RICHFIELD OIL & GAS Co - FORM 10-Q

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EXCEL - IDEA: XBRL DOCUMENT - RICHFIELD OIL & GAS Co	Financial_Report.xls
EX-32.1 - EXHIBIT 32.1 - RICHFIELD OIL & GAS Co	v341928_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - RICHFIELD OIL & GAS Co	v341928_ex31-2.htm
EX-32.2 - EXHIBIT 32.2 - RICHFIELD OIL & GAS Co	v341928_ex32-2.htm
EX-31.1 - EXHIBIT 31.1 - RICHFIELD OIL & GAS Co	v341928_ex31-1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2013

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______________ to

Commission File Number 000-54576

RICHFIELD OIL & GAS COMPANY

(Exact name of registrant as specified in its charter)

Nevada	35-2407100
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

15 W. South Temple, Suite 1050

Salt Lake City, UT 84101

(Address of principal executive offices)

(801) 519-8500

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed under Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer ¨		Accelerated Filer ¨
Non-Accelerated Filer ¨ (Do not check if a smaller reporting company)		Smaller Reporting Company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨ No x

The issuer had 34,454,880 shares of common stock outstanding as of May 13, 2013.

TABLE OF CONTENTS

		Page

PART I. FINANCIAL INFORMATION		2

Item 1.	Financial Statements (Unaudited)	2

	Condensed Consolidated Balance Sheets (Unaudited) March 31, 2013 and December 31, 2012	2
	Condensed Consolidated Statements of Operations (Unaudited) For the Three Months Ended March 31, 2013 and 2012	3
	Condensed Consolidated Statement of Stockholder's Equity (Unaudited) For the Three Months Ended March 31, 2013	4
	Condensed Consolidated Statements of Cash Flows (Unaudited) For the Three Months Ended March 31, 2013 and 2012	5
	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24

Item 4.	Controls and Procedures	24

PART II. OTHER INFORMATION		25

Item 1.	Legal Proceedings	25

Item 1A.	Risk Factors	25

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 6.	Exhibits	39

SIGNATURES.		40

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

RICHFIELD OIL & GAS COMPANY

Condensed Consolidated Balance Sheets (Unaudited)

March 31, 2013 and December 31, 2012

	March 31,			December 31,
	2013			2012
ASSETS
Current assets
Cash and cash equivalents	$	99,981		$	286,013
Accounts receivables		390,252			387,803
Deposits and prepaid expenses		118,867			390,750
Total current assets		609,100			1,064,566

Properties and equipment, at cost - successful efforts method:
Proved properties, including wells and related equipment		8,337,808			7,606,697
Unproved properties		14,310,223			14,164,053
Accumulated depletion, depreciation and amortization		(954,057	)		(923,083	)
		21,693,974			20,847,667

Other properties and equipment		236,212			236,212
Accumulated depreciation		(195,278	)		(188,411	)
		40,934			47,801

Total assets	$	22,344,008		$	21,960,034

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable	$	2,360,181		$	1,578,510
Accrued expenses and other payables		1,040,784			1,368,276
Current portion of notes payable		2,171,509			1,487,419
Convertible notes payable		1,352,560			1,352,560
Capital lease obligations		6,370			15,748
Total current liabilities		6,931,404			5,802,513

Long-term liabilities
Notes payable, net of current portion		1,235,309			1,674,691
Asset retirement obligations		449,015			482,157
Total long-term liabilities		1,684,324			2,156,848

Total liabilities		8,615,728			7,959,361

Commitments and contingencies

Stockholders' equity
Common stock, par value $.001; 250,000,000 authorized; 33,789,600 shares and 32,518,192 shares issued and outstanding at 3/31/2013 and 12/31/2012, respectively		33,789			32,518
Additional paid-in capital		46,413,402			45,147,563
Accumulated deficit		(32,718,911	)		(31,179,408	)
Total stockholders' equity		13,728,280			14,000,673

Total liabilities and stockholders' equity	$	22,344,008		$	21,960,034

See the accompanying notes to condensed consolidated financial statements

RICHFIELD OIL & GAS COMPANY

Condensed Consolidated Statements of Operations (Unaudited)

For the Three Months Ended March 31, 2013 and 2012

	Three Months Ended
	March 31,
	2013			2012
Revenues
Oil and natural gas sales	$	212,167		$	219,861
Total revenues		212,167			219,861

Operating expenses
Production expenses		219,165			257,741
Production taxes		7,567			7,774
Exploration		39,211			89,844
Lease expiration		46,937			13,997
Depletion, depreciation, amortization and accretion		80,046			52,474
General and administrative expenses		1,009,773			1,729,274
Asset retirement obligation expenses		135,614			-
Gain on sale of assets		-			(20,271	)
Total expenses		1,538,313			2,130,833

Loss from operations		(1,326,146	)		(1,910,972	)

Other income (expenses)
Gain on settlement of liabilities		29,841			35
Interest and finance expenses		(216,432	)		(242,042	)
Interest income		-			24,846
Total other income (expenses)		(186,591	)		(217,161	)

Loss before income taxes		(1,512,737	)		(2,128,133	)

Income tax provision		(1,167	)		-

Net loss	$	(1,513,904	)	$	(2,128,133	)

Net loss per common share - basic and diluted	$	(0.05	)	$	(0.08	)

Weighted average shares outstanding – basic and diluted		32,582,255			27,369,685

See the accompanying notes to condensed consolidated financial statements

RICHFIELD OIL & GAS COMPANY

Condensed Consolidated Statement of Stockholders' Equity (Unaudited)

For the Three Months Ended March 31, 2013

	Common Stock
							Additional					Total
							Paid-In		Accumulated			Stockholders'
	Shares			Par			Capital		Deficit			Equity
Balance - December 31, 2012		32,518,192		$	32,518		$	45,147,563	$	(31,179,408	)	$	14,000,673

Sale of 68,000 common stock and 216,000 warrants for cash		68,000			68			169,932		-			170,000

Issued 8,000 common stock as settlement of payable		8,000			8			19,992		-			20,000

Issued 1,043,591 common stock for consultants, directors, officers and other employees outstanding payable		1,043,591			1,044			833,828		-			834,872

Issued 177,443 common stock for consultants and directors compensation		177,443			177			143,477		-			143,654

Return of 25,626 common stock for cancellation from unaffiliated investors related to the sale of oil and gas properties		(25,626	)		(26	)		-		(25,599	)		(25,625	)

Issued warrants with debt as a debt discount and modification of warrants		-			-			98,610		-			98,610

Net loss for the three month period		-			-			-		(1,513,904	)		(1,513,904	)

Balance - March 31, 2013		33,789,600		$	33,789		$	46,413,402	$	(32,718,911	)	$	13,728,280

See the accompanying notes to condensed consolidated financial statements

RICHFIELD OIL & GAS COMPANY

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Three Months Ended March 31, 2013 and 2012

	Three Months ended
	March 31,
	2013			2012
Cash flows from operating activities:
Net loss	$	(1,513,904	)	$	(2,128,133	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

Depletion, depreciation, amortization and accretion		80,046			52,474
Asset retirement obligation release on plugged wells		(39,000	)		-
Gain on settlement of liabilities		(29,841	)		(35	)
Accrued interest income		-			-
Capitalized interest on notes payable		95			-
Amortization of pre-paid interest		6,164			45,959
Lease expirations		46,937			13,997
Gain on sale of assets		-			(20,271	)
Amortization of debt discounts		3,451			83,371
Issuance of common stock and warrants for services and other expenses		234,886			996,500

Changes in operating assets and liabilities:
Decrease (increase) in accounts receivables		(2,449	)		91,863
Decrease (increase) in deposits and prepaid expenses		265,719			(266,821	)
Decrease (increase) in other assets		-			(12	)
Increase (decrease) in accounts payable		380,146			121,479
Increase (decrease) in accrued expenses and other payables		527,580			185,627
Increase (decrease) in due to directors		-			(5,537	)
Increase (decrease) in due to related parties		-			3,595
Net cash used in operating activities		(40,170	)		(825,944	)

Cash flows from investing activities:
Investment in oil and gas properties, including wells and related equipment		(654,024	)		(366,586	)
Proceeds from sale of assets		120,000			219,568
Net cash used in investing activities		(534,024	)		(147,018	)

Cash flows from financing activities:
Proceeds from notes and convertible notes payable		261,794			100,000
Payments on notes and convertible notes payable		(41,632	)		(19,727	)
Payments on capital lease obligation		(9,378	)		(8,574	)
Proceeds from issuance of warrants		7,378			-
Proceeds from issuance of common stock - net of issuance costs		170,000			1,026,000
Net cash provided by financing activities		388,162			1,097,699

Net increase in cash and cash equivalents		(186,032	)		124,737

Cash and cash equivalents - beginning of period		286,013			37,157

Cash and cash equivalents - end of period	$	99,981		$	161,894

Supplemental disclosure of cash flow information:
Cash paid during the period for interest	$	7,531		$	1,608
Cash paid during the period for income taxes	$	1,167		$	-

Non-cash financing and investing activities:
Purchase of oil and gas properties and conversion of JIB receivables billed to working interest holders through issuance of common stock and warrants	$	-		$	547,363
Capitalized oil and gas properties included in accounts payable	$	452,366		$	-
Sale of oil and gas properties for return of common stock	$	25,625		$	-
Conversion of pre-paid expenses, payables, and notes payable through issuance of common stock	$	854,872		$	1,428,000
Conversion of accounts payable through issuance of note payable	$	21,000		$	-
Capitalized asset retirement obligations	$	22,738		$	-
Write down of asset retirement obligation on sold properties	$	18,839		$	-

See the accompanying notes to condensed consolidated financial statements

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 1 ORGANIZATION AND NATURE OF BUSINESS

Richfield Oil & Gas Company (the “Company,” “Richfield” or “ROIL”) is a Nevada corporation headquartered in Salt Lake City, Utah which was incorporated on April 8, 2011. The Company is engaged in the exploration, development and production of oil and natural gas in the states of Kansas, Oklahoma, Utah and Wyoming. The Company’s common stock trades on the OTCQX under the symbol “ROIL”.

Contemporaneously with ROIL’s incorporation, the Company merged (the “HPI Merger”) with its predecessor company, Hewitt Petroleum, Inc., a Delaware corporation which was incorporated on May 17, 2008 (“HPI”). In connection with the HPI Merger, HPI was merged out of existence and the Company assumed all of the assets and liabilities of HPI and the Company became the parent company of HPI’s two wholly owned subsidiaries, Hewitt Energy Group, Inc., a Texas corporation (“HEGINC”) and Hewitt Operating, Inc., a Utah corporation (“HOPIN”). The Plan of Merger required that all HPI common stock be exchanged on a one-for-one basis for ROIL common stock and that ROIL assume all of the liabilities of HPI as of the effective date of the HPI Merger. As a result, the Company’s historical financial statements are a continuation of the financial statements of HPI. In addition, effective March 31, 2011, HPI entered into a Stock Exchange Agreement with Freedom Oil & Gas, Inc., a Nevada corporation (“Freedom”), which called for the exchange of stock in HPI for all of the outstanding stock of Freedom (the “Freedom Acquisition”). Upon completion of the Freedom Acquisition, it became a wholly owned subsidiary of the Company from March 31, 2011 until June 20, 2011 when Freedom was merged into ROIL with ROIL being the surviving entity.

On July 27, 2012 the Company formed a new wholly owned subsidiary, HR Land Group, LLC, a Utah Limited Liability Company, (“HR Land”). HR Land’s purpose is to acquire oil and gas leases.

The condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, HEGINC, HOPIN and HR Land. All significant intercompany transactions and balances have been eliminated in consolidation.

The Company has been involved in leasing, exploring and drilling in Kansas, Oklahoma, Utah and Wyoming since its formation. The Company is participating in over 35,000 acres of leasehold, seismic surveys, and numerous drilling projects in these states. The Company uses proven technologies and drilling and production methods that are both efficient and environmentally sound.

NOTE 2 GOING CONCERN

The Company’s condensed consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the liquidation of liabilities in the ordinary course of business. The Company has incurred substantial losses from operations causing negative working capital, in that current liabilities exceed current assets, and the Company has negative operating cash flows, which raise substantial doubt about the Company’s ability to continue as a going concern. The Company sustained a net loss for the three months ended March 31, 2013 of $1,513,904 and a net loss for the year ended December 31, 2012 of $7,993,196, and has an accumulated deficit of $32,718,911 as of March 31, 2013.

The Company intends to make its planned capital expenditures in order to continue its drilling programs, but does not have sufficient realized revenues or operating cash flows in order to finance these activities internally. As a result, the Company intends to seek financing in order to fund its working capital and capital expenditure needs.

The Company has been able to meet its short-term needs through loans from officers and third parties; sales of working interest in its oil and gas properties; and private placements of equity securities. The Company may seek additional funding through sales of working interest in its oil and gas properties; the issuance of debt; preferred stock; common stock; or a combination of these items. Any proceeds received from these items could provide the needed funds for continued operations and drilling programs. The Company can provide no assurance that it will be able to obtain sufficient additional financing that it needs to develop its properties and alleviate doubt about its ability to continue as a going concern. If the Company is able to obtain sufficient additional financing proceeds, the Company cannot be certain that this additional financing will be available on acceptable terms, if at all. To the extent the Company raises additional funds by issuing equity securities, the Company’s stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact the Company’s ability to conduct business. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 3 SIGNIFICANT ACCOUNTING POLICIES

These unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The financial statements included herein were prepared from the records of the Company in accordance with GAAP for interim financial information and the instructions to Form 10-Q and Regulation S-X and S-K. In the opinion of management, all adjustments, of a normal recurring nature that are considered necessary for a fair presentation of the interim financial information, have been included. However, operating results for the periods presented are not necessarily indicative of the results that may be expected for a full year. The Company’s annual report on Form 10-K includes certain definitions and a summary of significant accounting policies and should be read in conjunction with this Form 10-Q. There have been no material changes to the information disclosed in the notes to the consolidated financial statements included in the Company’s annual report on Form 10-K.

The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of oil and gas reserves, assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although management believes these estimates are reasonable, actual results could differ from these estimates. The Company evaluates its estimates on an on-going basis and bases its estimates on historical experience and on various other assumptions the Company believes to be reasonable under the circumstances. Although actual results may differ from these estimates under different assumptions or conditions, the Company believes that its estimates are reasonable. The Company’s activities are accounted for under the successful efforts method.

Loss Per Common Share

Basic earnings per share (“EPS”) is computed by dividing net income (loss) (the numerator) by the weighted-average number of common shares outstanding for the period (the denominator). Diluted EPS is computed by dividing net income (loss) by the weighted-average number of common shares and potential common shares outstanding (if dilutive) during each period. Potential common shares include common shares to be issued related to warrants outstanding, convertible debentures, and convertible preferred stock. The number of potential common shares outstanding is computed using the treasury stock method.

As the Company has incurred losses for the three months ended March 31, 2013 and 2012, the potentially dilutive shares are anti-dilutive and are thus not added into the loss per share calculations. As of March 31, 2013 and 2012, there were 2,643,510 and 3,017,543 potentially dilutive shares, respectively.

Reclassifications

Certain prior period balances have been reclassified to conform to the current period presentation. Such reclassifications had no impact on net loss, statements of cash flows, working capital or equity previously reported.

Financial Instruments and Concentration of Risks

The Company’s financial instruments include cash and cash equivalents, accounts receivable and accounts payable. The carrying amount of cash and cash equivalents, accounts receivable, and accounts payable approximate fair value because of their immediate or short-term maturities.

Substantially all of the Company’s accounts receivable result from oil and gas sales and joint interest billings (“JIBs”) to third parties in the oil and gas industry. This concentration of customers and joint interest owners may impact the Company’s overall credit risk in that these entities may be similarly affected by changes in economic and other conditions. As of March 31, 2013, 56% of the accounts receivable balance resulted from one entity. For the three months ended March 31, 2013 and 2012, all of the revenues resulted from producing wells in Kansas.

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4 OIL AND NATURAL GAS PROPERTIES

Acquisitions for the three months ended March 31, 2013

In January 2013, the Company purchased two leases in the HUOP Freedom Trend Prospect: (i) the Vern Bailey Lease totaling 111 net acres with a term of 10 years for a payment of $1,664 per year; and (ii) the City of Fountain Green Lease totaling 206 net acres with a term of 10 years and includes the right to use surplus city water for a one-time payment of $140,000.

Divestitures for the three months ended March 31, 2013

In March 2013, the Company sold a 20% working interest in the Wasatch National Forest #16-15 Well to two unaffiliated investors for a total of $145,626 of which $120,000 was paid in cash and $25,626 was paid through the return and cancelation of 25,626 shares of Common Stock valued at $1.00 per share.

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 5 NOTES PAYABLE

Notes Payable consists of the following:

	March 31,			December 31,
	2013			2012
Note Payable, interest at 12.0% per annum, monthly payments of $7,500, due October 2013, secured by a 5.00% working interest in certain HUOP Freedom Trend Prospect leases.	$	750,000		$	750,000

Note Payable, interest at 10.0% per annum, monthly payments of $3,200, due June 2014, secured by a 1.00% working interest in certain HUOP Freedom Trend Prospect leases.		366,624			366,709

Note Payable, interest at 7.5% per annum, monthly payments of $1,949, due January 2014, secured by vehicle.		21,306			24,759

Note Payable, interest at 10.0% per annum, monthly payments of $15,000, due June 2014, secured by a 10.00% working interest in certain HUOP Freedom Trend Prospect leases.		716,327			716,327

Note Payable, interest at 10.0% per annum, monthly payments of $5,000, due June 2014, secured by a 1.00% working interest in certain HUOP Freedom Trend Prospect leases.		72,795			87,056

Note Payable, interest at 0.0% per annum, monthly payments of $1,500, due May 2013, unsecured.		4,476			7,380

Note Payable, interest at 8.0% per annum, monthly payments of $10,000, due December 2013, unsecured.		98,046			115,879

Note Payable, interest at 10.0% per annum, due September 2014, secured by certain new leases, rights, and interests in the Central Utah Overthrust Project.		250,000			250,000

Note Payable, interest at 6.0% per annum, quarterly payments of $50,000, due January 2014, secured by a 10.00% working interest in the Liberty Prospect.		589,000			589,000

Note Payable, interest at 0.0% per annum, due on demand, unsecured.		190,000			190,000

Note Payable, interest at 0.0% per annum, due July 31, 2013, unsecured		18,000			-

Note Payable, interset at 10.0% per annum, due on demand, secured by a 1.00% working interest in certain HUOP Freedom Trend Prospect leases.		65,000			65,000

Note Payable, interest at 8.0% per annum, due May 2013, secured by 500,000 shares of common stock.		247,201			-

Note Payable, 10.0% finance fee, due April 2013, secured by 1.00% working interest in certain HUOP Freedom Trend Prospect leases.		18,043			-

Total Notes Payable		3,406,818			3,162,110
Less: Current Portion (includes demand notes)		(2,171,509	)		(1,487,419	)
Long-Term Portion	$	1,235,309		$	1,674,691

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6 CONVERTIBLE NOTES PAYABLE

Convertible Notes Payable consists of the following:

	March 31,			December 31,
	2013			2012
Note Payable interest at 12.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of $2.50 per common share, unsecured.		52,560			52,560

Note Payable interest at 10.0% per annum, due on demand, convertible into common shares of the Company at a conversion rate of $2.50 per common share, secured by certain Kansas Leases and 10.00% working interest in certain Fountain Green Project Leases (see NOTE 14 LEGAL PROCEEDINGS).		1,300,000			1,300,000

Total Convertible Notes Payable		1,352,560			1,352,560
Less: Current Portion (includes demand notes)		(1,352,560	)		(1,352,560	)
Long-Term Portion	$	-		$	-

NOTE 7 CAPITAL LEASE OBLIGATION

The Company leases well equipment under a capital lease agreement. The term of the capital lease is for 5 years, bears interest at 9.0%, with monthly payments of $3,200 per month with the final payment due on May 20, 2013. As of March 31, 2013 and December 31, 2012, the remaining capital lease obligation was $6,370 and $15,748, respectively.

As of March 31, 2013 and December 31, 2012, well equipment acquired under capital leases totaled $154,155 and accumulated depreciation was $111,946 and $106,440, respectively.

NOTE 8 OPERATING LEASES

The Company leases office space in Salt Lake City, Utah (“Premises Lease”) which consists of approximately 3,903 square feet. The Company has a prepaid security deposit of $8,954. The Company renewed the Premises Lease for an additional year effective September 1, 2012 with an annualized lease obligation of $110,167. The option to renew for the period September 1, 2013 to August 31, 2014 is an annualized obligation of $112,902. For the three months ended March 31, 2013 and 2012, the Premises Lease payments were $27,306 and $28,871, respectively.

The Company leases a printer, copier and fax machine. The Company entered into a new lease with new equipment for 36 months commencing January 11, 2013. The previous lease with monthly payments of $255 was canceled. The monthly lease payment on the new lease is $629. For the three months ended March 31, 2013 and 2012, the lease payments were $1,258 and $765, respectively.

NOTE 9 ASSET RETIREMENT OBLIGATIONS

FASB ASC 410 requires that an asset retirement obligation (“ARO”) associated with the retirement of a tangible long-lived asset be recognized as a liability in the period in which it is incurred and becomes determinable. Under this method, when liabilities for dismantlement and abandonment costs, excluding salvage values, are initially recorded, the carrying amount of the related oil and gas properties is increased. The fair value of the ARO asset and liability is measured using expected future cash outflows discounted at the Company’s credit-adjusted risk-free interest rate. Accretion of the liability is recognized each period using the interest method of allocation, and the capitalized cost is depleted using the units of production method. Should either the estimated life or the estimated abandonment costs of a property change materially upon the Company’s periodic review, a new calculation is performed using the same methodology of taking the abandonment cost and inflating it forward to its abandonment date and then discounting it back to the present using the Company’s credit-adjusted-risk-free rate. The carrying value of the asset retirement obligation is adjusted to the newly calculated value, with a corresponding offsetting adjustment to the carrying cost of the related asset.

The following table summarizes the Company’s asset retirement obligation transactions recorded in accordance with the provisions of FASB ASC 410 during the three months ended March 31, 2013:

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

	March 31,
	2013
Beginning asset retirement obligation	$	482,157
Liabilities incurred in the current period		17,294
Liabilities settled in the current period		(57,839	)
Accretion of discount on asset retirement obligations		1,959
Revisions of previous estimates		5,444
Ending asset retirement obligations	$	449,015

NOTE 10 PREFERRED STOCK

As of March 31, 2013 and December 31, 2012, the Company had 50,000,000 shares of preferred stock authorized at a par value of $0.001 per share and had no shares of preferred stock issued or outstanding.

NOTE 11 COMMON STOCK

In January 2013, the Company issued 8,000 shares of common stock to a creditor of the Company valued at $20,000 or $2.50 per share as payment of a negotiated settlement of a payable.

In January 2013, the Company issued 1,000 shares of common stock to a consultant of the Company for compensation for services valued at $2,500 or $2.50 per share. The shares issued were fully vested and the value of services received was expensed on the date of grant.

In January 2013, the Company issued 68,000 shares of common stock to unaffiliated investors for cash of $170,000 or $2.50 per share. In addition, the Company granted warrants to purchase up to 216,000 shares of common stock with an exercise price of $2.50 per share and expired between April 2013 and January 2014.

In March 2013, two unaffiliated investors returned 25,626 shares of our common stock, valued at $25,626, or $1.00 per share, and paid us $120,000 in cash to purchase a 20.00% working interest in our Wasatch National Forest #16-15 Well for a total value of $145,626. The shares were returned to the Company and subsequently cancelled.

In March 2013, the Company issued 1,043,591 shares of common stock, valued at $834,872, or $0.80 per share to consultants, directors, officers and other employees as payment for outstanding payables.

In March 2013, the Company issued 176,443 shares of common stock, valued at $141,154, or $0.80 per share to consultants and directors as compensation for services. The shares issued were fully vested and the value of services received was expensed on the date of grant.

NOTE 12 WARRANTS TO PURCHASE COMMON STOCK

As of March 31, 2013, there were 2,102,486 warrants to purchase shares of common stock outstanding and fully vested. These warrants have an exercise price between $1.00 and $5.00 per share and expire at various times between April 2013 and September 2015.

In March 2013, as a condition for receiving new funds from an existing investor, previously issued warrants with an exercise price between $2.50 and $5.00 were modified to an exercise price of $1.00. The fair value of the modification was expensed during the three months ended March 31, 2013

During the three months ended March 31, 2013, warrants totaling 253,000 for shares of common stock were granted.

Of the total warrants granted during the three months ended March 31, 2013, 216,000 warrants were granted in conjunction with private placements of common stock for cash proceeds (see NOTE 11 COMMON STOCK) that had an original an exercise price of $2.50 per share and expired between April 2013 and January 2014.

The fair value of the remaining 37,000 warrants granted during the three months ended March 31, 2013, were issued in conjunction with a debt agreement and accounted for by the Company under the provisions of FASB ASC 470. These standards require the Company to allocate the funds received under the debt agreement between the two elements of the instrument based on their relative fair values as of the issuance date. The Company uses the Black-Scholes option valuation model to calculate the fair value of warrants at the date of grant. Warrant pricing models require the input of highly subjective assumptions, including the expected price volatility. For warrants granted, the Company used a variety of comparable and peer companies to determine the expected volatility. The Company believes the use of peer company data fairly represents the expected volatility it would experience if the Company was more actively publicly traded in the oil and gas industry over the contractual term of the warrants. Changes in these assumptions can materially affect the fair value estimate.

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

During the three months ended March 31, 2013, the Company has determined the relative fair value of the 37,000 warrants granted to be $7,378. As of March 31, 2013, $3,450 has been expensed with $3,928 remaining to be expensed in future periods over the life of the notes.

The following is the weighted average of the assumptions used in calculating the fair value of the warrants granted during the year using the Black-Scholes model:

	Three Months Ended
	March 31,2013
Fair market value	$	0.96
Exercise price	$	1.00

Risk free rates		0.17	%
Dividend yield		0.00	%
Expected volatility		60.48	%
Contractual term		1.0 Years

The weighted-average relative fair market value at the date of grant for warrants granted are as follows:

Fair value per warrant	$	0.1994
Total warrants granted		37,000
Total relative fair value of warrants granted	$	7,378

The following table summarizes the Company’s total warrant activity for the three months ended March 31, 2013:

						Weighted-
						Average
				Weighted-		Remainder
				Average		Contractual
	Warrants			Exercise Price		Term in Years

Warrants outstanding as of December 31, 2012		2,166,874		$	2.58		1.10
Granted		253,000		$	2.28		0.39
Exercised		-			-		-
Forfeited/Expired		(317,388	)		-		-
Warrants outstanding as of March 31, 2013		2,102,486		$	2.55		1.16

NOTE 13 RELATED PARTY TRANSACTIONS

Certain Relationships and Related Transactions

A.	Douglas C. Hewitt, Sr., Chief Executive Officer and a Director

An affiliate of Douglas C. Hewitt, Sr., Chief Executive Officer and a Director, is a party to the following transactions with Richfield for the three months ended March 31, 2013 as described below.

The D. Mack Trust

Mr. Hewitt is the sole beneficiary of The D. Mack Trust, an irrevocable trust established by Mr. Hewitt on May 15, 2009. As of March 31, 2013, the D. Mack Trust had ORRIs ranging from 0.50% to 3.625% in 1,636 net acres leased by Richfield in Kansas and Oklahoma. The D. Mack Trust received $4,400 and $1,850 in royalties for the three months ended March 31, 2013 and 2012, respectively, from the overriding royalty interests.

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

Joseph P. Tate, a Director

Joseph P. Tate, a Director, is a party to the following transaction with Richfield for the three months ended March 31, 2013:

As of March 31, 2013, Mr. Tate had a 12.50% landowner overriding royalty interest in 1,816 acres within our HUOP Freedom Trend Prospect that we purchased from him prior to him becoming a director. Mr. Tate did not receive any royalties during the three months ended March 31, 2013 and 2012 relating to his overriding royalty interest.

NOTE 14 LEGAL PROCEEDINGS

Nostra Terra Oil & Gas Company v. Richfield Oil & Gas Company

On February 1, 2012, Nostra Terra Oil & Gas Company (“NTOG”) filed an action against the Company, HPI, HEGINC, and HEGLLC in the Twenty-Third Judicial District Court of Russell County, Kansas. The complaint alleges that the Company defaulted on its repayment obligations under a note and security agreement, dated April 13, 2011, in the principal amount of $1,300,000 and accrued interest at 10% per annum. The complaint seeks foreclosure on two of the Company’s property leases located in Kansas. The note was due on January 31, 2012. On January 31, 2012, the Company requested the loan payoff and documents relating to the release of collateral from NTOG’s representatives. The Company followed up on this request with a written request on February 1, 2012. On or about March 19, 2012 the Company filed an answer to the Complaint and a Cross-Complaint against NTOG for tortious interference with business. The previously set trial date has been cancelled and no trial date currently exists. The Company intends to vigorously defend against this foreclosure action and repay any amount that is ultimately determined to be outstanding. The obligations due and owing under this note and security agreement are fully accounted for in the Company’s financial statements as of March 31, 2013.

Litigation in the Ordinary Course

We may become involved in litigation from time to time relating to claims arising in the ordinary course of our business. We do not believe that the ultimate resolution of such claims would have a material effect on our business, results of operations, financial condition or cash flows. However, the results of these matters cannot be predicted with certainty, and an unfavorable resolution of one or more of these matters could have a material effect on our business, results of operations, financial condition and cash flows.

NOTE 15 SUBSEQUENT EVENTS

In April 2013, the Company issued 100,000 shares of common stock to unaffiliated investors for cash of $100,000 or $1.00 per share. In addition, the Company granted warrants to purchase up to 50,000 shares of common stock with an exercise price of $1.00 per share, which expire in April 2014.

In April 2013, the Company issued 25,000 warrants to purchase shares of common stock to a consultant for services with an exercise price of $1.00 per share, that expire in April 2014. The warrants were valued at $6,306 and the value of the services received was expensed on the date of grant.

In April 2013, the Company issued 119,003 shares of common stock to consultants of the Company for compensation for services valued at $114,923 or between $0.91 and $1.00 per share. The shares issued were fully vested and the value of services received was expensed on the date of grant.

RICHFIELD OIL & GAS COMPANY

Notes to Condensed Consolidated Financial Statements (Unaudited)

In May 2013, the Company purchased two 5 year leases with a 5 year option to renew in the HUOP Freedom Trend Project totaling 1,328 acres for $74,387. As part of the consideration for the leases the Company issued 10,000 shares of common stock valued at $8,000 or $0.80 per share and the balance of $66,387 to be paid in cash by June 2013.

In May 2013, the Company purchased a 10 year lease in the HUOP Freedom Trend Prospect totaling 422 acres with annual payments of $6,329.

In May 2013, the Company announced the appointment of Alan D. Gaines as Chairman of the Board of Directors and as part of his compensation package, the Company awarded Mr. Gaines 3,500,000 common stock options with an exercise price of $1.00 vesting over a 24 month period subject to certain targets being achieved and expire in May 2020.

In May 2013, the Company issued 186,250 shares of common stock to unaffiliated investors for cash of $149,000 or $0.80 per share. In addition, the Company granted warrants to purchase up to 93,125 shares of common stock with an exercise price of $1.00 per share, which expire in May 2014.

In May 2013, the Company issued 250,000 shares of common stock to our Director, Joseph P. Tate, for cash of $200,000 or $0.80 per share. In addition, the Company granted warrants to purchase up to 125,000 shares of common stock with an exercise price of $1.00 per share, which expire in May 2014.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion is intended to assist in understanding our results of operations and our financial condition. Our consolidated financial statements and the accompanying notes included elsewhere in this Quarterly Report on Form 10-Q contains additional information that should be referred to when reviewing this material. Certain statements in this discussion may be forward-looking. These forward-looking statements involve risks and uncertainties, which could cause actual results to differ from those expressed in this report.

Forward-Looking Statements

The statements contained in this quarterly report on Form 10-Q that are not historical facts represent management’s beliefs and assumptions based on currently available information and constitute “forward-looking statements.” These statements include, but are not limited to, any statement that may predict, forecast, indicate or imply future results, performance, achievements or events. These forward-looking statements address matters that involve risks and uncertainties. Accordingly, there are or will be important factors that could cause our actual results to differ materially from those indicated in these statements. We believe that these factors include but are not limited to the following:

uncertainty regarding our ability to raise the funds necessary to pay our current liabilities and carry out our business plan;

the continuing adequacy of our capital resources and liquidity including, but not limited to, access to borrowing capacity;

the availability (or lack thereof) of acquisition, disposition or combination opportunities;

domestic and global supply and demand for oil and natural gas;

sustained or further declines in the prices we receive for oil and natural gas;

the geologic quality of our properties with regard to, among other things, the existence of hydrocarbons in economic quantities;

uncertainties about the estimates of our oil and natural gas reserves;

our ability to increase our production of oil and natural gas income through exploration and development;

our ability to successfully apply horizontal drilling techniques and tertiary recovery methods;

the number of well locations to be drilled, the cost to drill, and the time frame within which they will be drilled;

the effects of adverse weather on operations;

drilling and operating risks;

the ability of contractors to timely and adequately perform their drilling, construction, well stimulation, completion and production services;

the availability of equipment, such as drilling rigs and related equipment and tools;

changes in our drilling plans and related budgets;

uncertainties associated with our legal proceedings and their outcome;

the effects of government regulation, permitting, and other legal requirements;

uncertainties regarding economic conditions in the United States and globally;

difficult and adverse conditions in the domestic and global capital and credit markets; and

other factors discussed under “Item 1A – Risk Factors”.

You can often identify these and other forward-looking statements by the use of words such as “may,” “will,” “could,” “would,” “should,” “expects,” “plans,” “anticipates,” “estimates,” “intends,” “potential,” “projected,” “continue,” or the negative of such terms, or other comparable terminology. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

These statements are based on current expectations and assumptions regarding future events and business performance and involve known and unknown risks, uncertainties and other factors that may cause industry trends or our actual results, level of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these statements.

Although we believe that expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. We will assume no obligation to update any of the forward-looking statements to conform these statements to actual results or changes in our expectations, except as required by law. You should not place undue reliance on these forward-looking statements.

Overview of our Business

We are an independent oil and gas exploration and production company with projects in Kansas, Oklahoma, Utah and Wyoming. The focus of our business is acquiring, retrofitting and operating or selling oil and gas assets and related production. We have three primary strategic directions:

	·	We use our research technology to identify prospective properties in Kansas and Oklahoma that were initially developed between the 1920s and 1950s, but which may be subject to further development through the use of more modern production techniques. We refer to these properties as our “Mid-Continent Project,” which currently includes 2,626 gross (2,482 net) acres. We have identified significant oil and natural gas reserves from these early exploration properties, many of which were previously underdeveloped due to inefficient and antiquated exploration and production methods and low commodity prices. In most cases these wells were developed and left fallow by major oil and gas companies. Using current technology and methodologies, we have successfully developed both production and proved reserves within these fields, and we intend to continue to pursue this strategy in the future.

	·	We have three properties on the Utah–Wyoming Overthrust, including one property containing a well that we are in the process of refurbishing in order to place it into production. We currently own or lease 2,311 gross (2,303 net) acres on the Utah-Wyoming Overthrust, near the border between northern Utah and south-western Wyoming. We refer to these properties as our “Utah-Wyoming Overthrust Project.” We intend to conduct additional development activities with respect to our Utah-Wyoming Overthrust Project.

	·	We have conducted a limited amount of exploration for oil and natural gas reserves in the Central Utah Overthrust region, where we are participating in over 30,899 gross (10,563 net) acres. We refer to these properties as our “Central Utah Overthrust Project.” We and our partners intend to conduct drilling operations, acquire additional acreage and to conduct further exploration activities with respect to our Central Utah Overthrust Project.

Our approach to acquiring leases and developing producing properties focuses on three types of development activities:

	·	Activities involving the identification, acquisition and development of leases of property in which oil or natural gas is known to exist.

	·	Activities involving low or moderate exploration and development risk. These include leases of property where oil and natural gas has been produced in the past but there are no existing wells.

	·	Activities involving the acquisition of properties where it is reasonably believed that potential hydrocarbon values exist based on analysis involving geochemical, radiometric, gravitational and seismic data. This may include projects that have never been drilled or tested for oil and natural gas in the past.

We have developed a database to evaluate wells that are on record in our Kansas areas of operation. The database contains extensive well records, including information on historic production, seismic data, geological data, well depth, well logs and drilling records, and where available, handwritten driller notes concerning rock formation depths and other relevant information. This system has been developed internally from data obtained from appropriate state agencies and private organizations. The database enables us to identify potential bypassed hydrocarbons throughout the state of Kansas.

Through statistical modeling and data evaluation, we believe greater oil and natural gas reserves exist and can be found, measured and produced in areas where initial reserves were previously found but abandoned prior to full development. We believe that with our current technologies and systems, acquiring and developing older fields mitigates exploration risk and is a safe and predictable method of managing our business.

Production History

The following table presents information about our produced oil volumes during the three months ended March 31, 2013 compared to the three months ended March 31, 2012. We did not produce natural gas during these time periods. As of March 31, 2013, we were selling oil from a total of 14 gross wells (13.34 net), compared to 11 gross wells (10.2 net) as of March 31, 2012.

	Three Months Ended
	March 31,
	2013		2012
Net Production:
Oil (Bbl)		2,393		2,295

Average Sales Price:
Oil (per Bbl)	$	88.66	$	95.80

Average Production Costs:
Oil (per Bbl)	$	91.59	$	112.31

Depletion of Oil and Gas Properties

Our depletion expense is driven by many factors, including certain exploration costs involved in the development of producing reserves, production levels and estimates of proved reserve quantities and future developmental costs. Our depletion expense totaled $24,248 and $22,055 for the three months ended March 31, 2013 and 2012, respectively.

The following table presents our depletion expenses per barrel of oil for the three months March 31, 2013 and 2012.

	Three Months Ended
	March 31,
	2013		2012

Depletion of Oil (per Bbl):	$	10.13	$	9.61

Results of Operations

The following presents an overview of our results of operations for the three months ended March 31, 2013, compared to the three months ended March 31, 2012.

Three Months Ended March 31, 2013 Compared to the Three Months Ended March 31, 2012

Average Daily Production. Our net oil production for the three months ended March 31, 2013 averaged approximately 27 Bopd after royalties compared to approximately 25 Bopd for the three months ended March 31, 2012. The increase in production in 2013 over 2012 is primarily due to three net new wells added in Kansas offset by temporary well repair downtime and normal production decline.

Oil Revenues. Our oil revenues decreased by $7,694 or 3.5% from $219,861 for the three months ended March 31, 2012 to $212,167 for the three months ended March 31, 2013. The decrease in revenue is due to a decrease in our average prices per barrel of oil sold. During the three months ended 2013, we realized an $88.66 weighted average price per barrel of crude oil compared to $95.80 during the three months ended March 31, 2012 resulting in a $7.14 per barrel decrease or $16,386. This was partially offset by an increase of 98 barrels of net oil produced or $8,692 during the three months ended March 31, 2013 over the three months ended March 31, 2012.

Net Loss on Earnings Per Share. We realized a net loss of $1,513,904 (approximately $(0.05) per basic and diluted share of common stock) for the three months ended March 31, 2013 compared to a net loss of $2,128,133 (approximately $(0.08) per basic and diluted share of common stock) for the three months ended March 31, 2012. The decrease of $614,299 in net loss was due to a decrease of $592,520 in our operating expenses and a decrease of $30,570 in our other income and expenses.

Operating Expenses. Total operating expenses were $1,538,313 for the three months ended March 31, 2013 compared to $2,130,833 for the three months ended March 31, 2012. The $592,520 or 27.8% decrease in operating expenses was due primarily to a decrease in general and administrative expenses of $719,501 offset by an increase in asset retirement obligation expenses of $135,614 and a net decrease in all other operating expenses of $8,633.

Production Expenses. Our production expenses for the three months ended March 31, 2013 were $219,165, or $91.59 per barrel of oil, compared to $257,741, or $112.31 per barrel of oil, for the three months ended March 31, 2012, which represents a $38,576 or 15.0% decrease. The overall production expenses decreased due to a large one time repair charge in our Perth field during the three months ended March 31, 2012. Our cost per barrel for the three months ended March 31, 2013 continues to remain above the industry averages due to our fixed costs, such as electricity, personnel and related expenses, and the cost of maintaining wells our 29 current non-producing wells including eight salt water disposal wells that are underutilized. We expect our fixed costs on a per barrel basis will decline as we place into production our non-producing wells.

Exploration Expenses. Exploration expenses decreased 56.4%, or $50,633, from $89,844 for the three months ended March 31, 2012 to $39,211 for the three months ended March 31, 2013. This decrease is due to less work performed in the three months ended March 31, 2013 on our undeveloped Utah prospects. We continued to focus our resources on our proved properties, which are primarily in Kansas.

Lease Expirations. Lease expirations were $46,937 for the three months ended March 31, 2013 compared to $13,997 for the three months ended March 31, 2012. We continue our effort to renew as many expiring leases as possible that are not being held by production. During the three months ended March 31, 2013 one lease that we were unsuccessful in renewing due to excessive terms requested by the landowner, accounted for $46,179 of the lease expirations expense.

Depletion, Depreciation, Amortization and Accretion. We recorded depletion, depreciation, amortization and accretion of $80,046 during the three months ended March 31, 2013 compared to $52,474 during the three months ended March 31, 2012. The $27,572 increase was mainly due to increased depreciation of $24,979 during the three months ended March 31, 2013 on our well equipment on our proved properties as a result of $726,473 in equipment additions since March 31, 2012. The remaining increase is due primarily to increased depletion expense as a result of higher production volumes.

General and Administrative Expenses. General and administrative expenses were $1,009,774 for the three months ended March 31, 2013 compared to $1,729,274 for the three months ended March 31, 2012. The $719,500 or 41.6% decrease was attributable to an $834,375 decrease in stock compensation to consultants, directors, officers and other employees during the three months ended March 31, 2013 compared to 2012. This decrease was offset by an $190,958 increase in legal and audit fees in 2013 over 2012. The remaining decrease of $76,083 is attributable to a net reduction in all other expense items.

Asset Retirement Obligation Expenses. We had $135,614 in asset retirement obligation expenses for the three months ended March 31, 2013 compared to zero in the three months ended March 31, 2012. This increase is due to the cost for plugging three wells in Kansas during the three months ended March 31, 2013 exceeded the asset retirement obligation liability for those three wells. These wells had been shut-in since our purchase of the leases. They were in very poor mechanical condition that was unknown to us prior to starting our rework procedures.

Gain on Sale of Assets. During the three months ended March 31, 2013 we did not have any net gain on sale of assets compared to $20,271 for the three months ended March 31, 2012. The gain on sale of assets in 2012 is attributable to the sale of working interest in the Koelsch Field resulting in a gain of $11,271 and the sale of well equipment resulting in a gain of $9,000.

Other Income (Expenses). Total other income and expenses during the three months ended March 31, 2013 was a net expense of $186,591 compared to a net expense of $217,161 for the three months ended March 31, 2012 representing a decrease of $30,570 or 14.1%.

For the three months ended March 31, 2013, other income consisted of a gain on settlement of liabilities totaling $29,841 compared to $35 for the three months ended March 31, 2012 as a result of our settlement of certain trade payable obligations for less than what was owed. In addition, for the three months ended March 31, 2013, we had zero interest income compared to $24,846 for the three months ended March 31, 2012. This interest income for the three months ended March 31, 2012 is associated with past due receivables from a working interest holder.

For the three months ended March 31, 2013, we incurred interest and finance expenses of $216,432 compared to interest and finance expenses of $242,042 for the three months ended March 31, 2012. The $25,610 decrease in 2013 is due to $79,918 in lower interest-related expenses associated with fewer common stock warrants granted to lenders, a $36,924 net decrease in interest expense mainly due to a reduction in our overall effective interest rates on our notes payable, offset by a $91,232 expense associated with the modification of previously issued warrants.

Liquidity and Capital Resources

Liquidity is a measure of a company’s ability to meet potential cash requirements. We have historically met our capital requirements through the issuance of common and preferred stock, short-term borrowings and selling working interests in our oil and natural gas properties. In the future, we expect to generate cash from sales of crude oil from production from our existing wells and new wells we intend to develop. Until cash provided by our operations is sufficient to cover our expenses and execute our development plans, we intend to continue to finance our operations through additional debt or equity financings, if available.

The following table summarizes our total current assets, total current liabilities and working capital deficiency as of March 31, 2013 compared to December 31, 2012:

	March 31,			December 31,
	2013			2012
Current Assets	$	609,100		$	1,064,566
Current Liablities		6,931,404			5,802,513
Working Capital Deficiency	$	(6,322,304	)	$	(4,737,947	)

Cash and cash equivalents were $99,981 as of March 31, 2013, compared to $286,013 as of December 31, 2012. Changes in the net cash provided by and (used in) our operating, investing and financing activities for the three months ended March 31, 2013 and 2012 are set forth in the following table:

	Three Months Ended						Net Cash
	March 31,						Increase
	2013			2012			(Decrease)
Net cash used in operating activities	$	(40,170	)	$	(825,944	)	$	785,774
Net cash used in investing activities		(534,024	)		(147,018	)		(387,006	)
Net cash provided by financing activities		388,162			1,097,699			(709,537	)
Increase (decrease) in cash and cash equivalents	$	(186,032	)	$	124,737		$	(310,769	)

Net cash from operating activities is derived from net income from operations adjusted for non-cash items, changes in the balances of accounts receivables, deposits and prepaid expenses, accounts payables, accrued expenses and other payables. For the three months ended March 31, 2013, we used net cash in operating activities in the amount of $40,170 compared to $825,944 for the three months ended March 31, 2012. This increase in net cash of $785,774 was primarily due to an increase in accounts payable of $258,667, an increase in accrued liabilities and other payables of $341,923, and a decrease of deposits and prepaid expenses of $532,540 offset by a net decrease of $347,356 in all other operating items.

Net cash from investing activities is derived from the proceeds and disbursements from sales and purchases of oil and gas properties, including wells and related equipment. For the three months ended March 31, 2013, we used cash for investing activities in the amount of $534,024 compared to $147,018 for the three months ended March 31, 2012. This decrease in net cash of $387,006 was primarily due to a decrease in net cash for investments in our undeveloped Utah properties in the amount of $145,503 a decrease in net cash for investments in our Kansas and Wyoming wells and related equipment in the amount of $141,935 and a reduction in the sale of oil and gas assets in the amount of $99,568.

Net cash from financing activities is derived from the proceeds from the issuance of equity securities and notes and convertible notes payable less the payments on our notes and convertible notes payable. For the three months ended March 31, 2013, we had an increase in net cash from financing activities of $388,162 compared to an increase in net cash of $1,097,699 for the three months ended March 31, 2012. The decrease in our net cash of $709,537 was made up of a decrease in the issuance of common stock and warrants for cash in the amount of $848,622, increased payments on our notes and convertible notes payable resulting in a decrease in cash in the amount of $22,709 which were offset by $161,794 in cash from increased debt.

Satisfaction of our cash obligations for the next 12 months and our ability to continue as a going concern

Our operations do not produce significant cash flow and we rely almost exclusively on external sources of liquidity. As of March 31, 2013, we have a $6,322,304 working capital deficiency and we need additional funding to pay our current liabilities, continue as a going concern and execute our business plan. We have historically addressed working capital deficiencies through frequent private sales of stock and warrants for cash, exchanges of stock and warrants in satisfaction of liabilities or for services, issuing short- and long-term promissory notes and sales of our assets. We will continue to depend on these and other external sources of liquidity for the foreseeable future. If we cannot obtain the necessary capital to pay our current liabilities, we may be subject to litigation and foreclosure proceedings. We will also need to obtain additional funding to make our planned capital expenditures. If we are unable to secure such additional funding, we will be unable to pursue our plans, we may have to cease or significantly curtail our operations, including our plans to acquire additional acreage positions and development activities. Our ability to raise additional capital is critical to our ability to continue to operate our business.

Our ability to secure liquidity in the form of additional financing or otherwise is crucial for the execution of our plans and our ability to continue as a going concern. Our current cash balance, together with cash anticipated to be provided by operations, will not be sufficient to satisfy our anticipated cash requirements for normal operations and capital expenditures for the foreseeable future. Economic conditions continue to be weak and global financial markets continue to experience significant volatility and liquidity challenges. These conditions may make it more difficult for us to obtain financing.

Our independent registered public accounting firm’s report on our December 31, 2012 financial statements expresses doubt about our ability to continue as a going concern. The report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern due to substantial losses from operations, negative working capital, negative cash flow, and the lack of sufficient capital, as of the date the report was issued, to support our planned capital expenditures to continue our drilling programs through 2013 or later. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should we be unable to continue as a going concern.

We are not currently generating significant revenues, and our cash and cash equivalents will continue to be depleted by our ongoing development efforts as well as our general and administrative expenses. Until we are in a position to generate significant revenues, we will need to continue to raise additional funds to continue operating as a going concern. We may seek this additional funding through the issuance of debt, preferred stock, equity or a combination of these instruments. We may also seek to obtain financing through the sale of working interests in one or more of our projects. We cannot be certain that funding from any of these sources will be available on reasonable terms or at all. If we are unable to secure adequate funds on a timely basis on terms acceptable to us, we may have to cease or significantly curtail our operations including our plans to acquire additional acreage positions and development activities.

Over the next twelve months we do not expect our existing capital and anticipated funds from operations to be sufficient to sustain our planned expansion. Consequently, we intend to seek additional capital to fund growth and expansion through equity financings, debt financings and/or credit facilities. We have no assurance that such financing will be available, and if available, the terms under which such financing would be given.

Our lack of significant operating history makes predictions of future operating results difficult. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in an early stage of development, particularly companies in the oil and gas exploration industry. Such risks include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks we must, among other things, implement and successfully execute our business and marketing strategy, continue to develop and upgrade technology and products, respond to competitive developments, and attract, retain and motivate qualified personnel. We have no assurance that we will be successful in addressing such risks, and the failure to do so would have a material adverse effect on our business prospects, financial condition and results of operations.

Effects of Inflation and Pricing

The oil and gas industry is cyclical and the demand for goods and services by oil field companies, suppliers and others associated with the industry put significant pressure on the economic stability and pricing structure within the industry. Typically, as prices for oil and natural gas increase all other associated costs increase as well. Conversely, in a period of declining prices, associated cost declines are likely to lag and may not adjust downward in proportion to the declining prices. Material changes in prices also impact our current revenue stream, estimates of future reserves, impairment assessments of oil and natural gas properties, and values of properties in purchase and sale transactions. Material changes in prices can impact the value of oil and gas companies and their ability to raise capital, borrow money and retain personnel. While we do not currently expect business costs to materially increase, higher prices for oil and natural gas could result in increases in the costs of materials, services and personnel.

Critical Accounting Policies

The establishment and consistent application of accounting policies is a vital component of accurately and fairly presenting our consolidated financial statements in accordance accounting principles generally accepted in the United States of America (“GAAP”), as well as ensuring compliance with applicable laws and regulations governing financial reporting. While there are rarely alternative methods or rules from which to select in establishing accounting and financial reporting policies, proper application often involves significant judgment regarding a given set of facts and circumstances and a complex series of decisions.

Asset Retirement Obligations

We have significant obligations to plug and abandon our oil and natural gas wells and related equipment. Liabilities for asset retirement obligations are recorded at fair value in the period incurred. The related asset value is increased by the same amount. Asset retirement costs included in the carrying amount of the related asset are subsequently allocated to expense as part of our depletion calculation.

Estimating future asset retirement obligations requires us to make estimates and judgments regarding timing, existence of a liability, as well as what constitutes adequate restoration. We use the present value of estimated cash flows related to our asset retirement obligations to determine the fair value. Present value calculations inherently incorporate numerous assumptions and judgments, which include the ultimate retirement and restoration costs, inflation factors, credit adjusted discount rates, timing of settlement, and changes in the legal, regulatory, environmental and political environments. To the extent future revisions to these assumptions impact the present value of our existing asset retirement obligation liability, a corresponding adjustment will be made to the carrying cost of the related asset.

Revenue Recognition

Revenue from the sale of crude oil, natural gas and natural gas liquids is recorded when the significant risks and rewards of ownership of the product is transferred to the buyer, which is usually when legal title passes to the external party. For crude oil and natural gas liquids, delivery generally occurs upon pick up at the field tank battery and natural gas delivery occurs at the pipeline delivery point. Revenue is not recognized for the production in tanks, or oil in pipelines that has not been delivered to the purchaser. Revenue is measured net of discounts and royalties. Royalties and severance taxes are incurred based on the actual price received from the sales. We use the sales method of accounting for natural gas balancing of natural gas production, and we would recognize a liability if the existing proven reserves were not adequate to cover the current imbalance situation. For all periods reported, we had no natural gas production.

Stock-Based Compensation

We have accounted for stock-based compensation under the provisions of FASB Accounting Standards Codification (ASC) 718. This standard requires us to record an expense associated with the fair value of stock-based compensation. We use the Black-Scholes option valuation model to calculate the value of options and warrants at the date of grant. Option pricing models require the input of highly subjective assumptions, including the expected price volatility. Changes in these assumptions can materially affect the fair value estimate.

Stock Issuance

We record the stock-based awards issued to consultants and other external entities for goods and services at either the fair market value of the goods received or services rendered or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in FASB ASC 505-50.

Income Taxes

We account for income taxes under FASB ASC 740. Deferred income tax assets and liabilities are determined based upon differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.

The tax effects from an uncertain tax position can be recognized in the consolidated financial statements only if the position is more likely than not of being sustained if the position were to be challenged by a taxing authority. We have examined the tax positions taken in our tax returns and determined that there are no uncertain tax positions. As a result, we have recorded no uncertain tax liabilities in our consolidated balance sheet.

Oil and Gas Properties

We account for oil and natural gas properties by the successful efforts method. Under this method of accounting, costs relating to the acquisition of and development of proved areas are capitalized when incurred. The costs of development wells are capitalized whether productive or non-productive. Leasehold acquisition costs are capitalized when incurred. If proved reserves are found on an unproved property, leasehold costs are transferred to proved properties. Exploration dry holes are charged to expense when it is determined that no commercial reserves exist. Other exploration costs, including personnel costs, geological and geophysical expenses and delay rentals for oil and natural gas leases, are charged to expense when incurred. The costs of acquiring or constructing support equipment and facilities used in oil and natural gas producing activities are capitalized. Production costs are charged to expense as incurred and are those costs incurred to operate and maintain our wells and related equipment and facilities.

Depletion of producing oil and natural gas properties is recorded based on units of production. Acquisition costs of proved properties are depleted on the basis of all proved reserves, developed and undeveloped, and capitalized development costs (wells and related equipment and facilities) are depleted on the basis of proved developed reserves. As more fully described below, proved reserves are estimated by our independent petroleum engineer and are subject to future revisions based on availability of additional information. Asset retirement costs are recognized when the asset is placed in service, and are depleted over proved reserves using the units of production method.

Oil and natural gas properties are reviewed for impairment when facts and circumstances indicate that their carrying value may not be recoverable. We compare net capitalized costs of proved oil and natural gas properties to estimated undiscounted future net cash flows using management’s expectations of future oil and natural gas prices. These future price scenarios reflect our estimation of future price volatility. If net capitalized costs exceed estimated undiscounted future net cash flows, the measurement of impairment is based on estimated fair value, using estimated discounted future net cash flows based on management’s expectations of future oil and natural gas prices. We have recorded no impairment on any of our properties.

Unproven properties that are individually significant are assessed for impairment and if considered impaired are charged to expense when such impairment is deemed to have occurred.

The sale of a partial interest in a proved oil and natural gas property is accounted for as normal retirement and no gain or loss is recognized as long as this treatment does not significantly affect the units-of-production depletion rate. If the units-of-production rate is significantly affected, then the sale is accounted for as the sale of an asset, and a gain or loss is recognized. The unamortized cost of the property or group of properties is apportioned to the interest sold and interest retained on the basis of the fair values of those interests. A gain or loss is recognized for all other sales of producing properties and is included in the results of operations. The sale of a partial interest in an unproved property is accounted for as a recovery of cost when substantial uncertainty exists as to recovery of the cost applicable to the interest retained. A gain on the sale is recognized to the extent the sales price exceeds the carrying amount of the unproved property. A gain or loss is recognized for all other sales of nonproducing properties and is included in the results of operations.

Oil and Gas Reserves

The determination of depreciation, depletion and amortization expense as well as impairments that are recognized on our oil and natural gas properties are highly dependent on the estimates of the proved oil and natural gas reserves attributable to our properties. Our estimate of proved reserves is based on the quantities of oil and natural gas which geological and engineering data demonstrate, with reasonable certainty, to be recoverable in the future years from known reservoirs under existing economic and operating conditions. The accuracy of any reserve estimate is a function of the quality of available data, engineering and geological interpretation, and judgment. For example, we must estimate the amount and timing of future operating costs, production taxes and development costs, all of which may in fact vary considerably from actual results. In addition, as the prices of oil and natural gas and cost levels change from year to year, the economics of producing our reserves may change and therefore the estimate of proved reserves may also change. Any significant variance in these assumptions could materially affect the estimated quantity and value of our reserves.

The information regarding present value of the future net cash flows attributable to our proved oil and natural gas reserves are estimates only and should not be construed as the current market value of the estimated oil and natural gas reserves attributable to our properties. Thus, such information includes revisions of certain reserve estimates attributable to our properties included in the prior year’s estimates. These revisions reflect additional information from subsequent activities, production history of the properties involved and any adjustments in the projected economic life of such properties resulting from changes in oil and natural gas prices. Any future downward revisions could adversely affect our financial condition, our borrowing ability, our future prospects and the value of our common stock.

Use of Estimates

The preparation of financial statements under GAAP in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements, as well as and the reported amounts of revenues and expenses during the reporting period. The most significant estimates relate to proved oil and natural gas reserve volumes, certain depletion factors, future cash flows from oil and natural gas properties, estimates relating to certain oil and natural gas revenues and expenses, valuation of equity-based compensation, valuation of asset retirement obligations, estimates of future oil and natural gas commodity pricing and the valuation of deferred income taxes. Actual results may differ from those estimates.

Jumpstart Our Business Startups Act (“JOBS Act”), adopted January 3, 2012

We qualify as an “emerging growth company,” as defined in Section 2(a) of the Securities Act as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). As such, we are permitted to rely on exemptions from various reporting requirements including, but not limited to, the requirement to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes–Oxley Act of 2002, and the requirement to submit certain executive compensation matters to shareholder advisory votes such as “say on pay” and “say on frequency.”

In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company up to the fifth anniversary of our first registered sale of common equity securities, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

New Accounting Pronouncements

From time to time, new accounting pronouncements are issued by FASB that we adopt as of the specified effective date. If not discussed, management believes that the impact of recently issued standards, which are not yet effective, will not have a material impact on our financial statements upon adoption.

Off-Balance Sheet Arrangements

We currently do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, we have elected not to provide the disclosures required by this item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of March 31, 2013. Based on this evaluation, the CEO and CFO have concluded that, as of March 31, 2013, our disclosure controls and procedures were effective, in that they ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes made in our internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended March 31, 2013, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control Over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control framework and processes are designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation of our consolidated financial statements in accordance with accounting principles generally accepted in the United States of America.

Our internal control over financial reporting includes those policies and procedures that:

pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;

provide reasonable assurance that transactions are recorded properly to allow for the preparation of financial statements in accordance with accounting principles generally accepted in the United States of America, and that receipts and expenditures are being made only in accordance with authorizations of our management and Board of Directors;

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements; and

provide reasonable assurance as to the detection of fraud.

It should be noted that any system of controls, however well designed and operated, can provide only reasonable and not absolute assurance that the objectives of the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there is only reasonable assurance that our controls will succeed in achieving their stated goals under all potential future conditions.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Nostra Terra Oil & Gas Company v. Richfield Oil & Gas Company

Litigation in the Ordinary Course

ITEM 1A. RISK FACTORS

Our business operations and the implementation of our business strategy are subject to significant risks inherent in our business, including, without limitation, the risks and uncertainties described below. The occurrence of any one or more of the risks or uncertainties described below could have a material adverse effect on our consolidated financial condition, results of operations and cash flows and could cause actual results to differ materially from the results contemplated by the forward-looking statements contained in this annual report. While we believe we have identified and discussed below the key risk factors affecting our business, there may be additional risks and uncertainties that are not presently known or that are not currently believed to be significant that may adversely affect our business, operations, industry, financial position and financial performance in the future. Because of the following risks and uncertainties, as well as other variables affecting our operating results, past financial performance should not be considered a reliable indicator of future performance and historical trends may not be consistent with results or trends in future periods. Our consolidated financial statements and the notes thereto and the other information contained in this annual report should be read in connection with the risk factors discussed below.

Risks Related to Our Business

Our independent auditors question our ability to continue as a going concern.

Our independent registered public accounting firm’s report on our financial statements for the years ended December 31, 2012 and 2011 states that there is substantial doubt about our ability to continue as a going concern due to substantial losses from operations, negative working capital, negative cash flow, and the lack of sufficient capital, as of the date the report was issued, to support our planned capital expenditures to continue our drilling programs.

We can provide no assurance that we will be able to obtain sufficient additional financing that we need to develop our properties and alleviate doubt about our ability to continue as a going concern. If we are able to obtain sufficient additional financing proceeds, we cannot be certain that this additional financing will be available on acceptable terms, if at all. To the extent we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct business. Inclusion of a “going concern qualification” in the report of our independent auditors or any future report may have a negative impact on our ability to obtain financing and may adversely impact our stock price.

We have a limited operating history, and we expect that operating losses will continue for the foreseeable future.

Our losses from continuing operations were $1,513,904 for the three months ended March 31, 2013 and $2,128,133 for the three months ended March 31, 2012. No assurance can be given that we will achieve profitability or positive cash flows from our operations in the future. Our current cash balance, together with cash anticipated to be provided by operations, will not be sufficient to satisfy our anticipated cash requirements for normal operations and capital expenditures for the foreseeable future. There can be no assurance that our business operations will prove to be successful in the long-term. Our future operating results will depend on many factors, including:

·	our ability to raise adequate working capital;
·	success of our development and exploration;
·	demand for and prices of oil and natural gas;
·	our ability to obtain required regulatory approvals;
·	the level of our competition;
·	our ability to attract and maintain key management and employees; and
·	our ability to efficiently explore, develop and produce sufficient quantities of marketable oil or natural gas in a highly competitive and speculative environment while maintaining quality and controlling costs.

We must successfully manage the factors stated above, many of which are beyond our control, as well as continue to develop ways to enhance our production efforts to successfully execute our business plan and achieve profitable operations in the future. If our properties do not attain sufficient revenues or do not achieve profitable operations, our business may fail.

We require significant additional capital to continue operating as a going concern, which we may not obtain.

We currently have a substantial working capital deficit and require significant additional capital in the near term to continue operations. We must secure additional funding to pay our current liabilities, continue as a going concern and execute our business plan, which requires us to make large capital expenditures for the exploration and development of our oil and natural gas properties. We will require significant additional funding during the next twelve months to fund development costs, corporate overhead, payment of debt and payment of all other of our contractual obligations. Since our inception, we have financed our cash flow requirements through the issuance of common and preferred stock, short and long-term borrowings and selling working interests in our oil and natural gas properties for cash and services. Our cash and cash equivalents will continue for the foreseeable future to be depleted by our ongoing development efforts as well as our general and administrative expenses. Until we are in a position to generate significant revenues, we will continue to depend on cash provided by equity financings and debt financings or credit facilities, and sales of working interests in our properties, in order to continue operating as a going concern. Furthermore, in the event that our plans change or our assumptions change or prove inaccurate, we could be required to seek additional financing in greater amounts than is currently anticipated.

There can be no assurance that financing will be available in amounts or terms that are acceptable to us, if at all. If sufficient capital resources are not available, we might be forced to cease or significantly curtail drilling and other activities, including our plans to acquire additional acreage positions and development activities, or we might be forced to sell assets on an untimely or unfavorable basis.

Economic conditions continue to be weak and global financial markets continue to experience significant volatility and liquidity challenges. These conditions may make it more difficult for us to obtain financing. Even if we are successful in obtaining financing on acceptable terms, issuing additional equity securities to satisfy our financial requirements could cause substantial dilution to our existing stockholders and may result in a change of control. Raising additional debt financing could lead to:

·	a substantial portion of operating cash flow being dedicated to the payment of principal and interest;
·	increased vulnerability to competitive pressures and economic downturns; and
·	restrictions on our operations.

Competition in the oil and gas industry is intense, and many of our competitors have greater financial, technological and other resources than we do, which may adversely affect our ability to compete.

Competition relating to all aspects of the oil and gas industry is intense. We will actively compete for capital, skilled personnel, access to rigs and other equipment, access to processing facilities and pipeline and refining capacity and in all other aspects of our operations with a substantial number of other organizations, many of which will have greater technical and financial resources. Our competitors who possess greater technical and financial resources than we do may be able to pay more for productive oil and gas properties and exploratory prospects and to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel resources permit.

We may be unable to acquire or develop additional reserves, in which case our results of operations and financial condition would be adversely affected.

In general, production from oil and gas properties declines over time as reserves are depleted, with the rate of decline depending on reservoir characteristics. If we are not successful in our exploration and development activities or in acquiring additional properties containing proved reserves, our proved reserves will decline as reserves are produced. Our future oil and gas production is highly dependent upon our ability to economically find, develop or acquire reserves in commercial quantities.

To the extent cash flow from operations is reduced, either due to a decrease in prevailing prices for oil and gas or an increase in exploration and development costs, and external sources of capital become limited or unavailable, our ability to make the necessary capital investment to maintain or expand our asset base of oil and gas reserves would be impaired. Even with sufficient available capital, our future exploration and development activities may not result in additional proved reserves, and we might not be able to drill productive wells at acceptable costs.

Our oil and gas reserves, production, and cash flows to be derived therefrom are highly dependent on our ability to successfully acquire or discover new reserves. Without the continual addition of new reserves, any existing reserves we may have at any particular time and the production therefrom will decline over time as such existing reserves are exploited. A future increase in our reserves will depend not only on our ability to develop any properties we may have from time to time, but also on our ability to select and acquire suitable producing properties or projects. There can be no assurance that our future exploration and development efforts will result in the discovery and development of additional commercial accumulations of oil and gas. Competition may also be presented by alternate fuel sources.

Our projects may be adversely affected by risks outside of our control including labor unrest, civil disorder, war, subversive activities or sabotage, fires, floods, explosions or other catastrophes, epidemics or quarantine restrictions.

Our inability to control the inherent risks of acquiring businesses and assets could adversely affect our operations.

Acquisitions are a key element of our business strategy. We cannot assure you that we will be able to identify and acquire acceptable properties or businesses on terms favorable to us in the future. We may be required to incur substantial indebtedness to finance future acquisitions. Such additional debt service requirements may impose a significant burden on our results of operations and financial condition. We cannot assure you that we will be able to successfully consolidate the operations and assets we acquire with our existing business. The integration of acquired operations and assets may require substantial management effort, time and resources and may divert management’s focus from other strategic opportunities and operational matters. Acquisitions may not perform as expected when the transaction was consummated and may be dilutive to our overall operating results. In addition, our management may not be able to effectively manage our increased size or operate a new line of business.

We are an emerging growth company, and have elected to delay the adoption of new or revised accounting standards until those standards apply to private companies. As a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates.

We qualify as an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are permitted to rely on exemptions from various reporting requirements including, but not limited to, the requirement to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002, and the requirement to submit certain executive compensation matters to shareholder advisory votes such as “say on pay” and “say on frequency.”

In addition, Section 107 of the JOBS Act also provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an emerging growth company can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We have elected to take advantage of the benefits of this extended transition period. Our financial statements may therefore not be comparable to those of companies that comply with such new or revised accounting standards.

We will remain an emerging growth company up to the fifth anniversary of our first registered sale of common equity securities, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, or the Exchange Act, which would occur if the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.

During the period in which we qualify as an emerging growth company and elect to provide more limited disclosure as allowed by the JOBS Act, we cannot predict if investors will find our common stock less attractive as a result. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

Substantially all of our producing properties and operations are located in the west and mid-west of the United States, making us vulnerable to risks associated with operating in two major geographic areas.

All of our proved reserves and all of our expected oil and gas production are located in Oklahoma, Kansas, Utah and Wyoming. As a result, we may be disproportionately exposed to the impact of delays or interruptions of production from these wells caused by transportation capacity constraints, curtailment of production, availability of equipment, facilities, personnel or services, significant governmental regulation, natural disasters, adverse weather conditions, plant closures for scheduled maintenance or interruption of transportation of oil or gas produced from the wells in these areas. In addition, the effect of fluctuations on supply and demand may become more pronounced within specific geographic oil and gas producing areas which may cause these conditions to occur with greater frequency or magnify the effect of these conditions on us. Due to the concentrated nature of our portfolio of properties, a number of these properties could experience many of the same conditions at the same time, resulting in a relatively greater impact on our results of operations than they might have on other companies that have a more diversified portfolio of properties. Such delays or interruptions could have a material adverse effect on our financial condition and results of operations.

If ultimate production associated with these properties is less than our estimated reserves, or changes in pricing, cost or recovery assumptions in the area results in a downward revision of any estimated reserves in these properties, our business, financial condition or results of operations could be adversely affected.

Seasonal weather conditions and other factors could adversely affect our ability to conduct drilling activities.

The level of activity in the oil and gas industry in the west and mid-west of the U.S. is influenced by seasonal weather patterns. In some climates, drilling and oil and gas activities cannot be conducted as effectively during the winter months. In other climates, a mild winter or wet spring may result in limited access and, as a result, reduced operations or a cessation of operations. Municipalities and state transportation departments enforce road bans that restrict the movement of drilling rigs and other heavy equipment during periods of wet weather, thereby reducing activity levels. Seasonal factors and unexpected weather patterns may lead to declines in exploration and production activity and corresponding declines in the demand for our oil and gas.

Severe weather conditions limit and may temporarily halt the ability to operate during such conditions. These constraints and the resulting shortages or high costs could delay or temporarily halt our oil and gas operations and materially increase our operating and capital costs, which could have a material adverse effect on our business, financial condition and results of operations.

Federal and state legislative and regulatory initiatives relating to hydraulic fracturing could result in increased costs and additional operating restrictions or delays.

We expect to develop certain of our properties in Kansas and Wyoming utilizing horizontal drilling and hydraulic fracturing. The U.S. Congress is considering legislation that would amend the federal Safe Drinking Water Act by repealing an exemption for the underground injection of hydraulic fracturing fluids near drinking water sources. Hydraulic fracturing is an important and commonly used process for the completion of crude oil and natural gas wells in shale formations, and involves the pressurized injection of water, sand and chemicals into rock formations to stimulate production. Sponsors of the legislation have asserted that chemicals used in the fracturing process could adversely affect drinking water supplies. If enacted, the legislation could result in additional regulatory burdens such as permitting, construction, financial assurance, monitoring, recordkeeping, and plugging and abandonment requirements. The legislation also proposes requiring the disclosure of chemical constituents used in the fracturing process to state or federal regulatory authorities, who would then make such information publicly available. The availability of this information could make it easier for third parties opposing the hydraulic fracturing process to initiate legal proceedings based on allegations that specific chemicals used in the fracturing process could adversely affect groundwater. In addition, various state and local governments are considering increased regulatory oversight of hydraulic fracturing through additional permit requirements, operational restrictions, and temporary or permanent bans on hydraulic fracturing in certain environmentally sensitive areas such as watersheds. The adoption of any federal or state legislation or implementing regulations imposing reporting obligations on, or otherwise limiting, the hydraulic fracturing process could lead to operational delays or increased operating costs and could result in additional regulatory burdens that could make it more difficult to perform hydraulic fracturing and increase our costs of compliance and doing business.

Acreage must be drilled before lease expiration, generally within two to five years, in order to hold the acreage by production. In the highly competitive market for acreage, failure to drill sufficient wells in order to hold acreage will result in a substantial lease renewal cost or if renewal is not feasible, loss of our lease and prospective drilling opportunities.

Our mineral leases are subject to expiration if we do not commence development operations that result in production within a proscribed term. Each of the leases relating to undeveloped acreage will expire at the end of its term unless we renew the lease, initiate development operations or establish production from the acreage. While we expect to establish production from most of our properties or exercise our option to extend prior to expiration of the applicable lease term, there can be no guarantee we can do so. If we are unable to establish production on our leased acreage, the cost to renew leases may increase significantly and we may not be able to renew such leases on commercially reasonable terms or at all.

We depend on drilling partners for the successful development and exploitation of certain oil and gas properties in which we hold an interest.

We do not operate all oil and gas properties in which we hold an interest. As a result, we have limited influence and control over the operation of properties we do not operate. The success and timing of drilling, development and exploitation activities on properties operated by others depend on a number of factors that are beyond our control, including the operator’s expertise and financial resources, approval of other participants for drilling wells and utilization of appropriate technology. If our drilling partners are unable or unwilling to perform, our financial condition and results of operation could be adversely affected.

The loss of our directors or key management and technical personnel or our inability to attract and retain experienced technical personnel could adversely affect our ability to operate our business.

We depend, to a large extent, on the efforts and continued employment of our senior management team. At this time, the loss of certain key individuals could adversely affect our business operations. Successful exploration, development and commercialization of oil and gas interests rely on a number of factors, including the technical skill of the personnel involved. Our success will depend, in part, on the performance of our key managers and consultants. Failure to attract and retain managers, consultants and other key personnel with the necessary skills and experience could have a materially adverse effect on our growth and profitability.

We may not be insured against all of the operating hazards to which our business is exposed.

The ownership and operation of oil and gas wells, pipelines and facilities involve a number of operating and natural hazards which may result in blowouts, environmental damage and other unexpected or dangerous conditions resulting in damage to our properties and potential liability to third parties for property damage, environmental damage or personal injury. We intend to employ prudent risk-management practices and maintain suitable liability insurance, where available. We may become liable for damages arising from such events against which we cannot insure or against which we may elect not to insure because of high premium costs or other reasons. Costs incurred to repair such damage or pay such liabilities could have a material adverse effect on us, our operations and financial condition.

Our properties may be subject to title claims in the future.

Title to oil and gas interests is often not capable of conclusive determination without incurring substantial expense. While it is our practice to make appropriate inquiries into the title of properties and other development rights we acquire, title defects may exist. In addition, we may be unable to obtain adequate insurance for title defects, on a commercially reasonable basis or at all. If title defects do exist, it is possible that we may lose all or a portion of our right, title and interests in and to the properties to which the title defects relate. If our property rights are reduced, our ability to conduct our exploration, development and production activities may be impaired.

We may be exposed to third-party credit risk and defaults by third parties could adversely affect us.

We are or may be exposed to third-party credit risk through our contractual arrangements with our current or future customers, joint venture partners, marketers of our petroleum production and other parties. In the event such entities fail to meet their contractual obligations to us, such failures could have a material adverse effect on us and our funds from operations.

The global economy has not fully recovered and unforeseen events may negatively impact our financial condition.

Market events and conditions including disruptions in the international credit markets and other financial systems and the deterioration of global economic conditions caused significant volatility to commodity prices over the last few years. The credit crisis and related turmoil in the global financial system may adversely impact our business and our financial condition. Our ability to access the capital markets may be restricted at a time when we would need to raise capital, which could adversely affect our ability to react to changing economic and business conditions. If the economic climate in the U.S. or the world generally deteriorates further, demand for petroleum products could diminish and prices for oil and gas could decrease, which could adversely impact our results of operations, liquidity and financial condition.

Risks Related to our Industry

A substantial or extended decline in oil and natural gas prices may adversely affect our business, financial condition or results of operations and our ability to meet our capital expenditure obligations and financial commitments.

The prices we receive for our oil and natural gas production heavily influence our revenue, profitability, access to capital and future rate of growth. Oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. Historically, the markets for oil and natural gas have been volatile. These markets will likely continue to be volatile in the future. The prices we receive for our production, and the levels of our production, depend on numerous factors beyond our control. These factors include, but are not limited to, the following:

·	changes in regional, national and/or global supply and demand for oil and natural gas;
·	the actions of the Organization of Petroleum Exporting Countries;
·	the price and quantity of imports of foreign oil and natural gas;
·	political and economic conditions, including embargoes, in crude oil-producing countries or affecting other crude oil-producing activity;
·	the level of regional, national and/or global oil and natural gas exploration and production activity;

·	the level of regional, national and/or global oil and natural gas inventories;
·	weather conditions;
·	technological advances affecting energy consumption;
·	domestic and foreign governmental regulations and tax laws;
·	proximity and capacity of oil and natural gas pipelines and other transportation facilities;
·	the price and availability of competitors’ supplies of oil and natural gas in captive market areas; and
·	the price and availability of alternative fuels.

Lower oil and natural gas prices may not only decrease our revenues on a per unit basis but also may reduce the amount of oil and natural gas that we can produce economically. Our reserve base is heavily weighted towards oil producing properties many of which are utilizing or will utilize secondary recovery methods characterized by higher operating costs than many other types of fields, such as oil fields in their primary recovery stage or natural gas fields. The higher operating costs associated with many of our oil fields will make our profitability more sensitive to oil price declines. Lower prices will also negatively impact the value and quantity of our proved and unproved reserves. A substantial or extended decline in oil or natural gas prices may materially and adversely affect our future business, financial condition, results of operations, liquidity or ability to finance planned capital expenditures.

Drilling for and producing oil and natural gas are high-risk activities with many uncertainties that could adversely affect our business, financial condition or results of operations.

Oil operations involve many risks, many of which are beyond our control. Our long-term commercial success depends on our ability to find, acquire, develop and commercially produce oil and natural gas reserves. Without the continual addition of new reserves, our existing reserves and the production therefrom will decline over time as such reserves are exploited. A future increase in our reserves will depend not only on our ability to explore and develop our existing properties, but also on our ability to select and acquire suitable producing properties or projects. We can give no assurance that we will continue to locate satisfactory properties for acquisition or participation. Moreover, if we identify suitable properties for acquisition or participation, we may determine that current markets, terms of acquisition and participation or pricing conditions make such acquisitions or participations uneconomic. We have no assurance that we will discover or acquire further commercial quantities of oil and natural gas.

Future oil and natural gas exploration may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. Completion of a well does not assure a profit on the investment or recovery of drilling, completion and operating costs. In addition, drilling hazards or environmental damage could greatly increase the cost of operations, and various field operating conditions may adversely affect the production from successful wells. These conditions include:

·	delays imposed by or resulting from compliance with regulatory requirements;
·	pressure or irregularities in geological formations;
·	shortages of or delays in obtaining equipment and qualified personnel;
·	equipment failures or accidents;
·	adverse weather conditions;
·	reductions in oil and natural gas prices;
·	oil and natural gas property title problems; and
·	market limitations for oil and natural gas.

While diligent well supervision and effective maintenance operations can contribute to maximizing production rates over time, production delays and declines from normal field operating conditions cannot be eliminated and can be expected to adversely affect revenue and cash flow levels to varying degrees.

Our oil exploration, development and production activities are subject to all the risks and hazards typically associated with such activities, including hazards such as fire, explosion, blowouts, cratering, sour natural gas releases and spills. Each of these hazards could result in personal injury or death, or substantial damage to oil and natural gas wells, production facilities, other property and the environment. In accordance with industry practice, we are not fully insured against all of these risks, nor are all such risks insurable. Although we maintain liability insurance in an amount that is considered consistent with industry practice, the nature of these risks is such that liabilities could exceed policy limits, in which event we could incur significant costs that could have a material adverse effect upon our financial condition. Our oil and natural gas production activities are also subject to all the risks typically associated with such activities, including encountering unexpected formations or pressures, premature decline of reservoirs and the invasion of water into producing formations. Losses resulting from the occurrence of any of these risks could have a material adverse effect on our future results of operations, liquidity and financial condition.

Upon a commercial discovery, market conditions or operational impediments may hinder our access to oil and natural gas markets or delay its production.

Upon a commercial discovery, the marketability of our production depends in part upon the availability, proximity and capacity of pipelines, trucks, railways, storage, gathering systems and processing facilities. This dependence is heightened where this infrastructure is less developed. Therefore, if drilling results are positive in certain areas, we would need to build production facilities to handle the potential volume of oil and natural gas produced. We might be required to shut in wells, at least temporarily, due to the inadequacy or unavailability of transportation facilities. If that were to occur, we would be unable to realize revenue from those wells until we could make arrangements to deliver production to market.

Our ability to produce and market oil and natural gas is affected and also may be harmed by:

·	the lack of transportation, storage, pipeline transmission facilities or carrying capacity;
·	government regulation of oil and natural gas production;
·	government transportation, tax and energy policies;
·	changes in supply and demand; and
·	general economic conditions.

Shortages of rigs, equipment, supplies and personnel could delay or otherwise adversely affect our cost of operations or our ability to operate according to our business plan.

Oil and natural gas exploration and development activities are dependent on the availability of drilling and related equipment and qualified personnel in the particular areas where such activities will be conducted. Due to drilling activity increases, a general shortage of drilling rigs, equipment, supplies and personnel has developed. As a result, the costs and delivery times to oil and natural gas operators have sharply increased and could do so again. The demand for and wage rates of qualified drilling rig crews generally rise in response to the increasing number of active rigs in service and could increase sharply in the event of a shortage. Shortages of drilling rigs, equipment, supplies or personnel could delay or adversely affect our development operations, which could have a material adverse effect on our business, financial condition and results of operations.

Reserve estimates are based on many assumptions that may turn out to be inaccurate. Any significant inaccuracies in these reserve estimates or underlying assumptions may materially affect the quantities and present value of our reserves.

The information concerning reserves and associated cash flow set forth in this annual report represents estimates only. The process of estimating oil and natural gas reserves is complex. It requires interpretations of available geological, geophysical, production and engineering data and many assumptions, including assumptions relating to economic factors and other factors beyond our control. The extent, quality and reliability of this technical data can vary. Any significant inaccuracies in these interpretations or assumptions could materially affect the estimated quantities and present value of reserves. In general, estimates of economically recoverable oil reserves and the future net cash flows therefrom are based upon a number of variable factors and assumptions, including the following, all of which may vary from actual results:

·	historical production from the properties,
·	production rates,
·	ultimate reserve recovery,
·	timing and amount of capital expenditures,
·	marketability of oil and natural gas,

·	royalty rates, and
·	the assumed effects of regulation by governmental agencies and future operating costs.

For those reasons, estimates of the economically recoverable oil and natural gas reserves attributable to any particular group of properties, classification of such reserves based on risk of recovery and estimates of future net revenues expected therefrom prepared by different engineers, or by the same engineers at different times, may vary. Our actual production, revenues, taxes and development and operating expenditures with respect to our reserves will vary from estimates thereof and such variations could be material. Further, evaluations are based, in part, on the assumed success of the exploitation activities intended to be undertaken in future years. The reserves and estimated cash flows to be derived therefrom contained in such evaluations will be reduced to the extent that such exploitation activities do not achieve the level of success assumed in the evaluation.

Estimates of proved reserves that may be developed and produced in the future are often based upon volumetric calculations and upon analogy to similar types of reserves rather than actual production history. Estimates based on these methods are generally less reliable than those based on actual production history. Subsequent evaluation of the same reserves based upon production history and production practices will result in variations in the estimated reserves and such variations could be material. Many of our producing wells have a limited production history and thus there is less historical production on which to base the reserves estimates. In addition, a significant portion of our reserves may be attributable to a limited number of wells and, therefore, a variation in production results or reservoir characteristics in respect of such wells may have a significant impact upon our reserves.

In accordance with applicable disclosure regulations of the SEC, Pinnacle has used forecast price and cost estimates in calculating reserve quantities. Actual future net cash flows will be affected by other factors such as actual production levels and timing, actual prices we receive for oil and natural gas, actual cost of development and production expenditures, supply and demand for oil and natural gas, curtailments or increases in consumption by oil and natural gas purchasers, changes in governmental regulation or taxation and the impact of inflation on costs. Actual production and cash flows derived therefrom will vary from the estimates contained in the 2012 Pinnacle Reserve Report, and such variations could be material. The 2012 Pinnacle Reserve Report is based in part on the assumed success of activities we intend to undertake in future years. The reserves and estimated cash flows to be derived therefrom contained in the 2012 Pinnacle Reserve Report will be reduced to the extent that such activities do not achieve the level of success assumed in the 2012 Pinnacle Reserve Report.

The 2012 Pinnacle Reserve Report sets forth estimates of our reserves as of December 31, 2012 and has not been updated and thus does not reflect changes in our resources since that date.

If our costs of production continue to exceed the estimated costs contained in the 2012 Pinnacle Reserve Report, our affected properties’ reserves will be removed.

We have experienced high costs of production in the initial operation of our wells. If this high cost continues above the estimated costs contained in the 2012 Pinnacle Reserve Report, extraction of hydrocarbons from our affected properties may not be economically viable, in which case the affected reserves would be removed from our reserve report.

Prospects that we decide to drill may not yield oil or natural gas in commercially viable quantities.

Our prospects are in various stages of evaluation. There is no way to predict with certainty in advance of drilling and testing whether any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically viable. The use of seismic data and other technologies, and the study of producing fields in the same area, will not enable us to know conclusively before drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in commercially viable quantities. Moreover, the analogies we draw from available data from other wells, more fully explored prospects or producing fields may not be applicable to our drilling prospects.

We are subject to complex laws and regulations, including environmental regulations, that can have a material adverse effect on the cost, manner and feasibility of doing business.

Oil and natural gas operations (exploration, production, pricing, marketing and transportation) are subject to extensive controls and regulations imposed by various levels of government and may be amended from time to time. Our operations may require licenses from various governmental authorities. There can be no assurance that we will be able to obtain all necessary licenses and permits that may be required to carry out exploration and development at our projects.

The oil and gas industry is subject to regulation, enforcement and intervention by governments in such matters as:

·	awarding and licensing of exploration and production interests;
·	imposition of specific drilling obligations, and requirements (including drilling bonds and permits for drilling, water discharge and disposal, air quality and noise levels);
·	imposition of pollution controls and environmental protection;
·	regulation of health and safety effects and offshore activity and operations;
·	control over the development, decommissioning and abandonment of fields (including restrictions on production);
·	imposition of reporting obligations;
·	regulation of prices, taxes, royalties and exploration for oil and natural gas;
·	cancellation of contract rights; and
·	imposition of rights-of-way and easements.

Under these laws, we could be subject to claims for personal injury or property damages, including natural resource damages, which may result from the impacts of our operations. Failure to comply with these laws also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Additionally, such regulation may be changed from time to time in response to economic or political conditions. The implementation of new legislation or regulations or the modification of existing legislation or regulations affecting the oil and gas industry could reduce demand for crude oil, increase costs and may have a material adverse impact on us. Export sales are subject to the authorization of government agencies and the corresponding governmental policies of foreign countries.

Our operations expose us to substantial costs and liabilities with respect to environmental matters.

The oil and gas industry is subject to environmental regulations pursuant to local, state and federal legislation. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentration of substances that can be released into the environment in connection with our drilling and production activities, limit or prohibit drilling activities within certain lands lying within wilderness and other protected areas, and impose substantial liabilities for pollution that may result from our operations. Under existing environmental laws and regulations, we could be held strictly liable for the removal or remediation of previously released materials or property contamination regardless of whether the release resulted from our operations, or our operations were in compliance with all applicable laws at the time they were performed. Should we be unable to fully fund the cost of remedying an environmental liability, we might be required to suspend operations or enter into interim compliance measures pending completion of the required remedy. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and potentially increased capital expenditures and operating costs. The discharge of oil, natural gas or other pollutants into the air, soil or water may give rise to liabilities to governments and third parties and may require us to incur costs to remedy such discharge. Although we believe that we are in material compliance with current applicable environmental regulations, we can give no assurance that environmental laws will not result in a curtailment of production or a material increase in the costs of production, development or exploration activities or otherwise adversely affect our financial condition, results of operations or prospects.

Our current development plans include drilling several horizontal wells and utilizing hydraulic fracturing, which is subject to a range of applicable federal, state and local laws. Hydraulic fracturing operations are designed and operated to minimize the risk, if any, of subsurface migration of hydraulic fracturing fluids and spillage or mishandling of hydraulic fracturing fluids. However, a proven case of subsurface migration of hydraulic fracturing fluids or a case of spillage or mishandling of hydraulic fracturing fluids during these activities could potentially subject us to civil and/or criminal liability and the possibility of substantial costs, including environmental remediation, depending on the circumstances of the underground migration, spillage, or mishandling, the nature and scope of the underground migration, spillage, or mishandling, and the applicable laws and regulations. In addition, the practice of hydraulically fracturing formations to stimulate the production of natural gas and oil has come under increased scrutiny from federal and state governmental authorities. New regulations concerning hydraulic fracturing could be passed that would materially adversely affect our affect our ability to economically explore and develop our oil and natural gas properties.

Possible regulation related to climate change and global warming could have a negative impact on our business.

Federal and state governments are considering enacting new legislation and promulgating new regulations governing or restricting the emission of greenhouse gases from certain stationary sources common in our industry. The EPA has made findings and issued proposed regulations that could lead to the imposition of restrictions on greenhouse gas emissions from certain stationary sources and that could require us to establish and report an inventory of greenhouse gas emissions. In addition, the U.S. Congress is in the process of considering various bills that would establish an economy-wide cap-and-trade program to reduce U.S. emissions of greenhouse gases, including carbon dioxide and methane. Such a program, if enacted, could require phased reductions in greenhouse gas emissions over a number of years and could result in the issuance of a declining number of tradable allowances to sources that emit greenhouse gases into the atmosphere. Legislation and regulatory proposals for restricting greenhouse gas emissions or otherwise addressing climate change could require us to incur additional operating costs and could adversely affect demand for our oil and natural gas. Potential increases in operating costs could include new or increased costs to obtain permits, operate and maintain equipment and facilities, install new emission controls on equipment and facilities, acquire allowances to authorize greenhouse gas emissions, pay taxes related to greenhouse gas emissions and administer and manage a greenhouse gas emissions program. Moreover, incentives to conserve energy or use alternative energy sources could reduce demand for oil and natural gas.

Delays in business operations may reduce cash flows and subject us to credit risks.

In addition to the usual delays in payments by purchasers of oil and natural gas to us or to the operators, and the delays by operators in remitting payment to us, payments between these parties may be delayed due to restrictions imposed by lenders, accounting delays, delays in the sale of delivery of products, delays in the connection of wells to a gathering system, adjustment for prior periods, or recovery by the operator of expenses incurred in the operation of the properties. Any of these delays could reduce the amount of cash flow available for our business in a given period and expose us to additional third-party credit risks.

Alternatives to and changing demand for petroleum products.

Fuel conservation measures, alternative fuel requirements, increasing consumer demand for alternatives to oil and natural gas and technological advances in fuel economy and energy generation devices could reduce the demand for crude oil and other liquid hydrocarbons. We cannot predict the impact of changing demand for oil and natural gas products, and any major changes may have a material adverse effect on our business, financial condition, results of operations and cash flows.

Proposals to increase U.S. federal income taxation of independent producers may negatively affect our results.

Recently, U.S. federal budget proposals would potentially increase and accelerate the payment of federal income taxes of independent producers of oil and natural gas. Proposals that would significantly affect us would repeal the expensing of intangible drilling costs, repeal the percentage depletion allowance and increase the amortization period of geological and geophysical expenses. These changes, if enacted, will make it more costly to explore for and develop oil and natural gas resources. We are unable to predict whether any changes, or other proposals to such laws, ultimately will be enacted. Any such changes could negatively impact our cash flows and future operating results.

Risks Related to our Common Stock

Our directors and executive officers beneficially own a significant amount of our common stock and will be able to exercise significant influence on matters requiring stockholder approval.

Douglas C. Hewitt, Sr., a Director and our President and Chief Executive Officer beneficially owned approximately 26.8% of our common stock as of March 31, 2013, Glenn G. MacNeil, a Director and our Chief Financial Officer, owned approximately 7.5% of our common stock as of March 31, 2013 and our directors and executive officers collectively beneficially owned approximately 40.1% of our common stock as of March 31, 2013. Consequently, Messrs. Hewitt and MacNeil individually, and our directors and executive officers as a group are able to exert significant influence over the election of directors and the outcome of most corporate actions requiring stockholder approval which may have the effect of delaying or precluding a third party from acquiring control of us.

Our Common Stock is quoted on the OTCQX U.S. Premier, which may have an unfavorable impact on our stock price and liquidity.

Our common stock is quoted on the OTCQX U.S. Premier (“OTCQX”). The OTCQX is a significantly more limited market than the national securities exchanges. The OTCQX is an inter-dealer market which is much less regulated than the major exchanges, which may subject our common stock to more abuses, volatility and shorting. There is currently no broadly followed and established public trading market for our common stock. An established public trading market may never develop or be maintained. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders. Absence of an active trading market reduces the level of liquidity available to the holders of our common stock.

It may not be possible for a shareholder to sell its common stock within any particular time period, for an acceptable price, or at all. There is no certainty that a holder of common stock will be able to identify a buyer for common stock or realize any monetary value whatsoever from a sale thereof.

Our common stock is considered highly speculative and there is no certainty that our common stock will continue to be quoted for trading on the OTCQX or on any other form of quotation system or securities exchange, and even if the common stock were to be listed on a quotation system or securities exchange senior to the OTCQX, the common stock would continue to be subject to the resale restrictions and other limitations described above.

The application of the “penny stock” rules could adversely affect the market price of our common stock and increase your transaction costs to sell those shares.

Our common stock may be subject to the “penny stock” rules adopted under Section 15(g) of the Exchange Act. The penny stock rules apply to issuers whose common stock does not trade on a national securities exchange and trades at less than $5.00 per share, or that have a tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC that contains the following information:

a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;

a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of securities laws;

a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the “bid” and “ask” prices;

a toll free telephone number for inquiries on disciplinary actions;

definitions of any significant terms in the disclosure document or in the conduct of trading in penny stocks; and

such other information and is in such form (including language, type, size and format), as the SEC shall require by rule or regulation.

Prior to effecting any transaction in a penny stock, the broker-dealer also must provide the customer with the following information:

bid and offer quotations for the penny stock;

compensation of the broker-dealer and our salesperson in the transaction;

number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and

monthly account statements showing the market value of each penny stock held in the customer’s account.

The penny stock rules further require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks and a signed and dated copy of a written suitability statement.

Due to the requirements of the penny stock rules, many broker-dealers have decided not to trade penny stocks. As a result, the number of broker-dealers willing to act as market makers in such securities is limited. If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. Moreover, if our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.

We have the right to, and expect to, issue additional equity or equity-linked securities without stockholder approval, which would dilute the percentage ownership of our stockholders and depress the market price of shares of our common stock.

We have authorized capital of 250,000,000 shares of common stock and 50,000,000 shares of preferred stock. As of March 31, 2013, 33,789,600 common shares and no preferred shares were issued and outstanding. In addition, as of March 31, 2013, we had outstanding warrants to purchase approximately 2,102,486 shares of our common stock, and notes convertible into 541,024 shares of our common stock. Our Board of Directors has authority, without action or vote of our shareholders, to issue all or part of the authorized but unissued shares. Any such issuance will dilute the percentage ownership of our shareholders, and may dilute the book value of our common stock.

Our operating results may fluctuate significantly, and these fluctuations may cause the price of our common stock to decline.

Our operating results will likely vary in the future primarily as the result of fluctuations in our revenues and operating expenses, including the coming to market of oil and natural gas reserves that we are able to discover and develop, expenses that we incur, the prices of oil and natural gas in the commodities markets and other factors. If our results of operations do not meet the expectations of current or potential investors, the price of our common stock may decline.

Because we have never paid a common stock dividend and will not pay any dividends for the foreseeable future, stockholders must look solely to appreciation of our common stock to realize a gain on their investments.

We have never paid a dividend nor made a distribution on our common stock. Further, we may never achieve a level of profitability that would permit payment of dividends or making other forms of distributions to common stockholders. In any event, given the stage of our development, it will likely be a long period of time before we could be in a position to pay dividends or distributions to our investors. The payment of any future dividends will be at the sole discretion of the Board. In this regard, we currently intend to retain earnings to finance the expansion of our business and do not anticipate paying dividends in the foreseeable future. Accordingly, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur.

If we were to issue preferred stock, the rights of holders of our common stock and the value of such common stock could be adversely affected.

Our Board of Directors is authorized to issue classes or series of preferred stock, without any action on the part of the stockholders. The Board of Directors also has the power, without stockholder approval, to set the terms of any such classes or series of preferred stock, including voting rights, dividend rights and preferences over the common stock with respect to dividends or upon the liquidation, dissolution or winding-up of our business and other terms. If we issue preferred stock in the future that has a preference over the common stock, with respect to the payment of dividends or upon liquidation, dissolution or winding-up, or if we issue preferred stock with voting rights that dilute the voting power of the common stock, the rights of holders of the common stock or the value of the common stock would be adversely affected.

If we are not the subject of securities analyst reports or if any securities analyst downgrades our common stock or our sector, the price of our common stock could be negatively affected.

Securities analysts may publish reports about us or our industry containing information about us that may affect the trading price of our common stock. In addition, if a securities or industry analyst downgrades the outlook for our stock or one of our competitors’ stock, the trading price of our common stock may also be negatively affected.

Future sales of our common stock by our existing stockholders may negatively impact the trading price of our common stock.

If a substantial number of our existing stockholders decide to sell shares of their common stock in the public market, the price at which our common stock trades could decline. Additionally, the public market’s perception that such sales might occur may also depress the price of our common stock. Of the 34,454,880 shares currently outstanding, 4,539,730 shares are freely tradable without restriction.

The Financial Industry Regulatory Authority, or FINRA, has adopted sales practice requirements which may also limit a stockholder's ability to buy and sell our stock.

FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

The value of our common stock may be affected by matters not related to our operating performance.

The value of our common stock may be affected by matters not related to our operating performance for reasons that may include the following:

·	U.S. and worldwide supplies and prices of and demand for oil and natural gas;
·	political conditions and developments in the United States;
·	political conditions in oil and natural gas producing regions;
·	investor perception of the oil and gas industry;
·	limited trading volume of our common stock;
·	change in environmental and other governmental regulations;
·	the prices of oil and natural gas;
·	announcements relating to our business or the business of our competitors;
·	our liquidity; and
·	our ability to raise additional funds.

These and other factors are largely beyond our control, and the impact of these risks, singly or in the aggregate, may result in material adverse changes to the market price of our common stock and our results of operations and financial condition.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

The following summarizes all sales of our unregistered securities during the quarterly period ended March 31, 2013. The securities listed in each of the below referenced transactions were (i) issued without registration and (ii) were issued in reliance on the private offering exemptions contained in Sections 4(2), 4(5) and/or 3(b) of the Securities Act and on Regulation D promulgated thereunder, and in reliance on similar exemptions under applicable state laws as a transaction not involving a public offering. No placement or underwriting fees were paid in connection with these transactions. Proceeds from the sales of these securities were used for general working capital purposes. The securities are deemed restricted securities for purposes of the Securities Act.

Sales of Common Stock

In January 2013, the Company issued 8,000 shares of common stock to a creditor of the Company valued at $20,000 or $2.50 per share as payment of a negotiated settlement of a payable.

In January 2013, the Company issued 68,000 shares of common stock to unaffiliated investors for cash of $170,000 or $2.50 per share.

In March 2013, the Company issued 1,043,591 shares of common stock, valued at $834,872, or $0.80 per share to consultants, directors, officers and other employees as payment for outstanding payables.

Warrant Issuances

In January 2013, the Company granted warrants in connection with common stock issuances to purchase up to 216,000 shares of common stock with an exercise price of $2.50 per share, which expire between April 2013 and January 2014.

In February 2013, the Company granted warrants in connection with a new note payable to purchase up to 12,000 shares of common stock with an exercise price of $1.00 per share, which expire in December 2013.

In March 2013, the Company granted warrants in connection with a new note payable to purchase up to 25,000 shares of common stock with an exercise price of $1.00 per share, which expire in March 2014.

ITEM 6. EXHIBITS

The list of exhibits in the Exhibit Index to this quarterly report is incorporated herein by reference.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	RICHFIELD OIL & GAS COMPANY

Dated: May 15, 2013	By:	/s/ DOUGLAS C. HEWITT, SR.
		Douglas C. Hewitt, Sr.
		Chief Executive Officer

Dated: May 15, 2013	By:	/s/ GLENN G. MACNEIL
		Glenn G. MacNeil.
		Chief Financial Officer

EXHIBIT INDEX

Exhibit
Number		Description

31.1		Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1		Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2		Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema Document

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*		XBRL Taxonomy Extension Label Linkbase Document

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase Document

Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of sections 11 and 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

Attached files

RICHFIELD OIL & GAS Co Reports

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