COJAX OIL AND GAS CORPORATION The information set forth in this Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A") contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation, Reform Act of 1995, including, among others. The statements contained in this Quarterly Report on Form 10-Q that are not historical facts are forward-looking statements that represent management's beliefs and assumptions based on currently available information. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, need for financing, competitive position, and potential growth opportunities, and can be identified by the use of forward-looking terminology such as the words "believes," "intends," "may," "should," "anticipates," "expects," "could," "plans," "estimates," "projects," "targets" or comparable terminology or by discussions of strategy or trends. Our forward-looking statements do not consider the effects of future legislation or regulations. Although we believe that the expectations reflected in such forward-looking statements are reasonable, we cannot give any assurances that these expectations will prove to be correct. Such statements, by their nature, involve risks and uncertainties that could significantly affect expected results, and actual future results could differ materially from those described in such forward-looking statements.
While it is not possible to identify all factors, we continue to face many risks and uncertainties including, but not limited to:
·declines or volatility in the prices we receive for our oil and natural gas;
·our ability to raise additional capital to fund future capital expenditures;
·our ability to generate sufficient cash flow from operations, borrowings, or other sources to enable us to fully develop and produce our oil and natural gas properties;
·general economic conditions, whether internationally, nationally, or in the regional and local market areas in which we do business;
·risks associated with drilling, including completion risks, cost overruns, and the drilling of non-economic wells or dry holes;
·uncertainties associated with estimates of proved oil and natural gas reserves;
·the presence or recoverability of estimated oil and natural gas reserves and the actual future production rates and associated costs;
·risks and liabilities associated with acquired companies and properties;
·risks related to the integration of acquired companies and properties;
·potential defects in title to our properties;
·cost and availability of drilling rigs, equipment, supplies, personnel, and oilfield services;
·geological concentration of our reserves;
·environmental or other governmental regulations, including the legislation of hydraulic fracture stimulation;
·our ability to secure firm transportation for oil and natural gas we produce and to sell the oil and natural gas at market prices;
·exploration and development risks;
·management's ability to execute our plans to meet our goals;
·our ability to retain key members of our management team on commercially reasonable terms;
·the occurrence of cybersecurity incidents, attacks, or other breaches to our information technology systems or on systems and infrastructure used by the oil and gas industry;
·weather conditions;
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·effectiveness of our internal control over financial reporting;
·actions or inactions of third-party operators of our properties;
·costs and liabilities associated with environmental, health, and safety laws;
·our ability to find and retain highly skilled personnel;
·operating hazards attendant to the oil and natural gas business;
·competition in the oil and natural gas industry;
·evolving geopolitical and military hostilities in the
·economic and competitive conditions;
·lack of available insurance;
·cash flow and anticipated liquidity;
·continuing compliance with the financial covenant contained in our amended and restated credit agreement;
·the ongoing COVID-19 pandemic, including any reactive or proactive measures taken by businesses, governments, and other organizations related thereto, and the direct and indirect effects of COVID-19 on the market for and price of oil; and
·the other factors discussed under "Risk Factors" in our Annual Report.
This section should be read in conjunction with our Annual Report and our interim unaudited financial statements and accompanying notes to these financial statements. Should our underlying assumptions prove incorrect or the consequences of the aforementioned risks worsen, actual results could differ materially from those expected. Except as otherwise required by applicable law, we disclaim any intention or obligation to update publicly or revise such statements, whether as a result of new information, future events, or otherwise.
Overview
CoJax is a growth-oriented independent exploration and production company based
in
Business Description and Plan of Operation
The Company is currently engaged in oil and natural gas acquisition,
exploration, development, and production in
Our goal is to increase stockholder value by investing in oil and natural gas projects with attractive rates of return on capital employed. We plan to achieve this goal by exploiting and developing our existing oil and natural gas properties and pursuing strategic acquisitions of additional properties while remaining cash flow positive, maintaining low operating costs, and striving to show a gain in annual production while reducing the Company's debt.
Executive Summary - Second Quarter 2022 Developments and Highlights
COVID-19 Impact
In
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made available to all adults. The daily new infections peaked in the first
quarter of 2021 and have seen an overall steady decline, giving states the
ability to reopen to certain extents. In
Results of Operations - For the Three and Six Months Ended
Oil and natural gas sales. For the six months ended
Oil and gas production costs. Lease operating expenses were
Production taxes. Production taxes as a percentage of oil and natural gas sales
were 6%, or
Depreciation, depletion, amortization, and accretion. Our depreciation,
depletion, amortization, and accretion expenses were
General and administrative expenses. General and administrative expenses
increased
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2022 2021 2022 2021
General and administrative expense
- - 500,000 220,000
General and administrative expense
Interest expense. Interest expense decreased
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Net income (loss). For the six months ended
Sales volumes and commodity prices received
The following table presents our sales volumes and received pricing information
for the three and six-month periods ended
For the Three Months For the Six Months
Ended June 30, Ended June 30,
2022 2021 2022 2021
Oil volume (Bbls) - - - 183
Natural gas volume (Mcf) - - - -
Total Production (Boe) - - - 183
Average Sales Price
Oil price (per Bbl) - - - 45.66
Gas price (per Mcf) - - - -
Total per BOE - - - 45.66
Capital Resources and Liquidity
For the six months ended
The COVID-19 pandemic reduced global economic activity and negatively impacted energy demand during the previous twelve months. Demand for oil and natural gas is slowly returning to pre-pandemic levels as COVID-19 vaccine rates and economic activity have increased. Additionally, we have implemented several additional initiatives to maximize free cash flow, reduce our debt level, maximize our liquidity position and ultimately realize greater shareholder value.
Capital Resources for Future Acquisition and Development Opportunities
We continuously evaluate potential acquisitions and development opportunities.
To the extent possible, we intend to acquire producing properties and/or
developed undrilled properties rather than exploratory properties. We do not
intend to limit our evaluation to any one state. We presently have no intention
to evaluate offshore properties or properties located outside of
Effects of Inflation and Pricing
The oil and natural gas industry is very cyclical, and the demand for goods and services of oil field companies, suppliers, and others associated with the industry puts pressure on the economic stability and pricing structure within the industry. Typically, as prices for oil and natural gas increase, so do all
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associated costs. Material changes in prices impact the current revenue stream, estimates of future reserves, borrowing base calculations of bank loans, and the value of properties in purchase and sale transactions. Material changes in prices can impact the value of oil and natural gas companies and their ability to raise capital, borrow money and retain personnel. We anticipate business costs will vary in accordance with commodity prices for oil and natural gas and the associated increase or decrease in demand for services related to production and exploration.
Off Balance Sheet Arrangements
The Company does not have any off balance sheet arrangements, and it is not anticipated that the Company will enter into any off-balance sheet arrangements.
Disclosures About Market Risks
Like other natural resource producers, the Company faces certain unique market risks associated with the exploration and production of oil and natural gas.
The most salient risk factors are the volatile prices of oil and gas, operational risks, the ability to integrate properties and businesses, and certain environmental concerns and obligations.
Oil and Gas Prices
The price we receive for our oil and natural gas will heavily influence our revenue, profitability, access to capital, and future rate of growth. Oil and natural gas are commodities, and therefore, their prices are subject to wide fluctuations in response to relatively minor changes in supply and demand. The prices we receive for our production depend on numerous factors beyond our control. These factors include, without limitation, the following: worldwide and regional economic conditions impacting the global supply and demand for oil and natural gas; the price and quantity of imports of foreign oil and natural gas; the level of global oil and natural gas inventories; localized supply and demand fundamentals; the availability of refining capacity; price and availability of transportation and pipeline systems with adequate capacity; weather conditions, natural disasters, and public health threats; governmental regulations; speculation as to the future price of oil and the speculative trading of oil and natural gas futures contracts; price and availability of competitors' supplies of oil and natural gas; energy conservation and environmental measures; technological advances affecting energy consumption; the price and availability of alternative fuels and energy sources; and domestic and international drilling activity.
A substantial or extended decline in oil or natural gas prices may result in impairments of our proved oil and gas properties and may materially and adversely affect our future business, financial condition, cash flows, and results of operations.
Transportation of
CoJax is presently committed to using the services of the existing gatherers in its present areas of production. This gives such gatherers certain short-term relative monopolistic powers to set gathering and transportation costs.
Obtaining the services of an alternative gathering company would require substantial additional costs since an alternative gatherer would be required to lay new pipelines and/or obtain new rights-of-way.
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Competition in the Oil and Natural Gas Industry
We operate in a highly competitive environment for developing and acquiring properties, marketing oil and natural gas, and securing equipment and trained personnel. As a relatively small oil and natural gas company, many large producers possess and employ financial, technical, and personnel resources substantially greater than ours. Those companies may be able to develop and acquire more prospects, and productive properties than our financial or personnel resources permit. It is also significant that more favorable prices can usually be negotiated for larger quantities of oil and/or gas products, such that CoJax views itself as having a price disadvantage compared to larger producers.
Retention of Key Personnel
We depend to a large extent on the services of our officers. These individuals have extensive experience in the energy industry, as well as expertise in evaluating and analyzing producing oil and natural gas properties and drilling prospects, maximizing production from oil and natural gas properties, and developing and executing financing strategies. The loss of any of these individuals could have a material adverse effect on our operations and business prospects. Our success may be dependent on our ability to continue to hire, retain and utilize skilled executive and technical personnel.
Environmental and Regulatory Risks
Our business and operations are subject to and impacted by a wide array of federal, state, and local laws and regulations governing the exploration for and development, production, and marketing of oil and natural gas, the operation of oil and natural gas wells, taxation, and environmental and safety matters. Many laws and regulations require drilling permits and govern the spacing of wells, rates of production, water, waste use and disposal, prevention of waste hydraulic fracturing, and other matters. From time to time, regulatory agencies have imposed price controls and limitations on production in order to conserve supplies of oil and natural gas. In addition, the production, handling, storage, transportation, and disposal of oil and natural gas, byproducts thereof, and other substances and materials produced or used in connection with oil and natural gas operations are subject to regulation under federal, state, and local laws and regulations.
Compliance with these regulations may constitute a significant cost and effort for CoJax. To date, no specific accounting for environmental compliance has been maintained or projected by CoJax. CoJax does not presently know of any environmental demands, claims, adverse actions, litigation, or administrative proceedings in which it or the acquired properties are involved or subject to or arising out of its predecessor operations.
In the event of a violation of environmental regulations, these environmental regulatory agencies have a broad range of alternative or cumulative remedies, including ordering a cleanup of any spills or waste material and restoration of the soil or water to conditions existing prior to the environmental violation; fines; or enjoining further drilling, completion or production activities.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company 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.
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Going Concern
There can be no assurance that the Company will be able to achieve its business plan, raise additional capital, or secure the additional financing necessary to implement its current operating plan. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company has yet to achieve profitable operations, expects to incur further losses in the development of its business, has negative cash flows from operating activities, and is dependent upon future issuances of equity or other financings to fund ongoing operations, all of which raises substantial doubt about the Company's ability to continue as a going concern. The Company's ability to continue as a going concern is dependent upon its ability to generate future profitable operations or to obtain the necessary financing from shareholders or other sources to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern. Still, it considers that the Company will be able to obtain additional funds by equity financing or related party advances. However, there is no assurance of additional funding being available or on acceptable terms, if at all.
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