U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

 

FORM 10-KSB

 

[X]     Annual report under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

For the fiscal year ended December 31, 2002.

 

[  ]     Transition report under Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Commission File Number: 0-9435

 

FIELDPOINT PETROLEUM CORPORATION
(Name of Small Business Issuer in Its Charter)

 

 

               Colorado               
(State or Other Jurisdiction of
Incorporation or Organization)

       84-0811034       
(I.R.S. Employer
Identification No.)

 

1703 Edelweiss Drive
                  Cedar Park, Texas  78613                  
(Address of Principal Executive Offices)   (Zip Code)

 

                           (512) 250-8692                           
(Issuer's Telephone Number, Including Area Code)

 

Securities registered under Section 12(b) of the Exchange Act:
(None)

 

Securities registered under Section 12(g) of the Exchange Act:

 

Common Stock, $.01 Par Value
Title of Class

 

Check whether the issuer: (1) 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     X                 No            

 

Check if disclosure of delinquent filers in response to Item 405 of Regulation S-B is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [ X ]

 

The issuer's revenues for its most recent fiscal year were $2,402,300.

 

As of December 31, 2002, 7,580,175 shares of the Registrant's common stock par value $.01 per share, were outstanding.  The aggregate market value of the voting stock held by non-affiliates of the Registrant at March 31, 2001, was $4,169,366.

 

Documents Incorporated by Reference: The Registrant hereby incorporates herein by reference the following documents.

 

 

 

 

PART I
 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Form 10-KSB constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act and Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.  All statements, other than statements of historical facts, included in this Form 10-KSB that address activities, events or developments that FieldPoint Petroleum Corp. and its subsidiaries (collectively, the "Company") expects, projects, believes or anticipates will or may occur in the future, including such matters as oil and gas reserves, future drilling and operations, future production of oil and gas, future net cash flows, future capital expenditures and other such matters, are forward-looking statements.  Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements.  Such factors include, among others, the following:  the volatility of oil and gas prices, the Company's drilling and acquisition results, the Company's ability to replace reserves, the availability of capital resources, the reliance upon estimates of proved reserve, operating hazards and uninsured risks, competition, government regulation, the ability of the Company to implement its business strategy and other factors referenced in this Form 10-KSB. 

 

ITEM 1- BUSINESS

 

General

 

FieldPoint Petroleum Corporation, a Colorado corporation (the "Company"), was formed on March 11, 1980, to acquire and enhance mature oil and natural gas field production in the mid-continent and the Rocky Mountain regions. Since 1980, the Company had engaged in oil and gas operations and, in 1986, divested all oil and gas assets and operations. From December 1986, until its reverse acquisition on December 31, 1997, The Company had not engaged in oil and gas operations.

 

Reverse Acquisition - On December 22, 1997, The Company entered into an Agreement with Bass Petroleum, Inc., a Texas corporation ("BPI"), pursuant to which, on December 31, 1997, the Company acquired from the shareholders of BPI an aggregate of 8,655,625 shares of capital stock of BPI, in exchange for the issuance of 4,000,000 unregistered shares of the Company's common stock.  The transaction was treated, for accounting purposes, as an acquisition of FieldPoint Petroleum Corporation by Bass Petroleum, Inc. On December 31,1997, the Company changed its name from Energy Production Company to FieldPoint Petroleum Corporation. 

 

Business Strategy

 

The Company's business strategy is to continue to expand its reserve base and increase production and cash flow through the acquisition of producing oil and gas properties.  Such acquisitions will be based on an analysis of the properties' current cash flow and the Company's ability to profit from the acquisition.  The Company's ideal acquisition will include not only oil and gas production, but also leasehold and other working interest in exploration areas.

 

The Company will also seek to identify promising areas for the exploration of oil and gas through the use of outside consultants and the expertise of the Company.  This identification will include collecting and analyzing geological and geophysical data for exploration areas.  Once promising properties are identified, the Company will attempt to acquire the properties either for drilling oil and natural gas wells, using independent contractors for drilling operations, or for sale to third parties.

 

The Company recognizes that the ability to implement its business strategies is largely dependent on the ability to raise additional debt or equity capital to fund future acquisition, exploration, drilling and development activities.  The Company's capital resources are discussed more thoroughly in Part II, Item 6, in Management's Discussion and Analysis.

 

Operations

 

As of December 31, 2002, the Company had varying ownership interest in 338 gross productive wells (89.77 net) located in 3 states.  The Company operates 59 of the 353 wells; the other wells are operated by independent operators under contracts that are standard in the industry. It is a primary objective of the Company to operate most of the oil and gas properties in which it has an economic interest.  The Company believes, with the responsibility and authority as operator, it is in a better position to control cost, safety, and timeliness of work as well as other critical factors affecting the economics of a well.

 

Market for Oil and Gas

 

The demand for oil and gas is dependent upon a number of factors, including the availability of other domestic production, crude oil imports, the proximity and size of oil and gas pipelines in general, other transportation facilities, the marketing of competitive fuels, and general fluctuations in the supply and demand for oil and gas.  The Company intends to sell all of its production to traditional industry purchasers, such as pipeline and crude oil companies, who have facilities to transport the oil and gas from the wellsite.

 

Competition

 

The oil and gas industry is highly competitive in all aspects.  The Company will be competing with major oil companies, numerous independent oil and gas producers, individual proprietors, and investment programs.  Many of these competitors possess financial and personnel resources substantially in excess of those which are available to the Company and may, therefore, be able to pay greater amounts for desirable leases and define, evaluate, bid for and purchase a greater number of potential producing prospects that the Company's own resources permit.  The Company's ability to generate resources will depend not only on its ability to develop existing properties but also on its ability to identify and acquire proven and unproven acreage and prospects for further exploration.

 

Environmental Matters and Government Regulations

 

The Company's operations are subject to numerous federal, state and local laws and regulations controlling the discharge of materials into the environment or otherwise relating to the protection of the environment.  Such matters have not had a material effect on operations of the Company to date, but the Company cannot predict whether such matters will have any material effect on its capital expenditures, earnings or competitive position in the future.

 

The production and sale of crude oil and natural gas are currently subject to extensive regulations of both federal and state authorities.  At the federal level, there are price regulations, windfall profits tax, and income tax laws.  At the state level, there are severance taxes, proration of production, spacing of wells, prevention and clean-up of pollution and permits to drill and produce oil and gas.  Although compliance with their laws and regulations has not had a material adverse effect on the Company's operations, the Company cannot predict whether its future operations will be adversely effected thereby.

 

 

 

Operational Hazards and Insurance

 

The Company's operations are subject to the usual hazards incident to the drilling and production of oil and gas, such as blowouts, cratering, explosions, uncontrollable flows of oil, gas or well fluids, fires, pollution, releases of toxic gas and other environmental hazards and risks.  These hazards can cause personal injury and loss of life, severe damage to and destruction of property and equipment, pollution or environmental damage and suspension of operations.

 

The Company maintains insurance of various types to cover its operations.  The Company's insurance does not cover every potential risk associated with the drilling and production of oil and gas.  In particular, coverage is not obtainable for certain types of environmental hazards.  The occurrence of a significant adverse event, the risks of which are not fully covered by insurance, could have a material adverse effect on the Company's financial condition and results of operations.  Moreover, no assurance can be given that the Company will be able to maintain adequate insurance in the future at rates it considers reasonable.

 

Administration

 

Office Facilities- The office space for the Company's executive offices at 1703 Edelweiss Drive, Cedar Park, Texas 78613, is currently provided by the majority shareholder at a cost of $1,500 per month as of December 31, 2002.

 

Employees- As of March 31, 2003, the Company had 4 employees, the Company considers its relationship with its employees satisfactory.

 

ITEM 2-PROPERTIES

 

Principal Oil and Gas Interest

 

Chickasha Field, Grady County Oklahoma is a waterflood project producing from the Medrano Sand. The Rush Springs Medrano Unit is located approximately sixty five miles southwest of Oklahoma City, Oklahoma. The Company has a 20.64% working interest in the unit which consist of 21 producing oil and gas wells and 11 water injection wells.

 

Hutt Wilcox Field, McMullen and Atascosa County Texas is an oil and gas field located approximately 60 miles south of San Antonio, Texas producing from the Wilcox sand. The Company has a working interest in 14 oil wells.

   

West Allen Field, Pontotoc County Oklahoma is a producing oil and gas field located approximately 100 miles south of Oklahoma City, Oklahoma. The Company has a working interest in 52 leases or a total of 225 wells, the leases have multiple wellbores and the Company has plans to participate in the future recompletion of behind pipe zones.

 

Giddings Field, Fayette County Texas is in the prolific Austin Chalk field located in various counties surrounding the city of Giddings, Texas. In February 1998, the company acquired a 97% working interest in the Shade lease. The lease currently has 3 producing oil and gas wells with a daily production rate of approximately 120 Mcfe net to the Company. Oil and Gas are produced from the Austin chalk formation; the Company will evaluate whether additional reserves can be developed by use of horizontal well technology.

 

Big Muddy Field, Converse County Wyoming is a producing oilfield located approximately thirty miles south of Casper, Wyoming.  FieldPoint Petroleum owns a 100% working interest in the Elkhorn and J.C. Kinney lease which consists of 3 oil wells producing out of the Wallcreek and Dakota formations at depths ranging from approximately 3,200 feet to approximately 4,000 feet.

 

Serbin Field, Lee and Bastrop Counties Texas is an oil and gas field located approximately 50 miles east of Austin and 100 miles west of Houston.  The Company has a working interest in 72 producing oil and gas wells with a production rate for 2002 of approximately 45 barrels of oil equivalent ("BOE") net to the Company.  Oil and gas are produced from the Taylor Sand at depths ranging from approximately 5,300 feet to approximately 5,600 feet; it is a 46-gravity oil sand.

 

Production

 

The table below sets forth oil and gas production from the Company's net interest in producing properties for each of its last two fiscal years.

 

 

Oil and Gas Production

 

 

 

 

Quantities

2002

2001

 

Oil (Bbls)

90,825

84,046

 

Gas (Mcf)

108,990

114,123

 

 

 

 

Average Sales Price

 

 

 

Oil ($/Bbl)

$22.62

$23.20

 

Gas ($/Mcf)

$2.00

$3.76

 

 

 

 

Average Production Cost ($/BOE)

$12.02

$8.86

 

The Company's oil and gas production is sold on the spot market and the Company does not have any production that is subject to firm commitment contracts.  During the year ended December 31, 2002, purchases by each of three customers, Dorado Oil Company, Plains Petroleum, and Pontotoc Production, Inc. represented more than 10% of the total Company revenues.  Neither of these three customers, or any other customers of the Company, has a firm sales agreement with the Company.  The Company believes that it would be able to locate alternate customers in the event of the loss of one or all of these customers.  

 

Productive Wells

 

The table below sets forth certain information regarding the Company's ownership, as of December 31, 2002, of productive wells in the areas indicated.

 

Productive Wells

 

 

 

 

 

 

Oil

Gas

State

Gross1

Net2

Gross1

Net2

Oklahoma

209

47.23

37

4.59

Texas

82

31.15

7

3.8

Wyoming

    3

     3

     -

    -

         Total

294

81.38

44

8.39

 

Drilling Activity

 

The Company drilled no wells in 2001and 2002

 

Reserves

 

Please refer to unaudited Note 12 in the accompanying audited financial statements for a summary of the Company's reserves at December 31, 2002 and 2001.

 

Acreage

 

The following tables set forth the gross and net acres of developed and undeveloped oil and gas leases in which the Company had working interest and royalty interest as of December 31, 2002.  The category of  "Undeveloped Acreage" in the table includes leasehold interest that already may have been classified as containing proved undeveloped reserves.

 

 

Developed1

Undeveloped2

State

Gross3

Net4

Gross3

Net4

Oklahoma

    8906

    1175

      200

         19

Texas

       2120

     547

1360

1000

Wyoming

         200

    200

  2000

  2000

       Total

      11226

    1922

       1960

       1419

 

ITEM 3-LEGAL PROCEEDINGS

 

None.

 

ITEM 4-SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

 

None.

 

PART II

 

 

 

 

 

ITEM 5-MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

 

The Company's Common Stock is traded in the over-the-counter market and listed on the Bulletin Board under the symbol "FPPC." The following quotations, where quotes were available, reflect inter-dealer prices, without retail mark-up, markdown or commission and may not necessarily represent actual transactions.

 

 

FISCAL 2001

CLOSING BID

 

 

 

 

 

 

HIGH

LOW

 

First Quarter

2.2500

1.3400

 

Second Quarter

2.0900

1.6500

 

Third Quarter

2.2800

1.4300

 

Fourth Quarter

2.1000

1.1400

 

 

 

 

 

FISCAL 2002

 

 

 

 

HIGH

LOW

 

First Quarter

1.6500

.8000

 

Second Quarter

.9000

.4000

 

Third Quarter

.7500

.2500

 

Fourth Quarter

.7500

.1600

 

At March 31, 2002, the approximate number of shareholders of record was 1,150.  The Company has not paid any dividends on its Common Stock and does not expect to do so in the foreseeable future.

 

Recent Sales of Unregistered Securities

 

During the fiscal year ended December 31, 2002, the Company issued no securities without registration under the Securities Act of 1933, as amended.

 

During the year ended December 31, 2001 the Company issued 357,350 shares of Common Stock upon the exercise of warrants associated with the W.B. McKee Securities Unit offering.

 

As to the issuance of securities identified above, the Company relied upon Section 4(2) of the Securities Act in claiming exemption from the registered requirement of the Securities Act.  All the persons to whom the securities were issued had full information concerning the business and affairs of the Company and acquired the shares for investment purposes.  Certificates representing the securities issued bear a restrictive legend prohibiting transfer of the securities except in compliance with applicable securities laws.

 


EQUITY COMPENSATION PLAN INFORMATION

 

 







Number of
securities to be
issued upon
exercise of
outstanding options, warrants and rights
(a)







Weighted average exercise price of outstanding options, warrants and rights
(b)

Number of securities remaining available for future issuances under equity compensation plans (excluding securities reflected in column (a))
(c)

 

 

 

 

Equity compensation plans approved by
     security holders

 

 

 

Equity compensation plans not approved
     by security holders(1)

420,000

$1.36

420,000

               Total

420,000

$1.36

420,000

 

(1)    Includes nonqualified options granted to outside directors.

 

ITEM 6-MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

 

The following discussion should be read in conjunction with the Company's Financial Statements, and respective notes thereto, included elsewhere herein.  The information below should not be construed to imply that the results discussed herein will necessarily continue into the future or that any conclusion reached herein will necessarily be indicative of actual operating results in the future.  Such discussion represents only the best present assessment of the management of FieldPoint Petroleum Corporation.

 

Overview

 

FieldPoint Petroleum Corporation derives its revenues from its operating activities including sales of oil and gas and operating oil and gas properties.  The Company's capital for investment in producing oil and gas properties has been provided by cash flow from operating activities and from bank financing.  The Company categorizes its operating expenses into the categories of production expenses and other expenses. 

 

Comparison of Year Ended December 31, 2002 to Year Ended December 31, 2001

 

Results of Operation

 

Revenues decreased 4% or $97,844 to $2,402,300 for the year ended December 31, 2002, from the comparable 2001 period.  Oil production volumes increased by 8% at the same time the average price per barrel decreased 2% during 2002 to $22.62 from the comparable 2001 period average price of $23.20 per barrel.  Also in 2002, the gas production volume decreased by 4% while the average price per Mcf was $2.00, a decrease of 47% from the 2001 comparable period. The increase in production volumes were primarily due to the existing production and continued development of oil and gas wells in Oklahoma.

 

 

Year Ended December 31,

 

2002

2001

Oil Production

90,825

84,046

Average Sales Price Per Bbl ($/Bbl)

$22.62

$23.20

 

 

 

Gas Production

108,990

114,123

Average Sales Price Per Mcf ($/Mcf)

$2.00

  $3.76

 

Production expenses increased 43% or $397,806 to $1,310,609 for the year ended December 31, 2002, from the comparable 2001 period. The increase was due to cost associated with Oklahoma field production, with increases in workover expense and remedial repairs incurred in 2002 as compared to 2001.  Depletion and depreciation expense increased 6% or $33,580 to $514,658 for the year ended December 31, 2002 from the comparable 2001 period. The increase in depletion and depreciation was due to increases in oil and gas property cost as well as increased production volume.  General and administrative overhead cost increased 52% or $264,312 to $772,410 for the 2002 period verses the comparable 2001 period this was due primarily to an increase in consulting fees, some of which related to evaluation of possible acquisition prospects.

 

Net other expenses for the year ended December 31, 2002, was $18,344 compared to net other expenses of $126,633 for 2001.  This decrease was primarily due to gain on sale of properties offset by decreases in interest expense and losses on derivatives.

 

The Company's net income decreased by $439,914 to a loss of $131,521 for the year ended December 31, 2002, from the comparable 2001 period. The decrease in net income was primarily due to increased operating and general and administrative expenses as previously discussed.

 

Liquidity and Capital Resources

 

Cash flow from operating activities was $796,635 for the year ended December 31, 2002, compared to $868,152 for the year ended December 31, 2001. The decrease in cash flow from operating activities was primarily due to the net loss of the Company adjusted by gain on sale of property offset by an increase in accrued oil and gas sales, for the year ended December 31, 2001.

 

Cash flow provided by investing activities was $224,216 in the period ended December 31, 2002, compared to $1,754,846 in cash flow used by investing activities for December 31, 2001.  This is primarily due to decreased purchases of oil and gas properties and property development cost in 2002. Cash flow used by financing activities was $969,668 for the period ended December 31, 2002, compared to $588,432 in cash flow provided by financing activities for the same period in 2001. This was primarily due to decreases in advances of long-term debt, net of repayment; and a decrease in proceeds from the exercise of options and warrants.

 

Capital Requirements

 

Management believes the Company will be able to meet its current operating needs through internally generated cash from operations. Management believes that oil and gas property investing activities in 2003 can be financed through cash on hand, cash from operating activities, and bank borrowing.  The Company anticipates continued investments in proven oil and gas properties in 2003. If bank credit is not available, the Company may not be able to continue to invest in strategic oil and gas properties.  The Company cannot predict how oil and gas prices will fluctuate during 2003 and what effect they will ultimately have on the Company, but Management believes that the Company will be able to generate sufficient cash from operations to service its bank debt and provide for maintaining current production of its oil and gas properties. The Company had no significant commitments for capital expenditures at December 31, 2002. The timing of most capital expenditures for new operations is relatively discretionary. Therefore, the Company can plan expenditures to coincide with available funds in order to minimize business risks.

 

Quantitative And Qualitative Disclosures About Market Risk

 

We periodically enter into certain commodity price risk management transactions to manage our exposure to oil and gas price volatility. These transactions may take the form of futures contracts, swaps or options. All data relating to our derivative positions is presented in accordance with requirements of SFAS No. 133, which we adopted on January 1, 2001. Accordingly, unrealized gains and losses related to the change in fair market value of derivative contracts that qualify and are designated as cash flow hedges are recorded as other comprehensive income or loss and such amounts are reclassified to oil and natural gas sales revenues as the associated production occurs. Derivative contracts that do not qualify for hedge accounting treatment are recorded as derivative assets and liabilities at market value in the consolidated balance sheet, and the associated unrealized gains and losses are recorded as current expense or income in the consolidated statement of operations. While such derivative contracts do not qualify for hedge accounting, management believes these contracts can be utilized as an effective component of commodity price risk management activities. At December 31, 2001, we have approximately 9,000 barrels of oil subject to put options with a floor price of $21.50 per barrel. The Company paid premiums totaling $22,500 in association with the transactions, which are expensed as part of the realized loss on derivatives.  Unrealized loss relating to the market exposure of positions was less than $1,000 at December 31, 2001 and there were no open positions at December 31, 2002.  For 2002 and 2001, we recorded a realized loss on derivative transactions of $37,869 and $42,947. 

 

Critical Accounting Policies and Estimates
 

Our accounting policies are described in Note 1 to Notes to Consolidated Financial Statements in Item 7. We prepare our Consolidated Financial Statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP"), which require us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the year. Actual results could differ from those estimates. We consider the following policies to be most critical in understanding the judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial condition and cash flows.

 
Successful Efforts Method of Accounting
 
We account for our exploration and development activities utilizing the successful efforts method of accounting. Under this method, costs of productive exploratory wells, development dry holes and productive wells and undeveloped leases are capitalized. Oil and gas lease acquisition costs are also capitalized. Exploration costs, including personnel costs, certain geological and geophysical expenses and delay rentals for oil and gas leases, are charged to expense as incurred. Exploratory drilling costs are initially capitalized, but charged to expense if and when the well is determined not to have found reserves in commercial quantities. The sale of a partial interest in a proved property is accounted for as a cost recovery and no gain or loss is recognized as long as this treatment does not significantly affect the unit-of-production amortization rate. A gain or loss is recognized for all other sales of producing properties. 
 
The application of the successful efforts method of accounting requires managerial judgment to determine the proper classification of wells designated as developmental or exploratory which will ultimately determine the proper accounting treatment of the costs incurred. The results from a drilling operation can take considerable time to analyze and the determination that commercial reserves have been discovered requires both judgment and industry experience. Wells may be completed that are assumed to be productive and