Item
1. Financial Statements.
INTERNATIONAL
WESTERN PETROLEUM, INC.
BALANCE
SHEETS
|
|
|
August 31, 2017
|
|
|
February 28, 2017
|
|
|
|
|
(Unaudited)
|
|
|
|
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|
ASSETS
|
|
|
|
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|
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|
|
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Current Assets
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
557,302
|
|
|
$
|
76,365
|
|
|
Account receivable – oil & gas
|
|
|
10,512
|
|
|
|
8,170
|
|
|
Deposit on purchase of oil & gas properties
|
|
|
300,320
|
|
|
|
105,000
|
|
|
Total Current Assets
|
|
|
868,134
|
|
|
|
189,535
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil & Gas Properties - Full Cost Method
|
|
|
|
|
|
|
|
|
|
Properties subject to amortization
|
|
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955,316
|
|
|
|
955,316
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|
|
Less: accumulated depletion
|
|
|
(61,567
|
)
|
|
|
(56,340
|
)
|
|
Total Oil & Gas Properties, Net
|
|
|
893,749
|
|
|
|
898,976
|
|
|
Equipment, Net
|
|
|
15,102
|
|
|
|
17,546
|
|
|
Total Assets
|
|
$
|
1,776,985
|
|
|
$
|
1,106,057
|
|
|
|
|
|
|
|
|
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|
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|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
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|
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LIABILITIES
|
|
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|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
2,000
|
|
|
$
|
1,000
|
|
|
Advances from related parties
|
|
|
-
|
|
|
|
379,428
|
|
|
Note payable
|
|
|
750,000
|
|
|
|
50,000
|
|
|
Stock payable
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|
|
32,000
|
|
|
|
12,000
|
|
|
Total Current Liabilities
|
|
|
784,000
|
|
|
|
442,428
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Retirement Obligations
|
|
|
10,535
|
|
|
|
10,045
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
794,535
|
|
|
|
452,473
|
|
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|
|
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Stockholders’ Equity
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Preferred stock, $0.001 par value per share, 10,000,000
shares authorized; 0 shares issued and outstanding at
August 31, 2017 and February 28, 2017
|
|
|
|
|
|
|
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|
Common stock, $0.001 par value per share, 90,000,000
shares authorized; 89,211,013 and 48,696,013 shares
issued and outstanding at August 31, 2017 and
February 28, 2017, respectively.
|
|
|
89,211
|
|
|
|
48,696
|
|
|
Additional paid-in capital
|
|
|
3,651,174
|
|
|
|
2,791,328
|
|
|
Accumulated deficit
|
|
|
(2,757,935
|
)
|
|
|
(2,186,440
|
)
|
|
Total Stockholders’ Equity
|
|
|
982,450
|
|
|
|
653,584
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Stockholders’ Equity
|
|
$
|
1,776,985
|
|
|
$
|
1,106,057
|
|
The
accompanying notes are an internal part of these interim unaudited financial statements.
INTERNATIONAL
WESTERN PETROLEUM, INC.
STATEMENTS
OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED AUGUST 31, 2017 AND 2016
(Unaudited)
|
|
|
Three
Months Ended
August
31, 2017
|
|
|
Three
Months Ended
August
31, 2016
|
|
|
Six
Months Ended
August 31, 2017
|
|
|
Six
Months Ended
August
31, 2016
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Oil & gas sales
|
|
$
|
18,683
|
|
|
$
|
30,420
|
|
|
$
|
38,662
|
|
|
$
|
56,801
|
|
|
Service income
|
|
|
-
|
|
|
|
45,000
|
|
|
|
-
|
|
|
|
45,000
|
|
|
Total Revenues
|
|
|
18,683
|
|
|
|
75,420
|
|
|
|
38,662
|
|
|
|
101,801
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
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|
Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lease operating expenses
|
|
|
15,597
|
|
|
|
149,032
|
|
|
|
19,773
|
|
|
|
158,150
|
|
|
Professional fees
|
|
|
413,060
|
|
|
|
286,169
|
|
|
|
568,662
|
|
|
|
369,181
|
|
|
Other general and administrative expenses
|
|
|
162,131
|
|
|
|
(5,462
|
)
|
|
|
333,433
|
|
|
|
150,182
|
|
|
Depletion and accretion
|
|
|
2,902
|
|
|
|
7,654
|
|
|
|
5,717
|
|
|
|
14,779
|
|
|
Total Operating Expenses
|
|
|
593,690
|
|
|
|
437,393
|
|
|
|
927,585
|
|
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|
692,292
|
|
|
|
|
|
|
|
|
|
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Other Income (Expense)
|
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|
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Gain on sale of oil & gas properties
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
20,324
|
|
|
Gain on conversion of debt to common stock
|
|
|
320,428
|
|
|
|
-
|
|
|
|
320,428
|
|
|
|
-
|
|
|
Interest expense
|
|
|
-
|
|
|
|
-
|
|
|
|
(3,000
|
)
|
|
|
-
|
|
|
Total Other Income (Expense)
|
|
|
320,428
|
|
|
|
-
|
|
|
|
317,428
|
|
|
|
20,324
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(254,579
|
)
|
|
$
|
(361,973
|
)
|
|
$
|
(571,495
|
)
|
|
$
|
(570,167
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Net loss per common share – basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding – basic and diluted
|
|
|
61,539,926
|
|
|
|
44,748,247
|
|
|
|
55,172,535
|
|
|
|
44,570,209
|
|
The
accompanying notes are an internal part of these interim unaudited financial statements.
INTERNATIONAL
WESTERN PETROLEUM, INC.
STATEMENTS
OF CASH FLOWS
FOR
THE SIX MONTHS ENDED AUGUST 31, 2017 AND 2016
(Unaudited)
|
|
|
For the Six Months Ended
|
|
|
|
|
August 31, 2017
|
|
|
August 31, 2016
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(571,495
|
)
|
|
$
|
(570,167
|
)
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
Depletion and accretion
|
|
|
5,717
|
|
|
|
14,779
|
|
|
Depreciation
|
|
|
2,444
|
|
|
|
2,470
|
|
|
Share-based compensation
|
|
|
496,361
|
|
|
|
235,469
|
|
|
Gain on conversion of debt to common stock
|
|
|
(320,428
|
)
|
|
|
-
|
|
|
Gain on sale of oil & gas properties
|
|
|
-
|
|
|
|
(20,324
|
)
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
|
Accounts receivable - oil & gas
|
|
|
(2,342
|
)
|
|
|
(16,236
|
)
|
|
Accounts payable and accrued expenses
|
|
|
1,000
|
|
|
|
(3,138
|
)
|
|
Net Cash Used in Operating Activities
|
|
|
(388,743
|
)
|
|
|
(357,147
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
|
|
|
Sale of oil & gas properties
|
|
|
-
|
|
|
|
70,000
|
|
|
Deposit for purchase of
oil & gas properties
|
|
|
(195,320
|
)
|
|
|
(30,000
|
)
|
|
Net Cash Provided by (Used In) Investing Activities
|
|
|
(195,320
|
)
|
|
|
40,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
|
|
|
Proceeds from note payable
|
|
|
700,000
|
|
|
|
-
|
|
|
Payments for related party advances
|
|
|
-
|
|
|
|
(119,019
|
)
|
|
Proceeds from sales of common stock
|
|
|
345,000
|
|
|
|
192,500
|
|
|
Common stock subscribed
|
|
|
20,000
|
|
|
|
7,000
|
|
|
Net Cash Provided by Financing Activities
|
|
|
1,065,000
|
|
|
|
80,481
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decreased) in Cash and Cash
Equivalents
|
|
|
480,937
|
|
|
|
(236,666
|
)
|
|
Cash and Cash Equivalents – beginning of the period
|
|
|
76,365
|
|
|
|
542,228
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents – end of the period
|
|
$
|
557,302
|
|
|
$
|
305,562
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flows Information:
|
|
|
|
|
|
|
|
|
|
Cash paid for income tax
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
|
Common stock issued for conversion of debt
|
|
$
|
59,000
|
|
|
$
|
-
|
|
The
accompanying notes are an internal part of these interim unaudited financial statements.
INTERNATIONAL
WESTERN PETROLEUM, INC.
NOTES
TO INTERIM FINANCIAL STATEMENTS
(Unaudited)
Note
1 – Organization, Nature of Operations and Summary of Significant Accounting Policies
International
Western Petroleum, Inc. (“IWP” or the “Company”) was incorporated on February 19, 2014, as a Nevada corporation.
The Company was formed to conduct exploration, development and production operations in the oil and gas industry.
The
accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles
generally accepted in the United States of America and the rules of the Securities and Exchange Commission and should be read
in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report on Form
10-K filed with the SEC for the year ended February 28, 2017. In the opinion of management, all adjustments, consisting of normal
recurring adjustments, necessary for a fair presentation of the financial position and the results of operations for the interim
periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of
the results to be expected for the full year. Notes to the unaudited interim financial statements that would substantially duplicate
the disclosures contained in the audited financial statements for the most recent fiscal year as reported in the Form 10-K have
been omitted.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expense
during the period. Actual results could differ from those estimates.
Fair
Value of Financial Instruments
The
carrying amount of the Company’s accounts payable and accrued expenses and advances from officer approximates its estimated
fair value due to the short-term nature of that financial instrument.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
The Company had $557,302 and $76,365 of cash and cash equivalents at August 31, 2017 and February 28, 2017, respectively.
Concentrations
of Credit Risk
Financial
instruments which potentially subject the Company to concentrations of credit risk include cash deposits placed with financial
institutions. The Company maintains its cash in bank accounts which, at times, may exceed federally insured limits as guaranteed
by the Federal Deposit Insurance Corporation (FDIC). At August 31, 2017, $307,302 of the Company’s cash balances were uninsured.
The Company has not experienced any losses on such accounts.
Accounts
Receivable
Accounts
receivable typically consist of oil and gas receivables. The Company has classified these as short-term assets in the balance
sheet because the Company expects repayment or recovery within the next 12 months. The Company evaluates these accounts receivable
for collectability considering the results of operations of these related entities and when necessary records allowances for expected
unrecoverable amounts. To date, no allowances have been recorded.
Oil
& Gas Properties
The
Company follows the full cost method of accounting for its investments in oil and gas properties, whereby all costs incurred in
connection with the acquisition, exploration for and development of petroleum and natural gas reserves, including unproductive
wells, are capitalized. Such costs include lease acquisition, geological and geophysical activities, rentals on non-producing
leases, drilling, completing and equipping of oil and gas wells and administrative costs directly attributable to those activities,
and asset retirement costs. General and administrative costs related to production and general overhead are expensed as incurred.
Disposition
of oil and gas properties are accounted for as a reduction of capitalized costs, with no gain or loss recognized unless such adjustment
would significantly alter the relationship between capital costs and proved reserves of oil, in which case the gain or loss is
recognized in the statement of operations.
Future
development, site restoration, dismantlement and abandonment costs, are estimated property by property, based upon current economic
conditions and regulatory requirements, and are included in amortization of our oil and natural gas property costs.
Depletion
of capitalized oil properties and estimated future development costs, excluding unproved properties, are based on the unit-of-production
method based on proved reserves.
At
the end of each quarter, the unamortized cost of oil and natural gas properties, net of related deferred income taxes, is limited
to the sum of the estimated future after-tax net revenues from proved properties, after giving effect to cash flow hedge positions,
discounted at 10%, and the lower of cost or fair value of unproved properties, adjusted for related income tax effects. This limitation
is known as the “ceiling test,” and is based on SEC rules for the full cost oil and gas accounting method. There was
no ceiling test write-down recorded during the three and six months ended August 31, 2017 and 2016.
The
Company assesses the carrying value of its unproved properties for impairment periodically. If the results of an assessment indicate
that an unproved property is impaired (which was assessed in connection with the Company’s evaluation of goodwill impairment),
then the carrying value of the unproved properties is added to the proved oil property costs to be amortized and subject to the
ceiling test.
Fixed
asset
Fixed
asset is stated at cost and depreciated using the straight-line method over the five-year estimated useful life of the asset.
Asset
Retirement Obligations
If
a reasonable estimate of the fair value of an obligation to perform site reclamation, dismantle facilities or plug and abandon
wells can be made, the Company will record a liability (an asset retirement obligation or “ARO”) on its consolidated
balance sheet and capitalize the present value of the asset retirement cost in oil and gas properties in the period in which the
retirement obligation is incurred. In general, the amount of an ARO and the costs capitalized will be equal to the estimated future
cost to satisfy the abandonment obligation assuming the normal operation of the asset, using current prices that are escalated
by an assumed inflation factor up to the estimated settlement date, which is then discounted back to the date that the abandonment
obligation was incurred using an assumed cost of funds for the Company. After recording these amounts, the ARO will be accreted
to its future estimated value using the same assumed cost of funds and the capitalized costs are depreciated on a unit-of-production
basis over the estimated proved developed reserves. Both the accretion and the depreciation will be included in depreciation,
depletion and amortization expense on our consolidated statements of operations.
Revenue
Recognition
All
revenue is recognized when persuasive evidence of an arrangement exists, the service or sale is complete, the price is fixed or
determinable and collectability is reasonably assured. Revenue is derived from the sale of crude oil and natural gas. Revenue
from crude oil and natural gas sales is recognized when the product is delivered to the purchaser and collectability is reasonably
assured. The Company follows the “sales method” of accounting for oil and natural gas revenue, so it recognizes revenue
on all natural gas or crude oil sold to purchasers, regardless of whether the sales are proportionate to its ownership in the
property. A receivable or liability is recognized only to the extent that the Company has an imbalance on a specific property
greater than its share of the expected remaining proved reserves. If collection is uncertain, revenue is recognized when cash
is collected.
Income
Taxes
Income
taxes are accounted for in accordance with the provisions of ASC Topic No. 740. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment
date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized.
Stock-Based
Compensation
The
Company measures stock-based compensation cost at the grant date based on the fair value of the award and recognize it as expense,
over the vesting or service period, as applicable, of the stock award.
Basic
and Diluted Net Income (Loss) per Common Share
Basic
net loss per common share amounts are computed by dividing the net loss available to International Western Petroleum, Inc. shareholders
by the weighted average number of common shares outstanding over the reporting period. In periods in which the Company reports
a net loss, dilutive securities are excluded from the calculation of diluted earnings per share as the effect would be anti-dilutive.
For the six months ended August 31, 2017 and 2016, there were no potentially dilutive securities outstanding.
Reclassifications
Certain
reclassifications have been made to amounts in prior periods to conform to the current period presentation. All reclassifications
have been applied consistently to the periods presented.
Subsequent
Events
The
Company evaluated all transactions from August 31, 2017, through the financial statement issuance date for subsequent event disclosure
consideration.
Recent
Accounting Pronouncements
The
Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on its financial
position, results of operations or cash flows.
Note
2 – Going Concern
As
reflected in the accompanying financial statements, the Company has generated a net loss of $571,495 during the six months
ended August 31, 2017, and had negative cash flows of $388,743 from its operations for the same period. Revenues generated by
the Company from oil and gas sales currently have not reached a level that allows the Company to support its ongoing business.
The Company remains dependent upon funding from non-operating sources, principally related parties and the sale of common equity
securities. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. The financial
statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the outcome of these uncertainties.
Management
has a reasonable expectation that the Company has adequate resources to continue in operational existence for the foreseeable
future. The Company will be required to raise additional funds to fully execute its business plan; however, the Company believes
it has sufficient cash on hand and limited near term obligations to sustain its current operations for the next twelve months.
Note
3 – Oil & Gas Properties
The
following table summarizes the Company’s oil and gas activities by classification for the six months ended August 31, 2017:
|
|
|
February 28, 2017
|
|
|
Additions
|
|
|
August 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oil and gas properties, subject to amortization
|
|
$
|
946,878
|
|
|
$
|
|
|
|
$
|
946,878
|
|
|
Asset retirement costs
|
|
|
8,438
|
|
|
|
|
|
|
|
8,438
|
|
|
Accumulated depletion
|
|
|
(56,340
|
)
|
|
|
(5,227
|
)
|
|
|
(61,567
|
)
|
|
Total oil and gas assets
|
|
$
|
898,976
|
|
|
$
|
(5,227
|
)
|
|
$
|
893,749
|
|
The
depletion recorded for production on proved properties for the six months ended August 31, 2017 and 2016, amounted to $5,227 and
$14,335, respectively. The Company recorded no impairment of its oil and gas properties during the six months ended August 31,
2017 and 2016.
On
August 28, 2017, the Company made a deposit of $168,000 to a Trust Fund account designated by Stober Oil and Gas Services, LLC
with an intention to acquire certain oil lease interests located in Texas. The deposit was returnable during a designated due
diligence period, at the determination of the Company. The deposit was returned in October 2017
Note
4 – Fixed Asset
The
Company’s fixed asset consists of a vehicle with estimated useful life of five years. Balance of the fixed asset consisted
of the following at:
|
|
|
August 31, 2017
|
|
|
February 28, 2017
|
|
|
Vehicle
|
|
$
|
24,500
|
|
|
$
|
24,500
|
|
|
Less: accumulated depreciation
|
|
|
(9,398
|
)
|
|
|
(6,954
|
)
|
|
Total
|
|
$
|
15,102
|
|
|
$
|
17,546
|
|
The
Company recorded depreciation expense of $2,444 and $2,470 during the six months ended August 31, 2017 and 2016, respectively.
Note
5 – Asset Retirement Obligations
The
following table summarizes the change in the Company’s asset retirement obligations during the six months ended August 31,
2016:
|
|
|
Amount
|
|
|
Asset retirement obligations as of February 28, 2017
|
|
$
|
10,045
|
|
|
Additions
|
|
|
-
|
|
|
Revision of previous estimates
|
|
|
-
|
|
|
Accretion
|
|
|
490
|
|
|
Asset retirement obligations as of August 31, 2017
|
|
$
|
10,535
|
|
During
the six months ended August 31, 2017 and 2016, the Company recognized accretion expense of $490 and $444, respectively.
Note
6 – Related Party Transactions
On
May 30, 2017, International Western Oil Corporation, a related party of the Company sold its existing debt with the Company in
an aggregate amount of $379,428 to Riggs Capital, Inc, an unrelated third party of the Company.
On
August 2, 2017, the Company and Riggs Capital, Inc. consummated a Debt Conversion Agreement to convert the outstanding debt of
$379,428 into 5,900,000 shares of Common Stock which were distributed to Riggs Capital, Inc. and its related party Patrick Riggs.
These shares were issued in August 2017.
Note
7 – Loan Payable
On
April 7, 2017, the Company entered into a secured promissory note (the “
Secured Promissory Note
”) with JBB
Partners, Inc. (“
JBB
”). Pursuant to the terms of the Secured Promissory Note, the Company borrowed from JBB
$200,000 (the “
Loan
”). The Loan was funded on April 11, 2017. The Loan is secured by all of the Company’s
assets and until August 2, 2017 was additionally secured by 17,920,000 shares of the Company’s common stock then owned by
two of the then officers of the Company. The Loan bears interest at the rate of 3% per annum and the maturity date is April 7,
2018.
On
July 27, 2017, to be effective as of August 2, 2017, JBB and the Company (a) modified the Secured Promissory Note and restated
the same to increase the loan principal to an aggregate of $750,000, which includes the advance made on April 11, 2017, and (b)
modified and added certain other provisions, including elimination of the share collateral that secured the Loan, changing the
maturity date to July 27, 2018, and adding a provision to automatically convert the outstanding principal and interest into 1,000,000
shares of Series A Preferred Stock once the Company creates and has approved by the stockholders of the Company the new
class of Series A Preferred Stock.
The
balance of this loan was $750,000 at August 31, 2017.
Note
8 – Equity Transactions
In
July 2017, effective as of August 2, 2017, the Company sold 34,500,000 shares of its common stock to several individuals for $0.01
per share, and the Company received cash of $345,000.
On
August 2, 2017, Ross Henry Ramsey, former CEO of the Company, and Benjamin Tran, former Chairman of the Company, sold 17,920,000
shares of common stock and 12,000,000 shares of common stock, respectively, to JBB Partners, Inc. The Company’s related
party International Western Oil Corporation also sold 500,000 shares of the Company’s common stock to Mr. Patrick Norris.
At the same time, Mr. Norris was appointed the new CEO, President, CFO, Secretary and a director of the Company. Mr. Ramsey continued
as a director of the Company, and Mr. Tran resigned as a director of the Company effective September 15, 2017. A change of control
event occurred as a result of these transactions.
On
August 2, 2017, the Company issued 5,900,000 shares Common Stock to Riggs Capital, Inc. and its related party Patrick Riggs to
settle the outstanding debt owed by the Company. These shares were valued at their fair value of $59,000 and the Company recorded
a gain on conversion of debt to common stock in the amount of $320,428.
During
the six months ended August 31, 2017, the Company issued 115,000 shares of its common stock for consulting services. These shares
were valued at their fair value of $115,000. For the six months ended August 31, 2017, the Company recorded share-based compensation
expense of $496,361.
During
the six months ended August 31, 2017, the Company received $20,000 for 20,000 shares subscribed by one investor.
Note
9 – Subsequent Events
The Company previously had a consulting arrangement with Odyssey Enterprises, LLC (“Odyssey”).
This consulting agreement was terminated by the Company and Odyssey on August 2, 2017. The Company obtained a general release from
Odyssey in return for payment of 200,000 shares of common stock to be issued to Odyssey. In September 2017, the Company issued
these 200,000 shares to Odyssey. As of August 31, 2017, the Company has made an accrual for the common shares issued to Odyssey.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Cautionary
Notice Regarding Forward Looking Statements
The
information contained in this report contains forward-looking statements within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ
from those indicated in the forward-looking statements as a result of certain risks and uncertainties set forth in this report.
Although the Company’s management believes that the assumptions made and expectations reflected in the forward-looking statements
are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results
will not be different from expectations expressed in this report.
This
filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect
to our business, strategies, products, future results and events, and financial performance. All statements made in this filing
other than statements of historical fact, including statements addressing operating performance, events or developments which
management expects or anticipates will or may occur in the future, and non-historical information are forward looking statements.
In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,”
“may,” and variations of those words and similar expressions identify forward-looking statements. The foregoing are
not the exclusive means of identifying forward looking statements, and their absence does not mean that a statement is not forward-looking.
These forward-looking statements are subject to certain risks and uncertainties. Our actual results, performance or achievements
could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking
statements.
Readers
should not place undue reliance on these forward-looking statements, which are based on management’s current expectations
and projections about future events, are not guarantees of future performance, are subject to risks, uncertainties and assumptions
(including those described below), and apply only as of the date of this filing. Factors which could cause or contribute to such
differences include, but are not limited to, the risks discussed in our Annual Report on Form 10-K and in the press releases
and other communications to shareholders issued by us from time to time which attempt to advise interested parties of the risks
and factors which may affect our business. We undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events, or otherwise.
Overview
International
Western Petroleum, (the “Company”, “we”, or “us”) was incorporated on February 19, 2014, under
the laws of the state of Nevada. We are an oil and natural gas company that focuses on the acquisition, development, and exploration
of crude oil and natural gas properties in Texas. As of March 1, 2017, the SEC Non-Escalated Analysis of Estimated Proved Reserve
of the Bend Arch Lion 1A and Bend Arch Lion 1B leaseholds shows 137.74 Mbbl in oil net reserves out of 416.34 Mbbl in oil gross
reserves and 102.73 MMcf in natural gas net reserves out of 317.45 MMcf in natural gas gross reserves.
The
reserves associated with the report from Ralph E. Davis Associates LLC (an Opportune Company) have been classified in accordance
with the definitions of the Securities and Exchange Commission as found in Part 210 —Form and Content of and Requirements
for Financial Statements, Securities Act of 1933, Securities Exchange Act of 1934, Public Utility Holding Company Act of 1935,
Investment Company Act of 1940, Investment Advisers Act of 1940, and Energy Policy and Conservation Act of 1975, under Rules of
General Application § 210.4-10 Financial accounting and reporting for oil and gas producing activities pursuant to the Federal
securities laws and the Energy Policy and Conservation Act of 1975.
The
Company’s main objective is to take advantage of the current low oil prices to actively look for reserve oil and gas concessions
and productions, aiming to participate with capital partners in transactions related to buyouts and joint ventures. In fiscal
2018, the Company will continue to raise capital to acquire smaller oil and natural gas properties in the West, Central West,
East and South Texas aiming to increase its revenues and will continue to improve the existing production revenues of the Bend
Arch Lion 1A, Bend Arch Lion 1B, Marshall Walden joint venture property and the Ratliff property via new entries, re-entries and
EOR methods as mentioned in the Operational Plan section above.
The
Company’s secondary objective is to tap into potential leases of the West Texas region, with the goal of building reserves
to increase its oil and gas assets, specifically in the Permian Basin. The Permian Basin is a sedimentary basin largely contained
in the western part of Texas and the southeastern part of New Mexico. The greater Permian Basin comprises several component basins:
of these, Midland Basin is the largest, Delaware Basin is the second largest, and Marfa Basin is the smallest. The Permian Basin
extends beneath an area approximately 250 miles (400 km) wide and 300 miles (480 km) long.
To
achieve the Company’s objectives, state-of the-art exploration and recovery technology will be essential to future oil and
natural gas reserve development. The Company has worked with a technology company providing a state-of-the-art Organic Oil Recovery
(OOR) process that can release trapped oil while moderating exploration risks. Our management is exploring the opportunity to
utilize this new technology and is developing plans for the enhanced oil recovery operations. The Company plans to optimize its
acquisition model by adding technology to increase existing mature productions with limited additional drilling or fracking. Preliminary
assessments about technology that the Company seeks to deploy indicates that the OOR process, in general, may increase current
production at targeted production wells from 50% to 300% and may increase ultimate recovery of the original-oil-in-place by 5%
to 20%.
Strategy
and Implementation Summary
Sales
Strategy
Abilene,
Texas is the closest city to our production locations with oil handling and sales firms. Our sales strategy in relation to spot
pricing will be to produce less when the sales price is lower and produce more when the sales price is higher. To maintain the
lowest production cost, we will aim to have our inventory be virtually zero. Our E&P core team has business relationships
with BML, Transport Oil, Lion Oil Trading & Transportation, for oil sales as well as WTG Jameson for gas sales. The Company
has selected to enter into material agreements with BML, Lion Oil and WTG Jameson so that, as our tier 1 buyer, they can handle
pick-up and sales of our crude oil stock to refineries and gas via local gas pipelines.
As
such, crude oil will be picked up from the leases and natural gas can be collected as needed during the calendar month. At the
end of the month the hydrocarbon total sales will be tallied by lease and the 30-day average of the daily closing of oil and gas
will be tabulated. On or about the 25th of the following month the proceeds checks from oil and gas sales will be issued to the
financial parties of record.
Operational
Plans
The
Company has been examining and evaluating various reserve oil and gas concessions with existing production to acquire and continues
to pursue funding to raise enough capital via equity financing options to meet its operational goal in fiscal year 2018.
Based
on management’s general management and petroleum exploration experience as well as its geology expertise, the Company believes
it has the resources to be able to identify high potential acreages and high production fields.
The
Company expects to use its current working capital for production improvement projects. The Company’s goal is to execute
its acquisition model with selected EOR (Enhanced Oil Recovery) methods applied to oil and gas properties in order to improve
production revenues and increase assets. The Company plans to expand the E&P business outside of the Central West Texas and
East Texas region while looking for income-producing assets with reserves and promising upside potential in overlooked assets
and oil field businesses in various areas of Texas and surrounding states.
The
Company plans to initiate an acquisition model to be based on:
|
|
a)
|
the
financed acquisition of mature oil fields that have potential for the application of an advanced Enhanced Oil Recovery (EOR)
process. This is a cost effective process that has been field proven with success in over 40 oil fields around the world,
resulting in average production increases of producing wells, onshore and offshore; and
|
|
|
b)
|
strategic
partnership with existing operators to share production costs. M management believes that it is well positioned to exploit
EOR technology to address the market of “trapped oil” estimated at $250 trillion U.S. dollars throughout the world.
The Company aims to execute its objective in this new direction to create value for its shareholders and strategic partners.
|
The
Company has reviewed several acquisition candidates in the West Permian Basin and South Texas. After identifying several prospects,
additional research and evaluation was carried out using our personal contacts, geologists, 3D seismic, satellite hydrocarbon
imaging, production data and other available resources to gather information and data in order to make an acquisition decision.
Our operational plan for each acquisition is to increase production of the acquired oil and gas properties using state-of-the-art
production technologies with a designated budget.
The
Company has plans to design a cost effective operating budget for each exploration project associated with an acquisition project
and each budget will vary depending on the total depth of drilling and whether it is a new drilling or a re-entry. For each project,
the Company plans on hiring selected operators to work under the close supervision of a core team of Company geologists, engineers
and scientists.
The
exploration process is a 2-phase process: 1) drilling and testing and 2) well completion. The Company plans to hire drilling specialists
and technical consultants designated to oversee the drilling for each well during the drilling and testing phase. For the well
completion process, the Company plans to hire technical data collectors and cementing operators to ensure the best performance
upon perforating the wells at different pay zones based on thorough technical advisory work done by our internal and external
geologists before production.
To
date, the Company has prospected and completed several exploration and acquisition projects:
Completed
Acquisitions with Production Enhancement Programs
The
Bend Arch Lion 1A JV, Coleman County, TX
:
This
drilling joint venture is a 160-acre leasehold having 4 producing wells which have been drilled by our Texas-based operating partner
International Western Oil. This field has been surveyed with high quality proven reserves encompassing several pay zones highlighted
by the Gray Sand, the Palo Pinto, and in some instances the Ellenburger pay zone. On May 4, 2015, the Company acquired a 39.5%
working interest from International Western Oil Corporation (“IWO”) in the Bend Arch Lion 1A Joint Venture (the Pittard
Bend Arch White property encompassing 160 acres – State ID# 21488) (the “1A Venture”.) By acquiring these working
interests, the Company directly receives the share of working interest revenue (after accounting for applicable taxes, expenses,
and landowner royalties) IWO was receiving prior to the acquisitions.
As
of August 31, 2017, the 1A Venture property had four (4) gross oil and gas wells (1.58 net wells). The initial production of this
property started in April 2014. Currently, the Company has already shut in the production of the 1A Venture property to get ready
for upcoming re-work program.
Management
plans to execute its production improvement program on the Bend Arch Lion 1A as the result of our recent in-depth studies show
accessible proven reserves in several pay zones highlighted by the Gray Sand pay zone, the Palo Pinto pay zone and the Ellenburger
pay zone. Management believes, its production improvement program can offer a substantial increase from the current production
of this field by re-completing certain Gray Sand pay zones with either standard acidizing jobs or a new EOR method and also entering
virgin Palo Pinto pay zone or Ellenburger pay zone in certain declining wellbores.
The
Bend Arch Lion 1B JV, Coleman County, TX
:
This
drilling joint venture is a 220-acre leasehold having 6 new producing wells which have been drilled by our Texas-based operating
partner International Western Oil. In May 2015, the Company acquired working interests of this leasehold which has been surveyed
with high quality proven reserves encompassing several pay zones highlighted by the Gray Sand and in some instances the Ellenburger
pay zone. At the moment, the leasehold has 3 producing wells coming from the Gray Sand formation and 3 producing wells coming
from the Ellenberger formation. On May 4, 2015, the Company acquired 50% working interest in the Bend Arch Lion 1B Joint Venture
(the Pittard Bend Arch Red property encompassing 220 acres - State ID# 13121) (the “1B Venture”.) By acquiring these
working interests, the Company directly receives the share of working interest revenue (after accounting for applicable taxes,
expenses, and landowner royalties) IWO was receiving prior to the acquisitions.
As
of August 31, 2017, the 1B Venture property had six (6) gross oil and gas wells (2.76 net wells). The initial production of this
property started in March 2015.
Management
plans to execute its production improvement program on the Bend Arch Lion 1B as the result of our recent in-depth studies showing
accessible proven reserves in several pay zones highlighted by the Gray Sand pay zone and the Ellenburger pay zone. Management
believes, can offer a substantial increase from the current production of this field by re-completing certain Gray Sand pay zone
with either standard acidizing jobs or a new EOR method and also entering virgin Gray Sand pay zone or increasing pumping efficiency
in the Ellenburger pay zone in certain declining wellbores.
The
Marshall Walden JV, Kilgore City, TX
:
As
of July 29, 2016, the Company served as the managing venturer in a 45-acre joint venture with Odyssey Enterprises LLC which has
financed the Marshall Walden joint venture for the lease purchase and optimization of wells located in Kilgore, Texas, in the
heart of the Woodbine formation. There are 8 wellbores in the acquisition, with 4 currently in production and 4 inactive. The
Company has recently completed the re-work of the inactive wellbores and plans to upgrade to a new pump set up to enhance oil
production levels. Management believes that this Marshall Walden acquisition put a solid foundation in place for the Company in
the East Texas region.
As
of August 31, 2017, the Marshall Walden property had three (3) gross oil and gas wells (0.3 net wells) which are active. The initial
production of this property started in September 2016.
The
Ratliff Property, King County, TX
:
As
of December 6, 2016, the Company has acquired a 3D Seismic 350-acre leasehold in King County, Texas. This acquisition primarily
includes 350-acre leasehold in King County, Texas with additional options to lease up to 800 acres of adjoining acreage with complete
3D seismic data. The 350-acre leasehold comes with an existing tank facility for the production of oil, natural gas, and water.
There is also a full injection wellbore set in place that is fully equipped. There have been five (5) wellbores drilled on this
lease dating back to the 1970s, and these previous wellbores ranged from 4800ft – 6200ft in total depth, with three (3)
different prolific hydrocarbon formations.
Management believes that this acquisition has create a foothold for us in the Eastern Permian Basin. Within
depth studying of the 3D seismic data, we believe there are up to eight (8) proven undeveloped locations (“PUDs”) throughout
the lease’s acreage. Management also believes that the Company can best take full advantage of the complete 3D Seismic data
available and should be able to drill wellbores in extremely accurate locations. The Company plans to drill a 8,000 ft pilot hole
in order to obtain Ellenbuger pay zone samples and complete the Canyon Reef pay zone at 6,700ft on one wellbore and access a full
log review to determine if there is a window to drill a horizontal leg. The Company also plans to turn on 3 wellbores that are
producers via extended re-entry method.
As
of August 31, 2017, the Ratliff property had three (3) gross oil and gas wells (3 net wells) which are inactive and the Company
plans to perform re-entry works. The initial production of this property has not started yet.
The
data below is based on the SEC Non-Escalated Analysis of Estimated Proved Reserve of the Bend Arch Lion 1A and Bend Arch Lion
1B leaseholds in which the Company has certain interests. As of March 1, 2017, this evaluation report was prepared by an independent
third party Ralph E. Davis Associates LLC, an Opportune Company which is a SEC-qualified reservoir engineering firm based in Houston,
Texas.
Results
of Operations
Comparison
of the Three Months Ended August 31, 2017 with the Three Months Ended August 31, 2016
Revenues
The
Company generated revenues of $18,683 from oil and gas sales for the three months ended August 31, 2017, as compared to $30,420
for the three months ended August 31, 2016.
For
the three months ended August 31, 2016, the Company generated some service income. In 2017, the Company did not have such kind
of revenue.
Operating
Expenses
Operating
expenses for the three months ended August 31, 2017 and 2016 were $593,690 and $437,393, respectively. The costs incurred
during the three months ended August 31, 2017 consisted of related-party monthly field service expenses, lease operating expenses,
depletion and accretion, professional fees and administrative expenses associated with the normal course of business. The increase
was primarily related to lease operating expenses share-based compensation expense and other E&P expansion costs incurred
related to the acquisition and operation of the Company’s newly-acquired oil and gas properties.
Other
Income (Expense)
For
the three months ended August 31, 2017, the Company recognized a gain of $320,428 as the result of conversion of debt from an
unrelated party into the Company’s common stock.
Net
Loss
We
have net loss in the amount of $254,579 for the three months ended August 31, 2017 as compared to a net loss of $361,973for
the three months ended August 31, 2016. The decrease was primarily related to the gain we recognized on conversion of debt from
an unrelated third party into the Company’s common stock.
Comparison
of the Six Months Ended August 31, 2017 with the Six Months Ended August31, 2016
Revenues
The
Company generated revenues of $38,662 from oil and gas sales from the Company’s oil and gas properties for the six months
ended August31, 2017, as compared to $56,801 for the six months ended August 31, 2016.
Operating
Expenses
Operating
expenses for the six months ended August 31, 2017 and 2016 were $927,585 and $692,292, respectively. The costs incurred
during the six months ended August 31, 2017 consisted of related party monthly field service expenses, lease operating expenses,
depletion and accretion, professional fees and administrative expenses associated with the normal course of business. The increase
was primarily related to lease operating expenses, share-based compensation expense and other E&P expansion costs incurred
related to the acquisition and operation of the Company’s newly-acquired oil and gas properties.
Other
Income (Expense)
For
the six months ended August 31, 2017, the Company recognized a gain of $320,428 as the result of conversion of debt from an unrelated
party into the Company’s common stock.
The
Company recognized gain of $20,324 from sale of some of its oil and gas properties during the six months ended August 31, 2016.
In 2017, the Company did not have such kind of sale.
Net
Loss
We
have net loss in the amount of $571,495 for the six months ended August 31, 2017 as compared to a net loss of $570,167
for the six months ended August 31, 2016. The decrease was primarily related to the gain we recognized on conversion of debt from
an unrelated third party into the Company’s common stock.
Liquidity
and Capital Resources
As
of August 31, 2017, the Company had cash in hand of $557,302.
Net
cash used by operating activities during the six months ended August 31, 2017 was $388,743 as compared to cash used in operating
activities of $357,147 for the same period in 2016. The increase was mainly related to additional costs incurred related to the
maintenance and repair of the Company’s newly acquired oil and gas properties and other consulting expenses related to public
relations and acquisition efforts.
Net
cash used in investing activities during the six months ended August 31, 2017 was $195,320 as compared to cash provided by investing
activities of $40,000 for the six months ended August 31, 2016. During the second quarter of 2017, the Company made a deposit
of $168,000 for a potential acquisition of certain oil and gas properties. For the six months ended August 31, 2016, the Company
sold some of its oil and gas properties for $70,000 and also made a deposit of $30,000 for a potential acquisition of certain
oil and gas properties.
Net
cash provided by financing activities during the six months ended August 31, 2017 was $1,065,000 as compared to cash provided
by financing activities of $80.481 for the six months ended August 31, 2016. The increase in cash provided by financing activities
was primarily related to a new loan of $700,000 and $345,000 cash proceeds from sales of the Company’s common stock for
cash. The Company sold 20,000 shares of common stock to a private investor for $20,000 and these shares has not been issued as
of the date of this report.
Off-Balance
Sheet Arrangements
As
of August 31, 2017, we did not have any off-balance sheet arrangements as defined in Item 303 (a)(4)(ii) of Regulation S-K promulgated
under the Securities Act of 1934.
