Item 2. Management's Discussion and Analysis of Results of Operations and Financial Condition.

The following information is provided in compliance with SEC guidelines to explain financial information shown in the Condensed Financial Statements.

RESULTS OF OPERATIONS

Operating revenues decreased by $1,658,233 (55%) and $4,240,563 (54%) for the three-month and nine-month periods ended September 30, 2009 from the comparable prior year periods primarily as a result of lower oil and gas prices in 2009 as compared to 2008. Production costs decreased by $90,709 (8%) and $346,416 (11%) for the three-month and nine-month periods ended September 30, 2009 as compared to the prior year periods as the Company strived to reduce field expenses where possible.

General and administrative expenses decreased $20,784 (14%) and $58,909 (13%) for the three-month and nine-month periods ended September 30, 2009 as compared to the prior year periods. Interest expense decreased $402 and $1,672 for the three-month and nine-month periods ended September 30, 2009 from the comparable 2008 periods. Depreciation, depletion, and amortization increased by $103,005 (39%) for the nine-month period ended September 30, 2009 from the comparable prior-year period. Depreciation, depletion and amortization varies from period to period because of changes in reserve estimates, changes in quantities of oil and gas produced, changes in price of oil and gas sold, as well as the acquisition, discovery or sale of producing properties. For the three-month and nine-month periods ended September 30, 2009, the Company provided a provision of $10,410 and $10,410 for the impairment of value of oil and gas properties due to less than expected production history of specific wells.

LIQUIDITY AND CAPITAL RESOURCES

During the period ended September 30, 2009, the Company's liquidity remained strong enough to meet its short-term cash needs. The sources of liquidity and capitol resources are generated from cash on hand, cash provided by operations and from credit available from financial institutions. Working capital at September 30, 2009, has increased to 11.52 to 1 from 9.84 to 1 at December 31, 2008. The Company continued its policy of making strategic investments in producing oil and gas properties in the same or similar fields to properties already operated by the Company, which are primarily financed with short term notes payable and cash from operations. Cash flow from operations was $132,964 for the nine months ended September 30, 2009. The Company used $159,481 to invest in oil and gas properties in the first nine months of 2009 as compared to $797,737 in the first nine months of 2008.

The worldwide crude oil prices continue to fluctuate in 2009. The Company cannot predict how prices will vary during the remainder of 2009 and what effect they will ultimately have on the Company, but management believes that the Company will be able to generate sufficient cash from operations to service its bank debt and provide for maintaining current production of its oil and gas properties. Inflation is not anticipated to have a significant impact on the Company's operations.