CONDITION AND RESULTS OF OPERATIONS

This Management's Discussion and Analysis of Financial Condition and Results of Operations and other

parts of this quarterly report contain forward-looking statements that involve risks and uncertainties.

Forward-looking statements can also be identified by words such as "anticipates," "expects," "believes,"

"plans," "predicts," and similar terms. Forward-looking statements are not guarantees of future

performance and our actual results may differ significantly from the results discussed in the forward-

looking statements. Factors that might cause such differences include but are not limited to those

discussed in the subsection entitled Forward-Looking Statements and Factors That May Affect Future

Results and Financial Condition below. The following discussion should be read in conjunction with our

financial statements and notes thereto included in this report. Our fiscal year end is December 31. All

information presented herein is based on the three and six month periods ended June 30, 2012.

ALLIED

Allied is an independent oil and natural gas producer involved in the exploration, development,

production and sale of oil and gas derived from properties located in Calhoun and Ritchie Counties, West

Virginia, and Goliad, Edwards and Jackson Counties, Texas.

Discussion and Analysis

General

Allied intends to utilize available cash to acquire additional oil and gas producing properties and to

implement improved production practices on existing wells to increase production and expand reserves

where practicable. Allied believes that it can achieve production growth while expanding reserves through

improved exploitation of its existing inventory of wells by disposing of non-productive wells and

enhancing producing wells. An evaluation for this objective of our existing portfolio of oil and gas

properties is constantly under consideration. Allied also intends to continue to expand non-operated and

initiate operated acquisitions of additional oil or gas producing properties.

Recovery from producing wells is consistently evaluated to consider cost-efficient work-over methods

designed to improve the performance of the wells. When considering the drilling of new wells, we

conduct a geological review of the prospective area, in cooperation with our independent operator, to

determine the potential for oil and gas. Our own consultants then review available geophysical data

(generally seismic and gravity data) opine as to the prospect for success. In the event that our evaluation

of available geophysical data indicates that the target has significant accumulations of oil and gas, we

then consider the economic feasibility of drilling. The presence of oil and gas for any specific target

cannot guarantee economic recovery. Production depends on many factors including drilling and

completion costs, the distance to pipelines and pipeline pressure, current energy prices, accessibility to the

site, and whether the project is developmental or solely a wildcat prospect.

Allied's business development strategy is prone to significant risks and uncertainties, certain of which can

have an immediate impact on its efforts to realize positive net cash flow and deter future prospects of

production growth. Historically Allied has not been able to generate sufficient cash flow from operations

to sustain operations and fund necessary exploration or development costs.
Therefore, there can be no

assurance that the wells currently producing will provide sufficient cash flows to continue to sustain

operations. Should Allied be unable to continue to generate sufficient cash flow from existing properties,

Allied may have to sell certain properties or interests in such properties or seek financing through

alternative sources such as the sale of its common stock.

properties depends primarily upon the prices it receives for oil and natural gas production and the quantity

of that production. Oil and natural gas prices historically have been volatile and are likely to continue to

be volatile in the future. This price volatility can immediately affect Allied's available cash flow which

can in turn impact the availability of net cash flow for future capital expenditures. A drop in oil and

natural gas prices could also incur a write down of the carrying value of our properties as can a decrease

in production. Allied's future success will depend on the level of oil and natural gas prices and the

quantity of its production. Since production leads to the depletion of oil and gas reserves, Allied's ability

to develop or acquire additional economically recoverable oil and gas reserves is vital to its future

success. Unless Allied can obtain additional reserves, current production will decline, which will lead to a

significant reduction in revenue.

West Virginia Well Information

Allied owns varying interests in a total of 145 wells in West Virginia on several leases held by an

independent operator. Some leases contain multiple wells. All the wells in which we have an interest are

situated on developed acreage spread over 3,400 acres in Ritchie and Calhoun Counties. Depth of the

producing intervals varies from 1,730 ft to 5,472 ft. Many of our wells are situated on the same leases and

as such share production equipment in order to minimize lease operating costs.

Our working interest is defined as interest in oil and gas that includes responsibility for all drilling,

developing, and operating costs varying from 18.75% to 75%. Our net revenue interest is defined as that

portion of oil and gas production revenue after deduction of royalties, varying from 15.00% to 65.625%.

Texas Well Information

Allied owns varying interests in a total of 10 wells in Texas on four leases managed by independent

operators and an interest in a pipeline gathering system. All the wells in which we have an interest are

situated on developed acreage spread over 2,510 acres in Goliad, Edwards and Jackson Counties. Depth

of the producing intervals varies from 7,600 ft to 9,600 ft.

Our working interest is defined as interest in oil and gas that includes responsibility for all drilling,

developing, and operating costs varying from 3.73% to 21%. Our net revenue interest is defined as that

portion of oil and gas production revenue after deduction of royalties, varying from 2.68% to 12.75%.

Over the six months ended June 30, 2012 two of our natural gas wells in Edwards County, Texas were

plugged and abandoned due to declining production that resulted in uneconomic commercial recovery

from these wells.

Exploration, Development and Operations

Allied intends to continue to purchase non-operated oil and gas producing properties, acquire oil and gas

leases that it will operate and implement improved production efficiencies on existing wells. Our criteria

for purchasing oil and gas producing properties is defined by short term returns on investment, long term

growth in revenue, and development potential, while our criteria for acquiring oil and gas leases is

predicated on a proven record of historical production and our own capacity to operate any given field.

The decrease in natural gas prices has done little to increase the number of opportunities available to us

due to our relatively limited cash position and the uncertainty associated with natural gas prices in the

future. We do however continue to seek out prospective oil and gas properties that meet our acquisition

criteria for a price that is consistent with competing forecasts for energy prices going forward into an

unsettled market.

shale formations that underlie Allied's oil and gas interests in West Virginia, particularly in Ritchie

County. The Marcellus and Utica shale structures have formed under much of Pennsylvania, Ohio, New

York, West Virginia and adjacent states to become a prospectively major reservoir for natural gas

recovery. Drilling by other operators in Ritchie County has indicated successful rates of recovery and our

own open hole well logs indicate the presence of potentially productive Marcellus shale at a depth of

6,000 feet. However, since exploration of the Marcellus and Utica shale in our area is relatively recent no

natural gas reserves underlying our interests have been determined. Our future plans for exploring the

Marcellus shale are further tempered by the high risk/reward ratio of exploratory drilling in the near term

based on anticipated pricing for natural gas over the next twelve to eighteen months.

Results of Operations

During the period from January 1, 2012 through June 30, 2012, Allied was engaged in evaluating

acquisition opportunities in Yoakum County, Texas, examining the operating efficiencies of existing

wells, overseeing the operation of its oil and gas assets by independent operators and seeking to acquire

oil and gas producing assets. The operation and maintenance of Allied's oil and gas operations is wholly

dependent on the services provided by five different independent operators. While the services provided

by these operators have proven adequate, the fact that Allied is dependent on the operations of third

parties to maintain its operations and produce revenue does impact its own ability to realize a net profit.

For the fiscal quarter ended June 30, 2012 Allied realized a small profit. Allied believes that the

immediate key to its ability to maintain profitability is that oil and gas prices rise and production

increases. Meanwhile, general and administrative expenses and production costs are constantly evaluated

to guard against increases while we continue to seek out revenue producing acquisitions. Should oil and

gas prices rise, production increase and expenses remain relatively consistent, Allied believes that it will

be able to maintain net profits in future periods.

SI X M ONT H S E NDE D J UNE 30

2012

2011

C H A NG E # C H A NG E %

A V E R A G E DA I L Y PR ODUC T I ON

Oil (bbls/day)

120%

Natural gas (mcf/day)

9%

Barrels of oil equivalent (boe/day)

20%

PR OF I T A B I L I T Y

Petroleum and  natural gas revenue

$

289,850   $

270,318

19,532

7%

Net  Revenue

289,850

270,318

19,532

7%

Production and operating costs

162,670

180,483

(17,813)

-10%

Field netback

127,180

89,835

37,345

42%

G&A

129,645

127,378

2,267

2%

Net cash flow from operations

(2,465)

(37,543)

35,078

93%

Depletion, depreciation and other charges

49,091

46,862

2,229

5%

Future income taxes

0%

Net loss from operations

$

(51,556) $

(84,405)

32,849

39%

PR OF I T A B I L I T Y PE R B OE

Oil and gas revenue (average selling price)

26.04

29.28

(3.25)

-11%

Production and operating costs

14.61

19.55

(4,94)

-25%

Field netback ($/boe)

11.42

9.73

1.69

17%

Net loss ($/boe)

(4.63)

(9.14)

4.51

49%

Cash flow from operations ($/boe)

(0.22)

(4.07)

3.85

95%

Revenue for the three month period ended June 30, 2012 increased to $169,142 from $113,130 for the

comparable period ended June 30, 2011, an increase of 50%. Revenue for the six month period ended

June 30, 2012 increased to $289,850 from $270,318 for the six month period ended June 30, 2011. The

revenue increase over the comparable three and six month periods is due to an increase in oil and gas

production despite the decreased prices paid for oil and gas in the current periods. Allied believes that

revenue will decline unless oil production can be increased, either by acquisition or the work-over of

existing wells and natural gas prices rise.

Net Income/Loss

Net income for the three month period ended June 30, 2012 was $2,052 as compared to net losses of

$29,926 for the three month period ended June 30, 2011. Net losses for the six month period ended June

30, 2012 were $48,991 as compared to net losses of $52,589 for the six months period ended June 30,

2011, a decrease of 7%. The transition from net losses to net income in the current three month period can

be wholly attributed to an increase in oil production over that realized in the prior three and six month

periods. Allied expects to maintain net income in future periods subject to oil and gas production and the

constant pricing volatility for these products in the marketplace.

Expenses

General and administrative expenses for the three month period ended June 30, 2012 increased to $57,198

from $56,256 for the comparable three month period ended June 30, 2011, an increase of 2%. General

and administrative services for the six month period ended June 30, 2012 increased to $129,645 from

$127,378 for the comparable six month period ended June 30, 2011. The increase in general

administrative expenses over the comparable three and six month periods can be primarily attributed

increased professional fees. Allied expects that general and administrative expenses will remain relatively

consistent in future periods.

Depletion expenses for the three month periods ended June 30, 2012, and June 30, 2011 were $24,601

and $23,970 respectively. Depletion expenses for the six month periods ended June 30, 2012 and June 30,

2011 were $49,091 and $46,862. Depletion expenses will continue to increase in relation to the aging of

existing oil and gas assets.

Production costs for the three month periods ended June 30, 2012, and June 30, 2011 were $87,018 and

$87,010 respectively. Production costs for the six month periods ended June 30, 2012 were $162,670 and

$180,483 respectively, a decrease of 10%. Production costs include the cost of maintaining the wells,

severance taxes, miscellaneous expenses for soap, solvent, gasoline or electricity and expenses such as

those incurred in swabbing, dozer work or rig time. The decrease in production costs over the current six

month periods can be attributed to decreased work over costs associated with producing wells in the

period. Allied expects that production costs will continue to decrease over future periods as our existing

wells age and energy production drops.

As of December 31, 2011 Allied has a net operating loss (NOL) carry forwards of approximately

$2,219,000. Should substantial changes in our ownership occur there would be an annual limitation of the

amount of NOL carry forward which could be utilized. The ultimate realization of these carry forwards is

due, in part, on the tax law in effect at the time and future events, which cannot be determined. During the

year ended December 31, 2011 a valuation allowance was recorded against this net operating loss carried

forward.

Impact of Inflation

Allied believes that inflation has had an effect on operations over the past three years in connection with

production costs. Allied believes that it can offset inflationary increases in production costs by increasing

revenue and improving operating efficiencies.

Capital Expenditures

Allied made no capital expenditures on property or equipment for the six months ended June 30, 2012 or

2011.

Liquidity and Capital Resources

Allied had a working capital surplus of $1,371,537 as of June 30, 2012 and has funded its cash needs

since inception with revenues generated from operations, debt instruments and private equity placements.

Existing working capital and anticipated cash flow are expected to be sufficient to fund operations over

the next twelve months.

Current assets as of June 30, 2012 were $1,411,266 which consisted of $1,353,351 in cash and $57,915 in

accounts receivable. Total assets were $2,867,620 which consisted of current assets, proven oil and gas

properties of $751,653 and deposits of $704,701.

Current liabilities as of June 30, 2012 were $39,729 which consisted of accounts payable. Total liabilities

were $237,901 which consisted of current liabilities and an asset retirement obligation of $198,172.

Stockholders' equity as of June 30, 2012 was $2,629,719.

Cash flow provided by operations for the six month period ended June 30, 2012 was $57,450 as compared

to cash flow provided by operations of $25,753 for the comparable period six month period ended June

30, 2011. The change in cash flow provided by operations in the current six month period can be

attributed to the increase in depletion and amortization, and the increase in accounts payable offset by the

decrease in accretion expense and the decrease in accounts receivable. Allied expects to realize cash flow

provided by operations as net losses decrease.

Cash flow used in investing activities for the six month periods ended June 30, 2012 and June 30, 2011

was $0. Allied expects to use cash flow in investing activities over future periods as the it evaluates

existing wells, identifies exploration opportunities and considers additional acquisitions.

Cash flow from financing activities for the six month periods ended June 30, 2012 and June 30, 2011 was

$0. Allied does not expect to realize cash flow from financing activities in the near term.

shares of its common stock to employees, directors, officers, consultants or advisors on the terms and

conditions set forth therein. As of June 30, 2012, 600,000 options have been granted of which 480,000

had vested as of June 30, 2011.

Allied has no lines of credit or other bank financing arrangements in place.

Allied had no commitments for future capital expenditures that were material at June 30, 2012.

Allied has no defined benefit plan or contractual commitment with any of its officers or directors except

each members participation in our stock option plan and a consulting agreement with its sole executive

officer that provides for a monthly fee and participation in our stock option plan.

Allied has no current plans for the purchase or sale of any plant or equipment.

Allied has no current plans to make any changes in the number of employees.

Allied does not expect to pay cash dividends in the foreseeable future.

Off Balance Sheet Arrangements

As of June 30, 2012, Allied has no significant off-balance sheet arrangements that have or are reasonably

likely to have a current or future effect on our financial condition, changes in financial condition,

revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that are

material to stockholders.

Forward Looking Statements and Factors That May Affect Future Results and Financial Condition

The statements contained in the section titled Management's Discussion and Analysis of Financial

Condition and Results of Operations, with the exception of historical facts, are forward looking

statements within the meaning of Section 27A of the Securities Act. We are ineligible to rely on the safe-

harbor provision of the Private Litigation Reform Act of 1995 for forward looking statements made in

this current report. Forward looking statements reflect our current expectations and beliefs regarding our

future results of operations, performance, and achievements. These statements are subject to risks and

uncertainties and are based upon assumptions and beliefs that may or may not materialize. These

statements include, but are not limited to, statements concerning:

• our anticipated financial performance and business plan;

• uncertainties related to production volumes of oil and gas;

• the sufficiency of existing capital resources;

• uncertainties related to future oil and gas prices;

• uncertainties related the quantity of our reserves of oil and gas;

• the volatility of the stock market and;

• general economic conditions.

could cause our actual results to differ materially from those discussed or anticipated including the factors

set forth in the section entitled "Risk Factors" included elsewhere in this report. We also wish to advise

readers not to place any undue reliance on the forward looking statements contained in this report, which

reflect our beliefs and expectations only as of the date of this report. We assume no obligation to update

or revise these forward looking statements to reflect new events or circumstances or any changes in our

beliefs or expectations, other that is required by law.

Stock-Based Compensation

Allied has adopted Accounting Standards Codification Topic ("ASC") 718 Share-Based Payment, which

addresses the accounting for stock-based payment transactions in which an enterprise receives employee

services in exchange for (a) equity instruments of the enterprise or (b) liabilities that are based on the fair

value of the enterprise's equity instruments or that may be settled by the issuance of such equity

instruments.

Allied accounts for equity instruments issued in exchange for the receipt of goods or services from other

than employees in accordance with ASC 505. Costs are measured at the estimated fair market value of the

consideration received or the estimated fair value of the equity instruments issued, whichever is more

reliably measurable. The value of equity instruments issued for consideration other than employee

services is determined on the earliest of a performance commitment or completion of performance by the

provider of goods or services.

Critical Accounting Policies and Estimates

Accounting for Oil and Gas Property Costs. Allied (i) follows the successful efforts method of accounting

for the costs of its oil and gas properties, (ii) amortizes such costs using the units of production method

and (iii) evaluates its proven properties for impairment whenever events or changes in circumstances

indicate that their net book value may not be recoverable. Adverse changes in conditions (primarily gas

price declines) could result in permanent write-downs in the carrying value of oil and gas properties as

well as non-cash charges to operations that would not affect cash flows.

Estimates of Proved Oil and Gas Reserves. An independent petroleum engineer annually estimates

Allied's proven reserves. Reserve engineering is a subjective process that is dependent upon the quality of

available data and the interpretation thereof. In addition, subsequent physical and economic factors such

as the results of drilling, testing, production and product prices may justify revision of such estimates.

Therefore, actual quantities, production timing, and the value of reserves may differ substantially from

estimates. A reduction in proved reserves would result in an increase in depreciation, depletion and

amortization expense.

Estimates of Asset Retirement Obligations. In accordance with ASC 410, Allied makes estimates of

future costs and the timing thereof in connection with recording its future obligations to plug and abandon

wells. Estimated abandonment dates will be revised in the future based on changes to related economic

lives, which vary with product prices and production costs. Estimated plugging costs may also be adjusted

to reflect changing industry experience. Increases in operating costs and decreases in product prices

would increase the estimated amount of the obligation and increase depreciation, depletion and

amortization expense. Cash flows would not be affected until costs to plug and abandon were actually

incurred.

In Note 1 to the audited financial statements for the years ended December 31, 2011 and 2010, included

in our Form 10-K, Allied discusses those accounting policies that are considered to be significant in

determining the results of operations and its financial position. Allied believes that the accounting

principles utilized by it conform to accounting principles generally accepted in the United States.

The preparation of financial statements requires Allied's management to make significant estimates and

judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature,

these judgments are subject to an inherent degree of uncertainty. On an on-going basis, Allied evaluates

estimates. Allied bases its estimates on historical experience and other facts and circumstances that are

believed to be reasonable, and the results form the basis for making judgments about the carrying value of

assets and liabilities. The actual results may differ from these estimates under different assumptions or

conditions.

Recent Accounting Pronouncements

In December 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards

Update (ASU) No. 2011-11, "Disclosures about Offsetting Assets and Liabilities", which will require

disclosures for entities with financial instruments and derivatives that are either offset on the balance

sheet in accordance with ASC 210-20-45 or ASC 815-10-45, or are subject to a master netting

arrangement. ASU No. 2011-11 is effective for interim and annual periods beginning on or after January

1, 2013. Allied is currently evaluating the impact of the adoption of ASU 2011-11 on its financial

position, results of operations, and disclosures.

Other pronouncements issued by the FASB or other authoritative accounting . . .