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, 2010
COMMISSION FILE NUMBER: 0-29832
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
British Columbia, Canada 75-2712845
(State or other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
PO Box 1629
1301 Ave. M, Cisco, Texas 76437
(Address of Principal Executive Offices)
(254) 442-2638
(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
28, 2011 was $2,511,314 based on the closing price of the stock that day as
quoted on the OTCBB.
The Registrant had 20,148,284 common shares outstanding as of March 28, 2011.
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 with its working interests and overriding
royalty positions held both domestically and internationally. The business of
ACOR during 2010 was to work on its existing working interest projects as well
as study the oil and gas exploration acreage available in Australia in basins
that demonstrate a high probability of success with the maximum rate of return
for dollars invested.
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 2010 was $US 68.16.
3
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.
Due to extreme flooding most exploration activities were cancelled or delayed on
the Company's Australian interests during 2010. However, two wells were drilled
on one of the Company's interests, one of which was successful. For further
information on each of the Company's interests 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) to seek
working interests in oil and gas concessions within sedimentary basins of
Australia to promote oil and gas exploration through seismic programs and
drilling operations.
The Company's ability to explore other oil and gas opportunities is dependent on
adequate capital resources being available and equity being obtained, and/or
finding 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%.
4
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.
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, Queensland or Victoria,
where all of the foreign oil and gas properties from which the Company receives
royalty income are currently located.
QUEENSLAND NATIVE TITLE STATUS
In Queensland, the Company's access for exploration on ATP 582 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.
5
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 28, 2011 was $1.00 Australian = $1.028 United States
dollar.
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,
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.
6
RESEARCH AND DEVELOPMENT ACTIVITIES
Significant flooding occurred in 2010 for large parts of Australia including
where the majority of the Company's interests are located primarily within the
Cooper-Eromanga Basin of Queensland and South Australia. Drilling and seismic
programs planned or scheduled on our interests were either cancelled or
postponed. Consequently only two wells were drilled on our interests during
2010. The record flooding also caused a number of our producing properties to be
shut in due to lack of accessibility.
The flooding also caused the Snatcher 1, 2 and 3 wells drilled during the last
quarter of 2009 to be shut in during the first quarter of 2010 and they may not
be put back into production until the summer of 2011. The Company holds an
overriding royalty interest in these three wells. For additional information on
the Snatcher wells see PEL 111 under "Properties".
Of particular interest is the development of the Company's 50% working interest
in ATP 582. ATP 582 covers approximately 6,716,000 gross acres and lies in the
Georgina Basin, which is a part of the Cooper/Eromanga Basin. The improvement in
multi high-pressure fracing technology over the past 10 years has made low
permeable shale very economic to produce both oil and gas and has been widely
used in North America to unlock unconventional reservoirs in shale bearing
hydrocarbons. This technology has not been utilized in the Georgina Basin;
however on the adjoining concession to the east in the Northern Territory
drilling two horizontal wells into the Arthur Creek Shale utilizing the current
high pressure multiple stage fracing on this formation is planned. ATP 582 is
well positioned with 1,000,000 acres on the northern most part known to have the
presence of the Arthur Creek Shale in place. For additional information see
"Properties" ATP 582.
The Longtom gas project on VIC/P54 commenced production on October 21, 2009
under a sales agreement with Santos Ltd. Vic/P54 is located in the Bass Strait
of the Gippsland Basin. The Company holds a 1/20th of 1% of the gross production
in this concession, which 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). For additional information see Vic/P54 in Properties -
Bass Strait of the Gippsland Basin.
PERSONNEL
The Company hires part time people on an as needed basis. The Company also
engages consultants and professionals when needed for specific projects and/or
tasks.
7
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.
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.
8
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, 2010 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.
9
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 488,040 net royalty acres under 13,679,838 gross surface acres
in thirteen concessions located in the Cooper/Eromanga Basins. In addition the
Company also owns 3,118 net royalty acres under 672,040 gross acres in four
concessions located in the Bass Strait of the Gippsland Basin located offshore
of the state of Victoria, 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.
On the 14,351,878 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.
During 2010 the Company received revenues from five of its overriding royalty
interests - ATP 267, ATP 299, ATP 560, PEL 111, PEL 115 and VicP54, and one of
its working interests - PEL 100. A successful gas well was completed on ATP 543
in 1996; however, 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.
No gas sales were made during 2010 on ATP 543.
The Company has overriding royalty interests in four Permits in the Gippsland
Basin, VIC/P45, 54 and 59. 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.
10
In addition to Company's large overriding royalty position it also has working
interests in four concessions, which are all located in the Cooper/Eromanga
Basin. See the table for Working Interest
Holdings for additional information.
NON-PRODUCING OVERRIDING ROYALTY INTERESTS
PERCENTAGE OF NET
AREA CONCESSION GROSS 1% OF GROSS ROYALTY
HOLDER ACRES PRODUCTION ACRES
--------------------------------------------------------------------------------
BASS STRAIT OF GIPPSLAND BASIN (OFFSHORE OF VICTORIA, AUSTRALIA)
VIC/P45 Exoil Ltd. 214,896 7.50% 1,289
VIC/P59 Apache Northwest Pty 301,468 5.00% 1,206
--------- ---------
TOTAL 516,364 2,495
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 424 Victoria Petroleum 1,516,733 10.00% 12,134
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(1) Cooper-Eromanga Oil 6,716,000 67.10% 360,515
ATP 616 Sundance Resources 147,200 333.33% 39,253
---------- ---------
TOTAL 11,079,207 448,486
(1) Our Company has entered into a Joint Venture where the partner will pay for
the Native Title clearance, conduct a 2-D seismic program, drill one well, and
earn 50% interest in this concession.
11
PRODUCING OVERRIDING ROYALTY INTERESTS
AREA PERCENTAGE OF NET
& # OF CONCESSION GROSS 1% OF GROSS ROYALTY
WELLS HOLDER ACRES PRODUCTION ACRES
--------------------------------------------------------------------------------
BASS STRAIT OF GIPPSLAND BASIN
VIC/P54
Nexus Energy Pty. Ltd. 155,676 5.00% 623
COOPER/EROMANGA BASIN
PEL 111
4 wells Victoria Petroleum 290,101 10.00% 2,320
PEL 115
8 Wells Victoria Petroleum 65,730 10.00% 526
ATP 267
25 Wells Santos 220,800 17.15% 3,029
ATP 299
104 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
5 Wells Group Inc. 625,600 25.00% 12,512
--------- ------
TOTAL 2,600,631 39,554
WORKING INTEREST HOLDINGS
PERCENTAGE
AREA CONCESSION GROSS OF WORKING NET
HOLDER ACRES 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% 75,061
PEL 444 Holloman Energy 582,674 13.8325% 80,598
------------ ---------
TOTAL 7,914,460 6,872,391
The following is a summary of the Company's Australian properties divided into
four areas:\ 1) Gippsland Basin - Victoria, 2) Cooper/Eromanga Basin of South
Australia, and 3) Cooper/Eromanga Basin of Queensland;
12
BASS STRAIT OF THE GIPPSLAND BASIN
The Company holds overriding royalty interests in four oil and gas concessions
located in the Bass Strait of the Gippsland Basin. 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. The following is a report
on each of the Company's interests in the Bass Strait of the Gippsland Basin:
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. Apache drilled two unsuccessful
wells (Megamouth #1 and Coelacanth #1) on VIC/P45 prior to 2010 and other
prospective leads of interest caused Apache to apply for new exploration terms.
Apache, the Operator, was granted a six year work program requiring
geo-technical studies and review of the remaining leads with the permit with an
aim of developing a drilling prospect.
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. Interpretation of the reprocessed
seismic data focused on the maturing of the Longtom West exploration target. A
five-year permit renewal was accepted during 2010. In October 2010, Nexus
recommenced production of hydrocarbons from the Longtom wells. Re-conciliation
of the reservoir pressure behavior with field mapping is ongoing coupled with
further data on the undeveloped 400 sands on Longtom-3, with the results
anticipated during the first half of 2011. This will be used as the basis for a
review of the full field development plan as the Longtom region has been an area
of focus for 3D seismic re-interpretation with encouraging results.
A review of the Longtom discoveries is important to see the magnitude of these
wells. The Longtom-3 was drilled and completed during the summer of 2006. Two
production tests were conducted on the well:
13
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.
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.
A 12" pipeline was constructed to the Longtom Field with the first delivery of
gas beginning on October 21, 2009. Revenues from gas sales for the Company begin
in 2010. During 2010 the Longtom Field was shut in due to mercury levels
exceeding gas plant standards. A processing plant was installed to remove the
excess mercury and production from the Longtom Field resumed in November 2010.
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. No significant activity was reported during 2010
on VIC/P59.
COOPER/EROMANGA BASIN - SOUTH AUSTRALIA
The Company holds overriding royalty interests in five oil and gas concessions
and holds working interests in three oil and gas concessions located in the
Cooper/Eromanga Basin of South Australia. The following is a report on each of
the Company's interests in 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.
14
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 444 barrels of oil on a drill stem test. The Cleansweep well is estimated
to have the potential of 4.8 million barrels of recoverable oil in place. Recent
seismic mapping has confirmed that Angelica #1 drilled in 1998 was drilled off
structure. A more detailed review of the existing seismic identified a four-way
drape structure of Eromanga Basin sediments over a basement horst bald of
Permian strata. A detailed 3D seismic program is planned to ensure that Angelica
#2 tests the crest of this structure; however, this program has been delayed due
to flooding in the area. The Angelica 3D seismic survey is proposed to cover 302
square kilometers and is planned for the fourth quarter of 2011.
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. During 2009 three wells (Snatcher 1, 2 & 3) were drilled and
completed as producers in the Birkhead channel sands. The Snatcher #1 well
tested 218 barrels of oil per day.
The Snatcher #1 began producing on December 20, 2009 with both the Snatcher
wells 2 & 3 coming on line during the first quarter of 2010; however, they were
shut in due to flooding and are expected to remain shut in until the summer of
2011. The severe flooding caused major road and access problems.
Plans to drill Liberator #1 during the summer of 2010, which is located
approximately 700 meters northwest of Snatcher #3, has been delayed due to
flooding in the area.
The operator states that Angelica #2 has been nominated to be the first prospect
to be drilled in 2012.
PEL 112 & 444
Holloman Energy, the operator of PEL 112 & PEL 444, has identified 38 leads on
PEL 112. The Company owns a 13.83% working interest under both PEL 112 & PEL 444
and is 100% fully carried for its 13.83% working interest in the next two wells
drilled on either PEL. The Company will be obligated to pay its proportionate
part on any exploration costs thereafter. PEL 112 and PEL 444 comprise
approximately 1.125 million gross acres and are both located within Australia's
most prolific onshore oil and gas-producing basin, the Cooper/Eromanga Basin.
Holloman joined other Cooper Basin exploration companies in an aggressive
program to regain access to their properties through the complete construction
of upgraded roads and a bridge to provide vehicle access to field and
exploration operations on the western flank of the Cooper Basin where PEL 112 is
located. Holloman intends to pursue negotiations to piggyback PEL 112 work area
clearance and seismic acquisition on Beach Petroleum's upcoming activity.
15
PEL 115
This permit covers 65,730 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 a 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 northeast. 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 the 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). During 2009 the Fury #1 and
Airacobra #1 were drilled and completed as producers. Based on the analysis of
the wire line log data and sidewall cores and similarity of the Murta oil column
in Fury-1 to those seen in the producing Mirage Oil Field, 5 kilometers to the
southwest, Fury-1 has been completed for production with 7 inch production
casing run to 6,446 feet.
Flooding during 2010 prevented the Fury-1 from being placed into production. The
flooding also severely impacted the production from the Mirage and Ventura
fields.
COOPER/EROMANGA BASIN - QUEENSLAND
The Company holds overriding royalty interests in eight oil and gas concessions
and holds working interests in one oil and gas concession located in the
Cooper/Eromanga Basin of Queensland. The following is a report on each of the
Company's interests in Queensland:
ATP 267
The Company owns an overriding royalty interest of 17.15% of 1% in ATP 267,
which covers approximately 220,800 acres. ATP 267 has 25 producing wells in six
oil fields known as the Kihee, Koora, Nockatunga, Winna, Maxwell, Dikera, Thungo
and Murhero fields. The Company received revenues from its overriding royalty
ownership in these wells during 2010. No new wells were drilled during 2010 on
this concession due to flooding in the area.
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 104 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.
ATP 299 has 104 producing wells in 25 oil fields. The Company received revenues
from its overriding royalty ownership in these wells during 2009. Two new wells
were drilled in 2009 on ATP 299, Ipundu #16 and Ipundu North #13 both of which
were cased and suspended as future oil producers. Flooding prevented any further
drilling in 2010 on ATP 299.
16
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 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.
During 2010 two wells were drilled on ATP 560, Ubute-1 and Utopia-10. The
Ubute-1 was plugged and abandoned and the Utopia-10 was cased and suspended as a
producer with completion planned when accessible following the repairs from the
severe flooding.
Utopia-11H, a horizontal development well, is also planned for 2011. Reservoir
modeling suggests that a horizontal well will substantially increase the oil
production in comparison to an unstimulated vertical well. The production
results of Utopia-11H and the fracture stimulated Utopia-10 will determine the
optimum well design to develop the substantial remaining reserves in the Utopia
Field. Also planned in 2011 is 100 square kilometers of 3D seismic during the
first half of the year. The timing for both the drilling of the Utopia-11H and
the seismic program are subject to accessibility following the damage caused by
the severe flood.
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. ATP 582 lies
within the Georgina Basin, which covers most of the central-eastern part of the
Northern Territory and is considered one of the most prospective undeveloped
onshore petroleum provinces in Northern Territory and Queensland. Although the
Georgina Basin has not had a discovery today, the Cambrian Thorntonia-Arthur
Creek succession of the Georgina Basin possess all of the required elements
necessary for petroleum generation, migration and entrapment. Of particular
interest in the Georgina Basin and on ATP 582 is the presence of the Arthur
Shale, which has similar characteristics to the Brakken Shale of Western Canada
and North Dakota that has produced more than 10 TCF of gas and 1 Billion barrels
of oil.
The improvement in multi high-pressure fracing technology over the past 10 years
has made low permeable shale very economic to produce both oil and gas and has
been widely used in North America to unlock unconventional reservoirs in shale
bearing hydrocarbons. This technology has not been utilized in the Georgina
Basin; however, on the adjoining concession to the east in the Northern
Territory plans are to drill two horizontal wells into the Arthur Creek Shale
utilizing the current high pressure multiple stage fracing on this formation.
ATP 582 is well positioned with 1,000,000 acres on the northern most part known
to have the presence of the Arthur Creek Shale in place.
The adjoining concession to the west of ATP 582 operated by Baraka Petroleum
Limited plans a four well program and if successful plans to expand to a 20 well
exploration drilling program.
17
In addition to the Arthur Shale opportunity, ACOR management has identified two
prospects on ATP-582 from the 850 miles of seismic data, owned by ACOR. ATP 582
is up dip of the approximately $1 billion dollar annual production from the
Santos-Exxon producing block and is along strike with many new discovery wells
that have sustained daily production of 1,000 - 3,000 barrels of oil per day.
The two prospects that have been identified are:
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 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, 2010, a shareholder's meeting was held
on December 15, 2010 to elect directors and ratify the selection of auditors for
the Company. No other matters were submitted to the Company's stockholders for
approval.
18
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, 2009 and 2010, respectively. These
quotations reflect inter-dealer prices, without retail mark-up, mark- down or
commissions, and may not represent actual transactions.
2009 2010
------------------------ ------------------------
High Low High Low
------ ------- ------ -------
1st Quarter $0.13 $0.05 $0.22 $0.11
2nd Quarter 0.16 0.04 0.22 0.02
3rd Quarter 0.18 0.10 0.20 0.06
4th Quarter 0.20 0.10 0.14 0.02
The approximate number of securities holders of record of Australian-Canadian
Oil Royalties Ltd. on December 31, 2010 was 317 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.
19
RECENT SALES OF UNREGISTERED SECURITIES
During the fiscal year ended December 31, 2010, the Company issued a total of
557,143 unregistered shares as follows:
Purpose Issued To: Amount of Shares Value
------- ---------- ---------------- -----
Director's Fees Andre Sakhai 50,000 $ 6,500
Director's Fees Kenneth Campbell 50,000 $ 6,500
Sale of Stock Sam Mandelbaum 357,143 $25,000
Services Roger Autrey 100,000 $10,000
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 2010 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.
20
GENERAL DISCUSSION:
ACOR's 2010 fiscal year was a challenging year due to record flooding conditions
covering most of the oil and gas concessions in which the Company holds an
interest. Because of the severe amount of flooding only two wells were drilled
during 2010 on the Company's properties in Australia of which one was
successful.
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. During 2008
Holloman obtained approval from the South Australian Government for new
exploration terms 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. For
further information on activities on the Company's properties see Item 2.
Properties.
A 12" pipeline was constructed to the Longtom Field with the first delivery of
gas beginning on October 21, 2009 on VIC/P54. Revenues from gas sales for the
Company begin during the first half of 2010. 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.
ACOR has overriding royalty interests under 14,351,878 gross surface acres in
the Cooper/Eromanga, Bass Strait of the Gippsland Basin and Carnarvon 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.
The Company's management is optimistic about the future drilling planned on its
Australian interests, especially for the next couple of years.
RESULTS OF OPERATIONS
The Company's oil and gas revenues increased approximately 27% when comparing
2009 to 2010. In 2009 the revenues were $61,170 compared to $77,652 in 2010. The
majority of the revenues came from the Company's ownership in ATP 299, an oil
and gas concession located in the Cooper/Eromanga Basin of Queensland,
Australia, and VIC/P54 located in the Bass Strait of Gippsland Basin of
Victoria, Australia.
21
The categories of Personnel Costs, Professional fees and Promotion and
advertising reported expenditures of $144,840 for 2010 compared to $154,080 for
2009. Of the $144,840 the Company paid $10,000 through the issuance of
unregistered common stock in 2010 and of the $154,080 the Company paid $50,338
through the issuance of unregistered common stock in 2009. 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 basic
allocation of the 2010 Personnel Cost of $58,055 was $39,317 for contract
services, $17,141 in wages and $1,600 for officer compensation. The allocation
of 2009 personnel cost of $97,368 is $51,989 for contract services, $30,584 in
wages, $14,600 for officer compensation and $195 for miscellaneous fees. The
Directors' fees and other operating expense category for 2010 was $5,885
decreasing from $38,886 for 2009. No Directors' fees were awarded in 2010, and
Director's fees of $32,500 in stock were awarded in 2009. The balance "other" is
for stock transfer fees, travel and meals representing only $5,855 for 2010 and
$6,386 for 2009.
The other categories of expenditures did not significantly change when comparing
the fiscal year ended 2009 to 2010.
Other Income (Expense) for the Company includes interest expense of $2,353 for
2010 compared to an interest expense of $54,725 for 2009. During 2009 the
Company paid in full the interest and principle on its $1,000,000 loan with
American State Bank of Cisco, Texas. The decrease in interest expense for 2010
is due to the elimination of this debt.
Australian income taxes decreased from $14,082 in 2009 to $10,026 for 2010.
The net loss for the year ended December 31, 2010 was $147,311 compared to a net
loss of $236,950 for the year ended December 31, 2009. Per share losses were
$0.01 per share for the year ended 2010 and $0.01 per share for 2009.
LIQUIDITY AND CAPITAL RESOURCES
The Company's Total Current Assets as of December 31, 2010 were $31,337 compared
to $15,412 on December 31, 2009. The increase in current assets is due to the
increase in accounts receivable. These receivables are due from oil and gas
sales earned during the year but were not received on or before December 31,
2010.
The Company's accounts receivable for both 2009 and 2010 are from oil sales that
have been made but have not been received on its interests held in Australia.
The Total Current Liabilities as of December 31, 2010 were $217,211 placing the
Company's liquidity ratio of current assets to current liabilities at .14 to 1.
The Total Current Liabilities as of December 31, 2009 were $124,016 placing the
Company's liquidity ratio of current assets to current liabilities at .12 to 1.
The slight improvement in liquidity ratio from 2009 to 2010 is directly related
to more current assets as of December 31, 2010.
22
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 decreased from $991,218 on December 31, 2009 to
$988,302 on December 31, 2010, a decrease of $2,916. The Company oil and gas
properties increased from $1,121,604 in 2009 to $1,147,869. This increase of
$26,265 was attributed to the capital expenditures made on ATP 582, an
Australian oil and gas concession. The decrease in assets is due to the increase
in accumulated depletion and depreciation from $171,665 on December 31, 2009 to
$216,771 on December 31, 2010 representing an increase of $45,106.
Total Current Liabilities of the Company increased from $124,016 on December 31,
2009 to $217,211 on December 31, 2010. The majority of this increase is due to
loans from officers/directors and shareholders of the Company. Loans from
stockholders of the Company increased from $0 on December 31, 2009 to $26,266 on
December 31, 2010. Account payable - related party increased from $0 on December
31, 2009 to $39,216 on December 31, 2010.
The accrued expenses of $98,066 and $115,486 for the years ended December 31,
2009 and 2010 respectively were for consulting fees and director's fees. The
$115,486 in accrued expenses reported on December 31, 2010 is allocated $2,903
for accrued interest payable, $35,600 for accrued director's fees and $76,983
for consulting fees. The $98,066 in accrued expenses reported on December 31,
2009 is allocated $550 for accrued interest payable, $48,600 for accrued
director's fees and $48,915 for consulting fees.
PLAN OF OPERATION AND FUNDING
The Company plans to seek additional oil and gas concessions in Australia on a
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 to joint venture partners
and has confidence of being able to repeat this process in the event the Company
is successful in acquiring other concessions in Australia.
MATERIAL COMMITMENTS
As of the date of this report the Company does not have any material financial
commitments on any of its properties or interests owned in Australia. The
Company did have material commitments on several working interest properties in
Australia.
23
PURCHASE OF SIGNIFICANT EQUIPMENT
The Company does not intend to purchase any significant equipment during the
next twelve months.
RECENT ACCOUNTING PRONOUNCEMENTS
The FASB established the FASB Accounting Standards Codification ("Codification")
as the source of authoritative U.S. generally accepted accounting principles
("GAAP") recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements issued for interim and annual periods ending
after September 15, 2009. The codification has changed the manner in which U.S.
GAAP guidance is referenced, but did not have an impact on our financial
position, results of operations or cash flows.
In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2010-06, "Fair Value Measurements and
Disclosures (Topic 820) -- Improving Disclosures about Fair Value Measurements."
This ASU requires some new disclosures and clarifies some existing disclosure
requirements about fair value measurement as set forth in Accounting Standards
Codification ("ASC") 820. ASU 2010-06 amends ASC 820 to now require: (1) a
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers; and (2) in the reconciliation for fair value
measurements using significant unobservable inputs, a reporting entity should
present separately information about purchases, sales, issuances, and
settlements. In addition, ASU 2010-06 clarifies the requirements of existing
disclosures. ASU 2010-06 is effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. Early application is permitted. The Company will comply with the
additional disclosures required by this guidance upon its adoption in January
2010.
Also in January 2010, the FASB issued Accounting Standards Update No. 2010-03,
"Extractive Activities--Oil and Gas--Oil and Gas Reserve Estimation and
Disclosures." This ASU amends the "Extractive Industries--Oil and Gas" Topic of
the Codification to align the oil and gas reserve estimation and disclosure
requirements in this Topic with the SEC's Release No. 33-8995, "Modernization of
Oil and Gas Reporting Requirements (Final Rule)," discussed below. The
amendments are effective for annual reporting periods ending on or after
December 31, 2009, and the adoption of these provisions on December 31, 2009 did
not have a material impact on our financial statements.
24
SEC'S FINAL RULE ON OIL AND GAS DISCLOSURE REQUIREMENTS
On December 31, 2008, the Securities and Exchange Commission, referred to in
this report as the SEC, issued Release No. 33-8995, "Modernization of Oil and
Gas Reporting Requirements (Final Rule)," which revises the disclosures required
by oil and gas companies. The SEC disclosure requirements for oil and gas
companies have been updated to include expanded disclosure for oil and gas
activities, and certain definitions have also been changed that will impact the
determination of oil and gas reserve quantities. The provisions of this final
rule are effective for registration statements filed on or after January 1,
2010, and for annual reports for fiscal years ending on or after December 31,
2009.
In August 2009, the FASB issued ASU No. 2009-05, "Fair Value Measurements and
Disclosures (Topic 820) -- Measuring Liabilities at Fair Value," related to fair
value measurement of liabilities. This update provides clarification that in
circumstances in which a quoted price in an active market for an identical
liability is not available, a reporting entity is required to measure fair value
using one or more valuation techniques. This guidance is effective for the first
reporting period beginning after issuance.
In June 2009, the FASB issued guidance under ASC 105, "Generally Accepted
Accounting Principles." This guidance established a new hierarchy of GAAP
sources for non-governmental entities under the FASB Accounting Standards
Codification. The Codification is the sole source for authoritative U.S. GAAP
and supersedes all accounting standards in U.S. GAAP, except for those issued by
the SEC. The guidance was effective for financial statements issued for
reporting periods ending after September 15, 2009. The adoption had no impact on
the Company's financial position, cash flows or results of operations.
In May 2009, the FASB issued guidance under ASC 855 "Subsequent Events," which
sets forth: (1) the period after the balance sheet date during which management
of reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, (2) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and (3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The guidance was effective on a
prospective basis for interim or annual financial periods ending after June 15,
2009.
In April 2009, the FASB updated its guidance under ASC 820, "Fair Value
Measurements and Disclosures," related to estimating fair value when the volume
and level of activity for an asset or liability have significantly decreased and
identifying circumstances that indicate a transaction is not orderly. The
guidance was effective for interim and annual reporting periods ending after
June 15, 2009 with early adoption permitted for periods ending after March 15,
2009. The adoption of this guidance did not have any impact on the Company's
results of operations.
Also in April 2009, the FASB updated its guidance under ASC 825, "Financial
Instruments," which requires disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. This guidance also requires those disclosures
in summarized financial information at interim reporting periods. The guidance
was effective for interim reporting periods ending after June 15, 2009 with
early adoption permitted for periods ending after March 15, 2009.
25
The FASB updated its guidance under ASC 805, "Business Combinations," in April
2009, which addresses application issues on initial recognition and measurement,
subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination. This guidance was
effective for business combinations occurring on or after the beginning of the
first annual period on or after December 15, 2008.
In June 2008, the FASB updated its guidance under ASC 260, "Earnings Per Share."
This guidance clarified that all unvested share-based payment awards with a
right to receive nonforfeitable dividends are participating securities and
provides guidance on how to allocate earnings to participating securities and
compute basic earnings per share using the two-class method. This guidance was
effective for fiscal years beginning after December 15, 2008. The Company
adopted this guidance on January 1, 2009. The adoption did not have a material
impact on the Company's earnings per share calculations.
In March 2008, the FASB issued guidance under ASC 815, "Derivatives and
Hedging," which changes the disclosure requirements for derivative instruments
and hedging activities. Entities will be required to provide enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for, and how
derivative instruments and related items affect an entity's financial position,
operations and cash flows. This guidance was effective as of the beginning of an
entity's fiscal year that begins after November 15, 2008. The Company adopted
this guidance on January 1, 2009.
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.
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.
26
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
27
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, 2010. 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:
28
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, 2010, 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.
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,
2010, that materially affected, or are reasonably likely to materially affect,
our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
Not applicable.
29
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 80 Director 1997
Robert Kamon 83 Director and 1997
Secretary
Howard Siegel 68 Director 2006
Jan Soleimani 59 Director 2007
Andre Sakhai 29 Director and
President 2005
Bernard Lipton 69 Director 2010
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 29 President and 2005
Director
Mahnaz Nourmand 47 Chief Financial 2009
Officer
Robert Kamon 83 Secretary and 1997
Director
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.
30
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 34 years in the manufacturing and distribution of high quality
handmade rugs plus has been involved in other successful business ventures
including real estate development.
BERNARD LIPTON, Director, is a certified public accountant certified by the
State of New York in 1968. He is the founder and managing member of Lipton &
Association LLP and has been self-employed for the past forty years. His
practice encompasses the tri-state area around New York and services clients in
all fields with an extensive tax practice.
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 The Tobacco & Food
Distribution of Corona, New York. Ms. Nourmand has 18 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.
31
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 paid to its Chief Financial Officer, Mahnaz Nourmand, who also
received 76,923 restricted shares valued at $10,000 during 2009. The Company did
not have any compensation paid to its officers in 2010.
Director Compensation - In 2006 the Board approved the issuance of 30,000
restricted shares to each director, in 2007 and 2008 the Board approved the
issuance of 40,000 restricted shares to each director, and in 2009 the Board
approved the issuance of 50,000 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. In 2009 the Company issued 50,000 shares to
Howard Siegel and Robert Kamon. In 2010, the Company issued 50,000 shares to
Andre Sakhai and Kenneth Campbell for 2009 directors' fees.
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 28, 2011 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 410,000 2.05%
307 Triune Bay
Calgary, Alberta T1X 1G4
Canada
Robert Kamon** (3,471,317) 4,926,311 24.57%
Tensleep Oil & Production,
Inc. (908,000)*
International Oil Lease
Service Corp. (394,444)
Australian Grazing & Pastoral
Co., Pty. Ltd. (152,550)
1304 Avenue L
Cisco, Texas 76437
32
Howard Siegel 190,715 0.95%
P. O. Box 940572
Houston, Texas 77094
Andre Sakhai 1,257,503 6.27%
10 East 29th Street, Apt. 12J
New York, New York 10016
Jan Soleimani 930,000 4.64%
21 Windsor Dr.
Old Westbury, New York 11568
Bernard Lipton 93,334 0.47%
790 Jericho
Westbury, NY 11568
Mahnaz Nourmand 106,923 0.53%
91 Wheatley Road
Old Westbury, New York 11568
All officers and directors as a group 7,914,786 39.48%
Ely Sakhai 3,523,793 17.58%
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 (3,471,317 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.
CHANGES IN CONTROL
Management is not aware of any current arrangements, which would result in a
change of control of the Company.
33
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
The Company owns 13.8325% Working Interest, Ely Sakhai, major shareholder, 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 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
2010 and 2009. These amounts have been recorded as operating expenses and as
additional paid-in capital in their respective years.
During 2010 and 2009, the Company reimbursed commonly-controlled entities for
personnel and office expenses totaling $17,772 and $34,582, 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 2010, which totaled $1,007.
The Company borrowed $26,266 and $68,360 from two of its current and previous
officers and a stockholder during 2010 and 2009. These funds were used to pay
for administrative costs and efforts to promote the Company's name and
availability.
At December 31, 2010 and 2009, the Company's accounts payable was $39,216 and
$0.00, respectively payable to related parties.
34
Common Shares to Directors - The Compensation Committee approved 50,000 shares
of restricted stock per director for the year 2009, valued at $0.13 per share,
being the market value on July 1, 2009. 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 as an expense in these financial
statements in the amounts of $32,500 and $44,000, respectively for 2009 and
2008. This stock will be issued to each director at the director's discretion.
During 2009, Robert Kamon and Howard Siegel each received 50,000 shares for
their fees for 2009. 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. During 2010, Andre Sakhai and Kenneth Campbell received 50,000
shares for their 2009 fees.
DIRECTOR INDEPENDENCE
Kenneth Campbell, Howard Siegel, Jan Soleimani and Bernard Lipton are
independent directors. Robert Kamon and Andre Sakhai are not independent
directors.
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, 2008, 2009 and 2010.
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, 2010 and 2009 were $38,325 and
$35,211 respectively.
Tax Fees: The Company incurred no fees for tax compliance with the Company's
principal auditor for 2010 and 2009.
35
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.
36
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: April 8, 2011 /s/ Andre Sakhai
----------------
Andre Sakhai, President and CEO
Dated: April 8, 2011 /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: April 8, 2011 /s/ Andre Sakhai
----------------
Andre Sakhai, President, Director and CEO
Dated: April 8, 2011 /s/ Robert Kamon
----------------
Robert Kamon, Secretary and Director
Dated: April 8, 2011 /s/ Kenneth Campbell
--------------------
Kenneth Campbell, Director
Dated: April 8, 2011 /s/ Jan Soleimani
-----------------
Jan Soleimani, Director
Dated: April 8, 2011 /s/ Howard Siegel
-----------------
Howard Siegel, Director
Dated: April 8, 2011 /s/ Bernard Lipton
------------------
Bernard Lipton, Director
37
Australian-Canadian Oil Royalties Ltd.
INDEX TO FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm ..... F-2
Balance Sheets -- December 31, 2010 and 2009 ................ F-3
Statements of Operations for the Years
December 31, 2010 and 2009 ............................ F-4
Statements of Stockholders' Equity for the Years Ended
December 31, 2010 and 2009 ............................. F-5
Statements of Cash Flows for the Years Ended
December 31, 2010 and 2009 ............................. 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, 2010 and 2009, and the related statements of
operations, stockholders' equity, 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, 2010, and 2009, 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
April 8, 2011
F-2
38
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
BALANCE SHEETS
December 31, 2010 and 2009
2010 2009
-------------- -------------
ASSETS
CURRENT ASSETS
Cash $ 2,345 $ 6,262
Certificate of deposit -- --
Accounts receivable 28,992 9,150
-------------- -------------
Total Current Assets 31,337 15,412
-------------- -------------
PROPERTY AND EQUIPMENT
Oil and gas properties-being amortized 582,792 363,176
Oil and gas properties-not being amortized 565,077 758,428
Office equipment and software 24,783 24,783
Accumulated depletion and depreciation (216,771) (171,665)
-------------- -------------
Net Property and Equipment 955,881 974,722
-------------- -------------
OTHER ASSETS 1,084 1,084
-------------- -------------
TOTAL ASSETS $ 988,302 $ 991,218
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 11,243 $ 950
Accounts payable - related party 39,216 --
Accrued expenses 115,486 98,066
Loans from officers 25,000 25,000
Loans from stockholders 26,266 --
-------------- --
Total Current Liabilities 217,211 124,016
-------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, no par (50,000,000 shares
authorized, none outstanding) -- --
Common stock, no par (50,000,000 shares
authorized, 20,048,284 and 19,491,141 shares
respectively outstanding) 3,745,099 3,697,099
Additional paid in capital 173,552 170,352
Accumulated (deficit) (3,147,560) (3,000,249)
-------------- -------------
Total Stockholders' Equity 771,091 867,202
-------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 988,302 $ 991,218
============== =============
The accompanying notes are an integral part of these financial statements.
F-3
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2010 and 2009
2010 2009
------------- -----------
OPERATING REVENUES
Oil and gas revenues $ 77,652 $ 61,170
COST OF REVENUES
Transportation costs 11,074 11,997
Production taxes 89 14
Depletion 44,736 14,781
------------- -----------
GROSS PROFIT 21,753 34,378
------------- -----------
OPERATING EXPENSES
Personnel costs 58,055 97,368
Professional fees 75,635 38,911
Promotion and advertising 11,150 17,801
Office expenses 5,590 8,394
Depreciation and amortization 370 2,120
Directors' fees and other operating expenses 5,885 38,886
------------- -----------
Total Operating Expenses 156,685 203,480
------------- -----------
(LOSS) FROM OPERATIONS (134,932) (169,102)
OTHER INCOME (EXPENSE)
Interest income -- 959
Interest expense (2,353) (54,725)
------------- -----------
(LOSS) BEFORE INCOME TAXES (137,285) (222,868)
Australian income tax expense 10,026 14,082
------------- -----------
NET LOSS $ (147,311) $ (236,950)
============= ===========
Net loss per weighted average share outstanding $ (0.01) $ (0.01)
============= ===========
Weighted average shares outstanding 19,772,491 17,833,997
============= ===========
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, 2010 and 2009
Common Stock Additional
----------------------- Paid In Accumulated
Shares Amount Capital (Deficit) Totals
--------- --------- ---------- ------------ ----------------
BALANCE, December 31, 2008 16,465,458 $ 3,490,546 $ 167,152 $ (2,763,299) $ 894,399
Non-cash stock issuances:
Services 376,923 35,000 -- -- 35,000
Oil and gas properties 150,000 18,000 -- -- 18,000
Directors' fees 100,000 13,000 -- -- 13,000
Notes payable to directors 2,398,760 140,553 -- -- 140,553
Contributed expenses -- -- 3,200 -- 3,200
Net loss -- -- -- (236,950) (236,950)
---------- ----------- ---------- ------------ -----------
BALANCE, December 31, 2009 19,491,141 3,697,099 170,352 (3,000,249) 867,202
Non-cash stock issuances:
Services 100,000 10,000 -- -- 10,000
Directors' fees 100,000 13,000 -- -- 13,000
Sale of stock 357,143 25,000 -- -- 25,000
Contributed expenses -- -- 3,200 -- 3,200
Net loss -- -- -- (147,311) (147,311)
---------- ----------- ---------- ------------ -----------
BALANCE, December 31, 2010 20,048,284 $ 3,745,099 $ 173,552 $ (3,147,560) $ 771,091
========== =========== ========== ============ ===========
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, 2010 and 2009
2010 2009
-------------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (147,311) $ (236,950)
Adjustments to reconcile net (loss) to net cash
provided by (used) in operations:
Depreciation, depletion and amortization 45,107 16,901
Value of expenses contributed by officers 3,200 3,200
Stock issued for services 10,000 35,000
Stock issued for directors' fees 13,000 13,000
Changes in operating assets and liabilities:
Receivables (19,842) 1,749
Accrued expenses 17,419 64,214
Accounts payable-trade 10,294 (778)
Accounts payable 39,216 --
-------------- -----------
NET CASH (USED) IN OPERATING ACTIVITIES (28,917) (103,664)
-------------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment -- (1,111)
Purchase of oil & gas properties (26,266) --
-------------- --
NET CASH PROVIDED BY (USED) IN INVESTING ACTIVITIES (26,266) (1,111)
-------------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from sale of stock 25,000 --
Proceeds from notes payable to stockholder 26,266 --
Proceeds from notes payable to officer -- 68,360
Payment of bank loan -- (1,000,000)
Restricted certificate of deposit -- 1,000,000
-------------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 51,266 68,360
-------------- -----------
Decrease in cash for year (3,917) (36,415)
Cash and cash equivalents, beginning of year 6,262 42,677
-------------- -----------
Cash and cash equivalents, end of year $ 2,345 $ 6,262
============== ===========
SUPPLEMENTAL DISCLOSURES:
Cash payments for:
Interest $ -- $ 12,360
============== ===========
Australian income taxes $ 10,026 $ 14,082
============== ===========
The accompanying notes are an integral part of these financial statements.
F-6
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS
December 31, 2010 and 2009
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
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, 1997; 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.
(continued)
F-7
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2010 and 2009
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, 2009 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
Loss Carryforward Ended December 31,
----------------- ------------------
$ 158,230 2011
614,872 2012
620,354 2013
329,446 2014
326,778 2015
236,950 2016
147,311 2017
-----------
$ 2,433,941
===========
The potential tax benefit from these operating loss carry-forwards is $1,119,613
and $1,100,100 in 2010 and 2009, 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 $10,026 and
$14,082 in 2010 and 2009, respectively.
(continued)
F-8
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2010 and 2009
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 19,772,491 and 17,833,997 for 2010 and
2009, 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 requires 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 2009 amounts have been reclassified in order to conform to the 2010
financial statement presentation.
Recent Accounting Pronouncements
The FASB established the FASB Accounting Standards Codification ("Codification")
as the source of authoritative U.S. generally accepted accounting principles
("GAAP") recognized by the FASB to be applied by nongovernmental entities in the
preparation of financial statements issued for interim and annual periods ending
after September 15, 2009. The codification has changed the manner in which U.S.
GAAP guidance is referenced, but did not have an impact on our financial
position, results of operations or cash flows.
(continued)
F-9
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2010 and 2009
NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
In January 2010, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2010-06, "Fair Value Measurements and
Disclosures (Topic 820) -- Improving Disclosures about Fair Value Measurements."
This ASU requires some new disclosures and clarifies some existing disclosure
requirements about fair value measurement as set forth in Accounting Standards
Codification ("ASC") 820. ASU 2010-06 amends ASC 820 to now require: (1) a
reporting entity should disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair value measurements and describe the
reasons for the transfers; and (2) in the reconciliation for fair value
measurements using significant unobservable inputs, a reporting entity should
present separately information about purchases, sales, issuances, and
settlements. In addition, ASU 2010-06 clarifies the requirements of existing
disclosures. ASU 2010-06 is effective for interim and annual reporting periods
beginning after December 15, 2009, except for the disclosures about purchases,
sales, issuances, and settlements in the roll forward of activity in Level 3
fair value measurements. Those disclosures are effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal
years. Early application is permitted. The Company will comply with the
additional disclosures required by this guidance upon its adoption in January
2010.
Also in January 2010, the FASB issued Accounting Standards Update No. 2010-03,
"Extractive Activities--Oil and Gas--Oil and Gas Reserve Estimation and
Disclosures." This ASU amends the "Extractive Industries--Oil and Gas" Topic of
the Codification to align the oil and gas reserve estimation and disclosure
requirements in this Topic with the SEC's Release No. 33-8995, "Modernization of
Oil and Gas Reporting Requirements (Final Rule)," discussed below. The
amendments are effective for annual reporting periods ending on or after
December 31, 2009, and the adoption of these provisions on December 31, 2009 did
not have a material impact on our financial statements.
SEC'S FINAL RULE ON OIL AND GAS DISCLOSURE REQUIREMENTS
On December 31, 2008, the Securities and Exchange Commission, referred to in
this report as the SEC, issued Release No. 33-8995, "Modernization of Oil and
Gas Reporting Requirements (Final Rule)," which revises the disclosures required
by oil and gas companies. The SEC disclosure requirements for oil and gas
companies have been updated to include expanded disclosure for oil and gas
activities, and certain definitions have also been changed that will impact the
determination of oil and gas reserve quantities. The provisions of this final
rule are effective for registration statements filed on or after January 1,
2010, and for annual reports for fiscal years ending on or after December 31,
2009
In August 2009, the FASB issued ASU No. 2009-05, "Fair Value Measurements and
Disclosures (Topic 820) -- Measuring Liabilities at Fair Value," related to fair
value measurement of liabilities. This update provides clarification that in
circumstances in which a quoted price in an active market for an identical
liability is not available, a reporting entity is required to measure fair value
using one or more valuation techniques. This guidance is effective for the first
reporting period beginning after issuance.
(continued)
F-10
AUSTRALIAN-CANADIAN OIL ROYALTIES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2010 and 2009
NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Accounting Pronouncements (Continued)
In June 2009, the FASB issued guidance under ASC 105, "Generally Accepted
Accounting Principles." This guidance established a new hierarchy of GAAP
sources for non-governmental entities under the FASB Accounting Standards
Codification. The Codification is the sole source for authoritative U.S. GAAP
and supersedes all accounting standards in U.S. GAAP, except for those issued by
the SEC. The guidance was effective for financial statements issued for
reporting periods ending after September 15, 2009. The adoption had no impact on
the Company's financial position, cash flows or results of operations.
In May 2009, the FASB issued guidance under ASC 855 "Subsequent Events," which
sets forth: (1) the period after the balance sheet date during which management
of reporting entity should evaluate events or transactions that may occur for
potential recognition or disclosure in the financial statements, (2) the
circumstances under which an entity should recognize events or transactions
occurring after the balance sheet date in its financial statements and (3) the
disclosures that an entity should make about events or transactions that
occurred after the balance sheet date. The guidance was effective on a
prospective basis for interim or annual financial periods ending after June 15,
2009.
In April 2009, the FASB updated its guidance under ASC 820, "Fair Value
Measurements and Disclosures," related to estimating fair value when the volume
and level of activity for an asset or liability have significantly decreased and
identifying circumstances that indicate a transaction is not orderly. The
guidance was effective for interim and annual reporting periods ending after
June 15, 2009 with early adoption permitted for periods ending after March 15,
2009. The adoption of this guidance did not have any impact on the Company's
results of operations.
Also in April 2009, the FASB updated its guidance under ASC 825, "Financial
Instruments," which requires disclosures about fair value of financial
instruments for interim reporting periods of publicly traded companies as well
as in annual financial statements. This guidance also requires those disclosures
in summarized financial information at interim reporting periods. The guidance
was effective for interim reporting periods ending after June 15, 2009 with
early adoption permitted for periods ending after March 15, 2009.
The FASB updated its guidance under ASC 805, "Business Combinations," in April
2009, which addresses application issues on initial recognition and measurement,
subsequent measurement and accounting, and disclosure of assets and liabilities
arising from contingencies in a business combination. This guidance was
effective for business combinations occurring on or after the beginning of the
first annual period on or after December 15, 2008.
In June 2008, the FASB updated its guidance under ASC 260, "Earnings Per Share."
This guidance clarified that all unvested share-based payment awards with a
right to receive nonforfeitable dividends are participating securities and
provides guidance on how to allocate earnings to participating securities and
compute basic earnings per share using the two-class method. This guidance was
effective for fiscal years beginning after December 15, 2008. The Company
adopted this guidance on January 1, 2009. The adoption did not have a material
impact on the Company's earnings per share calculations.
(continued)
F-11
AUSTRALIAN-CANADIAN OIL ROYALTIES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2010 and 2009
NOTE 1: DESCRIPTION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In March 2008, the FASB issued guidance under ASC 815, "Derivatives and
Hedging," which changes the disclosure requirements for derivative instruments
and hedging activities. Entities will be required to provide enhanced
disclosures about how and why an entity uses derivative instruments, how
derivative instruments and related hedged items are accounted for, and how
derivative instruments and related items affect an entity's financial position,
operations and cash flows. This guidance was effective as of the beginning of an
entity's fiscal year that begins after November 15, 2008. The Company adopted
this guidance on January 1, 2009.
NOTE 2: ACCOUNTS RECEIVABLE
At December 31, 2010 and 2009 the Company has accrued receivables for oil and
gas production from its Australian overriding royalty interests totaling $28,992
and $9,150, respectively. Collection of the accrued Australian production
generally occurs during the quarter following the quarter of production.
The cost basis 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.
NOTE 3: PROPERTIES AND EQUIPMENT
The following table presents costs of property and equipment at December 31,
2010 and 2009.
2010 2009
------------ ------------
Oil and gas properties $ 1,147,869 1,121,604
Office equipment 9,232 9,232
Seismic analysis software 15,551 15,551
------------ ------------
Total costs 1,172,652 1,146,387
Accumulated depletion (192,359) (147,623)
Accumulated depreciation (24,412) (24,042)
------------ ------------
Net Property and Equipment $ 955,881 $ 974,722
============ ============
Depreciation expense was $370 and $2,120 for 2010 and 2009, respectively. The
office equipment and the software are being depreciated on a straight-line basis
over three years.
NOTE 4: LOANS FROM SHAREHOLDERS AND NOTES PAYABLE
During 2010, the Company borrowed $26,266 from a stockholder to cover the cost
of rentals on ATP 582.
During 2009, the Company borrowed additional funds from its previous president
and current secretary in the amount of $68,360. The Company repaid a portion of
the loans to its previous president and current secretary during 2009 in the
amount of $93,360. Loans from officers totaled $25,000 as of December 31, 2009.
F-12
AUSTRALIAN-CANADIAN OIL ROYALTIES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2010 and 2009
NOTE 5: 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
2010 and 2009. These amounts have been recorded as operating expenses and as
additional paid-in capital in their respective years.
During 2010 and 2009, the Company reimbursed commonly-controlled entities for
personnel and office expenses totaling $17,772 and $34,582, 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 2010, which totaled $1,007.
The Company borrowed $26,266 from a stockholder in 2010 and $25,000 from one of
its previous officers during 2010 and 2009. These funds were used to pay for
administrative costs and efforts to promote the Company's name and availability.
At December 31, 2010 and 2009, the Company's accounts payable was $11,243 and
$950, respectively. Accounts payable to related parties was $39,216 and 0 in
2010 and 2009, respectively.
Common Shares to Directors - The Compensation Committee approved 50,000 shares
of restricted stock per director for the year 2009, valued at $0.13 per share,
being the market value on July 1, 2009. 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. This
recommendation by the Compensation Committee was voted on and approved by the
Board of Directors and has been recorded as an expense in these financial
statements in the amounts of $32,500 and $44,000, respectively for 2009 and
2008. This stock will be issued to each director at the director's discretion.
During 2009, Robert Kamon and Howard Siegel each received 50,000 shares for
their fees for 2009. 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.
NOTE 6: 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 2010 and 2009 were received from Australian oil and gas royalty
interests. Depletion expense and Australian income taxes reported by the Company
during 2010 and 2009 are also related to the revenue received from the
Australian royalties. Australian revenues were $76,830 and $61,479 in 2010 and
2009.
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 7: STOCK TRANSACTIONS
During 2010, the Company issued a total of 557,143 shares. A total of 357,143
shares were issued for cash; 100,000 shares were issued for Directors' Fees
valued at $13,000 and 100,000 shares were issued for services valued at $10,000.
(continued)
F-13
AUSTRALIAN-CANADIAN OIL ROYALTIES, LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2010 and 2009
NOTE 7: STOCK TRANSACTIONS (CONTINUED)
During 2009, the Company issued a total of 3,025,683 shares. A total of
2,398,760 shares were issued for loan repayments, including interest, to its
previous president and current secretary valued at $140,553; 100,000 shares were
issued for Directors' Fees valued at $13,000; 376,923 shares were issued for
services valued at $35,000 and the Company acquired an overriding royalty
interest located in Western Australia for 150,000 shares of restricted common
stock valued at $18,000.
NOTE 8: SUBSEQUENT EVENTS
We have evaluated events and transactions that occurred after the balance sheet
date of December 31, 2010 through April 8, 2011. We did not have any material
subsequent events that would require recognition in the financial statements or
disclosures in these notes to the financial statements.
NOTE 9: 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, 2010 at
the Company's primary bank did not exceed federally insured limits.
NOTE 10: GOING CONCERN CONSIDERATIONS
As of December 31, 2010, 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 raise 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.
NOTE 11: 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, 2010.
RESERVES OF OIL AND GAS - ROYALTY INTERESTS
The current quantities of reserves of oil and gas relating to royalty interests
are presented based on information obtained from the original estimated reserves
as reported by the Queensland, Australia government at June 30, 1997. This
original information is revised annually and published by the Queensland
government on their website. No reserve information is presented relating to the
Company's working interests because the necessary information is not available
or the Company's interests are not large enough to economically and reasonably
obtained this information.
(continued)
F-14
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2010 and 2009
NOTE 11: SUPPLEMENTARY DATA - RESERVES OF OIL AND GAS (UNAUDITED) (CONTINUED)
The following reserve information is for the wells referred to as ATP 267, ATP
299, ATP 560, ATP 543 and PEL 115. The Company has not been able to secure
reserve information for the wells called PEL 111 and VIC/P54. During the year
ended December 31, 2010, the PEL 111 produced 24.81 barrels of oil, and the
VIC/P54 produced 64.58 barrels of oil and 6,360.49 MCF's of gas.
Gas (mcf) Oil (bbls)
------------- -------------
Reserves reported by the Queensland
Government as of June 30, 1997 123 21,030
Additions or adjustments after 1997 4,233 1,919
Discoveries -- --
Cumulative previous production (4,232) (7,267)
Current year production -- (580)
------------- -------------
Unrecovered reserves 124 15,102
============= =============
RESULTS OF OPERATIONS FOR PRODUCING ACTIVITIES
For the Year Ended December 31, 2010
Australia U.S. TOTAL
----------- ---------- ----------
Sales of oil and gas $ 76,830 $ 822 $ 77,652
Production costs (including taxes) -- 89 89
Depletion 44,736 -- 44,736
---------- ---------- ----------
Results of operations from
producing activities (excluding
corporate overhead) $ 32,094 $ 733 $ 32,827
========== ========== ==========
CAPITALIZED COSTS RELATING TO OIL AND GAS PRODUCING ACTIVITIES
At December 31, 2010
Australia U.S. TOTAL
-------------- -------------- ------------
Unproved properties
(not being amortized) $ 563,199 $ 1,878 $ 565,077
Proved properties
(being amortized) 580,292 2,500 582,792
-------------- -------------- ------------
Total Capitalized Costs 1,143,491 4,378 1,147,869
Accumulated depletion (189,915) (2,444) (192,359)
-------------- -------------- ------------
Net Capitalized Costs $ 953,576 $ 1,934 $ 955,510
============== ============== ============
(continued)
F-15
AUSTRALIAN-CANADIAN OIL ROYALTIES LTD.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
December 31, 2010 and 2009
NOTE 11: 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, 2010
Australia U.S.
------------------ ------------------
Property acquisition costs:
Proved $ -- $ --
Unproved 26,266 --
Exploration costs -- --
Development costs -- --
------------------ ------------------
Total $ 26,266 $ --
================== ==================
F-16