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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 months ended |
March 31, 2023, and 2022, respectively, the Company recorded $45,000 and nil post-impairment charges. The total net book value of |
our unproved oil and gas properties under the full cost method is $16,057,000 and $15,889,000 at March 31, 2023 and at December 31, 2022, |
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 by Financial 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. 38 RESULTS OF OPERATIONS For the three months ended March 31, 2023 2022 (US $ in thousands) Operating costs and expens General and administrative expenses 1,503 1,435 Other 583 711 Impairment of unproved oil and gas properties 45 - Subtotal Operating costs and expenses 2,131 2,146 Other expense, net 8 20 Net loss 2,139 2,166 Revenue. We currently |
have no revenue generating operations. Operating costs and expenses. Operating costs and expenses for the three months ended March 31, 2023 |
were $2,131,000 compared to $2,146,000 for the three months ended March 31, 2022. General and administrative |
expenses. General and administrative expenses for the three months ended March 31, 2023 were $1,503,000, compared to $1,435,000 for |
the three months ended March 31, 2022. The increase in General and administrative expenses during the three months ended March 31, 2023 |
is primarily attributable to higher non-cash expenses recorded in connection with stock option grants. Other expense. Other |
expense during the three months ended March 31, 2023 was $583,000 compared to $711,000 for the three months ended March 31, 2022. Other |
general and administrative expenses are comprised of non-compensation and non-professional expenses incurred. The decrease in other expenses |
is primarily attributable to lower marketing expenses associated with investor relations activities. Impairment of unproved |
oil and gas properties. Impairment of unproved oil and gas properties expenses during the three months ended March 31, 2023 was |
$45,000 compared to nil for the three months ended March 31, 2022. The expenses recorded in 2023 are post impairment charges to the impairment |
recorded during 2022 related to the MJ-2 well. Other expense, net. Other |
expense, net for the three months ended March 31, 2023 was $8,000, compared to $20,000 for the three months ended March 31, 2022. Net Loss. Net loss |
for the three months ended March 31, 2023 was $2,139,000 compared to $2,166,000 for the three months ended March 31, 2022. The $27,000 |
lower net loss in 2023 is an immaterial difference compared to 2022. 39 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 months ended March |
31, 2023 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 for one year from the date the financials were issued. At March 31, 2023, we had approximately $799,000 in cash and cash equivalents |
compared to $1,735,000 at December 31, 2022, which does not include any restricted funds. Our working capital (current assets minus current |
liabilities) was ($148,000) at March 31, 2023 and $661,000 at December 31, 2022. As of March 31, 2023, we provided |
bank guarantees to various governmental bodies (approximately $1,042,000) and others (approximately $76,000) in respect of our drilling |
operation in the aggregate amount of approximately $1,118,000. The (cash) funds backing these guarantees are held in restricted interest-bearing |
accounts in Israel and are reported on the Company’s balance sheets as fixed short-term bank deposits restricted. During the three months ended |
March 31, 2023, and 2022, cash used in operating activities totaled $917,000, and $2,091,000, respectively. Cash provided by financing |
activities during the three months ended March 31, 2023, and 2022, was $800,000, and $9,428,000, respectively, 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 $838,000 and $3,799,000 for the three months |
ended March 31, 2023, and 2022, respectively. 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 |
$761,000 during the period April 1, 2023 through May 9, 2023, 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 through May 2023. The 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. 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 for one year from the date the financials |
were issued, 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. 40 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 2023 had a significant impact on our financial position, results |
of operations, or cash flow. ITEM |
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market risk is a broad term |
for the risk of economic loss due to adverse changes in the fair value of a financial instrument. These changes may be the result of various |
factors, including interest rates, foreign exchange rates, commodity prices and/or equity prices. In the normal course of doing business, |
we are exposed to the risks associated with foreign currency exchange rates and changes in interest rates. Foreign Currency Exchange |
Rate Risks. A portion of our expenses, primarily labor expenses and certain supplier contracts, are denominated in New Israeli Shekels |
(“NIS”). As a result, we have significant exposure to the risk of fluctuating exchange rates with the U.S. Dollar (“USD”), |
our primary reporting currency. During the period January 1, 2023 through March 31, 2023, the USD has fluctuated by approximately 2.7% |
against the NIS (the USD strengthened relative to the NIS). Also, during the period January 1, 2022 through December 31, 2022, the USD |
fluctuated by approximately 13.2% against the NIS (the USD strengthened relative to the NIS). Continued strengthening of the US dollar |
against the NIS will result in lower operating costs from NIS denominated expenses. To date, we have not hedged any of our currency exchange |
rate risks, but we may do so in the future. Interest Rate Risk. Our exposure to market risk relates to our cash and investments. We |
maintain an investment portfolio of short-term bank deposits and money market funds. The securities in our investment portfolio are not |
leveraged, and are, due to their very short-term nature, subject to minimal interest rate risk. We currently do not hedge interest rate |
exposure. Because of the short-term maturities of our investments, we do not believe that a change in market interest rates would have |
a significant negative impact on the value of our investment portfolio except for reduced income in a low interest rate environment. At |
March 31, 2023 we had cash, cash equivalents and short-term and long-term bank deposits of approximately $2,159,000. The weighted average |
annual interest rate related to our cash and cash equivalents for the three months ended March 31, 2023, exclusive of funds at US banks |
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