Fieldpoint Petroleum (FPPP) Risk Analysis

Standardized Measure is a reporting convention that provides a common basis for comparing oil and gas companies subject to the rules and regulations of the SEC. Standardized Measure requires the use of specific pricing as required by the SEC as well as operating and development costs prevailing as of the date of computation. The non-GAAP financial measure, PV-10, is based on the average of the closing price on the first day of the month for the 12-month period prior to fiscal year end, while actual future prices and costs may be materially higher or lower. Consequently, these measures may not reflect the prices ordinarily received or that will be received for oil and gas production because of varying market conditions, nor may they reflect the actual costs that will be required to produce or develop the oil and gas properties. Accordingly, estimates included herein of future net cash flow may be materially different from the future net cash flows that are ultimately received. Therefore, the Standardized Measure of our estimated reserves and PV-10 included in this report should not be construed as accurate estimates of the current fair value of our proved reserves. In addition, the 10% discount factor we use when calculating PV-10 may not be the most appropriate discount factor based on interest rates in effect from time to time and risks associated with us or the oil and gas industry in general. Actual future net revenues also will be affected by factors such as the amount and timing of actual production, prevailing operating and development costs, supply and demand for oil and gas, increases or decreases in consumption and changes in governmental regulations or taxation.

The proved oil, NGL and gas reserves data included in this report are estimates. Petroleum engineering is a subjective process of estimating underground accumulations of oil and gas that cannot be measured in an exact manner. Estimates of economically recoverable oil, NGL and gas reserves and of future net cash flows necessarily depend upon a number of variable factors and assumptions, including: - historical production from the area compared with production from other similar producing areas;- the assumed effects of regulations by governmental agencies;- assumptions concerning future oil, NGL and gas prices; and - assumptions concerning future operating costs, severance and excise taxes, development costs and workover and remedial costs. Because all reserves estimates are to some degree subjective, each of the following items may differ materially from those assumed in estimating proved reserves: - the quantities of oil, NGL and gas that are ultimately recovered;- the production and operating costs incurred;- the amount and timing of future development expenditures; and - future oil, NGL and gas prices. Estimates of proved undeveloped reserves are even less reliable than estimates of proved developed reserves. Furthermore, different reserve engineers may make different estimates of reserves and future net revenues based on the same available data. Our actual production, revenues and expenditures with respect to reserves will likely be different from estimates and the differences may be material.

The borrowing base under our revolving credit facility is redetermined semi-annually based upon a number of factors, including commodity prices and reserve levels. In addition to such semi-annual redeterminations, our lenders may request one additional redetermination during any 12-month period. Upon such redetermination, our borrowing base could be reduced, and if the amount outstanding under our revolving credit facility at any time exceeds the borrowing base at such time, we may be required to repay a portion of our outstanding borrowings. A downward redetermination would materially decrease our available liquidity, and if it causes our borrowings to exceed our borrowing base, we may not have sufficient liquidity to repay those amounts, which would result in an event of default under our revolving credit facility. In the current commodity price environment, our borrowing base may be reduced following the upcoming semi-annual redetermination. We use cash flow from operations and bank borrowings to fund our exploration, development and acquisition activities. A reduction in our borrowing base could limit those activities. In addition, we may significantly change our capital structure to cover our working capital needs, make future acquisitions or develop our properties. Changes in capital structure may significantly increase our debt. If we incur additional debt for these or other purposes, the related risks that we now face could intensify. A higher level of debt also increases the risk that we may default on our debt obligations. Our ability to meet our debt obligations and to reduce our level of debt depends on our future performance, which is affected by general economic conditions and financial, business and other factors, many of which are beyond our control.

We expect our earnings and cash flow to vary significantly from year to year due to the nature of our industry. As a result, the amount of debt that we can manage in some periods may not be appropriate for us in other periods. Additionally, our future cash flow may be insufficient to meet our debt obligations and other commitments. In December 2016, our borrowing base with our senior lender was $5.5 million, at which time our outstanding drawn balance was approximately $6.5 million. In 2017, our senior lender decreased our borrowing base to approximately $2.7 which was equivalent to our outstanding drawn balance as of December 31, 2017, and the revolving credit facility matured in October 2016. Our borrowing base was lowered again on June 30, 2018, to $2,585,132, which was equivalent to our outstanding drawn balance as of December 31, 2018. We entered into a Forbearance Agreement in October 2016, which ran through January 1, 2018, and was amended December 29, 2017, March 31, 2018, June 30, 2018 and September 30, 2018. Although the Forbearance Agreement was again amended September 30, 2018, and again March 31, 2019, and was extended to June 30, 2019, we are currently in default under the line of credit, and as senior secured lender, Citibank could foreclose on our assets. A range of economic, competitive, business and industry factors will affect our future financial performance, and, as a result, our ability to generate cash flow from operations and to pay our debt. Many of these factors, such as oil and gas prices, economic and financial conditions in our industry and the global economy and initiatives of our competitors, are beyond our control. If we do not generate enough cash flow from operations to satisfy our debt obligations, we may have to undertake alternative financing plans, such as: - selling assets;- reducing or delaying capital investments;- seeking to raise additional capital; or - refinancing or restructuring our debt. If, for any reason, we are unable to meet our debt service and repayment obligations, we would be in default under the terms of the agreements governing our debt, which would allow our creditors at that time to declare all outstanding indebtedness to be due and payable, which would in turn trigger cross-acceleration or cross-default rights between the relevant agreements. If amounts outstanding under our revolving credit facility were to be accelerated, we cannot be certain that our assets would be sufficient to repay in full the money owed to the lenders or to our other debt holders.

Our revolving credit facility contains, and any future indebtedness we incur may contain, a number of restrictive covenants that will impose significant operating and financial restrictions on us, including restrictions on our ability to, among other things: - sell assets, including equity interests in our subsidiaries;- consolidate, merge or transfer all or substantially all of our assets;- incur or guarantee additional indebtedness or issue preferred stock;- redeem or prepay other debt;- pay distributions on, redeem or repurchase our common stock or redeem or repurchase our subordinated debt;- create or incur certain liens;- make certain acquisitions and investments;- enter into agreements that restrict distributions or other payments from our restricted subsidiaries to us;- engage in transactions with affiliates;- create unrestricted subsidiaries;- enter into financing transactions; and - engage in certain business activities. Our revolving credit facility provides for certain financial covenants and ratios measured quarterly which include a current ratio, leverage ratio, and interest coverage ratio requirements. The Company is out of compliance with all three ratios as of December 31, 2018, and is in technical default of the agreement. Furthermore, the borrowing base under our line of credit was redetermined December 29, 2017, based on the value of proved reserves, and was reduced from $5.5 million to $2.7 million. Our borrowing base was lowered again on June 30, 2018, to $2,585,132. As a result of the redetermination of the credit base, the Company does not have any capacity in its borrowing base as of December 31, 2018. In October 2016, we executed a sixth amendment to the original loan agreement, which provided for Citibank's forbearance from exercising remedies relating to the current defaults including the principal payment deficiencies. The Forbearance Agreement ran through January 1, 2018, and required that we make a $500,000 loan principal pay down by September 30, 2017, and adhere to other requirements including weekly cash balance reports, quarterly operating reports, monthly accounts payable reports and that we pay all associated legal expenses. Furthermore, under the agreement Citibank may sweep any excess cash balances exceeding a net amount of $800,000 less equity offering proceeds, which will be applied towards the outstanding principal balance. The Agreement was extended by a closing letter agreement to allow the Company time to pay the associated legal costs and solidify the Deposit/Withdraw at Custodian Agreements ("DEWAC") as provided for in the Forbearance Agreement. On December 29, 2017, we executed the seventh amendment to the Loan Agreement and the first amendment to the Forbearance Agreement, which reduced our borrowing base to $2,761,632 (our line of credit balance at December 31, 2017), and provided for Citibank's forbearance from exercising remedies relating to the existing defaults, including the principal payment deficiencies. This amended Forbearance Agreement ran through March 31, 2018, and required that we adhere to certain reporting requirements, such as weekly cash reports, and that we pay all fees and expenses of Citibank's counsel invoiced on or before the effective date. On March 30, 2018, we executed the eighth amendment to the Loan Agreement and the second amendment to the Forbearance Agreement which extended it to June 30, 2018. The terms of the second amendment to the Forbearance Agreement remained the same as under the foregoing first amendment. On July 25, 2018, we executed the ninth amendment to the Loan Agreement and the third amendment to the Forbearance Agreement which extended it to September 30, 2018. The terms of the ninth amendment to the Loan Agreement and the third amendment to the Forbearance Agreement increased the interest rate 2% and reduced our borrowing base $176,500 to our current line of credit balance of $2,585,132. On November 7, 2018, we executed the tenth amendment to the Loan Agreement and the fourth amendment to the Forbearance Agreement which extended it to March 31, 2019. The terms of the fourth amendment to the Forbearance Agreement remained the same as the foregoing third amendment. On March 25, 2019, we executed the eleventh amendment to the Loan Agreement and the fifth amendment to the Forbearance Agreement, which extended it to June 30, 2019. The terms of the fifth amendment to the Forbearance Agreement are substantially the same as under the forgoing fourth amendment. If an event of default under our revolving credit facility occurs and remains uncured, it could have a material adverse effect on our business, financial condition and results of operations. The lenders - would not be required to lend any additional amounts to us;- could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be due and payable;- may have the ability to require us to apply all of our available cash to repay these borrowings; or - may prevent us from making debt service payments under our other agreements.

Oil and natural gas drilling and production activities are subject to many risks, including the risk that no commercially productive reservoirs will be encountered. We can make no assurance that wells in which we have an interest will be productive or that we will recover all or any portion of investment costs. Our operations are also subject to hazards and risks inherent in drilling for and producing and transporting oil and natural gas, including, but not limited to, such hazards as: - Fires;- Explosions;- Blowouts;- Encountering formations with abnormal pressures;- Spills - Natural disasters;- Pipeline ruptures;- Cratering If any of these events occur in our operations, we could experience substantial losses due to: - injury or loss of life;- severe damage to or destruction of property, natural resources and equipment;- pollution or other environmental damage;- clean-up responsibilities;- regulatory investigation and penalties; and - other losses resulting in suspension of our operations. In accordance with customary industry practice, we maintain insurance against some, but not all, of the risks described above with a general liability limit of $1 million. We do not maintain insurance for damages arising out of exposure to radioactive material. Even in the case of risks against which we are insured, our policies are subject to limitations and exceptions that could cause us to be unprotected against some or all of the risk. The occurrence of an uninsured loss could have a material adverse effect on our financial condition or results of operations.

The marketability of our gas production will depend in part on the availability, proximity, and capacity of pipeline systems owned by third parties.  Although we will have some contractual control over the transportation of our product, material changes in these business relationships could materially affect our operations. Federal and state regulation of oil and natural gas production and transportation, tax and energy policies, changes in supply and demand and general economic conditions could adversely affect our ability to produce, gather, and transport oil and natural gas.

To manage our exposure to price risks in the marketing of our production, we may enter into commodity derivative agreements. While intended to reduce the effects of volatile commodity prices, such transactions may limit our potential gains and increase our potential losses if commodity prices were to rise substantially over the price established by the commodity derivative. In addition, such transactions may expose us to the risk of loss in certain circumstances, including instances in which our production is lower than expected. We are also exposed to the risk of non-performance by the counterparties to the commodity derivative agreements.

Water is an essential component of our drilling and hydraulic fracturing processes. Historically, we have been able to secure water from local landowners and other sources for use in our operations. During the last three years, much of the Southwest region where we operate has experienced extreme drought conditions. As a result of the severe drought, governmental authorities have restricted the use of water subject to their jurisdiction for drilling and hydraulic fracturing to protect the local water supply. If we are unable to obtain water to use in our operations, we may be unable to economically produce oil, NGLs and gas, which could have an adverse effect on our business, financial condition and results of operations. Moreover, new environmental initiatives and regulations could include restrictions on disposal of waste, including, but not limited to, produced water, drilling fluids and other wastes associated with the exploration, development or production of oil and gas. Compliance with environmental regulations and permit requirements for the withdrawal, storage and use of surface water or ground water necessary for hydraulic fracturing may increase our operating costs and cause delays, interruptions or cessation of our operations, the extent of which cannot be predicted, and all of which would have an adverse effect on our business, financial condition, results of operations and cash flows.

Our revenues, profitability and cash flow depend substantially upon the prices and demand for oil, NGLs and gas. The markets for these commodities are volatile, and even relatively modest drops in prices can affect significantly our financial results and impede our growth. Prices for oil, NGLs and gas fluctuate widely in response to changes in the supply and demand for these commodities, market uncertainty and a variety of additional factors beyond our control, such as: - domestic and foreign supply of oil, NGLs and gas;- domestic and foreign consumer demand for oil, NGLs and gas;- overall United States and global economic conditions impacting the global supply of and demand for oil, NGLs and gas;- the willingness and ability of OPEC to set and maintain oil price and production controls;- commodity processing, gathering and transportation availability, the availability of refining capacity and other factors that result in differentials to benchmark prices;- price and availability of alternative fuels;- price and quantity of foreign imports;- domestic and foreign governmental regulations;- political conditions in or affecting other oil and natural gas producing countries;- weather conditions, including unseasonably warm winter weather and tropical storms; and - technological advances affecting oil, NGL and gas consumption. Advanced drilling and completion technologies, such as horizontal drilling and hydraulic fracturing, have resulted in increased investment by oil and gas producers in developing U.S. shale oil and gas projects and, therefore, has resulted in increased production from these projects. The results of higher investment in the exploration for and production of U.S. shale oil, maintenance of production levels of oil from the Middle East, and other factors, such as global economic and financial conditions, have caused the price of oil to fall and become more volatile over the last several years. Over the six month period ending December 31, 2018, the WTI Spot prices for oil per barrel ("Bbl") have decreased by approximately 40% from the year high of $76. During the 52-week period ended December 31, 2018, the prices for oil per barrel ranged from a high of $76 to a low of $44 per Bbl, with the closing price on December 31, 2018, of approximately $45. Prices have rebounded slightly but may continue to be volatile and possibly decrease back to levels experienced during the last few years.

The ways that continued low oil and gas prices could affect us include the following: - Cash flows would be reduced, decreasing funds available for capital expenditures needed to maintain or increase production and replace reserves;- Future net cash flows from our properties would decrease, which could result in significant impairment expenses;- Some reserves would no longer be economic to produce, leading to lower proved reserves, production and cash flows; and - Access to capital, such as equity or long-term debt markets and current reserve-based lending levels, would be severely limited or unavailable. If the current decline in oil prices continues, it is unlikely that our future cash flows will be sufficient to fund the capital expenditure levels necessary to maintain current production and reserve levels over the long term and our results of operations would be adversely affected. Lower oil and gas prices would not only cause our revenues and cash flows to decrease but also would reduce the amount of oil and gas that we can produce economically. Substantial decreases in oil and gas prices will render uneconomic some or all of our drilling locations. This has and may continue to result in our having to impair our estimated proved reserves and could have a material adverse effect on our business, financial condition and results of operations. As we experienced with the recent downward adjustment of our borrowing base under our credit facility with Citibank, a decline in oil, NGL or gas prices for an extended period of time can result in our being unable to maintain or increase our borrowing capacity, repay current or future debt or obtain additional capital on attractive terms, all of which can affect the value of our common stock. The amount available for borrowing under our revolving credit facility is subject to a borrowing base, which is determined by our lenders taking into account our estimated proved reserves and is subject to semi-annual redeterminations based on pricing models determined by the lenders at such time.