Overview
Norris Industries, Inc. (the "Company", "we", or "us") is an oil and natural gas
company that focuses on the acquisition, development, and exploration of crude
oil and natural gas properties in Texas. As of March 1, 2021 the SEC
Non-Escalated Analysis of Estimated Proved Reserve of our various leases in Jack
County and Palo-Pinto County, the Ratliff leases, the Marshall-Walden, and the
Bend Arch Lion 1A and Bend Arch Lion 1B leaseholds, is a total of 29 Mbbl in oil
net reserves, plus 150 MMcf in natural gas net reserves being out of total of
BOE equivalent of 54 Mbbl in gross reserves, which is down from prior year by
322 Mbbl due to reduction of expected production as result of well workover
issues.
The reserves associated with the report from Kurt Mire , PE have been classified
in accordance with the definitions of the Securities and Exchange Commission as
found in Part 210 - Form and Content of and Requirements for Financial
Statements, Securities Act of 1933, Securities Exchange Act of 1934, Public
Utility Holding Company Act of 1935, Investment Company Act of 1940, Investment
Advisers Act of 1940, and Energy Policy and Conservation Act of 1975, under
Rules of General Application § 210.4-10 Financial accounting and reporting for
oil and gas producing activities pursuant to the Federal securities laws and the
Energy Policy and Conservation Act of 1975.
The Company's longer term main objective is to actively focus on improving its
existing fields and to look for additional reserve oil and gas concessions and
production opportunities, aiming to participate with capital partners for a
transaction related to buyouts and joint ventures. The Company will continue to
conserve capital to be able to focus on smaller oil and natural gas properties
in West, Central West, East and South Texas, aiming to increase its revenues via
an acquisition. It also will try to improve the existing production revenues of
the Bend Arch Lion 1A, Bend Arch Lion 1B, Marshall Walden joint venture
property, which includes the purchase of the leases in Jack County and Palo
Pinto County, plus the Ratliff property via new entries, re-entries and EOR
methods as mentioned in the Operational Plan section above.
The Company ultimately plans to tap into the high potential leases of the West
Texas region of the United States, aiming to obtain reserves for future
development, so as to increase its overall oil and gas assets in the Permian
Basin. The Permian Basin is a sedimentary basin largely contained in the western
part of the U.S. state of Texas and the southeastern part of the U.S. state of
New Mexico. It reaches from just south of Lubbock, TX, to just south of Midland
and Odessa, TX, extending westward into the southeastern part of New Mexico. It
is so named because it has one of the world's thickest deposits of rocks from
the Permiangeologic period. The greater Permian Basin comprises several
component basins: of these, Midland Basin is the largest, Delaware Basin is the
second largest, and Marfa Basin is the smallest. The Permian Basin extends
beneath an area approximately 250 miles (400 km) wide and 300 miles (480 km)
long.
To achieve the Company's production objectives, our senior management team has
explored the opportunity to utilize new and existing technologies and plans to
start with 4 counties (Coleman, Gregg, Russ and Reeves) for the EOR business in
Texas. The Company plans to optimize its acquisition model by adding this
technology to increase existing mature productions without additional drilling
or fracking.
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Results of Operations
Revenues
The Company generated revenues of $280,160 from oil and gas production sales
during the year ended February 28, 2021, compared to $573,016 during the year
ended February 29, 2020. The decrease in oil and gas production sales was
primarily due to the temporary halt in field production and the dramatic
reduction in oil and gas prices obtained from buyers due to the decline in
demand as a result of the COVID-19 pandemic.
Because of the disruption to the oil and gas industry caused by the COVID-19
pandemic and measures taken to control the spread of disease, the Company
expects that there will also be a reduction in revenues for fiscal year 2022.
Lease Operating Expenses
Lease operating expenses for the years ended February 28, 2021 and February 29,
2020, were $552,713 and $731,760, respectively. We incurred less lease operating
expenses in 2020 primarily because of less business operations primarily as a
result of the impact to the oil and gas industry caused by the COVID-19 pandemic
described above.
Operating Expenses
Operating expenses for the years ended February 28, 2021 and February 29, 2020,
were $313,515 and $577,066, respectively. The decrease was primarily due to
management implementing cost controls to lower the general and administrative
expenses incurred by the Company.
Depletion and Accretion Expenses
For the years ended February 28, 2021 and February 29, 2020, the Company
recorded depletion and accretion expense of $235,001 and $771,837, respectively,
related to depletion of oil and gas properties and amortization of asset
retirement obligations.
Impairment Expense
For the years ended February 28, 2021 and February 29, 2020, the Company
recorded impairment of $196,197 and $1,319,444, respectively, related to ceiling
test write-down of its oil and gas properties.
Other Income (Expense)
For the years ended February 28, 2021 and February 29, 2020, the Company
recorded interest expense of $92,526 and $73,295, respectively. Higher interest
expense was incurred in 2021 due to additional debt issuances to related parties
in the current year.
Net Loss
Our operations resulted in a net loss in the amount of $1,109,792 for the year
ended February 28, 2021, compared to a net loss of $2,898,132 for the year ended
February 29, 2020. The decrease was primarily related to lower operating
expenses and impairment recognized during the current fiscal year.
Liquidity and Capital Resources
On February 28, 2021, the Company had cash of $160,631.
Net cash used in operating activities during the year ended February 28, 2021,
was $504,650, compared to cash used in operating activities of $551,515 for the
same period in 2020. The decrease was primarily related to slightly lower
expenses incurred in the current fiscal year.
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Net cash used in investing activities during year ended February 28, 2021, was
$-0-, compared to $273,359 cash used in investing activities for the same period
in 2020.
Net cash provided by financing activities during the year ended February 28,
2021, was $507,200, related to proceeds of $500,000 from the Company's line of
credit with JBB and proceeds of $7,200 from the exercise of stock options.
During the year ended February 29, 2020, cash provided by financing activities
was $857,200 related to proceeds from the Company's related party loans and from
issuance of stock.
The Company will require additional financing to support its operations and to
pursue its acquisition program. As of February 28, 2021, the Company had
availability of $100,000 on its existing credit line with JBB. If the Company
requires additional financing beyond what is available under its existing credit
line, it does not have any committed sources of financing at this time. If it is
unable to obtain financing, it will have to reduce or curtail its operations and
acquisition program. There is no assurance that it will be able to obtain
financing in the future, and even if financing is available, it may not be on
terms acceptable to the Company. On May 20, 2021, the Company entered into a new
funding agreement with a maturity date of May 31, 2022 and an interest rate of
five percent annual percentage rate (5% APR) with JBB for a further $1 million
drawable in $100,000 increments at the discretion of JBB to cover the Company's
current and projected working capital requirements in near-term.
To date, the funding during the past three fiscal years to support operations
and facilitate some acquisitions has been provided by the largest shareholder of
the Company. This individual does not have any legal obligation to continue to
provide funding to the Company. Yet the majority owner has indicated a
willingness, and provided some assurances, to selectively review and determine
added funding for certain low risk initiatives on those oil and gas wells in
which the Company has either a 100% or a majority working interest in order to
increase its existing production. Our majority shareholder expects, but is not
legally obligated, to provide funding for the Company's capital expenditure
program for fiscal year 2022. Such funding may be provided in the form of loans,
issuance of equity or other means.
The financial statements of the Company have been prepared on a going concern
basis. The Company will either have to increase its operating revenues to a
point to be able to cover its operating expenses or obtain funding from other
investors or lenders. There is no assurance that the Company will be able to
increase its revenues or obtain funding. The Company believes that it will
experience revenue disruption and declines as a result of the COVID-19 pandemic
and the government response thereto. If it is not able to do so, it will have to
curtail operations or cease operations. There is no assurance that the Company
will be able to continue its operations. In such instances, investors will
suffer a loss in the value of their investment in the Company.
Off-Balance Sheet Arrangements
As of February 28, 2021, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities
Act of 1934.
Critical Accounting Policies
Oil and Gas Properties, Full Cost Method
The Company follows the full cost method of accounting for its oil gas
properties, whereby all costs incurred in connection with the acquisition,
exploration for and development of petroleum and natural gas reserves are
capitalized. Such costs include lease acquisition, geological and geophysical
activities, rentals on non-producing leases, drilling, completing and equipping
of oil wells and administrative costs directly attributable to those activities
and asset retirement costs. Disposition of oil properties are accounted for as a
reduction of capitalized costs, with no gain or loss recognized unless such
adjustment would significantly alter the relationship between capital costs and
proved reserves of oil and gas, in which case the gain or loss is recognized in
the statement of operations.
Depletion and depreciation of proved oil properties will be calculated on the
units-of-production method based upon estimates of proved reserves. Such
calculations include the estimated future costs to develop proved reserves.
Costs of unproved properties are not included in the costs subject to depletion.
These costs are assessed periodically for impairment.
At the end of each quarter, the unamortized cost of oil and gas properties, net
of related deferred income taxes, is limited to the sum of the estimated future
after-tax net revenues from proved properties, after giving effect to cash flow
hedge positions, discounted at 10%, and the lower of cost or fair value of
unproved properties, adjusted for related income tax effects. Costs in excess of
the present value of estimated future net revenues are charged to impairment
expense. This limitation is known as the "ceiling test," and is based on SEC
rules for the full cost oil and gas accounting method.
The Company capitalizes pre-acquisition costs directly identifiable with
specific properties when the acquisition of such properties is probable.
Capitalized pre-acquisition costs are presented in the balance sheet.
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