NOTE 12 – RELATED PARTIES

Providence

Initial Line of Credit

At December 31, 2017 and 2016, the Company had drawn $5.0 million and $5.0 million on the initial line of credit and had accrued interest in the amount of $0.5 million and $0.3 million, respectively.

On September 23, 2017, the Company issued 250,000 shares of common stock valued at $1.55 to PEO in connection with the execution of a letter agreement and extension of a loan (Notes 6 and 9). The Company recorded interest expense in the amount of $0.1 million as related to the accretion of this debt discount. As of December 31, 2017, the unaccreted portion of the discount amounted to $0.3 million.

Credit Facility

Related to the execution of a Letter Agreement pursuant to the Initial Funding of a Credit Facility on December 21, 2017 (Note 6), the Company drew $5.0 million on the facility resulting in a liability to a PEO-affiliated entity in the amount of $5.0 million in principal and $21,801 in accrued interest as of December 31, 2017. PEO beneficially owns approximately 11.7% of the Company’s common stock.

Operations

At December 31, 2017, the Company has recorded a net $0.2 million in Accounts receivable – joint interest billing – related party. This amount relates to amounts billed to PEO related to its participation in the Company’s operated Shook drilling program and PEO’s ownership interest in the vertical wells that the Company operates.

At December 31, 2017, the Company has recorded $0.7 million in drilling advances – related party. This amount relates to unapplied cash advances received from PEO in connection with the Company’s operated Shook drilling program.

Convertible Notes

In January 2017, the Company sold Series A Notes to a total of four employees and directors who collectively purchased Series A Notes in the aggregate principal amount of $0.2 million (Note 6), on the same terms and conditions as the other purchasers.

On October 16, 2017, ten of the Company’s officers and directors converted Series A Notes in the aggregate principal amount of $0.7 million and accrued interest of $20,670 into 691,516 shares of common stock at $1.10 per share. (Notes 6 and 9)

Ten employees, officers and directors of the Company received cash interest payments for interest of $0.1 million related to Series A and Series B notes during the year ended December 31, 2017.

Series B Convertible Notes

In September and October 2017, the Company sold Series B Notes to ten of the Company’s officers and directors who collectively purchased $0.6 million in aggregate principal amount (Note 6), on the same terms and conditions as the other purchasers, with the exception that the Company did not pay commissions on these sales.