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Replies to post #2842 on Cardinal Energy Group Inc. (fka CEGX)
01/15/17 8:34 AM
01/15/17 11:47 AM
Cardinal Energy Group, Inc.
Notes to the Unaudited Condensed Consolidated Financial Statements
March 31, 2016
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Depletion and depreciation of proved oil and gas properties is calculated on the units-of-production method based upon estimates of proved reserves. Such calculations include the estimated future costs to develop proved reserves. Oil and gas reserves are converted to a common unit of measure based on the energy content of 6,000 cubic feet of gas to one barrel of oil. Costs of unevaluated properties are not included in the costs subject to depletion. These costs are assessed periodically for impairment. As of March 31, 2016 and December 31, 2015 there were no proved reserves.
In light of the precipitous fall in crude oil prices during the last two years and the relatively small production volumes from the Company’s leases we elected to reduce the carrying value of our oil and gas properties during the fourth quarter of 2015. This reduction to the estimated net recoverable values of our oil and gas properties is reflected in the financial statements as a charge to impairment expense on the income statement for the year ended December 31, 2015.
In December of 2015 the Company employed the services of Bullet Development, a respected oil and gas development firm headquartered in Abilene, Texas, to assess the value and potential development options for its remaining oil and gas properties in north-central Texas, namely the Company-operated Powers-Sanders and Dawson-Conway leases and our non-operating working interest in the Fortune Prospect. Based on the results of the study and the recommendations from Bullet Development we have determined that the best course of action would be to sell our interests in the leases to interested local parties. Accordingly, the Company has held discussions with multiple parties who are interested in acquiring the properties. In the case of the Powers-Sanders leases at least one oil and gas firm has expressed an interest in acquiring the leases in order to exploit some shallow oil reservoirs believed to be present under the properties. In the case of the Dawson-Conway leases initial discussions have occurred between the Company and two interested parties. One of the parties is the operator of adjoining leases and is interested in acquiring one or more of the leases in order to include the Dawson-Conway leases into a “master water flood project” for all of the surrounding leases. Negotiations amongst the various parties are ongoing.
01/15/17 12:09 PM
01/15/17 1:07 PM
The Company filed this lawsuit against the corporate defendants and the individual members in their personal capacity on June 3, 2015. The lawsuit stems from a Working Interest Purchase Agreement that the Company entered into on July 3, 2013 with Defendant HLA Interests (an oil and gas management company that owns and controls existing oil fields in Texas), pursuant to which the Company agreed to purchase from HLA Interests its 85% working interest in 5 oil and gas leases known as the Dawson-Conway Leases (the “Leases”) in Shackelford County, Texas (the “Agreement”). The Company was fraudulently induced to enter into the Agreement by the defendants, who knew that 3 of the 5 leases had expired prior to executing the Agreement.
Recent Developments
On June 12, 2015, the Company, and each of the other beneficial owners of seventy-three (73) participation interests (“Participation
Interests”) in the Bradford JV (collectively, the “Sellers”) sold to a third party their Participation Interests in certain oil and gas leases, along with the associated contracts and real property interests necessary and useful in the ownership and operation thereof, all situated in Shackelford County, Texas (the “Oil and Gas Leasehold”), (ii) the oil and gas wells located on the Oil and Gas Leasehold, along with the associated fixtures and personal property, including hydrocarbons produced therefrom (the “Wells”), and (iii) the rights to that certain Farmout Agreement between CEGX and Bluff Creek Petroleum, LLC for a total consideration of $1,825,000. Concurrent with the sale of the Participation Interests, the purchaser entered into an Operating Agreement with CEGX to conduct the drilling operations and related activities necessary to develop the properties. Throughout 2015 and into first quarter of 2016 the Company has worked with representatives of the purchaser to design and install a pilot water flood program on the Bradford “A” and Bradford “B” leases. We anticipate that the Bradford “A” and Bradford “B” leases will become important producing properties as we complete the full implementation of the water flood enhanced oil recovery project. We currently estimate that it will require an additional $650,000 in 2016 to complete the drilling and completion of producing, injector and source water wells and to finish the acidizing and down-hole pump repairs required to fully implement the water flood program.
