Cautionary Notice Regarding Forward Looking Statements
The information contained in this report contains forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
may materially differ from those indicated in the forward-looking statements as
a result of certain risks and uncertainties set forth in this report. Although
the Company's management believes that the assumptions made and expectations
reflected in the forward-looking statements are reasonable, there is no
assurance that the underlying assumptions will, in fact, prove to be correct or
that actual results will not be different from expectations expressed in this
report.
This filing contains a number of forward-looking statements which reflect
management's current views and expectations with respect to our business,
strategies, products, future results and events, and financial performance. All
statements made in this filing other than statements of historical fact,
including statements addressing operating performance, events or developments
which management expects or anticipates will or may occur in the future, and
non-historical information are forward looking statements. In particular, the
words "believe," "expect," "intend," "anticipate," "estimate," "may," and
variations of those words and similar expressions identify forward-looking
statements. The foregoing are not the exclusive means of identifying forward
looking statements, and their absence does not mean that a statement is not
forward-looking. These forward-looking statements are subject to certain risks
and uncertainties. Our actual results, performance or achievements could differ
materially from historical results as well as those expressed in, anticipated,
or implied by these forward-looking statements.
Readers should not place undue reliance on these forward-looking statements,
which are based on management's current expectations and projections about
future events, are not guarantees of future performance, are subject to risks,
uncertainties and assumptions (including those described below), and apply only
as of the date of this filing. Factors which could cause or contribute to such
differences include, but are not limited to, the risks discussed in our Annual
Report on Form 10-K and in the press releases and other communications to
shareholders issued by us from time to time which attempt to advise interested
parties of the risks and factors which may affect our business. We undertake no
obligation to publicly update or revise any forward-looking statements, whether
as a result of new information, future events, or otherwise.
Overview
Norris Industries, Inc. ("NRIS" or the "Company") (formerly International
Western Petroleum, Inc.) was incorporated on February 19, 2014, as a Nevada
corporation and is headquartered in Weatherford, Texas. The Company was formed
to conduct operations in the oil and gas industry, and currently focuses on the
acquisition, development, and exploration of crude oil and natural gas
properties in Texas. On August 4, 2015, the Company acquired significant working
interests from the Bend Arch Lion 1A and the Bend Arch Lion 1B Joint Ventures in
Coleman County of Texas, encompassing a total production of 7 producing oil and
gas wells on a total of 380 acres out of 777-acre leaseholds showing proven
recoverable reserves of approximately 416.34 Mbbl and 317.45 MMcf as of March 1,
2015. We believe that the Bend Arch Lion 1A and 1B Joint Ventures are parts of
the total 777-acre leaseholds that have not been fully explored. In fiscal year
2018, the Company, together with its affiliated operator: International Western
Oil Corporation ("IWO"), has undertaken basic maintenance of the oil and gas
wells, with a total of 8 gross wells in production in the Midland, Texas, area.
The Company also manages the 45-acre Marshall Walden joint venture with 8
Woodbine Sand oil wells in Kilgore City, Texas, and acquired a 640-acre
leasehold with 3 oil wells (non-producing) from the multi-zone Ratliff property
in King County, thus setting a foothold in the Eastern Permian Basin of Texas.
The Company, in fiscal year 2018, also purchased producing oil and gas mineral
leases, in the Texas counties of Jack County and Palo-Pinto County in the North
Central Western part of Texas. The lease was for 20 oil & gas wells on 2,790
gross acres with majority working and operating interest with daily production
of 40+ barrels of oil equivalent ("BOE"). Currently, NRIS holds approximately
4,200 total gross acres in leaseholds in various areas of North Central Texas
region. The Company fulfilled it plans to acquire additional leaseholds with the
purchase in June 2019 of additional interest in the Marshall Walden oil and gas
property; as a result, the Company is now the 100% working interest ("WI") owner
and operator of that property.
The Company underwent a change of control in October 2017, when Patrick Norris,
and his affiliate JBB Partners ("JBB") acquired the majority of ownership of the
Company and provided loans and equity funding for the oil/gas mineral rights
purchases and covering the operational expenses of Company.
The Company will, from time to time, seek strategic investors and other funding
to help it develop additional exploration and acquisition projects located
within the Bend Arch-Fort Worth Basin and other prime acquisition targets in the
Central West, South and East Texas.
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Our Business Strategy
We are an Exploration and Production ("E&P") oil and natural gas company that
focuses on the acquisition, development, and exploration of crude oil and
natural gas properties in Texas. The Company's goal is to tap into the high
potential leases of the Central West Texas region of the United States, aiming
to unlock its potential, specifically in the prolific Bend Arch-Fort Worth
region. This area is approximately 120 miles long and 40 miles wide running from
Archer County, Texas in the north to Brown County, Texas in the south. The
Company is also looking at other acquisition opportunities in the Permian Basin,
West Texas, East Texas and South Texas regions.
Management believes that focusing on the development of existing small producing
fields is one of the key differentiators of the Company. Oil and natural gas
reserve development is a technologically oriented industry. Management believes
that the use of current technology has greatly increased the success rate of
finding commercial oil or natural gas deposits. In this context, success means
the ability to make an oil/gas well that produces a commercialized quantity of
hydrocarbons. In general, the Company expects to conduct 3D Seismic surveys to
determine more accurate drilling locations and drilling depths beside its
initial georadiometry technology application via its last 10 drilling projects.
For short-term cash flow enhancement, the Company plans to seek large-reserve
oil and gas properties with low production to acquire at the lowest cost
possible and then implement effective Enhanced Oil Recovery ("EOR") methods to
improve its current revenues and assets. For long-term cash flow enhancement,
the Company plans to identify larger and more mature production opportunities
while selecting capital and strategic operating partners to buyout via the
Company's strategic joint venture partnerships, thus significantly increasing
production via additional drilling and its EOR implementations.
Develop and Grow Our Hydrocarbon Resource Acreage Positions Using Outside
Development Expertise. We plan to seek and acquire niche assets in
hydrocarbon-rich resource plays to improve our asset quality and expand our
drilling inventory. We plan to apply the latest available EOR technologies to
economically develop our existing property portfolio in Central West and East
Texas in addition to any assets in other regions we might acquire. We operate
the majority of our acreage, thus giving us certain control over the planning of
capital expenditures, execution and cost reduction. Our operational plan allows
us to adjust our capital spending based on drilling results and the economic
environment. As a small producer, we regionally evaluate industry drilling
results to implement simple yet effective operating practices which may increase
our initial production rates, ultimate recovery factors and rate of return on
invested capital.
Acquire Small Producing Companies with Compelling Underlying Values. Our
operation strategy is to identify "niche" hydrocarbon land leases in Texas with
studies to develop reserves via drilling or re-entering existing low production
wells to increase production and enhance valuation of our production assets. We
also plan to position the Company by growing our management team with added
petroleum experts in the United States to partner up with other oil and gas
players once we have established our business to positive cash flow from our
existing presence in the Texas oil field markets.
Our Competitive Strengths
Management believes that we have a number of competitive strengths that will
allow us to successfully execute our business strategies. We have a simple
capital structure and de-risked inventory. We focus on shallow well explorations
(sub 5,000 feet), which is less expensive and lower risk factors. We are
focusing on leases with sub-300 barrels of oil per day ("bopd") with larger
hydrocarbon reserves, which tend to be under the radar of and less cost
effective for larger oil companies.
Technologies
Oil and natural gas reserve development is a technologically oriented industry.
Management believes that technological innovations have greatly increased the
success rate of finding commercial oil or natural gas deposits. In this context,
success rate means the ability to make an oil/gas well that can produce a
commercialized quantity of hydrocarbon. At NRIS, we focus on core basic field
EOR management practices and contract outside experts to provide us the
understanding of complex mineralogy in shale reservoirs to better determine
zones prone to fracture stimulation. This technology can suggest where to frack
by providing us with available data to deliver us a greater chance of success.
Our field engineers, geologists and petrophysicists work together for better
drilling decisions.
4
Sales Strategy
Our sales strategy in relation to spot pricing will be to produce less when the
sales price is lower and produce more when the sales price is higher. Also, we
will aim to have our inventory be as low as possible. Our E&P core team has
business relationships with BML, Transport Oil, and Lion Oil Trading &
Transportation, for oil sales and WTG Jameson for gas sales. The Company entered
into production agreements with BML, Lion Oil and WTG Jameson so that, as our
tier 1 buyer, they can handle pick-up and sales of our crude oil stock to
refineries and gas via local gas pipelines.
As such, crude oil will be picked up from our leases as needed during the
calendar month. At the end of the month the crude total sales will be tallied by
lease and the 30-day average of the daily closing of oil will be tabulated. On
or about the 25th of the following month the proceeds checks' will be issued to
the financial parties of record.
Operational Plans
During the fiscal year ended February 2019, the Company was in a period of
assessment and work-over of its existing wells as result of its acquisition of
the Jack County and Palo Pinto County oil and gas leases, completed on December
28, 2017. During the 2020 fiscal year, we are looking for, on a selective basis,
oil and gas reserve concessions with existing production. We intend to seek to
raise enough capital via equity or debt financing options to meet our
operational goals in fiscal year 2020, be this from our control owner, or other
third-party financing sources, including the capital markets. The Company is
still in the process of assessing the wells it acquired and is reviewing its
options to make improvements in the future to address the underperformance.
The Company has shifted its E&P plan on regional acquisition(s) to a focus in
the North Texas and Outside of the Permian Basin region. This region has been
producing oil continuously for nearly 100 years and the U.S. Geological Survey
("USGS") has recently announced that this region has the largest estimate of
continuous oil production that it has ever assessed. Our area of interest is
production locations in Texas but outside of the Texas Permian Basin market
where property prices are too high for a smaller player as a result of USGS
estimates that there are 20 billion barrels of undiscovered, technically
recoverable oil.
The Company has started a new, revised acquisition model which is based on a
concept that has been proven in the past to be an effective and successful path
of development for many other well- known E&P players:
a) a financed acquisition of mature smaller oil fields that have potential for
instituting EOR incremental production processes; and
b) develop strategic partnerships with existing operators to share production
increases garnered through the implementation of this EOR plan.
The Company also has plans to implement a cost-effective operating budget for
each exploration project associated with an acquisition project and each budget
will vary depending on the total depth of drilling and whether it is a new
drilling or a re-entry. For each project, the Company plans on hiring selected
operators to work under the close supervision of a core team of Company
geologists, engineers and scientists.
The exploration and production process is a two-phase process: 1) drilling and
testing and 2) well completion. The Company plans to hire drilling specialists
and technical consultants designated to oversee the drilling and reentering of
existing holes for each well during the drilling and testing phase. For the well
completion process, the Company plans to hire technical data collectors and
cementing operators to ensure the best performance upon perforating the wells at
different pay zones based on thorough technical advisory work done by our
internal and external production personnel and geologists before production.
Results of Operations
Comparison of the Three Months Ended November 30, 2019 with the Three Months
Ended November 30, 2018
Revenues
The Company generated revenues of $166,318 from oil and gas sales for the three
months ended November 30, 2019, compared to $136,561 for the three months ended
November 30, 2018. The increase in revenues mainly came from the production
shift to added crude oil production versus natural gas, since crude oil valued
more in dollar terms per barrel.
5
Operating Expenses
Operating expenses for the three months ended November 30, 2019 and 2018 were
$369,632 and $283,392, respectively. Our lease operating expenses increased and
were $168,202 for the three-month period ended November 30, 2019, compared to
$59,001 for the three-month period ended November 30, 2018, that was primarily
related to additional lease operating expenses incurred for costs paid for on
behalf of the other working interest owners of the Marshall Walden oil and gas
property in anticipation of acquiring their interest in the property, which was
completed during the current period. Our general and administrative expense
decreased to $135,198 for the three-month period ended November 30, 2019,
compared to $208,089 for the three-month period ended November 30, 2018,
primarily because of implemented cost cutting measures.
Depletion and Accretion Expenses
For the three months ended November 30, 2019 and 2018, the Company recorded
depletion and accretion expense of $66,232 and $16,302, respectively, related to
depletion of oil and gas properties and revision of asset retirement obligations
estimate. The increase was due to inclusion of recently acquired properties.
Other Income (Expense)
For the three months ended November 30, 2019 and 2018, the Company recorded
interest expense of $19,699 and $15,653, respectively, related to outstanding
debts.
Net Loss
We had a net loss in the amount of $223,013 for the three months ended November
30, 2019, compared to a net loss of $162,484 for the three months ended November
30, 2018. The increase in losses was primarily related to nearly the same
revenues but higher expenses incurred for the Marshall Walden oil and gas
properties as a result of additional lease operating expenses incurred that were
paid on behalf of the other working interest owners in anticipation of acquiring
their interest in the property, which was completed in the current period.
Comparison of the Nine Months Ended November 30, 2019 with the Nine Months Ended
November 30, 2018
Revenues
The Company generated revenues of $434,422 from oil and gas sales for the nine
months ended November 30, 2019, compared to $410,524 for the nine months ended
November 30, 2018. The slight increase in revenues mainly came from lower
production of gas and an increase in oil production from properties acquired,
since crude oil has a higher value per barrel equivalents than does natural gas
currently.
Operating Expenses
Operating expenses for the nine months ended November 30, 2019 and 2018 were
$1,233,452 and $945,197, respectively. Our lease operating expenses increased to
$566,142 for the nine-month period ended November 30, 2019, compared to $185,753
for the nine-month period ended November 30, 2018, that was primarily related to
additional lease operating expenses incurred for costs paid for on behalf of the
other working interest owners of the Marshall Walden oil and gas property in
anticipation of acquiring their interest in the property, which was completed
during the current period, as well as increased spending on other wells to
increase oil production. Our general and administrative expense decreased to
$520,931 for the nine-month period ended November 30, 2019, compared to $700,789
for the nine-month period ended November 30, 2018, primarily because of
implemented cost cutting measures.
Depletion and Accretion Expenses
For the nine months ended November 30, 2019 and 2018, the Company recorded
depletion and accretion expense of $146,379 and $58,655, respectively, related
to depletion of oil and gas properties and revision of asset retirement
obligations estimate as result of recent oil and gas property purchases.
6
Other Income (Expense)
For the nine months ended November 30, 2019 and 2018, the Company recorded
interest expense of $52,626 and $39,382, respectively, related to outstanding
debts. The Company also sold a piece of equipment during the current period
recognized a gain of $2,254 on the sale. No similar sale occurred during the
prior year period.
Net Loss
We had a net loss in the amount of $849,402 for the nine months ended November
30, 2019, compared to a net loss of $574,055 for the nine months ended November
30, 2018. The increase in losses was primarily related to nearly the same
revenues but higher expenses incurred for the Marshall Walden oil and gas
properties as a result of additional lease operating expenses incurred that were
paid on behalf of the other working interest owners in anticipation of acquiring
their interest in the property, plus spending on other wells to shift increase
oil versus gas production, which was completed in the current period.
Liquidity and Capital Resources
As of November 30, 2019, the Company had cash on-hand of $68,040.
Net cash used by operating activities during the nine months ended November 30,
2019, was $474,915, compared to cash used in operating activities of $292,666
for the same period in 2018. The increase was mainly related to us being unable
to increase production effectively after increased lease operating expenses and
other costs in the current period.
Net cash used by investing activities during the nine months ended November 30,
2019, was $240,000 primarily from the Company's investment in the
Marshall-Walden purchase and purchase of pumps and related oil field equipment,
compared to $0 cash used in investing activities for the same period in 2018.
Net cash provided by financing activities for nine months ended November 30,
2019, was $657,200, related to proceeds of $400,000 from the Company's line of
credit with JBB, proceeds from a $250,000 term loan from JBB for the
Marshall-Walden purchase, and proceeds of $7,200 from exercise of stock options.
During the nine months ended November 30, 2018, cash provided by financing
activities was $100,000 related to proceeds from the Company's line of credit
with JBB.
The Company will seek capital from sources other than its officers and
significant stockholders in the future, from time to time. There is no assurance
that it will be able to obtain financing of any amount or of any specific
nature. If obtained, the terms that third parties are likely to require will
include restrictive covenants and other obligations that will be difficult to
meet or may be too onerous for the Company to accept. Any financing accepted by
the Company may have a dilutive effect on the outstanding equity of the Company
and may restrict the payment of dividends.
The Company currently has a secured, convertible note dated December 28, 2017
("Loan Note"). The initial principle amount of the Loan Note was $1,550,000. The
Loan Note is issued to an affiliate of the Chief Executive Officer of the
Company, and the holder of the Loan Note is a controlling majority shareholder
of the Company. The Loan Note is secured by all the assets of the Company and is
convertible into shares of common stock of the Company at a rate of $0.20
(subject to adjustment for reverse and forward stock splits and similar capital
events). On June 26, 2018 and May 21, 2019, and October 1, 2019, the Company and
JBB entered into modifications of the Loan Note to extend the maturity date to
December 31, 2020, and to add provisions to permit the Company to obtain
advances under the Loan Note up to a maximum of $1,500,000. The Company may
request an advance in an amount of $100,000 no more frequently than every 30
days, provided that it provides a description of the use of proceeds for the
advance reasonably acceptable to JBB and the Company is not otherwise in default
of the Loan Note. The Company received advances under the line of credit of
$400,000 during the nine months ended November 30, 2019. The Loan Note may be
repaid at any time, without penalty, however, any advance that is repaid before
maturity may not be re-borrowed as a further advance. The existence of the Loan
Note and the related security interest and the fact that it is convertible into
a substantial amount the equity of the Company may limit the Company's ability
to obtain additional funds from third parties.
In addition, in June 2019, the Company entered into a separate promissory note
agreement with JBB for $250,000, with a maturity date of June 30, 2022 to
complete the purchase of the additional ownership in the Marshall-Walden oil and
gas property.
7
Off-Balance Sheet Arrangements
As of November 30, 2019, 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.
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