The following discussion and analysis should be read in conjunction with the unaudited financial statements and notes thereto included elsewhere in this report, and should be read in conjunction with management's discussion and analysis contained in Lucas's Annual Report on Form 10-K for the fiscal year ended March 31, 2012 (the "2012 Annual Report") and related discussion of our business and properties contained therein. The terms "Company," "Lucas Energy," "Lucas," "we," "us" and "our" refer to Lucas Energy, Inc. and its subsidiary. See also, "Cautionary Note Regarding Forward-Looking Statements," below.

Overview

Lucas Energy, Inc., a Nevada corporation, is an independent oil and gas company based in Houston, Texas. It explores for, develops, produces and markets primarily crude oil and to a much lesser extent, natural gas, from various known productive geological formations. Our current assets are located in the Austin Chalk, Eagle Ford and Buda formations, primarily in Gonzales, Wilson, Karnes and Atascosa counties south of San Antonio, Texas; and the Eaglebine formation in Leon and Madison counties north of Houston, Texas. Incorporated in Nevada in December 2003 under the name Panorama Investments Corp., the Company changed its name to Lucas Energy, Inc. effective June 9, 2006. Our goal is to acquire, develop, and produce crude oil and natural gas from areas located in, or near, established oil fields that can provide long-term growth and sustainability for the Company.

The Company's strategy is as follows:

· Locate and acquire what we believe to be undervalued, underdeveloped oil and gas properties in known areas. Re-establish or improve production from existing well bores. Look for underlying potential in the form of new drilling, new laterals from existing wells, and/or deeper undeveloped horizons. The Company does not participate in exploration activities, or rank wildcat drilling activities,

· Develop the properties out of current cash flow, or using project financing, which may include joint interest participation partners (what are commonly known as joint ventures), and

· Operate in a disciplined and systematic approach to maintain a high level of efficiency.

Our website address is http://www.lucasenergy.com. Our fiscal year ends on the last day of March of each year. We refer to the twelve-month periods ended March 31, 2012 and March 31, 2011 as our 2012 fiscal year and 2011 fiscal year, respectively.

At December 31, 2012, the Company had leasehold interests (working interests) in approximately 27,832 gross acres. Total net developed and undeveloped acreage as measured from the surface to the base of the Austin Chalk formation was approximately 21,846 acres. The Company has approximately 6,458 net acres in the Eagle Ford (and lower depths) in the southern part of the Eagle Ford trend near San Antonio, Texas. Further, the Company has approximately 3,745 net acres in the Eaglebine area of the Eagle Ford trend to the north of Houston, Texas.

Lucas averaged for the month of December 2012 approximately 292 BOPD (approximately 165 BOPD net) from 57 active well bores, of which 10 wells accounted for almost 91% of the production. The ratio between the gross and net production varies due to varied working interests and net revenue interests in each well. An affiliate of Marathon Oil Corporation operates two Eagle Ford horizontal wells, in each of which we have a 15% working interest. The wells produced a cumulative of approximately 120,000 barrels of oil through July 31, 2012 and were recently put on artificial lift.

As of December 31, 2012, Lucas employed 13 full-time employees. We also utilized approximately 8 contractors on an "as-needed" basis to carry out various functions of the Company, including but not limited to field operations, land administration, corporate activity and information technology maintenance.

Industry Segments

Lucas Energy's operations are all crude oil and natural gas exploration and production related.

Operations and Oil and Gas Properties

We operate in known productive areas in order to decrease geological risk. Our holdings are located in an increased area of current industry activity in Gonzales, Wilson, Karnes, Atascosa, Leon and Madison counties in Texas. We concentrate on three vertically adjoining formations in Gonzales, Wilson, Karnes and Atascosa counties: the Austin Chalk, Eagle Ford and Buda formations, listed in the order of increasing depth measuring from land surface. The recent development of the Eagle Ford as a high potential producing zone has heightened industry interest and success. Lucas Energy's acreage position is in the oil window of the Eagle Ford trend and has amassed over 22,000 gross acres in the Gonzales and Wilson county, Texas area. In 2010 the Company sold an 85% working interest in the Eagle Ford acreage in Gonzales county to Hilcorp Resources, LLC (now Marathon Resources EF, LLC); and in 2011 the Company sold a 50% working interest to Marathon Oil Company in Wilson county, Texas. In December 2011, we acquired 3,745 net acres in Leon and Madison counties and thereby expanded our holdings of the Eagle Ford trend into the Eaglebine area.

Austin Chalk

The Company's original activity started in Gonzales county by acquiring existing shut-in and stripper wells and improving production from those wells. Most of the wells had produced from the Austin Chalk. The Austin Chalk is a dense limestone, varying in thickness along its trend from approximately 200 feet to more than 800 feet. It produces by virtue of localized fractures within the formation.

Eagle Ford

On Lucas' leases, the Eagle Ford is a porous limestone with organic shale matter. The Eagle Ford formation directly underlies the Austin Chalk formation and is believed to be the primary source of oil and gas produced from the Austin Chalk. Reservoir thickness in the area of the Company's leases varies from approximately 60 feet to 80 feet.

Buda

The Buda limestone underlies the Eagle Ford formation separated by a 10 foot to 20 foot inorganic shale barrier. Its thickness varies from approximately 100 feet to more than 150 feet in this area. The Buda produces from natural fractures and matrix porosity and is prospective across this whole area. There are a number of Buda wells with cumulative production of more than 100,000 barrels of oil.

Eaglebine

The Eaglebine is so named because the Eagle Ford formation overlies the Woodbine formation. This is a continuation of the Eagle Ford trend that is productive from south Texas to the northeast of Houston, Texas. The Woodbine formation is best known as the prolific reservoir in the famous East Texas Oil Field. There has been increased interest and activity in the Eaglebine formation in the Leon, Houston, and Madison county areas. There is established production from horizontal and vertical wells to the east and south of Lucas' holdings and numerous permits for horizontal wells have been filed for additional exploratory and development drilling.

General

The ultimate goal of the management is maximizing shareholder value. Specific targets include: increasing production, increasing profitability margins, increasing property values and reserves, operating efficiently and expanding the Company's asset base.

Overview of Properties

During our 2012 fiscal year, the Company continued to acquire Austin Chalk and Eagle Ford assets. These acquisitions were done with minimal cash outlay and at prices which Lucas believes were under the current market. These acquisitions included the following:

· Acquisition of Austin Chalk producing and non-producing properties, along with some Eagle Ford assets, from our Nordic Oil USA I LLLP joint venture partner,

· Acquisition of Eagle Ford undeveloped properties from an affiliate of Hall Financial Group of Dallas, Texas, and

· Acquisition of Eaglebine producing and non-producing properties north of Houston, Texas from an affiliate of Hall Financial Group.

The Company ended the 2012 fiscal year with approximately 5,900 net acres in the Eagle Ford trend and approximately 3,700 net acres in the Eaglebine trend.

Lucas continues to review additional areas of interest. During the 2011 fiscal year, the Company invested approximately $2 million in a property in New Mexico. After careful review of the property, it was decided that the New Mexico property was not as attractive of an investment as the Austin Chalk and Eagle Ford areas. Therefore, Lucas sold its New Mexico assets for more than its initial investment less than a year later.

Operations and New Drilling

During the first nine months of the 2013 fiscal year, the Company had very little new activity in drilling.

Expense workovers of wells with production of less than 10 BOPD continue to have an impact on lease operating expenses. As newer wells, or newer laterals from existing well bores, are drilled on these leases, the expense of workover costs will diminish in the future. An increase in the drilling program of the older leases could significantly reduce expense workover costs, and as a result, reduce our lifting costs per BBL (barrel).

Our Strengths

We believe our strengths will help us successfully execute our business strategies:

We benefit from the increasing value, attention and activity in the Eagle Ford. We benefit from the increasing number of wells drilled and the corresponding data available from public and governmental sources surrounding our acreage. This activity and data has defined the geographic extent of the Austin Chalk, Eagle Ford, and Buda formations, which we believe will assist us in evaluating future leasehold acquisitions and development operations. In addition, leading operators have developed drilling and completion technologies that have significantly reduced production risk and decreased per unit drilling and completion costs.

Our size, industry knowledge, and contacts allow us to pursue a broader range of acquisition opportunities. Our size provides us with the opportunity to acquire smaller acreage blocks that may be less attractive to larger operators in the area. We believe that our acquisition of these smaller blocks will have a meaningful impact on our overall acreage position.

Experienced management team with proven acquisition, operating and financing capabilities. Mr. Anthony C. Schnur, our recently appointed Chief Executive Officer, who has over 20 years of oil and gas industry experience, brings a wealth of knowledge and strategic know-how to the Company. He is a result oriented executive with a history of positioning companies for growth, preserving value and return of capital. Mr. Schnur has held several financial management positions and has developed strategic business plans, raised debt and equity capital, and implemented turnaround situations with great success.

RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations for the three-month and nine-month periods ended December 31, 2012 and 2011 should be read in conjunction with the condensed consolidated financial statements of Lucas Energy and notes thereto included in this Quarterly Report on Form 10-Q. As used below, the abbreviations "Bbls" stands for barrels, "NGL" stands for natural gas liquids, "Mcf" for thousand cubic feet and "Boe" for barrels of oil equivalent on the basis of six Mcf per barrel.

Three Months Ended December 31, 2012 vs. Three Months Ended December 31, 2011

We reported a net loss for the three months ended December 31, 2012 of $2.7 million, or $0.10 per share. For the same period a year ago, we reported a net loss of $2.2 million, or $0.11 per share. Our net loss increased by $0.5 million primarily due to an increase in G&A and interest expense of $1.1 million offset by an increase in net operating revenues of $0.6 million.

The following table sets forth the operating results and production data for the three-month periods ended December 31, 2012 and 2011.

                                           Three Months Ended December 31,           Increase            %
                                             2012                   2011            (Decrease)       Incr(Decr)
Sale Volumes:
Crude Oil (Bbls)                                 18,969                 14,235            4,734               33 %
Natural Gas & NGL (Mcf)                           4,785                  1,215            3,570              294 %
Total (Boe)                                      19,767                 14,438            5,329               37 %

Crude Oil (Bbls per day)                            206                    155               51               33 %
Natural Gas & NGL (Mcf per day)                      52                     13               39              300 %
Total (Boe per day)                                 215                    157               58               37 %

Average Sale Price:
Crude Oil ($/Bbl)                      $         100.10       $          91.23     $       8.87               10 %
Natural Gas & NGL ($/Mcf)              $           6.07       $           6.75     $      (0.68 )            (10 %)


Net Operating Revenues:
Crude Oil                              $      1,898,863       $      1,298,670     $    600,193               46 %
Natural Gas & NGL                                29,032                  8,202           20,830              254 %
      Total Revenues                   $      1,927,895       $      1,306,872     $    621,023               48 %

Oil and Gas Revenues

Total crude oil and natural gas revenues for the three months ended December 31, 2012 increased $0.6 million, or 48%, to $1.9 million from $1.3 million for the same period a year ago due primarily to a favorable crude oil volume variance of $0.5 million and a slightly favorable crude oil price variance of less than $0.1 million.

Operating and Other Expenses

                                                Three Months Ended December 31,          Increase            %
                                                  2012                   2011           (Decrease)       Incr(Decr)
Lease Operating Expenses                    $      1,002,920       $      1,252,959     $  (250,039 )            (20 %)
Severance and Property Taxes                         101,688                 69,275          32,413               47 %
Depreciation, Depletion, and Amortization            884,010                561,448         322,562               57 %

General and Administrative ("G&A")          $      1,909,317       $      1,327,786     $   581,531               44 %
Share-Based Compensation                             429,176                102,344         326,832              319 %
 Total G&A Expense                          $      2,338,493       $      1,430,130     $   908,363               64 %

Other Income (Expense), Net                           (4,081 )                  303          (4,384 )
Interest Expense                                    (343,969 )             (146,783 )      (197,186 )

Lease Operating Expenses

Lease operating expenses decreased $0.3 million for the current quarter as compared to the prior year period principally due to lower lease rental expenses.

Depreciation, Depletion, Amortization and Accretion (DD&A)

DD&A increased $0.3 million primarily due to an increase in production of 5,329 Boe compared to previous period. The DD&A rate per Boe also increased from $30.47 to $40.41.

General and Administrative Expenses

G&A increased by $0.9 million primarily due to the recognition of stock-based compensation expense and severance pay resulting from the departure of William Sawyer, the previous Chief Executive Officer of the Company.

Other Income (Expense), Net

Other Income (Expense) for the quarter ended December 31, 2012, primarily consisted of $4,100 representing Texas franchise taxes offset by lease income from our building in Gonzales, Texas.

Interest Expense

During the three months ended December 31, 2012, we incurred interest expense of $337,334 on the Nordic note issued during a property acquisition (described in greater detail below under "Liquidity and Capital Resources").

Nine Months Ended December 31, 2012 vs. Nine Months Ended December 31, 2011

We reported a net loss for the nine months ended December 31, 2012 of $6.2 million, or $0.25 per share. For the same period a year ago, we reported a net loss of $5.1 million, or $0.28 per share. Our net loss increased by $1.1 million primarily due to an increase in DD&A expenses of $1.6 million, G&A expenses of $1.4 million, and interest expense of $0.9 million, partially offset by an increase in net operating revenues of $2.8 million.

The following table sets forth the operating results and production data for the nine months ended December 31, 2012 and 2011.

                                          Nine Months Ended December 31,                             %
                                              2012                 2011          Increase        Incr(Decr)
Sale Volumes:
Crude Oil (Bbls)                                  65,250             37,076          28,174               76 %
Natural Gas & NGL (Mcf)                           10,574             14,054          (3,480 )            (25 %)
Total (Boe)                                       67,012             39,418          27,594               70 %

Crude Oil (Bbls per day)                             237                135             102               76 %
Natural Gas & NGL (Mcf per day)                       38                 51             (13 )            (25 %)
Total (Boe per day)                                  243                144              99               69 %

Average Sale Price:
Crude Oil ($/Bbl)                       $          96.77       $      92.54     $      4.23                5 %
Natural Gas & NGL ($/Mcf)               $           6.07       $       5.39     $      0.68               13 %


Net Operating Revenues:
Crude Oil                               $      6,314,279       $  3,431,014     $ 2,883,265               84 %
Natural Gas & NGL                                 64,230             75,748         (11,518 )            (15 %)
      Total Revenues                    $      6,378,509       $  3,506,762     $ 2,871,747               82 %

Oil and Gas Revenues

Total crude oil and natural gas revenues for the nine months ended December 31,
2012 increased $2.9 million, or 82%, to $6.4 million from $3.5 million for the
same period a year ago due primarily to a favorable crude oil volume variance of
$2.7 million coupled with a slight favorable crude oil price variance of $0.2
million.

Operating and Other Expenses

                                              Nine Months Ended December 31,         Increase            %
                                                  2012                 2011         (Decrease)       Incr(Decr)
Lease Operating Expenses                    $       3,085,826       $ 2,887,728     $   198,098                7 %
Severance and Property Taxes                          329,068           188,800         140,268               74 %
Depreciation, Depletion, and Amortization           2,882,338         1,260,314       1,622,024              129 %

General and Administrative                  $       4,608,259       $ 3,541,614     $ 1,066,645               30 %
Share-Based Compensation                              625,283           319,894         305,389               95 %
 Total G&A Expense                          $       5,233,542       $ 3,861,508     $ 1,372,034               36 %

Other Income (Expense), Net                            11,806          (291,406 )       303,212
Interest Expense                                   (1,035,498 )        (152,624 )      (882,874 )

Lease Operating Expenses

Lease operating expenses increased $0.2 million for the current period as compared to the prior year period principally due to increased production costs of $0.3 million from expanded efforts during the current period to increase production volumes from existing wells, to slightly higher lease rental expenses of $0.1 million and offset by lower work-over costs of $0.2 million.

Depreciation, Depletion, Amortization and Accretion

DD&A increased $1.6 million primarily due to an increase in production of 27,594 Boe compared to previous period. The DD&A rate per Boe also increased from $30.47 to $40.73.

General and Administrative Expenses

G&A expenses, including share-based compensation, increased $1.4 million, or 36%, for the nine months ended December 31, 2012 as compared to the prior year period. The increase is primarily due to the recognition of stock-based compensation expense and severance pay resulting from the departure of Mr. Sawyer, the previous Chief Executive Officer of the Company.

Other Income (Expense), Net

Other Income (Expense) for the nine-month period ended December 31, 2011, primarily consisted of an expense of $293,278 representing the increase in the value of the Series C Warrants as a result of the modification of the warrant agreements to incentivize the warrant holders to exercise the warrants in August 2011. The value was calculated based on the Black Scholes option pricing model.

Interest Expense

During the nine months ended December 31, 2012, we incurred interest expense of $1,035,498 mostly from the Nordic note issued during a property acquisition (described in greater detail below under "Liquidity and Capital Resources").

LIQUIDITY AND CAPITAL RESOURCES

The primary sources of cash for Lucas during the nine months ended December 31, 2012 were funds generated from sales of crude oil and natural gas production and proceeds from sale of units consisting of shares of the Company's common stock and warrants to purchase shares of common stock. The primary uses of cash were funds used in operations and additions of oil and gas properties.

At December 31, 2012, our Total Current Liabilities of $31.8 million exceeded our Total Current Assets of $5.1 million due primarily to the $22.0 million non-recourse senior secured promissory note issued in November 2011 in connection with the Nordic acquisition. The note holder is Nordic Oil USA I, LLLP ("Nordic") and the note had a maturity date of November 17, 2012. As described in greater detail below under "Legal Proceedings", the Company failed to pay the note when due and Nordic subsequently filed a lawsuit against the Company. Currently the Company and Nordic are in discussions regarding the settlement of the lawsuit, which may include the return of the acquired property to Nordic and which may require the Company pay certain undetermined damages and costs of Nordic. The estimated quantities of proved developed and proved undeveloped crude oil reserves of the properties are approximately 35 thousand barrels and 1.2 million barrels, respectively. As of December 31, 2012, Lucas has accrued approximately $1.6 million of interest payable for this note.

On November 21, 2012, the Company entered into a Purchase Agreement with Sundown Energy, LP to sell the Company's 0.77% net royalty interest in the oil and gas properties located on approximately 52 acres of land within the Baker Deforest Unit, located in Gonzales and Dewitt counties, Texas, including the Baker Deforest Unit #1H, #2H, #3H, #4H and #12H wells. The purchaser paid $4.0 million in connection with the sale. The closing occurred on December 19, 2012, but was effective as of October 1, 2012.

In April 2012, the Company closed a registered direct offering of $5.9 million
(approximately $5.5 million net, after deducting commissions and other expenses)
of securities to certain institutional investors. In total, the Company sold 2.95 million units at a price of $2.00 per unit. Each unit consisted of one share of the Company's common stock and 0.35 of a warrant to purchase one share of the Company's common stock. Each warrant can be exercised to purchase one share of the Company's common stock at an exercise price of $2.30 per share beginning October 18, 2012 and for a period of five years thereafter. A total of 2,950,000 shares and 1,032,500 warrants were sold in connection with the offering. In September 2012, the Company sold an aggregate of 800,000 units to certain selected investors (which investors represented entities controlled by our current Directors, Ryan J. Morris and Joshua D. Young). Each unit consisted of one share of the Company's common stock and 0.25 of a warrant to purchase one share of the Company's common stock at an exercise price of $2.00 per share with a term of one year, at a price of $1.65 per unit, for an aggregate of $1,320,000 in total gross funding. The Company used the funds raised in the offerings to pay down expenses related to drilling, lease operating, workover activities and for general corporate purposes, including general and administrative expenses. The only material debt that the Company has other than the accounts payable and accrued interest is the $22.0 million non-recourse senior secured promissory note issued in connection with the Nordic acquisition. In November 2011, Lucas entered into a purchase and sale agreement with Nordic, with an effective date of July 1, 2011, to purchase all of Nordic's interests in certain oil, gas and mineral leases, rights and assets located in Gonzales, Karnes and Wilson counties, Texas (the "Nordic Transaction"). Lucas issued a $22.0 million note to Nordic in the form of a non-recourse senior secured promissory note. The note bears interest at 6.0% per annum and both the principal and interest were due and payable on or before November 17, 2012. As of December 31, 2012, approximately $23.6 million was outstanding under the note including interest accrued but not paid (which principal and interest thereon is non-recourse pursuant to the terms of the note).

Moving forward, Lucas plans to continue to focus a substantial portion of its capital expenditures in various known prolific and productive geological formations, including the Austin Chalk, Eagle Ford and Buda formations, primarily in Gonzales, Wilson, Karnes and Atascosa counties south of the city of San Antonio, Texas and in the Eaglebine formation in Leon and Madison counties north of the city of Houston, Texas. Lucas expects capital expenditures to be greater than cash flow from operating activities for the remainder of the 2013 fiscal year. To cover the anticipated shortfall, our business plan may include selling certain non-core assets, establishing a reserve-based line of principal on our credit, bank borrowings, and equity and debt offerings.

Cash Flows.

Net cash used in operating activities for the nine months ended December 31, was approximately $1.5 million for 2012 and $1.1 million for 2011. Net cash used in operating activities for the nine months ended December 31, 2012 included $6.2 . . .