Quarterly report pursuant to Section 13 or 15(d)

Property and Equipment

v3.19.2
Property and Equipment
6 Months Ended
Jun. 30, 2019
Property, Plant and Equipment [Abstract]  
Property and Equipment

Note 3 – Property and Equipment

 

Oil and Gas Properties

 

The Company’s oil and gas properties at June 30, 2019 and December 31, 2018 are located in the United States of America.

 

The carrying values of the Company’s oil and gas properties, net of depletion, depreciation, amortization, and impairment at June 30, 2019 and December 31, 2018 are set forth below in the following table:

 

    June 30, 2019     December 31, 2018  
Unproved leasehold (1)   $ 106,299     $ 106,299  
Proved leasehold and Properties subject to depletion, net of depletion     12,569,237       12,036,804  
Exploratory wells – construction-in-progress (1)     -       -  
Total   $ 12,675,536     $ 12,143,103  

 

(1) Not subject to depletion;

 

          Exploration and           Depreciation, Depletion, Amortization,        
Year   Acquisition     Development     Disposition     and        
Incurred   Costs     Costs     of Assets     Impairment     Total  
                               
2016 and prior   $ 10,252,568     $ 1,181,421     $                —     $     $ 11,433,989  
2017           3,223,931             (1,525,784 )     1,698,147  
2018           1,897,502               (2,886,535 )     (989,033 )
2019     657,304       419,449               (544,320 )     532,433  
Total   $ 10,909,872     $ 6,722,303     $     $ (4,956,639 )   $ 12,675,536  

 

In 2017, the Company acquired a 21.62% non-operated working interest with a 17.1% net revenue interest in two exploratory horizontal gas wells in the Uinta Basin from an undisclosed party, and the Company incurred $1,479,282 in well costs. During the year ended December 31, 2018, the company incurred an additional $1,868,370 of well costs. At December 31, 2018, the Company’s share total costs for drilling and completing the two wells was $3,347,776. Although these wells produced economic quantities of natural gas liquids and residue gas through December 31, 2017, well completion activities were completed during the year ended December 31, 2018, so costs were reclassed from construction-in-progress to proved properties subject to depletion through December 31, 2018. As of December 31, 2018, we recorded impairment expense of $1,521,776 for the amount exceeding the ceiling test limitation. During the six months ended June 30, 2019, the company capitalized additional costs of $170,146.  

 

In 2017, the Company drilled a test well on the Labokay prospect to the total measured depth of 8,795 feet, where hydrocarbons shows were not in commercial quantities to warrant completion. This well was plugged and abandoned. Since the well was not commercially viable the Company’s working interest in the underlying mineral lease terminated and we no longer have a right to acquire title to said property. During the year ended December 31, 2017, we incurred costs of $1,209,675 in the drilling of this well and $1,352,982 was charged to impairment expense. Civil lawsuits were filed against FPOI arising from unpaid accounts in connection with drilling of this well – see Note 11 – Commitments and Contingencies for additional information on the lawsuits.
   
In 2017, the Company worked over two Duck Creek wells obtaining production from the Green River formation. We incurred $79,989 in capitalized workover costs associated with these wells. The wells require additional workover and were shut-in in July 2017. The Company recorded asset retirement costs of $291,659 related to Duck Creek wells. During the year ended December 31, 2018, we incurred $8,821 in capitalized workover costs associated with these wells. As of December 31, 2018, due to the Duck Creek wells subsequently becoming subject to a Sherriff’s sale stemming from a legal matter with our indirect subsidiary, the Duck Creek wells should be impaired to the extent of total intangible costs, which were capitalized for these properties during 2017 and 2018. Accordingly, the impairment expense for the period ending December 31, 2018 is $88,810. We did not incur any cost during the six months ended June 30, 2019.

 

In 2017, the Company incurred costs of $22,691 for bonding, legal, title, engineering, geological and surveying in our Ladysmith project in Fremont County, Wyoming.
   
In 2017, the Company incurred costs of $3,750 related to Springs Project. The Company allowed the BLM leases for the Springs project to expire without paying additional delay rental payments. The primary terms on these leases were due to expire in Q4 2018 and in the view of management it was not in the best interest of the Company to continue exploratory efforts on this speculative play. Management concluded that Company resources would be better redirected to continue seeking lower-risk acquisitions of producing oil and gas properties rather than take additional wildcat drilling risk on this prospect. The Company currently no longer owns the mineral rights for this project. As the result, the Company recognized impairment of oil and gas property in amount of $154,787, during the year ended December 31, 2017. During the year ended 31, 2018, the Company has decided to allow Ladysmith leases to expire without making further delay rental payments to the BLM, as the result we recorded impairment expense of $78,469.
   
In 2017, the Company incurred costs of $100,191 for exploration and development efforts associated with the proved oil and gas assets in Utah, which were acquired on December 30, 2016, from Total Belief Limited, a wholly owned subsidiary of New Times Energy Corporation Limited. These assets include certain oil and gas wells throughout the Uinta Basin in Utah on acreage with over 30 proved undeveloped drilling locations, additional non- operating interest in other leases, and access to approximately 6,000 acres in the Uinta Basin with proven and probable reserves and existing infrastructure in place. In connection with the TBL acquisition, Foothills entered into a promissory note in the amount of $6,000,000. This note bears no interest during its term. The Company recorded ($342,804) of imputed interest as debt discount. Starting from July 1, 2018 the note bears 10% annual interest. During the year ended December 31, 2018, we incurred cost of $20,000 exploration and development efforts associated with these properties. During the six months ended June 30, 2019, we incurred costs of $24,722 exploration and development efforts associated with these properties.
   
In 2017, the Company incurred costs of $379,498 for exploration and development efforts associated with numerous unproved oil and gas properties in the Company’s geographic areas of interest, including farmout properties (Paw Paw and Ironwood) and numerous others that were being evaluated and considered for a prospective acquisition and/or farmout by the Company. During the year ended December 31, 2018, we incurred cost of $312 exploration and development efforts associated with these properties. As of December 31, 2018, the Company determined it is unlikely that it will be able to obtain enough production from this test well at the present time to warrant continued development. As the result we recorded $778,034 impairment expense of Pawpaw during the year ended December 31, 2018.
   
On March 6, 2019, the Company, through its indirect wholly-owned subsidiary, Foothills Exploration, LLC, closed on the acquisition of 22 natural gas wells and approximately 18,214 gross acres (14,584 core), 78% held by production, located in the Greater Green River Basin in Wyoming (the “GRB Assets”). Some of the underlying leases come with certain depth restrictions and roughly 80% of the acreage remains undeveloped. The GRB assets were purchased for $671,481, in an all-cash transaction, which was financed through Company borrowings. The Company’s optimization program targeting the first several wells has already generated an 11% increase in production rates and as such the Company is continuing to optimize additional wells to further increase production. $657,304 were recorded in oil and gas and property and $14,177 were allocated to Support Facilities and Equipment. We recorded $222,194 as asset retirement cost related to these wells. During the six months ended June 30, 2019, we incurred costs of $2,388 exploration and development efforts associated with these properties.
   
In 2017, we recorded depreciation, depletion and amortization cost related to oil and gas properties of $18,017. During the year ended December 31, 2018, we recorded depreciation, depletion, amortization costs related to oil and gas properties of $411,821. During the six months ended June 30, 2019 and 2018, we recorded depreciation, depletion, amortization costs related to oil and gas properties of $544,320 and $214,179, respectively.

 

Support Facilities and Equipment

 

The Company’s support facilities and equipment serve its oil and gas production activities. The following table summarizes these properties and equipment, together with their estimated useful lives:

 

    June 30, 2019     December 31, 2018  
             
Tank   $ 30,000     $ 30,000  
Vehicles     69,446       69,446  
Uinta Basin facilities     184,887       186,428  
Sweetwater facilities     14,177        
Accumulated depreciation     (3,954 )     (1,717 )
Construction in progress (1)     -       -  
Total support facilities and equipment, net   $ 294,556     $ 284,157  

 

(1) Facilities constructed in conjunction with drilling for our two exploratory horizontal wells in Uintah County, Utah, not subject to depreciation. During the months ended June 30, 2019, construction-in-progress was reclassified to Uinta Basin facilities and became eligible for depreciation upon the completion of the construction.

 

The Company recognized depreciation expense of $2,237 and $354 during the six months ended June 30, 2019 and 2018, respectively.

 

Office Furniture, Equipment, and Other

 

As of June 30, 2019 and December 31, 2018, office furniture, equipment, and other consisted of the following:

 

    June 30, 2019     December 31, 2018  
Computer equipment and fixtures   $ 22,453     $ 22,453  
Accumulated depreciation     (19,828 )     (16,116 )
Office furniture, equipment, and other, net   $ 2,625     $ 6,337  

 

During the six months ended June 30, 2019 and 2018, we recorded depreciation expense of $3,711 and $3,711, respectively.