Solid company with one BIG overhanging piece of news. The company obviously has known about this for some time, not sure the shareholders knew.
On August 2, 2022, the Company received correspondence from the State of New Mexico Energy, Minerals and Natural Resources Department ("EMNRD") alleging that the Company’s New Mexico operating subsidiaries, Ridgeway Arizona Oil Corp. (“Ridgeway”) and EOR Operating Company (“EOR”), failed to comply with certain requirements of Agreed Compliance Orders previously negotiated and entered into by each of Ridgeway and EOR with the EMNRD (the “ACOs”), specifically alleging that Ridgeway and EOR failed to provide reports and proof of conducting certain well tests by dates specified in the ACOs. Further, in the correspondence, the EMNRD notified us that the ACOs were now void due to alleged non-compliance, that an aggregate of approximately 333 legacy vertical wells inherited by the Company when it acquired the fields in 2018 were required to be brought back online or plugged immediately, and further demanded that Ridgway and EOR pay civil penalties totaling an aggregate of $850,500 no later than August 31, 2022, with additional penalties accruing thereafter as a result of our alleged non-compliance and interest accruing on unpaid portions thereof at 8.75% per annum. The Company is currently in discussions with the EMNRD regarding the issues raised in the correspondence in an effort to reach a commercially reasonable resolution. To that end, the Company is providing the EMNRD with documentation and records evidencing that the Company believes that it has maintained or exceeded its agreed upon compliance obligations under the ACOs, that the ACOs should not be voided, and that the Company has been performing additional work beyond what was required under the ACOs in order to restore production to various wells and has been conducting additional surface reclamations as prudent operators. The Company is hopeful that the Company and the EMNRD will reach a commercially reasonable resolution that is agreeable to the parties which enables the Company to continue to plug these wells or bring them back online on an agreed upon schedule and will avoid the Company having to pay the demanded civil penalties, although there can be no assurances that the Company will be successful in reaching such a resolution or that such penalty fees can be waived. In the event a commercially reasonable resolution cannot be reached with the EMNRD, the Company will be required to pay the currently assessed penalties in full, may be subject to additional penalties and/or actions which may be significant, and will have to promptly commence the plugging of approximately 333 legacy vertical wells at a minimum current estimated cost per well of approximately $45,000.
