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SFPI > SEC Filings for SFPI > Form 10-Q on 13-Nov-2012All Recent SEC Filings

Show all filings for SANTA FE PETROLEUM, INC.

Form 10-Q for SANTA FE PETROLEUM, INC.


13-Nov-2012

Quarterly Report


ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION

Overview

We are a development stage oil and gas company led by an experienced management team and focused on production of oil and natural gas. Our business plan is to acquire oil and gas properties for appraisal and development. Through the Land Bank arrangement and similar arrangements, we plan to gain control over substantial oil and gas prospects, which will be acquired from the Land Bank(s) from time to time as we are prepared to begin our appraisal and drilling operations on specific leases. We will employ strict selection guidelines for our projects including but not limited to 1) priority to projects with near term cash flow potential, pay-back period, quantity and quality of oil and gas reserves and utilizing premier oilfield services and engineering firms in analyzing and conducting our operations. Until we form a subsidiary that is qualified to be the operator under our oil and gas leases, an affiliated company will act as contract operator.

In 1997 our chairman of the board, Tom Griffin, established Santa Fe Petroleum, LLC, a Texas limited liability company engaged in oil and gas operations ("SFP2") that subsequently ceased operations and forfeited its status with the Texas Secretary of State in 2006. In 2010, Mr. Griffin formed a new entity, SFP, as a business to engage in oil and gas exploration and production. SFP2 successfully drilled 25 vertical and horizontal wells in East Texas for investors in those projects. As of the date of this Form10-Q, SFP is a holding company with no oil and gas operations, and we have no ownership in the prior business or wells drilled in East Texas. In December 2009, that business drilled the Test Well on a 76-acre lease in the Bend Arch-Fort Worth Basin in Texas. Baker Hughes, a top-tier oilfield services company, interpreted the logs and Weatherford Laboratories, who is engaged in all facets of rock and fluid analysis for the purpose of evaluating hydrocarbon resources around the world, analyzed the core samples. The side-wall core samples were taken every two feet beginning a few feet below the Barnett Shale in the Ellenberger formation and above the Barnett Shale a few feet in the Marble Falls formation. The results show oil exists in a porous, 101-feet-thick blanket formation with the top of the formation at the initial test-well location at a depth of approximately 2,600 feet below the surface.

In order to exploit this opportunity, Mr. Griffin and the investors in the Test Well formed SFO, a Texas corporation, in 2011. SFO's wholly owned subsidiary, SFL, which was originally incorporated in Texas in 2009, owns the 76-acre oil and gas lease and the Test Well. Aside from acquiring the Test Well and associated leases, SFO and SFL have not conducted any operations and have not begun oil and gas production from the Test Well. As a result of the Exchange on May 10, 2012, SFO and SFL became our wholly owned subsidiaries.

The Company believes that for the foreseeable future, the world will be highly dependent on oil and natural gas. Currently, alternative fuels are far more expensive than fossil fuels and because of the politically unstable conditions of many of the energy producing regions of the world, the Company believes that oil and natural gas will remain a key yet volatile component of the world's future energy requirements. Additionally, with the ever increasing world demand for energy, the domestic production of oil and gas will play an even greater role in America's future then it already has to date.

Recent Events

On September 19, 2012, the Company terminated Steve Crane as the interim Chief Operating Officer of the Company and terminated the Executive Services Agreement with ProOperate LLC, the professional management firm for which Mr. Crane is the Managing Partner. The termination was not the result of any disagreement with the Company on any matter relating to the Company's operations, policies or practices.

On May 17, 2012, Baby All Corp. (the "Company") filed an amendment to its Certificate of Incorporation with the Delaware Secretary of State to change its name to Santa Fe Petroleum, Inc. Effective on May 18, 2012, the State of Delaware approved the amendment to the Certificate of Incorporation.

On September 17, 2012, the Company filed a corporate action with FINRA to change the name of the Company to Santa Fe Petroleum, Inc. The foregoing actions were taken by written consent of a majority of the Company's shareholders and in accordance with the laws governing the State of Delaware, the Company's Certificate of Incorporation and Bylaws. The name change was effective with FINRA as of September 20, 2012.

In October 2012, the Company received subscriptions of 372,400 shares of common stock for $93,100 of net proceeds through a PPM at $0.50 per share.

In November 2012, the Company, along with SFL, entered into an agreement with the Land Banks to terminate the Lease Acquisition Agreements by mutual consent.

Results of operations

Revenues:

The Company is in the development stage and has not obtained revenue under its business plan.

Operating Expenses:

Operating expenses increased $784,486, or 300%, to $1,045,876 for the nine months ended September 30, 2012, from $261,390 for period from May 11, 2011, (commencement of operations) through September 30, 2011. The increase was primarily from a $500,000 increase in consulting expenses related to costs from the recapitalization and Share Exchange. Additionally, the majority of the remaining increase in operating expenses has been primarily accrued compensation, consulting and professional (legal) expenses related to completing the Share Exchange and becoming a publicly traded company. Operating expenses increased $637,480, or 509%, to $762,638 for three months ended September 30, 2012, from $125,158 for the three months ended September 30, 2011. The increase was primarily from a $500,000 increase in consulting expenses related to costs from the recapitalization and Share Exchange. Additionally, the majority of the remaining increase in operating expenses has been primarily accrued compensation, consulting and professional (legal) expenses related to completing the Share Exchange and becoming a publicly traded company.

Capital Commitments, Capital Resources and Liquidity

Capital commitments. The Company's primary needs for cash are (i) to fund drilling and development costs associated with well development within its leasehold properties, (ii) the further acquisition of additional leasehold assets, and iii), the payment of contractual obligations and working capital obligations. Initially, funding for these cash needs will be provided by the sale of equity from a new $10 million private placement of common stock as discussed below. Subsequently, this will be supplemented by a combination of internally-generated cash flows from operations and equity and or debt financing sources.

Capital resources and liquidity. The Company's primary capital resources from May 11, 2011, (commencement of operations) through September 30, 2012, have been from funds provided by affiliated related parties and cash proceeds from the issuance of common stock pursuant to a private placement memorandum ("PPM"). The Company has recently initiated a new private placement for the sale of common stock and believes that cash proceeds should be sufficient to meet both our short-term working capital requirements and our twelve month capital expenditure plans.

Cash flow from operating activities. The Company had $144,460 of cash used in operating activities for the nine months ended September 30, 2012, and no cash flow from operating activities for the period from May 11, 2011, (commencement of operations) through September 30, 2011.

Cash flow used in investing activities. The Company had $7,975 of cash used in investing activities for the nine months ended September 30, 2012, and no cash flow from investing activities for the period from May 11, 2011, (commencement of operations) through September 30, 2011.

Cash flow from financing activities. The Company had $343,573 of cash flow from financing activities for the nine months ended September 30, 2012, and no cash flow from financing activities for the period from May 11, 2011, (commencement of operations) through September 30, 2011. From July 1, 2012, through September 30, 2012, the Company received $343,573 of net proceeds ($403,525 gross proceeds less $59,952 of financing and offering expenses) through the PPM discussed previously. The Company issued 807,050 shares of its $0.0001par value common stock at $0.50 per share.

Liquidity. At September 30, 2012, the Company had $191,138 of cash and cash equivalents and had no cash and cash equivalents at December 31, 2011. Additionally, at September 30, 2012, the Company had a working capital deficit of $1,128,287 and a deficit accumulated during the development stage of $1,587,466.

A critical component of our operating plan is the ability to obtain additional capital through additional equity or debt financing. We do not believe that existing capital and anticipated funds from operations will be sufficient to execute our strategic plan during 2012 without either equity or debt financing. We have engaged an investment bank to raise up to $10 million in a private placement of our common stock. We believe that the $10 million of funding will provide sufficient capital to conduct our business plan over the next twelve months. We cannot ensure that financing will be available in amounts or on terms acceptable to us, if at all, and failure to secure the necessary financing could have a significant impact on our ability to continue as a going concern. We plan to seek additional capital in the future to fund growth and expansion through additional equity or debt financing. No assurance can be made that such financing will be available.

We anticipate incurring operating losses over the next twelve months. Our lack of operating history makes predictions of future operating results difficult to ascertain. Our prospects must be considered in light of the risks, expenses, and difficulties frequently encountered by companies in their early stage of development, particularly companies in the oil and gas exploration industry. To address these risks we must, among other things, implement and successfully execute our business strategy. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition, and results of operations.

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