14-Jan-2014
Quarterly Report
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Forward Looking Statements
This interim report on Form 10-Q contains forward-looking statements. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. Forward-looking statements made in this Form 10-Q include statements about:
? our beliefs regarding the future of our competitors;
? our future capital expenditures;
? our future exploration programs and results;
? our plan to drill 31 wells at approximately $1,200,000 per well from February 2014 to November 2014;
? estimates indicate the costs to perform the work outlined in our business plan may range from $37 million to $40 million; and
? our expectation that we will be able to raise capital when we need it.
These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks in the section entitled "Risk Factors" and the risks set out below, any of which may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks include, by way of example and not in limitation:
? we may be unable to raise sufficient funds to execute our business plan;
? we have a limited operating history;
? we are dependent on a small management team;
? we may be unable to manage any growth;
? market conditions or operation impediments may hinder our access to natural gas and oil markets or delay our production;
? risks inherent in the oil and gas industry;
? competition for, among other things, capital and skilled personnel; and
? other factors discussed under the section entitled "Risk Factors",
any of which may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
While these forward-looking statements and any assumptions upon which they are based are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions or other future performance suggested herein. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our financial statements are stated in United States Dollars (US$) unless otherwise stated and are prepared in accordance with United States Generally Accepted Accounting Principles.
In this interim report, unless otherwise specified, all references to "common shares" refer to the common shares in our capital stock.
As used in this interim report on Form 10-Q, the terms "we", "us" "our" and "Strongbow" mean our company, Strongbow Resources Inc.
Corporate Overview
Our company was incorporated under the laws of Nevada on July 9, 2004.
During October 2007 we amended our articles of incorporation to increase the number of our authorized common shares from 75,000,000 to 750,000,000 and to forward stock split our common stock on a 10-for-1 basis. The stock split was based on market conditions and upon a determination by our Board of Directors that the stock split was in our best interests and in the best interests of our shareholders.
On February 28, 2012, we adopted the assumed name of Big Lake Energy Ltd. for use in the Province of Alberta, Canada. On June 5, 2013, we adopted the assumed name of Big Lake Energy Ltd. for use in the Province of British Columbia, Canada.
Our Current Business
Effective February 2, 2012, we entered into a Farmout Agreement ("Agreement") with Harvest Operations Corp. ("Harvest"). The Agreement provided for our acquisition of an undivided 100% working interest ("Working Interest") in a petroleum and natural gas license covering eight (8) sections of land (5,120 acres, more or less) located in the Compeer Area in the Province of Alberta, Canada ("Farmout Lands"). The Farmout Lands have no current commercial production.
To earn the Working Interest we were required to drill, complete, equip or abandon a test well on the Farmout Lands ("Test Well"). On March 14, 2012, we obtained operator status in the Province of Alberta. On April 4, 2012, the Alberta Energy Resources Conservation Board approved the transfer of the well license relating to the Test Well from Harvest to us.
The Test Well was spudded on May 27, 2012 and was drilled vertically 905 meters (2,977 feet) into the Bakken formation. We cut two full bore cores, one from each of the Viking and Bakken formations, and also ran a drill stem test in the Viking formation. The plug samples taken from the Viking formation exhibited strong oil fluorescence indicating light oil and had between 16% and 23% porosity in the samples. We estimate the net sand pay in the well is approximately 5 meters (16.45 feet). The Bakken formation was found to be uneconomic and was abandoned. Based on our evaluation, we elected to drill a horizontal leg to the Test Well running 1,045 meters (3,435 feet) into the Viking formation. The total depth drilled in the Test Well met the contract depth requirements under the Agreement.
On September 5, 2012, we received an earning notice from Harvest granting our company a 100% working interest in the Farmout Lands. Initial production from the Test Well has been limited by a higher than expected gas solution content. It is expected the oil ratio will increase as the gas component lessens. Oil recovered to date is light, sweet crude.
The Viking Formation oil prospect is part of an emerging large oil resource play in Eastern and Central Alberta as well as in the Dodsland area of Saskatchewan. The Viking Formation in the Compeer play will be developed by up to four horizontal wells per section per zone.
Our Working Interest in the Farmout Lands will be held subject to a non-convertible overriding royalty payable to Harvest ("Harvest's Royalty"). Harvest's Royalty on net crude oil revenues will be measured on a sliding scale from 5% to 15% over a range of production volumes from 1 to 150 barrels per day. Harvest's Royalty on net gas and other petroleum product revenues is 15%.
On March 25, 2013, we completed the installation of permanent production facilities on our recently drilled Big Lake Compeer 5-29-33-02 W4M well. The well was horizontally drilled into the Viking formation. During drilling the well encountered light oil shows from the Viking formation. A ten stage multi-zone nitrogen aided fracture stimulation was made over the entire 1,000 metre long lateral section of the well. The well was initially tested in November 2012, however, due to high solution gas ratios, proper wellhead separation and fluid storage facilities needed to be installed. This was recently completed and the well was placed on production test at the end of the first week of March 2013, producing light (42� API) oil. Production rates have been variable as it is in early stages of testing. IP rates were in excess of 60 barrels of oil per day based upon short flow periods, and the well needs to be production tested for a longer period of time.
As of November 30, 2013, we have incurred approximately $1,411,000 in exploration costs to drill, complete and equip the Test Well. We also recorded $32,058 in asset retirement obligations related to the future plugging and abandonment of the Test Well.
During the nine months ended November 30, 2013, we generated revenues of $18,733 from pre-production sales of oil. For accounting purposes, the proceeds from the sales less direct costs of $16,134 are credited to the carrying value of the oil and gas properties.
As of January 14, 2014, it is too early to provide stabilized production forecasts.
During fiscal 2014, we plan to focus on the exploration and drilling of the Farmout Lands, identify and complete additional asset acquisition(s), and pursue joint venture agreements with third parties to explore for oil and gas in Canada and the United States. We plan to drill 31 wells at approximately $1,200,000 per well from February 2014 to November 2014. Early estimates indicate the costs to perform the work outlined in our business plan may range from $37 million to $40 million.
Results of Operations
The following summary of our results of operations should be read in conjunction with our unaudited financial statements for the three and nine month period ended November 30, 2013 and 2012 which are included herein:
For the three months ended For the nine months ended November 30, November 30, November November 2013 2012 30, 2013 30, 2012 Oil and gas sales - - 18,733 - Cost of sales - - 16,134 - Expenses 63,208 126,386 217,617 467,543 Net income(loss) 31,984 (126,386 ) (57,105 ) (467,543 )
Revenues
During the nine month period ended November 30, 2013, we generated revenue of $18,733 (November 30, 2012 - $nil) and incurred direct costs of $16,134 (November 30, 2012 - $nil) from pre-production sales of oil. The net sales has been credited against the carrying value of the oil and gas property.
Expenses
Expenses decreased during the nine month period ended November 30, 2013 to $217,617 as compared to $467,543 during the nine month period ended November 30, 2012.
The table below details the changes in major expenditures for the nine months ended November 30, 2013 as compared to the corresponding nine months ended November 30, 2012:
Expenses Increase / Explanation for Change Decrease in Expenses
Management Decrease of Decrease due to reduced number of officers and fees $74,764 directors of our company. Consulting Decrease of Decrease due to no consulting services used fees $176,075 during the nine months ended November 30, 2013. Professional Increase of Increase due to more professional services used fees $96,804 for corporate filings and accounting services. Office, Decrease of Decrease due to decrease in insurance, general travel and $98,291 office expenses, office rent, and travel general expenses. expenses
Liquidity And Capital Resources
Working Capital
November 30, February 28, 2013 2013 Current Assets 7,417 113,351 Current Liabilities 1,613,583 1,960,260 Working Capital (Deficiency) (1,606,166 ) (1,846,909 )
We had cash of $4,682 and a working capital deficit of $1,606,166 as of November 30, 2013 compared to cash of $4,429 and a working capital deficit of $1,846,909 as of February 28, 2013. On November 12, 2013, the holder of two notes in the aggregate of $555,000, which are due on demand, sent a letter to us demanding repayment of those notes. As of January 13, 2014, we have not repaid any amounts due under those notes.
We anticipate general and administrative expenses will be decreased during the current fiscal year compared to fiscal 2013. In connection with oil and gas operations, we have reduced the number of executive officers. As a result, we estimate our general and administrative expenses will be less during the current fiscal year.
Our company's cash will not be sufficient to meet our working capital requirements for the next twelve month period. Our company plans to raise the capital required to satisfy our immediate short-term needs and additional capital required to meet our estimated funding requirements for the next twelve months primarily through the private placement of our equity securities. There is no assurance that our company will be able to obtain further funds required for our continued working capital requirements. The ability of our company to meet our financial liabilities and commitments is primarily dependent upon the continued financial support of our directors and shareholders, the continued issuance of equity to new shareholders, and our ability to achieve and maintain profitable operations.
There is substantial doubt about our ability to continue as a going concern as the continuation of our business is dependent upon obtaining further long-term financing, successful exploration of our property interests, the identification of reserves sufficient enough to warrant development, successful development of our property interests and, finally, achieving a profitable level of operations. The issuance of additional equity securities by us could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our liabilities and future cash commitments.
Due to the uncertainty of our ability to meet our current operating and capital expenses, in their report on our audited financial statements for the year ended February 28, 2013, our independent auditors included an explanatory paragraph regarding substantial doubt about our ability to continue as a going concern. Our statements contain additional note disclosures describing the circumstances that lead to this disclosure by our independent auditors.
Cash Flows
Nine months ended Nine months November ended 30, November 30, 2013 2012 Net Cash Provided by (Used in) Operating Activities $ (171,414 ) $ (496,595 ) Net Cash Provided by (Used in) Investing Activities $ (164,608 ) $ (881,699 ) Net Cash Provided by (Used in) Financing Activities $ 314,938 $ 1,414,333 Net Increase (Decrease) in Cash $ 253 $ 21,276
Cash Used in Operating Activities
Our cash used in operating activities for the nine months ended November 30, 2013, compared to our cash used in operating activities for the nine months ended November 30, 2012, decreased by $325,181, primarily due to a decrease in net loss from operations.
Cash Used in Investing Activities
Our cash used in investing activities for the nine months ended November 30, 2013, compared to our cash used in investing activities for the nine months ended November 30, 2012, decreased by $717,091 due to a decrease in expenditures on oil and gas properties.
Cash Provided by Financing Activities
Our cash provided by financing activities for the nine months ended November 30, 2013, compared to our cash provided by financing activities for the nine months ended November 30, 2012, decreased by $1,099,395 due to a decrease in common stock issued for cash and proceeds from advances and notes payable.
Contractual Obligations
Our future contractual obligations as of November 30, 2013 consisted of the following:
Payments due by period Less than 1 More than 5 Contractual Obligations Total Year 1-3 Years 3-5 Years Years
Due to related parties $ 65,467 $ 65,467 - - - Advances and notes payable 545,606 545,606 - - - Total $ 611,073 $ 611,073 - - -
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our stockholders.
Going Concern
Our interim financial statements and information for the period ended November 30, 2013, have been prepared by our management on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have generated no significant revenues to date and have incurred a net loss of approximately $57,105 during the nine month period ended November 30, 2013, and approximately $2,243,322 from inception (July 9, 2004) through November 30, 2013. We cannot provide any assurance that we will ultimately achieve profitable operations or become cash flow positive, or raise additional funds through the sale of debt and/or equity.http://biz.yahoo.com/e/140114/stbr10-q.html |