Attached files
| file | filename |
|---|---|
| EX-99.1 - Norris Industries, Inc. | ex99-1.htm |
| EX-32.1 - Norris Industries, Inc. | ex32-1.htm |
| EX-31.1 - Norris Industries, Inc. | ex31-1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
(Mark One)
| [X] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended February 29, 2016
or
| [ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ______________ to ______________
Commission file number: 333-196492
International Western Petroleum, Inc.
( Exact name of registrant as specified in its charter )
| Nevada | 46-5034746 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
5525 N. MacArthur Boulevard, Suite 280 Irving, Texas |
75038 | |
| (Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number, including area code: (855) 809-6900
Securities registered under Section 12(b) of the Act:
| Title of each class: | Name of each exchange on which registered: | |
| None |
Securities registered under Section 12(g) of the Act:
(Title of class)
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [X] No [ ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ ] No [X]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232. 405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229. 405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer. [ ] | Accelerated filer. [ ] |
| Non-accelerated filer. [ ] | Smaller reporting company. [X] |
| (Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: N/A
Number of the issuer’s common stock outstanding as of June 27, 2016: 44,477,964
Documents incorporated by reference: None.
TABLE OF CONTENTS
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K (this “Report”) contains “forward-looking statements” within the meaning of the Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements discuss matters that are not historical facts. Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions. These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations; business strategies; future cash flows; financing plans; plans and objectives of management; any other statements regarding future operations, future cash needs, business plans and future financial results, and any other statements that are not historical facts.
From time to time, forward-looking statements also are included in our other periodic reports on Forms 10-Q and 8-K, in our press releases, in our presentations, on our website and in other materials released to the public. Any or all of the forward-looking statements included in this Report and in any other reports or public statements made by us are not guarantees of future performance and may turn out to be inaccurate. These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.
Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.
For discussion of factors that we believe could cause our actual results to differ materially from expected and historical results see “Item 1A — Risk Factors” below.
CERTAIN TERMS USED IN THIS REPORT
When this report uses the words “we,” “us,” “our,” and the “Company,” they refer to International Western Petroleum, Inc. and our wholly-owned subsidiaries. “SEC” refers to the Securities and Exchange Commission.
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Our Company
International Western Petroleum, Inc. (“IWP” or the “Company”) was incorporated on February 19, 2014 as a Nevada corporation and is based in Irving, Texas. The Company was formed to conduct operations in the oil and gas industry. We are an oil and natural gas company that focuses on the acquisition, development, and exploration of crude oil and natural gas properties in Texas. On May 4, 2015, the Company acquired significant working interests from the Bend Arch Lion 1A Joint Venture and the Bend Arch Lion 1B Joint Venture encompassing a total production of seven (7) producing oil and gas wells on a total 380 acres out of 777 acres of the Bend Arch Lion project showing proven recoverable reserves of approximately 429.48 Mbbl and 353.78 MMcf. To date, the Company, together with its affiliated operator; International Western Oil Corporation (IWO), have completed drilling an additional three (3) oil and gas wells, thus totaling ten (10) gross wells in production. It is noted that the Bend Arch Lion 1A and 1B Joint Ventures are parts of the total 777-acre leaseholds that have not been fully explored. Currently, IWO holds approximately 2,400 acres in leaseholds in the Central West Texas region. The Company plans to acquire additional leaseholds from IWO in the future.
The Company is continually seeking strategic investors to help it develop additional exploration projects located within the Bend Arch-Fort Worth Basin as well as other prime acquisition targets in the Central West, South and East Texas. As such, the Company is working on obtaining enough funding to provide a budget for new acquisitions in the remaining calendar year of 2016 as well as new exploration projects in 2017 to meet its financial objectives during the fiscal year ending February 28, 2017.
Business Strategy
We are an E&P (Exploration & Production) oil and natural gas company that focuses on the acquisition, development, and exploration of crude oil and natural gas properties in Texas. The Company is currently managed by business and oil and gas exploration veterans who specialize in the oil and gas acquisition and exploration markets of the Central West Texas region. The Company’s goal is to tap into the high potential leases of the Central West Texas region of the United States, aiming to unlock its potential, specifically in the prolific Bend Arch-Forth Worth region. This area is approximately 120 miles long and 40 miles wide running from Archer County, Texas in the north to Brown County, Texas in the south. Indeed, it has been one of the most active drilling areas during the recent resurgence of United States drilling activities.
The Company’s Chief Executive Officer, Ross Henry Ramsey, and his family have participated in a number of exploration projects with several major oil and gas companies. Management believes that state-of the-art technology is one of the key differentiators of the Company. Oil and natural gas reserve development is a highly technologically oriented industry. Management believes that the use of leading edge technology has greatly increased the success rate of finding commercial oil or natural gas deposits. In this context, success rate means the ability to make an oil/gas well that can produce a commercialized quantity of hydrocarbons. In general, the Company expects to apply georadiometry exploration technology to determine the drilling locations and the drilling depths as it has applied this technology via its last 10 drilling projects, resulting in 100% success rate so far.
Our core business strategy is to:
(a) acquire petroleum exploration companies with moderate production growth and add capital infusion and advanced technologies to instigate explosive growth;
(b) acquire large-reserve land leases and perform initial explorations on those leases to add value as “proven reserve” properties and then sell them off at multiples of the cost basis;
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(c) acquire mature oil and gas production with large reserves and apply new EOR (Enhanced Oil Recovery) methods to increase production revenues; and
(d) develop more oil and natural gas reserves via leaseholds acquisitions to increase the Company’s valuation.
Our operation strategy is to identify “prime time” hydrocarbon land leases in Texas with in-depth studies and develop proven reserves via drilling new wells and re-entering existing low production wells to maximize production and enhance valuation of our production assets. We also plan to position the Company in the international marketplace as a petroleum expert in the United States to partner up with multinational oil and gas players after establishing our new presence in the Permian Basin of Texas and applying state-of-the-art exploration technology on our new leases.
Based upon Management’s general management and petroleum exploration experience as well as its geology expertise and its ability to identify high potential acreage and high production fields, Management believes that the Company’s near future valuation as a public company is attractive.
Our immediate revenue strategy today is to acquire existing production with large reserves and unlock their full potential by new enhanced oil recovery (“EOR”) methods and drilling new wells to be hand-picked by Management. We are at full speed to acquire and develop more reserves to increase and create enduring value of our company.
Rationale
It is the time for a company like us with no liabilities to take advantage of the current low oil prices to acquire high potential production at low cost. Management believes there are opportunities for profits to be made once oil prices start moving up. Unlike many major oil companies that often drill very deep wells with a high degree of risk, we are a specialist in shallow well exploration (sub 5,000 feet) that is less expensive and has lower risk factors. That is our most important exploration practice.
Management believes our CEO is a true “oil man” who is a local West Texan and has a special talent in acquiring local “prime time” hydrocarbon land leases that have the high potential for hydrocarbon reserves. Management believes that these prospective leases are currently “under the radar” because the wells that can be drilled in these prospective leases will have the capacity to normally produce only up to 100 barrels (“Bbls”) of oil per day per well. As such, Management believes that these highly valuable leases are not economically justifiable for the major oil and gas companies in the region because such companies need the wells they dig to produce at least 300 Bbls of oil per day per well.
The basis for Management’s belief that the wells that can be drilled in the prospective leases will have the capacity to produce a reasonable amount of hydrocarbon and due to our recent studies of the general areas where we are prospecting the projects. We have obtained historic production of certain locations from the Railroad Commission of Texas (“Texas RRC”), the state regulatory agency that regulates the oil and gas industry in Texas. According to information from the Texas RRC and from informational products developed by Drillinginfo, Inc., some oil wells in the Ellenberger pay zone at approximately 4,500 feet to 5,000 feet in depth have produced up to an average of 100 barrels per day at the Initial Production (“IP”) of the primary production stage. Please find below some IP data that lists: bopd (Barrels of Oil per Day) and TD (Total Depth) from neighboring wells in Coleman County. These wells are within 3.5 miles of the location of the Bend Arch Lion project. Despite the historical production of nearby wells, there can be no assurance that the wells that can be drilled in our prospective leases will be productive.
1) J & R Petroleum (RRC# 083-36041): 85 bopd, 250 Mcf/Day – Ellenberger Formation – 4,664 feet TD, drilled in 1981;
2) Hrubetz Oil Co. (RRC# 399-33123): 305 bopd, No Gas – Ellenberger Formation – 4,750 feet TD, drilled in 1983;
3) Hrubetz Oil Co. (RRC# 399-33169): 135 bopd, No Gas – Ellenberger Formation – 5,588 feet TD, drilled in 1983;
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4) Nova Exploration (RRC# 083-34177): 120 bopd, 230 Mcf/Day – Ellenberger Formation – 4,600 feet TD, drilled in 1984;
5) De Prange Oil Co. (RRC# 083-32089): 15 bopd, 1,000 Mcf/Day – Gray Sand Formation – 3,789 feet TD, drilled in 1980; and
6) De Prange Oil Co. (RRC# 083-31929): 17 bopd, 400 Mcf/Day – Gray Sand Formation – 3,760 feet TD drilled in 1980.
The Company has a highly committed international team comprised of a 4th generation “oil man”, an international business executive, and a petroleum expert who will team up with local senior geologists having high credentials and in-depth local experience.
The Company is currently listed on the OTCQB marketplace of OTC Link as an E&P oil and gas company. The Company intends to upgrade to a senior US stock exchange in the future.
Technologies
Management believes that technology is one of the key differentiators of the Company. Oil and natural gas reserve development is a highly technologically oriented industry; many techniques developed by the industry are now used in other industries, including the space program. Management believes that technological innovations have made it possible for the oil and natural gas industry to furnish the fuels that power the world economy. Management also believes that technology has greatly increased the success rate of finding commercial oil or natural gas deposits. In this context, success rate means the ability to make an oil/gas well that can produce a commercialized quantity of hydrocarbon. According to the website of the hydrocarbon imaging company we hired, www.hydrocarbonimaging.com, the georadiometry exploration technology that the Company will be using provides a radiometric imaging service that rivals conventional seismic and downhole logging via a surface survey of the “radiation footprint” of a given area of geography. This technology goes beyond conventional techniques in both arenas of cost and reserve identification. In general, the Company expects to apply the following technologies to determine the drilling locations and the drilling depths.
Georadiometry
The use of 3-D Hydrocarbon Imaging brought georadiometric technology into the cutting edge of identifying and quantifying oil reservoirs and reserves with sophisticated field equipment and software integration abilities that aided explorers in locating oil and gas leasehold reserves. All specific drilling recommendations and opinions are based upon the technical results of inferences from global positioning satellites, electrical, and gamma ray devices and calibrated measurements based on georadiometric technology. 3-D Hydrocarbon Imaging rivals conventional seismic and downhole logging for reserve identification. This technology goes beyond conventional techniques in both arenas of cost and reserve identification and has been leveraged to meet the needs of the industry. 3-D Hydrocarbon Imaging has taken historical radiometric technology to a more complete and reliable level today. Historical documentation of radiometric’s success ratio and interpretation average above 90% in its accuracy. To date, this radiometry technology has demonstrated that it has clearly improved on this with its thoroughness in gathering field data and applying its sophisticated computer modeling and interpretation.
Hydrocarbon Satellite Imaging
Hydrocarbon survey maps are generated from several data sources downloaded from scientific instruments installed on Earth orbit satellites. These instruments are designed to retrieve physical data from outer space as well as from the Earth. Instruments installed on the satellites include, for our use, Radar, Infrared (Temperature), Radiation (Radiometrics), Dialectic Potential (Tellurics), Ionization, and Geo-Magnetics. These data sets are stacked and embedded into each data stream that result in the final map interpretation. All of these exploration techniques can be done separately with land based tools but with the use of satellites it is possible to cover much larger areas more economically.
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Directional Drilling
Drilling technology has come a long way over the years. Among the most recent advancements in drilling are Rotary Steerable tools which allow three dimensional control of the bit without stopping the drill string. One of the benefits of this technology is increasing the exposed section throughout the target reservoir by drilling through it at an angle. Directional drilling also allows drilling into reservoirs where vertical access is difficult or not possible; for instance, an oilfield under a town, lake, or hard to drill through formation.
Fracturing Technology
Fracturing technology allows the industry to get more oil or natural gas out of each deposit that it finds. Newer stimulation technologies, completion treatment fluids, and enhanced recovery techniques enable the oil or natural gas to move more easily to producing well bores. Hydraulic fracturing techniques create small cracks from the well bore into the reservoir rock. A “propant” (usually sand), is then pumped into the formation to keep the fractures open. These fractures serve as a “highway” for the hydrocarbons to be produced. Horizontal-drilling technologies allow the reservoir to be penetrated horizontally rather than vertically, opening more of the reservoir to the well bore and enhancing recovery. “Acidizing”, is another stimulation technique that is frequently used in carbonate (limestone, dolomite) reservoirs to increase porosity, permeability and to enhance recovery. Sometimes the techniques of fracturing and acidizing are combined in an “acid-frac job” resulting in increased production. Secondary and tertiary recovery techniques can include “water flood” which utilizes water injection wells to push oil from partially depleted reservoirs to recovery wells. CO2 injection wells pressure up the depleted reservoir for the same purpose of increasing production.
At IWP, we have a passion for Geoscience while understanding complex mineralogy in shale reservoirs and better determining zones prone to fracture stimulation. This technology knows where to frack by providing us with rapid loads of massive data while delivering game changing levels of collaboration: multi-well, multi-user and multi interpreter. Our field engineers, geologists and petrophysicists work together for better drilling decisions.
“Green” Enhanced Oil Recovery (EOR) Technology
With billions of barrels of oil remain untapped around the world, the Company has recently identified a proven EOR technology that has been applied to diverse environments in over 40 oil fields in 4 continents with 92% average increase in mature productions in over 300 well applications. This proprietary technology produces environmentally safe, consistent and repeatable results, thus increasing cash flow, oil reserves, and property value.
Reservoir Estimate
The Company acquired the working interests of the 2 production joint ventures in the Bend Arch-Fort Worth region of Texas. The Bend Arch is a prolific structure that, Management believes, still contains a vast amount of commercial hydrocarbons. This structure has yielded a large amount of commercial revenue from hydrocarbon recovery for over 80 years. Management believes that a study of the history of prospecting for oil and gas in the Bend Arch reveals that a treasure trove of oil and gas reserves still exist because, Management believes, early oilmen often failed to use a methodical approach or a calculated drilling program to fully find and develop many of the fields that exist in the Bend Arch.
Historically speaking, in 1917, discovery of the Ranger field stimulated, Management believes, one of the largest exploration and development “booms” in Texas. The Ranger field produces oil from the Atoka-Bend formation, a sandstone-conglomerate reservoir that directly overlies the Barnett formation. Operators drilled more than 1,000 wildcat wells in and around the Fort Worth basin attempting to duplicate the success of Ranger. These wildcat efforts resulted in the discovery of more fields and production from numerous other reservoirs including Strawn fluvial/deltaic sandstone, Atoka-Bend fluvial/deltaic sandstone and conglomerate, Marble Falls carbonate bank limestone, Barnett siliceous shale, and Ellenberger dolomitic limestone.
One of the major leases we are looking at lies on the western edge of Coleman County. This is on the western dip of the Bend Arch as it starts to dip westerly and extend until it merges with the Permian Basin. Management believes that prolific oil and gas revenues have been generated on this western flank of the Arch because of the many folds, anticlines, and strategic traps that are present. Early drilled wells showed both oil and gas in commercial quantities. However, encountering gas before reaching the oil bearing zone resulted, Management believes, in many wells being abandoned because historical data shows that the price of gas per MCF only reached $1.00/MCF in 1980.
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Historical well data for Coleman County, Texas as well as many drilled and producing wells surrounding our prospective leases show, Management believes, that production has come from as many as 5 different pay-zones on a commercial basis. The 5 pay-zones (Fry, Tannehill, Strawn Sands (consisting of Gray, Gardner, and 2 other consolidated sands), Caddo, and Ellenberger) are dispersed on the western flank of the Arch and are present in our prospective leases.
The Bend Arch region has a history of wells producing oil and gas for 40 to 60 years at, Management believes, an attractive commercial rate in primary production mode, secondary recovery mode, and even tertiary recovery mode with, Management believes, time on our side which means modern technology will become more advanced in the future.
Oil and Gas Market Outlook
According to an April 2016 press release discussing the consulting firm Frost & Sullivan’s release of a report entitled, 2016 Global Outlook of the Oil and Gas Industry, “the decline in the oil price is causing hardships for some exploration companies, but will increase opportunities for those with the financial resources to acquire value assets that become available.”
(The below is a summary of Portions of “The Outlook for Energy: A View to 2040 – Highlights”
http://www.exxonmobil.com/MENA-English/PA/Files/English_Energy_Outlook2013_Highlights.pdf)
Global energy demand will be about 35% higher in 2040 compared to 2010, as economic output more than doubles and prosperity expands across a world whose population will grow to nearly 9 billion people. Energy demand growth will slow as economies mature, efficiency gains accelerate and population growth moderates.
In the countries belonging to the Organization for Economic Cooperation and Development (OECD) – including countries in North America and Europe – we see energy use remaining essentially flat, even as these countries achieve economic growth and even higher living standards. In contrast, Non OECD energy demand will grow by 65%. China’s surge in energy demand will extend over the next decade then gradually flatten as its economy matures and energy efficiency improves. Elsewhere, billions of people will be working to advance their living standards – requiring more energy.
Demand for coal will peak and begin a gradual decline, in part because of emerging policies that will seek to curb emissions by imposing a cost on higher-carbon fuels. Use of renewable energies and nuclear power will grow significantly.
Natural gas will grow fast enough to overtake coal for the number-two position behind oil. For both oil and natural gas, an increasing share of global supply will come from unconventional sources such as those produced from shale formations.
Global energy-related carbon dioxide (CO2) emissions will grow slowly, then level off around 2030. In the United States and Europe, where a shift from coal to less carbon-intensive fuels such as natural gas already is under way, emissions will decline through 2040.
In one of the most significant development shown over the Outlook for Energy, advancements in drilling technology will cause natural gas to overtake coal as the No. 2 fuel source by 2040. Oil is projected to remain the No.1 fuel. Oil and gas will supply 60 % of global demand in 2040, up from 55% percent in 2010.
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Sales Strategy
Abilene, Texas is the closest city with oil handling and sales firms. Our sales strategy in relation to spot pricing will be to produce less when the sales price is lower and produce more when the sales price is higher. To maintain the lowest production cost, we will aim to have our inventory be virtually zero. Members of the Ramsey family that are related to our CEO have business relationships with BML and Transport Oil. The Company intends to leverage these business relationships in order to enter into material agreements with BML and Transport Oil so that, as our tier 1 buyers, they can handle pick-up and sales of our crude stock to refineries.
As such, crude oil will be picked up from the leases as needed during the calendar month. At the end of the month the crude total sales will be tallied by lease and the 30-day average of the daily closing of oil will be tabulated. On or about the 25th of the following month the proceeds checks will be issued to the financial parties of record.
Operational Plans
During fiscal year 2017, the Company is actively looking for large-reserve oil and gas concessions and existing production to acquire and continue to raise enough capital via equity financing options to meet its operational goal in fiscal year 2017.
Based on Management’s general management and petroleum exploration experience as well as its geology expertise, the Company believes in its ability to identify high potential acreages and high production fields.
Since the fourth quarter of fiscal year 2015, the Company has reviewed several good acquisition candidates in the West, Permian Basin and South Texas. After identifying any new prospect, additional research and evaluation was carried out using personal contacts, geologists, seismic, satellite hydrocarbon imaging, production data and every available resource to glean information and data in order to make an acquisition decision. Our operational plan after each acquisition is to increase production of the acquired oil and gas properties using state-of-the-art production technologies using a designated budget pre-approved by the Company’s senior management team.
The Company has plans to design a cost effective operating budget for each exploration project associated with an acquisition project and each budget will vary depending on the total depth of drilling and whether it is a new drilling or a re-entry. For each project, the Company plans on hiring selected operators to work under the close supervision of a core team of Company geologists, engineers and scientists.
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The exploration process is a 2-phase process: 1) drilling and testing and 2) well completion. The Company plans on hiring drilling specialists and technical consultants designated to oversee the drilling for each well during the drilling and testing phase. For the well completion process, the Company will hire technical data collectors and cementing operators to ensure the best performance upon perforating the wells at different pay zones based on thorough technical advisory work done by our internal and external geologists before production.
The Company also has an immediate operational plan to apply selective leading edge Enhanced Oil Recovery (“EOR”) technologies from technology vendors to improve existing production after each future acquisition.
To date, the Company has prospected and completed several exploration and acquisition projects:
On May 4, 2015, the Company acquired a 39.5% working interest from International Western Oil Corporation (“IWO”) in the Bend Arch Lion 1A Joint Venture (the Pittard Bend Arch White property encompassing 160 acres – State ID# 21488) (the “1A Venture”) and a 50% working interest in the Bend Arch Lion 1B Joint Venture (the Pittard Bend Arch Red property encompassing 220 acres - State ID# 13121) (the “1B Venture”). By acquiring these working interests, the Company will directly receive the share of working interest revenue (after accounting for applicable taxes, expenses, and landowner royalties) IWO was receiving prior to the acquisitions.
Exploration
The Bend Arch Lion Project is a multi-well exploration opportunity that includes several drilling programs. In May 2015, the Company acquired significant working interests from two drilling joint venture programs as described in more detail below. Management believes this is the first achievement of our core business as the result of our in-depth studies showing high quality proven reserves in several pay zones highlighted by the “Gray Sand” pay zone and in some instances the “Ellenberger” pay zone.
The Bend Arch Tiger Project is multi-well exploration program expanding over 310 acres, also located in the historical Bend Arch/Ft. Worth Basin. The Bend Arch Tiger Project targets the Ellenburger formation expanding over 310 acres, also located in the historical Bend Arch/Ft. Worth Basin. This project has is an infield drilling package aimed at 4,700 feet highlighted by the Ellenburger and Jennings Sand pay zones as well as many others. At the present time, this project is under a very extensive study for horizontal drilling using a new, proprietary exploration technology that, management believes, can offer a substantial increase from the normal production in this field. Currently, there are producers drilled in 1983 with a very low and stable decline curve. IWP has access to injection well from this leasehold for the Bend Arch Lion 1A JV and has identified initial drilling locations to date.
Completed Acquisitions
The Bend Arch Lion 1A JV is a 160-acre leasehold having 4 producing wells which have been drilled by our Texas-based operating partner International Western Oil. In May 2015, the Company acquired working interests of this leasehold which has been surveyed with high quality proven reserves encompassing several pay zones highlighted by the Gray Sand and in some instances the Ellenburger pay zone. The Company plans to apply a suitable EOR technology after further review in in order to increase its production. Based on our recent studies, there are the necessary inclusionary and sedimentary formations for hydrocarbon generation and deposits and geology studies have concluded that there are significant hydrocarbon reserves present on this property. With additional geology studies, we have also identified additional drilling locations on this concession.
The Bend Arch Lion 1B JV is a 220-acre leasehold having 6 new producing wells which have been drilled by our Texas-based operating partner International Western Oil. In May 2015, the Company acquired working interests of this leasehold which has been surveyed with high quality proven reserves encompassing several pay zones highlighted by the Gray Sand and in some instances the Ellenburger pay zone. At the moment, the leasehold has 3 producing wells coming from the Gray Sand formation and 3 producing wells coming from the Ellenberger formation. The Company plans to apply a suitable EOR technology on the Ellenburger formation to significantly increase its production in the second quarter of fiscal year 2017. Based on our recent studies, there are the necessary inclusionary and sedimentary formations for hydrocarbon generation and deposits and geology studies have concluded that there are significant hydrocarbon reserves present on this property. With additional geology studies, we have also identified additional drilling locations on this concession.
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As of February 29, 2016, the 1A Venture property had four (4) gross oil and gas wells (1.58 net wells). The initial production of this property started in April 2014.
As of February 29, 2016, the 1B Venture property had six (6) gross oil and gas wells (3 net wells). The initial production of this property started in March 2015.
The data below is based on the SEC Non-Escalated Analysis of Estimated Proved Reserve of the Bend Arch Lion 1A and Bend Arch Lion 1B leaseholds in which the Company has certain interests. As of March 1, 2016, this evaluation report was prepared by an independent third party Ralph E. Davis Associates LLC, an Opportune Company which is a SEC-qualified reservoir engineering firm based in Houston, Texas.
Estimated Proved Reserves
Net to International Western Petroleum, Inc.
SEC Non-Escalates Analysis
As of March 1, 2016
| Proved | ||||||||||||||||
| Producing | Behind Pipe | Undeveloped | Total | |||||||||||||
| Net Reserves | ||||||||||||||||
| Oil/ condensate - MBbls | 12.15 | 54.32 | 75.68 | 142.15 | ||||||||||||
| Gas - MMCF | 38.62 | 13.58 | 62.75 | 114.95 | ||||||||||||
| Income Data (in thousands) | ||||||||||||||||
| Future gross revenue | $ | 581.83 | $ | 2,353.74 | $ | 3,347.75 | $ | 6,283.32 | ||||||||
| Ad valorem taxes | $ | 14.55 | $ | 58.84 | $ | 83.69 | $ | 157.08 | ||||||||
| Severance taxes | $ | 28.58 | $ | 108.89 | $ | 156.84 | $ | 294.31 | ||||||||
| Operating costs | $ | 228.48 | $ | 208.14 | $ | 357.60 | $ | 794.22 | ||||||||
| Capital costs | $ | - | $ | 164.16 | $ | 947.57 | $ | 1,111.73 | ||||||||
| Undiscounted cash flows | $ | 310.22 | $ | 1,813.71 | $ | 1,802.05 | $ | 3,925.99 | ||||||||
| Discounted cash flows at 10% | $ | 259.60 | $ | 1,126.97 | $ | 982.10 | $ | 2,368.67 | ||||||||
The unit prices used throughout this report for crude oil, condensate, and natural gas are based upon the appropriate prices in effect the first trading day of each month from March 2015 through February 2016 and averaged for the year.
These acquisitions are described in more detail below, under “Item 13. Certain Relationships and Related Transactions, and Director Independence”.
International Western Petroleum Corporation (“IWPO”), for which our management serves in similar positions and for which is majority owned by the CEO and Chairman of the Company, has a wholly-owned subsidiary and separate entity called International Western Oil Corporation (“IWO”). Our management also serves in the same positions with IWO. IWO is licensed by the Texas RRC as an operator and has been feeding data and has been serving as a consultant related to exploration and acquisition activity to us with regard to the Bend Arch Lion, Bend Arch Tiger, and other projects. IWPO does not engage in any business activities beyond serving as IWO’s parent. IWO is IWPO’s operating company. IWO serves as a Texas-licensed oil and gas operator and on-site consultant for the Company to provide the Company with operation support, Texas RRC regulation compliance, full geology reports, on-site survey work, initial reserve analysis and additional geology consulting work on an as-needed basis. IWP pays IWO a monthly operator fee $27,600.
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Acquisition Candidates
The Company has recently identified a few acquisition opportunities in the following regions:
West Texas: 7,000-acre leaseholds having 101 wellbores approximately 4,900 ft. deep producing 84 bopd and 1,100 Mcfpd.
Permian Basin: 840-acre leaseholds of Sprayberry formation targeting 1,500 bopd and 500 Mcfpd with offset wells from ConocoPhillips, Marathon Oil and Devon Energy.
South Texas: 2,100-acre leaseholds having 775 MBbls of proven reserves including 34 wellbores producing 72 bopd with new drilling opportunities.
Texas Gulf Coast: 73,100-acre leaseholds with daily production of 15,700 Mcfpd and 122 bopd current production, or $1.9 million net income per month current production at current prices.
Intellectual Property
The Company possesses proprietary fracturing and completion methodology for sub-5000 ft wells within the Ellenburger formation but has not yet filed any patent application with the U.S. PTO.
Employees
We presently have five individuals performing services for the Company, who we consider employees and not independent contractors: Ross Henry Ramsey, our Chief Executive Officer, President, and Chief Financial Officer; Benjamin Tran, our Chairman and Secretary; Steve Phu, our Executive Vice President; Jeff Phu, our Vice President of International Relations; and Tony Vu, our Vice President of Business Development.
During the year ended on February 29, 2016, the Company did not pay these five employees.
Mr. Ramsey devotes approximately 50 hours per week to our affairs and approximately 10 hours per week in total to the affairs of IWPO and IWO. Mr. Ramsey serves as Chief Executive Officer and President of both IWPO and IWO. Mr. Ramsey dedicated 100% of his time to the Company during fiscal year ending February 29, 2016.
Mr. Tran devotes approximately 40 hours per week to our affairs and approximately 10 hours per week in total to the affairs of IWPO and IWO. Mr. Tran serves as Secretary and Director of both IWPO and IWO. Mr. Tran dedicated 100% of his time to the Company during fiscal year ending February 29, 2016.
Mr. Steve Phu, Mr. Jeff Phu and Mr. Tony Vu, each devotes approximately 8 hours per week to our business and corporate development affairs. They are part-time employees.
Dr. Syed Ahmad is our consulting Chief Geologist who is devoted to our core projects on an as-needed basis. We plan to convert his working status to a full time employee upon achieving our immediate financial goals.
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RISK FACTORS
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below, together with all of the other information included in this annual report, before making an investment decision. If any of the following risks actually occurs, our business, financial condition or results of operations could suffer. In that case, the trading price of our shares of common stock could decline, and you may lose all or part of your investment. You should read the section entitled “Cautionary Note Regarding Forward-Looking Statements” for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this annual report.
Risks Related to Our Business
LIMITED OPERATING HISTORY
The Company was formed on February 19, 2014. Prior to that time, the Company had no operations upon which an evaluation of the Company and its prospects could be based. Exploration stage companies, such as the Company, even those already having acquisition candidates, are subject to all of the risks inherent in the establishment of any new business. Our financial viability is dependent upon raising funds and successfully executing our business plan. The likelihood of our success must be considered in the light of the challenges, both expected and unexpected, frequently encountered in connection with starting and expanding a new business. Accordingly, we are planning to align our primarily fixed expense levels with our expectation of future revenues. As a result, we may be unable to adjust spending in a timely manner to compensate for unexpected shortfalls in any forthcoming revenue. Any such shortfalls will have an immediate adverse impact on our operating results and financial condition which could cause investors to lose all or a substantial part of their investment.
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS EXPRESSED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.
The audited financial statements included in this Form 10-K have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result if we cease to continue as a going concern. We have incurred significant losses since our inception. We are an early stage company that has not yet started generating revenue.
There can be no assurance that we will have adequate capital resources to fund planned operations or that any additional funds will be available to us when needed or at all, or, if available, will be available on favorable terms or in amounts required by us. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back or eliminate some or all of our operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.
AS WE CONTINUE TO DEVELOP OUR OPERATIONS, WE WILL NEED SUBSTANTIAL CAPITAL TO FUND OUR OPERATIONS, AND IF WE ARE NOT ABLE TO OBTAIN SUFFICIENT CAPITAL, WE MAY BE FORCED TO LIMIT THE SCOPE OF OUR OPERATIONS.
The Company currently has a working interest in wells and acreage. As we continue to develop and expand our operations, we will need to make substantial capital expenditures for the acquisition of petroleum exploration companies, hydrocarbon land leases, and existing oil and gas production with large reserves, and for drilling new wells and re-entering existing low production wells. We intend to finance our capital expenditures primarily through our cash flows from operations, bank borrowings, and public and private equity and debt offerings. Lower crude oil and natural gas prices, however, would reduce our cash flows. In addition, new equity or convertible debt securities issued by us to obtain financing could have rights, preferences and privileges senior to the shares being offered for resale by the selling security holders.
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Further, if the condition of the credit and capital markets materially declines, we might not be able to obtain financing on terms we consider acceptable, if at all. Our capital needs will depend on numerous factors, including (i) our profitability; (ii) the development of similar services undertaken by our competition; and (iii) the amount of our capital expenditures. We cannot assure you that we will be able to obtain capital in the future to meet our needs. If we cannot obtain financing, we may be required to limit our expansion and decrease or eliminate capital expenditures. Such reductions could materially adversely affect our business and our ability to compete.
In addition, weakness and/or volatility in domestic and global financial markets or economic conditions may increase the interest rates that lenders require us to pay and adversely affect our ability to finance our capital expenditures through equity or debt offerings or other borrowings. A reduction in our cash flows (for example, as a result of lower crude oil and natural gas prices) and the corresponding adverse effect on our financial condition and results of operations may also increase the interest rates that lenders require us to pay. In addition, a substantial increase in interest rates would decrease our net cash flows available for reinvestment. Any of these factors could have a material and adverse effect on our business, financial condition and results of operations.
The oil and gas business is characterized by high fixed costs resulting from the significant capital outlays associated with the acquisition, development, and exploration of crude oil and natural gas properties. We are dependent on the production and sale of quantities of crude oil at product margins sufficient to cover operating costs, including any increases in costs resulting from future inflationary pressures or market conditions and increases in costs of fuel and power necessary in operating our facilities. Furthermore, future major capital investment, various environmental compliance related projects, regulatory requirements, or competitive pressures could result in additional capital expenditures, which may not produce a return on investment. Such capital expenditures may require significant financial resources that may be contingent on our access to capital markets and commercial bank loans. Additionally, other matters, such as regulatory requirements or legal actions, may restrict our access to funds for capital expenditures
Our ability to generate operating cash flow is subject to many of the risks and uncertainties that exist in our industry, some of which we may not be able to anticipate at this time. Future cash flows from operations are subject to a number of risks and variables, such as the level of production from existing wells, prices of natural gas and oil, our success in developing and producing new reserves and the other risk factors discussed herein. Our ability to obtain capital from other sources, such as the capital markets, other financing and asset sales, is dependent upon many of those same factors as well as the orderly functioning of credit and capital markets. If such proceeds are inadequate to fund our planned spending, we would be required to reduce our capital spending, seek to sell different or additional assets or pursue other funding alternatives, and we could have a reduced ability to replace our reserves and increase liquids production.
In recent years, the securities markets in the United States have experienced a high level of price and volume volatility, and the market price of securities of many companies have experienced wide fluctuations that have not necessarily been related to the operations, performances, underlying asset values or prospects of such companies. For these reasons, our Common Stock can also be expected to be subject to volatility resulting from purely market forces over which we will have no control.
YOU WILL EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST BECAUSE OF THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK AND OUR PREFERRED STOCK.
If we raise additional capital subsequent to this offering through the issuance of equity or convertible debt securities, the percentage ownership of our company held by existing shareholders will be reduced and those shareholders may experience significant dilution. In addition, we may also have to issue securities that may have rights, preferences and privileges senior to our Common Stock. In the event we seek to raise additional capital through the issuance of debt or its equivalents, this will result in increased interest expense.
WE WILL BE DEPENDENT UPON KEY PERSONNEL FOR THE FORESEEABLE FUTURE.
Given our early stage of development, we are highly dependent on our executive officers, employees, and contractors. Although we believe that we will be able to identify, engage and motivate qualified personnel, an inability to do so could adversely affect our ability to market, sell, and develop our products and services. Any difficulty to attracting and retaining key people could have an adverse effect on our business.
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SIGNIFICANT ADVERSE IMPACT TO OUR CAPITAL RESERVE OF ANY LIABLE UNINSURED CLAIM
We do not have any insurance to cover potential risks and liabilities, including, but not limited to, injuries or economic losses arising out of or relating to our omission or errors in providing our services. Even if we decide to obtain insurance coverage in the future, it is possible that: (1) we may not be able to get enough insurance to meet our needs; (2) we may have to pay very high premiums for the additional coverage; (3) we may not be able to acquire any insurance for certain types of business risk; or (4) we may have gaps in coverage for certain risks. We may be exposed to potential uninsured claims for which we could have to expend significant amounts of capital. Consequently, if we were found liable for a significant uninsured claim in the future, we may be forced to expend a significant amount of our capital to resolve the uninsured claim.
UNCERTAINTY OF PROFITABILITY
Our business model requires significant investment in acquisitions and explorations, and, if and to the extent our business grows, we will need to hire new employees. Specifically, our profitability will depend upon our success at accomplishing the following tasks:
| ● | implementing and executing our business model; | |
| ● | establishing name recognition and a reputation for value with domestic and worldwide investors and partners; | |
| ● | implementing results-oriented explorations, domestic and worldwide distribution and sales strategies; and | |
| ● | developing sound business relationships with key strategic partners, and hiring and retaining skilled employees. |
Additionally, our revenues and operating results may vary significantly from quarter-to-quarter due to a number of factors, including:
| ● | economic conditions generally, as well as those specific to the oil and gas industry; | |
| ● | our ability to manage relationships with industry and distribution partners to sell our production; | |
| ● | our ability to access capital as needed, on terms which are fair and reasonable to the Company; | |
| ● | our ability to successfully to produce high quality oil, and get that product to buyers in the intended manner; and | |
| ● | the ability of third-party vendors to manage their procurement and delivery operations. |
MANAGEMENT OF GROWTH
Successful expansion of our business will depend on our ability to effectively attract and manage staff, strategic business relationships, and shareholders. Specifically, we will need to hire skilled management and technical personnel as well as manage partnerships to navigate shifts in the general economic environment as well as in our target geographic exploration locations. Expansion has the potential to place significant strains on financial, management, and operational resources, yet failure to expand will inhibit our profitability goals.
WE ARE ENTERING A POTENTIALLY HIGHLY COMPETITIVE MARKET
We may face substantial competition in the oil and gas industry. To Management’s knowledge, there are many exploration companies in the oil and gas industry which will compete directly with us. There are many large, well-capitalized, private and public companies in this industry, which have the resources, lease access, loyal buyers and expertise to drill and produce oil if they wish to do so. Many of our existing and potential competitors have substantially greater financial, technical and marketing resources than we do. These competitors may be able to adopt more aggressive pricing policies. This type of pricing pressure could force us to offer discounts, decreasing our profit margin.
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CONFLICTS OF INTEREST
The Company’s principal executive officers and Directors also control a majority of the outstanding shares of the Company’s stock, and will continue to do so for the foreseeable future. As a result, no other persons can or will be able to effect any Company action except with the consent of these officers and directors, and in certain matters (such as compensation, incentive stock ownership, and continues employment), there may be an inherent conflict of interest unless such persons agree to abstain from voting on such matters, which they are not legally required to do. Our officers and directors may also serve as officers and directors of other entities that are not affiliated with us. Such non-affiliates may be involved in similar business enterprises to ours.
WE MAY INCUR SIGNIFICANT COSTS TO BE A PUBLIC COMPANY TO ENSURE COMPLIANCE WITH U.S. CORPORATE GOVERNANCE AND ACCOUNTING REQUIREMENTS AND WE MAY NOT BE ABLE TO ABSORB SUCH COSTS.
We may incur significant costs associated with our public company reporting requirements, costs associated with newly applicable corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002 and other rules implemented by the Securities and Exchange Commission. We expect these costs to be approximately $25,000 per year. We expect all of these applicable rules and regulations to significantly increase our legal and financial compliance costs and to make some activities more time consuming and costly. We also expect that these applicable rules and regulations may make it more difficult and more expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified individuals to serve on our board of directors or as executive officers. We are currently evaluating and monitoring developments with respect to these newly applicable rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs. In addition, we may not be able to absorb these costs of being a public company which will negatively affect our business operations.
WE ARE AN “EMERGING GROWTH COMPANY,” AND ANY DECISION ON OUR PART TO COMPLY ONLY WITH CERTAIN REDUCED DISCLOSURE REQUIREMENTS APPLICABLE TO “EMERGING GROWTH COMPANIES” COULD MAKE OUR COMMON STOCK LESS ATTRACTIVE TO INVESTORS.
We are an “emerging growth company,” as defined in the JOBS Act, and, for as long as we continue to be an “emerging growth company,” we expect and fully intend to take advantage of exemptions from various reporting requirements applicable to other public companies but not to “emerging growth companies,” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an “emerging growth company” for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) 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 that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.
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 opt in to the extended transition period for complying with the revised accounting standards. We have elected to rely on these exemptions and reduced disclosure requirements applicable to “emerging growth companies” and expect to continue to do so.
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WE MAY NOT BE ABLE TO MEET THE ACCELERATED FILING AND INTERNAL CONTROL REPORTING REQUIREMENTS IMPOSED BY THE SEC WHICH MAY RESULT IN A DECLINE IN THE PRICE OF OUR SHARES OF COMMON STOCK AND AN INABILITY TO OBTAIN FUTURE FINANCING.
As directed by Section 404 of the Sarbanes-Oxley Act, as amended by SEC Release No. 33-8934 on June 26, 2008, the SEC adopted rules requiring each public company to include a report of management on the company’s internal controls over financial reporting in its annual reports. In addition, the independent registered public accounting firm auditing a company’s financial statements must also attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting as well as the operating effectiveness of the company’s internal controls. We will be required to include a report of management on its internal control over financial reporting. The internal control report must include a statement
| ● | Of management’s responsibility for establishing and maintaining adequate internal control over its financial reporting; | |
| ● | Of management’s assessment of the effectiveness of its internal control over financial reporting as of year-end; and | |
| ● | Of the framework used by management to evaluate the effectiveness of our internal control over financial reporting. |
Furthermore, our independent registered public accounting firm will be required to file its attestation report separately on our internal control over financial reporting on whether it believes that we have maintained, in all material respects, effective internal control over financial reporting.
While we expect to expend significant resources in developing the necessary documentation and testing procedures required by Section 404 of the Sarbanes-Oxley Act, there is a risk that we may not be able to comply timely with all of the requirements imposed by this rule. In the event that we are unable to receive a positive attestation from our independent registered public accounting firm with respect to our internal controls, investors and others may lose confidence in the reliability of our financial statements and our stock price and ability to obtain equity or debt financing as needed could suffer.
In addition, in the event that our independent registered public accounting firm is unable to rely on our internal controls in connection with its audit of our financial statements, and in the further event that it is unable to devise alternative procedures in order to satisfy itself as to the material accuracy of our financial statements and related disclosures, it is possible that we would be unable to file our Annual Report on Form 10-K with the SEC, which could also adversely affect the market price of our Common Stock and our ability to secure additional financing as needed.
THE JOBS ACT ALLOWS US TO DELAY THE ADOPTION OF NEW OR REVISED ACCOUNTING STANDARDS THAT HAVE DIFFERENT EFFECTIVE DATES FOR PUBLIC AND PRIVATE COMPANIES.
Since we have elected to use the extended transition period for complying with new or revised accounting standards under Section 102(b)(1) of the JOBS Act, this election allows us to delay the adoption of new or revised accounting standards that have different effective dates for public and private companies 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.
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OUR SHARES OF COMMON STOCK WILL NOT BE REGISTERED UNDER THE EXCHANGE ACT AND AS A RESULT WE WILL HAVE LIMITED REPORTING DUTIES WHICH COULD MAKE OUR COMMON STOCK LESS ATTRACTIVE TO INVESTORS.
Our shares of Common Stock are not registered under the Exchange Act. As a result, we will not be subject to the federal proxy rules and our directors, executive officers and 10% beneficial holders will not be subject to Section 16 of the Exchange Act. In additional our reporting obligations under Section 15(d) of the Exchange Act may be suspended automatically if we have fewer than 300 shareholders of record on the first day of our fiscal year. Our common shares are not registered under the Securities Exchange Act of 1934, as amended, and we do not intend to register our shares of Common Stock under the Exchange Act for the foreseeable future, provided that, we will register our shares of Common Stock under the Exchange Act if we have, after the last day of our fiscal year, more than either (i) 2000 persons; or (ii) 500 shareholders of record who are not accredited investors, in accordance with Section 12(g) of the Exchange Act. As a result, although, upon the effectiveness of the Registration Statement of which this prospectus forms a part, we will be required to file annual, quarterly, and current reports pursuant to Section 15(d) of the Exchange Act, as long as our shares of Common Stock are not registered under the Exchange Act, we will not be subject to Section 14 of the Exchange Act, which, among other things, prohibits companies that have securities registered under the Exchange Act from soliciting proxies or consents from shareholders without furnishing to shareholders and filing with the Securities and Exchange Commission a proxy statement and form of proxy complying with the proxy rules. In addition, so long as our shares of Common Stock are not registered under the Exchange Act, our directors and executive officers and beneficial holders of 10% or more of our outstanding shares of Common Stock will not be subject to Section 16 of the Exchange Act. Section 16(a) of the Exchange Act requires executive officers and directs, and persons who beneficially own more than 10% of a registered class of equity securities to file with the SEC initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of shares of Common Stock and other equity securities, on Forms 3, 4 and 5, respectively. Such information about our directors, executive officers, and beneficial holders will only be available through this (and any subsequent) Registration Statement, and periodic reports we file thereunder. Furthermore, so long as our shares of Common Stock are not registered under the Exchange Act, our obligation to file reports under Section 15(d) of the Exchange Act will be automatically suspended if, on the first day of any fiscal year (other than a fiscal year in which a registration statement under the Securities Act has gone effective), we have fewer than 300 shareholders of record. This suspension is automatic and does not require any filing with the SEC. In such an event, we may cease providing periodic reports and current or periodic information, including operational and financial information, may not be available with respect to our results of operations.
BECAUSE OUR COMMON STOCK IS NOT REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, OUR REPORTING OBLIGATIONS UNDER SECTION 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, MAY BE SUSPENDED AUTOMATICALLY IF WE HAVE FEWER THAN 300 SHAREHOLDERS OF RECORD ON THE FIRST DAY OF OUR FISCAL YEAR.
Our Common Stock is not registered under the Exchange Act, and we do not intend to register our Common Stock under the Exchange Act for the foreseeable future (provided that, we will register our Common Stock under the Exchange Act if we have, after the last day of our fiscal year, $10,000,000 in total assets and either more than 2,000 shareholders of record or 500 shareholders of record who are not accredited investors (as such term is defined by the Securities and Exchange Commission), in accordance with Section 12(g) of the Exchange Act). As long as our Common Stock is not registered under the Exchange Act, our obligation to file reports under Section 15(d) of the Exchange Act will be automatically suspended if, on the first day of any fiscal year (other than a fiscal year in which a registration statement under the Securities Act has gone effective), we have fewer than 300 shareholders of record. This suspension is automatic and does not require any filing with the SEC. In such an event, we may cease providing periodic reports and current or periodic information, including operational and financial information, may not be available with respect to our results of operations.
OUR ARTICLES OF INCORPORATION PROVIDE FOR INDEMNIFICATION OF OFFICERS AND DIRECTORS AT OUR EXPENSE AND LIMIT THEIR LIABILITY WHICH MAY RESULT IN A MAJOR COST TO US AND HURT THE INTERESTS OF OUR SHAREHOLDERS BECAUSE CORPORATE RESOURCES MAY BE EXPENDED FOR THE BENEFIT OF OFFICERS AND/OR DIRECTORS.
The Company’s Certificate of Incorporation and By-Laws include provisions that eliminate the personal liability of the directors of the Company for monetary damages to the fullest extent possible under the laws of the State of Nevada or other applicable law. These provisions eliminate the liability of directors to the Company and its stockholders for monetary damages arising out of any violation of a director of his fiduciary duty of due care. Under Nevada law, however, such provisions do not eliminate the personal liability of a director for (i) breach of the director’s duty of loyalty, (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law, (iii) payment of dividends or repurchases of stock other than from lawfully available funds, or (iv) any transaction from which the director derived an improper benefit. These provisions do not affect a director’s liabilities under the federal securities laws or the recovery of damages by third parties.
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REPORTING REQUIREMENTS UNDER THE EXCHANGE ACT AND COMPLIANCE WITH THE SARBANES-OXLEY ACT OF 2002, INCLUDING ESTABLISHING AND MAINTAINING ACCEPTABLE INTERNAL CONTROLS OVER FINANCIAL REPORTING, ARE COSTLY AND MAY INCREASE SUBSTANTIALLY.
The rules and regulations of the SEC require a public company to prepare and file periodic reports under the Exchange Act, which will require that the Company engage legal, accounting, auditing and other professional services. The engagement of such services is costly. Additionally, the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) requires, among other things, that we design, implement and maintain adequate internal controls and procedures over financial reporting. The costs of complying with the Sarbanes-Oxley Act and the limited technically qualified personnel we have may make it difficult for us to design, implement and maintain adequate internal controls over financial reporting. In the event that we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls, we may not be able to produce reliable financial reports or report fraud, which may harm our overall financial condition and result in loss of investor confidence and a decline in our share price.
As a public company, we will be subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act of 2010 and other applicable securities rules and regulations. Despite recent reforms made possible by the JOBS Act, compliance with these rules and regulations will nonetheless increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an “emerging growth company.” The Exchange Act requires, among other things, that we file annual, quarterly, and current reports with respect to our business and operating results.
We are working with our legal, accounting and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as a public company. These areas include corporate governance, corporate control, disclosure controls and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas. However, we anticipate that the expenses that will be required in order to adequately prepare for being a public company could be material. We estimate that the aggregate cost of increased legal services; accounting and audit functions; personnel, such as a chief financial officer familiar with the obligations of public company reporting; consultants to design and implement internal controls; and financial printing alone will be a few hundred thousand dollars per year and could be several hundred thousand dollars per year. In addition, if and when we retain independent directors and/or additional members of senior management, we may incur additional expenses related to director compensation and/or premiums for directors’ and officers’ liability insurance, the costs of which we cannot estimate at this time. We may also incur additional expenses associated with investor relations and similar functions, the cost of which we also cannot estimate at this time. However, these additional expenses individually, or in the aggregate, may also be material.
In addition, being a public company could make it more difficult or more costly for us to obtain certain types of insurance, including directors’ and officers’ liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.
The increased costs associated with operating as a public company may decrease our net income or increase our net loss, and may cause us to reduce costs in other areas of our business or increase the prices of our products or services to offset the effect of such increased costs. Additionally, if these requirements divert our management’s attention from other business concerns, they could have a material adverse effect on our business, financial condition and results of operations.
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THE COMPANY MAY BE SUBJECT TO LITIGATION IN THE FUTURE WHICH COULD IMPACT THE FINANCIAL HEALTH OF THE COMPANY.
Currently there are no legal proceedings pending or threatened against the Company. However, from time to time, we may become involved in various lawsuits and legal proceedings that arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business.
Risks Related to the Exploration Business
AS WE CONTINUE TO DEVELOP OUR OPERATIONS, OUR PRODUCTION REVENUES MAY BE ADVERSELY AFFECTED BY CHANGES IN OIL AND GAS PRICES AND IF WE ARE UNABLE TO BRING NEW OIL WELLS TO PRODUCTION WITH REASONABLE PRODUCTION CAPACITY.
The Company is an early stage company in the oil and gas industry, which now has a working interest in wells and acreage. As we continue to develop our operations, to generate revenues and profits, the Company must own majority interests of new production. The only way for the Company to reach strong stable production capacity is to raise enough capital to help the Company gain control of new working interests in any future production wells. Any significant changes in oil prices or any inability on our part to anticipate or react to such changes could result in reduced revenues and profits and erosion of our competitive and financial position. Our success also depends on our ability to acquire good hydrocarbon production and bringing new oil wells to production with reasonable production capacity. In addition, changes from very shallow well to semi shallow well exploration or geographical exploration locations could result in higher costs of production and higher risks.
AS WE CONTINUE TO DEVELOP OUR OPERATIONS, PRODUCTION REVENUE MAY DECREASE OVER TIME DUE TO A VARIETY OF FACTORS.
As we continue to develop our operations, production revenue may decrease over time due to a variety of factors, including the aging of re-entry wells, changes in hydrocarbon flows, depletion, natural disasters, weather, negative publicity resulting from regulatory action or litigation against companies in our industry, or a downturn in economic conditions or taxes specifically targeting the consumption of oil and gas. Any of these changes may reduce our projected production revenues. Our success is also dependent on our technology innovations and applications, including maintaining production capacity, and the effectiveness of our advertising campaigns, marketing programs and market positioning. Although we will devote significant resources to meeting our revenue goals, there can be no assurance as to our ability either to explore new projects and launch successful new production, or to effectively execute explorations and new acquisitions. In addition, both the launch and ongoing success of new production and acquisitions are inherently uncertain, especially as to their appeal to our investors.
ANY DAMAGE TO OUR REPUTATION COULD HAVE AN ADVERSE EFFECT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Maintaining a good reputation globally is going to be critical to the Company here and abroad. If we fail to maintain high standards for our work ethic and integrity, including with regard to our production results, our reputation could be jeopardized. Adverse publicity about these types of concerns, or the incidence of “dry holes” in exploration or low production wells, whether or not valid, may cause production and delivery disruptions. If any of our production wells becomes depleted for any reason, is mishandled or causes injury, we may be subject to legal liability. A widespread non-commercialized production or a significant depletion could cause our production to be disrupted for a period of time, which could further reduce our revenue and damage our corporate image. Failure to maintain high ethical, social and environmental standards for all of our operations and activities or adverse publicity regarding our responses to health concerns, our environmental impact, including drilling and production materials, energy use and waste management, or other sustainability issues, could jeopardize our reputation. In addition, water is a limited resource in many parts of the world. Our reputation could be damaged if we do not act responsibly with respect to water use of our exploration purposes. Failure to comply with local laws and regulations, to maintain an effective system of internal controls or to provide accurate and timely financial statement information could also hurt our reputation. Damage to our reputation or loss of buyer confidence in our oil production for any of these reasons could result in decreased demand for our products and could have a material adverse effect on our business, financial condition and results of operations, as well as require additional resources to rebuild our reputation.
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AS WE CONTINUE TO DEVELOP OUR OPERATIONS, CHANGES IN THE LEGAL AND REGULATORY ENVIRONMENT COULD LIMIT OUR BUSINESS ACTIVITIES, INCREASE OUR OPERATING COSTS, AND REDUCE DEMAND FOR OUR PRODUCTION OR RESULT IN LITIGATION.
As we continue to develop our operations, we will be subject to various laws and regulations administered by federal, state and local governmental agencies in the United States. These laws and regulations may change, sometimes dramatically, as a result of political, economic or social events. Such regulatory environment changes may include changes in: laws related to advertising and deceptive marketing practices; accounting standards; taxation requirements, including taxes specifically targeting the consumption of our products; anti-trust laws; and environmental laws, including laws relating to the regulation of oil and gas production. Changes in laws, regulations or governmental policy and related interpretations may alter the environment in which we do business and, therefore, may impact our results or increase our costs or liabilities. Governmental entities or agencies in jurisdictions where we plan to operate may also impose new quality or production requirements, or other restrictions. Regulatory authorities under whose laws we operate may also have enforcement powers that can subject us to actions such as product recall, seizure of products or other sanctions, which could have an adverse effect on our sales or damage our reputation.
The Company expects to use hydraulic fracturing in its operations. Hydraulic fracturing is a commonly used process that involves injecting water, sand, and small volumes of chemicals into the wellbore to fracture the hydrocarbon-bearing rock thousands of feet below the surface to facilitate higher flow of hydrocarbons into the wellbore. Various federal legislative and regulatory initiatives have been undertaken which could result in additional requirements or restrictions being imposed on hydraulic fracturing operations. For example, the Department of Interior has issued proposed regulations that would apply to hydraulic fracturing operations on wells that are subject to federal oil and gas leases and that would impose requirements regarding the disclosure of chemicals used in the hydraulic fracturing process as well as requirements to obtain certain federal approvals before proceeding with hydraulic fracturing at a well site. These regulations, if adopted, would establish additional levels of regulation at the federal level that could lead to operational delays and increased operating costs.
The US Congress has considered legislation that would require additional regulation affecting the hydraulic fracturing process. Consideration of new federal regulation and increased state oversight continues to arise. The US Environmental Protection Agency (“EPA”) announced in the first quarter of 2010 its intention to conduct a comprehensive research study on the potential effects that hydraulic fracturing may have on water quality and public health. The EPA issued a final report in June 2014.
At the same time, legislation and/or regulations have been adopted in several states that require additional disclosure regarding chemicals used in the hydraulic fracturing process but that include protections for proprietary information. Legislation and/or regulations are being considered at the state and local level that could impose further chemical disclosure or other regulatory requirements (such as restrictions on the use of certain types of chemicals or prohibitions on hydraulic fracturing operations in certain areas) that could affect our operations. The adoption of any future federal, state, or local laws or implementing regulations imposing reporting obligations on, or limiting or banning, the hydraulic fracturing process could make it more difficult to complete natural gas and oil wells and could have a material adverse effect on our liquidity, consolidated results of operations, and consolidated financial condition.
DISRUPTION OF OUR PROPOSED SUPPLY CHAIN COULD HAVE AN ADVERSE IMPACT ON OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Our ability and the ability of our suppliers, business partners, including drillers, operators, and independent buyers, to make, move and sell our products is critical to our success. Damage or disruption to our or their manufacturing or distribution capabilities due to adverse weather conditions, natural disaster, fire, terrorism, the outbreak or escalation of armed hostilities, pandemics, strikes and other labor disputes or other reasons beyond our or their control, could impair our ability to produce oil. Failure to take adequate steps to mitigate the likelihood or potential impact of such events, or to effectively manage such events if they occur, could adversely affect our business, financial condition and results of operations, as well as require additional resources to restore our supply chain.
| 21 |
AS WE CONTINUE TO DEVELOP OUR OPERATIONS, WE WILL BE SUBJECT TO HAZARDS AND RISKS INHERENT IN THE DRILLING, PRODUCTION, AND TRANSPORTATION OF CRUDE OIL AND NATURAL GAS
As we continue to develop our operations, we will be subject to hazards and risks inherent in the drilling, production, and transportation of crude oil and natural gas, including: i) well blowouts, explosions and cratering, ii) pipeline ruptures and spills, iii) fires, iv) formations with abnormal pressures, v) equipment malfunctions, vi) natural disasters and vii) surface spillage and surface or ground water contamination from petroleum constituents or hydraulic fracturing chemical additives. Failure or loss of equipment, as the result of equipment malfunctions, cyber-attacks, or natural disasters such as hurricanes, could result in property damages, personal injury, environmental pollution and other damages for which we could be liable. Litigation arising from a catastrophic occurrence, such as a well blowout, explosion, or fire at a location where our equipment and services are used, or ground water contamination from hydraulic fracturing chemical additives may result in substantial claims for damages. Ineffective containment of a drilling well blowout or pipeline rupture, or surface spillage and surface or ground water contamination from petroleum constituents or hydraulic fracturing chemical additives could result in extensive environmental pollution and substantial remediation expenses. If a significant amount of our production is interrupted, our containment efforts prove to be ineffective or litigation arises as the result of a catastrophic occurrence, our cash flows, and, in turn, our results of operations could be materially and adversely affected.
Risks Related to Our Common Stock
THERE IS NO ASSURANCE OF A PUBLIC MARKET OR THAT OUR COMMON STOCK WILL EVER TRADE ON A RECOGNIZED EXCHANGE. THEREFORE, YOU MAY BE UNABLE TO LIQUIDATE YOUR INVESTMENT IN OUR STOCK.
There is no established public trading market for our Common Stock and there can be no assurance that one will ever develop. Market liquidity will depend on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. As a result, holders of our securities may not find purchasers for our securities should they to sell securities held by them. Consequently, our securities should be purchased only by investors having no need for liquidity in their investment and who can hold our securities for an indefinite period of time.
WE MAY NEVER PAY ANY DIVIDENDS TO SHAREHOLDERS.
We currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any dividends in the foreseeable future, but will review this policy as circumstances dictate.
THE OFFERING PRICE OF THE COMMON STOCK WAS DETERMINED BASED ON THE PRICE OF OUR PRIVATE OFFERING, AND THEREFORE SHOULD NOT BE USED AS AN INDICATOR OF THE FUTURE MARKET PRICE OF THE SECURITIES. THEREFORE, THE OFFERING PRICE BEARS NO RELATIONSHIP TO OUR ACTUAL VALUE, AND MAY MAKE OUR SHARES DIFFICULT TO SELL.
Since our shares are not listed or quoted on any exchange or quotation system, the offering price of $0.75 per share for the shares of common stock was determined based on the price of our private offering. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market. The offering price bears no relationship to the book value, assets or earnings of our company or any other recognized criteria of value. The offering price should not be regarded as an indicator of the future market price of the securities.
| 22 |
OUR COMMON STOCK IS CONSIDERED A PENNY STOCK, WHICH MAY BE SUBJECT TO RESTRICTIONS ON MARKETABILITY, SO YOU MAY NOT BE ABLE TO SELL YOUR SHARES.
We may be subject now and in the future to the SEC’s “penny stock” rules if our shares of Common Stock sell below $5.00 per share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.
In addition, the penny stock rules require that prior to a transaction; the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our Common Stock. As long as our shares of Common Stock are subject to the penny stock rules, the holders of such shares of Common Stock may find it more difficult to sell their securities.
Item 1B. Unresolved Staff Comments.
This information is not required for smaller reporting companies.
The Company is using the office provided by IWO at 5525 North McArthur Blvd., Suite 280, Irving, TX 75038. Since the Company has entered into an agreement with IWO to pay IWO a monthly budget for operating license and field services starting May 2015, the Company shall not need to pay IWO for the lease of this office space.
Our Company is engaged in oil and gas producing activities and is thus subject to the information requirements of Subpart 1200 of Regulation S-K.
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
Item 4. Mine Safety Disclosures.
Not Applicable.
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Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
As of April 14, 2016, common stock began trading on the OTC QB market under the trading symbol INWP. Our stock is thinly traded and there is no active trading market developed for our shares of common stock.
Holders of Capital Stock
As of June 27, 2016, we have 82 holders of our common stock.
Stock Option Grants
We do not have a stock option plan in place and have not granted any stock options at this time. The Company plans to create a Stock and Stock Option plan during Q2 of FY2017.
Item 6. Selected Financial Data
We are not required to provide the information required by this Item because we are a smaller reporting company.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Overview
International Western Petroleum, (the “Company”, “We”, or “Us”) was incorporated on February 19, 2014 under the laws of the state of Nevada. We are an oil and natural gas company that focuses on the acquisition, development, and exploration of crude oil and natural gas properties in Texas. As of March 1, 2016, the SEC Non-Escalated Analysis of Estimated Proved Reserve of the Bend Arch Lion 1A and Bend Arch Lion 1B leaseholds shows 142.15 Mbbl in oil net reserves out of 429.48 Mbbl in oil gross reserves and 114.95 MMcf in natural gas net reserves out of 353.78 MMcf in natural gas gross reserves.
The reserves associated with the report from Ralph E. Davis Associates LLC (an Opportune Company) have been classified in accordance with the definitions of the Securities and Exchange Commission as found in Part 210 —Form and Content of and Requirements for Financial Statements, Securities Act of 1933, Securities Exchange Act of 1934, Public Utility Holding Company Act of 1935, Investment Company Act of 1940, Investment Advisers Act of 1940, and Energy Policy and Conservation Act of 1975, under Rules of General Application § 210.4-10 Financial accounting and reporting for oil and gas producing activities pursuant to the Federal securities laws and the Energy Policy and Conservation Act of 1975.
In fiscal year 2017, the Company’s main objective is to take advantage of the current low oil prices to actively look for large-reserve oil and gas concessions and productions, aiming to participate with international capital partners for large-scale transactions related to buyouts and joint ventures. In the meantime, the Company will continue to raise capital to acquire smaller oil and natural gas properties in the West, Central West, East and South Texas aiming to increase its revenues via these acquisitions and continue to improve the existing production revenues of the Bend Arch Lion joint ventures via EOR methods as mentioned in the Operational plan above. It should be noted that during the fourth quarter of 2015, the Company temporarily reduced the production of the Bend Arch Lion 1A and the Bend Arch Lion 1B due to oil prices of that period to reserve its oil and natural gas reservoirs. The Company also experienced harsh weather with unusual flooding conditions in Coleman County, TX during November and December 2015 which had a negative effect on the production from the Bend Arch Lion 1A and 1A properties during that short period of time.
| 24 |
In fiscal year 2017, the Company’s secondary objective is to continue tapping into the high potential leases of the Central West Texas region of the United States, aiming to unlock its potential via reserves development to increase its oil and gas assets, specifically in the prolific Bend Arch-Fort Worth Basin. This area is approximately 120 miles long and 40 miles wide running from Archer County, Texas in the north to Brown County, Texas in the south. This area has been one of the most active drilling areas during the recent resurgence of United States drilling activities. To achieve the Company’s objectives, state-of the-art technology will be key since oil and natural gas reserve development is a highly technologically oriented industry. Due to the recent 100% success rate from the last ten (10) drillings on the Bend Arch Lion joint ventures, in general, the Company expects to continue to apply georadiometry exploration technology to determine the drilling locations and the drilling depths in future drilling activities in which the Company plans to start again in 2017 as Management predicts oil prices will reach a more profitable level for the Company if we would delay new drilling programs until next year.
The Company is planning to apply to uplist to NASDAQ Capital Markets in late June 2016 to further its growth plan.
Results of Operations
Revenues
The Company generated revenues of $172,890 from oil and gas production sales during the year ended February 29, 2016 compared to $0 during the year ended February 28, 2015. The increase was related to the acquisition of the Company’s oil and gas properties during the current year.
Operating Expenses
Operating expenses for the year ended February 29, 2016 and the February 28, 2015 were $473,051 and $80,523 respectively. The increase was primarily related to lease operating expenses and other costs incurred related to the acquisition and operation of the Company’s oil and gas properties during the current year.
Net Loss
Our operating results have recognized net loss in the amount of $300,161 for the year ended February 29, 2016 as compared to a net loss of $80,523 for the year ended February 28, 2015. The increase was primarily related to additional costs incurred during the current year related to the acquisition and operation of the Company’s oil and gas properties.
Liquidity and Capital Resources
On February 29, 2016 and February 28, 2015, the Company had cash of $542,228 and $41,783, respectively.
Net cash used in operating activities during the year ended February 29, 2016 was $253,155 as compared to cash used in operating activities of $78,489 for the same period in 2015. The increase was related to additional costs incurred during the year ended February 29, 2016 related to the maintenance and repair of the Company’s newly acquired oil and gas properties.
Net cash used in investing activities during year ended February 29, 2016 was $24,500 for the acquisition of a vehicle as compared to cash used in investing activities of $88,000 for the year ended February 28, 2015. The Company incurred no pre-acquisition costs during the current year.
Net cash provided by financing activities during the year ended February 29, 2016 was $778,100 as compared to cash provided by financing activities of $208,272 for the year ended February 28, 2015. The increase in cash provided by financing activities was primarily related to $583,100 of contributed capital received in the current year.
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Off-Balance Sheet Arrangements
As of February 29, 2016, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
Critical Accounting Policies
Oil and Gas Properties, Full Cost Method
The Company follows the full cost method of accounting for its oil gas properties, whereby all costs incurred in connection with the acquisition, exploration for and development of petroleum and natural gas reserves are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing leases, drilling, completing and equipping of oil wells and administrative costs directly attributable to those activities and asset retirement costs. Disposition of oil properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.
Depletion and depreciation of proved oil properties will be calculated on the units-of-production method based upon estimates of proved reserves. Such calculations include the estimated future costs to develop proved reserves. Costs of unproved properties are not included in the costs subject to depletion. These costs are assessed periodically for impairment.
At the end of each quarter, the unamortized cost of oil and gas properties, net of related deferred income taxes, is limited to the sum of the estimated future after-tax net revenues from proved properties, after giving effect to cash flow hedge positions, discounted at 10%, and the lower of cost or fair value of unproved properties, adjusted for related income tax effects. Costs in excess of the present value of estimated future net revenues are charged to impairment expense. This limitation is known as the “ceiling test,” and is based on SEC rules for the full cost oil and gas accounting method.
The Company capitalizes pre-acquisition costs directly identifiable with specific properties when the acquisition of such properties is probable. Capitalized pre-acquisition costs are presented in the balance sheet.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
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Item 8. Financial Statements and Supplementary Data.
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
International Western Petroleum, Inc.
Irving, Texas
We have audited the accompanying balance sheets of International Western Petroleum, Inc. as of February 29, 2016 and February 28, 2015 and the related statements of operations, changes in stockholders’ equity, and cash flows for the years ended February 29, 2016 and February 28, 2015. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects the financial position of International Western Petroleum, Inc. as of February 29, 2016 and February 28, 2015 and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has incurred losses from operations and has negative operating cash flows, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
| /s/ GBH CPAs, PC | |
| GBH CPAs, PC | |
| www.gbhcpas.com | |
| Houston, Texas | |
| June 27, 2016 |
| F-1 |
INTERNATIONAL WESTERN PETROLEUM, INC.
BALANCE SHEETS
| February 29, 2016 | February 28, 2015 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 542,228 | $ | 41,783 | ||||
| Total current assets | 542,228 | 41,783 | ||||||
| Oil and gas properties, full cost method | ||||||||
| Properties subject to amortization | 1,005,392 | - | ||||||
| Accumulated depletion and amortization | (34,279 | ) | - | |||||
| Total oil and gas properties, net | 971,113 | - | ||||||
| Pre-acquisition costs | - | 88,000 | ||||||
| Other fixed assets | 22,486 | - | ||||||
| TOTAL ASSETS | $ | 1,535,827 | $ | 129,783 | ||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 13,138 | $ | 4,784 | ||||
| Accounts payable and accrued expenses - related parties | 538,688 | 3,070 | ||||||
| Total current liabilities | 551,826 | 7,854 | ||||||
| Long-term liabilities | ||||||||
| Asset retirement obligations | 9,133 | - | ||||||
| TOTAL LIABILITIES | 560,959 | 7,854 | ||||||
| Commitments and contingencies | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| Preferred stock, $0.001 par value per share, 10,000,000 shares authorized; -0- shares issued and outstanding | - | - | ||||||
| Common stock, $0.001 par value per share, 90,000,000 shares authorized; 44,314,964 and 43,554,964 shares issued and outstanding on February 29, 2016 and February 28, 2015, respectively | 44,315 | 43,555 | ||||||
| Additional paid-in capital | 1,367,575 | 215,235 | ||||||
| Accumulated deficit | (437,022 | ) | (136,861 | ) | ||||
| TOTAL STOCKHOLDERS’ EQUITY | 974,868 | 121,929 | ||||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY | $ | 1,535,827 | $ | 129,783 | ||||
See accompanying notes to financial statements.
| F-2 |
INTERNATIONAL WESTERN PETROLEUM, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015
| For the Year Ended, | ||||||||
| February 29, 2016 | February 28, 2015 | |||||||
| REVENUES: | ||||||||
| Oil and gas sales | $ | 172,890 | $ | - | ||||
| OPERATING EXPENSES: | ||||||||
| Lease operating expenses | 44,562 | - | ||||||
| Lease operating expenses - related party | 249,315 | - | ||||||
| General and administrative expenses | 142,186 | 80,523 | ||||||
| Depletion, depreciation, and accretion | 36,988 | - | ||||||
| TOTAL OPERATING EXPENSES | 473,051 | 80,523 | ||||||
| NET LOSS | $ | (300,161 | ) | $ | (80,523 | ) | ||
| Net loss per common share - basic and diluted | $ | (0.01 | ) | $ | (0.00 | ) | ||
| Weighted average number of common shares outstanding – basic and diluted | 44,131,230 | 43,453,190 | ||||||
See accompanying notes to financial statements.
| F-3 |
INTERNATIONAL WESTERN PETROLEUM, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015
| Common Stock | Additional Paid-In | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity (Deficit) | ||||||||||||||||
| Balance, February 28, 2014 | 43,267,600 | $ | 43,268 | $ | - | $ | (56,338 | ) | $ | (13,070 | ) | |||||||||
| Common stock issued for cash | 287,365 | 287 | 215,235 | - | 215,552 | |||||||||||||||
| Net loss | - | - | - | (80,523 | ) | (80,523 | ) | |||||||||||||
| Balance, February 28, 2015 | 43,554,964 | 43,555 | 215,235 | (136,861 | ) | 121,929 | ||||||||||||||
| Common stock issued for cash | 260,000 | 260 | 194,740 | - | 195,000 | |||||||||||||||
| Common stock issued for acquisition of oil and gas properties | 500,000 | 500 | 374,500 | - | 375,000 | |||||||||||||||
| Contributed capital | - | - | 583,100 | - | 583,100 | |||||||||||||||
| Net loss | - | - | - | (300,161 | ) | (300,161 | ) | |||||||||||||
| Balance, February 29, 2016 | 44,314,964 | $ | 44,315 | $ | 1,367,575 | $ | (437,022 | ) | $ | 974,868 | ||||||||||
See accompanying notes to financial statements.
| F-4 |
INTERNATIONAL WESTERN PETROLEUM, INC
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 29, 2016 AND FEBRUARY 28, 2015
| For the Year Ended, | ||||||||
| February 29, 2016 | February 28, 2015 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | (300,161 | ) | $ | (80,523 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depletion, depreciation, and accretion | 36,988 | - | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts payable and accrued expenses | 8,354 | 2,634 | ||||||
| Accounts payable and accrued expenses - related parties | 1,664 | - | ||||||
| NET CASH USED IN OPERATING ACTIVITIES | (253,155 | ) | (78,489 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of fixed assets | (24,500 | ) | - | |||||
| Pre-acquisition costs | - | (88,000 | ) | |||||
| NET CASH USED IN INVESTING ACTIVITIES | (24,500 | ) | (88,000 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Advances from related party | - | 15,000 | ||||||
| Payments for related party advances | - | (22,250 | ) | |||||
| Proceeds from issuance of common stock | 195,000 | 215,522 | ||||||
| Contributed capital | 583,100 | - | ||||||
| NET CASH PROVIDED BY FINANCING ACTIVITIES | 778,100 | 208,272 | ||||||
| INCREASE IN CASH | 500,445 | 41,783 | ||||||
| CASH - BEGINNING OF YEAR | 41,783 | - | ||||||
| CASH - END OF YEAR | $ | 542,228 | $ | 41,783 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Cash paid for interest | $ | - | $ | - | ||||
| NON-CASH INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Accrued oil and gas development costs payable to related party | $ | 533,954 | $ | - | ||||
| Fair value of common stock issued to related party for oil and gas properties | $ | 375,000 | $ | - | ||||
| Reclassification of pre-acquisition costs to oil and gas properties | $ | 88,000 | $ | - | ||||
| Asset retirement obligations from acquisition of oil and gas properties | $ | 6,067 | $ | - | ||||
| Asset retirement obligations – change in estimate | $ | 2,371 | $ | - | ||||
See accompanying notes to financial statements.
| F-5 |
INTERNATIONAL WESTERN PETROLEUM, INC
NOTES TO FINANCIAL STATEMENTS
Note 1 – Organization, Nature of Operations and summary of Significant Accounting Policies
The accompanying financial statements of International Western Petroleum, Inc. (“IWP” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and the rules of the Securities and Exchange Commission (“SEC”).
International Western Petroleum, Inc. (“IWP” or the “Company”) was incorporated on February 19, 2014 as a Nevada corporation. The Company was formed to conduct operations in the oil and gas industry. The Company’s principal operating properties are located in the Ellenberger formation in Coleman County, Texas.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of 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 expense during the period. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of the year or less to be cash equivalents. The Company has not experienced any losses on its deposits of cash and cash equivalents.
Concentrations of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk include cash deposits placed with financial institutions. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits as guaranteed by the Federal Deposit Insurance Corporation (FDIC). At February 29, 2016, $292,228 of the Company’s cash balances were uninsured. The Company has not experienced any losses on such accounts.
Sales to one customer comprised 100% of the Company’s total oil and gas revenues for the year ended February 29, 2016. The Company believes that, in the event that its primary customer is unable or unwilling to continue to purchase the Company’s production, there are a substantial number of alternative buyers for its production at comparable prices.
Oil and Gas Properties , Full Cost Method
The Company follows the full cost method of accounting for its oil gas properties, whereby all costs incurred in connection with the acquisition, exploration for and development of petroleum and natural gas reserves are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing leases, drilling, completing and equipping of oil wells and administrative costs directly attributable to those activities and asset retirement costs. Disposition of oil properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment would significantly alter the relationship between capital costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.
Depletion and depreciation of proved oil properties will be calculated on the units-of-production method based upon estimates of proved reserves. Such calculations include the estimated future costs to develop proved reserves. Costs of unproved properties are not included in the costs subject to depletion. These costs are assessed periodically for impairment.
| F-6 |
At the end of each quarter, the unamortized cost of oil and gas properties, net of related deferred income taxes, is limited to the sum of the estimated future after-tax net revenues from proved properties, after giving effect to cash flow hedge positions, discounted at 10%, and the lower of cost or fair value of unproved properties, adjusted for related income tax effects. Costs in excess of the present value of estimated future net revenues are charged to impairment expense. This limitation is known as the “ceiling test,” and is based on SEC rules for the full cost oil and gas accounting method.
The Company capitalizes pre-acquisition costs directly identifiable with specific properties when the acquisition of such properties is probable. Capitalized pre-acquisition costs are presented in the balance sheet.
Fixed Assets
Fixed assets are stated at cost less accumulated depreciation. Maintenance and repairs are charged to expense as incurred. Renewals and betterments which extend the life or improve existing equipment are capitalized. Upon disposition or retirement of equipment, the cost and related accumulated depreciation are removed and any resulting gain or loss is reflected in operations. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, which are 3 to 10 years.
Revenue Recognition
All revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is complete, the price is fixed or determinable and collectability is reasonably assured. Revenue is derived from the sale of crude oil and natural gas. Revenue from crude oil and natural gas sales is recognized when the product is delivered to the purchaser and collectability is reasonably assured. The Company follows the “sales method” of accounting for oil and natural gas revenue, so it recognizes revenue on all natural gas or crude oil sold to purchasers, regardless of whether the sales are proportionate to its ownership in the property. A receivable or liability is recognized only to the extent that the Company has an imbalance on a specific property greater than its share of the expected remaining proved reserves. If collection is uncertain, revenue is recognized when cash is collected.
Income Taxes
Income taxes are accounted for in accordance with the provisions of ASC Topic No. 740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.
Net Loss per Common Share
Basic net loss per common share amounts are computed by dividing the net loss available to International Western Petroleum, Inc. shareholders by the weighted average number of common shares outstanding over the reporting period. In periods in which the Company reports a net loss, dilutive securities are excluded from the calculation of diluted earnings per share as the effect would be anti-dilutive. For the years ended February 29, 2016 and February28, 2015, there were no potentially dilutive securities outstanding.
Recent Accounting Pronouncements
There were various accounting standards and interpretations issued during 2016 and 2015, none of which are expected to have a material impact on the Company’s financial position, operations or cash flows. In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing GAAP. The standard is effective for annual periods beginning after December 15, 2016, and interim periods therein, using either of the following transition methods: (i) a full retrospective approach reflecting the application of the standard in each prior reporting period with the option to elect certain practical expedients; or (ii) a retrospective approach with the cumulative effect of initially adopting ASU 2014-09 recognized at the date of adoption (which includes additional footnote disclosures). The Company is currently evaluating the impact of its pending adoption of ASU 2014-09 on its consolidated financial statements and have not yet determined the method by which the Company will adopt the standard in 2017.
| F-7 |
In August 2014, the FASB issued ASU 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. The new standard requires management to assess the Company’s ability to continue as a going concern. Disclosures are required if there is substantial doubt as to the company’s continuation as a going concern within one year after the issue date of financial statements. The standard provides guidance for making the assessment, including consideration of management’s plans which may alleviate doubt regarding the company’s ability to continue as a going concern. ASU 2014-15 is effective for years beginning after December 15, 2016. We do not expect the adoption of this pronouncement to have a material impact on our consolidated financial statements.
Subsequent Events
The Company has evaluated all transactions through the date the financial statements were issued for subsequent event disclosure consideration.
Note 2 – Going Concern
The Company remains dependent upon funding from non-operating sources, principally related parties. The Company’s financial statements have been presented on the basis that is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company generated a net loss of $300,161 and used $253,155 of cash in operations during the year ended February 29, 2016. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of these uncertainties.
There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support the Company’s working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to the Company. If adequate working capital is not available, the Company may be required to curtail or cease its operations. Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern.
| F-8 |
Note 3 – Oil and Gas Properties
The following table summarizes the Company’s oil and gas activities by classification for the year ended February 29, 2016:
February 28, 2015 | Additions | Reclass (1) | February, 29 2016 | |||||||||||||
| Oil and gas properties, subject to amortization | $ | - | $ | 908,954 | $ | 88,000 | $ | 996,954 | ||||||||
| Asset retirement costs | - | 8,438 | - | 8,438 | ||||||||||||
| Accumulated depletion | - | (34,279 | ) | - | (34,279 | ) | ||||||||||
| Total oil and gas assets | $ | - | $ | 883,113 | $ | 88,000 | $ | 971,113 | ||||||||
| (1) | The Company reclassified $88,000 of pre-acquisition costs associated with the Bend Arch properties acquired to oil and gas properties subject to amortization. Accordingly, prior to February 28, 2015, the Company had no oil and gas properties. |
The depletion recorded for production on proved properties for the years ended February 29, 2016 and February 28, 2015, amounted to $34,279 and $0, respectively.
During the year ended February 29, 2016, additions to oil and gas properties subject to amortization consisted of the acquisition of oil and gas properties (described below) of $375,000 and development costs related to the completion of several wells in the Joint Venture 1A and 1B property of $533,954.
Acquisition of Properties from International Western Oil Corp.
On May 4, 2015, the Company completed the acquisition of interests in the Joint Venture 1A and 1B oil and gas properties from International Western Oil Corp. (“IWO”), a related party.
As consideration for the acquisition, the Company issued to IWO, 500,000 shares of common stock valued at $0.75 per share.
The following table summarizes the purchase price and allocation of the purchase price to the net assets acquired:
| Purchase price on May 4, 2015 | ||||
| Fair value of common stock issued | $ | 375,000 | ||
| Total purchase price | $ | 375,000 | ||
| Fair value of net assets at May 4, 2015 | ||||
| Oil and gas properties, subject to amortization | $ | 375,000 | ||
| Asset retirement cost | 6,067 | |||
| Total assets | 381,067 | |||
| Asset retirement obligations | (6,067 | ) | ||
| Total liabilities | (6,067 | ) | ||
| Net assets acquired | $ | 375,000 |
| F-9 |
Note 4 – Fixed Assets
The Company’s fixed assets consisted of a used vehicle and has a remaining estimated useful life of five years. Fixed asset consists of the following:
| February 29, 2016 | February 28, 2015 | |||||||
| Vehicle | $ | 24,500 | $ | - | ||||
| Accumulated depreciation | (2,014 | ) | - | |||||
| Total | $ | 22,486 | $ | - | ||||
The Company recorded depreciation expense of $2,014 and $0, respectively, during the years ended February 29, 2016 and February 28, 2015.
Note 5 – Asset Retirement Obligations
The following table summarizes the change in the Company’s asset retirement obligations during the year ended February 29, 2016:
| Amount | ||||
| Asset retirement obligations as of February 28, 2015 | $ | - | ||
| Additions | 6,067 | |||
| Current year revision of previous estimates | 2,371 | |||
| Accretion during the year ended February 29, 2016 | 695 | |||
| Asset retirement obligations as of February 29, 2016 | $ | 9,133 | ||
During the years ended February 29, 2016 and February 28, 2015, the Company recognized accretion expense of $695 and $0, respectively.
Note 6 – Related Party Transactions
During the year ended February 29, 2016, the Company received $583,100 of cash from IWO which the Company recorded as contributed capital.
On May 4, 2015, the Company acquired an interest in the Joint Venture 1A and 1B oil and gas properties from IWO in exchange for 500,000 shares of the Company’s common stock (see Note 3).
As a part of its amended agreement with IWO, the Company agreed to pay a monthly operator fee to IWO of $22,263 that increased to $27,600 starting October 1, 2015 for its Texas-based operating license and field services. During the year ended February 29, 2016, the Company expensed $249,315 of related party monthly operator fees which are recorded in lease operating expenses – related party.
As of February 29, 2016 and February 28, 2015, the Company had outstanding accounts payable and accrued expenses – related parties of $538,688 and $3,070, respectively. At February 29, 2016, amounts owed to related parties consisted of $535,618 owed to IWO (of which $533,954 was owed for accrued oil and gas development costs and $1,664 was owed for lease operating expenses) and $3,070 owed to a shareholder for advances to the Company. At February 28, 2015, the $3,070 related party payable was comprised of amounts owed to a shareholder for advances to the Company.
| F-10 |
Note 7 – Equity
During the year ended February 28, 2015, the Company sold 287,364 shares of the Company’s common stock for net cash proceeds of $215,522.
During the year ended February 29, 2016, the Company sold 260,000 shares of the Company’s common stock for net cash proceeds of $195,000, issued 500,000 shares of the Company’s common stock to a related party to acquire an oil and gas property (see Note 3), and received $583,100 of funds from a related party as contributed capital (see Note 6).
Note 8 – Income Taxes
Due to the Company’s net losses, there were no provisions for income taxes for the years ended February 29, 2016 and February 28, 2015.
The difference between the income tax expense of zero shown in the statement of operations and pre-tax book net loss times the federal statutory rate of 35% is principally due to the change in the valuation allowance.
Deferred income tax assets for the years ended February 29, 2016 and February 28, 2015 are as follows:
| Deferred Tax Assets | Year
Ended February 29, 2016 | Year
Ended February 28, 2015 | ||||||
| Difference in depletion, depreciation, and capitalization methods | $ | 15,133 | $ | - | ||||
| Net operating losses | 122,045 | 28,567 | ||||||
| Total deferred tax assets | 137,158 | 28,567 | ||||||
| Less valuation allowance | (137,158 | ) | (28,567 | ) | ||||
| Total deferred tax assets | $ | - | $ | - | ||||
In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of deferred assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible.
Based on the available objective evidence, management believes it is more likely than not that the net deferred tax assets will not be fully realizable. Accordingly, management has applied a full valuation allowance against its net deferred tax assets at February 29, 2016 and February 28, 2015. The net change in the total valuation allowance from February 28, 2015 and February 29, 2016, was an increase of $108,591.
The Company’s policy is to recognize interest and penalties accrued on any unrecognized tax benefits as a component of income tax expense. As of February 29, 2016 and February 28, 2015, the Company did not have any significant uncertain tax positions or unrecognized tax benefits. The Company did not have associated accrued interest or penalties, nor was any interest expense or penalties recognized for the years ended February 29, 2016 and February 28, 2015.
As of February 29, 2016, the Company has federal net operating loss carryforwards of approximately $437,022 for federal and state tax purposes, respectively, which if not utilized, will expire beginning in 2034, respectively, for both federal and state purposes.
Utilization of NOL and tax credit carryforwards may be subject to a substantial annual limitation due to ownership change limitations that may have occurred or that could occur in the future, as required by the Internal Revenue Code (the “Code”), as amended, as well as similar state provisions. In general, an “ownership change” as defined by the Code results from a transaction or series of transactions over a three-year period resulting in an ownership change of more than 50 percent of the outstanding stock of a company by certain shareholders or public groups.
Due to the impact of temporary and permanent differences between the book and tax calculations of net loss, the Company experiences an effective tax rate above the federal statutory rate of 35%.
Note 9 – Subsequent Events
Subsequent to February 29, 2016, the Company sold 163,000 shares of its common stock for net cash proceeds of $122,250.
| F-11 |
Note 10 – Supplemental Oil and Gas Disclosures (Unaudited)
Capitalized Costs Relating to Oil and Gas Producing Activities
The estimates of proved oil and gas reserves utilized in the preparation of these statements were prepared by Ralph E. Davis, using reserve definitions and pricing requirements prescribed by the SEC. The Company used a combination of production performance and offset analogies, along with estimated future operating and development costs as provided by the Company and based upon historical costs adjusted for known future changes in operations or developmental plans, to estimate our reserves.
There are numerous uncertainties inherent in estimating quantities of proved reserves, projecting future rates of production and projecting the timing of development expenditures, including many factors beyond our control. The reserve data represents only estimates. Reservoir engineering is a subjective process of estimating underground accumulations of natural gas and oil that cannot be measured in an exact manner. The accuracy of any reserve estimate is a function of the quality of available data and of engineering and geological interpretations and judgment. All estimates of proved reserves are determined according to the rules prescribed by the SEC. These rules indicate that the standard of “reasonable certainty” be applied to the proved reserve estimates. This concept of reasonable certainty implies that as more technical data becomes available, a positive, or upward, revision is more likely than a negative, or downward, revision. Estimates are subject to revision based upon a number of factors, including reservoir performance, prices, economic conditions and government restrictions. In addition, results of drilling, testing and production subsequent to the date of an estimate may justify revision of that estimate. Reserve estimates are often different from the quantities of natural gas and oil that are ultimately recovered. The meaningfulness of reserve estimates is highly dependent on the accuracy of the assumptions on which they were based. In general, the volume of production from natural gas and oil properties we own declines as reserves are depleted. Except to the extent we conduct successful development activities or acquire additional properties containing proved reserves, or both, our proved reserves will decline as reserves are produced. There have been no major discoveries or other events, favorable or adverse, that may be considered to have caused a significant change in the estimated proved reserves since February 29, 2016. The Company emphasizes that reserve estimates are inherently imprecise. Accordingly, the estimates are expected to change as more current information becomes available. In addition, a portion of the Company’s proved reserves are proved developed non-producing and proved undeveloped, which increases the imprecision inherent in estimating reserves which may ultimately be produced.
All of the Company’s reserves are located in the United States.
| February 29, 2016 | February 28, 2015 | |||||||
| Proved oil and gas properties | $ | 1,005,392 | $ | - | ||||
| Unproved oil and gas properties | - | - | ||||||
| Accumulated depreciation, depletion and amortization | (34,279 | ) | - | |||||
| Total acquisition, development and exploration costs | $ | 971,113 | $ | - | ||||
| F-12 |
Costs Incurred in Oil and Gas Property Acquisition, Exploration, and Development Activities
At February 29, 2016 and February 28, 2015, unevaluated costs of $0 were excluded from the depletion base.
| February 29, 2016 | February 28, 2015 | |||||||
| Acquisition of properties – proved | $ | 381,067 | $ | - | ||||
| Acquisition of properties – unproved | - | - | ||||||
| Exploration costs | 88,000 | - | ||||||
| Development costs | 536,325 | - | ||||||
| Total costs incurred | $ | 1,005,392 | $ | - | ||||
Estimated Quantities of Proved Oil and Gas Reserves
The following table sets forth proved oil and gas reserves together with the changes therein, proved developed reserves and proved undeveloped reserves for the years ended February 29, 2016 and February 28, 2015. Units of oil are in thousands of barrels (MBbls) and units of gas are in millions of cubic feet (MMcf). Gas is converted to barrels of oil equivalents (MBoe) using a ratio of six Mcf of gas per Bbl of oil.
| 2016 | 2015 | |||||||||||||||||||||||
| Oil | Gas | BOE | Oil | Gas | BOE | |||||||||||||||||||
| Proved reserves: | ||||||||||||||||||||||||
| Beginning of year | - | - | - | - | - | - | ||||||||||||||||||
| Revisions | - | - | - | - | - | - | ||||||||||||||||||
| Extensions and discoveries | - | - | - | - | - | - | ||||||||||||||||||
| Purchases of minerals-in-place | 146 | 128 | 167 | - | - | - | ||||||||||||||||||
| Sales of minerals-in-place | - | - | - | - | - | - | ||||||||||||||||||
| Production | (4 | ) | (13 | ) | (6 | ) | - | - | - | |||||||||||||||
| End of year | 142 | 115 | 161 | - | - | - | ||||||||||||||||||
| Proved developed reserves: | ||||||||||||||||||||||||
| Beginning of year | - | - | - | - | - | - | ||||||||||||||||||
| End of year | 12 | 38 | 18 | - | - | - | ||||||||||||||||||
| Proved behind pipe reserves: | ||||||||||||||||||||||||
| Beginning of year | - | - | - | - | - | - | ||||||||||||||||||
| End of year | 54 | 14 | 57 | - | - | - | ||||||||||||||||||
| Proved undeveloped reserves: | ||||||||||||||||||||||||
| Beginning of year | - | - | - | - | - | - | ||||||||||||||||||
| End of year | 76 | 63 | 86 | - | - | - | ||||||||||||||||||
Standardized Measure of Discounted Future Net Cash Flows and Changes Therein Relating to Proved Reserves
The standardized measure of discounted future net cash flows, in management’s opinion, should be examined with caution. The basis for this table is the reserve studies prepared by the Company’s independent petroleum engineering consultants, which contain imprecise estimates of quantities and rates of future production of reserves. Revisions of previous year estimates can have a significant impact on these results. Also, exploration costs in one year may lead to significant discoveries in later years and may significantly change previous estimates of proved reserves and their valuation. Therefore, the standardized measure of discounted future net cash flow is not necessarily indicative of the fair value of the Company’s proved oil and natural gas properties.
| F-13 |
Future cash inflows for 2016 were computed by applying the average price for the year to the year-end quantities of proved reserves. The 2016 average price for the year was calculated using the 12-month period prior to the ending date of the period covered by the report, determined as an un-weighted arithmetic average of the first-day-of-the-month price for each month within such period. Adjustment in this calculation for future price changes is limited to those required by contractual arrangements in existence at the end of each reporting year. Future development, abandonment and production costs were computed by estimating the expenditures to be incurred in developing and producing proved oil and natural gas reserves at the end of the year, based on year-end costs, assuming continuation of year-end economic conditions. Future income tax expense was computed by applying statutory rates, less the effects of tax credits for each period presented, and to the difference between pre-tax net cash flows relating to the Company’s proved reserves and the tax basis of proved properties, after consideration of available net operating loss and percentage depletion carryovers. Discounted future net cash flows have been calculated using a ten percent discount factor. Discounting requires a year-by-year estimate of when future expenditures will be incurred and when reserves will be produced.
The estimated present value of future cash flows relating to prove reserves is extremely sensitive to prices used at any measurement period. The prices used for each commodity for the year ended February 29, 2016, as adjusted, were as follows:
| Oil (Bbl) Using NYMEX WTI | Gas (Mcf) Using NYMEX Henry Hub | |||||||
| 2016 (average price) | $ | 47.31 | $ | 2.63 | ||||
The information provided in the tables set out below does not represent management’s estimate of the Company’s expected future cash flows or of the value of the Company’s proved oil and gas reserves. Estimates of proved reserve quantities are imprecise and change over time as new information becomes available. Moreover, probable and possible reserves, which may become proved in the future, are excluded from the calculations. The arbitrary valuation prescribed under ASC No. 932 requires assumptions as to the timing and amount of future development and production costs. The calculations should not be relied upon as an indication of the Company’s future cash flows or of the value of its oil and gas reserves.
The following table sets forth the standardized measure of discounted future net cash flows relating to proven reserves for the years ended February 29, 2016 and February 28, 2015, respectively (stated in thousands):
| 2016 | 2015 | |||||||
| Future cash inflows | $ | 6,102 | $ | - | ||||
| Future costs: | ||||||||
| Production costs | (794 | ) | - | |||||
| Future tax expense | (294 | ) | - | |||||
| Future development costs | (1,112 | ) | - | |||||
| Future net cash flows | 3,901 | - | ||||||
| 10% annual discount for estimated timing of cash flows | (1,533 | ) | - | |||||
| Standardized measure of discounted net cash flows | $ | 2,369 | $ | - | ||||
| F-14 |
Summary of Changes in Standardized Measure of Discounted Future Net Cash Flows
The following table summarizes the principal sources of change in the standardized measure of discounted future estimated net cash flows at 10% per annum for the years ended February 29, 2016 and February 28, 2015, respectively (stated in thousands):
| 2016 | 2015 | |||||||
| Increase (decrease): | ||||||||
| Beginning of year | $ | - | $ | - | ||||
| Sales of oil produced, net of production costs | 406 | - | ||||||
| Net changes in sales and transfer prices and in production costs and production costs related to future production | - | - | ||||||
| Previously estimated development costs incurred during the period | - | - | ||||||
| Changes in future development costs | - | - | ||||||
| Revisions of previous quantity estimates due to prices and performance | - | - | ||||||
| Accretion of discount | - | - | ||||||
| Discoveries, net of future production and development costs associated with these extensions and discoveries | - | - | ||||||
| Purchases and sales of minerals in place | 1,963 | - | ||||||
| Timing and other | - | - | ||||||
| End of year | $ | 2,369 | $ | - | ||||
| F-15 |
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
There have been no changes in or disagreements with accountants on accounting or financial disclosure matters.
Item 9A. Controls and Procedures.
Disclosure of Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal executive and financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Company’s principal executive and financial officer concluded that due to the material weakness discussed below, the Company’s disclosure controls and procedures were not effective, as of the end of the year ended February 28, 2016, to provide reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control our financial reporting as of February 29, 2016, the Company determined that the following items constituted material weaknesses:
| ● | The Company does not have policies and procedures in place to ensure the timely review, disclosure and accurate financial reporting for significant agreements and transactions. | |
| ● | The Company does not have an independent audit committee in place, which would provide oversight of the Company’s officers, operations and financial reporting function. |
Changes in Internal Controls over Financial Reporting
There have been no changes in our internal control over financial reporting that occurred during the quarter covered by this Yearly Report on Form 10-K that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
None.
| 28 |
Item 10. Directors, Executive Officers and Corporate Governance
The following table sets forth the names and ages of our officers and directors as of February 29, 2016. Our executive officers are elected annually by our Board of Directors. Our executive officers hold their offices until they resign, are removed by the Board, or his successor is elected and qualified.
| Name | Age | Position | ||
| Dr. Benjamin Tran | 49 | Chairman of the Board of Directors and Secretary | ||
| Ross Henry Ramsey | 28 | Chief Executive Officer, President, Chief Financial Officer, and Director | ||
| Dr. Syed Ahmad | 76 | Chief Geologist |
Set forth below is a brief description of the background and business experience of our executive officer and director for the past five years.
Dr. Benjamin Tran is a co-founder of International Western Petroleum, Inc. and has served as the Chairman of our Board of Directors and our Secretary since our inception. Dr. Tran specializes in cross-border M&A advisory and private equity. Since 2011, Dr. Tran has been Chairman of International Western Oil Corporation (“IWO”), a start-up exploration and production oil and gas company in Texas that has been a very active explorer through Central West Texas. Dr. Tran also serves in the same position at International Western Petroleum Corporation (“IWPO”), the 100% parent of IWO. From 2008 to 2011, Dr. Tran was involved with Asia Pacific Capital Corporation as a founding member. Asia Pacific Capital is a global private equity advisory firm focused on microcap companies looking to grow their business in Asia. From 2007 to 2008, Dr. Tran was the President of Brean Murray Carret Procap Limited, an Asia-based Joint Venture with Brean Murray Carret & Co., a New York-based investment bank that has been involved in over 100 IPOs/APOs/SPACs and raised over $4B for U.S. and Asian companies. From 2004 to the present, Dr. Tran has been a consultant providing corporate development and restructuring services to small and medium enterprises in various industry sectors. Prior to his private equity and corporate advisory career, Dr. Tran worked for technology leaders including Micron Technology, Fujitsu Microelectronics, Mitsubishi Electric, Philips Semiconductors, holding various senior technical and marketing management positions. Dr. Tran holds a PhD in Business Administration from American Premier University, an MBA from the University of Phoenix, and MS and BS degrees in Electrical Engineering from San Jose State University, California.
Dr. Tran’s qualifications to serve on our Board include his many years of experience in business development and providing corporate transactional advice to emerging growth companies.
Ross Henry Ramsey is a co-founder of International Western Petroleum, Inc. and has served as the Chief Executive Officer, President, Chief Financial Officer, and a Director since our inception. Since 2011, Mr. Ramsey has been the Chief Executive Officer and President of International Western Oil Corporation, making it a very active explorer through Central West Texas. He also serves as Chief Executive Officer and President of International Western Petroleum Corporation which is the holding company of International Western Oil Corporation. From 2007 to 2010, as a specialist in cost reduction, advanced drilling and production, Mr. Ramsey served as Vice President of Explorations with Earthbound Resources, participating in deep and shallow drilling, testing, and completing well bores. From 2010 to 2011, Mr. Ramsey served as an independent drilling and completion consultant. Mr. Ramsey’s specializes in drilling acreage and establishing PUD’S (Proven Under Development locations) for new drilling locations and multiple recovery methods from primary to and secondary recovery methods. Mr. Ramsey has been involved with over 100 well bores, from drilling and testing, to completion. Ross has been a part of exploration in Young County, Coke County, Fischer County, Jones County and Taylor County, all of which are in Texas. Mr. Ramsey has very profitable relationships with many oilfield service companies including Basic Energy Services, PSI Wireline, API Perforating, and Shack Energy Services. As such, Mr. Ramsey has established himself as a true “Oil Man” at a young age. Mr. Ramsey knows both sides of the oil business, from being hands on, to the financial planning. As a fourth generation oil man, Mr. Ramsey has been taught the oil business from the ground up.
Mr. Ramsey’s qualifications to serve on our Board include his experience in the oil and gas industry.
| 29 |
Dr. Syed Ahmad has been our Chief Geologist since our inception. Since 2011 he has served as Principal Geologist of IWO and of IWPO. From 2009 to 2011, Dr. Ahmad served as an independent consultant in Houston, Texas, doing analysis of geological well data, as well as seismic data from old fields for prospect generation and to determine location of infill wells. Dr. Ahmad is a petroleum expert with 30 years of diversified experience in the petroleum industry including extensive operational experience in areas of well site operations and supervision, geosteering of wells, use of PeriScope in channel sands, and planning and mobilization of drilling rigs, mud-logging units and crews. Dr. Ahmad is conversant with 3D seismic data interpretation
Item 11. Executive Compensation.
Our executive employees have not received any compensation for services rendered to us, and are not accruing any compensation pursuant to any agreement with us. The salary compensation of our executive members comes from a portion of the operating budget of the Company’s operator International Western Oil.
No retirement, pension, profit sharing, insurance programs, long-term incentive plans or other similar programs have been adopted by us for the benefit of our employees. We had no outstanding equity awards as of the date of this report.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information as of June 27, 2016 with respect to the holdings of: (1) each person known to us to be the beneficial owner of more than 5% of our Common Stock; (2) each of our directors, nominees for director and named executive officers; and (3) all directors and executive officers as a group. To the best of our knowledge, each of the persons named in the table below as beneficially owning the shares set forth therein has sole voting power and sole investment power with respect to such shares, unless otherwise indicated. Unless otherwise specified, the address of each of the persons set forth below is in care of the Company, at the address of: International Western Petroleum, Inc., 5525 N. MacArthur Boulevard, Suite 280, Irving, TX 75038.
| Name of Beneficial Owner | Amount and Nature of Beneficial Ownership | Percent of Common Stock (1) | ||||||
| 5% Stockholders: None | ||||||||
| Directors and Executive Officers: | ||||||||
| Dr. Benjamin Tran, Chairman, Board of Directors and Secretary | 16,000,000 | 35.97 | % | |||||
| Ross Henry Ramsey, Chief Executive Officer, President, Chief Financial Officer and Director | 20,000,000 | 44.97 | % | |||||
| All directors and executive officers as a group (2 persons) | 36,000,000 | 80.94 | % | |||||
| (1) | Based on 44,477,964 shares of common stock outstanding as of June 27, 2016 |
Item 13. Certain Relationships and Related Transactions, and Director Independence.
During the year ended February 28, 2015, the Company incurred pre-acquisition costs amounting to $88,000 which was paid to IWO. IWO is majority owned by the Company’s CEO and Chairman. IWO is licensed by the Texas RRC as an operator and has been feeding data and has been serving as a consultant related to exploration and acquisitions to us with regard to the Bend Arch Lion, Bend Arch Henry, and Bend Arch North Anderson projects.
During the year ended February 29, 2016, IWO contributed $583,100 of capital to the Company.
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On May 4, 2015, the Company entered into an Acquisition Agreement (the “Acquisition Agreement”) with IWO pursuant to which the Company acquired a 39.5% working interest in the Bend Arch Lion 1A Joint Venture (the Pittard Bend Arch White property encompassing 160 acres – State ID# 21488) (the “1A Venture”) and a 50% working interest in the Bend Arch Lion 1B Joint Venture (the Pittard Bend Arch Red property encompassing 160 acres - State ID# 13121) (the “1B Venture”) (the “Acquisition”). Both the 1A Venture and the 1B Venture are located in Coleman County, Texas. By acquiring IWO’s working interests in the 1A Venture and the 1B Venture, the Company will directly receive the share of working interest revenue (after accounting for applicable taxes, expenses, and landowner royalties) IWO was receiving prior to the Acquisition.
In consideration of the Acquisition, the Company is to pay IWO a monthly retainer equal to $22,26 (subsequently amended to $27,600 per month). IWO will operate and provide field services for the oil and gas wells in the 1A Venture and the 1B Venture because IWO is licensed by the Railroad Commission of Texas as an operator. This monthly retainer will commence in May 2015 and the amount of such retainer may be adjusted based on the future performance of the 1A Venture and the 1B Venture. In addition, as consideration for the 1A Venture working interest, the Company issued IWO 200,000 shares of the Company’s common stock and, as consideration for the 1B Venture working interest, the Company issued IWO 300,000 shares of the Company’s common stock.
Mr. Ramsey and Dr. Tran, the Company’s President, Chief Executive and Chief Financial officer and Secretary, respectively, directors and majority shareholders, are together are majority shareholders of IWPO, the parent and 100% owner of IWO. Dr. Tran and Mr. Ramsey serve in similar positions for IWPO. IWPO does not engage in any business activities beyond serving as IWO’s parent. IWO is IWPO’s operating company. IWO serves as a Texas-licensed oil and gas operator and on-site consultant for the Company to provide the Company with operating support, full geology reports, on-site survey work, initial reserve analysis and additional geology consulting work on an as-needed basis.
Director Independence and Committees
Neither Mr. Ross Henry Ramsey nor Dr. Benjamin Tran are considered independent because they are both executive officers of the Company and they each hold more than 10% of the Company’s shares of common stock outstanding. We do not currently have a separately designated audit, nominating or compensation committee.
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Item 14. Principal Accounting Fees and Services.
The following table presents fees for professional audit services performed by GBH CPAs, PC for the audits of our annual financial statements for the years ended February 29, 2016 and February 28, 2015:
| GBH CPAs, PC: | Year Ended February 29, 2016 | Year Ended February 28, 2015 | ||||||
| Audit Fees (1) | $ | 27,640 | $ | 8,550 | ||||
| Audit-Related Fees (2) | - | - | ||||||
| Tax Fees (3) | 2,000 | - | ||||||
| All Other Fees (4) | 1,500 | - | ||||||
| Total | $ | 31,140 | $ | 8,550 | ||||
| (1) | Audit fees include professional services rendered for (1) the audit of our annual financial statements for the years ended February 29, 2016 and February 28, 2015 and (ii) the reviews of the financial statements included in our quarterly reports on Form 10-Q for such years. | |
| (2) | Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our consolidated financial statements, but are not reported under “Audit fees.” | |
| (3) | Tax fees include professional services relating to preparation of the annual tax return. | |
| (4) | Other fees include professional services for review of various filings and issuance of consents. |
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Item 15. Exhibits, Financial Statement Schedules.
| Exhibit | Incorporated by Reference | Filed or Furnished | |||||||||
| Number | Exhibit Description | Form | Exhibit | Filing Date | Herewith | ||||||
| 3.1 | Articles of Incorporation | S-1 | 3.1 | 6/3/2014 | |||||||
| 3.2 | Bylaws | S-1 | 3.2 | 6/3/2014 | |||||||
| 10.1 | Acquisition Agreement, dated May 4, 2015, by and among International Western Oil Corporation and International Western Petroleum, Inc. | 8-K | 2.1 | 5/20/2015 | |||||||
| 10.2 | Retainer Amendment Agreement with International Western Oil, dated October 1, 2015
|
10-Q | 10.1 | 1/14/2016 | |||||||
| 21.1 | List of Subsidiaries - None | ||||||||||
| 31.1 | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U. S. C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | X | |||||||||
| X | |||||||||||
| 32.1* | Certification of Principal Executive Officer and Principal Financial Officer, pursuant to 18 U. S. C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | X | |||||||||
| 99.1 | Estimated Future Reserves and Income, as of March 1, 2016 | ||||||||||
*In accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| International Western Petroleum, Inc. | ||
| Dated: June 27, 2016 | By: | /s/ Ross Henry Ramsey |
| Ross Henry Ramsey | ||
Chief Executive Officer, President and Chief Financial Officer (Duly Authorized, Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | ||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| Signature | Title | Date | ||
| /s/ Ross Henry Ramsey | Chief
Executive Officer, President and Chief Financial Officer (Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) |
June 27, 2016 | ||
| Ross Henry Ramsey | ||||
| /s/ Benjamin Tran | Secretary and Chairman, Board of Director | June 27, 2016 | ||
| Benjamin Tran |
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