Quarterly Report
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
INTRODUCTION
The following discussion is intended to facilitate an understanding of our business and results of operations and includes forward-looking statements that reflect our plans, estimates, and beliefs. It should be read in conjunction with our financial statements and the accompanying notes to the financial statements included herein. Our actual results could differ materially from those discussed in these forward-looking statements.
The Company has never earned a profit, and has incurred an accumulated deficit of $12,546,293 as of June 30,, 2009. The acquisition of a controlling interest in the Company by MA&N provided the Company access to additional funds directly from MA&N, and the business plan developed by MA&N has enabled the Company to raise additional funds from third parties as well. The Company has used the funds to purchase three oil and gas fields to begin its operations as an oil and gas exploration and production company. The Company began oil production in March 2008 by placing into production 3 wells located in the Parks' leases. The Company has also begun development of the Contract Area 1 leases. If our development plan is successful, and sufficient funds are raised to pay for the development, it is estimated that it will take approximately one year to reach production levels to sufficiently capitalize the Company on an ongoing basis. During this initial ramp up period, the Company believes that it will need to raise additional funds to fully develop its fields, purchase equipment, and meet general administrative expenses. The Company may seek both debt and equity financing. The Company currently has in excess of seventy wells located on the three fields located in Texas. Each of the wells will need to be reworked in order to establish production at a cost of approximately $7,000 to $10,000 per well. Initial production from each well is estimated to be between two to five barrels per day. Once initial production has been established, the Company will begin a water flood program that injects water into the oil producing zone through injector wells. The water then forces the oil towards the producing well and may increase production of each well up to an estimated four to seven barrels per day per well. If the Company is able to produce its wells upon the recompletion, the Company will be profitable if 40 barrels of oil are produced and the price of oil remains above $55.00 per barrel. The Company's success is dependent on if and how quickly it can reach these levels of production. The Company plans to use all revenues for general corporate purposes and future expansion of its current oil producing properties. There is no certainty that the Company can achieve profitable levels of production or that it will be able to raise additional capital through any means.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30,,2009 COMPARED TO THREE MONTHS ENDED JUNE 30, 2008
REVENUES FROM OPERATIONS
Revenues for the three months ended June 30, 2009 and 2008 were $6,455 and $739 respectively. On December 5, 2004, the Company began to structure itself into an oil and gas production and exploration company. The Company has acquired three oil and gas leases in the counties of Eastland and Callahan, Texas and has begun development of oil and gas. The Company received its first revenues from oil and gas operations in March 2008. The Company believes that it will place additional wells into operation during the current fiscal year. Since it ceased its former business operations, the Company has devoted its efforts to research prospective leases and business combinations and secure financing.
EXPENSES FROM CONTINUING OPERATIONS
The Company's operating expenses for the three months ended June 30, 2009 were $43,929. The current quarter operating expenses represent a favorable variance of $42,023 when compared to operating expenses of $85,952 for the quarter ended June 30, 2008. The favorable variance results primarily from lower well related expenses of $13,947. The remaining favorable variance resulted from lower legal fees, $1,446; lower filing fees $5,046; lower auditing fees, $8,750; lower travel expenses, $5,109 and, lower outside consultant fee, $4,950.
NET LOSS
For the quarter ended June 30, 2009, the Company had a net loss of $70,076 representing a positive variance of $43,820 when compared to a net loss of $113,896 for the quarter ended June 30, 2008. The positive variance results from lower expenses in all major expense categories including, lower well related expenses of $13,497.
NINE MONTHS ENDED JUNE 30, 2009 COMPARED TO NINE MONTHS ENDED JUNE 30, 2008
REVENUES FROM OPERATIONS
Revenues for the nine months ended June 30, 2009 and 2008 were $6,904 and $5,501 respectively. On December 5, 2004, the Company began to structure itself into an oil and gas production and exploration company. The Company has acquired three oil and gas leases in the counties of Eastland and Callahan, Texas and has begun development of oil and gas. The Company received its first revenues from oil and gas operations in March 2008. The Company believes that it will place additional wells into operation during the current fiscal year. Since it ceased its former business operations, the Company has devoted its efforts to research prospective leases and business combinations and secure financing.
EXPENSES FROM CONTINUING OPERATIONS
For the nine months ended June 30, 2009 the Company had operating expenses of $428,109 representing a positive variance of $110,366 when compared to a net loss of $428,109 for the nine months ended June 30, The positive variance results from lower payroll cost of $97,781. The lower payroll cost is the result of having the Company substituting lower cost contract labor in lieu of staff and a reduction in the Chief Executive Officer's compensation. During the nine month period the Company realized well related expenses of $1,813, representing a favorable variance of $28,775 when compared to $30,538 for the nine month period ended June 30, 2008.
NET LOSS
The Company incurred a net loss of $516,120 for the nine months ended June 30, 2009. The current nine months net loss represents a favorable variance of $108,670 when compared to a net loss of $624,790 for the nine months ended June 30, 2008. The favorable variance results primarily from lower payroll related expenses of $97,781. Payroll related expenses were reduced to $84,336 for the current nine months as compared to $182,117 for the same period in the prior year. Lower well related expenses contributed an additional favorable variance of $28,775 as compared with the same period in the prior year.
