10-K: Daybreak Oil and Gas Reports Increased Revenue and Production in Fiscal Year 2023

Daybreak Oil and Gas saw a significant increase in revenue and production in fiscal year 2023, primarily due to the acquisition of Reabold California, LLC.

Summary

• Daybreak Oil and Gas, Inc. reported a net loss of approximately $2.4 million for the fiscal year ended February 28, 2023.
• The company's accumulated deficit as of February 28, 2023, is approximately $31.96 million.
• Crude oil revenue increased by 125.4% to $1,533,260, compared to $680,107 in the previous year.
• The average realized crude oil sales price was $89.59 per barrel, a 26.6% increase from $70.75 in the prior year.
• Net crude oil sales volume increased by 78.0% to 17,114 barrels, primarily due to the Reabold acquisition.
• Natural gas revenue was $80,026, a 100% increase, with an average sales price of $20.94 per Mcf and a sales volume of 3,822 Mcf.
• Total operating expenses increased by 314.2% to $3,897,299, compared to $940,886 in the previous year.
• The company's PV-10 value of proved reserves was approximately $11.0 million at February 28, 2023, a 77.4% increase from $6.2 million in the prior year.
• The company's total proved reserves were 393,910 BOE at February 28, 2023, a 234.3% increase from 117,844 BOE in the prior year.

Sentiment

Score: 4

Explanation: While the company has shown significant growth in revenue and production, the substantial net loss, accumulated deficit, and ongoing regulatory and financial challenges create a negative outlook. The company's dependence on volatile commodity prices and the need for additional financing also contribute to the low sentiment score.

Positives

• The acquisition of Reabold California, LLC significantly boosted production and revenue.
• The company experienced a substantial increase in both crude oil and natural gas prices.
• The PV-10 value of proved reserves increased significantly, indicating a stronger asset base.
• The company's cash balance increased by approximately $160,000.

Negatives

• The company reported a net loss of approximately $2.4 million for the fiscal year.
• Total operating expenses increased significantly, primarily due to the Reabold acquisition and related costs.
• The company has an accumulated deficit of approximately $31.96 million.
• The company has a working capital deficit of approximately $2.1 million.
• The company has substantial indebtedness.
• The company has reclassified proved undeveloped reserves to unproved reserves due to the inability to commit sufficient capital within the required five-year development window.

Risks

• The company's financial condition is highly dependent on volatile crude oil and natural gas prices.
• The company faces competition from larger crude oil and natural gas companies.
• The company's drilling programs are subject to various risks, including unexpected drilling conditions and regulatory delays.
• The company's producing reserves are concentrated in California, exposing it to regional risks.
• The company's proved reserves are estimates and depend on many assumptions.
• The company may not be able to replace current production with new reserves.
• The company is subject to extensive environmental regulations and potential liabilities.
• The company may be unable to continue as a going concern.
• The company's common stock is classified as a penny stock, increasing investment risk.
• The company has two large shareholders that may be able to control the operations of the company.

Future Outlook

The company plans to drill three development wells and one SWD well in its East Slopes project area in the 2024-2025 fiscal year once additional financing is secured. In the Monterey and Contra Costa County project areas, the company plans to drill two disposal wells, one in each county, which will allow them to return to production the 10 wells that were a part of the Reabold acquisition. The company is awaiting the settlement of the Sunflower lawsuit against the State of California and CalGEM before they can receive final regulatory approval to proceed with these projects.

Industry Context

The document highlights the volatility in the energy markets and its impact on the company's financial performance. The company's focus on joint ventures and the use of modern technology, such as 3-D seismic, to mitigate risk is consistent with industry practices. The regulatory challenges faced by the company in California are also reflective of broader industry trends.

Comparison to Industry Standards

• The company's reliance on spot market prices for crude oil and natural gas sales is a common practice in the industry, but it also exposes the company to price volatility.
• The company's use of independent engineering firms to estimate proved reserves is consistent with industry standards and SEC requirements.
• The company's focus on joint ventures to limit drilling risk is a common strategy among smaller oil and gas companies.
• The company's challenges in obtaining drilling permits in California are similar to those faced by other operators in the state due to regulatory hurdles.
• The company's production costs per BOE of $62.97 are higher than some larger producers, but this is not unusual for smaller companies with less economies of scale.

Legal Proceedings

• The company is involved in a lawsuit, Sunflower Alliance v. California Department of Conservation, Geologic Energy Management Division, which challenges the state agency's compliance with the California Environmental Quality Act (CEQA) with respect to a wastewater injection permit.

Related Party Transactions

• The company's Chief Operating Officer is a 50% owner in Great Earth Power and ABPlus Net Holdings, which provide services to the company.
• The company entered into a Secured Promissory Note with James F. Westmoreland, the company's Chairman, President and Chief Executive Officer.
• The company converted related party debts into shares of the company's common stock.

Stakeholder Impact

• Shareholders are impacted by the company's net loss and accumulated deficit, as well as the volatility of the company's stock price.
• Employees are impacted by the company's financial performance and the potential for future salary adjustments.
• Customers are impacted by the company's ability to maintain production and deliver crude oil and natural gas.
• Suppliers are impacted by the company's ability to pay for goods and services.
• Creditors are impacted by the company's substantial indebtedness and ability to repay its obligations.

Next Steps

• The company plans to drill three development wells and one SWD well in its East Slopes project area in the 2024-2025 fiscal year once additional financing is put in place.
• The company plans to drill two disposal wells, one in each county, which will allow them to return to production the 10 wells that were a part of the Reabold acquisition.
• The company is awaiting the settlement of the Sunflower lawsuit against the State of California and CalGEM before they can receive final regulatory approval to proceed with these projects.

Key Dates

Keywords

crude oil, natural gas, production, reserves, revenue, drilling, California, Reabold, acquisition, operating expenses