Item
1. Business.
Our
Company
The
Company was incorporated on February 19, 2014, as a Nevada corporation and is headquartered in Weatherford, Texas. The Company was formed
to conduct operations in the oil and gas industry, and currently focuses on the development, production and maintenance of its existing
crude oil and natural gas properties in Texas. On May 4, 2015, the Company initially acquired working interests from the Bend Arch Lion
1A and the Bend Arch Lion 1B Joint Ventures in Coleman County of Texas, encompassing a total production of 7 producing oil and gas wells
on a total of 380 acres out of a total of 777-acre leaseholds indicating proven recoverable reserves. We believed that the Bend Arch
Lion 1A and 1B Joint Ventures as parts of the total 777-acre leasehold have not been fully explored. The Company has managed the 45-acre
Marshall Walden joint venture with 8 Woodbine Sand oil wells in Kilgore City, Texas. Additionally, the Company had a 640-acre lease in
King County that expired in 2022. The Company chose not to renew the lease. The Company, in fiscal year 2018, also purchased producing
oil and gas mineral leases on December 28, 2017, in the Texas counties of Jack County and Palo-Pinto County in North Central Western
part of Texas. The leases were for 20 gross oil and gas wells on 2,790 gross acres with majority working and operating interests with
daily production of 50 barrels of oil equivalent (“BOE”). During fiscal year 2020, the Company completed a purchase of the
remaining 90% working interest ownership (“WI”) of the Marshall-Walden property that it did not own previously, and now owns
100% of the WI, with a 75% net revenue interest (“NRI”). Currently, NRIS holds approximately 4,200 total gross acres in leaseholds
in various areas of the North Central, and in North East Texas regions. The Company plans to focus its limited resources on its existing
leaseholds in the future.
The
Company underwent a change of control in July 2017, when Patrick Norris, and his affiliate JBB Partners (“JBB”) acquired
majority ownership of the Company and provided loans and equity funding for the oil/gas mineral rights purchases and for covering the
operational expenses of Company.
The
Company will, from time to time, seek strategic investors and other funding to help it develop additional exploration and acquisition
projects located within the Bend Arch-Fort Worth Basin and other prime acquisition targets in the Central West, South and East Texas.
Our
Business Strategy
We
are a small exploration & production (“E&P”) oil and natural gas company that focuses on the, development, production,
and maintenance of its existing crude oil and natural gas properties in Texas. The Company’s goal is to tap into the high potential
leases of the Central West Texas region of the United States, aiming to unlock the potential in the prolific Bend Arch-Fort Worth region.
This area is approximately 120 miles long and 40 miles wide, running from Archer County, Texas in the north to Brown County, Texas in
the south. The Company also will look at other acquisition opportunities in the Permian Basin, West Texas, East Texas and South Texas
regions.
Management
believes that focusing on the development of existing small producing fields is one of the key differentiators of the Company. Oil and
natural gas reserve development is a technologically oriented industry. Management believes that the use of current generally available
technology has greatly increased the success rate of finding commercial oil or natural gas deposits. In this context, success means the
ability to make an oil/gas well that produces a commercialized quantity of hydrocarbons. In general, the Company expects to conduct 3D
Seismic surveys to determine more accurate drilling locations and drilling depths beside its initial georadiometry technology application
via its last 10 drilling projects.
For
near- to medium-term cash flow enhancement, the Company will plan to focus on existing fields and to selectively consider larger-reserve
oil and gas properties with low production to acquire at reasonable cost and then implement effective Enhanced Oil Recovery (“EOR”)
methods to improve its current revenues and assets. For long-term cash flow enhancement, the Company plans to identify other oil-field
related, and niche enterprises to consider for bolt on, or diversified acquisition targets to grow Company revenues. This may be with
use of capital partners to buyout via the Company’s strategic joint venture partnerships, and to raise outside capital to fund
any potential future acquisition.
The
Company’s long-term objective is to increase shareholder value by growing reserves, production and cash flow. As result we may
seek to identify and consider acquisition opportunities of oilfield services companies and other non-oilfield companies that align with
our operational plan to implement a diversified growth strategy
Notwithstanding
the above stated objectives, the ramifications of the pandemic containment measures and consequent disruptions to the United States and
world economies due to the COVID – 19 viral outbreaks had an adverse impact on the overall business of the Company and the industry
in which it operates. The demand for oil and gas has impacted all producers as commodity prices of oil and gas has increased substantially,
but so has inflation resulting in higher costs for materials, equipment, personnel and service providers. In addition, in early 2022
the industry faced added complications as result of the Russian Federation invasion of Ukraine. As result energy prices have risen; however,
we are unable to predict exact supply and demand balances that will cause energy prices to be highly volatile and thus affect our revenues
into the near future. Therefore, we anticipate that we may not be able to cover operating costs and will have to take cost cutting measures
and seek continued operational financing.
As
a result of the COVID-19 pandemic and war in Ukraine and the various governmental and political responses and those of our subcontractors,
customers and suppliers, we expect continued delays or disruptions and temporary suspensions of operations due to shortages of labor
and increased cost from suppliers. In addition, our financial condition and results of operations have been and are likely to continue
to be adversely affected by the COVID-19 public health developments. Thus, subject to adjustments due to the COVID – 19 pandemic
and the general economic consequences and the more specific impact on the oil and gas industry, the current general strategic objectives
of the Company are set forth below.
The
Company is currently listed on the OTCQB marketplace of OTC Link as an E&P oil and gas company.
*****
Develop
and Grow Our Hydrocarbon Acreage Positions Using Outside Development Expertise.
We
plan to focus on improving our assets that are located in hydrocarbon-rich resource plays to improve our asset quality and to improve
on production. We plan to leverage outside expertise to apply available EOR technologies to economically develop our existing property
portfolio and those that we may acquire in the future. We plan to operate the majority of our acreage, giving us greater control over
the planning of capital expenditures, execution and cost reduction. Operating our own acreage also will allow us to adjust our capital
spending based on drilling results and the economic environment. Our leasehold acquisition strategy is to pursue long-term contracts
that allow us to maintain flexible development plans and avoid short-term obligations to drill wells, as have been common in other resource
plays. As a small producer, we regularly evaluate industry drilling results and implement technologically effective operating practices
which may increase our initial production rates, ultimate recovery factors and rate of return on invested capital.
Manage
Our Property Portfolio Proactively. We evaluate our properties to identify and divest non-core assets and higher cost or lower volume
producing properties with limited developmental potential, to enable us to focus on a portfolio of core properties with what we believe
to be the greatest economic potential to increase our proved reserves and production.
Acquire
Small Producing Companies with Compelling Underlying Values. We review acquisition opportunities with underlying assets to evaluate
their development potential and accelerate production to unlock their potential value. The current oil and gas economic environment may
provide us with acquisition opportunities for new properties.
Maintain
Access to Capital to Execute Our Growth Plan. Our management team is focused on maintaining available credit lines since this gives
us the ability to use borrowing capacity and access to outside capital markets and to provide us with a liquidity level to execute if
opportunity emerges to purchase assets and revenues.
Our
operation strategy is to identify niche hydrocarbon land leases in Texas with in-depth studies and develop proven reserves via drilling
new wells and re-entering existing low production wells to maximize production and enhance valuation of our production assets.
Based
upon management’s knowledge and its use of outside petroleum exploration experience, geology expertise, and ability to identify
potential acreage and moderate production fields, management believes that the Company’s future valuation as a public company is
speculative but could become attractive if and when we increase our production successfully.
The
Company acquisition model, to the extent it is implemented, will be based on a concept that has been proven to be an effective and successful
path of development for many other well- known E&P players:
| a) |
the
financed acquisition of mature smaller oil fields that have potential for instituting EOR incremental production processes; and |
| |
|
| b) |
Develop
strategic partnerships with existing operators to share production increases garnered through the implementation of this EOR plan. |
After
identifying a new prospect, additional research and evaluation will be carried out using geologists, 3D seismic, satellite hydrocarbon
imaging, production data and other available resources to glean information and data in order to make an acquisition decision. After
an acquisition, the objective will be to increase production using current technologies with a designated budget pre-approved by the
Company’s senior management team. The Company will seek to implement cost saving measures in operating budgets for each exploration
project, but each budget will vary depending on the total depth of drilling and whether it is a new drilling or a re-entry. For each
project, the Company plans on hiring selected operators to work under the close supervision of a core team of Company geologists, engineers,
and scientists. The exploration and production process is a two-phase process: 1) drilling and testing and 2) well completion. The Company
plans to hire drilling specialists and technical consultants designated to oversee the drilling and reentering of existing holes for
each well during the drilling and testing phase. For the well completion process, the Company plans to hire technical data collectors
and cementing operators to ensure the best performance upon perforating the wells at different pay zones based on thorough technical
advisory work done by our internal and external production personnel and geologists before production. The Company also plans to apply
selective leading edge EOR technologies from technology vendors to improve existing production.
Our
Competitive Strengths
Management
believes that the Company offers a number of competitive strengths that would allow it to successfully execute our business strategies:
Simple
Capital Structure. We have a simple capital structure and de-risked inventory of locations with what we believe is upside potential
to take advantage of the continuing situation for oil prices to acquire potential production at reasonable cost.
Management
Team. With selected experience in key aspects of the development of resource plays, our management team and its consultants have
decades of combined experience in the industry and a commitment to create shareholder value via an acquisition strategy. We also consult
and work with geologists, engineers, and other professionals to execute on our business objectives.
Moderate
Risk Exploration Practice. Unlike many major oil companies that often drill very deep wells with a high degree of risk, we focus
on shallow well exploration (sub 5,000 feet) that is less expensive and has lower risk factors. The basis for management’s belief
that the wells that can be drilled in the prospective leases will have the capacity to produce a reasonable amount of hydrocarbon and
due to our recent studies of the general areas where we are prospecting the projects.
Under
The Radar Asset Base. Management believes there are available for acquisition, from time to time, hydrocarbon land leases with sub-300
barrels of oil per day (“bopd”) wells with have large hydrocarbon reserves that have been overlooked by other oil and gas
operators. Management believes that these “under the radar” prospective leases have multi-year drilling inventory and reasonable
production history with high upside potential, and they are not readily accessible to the public for auctions, thus adding to our competitive
advantage on these “under the radar” opportunities. Management also believes that these leases are not economically justifiable
for the major oil and gas companies in the region because such companies need wells that produce at least 300 barrels (“Bbls”)
of oil per day per well to meet their business model and operating costs.
Geographic
Diversity. We believe that our geographic focus encompassing the West, Central West, East and South Texas regions provides us with
some flexibility to direct our capital resources to projects with the better potential returns and access to multiple key end markets,
which mitigates our exposure to temporary price dislocations in any one market.
Technologies
Oil
and natural gas reserve development is a now a technology-oriented industry. Management believes that technology has greatly increased
the success rate of finding commercially viable oil or natural gas deposits. In this context, success rate means the ability to locate
an oil/gas well that can produce a commercialized quantity of hydrocarbon.
At
NRIS, we engage consultants to focus on geoscience along with help in our understanding of complex mineralogy in shale reservoirs and
better determining zones susceptible to enhanced production methods. We use technology to indicate where to frack with the potential
of greater success as it provides us with rapidly available data while delivering game changing levels of collaboration: multi-well,
multi-user and multi interpreter. Our field engineers, geologists and petrophysicists work together for better drilling decisions.
Reservoir
Estimate
As
of March 1, 2023, our estimated gross proved oil and natural gas reserves, as prepared by our independent reserve engineering firm, Kurt
Mire, PE, using SEC prices used throughout this report for crude oil, condensate, and natural gas were $71.67 per barrel of oil and $3.95
per MMBTU for Henry Hub gas. As a result of lease purchases from funding made available from our majority owner, we include 100% of our
net oil reserves and 100% of our net natural gas reserves that were classified as proved producing that include values from the proved
developed producing, proved behind pipe, and proved non-producing reserves categories as of March 1, 2023.
Sales
Strategy
Our
sales strategy in relation to spot pricing will be to produce less when the sales price is lower and produce more when the sales price
is higher. To maintain the lowest production cost, we will aim to have our inventory be as low as possible, in some instances virtually
zero. Our E&P core team has business relationships with BML, Transport Oil, and Lion Oil Trading & Transportation, for oil sales
and WTG Jameson for gas sales. The Company entered into production agreements with BML, Lion Oil and WTG Jameson so that, as our tier
1 buyer, they can handle pick-up and sales of our crude oil stock to refineries and gas via local gas pipelines.
As
such, crude oil will be picked up from our leases as needed during the calendar month. At the end of the month the crude total sales
will be tallied by lease and the 30-day average of the daily closing of oil will be tabulated. On or about the 25th of the following
month the proceeds checks will be issued to the financial parties of record.
In
the current market environment resulting from the public health lock-down and overall disruption to the oil and gas market, our production
may have to be curtailed or we may shut-in some of our wells at a point in time or may hold, or continue to store some, or all of our
oil as inventory to be sold at a later date as have refused to accept zero price for our production.
Operational
Plans
During
fiscal year 2020, the Company was in a period of assessment and work-over of its existing wells as result of its acquisition of the Jack
and Palo Pinto oil and gas leases. We continue to look for, on a selective basis, oil and gas reserve concessions with existing production.
However, any acquisitions will have to take into account the current and anticipated market for oil and gas products and the general
economic outlook, which in part drives the consumption of oil and gas. For any potential acquisition, we will then seek to raise enough
capital via equity or debt financing options to meet our operational needs and acquisition requirements, be this from our control owner,
or other third-party financing sources, including the capital markets.
Based
on the Company’s general management and petroleum exploration experience, as well as its geology expertise, the Company believes
it has the ability to identify potential acreage with existing producing fields and acquire them.
As
mentioned before the effect of the government responses to COVID-19 as well as the war in Ukraine has impacted the domestic and international
demand for crude oil and natural gas, which has contributed to price volatility, impacted dramatically the price we receive for oil and
natural gas and has materially and adversely affected the demand for, and costs incurred on our production, which means that our production
may have to be shut-in, or costs will increase on some of our wells at any point in time..
Completed
Acquisitions with Production Enhancement Programs
To
date, the Company has prospected and completed several exploration and acquisition projects, all of which may change subject to market
conditions and risk assessments due to the COVID 19 public health response and general economic conditions:
The
Bend Arch Lion 1A JV, Coleman County, TX:
This
drilling joint venture is a 160-acre leasehold having four producing wells which have been drilled by our Texas-based operating partner
International Western Oil. This field has been surveyed with high quality proven reserves encompassing several pay zones highlighted
by the Gray Sand, the Palo Pinto, and in some instances the Ellenburger pay zone. On May 4, 2015, the Company acquired a 39.5% working
interest from IWO in the Bend Arch Lion 1A Joint Venture (the Pittard Bend Arch White property encompassing 160 acres – State ID#
21488) (the “1A Venture”.) By acquiring these working interests, the Company directly receives the share of working interest
revenue (after accounting for applicable taxes, expenses, and landowner royalties) IWO was receiving prior to the acquisitions.
As
of February 28, 2023, the 1A Venture property had four (4) gross oil and gas wells (1.58 net wells). The initial production of this property
started in April 2014.
Management
plans to review and determine how best to implement a production improvement program on several of its wells including the Bend Arch
Lion 1A and others. As a result of recent studies that show accessible proven reserves in several pay zones highlighted by the Gray Sand
and the Ellenburger pay zones, management believes its production improvement program can offer an increase from the current production
of these fields by re-completing certain pay zones with either standard acidizing jobs, a new EOR method, or reentering and fixing equipment
in areas that have become declining wellbores.
The
Bend Arch Lion 1B JV, Coleman County, TX:
This
drilling joint venture is a 220-acre leasehold having 6 new producing wells which have been drilled by our Texas-based operating partner
International Western Oil. In May 2015, the Company acquired working interests of this leasehold which has been surveyed with high quality
proven reserves encompassing several pay zones highlighted by the Gray Sand and in some instances the Ellenburger pay zone. At the moment,
the leasehold has 3 producing wells coming from the Gray Sand formation and 3 producing wells coming from the Ellenberger formation.
On May 4, 2015, the Company acquired 46% working interest in the Bend Arch Lion 1B Joint Venture (the Pittard Bend Arch Red property
encompassing 220 acres - State ID# 13121) (the “1B Venture”).
As
of February 28, 2023, the 1B Venture property had six (6) gross oil and gas wells (3 net wells). The initial production of this property
started in March 2015.
Management
plans to determine how best to implement a production improvement program on the Bend Arch Lion 1B as the result of our prior in-depth
studies that show accessible proven reserves in several pay zones highlighted by the Gray Sand pay zone and the Ellenburger pay zone.
Management believes this can offer a potential increase from the current production of this field by re-completing certain Gray Sand
pay zone with either standard acidizing jobs or a new EOR method and entering the virgin Gray Sand pay zone or increasing pumping efficiency
in the Ellenburger pay zone in certain declining wellbores.
The
Marshall Walden JV, Kilgore City, TX:
As
of July 29, 2016, the Company served as the managing venturer in a 45-acre joint venture with Odyssey Enterprises LLC which has financed
the Marshall Walden joint venture for the lease purchase and optimization of wells located in Kilgore, Texas, in the heart of the Woodbine
formation. There are 8 wellbores in the acquisition, with 4 currently in production and 4 inactive. During the year ended February 28,
2021, the Company completed a purchase of the 90% WI that it did not own previously, and now owns 100% WI, with a 75% NRI. Management
believed that the Marshall Walden acquisition had value at the time of purchase in mid-2019.
As
of February 28, 2023, the Marshall Walden property had six (6) gross oil and gas wells (0.6 net wells) which are intermittently active,
plus two (2) injection wells. There are no definitive plans currently; the Company expects to determine such in the next fiscal year.
The initial production of this property started in September 2016.
The
Stuart Leases of Jack County and Palo-Pinto County
The
Jack County and Palo-Pinto County Stuart oil leases were purchased on December 28, 2017 and have twenty (20) gross oil and gas wells
(15 net wells), which the management is operating production on its properties.
Reserve
Information
The
data below is based on the SEC Non-Escalated Analysis of Estimated Proved Reserve of the Jack County and Palo Pinto County associated
leases as well as the Bend Arch Lion 1A and Bend Arch Lion 1B, and Marshall-Walden leaseholds in which the Company has certain minority
interests. As of March 1, 2023, this evaluation report was prepared by an independent third-party Kurt Mire, a PE reservoir engineer
based in Houston, Texas. To the extent able, the Company will concentrate on those wells in which the Company either owns a majority,
or 100% of the working interest in such oil and gas property lease.
Estimated
Proved Reserves
Net
to Norris Industries, Inc.
SEC
Non-Escalated Analysis
As
of March 1, 2023
| |
|
Proved |
|
|
|
|
| |
|
Developed |
|
|
Proved |
|
|
Proved Non- |
|
|
Proved |
|
|
Total BOE |
|
| |
|
Producing |
|
|
Behind Pipe |
|
|
Producing |
|
|
Shut-in |
|
|
& Value |
|
| Net Reserve |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Oil-BBL |
|
|
13,100 |
|
|
|
7,100 |
|
|
|
1,500 |
|
|
|
- |
|
|
|
21,700 |
|
| Gas - Mcf |
|
|
34,900 |
|
|
|
48,700 |
|
|
|
4,600 |
|
|
|
- |
|
|
|
88,200 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Income Data |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Future Revenue |
|
$ |
1,439,000 |
|
|
$ |
921,800 |
|
|
$ |
164,500 |
|
|
|
- |
|
|
$ |
2,525,300 |
|
| Expenses & Taxes |
|
$ |
977,800 |
|
|
$ |
295,900 |
|
|
$ |
54,700 |
|
|
|
- |
|
|
$ |
1,328,400 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investments Costs |
|
$ |
14,700 |
|
|
$ |
49,200 |
|
|
$ |
30,000 |
|
|
$ |
112,500 |
|
|
$ |
339,100 |
|
| Undiscounted Cash Flows |
|
$ |
313,900 |
|
|
$ |
575,700 |
|
|
$ |
79,800 |
|
|
$ |
(112,500 |
) |
|
$ |
856,900 |
|
| Discouted Cash Flows at 10% |
|
$ |
220,300 |
|
|
$ |
460,700 |
|
|
$ |
66,700 |
|
|
$ |
(85,400 |
) |
|
$ |
662,300 |
|
The
unit prices used throughout this report for crude oil, condensate, and natural gas were $93.11 per barrel of oil and $6.10 per MMBTU
for Henry Hub gas which are above current market prices. The reserve report unit prices are based upon the appropriate prices in effect
the first trading day of each month from March 2022 through February 2023 and averaged for the year which ranged from low of $71.05 for
to a high of $123.64 per barrel of oil for WTI crude.
Employees
We
presently have a limited number of individuals performing services for the Company: Patrick Norris our Chief Executive Officer, President,
Chief Accounting Officer and Chief Financial Officer; Ross Henry Ramsey, the President of the oil division and Board-Member.
Mr.
Ramsey devotes approximately 40 hours per week to the affairs of the Company. Mr. Ramsey serves as the President of the oil and gas division
of the Company.
Ms.
Lisa Boudoin devotes approximately 20 hours per week for administrative functions.
Item
1A. Risk Factors.
RISK
FACTORS
An
investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with
all of the other information included in this annual report, before making an investment decision. If any of the following risks occurs,
our business, financial condition or results of operations could suffer. In that case, the trading price of our shares of common stock
could decline, and you may lose all or part of your investment. You should read the section entitled “Cautionary Note Regarding
Forward-Looking Statements” for a discussion of what types of statements are forward-looking statements, as well as the significance
of such statements in the context of this annual report.
Risks
Related to Our Business
LIMITED
OPERATING HISTORY.
The
Company was formed on February 19, 2014. The Company has had limited operations upon which an evaluation of the Company can be based.
Exploration stage companies, such as the Company are subject to all of the risks inherent in the establishment of any new business in
the E&P sector of the oil and gas industry. Our financial viability is dependent upon raising funds and successfully executing our
business plan. The likelihood of our success must be considered in the light of the challenges, both expected and unexpected, frequently
encountered in connection with starting and expanding a new business. Accordingly, we are planning to align our primarily fixed expense
levels with our expectation of future revenues. We may be unable to adjust spending in a timely manner to compensate for unexpected shortfalls
in any forthcoming revenue. Any such shortfalls will have an immediate adverse impact on our operating results and financial condition
which could cause investors to lose all or a substantial part of their investment.
THE
OIL AND GAS INDUSTRY IS NO LONGER IN A SUBSTANTIAL DOWNTURN DUE TO RECOVERY FROM COVID-19 PANDEMIC.
During
the 2023 fiscal year, we performed an analysis of our oil and gas properties in light of recovery from the COVID-19 pandemic, and the
increase in oil and gas prices and anticipated economic conditions in our industry. As a result, we don’t believe there to be any
further impairment expenses required due to prior reduction in carrying value of our oil and gas properties in the March 1, 2023, Reserve
Report.
Our
business and operations were adversely affected by and are expected to continue to be adversely affected by the recent COVID-19 pandemic
and the public health response and may be adversely affected in the future by other similar outbreaks. Our operations, and those of our
subcontractors, customers and suppliers, have experienced and are anticipated to continue to experience delays or disruptions and temporary
suspensions of operations. In addition, our financial condition and results of operations have been and are likely to continue to be
adversely affected by the coronavirus outbreak and has somewhat recovered due to significant recovery of oil and gas prices.
The
future potential magnitude of the COVID-19 outbreak is currently still unknown. The continuation or amplification of this virus could
continue to affect the United States and global economy, (due to recent resurgent outbreaks in China) that might affect prices and our
business and operations, and the demand more broadly for oil and gas or could be further disruptions due to invasion Ukraine by Russian
forces in February and March of 2022.
The
coronavirus pandemic has resulted in a widespread health crisis that may adversely affect the economies and financial markets of many
countries, resulting in an economic downturn that will affect our operating results. Other contagious diseases in the human population
could have similar adverse effects. In addition, it has negatively impacted the domestic and international demand for crude oil and natural
gas, which has contributed to price volatility, impacted the price we receive for oil and natural gas, and has materially and adversely
affected the demand for and marketability of our production; to us this means that our production may have to be shut-in for some of
our wells at any point in time and may hold, or continue to store some, or all of our oil as inventory to be sold at a later date as
we have refused to accept zero price for our production.
These
unprecedented situations are anticipated to continue to affect the same for the foreseeable future. As the impact from COVID-19, and
Ukraine invasion are difficult to predict, the extent to which it will negatively or positively affect our operating results, or the
duration of any potential business disruption is uncertain. The magnitude and duration of any impact will depend on future developments
and new information that may emerge regarding the severity and duration of COVID-19 or war and the actions taken by various governmental
authorities to contain war or treat pandemic and related impacts, all of which are beyond our control.
These
potential impacts, while uncertain, have already impacted our 2024 fiscal year first quarter results of operations, and anticipated to
have an unknown impact on multiple future quarters’ results as well.
OUR
FINANCIAL STATEMENTS HAVE BEEN PREPARED ON A GOING CONCERN BASIS.
The
Company has incurred continuing losses since 2016, including a loss of approximately $500,000 for the fiscal year ended February 28,
2023. During the fiscal year ended February 28, 2023, the Company accessed $300,000 in funding, and reduced its general and administrative
costs, increased revenues, and incurred cash losses of approximately $288,000 from its operating activities. If we do not increase our
income so as to be able to cover our operating expenses, we will need to obtain financing during the fiscal year to fund our operations.
We do not have any specific sources of capital to be able to raise additional working capital. Our principal shareholder, who is not
legally obligated to fund our operations, may provide funding, but there is no assurance that the shareholder will make a further capital
investment or lend us operating funds. As of February 28, 2023, the Company had availability of $300,000 on its existing credit line
with JBB Partners, Inc. (“JBB”), an entity that is owned and controlled by Mr. Patrick Norris, the Company’s Chief
Executive Officer, and principal shareholder. If we are not able to obtain working capital funding, we will have to curtail our operations
or cease operations. If either event occurs, investors will suffer a diminution in the value of their investment.
AS
WE CONTINUE TO DEVELOP OUR OPERATIONS, WE WILL NEED SUBSTANTIAL CAPITAL TO FUND OUR OPERATIONS, AND IF WE ARE NOT ABLE TO OBTAIN SUFFICIENT
CAPITAL, WE MAY BE FORCED TO LIMIT THE SCOPE OF OUR OPERATIONS.
The
Company currently has working interests in wells and acreage. To develop and expand our operations, we will need to make substantial
capital expenditures for the acquisition of petroleum exploration companies, hydrocarbon land leases, and existing oil and gas production
with large reserves, and for drilling new wells and re-entering existing low production wells. We intend to finance our capital expenditures
primarily through our cash flows from operations, bank borrowings, and public and private equity and debt offerings. Lower crude oil
and natural gas prices, however, will reduce our cash flows. In addition, new equity or convertible debt securities issued by us to obtain
financing could have rights, preferences and privileges senior to the shares being offered for resale by the selling security holders.
Further,
if the condition of the credit and capital markets materially declines, we might not be able to obtain financing on terms we consider
acceptable, if at all. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the development of similar
services undertaken by our competition; and (iii) the amount of our capital expenditures. We cannot assure you that we will be able to
obtain capital in the future to meet our needs. If we cannot obtain financing, we may be required to limit our expansion and decrease
or eliminate capital expenditures. Such reductions could materially adversely affect our business and our ability to compete.
In
addition, weakness and/or volatility in domestic and global financial markets or economic conditions may increase the interest rates
that lenders require us to pay and adversely affect our ability to finance our capital expenditures through equity or debt offerings
or other borrowings. A reduction in our cash flows (for example, as a result of lower crude oil and natural gas prices) and the corresponding
adverse effect on our financial condition and results of operations may also increase the interest rates that lenders require us to pay.
In addition, a substantial increase in interest rates would decrease our net cash flows available for reinvestment. Any of these factors
could have a material and adverse effect on our business, financial condition and results of operations.
The
oil and gas business is characterized by high fixed costs resulting from the significant capital outlays associated with the acquisition,
development, and exploration of crude oil and natural gas properties. We are dependent on the production and sale of quantities of crude
oil at product margins sufficient to cover operating costs, including any increases in costs resulting from future inflationary pressures
or market conditions and increases in costs of fuel and power necessary in operating our facilities. Furthermore, future major capital
investment, various environmental compliance related projects, regulatory requirements, or competitive pressures could result in additional
capital expenditures, which may not produce a return on investment. Such capital expenditures may require significant financial resources
that may be contingent on our access to capital markets and commercial bank loans. Additionally, other matters, such as regulatory requirements
or legal actions, may restrict our access to funds for capital expenditures.
Our
ability to generate operating cash flow is subject to many of the risks and uncertainties that exist in our industry, some of which we
may not be able to anticipate at this time. Future cash flows from operations are subject to a number of risks and variables, such as
the level of production from existing wells, prices of natural gas and oil, our success in developing and producing new reserves and
the other risk factors discussed herein. Our ability to obtain capital from other sources, such as the capital markets, other financing
and asset sales, is dependent upon many of those same factors as well as the orderly functioning of credit and capital markets. If such
proceeds are inadequate to fund our planned spending, we would be required to reduce our capital spending, seek to sell different or
additional assets or pursue other funding alternatives, and we could have a reduced ability to replace our reserves and increase liquids
production.
YOU
WILL EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST BECAUSE OF THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK AND OUR PREFERRED
STOCK.
If
we raise additional capital through the issuance of equity or convertible debt securities, the percentage ownership of the Company held
by existing shareholders will be reduced and those shareholders may experience significant dilution. In addition, we may also have to
issue securities that may have rights, preferences and privileges senior to our common stock. In the event we seek to raise additional
capital through the issuance of debt or its equivalents, this will result in increased interest expense.
WE
WILL BE DEPENDENT UPON KEY PERSONNEL FOR THE FORESEEABLE FUTURE.
Given
our early stage of development, we are highly dependent on our executive officers, employees, and contractors. Although we believe that
we will be able to identify, engage and motivate qualified personnel, an inability to do so could adversely affect our ability to market,
sell, and develop our products and services. Any difficulty to attracting and retaining key people could have an adverse effect on our
business.
SIGNIFICANT
ADVERSE IMPACT TO OUR CAPITAL RESERVE OF ANY UNINSURED LIABILITY CLAIM.
We
do not have any insurance to cover potential risks and liabilities, including, but not limited to, injuries or economic losses arising
out of or relating to our omission or errors in providing our services. Even if we decide to obtain insurance coverage in the future,
it is possible that: (1) we may not be able to get enough insurance to meet our needs; (2) we may have to pay very high premiums for
the additional coverage; (3) we may not be able to acquire any insurance for certain types of business risk; or (4) we may have gaps
in coverage for certain risks. We may be exposed to potential uninsured claims for which we could have to expend significant amounts
of capital. Consequently, if we were found liable for a significant uninsured claim in the future, we may be forced to expend a significant
amount of our capital to resolve the uninsured claim.
UNCERTAINTY
OF PROFITABILITY.
Our
business model requires significant investment in acquisitions and explorations, and, if and to the extent our business grows, we will
need to hire new employees. Specifically, our profitability will depend upon our success at accomplishing the following tasks:
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implementing
and executing our business model; |
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establishing
name recognition and a reputation for value with domestic and worldwide investors and partners; |
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implementing
results-oriented explorations, domestic and worldwide distribution and sales strategies; and |
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developing
sound business relationships with key strategic partners; and hiring and retaining skilled employees. |
Additionally,
our revenues and operating results may vary significantly from quarter-to-quarter due to a number of factors, including:
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economic
conditions generally, as well as those specific to the oil and gas industry such as demand for petroleum generally and more specifically
from small producers such as the Company and the pricing for the crude oil and gas we produce; |
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our
ability to manage relationships with industry and distribution partners to sell our production; |
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our
ability to access capital as needed, on terms which are fair and reasonable to the Company; |
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our
ability to successfully to produce high quality oil, and get that product to buyers in the intended manner; and |
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the
ability of third-party vendors to manage their procurement and delivery operations. |
MANAGEMENT
OF GROWTH.
Successful
expansion of our business will depend on our ability to effectively attract and manage staff, strategic business relationships, and shareholders.
Specifically, we will need to hire skilled management and technical personnel as well as manage partnerships to navigate shifts in the
general economic environment as well as in our target geographic exploration locations. Expansion has the potential to place significant
strains on financial, management, and operational resources, yet failure to expand will inhibit our profitability goals.
WE
ARE IN A HIGHLY COMPETITIVE MARKET.
We
expect to face substantial competition in the oil and gas industry. There are many exploration companies in the oil and gas industry
which will compete directly with us. There are many large, well-capitalized, private and public companies in this industry, which have
the resources, lease access, loyal buyers and expertise to drill and produce oil if they wish to do so. Many of our existing and potential
competitors have substantially greater financial, technical and marketing resources than we do. These competitors may be able to adopt
more aggressive pricing policies. This type of pricing pressure could force us to offer discounts, decreasing our profit margin.
CONFLICTS
OF INTEREST.
The
Company’s principal executive officer and director also controls a majority of the outstanding shares of the Company’s stock
and will continue to do so for the foreseeable future. As a result, no other persons can or will be able to affect any Company action
except with the consent of these officers and directors, and in certain matters (such as compensation, incentive stock ownership, and
continues employment), there may be an inherent conflict of interest unless such persons agree to abstain from voting on such matters,
which they are not legally required to do. Our officer and director may also serve as officers and directors of other entities that are
not affiliated with us. Such non-affiliates may be involved in similar business enterprises to ours.
WE
MAY INCUR SIGNIFICANT COSTS TO BE A PUBLIC COMPANY TO ENSURE COMPLIANCE WITH U.S. CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS AND
WE MAY NOT BE ABLE TO ABSORB SUCH COSTS.
We
may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate
governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and
Exchange Commission. We expect these costs to be at least $75,000 per year. We expect all of these applicable rules and regulations to
significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect
that these applicable rules and regulations may make it more difficult and more expensive, and nearly impossible for us to obtain director
and officer liability insurance and if able to obtain coverages in the future, we may be required to accept reduced policy limits and
coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to
attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and
monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs
we may incur or the timing of such costs. In addition, we may not be able to absorb these costs of being a public company which will
negatively affect our business operations.
WHILE
NOT APPLICABLE TO COMPANY CURRENTLY BECAUSE WE DO NOT MEET ANY OF THE ACCELERATED FILER REQUIREMENTS. IN THE FUTURE, THE PRICE OF OUR
SHARES OF COMMON STOCK MAY DECLINE AND AN INABILITY TO OBTAIN FUTURE FINANCING IF THE COMPANY IS NOT ABLE TO COMPLY WITH THE ACCELERATED
FILING AND INTERNAL CONTROL REPORTING REQUIREMENTS IMPOSED BY THE SEC.
As
directed by Section 404 of the Sarbanes-Oxley Act, as amended by SEC Release No. 33-8934 on June 26, 2008, the SEC adopted rules requiring
each public company to include a report of management on the company’s internal controls over financial reporting in its annual
reports. In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest
to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting
as well as the operating effectiveness of the company’s internal controls. We will be required to include a report of management
on its internal control over financial reporting. The internal control report must include a statement
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management’s responsibility for establishing and maintaining adequate internal control over its financial reporting; |
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Of
management’s assessment of the effectiveness of its internal control over financial reporting as of year-end; and |
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Of
the framework used by management to evaluate the effectiveness of our internal control over financial reporting. |
Furthermore,
if we become a larger company than currently, our independent registered public accounting firm will be required to file its attestation
report separately on our internal control over financial reporting on whether it believes that we have maintained, in all material respects,
effective internal control over financial reporting.
While
we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of
the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. In
the event that we are unable to receive a positive attestation from our independent registered public accounting firm with respect to
our internal controls, investors and others may lose confidence in the reliability of our financial statements and our stock price and
ability to obtain equity or debt financing as needed could suffer.
In
addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls in connection
with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy
itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file
our Annual Report on Form 10-K with the SEC, which could also adversely affect the market price of our Common Stock and our ability to
secure additional financing as needed.
OUR
ARTICLES OF INCORPORATION PROVIDE FOR INDEMNIFICATION OF OFFICERS AND DIRECTORS AT OUR EXPENSE AND LIMIT THEIR LIABILITY WHICH MAY RESULT
IN A MAJOR COST TO US AND HURT THE INTERESTS OF OUR SHAREHOLDERS BECAUSE CORPORATE RESOURCES MAY BE EXPENDED FOR THE BENEFIT OF OFFICERS
AND/OR DIRECTORS.
The
Company’s Certificate of Incorporation and By-Laws include provisions that eliminate the personal liability of the directors of
the Company for monetary damages to the fullest extent possible under the laws of the State of Nevada or other applicable law. These
provisions eliminate the liability of directors to the Company and its stockholders for monetary damages arising out of any violation
of a director of his fiduciary duty of due care. Under Nevada law, however, such provisions do not eliminate the personal liability of
a director for (i) breach of the director’s duty of loyalty, (ii) acts or omissions not in good faith or involving intentional
misconduct or knowing violation of law, (iii) payment of dividends or repurchases of stock other than from lawfully available funds,
or (iv) any transaction from which the director derived an improper benefit. These provisions do not affect a director’s liabilities
under the federal securities laws or the recovery of damages by third parties.
REPORTING
REQUIREMENTS UNDER THE EXCHANGE ACT AND COMPLIANCE WITH THE SARBANES-OXLEY ACT OF 2002, INCLUDING ESTABLISHING AND MAINTAINING ACCEPTABLE
INTERNAL CONTROLS OVER FINANCIAL REPORTING, ARE COSTLY AND MAY INCREASE SUBSTANTIALLY.
The
rules and regulations of the SEC require a public company to prepare and file periodic reports under the Exchange Act, which require
that the Company engage legal, accounting, auditing and other professional services. The engagement of such services is costly. Additionally,
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that we design, implement, and maintain
adequate internal controls and procedures over financial reporting. The costs of complying with the Sarbanes-Oxley Act and the limited
technically qualified personnel we have may make it difficult for us to design, implement and maintain adequate internal controls over
financial reporting. If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal
controls, we may not be able to produce reliable financial reports or report fraud, which may harm our overall financial condition and
result in loss of investor confidence and a decline in our share price.
As
a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act of
2010 and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these
rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming
or costly and increase demand on our systems and resources. The Exchange Act requires, among other things, that we file annual, quarterly,
and current reports with respect to our business and operating results.
The
increased costs associated with operating as a public company may decrease our net income or increase our net loss, and may cause us
to reduce costs in other areas of our business or increase the prices of our products or services to offset the effect of such increased
costs. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material
adverse effect on our business, financial condition and results of operations.
THE
COMPANY MAY BE SUBJECT TO LITIGATION IN THE FUTURE WHICH COULD IMPACT THE FINANCIAL HEALTH OF THE COMPANY.
Currently
there are no legal proceedings pending or threatened against the Company. However, from time to time, we may become involved in various
lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an
adverse result in these or other matters may arise from time to time that may harm our business.
Risks
Related To The Exploration Business
IMPACT
OF COVID-19 AND RUSSIAN INVASION OF UKRAINE ON OUR BUSINESS.
Our
business and operations have been adversely affected by the pandemic in 2020. In 2021, as result of initial reopening of business activities
in recovery from COVID-19, and the invasion of Ukraine by the Russian Federation in March 2022, there has been a substantial increase
in oil and gas prices from higher demand on energy. However, we cannot predict the future and the exact impact it will have on energy
services and commodity prices due to other similar outbreaks or a peaceful resolution to the war that could cause a rapid decline in
overall energy prices. In May, 2023 the WHO and the US Government announced the technical ending of Covid-19 Pandemic conditions; we
are unable to determine how any changes to such health emergencies might occur, or how the continuation of or outcome to the war being
currently unknown and how these might affect the Company or energy prices in the future.
AS
WE CONTINUE TO DEVELOP OUR OPERATIONS, OUR PRODUCTION REVENUES MAY BE ADVERSELY AFFECTED BY CHANGES IN OIL AND GAS PRICES, AND IF WE
ARE UNABLE TO BRING NEW OIL WELLS TO PRODUCTION WITH REASONABLE PRODUCTION CAPACITY.
The
Company is an early-stage company in the oil and gas industry, which has ownership and working interests in wells and acreage. For the
Company to reach strong stable production capacity it must raise enough capital to help the Company acquire and exploit new working interests
in any future production wells. Any significant changes in oil prices or any inability on our part to anticipate or react to such changes
could result in reduced revenues and profits and erosion of our competitive and financial position. Our success also depends on our ability
to acquire good hydrocarbon production and bringing new oil wells to production with reasonable production capacity. In addition, changes
from very shallow well to semi shallow well exploration or geographical exploration locations could result in higher costs of production
and higher risks.
AS
WE CONTINUE TO DEVELOP OUR OPERATIONS, PRODUCTION REVENUE MAY DECREASE OVER TIME DUE TO A VARIETY OF FACTORS.
As
we continue to develop our operations, production revenue may decrease over time due to a variety of factors, including the aging of
re-entry wells, changes in hydrocarbon flows, depletion, natural disasters, weather, negative publicity resulting from regulatory action
or litigation against companies in our industry, or a downturn in economic conditions or taxes specifically targeting the consumption
of oil and gas. Any of these changes may reduce our projected production revenues. Our success is also dependent on our technology innovations
and applications, including maintaining production capacity, and the effectiveness of our advertising campaigns, marketing programs and
market positioning. Although we will devote significant resources to meeting our revenue goals, there can be no assurance as to our ability
either to explore new projects and launch successful new production, or to effectively execute explorations and new acquisitions. In
addition, both the launch and ongoing success of new production and acquisitions are inherently uncertain, especially as to their appeal
to our investors.
ANY
DAMAGE TO OUR REPUTATION COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Maintaining
a good reputation will be important to the Company. Adverse publicity about our operations, including the incidence of “dry holes”
in exploration or low production wells, whether valid or not, may cause production and delivery disruptions. If any of our production
wells becomes depleted for any reason, is mishandled or causes injury, we may be subject to legal liability. A widespread non-commercialized
production or a significant depletion could cause our production to be disrupted for a period of time, which could further reduce our
revenue and damage our corporate image. Failure to maintain high ethical, social and environmental standards for all of our operations
and activities or adverse publicity regarding our responses to health concerns, our environmental impact, including drilling and production
materials, energy use and waste management, or other sustainability issues, could jeopardize our reputation. In addition, water is a
limited resource in many parts of the world. Our reputation could be damaged if we do not act responsibly with respect to water use of
our exploration purposes. Failure to comply with local laws and regulations, to maintain an effective system of internal controls or
to provide accurate and timely financial statement information could also hurt our reputation. Damage to our reputation or loss of buyer
confidence in our oil production for any of these reasons could result in decreased demand for our products and could have a material
adverse effect on our business, financial condition and results of operations, as well as require additional resources to rebuild our
reputation.
AS
WE CONTINUE TO DEVELOP OUR OPERATIONS, CHANGES IN THE LEGAL AND REGULATORY ENVIRONMENT COULD LIMIT OUR BUSINESS ACTIVITIES, INCREASE
OUR OPERATING COSTS, AND REDUCE DEMAND FOR OUR PRODUCTION OR RESULT IN LITIGATION.
As
we continue our operations, we will be subject to various laws and regulations administered by federal, state and local governmental
agencies in the United States. These laws and regulations may change, sometimes dramatically, as a result of political, economic or social
events. Such regulatory environment changes may include changes in: laws related to advertising and deceptive marketing practices; accounting
standards; taxation requirements, including taxes specifically targeting the consumption of our products; anti-trust laws; and environmental
laws, including laws relating to the regulation of oil and gas production. Changes in laws, regulations or governmental policy and related
interpretations may alter the environment in which we do business and, therefore, may impact our results or increase our costs or liabilities.
Governmental entities or agencies in jurisdictions where we plan to operate may also impose new quality or production requirements, or
other restrictions. Regulatory authorities under whose laws we operate may also have enforcement powers that can subject us to actions
such as product recall, seizure of products or other sanctions, which could have an adverse effect on our sales or damage our reputation.
The
Company is still in the process of determining whether to use hydraulic fracturing in its operations. Hydraulic fracturing is a commonly
used process that involves injecting water, sand, and small volumes of chemicals into the wellbore to fracture the hydrocarbon-bearing
rock thousands of feet below the surface to facilitate higher flow of hydrocarbons into the wellbore. Various federal legislative and
regulatory initiatives have been undertaken which could result in additional requirements or restrictions being imposed on hydraulic
fracturing operations. For example, the Department of Interior has issued proposed regulations that would apply to hydraulic fracturing
operations on wells that are subject to federal oil and gas leases and that would impose requirements regarding the disclosure of chemicals
used in the hydraulic fracturing process as well as requirements to obtain certain federal approvals before proceeding with hydraulic
fracturing at a well site. These regulations, if adopted, would establish additional levels of regulation at the federal level that could
lead to operational delays and increased operating costs.
The
US Congress has considered legislation that would require additional regulation affecting the hydraulic fracturing process. Consideration
of new federal regulation and increased state oversight continues to arise. The US Environmental Protection Agency (“EPA”)
announced in the first quarter of 2010 its intention to conduct a comprehensive research study on the potential effects that hydraulic
fracturing may have on water quality and public health. The EPA issued a final report in June 2014.
At
the same time, legislation and/or regulations have been adopted in several states that require additional disclosure regarding chemicals
used in the hydraulic fracturing process but that include protections for proprietary information. Legislation and/or regulations are
being considered at the state and local level that could impose further chemical disclosure or other regulatory requirements (such as
restrictions on the use of certain types of chemicals or prohibitions on hydraulic fracturing operations in certain areas) that could
affect our operations. The adoption of any future federal, state, or local laws or implementing regulations imposing reporting obligations
on, or limiting or banning, the hydraulic fracturing process could make it more difficult to complete natural gas and oil wells and could
have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition.
DISRUPTION
OF OUR PROPOSED SUPPLY CHAIN COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our
ability and the ability of our suppliers, business partners, including drillers, operators, and independent buyers, to make, move and
sell our products is critical to our success. Damage or disruption to our or their manufacturing or distribution capabilities due to
adverse weather conditions, natural disaster, fire, terrorism, the outbreak or escalation of armed hostilities, pandemics, strikes and
other labor disputes or other reasons beyond our or their control, could impair our ability to produce oil. So far in fiscal year 2023,
as a result of the COVID-19 pandemic and official reaction to the pandemic, as well as war in Ukraine there has been severe, far-reaching
disruptions to the oil and gas industry, generally, which also is affecting the Company. We expect to experience additional losses and
we may have to change production. We recognize that a failure to take adequate steps to mitigate the likelihood or potential impact of
such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results
of operations, as well as require additional resources to restore our supply chain.
AS
WE CONTINUE TO DEVELOP OUR OPERATIONS, WE ARE BE SUBJECT TO HAZARDS AND RISKS INHERENT IN THE DRILLING, PRODUCTION, AND TRANSPORTATION
OF CRUDE OIL AND NATURAL GAS
We
will be subject to hazards and risks inherent in the drilling, production, and transportation of crude oil and natural gas, including:
i) well blowouts, explosions and cratering, ii) pipeline ruptures and spills, iii) fires, iv) formations with abnormal pressures, v)
equipment malfunctions, vi) natural disasters and vii) surface spillage and surface or ground water contamination from petroleum constituents
or hydraulic fracturing chemical additives. Failure or loss of equipment, as the result of equipment malfunctions, cyber-attacks, or
natural disasters such as hurricanes, could result in property damages, personal injury, environmental pollution and other damages for
which we could be liable. Litigation arising from a catastrophic occurrence, such as those mentioned above, may result in substantial
claims for damages. Ineffective containment of a drilling well blowout or pipeline rupture, or surface spillage and surface or ground
water contamination from petroleum constituents or hydraulic fracturing chemical additives could result in extensive environmental pollution
and substantial remediation expenses. If a significant amount of our production is interrupted, our containment efforts prove to be ineffective
or litigation arises as the result of a catastrophic occurrence, our cash flows, and, in turn, our results of operations could be materially
and adversely affected.
TERRORIST
ATTACKS OR CYBER-INCIDENTS COULD RESULT IN INFORMATION THEFT, DATA CORRUPTION, OPERATIONAL DISRUPUTON AND/OR FINANCIAL LOSS.
Like
most companies, we have become increasingly dependent upon digital technologies, including information systems, infrastructure and cloud
applications and services, to operate our businesses, to process and record financial and operating data, communicate with our business
partners, analyze mine and mining information, estimate quantities of coal reserves, as well as other activities related to our businesses.
Strategic targets, such as energy-related assets, may be at greater risk of future terrorist or cyber-attacks than other targets in the
United States. Deliberate attacks on, or security breaches in, our systems or infrastructure, or the systems or infrastructure of third
parties, or cloud-based applications could lead to corruption or loss of our proprietary data and potentially sensitive data, delays
in production or delivery, difficulty in completing and settling transactions, challenges in maintaining our books and records, environmental
damage, communication interruptions, other operational disruptions and third-party liability. Our limited amount of insurance may not
protect us against many type of such occurrences. Consequently, it is possible that any of these occurrences, or a combination of them,
could have a material adverse effect on our business, financial condition, results of operations and cash flows. Further, as cyber incidents
continue to evolve, we may be required to expend additional resources to continue to modify or enhance our protective measures or to
investigate and remediate any vulnerability to cyber incidents.
Risks
Related to Our Common Stock
THERE
IS NO ASSURANCE THAT OUR COMMON STOCK WILL EVER TRADE ON A RECOGNIZED EXCHANGE. THEREFORE, YOU MAY BE UNABLE TO LIQUIDATE YOUR INVESTMENT
IN OUR STOCK.
There
is a limited public trading market for our common stock and there can be no assurance that one will ever develop. Market liquidity will
depend on the availability of shares in the market place, on the perception of our operating business, and on any steps that our management
might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently,
investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result,
holders of our securities may not find purchasers for our securities should they decide to sell. Consequently, our securities should
be purchased only by investors having no need for liquidity in their investment and who can hold our securities for an indefinite period
of time.
WE
MAY NEVER PAY ANY DIVIDENDS TO SHAREHOLDERS.
We
currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect
to pay any dividends in the foreseeable future but will review this policy as circumstances dictate.
OUR
COMMON STOCK IS CONSIDERED A PENNY STOCK, WHICH MAY BE SUBJECT TO RESTRICTIONS ON MARKETABILITY, SO YOU MAY NOT BE ABLE TO SELL YOUR
SHARES.
We
currently are subject to the SEC’s “penny stock” rules while our shares of Common Stock sell below $5.00 per share.
Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver
a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of
risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny
stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny
stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information
must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before
or with the customer’s confirmation.
In
addition, the penny stock rules require that prior to a transaction; the broker dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The
penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our Common Stock.
As long as our shares of Common Stock are subject to the penny stock rules, the holders of such shares of Common Stock may find it more
difficult to sell their securities.