ORGANIZATION AND DESCRIPTION OF BUSINESS

6 Months Ended

Nov. 30, 2022

Accounting Policies [Abstract]

ORGANIZATION AND DESCRIPTION OF BUSINESS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

The accompanying condensed consolidated financial statements have been prepared by management of Laredo Oil, Inc. (the “Company”). In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and cash flows of the Company as of and for the periods presented have been made.

The Company was incorporated under the laws of the State of Delaware on March 31, 2008, under the name of “Laredo Mining, Inc.”. On October 21, 2009 the Company changed its name to “Laredo Oil, Inc.”

The Company is an oil exploration and production, or E&P, company, primarily engaged in acquisition and exploration efforts for mineral properties. From June 14, 2011 to December 31, 2020, the Company was a management services company, managing the acquisition and conventional operation of mature oil fields and the further recovery of stranded oil from those fields using enhanced oil recovery (“EOR”) methods for its sole customer, Stranded Oil Resources Corporation (“SORC”), a wholly owned subsidiary of Alleghany Corporation (“Alleghany”).

From its inception through October 2009, the Company was primarily engaged in acquisition and exploration efforts for mineral properties. After a change in control in October 2009, the Company shifted its focus to locating mature oil fields, with the intention of acquiring those oil fields and recovering stranded oil using EOR methods. However, the Company was unable to raise the capital required to purchase any suitable oil fields. On June 14, 2011, the Company entered into several agreements with SORC (collectively, the “2011 SORC Agreements”) to seek recovery of stranded crude oil from mature, declining oil fields by using the EOR method known as Underground Gravity Drainage, or UGD. The 2011 SORC Agreements consisted of (i) a license agreement between the Company and SORC (the “SORC License Agreement”), (ii) a license agreement between the Company and Mark See, the Company’s Chairman and Chief Executive Officer (the “MS-Company License Agreement”), (iii) an Additional Interests Grant Agreement between the Company and SORC, (iv) a Management Services Agreement between the Company and SORC (the “MSA”), (v) a Finder’s Fee Agreement between the Company and SORC (the “Finder’s Fee Agreement”), and a Stockholders Agreement among the Company, SORC and Alleghany Capital Corporation, a subsidiary of Alleghany (“Alleghany Capital”), each of which were dated June 14, 2011.

The 2011 SORC Agreements stipulated that the Company and Mark See would provide management services and expertise to SORC through exclusive, perpetual license agreements and the MSA. As consideration for the licenses to SORC, the Company received an interest in SORC’s net profits, as defined in the 2011 SORC Agreements (the “Royalty”). The MSA provided that the Company would provide the services of various employees, including Mark See, in exchange for monthly and quarterly management service fees. The monthly management service fees provided funding for the salaries, benefit costs, and FICA taxes for the Company employees identified in the MSA. The quarterly management fee totaled $137,500. The Company received the last such payment on October 1, 2020. Prior to December 31, 2020, SORC also reimbursed the Company for monthly expenses incurred by the Company’s employees in connection with their services to SORC under the MSA.

As consideration for the licenses made to SORC, the Company was entitled to receive an interest in SORC’s net profits, as defined in the SORC License Agreement. Under the SORC License Agreement, the Company agreed that a portion of the Royalty, equal to at least 2.25% of the net profits (“Incentive Royalty”), be used to fund a long-term incentive plan for the benefit of its employees, as determined by the Company’s board of directors. On October 11, 2012, the Company’s board of directors approved and adopted the Laredo Royalty Incentive Plan (the “Plan”), and the Incentive Royalty was assigned to the Plan. As a result of a Securities Purchase Agreement, dated December 31, 2020 (the “SORC Purchase Agreement”), by and among the Company, Alleghany, SORC, and SORC Holdings LLC, a wholly owned subsidiary of the Company (“SORC Holdings”), the Company no longer receives any Incentive Royalties payable pursuant to the Plan, and SORC no longer makes any such payments to the Company.

Pursuant to the SORC Purchase Agreement, the Company, through SORC Holdings, purchased all of the issued and outstanding shares of SORC (the “SORC Shares”) on December 31, 2020 (the “SORC Purchase Transaction”). As consideration for the SORC Shares, SORC Holdings paid Alleghany $72,678 (comprised of $55,000 purchase price plus a $17,678 working capital adjustment calculated in accordance with the SORC Purchase Agreement), and the Company agreed to pay Alleghany a royalty of 5.0% of the Company’s future consolidated revenues and net profits relating to oil, gas, gas liquids and all other hydrocarbons, subject to certain adjustments, for a period of seven years. The 2011 SORC Agreements were terminated effective as of December 31, 2020 pursuant to the SORC Purchase Transaction.

Pursuant to the SORC Purchase Transaction, the Company and Alleghany also entered into a Consulting Agreement (the “Alleghany Consulting Agreement”), pursuant to which Alleghany agreed to pay the Company an aggregate of approximately $1.245 million during calendar year 2021 in consideration of the Company providing consulting services to Alleghany from Mark See and Chris Lindsey, the Company’s then General Counsel and Secretary (for a period of three years for Mr. See and one year for Mr. Lindsey).

The Company believes that the SORC Purchase Transaction was advantageous to the Company as it simplified in a timely manner the unwinding of the 2011 SORC Agreements and allowed the Company to acquire vehicles and oil field equipment to be utilized in future oil recovery projects.

As the Company now owns SORC, and the 2011 SORC Agreements have been terminated, the Company no longer receives any of the payments outlined in the 2011 SORC Agreements. As a result, the Company no longer receives management fee revenue from Alleghany, or reimbursement from Alleghany for the monthly expenses of its employees, which fees and reimbursements were effectively all of the Company’s revenues prior to the closing of the SORC Purchase Transaction.

Prior to December 31, 2020, the Company’s management gained specialized know-how and operational experience in evaluating, acquiring, operating and developing oil and gas properties while implementing UGD projects for Allegheny, as well as gaining expertise designing, drilling and producing conventional oil wells. Based upon that knowledge, the Company has identified and acquired 45,246 gross acres and 37,932 net acres of mineral property interests in the State of Montana. The Company began drilling one exploratory well during May 2022. That well has not been completed or put into production. The Company is continuing its efforts to complete the well and begin commercial production. Simultaneously, the Company is attempting to raise additional funds to continue field development. Each additional well is planned to have an 80-acre footprint, so the first ten wells would cover approximately 800 acres, or less than two percent of the Company’s leased acreage. The ability of the Company to secure further funding will determine future plans and the pace of field development.

In connection with securing this acreage in Montana, Lustre Oil Company LLC, a wholly owned subsidiary of the Company (“Lustre”), entered into an Acquisition and Participation Agreement (the “Erehwon APA”) with Erehwon Oil & Gas, LLC (“Erehwon”). Under the Erehwon APA, the parties will acquire oil and gas interests and drill, complete, re-enter, re-complete, sidetrack, and equip wells in Valley County, Daniels County and Roosevelt County, Montana. The Erehwon APA specifies calculations for royalty interests and working interests for the first ten well completions and first ten well recompletions, and for all additional wells and recompletions thereafter. Lustre will acquire the initial mineral leases and pay 100% of the acquisition costs, with a cap of $500,000. When the cap is exceeded, Erehwon will have the option to acquire a 10% working interest in a lease by paying 10% of the acquisition cost of the lease, resulting in Lustre paying 90% of the lease acquisition costs, on a lease-by-lease basis. Until amounts paid to complete the first ten new wells and first ten recompletions are repaid, the working interest split between Erehwon and Lustre will be 10%/90%. Thereafter, the split between Erehwon and Lustre will be 20%/80%. Additional wells and recompletions will have a working interest split equal to the parties’ respective working interest in the leases, which will be 10% to Erehwon and 90% to Lustre, unless Erehwon exercises its option to increase its working interest, as described above. Under the Erehwon APA, Lustre will fund 100% of the construction costs of the first ten wells and first ten completions. Additional wells will be funded 80% by Lustre and 20% by Erehwon; provided, however, that Erehwon has the option to pay 10% of the costs to increase its working interest to 20%. Royalty expense will consist of the sum of royalty interest to the landowner and an overriding royalty interest to two individuals (“Prospect Generators”) not to exceed 6% nor be less than 3%. For the first ten new wells and first ten recompletions, the Prospect Generators will receive an amount equal to 5% of the cost of each completed producing well.

On June 30, 2020, the Company entered into the Limited Liability Company Agreement (the “Cat Creek Agreement”) of Cat Creek Holdings LLC (“Cat Creek”), a Montana limited liability company formed as a joint venture with Lipson Investments LLC (“Lipson”) and Viper Oil & Gas, LLC (“Viper”) for the purchase of certain oil and gas properties in the Cat Creek Field in Petroleum and Garfield Counties in the State of Montana (the “Cat Creek Properties”). Cat Creek entered into an Asset Purchase and Sale Agreement (the “Cat Creek Purchase Agreement”) with Carrell Oil Company (“Carrell Oil”) on July 1, 2020. The Cat Creek Purchase Agreement provides for the purchase of the Cat Creek Properties from Carrell Oil. Upon closing, Carrell Oil received consideration of $400,000, subject to certain adjustments resulting from revenue, expense and tax allocations. In accordance with the Cat Creek Agreement, the Company invested $448,900 in Cat Creek for 50% of the ownership interests in Cat Creek, using cash on hand. Each of Lipson Investments LLC and Viper Oil & Gas, LLC, the other two members of Cat Creek, have ownership interests in Cat Creek of 25% in consideration of their respective investments of $224,450. Cat Creek will be managed by four directors, two of whom shall be designated by the Company.

In January 2022, the Company and Lustre executed a Net Profits Interest Agreement (“NPI Agreement”) with Erehwon and Olfert No. 11-4 Holdings, LLC (“Olfert Holdings”) for the purpose of funding the first well, Olfert #11-4 (the “Well”), under the Erehwon APA. In connection with the NPI Agreement, the Company was credited with a contribution of $59,935 of well development costs, representing a 5.5% interest in Olfert Holdings. The total investment recorded by the Company was $19,435 as of May 31, 2022. The difference between the $59,935 contribution recorded by Olfert Holdings and the investment recorded by the Company is due to the investment by the Company being recorded at the carrying value of the assets it contributed to Olfert Holdings. As the Company also currently serves as the manager of Olfert Holdings, the Company exercises significant influence over its operations. Accordingly, the amount of the Company’s investment in Olfert is recorded as an equity method investment as of November 30, 2022. See further disclosures in Note 9.

Basic and Diluted Loss per Share

Basic and diluted earnings/(loss) per share is computed by dividing net income/(loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings/(loss) per share gives effect to all dilutive potential common shares outstanding during the period. Dilutive earnings/(loss) per share excludes all potential common shares if their effect is anti-dilutive. As the Company realized a net loss for the six-month period ended November 30, 2022, no potentially dilutive securities were included in the calculation of diluted loss per share as their impact would have been anti-dilutive. For the six-month period ended November 30, 2021 all options and warrants potentially convertible into common equivalent shares are considered antidilutive and have also been excluded in the calculation of diluted earnings per share. Diluted earnings/(loss) per share is computed by dividing the net income (loss) by the weighted-average number of common and dilutive common equivalent shares outstanding during the period. 

	For the Six  Months Ended
	November 30,
	2022			2021
Numerator – net income (loss) attributable to common stockholders	$	(1,624,393	)	$	345,580
Denominator – weighted average number of common shares outstanding		55,695,397			54,514,765
Basic and diluted earnings/(loss) per common share	$	(0.02	)	$	0.01