What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-16 compared with 2021-11-15 · 172 added, 167 removed, 8 unchanged (98% of the section changed)

DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

TO ALL PERIODS

OF OPERATIONS

Company’s primary business is the exploration and development of oil and natural gas interests.

The Company has incurred significant

losses from operations, and there is no assurance that it will achieve profitability or obtain the funds necessary to finance its operations.

For all periods presented, the Company’s effective tax rate is 0%.

The Company has generated net operating losses since inception, which

would normally reflect a tax benefit in the condensed consolidated statement of operations and a deferred asset on the condensed consolidated

balance sheet.

However, because of the current uncertainty as to the Company’s ability to achieve profitability, a valuation reserve

has been established that offsets the amount of any tax benefit available for each period presented in the condensed consolidated statements

of operations.

following table sets forth a summary of our production and operating data for the three-and nine-month periods ended September 30, 2021

Because of normal production declines, increased or decreased drilling activities, fluctuations in commodity prices and the

effects of acquisitions or divestitures, the historical information presented below should not be interpreted as being indicative of

future results.

FORWARD-LOOKING INFORMATION

This Quarterly Report on Form 10-Q, including

this section, includes certain statements that may be deemed "forward-looking statements" within the meaning of federal

securities laws.

All statements, other than statements of historical facts, which address activities, events, or developments that

the Company expects, believes or anticipates will or may occur in the future, including future sources of financing and other

possible business developments, are forward-looking statements.

Such statements are subject to a number of assumptions, risks and

uncertainties and could be affected by a number of distinct factors, including the Company's failure to secure short and long-term

financing necessary to sustain and grow its operations, increased competition, changes in the markets in which the Company

participates and the technology utilized by the Company and new legislation regarding environmental matters.

These risks and other

risks that could affect the Company's business are more fully described in reports the Company files with the SEC, including its

Annual Report on Form 10-K for the year ended December 31, 2021.

Actual results may vary materially from the forward-looking

The Company undertakes no duty to update any of the forward-looking statements in this Form 10-Q.

The Company’s primary business is the exploration

and development of oil and natural gas interests.

The Company has incurred significant losses from operations, and there is no assurance

that it will achieve sustained profitability or obtain the funds necessary to finance its operations.

For all periods presented, the Company’s

effective tax rate is 0%.

The Company has generated net operating losses since inception, which would normally reflect a tax benefit in

the condensed consolidated statement of operations and a deferred asset on the condensed consolidated balance sheet.

However, because

of the current uncertainty as to the Company’s ability to achieve sustained profitability, a valuation reserve has been established

that offsets the amount of any tax benefit available for each period presented in the condensed consolidated statements of operations.

Critical Accounting

The preparation of financial statements

in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to use our

judgment to make estimates and assumptions that affect certain amounts reported in our financial statements.

As additional information

becomes available, these estimates and assumptions are subject to change and thus impact amounts reported in the future.

Critical accounting

policies are those accounting policies that involve judgment and uncertainties affecting the application of those policies and the likelihood

that materially different amounts would be reported under different conditions or using differing assumptions.

We periodically update

our estimates used in the preparation of the financial statements based on our latest assessment of the current and projected business

and general economic environment.

There have been no significant changes to our critical accounting policies during the three months ended March

Production and Operating Data

The following table sets forth a summary of our production

and operating data for the three-month periods ended March 31, 2022 and 2021.

Because of normal production declines, increased or decreased

production due to future acquisitions, divestitures, and development, fluctuations in commodity prices and the effects of acquisitions

or divestitures, the historical information presented below should not be interpreted as being indicative of future results.

Three Months Ended

September 30,

March 31, 2022

Three Months Ended

March 31, 2021

Production and operating data:

Net production volumes:

Oil (Bbl) (a)

Natural gas (Mcf) (b)

Natural gas liquids (Gal) (c)

Total (Boe) (d)

Natural gas (Mcf)

Natural gas liquids (gal)

Average price per unit:

Oil (Bbl) (a)

Natural gas (Mcf) (b)

Natural gas liquids (Gal) (c)

Total (Boe) (d)

(a) Bbl - One

stock tank barrel, of 42 U.S.

gallons liquid volume, used herein in reference to oil, condensate, or natural gas liquids.

One thousand cubic feet of natural gas

One gallon of natural gas liquid

One barrel of oil equivalent, a standard convention used to express oil and natural gas volumes on a comparable oil equivalent basis.

Natural gas equivalents are determined under the relative energy content method by using the ratio of 6.0 Mcf of natural gas to 1.0 Bbl

of oil or condensate.

Three months ended

September 30,

Natural gas (a)

Natural gas liquids

Operating costs and expenses per Boe:

Oil and natural gas production

Production taxes

Production and ad valorem taxes

Depreciation, depletion, amortization and accretion

Impairment of oil and natural gas properties

General and administrative

PERIOD ENDED SEPTEMBER 30, 2021 COMPARED TO THREE-MONTH PERIOD ENDED SEPTEMBER 30, 2020.

the three months ended September 30, 2021 and 2020, revenues from oil, natural gas, and other products sales were $10,127,933 and $1,645,403

respectively.

In 2020, due to COVID and other economic factors, prices of oil and natural gas declined, resulting in the Company

reducing volumes produced.

In 2021, the Company included revenue from the XTO properties for a portion of the period, which were not

owned in 2020.

expenses, production taxes, depreciation and depletion and amortization and accretion increased to $5,881,971 cumulatively for the three

months ended September 30, 2021 from $1,905,055 for the same period in 2020.

The increase was primarily due to increased production attributable

to the addition of the XTO properties for a portion of the period in 2021.

Net realized and unrealized gain (loss) on derivatives decreased to $(32,271)

for the three months ended September 30, 2021, from $(103,166) in the same period 2020 due primarily to the timing and type of contracts

in existence at each quarter-end.

General and administrative expenses increased by

$635,659 to $1,914,326 for the three months ended September 30, 2021, from $1,278,667 for the same period in 2020.

The increase was primarily

due to an increased number of employees and related to the XTO asset acquisition in 2021 and professional fees incurred as a result of

filings in the third quarter.

Interest expense was $4,467,679 and $124,887 for

the three months ended September 30, 2021 and 2020, respectively.

The increase in interest expense of $4,342,792 resulted from interest

and amortization of debt issue costs for the convertible notes issued in 2021.

For the reasons discussed above, the previous period net loss increased

by $2,084,853 from $(1,641,372) for the three months ended September 30, 2020 to net loss of $(3,726,225) for the three months ended September

PERIOD ENDED SEPTEMBER 30, 2021 COMPARED TO NINE-MONTH PERIOD ENDED SEPTEMBER 30, 2020

the nine months ended September 30, 2021 and 2020, revenues from oil, natural gas, and other products sales were $17,485,855 and $3,954,332

respectively.

In the second quarter of 2020, due to COVID and other economic factors, prices of oil and natural gas declined, resulting

in the Company reducing volumes produced.

In 2021, the Company included revenue from the XTO properties for the period from close (May

2021) through September 30, 2021and the Pardus assets for all of 2021 which were only owned for a portion of the 2020 period.

expenses, production taxes, depreciation and depletion and amortization and accretion increased to $11,501,919 for the nine months ended

September 30, 2021 from $5,349,655 for the same period in 2020.

The increase was primarily due to increased production attributable to

the XTO properties for the period from close (May 2021) through September 30, 2021and the Pardus assets for all of 2021 which were only

owned for a portion of the 2020 period.

of oil and natural gas properties expense decreased to $-0- for the nine months ended September 30, 2021 from $800,452 for the same period

This change was primarily attributable to the change in market prices for oil and natural gas in 2021.

on derivatives increased to $(572,220) for the nine months ended September 30, 2021, from a gain of $2,003,505 in the same period 2020

due to an increase in oil prices since the agreements were entered into, the types of contracts in existence at each period-end, and

the time to the date of maturity or the balance sheet date.

General and administrative expenses increased by

$2,318,418 to $6,040,475 for the nine months ended September 30, 2021, from $3,722,057 for the same period in 2020.

The increase was

primarily due to an increased number of employees and professional fees related to the XTO asset acquisitions in 2021 and the $989,115

“right to buy” expense in conjunction with the issuance of the unsecured convertible notes.

In 2020, expenses included the

$725,000 allowance for the acquisition deposit on the Ovintiv properties.

Interest expense was $7,373,113 and $380,975 for

the nine months ended September 30, 2021 and 2020, respectively.

The increase in interest expense of $6,992,138 resulted primarily from

interest and amortization of debt issue costs for the convertible notes in 2021.

For the reasons discussed above, the previous period

net loss increased by $6,968,825 from $(3,026,542) for the nine months ended September 30, 2020 to net loss of $(9,995,367) for the nine

months ended September 30, 2021.

AND CAPITAL RESOURCES

Company’s primary sources of short-term liquidity are cash and cash equivalents, net cash provided by operating activities, and

issuance of debt and equity securities.

The Company’s short- and long-term liquidity requirements consist primarily of capital

expenditures, acquisitions of oil and natural gas properties, payments of contractual obligations, and working capital obligations.

for these requirements may be provided by any combination of the Company’s sources of liquidity.

Although the Company expects that

its sources of funding will be adequate to fund its 2021 liquidity requirements, no assurance can be given that such funding sources

will be adequate to meet the Company’s future needs.

the nine months ended September 31, 2021, the Company enhanced its liquidity position by modifying its senior secured notes and extending

the maturity of these notes to June 30, 2023, with the combined objective of increasing liquidity, extending the Company’s debt

maturities, and lowering the Company’s future cash interest expense on long-term debt.

Notes 5, 6 and 9 to the financial statements for information regarding the purchase and development agreements the Company entered into

in 2020 and 2021 to purchase and develop existing oil and natural gas properties and mineral interests.

The Company is also actively

pursuing the acquisition of other operated and non-operated oil and natural gas properties.

It is anticipated that such acquisitions

will be financed through equity or debt transactions.

Lower oil and natural gas prices present

challenges to our industry and our Company.

The economic impact of the COVID-19 pandemic has caused oil price volatility in 2020.

first three quarters of 2020, gains on settled derivatives offset a substantial portion of the impact of the recent decline in prices

and slower production, and we currently have derivative positions in place for a portion of our expected remaining 2021 production.

and gas prices have improved in 2021;

there can be no assurance that these higher prices will remain at current levels in the future.

There can be no assurance that we will be able to add derivative positions to cover the remainder

of our expected production at favorable prices .

Impact of COVID-19 on Our Business

2020, there was a global outbreak of COVID-19 which has resulted in changes in global supply and demand of certain mineral and energy

transportation, manufacturing and general economic activity levels prompted by COVID-19 and related governmental and societal actions

reduced the demand for oil-based products such as gasoline, jet fuel and other refined products, which prompted purchasers of oil and

condensate to reduce purchase levels.

These situations led to production greater than storage capacity at certain points during the year.

To the extent that this decreased demand for our commodities continues and our margins are not at acceptable levels or storage for our

production is not available, we may have to reduce production from or completely shut-in portions of our currently producing wells.

inability to sell our production or the decision to potentially reduce or shut in our production could materially and adversely affect

our operating results and our ability to comply with the financial covenants under our Credit Facility.

is uncertainty around the continuing extent and duration of the disruption.

The degree to which the COVID-19 pandemic or any other public

health crisis adversely impacts our results will depend on future developments, which are highly uncertain and cannot be predicted, including,

but not limited to, the duration and spread of the outbreak, its severity, the actions to contain the virus or treat its impact, its

impact on the economy and market conditions, and how quickly and to what extent normal economic and operating conditions can resume.

Therefore, while we expect this matter will likely continue to disrupt our operations, the degree of the adverse financial impact cannot

be reasonably estimated at this time

FORWARD-LOOKING

Quarterly Report on Form 10-Q, including this section, includes certain statements that may be deemed "forward-looking statements"

within the meaning of federal securities laws.

All statements, other than statements of historical facts, which address activities, events,

or developments that the Company expects, believes or anticipates will or may occur in the future, including future sources of financing

and other possible business developments, are forward-looking statements.

Such statements are subject to a number of assumptions, risks

and uncertainties and could be affected by a number of distinct factors, including the Company’s failure to secure short and long-term

financing necessary to sustain and grow its operations, increased competition, changes in the markets in which the Company participates

and the technology utilized by the Company and new legislation regarding environmental matters.

These risks and other risks that could

affect the Company’s business are more fully described in reports the Company files with the SEC, including its Form 10-K for the year

ended December 31, 2020.

Actual results may vary materially from the forward-looking statements.

Company undertakes no duty to update any of the forward-looking statements in this Form 10-Q.

The Company has incurred significant losses from

operations and there is no assurance that it will achieve profitability or obtain the funds necessary to finance continued operations.

Related Party Shareholder Concentration

Certain material related party transactions have

resulted in concentrated ownership of the Company and could impact future operations.

Green Tree New Mexico Spin-off

One such instance of a potential future impact relates

to the Company’s best efforts to spin-off to stockholders Green Tree New Mexico on or before December 31, 2022 (See Note 9).

is unknown how this would affect the Company’s liquidity should such a spin-off occur.

For other material risks, see the Company's Form 10-K for the year ended

December 31, 2020, which was filed on March 31, 2021.

AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

General & administrative

(a) Includes the effect of net cash receipts (payments on) derivatives, as applicable contracts are in

Bbl – One stock tank barrel, of 42 U.S.

liquid volume, used herein in reference to oil, condensate, or natural gas liquids.

Mcf – One thousand

cubic feet of natural gas

– One gallon of natural gas liquid

Boe – One barrel of oil equivalent, a standard convention

used to express oil and natural gas volumes on a comparable oil equivalent basis.

Natural gas equivalents are determined under the relative

energy content method by using the ratio of 6.0 Mcf of natural gas to 1.0 Bbl of oil or condensate.

* Prior to the acquisition of the New Mexico properties,

natural gas liquids production was minimal and included as a component of natural gas on the financial statements.

Results of Operations

The following table reflects our summary operating

Because of normal production declines, increased or decreased drilling activity and the effects of acquisitions, the historical

information presented below should not be interpreted as indicative of future results.

Three Months Ended March 31,

Natural gas revenues

Total revenues from product sales

Lease operating expense

Production and ad valorem taxes

Depreciation, depletion, amortization and accretion

General and administrative expense (excluding stock-based compensation)

Stock-based compensation

Interest expense

Operating Income (Loss)

Net Income (Loss)

Revenues increased as a result of more volumes produced

from legacy assets due to successful execution of the Company’s mission to cost-effectively produce more volumes paired with the

XTO acquisition’s revenues and volumes brought online from efforts to make the field produce more volumes combined with favorable

pricing environments in the Company’s core operating areas.

Approximately $5.7 million in oil revenues, $740,000 in gas revenue,

and $1.6 million in NGL revenue was attributed to production acquired with the XTO acquisition in the current quarter for a total revenue

impact of the XTO assets of approximately $8.1 million of the total revenue variance between periods.

Lease Operating Expense and Taxes

Lease operating expense rose with the XTO acquisition

and in response to the Company’s execution of its mission to increase production in its legacy assets.

The Company has worked to

cost-effectively increase production throughout its asset base utilizing experienced personnel and third-party service providers.

and ad valorem taxes have increased as a direct result of the XTO acquisition’s properties and increased volumes produced and sold.

The acquisition of New Mexico assets accounted for approximately $2.7 million of the increase in lease operating expenses and $655,000

of the increase in production and ad valorem taxes.

Depreciation, Depletion, Amortization and Accretion

and Impairment

There were no indicators of impairment on the Company’s

properties at period-end.

The addition of PDP reserves and producing volumes in New Mexico served as the primary driver of the change

in this line item period over period.

General and Administrative Expense

The Company’s headcount increased as a result

of the New Mexico acquisition, including administrative personnel.

Increase in salaries period-over-period was approximately $170,000.

Addition of the New Mexico assets resulted in additional costs for accounting and other professional services of approximately $300,000.

The Company also accrued for a loss contingency related to a Texas sales tax audit for which the initial assessment was received in April

The Company accrued $650,000 related to that contingency based on currently available information.

The Company intends to seek redetermination

of this assessment.

The final payment related to this sales tax audit may be more or less than the accrued amount.

The Company utilizes stock-based compensation to

compensate members of management and retain talented personnel.

The Company anticipates stock-based compensation to continue to be utilized

in 2022 and beyond to attract and retain talented personnel.

Interest Expense

Cash-based interest expense declined with a

corresponding decrease in the Company’s Credit Facility.

As of March 31, 2022, the Company had approximately

$5.4 million cash on hand and approximately $300,000 available on its Credit Facility.

The Company expects to incur costs related

to future oil and natural gas acquisitions for the foreseeable future.

It is expected that management will use a combination of

cash flows from operations as well as seeking additional debt and equity funding for these acquisitions and to fund ongoing operations.

Working Capital

Working capital (presented below) was approximately

$4.7 million as of March 31, 2022 compared to approximately $1.1 million as of December 31, 2021, resulting in an increase of approximately

$3.7 million.

This change is primarily a result of a consistently strong pricing environment in the first quarter of 2022 that increased

the Company’s cash balance by approximately $1.7 million.

Drilling on the four non-operated properties that had begun in the fourth

quarter of 2021 was completed in early 2022, which was a primary reason for the decrease in accounts payable of approximately $1.7 million

between period ends.

Current Assets

Current Liabilities

Working Capital

Three Months Ended March 31,

Cash flows provided by (used in):

Operating activities

Investing activities

Financing activities

Cash Flows from Operating Activities

The Company closed on its New Mexico properties in

May 2021 (See Note 4).

These properties significantly increased the volume produced by the Company, and the Company was also able to capitalize

on higher pricing in the first quarter of 2022 compared to that in the first quarter of 2021.

The Company had net income in the first

three months of 2022 compared to the same period in 2021, further increasing cash provided by operating activities compared to the cash

used in operating activities for the same period last year.

Cash Flows from Investing Activities

For the three months ended March 31, 2021, the Company

deposited approximately $1.8 million in an escrow account ahead of the New Mexico acquisition (See Note 4).

This cash outflow was the

primary driver for the net cash used in investing activities in the prior year.

In the current period, there were no similar cash outflows

and additions to oil and natural gas properties was minimal in comparison, totaling approximately $425,000 for the three months ended

March 31, 2022.

Cash Flows from Financing Activities

For the three months ended March 31, 2022, the Company

made principal payments on debt of approximately $460,000 that was offset by approximately $98,000 of cash received for warrant exercises.

During the same period in the prior year, the Company received cash totaling approximately $6.5 million related to stock and warrant issuances

and exercises.

Capital Resources

Capital Expenditures

For the three months ended March 31, 2022, the Company

spent approximately $425,000 on additions to oil and natural gas properties, primarily as a result of non-operated drilling.

anticipates additional capital expenditures in the coming quarters that will be funded with cash flows from operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURES

ABOUT MARKET RISK

Not applicable.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis