[As adopted in Release No. 34-32231, April 28, 1993, 58 F.R. 26509]
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: September 30, 2005
-------------------------------------------------
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
EXCHANGE ACT
For the transition period from to
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Commission file number 333-102930
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Silver Star Energy, Inc.
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(Exact name of small business issuer as
specified in its charter)
Nevada 90-0220668
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
11300 W. Olympic Boulevard, Suite 800, Los Angeles, California 90064
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(Address of principal executive offices)
(310) 477-2211
Issuer's telephone number
(Former name, former address and former fiscal year, if changed
since last report.)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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 whether the registrant is a shell company (as
defined by Rule 12b-2 of the Exchange Act). Yes [ ] No [ X ]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS
Check whether the registrant filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes ----- No -----
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practical date: September 30, 2005 85,021,035
Transitional Small Business Disclosure Format (check one).
Yes ; No X
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PART I
ITEM 1. FINANCIAL STATEMENTS
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
BALANCE SHEETS
(Unaudited)
September 30, December 31,
ASSETS 2005 2004
- ------
------------------ -----------------
Current Assets
Cash $ 8,215 $ 138,005
Accounts Receivable 243,614 -
Prepaid Expense 13,000 18,825
------------------ -----------------
Total Current Assets 264,829 156,830
------------------ -----------------
Fixed Assets
Furniture and Fixtures 10,199 7,751
Computers 6,222 6,222
Vehicles 64,087 18,316
Accumulated Depreciation (7,883) (4,809)
------------------ -----------------
Net Fixed Assets 72,625 27,480
------------------ -----------------
Other Assets
Oil and Gas Properties, net of depletion of $154,813 and $0 3,391,829 2,586,353
Debt Issue Costs, net of amortization of $93,688 and $11,059 358,814 441,441
------------------ -----------------
Total Other Assets 3,750,643 3,027,794
------------------ -----------------
Total Assets $ 4,088,097 $ 3,212,104
================== =================
3
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
BALANCE SHEETS
(Continued)
(Unaudited)
September 30, December 31,
2005 2004
------------------- ------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 80,321 $ 75,893
Accrued Liabilities 54,150 -
Notes Payable 450,000 450,000
Due to Related Party 93,418 92,318
Convertible Debentures 1,060,000 -
Accrued Interest 65,024 9,725
------------------- ------------------
Total Current Liabilities 1,802,913 627,936
Convertible Debentures 750,000 750,000
Accrued Interest 32,175 3,904
------------------- ------------------
Total Liabilities 2,585,088 1,381,840
------------------- ------------------
Stockholders' Equity
Preferred stock (Par Value $.001), 5,000,000 shares
authorized. -0- issued at September 30, 2005 and
December 31, 2004 - -
Common Stock (Par Value $.001), 300,000,000 shares
authorized. 85,021,035 issued and outstanding at
September 30, 2005 and December 31, 2004 85,021 85,021
Paid in Capital in Excess of Par Value 3,056,658 3,056,658
Retained Deficit (1,638,670) (1,311,415)
------------------- ------------------
Total Stockholders' Equity 1,503,009 1,830,264
------------------- ------------------
Total Liabilities and Stockholders' Equity $ 4,088,097 $ 3,212,104
=================== ==================
See accompanying notes.
4
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
STATEMENTS OF OPERATIONS
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------------- -------------------------------------
2005 2004 2005 2004
----------------- ------------------ ------------------ -----------------
Production Revenue $ 539,414 $ - $ 1,026,167 $ -
----------------- ------------------ ------------------ -----------------
Expenses
Production Costs 144,760 - 404,355 -
Consulting and Management Fees 134,403 40,905 306,448 163,671
General and Administrative 108,409 133,866 389,687 552,326
Professional Fees 52,220 29,571 83,496 84,174
----------------- ------------------ ------------------ -----------------
Total Expenses 439,792 204,342 1,183,986 800,171
----------------- ------------------ ------------------ -----------------
Other Income ( Expense)
Gain (loss) on disposal of assets (3,237) - (3,237)
Interest Expense (60,140) (1,830) (166,199) (1,830)
----------------- ------------------ ------------------ -----------------
Net Income (Loss) $ 36,245 $ (206,172) $ (327,255) $ (802,001)
================= ================== ================== =================
Income (Loss) per Common Share $ - $ - $ - $ (0.01)
================= ================== ================== =================
Weighted Average Shares Outstanding 85,021,035 84,143,945 85,021,035 94,252,550
================= ================== ================== =================
See accompanying notes.
5
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the Nine Months Ended
September 30,
-------------------------------------
2005 2004
------------------ -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (327,255) $ (802,001)
Adjustments used to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation, Amortization and Depletion 245,094 3,355
Common stock issued for account payable - 25,000
(Gain) loss on disposal of assets 3,237 -
(Increase) decrease in other assets & prepaids 5,825 26,560
(Increase) decrease in accounts receivable (243,614) -
Increase (decrease) in accounts payable 4,428 122,603
Increase (decrease) in accrued liabilities 138,819 -
------------------ -----------------
Net cash used in operating activities (173,466) (624,483)
------------------ -----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition/Sale of equipment, net (56,036) (30,008)
Acquisition of oil & gas property interests (960,288) (1,747,366)
Proceeds on sale of Netcash (net of cash) - -
------------------ -----------------
Net cash used by investing activities (1,016,324) (1,777,374)
------------------ -----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from convertible debentures 1,060,000 -
Proceeds from loans - 250,000
Proceeds from shareholder loans - -
Proceeds on sale of common stock - 1,655,000
------------------ -----------------
Net Cash Provided by Financing Activities 1,060,000 1,905,000
------------------ -----------------
Net Increase (Decrease) in cash and cash equivalents (129,790) (496,857)
Cash and Cash Equivalents at beginning of the period 138,005 502,428
------------------ -----------------
Cash and Cash Equivalents at end of the period $ 8,215 $ 5,571
================== =================
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Interest $ - $ -
Income Taxes $ - $ -
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING
ACTIVITIES: NONE
- -----------
See accompanying notes.
6
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN
The accompanying financial statements have been prepared on the basis
of accounting principles applicable to a "going concern", which assume that the
Company will continue in operation for at least one year and will be able to
realize its assets and discharge its liabilities in the normal course of
operations.
The Company's general business strategy is to acquire oil and gas
properties either directly or through the acquisition of operating entities. The
continued operations of the Company and the recoverability of oil and gas
property acquisition, exploration and development costs is dependent upon the
existence of economically recoverable reserves and the ability of the Company to
obtain necessary financing to complete the development of those reserves, and
upon future profitable production. To date, the Company has not generated
significant revenues from operations and will require additional funds to meet
its obligations and the costs of its operations. As a result, significant losses
are anticipated prior to the generation of any revenues. The Company is planning
additional ongoing equity financing by way of private placements to fund its
obligations and operations.
The Company's future capital requirements will depend on many factors,
including costs of exploration of the properties, cash flow from operations,
costs to complete well production, if warranted, and competition and global
market conditions. The Company's present cash flow from operations now exceeds
its monthly general and administrative and other operational expenses. As of
October 14, 2005 the company has closed and received the net proceeds of a
financing totaling a gross amount of $3,350,000 USD.
These financial statements do not reflect adjustments that would be
necessary if the Company were unable to continue as a "going concern". While
management believes that the actions already taken or planned, will mitigate the
adverse conditions and events which raise doubt about the validity of the "going
concern" assumption used in preparing these financial statements, there can be
no assurance that these actions will be successful.
If the Company were unable to continue as a "going concern", then
substantial adjustments would be necessary to the carrying values of assets, the
reported amounts of its liabilities, the reported revenues and expenses, and the
balance sheet classifications used.
Organization and Basis of Presentation
Silver Star Energy, Inc. (the "Company") was incorporated on September
25, 2002 in the State of Nevada and commenced operations on October 3, 2002.
During the year ended December 31, 2003, the Company changed its name from
Movito Holdings Ltd. to Silver Star Energy Inc.
7
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - NATURE OF OPERATIONS AND GOING CONCERN (continued)
Nature of Business
The Company is in the production stage of the oil and gas industry. The
Company's primary objective is to identify, acquire and develop significant
working interest percentages in underdeveloped oil and gas projects that do not
meet the requirements of the larger producers and developers. During 2003 and
2004 the Company was in the development stage and acquired interests in several
oil and gas prospects and in 2005 has set up the extraction process and is
further continuing that program.
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES
This summary of accounting policies for Silver Star Energy, Inc. is
presented to assist in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
The unaudited financial statements as of September 30, 2005, and for
the three and nine month periods then ended, reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to fairly state the financial position and results of operations for
the three and nine months. Operating results for interim periods are not
necessarily indicative of the results which can be expected for full years.
Cash Equivalents
For the purpose of reporting cash flows, the Company considers all
highly liquid debt instruments purchased with maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness 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 and
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 estimates.
Reclassifications
Certain reclassifications have been made in the 2004 financial
statements to conform with the 2005 presentation.
8
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Concentration of Credit Risk
The Company has no significant off-balance-sheet concentrations of
credit risk such as foreign exchange contracts, options contracts or other
foreign hedging arrangements.
Loss per Share
Basic earnings per common share were computed by dividing net loss by
the weighted average number of shares of common stock outstanding during the
year. Diluted loss per common share for the nine months ended September 30, 2005
and 2004 are not presented as it would be anti- dilutive. At September 30, 2005,
the total number of potentially dilutive common stock equivalents was 750,000.
There were no common stock equivalents at September 30, 2004.
Fixed Assets
Fixed assets are recorded at cost and depreciated using the
straight-line method over the estimated useful lives of the assets which range
from three to seven years. Fixed assets consisted of the following at September
30, 2005 and December 31, 2004:
(Unaudited)
September 30, December 31,
,
2005 2004
------------------ ------------------
Furniture and Fixtures $ 10,199 $ 7,751
Computers 6,222 6,222
Vehicles 64,087 18,316
Less: Accumulated Depreciation (7,883) (4,809)
------------------ ------------------
Total $ 72,625 $ 27,480
================== ==================
One-half year depreciation is taken in the year of acquisition on
certain fixed assets.
Maintenance and repairs are charged to operations; betterments are
capitalized. The cost of property sold or otherwise disposed of and the
accumulated depreciation thereon are eliminated from the property and related
accumulated depreciation accounts, and any resulting gain or loss is credited or
charged to income.
Total depreciation expense for the nine months ended September 30, 2005
and 2004 was $7,653 and $3,355 respectively.
9
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Intangibles
The Company has adopted the provisions of the Financial Accounting
Standards Board ("FASB") Statement No. 142, "Goodwill and Intangible Assets"
("SFAS 142"). Under SFAS 142, goodwill and intangible assets with indefinite
lives will no longer be amortized and will be tested for impairment annually.
The determination of any impairment would include a comparison of estimated
future operating cash flows anticipated during the remaining life with the net
carrying value of the asset as well as a comparison of the fair value to the
book value of the Company or the reporting unit to which the goodwill can be
attributed.
Oil and Gas Properties
The Company follows the full cost method of accounting for its oil and
gas operations whereby all costs related to the acquisition of petroleum and
natural gas interests 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. The Company operates in two cost centers, being Canada and the U.S.A.
Depletion and depreciation of the capitalized costs are computed using
the unit-of-production method based on the estimated proven reserves of oil and
gas determined by independent consultants.
Estimated future removal and site restoration costs are provided over
the life of proven reserves on a unit-of-production basis. Costs, which include
the cost of production equipment removal and environmental clean-up, are
estimated each period by management based on current regulations, costs,
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.
Total depletion expense for the nine months ended September 30, 2005
and 2004 was $154,813 and $0 respectively.
10
SILVER STAR ENERGY, INC
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
The Company applies a ceiling test to capitalized costs to ensure that
such costs do not exceed estimated future net revenues from production of proven
reserves at year end 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.
Fair Value of Financial Instruments
In accordance with the requirements of SFAS No. 107, the Company has
determined the estimated fair value of financial instruments using available
market information and appropriate valuation methodologies. The fair value of
financial instruments classified as current assets or liabilities approximate
carrying value due to the short-term maturity of the instruments.
Foreign currency transactions
The financial statements are presented in United States dollars. In
accordance with Statement of Financial Accounting Standards No. 52, "Foreign
Currency Translation", foreign denominated monetary assets and liabilities are
translated to their United States dollar equivalents using foreign exchange
rates that prevailed at the balance sheet date. Revenue and expenses are
translated at average rates of exchange during the year. Related translation
adjustments are reported as a separate component of stockholders' equity,
whereas gains or losses resulting from foreign currency transactions are
included in results of operations.
Stock-based compensation
In December 2002, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 148, "ACCOUNTING FOR STOCK-BASED COMPENSATION
- - TRANSITION AND DISCLOSURE" ("SFAS No. 148"), an amendment of Financial
Accounting Standard No. 123 "ACCOUNTING FOR STOCK- BASED COMPENSATION" ("SFAS
No. 123"). The purpose of SFAS No. 148 is to: (1) provide alternative methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based employee compensation, (2) amend the disclosure
provisions to require prominent disclosure about the effects on reported net
income of an entity's accounting policy decisions with respect to stock-based
employee compensation, and (3) to require disclosure of those effects in interim
financial information. The disclosure provisions of SFAS No. 148 were effective
for the Company commencing December 31, 2002.
11
SILVER STAR ENERGY, INC
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
Recent accounting pronouncements
In April 2003, the Financial Accounting Standards Board issued SFAS No.
149, "AMENDMENT OF STATEMENT 133 ON DERIVATIVE INSTRUMENTS AND HEDGING
ACTIVITIES", which clarifies financial accounting and reporting for derivative
instruments, including certain derivative instruments embedded in other
contracts and for hedging activities under SFAS No. 133, "ACCOUNTING FOR
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES". SFAS No. 149 is effective for
contracts entered into or modified after June 30, 2003 and for hedging
relationships designated after June 30, 2003. The adoption of SFAS 149 does not
affect the Company's financial position or results of operations.
In May 2003, SFAS 150, "ACCOUNTING FOR CERTAIN FINANCIAL INSTRUMENTS
WITH CHARACTERISTICS OF BOTH LIABILITIES AND EQUITY", was issued. This Statement
establishes standards for how an issuer classifies and measures certain
financial instruments with characteristics of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some circumstances). Many of those instruments
were previously classified as equity. Generally, a financial instrument, whether
in the form of shares or otherwise, that is mandatorily redeemable, i.e. that
embodies an unconditional obligation requiring the issuer to redeem it by
transferring its shares or assets at a specified or determinable date (or dates)
or upon an event that is certain to occur, must be classified as a liability (or
asset in some circumstances). In some cases, a financial instrument that is
conditionally redeemable may also be subject to the same treatment. This
Statement does not apply to features that are embedded in a financial instrument
that is not a derivative (as defined) in its entirety. For public entities, this
Statement is effective for financial instruments entered into or modified after
May 31, 2003. The adoption of SFAS 150 does not affect the Company's financial
position or results of operations.
In November 2004, the FASB issued Statement No. 151, INVENTORY COSTS,
to amend the guidance in Chapter 4, INVENTORY PRICING, of FASB Accounting
Research Bulletin No. 43, RESTATEMENT AND REVISION OF ACCOUNTING RESEARCH
BULLETINS, which will become effective for the Company in fiscal year 2006.
Statement 151 clarifies the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). The Statement
requires that those items be recognized as current-period charges. Additionally,
Statement 151 requires that allocation of fixed production overhead to the costs
of conversion be based on the normal capacity of the production facilities. The
adoption of SFAS 151 will not affect the Company's financial position or results
of operations.
12
SILVER STAR ENERGY, INC
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF ACCOUNTING POLICIES (continued)
In December 2004, FASB issued Statement No. 123 (R), SHARE-BASED
PAYMENT, which establishes accounting standards for transactions in which an
entity receives employee services in exchange for (a) equity instruments of the
entity or (b) liabilities that are based on the fair value of the entity's
equity instruments or that may be settled by the issuance of equity instruments.
Effective in the third quarter of 2005, SFAS 123(R) will require us to recognize
the grant-date fair value of stock options and equity based compensation issued
to employees in the statement of operations. The statement also requires that
such transactions be accounted for using the fair-value-based method, thereby
eliminating use of the intrinsic value method of accounting in APB No. 25,
Accounting for STOCK ISSUED TO EMPLOYEES, which was permitted under Statement
123, as originally issued. We currently are evaluating the impact of Statement
123 (R) on our financial condition and results of operations.
NOTE 3 - OIL AND GAS PROPERTIES
The Company entered into agreements to acquire interests in various
unproven oil and gas properties as follows:
Alberta Prospects, Canada
In October 2003, the Company entered into two agreements with 1048136
Alberta Ltd. Pursuant to these agreements, the Company acquired the right to
participate and earn an interest in two oil and gas exploration and development
projects located in the province of Alberta, Canada known respectively as the
Evi prospect and the Verdigris prospect. In February 2004, the Company entered
into two agreements with 1048136 Alberta Ltd. to acquire the right to
participate and earn an interest in two additional oil and gas exploration and
development projects located in the province of Alberta known as the Joarcam
prospect and the Buffalo Lake prospect. 1048136 Alberta Ltd. is a private
Alberta company (see Note 6).
Pursuant to the agreements, the Company shall advance funds, as
required, in connection with the drilling, testing, completion, capping and/or
abandonment of up to three wells on each of the properties. Once the Company has
completed its funding obligation, it will have earned the following interest in
each prospect:
Evi Prospect 66.67%
Verdigris Prospect 66.67%
Joarcam Prospect 70.00%
Buffalo Lake Prospect 70.00%
13
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - OIL AND GAS PROPERTIES (continued)
In the event the Company does not provide the funds as required, the
Company will retain no interest in the prospects.
During the year ended December 31, 2004, the Company paid $1,283,149
towards the exploration and development of the oil and gas prospects in Alberta.
During the nine months ended September 30, 2005, the Company paid $517,086
towards the exploration and development of the oil and gas prospects in Alberta.
All of these costs have been capitalized.
California Prospects, U.S.A.
On December 5, 2003, the Company entered into two option agreements
with Archer Exploration, Inc. (Archer) to acquire Archer's interest in certain
unproven oil and gas prospects located in the State of California, U.S.A., known
as North Franklin Prospect and Winter Pinchout Prospect.
To earn an assignment of 100% of Archer's interests in the North
Franklin Prospect, being a 100% working interest (76% net revenue interest), the
Company made an initial cash payment of $85,000 and is required to pay $15,000
at spud of the initial test well and $25,000 at completion of the initial test
well. In addition, the Company is responsible for all expenses for lease
extensions and rental of existing leases (including a 20% fee), acquisition of
any additional leases (including a 20% fee) and costs in connection with
drilling and completion of the initial test well.
Pursuant to the agreement, Archer retains a 2.5% overriding royalty, a
5% working interest through the completion of the initial test well and the
right to participate in a 5% working interest.
The Company has an agreement to farm-out a 35% working interest in the
North Franklin Project to Fidelis Energy, Inc. (see Note 6). Under the terms of
the agreement, Fidelis will contribute $500,000 towards the drilling and
completion of the Archer-Whitney #1 well and participate as a full working
interest partner on all further costs including drilling of any additional wells
on the project.
To earn an assignment of 100% of Archer's interests in the Winter
Pinchout Prospect, being a 100% working interest (76% net revenue interest), the
Company made an initial cash payment of $100,000 and is required to pay $15,000
at spud of the initial test well of the first three prospects drilled and
$25,000 at completion of the initial test well of each prospect drilled. In
addition, the Company is responsible for all expenses for acquisition of leases
acquired (including a 20% fee), acquisition and analysis of seismic data,
drilling and completion of the initial test well on the first prospect drilled
and a monthly management fee in the amount of $10,000 commencing January 2004.
14
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - OIL AND GAS PROPERTIES (continued)
Pursuant to the agreement, Archer retains a 2.5% overriding royalty, a
5% working interest through the completion of the initial test well and the
right to participate in a 10% working interest.
In August 2004, the Company executed acquisition and joint operating
agreements on five natural gas propects in California with Archer Exploration,
Inc. Pursuant to the agreements, the Company has acquired a 7.5% carried working
interest on four of the prospects and has acquired a 25% carried working
interest in the fifth prospect. The Company is carried on all costs related to
the prospect through the licensing, permitting, drilling and completion of the
first well on each project. In the event of a successful gas well being drilled,
the Company, following testing and completion, would be responsible for the
working interest costs of well tie-in and pipeline. The Company would also be a
working interest participant on any additional gas wells drilled.
During the year ended December 31, 2003, the Company incurred a total
of $405,000 in acquisition and exploration costs relating to the California
prospects. During the year ended December 31, 2004, the Company incurred a total
of $898,204 in acquisition, exploration and development costs relating to the
California prospects. During the nine months ended September 30, 2005, the
Company incurred a total of $443,202 in acquisition, exploration and development
costs relating to the California prospects. As of September 30, 2005, total
capitalized costs for the California prospects was $1,746,406.
Silver Star has received a reservoir engineering reserve report from
Chapman Petroleum Engineering, Ltd. on the North Franklin Project. The two
producing gas wells, Archer-Whitney #1 and Archer-Wildlands #1 were used to
assign the following net reserves to Silver Star's 40% working interest.
The reserves in the category of Proved Developed Producing total 3.593
Bcf with a N.P.V. (Net Present Value) at a 10% D.C.F. (Discounted Cash Flow) of
$12,220,000. These reserves reflect the two producing wells only. Additional
"Probable" reserves have been estimated for incremental recovery on the two
existing wells and for one down dip location. However, under SEC regulations
probable reserves are not recognized and therefore are not reported.
NOTE 4 - COMMON STOCK
On November 20, 2003, the Company restructured its share capital
whereby the total common shares presently issued and outstanding was forward
split on a 1 (old) to 12 (new) basis. Effective January 5, 2004 the Company
restructured its share capital whereby the total common shares presently issued
and outstanding was forward split on a 1 (old) to 2 (new) basis. All references
to common stock, common shares outstanding, average numbers of common shares
outstanding and per share amounts in these Financial Statements and Notes to
Financial Statements prior to the effective date of the forward stock splits
have been restated to reflect the 12:1 and the 2:1 common stock splits on a
retroactive basis.
15
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 4 - COMMON STOCK (continued)
On December 5, 2003, the Company received $500,000 in subscription
proceeds from a director and officer for the purchase of 444,444 common shares
of the company's stock pursuant to a Regulation S Private Placement Financing
which was announced on November 25, 2003 and whereby the Company plans to issue
up to 3,555,556 common shares of its capital stock. During the three months
ended March 31, 2004, the Company received subscription proceeds of $750,000
pursuant to the Private Placement Financing. During the three months ended March
31, 2004, 1,112,102 shares were issued in accordance with the $1,250,000 in
subscription proceeds received.
On March 23, 2004, the Company entered into an agreement with two
shareholders for the shareholders to surrender for cancellation 24,600,000
regulation 144 restricted shares of the Company's common stock.
During the three months ended June 30, 2004, the Company received
subscription proceeds of $630,000 pursuant to the Private Placement Financing.
During the three months ended June 30, 2004, 661,915 shares were issued in
accordance with the $630,000 in subscription proceeds received.
On June 30, 2004, the Company received share subscription proceeds of
$275,000 for 500,000 shares of restricted common stock pursuant to the Private
Placement Financing announced on November 25, 2003. During the three months
ended September 30, 2004, 500,000 shares were issued in accordance with the
$275,000 in subscription proceeds received.
On August 18, 2004, the Company issued 250,000 restricted shares of
common stock for $25,000 in accounts payable.
On October 18, 2004, the Company issued 156,000 restricted shares of
common stock for consulting expense of $15,600.
On November 23, 2004, the Company issued 362,394 shares of common stock
for debt issue costs of $350,000 associated with the Company's issuance of
convertible debt.
As of December 31, 2004, the Company has not adopted a stock option
plan or granted any stock options and accordingly has not recorded any
stock-based compensation.
Treasury Stock
On December 18, 2003, upon the resignation of an officer of the
Company, 48,000,000 common shares were returned to Treasury, for consideration
of $3,500. The shares were cancelled on January 23, 2004.
16
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5- RELATED PARTY TRANSACTIONS
Pursuant to consulting agreements dated November 15, 2003 and
renegotiated July 1, 2005 the Company agreed to pay $12,000 per month to the CFO
and director of the Company and $15,000 per month to the President and director
of the Company.
During 2003 and 2004, the Company entered into several acquisition
agreements with 1048136 Alberta Ltd. (see Note 4). The Company's current
president, Robert McIntosh, was a director of 1048136 Alberta Ltd. and had
resigned from that position prior to his involvement with the Company. Sak
Narwal, a shareholder of the Company, was also a director of 1048136 Alberta Ltd
and Scott Marshall, the majority shareholder of 1048136 Alberta Ltd., is the
spouse of Naomi Patricia Johnston, owner of a 11.76% interest in the Company.
Despite the existence of these related parties, the consideration exchanged
under the Agreements described above was negotiated at "arms length," and the
directors and executive officers of the Company used criteria used in similar
uncompleted proposals involving the Company in comparison to those of 1048136
Alberta Ltd.
At September 30, 2005, the Company owed $93,418 to 1048136 Alberta Ltd.
for expenses related to corporate development.
The Company has a "working interest" relationship with joint venture
partner Fidelis Energy Inc. (FDEI: OTC: BB) (see Note 4). Both companies have an
interest in the North Franklin gas project in Sacramento, California. More
recently in January 2005 Fidelis entered into an agreement to acquire an
interest in 2 oil wells at the Joarcam Project located in Alberta Canada. The
Company is earning a 70% working interest in the entire Joarcam Project. Fidelis
has also entered into an agreement for the first right of refusal to acquire the
remaining 30% working interest on all future drilling locations at Joarcam.
Silver Star and Fidelis will collectively have acquired a 100% working interest
at Joarcam.
In addition, Silver Star and Fidelis management work closely in the
evaluation of other potential, jointly feasible exploration prospects. Also, the
two companies share a common origin in that certain beneficial shareholders of
both companies have contributed to their formation.
NOTE 6 - INCOME TAXES
As of December 31, 2004, the Company has incurred operating losses of
approximately $1,212,000 which, if utilized, will expire through 2024. Future
tax benefits which may arise as a result of these losses and resource deductions
have not been recognized in these financial statements, as their realization is
determined not likely to occur.
17
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - NOTES PAYABLE
During the year ended December 31, 2004, the Company received the
following short-term loans:
(Unaudited)
September 30, December 31,
2005 2004
----------------- -----------------
Note payable with interest at 8% due August 24, 2005 $ 150,000 $ 150,000
Note payable with interest at 8% due September 2, 2005 100,000 100,000
Note payable with interest at 8% due October 12, 2005 50,000 50,000
Note payable with interest at 8% due October 27, 2005 50,000 50,000
Note payable with interest at 8% due November 5, 2005 100,000 100,000
----------------- -----------------
Total Notes Payable $ 450,000 $ 450,000
================= =================
As of September 30, 2005 and December 31, 2004, accrued interest on
these loans was $37,785 and $9,725, respectively. For the nine months ended
September 30, 2005 and 2004, interest expense charged to these loans was $28,060
and $0, respectively.
NOTE 8 - CONVERTIBLE DEBENTURES
On November 23, 2004, the Company sold $750,000 in secured convertible
debentures to Cornell Capital Partners, L.P. (Cornell). The convertible
debentures carry an interest rate of 5% per annum. Principal and interest will
be due on November 23, 2007. At any time, Cornell is entitled to convert all or
any part of the principal amount of the debenture, plus accrued interest, into
shares of the Company's common stock. On November 23, 2007, at the Company's
option, the entire principal amount and all accrued interest shall be either (a)
paid to Cornell or (b) converted to common stock. For the nine months ended
September 30, 2005 and 2004, interest expense charged to the convertible
debentures was $28,271 and $0, respectively.
As part of the purchase of the debentures, Cornell was also issued a
Warrant to purchase 750,000 shares of the Company's common stock. The Warrant
will expire on November 23, 2009. The exercise price of the warrant shall be one
hundred twenty percent (120%) of the closing bid price of the Company's common
stock on the exercise date or as subsequently adjusted.
18
SILVER STAR ENERGY, INC.
(Formerly A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - CONVERTIBLE DEBENTURES (continued)
On November 23, 2004, the Company paid $102,500 in cash for debt issue
costs. The Company also issued 362,394 shares of common stock valued at $350,000
for debt issue costs. Total debt issue costs of $452,500 have been capitalized
in financial statements. These debt issue costs are being amortized over three
years. As of September 30, 2005 and December 31, 2004, debt issue costs of
$93,688 and $11,059 have been amortized and recorded as interest expense. At
September 30, 2005 and December 31, 2004, net debt issue costs were $358,814 and
$441,441, respectively.
On March 10, 2005, the Company executed a Convertible Debenture for
$550,000. The note is due and payable in full on or before March 10, 2006 and
carries an interest rate of 5% per annum. The notes are convertible, at the
discretion of the holder, into shares of common stock of the Company at a
conversion price of $1.00 per share. On March 30, 2005, the Company executed a
Convertible Debenture for $200,000. The note is due and payable in full on or
before March 10, 2006 and carries an interest rate of 5% per annum. The notes
are convertible, at the discretion of the holder, into shares of common stock of
the Company at a conversion price of $1.00 per share. As of September 30, 2005,
interest expense charged to these convertible debentures was $20,570.
On April 8, 2005, the Company executed a Convertible Debenture for
$160,000. The note is due and payable in full on or before April 8, 2006 and
carries an interest rate of 5% per annum. The notes are convertible, at the
discretion of the holder, into shares of common stock of the Company at a
conversion price of $1.00 per share. On May 17, 2005, the Company executed a
Convertible Debenture for $150,000. The note is due and payable in full on or
before May 17, 2006 and carries an interest rate of 5% per annum. The notes are
convertible, at the discretion of the holder, into shares of common stock of the
Company at a conversion price of $1.00 per share. As of September 30, 2005,
interest expense charged to these convertible debentures was $6,670.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
GENERAL - This discussion should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations in the
Company's annual report on Form 10-KSB for the year ended December 31, 2004.
PLAN OF OPERATIONS
On July 5, 2005 Silver Star announced that the June gas production at
the "Archer-Whitney #1" well at the Company's North Franklin gas reservoir
totaled 44.859 Mmcf for the 30 days in June. The average daily production was
1.50 Mmcf per day. In addition, "Archer-Wildlands #1" gas well was nearing, and
should reach the total depth of 8,000 feet. Silver Star receives PGE-Citygate
gas pricing from North Franklin production, which on July 1st was in the $6.13
per Mcf range. NYMEX
19
natural gas futures have risen to between $7.17 and $8.82 for 2005-2006 giving
Silver Star an indication of what future gas production revenue may be during
the upcoming months.
On July 11, Silver Star updated the status of the "Archer-Wildlands
#1". The well was still drilling ahead after a short delay that occurred as the
well deviated from the directional drilling program. In order to intersect the
targeted pay zone planned from the 2D seismic, the well required a slight
directional reorientation. The operator has worked to solve the deviation issue
and is now on track to drill through the Winters sand objective over the next
day or so. Silver Star expected to receive the suite of electronic logs and data
mid week. Drilling often encounters delays and the Company has stated that it
will keep shareholders updated with the best available information at that time.
On July 18, Silver Star was pleased to announce that the
"Archer-Wildlands #1" gas well at the Company's North Franklin Project reached a
total depth of 7,736 feet on July 15. The Winters sand pay had excellent gas
shows in the mud log and the suite of Resistivity and Sonic electronic logs
showed clean sand pay with 100% gas fill-up within the pay zone. The intersected
sand pay exceeds in thickness what is producing at the "Archer-Whitney" well. A
casing election was immediately made and the Company is pleased to report that
the well is now cased to depth with production casing. The Company and partners
were preparing to complete the well and the operator is developing a perforation
plan to be implemented during the well completion phase. Notably, the gas
gathering line and tie-in to pipeline are already in place at the Wildlands
location. All that will be required is to install a gas-flow meter following the
perforation and completion program. The well can be tied-in to the pipeline with
no delays, such as occurred with the initial pipeline construction. The operator
has called for a completion rig and Silver Star will report on timing when the
rig becomes available. It is estimated that the completion phase of the well
will occur over the next 2 weeks.
On August 2 Silver Star announced that the completion program at the
"Archer-Wildlands #1" gas well had begun. The completion rig arrived at the
North Franklin Project site yesterday. The perforation of the Winters gas pay
zone will be done August 3, following which, the well will be flow tested and
tied-in to the existing gas pipeline infrastructure. The operation is estimated
to take 3 to 4 days. After the well is tied-in, Silver Star will have two
producing gas wells in the North Franklin reservoir. On August 1, the
PGE-Citygate gas pricing from North Franklin production was $7.14 per Mcf.
Silver Star posted recent photos of the North Franklin Project in the "Projects
Photo Gallery" section of the website. These include drilling of the
"Archer-Wildlands #1" well and the production facilities at the "Archer-Whitney
#1" well location. These pictures can be viewed at www.silverstarenergy.com
On August 3 the Company reported that the July gas production at the
"Archer-Whitney #1" well at the Company's North Franklin gas reservoir totaled
46.212 Mmcf for the 31 days in July. The average daily production was 1.49 Mmcf
per day. The well has exhibited stable production at these rates since the onset
of production in March 2005. Now that the second well has been drilled and the
partners have gained important information on the reservoir integrity, the
operator has indicated that gas flow rates at the "Archer-Whitney #1" well can
be safely increased. Silver Star will report when this occurs and update rates
when available. The completion program at the "Archer-Wildlands #1" well was
ongoing and the Company stated it would report on all developments when
information is received from the operator. Silver Star receives PGE-Citygate gas
pricing from North Franklin
20
production, which on August 1st was in the $7.14 per Mcf range. NYMEX natural
gas futures have risen to between $8.15 and $9.54 for 2005-2006 giving Silver
Star an indication of what the revenue from upcoming gas production may be in
the near future.
On August 5 Silver Star reported the July oil production from the
"13-27" and "13-22" wells at the Joarcam Project. The Company has sold and
shipped oil to Nexen for the 31day production period for the two producing wells
totaling 1,719 barrels. The "13-27" well produced 1,141 barrels at a rate of 37
barrels per day and the "13-22" well produced 579 barrels at a rate of 19
barrels per day. The Joarcam Project has now cumulatively produced 7,119 barrels
in 5 months. Silver Star has a 70% working interest and a 56% net revenue
interest. The operator of the project, Transaction Oil and Gas Ventures is
currently working on increasing daily rate production from both wells by
increasing pumping efficiency. Currently, the 38 degree API light oil at Joarcam
has been priced at over $73.00 CDN ($61.00 US) per barrel.
On August 8 Silver Star was pleased to announce the commencement of
commercial gas production at the "Archer-Wildlands #1" well on the Company's
North Franklin Project, Sacramento California. The well was successfully
completed in the Winters pay zone, following which the well was connected to the
existing pipeline infrastructure. The analysis of the gas returned a value of
945 B.T.U, in keeping with the gas value being produced from the Company's
nearby "Archer-Whitney" well. The "Archer-Wildlands #1" well has been initially
brought online at a rate of 1.0 Mmcf per day. This I.P.R. (initial production
rate) will be closely evaluated by the operator and stepped up over time once
stable rates are achieved.
Now that this second gas well has been put into production, the
partners are gaining important information on the North Franklin gas reservoir
integrity. As a result, the operator has stated that gas flow rates at the
"Archer-Whitney #1" well can be safely increased. Silver Star will shortly
report updated production rates from the well when they are made available to
the Company.
Silver Star President Robert McIntosh stated "The beginning of
commercial production of our second gas well is a significant milestone for the
Company. It will have an immediate positive impact and increase cash flow from
the North Franklin Project. With this new production, and as the operator begins
to move up the flow rates at the Whitney well, we are moving forward towards
achieving our goals for the Project as well as meeting our financial projections
for Q3 and Q4."
On August 10 Silver Star reported that the daily gas production at the
"Archer-Whitney #1" well at North Franklin has been stepped up to 1.8 Mmcf per
day, and is capable of going higher. The operator's goal is to move the
production rate up to 2 Mmcf per day over the next few weeks and will be
undertaking further increases of the gas flow rates over time. After each
increase of the production rate, an evaluation period will be required to assess
the well pressures, performance and to maintain reservoir integrity. Silver Star
President Robert McIntosh stated, "Today, the combined production from the
"Archer-Whitney #1" and the new producer "Archer-Wildlands #1" is 2.8 Mmcf per
day. We are now producing from two gas wells and are confident of additional gas
flow rate increases in the near future as the partners gain more insight into
the nature of the Franklin reservoir."
On August 15 Silver Star announced that the Company has executed a
memorandum of understanding (M.O.U.) to acquire a 20% working interest from a
private company, in a prospective
21
Kansas oil and gas play. Silver Star will be signing formal contracts and a
joint operation agreement (J.O.A.) shortly. Silver Star and partners have now
acquired participation rights in a large data base that includes a geophysical
survey covering approximately one million acres, located in central Kansas,
covering parts of Ellsworth, Salina, McPherson, Reno, Harvey, Kingman, and
Sedgwick counties. Total cumulative oil production through 1999 from these
counties is more than 978 million barrels of oil. The geophysical survey
utilized RAM technology, owned by Paramount Energy Corp., which is a geophysical
methodology used to highlight oil and gas deposits. Unlike 2-D and 3-D seismic
methods, which gather information based upon artificially induced sonic
responses recorded at the surface, RAM technology identifies "unique bright
spots" using its proprietary software to process certain aspects of the earth's
magnetic field data.
Data is collected by a low flying aircraft equipped with specialized
equipment and then analyzed by RAM software. These "unique bright spot"
anomalies can be correlated to near-surface alterations caused by the slow
geochemical processes that occur over both oil and gas deposits. The RAM
technology is an indirect hydrocarbon indicator independent of structure so it a
good tool in areas where seismic is not. Since RAM data is collected from an
aircraft, large acreage surveys can be acquired many times faster and many times
less costly than traditional seismic. That makes RAM an ideal first
reconnaissance tool. Several identified RAM anomalies interpreted within the
survey area are believed to have hydrocarbon potential over multi-sections of
lands that have never been tested with a drill bit. Most nearby production
within this region of the Central Kansas Platform produces from Mississippian
age and older limestone rocks above the Arbuckle dolomite formation. Some of the
accumulations of hydrocarbons are stratagraphically trapped and unrelated to
structure and therefore not easily identifiable by traditional seismic. The
magnetic survey and interpretation of the region is of excellent quality.
Oil wells will be drilled to test the most promising prospects to the
deepest known petroleum formation, the Arbuckle, generally less than 4000' in
depth in the Central Kansas Platform. Drilling costs have been estimated to be
in the order of $200,000 for a cased and completed well.
The Central Kansas Platform covered by the survey and interpretation
contains some of the most prolific production from shallow depths in that part
of the country. There are many established oil fields within the boundaries of
the survey area. The survey indicates "bright spots" that could be hydrocarbon
accumulations not yet discovered by traditional seismic or other older
exploration technologies. Multiple prospects are expected to be generated after
more extensive field tests. Silver Star and partners are proceeding to further
evaluate the most prospective oil and gas targets for drilling utilizing
complimentary geochemical and geophysical methodologies in their field testing.
The operator will then recommend leases for acquisition and the exploration
program will commence. Silver Star, with a 20% working interest, will be
participating in a joint venture with other working interest partners who are
Fidelis Energy, Inc. which has a 25% working interest, and Cascade Energy, Inc.
which also has a 25% working interest. The private company will be carried
through the drilling and completion of the first two (2) exploratory wells. The
70% working interest partners will pay 100% of the costs of drilling and
completing the initial two wells. Subsequent to those first two wells, all
participants in the play will contribute on a straight up working interest
basis.
On August 24 the Company announced that the daily gas production at the
North Franklin Gas Field has now surpassed 3.0 Mmcf per day from production at
the two wells, Archer-Whitney
22
#1 and Archer-Wildlands #1. Silver Star has earlier reported the operator's
strategy, which is to move the production rate up over a period of weeks, and
will be undertaking additional flow rate increases over time. After each
increase of the production rate, an evaluation period will be required to assess
the well pressures, performance and to maintain reservoir integrity. On August
22, the PGE-Citygate gas pricing from North Franklin production was $8.19 per
Mcf. NYMEX gas futures through November to March are now greater than $10 per
Mcf.
On September 1, Silver Star reported the August oil production from the
"13-27" and "13- 22" wells at the Joarcam Project. The Company has sold and
shipped oil to Nexen for the 28-day production period of August for the two
producing wells totaling 1,795 barrels. The "13-27" well produced 1,184 barrels
and is today producing at a rate of 41.5 barrels per day, up from the previous
37 barrel per day rate. The "13-22" well produced 611 barrels and is now
producing at a rate of 22 barrels per day, up modestly from the 19 barrel per
day rate for July. The Joarcam Project has now cumulatively produced 8,914
barrels in 6 months. The operator of the project, Transaction Oil and Gas
Ventures continues to work on, and make progress towards, increasing daily rate
oil production from both wells by increasing pumping capacity. Recently
installed remote monitoring equipment that constantly checks the efficiency of
the pumpjacks is beginning to show tangible benefits in the form of increased
daily rate production. Both wells have begun to show increases in oil production
and decreases in water cut over the past 30 days. Silver Star currently has
engineered three more drilling locations with well licenses and permits in
place. The Company will shortly detail the upcoming timing and schedule for
drilling these additional well locations. Currently, the 38 degree API light oil
at Joarcam has been priced at over $80.00 CDN ($68.94 US) per barrel.
On September 6, Silver Star reported on the gas production totals for
the month of August. Production was from the two gas wells, the "Archer-Whitney
#1" and "Archer-Wildlands #1" at the Company's North Franklin gas reservoir.
August production totaled 78.89 Mmcf for the month. The "Archer-Whitney #1" well
produced 49.16 Mmcf during the month, and the "Archer-Wildlands #1" well
produced 26.73 Mmcf after production began on August 8th. Since August 22nd,
after increasing the flow rates, combined production has been at 3.0 Mmcf per
day for the two wells. Silver Star receives PGE-Citygate gas pricing from North
Franklin production, which on September 2nd was quoted at $9.64 per Mcf. Gas
pricing is up over $3.00 per mcf since commercial production began in March of
this year.
On September 12, Silver Star announced that management of the Company
and Fidelis Energy, Inc. have collectively agreed to suspend the discussions as
to the possible amalgamation of the two companies for a period of at least one
year. Silver Star and Fidelis will continue to separately develop, along a
parallel path, their own working interests in the North Franklin Project and the
recently announced Kansas Play. Management feels that with the recent increases
in commodity prices, especially the revenue stream from the gas production in
California, that Silver Star is adequately positioned to grow under its own
corporate development plan. Silver Star is currently working on various options
to secure a sizeable financing that will allow the full development of the North
Franklin, Joarcam and Kansas projects.
23
On September 22, Silver Star reported on the first weeks of September
gas production at North Franklin. Gas production from the two wells, the
"Archer-Whitney #1" and "Archer- Wildlands #1" for the first 11 days totaled
32.53 Mmcf at an average daily rate of 2.957 Mmcf per day. Production flow rate
increases have been implemented and both wells continue to perform to the
Company's expectations. Silver Star and the operator continue to monitor
progress of the new well and overall reservoir. For the first time since
commercial production began in March of 2004, PGE-Citygate gas prices have gone
over $11.00 per Mcf. Prices on September 21st were quoted at $11.35. Gas prices
have nearly doubled since the onset of "Archer-Whitney #1" production. In
addition, January 2006 gas futures on the NYMEX have been priced at $13.81 per
Mcf. Silver Star and the operator are working towards ever increasing the
production rates of the wells to take advantage of these soaring gas prices.
Silver Star also reports that the Company continues to make good progress
towards the ultimate closing of a large capital raise financing that, when
finalized, will allow further development drilling under the overall 2005
development plan at North Franklin, Joarcam, Evi and Kansas Projects.
On September 27, Silver Star Energy reported that the September oil
production from the "13-27" and "13-22" wells at the Joarcam Project will total
1,845 barrels for the 30-day production period of September for the two
producing wells. The daily rate of oil production is currently 61.5 barrels per
day for both wells. The "13-27" well is producing at a rate of 38 barrels per
day and the "13-22" well is producing at a rate of 23.5 barrels per day, up
modestly from the 22 barrel per day rate for August. The Joarcam Project has now
cumulatively produced over 10,700 barrels in the past 7 months.
August production revenue to the project totaled $138,000 and September
is estimated to be $120,000. The two wells continue to exhibit steady production
and the Company and operator are working to maximize the barrels per day
production. Currently, the 38 degree API light oil at Joarcam has been priced at
over $78.00 CDN ($63.00 US) per barrel. Silver Star ships and sells its oil
production to the Nexen facility near the Joarcam Project.
SUBSEQUENT MATERIAL EVENTS
On October 10, Silver Star announced that it has received commitments
from certain institutional investors to acquire senior secured convertible
promissory notes and warrants of the Company for gross proceeds of $3,350,000.
The convertible notes can be converted to common shares on the basis of $ 0.315
per share. In addition to the notes, the Company has agreed to issue investor
warrants for 100% of the common shares underlying the notes exercisable into
common shares for 5 years at an exercise price of $0.63. The Company has agreed
to registration rights for the investors, although the securities to be issues
are restricted and may not be sold or offered in the U.S. absent registration or
an applicable exemption from registration requirements. The funds will be
utilized to repay the Company's outstanding debenture to Cornell Capital LLP,
for drilling costs and for working capital. This press release shall not
constitute an offer to sell or the solicitation of an offer to buy the notes or
the warrants. This press release is being issued pursuant to and in accordance
with Rule 135c under the Securities Act of 1933, as amended.
And on October 7, Silver Star announced that dated today, the Company
has accepted a firm "Binding Purchase Offer" from a Canadian oil and gas company
to buy the entire 70% interest of
24
the Joarcam asset. The Binding Offer to Purchase totaled $4,457,000 CDN or
$3,762,600 USD. The net to Silver Star's 70% interest will be approximately $2.6
million USD. Management accepted this offer after discussions with its
engineering consultants that indicated it to be a "fair market" price for the
asset. The sale is scheduled to close on or before November 30, 2005 and will
provide Silver Star capital to move forward in developing the North Franklin gas
reservoir, fracture stimulate the EVI "7-11" well, advance the Kansas Project as
well as consider future acquisitions.
ITEM 3. CONTROLS AND PROCEDURES
The Company's Chief Executive Officer and Chief Financial Officer are
responsible for establishing and maintaining disclosure controls and procedures
for the Company.
(a) Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, the Company carried
out an evaluation, under the supervision and with the participation of the
Company's management, including the Company's President, of the effectiveness of
the design and operation of the Company's disclosure controls and procedures
pursuant to Rule 13a-15 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"). Based upon the evaluation, the Company's President
concluded that, as of the end of the period, the Company's disclosure controls
and procedures were effective in timely alerting him to material information
relating to the Company required to be included in the reports that the Company
files and submits pursuant to the Exchange Act.
(b) Changes in Internal Controls
Based on his evaluation as of September 30, 2005, there were no
significant changes in the Company's internal controls over financial reporting
or in any other areas that could significantly affect the Company's internal
controls subsequent to the date of his most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings pending or threatened against us.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
25
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit
Number Title of Document
10.1 Robert McIntosh's Consulting Agreement dated November 15, 2003, filed
on April 21, 2004 on Form 10KSB/A.
10.2 David Naylor's Consulting Agreement dated November 15, 2003, filed on
April 21, 2004 on Form 10KSB/A.
10.3 Robert McIntosh's Loan Agreement dated December 31, 2003, filed on
April 21, 2004 on Form 10KSB/A.
10.4 Agreement dated October 21, 2003 between the Company and Adil Dinani
disposing of 657333 BC Ltd. (Netcash), filed on November 13, 2003 on
Form 8- K.
10.5 Agreement dated October 29, 2003 between the Company and 1048136
Alberta, Ltd. respecting the acquisition of the Evi oil and gas
prospect, filed on November 13, 2003 on Form 8-K.
10.6 Agreement dated October 29, 2003 between the Company and 1048136
Alberta, Ltd. respecting the acquisition of the Verdigris oil and gas
prospect, filed on November 13, 2003 on Form 8-K.
10.7 Agreement dated December 5, 2003 between the Company and Archer
Exploration, Inc. respecting the North Franklin oil and gas prospect,
filed on December 23, 2003 on Form 8-K.
10.8 Agreement dated December 5, 2003 between the Company and Archer
Exploration, Inc. respecting the Winter Pinchout oil and gas project,
filed on December 23, 2003 on Form 8-K.
31.1 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
31.2 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002.
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
(b) Reports on Form 8-K filed.
None.
26
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Silver Star Energy, Inc.
(Registrant)
DATE: November 4, 2005
By: /s/ Robert McIntosh
Robert McIntosh
President, CEO & Director
(Principal Executive Officer)
By: /s/ David Naylor
David Naylor
Treasurer, Director
(Principal Financial Officer)
27