UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
COMMISSION FILE NUMBER: 0-29832
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
BRITISH COLUMBIA, CANADA 75-2712845
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(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
PO Box 1629
1301 AVE. M, CISCO, TEXAS 76437
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(Address of Principal Executive Offices)
(254) 442-2638
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(Issuer's Telephone Number, including Area Code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, no par value
Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [ X ]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [ X ]
Indicate by check mark 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 [ ]
Indicate by check mark if disclosure of delinquent filers in response to Item
405 of Regulation S-K (229.405 of this chapter) is not contained herein, and
will not be contained, to the best of issuer's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K [ X ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a small reporting company. See
the definitions of "large accelerated filer", "accelerated filer" and "small
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)
[ X ] Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in
Rule12b-2 of the Exchange Act). Yes [ ] No [ X ]
The aggregate market value of the common stock held by non-affiliates on March
16, 2009 was $354,842 based on the closing price of the stock that day as quoted
on the OTCBB.
The Registrant had 16,465,458 common shares outstanding as of March 16, 2009.
FORWARD LOOKING STATEMENTS
Statements made in this Form 10-K that are not historical or current facts are
"forward looking statements" made pursuant to the safe harbor provisions of
Section 27A of the Securities Act of 1933 (the "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate," or "continue," or the negative thereof. We intend
that such forward-looking statements be subject to the safe harbors for such
statements. We wish to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. Any
forward-looking statements represent management's best judgment as to what may
occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual
results and events to differ materially from historical results of operations
and events and those presently anticipated or projected. We disclaim any
obligation subsequently to revise any forward-looking statements to reflect
events or circumstances after the date of such statement or to reflect the
occurrence of anticipated or unanticipated events.
AVAILABLE INFORMATION
Australian-Canadian Oil Royalties Ltd. files annual, quarterly, current reports,
proxy statements, and other information with the Securities and Exchange
Commission (the "Commission"). You may obtain copies of our Commission filings
by going to the Commission's website at https://www.sec.gov.
PART I
ITEM 1. BUSINESS
BUSINESS DEVELOPMENT
Australian-Canadian Oil Royalties Ltd. ("ACOR" or "the Company") was
incorporated in British Columbia, Canada, in April of 1997. The Company's U.S.
office is located at 1301 Avenue M., Cisco, Texas 76437.
The Company has continued to be active in working interests and royalty
opportunities both domestically and internationally. The business of ACOR during
2008 was to make a study of available oil and gas development acreage in
Australia and select and apply for the exploration permits on the areas which
demonstrate a high probability of success with the maximum rate of return for
dollars invested.
ACOR's website is located at WWW.AUSSIEOIL.COM.
CURRENT BUSINESS OPERATIONS
The Company is a purchaser and holder of both overriding royalty interests and
working interests both on an international and domestic basis. ACOR's business
is related to the principal products of oil and gas, and is dependent on various
factors, which are discussed below. The average sales price per barrel of oil
from Australia during 2008 was $US 94.07.
The acquisition, exploration, development, production and sale of oil and gas
are subject to many factors that are outside the Company's control. These
factors include: market prices; national and international economic conditions;
import and export quotas; availability of drilling rigs, casing, pipe, and other
equipment and supplies; availability of and proximity to pipelines and other
transportation facilities; the supply and price of competitive fuels; and the
regulation of prices, production, transportation, and marketing by domestic and
foreign governmental authorities. Additionally, the Company generally has no
control over whether the owner or operator of leases to which its overriding
royalty interests are attributable will elect to explore for oil and gas on such
properties, or to develop them following discoveries that may occur. Each of
these factors may affect the rate at which oil and gas are produced on
properties in which the Company has an interest or affect whether wells will be
drilled on such properties, and could otherwise materially affect ACOR's
earnings.
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On the Company's Australian interests there were a total of 10 wells drilled
resulting in 3 producers, and 7 dry holes for the year ended December 31, 2008.
For further information see Item 2. Properties.
PROPOSED FUTURE BUSINESS OPERATIONS
The Company's strategy is two fold: 1) to seek overriding royalty interests in
oil and gas concessions within sedimentary basins in Australia, and 2) develop
and explore existing concessions in which the Company holds working interests
through exploration - seismic and drilling.
The Company's ability to complete its planned exploration activities and explore
other oil and gas opportunities is dependent on adequate capital resources being
available and equity being obtained and/or find partners to fund the exploration
and drilling programs on the areas in which the Company holds working interests.
COMPETITION
The Company is competing with other oil companies for oil and gas leases and
concessions. The oil and gas industry is highly competitive in all of its
phases, with competition for favorable producing royalties, overriding
royalties, and good oil and gas leases being particularly intense. The Company
believes that the exploration program, promised expenditures, geological and
geophysical skill, and familiarity with an area of operations are the primary
competitive factors in the identification, selection, and acquisition of
desirable leases. When attempting to purchase interests in such properties, the
Company competes with independent operators and major oil companies.
FOREIGN TAXES AND UNITED STATES TAX CREDITS
As a result of its overriding royalty interests attributable to properties
outside the United States, the Company is subject to the imposition of taxes by
foreign governments upon the Company's income derived from such foreign
jurisdictions. These taxes are of various types, with differing tax rates, and
are subject to change. Generally, the Company's income from a foreign
jurisdiction will be taxed in the same manner as that for other companies
operating in the jurisdiction, but discriminatory taxation by a particular
jurisdiction may occur. The current non-resident corporate income tax rate in
Australia, for overriding royalty interests, is 30%.
As a Canadian corporation, the Company is liable for income taxes under the laws
of Canada. Under Canadian law the Company's Australian-source income is subject
to a 46% tax (on Canadian income). We believe the 30% Australian tax should be a
credit toward the payment of the 46% Canadian tax under double taxation treaties
between the countries.
The Company is taxable in the U.S. on U.S. source income. Because there has been
neither U.S. source net income nor any income effectively connected with a U.S.
trade or business, there have been no U.S. taxes incurred to date.
GOVERNMENTAL REGULATION
Oil and gas operations are subject to federal, state and local laws and
regulations governing waste, environmental quality, pollution control,
conservation and other measures regarding environmental and ecological matters.
It is impossible to predict the impact of environmental legislation and
regulations on the Company's operations and earnings in the future.
The domestic production and sale of oil and gas are subject to federal
regulation by the Department of Energy and the Federal Energy Regulation
Commission. Rates of production of oil and gas have for many years been subject
to federal and state conservation laws and regulations. In addition, oil and gas
operations are subject to extensive federal and state regulations concerning
exploration, development, production, transportation, and pricing, and even to
interruption or termination by governmental authorities.
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In foreign countries, the Company may be subject to governmental restrictions on
production, pricing and export controls. Regulations existing or imposed upon
the Company or its properties at the time of their acquisition may change to an
unpredictable extent. The Company will have little or no control over the change
of regulations or imposition of new regulations and restrictions, expropriation
or nationalization by foreign governments or the imposition of additional
foreign taxes. Management believes that these actions are unlikely to be
undertaken by the state governments of South Australia or Queensland, where all
of the foreign oil and gas properties from which the Company receives royalty
income are currently located. The same belief applies for the government of
Victoria, since ACOR has acquired an overriding royalty under VIC/P45 and
VIC/P53.
QUEENSLAND NATIVE TITLE STATUS
In Queensland, the Company is paying annual rentals, but access for exploration
is blocked until successful Native Title negotiations are completed. It is not
clear at the time of this report how long the negotiations will take to settle
with the local natives on ATP 582.
FOREIGN CURRENCY
Due to the nature of the Company's activities in Australia, portions of the
Company's operating capital may at times be held in various foreign currencies.
This subjects the Company to the risk of currency fluctuations and changes in
rates of conversion for different currencies. The Company does not engage or
expect to engage in any hedging or other transactions, which are intended to
manage risks relating to foreign currency fluctuations. Additionally, revenues
generated in foreign countries in which the Company has or may acquire interests
may be subject to governmental regulations, which restrict the free
convertibility of such funds, and all remittances of funds out of these
countries might require the approval of the applicable government's exchange
control agency. Presently, the Company experiences no difficulties with the free
convertibility of funds from Australia. In the Company's opinion, the foreign
exchange control laws currently in effect in Australia, do not unreasonably
delay the remittance of funds generated in Australia to the United States. The
exchange rate on March 12, 2009 was $1.00 Australian = $0.65 United States.
REGULATION OF OIL AND NATURAL GAS PRODUCTION
Our oil and natural gas exploration, production and related operations are
subject to extensive rules and regulations promulgated by federal, state and
local authorities and agencies. Failure to comply with such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil and natural gas industry increases our cost of doing business and affects
our profitability. Although we believe we are in substantial compliance with all
applicable laws and regulations, because such rules and regulations are
frequently amended or reinterpreted, we are unable to predict the future cost or
impact of complying with such laws.
Many states require permits for drilling operations, drilling bonds and reports
concerning operations, and impose other requirements relating to the exploration
and production of oil and natural gas. Such states also have statutes or
regulations addressing conservation matters, including provisions for the
unitization or pooling of oil and natural gas properties, the establishment of
maximum rates of production from wells, and the regulation of spacing, plugging
and abandonment of such wells.
ENVIRONMENTAL MATTERS
Our operations and properties will be subject to extensive and changing federal,
state and local laws and regulations relating to environmental protection,
including the generation, storage, handling, emission, transportation and
discharge of materials into the environment, and relating to safety and health.
The recent trend in environmental legislation and regulation generally is toward
stricter standards, and this trend will likely continue. These laws and
regulations may: (i) require the acquisition of a permit or other authorization
before construction or drilling commences and for certain other activities; (ii)
limit or prohibit construction, drilling and other activities on certain lands
lying within wilderness and other protected areas; and (iii) impose substantial
liabilities for pollution resulting from our operations. The permits required
for several of our operations are subject to revocation, modification and
renewal by issuing authorities. Governmental authorities have the power to
enforce their regulations, and violations are subject to fines or injunctions,
-4-
or both. In the opinion of management, we are in substantial compliance with
current applicable environmental law and regulations, and we have no material
commitments for capital expenditures to comply with existing environmental
requirements. Nevertheless, changes in existing environmental laws and
regulations or in interpretations thereof could have a significant impact on our
business operations, as well as the oil and natural gas industry in general.
RESEARCH AND DEVELOPMENT ACTIVITIES
Seven wells were drilled on the Company's interests (VIC/P45, VIC/P53, VIC/P54 &
VIC/P59) in the Bass Strait of the Gippsland Basin resulting in one future
producer on Vic/P54. The Company holds a 1/20th of 1% of the gross production in
this concession, which now has two successful wells (Longtom #3 testing 23
million cubic feet of gas per day and the Longtom #4 testing 58 million cubic
feet of gas per day). Plans are to have these two wells in production during the
summer of 2009. For additional information see Properties - Bass Strait of the
Gippsland Basin.
The Company entered into a farm-out agreement in 2007 with Holloman Corporation
where Holloman would commit to drill three (3) wells with the Company receiving
a 13.8325% carried working interest through both the drilling and completion in
these three wells. During the first quarter of 2008 Holloman drilled the Pecos
#1 well on PEL 112 being the first of the three well program. The Pecos #1 was
completed as a dry hole. Due to inconsistencies between the original seismic
interpretation and drilling data, Holloman tendered a request for an extension
of the work program to determine future drilling prospects, already identified,
so as to maximize the potential of the program. For additional information see
Properties - Cooper/Eromanga Basin - PEL 112.
Two wells were drilled on the Company's interests (PEL 100, PEL 111 & PEL 112)
in the Cooper-Eromanga Basin of South Australia resulting in two future
producers (PEL 100 & PEL 111). The Company holds a 1% working interest in PEL
100 and a 1/10th of 1% override of gross production under PEL 111. For
additional information see Properties - Cooper/Eromanga Basin.
PERSONNEL
The Company has three employees and hires part time people on an as needed
basis. The Company also engages consultants and professionals when needed for
specific projects and/or tasks.
DEFINITIONS
The following definitions are provided to clarify certain terms used in this
report:
APPLICATION AREA - An area for which the Company has applied for the grant of an
Exploration Permit.
AUTHORITY TO PROSPECT ("ATP") - a concession granted by the State of Queensland,
Australia, which entitles its holders to an exclusive right to explore for oil
and natural gas in Queensland in the particular area covered by the ATP. Each
ATP has an initial term of four years. The area covered by an ATP is reduced by
relinquishment of approximately one-fourth of the area at the start of the third
year of its effectiveness and an additional one-fourth of the original area at
the start of the fourth year of its effectiveness. The area to be relinquished
is chosen by the holder of the ATP. An ATP will require some kind of geological
and/or geophysical operations, such as new seismic or seismic interpretation,
drilling or other operations during the term of the tenure. The amount of work
to be performed depends upon the expenditures required for each specific year of
the tenure. Holders are only required to expend those amounts as set out in the
original concession document. Applications for renewal may be filed at the time
of expiration of an ATP.
BLOCK - Resource Exploration Concessions in Australia are described and
identified by blocks. Each block is measured by 5 minutes latitude by 5 minutes
longitude.
CARRIED WORKING INTEREST - where working interest is paid by a third party
through the drilling phase or both the drilling and completion of a well. After
the carried portion of the well has been satisfied then the carried working
interest holder is responsible for its share of expenditures.
-5-
DEVELOPMENTAL WELLS - oil and gas wells drilled within the proven area of an oil
or gas reservoir to the depth of a stratigraphic horizon known to be productive.
DRY HOLE - a well found to be incapable of producing oil or gas in sufficient
quantities to justify completion.
EXPLORATION PERMIT - an exclusive offshore exploration permit with a term of six
years. Said permit is managed by the Victorian State Government.
EXPLORATORY WELL - a well drilled to find and produce oil and gas in an unproved
area or to find a new reservoir in a field previously found to be productive of
oil or gas in another reservoir.
GROSS PRODUCTION - the total production of oil, gas, or natural gas liquids from
a property or group of properties for any specified period of time.
MCF - thousand cubic feet of natural gas
MMCF - million cubic feet of natural gas
NET ROYALTY ACRE - generally, a measurement of royalty or overriding royalty and
the equivalent of the full customary one-eighth royalty of the gross production
of revenue free and clear of exploration, drilling and production costs from one
acre of land. The number of net royalty acres used in this report applies to
figures as of December 31, 2008 and the number will change as relinquishments
take place on the ATPs, as an ATP expires or is canceled, or any new areas are
added.
OVERRIDING ROYALTY INTEREST ("ORRI") - an interest assigned out of the lessee's
leasehold or working interest. The amounts payable from ORRIs are payments
calculated as a percentage of either gross production or the gross revenues of
the working interest (based on the wellhead price) from a concession or lease,
usually free and clear of all exploration, drilling and development and
production costs, except for any applicable taxes and federal levies. In
calculating the wellhead price, pipeline and trucking costs have already been
deducted from the refinery price. The overriding royalties discussed herein are
generally expressed as a percent of the gross production.
PETROLEUM EXPLORATION LICENSE ("PEL") - an exclusive oil and gas exploration
permit issued by the South Australian Department of Primary Industries and
Resources. The initial term of the tenure is for a five (5) year period.
PETROLEUM RESOURCE RENT TAX - a tax on net income in Australia reduced by
indexing on offshore production, which replaces the royalty and is a deduction
from Australian income tax.
PRODUCING WELLS - wells capable of producing oil or gas in commercial
quantities, including those wells capable of producing in commercial quantities
that are shut in, or wells that are not currently producing in commercial
quantities but have been commercially productive in the past.
ROYALTY - generally, a share of the production reserved by the grantor of an oil
or gas lease or concession. The royalty interest is customarily free of cost or
expense incident to exploration, development or production, except for
production or gathering taxes.
SPUD DATE OR SPUDDED - The date drilling operations begin.
WORKING INTEREST ("WI") - all or a fractional part of the ownership rights
granted by a concession or lease. The owner of a WI or a part thereof pays all
costs of exploration and is entitled to the gross production, less royalties
retained by the grantor or lessor, and less ORRIs or other non-operating
interests created and assigned from the WI. The owner of a WI may incur
operating expenses in excess of income.
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ITEM 2. PROPERTIES
The Company's principal office space is located at 1301 Avenue M, Cisco, Texas
76437. The office space is for corporate identification, mailing, and courier
purposes and costs us approximately $3,200 a year to an affiliate. This $3,200
has been recorded as an expense and contributed capital in the financials.
The Company holds overriding royalty interests in the Cooper/Eromanga Basins
that cover parts of Queensland and South Australia. The Company's overriding
royalties total 495,838 net royalty acres under 14,661,454 gross surface acres
in fourteen concessions. In addition the Company also owns 18,897 net royalty
acres under 1,194,667 gross acres in the Bass Strait of the Gippsland Basin
located offshore of the state of Victoria, Australia and 428 net royalty acres
under 160,618 gross acres in the Carnarvon Basin located offshore of the state
of Western Australia. See Table of Overriding Royalty Interests for ownership
and size of each concession.
The Eromanga Basin encompasses the southwestern portion of the State of
Queensland and the northeast corner of South Australia, and is Australia's main
onshore producing oil and gas basin.
The Cooper Basin is located in the northeast part of the State of South
Australia. Management believes the Company's overrides are in a prime location
since the majority of the Company's interests form nearly continuous blocks
adjoining the producing block of Santos et al. which has reserves in excess of
one billion barrels of oil equivalent and is making approximately $A43 billion
worth of oil, gas and associated hydrocarbons per year (equivalent to about $110
billion in U. S. dollars) based on an oil price of $40 per barrel.
On the 16,016,739 gross surface acres where ACOR holds overriding royalty
interests, there are giant anticlines, large faults and hundreds of seismic
highs, all of which indicate possibilities of oil and gas reserves. In addition,
about $27 million worth of seismic information has been completed and is
available on the areas.
The Company is currently receiving revenues from four of its overriding royalty
interests - ATP 267, ATP 299, ATP 560 and PEL 115 and one of its working
interests - PEL 100. A successful gas well was completed on ATP 543 in 1996.
After completion of a gas pipeline, gas began to be marketed in August 1999, but
the pipeline reduced the gas price and the well was shut in.
The Company has overriding royalty interests in three Permits in the Gippsland
Basin, VIC/P45, 53 and 54. The Bass Strait of the Gippsland Basin is located
between the State of Victoria and Tasmania which has in excess of 4 billion
barrels of oil/condensate and 12 TCF gas reserves discovered since exploration
drilling began in 1964.
In addition to Company's large overriding royalty position it also has working
interests in five concessions, of which four are located in the Cooper/Eromanga
Basin and one is in the Bass Strait of the Gippsland Basin. See the table for
Working Interest Holdings for additional information.
NON-PRODUCING OVERRIDING ROYALTY INTERESTS
AREA CONCESSION GROSS PERCENTAGE OF 1% NET
HOLDER ACRES OF GROSS PRODUCTION ROYALTY
ACRES
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BASS STRAIT OF GIPPSLAND BASIN (OFFSHORE OF VICTORIA, AUSTRALIA)
VIC/P45 Apache Energy Ltd. 214,896 7.50% 1,284
VIC/P53 Cue Petroleum 182,858 15.00% 2,194
VIC/P54 Apache Energy Ltd. 155,676 5.00% 623
VIC/P59 Apache Energy Ltd. 301,468 5.00% 1,206
VIC/P60 Holloman Energy 339,769 50.00% 13,590
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TOTAL 1,194,667 18,897
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COOPER-EROMANGA BASIN (ONSHORE SOUTH AUSTRALIA AND QUEENSLAND)
PEL 87 Victoria Petroleum 705,238 10.00% 5,642
PEL 88 Cooper Energy 816,436 30.00% 19,594
PEL 111 Victoria Petroleum 290,101 10.00% 2,320
PEL 424 Victoria Petroleum 2,275,099 10.00% 18,201
ATP 544 Australian Petroleum
Industries Pty. Ltd. 901,600 8.08% 5,828
ATP 550 Discovery Geo
(Australia) Corp. 276,000 25.00% 5,520
ATP 582* Cooper-Eromanga Oil 6,716,000 67.10% 360,515
ATP 616 Sundance Resources 147,200 333.33% 39,253
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TOTAL 12,127,674 456,873
CARNARVON BASIN (OFFSHORE OF WESTERN AUSTRALIA)
WA 372 Holloman Energy 61,776 3.33% 165
WA 373 Holloman Energy 98,842 3.33% 263
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TOTAL 160,618 428
*Our Company has entered into a Joint Venture where the partner will pay for the
Native Title clearance and conduct a 2-D seismic program and drilled one well
in return for 1/2 interest in this area.
PRODUCING OVERRIDING ROYALTY INTERESTS
AREA CONCESSION GROSS PERCENTAGE OF 1% NET
& # OF HOLDER ACRES OF GROSS PRODUCTION ROYALTY
WELLS ACRES
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COOPER/EROMANGA BASIN
PEL 115
8 Wells Victoria Petroleum 270,580 10.00% 2,165
ATP 267
25 Wells Santos 220,800 17.15% 3,029
ATP 299
102 Wells Santos 441,600 5.75% 2,031
ATP 543 Vernon E. Faulconer
1 Well Australia, Inc. 956,800 25.00% 19,136
ATP 560 First Source Energy
3 Wells Group Inc. 625,600 25.00% 12,512
Patchawarra
SW Santos 18,400 6.25% 92
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TOTAL 2,533,780 38,965
WORKING INTEREST HOLDINGS
AREA CONCESSION GROSS PERCENTAGE OF NET
HOLDER ACRES WORKING INTEREST WI ACRES
- --------------------------------------------------------------------------------
COOPER/EROMANGA BASIN
ATP 582 ACOR 6,716,000 100.0000% 6,716,000
PEL 100 Cooper Energy 73,143 1.0000% 731
PEL 112 Holloman Energy 542,643 13.8325% 79,211
PEL 444 Holloman Energy 582,674 13.8325% 80,598
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TOTAL 7,914,460 6,876,540
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The following is a summary of the Company's Australian properties divided into
four areas: 1) Gippsland Basin - Victoria, 2) Carnarvon Basin of Western
Australia, 3) Cooper/Eromanga Basin of South Australia, and 4) Cooper/Eromanga
Basin of Queensland.;
BASS STRAIT OF THE GIPPSLAND BASIN
Seven wells were drilled on the Company's overriding royalties and working
interests on oil and gas concessions located in the Bass Strait of the Gippsland
Basin. The Bass Strait is located between the states of Victoria and Tasmania,
known for its prolific production. The following is a report on each of the
Company's interests on which drilling occurred:
VIC/P45
VIC/P45 is an offshore concession covering 214,896 gross acres under which the
Company holds a 7.5% of 1% of gross production. This concession is located in
the most prolific oil-producing basin in Australia, approximately 1.5 miles east
of the Kingfish Oil Field in the southern Gippsland Basin in the Bass Straits.
The Kingfish Oil Field, the largest oil field in Australia, has produced over
one billion barrels of oil since its discovery. There are currently 23 producing
wells, and 41 total wells were drilled in this field. Apache drilled one well on
VIC/P45, which was plugged and abandoned. The operator has requested a one-year
extension to conduct further studies on VIC/P45.
VIC/P53
VIC/P53 is an offshore concession covering 182,858 gross acres under which the
Company holds a 15% of 1% of gross production. Drilling began in the fourth
quarter of 2008 on VIC/53 to test the Bazzard structure that was identified by
3-D seismic. The well was drilled by Apache and encountered oil and gas shows
but was not commercial. The well was plugged and abandoned. It should be noted
that this concession is totally surrounded by huge offshore oil and gas fields
that have produced in excess of 2.8 billion barrels of oil and 5 trillion cubic
feet of gas to date. Six prospects were also identified during the 3-D seismic
program.
VIC/P54
VIC/P54 is an offshore concession covering 155,676 gross acres under which the
Company holds a 5% of 1% of gross production. On December 23, 2004 the operator
began drilling the Grayling 1-A on VIC/54. The operator confirmed three gas
columns in the well from the well log analysis. The wire-line logs provided
sufficient data regarding the reservoir quality and hydrocarbon composition of
the Golden Beach reservoirs not to warrant drill stem testing. Given its
proximity to Longtom, another gas discovery on the area, gas at the Grayling
location may provide additional reserves for a future development in VIC/P54.
The Longtom-3, drilled and completed during the summer of 2006, clearly
demonstrated that wells can be drilled in the field that will enable the
production of gas at commercial rates. Two production tests were conducted on
the well:
The first test produced gas from the 400 sand at 23MMscf/d. The results
from this test confirm the flow potential of the 400 sand reservoir in
the Longtom field, addressing a major concern leading up to the
drilling of the Longtom-3 well. A flow was not achieved in the second
test of Longtom-2 (conducted over the 400 sand). Nexus has interpreted
this test as having failed due to down-hole mechanical problems.
The second test, over the 100, 200 and 300 sand intervals in the
horizontal hole section exceeded expectations producing an estimated
77MMcf/d when bypassing the test separator and 59MMcf/d when flowing
through the test separator (the separator's flow capacity). Sampling
during the test recorded expected levels of carbon dioxide (less than
1%) and less than one part per million hydrogen sulphide.
In addition, the second test indicated that the condensate yield is higher in
the 100 sands than in the sands above it, which will provide an economic boost
to the project.
-9-
The Longtom-4 development well was drilled during the summer of 2008. The
Longtom #4 tested 58 million cubic feet of gas per day with liquid hydrocarbons.
The net pay section in both Longtom #3 & #4 is 4,000 feet thick and the total
depth of both wells was approximately 15,000 feet. The first gas from the
Longtom Gas Field is forecasted to begin during the middle part of 2009. A 12"
pipeline is currently under construction on this area.
VIC/P59
VIC/P59 consists of 301,468 gross acres and is located offshore in the Gippsland
Basin under which the Company holds 1,206 net royalty acres representing a
1/20th of 1% overriding royalty interest. VIC/P59 is adjoined by the Blackback
Oil Field with estimated reserves of 80,000,000 barrels of oil. Apache drilled
three wells in 2008 on VIC/P59. Two wells were plugged and abandoned and the
results of the third well has not been reported as of the date of this report.
VIC/P60
VIC/P60 is an offshore concession covering 339,769 gross acres under which the
Company now holds a 50% of 1% overriding royalty interest under this entire
concession following the farm-out to Holloman Energy Corp. In April 2005, the
Company conducted a study of the data on VIC/P60 that identified six (6)
structures, of which one of the six (6) structures, the A-1 Prospect lies in
100-200 meters of shallow water. The A-1 prospect is approximately 4.97 miles
long and 1.24 miles wide with a seismic bright spot anomaly rated good to
excellent. The seismic bright spot is 108' thick and 820' horizontal by 20,500'
perpendicular wide behind a fault on the flank of the anticline. Holloman has
traced the beds to the nearest oil and gas fields after processing 5,000 +/-
seismic lines.
In 2007 the Company sold its 25% working interest for $152,896 in cash and
retained an overriding royalty interest of 50% of 1% in concession VIC/P60.
During 2008 Holloman filed a request for an extension for additional time to
evaluate the escalation of the 3-D seismic costs that have occurred since the
execution of the agreement to perform the work program.
CARNARVON BASIN - WESTERN AUSTRALIA
The Carnarvon Basin is Australia's largest petroleum providence. The Carnarvon
basin in the Northwest Shelf contains a number of giant gas and gas-condensate
fields. The Greater Gorgon area, which includes other nearby gas fields, is 130
km off the northwest coast of Western Australia in the Carnarvon basin. The
fields in that area contain in excess of 40 Trillion Cubic Feet of gas.
In 2007, Western Australia produced 126 million barrels of crude oil/condensate,
and 30 billion cubic meters of gas. 65% of the gas was transformed into 12
million tonnes of LNG (all of which was exported), with the remainder of the gas
being sold to users in Western Australia. Primary production by the industry was
valued at $16.7 billion, accounting for 31% of all natural resources produced in
the state.
WA 372 & WA 373
WA 372 and WA 373 are both offshore concessions covering 61,776 gross acres and
98,842 gross acres respectively. The Company holds a 1/30th% of 1% overriding
royalty interest under both of these concessions. Both WA 372 & WA 373 are
operated by Holloman Energy Corp. and are located close to some giant oil & gas
discoveries. The western border of WA 372 & 373 is approximately 10 kilometers
from the Woolybutt Oil Field, which is currently producing approximately 24,000
barrels of oil per day or $604,800,000 per year at current market prices.
The eastern border of WA 372 is approximately 10 kilometers from the Barrow
Island Oil Field, Australia's largest oil field with approximately 1.25 Billion
barrels of oil in place or $87,500,000,000 at current market prices. The Barrow
Oil Field has already produced approximately 300,000,000 barrels of oil or
$21,000,000,000 at current market prices.
-10-
The operator of WA 372 has an $A41,000,000 exploration program that includes
drilling 2 wells within the 1st three years with an option to drill an
additional 2 wells in years 4 thru 6. The estimated cost to drill one well is in
excess of $A10,000,000.
The operator of WA 373 has an $A20,000,000 exploration program that includes
drilling 2 wells within the 1st three years. The estimated cost to drill one
well is in excess of $A10,000,000.
COOPER/EROMANGA BASIN - SOUTH AUSTRALIA
PEL 88
ACOR owns a 3/10ths of 1% overriding royalty interest under PEL 88, which covers
816,436 gross acres. Three prospects have been identified on PEL 88, Acacia,
Casuarina and Lancier. The potential recoverable reserves of each of these
prospects are 15,000,000 barrels of oil in the Acacia, 18,000,000 barrels of oil
in the Casuarina and 48,000,000 barrels of oil in the Lancier. No assurance can
be made that these prospects will be drilled.
PEL 100
ACOR holds a 1% working interest in the Cleansweep #1 which was drilled in the
2008 fiscal year and was completed as a Birkhead formation producer. The well
tested on 444 barrels of oil on a drill stem test. The Cleansweep well was
drilled to a total depth of 8,694 feet and is estimated to have the potential of
4.8 million barrels of recoverable oil in place.
PEL 111
ACOR owns a 1/10th of 1% overriding royalty interest under PEL 111, which covers
290,101 gross acres. Mapping of PEL 111 seismic data coupled with the
reprocessing of existing seismic data identified 20 leads and prospects for
potential oil and gas in the Birkhead, Hutton, Tirrawarra and Patchawarra
formations. The Warhawk #1 was drilled in 2008 and was cased and suspended as a
future producer.
The operator states that a 3-D seismic program, followed by a 3 well drilling
program on this area, is planned during 2009.
PEL 112 & 444
On June 21, 2006, ACOR signed a farm-out agreement with Holloman Corporation of
Odessa, Texas for the oil & gas exploration of ACOR's PELs 108, 109, & 112,
located in South Australia in the prolific Cooper/Eromanga Basin. ACOR retained
a 13.8325% carried working interest through the drilling and completion of the
first 3 wells under PELs 108, 109, & 112.
Holloman Corp. agreed to drill and complete 3 wells to earn 66.667% working
interest in all 3 areas. Holloman Corp. will carry ACOR for 13.8325% in the
first three wells. After the third well, ACOR will pay its part of any future
exploration performed on the 3 areas, subject to the terms of the Joint
Operating Agreement. During the quarter ended March 31, 2008, Holloman drilled
the Pecos #1 well on PEL 112 being the first of the three well program. The
Pecos #1 was completed as a dry hole. Due to inconsistencies between the
original seismic interpretation and drilling data, Holloman tendered a request
for an extension of the work program to determine future drilling prospects,
already identified, so as to maximize the potential of the program.
During the quarter ended June 30, 2008, Holloman made a request to the South
Australian Government for new exploration terms, which was approved giving a new
five-year work program for PEL 112 and consolidating PEL 108 & 109 to a new
exploration permit PEL 444. The Company's terms and conditions mentioned above
remain in force on these two permits.
-11-
PEL 115
This permit covers 270,580 gross acres under which ACOR holds an overriding
royalty interest of 10% of 1% of gross production. PEL 115 is located in the
prolific Cooper/Eromanga Basin in South Australia. The Mirage-1 well completed
in July 2005 initially flowed clean oil at rate of 372 barrels of oil per day on
a 1/2 inch choke. Mirage-1 is currently producing on optimized beam pump
operation at a rate of 140 barrels of oil per day from the perforated 52-foot
interval from 4330 feet to 4481 feet.
The interpreted recoverable oil reserve for the Mirage Oil Field based on 2D
seismic geophysical mapping is in a range from a mean of 1.3 million barrels up
to a maximum of 3.6 million barrels. The interpretation of the 3D data set
suggests that Mirage-1 could be part of a larger feature covering approximately
20 square kilometers that includes the Lightning and Jindivik prospects, 3.10
miles to the north-east. Such an area has the potential of containing up to 23
million barrels of oil in place, subject to the presence of suitable Murta sand
reservoir.
In the southern part of PEL 115, interpretation of the 3D Mirage and extensive
2D seismic data have defined four Jurassic and Permian oil and gas prospects
(Voodoo, Fury, Airacobra and Thunderbolt). In the northern part of PEL 115 two
Jurassic prospects have been identified (Avro and Skyhawk) and three Permian
prospects known as the Delta, Hurricane and Metear. No drilling dates have been
announced for these prospects.
COOPER/EROMANGA BASIN - QUEENSLAND
ATP 267
An eleven well exploration, appraisal and development drilling campaign began in
early 2007 on ATP 267 under which the Company holds an overriding royalty
interest of 17.15% of 1%. ATP 267 covers approximately 220,800 gross acres. The
Nockatunga oil fields located on ATP 267 under which the Company holds a 17.15%
of 1% overriding royalty interest is operated by Santos Ltd. The Nockatunga
field produced an average of approximately 750 barrels of oil per day (BOPD)
during the quarter ended June 30, 2008.
The Maxwell 5 appraisal well, which was drilled in October 2007 on the Maxwell
oil field in PL 50, approximately equidistant from Maxwell 3 and Maxwell 4, was
tied into the field facilities and brought online in April 2008. The well
produces oil from the Murta Member.
ATP 299
The Company owns a .0575% of 1% ORRI under ATP-299 and its Petroleum Licenses
which covers 441,600 gross acres and currently has 102 completed wells under
which ACOR receives overriding royalties. The Tintaburra Block is reported to
contain approximately 84 million barrels of proved plus probable oil in place.
The 2006 program included the development of the Mulberry Field, which could
potentially recover an additional 20 million barrels of oil from the Block.
Twenty-three (23) were drilled in the Tintaburra Block in 2006. Of the
twenty-three (23), there were three (3) plugged and abandoned. Initial
production rates from these wells average 200 barrels of oil per day. Production
is expected to increase as more of the successful wells are brought on-line and
as the wells receive pressure support from the nearby water injection wells.
Nine (9) additional Tintaburra wells were added in 2007 to the number of
producing wells on ATP 299 increasing the total number of productive wells to
102. Also during 2007 four wells were drilled from a single pad and all
encountered the primary target, the Mid-Birkhead reservoir with reservoir
thickness ranging from 5 to 15 meters. These wells are being used to accelerate
production and improve sweeping efficiency in the Mid-Birkhead reservoir.
The program so far has been the most successful onshore oil-drilling program
undertaken in Australia with a success rate for drilling in the mid Birkhead
reservoir unit at 80 acre spacing continuing at in excess of 80%.
-12-
ATP 560
ATP 560 covers 625,600 acres under which the Company holds a 25% of 1% override.
The Utopia Oil Field is situated in ATP 560P in the Eromanga Basin in southwest
Queensland, approximately 150 km north east of the Jackson Oilfield and 50 km
south of the Kenmore Oilfield. The Joint Venture is considering numerous options
to accelerate production from the field. The Utopia field is a broad low-relief
structure, with a maximum relief of approximately 10 m. The field produces from
the Early Cretaceous Murta Formation and is the largest known Murta pool in the
Queensland Eromanga Basin. The oil pool is at an approximate depth of 1020 m.
The most recent technical review of Utopia undertaken in June 2004 determined
the field could contain up to 2.86 million barrels of recoverable oil.
ATP 582
On March 30, 2006 ACOR began work on the geological studies on ACOR's ATP-582.
ATP-582 is located in Queensland Australia in the prolific Cooper/Eromanga
Basin. The permit area covers approximately 6,716,000 gross acres. The Southern
zone of ATP-582 is currently the best part of the area for oil and gas
exploration. Besides being up dip of the approximately $1 billion dollar annual
production from the Santos-Exxon producing block, it is along strike with many
new discovery wells that have sustained daily production of 1,000 - 3,000
barrels of oil per day. ACOR management has currently identified two prospects
on ATP-582 from the 850 miles seismic data, owned by ACOR. Two prospects have
been identified:
The Samphire prospect covers approximately 3,800 acres and exhibits
approximately 110 feet of closure. It is possible that a good potential
exists for a 10-15 million barrel field, with a possible potential of
approximately 40 million barrels.
The Samphire West, which covers around 4,700 acres. If the Samphire
prospect proves to be productive, a number of additional field
discoveries may result from leads in the Southern part of ATP-582. Both
prospects are a series of sandstone (clastic) reservoirs of pinch-outs
and structural traps that have formed on the flank of the local high.
On September 26th, 2006 the Company entered into a Joint Venture arrangement
where the partner will operate the concession, pay to obtain Native Title
clearance, shoot a new seismic grid survey over the leads identified by ACOR
management from old seismic data to confirm good drillable targets with plans to
drill a well to earn a 50% working interest under ATP 582 (ACOR will be carried
for 50% WI). No exploration work can begin until native title has been cleared.
ITEM 3. LEGAL PROCEEDINGS
Management is not aware of any legal proceeding contemplated by any governmental
authority or any other party involving the Company or its properties. As of the
date of this Annual Report, no director, officer or affiliate is (i) a party
adverse to our Company in any legal proceeding, or (ii) has an adverse interest
to our Company in any legal proceedings. Management is not aware of any other
legal proceedings pending or that have been threatened against the Company or
its properties.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fiscal year ended December 31, 2008, no matters were submitted to the
Company's stockholders for approval.
-13-
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET FOR COMMON EQUITY
The principal trading market for the common equity securities of the Company is
the National Association of Securities Dealers OTC Bulletin Board quotation
system. The symbol is: AUCAF. The following are the highs and lows for each
quarter for fiscal year ended December 31, 2008 and 2007, respectively. These
quotations reflect inter-dealer prices, without retail mark-up, mark- down or
commissions, and may not represent actual transactions.
2008 2007
------------------------ ------------------------
HIGH LOW HIGH LOW
------ ------- ------ -------
1st Quarter $0.80 $0.30 $0.43 $0.24
2nd Quarter 0.30 0.18 0.40 0.25
3rd Quarter 0.30 0.14 0.32 0.15
4th Quarter 0.23 0.05 0.69 0.32
The approximate number of securities holders of record of Australian-Canadian
Oil Royalties Ltd. on December 31, 2008 was 316 of record, which does not
include stockholders whose shares are held in street or nominee names. We have
no outstanding stock options or warrants to purchase our securities.
DIVIDEND POLICY
No dividends have ever been declared by the Board of Directors on our common
stock. Our losses do not currently indicate the ability to pay any cash
dividends, and the Company does not indicate the intention of paying cash
dividends on our common stock in the foreseeable future.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS
Stock Compensation Plan (the "Plan") - The Board approved the Plan in 2008 and
registered 1,000,000 shares for the Plan. The purpose of the Plan is to provide
a means by which key employees, officers, directors, and consultants may be
given an opportunity to acquire Common Stock of the Company in payment for
services performed for the Company. The Plan provides incentives for such
persons to exert maximum efforts for the success of the Company. No shares have
been issued under the Plan to date.
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended December 31, 2008, the Company issued a total of
2,723,546 unregistered shares as follows:
PURPOSE ISSUED TO: AMOUNT OF SHARES VALUE
------- ---------- ---------------- -----
Loan Repayment Ely Sakhai 936,292 $140,444
Loan Repayment Robert Kamon 718,786 $107,818
Director's Fees Robert Kamon 110,000 $ 49,400
Director's Fees Andre Sakhai 110,000 $ 49,400
Director's Fees Kenneth Campbell 110,000 $ 49,400
Director's Fees Jan Soleimani 80,000 $ 20,800
Director's Fees Howard Siegel 40,000 $ 8,800
Services Brandon Hawk 37,000 $ 23,680
Services Ivan Webb 137,419 $ 65,961
Services Roger Autrey 100,000 $ 34,000
Services Bernard Lipton 33,334 $ 10,000
Services Howard Siegel 10,715 $ 3,000
Override Interest
In VIC/P59 Liberty Petroleum Corp. 300,000 $ 84,000
-14-
No underwriter, sales or placement agent was involved in any of the
transactions.
The facts relied on to make the exemption from registration provided by Section
4(2) of the Securities Act of 1933 available for the sale of securities
discussed above were: (1) the limited number of purchasers; (2) the
sophistication or accreditation of the purchasers; (3) their relationship with
the Company and/or access to material information about the Company; (4) the
information furnished to them by the Company; (5) the absence of any general
solicitation or advertising; and (6) restrictions on transfer of the securities
issued to them as indicated by a legend on the certificates representing such
securities.
REPURCHASES OF SECURITIES
The Company has not repurchased any of its own securities.
ITEM 6. SELECTED FINANCIAL DATA
N/A
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The following discussion should be read in conjunction with our audited
financial statements and the related notes accompanied thereto. The following
discussion contains forward-looking statements that reflect our plans, estimates
and beliefs. Our actual results could differ materially from those discussed in
the forward-looking statements. Factors that could cause or contribute to such
differences include, but are not limited to those discussed below and elsewhere
in this SEC 2008 Form 10-K. Our audited financial statements are stated in
United States Dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles.
GENERAL DISCUSSION:
ACOR's 2008 fiscal year was another active year on the company's properties in
Australia. On the Company's Australian interests there were a total of 10 wells
drilled, resulting in 3 producers and 7 dry holes, for the year ended December
31, 2008.
ACOR began its movement from being primarily an oil royalty company to an
exploration company in 2000 when ACOR et al was awarded three large concessions
in South Australia. The risk of exploration was downgraded by the success rate
by new junior oil companies in the Cooper/Eromanga Basin averaging 52%. ACOR
entered into a farm-out arrangement with Holloman Energy Corp. to drill three
wells retaining a 13.8325% carried working interest. During the quarter ended
March 31, 2008, Holloman drilled the Pecos #1 well on PEL 112 being the first of
the three well program. The Pecos #1 was completed as a dry hole. Due to
inconsistencies between the original seismic interpretation and drilling data,
Holloman tendered a request for an extension of the work program to determine
future drilling prospects, already identified, so as to maximize the potential
of the program. For further information on activities on the Company's
properties see Item 2. Properties.
Seven wells were drilled on the Company's overrides located in the Bass Strait,
a petroleum province known for its world class production. The Bass Strait has
produced more than 4 billion barrels of oil/condensate and 12 TCF gas reserves
have been discovered in the Basin since exploration began in 1964, with
remaining reserves estimated at 600 million barrels of oil and 5 trillion cubic
feet of gas. One of the seven wells was completed as a future producer on
VIC/P54 (Longtom #4) under which the Company holds a 1/20th of 1% of gross
production. The gas production on VIC/P54 is planned to go online during the
summer of 2009.
ACOR has overriding royalty interests under 15,856,121 gross surface acres in
the Cooper/Eromanga and Bass Strait of the Gippsland Basin plus has working
interests under 7,914,460 gross surface acres. For additional information
regarding these concessions including those mentioned above in this section see
Item 2. Properties.
-15-
ACOR's management is optimistic about the future drilling planned on its
Australian interests, especially for the next couple of years.
RESULTS OF OPERATION
The Company's oil and gas revenues were up approximately 175% when comparing
2007 to 2008. In 2007 the revenues were $70,798 compared to $123,777 in 2008.
The increase in drilling activity that began in 2005 coupled with the increase
in crude oil prices increased the Company's revenues in Australia on its
overriding royalties, primarily concessions ATP 299 and ATP 267. It is normal to
have a 3 to 6 month delay for Australian entities to distribute production
revenues. During 2008 additional drilling resulted in the successful completion
of wells as future producers, which provides the opportunity for greater sources
of revenue from its investments in Australia.
The categories of Personnel Costs, Professional fees and Promotion and
advertising reported expenditures of $274,417 for 2007 compared to $255,925, for
2008. Of the $274,417 the Company paid $157,800 through the issuance of
unregistered common stock in 2007 and of the $255,925 the Company paid $136,600
through the issuance of unregistered common stock in 2008. The unregistered
shares were issued for those services based on the closing stock price at the
time of issuance without any discount for their lack of liquidity. The
allocation of 2007 personnel cost of $213,638 is $155,500 for contract services,
$32,400 in wages and $25,600 for officer compensation. The allocation of 2008
personnel cost of $154,185 is $94,300 for contract services, $34,500 in wages
and $25,100 for officer compensation. The unusual increase in Promotion and
Advertising from a credit of $22,169 in 2007 to $26,050 is directly related to
the return of 150,000 shares of the Company's common stock that was originally
issued for Public Relation services that was returned during 2007. The
Directors' fees and other operating expense category for 2007 was $65,560
decreasing to $55,756 for 2008. The Directors' fees for both 2007 and 2008 were
paid in stock and the balance "other" is for stock transfer fees, travel and
meals representing only $11,800 for 2008.
The other categories of expenditures did not significantly change when comparing
the fiscal year ended 2007 to 2008.
Other Income (Expense) for the Company includes interest expense of $9,006 for
2007 compared to an interest expense of $12,234 for 2008. The increase in
interest expense for 2008 is directly due to an increase in notes payable.
Australian income taxes increased from $19,987 in 2007 to $28,774 for 2008 as a
direct function of the increase in oil sales in Australia on its interests.
The net loss for the year ended December 31, 2007 was $329,447 compared to a net
loss of $326,778 for the year ended December 31, 2008. Per share losses were
$0.02 per share for the year ended 2007 compared to $0.02 per share for the year
ended December 31, 2008.
LIQUIDITY AND CAPITAL RESOURCES
The Company's Total Current Assets as of December 31, 2007 were $97,058 compared
to $1,053,576 on December 31, 2008. The increase in current assets is due to the
increase in cash on hand caused by a certificate of deposit for $1,000,000. The
Company had an outstanding loan of $1,000,000 from the American State Bank of
Cisco, as of December 31, 2008. The balance outstanding at December 31, 2008
bears interest at 4.12% and is due in May, 2009. This note is secured by a
certificate of deposit shown as restricted cash on the balance sheet. Total
interest incurred on this note during 2008 was $5,379. On March 2, 2009 this
note was paid with the proceeds received from the certificate of deposit.
The Company's accounts receivable for both 2007 and 2008 are from oil sales that
have been made but have not been received.
The Total Current Liabilities as of December 31, 2008 were $1,132,775 placing
the Company's liquidity ratio of current assets to current liabilities at .94 to
1 being a dramatic improvement over the previous year that had Total Current
Liabilities on December 31, 2007 of $463,003 placing the Company's liquidity
ratio of current assets to current liabilities at .20 to 1. Cash on hand and
certificate of deposit as of December 31, 2008 totaled $1,042,677 as compared to
$71,777 cash on hand as of December 31, 2007.
-16-
The Company plans to meet its operating expenditures from a private placement of
its restricted common stock. The Company is seeking exploration partners on its
various oil and gas concessions located in Australia.
Total assets of the Company increased from $1,032,776 on December 31, 2007 to
$2,027,173 on December 31, 2008, an increase of $994,397. This increase is
directly due to the $1,000,000 certificate of deposit that was securing a loan
for $1,000,000 with the American State Bank. The Company oil and gas properties
increased from $994,604 in 2007 to $1,103,604, an increase of $109,000 due to
the purchase of an overriding royalty interest in oil and gas concession known
as VIC/P53.
Total Current Liabilities of the Company increased from $463,002 on December 31,
2007 to $1,132,775 on December 31, 2008. The loans from officers/directors of
the Company were decreased from $214,786 on December 31, 2007 to $50,000 on
December 31, 2008. These loans were decreased through the issuance of 1,655,078
shares of restricted common stock of the Company.
The accrued expenses of $246,982 for December 31, 2007 are comprised of $164,400
in director fees, $66,000 in consulting fees and the $16,600 in accrued
interest.
PLAN OF OPERATION AND FUNDING
The Company plans to seek additional oil and gas concessions in Australia on
ground level basis and will seek partners to join in this process. The Company
has been successful in entering into farm-out arrangements to defer the
exploration commitments on six Australian concessions and has confidence to be
able to repeat this process in the event the Company is successful in acquiring
other concessions in Australia.
MATERIAL COMMITMENTS
The Company had material commitments on several working interest properties in
Australia. However during 2007 the Company was successful in entering into
farm-out arrangements to transfer the exploration cost to others in lieu of
cash, carried working interest or an override.
PURCHASE OF SIGNIFICANT EQUIPMENT
The Company does not intend to purchase any significant equipment during the
next twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
On December 12, 2007, the Financial Accounting Standards Board ratified the
consensus reached by the Emerging Issues Task Force on Issue No. 07-01
"Accounting for Collaborative Arrangements". This Issue will be effective for
the fiscal year beginning January 1, 2009. This pronouncement is not expected to
have a material impact on the Company's financial statements.
In September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157),
which provides expanded guidance for using fair value to measure assets and
liabilities. SFAS 157 establishes a hierarchy for data used to value assets and
liabilities, and requires additional disclosures about the extent to which a
company measures assets and liabilities at fair value, the information used to
measure fair value, and the effect of fair value measurements on earnings.
Implementation of SFAS 157 was required on January 1, 2008 for financial assets
and liabilities, as well as other assets and liabilities that are carried at
fair value on a recurring basis in financial statements. FASB Financial Staff
Position No. FAS 157-2 deferred implementation for other non-financial assets
and liabilities for one year. Examples of non-financial assets and liabilities
are asset retirement obligations and non-financial assets and liabilities
initially measured at fair value in a business combination. The adoption of SFAS
157 did not have a material impact on the financial statements.
-17-
The Financial Accounting Standards Board revised Statement of Financial
Accounting Standards No. 141 (Revised 2007) "Business Combinations" (SFAS 141R)
in 2007. The revision broadens the application of SFAS 141 to cover all
transactions and events in which an entity obtains control over one or more
other businesses. This standard requires that transaction costs related to
business combinations be expensed rather than be included in the acquisition
cost. This Statement applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The impact of this standard will
be on the fair value recorded for future business combinations after adoption.
In February 2007, the Financial Accounting Standards Board issued Statement No.
159 "The Fair Value Option for Financial Assets and Financial
Liabilities--Including an amendment of FASB Statement No. 115." The fair value
option established by this Statement permits all entities to choose to measure
eligible items at fair value at specified election dates. Companies are required
to report unrealized gains and losses on items for which the fair value option
has been elected in earnings at each subsequent reporting date. This Statement
is effective as of the beginning of an entity's first fiscal year that begins
after November 15, 2007. It does not affect any existing accounting literature
that requires certain assets and liabilities to be carried at fair value. The
Company has not elected the fair value option for any eligible items.
In December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 160 "Noncontrolling Interest in Consolidated
Financial Statements - an Amendment of ARB 51" (SFAS 160). SFAS 160 clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. It also requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
noncontrolling interest, and requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Adoption of this standard is not
expected to have a material impact on the Company's financial statements.
In March 2008, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 161 "Disclosures about Derivative Instruments
and Hedging Activities - An Amendment of FASB Statement No. 133" (SFAS 161),
that requires new and expanded disclosures regarding hedging activities. These
disclosures include, but are not limited to, a proscribed tabular presentation
of derivative data; financial statement presentation of fair values on a gross
basis, including those that currently qualify for netting under FASB
Interpretation No. 39; and specific footnote narrative regarding how and why
derivatives are used. The disclosures are required in all interim and annual
reports. SFAS 161 is effective for fiscal and interim periods beginning after
November 15, 2008.
On December 31, 2008, the SEC published the final rules and interpretations
updating its oil and gas reporting requirements. Many of the revisions are
updates to definitions in the existing oil and gas rules to make them consistent
with the petroleum resource management system, which is a widely accepted
standard for the management of petroleum resources that was developed by several
industry organizations. Key revisions include the ability to include
nontraditional resources in reserves, the use of new technology for determining
reserves, permitting disclosure of probable and possible reserves, and changes
to the pricing used to determine reserves in that companies must use a 12-month
average price. The average is calculated using the first-day-of-the-month price
for each of the 12 months that make up the reporting period. The SEC will
require companies to comply with the amended disclosure requirements for
registration statements filed after January 1, 2010, and for annual reports for
fiscal years ending on or after December 15, 2009. Early adoption is not
permitted. The Company is currently evaluating the impact that the adoption will
have on the financial statements.
ACCOUNTING FOR NATURAL GAS AND OIL PRODUCING ACTIVITIES
We use the full cost method to account for our natural gas and oil producing
activities. Under this accounting method, we capitalize substantially all of the
costs incurred in connection with the acquisition, development, and exploration
of natural gas and oil reserves in full cost pools maintained by geographic
areas, regardless of whether reserves are actually discovered and apply a
quarterly full cost ceiling test. Adverse changes in conditions (primarily gas
price declines) could result in permanent write-downs in the carrying value of
oil and gas properties as well as non-cash charges to operations, but would not
affect cash flows.
-18-
We have adopted the provisions of SFAS No. 143, "Accounting for Asset Retirement
Obligations." SFAS No. 143 requires the fair value of a liability for an asset
retirement obligation to be recognized in the period in which it is incurred if
a reasonable estimate of fair value can be made. The associated asset retirement
costs are capitalized as part of the carrying amount of the related oil and gas
properties. As of December 31, 2006 management has determined that there are no
material asset retirement obligations.
PROPERTY, EQUIPMENT AND DEPRECIATION
We follow the full cost method of accounting for our oil and gas operations
whereby all costs related to the acquisition of methane, petroleum, and natural
gas interests are capitalized. Under this method, all productive and
non-productive costs incurred in connection with the exploration for and
development of oil and gas reserves are capitalized. Such costs include land and
lease acquisition costs, annual carrying charges of non-producing properties,
geological and geophysical costs, costs of drilling and equipping productive and
non-productive wells, and direct exploration salaries and related benefits.
Proceeds from the disposal of oil and gas properties are recorded as a reduction
of the related capitalized costs without recognition of a gain or loss unless
the disposal would result in a change of 20 percent or more in the depletion
rate.
Depreciation and depletion of proved oil and gas properties is computed on the
units-of-production method based upon estimates of proved reserves, as
determined by independent consultants, with oil and gas being converted to a
common unit of measure based on their relative energy content.
The costs of acquisition and exploration of unproved oil and gas properties,
including any related capitalized interest expense, are not subject to
depletion, but are assessed for impairment either individually or on an
aggregated basis. The costs of certain unevaluated leasehold acreage are also
not subject to depletion. Costs not subject to depletion are periodically
assessed for possible impairment or reductions in value. If a reduction in value
has occurred, costs subject to depletion are increased or a charge is made
against earnings for those operations where a reserve base is not yet
established.
Estimated future removal and site restoration costs are provided over the life
of proven reserves on units-of-production basis. Costs, which include production
equipment removal and environmental remediation, are estimated each period by
management based on current regulations, actual expenses incurred, and
technology and industry standards. The charge is included in the provision for
depletion and depreciation and the actual restoration expenditures are charged
to the accumulated provision amounts as incurred.
We apply a ceiling test to capitalized costs which limits such costs to the
aggregate of the estimated present value, using a ten percent discount rate of
the estimated future net revenues from production of proven reserves at year end
at market prices less future production, administrative, financing, site
restoration, and income tax costs plus the lower of cost or estimated market
value of unproved properties. If capitalized costs are determined to exceed
estimated future net revenues, a write-down of carrying value is charged to
depletion in the period.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
N/A
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The following financial statement information for Australian-Canadian Oil
Royalties Ltd. begins following the signature page of this form. The Index to
the Financial Statements is on page F-1.
Report of Independent Registered Public Accounting Firm
Balance Sheets
Statements of Operations and Comprehensive (Loss)
Statements of Stockholders' Equity
Statements of Cash Flows
Notes to Financial Statements
-19-
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Our principal independent accountant from inception through September 5, 2005
was Robert Early & Company, P.C. of Abilene, Texas. Beginning September 6, 2005
Killman, Murrell & Company, P.C. of Odessa, Texas became independent accountant
for the Company. There are no disagreements between the Company and its previous
auditor Robert Early & Company, P.C. or its current auditor, Killman, Murrell &
Company, P.C.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
In connection with the preparation of this annual report on Form 10-K, an
evaluation was carried out by our management, with the participation of the
Chief Executive Officer and Principal Accounting Officer, of the effectiveness
of our disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")) as of
December 31, 2008. Disclosure controls and procedures are designed to ensure
that information required to be disclosed in reports filed or submitted under
the Exchange Act is recorded, processed, summarized, and reported within the
time periods specified in the SEC rules and forms and that such information is
accumulated and communicated to management, including the Chief Executive
Officer and the Principal Financial Officer, to allow timely decisions regarding
required disclosures.
Based on that evaluation, our management concluded that our disclosure controls
and procedures were effective in reporting information required to be disclosed
within the time periods specified in the SEC's rules and forms.
Management's Report on Internal Control Over Financial Reporting
Management of our company is responsible for establishing and maintaining
adequate internal control over financial reporting. Our company's internal
control over financial reporting is a process, under the supervision of the
Chief Executive Officer and the Principal Accounting Officer, designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of the Company's financial statements for external purposes
in accordance with United States generally accepted accounting principles.
Internal control over financial reporting includes those policies and procedures
that:
o Pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the
Company's assets;
o Provide reasonable assurance that transactions are recorded as necessary
to permit preparation of the financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures are being made only in accordance with authorizations of
management and the Board of Directors; and
o Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Company's assets
that could have a material effect on the financial statements.
Our management conducted an assessment of the effectiveness of the Company's
internal control over financial reporting as of December 31, 2008, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission. Based on this
assessment, our management concluded that there was no material weakness in our
internal controls over financial reporting, and accordingly, our controls are
effective.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect all misstatements. 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.
-20-
This annual report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting (as defined
in Rule 13a-15(f) of the Exchange Act) during the quarter ended December 31,
2008, that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS - The Board of Directors of the Company presently consists of five
members. Each director is elected at the annual meeting of shareholders to hold
office until the next annual meeting of shareholders and until his successor has
been elected and qualified. The following table sets forth information
concerning the persons currently serving as directors of the Company.
DATE FIRST
POSITION WITH ELECTED
NAME AGE THE COMPANY AS DIRECTOR
- --------------------------------------------------------------------------------
Kenneth W. Campbell 78 Director 1997
Robert Kamon 81 Director and 1997
Secretary
Howard Siegel 66 Director 2006
Jan Soleimani 57 Director 2007
Andre Sakhai 27 Director and
President 2005
EXECUTIVE OFFICERS - Unless otherwise specified by the Board, all executive
officers are elected for a term of one year, commencing with the date of the
first meeting of the Board following the annual meeting of shareholders, and
serve until their successors are elected or appointed and qualified, or until
their respective death, resignation, removal or disqualification. All of the
Company's officers are executive officers. The following table sets forth
certain information with respect to the persons currently serving as executive
officers of the Company.
DATE FIRST
POSITION WITH ELECTED
NAME AGE THE COMPANY AS OFFICER
- --------------------------------------------------------------------------------
Andre Sakai 27 President and 2005
Director
Mahnaz Nourmand 45 Chief Financial 2009
Officer
Robert Kamon 81 Secretary and 1997
Director
-21-
ANDRE SAKHAI, President and Director, attended Arizona State University, which
included a curriculum of financial accounting and microeconomics, as well as
money and banking. Mr. Sakhai is a licensed real estate salesperson in the state
of New York and has other experience in computer functions as well as experience
in all aspects of the financial markets.
ROBERT KAMON, Director and Secretary, is a petroleum-engineering graduate of the
University of Texas at Austin, Texas. Mr. Kamon has been President of three
NASDAQ listed companies. He is currently the President of several private
companies - Australian Grazing and Pastoral Co. Pty. Ltd. since 1954,
International Oil Lease Service Corp. since 1961, and Tensleep Oil and
Production, Inc. since 1989.
KENNETH W. CAMPBELL, Director, is a graduate of the University of Brandon
(Manitoba, Canada). He is President of Solar Energy Resources, Ltd., a privately
held independent Canadian oil and gas producer.
HOWARD SIEGEL, Director, is a graduate of the University of Oklahoma and has a
law degree from Saint Mary's University Law School. Mr. Siegel has been a member
of the State of Texas Bar Association since 1969 and became a member of the
Colorado Bar Association in 1989. Mr. Siegel has over thirty years of experience
in all matters of corporate law, oil and gas, real estate, employee benefits,
taxation and general practice.
JAN SOLEIMANI, Director, is the owner of Bokara Rug Company in New York. His
company manufactures high quality handmade rugs for distribution to elite
furniture stores across the United States. Mr. Soleimani has been an active
businessman for 33 years in the manufacturing and distribution of high quality
handmade rugs plus has been involved in other successful business ventures
including real estate development.
MAHNAZ (MICHELLE) NOURMAND, Chief Financial Officer, is a graduate of Queens
College of New York where she received her Bachelor Degree in Accounting. In
1990 she received her MBA of Business also from Queens College. Currently, Ms.
Nourmand is a Senior Manager & Tax Accountant for Ther Tobacco & Food
Distribution of Corona, New York. Ms. Nourmand has 17 years experience and is a
practicing Certified Public Accountant with an emphasis on corporate accounting
preparing projections, budgets and financial statements.
FAMILY RELATIONSHIPS
There are no family relationships between the officers and directors of the
Company; however, Ely Sakhai, a major shareholder, is the father of Andre
Sakhai, President and Director of the Company.
ITEM 11. EXECUTIVE COMPENSATION
The executive officers of ACOR have received no salary or cash bonuses since the
organization of the Company. The Company has no bonus, pension, or profit
sharing plans. The Company pays for copies, phone usage, travel expenses, and
other labor to non-related parties.
Officer Compensation - The executive officers of ACOR have received no cash
salary or cash bonuses since the organization of the Company, with the exception
of $3,000 in 2007 and $3,000 in 2008 paid to the Chief Financial officer,
Bernard Lipton. Mr. Lipton also received 60,000 restricted shares during 2007
valued at $21,000 and 33,334 restricted shares during 2008 valued at $10,000.
Director Compensation - In 2006 the Board approved the issuance of 30,000
restricted shares to each director, and in 2007 and 2008 the Board approved the
issuance of 40,000 restricted shares to each director, to be issued only when
requested by the director. Howard Siegel was issued 30,000 shares in 2006,
40,000 shares in 2007 and 40,000 shares in 2008. Kenneth Campbell, Robert Kamon
and Andre Sakhai received all 110,000 shares in 2008. Jan Soleimani received
80,000 shares in 2008.
-22-
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The following table sets forth information regarding the beneficial ownership of
the common stock of the Company as of March 16, 2009 by each of the Company's
officers and directors, each person who is known by the Company to own
beneficially more than 5% of the outstanding common stock and all officers and
directors of the Company as a group. The title of class is common stock, no par
value.
# of Shares
Name and Beneficially Percent of
ADDRESS OF STOCKHOLDER OWNED CLASS
- --------------------------------------------------------------------------------
Ken Campbell 360,000 2.186%
307 Triune Bay
Calgary, Alberta T1X 1G4
Canada
Robert Kamon** (2,166,293) 3,621,287 21.993%
Tensleep Oil & Production,
Inc. (908,000)*
International Oil Lease
Service Corp. (394,444)
Australian Grazing & Pastoral
Co., Pty. Ltd. (152,500)
1304 Avenue L
Cisco, Texas 76437
Howard Siegel 90,715 .551%
P. O. Box 940572
Houston, Texas 77094
Andre Sakhai 1,207,503 7.334%
10 East 29th Street, Apt. 12J
New York, New York 10016
Jan Soleimani 930,000 5.648%
21 Windsor Dr.
Old Westbury, New York 11568
Mahnaz Nourmand 30,000 0.002%
91 Wheatley Road
Old Westbury, New York 11568
All officers and directors as a group 6,239,505 37.714%
Ely Sakhai 3,159,105 19.190%
10 Windsor Dr.
Old Westbury, New York 11568
* Tensleep Oil & Production, Inc. (Tensleep) is controlled by Robert
Kamon. Robert Kamon owns 50% of the shares of Tensleep.
* Robert Kamon's (2,166,293 shares), Tensleep's (908,000 shares),
International Oil Lease Service Corp.'s (394,444 shares), and Australian
Grazing & Pastoral Co., Pty. Ltd.'s (152,550 shares) holdings are all
attributed to Robert Kamon for purposes of presenting his beneficial
ownership percentage. Robert Kamon is President of these companies.
Note: The stockholders identified in this table have sole voting and investment
power with respect to the shares beneficially owned by them.
The owners have no rights to acquire additional shares through options,
warrants, rights, or conversion privileges within the next sixty days.
-23-
CHANGES IN CONTROL
Management is not aware of any current arrangements which would result in a
change of control of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
The Company owns 13.8325% Working Interest, Ely Sakhai, Director, owns 16.6667%
working interest and Robert Kamon, Director and Secretary, owns 4.5% Working
Interest in PEL 444 and PEL 112 in Australia. Ely Sakhai acquired an equal 12
1/2% working interest in the Park City Gas Field in Kentucky for cash, while the
Company acquired its 12 1/2% interest through the issuance of restricted common
shares. Ely Sakhai is the father of Andre Sakhai, who is also a Director of the
Company.
Two of the directors of the Company, Robert Kamon and Ken Campbell, are active
in the oil and gas industry personally. The activities of each could result in a
conflict of interest between their other oil and gas activities and those of the
Company.
Robert Kamon is President of Tensleep Oil & Production, Inc., International Oil
Lease Service Corp. (IOLS), and Australian Grazing & Pastoral Co., Pty. Ltd.
(AGP). IOLS and AGP are in the business of applying for and acquiring oil and
gas concessions in Australia; therefore, activities may involve a conflict of
interest with the Company.
Tensleep Oil and Production, Inc. is also in the business of oil and gas
exploration and its activities may involve a conflict of interest with the
Company.
An officer provided office space and services, with no cash costs to the
Company. These contributed costs had estimated unpaid values of $3,200 for both
2008 and 2007. These amounts have been recorded as operating expenses and as
additional paid-in capital in their respective years.
During 2008 and 2007, the Company reimbursed commonly-controlled entities for
personnel and office expenses totaling $37,306 and $36,912, respectively. These
entities, Tensleep Oil & Production, Inc., and Secretarial Services, Inc., are
within the control of the Company's Secretary. Additionally, the Company repaid
Australian Grazing & Pastoral Co., Pty. Ltd., also controlled by the Company's
Secretary, for filing fees during 2008, which totaled $11,532.
The Company borrowed $60,000 and $85,000 from two of its current and previous
officers during 2008 and 2007. These funds were used to pay for administrative
costs and efforts to promote the Company's name and availability.
DIRECTOR INDEPENDENCE
Kenneth Campbell, Howard Siegel and Jan Soleimani are independent directors.
Robert Kamon and Andre Sakhai are not independent directors.
-24-
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
The firm of Killman, Murrell & Company, P.C. served as the Company's independent
auditor for the years ended December 31, 2005, 2006, 2007 and 2008. The Board of
Directors of the Company, in its discretion, may direct the appointment of
different public accountants at any time during the year, if the Board believes
that a change would be in the best interests of the stockholders. The Board of
Directors has considered the audit fees, audit-related fees, tax fees and other
fees paid to the Company's accountants, as disclosed below, and has determined
that the payment of such fees is compatible with maintaining the independence of
the accountants.
Audit and Audit-Related Fees: The aggregate fees, including expenses, billed by
the Company's principal accountant in connection with the audit of our financial
statements for the most recent fiscal year included in our Annual Report on Form
10-K; and for the review of our financial information and our quarterly reports
on Form 10-Q during the years ending December 31, 2008 and 2007 were $33,330 and
$50,620 respectively.
Tax Fees: The Company incurred no fees for tax compliance with the Company's
principal auditor for 2008 and 2007.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
31.1 *Certification of Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 *Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
32. *Certification of Chief Financial Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002.
- -----------------
*Filed herewith.
-25-
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.
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
Dated: March 20, 2009 /S/ ANDRE SAKHAI
-----------------------------------
Andre Sakhai, President and CEO
Dated: March 20, 2009 /S/ MAHNAZ NOURMAND
-----------------------------------
Mahnaz Nourmand, CFO
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Dated: March 20, 2009 /S/ ANDRE SAKHAI
-----------------------------------------
Andre Sakhai, President, Director and CEO
Dated: March 20, 2009 /S/ ROBERT KAMON
-----------------------------------------
Robert Kamon, Secretary and Director
Dated: March 20, 2009 /S/ KENNETH CAMPBELL
-----------------------------------------
Kenneth Campbell, Director
Dated: March 20, 2009 /S/ JAN SOLEIMANI
-----------------------------------------
Jan Soleimani, Director
Dated: March 20, 2009 /S/ HOWARD SIEGEL
-----------------------------------------
Howard Siegel, Director
-26-
Australian-Canadian Oil Royalties Ltd.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm......................F-2
Balance Sheets -- December 31, 2008 and 2007.................................F-3
Statements of Operations and Comprehensive Loss for
the Years Ended December 31, 2008 and 2007 .............................F-4
Statements of Stockholders' Equity for the Years Ended
December 31, 2008 and 2007 .............................................F-5
Statements of Cash Flows for the Years Ended
December 31, 2008 and 2007 .............................................F-6
Notes to Financial Statements ...............................................F-7
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Australian-Canadian Oil Royalties Ltd.
Cisco, Texas
We have audited the accompanying balance sheets of Australian-Canadian Oil
Royalties Ltd. as of December 31, 2008 and 2007, and the related statements of
operations, stockholders' equity, comprehensive loss and cash flows for the
years then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Australian-Canadian Oil
Royalties Ltd. as of December 31, 2008, and 2007, and the results of its
operations and its cash flows for the years then ended, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 11 to the
financial statements, the Company has suffered recurring losses from operations
and its limited capital resources raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also discussed in Note 11. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/S/ KILLMAN, MURRELL & COMPANY, P.C.
- ------------------------------------
Killman, Murrell & Company, P.C.
Odessa, Texas
March 11, 2009
F-2
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
BALANCE SHEETS
December 31, 2008 and 2007
2008 2007
----------- -----------
ASSETS
CURRENT ASSETS
Cash $ 42,677 $ 71,777
Certificate of deposit 1,000,000 --
Accounts receivable 10,899 23,651
Prepaid expenses and other -- 1,630
----------- -----------
Total Current Assets 1,053,576 97,058
----------- -----------
PROPERTY AND EQUIPMENT
Oil and gas properties-being amortized 363,176 122,009
Oil and gas properties-not being amortized 740,428 872,595
Office equipment and software 23,672 23,672
Accumulated depletion and depreciation (154,763) (83,642)
----------- -----------
Net Property and Equipment 972,513 934,634
----------- -----------
OTHER ASSETS 1,084 1,084
----------- -----------
TOTAL ASSETS $ 2,027,173 $ 1,032,776
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - related party $ 1,729 $ 1,235
Accrued expenses 81,046 246,982
Loans from officers 50,000 214,786
Note payable to bank 1,000,000 --
----------- -----------
Total Current Liabilities 1,132,775 463,003
----------- -----------
STOCKHOLDERS' EQUITY
Preferred stock, no par (50,000,000 shares
authorized, none outstanding) -- --
Common stock, no par (50,000,000 shares
authorized, 16,465,458 and 13,741,912 shares
respectively outstanding) 3,490,546 2,842,343
Additional paid in capital 167,151 163,951
Accumulated (deficit) (2,763,303) (2,436,525)
Other comprehensive income:
Foreign currency translation adjustment 4 4
----------- -----------
Total Stockholders' Equity 894,398 569,773
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,027,173 $ 1,032,776
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-3
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
For the Years Ended December 31, 2008 and 2007
2008 2007
------------- -------------
OPERATING REVENUES
Oil and gas revenues $ 123,777 $ 70,798
COST OF REVENUES
Lease operating expenses 14,936 --
Production taxes 54 18
Depletion 69,371 12,506
------------- -------------
GROSS PROFIT 39,416 58,274
------------- -------------
OPERATING EXPENSES
Personnel costs 154,184 213,638
Professional fees 75,690 82,948
Promotion and advertising 26,050 (22,169)
Office expenses 11,756 11,495
Depreciation and amortization 1,750 7,379
Directors' fees and other 55,756 65,560
------------- -------------
Total Operating Expenses 325,186 358,851
------------- -------------
(LOSS) FROM OPERATIONS (285,770) (300,577)
OTHER (EXPENSE)
Interest expense (12,234) (9,006)
------------- -------------
(LOSS) BEFORE INCOME TAXES (298,004) (309,583)
Australian income tax expense 28,774 19,987
------------- -------------
NET (LOSS) (326,778) (329,570)
OTHER COMPREHENSIVE INCOME:
Foreign currency translation adjustment -- 123
------------- -------------
TOTAL COMPREHENSIVE (LOSS) $ (326,778) $ (329,447)
============= =============
Net loss per weighted average share outstanding $ (0.02) $ (0.02)
============= =============
Weighted average shares outstanding 14,664,731 13,648,421
============= =============
The accompanying notes are an integral part of these financial statements.
F-4
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 2008 and 2007
ACCUMULATED
COMMON STOCK ADDITIONAL OTHER
-------------------------- PAID IN ACCUMULATED COMPREHENSIVE
SHARES AMOUNT CAPITAL (DEFICIT) INCOME TOTALS
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 2006 13,264,269 $ 2,686,550 $ 160,751 $(2,107,078) $ 4 $ 740,227
Non-cash stock issuances:
Services 487,643 157,793 -- -- -- 157,793
Oil and gas properties 100,000 25,000 -- -- -- 25,000
Director's fees 40,000 12,000 -- -- -- 12,000
Contributed expenses -- -- 3,200 -- -- 3,200
Shares returned (150,000) (39,000) -- -- -- (39,000)
Net loss -- -- -- (329,447) -- (329,447)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 2007 13,741,912 2,842,343 163,951 (2,436,525) 4 569,773
Non-cash stock issuances:
Services 318,468 136,641 -- -- -- 136,641
Oil and gas properties 300,000 84,000 -- -- -- 84,000
Director's fees 450,000 179,300 -- -- -- 179,300
Notes payable to directors 1,655,078 248,262 248,262
Contributed expenses -- -- 3,200 -- -- 3,200
Net loss -- -- -- (326,778) -- (326,778)
----------- ----------- ----------- ----------- ----------- -----------
BALANCES, December 31, 2008 16,465,458 $ 3,490,546 $ 167,151 $(2,763,303) $ 4 $ 894,398
=========== =========== =========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
F-5
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2008 and 2007
2008 2007
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (326,778) $ (329,447)
Adjustments to reconcile net (loss) to net cash
provided by (used) in operations:
Depreciation, depletion and amortization 71,121 19,885
Value of expenses contributed by officers 3,200 3,200
Stock issued for services 136,641 157,793
Stock issued for directors' fees 179,300 12,000
Stock returned for services not performed -- (39,000)
Changes in:
Receivables 12,752 (12,426)
Prepaid expenses 1,630 (1,630)
Accrued expenses (142,460) 80,164
Accounts payable 494 (523)
----------- -----------
NET CASH (USED) BY OPERATING ACTIVITIES (64,100) (109,984)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment -- (5,250)
Purchase of oil & gas properties (25,000) (10,872)
Proceeds from sale of oil and gas properties -- 157,335
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (25,000) 141,213
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Reduction in notes payable to officers -- (47,408)
Proceeds from notes payable to officers 60,000 85,000
Proceeds from bank loan 1,000,000 --
Restricted certificate of deposit (1,000,000) --
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 60,000 37,592
----------- -----------
Increase (decrease) in cash for year (29,100) 68,821
Cash and cash equivalents, beginning of year 71,777 2,956
----------- -----------
Cash and cash equivalents, end of year $ 42,677 $ 71,777
=========== ===========
SUPPLEMENTAL DISCLOSURES:
Cash payments for:
Interest $ -- $ 3,010
=========== ===========
Australian income taxes $ 28,774 $ 19,987
=========== ===========
The accompanying notes are an integral part of these financial statements.
F-6
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2008 and 2007
(continued)
Noncash Investing and Financing Activities:
Stock issued for oil and gas properties and drilling (84,000) (25,000)
Stock issued for related party notes and interest (248,262) --
Issuance of shares to directors 107,818 --
Issuance of shares to directors 140,444 --
Issuance of shares for oil and gas properties and drilling 84,000 25,000
-------- --------
-- --
======== ========
The accompanying notes are an integral part of these financial statements.
F-6 (continued)
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2008 and 2007
NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Australian-Canadian Oil Royalties Ltd. (the Company) was incorporated April 28,
1997 in Vancouver, British Columbia, Canada. Its primary business plan is the
purchase of overriding royalty interests for long-term passive income and
capital gains, with sales of these interests as deemed in the best interest of
the Company. Current primary income sources are royalties earned on overriding
royalty interests held by the Company. The Company also engages related entities
and third parties for leasing operations in Australia. The primary producing
properties held by the Company are located in Australia's main onshore oil and
gas producing basin. These financial statements are prepared in U.S. dollars for
use in U.S. securities filings.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FOREIGN CURRENCY TRANSACTIONS
These financial statements are prepared in U.S. dollars for use in U.S.
securities filings. However, the Company incurs transactions in Canadian,
Australian and U.S. dollars. Transactions denominated in Canadian or Australian
dollars are translated to equivalent U.S. dollars for recording in the financial
records based on currency exchange rates existing at the dates of the
transactions. Ending balances of accounts that are denominated in Canadian
dollars are translated to U.S. dollars based on the currency exchange rates
existing at December 31. The exchange gains and losses that result from
translating these amounts to U.S. dollars are accumulated and reported as Other
Comprehensive Income, a separate component of the Company's stockholders'
equity.
STOCK BASED COMPENSATION
The Company accounts for services acquired (and other expenses paid) using stock
as compensation (or payment) based on the fair value of the shares issued. Fair
value is determined based on the closing price of the stock on the date the
Company becomes obligated to issue the shares.
OIL AND GAS PROPERTIES
The Company follows the full cost method of accounting for oil and gas producing
activities and, accordingly, capitalizes all costs incurred in the acquisition,
exploration, and development of proved oil and gas properties, including the
costs of abandoned properties, dry holes, geophysical costs, and annual rentals.
All general corporate costs are treated as expenses as incurred. In general,
sale or other dispositions of oil and gas properties are accounted for as
adjustments to capitalized costs with no gain or loss recorded. Capitalized
costs are recorded in cost centers on a country-by-country basis. Most of the
Company's oil and gas properties consist of overriding royalty interests that
are located in Australia. The Company had not participated in the exploration
and development of proved oil and gas properties until 2002. Capitalized costs
are subject to a "ceiling test," which basically limits such costs to the
aggregate of the "estimated present value," discounted at a 10% interest rate of
future net revenues from proved reserves, based on current economic and
operating conditions, plus the lower of cost or fair market value of unproved
properties. Costs in excess of the ceiling test are adjusted against income.
Costs of producing royalty interests acquired in 1997 are being amortized over
the estimated reserves reported by the Queensland, Australia government at June
30, 2007; as revised by subsequent reports for discoveries, changes in
estimates, etc.; based on actual quantities sold. (These reports are generally
released one year after the end of the reporting period.) Costs of non-producing
interests are not being amortized pending development or production and sale of
oil or gas, but they are assessed for impairment on an aggregate
country-by-country basis.
F-7
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2008 and 2007
NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OFFICE EQUIPMENT AND SOFTWARE
Office equipment and software are carried at depreciated cost. Acquisitions are
recorded at cost. Expenditures for major renewals and betterments that extend
the useful lives are capitalized. Expenditures for maintenance and repairs are
charged to expense as incurred. The cost of software and equipment is
depreciated over the estimated useful lives of the related asset. Depreciation
is computed on the straight-line method for financial reporting purposes.
INCOME TAXES
Deferred tax liabilities and assets result from temporary differences between
the financial statement and income tax bases of assets and liabilities. The
company records and adjusts any deferred tax asset valuations based on judgment
as to future realization of the deferred tax benefits supported by demonstrated
trends in the Company's operating results.
As a Canadian corporation, the Company is liable for income taxes under the laws
of Canada. Under Canadian laws the Company's Canadian-source income is subject
to a 46% tax (denominated in Canadian dollars). Operating losses can be carried
forward for seven years. The Company has unused operating loss carry-forwards at
December 31, 2008 that may be applied against future Canadian taxable income.
These expire as presented below. Because the timing of realization of the tax
benefit from these loss carry-forwards cannot be currently projected, a
valuation allowance has been established to completely offset this asset.
AMOUNT OF UNUSED OPERATING EXPIRING DURING YEAR ENDED
LOSS CARRYFORWARD DECEMBER 31,
-------------------------- --------------------------
$ 65,277 2009
104,895 2010
158,230 2011
614,872 2012
620,354 2013
329,446 2014
326,778 2015
-----------
$2,219,852
===========
The potential tax benefit from these operating loss carry-forwards is $988,211
and $945,983 in 2008 and 2007, respectively. The Company has recognized a
valuation allowance against these deferred tax assets due to the inability to
foresee when such benefits will be realized.
The Company is subject to a 30% Australian income tax on Australian source
royalty income. This tax is withheld by the payer. The Company incurred
Australian income taxes on its oil and gas production totaling $28,774 and
$19,987 in 2008 and 2007, respectively.
F-8
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2008 and 2007
NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
LOSS PER SHARE
U.S. accounting rules provide for the calculation of "Basic" and "Diluted"
earnings per share. Basic earnings per common share are computed by dividing net
income available to common stockholders by the weighted average number of common
shares outstanding for the period. Diluted loss per common share reflect the
potential dilution of securities that could share in the loss of the entity on
as "as if converted" basis. This is computed by dividing net income available to
common shareholders, as adjusted if necessary, by the weighted average number of
common shares outstanding plus potentially dilutive securities.
Weighted average shares outstanding were 14,664,731 and 13,648,421 for 2008 and
2007, respectively. Outstanding common stock equivalents have been excluded from
the calculation of diluted losses per share because their effect would be
antidilutive.
CASH FLOWS
The Company considers unrestricted cash and cash investments with initial
maturity or marketability of three months or less to be cash equivalents for
purposes of presenting its Statement of Cash Flows. Cash investments whose use
is limited through collateral restrictions are not considered to be cash for
cash flows.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles required management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimated.
FINANCIAL INSTRUMENTS
Unless otherwise specified, management believes the carrying value of its
financial instruments approximates their fair value due to the short term to
maturity.
RECLASSIFICATIONS
Certain 2007 amounts have been reclassified in order to conform to the 2008
financial statement presentation.
RECENT ACCOUNTING PRONOUNCEMENTS
On December 12, 2007, the Financial Accounting Standards Board ratified the
consensus reached by the Emerging Issues Task Force on Issue No. 07-01
"Accounting for Collaborative Arrangements". This Issue will be effective for
the fiscal year beginning January 1, 2009. This pronouncement is not expected to
have a material impact on the Company's financial statements.
F-9
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2008 and 2007
NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In September 2006, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 157 "Fair Value Measurements" (SFAS 157),
which provides expanded guidance for using fair value to measure assets and
liabilities. SFAS 157 establishes a hierarchy for data used to value assets and
liabilities, and requires additional disclosures about the extent to which a
company measures assets and liabilities at fair value, the information used to
measure fair value, and the effect of fair value measurements on earnings.
Implementation of SFAS 157 was required on January 1, 2008 for financial assets
and liabilities, as well as other assets and liabilities that are carried at
fair value on a recurring basis in financial statements. FASB Financial Staff
Position No. FAS 157-2 deferred implementation for other non-financial assets
and liabilities for one year. Examples of non-financial assets and liabilities
are asset retirement obligations and non-financial assets and liabilities
initially measured at fair value in a business combination. The adoption of SFAS
157 did not have a material impact on the financial statements.
The Financial Accounting Standards Board revised Statement of Financial
Accounting Standards No. 141 (Revised 2007) "Business Combinations" (SFAS 141R)
in 2007. The revision broadens the application of SFAS 141 to cover all
transactions and events in which an entity obtains control over one or more
other businesses. This standard requires that transaction costs related to
business combinations be expensed rather than be included in the acquisition
cost. This Statement applies prospectively to business combinations for which
the acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008. The impact of this standard will
be on the fair value recorded for future business combinations after adoption.
In February 2007, the Financial Accounting Standards Board issued Statement No.
159 "The Fair Value Option for Financial Assets and Financial
Liabilities--Including an amendment of FASB Statement No. 115." The fair value
option established by this Statement permits all entities to choose to measure
eligible items at fair value at specified election dates. Companies are required
to report unrealized gains and losses on items for which the fair value option
has been elected in earnings at each subsequent reporting date. This Statement
is effective as of the beginning of an entity's first fiscal year that begins
after November 15, 2007. It does not affect any existing accounting literature
that requires certain assets and liabilities to be carried at fair value. The
Company has not elected the fair value option for any eligible items.
In December 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 160 "Noncontrolling Interest in Consolidated
Financial Statements - an Amendment of ARB 51" (SFAS 160). SFAS 160 clarifies
that a noncontrolling interest in a subsidiary is an ownership interest in the
consolidated entity that should be reported as equity in the consolidated
financial statements. It also requires consolidated net income to be reported at
amounts that include the amounts attributable to both the parent and the
noncontrolling interest, and requires disclosure, on the face of the
consolidated statement of income, of the amounts of consolidated net income
attributable to the parent and to the noncontrolling interest. SFAS 160 is
effective for fiscal years, and interim periods within those fiscal years,
beginning on or after December 15, 2008. Adoption of this standard is not
expected to have a material impact on the Company's financial statements.
F-10
AUSTRALIAN-CANADIAN OIL ROYALTIES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2008 and 2007
NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECENT ACCOUNTING PRONOUNCEMENTS (CONTINUED)
In March 2008, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 161 "Disclosures about Derivative Instruments
and Hedging Activities - An Amendment of FASB Statement No. 133" (SFAS 161),
that requires new and expanded disclosures regarding hedging activities. These
disclosures include, but are not limited to, a proscribed tabular presentation
of derivative data; financial statement presentation of fair values on a gross
basis, including those that currently qualify for netting under FASB
Interpretation No. 39; and specific footnote narrative regarding how and why
derivatives are used. The disclosures are required in all interim and annual
reports. SFAS 161 is effective for fiscal and interim periods beginning after
November 15, 2008.
On December 31, 2008, the SEC published the final rules and interpretations
updating its oil and gas reporting requirements. Many of the revisions are
updates to definitions in the existing oil and gas rules to make them consistent
with the petroleum resource management system, which is a widely accepted
standard for the management of petroleum resources that was developed by several
industry organizations. Key revisions include the ability to include
nontraditional resources in reserves, the use of new technology for determining
reserves, permitting disclosure of probable and possible reserves, and changes
to the pricing used to determine reserves in that companies must use a 12-month
average price. The average is calculated using the first-day-of-the-month price
for each of the 12 months that make up the reporting period. The SEC will
require companies to comply with the amended disclosure requirements for
registration statements filed after January 1, 2010, and for annual reports for
fiscal years ending on or after December 15, 2009. Early adoption is not
permitted. The Company is currently evaluating the impact that the adoption will
have on the financial statements.
NOTE 2: ACCOUNTS RECEIVABLE
At December 31, 2008 and 2007 the Company has accrued receivables for oil and
gas production from its Australian overriding royalty interests totaling $10,899
and $23,651, respectively. Collection of the accrued Australian production
generally occurs during the quarter following the quarter of production.
The cost bases of the receivables are believed to approximate their fair values.
No allowance for bad debts has been established because the Company has not
experienced any significant inability to collect its receivables.
F-11
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2008 and 2007
NOTE 3: PROPERTIES AND EQUIPMENT
The following table presents costs of property and equipment at December 31,
2008 and 2007.
2008 2007
----------- -----------
Oil and gas properties $ 1,103,604 $ 994,604
Office equipment 8,121 8,121
Seismic analysis software 15,551 15,551
----------- -----------
Total costs 1,127,276 1,018,276
Accumulated depletion (132,841) (63,470)
Accumulated depreciation (21,922) (20,172)
----------- -----------
Net Property and Equipment $ 972,513 $ 934,634
=========== ===========
Depreciation expense was $1,750 and $7,379 for 2008 and 2007, respectively. The
office equipment and the software are being depreciated on a straight-line basis
over three years.
NOTE 4: OIL AND GAS PROPERTIES
Following is a summary of capitalized costs related to oil and gas properties:
2008 2007
-------------------------- --------------------------
AUSTRALIA U.S. AUSTRALIA U.S.
----------- ----------- ----------- -----------
Acquisition cost $ 625,586 $ 4,378 $ 516,586 $ 4,378
Exploration cost 503,016 -- 503,016 --
Assignments, transfers, and rentals 4,688 -- 4,688 --
Less allowance for excess costs (34,064) -- (34,064) --
----------- ----------- ----------- -----------
Total 1,099,226 4,378 990,226 4,378
Less accumulated depletion (130,398) (2,443) (61,272) (2,198)
----------- ----------- ----------- -----------
Net Oil and Gas Properties $ 968,828 $ 1,935 $ 928,954 $ 2,180
=========== =========== =========== ===========
The costs of the producing properties are being amortized over reserve estimates
reported by the Queensland, Australia government for June 30, 1997, as adjusted
for subsequently reported information, based on quantities produced. These
producing properties are ATP 267, ATP 299, ATP 543, ATP 560 and PEL 115. Other
interests have not produced marketable oil or gas from which the Company has
received revenues. The costs associated with these non-producing properties are
not being amortized pending determination of reserve quantities and commencement
of production. Depletion expense totaled $69,125 and $12,506 for 2008 and 2007.
AUSTRALIA
During 2008, the Company acquired a 1/20th of 1% Overriding Royalty Interest
under VIC/59 which amounted to $109,000 ($84,000 by issuing common stock and
$25,000 in cash).
(Continued)
F-12
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2008 and 2007
NOTE 4: OIL AND GAS PROPERTIES (CONTINUED)
During 2007, the Company acquired a 1/30th of 1% Overriding Royalty Interest
under WA272 and WA372 for $35,000 (this purchase was paid for by issuing stock).
Other lease maintenance costs, which included license fees on PEL's 108, 109 and
112 totaled $872. The Company sold their working interest in VIC/P60 for a total
of $152,886, but retained a 2.125% overriding royalty interest. The Company
received a refund of overpayment of seismic costs in the amount of $4,449.
NOTE 5: LOANS FROM SHAREHOLDERS AND NOTES PAYABLE
During 2008, the Company borrowed additional funds from its previous president
and current secretary in the amount of $60,000. The Company repaid a portion of
the loans to its previous president and current secretary during 2008 in the
amount of $224,786. Loans from officers totaled $50,000 as of December 31, 2008.
During 2007, the Company borrowed additional funds from its previous president
in the amount of $85,000. The Company repaid a portion of the loans to its
current secretary in the amount of $47,408. Loans from current and previous
officers totaled $214,786 as of December 31, 2007.
The Company had an outstanding loan of $1,000,000 from the American State Bank
of Cisco, as of December 31, 2008. The balance outstanding at December 31, 2008
bears interest at 4.12% and is due in May, 2009. This note is secured by a
certificate of deposit shown as restricted cash on the balance sheet. Total
interest incurred on this note during 2008 was $5,379. On March 2, 2009 this
note was paid with the proceeds received from the certificate of deposit.
NOTE 6: TRANSACTIONS WITH RELATED PARTIES
An officer provided office space and services, with no cash costs to the
Company. These contributed costs had estimated unpaid values of $3,200 for both
2008 and 2007. These amounts have been recorded as operating expenses and as
additional paid-in capital in their respective years.
During 2008 and 2007, the Company reimbursed commonly-controlled entities for
personnel and office expenses totaling $37,306 and $36,912, respectively. These
entities, Tensleep Oil & Production, Inc., and Secretarial Services, Inc., are
within the control of the Company's Secretary. Additionally, the Company repaid
Australian Grazing & Pastoral Co., Pty. Ltd., also controlled by the Company's
Secretary, for filing fees during 2008, which totaled $11,532.
The Company borrowed $60,000 and $85,000 from two of its current and previous
officers during 2008 and 2007. These funds were used to pay for administrative
costs and efforts to promote the Company's name and availability.
At December 31, 2008 and 2007, the Company's accounts payable was $1,728 and
$1,235, respectively payable to related parties.
Common Shares to Directors - The Compensation Committee approved 40,000 shares
of restricted stock per director for the year 2008, valued at $0.22 per share,
being the market value on September 24, 2008. The Compensation Committee
approved 40,000 shares of restricted stock per director for the year 2007,
valued at $0.30 per share, being the market value on June 22, 2007. This
recommendation by the Compensation Committee was voted on and approved by the
Board of Directors and has been recorded
(Continued)
F-13
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2008 and 2007
NOTE 6: TRANSACTIONS WITH RELATED PARTIES (CONTINUED)
as an expense in these financial statements in the amounts of $44,000 and
$60,000, respectively for 2008 and 2007. This stock will be issued to each
director at the director's discretion. During 2008, Andre Sakhai, Robert Kamon
and Kenneth Campbell each received 110,000 shares for their fees for 2006, 2007
and 2008; Howard Siegel received 40,000 for 2008; and Jan Soleimani received
80,000 for 2007 and 2008. Howard Siegel is the only director whose stock was
issued in 2007 and 2006 in the amount of 40,000 shares and 30,000 shares.
NOTE 7: FOREIGN OPERATIONS
As noted above, the Company was incorporated in Canada. Additionally, the
Company operates primarily in Australia where most of its properties are
presently located. Approximately 90% of all operating revenues reported by the
Company during 2008 and 2007 were received from Australian oil and gas royalty
interests. Depletion expense and Australian income taxes reported by the Company
during 2008 and 2007 are also related to the revenue received from the
Australian royalties. Australian revenues were $107,353 and $70,409 in 2008 and
2007.
Essentially all of the Company's administrative costs are incurred in the United
States. Leasing operating expenses and taxes have been incurred in the U.S. and
taxes have been paid to Australia.
NOTE 8: STOCK TRANSACTIONS
During 2008, the Company issued a total of 2,723,546 shares. A total of
1,655,078 shares were issued for loan repayments, including interest, to its
previous president and current secretary valued at $248,262; 450,000 shares were
issued for Director's Fees valued at $179,300; 318,468 shares were issued for
services valued at $136,641 and the Company acquired an override in a concession
located in Victoria Australia for 300,000 shares of restricted common stock
valued at $84,000.
During 2007, the Company issued shares of its common stock for the following:
487,643 shares were issued for services valued at $157,793; 100,000 shares were
issued for the acquisition of an interest in an Australian property valued at
$25,000; and 40,000 shares were issued for directors' fees valued at $12,000.
Also, a total of 150,000 shares were returned to the Company for public
relations fees valued at $39,000.
NOTE 9: CONTINGENCIES
The original package of Australian overriding royalty interests acquired by the
Company in 1997 included a 1/8 of 1% interest in all production from the
Patchawarra Southwest Block of PEL's 5 & 6. This overriding royalty comprises
approximately 5,348 net royalty acres under 1,069,717 surface acres. The
Patchawarra Southwest Block became productive in June 1989 and has produced
approximately $AU67,119,716 in revenues from oil, gas and LPG since that time.
This overriding royalty was first created in June 1971 as a 1/4 of 1% interest
out of a 10% working interest. Since that time, this interest has been assigned
to six different companies with the last assignee being Australian-Canadian Oil
Royalties Ltd. During 1997, the Company determined that, due to the extensive
time elapsing between assignments and the failure of some intermediate assignees
to properly assign title, it will be necessary to engage in litigation in order
to collect both past and future royalty payments. In addition to the legal costs
incurred in this litigation, the Company will be required to pay the stamp duty
(transfer tax), charged by the Australian government, for each previously
unrecorded assignment
(continued)
F-14
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2008 and 2007
NOTE 9: CONTINGENCIES (CONTINUED)
The Company is considering the appropriate timing and costs which will be
required to undertake the necessary litigation to perfect its title in this
royalty interest. As of December 31, 2008, no litigation has been undertaken.
Legal counsel has advised the Company that the expected cost of the litigation
process will be in the range of $AU30,000 plus any stamp duty that may be
required. The required stamp duty will be based on the state's determination of
value and will be required to be paid for each unregistered transfer in the
chain of title. At this time no estimate of this cost can be made. Upon
successfully clearing title to the property, the Company expects to collect
approximately $AU42,000 in royalties on previous production. A six-year statute
of limitations runs on unpaid royalty revenue.
The Company has extensive commitments on its working interest properties in
Australia. The following summarizes these commitments.
ATP 582 - The Company has annual rentals of $23,000 per year on the 6,716,000
acre concession which the Company owns 100%.
PEL 444 (previously PEL's 108 and 109) and PEL 112 - The Company has annual
rentals which are approximately $10,000 per year on these concessions and the
Company owns a 13.8325% Carried Working Interest.
In the event the Company cannot fund the above commitments or farm-out these
areas to partners for funding, then the concessions will be subject to being
cancelled.
NOTE 10: CONCENTRATION OF RISK
The producing oil and gas assets of the Company are all located in Australia.
These continue to be the primary source of operating revenues for the Company.
Accounts at the bank are insured by the Federal Deposit Insurance Corporation
(FDIC) up to $250,000 per depositor. Combined balances at December 31, 2008 at
the Company's primary bank did not exceed federally insured limits.
NOTE 11: GOING CONCERN CONSIDERATIONS
As of December 31, 2008, the Company has limited disposable cash and its
revenues are not sufficient to, and cannot be projected to, cover operating
expenses and expansion by the Company. These factors raise substantial doubt as
to the ability of the Company to continue as a going concern. Management's plans
include attempting to find a drilling company to farm out the working interest
it holds in Australia, raising funds from the public through a stock offering,
and attempting to acquire additional producing interests in exchange for stock.
Management intends to make every effort to identify and develop sources of
funds. There is no assurance that Management will be successful. The Company is
effectively debt free and could continue to operate at subsistence levels
pending development of funding sources, unless required to fulfill its
obligation in Australia.
F-15
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2008 and 2007
NOTE 12: SUPPLEMENTARY DATA - RESERVES OF OIL AND GAS (UNAUDITED)
The following schedules set out available information about the Company's oil
and gas activities at December 31, 2008.
RESERVES OF OIL AND GAS - ROYALTY INTERESTS
The current quantities of proved reserves of oil and gas relating to royalty
interests are not presented because the necessary information is not available
or the Company's interests are not large enough to economically and reasonably
obtain this information. The Company's share of oil and gas produced from the
producing interests is presented in the following schedule. No estimates of
reserves have been reported to or filed with any Federal authority or agency
during the year presented. All of these royalty interests are in Australia. The
gas wells on ATP 543 were shut in all of 2008.
GAS (MCF) OIL (BBLS)
--------- ----------
Reserves reported by the Queensland
Government as of June 30, 1997 123 21,030
Additions or adjustments after 1997 15,272 2,350
Discoveries -- --
Cumulative previous production (4,232) (5,201)
Current year production -- (942)
------- -------
Unrecovered reserves 11,163 17,237
======= =======
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
For the Year Ended December 31, 2008
AUSTRALIA U.S. TOTAL
-------- -------- --------
Sales of oil and gas $107,353 $ 16,424 $123,777
Production costs (including taxes) -- 14,990 14,990
Depletion 69,125 246 69,371
-------- -------- --------
Results of operations from
producing activities (excluding
corporate overhead) $ 38,228 $ 1,188 $ 39,416
======== ======== ========
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
At December 31, 2008
AUSTRALIA U.S. TOTAL
----------- ----------- -----------
Unproved properties
(not being amortized) $ 738,550 $ 1,878 $ 740,428
Proved properties
(being amortized) 360,676 2,500 363,176
----------- ----------- -----------
Total Capitalized Costs 1,099,226 4,378 1,103,604
Accumulated depletion (130,398) (2,443) (132,841)
----------- ----------- -----------
Net Capitalized Costs $ 968,828 $ 1,935 $ 970,763
=========== =========== ===========
(Continued)
F-16
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2008 and 2007
NOTE 12: SUPPLEMENTARY DATA - RESERVES OF OIL AND GAS (UNAUDITED) (CONTINUED)
COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION AND DEVELOPMENT
For the Year Ended December 31, 2008
AUSTRALIA U.S.
-------- -----------
Property acquisition costs:
Proved $ -- $ --
Unproved 109,000 --
Exploration costs -- --
Development costs -- --
-------- -----------
Total $109,000 $ --
======== ===========
F-17