Oil & Gas - Energy - Commodities - Resources (OILBRENT)

[Timothy Smith]

$TNKY Operations Update From 10k.

Our operations are divided between leases in which we have a participation interest and leases in which we are the operator. Interests owned by participation leases means we have a working or royalty interest in a property that is operated or maintained by another interest owner under an agreement. For participation leases, we receive payments for our oil sales from the operator and we are billed by the operator for a percentage of joint expenses relative to the costs of drilling and transporting the oil from the wells to the sales point.

For drilling operations on leases in which we are the operator, we hire third parties to provide contract drilling services to us on an as needed basis. We have been able to reduce or eliminate our financial exposure in the initial drilling in our projects by creating joint venture arrangements that provide for others to pay for all or a disproportionate share of the initial drilling costs in exchange for a working or royalty interest in the well. As of December 31, 2011, we had sold working interests in 5 of our wells ranging from 20% to 35% per well and for each well we are responsible for completion and operating costs on those wells ranging from 25% to 58% per well, which lead to the negotiations of overriding royalty interest of 5% per existing wells. Respectively, as of June 30, 2012, we had sold working interests in approximately 38 to 50 of our wells ranging from 27.5% per well and for each well we are responsible for completion and operating costs on those wells ranging from 33.33% per well, which lead to the negotiations of overriding royalty interest of 5% per existing wells. These negotiations will allow us to move forward in drilling a greater number of wells, at minimal costs, than we would otherwise able to drill based upon our limited financial resources. We expect to continue to use these types of relationships to partially or completely fund initial drilling of future wells.

In addition to the challenges faced by small independent oil and gas companies, we continue to face a number of challenges in executing our business model which are particular to our company. Our revenues increased 87% for the Second Quarter 2012 from the Second Quarter 2011, and our total revenues for the six months ended June 30, 2012 increased 68% from the comparable period in 2011. Our income from operations increased 96% from period to period are attributed to the sale of oil leases and a lower amount of natural depletion of wells and downtime as we are beginning to see the effects of our modify business plan to reduce drilling and completion cost through negotiated sales and acquiring overriding royalty interest within previously operated leases and new leaseholds.

During the balance of 2012, we plan to continue to expand our acreage position in our core area, focusing on acreage we will operate as well as overriding royalty interest in new acres and participation in applicable drilling rights.

At June 30, 2012 and December 31, 2011, our balance sheet includes approximately $3 million and $4.9 million of past due debt, notes and liquidated damages that relates to the prior business of our company before those operations were discontinued in 2005, which is net of approximately, $3.72 million of aged payments, accrued damages and derivative liabilities which were written off as of June 30, 2012 and net of approximately, $1.38 million for the year ending December 31, 2011. None of the remaining obligations represent secured debt, although a number of the creditors have obtained judgments against our company. We do not have the resources to satisfy these obligations. If one or more of these judgment creditors should seek to enforce the judgment, our ability to continue our operations as they are presently conducted is in jeopardy.

While we have been able to acquire participating interests in producing wells, as well leasing unproven acreage for our drilling operations, using minimal amounts of cash by leveraging our common stock, it is possible that the value of the shares we have issued have exceeded the price we would have paid for the same assets had we been negotiating a cash transaction. We recognized an impairment of $21,936 and $56,996, respectively, for the three months ended June 30, 2012 and 2011 and $142,128 and $199,924 for the six months ended June 30, 2012 and 2011, respectively, of net of income tax on various properties we acquired as the value of the reserves was less than the value of the shares we issued as consideration in the transaction. Given our limited cash resources, it is likely that we will continue to use equity to expand our holdings and pay costs which will further dilute our existing stockholders and possibly result in additional one-time impairments of the assets acquired.

Our working capital is not sufficient to pay our obligations as they become due. We also face the challenge of limited personnel and diversion of our management’s time and attention. Subsequent to December 31, 2010 we have hired a part-time accountant, but as our company continues to grow, we need hire additional staff to handle the increasing needs of our company, including from an administrative standpoint, and we need to invest in internal systems to ensure that our financial statements are properly prepared. Lastly, we need to raise additional capital to fund these necessary infrastructure increases and our continued expansion, as well as to provide adequate funds to satisfy our obligations. We have been relying on cash provided by our operations and funding available to us under a line of credit extended by a related party which matured in December 31, 2011 and remains past due. At June 30, 2012, $180,000 is outstanding under this facility. The amount is convertible into shares of our common stock at various prices, but there are no assurances the holder will convert the obligation at maturity.

Given the small size of our company, the early stage of our operations and our limited revenues, we may find it difficult to raise sufficient capital to meet our needs. If we are unable to access capital as needed, our ability to grow our company is in jeopardy and absent a significant increase in our revenues we may be unable to continue as a going concern.