Item 2. Management’s Discussion and Analysis or Plan of Operation.
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 producing activities 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 wells. 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.
During the Third Quarter 2008, Majestic Oil & Gas, Inc participated in the drilling of the Boucher #18-1 and the Stoltz #18-1 wells. The Boucher #18-1 well was completed as a 4
th
Bow Island Gas well with initial production of 270 MCF per day. The Stoltz #18-1 was also completed as a 4
th
Bow Island Gas well with initial production of 75 MCF per day. These natural gas wells are located in Section 18-T29N-R5W, Pondera County, Montana and together provide 345 MCF per day of new natural gas production. 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
RESULTS OF OPERATIONS
Three months ended September 30, 2008 vs. Three months ended September 30, 2007
Revenues for the three-month period ending September 30, 2008 were $38,103 compared to $5,515 for the three-month period ending September 30, 2007. The increase in the revenues between these two periods is a direct result of the four wells being brought into production, which increased production/sales volumes. The price received per MCF also increased significantly in 2008 compared to 2007 (MCF stands for the price per thousand cubic feet of natural gas), as shown in the chart below:
Ludwig State 36-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
|
2008
|
|
|
2007
|
|
July 2008
|
|
|
243.17
|
|
|
|
7.71
|
|
|
|
348.36
|
|
|
|
3.60
|
|
August 2008
|
|
|
240.69
|
|
|
|
5.90
|
|
|
|
336.39
|
|
|
|
2.95
|
|
September 2008
|
|
|
225.84
|
|
|
|
4.52
|
|
|
|
309.58
|
|
|
|
2.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boucher #27-1
|
|
Share of
Production Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
|
2008
|
|
|
2007
|
|
July 2008
|
|
|
64.76
|
|
|
|
7.71
|
|
|
|
190.58
|
|
|
|
3.60
|
|
August 2008
|
|
|
70.33
|
|
|
|
5.90
|
|
|
|
160.67
|
|
|
|
2.95
|
|
September 2008
|
|
|
81.26
|
|
|
|
4.52
|
|
|
|
139.01
|
|
|
|
2.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
B. Ag #25-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
|
2008
|
|
|
2007
|
|
July 2008
|
|
|
41.00
|
|
|
|
7.71
|
|
|
|
0
|
|
|
|
|
|
August 2008
|
|
|
39.40
|
|
|
|
5.90
|
|
|
|
0
|
|
|
|
|
|
September 2008
|
|
|
37.80
|
|
|
|
4.52
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vandenbos #19-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
July 2008
|
|
|
1144.48
|
|
|
|
7.71
|
|
|
|
0
|
|
|
|
|
|
August 2008
|
|
|
1047.34
|
|
|
|
5.90
|
|
|
|
0
|
|
|
|
|
|
September 2008
|
|
|
958.44
|
|
|
|
4.52
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boucher #18-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production Volumes
|
|
|
Price Per
MCF
|
|
July 2008
|
|
|
0
|
|
|
|
7.71
|
|
|
|
0
|
|
|
|
|
|
August 2008
|
|
|
471.49
|
|
|
|
5.90
|
|
|
|
0
|
|
|
|
|
|
September 2008
|
|
|
546.77
|
|
|
|
4.52
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stoltz #18-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production Volumes
|
|
|
Price Per
MCF
|
|
July 2008
|
|
|
0
|
|
|
|
7.71
|
|
|
|
0
|
|
|
|
|
|
August 2008
|
|
|
43.27
|
|
|
|
5.90
|
|
|
|
0
|
|
|
|
|
|
September 2008
|
|
|
54.03
|
|
|
|
4.52
|
|
|
|
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 September 30, 2008 were 926.05 MCF compared to 1,484.59 MCF for the period ending September 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, Vandenbos #19-1, Boucher #18-1 and Stoltz #18-1. Third Quarter 2008 production of 4,384.02 MCF for the new wells, brings the Company’s total share of production to 5,310.08 MCF for the three months ended September 30, 2008.
The Company’s total expenses of $44,102 for the three-months ended September 30, 2008 increased by $1,015 compared to $43,087 reported for expenses during the three-month period ending September 30, 2007. While the total was comparable, the three-months ended September 30, 2008 included $19,810 in depreciation, depletion and amortization and $9,117 in production costs, compared to $2,810 in depreciation, depletion and amortization and $1,790 in production costs during the three-months ended September 30, 2007. These increases offset $21,295 in Board compensation incurred during the three-months ended September 30, 2007. Other selling, general and administrative expenses were comparable between the periods.
The Company realized a Net Loss of ($5,999) for the three-month period ending September 30, 2008 compared to a Net Loss of ($37,572) 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 production revenues due to the price per barrel of oil. With the price of crude oil at prices at $60 per barrel and natural gas pricing at or around $5.00 per MCF, management continues to be committed to building the Company through drilling oil and natural gas prospects.
Nine months ended September 30, 2008 vs. Nine months ended September 30, 2007
Revenues for the nine-month period ending September 30, 2008 were $108,757 compared to $21,893 for the nine-month period ending September 30, 2007. The increase in the revenues between these two periods is a direct result of the four new wells being brought into production during the 4
th
Quarter of 2007 and 3
rd
Quarter 2008, 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
|
|
July
|
|
|
243.17
|
|
|
|
7.71
|
|
|
|
348.36
|
|
|
|
3.60
|
|
August
|
|
|
240.69
|
|
|
|
5.90
|
|
|
|
336.39
|
|
|
|
2.95
|
|
September
|
|
|
225.84
|
|
|
|
4.52
|
|
|
|
309.58
|
|
|
|
2.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
July
|
|
|
64.76
|
|
|
|
7.71
|
|
|
|
190.58
|
|
|
|
3.60
|
|
August
|
|
|
70.33
|
|
|
|
5.90
|
|
|
|
160.67
|
|
|
|
2.95
|
|
September
|
|
|
81.26
|
|
|
|
4.52
|
|
|
|
139.01
|
|
|
|
2.55
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
July
|
|
|
41.00
|
|
|
|
7.71
|
|
|
|
0
|
|
|
|
|
|
August
|
|
|
39.40
|
|
|
|
5.90
|
|
|
|
0
|
|
|
|
|
|
September
|
|
|
37.80
|
|
|
|
4.52
|
|
|
|
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
|
|
|
|
|
|
July
|
|
|
1144.48
|
|
|
|
7.71
|
|
|
|
0
|
|
|
|
|
|
August
|
|
|
1047.34
|
|
|
|
5.90
|
|
|
|
0
|
|
|
|
|
|
September
|
|
|
958.44
|
|
|
|
4.52
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Boucher #18-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
July 2008
|
|
|
0
|
|
|
|
7.71
|
|
|
|
0
|
|
|
|
|
|
August 2008
|
|
|
471.49
|
|
|
|
5.90
|
|
|
|
0
|
|
|
|
|
|
September 2008
|
|
|
546.77
|
|
|
|
4.52
|
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stoltz #18-1
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
|
Share of
Production
Volumes
|
|
|
Price Per
MCF
|
|
July 2008
|
|
|
0
|
|
|
|
7.71
|
|
|
|
0
|
|
|
|
|
|
August 2008
|
|
|
43.27
|
|
|
|
5.90
|
|
|
|
0
|
|
|
|
|
|
September 2008
|
|
|
54.03
|
|
|
|
4.52
|
|
|
|
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 nine-month period ending September 30, 2008 were 2,945.86 MCF compared to 5,191.11 MCF for the nine-month period ending September 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, Vandenbos #19-1, Boucher #18-1 and Stoltz #18-1. Production of 13,601.41 MCF for the four new wells brings the Company’s total share of production to 16,547.27 MCF for the nine months ended September 30, 2008.
The Company’s expenses of $150,843 increased significantly during the nine-month period ending September 30, 2008 compared to the $97,180 reported for the same period in 2007. This increase is due in part to an increase in depletion, depreciation and amortization of $36,020, a non-cash item, from $9,410 reported for the period ending September 30, 2007, to the $45,430 reported for the period ending September 30, 2008. The Company also saw an increase in production (lifting) costs of $18,210 from the $7,291 reported for the nine-month period ending September 30, 2007 compared to the $25,501 for the nine-month period ending September 30, 2008. This was due to the increases in production volumes.
The Company showed a Net Loss of ($42,086) the nine-month period ending September 30, 2008 compared to a Net Loss of ($75,287) for the same period in 2007. The variance between these two periods is directly related to increases in sales volumes and in 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 upward 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 approximately $60 per barrel and natural gas staying at or around $5.00 per MCF, Management is confident that we will build the Company through drilling oil and natural gas prospects.
LIQUIDITY AND CAPITAL RESOURCES
We are still a development stage company. From our inception to September 30, 2008, we have incurred an accumulated deficit of ($597,220). This deficit is primarily the result of approximately $300,000 in expenses associated with stock issuances during fiscal period ended December 31, 2002, and $304,484 in legal, accounting and professional fees incurred since inception, all of which arise from being a publicly traded company.
As of September 30, 2008, we had $136,827 of current cash available. This decrease in cash from the previous quarter end balance of $178,589 is due primarily to the costs incurred to participate in the drilling of the new gas wells during the period. Our cash resources of $136,827 are not sufficient to satisfy our cash requirements over the next 12 months. We need a minimum of an additional $1,000,000 to finance our planned expansion in the next 12 months, which will be used to drill 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.