ITEM 2. PROPERTIES.
Oil and Gas Properties
Note that all production amounts disclosed for the individual properties herein are for 100% of the production for such property and not the production amount relating only to the Company’s working interest.
Current Oklahoma Projects
2008-3 Drilling Program, Oklahoma
. On January 12, 2009, we acquired a 5% working interest in Ranken Energy Corporation’s 2008-3 Drilling Program located in Garvin County, South Central Oklahoma. This program is composed of four 3-D seismically defined separate prospects with one exploratory well in three of the prospects and two in the fourth prospect. Targeted pay zones include the prolific Bromide Sands, Viola Limestone, Deese Sandstone and Layton Sandstone. One of the wells has very similar geology and structure to the Bromide sands in the Owl Creek field.
Five wells were drilled during 2009. Production casing was set on four of the five wells and the fifth well was deemed non-commercial and was plugged and abandoned. Two of the four completed wells are still producing commercial quantities of oil and gas, with one of the wells still flowing naturally and producing most of the oil. One development well was drilled in August of 2011 near the highest producing well in the program. For the year ended October 31, 2013, the three producing wells in this program have produced a total of 384 Bbls of oil and 85 Mcf of natural gas.
2009-2 Drilling Program, Oklahoma
. On June 15, 2009, we acquired a 5% working interest in Ranken Energy Corporation’s 2009-2 Drilling Program located in Garvin County, Oklahoma. A total of three wells were drilled in this program and targeted pay zones that were the same as in the 2008-3 program. The zones included the prolific Oil Creek, Bromide Sands, Viola, Deese and Layton Sandstone. This program is composed of three 3-D seismically defined separate prospects. All wells were drilled in the last fiscal quarter of 2009. Two of the wells were deemed non-commercial and were plugged and abandoned. Production casing was set on one of the three wells and completion efforts have taken place on the third well; however, after testing it was also deemed non-commercial and plugged.
2009-3 Drilling Program, Oklahoma
.
On August 12, 2009, we acquired a 5% working interest in Ranken Energy Corporation’s 2009-3 Drilling Program located in Garvin County, Oklahoma. Targeted pay zones include the prolific Oil Creek, Bromide Sands, Viola and Deese sands. This program is composed of four 3-D seismically defined separate prospects with one exploratory well in each of the four prospects. All four of the wells have been drilled and production casing has been set on all four. Two of the wells had successful drill stem tests that flowed oil and gas to the surface. Electric and radiation logs indicate multiple pay zones in all four wells.
One of the four wells in this program was completed in late January 2010 as a flowing oil and gas well. The well was flowing naturally at rates between 400 and 500 Bbls of fluid per day with an oil cut of between 50% and 70% oil. Natural gas was being produced at a rate of over 400 Mcf per day. This well only produced for a few days before snow and ice storms forced shutting the well in because the produced oil and water could not be hauled away from the location and the storage tanks for these liquids were full. The well is now producing oil and gas with the use of a pumping unit. The second well that also had a flowing drill stem test was completed in late March 2010 and that well is currently producing oil and natural gas with the use of a pumping unit. Total production from these two producing wells for the year ended October 31, 2013 totaled 613 Bbls of oil and nil Mcf of natural gas.
The two remaining wells were completed in late May 2010. After testing, both wells were deemed to be non-commercial and have been plugged and abandoned.
2009-4 Drilling Program, Oklahoma
. On December 19, 2009, we acquired a 5% working interest in Ranken Energy Corporation’s 2009-4 Drilling Program located in Garvin County, Oklahoma.
Targeted pay zones
include the prolific Oil Creek, Bromide Sands, Viola and Deese sands. This program is composed of four 3-D seismically defined separate prospects with one exploratory well in each of the two prospects.
Drilling of the first well started in early February 2010 and reached total depth on February 20, 2010. The second well drilling started in late February 2010 and reached total depth on April 8, 2010. Both of the wells intercepted multiple potential productive horizons and production casing was set. The lowest horizon in the first well flowed oil and gas on a drill stem test. Weather was initially a problem with heavy rain causing flooding and other delays but both wells have now been completed. Both wells were treated for a poor cement bond and only one remains in production. The one well that could not be successfully treated for the poor cement bond was plugged and abandoned. The other well has been converted to a salt water disposal well. As of October 31, 2013, there has been no production of hydrocarbons.
2010-1 Program, Oklahoma.
On April 23, 2010, we acquired a 5% working interest in Ranken Energy Corporation’s 2010-1 Drilling Program located in Garvin County, Oklahoma. Targeted pay zones include the prolific Oil Creek, Bromide Sands, Viola and Deese sands. This program is composed of four 3-D seismically defined separate prospects with one exploratory well in each of the two prospects.
As of late October 2010, all four wells of the four-well program had been drilled. Three of the wells had production casing set and one well was plugged and abandoned. The three successful wells intercepted multiple pay zones including the prolific lowest zone. One well had a flowing drill stem test but the other two wells were not drill stem tested. All three wells show excellent porosity, permeability, and hydrocarbon shows. All three of the wells were completed in the deepest pay zone. The third well in this program is currently shut-in. Total production from these wells for the year ended October 31, 2013 was 1,322 Bbls of oil and 1,030 Mcf of natural gas.
South Wayne Prospect, Oklahoma
.
On March 14, 2010, we acquired a 5% working interest in Okland Oil’s South Wayne prospect located in McClain County, Oklahoma. As of October 31, 2010, the well had been drilled and production casing has been set. The well was perforated in July 2010 and immediately started flowing oil at a rate of 200 Bbls per day. The flow of oil was slowed and stopped due to a buildup of paraffin. A pumping unit was placed on the well in late August 2010. Total production for the McPherson well for the year ended October 31, 2013 was 104 Bbls of oil and 18 Mcf of natural gas. Additional pay zones are located above the currently producing horizon and it is anticipated that these zone will be perforated in the future adding additional production to the well.
Washita Bend 3D Exploration Project, Oklahoma
.
On March 1, 2010, we agreed to participate with a 5% working interest in a 3-D seismic program managed by Ranken Energy Corporation which will cover approximately 135 square miles in a known oil and gas producing area. An earlier 2-D seismic program over the same area indicated a number of untested structures. The 3-D program was designed to refine and better define the structures discovered during the earlier program and pinpoint drill locations. We participated in the seismic program and the related prospect generation and acquisition phase without any promotion.
All of the project area, which covers approximately 86,350 acres or 135 square miles, has been permitted and shot and data acquired. All initial or first run processing data has been completed and interpretation of the data and mapping as well as prospect delineation has started. Title research and leasing on a number of potential prospects has been completed. A total of 5,148 acres of leases have been acquired. As a result of seismic evaluation and analysis, eight initial prospects have been identified, with the first well drilled on May 14, 2013. On May 27, 2013, this well was classified as a dry hold and costs associated therewith have been moved to proved properties. On August 1, 2013, Karges #1-35 was also classified as a dry hole and the costs of $77,041 associated therewith have been moved to proved properties. On September 4, 2013, Carol #1-22 was drilled and completed with no economic hydrocarbons present. The costs associated with this well were moved to the proved property pool. The total costs of $148,391 associated with these wells were transferred to the proved property pool.
Double T Ranch#1 SWDW, Oklahoma.
On July 17, 2012, we acquired a 3.00% working interest in the drilling, completion and operations of the Double T Ranch#1 SWDW located in Garvin County from Ranken Energy Corporation.
Effective May 25, 2009, we entered into an agreement with Sunset Exploration to explore for oil and gas on 10,000 acres located in west central California. The agreement calls for us to earn a 20% working interest in the project by funding a maximum of 50% of a $200,000 geophysical survey composed of gravity and seismic surveys and agreeing to carry Sunset Exploration for 33.33% of dry hole cost of the first well. Completions and drilling of this first well and completion of subsequent wells on the 10,000 acres will be proportionate to each party’s working interest. The geophysical surveys have been completed and most have been processed and interpreted. The initial surveys indicated that several more short geophysical survey lines would improve the interpretation. These additional lines have been completed and subsequently several stages of reprocessing have been applied to the original data. In midsummer 2011, permitting of the first drill hole began and the well was completed in January 2012. On April 15, 2013, we elected to plug and abandon this well. All costs associated with this well have been moved to the proved property pool for depletion. After further and in-depth evaluation and consultation, we have elected not to participate any further at King City as we deem this project not to be economically viable.
International Exploration Program
We are attempting to expand our property base by locating other resource properties internationally. Accordingly, we have hired consultants to gather data on properties that may be of interest to us. The consultants on a best efforts basis will attempt to acquire option agreements, lease agreements and/or the outright purchase of oil and/or gas properties internationally. As of the date of this filing, we have not found a suitable acquisition.
Production and Prices
The following table sets forth information regarding net production of oil and natural gas, and certain price and cost information for fiscal years ended October 31, 2013, 2012 and 2011.
|
|
For the fiscal year ended
October 31, 2013
|
For the fiscal year ended
October 31, 2012
|
For the fiscal year ended
October 31, 2011
|
|
Production Data:
|
|
|
|
|
Natural gas (Mcf)
|
1,120
|
14,017
|
26,662
|
|
Oil (Bbls)
|
2,450
|
4,300
|
11,962
|
|
Average Prices:
|
|
|
|
|
Natural gas (per Mcf)
|
$4.37
|
$4.93
|
$6.01
|
|
Oil (per Bbl)
|
$96.18
|
$93.13
|
$89.81
|
|
Production Costs:
|
|
|
|
|
Natural gas (per Mcf)
|
$1.48
|
$1.31
|
$1.77
|
|
Oil (per Bbl)
|
$17.72
|
$17.84
|
$11.16
|
Productive Wells
The following table summarizes information at October 31, 2013, relating to the productive wells in which we owned a working interest as of that date. Productive wells consist of producing wells and wells capable of production, but specifically exclude wells drilled and cased during the fiscal year that have yet to be tested for completion (e.g., all of the operated wells drilled by the Company during this year have been cased in preparation for completion, but no operations have been initiated that would allow these wells to be productive). Gross wells are the total number of producing wells in which we have an interest, and net wells are the sum of our fractional working interests in the gross wells.
|
|
Gross
|
|
Net
|
|
Location
|
Oil
|
|
Gas
|
|
Total
|
|
Oil
|
|
Gas
|
|
Total
|
|
Oklahoma
|
12
|
|
0
|
|
12
|
|
0.50
|
|
0.00
|
|
0.50
|
|
California
|
0
|
|
0
|
|
0
|
|
0.00
|
|
0.00
|
|
0.00
|
|
Total
|
12
|
|
0
|
|
12
|
|
0.50
|
|
0.00
|
|
0.50
|
Unaudited Oil and Gas Reserve Quantities
The following unaudited reserve estimates for Oklahoma, presented as of October 31, 2013, were prepared by Harper and Associates, an independent petroleum engineering firm.
The combined estimated proved reserves prepared by Harper and Associates are summarized in the table below, in accordance with definitions and pricing requirements as prescribed by the Securities and Exchange Commission (the “SEC”). Prices paid for oil and natural gas vary widely depending upon the quality such as the Btu content of the natural gas, gravity of the oil, sulfur content and location of the production related to the refinery or pipelines.
There are many uncertainties inherent in estimating proved reserve quantities and in projecting future production rates and the timing of development expenditures. In addition, reserve estimates of new discoveries that have little production history are more imprecise than those of properties with more production history. Accordingly, these estimates are expected to change as future information becomes available.
Proved oil and gas reserves are the estimated quantities of crude oil and natural gas which geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions.
Proved developed oil and gas reserves are those reserves expected to be recovered through existing wells with existing equipment and operating methods.
Unaudited net quantities of proved developed and undeveloped reserves of crude oil and natural gas (all located within United States) are as follows:
|
|
|
Crude Oil
|
|
|
Natural Gas
|
|
|
Changes in proved reserves
|
|
(Bbls)
|
|
|
(MCF)
|
|
|
Estimated quantity, October 31, 2011
|
|
|
38,799
|
|
|
|
125,701
|
|
|
Revisions of previous estimate
|
|
|
(17,260
|
)
|
|
|
1,723
|
|
|
Discoveries
|
|
|
-
|
|
|
|
-
|
|
|
Reserves sold to third parties
|
|
|
(2,909
|
)
|
|
|
(99,737
|
)
|
|
Production
|
|
|
(4,300
|
)
|
|
|
(14,017
|
)
|
|
Estimated quantity, October 31, 2012
|
|
|
14,330
|
|
|
|
13,670
|
|
|
Reserves sold to third parties
|
|
|
-
|
|
|
|
-
|
|
|
Revisions of previous estimate
|
|
|
(1,061
|
)
|
|
|
(3,220
|
)
|
|
Discoveries
|
|
|
-
|
|
|
|
-
|
|
|
Production
|
|
|
(2,449
|
)
|
|
|
(1,120
|
)
|
|
Estimated quantity, October 31, 2013
|
|
|
10,820
|
|
|
|
9,330
|
|
The revisions in the Company’s estimates of proved oil and gas reserves are due to the fact that there was more substantive data, such as a longer history of production, available to its engineers which allowed them to better quantify the reserve estimates.
|
Proved Reserves at year end
|
Developed
|
Undeveloped
|
Total
|
|
Crude Oil (Bbls)
|
|
|
|
|
October 31, 2013
|
9,620
|
1,200
|
10,820
|
|
October 31, 2012
|
12,880
|
1,450
|
14,330
|
|
October 31, 2011
|
36,969
|
1,830
|
38,799
|
|
Gas (MCF)
|
|
|
|
|
October 31, 2013
|
7,330
|
2,000
|
9,330
|
|
October 31, 2012
|
12,570
|
1,100
|
13,670
|
|
October 31, 2011
|
124,501
|
1,200
|
125,701
|
Internal Controls Over Preparation of Proved Reserve Estimates.
Our policies regarding internal controls over reserve estimates requires reserves to be in compliance with the SEC definitions and guidance and for reserves to be prepared by one or more independent third party reserve engineering firms under the supervision of our management. Our management provides to our third party reserve engineers, reserve estimate preparation material such as property interests, production, current costs of operation and development, current prices for production, geoscience and engineering data, and other relevant information. During the fiscal year ended October 31, 2013, we retained Harper & Associates, Inc. as independent third-party reserve engineers, to prepare our estimates of proved reserves. For more information about the evaluations performed by Harper & Associates, Inc., see a copy of its report filed as an exhibit to this Form 10-K.
We have engaged Mr. Christopher Paton-Gay to oversee the preparation of the reserve estimates conducted by independent third-party engineers. Mr. Paton-Gay has 32 years of experience in drilling, completion, production, regulatory reporting/permitting, and extensive reservoir studies and evaluations of United States oil and gas fields. He is considered to be a qualified person for all SEC reporting and currently serves on several USA Oil and Gas Company Boards of Directors. He is also a member of the Institute of Corporate Directors. Given his qualifications, we consider Mr. Paton-Gay to be a qualified person in overseeing the preparation of our internal reserve estimates by a third-party engineering firm.
Oil and Gas Acreage
The following table sets forth the undeveloped and developed acreage, by area, held by us as of October 31, 2013. Undeveloped acres are acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas, regardless of whether such acreage contains proved reserves. Developed acres are acres, which are spaced or assignable to productive wells. Gross acres are the total number of acres in which we have a working interest. Net acreage is obtained by multiplying gross acreage by our working interest percentage in the properties. The table does not include acreage in which we have a contractual right to acquire or to earn through drilling projects, or any other acreage for which we have not yet received leasehold assignments. Leasing efforts were minimal during the fiscal year ended October 31, 2013 in anticipation of the drilling program that has been started. Large leasing efforts will not begin in the near future until the drilling program on the Washita Bend project has been completed.
|
|
Undeveloped Acres
|
|
Developed Acres
|
|
|
Gross
|
Net
|
|
Gross
|
Net
|
|
Oklahoma
|
5,573.6
|
392.6
|
|
640.0
|
96.0
|
|
California
|
nil
|
nil
|
|
0.0
|
0.0
|
|
Total
|
5,573.6
|
392.6
|
|
640.0
|
96.0
|
Drilling Activity
The following table sets forth our drilling activity during the years ended October 31, 2013, 2012 and 2011. The Company drilled 3 new wells in Washita Bend project during the fiscal year ended October 31, 2013.
|
|
2013
|
2012
|
2011
|
|
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
|
Exploratory wells:
|
|
|
|
|
|
|
|
Productive
|
0
|
0
|
0
|
0
|
1
|
.05
|
|
Dry
|
3
|
0.15
|
0
|
0
|
0
|
.05
|
|
Development wells:
|
|
|
|
|
|
|
|
Productive
|
0
|
0
|
0
|
0
|
1
|
.2
|
|
Dry
|
0
|
0
|
0
|
0
|
0
|
0
|
|
|
|
|
|
|
|
|
Total wells
|
3
|
0.15
|
0
|
0
|
2
|
.3
|
Mineral Property
Antelope Pass Project
We suspended activities on the Antelope Pass Project indefinitely in order to focus on our oil and gas properties in 2005. We have not conducted any operations or exploration activities on the Antelope Pass Project since 2005. To date, we have expended $3,101 in connection with the Antelope Pass Project, including geological mapping, sampling and assaying.
Location and Access.
The Antelope Pass Project is located in west central Hidalgo County, New Mexico, approximately ten miles east of the New Mexico-Arizona border. The Antelope Pass Project lies in the Peloncillo Mountains, 35 miles southwest of Lordsburg, New Mexico. The closest major air service to the property is located in Tucson, Arizona. Access to the property is from Tucson traveling east via Interstate Highway 10 for approximately 130 miles to the Animas, New Mexico exit. From that exit, travel is south 20 miles on State Highway 338 to the town of Animas and then west for seven miles via State Highway 9. The property can be reached on gravel roads and dirt tracks.
The property is comprised of low hills and alluvial valleys, with elevations ranging from a low of 4,480 feet to a high of 4,580 feet. Vegetation is sparse and includes desert grasses, cacti, and creosote bushes. The Antelope Pass Project consists of eight unpatented lode mining claims totaling 160 acres, situated in Township 27 South, Range 20 West, Sections 18 and 19 and Township 27 South, Range 21 West, Sections 13 and 24. A lode is a mineral deposit in consolidated rock as opposed to a placer deposit, which is a deposit of sand or gravel that contains particles of gold, ilmenite, gemstones, or other heavy minerals of value.
The claims are located on federal lands under the administration of the Bureau of Land Management (BLM). They are not subject to any royalties, but annual maintenance fees must be paid to the BLM of $125 per claim or a total of $1,000 for the entire claim block to keep them valid. Including federal and county filing fees, an expenditure of approximately $125 per claim for total payment of $1,000 per year for the entire claim block is required to keep the claims valid.
Under the General Mining Law of 1872, which governs our mining claims and leases, we, as the holder of the claim, have the right to develop the minerals located in the land identified in the claim. We must pay an annual maintenance fee of $125 per claim to hold the claim. Claims can be held indefinitely with or without mineral production, subject to challenge if not developed. Using land under an unpatented mining claim for anything but mineral and associated purposes violates the General Mining Law of 1872. The claims on this project were allowed to lapse subsequent to October 31, 2013.
Office Space
Our offices are located temporarily in care of our counsel, Dill Dill Carr Stonbraker & Hutchings, P.C., 455 Sherman Street, Suite 300, Denver, Colorado 80203.