ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with management's discussion and analysis contained in our 2008 Annual Report on Form 10-K, as well as the financial statements and notes hereto included in this quarterly report on Form 10-Q. The following discussion contains forward-looking statements that involve risks, uncertainties, and assumptions, such as statements of our plans, objectives, expectations, and intentions. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.

Results of Operations

Nine Months Ended September 30, 2009, compared with Nine Months Ended September 30, 2008

Our revenues were significantly reduced for the nine months ended September 30, 2009 compared with the same period in 2008. Our oil wells had a small amount of production during January, 2009, but then went off-line and did not produce during February through June of 2009. We subsequently received notification that the leases were reclaimed by the landowners (see Note 5).

Our lease operating expenses, transportation expenses and production-based taxes are considerably reduced for the nine months ended September 30, 2009 compared with the same period in 2008, because of the lack of production on the Crockett County leases and our subsequent loss of this lease.

General and administrative expenses have increased dramatically. They increased from $175,042 for the nine months ended September 30, 2008 to $284,100, a 62% increase, for the same period in 2009. Most of this increase is a result of an increase in hiring Mr. Newton as our Board Chairman and Chief Executive Officer, from the hiring of a consultant, and from costs associated with statutory compliance and reporting. We did not incur these compliance costs in 2008 because we were not a publicly reporting entity.

Our depreciation, depletion and amortization expenses were also lower since most of those costs are amortized on the unit of production method and have production as their amortization base which was lower.

Interest expense to related parties is increased due to higher debt levels to these related parties than existed during 2008.

Three Months Ended September 30, 2009, compared with Three Months Ended September 30, 2008

Whereas we recorded revenues of $2,057 for the three months ended September 30, 2008, we had no production for the same period in 2009 because of the status of the shut in wells and the subsequent loss of the leases in Crockett County, Texas.

Our lease operating expenses, transportation costs and production taxes are all significantly reduced, owing to the reduced activities in the field and the loss of the Crockett County leases.

General and administrative expenses were significantly higher during the three months ended September 30, 2009, due to public filing and compliance costs, the cost of hiring Mr. Newton as Board Chairman and Chief Executive officer and the hiring of a consultant.

Liquidity and Capital Resources

Our financial statements have been prepared on a going concern basis that contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

Currently, we are not able to maintain our existing operations through the existing cash balances and internally generated cash flows from sales of oil production. Additionally, we have lost the only oil and gas lease providing the Company cash flows from operations. Moreover, we have determined that our existing capital structure is not adequate to fund our planned growth.

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As discussed in Note 10, we entered into a contract to acquire certain oil and gas leases in eastern Kansas. These properties have greatly reduced oil flows in the coldest winter months and typically see production at approximately one third of their production levels in spring, summary and fall. If we close the acquisition in December, we will see the reduced oil flows and little or no additional to cash flows from operations until they wells come back on at their normal production levels. However, once normal production levels resume in the spring, we expect the immediate addition of positive cash flows (before debt service, capital expenditures and corporate expenses) from these properties. We also intend to hedge a portion of the production existing at the time of acquisition in order to raise enough funds to begin an aggressive drilling campaign in Kansas. The credit line which we are currently negotiating, if consummated, will allow us to finance additional reserves as they come on, allowing us to increase the rate at which new wells are drilled. If the properties in Kansas are acquired and the financing is consummated, we expect to drill approximately 400 new wells within five years. If we are successful in this drilling campaign, we expect to reach production levels of approximately 1,200 barrels per day at the end of those five years.

We intend to finance our drilling, work over and acquisition program by bank debt. There can be no assurance that we will be successful in procuring the financing we are seeking. Future cash flows are subject to a number of variables, including the level of production, natural gas prices and successful drilling efforts. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures.

Plan of Operation

Over the next twelve months we intend to develop the following initiatives:

Revenue Generation

We expect that the Kansas oil and gas leases, if acquired and financing is obtained, will initially produce between 135 and 150 barrels per day once normal production levels resume after the coldest winter months which will immediately add positive cash flows from operations to our negative cash flows currently existing due to our corporate costs. We expect that our aggressive drilling program will provide additional cash flows in the future.

There is no guarantee that we can raise the funds to accomplish our production goals or consummate our intended acquisitions, or that the expenditures on our existing leases will produce the increases in production we anticipate.

Drilling and Work-Over Programs

We have identified approximately 600 locations in eastern Kansas on the oil and gas leases that we have under contract. If we close the acquisition and obtain the bank financing, we will plan on drilling approximately 400 of these wells in five years.

Several existing leases exist where production can be enhanced through water-flooding.

We currently do not have adequate cash to undertake these plans. Unless we close our acquisition in Kansas and obtain the required bank financing, we will be unable to execute them.

Financing

We hope to finance our work over, drilling and acquisition programs by a combination of bank financing, owner financing and cash flows from operations.

There is no guarantee that we can raise the required capital to make acquisitions, drill new wells, or repair equipment on any acquired properties, or that undertaking such repairs, acquisitions and drilling program will make us profitable or self-sustaining.