Company Background

Marcelina Creek Field Development

On July 6, 2010, Torchlight entered into an agreement to participate in oil and gas development joint venture with Bayshore Operating Corporation, LLC, the current holder of an oil, gas and mineral lease covering approximately 1,045 acres in Wilson County, Texas known as the Marcelina Creek Field Development. The agreement provides for the drilling of four wells, one of which is a horizontal re-entry well within the 280 Johnson Unit (the Johnson #1 well) while the other three will be vertical development wells at locations to be determined later on within the existing lease property.

The Marcelina Creek Field Development is located over the Austin Chalk, Buda and Eagle Ford Formations, in Wilson County, Texas. Traditionally, their production is controlled by vertical fracturing of the rock with high productivity in wells which encounter the greatest amount of fractures; however, with the introduction of horizontal drilling technologies, numerous opportunities exist in areas and fields that were originally only drilled vertically. Analyzing the work previously performed by Bayshore, Torchlight believes that the Johnson unit re-entry is one of these opportunities

In August 2012, the Johnson #1 was re-drilled into the Austin Chalk formation with the lateral leg extending out approximately 2,400 feet and demonstrated excellent oil and gas shows during the drilling and open hole testing, producing over 1,200 barrels of oil which were sold as test oil. Based on a 24 hour test conducted in Augustof 2012, Johnson #1 produced oil at a stabilized rate of 18 barrels of oil per hour or 419 barrels per day along with significant associated gas. In October, the Company announced the results of a 30 day test, with the well producing an average of 196 BOPD (barrels of oil per day) from the Austin Chalk formation. The well became fully operational in Q3 with sustained production rate of over 100 BOPD, which management believes is sustainable over the next few years.

Potential Opportunities and Expected Reserves at the Marcelina Creek

Torchlight’s management estimates that a total of six to seven horizontal wells can be drilled on the Marcelina Creek acreage to each horizon. There are multiple prospective formations located at the Marcelina Creek, including Austin Chalk, Eagle Ford and Buda, as well as additional potential formations including , Olmos, Georgetown and Pearsall. Eagle Ford production has been established on all four sides of the lease property, while there is also Buda production and Austin Chalk production in the immediate offsetting the lease.

Management estimates a total of 9.33mm barrels of oil in expected reserves at the Marcelina Creek Field, 5.25mm of which would go to Torchlight as per the working interest agreements (see figures below). We believe that this opportunity by itself represents over $440mm of potential revenue and in excess of $100mm of potential net income. As a result, we feel that the Marcelina Creek offers substantial downside protection to investors at current price levels.

Coulter Field

In January 2012, Torchlight entered into a farm-in agreement with La Sal Energy, LLC which owns a 100% working interest and a 75% net revenue interest in certain oil, gas and mineral leases in Waller County, Texas, where the well known as “John Coulter #1-R” is located. Pursuant to the agreement, Torchlight acquired a 34% working interest and a 34% net revenue interest in La Sal’s interest in the John Coulter #1-R for the purchase price of $350k, which is expected to be sufficient to fund the fracing of the well. Once the well reaches production, The Company will receive 80% of the net revenue (with La Sal getting the remaining 20%) until the net revenue is an accumulated $437,500. During this period, any incremental expenses will be split according to actual percentage interests in the well. After the well generates over $437,500 in net revenue, it will be split according to the actual percentage interests in the well.

In addition, the agreement provides Torchlight with multiple options to acquire additional interests in La Sal’s interest in the well up to a total of 45%. Torchlight exercised the first option and purchased an additional 6% for $50k and still has the second option to purchase the remaining 5% for another $50k out of production.