Caza Oil & Gas, Inc.
TSX : CAZ
AIM : CAZA

Caza Oil & Gas, Inc.

August 12, 2008 02:00 ET

Caza Oil & Gas, Inc. (TSX:CAZ) (AIM:CAZA): Interim Financial Report-Second Quarter Results

Financial and Operating Results for the three Months Ended June 30, 2008

HOUSTON, TEXAS--(Marketwire - Aug. 12, 2008) - Caza Oil & Gas, Inc. ("Caza" or the "Company") (TSX:CAZ)(AIM:CAZA) is pleased to announce its financial and operating results for the three months ended June 30, 2008.

Second Quarter 2008 Highlights

Financial:

- Total revenue of US$1,067,365 (Q2 2007 - US$266,597).

- Net loss of US$536,701 (Q2 2007 - US$420,057).

- Capital expenditures totaled US$3,237,141 (Q2 2007 - US$1,277,200).

Operational:

- Sales volumes averaged 1,005 Mcfe/d, 148% higher than the volumes recorded in the comparative three-month period ended 2007.

- On a Mcf equivalent basis, natural gas accounted for 97% of second quarter 2008 volumes and NGLs 3%.

- Caza's realized price increased 61% to $11.66/Mcfe from $7.22/Mcfe in the comparative three-month period ended 2007.

Commenting on the results, Mike Ford, CEO of Caza, said, "In addition to the reported financial results for the 2nd quarter 2008, we are very pleased to have closed the Pounds Sterling 11.5 million private placing that has fully funded our drilling program for the remainder of 2008. Caza has had considerable drilling success so far in 2008 and we hope to continue that success and continue to increase production volumes, revenue and cash flow with the investment of these additional funds."



HIGHLIGHTS - UNAUDITED

(in United States dollars)
Three Months Ending June 30, 2008 2007 % change

Financial (US$)
Gas and Condensate revenue 1,067,365 266,597 300
Net Income (loss) (536,701) (420,057) 28
Per share - basic and diluted (0.01) (0.01)
Capital expenditures (net) 3,237,141 1,277,200 153

Operations (US$)
Sales volumes
Natural gas (Mcf/d) 979 390 151
Natural gas liquids (bbls/d) 4 3 33
Combined (Mcfe/d) 1,005 406 148
Operating netbacks ($/Mcfe)
Average selling prices 11.66 7.22 61
Production expenses 0.54 1.32 -59
Severance Taxes 0.79 0.58 36
Transportation expenses 0.12 -
Operating netback 10.21 5.32 92
Share Data
Weighted average outstanding
(including exchangeables) 97,723,874 73,000,000 34
Equity outstanding - end of period
Common 119,319,000 46,498,000 157
Warrants 20,500,000 22,400,000 -8
Stock options 6,338,333 3,965,000 60


About Caza:

Caza is engaged in the acquisition, exploration, development and production of hydrocarbons in the Texas Gulf Coast (on-shore), south Louisiana, southeast New Mexico and the Permian Basin of West Texas regions of the United States of America through its subsidiary, Caza Petroleum, Inc.

MANAGEMENT'S DISCUSSION AND ANALYSIS

The following interim Management's Discussion and Analysis ("MD&A") of the financial results for Caza Oil & Gas, Inc. ("Caza" or the "Company") should be read in conjunction with the unaudited consolidated interim financial statements as at and for the three and six month periods ended June 30, 2008, the annual information form, the audited consolidated financial statements and corresponding MD&A for the year ended December 31, 2007. Additional information relating to the Company can be found on SEDAR at www.sedar.com. All figures herein have been prepared in accordance with Canadian Generally Accepted Accounting Principles ("GAAP") unless otherwise stated. This MD&A is dated August 11, 2008.

Forward Looking Information

In addition to historical information, the MD&A contains forward-looking statements that are generally identifiable as any statements that express, or involve discussions as to, expectations, beliefs, plans, objectives, assumptions or future events of performance (often, but not always, through the use of words or phrases such as "will likely result", "expected", "is anticipated", "believes", "estimated", "intends", "plans", "projection" and "outlook"), are not historical facts and may be forward-looking and may involve estimates, assumptions and uncertainties which could cause actual results or outcomes to differ materially from those expressed in such forward-looking statements.

These statements are based on certain factors and assumptions regarding the results of operations, the performance of projected activities and business opportunities. Specifically, we have used historical knowledge and current industry trends to project budgeted expenditures for 2008. While we consider these assumptions to be reasonable based on information currently available to us, they may prove to be incorrect.

Actual results achieved during the forecast period will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors. Such factors include, but are not limited to: risks associated with the Company's stage of development; competitive conditions; share price volatility; risks associated with crude oil and natural gas exploration and development; risks related to the inherent uncertainty of reserves and resources estimates; possible imperfections in title to properties; the volatility of crude oil and natural gas prices and markets; environmental regulation and associated risks; loss of key personnel; operating and insurance risks; the inability to add reserves; risks associated with industry conditions; the ability to obtain additional financing on acceptable terms if at all; non-operator activities; the inability of investors in certain jurisdictions to bring actions to enforce judgments; equipment unavailability; potential conflicts of interest; risks related to operations through subsidiaries; risks related to foreign operations; currency exchange rate risks and other factors, many of which are beyond the control of the Company. Accordingly, there is no representation by Caza that actual results achieved during the forecast period will be the same in whole or in part as that forecast. Further, Caza undertakes no obligation to update or revise any forward-looking statement or statements to reflect events or circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events, except as required by applicable securities laws.

Financial outlook information contained in this MD&A about prospective results of operations, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Readers are cautioned that such financial outlook information contained in this MD&A should not be used for purposes other than for which it is disclosed herein.

Non-GAAP Measures

The financial data presented herein has been prepared in accordance with GAAP. The Company has also used certain measures of financial reporting that are commonly used as benchmarks within the oil and natural gas production industry in the following MD&A discussion. The measures are widely accepted measures of performance and value within the industry, and are used by investors and analysts to compare and evaluate oil and natural gas exploration and producing entities. Most notably, these measures include operating netback and funds flow from (used in) operations. Operating netback is a benchmark used in the crude oil and natural gas industry to measure the contribution of oil and natural gas sales and is calculated by deducting royalties and operating expenses from revenues. Funds flow from (used in) operations is cash flow from operating activities before changes in non-cash working capital, and is used to analyze operations, performance and liquidity. These measures are not defined under GAAP and should not be considered in isolation or as an alternative to conventional GAAP measures. These measures and their underlying calculations are not necessarily comparable to a similarly titled measure of another entity. When these measures are used, they are defined as "non GAAP" and should be given careful consideration by the reader.

Note Regarding Boe and Mcfe

In this MD&A, Boes are derived by converting gas to oil in the ratio of six thousand cubic feet of gas to one barrel of oil (6 Mcf:1 bbl) and Mcfes are derived by converting oil to gas in the ratio of one barrel of oil to six thousand cubic feet of gas (1 bbl:6 Mcf). Per barrel oil equivalent amounts ("boe") and one thousand cubic feet of gas equivalent ("Mcfe") amounts may be misleading, particularly if used in isolation. A boe conversion of 6 Mcf of natural gas to 1 bbl of oil, or a Mcfe conversion ratio of 1 bbl of oil to 6 Mcf of natural gas is based on an energy equivalency conversion method primarily applicable at the burner tip and does not represent a value equivalency at the well head.

Currency

References to "dollars" and "$" are of U.S. dollars and references to "CDN$" are to Canadian dollars.

Operating Netback Summary

The following table reconciles the Company's operating netback which is considered to be a non-GAAP measure:



Three months ended Six months ended
June 30, June 30,
(on a Mcfe basis) 2008 2007 2008 2007
--------------------------------------------------------------------------
Oil and natural gas revenue $ 11.66 $ 7.22 $ 10.08 $ 7.35
Production expense (0.54) (1.32) (0.72) (1.35)
Severance expense (0.79) (0.58) (0.69) (0.61)
Transportation expense (0.12) - (0.12) -
--------------------------------------------------------------------------
Operating netback (non-GAAP) 10.21 5.32 8.55 5.39


FINANCIAL AND OPERATING RESULTS

Petroleum and Production Revenue



Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
--------------------------------------------------------------------------
Natural gas
Production (Mcf) 89,073 35,499 173,927 66,365
Revenue ($) 1,017,719 251,351 1,710,627 480,467
Price ($/Mcf) 11.43 7.08 9.84 7.24
--------------------------------------------------------------------------

Natural gas liquids
Production (bbls) 408 236 723 438
Revenue ($/bbl) 49,646 15,247 86,022 26,693
Price ($/bbl) 121.78 64.61 118.97 60.94
--------------------------------------------------------------------------

Combined
Production (Mcfe) 91,519 36,917 178,267 68,997
Revenue ($) 1,067,365 266,597 1,796,648 507,160
Price ($/Mcfe) 11.66 7.22 10.08 7.35
--------------------------------------------------------------------------

Mcfe/d 1,005 406 985 381
--------------------------------------------------------------------------

Boe/d 168 68 164 64
--------------------------------------------------------------------------


Natural gas and condensate revenues increased 300% to $1,067,365 for the three-month period ended June 30, 2008 from $266,597 for the three-month period ended June 30, 2007 (the "comparative period") and 46% higher than the first quarter of 2008. Caza production volumes increased 148% to 91,519 Mcfe for the three-month period ended June 30, 2008 up from 36,917 Mcfe for the comparative period. This represents an average daily production rate increase of 148% for the three months ended June 30, 2008 of 1,005 Mcfe/d as compared to 406 Mcfe/d for the comparative period. The average natural gas price received by Caza increased 61% to $11.66 per Mcfe during the three-month period ended June 30, 2008 from $7.22 per Mcfe during the comparative period. The increase in revenues and production from the first half of 2007 are a result of the Matthys McMillan well coming on line in the third quarter of 2007 and the increase in the North American spot price of natural gas. Presently the Company has not hedged any of its production and does not have any commodity price management programs in place.

Production Expenses



Three Months ended Six Months ended
June 30, June 30,
2008 2007 2008 2007
--------------------------------------------------------------------------
Severance tax ($) 72,619 21,731 123,783 42,510
Transportation ($) 11,891 - 22,183 -
Production ($) 49,567 49,041 128,998 71,047
--------------------------------------------------------------------------
Severance, transportation
and production ($) 134,077 70,772 274,964 113,557
Severance, transportation
and production ($/Mcfe) 1.47 1.92 1.54 1.65
--------------------------------------------------------------------------


Severance taxes and transportation expenses totaled $84,510 ($0.91/Mcfe) for the three-month period ended June 30, 2008, as compared to $21,731 ($0.58/Mcfe) in the comparative period. The realized average price of natural gas increased by 61% to $11.66 from $7.22 in the comparative period.

Severance tax is a tax imposed by states on natural resources such as crude oil, natural gas and condensate extracted from the ground. The tax is calculated by applying a rate to the dollar amount of production from the property or a set dollar amount applied to the volumes produced from the property. The increase in severance taxes and transportation expenses are a result of the Matthys McMillan well coming on line in the third quarter of 2007.

Production expenses for the three-month period ended June 30, 2008 were $49,567 compared to $49,041 for the comparative period. Caza's average lifting cost for the three-month period ended June 30, 2008 was $0.54 per Mcfe versus $1.32 per Mcfe for the comparative period. The decrease in per unit production expense was attributable to the drilling of additional wells in the latter half of 2007 and to date in 2008 along with increased production rates.

Depletion, Depreciation and Accretion

Depletion, depreciation, amortization and accretion expense for the first six months of 2008 increased to $355,741 ($3.88/Mcfe) from $63,760 ($1.73/Mcfe) in the comparative period.



Three Months ended Six Months ended
June 30, June 30,
2008 2007 2008 2007
--------------------------------------------------------------------------
Depletion and
depreciation ($) 352,174 62,925 671,110 108,686
Accretion ($) 3,567 835 7,132 1,671
--------------------------------------------------------------------------
Depletion, depletion and
accretion ($) 355,741 63,760 678,242 110,357
Depletion, depletion and
accretion ($/Mcfe) 3.88 1.72 3.80 1.60


The increased expense resulted from drilling costs associated with the drilling of additional wells in the latter half of 2007 and to date in 2008 along with increased production rates in the 2008 periods.

Costs of unproved properties of $11,759,027 were excluded from depletable costs in accordance with Canadian Institute of Chartered Accountants ("CICA") Accounting Guideline 16. A proportionate amount of the carrying value will be transferred to the depletable pool as reserves are proven up through the execution of Caza's exploration program.

Accretion expense is the increase in the present value of the asset retirement obligation for the current period and the amount of this expense will increase commensurate with the asset retirement obligation as new wells are drilled or acquired through acquisitions.

General and Administrative Expenses



Three Months ended Six Months ended
June 30, June 30,
2008 2007 2008 2007
--------------------------------------------------------------------------
General and
administrative ($) 1,452,935 774,693 2,716,880 1,259,799
General and
administrative
recovery ($) (73,945) (38,916) (117,064) (45,922)
--------------------------------------------------------------------------
Net general and
administrative ($) 1,378,990 735,777 2,599,816 1,213,877
General and
administrative ($/Mcfe) 15.87 20.98 15.24 18.26
Net general and
administrative ($/Mcfe) 15.06 19.93 14.58 17.59
--------------------------------------------------------------------------


On a Mcfe basis the net general and administrative expenses decreased 24% and 17% for the respective three and six month periods ended June 30, 2008. Stock-based compensation expense in the amount of $134,988 (93,701 in 2007) is included in general and administrative expenses for the three month period ended June 30, 2008 and $252,226 ($240,112 in 2007) for the six month period ended June 30, 2008. Increased salaries, wages and consulting fees along with increased professional service expenses were the primary factors responsible for the increase in total general and administrative expenses when compared to the respective comparative periods. During the six month period ended June 30, 2008, Caza capitalized general and administrative expenses relating to exploration and development activities of $603,946, of which $117,587 related to capitalized stock-based compensation. On a Mcfe basis the net general and administrative expenses decreased 24% and 17% for the respective three and six month periods ended June 30, 2008.

Net loss

Caza incurred a net loss of $536,701 for the three month period ended June 30, 2008 and a net loss of $1,172,386 for the six month period ended June 30, 2008. As compared to a net loss of $420,057 during the three month period ended June 30, 2007 and a net loss of $550,073 for the six month period ended June 30, 2007. The increase in net loss from the comparative period occurred as a result of increases in staff numbers and the expenses related to being a publicly listed company.

Investments

Interest income for the three-month period ended June 30, 2008 was $53,461 and $144,913 for the six month period ended June 30, 2008 down from $279,415 during the same period in 2007. Interest was earned on the proceeds from Caza's initial brokered private placement, which was principally completed in the fourth quarter of 2006, and from Caza's initial public offering, which was completed December 12, 2007. Caza invested the proceeds from these financings in short-term money market funds. The Company does not hold any asset backed paper.

Funds flow from (used in) operations (Non-GAAP)

The following is a reconciliation of funds flow from (used) in operations to net loss.



Three Months ended Six Months ended
June 30, June 30,
2008 2007 2008 2007
--------------------------------------------------------------------------
Net loss (536,701) (420,057) (1,172,386) (550,073)

Non-cash items, net 209,851 156,271 505,991 245,709

Asset retirement obligations
settled - - (9,767) -
--------------------------------------------------------------------------
Funds flow from (used) in
operations (326,850) (263,786) (676,162) (304,364)

--------------------------------------------------------------------------
Funds loss per share - basic
and diluted (0.00) (0.00) (0.00) (0.00)
--------------------------------------------------------------------------


Funds flow from (used) in operations is cash flow from operating activities before changes in non-cash working capital, and is used to analyze operations, performance and liquidity and is a non-GAAP measure.

Capital Expenditures



Three Months ended Six Months ended
June 30, June 30,
By Type ($) 2008 2007 2008 2007
--------------------------------------------------------------------------
Drilling and completions 2,535,063 1,242,463 5,556,436 1,655,767
Seismic 16,314 - 166,314 61,100
Facilities and lease
equipment 434,314 554,034 1,375,045 596,163
Office furnishings and
equipment 60,124 77,760 100,156 372,634
Leasehold
geological/geophysical 40,688 1,197,291 178,443 2,405,451
Other costs (recovery) 150,638 (1,794,348) 13,914 359,663
--------------------------------------------------------------------------
Total 3,237,141 1,277,200 7,390,308 5,450,778


In the first half of 2008, Caza drilled 5 gross natural gas wells (1.88 net) completing 2 (0.75 net) of the wells and began completion operations on the remaining 3 wells (1.13 net) to tie these wells into their respective gathering systems. Drilling activities during the first six months were concentrated in the Wilcox 116 prospect located in Texas and the Lynch property located in New Mexico as well as the Eland and Puku prospects located in Wharton County, Texas. Caza also participated as a non-operated 50% interest in the drilling of the Glass Ranch prospect located in Upton County Texas. Given Caza's current working capital surplus of approximately $20.1 million we anticipate participating in the drilling of 11 gross (3.92 net) wells and completing 3 of the wells drilled during the second quarter.

Outstanding Share Data

Caza is authorized to issue an unlimited number of common shares without par value, of which 119,319,000 common shares are currently issued and outstanding at August 11, 2008.

Holders of common shares are entitled to one vote per share on all matters voted on a poll by shareholders, and are entitled to receive dividends when and if declared by the board of directors out of funds legally available for the payment of dividends. Upon Caza's liquidation or winding up or other distribution of its assets among its shareholders for the purpose of winding up its affairs, holders of common shares are entitled to share pro rata in any assets available for distribution to shareholders after payment of all obligations of the Company. Holders of common shares do not have any cumulative voting rights or pre-emptive rights to subscribe for any additional common shares.

The following table sets forth the classes and number of outstanding equity securities of the Company and the number of issued and issuable common shares on a fully diluted basis.



Issued and
Issuable
Securities
Common Shares
Issued and outstanding 119,319,000
Issuable from exchangeable rights 26,502,000
Issuable from exercise of warrants 19,800,000
Issuable from exercise of broker warrants 700,000
Issuable from exercise of stock options 6,338,333
-------------
Total Common Shares issued and issuable 172,659,333
-------------
-------------

Warrants Issued and Outstanding
Warrants to purchase common shares 19,800,000

Broker warrants 700,000
-------------
Total warrants 20,500,000

Stock Options Issued
Management stock options outstanding 6,338,333


Commitments

The following is a summary of the estimated amounts required to fulfill Caza's remaining contractual commitments as at June 30, 2008:



Type of less than
Obligation ($) Total 1 Year 1-3 Years 4-5 Years Thereafter
-------------------------------------------------------------------------

Operating leases 272,560 188,200 84,360 - -

Asset retirement
obligations 583,518 - 94,195 - 489,323
-------------------------------------------------------------------------

Total contractual
commitments 856,078 188,200 178,555 - 489,323
-------------------------------------------------------------------------
-------------------------------------------------------------------------


Liquidity and Capital Resources

At June 30, 2008, Caza had a working capital surplus of $20,158,364 as compared to $5,420,617 for the period ended March 31, 2008 and $9,923,093 as at December 31, 2007. This increase in working capital resulted from the private placement completed by Caza in June of 2008. Caza had a cash balance of $21,491,713 as of June 30, 2008 and had no bank credit facilities drawn or in place.

On December 12, 2007, Caza completed its initial public offering and issued a total of 18,821,000 common shares. The shares were issued at CDN $0.80 per share, approximately $0.79 per share, resulting in gross proceeds of $14,916,584 before issuance costs of $3,484,845. In connection with the offering, Caza issued 700,000 broker warrants to the selling agents as partial consideration for their services. Each broker warrant entitles the holder to purchase one common share at a price of CDN $0.80 per share until December 12, 2009. The Company ascribed a value of $0.385 per warrant to each of the broker warrants, for a total amount of $269,500. No broker warrants have been exercised as at June 30, 2008.

On June 27, 2008 the Company completed a private placement of Pounds Sterling 9,956,790 representing 43,290,392 shares at a price of 23 pence per unit, or approximately $0.46. Funds in the amount of $18,301,741 net of closing costs of $1,478,544 were received in June of 2008. On July 3, 2008 the Company completed a private placement of Pounds Sterling 1,543,210 at a price of 23 pence per unit or approximately $0.46, for total proceeds of $3,084,668 representing 6,709,608 shares.

Caza will typically use four sources of funding to finance its capital expenditures program: internally generated cash flow from operations, the sale of properties, bank debt where appropriate and if available and new equity issues. With the final tranche of the financing completed on July 3, 2008, the Company has the capital resources to complete its planned capital program for the next twelve months.

Caza and its subsidiary Caza Petroleum may be considered to be "related parties" for the purposes of Multilateral Instrument 61-101 of the Canadian Securities Administrators. As a result, Caza or Caza Petroleum may be required to obtain a formal valuation or disinterested shareholder approval before completing certain transactions with the other party.

Transactions with Related Parties

The Vice President, Exploration of Caza Petroleum, prior to becoming an employee, was a consultant to Caza Petroleum and as a consultant was eligible to receive a 2% carried working interest (subject to proportionate reduction based on Caza Petroleum's working interest) to casing point in the initial test well in certain prospects. The applicable prospects are the Bongo, Puku, Eland and Sable properties. Since becoming an employee, this individual is no longer eligible to receive additional interests beyond those described.

In February 2008, Caza Petroleum entered into a farmout agreement with Singular Oil & Gas Sands, LLC ("Singular") to participate in the drilling of the Jonell Cerny well in Wharton County, Texas. Under the terms of that agreement, Singular paid 13.33% of the drilling costs through completion of the Jonell Cerny well to earn a 10.00% interest in the property thereafter. This participation was in the normal course of Caza's business and on substantially the same terms and conditions to those of other joint venture partners. Singular is a related party as it is a company under common control with Zoneplan Limited, which is a significant shareholder of Caza.

All related party transactions are in the normal course of operations and have been measured at the agreed to exchange amounts which are comparable to those negotiated with unrelated third parties.

Summary of Quarterly Results



Three Three Three Three
months ended months ended months ended months ended
June 30, March 31, December 31, September 30,
2008 2008 2007 2007

Petroleum and
natural gas sales 1,067,365 729,284 600,431 272,542
Net income (loss) (536,701) (635,685) (554,402) (673,095)
Per share -
basic and diluted (0.01) (0.01) (0.01) (0.01)
Funds flow from
operations
(non-GAAP) (1) (326,850) (349,312) (427,153) (808,213)
Per share -
basic and diluted (0.00) (0.00) (0.01) (0.01)
Net capital
expenditures 3,237,141 4,153,167 3,047,631 3,730,018
Average daily
production (Mcfe/d) 1,005 953 1,019 489
Weighted average
shares
outstanding 97,723,874 95,821,000 80,782,196 73,336,717
Current shares
outstanding at
August 11,
2008 119,319,000


Three Three Three Three
months ended months ended months ended months ended
June 30, March 31, December 31, September 30,
2007 2007 2006 2006

Petroleum and
natural gas sales 266,597 240,563 158,177 110,663
Net income (loss) (420,057) (130,016) 143,893 (2,608,941)
Per share -
basic and diluted (0.01) (0.00) 0.00 (0.04)
Funds flow from
(used in)
operations
(non-GAAP) (1) (263,786) (40,578) 341,893 (551,764)
Per share -
basic and diluted (0.00) (0.00) 0.01 (0.01)
Net capital
expenditures 1,277,200 4,173,578 3,257,568 1,351,330
Average daily
production (Mcfe/d) 406 356 294 222
Weighted average
shares
outstanding 73,000,000 72,827,556 67,950,466 67,420,000

(1) Calculated based on cash flow from operations before changes in
non-cash working capital.


Factors that have caused variations over the quarters:

- The Company drilled 9 gross (3.25 net) wells in Texas, New Mexico and Louisiana during 2007 and the first half of 2008 of which 3 wells were completed and 3 are currently undergoing completion activities. One well is waiting further completion operations pending the drilling of an appraisal well.

- In two separate arm's length transactions during the first quarter of 2008, Caza purchased participation rights equal to 25% of Caza's potential working interest in all projects located under certain Transition Zone seismic data volumes covering approximately 2,300 square miles located in South Louisiana and the Texas Gulf Coast Regions. As a result of the transactions, Caza increased its potential working interest and has a controlling interest in projects derived from these data volumes.

- Caza's net loss increased commencing in the third quarter of 2007 as a result of growth in general and administrative expenses associated with the Company's going public in the latter half of 2007.

- Funds flow from operations increased in the quarter ended September 30, 2007 as a result of staffing increases in anticipation of going public as well as consulting and other expenses associated with the initial public offering.

Financial Instruments

For a discussion about the Company's financial instruments, please refer to the corresponding consolidated interim financial statements and our Management's Discussion and Analysis for the year ended December 31, 2007 available at www.sedar.com.

Critical Accounting Estimates

Certain of our accounting policies require that we make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. For a discussion about those accounting policies, please refer to our annual management's discussion and analysis and Note 2 of the corresponding audited consolidated financial statements for the year ended December 31, 2007 available at www.sedar.com.

Recent Accounting Pronouncements

As of January 1, 2008, Caza adopted the CICA Handbook Sections 3862, "Financial Instruments - Disclosures", 3863, "Financial Instruments - Presentation", and 1535, "Capital Disclosures." For a detailed discussion about the accounting policies adopted see Note 2 of the consolidated interim financial statements as at and for the three and six month periods ended June 30, 2008.

In addition, the Company has assessed new and revised accounting pronouncements that have been issued that are not yet effective and determined that the following may have a significant impact on the Company:

- As of January 1, 2009, Caza will be required to adopt CICA Handbook Section 3064 Goodwill and Intangible Assets which replaces CICA Handbook Sections 3062 Goodwill and Other Intangible Assets and Section 3450 Research and Development Costs. The adoption is not expected to have a material impact on its financial statements.

- The Canadian Accounting Standards Board (AcSB) has confirmed that the use of International Financial Reporting Standards ("IFRS") will be required in 2011 for publicly accountable profit-oriented enterprises. IFRS will replace Canada's current GAAP for those enterprises. These include listed companies and other profit-oriented enterprises that are responsible to large or diverse groups of stakeholders. The official changeover date is for interim and annual financial statements relating to fiscal years beginning on or after Jan. 1, 2011. Companies will be required to provide comparative IFRS information for the previous fiscal year. Caza is currently evaluating the impact of adopting IFRS.

Risks and Uncertainties

For a discussion about risk and uncertainties, please refer to our management's discussion and analysis and Annual Information Form for the year ended December 31, 2007 available at www.sedar.com.

Changes to Internal control over Financial Reporting

There were no changes to Caza's internal control over financial reporting since December 31, 2007, which have materially affected, or are reasonably likely to materially affect Caza's internal control over financial reporting.



Caza Oil & Gas, Inc.
Consolidated Balance Sheets
(Unaudited)

June 30, December 31,
(In United States dollars) 2008 2007
--------------------------------------------------------------------------
Assets

Current
Cash and cash equivalents $ 21,491,713 $ 13,194,589
Accounts receivable 3,741,049 3,270,633
Prepaid and other 174,568 334,516
------------ ------------
25,407,330 16,799,738

Petroleum and equipment (Note 3) 27,307,377 20,353,626
Future income tax asset 850,560 426,082
------------ ------------

$ 53,565,267 $ 37,579,446
------------ ------------

Liabilities

Current
Accounts payable and accrued liabilities $ 5,248,966 $ 6,876,645

Asset retirement obligations (Note 4) 400,350 286,019
------------ ------------
5,649,316 7,162,664

Shareholders' Equity
Share capital (Note 5(b)) 48,396,929 30,810,788
Contributed surplus (Note 5(f)) 3,872,848 2,787,434
Deficit (4,353,826) (3,181,440)
------------ ------------
47,915,951 30,416,782
------------ ------------

$ 53,565,267 $ 37,579,446
------------ ------------

See accompanying notes to the interim consolidated financial statements


Caza Oil & Gas, Inc.
Consolidated Statements of Net Loss and Comprehensive Loss, and Deficit
(Unaudited)

Three months ended Six months ended
(In United June 30, June 30,
States dollars) 2008 2007 2008 2007
--------------------------------------------------------------------------
Revenue
Petroleum and
natural gas $ 1,067,365 $ 266,597 $ 1,796,648 $ 507,160
Interest income
and other income 33,461 133,372 144,913 279,415
--------------------------------------------------

1,100,826 399,969 1,941,561 786,575
--------------------------------------------------

Expenses
Production 134,077 70,772 274,964 113,557
General and
administrative 1,378,990 735,777 2,599,816 1,213,877
Depletion, depreciation,
amortization and
accretion 355,741 63,760 678,242 110,357
--------------------------------------------------

1,868,808 870,309 3,553,022 1,437,791
--------------------------------------------------

Loss before
income taxes (767,982) (470,340) (1,611,461) (651,216)

Income taxes
Current income taxes (17,752) 3,617 (14,597) 3,617
Future income tax
recovery (213,529) (53,900) (424,478) (104,760)
--------------------------------------------------
(231,281) (50,283) (439,075) (101,143)
--------------------------------------------------

Net loss and
comprehensive loss (536,701) (420,057) (1,172,386) (550,073)

Deficit, Beginning
of Period (3,817,125) (1,533,892) (3,181,440) (1,403,876)

--------------------------------------------------

Deficit, End of
Period $(4,353,826) $(1,953,949) $(4,353,826) $(1,953,949)
--------------------------------------------------
--------------------------------------------------

Loss per share
basic and diluted $ (0.01) $ (0.01) $ (0.01) $ (0.01)
--------------------------------------------------
--------------------------------------------------

Weighted average
shares outstanding
basic and diluted (1) 97,723,874 73,000,000 96,772,437 72,914,254
--------------------------------------------------
--------------------------------------------------

(1) The options and warrants have been excluded from the diluted loss
per share computation as they are anti-dilutive.

See accompanying notes to the interim consolidated financial statements


Caza Oil & Gas, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

Three months ended Six months ended
(In United June 30, June 30,
States dollars) 2008 2007 2008 2007
--------------------------------------------------------------------------

CASH FLOWS RELATED TO
THE FOLLOWING ACTIVITIES:
OPERATING
Net loss (536,701) (420,057) (1,172,386) (550,073)

Adjustments for items
not affecting cash:
Depletion, depreciation,
amortization and
accretion 355,741 63,760 678,242 110,357
Stock-based
compensation 67,639 146,411 252,227 240,112
Future income tax
expense (recovery) (213,529) (53,900) (424,478) (104,760)
Asset retirement
obligations settled - - (9,767) -
Changes in non-cash
working capital
(Note 8(a)) (1,913,467) 2,282,578 (296,762) 2,812,168
--------------------------------------------------
Cash flows from
(used in) operating
activities (2,240,317) 2,018,792 (972,924) 2,507,804
--------------------------------------------------

FINANCING
Proceeds from
issuance of shares,
net of issue costs 18,301,741 - 18,301,741 455,900
Changes in non-cash
working capital
(Note 8(a)) 185,550 - (650,898) 29,100
--------------------------------------------------
Cash flows from
financing activities 18,487,291 - 17,650,843 485,000
--------------------------------------------------

INVESTING
Exploration and
development
expenditures (3,177,016) (1,199,440) (7,316,099) (5,078,144)
Purchase of
equipment (60,125) (77,760) (74,209) (372,634)
Changes in non-cash
working capital
(Note 8(a)) (6,188,232) 446,251 (990,487) 880,140
--------------------------------------------------
Cash flows used in
investing activities (9,425,374) (830,949) (8,380,795) (4,570,638)
--------------------------------------------------

INCREASE (DECREASE)
IN CASH AND CASH
EQUIVALENTS 6,821,600 1,187,843 8,297,124 (1,577,834)

CASH AND CASH
EQUIVALENTS,
BEGINNING OF PERIOD 14,670,113 10,931,329 13,194,589 13,697,006
--------------------------------------------------

CASH AND CASH
EQUIVALENTS, END
OF PERIOD 21,491,713 12,119,172 21,491,713 12,119,172
--------------------------------------------------
--------------------------------------------------

See accompanying notes to the interim consolidated financial statements


1. Basis of Presentation

Caza Oil & Gas, Inc. ("Caza" or the "Company") was incorporated under the laws of British Columbia on June 9, 2006 for the purposes of acquiring shares of Caza Petroleum, Inc. ("Caza Petroleum"). The Company and its subsidiaries are engaged in the exploration for and the development, production and acquisition of, petroleum and natural gas reserves. The Company's shares are listed for trading on the TSX and AIM stock exchanges.

The interim unaudited consolidated financial statements of Caza have been prepared by management, in accordance with Canadian generally accepted accounting principles. The preparation of financial statements in conformity with Canadian generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the interim consolidated financial statements and accompanying notes. Actual results could differ from those estimates. The interim consolidated financial statements have, in management's opinion, been properly prepared using careful judgment with reasonable limits of materiality. These interim consolidated financial statements do not include all the note disclosures required for annual financial statements and therefore they should be read in conjunction with the Company's audited consolidated financial statements for the year ended December 31, 2007. The interim consolidated financial statements have been prepared following the same significant accounting policies as the most recently reported audited consolidated financial statements of Caza except as disclosed in Note 2.

Caza's reporting and measurement currency is the United States ("US") dollar as the majority of its transactions are denominated in the currency.

2. Changes in Significant Accounting Policies

The Canadian Institute of Chartered Accountants ("CICA") issued the following new Handbook Sections, which were effective for interim periods beginning on or after January 1, 2008.

(a) Section 3862, "Financial Instruments - Disclosures", describes the required disclosure for the assessment of the significance of financial instruments for an entity's financial position and performance and of the nature and extent of risks arising from financial instruments to which the entity is exposed and how the entity manages those risks. This section and Section 3863, "Financial Instruments - Presentation" replaced Section 3861, "Financial Instruments - Disclosure and Presentation". The adoption of this section did not have a material impact on the Company's results of operations and cash flows.

(b) Section 3863, "Financial Instruments - Presentation", establishes standards for presentation of financial instruments and non-financial derivatives. The adoption of this section did not have a material impact on the Company's results of operations and cash flows.

(c) Section 1535, "Capital Disclosures", establishes standards for disclosing information about an entity's capital and how it is managed. It describes the disclosure requirements of the entity's objectives, policies and processes for managing capital, the quantitative data relating to what the entity regards as capital, whether the entity has complied with capital requirements, and, if it has not complied, the consequences of such non-compliance. The adoption of this section did not have a material impact on the Company's results of operations and cash flows.

(d) The CICA has amended Section 1400, "General Standards of Financial Statement Presentation", which is effective for interim periods beginning on or after January 1, 2008, to include requirements to assess and disclose the Company's ability to continue as a going concern. The adoption of this new section did not have an impact on the consolidated financial statements.

(e) In addition, the Company has assessed new and revised accounting pronouncements that have been issued that are not yet effective and determined that the following may have a significant impact on the Company:

- As of January 1, 2009, Caza will be required to adopt CICA Handbook Section 3064 Goodwill and Intangible Assets which replaces CICA Handbook Sections 3062 Goodwill and Other Intangible Assets and Section 3450 Research and Development Costs. The adoption is not expected to have a material impact on its consolidated financial statements.

- The Canadian Accounting Standards Board (AcSB) has confirmed that the use of International Financial Reporting Standards ("IFRS") will be required in 2011 for publicly accountable profit-oriented enterprises. IFRS will replace Canada's current GAAP for those enterprises. These include listed companies and other profit-oriented enterprises that are responsible to large or diverse groups of stakeholders. The official changeover date is for interim and annual financial statements relating to fiscal years beginning on or after January 1, 2011. Companies will be required to provide comparative IFRS information for the previous fiscal year. Caza is currently evaluating the impact of adopting IFRS.

3. Petroleum and Equipment



---------------------------------------------------------------------
June 30, 2008 December 31, 2007
---------------------------------------------------------------------
Accumu- Accumu-
lated lated
depletion depletion
and Net and Net
deprecia- Book deprecia- Book
Cost tion Value Cost tion Value
---------------------------------------------------------------------

Petroleum
and
natural
gas
proper-
ties
and
equip-
ment $28,639,597 $1,813,166 $26,826,431 $21,088,518 $1,200,899 $19,887,619

Office
equipment
and
furni-
ture $ 670,763 $ 189,817 $ 480,946 $ 596,554 $ 130,547 $ 466,007
---------------------------------------------------------------------

$29,310,360 $2,002,983 $27,307,377 $21,685,072 $1,331,446 $20,353,626
---------------------------------------------------------------------


At June 30, 2008 the cost of petroleum and natural gas properties includes $11,759,027 (December 31, 2007 - $8,132,952) relating to unproven properties which have been excluded from costs subject to depletion and depreciation. No events or circumstances suggest that the undeveloped properties, and all associated costs are impaired at June 30, 2008. Future development costs of proved undeveloped reserves of $1,536,300 were included in the depletion calculation.

During the three and six month periods ended June 30, 2008, the Company has capitalized $259,804 and $603,947 of general and administrative expenses, respectively (three and six month periods ended June 30, 2007- $344,091 and $614,981) relating to exploration and development activities of which $50,238 and $117,587 related to stock based compensation for the respective three and six month periods ended June 30, 2008.

4. Asset Retirement Obligations

The following table presents the reconciliation of the beginning and ending aggregate carrying amount of the obligation associated with the retirement of oil and gas properties:



June 30, December 31,
2008 2007
------------- -------------
Asset retirement obligation,
beginning of period $ 286,019 $ 55,706
Obligations incurred 116,968 89,479
Accretion expense 7,130 3,343
Obligations settled (9,767) -
Change in estimates - 137,491
------------- -------------
Asset retirement obligation,
end of period $ 400,350 $ 286,019
------------- -------------


The undiscounted amount of cash flows, required over the estimated reserve life of the underlying assets, to settle the obligation, adjusted for inflation, is estimated for the period ended June 30, 2008 - $583,518 (December 31, 2007 - $397,700). The obligation was calculated using a credit-adjusted risk free discount rate of 6 percent and an inflation rate of 3 percent. It is expected that this obligation will be funded from general Company resources at the time the costs are incurred with the majority of costs expected to occur between 2010 and 2041.

5. Share Capital

(a) Authorized

Unlimited number of voting common shares.

(b) Issued



June 30, 2008 December 31, 2007
Shares Amounts Shares Amounts

Opening balance
common shares 69,319,000 $ 25,037,117 44,030,000 $ 13,478,258
2nd Over-allotment
closing - - 970,000 344,699
Exercise of
exchangeable rights - - 1,498,000 51,921
Entitlement shares - - 3,442,000 -
Entitlement shares - - 558,000 -
IPO shares - - 18,821,000 11,162,239
Private placement (i) 43,290,392 18,301,741 - -
--------------------------------------------------------------------------
Balance end of period 112,609,392 43,338,858 69,319,000 $ 25,037,117
--------------------------------------------------------------------------

Opening balance
exchangeable rights 26,502,000 918,571 28,000,000 970,492
Rights exercised
March 8, 2007 - - (1,103,200) (38,237)
Rights exercised
April 20, 2007 - - (394,800) (13,684)
--------------------------------------------------------------------------
Balance end of period 26,502,000 918,571 26,502,000 918,571
--------------------------------------------------------------------------

Opening balance
warrants 25,100,000 4,855,100 21,856,800 4,474,399
2nd Over-allotment
warrants - - 485,000 104,275
2nd Over-allotment
broker warrants - - 58,200 6,926
Entitlement warrants
September 22, 2007 - - 1,721,000 -
Entitlement warrants
November 21, 2007 - - 279,000 -
IPO broker warrants - - 700,000 269,500
Expired broker warrants
March 22, 2008
(Note 5 (c)) (2,400,000) (285,600) - -
Surrendered warrants
May 21, 2008 (ii) (2,200,000) (430,000)
--------------------------------------------------------------------------
Balance end of period 20,500,000 4,139,500 25,100,000 4,855,100
--------------------------------------------------------------------------

$ 48,396,929 $ 30,810,788
--------------------------------------------------------------------------

(i) In June 2008, the Company completed a 43,290,392 common share private
placement at $0.46 (23 pence per common share). Pursuant to the
private placement, the Company incurred $1,478,544 of share issue
costs.

(ii) On May 21, 2008 2,200,000 warrants were surrendered.


(c) Broker warrants

The following table summarizes the broker warrants outstanding as at June 30, 2008 and December 31, 2007 and changes during the respective periods ended on those dates is presented below. In connection with initial public offering completed on December 12, 2007, Caza issued 700,000 broker warrants to the selling agents as partial consideration for their services. Each broker warrant entitles the holder to purchase one common share at a price of CDN $0.80 per share, approximately $0.79 per share, until December 12, 2009.



June 30, 2008 December 31, 2007
Weighted Weighted
Number average Number average
of Exercise of exercise
Broker Warrants warrants price warrants price
---------------------------------------------------------------------------
Beginning of period 3,100,000 $0.57 2,341,800 $0.50
Granted - - 758,200 $0.77
Exercised - - - -
Expired (2,400,000) $0.50 - -
-----------------------------------------------
End of period 700,000 $0.79 3,100,000 $0.57
-----------------------------------------------
-----------------------------------------------


(d) Stock options



June 30, 2008 December 31, 2007
Weighted Weighted
Number average Number average
of Exercise of exercise
Stock Options options price options price
---------------------------------------------------------------------------
Beginning of period 6,605,000 $0.62 - -
Granted 500,000 0.59 6,605,000 $0.62
Exercised - - - -
Forfeited (766,667) 0.50 - -
-----------------------------------------------
End of period 6,338,333 $0.61 6,605,000 $0.62
-----------------------------------------------
Exercisable, end of period 1,321,666 $0.50 1,108,333 $0.50
-----------------------------------------------
-----------------------------------------------


Weighted
Average
Remain- Number
ing Exercis-
Number Contract- able
Outstand- Exercise ual June 30,
Date of Grant ing Price Life Date of Expiry 2008
--------------------------------------------------------------------------
January 31,
2007 3,125,000 0.50 8.59 January 31, 2017 1,108,333
February 5,
2007 133,333 0.50 8.60 February 5, 2017 133,333
May 10, 2007 220,000 0.50 8.85 May 10, 2017 73,333
June 11, 2007 20,000 0.50 8.95 June 11, 2017 6,667
December 12,
2007 2,340,000 0.79 9.45 December 12, 2017 -
April 7, 2008 500,000 0.59 9.77 April 7, 2018 -
--------------------------------------------------------------------------
6,338,333 8.65 1,321,666
--------------------------------------------------------------------------


On April 7, 2008, 500,000 options were granted at a fair value of $0.34 per option. The fair value of these options were determined using the same assumptions as disclosed in December 31, 2007 annual financial statements.

(e) Escrowed securities

In accordance with the policies of the TSX, a total of 20,457,500 common shares owned by management were held pursuant to escrow agreements. In addition 25,200,000 common shares owned by non-management parties have been held pursuant to the escrow agreements. During the period, 6,814,500 management shares and 8,400,000 non-management shares were released from escrow resulting in 13,643,000 management shares and 16,800,000 non-management shares subject to the aforementioned escrow provisions at June 30, 2008. One-half of the escrowed shares remaining in escrow are to be released twelve months after the date of listing on the TSX. All remaining shares then remaining in escrow will be released eighteen months after the date of listing on the TSX.

(f) Contributed surplus

The following table presents the changes in contributed surplus:



June 30, December 31,
2008 2007
--------------------------------------------------------------------------
Balance, beginning of period $ 2,787,434 $ 2,250,000
Expired broker warrants 285,600 -
Surrendered warrants (Note 5(b)(ii)) 430,000
-------------------------------
Stock based compensation 369,814 537,434
--------------------------------------------------------------------------
Balance, end of period $ 3,872,848 $ 2,787,434
--------------------------------------------------------------------------


For the three and six month periods ended June 30, 2008, $134,988 and $252,226 of stock based compensation expense was recognized in the statement of net loss (2007 - $93,701 and $240,112).

6. Related Party Transactions

(a) The Vice President, Exploration of Caza Petroleum, prior to becoming an employee, was a consultant to Caza Petroleum and as a consultant was eligible to receive a 2% carried working interest (subject to proportionate reduction based on the Company's working interest) to casing point in the initial test well in certain prospects. The applicable prospects are the Bongo, Puku, Eland and Sable properties. As a result of these carried working interests, the officer of Caza Petroleum has working interests in certain of these properties and as at June 30, 2008, $16,560 of joint venture receivables are owed to the Company. Since becoming an employee this individual is no longer eligible to participate for additional interests beyond those described.

(b) In February 2008, Caza Petroleum entered into a farmout agreement with Singular Oil & Gas Sands, LLC ("Singular") to participant in the drilling of the Jonell Cerny well in Wharton County, Texas. Under the terms of that agreement, Singular paid 13.33% of the drilling costs through completion of the Jonell Cerny well to earn a 10.00% interest in the property thereafter. This participation was in the normal course of Caza's business and on the same terms and conditions to those of other joint venture partners. Singular owes the Company $72,928 in joint venture partner receivables as at June 30, 2008. Singular is a related party as it is a company under common control with Zoneplan Limited, which is a significant shareholder of Caza.

All related party transactions are in the normal course of operations and have been measured at the agreed to exchange amounts, which is the amount of consideration established and agreed to by the related parties and which is comparable to those negotiated with third parties.

7. Commitments and Contingencies

(a) As of June 30, 2008, the Company is committed under operating leases for its offices and corporate apartment. The Company is committed to the following aggregate minimum lease payments which are shown below:



------------------

2008 103,840
2009 168,720


(b) The Company received $2,564,962 in 2004, 2005 and 2006 under an agreement whereby the funds received are only repayable from production from three wells on the Aldwell Ranch project at a rate of 47.281% of 100% of the revenues until repayment of the project financing and 40.787% of 100% of the revenues thereafter. The repayment obligation ceases upon ninety percent (90%) of the then current estimated recoverable reserves being produced. This has been accounted for as a net profits interest and has reduced the carrying amount of the full cost center.

8. Supplementary Information

(a) net change in non-cash working capital



Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
--------------------------------------------------------------------------
Provided by (used in)
---------------------

Accounts receivable 429,653 (2,787,686) (470,416) (2,230,834)
Prepaid and other 104,332 71,992 159,945 (96,343)
Accounts payable and
accrued liabilities (8,450,134) 5,444,523 (1,627,676) 6,048,585)
------------------------------------------------
(7,916,149) 2,728,829 (1,938,147) 3,721,408
------------------------------------------------

Summary of changes
Operating (1,913,467) 2,282,578 (296,762) 2,812,168
Financing 185,550 - (650,898) 29,100
Investing (6,188,232) 446,251 (990,487) 880,140
------------------------------------------------
(7,916,149) 2,728,829 (1,938,147) 3,721,408
------------------------------------------------


(b) supplementary cash flow information



Three months ended Six months ended
June 30, June 30,
2008 2007 2008 2007
--------------------------------------------------------------------------
Interest paid 1,371 - 3,946 313
Interest received 53,461 133,372 144,913 279,415
Taxes paid - - 3,155 -
--------------------------------------------------------------------------


(c) cash and cash equivalents



As at June 30, December 31,
2008 2007
--------------------------------------------------------------------------
Cash on deposit 4,008,622 4,237,394
Money market instruments 17,483,091 8,957,195
-------------------------------
Cash and cash equivalents 21,491,713 13,194,589
-------------------------------


The money market instruments bear interest at a rate of 2.49% as at June 30, 2008 (December 31, 2007 - 4.82%).

9. Capital Risk Management

The Company's objectives when managing capital is to safeguard the entity's ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefits for other stakeholders. The Company defines capital as shareholder equity, working capital and credit facilities when available. The Company manages the capital structure and makes adjustments to it in light of changes in economic conditions and the risk characteristics of the underlying assets. The Company's objective is met by retaining adequate equity and working capital to provide for the possibility that cash flows from assets will not be sufficient to meet future cash flow requirements. The Board of Directors does not establish quantitative return on capital criteria for management; but rather promotes year over year sustainable profitable growth. There have been no changes from the previous period.

10. Financial Instruments

The Company holds various forms of financial instruments. The nature of these instruments and the Company's operations expose the Company to commodity price, credit, and foreign exchange risks. The Company manages its exposure to these risks by operating in a manner that minimizes its exposure to the extent practical.

(a) Commodity price risk

The Company is subject to commodity price risk for the sale of natural gas. The Company may enter into contracts for risk management purposes only, in order to protect a portion of its future cash flow from the volatility of natural gas and natural gas liquids commodity prices. To date the Company has not entered into any forward commodity contracts.

(b) Credit Risk

Credit risk arises when a failure by counter parties to discharge their obligations could reduce the amount of future cash inflows from financial assets on hand at the balance sheet date. A majority of the Company's financial assets at the balance sheet date arise from natural gas liquids and natural gas sales and the Company's accounts receivable that are with these customers and joint venture participants in the oil and natural gas industry. Industry standard dictates that commodity sales are settled on the 25th day of the month following the month of production. The Company's natural gas and condensate production is sold to large marketing companies. Typically, the Company's maximum credit exposure to customers is revenue from two months of sales. During the period the ended June 30, 2008, the Company sold 97.95% (June 30, 2007 - 93.25%) of its natural gas and condensates to a single purchaser. These sales were conducted on transaction terms that are typical for the sale of natural gas and condensates in the United States. In addition, when joint operations are conducted on behalf of a joint venture partner relating to capital expenditures, costs of such operations are paid for in advance to the Company by way of a cash call by the partner of the operation being conducted.

Caza management assesses quarterly if there should be any impairment of the financial assets of the Company. At June 30, 2008, the Company had overdue accounts receivable from certain joint interest partners of $103,277 which were outstanding for greater than 60 days and $621,520 that were outstanding for greater than 90 days. During the three month period ended June 30, 2008, there was no impairment required on any of the financial assets of the Company. At June 30, 2008, the Company's two largest joint venture partners both represented approximately 5% of the Company's receivable balance respectively (December 31, 2007 - 26% and 11% respectively). The maximum exposure to credit risk is represented by the carrying amount on the balance sheet of cash and cash equivalents and accounts receivable.

(c) Foreign Currency Exchange Risk

The Company is exposed to foreign currency exchange fluctuations, as certain general and administrative expenses are or will be denominated in Canadian dollars and United Kingdom pounds sterling. The Company's sales of oil and natural gas are all transacted in US dollars. At June 30, 2008, the Company considers this risk to be relatively limited and not material; therefore it does not hedge its foreign exchange risk.

(d) Fair Value of Financial Instruments

The Company has determined that the fair values of the financial instruments consisting of cash and cash equivalents, accounts receivable and accounts payable are not materially different from the carrying values of such instruments reported on the balance sheet due to their short-term nature.

All financial assets except for cash and cash equivalents which are classified as held for trading, are classified as either loans or receivables and are accounted for on an amortized cost basis. All financial liabilities are classified as other liabilities. There are no financial assets on the balance sheet that have been designated as held-for-trading or available-for-sale. There have been no changes to the aforementioned classifications in the respective three and six month periods ended June 30, 2008.

(e) Liquidity Risk

Liquidity risk includes the risk that, as a result of our operational liquidity requirements:

- The Company will not have sufficient funds to settle a transaction on the due date;

- The Company will be forced to sell financial assets at a value which is less than what they are worth; or

- The Company may be unable to settle or recover a financial asset at all.

The Company's operating cash requirements including amounts projected to complete the Company's existing capital expenditure program are continuously monitored and adjusted as input variables change. These variables include but are not limited to, natural gas production from existing wells, results from new wells drilled, commodity prices, cost overruns on capital projects and regulations relating to prices, taxes, royalties, land tenure, allowable production and availability of markets. As these variables change, liquidity risks may necessitate the Company to conduct equity issues or obtain project debt financing. The Company also mitigates liquidity risk by maintaining an insurance program to minimize exposure to insurable losses. The financial liabilities as at June 30, 2008 that are subject to liquidity risk are accounts payable and accrued liabilities. The contractual maturity of these financial liabilities is generally the following sixty days from the receipt of the invoices for goods of services and can be up to the following next six months. Management believes that the Company's current working capital will be adequate to support these financial liabilities.

11. Subsequent Event

On June 27, 2008 the Company completed a private placement of 43,290,392 shares at a price of 23 pence per unit, or approximately $0.46. Funds in the amount of $18,301,741 net of closing costs of $1,478,544 were received in June, 2008. On July 3, 2008 the Company completed a private placement of 6,709,608 shares at a price of 23 pence per unit, or approximately $0.46, in the amount of $3,084,668.

Contact Information

  • Caza Oil & Gas, Inc.
    John McGoldrick
    Executive Chairman
    (281) 363-4442
    Website: www.cazapetro.com
    or
    Noble & Company Limited
    Nick Naylor / Jamie Boyd
    Nominated Adviser
    +44 (0) 20 7763 2200
    or
    Aquila Financial Ltd.
    Peter Reilly
    Financial Public Relations Advisers
    +44 (0)118 979 4100