2019 Acquisitions

Warhorse Acquisition

On June 10, 2019, the Company received a sheriff’s deed dated as of May 29, 2019 (the “Sheriff’s Deed”) pertaining to two wells in St. Landry Parish purchased from Business First Bancshares, Inc. d/b/a Business First Bank (“Business First”).

Pursuant to the Sheriff’s Deed, the Company acquired certain oil and natural gas properties located in St. Landry Parish, Louisiana, including operated working interest in two producing wells. The Company purchased Business First’s position as the superior lienholder and seizing creditor of such oil and natural gas properties, which were owned by Warhorse Oil & Gas, LLC, for $450,000 plus $16,993 sheriff fees. The payment was paid from loan proceeds.

The Company treated the acquisition as an asset purchase. An amount equal to $73,968 was allocated to lease and well equipment and $378,110 was allocated to producing properties. An asset retirement obligation of $19,732 was recorded in conjunction with the purchase.

EnergyQuest Acquisition

On March 28, 2019, the Company purchased 184 oil producing properties from EnergyQuest II, LLC (“EnergyQuest”) for a purchase price of $5,600,000. The effective date of the transaction is January 1, 2019. After certain adjustments related to the effective date, the total proceeds paid to EnergyQuest were $5,646,126. Such proceeds were paid from borrowing on notes payable and sales of unregistered securities of the Company.

2018 Acquisitions

Cardinal Acquisition

On August 28, 2018, the Company purchased oil producing properties from Cardinal Exploration and Production Company (“Cardinal”) for a purchase price of $323,000. The effective date of the transaction was June 1, 2018. After certain adjustments related to the effective date, the total proceeds paid to Cardinal were $293,965. Such proceeds were paid from sales of unregistered securities of the Company.

Exodus Acquisition

On September 20, 2018, the Company purchased oil and natural gas properties from Exodus Energy, Inc. (“Exodus”) for a purchase price of $969,042. Post close adjustments reduced the purchase price to $959,339. The effective date of the transaction was August 1, 2018. Such proceeds were paid from loan proceeds and sales of unregistered securities.

Riviera Upstream Acquisition

On October 29, 2018, the Company purchased oil and natural gas properties from Riviera Upstream, LLC formerly known as Linn Energy Holdings, LLC (“Riviera”) for a purchase price of $205,000. Post close adjustments reduced the total purchase price to $163,273. The effective date of the transaction was October 1, 2018.

The following table sets forth the Company’s purchase price allocations:

		Cardinal		Exodus		Riviera		EnergyQuest
Fair Value of Assets Acquired
Accounts receivable		$	57,061	$	143,807	$	50,335	$	829,183
Inventory of oil in tanks			—		—		—		438,320
Oil and natural gas Properties	(a)		377,747		1,059,296		208,254		10,939,799
Total Assets Acquired		$	434,808		1,203,103		258,589		12,207,302

Fair Value of liabilities Assumed
Accounts payable – trade		28,026		134,104		8,607		1,489,363
Asset retirement obligations		83,782		99,957		44,982		5,117,939
Total Liabilities Assumed	$	111,808		234,061		53,589		6,607,302

Purchase Price	$	323,000	$	969,042	$	205,000	$	5,600,000

(a)

The Cardinal acquisition was of oil producing properties only.

The fair values of assets acquired and liabilities assumed were based on the following key inputs:

Oil and natural gas properties

The fair value of proved oil and natural gas properties was measured using valuation techniques that convert the future cash flows to a single discounted amount. Significant inputs to the valuation of proved oil and natural gas properties include estimates of: (i) recoverable reserves; (ii) production rates; (iii) future operating and development costs; (iv) future commodity prices; and (v) a market-based weighted average costs of capital. The Company utilized a combination of the New York Mercantile Exchange (“NYMEX”) strip pricing and consensus pricing to value the reserves, then applied various discount rates depending on the classification of reserves and other risk characteristics. Management utilized the assistance of a third-party valuation expert to estimate the value of the oil and natural gas properties acquired.

The fair value of asset retirement obligations are included in proved oil and natural gas properties with a corresponding liability in the table above. The fair value was determined based on a discounted cash flow model, which included assumptions of the estimated current abandonment costs, discount rate, inflation rate and timing associated with the incurrence of these costs.

The inputs used to value oil and natural gas properties and asset retirement obligations require significant judgment and estimates made by management and represent Level 3 inputs.

Financial instruments and other

The fair values determined for accounts receivable and accounts payable – trade were equivalent to the carrying value due to their short-term nature.

Accounts payable - trade includes liabilities primarily related to well activity prior to close.

For 2019, the financial statements include EnergyQuest from the date of acquisition and Exodus, Cardinal, and Riviera for the full year.

The unaudited financial information in the table below summarizes the combined results of operations of the Company, the Exodus, Cardinal, Riviera, and EnergyQuest assets acquired for the year ended December 31, 2018 on a pro forma basis, as though the companies had been combined as of January 1, 2018. The unaudited pro forma earnings for the years ending December 31, 2018 were adjusted to include $26,586 of depreciation, depletion, and amortization. Incremental interest expense of $29,498 was included for the years ended December 31, 2018 as if the Senior Revolver Loan Agreement used to help fund the acquisition had been entered into on January 1, 2018. Earnings per share were adjusted to include the additional 3,258,811 shares of the Company’s common stock issued to help fund the acquisitions as if those shares had been issued on January 1, 2018. The unaudited pro forma information is provided for informational purposes only and does not purport to be indicative of the Company’s combined results of operations which would actually have been obtained had the acquisitions taken place on January 1, 2018, nor should it be taken as indicative of the Company’s future consolidated results of operations.

	(Unaudited)
	December 31, 2018

Oil and gas sales	$	7,857,135
Net loss		1,286,233
Earnings per share, basic and diluted	$	0.08