Table of Contents
UNITED
STATES
SECURITIES AND
EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM 10-K
[X]
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Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended
December 31,
2016
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[ ]
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Transition Report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period from _____
to_____.
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Commission File
Number:
000-53632
BAKKEN RESOURCES,
INC.
(Exact name of small
business issuer as specified in its charter)
Nevada
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26-2973652
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(State or other jurisdiction of
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(I.R.S. employer
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incorporation or organization)
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identification number)
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825 Great Northern
Boulevard, Expedition Block, Suite 304 Helena, MT 59601
(Address of principal executive offices and zip
code)
(406)
442-9444
(Registrants
telephone number, including area code)
Securities registered
pursuant to Section 12(b) of the Act:
None
Securities registered
pursuant to Section 12(g) of the Act:
Common Stock, $.001 par value
Indicate by check mark if
the registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. YES [ ] NO [X]
Indicate by check mark if
the registrant is not required to file reports pursuant to Section 13 or 15(d)
of the Exchange Act. YES [ ] NO [X]
Indicate by check mark
whether the registrant (1) has filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES [ ] NO
[ X ]
Table of Contents
Indicate by check mark if
the disclosure of delinquent filers in response to Item 405 of Regulation S-K is
not contained in this herein, and will not
be contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [X]
Indicate by check mark
whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definition of
accelerated filer, larger accelerated filer and smaller reporting company
in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ]
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Accelerated filer [ ]
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Non-accelerated filer [ ]
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Smaller reporting company
[X]
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Indicate by check mark
whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). YES [ ] NO [X]
The aggregate market value
of the voting and non-voting common equity held by non-affiliates of the
Registrant, as of June 30, 2016 was $10,775,716 based on the average closing
price of the Registrants common stock on the OTC Bulletin Board exchange.
Shares of Common Stock held by each officer and director and by each person who
is known by the registrant to own 10% or more of the outstanding Common Stock,
if any, have been excluded in that such persons may be deemed to be affiliates
of the registrant. The determination of affiliate status is not necessarily a
conclusive determination for any other purpose. The shares of our company are
currently listed on the OTC Bulletin Board exchange, symbol BKKN.
The number of shares
outstanding of the issuers common stock as of June 20, 2017 is 56,735,350
shares. The issuer also has 600,000 shares of Series A Preferred Stock issued as of June 20, 2017.
DOCUMENTS INCORPORATED BY
REFERENCE
None.
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Table of Contents
TABLE OF CONTENTS
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Table of Contents
CAUTIONARY STATEMENTS
REGARDING FORWARD-LOOKING INFORMATION
Bakken Resources, Inc. (the
Company, BRI, we, us, or our) includes the following discussion to
inform our existing and potential security holders generally of some of the
risks and uncertainties that can affect our company and to take advantage of the
safe harbor protection for forward-looking statements that applicable federal
securities law affords.
From time to time, our
management or persons acting on our behalf may make forward-looking statements
to inform existing and potential security holders about our company. All
statements other than statements of historical fact included in this report
regarding our financial position, business strategy, plans and objectives of
management for future operations, industry conditions, and indebtedness covenant
compliance are forward-looking statements. When used in this report,
forward-looking statements are generally accompanied by terms or phrases such as
estimate, project, predict, believe, expect, anticipate, target,
plan, intend, seek, goal, will, should, may, or other words or
similar expressions that convey the uncertainty of future events or outcomes.
Items contemplating or making assumptions about actual or potential future
sales, market size, collaborations, trends, or operating results also constitute
forward-looking statements.
Forward-looking statements
involve inherent risks and uncertainties, and important factors (many of which
are beyond our control) could cause actual results to differ materially from
those set forth in our forward-looking statements, including but not limited to
the following: general economic or industry conditions, economic conditions
nationally or in the communities in which our company conducts business, changes
in the interest rate, legislation or regulatory requirements, conditions of the
securities markets, our ability to raise capital, changes in accounting
principles, policies or guidelines, financial or political instability, acts of
war or terrorism, as well as other economic, competitive, governmental,
regulatory, or technical factors affecting our company's operations, products,
services, or prices.
We base forward-looking
statements on our current expectations and assumptions about future events.
While our management considers these expectations and assumptions to be
reasonable, they are inherently subject to significant business, economic,
competitive, regulatory, and other risks, contingencies, and uncertainties. Most
of these things are difficult to predict and are beyond our control.
Accordingly, results actually achieved may differ materially from expected
results in forward-looking statements. Such statements speak only as of the date
they are made. You should consider carefully the statements in Item 1A. (Risk
Factors) and other sections of this report, which describe factors that could
cause our actual results to differ from those set forth in our forward-looking
statements. We do not undertake, and specifically disclaim, any obligation to
update any forward-looking statements to reflect events or circumstances
occurring after the date of such statements, other than required by law or
applicable regulation.
Readers are urged to
carefully review and consider our various disclosures in our reports filed with
the United States Securities and Exchange Commission (SEC), which attempt to
advise of the risks and factors that may affect our business, financial
condition, results of operation, and cash flows. If one or more of these risks
or uncertainties materializes, or if our underlying assumptions prove incorrect,
our actual results may vary materially from those expected or
projected.
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Table of Contents
BAKKEN RESOURCES, INC.
ANNUAL
REPORT OF FORM 10-K
FOR FISCAL
YEAR ENDED DECEMBER 31, 2016
PART I
ITEM 1. BUSINESS.
Overview
Bakken Resources, Inc. is
an independent energy company focused on holding non-working interests in oil and natural gas properties in North
America. Bakkens primary focus since inception in 2010 has been the Williston
Basin in western North Dakota. The Company owns mineral rights to approximately
7,200 gross acres and 1,600 net mineral acres of land located about eight miles
southeast of Williston, North Dakota. The Companys land assets consist
generally of net mineral acres spanning from the sub-surface to the base of the
so-called rock unit in an area commonly referred to as the Bakken
formation.
A non-working interest
generally means that the Company does not bear either the risk or the financial
burden attributable to exploration and production of oil and natural gas wells.
The Company partners with strong operators to explore and develop oil and
natural gas from company leases. The business model offers shareholders an
opportunity to participate in the dynamic oil and natural gas industry without
the high risk often present with exploration and production companies. The
Company voluntarily provides the following table in order to provide an overview
of third-party production in which the Company holds royalty interests, noting
however, that such disclosures are not currently required for non-producing oil and gas
companies such as BKKN.
During 2016, the Company
received royalty and overriding royalty payments on ninety-nine (99) producing
oil wells, ninety-five (95) of which also produce natural gas. Production and
proved reserves are as follows:
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Producing
Wells
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Average
Daily
Production
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Proved
Reserves
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Percent
Proved
Developed
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2016
Average
Price
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Oil
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99
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14,526 Bbls
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48,322,403 Bbls
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28%
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39.06
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Natural Gas
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95
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19,796 MCF
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73,377,156 MCF
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22%
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2.29
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Bbls = Barrels MCF =
thousand cubic feet
Leases comprising the
Companys mineral rights provide an average 17% lease interest in
production-based revenue before accounting for overriding royalties held by
third parties. We acquired our mineral rights from a related Nevada company
named Holms Energy LLC. (Holms Energy), which retained a 5% overriding
royalty that will remain until November of 2020. Holms Energys overriding royalty is set to expire in November of 2020.
Therefore, we expect to hold our current average 12% royalty (
viz
. 17% less 5%) from the oil and gas produced until November 2020. Upon
expiration of Holms Energys overriding royalty, the 5% will revert back to the
Company.
The Companys effective net
royalty interest is derived from three figures: (1) stated lease percentage, (2)
net mineral acres, and (3) spacing unit. The lease rate multiplied by the net
mineral acres, divided by the spacing unit, yields the net royalty interest for
each well. The average effective net royalty interest in 2016 was 0.70%. For
illustrative purposes, for every $100 in oil and gas production value, the
Company receives $0.70 in net royalty revenue.
We currently have leases
with four contracted oil drilling operators (collectively, the Lessees) on
various parcels of land on which we have mineral rights royalty interests: (1)
Oasis Petroleum, (2) Continental Resources, Inc., (3) Statoil ASA, and (4)
Samson Oil and Gas. We have no rights to influence our Lessees activities, but
if the Lessees do not accomplish the agreed upon drilling programs within the
timeline, Lessees can lose their leases.
Background
The predecessor to our
company was incorporated on June 6, 2008, under the laws of the State of Nevada,
under the name Multisys Language Solutions, Inc. (MLS). Holms Energy
contributed the primary assets that formed the basis of our current business
operations. In connection with the closing of the transactions resulting in the
contribution of the mineral rights held by Holms Energy in November 2010, Holms
Energy received forty million (40,000,000) shares of common stock of the
Company. Holms Energy retained a 5% overriding royalty until November 2020 on all gross revenue
generated from the Company's gas and oil production royalty revenues. The
mineral rights from Holms Energy transferred the Company only those rights from
the surface to the base of the Bakken Formation.
Also in connection with the
November 2010 transactions, the Company purchased approximately 800 net mineral
acres from the Revocable Living Trust of Rocky G. Greenfield and Evenette G.
Greenfield. These mineral rights included all mineral rights from the surface to
the basement. The Company sold these 800 net mineral acres to a third party in
February of 2014 and retained a two percent (2%) overriding royalty on the sale
of the mineral rights.
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Table of Contents
Description of Oil
Leases
BRI currently derives its
primary source of revenue from royalties generated from leasing mineral acreage.
BRIs mineral acreage consists of approximately 1,600 net mineral acres located
primarily in McKenzie County, North Dakota. Such 1,600 net mineral acres are
currently spread across 18 spacing units. Operators covering BRIs minerals have
been approved for up to 15 wells per spacing unit (typically 1,280 acres per
spacing unit), but generally petition for permits prior to the commencement of
drilling in a particular spacing unit. If this holds for all spacing units under
which BRI has mineral acres, BRI would have a royalty interest in up to 187
wells. Note, however, that the royalties due to BRI under any particular well
vary based on the number of acres BRI has under any particular spacing unit with
a producing well.
Description of Oil
Production Relevant to the Company
With respect to drilling
operations, pursuant to the North Dakota Oil and Gas Commission, long lateral
deep horizontal multi-stage fracking wells in the Bakken Formation must be
permitted in spacing unit of not less than 640 acres, up to 2,900 acres, with
some exceptions. The spacing units have to be approved and permitted in advance
of drilling by the North Dakota Oil and Gas Commission. The North Dakota
Industrial Commission (NDIC) has approved multi-well permits for wells drilled
in the Three Forks Formation along several of the defined benches typically
associated with separate geologic benchmarks contained in the Three Forks
Formation. Since approximately one-third of the Companys current net mineral
acres include acreage in the Three Forks Formation, any increase in the drilling
operations on the Companys net mineral acres which are permitted for Three
Forks wells may result an increased number of total wells from which the
Company may derive royalty income.
When operators drill a
horizontal well in the area where the subject property is located, they
typically drill down about 10,800 vertical feet and then utilize a down-hole
directional drilling tool to flatten the hole to 90 degrees and drill
horizontally to the oil and gas producing formation. Horizontal directional
drilling provides more contact area to the oil bearing formation than a typical
vertical well. This method of drilling together with fracking is referred to as
an enhanced oil recovery method, and is the primary source of recovery from the
Bakken.
The Company maintains a
table on its website with information about wells in which it has mineral
interests. That table is available at
http://www.BakkenResourcesInc.com/Well-Activity/
.
The information provided in
our websites table is categorized by well name, operator, field and pool, the
NDIC identification number, and the well status and location description. Well
status is defined by several categories, including: Producing, Confidential,
Drilling, and Permitted Location to Drill. The table is updated as new
information becomes available on the NDIC website at
https://www.dmr.nd.gov/oilgas/
. Included on the table are NDIC file numbers,
which can be used when searching for information for each well listed on the BRI
webpage. Individuals may subscribe to the NDIC website following the prompts on
the homepage. A premium service subscription is also available for a
fee.
Currently, most of the
leases covering the Companys mineral acres contain what is commonly referred to
as continuous drilling clauses. Generally, a continuous drilling clause
requires an operator to maintain active drilling operations in order to hold or
extend an oil and gas lease past its natural expiration date. All the Companys
current leases have active drilling operations and are likely to have active
operations in the foreseeable future.
2016
Highlights
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The Companys oil and natural gas production
volumes increased 47% and 97% respectively in 2016.
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After crude oil and natural gas prices decreased early in 2016 to roughly $21 per barrel and less than $2.00 per MBtu, respectively,
both prices nearly doubled by year end. Even with these changes, however, neither crude oil nor natural gas exhibited drastic
price volatility throughout 2016. See https://www.eia.gov/outlooks/steo/report/prices.cfm.
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The significant decline in oil and natural gas prices has also driven down mineral asset prices. The Company has been
engaged in substantial efforts to identify and secure long-term producing
assets including securing external capital to fund acquisitions.
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The Company had more than twenty new producing
wells at year end.
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In 2014, the Company began an investigation into certain activities of our then-CEO, Val M. Holms. The Companys operating results continue to be
undermined by the costs of the internal investigation and tangential
litigation. The Company has filed a claim against the Val Holms estate to
recoup these costs.
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The Company continues to defend against various litigation and has made progress toward ultimate resolution of such litigation.
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The Company has filed claims in 2016
seeking millions of dollars in damages from those who have caused the Company harm.
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Table of Contents
Our long-term plan is to
grow the Company through mineral asset acquisition and build a diversified
portfolio of royalty and overriding royalty mineral assets. Our asset base
consists of shale based oil and natural gas wells. Shale based oil and natural
gas wells realize sharp production declines after initial production. The
average oil and natural gas well production typically declines by 85% during its
first three years of production. Within the first five years, more than 90% of
the wells lifetime production will have occurred. As well production decreases
so does Company revenue and cash flow. Therefore, the Companys revenue and cash
flow growth is heavily dependent on acquiring new well production from new
assets or growth within existing assets. While we have existing capacity within
our current Bakken assets, the Company is not sufficiently diversified to
minimize risk. Our long-term goals are to expand revenue and cash flow while
diversifying our portfolio of producing assets.
We focus on royalties and
overriding royalties. These particular asset categories offer risk and return
characteristics that are consistent with our initial disclosure to the
shareholders and our skill set. We are actively seeking to build a portfolio of
royalty and overriding royalty assets that offer differing production cycles,
geographic dispersion, and drilling methods. In addition to the capital we have
acquired through the sale of the Greenfield assets, the Company continues to seek
additional external capital to support our asset acquisition
initiative. In this regard, the Company announced the closing of a $1 million credit line in May 2016 with additional best efforts to secure $10 million in additional financing.
Pursuant to our business
plan and strategy, we have sought out relationships to gather information on
future potential oil and gas drilling projects and explored and contemplated
possible joint partnerships in other drilling programs. The Company remains in
discussion with various groups for strategic partnerships and plans to announce
the completion of such arrangements if and when they are consummated.
Regulation of Oil and
Natural Gas Production.
We are not directly subject
to various rules, regulations, and limitations impacting the oil and natural gas
exploration and production industry as whole, however, operators who operate on
our properties may be impacted by such rules and regulations. While this may
provide the Company with some insulation from compliance costs applicable to our
operator-Lessees, we may still be indirectly impacted by operator regulations
because our revenue stream depends on operators.
Oil and natural gas
exploration, production and related operations, when developed, are subject to
extensive rules and regulations promulgated by federal, state, and local
authorities and agencies. For example, the state of North Dakota and Montana
requires permits for exploration drilling, operation of commercial wells,
submission of several reports concerning operations of wells and imposes other
requirements relating to the production of oil and natural gas. Such states may
also have statutes and regulations addressing conservation matters, including
provisions for the unitization or pooling of oil and natural gas properties, the
establishment of maximum rates of production from wells, and the regulation of
spacing, plugging, and abandonment of such wells.
Failure to comply with any
such rules and regulations by our operators can result in substantial penalties,
which in turn, may impact the amount of royalty revenue we derive from our
leased properties. Although we believe that we are currently in substantial
compliance with all applicable laws and regulations, to the extent they apply to
us, because such rules and regulations are frequently amended or reinterpreted,
we are unable to predict the future cost or impact of complying with such laws.
Significant expenditures may be required to comply with governmental laws and
regulations and may have a material adverse effect on our financial condition
and results of operations.
Environmental
Matters
The following environmental
discussion may be applicable directly to our operators; however, we could be
indirectly impacted, since environmental laws and regulations could
significantly impact production of the wells on our properties. Our operators
and properties are impacted by extensive and changing federal, state and local
laws and regulations relating to environmental protection, including the
generation, storage, handling, emission, transportation, and discharge of
materials into the environment, and relating to safety and health, as such
regulations relate to our operators. The recent trend in environmental
legislation and regulation generally is toward stricter standards, and this
trend will likely continue. These laws and regulations may:
●
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require a permit or other authorization before
construction or drilling commences and for certain other activities;
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●
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limit or prohibit construction, drilling, or
other activities on certain lands in the wilderness or other protected
areas; or
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●
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impose substantial liabilities for pollution
resulting from its operations.
|
The permits required by our
operators may be subject to revocation, modification and renewal by issuing
authorities. Governmental authorities have the power to enforce their
regulations, and violations are subject to fines or injunctions, or both. In the
opinion of management, we are in substantial compliance with current applicable
environmental laws and regulations, and have no material commitments for capital
expenditures to comply with existing environmental requirements. Nevertheless,
changes in existing environmental laws and regulations or in interpretations
thereof could have a significant impact on BRI, as well as the oil and natural
gas industry in general.
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Table of Contents
The Comprehensive
Environmental, Response, Compensation, and Liability Act (CERCLA) and
comparable state statutes impose strict, joint and several liabilities on owners
and operators of sites and on persons who disposed of or arranged for the
disposal of hazardous substances found at such sites. It is not uncommon for
the neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment. The Federal Resource Conservation and Recovery Act
(RCRA) and comparable state statutes govern the disposal of solid waste and
hazardous waste and authorize the imposition of substantial fines and
penalties for noncompliance. Although CERCLA excludes petroleum from its
definition of hazardous substance, state laws affecting our operators may
impose clean-up liability relating to petroleum and petroleum related products.
In addition, although RCRA classifies certain oil field wastes as
non-hazardous, such exploration and production wastes could be reclassified as
hazardous wastes thereby making such wastes subject to more stringent handling
and disposal requirements.
Changes during 2016 in the federal administration may result in outcomes that decrease the Companys direct or indirect compliance
costs. Certain indications have signaled a possible shift toward less stringent oversight of activity that impacts us or our
operators. Even if such shifts take place, however, we anticipate that our operations will remain subject to CERCLA and other
federal environmental regulations.
Our operations are also
subject to the Federal Clean Water Act and analogous state laws. The Clean Water
Act and similar state acts regulate other discharges of wastewater, oil, and
other pollutants to surface water bodies, such as lakes, rivers, wetlands, and
streams. Failure to obtain permits for such discharges could result in civil and
criminal penalties, orders to cease such discharges, and costs to remediate and
pay natural resources damages. Under the Clean Water Act, the U.S. Environmental
Protection Agency (EPA) has adopted regulations concerning discharges of storm
water runoff. This program requires covered facilities to obtain individual
permits, or seek coverage under a general permit. Some of our properties may
require permits for discharges of storm water runoff and our operators may apply
for storm water discharge permit coverage and updating storm water discharge
management practices at some of our facilities. These laws also require the
preparation and implementation of Spill Prevention, Control, and Countermeasure
Plans in connection with on-site storage of significant quantities of
oil.
The Federal Clean Air Act
and comparable state laws regulate emissions of various air pollutants through
air emissions permitting programs and the imposition of other requirements. In
addition, the EPA has developed and continues to develop stringent regulations
governing emissions of toxic air pollutants at specified sources. Federal and
state regulatory agencies can impose administrative, civil and criminal
penalties for non-compliance with air permits or other requirements of the
Federal Clean Air Act and associated state laws and regulations. The operations
provided by our operators, may be, in certain circumstances and locations,
subject to permits and restrictions under these statutes for emissions of air
pollutants.
The Endangered Species Act
(ESA) seeks to ensure that activities do not jeopardize endangered or
threatened animal, fish and plant species, nor destroy or modify the critical
habitat of such species. Under ESA, exploration and production operations, as
well as actions by federal agencies, may not significantly impair or jeopardize
the species or its habitat. ESA provides for criminal penalties for willful
violations of the Act. Other statutes that provide protection to animal and
plant species and that may apply to our operations include, but are not
necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery
Conservation and Management Act, the Migratory Bird Treaty Act and the National
Historic Preservation Act. Although we believe that our operations will be in
substantial compliance with such statutes, any change in these statutes or any
reclassification of a species as endangered could subject BRI to significant
expenses to modify our operations or could force BRI to discontinue certain
operations altogether.
Competition
The oil and natural gas
industry is intensely competitive, and we compete with numerous other oil and
gas exploration and production companies who may also be seeking oil well
operators for leasehold interests. Many of these companies have substantially
greater resources than we have. Not only do they explore for and produce oil and
natural gas, but many also carry on midstream and refining operations and market
petroleum and other products on a regional, national, or worldwide basis. The
operations of other companies may be able to pay more for exploratory prospects
and productive oil and natural gas properties. They may also have more resources
to define, evaluate, bid for, and purchase more properties and prospects than
our financial or human resources permit.
Our larger or integrated
competitors may have the resources to be better able to absorb the burden of
existing, and any changes to federal, state, and local laws and regulations more
easily than we can, which would adversely affect our competitive position. Our
ability to determine reserves and acquire additional properties in the future
will be dependent upon our ability and resources to evaluate and select suitable
properties and to consummate transactions in this highly competitive
environment. In addition, we may be at a disadvantage in producing oil and
natural gas properties and bidding for exploratory prospects, because we have
fewer financial and human resources than many other companies in our industry.
Should a larger and better financed company decide to directly compete with us,
and be successful in its efforts, our business could be adversely
affected.
Marketing and
Customers
The market for oil and
natural gas that we will produce depends on factors beyond our control,
including the extent of domestic production and imports of oil and natural gas,
the proximity and capacity of natural gas pipelines and other transportation
facilities, demand for oil and natural gas, the marketing of competitive fuels
and the effects of state and federal regulation. The oil and gas industry also
competes with other industries in supplying the energy and fuel requirements of
industrial, commercial, and individual consumers.
8
Table of Contents
Our production royalties
derived from oil and gas production from our properties are expected to be sold
by the Lessees at prices tied to the spot oil markets. We derive certain royalty
revenues from gas produced from wells drilled on our property, but currently
this amount is small relative to the royalties we receive from oil production.
We will be required to rely on the Lessees to market and sell any future gas
production.
Employees and
Consultants
We currently have one
full-time employee, Karen Midtlyng, Secretary and Director. Dan Anderson, Chief
Financial Officer, is an independent contractor. Our appointed executives have
entered into written employments agreements. As drilling production activities
continue to increase by our Lessees, and if additional revenue from production
royalties develops as anticipated and continues to increase, we may hire
additional technical, operational, or administrative personnel as appropriate.
We are using and will continue to use the services of independent consultants
and contractors to perform various professional services. We believe that this
use of third-party service providers may enhance our ability to contain general
and administrative expenses.
Office
Location
Our offices are located at
825 Great Northern Boulevard, Expedition Block, Suite 304, Helena, MT
59601.
Available
InformationReports to Security Holders
Our website address is
www.BakkenResourcesInc.com
. We
make available free of charge reports to security holders on our website under
Company SEC Filings. That section includes our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K, Section 16 reports
for officers and directors, and amendments to those reports as soon as
reasonably practicable after we electronically file those materials with, or
furnish those materials to, the SEC. These filings are also available to the
public at the SEC's Public Reference Room at 100 F Street, NE, Room 1580,
Washington, DC 20549. The public may obtain information on the operation of the
Public Reference Room by calling the SEC at 1-800-SEC-0330. Electronic filings
with the SEC are also available on the SEC internet website at
www.SEC.gov/EDGAR/
.
In addition, BRI regularly
monitors and maintains information relating to drilling activity on wells which
it has a mineral interest. Such information can also be found on our website.
9
Table of Contents
ITEM 1A. RISK
FACTORS
You should carefully
consider the risks, uncertainties and other factors described below. The
statements contained or incorporated herein that are not historic facts are
forward-looking statements that are subject to risks and uncertainties that
could cause actual results to differ materially from those set forth in or
implied by forward-looking statements. Any of the factors could materially and
adversely affect our business, financial condition, operating results and
prospects and could negatively impact the market price of our common stock.
Also, you should be aware that the risks and uncertainties described below are
not the only ones we face. Additional risks and uncertainties, of which we are
not yet aware, or that we currently consider to be immaterial may also impair
our business operations.
Risks Related to Our
Company
We are an early stage
company that may never attain profitability.
The business of acquiring,
exploring for, developing and producing hydrocarbon reserves is inherently
risky. We have a limited operating history for you to consider in evaluating our
business and prospects. Our operations are therefore subject to all of the risks
inherent in acquiring, exploring for, developing and producing hydrocarbon
reserves, particularly in light of our limited experience in undertaking such
activities. We may never overcome these obstacles.
Our business is speculative
and dependent upon the implementation of our business plan and our ability to
enter into agreements with third parties for the rights to exploit potential oil
and natural gas reserves on terms that will be commercially viable for us.
Our current business
model relies exclusively on uncertain future royalty payments as a source of
future revenue. We have no influence on the activities conducted by the Lessees
with regards to the exploitation of mineral rights owned by the Company.
Our current business model
relates to the potential generation of revenue from royalties tied to certain
leases. These leases have been granted to experienced exploration and operating
companies, all of whom have prior experience in drilling deep lateral
multi-fracture horizontal wells. Until such time as wells are drilled on
property where the Company owns mineral rights; any future income will be
uncertain. Pursuant to the terms and conditions of the leases, we have no
influence with regard to when the drilling will be undertaken, no decision
making ability as to the location of any future wells and no influence as to the
rate the wells are produced, if the operators are successful, of which there is
no assurance. In the event the Lessees fail to meet their drilling commitment,
the company has only three options: (1) it can agree to grant an extension; (2)
it can renegotiate the terms of the existing leases; or (3) it can legally
terminate the leases.
We may be unable to
obtain additional capital or generate significant production royalty income that
we will require to implement our business plan, which could restrict our ability
to grow.
We expect that our current
capital and our other existing resources will be sufficient only to provide a
limited amount of working capital, and the potential of production royalty
revenues generated from our oil and gas mineral rights properties, of which
there is no assurance, may not be sufficient to fund both our continuing
operations and our planned growth. We may require additional capital to continue
to operate our business beyond the initial phase of development and to further
expand our exploration and development programs to additional properties. We may
be unable to obtain additional capital, and if we are able to secure additional
capital, it may not be pursuant to terms deemed to be favorable to BRI and its
shareholders.
Future acquisitions and
future exploration, development, production and marketing activities, as well as
our administrative requirements (such as salaries, insurance expenses and
general overhead expenses, as well as legal compliance costs and accounting
expenses) may require a substantial amount of additional capital and cash flow.
We may pursue sources of
additional capital through various financing transactions or arrangements,
including joint venturing of projects, debt financing, equity financing or other
means. We may not be successful in locating suitable financing transactions in
the time period required or at all, and we may not obtain the capital we require
by other means. If we do not succeed in raising additional capital, our
resources may not be sufficient to fund our planned operations going forward
beyond twelve months from now.
Any additional capital
raised through the sale of equity may dilute the ownership percentage of our
stockholders. This could also result in a decrease in the fair market value of
our equity securities because our assets would be owned by a larger pool of
outstanding equity. The terms of securities we issue in future capital
transactions may be more favorable to our new investors, and may include
preferences, superior voting rights and the issuance of other derivative
securities, and issuances of incentive awards under equity employee incentive
plans, which may have a further dilutive effect.
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Our ability to obtain financing may be impaired by such factors as the
capital markets (both generally and in the oil and gas industry in particular),
our status as a new enterprise without a significant demonstrated operating
history, production royalty revenue from our mineral rights property, currently
our only oil and natural gas property and prices of oil and natural gas on the
commodities markets (which will impact the amount of asset-based financing
available to us) or the loss of key management. Further, if oil or natural gas
prices on the commodities markets decline, our revenues from the anticipated
royalties will decrease and such decreased revenues may increase our
requirements for capital. If the amount of capital we are able to raise from
financing activities, together with our revenues from operations, is not
sufficient to satisfy our capital needs (even to the extent that we reduce our
operations), we may be required to cease our operations.
We may incur substantial costs in pursuing future capital financing,
including investment banking fees, legal fees, accounting fees, securities law
compliance fees, printing and distribution expenses and other costs. We may also
be required to recognize non-cash expenses in connection with certain securities
we may issue, such as convertible notes, which may adversely impact our
financial condition.
Under the terms of
the lease agreements with our Lessees, we have very little control over how many
wells our Lessees drill on our properties or how much they produce.
Our current business model relates to the potential generation of revenue
from royalties tied to certain leases on property covered in part by mineral
rights owned by us. These leases have been granted to Lessees who are
experienced exploration and operating oil companies, who have prior experience
in drilling deep lateral multi-fracture horizontal wells. Pursuant to the terms
and conditions of the leases, we have no influence with regard to when the
drilling will be undertaken, no decision making ability as to the location of
any future wells and no influence as to the rate the wells are produced, if the
operators are successful, of which there is no assurance.
The success and timing of development activities by Lessees will depend
on a number of factors that will largely be out of our control, including:
●
|
the timing and amount of capital
expenditures
|
●
|
their expertise and
financial resources
|
●
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approval of other
participants in drilling wells
|
●
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selection of
technology
|
●
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the rate of production
of reserves, if any.
|
We have no control
over the operational effectiveness or financial wherewithal of our operators.
Our current business model relies heavily upon our operators and their
operational effectiveness and financial wherewithal. Therefore, our operating
revenue and cash flow may be heavily impacted if our operators are not effective
or accurate when determining our net royalty revenue.
Similarly, our business model is heavily predicated upon out operators
ability to pay royalty when due and to have sufficient capital to maintain
existing wells and to drill new wells.
We have limited
previous operating history in the oil and gas industry, which may raise
substantial doubt about our ability to successfully develop profitable business
operations.
We have a limited operating history. Our business operations must be
considered in light of the risks, expenses, and difficulties frequently
encountered in establishing a business in the oil and natural gas industries.
There is nothing at this time on which to base an assumption that our business
operations will prove to be successful in the long-term. Our future operating
results will depend on many factors, such as
●
|
our ability to raise
adequate working capital;
|
●
|
success of our
Lessees;
|
●
|
demand for natural gas
and oil;
|
●
|
competition levels;
|
●
|
our ability to attract and maintain key
management and employees; and
|
●
|
Lessees efficiently
exploring, developing, and producing sufficient quantities of marketable
natural gas or oil in a highly competitive and speculative environment
while maintaining quality and controlling costs.
|
To achieve profitable
operations in the future, we are primarily dependent upon the oil company
Lessees to successfully execute on the factors stated above, along with
continuing to develop strategies and relationships to enhance our revenue by
financially participating and investing in various drilling programs with third
parties. Despite their best efforts, our Lessees may not be successful in their
exploration or development efforts or obtain required regulatory approvals on
the property where BRI is entitled to a production royalty. There is a
possibility that some, or most, of the wells to be drilled on our mineral rights
properties may never produce natural gas or oil.
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If we transition from
a royalty-based company to an operating company unsuccessfully, we may not be
able to resume operations as a royalty-based company given the risks and costs
associated with transitioning to an operating company.
Many risks are associated with becoming an oil and gas operating company.
Such a transition might involve a greater time and capital allocation than we
are able to allocate. Even with sufficient up-front resources, however, there is
no guarantee that such a transition would yield a financially sustainable
business. Regulatory costs for operating companies are much greater than our
current regulatory expenditure because operating companies are required to
collect, maintain, and disclose materially greater and more complex information.
Such reporting costs also entail other expenses not directly related to
compliance. For instance, becoming an operating company would require us to hire
employees or contract out various matters to specialized professionals.
There would also be risks in addition to business logistics and costs.
Risks that we may face while drilling include, but are not limited to, landing
our well bore in the desired drilling zone, running casing the entire length of
the well bore and being able to run tools and other equipment consistently
through the well bore. Risks that we may face while completing our wells
include, but are not limited to, being able to run tools the entire length of
the well bore during completion and being able to fracture the formation
sufficiently to generate commercially viable oil or gas production.
Our experience with horizontal drilling utilizing the latest drilling and
completion techniques is limited. Ultimately, the success of these drilling and
completion techniques can only be evaluated over time as more wells are drilled
and production profiles are established over a sufficiently long time period. If
our drilling results are less than anticipated or we are unable to execute our
drilling program because of capital constraints, lease expirations, access to
gathering systems and limited takeaway capacity or otherwise, and/or natural gas
and oil prices decline, the return on our investment in these areas may not be
as attractive as we anticipate and we could incur material write-downs of
unevaluated properties and the value of our undeveloped acreage could decline in
the future.
Drilling locations
may not yield oil or gas in commercially viable quantities.
There is no way to predict in advance of drilling and testing whether any
particular location will yield oil or natural gas in sufficient quantities to
recover drilling or completion costs or to be economically viable. Despite
advancements in technology, there is no way to determinate whether oil or
natural gas will be present or, if present, whether oil or natural gas will be
present in sufficient quantities to be economically viable. Even if sufficient
amounts of oil or natural gas exist, we may damage the potentially productive
hydrocarbon bearing formation or experience mechanical difficulties while
drilling or completing the well, resulting in a reduction in production from the
well or abandonment of the well. If we drill additional wells that we identify
as dry holes in our current and future drilling locations, our drilling success
rate may decline and materially harm our business. We cannot assure you that the
analogies we draw from available data from other wells, more fully explored
locations or producing fields will be applicable to our drilling locations.
Our management team
does not have extensive experience in public company matters, which could impair
our ability to comply with legal and regulatory requirements.
Our management team has had limited public company management experience
or responsibilities, which could impair our ability to comply with legal and
regulatory requirements such as the Sarbanes-Oxley Act of 2002 and other federal
securities laws applicable to reporting companies, including filing required
reports and other information required on a timely basis. It may be expensive to
implement programs and policies in an effective and timely manner that
adequately respond to increased legal, regulatory compliance and reporting
requirements imposed by such laws and regulations, and we may not have the
resources to do so. Our failure to comply with such laws and regulations could
lead to the imposition of fines and penalties and further result in the
deterioration of our business and decreased value of our stock.
If we fail to
maintain an effective system of internal controls, we may not be able to
accurately report our financial results or prevent fraud.
Internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate. If we cannot provide reliable financial reports or prevent fraud,
our reputation and operating results could be harmed. We cannot be certain that
our efforts to maintain our internal controls will be successful, that we will
be able to maintain adequate controls over our financial processes and reporting
in the future or that we will be able to continue to comply with our obligations
under Section 404 of the Sarbanes-Oxley Act of 2002. Any failure to maintain
effective internal controls, or difficulties encountered in implementing or
improving our internal controls, could harm our operating results or cause us to
fail to meet certain reporting obligations.
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Our lack of
diversification will increase the risk of an investment in BRI, and our
financial condition and results of operations may deteriorate if we fail to
diversify
.
Our business focus predominately is on the oil and gas industry on our
oil and gas mineral rights property, located in McKenzie County, North Dakota.
Larger companies have the ability to manage their risk by diversification.
However, we currently lack diversification, in terms of the nature and
geographic scope of our business. As a result, we will likely be impacted more
acutely by factors affecting our industry or the regions in which we operate
than we would if our business were more diversified, enhancing our risk profile.
If we cannot diversify or expand our operations, our financial condition and
results of operations could deteriorate. We have been solely dependent on the
expertise of our Lessees as the operator of our property.
In addition, approximately 90% of our revenue comes from oil production
royalties emanating from the Bakken area of North Dakota. The Companys revenue
stream is highly concentrated in oil production and more than 80% of our
production comes from oil and natural gas wells operated by a single operator.
This geographic, product, and operator concentration represents a substantial
risk.
Uncertain future
royalty payments and limited influence on future drilling and exploration.
Our current business model relates to the potential generation of revenue
from royalties tied to certain leases owned by us. These leases have been
granted to experienced exploration and operating companies, both of whom have
prior experience in drilling deep lateral multi-fracture horizontal wells.
Pursuant to the terms and conditions of the leases, we have no influence with
regard to when the drilling will be undertaken, no decision making ability as to
the location of any future wells and no influence as to the rate the wells are
produced, there are no assurances as to the success of the operators.
Strategic
relationships upon which we rely may change, which could diminish our ability to
conduct our operations.
Our ability to successfully acquire additional mineral rights properties,
to participate in drilling opportunities, and to identify and enter into
commercial arrangements with other third party companies will depend on
developing and maintaining close working relationships with industry
participants and on our ability to select and evaluate suitable properties and
to consummate transactions in a highly competitive environment. These realities
are subject to change and may impair our ability to grow.
To continue to develop our business, we will endeavor to use the business
relationships of our management to identify, screen, and enter into strategic
relationships, which may take the form of joint ventures with other private
parties and contractual arrangements with other operating oil and gas
exploration companies. We may not be able to establish these strategic
relationships, or if established, we may not be able to maintain them. Even if
we are able to engage in joint venture and enter into strategic investment
relationships with existing operators, they may not be pursuant to terms and
conditions that are favorable to us. In addition, the dynamics of our
relationships with strategic partners may require us to incur expenses or
undertake activities we would not otherwise be inclined to in order to fulfill
our obligations to these partners or maintain our relationships. If our
strategic relationships are not established or maintained, our business
prospects may be limited, which could diminish our ability to conduct our
operations.
Our property
acquisition strategy subjects us to the risks and inherent uncertainties
associated with evaluating properties for which limited information is
available.
Our decision to acquire a property will depend in part on the evaluation
of data obtained from production reports and engineering studies, geophysical
and geological analyses and seismic and other information, the results of which
are often inconclusive and subject to various interpretations. Also, our reviews
of acquired properties are inherently incomplete because it generally is not
feasible to perform an in-depth review of the individual properties involved in
each acquisition. Even a detailed review of records and properties may not
necessarily reveal existing or potential problems, nor will it permit us to
become sufficiently familiar with the properties to assess fully their
deficiencies and potential. Inspections may not always be performed on every
well, and environmental problems, such as ground water contamination, are not
necessarily observable even when an inspection is undertaken.
Any acquisition involves other potential risks, including, among other
things:
●
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The validity of our assumptions about
reserves, future production, revenues and costs
|
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A decrease in our liquidity by using a
significant portion of our cash from operations or borrowing capacity to
finance acquisitions
|
●
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A significant increase in our interest
expense or financial leverage if we incur additional debt to finance
acquisitions
|
●
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The assumption of unknown liabilities,
losses or costs for which we are not indemnified or for which our
indemnity is inadequate
|
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An inability to hire, train or retain
qualified personnel to manage and operate our growing business and assets
|
●
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An increase in our costs or a decrease in
our revenues associated with any potential royalty owner or landowner
claims or disputes
|
Fierce market
competition may impair our business.
The oil and gas industry is highly competitive. Holding valuable land
interests is our primary means of income, and competition for acquiring such
properties in the Bakken and Three Forks regions is highly competitive. Even
once we acquire valuable properties, our Lessees face an additional layer of
competition related to generating revenue from production. We have no control
over our Lessees ability to succeed in a highly competitive market.
Nonetheless, our sole source of revenue (i.e. royalties stemming from successful
operation by our Lessees) relies entirely on our Lessees success. Competition
has become increasingly intense as prices of oil and natural gas on the
commodities markets have increased in recent years.
Additionally, other companies engaged in our line of business may compete
with us from time to time in obtaining capital from investors. Competitors
include larger companies, who may have a significant competitive advantage due
to their access to greater resources, greater ability to recruit and retain
qualified employees, and even conduct their own refining and petroleum marketing
operations. In addition, actual or potential competitors may be strengthened
through the acquisition of additional assets and interests. If we are unable to
compete effectively or adequately respond to competitive pressures, this
inability may materially adversely affect our results of operation and financial
condition.
Seasonal weather
conditions adversely affect operators ability to conduct drilling activities in
the areas where our properties are located.
Seasonal weather conditions can limit drilling and producing activities
and other operations in our operating areas and as a result, a majority of the
drilling on our properties is generally performed during the summer and fall
months. These seasonal constraints can pose challenges for meeting well drilling
objectives and increase competition for equipment, supplies and personnel during
the summer and fall months, which could lead to shortages and increase costs or
delay operations. Additionally, many municipalities impose weight restrictions
on the paved roads that lead to jobsites due to the muddy conditions caused by
spring thaws. This could limit access to jobsites and operators ability to
service wells in these areas.
Reliance on
Consultants
Since Bakken uses a number of consultants, such consultants may not be
subject to the standard internal controls that the Company has for its
employees. Therefore, certain risks may be difficult for the Company to detect
with respect to its consultants, such as direct, day-to-day oversight of
consultant activities.
Net Royalty Interest
Volatility
The Companys cumulative net royalty interest is a result of (a) the
product of net mineral acreage for each well and (b) the stated royalty
percentage divided by (c) the spacing unit acreage declared by the State of
North Dakota. The Companys cumulative net royalty interest is subject to
volatility for the following reasons:
(1)
We hold a split mineral
estate
: When the minerals were
transferred into the Company from Holms Energy, LLC, only the mineral rights
from the surface to the base of the Bakken Formation were transferred.
Therefore, the Company does not accrue royalty revenue from gross production
from any formation below the Bakken Formation relating to the mineral rights
that were purchased from Holms Energy, LLC.
However, the Company also purchased mineral rights in 2010, which the
Company refers to as the Greenfield minerals. The Greenfield minerals included
all mineral rights from the surface to the basement, including the Three Forks
Formation. These mineral rights were sold to Athene Insurance Company in 2014
(the Athene Transaction). The Company reserved a 2% retained royalty
(override) from that sale. Therefore, the Company receives a 2% retained royalty
on gross production emanating from the Three Forks Formation.
Following the Athene Transaction, as new wells begin producing, those
producing from the Three Forks Formation are subject only to a 2% retained
royalty. Therefore, Three Forks Formation producing wells reduce the Companys
overall net royalty interest and revenue.
(2)
Varying Lease Royalty
Percentages
: The Company has
sixteen different leases, each with stated royalty percentages that vary from
15% to 20%. Each lease can support many wells. Therefore, the Companys
cumulative net royalty interest is affected by the number of wells producing
from each lease. If more wells are producing from leases with lower stated
royalty percentages, this will reduce the Companys net royalty interests and
reduce revenue as well.
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Risks Related to the
Ownership of Bakken Resources, Inc. Common Stock
We have Preferred Stock currently issued that may result in a change of Board or Management at any time.
As a result of
events occurring on or around July 20, 2016, one of the Companys investors was issued 600,000 shares of Series A Preferred Stock (the Eagle Preferred Shares). We disclosed this in a Current Report on Form 8-K filed with the Commission
on July 26, 2016. As a result of the issuance of the Eagle Preferred Shares, the Companys Board and management may be changed
at any time, with little or no notice, for so long as the Eagle Preferred Shares remain outstanding.
Our stock has a low
trading volume and price.
Although our common stock is approved for trading on the OTC Bulletin
Board, there has been little, if any, trading activity in the stock.
Accordingly, there is no history on which to estimate the future trading price
range of the common stock. If the common stock trades below $5.00 per share,
trading in the common stock will be subject to the requirements of certain rules
promulgated under the Securities Exchange Act of 1934, as amended (the Exchange
Act), which require additional disclosure by broker-dealers in connection with
any trades involving a stock defined as a penny stock (generally, any non-FINRA
equity security that has a market price share of less than $5.00 per share,
subject to certain exceptions). Such rules require the delivery, prior to any
penny stock transaction, of a disclosure schedule explaining the penny stock
market and the risks associated therewith and impose various sales practice
requirements on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors (generally defined as an investor
with a net worth, not including the primary residence, in excess of $1,000,000
or annual income exceeding $200,000 individually or $300,000 together with a
spouse). For these types of transactions, the broker-dealer must make a special
suitability determination for the purchaser and have received the purchasers
written consent to the transaction prior to the sale. The broker-dealer also
must disclose the commissions payable to the broker-dealer, current bid and
offer quotations for the penny stock and, if the broker-dealer is the sole
market-maker, the broker-dealer must disclose this fact and the broker-dealers
presumed control over the market. Such information must be provided to the
customer orally or in writing before or with the written confirmation of trade
sent to the customer. Monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the
limited market in penny stocks. The additional burdens imposed upon
broker-dealers by such requirements could discourage broker-dealers from
effecting transactions in the common stock which could severely limit the market
liquidity of the common stock and the ability of holders of the common stock to
sell it.
Our Articles of
Incorporation or Bylaws may require us to indemnify our officers or directors.
Our Articles of Incorporation includes provisions to eliminate, to the
fullest extent permitted by Nevada General Corporation Law, the personal
liability of directors and officers of BRI for monetary damages arising from a
breach of their fiduciary duties as directors. The Articles of Incorporation
also includes provisions to the effect that we shall, to the maximum extent
permitted from time to time under the laws of the State of Nevada, indemnify any
director or officer. In addition, our bylaws require us to indemnify, to the
fullest extent permitted by law, any director, officer, employee or agent of BRI
for acts which such person reasonably believes are not in violation of our
corporate purposes as set forth in the Articles of Incorporation. If our
indemnification obligations exceed our ability to pay, we may face legal
liability if we are not able to obtain sufficient funding. This or similar
outcomes have the potential to materially impair our results of operations, and
such outcomes become more likely as more qualified directors and officers seek
indemnification.
Potential future
issuances of additional common or preferred stock would dilute our current
stockholders.
We are authorized to issue up to 100,000,000
shares of common stock. To the extent of such authorization, the board of directors of BRI will have the ability, without
seeking stockholder approval, to issue additional shares of common stock in the future for such consideration as the board
of directors may consider sufficient. The issuance of additional common stock in the future will reduce the proportionate
ownership and voting power of the common stock offered hereby. We are also authorized to issue up to 10,000,000 shares of
preferred stock, one million of which have been designated Series A Preferred Stock, the rights and preferences of which may
be designated in series by the board of directors. The one million Eagle Preferred Shares were issued in connection with
events disclosed in a Current Report on Form 8-K filed with the Commission on July 26, 2016. To the extent of such
authorization, such designations may be made without stockholder approval. The designation and issuance of series of
preferred stock in the future would create additional securities which would have dividend and liquidation preferences over
the currently outstanding common stock. In addition, the ability to issue any future class or series of preferred stock
could impede a non-negotiated change in control and thereby prevent stockholders from obtaining a premium for their common
stock.
Our board of
directors has plenary authority to amend our corporate
bylaws.
Unlike many other corporations which generally permit a shareholder vote
to override any board-initiated bylaw amendment, our board exercises exclusive
dominion over amendments to our corporate bylaws. This is a result of being a
Nevada corporation, which may reserve bylaw amendment powers exclusively to the
board of directors to the extent shareholders have not explicitly reserved such
powers. No such powers were reserved by our shareholders in our original bylaws,
and as such, all such powers are reserved to the board. A result of this is that
the board can alter or eliminate limitations on its power, which could impede a
non-negotiated change in control or limit stockholders ability to obtain a
premium for their stock. Because our corporate bylaw contain many provisions
covering a broad range of corporate governance issues, the boards exclusive
province over the bylaws creates a point of uncertainty that is generally not
present in corporations incorporated outside of Nevada. This could adversely
impact the demand for or value of our securities.
There is no assurance
that a liquid public market for our common stock will develop.
Although our common stock is eligible for quotation on the OTC Bulletin
Board and Pink Sheets, there has been no established trend of significant
trading. There has been no long term established public trading market for our
common stock, and there can be no assurance that a regular and established
market will be developed and maintained for the securities in the future. There
can also be no assurance as to the depth or liquidity of any market for the
common stock or the prices at which holders may be able to sell the shares.
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Table of Contents
The market price of
our common stock is, and is likely to continue to be, highly volatile and
subject to wide fluctuations
In the event that a public market for our common stock is created, market
prices for the common stock will be influenced by many factors, some of which
are beyond our control, including:
●
|
Dilution caused by our issuance of
additional shares of common stock and other forms of equity securities,
which we expect to make in connection with future capital financings to
fund our operations and growth, to attract and retain valuable personnel
and in connection with future strategic partnerships with other companies
|
●
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Announcements of new acquisitions, reserve
discoveries or other business initiatives by our competitors
|
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Our ability to take advantage of new
acquisitions, reserve discoveries or other business initiatives
|
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Fluctuations in revenue from our oil and gas
business as new reserves come to market
|
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Changes in the market for oil and natural
gas commodities and/or in the capital markets generally
|
●
|
Changes in the demand for oil and natural
gas, including changes resulting from the introduction or expansion of
alternative fuels
|
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Quarterly variations in our revenues and
operating expenses
|
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Changes in the valuation of similarly
situated companies, both in our industry and in other industries
|
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|
Changes in analysts estimates affecting our
company, our competitors and/or our industry
|
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|
Changes in the accounting methods used in or
otherwise affecting our industry
|
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Additions and departures of key personnel
|
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Announcements of technological innovations
or new products available to the oil and gas industry
|
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Announcements by relevant governments
pertaining to incentives for alternative energy development programs
|
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Fluctuations in interest rates and the
availability of capital in the capital markets
|
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Significant sales of our common stock,
including sales by selling stockholders following the registration of
shares under a prospectus
|
These and other factors are largely beyond our control, and the impact of
these risks, singly or in the aggregate, may result in material adverse changes
to the market price of our common stock and/or our results of operations and
financial condition.
Our operating results
may fluctuate significantly, which can cause the price of our common stock to
decline.
Our operating results will likely vary in the future primarily as the
result of fluctuations in our production royalty, assuming commercial oil and
gas is discovered on our mineral rights property. Our revenues and operating
expenses, expenses that we incur regarding investments in drilling programs with
other partners, the prices of oil and natural gas in the commodities markets and
other factors, may all cause significant fluctuations in our operating results.
If our results of operations do not meet the expectations of current or
potential investors, the price of our common stock may decline.
Oil and gas
transportation costs in the Bakken region are high and may not decline as
expected.
Several Bakken region pipelines and other infrastructure projects are in
various stages of permitting or development that have potential to significantly
decrease the cost of transporting oil and gas out of the Bakken region. Such
costs are relatively high in the Bakken region due to a lack of infrastructure
capable of efficiently and safely transporting oil and gas in a cost-effective
manner. In the past few years, however, efforts to install pipelines have become
controversial and have faced delays that may not subside. The Dakota Access
Pipeline (DAPL) in particular seems as though it will, if completed,
significantly reduce the cost of oil and gas transportation for the Bakken
region. Once construction began, however, protests and legal challenges slowed
progress until 2016, when the President of the United States ordered
construction to stop. Then in 2017, a new President ordered construction to
continue. Despite the new executive order, resistance continues, and it is not
clear whether DAPL or other infrastructure will be successfully installed. If
not, the Bakken region will continue to have lower profit margins compared to
other oil fields in the United States, particularly in Texas, because of the
high cost of oil and gas transportation in the Bakken region. Unless
transportation costs come down, production in the Bakken region may slow or
become unprofitable. Since all of our mineral interests are currently located in
the Bakken region, our liquidity and results of operation would be materially
harmed if operators cease or decrease operations under our leases.
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We do not expect to
pay dividends in the foreseeable future.
We do not intend to declare dividends for the foreseeable future, as we
anticipate that we will reinvest any future earnings in the development and
growth of our business. Therefore, investors will not receive any funds unless
they sell their common stock, and stockholders may be unable to sell their
shares on favorable terms or at all. Investors cannot be assured of a positive
return on investment or that they will not lose the entire amount of their
investment in our common stock and warrants.
Risks Related To the Oil
and Gas Industry
Our cash flows,
results of operations, and general financial condition depend to a great extent
on the prevailing prices for crude oil and natural gas.
The extent to which we collect royalties from our operators currently
our sole source of income relies upon our Lessees ability to earn revenue
from producing oil and gas on our land. That in turn depends on prevailing oil
and gas prices, and oil and natural gas are commodities with a history of price
volatility that will likely continue. Profitably exploring and producing oil and
gas depends to a large extent on exploration and production costs. When oil
prices are sufficiently low, we or our operators may obtain less in revenue than
is spent on production, which could result in a loss if not offset by our
derivative investment activity. Price fluctuations of oil and gas have resulted
from a wide variety often unpredictable events or conditions that lie entirely
outside of our control. Although it may be impossible to list everything that
could potentially affect the price of oil and natural gas, the following list is
meant to illustrate the great scope and breadth of factors that may impact oil
and gas prices:
●
|
Political conditions in the Middle East
|
●
|
Political conditions in Africa
|
●
|
Political conditions in South America
|
●
|
Political conditions in Russia
|
●
|
Domestic and foreign supply of oil and
natural gas
|
●
|
Current prices
|
●
|
Expectations about future prices
|
●
|
Global oil and natural gas explorations
levels
|
●
|
Global oil and natural gas production levels
|
●
|
Exploration costs
|
●
|
Development costs
|
●
|
Production costs
|
●
|
Delivery costs
|
●
|
Levels of foreign oil and gas imports
|
●
|
Costs of importing oil
|
●
|
Cost of importing natural gas
|
●
|
Existence of the Organization of Petroleum
Exporting Countries (OPEC)
|
●
|
Whether OPEC agrees to maintain oil prices
|
●
|
Whether OPEC agrees to maintain production
|
●
|
Speculative trading of derivative contracts
based on oil and gas
|
●
|
Consumer demand levels
|
●
|
Weather conditions
|
●
|
Natural disasters
|
●
|
Risks of operating oil drilling rigs
|
●
|
Technology impacting energy consumption
levels
|
●
|
Domestic regulations and taxes
|
●
|
Foreign regulations and taxes
|
●
|
Terrorism and military action in the Middle
East
|
●
|
Availability, proximity, and capacity of oil
and natural gas transportation infrastructure
|
●
|
Availability, proximity, and capacity of oil
and natural gas processing plants
|
●
|
Availability, proximity, and capacity of oil
and natural gas storage units
|
●
|
Availability, proximity, and capacity of oil
and natural gas refinement facilities
|
●
|
Price of alternative forms of energy
|
●
|
Availability of alternative forms of energy
|
●
|
Global economic conditions
|
●
|
Environmental regulation and enforcement
|
●
|
Global drilling activity
|
●
|
Threat of or engagement in armed conflict in
oil producing regions
|
●
|
The overall commodities futures market
|
●
|
Impact of worldwide energy conservation
measures
|
●
|
Localized supply and demand
|
●
|
Changes in supply, demand, and capacity for
the various grades of crude oil and natural gas
|
●
|
Rate of future production
|
●
|
Approval, construction, and use of more
cost-efficient transportation for produced oil and gas
|
●
|
Competitive measures implemented by our
competitors
|
A
significant or prolonged decline in crude oil or natural gas price could
materially and negatively affect our liquidity. It could also reduce the cash
flow we have in capital expenditures and other operating expenses. Such declines
in price could limit our ability to access credit and capital markets, which
would negatively impact our results of operations. Oil and gas price reductions
also decrease the value of our properties, which could require us to write down
the value of our property assets. Any of these things could materially and
adversely affect our results of operations, as well as the price and trading
volume of our common stock.
17
Table of Contents
Drilling for and
producing oil and natural gas are high risk activities with many uncertainties
that could adversely affect our business, financial condition, or results of
operations.
Initially, our future success will depend on the success of our
development, exploitation, production, and exploration activities conducted by
our Lessees as our operators on our mineral rights property. Oil and natural gas
exploration and production activities are subject to numerous risks beyond our
control; including the risk that drilling will not result in commercially viable
oil or natural gas production. Our decisions to participate in drilling
projects, purchase mineral rights, explore, develop or otherwise exploit
prospects or properties will depend in part on the evaluation of data obtained
through geophysical and geological analyses, production data and engineering
studies, the results of which are often inconclusive or subject to varying
interpretations. The cost of drilling, completing, and operating wells is often
uncertain before drilling commences. Overruns in budgeted expenditures are
common risks that can make a particular project uneconomical. Furthermore, many
factors may curtail, delay or cancel drilling, including the
following:
●
|
Delays imposed by or resulting from
compliance with regulatory requirements
|
●
|
Pressure or irregularities in geological
formations
|
●
|
Shortages of or delays in obtaining
qualified personnel or equipment, including drilling rigs and
CO
2
|
●
|
Equipment failures or
accidents
|
●
|
Adverse weather conditions, such as freezing
temperatures, hurricanes and storms
|
●
|
Unexpected operational events, including
accidents
|
●
|
Reductions in oil and natural gas
prices
|
●
|
Proximity to and capacity of transportation
facilities
|
●
|
Title problems
|
●
|
Limitations in the market for oil and
natural gas
|
Exploration for oil and
gas is risky and may not be commercially successful. Advanced technologies used
by our Lessees cannot eliminate exploration risk, and Lessees falling short of
commercial success could impair our ability to generate
revenues.
Our future success will depend on the success of exploratory drilling
conducted by the Lessees on our mineral rights property. Oil and gas exploration
involves a high degree of risk. These risks are more acute in the early stages
of exploration. Our ability to produce revenue and our resulting financial
performance are significantly affected by the prices we receive for oil and
natural gas produced from wells on our acreage, if any. Especially in recent
years, the prices at which oil and natural gas trade in the open market have
experienced significant volatility, and will likely continue to fluctuate in the
foreseeable future due to a variety of influences including, but not limited to,
the following:
●
|
Domestic and foreign demand for oil and
natural gas by both refineries and end users
|
●
|
The introduction of alternative forms of
fuel to replace or compete with oil and natural gas
|
●
|
Domestic and foreign reserves and supply of
oil and natural gas
|
●
|
Competitive measures implemented by our
competitors and domestic and foreign governmental bodies
|
●
|
Political climates in nations that
traditionally produce and export significant quantities of oil and natural
gas (including military and other conflicts in the Middle East and
surrounding geographic region) and regulations and tariffs imposed by
exporting and importing nations
|
●
|
Weather conditions
|
●
|
Domestic and foreign economic volatility and
stability
|
Expenditures on exploration on our mineral rights property may not result
in new discoveries of oil or natural gas in commercially viable quantities. It
is difficult to project the costs of implementing exploratory horizontal
drilling programs on our acreage due to the inherent uncertainties of drilling
in unknown formations, the costs associated with encountering various drilling
conditions, such as over-pressured zones and tools lost in the hole, and changes
in drilling plans and locations as a result of prior exploratory wells or
additional seismic data and interpretations thereof.
Even when used and properly interpreted, three-dimensional (3-D) seismic
data and visualization techniques only assist geoscientists in identifying
subsurface structures and hydrocarbon indicators. They do not allow the
interpreter to know conclusively if hydrocarbons are present or economically
producible. In addition, the use of three-dimensional (3-D) seismic data becomes
less reliable when used at increasing depths. Our Lessees could incur losses as
a result of expenditures on unsuccessful wells on our acreage. If exploration
costs exceed estimates, or if exploration efforts do not produce results which
meet expectations of our Lessees, exploration efforts may not be commercially
successful, which could adversely impact our Lessees ability to generate
revenues from operations on our acreage.
18
Table of Contents
Estimates of proved
oil and natural gas reserves are uncertain and any material inaccuracies in
these reserve estimates will materially affect the quantities and the value of
our reserves.
The process of estimating oil and natural gas reserves is complex. This
process requires significant decisions and assumptions in the evaluation of
available geological, geophysical, engineering and economic data for such
reservoir. Therefore, these estimates are inherently imprecise. Actual future
production, oil and natural gas prices, revenues, taxes, development
expenditures, operating expenses and quantities of recoverable oil and natural
gas reserves will vary from those estimated. Any significant variance could
materially affect the estimated quantities and the value of our reserves.
Our oil company
Lessees may not be able to develop oil and gas reserves on an economically
viable basis on our mineral rights property.
If our oil company lessees succeed in discovering oil and/or natural gas
reserves, we cannot be assured that these reserves will be capable of long-term
sustainable production levels or in sufficient quantities to be commercially
viable. On a long-term basis, our viability depends on our Lessees ability to
find or acquire, develop and commercially produce additional oil and natural gas
reserves on our acreage. Our future revenue will depend not only on the Lessees
ability to develop our acreage, but also on our ability to identify and acquire
additional suitable producing properties or prospects, to find markets for the
oil and natural gas if we can develop a prospect and to effectively distribute
any production into our markets.
Future oil and gas exploration may involve unprofitable efforts, not only
from dry wells, but from holes that are productive but do not produce sufficient
net revenues to return a profit after drilling, operating and other costs.
Completion of a well does not assure a profit on the investment or recovery of
drilling, completion, and operating costs. In addition, drilling hazards or
environmental damage could greatly increase the cost of operations, and various
field operating conditions may adversely affect the production from successful
wells. These conditions include delays in obtaining governmental approvals or
consents, shut-downs of connected wells resulting from extreme weather
conditions, problems in storage and distribution and adverse geological and
mechanical conditions. While our Lessees will endeavor to effectively manage
these conditions, they cannot be assured of doing so optimally, and they will
not be able to eliminate them completely in any case. Therefore, these
conditions could diminish our royalty revenue and cash flow levels and result in
the impairment of our oil and natural gas interests.
Environmental
regulations may adversely affect our business.
All phases of the oil and gas business present environmental risks and
hazards and are subject to environmental regulation pursuant to a variety of
federal, state and municipal laws and regulations. Environmental legislation
provides for, among other things, restrictions and prohibitions on spills,
releases or emissions of various substances produced in association with oil and
gas operations. The legislation also requires that wells and facility sites be
operated, maintained, abandoned and reclaimed to the satisfaction of applicable
regulatory authorities. Compliance with such legislation can require significant
expenditures and a breach may result in the imposition of fines and penalties,
some of which may be material. Environmental legislation is evolving in a manner
we expect may result in stricter standards and enforcement, larger fines and
liability and potentially increased capital expenditures and operating costs.
The discharge of oil, natural gas, or other pollutants into the air, soil or
water may give rise to liabilities to governments and third parties and may
require us to incur costs to remedy such discharge.
The application of environmental laws to our business may cause us to
curtail our production or increase the costs of our production, development or
exploration activities.
Federal or state
hydraulic fracturing legislation could increase our Lessees costs or restrict
their access to oil and natural gas reserves.
Hydraulic fracturing is an important and common practice that is used to
stimulate production of natural gas and/or oil from dense subsurface rock
formations. The process involves the injection of water, sand and chemicals
under pressure into the targeted subsurface formations to fracture the
surrounding rock and stimulate production. Hydraulic fracturing using fluids
other than diesel is currently exempt from regulation under the federal Safe
Drinking Water Act (the SDWA), but opponents of hydraulic fracturing have
called for further study of the techniques environmental effects and, in some
cases, a moratorium on the use of the technique. Several proposals have been
submitted to Congress that, if implemented, would subject all hydraulic
fracturing to regulation under SDWA. Eliminating this exemption could establish
an additional level of regulation and permitting at the federal level that could
lead to Our Lessees operational delays or increased their operating costs and
could result in additional regulatory burdens that could make it more difficult
to perform hydraulic fracturing and increase our Lessees cost of compliance and
doing business. In addition, the U.S. Environment Protection Agencys (the
EPAs) Office of Research and Development is conducting a scientific study to
investigate the possible relationships between hydraulic fracturing and drinking
water. The results of that study, which are expected to be available in draft
during 2014 for peer review and public comment, could advance the development of
additional regulations.
Moreover, the EPA has announced that it will develop effluent limitations
for the treatment and discharge of wastewater resulting from hydraulic
fracturing activities in 2014. The U.S. Department of Energy has conducted an
investigation into practices the agency could recommend to better protect the
environment from drilling using hydraulic fracturing completion methods and
issued a report in 2011 on immediate and longer-term actions that may be taken
to reduce environmental and safety risks of shale gas development. Also, in May
2013, the federal Bureau of Land Management published a supplemental notice of
proposed rulemaking governing hydraulic fracturing on federal and Indian oil and
gas leases that would require public disclosure of chemicals used in hydraulic
fracturing, confirmation that wells used in fracturing operations meet
appropriate construction standards, and development of appropriate plans for
managing flow-back water that returns to the surface. These ongoing or proposed
studies, depending on their degree of pursuit and any meaningful results
obtained, could spur initiatives to further regulate hydraulic fracturing under
the federal SDWA or other regulatory mechanisms.
19
Table of Contents
Although it is not possible at this time to predict the final outcome of
these ongoing or proposed studies or the requirements of any additional federal
or state legislation or regulation regarding hydraulic fracturing, any new
federal, state, or local restrictions on hydraulic fracturing that may be
imposed in areas where we conduct business, such as the Bakken and Three Forks
areas, could significantly increase our Lessees operating, capital and
compliance costs as well as delay or halt our ability to develop oil and natural
gas reserves.
Possible regulation
related to global warming and climate change could have an adverse effect on our
operations and demand for oil and natural gas.
Based on findings by the EPA in December 2009 that emissions of GHGs
present and endangerment to public health and the environment because emissions
of such gases are contributing to warming of the Earths atmosphere and other
climatic changes, the EPA adopted regulations under existing provisions of the
CAA that establish PSD construction and Title V operating permit reviews for
certain large stationary sources that are potential major sources of GHG
emissions. Facilities required to obtain PSD permits for their GHG emissions
also will be required to meet best available control technology standards that
will be established by the states or the EPA. The EPA has also adopted rules
requiring the monitoring and reporting of GHG emissions from specified sources
in the United States, including, among others, certain onshore oil and natural
gas production facilities on an annual basis, which includes certain f our
operations. While Congress has from time to time considered legislation to
reduce emissions of GHGs, there has not been significant activity in the form of
adopted legislation to reduce GHG emissions at the federal level in recent
years. In the absence of such federal climate legislation, a number of state and
regional efforts have emerged that are aimed at tracking and/or reducing GHG
emissions by means of cap and trade programs that typically require major
sources of GHG emissions, such as electric power plants, to acquire and
surrender emission allowances in return for emitting those GHGs. If Congress
undertakes comprehensive tax reform in the coming year, it is possible that such
reform may include a carbon tax, which could impose additional direct costs on
our operations and reduce demand for refined products. Finally, it should be
noted that some scientists have concluded that increasing concentrations of GHGs
in the Earths atmosphere may produce climate changes that have significant
physical effects, such as increased frequency and severity of storms, floods and
other climatic events; if any such effects were to occur, they could have an
adverse effect on our Lessees exploration and production operations.
Our business will
suffer if we cannot obtain or maintain necessary licenses.
Our oil company Lessees proposed exploration and drilling operations on
our mineral rights property will require licenses, permits, bonds, and in some
cases renewals of licenses and permits from various governmental authorities.
Our Lessees ability to obtain, sustain, or renew such licenses and permits on
acceptable terms is subject to change in regulations and policies and to the
discretion of the applicable governments, among other factors. Our Lessees
inability to obtain, or our loss of or denial of extension of, any of these
licenses or permits could hamper our ability to produce revenues from our
operations.
Lessees may have
difficulty distributing oil or natural gas production, which could harm our
financial condition.
In order to sell the oil and natural gas that our Lessees may be able to
produce, they will have to make arrangements for storage and distribution to the
market. They will rely on local infrastructure and the availability of
transportation for storage and shipment of our products, but infrastructure
development and storage and transportation facilities may be insufficient for
their needs at commercially acceptable terms in the immediate area of our
leases. This could be particularly problematic to the extent that our operations
are conducted in remote areas that are difficult to access, such as areas that
are distant from shipping and/or pipeline facilities. These factors may affect
our Lessees ability to explore and develop our property and to store and
transport oil and natural gas production and may increase expenses.
Furthermore, weather conditions or natural disasters, actions by
companies doing business in one or more of the areas where our property is
located. Labor disputes may impair the distribution of oil and/or natural gas
and in turn diminish our financial condition or ability to generate royalty
income, if commercial wells are drilled and completed on our property, of which
there is no assurance.
20
Table of Contents
Challenges to our
property rights may impact our financial condition.
Title to oil and gas
interests is often not capable of conclusive determination without incurring
substantial expense. While we intend to make appropriate inquiries into the
title of properties and other development rights we acquire, title defects may
exist. In addition, we may be unable to obtain adequate insurance for title
defects, on a commercially reasonable basis or at all. If title defects do
exist, if a legal dispute concerning such property occurs, it is possible that
we may lose all or a portion of our right, title and interests in and to the
properties to which the title defects relate.
If our property rights are
reduced, our Lessees ability to conduct our exploration, development and
production activities may be impaired.
The elimination of
certain U.S. Federal income tax deductions currently available with respect to
oil and gas exploration and development may adversely affect the economic
viability of natural resources extraction.
The elimination of certain
key United States Federal income tax preferences currently available to oil and
natural gas exploration and production companies could be detrimental to the oil
and gas industry. These tax preferences include, but are not limited to, (i) the
repeal of the percentage depletion allowance for oil and gas properties, (ii)
the elimination of current deductions for intangible drilling and development
costs, (iii) the elimination of the deduction for United States production
activities for oil and gas production, and (iv) the extension of the
amortization period for certain geological and geophysical expenditures. It is
unclear whether any such changes or similar changes will be enacted or, if
enacted, how soon any such changes could become effective. The passage of this
legislation or any other similar changes in U.S. federal income tax law could
affect certain tax deductions that are currently available with respect to oil
and gas exploration and production. Any such changes could have an adverse
effect on our financial position, results of operations and cash flows primarily
because such changes may impact the operations of our operators from whom we
currently derive substantially all of our revenues.
Risks Related to the
Independent Internal Investigation of the Audit Committee, Our Internal Controls
Over Financial Reporting and Our Failure to Timely File Periodic Reports with
the SEC.
Our ongoing
independent investigation by the Audit Committee may uncover corporate
improprieties that may adversely affect our business, financial condition,
results of operations, and cash flows.
We created an Audit
Committee in December 2014. The Audit Committees oversees the integrity of the
Companys financial statements, legal and regulatory compliance, our registered
public accounting firms qualifications and independence, our independent
auditor and internal audit function, and our system of disclosure controls and
procedures.
The Audit Committee was
formed as a result of allegations from multiple third parties of potential
improprieties conducted by certain affiliates of the Company. The ongoing
investigation may uncover certain harmful facts that could adversely affect our
business, financial condition, results of operations, and cash flows, such as
improper accounting procedures or fraud.
Our Internal
Investigation may prove insufficient to properly address potential improprieties
and may leave the Company subject to future litigation, investigation, and
government enforcement.
It is possible that the
Audit Committees internal investigation may not be able to fully realize all
undiscovered improprieties, if any, conducted by the Company or its affiliates.
Because of this, the Company may be subject to future lawsuits or investigations
that may adversely affect our business, financial condition, results of
operations and cash flows.
Negative publicity
may have a material adverse effect on our business, financial condition, results
of operations, and cash flows.
We have been the subject of
negative publicity resulting from our restatement of consolidated financial
statements for the year ended December 31, 2013 and related matters, the
internal investigation conducted by the Audit Committee of the Companys Board
of Directors, and various ongoing litigation. This negative
publicity may adversely affect our stock price and may harm our reputation and
our relationships with current and future investors, lenders, customers,
suppliers, and employees. As a result, our business, financial condition,
results of operations or cash flows may be materially adversely affected.
21
Table of Contents
Our Internal
Investigation continues and has been expensive, and it may uncover facts that
expose us to additional material liability.
As a result of the internal
investigation we have incurred and will continue to incur substantial expenses
both from the investigation itself and from related litigation. Our expenses for
legal counsel may increase due to recent litigation and as a result of our
continued internal investigation. We are also in contact with the SEC regarding
our continued investigation. We may be subject to enforcement actions as a
result of such events, which may impact our financials adversely.
We may also be the subject
of other regulatory or enforcement actions. No assurance can be given regarding
the outcomes from any litigation, regulatory proceedings, or government
enforcement actions. The conduct of the investigation has been, and the
resolution of any such matters may be, time consuming, expensive, and may
distract management from the conduct of our business. Furthermore, if we are
subject to adverse findings in litigation, regulatory proceedings, or government
enforcement actions, we could be required to pay damages or penalties or have
other remedies imposed, which could have a material adverse effect on our
business, financial condition, results of operations, or cash flows in an
individual quarter or annual period.
Management has
identified a material weakness in our internal controls over financial
reporting, and we may be unable to develop, implement, and maintain appropriate
controls in future periods.
The Sarbanes-Oxley Act of
2002 and SEC rules require that management report annually on the effectiveness
of our internal control over financial reporting and our disclosure controls and
procedures. Among other things, management must conduct an assessment of our
internal control over financial reporting to allow management to report on, and
our independent registered public accounting firm to audit, the effectiveness of
our internal control over financial reporting, as required by Section 404 of the
Sarbanes-Oxley Act. Based on managements assessment, our Board and officers
concluded that our internal controls over financial reporting were not effective
as of December 31, 2016. The specific material weakness is described in Part II
- Item 9A. Controls and Procedures of this 2016 Form 10-K in Managements
Report on Internal Control over Financial Reporting. A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of our annual or interim consolidated financial statements would
not be prevented or detected. We cannot assure you that additional material
weaknesses in our internal control over financial reporting will not be
identified in the future. Any failure to maintain or implement required new or
improved controls, or any difficulties we encounter in their implementation,
could result in additional material weaknesses, or could result in material
misstatements in our financial statements. These misstatements could result in a
further restatement of financial statements, cause us to fail to meet our
reporting obligations or cause investors to lose confidence in our reported
financial information, leading to a decline in our stock price.
We have work remaining to
remedy the material weakness in our internal control over financial reporting.
We are in the process of developing and implementing our remediation plan for
the identified material weakness, and we expect that this work will continue
during the year ending December 31, 2016 and thereafter. There can be no
assurance as to when the remediation plan will be fully developed, when it will
be fully implemented and the aggregate cost of implementation. Until our
remediation plan is fully implemented, we will continue to devote significant
time and attention to these efforts. If we do not complete our remediation in a
timely fashion, or at all, or if our remediation plan is inadequate, there will
continue to be an increased risk that we will be unable to timely file future
periodic reports with the SEC and that our future financial statements could
contain errors that will be undetected. Until the remediation plan is complete
and implemented, we will rely upon additional interim control procedures
prescribed by management, including the use of manual mitigating control
procedures and the utilization of external consultants, to help ensure that we
fairly state our financial statements in all material respects. However, the
establishment of these interim controls does not provide the same degree of
assurance as a fully remediated control environment. For more information
relating to our internal control over financial reporting and disclosure
controls and procedures, and the remediation plan undertaken by us, see Part II
- Item 9A. Controls and Procedures of this 2016 Form 10-K.
22
Table of Contents
ITEM 2. PROPERTIES
Description of Certain
Property and Leases
General
Real Estate
Lease
On June 1, 2016, BRI
entered into a four-year lease for executive offices at 825 Great Northern
Boulevard, Expedition Block Suite 304, Helena, MT 59601. The base monthly rent
is $1,672 for the first year; $1,822 second year; $2,000 third year; and $1,950
the fourth year. The lease agreement includes additional provisions for property
taxes, condo fees, and utilities.
Mineral
Leases
As of December 31, 2016 BRI
owns mineral rights for 7,200 (net 1,600) acres in the Bakken and Three Forks
Formations in North Dakota.
The BRI mineral rights are
leased primarily to four well operators, Oasis Petroleum, Continental Resources,
Statoil ASA (formerly Brigham Oil), and Samson Oil and Gas. As of December 31,
2016, we have received division orders or royalty payments for ninety-five
wells. Currently, North Dakota spacing rules authorize up to 187 wells on our
acreage.
The following table
presents information about the produced oil and gas volumes for the years ended
December 31, 2016 and 2015. The information comes from the North Dakota
Industrial Commission website and royalty payments received from the well
operators.
|
Year
Ended
|
|
December 31,
|
|
2016
|
|
2015
|
Net Production
|
|
|
|
|
Oil
(Bbl)
|
5,302,177
|
|
|
3,614,187
|
Natural Gas (Mcf)
|
7,225,852
|
|
|
3,662,286
|
Flared Gas (Mcf)
|
831,748
|
|
|
762,479
|
|
Average Sales Price
|
|
|
|
|
Oil
(per Bbl)
|
39.06
|
|
$
|
43.09
|
Natural Gas (per Mcf)
|
2.29
|
|
$
|
2.31
|
Key Factors Affecting
Revenue
The table in the previous
section immediately above reflects a 47% increase in oil production from 2015 to
2016 as well as a 97% increase in natural gas production for the same period
from Company mineral interests. Four key factors drove revenue in 2016: (1) oil
and natural gas production, (2) increased well capacity, (3) market pricing, and
(4) net royalty interests.
Despite a soft price
environment, both oil and natural gas production from Company mineral interests
increased in 2016. During 2016, more than twenty (20) new wells began producing.
The strong production from these new wells compensated for declining production
from existing wells. The production decline curve on shale wells can be
significant. After strong initial production, production volumes begin to fall
off each year, often requiring re-fracking. Therefore, new production volume is
necessary to ensure that production volume will grow. New production that
occurred during the third and fourth quarter drove oil and natural gas
production to the highest levels in company history.
The Company expects to see
several new wells coming online each year for the next several years. Based on
current well spacing rules promulgated by the NDIC, BRIs existing leases can
support a total of 187 wells. We currently have 121 wells in either the
permitting, confidential, or producing status. Therefore, we have capacity for
as many as 66 more wells.
The precipitous decline in
oil and natural gas prices during the last quarter of 2014, which continued into
2016, invariably had and will have an impact on production and the timing of new
wells. This sharp price decline has also led to a softening of oil and natural
gas asset values. A buyers market has emerged in the wake of low oil and gas
prices, which has created opportunities for the Company to secure long-term
assets at greatly reduced prices.
23
Table of Contents
Based upon an extensive
review and analysis of the oil and natural gas market, we presume that oil and
natural gas prices will slowly increase through 2022 rising to more than $72 per
barrel and $3.80 per MCF. This favorable pricing may promote new drilling in our
current acreage, thus increasing revenue.
Flared gas has become a
closely followed issue in North Dakota. Flared gas is not sold; therefore, it is
not included in royalty payments. The State of North Dakota has implemented
rigorous rules pertaining to flared gas. Consequently, flared gas increased
significantly from 2014 to 2015, and increased only 9% in 2016. Flared gas is
natural gas produced from a well that is vented into the atmosphere rather than
entering the gas pipeline. Flaring gas is an integral part of the exploration,
production, and processing of products from shale formations. It is a necessary
to test and control well pressure, is a safety mechanism, and is a process to
manage gas during compression and processing.
The Companys royalty
payments from the production vary by well. Wells are drilled in spacing units
which are typically 1,280 acres or two sections but can include up to four
sections. The effective royalty percentage for each spacing unit is determined
based on the amount of mineral interest acreage owned by BRI, the lease rate for
that acreage, and the approved spacing unit. Since the mineral interest owned by
BRI varies by well, the royalty percentage also varies. Our average royalty is
approximately 0.70%. Using the numbers shown in the preceding tables, the reported oil production
was sold at an average sales price of $39.06 per barrel and natural gas was sold
at an average price per mcf of $2.29, gross revenue would be $164 million.
The actual effective
percentage is a product of the strength of production emanating from spacing
units with higher net royalty percentages. The Companys effective royalty
percentage has steadily declined since 2013. The average royalty percentage,
0.70%, is down from 1.35% in 2013. This decline reflects an increase in
production from Three Forks Formation wells which only have a small (2%)
retained royalty, thus reducing the overall percentage and a production increase
in spacing units with lower net royalty percentages. We expect to see this
percentage to continue to decrease further.
Description of Oil
Leases and Oil Production
As of December 31, 2016,
our properties in North Dakota are leased primarily to four operators: (1) Oasis
Petroleum, (2) Continental Resources, (3) Statoil, ASA, and (4) Samson Oil and
Gas. The executed oil leases cover various parcels of land in the same general
region, primarily in McKenzie County, North Dakota. The leases have lease
periods of between 3 and 8 years with starting dates from March 2003 to December
2009. Currently, most of the leases covering the Companys mineral acres contain
what is commonly referred to as continuous drilling clauses. Generally, a
continuous drilling clause requires an operator to maintain active drilling
operations in order to hold or extend an oil and gas lease past the natural
expiration date of the lease. A majority of the Companys current leases
currently have active drilling operations and are likely to have active
operations in the foreseeable future.
24
Table of Contents
The following table
describes in general a representative sample of the Companys leases. From time
to time, leases may be divided or consolidated among various lessees without
prior consent or notification to the Company, and so the table below is intended
for illustrative purposes only.
Legal Description
|
|
Lease Period
|
|
Gross
Acres
|
|
Net
Acres
|
|
Original
Lessee
|
|
Current
lessee
|
|
Total
Landowner
Royalty
Percentage
|
151N, R100W, Section 6: Lots
2(40.00),3(40.00),
|
|
|
|
|
|
|
|
|
|
|
|
|
SE4NW4, SW4NE4
|
|
7/29/08-7/29/13
|
|
1,203
|
|
413
|
|
Empire Oil
|
|
StatOil
|
|
17%
|
152N, R100W, Sec 8: NW4NW4, S2NW4,
SW4,
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
S2SE4, NE4NE4
|
|
"
|
|
|
|
|
|
Empire Oil
|
|
Petroleum
|
|
17%
|
152N, R100W, Sec 9: Lots 1(21.20),
2(26.60),
|
|
|
|
|
|
|
|
|
|
Continental
|
|
|
3(42.10), 4(43.00), SW4NW4, SW4,
S2SE4
|
|
"
|
|
|
|
|
|
Empire Oil
|
|
Resources
|
|
17%
|
152N, R100W, Sec 10: Lots
|
|
|
|
|
|
|
|
|
|
Continental
|
|
|
2(18.80),3(17.20),4(34.20), S2SW4
|
|
"
|
|
|
|
|
|
Empire Oil
|
|
Resources
|
|
17%
|
|
|
|
|
|
|
|
|
|
|
Continental
|
|
|
152N, R100W, Sec 15: NE4NW4
|
|
"
|
|
|
|
|
|
Empire Oil
|
|
Resources
|
|
20%
|
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
152N, R101W, Sec 1: SE4SE4
|
|
"
|
|
|
|
|
|
Empire Oil
|
|
Petroleum
|
|
17%
|
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
152N, R100W, Sec 5: SWSW
|
|
7/14/08-7/14/13
|
|
193
|
|
64
|
|
Empire Oil
|
|
Petroleum
|
|
17%
|
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
152N, R100W, Sec 6: Lot 14(33.38) S2SE,
SESW
|
|
"
|
|
|
|
|
|
Empire Oil
|
|
Petroleum
|
|
17%
|
152N, R100W, Sec 7: Lot 1(33.53), Lot
2(33.55),
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
E2NW4, NE4
|
|
3/1/05-3/1/12
|
|
307
|
|
101
|
|
Sundance
|
|
Petroleum
|
|
17.50%
|
152N, R100W, Sec 17: All plus all accretions
and
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
riparian rights thereto
|
|
9/9/03-9/9/11
|
|
2,227
|
|
533
|
|
Empire Oil
|
|
Petroleum
|
|
17%
|
152N, R100W, Sec:7: Lots 3(33.63),
4(33.59),
|
|
|
|
|
|
|
|
|
|
|
|
|
E2SW, SE Plus all accretions and riparian
rights
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
thereto
|
|
|
|
|
|
|
|
Empire Oil
|
|
Petroleum
|
|
17.5%
|
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
152N, R100W, Sec 20 All
|
|
"
|
|
|
|
|
|
Empire Oil
|
|
Petroleum
|
|
17%
|
|
|
|
|
|
|
|
|
|
|
Continental
|
|
|
152N, R100W, Sec 21 All
|
|
"
|
|
|
|
|
|
Empire Oil
|
|
Resources
|
|
17%
|
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
152N, R100W, Sec 18: Lot 1(33.63), NENW,
N2NE
|
|
5/21/09-5/21/12
|
|
394
|
|
103
|
|
Empire Oil
|
|
Petroleum
|
|
18.75%
|
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
152N, R101W, Sec 13: N2NE, NW
|
|
"
|
|
|
|
|
|
Empire Oil
|
|
Petroleum
|
|
18.75%
|
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
152N, R100W, Sec 22: W2, SE4
|
|
1/19/05-1/19/12
|
|
480
|
|
103
|
|
Armstrong
|
|
Petroleum
|
|
17.50%
|
152N, R100W, Sec 23: W2SW
|
|
7/14/08-7/14/11
|
|
80
|
|
13
|
|
Empire Oil
|
|
StatOil
|
|
22%
|
|
|
11/24/04-
|
|
|
|
|
|
|
|
Oasis
|
|
|
152N, R100W, Sec 29: NE, N2NW
|
|
11/24/11
|
|
1,029
|
|
95
|
|
Empire Oil
|
|
Petroleum
|
|
17%
|
152N, 100W, Sec 30: Lot 3 (34.31), Lot 4
(34.37),
|
|
|
|
|
|
|
|
|
|
|
|
|
E2SW4, W2SE4
|
|
|
|
|
|
|
|
|
|
|
|
|
152N, 101W, Sec 24 SW1/4
|
|
|
|
|
|
|
|
|
|
|
|
|
152N, R101W, Sec 25: NWNE, S2NE,
N2NW,
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
SENW, NESW, N2SE, SESE
|
|
"
|
|
|
|
|
|
Empire Oil
|
|
Petroleum
|
|
18.75%
|
152N, R100W, Sec 31: Lot 1(34.43),
2(34.49),
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
3(34.55), 4(34.61), E2W2, E2
|
|
7/14/08-6/10/12
|
|
858
|
|
133
|
|
Empire Oil
|
|
Petroleum
|
|
17.5%
|
|
|
|
|
|
|
|
|
|
|
Oasis
|
|
|
152N, R100W, Sec 32: W2W2, SENW, NESW
|
|
"
|
|
|
|
|
|
Empire Oil
|
|
Petroleum
|
|
17%
|
|
|
|
|
|
|
|
|
Diamond
|
|
|
|
|
152N, R101W, Sec 26: SE, except 6.32
acres
|
|
4/8/08-4/8/11
|
|
154
|
|
5
|
|
Resources
|
|
StatOil
|
|
22%
|
152N, R101W, Sec 35: E2NE4, SW4NE4,
SE4
|
|
|
|
|
|
|
|
Diamond
|
|
Oasis
|
|
|
NW4
|
|
9/13/02-9/13/05
|
|
160
|
|
5
|
|
Resources
|
|
Petroleum
|
|
15%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
7,085
|
|
1,570
|
|
|
|
|
|
|
Note
:
|
The
gross and net amounts are slightly lower than amounts that appear
elsewhere in this document. There are 160 gross mineral acres and 78 net
mineral acres not covered by lease.
|
The amount of royalty the Company retains
depends on whether a payment from our Lessees is subject to an overriding
royalty. When a Lessee payment is not subject to an override, the Company keeps
the entire payment. But when a Lessee payment is subject to an override, the
Company must pay the overriding interest holder and may keep only the remainder,
or net royalty. Our average landowner royalty is roughly 17%, and the mineral
acreage we acquired from Holms Energy is subject to a 5% override until the year
2020.
To illustrate the overriding royalty, assume that our producer Oasis earns $100,000 exclusively from the Company's mineral acreage under a lease granting us a 17% landowner royalty, and that the acreage was also subject to Holms' Energy's 5% overriding royalty interest. Here, our net royalty percentage would decrease to 12% (17% - 5% = 12%). Oasis would pay us $17,000 (17% of $100,000), but we would be required to pay Holms Energy its 5% override of $5,000 (5% of $100,000). The remaining $12,000 would then be our net royalty ($17,000 - $5,000 = $12,000). Note that the Company will no longer be required to pay the Holms Energy override once it expires in November 2020.
25
Table of Contents
Our leases do not
specify which geological formation must be drilled, but they are specific to oil
and gas hydrocarbon drilling. The leases do not impose any performance criteria
on the Lessees except the date that well must be drilled. We have no control
over any operating decisions made by Oasis Petroleum as it relates to (1) which
formation it will drill, (2) levels at which the well will be produced, (3) who
Oasis Petroleum uses as contractor for drilling and completing wells, (4) who
Oasis Petroleum sells the oil and gas to, or (5) any influence on any aspect of
recovery.
If a well is drilled and
production established, the lease becomes considered held by production,
meaning the lease continues as long as oil is being produced. As of December 31,
2016, drilling activity on the Companys mineral acreage is likely to hold by
production most if not all of the Companys leases Several of our leases,
however, require the operator to have continuous drilling operations which
would require the operator to continue drilling activities in order to qualify
the lease to be held by production. Other locations within the drilling unit
created for a well may also be drilled at any time with no time limit as long as
the lease is held by production. The Company is currently conducting an internal
audit of its leases and mineral acreage holdings.
Given the recent drilling
activity on our properties as well as the relatively recent development of
horizontal drilling techniques in general, a proven reserve estimate is not
obtainable at this time. Operators have estimated that the range of recoverable
barrels of oil from a particular producing well can vary from 200,000 to as high
as 1,000,000 barrels during its viable lifetime. (
Source:
http://themilliondollarway.blogspot.com/p/faq.html
).
ITEM 3. LEGAL
PROCEEDINGS.
Derivative
Litigation
A March 2014 derivative
action filed by two shareholders, Manuel Graiwer and TJ Jesky, against the Company, its leadership, and its counsel has been
largely resolved with respect to the original claims, though a trial is schedule for October 2017 in relation to other
matters concerning Company control.
Graiwer v. Holms
, Case No. CV12 00544 (2d Jud. Dist. Nev., Washoe Cnty. 2014) (the
Graiwer Case). The original claims revolve around interpretation of a 2010 private placement memorandum
stating that the Company shall pay Holms Energy a royalty for . . . (10) years . . . of 5% over-riding
royalty on all revenue received by the Company from production of oil and gas on the Holms Property. The
Company contracts with Lessees to receive a percentage of revenue generated by Lessees. Plaintiffs maintained that the
Company should only pay Holms Energy 5% of the percentage it receives from Lessees and keep the rest, but the Company
maintains that it should (and its practice has always been to) pay 5% of revenue generated by Lessees from the Holms Property
and then keep the rest paid under contract by Lessees. A fuller explanation the Company's practice in this respect is
presented in Item 2 of this Report under the heading Description of Oil Leases and Oil Production. Briefly,
however, under a hypothetical contract leasing the Holms Property to a Lessee that grants the Company a 15% landowner
royalty, the Company's practice is to pay 5% to Holms Energy and to keep the remaining 10%. But Plaintiff's theory would have
the Company pay Holms Energy only 0.75%, which is 5% of 17%.
On September 27, 2016,
the court ordered a Final Judgment dismissing the Company and all other defendants except for Val M. Holms, the Companys
former CEO who also owned Holms Energy until his passing in December 2016. A trial is scheduled for October 2017 to dispose
of the remaining issues.
The remaining issues arose from a case that
Val M. Holms filed in early May 2016 against the Company but that was later consolidated with the Graiwer Case.
Holms v.
Bakken Resources, Inc., et al.
, Case No. CV 16-01086 (2d Jud. Dist. Nev., Washoe Cnty. 2016) (consolidated with the
Graiwer Case). Prior to consolidation, the court issued a May 24, 2016 temporary restraining order (TRO) that
enjoined the Company from drawing on the line of credit it opened with Eagle Private Equity in May 2016 and from taking any
other action that could impact a contemplated stock sale between Manuel Graiwer and Val M. Holms. Shortly after consolidation
into the Graiwer case, the court dissolved the TRO on July 14, 2016 upon findings that Val M. Holms lacked a reasonable
probability of success on his claim, and that dissolving the order would not irreparably harm Val M. Holms because any harm
could be addressed with money damages. Then on July 20, 2016, Allan Holms asserted proxies he obtained from his brother Val
M. Holms and 22 other shareholders in the attempted hostile takeover described in the Companys July 26, 2016 Current
Report on Form 8-K. Based on those actions, the Company obtained a July 22, 2016 TRO that was effectively converted into a
preliminary injunction on November 1, 2016. The TRO found that Allan Holms proxies and takeover attempt were likely invalid
and ineffectual, respectively, and accordingly it preserves the Companys current composition and leadership without
regard to Allan Holms attempted takeover. The Company also submitted counter claims related to a contest for control of
Bakken. With a trial scheduled for October 2017, and because Val M. Holms passed away in December 2016, the Estate of Val M.
Holms now pursues the case on his behalf.
Edington
Litigation
On November 14, 2015, the
Company filed a complaint in the Southern District of New York in federal court
against Joseph R. Edington and other related or affiliated parties.
Bakken Resources, Inc. v. Edington, et al.,
Case No. 15-CV-8686 (S.D.N.Y., filed Nov. 14, 2015) (the Edington Case). The Company alleges, among other things, that
the defendants in the Edington Case have engaged in a systematic and concerted
plan to defraud and harm the Company and its principals since 2010. The
Companys claims include violations of the Civil Racketeering Influenced and
Corrupt Organizations (RICO) Act (18 U.S.C. § 1964(c)), violations of
anti-fraud provisions under federal securities laws, including Rule 10b-5,
fraud, tortuous interference, civil conspiracy, conversion, and malicious
prosecution. Val M. Holms was a co-plaintiff in the Edington Case but was later
removed.
Val Holms Montana Litigation
On
December 10, 2015, the Company filed a complaint against Val M. Holms in Montana.
Bakken v. Holms
, Cause No. CDV-2015-954 (1st Jud. Dist. Mont. Lewis & Clark Cnty., filed Dec. 10, 2015) (the Val Holms Case). The Company alleged that Val M. Holms breached his leave of absence
agreement by, among other things, improperly interfering with the Companys internal investigation and attempting to
negotiate a settlement agreement in the Derivative Litigation without knowledge or authorization from the Company. This case was voluntarily dismissed by the Company and, in its place, the Company elected to file counterclaims against Val Holms in the Nevada proceedings.
Allan
Holms Montana Litigation
Allan Holms filed a
claim in late July 2016 in Montana, which was refiled in the context of a claim the Company brought
against Allan Holms and others for the purpose of enjoining them from taking certain actions,
Bakken Resources, Inc. v. Holms
, DDV-2016-612,
(Mont. 1st Jud. Dist., Lewis & Clark Cnty., filed Oct. 19, 2016) (the 612 Case). Allan
originally brought his Montana claims in a separate case,
Bakken Resources, Inc. v. Anderson
, DDV-2016-611 (Mont. 1st
Jud. Dist., Lewis & Clark Cnty., dismissed Aug. 8, 2016) (the 611 Case), on behalf of the Company through
a law firm he hired to represent Bakken, but the 611 Case was dismissed with prejudice promptly after the Company's
management informed that law firm that Allan lacked authority to file claims on Bakken's behalf. Allan Holms maintains that
he shifted control of the Company, but no such finding has been made and preliminary injunctions maintain the current control
of the Company as currently constituted. The judge in the remaining 612 Case issued a TRO enjoining the Company from holding a shareholder
meeting and Eagle Private Equity from using its shares, and the Company consented for this to convert into a temporary
restraining order so that essentially identical issues pending in Nevada could be resolved there and avoid having to
simultaneously litigate over control in two states. The Company's motion to stay the Montana litigation, as well as other
motions, are currently pending before the court.
Allan Holms Washington Litigation
A 2012
claim that Allan Holms filed in Washington against the Company and others has
been finally resolved in the Companys favor following an appeal.
Roil Energy v. Edington, et al.,
Case No. 12-2-01039-5 (Wash. Ct. App., Aug. 2, 2016,
appeal denied
(Wash. Sup. Ct., Jan 4, 2017)) (the Allan Holms Litigation).
The primary economic claim of litigation was Allan Holms position that an oral agreement entitled him to a significant portion the
Companys mineral rights. He sued the Company and others under contract and tort theories. Even though the trial court ruled
in part for Allan Holms and in part for the Company in December 2012, the Washington Court of Appeals reverse in August 2016
the trial courts findings that had favored Allan Holms, also declining to affirm Allan Holms award of attorneys fees. This
appellate ruling in favor of the Company became final on January 4, 2017 when the Washington Supreme Court declined to review
the case. As a result, the Allan Holms Litigation has been resolved fully in favor of the Company, which prompted a release
of roughly $460,000 to the Company that was being held by the trial court pending appeal.
Mary Cunningham Litigation
The Company filed a
2015 claim and obtained a default judgment against a third party contractor.
Bakken Resources, Inc. v Proland Services, LLC,
Case No. 6:15-CV-00065 (D. Mont, default Jan. 30, 2017). We paid for certain services related to verifying documentation
underlying some of our assets, and our complaint alleged that the Company was never provided the services for which it paid.
We plan to collect the full $176,000 awarded under our default judgment.
ITEM 4. MINE SAFETY
DISCLOSURES
Not applicable.
26
Table of Contents
PART II
ITEM 5. MARKET FOR
REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Market Information
BRIs common stock was
originally approved for quotation on the OTC Bulletin Board of the National
Association of Securities Dealers (NASD) on July 29, 2009, under the symbol
MLTX, and that symbol was changed to BKKN on December 17, 2010. A limited
public market for our common stock has developed on the OTC Bulletin Board. For
purposes of this Item the existence of limited or sporadic quotations should not
of itself be deemed to constitute an established public trading market.
For any market that
develops for our common stock, the sale of restricted securities (common
stock) pursuant to Rule 144 of the Securities and Exchange Commission by members
of management or any other person to whom any such securities were issued or may
be issued in the future may have a substantial adverse impact on any such public
market. Present members of management and shareholders at December 2, 2010 when
BRI ceased to be a shell company, satisfied the one year holding period of
Rule 144 for public sales of their respective holdings in accordance with Rule
144 on December 2, 2011. See the caption Recent Sales of Unregistered
Securities, of this Item, below. A minimum holding period of one year is
required for resales under Rule 144 for shareholders of former shell companies,
along with other pertinent provisions, including publicly available information
concerning BRI, limitations on the volume of restricted securities which can be
sold in any ninety (90) day period, the requirement of unsolicited brokers
transactions and the filing of a Notice of Sale on Form 144.
The quoted bid or asked
price for the shares of common stock of BRI for the quarterly periods from
January 1, 2016 through December 31, 2016 ranged from $0.02 to $0.20 per share.
Holders
The number of record
holders of BRIs common stock as of the date of this Report is approximately
149.
Dividends
The payment of dividends is
subject to the discretion of our Board of Directors and will depend, among other
things, upon our earnings, our capital requirements, our financial condition,
and other relevant factors. We have not paid or declared any dividends upon our
common stock since our inception and, by reason of our present financial status
and our contemplated financial requirements, we do not anticipate paying any
dividends upon our common stock in the foreseeable future.
We have never declared or
paid any cash dividends. We currently do not intend to pay cash dividends in the
foreseeable future on the shares of common stock. We intend to reinvest any
earnings or proceeds we may receive in the development and/or expansion of our
business. Any cash dividends in the future to common stockholders will be
payable when, as and if declared by our Board of Directors, based upon the
Boards assessment of:
●
|
Our financial condition
|
|
|
●
|
Earnings
|
|
|
●
|
Need for funds
|
|
|
●
|
Capital requirements
|
|
|
●
|
Prior
claims of preferred stock to the extent issued and
outstanding
|
|
|
●
|
Other factors, including any applicable
laws
|
Therefore, there can be no
assurance that any dividends on the common stock will ever be paid.
Recent Sales of
Unregistered Securities; Use of Proceeds from Unregistered
Securities
Since December 31, 2012,
the Company has not entered in any sales of unregistered securities.
ITEM 6. SELECTED
FINANCIAL DATA
Not applicable for smaller
reporting companies.
27
Table of Contents
ITEM 7. MANAGEMENTS
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Caution Regarding
Forward-Looking Information
All statements contained
in this Form 10-K, other than statements of historical facts, that address
future activities, events or developments are forward-looking statements,
including, but not limited to, statements containing the words believe,
expect, anticipate, intends, estimate, forecast, project, and
similar expressions. Forward-looking statements may include any statements of
the plans, strategies and objectives of management for future operations; any
statements concerning proposed new acquisitions, products, services,
developments or industry rankings; any statements regarding future economic
conditions or performance; any statements of belief; and any statements of
assumptions underlying any of the foregoing. These statements are based on
certain assumptions and analyses made by us in light of our experience and our
assessment of historical trends, current conditions and expected future
developments as well as other factors we believe are appropriate under the
circumstances. However, whether actual results will conform to the expectations
and predictions of management is subject to a number of risks and uncertainties
described under Risk Factors under Item 1A above that may cause actual results
to differ materially.
Consequently, all of the
forward-looking statements made in this Form 10-K are qualified by these
cautionary statements and there can be no assurance that the actual results
anticipated by management will be realized or, even if substantially realized,
that they will have the expected consequences to or effects on our business
operations. Readers are cautioned not to place undue reliance on such
forward-looking statements as they speak only of the Company's views as of the
date the statement was made. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise
Overview
BRI is an independent
energy company with mineral rights located mostly in the Bakken. As of December
31, 2016, the Company owns mineral rights to approximately 7,200 gross acres and
1,600 net mineral acres, in the Bakken Shale play, located about eight miles
southeast of Williston, North Dakota. Our current and proposed operations
consist of holding certain mineral rights which presently entitle the Company to
royalty rights on average of a net 12% from the oil and gas produced on land
containing those mineral rights. In addition, we own a 2% retained royalty
interest (or its equivalent) based on approximately 767 net mineral acres which
overlap our existing mineral interest. We have no rights to influence the
activities conducted by the Lessees of our mineral rights.
The Company generates
revenue by acquiring net royalty and overriding royalty interests in oil and
natural gas properties in the United States. Many domestic oil and natural gas
fields reside in shale rock formations. Shale embedded oil and natural gas
require special extraction processes commonly referred to as fracking. Shale
fields are noted for very high initial production rates. This high initial
production declines rapidly and may produce more than half of its lifetime
estimated total recovery in the first four production years. The sharp decline
curve of shale wells requires that produced reserves be replaced to grow revenue
and cash flow. This production growth can occur from existing well capacity
within current acreage as well as from newly acquired royalty interests, which
would result in diversification of our asset portfolio. Accordingly, the
Companys business model is heavily dependent upon acquiring new royalty
interests. This diversification may include geographic location, production
cycle, and product; which enhance revenue, drive value creation, and minimize
risk.
Results of Operations
The Company accrued a net
loss in 2016 totaling $1,407,549. The Companys operating results are driven
primarily by overall production, oil and natural gas production unit values, and
professional fee expenses. The operating loss was driven by lower revenue as a
result of lower unit prices and extraordinarily high professional fees
associated with the internal investigation of Val Holms and litigation
tangential to the investigation. The Company incurred $ 1.88 million of expenses
on the internal investigation in 2016. The Company has filed a claim in excess
of $3.0 million for restitution with Val Holms estate for all costs incurred by
the Company throughout the investigation and tangential litigation.
Overall oil production
volume increased more than 47% and natural gas by 97% from company mineral
interests. Average oil and natural gas prices declined in 2016, yet by year end
prices had rebounded. However, as has been noted previously, the Company is
realizing production growth in spacing units with lower net royalty percentages.
Therefore, increased production yielded less gross revenue to the Company than if production had increased in spacing units with higher net royalty percentages.
The Companys 2016 operating results are only partially explained by our net loss because we do not expect the extraordinary
costs stemming from the internal investigation to recur indefinitely. If these costs are excluded, the Company would have been
profitable in spite of the low price environment that was present through much
of 2016.
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Table of Contents
Oil and Natural Gas
Prices
The price volatility that
began in late 2014 continued into early 2016. However, throughout the year, oil and
natural gas prices rebounded from first quarter lows. After an extensive review of the
market and future price expectations, we anticipate that prices will continue to
increase slowly over the next five years. The following chart shows the average
price by quarter over the last three years:
Crude Oil Price Summary
Year/Quarter
|
|
Quarter 1
|
|
Quarter 2
|
|
Quarter 3
|
|
Quarter 4
|
|
Average
|
2016
|
|
$
|
24.66
|
|
$
|
41.48
|
|
$
|
41.07
|
|
$
|
44.85
|
|
$
|
39.06
|
2015
|
|
$
|
41.02
|
|
$
|
52.80
|
|
$
|
42.14
|
|
$
|
38.78
|
|
$
|
43.09
|
2014
|
|
$
|
90.84
|
|
$
|
95.29
|
|
$
|
87.70
|
|
$
|
64.31
|
|
$
|
84.54
|
We anticipate that prices
will increase slowly through 2022 and that oil may average $72 per barrel, and
natural gas may average $3.80 per MCF.
See
http://gulfbusiness.com/oil-prices-average-50-70-per-barrel-through-2022.
Operating Expenses
Operating expenses
increased by $845,460 or 53%. This large increase is driven primarily by the
$751,941 Big Willow lease abandonment expense. General and administrative expenses increased by
$138,640 or 49%, reflecting litigation related travel, board of director stipends, and increased insurance
premiums. Professional fees increased 9% or $119,541. Professional fees include:
(i
)
consulting fees, $94,877; (ii) legal costs,
$891,217; (iii) and other professional fees (accounting, auditing, and transfer
agent services), $415,360. Consulting and technical fees include due diligence
costs for potential asset acquisition. Legal fees include defense costs for
current litigation as well as legal costs for the internal investigation. The
Company anticipates these fees will decrease in subsequent years as legal costs
and the costs associated with the internal investigation subside.
Expenses pertaining to the
internal investigation and tangential litigation totaled $1.88 million in 2016.
Total costs incurred since the beginning of the investigation exceed $3.0
million. We expect that these expenses will continue into 2017 as litigation on
this matter continues. The Company has filed claims against Val Holms
estate for restitution of these expenses.
Operating expenses have
been dominated by professional and legal fees since 2014. The Company has filed
several lawsuits seeking damages pertaining to the defense costs of the lawsuits. Therefore, we
expect legal fees to continue to play a significant role in our expense
structure.
Summary
The Companys results of
operation have been weakened by a combination of deteriorating market conditions
and the costs of the investigation. In 2016 we saw the market stabilize and
prices rebound. These trends have had a positive impact on revenue. As the
market rebounded, the Companys largest operator, Oasis Petroleum, has drilled a
number of new wells, thus driving production upward. We anticipate that these
price and production trends will continue for the next several years, which may
drive revenue, net income, and value creation.
Outlook
As market conditions have
stabilized, production is increasing, and we anticipate the number of producing
wells will increase to exceed 100 wells in 2017. Oil and natural gas prices have
stabilized and should continue to inch forward, staying within the $40 to $55
per barrel range through 2017.
Industry Trends
The deteriorating market
conditions that occurred in 2014 through mid-2016 saw operators fundamentally
change their business strategies. The use of technology that spurred shale
development has also resurrected the industry. As prices plummeted, the industry
relied on technology to enhance production and reduce capital expenditures. The
industry also began to rely on data to improve well efficiency.
One trend that will
significantly impact the Company is the use of longer horizontal laterals.
Longer horizontal laterals extend the reach of each producing well and can
increase the productive capacity of a single well to that of two to three wells. Longer wells
combined with heavy fracking can greatly reduce operator capital expenditures
and significantly lower production costs. The Company may benefit from this in
three ways. First, lower capital expenditures create an incentive in the current
market conditions for operators to drill and produce. Second, enhanced
production flows increase production revenue. Third, it may create an incentive
for operators to drill in lesser-quality locations of the producing basin.
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Table of Contents
Market Conditions
The volatility that has
afflicted the oil and natural gas markets since 2014 has largely stabilized. A
number of factors have contributed including:
|
1.
|
|
Excess supply has
been reduced;
|
|
|
|
2.
|
|
Geopolitical factors
appear to have stabilized;
|
|
|
|
3.
|
|
Domestic production
has decreased from 2014 through 2016;
|
|
|
|
4.
|
|
OPEC has reached a
tentative accord to limit production;
|
|
|
|
5.
|
|
Technology has
lowered drilling and production costs.
|
These factors have settled
the markets allowing prices to stabilize. While geopolitical factors may create
volatility in 2017, market fundamentals are stronger than 2014 and better able
to withstand geopolitical volatility. As a result, we anticipate prices to
continue to trade in the $40-$55 per barrel range through 2017, and potentially
increase to $70 per barrel by 2020.
Asset Acquisition
The Company intends to
secure new royalty assets and to build a diversified portfolio of mineral assets
that:
|
1.
|
|
Increase revenue and
cash flow
|
|
|
|
2.
|
|
Diversify our asset
portfolio and mitigate risk
|
|
|
|
3.
|
|
Build
reserves
|
|
|
|
4.
|
|
Create long-term
shareholder value
|
|
|
|
5.
|
|
Foster geographic
diversity
|
Oil and Natural Gas
Production
We anticipate that these
trends and conditions will continue to increase overall production and that the
number of new producing wells will increase in 2017, resulting in greater
production. New wells which began producing in 2016 will have a full year of
production, which will also contribute to higher overall production.
Selected Financial
Data
The following tables
provide selected financial data about our Company as of December 31, 2016, and
December 31, 2015.
Balance Sheets
Data:
|
|
31-Dec-16
|
|
31-Dec-15
|
Cash
and Cash Equivalents
|
|
$
|
1,240,110
|
|
$
|
228,952
|
Mineral rights and leases, property, plant and
|
|
|
|
|
|
|
equipment and oil and gas properties, net of
|
|
|
50,000
|
|
|
801,941
|
accumulated depletion and depreciation
|
|
|
|
|
|
|
Investment Account
|
|
|
3,507,379
|
|
|
4,005,777
|
Total assets
|
|
|
6,658,546
|
|
|
6,632,120
|
Total current liabilities
|
|
|
423,220
|
|
|
189,245
|
Long-term portion installment
|
|
|
-
|
|
|
-
|
Stockholders equity
|
|
|
6,235,326
|
|
|
6,442,875
|
Total liabilities and stockholders equity
|
|
$
|
6,658,546
|
|
$
|
6,632,120
|
Selected Statements of
|
|
|
|
|
|
|
|
|
Operations
Data:
|
|
Year Ended December 31,
2016
|
|
Year Ended December 31,
2015
|
Revenue
|
|
|
$626,995
|
|
|
|
$868,042
|
|
Payroll
|
|
|
150,705
|
|
|
|
312,677
|
|
Professional fees
|
|
|
1,401,454
|
|
|
|
1,281,913
|
|
General and administrative
|
|
|
279,273
|
|
|
|
140,633
|
|
Gain
on Sale of Minerals
|
|
|
0
|
|
|
|
0
|
|
Net
Income (Loss)
|
|
|
(1,407,549)
|
|
|
|
2,313
|
|
Net
Profit Per Common Share
|
|
|
($0.02)
|
|
|
|
($0.01)
|
|
30
Table of Contents
Our cash in the bank at
December 31, 2016 was $1,240,110. Net cash provided by financing activities
during the year ended December 31, 2016 was $550,000.
Net cash used by operating
activities for the year ended December 31, 2016, was ($377,456) compared to net
cash provided by operating activities of $(2,195,485) for the year ended
December 31, 2015. For the year ended December 31, 2016 our total operating
expenses were $2,586,179 compared to $1,740,721 for the year ended December 31,
2015. Operating costs increased primarily from professional fees and general and
administrative cost increases. Professional fees increased in 2016 driven by the
internal investigation and related expenses. General and administrative costs
include the Eagle Private Equity financing fee and a technical support tool fee.
In 2016 the Big Willow Lease was abandoned. Therefore, the Company
wrote-off the capitalized costs attributable to the lease.
We expect our use of cash
for operating expenses to continue at approximately $175,000 per month over the
next twelve months compared to $157,000 per month for the year ended December
31, 2016. This increase reflects higher professional fees associated with the
internal investigation and related litigation. Our material financial
obligations include legal fees, public reporting expenses, transfer agent fees,
bank fees, and other recurring fees. Although we expect these costs to fall in
2016, they are still much higher because of costs related to litigation and the
investigation. Once these extraordinary situations are resolved, we expect
operating expenses to fall to $65,000 per month.
There were no unusual or
infrequent events or transactions or any significant economic changes that
materially affected the amount of reported income from continuing operations.
Liquidity and Capital
Resources
As of December 31, 2016 we
had cash and investments of $4,747,488. This total includes $600,000 in cash
currently held in a separate bank account. This cash was advanced to the Company
by Eagle Private Equity as a result of the July 20, 2016 attempted takeover by
Allan Holms, et al. This attempted takeover was a triggering event that enabled
Eagle Private Equity to put forth funds and to, subsequently convert this loan
to preferred shares. These proceeds are restricted for asset acquisition.
The Companys cash reserves
are necessary to resolve lawsuits and to ensure
adequate funds exist to indemnify directors and officers as required by Company
bylaws. Given our recent rate of use of cash in our operations we believe we
have sufficient capital to carry on operations for the next year. Our long term
capital requirements and the adequacy of our available funds will depend on many
factors, including the reporting company costs, public relations fees, and
operating expenses, among others. Since our business model relies on the
acquisition of assets to replenish and grow oil and natural gas reserves, the
Company will require additional capital beyond cash reserves to fund
acquisitions.
Liquidity is a measure of a
companys ability to meet potential cash requirements. We have historically met
our capital requirements through the issuance of stock and by borrowings. In the
future, we anticipate we will be able to provide the necessary liquidity we need
by the revenues generated from the royalties paid to us from oil and gas
operations on our existing properties, however, if we do not generate sufficient
sales revenues we will continue to finance our operations through equity
or debt financings.
The following table
summarizes total current assets, total current liabilities and working capital
at December 31, 2016.
|
December 31,
|
|
2016
|
Current Assets
|
$
|
6,608,374
|
|
|
|
Current Liabilities
|
$
|
423,220
|
|
|
|
Working Capital
|
$
|
6,185,154
|
Current Assets include
cash, accounts receivable, accrued royalty receivable, prepaid expenses, and an
investment account. A significant portion of our current assets comes from
accrued royalty receivable. The Company accrues royalty revenue based on
reported production of the wells. New wells sometimes report production up to
150 days before beginning payments to royalty owners. This can result in a
substantial receivable balance. Based on past history, BRI expects to receive
accrued royalty revenue in full.
Current Liabilities include
accounts payable, accrued expenses and the current portion of long term debt.
The most significant portion of current liabilities comes from accrued expenses
and production tax passed to the Company as part of the royalty payments.
Accrued royalty payable is paid only upon receipt of revenue. Accrued production
tax is withheld by the operators from the royalty payments.
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Table of Contents
Satisfaction of our cash
obligations for the next 12 months
The Companys long-term
strategic plan and associated financial projections show that the Company
expects to fund our current operating plans internally. However, since our plan
is heavily reliant upon new mineral asset acquisition, the use of outside
funding or joint ventures may be imperative to fund critical asset acquisition.
Since inception, we have
primarily financed cash flow requirements through debt financing and issuance of
common stock for cash and services. As and if we expand operational activities,
we may continue to experience net negative cash flows from operations, pending
receipt of sales or development fees, and may be required to obtain additional
financing to fund operations through common stock offerings and debt borrowings
to the extent necessary to provide working capital.
Over the next twelve months
we believe that existing capital and anticipated funds from operations will be
sufficient to sustain current operations. We may seek additional capital in the
future to fund growth and expansion through additional equity or debt financing
or credit facilities. No assurance can be made that such financing would be
available, and if available it may take either the form of debt or equity. In
either case, the financing could have a negative impact on our financial
condition and our stockholders.
We anticipate the next six
months will continue to show net operating losses. This is due to the
combination of low, but rebounding unit prices, and continuing costs attributed
to frivolous litigation and investigation costs. We have information that an
additional eighteen (18) wells are either in production or are in confidential
status. Although we believe that income from our wells will likely reduce or
eliminate operating losses in the near future, we have no control over the
timing of when we will receive such royalty payments. In addition, there can
give no assurance that we will be successful in addressing operational risks as
previously identified under the "Risk Factors" section, and the failure to do so
can have a material adverse effect on our business prospects, financial
condition and results of operations.
The table below shows well
production listed by formation, wells listed by status, and total well capacity
within current spacing unit rules and regulations:
Well Status Summary
Well Status as of December
31, 2016
Wells by
Formation
|
|
Total
|
|
Wells by
Status
|
|
Total
|
|
Well
Recap
|
|
Total
|
Bakken
|
|
63
|
|
Producing
|
|
95
|
|
Total
Wells
|
|
121
|
|
|
|
|
|
|
|
|
|
|
|
Madison
|
|
3
|
|
Confidential
|
|
10
|
|
Well
Capacity
|
|
187
|
|
|
|
|
|
|
|
|
|
|
|
Three Forks
|
|
48
|
|
Awaiting
Completion
|
|
8
|
|
Percentage
|
|
65%
|
|
|
|
|
|
|
|
|
|
|
|
Undetermined
|
|
7
|
|
Permitted
|
|
4
|
|
Remaining
Well
Capacity
|
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inactive
|
|
4
|
|
|
|
|
The table illustrates
several important points:
|
1.
|
|
The number of
producing wells continues to increase both in the Bakken Formation and the
Three Forks Formation. However, we expect to see more wells operating in
the Three Forks Formation in the months ahead. This is significant since
the Companys net royalty interest in Three Forks Formation producing
wells is substantially lower than those in the Bakken Formation; seventeen
percent (17%) versus two percent (2%).
|
|
|
|
2.
|
|
The
Company has substantial remaining well capacity within current North
Dakota spacing unit rules and regulations. Current rules enable a total of
one hundred eighty-seven (187) wells to be drilled on our current acreage.
As of December 31, 2016, there were one hundred twenty-one (121) total
wells, ninety-five (95) of which are producing. The Company is currently
at sixty-five percent (65%) of total well capacity. However, the Company
has produced only 28% of proven reserves. Therefore, we expect new wells
to continue to be drilled on existing acreage, thus continuing to grow and
expand our revenue base without acquiring additional
acreage.
|
32
Table of Contents
|
3.
|
|
Production from shale
oil and natural gas wells decreases very quickly after initial production.
Each well has a declination curve. That is, after initial production, each
year well production declines until some years later the well runs dry and
is shut-in. The new well production is necessary to offset the declination
of existing well production. In 2016, average oil production per well
(53,557 Bbls) increased 11% over 2015 (48,189 Bbls). This increase
illustrates how new well production can offset sharp declines in mature
producing wells.
|
Future revenues will be
driven by new well production offsetting declining production in existing wells.
Fortunately, the Company has considerable new well capacity to drive future
revenue.
Off-Balance Sheet
Arrangements
We currently do not have
any off-balance sheet arrangement 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 investors.
Critical Accounting
Policies and Estimates
This discussion and
analysis of our financial condition and results of operations is based on our
financial statements that have been prepared under accounting principles
generally accepted in the United States of America. The preparation of financial
statements in conformity with accounting principles generally accepted in the
United States of America requires our management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could materially differ from those estimates. All
significant accounting policies have been disclosed in Note 2 to the
consolidated financial statements for the years ended December 31, 2016 and 2015
contained herewith. Our critical accounting policies are discussed below.
Use of estimates
The preparation of
financial statements in conformity with accounting principles generally accepted
in the United States of America requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
The Company follows the
guidance of the FASB Accounting Standards Codification for revenue recognition.
The Company recognizes revenue when it is realized or realizable and earned. The
Company considers revenue realized or realizable and earned when all of the
following four criteria are met: (i) persuasive evidence of an arrangement exists,
(ii) the product has been shipped or the services have been rendered to the
customer, (iii) the sales price is fixed or determinable, and (iv)
collectability is reasonably assured.
Under the royalty and lease
agreements obtained as part of the exercised Option to Purchase Asset Agreement,
the Company recognizes revenue when production occurs under our leased property
as shown on the operator run tickets (to determine unit values) and information
available through the North Dakota Industrial Commissions website (production
totals). Royalty revenue is also based upon the applicable net royalty interest
for each well based upon Company records reconciled to operator information when
available. The royalty income that is calculated monthly may be based upon
estimated oil and natural gas unit values as is necessary.
ITEM 7A. QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
33
Table of Contents
ITEM 8. FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
BAKKEN RESOURCES, INC.
December 31, 2016 and 2015
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
34
Table of Contents
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
and Stockholders of
Bakken Resources, Inc.
Helena, Montana
We have audited the
consolidated balance sheets of Bakken Resources, Inc. and its subsidiaries (the
Company) as of December 31, 2016 and 2015, and the related consolidated
statements of operations and comprehensive income (loss), stockholders equity,
and cash flows for each of the years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Bakken Resources, Inc. and its
subsidiaries as of December 31, 2016 and 2015 and the results of their
operations and their cash flows for each of the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
/s/ Decoria, Maichel,
& Teague
Decoria, Maichel, &
Teague P.S.
Spokane, Washington
June 20, 2017
35
Table of Contents
BAKKEN RESOURCES, INC
CONSOLIDATED BALANCE SHEETS
|
|
December 31,
2016
|
|
December 31,
2015
|
ASSETS
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
Cash
and cash equivalents
|
|
$
|
1,240,110
|
|
$
|
228,952
|
Accounts
receivable - trade
|
|
|
115,833
|
|
|
683,146
|
Related
party receivable
|
|
|
475,388
|
|
|
101,976
|
Prepaid
expenses
|
|
|
52,347
|
|
|
61,876
|
Investments
available-for-sale
|
|
|
3,507,379
|
|
|
4,005,777
|
Income
tax refunds receivable
|
|
|
601,459
|
|
|
354,951
|
Other
receivables
|
|
|
615,858
|
|
|
390,524
|
Total
current assets
|
|
|
6,608,374
|
|
|
5,827,202
|
|
PROPERTY, PLANT AND EQUIPMENT, net of
accumulated depreciation of
|
|
|
|
|
|
|
$38,714 and $35,909
|
|
|
172
|
|
|
2,977
|
|
UNPROVED MINERAL RIGHTS AND
LEASES
|
|
|
50,000
|
|
|
801,941
|
Total
Assets
|
|
$
|
6,658,546
|
|
$
|
6,632,120
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Accounts
payable
|
|
$
|
112,728
|
|
$
|
114,921
|
Accrued
liabilities
|
|
|
78,069
|
|
|
74,324
|
Related
party payable
|
|
|
232,423
|
|
|
-
|
Total
current liabilities
|
|
|
423,220
|
|
|
189,245
|
Total
Liabilities
|
|
|
423,220
|
|
|
189,245
|
|
COMMITMENTS AND
CONTINGENCIES (see Note 10)
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY:
|
|
|
|
|
|
|
|
Preferred stock, $.001 par value,
10,000,000
|
|
|
|
|
|
|
shares authorized, 600,000 Series A shares
outstanding at December 31, 2016
|
|
|
600
|
|
|
-
|
Additional paid-in
capital
|
|
|
4,710,159
|
|
|
3,510,759
|
Common stock, $.001 par value,
100,000,000
|
|
|
|
|
|
|
shares authorized, 56,735,350 shares issued and
outstanding
|
|
|
56,735
|
|
|
56,735
|
Accumulated other comprehensive
income, net of tax
|
|
|
204,438
|
|
|
2,313
|
Retained earnings
|
|
|
1,263,394
|
|
|
2,873,068
|
Total
stockholders' equity
|
|
|
6,235,326
|
|
|
6,442,875
|
Total
Liabilities and Stockholders' Equity
|
|
$
|
6,658,546
|
|
$
|
6,632,120
|
The accompanying notes are an integral part of the financial statements
36
Table of Contents
BAKKEN RESOURCES,
INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
AND OTHER COMPREHENSIVE INCOME (LOSS)
|
Years Ended
|
|
December
31,
|
|
2016
|
|
2015
|
REVENUES:
|
$
|
626,995
|
|
|
$
|
868,042
|
|
|
OPERATING (INCOME) EXPENSE:
|
|
|
|
|
|
|
|
Depreciation
|
|
2,806
|
|
|
|
5,498
|
|
Payroll
|
|
150,705
|
|
|
|
312,677
|
|
Professional
fees
|
|
1,401,454
|
|
|
|
1,281,913
|
|
Loss on impairment
of mineral right
|
|
751,941
|
|
|
|
-
|
|
General and
administrative expenses
|
|
279,273
|
|
|
|
140,633
|
|
Total
operating expenses (income)
|
|
2,586,179
|
|
|
|
1,740,721
|
|
|
LOSS
FROM OPERATIONS
|
|
(1,959,184
|
)
|
|
|
(872,679
|
)
|
|
OTHER INCOME (EXPENSES):
|
|
|
|
|
|
|
|
Other income (see
Note 6)
|
|
464,005
|
|
|
|
|
|
Dividend
income
|
|
75,244
|
|
|
|
|
|
Realized gains on
investments
|
|
5,296
|
|
|
|
|
|
Interest
income
|
|
6,429
|
|
|
|
7,175
|
|
Financing
expense
|
|
(650,000
|
)
|
|
|
|
|
Total
other income (expenses)
|
|
(99,026
|
)
|
|
|
7,175
|
|
|
LOSS
BEFORE INCOME TAXES
|
|
(2,058,210
|
)
|
|
|
(865,504
|
)
|
Income tax benefit
(provision)
|
|
448,536
|
|
|
|
196,773
|
|
NET
LOSS
|
|
(1,609,674
|
)
|
|
|
(668,731
|
)
|
|
OTHER COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
Unrealized
gains on investments, net of tax
|
|
202,125
|
|
|
|
2,313
|
|
TOTAL COMPREHENSIVE INCOME (LOSS)
|
$
|
(1,407,549
|
)
|
|
$
|
(666,418
|
)
|
|
NET
LOSS PER COMMON SHARE
|
|
|
|
|
|
|
|
BASIC AND DILUTED
|
$
|
(0.02
|
)
|
|
$
|
(0.01
|
)
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
basic and diluted
|
|
56,735,350
|
|
|
|
56,735,350
|
|
The accompanying notes are an integral part of the financial statements
37
Table of Contents
BAKKEN RESOURCES,
INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
|
Years Ended
|
|
|
December
31,
|
|
|
2016
|
|
2015
|
CASH
FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(1,609,674
|
)
|
|
$
|
(668,731
|
)
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
expense
|
|
|
2,806
|
|
|
|
5,498
|
|
Financing
expense
|
|
|
650,000
|
|
|
|
-
|
|
Deferred
income taxes on unrealized investment gains
|
|
|
(143,387
|
)
|
|
|
|
|
Loss
on impairment of asset
|
|
|
751,941
|
|
|
|
-
|
|
Realized
gains on investments
|
|
|
5,296
|
|
|
|
-
|
|
Change
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable - trade
|
|
|
567,313
|
|
|
|
(1,990
|
)
|
Related
party receivable
|
|
|
(373,412
|
)
|
|
|
36,871
|
|
Other
receivables
|
|
|
(225,334
|
)
|
|
|
(230,751
|
)
|
Income
tax refunds receivable
|
|
|
(246,508
|
)
|
|
|
(259,051
|
)
|
Prepaid
expenses
|
|
|
9,529
|
|
|
|
(22,283
|
)
|
Accounts
payable
|
|
|
(2,194
|
)
|
|
|
(19,891
|
)
|
Related
party payable
|
|
|
232,423
|
|
|
|
|
|
Accrued
liabilities
|
|
|
3,745
|
|
|
|
(90,782
|
)
|
Income
tax liability
|
|
|
|
|
|
|
(944,374
|
)
|
NET
CASH USED BY OPERATING ACTIVITIES
|
|
|
(377,456
|
)
|
|
|
(2,195,485
|
)
|
|
CASH
FLOW FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Restricted
cash asset
|
|
|
-
|
|
|
|
595,000
|
|
Cash
paid for acquisition of investments
|
|
|
-
|
|
|
|
(4,003,464
|
)
|
Cash
received from sale of investments
|
|
|
838,614
|
|
|
|
|
|
Cash
paid for acquisition of unproven oil and gas properties
|
|
|
-
|
|
|
|
(501,191
|
)
|
NET
CASH (USED) PROVIDED BY INVESTING ACTIVITIES
|
|
|
838,614
|
|
|
|
(3,909,655
|
)
|
|
CASH
FLOW FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Cash
from Eagle credit facility
|
|
|
600,000
|
|
|
|
-
|
|
Eagle
credit facility financing cost
|
|
|
(50,000
|
)
|
|
|
|
|
NET
CASH (USED) PROVIDED BY FINANCING ACTIVITIES
|
|
|
550,000
|
|
|
|
-
|
|
|
NET
CHANGE IN CASH AND CASH EQUIVALENTS
|
|
|
1,011,158
|
|
|
|
(6,105,140
|
)
|
Cash
and cash equivalents, beginning of year
|
|
|
228,952
|
|
|
|
6,334,092
|
|
Cash
and cash equivalents, end of year
|
|
$
|
1,240,110
|
|
|
$
|
228,952
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
|
Income
taxes paid (refunded)
|
|
$
|
(54,597
|
)
|
|
$
|
900,039
|
|
The accompanying notes are an integral part of the financial statements
38
Table of Contents
BAKKEN RESOURCES,
INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER
31, 2016 and 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
Preferred
Stock
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Other
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Paid-
|
|
Retained Earnings
|
|
Comprehensive
|
|
Stockholders'
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
in Capital
|
|
(Deficit)
|
|
Income
|
|
Equity
|
Balance -
December 31, 2014
|
|
|
|
|
|
|
56,735,350
|
|
$
|
56,735
|
|
$
|
3,510,759
|
|
$
|
3,541,799
|
|
|
$
|
-
|
|
|
7,109,293
|
|
Unrealized gain on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,313
|
|
|
2,313
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(668,731
|
)
|
|
|
|
|
|
(668,731
|
)
|
Balances -
December 31, 2015
|
|
-
|
|
|
-
|
|
56,735,350
|
|
|
56,735
|
|
|
3,510,759
|
|
|
2,873,068
|
|
|
|
2,313
|
|
|
6,442,875
|
|
Conversion to Series A Preferred stock
|
|
600,000
|
|
|
600
|
|
|
|
|
|
|
|
1,199,400
|
|
|
|
|
|
|
|
|
|
1,200,000
|
|
Unrealized gain on investments, net of tax
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
202,125
|
|
|
202,125
|
|
Net
loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,609,674
|
)
|
|
|
|
|
|
(1,609,674
|
)
|
Balances -
December 31, 2016
|
|
600,000
|
|
$
|
600
|
|
56,735,350
|
|
$
|
56,735
|
|
$
|
4,710,159
|
|
$
|
1,263,394
|
|
|
$
|
204,438
|
|
$
|
6,235,326
|
|
The accompanying notes are an integral part of the financial statements
39
Table of Contents
BAKKEN RESOURCES, INC.
NOTES TO THE CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
AND OPERATIONS
Multisys Language Solutions
(MLS) was incorporated on June 6, 2008 in Nevada. On June 11, 2010, MLS
entered into an Option to Purchase Assets Agreement with Holms Energy to
purchase certain oil and gas production royalty rights on land in North Dakota.
This option was exercised on November 26, 2010. On December 10, 2010, MLS
changed its name to Bakken Resources, Inc. (BRI).
Formation of BR
Metals, Inc.
On January 13, 2011, the
Company formed BR Metals, Inc., in Nevada. BR Metals Inc. is a wholly owned
subsidiary of the Company. BR Metals, Inc. was designed to engage in the
business of identifying, screening, evaluating, and acquiring precious metals
properties in the Western United States. However, the Company has no activity
and is not actively engaged in securing metal properties.
NOTE 2 - SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
Basis of
presentation
The accompanying financial
statements and related notes have been prepared in accordance with accounting
principles generally accepted in the United States of America (U.S. GAAP).
Basis of
consolidation
The consolidated financial
statements include those of Bakken Resources, Inc. and its wholly-owned
subsidiaries, Bakken Development Corp. and BR Metals, Inc. (collectively, the
Company). All material intercompany balances and transactions have been
eliminated in consolidation.
Use of
estimates
The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Managements estimates
include estimates in recognizing revenue, and expenses associated with revenue,
determining useful lives of assets, asset impairments and income taxes. Actual
results could differ from those estimates.
Cash
equivalents
The Company considers all
highly liquid investments with a maturity of three months or less when purchased
to be cash equivalents. Money market funds with a weighted average monthly
maturity of fewer than 90 days are classified as investments available for sale
and not cash equivalents.
Investments
The Companys investments
are comprised of fixed income funds, corporate bonds, publicly traded equities,
money market funds and other managed fund investments. These investments are
held in the custody of a major financial institution. At December 31, 2016 and
2015, the Companys investments were classified as available-for-sale. These
investments are recorded in the Consolidated Balance Sheets at fair value with
net unrealized gains or losses reported as a separate component of accumulated
other comprehensive income (loss), net of tax.
The Company recognizes an
impairment charge when a decline in the fair value of its investments is
considered to be other-than-temporary. An impairment is considered
other-than-temporary if (i) the Company has the intent to sell the security,
(ii) it is more likely than not that the Company will be required to sell the
security before recovery of its entire amortized cost basis, or (iii) the
Company does not expect to recover the entire amortized cost of the security. If
an impairment is considered other-than-temporary the entire difference between
the amortized cost and the fair value of the security is recognized in
operations.
The Company recognizes dividend income and other earnings from investments when it has the right to receive
payment. The Company recognizes realized gains or losses on its investments using the specific identification method
when the investments are sold based upon the investment's carrying value when sold.
40
Table of Contents
Accounts Receivable - Trade
The Company evaluates its
accounts receivables for collectability and establishes an allowance because of
changes in estimates when necessary. Accounts that appear to be uncollectible
are written off to revenue to the period they are recognized.
Property and
equipment
Property and equipment is
recorded at cost. Expenditures for major additions and betterments are
capitalized. Maintenance and repairs are charged to operations as incurred.
Depreciation of property, plant and equipment is computed by the straight-line
method (after taking into account their respective estimated residual values)
over the assets estimated useful life. Upon sale or retirement of equipment, the
related cost and accumulated depreciation are removed from the accounts and any
gain or loss is reflected in statements of operations. Depreciation expense for
the years ended December 31, 2016 and 2015 was $2,806 and $5,498 respectively.
Oil and Gas
Properties and Mineral Rights
The Company applies the
successful efforts method of accounting for oil and gas properties. The Company
owns royalty interests and one unproved oil and gas interest. The Company
capitalizes asset acquisition costs of mineral rights and leases. Unproved oil
and gas properties are periodically assessed to determine whether they have been
impaired, and any impairment in value is charged to expense. The costs of proved
properties are depleted on an equivalent unit-of-production basis. Total proved
reserves is the reserve base used to calculate depletion.
Asset Retirement
Obligations
The Company follows the
FASB Accounting Standards Codification which requires entities to record the
fair value of a liability for legal obligations associated with the retirement
obligations of tangible long-lived assets in the period in which it is incurred.
This standard requires the Company to record a liability for the fair value of
the dismantlement and plugging and abandonment costs excluding salvage values.
When the liability is initially recorded, the entity increases the carrying
amount of the related long-lived asset. Over time, accretion of the liability is
recognized each period and the capitalized cost is amortized over the useful
life of the related asset. Upon settlement of the liability, an entity either
settles the obligation for its recorded amount or incurs a gain or loss upon
settlement. During 2016 and 2015, the Company has not recorded any asset
retirement obligations.
Impairment of
long-lived assets
The Company follows the
FASB Accounting Standards Codification for its long-lived assets. The Companys
long-lived assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable.
The Company assesses the
recoverability of its long-lived assets by comparing the projected undiscounted
net cash flows associated with the related long-lived asset or group of
long-lived assets over their remaining estimated useful lives against their
respective carrying amounts. Impairment, if any, is based on the excess of the
carrying amount over the fair value of those assets. If long-lived assets are
determined to be recoverable, but the newly determined remaining estimated
useful lives are shorter than originally estimated, the net book values of the
long-lived assets are depreciated over the newly determined remaining estimated
useful lives.
The Company determined that the
value of an asset referred to as the Big Willow Lease was fully impaired during the year ended
December 31, 2016. (See Note 7).
Fair value of
financial instruments
The Company follows the
FASB Accounting Standards Codification for disclosures about fair value of its
financial instruments and has adopted the FASB Accounting Standards Codification
to measure the fair value of its financial instruments. The FASB Accounting
Standards Codification establishes a framework for measuring fair value in
generally accepted accounting principles (GAAP), and expands disclosures about
fair value measurements. To increase consistency and comparability in fair value
measurements and related disclosures, the FASB Accounting Standards Codification
establishes a fair value hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value into three (3) broad levels. The fair
value hierarchy gives the highest priority to quoted prices (unadjusted) in
active markets for identical assets or liabilities and the lowest priority to
unobservable inputs. The three (3) levels of fair value hierarchy defined by the
FASB Accounting Standards Codification are described below:
Level
1
|
|
Quoted market prices
available in active markets for identical assets or liabilities as of the
reporting date.
|
|
|
|
Level 2
|
|
Pricing inputs other
than quoted prices in active markets included in Level 1, which are either
directly or indirectly observable as of the reporting date.
|
|
|
|
Level 3
|
|
Pricing inputs that
are generally observable inputs and not corroborated by market data.
|
41
Table of Contents
The carrying amounts of
financial assets and liabilities, such as cash, accounts receivable, and accounts payable
approximate their fair values
because of the short maturity of these instruments.
The Company has investment
assets (see Note 5) that are measured at fair value on a recurring basis. As of
December 31, 2016 and 2015, the Company also had assets that, under certain
conditions, are subject to measurement at fair value on a non-recurring basis
like those associated with oil and gas producing properties, and mineral rights
and leases, and other long-lived assets. For these assets, measurement at fair
value in periods subsequent to their initial recognition is applicable if any of
these assets are determined to be impaired. If recognition of these assets at
their fair value becomes necessary, such measurements will be determined
utilizing Level 3 inputs.
Revenue
recognition
The Company follows the
guidance of the FASB Accounting Standards Codification for revenue recognition.
The Company recognizes revenue when it is realized or realizable and earned. The
Company considers revenue realized or realizable and earned when all of the
following criteria are met: (i) persuasive evidence of an arrangement exists,
(ii) the product has been shipped or the services have been rendered to the
customer, (iii) the sales price is fixed or determinable, and (iv)
collectability is reasonably assured.
Revenues reflected on the
income statement are net of production taxes, royalty, expense, and other
deductions.
Under the royalty and lease
agreements obtained as part of the exercised Option to Purchase Asset Agreement,
the Company recognizes revenue when production occurs under the 14 separate
mineral leases granted or amended between September 9, 2009 and December 10,
2009, whereby: 1) Oasis Petroleum, Inc., 2) Statoil, ASA, 3) Continental
Resources Inc. and 4) Samson Oil and Gas purchased the rights to explore, drill
and develop oil and gas on the Holms Property acquired pursuant to the
Agreement. The royalty income is calculated monthly and the Company recognizes
royalty income as production is reported by well on the North Dakota Industrial
Commission website. When royalty revenues are accrued each month, the Company
also accrues production taxes and royalty expense on this production.
When royalty revenues are
accrued each month, the Company also accrues production taxes and royalty
expense based on the applicable production tax rates in the
jurisdiction the production occurs and the contractual royalty agreements the
Company has with certain mineral interest holders.
In certain instances, the
Company may have to estimate unit values for oil and natural gas. In situations
where production has occurred but payment on that production has not been made
to the Company, the Company estimates the unit value of the product sold by
reviewing similar wells in the area and using those unit values.
Concentrations
Currently, the Companys
revenue stream derives from three exploration and production companies
(operators): Oasis Petroleum, Inc., Continental Resources Inc., and Statoil,
ASA. Royalty revenue from Oasis Petroleum accounts for approximately 80% of our
revenue; Continental Resources Inc. accounts for approximately 20%, with the
small balance remaining derived from Statoil, ASA. Since almost all of our
revenue is from two operators the loss of one or more of these critical
relationships could have a serious and material impact on the Companys results
of operations and cash flow.
In addition, the Companys
producing acreage currently resides in a small contiguous geographic area (1,600
mineral acres). This production concentration represents a significant risk to
the Company if this production is disrupted as a result of localized events. A
disruption could have a serious and material impact on the Companys results of
operations and cash flow.
Reclassifications
Certain amounts in the
prior period financial statements have been reclassified for comparative
purposes to conform to the presentation in the current period financial
statements. Reclassified amounts were not material to the financial statements.
Income
taxes
The Company accounts for
income taxes under the FASB Accounting Standards Codification. Deferred income
tax assets and liabilities are determined based upon differences between the
financial reporting and tax bases of assets and liabilities and are measured
using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. Deferred tax assets are reduced by a valuation
allowance to the extent management concludes it is more likely than not that the
assets will not be realized. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in the statements of operations in the period that includes the
enactment date.
42
Table of Contents
Net income (loss) per
common share
Net income (loss) per common share is computed pursuant to the FASB
Accounting Standards Codification. Basic net income or loss per share is
computed by dividing net loss by the weighted average number of shares of common
stock outstanding during the period. Diluted net income or loss per share is
computed by dividing net loss by the weighted average number of shares of common
stock and potentially outstanding shares of common stock during each period to
reflect the potential dilution that could occur from common shares issuable
through stock warrants and options. At December 31, 2016, the conversion rights associated with the Companys Series A Preferred Stock could be potentially dilutive to future
periods net income. At 2015, there were no potentially dilutive instruments outstanding. Potentially dilutive common
stock equivalents of 43,264,650 common shares (See Note 4) are not included in the calculation of diluted earnings per
share for 2016 as their effect would have been anti-dilutive.
Commitments and
contingencies
The Company follows the FASB Accounting Standards Codification to report
accounting for contingencies. Liabilities for loss contingencies arising from
claims, assessments, litigation, fines and penalties and other sources are
recorded when it is probable that a liability has been incurred and the amount
of the assessment can be reasonably estimated.
Recently issued
accounting pronouncements
In January 2016, the FASB issued ASU No. 2016-01 Financial Instruments -
Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and
Financial Liabilities. The updates makes several modifications to Subtopic
825-10, including the elimination of the available-for-sale classification of
equity investments, and it requires equity investments with readily determinable
fair values to be measured at fair value with changes in fair value recognized
in operations. The update is effective for fiscal years beginning after December
2017. The Company is currently evaluating the impact of the guidance on our
consolidated financial statements.
In August 2016, the FASB issued Accounting Standards Update (ASU)
2016-15, Statement of Cash Flows (Topic 230). ASU 2016-15 seeks to reduce the
existing diversity in practice in how certain cash receipts and cash payments
are presented and classified in the statement of cash flows. This update is
effective for fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years, with early adoption permitted. The Company is
currently evaluating the provisions of ASU 2016-15 and assessing the impact, if
any, it may have on its statement of consolidated cash flows.
The FASB issued ASU 2014-09,
Revenue from Contracts with Customers (Topic 606)
. This ASU supersedes the
Revenue recognition
requirements in Topic 605, Revenue Recognition
and industry-specific guidance in Subtopic 932-605.
Extractivies Oil and Gas Revenue Recognition.
This ASU provides guidance
concerning the recognition and measurement of revenue from contracts with
customers. Its objective is to increase the usefulness of information in the
financial statements regarding the nature, timing and uncertainty of revenues.
The effective date for ASU 2014-09 was delayed through the issuance of ASU
2015-14, Revenue from Contracts with Customers Deferral of the
Effective Date,
to annual and interim periods beginning in 2018
and is required to be adopted using either the retrospective or cumulative
effect (modified retrospective) transition method, with early adoption permitted
in 2017. The Company is evaluating the impact this ASU will have on its
consolidated financial statements and related disclosures and does not plan on
early adoption.
The FASB issued ASU 2015-17,
Balance Sheet Classification of Deferred Taxes.
This ASU requires that all deferred tax assets and
liabilities, along with any related valuation allowance, be classified as
noncurrent on the balance sheet. This ASU is effective for annual and interim
periods beginning in 2017 and can be applied prospectively or retrospectively,
with early adoption permitted. This ASU was early-adopted by the Company
effective January 1, 2016 and applied retrospectively, and did not have a
material impact on the Companys financial statements and related disclosures.
NOTE 3 EAGLE PRIVATE
EQUITY TRANSACTION
On May 6, 2016, the Company entered into a loan agreement with Eagle
Private Equity LLC (Eagle). This loan agreement permitted the Company to draw
up to One Million dollars ($1,000,000) from a non-revolving credit facility
provided by Eagle (the Facility). The Facility was initially open for 270 days
but provided the Company with the option to extend the term by an additional 270
days. Loans drawn on the Facility would accrue interest at 4% above LIBOR, and
the Facility includes a $50,000 fee. Any loans on the Facility would be due on May 5,
2018. The Facility is unsecured and contains representation and warranties of
the Company that are customary for transactions of this type. Upon certain
triggering events, generally described as changes in control of the Company, the
loan agreement permitted Eagle to put loans to the Company up to the balance of
the Facility (the Put Option). The Put Option was evaluated as a feature
embedded in the Facility as it does not meet the criteria to be considered a
freestanding financial instrument. The Company determined that the embedded Put
Option should not be bifurcated and separately accounted for as the economic
characteristics and risks of the Put Option are clearly and closely related to
those of the Facility.
43
Table of Contents
Upon the occurrence of triggering events, as described above, loans under
the Facility are convertible into shares of a newly-designated class of the
Companys Series A Preferred Stock (the Conversion Option). The Conversion
Option was evaluated as a feature embedded in the Facility as it does not meet
the criteria to be considered a freestanding financial instrument. The Company
determined that the embedded Conversion Option should not be bifurcated and
separately accounted for as it does not provide net settlement. Although the
Facility is convertible to Series A Preferred Stock, which is itself convertible
to common stock on a 100-for-1 basis, the Facility must be converted in whole,
and not in part, such that the number of shares underlying the Conversion Option
could not be rapidly absorbed by the market. In addition, the Company evaluated
the Conversion Option to assess whether it met the definition of a beneficial
conversion feature (BCF). As the fair value of a share of Series A Preferred
Stock exceeded the effective conversion price of $1.00 per share at the issuance
date, the Facility contained a BCF. As the Conversion Option could not be
exercised unless and until a Triggering Event occurred, the BCF is a contingent
BCF and the Company is not required to record the BCF until the contingency is
resolved.
No amounts were borrowed by the Company through July 20, 2016. On July
20, 2016, a Triggering Event occurred at which time Eagle put a $600,000 loan to
the Company and immediately converted the loan into 600,000 shares of Series A
Preferred Stock, at which time the Company recorded the BCF. As the intrinsic
value of the BCF exceeded the proceeds drawn on the Facility, the Company
recorded the BCF as a discount on the loan, up to the total principal amount of
$600,000. As the loan was immediately converted to Series A Preferred Stock, the
$600,000 discount was immediately amortized to interest expense and the carrying
value of the loan was credited to the capital accounts to record the conversion.
NOTE 4 SERIES A
PREFERRED STOCK
The Series A Preferred Stock includes the following
provisions:
●
|
Dividend Preferences:
Each share of Series A
preferred shall entitle the holder to receive dividends in a manner
determined by the Company Board of Directors. These dividends shall be
paid prior to any dividends paid on common stock. Any preferred dividend
must equal or exceed any dividend paid on common stock.
|
●
|
Liquidation preferences:
In the event of
liquidation, dissolution, or winding up of the Company, holders of Series
A preferred shares shall be entitled to receive, prior, and in preference
to any distribution of any of the assets of the Company to the holders of
common stock.
|
●
|
Voting Rights:
Each holder of Series A
preferred shares shall be entitled to the number of votes equal to the
number of common stock into which such shares of Series A preferred could
be converted.
|
●
|
Conversion:
Each Series A preferred share
can be converted into 100 shares of common stock; or 60 million shares based upon 600,000 shares of Series A Preferred outstanding. At December 31, 2016, the holders
of the Series A Preferred could only convert into 43,264,650 shares of the Company's Common Stock, as the
Companys capital structure only authorizes 100 million shares of Common Stock to be issued.
|
●
|
Anti-Dilution:
The conversion price of the
Series A preferred shares shall be subject to adjustment, on a full
ratchet basis, if the Company issues additional securities at a price per
share less than the then applicable conversion
price.
|
●
|
Conversion Price:
The price at which shares of Commission Stock shall be deliverable upon conversion of Series A
Preferred shares shall initially be the Series A Preferred Price Per Share of $1.00, subject to any applicable anti-dilution
adjustments.
|
●
|
Available Credit:
At December, 31, 2016, the Eagle line of credit had $400,000 in remaining available funds. The line
of credit expired in early 2017.
|
NOTE 5
INVESTMENTS
In December 2015, the Company invested cash into an investment portfolio.
The portfolio is composed of available-for-sale investments consisting of
equities, fixed income, and money market securities:
The fixed income portfolio includes one $100,000 bond maturing in 2-5
years and one $100,000 bond maturing in 5-10 years.
44
Table of Contents
Money market funds, publicly traded equity securities, and other
available for-sale investments are classified within Level 1 of the fair value
hierarchy because they are valued using quoted market prices in active markets.
Corporate bonds were priced by independent pricing services and are classified within Level 2 of the fair value hierarchy.
These
independent pricing services use market approach methodologies that model
information generated by transactions involving identical or comparable assets.
The Companys investments are treated as available-for-sale and, accordingly, the applicable investments have been
adjusted to market value with a corresponding adjustment, net of tax, to net unrealized investment gains in accumulated
other comprehensive income. All unrealized gains and losses have resulted from changes in fair value during the years
ended December 31, 2016 and 2015. Included in accumulated other comprehensive income was an unrealized
investment gain (net of $143,387 of deferred income taxes) of $202,125 and $2,313, at December 31, 2016 and 2015,
respectively.
At December 31, 2016, the Companys available-for-sale investments are as follows:
|
|
|
|
Gross
|
|
Gross
|
|
|
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
Cost
|
|
Gains
|
|
(Losses)
|
|
Value
|
Money Market Funds
|
$
|
43,527
|
|
|
|
|
|
|
|
|
$
|
43,527
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
obligations
|
|
201,561
|
|
|
1,769
|
|
|
(190
|
)
|
|
|
203,140
|
Fixed
income mutual funds
|
|
377,030
|
|
|
21,264
|
|
|
(185
|
)
|
|
|
398,109
|
Total fixed income investments
|
|
578,591
|
|
|
23,033
|
|
|
(376
|
)
|
|
|
601,248
|
|
Publicly traded equity securities
|
|
1,704,637
|
|
|
289,355
|
|
|
(1,450
|
)
|
|
|
1,992,542
|
|
Other investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate mutual funds
|
|
320,452
|
|
|
23,098
|
|
|
(4,390
|
)
|
|
|
339,160
|
Managed
investment mutual funds
|
|
514,659
|
|
|
17,223
|
|
|
(980
|
)
|
|
|
530,902
|
Total other investments
|
|
835,111
|
|
|
40,321
|
|
|
(5,370
|
)
|
|
|
870,062
|
Total
|
$
|
3,161,866
|
|
$
|
352,709
|
|
$
|
(7,196
|
)
|
|
$
|
3,507,379
|
The deferred tax amount related to the unrealized gains on available-for-sale investments was $143,387 for the year ended December 31, 2016.
The table below set forth the Companys investments measured at fair
value on a recurring basis:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
Money Market
Funds
|
|
$
|
43,527
|
|
|
|
|
|
|
$
|
43,527
|
|
Fixed income
investments:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
obligations
|
|
|
|
|
$
|
203,140
|
|
|
|
|
203,140
|
Fixed
income mutual funds
|
|
|
398,109
|
|
|
|
|
|
|
|
398,109
|
Publicly
traded equities
|
|
$
|
1,992,542
|
|
|
|
|
|
|
|
1,992,542
|
Other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate funds
|
|
|
343,550
|
|
|
|
|
|
|
|
343,550
|
Managed
investment funds
|
|
|
526,511
|
|
|
|
|
|
|
|
526,511
|
Total
|
|
$
|
3,304,239
|
|
$
|
203,140
|
|
|
|
$
|
3,507,379
|
Included in investments available for-sale at December 31, 2016 are
domestic securities of $2,740,380 and international securities of $767,001.
45
Table of Contents
At December 31, 2015, the Companys available-for-sale investments are
as follows:
|
|
Amortized
|
|
Unrealized
|
|
Unrealized
|
|
Fair
|
|
|
Cost
|
|
Gains
|
|
(Losses)
|
|
Value
|
Money Market
Funds
|
|
$
|
2,663,330
|
|
|
|
|
|
|
|
|
$
|
2,663,330
|
|
Fixed income investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
201,561
|
|
|
|
|
|
(108
|
)
|
|
|
201,453
|
Fixed
income mutual funds
|
|
|
360,000
|
|
|
|
|
|
(843
|
)
|
|
|
359,157
|
Total fixed
income investments
|
|
|
561,561
|
|
|
|
|
|
(951
|
)
|
|
|
560,610
|
|
Publicly traded equities
|
|
|
519,231
|
|
|
4,336
|
|
|
|
|
|
|
523,567
|
|
Other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real
estate funds
|
|
|
109,343
|
|
|
|
|
|
(170
|
)
|
|
|
109,173
|
Managed investment
funds
|
|
|
150,000
|
|
|
|
|
|
(902
|
)
|
|
|
149,098
|
Total other investments
|
|
|
259,343
|
|
|
-
|
|
|
(1,072
|
)
|
|
|
258,271
|
Total
|
|
$
|
4,003,465
|
|
$
|
4,336
|
|
$
|
(2,023
|
)
|
|
$
|
4,005,777
|
Tax amounts related to the unrealized gains (losses) were immaterial and
all unrealized gains and losses have resulted from changes in fair value during
December 31, 2015.
The table below sets forth the Companys investments measured at fair
value on a recurring basis at December 31, 2015.
|
|
Level
1
|
|
Level
2
|
|
Level
3
|
|
Total
|
Money Market
Funds
|
|
$
|
2,663,330
|
|
|
|
|
|
|
$
|
2,663,330
|
|
Fixed income
investments:
|
|
|
|
|
|
|
|
|
|
|
|
Corporate obligations
|
|
|
|
|
$
|
201,453
|
|
|
|
|
201,453
|
Fixed income mutual
funds
|
|
|
359,157
|
|
|
|
|
|
|
|
359,157
|
Publicly
traded equities
|
|
$
|
523,567
|
|
|
|
|
|
|
|
523,567
|
Other
investments:
|
|
|
|
|
|
|
|
|
|
|
|
Real estate funds
|
|
|
109,173
|
|
|
|
|
|
|
|
109,173
|
Managed investment
funds
|
|
|
149,098
|
|
|
|
|
|
|
|
149,098
|
Total
|
|
$
|
3,804,325
|
|
$
|
201,453
|
|
|
|
$
|
4,005,777
|
Investments available for sale at December 31, 2015 are domestic
securities of $3,753,595 and international securities of $252,183.
NOTE 6 OTHER
RECEIVABLES
Other Receivables include insurance claim proceeds expected
from the Companys
Director and Officer Insurance policy carrier for litigation related costs.
Specifically, the Companys insurance carrier, Scottsdale Insurance Company, has
agreed to reimburse for certain legal defense costs related to the Manuel
Graiwer and T.J. Jesky on behalf of Bakken Resources Inc. v. Val Holms, Herman
Landeis, Karen Midtlyng, David Deffinbaugh, Bill Baber, W. Edward Nichols,
(Directors of the Company) and Wesley Paul (the Companys General Counsel).
Insurance reimbursement is limited to the extent of the underlying policy and to
only those expenditures deemed by the insurance company as essential to the
litigation. The insurance claim receivable balance is $153,373 as of December
31, 2016, and was $390,524 at December 31, 2015.
46
Table of Contents
Other Receivables at December 31, 2016 included
a receivable totaling $462,485. This represents the amount of the
appeal bond that was posted with the Washington Appellate Court relative to the
Roil Energy lawsuit. When the district court decision was appealed, the Company
was required to post this bond. When the Company prevailed on appeal and the
Washington Supreme Court denied the plaintiffs petition to hear the case, the
Appellate Court refunded the bond. The $462,485 was received in March 2017.
NOTE 7 UNPROVED
MINERAL RIGHTS AND LEASES
Holms
Property
On June 11, 2010, the Company entered into an Option to Purchase Assets Agreement with Holms Energy LLC (Holms
Energy), a company controlled by Val M. Holms, the Companys former CEO. Under the terms of the Asset Purchase Agreement,
Holms Energy received $100,000, 40 million shares of restricted common stock, and granted Holms Energy a 5% overriding royalty
(retained) on all royalty revenue generated from the Holms property for a period of ten years from the date of acquisition. The Asset
Purchase Agreement included the following: 1) certain Holms Energy mineral rights in oil and natural gas rights on approximately
7,200 gross acres and 1,600 net mineral acres of land located in McKenzie County North Dakota, 8 miles south of Williston, North
Dakota; 2) potential production royalty income from wells to be drilled on the property whose mineral rights are owned by Holms
Energy; and 3) the transfer of all right, title, and interest to an Option to Purchase the Greenfield mineral rights.
In November 2010, the
Company acquired the Greenfield mineral interests and in early 2014, the Company
negotiated the sale of the Greenfield mineral interests resulting in a gain of
$7,172,151.
The Holms property has no carrying value on
the Companys balance sheet.
Duck
Lake
On September 21, 2011, the
Company purchased an undivided 50% interest in minerals contained in
approximately 2,200 acres located in Glacier County, Montana (also referred to
as Duck Lake). The purchase price of these rights was $250,000. In 2014, the value of
this asset was impaired and written down to a value of $50,000 because of
alleged fraud that may have occurred in this transaction.
Big Willow
Lease
On July 9, 2014, the Companys former CEO
entered into a two year lease agreement on 28,000 gross acres (approximately
9,300 net mineral acres) in southwest Idaho. The agreement, referred to as the
Big Willow lease, included a two year primary term with the option to extend for
an additional term.
On July 9, 2016 the lease expired without extension due to unfavorable market conditions and the lack of infrastructure the area, which made development uneconomical, and the Company wrote off its investments lease bonus payments, title work, and
other development related costs of $751,941.
NOTE 8 REVENUE
RECOGNITION USE OF ESTIMATES
Estimated Net Royalty
Interests
Oasis Petroleum Inc. (Oasis) production yields approximately 80% of the Companys revenue. Therefore, issues pertaining to
Oasis revenue accrual and associated payments generally have a significant impact upon cash flow and the results of operations. Since
inception, certain net royalty interests used by Oasis to calculate the Companys monthly royalty payments have contained
inconsistencies. The differences between the Companys estimates of net royalty interests and those derived by Oasis have posed a
significant revenue recognition issue for the Company, and have resulted in the Company making estimates of certain variables that
can fluctuate from the initial recognition of revenue through to the revenues collection.
The Companys revenues are based on net royalty information it believes is correct including information relating to the property
interests from its own land consultants. If information becomes available that changes the Companys estimates of revenue it will
ultimately be able to collect, the Company adjusts its revenue, trade accounts receivable, and related accounts to reflect the changes.
During 2016, the Company adjusted its trade accounts receivable to reflect those amounts from current and prior years revenue that
are reasonably expected to be received.
47
Table of Contents
NOTE 9 RELATED PARTY
TRANSACTIONS
Related Party
Receivable
In connection with the acquisition of the Holms Property (see Note 7),
the Company granted to Holms Energy LLC (Holms Energy), which is owned by a
former officer of the Company, a 5% overriding royalty payable on all revenue
generated from the Holms Property for ten years from the date of the
acquisitions closing. In 2015, the Company had determined that payments made to
Holms Energy had exceeded royalties payable and recognized a royalty receivable
of $101,976 at December 31, 2015.
The Company discovered inconsistencies in the application of the methodology in calculating prior years royalty expense.
The Company found that the royalty was often calculated and paid based upon gross royalty value rather than net royalty value and
that certain items that should be excluded from the royalty payable calculation and payment were not excluded.
In 2016, the Company engaged a forensic accounting firm to review operator production statements and the past royalty
expense calculations from 2011 to December 31, 2015. The firms work resulted in adjusting the royalty receivable from Holms
Energy to $475,388 as of December 31, 2016.
Related Party Payable
The balance sheet also includes Royalty Payable account. The payable
account balance as of December 31, 2016 was $232,423. This reflects the royalty
expense the Company has incurred relative to the Holms Energy for royalties
recognized during 2016.
The Statement of Operations for the year ended December 31, 2016, includes $75,000 of salary expense
attributed to Val Holms (Holms) salary from January 1, 2016 through the termination of his employment on
May 9, 2016. The Leave of Absence Agreement (LOAA) that Holms entered into in March 2015 required that
Holms salary continued to be paid pending the outcome of the internal investigation, conditioned upon Holms
cooperation in that investigation. Holms was notified by the Company in November 2015 of various breaches of
the LOAA. Since Holms failed to fulfill his requirements under the LOAA, beginning January 1, 2016, the funds
were paid to an escrow and held there until the earlier of either (a) the expiration of the statute of limitations
Holms had to claim the funds under a wrongful termination act had expired or (b) resolution of the Companys
claims against Holms. Accordingly, the funds were released to the Company on May 9, 2017.
NOTE 10 - COMMITMENTS
AND CONTINGENCIES
Office Lease
Commitment
On June 1, 2016, the Company entered into a four-year office lease for
executive offices at 825 Great Northern Boulevard, Expedition Block Suite 304,
Helena, MT 59601. The base monthly rent is $1,672 for the first year; $1,822
second year; $2,000 third year; and $1,950 the fourth year. The lease agreement
includes additional provisions for property taxes, condo fees, and utilities.
Litigation
The Company has been and is currently party to various legal proceedings and claims which have arisen principally from shareholders and other parties related to the Company. The Company reviews its legal proceedings and claims and establishes loss accruals for those contingencies when the incurrence of a loss is probable and can be reasonably estimated. Similarly, we do not record assets from judgements/settlements the Company may have in its favor until the likelihood of collection of such is highly probable.
The Company does not record an accrual when
the likelihood of loss being incurred is probable, but the amount cannot be reasonably estimated, or when the loss is
believed to be only reasonably possible or remote, although disclosures will be made for material matters as required by ASC
450-20,
Contingencies - Loss Contingencies
. The Company's assessment of whether a loss or a gain is reasonably possible or
probable is based on our assessment and consultation with legal counsel regarding the ultimate outcome of the matter
following all appeals.
On April 2, 2012, BRI was served with a summons relating to a complaint
filed by Allan Holms, both individually and derivatively through Roil Energy,
LLC. Allan Holms is the half-brother of BRIs former CEO, Val Holms. The Complaint
(filed in the Superior Court of the State of Washington located in Spokane
County) names, among others, Joseph Edington, Val and Mari Holms, Holms Energy,
LLC and BRI as defendants. The Complaint primarily alleges breach of contract,
tortious interference with prospective business opportunity and fraud. The
complaint focuses on events allegedly occurring around February and March 2010
whereby Allan Holms alleged an agreement took place whereby he was to
receive up to 40% of the originally issued equity of Roil Energy, LLC. Allan
Holms alleges Roil Energy was originally intended to be the predecessor entity
to BRI. After various court proceedings, the Washington Court of Appeals
affirmed a trial courts ruling against the plaintiff and reversed the trial
courts ruling against certain of the defendants. The Company believes the
possibility of any future economic damages to BRI to be unlikely as a direct result of this Washington litigation. When the
Company filed the appeal with the Washington Court of appeals, the Company was
required to post a bond of $462,485. This amount is identified on the income
statement as Settlement Expense. Upon the successful appeal, the bond was
returned to the Company in early 2017.
Bakken Resources, Inc. v. Holms et al.,
Case No. DDV 2016-612, First Judicial District Court, State of Montana, Lewis & Clark County (July 21, 2016). The Company filed for a Temporary Restraining Order and Preliminary Injunction in response to the an attempted takeover on July 20, 2016 by a group led by Allan Holms who is also the plaintiff in the Washington action described immediately above. This TRO was granted on July 22, 2016. This group led by Allan Holms filed an Answer, Affirmative Defenses, and Third-Party Claims against the Company, Dan Anderson, Karen Midtlyng and corporate counsel (i.e. Wesley J. Paul) on August 8, 2016. The court extended the restraining order on August 9, 2016. The Court again extended the restraining order on December 20, 2016. On or around October 19, 2016, this Court issued a temporary restraining order to halt a planned annual meeting of the Client set for October 25, 2016 until 60 days following this Courts' determination regarding whether the events of July 20, 2016 by the attempted takeover group resulted in change of control of the Company and also temporarily enjoining the Company from allowing Eagle Private Equity to vote on any matters. A hearing relating the Annual Meeting TRO was held in December 2016 and the Company elected not to oppose the hearing pending the resolution of various motions filed in this Montana case and the proceedings in Nevada. Multiple motions remain pending in this matter, including motions to dismiss the Third-Party Claims and motions to stay filed by the Company in this matter.
On June 6, 2012, the Company filed a Temporary Restraining Order and Verified Complaint for Injunctive Relief against McKinley Romero,
Peter Swan Investment Consulting Ltd and IWJ Consulting Group, LLC, in connection with such defendants request to
the transfer agent to remove restrictive legends from an aggregate of 4.7
million shares, which the Company believes were improperly obtained by the
Defendants. The Company obtained a TRO from the Second Judicial District Court
of the State of Nevada, County of Washoe on June 6, 2012 enjoining the
defendants from seeking removal of the restrictive legends. On a scheduled
hearing on June 26, 2012 the judge in this matter ruled in favor of the
Companys motion for a preliminary injunction. The order granting such
preliminary injunction was issued from this court on August 14, 2012. Following the preliminary injunction bearing, the defendants failed to further defend against the Companys claims, and a default judgment in favor the Company was issued on June 12, 2014. This judgment was later affirmed by the court following the defendants filing of a request to set aside the judgment.
48
Table of Contents
In March 2013, the Company received notice of a complaint titled Gillis
v. Bakken Resources, Inc., Case No. A-13-675280-B, filed in the District Court
of the State of Nevada for Clark County. Mr. Gillis, the plaintiff in this
matter (the Gillis Case), is the trustee of the Bruce and Marilyn Gillis 1987
Trust. Mr. Gillis alleged that the Company breached certain registration
rights obligations pursuant to an equity investment made at or around November
2010. The Court in this this matter granted class certification and class notice
in March 2014. The Company settled this matter in September 2014 for $200,000.
This expenditure has been identified on this income statement as Settlement
Expense.
In March 2014, the Company received notice of a complaint titled Manuel
Graiwer and T.J. Jesky v. Val Holms, Herman Landeis, Karen Midtlyng, David
Deffinbaugh, Bill Baber, W. Edward Nichols, and Wesley Paul, Case No. CV14 00544
(the Graiwer Case), filed in the Second Judicial District Court of the State
of Nevada for Washoe County. Messrs. Graiwer and Jesky, the plaintiffs in the
Graiwer Case, bring action on behalf of the Company derivatively, and the
Company is also named as a nominal defendant. Messrs. Graiwer and Jesky are
shareholders of the Company and allege breach of fiduciary duty, gross
negligence, corporate waste, unjust enrichment, and civil conspiracy against one
or more of the named defendants. The Company is also informed that each of the
other named defendants denies the validity of the claims made in the Graiwer
case, and each intends to vigorously defend against such claims, as applicable.
The plaintiffs in the Graiwer Case have agreed to dismiss all claims against all
defendants except Val M. Holms, and such dismissal was approved approval by the
Court on September 27, 2016.
On July 10, 2015, the Company filed the matter titled,
Bakken Resources, Inc. v. Proland Services, LLC and Mary Cunningham
, Case No. 6:15-cv-00065, United States District Court for the District of Montana, Helena Division. The Company initiated this breach of contract action on to recover costs and payments made to the Defendants under a contract to provide title services that was never completed. On January 30, 2017, the court entered a Default Judgment in favor of the Company against Proland Services and Mary Cunningham in the amount of approximately $176,000.
On November 4, 2015 the Company filed the matter titled,
Bakken Resources, Inc. v. Joseph R. Edington, et. al.,
Case No. 15-cv-8686, United States District Court for the Southern District of New York. The Company brought this action for securities fraud and civil RICO against Joseph R. Edington, a former Company promoter, and his affiliates. Defendants in this action filed a motion to disqualify Client's counsel. On March 29, 2017 the Court denied the defendants' motion to disqualify counsel. On May 8, 2017, Defendants filed a motion to stay the proceedings pending outcome of proceedings in Nevada and Montana. The Client filed an opposition to this request for a stay and this matter is currently pending before the Court.
The Bakken Resources Inc. bylaws state that the Company will indemnify
officers and directors for actual and reasonable amounts incurred while acting
as an agent of the corporation. Val Holms attorneys have submitted invoices to
Bakken through December 31, 2016 for direct payment totaling more than $394,930.
These services include the Graiwer lawsuit and investigation related defense
costs, as well as a litany of other services that do not pertain to any
litigation. The Company has reviewed all submitted charges. The Company paid all
billings that appear to be indemnifiable under the Companys bylaws and Val
Holms Leave of Absence Agreement. Consequently, $277,720 in services billed
have not been reimbursed nor accrued as legal fees expense.
As of December 31, 2016, and 2015 the Company did not believe that there was sufficient information available regarding any of the litigations the Company is party to estimate or recognize any material loss accrual or settlement gain. Accordingly, no disclosure of a potential range of loss has been made related to these matters. In the opinion of management, the ultimate resolutions of all unresolved legal proceedings are not expected to have a material effect on the Company's financial position.
NOTE 11 INCOME TAXES
The Company uses the liability method, where deferred tax assets and
liabilities are determined based on the expected future tax consequences of
temporary differences between the carrying amounts of assets and liabilities for
financial and income tax reporting purposes. During 2016 and 2015, the Company
generated no taxable income and incurred no total income tax provision in either
year. The resulting net operating losses have been carried back to prior years
resulting in an income tax refund of prior taxes paid, and an income tax
benefit.
Internal Revenue Code
Section 382 limits the amount of net operating losses that can be carried
forward after a change of control. The triggering event that occurred on July
20, 2016 may result in a limitation of the Companys net operating loss
carryback. The Company is still assessing the impact that the Section 382
limitation may impose.
49
Table of Contents
The (benefit) provision for income taxes consists of the following for 2016 and 2015:
|
|
2016
|
|
2015
|
Current:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(290,000
|
)
|
|
$
|
(151,276
|
)
|
State
|
|
|
(15,149
|
)
|
|
|
(45,497
|
)
|
Deferred
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(120,929
|
)
|
|
|
-
|
|
State
|
|
|
(22,458
|
)
|
|
|
-
|
|
Income tax
(benefit) provision
|
|
$
|
(448,536
|
)
|
|
$
|
(196,773
|
)
|
At December 31, 2016 and 2015, the Companys deferred tax assets (liabilities) are as follows:
|
2016
|
|
2015
|
Changes in
mineral interest carrying values not
|
|
|
|
|
|
|
|
deductible for
tax
|
|
|
|
|
$
|
106,400
|
|
Deferred gain on
mineral asset sale
|
|
|
|
|
|
(68,000
|
)
|
Deferred taxes on
unrealized gains
|
$
|
(143,387
|
)
|
|
|
-
|
|
Net operating
loss carry forward
|
|
450,057
|
|
|
|
-
|
|
Total deferred
tax asset
|
|
306,670
|
|
|
|
38,400
|
|
Allowance for
deferred net tax asset
|
|
(306,670
|
)
|
|
|
(38,400
|
)
|
Net deferred tax
asset
|
$
|
-
|
|
|
$
|
-
|
|
The income tax provision differs from the amount of income tax determined by applying the Federal income Tax Rate to
pre-tax income from continuing operations due to the following items:
|
2016
|
|
2015
|
Income tax
(benefit) provision at statutory rate
|
$
|
(722,198
|
)
|
|
$
|
(295,449
|
)
|
Effect of state
income taxes
|
|
(101,999
|
)
|
|
|
(58,221
|
)
|
Change in
valuation allowance
|
|
268,270
|
|
|
|
-
|
|
Debt conversion
costs
|
|
210,000
|
|
|
|
-
|
|
Other
differences, including meals
|
|
2,202
|
|
|
|
-
|
|
Tax return to tax
accrual adjustment
|
|
38,576
|
|
|
|
156,897
|
|
|
|
(305,149
|
)
|
|
|
(196,773
|
)
|
Deferred taxes on
unrealized gains
|
|
(143,387
|
)
|
|
|
-
|
|
Income tax
(benefit) provision
|
$
|
(448,536
|
)
|
|
$
|
(196,773
|
)
|
At December 31, 2016, the Company has federal net operating loss (NOL) carry forwards of approximately $1
million that expires in 2037. In addition, the Company has State net operating loss carry forwards of approximately $1
million that expire in 2024 and in 2037.
At December 31, 2016 and 2015, the Company had deferred tax assets arising principally from net operating loss
carry forwards for income tax purposes. As management cannot determine that it is more likely than not that the benefit
of the net deferred tax asset will be realized, a valuation allowance equal to 100% of the net deferred tax assets has
been recorded at December 31, 2016 and 2015.
During the years ended December 31, 2016 and 2015, there were no material uncertain tax positions taken by the
Company. The Companys federal income tax filings are subject to examination for the years 2014 through 2016. The
Company has no unrecognized tax benefits at December 31, 2016 or 2015.
50
Table of Contents
NOTE 12 SUBSEQUENT
EVENTS
●
|
Allan Holms filed a Form 5 and Schedule 13D on February 14, 2017, claiming to have acquired approximately 26 million shares of Common Stock from his half-brother, Val M. Holms, to which the Company responded in a Current Report on Form 8-K filed with the Commission on February 16, 2017. On February 21, 2017, the Company filed a verified complaint in Nevada against Allan Holms, Manuel Graiwer, and Doe Defendants 1-10 and Doe Entities I-X, seeking injunctive relief, declaratory relief, as well as claims for conversion and fraud. The claims stem from Defendants improperly attempting to convey ownership of Val Holms shares to Allan Holms as well as Graiwers improper receipt of $19,929.00 as a finders fee for bringing investors to the company. On March 17, 2017 the case was removed to the United States District Court for the District of Nevada. The Company filed an emergency motion to extend the Nevada TRO in federal court on March 24, 2017. The federal court TRO was granted on March 28, 2017. On April 13, 2017 the parties filed a Stipulation and Order to Extend the Temporary Restraining Order and to Vacate the Hearing on Preliminary Injunction. The Stipulation and Order were approved on April 17, 2017. The Company has since prevailed on a motion for remand back to the Nevada state court.
|
●
|
The Company made a claim in
excess of $3 million dollars against the Val Holms estate to recover costs
associated with the internal investigation and tangential activities as well as
to recover amounts due from excess override payments.
|
ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A CONTROLS AND
PROCEDURES
Management is responsible for establishing and maintaining adequate
internal control over financial reporting. Internal control over financial
reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the
Securities Exchange Act of 1934, as amended, as a process designed by, or under
the supervision of, a Companys principal executive and principal financial
officers and effected by a Companys board of directors, management and other
personnel, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles and
includes those policies and procedures that:
●
|
Pertain to the maintenance of records that
in reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company;
|
●
|
Provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles,
and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company;
and
|
●
|
Provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use or
disposition of the Companys assets that could have a material effect on
the financial statements.
|
Our
management, with the participation of our Chief Financial Officer, assessed the
effectiveness of our internal control over financial reporting as of December
31, 2016.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis.
We identified material weaknesses in our internal control over financial
reporting as of December 31, 2016 because certain elements of an effective
control environment were not present including the financial reporting processes
and procedures, and internal control procedures by our board of directors. The material weaknesses identified
include the following:
●
|
There exists a significant overlap between
management and our board of directors, with two of our six directors being
members of management (although during part of 2016, our CEO was on leave
of absence being terminated in May 2016). This does not allow for multiple
levels of supervision and review.
|
●
|
Additionally, since we only have one full
time employee and a full-time contractor, it has not been possible to
ensure appropriate segregation of duties between incompatible functions,
and formalized monitoring procedures have not, as of December 31, 2016,
been established or implemented.
|
Based on this assessment and the material weaknesses described above,
management has concluded that internal control over financial reporting was not
effective as of December 31, 2016.
This annual report does not include an attestation report of the
Companys registered public accounting firm regarding internal control over
financial reporting. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
managements report in this annual report.
51
Table of Contents
We intend to take the following steps as soon as practicable to remediate
the material weaknesses we identified as follows:
●
|
We will segregate incompatible functions
using existing personnel where possible or, given sufficient capital
resources, we will hire additional personnel to perform those
functions.
|
●
|
We will, and have, appointed additional
outside directors, particularly those who may have experience with regard
to financial reporting, financial reporting processes and procedures and
internal control procedures.
|
Evaluation of disclosure controls and procedures
As required by Rule 13a-15(b) of the Exchange Act, we have evaluated, under the supervision of and participation of our management, including our Chief Financial Officer ("CFO"), the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15(d)-15 under the Exchange Act) as of December 31, 2016. Our disclosure controls and procedures are designed to provide reasonable assurance that information required to be disclosed by the Company in reports filed or submitted under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to Company management, including our CFO as appropriate, to allow timely decisions regarding required disclosure. Based upon this evaluation, our CFO has concluded that our disclosure controls and procedures were effective as of December 31, 2016.
Changes in Internal
Control Over Financial Reporting
As of the end of the period covered by this Report, there have been no
changes in internal control over financial reporting (as defined in Rule
13a-15(f) of the Exchange Act) during the quarter ended December 31, 2016, that
materially affected, or are reasonably likely to materially affect, our
Companys internal control over financial reporting.
ITEM 9B OTHER
INFORMATION
None.
PART III
ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
A. Directors, Executive
Officers, Promoters and Control Persons
The members of our board of directors serve for one year terms and are
elected at the next annual meeting of stockholders, or until their successors
have been elected. The officers serve at the pleasure of the board of directors.
Pursuant to the acquisition of Holms Energys assets, some members of
Holms Energy became the officers and directors of BRI effective upon closing of
the acquisition agreement.
The following table sets forth the directors and executive officers of
BRI as of December 31, 2016. The previous directors of BRI appointed the
nominees designated by Holms Energy as members of the board of directors of BRI.
Subsequently, the current officers and directors of BRI resigned their positions
at BRI, clearing the way for the appointment of new executive officers by the
new board of directors of BRI. Directors are elected for a period of one year
and thereafter serve until the next annual meeting at which their successors are
duly elected by the stockholders. Officers and other employees serve at the will
of the board of directors and hold office until their death, resignation or
removal from office.
Name
|
Age
|
Position
|
Dan
Anderson
|
52
|
Chief
Financial Officer and Director
|
Karen S.
Midtlyng
|
58
|
Secretary
and Director
|
Herman R.
Landeis
|
84
|
Director
|
Bill M.
Baber
|
65
|
Director
|
Douglas
Williams
|
61
|
Director and
Audit Committee Member
|
Dr. Solange
Charas
|
55
|
Director and
Audit Committee Chair
|
Family Relationships
There are no family relationships among our directors or officers
Business Experience
The following is a brief account of the education and business experience
of each director and executive officer during at least the past five years,
indicating each persons business experience, principal occupation during the
period, and the name and principal business of the organization by which they
were employed of those directors and the key members of the management team who
became the officers, directors, and key employees of BRI on or after December 1,
2010 after the Asset Acquisition:
Dan Anderson 52, Chief Financial Officer
. Mr. Anderson graduated from the Montana College
of Mineral Science and Technology in 1986 with a Bachelor of Science degree in
Business Administration, Finance and Accounting. After graduation, Mr. Anderson
served as the chief financial officer of a health care Company and was a partner
in a consulting firm. Mr. Anderson has subsequently received a Masters Degree
in Business Administration, a graduate degree in banking, is a certified
business adviser, and is a certified human resources specialist. Mr. Anderson
has owned a number of small businesses in southwest Montana for more than 20
years. On May 23, 2014, Mr. Anderson was appointed as the Company's Chief
Financial Officer.
52
Table of Contents
Karen S. Midtlyng 58, Secretary and Director
. Ms. Midtlyng has an associate degree from the
University of Montana, Helena College of Technology (formerly Helena Vocational
Technical Center). From 1978 to 2005, she was employed by U.S. Geological Survey
(USGS), Water Science Center, Helena, MT. During her 27 years with the U.S.G.S.
she was responsible for start to finish production of several U.S.G.S.
scientific reports, fact sheets and electronic documents and co-authored several
U.S.G.S. publications. From 2005 to 2010, she was an independent consultant,
providing services for a small business in the Helena area, where she assisted
in the establishment and implementation of certain business processes.
Herman R. Landeis 84, Director
. Mr. Landeis was the Western Region Tax Manager for Marathon Oil
Corporation, based out of Casper, Wyoming, from 1972 until he retired in 1992.
Previously, Mr. Landeis worked as a professional Draftsman for Marathon Oil
Corporation from 1955 until 1972, except for a two year leave of absence to
serve in the Military (Army), where he was honorably discharged. As a Tax
Manager for Marathon Oil Corporation, he was responsible for and managed a
variety of financial matters related to property tax negotiations, valuation of
Company owned assets and property, and conducting various financial analysis on
operations in the Western United States. These properties included the
Interstate Pipeline running from Montana to Missouri, properties in Alaska, five
off-shore platforms and numerous operating oil and gas properties in the Western
United States. Since his retirement in 1992, he has acted as a consultant to the
oil and gas industry related to special projects involving tax matters,
appraisals and valuation of property. Mr. Landeis received a Certified License
as a Professional Appraiser from the University of Nebraska in 1972.
Bill M. Baber 65, Director
. Mr. Baber has 37 years of experience in the field of drilling,
completing, operating and maintenance of oil and gas wells. In addition, Mr.
Baber also provides sources and arranges for the maintenance of oil/gas rigs and
other heavy machinery used in drilling operations. Mr. Baber regularly consults
with clients on drilling operations and regulatory requirements. For the past 15
years, Mr. Baber has conducted his business through his entity, Bill M. Baber
Oil Field Equipment.
Douglas Williams 61, Director
. Mr. Williams is a Certified Public Accountant licensed in the State of
Montana specializing in accounting, tax, internal controls, and regulatory
compliance. Since graduating from University of Wyoming with a B.S. in
accounting in 1985, Mr. Williams has overseen or performed such services for
public companies, private companies, non-profits, and governments. Mr. Williams
has owned and operated his own accounting practice in Helena, Montana since
2001. Before starting his own practice, he held related positions in Laramie,
Wyoming. Mr. Williams was an administrative services director for the City of
Laramie for six years, from 1994 to 2000. He was also a manager at Simonsen
Mader Tschacher & Company, the second largest accounting firm in Wyoming,
from 1991 to 1994. Before that, Mr. Williams was a senior staff accountant at
McGladrey & Pullen from 1985 to 1991.
Dr. Solange Charas 55, Director
. Audit Committee Chair - Dr. Charas has more than 25 years of
institutional experience with public and private companies both as an employee
and a board member, particularly in the areas of corporate governance and human
capital. Dr. Charas has served on various Board committees including audit and
compensation committees. Dr. Charas has expertise in all areas of human capital
management for national and global organizations, specifically in post-merger
culture integration, aligning human capital performance to key economic
performance indicators, human capital analytics, project management, and
designing compensation plans. Dr. Charas serves as an adjunct professor for New
York Universitys School of Professional Studies, and she is currently CEO of
Charas Consulting, Inc., a boutique human resources consulting firm in New York
City, as well as the Chief Human Resources Officer and board advisor of Integral
Board Group, LLC. Dr. Charas also serves on the Advisory Board of Rutgers University for the BigData@Rutgers program. Her past experiences include Chief Human Capital Officer for
Praetorian Financial Group (now QBE), Senior Vice President of Human Resources for Benfield (now Aon) National Director at Arthur Andersen,
Senior Manager at Ernst & Young, Manager of International Corporate
Compensation for GE Capital Co. Dr. Charas holds a Ph.D. in Management from Case
Western Reserve University, an MBA in Accounting and Finance from Cornell
University, and a B.A. in International Political Economy from UC Berkeley.
Involvement in Certain
Legal Proceedings
To our knowledge, during
the past ten years, no present director or executive officer of our Company: (1)
filed a petition under the federal bankruptcy laws or any state insolvency law,
nor had a receiver, fiscal agent, or similar officer appointed by a court for
the business or present of such a person, or any partnership in which he was a
general partner at or within two years before the time of such filing, or any
corporation or business association of which he was an executive officer within
two years before the time of such filing; (2) was convicted in a criminal
proceeding or named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses); (3) was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from or
otherwise limiting the following activities: (i) acting as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant, associated person of any
of the foregoing, or as an investment advisor, underwriter, broker or dealer in
securities, or as an affiliated person, director of any investment Company, or
engaging in or continuing any conduct or practice in connection with such
activity; (ii) engaging in any type of business practice; (iii) engaging in any
activity in connection with the purchase or sale of any security or commodity or
in connection with any violation of federal or state securities laws or federal
commodity laws; (4) was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described above under this Item, or to be
associated with persons engaged in any such activity; (5) was found by a court
of competent jurisdiction in a civil action or by the Securities and Exchange
Commission to have violated any federal or state securities law and the judgment
was not subsequently reversed, suspended or vacated; (6) was found by a court of
competent jurisdiction in a civil action or by the Commodity Futures Trading
Commission to have violated any federal commodities law, and the judgment in
such civil action or finding by the Commodity Futures Trading Commission has not
been subsequently reversed, suspended or vacated.
53
Table of Contents
Involvement in Certain
Legal Proceedings
To our knowledge, during
the past ten years, no present director or executive officer of our Company: (1)
filed a petition under the federal bankruptcy laws or any state insolvency law,
nor had a receiver, fiscal agent, or similar officer appointed by a court for
the business or present of such a person, or any partnership in which he was a
general partner at or within two years before the time of such filing, or any
corporation or business association of which he was an executive officer within
two years before the time of such filing; (2) was convicted in a criminal
proceeding or named subject of a pending criminal proceeding (excluding traffic
violations and other minor offenses); (3) was the subject of any order, judgment
or decree, not subsequently reversed, suspended or vacated, of any court of
competent jurisdiction, permanently or temporarily enjoining him from or
otherwise limiting the following activities: (i) acting as a futures commission
merchant, introducing broker, commodity trading advisor, commodity pool
operator, floor broker, leverage transaction merchant, associated person of any
of the foregoing, or as an investment advisor, underwriter, broker or dealer in
securities, or as an affiliated person, director of any investment Company, or
engaging in or continuing any conduct or practice in connection with such
activity; (ii) engaging in any type of business practice; (iii) engaging in any
activity in connection with the purchase or sale of any security or commodity or
in connection with any violation of federal or state securities laws or federal
commodity laws; (4) was the subject of any order, judgment or decree, not
subsequently reversed, suspended or vacated, of any federal or state authority
barring, suspending or otherwise limiting for more than 60 days the right of
such person to engage in any activity described above under this Item, or to be
associated with persons engaged in any such activity; (5) was found by a court
of competent jurisdiction in a civil action or by the Securities and Exchange
Commission to have violated any federal or state securities law and the judgment
was not subsequently reversed, suspended or vacated; (6) was found by a court of
competent jurisdiction in a civil action or by the Commodity Futures Trading
Commission to have violated any federal commodities law, and the judgment in
such civil action or finding by the Commodity Futures Trading Commission has not
been subsequently reversed, suspended or vacated.
Section 16(a) Beneficial
Ownership Reporting Compliance.
Section 16(a) of the Securities Exchange Act of 1934, as amended
(the Exchange Act), requires the Company's executive officers, directors, and persons beneficially owning more than
10% of any class of voting securities (significant holders) to file initial reports of beneficial ownership and changes
in beneficial ownership with the SEC. Based solely on our review of Forms 3, 4, and 5 furnished to us and on written representations
from certain reporting persons, we believe that the directors, executive officers, and our significant holders have complied in
a timely manner with all applicable filing requirements for the fiscal year ended December 31, 2016.
On February 14, 2017,
Allan Holms claimed to have purchased approximately 13 million shares of the Companys Common Stock from his half-brother, Val
M. Holms, in August 2016 and another 13 million shares in December 2016. The Company disputes the validity of such transactions,
but if these transactions were valid, there have not been any Forms 3, 4, or 5 filed by either Allan Holms or Val M. Holms relating
to any of these alleged transactions.
Limitation of Liability
of Directors
Pursuant to the Nevada
General Corporation Law, our Articles of Incorporation exclude personal
liability for our Directors for monetary damages based upon any violation of
their fiduciary duties as Directors, except as to liability for any breach of
the duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or any transaction from
which a Director receives an improper personal benefit. This exclusion of
liability does not limit any right which a Director may have to be indemnified
and does not affect any Directors liability under federal or applicable state
securities laws. We have agreed to indemnify our directors against expenses,
judgments, and amounts paid in settlement in connection with any claim against a
Director if he acted in good faith and in a manner he believed to be in our best
interests.
Election of Directors
and Officers
Directors are elected to
serve until the next annual meeting of stockholders and until their successors
have been elected and qualified. Officers are appointed to serve until the
meeting of the Board of Directors following the next annual meeting of
stockholders and until their successors have been elected and
qualified.
No executive officer or
director of the Company has been the subject of any Order, Judgment, or Decree
of any Court of competent jurisdiction, or any regulatory agency permanently or
temporarily enjoining, barring suspending or otherwise limiting him from acting
as an investment advisor, underwriter, broker or dealer in the securities
industry, or as an affiliated person, director or employee of an investment
company, bank, savings and loan association, or insurance company or from
engaging in or continuing any conduct or practice in connection with any such
activity or in connection with the purchase or sale of any
securities.
No executive officer or
director of the Company has been convicted in any criminal proceeding (excluding
traffic violations) or is the subject of a criminal proceeding which is
currently pending.
Except as set forth under
Item 3 of this report, no executive officer or director of the Company is the
subject of any pending legal proceedings.
Our Board of Directors amended the Companys bylaws, which we disclosed in a Current Report on Form 8-K filed with the Commission
on February 9, 2016. The amendments, among other things, permitted the board to stagger itself such that director terms would
not all expire at the same time, and the Board retains sole authority with respect to making future amendments to our bylaws.
54
Table of Contents
Audit Committee and
Financial Expert
We created an Audit
Committee in December 2014. The Audit Committee charter identifies five key
purposes: oversee the integrity of the Companys financial statement; overseeing
the Companys compliance with legal and regulatory requirements; overseeing the
registered public accounting firms qualifications and independence; overseeing
the performance of the Companys independent auditor and internal audit
function; and overseeing the Companys system of disclosure controls and
procedures. Solange Charas was named chair of the Audit Committee in
2015.
Solange Charas and Douglas
Williams are deemed to be financial experts.
Board of Director
Stipends
Like most publicly traded
companies, the Company pays its independent directors an annual cash stipend that did not in 2016 include equity compensation. Each
independent director receives a base stipend. In addition, directors serving on
a board committee receive an additional cash stipend. The Company has developed and
maintains a board stipend policy. The intent of the policy is to ensure that the
Company has diverse and qualified directors serving its shareholders. Our
directors devote significant time and effort to the Company which includes
travel time, court proceedings, and committee and board meetings.
Code of Business Conduct
and Ethics
A code of ethics relates to
written standards that are reasonably designed to deter wrongdoing and to
promote:
|
(1)
|
Honest and ethical
conduct, including the ethical handling of actual or apparent conflicts of
interest between personal and professional relationships;
|
|
|
|
(2)
|
Full, fair, accurate,
timely and understandable disclosure in reports and documents that are
filed with, or submitted to, the Commission and in other public
communications made by an issuer;
|
|
|
|
(3)
|
Compliance with
applicable governmental laws, rules and regulations;
|
|
|
|
(4)
|
The prompt internal
reporting of violations of the code to an appropriate person or persons
identified in the code; and
|
|
|
|
(5)
|
Accountability for
adherence to the code.
|
We have adopted a corporate
code of ethics that applies to our principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar functions.
Nominating
Committee
We do not have a Nominating
Committee or Nominating Committee Charter. Our board of directors perform some
of the functions associated with a Nominating Committee.
55
Table of Contents
ITEM 11. EXECUTIVE
COMPENSATION
Summary Compensation
Table
The table below sets forth
the aggregate annual and long-term compensation paid by us for the fiscal years
ended December 31, 2016 and 2015, to our Chief Executive Officer and Chief
Financial Officer. Other than as set forth below, no executive officers salary
and bonus exceeded $100,000 for the fiscal years 2016 or 2015.
|
|
|
|
|
|
|
Change in
|
|
|
|
|
|
|
|
|
|
Pension
|
|
|
|
|
|
|
|
|
|
Value and
|
|
|
|
|
|
|
|
|
|
Nonqualified
|
|
|
|
|
|
|
|
|
Non-Equity
|
Deferred
|
|
|
Name and
|
|
|
|
Stock
|
Option
|
Incentive Plan
|
Compensation
|
All other
|
|
Principal
|
|
Salary
|
Bonus
|
Awards
|
Awards
|
Compensation
|
Earnings
|
Compensation
|
Total
|
Position
|
Year
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
($)
|
Val M. Holms
|
|
|
|
|
|
|
|
|
|
Pres, CEO, &
|
|
|
|
|
|
|
|
|
|
Director
|
2016
|
75,000
(1)
|
0
|
0
|
0
|
0
|
-
|
0
|
75,000
|
Dan Anderson,
|
|
|
|
|
|
|
|
|
|
CFO
& Director
|
2016
|
|
|
|
|
|
|
189,566
|
189,566
|
Val M. Holms
|
|
|
|
|
|
|
|
|
|
Pres, CEO, &
|
|
|
|
|
|
|
|
|
|
Director
|
2015
|
185,000
|
0
|
0
|
0
|
0
|
-
|
0
|
185,000
|
Dan Anderson,
|
|
|
|
|
|
|
|
|
|
CFO
& Director
|
2015
|
|
|
|
|
|
|
178,097
|
178,097
|
(1)
|
This amount reflects the base salary for this position but is also subject to the provisions of Mr. Val Holms' Leave of Absence Agreement (LOAA) executed in March 2015. This amount was escrowed in 2016 following notice in November 2015 to Mr. Holms of his breaches to the LOAA. Following Mr. Holms' termination in May 2016, no further amounts were paid to Mr. Holms either directly or into escrow
|
Narrative Disclosure to
Summary Compensation Table
Mr. Val M. Holms, President
and CEO of the Company was appointed to his executive position on December 1,
2010. Mr. Holms' annual salary of $180,000 was agreed to be paid by the Company
pursuant to his Employment Agreement entered into on February 1, 2011. In
January 2013, the Board authorized the extension of Mr. Holms Employment
Agreement. Mr. Holms employment was terminated in May 2016.
Mr. Dan Anderson is the
Chief Financial Officer and a director. Mr. Anderson is and has been an
independent contractor since being engaged in May 2014. The amounts indicated in the table above for services of Dan Anderson were paid to CFO Solutions, Inc., which is discussed
further under item 13 of this report.
Outstanding Equity
Awards at Fiscal Year End
There have been no options
awards or equity awards given to any executive officers of BRI since inception
on June 6, 2008, through the fiscal year ended December 31, 2016.
ITEM 12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
The following table
presents information about the beneficial ownership of our common stock on
June 1, 2017, held by our directors and executive officers and by those
persons known to beneficially own more than 5% of our capital stock. The
percentage of beneficial ownership for the following table is based on
56,735,350 shares of common stock outstanding at April 15, 2017.
Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and does not necessarily indicate beneficial ownership for any other
purpose. Under these rules, beneficial ownership includes those shares of common
stock over which the stockholder has sole or shared voting or investment power.
It also includes (unless footnoted) shares of common stock that the stockholder
has a right to acquire within 60 days after June 1, 2017, through the
exercise of any option, warrant or other right. The percentage ownership of the
outstanding common stock, however, is based on the assumption, expressly
required by the rules of the Securities and Exchange Commission, that only the
person or entity whose ownership is being reported has converted options or
warrants into shares of our common stock.
56
Table of Contents
Beneficial Ownership of
Current Directors, Executive Officers and 5% Holders of the
Company
Name of Beneficial
Owner (1)
|
|
Type and Number of
Shares
|
|
Percent of Class of
Outstanding Shares (2)
|
Val
M. Holms Estate (3)
|
|
Common - 26,350,000
|
|
46.83%
|
Karen S. Midtlyng-
|
|
Common - 2,250,000
|
|
3.97%
|
Secretary, and Director
|
|
|
|
|
Herman R. Landeis - Director
|
|
Common - 250,000
|
|
*
|
Eagle Private Equity
|
|
Preferred - 600,000 (4)
|
|
100%
|
Bill M. Baber - Director
|
|
Common - 143,838
|
|
*
|
* Less than
1%
|
1.
|
As used in this
table, beneficial ownership means the sole or shared power to vote, or
to direct the voting of, a security, or the sole or shared investment
power with respect to a security (i.e., the power to dispose of, or to
direct the disposition of, a security). The address of each person is care
of the Company at 825 Great Northern Boulevard, Expedition Block, Suite
304, Helena, Montana 59601.
|
|
2.
|
Figures are rounded
to the nearest tenth of a percent.
|
|
3.
|
Val M. Holms passed away in December 2016. His brother, Allan Holms, has asserted his ownership over the Common Shares that
Val Holms previously owned and that are now held by the estate of Val M. Holms. The status of Allan Holms claim to ownership
of these Common Shares is in question, has not been recognized, and is yet to be finally adjudicated.
|
|
4.
|
Each of Eagle Private
Equitys Series A Preferred shares have voting power equivalent to 100
common shares, such that Eagle Private Equitys 600,000 shares of Series A Preferred have voting power equivalent to 60,000,000 shares of Common Stock.
|
Eagle Private Equity
controls a majority of the votes through preferred shares as disclosed in a
Current Report on Form 8-K filed
on July 26, 2016
.
ITEM 13. CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE.
On July 3, 2012 the Company
purchased a 17% working interest in an oil well located in Archer County, Texas
for $68,000 cash from Holms Energy Development Corp. (HEDC). HEDC is owned by
Val Holms, our former CEO. This transaction was reviewed by the Companys
independent directors and approved by our Board, with Mr. Holms recusing himself
from such Board vote.
Transactions With
Related Persons, Promoters, and Certain Control Persons
Our reporting threshold
under Item 404(3)(1) for fiscal year 2016 is $62,428.74, such that no
transaction or series of transactions during the last two completed fiscal years
for that amount or less triggers a reporting obligation under Item 404. We
do not have any parent companies to disclose under Item 404(d)(3) but make the
following disclosures listed below. All such disclosures are made in accordance
with our Related Person Transaction Policy, available on our website at
www.BakkenResourcesInc.com
, by
our appropriate independent directors in consultation with counsel.
|
a.
|
Dan
Anderson, our CFO, is not an employee of the Company. He provides services
through a private company under his control and ownership called CFO
Solutions, Inc. Mr. Andersons $189,566 compensation is paid to
CFO Solutions,
Inc. The audit committee has reviewed this situation under our Related
Person Transaction Policy. Had Mr. Anderson been a Company employee during
2016, his compensation would have been separately reportable as director
or executive compensation, rather than under Item 404 as a related person
transaction. As such, Mr. Andersons compensation would normally qualify
for Standing Pre-Approval for Certain Interested Transactions under
Section E of our Related Person Transaction Policy if Mr. Anderson were an
employee. Under the circumstances, and upon consultation with counsel, the
audit committee has concluded that Mr. Andersons indirect payment
structure presents no material issues and is fair to the Company. We do not believe the Company is
paying materially above market price or is otherwise exposed to any risk
of fraud or other issues resulting from its arraignment with CFO
Solutions, Inc.
|
|
|
|
|
b.
|
In connection with the Company's internal investigation, the Board of Directors determined, among other things, that our then-CEO Val M. Holms had an undisclosed material interest in a 2011 transaction and received a $200,000 kickback. In a September 27, 2011 Current Report on Form 8-K, the Company announced that it purchased mineral rights for $250,000 from seller Lincoln Green, Inc. in a transaction since referred to as the "Duck Lake" transaction. Lincoln Green then promptly transferred $200,000 to Holms Energy, LLC, which Mr. Holms controlled and owned outright. This transfer came to light in an unrelated review of certain matters by the Company in late 2014 and early 2015, prompting the Company to engage an independent outside investigator for the purpose of conducting an internal investigation. Mr. Holms then began an indefinite paid leave of absence pending completion of the internal investigation, which the Company announced in a Current Report on Form 8-K filed with the Commission on March 30, 2015. He indicated through counsel that the $200,000 transfer from Lincoln Green, Inc. to Holms Energy, LLC. was not an improper kickback, rather that it was repayment of long-standing a personal loan that Mr. Holms made to Lincoln Green, Inc.'s owner decades ago. The Board determined, however, that the $200,000 transfer in question was a kickback because Val M. Holms failed to provide credible evidence substantiating his claim regarding the bona fide nature of the $200,000 transfer in question. This determination, among others, prompted Mr. Holms' termination by the Board, which the Company announced in a Current Report on Form 8-K filed with the Commission on May 11, 2016. Mr. Holms' $200,000 transfer indirectly involved the Company because it traced back to Company funds used to purchase real property in the 2011 Duck Lake transaction. Following Mr. Holms' termination, the Company engaged forensic accountants to examine the period from 2011 through 2015, and such forensic accountants did not discover any additional kickback transactions during that period. In light of this, our Audit Committee and Board have adopted a Related Person Transaction policy along with certain procedures meant to detect similar conduct in advance and to respond appropriately.
|
57
Table of Contents
Promoters and Certain Control Persons
None.
Director
Independence
Our Board of Directors has
determined that four of our six directors are currently independent directors
as that term is defined in Rule 5605(a)(2
)
of the Marketplace Rules
of the National Association of Securities Dealers. We are not presently required
to have independent directors. If we ever become a listed issuer whose
securities are listed on a national securities exchange or on an automated
inter-dealer quotation system of a national securities association, which has
independent director requirements, we intend to comply with all applicable
requirements relating to director independence.
ITEM 14. PRINCIPAL
ACCOUNTING FEES AND SERVICES.
The aggregate fees billed
by our principal accountant for services rendered during the fiscal years ended
December 31, 2016 and 2015, are set forth in the table below:
|
|
Year ended
|
|
Year ended
|
Fee Category
|
|
December 31,
2016
|
|
December 31,
2015
|
Audit fees (1)
|
|
$
|
106,442
|
|
$
|
48,024
|
Audit-related fees (2)
|
|
|
0
|
|
|
|
Tax
fees (3)
|
|
|
|
|
|
|
All
other fees (4)
|
|
|
1,335
|
|
|
|
Total fees
|
|
$
|
107,777
|
|
$
|
45,024
|
(1)
|
Audit fees consists
of fees incurred for professional services rendered for the audit of
annual financial statements, for reviews of interim financial statements
included in our quarterly reports on Form 10-Q, and for services that are
normally provided in connection with statutory and regulatory filings or
engagements.
|
|
(2)
|
Audit-related fees
consists of fees billed for professional services that are reasonably
related to the performance of the audit or review of our financial
statements, but are not reported under Audit fees.
|
|
(3)
|
Tax fees consists
of fees billed for professional services relating to tax compliance, tax
advice and tax planning.
|
|
(4)
|
All other fees
consists of fees billed for all services other than the services mentioned in the paragraphs above.
|
Audit Committees
Pre-Approval Policies and Procedures
The Company formed an audit
committee in December 2014 to take over the responsibilities previously carried
out by the Board as a whole. The committee will pre-approve the engagement of our
principal independent accountants to provide audit and non-audit services.
Section 10A(i) of the Securities Exchange Act of 1934 prohibits our auditors
from performing audit services for us as well as any services not considered to
be audit services unless such services are pre-approved by the audit committee
or unless the services meet certain minimum standards.
PART
IV
ITEM 15. EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
a)
|
(1) Financial
Statements See Item 8 in Part II of this report.
|
|
|
(2) All other
financial statement schedules are omitted because the information required
to be set forth therein is not applicable or because that information is
in the financial statements or notes thereto.
|
|
|
(b)
|
(3) Exhibits specified by Item
601 of Regulation S-K.
|
58
Table of Contents
EXHIBIT INDEX
The following exhibit index
shows those exhibits filed with this report and those incorporated herein by
reference:
|
|
|
Incorporated
Herein by Reference
|
Exhibits
|
Description of Document
|
Filed
Herewith
|
Form
|
Exhibit
|
Filing Date
|
3.1
|
Articles of
Incorporation
|
|
S-1
|
3.1
|
02-26-09
|
3.2
|
Certificate of Designation
for preferred shares
|
|
8-K
|
3.1
|
05-10-16
|
3.3
|
Bylaws
|
|
8-K
|
3.1
|
02-16-16
|
4.1
|
Non-Qualified Stock Option
and Stock Appreciation Rights Plan adopted on June 10, 2008
|
|
S-1
|
10.3
|
02-26-09
|
4.2
|
Form of Registration Rights
Agreement 2010
|
|
10-K
|
4.3
|
04-15-11
|
4.3
|
Form of Warrant
2010
|
|
10-K
|
4.4
|
04-15-11
|
4.4
|
Form of Warrant 2011
(Convertible Bridge Loan)
|
|
8-K
|
10.1
|
05-25-11
|
4.5
|
Form of Convertible
Promissory Note 2011
|
|
8-K
|
10.2
|
05-25-11
|
10.1
|
Asset Purchase Agreement
with Holms Energy, LLC entered into on November 26, 2010
|
|
8-K
|
10.1
|
10-21-10
|
10.2
|
Asset Purchase Agreement
between Holms Energy, LLC and Evenette and Rocky Greenfield entered into
on November 12, 2010
|
|
8-K
|
10.2
|
10-21-10
|
10.3
|
Promissory note with Holms
Energy, LLC for $485,000 entered into on November 12, 2010
|
|
8-K
|
10.2
|
11-18-10
|
10.4
|
Office Lease beginning
December 1, 2010
|
|
10-K
|
10.6
|
04-15-11
|
10.5
|
Form of Common Stock and
Warrant Purchase Agreement 2010
|
|
10-K
|
10.7
|
04-15-11
|
10.6
|
Employment Agreement by and
between Bakken Resources, Inc. and David Deffinbaugh, dated effective as
of January 1, 2012
|
|
10-K
|
10.10
|
04-16-12
|
10.7
|
Employment Agreement by and
between Bakken Resources, Inc. and Val M. Holms, dated March 12,
2013
|
|
8-K
|
10.1
|
03-18-13
|
10.8
|
Employment Agreement by and
between Bakken Resources, Inc. and Karen Midtlyng, dated March 12,
2013
|
|
8-K
|
10.2
|
03-18-13
|
10.9
|
Form of Securities Purchase
Agreement, entered into by Bakken Resources, Inc. on February 4,
2011
|
|
8-K
|
10.1
|
02-09-11
|
10.10
|
Form of Securities Purchase
Agreement, entered into by Bakken Resources, Inc. on March 18,
2011
|
|
8-K
|
10.1
|
03-24-11
|
10.11
|
Oil and Gas Lease by and
between Rocky Greenfield and Evenette Greenfield, Trustees of the
Revocable Living Trust of Rocky Greenfield and Evenette Greenfield and
Empire Oil Company dated July 29, 2008
|
|
10-K
|
10.12
|
04-15-11
|
10.12
|
Oil and Gas Lease No.1 by
and between Rocky Greenfield and Evenette Greenfield, Trustees of the
Revocable Living Trust of Rocky Greenfield and Evenette Greenfield and
Empire Oil Company dated July 14, 2008
|
|
10-K
|
10.13
|
04-15-11
|
10.13
|
Amendment to Oil and Gas
Lease by and between The Rocky Greenfield and Evenette Greenfield
Revocable Living Trust, Rocky Greenfield and Evenette Greenfield, Trustees
and Oasis Petroleum North America, LLC dated September 18, 2009
|
|
10-K
|
10.14
|
04-15-11
|
10.14
|
Amendment and Ratification of Oil and Gas Lease by and between Evenette Greenfield and Rocky Greenfield and The
Armstrong Corporation, dated September 8, 2003.
|
|
10-K
|
10.15
|
04-15-11
|
10.15
|
Extension, Amendment and
Ratification of Oil and Gas Lease by and between Evenette Greenfield and
The Armstrong Corporation dated November 24, 2004
|
|
10-K
|
10.16
|
04-15-11
|
10.16
|
Oil and Gas Lease No.2 by
and between Rocky Greenfield and Evenette Greenfield, Trustees of the
Revocable Living Trust of Rocky Greenfield and Evenette Greenfield and
Empire Oil Company dated July 14, 2008
|
|
10-K
|
10.17
|
04-15-11
|
59
Table of Contents
10.17
|
Oil
and Gas Lease by and between Val Holms and Mari Holms, individually and as
Trustees of the Val Holms and Mari Holms Revocable Living Trust and Empire
Oil Company dated July 29, 2008
|
|
10-K
|
10.18
|
04-15-11
|
10.18
|
Oil
and Gas Lease by and between Val Holms and Mari Holms, individually and as
Trustees of the Val Holms and Mari Holms Revocable Living Trust and Empire
Oil Company dated July 14, 2008
|
|
10-K
|
10.19
|
04-15-11
|
10.19
|
Oil
and Gas Lease by and between Val Holms and Mari Holms, individually and as
Trustees of the Val Holms and Mari Holms Revocable Living Trust and The
Armstrong Corporation dated March 1, 2005
|
|
10-K
|
10.20
|
04-15-11
|
10.20
|
Oil
and Gas Lease by and between Val Holms and Mari Holms Revocable Living
Trust, Val Holms and Mari Holms Trustees and The Armstrong Corporation
dated September 9, 2003
|
|
10-K
|
10.21
|
04-15-11
|
10.21
|
Oil
and Gas Lease by and between Val Holms and Mari Holms, Trustees of the Val
Holms and Mari Holms Revocable Living Trust and the Armstrong Corporation
dated November 24, 2004
|
|
10-K
|
10.22
|
04-15-11
|
10.22
|
Oil
and Gas Lease by and between Val Holms and Mari Holms, individually and as
Trustees of the Val Holms and Mari Holms Revocable Living Trust and Empire
Oil Company dated July 14, 2008
|
|
10-K
|
10.23
|
04-15-11
|
10.23
|
Form
of Convertible Bridge Loan Agreement 2011
|
|
8-K
|
10.1
|
05-25-11
|
10.24
|
Mineral Property Sale and Purchase Agreement
Between John L. Reely, Lincoln Green, Inc. and Bakken Resources, Inc.
dated effective as of September 21, 2011
|
|
8-K
|
10.1
|
09-27-11
|
10.25
*
|
Purchase and Sale Agreement dated February 4,
2014
|
|
8-K
|
10.1
|
02-10-14
|
10.26
|
Indemnification Agreement with Oasis Petroleum,
Inc. dated January 23, 2014
|
|
10-Q
|
10.28
|
05-20-14
|
10.28
|
Mineral Property Lease Agreement with First
Amendment Between Bakken Resources, Inc. and Big Willow, LLLP, effective
as of July 2014
|
|
10-Q
|
99.1
|
11-19-14
|
10.29
|
Convertible Loan Credit Agreement dated May 6, 2016 Between Bakken Resources, Inc. and Eagle Private Equity, LLC (including Option to Convert or Put Loans)
|
X
|
|
|
|
31.1
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Executive Officer
|
X
|
|
|
|
31.2
|
Rule
13a-14(a)/15d-14(a) Certification of Chief Financial Officer
|
X
|
|
|
|
32.1
|
Section 1350 Certification of Chief Financial
Officer and principal executive officer
|
X
|
|
|
|
99.1
|
Audit Committee Charter
|
X
|
|
|
|
EX-101.INS
|
XBRL Instance Document
|
X
|
|
|
|
EX-101.SCH
|
XBRL Taxonomy Extension Schema
|
X
|
|
|
|
EX-101.PRE
|
XBRL Taxonomy Extension Presentation
Linkbase
|
X
|
|
|
|
EX-101.LAB
|
XBRL Taxonomy Extension Label
Linkbase
|
X
|
|
|
|
EX-101.CAL
|
XBRL Taxonomy Extension Calculation
Linkbase
|
X
|
|
|
|
EX-101.DEF
|
XBRL Taxonomy Extension Definition
Linkbase
|
X
|
|
|
|
* Exhibit 10.25 is subject
to SECs confidential treatment order dated March 24, 2014.
60
Table of Contents
SIGNATURES
In accordance with Section
13 or 15(d) of the Exchange Act of 1934, as amended, the registrant caused this
Annual Report on Form 10-K to be signed on its behalf by the undersigned,
thereunto duly authorized, in Helena, MT on this 20
th
day of June, 2017.
|
|
BAKKEN RESOURCES,
INC.
|
|
|
|
Date: June 20, 2017
|
By:
|
/s/ Dan Anderson
|
|
|
|
|
|
|
|
(principal executive officer)
|
In accordance with Section
13 or 15(d) of the Exchange Act of 1934, as amended, this Annual Report on Form
10-K has been signed below by the following persons on behalf of the registrant
in the capacities indicated below on this 20
th
day of June, 2017.
|
Date: June 20, 2017
|
By:
|
/s/
Dan
Anderson
|
|
|
|
Dan
Anderson
|
|
|
|
Chief Financial Officer and Director
|
|
|
|
Date: June 20, 2017
|
By:
|
/
s/
Karen
Midtlyng
|
|
|
|
Karen Midtlyng
|
|
|
|
Secretary and Director
|
|
|
|
Date: June 20, 2017
|
By:
|
/
s/
Bill M.
Baber
|
|
|
|
Bill
M. Baber
|
|
|
|
Director
|
|
|
|
Date: June 20, 2017
|
By:
|
/
s/
Herman R.
Landeis
|
|
|
|
Herman R. Landeis
|
|
|
|
Director
|
|
|
|
Date: June 20, 2017
|
By:
|
/
s/
Solange
Charas
|
|
|
|
Solange Charas
|
|
|
|
Director and audit committee chair
|
|
|
|
Date: June 20, 2017
|
By:
|
/
s/
Douglas L.
Williams
|
|
|
|
Douglas L. Williams
|
|
|
|
Director and audit committee
member
|
61