(Mark One)
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||
þ
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended June 30, 2011
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or
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||
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from ________to________
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Commission file number 0-24012
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Nevada
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13-3087510
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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Suite 700, 10150 - 100 Street, Edmonton, Alberta, Canada
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T5J 0P6
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(Address of principal executive offices)
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(Zip Code)
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Large accelerated filer ¨
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Accelerated filer ¨
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Non-accelerated filer ¨ (Do not check if a smaller reporting company)
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Smaller reporting company þ
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TABLE OF CONTENTS | |||||
Page
Number
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|||||
PART I – FINANCIAL INFORMATION | |||||
ITEM 1.
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CONSOLIDATED FINANCIAL STATEMENTS
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||||
Consolidated Balance Sheets
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3
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||||
Consolidated Statements of Operations and Comprehensive Loss
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4
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||||
Consolidated Statements of Cash Flows
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5
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||||
Notes to the Consolidated Financial Statements
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6
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||||
ITEM 2.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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16
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|||
ITEM 3.
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QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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21
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|||
ITEM 4
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CONTROLS AND PROCEDURES
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21
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|||
PART II – OTHER INFORMATION
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|||||
ITEM 1.
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LEGAL PROCEEDINGS
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21
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|||
ITEM 1A.
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RISK FACTORS
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21
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|||
ITEM 2.
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UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
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21
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|||
ITEM 3.
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DEFAULTS UPON SENIOR SECURITIES
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21
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|||
ITEM 4.
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REMOVED AND RESERVED
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21
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|||
ITEM 5.
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OTHER INFORMATION
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21
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|||
ITEM 6.
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EXHIBITS
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22
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|||
SIGNATURES
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23
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June 30,
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September 30,
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|||||||
2011
|
2010
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|||||||
(Unaudited)
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(Audited)
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|||||||
ASSETS
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||||||||
Current Assets
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||||||||
Cash and cash equivalents
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$ | 1,030,800 | $ | 103,550 | ||||
Accounts receivable
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211,562 | 195,751 | ||||||
Prepaid expenses
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54,080 | 86,717 | ||||||
Total Current Assets
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1,296,442 | 386,018 | ||||||
Long Term Investments (Note 6)
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266,429 | 247,473 | ||||||
Oil and gas properties (Note 3)
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13,202,852 | 12,726,396 | ||||||
Property & equipment net of depreciation (Note 5)
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461,153 | 563,860 | ||||||
TOTAL ASSETS
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$ | 15,226,876 | $ | 13,923,747 | ||||
LIABILITIES
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||||||||
Current Liabilities
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||||||||
Accounts payable
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$ | 2,665 | $ | 42,147 | ||||
Accounts payable – related parties (Note 7)
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182,143 | 86,774 | ||||||
Deposits on stock subscription (Note 8)
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– | 48,555 | ||||||
Total Current Liabilities
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184,808 | 177,476 | ||||||
Asset retirement obligations (Note 9)
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424,781 | 386,934 | ||||||
TOTAL LIABILITIES
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609,589 | 564,410 | ||||||
SHAREHOLDERS’ EQUITY
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||||||||
Common Stock: (Note 10)
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||||||||
Authorized: 300,000,000 shares at $0.001 par value
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||||||||
Issued and outstanding: 136,739,971 shares
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||||||||
(September 30, 2010 – 106,774,258 shares) (Note 10)
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136,739 | 106,773 | ||||||
Additional paid in capital
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27,020,674 | 24,743,763 | ||||||
Deficit accumulated during exploration stage
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(12,540,126 | ) | (11,491,199 | ) | ||||
Total Shareholders’ Equity
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14,617,287 | 13,359,337 | ||||||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
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$ | 15,226,876 | $ | 13,923,747 |
Three Months
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Three Months
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Nine Months
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Nine Months
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September 10,
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||||||||||||||||
Ended
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Ended
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Ended
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Ended
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2003 to June 30,
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||||||||||||||||
June 30, 2011
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June 30, 2010
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June 30, 2011
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June 30, 2010
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2011
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||||||||||||||||
Revenue
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$ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
Expenses
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||||||||||||||||||||
General and Administrative
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264,029 | 299,311 | 934,029 | 850,085 | 12,372,808 | |||||||||||||||
Depreciation and accretion
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41,381 | 54,319 | 123,659 | 162,900 | 503,566 | |||||||||||||||
Net loss from operations
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(305,410 | ) | (353,630 | ) | (1,057,688 | ) | (1,012,985 | ) | (12,876,374 | ) | ||||||||||
Other income and expenses
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||||||||||||||||||||
Rental and other income
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4,650 | (4,634 | ) | 6,370 | 159 | 24,603 | ||||||||||||||
Interest income
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1,489 | 97 | 2,579 | 4,437 | 208,651 | |||||||||||||||
Interest expense
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– | – | – | – | (208,580 | ) | ||||||||||||||
Forgiveness of loan payable
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– | – | – | – | 287,406 | |||||||||||||||
Settlement of debt
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– | – | – | – | 24,866 | |||||||||||||||
Loss on disposal of assets
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– | – | (188 | ) | – | (698 | ) | |||||||||||||
Net loss and comprehensive loss
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$ | (299,271 | ) | $ | (358,167 | ) | $ | (1,048,927 | ) | $ | (1,008,389 | ) | $ | (12,540,126 | ) | |||||
Net loss per common share
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||||||||||||||||||||
Basic and Diluted
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$ | 0.00 | $ | 0.00 | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||||
Weighted Average Outstanding
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||||||||||||||||||||
Shares (in thousands)
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||||||||||||||||||||
Basic and Diluted
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136,740 | 106,774 | 136,303 | 106,774 |
Nine Months
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Nine Months
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September 10,
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||||||||||
Ended June 30,
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Ended June 30,
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2003 to
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||||||||||
2011
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2010
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June 30, 2011
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||||||||||
Cash Provided by (Used in):
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||||||||||||
Operating Activities
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||||||||||||
Net loss
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$
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(1,048,927
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)
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$
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(1,008,389
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)
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$
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(12,540,126
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)
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|||
Items not affecting cash:
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||||||||||||
Share based compensation
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256,876
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–
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1,180,018
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|||||||||
Bad debts
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–
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–
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352,194
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|||||||||
Depreciation and accretion
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123,659
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162,900
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503,566
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|||||||||
Forgiveness of loan payable
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–
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–
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(287,406
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)
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||||||||
Settlement of lawsuit
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–
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–
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435,550
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|||||||||
Commissions withheld from loans proceeds
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–
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–
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121,000
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|||||||||
Loss on disposal of assets
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188
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–
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698
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|||||||||
Net changes in non-cash working capital (Note 12)
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72,713
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611,745
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(436,457
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)
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||||||||
(595,491
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)
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(233,744
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)
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(10,670,963
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)
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|||||||
Investing Activities
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||||||||||||
Purchase of property and equipment
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(3,254
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)
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(6,362
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)
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(903,609
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)
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||||||
Investment in oil and gas properties
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(456,494
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)
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(315,771
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)
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(8,597,175
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)
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||||||
Long term investments
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(18,956
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)
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(162,773
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)
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(266,429
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)
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||||||
Cash from acquisition of subsidiary
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–
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–
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11,141
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|||||||||
Return of costs from farmout agreement
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–
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–
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961,426
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|||||||||
(478,704
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)
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(484,906
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)
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(8,794,646
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)
|
|||||||
Financing Activities
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||||||||||||
Loan payable
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–
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–
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275,852
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|||||||||
Loan advance – related parties
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–
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–
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(811,746
|
)
|
||||||||
Note payable repayment
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–
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–
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(111,306
|
)
|
||||||||
Debenture repayment
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–
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–
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(1,004,890
|
)
|
||||||||
Deposit on stock subscription
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–
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–
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48,555
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|||||||||
Proceeds from issuance of common stock
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2,001,445
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–
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21,220,944
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|||||||||
Proceeds from debenture net of commissions
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–
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–
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879,000
|
|||||||||
2,001,445
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–
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20,496,409
|
||||||||||
Increase (decrease) in cash and cash equivalents
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927,250
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(718,650
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)
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1,030,800
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||||||||
Cash and cash equivalents, beginning of period
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103,550
|
945,835
|
–
|
|||||||||
Cash and cash equivalents, end of period
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$
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1,030,800
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$
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227,185
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$
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1,030,800
|
||||||
Supplemental Cash Flow Information:
|
||||||||||||
Cash paid for Interest
|
$
|
–
|
$
|
–
|
1.
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Nature of Business and Basis of Presentation
|
2. |
Summary of Significant Accounting Policies
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Software
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- 100%
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|
Computer equipment
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- 55%
|
|
Portable work camp
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- 30%
|
|
Vehicles
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- 30%
|
|
Road mats
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- 30%
|
|
Wellhead
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- 25%
|
|
Office furniture and equipment
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- 20%
|
|
Oilfield Equipment
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- 20%
|
|
Tanks
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- 10%
|
3.
|
Oil and Gas Properties
|
2011
|
$ | 11,290 | ||
2012
|
$ | 45,158 | ||
2013
|
$ | 45,158 | ||
2014
|
$ | 45,158 | ||
2015
|
$ | 45,158 | ||
2016
|
$ | 45,158 | ||
Subsequent
|
$ | 134,042 | ||
|
a)
|
drill 68 wells throughout the 68 sections; or
|
|
b)
|
drill 44 wells within the 68 sections and having acquired and processed 2 miles of seismic on each other undrilled section.
|
|
a)
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The Farmout Agreement dated February 25, 2005, and the Amended Farmout Agreement, being effectively terminated concurrently with the execution of the settlement;
|
|
b)
|
Signet being regarded as having earned a 40% working interest in a total of twelve sections;
|
|
c)
|
Signet transferring registered title to 57.5 unearned sections of the farmout lands, as defined in the Farmout Agreement, back to the Company;
|
|
d)
|
Signet having acknowledged that the Company is not responsible for any royalty assumed by the Company on behalf of Signet in the Farmout Agreement; and
|
|
e)
|
A joint discontinuance of the remaining minor litigation issues amongst all the parties.
|
4.
|
Investment in Equity Securities
|
5.
|
Property and Equipment
|
June 30, 2011
|
||||||||||||
Accumulated
|
Net Book
|
|||||||||||
Cost
|
Depreciation
|
Value
|
||||||||||
Computer equipment
|
$ | 30,655 | $ | 27,273 | $ | 3,382 | ||||||
Office furniture and equipment
|
33,198 | 17,200 | 15,998 | |||||||||
Software
|
5,826 | 5,826 | – | |||||||||
Leasehold improvements
|
4,935 | 2,111 | 2,824 | |||||||||
Portable work camp
|
170,580 | 91,920 | 78,660 | |||||||||
Vehicles
|
38,077 | 20,518 | 17,559 | |||||||||
Oilfield equipment
|
154,713 | 59,056 | 95,657 | |||||||||
Road mats
|
364,614 | 196,481 | 168,133 | |||||||||
Wellhead
|
3,254 | 305 | 2,949 | |||||||||
Tanks
|
96,085 | 20,094 | 75,991 | |||||||||
$ | 901,937 | $ | 440,784 | $ | 461,153 |
September 30, 2010
|
||||||||||||
Accumulated
|
Net Book
|
|||||||||||
Cost
|
Depreciation
|
Value
|
||||||||||
Computer Equipment
|
$ | 31,460 | $ | 25,607 | $ | 5,853 | ||||||
Office furniture and equipment
|
33,476 | 14,580 | 18,896 | |||||||||
Software
|
5,826 | 5,826 | – | |||||||||
Leasehold improvements
|
4,935 | 1,612 | 3,323 | |||||||||
Portable work camp
|
170,580 | 69,085 | 101,495 | |||||||||
Vehicles
|
38,077 | 15,421 | 22,656 | |||||||||
Oilfield equipment
|
154,713 | 42,175 | 112,538 | |||||||||
Road Mats
|
364,614 | 147,669 | 216,945 | |||||||||
Tanks
|
96,085 | 13,931 | 82,154 | |||||||||
$ | 899,766 | $ | 335,906 | $ | 563,860 |
6.
|
Long Term Investments
|
7.
|
Significant Transactions With Related Parties
|
8.
|
Deposits of Stock Subscription
|
9.
|
Asset Retirement Obligations
|
June 30, 2011
|
September 30, 2010
|
|||||||
Balance, beginning of year
|
$ | 386,934 | $ | 358,235 | ||||
Liabilities incurred
|
– | – | ||||||
Effect of foreign exchange
|
26,257 | 14,749 | ||||||
Accretion expense
|
11,590 | 13,950 | ||||||
Balance, end of year
|
$ | 424,781 | $ | 386,934 |
10.
|
Common Stock
|
11.
|
Stock Options
|
Shares Underlying
Options Outstanding
|
Shares Underlying
Options Exercisable
|
|||||||||||||||||||
Range of Exercise Prices
|
Shares
Underlying
Options
Outstanding
|
Weighted
Average
Remaining Contractual
Life
|
Weighted
Average
Exercise
Price
|
Shares
Underlying
Options Exercisable
|
Weighted
Average
Exercise
Price
|
|||||||||||||||
$0.47 at June 30, 2011
|
240,000 | 0.97 | $ | 0.47 | 240,000 | $ | 0.47 | |||||||||||||
$0.14 at June 30, 2011
|
2,736,000 | 4.68 | 0.14 | 2,736,000 | 0.14 | |||||||||||||||
$0.71 at June 30, 2011
|
375,000 | 0.32 | 0.71 | 375,000 | 0.71 | |||||||||||||||
3,351,000 | 3.93 | $ | 0.23 | 1,551,000 | $ | 0.23 |
Number of
Shares
|
Weighted
Average Exercise
Price
|
Weighted
Average Fair
Market Value
|
||||||||||
Balance, September 30, 2010
|
3,378,500 | $ | 0.69 | $ | 0.27 | |||||||
Options forfeited November 28, 2010
|
(2,727,500 | ) | 0.71 | 0.27 | ||||||||
Options issued March 23, 2011
|
2,700,000 | 0.14 | 0.12 | |||||||||
Balance, June 30, 2011
|
3,351,000 | $ | 0.23 | $ | 0.15 | |||||||
Exercisable, June 30, 2011
|
3,351,000 | $ | 0.23 | $ | 0.15 |
Non-Vested Options
|
||||||||
Number of
Shares
|
Weighted
Average
Exercise Price
|
|||||||
Non-vested at September 30, 2010 and 2009
|
– | $ | – | |||||
Options issued March 23, 2011
|
2,700,000 | 0.14 | ||||||
Options vested at June 30, 2011
|
(900,000 | ) | 0.14 | |||||
Non-vested at June 30, 2011
|
1,800,000 | $ | 0.14 |
12.
|
Changes in Non-Cash Working Capital
|
Nine Months
|
Nine Months
|
|||||||
Ended June 30, 2011
|
Ended June 30, 2010
|
|||||||
Accounts receivable
|
$ | (15,811 | ) | $ | 609,650 | |||
Prepaid expenses
|
32,637 | (2,751 | ) | |||||
Accounts payable
|
55,887 | 4,846 | ||||||
$ | 72,713 | $ | 611,745 |
13.
|
Commitments
|
|
Since the acquisition of Northern Alberta Oil Ltd., the Company and Northern have entered into the following contracts with the following companies for the services of their officers:
|
|
1)
|
Portwest Investments Ltd., a company owned 100% by Dr. Horst A. Schmid, for providing services to the Company as Chief Executive Officer and President for $12,500 Cdn per month.
|
|
2)
|
Concorde Consulting, a company owned 100% by Mr. Curtis J. Sparrow, for providing services as Chief Financial Officer to the Company for $15,000 Cdn per month.
|
2011
|
$ | 24,460 | ||
2012
|
$ | 73,380 | ||
2013
|
$ | 47,647 | ||
2014
|
$ | 10,625 | ||
14.
|
Legal Actions
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
Three Months
|
Three Months
|
Nine Months
|
Nine Months
|
September 10,
|
||||||||||||||||
Ended
|
Ended
|
Ended
|
Ended
|
2003 to June 30,
|
||||||||||||||||
June 30, 2011
|
June 30, 2010
|
June 30, 2011
|
June 30, 2010
|
2011
|
||||||||||||||||
Revenue
|
$ | – | $ | – | $ | – | $ | – | $ | – | ||||||||||
Expenses
|
||||||||||||||||||||
General and administrative
|
264,029 | 299,311 | 934,029 | 850,085 | 12,372,808 | |||||||||||||||
Depreciation and accretion
|
41,381 | 54,319 | 123,659 | 162,900 | 503,566 | |||||||||||||||
Net loss from operations
|
(305,410 | ) | (353,630 | ) | (1,057,688 | ) | (1,012,985 | ) | (12,876,374 | ) | ||||||||||
Other income and expenses
|
||||||||||||||||||||
Rental and other income
|
4,650 | (4,634 | ) | 6,370 | 159 | 24,603 | ||||||||||||||
Interest income
|
1,489 | 97 | 2,579 | 4,437 | 208,651 | |||||||||||||||
Interest expense
|
– | – | – | – | (208,580 | ) | ||||||||||||||
Forgiveness of loan payable
|
– | – | – | – | 287,406 | |||||||||||||||
Settlement of debt
|
– | – | – | – | 24,866 | |||||||||||||||
Loss on disposal of assets
|
– | – | (188 | ) | – | (698 | ) | |||||||||||||
Net loss and comprehensive loss
|
$ | (299,271 | ) | $ | (358,167 | ) | $ | (1,048,927 | ) | $ | (1,008,389 | ) | $ | (12,540,126 | ) |
As of
|
Year Ending
|
|||||||
June 30, 2011
|
September 30, 2010
|
|||||||
Current Assets
|
$ | 1,296,442 | 386,018 | |||||
Current Liabilities
|
184,808 | 177,476 | ||||||
Working Capital
|
$ | 1,111,634 | 208,542 |
·
|
our current business strategy;
|
·
|
our future financial position and projected costs;
|
·
|
our projected sources and uses of cash;
|
·
|
our plan for future development and operations;
|
·
|
our drilling and testing plans;
|
·
|
our proposed enhanced oil recovery test well project;
|
·
|
the sufficiency of our capital in order to execute our business plan;
|
·
|
resource estimates; and
|
·
|
the timing and sources of our future funding.
|
·
|
changes in general business or economic conditions;
|
·
|
changes in legislation or regulation that affect our business;
|
·
|
our ability to obtain necessary regulatory approvals and permits;
|
·
|
our ability to receive approval from the ERCB for additional tests to further evaluate the wells on our lands;
|
·
|
opposition to our regulatory requests by various third parties;
|
·
|
actions of aboriginals, environmental activists and other industrial disturbances;
|
·
|
the costs of environmental reclamation of our lands;
|
·
|
availability of labor or materials or increases in their costs;
|
·
|
the availability of sufficient capital to finance our business plans on terms satisfactory to us;
|
·
|
adverse weather conditions and natural disasters;
|
·
|
risks associated with increased insurance costs or unavailability of adequate coverage;
|
·
|
volatility of oil and natural gas prices;
|
·
|
competition;
|
·
|
changes in labor, equipment and capital costs;
|
·
|
future acquisitions or strategic partnerships;
|
·
|
the risks and costs inherent in litigation;
|
·
|
imprecision in estimates of reserves, resources and recoverable quantities of oil and natural gas;
|
·
|
product supply and demand;
|
·
|
fluctuations in currency and interest rates; and
|
·
|
the additional risks and uncertainties, many of which are beyond our control, referred to elsewhere in this quarterly report on Form 10-Q, in our annual report on Form 10-K for the fiscal year ended September 30, 2010, and in our other SEC filings.
|
ITEM 3.
|
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
ITEM 4.
|
CONTROLS AND PROCEDURES
|
ITEM 1.
|
LEGAL PROCEEDINGS
|
ITEM 1A.
|
RISK FACTORS
|
ITEM 2.
|
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
|
ITEM 3.
|
DEFAULTS UPON SENIOR SECURITIES
|
ITEM 4.
|
(REMOVED AND RESERVED)
|
ITEM 5.
|
OTHER INFORMATION
|
ITEM 6.
|
EXHIBITS
|
Exhibit No.
|
Description
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31.1
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Certification of President and Chief Executive Officer pursuant to Rule 13a-14(a).
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31.2
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Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
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32.1
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Certification of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
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32.2
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Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
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101
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Interactive Data Files
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DEEP WELL OIL & GAS, INC.
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By
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/s/ Horst A. Schmid
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Dr. Horst A. Schmid
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Chief Executive Officer and President
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(Principal Executive Officer)
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Date
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August 12, 2011
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By
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/s/ Curtis Sparrow
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Mr. Curtis James Sparrow
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Chief Financial Officer
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(Principal Financial and Accounting Officer)
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Date
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August 12, 2011
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1.
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I have reviewed this Quarterly Report on Form 10-Q of Deep Well Oil & Gas, Inc. for the quarterly period ended June 30, 2011;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
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a)
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all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
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b)
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any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date:
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August 12, 2011
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By:
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/s/ Horst A. Schmid
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Dr. Horst A. Schmid
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President and Chief Executive Officer
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1.
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I have reviewed this quarterly report on Form 10-Q of Deep Well Oil & Gas, Inc. for the quarterly period ended June 30, 2011;
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
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a)
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all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
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b)
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any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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Date:
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August 12, 2011
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By:
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/s/ Curtis James Sparrow
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Mr. Curtis James Sparrow
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Chief Financial Officer
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Date:
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August 12, 2011
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By:
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/s/ Horst A. Schmid
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Dr. Horst A. Schmid
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President and Chief Executive Officer
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Date:
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August 12, 2011
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By:
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/s/ Curtis James Sparrow
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Mr. Curtis James Sparrow
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Chief Financial Officer
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Consolidated Balance Sheets (Parenthetical) (USD $)
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Jun. 30, 2011
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Sep. 30, 2010
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Common Stock, Authorized | 300,000,000 | 300,000,000 |
Common Stock, par value | $ 0.001 | $ 0.001 |
Common Stock, Issued | 136,739,971 | 106,774,258 |
Common Stock, outstanding | 136,739,971 | 106,774,258 |
Consolidated Statements of Operations and Comprehensive Loss (USD $)
Share data in Thousands, except Per Share data |
3 Months Ended | 9 Months Ended | 95 Months Ended | ||
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Jun. 30, 2011
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Jun. 30, 2010
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Jun. 30, 2011
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Jun. 30, 2010
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Jun. 30, 2011
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Revenue | |||||
Expenses | Â | Â | Â | Â | Â |
General and Administrative | 264,029 | 299,311 | 934,029 | 850,085 | 12,372,808 |
Depreciation and accretion | 41,381 | 54,319 | 123,659 | 162,900 | 503,566 |
Net loss from operations | (305,410) | (353,630) | (1,057,688) | (1,012,985) | (12,876,374) |
Other income and expenses | Â | Â | Â | Â | Â |
Rental and other income | 4,650 | (4,634) | 6,370 | 159 | 24,603 |
Interest income | 1,489 | 97 | 2,579 | 4,437 | 208,651 |
Interest expense | Â | Â | Â | Â | (208,580) |
Forgiveness of loan payable | Â | Â | Â | Â | 287,406 |
Settlement of debt | Â | Â | Â | Â | 24,866 |
Loss on disposal of assets | Â | Â | (188) | Â | (698) |
Net loss and comprehensive loss | $ (299,271) | $ (358,167) | $ (1,048,927) | $ (1,008,389) | $ (12,540,126) |
Net loss per common share | Â | Â | Â | Â | Â |
Basic and Diluted | $ 0.00 | $ 0.00 | $ (0.01) | $ (0.01) | Â |
Weighted Average Outstanding Shares (in thousands) | Â | Â | Â | Â | Â |
Basic and Diluted | 136,740 | 106,774 | 136,303 | 106,774 | Â |
Document and Entity Information
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9 Months Ended | |
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Jun. 30, 2011
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Jul. 31, 2011
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Document Information [Line Items] | Â | Â |
Document Type | 10-Q | Â |
Amendment Flag | false | Â |
Document Period End Date | Jun. 30, 2011 | |
Document Fiscal Year Focus | 2011 | Â |
Document Fiscal Period Focus | Q3 | Â |
Trading Symbol | DWOG | Â |
Entity Registrant Name | DEEP WELL OIL & GAS INC | Â |
Entity Central Index Key | 0000869495 | Â |
Current Fiscal Year End Date | --09-30 | Â |
Entity Filer Category | Smaller Reporting Company | Â |
Entity Common Stock, Shares Outstanding | Â | 136,739,971 |
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Significant Transactions With Related Parties
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9 Months Ended | ||
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Jun. 30, 2011
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Significant Transactions With Related Parties |
Accounts
payable – related parties was $182,143 of June 30, 2011
(September 30, 2010 - $86,774) for fees payable to corporations
owned by directors. This amount is unsecured, non-interest bearing,
and has no fixed terms of repayment.
As
of June 30, 2011, officers, directors, their families, and their
controlled entities have acquired 52.38% of the Company’s
outstanding common capital stock. This percentage does not include
unexercised warrants or stock options.
The
company made payments totalling $163,024 to two related parties for
professional fees and consulting services during the period ended
June 30, 2011 (June 30, 2010 - $196,804).
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Changes in Non-Cash Working Capital
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9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Changes in Non-Cash Working Capital |
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Oil and Gas Properties
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Oil and Gas Properties |
The
Company has acquired interests in certain oil sands properties
located in North Central Alberta, Canada. The terms include certain
commitments related to oil sands properties that require the
payments of rents as long as the leases are non-producing. As of
June 30, 2011, Northern’s net payments due in Canadian
dollars under this commitment are as follows:
The
Government of Alberta owns this land and the Company has acquired
the rights to perform oil and gas activities on these lands. If the
Company meets the conditions of the 15-year leases the Company will
then be permitted to drill on and produce oil from the land into
perpetuity. These conditions give the Company until the expiration
of the leases to meet the following requirements on its primary oil
sands leases:
The
Company plans to meet the second of these conditions. As at June
30, 2011, the company has an interest in ten wells, which can be
counted towards this obligation.
The
Company has identified 2 other wells drilled on these leases, which
may be included in the satisfaction of this requirement. The
Company has also acquired and processed 25 miles of seismic on the
leases.
The
Company follows the successful efforts method of accounting for
costs of oil and gas properties. Under this method, only those
explorations and development costs that relate directly to specific
oil and gas reserves are capitalized; costs that do not relate
directly to specific reserves are charged to expense. Producing,
non-producing and unproven properties are assessed annually, or
more frequently as economic events indicate, for potential
impairment.
This
consists of comparing the carrying value of the asset with the
asset’s expected future undiscounted cash flows without
interest costs. Estimates of expected future cash flows represent
management’s best estimate based on reasonable and
supportable assumptions. Proven oil and gas properties are reviewed
for impairment on a field-by-field basis. No impairment losses were
recognized for the period ended June 30, 2011 (September 30, 2010 -
$nil).
Capitalized
costs of proven oil and gas properties are depleted using the
unit-of-production method when the property is placed in
production.
Substantially
all of the Company’s oil and gas activities are conducted
jointly with others. The accounts reflect only the Company’s
proportionate interest in such activities.
On
November 26, 2007, the Company entered into a settlement agreement
with Signet Energy Inc. and Andora Energy Corporation (at the time
“Signet” was a 100% owned subsidiary company of Andora
Energy Corporation) and resolved their differences and certain
collateral matters. The settlement includes but is not limited
to:
On
April 30, 2009, 1.5 sections of previously owned leases reverted
back to the provincial government.
There
was $456,494 of an additional investment made to our oil and gas
properties in the nine months ended June 30, 2011.
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Asset Retirement Obligations
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jun. 30, 2011
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Asset Retirement Obligations |
The
total future asset retirement obligation is estimated by management
based on the Company’s net working interests in all wells and
facilities, estimated costs to reclaim and abandon wells and
facilities and the estimated timing of the costs to be incurred in
future periods. At June 30, 2011, the Company estimates the
undiscounted cash flows related to asset retirement obligation to
total approximately $694,019 (September 30, 2010 - $531,055). The
fair value of the liability at June 30, 2011 is estimated to be
$424,781 (September 30, 2010 - $386,934) using a risk free rate of
3.74% and an inflation rate of 2%. The actual costs to settle the
obligation are expected to occur in approximately 35
years.
Changes
to the asset retirement obligation were as follows:
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Legal Actions
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9 Months Ended | ||
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Jun. 30, 2011
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Legal Actions |
I.G.M. Resources Corp vs. Deep Well Oil & Gas, Inc., et
al
On
March 10, 2005, I.G.M. Resources Corp. (the
“Plaintiff”) filed against Classic Energy Inc., 979708
Alberta Ltd., Deep Well Oil & Gas, Inc., Nearshore Petroleum
Corporation, Mr. Steven P. Gawne, Rebekah Gawne, Gawne Family
Trust, 1089144 Alberta Ltd., John F. Brown, Diane Lynn McClaflin,
Cassandra Doreen Brown, Elissa Alexandra Brown, Brown Family Trust,
Priority Exploration Ltd., Northern Alberta Oil Ltd. and Gordon
Skulmoski (the “Defendant”) a Statement of Claim in the
Court of Queen's Bench of Alberta Judicial District of Calgary.
This suit is a part of a series of lawsuits or actions undertaken
by the Plaintiff against some of the other above
Defendants.
The
Plaintiff was and still is a minority shareholder of 979708 Alberta
Ltd. ("979708"). 979708 was in the business of discovering,
assembling and acquiring oil and gas prospects. In 2002 and 2003,
979708 acquired oil and gas prospects in the Sawn Lake area of
Alberta. On or about the 14th
of July, 2003, all or substantially all the assets of 979708 were
sold to Classic Energy Inc. The Plaintiff claims the value of the
assets sold was far in excess of the value paid for those assets.
On April 23, 2004 Northern Alberta Oil Ltd., purchased Classic
Energy Inc.'s assets, some of which are under dispute by the
Plaintiff. On June 7, 2005 Deep Well acquired all of the common
shares of Northern thereby giving Deep Well an indirect beneficial
interest in the assets in which the Plaintiff is claiming an
interest.
The
Plaintiff seeks an order setting aside the transaction and
returning the assets to 979708, compensation in the amount of
$15,000,000 Cdn, a declaration of trust declaring that Northern and
Deep Well, hold all of the assets acquired from 979708 and any
property acquired by use of such assets, or confidential
information of 979708, in trust for the Plaintiff.
This
lawsuit has been stayed pending the outcome of the other litigation
by the Plaintiff against some of the above Defendants other than
Deep Well and Northern. The Company believes the claims are without
merit and will vigorously defend against them. As at June 30, 2011,
no contingent liability has been recorded, as the Company believes
that a successful outcome for the Plaintiff is remote.
Hardie & Kelly vs. Brown et al
On
June 2, 2006, Hardie and Kelly (the “Plaintiff”),
Trustee of the Estate of John Forbes Brown filed against John
Forbes Brown, a bankrupt, Diane Lynn McClaflin, 1089144 Alberta
Ltd., and Deep Well (the “Defendants”) an Amended
Statement of Claim in the Court of Queen's Bench of Alberta
Judicial District of Calgary. John Forbes Brown was a
former officer and then sub-contractor of Deep Well before and
during the time he was assigned into bankruptcy on July 12,
2004. The Plaintiff claims, in addition to other issues
unrelated to Deep Well, that John Forbes Brown received 4,812,500
Deep Well shares as a result of his employment at Deep Well and
that John Forbes Brown improperly assigned these shares to the
numbered company as a ruse entered into on the eve of insolvency by
John Forbes Brown in order to facilitate the hiding of assets from
his creditors and the trustee of his bankruptcy. The
Plaintiff further claims that on August 23, 2004, John Forbes Brown
advised the Plaintiff that he in fact owned the above shares and
did not disclose this ownership in his filed bankruptcy statement
of affairs.
The
Plaintiff further claims that John Forbes Brown would lodge the
said shares with his lawyer until such time as these shares could
be transferred to the Plaintiff. The Plaintiff further
claims that, unbeknownst to them, John Forbes Brown surreptitiously
removed the shares from his lawyer's office and delivered them to
Deep Well so that Deep Well could cancel them. The
Plaintiff claims that Deep Well conspired with John Forbes Brown to
defraud the creditors of John Forbes Brown by taking receipt and
cancelling the said shares. The Plaintiff claims that
consideration paid by Deep Well for the said shares was invested in
the home owned by John Forbes Brown and his wife. The
Plaintiff seeks: (1) an accounting of the proceeds and benefits
derived by the dealings of the shares; (2) the home owned by John
Forbes Brown and his wife, to be held in trust on behalf of the
Plaintiff and an accounting of proceeds related to this trust; (3)
damages from the Defendants because of their actions; (4) a
judgement for $15,612,645 Cdn; (5) an order to sell John Forbes
Brown's home; and (6) interest and costs.
Deep
Well plans to vigorously defend itself against the Plaintiff's
claims. As at June 30, 2011, no contingent liability has been
recorded, as the Company believes that a successful outcome for the
Plaintiff is remote.
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Common Stock
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9 Months Ended | ||
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Jun. 30, 2011
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Common Stock |
On
March 9, 2010, 984,375 warrants previously granted on March 10,
2005 expired.
On
May 25, 2010, 5,000,000 warrants previously granted on May 25, 2007
expired.
On
June 22, 2010, 8,333,333 warrants previously granted on June 22,
2007 expired.
On
July 11, 2010, 323,333 warrants previously granted on July 11, 2007
expired.
On
November 9, 2010, the Company completed two private placements for
an aggregate of 29,285,713 units at a price of $0.07 per unit for
an aggregate of $2,050,000 (including the Deposit received prior to
September 30, 2010 of $48,555). Each unit consists of one common
share and one common share purchase warrant. Each warrant entitles
the holder to purchase one additional common share at a price of
$0.105 per common share for a period of three years from the date
of closing, provided that if the closing price of the Common Shares
of the Company on the principal market on which the shares trade is
equal to or exceeds US$1.00 for 30 consecutive trading days, the
warrant term shall automatically accelerate to the date which is 30
calendar days following the date that written notice has been given
to the warrant holders. The warrants expire on November 9,
2013.
On
March 23, 2011, the Board approved the issuance of 500,000
restricted common shares valued at $70,000 to be issued to a new
director as an incentive to join our Board. Also, on March 23,
2011, the Board approved issuance of 180,000 restricted common
shares valued at $25,200 to be issued on April 1, 2011 to a
contractor as compensation for services provided to us during the
period from April 1, 2010 to March 31, 2011. These transactions
have been recorded on our Balance Sheets under Shareholders’
Equity at the fair value of the common shares issued.
There
were 57,462,810 warrants outstanding as of June 30, 2011,
(September 30, 2010 - 28,177,097) which were valued at $4,687,992
(September 30, 2010 - $3,924,459) as of June 30, 2011.
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Deposits of Stock Subscription
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9 Months Ended | ||
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Jun. 30, 2011
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Deposits of Stock Subscription |
The
Company received no amounts for the period ended June 30, 2011
(September 30, 2010 - $48,555) in deposits for stock, for which the
Company received subsequent subscription agreements.
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Nature of Business and Basis of Presentation
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9 Months Ended | ||
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Jun. 30, 2011
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Nature of Business and Basis of Presentation |
Nature of Business
Allied
Devices Corporation (“Allied”) and its former
subsidiaries were engaged in the manufacture and distribution of
standard and custom precision mechanical assemblies and components
throughout the United States.
On
February 19, 2003, Allied filed a petition for bankruptcy in the
United States Bankruptcy Court under Chapter 11 in the Eastern
District of New York titled “Allied Devices Corporation, Case
No. 03-80962-511.” The company emerged from bankruptcy
pursuant to a Bankruptcy Court Order entered on September 10, 2003,
with no remaining assets or liabilities and the company name was
changed from “Allied Devices Corporation” to
“Deep Well Oil & Gas, Inc.” (“Deep
Well”).
Upon
emergence from Chapter 11 proceedings, Deep Well adopted
fresh-start reporting in accordance with the American Institute of
Certified Public Accountants Statement of Position 90-7, Financial
Reporting by Entities in Reorganization Under the Bankruptcy Code
(SOP 90-7). In connection with the adoption of fresh-start
reporting, a new entity was deemed created for financial reporting
purposes. For financial reporting purposes, Deep Well adopted the
provisions of fresh-start reporting effective September 10, 2003.
In adopting the requirements of fresh-start reporting as of
September 10, 2003, the company was required to value its assets
and liabilities at fair value and eliminate any accumulated deficit
as of September 10, 2003. Deep Well emerged from Chapter 11
proceedings with no assets and liabilities pursuant to the
Bankruptcy Order. Because the current business, heavy oil and gas
exploration, has no relevance to the predecessor company, there is
no basis for financial comparisons between Deep Well’s
current operations and the predecessor company.
This
report has been prepared showing the name “Deep Well Oil
& Gas, Inc. (and Subsidiaries)” (“the
Company”) and the post split common stock, with $0.001 par
value, from inception. The accumulated deficit has been restated to
zero and dated September 10, 2003, with the statement of operations
to begin on that date.
Basis of Presentation
The
interim consolidated financial statements included herein have been
prepared by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with accounting principles
generally accepted in the United States of America (“US
GAAP”) have been condensed or omitted pursuant to such rules
and regulations, although the Company believes that the disclosures
are adequate so as to make the information presented not
misleading.
These
interim consolidated financial statements follow the same
significant accounting policies and methods of application as the
Company’s annual consolidated financial statements for the
year ended September 30, 2010.
These
statements reflect all adjustments, consisting of normal recurring
adjustments which, in the opinion of management, are necessary for
a fair presentation of the information contained therein. However,
the results of operations for the interim periods may not be
indicative of results to be expected for the full fiscal year. It
is suggested that these consolidated financial statements be read
in conjunction with the audited consolidated financial statements
and notes thereto included in the Company’s Annual Report on
Form 10-K for the year ended September 30, 2010.
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Investment in Equity Securities
|
9 Months Ended | ||
---|---|---|---|
Jun. 30, 2011
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Investment in Equity Securities |
On
February 25, 2005, the company acquired an interest in Signet
Energy Inc. (formerly Surge Global Energy, Inc.) as a result of a
Farmout Agreement.
As
of November 19, 2008, the Company converted its Signet shares, into
2,241,558 shares of Andora, which represents an equity interest in
Andora of approximately 3.9% as of December 31, 2010. These shares
are carried at a nominal value using the cost method and their
value is included under oil and gas properties on our balance
sheet.
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Property and Equipment
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Jun. 30, 2011
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Property and Equipment |
There
was $105,773 of depreciation expense for the period ended June 30,
2011 (September 30, 2010 - $195,261).
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Commitments
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Jun. 30, 2011
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Commitments |
Compensation to Directors
Rental Agreement
On
November 20, 2007 and December 1, 2008, the Company entered into
two office lease agreements commencing December 1, 2007 and January
1, 2009 and expiring on November 30, 2012 and December 31, 2013,
respectively. The annual payments are as follows:
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Long Term Investments
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9 Months Ended | ||
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Jun. 30, 2011
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Long Term Investments |
Long
term investments consist of cash held in trust by the Energy
Resources Conservation Board (“ERCB”) which bears
interest at a rate of prime minus 0.375% and has no stated date of
maturity. These investments are required by the ERCB to ensure
there are sufficient future cash flows to meet the expected future
asset retirement obligations and are restricted for this
purpose.
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Summary of Significant Accounting Policies
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Jun. 30, 2011
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Summary of Significant Accounting Policies |
Basis of Consolidation
These
consolidated financial statements include the accounts of two
wholly owned subsidiaries: (1) Northern Alberta Oil Ltd.
("Northern") from the date of acquisition, being June 7, 2005,
incorporated under the Business Corporations Act (Alberta), Canada;
and (2) Deep Well Oil & Gas (Alberta) Ltd., incorporated under
the Business Corporations Act (Alberta), Canada on September 15,
2005. All
inter-company balances and transactions have been
eliminated.
Cash and Cash Equivalents
The
Company considers all highly liquid instruments with a maturity of
three months or less at the time of issuance to be cash
equivalents.
Property and Equipment
Property
and equipment are stated at cost less accumulated depreciation.
Depreciation expense is computed using the declining balance method
over the estimated useful life of the asset. Only half of the
depreciation rate is taken in the year of acquisition. The
following is a summary of the depreciation rates used in computing
depreciation expense.
Expenditures
for major repairs and renewals that extend the useful life of the
asset are capitalized. Minor repair expenditures are charged to
expense as incurred. Leasehold improvements are amortized over the
greater of five years or the remaining life of the lease
agreement.
Long-Lived Assets
The
Company reviews for the impairment of long-lived assets whenever
events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. An impairment loss would
be recognized when estimated undiscounted future cash flows
expected to result from the use of the asset and its eventual
disposition is less than its carrying amount. Impairment is
measured as the amount by which the assets’ carrying value
exceeds its fair value.
Asset Retirement Obligations
The
Company accounts for asset retirement obligations by recording the
estimated future cost of the Company’s plugging and
abandonment obligations. The asset retirement obligation is
recorded when there is a legal obligation associated with the
retirement of a tangible long-lived asset and the fair value of the
liability can reasonably be estimated. Upon initial recognition of
an asset retirement obligation, the Company increases the carrying
amount of the long-lived asset by the same amount as the liability.
Over time, the liabilities are accreted for the change in their
present value through charges to oil and gas production and well
operations costs. The initial capitalized costs are depleted over
the useful lives of the related assets through charges to
depreciation, depletion, and amortization. If the fair value of the
estimated asset retirement obligation changes, an adjustment is
recorded to both the asset retirement obligation and the asset
retirement cost. Revisions in estimated liabilities can result from
revisions of estimated inflation rates, escalating retirement
costs, and changes in the estimated timing of settling asset
retirement obligations. As at June 30, 2011, asset retirement
obligations amount to $424,781. The Company has posted bonds, where
required, with the Government of Alberta based on the amount the
government estimates the costs of abandonment and reclamation to
be.
Foreign Currency Translation
The
functional currency of the Canadian subsidiaries is the United
States dollar; however, the Canadian subsidiaries transact in
Canadian dollars. Consequently, monetary assets and liabilities are
remeasured into United States dollars at the exchange rate on the
balance sheet date and non-monetary items are remeasured at the
rate of exchange in effect when the assets are acquired or
obligations incurred. Revenues and expenses are remeasured at the
average exchange rate prevailing during the period. Foreign
currency transaction gains and losses are included in results of
operations.
Accounting Methods
The
Company recognizes income and expenses based on the accrual method
of accounting.
Dividend Policy
The
Company has not yet adopted a policy regarding payment of
dividends.
Financial, Concentration and Credit Risk
The
Company does not have any concentration or related financial credit
risk as most of the Company’s funds are maintained in a
financial institution which has its deposits fully guaranteed by
the Government of Alberta and the accounts receivable are
considered to be fully collectible.
Income Taxes
The
Company utilizes the liability method of accounting for income
taxes. Under the liability method, deferred tax assets and
liabilities are determined based on the differences between
financial reporting and the tax bases of the assets and
liabilities, and are measured using the enacted tax rates and laws
that will be in effect when the differences are expected to
reverse. An allowance against deferred tax assets is recorded when
it is more likely than not that such tax benefits will not be
realized.
Due
to the uncertainty regarding the Company’s profitability, a
valuation allowance has been recorded against the future tax
benefits of its losses and no net benefit has been recorded in the
consolidated financial statements.
Revenue Recognition
The
Company is in the business of exploring for, developing, producing,
and selling crude oil and natural gas. Crude oil revenue is
recognized when the product is taken from the storage tanks on the
lease and delivered to the purchaser. Natural gas revenues are
recognized when the product is delivered into a third party
pipeline downstream of the lease. Occasionally the Company may sell
specific leases, and the gain or loss associated with these
transactions will be shown separately from the profit or loss from
the operations or sales of oil and gas products.
Advertising and Market Development
The
Company expenses advertising and market development costs as
incurred.
Basic and Diluted Net Income (Loss) Per Share
Basic
net income (loss) per share amounts are computed based on the
weighted average number of shares actually outstanding. Diluted net
income (loss) per share amounts are computed using the weighted
average number of common shares and common equivalent shares
outstanding as if shares had been issued on the exercise of the
common share rights unless, the exercise becomes antidilutive and
then the basic and diluted per share amounts are the
same.
Financial Instruments
Fair
Values
Financial
instruments include cash and cash equivalents, accounts receivable,
long term investments, investment in equity securities, accounts
payable, accounts payable – related parties and asset
retirement obligations. The fair value of these financial
instruments approximates their carrying value because of the
short-term maturity of these items unless otherwise noted. The fair
value of the investment in equity securities cannot be determined
as the market value is not readily obtainable. The equity
securities are reported using the cost method.
Environmental Requirements
At
the report date, environmental requirements related to the oil and
gas properties acquired are unknown and therefore an estimate of
any future cost cannot be made.
Share-Based Compensation
The
Company accounts for stock options granted to directors, officers,
employees and non-employees using the fair value method of
accounting. The fair value of stock options for
directors, officers and employees are calculated at the date of
grant and is expensed over the vesting period of the options on a
straight-line basis. For non-employees, the fair value
of the options is measured on the earlier of the date at which the
counterparty performance is complete or the date at which the
performance commitment is reached. The Company uses the
Black-Scholes model to calculate the fair value of stock options
issued, which requires certain assumptions to be made at the time
the options are awarded, including the expected life of the option,
the expected number of granted options that will vest and the
expected future volatility of the stock. The Company reflects
estimates of award forfeitures at the time of grant and revises in
subsequent periods, if necessary, when forfeiture rates are
expected to change.
Recently Adopted Accounting Standards
In
January 2010, the Financial Accounting Standards Board
(“FASB”) issued Accounting Standards Update
(“ASU”) 2010-06, “Fair Value Measurements and
Disclosures (Topic 820) - Improving Disclosures about Fair Value
Measurements.” This ASU requires some new disclosures and
clarifies some existing disclosure requirements about fair value
measurement as set forth in Accounting Standards Codification
(“ASC”) 820 (formerly SFAS No. 157). ASU 2010-06 amends
ASC 820 (formerly SFAS No. 157) to now require: (1) a reporting
entity should disclose separately the amounts of significant
transfers in and out of Level 1 and Level 2 fair value measurements
and describe the reasons for the transfers; and (2) in the
reconciliation for fair value measurements using significant
unobservable inputs, a reporting entity should present separately
information about purchases, sales, issuances, and settlements. In
addition, ASU 2010-06 clarifies the requirements of existing
disclosures. ASU 2010-06 is effective for interim and annual
reporting periods beginning after December 15, 2009, except for the
disclosures about purchases, sales, issuances, and settlements in
the roll forward of activity in Level 3 fair value measurements.
Those disclosures are effective for fiscal years beginning after
December 15, 2010, and for interim periods within those fiscal
years. Early application is permitted. The adoption of these
accounting standards has not had a significant effect on the
financial statement disclosures.
Estimates and Assumptions
Management
uses estimates and assumptions in preparing financial statements in
accordance with generally accepted accounting principles. Those
estimates and assumptions affect the reported amounts of the assets
and liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses. Actual results
could vary from the estimates that were used in preparing these
consolidated financial statements.
Significant
estimates by management include valuations of oil and gas
properties, valuation of accounts receivable, useful lives of
long-lived assets, asset retirement obligations, valuation of
share-based compensation, and the realizability of future income
taxes.
Reclassifications
Certain
prior period amounts have been reclassified to conform to current
period presentation.
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Stock Options
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Jun. 30, 2011
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Stock Options |
On
November 28, 2005, the Board of Directors (the “Board”)
of Deep Well adopted the Deep Well Oil & Gas, Inc. Stock Option
Plan (the “Plan”). The Plan was approved by a majority
of shareholders at the February 24, 2010 general meeting of
shareholders. The Plan, is administered by the Board, permits
options to acquire shares of the Company’s common stock (the
“Common Shares”) to be granted to directors, senior
officers and employees of the Company and its subsidiaries, as well
as certain consultants and other persons providing services to the
Company or its subsidiaries.
The
maximum number of shares, which may be reserved for issuance under
the Plan, may not exceed 10% of the Company’s issued and
outstanding Common Shares, subject to adjustment as contemplated by
the Plan. The aggregate number of Common Shares with respect to
which options may be vested to any one person (together with their
associates) in any one year, together with all other incentive
plans of the Company, may not exceed 500,000 Common Shares, and in
total may not exceed 2% of the total number of Common Shares
outstanding.
On
November 28, 2010, all of the stock options granted to Dr. Horst A.
Schmid, Portwest Investments Ltd., Mr. Curtis James Sparrow,
Concorde Consulting, Trebax Projects Ltd., Mr. Cyrus Spaulding, Mr.
Donald E.H. Jones and Mr. Moses Ling, expired unexercised. In total
2,727,500 options granted to directors and former directors and
their controlled companies expired and no further options were
granted.
On
March 23, 2011, the Board approved to decrease the exercise price
of the stock options to purchase 36,000 shares of common stock of
Deep Well previously granted to an employee of the Company on
September 20, 2007. The exercise price of the stock option is
reduced from $0.47 per common share to $0.14 per common share,
effective immediately. All other terms and conditions of the option
agreement will remain unchanged. The options expire on September
20, 2012.
On
March 23, 2011, the Company granted its directors, Dr. Horst A.
Schmid, Mr. Said Arrata, Mr. Satya Das, Mr. David Roff, Mr. Curtis
Sparrow and Mr. Malik Youyou, options to purchase 450,000 shares
each of common stock at an exercise price of $0.14 per common
share, 150,000 vesting immediately and the remaining vesting
one-third on March 23, 2012, and one-third on March 23, 2013, with
a five-year life.
For
the period ended June 30, 2011, the Company recorded share based
compensation expense related to stock options in the amount of
$161,676 (September 30, 2010 - $nil) as 2,700,000 of new stock
options have been issued. No options were exercised during the
period ended June 30, 2011, therefore, the intrinsic value of the
options exercised during the period ended June 30, 2011 is nil. As
of June 30, 2011, there was remaining unrecognized compensation
cost of $172,020 related to the non-vested portion of unit option
awards. Compensation expense is based upon straight-line
depreciation of the grant-date fair value over the vesting period
of the underlying unit option.
The
aggregate intrinsic value of exercisable options as of June 30,
2011, was $nil (September 30, 2010 - $nil).
The
following is a summary of stock option activity as at June 30,
2011:
The
following table summarizes the activity of the Company’s
non-vested stock options since September 30, 2009:
Measurement Uncertainty
The
Black-Scholes option-pricing model was developed for use in
estimating the fair value of traded options that have no vesting
restrictions and are fully transferable. Stock options and the
warrants attached to the units issued by the Company are
non-transferable. Option pricing models require the input of
subjective assumptions including expected share price volatility.
The fair value estimate can vary materially as a result of changes
in the assumptions.
|
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