NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
1.
Nature of Business, Organization and Basis of Preparation and
Presentation
FieldPoint
Petroleum Corporation (“the Company”,
“FieldPoint”, “our” or “we”) is
incorporated under the laws of the state of Colorado. The Company
is engaged in the acquisition, operation and development of oil and
natural gas properties, which are located in Louisiana, New Mexico,
Oklahoma, Texas and Wyoming.
The
condensed consolidated financial statements included herein have
been prepared by the Company, without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with U.S. generally accepted
accounting principles have been condensed or omitted. However, in
the opinion of management, all adjustments (which consist only of
normal recurring adjustments) necessary to present fairly the
financial position and results of operations for the periods
presented have been made. These condensed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and the notes thereto included in the
Company's Form 10-K filing for the year ended December 31,
2018.
2.
Liquidity and Going Concern
Our
accompanying consolidated financial statements have been prepared
assuming that we will continue as a “going concern”,
which contemplates realization of assets and the satisfaction of
liabilities in the normal course of business for the twelve-month
period following the date that these consolidated financial
statements are issued. Crude oil and natural gas prices during 2018
and 2017 have remained considerably lower than their historical
highs and these lower prices have had a significant adverse impact
on our business and, as a result, on our financial condition and
our working capital. Accordingly, substantial doubt exists that we
will be able to continue as a “going
concern”.
As of
March 31, 2019, and December 31, 2018, the Company has a working
capital deficit of approximately $3,329,000 and $3,166,000,
respectively, primarily due to the classification of our line of
credit as a current liability. The line of credit agreement
(“the Loan Agreement”) provides for certain financial
covenants and ratios measured quarterly which include current
ratio, leverage ratio, and interest coverage ratio
requirements. The Company is out of compliance with all three
ratios as of March 31, 2019, and is in technical default of the
Loan Agreement. We do not expect to regain compliance in
2019. In October 2016, we executed a sixth amendment to the
Loan Agreement, and executed a Forbearance Agreement which provided
for Citibank’s forbearance from exercising remedies relating
to existing defaults. We executed the eleventh amendment to the
Loan Agreement and the fifth amendment to the Forbearance Agreement
on March 29, 2019, which extended the Forbearance Agreement to June
30, 2019.
Citibank
is in a first lien position on all of our properties. On December
1, 2015, Citibank lowered our borrowing base from $11,000,000 to
$5,500,000 and lowered it again to $2,761,632 on December 29, 2017.
Our borrowing base was lowered again on June 30, 2018, to
$2,585,132. The borrowing base was lowered again on March 31, 2019,
to $2,578,196 after the Company made a payment of
$6,936.
We are
taking the following steps to mitigate our current financial
situation. We are actively meeting with investors for possible
equity investments, including business combinations. We are
continuing our effort to identify and market all possible
non-producing or low producing assets in our portfolio to maximize
cash in-flows while minimizing a loss of cash flow. We are also
investigating other possible sources to refinance our debt as we
continue to pay down our outstanding line of credit balance with a
minimal effect on cash flow. Finally, we are continuing discussions
with various individuals and groups that could be willing to
provide capital to fund the operations and growth of the
Company.
FieldPoint
Petroleum Corporation
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Our
ability to continue as a “going concern” is dependent
on many factors, including, among other things, our ability to
comply with the covenants in our Loan Agreement, our ability to
cure any defaults that occur under our Loan Agreement or to obtain
waivers or forbearances with respect to any such defaults, and our
ability to pay, retire, amend, replace or refinance our
indebtedness as defaults occur or as interest and principal
payments come due. Our ability to continue as a “going
concern” is also dependent on raising additional capital to
fund our operations and ultimately on generating future profitable
operations. While we are actively involved in seeking new sources
of working capital, there can be no assurance that we will be able
to raise sufficient additional capital or to have positive cash
flow from operations to address all our cash flow needs. Additional
capital could be on terms that are highly dilutive to our
shareholders. If we are not able to find alternative sources of
cash or to generate positive cash flow from operations, our
business and shareholders may be materially and adversely
affected.
3.
Recently Issued Accounting
Pronouncements
In
February 2016, the FASB issued Accounting Standards Update No.
2016-02, “Leases”, to increase transparency and
comparability among organizations by recognizing lease assets and
lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. The new standard applies to
all leases with a term greater than one year. This authoritative
guidance is effective for fiscal years beginning after December 15,
2018, and interim periods within those fiscal years. The Company
has completed the process of reviewing and determining the
contracts to which this new guidance applies. The Company elected
the practical expedient election not to apply the recognition
requirements in the lease standard to short-term leases with a
lease term of twelve months or less and does not contain a purchase
option. Upon adoption, on January 1, 2019, the Company had no
leases greater than one year. The Company has a twelve-month lease
for office space from August 1, 2018, to July 31, 2019. The Company
does not plan to renew the lease but plans to go to a
month-to-month rental. Accordingly, the Company did not recognize
any right-of-use assets, or any associated lease liabilities on
adoption of the new accounting standard. Monthly lease payments are
$3,349 plus $300 for storage. Total payments through the end of the
lease will be $14,596.
In July
2018, the FASB issued ASU No. 2018-09, “Codification
Improvements,” (“ASU 2018-09”) which makes
amendments to multiple codification topics to clarify, correct
errors in, or make minor improvements to the accounting standards
codification. The effective date of the standard is dependent on
the facts and circumstances of each amendment. Some amendments do
not require transition guidance and will be effective upon the
issuance of this standard. Many of the amendments in ASU 2018-09
will be effective in annual periods beginning after December 15,
2019. The Company does not believe this new guidance will have a
material impact on its consolidated financial
statements.
FieldPoint
Petroleum Corporation
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
On
August 17, 2018, the SEC issued a final rule that amends certain of
its disclosure requirements that have become redundant,
duplicative, overlapping, outdated or superseded, in light of other
disclosure requirements, U.S. GAAP or changes in the information
environment. The amendments are intended to facilitate the
disclosure of information to investors and simplify compliance
without significantly altering the total mix of information
provided to investors. The final rule amends numerous SEC rules,
items and forms covering a diverse group of topics, including, but
not limited to, changes in stockholders’ equity. The final
rule extends to interim periods the annual disclosure requirement
in SEC Regulation S-X, Rule 3-04, of presenting changes in
stockholders’ equity. The registrants are required to analyze
changes in stockholders’ equity in the form of a
reconciliation for the current quarter and year-to-date interim
periods and comparative periods in the prior year. As a result, the
Company updated its presentation of the consolidated statements of
stockholders’ equity to include comparative periods in the
prior year. In addition, the final rule requires the presentation
of dividends per share to be disclosed in the statement of
stockholders’ equity.
In
November 2018, the FASB issued ASU No. 2018-18,
“Collaborative Arrangements (Topic 808): Clarifying the
Interaction between Topic 808 and Topic 606,” (“ASU
2018-18”) which, among other things, clarifies that (i)
certain transactions between collaborative arrangement participants
should be accounted for as revenue under Topic 606 when the
collaborative arrangement participant is a customer in the context
of a unit of account, (ii) adds unit-of-account guidance in Topic
808 to align with the guidance in Topic 606 and (iii) requires that
in a transaction with a collaborative arrangement participant that
is not directly related to sales to third parties, presenting the
transaction together with revenue recognized under Topic 606 is
precluded if the collaborative arrangement participant is not a
customer. ASU 2018-18 is effective for fiscal years beginning after
December 15, 2019, and interim periods within those fiscal years
and early adoption is permitted. The amendments in this update
should be applied retrospectively to the date of initial
application of Topic 606. An entity should recognize the cumulative
effect of initially applying the amendments as an adjustment to the
opening balance of retained earnings of the later of the earliest
annual period presented and the annual period that includes the
date of the entity’s initial application of Topic 606. The
Company is currently assessing the effect that ASU 2018-18 will
have on its financial position, results of operations and
disclosures.
4.
Revenue
Recognition
The
Company recognizes revenues from the sales of oil, natural gas and
natural gas liquids (“NGL”) to its customers in
accordance with the five-step revenue recognition model prescribed
in ASC 606. Specifically, revenue is recognized when the
Company’s performance obligations under contracts with
customers (purchasers) are satisfied, which generally occurs with
the transfer of control of the products to the purchasers. Control
is generally considered transferred when the following criteria are
met: (i) transfer of physical custody, (ii) transfer of title,
(iii) transfer of risk of loss and (iv) relinquishment of any
repurchase rights or other similar rights. Given the nature of the
sales, revenue is recognized at a point in time based on the amount
of consideration the Company expects to receive in accordance with
the price specified in the contracts. Consideration under the
marketing contracts is typically received from the purchaser one to
two months after production and, as a result, the Company is
required to estimate the amount of production that was delivered to
the purchaser and the price that will be received for the sale of
the product. The Company records the differences between estimates
and the actual amounts received for product sales once payment is
received from the purchaser. Such differences have historically not
been significant as the Company uses knowledge of its properties
and their historical performance, spot market prices and other
factors as the basis for these estimates. At March 31, 2019, the
Company had receivables related to contracts with customers of
$472,050.
FieldPoint
Petroleum Corporation
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The
following table summarizes revenue by major source for the three
months ended March 31, 2019 and 2018. There was no impact related
to the adoption of ASC 606 as compared to the previous revenue
recognition standard, ASC Topic 605, “Revenue
Recognition” (“ASC 605”):
|
|
For the Three
Months Ended
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
|
Oil
|
$
366,055
|
$
425,008
|
|
Natural Gas and
NGL
|
50,397
|
40,839
|
|
Total oil, natural
gas and NGL
|
$
416,452
|
$
465,847
|
Oil Contracts
. Under its oil sales contracts, the Company
sells oil at the delivery point specified in the contract and
collects an agreed-upon index price, net of pricing differentials.
At the delivery point, the purchaser takes custody, title and risk
of loss of the product and, therefore, control as defined under ASC
606 passes at the delivery point. The Company recognizes revenue at
the net price received when control transfers to the
purchaser.
Natural Gas and NGL Contracts
. The majority of the
Company’s natural gas and NGL is sold at the lease location,
which is generally when control of the natural gas and NGL has been
transferred to the purchaser, and revenue is recognized as the
amount received from the purchaser.
The
Company does not disclose the value of unsatisfied performance
obligations under its contracts with customers as it applies the
practical exemption in accordance with ASC 606. The exemption, as
described in ASC 605-10-50-14(a), applies to variable consideration
that is recognized as control of the product is transferred to the
purchaser. Since each unit of product represents a separate
performance obligation, future volumes are wholly unsatisfied and
disclosure of the transaction price allocated to remaining
performance obligations is not required.
5.
Oil and Natural Gas
Properties
No
wells were drilled or completed during the three months ended March
31, 2019 or 2018. The Company made no purchases of oil and natural
gas properties during the quarters ended March 31, 2019 or
2018.
On a
quarterly basis, the Company compares our most recent engineering
reports to forward strip pricing as of the end of the quarter and
production to determine impairment charges, if needed, in order to
write down the carrying value of certain properties to fair value.
In order to determine the amounts of the impairment charges, the
Company compares net capitalized costs of proved oil and natural
gas properties to estimated undiscounted future net cash flows
using management's expectations of economically recoverable proved
reserves. If the net capitalized cost exceeds the undiscounted
future net cash flows, the Company impairs the net cost basis down
to the discounted future net cash flows, which is management's
estimate of fair value. In order to determine the fair value, the
Company estimates reserves, future operating and development costs,
future commodity prices and a discounted cash flow model utilizing
a 10 percent discount rate. The estimates used by management for
the fair value measurements utilized in this review include
significant unobservable inputs, and therefore, the fair value
measurements are classified as Level 3 of the fair value hierarchy.
Based on its current circumstances, the Company has not recorded
any impairment charges during the three months ended March 31, 2019
and 2018.
FieldPoint
Petroleum Corporation
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The Tax
Cuts and Jobs Act of 2017 repealed the Alternative Minimum Tax and
made the AMT credit refundable in tax years beginning after 2017.
The net amount of the AMT credit eligible for refund is $158,428.
Half of this refund, approximately $79,000, is expected to be
refundable for the tax year ended December 31, 2018, and is
included in income tax receivable - current. Approximately $79,000
is reported in other assets on the consolidated balance
sheet.
The
Company also reassessed the realizability of our deferred tax
assets but determined that it continues to be more likely than not
that the deferred tax assets will not be utilized in the future and
continue to record a full valuation allowance of the deferred tax
assets. As a result, no income tax asset was recognized by the
Company for the three months ended March 31, 2019. The Company
reported $40 in state income tax expense for the three months ended
March 31, 2019. The tax rate for the three months ended March 31,
2019, is less than 1%, which differs from the statutory federal and
state rate due to net operating losses from prior years. For the
three months ended March 31, 2018, the Company recognized no tax
expense. This rate differs from the statutory federal and state
rate due to net operating losses from prior years.
The
Company has a line of credit with Citibank with a borrowing base
and outstanding principal balance of $2,578,196 and $2,585,132 at
March 31, 2019, and December 31, 2018, respectively. Citibank is in
a first lien position on all of our oil and natural gas
properties.
The
Loan Agreement provides for certain financial covenants and ratios
measured quarterly which include current ratio, leverage ratio, and
interest coverage ratio requirements. The Company is out of
compliance with all three ratios as of March 31, 2019, and is in
technical default of the Loan Agreement. We do not expect to regain
compliance in 2019. In October 2016, we executed a sixth
amendment to the Loan Agreement, and executed a Forbearance
Agreement which provided for Citibank’s forbearance from
exercising remedies relating to existing defaults. We executed the
eleventh amendment to the Loan Agreement and the fifth amendment to
the Forbearance Agreement on March 29, 2019, which extended the
Forbearance Agreement to June 30, 2019. The terms of the fifth
amendment to the Forbearance Agreement are substantially the same
as under the forgoing fourth amendment. The interest rate on the
line of credit was approximately 8% as of March 31, 2019, and
December 31, 2018.
We
approved a stock warrant dividend of one warrant per one common
share in March 2012. The warrants had an exercise price of $4.00
and were exercisable over 6 years from the record date. Our
warrants were delisted from the NYSE American (formerly NYSE MKT)
on November 17, 2017, and then expired on March 23,
2018.
FieldPoint
Petroleum Corporation
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
During
2017, the Company received notification that Trivista, an entity
controlled by Natale Rea, a beneficial owner of approximately 7.00%
of our common stock, had become the operator of certain oil and
natural gas properties where we have both working and revenue
ownership interests. Trivista has failed to provide revenue,
expense and operating information since April 2018 which is in
direct violation of the joint operating agreements which govern
these wells. During the three months ended March 31, 2019, we
recorded oil and natural gas revenues associated with our revenue
ownership interest in these wells of approximately $67,000. In
addition, during the three months ended March 31, 2019, the Company
accrued approximately $46,000 for joint interest billings
associated with our working interest in these oil and natural gas
properties.
Director
and Committee fees of $26,250 and $35,750 were accrued but have not
been paid during the three months ended March 31, 2019 and 2018,
respectively.
As
previously disclosed in the Company’s Current Report on Form
8-K dated May 8, 2018, the Company is a party to a civil action
captioned
Trivista
Operating, LLC v. Bass Petroleum, Inc. and Fieldpoint Petroleum
Corporation, Cause No. 16,539
in the District Court
of Lee County, Texas, 335 Judicial District (the “Trivista
Litigation”).
Trivista filed suit for non-payment of
outstanding disputed invoices of $107,000 plus attorney fees and
court costs on February 26, 2018. Trivista Operating LLC is
controlled by one of our major shareholders,
Natale Rea (2013) Family Trust.
The Company
disputes that it has any liability to the plaintiff in that action
and intends to vigorously defend same.
PART I
