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Management Discussion

• We are an independent oil and gas company focused on the onshore exploration, development and production of crude oil, NGLs and natural gas. Our current operations consist of drilling unconventional horizontal development wells and operating our producing wells in Gonzales, Lavaca, Fayette and DeWitt Counties in South Texas.
• The global public health crisis associated with the novel coronavirus, or COVID-19, has, and is anticipated to continue to have, an adverse effect on the global economy, which may be prolonged, and has resulted in travel restrictions, business closures, limitations to person-to-person contact and the institution of quarantining and other restrictions on movement in many communities. These restrictions resulted in a dramatic decline in the demand for energy in 2020, which directly impacted our industry and the Company. In addition, global crude oil prices experienced significant decline since the beginning of 2020 as a result of the dual impact of demand deterioration and market oversupply caused by disagreements between the Organization of the Petroleum Exporting Countries, or OPEC, and Russia, together with OPEC, collectively OPEC+, with respect to production curtailments. OPEC+ ultimately agreed to specified reductions in production in the Spring of 2020 which, for the most part, held for the remainder of the year and were supplemented by additional voluntary downward adjustments, led primarily by Saudi Arabia. Collectively these curtailments have contributed to a relative stabilization of commodity prices and rebalancing of the global crude oil markets by the end of 2020.
• Notwithstanding the relative improvement in global market stability, as a result of several factors including rising infection rates at the beginning of 2021, mutating strains of the virus, the return of stricter lockdown measures and logistical challenges in vaccine distribution, among others, a return to pre-COVID 19 levels of economic activity remain uncertain in their magnitude and eventual timing. Nonetheless, OPEC+ indicated in their January 2021 meeting a commitment to gradually return limited production to the market with the pace being determined by market conditions. An additional meeting is scheduled for early March of 2021 to monitor conditions and progress.