ITEM 1. BUSINESS
Name and Organization
We were incorporated under the laws of the State of Nevada on August 27, 2004 under the name ST Online Corp. On June 22, 2007, we entered into a business combination agreement with Park Place Energy Inc., a private company incorporated under the laws of the Province of Alberta, Canada, and 0794403 B.C. Ltd., a wholly-owned subsidiary of our company incorporated under the laws of British Columbia. Pursuant to this business combination agreement, Park Place Energy Inc. and 0794403 B.C. Ltd. amalgamated under the provisions of the British Columbia Business Corporations Act and continued as Park Place Energy Inc., a company governed by the British Columbia Business Corporations Act.
On July 6, 2007, we completed a forward split of our shares of common stock on the basis of eight new shares of common stock for each one share of common stock outstanding on that date and increased the authorized share capital from 100,000,000 shares of common stock to 800,000,000 shares of common stock. At the same time, we merged with our wholly-owned subsidiary, Park Place Energy Corp. which we incorporated under the laws of the State of Nevada in contemplation of the acquisition of all of the issued and outstanding shares of Park Place Energy Inc. and our name was then changed to Park Place Energy Corp.
On July 23, 2007, we completed a forward split of our shares of common stock on the basis of one and one-half new shares of common stock for each one share of common stock outstanding on that date and increased the authorized share capital from 800,000,000 shares of common stock to 1,200,000,000 shares of common stock.
On July 30, 2007, pursuant to the terms of a business combination agreement, we issued to each shareholder of record of Park Place Energy Inc. one share of our common stock for every two shares they held of Park Place Energy Inc. As a result, we issued 8,995,662 shares of common stock (299,855 shares on a post March 24, 2010 reverse split basis) shares of common stock to the former shareholders of Park Place Energy Inc. Additionally, as part of this transaction, a total of 45,000,000 shares of our common stock (1,500,000 shares on a post March 24, 2010 reverse split basis) held by former principals of our company were surrendered for cancellation. We thereby acquired Park Place Energy Inc. For accounting purposes, the acquisition was treated as a recapitalization with Park Place Energy Inc. being the accounting acquirer and the go-forward financial statements reflect the history of Park Place Energy Inc. from its inception on May 4, 2006. As a result of the acquisition, the business of our company is now the acquisition and exploration of oil and gas properties.
On August 31, 2009, we completed a forward split of our shares of common stock on the basis of ten new shares of common stock for each one share of common stock outstanding on that date and increased the authorized share capital from 1,200,000,000 shares of common stock to 12,000,000,000 shares of common stock.
On March 24, 2010, we completed a reverse split of our shares of common stock on the basis of one new share of common stock for each three hundred shares of common stock outstanding on that date and decreased our authorized share capital from 12,000,000,000 shares of common stock to 40,000,000 shares of common stock.
On November 29, 2012, we received written consent from holders of 58% of our voting securities to increase the total number of shares of common stock our company is authorized to issue from 40,000,000 to 250,000,000 shares to common stock with a par value of $0.00001. On January 14, 2013, the Nevada Secretary of State accepted for filing of a Certificate of Amendment, increasing our authorized capital to 250,000,000 shares of common stock with a par value of $0.00001.
General
Park Place Energy Corp. is an exploration stage company engaged in exploring for oil and natural gas. Throughout this Annual Report on Form 10-K, the terms "Park Place" "we" "us," "the Company", "our" and "our company" refer to Park Place Energy Corp. and its subsidiaries.
Today, the operations of our company and its subsidiaries concentrate on CBM and tight gas exploration and development in the Dobrich region in north eastern Bulgaria. Our goal is to become a recognized producer of gas in Bulgaria and in CBM property acquisition, exploration, development and production in Europe. Our principal business offices are located at Suite 300, 4-5th Avenue SW, Calgary, AB, Canada, T2P 0L6 and our telephone number is (403) 537-8710.
We currently have interests in oil and gas properties in the Canadian province of Saskatchewan and in Eastern Bulgaria. See “Properties” for more information about our interests. On October 12, 2010 the Bulgarian Council of Ministers granted to the Company a permit for the exploration and prospecting of oil and natural gas in the Dobroudja Basin. The Permit is for a five year period. On October 25, 2010 an appeal against the Bulgarian Council of Ministers decision was filed with the Supreme Administrative Court of Bulgaria by a competitive bidder. On July 17, 2012, the Court upheld the Company’s claim to the Vranino property and rejected the appeal. On September 14, 2012, the Company was served with an appeal against the July 17, 2012 Supreme Administrative Court of Bulgaria’s decision to uphold the award of the Vranino license to the Company.
Park Place believes that good environmental, social, health and safety performance is an integral part of our business success. Our commitment to these principles is demonstrated by the fact that we have had no lost-time accidents in over six years and no major environmental incidents. We conduct our business with respect and care for our employees, contractors, communities, and the environments in which we operate. Our vision is zero harm to people and the environment while creating value for our shareholders as well as for Bulgaria, including the regions and communities within which we operate. We have a commitment to be a good corporate citizen of the countries in which our properties are located, striving to emphasize and utilize very high levels of local personnel, services, and equipment.
Our Website
Our website can be found at www.parkplaceenergy.com. Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed with or furnished to the U.S. Securities and Exchange Commission ("SEC"), pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), can be accessed free of charge by linking directly from our website under the "Investor Relations - SEC Filings" caption to the SEC's Edgar Database.
Vranino 1-11 exploration block, Bulgaria
In 2010, we revamped our business strategy to focus on obtaining gas properties in Europe due to the high price of natural gas and shortage in supply in the continent. We retained consultants with specialized technical expertise in unconventional gas exploration to assist us in locating, assessing and planning suitable exploration and development of potential opportunities. In October of 2010, we were awarded an exploration permit for the “Vranino 1-11 block” located in Dobroudja Basin by the Bulgarian Counsel of Ministers, with terms and conditions of the permit as follows:
Five year term exploration program;
Perforate and re-test the Vranino #1 well previously drilled;
Initiate a comprehensive 2-D and 3-D seismic program over the license area,
Drill and complete a 5 additional test wells in the eastern up-thrown block within the license area
To formulate our work program, we consulted with the previous operator, local geologists and others. The costs of the exploration plan may vary depending on a variety of factors, including, inter alia, the market price and availability of technical services in the local area, taxes, and transportation costs relating to delivering equipment to the exploration area. We also plan to complete existing wells using horizontal completion technology to establish gas flow rates and economics.
Subsequent to the award of this claim, we have engaged in an assessment of drilling services companies in the local area suitable to engage to provide drilling services in the region. We have located several suitable service providers for drilling and other services which we intend to engage at the appropriate time. Local companies in Bulgaria will be used to provide services to the best extent possible. However, as the Bulgarian energy sector is relatively undeveloped, the availability of local drilling services specialized to unconventional gas exploration is limited. Park Place has determined that such expertise, services or equipment is available in Romania, Turkey and other surrounding regions. We have located suitable drilling services companies in Romania and Turkey that we may hire to perform the more difficult drilling involving unconventional gas hydrocarbon structures.
Our exploration of the Vranino 1-11 block has not yet commenced due to the fact the a competing bidder has disputed the award of the claim to Park Place. In August the Bulgarian Supreme Administrative Court affirmed the validity of our permit. A second appeal was taken which outcome is expected to be received in April or May of 2013.
2012 Events
We have been focused on resolving the legal challenges in Bulgaria to retain our property in Bulgaria. We are pleased the Court of first instance affirmed the validity of our license and its terms in August of 2012 and rejected the appeal. We have otherwise kept abreast of general economic, political, and regulatory issues that impact our project in Bulgaria. During the year our focus was in obtaining and securing background and data on the license area, including results of past operators. Utilizing past data, we have developed a strategy and preliminary plans for exploitation of coal gas deposits on the block.
Patents and Trademarks
We do not own, either legally or beneficially, any patent or trademark.
Research and Development Expenditures
We have not incurred any research or development expenditures since our incorporation.
Government Regulation
General
Our oil and gas operations are subject to various federal, provincial, state and local governmental regulations in Canada, the United States and Bulgaria. Matters subject to regulation include exploration permits, discharge permits for drilling operations, drilling and abandonment bonds, operating practices, reports concerning operations, the spacing of wells, pooling of properties, taxation and environmental protection. These laws and regulations are under constant review for amendment or expansion. From time to time, regulatory agencies have imposed price controls and limitations on production by restricting the rate of flow of oil and gas wells below actual production capacity in order to conserve supplies of oil and gas. The production, handling, storage, transportation and disposal of oil and gas, by-products thereof, and other substances and materials produced or used in connection with oil and gas operations are also subject to regulation under federal, state, provincial and local laws and regulations relating primarily to the protection of human health and the environment. To date, expenditures related to complying with these laws, and for remediation of existing environmental contamination, have not been significant in relation to the results of operations of our company. The requirements imposed by such laws and regulations are frequently changed and subject to interpretation, and we are unable to predict the ultimate cost of compliance with these requirements or their effect on our operations. Changes in these regulations could require us to expend significant resources to comply with new laws or regulations or changes to current requirements and could have a material adverse effect on us.
Oil and Gas Regulation
In Bulgaria, the oil and gas industry is regulated by various federal laws, acts and regulations. These acts are primarily the Underground Resources Act “URA” and the Environment and Water Protection Act. Additionally, in December 2011, the Bulgarian Counsel of Ministers imposed a temporary moratorium on shale gas exploration and hydraulic fracking. This moratorium is presently under review by a commission established by the Counsel of Ministers, which pending recommendations, is likely to result in amendments to the URA and a revocation of the moratorium. The Company will adjust its exploration and development plans as is required depending on the outcome of the final legislation.
Management believes that we are in substantial compliance with current applicable environmental laws and regulations in both Canada and Bulgaria at present.
Competition
We operate in competitive industries, competing with other oil and gas exploration companies, independent producers which are actively seeking oil and gas properties throughout the world. The principal area of competition is encountered in the financial ability for our company to acquire acreage positions and drill wells to explore for oil and gas, then, if warranted install production equipment. Competition for the acquisition of oil and gas license areas is high in Europe, where majors have increasing interest in acquiring exploration blocks. Therefore, we may not be successful in acquiring additional blocks in the face of this competition. No assurance can be given that we will be successful in its efforts to secure additional properties and or develop its existing oil and properties.
Employees & Directors
As of December 31, 2012, our business is generally conducted through our officers and directors and also through consultants of the company. The following is a description of our Directors and Officers professional experience in Oil and Gas:
David Johnson, President, Director
David Johnson has served as the company’s president since 2008 during which time the company disposed its North American assets to focus on unconventional gas in Europe. Mr. Johnson has overseen several of Park Place’s exploration and development projects in the past, including the 8 mile interests in northern BC, its Tennessee and Alberta claims.
Parvez Tyab - Director
Parvez Tyab has over 20 years’ experience as a financier and corporate executive, having served as an officer and director of a number of public and private companies. Mr. Tyab has been involved in the acquisition and development of oil and gas properties and natural resource projects in Canada, the US as well as internationally with an emphasis on Africa.
Dr. Art Halleran - Director
Dr. Halleran is a geologist obtaining his Ph.D. from the University of Calgary, who has 31 years of international petroleum exploration experience. International experience includes countries such as Canada, Colombia, Egypt, India, Guinea, Sierra Leone, Sudan, Suriname, Chile, Brazil, Pakistan, Peru, Tunisia, Trinidad Tobago, Argentina, Ecuador and Guyana. Dr. Halleran's experience includes work with Petro-Canada, Chevron, Rally Energy and Canacol Energy. In 2007, Dr. Halleran founded Canacol Energy Ltd., a company with petroleum and natural gas exploration and development activities in Colombia, Brazil and Guyana, where he served as vice president of exploration. Previously Dr. Halleran was a consulting geologist for Rally Energy Corp. (Egypt) which discovered prolific reservoirs in Egypt. Dr. Halleran currently serves as chief executive officer of United Hunter Oil and Gas Corp., a company with oil interests in California, USA. Dr. Halleran was appointed as a director of Park Place Petroleum to provide technical expertise and oversight to the Dobroudja Basin gas project in Bulgaria. We consider his education and technical experience in the energy sector will be valuable to our company.
ITEM 1A.
ITEM 1A. RISK FACTORS
Much of the information included in this annual report includes or is based upon estimates, projections or other “forward looking statements”. Such forward looking statements include any projections or estimates made by us and our management in connection with our business operations. While these forward looking statements, and any assumptions upon which they are based, are made in good faith and reflect our current judgment regarding the direction of our business, actual results will almost always vary, sometimes materially, from any estimates, predictions, projections, assumptions, or other future performance suggested herein. We undertake no obligation to update forward looking statements to reflect events or circumstances occurring after the date of such statements.
Such estimates, projections or other “forward looking statements” involve various risks and uncertainties as outlined below. We caution readers of this annual report that important factors in some cases have affected and, in the future, could materially affect actual results and cause actual results to differ materially from the results expressed in any such estimates, projections or other “forward looking statements”. In evaluating us, our business and any investment in our business, readers should carefully consider the following factors.
Risks Relating to Our Business
We have a limited operating history and have incurred losses to date, and require financing for continued operations. If we do not continue to receive financing, then we may have to scale back or even cease our ongoing business operations.
We have a limited oil and gas operating history and our success is significantly dependent on a successful acquisition, drilling, completion and production of our properties. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise. We may be unable to locate recoverable reserves or operate on a profitable basis. We are in the exploration stage with production, and potential investors should be aware of the difficulties normally encountered by enterprises in the exploration stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.
The outcome of our legal dispute regarding the Vranino 1-11 block will materially impact our performance and our ability to raise capital in the future.
As previously noted, the permit granted to us by the Bulgarian Counsel of Ministers is subject to an appeal by a competitive bidder. There are no guarantees that our permit will be upheld by the Courts. If the Courts do not uphold our permit, then Park Place will likely lose the block, and will not be able to explore the property for gas. In that case, Park Place will be required to find additional properties and there is no guarantee that suitable properties will be found. Additionally, if the Permit is cancelled, this will likely have a material impact on our ability to raise capital and the performance of our company.
Most of our properties are in the exploration stage, there can be no assurance that we will establish commercial discoveries on these properties.
Exploration for economic reserves of oil and gas is subject to a number of risk factors. Few properties that are explored are ultimately developed into producing oil or gas wells. Some of our properties are in the exploration stage only and are without proven reserves either of oil and gas. We may not establish commercial discoveries on some of our exploration properties.
Oil and gas exploration involves a high degree of risk and there is no assurance that expenditures for future exploration by us will result in new discoveries in commercial quantities.
Although we have a limited number of specific identified exploration prospects at the present time, we intend to continue to evaluate prospects on an ongoing basis in a manner consistent with industry standards. Our long-term commercial success depends on our ability to find, acquire, develop and commercially produce hydrocarbons. We cannot provide any assurance that we will be able to locate satisfactory properties for acquisition or participation. Moreover, if we do identify such acquisitions or participations, we may determine that current markets, terms of acquisition and participation or pricing conditions make such acquisitions or participations uneconomic.
We are dependent on discovering new reserves and exploiting known deposits.
Our future oil and natural gas reserves, production, and cash flows, if any, to be derived therefrom are highly dependent upon us successfully exploiting known gas deposits and discovering new reserves. A future increase in our reserves will depend not only on our ability to develop any properties we may have from time to time, but also on our ability to select and acquire suitable producing properties or prospects and technologies for exploitation. There are no absolute guarantees that our future efforts will result in the economic development of natural gas.
The production and producing life of wells is uncertain and production will decline.
If any well becomes commercially productive, gas production will decline over time as the well is depleted.
The unavailability or high cost of drilling rigs, equipment, supplies, personnel and oil field services could adversely affect our ability to execute our exploration and exploitation plans on a timely basis and within our budget.
The high costs of drilling rigs, equipment, supplies or personnel could increase the cost of, delay or otherwise adversely affect our exploration and development operations, which could have a material adverse effect on our business, financial condition or results of operations.
We will require significant additional financing in order to continue our exploration activities and our assessment of the commercial viability of our oil and gas and oil sands properties.
We will require additional financing in order to carry out our exploration and development activities. Failure to obtain such financing on a timely basis could cause us to forfeit our interest in certain properties, miss certain acquisition opportunities, or delay or indefinitely postpone further exploration of our projects.
Our operations require significant additional capital, which may not be available to us on acceptable terms, or at all.
Our cash flow from future production, if any, may not necessarily be sufficient to fund our ongoing activities in the future. We will be required to raise additional financing for the Vranino 1-11 property. From time to time, we may require additional financing in order to carry out our oil and gas acquisitions, exploration and development activities, if any. If our revenues from any future production decrease as a result of lower oil and natural gas prices or otherwise, it will affect our ability to expend the necessary capital to maintain or increase production. If our Company’s cash flow from present operations is not sufficient to satisfy our capital expenditure requirements, and there can be no absolute assurance that additional debt or equity financing will be available to meet these requirements or available to us on favourable terms.
If we lose the services of our management and key consultants, or fail to acquire additional consultants in the future, then our plan of operations may be delayed.
Our success depends to a significant extent upon the continued service of our Directors and consultants and the addition of suitable consultants, employees and subcontractors to undertake the exploration of our oil and gas properties. Losing the services of key individuals could have a material adverse effect on the Company’s prospective business until a replacement is found.
Our interests are held in the form of farmout agreements, licenses and leases that may terminate.
Our properties are held in the form of permits, leases and license agreements. If we fail to meet the specific requirements of the work programs, the license, permit or lease may terminate or expire. The termination or expiration of our permits, licenses or leases or the working interests relating may have a material adverse effect on our results of operation and business.
The operations of our Company may require additional licenses and permits from various governmental authorities. There is no absolute assurance that we will be able to obtain all necessary licenses and permits on a timely basis and delays in obtaining permits may had a material effect on the Company.
Our acquisitions may not be successful.
As part of our growth strategy, we intend to acquire additional interests in oil and gas properties. Such acquisitions may pose substantial risks to our business, financial condition, and results of operations. In pursuing acquisitions, we will compete with other companies, many of which have greater financial and other resources to acquire attractive properties. Additionally, cash expended on exploration properties may not yield successful results.
We are subject to foreign currency risks.
Oil and gas operations in the United States generate revenues in United States dollars, while expenses are incurred in Canadian dollars. Gas production in Bulgaria generate Euros. As a result, any fluctuations against the Canadian Dollar may result in a change in profits, if any, that our projects would generate if they commence production. Accordingly, the value of our projects is subject to risk based on changes to foreign currency rates.
Risks Relating to Our Industry
The oil and gas industry is subject to significant competition, which may increase costs or otherwise adversely affect our ability to compete.
Oil and gas exploration and development is competitive and involves a high degree of risk. There is no absolute assurance that commercial production of oil and gas will be obtained from any of our properties, nor are there any absolute assurances that production, if obtained, will be profitable.
A substantial or extended decline in oil and natural gas prices could reduce our future revenue and earnings.
As with most other companies involved in resource exploration and development of hydrocarbons, we may be adversely affected by future increases in the costs of conducting exploration, development and resource extraction that may not be fully offset by increases in the price received on sale of the petroleum or natural gas.
Our future revenues, if any, profitability and growth and the carrying value of our oil and gas properties will be substantially dependent on prevailing prices of oil and gas. Our ability to borrow and to obtain additional capital on attractive terms is also substantially dependent upon oil and gas prices. Prices for oil and gas are subject to fluctuations in response to relatively changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional factors beyond our control.
Industry activities are dependent on availability of drilling equipment and access restrictions.
Oil and natural gas exploration and development activities are dependent on the availability of drilling and related equipment in the particular areas where such activities will be conducted. Demand for such limited equipment or access restrictions may affect the availability of such equipment to our company and may delay exploration and development activities.
The marketability of natural resources will be affected by numerous factors beyond our control which may result in us not receiving an adequate return on invested capital to be profitable or viable.
The marketability of natural resources which may be acquired or discovered by us will be affected by numerous factors beyond our control. These factors include market fluctuations in oil and gas pricing and demand, the proximity and capacity of natural resource markets and processing equipment, governmental regulations, land tenure, land use, regulation concerning the importing and exporting of oil and gas and environmental protection regulations. The exact effect of these factors cannot be accurately predicted, but the combination of these factors may result in us not receiving an adequate return on invested capital to be profitable or viable.
Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our Company.
Oil and gas operations are subject to federal, provincial, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to federal, provincial, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from government bodies are required for drilling operations to be conducted; no assurance can be given that such permits will be received. Environmental standards imposed by federal, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages. To date we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in future and this may affect our ability to expand or maintain our operations.
In general, our exploration activities are subject to certain federal, provincial and local laws and regulations relating to environmental quality and pollution control. Such laws and regulations increase the costs of these activities and may prevent or delay the commencement or continuance of a given operation. Compliance with these laws and regulations has not had a material effect on our operations or financial condition to date.
Specifically, we are subject to legislation regarding emissions into the environment, water discharges and storage and disposition of hazardous wastes. In addition, legislation has been enacted which requires well and facility sites to be abandoned and reclaimed to the satisfaction of provincial authorities. However, such laws and regulations are frequently changed and we are unable to predict the ultimate cost of compliance. Generally, environmental requirements do not appear to affect us any differently or to any greater or lesser extent than other companies in the industry. We believe that our operations comply, in all material respects, with all applicable environmental regulations.
Exploratory drilling involves many risks and we may become liable for pollution or other liabilities which may have an adverse effect on our financial position.
Drilling operations generally involve a high degree of risk. Hazards such as unusual or unexpected geological formations, power outages, labor disruptions, blow-outs, sour gas leakage, fire, inability to obtain suitable or adequate machinery, equipment or labor, and other risks are involved. We may become subject to liability for pollution or hazards against which we cannot adequately insure or which we may elect not to insure. Incurring any such liability may have a material adverse effect on our financial position and operations.
The potential profitability of our projects may be affected by factors beyond the control of our Company.
The potential profitability of oil and gas and oil sands properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are volatile, potentially subject to governmental fixing, pegging, controls, or any combination of these and other factors, and respond to changes in domestic, international, political, social, and economic environments.
We are subject to complex laws that can affect the cost, manner and feasibility of doing business thereby increasing our costs and reducing our profitability.
Failure to comply with these laws may also result in the suspension or termination of operations and liabilities under administrative, civil and criminal penalties. Moreover, these laws could change in ways that substantially increase the costs of doing business. Any such liabilities, penalties, suspensions, terminations or regulatory changes could materially and adversely affect our financial condition and results of operations.
The establishment of proved reserves is subjective and subject to numerous uncertainties.
We have established proved reserves and gas-in-place on certain of our properties. In general, estimates of recoverable natural resources are based upon a number of factors and assumptions made as of the date on which the resource estimates were determined, such as geological and engineering estimates which have inherent uncertainties and the assumed effects of regulation by governmental agencies and estimates of future commodity prices and operating costs, all of which may vary considerably from actual results. All such estimates are, to some degree, uncertain and classifications of resources are only attempts to define the degree of uncertainty involved. For these reasons, estimates of the recoverable natural resources, the classification of such resources based on risk of recovery, prepared by different engineers or by the same engineers at different times, may vary substantially.
Environmental and regulatory compliance may impose substantial costs on us.
Our operations are or will be subject to laws and regulations relating to improving or maintaining environmental quality. Environmental laws often require parties to pay for remedial action or to pay damages regardless of fault. Environmental laws also often impose liability with respect to divested or terminated operations, even if the operations were terminated or divested many years ago.
Our exploration activities and drilling programs are or will be subject to extensive laws and regulations governing prospecting, development, production, exports, taxes, labour standards, occupational health, waste disposal, protection and remediation of the environment, protection of endangered and protected species, mine safety, toxic substances and other matters. Exploration and drilling is also subject to risks and liabilities associated with pollution of the environment and disposal of waste products. Compliance with these laws and regulations will impose substantial costs on us and will subject us to significant potential liabilities.
The current regulatory regime may change.
The current regulatory regime governing oil and gas exploration in Bulgaria, USA and Canada is subject to change. As a result, our business may be affected in ways that we cannot predict.
Risks Relating to Our Common Stock
Investment in our common stock is speculative due to the nature of our business.
An investment in our common stock is speculative due to the nature of our involvement in the acquisition and exploration of oil and gas properties.
Our shareholders may experience dilution as a result of our issuance of additional common stock or the exercise of outstanding options and warrants.
We may enter into commitments in the future which would require the issuance of additional common stock. We may also grant additional share purchase warrants and stock options. The exercise of share purchase warrants or options and the subsequent resale of common stock in the public market could adversely affect the prevailing market price and our ability to raise equity capital in the future. Any share issuances from our treasury will result in immediate dilution to existing shareholders.
We have never declared or paid cash dividends on our common stock.
We do not anticipate paying cash dividends on our common stock in the foreseeable future. Payment of future cash dividends, if any, will be at the discretion of our board of directors and will depend on our financial condition, results of operations, contractual restrictions, capital requirements, business prospects and other factors that our board of directors considers relevant. Accordingly, investors may only see a return on their investment if the value of our securities appreciates.
Our stock price is volatile.
Our common stock is traded dually on the OTC Bulletin Board and the Frankfurt Stock Exchange. There can be no assurance that an active public market will continue for our common stock, or that the market price for our common stock will not decline below its current price. Such price may be influenced by many factors, including, but not limited to, investor perception of us and our industry and general economic and market conditions. The trading price of our common stock could be subject to wide fluctuations in response to a variety of matters and market conditions.
Our common stock will be subject to the “Penny Stock” Rules of the SEC.
Our securities will be subject to the “penny stock rules” adopted pursuant to Section 15(g) of the Exchange Act. The penny stock rules apply generally to companies whose common stock trades at less than $5.00 per share, subject to certain limited exemptions. Such rules require, among other things, that brokers who trade “penny stock” to persons other than “established customers” complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Some brokers have decided not to trade “penny stock” because of the requirements of the “penny stock rules” and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. In the event that we remain subject to the “penny stock rules” for any significant period, there may develop an adverse impact on the market, if any, for our securities. Because our securities are subject to the “penny stock rules”, investors will find it more difficult to dispose of our securities.
A decline in the price of our common stock could affect our ability to raise further working capital and adversely impact our operations.
A decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise additional capital for our operations. Because our operations to date have been principally financed through the sale of equity securities, a decline in the price of our common stock could have an adverse effect upon our liquidity and our continued operations. A reduction in our ability to raise equity capital in the future would have a material adverse effect upon our business plan and operations, including our ability to continue our current operations. If our stock price declines, we may not be able to raise additional capital or generate funds from operations sufficient to meet our obligations.
We may issue debt to acquire assets.
From time to time our Company may enter into transactions to acquire assets or the shares of other corporations. These transactions may be financed partially or wholly with debt, which may increase our debt levels above industry standards. Our articles and by-laws do not limit the amount of indebtedness that our Company may incur. The level of our indebtedness from time to time could impair our ability to obtain additional financing in the future on a timely basis to take advantage of business opportunities that may arise.
We may issue additional equity securities without the consent of stockholders. The issuance of any additional equity securities would further dilute our stockholders.
Our board of directors has the authority, without further action by the stockholders, to issue up to 40 million shares of common stock authorized under our charter documents, of which approximately 21 million shares were issued and outstanding as of March 31, 2012. The issuance of preferred stock could have the effect of restricting dividends on the common stock or delaying or preventing our change in control without further action by the stockholders. While we have no present plans to issue any shares of preferred stock, we may need to do so in the future in connection with capital raising transactions. In addition, we may issue additional shares of common stock or other equity securities, including securities convertible into shares of common stock, in connection with capital raising activities. The issuance of additional common stock would also have a dilutive impact on our stockholders’ ownership interest in our company.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 2.
ITEM 2. PROPERTIES
Our Properties
Canadian Property
Saskatchewan Property
Effective January 15, 2010, we received a 50% working interest in an exploration oil and gas property in Saskatchewan, Canada. On May 11, 2010, we assigned one-half of our 50% working interest to a third party for consideration of $75,000. This working interest covers 80 acres in Western Saskatchewan. On June 5, 2011, the Company entered into two farm-in agreements related to its 25% working interest in an 80 acre oil and gas parcel located in western Saskatchewan. Pursuant to the terms of the agreement, the operator agreed to undertake all costs related to drilling two test wells on the property by September 15, 2011. Once the test wells were drilled, the operator was provided with a 60% working interest in the properties. In 2011 the property ceased producing oil and the management made the decision to fully impair the property.
Bulgarian Property
Dobroudja Basin
On October 12, 2010, the Bulgarian Council of Ministers granted to the Company a permit for the exploration and prospecting of crude oil and natural gas in Plot 1-11 Vranino. The permit covers approximately 98,204 acres in the Dobroudja Basin in Eastern Bulgaria and was granted after the completion of the competitive bid process. On October 25, 2010 an appeal was filed by a competing bidder with the Supreme Administrative Court of Bulgaria. In August 2012, the court ruled in our favor affirming the property. A subsequent appeal was filed and we await the result of this legal proceeding.
Reserves Reported to Other Agencies
We have filed no estimates of total, proved net oil or gas reserves with any other federal authority or agency in the United States. We have filed a reserves assessment and evaluation with certain Canadian securities regulators pursuant to applicable rules in Canada.
Productive Wells and Acreage
The following tables set forth our leasehold interest in productive oil wells, as of December 31, 2012:
(1)
A gross well is a well in which a working interest is owned. The number of gross wells is the total number of wells in which a working interest is owned.
(2)
A net well is deemed to exist when the sum of fractional ownership working interest in gross wells equals one. The number of net wells is the sum of the fractional working interests owned in gross wells expressed as whole numbers and fractions thereof.
(3)
The Company’s Edam well was shut in after the year end.
The following table sets forth the amounts of our net and gross productive wells and acreage(1) operated during the year:
(1)
Consists of acres spaced or assignable to productive wells.
(2)
A gross acre is an acre in which a working interest is owned. The number of gross acres is the total number of acres in which a working interest is owned.
(3)
A net acre is deemed to exist when the sum of fractional ownership working interests in gross acres equals one. The number of net acres is the sum of the fractional working interests owned in gross acres expressed as whole numbers and fractions thereof.
Undeveloped Acreage
The following table sets forth the amounts of our undeveloped acreage as of December 31, 2012:
(1)
Undeveloped acreage is considered to be those lease acres on which wells have not been drilled or completed to a point that would permit the production of commercial quantities of oil and gas regardless of whether or not such acreage contains proved reserves.
(2)
The Company’s Bulgarian exploration permit is currently under contest by a competitor before the Bulgarian Supreme Administrative Court
Drilling Activity
During 2012 no wells were drilled. In 2011 two wells were drilled on the Edam property in Saskatchewan, Canada.
Present Activities
The Company awaits the decision of the Supreme Administrative Court in Bulgaria regarding the Permit issued to the Company in the Dobroudja Basin. In addition the Company is evaluating several international blue-sky acquisition opportunities.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
We currently are party to legal proceedings in Bulgaria relating to the exploration permit involving Vranino 1-11 as described herein.
We are not party to any other material legal proceedings and, to our knowledge, no such proceedings are threatened or contemplated.
ITEM 4.
ITEM 4. (REMOVED AND RESERVED)
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY, RELATED SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Shares of our common stock have been quoted on the OTC Bulletin Board since June 20, 2006 and presently trade under the symbol “PKPL”. Shares of our common stock have also been listed on the Frankfurt Stock Exchange since August 13, 2007 under the symbol “3P2”.
The range of high and low bid information for each quarter in the past two years is set forth below. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions. This information has been adjusted to reflect forward stock splits of 8 for 1 and 1.5 for 1 completed in July 2007, a 10:1 forward stock split completed in August 2009 and a 1 for 300 reverse stock split completed in March 2010.
High Bid Low Bid
4th Quarter $0.13 $0.02
3rd Quarter $0.35 $0.08
2nd Quarter $0.21 $0.05
1st Quarter $0.20 $0.07
4th Quarter $0.17 $0.045
3rd Quarter $0.105 $0.071
2nd Quarter $0.19 $0.011
1st Quarter $0.11 $0.061
Holders
The number of record holders of our common stock, $0.00001 par value, as of March 20, 2012 was approximately 124.
Dividends
We have not, since the date of our incorporation, declared or paid any dividends on our common shares. We anticipate that we will retain future earnings and other cash resources for the operation and development of our business for the foreseeable future. The payment of dividends in the future will depend on our earnings, if any, and our financial condition and such other factors as our board of directors considers appropriate.
Equity Compensation Plans
On November 21, 2011 the Company replaced the previous 2007 Stock Option Plan and adopted our 2011 Stock Option Plan, which allows for the issuance of options to purchase up to 2,000,000 shares of our common stock. A copy of our 2011 Stock Option Plan was filed on November 25, 2011 on a Form 8-K. The following table provides a summary of the number of stock options outstanding as at December 31, 2012 under our equity compensation plan:
Number of
securities to be
issued upon
exercise of
outstanding
options,
warrants and
rights
(a)
Weighted
average exercise
price of
outstanding
options,
warrants and
rights
(b)
Number of securities
remaining available for
future issuance under
equity compensation
plans (excluding
securities reflected in
column (a))
(c)
Equity compensation plans approved by security holders Nil Nil Nil
Equity compensation plans not approved by security holders
300,000(1) $0.10 1,700,000
(1)
300,000 options issued under a 2011 Stock Option Plan expired November 21,
Recent Sales of Unregistered Securities
We have reported sales of securities without registration under the Securities Act during our fiscal year ended December 31, 2012 on the following reports, as filed with the Securities and Exchange Commission.
During the year ended December 31, 2012, we did not issue any securities without registration under the Securities Act which were not reported in the Quarterly Reports on Form 10-Q described above.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
We did not purchase any of our shares of common stock or other securities during the year ended December 31, 2012.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition, changes in financial condition and results of operations for the years ended December 31, 2012 and 2011 should be read in conjunction with our most recent audited consolidated financial statements for the years ended December 31, 2012 and 2011, which are included in this annual report, and the related notes to the financial statements, as well as “Item 1 - Business.” This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under “Risk Factors” and elsewhere in this annual report.
Our Plan of Operations
Our initial Plan of Operations for the next 12 months is to resolve our permit issue in Bulgaria and additionally obtain new permits for gas in Europe.
Once our permit issue is resolved, the first year work program includes procurement of a seismic program of the license area which will cost approximately $350,000, part of which will be incurred over the next 12 months.
Based on our current plan of operations as set forth above, we estimate that we will require approximately $1,000,000 to pursue our plan of operations over the next 12 months. As at December 31, 2012, we had cash of $12,181 and a working capital deficit of $24,760. Consequently, we will require additional financing to pursue our plan of operations over the next 12 months.
We anticipate that additional funding will be in the form of debt or equity financing from the sale of our common stock or otherwise.
Results of Operations - Years Ended December 31, 2012 and
The table below sets out the operating expenses in the Consolidated Statements of Operations:
Oil and Gas Revenue
Our oil and gas revenue for the year ended December 31, 2012 was $4,506, compared to $30,135 for 2011. For the year ended 2012 the company incurred $nil depletion costs and incurred $3,463 in operating costs resulting in a gross profit of $1,043. The Company incurred depletion costs $20,492 and production costs of $23,532 during 2011, resulting in a negative gross profit of $13,889.
Office and General Expenses
Our office and general expenses increased to $34,062 for the year ended December 31, 2012 from $9,492 for 2011.
Professional Fees
Our professional fees decreased to $78,659 for the year ended December 31, 2012 from $98,951 for 2011.
Consulting Expenses
Our consulting expenses decreased to $59,005 for the year ended December 31, 2012 from $87,946 for 2011.
Investor Relations Expenses
Our investor relations expense for the year ended December 31, 2012 decreased to $2,074 compared to $24,609 for 2011.
Management Fees
Our management fees increased to $48,024 for the year ended December 31, 2012 from $45,865 for 2011.
Travel Expenses
Our travel expenses increased to $25,479 for the year ended December 31, 2012 from $10,980 for 2011.
Stock-Based Compensation Expenses
Our stock-based compensation expenses decreased to $nil for the year ended December 31, 2012 from $10,023 for 2011.
Net Loss
As a result of the above, our net loss before other items and taxes for the year ended December 31, 2012 was $262,462, compared to $382,434 for 2011. Our loss for the year ended December 31, 2012 was $262,462 compared to $531,615 for 2011.
Liquidity and Capital Resources
We anticipate that we will require approximately $1,000,000 to pursue our plan of operations over the next 12 months. As at December 31, 2012, we had cash of $12,181 and working capital deficit of $(24,760). Consequently, we will require additional financing to pursue our plan of operations over the next 12 months.
Cash Used in Operating Activities
Net cash used in operating activities in the year ended December 31, 2012 decreased to $248,640 from $311,831 in 2011.
Cash Used In Investing Activities
Net cash used for investing activities in the year ended December 31, 2012 was $178,580, compared to net cash from investing activities of $187,900 in 2011.
Cash Provided By Financing Activities
We have funded our business to date primarily from sales of our common stock. In the year ended December 31, 2012, we received cash of $nil as a result of proceeds from the sale of our capital stock, compared to $807,924 as well as proceeds from loans payable of $145,550 in 2011.
Critical Accounting Policies And Estimates
Our consolidated financial statements and accompanying notes have been prepared in accordance with U.S. generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
We believe that our critical accounting policies and estimates include the following:
Oil and gas properties
The Company follows the full cost method of accounting for oil and natural gas operations, whereby all costs of exploring for and developing oil and natural gas reserves are capitalized and accumulated in cost centres on a country-by-country basis. Costs include land acquisition costs, geological and geophysical charges, carrying charges on non-productive properties and costs of drilling both productive and non-productive wells. General and administrative costs are not capitalized other than to the extent of the Company’s working interest in operated capital expenditure programs on which operator’s fees have been charged equivalent to standard industry operating agreements. At December 31, 2012, the Company has not capitalized any interest, general or administrative costs.
The costs in each cost centre, including the costs of well equipment, are depleted and depreciated using the unit-of-production method based on the estimated proved reserves before royalties. Natural gas reserves and production are converted to equivalent barrels of crude oil based on relative energy content. The costs of acquiring and evaluating significant unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion.
The capitalized costs less accumulated depletion and depreciation in each cost centre are limited to an amount equal to the estimated future net revenue from proved reserves (based on prices and costs at the balance sheet date) plus the cost (net of impairments) of unproved properties. The total capitalized costs less accumulated depletion and depreciation, site restoration provision and future income taxes of all cost centres is further limited to an amount equal to the future net revenue from proved reserves plus the cost (net of impairments) of unproved properties of all cost centres less estimated future site restoration costs, general and administrative expenses, financing costs and income taxes.
Proceeds from the sale of oil and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would significantly alter the rate of depletion and deprecation.
Asset retirement obligations
The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the long-lived assets. The Company also records a corresponding asset which is amortized over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost). The Company does not have any significant asset retirement obligations.
Long-lived assets
The carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.
Revenue recognition
The Company recognizes oil and gas revenue when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectability of the revenue is probable.
Stock-based compensation
The Company accounts for share-based compensation under the provisions of ASC 718 “Compensation - Stock Compensation”. ASC 718 requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the fair value of the award.
Recent accounting pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information required under this item.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our audited consolidated financial statements as of December 31, 2012 and 2011 and for the years then ended, and the related notes to the financial statements, are filed as part of this annual report beginning on page below, and are incorporated by reference in this Item 8.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.
ITEM 9A.
ITEM 9A. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
David Johnson, our principal executive and financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of December 31, 2012. Based on this evaluation, our principal executive and financial officer has concluded that our disclosure controls and procedures were not effective as of December 31, 2012 as a result of material weaknesses in internal control over financial reporting discussed below.
Disclosure controls and procedures are those controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act are recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Management Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as such term is defined in Rule 13a-15(f) of the Exchange Act.
Internal control over financial reporting includes those policies and procedures that: (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of its management and directors; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Management recognizes that there are inherent limitations in the effectiveness of any system of internal control, and accordingly, even effective internal control can provide only reasonable assurance with respect to financial statement preparation and may not prevent or detect material misstatements. In addition, effective internal control at a point in time may become ineffective in future periods because of changes in conditions or due to deterioration in the degree of compliance with our established policies and procedures.
A material weakness is a significant deficiency, or combination of significant deficiencies, that results in there being a more than remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.
Management (under the supervision and with the participation of our principal executive officer and principal financial officer), assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this assessment, management used the framework set forth in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under this framework, our management concluded that our internal control was not effective as of December 31, 2012.
Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 and identified the following material weaknesses:
Inadequate Segregation of Duties: We have an inadequate number of personnel to properly implement certain control procedures including the absence of sufficient management review controls and separation of duties.
Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the Company’s internal controls.
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Our management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only the management’s report in this annual report.
Changes in Internal Control Over Financial Reporting
There were no changes to our internal control over financial reporting that occurred during the last quarter of our fiscal year ended December 31, 2012, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B.
ITEM 9B. OTHER INFORMATION
Not applicable.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table and information that follows sets forth the names and positions of our directors and executive officers as at December 31, 2012:
The following is a description of the business background of the directors, and executive officers of our company.
David Johnson was appointed to our board in June, 2008. Prior to his appointment, in the previous six years he was licensed with the Investor Dealers Association while employed with Odlum Brown Limited, a financial services firm (2005 - 2006). He has consulted to both private as well as public companies (2007 - present).
Parvez Tyab was appointed to our board on October 4, 2011. Mr. Tyab has over 20 years’ experience as a financier and corporate executive, having served as an officer and director of a number of public and private companies. Mr. Tyab has been involved in the acquisition and development of oil and gas properties and natural resource projects in Canada, the US as well as internationally with an emphasis on Africa.
Dr. Arthur Halleran was appointed to our board on October 4, 2011. Dr. Halleran is a geologist obtaining his Ph.D. from the University of Calgary, who has 31 years of international petroleum exploration experience. International experience includes countries such as Canada, Colombia, Egypt, India, Guinea, Sierra Leone, Sudan, Suriname, Chile, Brazil, Pakistan, Peru, Tunisia, Trinidad Tobago, Argentina, Ecuador and Guyana. Dr. Halleran's experience includes work with Petro-Canada, Chevron, Rally Energy and Canacol Energy. In 2007, Dr. Halleran founded Canacol Energy Ltd., a company with petroleum and natural gas exploration and development activities in Colombia, Brazil and Guyana, where he served as vice president of exploration. Previously Dr. Halleran was a consulting geologist for Rally Energy Corp. (Egypt) which discovered prolific reservoirs in Egypt. Dr. Halleran currently serves as chief executive officer of United Hunter Oil and Gas Corp., a company with oil interests in California, USA.
Term of Office
All of our directors hold office until the next annual general meeting of the shareholders or until their successors are elected and qualified. Our officers are appointed by our board of directors and hold office until their earlier death, retirement, resignation or removal.
Significant Employees
There are no significant employees other than our executive officers.
Family Relationships
There are currently no family relationships between any of the members of our board of directors or our executive officers.
Board Independence
Two of our directors are considered independent directors under SEC rules as they are not officers of our company.
Committees of the Board of Directors
Our company does not currently have any committees of our board of directors.
Involvement in Certain Legal Proceedings
Except as disclosed in this annual report, during the past ten years none of the following events have occurred with respect to any of our directors or executive officers:
1.
A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
2.
Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
3.
Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:
i.
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
ii.
Engaging in any type of business practice; or
iii.
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
4.
Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3)(i) above, or to be associated with persons engaged in any such activity;
5.
Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
6.
Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
7.
Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
i.
Any Federal or State securities or commodities law or regulation; or
ii.
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
iii.
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
8.
Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
There are currently no legal proceedings to which any of our directors or officers is a party adverse to us or in which any of our directors or officers has a material interest adverse to us.
Compliance with Section 16 of the Securities Exchange Act
Section 16(a) of the Exchange Act requires the executive officers and directors, and persons who beneficially own more than ten percent of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. We have received copies of such forms from our executive officers and directors. During the fiscal year ended December 31, 2012, except as disclosed below, these filings were made on a timely basis:
Notes
(1)
Mr. Parvez was appointed as a Director on October 4,
(2)
Dr. Hallaren was appointed as a Director on October 4, 2011
Code of Ethics
We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code.
We will provide a copy of the Code of Ethics to any person without charge, upon request. Requests can be sent to: Park Place Energy Corp., at Suite 300, 400-5 Avenue SW, Calgary, AB, T2P 0L6.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
Particulars of compensation awarded to, earned by or paid during the last two fiscal years to:
(a)
the person(s) serving as our company’s principal executive officer during the year ended December 31, 2012;
(b)
each of our company’s two most highly compensated executive officers, other than the principal executive officer, who were serving as executive officers at the end of the year ended December 31, 2012, and whose total compensation exceeds $100,000 per; and
(c)
up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as an executive officer of our Company at the end of the year ended December 31, 2012;
(individually a “Named Executive Officer” and collectively the “Named Executive Officers”) are set out in the summary compensation table below.
Notes
(1)
This column represents the grant date fair value of stock options granted.
(2)
Fees incurred to a company controlled by David Johnson.
(3)
Arthur Halleran was appointed as a Director on October 4, 2011.
Outstanding Equity Awards as of December 31, 2012
The following table summarizes the outstanding equity awards as of December 31, 2012 for each of our named executive officers:
Option Awards Stock Awards
Name
Number of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
Number of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
Option
Exercise Price
($)
Option
Expiration
Date
Number
of
Shares
or Units
of Stock
That
Have
Not
Vested
(#)
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
($)
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
(#) Equity
Incentive
Plan
Awards:
Market
or Payout
Value of
Unearned
Shares,
Units or
Other
Rights
That
Have Not
Vested
($)
David
Johnson - - - - - - - - -
- - - - - - - - -
Arthur
Halleran 300,000 - 300.000 0.10 - - - - -
- - - - - - - - -
Notes
(1)
Options were issued under the now defunct 2007 Stock Option Plan and expired January 25, 2012.
(2)
Arthur Halleran was appointed as a Director on October 4, 2011
Compensation of Directors
All compensation of our directors is disclosed under “Executive Compensation”, above.
Employment Contracts and Termination of Employment and Change-In-Control Arrangements
There are no employment contracts or related arrangements with our executive officers.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth information as of March 27, 2013 regarding the beneficial ownership of our common stock by:
each person who is known by us to beneficially own more than 5% of our shares of common stock; and
each named executive officer, each director and all of our directors and executive officers as a group.
The number of shares beneficially owned and the percentage of shares beneficially owned are based on 20,667,581 shares of common stock outstanding as of March 27, 2013.
For the purposes of the information provided below, shares that may be issued upon the exercise or conversion of options, warrants and other rights to acquire shares of our common stock that are exercisable or convertible within 60 days following March 27, 2013, are deemed to be outstanding and beneficially owned by the holder for the purpose of computing the number of shares and percentage ownership of that holder, but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person.
Notes
(1)
Under Rule 13d-3, a beneficial owner of a security includes any person who, directly or indirectly, through any contract, arrangement, understanding, relationship, or otherwise has or shares: (i) voting power, which includes the power to vote, or to direct the voting of shares; and (ii) investment power, which includes the power to dispose or direct the disposition of shares. Certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire the shares (for example, upon exercise of an option) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares outstanding is deemed to include the amount of shares beneficially owned by such person (and only such person) by reason of these acquisition rights. As a result, the percentage of outstanding shares of any person as shown in this table does not necessarily reflect the person’s actual ownership or voting power with respect to the number of common shares actually outstanding on April 10, 2012.
(2)
The address of the executive officers and directors is c/o Park Place Energy Corp., Suite 300, 400-5 Avenue SW, Calgary, AB, T2P 0L6.
(3)
Includes options to acquire up to 300,000 shares of common stock exercisable within 60 days.
(4)
Includes 300,000 shares of common stock that may be acquired pursuant to options exercisable within 60 days.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Except for the transactions described below, since the beginning of our last two fiscal years, none of our directors, officers or principal stockholders, nor any associate or affiliate of the foregoing, have any material interest, direct or indirect, in any transaction, or in any proposed transaction, in which our company was or is to be a participant and in which the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end for the last two completed fiscal years.
(a)
During the year ended December 31, 2012, the Company incurred consulting fees of $nil (2011 - $3,751) to the President of the Company.
(b)
During the year ended December 31, 2012, the Company incurred management fees of $48,024 (US$48,000) (2011 - $45,865 (US$46,371)) and consulting fees of $nil (2011 - $3,751) to a company controlled by the President of the Company.
(c)
During the year ended December 31, 2012, the Company incurred consulting fees of $nil (2011 - $12,621 (US$12,760)) to a company controlled by a director of the Company.
(d)
During the year ended December 31, 2011, the Company issued 160,000) shares of common stock to a company controlled by the President of the Company for settlement of $16,522 (US$16,000)).
(e)
	As at December 31, 2012, the amount of $700 (2011 - $3,200) is due from a company controlled by the President of the Company which is non-interest bearing, unsecured, and due on demand.
(f)
	As at December 31, 2012, the Company owed $5,693 (US$5,690) (2011 - $5,308 (US$5,398)) to a company controlled by a director of the Company which is included in accounts payable and accrued liabilities. This amount owing is non-interest bearing, unsecured, and due on demand.
(g) 	As at December 31, 2012, the Company owed $nil (2011 - $1,967 (US$2,000) to a company controlled by a director of the Company which is non-interest bearing, unsecured, and due on demand
Compensatory Arrangements
Other than compensatory arrangements described under “Executive Compensation,” we have no other transactions, directly or indirectly, with our promoters, directors, senior officers, which have materially affected or will materially affect us.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The aggregate fees billed for the most recently completed fiscal years ended December 31, 2012 and 2011 for professional services rendered by the principal accountant for the audit of our annual financial statements and review of the financial statements included in our quarterly reports on Form 10-Q and services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for these fiscal periods were as follows:
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
Our entire board of directors acts as our audit committee, and has assumed responsibility for the pre-approval of audit and permitted non-audit services to be performed by our company’s independent auditor. The audit committee will, on an annual basis, consider and, if appropriate, approve the provision of audit and non-audit services by Saturna Group Chartered Accountants LLP. Thereafter, the audit committee will, as necessary, consider and, if appropriate, approve the provision of additional audit and non-audit services by Saturna Group Chartered Accountants LLP which are not encompassed by the audit committee’s annual pre-approval and are not prohibited by law.
PART IV
Notes
(1)
Incorporated by reference from our Current Report on Form 8-K/A, filed with the SEC on August 8, 2007.
(2)
Incorporated by reference from our registration statement on Form SB-2, filed with the SEC on December 9, 2004.
(3)
Filed with our Current Report on Form 8-K, filed with the SEC on March 6, 2008.
(4)
Incorporated by reference from our Annual Report of Form 10-KSB, filed with the SEC on October 11, 2006.
(5)
Incorporated by reference from our Annual Report on Form 10-KSB, filed with the SEC on April 15, 2008.
(6)
Incorporated by reference from our Annual Report on Form 10-K, filed with the SEC on March 31, 2009.
(7)
Incorporated by reference from our Current Report on Form 8-K, filed with the SEC on September 3, 2009
(8)
Incorporated by reference form our Current Report on Form 8-K, filed with the SEC on March 29, 2010
(9)
Incorporated by reference form our Current Report on Form 8-K, filed with the SEC on November 11, 2009
(12)
Filed herewith
PARK PLACE ENERGY CORP.
(An exploration stage company)
Consolidated financial statements
December 31, 2012
(Expressed in Canadian dollars)
Index
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Park Place Energy Corp. (an exploration stage company)
We have audited the accompanying consolidated balance sheets of Park Place Energy Corp. (an exploration stage company) as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended and accumulated from May 4, 2006 (date of inception) to December 31, 2012. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. The financial statements of Park Place Energy Corp. (an exploration stage company) as at December 31, 2010 and 2009 and for the years then ended and accumulated from May 4, 2006 (date of inception) to December 31, 2010 were audited by other auditors whose report dated March 29, 2011 included an explanatory paragraph regarding the Company’s ability to continue as a going concern. The financial statements for the period from May 6, 2006 (date of inception) to December 31, 2010 reflect a net loss of $11,836,551 of the related cumulative totals. The auditors’ report has been furnished to us, and our opinion, insofar as it related to amounts included for such periods, is based solely on the report of such auditors.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2012 and 2011, and the results of its operations and its cash flows for the years then ended and accumulated from May 4, 2006 (date of inception) to December 31, 2012, in conformity with accounting principles generally accepted in the United States.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has a working capital deficit, has generated negative cash flows from operating activities during the year, and has incurred operating losses since inception. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also discussed in Note 1 to the consolidated financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ SATURNA GROUP CHARTERED ACCOUNTANTS LLP
Saturna Group Chartered Accountants LLP
Vancouver, Canada
March 14, 2013
PARK PLACE ENERGY CORP.
(An exploration stage company)
Consolidated balance sheets
(Expressed in Canadian dollars)
(The accompanying notes are an integral part of these consolidated financial statements)
PARK PLACE ENERGY CORP.
(An exploration stage company)
Consolidated statements of operations
(Expressed in Canadian dollars)
(The accompanying notes are an integral part of these consolidated financial statements)
PARK PLACE ENERGY CORP.
(An exploration stage company)
Consolidated statements of stockholders’ equity (deficit)
(Expressed in Canadian dollars)
(The accompanying notes are an integral part of these consolidated financial statements)
PARK PLACE ENERGY CORP.
(An exploration stage company)
Consolidated statements of stockholders’ equity (deficit)
(Expressed in Canadian dollars)
(The accompanying notes are an integral part of these consolidated financial statements)
PARK PLACE ENERGY CORP.
(An exploration stage company)
Consolidated statements of cash flows
(Expressed in Canadian dollars)
Supplementary cash flow information (Note 11)
(The accompanying notes are an integral part of these consolidated financial statements)
PARK PLACE ENERGY CORP.
(An exploration stage company)
Notes to the consolidated financial statements
Year ended December 31, 2012
(Expressed in Canadian dollars)
1. Nature of Business and Continuance of Operations
Park Place Energy Corp., formerly ST Online Corp. (the “Company”), was incorporated under the laws of the State of Nevada on August 27, 2004. On July 30, 2007, the Company acquired Park Place Energy (Canada) Inc. The acquisition was a capital transaction in substance and therefore was accounted for as a recapitalization. Under recapitalization accounting, Park Place Energy (Canada) Inc. was considered the acquirer for accounting and financial reporting purposes, and acquired the assets and assumed the liabilities of the Company. These consolidated financial statements include the accounts of the Company since the effective date of the recapitalization and the historical accounts of the business of Park Place Energy (Canada) Inc. since inception. The Company is in the business of acquiring and exploring oil and gas properties.
These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has a history of negative cash flows from operating activities and the continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability of the Company to obtain necessary equity financing to continue operations, and the attainment of profitable operations. As at December 31, 2012, the Company has a working capital deficit of $24,760 and an accumulated deficit of $12,671,777 since inception. These factors raise doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
The Company requires additional funds over the next twelve months to fully implement its business plan. Management will seek additional financing through the sale of equity and from borrowings from private lenders to cover its operating expenditures when necessary. There can be no certainty that these sources will provide the additional funds required for the next twelve months.
2. Summary of Significant Accounting Policies
(a)
Basis of Presentation
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States and are expressed in Canadian dollars. The Company has not produced significant revenue from its principal business and is an exploration stage company as defined by ASC 915, “Development Stage Entities”. These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries Park Place Energy (Canada) Inc., which is incorporated under the laws of British Columbia, Canada; Park Place (International) Inc. which is incorporated under the laws of British Columbia, Canada, and 0794403 B.C. Ltd., a company incorporated under the laws of British Columbia, Canada. All inter-company transactions and balances have been eliminated upon consolidation.
(b)
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the estimated useful lives and recoverability of long-lived assets, impairment of oil and gas properties, valuation of convertible debt, stock-based compensation, and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
(c)
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
PARK PLACE ENERGY CORP.
(An exploration stage company)
Notes to the consolidated financial statements
Year ended December 31, 2012
(Expressed in Canadian dollars)
2. Summary of Significant Accounting Policies (continued)
(d)
Long-lived Assets
In accordance with ASC 360, “Property, Plant and Equipment”, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
(e)
Oil and Gas Properties
The Company follows the full cost method of accounting for oil and natural gas operations, whereby all costs of exploring for and developing oil and natural gas reserves are capitalized and accumulated in cost centres on a country-by-country basis. Costs include land acquisition costs, geological and geophysical charges, carrying charges on non-productive properties and costs of drilling both productive and non-productive wells. General and administrative costs which are associated with acquisition, exploration and development activities are capitalized. General and administrative costs are capitalized other than to the extent of the Company’s working interest in operated capital expenditure programs on which operator’s fees have been charged equivalent to standard industry operating agreements.
The costs in each cost centre, including the costs of well equipment, are depleted and depreciated using the unit-of-production method based on the estimated proved reserves before royalties. Natural gas reserves and production are converted to equivalent barrels of crude oil based on relative energy content. The costs of acquiring and evaluating significant unproved properties are initially excluded from depletion calculations. These unevaluated properties are assessed periodically to ascertain whether impairment has occurred. When proved reserves are assigned or the property is considered to be impaired, the cost of the property or the amount of the impairment is added to costs subject to depletion.
The capitalized costs less accumulated depletion and depreciation in each cost centre are limited to an amount equal to the estimated future net revenue from proved reserves (based on prices and costs at the balance sheet date) plus the cost (net of impairments) of unproved properties. The total capitalized costs less accumulated depletion and depreciation, site restoration provision and future income taxes of all cost centres is further limited to an amount equal to the future net revenue from proved reserves plus the cost (net of impairments) of unproved properties of all cost centres less estimated future site restoration costs, general and administrative expenses, financing costs and income taxes.
Proceeds from the sale of oil and natural gas properties are applied against capitalized costs, with no gain or loss recognized, unless such a sale would significantly alter the rate of depletion and depreciation.
(f)
Asset Retirement Obligations
The Company records the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development, and/or normal use of the long-lived assets. The Company also records a corresponding asset which is amortized over the life of the asset. Subsequent to the initial measurement of the asset retirement obligation, the obligation is adjusted at the end of each period to reflect the passage of time (accretion expense) and changes in the estimated future cash flows underlying the obligation (asset retirement cost). The Company does not have any significant asset retirement obligations.
PARK PLACE ENERGY CORP.
(An exploration stage company)
Notes to the consolidated financial statements
Year ended December 31, 2012
(Expressed in Canadian dollars)
2. Summary of Significant Accounting Policies (continued)
(g)
Financial Instruments and Fair Value Measures
ASC 820, “Fair Value Measurements and Disclosures” requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company’s financial instruments consist principally of cash, amounts receivable, accounts payable, accrued liabilities, and amounts due from a related party. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
(h)
Revenue Recognition
The Company recognizes oil and gas revenue when production is sold to a purchaser at a fixed or determinable price, when delivery has occurred and title has transferred, and if collectability of the revenue is reasonably assured.
(i)
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Accounting for Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.
As of December 31, 2012 and 2011, the Company did not have any amounts recorded pertaining to uncertain tax positions.
The Company files federal and provincial income tax returns in Canada and federal, state and local income tax returns in the U.S., as applicable. The Company may be subject to a reassessment of federal and provincial income taxes by Canadian tax authorities for a period of three years from the date of the original notice of assessment in respect of any particular taxation year. For Canadian and U.S. income tax returns, the open taxation years range from 2004 to 2010. In certain circumstances, the U.S. federal statute of limitations can reach beyond the standard three year period. U.S. state statutes of limitations for income tax assessment vary from state to state. Tax authorities of Canada and U.S. have not audited any of the Company’s, or its subsidiaries’, income tax returns for the open taxation years noted above.
The Company recognizes interest and penalties related to uncertain tax positions in tax expense. During the years ended December 31, 2012 and 2011, there were no charges for interest or penalties.
PARK PLACE ENERGY CORP.
(An exploration stage company)
Notes to the consolidated financial statements
Year ended December 31, 2012
(Expressed in Canadian dollars)
2. Summary of Significant Accounting Policies (continued)
(j)
Foreign Currency Translation
The Company’s functional and reporting currency is the Canadian dollar. Monetary assets and liabilities denominated in foreign currencies are translated using the exchange rate prevailing at the balance sheet date. Non-monetary assets, liabilities and items recorded in income arising from transactions denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income.
The parent company’s accounts are translated to Canadian dollars using the current rate method. Accordingly, assets and liabilities are translated into Canadian dollars at the period-end exchange rate while revenue and expenses are translated at the average exchange rates during the period. Related exchange gains and losses are included in a separate component of stockholders’ equity as accumulated other comprehensive income.
(k)
Stock-based Compensation
The Company records stock-based compensation in accordance with ASC 718, “Compensation - Stock Compensation”, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The Company uses the Black-Scholes option pricing model to calculate the fair value of stock-based awards. This model is affected by the Company’s stock price as well as assumptions regarding a number of subjective variables. These subjective variables include, but are not limited to the Company’s expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. The value of the portion of the award that is ultimately expected to vest is recognized as an expense in the consolidated statement of operations over the requisite service period.
(l)
Loss Per Share
The Company computes loss per share in accordance with ASC 260, "Earnings per Share" which requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing the loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As at December 31, 2012, the Company had 300,000 (2011 - 849,404) potentially dilutive shares outstanding.
(m)
Comprehensive Loss
Comprehensive loss consists of net loss and other related gains and losses affecting stockholders’ equity that are excluded from net income or loss. As at December 31, 2012 and 2011, comprehensive loss includes cumulative translation adjustments for changes in foreign currency exchange rates during the period.
(n)
Reclassifications
Certain reclassifications have been made to the prior year’s financial statements to conform to the current year’s presentation.
(o)
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
PARK PLACE ENERGY CORP.
(An exploration stage company)
Notes to the consolidated financial statements
Year ended December 31, 2012
(Expressed in Canadian dollars)
3. Property and Equipment
4. Oil and Gas Properties
On January 28, 2010, the Company purchased a 50% interest in an oil and gas property located in Saskatchewan, Canada by issuing a US$150,000 note payable. This note payable was later settled by issuing 500,000 shares of common stock. On May 11, 2010, the Company assigned one-half of its 50% working interest in this property to a privately held exploration company. As consideration of the assignment, the Company received 750,000 shares of the private company. As the shares had no active market, they were valued based on the consideration give up, being US$750,000.
On June 5, 2011, the Company entered into two farm-in agreements related to its 25% interest in an 80 acre oil and gas parcel located in western Saskatchewan. Pursuant to the terms of the agreement, the operator has agreed to undertake all costs related to drilling two test wells on the property by September 15, 2011. Once the test wells were drilled, the operator was provided with a 60% working interest in the properties. The property ceased producing oil so the Company recognized an impairment of $59,589 as at December 31, 2011.
The Company presently holds a 98,000 square kilometer exploration claim in the Dobroudja Basin located in northeast Bulgaria (the “Vranino Block”). The Company intends to conduct exploration activities over a 5 year period including seismic processing and the drilling of, at minimum, six test wells for a minimum cost of approximately US$5,000,000. On October 25, 2010, an appeal against the Bulgarian Council of Ministers decision to award the Vranino Block to the Company was filed with the Supreme Administrative Court of Bulgaria and on July 17, 2012 the Court upheld the Company’s claim to the Vranino property and rejected the appeal. On September 14, 2012, the Company was served with an appeal against the July 17, 2012 Supreme Administrative Court of Bulgaria’s decision to uphold the award of the Vranino license.
PARK PLACE ENERGY CORP.
(An exploration stage company)
Notes to the consolidated financial statements
Year ended December 31, 2012
(Expressed in Canadian dollars)
5. Note Payable
On March 29, 2011, the Company issued a convertible promissory note for $145,500 (US$150,000). The note was secured by the issuance of 5,000,000 common shares of the Company, bearing interest at 10% per annum. The note was convertible into share of common stock of the Company at US$0.04 per share. In accordance with ASC 470, “Debt - Debt with Conversions and Other Options”, the Company determined that the note contained a beneficial conversion feature. Accordingly, the Company recognized $109,946 (US$112,500) as additional paid-in capital with an equivalent discount against the note.
On August 19, 2011, the agreement was amended to modify the conversion price to $0.05 per share of common stock. The amendment resulted in the recognition of an additional $36,259 (US$37,500) as additional paid-in capital with an equivalent discount against the note.
On September 30, 2011, the note was converted into 3,288,600 shares of common stock for the balance of the note plus accrued interest. On the date of conversion, the remaining balance of the discount was recorded to accretion expense for a total of Cdn$146,205 (US$150,000) for the year ended December 31, 2011.
6. Common Stock
Stock transactions during the year ended December 31, 2012 and 2011:
(a)
On May 4, 2011, the Company issued 5,000,000 shares of common stock as collateral for the note payable described in Note 5. On September 30, 2011, the shares were cancelled upon conversion of the note payable to shares of common stock.
(b)
On May 27, 2011, the Company issued 500,000 shares of common stock with a fair value of $24,433 (US$25,000) to settle accounts payable of $29,319 (US$30,000). The issuance resulted in a gain on settlement of debt of $4,886 (US$5,000).
(c)
On August 11, 2011, the Company issued 266,667 shares of common stock at a price of US$0.075 per share for proceeds of $19,767 (US$20,000).
(d)
On August 12, 2011 the Company issued 206,250 shares of common stock at a price of US$0.08 per share for proceeds of $15,746 (US$16,500).
(e)
On September 28, 2011 the Company issued 648,300 shares of common stock with a fair value of $66,943 (US$64,830) to settle accounts payable.
(f)
On September 29, 2011, the Company issued 184,000 shares of common stock with a fair value of $19,074 (US$18,400) to settle accounts payable.
(g)
On September 30, 2011 the Company issued 9,975,000 shares of common stock at a price of US$0.075 per share for proceeds of $772,411 (US$748,125).
(h)
On September 30, 2011 the Company issued 3,288,600 shares of common stock at a price of $0.05 per share for the conversion of the $157,229 (US$150,000) note payable plus accrued interest of $7,862 (US$7,500).
7. Stock Options
The Company adopted an official incentive stock option plan as at October 11, 2007 whereby the total number of authorized options to be granted is up to a total of 200,000 shares of common stock. Under the plan the exercise price of each option shall not be less than the market price of the Company’s stock as calculated immediately preceding the day of the grant. The vesting schedule for each option shall be specified by the Company at the time of grant. The maximum term of options granted is ten years.
On June 24, 2009, the Company amended the stock option plan to increase the number of common shares approved to 216,667 to common shares.
On January 25, 2010, the Company amended and restated its 2007 Stock Option Plan to increase the maximum number of common shares that may be reserved for issuance under the Plan from 216,667 common shares to 533,333 common shares.
PARK PLACE ENERGY CORP.
(An exploration stage company)
Notes to the consolidated financial statements
Year ended December 31, 2012
(Expressed in Canadian dollars)
7. Stock Options (continued)
The following table summarizes the continuity of the Company’s stock options:
Additional information regarding stock options as of December 31, 2012, is as follows:
During the year ended December 31, 2011, the Company issued 300,000 stock options as compensation for services incurred. The fair value of these stock options were estimated using the Black-Scholes option pricing model assuming no expected dividends, risk-free interest rate of 1.11%, expected life of 1 year, and expected volatility of 148%. The weighted average fair value of these stock options granted was $0.03 per option.
8.
Share Purchase Warrants
The following table summarizes the continuity of share purchase warrants:
PARK PLACE ENERGY CORP.
(An exploration stage company)
Notes to the consolidated financial statements
Year ended December 31, 2012
(Expressed in Canadian dollars)
10.
Commitments and Contingencies
(a)
The Company’s Vranino 1-11 oil and gas exploration claim in Bulgaria was the subject of an appeal before the Supreme Administrative Court of Bulgaria whereas a competitive bidder sought to overturn the award. On October 25, 2010, an appeal against the Bulgarian Council of Ministers decision to award the Vranino Block to the Company was filed with the Supreme Administrative Court of Bulgaria and on July 17, 2012, the Court upheld the Company’s claim to the Vranino property and rejected the appeal. On September 14, 2012, the Company was served with an appeal against the July 17, 2012 Supreme Administrative Court of Bulgaria’s decision to uphold the award of the Vranino license to the Company.
(b)
The Company is obligated to perform a five year work program on the Vranino 1-11 block of North East Bulgaria which total cost is estimated at US$5,000,000, subject to the finalization of the permit award in favor of the Company.
11.
Supplementary Cash Flow Information
12. Segmented Information
The Company’s operations are in the resource industry in Canada and Bulgaria. Geographical information is as follows:
PARK PLACE ENERGY CORP.
(An exploration stage company)
Notes to the consolidated financial statements
Year ended December 31, 2012
(Expressed in Canadian dollars)
12.
Segmented Information (continued)
13.
Income Taxes
The Company has net operating losses carried forward of $8,063,247 available to offset taxable income in future years which expires in beginning in fiscal 2027.
The Company is subject to United States federal and state income taxes at a rate of 34%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported is as follows:
The significant components of deferred income tax assets and liabilities as at December 31, 2012 and 2011 are as follows:
As at December 31, 2012, the Company is in arrears on filing its statutory corporate income tax returns and the amounts presented above are based on estimates. The actual losses available could differ from these estimates.
14.
Subsequent Event
On January 14, 2013, the Company increased its authorized capital to 250,000,000 shares of common stock with no change in par value.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PARK PLACE ENERGY CORP.
By: /s/ David Johnson
David Johnson
President, Chief Executive Officer and a Director
Date: March 28, 2013
In accordance with the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: /s/ David Johnson
David Johnson
President, Chief Executive Officer and a Director
Date: March 28, 2013
By: /s/ Parvez Tyab
Parvez Tyab
Director
Date: March 28, 2013
By: /s/ Arthur Halleran
Arthur Halleran
Director
Date: March 28, 2013