FORWARD LOOKING STATEMENTS
The following discussion and analysis is provided to increase the understanding of, and should be read in conjunction with, the Financial Statements of the Company and Notes thereto included elsewhere in this Report. Historical results and percentage relationships among any amounts in these financial statements are not necessarily indicative of trends in operating results for any future period. The statements, which are not historical facts contained in this Report, including this Plan of Operations, and Notes to the Financial Statements, constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available operating, financial and competitive information, and are subject to various risks and uncertainties. Future events and the Company's actual results may differ materially from the results reflected in these forward-looking statements. Factors that might cause such a difference include, but are not limited to, dependence on existing and future key strategic and strategic end-user customers, limited ability to establish new strategic relationships, ability to sustain and manage growth, variability of operating results, the Company's expansion and development of new service lines, marketing and other business development initiatives, the commencement of new engagements, competition in the industry, general economic conditions, dependence on key personnel, the ability to attract, hire and retain personnel who possess the technical skills and experience necessary to meet the service requirements of its clients, the potential liability with respect to actions taken by its existing and past employees, risks associated with international sales, and other risks described herein and in the Company's other SEC filings.
The safe harbors of forward-looking statements provided by Section 21E of the Exchange Act are unavailable to issuers of penny stock. As we issued securities at a price below $5.00 per share, our shares are considered penny stock and such safe harbors set forth under the Reform Act are unavailable to us.
The following discussion of our financial condition and results of operations should be read in conjunction with the Financial Statements and Notes to the Condensed Consolidated Financial Statements appearing elsewhere in this report.
OVERVIEW
Majestic Oil & Gas, Inc is engaged in the exploration, development, acquisition and operation of oil and natural gas properties. Because oil and natural gas exploration and development requires significant capital and because our assets and resources are limited, we participate in the gas industry through the purchase of interests in either producing wells or oil and natural gas exploration, development and production projects.
Majestic Oil & Gas, Inc. is a development stage company, and as such it is difficult for us to forecast our revenues or earnings accurately. We believe that future period-to-period comparisons of our operating results may not be meaningful and should not be relied upon as an indication of future performance as we have and will have no backlog of orders. Our operating results in one or more future quarters may fall below investor expectations which, assuming our common stock trades on a recognized market, would almost certainly cause the future trading price of our common stock to decline. You should read the following discussion together with the condensed consolidated financial statements and their accompanying notes, included elsewhere in the report.
Based upon our Management's experience in the oil and natural gas industry and on recent events, including increasing global demand for energy and energy disruptions caused by natural disasters, we believe the trend in oil and gas prices will remain relatively stable or decrease slightly, but over the long-term are more likely to increase. We expect to continue to generate positive net income from operations in the future, although our revenue and expenses will increase as we expand our drilling and ownership activities.
Majestic Oil & Gas, Inc participated in a drilling program in the Lake Frances Field during the Fourth Quarter 2007. Two successful gas wells were drilled; the B Ag, Inc #25-1 and the Vandenbos #19-1. Majestic Oil & Gas, Inc holds a 25% Working Interest in these two wells and the Company has seen an increase in production volumes, as a result of these two wells. In addition, Majestic Oil & Gas, Inc participated in the drilling of the Vandenbos #19-2 and the Jody Fields #4-1. The Vandenbos #19-2 well was subsequently plugged and abandoned. The Jody Fields #4-1 well, is a wildcat oil well, which is yet to be completed.
RESULTS OF OPERATIONS
Three months ended June 30, 2008 vs. Three months ended June 30, 2007
Revenues for the three-month period ending June 30, 2008 were $37,297 compared to $7,582 for the three-month period ending June 30, 2007. The reason for the major increase in the revenues between these two periods is a direct result of the two new wells brought on production during the 4
th
Quarter of 2007, which increased production/sales volumes, as shown in the chart below and the price received per MCF.(MCF stands for the price per thousand cubic feet of natural gas)
Ludwig State 36-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
|
2008
|
|
|
2007
|
|
April
|
|
|
255.96
|
|
|
|
5.36
|
|
|
|
378.47
|
|
|
|
3.50
|
|
May
|
|
|
255.54
|
|
|
|
6.33
|
|
|
|
370.22
|
|
|
|
3.67
|
|
June
|
|
|
246.06
|
|
|
|
6.75
|
|
|
|
339.08
|
|
|
|
3.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boucher #27-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
|
2008
|
|
|
2007
|
April
|
|
|
67.44
|
|
|
|
5.36
|
|
|
|
238.84
|
|
|
|
3.50
|
|
May
|
|
|
67.03
|
|
|
|
6.33
|
|
|
|
222.13
|
|
|
|
3.67
|
|
June
|
|
|
68.06
|
|
|
|
6.75
|
|
|
|
166.24
|
|
|
|
3.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B. Ag #25-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
|
2008
|
|
|
2007
|
April
|
|
|
42.40
|
|
|
|
5.36
|
|
|
|
0
|
|
|
|
|
|
May
|
|
|
41.00
|
|
|
|
6.33
|
|
|
|
0
|
|
|
|
|
|
June
|
|
|
39.80
|
|
|
|
6.75
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vandenbos #19-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April
|
|
|
1390.95
|
|
|
|
5.36
|
|
|
|
0
|
|
|
|
|
|
May
|
|
|
1328.66
|
|
|
|
6.33
|
|
|
|
0
|
|
|
|
|
|
June
|
|
|
1219.14
|
|
|
|
6.75
|
|
|
|
0
|
|
|
|
|
|
Majestic Oil & Gas, Inc’s Net Share of the production volumes from the Ludwig State #36-1 and Boucher #27-1 wells for the period ending June 30, 2008 were 960.09 MCF compared to 1,714.98 MCF for the period ending June 30, 2007, due to the natural decline in production. However, production volumes significantly increased during the period as a result of the added production from the new natural gas wells, B. Ag #25-1 and Vandenbos #19-1. Second quarter production of 4,061.95 MCF for the new wells, brings the Company’s total share of production to 5,022.04 MCF for the period ending June 30, 2008.
The Company’s expenses of $53,032 for the three-months ended June 30, 2008 increased by $25,429 compared to the $27,603 reported for expenses during the three-month period ending June 30, 2007. This increase is due in part to our legal, accounting and filing fees. The majority of the legal and accounting fees are a result of fees paid to our accountants and corporate auditor for financial statement preparation and review for the 1
st
Quarter 2007. In addition, the Company reported an increase of $8,610 in depletion, a non-cash item, from the $3,100 reported for the period ending June 30, 2007 to the $11,710 reported for the period ending June 30, 2008.
The Company saw an increase in the expense for taxes and royalties of $4,651 from the $1,906 reported for the three-month period ending June 30, 2007 compared to the $6,557 for the three-month period ending June 30, 2008. This was due to the increase in production volumes and price.
The Company showed a Net Loss of $15,735 for the three-month period ending June 30, 2008 compared to a Net Loss of $20,021 for the same period in 2007. The variance between these to periods is directly related to the increase in revenues due to an increase in production volumes.
The Company expects to continue to see steady revenues through the end of 2008, as a result of the volumes expected from the two new wells. The Company continues to see a steady trend in natural gas pricing as of the date of this report.
The Company also plans to continue its pursuit of oil prospects in the Lake Frances Area, which if successful could contribute to an increase in future revenues due to the price per barrel of oil. With the price of crude oil at prices well above $100 per barrel and natural gas pricing at or around $7.00 per MCF, management continues to be committed to building the Company through drilling oil and natural gas prospects.
Six months ended June 30, 2008 vs. Six months ended June 30, 2007
Revenues for the six-month period ending June 30, 2008 were $70,654 compared to $16,377 for the six-month period ending June 30, 2007. The reason for the major increase in the revenues between these two periods is a direct result of the two new wells brought on production during the 4
th
Quarter of 2007, which increased production/sales volumes, as shown in the chart below. The Company also reported a steady increase in the price received per MCF. (MCF stands for the price per thousand cubic feet of natural gas)
Ludwig State 36-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
|
2008
|
|
|
2007
|
|
January
|
|
|
284.63
|
|
|
|
3.91
|
|
|
|
426.94
|
|
|
|
3.57
|
|
February
|
|
|
265.65
|
|
|
|
4.45
|
|
|
|
365.06
|
|
|
|
3.53
|
|
March
|
|
|
261.73
|
|
|
|
4.98
|
|
|
|
397.24
|
|
|
|
3.83
|
|
April
|
|
|
255.96
|
|
|
|
5.36
|
|
|
|
378.47
|
|
|
|
3.50
|
|
May
|
|
|
255.54
|
|
|
|
6.33
|
|
|
|
370.22
|
|
|
|
3.67
|
|
June
|
|
|
246.06
|
|
|
|
6.75
|
|
|
|
339.08
|
|
|
|
3.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boucher 27-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
|
2008
|
|
|
2007
|
January
|
|
|
89.10
|
|
|
|
3.91
|
|
|
|
297.83
|
|
|
|
3.57
|
|
February
|
|
|
85.39
|
|
|
|
4.45
|
|
|
|
242.14
|
|
|
|
3.53
|
|
March
|
|
|
73.22
|
|
|
|
4.98
|
|
|
|
262.14
|
|
|
|
3.83
|
|
April
|
|
|
67.44
|
|
|
|
5.36
|
|
|
|
238.84
|
|
|
|
3.50
|
|
May
|
|
|
67.03
|
|
|
|
6.33
|
|
|
|
222.13
|
|
|
|
3.67
|
|
June
|
|
|
68.06
|
|
|
|
6.75
|
|
|
|
166.24
|
|
|
|
3.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B. Ag #25-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
|
2008
|
|
|
2007
|
January
|
|
|
40.80
|
|
|
|
3.91
|
|
|
|
0
|
|
|
|
|
|
February
|
|
|
41.80
|
|
|
|
4.45
|
|
|
|
0
|
|
|
|
|
|
March
|
|
|
42.20
|
|
|
|
4.98
|
|
|
|
0
|
|
|
|
|
|
April
|
|
|
42.40
|
|
|
|
5.36
|
|
|
|
0
|
|
|
|
|
|
May
|
|
|
41.00
|
|
|
|
6.33
|
|
|
|
0
|
|
|
|
|
|
June
|
|
|
39.80
|
|
|
|
6.75
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vandenbos #19-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January
|
|
|
1792.93
|
|
|
|
3.91
|
|
|
|
0
|
|
|
|
|
|
February
|
|
|
1658.87
|
|
|
|
4.45
|
|
|
|
0
|
|
|
|
|
|
March
|
|
|
1578.84
|
|
|
|
4.98
|
|
|
|
0
|
|
|
|
|
|
April
|
|
|
1390.95
|
|
|
|
5.36
|
|
|
|
0
|
|
|
|
|
|
May
|
|
|
1328.66
|
|
|
|
6.33
|
|
|
|
0
|
|
|
|
|
|
June
|
|
|
1219.14
|
|
|
|
6.75
|
|
|
|
0
|
|
|
|
|
|
Majestic Oil & Gas, Inc’s Net Share of the production volumes from the Ludwig State #36-1 and Boucher #27-1 wells for the six-month period ending June 30, 2008 were 2,019.81 MCF compared to 3,706.33 for the six-month period ending June 30, 2007, due to the natural decline in production. However, production volumes significantly increased during the period as a result of the added production from the new natural gas wells, B. Ag #25-1 and Vandenbos #19-1. Production of 9,217.39 MCF for the two new wells brings the Company’s total share of production to 11,237.20 MCF for the six months ended June 30, 2008.
The Company’s expenses of $106,741 increased significantly during the six-month period ending June 30, 2008 compared to the $54,093 reported for the same period in 2007. This increase is due in part to an increase in depletion, depreciation and amortization of $19,020, a non-cash item, from $6,600 reported for the period ending June 30, 2007 to the $25,620 reported for the period ending June 30, 2008. The Company also saw an increase in the expense for taxes and royalties of $9,588 from the $4,117 reported for the six-month period ending June 30, 2007 compared to the $13,705 for the six-month period ending June 30, 2008. This was due to the increase in production volumes and price.
The Company showed a Net Loss of $36,087 for the six-month period ending June 30, 2008 compared to a Net Loss of $37,716 for the same period in 2007. The variance between these to periods is directly related increase in sales volumes and price, as detailed above. The Company expects to continue to see steady revenues through the end of 2008, as a result of the volumes expected from the two new wells. The Company continues to see an a steady trend in natural gas pricing as of the date of this report.
The Company also plans to continue its pursuit of oil prospects in the Lake Frances Area, which if successful could contribute to an increase in future revenues due to the price per barrel of oil. With the price of crude oil well above $100 per barrel and natural gas staying at or around $7.00 per MCF, Management is confident that we will build the Company through drilling oil and natural gas prospects.
Subsequent to the three-month and six-month period ended June 30, 2008, Majestic Oil & Gas, Inc., opted to invest in the drilling and completion of two new natural gas wells located in Pondera County, Montana. In order to obtain a 25% Working Interest, the Company paid 1/3 of the drilling and completion costs for the following wells:
Boucher #18-1: Government Lot 4 (SWSW) - Section 18-T29N-R5W - $54,238.14
Stoltz #18-1: CSWSE-Section 18-T29N-R5W - $54,084.81
LIQUIDITY AND CAPITAL RESOURCES
We are still a development stage company. From our inception to June 30, 2008, we incurred an accumulated deficit of ($591,221). This deficit is primarily the result of approximately $300,000 in expenses associated with stock issuances during fiscal period ended December 31, 2002, and $301,264 in legal, accounting and filing fees incurred since inception which are associated with a publicly traded company.
In addition, as of June 30, 2008, we had $178,589 of current cash available. This increase in cash is due to a financing conducted during the three-month period ended June 30, 2008 in which 300,000 shares of Majestic Oil & Gas, Inc stock were issued at a price of $0.50 per share for a total of $150,000. The Company plans to use this cash influx for drilling and completing new oil and/or natural gas wells. Our cash resources of $178,589 are not sufficient to satisfy our cash requirements over the next 12 months. We need an additional minimum of $1,000,000 to finance our planned expansion in the next 12 months, which funds will be used for drilling of development oil and natural gas wells in the Lake Frances and Williams Fields. We hope to be able to raise additional funds from an offering of our stock in the future. However, this offering may not occur, or if it occurs, may not raise the required funding. We may also consider securing debt financing. We may not raise other equity or debt financing sufficient to fund this amount. If we don't raise or generate these funds, the implementation of our short-term business plan will be delayed or eliminated.
Our ability to continue as a going concern is dependent on our ability to raise funds to implement our planned development; however we may not be able to raise sufficient funds to do so. Our independent auditors have indicated that there is substantial doubt about our ability to continue as a going concern over the next twelve months. Our poor financial condition could inhibit our ability to achieve our business plan.
COMMITMENTS AND CONTINGENCIES
On July 1, 2004, the Company entered into an operating agreement with Altamont Oil & Gas, Inc., through which Altamont Oil & Gas, Inc. will operate the wells in which we have acquired a working interest. Our share of monthly operating costs will be deducted from our monthly share of production revenue.
The Company acquired leases covering approximately 3,962.56 net acres of undeveloped land during 2007, for the purposes of future oil and gas development. This acreage is located in Pondera County, Montana in the vicinity of the Williams and Lake Frances Gas Fields. These leases remain in good standing with the term of the leases set for periods of 3 or 5 years. Management considers the value of the properties to be as much or more than for what they were acquired.
During the Second Quarter 2007, the Company entered into a Farm-out Agreement with Altamont Oil & Gas, Inc and Numbers, Inc to conduct a 10-well natural gas development program. This development program is still pending and will involve the drilling of 5 wells in the Lake Frances Gas Field and 5 wells in the Williams Gas Field, located in Pondera County, Montana. The Lake Frances Field is located south of Valier, Montana just offsetting the Lake Frances reservoir. The Williams Field is located 7 miles east of the town of Valier, Montana.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer/Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework stated by the Committee of Sponsoring Organizations of the Treadway Commission. Furthermore, due to our financial situation, we will be implementing further internal controls as we become operative so as to fully comply with the standards set by the Committee of Sponsoring Organizations of the Treadway Commission.
The Company’s Chief Executive Officer/Chief Financial Officer has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the fiscal period ending June 30, 2008 covered by this Quarterly Report on Form 10-Q. Based upon such evaluation, the Chief Executive Officer/Chief Financial Officer has concluded that, as of the end of such period, the Company’s disclosure controls and procedures have been identified, but the Company has not yet tested their effectiveness. Because of this lack of testing, we cannot assure the effectiveness of the controls and procedures. There have been no significant changes in our internal controls over financial reporting during the six months ended June 30, 2008 that have materially affected or are reasonably likely to materially affect such controls. This conclusion by the Company’s Chief Executive Officer/Chief Financial Officer does not relate to reporting periods after June 30, 2008.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management, including our CEO/CFO, has identified the critical disclosure controls and procedures associated with the Company’s internal control over financial reporting, but has not yet tested the effectiveness of these disclosure controls and procedures and, therefore, cannot yet deem these controls to be effective. Therefore, management has determined that our internal controls and not effective and a material weakness exists related to the lack of testing of disclosure controls and procedures associated with the Company’s internal control over financial reporting for the period ended June 30, 2008. This material weakness could materially affect the Company’s control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s quarterly or interim financial statements will not be prevented or detected on a timely basis.
This quarterly report does not include an attestation report of the Company s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management’s report in this Quarterly Report on Form 10-Q.
Changes in Internal Control Over Financial Reporting
No change in the Company’s internal control over financial reporting occurred during the quarter ended June 30, 2008, that materially affected, or is reasonably likely to materially affect, the Company s internal control over financial reporting.