10-Q 1 star_10q.htm QUARTERLY REPORT star_10q.htm


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2014
 
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 000-54967  
 
STARBOARD RESOURCES, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
 
45-5634053
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
300 E. Sonterra Blvd, Suite 1220
San Antonio, Texas
 
78258
(Address of principal executive offices)
 
(Zip Code)
 
(210) 999-5400
(Registrant’s telephone number, including area code)
 
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.     x   Yes     ¨   No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).      x   Yes      ¨   No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
¨
 
Accelerated filer
¨
         
Non-accelerated filer
¨
 
Smaller reporting company
x
(Do not check if a smaller reporting company)  
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    ¨  Yes    x  No
 
As of August 12, 2014, there were 12,362,336 shares of the registrant’s common stock, par value $0.001 per share, outstanding. 
 


 
 
 
 
 
STARBOARD RESOURCES, INC.
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 2014
 
INDEX
 
   
Page
PART I — FINANCIAL INFORMATION
 
1
Item 1. — Financial Statements
 
1
Condensed Consolidated Balance Sheets at June 30, 2014 and December 31, 2013
 
1
Condensed Consolidated Statements of Operations for the Three and Six Months Ended  June 30, 2014 and 2013
 
3
Condensed Consolidated Statement of Changes in Stockholders’ Equity for the Six Months Ended June 30, 2014
 
4
Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2014 and 2013
 
5
Notes to the Condensed Consolidated Financial Statements
 
7
Item 2. — Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
16
Item 3. — Quantitative and Qualitative Disclosures About Market Risk
 
24
Item 4. — Controls and Procedures
 
24
PART II — OTHER INFORMATION
 
25
Item 1. — Legal Proceedings
 
25
Item 2. — Unregistered Sales of Equity Securities and Use of Proceeds
 
25
Item 3. — Defaults Upon Senior Securities
 
25
Item 4. — Mine Safety Disclosures
 
25
Item 5. — Other Information
 
25
Item 6. — Exhibits
 
25
SIGNATURES
 
26


 
 

 
 
Part I – Financial Information
 
Item 1.   Financial Statements

STARBOARD RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)
 
   
June 30,
   
December 31,
 
   
2014
   
2013
 
   
(Unaudited)
       
ASSETS
           
             
Current assets
           
Cash
  $ 3,195     $ 5,794  
Trade receivable
    2,220       1,778  
Joint interest receivable
    1,397       60  
Deferred tax assets
    39       39  
Current derivative assets
    31       0  
Prepaid expenses
    408       154  
                 
Total current assets
    7,290       7,825  
                 
Oil and natural gas properties and other equipment
               
Oil and natural gas properties, successful efforts method, net of
    93,457       74,166  
accumulated depletion
               
Other property and equipment, net of depreciation
    145       168  
                 
Total oil and natural gas properties and other equipment, net
    93,602       74,334  
                 
Other assets
               
                 
Goodwill
    960       960  
Derivative assets
    24       0  
Other
    1,097       1,112  
                 
Total other assets
    2,081       2,072  
                 
Total assets
  $ 102,973     $ 84,231  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
1

 
 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value and share data)
 
   
June 30,
   
December 31,
 
   
2014
   
2013
 
   
(Unaudited)
       
LIABILITIES AND STOCKHOLDERS’ EQUITY
           
             
Current liabilities
           
Accounts payable and accrued liabilities
  $ 3,054     $ 9,485  
Joint interest revenues payable
    1,660       968  
Current derivative liabilities
    0       63  
Current maturities of notes payable
    1,776       25  
Current asset retirement obligations
    438       366  
                 
Total current liabilities
    6,928       10,907  
                 
Long-term liabilities
               
Derivative liabilities
    0       51  
Notes payable
    23,829       12,532  
Related party note payable
    10,000       0  
Deferred tax liabilities
    15,830       15,914  
Asset retirement obligations
    3,030       2,070  
                 
Total long-term liabilities
    52,689       30,567  
                 
Commitments and contingencies
               
                 
Stockholders’ equity
               
Preferred stock, $.001 par value, authorized 10,000,000 shares;
               
none issued and outstanding
               
Common stock, $.001 par value, authorized 150,000,000 shares;
               
12,362,336 shares issued at
               
June 30, 2014 and December 31, 2013
    12       12  
Paid-in capital in excess of par
    55,046       54,446  
Accumulated deficit
    (11,702 )     (11,701 )
                 
Total stockholders’ equity
    43,356       42,757  
                 
Total liabilities and stockholders’ equity
  $ 102,973     $ 84,231  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

 
2

 
 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except share data)
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2014
   
2013
   
2014
   
2013
 
                         
                         
Oil, natural gas, and related product sales
  $ 5,895     $ 3,242     $ 9,702     $ 6,192  
                                 
Expenses
                               
Depreciation, depletion and amortization
    2,776       1,531       4,518       2,774  
Lease operating
    1,394       911       2,313       1,798  
General and administrative
    805       743       1,781       1,587  
Professional fees
    240       163       517       327  
Production taxes
    229       82       339       153  
Accretion of discount on asset retirement obligation     152       33       189       79  
Exploration
    19       16       33       40  
                                 
Total expenses
    5,615       3,479       9,690       6,758  
                                 
Operating income (loss)
    280       (237 )     12       (566 )
                                 
Other income (expense)
                               
Interest expense
    (717 )     (77 )     (929 )     (132 )
Going public delay expense
    0       (182 )     0       (364 )
Gain from derivative contracts
    115       65       113       103  
Gain on sale of assets, net
    719       0       719       0  
Total other income (expense)
    117       (194 )     (97 )     (393 )
                                 
Income (loss) before income taxes
    397       (431 )     (85 )     (959 )
                                 
Income tax benefit / (expense):
                               
Deferred income tax benefit / (expense)
    (141 )     166       84       189  
                                 
Net income (loss)
  $ 256     $ (265 )   $ (1 )   $ (770 )
                                 
Net income (loss) per basic and diluted
                               
common share
  $ 0.02     $ (0.02 )   $ (0.00 )   $ (0.06 )
                                 
Weighted average basic
                               
common shares outstanding
    12,362,336       12,362,336       12,362,336       12,362,336  
                                 
Weighted average diluted
                               
common shares outstanding
    12,711,986       12,362,336       12,362,336       12,362,336  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
3

 
 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
 (UNAUDITED)
(In thousands)

 
Common Stock
 
Paid-In
           
 
($.001 Par Value)
 
Capital in
 
Accumulated
       
 
Shares
 
Amount
 
Excess of Par
 
Deficit
 
Total
 
                               
Balances, December 31, 2013
    12,362     $ 12     $ 54,446     $ (11,701 )   $ 42,757  
Stock-based compensation
    0       0       600       0       600  
Net loss
    0       0       0       (1 )     (1 )
Balances, June 30, 2014
    12,362     $ 12     $ 55,046     $ (11,702 )   $ 43,356  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
4

 

STARBOARD RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands, except per share amounts)
 
   
Six Months Ended
June 30,
 
   
2014
   
2013
 
             
Cash flows from operating activities
           
Net (loss)
  $ (1 )   $ (770 )
Adjustments to reconcile net loss to net cash
               
 provided by (used in) operating activities:
               
Depreciation and depletion
    4,430       2,613  
Deferred income taxes
    (84     (189 )
Stock-based compensation
    600       599  
Accretion of asset retirement obligation
    189       79  
Going public delay expense
    0       364  
Cash received (paid) for settlement of derivative instruments
    (57 )     0  
Loss from derivative contracts
    (113     (103 )
(Gain) loss on asset sales
    (719 )     0  
Amortization of debt issuance costs
    88       161  
Increase (decrease) in cash attributable to
               
 changes in operating assets and liabilities:
               
Trade receivable
    (442 )     (74 )
Joint interest receivable
    (1,337 )     51  
Prepaid expenses and other assets
    (64 )     (96 )
Accounts payable and accrued liabilities
    (3,080     (501 )
Joint interest revenues payable
    692       101  
Net cash provided by (used in) operating activities
    102       2,235  
                 
Cash flows from investing activities
               
Acquisition and development of oil and natural gas properties
    (8,405     (6,824 )
Acquisition of White Oak Resources VI, LLC and Permian Atlantis LLC oil and natural gas properties
    (17,078 )     0  
Acquisition of other property and equipment
    (3     (17 )
Net cash used in investing activities
    (25,486     (6,841 )
                 
Cash flows from financing activities
               
Proceeds from notes payable
    23,560       6,080  
Debt issuance costs
    (206 )     (102 )
Repayments of notes payable
    (513     (9 )
Deferred offering costs
    (56     (81 )
Net cash provided by financing activities
    22,785       5,888  
                 
Net increase (decrease) in cash
    (2,599     1,282  
Cash, beginning of period
    5,794       1,037  
Cash, end of period
  $ 3,195     $ 2,319  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
 
5

 
 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
 
   
Six Months Ended June 30,
 
   
2014
   
2013
 
             
Supplemental disclosure of cash flow information
           
Cash paid during the period for interest
  $ 851     $ 128  
                 
Supplemental disclosure of non-cash investing transactions
               
Payables related to oil and natural gas capitalized expenditures
  $ 523     $ 992  
Capitalized asset retirement cost
  $ 843     $ 52  
        Settlement of accounts payable through sale of oil and natural gas properties   3,873     0  

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
6

 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 1 - NATURE OF OPERATIONS

Starboard Resources LLC was formed in Delaware on June 2, 2011 as a limited liability company to acquire, own, operate, produce, and develop oil and natural gas properties primarily in Texas and Oklahoma. On June 28, 2012, Starboard converted from a Delaware limited liability company to a Delaware C-Corporation and is now known as Starboard Resources, Inc. (“Starboard”). The membership units of Starboard Resources LLC were exchanged on a 1:1 basis for common shares of Starboard.
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Basis of Presentation

The condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).

Additionally, the accompanying unaudited condensed consolidated financial statements as of June 30, 2014 and for the six and three months ended June 30, 2014 and 2013 have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial statements and with the instructions to Form 10-Q, and reflect, in the opinion of management, all adjustments, which are of a normal and recurring nature, necessary for a fair presentation of the results for such periods.  Operating results for the six and three months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.

Certain information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with U.S. GAAP have been condensed or omitted in this Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in our Form 10-K for the year ended December 31, 2013.
 
Reclassifications

Certain income and expense amounts from the six months ended June 30, 2014 and 2013 have been reclassified to conform to the current presentation.
 
Principles of Consolidation

The accompanying condensed consolidated financial statements include the accounts of Starboard and its wholly owned subsidiaries, ImPetro Resources, LLC (“ImPetro”) and ImPetro Operating (“Operating”) (Collectively the “Company”). All intercompany transactions and balances have been eliminated in consolidation.

Oil and Gas Natural Gas Properties

The Company uses the successful efforts method of accounting for oil and natural gas producing activities, as further defined under ASC 932, Extractive Activities - Oil and Natural Gas.  Under these provisions, costs to acquire mineral interests in oil and natural gas properties, to drill exploratory wells that find proved reserves, and to drill and equip development wells are capitalized. 

Exploratory drilling costs are capitalized when incurred pending the determination of whether a well has found proved reserves.  A determination of whether a well has found proved reserves is made shortly after drilling is completed.  The determination is based on a process that relies on interpretations of available geologic, geophysic, and engineering data.  If a well is determined to be successful, the capitalized drilling costs will be reclassified as part of the cost of the well.  Capitalized costs of producing oil and natural gas interests are depleted on a unit-of-production basis at the field level.

 
7

 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

If an exploratory well is determined to be unsuccessful, the capitalized drilling costs will be charged to expense in the period the determination is made.  If a determination cannot be made as to whether the reserves that have been found can be classified as proved, the cost of drilling the exploratory well is not carried as an asset for more than one year following completion of drilling.  If, after that year has passed, a determination that proved reserves exist cannot be made, the well is assumed to be impaired and its costs are charged to expense.  Its cost can, however, continue to be capitalized if a sufficient quantity of reserves is discovered in the well to justify its completion as a producing well and the entity is making sufficient progress assessing the reserves and the economic and operating viability of the project.

The carrying value of oil and gas properties is assessed for possible impairment on a field by field basis and on at least an annual basis, or as circumstances warrant, based on geological analysis or changes in proved reserve estimates. When impairment occurs, an adjustment is recorded as a reduction of the asset carrying value. For the six months and three months ended June 30, 2014 and 2013, the Company did not have an impairment charge.

Revenue Recognition and Natural Gas Imbalances

The Company utilizes the accrual method of accounting for natural gas and crude oil revenues, whereby revenues are recognized based on the Company’s net revenue interest in the wells upon sale to third parties.  The Company will also enter into physical contract sale agreements through its normal operations.

Gas imbalances are accounted for using the sales method.  Under this method, revenues are recognized based on actual volumes of oil and gas sold to purchasers.  However, the Company has no history of significant gas imbalances.

Income Taxes

Deferred income tax assets and liabilities are computed for differences between the financial statement and tax basis of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred income tax assets to the amount expected to be realized.

The Company is required to determine whether its tax positions are more likely than not to be sustained upon examination by the applicable taxing authority, including resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit recognized is measured as the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant taxing authority. De-recognition of a tax benefit previously recognized results in the Company recording a tax liability that reduces ending retained earnings. Based on its analysis, the Company has determined that it has not incurred any liability for unrecognized tax benefits as of June 30, 2014 and December 31, 2013. The Company’s conclusions may be subject to review and adjustment at a later date based on factors including, but not limited to, on-going analyses of and changes to tax laws, regulations and interpretations thereof.

The Company recognizes interest and penalties related to unrecognized tax benefits in interest expense and other expenses, respectively. No interest expense or penalties have been recognized as of June 30, 2014 and 2013 and for the six and three month periods then ended.

The Company files an income tax return in the U.S. federal jurisdiction, and may file income tax returns in various U.S. states and foreign jurisdictions. Generally, the Company is subject to income tax examinations by major taxing authorities since the commencement of operations.

The Company may be subject to potential examination by U.S. federal, U.S. states or foreign jurisdiction authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with U.S. federal, U.S. state and foreign tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

 
8

 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - Continued

Net Income (Loss) Per Common Share

Basic net income (loss) per common share is computed by dividing the net income (loss) attributable to stockholders by the weighted average number of common shares outstanding during the period.  Diluted net gain/loss per common share is calculated in the same manner, but also considers the impact to common shares for the potential dilution from stock options, non-vested share appreciation rights and non-vested restricted shares. For the six and three month periods ended June 30, 2014 and 2013, there were 349,650 potentially dilutive non-vested restricted shares. The potentially dilutive shares at June 30, 2014 and 2013 are considered antidilutive since the Company is in a net loss position and thus result in the basic net income (loss) per common share equaling the diluted net income (loss) per common share.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.  Actual results could differ from those estimates.

The Company’s estimates of oil and natural gas reserves are, by necessity, projections based on geologic and engineering data, and there are uncertainties inherent in the interpretation of such data as well as the projection of future rates of production and the timing of development expenditures. Reserve engineering is a subjective process of estimating underground accumulations of natural gas and oil that are difficult to measure. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation and judgment. Estimates of economically recoverable natural gas and oil reserves and future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effect of regulations by governmental agencies, and assumptions governing future natural gas and oil prices, future operating costs, severance taxes, development costs and workover costs, all of which may in fact vary considerably from actual results. The future drilling costs associated with reserves assigned to proved undeveloped locations may ultimately increase to the extent that these reserves are later determined to be uneconomic. For these reasons, estimates of the economically recoverable quantities of expected natural gas and oil attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows may vary substantially. Any significant variance in the assumptions could materially affect the estimated quantity of the reserves, which could affect the carrying value of the Company’s oil and natural gas properties and/or the rate of depletion related to the oil and natural gas properties.
 
 
9

 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
NOTE 3 – FAIR VALUE MEASUREMENTS

The following tables present information about the Company’s financial assets and liabilities measured at fair value as of June 30, 2014 and December 31, 2013:

                     
Balance as of
 
                     
June 30,
 
($ in thousands)
 
Level 1
   
Level 2
   
Level 3
   
2014
 
Assets (at fair value):
                       
Derivative assets (oil collar and put options)
  $ 0     $ 55     $ 0     $ 55  

                     
Balance as of
 
                     
December 31,
 
($ in thousands)
 
Level 1
   
Level 2
   
Level 3
   
2013
 
Liabilities (at fair value):
                       
Derivative liabilities (oil collar and put options)
  $ 0     $ 114     $ 0     $ 114  

NOTE 4 – PROPERTY ACQUISITION

On March 26, 2014 (the “Acquisition Date”), the Company completed the purchase of oil and natural gas leases and leasehold interests (the “Oil and Natural Gas Properties”) with White Oak Resources VI, LLC and Permian Atlantis LLC (collectively the “Seller”) for the purpose of increasing the Company’s oil and natural gas operations in the Permian Basin. The assets acquired are: (a) oil and natural gas leases and leasehold interests in Winkler and Loving Counties in Texas and Lea County, New Mexico; (b) twenty-nine wellbores; and (c) any contracts or agreements related to the foregoing lands, leases and wells. The Oil and Natural Gas Properties include total acreage held by production of 5,160 gross developed acres (1,983.61 net developed acres). Additionally, producing wells and surrounding acreage have been unitized under Texas Railroad Commission regulations. Under the terms of the agreement, the Company purchased the Oil and Natural Gas Properties for $17,383,000 in cash, before purchase price adjustments.

Unaudited Pro Forma Condensed Combined Financial Statements

The following unaudited pro forma financial statements give effect to the acquisition of the Oil and Natural Gas Properties. The unaudited pro forma condensed statement of operations for the six months ended June 30, 2014 and 2013 reflects the acquisition of the Oil and Natural Gas Properties as if it had occurred on January 1, 2013.

It is not intended to be indicative of the Company's results of operations or financial position that might have been achieved had the acquisition been completed as of the dates presented, or the Company's future results of operations or financial position.

 
10

 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 4 – PROPERTY ACQUISITION - Continued
 
in thousands, except share data
 
Six Month Period Ended June 30,
2014
   
Six Month Period Ended June 30,
2013
 
Oil, natural gas, and related product sales
  $ 10,384     $ 7,558  
                 
Net loss
  $ (210   $ (1,297
                 
Net loss per basic and diluted common share
  $ (0.02   $ (0.10
                 
Weighted average basic and diluted common shares outstanding
    12,362,336       12,362,336  
 
Financial Statement Presentation and Preliminary Purchase Price Allocation

The following purchase price allocation for the Oil and Natural Gas Properties is preliminary and includes significant use of estimates. The fair values of the assets acquired and liabilities assumed are preliminary and are subject to revision as the Company continues to evaluate the fair value of these acquisitions. Accordingly, the allocation will change as additional information becomes available and is assessed by management, and the impact of such changes may be material. The following table summarizes the preliminary purchase price and preliminary estimated values of assets acquired and liabilities assumed:

Fair value of assets acquired and liabilities assumed (in thousands)
     
Proved oil and natural gas properties (4)
  $ 17,921  
Asset retirement obligations
    (843 )
Total fair value of assets acquired and liabilities assumed, net
  $ 17,078  
         
Cash consideration transferred
  $ 17,078  

(4) Amount includes asset retirement costs of approximately $843.

NOTE 5 – OIL AND NATURAL GAS PROPERTIES

The following table presents a summary of the Company’s oil and natural gas properties at June 30, 2014 and December 31, 2013:
 
($ in thousands)
 
June 30,
2014
   
December 31,
2013
 
Oil and natural gas properties
           
   Proved-developed producing properties
  $ 95,220     $ 72,208  
   Proved-developed non producing properties
    1,379       1,384  
   Proved-undeveloped properties
    11,858       9,410  
   Unproved properties
    2,446       4,208  
   Less: Accumulated depletion
    (17,446 )     (13,044 )
Total oil and natural gas properties, net of  accumulated depletion
  $ 93,457     $ 74,166  

 
11

 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
NOTE 6 – ASSET RETIREMENT OBLIGATIONS
 
The Company has recognized the fair value of its asset retirement obligations related to the future costs of plugging, abandonment, and remediation of oil and natural gas producing properties.  The present value of the estimated asset retirement obligations has been capitalized as part of the carrying amount of the related oil and natural gas properties.  The liability has been accreted to its present value as of the end of each period.  At June 30, 2014 and December 31, 2013, the Company evaluated 166 and 125 wells, respectively, and has determined a range of abandonment dates between January 2014 and June 2061.  The following table represents a reconciliation of the asset retirement obligations for the six months ended June 30, 2014 and for the year ended December 31, 2013:
 
   
Six Month Period Ended June 30, 2014
   
Year Ended December 31, 2013
 
($ in thousands)
           
Asset retirement obligations, beginning of period
  $ 2,436     $ 2,272  
Additions to asset retirement obligation
    885       42  
    Liabilities settled during the period
    0       (48 )
    Accretion of discount
    189       160  
    Revision of estimate
    (42 )     10  
Asset retirement obligations, end of period
  $ 3,468     $ 2,436  

The assert retirement liability is measured using primarily Level 3 inputs. The significant unobservable inputs to this fair value measurement include estimates of plugging costs, remediation costs, inflation rate and well life. The inputs are calculated based on historical data as well as current estimated costs.

NOTE 7 – GOING PUBLIC DELAY FEE

We entered a “Securities Purchase and Exchange Agreement” dated June 10, 2011, with Longview Marquis Master Fund, L.P., Summerview Marquis Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC, and Summerline Capital Partners, LLC (collectively “Summerline”).  The Agreement says if the Company, for any reason, does not go public on or before that date that is one hundred fifty days after the Roll-up Date (the “Going Public Delay Date”), the Company shall pay to each applicable stockholder an aggregate amount equal to the product of (i) such stockholder’s allocation percentage multiplied by (ii) $60,715 (the “Going Public Delay Fee”) on the last business day of each calendar month, for each such calendar month following the Going Public Delay Date through and including the date of going public (the “Going Public Delay Period”). For any partial calendar months during the Going Public Delay Period, the Going Public Delay Fee shall be pro-rated appropriately. For the six and three months ended June 30, 2013, the Company has incurred a delay fee of approximately $364,000 and $182,000, which is currently included in accrued liabilities on the accompanying condensed consolidated balance sheets.

Effective August 6, 2013, the Company ceased to incur Going Public Delay Fees due to an effective Form 10 filing.

NOTE 8 – DERIVIATIVES

We use derivatives to hedge our oil production.  Our current hedge position consists of a mix of costless collars and put options. These contracts and any future hedging arrangements may expose us to risk of financial loss in certain circumstances, including instances where production is less than expected or oil prices increase.  In addition, these arrangements may limit the benefit to us of increases in the price of oil.  Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our derivative instrument, which we utilize entirely to hedge our production and do not enter into for speculative purposes. We have not designated the derivative contracts as hedges for accounting purposes, and accordingly, we record the derivative contracts at fair value and recognize changes in fair value in earnings as they occur.
 
 
12

 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
NOTE 8 – DERIVIATIVES - Continued

At June 30, 2014, we had the following open crude oil derivative contracts:
 
 
  
     
June 30, 2014
 
 
Instrument
 
Commodity
 
Volume
(bbl / month)
   
Floor
Price
   
Ceilings
Price
   
Purchased Put Option
Price
   
Fair Value
(in thousands)
 
July 2014
Collars
 
Crude Oil
    6,040       73.00 – 90.00       99.00 – 105.00             (7 )
July 2014
Put
 
Crude Oil
    1,500                       82.00       0  
Aug. 2014 – Dec. 2014
Collars
 
Crude Oil
    4,000       90.00       105.00               36  
Aug. 2014 – Dec.2014
Put
 
Crude Oil
    3,550                       82.00       (1 )
Jan.2015 – Oct. 2015
   Put
 
    Crude Oil
    5,000                       77.00 – 80.00       11  
Nov. 2015 – Dec. 2015
Put
 
Crude Oil
    2,800                       80.00       11  
Jan.2016 – March 2016
Put
 
Crude Oil
    1,500                       75.00       7  

The following tables identify the fair value amounts of derivative instruments included in the accompanying consolidated balance sheets as derivative contracts, categorized by primary underlying risk. Balances are presented on a gross basis, prior to the application of the impact of counterparty and collateral netting. The following tables also identify the net gain (loss) amounts included in the accompanying consolidated statements of operations as gain (loss) from derivative contracts.

Fair Value of Derivative Financial Instruments
 
(amounts in thousands)
 
June 30,
2014
   
December 31,
2013
 
Derivative financial instruments - Current asset
 
$
31
 
 
$
0
 
Derivative financial instruments - Long-term assets
   
24
     
0
 
Derivative financial instruments - Current liabilities
   
0
     
(63
)
Derivative financial instruments - Long-term liabilities
   
0
     
(51
)
Net derivative financial instruments
 
$
55
   
$
(114
)

Effect of Derivative Financial Instruments
 
   
Three Months Ended June 30,
 
Six Months Ended June 30,
(amounts in thousands)
 
2014
 
2013
 
2014
 
2013
Gain from derivative contracts
 
$
115
   
$
65
   
$
113
   
$
103
 

NOTE 9 – NOTES PAYABLE

On June 27, 2013, the Company entered into a credit agreement (“Credit Agreement”) with Independent Bank to borrow up to $100,000,000 at a current rate of 4.00% annum. The Credit Agreement was obtained to fund the development of the Company’s oil and natural gas properties and refinance the prior bank facility.  At June 30, 2014 and December 31, 2013, the Company had approximately $21,996,000 and $12,436,000, respectively, in borrowings outstanding under the Credit Agreement.

The Credit Agreement provides for a borrowing base of $23,500,000 as of June 30, 2014, which is re-determined semi-annually and upon requested special redeterminations.  Additionally, the borrowing base may be adjusted at the financial institution’s discretion which is based in part upon external factors over which the Company has no control. If the re-determined borrowing base were to be less than outstanding borrowings under the Credit Agreement, the Company would be required to repay the deficit. The Company incurs a commitment fee of 0.5% on the unused portion of the credit facility or if less, the borrowing base. The Credit Agreement matures at June 1, 2016.

 
13

 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
 
NOTE 9 – NOTES PAYABLE - Continued

Loans under the Credit Agreement bear interest at the greater of: (1) the prime rate, the annual rate of interest announced by the Wall Street Journal as its “prime rate”, or (2) the floor rate of 4.00%.

The Credit Agreement is collateralized by the oil and natural gas properties and contains several restrictive covenants including, among others:  (1) a requirement to maintain a current ratio, of not less than 1.0 to 1.0; (2) a maximum permitted ratio of debt to adjusted EBITDAX of not more than 3.5 to 1.0; (3) a maximum permitted ratio of adjusted EBITDAX to interest expense of not more than 3.0 to 1.0; and (4) a prohibition against incurring debt, subject to permitted exceptions.

On March 26, 2014, the Company entered into a term loan agreement with Independent Bank totaling $4,000,000 at a current rate of 6.75% annum.  The agreement was obtained to fund the development of the Company’s acquisition of oil and natural gas properties (see note 4).  The term loan had an outstanding balance of approximately $3,500,000 outstanding at June 30, 2014. The loan requires 18 equal monthly payments of approximately $194,000 starting on October 1, 2014 and maturing on March 1, 2016 and is subject to the same covenants as the Credit Agreement.

The loan under the term agreement bears interest at the greater of: (1) the prime rate, the annual rate of interest announced by the Wall Street Journal as its “prime rate”, plus the applicable margin of 3.00% or (2) the floor rate of 6.75%.

NOTE 10 – STOCK BASED COMPENSATION AND CONDITIONAL PERFORMANCE AWARDS

On April 1, 2012, the Company entered into employment agreements (the “Employment Agreement”) which provided a restricted stock grant and a conditional performance award to key members of management.

The restricted stock grant of 349,650 shares had a grant date fair value of $10.00 per share and vests in full upon the earlier of an initial public offering (“IPO”) which includes the sale of shares to the public, a business combination whereas 50% or more of the voting power is transferred to the new owners, or March 1, 2015.  During the six months ended June 30, 2014 and 2013, the Company incurred a stock-based compensation expense of approximately $300,000 and $300,000, respectively, related to the restricted stock grant, which is included in the accompanying condensed consolidated statements of operations in general and administrative expenses.  As of June 30, 2014 and December 31, 2013, there was approximately $799,000 and $1,398,000, respectively, of unrecognized stock-based compensation expense related to the non-vested restricted stock grant. At June 30, 2014 and December 31, 2013, this unrecognized stock-based compensation is expected to be expensed on a straight-line basis over 8 and 14 months. As of June 30, 2014 and as of December 31, 2013, there have been no forfeitures associated with the restricted stock grant.

Additionally, the Employment Agreement provides for a conditional performance award where if an IPO occurs, the employee will receive: (1) a cash payment of 1% of the difference between the Company market capital and the book value at the time of the IPO, (2) common stock options to purchase 1.0% of the fully-diluted capital stock as of the IPO date and IPO price which will vest over a four year period and contain a cashless exercise, (3) common stock options to purchase 1.0% of the fully-diluted capital stock as of the 2nd anniversary of the IPO date at the closing price of the common stock on the 2nd anniversary date of the IPO and will vest six years after the grant and contain a cashless exercise.  As of the six months ended June 30, 2014 and 2013, the conditional performance feature is not probable and as such, no compensation expense related to the conditional performance feature has been recognized.

NOTE 11 – RELATED PARTY TRANSACTIONS

Related Party Credit Agreement

On March 29, 2013, the Company entered a credit agreement with SOSventures, LLC providing for a term loan through February 16, 2016 in an amount up to $10,000,000 at a 17.00% interest rate through March 29, 2014 and 22.00% interest rate thereafter.  The loan under this agreement is secured by a second lien on the Company’s assets.  The Company may not incur further indebtedness beyond this loan and the Credit Agreement without the consent of SOS Ventures, until such time as the SOS Ventures loan is fully repaid.

 
14

 
STARBOARD RESOURCES, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 11 – RELATED PARTY TRANSACTIONS - Continued

On May 30, 2014, the Company amended its credit agreement with SOSventures, LLC providing for a term loan through February 1, 2016 in an amount up to $20,000,000 at an 18.00% interest rate.  As of June 30, 2014, the Company has borrowed $10,000,000 under this agreement.

The term loan is collateralized under a second lien by the oil and natural gas properties and contains several restrictive covenants including, among others:  (1) a requirement to maintain a current ratio, of not less than 1.0 to 1.0; (2) a maximum permitted ratio of debt to adjusted EBITDAX of not more than 4.0 to 1.0; (3) a maximum permitted ratio of adjusted EBITDAX to interest expense of not more than 3.0 to 1.0; and (4) a prohibition against incurring debt, subject to permitted exceptions.

NOTE 12 – LEGAL PROCEEDINGS
 
From time-to-time, the Company may become subject to proceedings, lawsuits and other claims in the ordinary course of business including proceedings related to environmental and other matters. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance.

The Company is subject to various possible contingencies that arise primarily from interpretation of federal and state laws and regulations affecting the oil and natural gas industry. Such contingencies include differing interpretations as to the prices at which oil and natural gas sales may be made, the prices at which royalty owners may be paid for production from their leases, environmental issues and other matters. Although management believes that it has complied with the various laws and regulations, administrative rulings and interpretations thereof, adjustments could be required as new interpretations and regulations are issued. In addition, environmental matters are subject to regulation by various federal and state agencies. 

 
15

 
 
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis should be read in conjunction with the condensed consolidated financial statements and the notes thereto included elsewhere in this Quarterly Report on Form 10-Q and with our audited consolidated financial statements included in our 10k filed under the Securities Act of 1934, as amended, with the Securities and Exchange Commission on June 30, 2014.  Our discussion and analysis includes forward-looking information that involves risks and uncertainties, and should be read in conjunction with the below section entitled “Forward-Looking Statements.”  For a discussion about the risks and uncertainties that could cause our actual results to be materially different than our forward-looking statements, see Part II. Item 1A. “Risk Factors.”
 
In this Quarterly Report on Form 10-Q, references to “we,” “our” or “the Company” refer to Starboard Resources Inc. and its subsidiaries.

Forward-Looking Statements

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Forward-looking statements are statements other than historical fact and give our current expectations or forecasts of future events. They may include estimates of natural gas and oil reserves, expected natural gas and oil production and future expenses, assumptions regarding future natural gas and oil prices, planned capital expenditures, and anticipated asset acquisitions and sales, as well as statements concerning anticipated cash flow and liquidity, business strategy and other plans and objectives for future operations.
 
Although we believe the expectations and forecasts reflected in these and other forward-looking statements are reasonable, we can give no assurance they will prove to have been correct. They can be affected by inaccurate assumptions or by known or unknown risks and uncertainties. Factors that could cause actual results to differ materially from expected results include, but are not limited to: any statements regarding personnel, business strategy, estimated current and future net reserves and present values of such reserves, drilling and completion of wells including our identified locations, financial strategy, budget projections, operating results, marketing and realized prices for oil, natural gas and natural gas liquids, timing and amount of future production of oil and natural gas, availability and cost of drilling and production equipment, availability and cost of oilfield labor, the amount, nature and timing of capital expenditures, including future development costs, our ability to fund our 2014 and 2015 capital expenditure budget, liquidity, capital resources, the cost and availability of transportation of our hydrocarbon products, available refinery capacity, amount of stockpiles of hydrocarbon products, the cost and availability of competing sources of energy such as wind, solar, nuclear and hydro energy, technology developments affecting users of hydrocarbon products, such as electric cars, government transportation policies, availability and terms of capital, development results from our identified drilling locations, property acquisitions, property development and operating costs, general economic conditions, the commodity price environment, the effectiveness and extent of our risk management activities, our insurance coverage, estimates of future potential impairments, environmental liabilities, technology, counterparty credit risk, government regulation of and tax treatment for the oil and gas industry, non-historical plans, objectives, expectations and intentions contained in this report, future revenues, future costs and expenses, earnings, earnings per share, margins, cash flows, liquidity and dividends. Important factors which may affect the actual results include, but are not limited to, the resolution of the litigation involving Giddings Oil & Gas LP, Hunton Oil Partners LP and Asym Energy Fund III LP, political developments, market and economic conditions, changes in raw material, transportation and energy costs, inflation, industry competition, lack of availability of drilling and production equipment and services, environmental risks, drilling and other operating risks, regulatory changes, the uncertainty inherent in estimating oil and natural gas reserves and in projecting future rates of production, cash flow and access to capital, the timing of development expenditures, cost of services, service and equipment providers and the ability to execute and realize the expected benefits from strategic initiatives, including revenue and reserve growth plans, mergers and acquisitions and their integration, changes in financial markets and changing legislation and regulations, including changes in tax law or tax regulations.

Reserve engineering is a process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact way. The accuracy of any reserve estimate depends on the quality of available data, the interpretation of such data and price and cost assumptions made by reservoir engineers. In addition, the results of drilling, testing and production activities may justify revisions of estimates that were made previously. If significant, such revisions would change the schedule of any further production and development drilling. Accordingly, reserve estimates may differ significantly from the quantities of oil and natural gas that are ultimately recovered.

 
16

 
 
We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this Quarterly Report, and we undertake no obligation to update this information. Should one or more of the risks or uncertainties described in this report occur, or should underlying assumptions prove incorrect, our actual results and plans could differ materially from those expressed in any forward-looking statements.  All forward-looking statements, expressed or implied, included in this report are expressly qualified in their entirety by this cautionary statement. This cautionary statement should also be considered in connection with any subsequent written or oral forward-looking statements that we or persons acting on our behalf may issue. All forward-looking statements in this report are expressly qualified by the statements in this section to reflect events or circumstances after the date of this report. Forward-looking statements are not guarantees of future performance and actual results may differ significantly from the results discussed in the forward-looking statements. We assume no obligation to revise or update any forward-looking statements for any reason, except as required by law.

We urge you to carefully review and consider the disclosures made in this Quarterly Report and our other filings with the Securities and Exchange Commission that attempt to advise interested parties of the risks and factors that may affect our business.

Overview
 
 Starboard is an independent energy company engaged primarily in the exploration for, and development of, natural gas and crude oil reserves. We generate our revenues and cash flows primarily from the proceeds from the sale of oil and gas production on properties we hold or participate in.

As of June 30, 2014, we owned interests in 154 producing oil and natural gas wells.  Our oil and natural gas production for the six months ended June 30, 2014 consisted of 79,328 bbls of oil and 313,931 Mcf of gas compared to 52,701 bbls of oil and 239,402 Mcf of gas for the six months ending June 30, 2013.  

 Strategy

Starboard produces from operated oil and natural gas wells in the liquids rich, oil bearing window of the Eagle Ford trend of South Texas and the nearby oil-prone Giddings field where in combination we control approximately 16,000 gross acres.  The Company also has material non-operated working interests in producing properties and conventional prospects located throughout Logan and McClain counties in Oklahoma which account for 23,000 gross acres.  The Company’s operated Permian interest, the Crittendon field, consists of approximately 5,280 gross acres in Winkler county.  The combined reserve base and net production are each over 70% oil-weighted.
 
At January 1, 2014, based on the reserves estimate by our independent reservoir engineers, we had 5,091 MBOE of estimated proved reserves with a PV-10 of $131.6 million. At January 1, 2014, 17% of our estimated proved reserves were proved developed reserves and 72% of our estimated proved reserves were oil and condensate. We grew our average daily production by 12% from 518 BOE per day for the year ending December 31, 2012 to 579 BOE per day for the year ended December 31, 2013.
 
As part of this strategy, we focus on the following areas:
 
Bigfoot - Texas

We control about 3,000 gross acres across Frio and Atascosa counties in southern Texas, comprising 7% of our total proved reserves.
 
 Giddings – Bastrop - Texas

Giddings is our largest acreage position with just over 13,000 gross acres located within the Eagle Ford trend.  Our acreage is spread across Bastrop, Burleson, Brazos, Fayette, Lee, Gonzales, and Robertson counties.  From a reserve perspective, Giddings comprises the largest portion of our total proved reserves at 64%. 
 
Logan County - Oklahoma

Our non-operated working interests are located in Oklahoma, spread across Logan, Kingfisher, and McClain counties. Our position consists of just over 23,360 gross acres and comprises 12% of our total proved reserves.
 
 
17

 
 
Crittendon - Winkler County - Texas

In Winkler County we control about 5,280 gross acres. Our position comprises 17% of our total proved reserves.
 
Results of Operations

Comparison of Six Months Ended June 30, 2014 to the Six Months Ended June 30, 2013
 
Total Revenues. Total revenues increased $3,510 thousand to $9,702 thousand for the six months ended June 30, 2014 from $6,192 thousand for the six months ended June 30, 2013, driven primarily by increased oil and natural gas production from existing reserves, as well as production from wells acquired from the acquisition of White Oak Resources VI, LLC and Permian Atlantis LLC oil and natural gas properties in March 2014.
 
  Total natural gas and oil production for the six months ending June 30, 2014 consisted of 313.931 Mcf of natural gas and 79,328 bbls of oil, as compared to total natural gas and oil production for six months ending June 30, 2013, which consisted of 239,402 Mcf of natural gas and 52,701 bbls of oil.

 Our average sales price received for natural gas decreased to $4.75 per Mcf for the six months ending June 30, 2014 from $5.10 per Mcf for the same period in 2013. Our average sales price received for oil increased to $95.31 per bbl for the six months ending June 30, 2014 from $93.01 per bbl for the same period in 2013.
 
            Changes in natural gas and oil prices can significantly impact our natural gas and oil sales and related cash flows. Lower prices may materially adversely affect the sales prices we receive and our revenues and cash flow.

Costs and Expenses. Total costs and expenses (excluding depreciation, depletion and amortization) increased $1,188 thousand to $5,172 thousand for the six months ending June 30, 2014 from $3,984 thousand for the same period in 2013, due to increased production expenses associated with the Crittendon field acquisition.  Lease operating expenses increased $515 thousand to $2,313 thousand for the six months ending June 30, 2014 from $1,798 thousand for the same period in 2013, due primarily to increased production activity and our Crittendon field acquisition.  General and administrative expenses and professional fees increased $384 thousand to $2,298 thousand for the six month period ending June 30, 2014 from $1,914 thousand for the same period in 2013, due primarily to increased staffing, legal and administrative due to greater drilling and production activity. Depletion, depreciation and amortization expense increased to $4,518 thousand for the six month period ending June 30, 2014 from $2,774 thousand for the same period in 2013, due primarily to increased depletion expenses associated with new property acquisitions.

 Net Loss. Net income was $(1) thousand, or $(0.00) per diluted and basic common share, for the six month period ending June 30, 2014 as compared to $(770) thousand, or $(0.06) per diluted and basic common share, for the same period in 2013. The decrease in net loss was attributable primarily to additional production from new and existing wells and gain on sale from the disposal of unproven undeveloped oil and natural gas lease.
   
Liquidity and Capital Resources
 
During the six months ended June 30, 2014 compared to the same period in 2013, net cash flow provided by operating activities decreased by $2,133 thousand to $102 thousand. This decrease was primarily attributable to increased payments on the oil and gas related payables.
 
Our current assets were $7,290 thousand on June 30, 2014. Cash on hand comprised approximately $3,195 thousand, of which there is nothing in restricted cash accounts. This compared to cash of $5,794 thousand at December 31, 2013. Accounts payable decreased from $9,485 thousand at December 31, 2013 to $3,054 thousand at June 30, 2014.
 
The consolidated financial statements continue to reflect a much increased but ongoing drilling program which amounted to $16 million during 2013. Our capital program is designed to increase production through exploration and workovers within our fields and through joint venture programs. This strategy will involve industry partners in these efforts so as to reduce our upfront cash requirements and reduce risk dollars expended. This represents an increase of $5.2 million from our capital investment in 2012.
 
 
18

 
 
Our primary sources of liquidity are cash provided by operating activities, our revolving bank facility, a subordinated credit facility, sales of non-core properties and access to capital markets.
 
Sources and Uses of Funds
 
Cash flow from operations is a significant source of liquidity. We generate our operating cash flow from oil and natural gas, which are generally attributable to working interests owned and held directly by us in wells on producing oil and gas properties (which generate monthly revenue and cash flow to the extent such wells produce natural gas and oil) and carried working interests in such wells (which also generate monthly revenue and cash flow to the extent such wells produce natural gas and oil), as well as overriding royalty interests and reversionary interests (which may generate additional monthly revenue and cash flow to the extent such wells produce natural gas and oil).

Cash and cash equivalents totaled $3,195 thousand at June 30, 2014, compared to $5,794 thousand at December 31, 2013.  Cash provided by operating activities was $102 thousand for the six month period ending June 30, 2014, compared to $2,235 thousand for the same period in 2013.
 
Changes in cash flows from operations are largely due to the same factors that affect our net income, excluding various non-cash items such as impairments of assets, depreciation, depletion and amortization and deferred income taxes. For example, changes in production volumes and market prices for natural gas and oil directly impact the level of our cash flow from operations. See the discussion under “Results of Operations.”
 
We use cash flows from operations to fund expenditures related to our exploration, development and acquisition of natural gas and oil properties. We use cash provided by our oil and natural gas sales. We have historically obtained most of the capital to fund expenditures related to oil and natural gas production from a combination of free cash flow and borrowing on our bank facility. During 2014, we additionally obtained cash flows in connection with the divestiture of non-key undeveloped properties.

Net cash provided by financing activities was $22,785 thousand for the six month period ending June 30, 2014, compared to $5,888 thousand for the same period in 2013. These financing activities primarily reflect borrowing on our bank and second lien facilities for the Crittendon field acquisition.
 
Although we typically retain a significant degree of control over the timing of our capital expenditures, we may not always be able to defer or accelerate certain capital expenditures to address any potential liquidity issues. In addition, changes in drilling and field operating costs, drilling results that alter planned development schedules, acquisitions or other factors could cause us to revise our drilling program, which is largely discretionary.

As of June 30, 2014, we had a working capital surplus of $362 thousand, which consisted of $7,290 thousand of current assets offset by $6,928 thousand of current liabilities. Current assets as of June 30, 2014 included cash of $3,195 thousand and accounts receivable of $3,618 thousand. Current liabilities as of June 30, 2014 included accounts payable and accrued liabilities of $3,054 thousand and revenue payable of $1,660 thousand.
 
 Our current credit facility is with Independent Bank.  The $100 million secured facility has a current borrowing base of $23.5 million as of June 30, 2014, matures in 2016, and has a prime plus 0.0% interest rate with a 4.0% floor.  We currently have approximately $22.0 million drawn on the facility.

On July 25, 2013 we entered an amended credit agreement with SOSventures, LLC providing for a term loan through February 1, 2016 in an amount up to $10,000,000 at a 17.00% interest rate through May 29, 2014 and 22.00% interest rate thereafter.  The loan under this Agreement is secured by a second lien on the Company’s assets.  The credit agreement and the related intercreditor agreement are referenced at Exhibits 10.6.1 and 10.6.2.  On June 3, 2014 we agreed to amendment to our credit agreement with SOSventures, LLC providing for a term loan through February 16, 2016 in an amount up to $20,000,000 at an 18.00% interest rate. The amendment is referenced at Exhibit 6.3.  The loan under this Agreement is secured by a second lien on the Company’s assets.  We have $10 million draw on this credit facility.

On March 26, 2014, the Company entered into a term loan agreement with Independent Bank totaling $4,000,000 at a current rate of 6.75% annum.  The agreement was obtained to fund the development of the Company’s acquisition of oil and natural gas properties.  The loan requires 18 equal monthly payments of approximately $194,000 starting on October 1, 2014 and maturing on March 1, 2016 and is subject to the same covenants as the Credit Agreement.

 
19

 
 
The loan under the term agreement bears interest at the greater of: (1) the prime rate, the annual rate of interest announced by the Wall Street Journal as its “prime rate”, plus the applicable margin of 3.00% or (2) the floor rate of 6.75%.

Bank Credit Facility

On June 27, 2013 we entered into a senior secured credit facility from Independent Bank, providing for a $100.0 million revolving credit facility, subject to scheduled or elective collateral borrowing base redeterminations based on our oil and natural gas reserves. The credit facility matures on June 1, 2016.  As of June 30, 2014, our borrowing base was $23.5 million.  The outstanding borrowings bear interest at a rate that is currently based on the prime plus 0.0% with a 4.00% floor.  We also must pay an unused commitment fee of 0.5% per year on the undrawn amount of the borrowing base.  As of June 30, 2014 we have currently borrowed approximately $22.0 million on the credit facility.

 The credit facility is secured by our assets, including the oil and gas assets, and is guaranteed by our subsidiaries.  We are also required to limit our commodity hedges to collars with no more than 75% of our projected monthly oil and gas production from our proved developed producing reserves. Finally, we may not pay dividends to stockholders without the consent of Independent Bank.

The credit facility requires us to maintain certain financial ratios.  First, each quarter we must maintain an interest coverage ratio of 3:1 so that our consolidated net income, adjusted for interest expense, depreciation, depletion and amortization expenses less tax expenses and dividends/stock buybacks (“EBITDAX”) is greater than 3 times our interest expense under the credit facility.  Second, we must maintain a debt to EBITDAX ratio of less than 3.5:1 at the end of each fiscal quarter. Third, we must maintain a current ratio of at greater than 1:1 at the end of each fiscal quarter, meaning that our consolidated current assets (including the unused amount of the credit facility and excluding non-cash assets under ASC 410 and 815) must be greater than our consolidated current liabilities (excluding non-cash obligations under ASC 410 and 815 and current portion of the note under the credit facility.)

Further, the credit facility prohibits our incurring most debt outside the ordinary course of business except for the subordinated credit facility.

We may not merge or have a subsidiary merger with another company without the consent of Independent Bank.  We also must obtain Independent Bank’s consent to sell oil and gas assets.

The credit facility has no required amortizations unless there is a borrowing base deficiency.  There are no mandatory prepayments unless there is a borrowing base deficiency.

We also have additional affirmative and restrictive covenants.

The bank credit facility provides us with financial flexibility and liquidity.  It also exposes us to interest rate risk, requires that we make business decisions with a focus on the credit facility’s financial ratios and other terms and presents a risk of loss of assets if we have an event of default.  Further, our liquidity may also be affected by material changes to our borrowing base that result from changes in hydrocarbon prices or other market conditions.

Bank Term Loan
 
On March 26, 2014, the Company entered into a term loan agreement with Independent Bank totaling $4,000,000 at a current rate of 6.75% annum.  The agreement was obtained to fund the development of the Company’s acquisition of oil and natural gas properties.  The loan requires 18 equal monthly payments of approximately $194,000 starting on October 1, 2014 and maturing on March 1, 2016 and is subject to the same covenants as the Credit Agreement.

The loan under the term agreement bears interest at the greater of: (1) the prime rate, the annual rate of interest announced by the Wall Street Journal as its “prime rate”, plus the applicable margin of 3.00% or (2) the floor rate of 6.75%.
 
 
20

 
 
SOSventures, LLC Credit Agreement
 
On June 3, 2014 we agreed to amendment to our credit agreement with SOSventures, LLC providing for a term loan through February 16, 2016 in an amount up to $20,000,000 at an 18.00% interest rate.  The loan under this Agreement is secured by a second lien on the Company’s assets.

The SOSventures, LLC credit agreement requires us to maintain certain financial ratios.  First, we must maintain an interest coverage ratio of 3:1 at the end of each quarter so that our consolidated net income less our fees under the credit facility, lender expenses, non-cash charges relating to the hedge agreements, interest, income taxes, depreciation, depletion, amortization, exploration expenditures and costs and other non-cash charges (netted for noncash income) (“EBITDAX”) is greater than 3 times our interest expense under the credit facility.  Second, we must maintain a debt to EBITDAX ratio of less than 3.5:1 at the end of each quarter. Third, we must maintain a current ratio of at greater than 1:1 at the end of each quarter, meaning that our consolidated current assets (including the unused amount of the credit facility by excluding non-cash assets under ASC 410 and 815) must be greater than our consolidated current liabilities (excluding non-cash obligations under ASC 410 and 815 and current maturities under the credit facility.)

The credit agreement prevents us from incurring indebtedness to banks or lenders, other than Independent Bank, without the consent of SOSventures, LLC. It also prevents us from incurring most contingent obligations or liens (other than to Independent Bank). It restricts our ability to pay dividends, issue options and warrants and repurchase our common stock shares. The options and warrants limitations do not apply to equity compensation plans.

As of June 30, 2014, we have $10 million drawn against the SOSventures, LLC credit facility.

Hedging Activities

Our current hedge position consists of a mix of costless collars and put options. These contracts and any future hedging arrangements may expose us to risk of financial loss in certain circumstances, including instances where production is less than expected or oil prices increase.  In addition, these arrangements may limit the benefit to us of increases in the price of oil.  Accordingly, our earnings may fluctuate significantly as a result of changes in the fair value of our derivative instrument, which we use entirely to hedge our production and do not enter into for speculative purposes.
 
At June 30, 2014, we had the following open crude oil derivative contracts:
 
 
  
     
June 30, 2014
 
 
Instrument
 
Commodity
 
Volume
(bbl / month)
   
Floor
Price
   
Ceilings
Price
   
Purchased Put Option
Price
 
July 2014
Collars
 
Crude Oil
    6,040       73.00 – 90.00       99.00 – 105.00        
July 2014
Put
 
Crude Oil
    1,500                       82.00  
August 2014 – December 2014
Collars
 
Crude Oil
    4,000       90.00       105.00          
August 2014 – December 2014
Put
 
Crude Oil
    3,550                       82.00  
January 2015 – October 2015
Put
 
Crude Oil
    5,000                       77.00 – 80.00  
November 2015 – December 2015
Put
 
Crude Oil
    2,800                       80.00  
January 2016 – March 2016
Put
 
Crude Oil
    1,500                       75.00  

Critical Accounting Policies and Estimates
 
The following discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses.  Certain accounting policies involve judgments and uncertainties to such an extent that there is reasonable likelihood that materially different amounts could have been reported under different conditions, or if different assumptions had been used.  We evaluate such estimates and assumptions on a regular basis.  We base our estimates on historical experience and various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates and assumptions used in preparation of our consolidated financial statements.  Below, we have provided expanded discussion of the more significant accounting policies, estimates and judgments.  We believe these accounting policies reflect the more significant estimates and assumptions used in preparation of our consolidated financial statements.  Please read the notes to our audited consolidated financial statements included in this registration statement for a discussion of additional accounting policies and estimates made by management.
 
 
21

 
 
Oil and Gas Producing Activities
 
 Our oil and gas producing activities were accounted for using the successful efforts method of accounting as further defined under FASB ASC 932, Extractive Activities – Oil and Natural Gas. Costs to acquire leasehold rights in oil and gas properties, to drill and equip exploratory wells that find proved reserves, and to drill and equip development wells are capitalized.  Costs to drill exploratory wells that do not find proved reserves, delay rentals and geological and geophysical costs are expensed.
 
Depletion and Depreciation
 
Estimates of natural gas and oil reserves utilized in the calculation of depletion are prepared using certain assumptions. Reserve estimates are based upon existing economic and operating conditions with no provision for price and cost escalations except by contractual arrangements.  Natural gas and oil reserve estimates are inherently imprecise and are subject to change as more current information becomes available. Capitalized costs are depleted and amortized using the units of production method, based upon reserve estimates. 

Impairments

 The carrying value of oil and gas properties is assessed for possible impairment on a field by field basis and on at least an annual basis, or as circumstances warrant, based on geological analysis or changes in proved reserve estimates. When impairment occurs, an adjustment is recorded as a reduction of the asset carrying value.  For the years ended December 31, 2013 and 2012, the Company did not have any impairment charges.
 
Asset Retirement Obligations
 
 The Company records for the estimated liability for the plugging and abandonment of natural gas and oil wells at the end of their productive lives following the provisions of ASC 410-20, Asset Retirement Obligations. Asset retirement obligations are estimated at the present value of expected future net cash flows based on reserve estimates and federal and state regulatory requirements and are discounted using the Company’s credit adjusted risk free rate.  Because the Company uses unobservable inputs in estimating asset retirement obligations, it considers such obligations a Level 3 measurement under ASC 820.  At the time of abandonment, we recognize a gain or loss on abandonment to the extent that actual costs do not equal the estimated costs.

Goodwill
 
At June 30, 2014 and December 31, 2013 the Company had goodwill of $960 thousand.
 
Goodwill represents the excess of the purchase price over the fair value of the net assets acquired.  The Company follows FASB ASC Topic 350 Goodwill and Intangible Asset Impairment Testing. Our analysis consists of two steps. Step 1 tests the company for impairment by comparing the fair value of equity to the book value of equity. If the fair value is less than the book value, then Step 2 analysis must be performed. If the fair value of goodwill is less than its carrying amount, impairment is recorded based on the difference. The Company annually assesses the carrying value of goodwill for impairment.  

Pricing mechanism for oil and gas reserves estimation
 
The SEC’s rules require reserve estimates to be calculated using a 12-month average price. Price changes can still be incorporated to the extent defined by contractual arrangements. The use of a 12-month average price rather than a single-day price is expected to reduce the impact on reserve estimates.
 
The SEC rules also amend the definition of proved oil and gas reserves to include reserves located beyond development spacing areas that are immediately adjacent to developed spacing areas if economic recoverability can be established with reasonable certainty. These revisions are designed to permit the use of alternative technologies to establish proved reserves in lieu of requiring companies to use specific tests. In addition, they establish a uniform standard of reasonable certainty that applies to all proved reserves, regardless of location or distance from producing wells. Because the revised rules generally expand the definition of proved reserves, proved reserve estimates could increase in the future based upon adoption of the revised rules.
 
 
22

 
 
Estimated proved oil and gas reserves
 
The evaluation of our oil and gas reserves is critical to management of our operations and ultimately our economic success. Decisions such as whether development of a property should proceed and what technical methods are available for development are based on an evaluation of reserves. These oil and gas reserve quantities are also used as the basis of calculating the unit-of-production rates for depreciation, evaluating impairment and estimating the life of our producing oil and gas properties in our asset retirement obligations. Our total reserves are classified as proved, possible and probable. Proved reserves are classified as either proved developed or proved undeveloped. Proved developed reserves are those reserves which can be expected to be recovered through existing wells with existing equipment and operating methods. Estimated proved undeveloped reserves include reserves expected to be recovered from new wells from undrilled proven reservoirs or from existing wells where a significant major expenditure is required for completion and production. Probable reserves are those additional reserves that are less certain to be recovered than proved reserves and when probabilistic methods are used, there should be at least a 50% probability that the actual quantities recovered will equal or exceed the proved plus probable estimates. Possible reserves are those additional reserves that are less certain to be recovered than probable reserves and when probabilistic methods are used, there should be at least a 10% probability that the total quantities ultimately recovered will equal or exceed proved plus probable plus possible reserve estimates.

Independent reserve engineers prepare the estimates of our oil and gas reserves presented in this prospectus based on guidelines promulgated under GAAP and in accordance with the rules and regulations of the Securities and Exchange Commission. The evaluation of our reserves by the independent reserve engineers involves their rigorous examination of our technical evaluation and extrapolations of well information such as flow rates and reservoir pressure declines as well as other technical information and measurements. Reservoir engineers interpret these data to determine the nature of the reservoir and ultimately the quantity of total oil and gas reserves attributable to a specific property. Our total reserves in this prospectus include only quantities that we expect to recover commercially using current prices, costs, existing regulatory practices and technology. While we are reasonably certain that the total reserves will be produced, the timing and ultimate recovery can be affected by a number of factors including completion of development projects, reservoir performance, regulatory approvals and changes in projections of long-term oil and gas prices. Revisions can include upward or downward changes in the previously estimated volumes or proved reserves for existing fields due to evaluation of (1) already available geologic, reservoir or production data or (2) new geologic or reservoir data obtained from wells. Revisions can also include changes associated with significant changes in development strategy, oil and gas prices or production equipment/facility capacity.
 
Standardized measure of discounted future net cash flows

The standardized measure of discounted future net cash flows relies on these estimates of oil and gas reserves using commodity prices and costs at year-end. The benchmark oil and gas prices used are the preceding 12-month averages of the first-day-of-the month spot prices posted for the WTI oil and Henry Hub natural gas.  Oil prices are based on a benchmark price of $96.90 per barrel and have been adjusted by lease for gravity, transportation fees, and regional price differentials.  Gas prices per thousand cubic feet are based on a benchmark price of $3.67 per million British thermal units and have been adjusted by lease for Btu content, transportation fees, and regional price differentials.  The adjustments are based on the differential between historic oil and gas sales and the corresponding benchmark price.  While we believe that future operating costs can be reasonably estimated, future prices are difficult to estimate since the market prices are influenced by events beyond our control. Future global economic and political events will most likely result in significant fluctuations in future oil prices.
 
 
23

 
 
Consent requirements for material Company actions before we obtain an exchange listing
 
We have yet to apply for a listing on a national securities exchange.  Under Section 6 of the put option waiver agreement referenced at Exhibit 4.3, until such time as we obtain a listing on a national securities exchange, we are required to obtain the consent of the Longview Marquis Master Fund, L.P., LMIF Investments, LLC and SMF Investments, LLC to take any of the following actions:
 
a. consummate a sale of the equity securities of the Company to the extent that the valuation of all equity securities of the Company at the time of such sale is more than thirty percent (30%) below the then present value of the Company’s estimated proved future oil and gas net revenues calculated at an annual discount rate of ten percent (10%);
 
b. issue, or authorize the issuance of, any class of equity security that is not identical to the class of equity securities held by the Summerline Parties;
 
c. issue any equity securities without providing preemptive rights to Longview Marquis Master Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC and Summerline Capital Partners, LLC as will enable them to maintain, post-issuance, their percentage equity ownership of the Company owned pre-issuance;
 
d. amend, modify or waive any provision of the Company’s certificate of incorporation or bylaws; or
 
e. sell all or substantially all of the assets of the Company or its subsidiaries

 
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
 
The Company is a Smaller Reporting Company as defined by SEC Rules 405 and 12b-2 and is not required to disclose the information required by Regulation S-K, Item 305 pursuant to the Smaller Reporting Company exemption in Regulation S-K, Item 305(e).
 
Item 4.  Controls and Procedures
 
Disclosure Controls and Procedures

As of June 30, 2014, the Company was obligated to be a reporting company pursuant to Section required to file periodic or current reports with the Securities and Exchange Commission pursuant to the provisions of the Securities Exchange Act of 1934.  Thus, the Company must assess its disclosure controls and procedures in connection with its presentation of its information for the three months ending June 30, 2014 as presented in this Form 10-Q.  The Company maintains controls and procedures designed to ensure that it is able to collect the information it is required to disclose in the reports it files with the SEC, and to process, summarize and disclose this information within the time periods specified in the rules of the SEC.  The Company’s Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining these procedures and, as required by the rules of the SEC, evaluating their effectiveness.  Based on their evaluation the Company’s disclosure controls and procedures which took place as of the end of the period covered by this report, the Chief Executive Officer and Chief Financial Officer have concluded that these procedures were effective as of June 30, 2014, to ensure that the Company is able to collect, process, and disclose the information it is required to disclose in the reports it files with the SEC within the required time periods.

Management’s Evaluation of Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. This system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the consolidated financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and disposition of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the consolidated financial statements.

 
24

 
 
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. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. The scope of management’s assessment of the effectiveness of internal control over financial reporting includes all of our Company’s subsidiaries.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2014.  In making this assessment, management was guided by the releases issued by the SEC and to the extent applicable was based upon the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organization of the Treadway Commission. The Company has had no change during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.  Subject to the above, the Company’s internal control over financial reporting are effective as of the end of the reporting period ended June 30, 2014.
 
Part II—Other Information
 
Item 1. Legal Proceedings
 
See Part I, Item 1 – “Financial Statements,” “Note 13 – “Legal Proceedings” of this Quarterly Report on Form 10-Q which is incorporated by reference into this Part II, Item 1 – “Legal Proceedings.”

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
 
None.
 
Item 3. Defaults Upon Senior Securities
 
None.
 
Item 4. Mine Safety Disclosures
 
Not applicable.
 
Item 5. Other Information
 
None.

Item 6.  Exhibits and Reports on Form 8-K
 

(a)           The following documents are filed as part of this report:

1.  Financial Statements.  See Item 1.

2.  Financial Statement Schedules.  Not applicable.

All other schedules have been omitted because the required information is shown in the consolidated financials or notes thereto, or they are not applicable.
 
3.  Exhibits.  See Index to Exhibits for listing of exhibits which are filed herewith or incorporatedby reference

(b)           Reports on Form 8-K.

Form 8-K dated May 14, 2014 containing pro forma financial statements relating to Crittenden Field acquisition

Form 8-K dated July 3, 2014 relating to increase in SOSventures credit facility, including copy of credit facility amendment attached as Exhibit 99.1

Form 8-K dated July 8, 2014 relating to change of auditor to KPMG LLP

Form 8-K dated August 5, 2014 relating to acceptance of audit engagement by KPMG LLP

 
25

 

SIGNATURES

Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
Starboard Resources, Inc.
   
(Registrant)
     
Date: August 13, 2014
By:
/s/ Michael J. Pawelek
   
Chief Executive Officer
   
(Principal Executive Officer)
     
Date: August 13, 2014
By:
/s/ Eric J. Alfuth
   
Chief Financial Officer
     
Date: August 13, 2014
By:
/s/ N. Kim Vo
   
Controller
   
(Chief Accounting Officer)
 
 
26

 
 
EXHIBITS
 
 Exhibit No.
 
Description
     
3.1.1
**
Certificate of Incorporation
     
3.1.2
**
Certificate of Conversion
     
3.2.1
**
Post-Effective Bylaws
     
3.2.2
**
Pre-Effective Bylaws
     
3.2.3
**
Starboard Resources Amended and Restated Operating Agreement dated January 20, 2012
     
4.1
**
Securities Purchase and Exchange Agreement between Starboard Resources, LLC, Longview Marquis Master Marquis Fund, L.P., Summerview Marquis Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC, and Summerline Capital Partners, LLC dated June 10, 2011.
     
4.2
**
Agreement between ASYM Capital III, LLC, Giddings Genpar LLC, Hunton Oil Genpar LLC and SOSventures, LLC regarding Starboard Resources, LLC dated January 20, 2012
     
4.3
**
Agreement between Starboard Resources, LLC, Longview Marquis Master Marquis Fund, L.P., Summerview Marquis Fund, L.P., Longview Marquis Fund, L.P., LMIF Investments, LLC, SMF Investments, LLC, and Summerline Capital Partners, LLC dated July 20, 2012 (Relating to Waiver of Put Option)
     
10.1
**
Employment Agreement, dated as of April 1, 2012, between Starboard Resources, Inc. and Michael Pawelek.
     
10.2
**
Employment Agreement, dated as of April 1, 2012, between Starboard Resources, Inc. and Edward Shaw.
     
10.3
**
Employment Agreement, dated as of April 1, 2012, between Starboard Resources, Inc. and N. Kim Vo.
     
10.4
**
Participation Agreement with Husky Ventures, LLC.
     
10.5.01
*
Credit Agreement dated as of June 27, 2013 between Starboard Resources, Inc. as borrower and Independent Bank as lender.
     
10.5.02
*
Security Agreement dated as of June 27, 2013 between Starboard Resources, Inc. as debtor and Independent Bank as secured party.
     
10.5.03
*
Mortgage, Deed of Trust, Security Agreement, Fixture Filing and Financing Statement for Texas oil and gas properties from Starboard Resources, Inc., Mortgagor, to John E. Davis, Trustee, and Independent Bank, mortgagee.
     
10.5.04
*
Note from Starboard Resources, Inc. to Independent Bank dated July 27, 2012.
     
10.5.05
*
Certificate of Ownership Interests – Starboard Resources, Inc. dated June 27, 2013.
  
 
27

 

     
 Exhibit No.
 
Description
10.5.06
*
Omnibus Certificate – Starboard Resources, Inc. dated June 27, 2013.
     
10.5.07
*
Guaranty dated June 27, 2013 from Impetro Operating, LLC
     
10.5.08
*
Security Agreement dated June 27, 2013 between Impetro Operating, LLC and Independent Bank
     
10.5.09
*
Omnibus Certificate – Impetro Operating, LLC dated June 27, 2013.
     
10.5.10
*
Waiver of Operator’s Lien – Impetro Operating, LLC dated June 27, 2013
     
10.5.11
*
Guaranty dated June 27, 2013 from Impetro Resources, LLC
     
10.5.12
*
Security Agreement dated June 27, 2013 between Impetro Resources, LLC and Independent Bank
     
10.5.13
*
Omnibus Certificate – Impetro Resources, LLC dated June 27, 2013.
     
10.5.14
*
Note dated June 27, 2013 – Starboard Resources, Inc.
     
10.6.1
*
First Amended and Restated Credit Agreement dated July 25, 2013 between Starboard Resources, Inc. and SOSventures, LLC.
     
10.6.2
*
Intercreditor Agreement dated July 24, 2013 between Independent Bank, and SOSventures LLC.
     
10.6.3
******
First Amendment to First Amended and Restated Credit Agreement dated June 3, 2014
     
10.7.1
*
Sunoco – Texon LP Crude Purchase Agreement
     
10.7.2
*
Sunoco – Texon LP Crude Purchase Agreement Amendment
     
10.8
*
DCP Midstream, LP Gas Purchase Agreement
     
14.1
***
Code of Ethics
     
21
***
List of subsidiaries.
     
31.1
***
Certification of Chief Executive Officer
     
31.2
***
Certification of Chief Financial Officer
     
32.1
***
Section 1350 Certification

 
28

 
 
 Exhibit No.
 
Description
 
99.1.2
**
Answer of Starboard Resources, Inc. dated August 14, 2012 in Henry et al v. Imbruce et al.
     
99.1.3
**
Starboard Resources, Inc. Bill of Interpleader dated August 8, 2012
     
99.1.5
*****
Starboard Resources, Inc. Amended Bill of Interpleader dated March 14, 2014
     
99.2
**
Reserve Report as of January 1, 2013 from Forrest Garb & Associates, Inc.
     
99.3
**
Reserve Report as of January 1, 2014 from Forrest Garb & Associates, Inc.
     
99.4
*
Supplement to Reserve Report as of January 1, 2013 from Forrest Garb & Associates, Inc.
     
*
Filed as corresponding numbered exhibit with Starboard Resources, Inc. Form 10/A filed July 26, 2013.
**
Filed as corresponding numbered exhibit with Starboard Resources, Inc. Form 10 filed June 7, 2013.
***
Filed herewith.
****
Filed as a corresponding numbered exhibit with Starboard Resources, Inc. Form S-1/A filed October 25, 2013.
*****
Filed as a corresponding numbered exhibit to Starboard Resources, Inc.’s Form 10-K filed March 31, 2014
******
Filed as Exhibit 99.1 to Starboard Resources, Inc. Form 8-K filed July 3, 2014

Exhibit No.
 
Description
     
101
 
XBRL Filings
EX-101.INS
 
XBRL Instance Document
EX-101.SCH
 
XBRL Taxonomy Extension Schema
EX-101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
EX-101.LAB
 
XBRL Taxonomy Extension Label Linkbase
EX-101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
EX-101.DEF
 
XBRL Taxonomy Extension Definition Document