The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the consolidated financial statements and related notes appearing elsewhere in this Annual Report. The following discussion contains "forward-looking statements" that reflect our future plans, estimates, beliefs and expected performance. We caution you that assumptions, expectations, projections, intentions or beliefs about future events may, and often do, vary from actual results and the differences can be material. See "Risk Factors" and "Forward Looking Statements."





Results of Operations



Revenues

Revenue for the year ended December 31, 2020 was $2,892,241, a decrease of $24,493 from the prior year. The decrease was primarily due to a minor decrease in the production from our CONA asset.





Operating Expenses

Operating expenses for the year ended December 31, 2020 were $12,582,555, an increase of $6,596,264 from the prior year. This was primarily due to the forfeiture of TLSAU leases resulting in a $6,225,103 loss and impairments of $396,922 in our U.S. properties. In addition, there was an increase in the following expense resulting from the newly acquired Canadian properties: $245,408 increase in lease operating expense, $110,262 increase in depreciation, depletion and amortization, and a $138,314 increase in asset retirement obligation. These increases were offset by $547,665 due to the reduction in compensation of executive management and board members.





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Other Income/Expenses

Other income/expenses for the year ended December 31, 2020 were net expenses of $619,006, an increase of expenses of $797,365 from the prior year. The primary cause for the increase was the $456,481 increase in interest expense. This increase was the result of a number of newly signed loan agreements. In addition, derivative liability expenses increased by $171,793 due to warrants issued related to new debt. These increases were offset by other income of $265,663 which was primarily due assets sold in relation to the Utikuma Canadian property purchase.





Net Loss

The net loss for the year ended December 31, 2020 was $10,309,019, compared to net loss of $2,890,901 for the year ended December 31, 2019, a decrease of $7,418,118 from the prior year for the reasons described above, primarily the forfeiture of the TLSAU leases and impairment of U.S. properties.

Liquidity and Capital Resources

As of December 31, 2020, we had total current assets of $199,488 and total assets of $7,159,904. Our total current liabilities as of December 31, 2020 were $7,478,605 and our total liabilities were $11,301,018. We had negative working capital of $7,279,117 as of December 31, 2020.

Our material asset balances are made up of oil and gas properties and related equipment. Our most significant liabilities include asset retirement obligations of $3,624,133, accrued liabilities and related party accrued liabilities of $2,324,084, notes payable of $3,037,737 and related party notes payable of $1,035,329.

Operating activities used $277,599 in cash for the year ended December 31, 2020. Our net loss of $10,309,019 was the main component of our negative operating cash flow, partially offset by the TLSAU loss on forfeiture of $6,255,103 and asset impairment of $396,922.

Net cash used by investing activities for the year ended December 31, 2020 was $0.

Cash provided by financing activities during the year ended December 31, 2020 was $440,890 and consisted primarily of $657,470 of proceeds from related party notes payable, with $119,375 of shares to be issued. Proceeds of $56,680 were received from Origin Bank as a Payment Protection Loan. This was partially offset by $334,268 of repayments of related party notes payable and $68,367 of repayments of notes payable.

During the year ended December 31, 2020, the Company operated at a negative cash flow from operations of approximately $23,000 per month and our auditors have raised a going concern in their audit report as contained herein. Management is pursuing several initiatives to secure funding to increase production at the SUDS field which together with anticipated increases in the price of crude oil may reduce the Company's monthly cash shortfall. Management also plans to minimize general and administrative expenses and optimize cashflow from the Utikuma asset.

The Company has suffered recurring losses from operations. These conditions raise substantial doubt about the Company's ability to continue as a going concern. We plan to generate profits by working over existing wells, reducing general and administrative expenses and optimizing Utikuma cashflow. However, we will need to raise additional funds to workover wells through the sale of our securities, through loans from third parties or from third parties willing to pay our share of drilling and completing the wells. We do not have any commitments or arrangements from any person to provide us with any additional capital.

If additional financing is not available when needed, we may need to cease operations. There can be no assurance that we will be successful in raising the capital needed to recomplete oil or gas wells nor that any such additional financing will be available to us on acceptable terms or at all.

Management believes that actions presently being taken to obtain additional funding provide the opportunity for the Company to continue as a going concern. The accompanying financial statements have been prepared assuming the Company will continue as a going concern; no adjustments to the financial statements have been made to account for this uncertainty.





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Off-Balance Sheet Arrangements

We do not have any 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, and results of operations, liquidity or capital resources.

Trends Affecting Future Operations

The factors that will most significantly affect our results of operations will be (i) the sale prices of crude oil and natural gas, (ii) the amount of production from oil or gas wells in which we have an interest, and (iii) lease operating expenses. Our revenues will also be significantly impacted by our ability to maintain or increase oil or gas production through exploration and development activities, and the availability of funding to complete such activities.

It is expected that our principal source of cash flow will be from the production and sale of crude oil and natural gas reserves which are depleting assets. Cash flow from the sale of oil and gas production depends upon the quantity of production and the price obtained for the production. An increase in prices will permit us to finance our operations to a greater extent with internally generated funds, may allow us to obtain equity financing more easily or on better terms, and lessens the difficulty of obtaining financing. However, price increases heighten the competition for oil and gas prospects, increase the costs of exploration and development, and, because of potential price declines, increase the risks associated with the purchase of producing properties during times that prices are at higher levels.

A decline in oil and gas prices (i) will reduce the cash flow internally generated by the Company which in turn will reduce the funds available for exploring for and replacing oil and gas reserves, (ii) will increase the difficulty of obtaining equity and debt financing and worsen the terms on which such financing may be obtained, (iii) will reduce the number of oil and gas prospects which have reasonable economic terms, (iv) may cause us to permit leases to expire based upon the value of potential oil and gas reserves in relation to the costs of exploration, (v) may result in marginally productive oil and gas wells being abandoned as non-commercial, and (vi) may increase the difficulty of obtaining financing. However, price declines reduce the competition for oil and gas properties and correspondingly reduce the prices paid for leases and prospects.

Other than the foregoing, we do not know of any trends, events or uncertainties that will have, or are reasonably expected to have, a material impact on our sales, revenues or expenses.





Critical Accounting Policies

In December 2001, the SEC requested that all registrants list their most "critical accounting polices" in the Management Discussion and Analysis. The SEC indicated that a "critical accounting policy" is one which is both important to the portrayal of a company's financial condition and results, and requires management's most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

Going concern - The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $63,088,096 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company's ability to raise additional capital through the future sales of common stock is unknown. The obtainment of additional financing, the successful development of the Company's contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

Recently Issued Accounting Pronouncements

We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

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