FORWARD-LOOKING STATEMENTS AND RISK FACTORS

Forward-Looking Statements for fiscal 2013 and later periods are made in this document. Such statements represent estimates by management based on the Company's historical operating trends, its proved oil, NGL and natural gas reserves and other information currently available to management. The Company cautions that the Forward-Looking Statements provided herein are subject to all the risks and uncertainties incident to the acquisition, development and marketing of, and exploration for oil, NGL and natural gas reserves. Investors should also read the other information in this Form 10-Q and the Company's 2012 Annual Report on Form 10-K where risk factors are presented and further discussed. For all the above reasons, actual results may vary materially from the Forward-Looking Statements and there is no assurance that the assumptions used are necessarily the most likely to occur.

LIQUIDITY AND CAPITAL RESOURCES

The Company had positive working capital of $5,720,249 at December 31, 2012, compared to $3,995,103 at September 30, 2012.

Liquidity:

Cash and cash equivalents were $986,363 as of December 31, 2012, compared to
$1,984,099 at September 30, 2012, a decrease of $997,736. Cash flows for the
three months ended December 31 are summarized as follows:

Net cash provided (used) by:
                                                       2012             2011             Change

Operating activities                               $  7,158,243     $   7,745,652     $    (587,409 )

Investing activities                               $ (7,038,128 )   $ (23,259,380 )   $  16,221,252

Financing activities                               $ (1,117,851 )   $  13,942,615     $ (15,060,466 )

Increase (decrease) in cash and cash equivalents   $   (997,736 )   $  (1,571,113 )   $     573,377

Operating activities:

The decrease of $587,409 in net cash provided by operating activities is primarily the effect of the following:

Realized gains on derivative contracts decreased $358,156 in the 2013 period, as compared to the 2012 period.

Payments for field related lease operating expenses were $244,235 higher in the 2013 period than in the 2012 period. The increase was due to new well additions and increases in ad valorem expenses.

Investing activities:

Net cash used in investing activities decreased $16,221,252 in the 2013 first quarter, the result of the following:

Capital expenditures increased approximately $500,000 in the 2013 period due to increased drilling and completion activity on the Company's mineral and leasehold acreage during the first quarter of 2013, as compared to the first quarter of 2012.

Cash used to acquire properties decreased from $18,783,949 in the 2012 first quarter to $330,000 in the 2013 first quarter, or $18,453,949. In the 2012 first quarter the Company acquired producing properties, leasehold and mineral acreage in Arkansas totaling approximately $18.8 million.

Receipts of lease bonus payments during the 2013 period were approximately $1.4 million lower than those received during the 2012 period. Lease bonuses received during the 2013 period totaled $384,790, as compared to $1,802,892 in the 2012 period. In December 2011, the Company leased 2,431 net mineral acres in the horizontal Mississippi Limestone play in northern Oklahoma and received lease bonus payments of approximately $1.7 million.

The 2013 first quarter investments in partnerships increase of approximately $180,000, as compared to the 2012 first quarter, is the result of increased working interest participation in drilling activity on mineral acreage owned by Whiterock Royalty Partnership, in which the Company owns an 11.7% interest.

Financing activities:

Net cash of $1,117,851 was used in financing activities during the 2013 period, as compared to net cash provided by financing activities of $13,942,615 during the 2012 period. The change of $15,060,466 of net cash provided is the result of the following:

The Company financed the acquisition of producing properties and leasehold in Arkansas discussed above utilizing its credit facility with Bank of Oklahoma and cash. During the quarters ended December 31, 2012 and 2011, net borrowings were ($420,228) and $14,522,371, respectively.

The Company paid $580,991 and $579,756 in dividends during the 2013 and 2012 periods, respectively.

Stock repurchases in the amount of $116,632 were made in the 2013 period. No stock repurchases were made in the 2012 period.

Capital Resources:

Increased drilling activity, primarily in the Fayetteville Shale, western Oklahoma and the Texas Panhandle, during the 2013 first quarter, as compared to the 2012 first quarter, resulted in increased capital expenditures for drilling and completion of $520,393 (8%) from 2012 to 2013. The acreage acquired in the Fayetteville Shale during the 2012 first quarter continues to generate additional drilling opportunities for the Company. In western Oklahoma, the Texas Panhandle and other areas, drilling continues to be very active where the Company owns substantial mineral and leasehold acreage, which include the following oily and NGL rich horizontal and vertical plays:

· Horizontal Granite Wash in western Oklahoma and the Texas Panhandle

· Horizontal Cleveland in western Oklahoma and the Texas Panhandle

· Horizontal Marmaton in western Oklahoma

· Horizontal Tonkawa in western Oklahoma

· Vertical Mississippian in northern Oklahoma

· Vertical Spraberry in West Texas

· Vertical Yeso in southeastern New Mexico

· Horizontal Anadarko Basin Woodford Shale in western Oklahoma

· Horizontal Ardmore Basin Woodford Shale in southern Oklahoma

Capital expenditures for drilling and completion projects for the 2013 period were $6,864,399. In addition, unleased mineral acreage in the Fayetteville Shale was acquired for $330,000. Capital expenditures for drilling and completion projects in 2013 are expected to be approximately $27 million. Although there may be decreases in oil, NGL and natural gas production from quarter to quarter (depending on the timing of new wells coming on line), we expect these capital outlays, as well as production volumes from new wells in which the Company owns a non-cost-bearing royalty interest, to result in an overall continued trend of production increases for 2013. Management will also continue to evaluate opportunities to acquire additional production or acreage.

Please note, since the Company is not the operator of any of its oil and natural gas properties, it is extremely difficult for us to predict levels of future participation in drilling and completing new wells and associated capital expenditures.

Production of oil, NGL and natural gas increased 18% on an Mcfe basis during the 2013 period, as compared to the 2012 period. Production increased in the 2013 period as a result of new production exceeding the natural production decline of existing wells. We expect production for fiscal 2013 to exceed fiscal 2012 as production continues to come on line throughout fiscal 2013.

Oil and NGL prices per barrel received by the Company for the first quarter of 2013 averaged $83.86 and $30.31, respectively. Panhandle's oil price received has averaged 94% of NYMEX price over the last 12 months. Based on this correlation, and NYMEX oil futures prices, we expect the Company's average oil price to be received for fiscal year 2013 to approximate $88.00 per barrel. For the last 12 months, NGL prices received averaged 36% of NYMEX oil price; this would correlate to an average NGL price for 2013 of approximately $33.00 per barrel, which is in line with management's expectations. Natural gas prices received by the Company averaged $3.11 per Mcf for the first quarter of 2013. Based on NYMEX natural gas futures prices (the Company receives on average approximately 93% of NYMEX price for its natural gas sales), the price per Mcf to be received by the Company for fiscal year 2013 would be in the $3.20 to $3.30 range. Management expects the average natural gas price for fiscal year 2013 to be approximately the same as the fiscal 2013 first quarter. As of December 31, 2012, the Company had costless collar contracts covering 350,000 Mmbtu per month of natural gas production through January 2013 (floor and ceiling per Mmbtu of $3.00 and $3.65-$3.70, respectively) and 230,000 Mmbtu per month of natural gas production from February 2013 through December 2013 (floor and ceiling per Mmbtu of $3.75 and $4.05-$4.30, respectively). With continued oil and natural gas price volatility, management continues to evaluate opportunities for product price protection by hedging a portion of the Company's future oil and natural gas production.

Cash provided by operating activities during the 2013 first quarter of $7,158,243 funded capital expenditures of $6,864,399 for the drilling and completion of wells. After payment of our regular $.07 per share quarterly dividend totaling $580,991, treasury stock purchases of $116,632, net principal payments under the Company's revolving credit facility of $420,228 and other miscellaneous investing activities, cash was reduced during the first quarter of 2013 by $997,736. Net outstanding borrowings on the credit facility at December 31, 2012, were $14,454,757.

Looking forward, the Company expects to fund overhead costs, capital additions related to the drilling and completion of wells, treasury stock purchases and dividend payments primarily from cash flow and cash on hand. As management evaluates opportunities to acquire additional assets, additional borrowings utilizing our bank credit facility could be necessary. Also, during times of oil, NGL and natural gas price decreases, or increased capital expenditures, it may be necessary to utilize the credit facility further in order to fund these expenditures. The Company has availability ($20,545,243 at December 31, 2012) under its revolving credit facility and is in compliance with its debt covenants (current ratio, debt to EBITDA, tangible net worth and dividends as a percent of operating cash flow). While the Company believes the availability could be increased (if needed) by placing more of the Company's properties as security under the revolving credit facility, increases are at the discretion of the bank.

Based on expected capital expenditure levels and anticipated cash flows for 2013, the Company has sufficient liquidity to fund its ongoing operations and, combined with availability under its credit facility, to fund additional acquisitions.

RESULTS OF OPERATIONS

THREE MONTHS ENDED DECEMBER 31, 2012 - COMPARED TO THREE MONTHS ENDED DECEMBER
31, 2011

Overview:

The Company recorded first quarter 2013 net income of $2,148,298, or $.26 per share, as compared to $3,412,110, or $.41 per share, in the 2012 quarter. The decrease in net income was principally due to decreased lease bonuses; lower oil, NGL and natural gas prices; increased LOE and DD&A; partially offset by higher oil, NGL and natural gas sales volumes; increased gains on derivative contracts; and decreased exploration costs and impairment expenses. These items are further discussed below.

Oil, NGL and Natural Gas Sales:

Oil, NGL and natural gas sales increased $1,014,677 or 9% for the 2013 quarter.
Oil, NGL and natural gas sales were up due to increases in oil, NGL and natural
gas sales volumes of 23%, 109% and 13%, respectively, partially offset by
decreases in oil, NGL and natural gas prices of 6%, 24% and 10%, respectively.
The following table outlines the Company's production and average sales prices
for oil, NGL and natural gas for the three month periods of fiscal 2013 and
2012:

              Oil Bbls       Average           Mcf          Average        NGL Bbls       Average          Mcfe          Average
                Sold          Price           Sold           Price           Sold          Price           Sold           Price
Three
months
ended
12/31/2012       46,656     $    83.86       2,544,385     $     3.11         30,674     $    30.31       3,008,365     $     4.24
12/31/2011       38,040     $    89.39       2,243,312     $     3.46         14,662     $    40.05       2,559,524     $     4.59

This quarter's oil production increase is due to oil drilling in the Permian Basin and in western Oklahoma oil producing plays, principally the horizontal Marmaton, Cleveland and Tonkawa. The NGL production increase is primarily the result of drilling activity in the Oklahoma oil and NGL rich plays. The natural gas production increase is largely attributable to continued drilling in the Fayetteville Shale in Arkansas. Panhandle owns substantial acreage positions in each of the previously mentioned plays, as well as in the horizontal Granite Wash and Hogshooter plays in western Oklahoma, and expects continued drilling on its acreage in all of these plays. This expected drilling activity in fiscal 2013 will provide the Company with opportunities to further increase its oil, NGL and natural gas production.

Production for the last five quarters was as follows:

     Quarter ended    Oil Bbls Sold       Mcf Sold        NGL Bbls Sold       Mcfe Sold
      12/31/2012              46,656       2,544,385              30,674       3,008,365
       9/30/2012              45,552       2,251,540              32,538       2,720,080
       6/30/2012              38,937       2,273,649              23,680       2,649,351
       3/31/2012              30,614       2,303,797              27,834       2,654,485
      12/31/2011              38,040       2,243,312              14,662       2,559,524

Lease Bonuses and Rentals:

Lease bonuses and rentals decreased $1,380,799 in the 2013 quarter compared to the 2012 quarter. The decrease was due to the Company leasing 2,431 net acres in the horizontal Mississippi Limestone play in northern Oklahoma for $1.7 million during the 2012 quarter.

Gains (Losses) on Derivative Contracts:

The fair value of derivative contracts was an asset of $764,643 as of December 31, 2012, and a liability of $320,074 as of December 31, 2011. We had a net gain on derivative contracts of $892,693 in the 2013 quarter as compared to a net loss of ($222,079) recorded in the 2012 quarter. The change is principally due to the natural gas collars, which were entered in the 2013 quarter, increasing in value as projected natural gas prices are below the floor prices of the collar at December 31, 2012.

Lease Operating Expenses (LOE):

LOE increased $1,031,650 or 46% in the 2013 quarter as compared to the 2012 quarter and LOE per Mcfe increased in the 2013 quarter to $1.10 per Mcfe from $.88 per Mcfe in the 2012 quarter. LOE related to field operating costs increased $239,377 in the 2013 quarter compared to the 2012 quarter, a 19% increase. This increase is principally a result of production increasing 18%. In the 2013 quarter, field operating costs were $.50 per Mcfe compared to $.49 per Mcfe in the 2012 quarter.

The increase in LOE related to field operating costs was coupled with an increase in handling fees (primarily gathering, transportation and marketing costs) on natural gas of $792,273 in the 2013 quarter compared to the 2012 quarter. On a per Mcfe basis, these fees increased $.20 due to the significant addition of new natural gas wells in the Fayetteville Shale play in Arkansas, which have higher handling fees. Handling fees are mainly charged as a percent of natural gas sales but can also be charged based on natural gas production volumes.

Production Taxes:

Production taxes decreased $134,946 or 31% in the 2013 quarter as compared to the 2012 quarter. Production taxes as a percentage of oil, NGL and natural gas sales decreased from 3.7% in the 2012 quarter to 2.4% in the 2013 quarter. The decrease in amount and rate is due mainly to the Company receiving ultra-deep well refunds and rate corrections of approximately $85,000 in the 2013 quarter. We do not accrue for ultra-deep well production tax exemptions (allowed by the state of Oklahoma) because we do not have sufficient information to calculate a reasonable estimate. The Company also had a large increase in natural gas revenues from new horizontally drilled wells in Arkansas coming on line in the 2013 quarter. These wells are eligible for reduced production tax rates (1.5%) for the first few years of production. The low overall production tax rate is due to a large proportion of the Company's natural gas revenues coming from horizontally drilled wells, which are eligible for reduced Oklahoma and Arkansas production tax rates.

Exploration Costs:

Exploration costs decreased $293,603 in the 2013 quarter as compared to the 2012 quarter. During the 2013 quarter, leasehold impairment and expired leasehold totaled $13,222 compared to $311,817 during the 2012 quarter, a $298,595 decrease. The decrease was due primarily to one leasehold prospect which was significantly impaired in the 2012 quarter. Charges on exploratory dry holes totaled $6,545 during the 2013 quarter as compared to $1,533 in the 2012 quarter.

Depreciation, Depletion and Amortization (DD&A):

DD&A increased $1,496,607 or 36% in the 2013 quarter. DD&A in the 2013 quarter was $1.87 per Mcfe as compared to $1.62 per Mcfe in the 2012 quarter. DD&A increased $726,418 due to production on an Mcfe basis increasing 18% in the 2013 quarter compared to the 2012 quarter. The remaining increase of $770,189 was caused by a $.25 increase in the DD&A rate. This rate increase is mainly due to lower reserve prices at December 31, 2012 (compared to December 31, 2011) reducing ultimate reserves on a significant number of wells, as well as higher per Mcfe finding cost experienced in oil and liquids-rich areas where the Company is drilling and continues to have new wells come on line.

Provision for Impairment:

The provision for impairment decreased $208,582 in the 2013 quarter compared to the 2012 quarter. During the 2012 quarter, impairment of $363,547 was recorded on five smaller fields. During the 2013 quarter, impairment of $154,965 was recorded on two smaller fields. These fields have few wells and are more susceptible to impairment when a well in the field experiences downward reserve revisions.

General and Administrative Costs (G&A):

G&A costs increased $200,561 or 12% in the 2013 period. This increase is primarily related to increases in personnel expenses of $235,862 offset by decreased legal expenses of $36,791. Increases in personnel expenses are mainly due to restricted stock expense. The decrease in legal expense is a result of less acquisition activity.

Income Taxes:

Provision for income taxes decreased in the 2013 quarter by $172,000, the result of a $1,435,812 decrease in income before income taxes in the 2013 quarter compared to the 2012 quarter. The effective tax rate for the 2013 and 2012 quarters was 24% and 20%, respectively. Excess percentage depletion, which is a permanent tax benefit, reduced the effective tax rate below the statutory rate for both quarters.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

Critical accounting policies are those the Company believes are most important to portraying its financial conditions and results of operations and also require the greatest amount of subjective or complex judgments by management. Judgments and uncertainties regarding the application of these policies may result in materially different amounts being reported under various conditions or using different assumptions. There have been no material changes to the critical accounting policies previously disclosed in the Company's Form 10-K for the fiscal year ended September 30, 2012.