vkin_10k.htm
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended: December 31, 2020
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ____________ to ____________
Commission File Number: 000-29219
| VIKING ENERGY GROUP, INC. |
| (Formerly Viking Investments Group, Inc.) |
| (Exact name of registrant as specified in its charter) |
| Nevada | | 98-0199508 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification Number) |
15915 Katy Freeway, Suite 450
Houston, TX 77094
(Address of principal executive offices)
(281) 404-4387
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
| Not applicable. | Note applicable. | Not applicable. |
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.001
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer a smaller reporting company, or an emerging growth company. See definition of "large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated filer | ☒ | Smaller reporting company | ☒ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☒
As of June 30, 2020, the aggregate market value of the shares of the registrant's common equity held by non-affiliates was approximately $26,027,718, using the June 30, 2020 closing price of the Registrant's common stock of $1.49/share. Shares of the registrant's common stock held by each executive officer and director and by each person who beneficially owns 10 percent or more of the registrant’s outstanding common stock have been excluded in that such persons may be deemed to be "affiliates" of the registrant for purposes of the above calculation. This determination of affiliate status is not a conclusive determination for other purposes.
The number of shares of the Registrant's common stock outstanding as of March 18, 2021, was 68,009,720.
NOTE REGARDING FORWARD LOOKING STATEMENTS
This Annual Report on Form 10-K contains statements that constitute "forward-looking statements." These forward-looking statements can be identified by the use of predictive, future-tense or forward-looking terminology like "believes," "anticipates," "expects," "estimates," "may," or similar terms. These statements appear in a number of places in this annual report and include statements regarding the Company's intent, belief or current expectations and those of its directors or officers with respect to, among other things:(i) trends affecting its financial condition or results of operations, (ii) its business and growth strategies, and (iii) its financing plans. You are cautioned that forward-looking statements are not guarantees of future performance and involve significant risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. Factors that could adversely affect actual results and performance include, among others, the Company's need for additional capital, its history of losses, the intense competition the Company faces in its business, the fact that its stock is a "penny stock" and the other material risks described under "Risk Factors". The accompanying information contained in this annual report, including, without limitation, the information set forth under the heading "Item 1. Business" identifies important additional factors that could materially adversely affect actual results and performance. You are urged to carefully consider these factors. All forward-looking statements attributable to us are expressly qualified in their entirety by the foregoing cautionary statement.
Table of Contents
PART I
Item 1. Business
Viking Energy Group, Inc. (“Viking” or the “Company”) is an independent exploration and production company engaged in the sale of crude oil, natural gas and natural gas liquids, focused on the acquisition and development of oil and natural gas properties in the Gulf Coast and Mid-Continent regions of the United States. The Company owns oil and gas leases in Texas, Louisiana, Mississippi and Kansas. The Company targets under-valued assets with realistic appreciation potential.
The Company's business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. On March 8, 2016, the Company incorporated a wholly owned subsidiary, Viking Oil & Gas (Canada) ULC, in Alberta, Canada, to hold its Canadian oil and gas interests. On August 30, 2016, the Company organized a wholly owned subsidiary, Mid-Con Petroleum, LLC (“Mid-Con Petroleum”), a Kansas limited liability company, to hold oil and gas interests in the central United States. On August 25, 2017, the Company organized another wholly owned subsidiary, Mid-Con Drilling, LLC (“Mid-Con Drilling”), a Kansas limited liability company, to hold additional oil and gas interests in the central United States. On December 27, 2017, the Company organized a third wholly owned subsidiary, Mid-Con Development, LLC (“Mid-Con Development”), a Kansas limited liability company, to hold additional oil and gas interests in the central United States. In 2016 and 2017, the Company acquired oil and gas interests in Kansas through these subsidiaries, and in December of 2017, the Company acquired Petrodome Energy, LLC, a Texas limited liability company based in Houston, Texas, with interests in oil and gas leases in Texas, Louisiana and Mississippi. During November, 2018, the Company organized created, Ichor Energy Holdings, LLC, (a Nevada limited liability company), Ichor Energy, LLC (a Nevada limited liability company), Ichor Energy (TX), LLC (a Texas limited liability company), and Ichor Energy (LA), LLC (a Louisiana limited liability company) to facilitate the acquisition and ownership of additional oil and gas interests in Texas and Louisiana. On December 28, 2018, the Company completed an acquisition of additional oil and gas interests in Texas and Louisiana, and in connection therewith: (i) Ichor Energy (LA), LLC, a wholly-owned subsidiary of Ichor Energy LLC, acquired all of the purchased assets located in Louisiana; and (ii) Ichor Energy (TX), LLC, an initially wholly-owned subsidiary of Ichor Energy, acquired all of the purchased assets located in Texas. On February 3, 2020, the Company completed an acquisition of additional oil and gas interests in Texas and Louisiana through a Nevada subsidiary, Elysium Energy Holdings, LLC (“Elysium Holdings”), and assigned a portion of its membership interests in that subsidiary to Camber Energy, Inc. (“Camber”) in connection with acquisition financing secured from Camber at that time. On December 23, 2020, as described below in connection with Camber’s Acquisition, Camber assigned its Elysium interests back to Viking, and Elysium became a wholly-owned subsidiary of the Company.
On January 5, 2021, the Company filed a Certificate of Amendment with the State of Nevada to effect a reverse split of our common stock at a ratio of 1-for-9. As a result of the reverse stock split, each nine (9) pre-split shares of common stock outstanding were combined into one (1) new share of common stock. Unless otherwise stated, all share and per share numbers in this Annual Report on Form 10-K and included in the consolidated financial statements have been adjusted to reflect the reverse stock split.
On December 23, 2020, the Company entered into a Securities Purchase Agreement with Camber, pursuant to which Camber acquired (“Camber’s Acquisition”) 26,274,510 shares of Viking common stock (“Camber’s Viking Shares”), constituting 51% of the common stock of Viking, in consideration of (i) Camber’s payment of $10,900,000 to Viking (the “Cash Purchase Price”), and (ii) cancelation of $9,200,000 in promissory notes issued by Viking to Camber (“Camber’s Viking Notes”). Pursuant to the purchase agreement, Viking is obligated to issue additional shares of Viking common stock to Camber to ensure that Camber shall own at least 51% of the common stock of Viking through July 1, 2022.
In connection with Camber’s Acquisition, the Company and Camber terminated their previous merger agreement, dated August 31, 2020, as amended, and Camber assigned its membership interests in one of Viking’s subsidiaries, Elysium Energy Holdings, LLC, back to Viking. Also in connection with Camber’s Acquisition, effective December 23, 2020, Camber (i) borrowed $12,000,000 from an institutional investor; (ii) issued the investor a promissory note in the principal amount of $12,000,000, accruing interest at the rate of 10% per annum and maturing December 11, 2022 (the “Camber Investor Note”); (iii) granted the Investor a first-priority security interest in Camber’s Viking Shares and Camber’s other assets pursuant to a pledge agreement and a general security agreement, respectively; and (iv) entered into an amendment to Camber’s $6,000,000 promissory note previously issued to the investor dated December 11, 2020 (the “Additional Camber Investor Note”), amending the acceleration provision of the note to provide that the note repayment obligations would also not accelerate if Camber has increased its authorized capital stock by March 11, 2021 (and Camber increased its authorized capital stock in February of 2021 as required). In order to close Camber’s Acquisition, effective December 23, 2020, Viking entered into a Guaranty Agreement, guaranteeing repayment of the Camber Investor Note and the Additional Camber Investor Note.
On December 23, 2020, the Camber Investor Note was funded, and Viking and Camber closed Camber’s Acquisition, with Camber paying the Cash Purchase Price to Viking and cancelling Camber’s Viking Notes, and Viking issuing Camber’s Viking Shares. At the closing, James Doris and Frank Barker, Jr., Viking’s CEO and CFO, were appointed the CEO and CFO of Camber, and Mr. Doris was appointed a member of the Board of Directors of Camber.
Other Information
Neither the Company nor any of its subsidiaries engaged in any research and development activities during 2020. The Company does not manufacture any products or engage in any activity that requires compliance with environmental laws except as described elsewhere herein.
Employees
The Company now has 9 fulltime employees, all working at the Company’s office in Houston, Texas. Outside of the Houston operation, the Company continues to retain outside consultants as needed, involved in business development, business analysis, financial consulting, web programming and designing, execution and support of the Company's business.
Reports to Securities Holders
The Company provides its annual report that includes its audited financial information to its shareholders upon written request. The Company also makes its financial information equally available to any interested parties or investors through compliance with the disclosure rules of the Exchange Act. The Company is subject to disclosure filing requirements including filing Form 10-K's annually and Form 10-Q's quarterly. In addition, the Company files Form 8-K and other proxy and information statements from time to time as required.
The public may read and copy any materials that the Company files with the SEC at the SEC's Public Reference Room at 100 F Street NE, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.
Item 1A. Risk Factors
The Company, as a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act), is not required to furnish information required by this item. However, the following important factors among others, could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-K or presented elsewhere by management from time to time.
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.
Oil and gas price fluctuations in the market may adversely affect the results of our operations.
Our profitability, cash flows and the carrying value of our oil and natural gas properties are highly dependent upon the market prices of oil and natural gas. A significant portion of our sales of oil and natural gas, if any, are made in the spot market, or pursuant to contracts based on spot market prices, and not pursuant to long-term, fixed-price contracts. Accordingly, the prices received for our oil and natural gas production are dependent upon numerous factors beyond our control. These factors include the level of consumer product demand, governmental regulations and taxes, the price and availability of alternative fuels, the level of foreign imports of oil and natural gas and the overall economic environment.
Historically, the oil and natural gas markets have proven cyclical and volatile as a result of factors that are beyond our control. Any additional declines in oil and natural gas prices or any other unfavorable market conditions could have a material adverse effect on our financial condition.
Actual quantities of recoverable oil and gas reserves and future cash flows from those reserves most likely will vary from our estimates.
Estimating accumulations of oil and gas is complex. The process relies on interpretations of available geological, geophysical, engineering and production data. The extent, quality and reliability of this data can vary. The process also requires certain economic assumptions, some of which are mandated by the SEC, such as oil and gas prices, drilling and operating expenses, capital expenditures, taxes and availability of funds. The accuracy of a reserve estimate is a function of:
| · | the quality and quantity of available data; |
| · | the interpretation of that data; |
| · | the accuracy of various mandated economic assumptions; and |
| · | the judgment of the persons preparing the estimate. |
Estimates of proved reserves prepared by others might differ materially from our estimates. Actual quantities of recoverable oil and gas reserves, future production, oil and gas prices, revenues, taxes, development expenditures and operating expenses most likely will vary from our estimates. Any significant variance could materially affect the quantities and net present value of our reserves. In addition, we may adjust estimates of proved reserves to reflect production history, results of exploration and development and prevailing oil and gas prices. Our reserves also may be susceptible to drainage by operators on adjacent properties.
Our operations will require significant expenditures of capital that may not be recovered.
We require significant expenditures of capital to locate and develop producing properties and to drill exploratory and exploitation wells. In conducting exploration, exploitation and development activities for a particular well, the presence of unanticipated pressure or irregularities in formations, miscalculations or accidents may cause our exploration, exploitation, development and production activities to be unsuccessful, potentially resulting in abandonment of the well. This could result in a total loss of our investment. In addition, the cost and timing of drilling, completing and operating wells is difficult to predict.
Compliance with, or breach of, environmental laws can be costly and could limit our operations.
Our operations will be subject to numerous and frequently changing laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. Any properties we might own for the exploration and production of oil and gas and the wastes disposed on these properties may be subject to the Comprehensive Environmental Response, Compensation and Liability Act, the Oil Pollution Act of 1990, the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act, similar state laws, and similar Canadian laws. Under such laws, we could be required to remove or remediate previously released wastes or property contamination. Laws and regulations protecting the environment have generally become more stringent and may, in some cases, impose "strict liability" for environmental damage. Strict liability means that we may be held liable for damage without regard to whether we were negligent or otherwise at fault. Environmental laws and regulations may expose us to liability for the conduct of or conditions caused by others or for acts that were in compliance with all applicable laws at the time they were performed. Failure to comply with these laws and regulations may result in the imposition of administrative, civil and criminal penalties.
Although we believe that our operations are in substantial compliance with existing requirements of governmental bodies, our ability to conduct continued operations is subject to satisfying applicable regulatory and permitting controls. Our current permits and authorizations and ability to get future permits and authorizations may be susceptible on a going forward basis, to increased scrutiny, greater complexity resulting in increased costs, or delays in receiving appropriate authorizations.
We are subject to changing laws and regulations and other governmental actions that can significantly and adversely affect our business.
Federal, state, local, territorial and foreign laws and regulations relating to tax increases and retroactive tax claims, disallowance of tax credits and deductions, expropriation or nationalization of property, mandatory government participation, cancellation or amendment of contract rights, and changes in import and export regulations, limitations on access to exploration and development opportunities, as well as other political developments may adversely affect our operations.
The oil and gas we produce may not be readily marketable at the time of production.
Crude oil, natural gas, condensate and other oil and gas products are generally sold to other oil and gas companies, government agencies and other industries. The availability of ready markets for oil and gas that we might discover and the prices obtained for such oil and gas depend on many factors beyond our control, including:
| | · | the extent of local production and imports of oil and gas, |
| | · | the proximity and capacity of pipelines and other transportation facilities, |
| | · | fluctuating demand for oil and gas, |
| | · | the marketing of competitive fuels, and |
| | · | the effects of governmental regulation of oil and gas production and sales. |
Natural gas associated with oil production is often not marketable due to demand or transportation limitations and is often flared at the producing well site. Pipeline facilities do not exist in certain areas of exploration and, therefore, we intend on utilizing trucks to transport any oil that is discovered.
The price of oil and natural gas has historically been volatile. If it were to decrease substantially, our projections, budgets and revenues would be adversely affected, potentially forcing us to make changes in our operations.
Our future financial condition, results of operations and the carrying value of any oil and natural gas interests we acquire will depend primarily upon the prices paid for oil and natural gas production. Oil and natural gas prices historically have been volatile, during calendar 2020 have significantly decreased, and likely will continue to be volatile in the future, especially given current world geopolitical conditions. Our cash flows from operations are highly dependent on the prices that we receive for oil and natural gas. This price volatility also affects the amount of our cash flows available for capital expenditures and our ability to borrow money or raise additional capital. The prices for oil and natural gas are subject to a variety of additional factors that are beyond our control. These factors include:
| | · | the level of consumer demand for oil and natural gas; |
| | · | the domestic and foreign supply of oil and natural gas; |
| | · | the ability of the members of the Organization of Petroleum Exporting Countries ("OPEC") to agree to and maintain oil price and production controls; |
| | · | the price of foreign oil and natural gas; |
| | · | domestic governmental regulations and taxes; |
| | · | the price and availability of alternative fuel sources; |
| | · | weather conditions; |
| | · | market uncertainty due to political conditions in oil and natural gas producing regions, including the Middle East; and |
| | · | worldwide economic conditions. |
These factors as well as the volatility of the energy markets generally make it extremely difficult to predict future oil and natural gas price movements with any certainty. Declines in oil and natural gas prices affect our revenues, and could reduce the amount of oil and natural gas that we can produce economically. Accordingly, such declines could have a material adverse effect on our financial condition, results of operations, oil and natural gas reserves and the carrying values of our oil and natural gas properties. If the oil and natural gas industry experiences significant price declines, we may be unable to make planned expenditures, among other things. If this were to happen, we may be forced to abandon or curtail our business operations, which would cause the value of an investment in us to decline in value, or become worthless.
Downturns and volatility in global economies and commodity and credit markets may materially adversely affect our business, results of operations and financial condition.
Viking’s results of operations are materially adversely affected by the conditions of the global economies and the credit, commodities and stock markets. Among other things, Viking has recently been adversely impacted, and anticipates continuing to be adversely impacted, due to a global reduction in consumer demand for oil and gas, and consumer lack of access to sufficient capital to continue to operate their businesses or to operate them at prior levels. In addition, a decline in consumer confidence or changing patterns in the availability and use of disposable income by consumers can negatively affect the demand for oil and gas and as a result Viking’s results of operations.
We may be forced to write-down material portions of their assets if low oil prices continue.
The recent COVID-19 outbreak has led to low oil prices. A continued period of low prices may force us to incur material write-downs of our oil and natural gas properties, which could have a material effect on the value of our properties and cause the value of our securities to decline in value.
Because of the inherent dangers involved in oil and gas operations, there is a risk that we may incur liability or damages as we conduct our business operations, which could force us to expend a substantial amount of money in connection with litigation and/or a settlement.
The oil and natural gas business involve a variety of operating hazards and risks such as well blowouts, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to us from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, we may be liable for environmental damages caused by previous owners of property purchased and leased by us. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for exploration, development or acquisitions or result in the loss of our properties and/or force us to expend substantial monies in connection with litigation or settlements. We currently have no insurance to cover such losses and liabilities, and even if insurance is obtained, there can be no assurance that it will be adequate to cover any losses or liabilities. We cannot predict the availability of insurance or the availability of insurance at premium levels that justify our purchase. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect our financial condition and operations. We may elect to self-insure if management believes that the cost of insurance, although available, is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial condition and results of operations, which could lead to any investment in us becoming worthless.
We may encounter operating hazards that may result in substantial losses.
We will be subject to operating hazards normally associated with the exploration and production of oil and gas, including hurricanes, blowouts, explosions, oil spills, cratering, pollution, earthquakes, labor disruptions and fires. The occurrence of any such operating hazards could result in substantial losses to us due to injury or loss of life and damage to or destruction of oil and gas wells, formations, production facilities or other properties. We do not maintain insurance coverage for matters that may adversely affect our operations, including war, terrorism, nuclear reactions, government fines, treatment of waste, blowout expenses, wind damage and business interruptions. Losses and liabilities arising from uninsured or underinsured events could reduce our revenues or increase our costs. There can be no assurance that any insurance we do obtain will be adequate to cover losses or liabilities associated with operational hazards. We cannot predict the continued availability of insurance, or its availability at premium levels that justify its purchase.
We face strong competition from larger oil and gas companies, which could result in adverse effects on our business.
The petroleum exploration and production business is highly competitive. Many of our competitors have substantially larger financial resources, staffs and facilities. Our competitors in the United States and Canada include numerous major oil and gas exploration and production companies. Additionally, other companies engaged in our line of business may compete with us from time to time in obtaining capital from investors. Competitors include larger companies which, in particular, may have access to greater resources, may be more successful in the recruitment and retention of qualified employees and may conduct their own refining and petroleum marketing operations, which may give them a competitive advantage. Actual or potential competitors may be strengthened through the acquisition of additional assets and interests. Additionally, there are numerous companies focusing their resources on creating fuels and/or materials which serve the same purpose as oil and gas, but are manufactured from renewable resources.
Our estimates of the volume of reserves could have flaws, or such reserves could turn out not to be commercially extractable. as a result, our future revenues and projections could be incorrect.
Estimates of reserves and of future net revenues prepared by different petroleum engineers may vary substantially depending, in part, on the assumptions made and may be subject to adjustment either up or down in the future. Our actual amounts of production, revenue, taxes, development expenditures, operating expenses, and quantities of recoverable oil and gas reserves may vary substantially from the estimates. Oil and gas reserve estimates are necessarily inexact and involve matters of subjective engineering judgment. In addition, any estimates of our future net revenues and the present value thereof are based on assumptions derived in part from historical price and cost information, which may not reflect current and future values, and/or other assumptions made by us that only represent our best estimates. If these estimates of quantities, prices and costs prove inaccurate, we may be unsuccessful in expanding our oil and gas reserves base with our acquisitions. Additionally, if declines in and instability of oil and gas prices occur, then write downs in the capitalized costs associated with any oil and gas assets we obtain may be required. Because of the nature of the estimates of our reserves and estimates in general, we can provide no assurance that reductions to our estimated proved oil and gas reserves and estimated future net revenues will not be required in the future, and/or that our estimated reserves will be present and/or commercially extractable. If our reserve estimates are incorrect, the value of our common stock could decrease and we may be forced to write down the capitalized costs of our oil and gas properties.
Our business will suffer if we cannot obtain or maintain necessary licenses.
Our operations will require licenses, permits and in some cases renewals of licenses and permits from various governmental authorities. Our, or our partners', ability to obtain, sustain or renew such licenses and permits on acceptable terms is subject to change in regulations and policies and to the discretion of the applicable governments, among other factors. Our inability to obtain, or our loss of or denial of extension of, any of these licenses or permits could hamper our ability to produce revenues from our operations.
Our operations may be subject to various litigation matters in the future that could have an adverse effect on our business.
From time to time, we may become a defendant in various litigation matters. The nature of our operations exposes us to further possible litigation claims, including litigation relating to climate change in the future. There is risk that any matter in litigation could be adversely decided against us regardless of our belief, opinion and position, which could have a material adverse effect on our financial condition and results of operations. Litigation is highly costly and the costs associated with defending litigation could also have a material adverse effect on our financial condition.
We may be affected by global climate change or by legal, regulatory, or market responses to such change.
The growing political and scientific sentiment is that increased concentrations of carbon dioxide and other greenhouse gases in the atmosphere are influencing global weather patterns. Changing weather patterns, along with the increased frequency or duration of extreme weather conditions, could impact the availability or increase the cost to produce our products. Additionally, the sale of our products can be impacted by weather conditions.
Concern over climate change, including global warming, has led to legislative and regulatory initiatives directed at limiting greenhouse gas emissions. For example, proposals that would impose mandatory requirements on greenhouse gas emissions continue to be considered by policy makers in the provinces, states or territories where we operate. Laws enacted that directly or indirectly affect our oil and gas production could impact our business and financial results.
If oil or natural gas prices decrease or drilling efforts are unsuccessful, we may be required to record write-downs of our oil and natural gas properties.
We could be required to write down the carrying value of certain of our oil and natural gas properties. Write-downs may occur when oil and natural gas prices are low, or if we have downward adjustments to our estimated proved reserves, increases in our estimates of operating or development costs, deterioration in drilling results or mechanical problems with wells where the cost to re-drill or repair is not supported by the expected economics.
Accounting rules require that the carrying value of oil and natural gas properties be periodically reviewed for possible impairment. Under the full cost method of accounting, capitalized oil and natural gas property costs less accumulated depletion, net of deferred income taxes, may not exceed a ceiling amount equal to the present value, discounted at 10%, of estimated future net revenues from proved oil and natural gas reserves plus the cost of unproved properties not subject to amortization (without regard to estimates of fair value), or estimated fair value, if lower, of unproved properties that are subject to amortization. Should capitalized costs exceed this ceiling, which is tested on a quarterly basis, an impairment is recognized. While an impairment charge reflects our long-term ability to recover an investment, reduces our reported earnings and increases our leverage ratios, it does not impact cash or cash flow from operating activities.
Our future success depends on our ability to replace reserves that are produced.
Because the rate of production from oil and natural gas properties generally declines as reserves are depleted, our future success depends upon our ability to economically find or acquire and produce additional oil and natural gas reserves. Except to the extent that we acquire additional properties containing proved reserves, conduct successful exploration and development activities, or, through engineering studies, identify additional behind-pipe zones or secondary recovery reserves, our proved reserves will decline as our reserves are produced. Future oil and natural gas production, therefore, is highly dependent upon our level of success in acquiring or finding additional reserves that are economically recoverable. We cannot assure you that we will be able to find or acquire and develop additional reserves at an acceptable cost.
We may acquire significant amounts of unproved property to further our development efforts. Development and exploratory drilling and production activities are subject to many risks, including the risk that no commercially productive reservoirs will be discovered. We may acquire both proved and producing properties as well as undeveloped acreage that we believe will enhance growth potential and increase our earnings over time. However, we cannot assure you that all of these properties will contain economically viable reserves or that we will not abandon our initial investments. Additionally, we cannot assure you that unproved reserves or undeveloped acreage that we acquire will be profitably developed, that new wells drilled on our properties will be productive or that we will recover all or any portion of our investments in our properties and reserves.
Our lack of industry and geographical diversification may increase the risk of an investment in our company.
We operate in the oil and gas sector and our leases are located in North America in Kansas, Texas, Louisiana, and Mississippi. This lack of geographic diversification may make our holdings more sensitive to economic developments within a regional area, which may result in reduced rates of return or higher rates of default than might be incurred with a company that is more geographically diverse.
Our business depends on oil and natural gas transportation and processing facilities and other assets that are owned by third parties.
The marketability of our oil and natural gas depends in part on the availability, proximity and capacity of pipeline systems, processing facilities, oil trucking fleets and rail transportation assets owned by third parties. The lack of available capacity on these systems and facilities, whether as a result of proration, physical damage, scheduled maintenance or other reasons, could result in the delay or discontinuance of development plans for our properties. The curtailments arising from these and similar circumstances may last from a few days to several months.
Our leasehold acreage is subject to leases that will expire over the next several years unless production is established or maintained or the leases are extended.
Some of our acreage is currently held by production or held by operations, but some is not. Unless production in paying quantities is established or operations are commenced on units containing these latter leases during their terms, those leases may expire. Likewise, if we are unable to maintain production on acreage held by production or operations, those leases may expire. If our leases expire and we are unable to renew the leases, we will lose our right to develop or utilize the related properties.
Deficiencies of title to our leased interests could significantly affect our financial condition.
We, or our partners, often incur the expense of a title examination prior to acquiring oil and natural gas leases or undivided interests in oil and natural gas leases or other developed rights. If an examination of the title history of a property reveals that an oil or natural gas lease or other developed rights have been purchased in error from a person who is not the owner of the mineral interest desired, our interest would substantially decline in value or be eliminated. In such cases, the amount paid for such oil or natural gas lease or leases or other developed rights may be lost.
We have not established an effective system of internal control over our financial reporting, and if we fail to maintain such internal control, we may not be able to accurately report our financial results, and current and potential stockholders may lose confidence in our financial reporting.
We have not established and maintained adequate and effective internal control over financial reporting that would provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. We are, however, required to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses in those internal controls.
Any failure to maintain adequate internal controls could adversely impact our ability to report our financial results on a timely and accurate basis. If our financial statements are not accurate, investors may not have a complete understanding of our operations. Likewise, if our financial statements are not filed on a timely basis as required by the SEC and the Capital Market, we could face severe consequences from those authorities. In either case, there could result a material adverse effect on our business. Ineffective internal controls could also cause investors to lose confidence in our reported financial information, which could have a negative effect on the trading price of our stock.
Need for Additional Financing
The Company currently has limited funds and the lack of additional funds may negatively impact the Company's ability to pursue its business strategy to conduct operations in the oil and gas industry and to acquire, invest in and/or provide professional advisory and consulting services to companies undergoing or anticipating periods of rapid growth. Even if the Company's funds prove to be sufficient to provide such services or to acquire an interest in, or complete a transaction with, an entity, the Company may not have enough capital to exploit the opportunity. The ultimate success of the Company may depend upon its ability to raise additional capital. The Company may investigate the availability, source, or terms that might govern the acquisition of additional capital but will not do so until it determines a need for additional financing. If additional capital is needed, there is no assurance that funds will be available from any source or, if available, that they can be obtained on terms acceptable to the Company. If not available, the Company's operations will be limited to those that can be financed with its modest capital.
Regulation of Penny Stocks
The Company's securities may be subject to a SEC rule that imposes special sales practice requirements upon broker-dealers who sell such securities to persons other than established customers or accredited investors. For purposes of the rule, the phrase "accredited investors" means, in general terms, institutions with assets in excess of $5,000,000, or individuals having a net worth, or joint net worth with spouse, in excess of $1,000,000 excluding the value of the person's primary residence or having an annual income that exceeds $200,000 (or that, when combined with a spouse's income, exceeds $300,000). For transactions covered by the rule, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell the Company's securities and also may affect the ability of purchasers in an offering to sell their securities in any market that might develop.
In addition, the SEC has adopted a number of rules to regulate "penny stocks." Such rules include Rules 3a51-1, 15g-1, 15g-2, 15g-3, 15g-4, 15g-5, 15g-6, 15g-7, and 15g-9 under the Securities Exchange Act of 1934, as amended or the Exchange Act. Because the securities of the Company may constitute "penny stocks" within the meaning of the rules, the rules would apply to the Company and to its securities. The rules may further affect the ability of owners of shares to sell the securities of the Company in any market that might develop for them.
Shareholders should be aware that, according to SEC, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (iii) "boiler room" practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (iv) excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and (v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.
Lack of Operating History
Due to the numerous risks inherent in the implementation of a new business emphasis and plan, the Company must be regarded as a new or start-up venture with all of the unforeseen costs, expenses, problems, and difficulties to which such ventures are subject.
No Assurance of Success or Profitability
There is no assurance that the Company will be able to successfully implement its business plan and provide the contemplated services to its client companies. Even if the Company is successful in providing its services to its client companies, there is a risk that it will not generate revenues or profits, or that the market price of the Company's common stock will increase.
Impracticality of Exhaustive Investigation
The Company has limited operating funds, and this makes it impracticable for the Company to conduct a complete and exhaustive investigation and analysis of its opportunities. Decisions will therefore likely be made without detailed geotechnical reports, feasibility studies, independent analysis, market surveys and the like, which, if the Company had more funds available to it, would be desirable. The Company will be particularly dependent in making decisions upon information provided by third parties with interests in the transaction. A significant portion of the Company's available funds could be expended for investigative expenses and other preliminary expenses, and potential profits could therefore be lessened.
Lack of Diversification
Because of the limited financial resources that the Company has, it is unlikely that the Company will be able to diversify its acquisitions or operations. The Company's probable inability to diversify its activities into multiple areas will subject the Company to economic fluctuations within a particular business or industry and therefore increase the risks associated with the Company's operations.
Reliance upon Financial Statements
The Company generally will require audited financial statements from companies with which it seeks to enter into a contractual arrangement. In cases where no audited financials are available, the Company will have to rely upon interim period unaudited information received from a prospective client company's management that has not been verified by outside auditors. The lack of the type of independent verification which audited financial statements would provide increases the risk that the Company, in evaluating a contractual arrangement with such a company, will not have the benefit of full and accurate information about the financial condition and recent interim operating history of that company. This risk increases the prospect that the contractual arrangement with such a company might prove to be an unfavorable one for the Company or the holders of the Company's securities.
Moreover, the Company will be subject to the reporting provisions of the Exchange Act, and thus will be required to furnish certain information about significant contractual arrangements, including audited financial statements for any business with which it enters into a contractual arrangement for control. Consequently, prospects that do not have, or are unable to provide reasonable assurances that they will be able to obtain, the required audited statements would not be considered by the Company to be appropriate clients so long as the reporting requirements of the Exchange Act are applicable. Should the Company, during the time it remains subject to the reporting provisions of the Exchange Act, complete into a contract for control of an entity for which audited financial statements prove to be unobtainable, the Company would be exposed to enforcement actions by the SEC and to corresponding administrative sanctions, including permanent injunctions against the Company and its management. The legal and other costs of defending an SEC enforcement action would have material, adverse consequences for the Company and its business. The imposition of administrative sanctions would subject the Company to further adverse consequences. In addition, the lack of audited financial statements would prevent the securities of the Company from becoming eligible for listing on NASDAQ, or on any existing stock exchange.
Moreover, the lack of such financial statements is likely to discourage broker-dealers from becoming or continuing to serve as market makers in the securities of the Company. Without audited financial statements, the Company would almost certainly be unable to offer securities under a registration statement pursuant to the Securities Act of 1933 or the Securities Act, and the ability of the Company to raise capital would be significantly limited until such financial statements were to become available.
Other Regulation
A contractual arrangement for acquisition of equity ownership of or control may be of a company that is subject to rules and regulation by federal, state, local or foreign authorities. Compliance with such rules and regulations can be expected to be a time-consuming, expensive process and may limit other opportunities of the Company.
Lack of Continuity in Management
The Company does not currently have employment agreements with its Chief Executive Officer and President, Mr. Doris, and its Chief Financial Officer, Mr. Barker. As a result, there is no assurance that Mr. Doris or Mr. Barker will continue to be associated with the Company in the future. In connection with future business opportunities, it is possible that Mr. Doris or Mr. Barker may resign as an officer and director of the Company subject to compliance with Section 14f of the Exchange Act. Any decision to resign would occur without the vote or consent of the stockholders of the Company.
The Company is required to indemnify its Officers and Directors
Nevada law provides for the indemnification of the Company’s directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on behalf of the Company. If the Company were called upon to indemnify an officer or director, then the portion of its available funds expended for such purpose would reduce the amount otherwise available for the Company’s business. This indemnification obligation and the resultant costs associated with indemnification may also discourage our Company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though such actions, if successful, might otherwise benefit our company and shareholders.
The Company would bear the expenses of such litigation for any of its directors, officers, employees, or agents, upon such person’s promise to repay the Company if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by the Company which it may be unable to recoup.
We may be dependent upon outside advisors.
To supplement the Company’s officers, directors and principal shareholders, the Company may be required to employ accountants, technical experts, appraisers, attorneys, or other outside consultants or advisors. The selection of any such advisors will be made by the Company without any input from stockholders. Furthermore, it is anticipated that such persons may be engaged on an “as needed” basis without a continuing fiduciary or other obligation to the Company. In the event the Company considers it necessary to hire outside advisors, such persons may be affiliates of the Company.
We do not anticipate paying any cash dividends to our common shareholders.
We presently do not anticipate that we will pay dividends on any of our common stock in the foreseeable future. If payment of dividends does occur at some point in the future, it would be contingent upon our revenues and earnings, if any, capital requirements, and general financial condition. The payment of any common stock dividends will be within the discretion of our Board of Directors. We presently intend to deploy available capital to execute our business plan; accordingly, we do not anticipate the declaration of any dividends for common stock in the foreseeable future.
The Company’s CEO, James Doris, holds preferred stock which could afford him enough shareholder votes to control the Company.
The Company’s CEO and director, James Doris, holds 28,092 shares of the Company’s Series C Preferred Stock, with each share of preferred stock entitling the holder to convert such share of preferred stock into 37,500 shares of common stock, and entitling the holder to 37,500 votes on all matters submitted to the vote of the Company’s security holders, provided that so long as Camber Energy, Inc. owns or is entitled to own at least 51% of the outstanding shares of common stock of the Company and James Doris remains a director and Chief Executive Officer of Camber, each share of preferred stock shall not be entitled to any votes on matters submitted to a vote of the stockholders of the Company. By virtue of such preferred stock ownership, and the possibility of Camber owning less than 51% of the outstanding shares of common stock of the Company, Mr. Doris could control the election of the members of the Company’s Board of Directors and generally exercise control over the affairs of the Company. Such concentration of ownership could have the effect of delaying, deterring or preventing a change in control of the Company that might otherwise be beneficial to stockholders. There can be no assurance that conflicts of interest will not arise with respect to Mr. Doris’s ownership of the preferred stock, or that such conflicts will be resolved in a manner favorable to the Company.
Our outstanding securities may become freely tradable pursuant to Rule 144 and may have a depressive effect on the price of the shares of our common stock.
We have outstanding a large number of shares of common stock. Many of these securities are currently issued with a “restrictive legend” and characterized as “restricted securities” within the meaning of Rule 144 (“Rule 144”) promulgated under the Securities Act of 1933, as amended (the “Securities Act”). As restricted securities, these securities may be resold only pursuant to an effective registration statement or under the requirements of Rule 144 or other applicable exemptions from registration under the Securities Act and as required under applicable state securities laws. Rule 144 provides in essence that once restricted securities have been held for a period of at least six months and the other requirements in the rule have been satisfied, holders of the securities may resell their securities without registration or restriction on transfer. As many of our outstanding shares of common stock have been held by their holders in excess of six months, such holders may be able to resell their shares of common stock into the market without restriction pursuant to Rule 144. Those resales could have a depressive effect upon our stock price.
The outbreak of the coronavirus may negatively impact demand for oil and natural gas and our business, results of operations and financial condition.
In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China, which spread in China and is continuing to spread throughout the United States and other parts of the world. On January 30, 2020, the World Health Organization declared the outbreak of the coronavirus disease (COVID-19) a “Public Health Emergency of International Concern.” On January 31, 2020, U.S. Health and Human Services Secretary Alex M. Azar II declared a public health emergency for the United States to aid the U.S. healthcare community in responding to COVID-19, and on March 11, 2020, the World Health Organization characterized the outbreak as a “pandemic”. The significant outbreak of COVID-19 has resulted in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and could adversely affect demand for oil and natural gas and our business, results of operations and financial conditions. The ultimate extent of the impact of any epidemic, pandemic or other health crisis on demand for oil and natural gas and our business, financial condition and results of operations will depend on future developments, which are highly uncertain and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic or other health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic or other health crisis, such as COVID-19, could therefore materially and adversely affect demand for oil and natural gas and our business, financial condition and results of operations.
The Staff of the SEC’s Division of Enforcement notified Viking that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against Viking, as well as against its CEO and its CFO, for alleged violation so securities laws.
In April of 2019, the staff (the “Staff”) of the SEC’s Division of Enforcement notified Viking that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against Viking, as well as against its CEO and its CFO, for alleged violations of Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder during the period from early 2014 through late 2016. The Staff’s notice is not a formal allegation or a finding of wrongdoing by Viking, and Viking has communicated with the Staff regarding its preliminary determination. Viking believes it has adequate defenses and intends to vigorously defend any enforcement action that may be initiated by the SEC. However, the defense of an action filed by the SEC against Viking, its CEO and/or CFO, could take resources away from the operations of Viking, divert management attention, or potential result in penalties, fines or sanctions, which could materially adversely affect Viking or the value of its securities.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
The Company’s headquarters are located at 15915 Katy Freeway, Suite 450, Houston, Texas 77094.
Oil and Natural Gas Properties
On February 23, 2016, the Company closed on the acquisition of working interests in four leases with access to the mineral rights (oil and gas) concerning approximately 281 acres of property in Miami and Franklin Counties in eastern Kansas. On October 4, 2016, the Company completed an acquisition whereby the Company (i) increased its working interest in three existing oil and gas leases in Miami and Franklin Counties in Eastern Kansas, and (ii) acquired a working interest in four new oil and gas leases in the same region, comprising approximately 660 acres of property. On September 11, 2017, the Company through its wholly owned subsidiary, Mid-Con Drilling, LLC (“Mid-Con Drilling”) acquired a 90% working interest in four new oil and gas leases in Anderson County in Eastern Kansas, comprising approximately 980 acres of property. On October 2, 2017, the Company, through Mid-Con Drilling, closed on an acquisition, effective October 1, 2017, of a 100% working interest in six new oil and gas leases in Miami and Franklin Counties in Eastern Kansas. On October 4, 2017, the Company, through Mid-Con Drilling, closed on an acquisition, effective September 1, 2017, of an 80% working interest in six new oil and gas leases in Riley, Geary and Wabaunsee Counties in Kansas. On December 29, 2017, the Company through its wholly owned subsidiary, Mid-Con Development, LLC (“Mid-Con Development”) completed an acquisition of working interests in approximately 41 oil and gas leases in Ellis and Rooks Counties in Kansas, comprising several thousand acres. On January 12, 2018, the Company, through Mid-Con Drilling, completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas. Effective February 1, 2018, the Company, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas. As of December 31, 2020, these central United States oil and gas properties consist of interests in approximately 377 producing wells and 135 injector wells.
On December 22, 2017, the Company closed on the acquisition of 100% of the membership interests in Petrodome Energy, LLC, a Texas limited liability company based in Houston, Texas, with multiple subsidiaries (described in Exhibit 21.1 hereto) having working interests in multiple oil and gas leases in Texas, Louisiana and Mississippi, comprising approximately 11,700 acres. As of December 31, 2020, these properties consist of interests in 16 producing wells, 17 non-producing wells and two salt water disposal wells.
On January 12, 2018, the Company, through its subsidiary Mid-Con Drilling, LLC (“Mid-Con Drilling”) completed an acquisition of a 100% working interest in seven new oil and gas leases in Woodson and Allen Counties in Eastern Kansas.
Effective February 1, 2018, the Company, through Mid-Con Drilling, closed on the acquisition of a working interest in a lease with access to the mineral rights (oil and gas) concerning approximately 80 acres of property in Douglas County in eastern Kansas.
On December 28, 2018, the Company, through its subsidiary Ichor Energy, LLC (“Ichor Energy”) completed an acquisition (the “Ichor Energy Acquisition”) of working interests in certain oil and gas leases in Texas (primarily in Orange and Jefferson Counties) and Louisiana (primarily in Calcasiue Parish), which include 58 producing wells, 31 salt water disposal wells, 46 shut in wells and 4 non-producing wells. The properties produce hydrocarbons from known reservoirs/sands in the on-shore Gulf Coast region, with an average well depth in excess of 10,600 feet.
On May 1, 2019, the Company’s subsidiary, Mid-Con Development, LLC sold all of its interests in the oil and gas assets of Mid-Con Development, LLC owned in Ellis and Rooks Counties, Kansas, consisting of working interests in approximately 41 oil leases comprising several thousand acres.
On May 10, 2019, Petrodome Louisiana Pipeline LLC ("Petrodome LA"), a subsidiary of the Company’s subsidiary, Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres.
On February 3, 2020, Elysium Energy, LLC, (“Elysium”), the subsidiary of the Company’s then partially owned subsidiary, Elysium Energy Holdings, LLC (“Elysium Holdings”), acquired interests in oil and gas properties located in Texas and Louisiana, which included leases, working interests, and over-riding royalty interests in oil and gas properties in Texas (approximately 72 wells in 11 counties) and Louisiana (approximately 55 wells in 6 parishes), along with associated equipment. On February 4, 2020, Elysium hedged 75% of the estimated oil and gas production associated with the newly acquired assets for 2020, 60% of the estimated production for 2021 and 50% of the estimated production for the period between January, 2022 to July, 2022. Theses hedges have a floor of $45 and a ceiling ranging from $52.70 to $56.00 for oil, and a floor of $2.00 and a ceiling of $2.425 for natural gas.
Oil and Natural Gas Reserves
As of December 31, 2020, all of our proved oil and natural gas reserves were located in the United States, in the States of Texas, Louisiana, Mississippi and Kansas.
The following tables set forth summary information with respect to our proved reserves as of December 31, 2020 and 2019. For additional information see Supplemental Information “Oil and Natural Gas Producing Activities (Unaudited)” to our consolidated financial statements in “Item 8—Financial Statements and Supplementary Data” of this Annual Report on Form 10-K.
| | | Proved Reserves at December 31, 2020 | |
| Reserves Category | | Crude Oil (MBBLs) | | | Natural Gas (MMCF) | | | Total Proved (BOE) (1) | |
| | | | | | | | | | |
| Proved Reserves | | | | | | | | | |
| Developed | | | 5,220,180 | | | | 43,577,750 | | | | 12,483,138 | |
| Developed Non-Producing | | | 1,938,807 | | | | 9,196,580 | | | | 3,471,570 | |
| Undeveloped | | | 1,734,774 | | | | 9,632,000 | | | | 3,340,107 | |
| | | | | | | | | | | | | |
| Total Proved Reserves | | | 8,893,761 | | | | 62,406,330 | | | | 19,294,815 | |
| | | | | | | | | | | | | |
| Estimated Future Net Cash Flows | | | | | | | | | | $ | 222,292,723 | |
| 10% annual discount for estimated timing of cash flows | | | | | | | | | | | (102,419,459 | ) |
| Standardized Measure of Discounted Future Net Cash Flows - (PV10) (2) | | | | | | | | | | $ | 119,873,264 | |
| | | Proved Reserves at December 31, 2019 | |
| Reserves Category | | Crude Oil (MBBLs) | | | Natural Gas (MMCF) | | | Total Proved (BOE) (1) | |
| | | | | | | | | | |
| Proved Reserves | | | | | | | | | |
| Developed | | | 4,524,462 | | | | 18,888,400 | | | | 7,672,566 | |
| Developed Non-Producing | | | 959,240 | | | | 6,125,500 | | | | 1,980,157 | |
| Undeveloped | | | 2,512,363 | | | | 9,958,800 | | | | 4,172,167 | |
| | | | | | | | | | | | | |
| Total Proved Reserves | | | 7,996,065 | | | | 34,972,700 | | | | 13,824,890 | |
| | | | | | | | | | | | | |
| Estimated Future Net Cash Flows | | | | | | | | | | $ | 303,763,487 | |
| 10% annual discount for estimated timing of cash flows | | | | | | | | | | | (135,523,587 | ) |
| Standardized Measure of Discounted Future Net Cash Flows - (PV10) (2) | | | | | | | | | | $ | 168,239,900 | |
(1) - BOE (barrels of oil equivalent) is calculated by a ratio of 6 MCF to 1 BBL of Oil
(2) - PV-10 represents the discounted future net cash flows attributable to our proved oil and natural gas reserves discounted at 10%. PV-10 of our total year-end proved reserves is considered a non-US GAAP financial measure as defined by the SEC. We believe that the presentation of the PV-10 is relevant and useful to our investors because it presents the discounted future net cash flows attributable to our proved reserves. We further believe investors and creditors use our PV-10 as a basis for comparison of the relative size and value of our reserves to other companies.
Net Production, Unit Prices and Costs
The following table presents certain information with respect to oil and natural gas production attributable to our interests in all of our properties in the United States, the revenue derived from the sale of such production, average sales prices received and average production costs during the years ended December 31, 2020 and 2019.
| | | Unit of | | December 31, | |
| | | Measure | | 2020 | | | 2019 | |
| | | | | | | | | |
| Production | | | | | | | | |
| Oil | | Barrels | | | 624,456 | | | | 531,893 | |
| Natural Gas | | Mcf | | | 5,206,947 | | | | 2,366,280 | |
| BOE | | | | | 1,492,281 | | | | 926,273 | |
| | | | | | | | | | | |
| Sales | | | | | | | | | | |
| Oil | | Barrels | | $ | 24,070,203 | | | $ | 32,030,490 | |
| Natural Gas | | Mcf | | $ | 9,360,895 | | | $ | 6,019,879 | |
| | | | | | | | | | | |
| Average Sales Prices | | | | | | | | | | |
| Oil | | Barrels | | $ | 38,55 | | | $ | 60.22 | |
| Natural Gas | | Mcf | | $ | 1.80 | | | $ | 2.54 | |
| | | | | | | | | | | |
| Production - Lease operating expenses | | | | $ | 19,075,749 | | | $ | 12,203,777 | |
| | | | | | | | | | | |
| Average Cost of Production per BOE | | | | $ | 12.78 | | | $ | 13.18 | |
Drilling and other exploratory and development activities
During the year ended December 31, 2020 the Company did not drill any new wells. Rather, due to market conditions associated with the COVID-19 pandemic, geo-political factors and other matters, including the tropical storms that affected the Gulf Coast region from late August through to October, 2020, the Company focused primarily on preserving and maintaining existing assets to the extent possible. The Company proactively shut-in or lowered production rates certain wells when commodity prices dropped and in advance of certain tropical storms, resulting in lower than forecasted production volumes. Maintenance included, among other things, replacing tubing and resetting the production packer (i.e. the equipment that provides a seal between the outside of the production tubing and the inside of the casing, liner, or wellbore wall) and/or jet pump assembly in a few wells, and in one instance the Company perforated a new production zone in an existing well-bore.
Present Activities
The Company is not presently drilling any new wells.
Delivery Commitments
The Company is not currently committed to provide a fixed and determinable quantity of oil or gas in the near future under existing contracts or agreements.
Productive Wells
The following table sets forth the number wells in our inventory, in which we maintained ownership interests as of December 31, 2020 and 2019. All wells are located in the United States, in the States of Texas, Louisiana, Mississippi and Kansas.
| | | December 31, 2020 | | | December 31, 2019 | |
| Well Category | | Oil | | | Gas | | | Oil | | | Gas | |
| | | | | | | | | | | | | |
| Producers | | | 287 | | | | 73 | | | | 261 | | | | 38 | |
| Producer - P&A'd | | | 6 | | | | | | | | 6 | | | | - | |
| Non-Producing | | | 13 | | | | | | | | 13 | | | | - | |
| Injector | | | 89 | | | | | | | | 89 | | | | - | |
| Salt Water Disposal | | | 53 | | | | | | | | 36 | | | | - | |
| Shut In | | | 77 | | | | | | | | 46 | | | | - | |
| ORRI | | | 1 | | | | | | | | 1 | | | | - | |
| | | | | | | | | | | | | | | | | |
| | | | 526 | | | | 73 | | | | 452 | | | | 38 | |
Item 3. Legal Proceedings
From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of December 31, 2020, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the Company’s results of operations.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
There is no "established trading market" for shares of the Company's common stock. As of December 31, 2020, the Company's common stock was quoted on the OTC Link LLC alternative trading system operated by OTC Markets Group, Inc. under the symbol "VKIN." No assurance can be given that any "established trading market" for the Company's common stock will develop or be maintained.
The range of high and low closing bid quotations for the Company's common stock during each quarter of the calendar years ended December 31, 2020 and 2019 adjusted for the effect of the 1-for-9 reverse split, is shown below, as quoted by http://finance.yahoo.com. Prices are inter-dealer quotations, without retail mark-up, markdown or commissions and may not represent actual transactions.
Stock Quotations
| Quarter Ended | | High | | | Low | |
| March 31, 2019 | | | 2.61 | | | | 1.44 | |
| June 30, 2019 | | | 2.16 | | | | 1.26 | |
| September 30, 2019 | | | 2.16 | | | | 1.35 | |
| December 31, 2019 | | | 1.62 | | | | 0.63 | |
| March 31, 2020 | | | 2.43 | | | | 0.81 | |
| June 30, 2020 | | | 1.80 | | | | 0.72 | |
| September 30, 2020 | | | 1.62 | | | | 0.81 | |
| December 31, 2020 | | | 1.80 | | | | 0.81 | |
The future sale of the Company's presently outstanding "unregistered" and "restricted" common stock by present members of management and persons who own more than five percent of the Company's outstanding voting securities may have an adverse effect on any "established trading market" that may develop in the shares of the Company's common stock.
Holders
As of December 31, 2020, the Company had approximately 540 shareholders of record of common stock, including shares held in “street name” by banks, brokerage clearing houses, depositories or otherwise in unregistered form. The Company does not know the beneficial owners of such shares, or the number of beneficial holders of such shares.
Dividend Distributions
We have not historically distributed dividends to stockholders, nor do we intend to do so in the foreseeable future.
Securities authorized for issuance under equity compensation plans
The Company does not have any securities authorized for issuance under equity compensation plans.
Penny Stock
Our common stock is considered "penny stock" under the rules the Securities and Exchange Commission (the "SEC") under the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:
| - | contains a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading; |
| |
| - | contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities' laws; contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; |
| |
| - | contains a toll-free telephone number for inquiries on disciplinary actions; |
| |
| - | defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and |
| |
| - | contains such other information and is in such form, including language, type, size and format, as the Commission shall require by rule or regulation. |
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:
| - | bid and offer quotations for the penny stock; |
| |
| - | the compensation of the broker-dealer and its salesperson in the transaction; |
| |
| - | the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the marker for such stock; and |
| |
| - | monthly account statements showing the market value of each penny stock held in the customer's account. |
In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.
These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
Related Stockholder Matters
None.
Purchase of Equity Securities
None.
Recent Sales of Unregistered Securities
On October 1, 2020, the Company issued 9,921 shares of common stock of the Company to a consultant at a fair value of $10,000.
On October 27, 2020, the Company issued 23,333 shares of common stock of the Company to a consultant at a fair value of $35,700.
On November 1, 2020, the Company issued 6,693 shares of common stock of the Company to a consultant at a fair value of $10,000.
On December 2, 2020, the Company issued 7,937 shares of common stock of the Company to a consultant at a fair value of $10,000.
On November 23, 2020, the Company issued 23,333 shares of common stock of the Company to a consultant at a fair value of $31,500.
On October 15, 2020, October 19, 2020 and December 24, 2020, the Company issued 16,667, 25,000 and 16,667 shares of common stock of the Company respectively, as a debt discount at a total fair value of $68,743.
On December 30, 2020, the Company issued 63,889 shares of common stock of the Company to a consultant at a fair value of $74,808.
The issuances of these shares were made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended, and/or Rule 506(b) promulgated thereunder, as there was no general solicitation to the investors, and the transactions did not involve a public offering.
Item 6. Selected Financial Data
The Company, as a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act), is not required to furnish information required by this item.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
You should read the following discussion and analysis in conjunction with the consolidated financial statements and notes thereto appearing elsewhere in this annual report on Form 10-K.
In preparing the management's discussion and analysis, the registrant presumes that you have read or have access to the discussion and analysis for the preceding fiscal year.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document includes "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, as amended or the Reform Act. All statements other than statements of historical fact are "forward-looking statements" for purposes of federal and state securities laws, including, but not limited to, any projections of earning, revenue or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions of performance; and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the following: The Company's ability to raise capital and the terms thereof; and other factors referenced in the Form 10-K.
The use in this Form 10-K of such words as "believes", "plans", "anticipates", "expects", "intends", and similar expressions are intended to identify forward-looking statements, but are not the exclusive means of identifying such statements. These forward-looking statements present the Company's estimates and assumptions only as of the date of this report. Except for the Company's ongoing obligation to disclose material information as required by the federal securities laws, the Company does not intend, and undertakes no obligation, to update any forward-looking statements.
Although the Company believes that the expectations reflected in any of the forward-looking statements are reasonable, actual results could differ materially from those projected or assumed or any of the Company's forward-looking statements. The Company's future financial condition and results of operations, as well as any forward-looking statements, are subject to change and inherent risks and uncertainties.
PLAN OF OPERATIONS
Overview
The Company's business plan is to engage in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. Viking has relationships with industry experts and formulated an acquisition strategy, with emphasis on acquiring under-valued, producing properties from distressed vendors or those deemed as non-core assets by larger sector participants. The Company does not focus on speculative exploration programs, but rather targets properties with current production and untapped reserves. The Company’s growth strategy includes the following key initiatives:
| | · | Acquisition of under-valued producing oil and gas assets |
| | · | Employ enhanced recovery techniques to maximize production |
| | · | Implement responsible, lower-risk drilling programs on existing assets |
| | · | Aggressively pursue cost-efficiencies |
| | · | Opportunistically explore strategic mergers and/or acquisitions |
| | · | Actively hedge mitigating commodity risk |
The following overview provides a background for the current strategy being implemented by management during the years ended December 31, 2020 and 2019.
Acquisitions – Texas, Louisiana and Mississippi
On December 22, 2017, the Company completed an acquisition of 100% of the membership interests of Petrodome Energy, LLC, a privately-owned company, with working interests in multiple oil and gas fields across Texas, Louisiana and Mississippi, comprising approximately 11,700 acres.
As a part of this acquisition, the Company retained an operational office in Houston, Texas that includes several senior level professionals with over 100 years of combined oil and gas experience which provides the Company the capability of operating many of its own wells internally. This expertise has since been utilized to evaluate additional oil and gas acquisitions, evaluate the profitable management of all of the Company’s oil and gas assets, and evaluate and develop new drilling prospects.
Acquisitions – Texas and Louisiana
On December 28, 2018, the Company, through its newly formed Ichor Energy subsidiaries completed an acquisition (the “Ichor Energy Acquisition”) of working interests in certain oil and gas leases in Texas (primarily in Orange and Jefferson Counties) and Louisiana (primarily in Calcasiue Parish), which include 58 producing wells and 31 salt water disposal wells. The properties produce hydrocarbons from known reservoirs/sands in the on-shore Gulf Coast region, with an average well depth in excess of 10,600 feet, and daily production volumes averaging in excess of 2,300 BOE. This acquisition of these assets is consistent with the location of our Petrodome assets and are effectively managed from our Houston office.
On May 10, 2019, Petrodome Louisiana Pipeline LLC ("Petrodome LA"), a subsidiary of the Company’s subsidiary, Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres.
On October 10, 2019, the Company, through a newly formed subsidiary, Elysium Energy, LLC (“Elysium”), entered into a Purchase and Sale Agreement to purchase working interests and over-riding royalty interests in oil and gas properties in Texas (approximately 71 wells in 11 counties) and Louisiana (approximately 52 wells in 6 parishes), along with associated wells and equipment (the “Elysium Energy Acquisition”). As of December 31, 2019, the Company paid deposits of $2,750,000 into escrow in connection with this acquisition, which deposits were applied toward the purchase price at closing of the Elysium Energy Acquisition on or about February 3, 2020.
On February 3, 2020, Elysium, a wholly owned subsidiary of Elysium Energy Holdings, LLC (“Elysium Holdings”), which at the time was a partially owned subsidiary of the Company, acquired interests in oil and gas properties located in Texas and Louisiana, which included leases, working interests, and over-riding royalty interests in oil and gas properties in Texas (approximately 72 wells in 11 counties) and Louisiana (approximately 55 wells in 6 parishes), along with associated equipment. On February 4, 2020, Elysium hedged 75% of the estimated oil and gas production associated with the newly acquired assets for 2020, 60% of the estimated production for 2021 and 50% of the estimated production for the period between January, 2022 to July, 2022. Theses hedges have a floor of $45 and a ceiling ranging from $52.70 to $56.00 for oil, and a floor of $2.00 and a ceiling of $2.425 for natural gas. On December 23, 2020, the remaining membership interests in Elysium Holdings were assigned to the Company, and Elysium Holdings became a wholly owned subsidiary of the Company.
Going Concern Qualification
The Company’s consolidated financial statements included herein have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company generated a net loss of $63,988,245 for the year ended December 31, 2020 (the “2020 Loss”) as compared to a net loss of $19,390,850 for the year ended December 31, 2019. The 2020 Loss was comprised of, among other things, certain non-cash items, including: (i) Impairment of Oil & Gas Properties in the amount of $37,500,000 attributable in part to low commodity prices throughout 2020 due to the COVID-19 pandemic and certain geo-political factors; (ii) Stock Based Compensation of $5,625,302; (iii) Accretion of Asset Retirement Obligation of $1,111,266; (iv) Depreciation, Depletion & Amortization of $13,513,735; and (v) Change in Fair Value of Derivatives of ($5,485,573).
As of December 31, 2020, the Company has a stockholders’ deficit of $16,302,163 and total Long-term Debt of $111,753,164. On or about January 8, 2021, the equity position of the Company was improved by the extinguishment of Long-Term Debt and accrued expenses of approximately $18,900,000 through the issuance of common stock. (see Note1).
As of December 31, 2020, the Company has a working capital deficiency of approximately $35,000,000. The largest component of current liabilities creating this working capital deficiency is a term loan agreement with a face value of approximately $33.6 million as of December 31, 2020.
Management believes it will be able to continue to leverage the expertise and relationships of its operational and technical teams to enhance existing assets and identify new development and acquisition opportunities in order to improve the Company’s financial position. The Company may have the ability, if it can raise additional capital, to acquire new assets in a separate division from existing subsidiaries. Also, as a majority-owned subsidiary of Camber Energy, Inc. (“Camber”), the Company might be able to benefit from Camber’s national stock exchange platform to access additional capital sources.
None the less, recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had and may continue to have a negative impact on the Company’s financial position and results of operations. Negative impacts could include but are not limited to: The Company’s ability to sell our oil and gas production, reduction in the selling price of the Company’s oil and gas, failure of a counterparty to make required hedge payments, possible disruption of production as a result of worker illness or mandated production shutdowns, the Company’s ability to maintain compliance with loan covenants and/or refinance existing indebtedness, and access to new capital and financing.
These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to develop additional acquisition opportunities, and to obtain the necessary financing to meet its obligations and repay its liabilities arising from business operations when they come due. Management believes the Company will be able to continue to develop new opportunities and will be able to obtain additional funds through debt and / or equity financings to facilitate its development strategy; however, there is no assurance of additional funding being available. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.
RESULTS OF OPERATIONS
The following discussion of the consolidated financial condition and results of operation of the Company should be read in conjunction with the consolidated financial statements and the related Notes included elsewhere in this Report.
Liquidity and Capital Resources
| | | December 31, | |
| Working Capital: | | 2020 | | | 2019 | |
| | | | | | | |
| Current assets | | $ | 11,890,170 | | | $ | 8,671,832 | |
| Current liabilities | | $ | 46,878,584 | | | $ | 34,243,588 | |
| Asset retirement obligation | | $ | 6,164,231 | | | $ | 3,538,637 | |
| Working capital (deficit) | | $ | (34,988,414 | ) | | $ | (25,571,756 | ) |
| | | Years Ended December 31, | |
| Cash Flows: | | 2020 | | | 2019 | |
| | | | | | | |
| Net Cash Provided by (Used in) Operating Activities | | $ | 1,076,098 | | | $ | 4,027,639 | |
| Net Cash Provided by (Used in) Investing Activities | | $ | (1,861,006 | ) | | $ | (4,654,725 | ) |
| Net Cash Provided by (Used in) Financing Activities | | $ | 2,985,723 | | | $ | 2,255,918 | |
| Increase (Decrease) in Cash during the Period | | $ | 2,200,815 | | | $ | 1,628,832 | |
| Cash and Cash Equivalents, end of Period | | $ | 7,839,539 | | | $ | 5,638,724 | |
The Company had current assets of $11,890,170 as of December 31, 2020, as compared to $8,671,832 in the comparable period in 2019. The Company had current liabilities of $46,878,584 as of December 31, 2020, as compared to $34,243,588 in the comparable period in 2019. The Company had a working capital deficit of $34,988,414 as of December 31, 2020 as compared to a working capital deficit of $25,571,756 as of December 31, 2019.
Net cash provided by operating activities decreased to $2,951,541 during the fiscal year ended December 31, 2020, as compared to cash provided by operating activities of $4,027,639 in the comparable period in 2019.
Net cash flows from financing activities increased to $2,985,723 during the fiscal year ended December 31, 2020, as compared to $2,255,918 in the comparable period in 2019. This increase is mainly the result of the sale of stock associated with Camber’s acquisition of 51% of the Company on December 23, 2020 offset by repayments of long-term debt.
Net cash used in investing activities decreased to ($1,861,006) during the fiscal year ended December 31, 2020, as compared to ($4,654,725) in the comparable period in 2019. The decrease is a reflection of reduced capital expenditures during 2020.
Revenue
The Company had gross revenues of $40,266,780 for the year ended December 31, 20120 as compared to $34,592,850 for the year ended December 31, 2019 reflecting the impact of the acquisition of the assets acquired by Elysium at the beginning of 2020, offset by the economic impact to the oil and gas industry during the COVID-19 pandemic.
Expenses
The Company's operating expenses increased by $52,075,846 to $81,792,111 for the year ended December 31, 2020, from $29,716,265 for the year ended December 31, 2019. The operational side of this is increase is mainly attributable to increases in lease operating costs commensurate with the new oil and gas wells purchased, as well as a substantial increase in depletion expenses, accretion expense, depreciation and amortization expense. Additionally, the Company had a large impairment loss of $37,500,000, directly attributable to the economic impact of the pandemic in 2020.
Income (Loss) from Operations
The Company generated a loss from operations of $41,525,331 for the year ended December 31, 2020, as compared to an income from operations of $4,876,585 for the year ended December 31, 2019. This loss in income from operations was mainly due to the items explained above.
Off Balance Sheet Arrangements
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity or capital expenditures or capital resources that is material to an investor in the Company's securities.
Seasonality
The Company's operating results are not affected by seasonality.
Inflation
The Company's business and operating results are not currently affected in any material way by inflation although they could be adversely affected in the future were inflation to increase, resulting in cost increases.
Critical Accounting Policies
We prepare our financial statements in conformity with GAAP, which requires management to make certain estimates and assumptions and apply judgments. We base our estimates and judgments on historical experience, current trends and other factors that management believes to be important at the time the financial statements are prepared and actual results could differ from our estimates and such differences could be material. Due to the need to make estimates about the effect of matters that are inherently uncertain, materially different amounts could be reported under different conditions or using different assumptions. On a regular basis, we review our critical accounting policies and how they are applied in the preparation of our financial statements, as well as the sufficiency of the disclosures pertaining to our accounting policies in the footnotes accompanying our financial statements. Described below are the most significant policies we apply in preparing our consolidated financial statements, some of which are subject to alternative treatments under GAAP. We also describe the most significant estimates and assumptions we make in applying these policies. See “Note 2 - Summary of Significant Accounting Policies” to our consolidated financial statements.
Oil and Gas Property Accounting
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs of acquisition, exploration and development of oil and natural gas properties (including such costs as leasehold acquisition costs, geological expenditures, dry hole costs, tangible and intangible development costs and direct internal costs) are capitalized as the cost of oil and natural gas properties when incurred.
The full cost method requires the Company to calculate quarterly, by cost center, a "ceiling," or limitation on the amount of properties that can be capitalized on the balance sheet. To the extent capitalized costs of oil and natural gas properties, less accumulated depletion and related deferred taxes exceed the sum of the discounted future net revenues of proved oil and natural gas reserves, the lower of cost or estimated fair value of unproved properties subject to amortization, the cost of properties not being amortized, and the related tax amounts, such excess capitalized costs are charged to expense.
Proved Reserves
Estimates of our proved reserves included in this report are prepared in accordance with U.S. SEC guidelines for reporting corporate reserves and future net revenue. The accuracy of a reserve estimate is a function of:
| i. | the quality and quantity of available data; |
| ii. | the interpretation of that data; |
| iii. | the accuracy of various mandated economic assumptions; and |
| iv. | the judgment of the persons preparing the estimate. |
Our proved reserve information included in this report was predominately based on estimates. Because these estimates depend on many assumptions, all of which may substantially differ from future actual results, reserve estimates will be different from the quantities of oil and gas that are ultimately recovered. In addition, results of drilling, testing and production after the date of an estimate may justify material revisions to the estimate.
In accordance with SEC requirements, we based the estimated discounted future net cash flows from proved reserves on the unweighted arithmetic average of the prior 12-month commodity prices as of the first day of each of the months constituting the period and costs on the date of the estimate.
The estimates of proved reserves materially impact depreciation, depletion, amortization and accretion (“DD&A”) expense. If the estimates of proved reserves decline, the rate at which we record DD&A expense will increase, reducing future net income. Such a decline may result from lower market prices, which may make it uneconomic to drill for and produce from higher-cost fields.
Asset Retirement Obligation
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount we will incur to plug, abandon and remediate our producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. We determined our ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties. Periodic accretion of discount of the estimated liability is recorded as accretion expense in the accompanying consolidated statements of operations and comprehensive income.
ARO liability is determined using significant assumptions, including current estimates of plugging and abandonment costs, annual inflation of these costs, the productive lives of wells and a risk-adjusted interest rate. Changes in any of these assumptions can result in significant revisions to the estimated ARO.
Commodity derivatives
The Company does not designate its commodities derivative instruments as hedges and therefore does not apply hedge accounting. Changes in fair value of derivative instruments subsequent to the initial measurement are recorded as change in fair value on derivative liability, in other income (expense). The estimated fair value amounts of the Company’s commodity derivative instruments have been determined at discrete points in time based on relevant market information which resulted in the Company classifying such derivatives as Level 2. Although the Company’s commodity derivative instruments are valued using public indices, as well as the Black-Sholes model, the instruments themselves are traded with unrelated counterparties and are not openly traded on an exchange.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company, as a smaller reporting company (as defined by Rule 12b-2 of the Exchange Act), is not required to furnish information required by this item.
Item 8. Financial Statements and Supplementary Data
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Viking Energy Group, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Viking Energy Group, Inc. and its subsidiaries (the “Company”) as of December 31, 2020 and 2019 and the related consolidated statements of operations, stockholders’ equity and cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the results of its consolidated operations and its consolidated cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph – Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations since inception and has a working capital deficiency both of which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Proved Oil and Natural Gas Properties, Depletion, and Impairment
As described further in Note 2 to the financial statements, the Company uses the full cost method of accounting for oil and natural gas properties. This accounting method requires management to make estimates of proved oil and natural gas reserves and related future cash flows to compute and record depreciation, depletion and amortization expense, as well as to assess potential impairment of oil and natural gas properties (the full cost ceiling test). To estimate the volume of proved oil and natural gas reserves quantities, management makes significant estimates and assumptions including forecasting the production decline rate of producing properties. In addition, the estimation of proved oil and natural gas reserves is also impacted by management’s judgements and estimates regarding the financial performance of wells associated with those proved oil and natural gas reserves to determine if wells are expected to be economical under the appropriate pricing assumptions that are required in the estimation of depreciation, depletion and amortization expense and potential ceiling test impairment assessments. We identified the estimation of proved oil and natural gas reserves as it relates to the recognition of depreciation, depletion and amortization expense and the assessment of potential impairment as a critical audit matter.
The principal consideration for our determination that the estimation of proved oil and natural gas reserves is a critical audit matter is that there is significant judgement by management and use of specialist in developing the estimates of proved oil and natural gas reserves and a relatively minor change in certain inputs and assumptions that are necessary to estimate the volume and future cash flows of the Company’s proved oil and natural gas reserves could have a significant impact on the measurement of depreciation, depletion and amortization expense and/or impairment expense. In turn, auditing those inputs and assumptions required subjective and complex auditor judgement.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures to address management’s significant judgments and estimates associated with oil and natural gas reserve volumes and related future cash flows included the following, among others:
| | - | We evaluated the independence, objectivity, and professional qualifications of the Company’s independent petroleum engineer specialist and read the report prepared by the Company’s independent petroleum engineer specialist. |
| | | |
| | - | To the extent key, sensitive inputs and assumptions used to determine proved reserve volumes and other cash flow inputs and assumptions are derived from the Company’s accounting records, such as historical pricing differentials, operating costs, estimated capital costs and working and net revenue interests, we tested management’s process for determining the assumptions, including examining the underlying support, on a sample basis. Specifically, our audit procedures involved testing management’s assumptions as follows: |
| | | · | Compared the estimated pricing differentials used in the reserve report to realized prices related to revenue transactions recorded in the current year and examined contractual support for the pricing differentials; |
| | | | |
| | | · | Evaluated the models used to estimate the operating costs at year-end compared to historical operating costs; |
| | | | |
| | | · | Evaluating the Company’s evidence supporting the amount of proved undeveloped properties reflected in the reserve report including management’s intent to develop the proved undeveloped properties. |
| | | | |
| | | · | We tested the accuracy of the Company’s depletion calculations and impairment evaluation and measurement that included these proved reserve reports; |
| | | | |
| | | · | Evaluated the working and net revenue interests used in the reserve report by inspecting a sample of land and division order records; |
| | | | |
| | | · | Applied analytical procedures to the forecasted production in the reserve reports by comparing to historical actual results and to the prior year or preceding period reserve reports. |
Turner, Stone & Company, L.L.P.
Dallas, Texas
March 25, 2021
We have served as the Company’s auditor since 2016.
VIKING ENERGY GROUP, INC.
(A Majority-Owned Subsidiary of Camber Energy, Inc.)
Consolidated Balance Sheets
| | | December 31, | |
| | | 2020 | | | 2019 | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash | | $ | 3,976,783 | | | $ | 1,761,495 | |
| Restricted cash | | | 3,862,756 | | | | 3,877,229 | |
| Accounts receivable – oil and gas | | | 4,050,631 | | | | 2,864,114 | |
| Prepaid expenses | | | - | | | | 168,994 | |
| Total current assets | | | 11,890,170 | | | | 8,671,832 | |
| | | | | | | | | |
| Oil and gas properties, full cost method | | | | | | | | |
| Proved developed producing oil and gas properties, net | | | 64,703,753 | | | | 68,924,441 | |
| Proved undeveloped and non-producing oil and gas properties, net | | | 37,452,683 | | | | 50,817,675 | |
| Total Oil and gas properties, net | | | 102,156,436 | | | | 119,742,116 | |
| | | | | | | | | |
| Fixed assets, net | | | 433,168 | | | | 509,934 | |
| Derivative asset | | | 1,220,209 | | | | - | |
| Deposits | | | 57,896 | | | | 2,821,594 | |
| TOTAL ASSETS | | $ | 115,757,879 | | | $ | 131,745,476 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 4,475,519 | | | $ | 3,791,894 | |
| Accrued expenses and other current liabilities | | | 3,857,655 | | | | 3,229,594 | |
| Undistributed revenues and royalties | | | 4,115,462 | | | | 2,247,678 | |
| Derivative liability | | | 893,458 | | | | 5,158,822 | |
| Amount due to director | | | 559,122 | | | | 590,555 | |
| Current portion of long-term debt - net of debt discount | | | 32,977,368 | | | | 19,225,045 | |
| Total current liabilities | | | 46,878,584 | | | | 34,243,588 | |
| Long term debt – net of current portion and debt discount | | | 78,775,796 | | | | 84,988,117 | |
| Operating lease liability | | | 241,431 | | | | 308,279 | |
| Asset retirement obligation | | | 6,164,231 | | | | 3,538,637 | |
| TOTAL LIABILITIES | | | 132,060,042 | | | | 123,078,621 | |
| | | | | | | | | |
| Commitments and contingencies (Note 8) | | | - | | | | - | |
| | | | | | | | | |
| STOCKHOLDERS' EQUITY | | | | | | | | |
| Preferred stock, $0.001 par value, 5,000,000 shares authorized, 28,092 shares issued and outstanding as of December 31, 2020 and 2019 | | | 28 | | | | 28 | |
| Common stock, $0.001 par value, 500,000,000 shares authorized, 51,494,956 and 13,799,812 shares issued and outstanding as of December 31, 2020 and 2019, respectively | | | 51,495 | | | | 13,800 | |
| Additional Paid-In Capital | | | 75,920,811 | | | | 38,935,790 | |
| Retained deficit | | | (92,274,497 | ) | | | (30,282,763 | ) |
| TOTAL STOCKHOLDERS' EQUITY (DEFICIT) | | | (16,302,163 | ) | | | 8,666,855 | |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | | $ | 115,757,879 | | | $ | 131,745,476 | |
The accompanying notes are an integral part of these consolidated financial statements.
VIKING ENERGY GROUP, INC.
(A Majority Owned Subsidiary of Camber Energy, Inc.)
Consolidated Statements of Operations
| | | For the Years Ended December 31, | |
| | | 2020 | | | 2019 | |
| Revenue | | | | | | |
| Oil and gas sales | | $ | 40,266,780 | | | $ | 34,592,850 | |
| | | | | | | | | |
| Operating expenses | | | | | | | | |
| Lease operating costs | | | 19,075,749 | | | | 12,203,777 | |
| Impairment of oil and gas properties | | | 37,500,000 | | | | - | |
| General and administrative | | | 4,966,059 | | | | 5,233,027 | |
| Stock based compensation | | | 5,625,302 | | | | 951,533 | |
| Accretion – asset retirement obligations | | | 1,111,266 | | | | 391,482 | |
| Depreciation, depletion & amortization | | | 13,513,735 | | | | 10,936,446 | |
| Total operating expenses | | | 81,792,111 | | | | 29,716,265 | |
| | | | | | | | | |
| Income (Loss) from operations | | | (41,525,331 | ) | | | 4,876,585 | |
| | | | | | | | | |
| Other income (expenses) | | | | | | | | |
| Interest expense | | | (19,697,942 | ) | | | (12,988,695 | ) |
| Amortization of debt discount | | | (7,321,178 | ) | | | (7,975,244 | ) |
| Change in fair value of derivatives | | | 5,485,573 | | | | (3,308,880 | ) |
| Loss on debt settlement | | | (931,894 | ) | | | - | |
| Interest and other income | | | 2,527 | | | | 5,384 | |
| Total other income (expenses) | | | (22,462,914 | ) | | | (24,267,435 | ) |
| | | | | | | | | |
| Net loss before income taxes | | | (63,988,245 | ) | | | (19,390,850 | ) |
| Income tax benefit (expense) | | | - | | | | - | |
| Net loss | | | (63,988,245 | ) | | | (19,390,850 | ) |
| Net loss attributable to noncontrolling interest | | | 1,996,511 | | | | - | |
| Net loss attributable to Viking Energy Group, Inc. | | $ | (61,991,734 | ) | | $ | (19,390,850 | ) |
| | | | | | | | | |
| Loss per weighted average number of common shares outstanding – basic and diluted | | $ | (2.42 | ) | | $ | (1.81 | ) |
| Weighted average number of common shares outstanding – basic and diluted | | | 26,459,006 | | | | 10,708,865 | |
The accompanying notes are an integral part of these consolidated financial statements.
VIKING ENERGY GROUP, INC.
(A Majority Owned Subsidiary of Camber Energy, Inc.)
Consolidated Statements of Cash Flows
| | | For the Years Ended December 31, | |
| | | 2020 | | | 2019 | |
| Cash flows from operating activities: | | | | | | |
| Net loss | | $ | (63,988,245 | ) | | $ | (19,390,850 | ) |
| Adjustments to reconcile net loss to cash provided by operating activities: | | | | | | | | |
| Change in fair value of derivative liability | | | (5,485,573 | ) | | | 3,308,880 | |
| Stock-based compensation | | | 5,625,302 | | | | 951,533 | |
| Depreciation, depletion and amortization | | | 13,513,735 | | | | 10,936,446 | |
| Accretion - asset retirement obligation | | | 1,111,266 | | | | 391,482 | |
| Impairment of oil and gas properties | | | 37,500,000 | | | | - | |
| Amortization of right-of-use assets | | | 1,442 | | | | 3,766 | |
| Loss on financing settlement | | | 931,894 | | | | - | |
| Amortization of debt discount | | | 7,321,178 | | | | 7,975,244 | |
| Stock-based interest expense | | | 2,178,356 | | | | - | |
| Changes in operating assets and liabilities | | | | | | | | |
| Accounts receivable | | | (1,186,517 | ) | | | (2,517,727 | ) |
| Prepaid expenses and other assets | | | 182.692 | | | | (2,755,951 | ) |
| Accounts payable | | | 683,625 | | | | 1,247,148 | |
| Accrued expenses and other current liabilities | | | 1,617,298 | | | | 2,837,595 | |
| Undistributed revenues and royalties | | | 1,069,645 | | | | 1,040,073 | |
| Net cash provided by operating activities | | | 1,076,098 | | | | 4,027,639 | |
| | | | | | | | | |
| Cash flows from investing activities: | | | | | | | | |
| Investment in and acquisition of oil and gas properties | | | (1,935,328 | ) | | | (5,196,576 | ) |
| Acquisition of fixed assets | | | (59,900 | ) | | | (11,115 | ) |
| Proceeds from sale of oil and gas interests | | | 134,222 | | | | 552,966 | |
| Net cash used in investing activities | | | (1,861,006 | ) | | | (4,654,725 | ) |
| | | | | | | | | |
| Cash flows from financing activities: | | | | | | | | |
| Proceeds from long-term debt | | | 6,217,688 | | | | 10,258,123 | |
| Proceeds from long-term debt - parent | | | 5,600,000 | | | | - | |
| Repayment of long-term debt | | | (19,746,457 | ) | | | (9,131,911 | ) |
| Proceeds from sale of stock - parent | | | 10,900,000 | | | | - | |
| Proceeds from sale of stock | | | 7,925 | | | | - | |
| Short term advance | | | - | | | | 693,706 | |
| Proceeds from amount due to director | | | - | | | | 195,000 | |
| Repayment of amount due to director | | | (31,433 | ) | | | - | |
| Proceeds from exercise of warrants | | | 38,000 | | | | 241,000 | |
| Net cash provided by financing activities | | | 2,985,723 | | | | 2,255,918 | |
| | | | | | | | | |
| Net increase (decrease) in cash | | | 2,200,815 | | | | 1,628,832 | |
| Cash, beginning of year | | | 5,638,724 | | | | 4,009,892 | |
| Cash, end of year | | $ | 7,839,539 | | | $ | 5,638,724 | |
| | | | | | | | | |
| Supplemental Cash Flow Information: | | | | | | | | |
| | | | | | | | | |
| Cash paid for: | | | | | | | | |
| Interest | | $ | 15,995,430 | | | $ | 10,034,325 | |
| Income taxes | | $ | - | | | $ | - | |
| | | | | | | | | |
| Supplemental Disclosure of Non-Cash Investing and Financing Activities: | | | | | | | | |
| Recognition of asset retirement obligation | | $ | 1,514,328 | | | $ | 94,796 | |
| Recognition of right-of-use asset and lease liability | | $ | - | | | $ | 367,365 | |
| Amortization of right-of-use asset and lease liability | | $ | 66,848 | | | $ | 59,086 | |
| Purchase of transportation equipment through direct financing | | $ | - | | | $ | 56,760 | |
| Proceeds from sale of oil and gas properties paid directly to reduce debt | | $ | 250,000 | | | $ | 3,800,000 | |
| Elimination of asset retirement obligation associated with sale of assets | | $ | - | | | $ | 1,361,106 | |
| Issuance of shares as payment of interest on debt | | $ | 115,958 | | | $ | 620,508 | |
| Issuance of warrants for services | | $ | 2,466,531 | | | $ | 167,151 | |
| Warrants exercised to reduce debt | | $ | - | | | $ | 1,900,635 | |
| Issuance of warrants as discount on debt | | $ | 183,214 | | | $ | 3,129,012 | |
| Debt refinanced through new credit facility | | $ | - | | | $ | 3,310,000 | |
| Purchase price adjustment of short-term advance | | $ | - | | | $ | 693,706 | |
| Issuance of warrants shares as reduction of debt | | $ | 15,000 | | | $ | - | |
| Issuance of shares in debt conversion | | $ | 4,350,146 | | | $ | - | |
| Issuance of shares as discount on debt | | $ | 2,444,244 | | | $ | - | |
| Private placement debt exchanged for new private placement debt | | $ | 654,000 | | | $ | - | |
| Purchase of working interest through new debt | | $ | 29,496,356 | | | $ | - | |
| Purchase of working interest through assumption of undistributed revenue | | $ | 798,139 | | | $ | - | |
| Recognition of beneficial conversion feature as discount on debt | | $ | 2,029,188 | | | $ | - | |
| Accrued interest rolled into new private placement | | $ | 103,583 | | | $ | - | |
| Issuance of shares as reduction of debt and accrued expenses | | $ | 4,110,250 | | | $ | - | |
| Note payable – parent converted to sale of stock | | $ | 9,200,000 | | | $ | - | |
The accompanying notes are an integral part of these consolidated financial statements.
VIKING ENERGY GROUP, INC.
(A Majority Owned Subsidiary of Camber Energy, Inc.)
Consolidated Statements of Changes in Stockholders’ Equity
| | | Preferred Stock | | | Common Stock | | | | | | Retained | | | | | | | |
| | | Number | | | Amount | | | Number | | | Amount | | | Additional Paid-in Capital | | | Earnings (Accumulated Deficit) | | | Noncontrolling Interest | | | Total Stockholders' Equity | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2018 | | | 28,092 | | | $ | 28 | | | | 10,109,892 | | | $ | 10,110 | | | $ | 32,096,792 | | | $ | (10,891,913 | ) | | $ | - | | | $ | 21,215,017 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | | | | | | | | | 686,793 | | | | 687 | | | | 783,095 | | | | | | | | | | | | 783,782 | |
| Shares issued for interest | | | | | | | | | | | 405,561 | | | | 405 | | | | 620,103 | | | | | | | | | | | | 620,508 | |
| Warrants issued for services | | | | | | | | | | | | | | | | | | | 167,751 | | | | | | | | | | | | 167,751 | |
| Warrants issued as debt discouint | | | | | | | | | | | | | | | | | | | 3,129,012 | | | | | | | | | | | | 3,129,012 | |
| Warrants exercised through reduction of debt | | | | | | | | | | | 2,111,817 | | | | 2,112 | | | | 1,898,523 | | | | | | | | | | | | 1,900,635 | |
| Warrants exercised for cash | | | | | | | | | | | 267,778 | | | | 268 | | | | 240,732 | | | | | | | | | | | | 241,000 | |
| Shares issued in cashless exercise of warrants | | | | | | | | | | | 217,973 | | | | 218 | | | | (218 | ) | | | | | | | | | | | - | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | (19,390,850 | ) | | | | | | | (19,390,850 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2019 | | | 28,092 | | | $ | 28 | | | | 13,799,812 | | | $ | 13,800 | | | $ | 38,935,790 | | | $ | (30,282,763 | ) | | $ | - | | | $ | 8,666,855 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Shares issued for services | | | | | | | | | | | 2,462,818 | | | | 2,463 | | | | 3,156,308 | | | | | | | | | | | | 3,158,771 | |
| Warrant exercise | | | | | | | | | | | 47,042 | | | | 47 | | | | 37,953 | | | | | | | | | | | | 38,000 | |
| Warrants exercised to reduce debt | | | | | | | | | | | 16,667 | | | | 17 | | | | 14,983 | | | | | | | | | | | | 15,000 | |
| Warrants issued for services | | | | | | | | | | | - | | | | | | | | 2,466,531 | | | | | | | | | | | | 2,466,531 | |
| Warrants issued as debt discount | | | | | | | | | | | | | | | | | | | 183,214 | | | | | | | | | | | | 183,214 | |
| Shares issued as debt discouint | | | | | | | | | | | 2,320,101 | | | | 2,320 | | | | 2,441,924 | | | | | | | | | | | | 2,444,244 | |
| Shares issued for sale of stock | | | | | | | | | | | 26,285,517 | | | | 26,286 | | | | 20,081,639 | | | | | | | | | | | | 20,107,925 | |
| Shares issued for interest | | | | | | | | | | | 84,446 | | | | 84 | | | | 115,874 | | | | | | | | | | | | 115,958 | |
| Shares isued in conversion of debt | | | | | | | | | | | 3,572,870 | | | | 3,573 | | | | 4,346,573 | | | | | | | | | | | | 4,350,146 | |
| Beneficial conversion features as debt discount | | | | | | | | | | | | | | | | | | | 2,029,188 | | | | | | | | | | | | 2,029,188 | |
| Other | | | | | | | | | | | (15 | ) | | | (1 | ) | | | 1 | | | | | | | | | | | | | |
| Shares issued as reduction of debt and accrued expenses | | | | | | | | | | | 2,905,698 | | | | 2,906 | | | | 4,107,344 | | | | | | | | | | | | 4,110,250 | |
| NCI assigned back to Viking | | | | | | | | | | | | | | | | | | | (1,996,511 | ) | | | | | | | 1,996,511 | | | | - | |
| Net loss | | | | | | | | | | | | | | | | | | | | | | | (61,991,734 | ) | | | (1,996,511 | ) | | | (63,988,245 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balances at December 31, 2020 | | | 28,092 | | | $ | 28 | | | | 51,494,956 | | | $ | 51,495 | | | $ | 75,920,811 | | | $ | (92,274,497 | ) | | $ | - | | | $ | (16,302,163 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
VIKING ENERGY GROUP, INC.
Notes to Consolidated Financial Statements
Note 1 Relationship with and Ownership by Camber Energy, Inc.
In February 2020, the Company entered into a merger agreement with Camber Energy, Inc.(“Camber”); the agreement was subject to numerous conditions. On December 23, 2020 Camber acquired a 51% interest in Viking and this merger agreement was terminated. On January 8, 2021 Camber acquired an additional interest in the Company resulting in Camber owning approximately 62% of the outstanding common shares of the Company. As a result, since December 23, 2020 Viking has been a majority-owned subsidiary of Camber. The December 2020 and January 2021 transactions and a new merger agreement in February 2021 are described further below. References below to the Company’s various debt arrangements are described further in Note 7.
December 23, 2020 Transaction
On December 23, 2020, the Company entered into a Securities Purchase Agreement with Camber, pursuant to which Camber acquired (“Camber’s Acquisition”) 26,274,510 shares of Viking common stock (“Camber’s Viking Shares”), constituting 51% of the common stock of Viking, in consideration of (i) Camber’s payment of $10,900,000 to Viking (the “Cash Purchase Price”), and (ii) cancelation of $9,200,000 in promissory notes issued by Viking to Camber (“Camber’s Viking Notes”). Pursuant to the purchase agreement, Viking is obligated to issue additional shares of Viking common stock to Camber to ensure that Camber shall own at least 51% of the common stock of Viking through July 1, 2022.
In connection with Camber’s Acquisition, the Company and Camber terminated their previous merger agreement, dated August 31, 2020, as amended, and Camber assigned its membership interests in one of Viking’s subsidiaries, Elysium Energy Holdings, LLC, back to Viking. Also in connection with Camber’s Acquisition, effective December 23, 2020, Camber (i) borrowed $12,000,000 from an institutional investor; (ii) issued the investor a promissory note in the principal amount of $12,000,000, accruing interest at the rate of 10% per annum and maturing December 11, 2022 (the “Camber Investor Note”); (iii) granted the Investor a first-priority security interest in Camber’s Viking Shares and Camber’s other assets pursuant to a pledge agreement and a general security agreement, respectively; and (iv) entered into an amendment to Camber’s $6,000,000 promissory note previously issued to the investor dated December 11, 2020 (the “Additional Camber Investor Note”), amending the acceleration provision of the note to provide that the note repayment obligations would also not accelerate if Camber has increased its authorized capital stock by March 11, 2021 (and Camber increased its authorized capital stock in February of 2021 as required). In order to close Camber’s Acquisition, effective December 23, 2020, Viking entered into a Guaranty Agreement, guaranteeing repayment of the Camber Investor Note and the Additional Camber Investor Note.
On December 23, 2020, the Camber Investor Note was funded, and Viking and Camber closed Camber’s Acquisition, with Camber paying the Cash Purchase Price to Viking and cancelling Camber’s Viking Notes, and Viking issuing Camber’s Viking Shares. At the closing, James Doris and Frank Barker, Jr., Viking’s CEO and CFO, were appointed the CEO and CFO of Camber, and Mr. Doris was appointed a member of the Board of Directors of Camber.
Extinguishment of $18.9 million promissory note
On January 8, 2021, the Company entered into another purchase agreement with Camber pursuant to which Camber agreed to acquire an additional 16,153,846 shares of Company common stock (the “Shares”) in consideration of (i) Camber issuing 1,890 shares of Camber’s Series C Redeemable Convertible Preferred Stock to EMC Capital Partners, LLC (“EMC”), one of the Company’s lenders which held a secured promissory note issued by the Company to EMC in the original principal amount of $20,869,218 in connection with the purchase of oil and gas assets on or about February 3, 2020 (the “EMC Note”); and (ii) EMC considering the EMC Note paid in full and cancelled pursuant to the Cancellation Agreement described below.
Simultaneously, on January 8, 2021, the Company entered into a Cancellation Agreement with EMC (the “Cancellation Agreement”) pursuant to which the Company agreed to pay $325,000 to EMC, and EMC agreed to cancel and terminate in the EMC Note and all other liabilities, claims, amounts owing and other obligations under the Note. At the same time, Camber entered into a purchase agreement with EMC pursuant to which (i) Camber agreed to issue 1,890 shares of Camber’s Series C Redeemable Convertible Preferred Stock to EMC, and (ii) EMC agreed to enter into the Cancellation Agreement with the Company to cancel the EMC Note.
These January 8, 2021 transactions will be reflected in the Company’s financial statements for the quarter ending March 31, 2021.
February 2021 Merger Agreement with Camber
On February 15, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Camber. The Merger Agreement provides that, upon the terms and subject to the conditions set forth therein, a newly-formed wholly-owned subsidiary of Camber (“Merger Sub”) will merge with and into the Company (the “Merger”), with the Company surviving the Merger as a wholly-owned subsidiary of Camber.
Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), each share: (i) of common stock, par value $0.001 per share, of the Company (the “Viking Common Stock”) issued and outstanding immediately prior to the Effective Time, other than shares owned by Camber, the Company and Merger Sub, will be converted into the right to receive one share of common stock of Camber; and (ii) of Series C Convertible Preferred Stock of the Company (the “Viking Preferred Stock”) issued and outstanding immediately prior to the Effective Time will be converted into the right to receive one share of Series A Convertible Preferred Stock of Camber (the “Camber Series A Preferred Stock”). Each share of Camber Series A Preferred Stock will convert into 890 shares of common stock of Camber (subject to a beneficial ownership limitation preventing conversion into Camber common stock if the holder would be deemed to beneficially own more than 9.99% of Camber’s common stock), will be treated equally with Camber’s common stock with respect to dividends and liquidation, and will only have voting rights with respect to voting: (a) on a proposal to increase or reduce Camber’s share capital; (b) on a resolution to approve the terms of a buy-back agreement; (c) on a proposal to wind up Camber; (d) on a proposal for the disposal of all or substantially all of Camber’s property, business and undertaking; (f) during the winding-up of Camber; and/or (g) with respect to a proposed merger or consolidation in which Camber is a party or a subsidiary of Camber is a party. Holders of Viking Common Stock and Viking Preferred Stock will have any fractional shares of Camber common stock or preferred stock after the Merger rounded up to the nearest whole share.
At the Effective Time, each outstanding Company equity award, will be converted into the right to receive the merger consideration in respect of each share of Viking Common Stock underlying such equity award and, in the case of Company stock options, be converted into vested Camber stock options based on the merger exchange ratio calculated as provided above (the “Exchange Ratio”).
The Merger Agreement provides, among other things, that effective as of the Effective Time, James A. Doris, the current Chief Executive Officer of both the Company and Camber, shall serve as President and Chief Executive Officer of the Combined Company following the Effective Time. The Merger Agreement provides that, as of the Effective Time, the Combined Company will have its headquarters in Houston, Texas.
The Merger Agreement also provides that, during the period from the date of the Merger Agreement until the Effective Time, each of Camber and Company will be subject to certain restrictions on its ability to solicit alternative acquisition proposals from third parties, to provide non-public information to third parties and to engage in discussions with third parties regarding alternative acquisition proposals, subject to customary exceptions. Company is required to hold a meeting of its stockholders to vote upon the adoption of the Merger Agreement and, subject to certain exceptions, to recommend that its stockholders vote to adopt the Merger Agreement. Camber is required to hold a meeting of its stockholders to approve the issuance of Viking Common Stock and Viking Preferred Stock in connection with the Merger (the “Share Issuance”).
The completion of the Merger is subject to customary conditions, including (i) adoption of the Merger Agreement by Camber’s stockholders and approval of the Share Issuance by Camber’s stockholders, (ii) receipt of required regulatory approvals, (iii) effectiveness of a registration statement on Form S-4 for the Camber common stock to be issued in the Merger (the “Form S-4”), and (iv) the absence of any law, order, injunction, decree or other legal restraint preventing the completion of the Merger or making the completion of the Merger illegal. Each party’s obligation to complete the Merger is also subject to certain additional customary conditions, including (i) subject to certain exceptions, the accuracy of the representations and warranties of the other party, (ii) subject to certain exceptions, performance by the other party of its obligations under the Merger Agreement and (iii) the absence of any material adverse effect on the other party, as defined in the Merger Agreement.
Additional closing conditions to the Merger include that in the event the NYSE American determines that the Merger constitutes, or will constitute, a “back-door listing”/“reverse merger”, Camber (and its common stock) is required to qualify for initial listing on the NYSE American, pursuant to the applicable guidance and requirements of the NYSE as of the Effective Time.
The Merger Agreement can be terminated (i) at any time with the mutual consent of the parties; (ii) by either Camber or Company if any governmental consent or approval required for closing is not obtained, or any governmental entity issues a final non-appealable order or similar decree preventing the Merger; (iii) by either Company or Camber if the Merger shall not have been consummated on or before August 1, 2021; (iv) by Camber or Company, upon the breach by the other of a term of the Merger, which is not cured within 30 days of the date of written notice thereof by the other; (v) by Camber if Company is unable to obtain the affirmative vote of its stockholders for approval of the Merger; (vi) by Company if Camber is unable to obtain the affirmative vote of its stockholders required pursuant to the terms of the Merger Agreement; and (vii) by Company or Camber if there is a willful breach of the Merger Agreement by the other party thereto.
The Merger Agreement contains customary indemnification obligations of the parties and representations and warranties.
Note 2 Nature of Business and Going Concern
Viking Energy Group, Inc. (“Viking” or the “Company”) is engaged in the acquisition, exploration, development and production of oil and natural gas properties, both individually and through collaborative partnerships with other companies in this field of endeavor. Since the beginning of 2019, the Company has had the following related activities:
| | · | On May 1, 2019, the Company’s subsidiary, Mid-Con Development, LLC sold all of its interests in the oil and gas assets Mid-Con Development, LLC owned in Ellis and Rooks Counties, Kansas, consisting of working interests in approximately 41 oil leases comprising several thousand acres. |
| | | |
| | · | On May 10, 2019, Petrodome Louisiana Pipeline LLC ("Petrodome LA"), a subsidiary of the Company’s subsidiary, Petrodome Energy, LLC, acquired a majority working interest in 6 gas wells (including 2 producing gas wells), 1 producing oil well and 1 salt water disposal well located in the East Mud Lake Field in Cameron Parish, Louisiana, with leases to mineral rights (oil and gas) concerning approximately 765 acres. |
| | | |
| | · | On February 3, 2020, Elysium Energy, LLC (“Elysium”), a wholly-owned subsidiary of Viking’s subsidiary, Elysium Energy Holdings, LLC (“Elysium Holdings”) (which was majority-owned by Viking at the time), acquired interests in certain oil and gas properties located in Texas and Louisiana. The assets purchased included leases, working interests, and over-riding royalty interests in oil and gas properties in Texas (approximately 72 wells) and Louisiana (approximately 55 wells), along with associated equipment. On February 4, 2020, Elysium hedged 75% of the estimated oil and gas production associated with the newly acquired assets for 2020, 60% of the estimated production for 2021 and 50% of the estimated production for the period between January 2022 to July 2022. Theses hedges have a floor of $45 and a ceiling ranging from $52.70 to $56 for oil, and a floor of $2 and a ceiling of $2.425 for natural gas. |
The Company’s consolidated financial statements included herein have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company generated a net loss of $63,988,245 for the year ended December 31, 2020 (the “2020 Loss”) as compared to a net loss of $19,390,850 for the year ended December 31, 2019. The 2020 Loss was comprised of, among other things, certain non-cash items, including: (i) Impairment of Oil & Gas Properties in the amount of $37,500,000 attributable in part to low commodity prices throughout 2020 due to the COVID-19 pandemic and certain geo-political factors; (ii) Stock Based Compensation of $5,625,302; (iii) Accretion of Asset Retirement Obligation of $1,111,266; (iv) Depreciation, Depletion & Amortization of $13,513,735; and (v) Change in Fair Value of Derivatives of ($5,485,573).
As of December 31, 2020, the Company has a stockholders’ deficit of $16,302,163 and total Long-Term Debt of $111,753,164. On or about January 8, 2021, the equity position of the Company was improved by the extinguishment of Long-Term Debt and accrued expenses of approximately $18,900,000 through the issuance of common stock (see Note 1).
As of December 31, 2020, the Company has a working capital deficiency of approximately $35,000,000. The largest component of current liabilities creating this working capital deficiency is a term loan agreement with a face value of approximately $33.6 million as of December 31, 2020.
Management believes it will be able to continue to leverage the expertise and relationships of its operational and technical teams to enhance existing assets and identify new development and acquisition opportunities in order to improve the Company’s financial position. The Company may have the ability, if it can raise additional capital, to acquire new assets in a separate division from existing subsidiaries. Also, as a majority-owned subsidiary of Camber Energy, Inc. (“Camber”), the Company might be able to benefit from Camber’s national stock exchange platform to access additional capital sources.
None the less, recent oil and gas price volatility as a result of geopolitical conditions and the global COVID-19 pandemic have already had and may continue to have a negative impact on the Company’s financial position and results of operations. Negative impacts could include but are not limited to: The Company’s ability to sell our oil and gas production, reduction in the selling price of the Company’s oil and gas, failure of a counterparty to make required hedge payments, possible disruption of production as a result of worker illness or mandated production shutdowns, the Company’s ability to maintain compliance with loan covenants and/or refinance existing indebtedness, and access to new capital and financing.
These conditions raise substantial doubt regarding the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to utilize the resources in place to generate future profitable operations, to develop additional acquisition opportunities, and to obtain the necessary financing to meet its obligations and repay its liabilities arising from business operations when they come due. Management believes the Company will be able to continue to develop new opportunities and will be able to obtain additional funds through debt and / or equity financings to facilitate its development strategy; however, there is no assurance of additional funding being available. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.
Note 3 Summary of Significant Accounting Policies
a) Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") for consolidated financial information and with the instructions to Form 10-K as promulgated by the Securities and Exchange Commission (the "SEC"). Accordingly, these consolidated financial statements include all of the disclosures required by generally accepted accounting principles for complete consolidated financial statements.
b) Basis of Consolidation
The financial statements presented herein reflect the consolidated financial results of the Company, its wholly owned subsidiaries, Mid-Con Petroleum, LLC, Mid-Con Drilling, LLC, and Mid-Con Development, LLC, which were all formed to provide a base of operations for properties in the Central United States, and Petrodome Energy, LLC, Ichor Holdings, LLC, Ichor Energy, LLC, Ichor Energy (TX), LLC, and Ichor Energy (LA), LLC., Elysium Energy Holdings, LLC, and its wholly owned subsidiaries, Elysium Energy, LLC, Elysium Energy TX, LLC, Elysium Energy LA, LLC, Pointe A La Hache, L.L.C., Potash, L.L.C., Ramos Field, L.L.C., and Turtle Bayou, L.L.C., all based in Houston, Texas which provides a base of operations to facilitate property acquisitions in Texas, Louisiana and Mississippi. All significant intercompany transactions and balances have been eliminated.
c) Use of Estimates in the Preparation of Financial Statements
The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts and timing of revenues and expenses, the reported amounts and classification of assets and liabilities, and disclosure of contingent assets and liabilities. Significant areas requiring the use of management estimates relate to impairment of long-lived assets, fair value of commodity derivatives, stock-based compensation, asset retirement obligations, and the determination of expected tax rates for future income tax recoveries.
The estimates of proved, probable and possible oil and gas reserves are used as significant inputs in determining the depletion of oil and gas properties and the impairment of proved and unproved oil and gas properties. There are numerous uncertainties inherent in the estimation of quantities of proved, probable and possible reserves and in the projection of future rates of production and the timing of development expenditures. Similarly, evaluations for impairment of proved and unproved oil and gas properties are subject to numerous uncertainties including, among others, estimates of future recoverable reserves and commodity price outlooks. Actual results could differ from the estimates and assumptions utilized.
d) Financial Instruments
Accounting Standards Codification, “ASC” Topic 820-10, “Fair Value Measurement” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 820-10, defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measurement. The carrying amounts reported in the consolidated balance sheets for deposits, accrued expenses and other current liabilities, accounts payable, derivative liabilities, amount due to director, and convertible notes each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
| | • | Level 1: inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| | • | Level 2: inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| | • | Level 3: inputs to the valuation methodology are unobservable and significant to the fair value measurement. |
Assets and liabilities measured at fair value as of and for the year ended December 31, 2020 are classified below based on the three fair value hierarchy described above:
| Description | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total Gains (Losses) | |
| | | | | | | | | | | | | |
| Financial Assets | | | | | | | | | | | | |
| Commodity Derivative | | | - | | | | 1,220,209 | | | | - | | | | 6,227,390 | |
| | | $ | - | | | $ | 1,220,209 | | | $ | - | | | $ | 6,227,390 | |
| | | | | | | | | | | | | | | | | |
| Financial liabilities | | | | | | | | | | | | | | | | |
| Commodity Derivative | | | - | | | | 893,458 | | | | - | | | | (741,818 | ) |
| | | $ | - | | | $ | 893,458 | | | $ | - | | | $ | (741,818 | ) |
Assets and liabilities measured at fair value as of and for the year ended December 31, 2019 are classified below based on the three fair value hierarchy described above:
| Description | | Quoted Prices in Active Markets for Identical Assets (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | | | Total Gains (Losses) | |
| | | | | | | | | | | | | |
| Financial Assets | | | | | | | | | | | | |
| Commodity Derivative | | | - | | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
| Financial liabilities | | | | | | | | | | | | | | | | |
| Commodity Derivative | | | | | | | 5,158,822 | | | | - | | | | (3,308,880 | ) |
| | | $ | - | | | $ | 5,158,822 | | | $ | - | | | $ | (3,308,880 | ) |
The Company has entered into certain commodity derivative instruments containing swaps and collars, which management believes are effective in mitigating commodity price risk associated with a portion of its future monthly natural gas and crude oil production and related cash flows. The Company does not designate its commodities derivative instruments as hedges and therefore does not apply hedge accounting. Changes in fair value of derivative instruments subsequent to the initial measurement are recorded as change in fair value on derivative liability, in other income (expense). The estimated fair value amounts of the Company’s commodity derivative instruments have been determined at discrete points in time based on relevant market information which resulted in the Company classifying such derivatives as Level 2. Although the Company’s commodity derivative instruments are valued using public indices, as well as the Black-Sholes model, the instruments themselves are traded with unrelated counterparties and are not openly traded on an exchange.
In a commodities swap agreement, the Company trades the fluctuating market prices of oil or natural gas at specific delivery points over a specified period, for fixed prices. As a producer of oil and natural gas, the Company holds these commodity derivatives to protect the operating revenues and cash flows related to a portion of its future natural gas and crude oil sales from the risk of significant declines in commodity prices, which helps reduce exposure to price risk and improves the likelihood of funding its capital budget. If the price of a commodity rises above what the Company has agreed to receive in the swap agreement, the amount that it agreed to pay the counterparty is expected to be offset by the increased amount it received for its production.
The Company has also entered into collar agreements related to oil and gas production with established floors and ceilings. Upon settlement, if the current market price of the commodity is below the floor, the Company receives the difference. Conversely, if the current market price of the commodity is above the ceiling at settlement, the Company pays the excess over the ceiling price.
Although the Company is exposed to credit risk to the extent of nonperformance by the counterparties to these derivative contracts, the Company does not anticipate such nonperformance and monitors the credit worthiness of its counterparties on an ongoing basis.
The derivative assets were $1,220,209 and $0 as of December 31, 2020 and December 31, 2019 respectively, and the derivative liabilities were $893,458 and 5,158,822 as of December 31, 2020 and December 31, 2019 respectively. The change in the fair value of the derivative assets and liabilities for the year ended December 31, 2020 consisted of an increase of $6,379,031 associated with commodity derivatives existing at the beginning of 2020 and a decrease of $893,458 associated with the new commodity derivative related to Elysium’s acquisition on February 3, 2020.
The table below is a summary of the Company’s commodity derivatives as of December 31, 2020:
| Natural Gas | | Period | | Average MMBTU per Month | | | Fixed Price per MMBTU | |
| | | | | | | | | |
| Swap | | Dec-18 to Dec-22 | | | 118,936 | | | $ | 2.715 | |
| Collar | | Mar 20 / Aug 22 | | | 196,078 | | | $2.00 / $2.43 | |
| | | | | | | | | | | |
| Crude Oil | | Period | | Average BBL per Month | | | Price per BBL | |
| | | | | | | | | | | |
| Swap | | Dec-18 to Dec- 22 | | | 24,600 | | | $ | 50.85 | |
| Collar | | Feb 20 to Dec 20 | | | 16,278 | | | $45.00 / $54.20 | |
| Collar | | Jan 21 to Dec 21 | | | 10,135 | | | $45.00 / $56.00 | |
| Collar | | Jan 22 to July 22 | | | 6,934 | | | $45.00 / $52.70 | |
e) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks and highly liquid investment securities that have original maturities of three months or less. At December 31, 2020 and December 31, 2019, the Company has cash deposits in excess of FDIC insured limits in the amounts of $3,726,783 and $4,163,360 respectively.
Restricted cash in the amount of $3,862,756 as of December 31, 2020 consists of $2,243,485 held by Ichor Energy, LLC and/or its subsidiaries and $1,619,271 held by Elysium Energy, LLC and/or its subsidiaries.
Pursuant to the Term Loan Credit Agreement to which Ichor Energy LLC and its subsidiaries are parties, following March 31, 2019 the company is required at all times to maintain a minimum cash balance of $2,000,000 (the “MLR”). Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, the company is required to pay the lenders, as an additional principal payment on the debt, any cash in excess of (i) the MLR and (ii) any funds necessary for the capital expenditures contemplated to be expended in the next six-month period by an approved plan of development (“APOD Capex Amount”). At December 31, 2020, the restricted cash did not exceed the MLR and the APOD Capex Amount.
Pursuant to the Term Loan Credit Agreement to which Elysium Energy, LLC and its subsidiaries are parties, all receipts are to be deposited to a lockbox account under the control of the administrative agent, and then subsequently transferred for operations to the company’s bank accounts, all of which are subject to deposit account control agreements. The aggregate amount of unencumbered cash held in any Operating Account is not to be less than (a) $1,000,000 for the period commencing on December 31, 2020 through and including April 29, 2020, (b) $1,750,000 for the period commencing on April 30, 2021 through and including June 29, 2021, and (c) $2,500,000 for the period commencing June 30, 2021 through and including the Maturity Date. Commencing with the quarter ended September 30, 2020, the company is required to make mandatory prepayments of principal equal to 75% of Excess Cash Flow as defined in the agreement.
f) Accounts receivable
Accounts receivable consist of oil and gas receivables. The Company evaluates these accounts receivable for collectability and, when necessary, records allowances for expected unrecoverable amounts. The Company has recorded an allowance for doubtful accounts of $217,057 at December 31, 2020 and December 31, 2019.
g) Oil and Gas Properties
The Company uses the full cost method of accounting for its investment in oil and natural gas properties. Under this method of accounting, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized. General and administrative costs related to production and general overhead are expensed as incurred.
All capitalized costs of oil and gas properties, including the estimated future costs to develop proved reserves, are amortized on the unit of production method using estimates of proved reserves. Disposition of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in operations. Unproved properties and major development projects are not amortized until proved reserves associated with the projects can be determined or until impairment occurs. If the results of an assessment indicate that the properties are impaired, the amount of the impairment is included in loss from operations before income taxes.
h) Limitation on Capitalized Costs
Under the full-cost method of accounting, we are required, at the end of each reporting date, to perform a test to determine the limit on the book value of our oil and natural gas properties (the “Ceiling” test). If the capitalized costs of our oil and natural gas properties, net of accumulated amortization and related deferred income taxes, exceed the Ceiling, this excess or impairment is charged to expense. The expense may not be reversed in future periods, even though higher oil and natural gas prices may subsequently increase the Ceiling. The Ceiling is defined as the sum of:
(a) the present value, discounted at 10 percent, and assuming continuation of existing economic conditions, of 1) estimated future gross revenues from proved reserves, which is computed using oil and natural gas prices determined as the unweighted arithmetic average of the first-day-of-the-month price for each month within the 12-month hedging arrangements pursuant to SAB 103, less 2) estimated future expenditures (based on current costs) to be incurred in developing and producing the proved reserves, plus
(b) the cost of properties not being amortized; plus
(c) the lower of cost or estimated fair value of unproven properties included in the costs being amortized, net of
(d) the related tax effects related to the difference between the book and tax basis of our oil and natural gas properties.
i) Oil and Gas Reserves
Reserve engineering is a subjective process that is dependent upon the quality of available data and the interpretation thereof, including evaluations and extrapolations of well flow rates and reservoir pressure. Estimates by different engineers often vary sometimes significantly. In addition, physical factors such as the results of drilling, testing and production subsequent to the date of an estimate, as well as economic factors such as changes in product prices, may justify revision of such estimates. Because proved reserves are required to be estimated using recent prices of the evaluation, estimated reserve quantities can be significantly impacted by changes in product prices.
j) Income (loss) per Share
Basic net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding during the period. Diluted net income (loss) per share is computed by dividing the net income (loss) by the weighted-average number of common shares outstanding and adjusted by any effects of warrants and options outstanding during the period. At December 31, 2020 and 2019 there were 17,646,154 and 9,394,993 common stock equivalents that were anti-dilutive, respectively.
k) Revenue Recognition
Sales of crude oil, natural gas, and natural gas liquids (NGLs) are included in revenue when production is sold to a customer in fulfillment of performance obligations under the terms of agreed contracts. Performance obligations primarily comprise delivery of oil, gas, or NGLs at a delivery point, as negotiated within each contract. Each barrel of oil, million BTU (MMBtu) of natural gas, or other unit of measure is separately identifiable and represents a distinct performance obligation to which the transaction price is allocated. Performance obligations are satisfied at a point in time once control of the product has been transferred to the customer. The Company considers a variety of facts and circumstances in assessing the point of control transfer, including but not limited to: whether the purchaser can direct the use of the hydrocarbons, the transfer of significant risks and rewards, the Company’s right to payment, and transfer of legal title. In each case, the time between delivery and when payments are due is not significant.
The following table disaggregates the Company’s revenue by source for the years ended December 31, 2020 and 2019:
| | | Years Ended | |
| | | December 31, | |
| | | 2020 | | | 2019 | |
| | | | | | | |
| Oil | | $ | 24,070,203 | | | $ | 32,030,490 | |
| Natural gas and natural gas liquids | | | 9,360,895 | | | | 6,019,879 | |
| Settlements on Hedge Contracts | | | 6,009,454 | | | | (3,757,339 | ) |
| Other income | | | 826,228 | | | | 299,820 | |
| | | | | | | | | |
| | | $ | 40,266,780 | | | $ | 34,592,850 | |
l) Income Taxes
The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the consolidated financial statements. Under this method, the Company determines deferred tax assets and liabilities on the basis of the differences between the consolidated financial statements and the tax basis of assets and liabilities by using estimated tax rates for the year in which the differences are expected to reverse.
The Company recognizes deferred tax assets and liabilities to the extent that we believe that these assets and/or liabilities are more likely than not to be realized. In making such a determination, we consider all available positive and negative evidence, including future reversals of existing taxable temporary differences, projected future taxable income, tax planning strategies, and results of recent operations. If we determine that the Company would be able to realize our deferred tax assets in the future in excess of their net recorded amount, we would make an adjustment to the deferred tax asset valuation allowance, which would reduce the provision for income taxes.
In assessing the realizability of its deferred tax assets, management evaluated whether it is more likely than not that some portion, or all of its deferred tax assets, will be realized. The realization of its deferred tax assets relates directly to the Company’s ability to generate taxable income. The valuation allowance is then adjusted accordingly.
m) Stock-Based Compensation
The Company may issue stock options to employees and stock options or warrants to non-employees in non-capital raising transactions for services and for financing costs. The cost of stock options and warrants issued to employees and non-employees is measured on the grant date based on the fair value. The fair value is determined using the Black-Scholes option pricing model. The resulting amount is charged to expense on the straight-line basis over the period in which the Company expects to receive the benefit, which is generally the vesting period.
The fair value of stock options and warrants is determined at the date of grant using the Black-Scholes option pricing model. The Black-Scholes option model requires management to make various estimates and assumptions, including expected term, expected volatility, risk-free rate, and dividend yield. The expected term represents the period of time that stock-based compensation awards granted are expected to be outstanding and is estimated based on considerations including the vesting period, contractual term and anticipated employee exercise patterns. Expected volatility is based on the historical volatility of the Company’s stock. The risk-free rate is based on the U.S. Treasury yield curve in relation to the contractual life of stock-based compensation instrument. The dividend yield assumption is based on historical patterns and future expectations for the Company dividends.
The following table represents stock warrant activity as of and for the year ended December 31, 2020:
| | | Number
of Shares | | | Weighted
Average
Exercise
Price | | | Weighted
Average
Remaining
Contractual Life | | | Aggregate
Intrinsic
Value | |
| Warrants Outstanding – December 31, 2019 | | | 4,958,882 | | | | 2.34 | | | 5.6 years | | | | - | |
| Granted | | | 4,452,527 | | | | 0.48 | | | 7.9 years | | | | - | |
| Exercised | | | (78,166 | ) | | | - | | | | - | | | | - | |
| Forfeited/expired/cancelled | | | (2,222,222 | ) | | | | | | | - | | | | - | |
| | | | | | | | | | | | | | | | | |
| Warrants Outstanding – December 31, 2020 | | | 7,111,021 | | | $ | 0.99 | | | 5.7 years | | | $ | - | |
| | | | | | | | | | | | | | | | | |
| Outstanding Exercisable – December 31, 2020 | | | 7,111,021 | | | $ | 0.99 | | | 5.7 years | | | $ | - | |
The Company issued 63,709 common shares from the exercise of 78,166 warrants during the year ended December 31, 2020.
n) Impairment of long-lived assets
The Company is required to review its long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable through the estimated undiscounted cash flows expected to result from the use and eventual disposition of the assets. Whenever any such impairment exists, an impairment loss will be recognized for the amount by which the carrying value exceeds the fair value.
Assets are grouped and evaluated at the lowest level for their identifiable cash flows that are largely independent of the cash flows of other groups of assets. The Company considers historical performance and future estimated results in its evaluation of potential impairment and then compares the carrying amount of the asset to the future estimated cash flows expected to result from the use of the asset. If the carrying amount of the asset exceeds estimated expected undiscounted future cash flows, the Company measures the amount of impairment by comparing the carrying amount of the asset to its fair value. The estimation of fair value is generally determined by using the asset's expected future discounted cash flows or market value. The Company estimates fair value of the assets based on certain assumptions such as budgets, internal projections, and other available information as considered necessary. There is no impairment of long-lived assets during the years ended December 31, 2020 and 2019.
o) Accounting for Asset Retirement Obligations
Asset retirement obligations (“ARO”) primarily represent the estimated present value of the amount the Company will incur to plug, abandon and remediate its producing properties at the projected end of their productive lives, in accordance with applicable federal, state and local laws. The Company determined its ARO by calculating the present value of estimated cash flows related to the obligation. The retirement obligation is recorded as a liability at its estimated present value as of the obligation’s inception, with an offsetting increase to proved properties.
The following table describes the changes in the Company’s asset retirement obligations for the year ended December 31, 2020:
| | | Year ended December 31, 2020 | | | Year ended December 31, 2019 | |
| | | | | | | |
| Asset retirement obligation – beginning | | $ | 3,538,637 | | | $ | 4,413,465 | |
| Oil and gas purchases | | | 1,514,328 | | | | 94,796 | |
| Adjustments through disposals and settlements | | | - | | | | (1,361,106 | ) |
| Accretion expense | | | 1,111,266 | | | | 391,482 | |
| | | | | | | | | |
| Asset retirement obligation – ending | | $ | 6,164,231 | | | $ | 3,538,637 | |
p) Undistributed Revenues and Royalties
The Company records a liability for cash collected from oil and gas sales that have not been distributed. The amounts get distributed in accordance with the working interests of the respective owners.
q) Subsequent events
The Company has evaluated all subsequent events from December 31, 2020 through the date of filing of this report.
Note 4. Oil and Gas Properties
As discussed in Note 2, on February 3, 2020, the Company, through its subsidiary Elysium Energy, LLC (“Elysium”) completed an acquisition of working interests in certain oil and gas leases in Texas and Louisiana. The aggregate consideration transferred for the working interests of $29,496,356 substantially consisted of (i) the net proceeds from the Company’s borrowings on February 3, 2020 with various lenders represented by 405 Woodbine, LLC and Camber Energy, Inc., less (ii) the net effect of the resolution of February 3, 2020 on all amounts outstanding under the Company’s December 2018 promissory note with RPM Investments in exchange for a new note with EMC Capital Partners, LLC (including the pay-down of such new note as a result of the post-closing adjustments). See Note 7 to the consolidated financial statements for further information on all of these borrowings. The aggregate consideration has been allocated to the fair value of assets and liabilities as follows:
| Fair Value of Assets and Liabilities | | | |
| | | | |
| Oil and Gas Properties | | $ | 31,808,823 | |
| Asset retirement obligations assumed | | | (1,514,328 | ) |
| Undistributed revenue obligation assumed | | | (798,139 | ) |
| | | | | |
| | | $ | 29,496,356 | |
The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the year ended December 31, 2020:
| | | December 31, 2019 | | | Adjustments | | | Impairments | | | December 31, 2020 | |
| | | | | | | | | | | | | |
| Proved developed producing oil and gas properties | | | | | | | | | | | | |
| United States cost center | | $ | 76,532,985 | | | $ | 27,319,089 | | | $ | (22,500,000 | ) | | $ | 81,352,074 | |
| Accumulated depreciation, depletion and amortization | | | (7,608,544 | ) | | | (9,039,777 | ) | | | - | | | | (16,648,321 | ) |
| Proved developed producing oil and gas properties, net | | $ | 68,924,441 | | | $ | 18,279,312 | | | $ | (22,500,000 | ) | | $ | 64,703,753 | |
| | | | | | | | | | | | | | | | | |
| Undeveloped and non-producing oil and gas properties | | | | | | | | | | | | | | | | |
| United States cost center | | $ | 56,168,428 | | | $ | 6,040,841 | | | $ | (15,000,000 | ) | | $ | 47,209,269 | |
| Accumulated depreciation, depletion and amortization | | | (5,350,753 | ) | | | (4,405,833 | ) | | | - | | | | (9,756,586 | ) |
| Undeveloped and non-producing oil and gas properties, net | | $ | 50,817,675 | | | $ | 1,635,008 | | | $ | (15,000,000 | ) | | $ | 37,452,683 | |
| | | | | | | | | | | | | | | | | |
| Total Oil and Gas Properties, Net | | $ | 119,742,116 | | | $ | 19,914,320 | | | $ | (37,500,000 | ) | | $ | 102,156,436 | |
Primarily as a result of the COVID-19 pandemic and falling oil prices during the year ended December 31, 2020, the Company recognized an impairment of oil and gas properties of $37,500,000 which is included in the accompanying Consolidated Statement of Operations.
The following table summarizes the Company’s oil and gas activities by classification and geographical cost center for the year ended December 31, 2019:
| | | December 31, 2018 | | | Adjustments | | | Impairments | | | December 31, 2019 | |
| | | | | | | | | | | | | |
| Proved developed producing oil and gas properties | | | | | | | | | | | | |
| United States cost center | | $ | 81,936,721 | | | $ | (5,403,736 | ) | | $ | - | | | $ | 76,532,985 | |
| Accumulated depreciation, depletion and amortization | | | (604,735 | ) | | | (7,003,809 | ) | | | - | | | | (7,608,544 | ) |
| Proved developed producing oil and gas properties, net | | $ | 81,331,986 | | | $ | (12,407,545 | ) | | $ | - | | | $ | 68,924,441 | |
| | | | | | | | | | | | | | | | | |
| Undeveloped and non-producing oil and gas properties | | | | | | | | | | | | | | | | |
| United States cost center | | $ | 51,973,719 | | | $ | 4,194,709 | | | $ | - | | | $ | 56,168,428 | |
| Accumulated depreciation, depletion and amortization | | | (1,480,813 | ) | | | (3,869,940 | ) | | | - | | | | (5,350,753 | ) |
| Undeveloped and non-producing oil and gas properties, net | | $ | 50,492,906 | | | $ | 324,769 | | | $ | - | | | $ | 50,817,675 | |
| | | | | | | | | | | | | | | | | |
| Total Oil and Gas Properties, Net | | $ | 131,824,892 | | | $ | (12,082,776 | ) | | $ | - | | | $ | 119,742,116 | |
Note 5. Related Party Transactions
The Company’s CEO and director, James Doris, has incurred expenses on behalf of, and made advances to, the Company in order to provide the Company with funds to carry on its operations. Additionally, Mr. Doris has made several loans through promissory notes to the Company, all accruing interest at 12%, and payable on demand. On December 21, 2020, the Company modified the exercise price of 1,666,667 previously issued common stock warrants from $0.30 to $0.001 per share. As of December 31, 2020, the total amount due to Mr. Doris for these loans is $559,122.
The Company’s CFO, Frank W. Barker, Jr., renders professional services to the Company through FWB Consulting, Inc., an affiliate of Mr. Barker’s for $20,000 per month. As of December 31, 2020, the total amount due to FWB Consulting, Inc. is $221,968 and is included in accounts payable. On December 21, 2020, the Company modified the exercise price of 555,556 previously issued common stock warrants from $0.25 to $0.001 per share. On December 31, 2020, the Company granted 1,333,333 common stock warrants to Mr. Barker with an exercise price of $0.001 per share. Additionally, the Company rented on a short-term basis, residential property from Mr. Barker during 2020 for $30,000 to facilitate corporate operations.
On December 31, 2020, the Company granted 44,444 common stock warrants with an exercise price of $0.001 per share to Lawrence Fisher, a member of the Board of Directors.
On December 31, 2020, the Company granted 66,667 common stock warrants with an exercise price of $0.001 per share to David Herskovits, a member of the Board of Directors.
During the year ended December 31, 2020, Troy Caruso and various entities affiliated with Mr. Caruso owned in aggregate more than 10% of the Company’s outstanding common stock. As of December 31, 2020, the ownership percentage has decreased below 10%. Mr. Caruso and his affiliates have provided funding under certain of the Company’s private placements, and consulting services. During the three months ended June 30, 2020, the Company repaid all short-term borrowings due to Mr. Caruso and certain of his affiliated entities which were advanced between September 30, 2019 and February 7, 2020, which included the issuance of 1,994,952 common shares at a fair value of $2,748,504. During the three months ended September 30, 2020, one of these affiliated entities was issued 286,099 common shares for services at a fair value of $321,657. Also, during the three months ended September 30. 2020, certain of these affiliated entities made two loans to the Company in the form of convertible promissory notes totaling $2,089,000. The Company issued 123,167 common shares upon execution of one of the notes and 1,897,948 common shares upon exercising the conversion privileges of both. As of December 31, 2020, Mr. Caruso and affiliated entities hold $650,000 of the Company’s convertible debt offering which commenced on February 18, 2020 and is included in long term debt.
Also see Note 1, with respect to transactions with Camber Energy, Inc.
Note 6. Equity
(a) Preferred Stock
The Company is authorized to issue 5,000,000 shares of Preferred Stock, par value $0.001 per share (the “Preferred Stock”), of which 50,000 have been designated as Series C Preferred Stock (the “Series C Preferred Stock”). Pursuant to the amended Certification of Designation of the Series C Preferred Stock filed on December 22, 2020, each share of Series C Preferred Stock entitles the holder thereof to 37,500 votes on all matters submitted to the vote of the stockholders of the Company. Notwithstanding, so long as Camber Energy, Inc. owns or is entitled to own at least 51% of the outstanding shares of Common Stock of the Company and James Doris remains a director and Chief Executive Officer of Camber, each share of Preferred Stock shall not be entitled to any votes on matters submitted to a vote of the stockholders of the Company. Each share of Series C Preferred Stock is convertible, at the option of the holder, at any time after the date of issuance of such share, at the office of the Company or any transfer agent for such stock, into 37,500 shares of fully paid and non-assessable common stock. However, upon any business combination or merger between Camber and Viking such that Camber acquires substantially all of the outstanding Common Stock or substantially all of Viking’s assets, the Company shall ensure that the Preferred Stock is convertible into the greater of: (i) 25,000,000 common shares of Camber (or a number of preferred shares of Camber convertible into such number of common shares of Camber); or (ii) that number of common shares of Camber that 25,000,000 shares of Common Stock would be convertible or exchange into in the Combination (or a number of preferred shares of Camber convertible into such number of common shares of Camber).
(b) Common Stock
On January 5, 2021 the Company filed a Certificate of Amendment with the Secretary of State of the State of Nevada to effect a reverse split of our common stock at a ratio of 1-for-9 (the “Reverse Stock Split”). As a result of the Reverse Stock Split, each nine (9) pre-split shares of common stock outstanding were automatically combined into one (1) new share of common stock. Unless otherwise stated, all share and per shares numbers in this Annual Report on Form 10-K have been adjusted to reflect the Reverse Stock Split.
During the year ended December 31, 2020, the Company issued shares of its common stock as follows:
| | · | 2,462,818 shares of common stock issued for services valued at fair value on the date of the transactions, totaling $3,158,771. |
| | · | 63,709 shares of common stock pursuant to the exercise of 78,111 warrants. |
| | · | 2,320,101 shares of common stock issued as discount on debt valued at fair value on the date of the transaction totaling $2,444,244. |
| | · | 26,285,517 shares of common stock issued pursuant to subscription agreements for $20,107,925 |
| | · | 84,446 shares of common stock issued for interest at fair value on the date of the transaction totaling $115,959. |
| | · | 3,572,870 shares of common stock issued pursuant to debt conversions at stipulated contract rates totaling $4,350,146. |
| | · | 2,905,698 shares of common stock issued as reduction of debt and accrued expenses, valued at fair value on the date of the transaction totaling $4,110,250, and resulting in a loss on financing settlements of $931,894. |
During the year ended December 31, 2019, the Company issued shares of its common stock as follows:
| | · | 686,793 shares of common stock issued for services valued at fair value on the date of the transaction totaling $783,782. |
| | · | 405,561 shares of common stock issued to satisfy accrued interest valued at fair market value at the date of the transaction totaling $620,508. |
| | · | 2,111,817 shares of common stock issued pursuant a warrant exercise for the reduction of debt in the amount of $1,900,635. |
| | · | 267,778 shares of common stock issued pursuant to the exercise of warrants in the amount of $241,000. |
| | · | 217,973 shares of common stock issued pursuant to cashless exercise of warrants. |
(c) Noncontrolling Interest
As described in Note 7 to the consolidated financial statements, on February 3, 2020 and June 26, 2020, Viking borrowed $5.0 million and $4.2 million respectively from Camber Energy, Inc. As additional consideration for each loan, Viking assigned Camber 25% and 5% (respectively) of the membership interests in Elysium Energy Holdings, LLC. At the time of assignments, the fair value of each such interest was zero.
The following schedule discloses the effects of changes in the Company’s ownership interest in its subsidiaries on the Company’s equity for the year ended December 31, 2020:
| Noncontrolling interest - December 31, 2019 | | $ | - | |
| | | | | |
| Transfers to the noncontrolling interest | | | | |
| Recognition of noncontrolling interest at fair value | | | - | |
| | | | | |
| Net loss attributable to noncontrolling interest | | | 1,996,511 | |
| | | | | |
| Change from net income attibutable to Viking Energy Group, Inc and transfers to from noncontrolling interest | | $ | 1,996,511 | |
As discussed in Note 1, as of December 31, 2020, the noncontrolling interest was assigned back to the Company.
Note 7. Long-Term Debt and Other Short-Term Borrowings
Long term debt and other short-term borrowings consisted of the following at December 31, 2020 and 2019:
| | | December 31, 2020 | | | December 31, 2019 | |
| | | | | | | |
| Long-term debt: | | | | | | |
| | | | | | | |
| During June through December of 2018, the Company borrowed $9,459,750 from private lenders, and exchanged $5,514,000 of amounts due lenders from prior borrowings as well as $191,250 in accrued interest, pursuant to a 10% Secured Promissory Note with 50% of the principal convertible into the Company’s common stock at $0.20 per share, all principal and accrued interest payable on the maturity date of December 31, 2020 (“the 2018 Convertible Notes”). The notes are secured by the Company’s membership interests in its subsidiaries, Petrodome Energy, LLC, Mid-Con Petroleum, LLC, Mid-Con Drilling, LLC, and Mid-Con Development, LLC. The balance shown is net of unamortized discount of $0 at December 31, 2020 and $2,086,008 at December 31, 2019. A majority of these lenders are also Viking shareholders. | | | - | | | | 11,163,357 | |
| | | | | | | | | |
| On June 13, 2018, the Company borrowed $12,400,000 pursuant to a revolving line of credit facility with a maximum principal amount of $30,000,000 from Crossfirst Bank, bearing interest 1.5% above a base rate equal to the prime rate of interest published by the Wall Street Journal. Principal is payable at $100,000 monthly through the maturity date of January 5, 2022, at which time all remaining unpaid principal and accrued interest is due. The loan is secured by a mortgage on all of the oil and gas leases of Petrodome Energy, LLC and its subsidiaries, a security agreement covering all of Petrodome Energy, LLC’s assets and a guaranty by Viking Energy Group, Inc. The balance shown is net of unamortized discount of $0 at December 31, 2020 and $34,411 at December 31, 2019 | | | 6,490,000 | | | | 7,655,589 | |
| | | | | | | | | |
| On December 28, 2018, to facilitate the acquisition of certain oil and gas assets, the Company, through its subsidiary, Ichor Energy LLC, entered into a Term Loan Credit Agreement with various lenders represented by ABC Funding, LLC as administrative agent. The agreement provided for a total loan amount of $63,592,000, bearing interest at a rate per annum equal to the greater of (i) a floating rate of interest equal to 10% plus LIBOR, and (ii) a fixed rate of interest equal to 12%, payable monthly on the last day of each calendar month, commencing January 31, 2019. Principal payments are made quarterly at 1.25% of the initial loan amount, commencing on the last business day of the fiscal quarter ending June 30, 2019. On June 3, 2020, the Term Loan Credit Agreement was amended to reduce the permitted Asset Coverage Ratio for the fiscal quarters ending March 31, 2020, June 30, 2020 and September 30, 2020 from 1.35:1.00 to 1.15:1.00. Additionally, the First Amendment revises the interest rate under the Term Loan for the period from May 16, 2020 a per annum interest rate (i) if, as of the last day of the immediately preceding fiscal quarter, the Asset Coverage Ratio is less than 1.50:1.00, then the interest rate is the greater of (x) a floating rate of interest equal to 11.00% plus LIBOR, and (y) a fixed rate of interest equal to 13.00%, or (ii) if, as of the last day of the immediately preceding fiscal quarter, the Asset Coverage Ratio is greater than or equal to 1.50:1.00, then the interest rate is the greater of (x) a floating rate of interest equal to 10.50% plus LIBOR and (y) a fixed rate of interest equal to 12.50%. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the Term Loan, approximately $12,000,000 of oil and gas development projects approved by the lender, and distributions to the Company of $65,000 per month for general and administrative expenses, and a quarterly tax distribution at the current statutory rates. Within 30 days of the end of each quarter, commencing with the quarter ended June 30, 2019, Ichor Energy, LLC is required to pay, as an additional principal payment on the debt, any cash in excess of the MLR and the APOD Capex Amount. To the extent not previously paid, all loans under the Loan Agreement shall be due and payable on the December 28, 2023 (the Maturity Date). The loan agreement contains prepayment penalties through December 28, 2021 and “make-whole” obligations through December 28, 2020. In addition, at maturity (or sooner under certain circumstances which include prepayment of the loan or sale of Ichor Energy, LLC) the lenders will receive a payment approximating 7% of the fair value of Ichor Energy, LLC at that time; such amount is not estimable. Obligations under the loan agreement are secured by mortgages on the oil and gas leases of Ichor Energy, LLC and all of its subsidiaries, a security agreement covering all assets of Ichor Energy, LLC, and a pledge by Ichor Holdings of all if the membership interests in Ichor Energy LLC. The balance shown is net of unamortized discount of $2,626,915 at December 31, 2020 and $3,507,364 at December 31, 2019. | | | 51,400,794 | | | | 53,699,940 | |
| On December 28, 2018, the Company issued a 10% secured promissory note in the amount of $23,777,948, payable to RPM Investments, secured by 100% of the membership interests of Ichor Energy Holdings, LLC. All accrued interest and unpaid principal were due on the earlier of (i) the date the Company or one of its affiliates completes an acquisition with one or more of the sellers for a purchase price equal to or greater than $50,000,000 or (ii) January 31, 2020. This note was secured by a pledge of all of the membership interests of Viking’s wholly-owned subsidiary, Ichor Energy Holdings, LLC. On February 3, 2020 in connection with an acquisition of oil and gas interests this note (including all unpaid accrued interest of $2,625,346) was settled and replaced with a new note. | | | - | | | | 23,777,948 | |
| | | | | | | | | |
| On February14, 2019, the Company executed a promissory note payable to CrossFirst Bank in the amount of $56,760 for the purchase of transportation equipment, bearing interest at 7.15%, payable in 60 installments of $1,130, secured by a vehicle, with a maturity date of February 14, 2024. | | | 38,397 | | | | 48,658 | |
| | | | | | | | | |
| On July 24, 2019, the Company through its wholly owned subsidiary, Mid-Con Petroleum, LLC, executed a promissory note payable to Cornerstone Bank in the amount of $2,241,758, bearing interest at 6%, payable interest only for the first year, then payable in 59 installments of $43,438, with a final payment due on a maturity date of July 24, 2025. The note is secured by a first mortgage on all of the assets of Mid-Con Petroleum, LLC and a guarantee of payment by Viking Energy Group, Inc. The balance shown is net of unamortized discount of $21,758 at December 31, 2020 and $26,538 at December 31, 2019. | | | 2,220,001 | | | | 2,215,221 | |
| | | | | | | | | |
| On July 24, 2019, the Company through its wholly owned subsidiary, Mid-Con Drilling, LLC, executed a promissory note payable to Cornerstone Bank in the amount of $1,109,341, bearing interest at 6%, payable interest only for the first year, then payable in 59 installments of $21,495, with a final payment due on a maturity date of July 24, 2025. The note is secured by a first mortgage on all of the assets of Mid-Con Drilling, LLC and a guarantee of payment by Viking Energy Group, Inc. The balance shown is net of unamortized discount of $21,697 at December 31, 2020 and $26,464 at December 31, 2019. | | | 1,036,982 | | | | 1,032,215 | |
| | | | | | | | | |
| On February 3, 2020, in connection with an acquisition of oil and gas interests, the Company executed a secured promissory note in the amount of $20,869,218, payable to EMC Capital Partners, LLC, subject to revision to the extent of any post-closing adjustment payments in connection with the acquisition. Such payments were to be applied to reduce the balance owing under the promissory note. During April 2020 the Company received post-closing adjustment payments in the amount of $5,277,589 which were applied to the note balance. This note replaced the secured promissory dated December 18, 2018 in favor of RPM Investments. This note bears interest at 10% and is payable along with the full amount of principal on June 11, 2021 and is secured by a pledge of all of the membership interests of Viking’s wholly-owned subsidiary, Ichor Energy Holdings, LLC. On January 8, 2021, as discussed in Note 1, this debt was extinguished by the issuance of equity and is therefore classified as noncurrent on the consolidated balance sheet at December 31, 2020. | | | 15,591,629 | | | | - | |
| On February 3, 2020, to facilitate the acquisition of certain oil and gas assets, the Company, through one of its subsidiaries, Elysium Energy, LLC, entered into a Term Loan Credit Agreement with various lenders represented by 405 Woodbine, LLC as administrative agent. The agreement provides for a total loan amount of $35,000,000 at a 4.0% original issue discount. bearing interest at the prime rate plus seven and three quarters percent (7.75%) payable monthly. Principal payments are due beginning on May 1, 2020, and on each month thereafter at one percent (1%) of the then-outstanding balance, and to the extent not paid on the maturity date of August 3, 2022. Cash generated from the operation of these assets is restricted to lease operating expenses, the payment of debt service on the Term Loan, oil and gas development projects approved by the lender, and a cost allocation of $150,000 per month for general and administrative expenses of the Company. The Borrower shall have the right at any time to prepay all or a portion of the Loan Balance. The loan agreement contains a prepayment penalty of 5% of any voluntary prepayment of principal through February 3, 2021 and 3% of any voluntary prepayment of principal on or between February 3, 2021 and February 3, 2022. Commencing with the quarter ended September 30, 2020 the Borrower is required to make mandatory prepayments of principal equal to 75% of Excess Cash Flow as defined in the agreement without any prepayment penalty fees. The loans are secured by mortgages on the oil and gas leases of Elysium Energy, LLC and its subsidiaries, a security agreement covering all assets of Elysium and its subsidiaries, and a pledge of all of Elysium’s membership interests. The balance shown is net of unamortized discount of $3,148,106 at December 31, 2020. | | | 30,493,630 | | | - | |
| | | | | | | | |
| On or about February 18, 2020, the Company commenced an offering of securities consisting of a subordinated, secured, convertible debt instrument with equity features. The notes bear interest at 12%, payable quarterly, contain a conversion entitlement to convert all or a portion of the amount outstanding into common shares of the Company at $1.35 per share, and provide for the issuance of 16,667 common shares of the Company for every $100,000 exchanged or advanced. As security, the holders received, pari passu with all other holders, a pledge of the Company’s membership interest in Elysium Energy Holdings, LLC, and, as soon as the Company’s obligations to EMC Capital Partners, LLC are satisfied, a pledge of the Company’s membership interest in Ichor Energy Holdings, LLC. Any unpaid principal and interest is due on the maturity date of February 11, 2022. The balance shown is net of unamortized discount of $1,504,868 as of December 31, 2020. | | | 4,182,136 | | | | - | |
| | | | | | | | | |
| On April 18, 2020, the Company entered into an unsecured promissory note with Crossfirst Bank in the principal amount of $149,600 related to the CARES Act Payroll Protection Program. This note is fully guaranteed by the Small Business Administration and may be forgivable provided that certain criteria are met. The interest rate on the loan is 1%, and the note has a two-year maturity. The Company is required to make payments on the remaining principal of the note net of any loan forgiveness beginning February 18, 2021. | | | 149,600 | | | | | |
| | | | | | | | | |
| On July 1, 2020 the Company received a loan of $150,000 from the U.S. Small Business Administration. The loan bears interest at 3.75%, and is payable in monthly installments of at $731 monthly beginning 12 months from the date of the note, with the remaining principal and accrued interest due 30 years from the date of the note. | | | 150,000 | | | | | |
| | | | | | | | | |
| | | | 111,753,164 | | | | 99,592,928 | |
| Other short-term borrowings – with related parties: | | | | | | |
| | | | | | | |
| On September 30, 2019, the Company received $910,000 under an agreement that requires the Company to make 28 weekly payments aggregating $1,237,600 through April 13, 2020. On December 23, 2019, the Company received an additional $242,750 under a replacement agreement that requires the Company to make 25 weekly payments aggregating $1,620,000 through June 15, 2020. The balance shown is net of the maximum discount of $413,445 at December 31, 2019. | | | - | | | | 1,141,755 | |
| | | | | | | | | |
| On October 3, 2019, the Company received $480,200 under an agreement that requires the Company to make 28 weekly payments aggregating $666,400 through April 20, 2020. The balance shown is net of the maximum discount of $132,289 at December 31, 2019. | | | - | | | | 423,111 | |
| | | | | | | | | |
| On December 23, 2019, the Company received $2,939,970 under an agreement that requires the Company to make 25 weekly payments aggregating $4,050,000 through June 15, 2020. The balance shown is net of the maximum discount of $1,110,030 at December 31, 2019. | | | - | | | | 2,855,368 | |
| | | | | | | | | |
| Other short-term borrowings: | | | | | | | | |
| | | | | | | | | |
| On November 26, 2019, the Company received $200,000 from an individual. The advance was non-interest bearing and payable on demand. | | | - | | | | 200,000 | |
| | | | | | | | | |
| Total long-term debt and other short-term borrowings | | | 111,753,164 | | | | 104,213,162 | |
| Less current portion | | | (32,977,368 | ) | | | (19,225,045 | ) |
| | | $ | 78,775,796 | | | $ | 84,988,117 | |
Principal maturities of long-term debt for the next five years and thereafter are as follows:
| Twelve-month period ended December 31, | | | | | | | | | |
| | | Principal | | | Unamortized Discount | | | Net | |
| 2021 | | $ | 38,307,719 | | | $ | 5,330,351 | | | $ | 32,977,368 | |
| 2022 | | | 30,270,710 | | | | 1,098,738 | | | | 29,171,972 | |
| 2023 | | | 48,894,410 | | | | 879,388 | | | | 48,015,022 | |
| 2024 | | | 716,890 | | | | 9,529 | | | | 707,361 | |
| 2025 | | | 708,643 | | | | 5,339 | | | | 703,304 | |
| Thereafter | | | 178,137 | | | | - | | | | 178,137 | |
| | | | | | | | | | | | | |
| | | $ | 119,076,509 | | | $ | 7,323,345 | | | $ | 111,753,164 | |
Loan Covenants
Pursuant to the terms of the Revolving Line of Credit Facility executed on June 13, 2018 with CrossFirst Bank for a maximum principal amount of $30,000,000, the Company is required to provide on a quarterly basis, certain information to the Bank relative to operational performance of the Borrowers, to include internally prepared consolidated financial statements, hedge reports, and a compliance certificate. At December 31, 2020, the Company is in compliance with these loan covenants.
Pursuant to the terms of the Term Loan Credit Agreement executed on December 28, 2018 with various lenders in the initial amount of $63,592,000 (and as amended in June 2020), the Company is required to provide, periodically to the lenders, certain information (including restrictive financial ratios) regarding the financial and operational performance of the related assets, accompanied by a compliance certificate. At December 31, 2020, the Company is in compliance with these loan covenants.
Pursuant to the terms of the Term Loan Credit Agreement executed on February 3, 2020 with various lenders in the initial amount of $36,458,333, the Company is required to periodically provide the lenders certain information (including restrictive financial ratios) regarding the financial and operational performance of the related assets, accompanied by a compliance certificate. The Company was in compliance with all loan covenants except certain mid-year financial ratios at June 30, 2020; in August 2020, the Company (i) obtained a waiver from the lenders of such noncompliance as of June 30, 2020 and (ii) modified and added certain covenants to the Term Loan Credit Agreement. The Company is in compliance with all applicable covenants in the agreement at December 31, 2020. Given current difficult and volatile economic conditions, the Company has continued to classify this debt as a current liability in the accompanying Consolidated Balance Sheet at December 31, 2020 as the Company is uncertain as to its ability to comply with all of the covenants in the future.
Note 8. Commitments and contingencies
Office lease
In April 2018, the Company’s subsidiary, Petrodome Energy, LLC entered into a 66-month lease for 4,147 square feet of office space for the Company’s corporate office in Houston, Texas. The annual base rent commenced at $22.00 per square foot, and escalates at $0.50 per foot each year through expiration of the lease term. Operating lease expense is recognized on a straight-line basis over the lease term. Operating lease expense was $116,573 and $96,304 for the years ended December 31, 2020 and 2019.
Legal matters
From time to time the Company may be a party to litigation involving commercial claims against the Company. Management believes that the ultimate resolution of these matters will not have a material effect on the Company’s financial position or results of operations.
In April of 2019, the staff (the “Staff”) of the SEC’s Division of Enforcement notified the Company that the Staff had made a preliminary determination to recommend that the SEC file an enforcement action against the Company, as well as against its CEO and its CFO, for alleged violations of Section 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder during the period from early 2014 through late 2016. The Staff’s notice is not a formal allegation or a finding of wrongdoing by the Company, and the Company has communicated with the Staff regarding its preliminary determination. The Company believes it has adequate defenses and intends to vigorously defend any enforcement action that may be initiated by the SEC.
Note 9. Income Taxes
The Company has estimated net operating loss carry forwards of approximately $44,200,000 and $27,800,000 as of December 31, 2020 and 2019, respectively. The potential benefit of these net operating losses has not been recognized in these financial statements because the Company cannot be assured it is more likely than not that it will utilize the net operating losses carried forward in future years. T In December 2017, tax legislation was enacted limiting the deduction for net operating losses from taxable years beginning after December 31, 2017 to 80% of current year taxable income, eliminating net operating loss carrybacks for losses arising in taxable years ending after December 31, 2017, and allowing net operating losses to be carried forward indefinitely. On March 27, 2020 the Coronavirus Aid Relief, and Economic Security Act was enacted which modified the prior legislation to allow 100% of the net operating losses arising in tax years 2018, 2019, and 2020 to be carried back five years. The Company does not have taxable income available in the carryback period. Net operating losses originating in taxable years beginning prior to January 1, 2018 are still subject to former carryover rules. The net operating loss carryforwards generated prior to this date of approximately $11,000,000 will expire between 2021 through 2038.
The current and deferred income tax expense (benefit) consists of the following for the years ending December 31, 2020 and 2019:
| | | December 31, 2020 | | | December 31, 2019 | |
| | | | | | | |
| Current | | | | | | |
| Federal | | $ | (3,430,038 | ) | | $ | (3,174,242 | ) |
| State | | | | | | | - | |
| Total current tax expense (benefit) | | | (3,430,038 | ) | | | (3,174,242 | ) |
| | | | | | | | | |
| Deferred tax timing differences | | | | | | | | |
| Federal | | | (10,004,343 | ) | | | (894,687 | ) |
| State | | | | | | | - | |
| | | | | | | | | |
| Increase (decrease) in valuation allowance | | | 13,434,381 | | | | 4,068,929 | |
| | | | | | | | | |
| Income tax expense (benefit) | | $ | - | | | $ | - | ) |
The components of deferred tax assets and liabilities as of December 31, 2020, and 2019 is as follows:
| | | December 31, 2020 | | | December 31, 2019 | |
| | | | | | | |
| Deferred tax assets: | | | | | | |
| NOL carry forwards | | $ | 9,273,296 | | | $ | 5,843,257 | |
| Bad debt reserves | | | 77,896 | | | | 77,896 | |
| Impairment of oil and gas assets | | | 8,278,289 | | | | 403,289 | |
| Unrealized loss | | | 695 | | | | 695 | |
| Derivative losses | | | 149,982 | | | | 1,301,952 | |
| Book tax depletion difference | | | 4,333,842 | | | | 2,233,842 | |
| Share based compensation | | | 3,637,737 | | | | 2,456,423 | |
| | | | | | | | | |
| Total deferred tax assets | | | 25,751,736 | | | | 12,317,354 | |
| | | | | | | | | |
| Deferred tax liabilities: | | | | | | | | |
| Derivative gains | | | (121,947 | ) | | | (121,947 | ) |
| Bargain purchase gain | | | (5,674,498 | ) | | | (5,674,498 | ) |
| | | | | | | | | |
| Total deferred tax liabilities | | | (5,796,445 | ) | | | (5,796,445 | ) |
| | | | | | | | | |
| Deferred tax assets - before valuation allowance | | | 19,955,291 | | | | 6,520,909 | |
| Less valuation allowance | | | (19,955,291 | ) | | | (6,520,909 | ) |
| | | | | | | | | |
| Deferred tax asset (liability) - net | | $ | - | | | $ | - | |
A reconciliation of the federal and state statutory income tax rates to the Company’s effective income tax rate applicable to income before income tax benefit from continuing operations is as follows for the years ended December 31, 2020 and 2019:
| | | December 31, 2020 | | | December 31, 2019 | |
| | | | | | | |
| Continuing operations | | | | | | |
| Expected provision at US statutory rate | | | 21.00 | % | | | 21.00 | % |
| State income tax net of federal benefit | | | 0.00 | % | | | 0.00 | % |
| Other items effecting timing differences | | | 0.00 | % | | | 0.00 | % |
| Valuation allowance | | | 21.00 | % | | | 21.00 | % |
| | | | | | | | | |
| Effective income tax rate | | | 0.00 | % | | | 0.00 | % |
The Company files income tax returns on a consolidated basis in the United States federal jurisdiction. As of December 31, 2020, the tax returns for the Company for the years ending 2017 through 2019 remain open to examination by the Internal Revenue Service. The Company and its subsidiaries are not currently under examination for any period.
As a result of the company becoming a majority-owned subsidiary of Camber as discussed in Note 1, the Company has undergone an ownership change as defined in Section 382 of the Internal Revenue Code, and the Company’s tax net operating loss carry forwards generated prior to the ownership change will be subject to an annual limitation, which could reduce or defer the utilization of these losses.
Note 10. Subsequent Events
Certain subsequent events are described in Note 1 to the consolidated financial statements.
Also subsequent to December 31, 2020, the Company issued 360,918 shares of common stock in exchange for services.
SUPPLEMENTAL INFORMATION ON OIL AND GAS PRODUCING ACTIVITIES – (unaudited)
The following supplemental unaudited information regarding Viking’s oil and gas activities is presented pursuant to the disclosure requirements of ASC 932. Viking’s oil and gas activities are located in the United States.
Results of Operations
| | | United States | |
| | | 2020 | | | 2019 | |
| Sales | | $ | 40,266,780 | | | $ | 35,465,093 | |
| Lease operating costs | | | (19,075,749 | ) | | | (13,076,020 | ) |
| Depletion, accretion and impairment | | | (52,125,001 | ) | | | (11,327,928 | ) |
| Net | | $ | (30,933,970 | ) | | $ | 11,061,145 | |
Oil and Gas Production and Sales by geographic area for the years ended December 31, 2020 and 2019:
Reserve Quantity Information
The supplemental unaudited presentation of proved reserve quantities and related standardized measure of discounted future net cash flows provides estimates only and does not purport to reflect realizable values or fair market values of the Company’s reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, significant changes to these estimates can be expected as future information becomes available.
Proved reserves are those estimated reserves of crude oil (including condensate and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods.
Estimated Quantities of Proved Reserves
| | United States | |
| | 2020 | | | 2019 | |
| | | | | | |
| Proved Developed, Producing | | | 12,483,138 | | | | 7,672,566 | |
| Proved Developed, Non Producing | | | 3,471,570 | | | | 1,980,157 | |
| Total Proved Developed | | | 15,954,708 | | | | 9,652,723 | |
| Proved Undeveloped | | | 3,340,107 | | | | 4,172,167 | |
| | | | | | | | |
| Total Proved | | | 19,294,815 | | | | 13,824,890 | |
Petroleum and Natural Gas Reserves
Reserves are estimated remaining quantities of oil and natural gas and related substances, which by analysis of geoscience and engineering data, can be estimated with reasonable certainty to be economically producible – from a given date forward, from known reservoirs, and under existing economic conditions, operating methods and government regulations – prior to the time at which contracts providing the right to operate expire.
Standardized Measure of Discounted Future Net Cash Flows Relating to Proved Reserves
The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves and the changes in standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves were prepared in accordance with provisions of ASC 932 - Extractive Activities - Oil and Gas. Future cash inflows at December 31, 2020 and 2019 were computed by applying the unweighted, arithmetic average of the closing price on the first day of each month for the 12-month period prior to December 31, 2020 and 2019 to estimated future production. Future production and development costs are computed by estimating the expenditures to be incurred in developing and producing the proved oil and natural gas reserves at year-end, based on year-end costs and assuming continuation of existing economic conditions.
Future income tax expenses are calculated by applying appropriate year-end tax rates to future pretax net cash flows relating to proved oil and natural gas reserves, less the tax basis of properties involved. Future income tax expenses give effect to permanent differences, tax credits and loss carry forwards relating to the proved oil and natural gas reserves. Future net cash flows are discounted at a rate of 10% annually to derive the standardized measure of discounted future net cash flows. This calculation procedure does not necessarily result in an estimate of the fair market value of the Company’s oil and natural gas properties.
The standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the year ended December 31, 2020 and 2019 are as follows:
| | | United States | |
| | | 2020 | | | 2019 | |
| | | | | | | |
| Future cash inflows | | $ | 457,438,654 | | | $ | 541,243,657 | |
| Future production costs | | | (202,285,561 | ) | | | (156,167,716 | ) |
| Future development costs | | | (32,860,370 | ) | | | (42,539,780 | ) |
| Future income tax expense | | | (8,424,790 | ) | | | (38,772,674 | ) |
| | | | | | | | | |
| Future net cash flows | | | 213,867,933 | | | | 303,763,487 | |
| 10% annual discount for estimated timing of cash flows | | | (96,141,109 | ) | | | (135,523,587 | ) |
| | | | | | | | | |
| Standardized measure of DFNCF | | $ | 117,726,824 | | | $ | 168,239,900 | |
Changes in Standardized Measure of Discounted Future Net Cash Flows
The changes in the standardized measure of discounted future net cash flows relating to proved oil and natural gas reserves for the years ended December 31, 2020 and 2019 are as follows:
| | | United States | |
| | | 2020 | | | 2019 | |
| | | | | | | |
| Balance - beginning | | $ | 168,239,900 | | | $ | 244,557,095 | |
| Net changes in prices and production costs | | | (73,153,013 | ) | | | (49,623,771 | ) |
| Net changes in future development costs | | | (1,958,490 | ) | | | 502,197 | |
| Sales of oil and gas produced, net | | | (21,191,031 | ) | | | (22,389,073 | ) |
| Extensions, discoveries and improved recovery | | | - | | | | - | |
| Purchases of reserves | | | 40,667,910 | | | | 25,556,000 | |
| Sales of reserves | | | - | | | | (12,106,298 | ) |
| Revisions of previous quantity estimates | | | (37,825,326 | ) | | | (67,757,693 | ) |
| Previously estimated development costs incurred | | | 1,935,328 | | | | 3,636,007 | |
| Net change in income taxes | | | 17,851,559 | | | | 24,288,680 | |
| Accretion of disccount | | | 11,987,326 | | | | 28,884,619 | |
| Other | | | 11,172,661 | | | | (7,307,863 | ) |
| | | | | | | | | |
| Balance - ending | | $ | 117,726,824 | | | $ | 168,239,900 | |
In accordance with SEC requirements, the pricing used in the Company’s standardized measure of future net revenues is based on the 12-month un-weighted arithmetic average of the first-day-of-the-month price for the period January through December for each period presented and adjusted by lease for transportation fees and regional price differentials. The use of SEC pricing rules may not be indicative of actual prices realized by the Company in the future.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There are no reportable events under this item for the year ended December 31, 2020.
Item 9A. Controls and Procedures.
The management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. Management must evaluate its internal controls over financial reporting, as required by Sarbanes-Oxley Act Section 404 (a). The Company's internal control over financial reporting is a process designed under the supervision of the Company's Chief Executive Officer and Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's financial statements for external purposes in accordance with U.S. generally accepted accounting principles or GAAP.
As of December 31, 2020, management assessed the effectiveness of the Company's internal control over financial reporting based on the criteria for effective internal control over financial reporting established in the 2013 Internal Control Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of the Company's internal controls over financial reporting that adversely affected its internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that the Company's management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1)) inadequate segregation of duties consistent with control objectives; (2) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by the Company's Chief Financial Officer in connection with the audit of the Company's financial statements as of December 31, 2020 and communicated the matters to the Company's management.
Management believes that the material weaknesses set forth in items (1), (2) and (3) above did not have an effect on the Company's financial results.
Management believes that preparing and implementing sufficient written policies and checklists will remedy the following material weaknesses (i) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of GAAP and SEC disclosure requirements; and (ii) ineffective controls over period end financial close and reporting processes. Further, management believes that the hiring of additional personnel who have the technical accounting expertise and knowledge will result in proper segregation of duties and provide more checks and balances within the financial reporting department. Additional personnel will also provide the cross training needed to support the Company if personnel turn over issues within the financial reporting department occur.
Management will continue to monitor and evaluate the effectiveness of its internal controls and procedures and its internal controls over financial reporting on an ongoing basis and are committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
(a) Disclosure Controls and Procedures; Changes in Internal Control Over Financial Reporting
Management has evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of December 31, 2020. Based on this evaluation, management concluded that the Company's disclosure controls and procedures were not effective as of December 31, 2020.
(b) Management Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and Rule 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; |
| | |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
| | |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2020. Based on this assessment, management concluded that, as of December 31, 2020 the Company’s internal control over financial reporting was not effective based on those criteria.
To remediate our internal control weaknesses, management intends to implement the following measures:
| ● | The Company will add sufficient knowledgeable accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements. |
| | |
| ● | Upon the hiring of additional accounting personnel, the Company will develop and maintain adequate written accounting policies and procedures. |
The additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debt for its continued operational activities and corporate expenses. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.
We understand that remediation of material weaknesses and deficiencies in internal controls are a continuing work in progress due to the issuance of new standards and promulgations. However, remediation of any known deficiency is among our highest priorities. Our management will periodically assess the progress and sufficiency of our ongoing initiatives and make adjustments as and when necessary.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant rules of the SEC that permit us to provide only management’s report in this annual report. On July 21, 2010, President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Included in the Act is a provision that permanently exempts smaller public companies that qualify as either a Non-Accelerated Filer or Smaller Reporting Company from the auditor attestation requirement of Section 404(b) of the Sarbanes-Oxley Act of 2002.
There was no change in our internal control over financial reporting during the quarter ended December 31, 2020, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Identification of Directors and Executive Officers
The name of the officers and directors of the Company as of December 31, 2020, as well as certain information about them, are set forth below:
| Name | | Age | | Position |
| James A. Doris | | 49 | | Director/CEO/President |
| Lawrence Fisher | | 83 | | Director |
| David Herskovits | | 71 | | Director |
| Frank W. Barker, Jr. | | 66 | | CFO |
| Mark Finckle | | 59 | | EVP |
Background of Officers and Directors
James A. Doris
Mr. Doris has been an officer and director of the Company since 2014 and has been an integral part of transitioning the Company’s to an appropriate platform to facilitate growth. He has over 25 years of experience negotiating national and international business transactions. Formerly a lawyer in Canada, Mr. Doris represented domestic and foreign clients regarding their investment activities in Canada for over 16 years. Prior to starting his own law firm, Mr. Doris served as Executive Vice President and In-House Counsel for a real estate investment and development company as well as working at one of Canada’s leading law firms. Mr. Doris graduated cum laude from the University of Ottawa.
Lawrence B. Fisher
Mr. Fisher practiced securities law in New York City for over 40 years. He was Partner in the law firm Orrick, Herrington & Sutcliffe for 11 years until retirement in 2002. While at the firm, Mr. Fisher was Partner-In-Charge of the New York office and a member of the firm’s Executive Committee. Prior to Orrick, Mr. Fisher was a partner in the New York law firm Kelley, Drye & Warren for 10 years, including 3 years as a member of the firm’s Executive Committee, and prior to his time at Kelley, Drye & Warren, Mr. Fisher was associate and then partner in the law firm Parker, Chapin and Flattau for an aggregate of 22 years, 5 as an associate and the remainder as a partner. There, too, Mr. Fisher was a member of the firm’s Executive Committee. Mr. Fisher graduated from Columbia College in 1960 and Columbia Law School in 1963 and was a Research Fellow at the London School of Economics from 1963-1965. Mr. Fisher was a member of the Board of Directors of National Bank of New York City in excess of 30 years until retirement in 2000, and he was a member of the Board of Directors of Financial Federal Corporation until its sale 7 years ago. In December 2020, Mr. Fisher joined the Board of GBS, Inc., a publicly traded life science company.
David Herskovits
Mr. Herskovits is a retired audit partner of Deloitte & Touche LLP. Mr. Herskovits joined Deloitte in 1974, was admitted to the partnership in 1985, and retired in 2013. During his career, Mr. Herskovits was responsible for major audit engagements for public and private companies. He also served in several technical and quality assurance roles at the firm. Mr. Herskovits received an MBA from Harvard University and a B.S. from Cornell University.
Frank W. Barker, Jr.
Mr. Barker is a Certified Public Accountant licensed to practice in the State of Florida. Mr. Barker has been providing professional services to the Company since the beginning of 2015. On December 29, 2017, Mr. Barker accepted the position as Chief Financial Officer of the Company. Mr. Barker has vast experience providing strategic, financial, accounting and tax-related services in various capacities to both Public and Private entities, including Compliance Reporting with the Securities and Exchange Commission, the planning, preparation and oversight of annual audit functions, presentation of financial data to Public Company Boards, turn-around management, bankruptcy and asset recovery, Strategic planning for survival of troubled companies, financial forecasting and cash flow management, litigation support and forensic analysis, mergers and acquisitions and reverse mergers. Mr. Barker has served as Chief Financial Officer of several Public Companies with Revenues in excess of $40 million. Mr. Barker’s Industry experience include the fields of Defense Contracting, Manufacturing, Alternative Energy, Electrical Contracting, Healthcare Research and Construction, Oil and Gas, Health Care Services and Administration, Not for Profit, Retail, Distribution, Gaming, Real Estate, Professional Services, Internet Technologies, Media Communications, Web Based Technologies, Banking, Investments, Insurance, Private Equity, Municipal and County Governments and Treasure Exploration. Mr. Barker received a B.A. in Accounting and Finance from the University of South Florida, Tampa, Florida in 1978.
Mark Finckle
Mr. Finckle has over 30 years of experience as an accounting and financial professional. Prior to joining the Company in 2019, Mr. Finckle spent approximately 25 years as an investment banker, holding positions of increasing responsibility at Wall Street firms, including Bear Stearns, PaineWebber and Thomas Weisel Partners. Before embarking on his banking career, Mr. Finckle served as a Director of Financial Planning and Capital Budgeting at Ameritech, a large national telecommunications provider. Mr. Finckle began his career as a Certified Public Accountant, employed by the international accounting firm of Coopers & Lybrand. He holds a B.S in Finance from the University of Iowa and received his MBA from Northwestern University.
Family Relationships
There are no family relationships between any of the Company’s officers and directors.
Audit Committee and Audit Committee Financial Expert
The Company, with the appointment of David Herskovits as an independent member of the board of directors, established an audit committee, with Mr. Herskovits serving as the audit committee financial expert.
Code of Ethics
The Company has not yet formally adopted a written code of ethics to be applied to the Company’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions. Based on its small size, limited financial and human resources, the Company has not adopted written code of ethics.
Involvement in Certain Legal Proceedings
To the best of the registrant’s knowledge, during the past five years, no director, executive officer, promoter or control person of the Company:
| (1) | has filed a petition under the federal bankruptcy laws or any state insolvency law, nor had a receiver, fiscal agent or similar officer appointed by a court for the business or present of such a person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer within two years before the time of such filing; |
| (2) | were convicted in a criminal proceeding or named subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); |
| (3) | were the subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of the following activities: |
| (i) | acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, associated person of any of the foregoing, or as an investment advisor, underwriter, broker or dealer in securities, or as an affiliated person, director of any investment company, or engaging in or continuing any conduct or practice in connection with such activity; |
| (ii) | engaging in any type of business practice; |
| (iii) | engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodity laws. |
| (4) | were the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any federal or state authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described above under this Item, or to be associated with persons engaged in any such activity; |
| (5) | were found by a court of competent jurisdiction in a civil action or by the Securities and Exchange Commission to have violated any federal or state securities law and the judgment in such civil finding or find by the Securities and Exchange Commission has not been subsequently reversed, suspended or vacated; |
| (6) | were found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated. |
Compliance with Section 16(A) of the Exchange Act
Section 16(a) of the Exchange Act requires the Company’s directors, executive officers and persons who beneficially own 10% or more of a class of securities registered under Section 12 of the Exchange Act to file reports of beneficial ownership and changes in beneficial ownership with the SEC. Directors, executive officers and greater than 10% stockholders are required by the rules and regulations of the SEC to furnish the Company with copies of all reports filed by them in compliance with Section 16(a).
Delinquent Section 16(a) Reports
Based solely on our review of certain reports filed with the Securities and Exchange Commission pursuant to Section 16(a) of the Securities Exchange Act of 1934, as amended, the reports required to be filed with respect to transactions in our common stock by each person who, at any time during the 2020 fiscal year, was a director, officer, or beneficial owner of more than 10% of our common stock, were timely filed during the most recent fiscal year, except that (i) Frank Barker, Jr. did not timely file a Form 4 upon his receipt of warrants to purchase 1,333,333 shares of common stock on December 31, 2020; (ii) Mark Finckle did not timely file a Form 4 upon his receipt of warrants to purchase 277,778 shares of common stock on August 14, 2020 (iii) Lawrence Fisher did not timely file a Form 4 upon his receipt of warrants to purchase 44,444 shares of common stock on December 31, 2020; and (iv) David Herskovits did not timely file a Form 4 upon his receipt of warrants to purchase 66,667 shares of common stock on December 31, 2020.
Item 11. Executive Compensation
Summary Compensation Table— Fiscal Years Ended December 31, 2020 and 2019
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to the named persons for services rendered in all capacities during the noted periods. No other executive officers received total annual salary and bonus compensation in excess of $100,000.
| Name and Principal Position | | Year | | Salary | | | Bonus | | | Stock Awards | | | Option Awards | | | Non-Equity Incentive Plan Compensation Earnings | | | Non-Equity Deferred Compensation Earnings | | | All Other Compensation | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| James A. Doris | | 2020 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 11,027 | (2) | | $ | 11,027 | |
| CEO & President (1) | | 2019 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Timothy Swift | | 2020 | | $ | 41,453 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 41,453 | |
| EVP & COO (3) | | 2019 | | $ | 275,000 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 275,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Frank W. Barker, Jr. | | 2020 | | $ | - | | | $ | - | | | $ | - | | | $ | 1,617,538 | (5) | | $ | - | | | $ | - | | | $ | 235,852 | (6) | | $ | 1,853,390 | |
| CFO (4) | | 2019 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 170,000 | (7) | | $ | 170,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Mark Finckle | | 2020 | | $ | 163,313 | | | $ | - | | | $ | - | | | $ | 337,597 | (8) | | $ | - | | | $ | - | | | $ | - | | | $ | 500,910 | |
| EVP | | 2019 | | $ | 71,923 | | | $ | - | | | $ | 81,000 | (9) | | $ | 167,751 | (10) | | $ | - | | | $ | - | | | $ | - | | | $ | 320,674 | |
Narrative to Summary Compensation Table
___________
| 1. | On June 28, 2014, Mr. Doris was appointed as a director, and on December 12, 2014, as the Chief Executive Officer and President of the Company. |
| | |
| 2. | On December 21, 2020, the exercise price on 1,666,667 common stock warrants previously issued to Mr. Doris was reduced from $0.30 per share to $0.001 per share. The resultant value has been included in “All Other Compensation” and has been calculated using the Black-Scholes pricing model. |
| | |
| 3. | On March 19, 2018, Mr. Swift was appointed as Executive Vice President and Chief Operating Officer of the Company, and effective February 13, 2020, Mr. Swift was no longer an officer or employee of the Company. |
| | |
| 4. | On December 29, 2017, Mr. Barker was appointed as a director and as the Chief Financial Officer of the Company. On August 20, 2018, Mr. Barker resigned as a director. |
| | |
| 5. | On December 31, 2020, Mr. Barker was granted 1,333,333 common stock warrants at an exercise price of $0.001. The value included in “Option Awards” has been calculated using the Black-Scholes pricing model. |
| | |
| 6. | The amount included in “All Other Compensation” for the year ended December 31, 2020, is comprised of $202,500 paid to FWB Consulting, Inc., a company affiliated with Mr. Barker, $30,000 paid to Mr. Barker for rental of residential property to facilitate corporate operations and $3,352 representing the value of a reduction in the exercise price on 555,556 previously issued common stock warrants from $0.25 to $0.001 per share. This value was calculated using the Black-Scholes pricing model. |
| | |
| 7. | The amount included in “All Other Compensation” for the year ended December 31, 2019 consists of $170,000 paid to FWB Consulting, Inc., a company affiliated with Mr. Barker. |
| | |
| 8. | On August 14, 2020 Mr. Finckle was granted 277,778 common stock warrants at an exercise price of $2.70 per share. This value was calculated using the Black-Scholes pricing model. |
| | |
| 9. | On September 23, 2019, Mr. Finckle was issued 55,556 common shares valued at the closing market price on the date of issue. |
| | |
| 10. | On September 9, 2019, Mr. Finckle was granted 111,111 common stock warrants at an exercise price of $2.70 per share. The value was calculated using the Black-Scholes pricing model. |
Outstanding Equity Awards at Fiscal Year End
As of December 31, 2020, the Company did not maintain an equity incentive plan or other plan, including but not limited to bonus, deferred compensation or retirement plan under which the Company’s securities may be issued to its named executive officers as compensation.
Employment Agreements
As of December 31, 2020, the Company did not have any formal compensation arrangements with any executive except that the Company had orally agreed to pay the entity of the Company’s CFO $20,000 per month. The Company has eight other full-time employees in Houston at the Corporate Headquarters who are not executive officers.
Compensation of Directors
The directors and former directors of the Company were compensated as such during the fiscal years ended December 31, 2020, and December 31, 2019, respectively, as follows:
| Name and Principal Position | | Year | | Fees Earned or Paid in Cash | | | Stock Awards | | | Option Awards | | | Non-Equity Incentive Plan Compensation Earnings | | | Nonqualified Deferred Compensation Earnings | | | All Other Compensation | | | Total | |
| | | | | | | | | | | | | | | | | | | | | | | | |
| James A. Doris | | 2020 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | 2019 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Frank W. Barker, Jr. (1) | | 2020 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | 2019 | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Lawrence Fischer | | 2020 | | $ | 20,000 | | | $ | - | | | $ | 53,918 | (2) | | $ | - | | | $ | - | | | $ | - | | | $ | 73,918 | |
| | | 2019 | | $ | 35,833 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 35,833 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| David Herskovits | | 2020 | | $ | 30,000 | | | $ | - | | | $ | 80,877 | (3) | | $ | - | | | $ | - | | | $ | - | | | $ | 110,877 | |
| | | 2019 | | $ | 33,333 | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | | | $ | 33,333 | |
__________
| 1. | Appointed as a director and an executive officer on December 29, 2017; resigned as director on August 18, 2018. |
| | |
| 2. | On December 31, 2020 Mr. Fisher was granted 44,444 common stock warrants with an exercise price of $0.001 per share. The value was calculated using the Black-Scholes pricing model. |
| | |
| 3. | On December 31, 2020 Mr. Herskovits was granted 66,667 common stock warrants with an exercise price of $0.001 per share. The value was calculated using the Black-Scholes pricing model. |
Directors of the Company may be reimbursed for any out-of-pocket expenses incurred by them for each regular or special meeting attendance. The Company presently has no pension, health, annuity, insurance or profit-sharing plans.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth certain information regarding beneficial ownership of our common stock as of December 31, 2020, by (i) each person known by us to be the beneficial owner of more than 5% of our outstanding Common Stock, (ii) each director and each of our named executive officers and (iii) all executive officers and directors as a group.
The number of shares of Common Stock beneficially owned by each person is determined under the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Under such rules, beneficial ownership includes any shares as to which such person has sole or shared voting power or investment power and also any shares which the individual has the right to acquire within 60 days after the date hereof, through the exercise of any stock option, warrant or other right. Unless otherwise indicated, each person has sole investment and voting power (or shares such power with his or her spouse) with respect to the shares set forth in the following table. The inclusion herein of any shares deemed beneficially owned does not constitute an admission of beneficial ownership of those shares.
The information reflected in the following table was, unless otherwise specified, the address of each of the persons set forth below, or is in care of the Company at 15915 Katy Freeway, Suite 450, Houston, Texas, 77094.
| Title of Class | | Name & Address of Beneficial Owners | | Amount & Nature of Beneficial Ownership (1) | | | Percent of Class (2) | |
| | | | | | | | | |
| Common Stock | | Camber Energy, Inc. | | | 26,274,510 | | | | 51.02 | % |
| Common Stock | | James Doris (3) | | | 28,163,400 | | | | 52.98 | % |
| Common Stock | | Frank W. Barker, Jr. (4) | | | 1,888,889 | | | | 3.54 | % |
| Common Stock | | Mark Finckle (5) | | | 362,978 | | | | .70 | % |
| Common Stock | | David Herskovits (6) | | | 73,890 | | | | 0.14 | % |
| Common Stock | | Lawrence Fisher (7) | | | 47,323 | | | | 0.09 | % |
| | | | | | | | | | | |
| Common Stock | | All Officers and Directors as a Group | | | 30,536,480 | | | | 55.08 | % |
| | | | | | | | | | | |
| Series C Preferred | | James A. Doris | | | 28,092 | | | | 100.0 | % |
| | | | | | | | | | | |
| Series C Preferred | | All Officers and Directors as a Group | | | 28,092 | | | | 100.0 | % |
_______________
| 1. | Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Each of the beneficial owners listed above has direct ownership of and sole voting power and investment power with respect to the shares of the Company's common stock unless otherwise stated herein. |
| 2. | As of December 31, 2020, a total of 51,494,956 shares of the Company's common stock, and 28,092 shares of the Company's preferred stock, as well as 7,111,021 warrants are considered to be outstanding pursuant to SEC Rule 13d-3(d)(1). For each beneficial owner above, any warrants exercisable within 60 days have been included for purposes of calculating the relevant percentage ownership. |
| |
| 3. | Includes 1,666,667 warrants held by James Doris, 222,223 shares of common stock held by Mr. Doris, and 26,274,510 shares issued to Camber Energy, Inc. (“Camber”). Mr. Doris is a member of the Board of Directors of Camber, and therefore shares voting power with respect to shares issued in the name of Camber. Accordingly, Mr. Doris may be deemed a beneficial owner of shares issued in the name of Camber pursuant to Rule 13d-3 promulgated under the Exchange Act. |
| |
| 4. | Includes 555,556 warrants held by FWB Consulting, Inc., a company controlled by Frank W. Barker, Jr. and 1,333,333 warrants held by Mr. Barker |
| | |
| 5. | Includes 277,778 warrants held by Mark Finckle. |
| | |
| 6. | Includes 66,667 warrants held by David Herskovits |
| | |
| 7. | Includes 44,444 warrants held by Lawrence Fisher |
Item 13. Certain Relationships and Related Transactions
Related Transactions
The Company’s CEO and director, James Doris has incurred expenses on behalf of, and made advances to, the Company in order to provide the Company with funds to carry on its operations. Additionally, Mr. Doris has made several loans through promissory notes to the Company, all accruing interest at 12%, and payable on demand. As of December 31, 2020, the total amount due to Mr. Doris for these loans is $559,122. Accrued interest of $6,618 is included in accrued expenses and other current liabilities at December 31, 2020.
The Company’s CFO, Frank W. Barker, Jr., renders professional services to the Company through FWB Consulting, Inc., an affiliate of Mr. Barker’s. As of December 31, 2020, the total amount due to FWB Consulting, Inc. is $221,968 and is included in accounts payable. Additionally, the Company rented on a short-term basis, residential property from Mr. Barker during 2020 for $30,000 to facilitate corporate operations.
The following table reflects the balances of related parties' transactions as of December 31, 2020 and 2019:
| | | Years ended | |
| | | December 31, | |
| | | 2020 | | | 2019 | |
| Due to Mr. James A. Doris – demand loans | | | 559,122 | | | | 590,555 | |
| Due to FWB Consulting, Inc. | | | 221,968 | | | | 184,468 | |
| | | $ | 781,090 | | | $ | 775,023 | |
Other than as disclosed, there were no material transactions, series of similar transaction, current transactions, or series of similar transactions, to which the Company or any of its subsidiaries was or is to be a party, in which the amount involved exceeded $120,000 or 1% of the Company's total assets as of December 31, 2020, and in which any director or executive officer, or any security holder who is known to the Company to own of record or beneficially more than five percent of the Company's common stock, or any member of the immediate family of any of the foregoing persons, had a material interest.
Item 14. Principal Accounting Fees and Services
The following table sets forth the fees billed by our independent accounting firm of Turner, Stone & Company, LLP, and prior independent accounting firms, for each of our last two fiscal years for the categories of services indicated.
| | | Years Ended December 31, | |
| Category | | 2020 | | | 2019 | |
| Audit Fees | | $ | 71,500 | | | $ | 42,000 | |
| Audit Related Fees | | | - | | | | - | |
| Tax Fees | | | 26,000 | | | | - | |
| All Other Fees | | | - | | | | - | |
| Total | | $ | 97,500 | | | $ | 42,000 | |
Audit fees. Consists of fees billed for the audit of our annual financial statements and review of our interim financial information and services that are normally provided by the accountant in connection with year-end and quarter-end statutory and regulatory filings or engagements.
Audit-related fees. Consists of fees billed for services relating to review of other regulatory filings including registration statements, periodic reports and audit related consulting.
Tax fees. Consists of professional services rendered by our principal accountant for tax compliance, tax advice and tax planning.
Other fees. Other services provided by our accountants.
PART IV
Item 15. Exhibits, Financial Statement Schedules.
| Number | | Description |
| | |
| 2.1 | | Agreement and Plan of Merger, dated as of February 15, 2021, by and between Viking Energy Group, Inc. and Camber Energy, Inc. (incorporated by reference to our Current Report on Form 8-K filed on February 18, 2021) |
| | | |
| 3.1 | | Articles of Incorporation (incorporated by reference to our Definitive Information Statement on Schedule 14C filed on October 14, 2008) |
| | |
| 3.2 | | Bylaws (incorporated by reference to our Definitive Information Statement on Schedule 14C filed on October 14, 2008) |
| | |
| 3.3* | | Certificate of Amendment to Articles of Incorporation |
| | |
| 3.4 | | Certificate of Amendment to Designation - After Issuance of Class or Series (incorporated by reference to our Current Report on Form 8-K filed on December 28, 2020) |
| | |
| 10.1 | | Term Loan Agreement, dated December 22, 2017, by the Borrowers listed therein, 405 Petrodome LLC, as Administrative Agent, and 405 Petrodome LLC and Cargill, Incorporated, as Lenders (incorporated by reference to our Current Report on Form 8-K filed on December 29, 2017) |
| | |
| 10.2 | | Purchase and Sale Agreement, executed as of September 1, 2018, by and among Viking Energy Group, Inc. and Bodel Holdings, L.L.C., Cleveland Holdings, L.L.C., Delbo Holdings, L.L.C., DeQuincy Holdings, L.L.C., Gulf Coast Working Partners, L.L.C., Oakley Holdings, L.L.C., SamJam Energy, L.L.C., and Perry Point Holdings, L.L.C. (incorporated by reference to our Current Report on Form 8-K filed on September 5, 2018) |
| | |
| 10.3 | | First Amendment to Purchase and Sale Agreement, executed as of November 1, 2018, by and among Viking Energy Group, Inc. and Bodel Holdings, L.L.C., Cleveland Holdings, L.L.C., Delbo Holdings, L.L.C., DeQuincy Holdings, L.L.C., Gulf Coast Working Partners, L.L.C., Oakley Holdings, L.L.C., SamJam Energy, L.L.C., and Perry Point Holdings, L.L.C. (incorporated by reference to our Current Report on Form 8-K filed on November 5, 2018) |
| | |
| 10.4 | | Second Amendment to Purchase and Sale Agreement, executed as of November 1, 2018, by and among Viking Energy Group, Inc. and Bodel Holdings, L.L.C., Cleveland Holdings, L.L.C., Delbo Holdings, L.L.C., DeQuincy Holdings, L.L.C., Gulf Coast Working Partners, L.L.C., Oakley Holdings, L.L.C., SamJam Energy, L.L.C., and Perry Point Holdings, L.L.C. (incorporated by reference to our Current Report on Form 8-K filed on December 31, 2018) |
| | |
| 10.5 | | Collateral Agreement to Purchase and Sale Agreement, executed as of December 26, 2018, by and among Viking Energy Group, Inc. and Bodel Holdings, L.L.C., Cleveland Holdings, L.L.C., Delbo Holdings, L.L.C., DeQuincy Holdings, L.L.C., Gulf Coast Working Partners, L.L.C., Oakley Holdings, L.L.C., SamJam Energy, L.L.C., and Perry Point Holdings, L.L.C. (incorporated by reference to our Current Report on Form 8-K filed on December 31, 2018) |
| 10.6 | | Term Loan Credit Agreement, dated as of December 28, 2018, by and among Ichor Energy Holdings, LLC, Ichor Energy, LLC, ABC Funding, LLC, as Administrative Agent, and the Lender Parties (incorporated by reference to our Current Report on Form 8-K filed on December 31, 2018) |
| | |
| 10.7 | | 10% Secured Promissory Note, dated December 27, 2018, issued by Viking Energy Group, Inc. to RPM Investments, a Division of Opus Bank, in favor of Sellers (incorporated by reference to our Current Report on Form 8-K filed on December 31, 2018) |
| | |
| 10.8 | | Security and Pledge Agreement, executed as of December 27, 2018, by and among Viking Energy Group, Inc. and Bodel Holdings, L.L.C., Cleveland Holdings, L.L.C., Delbo Holdings, L.L.C., DeQuincy Holdings, L.L.C., Gulf Coast Working Partners, L.L.C., Oakley Holdings, L.L.C., SamJam Energy, L.L.C., and Perry Point Holdings, L.L.C. (incorporated by reference to our Current Report on Form 8-K filed on December 31, 2018) |
| | |
| 10.9 | | Purchase and Sale Agreement, dated as of October 10, 2019, by and among Elysium Energy, LLC, 5Jabor, LLC, Bass Petroleum, L.L.C., Bodel Holdings, LLC, Delbo Holdings, L.L.C., James III Investments, L.L.C., JamSam Energy, LLC, Lake Boeuf Investments, LLC, Oakley Holdings, L.L.C., and Plaquemines Holdings, L.L.C. (incorporated by reference to our Current Report on Form 8-K filed on October 11, 2019) |
| | |
| 10.10 | | First Amendment to Purchase and Sale Agreement, effective as of December 23, 2019, by and among 5Jabor, LLC; Bass Petroleum, L.L.C.; Bodel Holdings, LLC; Delbo Holdings, L.L.C.; James III Investments, LLC; JamSam Energy, L.L.C.; Lake Boeuf Investments, LLC; Oakley Holdings, L.L.C.; Plaquemines Holdings, L.L.C.; Elysium Energy, LLC; Viking Energy Group, Inc. and Five JAB, Inc. (incorporated by reference to our Current Report on Form 8-K filed on December 30, 2019) |
| | |
| 10.11 | | Second Amendment to Purchase and Sale Agreement and Waiver, effective as of February 2, 2020, by and among 5Jabor, LLC; Bass Petroleum, L.L.C.; Bodel Holdings, LLC; Delbo Holdings, L.L.C.; James III Investments, LLC; JamSam Energy, L.L.C.; Lake Boeuf Investments LLC; Oakley Holdings, L.L.C.; Plaquemines Holdings, L.L.C. and Elysium Energy, LLC (incorporated by reference to our Current Report on Form 8-K filed on February 2, 2020) |
| | |
| 10.12 | | Term Loan Agreement, dated as of February 3, 2020, by and among Elysium Energy Holdings, LLC; Elysium Energy, LLC; Elysium Energy LA, LLC; Elysium Energy TX, LLC; Pointe a la Hache, L.L.C.; Turtle Bayou, L.L.C.; Potash, L.L.C.; Ramos Field, L.L.C.; 405 Woodbine LLC, as Administrative Agent, and the Lenders signatory thereto. (incorporated by reference to our Current Report on Form 8-K filed on February 6, 2020) |
| | |
| 10.13 | | First Amendment to Term Loan Agreement, effective as of September 1, 2020, by and among Viking Energy Group, Inc.; Elysium Energy, LLC; Elysium Energy Holdings, LLC; Elysium Energy LA, LLC; Elysium Energy TX, LLC; Pointe a La Hache, L.L.C.; Turtle Bayou, L.L.C.; Potash, L.L.C.; Ramos Field, L.L.C.; 405 Woodbine LLC, as Agent, and the Lenders (incorporated by reference to our Current Report on Form 8-K filed on September 4, 2020) |
| | |
| 10.14 | | Security Agreement, dated as of February 3, 2020, by and among Elysium Energy, LLC; Elysium Energy LA, LLC; Elysium Energy TX, LLC; Pointe a la Hache, L.L.C.; Turtle Bayou, L.L.C.; Potash, L.L.C.; Ramos Field, L.L.C. and 405 Woodbine LLC (incorporated by reference to our Current Report on Form 8-K filed on February 6, 2020) |
| | |
| 10.15 | | Guarantee and Pledge Agreement, dated as of February 3, 2020, by Elysium Energy Holdings, LLC and 405 Woodbine LLC (incorporated by reference to our Current Report on Form 8-K filed on February 6, 2020) |
| | |
| 10.16 | | Securities Purchase Agreement, dated as of February 3, 2020, Issued by Viking Energy Group, Inc. and Camber Energy, Inc. (incorporated by reference to our Current Report on Form 8-K filed on February 5, 2020) |
| 10.17 | | $5,000,000 10.5% Secured Promissory Note, dated as of February 3, 2020, Issued by Viking Energy Group, Inc. to Camber Energy, Inc. (incorporated by reference to our Current Report on Form 8-K filed on February 5, 2020) |
| | |
| 10.18 | | Security and Pledge Agreement, dated as of February 3, 2020, by and between Viking Energy Group, Inc. and Camber Energy, Inc. (incorporated by reference to our Current Report on Form 8-K filed on February 5, 2020) |
| | |
| 10.19 | | Security and Pledge Agreement, dated as of February 3, 2020, by and between Viking Energy Group, Inc. and Camber Energy, Inc. (incorporated by reference to our Current Report on Form 8-K filed on February 5, 2020) |
| | |
| 10.20 | | Assignment of Membership Interests by Viking Energy Group, Inc. in favor of Camber Energy, Inc. dated February 3, 2020 (incorporated by reference to our Current Report on Form 8-K filed on February 5, 2020) |
| | |
| 10.21 | | Mutual Termination Agreement, by and between Viking Energy Group, Inc. and Camber Energy, Inc., dated December 22, 2020 (incorporated by reference to Current Report on Form 8-K filed on December 28, 2020) |
| | |
| 10.22 | | Assignment of Membership Interests, by Camber Energy, Inc. in favor of Viking Energy Group, Inc., dated December 22, 2020 (incorporated by reference to Current Report on Form 8-K filed on December 28, 2020) |
| | |
| 10.23 | | Securities Purchase Agreement (with Cancellation Agreement), by and between Camber Energy, Inc. and Viking Energy Group, Inc., dated December 22, 2020 (incorporated by reference to our Current Report on Form 8-K filed on December 28, 2020) |
| | |
| 10.24 | | Form of Guaranty, issued by Viking Energy Group, Inc., dated December 22, 2020 (incorporated by reference to our Current Report on Form 8-K filed on December 28, 2020) |
| | |
| 10.25 | | Securities Purchase Agreement, by and between Camber Energy, Inc. and Viking Energy Group, Inc., dated December 31, 2020 (incorporated by reference to our Current Report on Form 8-K filed on January 13, 2021) |
| | |
| 10.26 | | Cancellation Agreement, by and between Viking Energy Group, Inc. and EMC Capital Partners, LLC, dated December 31, 2020 (incorporated by reference to our Current Report on Form 8-K filed on January 13, 2021) |
| | |
| 10.27 | | Employment Agreement with Mark Finckle dated as of September 9, 2019 (incorporated by reference to our Quarterly Report on Form 10-Q filed on November 12, 2019) |
| | |
| 10.28 | | Restricted Stock Agreement with Mark Finckle dated as of September 9, 2019 (incorporated by reference to our Quarterly Report on Form 10-Q filed on November 12, 2019) |
| | |
| 21.1 | | Subsidiaries of Viking Energy Group, Inc. (incorporated by reference to our Annual Report on Form 10-K filed on March 30, 2020) |
| | |
| 31.1* | | Certification of Principal Executive Officer required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
| 31.2* | | Certification of Principal Financial and Accounting Officer required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| | |
| 32.1* | | Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63 |
| | |
| 32.2* | | Certification of Principal Financial and Accounting Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63 |
| | |
| 101.INS** | | XBRL Instance Document |
| | |
| 101.SCH** | | XBRL Taxonomy Extension Schema Document |
| | |
| 101.CAL** | | XBRL Taxonomy Extension Calculation Linkbase Document |
| | |
| 101.DEF** | | XBRL Taxonomy Extension Definition Linkbase Document |
| | |
| 101.LAB** | | XBRL Taxonomy Extension Label Linkbase Document |
| | |
| 101.PRE** | | XBRL Taxonomy Extension Presentation Linkbase Document |
______________
* Filed herewith
** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
SIGNATURES
In accordance with the requirements of Section 13 or 15(d) of the Securities Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| VIKING ENERGY GROUP, INC. (Registrant) | |
| | | |
| Date: March 25, 2021 | By: | /s/ James Doris | |
| | James Doris | |
| | Principal Executive Officer | |
In accordance with the Securities Exchange Act this report has been signed below by the following person(s) on behalf of the registrant and in the capacities and on the dates indicated.
| Date: March 25, 2021 | By: | /s/ Frank W. Barker, Jr. | |
| | Frank W. Barker, Jr. | |
| | Principal Financial and Accounting Officer | |
