | |
Office overhead expenses | | | - | | | | - | |
Depreciation and amortization expense | | | 113 | | | | 127 | |
General and administrative | | | 38,528 | | | | 42,113 | |
| | | | | | | | |
Total Expenses | | | (126,946 | ) | | | (200,358 | ) |
| | | | | | | | |
Net Operating Income (Loss) | | | (126,946 | ) | | | (200,358 | ) |
| | | | | | | | |
Other Income and (Expense) | | | | | | | | |
Loss on extinguishment of debt | | | (- | ) | | | (258,183 | ) |
Interest expense | | | (24,126 | ) | | | (39,369 | ) |
| | | | | | | | |
Total Other Income and (Expense) | | | (24,126 | ) | | | (297,552 | ) |
| | | | | | | | |
Net Loss before Federal Income Tax | | | (151,072 | ) | | | (497,910 | ) |
Federal Income Tax | | | - | | | | - | |
| | | | | | | | |
Net (Loss) | | $ | (151,072 | ) | | $ | (497,910 | ) |
| | | | | | | | |
Weighted Average Number of Shares Outstanding – Basic and Diluted | | | 70,421,371 | | | | 66,141,766 | |
The accompanying notes are an integral part of these financial statements.
THE AMERICAN ENERGY GROUP, LTD.
Statements of Cash Flows
For the Three Months Ended September 30, 2017 and 2016
(Unaudited)
| | 2017 | | | 2016 | |
| | | | | | |
Cash Flows From Operating Activities | | | | | | |
Net loss | | $ | (151,072 | ) | | $ | (497,910 | ) |
Adjustments to reconcile net loss to net cash (used in) operating activities: | | | | | | | | |
Depreciation | | | 113 | | | | 127 | |
Loss on extinguishment of debt | | | - | | | | 258,183 | |
Amortization of debt discount | | | - | | | | 17,865 | |
Changes in operating assets and liabilities | | | | | | | | |
(Increase) decrease in prepaid expenses | | | 8,469 | | | | 9,269 | |
Increase (decrease) in accounts payable | | | (646 | ) | | | (525 | ) |
Increase (decrease) in accrued expenses | | | 55,481 | | | | 27,984 | |
| | | | | | | | |
Net Cash (Used In) Operating Activities | | | (87,655 | ) | | | (185,007 | ) |
| | | | | | | | |
Cash Flows From Financing Activities | | | | | | | | |
Proceeds from the issuance of debt – related party | | | - | | | | 100,000 | |
Principal payments on notes payable | | | (8,658 | ) | | | (9,343 | ) |
Proceeds from the issuance of common stock | | | 50,000 | | | | 122,000 | |
| | | | | | | | |
Net Cash Provided By Financing Activities | | | 41,342 | | | | 212,657 | |
| | | | | | | | |
Net Increase (Decrease) in Cash | | | (46,313 | ) | | | 27,650 | |
| | | | | | | | |
Cash and Cash Equivalents, Beginning of Period | | | 70,254 | | | | 213 | |
| | | | | | | | |
Cash and Cash Equivalents, End of Period | | $ | 23,941 | | | $ | 27,863 | |
| | | | | | | | |
Cash Paid For: | | | | | | | | |
Interest | | $ | 2,395 | | | $ | 2,820 | |
Taxes | | $ | - | | | $ | - | |
The accompanying notes are an integral part of these financial statements.
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Unaudited Financial Statements
September 30, 2017
Note 1 - General
The accompanying unaudited condensed financial statements have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim condensed financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented are adequate to make the information not misleading, it is suggested that these interim condensed financial statements be read in conjunction with the Company's audited financial statements and notes thereto included in its June 30, 2017 Annual Report on Form 10-K. Operating results for the three months ended September 30, 2017 are not necessarily indicative of the results that may be expected for the year ending June 30, 2018.
Note 2 – Basic Loss Per Share of Common Stock
| | For the three months ended Sept 30, 2017 | | | For the three months ended, Sept 30, 2016 | |
| | | | | | |
Income (Loss) (numerator) | | $ | (151,072 | ) | | $ | (497,910 | ) |
| | | | | | | | |
Basic Shares (denominator) | | | 70,421,371 | | | | 66,141,766 | |
| | | | | | | | |
Basic Income (Loss) Per Share | | $ | (0.00 | ) | | $ | (0.01 | ) |
The basic loss per share of common stock is based on the weighted average number of shares issued and outstanding during the period of the financial statements. Stock warrants convertible into 11,193,334 shares of common stock are not included in the fully diluted income per share calculation for the three months ended September 30, 2017, because their inclusion would be antidilutive, thereby reducing the net loss per common share.
Note 3 - Common Stock
During August, 2017, the Company issued 714,286 shares of common stock at $.07 per share.
Note 4 – Income Taxes
The Company accounts for corporate income taxes in accordance with FASB ASC 740-10 “Income Taxes”. FASB ASC 740-10 requires an asset and liability approach for financial accounting and reporting for income tax purposes.
As of September 30, 2017, the Company had net operating loss carryovers of $57,228,205 which can be used to reduce future taxable income. No deferred tax benefit has been recorded related to these carryovers as utilization cannot be reasonable assured.
Note 5 – Notes Payable – Related Parties
The Company incurred $21,731 of interest expense on notes payable during the quarter ended September 30, 2017.
Note 6 – Warrants
During the year ended June 30, 2017, the Company extended 5,333,334 warrants in connection with the financing addressed in Note 5. The warrants can be purchased at $0.10 per share. The Company reported a $258,183 loss on extinguishment of debt related to the extension of these warrant issuances. The expense of these warrants was calculated using the Black-Scholes option pricing model using the following assumptions:
Dividend yield | | $ | 0 | |
Expected volatility | | | 1.20 | % |
Risk free interest | | | 0.50 | % |
Expected life | | | 3.5 years | |
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Unaudited Financial Statements
September 30, 2017
Note 7 – Other Contingencies - Litigation
In December, 2011, we initiated civil legal proceedings against Hycarbex and others in the High Court of Islamabad, Pakistan. Our pleadings with respect to the 2.5% carried working interest positions in the Sanjawi and Zamzama North concessions sought a registration of those interests with the Government of Pakistan and simultaneously sought the imposition of an injunction preventing the transfer of the working interest in those concessions until the registration can be effected, thereby protecting our interests. In our pleadings with respect to the Yasin concession and the right to receive 18% of the gross production revenues, our pleadings sought a referral to arbitration based upon ownership of, in effect, a 25% carried working interest to which is attributed 18% of gross production revenues and the right to receive pertinent records and data, the appointment of a receiver to both protect and cause disbursement of the 18% of gross revenues since the inception of production in April, 2011, and the imposition of an injunction against the transfer of the working interest in the Yasin concession. The Court immediately issued two injunction orders preserving the status quo as to the Company’s interests in each of the Yasin, Sanjawi and Zamzama North petroleum concessions.
On March 27, 2012, the Islamabad High Court issued its final order (later clarified as to certain arbitration procedures by a clarification Order dated April 4, 2012). The Court directed the parties to proceed to arbitration in London, UK under the ICC Rules of Arbitration and further reaffirmed the continuation of the pending temporary injunctions against Hycarbex’s potential transfer of interests in the concessions prior to final resolution in the arbitration forum. Our application for the appointment of a receiver was neither granted nor denied, but was instead deferred by the Court to the arbitration forum. Hycarbex appealed the March 27, 2012 Order asserting that litigation should not have been initiated by American Energy without first going to arbitration, asserting that our claims to 18% of gross production revenues were premature (despite already having made some payments toward that production interest) because a “commercial discovery” had not yet been declared, and asserting that the injunctions had the effect of enjoining all of the working interest, not just a portion. American Energy countered with an appeal that the Court should reconsider the application for a receiver due to an existing arbitration rule which would prevent the arbitration forum from granting interim relief of that type, irrespective of the merits of such an application. These appeals have become moot by virtue of the ICC Partial Final Award described below.
On April 10, 2012, pursuant to the terms of the March 27, 2012, Islamabad High Court Order, we filed our claim with the International Chamber of Commerce (“ICC”) International Court of Arbitration seeking an order which voids, ab initio, the original 2003 Stock Purchase Agreement under which Hycarbex’s parent company acquired the stock of Hycarbex (and thus the underlying Yasin concession owned by Hycarbex) and in conjunction therewith, seeking the recovery of any financial dividends or advances which may have been made by Hycarbex to its shareholders based upon our assertions in the claim that Hydro Tur, Ltd., the original purchaser of the Hycarbex stock under the 2003 Stock Purchase Agreement, fraudulently misrepresented to American Energy that “no current or past shareholders, officers and/or directors of American Energy or Hycarbex have any interest, direct or indirect, in the ownership of Hydro Tur, Ltd.”
On April 15, 2015, the ICC Arbitration Tribunal rendered its Partial Final Award in the pending arbitration proceedings which declared that the November 9, 2003 Stock Purchase Agreement between the Company, Hycarbex and Hydro-Tur, which was amended on February 16, 2004, and December 15, 2009, is void ab initio and of no legal effect on account of the fraud and misrepresentations of Hycarbex, Hydro-Tur and Hycarbex-Asia and that the Company is thus the 100% owner of the common stock of Hycarbex relating back to the original Stock Purchase Agreement date of November 9, 2003. In connection with its findings, the ICC Arbitration Tribunal ordered that the register of shareholders for Hycarbex be corrected to reflect the Company as the owner of 100% of the common stock, that Hycarbex and Hycarbex-Asia take any and all steps necessary to effect the rectification of the register of shareholders of Hycarbex to reflect the Company as the owner of 100% of the common stock, and that Hycarbex and Hycarbex-Asia bear all costs of the arbitration proceedings, including the Company’s legal costs, which costs and fees are to be fixed by the ICC Arbitration Tribunal in a subsequent award after submission of the total costs and fees by AEGG. The ICC Arbitration Tribunal dismissed Hydro-Tur’s application for costs. The April 15 Award made moot certain of the pending actions in Pakistan due to the recovery of ownership of 100% of the stock of Hycarbex.
THE AMERICAN ENERGY GROUP, LTD.
Notes to the Unaudited Financial Statements
September 30, 2017
Note 8 – Going Concern
The Company’s financial statements have been prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Accordingly, the financial statements do not include any adjustments related to the recoverability of assets or classification of liabilities that might be necessary should the Company be unable to continue as a going concern. At September 30, 2017, the Company’s current liabilities exceeded its current assets and it has recorded negative cash flows from operations. The preceding circumstances combine to raise substantial doubt about the Company’s ability to continue as a going concern. Management expects to continue to be successful in future capital raises, if necessary, to continue operations.
Note 9 – Subsequent Events
In accordance with ASC 855-10, management of the Company has reviewed all material events from September 30, 2017 through the date the financial statements were issued. There were no other material events that warrant any additional disclosure.
ITEM 2- MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This report contains statements about the future, sometimes referred to as “forward-looking” statements. Forward-looking statements are typically identified by the use of the words “believe,” “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “project,” “propose,” “plan,” “intend” and similar words and expressions. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act. Statements that describe our future strategic plans, goals or objectives are also forward-looking statements.
Readers of this report are cautioned that any forward-looking statements, including those regarding the Company or its management’s current beliefs, expectations, anticipations, estimations, projections, proposals, plans or intentions, are not guarantees of future performance or results of events and involve risks and uncertainties, such as:
| · | The future results of drilling individual wells and other exploration and development activities; |
| · | Future variations in well performance as compared to initial test data; |
| · | Future events that may result in the need for additional capital; |
| · | Fluctuations in prices for oil and gas; |
| · | Future drilling and other exploration schedules and sequences for various wells and other activities; |
| · | Uncertainties regarding future political, economic, regulatory, fiscal, taxation and other policies in Pakistan; |
| · | Our future ability to raise necessary operating capital. |
The forward-looking information is based on present circumstances and on our predictions respecting events that have not occurred, which may not occur or which may occur with different consequences from those now assumed or anticipated. Actual events or results may differ materially from those discussed in the forward-looking statements as a result of various factors, including the risk factors detailed in this report. The forward-looking statements included in this report are made only as of the date of this report. We are not obligated to update such forward-looking statements to reflect subsequent events or circumstances.
Overview
In November, 2003, we sold our Hycarbex-American Energy, Inc. (“Hycarbex”) subsidiary, which was the owner and operator of the Yasin 2768-7 Petroleum Concession Block in the Republic of Pakistan, to a foreign corporation. We retained in the sale an 18% overriding royalty interest in the Yasin Block. Drilling of the first well in Pakistan as to which our overriding royalty pertains, named the Haseeb No. 1 Well, was successfully completed by Hycarbex-American Energy, Inc. (“Hycarbex”), in the fourth quarter of the fiscal year ended June 30, 2005. A state-of-the-art, third party owned, surface facility for the well was constructed for Hycarbex after well completion. During September 2010, Hycarbex connected the well to the Sui Southern Gas Company pipe line, and commenced gas sales under an Extended Well Test but the production quickly ceased due to mechanical difficulties encountered in the commissioning of the surface facility owned by the third party. The production re-commenced into the pipe line in July, 2011, at the initial rate of 3.5 million cubic feet of gas per day (MMCFD) in anticipation that the rate would gradually increase to 15 MMCFD during the Extended Well Test.
In the fall of 2011, we received the initial two production revenue payments for Yasin production, but in November, 2011, Hycarbex, then an unaffiliated party which served as the operator of the Yasin concession, suspended the monthly revenue payments due to Hycarbex’s financial difficulties and advised that it would continue to accrue the revenues to the Company until it resolved its alleged financial difficulties. Although the daily production rate had increased to over 10 million cubic feet per day under the Extended Well Test, the accrued production revenues due to the Company from August, 2011 forward had not been distributed to the Company. In December, 2011, we initiated legal proceedings against Hycarbex and others in the High Court of Islamabad, Pakistan to enforce the revenue payment obligations. On March 27, 2012, the Islamabad High Court issued its final order (later clarified as to certain arbitration procedures by a clarification Order dated April 4, 2012). The Court directed the parties to proceed to arbitration in London, UK under the ICC Rules of Arbitration and further reaffirmed the continuation of the pending temporary injunctions against Hycarbex’s potential transfer of interests in the concessions prior to final resolution.
On April 15, 2015, the ICC Arbitration Tribunal rendered its Partial Final Award in the pending arbitration proceedings which declared that the 2003 sale of the Hycarbex subsidiary is void ab initio and of no legal effect on account of the fraud and misrepresentations of Hycarbex, Hydro-Tur and Hycarbex-Asia, thus returning the Company to the position as 100% owner of the common stock of Hycarbex. The Company has effected the shareholder and management registration changes ordered by the ICC and has caused Hycarbex to open a new office in Islamabad, Pakistan for Hycarbex’s future operations. The new management of Hycarbex has also assumed control of Hycarbex’s Pakistan personnel. New Hycarbex management has begun its efforts to assume complete control of the Pakistan-based assets, including review and appraisement of each asset, interfacing with the local oil and gas regulatory authorities with jurisdiction over those assets to assure regulatory compliance, and continuation of legal proceedings where necessary to enforce its rights, but the assumption of complete control of the Hycarbex Pakistan-based assets is expected to take several more months and is not expected to be completed before the end of calendar 2017.
During the quarter ended March 31, 2016, we were advised by Heritage Oil and Gas Limited (Heritage), the operator of both the Zamzama North and the Sanjawi Exploration Licenses, that both a Notice of Termination (Sanjawi Petroleum Concession Agreement – notice dated February 12, 2016) and a Notice of Breach (Zamzama North Petroleum Concession Agreement – notice dated February 22, 2016) were issued to Heritage by the Director General of Petroleum Concessions of the Government of Pakistan. With respect to the Sanjawi Petroleum Concession, Heritage has acknowledged and accepted the notice of termination in regards to the Sanjawi Petroleum Concession Agreement because of local safety concerns which could substantially impair development opera;tions.. With regard to the Notice of Breach pertaining to the Zamzama North Petroleum Concession Agreement, Heritage has contested the notice while asserting that all reasonable efforts have been made to fulfill its work commitments and financial obligations under the Concession Agreement but was prevented from achieving the tasks for reasons outside its control. Despite the force majeure assertions under the terms of the Concession Agreement to the DGPC, we have determined that it is reasonably possible that our working interest investment in the Zamzama North Block may be lost if the Concession Agreement is terminated. This matter has not been concluded by the DGPC as of the date of this report.
Results of Operations
Our operations for the three months ended September 30, 2017 reflected an operating loss of $126,946, as compared to operating loss of $200,358 for the three months ended September 30, 2016 and a net loss of $151,072 and net loss of $497,910 for the same periods.
Liquidity and Capital Resources
We have funded our operations through private loans and the private sale of securities due to the non-payment by Hycarbex of the 18% of production revenues from the Haseeb #1 Well while the litigation and arbitration proceedings with the Hycarbex parties was ongoing. We sold 714,286 shares during the quarter ended September 30, 2017 for $50,000. The funds have been and will continue to be utilized for general and administrative expenses incurred by the Company, including the non-recurring legal and accounting costs associated with the pending litigation in Pakistan and, where necessary, the administrative expenses incurred by the newly acquired subsidiary, Hycarbex.
While the April 15 Arbitration Award decreed that we are the 100% owner of Hycarbex, the recent cessation of production from the Haseeb #1 Well due to water infusion into the wellbore will mean that production revenues will not be available as a source of capital unless and until the well is successfully reworked to correct the problem and re-establish commercial production. Based upon available cost estimates, management believes that Hycarbex can bear these workover costs with funds on hand and has formulated the workover plan. While a successful workover of the Haseeb #1 Well cannot be assured, due to the available technical data, management believes that the well can be repaired so as to re-establish commercial gas production. Management is likewise optimistic that its ongoing negotiations with potential strategic development partners will result in the consummation of a transaction which will provide needed capital for the development of the other Hycarbex exploration licenses and funding of future administrative costs. We will seek additional loans or make additional sales of securities in the future, as necessary, to fund the Company’s working capital needs as they arise in the event that the anticipated results are not achieved. There is no assurance of management’s ability to secure loans or consummate securities sales to meet working capital requirements. (See Note 8 – Going Concern footnote to Financial Statements above).
Business Strategy and Prospects
The Haseeb No. 1 Well was drilled on the Yasin Concession by the Polish Oil and Gas Company for Hycarbex during March and April 2005 to a total depth of 4,945 feet (1,507 meters). Open hole logs performed on the well demonstrated gas shows from 3,543 feet to 3,688 feet and a net pay thickness of 82 feet. The drill stem test conducted over a short duration on a one-half inch choke indicated a production rate from the Sui Main Limestone equivalent to approximately 7.3 MM cubic feet of 805 BTU gas per day. The gas was tested for carbon dioxide and water content and was found to have low levels of each, indicating a likelihood that processing will not be required prior to pipeline transmission. In the fall of 2005, Hycarbex completed the acidization of the Haseeb No. 1. Post-treatment testing by Schlumberger Oilfield Services indicated an increase in the natural gas flow rate originally calculated at the time of the drill stem test at 7.3 million cubic feet per day. Schlumberger further concluded that the 10 million cubic feet rate could be potentially increased to as high as 25-28 million cubic feet per day if the existing production tubing is replaced with higher diameter production tubing and if the wellhead pressure is maintained at approximately 1,000 psi. The Yasin Concession has access to pipeline infrastructure. The 12-inch Quetta gas line runs NW-SE through the concession and connects to the 20-inch Sui-Karachi gas line. The Karachi-Muzaffargarh oil line also runs through the southern portion of the concession. The Haseeb #1 Well was connected to the gas pipe line in September, 2010 and gas sales commenced to Sui Southern Gas Company under the Extended Well Test Gas Sales and Purchase Agreement covering the sale of gas from the Haseeb Gas Field on Yasin Block (2768-7) signed by the parties in December, 2009. In July, 2011, production into the line recommenced at a rate of approximately 3.5 million cubic feet of gas per day (MMCFD) and this rate gradually increased under the Extended Well Test to over ten (10) MMCFD. Recent formation water intrusion into the wellbore has rendered the well non-productive. After assuming control of Hycarbex personnel subsequent to the April 15, 2015 Arbitration Award, we directed Hycarbex management to investigate workover activities which could restore commercial production and the workover plan has been formulated based upon available technical data. However, as of the date of this report, the workover has not been performed and the well is not producing gas into the pipeline. Based upon test results upon the Haseeb No. 1 and other data collected by Hycarbex from its drilling and seismic activities, management also believes that the Yasin Block acreage contains oil and gas producing physical structures which are worthy of further exploration.
The April 15, 2015, Arbitration Award granted to us 100% ownership of the Hycarbex subsidiary. Our Hycarbex subsidiary owns working interests in four exploration blocks within the Republic of Pakistan including the Yasin Block, being Block No. 2667-8 (Zamzama North), 474 square miles; Block No. 2466-8 (Karachi), 851 square miles; and Block No. 3371-13 (Peshawar), 960 square miles. Hycarbex is the registered owner of a 95% working interest in the Karachi and Peshawar Exploration Blocks, and 20% working interest in Zamzama North Exploration Block (which is operated by Heritage Oil and Gas Limited). If successfully developed, Hycarbex’s interests in one or more of these Blocks will likely be a good source of cash revenues. Due to our limited cash resources (See Note 8 – Going Concern footnote to Financial Statements above), development of the Hycarbex-operated Blocks would most likely be accomplished through a direct sale by Hycarbex with a retained interest or a strategic agreement with a development partner. Management is optimistic that such a strategic agreement can be secured due to available geologic analysis, the exploration activity ongoing on neighboring exploration blocks, and the interest demonstrated in recent negotiations. However, there can be no assurance that efforts to seek such a sale or strategic partner will be successful.
Off Balance Sheet Arrangements
We had no off balance sheet arrangements during the three months ended September 30, 2017.
ITEM 3-QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is not a party to nor does it engage in any activities associated with derivative financial instruments, other financial instruments and/or derivative commodity instruments.
ITEMS 4 AND 4T - CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that, as of September 30, 2017, these disclosure controls and procedures were effective to ensure that all information required to be disclosed by us in the reports that we file or submit under the Exchange Act is: (i) recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms; and (ii) accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
There have been no material changes in internal control over financial reporting that occurred during the first fiscal quarter that have materially affected, or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Inherent Limitations Over Internal Controls
Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations, including the possibility of human error and circumvention by collusion or overriding of controls. Accordingly, even an effective internal control system may not prevent or detect material misstatements on a timely basis. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
PART II-OTHER INFORMATION
ITEM 1-LEGAL PROCEEDINGS
In December 2011, we initiated civil legal proceedings against Hycarbex and others in the High Court of Islamabad, Pakistan against our former subsidiary, Hycarbex-American Energy, Inc. (“Hycarbex”), the stock of which had been sold in November 2003 to a third party, in order to recover unpaid production revenues from the Yasin concession block due from Hycarbex. On March 27, 2012, the Islamabad High Court issued its final order (later clarified as to certain arbitration procedures by a clarification Order dated April 4, 2012). The Court directed the parties to proceed to arbitration in London, UK under the ICC Rules of Arbitration and further reaffirmed the continuation of the pending temporary injunctions against Hycarbex’s potential transfer of interests in the concessions prior to final resolution.
On April 15, 2015, the ICC Arbitration Tribunal rendered its Partial Final Award in the pending arbitration proceedings which declared that the 2003 sale of the Hycarbex subsidiary is void ab initio and of no legal effect on account of the fraud and misrepresentations of Hycarbex, Hydro-Tur and Hycarbex-Asia, thus returning the Company to the position as 100% owner of the common stock of Hycarbex. The Company has effected the shareholder and management registration changes ordered by the ICC and has caused Hycarbex to open a new office in Islamabad, Pakistan for Hycarbex’s future operations. The new management of Hycarbex has also assumed control of Hycarbex’s Pakistan personnel. New Hycarbex management has begun its efforts to assume complete control of the Pakistan-based assets, including review and appraisement of each asset, interfacing with the local oil and gas regulatory authorities with jurisdiction over those assets to assure regulatory compliance, and continuation of legal proceedings where necessary to enforce its rights, but the assumption of complete control of the Hycarbex Pakistan-based assets is expected to take several more months and is not expected to be completed before the end of calendar 2017.
ITEM 1A-RISK FACTORS
Not applicable.
ITEM 2-UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended September 30, 2017, we sold to private investors 714,286 shares for $50,000. The funds raised were applied to salaries, office rent, legal and accounting expenses and other general and administrative expenses incurred, including the costs associated with our pending litigation with Hycarbex.
ITEM 3-DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4-MINE SAFETY DISCLOSURES
None.
ITEM 5-OTHER INFORMATION
None.
ITEM 6-EXHIBITS
The following documents are filed as Exhibits to this report:
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | THE AMERICAN ENERGY GROUP, LTD. | |
| | | | |
DATED: November 20, 2017 | By: | /s/ R. Pierce Onthank | |
| | R. Pierce Onthank, | |
| | | President, Chief Executive Officer, Principal Financial Officer and Director | |
