Capital Expenditures
Participation Agreement to Explore and Develop Unconventional Gas and Brine
Materials in the Hugoton Gas Field- Effective April 4, 2022, pursuant to the
Participation Agreement, the Company acquired a 40% participation right in the
Farmout Agreement , with regards to oil, natural gas, helium and brine mineral
interests in the Hugoton Gas Field, located in Haskell and Finney counties,
Kansas.
The Farmout Agreement covers drilling and completion of up to 50 wells, with the
first exploratory well scheduled to begin in April 2022. The AMGAS JV will
utilize Scout's existing infrastructure assets including water disposal, gas
gathering and helium processing. The Farmout Agreement provides the JV with
rights to take in-kind and market its share of helium at the tailgate of Jayhawk
Gas Plant, which will enable the AMGAS JV to market and sell the helium produced
at prevailing market prices.
The AMGAS JV also acquired the right to all brine minerals subject to a ten
percent (10%) royalty to Scout, across Finney and Haskell Counties. Brine
minerals are harvested from the formation water produced from active, and to be
drilled, oil and gas wells and may include a variety of dissolved minerals
including bromine and iodine. The AMGAS JV plans to target brine with commercial
quantities of bromine and iodine. AMGAS is currently developing proprietary
technology to recover brine minerals, particularly with respect to bromine,
which is well underway and has demonstrated recovery efficiency and is expected
to be available for use in existing and future development wells.
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We will likely find it necessary to obtain new sources of debt and/or equity
capital to fund the exploration and development of the Properties and the
Hugoton Gas Field, as well as to satisfy our existing debt obligations. We can
provide no assurance that we will be able to obtain sufficient new debt/equity
capital to fund our planned development of the Properties or the Hugoton Gas
Field.
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Cash and cash equivalents balances-
As of December 31, 2021, we had cash and cash equivalents with an aggregate
balance of $260,590, an increase from a balance of $11,042 as of December 31,
2020. Summarized immediately below and discussed in more detail in the
subsequent subsections are the main elements of the $249,548 net increase in
cash during the year ended December 31, 2021:
? Operating $801,553 of net cash used in operating activities. Net cash used
activities: in operating activities was $801,553 and $196,618 for the years
ended December 31, 2021 and 2020, respectively, a deterioration of
$604,935. The deterioration was primarily the result of our
operating results for the year ended December 31, 2021 compared to
2020. The Company reported net income (loss) of $(1,603,761) for
the year ended December 31, 2021 compared to $5,623,707 for the
year ended December 31, 2020. We acquired the Properties in 2021
and have expended substantial amounts during 2021 on well
workovers and exploration/evaluation of potential noble gas
reserves on the Properties, which has contributed to the increased
usage of cash flow in operating activities.
PART II
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Contractual Obligations
USNG Letter Agreement - The Company is required to pay USNG a $8,000 monthly
cash fee beginning at the onset of commercial helium or minerals production and
sales, subject to certain thresholds. Such monthly fees will become due and
payable for any month that AMGAS receives cash receipts in excess of $25,000
derived from the sale of noble gases and/or rare earth elements/minerals. The
Company has not yet achieved the $25,000 cash receipts threshold, therefore
there has been no payment or accrual liability relative to this cash fee
provision as of December 31, 2021.
Participation Agreement to Explore and Develop Unconventional Gas and Brine
Materials in the Hugoton Gas Field - Effective April 4, 2022, pursuant to the
Participation Agreement, the Company acquired a 40% participation right in the
Farmout Agreement, with regards to oil, natural gas, helium and brine mineral
interests in the Hugoton Gas Field, located in Haskell and Finney Counties,
Kansas. The Farmout Agreement covers drilling and completion of up to 50 wells.
The AMGAS JV will utilize Scout's existing infrastructure assets, including
water disposal, gas gathering and helium processing. In addition, the Farmout
Agreement provides the AMGAS JV with rights to take in-kind and market its share
of helium at the tailgate of Jayhawk Gas Plant, located in Grant County, Kansas,
which will enable the AMGAS JV to market and sell the helium produced at
prevailing market prices. The first exploratory well is scheduled to commence in
April 2022 near Garden City, Kansas with a goal to evaluate the first of two
separate silty shale members of the Chase group of formations - the Gage Shale
and the Holmesville Shale. These two shale members have not previously been
targeted for exploration by historical operations in the field.
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