Noch keine "Revenues" da Cash für die Pipeline fehlt, sollte eine Finanzierung gelingen, könnte es spannend werden! 16-Nov-2006
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS AND PLAN OF OPERATION
GENERAL
The Company is an exploration stage oil and gas company whose primary business during 2006 is engaged in the exploration for and development of natural gas through the acquisition of leases and drilling of gas wells in the States of Kansas, Missouri, Oklahoma, and New York, in the United States. The Bourbon County, Kansas project encompasses approximately 2,895 acres of prospective frontier natural gas lands. The Vernon County, Missouri project comprises leases for 974 acres. The Woods County, Oklahoma project covers 157 acres.
The Company holds a 50 percent net working interest in its leases for all the lands and operates the projects, except the Grant County prospect. The expiration dates for the leases range from dates in 2005 through 2006. All of the leases may be extended upon the exercise of options on the leases, which requires a well be drilled by each specific due date. For the years ending December 31, 2005 and 2006, no lease option payments are due.
On April 30, 2003, the Company announced that its Board of Directors approved a Purchase and Sale Agreement between the Company and Waterton Lakes Hotels (1956) Co. Ltd. ("Waterton Lakes"), a privately held corporation, for an interest in an oil and gas lease in Oklahoma.
Under the terms of the Agreement, Waterton Lakes has assigned a working interest portion equal to 50% in an oil and gas property, known as the Smith Lease, recorded in Woods County record covering 157 mineral acres (more or less) situated on Lots 3 and 4 and E 1/2 of SW 1/4 of Section 31, Township 26 North, Range 13 West, Woods County Oklahoma, USA. As called for in the Agreement, the Company has made a payment to Waterton Lakes on May 7, 2003, in the amount of $20,000.
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The Company and Waterton Lakes plan to acquire additional seismic on the property to further delineate potential hydrocarbon zones. Records for the nearby Hopeton North field indicate that it contained and produced 17.5 billion cubic feet of natural gas from the Hunton zone. In the 1960's and early 1970's, the target acreage was explored to a limited extent, but never produced. The production of substantial quantities of natural gas nearby indicates that the general area is prospective for natural gas production. Moreover, the preliminary seismic data show the Hunton zone present within the boundaries of the Smith Lease.
If warranted following additional seismic evidence and if the necessary funding is available, the Company and Waterton Lakes plan to drill an initial exploratory gas well on the property to test the Hunton zone. The drilling depth of the planned well is anticipated to be approximately 6,500 feet, and would be expected to be spudded during 2006.
Ian D. Lambert, a director of the Company, is the beneficial owner of approximately a 1/6 interest in the 50% net working interest portion of the Woods County, OK, leasehold interest maintained by Waterton Lakes.
Commencing in June, 2003, the Company acquired a 50% net working interest in approximately 2,895 acres of leasehold properties for natural gas exploration in Bourbon County, located in the eastern central area of Kansas, with coverage on 974 acres of leasehold properties extending into Vernon County, Missouri.
The Company has drilled eighteen shallow gas wells up to September 30, 2006 on a portion of its leasehold property in Bourbon County, Kansas. A total of fourteen wells have been tested with sustainable daily production volumes totalling at least 150,000 cubic feet per day. The wells were drilled by way of a fixed price contract with McGown Drilling Inc. of Mound City, KS, at the rate of $12,000 per completed well.
In order to sell the gas production, the Company acquired the necessary funding to proceed with its plans to implement a supplementary pipeline to carry the natural gas from its leasehold properties to the main transmission line, a distance of some eleven miles, at a capital cost of construction of $355,571.
Ian D. Lambert, a director of the Company, is the beneficial owner of approximately a 1/7 interest in the 50% net working interest portion of Bourbon County, KS, and Vernon County, MO, oil and gas leasehold interests not acquired by the Company.
On March 22 2006, the Company announced that it entered into an agreement with Arrandale Financial Corp. to acquire an 75% net revenue interest in the Roark Prospect, Steuben County, New York consisting of oil and gas leases covering approximately 885 net acres for the payment of $150,000 as reimbursement of lease acquisition costs and lease bonuses, and the commitment for the issuance of 2 million restricted common shares of common stock.
The Roark Prospect is located three miles west of the Howard Field in western New York state, a 1937 discovery from the Devonian Oriskany Sandstone at 3400 feet. The Howard Field has produced approximately 4.5 BCFG from ten wells, producing an average per well recovery of 4.5 MMCFG. This region is within a strong gas market, located nearby transmission pipeline and storage facilities.
The Company plans to drill an initial well targeting the Oriskany Sandstone on a large soil iodine anomaly that extends east and north of the Howard Field, near the point of intersection coincidental with the westward projection of the Howard Field. Consulting Geologists indicate that the areal extent of the anomaly is approximately double that of the drilled extent of the Howard Field, so a target with potential in the range of 8 to 10 BCFG is anticipated.
LIQUIDITY AND CAPITAL RESOURCES
Since its inception, the Company has had virtually no revenues from operations and has relied almost exclusively on shareholder loans and private placements to raise working capital to fund operations. At September 30, 2006, the Company had a working capital deficiency of approximately $762,270 in Loans, Notes payable and current Accounts Payable. It is anticipated that management will be able to fund the company's base operations by way of further private placements for up to twelve months.
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Based upon the low monthly overhead associated with current operations, the Company believes that it has sufficient cash on hand and financing arrangements made to meet its anticipated needs for working capital, capital expenditures and business expansion for the next twelve months of operations, before any continuous revenues are obtained. Should the business expand, the Company will need to raise additional capital.
The Company has not established revenues sufficient to cover its operating costs and to allow it to continue as a going concern. A Note to the Financial Statements as at September 30, 2006, states that the future of the Company is dependent upon its ability to obtain financing and upon future profitable operations from the development of its properties, and as such, the Company is substantially dependent upon its ability to generate sufficient revenues and debt or equity financings to cover its operating costs.
If the Company needs to raise additional funds in order to fund drilling, acquire property and leases, construct further pipeline facilities, or expand or develop new or enhanced facilities for production, respond to competitive pressures or acquire complementary products, businesses or technologies, any additional funds raised through the issuance of equity or convertible debt securities will reduce the percentage ownership of the stockholders of the Company. Stockholders may also experience additional dilution.
Such securities may have rights, preferences or privileges senior to those of the Company's Common Stock. The Company does not currently have any contractual restrictions on its ability to incur debt and, accordingly, the Company could incur significant amounts of indebtedness to finance its operations. Any such indebtedness could contain covenants which would restrict the Company's operations. There can be no assurance that the Company will be able to secure adequate financing from any source to pursue its current plan of operation, to meet its obligations or to deploy and expand its network development efforts over the next twelve months. Based upon its past history, Management believes that it may be able to obtain funding from investors or lenders, but is unable to predict with any certainty the amount and/or terms thereof. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to continue in business, or to a lesser extent, may not be able to take advantage of acquisition opportunities, develop or enhance services or products or respond to competitive pressures.
As of the date of this filing, incidental natural gas sales have just commenced, with limited incidental revenue from gas sales having been received by the Company commencing in April, 2006 from the shipment of natural gas during the pre-production testing phase production commencing in February 2006.
Accordingly, no table showing percentage breakdown of revenue by business segment or product line is included.
Capital Requirements & Use of Funds
The Company will be seeking financing of at least $3,000,000 over the next nine to twelve months to continue with the expansion of oil and natural gas properties and to repay loans received to build a supplementary pipeline to sell its natural gas. There is no guarantee that the Company will actually be able to complete such financing within that period, or at all. Should this funding not be raised, it would put the ability for the Company to pursue its business plan at risk (See Risk Factors).
Corporate uses of funds shall include but not be limited to the following:
- administration and operational expenses.
- corporate overhead expenses necessary to maintain the Company's operations.
- acquisition of additional oil and natural gas properties.
- lease acquisition costs for potential oil and gas leases.
- construction costs to build a supplementary pipeline to sell its natural gas.
- undertake further seismic work program for the Smith lease.
- drilling more shallow gas wells in Kansas and Missouri.
- drill initial well on Steuben County prospect.
The next phase of funding is anticipated to require approximately $3,000,000 depending upon further acquisition and drilling plans. Capital is expected to be raised in stages, as the financing climate permits. Should this funding not be raised, it might put the ability for the Company to pursue its business plan at risk (See Risk Factors).
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The following discussion and analysis explains the financial condition for the period from January 1, 2006 to September 30, 2006, which supplements the financial statements and related notes for that period and the audited financial statements for the fiscal year ended December 31, 2005.
Revenues. The Company does not anticipate that revenue generating operations will commence until approximately the end of 2006. The Company's first other income from incidental gas sales was generated during the period January 1, 2006 to September 30, 2006, with none prior to that date.
Expenses. For the period from January 1, 2006 to September 30, 2006, the Company incurred expenses of $118,500 for consulting fees to directors and a company related by a common director, $9,000 in legal fees to company controlled by a director, $3,000 in interest expenses to a company with common directors, and $34,000 in other consulting fees; marketing and promotion of $522,770; general and administrative expenses of $7,160; transfer agent and filing fees of $2,488; professional fees of $38,629; rent of $6,807; $13,671 in interest expense; $27,905 for travel expenses; website development of $11,938; and $2,550 for telephone expenses.
Expenses for the previous period from January 1, 2005 to September 30, 2005, the Company incurred expenses of $60,750 for consulting fees to Messrs. Lambert and Lawson; marketing and promotion of $623; general and administrative expenses of $4,944; transfer agent and filing fees of $1,198; professional fees of $21,699; rent of $5,260; $6,245 in interest expense; $2,210 for travel expenses; and $701 for telephone expenses.
Net Loss. For the period from January 1, 2006 to September 30, 2006, the Company recorded a loss from operations totalling $1,887,087 year to date including $503,250 for stock based compensation and $642,000 for stock accretion expense. The total net loss since incorporation through to September 30, 2006, was $6,115,782.
Certain management, business associates and related parties have advanced a total of $451,450, with notes payable of $11,313 advanced as loans to the Company to cover operating costs including $200,000 to cover pipeline construction during 2004 and 2005. As of September 30, 2006, the working capital deficiency was $762,270.
A. RESULTS OF OPERATIONS
At this time, the Company has commenced generating other income from incidental sales of natural gas operations through the shipment of natural gas during the pre-production testing phase to market in Bourbon County, Kansas. To September 30, 2006, the Company has been testing the production from a total of fourteen wells, with 4 in development phase. The Company anticipates the commencement of production revenue generating operations in Kansas toward the end of 2006 from some fourteen wells. A new compressor has been installed on its supplementary pipeline approximately at the end of August, which is expected to result in increased daily production over that experienced during the development and test phase. The Company also cautions that while it does not foresee any such eventuality, delays in the anticipated expansion of operations might occur.
B. CAPITAL RESOURCES
The Company had a working capital deficiency of $762,270 at September 30, 2006.
The Company has been pursuing private placements to finance business development, repay pipeline construction loans of $200,000, and accounts payable of $390,708 at September 30, 2006, and is negotiating to settle the outstanding advances payable of $451,450 by conversion to private placement shares. In the meantime, the Company has met its obligations through funds loaned by certain management and non-related third parties.
During the previous quarter, the Company completed private placements pursuant to Regulation S, totalling $750,000, by way of issuance of 7,500,000 units at a price of $0.10 per unit. Each unit consists of one common share and one share purchase warrant exercisable at a price of $0.20 per share for a period of one year. In addition the Company anticipates that it will be able to raise further funds through private placement share issuances over the next year that will provide adequate working capital for the next twelve months.
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The Company has made two specific commitments for Capital Expenditures. By the fall of 2006, the Company intends to complete the drilling of an further three wells on its leasehold properties in Kansas. The anticipated budget for this Capital Expenditure is $100,000. The Company is awaiting an AFE for drilling an initial well in 2007 on its new Roark Property acquisition in Steuben County, New York. The completion costs are anticipated to be in the $500,000 range.
C. LIQUIDITY
The Company is liquid at the present time from the proceeds of private placements, and has been dependent upon loans and small private placements to provide funds to maintain its activities, though the Company expects to be able to raise larger amounts of funds through the issuance of shares over the next six to twelve months in addition to planned production revenue scheduled to commence by the end of the tird quarter this year. |
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