RISK
FACTORS
An
investment in the shares of Common Stock offered hereby involves a high degree of risk. You should consider and read carefully all of
the risks and uncertainties described below, together with all of the other information contained or incorporated by reference into the
registration statement of which this prospectus forms a part, before deciding to invest in such shares of Common Stock. If any of the
following risks, or any risk described elsewhere in such registration statement, this prospectus or in the documents incorporated by
reference herein or therein, actually occurs, our business, business prospects, financial condition, results of operations or cash flows
could be materially adversely affected. In any such case, the trading price of the Common Stock could decline, and you could lose all
or part of your investment. The risks described below and in the documents incorporated by reference such registration statement and
this prospectus are not the only ones facing the Company. Additional risks not currently known to us or that we currently deem immaterial
may also adversely affect us. The registration statement and this prospectus also contains forward-looking statements, estimates and
projections that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking
statements as a result of specific factors, including the risks described below and in the documents incorporated by reference herein
and therein.
Risks
Related to the COVID-19 Pandemic
Risks
Related to Our Business
Our
business and operations have been adversely affected by and are expected to continue to be adversely affected by, the coronavirus disease
2019 (“COVID-19”) pandemic, and may be adversely affected by other similar virus or disease outbreaks, epidemics and pandemics.
As
a result of the ongoing COVID-19 pandemic and related adverse public health developments, including, but not limited to, voluntary and
mandatory quarantines, travel restrictions and other restrictions, our operations, and those of our subcontractors, customers and suppliers,
have and are anticipated to continue to experience delays or disruptions and temporary suspensions of operations. In addition, our financial
condition and results of operations have been and are likely to continue to be adversely affected by the COVID-19 pandemic.
The
timeline and potential magnitude of the COVID-19 pandemic are currently unknown. The continuation or amplification of COVID-19 could
continue to more broadly affect the United States and the global economy, including the demand for oil and gas, which would adversely
affect our business and operations. For example, the outbreak of COVID-19 has resulted in a widespread health crisis that will adversely
affect the economies and financial markets of many countries, resulting in an economic downturn that has and will continue to affect
our operating results. Other contagious viruses or diseases in the human population could have similar adverse effects. In addition,
the effects of COVID-19 and concerns regarding its global spread have negatively impacted the domestic and international demand for crude
oil and natural gas, which has contributed to price volatility and will impact the value of our working interests and other oil and gas
assets, affect the ability of our vendors, suppliers and customers to continue operations, affect our operations and ultimately adversely
impact our results of operations, liquidity and financial condition. A prolonged period of low market prices for oil and natural gas,
or further declines in the market prices for oil and natural gas, will likely result in capital expenditures being further curtailed
and will adversely affect our business, financial condition and liquidity and our ability to meet obligations, targets or financial commitments
and could ultimately lead to restructuring or filing for bankruptcy, which would have a material adverse effect on our stock price and
our ability to fulfill our obligations under any existing indebtedness. Additionally, lower oil and natural gas prices have, and may
in the future, cause, a decline in our stock price. As the potential impact from COVID-19 is difficult to predict, the extent to which
it will negatively affect out operating results, or the duration of any potential business disruption is uncertain. The magnitude and
duration of any impact will depend on future developments and new information that may emerge regarding the severity and duration of
COVID-19 and the actions taken by authorities to contain it or treat its impact, including the efficiency of recent vaccines, the ability
of governments to roll such vaccines out to the general public, and the willingness of individuals to obtain such vaccines, all of which
are beyond our control. These potential impacts, while uncertain, have already negatively affected our results of operations, and are
anticipated to have a negative impact on our future results as well.
We
have a history of losses and expect to continue to generate operating losses and experience negative cash flow and it is uncertain whether
we will achieve future profitability, and as a result, investors may lose all of their investment if they purchase shares of Common Stock.
We
have had a history of losses and have generated little or no operating revenues for a number of years, as we concentrated on development
of the Concessions, which was a long-term, high-risk and high-reward exploration project. We abandoned the Concessions development project
in early 2020 due to the challenging economic and political issues in Nicaragua and the oil and gas industry in general. We have incurred
losses in many of the years since our inception and had an accumulated deficit of approximately $117,178,645 as of December 31, 2020,
which includes net income of approximately $5,623,707 for the year ended December 31, 2020, as compared to an accumulated deficit of
approximately $122,802,352 as of December 31, 2019, which includes net income of approximately $1,844,775 for the year ended December
31, 2019. As of March 31, 2021, we had an accumulated deficit of $117,290,208, which includes a net loss of $203,624 for the three months
ended March 31, 2021, as compared to an accumulated deficit of $117,178,645 as of March 31, 2020, which includes a net loss of $84,765
for the three months ended March 31, 2020.
We
face challenges and uncertainties in financial planning as a result of uncertainties regarding the nature, scope and results of our future
activities. We may not be successful in implementing our business strategies or in completing the development of the infrastructure necessary
to conduct our business as planned. In the event that one or more of our development and drilling programs is not completed or is delayed
or terminated, our operating results will be adversely affected and our operations will differ materially from the activities described
in this prospectus and our subsequent annual and periodic reports. As a result of industry factors or factors relating specifically to
us, we may have to change our methods of conducting business, which may cause a material adverse effect on our results of operations
and financial condition. The uncertainty and risks described in this prospectus may impede our ability to economically find, develop,
exploit, and acquire oil and natural gas reserves. As a result, we may not be able to achieve or sustain profitability or positive cash
flows provided by our operating activities in the future.
We
expect to continue to incur operating losses until such time, if ever, as we are able to achieve sufficient levels of revenue from operations.
There can be no assurance that we will ever generate revenue or achieve profitability. Accordingly, the extent of future losses and the
time required to achieve profitability, if ever, cannot be predicted at this point.
Development
and operation of the Properties will require large amounts of capital that we may not be able to obtain.
We
purchased the Properties on April 1, 2021 through the issuance of the shares of Series A Preferred Stock and the March Warrants, which
raised approximately $2.05 million. We have commenced operations on the Properties and intend to continue development within 12 months
following purchase of the Properties, subject to, among other things, additional and timely capital funding. In order to undertake such
activities, we will need to obtain large amounts of additional capital, potentially subjecting our existing shareholders to potential
significant dilution. The terms of such capital that may be available may not be acceptable or favorable to us. Our potential sources
of financing for these activities in the longer term would include cash availability under credit facilities, future sales of equity
securities or subordinated debt securities, as well as joint ventures or partnerships with third parties, which would dilute our interest
in the Properties.
Future
cash flows and the availability of financing are subject to a number of variables, such as:
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our
success in locating and producing new reserves;
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prices
of crude oil and natural gas;
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the
level of production from existing wells; and
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amounts
of necessary working capital and expenses.
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Issuing
equity securities to satisfy our financing or refinancing requirements could cause substantial dilution to existing stockholders. Debt
financing could lead to:
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all
or a substantial portion of our operating cash flow, if any, being dedicated to the payment of principal and interest;
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an
increase in interest expense as the amount of debt outstanding increases or as variable interest rates increase;
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increased
vulnerability to competitive pressures and economic downturns; and
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restrictions
on our operations that may be contained in any contract entered into with lenders.
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In
order to obtain capital, we could enter into a joint venture or partnership with another oil and gas company or companies in which we
would maintain a carried or reduced working interest in the Properties. However, this would reduce our ownership and control over the
projects and could significantly reduce our future revenue generated from oil and gas production. For example, on April 30, 2021, the
Company and USNG entered a non-binding term sheet to set terms and conditions whereby the parties thereto would formalize a joint venture
for the purpose of exploring for and developing various potential noble gas reserves on the Properties. The joint venture would cover
all of the noble gas rights and production rights potentially existing on the approximate 11,000 acres included in the Properties. Such
term sheet contains various provisions and conditions, including the Company receiving the 50% net revenue-share of all noble gases sold,
with the Company responsible for 37.5% of the related expenses. There can be no assurances that such parties will complete and execute
such definitive agreements and if successful, what the final terms will be. Furthermore, there can be no assurances that the Properties
hold potential reserves of noble gases or that they can be produced on a commercially profitable basis. For additional information regarding
the term sheet, see “Recent Developments – Joint Venture Agreement Term Sheet”, beginning on page 5.
In
addition, future events, such as terrorist attacks, wars or combat peace-keeping missions, financial market disruptions, general economic
recessions, oil and natural gas industry recessions, large company bankruptcies, accounting scandals, pandemic diseases, overstated reserves
estimates by major public oil companies and disruptions in the financial and capital markets have caused financial institutions, credit
rating agencies and the public to more closely review the financial statements, capital structures and earnings of public companies,
including energy companies. Such events have constrained the capital available to the energy industry in the past, and such events or
similar events could adversely affect our access to funding for our operations in the future.
Our
future production is contingent on successful development and operation of the Properties.
Our
future oil production is highly dependent on our level of success in development and operation of the Properties. The business of exploring
for and developing reserves is capital intensive. Exploration will require significant additional capital expenditures and successful
drilling operations. In our current financial situation, we are limited in our ability to engage in significant exploration or development
efforts unless we receive additional funding. We will also need to raise additional funding to complete future potential acquisitions
and will be required to raise additional funds to fund our operations and complete exploration and drilling operations beyond 2021 and
acquire assets. Management’s plans in regard to these matters consist principally of seeking additional debt and/or equity financing
combined with expected cash flows from current oil and gas assets held and additional oil and gas assets that we may acquire. Our efforts
may not be successful, and funds may not be available on favorable terms, if at all. If we need to raise additional funds in the future
by issuing equity securities, dilution to existing stockholders will result, and such securities may have rights, preferences and privileges
senior to those holders of our Common Stock. In order to obtain capital, we could enter into a joint venture or partnership with another
oil and gas company or companies in which we would maintain a carried or reduced working interest in the Properties. However, this would
reduce our ownership and control over the projects and could significantly reduce our future revenue generated from oil and gas production.
On April 30, 2021, the Company and USNG entered a non-binding term sheet to set terms and conditions whereby the parties thereto would
formalize a joint venture for the purpose of exploring for and development of various potential noble gas reserves on the Properties.
For additional information regarding such term sheet, see “Recent Developments - Joint Venture Agreement Term Sheet”.
If
funding is insufficient at any time in the future and we are unable to generate sufficient revenue from new business arrangements, to
complete planned acquisitions or operations, our results of operations and the value of our securities could be adversely affected.
Additionally,
due to the nature of oil and gas interests, i.e., that rates of production generally decline over time as oil and gas reserves
are depleted, if we are unable to drill additional wells and develop our reserves, either because we are unable to raise sufficient funding
for such development activities, or otherwise, or in the event we are unable to acquire additional operating properties, we believe that
our revenues will continue to decline over time. Furthermore, in the event we are unable to raise additional required funding in the
future, we will not be able to participate in the drilling of additional wells, will not be able to complete other drilling and/or workover
activities, and may not be able to make required payments on our outstanding liabilities.
If
this were to happen, we may be forced to scale back our business plan, sell or liquidate assets to satisfy outstanding debts, all of
which could result in the value of our outstanding securities declining in value.
Our
success is dependent on the prices of oil, natural gas and other mineral reserves. Low oil or natural gas prices and the substantial
volatility in these prices have adversely affected, and are expected to continue to adversely affect, our business, financial condition
and results of operations and our ability to meet our capital expenditure requirements and financial obligations.
The
prices we receive for our oil and natural gas heavily influence our revenue, profitability, cash flow available for capital expenditures,
access to capital and future rate of growth. Oil and natural gas are commodities and, therefore, their prices are subject to wide fluctuations
in response to relatively minor changes in supply and demand. Historically, the commodities market has been volatile. For example, the
price of crude oil has experienced significant volatility over the last 5 years, with the price per barrel of West Texas Intermediate
crude oil rising from a monthly average low of approximately $38 in February 2016 to a high of approximately $79 in September 2018, then
dropping below $20 per barrel in April 2020, due in part to reduced global demand stemming from the recent global COVID-19 outbreak,
before recovering to between approximately $70 and $75 per barrel more recently. Prices for natural gas and natural gas liquids experienced
declines of similar magnitude. An extended period of continued lower oil prices, or additional price declines, will have further adverse
effects on us. The prices we receive for our production, and the levels of our production, will continue to depend on numerous factors,
including the following:
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the
domestic and foreign supply of oil and natural gas;
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the
domestic and foreign demand for oil and natural gas;
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the
prices and availability of competitors’ supplies of oil and natural gas;
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the
actions of the Organization of Petroleum Exporting Countries and state-controlled oil companies relating to oil price and production
controls;
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the
price and quantity of foreign imports of oil and natural gas;
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the
impact of U.S. dollar exchange rates on oil and natural gas prices;
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domestic
and foreign governmental regulations and taxes;
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speculative
trading of oil and natural gas futures contracts;
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localized
supply and demand fundamentals, including the availability, proximity and capacity of gathering and transportation systems for natural
gas;
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the
availability of refining capacity;
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the
prices and availability of alternative fuel sources;
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the
threat, or perceived threat, or results, of viral pandemics, for example, as experienced with the COVID-19 pandemic in 2020 and 2021;
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weather
conditions and natural disasters;
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political
conditions in or affecting oil and natural gas producing regions, including the Middle East and South America;
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the
continued threat of terrorism and the impact of military action and civil unrest;
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public
pressure on, and legislative and regulatory interest within, federal, state and local governments to stop, significantly limit or
regulate hydraulic fracturing activities;
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the
level of global oil and natural gas inventories and exploration and production activity;
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authorization
of exports from the Unites States of liquefied natural gas;
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the
impact of energy conservation efforts;
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technological
advances affecting energy consumption; and
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overall
worldwide economic conditions.
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If
oil or natural gas prices remain depressed or our development and drilling efforts are unsuccessful, we could be required to write down
the carrying value of certain of our oil and natural gas properties. Write downs may occur when oil and natural gas prices are low, or
if we have downward adjustments to our estimated proved reserves, increases in our estimates of operating or development costs, deterioration
in drilling results or mechanical problems with wells where the cost to re-drill or repair is not supported by the expected economics.
Under
the full cost method of accounting, capitalized oil and gas property costs less accumulated depletion and net of deferred income taxes
may not exceed an amount equal to the present value, discounted at 10%, of estimated future net revenues from proved oil and gas reserves
plus the cost of unproved properties not subject to amortization (without regard to estimates of fair value), or estimated fair value,
if lower, of unproved properties that are subject to amortization. Should capitalized costs exceed this ceiling, an impairment would
be recognized.
Declines
in oil or natural gas prices have not, and will not, only reduce our revenue, but have and will reduce the amount of oil and natural
gas that we can produce economically. Should natural gas or oil prices decline from current levels and remain there for an extended period
of time, we may choose to shut-in our operated wells, delay some or all of our exploration and development plans for our prospects, or
to cease exploration or development activities on certain prospects due to the anticipated unfavorable economics from such activities,
and, as a result, we may have to make substantial downward adjustments to our estimated proved reserves, each of which would have a material
adverse effect on our business, financial condition and results of operations.
We
are subject to regulations affecting our activities with the Properties.
We
are subject to legal and regulatory oversight by federal and local authorities, such as the Ministry of Energy and Mines and the Kansas
Energy Office, with respect to the exploration for, and the development, production and marketing of, crude oil and natural gas, as well
as safety matters. From time to time, in varying degrees, federal and state laws and regulations affect our operations in the Properties.
In particular, price controls, taxes and other laws relating to the crude oil and natural gas industry, changes in these laws and changes
in administrative regulations have affected, and in the future could affect, crude oil and natural gas production, operations and economics.
We cannot predict the ultimate cost of compliance with these requirements or their effect on our operations in the Properties. As a result,
we may be required to make significant expenditures to comply with governmental laws and regulations.
Further,
operations in the Properties are subject to complex federal and local environmental laws and regulations. The discharge of natural gas,
crude oil, or other pollutants into the air, soil or water may give rise to significant liabilities on our part to government agencies
and third parties and may require us to incur substantial costs of remediation. In addition, in the future we may incur costs and penalties
in addressing regulatory agency procedures involving instances of possible non-compliance.
All
of our oil and gas production will be located in the Central Kansas Uplift geological formation, making us vulnerable to risks associated
with operating in only one geographic area.
Our
operations will be focused solely in the Central Kansas Uplift geological formation, which means our producing properties and new drilling
opportunities will be geographically concentrated in one area. Because our operations will not be as diversified geographically as many
of our competitors, the success of our operations and our profitability may be disproportionately exposed to the effect of any regional
events, including:
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fluctuations
in prices of crude oil, natural gas and other mineral reserves produced from the wells in this area;
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natural
disasters;
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the
effects of local quarantines;
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restrictive
governmental regulations; and
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curtailment
of production or interruption in the availability of gathering, processing or transportation infrastructure and services, and any
resulting delays or interruptions of production from existing or planned new wells.
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Similarly,
the concentration of our assets within one producing formation exposes us to risks, such as changes in field-wide rules that could adversely
affect development activities or production relating to this formation. Such an event could have a material adverse effect on our results
of operations and financial condition. In addition, in areas where exploration and production activities are increasing, as has been
the case in recent months in the Central Kansas Uplift geological formation where our Properties are located, the demand for, and cost
of, drilling rigs, equipment, supplies, personnel and oilfield services increase. Shortages or the high cost of drilling rigs, equipment,
supplies, personnel or oilfield services could delay or adversely affect our development and exploration operations or cause us to incur
significant expenditures that are not provided for in our capital forecast, which could have a material adverse effect on our business,
financial condition or results of operations. Finally, our operations in Kansas may be negatively affected by quarantines put in place
in Kansas in an effort to slow the spread of COVID-19 or other viruses or diseases.
We
may have accidents, equipment failures or mechanical problems while drilling or completing wells or in production activities, which could
adversely affect our business.
While
we are drilling and completing wells or involved in production activities, we may have accidents or experience equipment failures or
mechanical problems in a well that cause us to be unable to drill and complete the well or to continue to produce the well according
to our plans. We may also damage a potentially hydrocarbon-bearing formation during drilling and completion operations. Such incidents
may result in a reduction of our production and reserves from the well or in abandonment of the well.
Our
operations are subject to operational hazards and unforeseen interruptions against which we were unable to maintain insurance.
There
are numerous operational hazards inherent in oil and natural gas exploration, development, production and gathering, including:
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unusual
or unexpected geologic formations;
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natural
disasters;
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adverse
weather conditions;
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unanticipated
pressures;
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loss
of drilling fluid circulation;
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blowouts
where oil or natural gas flows uncontrolled at a wellhead;
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cratering
or collapse of the formation;
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pipe
or cement leaks, failures or casing collapses;
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fires
or explosions;
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releases
of hazardous substances or other waste materials that cause environmental damage;
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pressures
or irregularities in formations; and
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equipment
failures or accidents.
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In
addition, there is an inherent risk of incurring significant environmental costs and liabilities in the performance of our operations,
some of which may be material, due to our handling of petroleum hydrocarbons and wastes, our emissions to air and water, the underground
injection or other disposal of our wastes, the use of hydraulic fracturing fluids and historical industry operations and waste disposal
practices.
Any
of these or other similar occurrences could result in the disruption or impairment of our operations, substantial repair costs, personal
injury or loss of human life, significant damage to property, environmental pollution and substantial revenue losses. The location of
our wells, gathering systems, pipelines and other facilities near populated areas, including residential areas, commercial business centers
and industrial sites, if any, could significantly increase the level of damages resulting from these risks. Insurance against all operational
risks is not available to us. We are not insured against all operational risks, including development and completion risks that are generally
not recoverable from third parties or insurance. In addition, pollution and environmental risks are not assured. With respect to our
other non-operated assets, we may elect to continue not obtaining insurance if we believe that the cost of available insurance is excessive
relative to the perceived risks presented. Losses could, therefore, occur for uninsurable or uninsured risks and liabilities from uninsured
and underinsured events could have a material adverse effect on our business, financial condition and results of operations.
Unless
we replace our oil and natural gas reserves, our reserves and production will decline, which will adversely affect our business, financial
condition and results of operations.
The
rate of production from the Properties will decline as our reserves are depleted. Our future oil and natural gas reserves and production
and, therefore, our income and cash flow, are highly dependent on our success in (a) efficiently developing and exploiting our current
reserves on the Properties and (b) economically finding or acquiring additional oil and natural gas producing properties. In the future,
we may have difficulty acquiring new properties. During periods of low oil and/or natural gas prices, it will become more difficult to
raise the capital necessary to finance expansion activities. If we are unable to replace our production, our reserves will decrease,
and our business, financial condition and results of operations would be adversely affected.
Our
strategy includes future acquisitions of oil and natural gas properties, and our failure to identify or complete any such future acquisitions
successfully, or not produce projected revenues associated with such future acquisitions, could reduce our earnings and hamper our growth.
We
may be unable in the future to identify properties for acquisition or to make acquisitions on terms that we consider economically acceptable.
There is intense competition for acquisition opportunities in our industry. Competition for acquisitions may increase the cost of, or
cause us to refrain from, completing acquisitions. The completion and pursuit of acquisitions may be dependent upon, among other things,
our ability to obtain debt and equity financing and, in some cases, regulatory approvals. Our ability to grow through acquisitions will
require us to continue to invest in our operations, financial and management information systems and to attract, retain, motivate and
effectively manage our employees. The inability to manage the integration of acquisitions into our business, including the integration
of the Properties, could reduce our focus on subsequent acquisitions and current operations and could negatively impact our results of
operations and growth potential. Our financial position and results of operations may fluctuate significantly from period to period as
a result of the completion of significant acquisitions during particular periods. If we are not successful in identifying or acquiring
any future material property interests, our earnings could be reduced and our growth could be restricted.
We
may engage in bidding and negotiating to complete successful acquisitions. We may be required to alter or increase substantially our
capitalization to finance these acquisitions through the use of cash on hand, the issuance of debt or equity securities, the sale of
production payments, the sale of non-strategic assets, the borrowing of funds or otherwise. If we were to proceed with one or more acquisitions
involving the issuance of the Common Stock, our stockholders would suffer dilution of their interests. Furthermore, our decision to acquire
properties that are substantially different in operating or geologic characteristics or geographic locations from areas with which our
staff is familiar may impact our productivity in such areas.
We
may not be able to produce the projected revenues related to our acquisition of the Properties and to our future acquisitions. There
are many assumptions related to the projection of the revenues the Properties and of future acquisitions including, but not limited to,
drilling success, oil and natural gas prices, production decline curves and other data. If revenues from the Properties or from future
acquisitions do not meet projections, this could adversely affect our business and financial condition.
If
we complete acquisitions or enter into business combinations in the future, they may disrupt or have a negative impact on our business.
If
we complete acquisitions or enter into business combinations in the future, funding permitting, we could have difficulty integrating
the acquired companies’ assets, personnel and operations with our own. Additionally, acquisitions, mergers or business combinations
into which we may enter in the future could result in a change of control of the Company, and a change in the board of directors or officers
of the Company. In addition, the key personnel of the acquired business may not be willing to work for us. We cannot predict the effect
expansion may have on our core business. Regardless of whether we are successful in making an acquisition or completing a business combination,
the negotiations could disrupt our ongoing business, distract our management and employees and increase our expenses. In addition to
the risks described above, acquisitions and business combinations are accompanied by a number of inherent risks, including, without limitation,
the following:
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the
difficulty of integrating acquired companies, concepts and operations;
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the
potential disruption of the ongoing businesses and distraction of our management and the management of acquired companies;
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change
in our business focus and/or management;
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difficulties
in maintaining uniform standards, controls, procedures and policies;
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the
potential impairment of relationships with employees and partners as a result of any integration of new management personnel;
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the
potential inability to manage an increased number of locations and employees;
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our
ability to successfully manage the companies and/or concepts acquired;
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the
failure to realize efficiencies, synergies and cost savings; or
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the
effect of any government regulations which relate to the business acquired.
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Our
business could be severely impaired if and to the extent that we are unable to succeed in addressing any of these risks or other problems
encountered in connection with an acquisition or business combination, many of which cannot be presently identified. These risks and
problems could disrupt our ongoing business, distract our management and employees, increase our expenses and adversely affect our results
of operations.
Any
acquisition or business combination transaction we enter into in the future could cause substantial dilution to existing stockholders,
result in one party having majority or significant control over the Company or result in a change in business focus of the Company.
The
Properties may have, or we may purchase oil and natural gas properties in the future that may have, liabilities or risks that we did
not know about or that we did not assess correctly, and, as a result, we could be subject to liabilities that could adversely affect
our results of operations.
Before
acquiring the Properties and any future oil and natural gas properties, we estimate the reserves, future oil and natural gas prices,
operating costs, potential environmental liabilities and other factors relating to such properties. However, our review involves many
assumptions and estimates, and their accuracy is inherently uncertain. As a result, we may not discover all existing or potential problems
associated with the Properties or other properties that we acquire in the future. We may not become sufficiently familiar with such properties
to assess fully their deficiencies and capabilities. We do not generally perform inspections on every well or property, and we may not
be able to observe mechanical and environmental problems even when we conduct an inspection. The sellers of such properties may not be
willing or financially able to give us contractual protection against any identified problems, and we may decide to assume environmental
and other liabilities in connection with properties we acquire. We did assume the plugging and abandonment liability for the existing
wells on our Properties. If the Properties have, or if we acquire properties in the future that have, risks or liabilities that we did
not know about or that we did not assess correctly, our business, financial condition and results of operations could be adversely affected
as we settle claims and incur cleanup costs related to these liabilities.
We
may incur losses or costs as a result of title deficiencies in the properties in which we invest, including the Properties.
If
an examination of the title history of a property that we have purchased, including the Properties, reveals an oil and natural gas lease
has been purchased in error from a person who is not the owner of the property, our interest would be worthless. In such an instance,
the amount paid for such oil and natural gas lease as well as any royalties paid pursuant to the terms of the lease prior to the discovery
of the title defect would be lost.
Prior
to the drilling of an oil and natural gas well, it is the normal practice in the oil and natural gas industry for the person or company
acting as the operator of the well to obtain a preliminary title review of the spacing unit within which the proposed oil and natural
gas well is to be drilled to ensure there are no obvious deficiencies in title to the well. Frequently, as a result of such examinations,
certain curative work must be done to correct deficiencies in the marketability of the title, and such curative work entails expense.
Our failure to cure any title defects may adversely impact our ability in the future to increase production and reserves. In the future,
we may suffer a monetary loss from title defects or title failure. Additionally, unproved and unevaluated acreage has greater risk of
title defects than developed acreage. If there are any title defects or defects in assignment of leasehold rights in properties in which
we hold an interest, we will suffer a financial loss which could adversely affect our business, financial condition and results of operations.
We
currently have a limited amount of past seismic and other geological data and may have difficulty obtaining additional data at a reasonable
cost, which could adversely affect our future results of operations.
We
acquired 3Dseismic and other geological data with our recent acquisition of the Properties to assist us in exploration and development
activities on the Properties. We may obtain access to additional data in our areas of interest through licensing arrangements with companies
that own or have access to that data or by paying to obtain that data directly. Seismic and geological data can be expensive to license
or obtain. We may not be able to license or obtain such data at an acceptable cost. In addition, even when properly interpreted, seismic
data and visualization techniques are not conclusive in determining if hydrocarbons are present in economically producible amounts and
seismic indications of hydrocarbon saturation are generally not reliable indicators of productive reservoir rock, which may negatively
affect our efficacy, resulting in little or no yielding of oil or natural gas in commercial quantities. As a result, we may not be able
to continue our operations as proposed and could be forced to modify our drilling plans accordingly, which could adversely affect our
business, financial condition and results of operations.
The
unavailability or high cost of drilling rigs, completion equipment and services, supplies and personnel, including hydraulic fracturing
equipment and personnel, could adversely affect our ability to establish and execute exploration and development plans within budget
and on a timely basis, which could have a material adverse effect on our business, financial condition and results of operations.
Shortages
or the high cost of drilling rigs, completion equipment and services, supplies or personnel could delay or adversely affect our operations.
When drilling activity in the United States increases, associated costs typically also increase, including those costs related to drilling
rigs, equipment, supplies and personnel and the services and products of other vendors to the industry. These costs may increase, and
necessary equipment and services may become unavailable to us at economical prices. Should this increase in costs occur, we may delay
drilling activities, which may limit our ability to establish and replace reserves, or we may incur these higher costs, which may negatively
affect our business, financial condition and results of operations.
In
addition, in the past, the demand for hydraulic fracturing services has exceeded the availability of fracturing equipment and crews across
the industry and in our operating areas in particular. The accelerated wear and tear of hydraulic fracturing equipment due to its deployment
in unconventional oil and natural gas fields characterized by longer lateral lengths and larger numbers of fracturing stages may further
amplify this equipment and crew shortage. Although we believe there is currently sufficient supply of hydraulic fracturing services,
if demand for fracturing services increases or the supply of fracturing equipment and crews decreases, then higher costs could result
and could adversely affect our business, financial condition and results of operations.
The
marketability of our production is dependent upon oil and natural gas gathering and transportation and storage facilities owned and operated
by third parties, and the unavailability of satisfactory oil and natural gas transportation arrangements may have a material adverse
effect on our revenue.
The
unavailability of satisfactory oil and natural gas transportation arrangements may hinder our access to oil and natural gas markets and
delay production from our wells. The availability of a ready market for our oil and natural gas production depends on a number of factors,
including the demand for, and supply of, oil and natural gas and the proximity of reserves to pipelines, terminal facilities and storage
facilities. Our ability to market our production depends in substantial part on the availability and capacity of gathering systems, pipelines
and processing facilities owned and operated by third parties. Our failure to obtain these services on acceptable terms could materially
harm our business. In the future we may be required to shut-in wells for lack of a market or because of inadequacy or unavailability
of pipeline or gathering system capacity. When this occurs, we are unable to realize revenue from those wells until the market for oil
and gas increases and/or until production arrangements are made to deliver our production to market. Furthermore, we are obligated to
pay shut-in royalties to certain mineral interest owners in order to maintain our leases with respect to certain shut-in wells. We do
not expect to purchase firm transportation capacity on third-party facilities. Therefore, we expect the transportation of our production
to be generally interruptible in nature and lower in priority to those having firm transportation arrangements.
The
disruption of third-party facilities due to maintenance and/or weather could negatively impact our ability to market and deliver our
products. The third parties control when or if such facilities are restored after disruption, and what prices will be charged for products.
Federal and state regulation of oil and natural gas production and transportation, tax and energy policies, changes in supply and demand,
pipeline pressures, damage to or destruction of pipelines and general economic conditions could adversely affect our ability to produce,
gather and transport oil and natural gas.
Financial
difficulties encountered by our oil and natural gas purchasers, third-party operators or other third parties could decrease our cash
flow from operations and adversely affect the exploration and development of our prospects and assets.
We
will derive in the future, substantially all of our revenues from the sale of our oil and natural gas to unaffiliated third-party purchasers,
independent marketing companies and mid-stream companies. Any delays in payments from our purchasers caused by financial problems encountered
by them will have an immediate negative effect on our results of operations.
Liquidity
and cash flow problems encountered by our working interest co-owners or the third-party operators of our non-operated properties may
prevent or delay the drilling of a well or the development of a project. Our working interest co-owners may be unwilling or unable to
pay their share of the costs of projects as they become due. In the case of a farmout party, we would have to find a new farmout party
or obtain alternative funding in order to complete the exploration and development of the prospects subject to a farmout agreement. In
the case of a working interest owner, we could be required to pay the working interest owner’s share of the project costs. We cannot
assure you that we would be able to obtain the capital necessary to fund either of these contingencies or that we would be able to find
a new farmout party.
We
are continuing to negotiate with our creditors and may face additional claims in the future.
As
of July 20, 2021, we have approximately $3.7 million of outstanding debt and liabilities. As of the date of this prospectus, we remain
in default on payment of many of our obligations, including the Concessions agreements. As of December 31, 2020, the Concessions agreements
remain terminated and the Company has abandoned all of its efforts to renew and/or renegotiate the terms of the Concessions agreements
with the Nicaraguan government to cure the defaults. For additional information regarding the Concessions, see “Nicaraguan Concessions”
in the prospectus summary on page 4.
We
continue to have substantial liabilities which we are currently unable to pay. We continue to negotiate with our creditors to mitigate
and settle our known liabilities to them or their claims of liabilities. Various suits have been filed to enforce payments of liabilities
and we are working to address these suits. We may incur additional liabilities if our liquidity situation deteriorates further and may
face additional claims from creditors seeking to protect their interests in light of our announcements regarding our financial condition
and business plans. We are not able to predict our success in attempting to negotiate with these parties nor the expense related to such
negotiations or in defending any litigation related to these claims. These creditors may take action to force us into bankruptcy involuntarily.
In addition, if we are unable to manage our current liabilities or substantial additional claims are asserted against us, we may be forced
to seek protection under the Bankruptcy Code. We may utilize a portion of the proceeds of this offering to help manage our current liabilities
and negotiate with our creditors.
We
may not be able to generate sufficient cash flow to repay any outstanding or future debt or meet our other obligations, including those
relating to such debt and our outstanding shares of Series A Preferred Stock, due to events beyond our control.
If
we fail to pay the principal and interest on our outstanding or future promissory notes and/or the payment of dividends on our shares
of Series A Preferred Stock or preferred stock that we may issue in the future, or if we otherwise default on our obligations under such
outstanding or future preferred stock, notes, security agreements, certificates of designation, or related documentation, including the
Notes, it could have a material adverse effect on our business, operations and financial condition. We also have no revolving credit
facility to fund our operating needs should it become necessary. It will be difficult to obtain an institutional line of credit facility
given our recent operating losses, the current banking environment and the existence of such notes, which may adversely affect our ability
to finance our business, grow or be profitable. Further, even if we could obtain a credit facility, in all likelihood would not be on
terms favorable to us.
Our
ability to generate cash flows from operations, to make payments on or refinance potential future indebtedness and to fund working capital
needs and planned capital expenditures will depend on our future financial performance and our ability to generate cash in the future.
Our future financial performance will be affected by a range of economic, financial, competitive, business and other factors that we
cannot control, such as general economic, legislative, regulatory and financial conditions in our industry, the economy generally, the
price of oil and other risks described herein. A significant reduction in operating cash flows resulting from changes in economic, legislative
or regulatory conditions, increased competition or other events beyond our control could increase the need for additional or alternative
sources of liquidity and could have a material adverse effect on our business, financial condition, results of operations, prospects
and our ability to service future potential debt and other obligations. If we are unable to service future potential indebtedness or
to fund our other liquidity needs, we may be forced to adopt an alternative strategy that may include actions such as reducing or delaying
capital expenditures, selling assets, restructuring or refinancing such indebtedness, seeking additional capital, or any combination
of the foregoing. If we incur additional debt, it would increase our interest expense, leverage and our operating and financial costs.
We cannot assure you that any of these alternative strategies could be affected on satisfactory terms, if at all, or that they would
yield sufficient funds to make required payments on future potential indebtedness or to fund our other liquidity needs. Reducing or delaying
capital expenditures or selling assets could delay future cash flows. In addition, the terms of future debt agreements may restrict us
from adopting any of these alternatives. We cannot assure you that our business will generate sufficient cash flows from operations or
that future borrowings will be available in an amount sufficient to enable us to pay such future potential indebtedness or to fund our
other liquidity needs.
If
for any reason we are unable to meet our current or future potential debt service and repayment obligations, we may be in default under
the terms of the agreements governing such indebtedness, which could allow our creditors at that time to declare such outstanding indebtedness
to be due and payable. Under these circumstances, our lenders could compel us to apply all of our available cash to repay our borrowings.
In addition, the lenders under our credit facilities or other secured indebtedness could seek to foreclose on any of our assets that
are their collateral. If the amounts outstanding under such indebtedness were to be accelerated, or were the subject of foreclosure actions,
our assets may not be sufficient to repay in full the money owed to the lenders or to our other debt holders.
Our
business will suffer if we cannot obtain or maintain necessary licenses.
Our
operations will require licenses, drilling permits, mechanical integrity inspections of our wells and in some cases renewals of licenses
and permits from various governmental authorities. Our ability to obtain, sustain or renew such licenses and permits on acceptable terms
is subject to change in regulations and policies and to the discretion of the applicable governments, among other factors. Our inability
to obtain, or our loss of or denial of extension of, any of these licenses or permits could hamper our ability to produce revenues from
our operations.
The
Federal Government has instituted a moratorium on new oil and gas leases and permits on federal onshore and offshore lands, which if
extended, or leads to a change in regulatory schemes, may have a material adverse effect on the Company and its results of operations.
On
January 27, 2021, President Biden announced a moratorium on new oil and gas leases and permits on federal onshore and offshore lands
“to the extent consistent with applicable law,” while a comprehensive review of existing fossil fuel leasing and permitting
practices is conducted by the Interior Department. It is currently unclear whether the moratorium is the start of a change in federal
policies regarding the grant of oil and gas permits on federal lands. The current moratorium does not currently affect the Company, as
the Company has no near-term plans to drill new wells on any leases held on federal lands; however, if such moratorium was to become
permanent, or the federal government in the future were to grant less permits on federal lands, make such permitting process more difficult,
costly, or to institute more stringent rules relating to such permitting process, it could have a material adverse effect on the Company’s
ability to undertake oil and gas operations on such portion of its leases on federal lands.
Failure
to comply with government regulation of the oil and gas industry has and may continue to negatively impact our business.
Our
business is affected by numerous laws and regulations, including, among others, laws and regulations relating to energy, environment,
conservation and tax. Failure to comply with these laws and regulations may result in the assessment of administrative, civil and/or
criminal penalties, the imposition of injunctive relief or both. Moreover, changes in any of these laws and regulations could have a
material adverse effect on our business. In view of the many uncertainties with respect to current and future laws and regulations, including
their applicability to us, we cannot predict the overall effect of such laws and regulations on our future operations.
The
following discussion contains summaries of certain laws and regulations and is qualified as mentioned above.
Environmental
and Land Use Regulation
Various
federal, state and local laws and regulations relating to the protection of the environment affect our operations and costs. The areas
affected include:
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unit
production expenses primarily related to the control and limitation of air emissions, spill prevention and disposal of produced water;
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capital
costs to drill development wells resulting from expenses primarily related to the management and disposal of drilling fluids and
other oil and natural gas exploration wastes;
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capital
costs to construct, maintain and upgrade equipment and facilities;
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operational
costs associated with ongoing compliance and monitoring activities; and
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exit
costs for operations that we are responsible for closing, including costs for dismantling and abandoning wells and remediating environmental
impacts.
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The
environmental and land use laws and regulations affecting oil and natural gas operations have been changed frequently in the past, and
in general, these changes have imposed more stringent requirements that increase operating costs and/or require capital expenditures
to remain in compliance. Failure to comply with these requirements can result in civil and/or criminal fines and liability for non-compliance,
clean-up costs, third-party claims for property damage, personal injuries fines and sanctions and other environmental damages. It is
also possible that unanticipated developments or changes in law could cause us to make environmental expenditures significantly greater
than those we currently expect.
We
are not in compliance with existing federal, state and local laws, rules and regulations for our previously owned domestic oil and gas
properties and this could have a material or significantly adverse effect upon our liquidity, capital expenditures, earnings or competitive
position. All domestic oil and gas properties held by us in Wyoming and Texas were disposed of well prior to March 31, 2021; however,
we may remain liable for certain asset retirement costs should the new owners not complete their obligations. Management believes that
the total asset retirement obligations recorded of $1,716,003 as of March 31, 2021 and December 31, 2020 are sufficient to cover any
potential noncompliance liabilities relative to the plugging of abandoned wells, the removal of facilities and equipment, and site restoration
on oil and gas properties for its former oil and gas properties. We have not maintained insurance on the domestic properties for a number
of years nor have we owned/produced any oil & gas properties for a number of years prior to our April 1, 2021 acquisition of the
Properties.
We
believe that we will be in substantial compliance with applicable environmental laws and regulations with respect to the Properties.
We do not currently anticipate that future compliance will have a materially adverse effect on our consolidated financial position, results
of operations or cash flows. However, if we are deemed to not be in compliance with applicable environmental laws, we could be forced
to expend substantial amounts to be in compliance, which would have a materially adverse effect on our financial condition.
Regulations
could adversely affect our ability to hedge risks associated with our business and our operating results and cash flows.
Rules
adopted by federal regulators establishing federal regulation of the over-the-counter derivatives market and entities that participate
in that market may adversely affect our ability to manage certain of our risks on a cost-effective basis. Such laws and regulations may
also adversely affect our ability to execute our strategies with respect to hedging our exposure to variability in expected future cash
flows attributable to the future sale of our oil and gas.
We
expect that our potential future hedging activities will remain subject to significant and developing regulations and regulatory oversight.
However, the full impact of the various U.S. regulatory developments in connection with these activities will not be known with certainty
until such derivatives market regulations are fully implemented and related market practices and structures are fully developed.
Drilling
for and producing oil and natural gas are highly speculative and involve a high degree of risk, with many uncertainties that could adversely
affect our business. We have not recorded proved reserves, and areas that we decide to drill may not yield oil or natural gas in commercial
quantities or at all.
Exploring
for and developing mineral reserves involves a high degree of operational and financial risk, which precludes us from definitively predicting
the costs involved and time required to reach certain objectives. Our potential drilling locations are in various stages of evaluation,
ranging from locations that are ready to drill, to locations that will require substantial additional interpretation before they can
be drilled. The budgeted costs of planning, drilling, completing and operating wells are often exceeded, and such costs can increase
significantly due to various complications that may arise during the drilling and operating processes. Before a well is spudded, we may
incur significant geological and geophysical (seismic) costs, which are incurred whether a well eventually produces commercial quantities
of hydrocarbons or is drilled at all. Exploration wells bear a much greater risk of loss than development wells. The analogies we draw
from available data from other wells, more fully explored locations or producing fields may not be applicable to our drilling locations.
If our actual drilling and development costs are significantly more than our estimated costs, we may not be able to continue our operations
as proposed and could be forced to modify our drilling plans accordingly.
If
we decide to drill a certain location, there is a risk that no commercially productive oil or natural gas reservoirs will be found or
produced. We may drill or participate in new wells that are not productive. We may drill wells that are productive, but that do not produce
sufficient net revenues to return a profit after drilling, operating and other costs. There is no way to predict in advance of drilling
and testing whether any particular location will yield oil or natural gas in sufficient quantities to recover exploration, drilling or
completion costs or to be economically viable. Even if sufficient amounts of oil or natural gas exist, we may damage the potentially
productive hydrocarbon-bearing formation or experience mechanical difficulties while drilling or completing the well, resulting in a
reduction in production and reserves from the well or abandonment of the well.
In
addition, production and reserves, if any, attributable to the use of enhanced recovery methods are inherently difficult to predict.
If our enhanced recovery methods do not allow for the extraction of crude oil, natural gas, and associated liquids in a manner or to
the extent that we anticipate, we may not realize an acceptable return on our investments in such projects. As proposed legislation and
regulatory initiatives relating to hydraulic fracturing become law, the cost of some of these enhanced recovery methods could increase
substantially.
Whether
a well is ultimately productive and profitable depends on a number of additional factors, including the following:
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general
economic and industry conditions, including the prices received for oil and natural gas;
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shortages
of, or delays in, obtaining equipment, including hydraulic fracturing equipment, and qualified personnel;
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potential
significant water production which could make a producing well uneconomic;
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potential
drainage by operators on adjacent properties;
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loss
of, or damage to, oilfield development and service tools;
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problems
with title to the underlying properties;
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increases
in severance taxes;
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adverse
weather conditions that delay drilling activities or cause producing wells to be shut down;
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governmental
regulations; and
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proximity
to and capacity of transportation facilities.
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If
we do not drill productive and profitable wells in the future, our business, financial condition and results of operations could be materially
and adversely affected.
Competition
due to advances in renewable fuels may lessen the demand for our products and negatively impact our profitability.
Alternatives
to petroleum-based products and production methods are continually under development. For example, a number of automotive, industrial
and power generation manufacturers are developing alternative clean power systems using fuel cells or clean-burning gaseous fuels that
may address increasing worldwide energy costs, the long-term availability of petroleum reserves and environmental concerns, which if
successful could lower the demand for oil and gas. If these non-petroleum-based products and oil alternatives including any improvement
in or new discoveries of alternative energy technologies (such as wind, solar, geothermal, fuel cells and biofuels) continue to expand
and gain broad acceptance such that the overall demand for oil and gas is decreased it could have an adverse effect on our operations
and the value of our assets.
Competition
in the oil and natural gas industry is intense, making it difficult for us to acquire properties, market oil and natural gas and secure
trained personnel.
We
operate in the highly competitive areas of oil and natural gas acquisition, exploration, development and production with many other companies.
We face intense competition from a large number of independent companies as well as major oil and natural gas companies in a number of
areas such as:
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acquisition
of desirable producing properties or new leases for future exploration;
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marketing
our oil and natural gas production; and
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arranging
for growth capital on attractive terms.
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In
addition, there is substantial competition for capital available for investment in the oil and natural gas industry. Many of our competitors
possess and employ financial, technical and personnel resources substantially greater than ours, and many of our competitors have more
established presences in the United States than we have. Those companies may be able to pay more for productive oil and natural gas properties
and exploratory prospects and to evaluate, bid for and purchase a greater number of properties and prospects than our financial or personnel
resources permit. In addition, other companies may be able to offer better compensation packages to attract and retain qualified personnel
than we are able to offer. The cost to attract and retain qualified personnel has increased in recent years due to competition and may
increase substantially in the future. We may not be able to compete successfully in the future in acquiring prospective reserves, developing
reserves, marketing hydrocarbons, attracting and retaining quality personnel and raising additional capital, which could have a material
adverse effect on our business, financial condition and results of operations.
Our
competitors may use superior technology and data resources that we may be unable to afford or that would require a costly investment
by us in order to compete with them more effectively.
Our
industry is subject to rapid and significant advancements in technology, including the introduction of new products and services using
new technologies and databases. As our competitors use or develop new technologies, we may be placed at a competitive disadvantage, and
competitive pressures may force us to implement new technologies at a substantial cost. In addition, many of our competitors will have
greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them
to implement new technologies before we can. We cannot be certain that we will be able to implement technologies on a timely basis or
at a cost that is acceptable to us. One or more of the technologies that we will use or that we may implement in the future may become
obsolete, and we may be adversely affected.
Competition
for hydraulic fracturing services and water disposal could impede our ability to develop our oil and gas plays.
The
unavailability or high cost of high-pressure pumping services (or hydraulic fracturing services), chemicals, proppant, water and water
disposal and related services and equipment could limit our ability to execute our exploration and development plans on a timely basis
and within our budget. The U.S. oil and natural gas industry is experiencing a growing emphasis on the exploitation and development of
shale natural gas and shale oil resource plays, which are dependent on hydraulic fracturing for economically successful development.
Hydraulic fracturing in oil and gas plays requires high pressure pumping service crews. A shortage of service crews or proppant, chemical,
water or water disposal options, especially if this shortage occurred in the Properties, could materially and adversely affect our operations
and the timeliness of executing our development plans within our budget.
Our
operations are substantially dependent on the availability of water and any restrictions on our ability to obtain water may have an adverse
effect on our financial condition, results of operations and cash flows.
Water
is an essential component of shale oil and natural gas production during both the drilling and hydraulic fracturing processes. When drought
conditions occur, governmental authorities may restrict the use of water subject to their jurisdiction for hydraulic fracturing to protect
local water supplies. If we are unable to obtain water to use in our operations from local sources or dispose of or recycle water used
in operations, or if the price of water or water disposal increases significantly, we may be unable to produce oil and natural gas economically,
which could have a material adverse effect on our financial condition, results of operations, and cash flows.
Part
of our strategy involves using certain of the latest available enhanced recovery methods for our horizontal production well, which involve
additional risks and uncertainties in their application if compared to conventional production wells.
We
plan to utilize some of the latest enhanced recovery methods for our existing horizontal production well in order to maximize production
and ultimate recoveries and therefore generate the highest possible returns. The additional risks that we face while drilling horizontally
include, but are not limited to, the following:
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Enhanced
rework and stimulation of horizontal wells are significantly longer and more costly to implement than rework of more conventional
wells;
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Maintenance
of our casing the entire length of the horizontal wellbore; and
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being
able to run tools and other equipment consistently through the horizontal wellbore.
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Risks
that we face while reworking our existing producing wells include, but are not limited to, the following:
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the
ability to fracture stimulate the planned number of stages in a horizontal or lateral well bore;
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the
ability to run tools the entire length of the wellbore during completion operations; and
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the
ability to successfully clean out the wellbore after completion of the final fracture stimulation stage.
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Ultimately,
the success of these drilling and completion techniques can only be evaluated over time as more wells are drilled and production profiles
are established over a sufficiently long time period. If our drilling results are less than anticipated or we are unable to execute our
drilling program because of capital constraints, lease expirations, limited access to gathering systems and takeaway capacity, and/or
prices for crude oil and natural gas decline, then the return on our investment for a particular project may not be as attractive as
we anticipated and we could incur material write-downs of oil and gas properties and the value of our undeveloped acreage could decline
in the future.
Prospects
that we decide to drill may not yield oil or natural gas in commercially viable quantities.
Our
prospects are in various stages of evaluation, ranging from prospects that are currently being drilled to prospects that will require
substantial additional seismic data processing and interpretation. There is no way to predict in advance of drilling and testing whether
any particular prospect will yield oil or natural gas in sufficient quantities to recover drilling or completion costs or to be economically
viable. This risk may be enhanced in our situation, due to the fact that a significant percentage of our reserves is undeveloped. The
use of seismic data and other technologies and the study of producing fields in the same area will not enable us to know conclusively
prior to drilling whether oil or natural gas will be present or, if present, whether oil or natural gas will be present in commercial
quantities. We cannot assure you that the analogies we draw from available data obtained by analyzing other wells, more fully explored
prospects or producing fields will be applicable to our drilling prospects.
In
addition, estimates of reserves and of future net revenues prepared by different petroleum engineers may vary substantially depending,
in part, on the assumptions made and may be subject to adjustment either up or down in the future. Our actual amounts of production,
revenue, taxes, development expenditures, operating expenses, and quantities of recoverable oil and gas reserves may vary substantially
from the estimates. Oil and gas reserve estimates are necessarily inexact and involve matters of subjective engineering judgment. In
addition, any estimates of our future net revenues and the present value thereof are based on assumptions derived in part from historical
price and cost information, which may not reflect current and future values, and/or other assumptions made by us that only represent
our best estimates. If these estimates of quantities, prices and costs prove inaccurate, we may be unsuccessful in expanding our oil
and gas reserves base with our acquisitions. Additionally, if declines in and instability of oil and gas prices occur, then write downs
in the capitalized costs associated with any oil and gas assets we obtain may be required. Because of the nature of the estimates of
our reserves and estimates in general, reductions to our estimated proved oil and gas reserves and estimated future net revenues may
not be required in the future, and/or that our estimated reserves may not present and/or commercially extractable. If our reserve estimates
are incorrect, we may be forced to write down the capitalized costs of our oil and gas properties.
Decommissioning
costs are unknown and may be substantial. Unplanned costs could divert resources from other projects.
We
may become responsible for costs associated with abandoning and reclaiming wells, facilities and pipelines which we use for production
of oil and natural gas reserves. Abandonment and reclamation of these facilities and the costs associated therewith is often referred
to as “decommissioning.” We will accrue a liability for decommissioning costs associated with our wells and we have not established
any cash reserve account for these potential costs in respect of the Properties. If decommissioning is required before economic depletion
of the Properties or if our estimates of the costs of decommissioning exceed the value of the reserves remaining at any particular time
to cover such decommissioning costs, we may have to draw on funds from other sources to satisfy such costs. The use of other funds to
satisfy such decommissioning costs could impair our ability to focus capital investment in other areas of our business.
Negative
public perception regarding us and/or our industry could have an adverse effect on our operations.
Negative
public perception regarding us and/or our industry resulting from, among other things, concerns raised by advocacy groups about hydraulic
fracturing, waste disposal, oil spills, seismic activity, climate change, explosions of natural gas transmission lines and the development
and operation of pipelines and other midstream facilities may lead to increased regulatory scrutiny, which may, in turn, lead to new
state and federal safety and environmental laws, regulations, guidelines and enforcement interpretations. Additionally, environmental
groups, landowners, local groups and other advocates may oppose our operations through organized protests, attempts to block or sabotage
our operations or those of our midstream transportation providers, intervene in regulatory or administrative proceedings involving our
assets or those of our midstream transportation providers, or file lawsuits or other actions designed to prevent, disrupt or delay the
development or operation of our assets and business or those of our midstream transportation providers. These actions may cause operational
delays or restrictions, increased operating costs, additional regulatory burdens and increased risk of litigation. Moreover, governmental
authorities exercise considerable discretion in the timing and scope of permit issuance and the public may engage in the permitting process,
including through intervention in the courts. Negative public perception could cause the permits we require to conduct our operations
to be withheld, delayed or burdened by requirements that restrict our ability to profitably conduct our business.
Significant
studies and research have been devoted to climate change and global warming, and climate change has developed into a major political
issue in the United States and globally. Certain research suggests that greenhouse gas emissions contribute to climate change and pose
a threat to the environment. Recent scientific research and political debate has focused in part on carbon dioxide and methane incidental
to oil and natural gas exploration and production. As such, activists have directed their attention towards sources of funding for fossil-fuel
energy companies, which has resulted in certain financial institutions, funds and other sources of capital restricting or eliminating
their investment in energy-related activities. Ultimately, this could make it more difficult to secure funding for exploration and production
activities.
Weather
and climate may have a significant and adverse impact on us.
Demand
for crude oil and natural gas is, to a degree, dependent on weather and climate, which impacts, among other things, the price we receive
for the commodities we produce and, in turn, our cash flows and results of operations. For example, relatively warm temperatures during
a winter season generally result in relatively lower demand for natural gas (as less natural gas is used to heat residences and businesses)
and, as a result, lower prices for natural gas production.
In
addition, there has been public discussion that climate change may be associated with more frequent or more extreme weather events, changes
in temperature and precipitation patterns, changes to ground and surface water availability, and other related phenomena, which could
affect some, or all, of our operations. Our exploration, exploitation and development activities and equipment could be adversely affected
by extreme weather events, such as winter storms, flooding and tropical storms and hurricanes, which may cause a loss of production from
temporary cessation of activity or damaged facilities and equipment. Such extreme weather events could also impact other areas of our
operations, including access to our drilling and production facilities for routine operations, maintenance and repairs, the installation
and operation of gathering, processing, compression, storage and transportation facilities and the availability of, and our access to,
necessary third-party services, such as gathering, processing, compression, storage and transportation services. Such extreme weather
events and changes in weather patterns may materially and adversely affect our business and, in turn, our financial condition and results
of operations.
We
depend on key personnel.
Our
success will be largely dependent upon the efforts of our executive officers, Stanton E. Ross, Daniel F. Hutchins and John Loeffelbein.
We do not have employment agreements with Messrs. Ross, Hutchins or Loeffelbein. The loss of the services of any of these individuals
could have a material adverse effect on our business and prospects. There can be no assurance that we will be able to retain the services
of such individuals in the future. We have not obtained key-man life insurance policies on these individuals. We are also dependent to
a substantial degree on our outsourced experienced consulting and technical staff. Loss of the services of any of these people could
have a material adverse effect on our operations. Our success will be dependent upon our ability to hire and retain additional qualified
personnel as we may require. In particular, our exploratory drilling success and the success of other activities integral to our operations
will depend, in part, on our ability to attract and retain experienced engineers and other professionals. Competition for experienced
engineers and some other professionals is extremely intense. If we cannot retain our technical personnel or attract additional experienced
technical personnel, our ability to compete could be harmed. We will compete with other companies with greater financial and other resources
for such personnel. Although we have not experienced difficulty in attracting qualified personnel to date, there can be no assurance
that we will be able to retain our present personnel or acquire additional qualified personnel as and when needed.
Because
we are a small company, the requirements of being a public company, including compliance with the reporting requirements of the Exchange
Act and the requirements of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”) and the Dodd-Frank Wall Street Reform
and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), may strain our resources, increase our costs and distract management,
and we may be unable to comply with these requirements in a timely or cost-effective manner.
As
a public company with quoted equity securities, we must comply with the federal securities laws, rules and regulations, including certain
corporate governance provisions of the Sarbanes-Oxley Act and the Dodd-Frank Act, related rules and regulations of the SEC and the OTCQB,
with which a private company is not required to comply. Complying with these laws, rules and regulations will occupy a significant amount
of time of our board of directors and management and will significantly increase our costs and expenses, which we cannot estimate accurately
at this time. Among other things, we must:
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establish
and maintain a system of internal control over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley
Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board;
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comply
with rules and regulations promulgated by the OTCQB;
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prepare
and distribute periodic public reports in compliance with our obligations under the federal securities laws;
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maintain
various internal compliance and disclosures policies, such as those relating to disclosure controls and procedures and insider trading
in our Common Stock;
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involve
and retain to a greater degree outside counsel and accountants in the above activities;
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maintain
a comprehensive internal audit function; and
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maintain
an investor relations function.
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These
factors could make it more difficult for us to attract and retain qualified members of our board of directors and qualified executive
officers.
We
may have difficulty managing growth in our business, which could have a material adverse effect on our business, financial condition
and results of operations and our ability to execute our business plan in a timely fashion.
Because
of our small size, growth in accordance with our business plans, if achieved, will place a significant strain on our financial, technical,
operational and management resources. As we expand our activities, including our planned increase in oil exploration, development and
production, and increase the number of projects we are evaluating or in which we participate, there will be additional demands on our
financial, technical and management resources. The failure to continue to upgrade our technical, administrative, operating and financial
control systems or the occurrence of unexpected expansion difficulties, including the inability to recruit and retain experienced managers,
geoscientists, petroleum engineers and landmen could have a material adverse effect on our business, financial condition and results
of operations and our ability to execute our business plan in a timely fashion.
Our
business could be adversely affected by security threats, including cybersecurity threats.
We
face various security threats, including cybersecurity threats to gain unauthorized access to our sensitive information or to render
our information or systems unusable, and threats to the security of our facilities and infrastructure or third-party facilities and infrastructure,
such as gathering and processing facilities, refineries, rail facilities and pipelines. The potential for such security threats subjects
our operations to increased risks that could have a material adverse effect on our business, financial condition and results of operations.
For example, unauthorized access to our seismic data, reserves information or other proprietary information could lead to data corruption,
communication interruptions, or other disruptions to our operations.
Our
implementation of various procedures and controls to monitor and mitigate such security threats and to increase security for our information,
systems, facilities and infrastructure may result in increased capital and operating costs. Moreover, there can be no assurance that
such procedures and controls will be sufficient to prevent security breaches from occurring. If any of these security breaches were to
occur, they could lead to losses of, or damage to, sensitive information or facilities, infrastructure and systems essential to our business
and operations, as well as data corruption, reputational damage, communication interruptions or other disruptions to our operations,
which, in turn, could have a material adverse effect on our business, financial position and results of operations.
The
threat and impact of terrorist attacks, cyber-attacks or similar hostilities may adversely impact our operations.
We
cannot assess the extent of either the threat or the potential impact of future terrorist attacks on the energy industry in general,
and on us in particular, either in the short-term or in the long-term. Uncertainty surrounding such hostilities may affect our operations
in unpredictable ways, including the possibility that infrastructure facilities, including pipelines and gathering systems, production
facilities, processing plants and refineries, could be targets of, or indirect casualties of, an act of terror, a cyber-attack or electronic
security breach, or an act of war.
Failure
to adequately protect critical data and technology systems could materially affect our operations.
Information
technology solution failures, network disruptions and breaches of data security could disrupt our operations by causing delays or cancellation
of customer orders, impeding processing of transactions and reporting financial results, resulting in the unintentional disclosure of
customer, employee or our information, or damage to our reputation. There can be no assurance that a system failure or data security
breach will not have a material adverse effect on our financial condition, results of operations or cash flows.
We
have received a going concern opinion from our auditors.
We
have an accumulated deficit and have had negative cash flows from our operations. Accordingly, we have received a report from our independent
auditors in connection with our audited financial statements that include an explanatory paragraph describing their substantial doubt
about our ability to continue as a going concern. This may negatively impact our ability to obtain additional funding or funding on terms
attractive to us.
Our
stockholders will likely not receive any proceeds from our dissolution or the liquidation of our assets.
In
the event of our dissolution or liquidation, the proceeds realized from the liquidation of assets, if any, will be distributed to our
creditors before any distributions are made to stockholders in accordance with applicable state law and our certificate of incorporation,
as then in effect. Given our current financial condition, it is unlikely that our stockholders will participate in the proceeds from
such dissolution or liquidation, if any.
We
are a party to several lawsuits as a defendant in which we may ultimately not prevail resulting in losses and may cause our stock price
to decline.
We
are involved as a defendant in routine litigation and administrative proceedings incidental to our business from time to time. See “Item
3. Legal Proceedings” in our latest Annual Report on Form 10-K for the year ended December 31, 2020, filed with the SEC on March
30, 2021 and “Legal Proceedings” in Part II, Item 1 in our Quarterly Report on Form 10-Q for the quarterly period ended March
31, 2021, filed with the SEC on May 13, 2021. Due to lack of funds, we have not been able to defend adequately in certain of these matters.
Accordingly, the outcome of any pending cases and proceedings may have a material adverse effect on our business or financial condition.
We
may hedge our exposure to reductions in oil and natural gas prices, which involves credit risk and may limit future revenues from price
increases and result in significant fluctuations in our profitability.
We
account for derivative instruments or hedging activities under the provisions of Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification (“ASC”) 815 Derivatives and Hedging, to achieve more predictable cash flow and to reduce
our exposure to price fluctuations. While the use of hedging transactions limits the downside risk of price declines, their use may limit
future revenues from price increases. Hedging transactions also involve the risk that the counterparty may be unable to satisfy its obligations.
Risks
Related to our Common Stock
The
market for our Common Stock is limited and may not provide adequate liquidity.
Our
Common Stock has been thinly traded on the OTCQB. From January 1, 2020 to July 20, 2021, the daily trading volume in our Common Stock
ranged from zero shares of Common Stock to a high of 77,500 shares of Common Stock. On most days, this trading volume meant there was
limited liquidity in our shares of Common Stock. Selling our shares during this period was more difficult because smaller quantities
of shares were bought and sold and news media coverage about us was limited. These factors resulted in a limited trading market for our
Common Stock and therefore holders of our Common Stock may have been unable to sell shares purchased, if they desired to do so.
Due
to the limited volume of our shares which trade, we believe that our stock prices (bid, ask and closing prices) may not be related to
our actual value, and not reflect the actual value of our Common Stock. Stockholders and potential investors in our Common Stock should
exercise caution before making an investment in us.
Additionally,
as a result of the potential illiquidity and sporadic trading of our Common Stock, investors may not be interested in owning our Common
Stock because of the inability to acquire or sell a substantial block of our Common Stock at one time. This may have an adverse effect
on the market price of our Common Stock. In addition, a stockholder may not be able to borrow funds using our Common Stock as collateral
because lenders may be unwilling to accept the pledge of securities having such a limited market. We cannot assure you that an active
trading market for our Common Stock will develop or, if one develops, be sustained.
Our
board of directors can authorize the issuance of “blank check” preferred stock, with the effect of diluting then current
stockholder interests and impairing their voting rights.
Our
certificate of incorporation authorizes the issuance of up to 10,000,000 shares of “blank check” preferred stock with designations,
rights and preferences as may be determined from time to time by our board of directors, of which 22,776 shares have been designated
as Series A Preferred Stock. Our board of directors is empowered, without stockholder approval, to issue additional series of preferred
stock with voting powers and such preferences and relative, participating, optional or other special rights and powers, which may be
greater than the shares of Common Stock currently outstanding. As a result, shares of preferred stock may be issued by our board of directors
which cause the holders to have majority voting power over our shares of capital stock, provide the holders of the preferred stock the
right to convert the shares of preferred stock they hold into shares of our Common Stock, which may cause substantial dilution to our
holders of Common Stock then outstanding, and/or have other rights and preferences greater than those of our holders of Common Stock,
including having a preference over the holders of our Common Stock with respect to dividends or distributions on liquidation or dissolution.
The holders of our shares of Series A Preferred Stock currently rank senior to the Common Stock and any class or series of capital stock
created after the Series A Preferred Stock and have a special preference upon the liquidation of the Company. For further information
regarding our shares of Series A Preferred Stock, please refer to the Certificate of Designation filed as an exhibit to, and the disclosure
contained in, our Current Reports on Form 8-K and 8-K/A filed with the SEC on March 30, 2021 and April 22, 2021, respectively.
Investors
should keep in mind that our board of directors has the authority to issue additional shares of Common Stock and preferred stock, which
could cause substantial dilution to our existing stockholders. Additionally, the dilutive effect of any preferred stock which we may
issue may be exacerbated given the fact that such preferred stock may have voting rights and/or other rights or preferences which could
provide the preferred stockholders with substantial voting control over us subsequent to the date of this prospectus and/or give those
holders the power to prevent or cause a change in control, even if that change in control might benefit our stockholders. As a result,
the issuance of shares of Common Stock and/or preferred stock may cause the value of our securities to decrease.
Our
directors and officers have rights to indemnification.
While
the members of our board of directors and our officers are generally accountable to us and our stockholders, the liability of our directors
and officers to us, our stockholders and third parties is limited in certain respects under applicable state law and our certificate
of incorporation and bylaws, as in effect in the date hereof. Further, we may agree to indemnify our directors and officers against liabilities
not attributable to certain limited circumstances. Such limitation of liability and indemnity may limit rights which our stockholders
would otherwise have to seek redress against our directors and officers.
Our
outstanding options, warrants, convertible promissory notes, and shares of Series A Preferred Stock may adversely affect the trading
price of our Common Stock.
As
of July 20, 2021, there are outstanding stock options to purchase an aggregate of 2,077,000 shares of our Common Stock, at a weighted
average price per share of $5.73, outstanding warrants to purchase up to an aggregate of 12,480,784 shares of our Common Stock at a weighted
average exercise price of $0.46 (including the Warrant Shares offered hereby), $28,665 in principal amount owed under the outstanding
Notes, which are convertible into an aggregate of 57,330 shares of Common Stock, excluding accrued interest, and 22,776 shares of Series
A Preferred Stock outstanding. For the duration of time during which such options, warrants, Notes and shares of Series A Preferred Stock
are convertible or exercisable, as applicable, the holders have the opportunity to profit from a rise in the market price of our Common
Stock without assuming the risk of ownership. The issuance of shares of Common Stock upon the conversion or exercise, as applicable,
of such outstanding options, warrant, Notes and shares of Series a Preferred Stock will also dilute the ownership interests of our existing
stockholders.
The
availability of such shares of Common Stock issued upon such conversion or exercise for public resale, as well as any actual resales
of these shares, could adversely affect the trading price of our Common Stock.
We
cannot predict the size of future issuances of our Common Stock pursuant to the exercise or conversion, as applicable, of outstanding
options, warrants, Notes, shares of Series A Preferred Stock or conversion or exercise of other securities, or the effect, if any, that
future issuances and sales of shares of our Common Stock may have on the market price of our Common Stock. Sales or distributions of
substantial amounts of our Common Stock (including shares issued in connection with an acquisition), or the perception that such sales
could occur, may cause the market price of our Common Stock to decline.
We
will have broad discretion as to any proceeds that we receive from the cash exercise by any holders of the Warrants, and we may not use
the proceeds effectively.
We
will not receive any of the proceeds from the sale of the Series A Conversion Shares, Warrant Shares or Note Conversion Shares by the
Selling Stockholders pursuant to this prospectus. We may receive up to approximately $5,316,497 in aggregate gross proceeds from
cash exercises of the Warrants, based on the $0.39 per share exercise prices of the March Warrants, and the $0.50 per share exercise
prices of the August Warrant and the Creditor Warrants, and to the extent that we receive such proceeds, we intend to use such proceeds
for development of our Properties and for working capital and other general corporate purposes. We have considerable discretion in the
application of such proceeds. You will not have the opportunity, as part of your investment decision, to assess whether such proceeds
are being used in a manner agreeable to you. You must rely on our judgment regarding the application of such proceeds, which may be used
for corporate purposes that do not improve our profitability or increase the price of our shares of Common Stock. Such proceeds may also
be placed in investments that do not produce income or that lose value. The failure to use such funds by us effectively could have a
material adverse effect on our business, financial condition, operating results and cash flow.
A
large number of shares of Common Stock may be sold in the market following this offering, which may significantly depress the market
price of our Common Stock.
The
Series A Conversion Shares, Warrant Shares and Note Conversion Shares sold in the offering will be freely tradable without restriction
or further registration under the Securities Act. As a result, a substantial number of shares of our Common Stock may be sold in the
public market following this offering. If there are significantly more shares of Common Stock offered for sale than buyers are willing
to purchase, then the market price of our Common Stock may decline to a market price at which buyers are willing to purchase the offered
Common Stock and sellers remain willing to sell our Common Stock.
Our
executive officers, directors and principal stockholders collectively own a significant percentage of our Common Stock and could be able
to exert control over matters subject to stockholder approval.
As
of July 20, 2021, our executive officers, directors and principal stockholders (greater than 5% stockholders), together with their affiliates,
beneficially own approximately 62.1% of our issued and outstanding shares of Common Stock. As a result, these stockholders, if
they act together, will be able to exert a significant degree of influence over our management and affairs and over matters requiring
stockholder approval, including the election of directors, the amendment of our certificate of incorporation or bylaws and approval of
significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change in our control and might
affect the market price of our Common Stock, even when a change in control may be in the best interest of all stockholders. Furthermore,
the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders. Accordingly,
these stockholders could cause us to enter into transactions or agreements that we would not otherwise consider.
We
have never declared or paid dividends on our Common Stock and have no plans to do so in the near future, however, we do intend to declare
and pay dividends on our Series A Preferred Stock pursuant to the Certificate of Designation.
Holders
of shares of our Common Stock are entitled to receive such dividends as may be declared by our board of directors and holders of shares
of Series A Preferred Stock are entitled to receive dividends pursuant to the Certificate of Designation. The Certificate of Designation
requires us to pay cash dividends on our Series A Preferred Stock on a quarterly basis, or at our option, pay such dividends in shares
of Common Stock. To date, we have not declared or paid cash dividends on our shares of Common Stock or on our shares of our Series A
Preferred Stock. We do not expect to declare or pay cash dividends on our shares of Common Stock in the near future. We expect to declare
and pay cash dividends on our Series A Preferred Stock at the beginning of each calendar quarter as required in the Certificate of Designation.
We intend to retain future earnings, if any, to provide funds for operation of our business. Therefore, any return investors in our Common
Stock will have to be in the form of appreciation, if any, in the market value of their shares of Common Stock. See “Dividend Policy.”
The
price of our Common Stock is likely to be highly volatile because of several factors, including a limited public float.
The
market price of our Common Stock is likely to be highly volatile because there has been a relatively thin trading market for our Common
Stock, which causes trades of small blocks of stock to have a significant impact on the price of our Common Stock. You may not be able
to resell shares of our Common Stock following periods of volatility because of the market’s adverse reaction to such volatility.
Factors
that could cause such volatility may include, among other things:
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actual
or anticipated fluctuations in our operating results;
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quarterly
variations in the rate of growth of our financial indicators, or those of companies that are perceived to be similar to us;
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the
potential absence of securities analysts covering us and distributing research and recommendations about us;
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speculation
in the press or investment community;
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public
reaction to our press releases, announcements concerning our business or those of our competitors or customers, and filings with
the SEC;
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we
expect our actual operating results to fluctuate widely as we increase our sales and production capabilities and other operations;
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low
trading volume for our Common Stock;
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overall
stock market fluctuations;
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general
financial market conditions and oil and natural gas industry market conditions, including fluctuations in commodity prices;
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the
realization of any of the risk factors presented in this prospectus;
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our
ability to raise capital when we require it, and to raise such capital on favorable terms;
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our
outstanding indebtedness;
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we
have no institutional line-of-credit available to fund our operations and we may be unable to obtain a line of credit under terms
that are mutually agreeable;
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changes
in financial estimates by securities analysts or our failure to perform as anticipated by the analysts;
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conditions
or trends in the industry, including the prices of oil and natural gas;
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litigation;
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changes
in market valuations of other similar companies;
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announcements
by us or our competitors of new products or of significant technical innovations, contracts, acquisitions, strategic partnerships
or joint ventures;
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future
sales of Common Stock;
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actions
initiated by the SEC or other regulatory bodies;
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the
success of our exploration and development operations, and the marketing of any oil and natural gas we produce;
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departure
of key personnel or failure to hire key personnel; and
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domestic
and international economic, health, legal and regulatory factors unrelated to our performance.
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Any
of these factors could have a significant and adverse impact on the market price of our Common Stock. In addition, the stock market in
general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating
performance of particular companies. These broad market fluctuations may adversely affect the trading price of our Common Stock, regardless
of our actual operating performance.
If
securities or industry analyst do not publish research reports about our business, or if they downgrade our stock, the price of our Common
Stock could decline.
Small,
relatively unknown companies can achieve visibility in the trading market through research and reports that industry or securities analysts
publish. To our knowledge there are no independent analysts who cover us. The lack of published reports by independent securities analysts
could limit the interest in our Common Stock and negatively affect our stock price. Even if we did have such coverage, we would not have
any control over the research and reports any analysts might publish. If any analyst who did cover us downgrades our stock, our stock
price could decline. If any analyst who had been covering us ceases coverage of us or failed to regularly publish reports on us, we could
lose visibility in the financial markets, which in turn could cause our stock price to decline.
Future
sales of our Common Stock may depress our stock price.
We
can make no prediction as to the effect, if any, that future sales of our Common Stock, or the availability of our Common Stock for future
sales, will have on the market price of our Common Stock. Sales in the public market of substantial amounts of our Common Stock, or the
perception that such sales could occur, could adversely affect prevailing market prices for our Common Stock. The potential effect of
such shares of Common Stock being sold may be to depress the price at which our Common Stock trades.
PRIVATE
PLACEMENTS
August
2020 Private Placement of Senior Unsecured Convertible Promissory Note and August Warrant
On
August 19, 2020, we entered into a securities purchase agreement (the “August Purchase Agreement”) with one of the Selling
Stockholders (the “August Investor”), pursuant to which we issued to the August Investor, in consideration for an aggregate
of $325,000, (i) a senior unsecured convertible note payable due August 19, 2021 (the “August Note”), which was, subject
to certain conditions, convertible into an aggregate of 3,943,820 shares of Common Stock, at a price of $0.10 per share; and (ii) the
August Warrant, which is immediately exercisable upon issuance and on a cashless basis if the August Warrant has not been registered
180 days after the date of issuance for up to 800,000 shares of Common Stock at an exercise price of $0.50 per share, subject to customary
adjustments. Pursuant to the August Purchase Agreement, the August Note and August Warrant were issued to the August Investor in a private
placement transaction pursuant to an exemption from the registration requirements of the Securities Act provided in Section 4(a)(2) of
the Securities Act and/or Regulation D promulgated thereunder. Pursuant to the August Purchase Agreement, the August Investor was also
granted certain piggy-back registration rights, whereby we agreed to register the resale of the shares of Common Stock underlying the
August Warrant and the August Note. We repaid the August Note on March 26, 2021. In order to satisfy such obligations, the Company is
filing this registration statement to register for resale all of the Warrant Shares issuable upon exercise of the August Warrant issued
to the August Investor.
The
exercise of the August Warrant is subject to a beneficial ownership limitation such that the August Investor may not exercise the August
Warrant to the extent that such exercise would result in the August Investor being the beneficial owner in excess of 4.99% (or, upon
election of the August Investor, 9.99%) of the number of shares of the Common Stock outstanding immediately after giving effect to the
issuance of shares of Common Stock issuable upon such exercise, which beneficial ownership limitation may be increased or decreased up
to 9.99% upon notice to us, provided that any increase in such limitation will not be effective until 61 days following notice to us.
Additionally,
pursuant to the August Purchase Agreement, for so long as the August Note or August Warrant is outstanding, the August Investor has a
right to participate in any issuance of the Common Stock, Common Stock Equivalents (as defined in the August Purchase Agreement), conventional
debt, or a combination of such securities and/or debt (a “Subsequent Financing”), up to an amount equal to thirty-five percent
(35%) of the Subsequent Financing.
March
2021 Private Placement of Shares of Series A Preferred Stock and March Warrants
On
March 16, 2021, we entered into securities purchase agreements (collectively, the “March Purchase Agreements”) with certain
of the Selling Stockholders (collectively, the “March Investors”), pursuant to which, in consideration for an aggregate of
$2,050,000, we issued an aggregate of 22,776 shares of Series A Preferred Stock and March Warrants exercisable for up to 5,256,410 shares
of Common Stock six (6) months following issuance and for five years after such date. Holders of the March Warrants may exercise them
on a cashless basis pursuant to the formula provided in the March Warrants if there is not an effective registration statement for the
sale of the shares of Common Stock underlying the March Warrants upon the date on which such Creditor Warrants are exercisable. Such
securities were issued to March Investors in a private placement transaction pursuant to an exemption from the registration requirements
of the Securities Act provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
Pursuant
to the Certificate of Designation, the holders of the shares of Series A Preferred Stock shall have the right, at any time and subject
to certain beneficial ownership limitations, to convert some or all of their outstanding shares of Series A Preferred Stock and any accrued
but unpaid dividends into that number of shares of Common Stock on a per share basis by dividing $100 (the Stated Value per share of
Series A Preferred Stock) by $0.32 (the “Conversion Price”), which Conversion Price is subject to adjustment as described
therein. In addition, the shares of Series A Preferred Stock and any accrued but unpaid dividends will automatically convert, subject
to the Beneficial Ownership Limitation, upon the closing of any equity financing transaction pursuant to which the Company receives gross
proceeds of at least $5,000,000 that is consummated after the initial date of issuance of such shares (a “Qualified Offering”),
into the same securities issued by the Company in such Qualified Offering. Pursuant to the Certificate of Designation, such holders of
shares of Series A Preferred Stock are entitled to receive dividends on the Series A Preferred Stock in cash or in shares of Common Stock
at a rate of 10% per annum, based on the Stated Value, commencing on April 1, 2021, pro-rated, and continuing on each July 1st,
October 1st, and January 1st thereafter until the earlier of (i) the date on which the shares of Series A Preferred
Stock are converted into shares of Common Stock or (ii) the date the Company’s obligations under the Certificate of Designation
have been satisfied in full. Pursuant to the Certificate of Designation, the shares of Series A Preferred Stock also (i) vote on an as-converted
to Common Stock basis, subject to the Beneficial Ownership Limitation, (ii) are redeemable in cash at the option of the Company at any
time, along with all accrued but unpaid dividends, (iii) rank senior to the Common Stock and any class or series of capital stock authorized
or designated after the Series A Preferred Stock and (iv) have a special preference upon the liquidation of the Company.
In
connection with the March Purchase Agreement, we and such Selling Stockholders entered into that certain registration rights agreement
(the “Registration Rights Agreement”), pursuant to which we agreed to file a registration statement to register the Preferred
Shares and the Warrant Shares underlying the March Warrants. In order to satisfy such obligations, the Company is filing this registration
statement to register for resale all of the Preferred Shares and Warrant Shares issuable upon conversion of the shares of Series A Preferred
Stock and upon exercise of the March Warrants issued to the March Investors.
March
2021 Debt Settlement Agreements
On
March 31, 2021, we entered into debt settlement agreements with six Creditors, pursuant to which certain creditors of the Company (collectively,
the “Creditors”) agreed to extinguish an aggregate of $2,866,497 of debt and liabilities of the Company owed to such Creditors
in consideration for the issuance to each Creditor of (i) an aggregate of $28,665 in Notes, which are, subject to certain conditions,
convertible at any time at the option of the Creditors into an aggregate of 65,930 shares of Common Stock (including accruable interest),
at a price of $0.50 per share and (ii) Creditor Warrants which are immediately exercisable for up to an aggregate of 5,732,994 shares
of Common Stock and for five years thereafter. Holders of the Creditor Warrants may exercise them on a cashless basis pursuant to the
formula provided in the Creditor Warrants if there is not an effective registration statement for the sale of the shares of Common Stock
underlying the Creditor Warrants upon the date on which such Creditor Warrants are exercisable. We also granted the Creditors certain
piggy-back registration rights pursuant to the Notes and the Creditor Warrants, whereby we agreed to register the resale by the Creditors
of the shares underlying the Notes and the Creditor Warrants pursuant to the Notes and Creditor Warrants. Such securities were issued
to the Creditors in a private placement transaction pursuant to an exemption from the registration requirements of the Securities Act
provided in Section 4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder.
The
Note bears interest at a rate of 3% per annum, may be voluntarily repaid in cash in full or in part by us at any time in an amount equal
to the face amount plus any accrued and unpaid interest on the Notes (or portion thereof) being prepaid, and matures on March 30, 2026.