Overview
West Texas Resources,
Inc. (the “company” or “we”) was incorporated under the laws of Nevada on December 9, 2010. We are
engaged in the business of oil and gas exploration and development in North America. From inception to date, our activities have
focused on the raising of capital and the investigation and acquisition of our initial oil and gas properties. We commenced
revenue producing oil and gas operations effective as of April 1, 2013.
Our executive offices
are located at 5729 Lebanon Road, Suite 144, Frisco, Texas 75034; our telephone number is (972) 712-2154. Our website is located
at www.westtexasresources.com. The information on or accessible through our website is not part of this report.
Our Strategy
Our objective is to
become an independent energy company engaged in the acquisition, development and exploitation of oil and gas properties in North
America in partnership with oil and gas producers with exploration, development and production expertise. We intend to target both
new and existing fields and producing wells to be revitalized. We hold operating licenses in Texas and Louisiana and intend to
apply for additional operating licenses as circumstances warrant. We have developed an operating strategy that is based on our
participation in exploration prospects with a preference to serving as the operator for the prospect, however, we will also participate
as a non-operator from time to time. As a non-operator working interest owner, we will rely on outside operators to drill, produce
and market our natural gas and oil.
Oil and Gas Interests
Eastland County Field
In September 2011,
we acquired our initial property consisting of a 31.25% working interest in an exploratory oil and gas drilling prospect covering
120 acres in Eastland County, Texas. After explanatory work was performed, we determined that, as of the three months ended June
30, 2013, our investment in the Eastland County prospect was impaired due to an unsuccessful fracture stimulation. The value of
this property, subsequent the impairment, was $14,570. The operator has undertaken no further activity on the Eastland County prospect
as of the date of this report.
Sunshine Prospect, Landry Parish, Louisiana
On August 1, 2014,
we entered into an agreement with Restech Resources, LLC to purchase a 15% (14.25% net revenue interest) in an oil and gas prospect
located in Landry Parish, Louisiana. The working interest concerns 248 gross acres and net acres in the Sunshine Prospect. Our
purchase price for the working interest was $76,500. As of September 30, 2017, the company maintains working interest in these
properties.
Stansell Field, Floyd County, Texas
We hold a 1% working
interest in an oil prospect located in Floyd County, Texas. Our purchase price for the working interest was $70,000. The working
interest comprises 15,000 leased acres in the southern section of the Palo Duro basin. The initial project will be the re-entry
of the Stansell #1-A well, an existing wellbore that was drilled in 2006. The original drilling encountered oil shows in three
separate reservoirs and the operator intends to re-enter and recomplete the Stansell #1-A using current fracture stimulation technology.
We have a carried 1% working interest in the Stansell #1-A well through the tanks. In April 2015, the operator has started the
re-entry of the Stansell #1-A well. As of September 30, 2017, we maintain working interest in these properties.
Hale County Field, Hale County, Texas
In June and July
2014, we acquired non-operating leases covering approximately 1,070 gross mineral acre leases in a property located in Hale County,
Texas. The leases were acquired for cash payments of $45,484. The leases have a primary term of five years with the Company option
to extend the term for another five years. The leased properties constitute the surface acreage comprising a natural gas prospect,
for which we hold 50% of the working interest and 40% net revenue interest. The leased properties are subject to a 20% royalty
interest held by the owners and a third party. We are currently evaluating our options for the exploitation of the leased properties,
including the sale of the leases or the farm-out of the leases to a natural gas operator.
Leased Properties from Kiowa Oil Company
On September 30,
2015, we entered into an agreement with Kiowa Oil Company to lease 100% of interests, for a period of five years, of properties
in North Dakota, Florida, Illinois, and Kentucky. The total price for the subject interests under this lease agreement is $5,000
and a 15% royalty interest in all the subject interests leased. The total price was paid for in common shares at the per share
price of $0.50. As of September 30, 2017, we maintain royalty interest in these properties.
T.A. Greer Lease
On May 10, 2016, we
acquired a 25% working interest (19.5% net revenue interest) in an East Texas oil and gas property. The property is known as the
T.A. Greer lease and includes two tracts of land totaling approximately 407 acres in Panola County, Texas. We acquired the property
from an unaffiliated party in consideration of our payment of $10,000 and issuance of 60,000 shares of our common stock at $0.25
per share for a total consideration of $25,000.
Origin Acquisition
On November 10, 2016,
we acquired from Origin Production Co. Inc. interests in various producing and non-producing leases; primarily in Gonzales, Caldwell,
and Wilson County, Texas. We acquired the property from an unaffiliated party in for the purchase of 500,000 units of our securities
for a purchase price of $0.30 per unit for a total of $150,000. Each unit consists of one share of our common stock and one common
stock warrant that entitles its holder to purchase one share of our common stock at an exercise price of $0.50 per share over a
three year period ending November 1, 2019.
Gas Tap
In December 2017, we entered into a letter
of intent to acquire Gas Tap Corp., a privately-held company with substantial natural gas reserves in the Barnett Shale, Texas.
Pursuant to the letter of intent, we will acquire all of the capital stock of Gas Tap Corp. in consideration of our issuance of
15 million shares of ours common stock to the stockholders of Gas Tap Corp. The letter of intent represents the non-binding obligations
of the parties and is subject to each party's continued due diligence inquiry and the execution of definitive agreements between
the parties. There can be no assurance that we will be able to complete the acquisition on the terms described above or at all.
During the fiscal
year ended September 30, 2017, we entered into subscription agreements with various accredited investors to sell 496,000 shares
of the Company’s common stock at $0.30 per share. The total amount of $148,800 was received and all of the shares were issued.
Subject to our receipt
of additional capital, we intend to pursue the acquisition of additional equity interests in other oil and gas properties in North
America. However, as of the date of this report, we have no understandings or agreements in place concerning our acquisition of
an interest in any other properties.
Marketing and Pricing
We derive revenue principally
from the sale of oil and natural gas. As a result, our revenues are determined, to a large degree, by prevailing prices for crude
oil and natural gas. Our operating partners sell our oil and natural gas on the open market at prevailing market prices.
The market price for oil and natural gas is dictated by supply and demand, and we cannot accurately predict or control the price
we may receive for our oil and natural gas.
Price decreases would
adversely affect our revenues, profits and the value of our proved reserves. Historically, the prices received for oil and natural
gas have fluctuated widely. Among the factors that can cause these fluctuations are:
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The domestic and foreign supply of natural gas and oil
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Overall economic conditions
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The level of consumer product demand
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The price and availability of competitive fuels such as heating oil and coal
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Political conditions in the Middle East and other natural gas and oil producing regions
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The level of oil and natural gas imports
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Domestic and foreign governmental regulations
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Potential price controls
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We may enter into hedging
arrangements to reduce our exposure to decreases in the prices of oil and natural gas. Hedging arrangements may expose us to risk
of significant financial loss in some circumstances including circumstances where:
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There is a change in the expected differential between the underlying price in the hedging agreement and actual prices received
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Our production and/or sales of natural gas are less than expected
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Payments owed under derivative hedging contracts typically come due prior to receipt of the hedged month’s production revenue
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The other party to the hedging contract defaults on its contract obligations
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In addition,
hedging arrangements limit the benefit we would receive from increases in the prices for oil and natural gas. We cannot
assure you that any hedging transactions we may enter into will adequately protect us from declines in the prices of oil and
natural gas. On the other hand, we may choose not to engage in hedging transactions in the future. As a result, we may be
more adversely affected by changes in oil and natural gas prices than our competitors who engage in hedging transactions.
Competition
The oil and gas industry
is highly competitive and inherent difficulties exist for any new company seeking to enter an established field. Our proposed business
will encounter numerous companies more experienced, better financed, and operationally organized to conduct acquisitions, development
and exploration activities in the oil and gas industry in North America. Additionally, a small “start-up” such as us,
with insignificant resources, is at a serious disadvantage against established competitors, including major oil companies.
Government Regulations
The following is a
summary of the more significant existing environmental, health and safety laws and regulations applicable to the oil and natural
gas industry and for which compliance may have a material adverse impact on the development or success of our proposed oil and
gas operations.
Federal Income Tax
. Federal
income tax laws will significantly affect our operations. The principal provisions that will affect us are those that
permit us, subject to certain limitations, to deduct as incurred, rather than to capitalize and amortize, our share of the domestic
“intangible drilling and development costs” and to claim depletion on a portion of our domestic oil and natural gas
properties based on 15% of our oil and natural gas gross income from such properties (up to an aggregate of 1,000 Bbls per day
of domestic crude oil and/or equivalent units of domestic natural gas).
Environmental Regulation.
The
exploration, development and production of oil and natural gas are subject to federal, state and local laws and regulations governing
the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations
may, among other things, require permits to conduct drilling, water withdrawal and waste disposal operations; govern the amounts
and types of substances that may be disposed or released into the environment; limit or prohibit construction or drilling activities
in sensitive areas such as wetlands, wilderness areas or areas inhabited by endangered or threatened species; require investigatory
and remedial actions to mitigate pollution conditions arising from oil and gas operations or attributable to former operations;
and impose obligations to reclaim and abandon well sites and pits. Failure to comply with these laws and regulations
may result in the assessment of sanctions, including monetary penalties, the imposition of remedial obligations and the issuance
of orders enjoining operations in affected areas.
The clear trend in
environmental regulation is to place more restrictions and limitations on activities that may affect the environment, and thus,
any changes in environmental laws and regulations or re-interpretation of enforcement policies that result in more stringent and
costly construction, drilling, water management, completion, waste handling, storage, transport, disposal, or remediation requirements
or emission or discharge limits could have a material adverse effect on the development or success of our proposed oil and gas
operations. Moreover, accidental releases or spills may occur in the course of our proposed oil and gas operations, and there can
be no assurance that we will not incur significant costs and liabilities as a result of such releases or spills, including any
third party claims for damage to property and natural resources or personal injury.
Hazardous Substances
and Wastes
. The Comprehensive Environmental Response, Compensation and Liability Act, as amended ("CERCLA"), also
known as the Superfund law and comparable state laws impose joint and several liability, without regard to fault or legality of
conduct, on certain classes of persons who are considered to be responsible for the release of a "hazardous substance"
into the environment. These persons include current and prior owners or operators of the site where the release occurred and entities
that disposed or arranged for the disposal of the hazardous substances found at the site. Under CERCLA, these "responsible
persons" may be subject to strict joint and several liability for the costs of cleaning up the hazardous substances that have
been released into the environment, for damages to natural resources and for the costs of certain environmental and health studies.
In addition, it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property
damage allegedly caused by the release of hazardous substances into the environment. CERCLA also authorizes the EPA and, in some
instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the
responsible classes of persons the costs they incur. We may generate materials in the course of our proposed operations
that may be regulated as hazardous substances.
We may also generate
wastes that are subject to the requirements of the Resource Conservation and Recovery Act, as amended ("RCRA"), and comparable
state statutes. RCRA imposes strict requirements on the generation, transportation, treatment, storage, disposal and cleanup of
hazardous and non-hazardous wastes. Drilling fluids, produced waters and most of the other wastes associated with the exploration,
production and development of crude oil and natural gas are currently exempt from regulation as hazardous wastes under RCRA. However,
it is possible that certain oil and natural gas exploration and production wastes now classified as non-hazardous could be classified
as hazardous wastes in the future. In September 2010, the Natural Resources Defense Council filed a petition with the EPA
requesting them to reconsider the RCRA exemption for exploration, production, and development wastes. To date, the EPA has not
taken any action on the petition. Any change in the RCRA exemption for such wastes could result in an increase in costs to manage
and dispose of wastes, which could have a material adverse effect on the development or success of our proposed oil and gas operations.
Air Emissions
. The
Clean Air Act, as amended, and comparable state laws and regulations restrict the emission of air pollutants from many sources
and also impose various monitoring and reporting requirements. These laws and regulations may require our operating
partners to obtain pre-approval for the construction or modification of certain projects or facilities expected to produce or significantly
increase air emissions, obtain and strictly comply with air permit requirements or utilize specific equipment or technologies to
control emissions. Obtaining permits has the potential to delay the development of oil and natural gas projects.
Water Discharges
. The
Federal Water Pollution Control Act, as amended ("Clean Water Act"), and analogous state laws impose restrictions and
strict controls regarding the discharge of pollutants into navigable waters. Pursuant to the Clean Water Act and analogous
state laws, permits must be obtained to discharge produced waters and sand, drilling fluids, drill cuttings and other substances
related to the oil and gas industry into onshore, coastal and offshore waters of the United States or state waters. Any
such discharge of pollutants into regulated waters must be performed in accordance with the terms of the permit issued by EPA or
the analogous state agency. Spill prevention, control and countermeasure requirements under federal law require appropriate
containment berms and similar structures to help prevent the contamination of navigable waters in the event of a petroleum hydrocarbon
tank spill, rupture or leak. In addition, the Clean Water Act and analogous state laws require individual permits or
coverage under general permits for discharges of storm water runoff from certain types of facilities.
Climate Change
. In
December 2009, the EPA published its findings that emissions of carbon dioxide, methane and certain other GHGs present an
endangerment to public health and the environment because emissions of such gases are, according to the EPA, contributing to warming
of the earth's atmosphere and other climatic changes. These findings allow the EPA to adopt and implement regulations that restrict
emissions of GHGs under existing provisions of the federal Clean Air Act. Accordingly, the EPA has adopted regulations that require
a reduction in emissions of GHGs from motor vehicles and also trigger permit review for GHG emissions from certain large stationary
sources. The EPA's rules relating to emissions of GHGs from large stationary sources of emissions are currently subject
to a number of legal challenges, but the federal courts have thus far declined to issue any injunctions to prevent the EPA from
implementing, or requiring state environmental agencies to implement, the rules. In addition, Congress has actively
considered legislation to reduce emissions of GHGs and almost one-half of the states have begun taking actions to control and/or
reduce emissions of GHGs, primarily through the planned development of GHG emission inventories and/or regional GHG cap and trade
programs. The adoption and implementation of any regulations imposing reporting obligations on, or limiting emissions of GHG gases
from, our equipment and operations could require our operators to incur costs to reduce emissions of GHGs associated with our proposed
operations or could adversely affect demand for the oil and natural gas we produce.
Endangered Species
. The
federal Endangered Species Act ("ESA") restricts activities that may affect endangered or threatened species or their
habitats. The designation of previously unidentified species as endangered or threatened on properties where we operate could subject
us to additional costs or cause our oil and gas activities to be subject to operating restrictions or bans.
Employee Health
and Safety
. Our proposed operations are subject to a number of federal and state laws and regulations, including
the federal Occupational Safety and Health Act, as amended ("OSHA"), and comparable state statutes, whose purpose is
to protect the health and safety of workers. In addition, the OSHA hazard communication standard, the EPA community
right-to-know regulations under Title III of the federal Superfund Amendment and Reauthorization Act and comparable state
statutes require that information be maintained concerning hazardous materials used or produced in oil and gas operations and that
this information be provided to employees, state and local government authorities and citizens.
State Regulation
. Texas
regulates the drilling for, and the production and gathering of, oil, natural gas and natural gas liquids, including requirements
relating to drilling permits, the location, spacing and density of wells, unitization and pooling of interests, the method of
drilling, casing and equipping of wells, the protection of fresh water sources, the orderly development of common sources of supply
of oil, natural gas and natural gas liquids, the operation of wells, allowable rates of production, the use of fresh water in
oil, natural gas and natural gas liquids operations, saltwater injection and disposal operations, the plugging and abandonment
of wells and the restoration of surface properties, the prevention of waste of oil, natural gas and natural gas liquids resources,
the protection of the correlative rights of oil, natural gas and natural gas liquids owners and, where necessary to avoid unfair,
un just or discriminatory service, the fees, terms and conditions for the gathering of natural gas. The effect of these regulations
may be to limit the number of wells that our operating partners may drill, impact the locations at which our operating partners
may drill wells, restrict the amounts of oil and natural gas that may be produced from wells drilled by our operating partners
and increase the costs of operations.
Hydraulic Fracturing
. We
expect to participate in exploration and drilling projects that seek to recover oil and natural gas through the use of hydraulic
fracturing. Hydraulic fracturing, which involves the injection of water, sand and chemicals under pressure into formations
to fracture the surrounding rock and stimulate production, is typically regulated by state oil and gas commissions. However, the
EPA recently asserted federal regulatory authority over certain hydraulic fracturing practices. Also, legislation has been introduced
in Congress to provide for federal regulation of hydraulic fracturing and to require disclosure of the chemicals used in the fracturing
process. In addition, some states have adopted, and other states are considering adopting, regulations that could restrict
hydraulic fracturing in certain circumstances. For instance, in June 2011, Texas adopted a law that requires disclosure
to the Railroad Commission of Texas of the additives and other chemicals contained in hydraulic fracturing fluids used in the state,
subject to certain trade secret protections. If new laws or regulations that significantly restrict hydraulic fracturing are adopted
at the Texas state level, such legal requirements could make it more difficult or costly for our operating partners to perform
fracturing to stimulate production in the play and thereby affect the determination of whether a well is commercially viable. In
addition, if hydraulic fracturing is regulated at the federal level, fracturing activities could become subject to additional permit
requirements or operational restrictions and also to associated permitting delays and potential increases in costs. Restrictions
on hydraulic fracturing could also reduce the amount of oil or natural gas and natural gas liquids that our operating partners
are ultimately able to produce in commercial quantities from our oil and gas properties.
Employees
As of the date of
this report, we have one employee, our chief financial officer. For the foreseeable future, we intend to use the services of
independent consultants and contractors to perform various professional services related to our oil and gas operations.
Subject to our receipt of significant additional capital, we intend to hire additional senior management and staff with
experience in oil and gas exploration and development. Until such time, we intend to rely on third party
consultants to advise and assist us on our oil and gas operations.
Available Information
Our website is located
at www.westtexasresources.com. The information on or accessible through our website is not part of this annual report on Form 10-K.
A copy of this annual report on Form 10-K is located at the SEC’s Public Reference Room at 100 F Street, NE, Washington,
D.C. 20549. Information on the operation of the Public Reference Room can be obtained by calling the SEC at 1-800-SEC-0330. The
SEC also maintains an internet site that contains reports and other information regarding our filings at www.sec.gov.
Glossary of Oil and Natural Gas Terms
The following is a
description of the meanings of some of the oil and natural gas industry terms used in this report.
bbl
. Stock tank
barrel, or 42 U.S. gallons liquid volume, used in this report in reference to crude oil or other liquid hydrocarbons.
bcf
. Billion
cubic feet of natural gas.
boe.
Barrels
of crude oil equivalent, determined using the ratio of six mcf of natural gas to one bbl of crude oil, condensate or natural gas
liquids.
boe/d
. boe per
day.
btu
. The British
thermal unit, a traditional unit of energy equal to about 1055 joules. It is the amount of energy needed to cool or heat one pound
of water by one degree Fahrenheit (Physical analogue; one four inch, wooden kitchen match consumed completely generates 1 btu).
Completion
.
The process of treating a drilled well followed by the installation of permanent equipment for the production of natural gas or
oil, or in the case of a dry hole, the reporting of abandonment to the appropriate agency.
Condensate
.
Hydrocarbons which are in the gaseous state under reservoir conditions and which become liquid when temperature or pressure is
reduced. A mixture of pentanes and higher hydrocarbons.
Development well
.
A well drilled within the proved area of a natural gas or oil reservoir to the depth of a stratigraphic horizon known to be productive.
Drilling locations
.
Total gross locations specifically quantified by management to be included in the Company’s multi-year drilling activities
on existing acreage. The Company’s actual drilling activities may change depending on the availability of capital, regulatory
approvals, seasonal restrictions, oil and natural gas prices, costs, drilling results and other factors.
Dry hole
. A
well found to be incapable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas well.
Exploratory well
.
A well drilled to find and produce natural gas or oil reserves not classified as proved, to find a new reservoir in a field previously
found to be productive of natural gas or oil in another reservoir or to extend a known reservoir.
Field
. An area
consisting of either a single reservoir or multiple reservoirs, all grouped on or related to the same individual geological structural
feature and/or stratigraphic condition.
Formation
. An
identifiable layer of rocks named after its geographical location and dominant rock type.
Fracture or fracturing.
Hydraulic fracturing, a common practice that is used to stimulate production of oil and natural gas from dense subsurface rock
formations. The hydraulic fracturing process involves the injection of water, sand and chemicals under pressure into a formation
to fracture the surrounding rock and stimulate production.
Lease
. A legal
contract that specifies the terms of the business relationship between an energy company and a landowner or mineral rights holder
on a particular tract of land and typically grants to the energy company a fee simple determinable estate in the minerals.
Leasehold
. Mineral
rights leased in a certain area to form a project area.
mbbls
. Thousand
barrels of crude oil or other liquid hydrocarbons.
mboe.
Thousand
barrels of crude oil equivalent, determined using the ratio of six mcf of natural gas to one bbl of crude oil, condensate or natural
gas liquids
mcf.
Thousand
cubic feet of natural gas.
mcfe
. Thousand
cubic feet equivalent, determined using the ratio of six mcf of natural gas to one bbl of crude oil, condensate or natural gas
liquids.
mmbbls
. Million
barrels of crude oil or other liquid hydrocarbons.
mmboe.
Million
barrels of crude oil equivalent, determined using the ratio of six mcf of natural gas to one bbl of crude oil, condensate or natural
gas liquids.
mmbtu
. Million
British Thermal Units.
mmcf
. Million
cubic feet of natural gas.
Net acres, net wells,
or net reserves
. The sum of the fractional working interest owned in gross acres, gross wells, or gross reserves, as the case
may be.
ngl.
Natural
gas liquids, or liquid hydrocarbons found in association with natural gas.
Overriding royalty
interest
. Is similar to a basic royalty interest except that it is created out of the working interest. For example, an operator
possesses a standard lease providing for a basic royalty to the lessor or mineral rights owner of 1/8 of 8/8. This then entitles
the operator to retain 7/8 of the total oil and natural gas produced. The 7/8 in this case is the 100% working interest the operator
owns. This operator may assign his working interest to another operator subject to a retained 1/8 overriding royalty. This would
then result in a basic royalty of 1/8, an overriding royalty of 1/8 and a working interest of 3/4. Overriding royalty interest
owners have no obligation or responsibility for developing and operating the property. The only expenses borne by the overriding
royalty owner are a share of the production or severance taxes and sometimes costs incurred to make the oil or gas salable.
Plugging and abandonment
.
Refers to the sealing off of fluids in the strata penetrated by a well so that the fluids from one stratum will not escape into
another or to the surface. Regulations of all states require plugging of abandoned wells.
Present value of
future net revenues (PV-10
). The present value of estimated future revenues to be generated from the production of proved reserves,
before income taxes, of proved reserves calculated in accordance with Financial Accounting Standards Board guidelines, net of estimated
production and future development costs, using prices and costs as of the date of estimation without future escalation, without
giving effect to hedging activities, non-property related expenses such a general and administrative expenses, debt service and
depreciation, depletion and amortization, and discounted using an annual discount rate of 10%.
Production
.
Natural resources, such as oil or gas, taken out of the ground.
Proved oil and gas
reserves
. Proved oil and gas reserves are the estimated quantities of crude oil, natural gas and natural gas liquids which
geological and engineering data demonstrate with reasonable certainty to be economically recoverable in future years from known
reservoirs under existing economic conditions, operating methods, and government regulations—prior to the time at which contracts
providing the right to operate expire, unless evidence indicates that renewal is reasonably certain, regardless of whether deterministic
or probabilistic methods are used for the estimation. The project to extract the hydrocarbons must have commenced or the operator
must be reasonably certain that it will commence the project within a reasonable time.
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Reservoirs are considered proved if economic producibility is supported by either actual production or conclusive formation test. The area of a reservoir considered proved includes (A) that portion delineated by drilling and defined by gas-oil and/or oil-water contacts, if any; and (B) the immediately adjoining portions not yet drilled, but which can be reasonably judged as economically productive on the basis of available geological and engineering data. In the absence of information on fluid contacts, the lowest known structural occurrence of hydrocarbons controls the lower proved limit of the reservoir.
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Reserves which can be produced economically through application of improved recovery techniques (such as fluid injection) are included in the "proved" classification when successful testing by a pilot project, or the operation of an installed program in the reservoir, provides support for the engineering analysis on which the project or program was based.
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Estimates of proved reserves do not include the following: (A) oil that may become available from known reservoirs but is classified separately as "indicated additional reserves"; (B) crude oil, natural gas, and natural gas liquids, the recovery of which is subject to reasonable doubt because of uncertainty as to geology, reservoir characteristics, or economic factors; C) crude oil, natural gas, and natural gas liquids, that may occur in undrilled prospects; and (D) crude oil, natural gas, and natural gas liquids, that may be recovered from oil shales, coal, gilscnite, and other such sources.
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Proved developed
oil and gas reserves.
Proved developed oil and gas reserves are reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods. Additional oil and gas expected to be obtained through the application of
fluid injection or other improved recovery techniques for supplementing the natural forces and mechanisms of primary recovery should
be included as "proved developed reserves" only after testing by a pilot project or after the operation of an installed
program has confirmed through production response that increased recovery will be achieved.
Proved undeveloped
reserves
. Proved undeveloped oil and gas reserves are reserves that are expected to be recovered from new wells on undrilled
acreage, or from existing wells where a relatively major expenditure is required for recompletion. Reserves on undrilled acreage
shall be limited to those drilling units offsetting productive units that are reasonably certain of production when drilled. Proved
reserves for other undrilled units can be claimed only where it can be demonstrated with certainty that there is continuity of
production from the existing productive formation. Under no circumstances should estimates for proved undeveloped reserves be attributable
to any acreage for which an application of fluid injection or other improved recovery technique is contemplated, unless such techniques
have been proved effective by actual tests in the area and in the same reservoir.
Productive well
.
A well that is found to be capable of producing either oil or gas in sufficient quantities to justify completion as an oil or gas
well.
Project
. A targeted
development area where it is probable that oil or natural gas can be produced from new wells.
Prospect
. A
specific geographic area which, based on supporting geological, geophysical or other data and also preliminary economic analysis
using reasonably anticipated prices and costs, is deemed to have potential for the discovery of commercial hydrocarbons.
Recompletion
.
The process of re-entering an existing well bore that is either producing or not producing and completing new reservoirs in an
attempt to establish or increase existing production.
Reserves
. Oil,
natural gas and gas liquids thought to be accumulated in known reservoirs.
Reservoir
. A
porous and permeable underground formation containing a natural accumulation of producible nature gas and/or oil that is confined
by impermeable rock or water barriers and is separate from other reservoirs.
Secondary Recovery
.
A recovery process that uses mechanisms other than the natural pressure of the reservoir, such as gas injection or water flooding,
to produce residual oil and natural gas remaining after the primary recovery phase.
Shut-in
. A well
that has been capped (having the valves locked shut) for an undetermined amount of time. This could be for additional testing,
could be to wait for pipeline or processing facility, or a number of other reasons.
Standardized measure
.
The present value of estimated future cash inflows from proved oil and natural gas reserves, less future development, abandonment,
production and income tax expenses, discounted at 10% per annum to reflect timing of future cash flows and using the same pricing
assumptions as were used to calculate PV-10. Standardized measure differs from PV-10 because standardized measure includes the
effect of future income taxes.
Successful
.
A well is determined to be successful if it is producing oil or natural gas, or awaiting hookup, but not abandoned or plugged.
Undeveloped acreage
.
Lease acreage on which wells have not been drilled or completed to a point that would permit the production of commercial quantities
of oil and natural gas regardless of whether such acreage contains proved reserves.
Water flood
.
A method of secondary recovery in which water is injected into the reservoir formation to displace residual oil and enhance hydrocarbon
recovery.
Working interest
.
The operating interest that gives the owner the right to drill, produce and conduct operating activities on the property and receive
a share of production and requires the owner to pay a share of the costs of drilling and production operations.
There are numerous
and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur,
our business, financial condition or results of operation may be materially adversely affected. In such case, the trading
price of our common stock could decline and investors could lose all or part of their investment.
We are an early
stage company and have limited assets.
We were formed in 2010 and commenced revenue producing oil and gas operations effective
as of April 1, 2013. As an early stage company, we are subject to all risks inherent in a new venture. The likelihood of our success
must be considered in light of problems, expenses, complications and delays frequently encountered in connection with the development
of a new business. We do not have a significant operating history and, as a result, there is a limited amount of information
about us on which to make an investment decision.
We will require
additional capital in order to achieve commercial success and, if necessary, to finance future losses from operations as we endeavor
to build revenue, but we do not have any commitments to obtain such capital.
The business of oil and gas acquisition, drilling
and development is capital intensive and the level of operations attainable by an oil and gas company is directly linked to and
limited by the amount of available capital. As of September 30, 2017, we had total current assets of $25,721 and a working capital
deficit of $(344,962). We believe that our ability to achieve commercial success and our continued growth will be dependent on
our ability to access capital either through the additional sale of our equity or debt securities, bank lines of credit, project
financing or cash generated from oil and gas operations. Therefore, a principal part of our plan of operations is to acquire
the additional capital required to finance the acquisition of such properties and our share of the development costs. We
will seek additional working capital through the sale of our securities and, subject to the successful deployment of our cash
on hand, we will endeavor to obtain additional capital through bank lines of credit and project financing. However, as of the date
of this report, we have no commitments for the sale of our securities or our acquisition of additional capital through any other
means nor can there be any assurance that any funds will be available on commercially reasonable terms, if at all.
The report of our independent
registered public accounting firm for the fiscal year ended September 30, 2017 states that due to our losses from operations and
lack of working capital there is substantial doubt about our ability to continue as a going concern.
Market conditions
for oil and natural gas, could adversely affect our revenue, cash flows, profitability and growth.
Our project
revenue, cash flows, profitability and future rate of growth depend substantially upon prevailing prices for oil and natural gas.
Prices also affect the amount of cash flow available for capital expenditures and our ability to borrow money or raise additional
capital. Lower prices may also make it uneconomical for our operating partners to commence or continue production
levels of natural gas and crude oil. During 2013 and 2014, the price of oil per bbl was consistently in the range of
$85 to $90 per bbl, and hit a two year high of $101 per bbl on June 21, 2014. However, since then the prices of oil and natural
gas have significantly decreased due to an over-supply and decreasing demand, and experts believe that the prices of oil and natural
gas will stay suppressed for some time from the price levels experienced during the last few years. The average price per bbl during
the 12 months covered by this report is $49.
Lower oil and natural
gas prices will reduce our revenues and may ultimately reduce the amount of oil and natural gas that is economic to produce from
our oil and gas properties. As a result, our operating partners could determine during periods of low oil and natural gas prices
to shut in or curtail production from any operating wells. In addition, our operating partners could determine during periods of
low oil and natural gas prices to plug and abandon marginal wells that otherwise may have been allowed to continue to produce for
a longer period under conditions of higher prices. Specifically, our operating partners may abandon any well or property if it
reasonably believes that the well or property can no longer produce oil or natural gas in commercially economic quantities. This
could result in termination of our portion of the royalty interest relating to the abandoned well or property.
We have limited
management and staff and will be dependent for the foreseeable future upon consultants and partnering arrangements.
We
have developed an operating strategy that is based on our participation in exploration prospects in North America with a preference
to serving as the operator for the prospect; however, we will also participate as a non-operator from time to time. We intend to
use the services of independent consultants and contractors to perform various professional services, including reservoir engineering,
land, legal, environmental and tax services. We will also pursue alliances with partners in the areas of geological and geophysical
services and prospect generation, evaluation and prospect leasing. Where we participate as a non-operator working interest owner,
we intend to rely on outside operators to drill, produce and market our natural gas and oil. Our dependence on third party consultants,
service providers and operators creates a number of risks, including but not limited to:
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the possibility that such third parties may not be available to us as and when needed; and
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the risk that we may not be able to properly control the timing and quality of work conducted with respect to our projects.
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Shortages or
increases in costs of equipment, services and qualified personnel could delay the drilling of exploratory wells and adversely affect
our future results of operations and the price of our common stock.
The demand for qualified and experienced personnel
to conduct field operations, geologists, geophysicists, engineers and other professionals in the oil and natural gas industry can
fluctuate significantly, often in correlation with oil and natural gas prices, causing periodic shortages. Historically,
there have been shortages of drilling rigs and other equipment as demand for rigs and equipment has increased along with the number
of wells being drilled. These factors also cause significant increases in costs for equipment, services and personnel. Higher oil
and natural gas prices generally stimulate demand and result in increased prices for drilling rigs, crews and associated supplies,
equipment and services. Shortages of field personnel and equipment or price increases could significantly hinder the ability of
our operating partners to conduct drilling operations, which could adversely affect our results of operations and stock price.
Our industry is highly competitive
which may adversely affect our performance, including our ability to participate in ready to drill prospects.
Oil
and gas exploration and development companies operate in a highly competitive environment. In addition to capital,
the principal resources necessary for the exploration and production of oil and natural gas are:
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leasehold prospects under which oil and natural gas reserves may be discovered;
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drilling rigs and related equipment to explore for such reserves; and
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knowledgeable personnel to conduct all phases of oil and natural gas operations.
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Numerous large, well-financed
firms with large cash reserves are engaged in the acquisition of oil and gas properties in North America. We and our operating
partners will face competition in acquisitions, development, exploration and production from major oil companies, numerous
independents, individual proprietors and others. We expect competition to be intense for available target oil and gas
properties. Such competition could have a material adverse effect on our financial condition and operating results.
We and our operating partners may not be able to compete successfully against current and future competitors and competitive pressures
faced by us may materially adversely affect our business, financial condition, and results of operations.
Drilling for
and producing oil and natural gas are high risk activities with many uncertainties that could delay the anticipated drilling schedule
for exploratory wells and adversely affect our future results of operations and stock price.
The drilling and completion
of exploratory wells are subject to numerous risks beyond our control or the control of our operating partners, including risks
that could delay the proposed drilling schedules and the risk that drilling will not result in commercially viable oil and natural
gas production. Drilling for oil and natural gas can be unprofitable if dry wells are drilled and if productive wells do not produce
sufficient revenues to return a profit. The decisions by us and our operating partners to develop or otherwise exploit certain
prospects will depend in part on the evaluation of data obtained through geophysical and geological analyses, production data and
engineering studies, the results of which are often inconclusive or subject to varying interpretations. The costs of drilling,
completing and operating wells are often uncertain before drilling commences. Overruns in budgeted expenditures are common risks
that can make a particular project uneconomical Even if an exploratory well is successfully completed, it may not
pay out the capital costs spent to drill it. Drilling and production operations on an exploratory well may be curtailed, delayed
or canceled as a result of various factors, including the following:
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delays imposed by or resulting from compliance with regulatory requirements including permitting;
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unusual or unexpected geological formations and miscalculations;
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shortages of or delays in obtaining equipment and qualified personnel;
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equipment malfunctions, failures or accidents;
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lack of available gathering facilities or delays in construction of gathering facilities;
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lack of available capacity on interconnecting transmission pipelines;
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lack of adequate electrical infrastructure;
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unexpected operational events and drilling conditions;
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pipe or cement failures and casing collapses;
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pressures, fires, blowouts, and explosions;
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lost or damaged drilling and service tools;
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loss of drilling fluid circulation;
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uncontrollable flows of oil, natural gas and natural gas liquids water or drilling fluids;
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environmental hazards, such as oil, natural gas and natural gas liquids leaks, pipeline ruptures and discharges of toxic gases or fluids;
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adverse weather conditions such as extreme cold, fires caused by extreme heat or lack of rain, and severe storms or tornadoes;
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reductions in oil, natural gas and natural gas liquids prices;
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oil and natural gas property title problems; and
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market limitations for oil, natural gas and natural gas liquids.
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If any of these or
other similar industry operating risks occur, we could have substantial losses. Substantial losses also may result from
injury or loss of life, severe damage to or destruction of property, clean-up responsibilities, regulatory investigation and penalties
and suspension of operations.
Investigations
of oil and gas properties do not eliminate the risks associated with the selection and the acquisition of such properties.
Although
we will engage third-party consultants to perform a review of the oil and properties proposed to be acquired, such reviews are
subject to uncertainties. It generally is not feasible to review in detail every individual property involved in an acquisition.
Even a detailed review of all properties and records may not reveal existing or potential problems; nor will it permit our consultants
to become sufficiently familiar with the properties to assess fully their deficiencies and capabilities. Inspections are not always
performed on every well, and potential problems, such as mechanical integrity of equipment and environmental conditions that may
require significant remedial expenditures, are not necessarily observable even when an inspection is undertaken.
Oil and gas exploration
and development is subject to complex federal, state, local and other laws and regulations that could adversely affect the cost,
manner or feasibility of conducting our operations or expose us to significant liabilities
. Our proposed oil
and natural gas exploration and production operations are subject to complex and stringent laws and regulations. In order to conduct
operations in compliance with these laws and regulations, oil and gas operators must obtain and maintain numerous permits, approvals
and certificates from various federal, state and local governmental authorities. Substantial costs may be incurred by
our operating partners in order to maintain compliance with these existing laws and regulations. Further, in light of
the explosion and fire on the drilling rig Deepwater Horizon in the Gulf of Mexico, as well as recent incidents involving the release
of oil and natural gas and fluids as a result of drilling activities in the United States, there has been a variety of regulatory
initiatives at the federal and state level to restrict oil and natural gas drilling operations in certain locations. Any
increased regulation or suspension of oil and natural gas exploration and production, or revision or reinterpretation of existing
laws and regulations, that arises out of these incidents or otherwise could result in delays and higher operating costs, which
will be passed along to us by way of our equity interest in the property. Such costs or significant delays could have
a material adverse effect on our business, financial condition and results of operations.
Laws and regulations
governing oil and natural gas exploration and production may also affect production levels. Oil and gas operators are
required to comply with federal and state laws and regulations governing conservation matters, including provisions related to
the unitization or pooling of the oil, natural gas and natural gas liquids properties; the establishment of maximum rates of production
from wells; the spacing of wells; and the plugging and abandonment of wells. These and other laws and regulations can limit the
amount of oil and natural gas operators can produce from their wells, limit the number of wells they can drill, or limit the locations
at which they can conduct drilling operations, which in turn could negatively impact our business, financial condition and results
of operations.
New laws or regulations,
or changes to existing laws or regulations may unfavorably impact our proposed operations, could result in increased operating
costs and have a material adverse effect on our financial condition and results of operations. For example, Congress is currently
considering legislation that, if adopted in its proposed form, would subject companies involved in oil and natural exploration
and production activities to, among other items, additional regulation of and restrictions on hydraulic fracturing of wells, the
elimination of most U.S. federal tax incentives and deductions available to oil and natural gas exploration and production activities,
and the prohibition or additional regulation of private energy commodity derivative and hedging activities.
These and other potential
regulations could increase operating costs, reduce revenue, delay proposed operations, increase direct and third party post production
costs associated with the oil and gas properties or otherwise alter the proposed operations of oil and gas properties in which
we hold an equity interest, which could have a material adverse effect on our financial condition, results of operations and stock
price.
Oil and gas
operations are subject to environmental laws and regulations that could adversely affect the cost, manner or feasibility of
conducting operations or result in significant costs and liabilities.
Oil and natural gas exploration and
production operations are subject to stringent and comprehensive federal, state and local laws and regulations governing the
discharge of materials into the environment or otherwise relating to environmental protection. These laws and
regulations may impose numerous obligations that are applicable to the operation of the properties in which we hold an
interest including the acquisition of a permit before conducting drilling; water withdrawal or waste disposal activities; the
restriction of types, quantities and concentration of materials that can be released into the environment; the limitation or
prohibition of drilling activities on certain lands lying within wilderness, wetlands and other protected areas; and the
imposition of substantial liabilities for pollution resulting from operations. Numerous governmental authorities, such as the
U.S. Environmental Protection Agency ("EPA") and analogous state agencies, have the power to enforce compliance
with these laws and regulations and the permits issued under them, often requiring difficult and costly
actions. Failure to comply with these laws and regulations may result in the assessment of administrative,
civil or criminal penalties; the imposition of investigatory or remedial obligations; and the issuance of injunctions
limiting or preventing some or all of the proposed operations.
There is inherent risk
of incurring significant environmental costs and liabilities in the performance of oil and gas operations due to the handling of
petroleum hydrocarbons and wastes, because of air emissions and wastewater discharges related to such operations, and as a result
of historical industry operations and waste disposal practices. Under certain environmental laws and regulations, our operating
partner could be subject to joint and several strict liability for the removal or remediation of previously released materials
or property contamination regardless of whether our operating partner was responsible for the release or contamination or if the
operations were in compliance with all applicable laws at the time those actions were taken. Private parties, including
the owners of properties upon which our operating partners intend to drill wells and facilities where petroleum hydrocarbons or
wastes are taken for reclamation or disposal may also have the right to pursue legal actions to enforce compliance, as well as
to seek damages for contamination even in the absence of non-compliance, with environmental laws and regulations or for personal
injury or property damage. In addition, the risk of accidental spills or releases could expose our operating partners
to significant liabilities. All of the foregoing costs and liabilities of our operating partners may be passed along
to us by way of our equity interest on the subject oil and gas property, which in turn could have a material adverse effect on
our financial condition, results of operations and stock price. Changes in environmental laws and regulations occur
frequently, and any changes that result in more stringent or costly construction, drilling, water management, completion, waste
handling, storage, transport, disposal or cleanup requirements could require our operating partners to make significant expenditures
to attain and maintain compliance. We would be responsible for our pro rata share of such costs, which may have a material
adverse effect on our results of operations, financial condition or stock price.
Climate
change laws and regulations restricting emissions of "greenhouse gases" could result in increased operating costs
and reduced demand for oil and natural gas while the physical effects of climate change could disrupt production and cause
our operating partners to incur significant costs in preparing for or responding to those effects.
On
December 15, 2009, the EPA published its findings that emissions of carbon dioxide, methane and other greenhouse gases
("GHGs") present a danger to public health and the environment. These findings allow the agency to adopt
and implement regulations that restrict emissions of GHGs under existing provisions of the federal Clean Air
Act. Accordingly, the EPA has adopted regulations that require a reduction in emissions of GHGs from motor
vehicles and also trigger permit review for GHG emissions from certain large stationary sources. The EPA's rules
relating to emissions of GHGs from large stationary sources of emissions are currently subject to a number of political and
legal challenges, but the federal courts have thus far declined to issue any injunctions to prevent EPA from implementing, or
requiring state environmental agencies to implement, the rules. In addition, on October 30, 2009, the EPA
published a final rule requiring the reporting of GHG emissions from specified large GHG emission sources in the United
States, beginning in 2011 for emissions occurring in 2010. On November 30, 2010, the EPA published a final
rule that expands its October 2009 final rule on reporting of GHG emissions to require certain owners and operators of
onshore oil and natural gas production to monitor greenhouse gas emissions beginning in 2011 and to report those emissions
beginning in 2012. Both houses of Congress have from time to time considered legislation to reduce emissions of
GHGs and almost one-half of the states, either individually or through multi-state regional initiatives, already have begun
implementing legal measures to reduce emissions of GHGs. The adoption and implementation of any regulations imposing
reporting obligations on, or limiting emissions of GHGs from the equipment and operations of our operating partners could
require our operating partners to incur costs to reduce emissions of GHGs associated with our operations or could adversely
affect demand for the oil and natural gas. All of the foregoing costs and liabilities of our operating partners
may be passed along to us by way of our equity interest on the subject oil and gas property, which in turn could have a
material adverse effect on our financial condition, results of operations and stock price. Finally, it should be noted that
some scientists have concluded that increasing concentrations of greenhouse gases in the Earth's atmosphere may produce
climate change that could have significant physical effects, such as increased frequency and severity of storms, droughts,
and floods and other climatic events; if any such effects were to occur, they could have an adverse effect on our assets and
operations.
Federal
and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and
additional operating restrictions or delays as well as adversely affect our results of operations, financial condition or
stock price.
Our operating partners may from time to time engage in a production technique known as
hydraulic fracturing, an important and common practice used to stimulate production of hydrocarbons from tight formations,
such as shales. The process involves the injection of water or other liquids, sand and chemicals under pressure into
formations to fracture the surrounding rock and stimulate production. The process is typically regulated by state oil and gas
commissions. However, the EPA recently asserted federal regulatory authority over certain hydraulic fracturing practices.
Also, legislation has been introduced into Congress to provide for federal regulation of hydraulic fracturing and to
require disclosure of the chemicals used in the fracturing process. In addition, some states have adopted, and other states
are considering adopting, regulations that could restrict hydraulic fracturing in certain circumstances. For instance, in
June 2011, Texas adopted a law that requires disclosure to the Railroad Commission of Texas of the additives and other
chemicals contained in hydraulic fracturing fluids used in the state, subject to certain trade secret
protections. If new laws or regulations that significantly restrict or regulate hydraulic fracturing are adopted,
such legal requirements could make it more difficult or costly for our operating partners to perform fracturing to stimulate
production from our oil and gas interests and thereby affect the determination of whether a well is commercially viable.
Restrictions on hydraulic fracturing could also reduce the amount of oil and natural gas our operating partners are
ultimately able to produce in commercial quantities from our oil and gas interests.
Hydraulic fracturing
operations may result environmental contamination and other operational risks that could subject us to significant costs, liabilities
and loss of investment
. Hydraulic fracturing is a process that involves the injection of water or other
liquids, sand and chemicals under pressure into formations to fracture the surrounding rock and stimulate production. The
process involves the risk that liquids and chemicals injected into the well may migrate into and contaminate water aquifers and
wells or surrounding land. The process also involves the risk that water and liquids that are retrieved from the fractured
well may be improperly disposed of, thus creating another potential for water or ground contamination. Our operating partners face
the possibility of significant costs and liabilities in the event of any environmental contamination resulting from the hydraulic
fracturing of wells in which we have an interest, in which event we may become liable for our pro rata share of such costs and
liabilities. Also, even in the absence of any actual contamination, we can face significant costs if the operator is
required to defend any lawsuits or investigations that allege contamination. Finally, any actual or alleged environmental contamination
resulting from a drilling operation on an oil and gas property in which we have an interest can lead to the suspension or abandonment
of that property and the loss of our entire investment in such property.
No Dividends.
We
do not expect to pay cash dividends on our common stock in the foreseeable future.
No Active Trading
market
. Our common shares are traded on the OTC Market under the symbol “WTXR.” However, we consider our common
stock to be “thinly traded” and any last reported sale prices may not be a true market-based valuation of the common
stock. Also, the present volume of trading in our common stock may not provide investors sufficient liquidity in the event you
wish to sell your common shares. There can be no assurance that an active market for our common stock will develop. In addition,
the stock market in general, and early stage public companies in particular, have experienced extreme price and volume fluctuations
that have often been unrelated or disproportionate to the operating performance of such companies. If we are unable to develop
a market for our common shares, you may not be able to sell your common shares at prices you consider to be fair or at times that
are convenient for you, or at all.
Our common stock
may be considered to be a “penny stock” and, as such, any of the market for our common stock may be further limited
by certain SEC rules applicable to penny stocks
. To the extent the price of our common stock remains below $5.00
per share or we have a net tangible assets of $2,000,000 or less, our common shares will be subject to certain “penny stock”
rules promulgated by the SEC. Those rules impose certain sales practice requirements on brokers who sell penny stock
to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000
or individuals with net worth in excess of $1,000,000). For transactions covered by the penny stock rules, the broker
must make a special suitability determination for the purchaser and receive the purchaser’s written consent to the transaction
prior to the sale. Furthermore, the penny stock rules generally require, among other things, that brokers engaged in
secondary trading of penny stocks provide customers with written disclosure documents, monthly statements of the market value of
penny stocks, disclosure of the bid and asked prices and disclosure of the compensation to the brokerage firm and disclosure of
the sales person working for the brokerage firm. These rules and regulations adversely the affect the ability of brokers to sell
our common shares and limit the liquidity of our securities.
Company Executive Offices
Our executive offices are located in 5729
Lebanon Road., Suite 144, Frisco, Texas 75034. We believe that our current facilities are adequate for our foreseeable needs.
Oil and Gas Interests
Eastland County Field
In September 2011,
we acquired our initial property consisting of a 31.25% working interest in an exploratory oil and gas drilling prospect covering
120 acres in Eastland County, Texas. After explanatory work was performed, we determined that, as of the three months ended June
30, 2013, our investment in the Eastland County prospect was impaired due to an unsuccessful fracture stimulation. The value of
this property, subsequent the impairment, was $14,570. The operator has undertaken no further activity on the Eastland County
prospect as of the date of this report.
Sunshine Prospect, Landry Parish, Louisiana
On August 1, 2014,
the Company entered into an agreement with Restech Resources, LLC to purchase a 15% (14.25% net revenue interest) in an oil and
gas prospect located in Landry Parish, Louisiana. The working interest concerns 248 gross acres and net acres in the Sunshine
Prospect. Our purchase price for the working interest was $76,500. As of September 30, 2017, we maintain a working interest in
these properties.
Stansell Field, Floyd County, Texas
We hold a 1% working
interest in an oil prospect located in Floyd County, Texas. Our purchase price for the working interest was $70,000. The working
interest comprises 15,000 leased acres in the southern section of the Palo Duro basin. The initial project will be the re-entry
of the Stansell #1-A well, an existing wellbore that was drilled in 2006. The original drilling encountered oil shows in three
separate reservoirs and the operator intends to re-enter and recomplete the Stansell #1-A using current fracture stimulation technology.
We have a carried 1% working interest in the Stansell #1-A well through the tanks. In April 2015, the operator has started the
re-entry of the Stansell #1-A well. As of September 30, 2017, we maintain a working interest in these properties.
Hale County Field, Hale County, Texas
In June and July 2014,
the Company acquired non-operating leases covering approximately 1,070 gross mineral acre leases in a property located in Hale
County, Texas. The leases were acquired for cash payments of $45,484. The leases have a primary term of five years with the Company
option to extend the term for another five years. The leased properties constitute the surface acreage comprising a natural gas
prospect, for which we hold 50% of the working interest and 40% net revenue interest. The leased properties are subject to a 20%
royalty interest held by the owners and a third party. The Company is currently evaluating the Company options for the exploitation
of the leased properties, including the Company sale of the leases or the Company farm-out of the leases to a natural gas operator.
Leased Properties from Kiowa Oil Company
On September 30,
2015, the Company entered into an agreement with Kiowa Oil Company to lease 100% of interests, for a period of five years, of
properties in North Dakota, Florida, Illinois, and Kentucky. The total price for the subject interests under this lease agreement
is $5,000 and a 15% royalty interest in all the subject interests leased. The total price was paid in the Company’s common
shares at the per share price of $0.50. As of September 30, 2017, we maintain a royalty interest in these properties.
T.A. Greer Lease
On May 10, 2016,
the Company acquired a 25% working interest (19.5% net revenue interest) in an East Texas oil and gas property. The property is
known as the T.A. Greer lease and includes two tracts of land totaling approximately 407 acres in Panola County, Texas. We acquired
the property from an unaffiliated party in consideration of our payment of $10,000 and issuance of 60,000 shares of our common
stock at $0.25 per share for a total consideration of $25,000.
Origin Acquisition
On November 10,
2016, the Company acquired from Origin Production Co. Inc. interests in various producing and non-producing leases; primarily
in Gonzales, Caldwell, and Wilson County, Texas. We acquired the property from an unaffiliated party in for the purchase of 500,000
units of the Company’s securities for a purchase price of $0.30 per unit for a total of $150,000. Each Unit consists of
one share of the Company’s common stock and one common stock warrant that entitles its holder to purchase one share of the
Company’s common stock at an exercise price of $0.50 per share over a three year period ending November 1, 2019.
Gas Tap
In December 2017, we entered into a letter
of intent to acquire Gas Tap Corp., a privately-held company with substantial natural gas reserves in the Barnett Shale, Texas.
Pursuant to the letter of intent, we will acquire all of the capital stock of Gas Tap Corp. in consideration of our issuance of
15 million shares of ours common stock to the stockholders of Gas Tap Corp. The letter of intent represents the non-binding obligations
of the parties and is subject to each party's continued due diligence inquiry and the execution of definitive agreements between
the parties. There can be no assurance that we will be able to complete the acquisition on the terms described above or at all.
As of June 30, 2017 and September 30, 2016,
total oil and gas properties amounted to $448,208 and $267,433, respectively.
Estimated Proved Reserves and Operating Wells
As of September 30, 2017 we had proven developed
reserves of 24,826 bbl.
Drilling and Other Exploratory Activities
We were incorporated
in December 2010 and did not participate in any drilling, or other exploratory or development, activity during the fiscal year
ended September 30, 2011. In October 2011, we participated in our first drilling operation, which took place at our initial prospect,
located in Eastland County, Texas. The Eastland County prospect includes two wells, known as Rutherford #1 and C.M. Knott #1, that
had been operating at a minimum level required to maintain the lease rights. In October 2011, the operator of the prospect reentered
the Rutherford #1 well and conducted drilling and casing activities, which were completed in November 2011. In January 2012, a
third party conducted the fracture stimulation of the Rutherford #1. In February 2013, the operator placed a pump jack on the Rutherford
#1 well, however no meaningful revenue has been derived from the well to date.