ZION OIL & GAS, INC. THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH OUR UNAUDITED INTERIM FINANCIAL STATEMENTS AND THE RELATED NOTES TO THOSE STATEMENTS INCLUDED IN THIS FORM 10-Q. SOME OF OUR DISCUSSION IS FORWARD-LOOKING AND INVOLVES RISKS AND UNCERTAINTIES. FOR INFORMATION REGARDING RISK FACTORS THAT COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS, REFER TO THE DISCUSSION OF RISK FACTORS IN THE "DESCRIPTION OF BUSINESS" SECTION OF OUR ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDEDDECEMBER 31, 2021 , FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. Forward-Looking Statements
Certain statements made in this discussion are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements may materially differ from actual results.
Forward-looking statements can be identified by terminology such as "may", "should", "expects", "intends", "anticipates", "believes", "estimates", "predicts", or "continue" or the negative of these terms or other comparable terminology and include, without limitation, statements regarding:
? The going concern qualification in our consolidated financial statements;
? our liquidity and our ability to raise capital to finance our overall
exploration and development activities within our license area;
? our ability to continue meeting the requisite continued listing
requirements by OTCQX;
? the outcome of the current SEC investigation against us;
? business interruptions from the COVID-19 pandemic;
? our ability to obtain new license areas to continue our petroleum
exploration program;
? interruptions, increased consolidated financial costs and other adverse
impacts of the coronavirus pandemic on the drilling and testing of our
MJ#2 well and our capital raising efforts;
? our ability to explore for and develop natural gas and oil resources
successfully and economically within our license area;
? our ability to maintain the exploration license rights to continue our
petroleum exploration program;
? the availability of equipment, such as seismic equipment, drilling
rigs, and production equipment as well as access to qualified
personnel;
? the impact of governmental regulations, permitting and other legal
requirements in Israel relating to onshore exploratory drilling;
? our estimates of the time frame within which future exploratory
activities will be undertaken;
? changes in our exploration plans and related budgets;
? the quality of existing and future license areas with regard to, among
other things, the existence of reserves in economic quantities;
? anticipated trends in our business;
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? our future results of operations;
? our capital expenditure program;
? future market conditions in the oil and gas industry;
? the demand for oil and natural gas, both locally in
? The impact of fluctuating oil and gas prices on our exploration efforts OverviewZion Oil and Gas, Inc. , aDelaware corporation, is an oil and gas exploration company with a history of 22 years of oil and gas exploration inIsrael . We were incorporated inFlorida onApril 6, 2000 and reincorporated inDelaware onJuly 9, 2003 . We completed our initial public offering inJanuary 2007 . Our common stock, par value$0.01 per share (the "Common Stock") currently trades on the OTCQX Market under the symbol "ZNOG" and our Common Stock warrant under the symbol "ZNOGW." The Company currently holds one active petroleum exploration license onshoreIsrael , the New Megiddo License 428 ("NML 428"), comprising approximately 99,000 acres. The NML 428 was awarded onDecember 3, 2020 for a six-month term with the possibility of an additional six-month extension. OnApril 29, 2021 , Zion submitted a request to theMinistry of Energy for a six-month extension toDecember 2, 2021 . OnMay 30, 2021 , theMinistry of Energy approved our request for extension toDecember 2, 2021 . OnNovember 29, 2021 , theMinistry of Energy approved our request for extension toAugust 1, 2022 . OnJuly 25, 2022 , Zion submitted a request to theMinistry of Energy for a six-month extension toFebruary 1, 2023 . OnJuly 31, 2022 , theMinistry of Energy approved our request for extension toFebruary 1, 2023 . The ML 428 lies onshore, south and west of the Sea of Galilee, and we continue our exploration focus here based on our studies as it appears to possess the key geologic ingredients of an active petroleum system with significant exploration potential. The Megiddo Jezreel #1 ("MJ #1") site was completed in earlyMarch 2017 , after which the drilling rig and associated equipment were mobilized to the site. Performance and endurance tests were completed, and the MJ #1 exploratory well was spud onJune 5, 2017 and drilled to a total depth ("TD") of 5,060 meters (approximately 16,600 feet). Thereafter, the Company obtained three open-hole wireline log suites (including a formation image log), and the well was successfully cased and cemented. TheMinistry of Energy approved the well testing protocol onApril 29, 2018 . During the fourth quarter of 2018, the Company testing protocol was concluded at the MJ #1 well. The test results confirmed that the MJ #1 well did not contain hydrocarbons in commercial quantities in the zones tested. As a result, in the year endedDecember 31, 2018 , the Company recorded a non-cash impairment charge to its unproved oil and gas properties of$30,906,000 . During the three and six months endedJune 30, 2022 and 2021, respectively, the Company did not record any post-impairment charges.
While the well was not commercially viable, Zion learned a great deal from the drilling and testing of this well. We believe that the drilling and testing of this well carried out the testing objectives which would support further evaluation and potential further exploration efforts within our License area. Zion believed it was prudent and consistent with good industry practice to examine further these questions with a focused 3-D seismic imaging shoot of approximately 72 square kilometers surrounding the MJ#1 well. Zion completed all of the acquisition, processing and interpretation of the 3-D data and incorporated its expanded knowledge base into the drilling of our current MJ-02 exploratory well. OnMarch 12, 2020 , Zion entered into a Purchase and Sale Agreement with Central European Drilling kft, a Hungarian corporation, to purchase an onshore oil and gas drilling rig, drilling pipe, related equipment and spare parts for a purchase price of$5.6 million in cash, subject to acceptance testing and potential downward adjustment. We remitted to the Seller$250,000 onFebruary 6, 2020 as earnest money towards the Purchase Price. The Closing anticipated by the Agreement took place onMarch 12, 2020 by the Seller's execution and delivery of a Bill of Sale to us. OnMarch 13, 2020 , the Seller retained the earnest money deposit, and the Company remitted$4,350,000 to the seller towards the purchase price, and$1,000,000 (the "Holdback Amount") was deposited in escrow withAmerican Stock Transfer and Trust Company LLC . OnJanuary 6, 2021 , Zion completed its acceptance testing of theI-35 drilling rig and the Holdback Amount was remitted to Central European Drilling. 35
The MJ-02 drilling plan was approved by theMinistry of Energy onJuly 29, 2020 . OnJanuary 6, 2021 , Zion officially spudded its MJ-02 exploratory well. OnNovember 23, 2021 , Zion announced via a press release that it completed drilling the MJ-02 well to a total depth of 5,531 meters (~18,141 feet) with a 6-inch open hole at that depth. A full set of detailed and comprehensive tests including neutron-density, sonic, gamma, and resistivity logs were acquired inDecember 2021 , as a result of which we identified an encouraging zone of interest. Extensive well testing operations are continuing for the MJ-02 well. At present, we have no revenues or operating income. Our ability to generate future revenues and operating cash flow will depend on the successful exploration and exploitation of our current and any future petroleum rights or the acquisition of oil and/or gas producing properties, and the volume and timing of such production. In addition, even if we are successful in producing oil and gas in commercial quantities, our results will depend upon commodity prices for oil and gas, as well as operating expenses including taxes and royalties. Our executive offices are located at12655 North Central Expressway , Suite 1000,Dallas, Texas 75243, and our telephone number is (214) 221-4610. Our branch office's address inIsrael is9 Halamish Street ,North Industrial Park ,Caesarea 3088900, and the telephone number is +972-4-623-8500. Our website address is: www.zionoil.com.
Current Exploration and Operation Efforts
Megiddo-Jezreel Petroleum License
The Company currently holds one active petroleum exploration license onshoreIsrael , the New Megiddo License 428 ("NML 428"), comprising approximately 99,000 acres - See Map 1. Under Israeli law, Zion has an exclusive right to oil and gas exploration in our license area in that no other company may drill there. In the event we drill an oil or gas discovery in our license area, current Israeli law entitles us to convert the relevant portions of our license to a 30-year production lease, extendable to 50 years, subject to compliance with a field development work program and production. The New Megiddo License 428 was awarded onDecember 3, 2020 for a six-month term with the possibility of an additional six-month extension. OnMay 30, 2021 , theMinistry of Energy approved our request for extension toDecember 2, 2021 . OnNovember 29, 2021 , theMinistry of Energy approved our request for extension toAugust 1, 2022 . OnJuly 25, 2022 , Zion submitted a request to theMinistry of Energy for a six-month extension toFebruary 1, 2023 . OnJuly 31, 2022 , theMinistry of Energy approved our request for extension toFebruary 1, 2023 . The New Megiddo License 428 area is the same area as the Megiddo-Jezreel License 401 area and lies onshore, South and West of the Sea of Galilee and we continue our exploration focus here based on our studies as it appears to possess the key geologic ingredients of an active petroleum system with significant exploration potential.
The MJ-02 drilling plan was approved by theMinistry of Energy onJuly 29, 2020 . OnJanuary 6, 2021 , Zion officially spudded its MJ-02 exploratory well. OnNovember 23, 2021 , Zion announced via a press release that it completed drilling the MJ-02 well to a total depth of 5,531 meters (~18,141 feet) with a 6-inch open hole at that depth. A full set of detailed and comprehensive tests including neutron-density, sonic, gamma, and resistivity logs were acquired inDecember 2021 , as a result of which we identified an encouraging zone of interest. Extensive well testing operations are continuing for the MJ-02 well.
I-35 Drilling Rig & Associated Equipment
Six-month period ended June 30, 2022
I-35 Rig Other
Drilling Rig Spare Parts Drilling Assets Total
US$ thousands US$ thousands US$ thousands US$ thousands
December 31, 2021 5,859 642 333 6,834
Asset Additions - 135 211 346
Asset Depreciation (317 ) - (54 ) (371 )
Asset Disposals for Self-Consumption - (171 ) - (171 )
June 30, 2022 5,542 606 490 6,638
Zion's ability to fully undertake all of these aforementioned activities is subject to its raising the needed capital from its continuing offerings, of which no assurance can be provided.
36
[[Image Removed]]
Map 1. Zion's New Megiddo License 428 as of June 30, 2022 .
37
Zion's Former Joseph License
Zion has plugged all of its exploratory wells on its former Joseph License area,
and the reserve pits have been evacuated, but acknowledges its obligation to
complete the abandonment of these well sites in accordance with guidance from
the Energy Ministry , Environmental Ministry and local officials.
The Company is engaged in oil and gas exploration and production and may become subject to certain liabilities as they relate to environmental cleanup of well sites or other environmental restoration procedures and other obligations as they relate to the drilling of oil and gas wells or the operation thereof. Various guidelines have been published inIsrael by theState of Israel's Petroleum Commissioner, theEnergy Ministry , and theEnvironmental Ministry in recent years as it pertains to oil and gas activities. Mention of these guidelines was included in previousZion Oil & Gas filings. We acknowledge that these new regulations are likely to increase the expenditures associated with obtaining new exploration rights and drilling new wells. The Company expects that additional financial burdens could occur as a result of the Ministry requiring cash reserves that could otherwise be used
for operational purposes. Capital Resources Highlights We need to raise significant funds to finance the continued exploration efforts and maintain orderly operations. To date, we have funded our operations through the issuance of our securities and convertible debt. We will need to continue to raise funds through the issuance of equity and/or debt securities (or securities convertible into or exchangeable for equity securities). No assurance can be provided that we will be successful in raising the needed capital on terms favorable to us (or at all).
The Dividend Reinvestment and Stock Purchase Plan
OnMarch 13, 2014 Zion filed a registration statement on Form S-3 that is part of a replacement registration statement that was filed with theSEC using a "shelf" registration process. The registration statement was declared effective by theSEC onMarch 31, 2014 . OnFebruary 23, 2017 , the Company filed a Form S-3 with theSEC (Registration No. 333-216191) as a replacement for the Form S-3 (Registration No. 333-193336), for which the three year period endedMarch 31, 2017 , along with the base Prospectus and Supplemental Prospectus. The Form S-3, as amended, and the new base Prospectus became effective onMarch 10, 2017 , along with the Prospectus Supplement that was filed and became effective onMarch 10, 2017 . The Prospectus Supplement under Registration No. 333-216191 describes the terms of the DSPP and replaces the prior Prospectus Supplement, as amended, under the prior Registration No. 333-193336. OnMarch 27, 2014 , we launched our Dividend Reinvestment and Stock Purchase Plan (the "DSPP") pursuant to which stockholders and interested investors can purchase shares of the Company's Common Stock as well as units of the Company's securities directly from the Company. The terms of the DSPP are described in the Prospectus Supplement originally filed onMarch 31, 2014 (the "Original Prospectus Supplement") with theSecurities and Exchange Commission ("SEC") under the Company's effective registration Statement on Form S-3, as thereafter amended. 38
Please see Footnote 3E ("Dividend Reinvestment and Stock Purchase Plan ("DSPP")), which is a part of this Form 10-Q filing, for details about specific unit programs, dates, and filings during the years 2016 through 2022.
For the three and six months ended
For the three and six months ended
The warrants balances at
Outstanding Outstanding
Exercise Warrant Balance, Warrants Warrants Warrants Balance,
Warrants Price Termination Date 12/31/2021 Issued Exercised Expired 06/30/2022
ZNWAA $ 2.00 01/31/2023 1,498,804 - - - 1,498,804
ZNWAD $ 1.00 05/02/2023 243,853 - - - 243,853
ZNWAE $ 1.00 05/01/2023 2,144,099 - - - 2,144,099
ZNWAF $ 1.00 08/14/2023 359,435 - - - 359,435
ZNWAG $ 1.00 01/08/2023 240,068 - - - 240,068
ZNWAH $ 5.00 04/19/2023 372,400 - - - 372,400
ZNWAI $ 3.00 06/29/2023 640,710 - - 640,710
ZNWAJ $ 1.00 10/29/2023 545,900 - - - 545,900
ZNWAK $ 0.01 02/25/2023 431,675 - (6,650 ) - 425,025
ZNWAL $ 2.00 08/26/2023 517,875 - - - 517,875
ZNWAM $ 1.00 07/15/2023 4,376,000 - - - 4,376,000
ZNWAN $ 1.00 05/16/2023 267,660 100 - - 267,760
ZNWAO $ 0.25 06/12/2023 174,970 - (310 ) - 174,660
ZNWAQ $ 0.25 07/06/2023 - 23,428,348 - - 23,428,348
ZNWAP $ 0.25 06/02/2023 439,916 - (439,916 ) - -
ZNWAR $ 0.25 06/23/2023 1,020,000 - (1,020,000 ) - -
Outstanding
warrants 13,273,365 23,428,448 (1,466,776 ) - 35,234,937
During the second quarter of 2022, all warrants represented by ZNWAP and ZNWAR
were exercised resulting in a net cash inflow of
According to the warrant table, the Company could potentially raise up to
approximately
39
Principal Components of our Cost Structure
Our operating and other expenses primarily consist of the following:
? Impairment of
recognized if a determination is made that a well will not be
commercially productive. The amounts include amounts paid in respect of
the drilling operations as well as geological and geophysical costs and
various amounts that were paid to Israeli regulatory authorities.
? General and Administrative Expenses: Overhead, including payroll and
benefits for our corporate staff, costs of managing ourexploratory
operations, audit and other professional fees, and legal compliance is
included in general and administrative expenses. General and
administrative expenses also include non-cash stock-based compensation
expense, investor relations related expenses, lease and insurance and
related expenses.
? Depreciation, Depletion, Amortization and Accretion: The systematic
expensing of the capital costs incurred to explore for natural gas and
oil represents a principal component of our cost structure. As a full
cost company, we capitalize all costs associated with ourexploration,
and apportion these costs to each unit of production, if any, through
depreciation, depletion and amortization expense. As we have yet to
have production, the costs of abandoned wells are written off
immediately versus being included in this amortization pool.
Going Concern Basis
Since we have limited capital resources, no revenue to date and a loss from
operations, our consolidated financial statements have been prepared on a going
concern basis, which contemplates realization of assets and liquidation of
liabilities in the ordinary course of business. The appropriateness of using the
going concern basis is dependent upon our ability to obtain additional financing
or equity capital and, ultimately, to achieve profitable operations. Therefore,
there is substantial doubt about our ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The Impact of COVID-19
During March 2020 , a global pandemic was declared by the World Health
Organization related to the rapidly growing outbreak of a novel strain of
coronavirus ("COVID-19"). The pandemic has significantly impacted the economic
conditions in the United States and Israel , as federal, state and local
governments react to the public health crisis, creating significant
uncertainties in the United States , Israel and world economies. In the interest
of public health and safety, jurisdictions (international, national, state and
local) where we have operations, restricted travel and required workforces to
work from home. As of the date of this report, many of our employees are working
from home. However, while there are various uncertainties to navigate, the
Company's business activities are continuing. The situation is rapidly changing
and additional impacts to the business may arise that we are not aware of
currently. We cannot predict whether, when or the manner in which the conditions
surrounding COVID-19 will change including the timing of lifting any
restrictions or work from home arrangements.
The full extent of COVID-19's impact on our operations and financial performance
depends on future developments that are uncertain and unpredictable, including
the duration and spread of the pandemic, its impact on capital and financial
markets and any new information that may emerge concerning the severity of the
virus, its spread to other regions as well as the actions taken to containit, among others. The main area in which Zion has experienced COVID-19's impact has been in supply chain and/or logistics. We work with several suppliers worldwide for the procurement of oil and gas parts, inventory items and related labor for our ongoing operations for the MJ-02 well. Production delays, factory shutdowns and heavy demand by oil and gas operators worldwide for spare parts has created some challenges in obtaining these items in a timely fashion.
Critical Accounting Policies
Management's discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted inthe United States of America . The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expense during the reporting period. We have identified the accounting principles which we believe are most critical to the reported financial status by considering accounting policies that involve the most complex of subjective decisions or assessment.
Impairment of
We follow the full-cost method of accounting for oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including directly related overhead costs, are capitalized.
40
All capitalized costs of oil and gas properties, including the estimated future
costs to develop proved reserves, are amortized on the unit-of-production method
using estimates of proved reserves. Investments in unproved properties and major
development projects are not amortized until proved reserves associated with the
projects can be determined or until impairment occurs. If the results of an
assessment indicate that the properties are impaired, the amount of the
impairment is included in income from continuing operations before income taxes,
and the adjusted carrying amount of the unproved properties is amortized onthe unit-of-production method.
Our oil and gas properties represent an investment in unproved properties. These costs are excluded from the amortized cost pool until proved reserves are found or until it is determined that the costs are impaired. All costs excluded are reviewed at least quarterly to determine if impairment has occurred. The amount of any impairment is charged to expense since a reserve base has not yet been established. A further impairment requiring a charge to expense may be indicated through evaluation of drilling results, relinquishing drilling rights or other information. Abandonment of properties is accounted for as adjustments to capitalized costs. The net capitalized costs are subject to a "ceiling test" which limits such costs to the aggregate of the estimated present value of future net revenues from proved reserves discounted at ten percent based on current economic and operating conditions, plus the lower of cost or fair market value of unproved properties. The recoverability of amounts capitalized for oil and gas properties is dependent upon the identification of economically recoverable reserves, together with obtaining the necessary financing to exploit such reserves and the achievement of profitable operations.
During the three and six months ended
The total net book value of our unproved oil and gas properties under the full cost method is$53,250,000 and$46,950,000 atJune 30, 2022 and at December
31, 2021, respectively. Asset Retirement Obligation
We record a liability for asset retirement obligation at fair value in the period in which it is incurred and a corresponding increase in the carrying amount of the related long-lived assets.
Fair Value Considerations
We follow ASC 820, "Fair Value Measurements and Disclosures," as amended byFinancial Accounting Standards Board (FASB) Financial Staff Position (FSP) No. 157 and related guidance. Those provisions relate to the Company's financial assets and liabilities carried at fair value and the fair value disclosures related to financial assets and liabilities. ASC 820 defines fair value, expands related disclosure requirements, and specifies a hierarchy of valuation techniques based on the nature of the inputs used to develop the fair value measures. Fair value is defined as the price that would be received from the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, assuming the transaction occurs in the principal or most advantageous market for that asset or liability. There are three levels of inputs to fair value measurements - Level 1, meaning the use of quoted prices for identical instruments in active markets; Level 2, meaning the use of quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active or are directly or indirectly observable; and Level 3, meaning the use of unobservable inputs. We use Level 1 inputs for fair value measurements whenever there is an active market, with actual quotes, market prices, and observable inputs on the measurement date. We use Level 2 inputs for fair value measurements whenever there are quoted prices for similar securities in an active market or quoted prices for identical securities in an inactive market. We use observable market data whenever available. We use Level 3 inputs in the Binomial Model used for the valuation of the derivative liability. 41 RESULTS OF OPERATIONS For the three months ended For the six months ended June 30, June 30, 2022 2021 2022 2021 (US $ in thousands) (US $ in thousands) Operating costs and expenses: General and administrative expenses 1,550 2,952 2,985 4,923 Other 946 1,064 1,657 1,856 Subtotal Operating costs and expenses 2,496 4,016 4,642 6,779 (Gain) on derivative liability - (5 ) - (431 ) Other expense, net 101 45 121 268 Net loss 2,597 4,056 4,763 6,616
Revenue. We currently have no revenue generating operations.
Operating costs and expenses. Operating costs and expenses for the three and six months endedJune 30, 2022 were$2,496,000 and$4,642,000 , respectively, compared to$4,016,000 and$6,779,000 , respectively, for the three and six months endedJune 30, 2021 . The decrease in operating costs and expenses during the three and six months endedJune 30, 2022 compared to the corresponding period in 2021 is primarily attributable to a reduction in non-cash stock compensation expense stemming from the grant of stock options. See the "General and administrative expenses" section below. General and administrative expenses. General and administrative expenses for the three and six months endedJune 30, 2022 were$1,550,000 and$2,985,000 , respectively, compared to$2,952,000 and$4,923,000 , respectively, for the three and six months endedJune 30, 2021 . A major component of general and administrative expenses is non-cash stock compensation expense in the form of stock options granted to employees, management and directors. As stated in this filing, Zion does not have revenue generating operations. Historically, we have compensated our staff in part by granting stock options in lieu of cash bonuses. Zion granted the following number of options during the quarters endedMarch 31, 2021 ,June 30, 2021 ,March 31, 2022 andJune 30, 2022 : 1,075,000, 3,625,000, 4,100,000 and 7,525,000, respectively. Said another way, Zion granted a total of 4,700,000 options during the first six months of 2021 compared to 11,625,000 for the six months of 2022. A higher number of options were granted in 2022 in part due to the low Zion stock price and the desire for grantees to have increasing ownership in Zion, especially management and directors. Other expense. Other expenses during the three and six months endedJune 30, 2022 were$946,000 and$1,657,000 , respectively, compared to$1,064,000 and$1,856,000 , respectively, for the three and six months endedJune 30, 2021 . The expenses in this category are comprised of non-compensation and non-professional expenses incurred. The decrease in expenses for both the three and six months of 2022, when compared to the corresponding periods in 2021, relate to lower annual meeting expenses and Facebook spending with a partial offset by an increase in insurance costs, primarily D&O insurance premiums. Annual meeting expenses were significantly higher in 2021 due primarily to proxy solicitation costs to secure votes for two important proposals. (Gain) on derivative liability. (Gain) on derivative liability during the three and six months endedJune 30, 2022 were nil and nil, respectively, compared to ($5,000 ) and ($431,000 ), respectively, for the three and six months endedJune 30, 2021 . InMay 2021 , Zion paid the annual interest and the maturity of its convertible bond in Zion shares (in kind). At the present time, Zion does not expect to issue another convertible bond. Other expense, net. Other expense, net for the three and six months endedJune 30, 2022 were$101,000 and$121,000 , respectively, compared to$45,000 and$268,000 , respectively, for the three and six months endedJune 30, 2021 . The expenses in this category are comprised of foreign currency exchange costs, primarily the New Israeli Shekel (NIS) to the US dollar, and financial expenses/income. Overall, for the 6 months endedJune 30, 2022 , total expenses in this category are$147,000 lower due to the relative strengthening of the USD to the NIS during 2022.
Net Loss. Net loss for the three and six months ended
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Liquidity and Capital Resources
Liquidity is a measure of a company's ability to meet potential cash requirements. As discussed above, we have historically met our capital requirements through the issuance of common stock as well as proceeds from the exercise of warrants and options to purchase common shares.
Our ability to continue as a going concern is dependent upon obtaining the necessary financing to complete further exploration and development activities and generate profitable operations from our oil and natural gas interests in the future. Our current operations are dependent upon the adequacy of our current assets to meet our current expenditure requirements and the accuracy of management's estimates of those requirements. Should those estimates be materially incorrect, our ability to continue as a going concern will be impaired. Our financial statements for the three and six months endedJune 30, 2022 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. We have incurred a history of operating losses and negative cash flows from operations. Therefore, there is substantial doubt about our ability to continue as a going concern. AtJune 30, 2022 , we had approximately$5,755,000 in cash and cash equivalents compared to$4,683,000 atDecember 31, 2021 , which does not include any restricted funds. Our working capital (current assets minus current liabilities) was$6,004,000 atJune 30, 2022 and$3,303,000 atDecember 31, 2021 . As ofJune 30, 2022 , we provided bank guarantees to various governmental bodies (approximately$1,218,000 ) and others (approximately$63,000 ) in respect of our drilling operation in the aggregate amount of approximately$1,281,000 . The (cash) funds backing these guarantees are held in restricted interest-bearing accounts inIsrael and are reported on the Company's balance sheets as fixed short-term bank deposits restricted. During the six months endedJune 30, 2022 , cash used in operating activities totaled$3,424,000 . Cash provided by financing activities during the six months endedJune 30, 2022 was$12,994,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan (the "DSPP" or the "Plan"). Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was$8,448,000 for the six months endedJune 30, 2022 . During the six months endedJune 30, 2021 , cash used in operating activities totaled$2,966,000 . Cash provided by financing activities during the six months endedJune 30, 2021 was$13,674,000 and is primarily attributable to proceeds received from the Dividend Reinvestment and Stock Purchase Plan (the "DSPP" or "Plan"). Net cash used in investing activities such as unproved oil and gas properties, equipment and spare parts was$15,044,000 for the six months endedJune 30, 2021 .
Accounting standards require management to evaluate our ability to continue as a going concern for a period of one year subsequent to the date of the filing of this Form 10-Q. We expect to incur additional significant expenditures to further our exploration and development programs. While we raised approximately$533,000 during the periodJuly 1, 2022 throughAugust 8, 2022 , we will need to raise additional funds in order to continue our exploration and development activities in our license area. Additionally, we estimate that, when we are not actively drilling a well, our expenditures are approximately$600,000 per month excluding exploratory operational activities. However, when we are actively drilling a well, we estimate an additional minimum expenditure of approximately$2,500,000 per month. The above estimates are subject to change. Subject to the qualifications specified below, management believes that our existing cash balance, coupled with anticipated proceeds under the DSPP, will be sufficient to finance our plan of operations throughNovember 2022 . The recent outbreak of the coronavirus has to date significantly disrupted business operations and resulted in significantly increased unemployment in the general economy. The extent to which the coronavirus impacts our operations, specifically our capital raising efforts, as well as our ability to continue our exploratory efforts, will depend on future developments, which are highly uncertain and cannot be predicted with confidence, including the duration of the outbreak, new information which may emerge concerning the severity of the coronavirus and the actions to contain the coronavirus or treat its impact, among others.
No assurance can be provided that we will be able to raise the needed operating capital.
43
Even if we raise the needed funds, there are factors that can nevertheless adversely impact our ability to fund our operating needs, including (without limitation), unexpected or unforeseen cost overruns in planned non-drilling exploratory work in existing license areas, the costs associated with extended delays in undertaking the required exploratory work, and plugging and abandonment activities which is typical of what we have experienced in the past. The financial information contained in these consolidated financial statements has been prepared on a basis that assumes that we will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. This financial information and these consolidated financial statements do not include any adjustments that may result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We do not currently use any off-balance sheet arrangements to enhance our liquidity or capital resource position, or for any other purpose.
Recently Issued Accounting Pronouncements
The Company does not believe that the adoption of any recently issued accounting pronouncements in 2022 had a significant impact on our financial position, results of operations, or cash flow.
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