Item 1. Business
ITEM
1. BUSINESS
Overview
We are an early-stage development oil and
gas company seeking to become an independent energy company. Our assets and principal properties are located in the Gulf States
Drill Region, where we target acquisition and subsequent exploitation and development of crude oil, including acquisitions of hydrocarbon
revenues and underlying oil and gas exploration and production rights. We believe that we can establish a profitable niche in crude
oil production due to the quality of the light sweet crude oil produced from the Gulf States Drill Region, which is cheaper to
refine than crude oil from other regions of the U.S. and Canada.
The Company was incorporated in the Commonwealth
of Virginia on November 13, 2017, and started its operations on November 17, 2020, upon an acquisition (the “Barrister
Acquisition”) of all outstanding capital of Barrister, including all of Barrister’s crude oil and natural gas exploration
and production leases and rights owned or controlled by Barrister. In consideration for the Barrister Acquisition, the Company
issued 3,650,000 shares of the Company’s common stock, $0.01 par value per share (the “Common Stock”) to the
members of Barrister and assumed Barrister’s debt obligations to Central Operating, LLC (“COP”) in principal
amount of $2,700,000, which was discharged on November 16, 2021 pursuant to a debt exchange agreement between the Company and COP
in exchange for the issuance of 1,350,000 shares of the Company’s Common Stock to COP. Currently we are producing very limited
crude oil production from limited oil drilling operations as a result of the Barrister Acquisition. It is insufficient to fund
new acquisitions or drilling without additional funding or equity transactions.
On November 8, 2022, the Company, through
Barrister, its wholly-owned subsidiary, acquired from Taxodium Energy, LLC, a Mississippi limited liability company (“Taxodium”),
100% ownership, right, title and interest in certain properties located in Mississippi and Alabama, including all oil and gas leases,
interests, royalties, overriding royalties, subleases, fee estates, net profit interest, and carried interests (collectively, “NONOP
Assets”) pursuant to the Assignment, Bill of Sale and Conveyance, dated October 31, 2022, executed by Taxodium. This transaction
became effective on October 1, 2022, for accounting purposes, based on when the Company obtained control of the acquired assets.
On December 2, 2022, the Company, through
Barrister, acquired from Taxodium a 100% ownership, right, title and interests in additional properties located in Mississippi,
including certain wells, facilities, the oil gas and mineral leases, together with all surface and subsurface and all operating
rights, working interest, and net revenue interest arising out of such leases and rights (collectively, “Buckley Assets”)
pursuant to the Assignment, Bill of Sale and Conveyance, dated December 2, 2022, executed by Taxodium and Barrister.
While the Company acquired these new properties,
including drilling wells, currently, these wells have very limited productions, not sufficient for the Company to become profitable.
Recent
Developments
Effective as of January 4, 2024, Sadler,
Gibb & Associates, LLC resigned as the Company’s independent registered public accounting firm and engaged M&K
CPAS, PLLC (“M&K”) to audit the Company’s financial statements for the fiscal year ending December 31, 2023,
in accordance with the U.S. federal securities laws and the applicable SEC rules and regulations
and the Public Company Accounting Oversight Board (“PCAOB”).
Effective as of January 10, 2024, the board
of directors of the Company (the “Board”) increased the size of the Board from two to three directors and appointed
William R. Downs to the Board.
On January 10, 2024, Jeffrey J. Guzy resigned
from serving as Chief Executive Officer, President and Chairman of the Board. Immediately upon Mr. Guzy’s resignation from
these offices, the Board appointed Mr. Downs to positions of Chief Executive Officer, President and Chairman of the Board. Also
on January 10, 2024, Wm. Barrett Wellman resigned as Chief Financial Officer and Secretary of the Company. Effective immediately
upon Mr. Wellman’s resignation, the Board appointed Mr. Guzy as the Company’s Chief Financial Officer and Secretary.
9
Our
Growth Strategy
The Company is seeking to acquire existing
underexploited conventional oil and natural gas producing properties and rights in the Gulf States Drill Region. These properties
typically contain upside potential through operational efficiencies and recompletions to behind pipe zones. Our long-term
goal is to create shareholder value by identifying and assembling a portfolio of low-risk assets with attractive economic profiles.
Our ability to implement our business plan is subject, in part, on our ability to timely raise adequate and affordable funding
from investors or lenders for establishing acquisitions. Our first acquisition was Barrister, followed by the acquisition of NONOP
Assets and Buckley Assets in the fourth quarter of 2022. Our efforts now involve raising sufficient working capital to make additional
acquisitions and perform planned well work on existing properties.
The Company seeks acquisitions that can
be obtained in exchange for the Company’s stock or under an earn-out arrangement. Preference is given to existing producing
properties or companies wishing to divest all their assets. The acquisition of a company that holds oil and leases rights has the
perceived advantages of acquiring several oil leases and rights and existing drilling operations with in-place management in a
single transaction.
Our teaming approach is also designed to
facilitate rapid growth by bringing necessary expertise into operations from available contractors. Our ability to realize
profitability from oil and gas production may also depend upon the success of drill wells, engaging necessary operations expertise,
and market price for crude oil and natural gas remaining at attractive levels. If we have adequate funding and/or sufficient cash
flow, then we may seek to drill for oil in other assignee or leasehold interests or, alternatively, in oil and gas assignee or
leasehold interests or properties owned by our potential affiliates or teaming partners. The Company currently allows the purchasers
to market its crude oil and natural gas production, whether current or future, on a month-to-month basis.
If the production of oil increases from
the properties in which the Company obtains its oil rights, the Company will have to expand the marketing efforts by engaging a
person or firm to seek out new customers for the oil production in case the current customer base is unable or unwilling to purchase
increased oil production. The cost means and extent of any enhanced future marketing effort will depend on the amount of increased
oil production, the then-current market for oil, and the potential customer base for the oil production. If the existing customer
base will not purchase increased oil production, then the engagement of a dedicated marketing person who engages in direct marketing,
by telephone and internet, of potential customers for oil production may be required for the sale of any future increase of oil
production.
10
Competitive
Strengths
Use
of Contractors
Our strategy is to develop our assets in
a manner that generates sustainable cash flow and improves margins and operating efficiencies while improving our environmental,
social and governance and safety performance. The Company relies on the extensive experience of William R. Downs, our Chief Executive
Officer, who has more than 42 years of experience in the oil and gas industry. In addition, the Company utilizes experienced contractors,
including former members of Barrister, with significant prior experience in oil and gas production in the Gulf States Drill Region
in the initial phases of implementing the business plan. The Company believes that the use of these contractors is the most
efficient and cost-effective means of operations for a small independent oil and gas production company and is designed to allow
the Company to use experienced oil drilling and production personnel without the high overhead costs of hiring personnel as employees
of the Company. Currently, we engage COP and Taxodium as our contractors to operate the limited oil and gas production drilling
and storage operations for the Company Oil Rights and to manage the Company’s drilling operations. They have
extensive experience with operations and administration in an independent oil and gas production company and rely on contract operators
to provide experienced personnel to handle all essential crude oil production on a day-to-day basis for the Company. With
adequate funding, the Company intends to employ this teaming model strategy to help attract and retain experienced oil industry
engineering and production personnel to identify acquisitions and drill sites and then efficiently operate those wells to produce
oil at or above-average industry rate of efficiency in the Gulf States Drill Region.
Seasonality
While our drill sites are located on the
Gulf States Drill Region, which allows for drilling throughout the year, adverse weather conditions can impact drilling, completion,
and field operations, as well as third-party midstream and downstream pipeline operations, which can impact overall production
volumes. Seasonal anomalies can minimize or exaggerate the impact on these operations, while extreme weather events can materially
constrain our operations for short periods of time.
Title to Oil and Natural Gas Properties
It is customary in the oil and gas industry
to make only a preliminary review of title to undeveloped oil and natural gas leases at the time they are acquired and to obtain
more extensive title examinations at the time the Company is preparing to develop the undeveloped leases and when acquiring producing
properties. In future acquisitions, we will conduct title examinations on material portions of such properties in a manner generally
consistent with industry practice. The properties we have acquired may be subject to certain imperfections in title, encumbrances,
easements, servitudes or other restrictions, none of which, in management’s opinion, will in the aggregate materially restrict
our operations.
Competition
The Company competes with many large,
medium, and small-sized companies in the Gulf States Drill Region (including off-shore Gulf of Mexico) and adjacent areas which
have extensive operational histories, experienced oil and gas industry management, established market share, profitable operations,
and extensive potential oil and gas fields or leases to exploit and the cash or funding resources to explore new oil and gas fields
as well as acquire mature fields . There is also an established oil and gas production
industry in northern Alaska and in North Dakota and western Canada. Many of our competitors not only explore for and produce oil
and natural gas, but also have midstream and further downstream operations and market a variety of hydrocarbon products on a regional,
national or worldwide basis. In addition, oil and natural gas compete with other forms of energy available to customers, primarily
based on price. These alternate forms of energy include renewable sources such as wind or solar energy in addition to coal and
fuel oils. Changes in the availability or price of oil and natural gas or other forms of energy, as well as business conditions,
conservation, legislation, regulations and the ability to convert to alternate fuels and other forms of energy may affect the demand
for oil and natural gas.
The Company has a very limited history
of its business operation and is not able to match the resources, whether financial, technical, manpower, size of proven crude
oil reserves, and distribution channels, of its competition in the Gulf States Drill Region or elsewhere. The Company’s
current oil production is not sufficient to concern or attract the attention of competitors, which allows it to operate as a small
producer of oil and gas without competitive pressures. If we significantly increase oil production, we will face increasing
competition from other small independent oil producers selling limited amounts of oil. Any increase in competitive pressures will
require investment in a full-time marketing effort by the Company.
Company Oil Rights
Description of Barrister Oil Properties
and Oil Production Operations . The Company’s current oil and gas assets consist primarily of non-operating interest.
However, production from these assets has significantly improved the Company’s operating ability.
As shown in the tables below, production
has significantly improved due to the asset acquisitions in the fourth quarter of 2022. However, the Company will not be able to
increase production until sufficient financial resources are obtained through potential debt and equity financing. Additionally,
the Company may need to impair some of these assets if production cannot be restored.
The Smackover Trend . The
Smackover trend is a belt of carbonate, evaporite, and clastic rocks of the Late Jurassic age that rims the Gulf Coast of the United
States from Texas, up to Arkansas, throughout Louisiana, Mississippi, Southwest Alabama, and the Florida panhandle. Stratigraphic
and geochemical data indicate that the oil and gas were generated from algae-rich lime mudstones. It was named after the
Smackover oil field, which was discovered in Union County, Arkansas, in 1937.
11
Current Barrister Energy Properties .
As of the date of this Annual Report, we own interests in 32 wells. In the fourth quarter of 2022, we acquired interest in 29 of
those wells.
The
table below summarizes production, average production prices, and average production costs by final product sold for the last
three years. All production during the three years presented occurred in the United States.
For the Year Ended December 31,
2023
2022
2021
Net Production:
Oil (Bbl)
12,664
4,132
127
Natural Gas (Mcf)
4,940
4,106
—
Total (BOE)
13,488
4,816
127
Average Production Prices:
Oil (Bbl)
$ 79.61
$ 88.85
$ 64.25
Natural Gas (Mcf)
$ 2.88
$ 7.60
—
Average Production Costs
Production Costs (per BOE) (1)
$ 18.43
$ 66.67
$ 251.32
Average
production prices have been calculated by using sales quantities from Barrister’s production as the divisor. Average production
costs have been computed by using net production quantities for the divisor. The volumes of crude oil and natural gas liquids
(“NGL”) production used for this computation are shown in the oil and gas production table. The volumes of natural
gas used in the calculation are the production volumes of natural gas available for sale and are also shown. Gas is converted
to an oil-equivalent basis at six million cubic feet per one thousand barrels .
(1) The production cost (per BOE) for the year ended December 31, 2022 was updated to reflect certain
lease operating expenses not previously included in the calculation.
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Oil
and Gas Properties, Wells, Operations, and Acreage
Gross
and Net Productive Wells
Year-End 2023
Year-End 2022
Year-End 2021
Oil
Gas
Oil
Gas
Oil
Gas
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross
Net
Gross and Net Productive Wells
Consolidated Subsidiaries
United States
30
6
—
—
32
7
—
—
3.0
1.8
—
—
Total Consolidated Subsidiaries
30
6
—
—
32
7
—
—
3.0
1.8
—
—
Total gross and net productive wells
30
6
—
—
32
7
—
—
3.0
1.8
—
—
Gross
and Net Developed Acreage
Year-End 2023
Year-End 2022
Year-End 2021
Gross
Net
Gross
Net
Gross
Net
(acres)
Gross and Net Developed Acreage
Consolidated Subsidiaries
United States
5,208
782
6,208
901
370
352
Total Consolidated Subsidiaries
5,208
782
6,208
901
370
352
Total gross and net developed acreage
5,208
782
6,208
901
370
352
Separate
acreage data for oil and gas are not maintained because, in many instances, both are produced from the same acreage.
Gross
and Net Undeveloped Acreage
Year-End 2023
Year-End 2022
Year-End 2021
Gross
Net
Gross
Net
Gross
Net
(acres)
Gross and Net Undeveloped Acreage
Consolidated Subsidiaries
United States
2,600
26
2,600
26
700
700
Total Consolidated Subsidiaries
2,600
26
2,600
26
700
700
Total gross and net undeveloped acreage
2,600
26
2,600
26
700
700
Separate
acreage data for oil and gas are not maintained because, in many instances, both are produced from the same acreage.
Our
investment in developed and undeveloped acreage is comprised of numerous leases. The List of Leases is included as Exhibit 99.1
to this Annual Report. The terms and conditions under which the Company maintains exploration and production rights to the acreage
are property-specific, contractually defined, and vary significantly from property to property. Work programs are designed to
ensure that the exploration potential of any property is thoroughly evaluated before expiration. In some instances, we may elect
to relinquish acreage in advance of the contractual expiration date if the evaluation process is complete and there is not a business
basis for the extension. In cases where additional time may be required to evaluate acreage fully, the Company has generally been
successful in obtaining extensions. The scheduled expiration of leases and concessions for undeveloped acreage over the next three
years is not expected to have a material adverse effect on the Company.
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Government
Regulation
Oil and natural gas operations such as
ours are subject to various types of legislation, regulation, and other legal requirements enacted by governmental authorities.
This legislation and regulation affecting the oil and natural gas industry are under constant review for amendment or expansion.
Some of these requirements carry substantial penalties for failure to comply. The regulatory burden on the oil and natural gas
industry increases our cost of doing business and, consequently, can affect our profitability. Because these laws, rules and regulations
are frequently amended or reinterpreted and new laws, rules and regulations are promulgated, we are unable to predict the future
cost or impact of complying with the laws, rules and regulations to which we are, or will become, subject.
Regulation
of Drilling and Production
The production of oil and natural gas
is subject to regulation under a wide range of local, state, and federal statutes, rules, orders, and regulations. Federal, state,
and local statutes and regulations require permits for drilling operations, drilling bonds, and reports concerning operations.
The trend in oil and natural gas regulation has been to increase regulatory restrictions and limitations on such activities. Any
changes in, or more stringent enforcement of, these laws and regulations may result in delays or restrictions in permitting or
development of projects or more stringent or costly construction, drilling, water management or completion activities or waste
handling, storage, transport, remediation, or disposal emission or discharge requirements which could have a material adverse
effect on the Company. In January 2021, the Biden administration issued: (1) an order signed by the acting Secretary of the Interior
providing for a 60-day pause (ii) an executive order signed by President Biden instruction the Department of the Interior to pause
new oil and natural gas leases on public lands pending completion of a comprehensive review and consideration of federal oil and
natural gas permitting and leasing practices (together, the “Biden Administration Federal Lease Orders”). The U.S.
District Court for the District of Louisiana enjoined the pause within 13 states, including Texas, in August 2022. The Department
of the Interior has recently resumed lease sales in several states. On January 20, 2021, the Biden Administration issued (i) an
order providing for a 60-day moratorium on new oil and gas leasing and drilling permits on federal land, limiting the authority
of local offices of the BLM to issue new leases and grant federal drilling permits and certain extensions, sundries, rights-of-way
and other necessary approvals for the development of federal oil and natural gas leases; and (ii) and executive order signed by
President Biden instructing the Department of the Interior to pause new oil and natural gas leases on public lands, pending a
full review of the federal leasing and permitting program. While we do not have a significant federal land acreage position at
240 net acres, these actions could have a material adverse effect on the Company and our industry.
Currently, all our properties and operations
are in Alabama and Mississippi, which has regulations governing conservation matters, such as the unitization or pooling of oil
and natural gas properties, the establishment of maximum allowable rates of production from oil and natural gas wells, the regulation
of well spacing, and plugging and abandonment of wells. The effect of these regulations is to limit the amount of oil and natural
gas that we can produce from our wells and to limit the number of wells or the locations at which we can drill, although we can
apply for exceptions to such regulations or to have reductions in well spacing. Moreover, Alabama and Mississippi impose a production
or severance tax with respect to the production and sale of oil, natural gas, and natural gas liquids within their jurisdictions.
Failure to comply with these rules and regulations can result in substantial penalties. Our competitors in the oil and natural
gas industry are subject to the same regulatory requirements and restrictions that affect our operations.
14
Regulation
of Transportation of Oil
Sales
of crude oil, condensate, and natural gas liquids are not currently regulated and are made at negotiated prices; however, Congress
could reenact price controls in the future.
Our
sales of crude oil are affected by the availability, terms, and cost of transportation. The transportation of oil in common carrier
pipelines is also subject to rate regulation. The Federal Energy Regulatory Commission, or the FERC, regulates interstate oil
pipeline transportation rates under the Interstate Commerce Act. Intrastate oil pipeline transportation rates are subject to regulation
by state regulatory commissions. The basis for intrastate oil pipeline regulation, and the degree of regulatory oversight and
scrutiny given to intrastate oil pipeline rates, varies from state to state. Insofar as effective interstate and intrastate rates
are equally applicable to all comparable shippers, we believe that the regulation of oil transportation rates will not affect
our operations in any way that is of material difference from those of our competitors. Further, interstate and intrastate common
carrier oil pipelines must provide service on a non-discriminatory basis. Under this open access standard, common carriers must
offer service to all shippers requesting service on the same terms and under the same rates. When oil pipelines operate at full
capacity, access is governed by pro-rationing provisions set forth in the pipelines’ published tariffs. Accordingly, we
believe that access to oil pipeline transportation services generally will be available to us to the same extent as to our competitors.
Regulation
of Transportation and Sale of Natural Gas
Historically,
the transportation and sale for resale of natural gas in interstate commerce have been regulated pursuant to the Natural Gas Act
of 1938, the Natural Gas Policy Act of 1978, and regulations issued under those Acts by the FERC. In the past, the federal government
has regulated the prices at which natural gas could be sold. While sales by producers of natural gas can currently be made at
uncontrolled market prices, Congress could reenact price controls in the future.
Since
1985, the FERC has endeavored to make natural gas transportation more accessible to natural gas buyers and sellers on an open
and non-discriminatory basis. The FERC has stated that open access policies are necessary to improve the competitive structure
of the interstate natural gas pipeline industry and to create a regulatory framework that will put natural gas sellers into more
direct contractual relations with natural gas buyers by, among other things, unbundling the sale of natural gas from the sale
of transportation and storage services. Although the FERC’s orders do not directly regulate natural gas producers, they
are intended to foster increased competition within all phases of the natural gas industry. We cannot accurately predict whether
the FERC’s actions will achieve the goal of increasing competition in markets in which our natural gas is sold. Therefore,
we cannot provide any assurance that the less stringent regulatory approach established by the FERC will continue. However, we
do not believe that any action taken will affect us in a way that materially differs from the way it affects other natural gas
producers.
Intrastate
natural gas transportation is subject to regulation by state regulatory agencies. The basis for intrastate regulation of natural
gas transportation and the degree of regulatory oversight and scrutiny given to intrastate natural gas pipeline rates and services
varies from state to state. Insofar as such regulation within a particular state will generally affect all intrastate natural
gas shippers within the state on a comparable basis, we believe that the regulation of similarly situated intrastate natural gas
transportation in any states in which we operate and ship natural gas on an intrastate basis will not affect our operations in
any way that is of material difference from those of our competitors.
Environmental, Health and Safety Regulations
The exploration, development, production,
gathering and processing of oil and natural gas are subject to various federal, state and local environmental laws and regulations.
These laws and regulations can increase the costs of planning, designing, drilling, completing and operating oil and natural gas
wells, midstream facilities and produced water injection and disposal wells. Our activities are subject to a variety of environmental
laws and regulations, including, but not limited to: the Oil Pollution Act of 1990 (the “OPA 90”), the Clean Water
Act (the “CWA”), the Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”),
the Resource Conservation and Recovery Act (“RCRA”), the Clean Air Act (the “CAA”) and the Occupational
Safety and Health Act (“OSHA”), as well as comparable state statutes and regulations. We also may be subject to regulations
governing the handling, transportation, storage and disposal of wastes generated by our activities and naturally occurring radioactive
materials (“NORM”) that may result from our oil and natural gas operations. Administrative, civil and criminal fines
and penalties may be imposed for noncompliance with these environmental laws and regulations, and violations and liability with
respect to these laws and regulations could also result in remedial clean-ups, natural resource damages, permit modifications or
revocations, operational interruptions or shutdowns and other liabilities. Additionally, these laws and regulations require the
acquisition of permits or other governmental authorizations before undertaking some activities, may limit or prohibit other activities
because of protected wetlands, areas or species and require investigation and cleanup of pollution. These laws, rules and regulations
may also restrict the production rate of oil and natural gas or limit the injection of produced water into disposal wells below
the rates that would otherwise be possible. We expect to remain in compliance in all material respects with currently applicable
environmental laws and regulations and do not expect that these laws and regulations will have a material adverse impact on the
Company.
The OPA 90 and its regulations impose requirements
on “responsible parties” related to the prevention of crude oil spills and liability for damages resulting from oil
spills into or upon navigable waters, adjoining shorelines or on the exclusive economic zone of the United States. A “responsible
party” under the OPA 90 may include the owner or operator of an onshore facility. The OPA 90 subjects responsible parties
to strict, joint and several financial liability for removal and remediation costs and other damages, including natural resource
damages, caused by an oil spill that is covered by the statue. Failure to comply with the OPA 90 may subject a responsible party
to civil or criminal enforcement action.
The CWA and comparable state laws impose
restrictions and strict controls regarding the discharge of produced waters, fill materials and other materials into navigable
waters. These controls have become more stringent over the years, and it is possible that additional restrictions will be imposed
in the future. Permits are required to discharge pollutants into certain state and federal waters and to conduct construction activities
in those waters and wetlands. The CWA and comparable state statutes provide for civil, criminal and administrative penalties for
any unauthorized discharges of oil and other pollutants and impose liability for the costs of removal or remediation of contamination
resulting from such discharges. In September 2015, a rule issued by the EPA and U.S. Army Corp of Engineers (the “Corps”)
to revise the definition of “waters of the United States” (“WOTUS”) for all CWA programs, thereby defining
the scope of the EPA’s and the Corp’s jurisdiction, became effective. The EPA rescinded this rule in 2019 and promulgated
the Navigable Waters Protection Rule (the “NWPR”) in 2020. The NWPR was viewed as narrowing the scope of WOTUS as compared
to the 2015 rule. In August 2021, the U.S. District Court for the District of Arizona vacated and remanded the NWPR. On January
18, 2023, the EPA and the Corps jointly issued a final rule revising the definition of WOTUS that largely returned to the pre-2015
regulatory regime. On September 8, 2023, the U.S. Supreme Court issued a decision limiting the scope of federal jurisdiction over
wetlands only to those that have a continuous surface connection to water bodies. On August 29, 2023, the EPA and the Corps jointly
issued a final rule, effective immediately, aligning the regulatory definition of WOTUS with the Supreme Court’s ruling.
CERCLA, also known as the “Superfund”
law, imposes liability, without regard to fault or the legality of the original conduct, on various classes of persons that are
considered to have contributed to the release of a “hazardous substance” in the environment. These persons include
the owner or operator of the site where the release occurred and companies that disposed of, or arranged for the disposal of, the
hazardous substances found at the site. Persons who are responsible for releases of hazardous substances under CERCLA may be subject
to joint and several liability for the costs of cleaning up the hazardous substances and for damages to natural resources. In addition,
it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly
caused by hazardous substances released into the environment. Although CERCLA generally exempts petroleum from the definition of
hazardous substances, our operations may in the future, involve the use or handling of materials that are classified as hazardous
substances under CERCLA. Each state also has environmental cleanup laws analogous to CERCLA. RCRA and comparable state and local
statues govern the management, including treatment, storage and disposal, of both hazardous and nonhazardous solid wastes. Hazardous
wastes are subject to more stringent and costly disposal requirements than nonhazardous wastes.
The CAA, as amended,
restricts the emission of air pollutants from many sources, including oil and natural gas production. In addition, certain states
have comparable legislation, which may be more restrictive than the CAA. These laws and any implementing regulations impose stringent
air permit requirements and require us to obtain pre-approval for the construction or modification of certain projects or facilities
expected to produce air emissions, or to use specific equipment or technologies to control emissions. Federal and state regulatory
agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the
CAA and associated state laws and regulations. On August 16, 2022, the Inflation Reduction Act created the Methane Emissions Reduction
Program to incentivize methane emission reductions and impose a fee on greenhouse gas emissions from certain facilities that exceed
specified emissions levels.
Internationally,
in 2015, the United States participated in the United Nations Conference on Climate Change, which led to the creation of the Paris
Agreement. The Paris Agreement, which was signed by the United States in April 2016, requires countries to review and “represent
a progression” in their intended nationally determined contributions (“NDC”), which set greenhouse gas emission
reduction goals, every five years beginning in 2020. The United States exited the Paris Agreement in November 2020, but rejoined
the agreement effective February 19, 2021. In April 2021, the United States made its NDC submittal, setting an emissions reduction
goal of a 50 to 52% reduction from 2005 levels in economy-wide net greenhouse gas pollution in 2030. Further, in November 2021,
the United States and other countries entered into the Glasgow Climate Pact, which includes a range of measures designed to address
climate change, including but not limited to the phase-out of fossil fuel subsidies, reducing methane emissions 30% by 2030 and
cooperating toward the advancement of the development of alternative sources of energy.
Any
changes that result in more stringent and costly waste handling, storage, transport, disposal, cleanup or operating requirements
could materially adversely affect our operations and financial condition, as well as those of the oil and natural gas industry
in general. For instance, in January 2021, President Biden issued Executive Order which directed a government-wide effort to address
climate change by reducing greenhouse gas emissions and achieving net-zero global carbon emissions by 2050 or before. That effort
is designed to infuse climate policy in all aspects of federal decision-making, including specific directives that touch on foreign
policy, national security, financial regulation, federal procurement, infrastructure, and environmental justice among other things.
Based on this Executive Order and other findings, the EPA has begun adopting and implementing a comprehensive suite of regulations
to restrict emissions of greenhouse gases under existing provisions of the CAA. On December 2, 2023, the EPA issued a prepublication
version of a final rule to regulate emissions from oil and natural gas sources that includes NSPS to limit greenhouse gas and volatile
organic compound emissions for new, modified or reconstructed sources, as well as emissions guidelines for states to follow when
establishing plans to limit methane emissions from existing sources. Additionally, on November 17, 2023, the EPA issued a final
rule that enables states to implement more stringent methane emissions standards than the federal guidelines require. As another
example, in January 2023, the EPA announced a proposed consent decree that, if finalized as proposed, would establish a December
10, 2024 deadline for the EPA to review and propose revisions to the National Emission Standards for Hazardous Air Pollutants (“NESHAP”)
for oil and natural gas production facilities and natural gas transmission and storage facilities, which may require us to make
additional changes to our operations. Legislative and regulatory initiatives related to climate change and greenhouse gas emissions
could, and likely would, require us to incur increased operating costs adversely affecting our profits and could adversely affect
demand for the oil and natural gas we produce, depressing the prices we receive for oil and natural gas.
In
the course of our routine oil and natural gas operations, surface spills and leaks, including casing leaks, of oil, produced water
or other materials may occur, and we may incur costs for waste handling and environmental compliance. It is also possible that
our oil and natural gas operations may require us to manage NORM. NORM is present in varying concentrations in sub-surface formations,
including hydrocarbon reservoirs, and may become concentrated in scale, film and sludge in equipment that comes in contact with
crude oil and natural gas production and processing streams. Some states, including Texas and Louisiana, have enacted regulations
governing the handling, treatment, storage and disposal of NORM.
We are subject
to the requirements of OSHA and comparable state statutes. The OSHA Hazard Communication Standard, the “community right-to-know”
regulations under Title III of the federal Superfund Amendments and Reauthorization Act and similar state statutes require us to
organize information about hazardous materials used, released or produced in our operations. Certain of this information must be
provided to employees, state and local governmental authorities and local citizens. We are also subject to the requirements and
reporting set forth in OSHA workplace standards.
We
have not in the past been, and do not anticipate in the near future to be, required to expend amounts that are material in relation
to our total capital expenditures as a result of environmental laws and regulations, but since these laws and regulations are periodically
amended, we are unable to predict the ultimate cost of compliance. We have no assurance that more stringent laws and regulations
protecting the environment will not be adopted or that we will not otherwise incur material expenses in connection with environmental
laws and regulations in the future. We may be unable to pass on such increased compliance costs to our customers.
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Principal
Executive Offices
Our
principal executive office is located at 3033 Wilson Boulevard, Suite E-605, Arlington, Virginia 22201, in Arlington County outside
of Washington, D.C., and our telephone number is (703) 479-8538. We rent our principal executive offices under a month-to-month
lease for a monthly rental of $50. The Company website is www.cojaxoilandgas.com.
Employees
We
have two full-time employees: William Downs, our Chief Executive Officer, and Jeffrey J. Guzy, our Chief Financial Officer. The
officers devote the number of hours necessary to perform their duties, and each officer, in his sole discretion, determines the
extent of the time commitment.
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