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ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
America Resources Exploration Inc. (the "Company") was incorporated on January 24, 2014, under the laws of the State of Nevada to engage in any lawful corporate undertaking, with the specific intended business activity of operating photo booth rentals. The Company was incorporated under the name “Alazzio Entertainment Corp.” and changed its name to America Resources Exploration Inc. on April 29, 2015.
On April 3, 2015, a change in control of Alazzio Entertainment Corp. (the "Company") occurred by virtue of the Company's largest shareholder, Dmitri Kapsumun selling 90,000,000 shares (split adjusted) of the Company's common stock to Rise Fast Limited, a Hong Kong corporation. Such shares represent 71.77% of the Company's total issued and outstanding shares of common stock. As part of the sale of the shares, Rise Fast Limited arranged with the resigning member of the Company's Board of Directors, to appoint Mr. Huang Yu as the sole officer and director of the Company.
On April 16, 2015, the Company filed a Certificate of Amendment with the Nevada Secretary of State (the "Nevada SOS") whereby it amended its Articles of Incorporation by increasing the Company's authorized number of shares of common stock from 75 million to 300 million and increasing all of its issued and outstanding shares of common stock at a ratio of fifteen (15) shares for every one (1) share held. The Company's Board of Directors approved this amendment on April 15, 2015 and shareholders holding 71.77% of the Company's issued and outstanding shares approved this amendment via a written consent executed on April 16, 2015. All share amounts in this Form 10-K have been adjusted to reflect this stock split.
On April 17, 2015, the Company filed Articles of Merger with the Nevada SOS whereby it entered into a statutory merger with its wholly-owned subsidiary, America Resources Exploration Inc. pursuant to Nevada Revised Statutes 92A.200 et. seq. The effect of such merger is that the Company was the surviving entity and changed its name to "America Resources Exploration Inc."
On June 10, 2015, the Company entered into an Asset Purchase Agreement (the “Asset Purchase Agreement”) with Zheng Xiangwu, a resident of Guang Dong Province, China, whereby the Company issued 4 million shares of its common stock in exchange for rights to certain oil and gas leases located in Frio and Atascosa Counties, Texas, consisting of a total of 714 total acres of land, two (2) working wells and a total of seven (7) wells (the “Leases”).
On June 12, 2015, the Company completed the acquisition of the Leases pursuant to the Asset Purchase Agreement. As a result of the completion of this acquisition, 4 million shares of the Company’s common stock were issued to Mr. Zheng Xiangwu, who owns the Company’s largest shareholder, Rise Fast Limited. The number of shares issued to Mr. Zheng was determined by valuing the Leases at $160,000 and valuing the Company’s stock at $0.04 per share.
Mr. Zheng is the owner of Rise Fast Limited, a Hong Kong corporation (“Rise Fast”), which is the majority shareholder of the Company. Rise Fast owns 90,000,000 shares of the Company’s common stock. As a result of the transaction consummated pursuant to the Asset Purchase Agreement, Mr. Zheng controls a total of 94,000,000 shares, which represents 72.64% of the Company’s issued and outstanding shares.
In addition to a change in control of its management and shareholders and entering into the Asset Purchase Agreement, the Company's operations prior to entering into the Asset Purchase Agreement were limited to attempting to implement its business plan, issuing shares and filing a registration statement on Form S-1 pursuant to the Securities Act of 1934.
In connection with the completion of the acquisition of the Leases pursuant to the Asset Purchase Agreement, the Company has elected to enter into the oil and gas industry. Our primary objective is to enter the oil and gas industry by acquiring active oil and gas fields. This first step will allow us to enter the market in the U.S. and create immediate cash flow from producing wells. The Company intends to take advantage of currently depressed energy prices by taking over fields from companies that are unable to service their excessive debt due to falling oil prices.
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In order to assist the Company’s entry into the oil and gas industry, the Company has added to two (2) members to its Board of Directors that provide, collectively, over sixty (60) years of experience in the exploration, development and production of oil and gas properties.
Mr. Joe M. Seabourn has over 30 years of experience working refinery up-grade design flow process and feasibility studies for Nigeria, Ecuador, Mongolia and Republic of Congo. He is currently using his strategic alliances to establish working joint ventures and partnerships in Congo, Central Africa.
Mr. Robert Wiener is our lead geologist and has over 30 years of experience in the industry. He worked on finding some of the most important fields in the world. While working for Conoco Egypt he generated prospects in the Gulf of Suez. Two (2) wells were subsequently drilled successfully. One of his other large finds is also while working for Conoco, Norway. He was deeply involved in interpreting seismic data in the Northern North Sea and Moere Basin. He also developed exploration projects in Russia, West Africa, Vietnam and countless other countries with huge oil potential. We believe that with Mr. Wiener as our lead geologist we will be able to maximize our return on investment and get the most out of our Leases.
Additional information regarding Mr. Seabourn’s and Mr. Wiener’s business experience is provided below under Item 10. Directors, Executive Officers and Corporate Governance.
CURRENT INVESTMENTS
On June 12, 2015, the Company acquired three (3) producing leases covering 714 acres situated in Atascosa and Frio Counties, Texas, located in the Eagle Ford Shale formation - the Jane Burns “C” (“Burns”), the Theo Rogers “C”, and the Theo Rogers “A” & “D” (“Rogers”) Leases. The Company acquired a 99.5% working interest (74.625% net revenue interest) in each lease. We estimate the Burns and Rogers Leases contain 68,272 net barrels of proved oil reserves having a PV-10 value of approximately $1,007,000 as of April 1, 2015.
The Burns and Rogers Leases provide exploration and production opportunities in the Kyote Field pay zone, very near the Eagle Ford Shale play with access to available rig crews and other vendor-servicers, due to their close proximity to San Antonio, Texas.
The Rogers Lease currently has one (1) operating well, which provides between two to three (2-3) barrels of oil per day (“BOPD”). The Burns Lease also currently has one (1) operating well, which provides one to two (1-2) BOPD. The Company’s management and industry professionals believe that the Company can double or triple existing production on the Burns and Rogers Leases by bringing online 5 available, inactive wells on the Leases and potentially increase total production 2-3 BOPD per well.
The Rogers and Burns Leases hold collectively seven (7) oil wells, which do produce saltwater that must be disposed of. Currently, there are available off-lease options to disposes of the saltwater but the Company will consider enhancing future operations by utilizing an injection well or wells on this property for disposal of saltwater.
The following table shows, as of July 8, 2015, our producing wells, developed acreage, and undeveloped acreage, excluding service (injection and disposal) wells:
Productive Wells
Developed Acreage
Undeveloped Acreage (1)
State
Gross
Net
Texas
2
1.9
190
189.0
305
303.5
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(1) Undeveloped acreage includes leasehold interests on which wells have not been drilled or completed to the point that would permit the production of commercial quantities of natural gas and oil regardless of whether the leasehold interest is classified as containing proved undeveloped reserves.
The following table shows, as of July 8, 2015, the status of our gross acreage:
Held by Production
Not Held by Production
495
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Acres that are Held by Production remain in force so long as oil or gas is produced from one or more wells on the particular lease. Leased acres that are not Held by Production requires annual rental payments to maintain the lease until the first to occur of the following: the expiration of the lease or the time oil or gas is produced from one or more wells drilled on the leased acreage. At the time oil or gas is produced from wells drilled on the leased acreage, the lease is considered to be Held by Production.
Proved Reserves
Proved reserves on these leases have been demonstrated consistently for the past several decades as the wells were initially drilled and completed by Texaco, and are still producing commercial quantities of oil. Below are estimates of our net proved reserves as of July 8, 2015, net to our interest. All of our proved reserves are located in Texas.
Estimates of volumes of proved reserves at July 8, 2015, are presented in barrels (Bbls) for oil and, for natural gas, in millions of cubic feet (Mcf) at the official temperature and pressure bases of the areas in which the gas reserves are located.
Oil
(Bbls)
Gas
(Mcf)
Proved Developed:
Producing
4,536
Non-Producing
8,546
Proved Undeveloped
55,190
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68,272
"Bbl" refers to one stock tank barrel, or 42 U.S. gallons liquid volume, in reference to crude oil or other liquid hydrocarbons. "Mcf" refers to one thousand cubic feet. A BOE (i.e., barrel of oil equivalent) combines Bbls of oil and Mcf of gas by converting each six Mcf of gas to one Bbl of oil.