Risks associated with Our Business
The Company has a limited operating history and may not be successful in developing profitable business operations.
Okmin has a limited operating history since its incorporation December 2020. As of the date of this filing, we have limited assets and revenues. Our future operating results will depend on many factors, including:
Despite our best efforts, we may not be successful in our efforts to develop profitable business operations.
The Company has limited capital and will need to raise additional capital in the future.
We do not currently have the capital necessary to fund both our continuing operations and our planned growth. We will require additional capital to continue to grow our business through the operation, maintenance and further development of our existing ventures and through the acquisition of additional properties. We estimate that the Company will need to raise additional capital to fulfil its business plan including reworking and enhancing existing projects, acquiring further oil and gas interests, or to acquire other mineral exploration properties. Obtaining additional financing would be subject to a number of factors, including the market prices for acquiring resource properties, investor acceptance of the Company’s interests, and investor sentiment. These factors may make the timing, amount, terms or conditions of additional financing unavailable to the Company. The most likely source of future funds presently available to the Company is through sale of equity capital. Any sale of share capital will result in dilution to existing stockholders. The terms of securities we issue in future capital transactions may be more favorable to our new investors, and may include preferences, superior voting rights and the issuance of other derivative securities, and issuances of incentive awards under equity employee incentive plans, which may have a further dilutive effect.
If we do not succeed in raising additional capital, our resources may not be sufficient to fund our planned operations and will have a significant negative effect on our operations and financial condition.
The oil and gas industry is highly competitive and there is no assurance that the Company will be successful.
The oil and natural gas exploration and production industry is intensely competitive, and the Company competes with other companies that have greater resources. Many of these companies not only explore for and produce oil and gas but also market oil and gas and other products on a regional, national or worldwide basis. These companies will be able to pay more for productive energy properties and exploratory prospects or define, evaluate, bid for and purchase a greater number of properties and prospects than Okmin’s financial or human resources permit. In addition, these companies will have a greater ability to continue exploration activities during periods of low commodity market prices. The Company’s larger competitors may be able to absorb the burden of present and future foreign, federal, state, local and other laws and regulations more easily than Okmin can, which would adversely affect its competitive position. The Company’s ability to acquire additional properties and to discover productive prospects in the future will be dependent upon its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. In addition, because Okmin has fewer financial and human resources than many companies in its industry, the Company may be at a disadvantage in bidding for exploratory prospects and producing properties.
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The Company has limited interests in oil and gas leases and cannot guarantee that it will identify or acquire any additional viable leases or mineral property assets or interests.
Okmin presently only has partial interests in projects and leases with limited activity. The Company is currently seeking to identify other leases or mineral properties to acquire but the Company cannot guarantee it will find any valuable leases or mineral properties. Even if the Company enters into additional joint ventures or acquires additional interests in leases or other mineral properties on land being developed by a mining company, the Company cannot guarantee that it will be able to capitalize on the increased value of its leasehold.
If the Company cannot acquire any viable leases, mineral property assets or mineral property interests, or cannot find any oil and gas or minerals on such leases or mineral properties, or it is not economical to recover the oil and gas or minerals from those properties, the Company may have to curtail or cease operations.
The Company has no proven oil and gas reserves, and future wells we drill may not yield oil or natural gas in commercial quantities or at all.
None of the Company’s properties have been evaluated for oil and gas reserves, and the Company has no proven reserves. There is no guarantee the Company’s properties contain sufficient recoverable oil and natural gas to be produced profitably, which may result in a loss of some or all of our investment in such projects. If we do not drill productive and profitable wells in the future, it will have a material adverse impact on the Company’s business operations and financial condition.
Drilling for and producing oil and natural gas are highly speculative and involve a high degree of risk.
Exploring for and developing oil and natural gas involves a high degree of operational and financial risk. Predicting the costs involved in exploration and drilling is difficult to achieve with a high degree of certainty. Our potential drilling locations are in various stages of evaluation, ranging from locations that are ready to drill, to locations that will require substantial additional interpretation before they can be drilled. The budgeted costs of planning, drilling, completing and operating wells are often exceeded, and such costs can increase significantly due to various complications that may arise during the drilling and operating processes. Before a well is spudded, we may incur significant licensing, geological and geophysical costs, which are incurred whether a well eventually produces commercial quantities of hydrocarbons or is drilled at all. Exploration wells bear a much greater risk of loss than development wells. If our actual drilling and development costs are significantly more than our estimated costs, we may not be able to continue our operations as proposed and could be forced to modify our operating and/or drilling plans accordingly.
If we decide to drill a certain location, there is a risk that no commercially productive oil or natural gas reservoirs will be found or produced. We may recomplete existing wells, drill new wells, or participate in new wells that are not productive. We may drill wells that are productive, but that do not produce sufficient net revenues to return a profit after drilling, operating and other costs. There is no way to predict in advance with absolute certainty whether any particular location will yield oil or natural gas in sufficient quantities to recover exploration, drilling or completion costs or to be economically viable. Even if sufficient amounts of oil or natural gas exist, we may damage the potentially productive hydrocarbon-bearing formation or experience mechanical difficulties while drilling or completing the well, resulting in a reduction in production and reserves from the well or abandonment of the well.
Drilling for and producing oil and natural gas are high-risk activities with many dangers and uncertainties
Oil and Gas drilling and production are high-risk activities, and there are many risks which can cause substantial losses, including personal injury or loss of life; severe damage to or destruction of property and equipment as well as oil gathering and transportation equipment and facilities; pollution or other environmental contamination, and resulting remedial or clean-up responsibilities and repairs to resume operations; and regulatory fines or penalties. Insurance against all operational risks may not be affordable or available the Company, its partners, or third-party contractors. The occurrence of an event that is not covered in full or in part by insurance could have a material adverse impact on the Company’s business operations and financial condition.
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The Company may have difficulty managing growth in our business, which could adversely affect our financial condition and results of operations.
As an early stage company, growth in accordance with our business plan, if achieved, could place a significant strain on our financial, technical, operational, and management resources. As we expand our activities and increase the number of projects we are evaluating or in which we participate, there will be additional demands on our financial, technical, operational, and management resources. The failure to continue to upgrade our technical, administrative, operating, and financial control systems or the occurrences of unexpected expansion difficulties, including the failure to recruit, engage or retain professionals in the oil and natural gas industry, whether as employees or outside contractors, could have a negative material effect on our business and financial condition.
The Company does not operate any of its current projects and is dependent upon our partners and contractors.
All of the Company’s projects are operated by partners and are dependent upon the operational capabilities of those partners and third-party contactors. All three of our projects in Oklahoma are operated by our partner there. In the event our partner experiences adverse conditions or circumstances, this may have a negative material impact on our operations and in turn our business and financial condition. Additionally, we ultimately do not control the timing of the development, exploitation, production and exploration activities relating to our property interests. If our partners and contractors are unsuccessful in the exploration and operation of our property interests, it would have a negative material effect on our business and financial condition.
The Company’s properties are concentrated in one geographic area.
Three of the Company’s projects are located in Oklahoma and one in Kansas. Since our properties are contained in a limited area, a number of our properties could experience the same adverse conditions at the same time, resulting in a relatively greater impact on our operations than if we had a more diversified portfolio of properties. Such conditions could have a negative material effect on our business and financial condition.
Any change in government regulation/administrative practices may have a negative impact on the Company’s ability to operate and its profitability.
The laws, regulations, policies or current administrative practices of any government body, organization or regulatory agency in any applicable jurisdiction, may be changed, applied or interpreted in a manner which will fundamentally alter Okmin’s ability to carry on business. The actions, policies or regulations, or changes thereto, of any government body or regulatory agency, or other special interest groups, may have a detrimental effect on the Company. In particular, at the federal level, any change in the current policies of the U.S. Department of the Interior regarding leasing of mineral interests in public lands could cause a significant alteration in the potential profitability of our investment strategy. At the state and local level, any change regarding oil and gas operations, gathering and transportation, water and waste disposal, or well plugging and abandonment requirements, could significantly alter the Company’s cost structure and its ability to produce oil and gas at a profit. Any or all of these situations may have a negative impact on the Company’s ability to operate and/or its profitably.
Our operations are governed by significant environmental regulations.
Okmin’s oil and natural gas exploration and production operations are subject to significant environmental regulation. We are subject to various federal, state and local laws regulating the protection of the environment and strictly regulate the discharge of materials. These regulations directly affect oil and natural gas exploration, development and production operations. We could incur significant costs as a result of any violations or liabilities under environmental or other laws made by us, our partners or our third-party contactors. Changes in or more stringent enforcement of environmental laws could force us to expend additional operating costs and capital expenditures to stay in compliance. If we are deemed to not be in compliance with applicable environmental laws, we could be forced to expend substantial amounts to be in compliance and shut down the affected operations either temporarily or permanently, which would have a materially negative effect on our operations and financial condition.
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Certain U.S. federal income tax deductions currently available with respect to oil and natural gas drilling and development may be eliminated as a result of future legislation.
Possible elimination of certain key U.S. federal income tax incentives currently available to oil and gas exploration and production could be eliminated in the future. If enacted into law, any such proposals would eliminate certain tax preferences applicable to taxpayers engaged in the exploration or production of natural resources. The passage of any legislation as a result of such proposals or any other similar changes in U.S. federal income tax laws could eliminate or postpone certain tax deductions that are currently available with respect to oil and natural gas exploration and development, and any such change could increase our tax liability and negatively impact our results of operations and financial condition.
The Company’s success is dependent on the continued employment of Jonathan Herzog, our President and Chief Executive Officer and Thomas Lapinski, our Chairman of the Board.
The success of Okmin depends to a large degree upon the personal efforts and ability of Mr. Herzog and Mr. Lapinski, The Company does not have “key man” insurance on either individual, the loss of whose services, whether through disability, illness, death or severance of employment, would have a materially adverse effect on the Company.
The Company’s principal officer and director may be subject to conflicts of interest.
Jonathan Herzog, the Company’s President, Chief Executive Officer and director, devotes only that portion of his time to the Company’s affairs that he deems necessary to accomplish the Company’s business plan. Mr. Herzog may also devote part of his working time to other business and employment endeavors, including roles and consulting relationships with other entities, and he may have responsibilities to these other entities which would result in conflicts of interest with the Company. Such conflicts include deciding how much time to devote to the Company’s affairs, as well as what business opportunities should be presented to the Company. Currently, Okmin has no policy in place to address such conflicts of interest.
Risks Associated with Our Common Stock
Our common stock has been approved for trading on the OTCQB, but no active trading market has developed and there is no assurance that an active market will develop.
Our common stock was approved for trading on the OTCQB in September 2022. To date, no active trading market for our common stock has developed on the OTCQB. There is no assurance that an active market for our common stock will develop or that our common stock will achieve any particular trading price. Active trading markets generally result in lower price volatility and more efficient execution of buy and sell orders for investors.
Our common stock currently is not eligible for the book-entry delivery, settlement and depository services provided by the Depository Trust Company (“DTC”). We are in the process of applying for DTC eligibility for our shares, but there is no assurance we will obtain DTC eligibility. Without DTC eligibility, it will be more difficult for us to develop a liquid market for our common stock because of the added burdens brokers face and the higher fees brokers are likely to charge their customers for handling non-DTC eligible securities.
In addition, our common stock is unlikely to be followed by any market analysts, and there may be few institutions acting as market makers for our common stock. Either of these factors could adversely affect the liquidity and trading price of our common stock.
The trading price of our common stock may be volatile, and as a result shareholders could lose part or all of their investment.
Until an active market develops for our common stock, if ever, the price at which it trades is more likely to fluctuate significantly. Prices for our common stock will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity of the market for our shares, developments affecting our business, including the impact of matters referred to elsewhere in these risk factors, investor perception of the Company, and general economic and market conditions. No assurances can be given that an orderly or liquid market will ever develop for the shares of our common stock.
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Broker-dealers may be discouraged from effecting transactions in our common stock because it is considered a “penny stock” and is subject to the penny stock rules.
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), impose sales practice and disclosure requirements on FINRA broker-dealers who make a market in "a penny stock,” as defined in Rule 3a51-1 under the Exchange Act. A penny stock generally includes any equity security that has a market price of less than $5.00 per share that is not registered on certain national securities exchanges and does not meet the other limited exemptions specified in the penny stock definition. The additional sales practice and disclosure requirements imposed upon broker-dealers may discourage broker-dealers from effecting transactions in our shares, which could severely limit the market liquidity of the shares and impede the sale of our shares in the secondary market.
Under the penny stock rules, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor" (generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000 in each of the last two years, or $300,000 together with his or her spouse) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt.
In addition, the penny stock rules require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the U.S. Securities and Exchange Commission (the “SEC”) relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Okmin’s principal office is located at 16501 Ventura Blvd, Suite 400, Encino CA, 91436. The Company has a month to month arrangement for corporate offices at a cost of approximately $100 - $200 per month, with meeting space available to it on demand on a pay per use basis. Outside of this, the Company also utilizes office space provided to it by associates at no charge and if necessary plans to lease additional office space to house its executive offices as its activities advance.
At this time, Okmin does not anticipate purchasing any real estate, nor does it anticipate purchasing any real property for its office.
Oil and Gas Properties
The Company’s lease holdings are all within the Cherokee Platform, a geological feature covering an area of northeastern Oklahoma and southeastern Kansas in the mid-continent region of the United States. The Cherokee Platform has been an established oil producing region for the last century.
Oklahoma – Blackrock Joint Venture
In February 2021 Okmin entered into a Joint Venture Agreement and Operating Agreement committing $100,000 in the initial phase to acquire working interests in ten oil and gas leases located in Okmulgee and Muskogee Counties in Oklahoma. Under the Operating Agreement, Okmin’s Joint Venture partner, Blackrock Energy LLC (“Blackrock”) is the Operator of the project, handling the day-to-day operations on the ground. Pursuant to a further agreement entered into on June 10, 2022, the Company added an additional five oil and gas leases across 739 acres to its joint venture with Blackrock, thereby expanding the overall project to fifteen leases covering over 1,500 acres.
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Pursuant to the Joint Venture Agreement, the Company has acquired working interests (“WI”) in the following leases:
50% Working Interests
The Chain lease contains two oil wells, a large tank battery, gun barrel and salt water disposal tank. The Chain #1 well is completed in the Dutcher sand zone. The well is operational and is making ½ to 1 barrels of oil per day (“BOPD”) and a large volume of salt water. The disposal well at Chain is not capable of taking enough water to run the Chain #1 well full time and as a result of this the operator’s ability to produce additional oil from this well is limited at this time. Chain #1 is a prime candidate for further recompletion work.
The second well (Chain #2) is completed in the Booch Sand but is not fully equipped. The well would require rods, tubing, rod pump and an electric motor plus wiring to activate. The Booch formation typically makes light sweet crude. The well has potential to make 1-2 BOPD but would require additional capital to reactivate.
The Burke lease has three shallow oil wells plus a tank battery that are all in production, making 1-2 BOPD plus salt water. Two Burke wells were recently reworked, and the rod pumps were rebuilt. The operator plans to continue treating the Burke lease quarterly to maintain production levels.
The Preston lease has three shallow oil wells plus a tank battery which are all operational, making 1.5-2 BOPD plus salt water. One Preston well was reworked recently, and the rod pump was rebuilt. One of the pump jacks at Preston has had some temporary remedial work done recently though it will need additional repairs in the future. The operator plans to continue treating the Preston lease quarterly to maintain production levels.
Salt water from Preston and Burke is hauled off remotely once or twice monthly. There is a disposal well across the street from the leases that could possibly be activated in due course with the aim of eventually eliminating water hauling costs.
The Goldner lease has three shallow oil wells plus a tank battery. Two oil wells are completed in the Booch Sand formation and are operational, making 2-4 BOPD, plus a small amount of salt water. Goldner production levels tend to be affected by an adjacent lease, and if the lease next door is actively pumping production at Goldner tends to increase.