SEC Company Response from AgEagle Aerial Systems Inc. (UAVS) (CIK 0000008504) (UAVS) — Apr 6, 2016
AgEagle Aerial Systems Inc. (UAVS) (CIK 0000008504)
Date: April 6, 2016 · CIK: 0000008504 · Accession: 0001144204-16-092940
AI Filing Summary & Sentiment
Referenced dates: February 4, 2004, March 4, 2016
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CORRESP
1
filename1.htm
April 6, 2016
Securities and Exchange Commission
Judiciary Plaza
450 Fifth Street, NW
Washington, DC 20549
Attention: H. Roger Schwall
Re: EnerJex Resources, Inc.
Form
10-K for the Fiscal Year Ended December 31, 2014
Filed
March 31, 2015
Definitive
Proxy Statement on Schedule 14A
Filed
April 3, 2015
File
No. 1-36492
Dear Mr. Schwall
In response to your letter
dated March 4, 2016, set forth below are your comments concerning the EnerJex Resources, Inc.’s Form 10-K and Definitive Proxy
Statement referred to above, and our responses. Your comments are in italics and are followed by our response.
Form 10-K for the Fiscal Year Ended December 31, 2014
Business and Properties, page 4
Reserves, page 11
1. We have read your response to prior comment number
one. We reissue our comment in part as your response and proposed disclosure revisions do not address the requirements for separately
disclosing reserves by product type of crude oil including condensate, natural gas liquids and natural gas liquids relating to
the presentation of reserves and the changes therein provided on page F-19 of Form 10-K for the fiscal year ending December 31,
2014. Please refer to FASB ASC 932-235-55-2 for illustrations of the presentation requirements of FASB ASC 932-235-50-4 and 50-5.
To the extent applicable, please incorporate these revisions in the Form 10-K for the fiscal year ending December 31, 2015
as well.
EnerJex response:
We plan to include the following table in
our Form 10-K, to be included at page F-19 with footnote 13 Supplemental Oil and Gas Reserve Information (Unaudited) – Estimated
quantities of proved reserves.
2014
2013
Natural Gas
Oil
Natural Gas
Oil
Crude Oil
Liquids
Natural Gas
Equivalents
Crude Oil
Liquids
Natural Gas
Equivalents
BBL’s
BBLs
MCF’s
BOE’s
BBL’s
BBLs
MCF’s
BOE’s
Proved reserves (BOE):
Beginning
4,444,500
40,600
7,917,000
5,804,600
2,927,000
-
-
2,927,000
Revisions of previous
estimates
(1,352,091 )
56,919
578,506
(1,198,754 )
141,600
141,600
Purchases of minerals
in place
2,234
2,234
1,317,245
42,250
7,956,134
2,685,517
Extensions and discoveries
2,226
2,226
175,917
175,917
Sales of minerals
in place
-
(4,800 )
(4,800 )
Production
(150,469 )
(6,619 )
(318,226 )
(210,126 )
(112,462 )
(1,650 )
(39,135 )
(120,634 )
Ending
2,946,400
90,900
8,177,280
4,400,180
4,444,500
40,600
7,917,000
5,804,600
To be consistent with the above table, we
also plan to include the following table in our Form 10-K, to be included at top of page 10, replacing the existing table of Net
Production, Average Sales Prices and Average Production and Lifting Costs.
Year
ended December 31,
2014
2013
Net Production
Crude
oil (bbl)
150,469
112,462
Natural
gas liquids (bbl)
6,619
1,650
Natural
gas (mcf)
318,226
39,135
Average Sales Prices
Crude
oil (per bbl)
$ 86.76
95.81
Natural
gas liquids (per bbl)
$ 30.65
32.87
Natural
gas (per mcf)
$ 3.25
3.03
Average Production Cost
(1) per BOE
$ 48.78
49.34
Average Lifting Costs (2)
per BOE
$ 31.99
33.95
2. We have read your response to prior comment number
2. We note the downward revision of approximately 600,000 Boe relating to the Cherokee Project represents a reduction in the net
quantities of proved undeveloped reserves disclosed at the beginning of 2014 of approximately 30%. Item 1203(b) of Regulation
S-K requires that you disclose material changes in proved undeveloped reserves that occurred during the year. We reissue our prior
comment relating to the disclosure in your Form 10-K for the fiscal year ending December 31, 2014 and, to the extent applicable,
to the Form 10-K for the fiscal year ending December 31, 2015 as well.
EnerJex response:
We plan to include the following comments
to the last paragraph of Estimated quantities of proved reserves information of footnote 13, Supplemental Oil and Gas Reserve Information
(Unaudited), which can be found at page F-19 of the 2014 10-K.
For the year ended December 31, 2014 proved
reserves decreased 1,404.4 MBOEs, of which production accounted for 210.1 MBOEs or 14.9% of the decrease. The remaining decrease
of 1,194.3 MBOEs or 20.5%, was due primarily to a revision of decline curves related to our Cherokee project in Eastern Kansas.
Our third party independent engineering firm, MHA Petroleum Consultants revised their decline curve forecast methodology in response
to 2014 production performance that fell short of forecast using the original methodology, resulting in a negative revision of
a 686,091 BOEs of crude oil classified as proved developed producing, a negative revision of 38,100 BOEs of crude oil classified
as proved developed non-producing and a negative revision of 627,893 of BOEs of crude oil classified as proved undeveloped reserves
for a total of 1,352,091 BOEs. These decreases were partially offset by increases to estimated proved developed reserves of approximately
240,000 BOE of natural gas and 56,919 barrels of natural gas liquids that resulted from the transfer of an Adena gas-cap well from
proved non-producing to the proved developed producing category. Additionally, proved developed non-producing natural gas reserves
decreased approximately 143,000 BOE again due to the transferring of a gas-cap well from proved non-producing to the proved developed
producing category.
Proved undeveloped reserves decreased 627,893
BOEs in 2014. The decrease was due almost entirely to the crude oil revisions, which resulted from revisions to decline curves
related to our Cherokee project in Eastern Kansas. Our third party independent engineering firm, MHA Petroleum Consultants revised
their decline curve forecast methodology in response to 2014 production performance that fell short of forecast using the original
methodology. No material change in reserves balances were due to transfers from proved undeveloped reserves to the proved developed
category.
For the year ended December 31, 2013 proved
reserves increased 2,877.6 MBOE’s. This increase was due primarily to the acquisition of Black Raven Energy, Inc. on September
27, 2013.
3. We have read your response to prior comment four. We
note your response does not explain the extent to which any of the proved undeveloped reserves disclosed as of December 31, 2014
were not scheduled to be developed within five years of your initial disclosure of such reserves in a filing made with the United
States Securities and Exchange Commission. We reissue our prior comment relating to the disclosure in your Form 10-K for the fiscal
year ending December 31, 2014 and, to the extent applicable, to the Form 10-K for the fiscal year ending December 31, 2015 as
well.
EnerJex response:
We plan to include the following comments
in our Form 10-K, to be included at page 11with our discussions of reserves related to Items 1 and 2 Business and Properties, page
34 with our discussions of reserves related to Item 7 Management’s Discussion and Analysis of Financial Condition and Results
of Operations and at page F-19 with footnote 13 Supplemental Oil and Gas Reserve Information (Unaudited) – Estimated quantities
of proved reserves.
In 2014 the
Company invested $7.1 million in its oil and gas properties. Approximately $6.4 million was spent developing oil and gas
assets and the remaining amount was spent acquiring leasehold positions. Of the $6.4 million, approximately $2.0 million was
invested in Kansas based oil production infrastructure, drilling and completing the Company’s proved undeveloped
opportunities with $1.4 million allocated to its Mississippian project and $.6 million allocated to its Cherokee project.
There were no material transfers of proved undeveloped reserves to the proved developed category. In Colorado approximately
$1.0 million was invested in an oil trunk line for the Adena field and a gas tap and pipeline for the Amherst field.
Approximately $3.4 million was invested recompleting and reactivating well in the Adena field. The investment deployment rate
dramatically decreased in the beginning in the third quarter in response to falling commodity prices. The Company’s
reserve report estimates $13.5 million of remaining future development costs, of which $3.5 million or $700,000 per year for
five years is allocated to proved undeveloped activity. The Company has $7.4 million of current asset on hand, approximately
$3.7 million of unrealized hedge gains and important infrastructure in Colorado completed which will facilitate the
exploitation and development of proved undeveloped reserves over the next five years. At year end the Company’s review
of proved undeveloped reserves revealed no instances of reserves that have not been developed within five years of their
initial recording as a proved undeveloped reserve. In addition it believes it has the financial wherewithal to develop all
it’s proved undeveloped reserves within the five year time frames required; utilizing its balance sheet, it borrowed
$.5 million from its bank in January 2015 and has the ability to joint venture any of its assets.
Exhibit
A
4. We have read your response to prior comment 5 and note
that the reserves report provided as Exhibit A to your reply reveals various inconsistencies with the disclosures in your filing
and does not address all of the requirements. Please obtain and file a revised report to address the following points.
(a) Please revise the description on page 2 of Exhibit
A to clarify whether the information presented represents estimates of reserves independently prepared by MHA Petroleum Consultants,
LLC or estimates prepared by the company’s engineers and audited by MHA Petroleum Consultants, LLC pursuant to Item 1202(a)(9)
of Regulation S-K.
EnerJex response:
The description
on page 2 of the revised MHA report included here as Appendix A has been change to make clear that the reserve report was independently
prepared by MHA Petroleum Consultants, LLC.
(b) We note that although the reserve report includes
information relating to probable and possible reserves, you have not included these details within your filing. We believe that
the information in the reserves report should correlate with the disclosure in the filing. Please either obtain and file a revised
reserve report that does not include the information relating to probable and possible reserves, or revise the Form 10-K for the
fiscal year ending December 31, 2014 to present this optional information in a manner that is consistent with the disclosure requirements
under Items 1202(a)(2) and 1202(a)(5) of Regulation S-K.
If
you elect to disclose information relating to probable and possible reserves, you should nevertheless obtain and file a revised
reserves report that excludes all aggregated totals of proved, probable and possible reserves that are shown throughout the
report. You may refer to the answer to Question 105.01 in the Compliance and Disclosure Interpretations (C&DIs) available
on our website at:
http//www.sec.gov/divisions/corpfin/guidance/oilandgasinterp.htm.
EnerJex response:
Probable
(PRB) and Possible (POS) reserve information has been deleted. Please see revised MHA Petroleum Consultants LLC report included
here as Appendix A.
(c) If you elect to disclose information relating to
probable and possible reserves, you should nevertheless obtain and file a revised reserves report that excludes all aggregated
totals of proved, probable and possible reserves that are shown throughout the report. You may refer to the answer to Question
105.01 in the Compliance and Disclosure Interpretations (C&DIs) available on our website at:
http//www.sec.gov/divisions/corpfin/guidance/oilandgasinterp.htm.
EnerJex response:
We do not
elect to disclose information related to probable and possible reserves. All references to probable and possible reserves have
been removed. Please see revised report from MHA Petroleum Consultants, LLC included here as Appendix A
(d) The reserve report should include figures for the
initial benchmark prices prior to adjustments and the figures for the average realized prices after adjustments for location and
quality differentials such as transportation, quality, gravity and Btu content by product type for the reserves as part of the
primary economic assumptions to comply with Item 1202(a)(8)(v) of Regulation S-K.
EnerJex response:
Requested
information is now included. Please see revised report from MHA Petroleum Consultants, LLC included here as Appendix A.
(e) We note language indicating the capital costs used
in the report to estimate present value of future net revenue discounted at 10% (“PV10” or “present value”)
do not include any salvage value for the lease and well equipment or the cost of abandoning the properties. However, the disclosure
that you have provided on page 5 of the Form 10-K along with the figure representing the total PV10 (present value) of your proved
reserves as of December 31, 2014 indicates future abandonment costs are included. Tell us the amounts of future abandonment costs,
reasons for differences between your disclosure and the third party engineer report, and your view of on the materiality of any
differences in costs. If you require further clarification, please refer to the guidance provided by the Division of Corporation
Finance to companies engaged in oil and gas producing activities in a letter dated February 4, 2004,available on our website at:
http://www.sec.gov/divisions/corpfin/guidance/oilgasletter.htm.
EnerJex response:
The disclosures
on page 5 of the 10-K were in error and will be removed from the amended 10-K and the following disclosure will be added “after
consideration of salvage value there are no material abandonment costs”.
If you have any questions or would like
to discuss our responses above, you may contact our outside counsel, Fernando Velez, Jr. of Reicker, Pfau, Pyle & McRoy, LLP,
at 805-966-2440, or me at 210-451-5545.
Very truly yours,
/s/ Douglas M. Wright
Douglas M. Wright
Chief Financial Officer
Exhibit A – Letter from MHA Petroleum
Consultants dated January 22, 2016
cc: Fernando Velez – via email
4040 Broadway, Suite 508 | San Antonio, TX 78209 |
210-451-5545 (P) | 210-463-9297 (F)
Exhibit A
Letter from MHA Petroleum Consultants, LLC
January 22, 2016
Mr. Robert Watson Jr.
President and CEO
Enerjex Resources
4040 Broadway, Suite 508
San Antonio, Texas 78209
Dear Mr. Watson:
The following reserve report was independently
prepared by MHA Petroleum Consultants, LLC based upon information supplied to them by Enerjex Resources, Inc.
In accordance with your request, we have
evaluated the assets of Enerjex Resources (Enerjex), as of January 1, 2015. This includes the proved reserves and future revenue
to the Enerjex interest’s in certain oil and gas properties located in Colorado, Nebraska, Kansas, and Texas. It is our understanding
that the proved reserves estimated herein constitute all of the proved reserves owned by Enerjex. We have examined the estimates
with respect to reserves quantities, reserves categorization, future producing rates, future net revenue, and the present value
of such future net revenue, using the definitions set forth in U.S. Securities and Exchange Commission (SEC) Regulation S-X Rule
4-10(a). The estimates of reserves and future revenue