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Subsequent Events

12 Months Ended

Dec. 31, 2019

Subsequent Events [Abstract]

Subsequent Events

18. SUBSEQUENT EVENTS

Reverse Stock Split

On January 6, 2020, pursuant to the Company’s definitive proxy statement filed on November 5, 2019 for its Annual Meeting of Shareholders, the shareholders voted to approve an amendment to the Articles of Incorporation to implement a reverse stock split of the Company’s outstanding common stock at a reverse split ratio of one share-for-ten shares. The reverse stock split which became effective on January 6, 2020, had no effect on the par value of the Common Stock and did not reduce the number of authorized shares, which is unlimited. It also did not affect the number of Series A Preferred Shares outstanding; however, it did reduce the conversion factor of the Company’s Series A Convertible Preferred Stock.

The reason for the reverse stock split was to maintain the Company’s listing on The Nasdaq Capital Market, which pursuant to Nasdaq Listing Rule 5550(a)(2)(the “Rule”) requires that if the closing bid price of the Common Stock is below $1.00 for 30 consecutive trading days, then the closing bid price must be $1.00 or more for 10 consecutive trading days during a 180-day grace period to regain compliance with the Rule.

Acquisition of New Horizon Resources, LLC

On March 1, 2020, the Company acquired all of the issued and outstanding equity interests of New Horizon Resources, LLC (“New Horizon”), whose assets include acreage and operated producing properties in North Dakota (the “Properties”). The consideration paid at closing consisted of 59,498 shares of the Company’s common stock which was valued at $275 thousand based on the 15-day volume adjusted weighted average price and $150 thousand in cash (the “Acquisition”). The New Horizon properties consist of approximately 1,300 net acres located primarily in McKenzie and Divide Counties, North Dakota, which are 100% held by production, average 63% working interest and produced approximately 30 net Boepd (88% oil) for the six-month period ended December 31, 2019. The company has preliminarily allocated the purchase price of the Acquisition to the assets and liabilities pending the completion of valuations of the proved oil and gas properties acquired as follows:

Preliminary provisional allocation of purchase price: (in thousands)

Fair value of net assets
Receivables and other current assets		$	20
Deposit collateralizing surety bond			55
Proved oil and gas properties			433
Accounts payable and revenue suspense			(50	)
Fair value of consideration paid for net assets		$	458

Cash consideration		$	150
Issuance of 59,498 shares of common stock at $4.62 per share			275
Less: balance of cash account acquired in acquisition			(27	)
Add: long-term notes payable repaid at closing			60
Total fair value of consideration transferred		$	458

Sublease of Denver office

In January 2020, the Company entered into a sublease agreement for the remaining lease term of its Denver office lease, which expires on January 31, 2023. The sublease is effective as of March 1, 2020. The Company’s undiscounted minimum lease obligation is $218 thousand of which, per the sublease agreement, the sublessee is obligated to pay $182 thousand.

Restricted share issuance

In January 2020, the Company’s board of directors granted 48,000 restricted shares to the Chief Executive Officer, which vest equally over two years on January 28, 2021 and 2022. In addition, the Company’s board of directors granted a total of 28,000 restricted shares to members of the board of directors which vest on January 28, 2021.

Decline in crude oil prices

In early March 2020, the NYMEX WTI crude oil price decreased significantly. Currently, we do not have any commodity derivative contracts in place to mitigate the effect of lower commodity prices on our revenues. Lower oil and natural gas prices not only decrease our revenues, but an extended decline in oil or gas prices may materially and adversely affect our future business, financial position, cash flows, results of operations, liquidity, ability to finance planned capital expenditures and the oil and natural gas reserves that we can economically produce.

Lower crude prices could also affect the realizability of the Company’s oil and gas properties. In the calculation of the ceiling test for the year ended December 31, 2019, the Company used $55.69 per barrel for oil and $2.58 per mcf for natural gas (as further adjusted for differentials related to property, specific gravity, quality, local markets and distance from markets) to compute the future cash flows of the Company’s producing properties. The discount factor used was 10%. As of March 20, 2020, the WTI spot price for crude oil was $23.64 and the 12-month strip price was $28.44. To determine the extent of these price reductions on the realizability of the Company’s oil and gas properties, the Company reran the year end reserves using 50% of the average crude price used in the original ceiling test calculation, or $27.85, as further adjusted for differentials, and determined that by using that price the Company would have incurred a ceiling test write-down of approximately $1.7 million.

COVID-19

In early March 2020, there was a global outbreak of COVID-19 that has resulted in changes in global supply and demand of certain mineral and energy products including crude oil. These changes, including a potential economic downturn and any potential resulting direct and indirect negative impact to the Company cannot be determined, but they could have a prospective material impact to the Company’s operations, cash flows, and liquidity.