The condensed consolidated financial statements included herein have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted. However, in the opinion of management, all adjustments (which consist only of normal recurring adjustments) necessary to present fairly the financial position and results of operations for the periods presented have been made. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and the notes thereto included in the Company's Form 10-K filing for the year ended December 31, 2017.
Our shares are now traded on the over-the-counter market under the symbol FPPP which is more volatile than the ExchangeNYSE and may result in a continued diminution in value of our shares. The delisting also resulted in the loss of other advantages to an exchange listing, including marginability, blue sky exemptions and others.
Our ability to continue as a “going concern” is dependent on many factors, including, among other things, our ability to comply with the covenants in our existing debt agreements,Loan Agreement, our ability to cure any defaults that occur under our debt agreementsLoan Agreement or to obtain waivers or forbearances with respect to any such defaults, and our ability to pay, retire, amend, replace or refinance our indebtedness as defaults occur or as interest and principal payments come due. Our ability to continue as a going concern is also dependent on raising additional capital to fund our operations and ultimately on generating future profitable operations. While we are actively involved in seeking new sources of working capital, there can be no assurance that we will be able to raise sufficient additional capital or to have positive cash flow from operations to address all our cash flow needs. Additional capital could be on terms that are highly dilutive to our shareholders. If we are not able to find alternative sources of cash or generate positive cash flow from operations, our business and shareholders may be materially and adversely affected.
In February 2016, the FASB issued Accounting Standards Update No. 2016-02, “Leases”, to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. This authoritative guidance is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the provisions of this guidance and assessing its impact in relation to the Company's leases.
On January 1, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606 “Revenue from Contracts with Customers” (“ASC 606”) using the modified retrospective approach, which only applies to contracts that were not completed as of the date of the application.adoption. The adoption did not require an adjustment to operating retained earnings for the cumulative effect adjustment and does not have a material impact on the Company’s ongoing consolidated balance sheet, statement of operations, statement of stockholders’ equity or statement of cash flows.
The Company recognizes revenues from the sales of oil, natural gas and natural gas liquids (“NGL”) to its customers in accordance with the five-step revenue recognition model prescribed in ASC 606. Specifically, revenue is recognized when the Company’s performance obligations under contracts with customers (purchasers) are satisfied, which generally occurs with the transfer of control of the products to the purchasers. Control is generally considered transferred when the following criteria are met: (i) transfer of physical custody, (ii) transfer of title, (iii) transfer of risk of loss and (iv) relinquishment of any repurchase rights or other similar rights. Given the nature of the sold,sales, revenue is recognized at a point in time based on the amount of consideration the Company expects to receive in accordance with the price specified in the contracts. Consideration under the marketing contracts is typically received from the purchaser one to two months after production and, as a result, the Company is required to estimate the amount of production that was delivered to the purchaser and the price that will be received for the sale of the product. The Company records the differences between estimates and the actual amounts received for product sales once payment is received from the purchaser. Such differences have historically not been significant as the Company uses knowledge of its properties and their historical performance, spot market prices and other factors as the basis for these estimates. At March 31,September 30, 2018, the Company had receivables related to contracts with customers of $360,306.$405,702.
The Company does not disclose the value of unsatisfied performance obligations under its contracts with customers as it applies the practical exemption in accordance with ASC 606. The exemption, as described in ASC 605-10-50-14(a), applies to variable consideration that is recognized as control of the product is transferred to the purchaser. Since each unit of product represents a separate performance obligation, future volumes are wholly unsatisfied and disclosure of the transaction price allocated to remaining performance obligations is not required.
On December 22, 2017, the President of the United States signed into law what is informally called the Tax Cuts and Jobs Act of 2017 (the “Act”(“the Act”), a comprehensive U.S. tax reform package that became effective January 1, 2018,2018. The Act, among other things, lowered the corporate income tax rate from 35% to 21%, repealed the Alternative Minimum Tax and made the AMT credit refundable. Accounting rules require companies to recognize the effects of changes in tax laws and tax rates on deferred tax assets and liabilities in the period in which the new legislation was enacted. We recorded a total income tax benefit of $157,227 in the year ended December 31, 2017, the amount of our AMT credit that will be refundable in tax years beginning after 2017. For the tax year ended December 31, 2017, the Company owed $20,191 in alternative minimum tax. The tax liability was reduced $18,990 by the AMT credit from prior years, leaving a balance due of $1,201 on Form 1120. The net amount of AMT paid by the Company increased the AMT credit refundable by $1,201 to $158,428. This refund is reported as a long-term asset in other assets on the consolidated balance sheet.
The Company also reassessed the realizability of our deferred tax assets but determined that it continues to be more likely than not that the deferred tax assets will not be utilized in the future and continue to record a full valuation allowance of the deferred tax assets. As a result, no income tax benefit was recognized by the Company for the three or nine months ended March 31, 2018 and the year ended December 31,September 30, 2017. The Company had noreported $14,657 income tax expense and $20,191 income tax benefit, for net benefit of $5,534 for the three or nine months ended March 31,September 30, 2018. The tax rate for the nine months ended September 30, 2018, is approximately 3%, which differs from the statutory federal and 2017.state rate due to net operating losses and utilization of the AMT credit from prior years. For the three and nine months ended September 30, 2017, the Company recognized $822 and $4,668, respectively, in state income tax expense, which is less than 1% income tax rate. This rate differs from the statutory federal and state rate due to net operating losses from prior years.
The Company has a line of credit with a bankCitibank with a borrowing base of $2,585,132 at September 30, 2018, and $2,761,632 at March 31, 2018, and December 31, 2017. The amount outstanding under this line of credit was $2,585,132 at September 30, 2018, and $2,761,632 at March 31, 2018, and December 31, 2017.
The amended loan agreementline of credit requires quarterly interest-only payments until expiration. The interest rate is based on a LIBOR or Prime option. The Prime option provides for the interest rate to be prime plus a margin ranging between 1.75% and 2.25% and the LIBOR option to be the 3-month LIBOR rate plus a margin ranging between 2.75% and 3.25%, both depending on the borrowing base usage. Currently, we have elected the LIBOR interest rate option in which our interest rate was approximately 5% as of March 31,September 30, 2018 and December 31, 2017. On July 25, 2018, we executed a ninth amendment to the original Loan Agreement which increased the interest rate 2% for the term of the loan. On November 7, 2018, we executed the tenth amendment to the original Loan Agreement with no change in borrowing rate from the ninth amendment to the original loan agreement.
The commitment fee is .50% of the unused borrowing base.
The line of credit provides for certain financial covenants and ratios which include a current ratio that cannot be less than 1.10:1.00, a leverage ratio that cannot be more than 3.50:1.00, and an interest coverage ratio that cannot be less than 3.50:1.00. The Company is out of compliance with all three ratios as of March 31,September 30, 2018 and December 31, 2017, and is in technical default of the agreement. Citibank is in a first lien position on all our properties and assets.
In October 2016, we executed a sixth amendment to the original loan agreement,Loan Agreement and a Forbearance Agreement, which providesprovided for Citibank’s forbearance from exercising remedies relating to the current defaults, including the principal payment deficiencies. The Forbearance Agreement ran through January 1, 2018, and required that we make a $500,000 loan principal pay down by September 30, 2017, and adhere to other requirements including weekly cash balance reports, quarterly operating reports, monthly accounts payable reports and that we pay all associated legal expenses. Furthermore, under the agreementForbearance Agreement Citibank may sweep any excess cash balances exceeding a net amount of $800,000 less equity offering proceeds, which will be applied towards the outstanding principal balance.
On December 29, 2017, we executed a seventh amendment to the original loan agreementLoan Agreement and first amendment to the forbearance,Forbearance Agreement, which reduced our borrowing base to our current$2,761,632 (our loan balance of $2,761,632at December 31, 2017) and it provided for Citibank’s forbearance from exercising remedies relating to the current defaults, including the principal payment deficiencies. The first amendment to the Forbearance Agreement ran through March 31, 2018, and required that we adhere to certain reporting requirements such as weekly cash reports and pay all of the fees and expenses of the Lender’s counsel invoiced on or before the effective date. On March 30, 2018, we executed an eighth amendment to the original loan agreementLoan Agreement and second amendment to the forbearanceForbearance Agreement which extendsextended it to June 30, 2018. The terms of the second amendment to the Forbearance Agreement were the same as under the foregoing first amendment. On July 25, 2018, we executed a ninth amendment to the original Loan Agreement and third amendment to the Forbearance Agreement, which extended it to September 30, 2018. The terms of the ninth amendment to the Loan Agreement increased the interest rate 2% and reduced our borrowing base $176,500 to our current loan balance of $2,585,132. The terms of the third amendment to the Forbearance Agreement remain the same as under the firstforegoing second amendment. On November 7, 2018, we executed our tenth amendment to the forbearance.original Loan Agreement and fourth amendment to the Forbearance Agreement which extended it to March 31, 2019. The terms of the fourth amendment to the Forbearance agreement are substantially the same as under the forgoing third amendment.
FieldPoint Petroleum Corporation
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We approved a stock warrant dividend of one warrant per one common share in March 2012. The warrants had an exercise price of $4.00 and were exercisable over 6 years from the record date. Our warrants were delisted from the NYSE American (formerly NYSE MKT) on November 17, 2017, and then expired on March 23, 2018. The following table summarizes the warrant activity for the three months ending March 31, 2018:
| | Weighted Average Exercise Price | Weighted Average Expected Life (Years) |
| | | |
Outstanding, December 31, 2017 | 7,177,010 | $4.00 | 0.25 |
Issued | - | - | |
Exercised | - | - | |
Exercised during temporary modification period | - | - | |
Expired | (7,177,010) | - | |
Outstanding, March 31, 2018 | - | $- | - |
Phillip Roberson, President and CFO, was awarded, as part of his annual compensation, on his third anniversary date 5,000 shares, and will receive on his fourth anniversary date 6,000 shares, on his fifth anniversary date 7,000 shares, on his sixth anniversary date 8,000 shares, on his seventh anniversary date 9,000 shares, and each annual anniversary date thereafter 10,000 shares. However, Mr. Roberson declined the 5,000 and 6,000 shares that would have been awarded on thishis third and fourth anniversary date ondates, July 1, 2017.2017 and 2018, respectively. On August 10, 2018, the Compensation Committee ratified the automatic extension of Mr. Roberson’s contract was extended by the Compensation Committee to July 1, 2018.2019.
On August 12, 2016, the Company entered into a binding Stock and Mineral Purchase Agreement (the “SMPA”) with HFT Enterprises, LLC (the “Buyer”) in order to provide liquidity to the Company. The Buyer purchased newly-issued restricted shares of common stock of the Company equal to 19.9% of the total number of issued and outstanding shares of the Company, as measured on the date of the Agreement, for a price of $0.45 per share. In 2016, the Buyer purchased for gross proceeds of $597,080 paid in consideration of 1,326,846 shares of unregistered common stock. The remaining shares were purchased in January 2017, for gross proceeds of $199,027 paid in consideration of 442,282 shares of unregistered common stock. Costs incurred by the Company to issue the stock was $11,807 for the year ended December 31, 2017. The SMPA also granted the Buyer, a related party after the purchase of the stock, the right to nominate one member of the Board of Directors.
During 2018, the Company received netted Joint Interest Billing statements from Trivista Operating, LLC for approximately $78,000. This amount was netted against disputed outstanding invoices which Trivista claims were acquired from the prior operator. Trivista Operating, LLC is believed to be controlled by Natale Rea, who owns approximately 6.98% of the Company’s common stock through control of 2390530 Ontario Inc. and Natale Rea (2013) family trust.Family Trust.
As previously disclosed in the Company’s Current Report on Form 8-K dated May 8, 2018, the Company is a party to a civil action captioned Trivista Oil Company,Operating, LLC v. Bass Petroleum, Inc. and Fieldpoint Petroleum Corporation, Cause No. 16,539 in the District Court of Lee County, Texas, 335 Judicial District (the “Trivista Litigation”). Trivista filed suit for non-payment of outstanding disputed invoices of $107,000 plus attorney fees and court costs on February 26, 2018. Trivista Operating LLC is controlled by one of our major shareholders, Natale Rea (2013) Family Trust. The Company disputes that it has any liability to the plaintiff in that action and intends to vigorously defend same.
The Company is a party to a civil action captionedA.C.T. Equipment Company, LLC v. Fieldpoint Petroleum Corporation, Cause No. 21,191in the 109thJudicial District Court of Andrews, Andrews County, Texas (the “A.C.T. Litigation”). A.C.T. filed suit for non-payment of outstanding disputed invoices of $18,832 plus attorney fees and court costs on July 24, 2018. The Company settled the lawsuit on September 10, 2018, for a total payment of $13,500. An Order Granting Dismissal with Prejudice was signed by the presiding judge.
On May 11,During October 2018, we closed on the saleCompany sold approximately 6,000 feet of our Buchanan wellsused surplus production tubing to an entity controlled by a shareholder, Mike Herman, for $24,000. We believe this is a fair market price for the tubing and associated acreage, for approximately $370,000. The sale included approximately 40 net undeveloped acres on our Buchanan leases in Midland County, Texas, along with associated working interest from four gross wells.did not have a facility to store it or any other offers to purchase the tubing.
PART I
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Company’s Condensed Consolidated Financial Statements, and respective notes thereto, included elsewhere herein. The information below should not be construed to imply that the results discussed herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of the management of FieldPoint Petroleum Corporation.
General
FieldPoint Petroleum Corporation derives its revenues from its operating activities including sales of oil and natural gas and operating oil and natural gas properties. The Company's capital for investment in producing oil and natural gas properties has been provided by cash flow from operating activities and from bank financing. The Company categorizes its operating expenses into the categories of production expenses and other expenses.
The Company has temporarily suspended drilling and exploration activities due to low commodity prices and has no near-term plans at this time to continue development of the Taylor Serbin field. Furthermore, we plan to limit any remedial work that does not increase production and reduce general and administrative costs as much as possible until commodity pricing improves. As we are out of compliance with our revolving line of credit and our borrowing base has been decreased, we do not expect to reinstate our drilling programs until commodity prices and our cash flow improve.
Going concern
We had a net lossesloss of $210,773$170,972 and $409,051net income of $2,239,240 for the threenine months ended March 31,September 30, 2018 and 2017, respectively and continue to have negative operating cash flow.flow in both periods. We expect that the Company will continue to experience operating losses and negative cash flow for so long as commodity prices remain depressed. The audit report of our independent registered public accountants covering our financial statements for the fiscal years ended December 31, 2017 and 2016, include an explanatory paragraph expressing substantial doubt as to our ability to continue as a going concern. The financial statements have been prepared "assuming that the Company will continue as a going concern”. Our ability to continue as a going concern is dependent on raising additional capital to fund our operations and ultimately on generating future profitable operations. There can be no assurance that we will be able to raise sufficient additional capital or have positive cash flow from operations to address all of our cash flow needs. If we are not able to find alternative sources of cash or generate positive cash flow from operations, our business and shareholders may be materially and adversely affected.
On August 12, 2016, the Company entered into a binding Stock and Mineral Purchase Agreement (the “SMPA”) with HFT Enterprises, LLC (the “Buyer”) in order to provide liquidity to the Company. The Buyer purchased newly-issued shares of common stock of the Company equal to 19.9% of the total number of issued and outstanding shares of the Company, as measured on the date of the Agreement, for a price of $0.45 per share (the shares to be purchased, the “Shares”). In November 2016, the Buyer purchased for gross proceeds of $398,053 paid in consideration of 884,564 shares of unregistered common stock. In December 2016, the Buyer purchased for gross proceeds of $199,027 paid in consideration of 442,282 shares of unregistered common stock. The remaining 442,282 shares were purchased in January 2017, for gross proceeds of $199,027 paid in consideration of 442,282 shares of unregistered common stock. Euro Pacific Capital, Inc. acted as the placement agent and garnered a fee of 5%. The SMPA also granted the buyer, a related party after the purchase of the stock, the right to nominate one member of the Board of Directors.
The Company was delisted from the NYSE American on November 16, 2017, which could have a significant adverse impact on our ability to raise additional capital since we are no longer eligible to register securities on Form S-3 or undertake at-the-market offerings under Rule 415.
Our shares are now traded on the over-the-counter market under the symbol FPPP which is more volatile than the Exchange and may result in a continued diminution in value of our shares and resulted in the loss of other advantages to an exchange listing, including marginability, blue sky exemptions and others.
In the nine months ended September 30, 2018, the Company sold its net interest in the Buchanan wells in the Spraberry field that were not economic to our interests. The gross proceeds for the wells was $370,000 and the Company recognized a gain of $345,399. The Company used $176,500 of the proceeds to pay toward the principal balance of our line of credit. During the nine months ended September 30, 2017, the company sold non-producing and non-economic assets and used $3,115,000 of the proceeds to pay toward the principal balance of our line of credit.
The Company’s plans to mitigate our current financial situation is in Note 2 – Liquidity and Going Concern in the financial statements for the quarternine months ended March 31,September 30, 2018.
Results of Operations
Comparison of three months ended March 31,September 30, 2018, to the three months ended March 31,September 30, 2017
| |
| | |
Revenue: | | |
Oil sales | $425,008 | $720,673 |
Natural gas sales | 40,839 | 94,055 |
Total oil and natural gas sales | $465,847 | $814,728 |
| | |
Sales volumes: | | |
Oil (Bbls) | 7,614 | 14,938 |
Natural gas (Mcf) | 13,867 | 30,001 |
Total (BOE) | 9,925 | 19,938 |
| | |
Average sales prices: | | |
Oil ($/Bbl) | $55.82 | $48.24 |
Natural gas ($/Mcf) | 2.95 | 3.14 |
Total ($/BOE) | $46.94 | $40.86 |
| | |
Costs and expenses ($/BOE) | | |
Production expense (lifting costs) | $23.32 | $35.71 |
Depletion and depreciation | 10.15 | 7.85 |
Accretion of discount on asset retirement obligations | 2.72 | 1.30 |
General and administrative | 31.20 | 14.24 |
Total | $67.39 | $59.10 |
| Quarter Ended September 30, |
| | |
Revenue: | | |
Oil sales | $501,078 | $632,970 |
Natural gas sales | 64,897 | 49,733 |
Total oil and natural gas sales | $565,975 | $682,703 |
| | |
Sales volumes: | | |
Oil (Bbls) | 8,176 | 14,233 |
Natural gas (Mcf) | 18,142 | 17,807 |
Total (BOE) | 11,200 | 17,201 |
| | |
Average sales prices: | | |
Oil ($/Bbl) | $61.29 | $44.47 |
Natural gas ($/Mcf) | 3.58 | 2.79 |
Total ($/BOE) | $50.53 | $39.69 |
| | |
Costs and expenses ($/BOE) | | |
Production expense (lifting costs) | $23.67 | $26.37 |
Depletion and depreciation | 10.59 | 9.80 |
Accretion of discount on asset retirement obligations | 2.41 | 1.51 |
General and administrative | 25.49 | 16.51 |
Total | $62.16 | $54.19 |
Oil and natural gas sales revenues decreased 43%17% or $348,881$116,728 to $465,847$565,975 for the three months ended March 31,September 30, 2018, from the comparable 2017 period. Average oil sales prices increased 16%38% to $55.82$61.29 for the three months ended March 31,September 30, 2018, compared to $48.24$44.47 for the period ended March 31,September 30, 2017. Average natural gas sales prices decreased 6%increased 28% to $2.95$3.58 for the three months ended March 31,September 30, 2018, compared to $3.14$2.79 for the period ended March 31,September 30, 2017. Decreased oil and natural gas production, due in part to the sale of fields that were noneconomic, accounted for a decrease in revenue of approximately $269,000. Higher commodity prices for oil and natural gas accounted for an increase in revenue of approximately $152,000. We have temporarily suspended drilling and exploration activity due to low commodity prices and expect our volumes to decline in the coming quarters until drilling and exploration activities are re-established.
Production expense decreased 42% or $188,464 to $265,141 for the three months ended September 30, 2018, from the comparable 2017 period. This was primarily due to a decrease in workover activity and operating costs associated with properties sold in 2017. Lifting costs per BOE decreased $2.70 to $23.67 for the 2018 period compared to $26.37 for the three months ended September 30, 2017, due mainly to decreased workover activity and general decreases in costs and lease operating expenses. We anticipate lease operating expenses to decline slightly over the following quarters due to less anticipated work over activity and a decrease in costs and lease operating expenses associated with properties sold in 2017 which had higher than average operating costs per BOE.
Depletion and depreciation decreased 30% or $49,911 to $118,554 for the three months ended September 30, 2018, versus $168,465 in the 2017 comparable period. This was primarily due to a lower depletable base and lower production volumes during the three months ended September 30, 2018.
General and administrative costs increased 1% or $1,520 to $285,488 for the three months ended September 30, 2018, from the three months ended September 30, 2017. This was primarily attributable to an increase in professional services. At this time, the Company anticipates general and administrative expenses to remain stable in the coming quarters.
Other expense, net for the quarter ended September 30, 2018, was $46,462. Interest expense was $46,642 for the three months ended September 30, 2018. Other income, net for the quarter ended September 30, 2017, was $1,132,824, which included gain on sale of oil and natural gas properties of $1,173,193. Interest expense was $40,621 for the three months ended September 30, 2017.
Results of Operations
Comparison of nine months ended September 30, 2018, to the nine months ended September 30, 2017
| Nine Months Ended September 30, |
| | |
Revenue: | | |
Oil sales | $1,466,494 | $2,143,326 |
Natural gas sales | 157,940 | 235,080 |
Total oil and natural gas sales | $1,624,434 | $2,378,406 |
| | |
Sales volumes: | | |
Oil (Bbls) | 24,380 | 44,947 |
Natural gas (Mcf) | 60,087 | 79,732 |
Total (BOE) | 34,395 | 58,235 |
| | |
Average sales prices: | | |
Oil ($/Bbl) | $60.15 | $47.69 |
Natural gas ($/Mcf) | 2.63 | 2.95 |
Total ($/BOE) | $47.23 | $40.84 |
| | |
Costs and expenses ($/BOE) | | |
Production expense (lifting costs) | $22.50 | $30.24 |
Depletion and depreciation | 10.70 | 9.25 |
Accretion of discount on asset retirement obligations | 2.38 | 1.34 |
General and administrative | 25.40 | 14.56 |
Total | $60.98 | $55.39 |
Oil and natural gas sales revenues decreased 32% or $753,972 to $1,624,434 for the nine months ended September 30, 2018, from the comparable 2017 period. Average oil sales prices increased 26% to $60.15 for the nine months ended September 30, 2018, compared to $47.69 for the nine months ended September 30, 2017. Average natural gas sales prices decreased 11% to $2.63 for the nine months ended September 30, 2018, compared to $2.95 for the nine months ended September 30, 2017. Decreased oil and natural gas production and lower commodity prices for natural gas accounted for a decrease in revenue of approximately $407,000.$1,058,000. Higher commodity prices for oil accounted for an increase in revenue of approximately $58,000.$304,000. We have temporarily suspended drilling and exploration activity due to low commodity prices and expect our volumes to decline in the coming quarters until drilling and exploration activities are re-established.
Production expense decreased 67%56% or $480,394$987,244 to $231,481$773,879 for the threenine months ended March 31,September 30, 2018, from the comparable 2017 period. This was primarily due to a decrease in unexpected workover activity and operating costs associated with properties sold in 2017.costs. Lifting costs per BOE decreased $12.39$7.74 to $23.32$22.50 for the 2018 period compared to $35.71$30.24 for the threenine months ended March 31,September 30, 2017, due mainly to decreased workover activity and general decreases in costs and lease operating expenses associated with properties sold in 2017, which had higher than average operating costs per BOE..BOE. We anticipate lease operating expenses to decline slightly over the following quarters due to a decrease in costs and lease operating expenses associated with properties sold in 2017, which had higher than average operating costs per BOE and less anticipated work over activity.2017.
Depletion and depreciation decreased 36%32% or $55,800$170,511 to $100,754$368,062 for the threenine months ended March 31,September 30, 2018, versus $156,554$538,573 in the 2017 comparable period. This was primarily due to a lower depletable base and lower production volumes during the threenine months ended March 31,September 30, 2018.
General and administrative costs increased 9%3% or $25,619$25,636 to $309,627$873,546 for the threenine months ended March 31,September 30, 2018, from the threenine months ended March 31,September 30, 2017. This was primarily attributable to an increase in non-officer employee salaries and professional services. At this time, the Company anticipates general and administrative expenses to remain stable or increase slightly in the coming quarters.
Other expense,income, net for the quarternine months ended March 31,September 30, 2018, was $34,873,$226,751 which included interest expensegain on sale of $34,888.oil and natural gas properties of $345,399. Other expense,income, net for the quarternine months ended March 31,September 30, 2017, was $69,040$3,030,256, which included gain on sale of oil and included interestnatural gas properties of $3,203,670. Interest expense of $69,054.was $119,101 and $173,952 for the nine months ended September 30, 2018 and 2017, respectively.
Liquidity and Capital Resources
Cash flow used in operating activities was $64,889$166,748 for the threenine months ended March 31,September 30, 2018, as compared to $67,811$462,104 of cash flow used in operating activities in the comparable 2017 period. The decrease in cash flows used in operating activities was primarily due to the decrease in depletiongain on sale of oil and natural gas properties during the threenine months ended March 31, 2018, offset by the change in accounts payable and accrued liabilities between the two periods.September 30, 2018.
Cash flow used inprovided by investing activities was $17,094$215,967 for the threenine months ended March 31,September 30, 2018, due to proceeds from sale of oil and natural gas properties of $370,000 offset by additions to oil and natural gas properties and equipment.equipment of $154,033. Cash flow used inprovided by investing activities was $262,148$2,995,931 for the threenine months ended March 31,September 30, 2017, due towhich included proceeds of $3,345,000 from the sale of oil and natural gas properties, offset by $349,069 in additions to oil and natural gas properties and equipment.
No cashCash flow was provided by or used in financing activities forwas a payment of $176,500 principal on our credit facility during the threenine months ended March 31,September 30, 2018. Cash flow was provided byused in financing activities was $2,927,780 primarily due to payment of $3,115,000 principal on the netline of credit that was partially offset by proceeds of $187,220 from the issuancesale of 442,282 shares of unregisteredcommon stock during the threenine months ended March 31,September 30, 2017.
We are out of compliance with the current ratio, leverage ratio, and interest coverage ratio required by our line of credit as of March 31,September 30, 2018, and are in technical default of the agreement. In October 2016, we executed a sixth amendment to the original loan agreement,Loan Agreement and a Forbearance Agreement, which providesprovided for Citibank’s forbearance from exercising remedies relating to the current defaults, including the principal payment deficiencies. The Forbearance Agreement ran through January 1, 2018, and required that we make a $500,000 loan principal pay down by September 30, 2017, and adhere to other requirements including weekly cash balance reports, quarterly operating reports, monthly accounts payable reports and that we pay all associated legal expenses. Furthermore, under the agreementForbearance Agreement Citibank may sweep any excess cash balances exceeding a net amount of $800,000 less equity offering proceeds, which will be applied towards the outstanding principal balance.
On December 29, 2017, we executed a seventh amendment to the original loan agreementLoan Agreement and first amendment to the forbearance,Forbearance Agreement, which reduced our borrowing base to our current$2,761,632 (our loan balance of $2,761,632at December 31, 2017) and it provided for Citibank’s forbearance from exercising remedies relating to the current defaults, including the principal payment deficiencies. The first amendment to the Forbearance Agreement ran through March 31, 2018, and required that we adhere to certain reporting requirements such as weekly cash reports and pay all of the fees and expenses of the Lender’s counsel invoiced on or before the effective date. On March 30, 2018, we executed an eighth amendment to the original loan agreementLoan Agreement and second amendment to the forbearanceForbearance Agreement which extendsextended it to June 30, 2018. The terms of the second amendment to the Forbearance Agreement were the same as under the foregoing first amendment. On July 25, 2018, we executed a ninth amendment to the original Loan Agreement and third amendment to the Forbearance Agreement, which extended it to September 30, 2018. The terms of the ninth amendment to the Loan Agreement increased the interest rate 2% and reduced our borrowing base $176,500 to our current loan balance of $2,585,132. The terms of the third amendment to the Forbearance Agreement remain the same as under the firstforegoing second amendment. On November 7, 2018, we executed our tenth amendment to the forbearance.original Loan Agreement and fourth amendment to the Forbearance Agreement which extended it to March 31, 2019. The terms of the fourth amendment to the Forbearance agreement are substantially the same as under the forgoing third amendment.
The Company was delisted from the NYSE MKTAmerican on November 16, 2017, which could have a significant adverse impact on our ability to raise additional capital since we are no longer eligible to register securities on Form S-3 or undertake at-the-market offerings under Rule 415.
Our shares are now traded on the over-the-counter market under the symbol FPPP which is more volatile than the Exchange and may result in a continued diminution in value of our shares. The delisting also resulted in the loss of other advantages to an exchange listing, including marginability, blue sky exemptions and others.
Subsequent Events
On May 11,During October 2018, we closed on the saleCompany sold approximately 6,000 feet of our Buchanan wellsused surplus production tubing to an entity controlled by a shareholder, Mike Herman, for $24,000. We believe this is a fair market price for the tubing and associated acreage, for approximately $370,000. The sale included approximately 40 net undeveloped acres on our Buchanan leases in Midland County, Texas, along with associated working interest from four gross wells.did not have a facility to store it or any other offers to purchase the tubing.
PART I
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We periodically enter into certain commodity price risk management transactions to manage our exposure to oil and natural gas price volatility. These transactions may take the form of futures contracts, swaps or options. All data relating to our derivative positions is presented in accordance with authoritative guidance. Accordingly, unrealized gains and losses related to the change in fair value of derivative contracts that qualify and are designated as cash flow hedges are recorded as other comprehensive income or loss and such amounts are reclassified to oil and natural gas sales revenues as the associated production occurs. Derivative contracts that do not qualify for hedge accounting treatment are recorded as derivative assets and liabilities at fair value in the consolidated balance sheet, and the associated unrealized gains and losses are recorded as current expense or income in the consolidated statement of operations. While such derivative contracts do not qualify for hedge accounting, management believes these contracts can be utilized as an effective component of commodity price risk management activities. There were no commodity positions open at March 31,September 30, 2018 or 2017.
PART I
Item 4. CONTROLS AND PROCEDURES
a)
Disclosure Controls and Procedures
Our Principal Executive Officer, Roger D. Bryant, and our Principal Financial Officer, Phillip H. Roberson, have established and are currently maintaining disclosure controls and procedures for the Company. The disclosure controls and procedures have been designed to provide reasonable assurance that the information required to be disclosed by the Company in reports that it files under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed by the Company is accumulated and communicated to the Company's management as appropriate to allow timely decisions regarding required disclosure.
The Principal Executive Officer and the Principal Financial Officer conducted a review and evaluation of the effectiveness of the Company’s disclosure controls and procedures and have concluded, based on their evaluation as of the end of the period covered by this Report, that our disclosure controls and procedures are effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and to ensure that information required to be disclosed by the Company is accumulated and communicated to management, including our principal executive officer and our principal financial officer, to allow timely decisions regarding required disclosure and we refer you to Exchange Act Rule 13a-15(e).
b)
Changes in Internal Control over Financial Reporting
There have been no changes to the Company’s system of internal controls over financial reporting during the quarter ended March 31,September 30, 2018, that have materially affected, or are reasonably likely to materially affect, the Company’s system of controls over financial reporting. As part of a continuing effort to improve the Company’s business processes, management is evaluating its internal controls and may update certain controls to accommodate any modifications to its business processes or accounting procedures.
c)
Limitations of Any Internal Control Design
Our principal executive and financial officers do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive and financial officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As previously disclosed in the Company’s Current Report on Form 8-K dated May 8, 2018, the Company is a party to a civil action captioned Trivista Oil Company,Operating, LLC v. Bass Petroleum, Inc. and Fieldpoint Petroleum Corporation, Cause No. 16,539 in the District Court of Lee County, Texas, 335 Judicial District (the “Trivista Litigation”). Trivista Operating LLC is controlled by one of our major shareholders, Natale Rea (2013) Trust. The Company disputes that it has any liability to the plaintiff in that action and intends to vigorously defend same.
The Company is a party to a civil action captionedA.C.T. Equipment Company, LLC v. Fieldpoint Petroleum Corporation, Cause No. 21,191in the 109thJudicial District Court of Andrews, Andrews County, Texas (the “A.C.T. Litigation”). A.C.T. filed suit for non-payment of outstanding disputed invoices of $18,832 plus attorney fees and court costs on July 24, 2018. The Company settled the lawsuit on September 10, 2018, for a total payment of $13,500. An Order Granting Dismissal with Prejudice was signed by the presiding judge.
Item 1A. Risk Factors
None.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None, except as previously disclosed on Current Reports on Form 8-K.
Item 3. Default Upon Senior Securities
On December 1, 2015, Citibank lowered our borrowing base from $11,000,000 to $5,500,000 and lowered it again to $2,761,632 on December 29, 2017. The line of credit provides for certain financial covenants and ratios measured quarterly which include a current ratio that cannot be less than 1.10:1.00, a leverage ratio that cannot be more than 3.50:1.00, and an interest coverage ratio that cannot be less than 3.50:1.00. The Company is out of compliance with all three ratios as of March 31,September 30, 2018, and we do not expect to regain compliance in 2018. A Forbearance Agreement was executed in October 2016 and amended on December 29, 2017, March 30, 2018, and on MarchSeptember 30, 2018, as discussed below.
In October 2016, we executed a sixth amendment to the original loan agreement,Loan Agreement and a Forbearance Agreement, which providesprovided for Citibank’s forbearance from exercising remedies relating to the current defaults, including the principal payment deficiencies. The Forbearance Agreement ran through January 1, 2018, and required that we make a $500,000 loan principal pay down by September 30, 2017, and adhere to other requirements including weekly cash balance reports, quarterly operating reports, monthly accounts payable reports and that we pay all associated legal expenses. Furthermore, under the agreementForbearance Agreement Citibank may sweep any excess cash balances exceeding a net amount of $800,000 less equity offering proceeds, which will be applied towards the outstanding principal balance.
On December 29, 2017, we executed a seventh amendment to the original loan agreementLoan Agreement and first amendment to the forbearance,Forbearance Agreement, which reduced our borrowing base to our current$2,761,632 (our loan balance of $2,761,632at December 31, 2017) and it provided for Citibank’s forbearance from exercising remedies relating to the current defaults, including the principal payment deficiencies. The first amendment to the Forbearance Agreement ran through March 31, 2018, and required that we adhere to certain reporting requirements such as weekly cash reports and pay all of the fees and expenses of the Lender’s counsel invoiced on or before the effective date. On March 30, 2018, we executed an eighth amendment to the original loan agreementLoan Agreement and second amendment to the forbearanceForbearance Agreement which extendsextended it to June 30, 2018. The terms of the second amendment to the Forbearance Agreement were the same as under the foregoing first amendment. On July 25, 2018, we executed a ninth amendment to the original Loan Agreement and third amendment to the Forbearance Agreement, which extended it to September 30, 2018. The terms of the ninth amendment to the Loan Agreement increased the interest rate 2% and reduced our borrowing base $176,500 to our current loan balance of $2,585,132. The terms of the third amendment to the Forbearance Agreement remain the same as under the firstforegoing second amendment. On November 7, 2018, we executed our tenth amendment to the forbearance.original Loan Agreement and fourth amendment to the Forbearance Agreement which extended it to March 31, 2019. The terms of the fourth amendment to the Forbearance agreement are substantially the same as under the forgoing third amendment.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
Exhibits |
| |
| Certifications of Chief Executive Officer |
| Certifications of Chief Financial Officer |
| Certification of Chief Executive Officer Pursuant to U.S.C. Section 1350 |
| Certification of Chief Financial Officer Pursuant to U.S.C. Section 1350 |
101.INS | XBRL Instance Document |
101.SCH | XBRL Schema Document |
101.CAL | XBRL Calculation Linkbase Document |
101.LAB | XBRL Label Linkbase Document |
101.PRE | XBRL Presentation Linkbase Document |
101.DEF | XBRL Definition Linkbase Document |
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.
Date: May 15,November 14, 2018 | By: /s/ Roger D. Bryant
Roger D. Bryant, Principal Executive Officer |
Date: May 15,November 14, 2018 | By: /s/ Phillip H. Roberson
Phillip H. Roberson, Principal Financial Officer |