S-1/A

Registration No. 333-192881

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

AMENDMENT NO. 2 TO FORM S-1 

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

PETRON ENERGY II, INC.

(Exact name of registrant in its charter)

Nevada	1311	45-2578051
(State or other jurisdiction of incorporation or organization)	(Primary Standard Industrial Classification Code Number)	(I.R.S. Employer Identification Number)

17950 Preston Road, Suite 960

Dallas, Texas 75252

(972) 272-8190

 (Address, including zip code, and telephone number,

including area code, of registrant’s principal executive offices)

N/A

 (Name, address, including zip code, and telephone number, including area code, of agent for service)

Copies of communications to:

Gregg E. Jaclin, Esq.

Szaferman, Lakind, Blumstein & Blader, P.C.

101 Grovers Mill Road, Second Floor

Lawrenceville, NJ 08648

Tel. No.: (609) 275-0400

Fax No.: (609) 275-4511

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☑

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☑
(Do not check if a smaller reporting company)

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities to be Registered	Amount to be Registered (1)		Proposed Maximum Offering Price Per Share (2)		Proposed Maximum Aggregate Offering Price		Amount of Registration Fee (3)
Common stock, par value $0.001 per share, issuable pursuant to the Investment Agreement		150,866,346	$	0.004	$	603,465.38	$	77.73
Total		150,866,346	$	0.004	$	603,465.38	$	77.73

(1)	We are registering 150,866,346 shares of our common stock that we will put to CPUS Income Group LLC pursuant to that certain investment agreement (the “Investment Agreement”). The Investment Agreement was entered into on December 13, 2013. In the event of stock splits, stock dividends or similar transactions involving the common stock, the number of common shares registered shall, unless otherwise expressly provided, automatically be deemed to cover the additional securities to be offered or issued pursuant to Rule 416 promulgated under the Securities Act of 1933, as amended (the “Securities Act”). In the event that the adjustment provisions of the CPUS Investment Agreement require the registrant to issue more shares than are being registered in this registration statement, for reasons other than those stated in Rule 416 of the Securities Act, the registrant will file a new registration statement to register those additional shares.
(2)	The offering price has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(o) of the Securities Act on the basis of the closing bid price of the common stock of the registrant as reported on the OTCBB on November 22, 2013.
(3)	Previously paid.

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the commission, acting pursuant to said section 8(a), may determine.

The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED MARCH 3, 2014

150,866,346 Shares of Common stock

PETRON ENERGY II, INC.

This prospectus relates to the resale of up to 150,866,346 shares of common stock of Petron Energy II, Inc. (“we” or the “Company”), par value $0.001 per share, issuable to CPUS Income Group LLC (“CPUS”) pursuant to that certain investment agreement. The investment agreement permits us to “put” up to $10,000,000 in shares of our common stock to CPUS over a period of up to thirty-six (36) months. We will not receive any proceeds from the resale of these shares of common stock. However, we will receive proceeds from the sale of securities pursuant to our exercise of the put right offered by CPUS. CPUS is deemed an underwriter for our common stock.

The selling stockholder may offer all or part of the shares for resale from time to time through public or private transactions, at either prevailing market prices or at privately negotiated prices. CPUS is paying all of the registration expenses incurred in connection with the registration of the shares except for accounting fees and expenses and we will not pay any of the selling commissions, brokerage fees and related expenses.

Our common stock is quoted on the Over-the-Counter Bulletin Board (“OTCBB”) under the ticker symbol “PEII.” On January 9, 2014 , the closing price of our common stock was $0.004 per share.

Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page  4 to read about factors you should consider before investing in shares of our common stock.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

The Date of This Prospectus Is:  March 3, 2014

TABLE OF CONTENTS

	Page
Prospectus Summary	1
The Offering	3
Risk Factors	4
Special Note Regarding Forward-Looking Statements	17
Use of Proceeds	17
Dilution	18
Market For Common Equity and Related Stockholder Matters	19
Management’s Discussion and Analysis of Financial Condition and Results Of Operations	22
Description of Business	26
Directors and Executive Officers	37
Executive Compensation	41
Security Ownership of Certain Beneficial Owners and Management	44
Certain Relationships and Related Transactions	46
Changes In and Disagreement With Accountants On Accounting and Financial Disclosure	47
Selling Stockholders	48
Plan of Distribution	49
Description of Securities To Be Registered	52
Legal Matters	52
Experts	52
Available Information	53
Index To Consolidated Financial Statements	F-1

PROSPECTUS SUMMARY

This summary highlights selected information contained elsewhere in this Prospectus. This summary does not contain all the information that you should consider before investing in the common stock of Petron Energy II, Inc. (referred to herein as the “Company,” “we,” “our,” and “us”). You should carefully read the entire Prospectus, including “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the accompanying financial statements and notes before making an investment decision.

Business Overview

Petron Energy II, Inc. (“Petron” or the “Company”) was formerly known as Petron Energy Special Corp. and was incorporated in September 2007 under the laws of the State of Texas; and, on April 2011, was reincorporated in the state of Nevada. Pursuant to a Plan of Merger, the parent company, Petron Energy Special Corp. was merged into its wholly owned subsidiary, Petron Energy II, Inc. The surviving entity was Petron Energy II, Inc. The effective date of the Plan of Merger was January 3, 2012.

The Company is engaged primarily in the acquisition, development, production, exploration for and the sale of oil, gas and gas liquids in the United States. As of September 30, 2013 the Company is operating in the states of Texas and Oklahoma. In addition, the Company operates two gas gathering systems located in Tulsa, Wagoner, Rogers and Mayes counties of Oklahoma. The pipeline consists of approximately 132 miles of steel and poly pipe, a gas processing plant and other ancillary equipment. The Company sells its oil and gas products primarily to a domestic pipeline and to another oil company.

Investment Agreement with CPUS

On December 13, 2013, we entered into an investment agreement with CPUS Income Group, LLC, a Florida liability company (“CPUS”). Pursuant to the terms of the Investment Agreement, CPUS committed to purchase up to $10,000,000 of our common stock over a period of up to thirty-six (36) months. From time to time during the thirty-six (36) month period commencing from the effectiveness of the registration statement, we may deliver a drawdown notice to CPUS which states the dollar amount that we intend to sell to CPUS on a date specified in the put notice. The maximum investment amount per notice shall be no more than two hundred seventy five percent (275%) of the average daily volume of the common stock for the ten consecutive trading days immediately prior to date of the applicable put notice. The purchase price per share to be paid by CPUS shall be calculated at a thirty percent (30%) discount to the lowest closing price of the common stock as reported by Bloomberg, L.P. during the ten (10) consecutive trading days immediately prior to the receipt by CPUS of the drawdown notice. We initially reserved 332,892,841 shares of our common stock for issuance under the Investment Agreement. We have more shares reserved than are covered in this registration statement. Additionally, the Company agreed to pay CPUS a commitment fee equal to $12,500 in the form of shares of the Company’s common stock (the “Commitment Shares”), at a purchase price equal to 50% discount to the price per share on the closing date of the Investment Agreement

In connection with the Investment Agreement, we also entered into a registration rights agreement the “Registration rights Agreement” with CPUS, pursuant to which we are obligated to file a registration statement with the SEC covering 150,866,346 shares of our common stock underlying the Investment Agreement within 21 days after the closing of the transaction. In addition, we are obligated to use all commercially reasonable efforts to have the registration statement declared effective by the SEC within 120 days after the closing of the transaction and maintain the effectiveness of such registration statement until termination of the Investment Agreement.

The 150,866,346 shares to be registered herein represent 22.91% of the shares issued and outstanding, assuming that the selling stockholder will sell all of the shares offered for sale.

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At an assumed purchase price of $ 0 .0032(equal to 80% of the closing price of our common stock of $ 0 .004 on January 9, 2014 ), we will be able to receive up to $482,772 in gross proceeds, assuming the sale of the entire 150,866,346 shares being registered hereunder pursuant to the Investment Agreement. Accordingly, we would be required to register an additional 2,974,133,750 shares to obtain the balance of $9,517,228 under the Investment Agreement. We are currently authorized to issue 15,000,000,000 shares of our common stock. If the price of our common stock does not increase enough, we will be required to increase our authorized shares in order to receive the entire purchase price. CPUS has agreed to refrain from holding an amount of shares which would result in CPUS owning more than 4.99% of the then-outstanding shares of our common stock at any one time.

There are substantial risks to investors as a result of the issuance of shares of our common stock under the Investment Agreement. These risks include dilution of stockholders’ percentage ownership, significant decline in our stock price and our inability to draw sufficient funds when needed.

CPUS will periodically purchase our common stock under the Investment Agreement and will, in turn, sell such shares to investors in the market at the market price. This may cause our stock price to decline, which will require us to issue increasing numbers of common shares to CPUS to raise the same amount of funds, as our stock price declines.

The aggregate investment amount of $10,000,000 was determined based on numerous factors, including the following:

•Current financial operating needs

•Financing of workover projects

•Acquisition of non-operating interests

•Acquisition of additional oil and gas properties

•Debt service

Where You Can Find Us

Our mailing address is 17950 Preston Road, Suite 960, Dallas, Texas 75252, and our telephone number is (972) 272-8190.

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THE OFFERING

Common stock outstanding before the offering	701,162,036 shares of common stock as of January 27, 2014.
Common stock offered by selling stockholder	150,866,346 shares of common stock.
Common stock outstanding after the offering	852,028,382 shares of common stock.
Use of proceeds	We will not receive any proceeds from the sale of shares by the selling stockholder. However, we will receive proceeds from the sale of securities pursuant to the Investment Agreement. The proceeds received under the Investment Agreement will be used for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in its good faith deem to be in the best interest of the Company.
OTCBB Trading Symbol	PEII.OB
Risk Factors	The common stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment.  See “Risk Factors”.

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RISK FACTORS

You should carefully consider the risks described below together with all of the other information included in this Prospectus before making an investment decision with regard to our securities. The statements contained in or incorporated into this Prospectus that are not historic facts are forward-looking statements that are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in or implied by forward-looking statements. If any of the following risks actually occurs, our business, financial condition or results of operations could be harmed. In that case, the trading price of our common stock could decline, and you may lose all or part of your investment.

Risks Related to Our Business

Our Chief Executive Officer, Floyd L. Smith, holds Series A Preferred Stock which will provide him continuing voting control over the Company and, as a result, he will exercise significant control over corporate decisions.

Floyd L. Smith, our Chief Executive Officer, President and Director, has beneficial ownership of the entire class of the Company’s Series A Preferred Stock, which voting together as a class, have the right to vote 51% of the Company’s voting shares on any and all shareholder matters. Additionally, the Company shall not adopt any amendments to the Company's Bylaws, Articles of Incorporation, as amended, make any changes to the Certificate of Designations establishing the Series A Preferred Stock, or effect any reclassification of the Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock. However, the Company may, by any means authorized by law and without any vote of the holders of shares of Series A Preferred Stock, make technical, corrective, administrative or similar changes to such Certificate of Designations that do not, individually or in the aggregate, adversely affect the rights or preferences of the holders of shares of Series A Preferred Stock.

Other than the Super Majority Voting Rights, the Series A Preferred Stock does not have any other dividend, liquidation, conversion, or redemption rights, whatsoever.

As a result of the above, Mr. Smith exercises control in determining the outcome of corporate transactions or other matters, including the election of directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. Any investors who purchase shares will be minority shareholders and as such will have no say in the direction of the Company and the election of Directors. Investors in the Company should keep in mind that even if you own shares of the Company's common stock and wish to vote them at annual or special shareholder meetings, your shares will have no effect on the outcome of corporate decisions or the election of Directors. Furthermore, investors should be aware that Mr. Smith may choose to elect new Directors to the Board of Directors of the Company and/or take the Company in a new business direction altogether, and, as a result, current shareholders of the Company will have little to no say in such matters.

Shareholders who hold unregistered shares of our common stock are subject to resale restrictions pursuant to Rule 144, due to our previous status as a “Shell Company.”

Pursuant to Rule 144 of the Securities Act of 1933, as amended (“ Rule 144 ”), a “ shell company ” is defined as a company that has no or nominal operations; and, either no or nominal assets; assets consisting solely of cash and cash equivalents; or assets consisting of any amount of cash and cash equivalents and nominal other assets. As such, prior to the completion of the Asset Purchase Agreement and our related Form 8-K filing, we had been considered a “ shell company” pursuant to Rule 144, and as such, sales of our securities pursuant to Rule 144 were not able to be made until: 1) we had ceased to be a “ shell company,” which occurred after the closing the Asset Purchase Agreement); 2) we are subject to Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, and have filed all of our required periodic reports for at least the previous one year period prior to any sale pursuant to Rule 144; and a period of at least twelve months has elapsed from that date. “Form 10 information” has been filed with the Commission reflecting the Company’s status as a “non-shell company,” incorporated by reference as filed with the Commission on Form 8-K on January 6, 2012.

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Pursuant to Rule 144, a one year waiting period from the time of filing was required to “cure” the Company’s previous “shell” status. Our “shell” status was thus cured on January 6, 2013 and shareholders of the Company who hold and purchase in the future any restricted securities of the Company will have Rule 144 available if all other requirements of the rule are met.

We rely upon key personnel and if they leave us, our business plan and results of operations could be adversely affected.

We rely heavily on our Chief Executive Officer, President, Treasurer and Director, Floyd L. Smith. His experience and input creates the foundation for our business and he is responsible for the directorship and control over our operations. We do currently have an employment agreement with Mr. Smith (as described above), and we put into place a "key man" insurance policy on Mr. Smith in the amount of $3,000,000. Moving forward, should we lose the services of Mr. Smith, for any reason, we will incur costs associated with recruiting a replacement and delays in our operations. If we are unable to replace Mr. Smith with another suitably trained individual or individuals, we may be forced to scale back or curtail our business plan. As a result of this, your investment in us could become devalued or worthless and we may be forced to abandon or change our business plan.

We may not be able to successfully manage our growth, which could lead to our inability to implement our business plan.

Our growth is expected to place a significant strain on our managerial, operational and financial resources, especially considering that we currently only have three directors and one executive officer. Further, as we enter into additional contracts, we will be required to manage multiple relationships with various consultants, businesses and other third parties. These requirements will be exacerbated in the event of our further growth. There can be no assurance that our systems, procedures and/or controls will be adequate to support our operations or that our management will be able to achieve the rapid execution necessary to successfully implement our business plan. If we are unable to manage our growth effectively, our business, results of operations and financial condition will be adversely affected, which could lead to us being forced to abandon or curtail our business plan and operations.

We have a limited operating history in our current business focus of oil and gas production and, because of this, it may be difficult to evaluate our chances for success.

We were formed in June 2007 as a company specializing in restaurant consulting and investment activities; provided that we only generated limited revenues in connection with such operations, and changed our business focus to oil and gas exploration activities in connection with our acquisition by Petron Special in August 2011 (described above). As such, we have a limited history in our current business focus of oil and gas exploration. We are a relatively new company and, as such, run a risk of not being able to compete in the marketplace because of our relatively short existence. New companies in the competitive environment of oil and gas exploration may face significant competition, and as a result, we may be forced to abandon or curtail our business plan. Under such a circumstance, the value of any investment in us may become worthless.

5

Our Articles of Incorporation, as amended, and Bylaws limit the liability of, and provide indemnification for, our officers and directors.

Our Articles of Incorporation, as amended, generally limit our officers' and directors' personal liability to the Company and its stockholders for breach of fiduciary duty as an officer or director except for breach of the duty of loyalty or acts or omissions not made in good faith or which involve intentional misconduct or a knowing violation of law. Our Articles of Incorporation, as amended, and Bylaws provide indemnification for our officers and directors to the fullest extent authorized by the Nevada General Corporation Law against all expense, liability, and loss, including attorney's fees, judgments, fines excise taxes or penalties and amounts to be paid in settlement reasonably incurred or suffered by an officer or director in connection with any action, suit or proceeding, whether civil or criminal, administrative or investigative (hereinafter a " Proceeding ") to which the officer or director is made a party or is threatened to be made a party, or in which the officer or director is involved by reason of the fact that he is or was an officer or director of the Company, or is or was serving at the request of the Company as an officer or director of another corporation or of a partnership, joint venture, trust or other enterprise whether the basis of the Proceeding is an alleged action in an official capacity as an officer or director, or in any other capacity while serving as an officer or director. Thus, the Company may be prevented from recovering damages for certain alleged errors or omissions by the officers and directors for liabilities incurred in connection with their good faith acts for the Company. Such an indemnification payment might deplete the Company's assets. Stockholders who have questions regarding the fiduciary obligations of the officers and directors of the Company should consult with independent legal counsel. It is the position of the Securities and Exchange Commission that exculpation from and indemnification for liabilities arising under the Securities Act of 1933, as amended, and the rules and regulations thereunder is against public policy and therefore unenforceable.

Risks Relating to the Oil and Gas Operations of the Company

Oil, gas and natural gas liquid prices are volatile

We anticipate that our future financial results will be highly dependent on the general supply and demand for oil, gas and natural gas liquids (“NGLs”), which will impact the prices we ultimately realize on our future sales of these commodities. A significant downward movement of the prices for these commodities could have a material adverse effect on our future revenues, operating cash flows and profitability. Such a downward price movement could also have a material adverse effect on our future estimated proved reserves, the carrying value of our future oil and gas properties, the level of planned drilling activities and future growth. Historically, market prices have been volatile and are likely to continue to be volatile in the future due to numerous factors beyond our control. These factors include, but are not limited to:

•  consumer demand for oil, gas and NGLs;

•  conservation efforts;

•  OPEC production levels;

•  weather;

•  regional pricing differentials;

•  differing quality of oil produced (i.e., sweet crude versus heavy or sour crude);

•  differing quality and NGL content of gas produced;

•  the level of imports and exports of oil, gas and NGLs;

•  the price and availability of alternative fuels;

•  the overall economic environment; and

•  governmental regulations and taxes.

6

Our common stock is subject to price volatility unrelated to our operations.

The market price of our common stock could fluctuate substantially due to a variety of factors, including market perception of our ability to achieve our planned growth, quarterly operating results of other companies in the same industry, trading volume in our common stock, changes in general conditions in the economy and the financial markets or other developments affecting our competitors or ourselves. In addition, the OTCBB is subject to extreme price and volume fluctuations in general.  This volatility has had a significant effect on the market price of securities issued by many companies for reasons unrelated to their operating performance and could have the same effect on our common stock.

Estimates of oil, gas, and NGL reserves are uncertain.

The process of estimating oil, gas and NGL reserves is complex and requires significant judgment in the evaluation of available geological, engineering and economic data for each reservoir, particularly for new discoveries. Because of the high degree of judgment involved, different reserve engineers may develop different estimates of reserve quantities and related revenue based on the same data. In addition, the reserve estimates for a given reservoir may change substantially over time as a result of several factors including additional development activity, the viability of production under varying economic conditions and variations in production levels and associated costs. Consequently, material revisions to our future reserve estimates may occur as a result of changes in any of these factors. Such revisions to reserves could have a material adverse effect on our future estimates of future net revenue, as well as our financial condition and profitability.

The reserve estimates as of December 31, 2012 were prepared by Forrest A. Garb & Associates, Inc., a third party, and are primarily overseen by David Knepper, who is also a Director of the Company. Mr. Knepper’s biographical information and qualifications are disclosed on page 37 of our Registration Statement.

Discoveries or acquisitions of additional reserves will be needed to avoid a material decline in future reserves and production.

The production rates from oil and gas properties generally decline as reserves are depleted, while related per unit production costs generally increase, due to decreasing reservoir pressures and other factors. Therefore, we anticipate our future estimated proved reserves and future oil, gas and NGL production will decline materially as future reserves are produced unless we conduct successful exploration and development activities or, unless we identify additional producing zones in existing wells, secondary or tertiary recovery techniques, or acquire additional properties containing proved reserves. Consequently, our future oil, gas and NGL production and related per unit production costs will be highly dependent upon our level of success in finding or acquiring additional reserves.

Future drilling results are uncertain and involve substantial costs.

Substantial costs are often required to locate and acquire properties and drill wells. Such activities are subject to numerous risks, including the risk that we will not encounter commercially productive oil or gas reservoirs. The costs of drilling and completing wells are often uncertain. In addition, oil and gas properties can become damaged or drilling operations may be curtailed, delayed or canceled as a result of a variety of factors including, but not limited to:

•  unexpected drilling conditions;

•  pressure or irregularities in reservoir formations;

•  equipment failures or accidents;

•  fires, explosions, blowouts and surface cratering;

•  adverse weather conditions;

•  lack of access to pipelines or other transportation methods;

•  environmental hazards or liabilities; and

•  shortages or delays in the availability of services or delivery of equipment.

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A significant occurrence of one of these factors could result in a partial or total loss of our future investment in a particular property. In addition, drilling activities may not be successful in establishing proved reserves. Such a failure could have an adverse effect on our future results of operations and financial condition. While both exploratory and developmental drilling activities involve these risks, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons.

Industry competition for leases, materials, people and capital can be significant.

Strong competition exists in all sectors of the oil and gas industry. We plan to compete with major integrated and other independent oil and gas companies for the acquisition of oil and gas leases and properties. We also plan to compete for the equipment and personnel required to explore, develop and operate properties. Competition is also prevalent in the marketing of oil, gas and NGLs. Typically, during times of high or rising commodity prices, drilling and operating costs will also increase. Higher prices will also generally increase the costs of properties available for acquisition. Our competitors have financial and other resources substantially larger than ours. They also may have established strategic long-term positions and relationships in areas in which we may seek new entry. As a consequence, we may be at a competitive disadvantage in bidding for properties. In addition, many of our larger competitors may have a competitive advantage when responding to factors that affect demand for oil and gas production, such as changing worldwide price and production levels, the cost and availability of alternative fuels, and the application of government regulations.

Public policy, which includes laws, rules and regulations, can change.

Our planned operations are subject to federal laws, rules and regulations in the United States. In addition, we will also be subject to the laws and regulations of various states and local governments. Pursuant to public policy changes, numerous government departments and agencies have issued extensive rules and regulations binding on the oil and gas industry and its individual members, some of which carry substantial penalties for failure to comply. Changes in such public policies could affect our planned operations. Political developments can restrict production levels, enact price controls, change environmental protection requirements, and increase taxes, royalties and other amounts payable to governments or governmental agencies. Existing laws and regulations can also require us to incur substantial costs to maintain regulatory compliance. Our future projected operating and other compliance costs could increase if existing laws and regulations are revised or reinterpreted or if new laws and regulations become applicable to our operations. Although we are unable to predict changes to existing laws and regulations, such changes could significantly impact our future profitability, financial condition and liquidity, particularly changes related to hydraulic fracturing, income taxes and climate change as discussed below.

Hydraulic Fracturing— The U.S. Congress is currently considering legislation to amend the federal Safe Drinking Water Act to require the disclosure of chemicals used by the oil and natural-gas industry in the hydraulic-fracturing process. Currently, regulation of hydraulic fracturing is primarily conducted at the state level through permitting and other compliance requirements. This legislation, if adopted, could establish an additional level of regulation and permitting at the federal level.

Income Taxes— The U.S. President’s recent budget proposals include provisions that would, if enacted, make significant changes to United States tax laws. The most significant change would eliminate the immediate deduction for intangible drilling and development costs. 

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Climate Change— Policy makers in the United States are increasingly focusing on whether the emissions of greenhouse gases, such as carbon dioxide and methane, are contributing to harmful climatic changes. Policy makers at both the United States federal and state level have introduced legislation and proposed new regulations that are designed to quantify and limit the emission of greenhouse gases through inventories and limitations on greenhouse gas emissions. Legislative initiatives to date have focused on the development of cap-and-trade programs. These programs generally would cap overall greenhouse gas emissions on an economy-wide basis and require major sources of greenhouse gas emissions or major fuel producers to acquire and surrender emission allowances. Cap-and-trade programs would be relevant to our planned operations because the equipment we plan to use to explore for, develop, produce and process oil and natural gas emits greenhouse gases. Additionally, the combustion of carbon-based fuels, such as the oil, gas and NGLs we plan to sell, emits carbon dioxide and other greenhouse gases.

We will incur certain costs to comply with government regulations, particularly regulations relating to environmental protection and safety, and could incur even greater costs in the future.

Our production and marketing operations are regulated extensively at the federal, state and local levels and are subject to interruption or termination by governmental and regulatory authorities based on environmental or other considerations. Moreover, we have incurred and will continue to incur costs in our efforts to comply with the requirements of environmental, safety and other regulations. Further, the regulatory environment in the oil and gas industry could change in ways that we cannot predict and that might substantially increase our costs of compliance and, in turn, materially and adversely affect our business, results of operations and financial condition.

Specifically, as an owner or lessee and operator of crude oil and natural gas properties, we are subject to various federal, state, and local regulations relating to the discharge of materials into, and the protection of, the environment. These regulations may, among other things, impose liability on us for the cost of pollution cleanup resulting from operations, subject us to liability for pollution damages and require suspension or cessation of operations in affected areas. Moreover, we are subject to the United States (U.S.) Environmental Protection Agency's (U.S. EPA) rule requiring annual reporting of greenhouse gas (GHG) emissions. Changes in, or additions to, these regulations could lead to increased operating and compliance costs and, in turn, materially and adversely affect our business, results of operations and financial condition.

We are aware of the increasing focus of local, state, national and international regulatory bodies on GHG emissions and climate change issues. In addition to the U.S. EPA's rule requiring annual reporting of GHG emissions, we are also aware of legislation proposed by U.S. lawmakers to reduce GHG emissions.

Additionally, there have been various proposals to regulate hydraulic fracturing at the federal level. Currently, the regulation of hydraulic fracturing is primarily conducted at the state level through permitting and other compliance requirements. Any new federal regulations that may be imposed on hydraulic fracturing could result in additional permitting and disclosure requirements (such as the reporting and public disclosure of the chemical additives used in the fracturing process) and in additional operating restrictions. In addition to the possible federal regulation of hydraulic fracturing, some states and local governments have considered imposing various conditions and restrictions on drilling and completion operations, including requirements regarding casing and cementing of wells, testing of nearby water wells, restrictions on the access to and usage of water and restrictions on the type of chemical additives that may be used in hydraulic fracturing operations. Such federal and state permitting and disclosure requirements and operating restrictions and conditions could lead to operational delays and increased operating and compliance costs and, moreover, could delay or effectively prevent the development of crude oil and natural gas from formations which would not be economically viable without the use of hydraulic fracturing.

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We will continue to monitor and assess any new policies, legislation, regulations and treaties in the areas where we operate to determine the impact on our operations and take appropriate actions, where necessary. We are unable to predict the timing, scope and effect of any currently proposed or future laws, regulations or treaties, but the direct and indirect costs of such laws, regulations and treaties (if enacted) could materially and adversely affect our business, results of operations and financial condition.

Environmental matters and costs can be significant.

As an owner, lessee or operator of oil and gas properties, we will be subject to various federal, state, provincial, tribal and local laws and regulations relating to discharge of materials into, and protection of, the environment. These laws and regulations may, among other things, impose liability on us for the cost of pollution clean-up resulting from our operations in affected areas. Any future environmental costs of fulfilling our commitments to the environment are uncertain and will be governed by several factors, including future changes to regulatory requirements. There is no assurance that changes in or additions to public policy regarding the protection of the environment will not have a significant impact on our planned operations and profitability.

Insurance does not cover all risks.

Development, production and processing of oil, gas and NGLs can be hazardous and involve unforeseen occurrence including, but not limited to blowouts, cratering, fires and loss of well control. These occurrences can result in damage to or destruction of wells or production facilities, injury to persons, loss of life, or damage to property or the environment. We plan to maintain insurance against certain losses or liabilities in accordance with customary industry practices and in amounts that management believes to be prudent. However, insurance against all operational risks will not be available to us.

Because of the inherent dangers involved in oil and gas operations, there is a risk that we may incur liability or damages as we conduct our business operations, which could force us to expand a substantial amount of money in connection with litigation and/or settlements.

The oil and natural gas business involves a variety of operating hazards and risks such as well blowouts, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to us from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, we may be liable for environmental damages caused by previous owners of property purchased and/or leased by us. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for the purchase of properties and/or property interests, exploration, development or acquisitions or result in the loss of properties and/or force us to expend substantial monies in connection with litigation or settlements. As such, there can be no assurance that any insurance obtained by us in the future will be adequate to cover any losses or liabilities. We cannot predict the availability of insurance or the availability of insurance at premium levels that justify our purchase. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect our financial condition and operations. We may elect to self-insure if management believes that the cost of insurance, although available, is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on our financial condition and results of operations, which could lead to any investment in us becoming worthless.

10

Risks Relating To Our Securities

Shareholders may be diluted significantly through our efforts to obtain financing, satisfy obligations, and/or complete acquisitions through the issuance of additional shares of our common stock or other securities.

Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy the Company’s obligations. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock or other securities (including the shares of convertible preferred stock that have been issued to shareholders of ONE Energy Capital Corp., ONE Energy International Corp. and their affiliated parties in connection with the Asset Acquisition Agreement described above).

We have signed an Investment Agreement with CPUS, for up to $10,000,000 through sales of our common stock. The Investment Agreement grants the investors the ability to buy a substantial number of shares of common stock in a series of private placement transactions at a price that is at a discount to the market price. If common stock is issued in return for additional funds, the price per share could be lower than that paid by our current stockholders.  We anticipate continuing to rely on equity sales of our common stock in order to fund our business operations.  If we issue additional stock, investors' percentage interests in us will be diluted.  The result of this could reduce the value of current investors' stock.

Additionally, moving forward, we may attempt to conduct acquisitions and/or mergers of other entities or assets using our common stock or other securities as payment for such transactions. Our Board of Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares of common stock and preferred stock with various preferences and other rights. If such transactions occur, this may result in substantial dilution of the ownership interests of existing shareholders, and dilute the book value of the Company’s common stock.

There is substantial doubt as to whether we will continue operations. If we discontinue operations, you could lose your investment.

The following factors raise substantial doubt regarding the ability of our business to continue as a going concern: (i) the losses we incurred since our inception; (ii) our low level of operating revenues since inception through the date of our registration statement, of which this prospectus is a part; and (iii) our dependence on the sale of equity securities to continue in operation. We have signed an Investment Agreement with CPUS for up to $10,000,000 through sales of our common stock.  We anticipate that we will incur increased expenses without realizing enough revenues from operations. We therefore expect to incur significant losses in the near future. The financial statements do not include any adjustments that might result from the uncertainty about our ability to continue our business. If we are unable to obtain additional financing from outside sources and eventually produce enough revenues, we may be forced to curtail or cease our operations. If this happens, you could lose all or part of your investment.

Moving forward we plan to rely on financing and additional funds from current investors of the Company and third party investors in order to support our operations and pay our expenses. Additional funding will likely come from debt and/or equity financing from the sale of our common stock. If we are successful in completing an equity financing, existing shareholders will experience dilution of their interest in our Company. There are no assurances that we will be able to achieve further sales of our common stock or any other form of additional financing. If we are unable to achieve the financing necessary to continue our plan of operations, then we will not be able to continue our business operations. If we are unable to raise the funds we require, your investment could become worthless.

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We are party to a Plan of Reorganization and Asset Purchase Agreement pursuant to which we paid significant consideration for the acquisition of certain oil and gas assets, which consideration caused substantial dilution to our existing shareholders and may cause dilution in the future.

Pursuant to the Plan of Reorganization and Asset Purchase Agreement, the Company agreed to acquire the assets of ONE Energy Capital Corp., ONE Energy International Corp. and their affiliated parties in aggregate consideration for 5,910,00 shares of the Company’s Series B Convertible Preferred stock. Under the Plan of Reorganization and Asset Purchase Agreement, these shares of Series B Convertible preferred stock convert into common shares of the Company having a total value of $5,910,000, based on the average trading price of the Company’s common stock on the five days prior to the date of conversion; vote one-for-one with the common shares; cannot be converted by the holders thereof if such conversion would result in the acquisition by such holder of more than 9.99% of the Company’s outstanding stock (the “Ownership Limitation”). 4,904,502 shares of the Series B Convertible stock have been converted into an aggregate of 117,653,320 shares of the common stock of the Company. At January 27, 2014 , we had 840,938 shares of Series B Convertible Preferred Stock issued and outstanding which had not converted because of the Ownership Limitation. The shareholders receiving the convertible preferred stock described above also received warrants to purchase an aggregate of 1,000,000 (post-split) shares of the Company’s common stock with an exercise price of $0.08 per share.

We do not expect to pay dividends in the foreseeable future.

We do not intend to declare dividends for the foreseeable future, as we anticipate that we will reinvest any future earnings in the development and growth of our business.  Therefore, our stockholders will not receive any funds unless they sell their common stock, and stockholders may be unable to sell their shares on favorable terms or at all.

Trading in our common stock on the OTC Bulletin Board is limited and sporadic and fluctuates, making it difficult for our shareholders to sell their shares or liquidate their investments.

Our common stock is quoted on the Over-The-Counter Bulletin Board (the “OTCBB”) under the symbol “PEII”. We anticipate the market for our common stock on the OTCBB to be subject to fluctuations in response to several factors, including, but not limited to:

(1)	actual or anticipated variations in our results of operations;
(2)	our ability to generate revenues;
(3)	conditions and trends in the market for oil and natural gas; and
(4)	future acquisitions we may make

Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates, or government regulations may adversely affect the market price and liquidity of our common stock.

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If we are late in filing our quarterly or annual reports with the SEC or a Market Maker fails to quote our common stock on the OTCBB for a period of more than four days, we may be de-listed from the OTCBB.

Pursuant to OTCBB rules relating to the timely filing of periodic reports with the Securities and Exchange Commission (“SEC”), any OTCBB issuer which fails to file a periodic report (Form 10-Q or 10-K) by the due date of such report (not withstanding any extension granted to the issuer by the filing of a Form 12b-25), three times during any 24 month period is automatically de-listed from the OTCBB. Such removed issuer would not be re-eligible to be listed on the OTCBB for a period of one year, during which time any subsequent late filing would reset the one-year period of de-listing. Additionally, if a market maker fails to quote our common stock on the OTCBB for a period of more than four consecutive days, we will be automatically delisted from the OTCBB. If we are late in our filings three times in any 24 month period and are de-listed from the OTCBB or are automatically delisted for failure of a market maker to quote our stock, our securities may become worthless and we may be forced to curtail or abandon our business plan.

We are subject to penny stock regulations and restrictions and you may have difficulty selling shares of our common stock.

Our common stock is subject to the provisions of Section 15(g) and Rule 15g-9 of the Securities Exchange Act of 1934 (the “Exchange Act”), commonly referred to as the “penny stock rule.”  Section 15(g) sets forth certain requirements for transactions in penny stock, and Rule 15g-9(d) incorporates the definition of “penny stock” that is found in Rule 3a51-1 of the Exchange Act.  The SEC generally defines a penny stock to be any equity security that has a market price less than $5.00 per share, subject to certain exceptions. We are subject to the SEC’s penny stock rules.

Since our common stock is deemed to be penny stock, trading in the shares of our common stock is subject to additional sales practice requirements on broker-dealers who sell penny stock to persons other than established customers and accredited investors.  “Accredited investors” are persons with assets in excess of $1,000,000 (excluding the value of such person’s primary residence) or annual income exceeding $200,000 or $300,000 together with their spouse. For transactions covered by these rules, broker-dealers must make a special suitability determination for the purchase of such security and must have the purchaser’s written consent to the transaction prior to the purchase. Additionally, for any transaction involving a penny stock, unless exempt the rules require the delivery, prior to the first transaction of a risk disclosure document, prepared by the SEC, relating to the penny stock market.  A broker-dealer also must disclose the commissions payable to both the broker-dealer and the registered representative and current quotations for the securities.  Finally, monthly statements must be sent disclosing recent price information for the penny stocks held in an account and information to the limited market in penny stocks.  Consequently, these rules may restrict the ability of broker-dealer to trade and/or maintain a market in our common stock and may affect the ability of our stockholders to sell their shares of common stock.

There can be no assurance that our shares of common stock will qualify for exemption from the Penny Stock Rule. In any event, even if our common stock was exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock if the SEC finds that such a restriction would be in the public interest.

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State securities laws may limit secondary trading, which may restrict the state in which and conditions under which you can sell shares.

Secondary trading in our common stock may not be possible in any state until the common stock is qualified for sale under the applicable securities laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the common stock in any particular state, the common stock could not be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the liquidity for the common stock could be significantly impacted.

Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protections against interested director transactions, conflicts of interest, and similar matters.

The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the Nasdaq Stock Market.

We do not currently have an independent audit or compensation committee. As a result, our Directors have the ability to, among other things; determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and any potential investors may be reluctant to provide us with funds necessary to expand our operations.

We intend to comply with all corporate governance measures relating to Director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, Directors and members of board committees required to provide for our effective management as a result of the Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of Directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.

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Nevada law and our Articles of Incorporation authorize us to issue shares of stock, which shares may cause substantial dilution to our existing shareholders.

We have authorized capital stock consisting of 15,000,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share. As of January 27, 2014 , we had  701,162,036 shares of common stock outstanding, 1,000 shares of Series A Preferred Stock issued and outstanding, and 840,938 shares of Series B Convertible Preferred stock issued and outstanding. As a result, our Board of Directors has the ability to issue a large number of additional shares of common stock without shareholder approval, which if issued could cause substantial dilution to our then shareholders. Additionally, shares of preferred stock may be issued by our Board of Directors without shareholder approval with voting powers, and such preferences and relative, participating, optional or other special rights and powers as determined by our Board of Directors, which may be greater than the shares of common stock currently outstanding. As a result, shares of preferred stock may be issued by our Board of Directors which cause the holders to have super majority voting power over our shares (similar to the Shares A Preferred Stock previously issued by the Board of Directors), provide the holders of the preferred stock the right to convert the shares of preferred stock they hold into shares of our common stock, which may cause substantial dilution to our then common stock shareholders and/or have other rights and preferences greater than those of our common stock shareholders. Investors should keep in mind that the Board of Directors has the authority to issue additional shares of common stock and preferred stock, which could cause substantial dilution to our existing shareholders. Additionally, the dilutive effect of any preferred stock, which we may issue may be exacerbated given the fact that such preferred stock may have super majority voting rights (similar to the Series A Preferred Stock already issued and outstanding) and/or other rights or preferences which could provide the preferred shareholders with voting control over us subsequent to this filing and/or give those holders the power to prevent or cause a change in control. As a result, the issuance of shares of common stock and/or preferred stock may cause the value of our securities to decrease and/or become worthless.

CPUS will pay less than the then-prevailing market price for our common stock.

The common stock to be issued to CPUS pursuant to the Investment Agreement will be purchased at a 30% discount to the lowest closing price of our common stock during the ten (10) consecutive trading days immediately before CPUS receives our notice of sale.  CPUS has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price.  If CPUS sells the shares, the price of our common stock could decrease.  If our stock price decreases, CPUS may have a further incentive to sell the shares of our common stock that it holds.  These sales may have a further impact on our stock price.

Your ownership interest may be diluted and the value of our common stock may decline by exercising the put right pursuant to the Investment Agreement.

Pursuant to the Investment Agreement, when we deem it necessary, we may raise capital through the private sale of our common stock to CPUS at a price equal to a discount to the lowest closing price of the common stock for the ten (10) consecutive trading days before CPUS receives our notice of sale. Because the put price is lower than the prevailing market price of our common stock, to the extent that the put right is exercised, your ownership interest may be diluted.

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We are registering an aggregate of 150,866,346 shares of common stock to be issued under the Investment Agreement. The sales of such shares could depress the market price of our common stock.

We are registering an aggregate of 150,866,346 shares of common stock under the registration statement of which this prospectus is a part, pursuant to the Investment Agreement. Notwithstanding CPUS’s ownership limitation, the 150,866,346 shares would represent approximately 29.91% of our shares of common stock outstanding immediately after our exercise of the put right under the Investment Agreement. The sale of these shares into the public market by CPUS could depress the market price of our common stock.

We may not have access to the full amount available under the Investment Agreement.

Our ability to draw down funds and sell shares under the Investment Agreement requires that this resale registration statement be declared effective and continue to be effective.  This registration statement registers the resale of 150,866,346 shares issuable under the Investment Agreement, and our ability to sell any remaining shares issuable under the Investment Agreement is subject to our ability to prepare and file one or more additional registration statements registering the resale of these shares. These registration statements may be subject to review and comment by the staff of the SEC, and will require the consent of our independent registered public accounting firm. Therefore, the timing of effectiveness of these registration statements cannot be assured. The effectiveness of these registration statements is a condition precedent to our ability to sell all of the shares of common stock to CPUS under the Investment Agreement. Even if we are successful in causing one or more registration statements registering the resale of some or all of the shares issuable under the Investment Agreement to be declared effective by the SEC in a timely manner, we may not be able to sell the shares unless certain other conditions are met. For example, we might have to increase the number of our authorized shares in order to issue the shares to CPUS. Accordingly, because our ability to draw down any amounts under the Investment Agreement is subject to a number of conditions, there is no guarantee that we will be able to draw down any portion or all of the proceeds of $10,000,000 under the Investment Agreement.

Certain restrictions on the extent of puts and the delivery of advance notices may have little, if any, effect on the adverse impact of our issuance of shares in connection with the Investment Agreement, and as such, CPUS may sell a large number of shares, resulting in substantial dilution to the value of shares held by existing shareholders.

CPUS has agreed, subject to certain exceptions listed in the Investment Agreement, to refrain from holding an amount of shares which would result in CPUS or its affiliates owning more than 4.99% of the then-outstanding shares of our common stock at any one time. These restrictions, however, do not prevent CPUS from selling shares of common stock received in connection with a put, and then receiving additional shares of common stock in connection with a subsequent put.  In this way, CPUS could sell more than 4.99% of the outstanding common stock in a relatively short time frame while never holding more than 4.99% at one time.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus contains certain forward-looking statements. When used in this Prospectus or in any other presentation, statements which are not historical in nature, including the words “anticipate,” “estimate,” “should,” “expect,” “believe,” “intend,” “may,” “project,” “plan” or “continue,” and similar expressions are intended to identify forward-looking statements. They also include statements containing a projection of revenues, earnings or losses, capital expenditures, dividends, capital structure or other financial terms.

The forward-looking statements in this Prospectus are based upon our management’s beliefs, assumptions and expectations of our future operations and economic performance, taking into account the information currently available to them. These statements are not statements of historical fact. Forward-looking statements involve risks and uncertainties, some of which are not currently known to us that may cause our actual results, performance or financial condition to be materially different from the expectations of future results, performance or financial condition we express or imply in any forward-looking statements. These forward-looking statements are based on our current plans and expectations and are subject to a number of uncertainties and risks that could significantly affect current plans and expectations and our future financial condition and results.

We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Prospectus might not occur. We qualify any and all of our forward-looking statements entirely by these cautionary factors. As a consequence, current plans, anticipated actions and future financial conditions and results may differ from those expressed in any forward-looking statements made by or on our behalf. You are cautioned not to unduly rely on such forward-looking statements when evaluating the information presented herein.

USE OF PROCEEDS

We will not receive any proceeds from the sale of shares by the selling stockholder. However, we will receive proceeds from the sale of securities pursuant to the Investment Agreement. The proceeds received from any “drawdowns” tendered to CPUS under the Investment Agreement will be used for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in its good faith deem to be in the best interest of the Company.

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DILUTION 

The following information is based upon the Company’s unaudited balance sheet as filed in the Company’s Form 10-Q on November 7, 2013, for the period ended September 30, 2013, the net tangible book value of the Company’s assets as of September 30, 2013 is $(1,517,448).

“Dilution” as used herein represents the difference between the offering price per share of shares offered hereby and the net tangible book value per share of the Company’s common stock after completion of the offering. Dilution in the offering is primarily due to the losses previously recognized by the Company.

The net tangible book value of the Company at September 30, 2013 was $(1,517,448) or $(0.009) per share. Net tangible book value represents the amount of total tangible assets less total liabilities. Assuming that 150,866,346 of the shares offered hereby were purchased by investors (a fact of which there can be no assurance) as of January 9, 2014 , the then outstanding 852,028,382 shares of common stock, which would constitute all of the issued and outstanding equity capital of the Company, would have a net tangible book value $(943,983) (after deducting commissions and offering expenses) or approximately $(0.00 11 ) per share.

At an assumed purchase price of $0.0032 (equal to 80% of the closing price of our common stock of $0.004 on January 9, 2014 ), and the issuance of 100% of the shares being registered, we will be required to issue an aggregate of 150,866,346 shares of common stock, with net proceeds of $573,465 pursuant to the Investment Agreement.

Assuming a 50% decrease in the number of shares to be issued, based upon the purchase price of $0.0032 (equal to 80% of the closing price of our common stock of $0.0040 on January 9, 2014 ), we will be required to issue an aggregate of 75,433,173 shares of common stock, with net proceeds of $285,232 pursuant to the Investment Agreement.

Assuming a 75% decrease in the number of shares to be issued, based upon the purchase price of $0.0032 (equal to 80% of the closing price of our common stock of $0.0040 on January 9, 2014 ), we will be required to issue an aggregate of  113,149,760 shares of common stock,  with net proceeds of $442,849 pursuant to the Investment Agreement.

The dilution associated with the offering and each of the above scenarios is as follows:

	Offering		50% decrease shares issued		75% decrease shares issued
Offering price	$	0.0032	$	0.0032	$	0.0032
Net Tangible Book Value Before Offering (per share)	$	(0.0052)	$	(0.0052)	$	(0.0052)
Net Tangible Book Value After Offering (per share)	$	(0.0022)	$	(0.0034)	$	(0.0059)
Dilution per share to Investors	$	0.0054	$	0.0066	$	0.0091
Dilution percentage to Investors		168.75%		200.00%		184.37%

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MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Public Market for common stock

In October 2009, we obtained quotation for our common stock on the OTCBB under the symbol RCNC.OB; however, our common stock was subsequently delisted from the OTCBB due to our failure to timely file our Quarterly Report on Form 10-Q for the period ended February 28, 2011 on May 23, 2011. Our common stock was re-quoted on the OTCBB effective on August 9, 2011. On October 17, 2011, the Company’s trading symbol on the OTCBB changed to RCNCD.OB, and, on November 29, 2011, the Company’s symbol on the OTCBB changed to PEII.OB. Our common stock began trading on December 27, 2012.

The Company's common stock is considered a "penny stock" as defined in the Commission's rules promulgated under the Exchange Act. The Commission's rules regarding penny stocks impose additional sales practice requirements on broker-dealers who sell such securities to persons other than established customers and accredited investors (generally persons with net worth in excess of $1,000,000 (excluding their principal residence) or an annual income exceeding $200,000 or $300,000 jointly with their spouse). For transactions covered by the rules, the broker-dealer must make a special suitability determination for the purchaser and receive the purchaser's written agreement to the transaction prior to the sale. Thus the Rules affect the ability of broker-dealers to sell the Company's shares should they wish to do so because of the adverse effect that the Rules have upon liquidity of penny stocks. Unless the transaction is exempt under the Rules, under the Securities Enforcement Remedies and Penny Stock Reform Act of 1990, broker-dealers effecting customer transactions in penny stocks are required to provide their customers with (i) a risk disclosure document; (ii) disclosure of current bid and ask quotations if any; (iii) disclosure of the compensation of the broker-dealer and its sales personnel in the transaction; and (iv) monthly account statements showing the market value of each penny stock held in the customer's account. As a result of the penny stock rules, the market liquidity for the Company's securities may be severely adversely affected by limiting the ability of broker-dealers to sell the Company's securities and the ability of purchasers of the securities to resell them.

The following table summarizes the high and low historical closing prices reported by the OTCBB Historical Data Service for the periods indicated. OTCBB quotations reflect inter-dealer prices, without retail mark-up, mark down or commissions, so those quotes may not represent actual transactions.

	High		Low
2012
First Quarter 2012	$	n/a (1)	$	n/a (1)
Second Quarter 2012	$	n/a (1)	$	n/a (1)
Third Quarter 2012	$	n/a (1)	$	n/a (1)
Fourth Quarter 2012	$	0.15	$	0.15
2013
First Quarter 2013	$	0.245	$	0.10
Second Quarter 2013	$	0.096	$	0.01
Third Quarter 2013	$	0.10	$	0.0069
Fourth Quarter 2013	$	0.029	$	0.0020
2014
First Quarter 2014 (Through January 27, 2014)	$	0.0079	$	0.0022

(1)   A trading market for our common stock did not exist prior to December 27, 2012.

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Holders

We had approximately 628 record holders of our common stock as of January 27, 2014 , according to the books of our transfer agent. The number of our stockholders of record excludes any estimate by us of the number of beneficial owners of shares held in street name, the accuracy of which cannot be guaranteed.

Description of our Capital Stock

We have authorized capital stock consisting of 15,000,000,000 shares of common stock, par value $0.001 per share and 10,000,000 shares of preferred stock, par value $0.001 per share.

Common stock

The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders. There is no cumulative voting of the election of directors then standing for election. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this Offering will upon payment therefore be, duly and validly issued, fully paid and non-assessable.

Preferred stock

Shares of Preferred Stock may be issued from time to time in one or more series, each of which shall have such distinctive designation or title as shall be determined by our Board of Directors (“Board of Directors”) prior to the issuance of any shares thereof. preferred stock shall have such voting powers, full or limited, or no voting powers, and such preferences and relative, participating, optional or other special rights and such qualifications, limitations or restrictions thereof, as shall be stated in such resolution or resolutions providing for the issue of such class or series of preferred stock as may be adopted from time to time by the Board of Directors prior to the issuance of any shares thereof. The number of authorized shares of preferred stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the voting power of all the then outstanding shares of our capital stock entitled to vote generally in the election of the directors, voting together as a single class, without a separate vote of the holders of the preferred stock, or any series thereof, unless a vote of any such holders is required pursuant to any preferred stock designation.

Series “A” Preferred Stock

The designation of 1,000 shares of the Company’s Series A Preferred Stock was approved by the Company’s Board of Directors on September 7, 2011 and a Certificate of Designation reflecting such Series A Preferred Stock was filed with the Secretary of State of Nevada on September 8, 2011. The Series A Preferred Stock provides the holder thereof, Floyd L. Smith, the right, voting separately as a class, to vote in aggregate 51% of our outstanding voting shares on any and all shareholder matters (the “Super Majority Voting Rights”).

Additionally, the Company shall not adopt any amendments to the Company's Bylaws, Articles of Incorporation, as amended, make any changes to the Certificate of Designations establishing the Series A Preferred Stock, or effect any reclassification of the Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock. However, the Company may, by any means authorized by law and without any vote of the holders of shares of Series A Preferred Stock, make technical, corrective, administrative or similar changes to such Certificate of Designations that do not, individually or in the aggregate, adversely affect the rights or preferences of the holders of shares of Series A Preferred Stock.

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Other than the Super Majority Voting Rights, the Series A Preferred Stock does not have any other dividend, liquidation, conversion, or redemption rights, whatsoever.

The 1,000 shares of Series A Preferred Stock were issued to Mr. Smith in connection with the entry into an Executive Employment Agreement.

The Series A Preferred Stock and the rights associated therewith, could act to prevent or delay a change in control.

Series “B” Preferred Stock

The Certificate of Designation designating 6,000,000 shares of the Company’s Series B Preferred Stock was filed with the Secretary of State of Nevada on February 17, 2012. 5,910,000 shares of the Company’s Series B Preferred Stock were issued pursuant to the Plan of Reorganization and Asset Purchase Agreement, described above. Through January 27, 2014 , 5,069,062 shares of the Series B Convertible Preferred Stock converted into an aggregate of 178,653,320 shares of the common stock of the Company. At January 27, 2014 , we had 840,938 shares of Series B Convertible Preferred Stock issued and outstanding which had not converted because of the 9.99% ownership limitation set forth in the Certificate of Designation (the “Ownership Limitation”). The Series B Convertible Preferred Stock votes one-for-one with the common stock shares of the Company.

Dividends

There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where, after giving effect to the distribution of the dividend:

1.	we would not be able to pay our debts as they become due in the usual course of business; or
2.	our total assets would be less than the sum of our total liabilities, plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution.

We have not declared any dividends. We do not plan to declare any dividends in the foreseeable future.

Warrants, Options and Convertible Securities

Floyd L. Smith, the Company’s Chief Executive Officer, President and Director, owns stock options to purchase 12,000,000 shares of the Company’s common stock at an exercise price of $0.0039 per share, which have a term of five years, expiring on August 31, 2016, which were issued to in connection with his entry into an Executive Employment Agreement with the Company (described above).

The shareholders receiving the Series B Convertible Preferred Stock pursuant to the Plan of Reorganization and Asset Purchase Agreement received warrants to purchase an aggregate of 10,000,000 shares of the Company’s common stock with an exercise price of $0.08 per share.

Under the terms of a convertible note, an investor has the option, at any time before the note is paid, to convert the unpaid principal and accrued interest to common stock of the Company at a conversion price of $0.14 per share. This investor was also granted a common stock warrant at the time the note was issued for 100,000 (post-split) shares. The exercise price is $0.14 per share and the warrant expires on August 9, 2015.

The Company has convertible notes with four financial institutions that have conversion prices at a discount from 42% to 50% based on different formulas using historical average prices to arrive at a base market price.

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the Risk Factors, Cautionary Notice Regarding Forward-Looking Statements and Business sections in this Prospectus. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.

Plan of Operations

The Company acquired certain oil and gas properties owned by ONE Energy Capital Corp., ONE Energy International Corp. and their affiliated parties, pursuant to the One Energy Asset Acquisition Agreement and the Plan of Reorganization and Asset Purchase Agreement. We have also previously acquired rights to the Wagoner County Leases.

We anticipate that our operations will be supported by funds raised through the sale of debt or equity in the Company in private placement offerings through revenues generated from our oil and gas operations. We plan to raise approximately $10 million in private placements over the next twelve months; provided that we have not entered into any agreements regarding such funding (other than as described above in connection with the prior private placements) and such funding may not be available on favorable terms, if at all. We anticipate the need for a minimum of $2.5 million in additional funding to continue our operations for the next twelve months. Assuming we are successful in raising a minimum of $10 million subsequent to the date of this filing through the sale of debt or equity securities through private placements, we will use the proceeds to settle the Company’s amounts payable and to finalize the reworking of approximately 75-90 wells we acquired through the Asset Purchase Agreement, drill approximately 5–10 new wells in Oklahoma and acquire additional acreage. In the event that we are unsuccessful raising additional funds subsequent to the date hereof, we will move forward with our business plan and plan of operations in a scaled down form until such time that we can raise additional funds.

All existing wells which we acquired through the Petron Asset Purchase Agreement will need to be reworked to reestablish production. Although there are several targets available within these existing wells, oil pay zones will be our primary focus considering the higher price point in the oil market currently. The second priority will be gas pay zones, primarily because of very soft price points in the gas market.

Our long-term plan is to grow the Company at a rate of 5% per year via three approaches, 1) lease acquisition and development, 2) industry level participation through current industry partners, and 3) acquisitions of small operators in Texas and Oklahoma.

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Recent Development

Investment Agreement

On December 13, 2013, we entered into the Investment Agreement with CPUS Investment Group, LLC pursuant to which CPUS agreed to purchase shares of our common stock for an aggregate purchase price of up to $10,000,000.

The Investment Agreement provides that we may, from time to time during the thirty-six (36) months period commencing from the effectiveness of the registration statement, in our sole discretion, deliver a put notice to CPUS which states the dollar amount that we intend to sell to CPUS on a date specified in the put notice. The maximum investment amount per notice shall be no more than two hundred seventy five percent (275%) of the average daily volume of the common stock for the ten consecutive trading days immediately prior to date of the applicable put notice. The purchase price per share to be paid by CPUS shall be calculated at a thirty percent (30%) discount to the lowest closing price of the common stock as reported by Bloomberg, L.P. during the ten (10) consecutive trading days immediately prior to the receipt by CPUS of the drawdown notice. Additionally, the Company agreed to pay CPUS a commitment fee equal to $12,500 in the form of shares of the Company’s common stock, at a purchase price equal to 50% discount to the price per share on the closing date of the Investment Agreement

We have reserved 332,892,841 shares of our common stock for issuance under the Investment Agreement.

We plan to use the proceeds from the sale of the common stock under the Investment Agreement for general corporate and working capital purposes and acquisitions or assets, businesses or operations or for other purposes that the Board of Directors, in its good faith deem to be in the best interest of the Company.

Results of Operations

For the Three Month Period Ended September 30, 2013 versus September 30, 2012

Revenue for the three month period ended September 30, 2013 was $76,403 compared to $78,808 for the three month period ended September 30, 2012. This was a decrease of $1,405. This decrease is due chiefly to a suspension of activity of our Knox county leases pending approval of plugging work from the Texas Railroad Commission which has been offset by production from the Edwards leases which were brought on-line in the three month period ended September 30, 2013. As of the date of this report, the plugging work required by the Texas Railroad Commission has started and we expect production to resume before the end of the year.

Net loss for the three month period ended September 30, 2013 was $468,921 compared to $330,223 for the three month period ended September 30, 2012. We incurred derivative expense of $42,052 for which we had none last year and we also incurred $116,320 in interest expense (including amortized loan fees) that the Company did not have last year. General and Administrative costs for the three month period ended September 30, 2013 were $138,497 compared to $310,221 for the three month period ended September 30, 2012. This was a decrease of $171,724. This decrease is attributable chiefly to a change in legal and consulting expenses. Other significant changes that contributed to the increase in the net loss were and increase in depreciation and depletion ($58,178) due to asset acquisitions and an increase in the cost of revenue due to the finalization of an administrative services agreement.

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For the Nine Month Period Ended September 30, 2013 versus September 30, 2012

Revenue for the nine month period ended September 30, 2013 was $204,037 compared to $274,384 for the nine month period ended September 30, 2012. This was a decrease of $70,347. This decrease is due chiefly to a suspension of activity of our Knox county leases pending sending completion of plugging work required by the Texas Rail Road Commission. As of the date of this report, the plugging work required by the Texas Railroad Commission has started and we expect production to resume before the end of the year. The decrease was not as great since we put the Edwards leases into production in September of 2013.

Net loss for the nine month period ended September 30, 2013 was $2,175,555 compared to $7,355,368 net loss for the nine month period ended September 30, 2012. The loss is less in 2013 due to the $5,903,000 impairment recorded in 2012 for which there was no additional amount in 2013, plus a decrease in legal and consulting fees (recorded in General and Administrative expenses), offset to a certain extent by derivative expense of $283,352, which the Company did not have last year, and an increase in interest expense of $260,868 which reflects the cost of the financings entered into in 2013.

Results of Operations for the Year Ended December 31, 2012 as Compared to the Year Ended December 31, 2011

Revenue for the year ended December 31, 2012 was $326,343 compared to $199,387 for the year ended December 31, 2011. This was an increase of $126,956.

Net loss for the year ended December 31, 2012 was $8,326,063 compared to $3,127,742 for the year ended December 31, 2011. This is an increase of $5,198,321 of net loss from the prior year .

General and Administrative costs for the year ended December 31, 2012 were $1,736,427 compared to $2,938,568 for the year ended December 31, 2011.

During the year ended December 31, 2012, total expenses were $8,652,406 which included cost of revenue of $538,616, depletion, depreciation and amortization expense of $186,014, impairment charge of $6,046,000, general and administrative expenses of $1,736,427 and interest expense of $145,349.

Liquidity and Capital Resources

As of September 30, 2013, the total liabilities were $3,270,970, excluding the stock issuance liability, compared to $1,570,284 as of December 31, 2012. The major reasons for the increase in the liabilities is the $450,000 draw on the line-of-credit, the increase in accruals for the litigation settlement, and an increase of over $900,000 in accounts payable. The Company’s assets were $3,279,351 at September 30, 2013 compared to $2,309,699 at December 31, 2012. The increase in the assets is from fixed asset purchases funded by the increase in accounts payable.

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Cash Requirements

Our cash on hand as of September 30, 2013 was $8,600 compared to $17,089 as of December 31, 2012. The Company has incurred a net loss of $2,175,555 for the nine month period ended September 30, 2013 compared to a net loss of $7,355,368 for the nine month period ended September 30, 2012 and at September 30, 2013 had an accumulated deficit of $21,996,778 as compared to $19,821,223 at December 31, 2012. While the Company has recognized revenues from operations, the revenues generated are not sufficient to sustain operations. The Company does not have sufficient funds to acquire new business assets or maintain its existing operations at this time. Management’s plan is to raise equity and/or debt financing as required but there is no certainty that such financing will be available or that it will be available at acceptable terms. The outcome of these matters cannot be predicted at this time.

Off-Balance Sheet Arrangements

We have no significant 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, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Contractual Obligations

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Future Financings

We will continue to rely on equity sales of our common shares and debt proceeds in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.

Critical Accounting Policies

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management's estimates are based on historical experience, information from third party professionals, and various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Recently Issued Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

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DESCRIPTION OF BUSINESS

Corporate History

The Company was incorporated in Nevada in June 2007 as a development stage company which planned to operate as a restaurant holding company, specializing in the development and expansion of proven independent restaurant concepts into multi-unit locations through corporate-owned stores, licensing, and franchising opportunities, funding permitting. In connection with our entry into and the closing of the Asset Purchase Agreement with Petron Energy Special Corp. (“Petron Special”), described below, we changed our business focus to oil and gas exploration and production and related operations and ceased undertaking any restaurant related operations.

Our mailing address is 17950 Preston Road, Suite 960, Dallas, Texas 75252, and our telephone number is (972) 272-8190.

Acquisition of Company by Petron Energy Special Corp.

On August 9, 2011, David Cho, the Company’s then Chief Executive Officer and Director and then 54.4% owner of the Company’s common stock (550,000,000 shares or 5,500,000 pre-forward split shares); Pete Wainscott, the Company’s then Director and then 34.6% owner of the Company’s common stock (350,000,000 shares or 3,500,000 pre-forward split shares); and David M. Loev the then 9.9% owner of the Company’s common stock (100,000,000 shares, or 1,000,000 pre-forward split shares) (collectively the “Selling Shareholders”) entered into a Stock Purchase Agreement with Petron Special. Pursuant to the Stock Purchase Agreement, the Selling Shareholders sold an aggregate of 1,000,000,000 shares (10,000,000 pre-forward split) shares of the Company’s restricted common stock to Petron Special in consideration for $232,750 (the “Purchase Price”); provided that a required term and condition of the closing of the Stock Purchase Agreement was that the Company had no liabilities at closing. As such, a portion of the Purchase Price was used to satisfy the Company’s outstanding liabilities. As a result of the Stock Purchase Agreement, Petron Special, and Mr. Floyd Smith (“Mr. Smith”) through his control of Petron Special, became the owner of 98.9% of the Company’s outstanding shares.

Further, on August 12, 2011, the Company entered into an Asset Purchase Agreement with Petron Special (“Petron Asset Purchase Agreement”). Under the Petron Asset Purchase Agreement, the Company agreed to purchase substantially all of Petron Special’s assets (which consist of various oil and gas interests, leases and working interests and equipment, collectively, the “Assets”) and in consideration for 60,000,000 shares of the Company’s restricted common stock (the “Company Shares”). The 60,000,000 common shares were later adjusted to 78,511,478. The 78,511,478 shares were exchanged for all the preferred and common shares outstanding of Petron Special. The Petron Asset Purchase Agreement also required Petron Special to indemnify the Company from any liability associated with the Assets for actions which took place prior to the closing and for the Company to indemnify Petron Special against any liability associated with the Assets due to actions which may take place after the closing. The Petron Asset Purchase Agreement also includes a “non-compete provision,” which prohibits Petron Special and Floyd L. Smith from competing against the Company for a period of twelve (12) months from the closing of the Petron Asset Purchase Agreement. Additionally, the Petron Asset Purchase Agreement required that the Company agree to commit a minimum of $5,000 and 2,000,000 shares (20,000 pre-forward split shares) of common stock per month to investor relations services following the closing; and allowed the Company to enter into employment agreements with certain employees of Petron Special (provided that no such employment agreements, other than the Executive Employment Agreement with Mr. Smith have been entered into or agreed to, to date).

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Assumption of Petron Special’s Agreement with ONE Energy Corp.

On August 8, 2011, Petron Special entered into an Asset Acquisition Agreement with ONE Energy Capital Corp., ONE Energy International Corp. and their affiliated parties (the “One Energy Asset Acquisition Agreement”). Pursuant to the One Energy Asset Acquisition Agreement, Petron Special agreed to acquire the assets of ONE Energy Capital Corp., ONE Energy International Corp. and their affiliated parties in aggregate consideration for shares of convertible preferred stock, contingent upon the mutual agreement of final closing agreements. The final closing agreements were consummated on February 9, 2012, as elaborated in greater detail below. Pursuant to the terms of the acquisition of the Company by Petron Special, the Company assumed Petron Special’s rights and obligations under the One Energy Asset Acquisition Agreement.

Plan of Reorganization and Asset Purchase Agreement with ONE Energy Corp. and Acquisition of Knox County Leases

On February 9, 2012, the Company entered into the “Plan of Reorganization and Asset Purchase Agreement” with ONE Energy International Corp, (“OEI”) a Nevada Corporation, and its Affiliate Companies, which was intended to represent the final closing definitive agreement contemplated by the One Energy Asset Acquisition Agreement described above.  Under the terms of the Plan of Reorganization and Asset Purchase Agreement, the Company acquired all of the owned by assets of OEI and its affiliates in exchange for 5,910,000 shares of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”). The Series B Preferred Stock were scheduled to convert into common stock shares of the Company having a total value of $5,910,000, based on the average trading price of the Company’s common stock on the five trading days prior to the Conversion Date, which was on January 7, 2013. The Series B Preferred Stock vote one-for-one with the common stock shares of the Company and cannot be converted by the holders thereof if such conversion would result in the acquisition by such holder of more than 9.99% of the Company’s issued and outstanding common stock. It is also anticipated that the shareholders receiving the Series B Preferred Stock described also received warrants to purchase an aggregate of 10,000,000 shares of the Company’s common stock with an exercise price of $0.08 per share.

Pursuant to the Plan of Reorganization and Asset Purchase Agreement, the Company received interests in the Knox County Leases in the State of Texas, which are described in greater detail under “Projects”.

Acquisition of Wagoner County Leases

On September 28, 2011, the Company entered into two Oil and Gas Leases and obtained rights to conduct oil and gas exploration and production activities on an aggregate of 320 acres (160 acres pursuant to each lease) located in Wagoner County, Oklahoma (the “Wagoner County Leases”). Pursuant to the lease agreements, we agreed to pay the lessees under each of the leases total consideration for such lease rights consisting of $10 at the time of the entry into the agreements and (a) 3/16th of all oil produced from the leased property; (b) 3/16th of all gas of whatever nature or kind produced or sold from the leased property; (c) 3/16th of the gross proceeds, from the mouth of the well, of any gas produced from any oil well and used to manufacture gasoline; and (d) certain other nominal fees, during the period any well is shut-in. The leases have a term of one (1) year, provided that they continue in effect thereafter for so long as oil or gas is produced on such leases by the Company, if any.

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Change in Control

As a result of the Stock Purchase Agreement described above, Petron Special, and as a result of his control of Petron Special, Floyd L. Smith, obtained majority voting control over the Company.  Furthermore, in connection with the Company’s entry into the Executive Employment Agreement with Mr. Smith, Mr. Smith obtained rights to shares of the Company’s Series A Preferred Stock, which allows him to vote 51% of our outstanding common stock on any and all shareholder matters (including the appointment of Directors), thereby providing him continuing voting control over the Company, pursuant only to the terms and conditions of the Certificate of Designation of the Company’s Series A Preferred Stock.

Amendment to Articles of Incorporation

On September 7, 2011, the Company’s Board of Directors and then majority shareholder, Petron Special (which held approximately 98.9% of the Company’s outstanding shares of common stock and is controlled by Mr. Smith), approved the filing of a Certificate of Amendment (the “Amendment”) to the Company’s Articles of Incorporation to affect (i) a name change of the Company to “Petron Energy II, Inc.”; (ii) a forward stock split of the Company’s outstanding common stock in a ratio of 100:1; and (iii) an increase in the Company’s authorized shares of stock to 1,000,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share; each effective as of October 15, 2011.

The Amendment was filed with the Secretary of State of Nevada on September 9, 2011 and the Amendment was made effective with FINRA at the open of business on October 17, 2011. As a result of the Amendment, the Company’s trading symbol on the Over-The-Counter Bulletin Board changed to “RCNCD”, and the Company’s common stock traded under that symbol until November 29, 2011, at which time the Company’s symbol on the Over-The-Counter Bulletin Board changed to “PEII” in connection with the name change affected by the Amendment. The effects of the Forward Split have been retroactively reflected throughout this Report.

On June 28, 2013, the Company filed an Amended Certificate of Designation (with the Nevada Secretary of State revising the terms of the class of the Company’s Series B Convertible Preferred Stock (the “Series B Preferred Stock”). The Amended Certificate of Designation was approved by the holders of 100% of the issued and outstanding shares of the Series B Preferred Stock on June 27, 2013. The original Certificate of Designation (the “Original Designation”) of the Series B Preferred Stock was filed with the Commission on Form 8-K on February 17, 2012 and is incorporated herein by reference. The Amended Certificate of Designation revised the terms pursuant to which shares of the Company’s Series B Preferred Stock are converted into shares of the Company’s Common stock. Under the Original Designation, shares of the Company’s Series B Preferred Stock were converted into shares of the Company’s Common stock based on a fixed Conversion Price determined in accordance with the terms of the Original Designation. Under the Amended Designation, shares of the Company’s Series B Preferred Stock are converted into shares of the Company’s Common stock based on a Conversion Price that shall be determined at the time of each Conversion, in accordance with the terms of the Original Designation.

 On December 5, 2013, the company filed a Certificate of Amendment (the “Second Amendment”) to the Company’s Articles of  Incorporation to increase the number of authorized shares of the Company’s common stock from 1,000,000,000 to 2,989,999,999. The Company filed a Certificate of Amendment (the “Third Amendment”) to the Company’s Articles of Incorporation on February 4, 2014 to increase the number of authorized shares of the Company’s common stock from 2,989,999,999 to 6,000,000,000 and on February 27, 2014 the Company filed a Certificate of Amendment (the “Fourth Amendment”) to increase the number of authorized shares of the Company’s common stock from 6,000,000,000 to 15,000,000,000. As of the date of this registration statement, we have authorized capital stock consisting of 15,000,000,000 shares of common stock, $0.001 par value per share and 10,000,000 shares of preferred stock, $0.001 par value per share.

Reverse Split

On December 27, 2012, the Company effectuated a reverse split (the “Reverse Split”) of its issued common shares whereby every ten (10) pre-split shares of common stock were exchanged for one (1) post-split share of the Company's common stock.  As a result, the total issued shares of common stock of the Company decreased from One Hundred Twenty Million Two Hundred Thirty Thousand Six Hundred and Eighty Eight (120,230,688) shares prior to the Reverse Split to Twelve Million Twenty Three Thousand and Sixty Nine (12,023,069) shares following the Reverse Split.  FINRA confirmed approval of the Reverse Split on December 20, 2012 and the Reverse Split became effective on December 27, 2012.    

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Business Operations

The Company is engaged primarily in the acquisition, development, production, and the sale of oil, gas and gas liquids in the United States. As of December 31, 2013 , the Company is operating in the states of Texas and Oklahoma. In addition, the Company operates two gas gathering systems located in the Tulsa, Wagoner, Rogers and Mayes counties of Oklahoma. The pipeline consists of approximately 132 miles of steel and poly pipe, a gas processing plant and other ancillary equipment. The Company sells its oil and gas products primarily to a domestic pipeline and to other oil companies.

We hope to increase the value of the assets we acquire in the future through drilling operations and the re-working of wells. We plan to concentrate our development efforts in Texas and Oklahoma. The Petron Asset Purchase Agreement relates to our acquisition from Petron Special of approximately 1,500 leased acres, which include 59 existing wells which will need to be reworked in an effort to attempt to re-establish commercial production (collectively the “Leases”). We estimate the costs of reworking these wells at $35,000--$45,000 per well and estimate that it will take approximately two weeks to rework each well, funding permitting. The producing properties acquired in connection with the Petron Asset Purchase Agreement currently produce approximately three (3) barrels of oil per day (BOPD”). We also assumed the One Energy Asset Acquisition Agreement, described above, pursuant to which we plan to acquire certain additional oil and gas producing properties located in Texas, including an additional 2,800 leased acres which include 34 existing wells.

Our operations are focused in the United States (Texas and Oklahoma) because we believe focusing our operations in the United States offers us the following advantages:

•Low risk opportunities;

•Growth opportunities;

•Upside profit potential in connection with oil and unconventional gas reserves; and

•Availability of technological improvements which may increase oil and gas reserves.

Our target market is the Woodford Shale in Oklahoma and the Tannehill Sand in North Texas which we believe each offer a high success rate with respect to developing producing wells and long term cash flow. The properties we acquired through the Petron Asset Purchase Agreement and the rights we acquired in connection with the Knox County TX, Tulsa and Wagoner County OK Leases are all located in the areas described in the Woodford Shale in Oklahoma and the Tannehill Sand in North Texas.

The Woodford Shale, also known as the Devonian Woodford Shale is located in south and north eastern Oklahoma. The largest gas producer in the Woodford Shale is Newfield Exploration; other operators include Devon Energy, Chesapeake Energy, Cimarex Energy and Antero Resources.

The Tannehill Sand field is located in Knox County in north central Texas.

The production life from new and existing wells in each area typically has a life expectancy of 10 - 25 years. TheWoodford Shale is primarily a natural gas trend; however some wells provide oil production along with gas production. In addition to the Woodford Shale, there are 4 separate pay zones (the Tyner, Misner, Burgen and Dutcher) which are oil pay zones, while the Tannehill pay zone in Knox County, Texas is primarily an oil pay zone.

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Subsequent to the closing of the One Energy Asset Acquisition Agreement, we acquired additional interests which have a long-term history of successful production and display characteristics of being an under developed asset. By applying new technologies, we hope to exploit and produce more natural gas and oil from these assets. Additionally, the Company plans to engage primarily in the development of oil and gas leases in Oklahoma and North Texas over the next two years through one or more of the following activities: (i) acquisition of oil and gas leases (similar to the Wagoner County Leases); (ii) contract drilling on leases owned by the Company through investment partnerships and banking relationships sponsored by the Company; (iii) acquisition or oil and gas producing properties; and (iv) acquisition of oil and gas companies having properties (producing and non-producing). We estimate that newly drilled wells will have a total cost range including completion of approximately $125,000 - $150,000 and reworked wells will have a total cost range of approximately $35,000 - $45,000.

We also plan to operate the natural gas pipeline which we acquired as part of the Petron Asset Purchase Agreement and undertake workover activities on oil and natural gas wells acquired in the acquisition.

Our currently planned workover activities include “water/CO₂ gas flood” and “fracking,” as elaborated below.

Secondary Completion – Water/CO₂ gas flood

In primary natural resource recovery, the initial approach to produce oil is generally via natural reservoir pressure or simple mechanical pumps used to raise oil to the surface. Most oil wells today have to be pumped. Primary oil recovery can only produce a small fraction of the oil in a reservoir. The need for secondary oil recovery methods arise from this fact. Water flooding can be both effective and economical.

Secondary recovery of remaining oil from a proven reservoir can be obtained by injecting water/co₂ gas (‘water/co₂ gas flooding’), to maintain reservoir pressure and push oil out of the rock. Prolonged oil production can be achieved effectively once the primary production has tapered off. This is called secondary recovery.

A well planned oil field can go a long way toward the reliability and overall cost effectiveness of a water/co₂ gas flooding project. One method uses centrally located wells that, once primary and secondary production declines, will be used as injection wells.

These injection wells use water/co₂ to force the remaining oil reserves toward the extremities of the oil field. Increasing the viscosity of the water allows for drillers to gain ‘control’ over where the water flows. This allows for the introduction of water/co₂ gas into areas of the reservoir in which it naturally wouldn’t flow. By forcing water/co₂ gas into the crevices around an oil reserve, oil can be ‘moved’ toward the production zone. Such techniques can raise production on these outer wells to near initial production numbers as well as allow for the recovery of up to 20% of the remaining reserves.

Oil reservoirs suitable for secondary recovery projects have produced for several years. It takes time to inject sufficient water/co₂ gas to fill enough of the void spaces to begin to move the oil.

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Hydraulic Fracturing ("Fracking")

When sandstone rocks contain oil or gas in commercial quantities, recovery can be vastly improved by a process called fracturing (“fracking”) which is used to increase permeability to its optimum level. Basically, to fracture a formation, a fracturing service company pumps a specifically blended fluid down the well and into the formation under great pressure. Pumping continues until the formation literally cracks open. Meanwhile, a special type of frack sand is mixed into the fracturing fluid. These materials are called proppants. The proppant enters the fractures in the formation and when pumping is stopped and the pressure is allowed to dissipate, the proppant remains in the fractures. Since the fractures try to close back together after the pressure on the well is released, the proppant is needed to hold or prop the fractures open. These propped-open fractures provide passages for oil or gas to flow into the well.

In addition to new technology and fracking mixtures, a myriad of other technologies can be applied to produce increased production results. We plan to constantly track different well completion strategies and production results to generate an approach that will yield:

• Higher initial flow rates;

• Slower decline rates; and

• Improved recoverability.

Horizontal Wells

The first recorded true horizontal well was drilled near Texon, Texas (just west of San Angelo), and was completed in 1929; however, little practical application of horizontal wells occurred until the early 1980’s, by which time the advent of improved down hole drilling motors and the invention of other necessary supporting equipment, materials, and technologies, particularly down hole telemetry equipment, had brought some kinds of applications within the realm of commercial viability.

Horizontal drilling is the process of drilling and completing, for production, a well that begins as a vertical or inclined linear bore which extends from the surface to a subsurface location just above the target reservoir, then bears off on an arc to intersect the reservoir at the “entry point”, and, thereafter, continues at a near-horizontal angle and will substantially or entirely remain within the reservoir until the desired bottom hole location is reached.

The technical objective of horizontal drilling is to expose significantly more reservoir rock to the well bore surface than can be achieved via drilling of a conventional vertical well. The two primary benefits of horizontal drilling success are: 1) increased productivity of the reservoir; and 2) prolongation of the reservoir’s commercial life.

An offset to the benefits provided by successful horizontal drilling is its higher cost. However, we believe that it is probable that the cost premium associated with horizontal drilling will continue to decline as horizontal drilling activity increases, provided that there is the possibility that new and improved technology could add additional costs in the future.

Horizontal wells generally have a higher productivity and pay zone contact per well than vertical wells, and allow operators to take advantage of highly heterogeneous or layered reservoirs, like the Cotton Valley Sandstone which we plan to target. Horizontal drilling is now utilized in a variety of carbonate and sandstone reservoirs across the country, including the Austin Chalk, James Lime, Woodbine and the Barnett Shale in Texas.

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PROJECTS

Our three leased properties can be identified on the below map and consist of two leases in Oklahoma, the Tulsa County leases and the Wagoner County Leases. In Texas, the Company operates the Knox County leases. All of these leases are described in more detail below.

  

Tulsa Leases

The Company’s interest in the Tulsa project is 280 Acres over three leaseholds. The Company has a 75% working interest and a 60.9% net revenue interest.  The well’s average EUR (Estimated Ultimate Recovery) is 24,800 BOE, which consists of 55% oil. There are 2 producing wells and 6 identified drilling locations.

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Wagoner County Leases

The Wagoner Leases consist of 820 Acres with 8 producing wells. The Company has a 75% working interest in the leases and a 60.9% net revenue interest. There are also 10 identified drilling locations. The well’s average EUR is 24,870 BOE, which consists of 55% oil. This Lease has recompletion opportunities in water and natural gas injection, with 58 recompletion targets.

 

Knox County Leases

The Company has a 100% working interest in the Knox County lease and an 81.25% net revenue interest. The lease includes 2,315 Acres (as depicted below) and an additional option on 500 acres. There are 7 producing wells on the property and 2 identified drilling locations. The average EUR’s are 15,000 BOE, which consists of 99% oil. There are recompletion opportunities for Water and Natural Gas Injection and 48 Recompletion Targets.

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Market Information

Of the natural gas consumed in the United States in 2011, about 95% was produced domestically; thus, the supply of natural gas is not as dependent on foreign producers as is the supply of crude oil, and the delivery system is less subject to interruption. The availability of large quantities of shale gas should enable the United States to consume a predominantly domestic supply of gas for many years and produce more natural gas than it consumes.

The U.S. Energy Information Administration's Annual Energy Outlook 2013 Early Release projects U.S. natural gas production to increase from 23.0 trillion cubic feet in 2011 to 33.1 trillion cubic feet in 2040, a 44% increase. Almost all of this increase in domestic natural gas production is due to projected growth in shale gas production, which grows from 7.8 trillion cubic feet in 2011 to 16.7 trillion cubic feet in 2040.

An analysis in the Annual Energy Outlook 2012 indicates that the uncertainty in the size and economics of the domestic shale gas resources could have a considerable impact on future domestic natural gas production and that 2035 shale gas production could be between 9.7 trillion cubic feet and 20.5 trillion cubic feet. U.S. total natural gas production is projected to range between 26.1 trillion cubic feet and 34.1 trillion cubic feet.

Dependence on One or a Few Major Customers

The nature of the oil and natural gas industry is not based on individual customers. Crude oil and natural gas products are sold to local and international brokers as well as to refineries.

Competition

The oil and gas industry is intensely competitive. This is particularly true in the competition for acquisitions of prospective oil and natural gas properties and oil and gas reserves. We believe that the combination of: (i) the location of the leasehold acreage in our Tulsa and Wagoner County Oklahoma Leases and in Knox County Texas Leases; (ii) our exploration, drilling, and production expertise; and (iii) the experience and knowledge of our management and industry partners will enable us to compete effectively in the oil and gas industry. Notwithstanding the above, we will still face stiff competition from a substantial number of major and independent oil and gas companies that have larger technical staffs and greater financial and operational resources than we do. Many of these companies not only engage in the acquisition, exploration, development, and production of oil and natural gas reserves, but also have refining operations, market refined products, and own drilling rigs. We will also compete with other oil and natural gas companies in attempting to secure drilling rigs and other equipment necessary for the drilling and completion of wells.

Regulatory Matters and Government Regulation

Regulation of Oil and Gas Production, Sales and Transportation

The oil and gas industry is subject to regulation by numerous national, state and local governmental agencies and departments. Compliance with these regulations is often difficult and costly and noncompliance could result in substantial penalties and risks. Most jurisdictions in which we operate and plan to operate also have statutes, rules, regulations or guidelines governing the conservation of natural resources, including the unitization or pooling of oil and gas properties and the establishment of maximum rates of production from oil and gas wells. Some jurisdictions also require the filing of drilling and operating permits, bonds and reports. The failure to comply with these statutes, rules and regulations could result in the imposition of fines and penalties and the suspension or cessation of operations in affected areas.

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We intend to operate various gathering systems. The United States Department of Transportation and certain governmental agencies regulate the safety and operating aspects of the transportation and storage activities of these facilities by prescribing standards. However, based on current standards concerning transportation and storage activities and any proposed or contemplated standards, we believe that the impact of such standards is not material to our operations, capital expenditures or financial position.

Regulatory Matters /Environmental Regulation

Various federal, state and local laws and regulations relating to the protection of the environment, including the discharge of materials into the environment, may affect our planned exploration, development and production operations and the costs of those operations. These laws and regulations, among other things, govern the amounts and types of substances that may be released into the environment, the issuance of permits to conduct exploration, drilling and production operations, the handling, discharge and disposition of waste materials, the reclamation and abandonment of wells, sites and facilities, financial assurance under the Oil Pollution Act of 1990 and the remediation of contaminated sites. These laws and regulations may impose substantial liabilities for noncompliance and for any contamination resulting from our planned operations and may require the suspension or cessation of operations in affected areas.

The environmental laws and regulations applicable to us and our planned operations include, among others, the following United States federal laws and regulations:

• Clean Air Act, and its amendments, which governs air emissions;

• Clean Water Act, which governs discharges of pollutants into waters of the United States;

• Comprehensive Environmental Response, Compensation and Liability Act, which imposes strict liability where releases of hazardous substances have occurred or are threatened to occur (commonly known as “Superfund”);

• Resource Conservation and Recovery Act, which governs the management of solid waste;

• Oil Pollution Act of 1990, which imposes liabilities resulting from discharges of oil into navigable waters of the United States;

• Emergency Planning and Community Right-to-Know Act, which requires reporting of toxic chemical inventories;

• Safe Drinking Water Act, which governs underground injection and disposal activities; and

• U.S. Department of Interior regulations, which impose liability for pollution cleanup and damages. 

We plan to routinely obtain permits for facilities and operations in accordance with these applicable laws and regulations on an ongoing basis as required by applicable laws.

Employees

The Company currently has 4 employees, including Floyd L. Smith, its Chief Executive Officer, President, Treasurer and Director, and Bob Currier, our Chief Financial Officer.

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Intellectual Property

The Company does not currently hold any intellectual property, patent rights, trademarks or copyrights. The Company does however maintain a website at www.petronenergy.net. The information on, or that may be accessed through, our website is not incorporated by reference into this filing and should not be considered a part of this filing.

Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.

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DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The following table sets forth the name, age and position of our Directors and executive officer. There are no other persons who can be classified as a promoter or controlling person of us. Our executive officer and Directors are as follows:

Name	Age	Position
Floyd L. Smith	52	Chief Executive Officer, President, Secretary, Treasurer and Director
Bob Currier	63	Chief Financial Officer
David Knepper	59	Director
Judson F. Hoover	54	Director

Floyd L. Smith, 52, Chief Executive Officer, President, Secretary, Treasurer and Director

Mr. Smith has served as the President of Petron Energy II, Inc. and its predecessor, Petron Special Energy Corp., an oil and gas exploration company since October 1998. Since May 2004, Mr. Smith has served as President of Petron Properties, LLP, a real estate company. From January 2004 to August 2008, Mr. Smith served as the President and owner of Murray Mortgage. From July 1992 to April 1998, Mr. Smith served as a broker at Grand Energy, Inc., working in sales. From August 1984 to July 1992, Mr. Smith served as the Manager of a Wal-Mart in Garland, Texas. Mr. Smith obtained his Bachelor’s Degree from Harding University, in Searcy, Arkansas in Business Administration in 1984.

Mr. Smith has deep knowledge of the Company’s history, strategies, technologies and culture. Having led Petron Special as Chief Executive Officer and as a Director since 2007, Mr. Smith has been the driving force behind the strategies and operations of Petron Special. His leadership of diverse business units and functions before becoming Chief Executive Officer gives Mr. Smith insight into the marketing, finance, and operations aspects of the Company.

David Knepper, 59, Director

Mr. Knepper has held multiple positions in the oil and gas industry over the course of the last 36 years. Mr. Knepper has served as President of Dogwood Operating Company, Inc., since July 2011. From June 2009 to June 2011, Mr. Knepper served as a Manager and as reorganization officer of MSB Energy. From May 2006 to May 2009, Mr. Knepper served as the Vice President of Engineering of Striker Petroleum. From June 2002 to May 2006, Mr. Knepper served as a private consultant to various oil and gas clients. From February 2000 to June 2002, Mr. Knepper served as a Manager – Special Projects, at Tribo Companies. From October 1993 to February 2000, Mr. Knepper served as Executive Director of Probe Resources. From August 1991 to October 1993, Mr. Knepper served as a Consultant to STZ Petroleum. From February 1990 to August 1991, Mr. Knepper served as Vice President of Acquisitions of DKM Resources. From August 1984 to December 1989, Mr. Knepper served as Manager of Acquisitions of Transco Exploration. From September 1982 to July 1984, Mr. Knepper served as Vice President of Engineering of L&A Energy. From May 1979 to September 1982, Mr. Knepper served as Acquisition Manager for Damson Oil. From May 1975 to May 1979, Mr. Knepper served as Production Engineer, Reservoir Engineer and the chairman of multiple committees at Amoco Production.

Mr. Knepper obtained his Bachelor’s Degree from Texas A&M University in 1975. Mr. Knepper is a member of the Society of Petroleum Engineers, the Texas Society of Professional Engineers and the Student Engineers Council – Texas A&M University.

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Mr. Knepper has had a long and successful career in the oil and gas industry. He has significant experience in the operations of public and private companies. As evidenced by his broad network of resources developed over many years of involvement in the energy industry. Mr. Knepper understands how to locate, evaluate and negotiate oil and gas properties. Mr. Knepper’s depth of experience and expansive network as a board member makes him a significant asset to the Company.

Our Directors and any additional Directors we may appoint in the future are elected annually and will hold office until our next annual meeting of the shareholders and until their successors are elected and qualified. Officers will hold their positions at the pleasure of the Board of Directors, absent any employment agreement. Our officers and Directors may receive compensation as determined by us from time to time by vote of the Board of Directors. Such compensation might be in the form of stock options. Directors may be reimbursed by the Company for expenses incurred in attending meetings of the Board of Directors. Vacancies in the Board are filled by majority vote of the remaining Directors.

Mr. Bob Currier, 63, Chief Financial Officer

Mr. Currier has a CPA certificate and has over 35 years of experience both in the public accounting and corporate sectors. Since 1987, Mr. Currier has been involved with entrepreneurial ventures in industries ranging from medical to real estate to oil and gas. With these companies, he has been responsible for developing financial reporting systems, helping raise capital, implementing internal controls and budget preparation. His experience has included both public and private entrepreneurial companies. He has also worked on SEC reporting engagements on a contract basis.

Mr. Currier started his professional career in 1971 with the audit staff at Ernst & Ernst in Kansas City. After six years, he transferred to the Paris, France office where he spent six years working on the audit of the French national oil company (Elf Aquitaine) and U. S. companies such as Eli Lilly and Harris Corporation. On the French national oil company audit, he was responsible for the exploration and production subsidiaries, the consolidation and joint venture audits. From Paris, he moved to the Dallas office and transitioned from oil and gas auditing to entrepreneurial services and was named the Vice Chairman of the entrepreneurial services group. Mr. Currier’s experience with the entrepreneurial services group included working with business plans and financial projections for various start-up companies.

 Mr. Judson F. Hoover, 54, Director

Judson Rick F. Hoover received his Bachelor of Science degree from Regis University in 1986. Shortly after graduation, he received his Certificate of Public Accounting in the State of Colorado. He has extensive experience in financial matters, mergers, acquisitions, restructuring, public company compliance, oil and gas operations, and real estate. From December 2004 to March 2007, Mr. Hoover served as CFO for Ness Energy International, a publicly traded oil and gas company with operations in Texas and Israel. From June 2007 to June 2009, he served as Controller for Union Drilling, Inc., a publicly traded oil services company. From 1997 to 2004 and from 2007 through 2010, Mr. Hoover provided consulting services relating to various aspects of international and national publicly held energy companies. From March 31, 2011 to September 28, 2012, Mr. Hoover had served as the Chief Financial Officer of Sun River Energy, Inc. With over 20 years of national and international experience in executive management, of which 10 years were in oil and gas and 22 years were served on behalf of publicly traded companies. 

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Family Relationships

There are no family relationships among our Directors or executive officers.

Involvement in Certain Legal Proceedings

None of our directors or executive officers has, during the past ten years:

•               been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

•               had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time with the exception of Bob Currier who was the Chief Financial Officer of a non-public mortgage company that declared bankruptcy in May of 2011;

•               been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;

•               been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;

•               been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

•               been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26)), any

•               registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29)), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Except as set forth in our discussion below in “Certain Relationships and Related Transactions, none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.

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Independence of Directors

We are not required to have designated independent members of our Board of Directors, and do not anticipate having designated independent Directors until such time as we are required to do so.

 Committees of the Board

Our Company currently does not have nominating, compensation or audit committees or committees performing similar functions nor does our Company have a written nominating, compensation or audit committee charter. Our Directors believe that it is not necessary to have such committees, at this time, because the functions of such committees can be adequately performed by the Board of Directors.

Our Company does not have any defined policy or procedural requirements for shareholders to submit recommendations or nominations for Directors. The Board of Directors believes that, given the stage of our development, a specific nominating policy would be premature and of little assistance until our business operations develop to a more advanced level. Our Company does not currently have any specific or minimum criteria for the election of nominees to the Board of Directors and we do not have any specific process or procedure for evaluating such nominees. The Board of Directors will assess all candidates, whether submitted by management or shareholders, and make recommendations for election or appointment.

A shareholder who wishes to communicate with our Board of Directors may do so by directing a written request addressed to our President and Director, at the address appearing on the first page of this filing.

Risk Oversight

Effective risk oversight is an important priority of the Board of Directors. Because risks are considered in virtually every business decision, the Board of Directors discusses risk throughout the year generally or in connection with specific proposed actions. The Board of Directors’ approach to risk oversight includes understanding the critical risks in the Company’s business and strategy, evaluating the Company’s risk management processes, allocating responsibilities for risk oversight among the full Board of Directors, and fostering an appropriate culture of integrity and compliance with legal responsibilities.

Corporate Governance

The Company promotes accountability for adherence to honest and ethical conduct; endeavors to provide full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with the SEC and in other public communications made by the Company; and strives to be compliant with applicable governmental laws, rules and regulations. The Company has not formally adopted a written code of business conduct and ethics that governs the Company’s employees, officers and Directors as the Company is not required to do so.

In lieu of an Audit Committee, the Company’s Board of Directors is responsible for reviewing and making recommendations concerning the selection of outside auditors, reviewing the scope, results and effectiveness of the annual audit of the Company's financial statements and other services provided by the Company’s independent public accountants. The Board of Directors reviews the Company's internal accounting controls, practices and policies.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our executive officers and directors, and persons who own more than ten percent of our common stock to file reports of ownership and change in ownership with the Securities and Exchange Commission and the exchange on which the common stock is listed for trading. Executive officers, directors and more than ten percent stockholders are required by regulations promulgated under the Exchange Act to furnish us with copies of all Section 16(a) reports filed. Based solely on our review of copies of the Section 16(a) reports filed for the fiscal years ended December 31, 2012, we believe that our executive officers, directors and ten percent stockholders complied with all reporting requirements applicable to them.

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EXECUTIVE COMPENSATION 

The following table sets forth all compensation paid by the Company for the fiscal years of 2011,2012 and 2013 .  

Summary Executive Compensation Table:

Name and principal position	Year ended December 31		Salary ($)		Bonus ($)		Stock Awards ($)			Option Awards ($)			Non-Equity Incentive Plan Compensation ($)		Nonqualified Deferred Compensation Earnings ($)		All Other Compensation ($)		Total ($)
Floyd L. Smith (1)  CEO, CFO President, Secretary, Treasurer and Director		2011	$	181,331		—	$	4,791	(2)	$	377,456	(3)		—		—				$563,578
		2012	$	200,000																$200,000
		2013	$	200,000																$200,000
David Cho (1)  Former CEO, CFO, President, Secretary, Treasurer and Director		2011		—		—		—			—			—		—		—		—
		2012		—		—		—			—			—		—		—		—
		2013		—		—		—			—			—		—		—		—
Bob Currier, CEO (4)		2011		—		—		—			—			—		—		—		—
		2012		—		—		—			—			—		—		—		—
		2013	$	79,750		—		—		$	11,400			—		—				$91,150

The table above does not include prerequisites and other personal benefits in amounts less than 10% of the total annual salary and other compensation. There have been no changes in the Company’s compensation policy since the end of the Company’s last fiscal year, December 31, 2011.

(1) Mr. Cho resigned as Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director of the Company on August 10, 2011. On that same day, Mr. Smith was appointed as the Chief Executive Officer, Chief Financial Officer, President, Secretary, Treasurer and Director.

(2) Represents the value, pursuant to Accounting Standards Codification Topic 718, of 1,000 shares of Series A Preferred Stock that the Company issued to Mr. Smith.

(3) Represents the value, pursuant to Accounting Standards Codification Topic 718, of Stock Options to purchase 12,000,000 shares of the Company’s common stock at an exercise price of $0.0039 per share, which were granted to Mr. Smith pursuant to the terms of his Executive Employment Agreement, which grant was effective August 31, 2011.

(4) Bob Currier was appointed as the Company’s Chief Financial Officer on July 15, 2013.

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Summary Director Compensation Table: 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
OPTION AWARDS						STOCK AWARDS
Name	Number of Securities Underlying Unexercised Options (#) Exercisable	Number of Securities Underlying Unexercised Options (#) Unexercisable	Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#)	Option Exercise Price ($)	Option Expiration Date	Number of Shares awarded (#)
Floyd L. Smith	12,000,000	-	-	$0.0039	August 31, 2016	0
David Knepper	-	-	-	-		2,136,662
Judson F. Hoover	-	-	-	-		2,136,662

Compensation Discussion and Analysis

Director Compensation

As of August 2013 , each member of the Board of Directors receives $5,000 per month in fees paid by the issuance of our common stock as consideration for their services as members of the Board of Directors. The Board of Directors reserves the right in the future change the consideration awarded to the members of the Board of Directors for their services to the Company, which awards, if granted shall be in the sole determination of the Board of Directors.

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Executive Compensation Philosophy

Our Board of Directors determines the compensation given to our executive officers in their sole determination. Our Board of Directors also reserves the right to pay our executives a salary, and/or issue them shares of common stock issued in consideration for services rendered and/or to award incentive bonuses which are linked to our performance, as well as to the individual executive officer’s performance. This package may also include long-term stock based compensation to certain executives which is intended to align the performance of our executives with our long-term business strategies. Additionally, the Board of Directors reserves the right to grant stock options in the future (similar to those options granted to Mr. Smith in August 2011), if the Board in its sole determination believes such grants would be in the best interests of the Company.

Incentive Bonus

The Board of Directors may grant incentive bonuses to our executive officers in its sole discretion, if the Board of Directors believes such bonuses are in the Company’s best interest, after analyzing our current business objectives and growth, if any, and the amount of revenue we are able to generate each month, which revenue is a direct result of the actions and ability of such executives.

Long-term, Stock Based Compensation

In order to attract, retain and motivate executive talent necessary to support the Company’s long-term business strategy we may award certain executives with long-term, stock-based compensation in the future, in the sole discretion of our Board of Directors, which we do not currently have any immediate plans to award, other than the stock options previously granted to Mr. Smith, as described above. 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth, as of January 27, 2014 , the number and percentage of outstanding shares of our common stock owned by: (a) each person who is known by us to be the beneficial owner of more than 5% of our outstanding shares of common stock; and (b) all current directors and executive officers, as a group, and includes the 1,000 shares of Series A Preferred Stock and Super Majority Voting Rights associated with such Series A Preferred Stock which the Company agreed to issue to Mr. Smith pursuant to the Employment Agreement.

As of January 27, 2014 , and including the securities described above, there were 701,162,036 shares of common stock issued and outstanding, 1,000 shares of Series A Preferred Stock issued and outstanding and 840,938 shares of Series B Preferred Stock issued and outstanding.

Beneficial ownership has been determined in accordance with Rule 13d-3 under the Exchange Act. Under this rule, certain shares may be deemed to be beneficially owned by more than one person (if, for example, persons share the power to vote or the power to dispose of the shares). In addition, shares are deemed to be beneficially owned by a person if the person has the right to acquire shares (for example, upon exercise of an option or warrant) within 60 days of the date as of which the information is provided. In computing the percentage ownership of any person, the amount of shares is deemed to include the amount of shares beneficially owned by such person by reason of such acquisition rights. As a result, the percentage of outstanding shares of any person as shown in the following table does not necessarily reflect the person’s actual voting power at any particular date.

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To our knowledge, except as indicated in the footnotes to this table and pursuant to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all shares of common stock shown as beneficially owned by them.

Name and Address of Beneficial Owner  (1)	Common Stock Beneficially Owned	Percentage of Common Stock Beneficially Owned	Preferred Stock Voting Rights (Represented In Voting Shares) (2)	Total Voting Shares Beneficially Owned (3)	Total Voting Percentage (4)
Floyd L. Smith CEO, President, Secretary, Treasurer and Director	3,966,089	0.6%	729,780,895	733,746,984	51. 1 %
David Knepper Director	2,917,172	0.4%	-	2,917,172	0.2%
Bob Currier CFO	-	-	-	-	0.0%
Judson Hoover Director	2,917,172	0.4%	-	2,917,172	0.2%
All Officers and Directors as a Group (4 persons)	6,265,079	2.18%	729,780,895	739,581,328	5 1.5 %

(1)  The address for each officer and Director of the Company, unless otherwise stated, is the Company’s principal address, 17950 Preston Road, Suite 960, Dallas, Texas 75252.

(2)  The Series A Preferred Stock is not entitled to any dividends, liquidation preference, conversion rights, or redemption rights.  The Series A Preferred Stock does however have the right, voting as a separate class, at any annual or special meeting of shareholders to vote in aggregate 51% of our outstanding voting shares on any and all shareholder matters (the “Super Majority Voting Rights”).

(3) Not including any options, warrants or non-voting securities held by the named shareholders above.

(4) Based on an aggregate of 1,434,909,020 outstanding voting shares, calculated based on 701,162,036 shares of common stock issued and outstanding, 10,055 voting shares attributable to the Series B Preferred Stock, and 733,746,984 voting shares attributable to the Series A Preferred Stock.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Transactions with Related Persons

Effective August 31, 2011, the Company entered into an Executive Employment Agreement with Floyd L. Smith. Pursuant to the employment agreement, Mr. Smith agreed to serve as President and Chief Executive Officer of the Company for a term of five years, renewable thereafter for additional one year periods if not terminated by either party, and we agreed to provide Mr. Smith consideration of $200,000 per year; reimbursement for reasonable business expenses; the ability to earn a yearly bonus in the sole discretion of the Board of Directors of the Company; co-investment rights, providing Mr. Smith the right to participate in the amount of up to 20% of any acquisition, transaction or funding undertaken by the Company during the term of the employment agreement; stock options to purchase 12,000,000 shares of the Company’s common stock at an exercise price of $0.0039 per share, with cashless exercise rights and a five year term, which vested immediately upon the parties’ entry into the employment agreement; and 1,000 shares of Series A Preferred Stock which give Mr. Smith Super Majority Voting Rights.

Review, Approval and Ratification of Related Party Transactions

Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification of transactions, such as those described above, with our executive officers, Directors and significant stockholders. However, all of the transactions described above were approved and ratified by our Board of Directors. In connection with the approval of the transactions described above, our Board of Directors, took into account several factors, including their fiduciary duties to the Company; the relationships of the related parties described above to the Company; the material facts underlying each transaction; the anticipated benefits to the Company and related costs associated with such benefits; whether comparable products or services were available; and the terms the Company could receive from an unrelated third party.

We intend to establish formal policies and procedures in the future, once we have sufficient resources and have appointed additional Directors, so that such transactions will be subject to the review, approval or ratification of our Board of Directors, or an appropriate committee thereof. On a moving forward basis, our Board of Directors will continue to approve any related party transaction based on the criteria set forth above.

Director Independence

Quotations for the Company’s common stock are entered on the Over-the-Counter Bulletin Board inter-dealer quotation system, which does not have director independence requirements. For purposes of determining director independence, the Company applied the definitions set out in NASDAQ Rule 4200(a)(15). Under NASDAQ Rule 4200(a)(15), a director is not considered to be independent if he or she is also an executive officer or employee of the corporation. As a result, the Company does not have any independent directors. Our sole director, Daniel M. Ferris, is also the Company’s principal executive officer.

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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS

ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no disagreements on accounting and financial disclosures from the inception of our company through the date of this registration statement.

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SELLING STOCKHOLDER

We are registering for resale shares of our common stock that are issued and outstanding held by the selling stockholder identified below. We are registering the shares to permit the selling stockholder to resell the shares when and as it deems appropriate in the manner described in the “Plan of Distribution.” As of the date of this Prospectus, there are 701,162,036 shares of common stock issued and outstanding.

The following table sets forth:

• the name of the selling stockholder,

• the number of shares of our common stock that the selling stockholder beneficially owned prior to the offering for resale of the shares under this Prospectus,

• the maximum number of shares of our common stock that may be offered for resale for the account of the selling stockholder under this Prospectus, and

• the number and percentage of shares of our common stock to be beneficially owned by the selling stockholder after the offering of the shares (assuming all of the offered shares are sold by the selling stockholder).

The selling stockholder has never served as our officer or director or any of its predecessors or affiliates within the last three years, nor has the selling stockholder had a material relationship with us. The selling stockholder is neither a broker-dealer nor an affiliate of a broker-dealer. The selling stockholder did not have any agreement or understanding, directly or indirectly, to distribute any of the shares being registered at the time of purchase.

The selling stockholder may offer for sale all or part of the shares from time to time. The table below assumes that the selling stockholder will sell all of the shares offered for sale. The selling stockholder is under no obligation, however, to sell any shares pursuant to this Prospectus.

			Number of
			Shares of
	Shares of	Maximum	Common
	Common Stock	Number of	Stock
	Beneficially	Shares of	Beneficially		Percent
	Owned prior to	Common Stock	Owned after		Ownership
Name	Offering (1)	to be Offered	Offering		after Offering
CP US Income Group, LLC (2)	0	150,866,346		0		18	%

(1)

Beneficial ownership is determined in accordance with the rules and regulations of the SEC. In computing the number of shares beneficially owned by a person and the percentage ownership of that person, securities that are currently convertible or exercisable into shares of our common stock, or convertible or exercisable into shares of our common stock within 60 days of the date hereof are deemed outstanding. Such shares, however, are not deemed outstanding for the purposes of computing the percentage ownership of any other person. Except as indicated in the footnotes to the following table, each stockholder named in the table has sole voting and investment power with respect to the shares set forth opposite such stockholder’s name.

(2)

Includes $12,500 of shares at 50% discount issuable to CPUS pursuant to the Investment Agreement.

48

PLAN OF DISTRIBUTION

Pursuant to the terms of the Investment Agreement, CPUS committed to purchase up to $10,000,000 of our common stock over a period of up to thirty-six (36) months. From time to time during the thirty-six (36) months period commencing from the effectiveness of the registration statement, we may deliver a drawdown notice to CPUS which states the dollar amount that we intend to sell to CPUS on a date specified in the put notice. The maximum investment amount per notice shall be no more than two hundred seventy five percent (275%) of the average daily volume of the common stock for the ten consecutive trading days immediately prior to date of the applicable put notice. The purchase price per share to be paid by CPUS shall be calculated at a thirty percent (30%) discount to the lowest trading price of the common stock as reported by Bloomberg, L.P. during the ten (10) consecutive trading days immediately prior to the receipt by CPUS of the put notice. Additionally, the Company agreed to pay CPUS a commitment fee equal to $12,500 in the form of shares of the Company’s common stock, at a purchase price equal to 50% discount to the price per share on the closing date of the Investment Agreement. We have reserved 332,892,841 shares of our common stock for issuance under the Investment Agreement.

In connection with the Investment Agreement, we also entered into a registration rights agreement with CPUS, pursuant to which we are obligated to file a registration statement with the SEC covering shares of our common stock underlying the Investment Agreement within 21 days after the closing of the transaction. In addition, we are obligated to use all commercially reasonable efforts to have the registration statement declared effective by the SEC within 120 days after the closing of the transaction and maintain the effectiveness of such registration statement until termination of the Investment Agreement.

The Investment Agreement is not transferable.  Moreover, the Company may, in its sole discretion, engage a placement agent, however, that decision does not have any impact on CPUS’s discretion.  If a put notice is delivered, CPUS is obligated to deliver the funds, regardless of whether a placement agent is involved.

At an assumed purchase price of $.0032 (equal to 80% of the closing price of our common stock of $ 0 .004 on January 9, 2014 ), we will be able to receive up to $482,772 in gross proceeds, assuming the sale of the entire 150,866,346 shares being registered hereunder pursuant to the Investment Agreement. Accordingly, we would be required to register an additional 2,974,133,750 shares to obtain the balance of $9,517,228 under the Investment Agreement. We are currently authorized to issue 15,000,000,000 shares of our common stock. Based on the price of our stock on January 9, 2014 , we will be required to increase our authorized shares in order to receive the entire purchase price. CPUS has agreed to refrain from holding an amount of shares which would result in CPUS owning more than 4.99% of the then-outstanding shares of our common stock at any one time.

The selling stockholder may, from time to time, sell any or all of its shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholder may use any one or more of the following methods when selling shares:

• ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

• block trades in which the broker-dealer will attempt to sell the shares as agent, but may position and resell a portion of the block as principal to facilitate the transaction

• purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

• an exchange distribution in accordance with the rules of the applicable exchange;

• privately negotiated transactions;

• short sales after this registration statement becomes effective;

• broker-dealers may agree with the selling stockholder to sell a specified number of such shares at a stipulated price per share;

• through the writing of options on the shares;

• a combination of any such methods of sale; and

• any other method permitted pursuant to applicable law.

49

The selling stockholder may also sell the shares directly to market makers acting as principals and/or broker-dealers acting as agents for themselves or their customers. Such broker-dealers may receive compensation in the form of discounts, concessions or commissions from the selling stockholder and/or the purchasers of shares for whom such broker-dealers may act as agents or to whom they sell as principal or both, which compensation as to a particular broker-dealer might be in excess of customary commissions. Market makers and block purchasers purchasing the shares will do so for their own account and at their own risk. It is possible that a selling stockholder will attempt to sell shares of common stock in block transactions to market makers or other purchasers at a price per share which may be below the then market price. The selling stockholder cannot assure that all or any of the shares offered in this prospectus will be issued to, or sold by, the selling stockholder. The selling stockholder and any brokers, dealers or agents, upon effecting the sale of any of the shares offered in this prospectus, are “underwriters” as that term is defined under the Securities Act, or the Exchange Act, or the rules and regulations under such acts. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

Pursuant to the Investment Agreement, the Company may enter into an agreement with a registered broker-dealer to act as a placement agent.  The Company has no intention to engage a placement agent in connection with this registration statement, and has not had any discussions with any broker-dealers.  Additionally, CPUS does not have the right to require the Company to engage a placement agent, or pick the broker-dealer to act as placement agent.  Furthermore, the engagement of a placement agent does not impact CPUS’s obligation to provide the Company cash funds in connection with the delivery of a put notice.

Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by the selling stockholder. The selling stockholder may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.  Notwithstanding the foregoing, if the Company decides to engage a placement agent in connection with this registration statement, then the Company shall be obligated to pay the fees connected to the placement agent.  This may result in the Company receiving less than the expected total proceeds of $10,000,000.

CPUS has agreed to pay all fees and expenses incident to the registration of the shares of common stock. CPUS intends to sell/distribute the shares of common stock that they acquire from the Company in the open market.

The selling stockholder shall acquire the securities offered hereby in the ordinary course of business and has advised us that it has not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of its shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus.

If the selling stockholder uses this Prospectus for any sale of the shares of common stock, it will be subject to the prospectus delivery requirements of the Securities Act.

50

Regulation M

The anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of our common stock and activities of the selling stockholder.

During such time as it may be engaged in a distribution of any of the shares we are registering by this registration statement, CPUS is required to comply with Regulation M. In general, Regulation M precludes any selling security holder, any affiliated purchasers and any broker-dealer or other person who participates in a distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase, any security which is the subject of the distribution until the entire distribution is complete. Regulation M defines a "distribution" as an offering of securities that is distinguished from ordinary trading activities by the magnitude of the offering and the presence of special selling efforts and selling methods. Regulation M also defines a "distribution participant" as an underwriter, prospective underwriter, broker, dealer, or other person who has agreed to participate or who is participating in a distribution.

Regulation M under the Exchange Act prohibits, with certain exceptions, participants in a distribution from bidding for or purchasing, for an account in which the participant has a beneficial interest, any of the securities that are the subject of the distribution. Regulation M also governs bids and purchases made in order to stabilize the price of a security in connection with a distribution of the security. We have informed CPUS that the anti-manipulation provisions of Regulation M may apply to the sales of their shares offered by this prospectus, and we have also advised CPUS of the requirements for delivery of this prospectus in connection with any sales of the common stock offered by this prospectus.

Pursuant to the Investment Agreement, CPUS shall not sell stock short, either directly or indirectly through its affiliates, principals or advisors, our common stock during the term of the agreement.

51

DESCRIPTION OF SECURITIES TO BE REGISTERED

We have authorized 15,000,000,000 shares of common stock, par value $0.001 per share. The holders of outstanding shares of common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine. Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders. There is no cumulative voting of the election of directors then standing for election. The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption. Upon liquidation, dissolution or winding up of our company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this Offering will upon payment therefore be, duly and validly issued, fully paid and non-assessable.

LEGAL MATTERS

The validity of the common stock offered by this prospectus will be passed upon for us by Szaferman, Lakind, Blumstein & Blader, PC, Lawrenceville, New Jersey.

EXPERTS

The consolidated financial statements of our company included in this prospectus and in the registration statement have been audited by KWCO, PC, an independent registered public accounting firm, to the extent and for the periods set forth in their report appearing elsewhere herein and in the registration statement, and are included in reliance on such report, given the authority of said firm as an expert in auditing and accounting.

52

INTERESTS OF NAMED EXPERTS AND COUNSEL

No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

WHERE YOU CAN FIND MORE INFORMATION

We filed with the Securities and Exchange Commission a registration statement under the Securities Act for the common stock in this offering. This prospectus does not contain all of the information in the registration statement and the exhibits and schedule that were filed with the registration statement. For further information with respect to us and our common stock, we refer you to the registration statement and the exhibits and schedule that were filed with the registration statement. Statements contained in this prospectus about the contents of any contract or any other document that is filed as an exhibit to the registration statement are not necessarily complete, and we refer you to the full text of the contract or other document filed as an exhibit to the registration statement. A copy of the registration statement and the exhibits and schedules that were filed with the registration statement may be inspected without charge at the Public Reference Room maintained by the Securities and Exchange Commission at 100 F Street, N.E. Washington, DC 20549, and copies of all or any part of the registration statement may be obtained from the Securities and Exchange Commission upon payment of the prescribed fee. Information regarding the operation of the Public Reference Room may be obtained by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains a website that contains reports, proxy and information statements, and other information regarding registrants that file electronically with the SEC. The address of the website is www.sec.gov.

We file periodic reports under the Exchange Act, including annual, quarterly and special reports, and other information with the Securities and Exchange Commission. These periodic reports and other information are available for inspection and copying at the regional offices, public reference facilities and website of the Securities and Exchange Commission referred to above.

53

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Contents	Page(s)
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012	F-2
Consolidated Statements of Operations for the three month and nine month periods ended September 30, 2013 and 2012	F-3
Consolidated Statements of Cash Flows for the periods of nine months ended September 30, 2013 and 2012	F-4
Notes to Unaudited Consolidated Financial Statements	F-5
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm	F-7
Consolidated Balance Sheets for the Years ended December 31, 2012 and 2011	F-8
Consolidated Statements of Operations for the Years ended December 31, 2012 and 2011	F-9
Consolidated Statements of Stockholders’ Equity (Deficit) for the Years ended December 31, 2012 and 2011	F-10
Consolidated Statements of Cash Flows for the Years ended December 31, 2012 and 2011	F-11
Notes to Consolidated Financial Statements	F-12

F-1

PETRON ENERGY II, INC.

CONSOLIDATED BALANCE SHEETS

	September 30,			December 31,
	2013			2012
ASSETS	(unaudited)			(audited)
Current Assets
Cash	$	8,600		$	17,089
Accounts Receivable		48,915			18,332
Total Current Assets		57,515			35,421
Pipeline, net of accumulated depreciation of $330,572 and $245,156, respectively		778,428			742,844
Producing Oil & Gas Properties, net of accumulated depletion of $836,195 and $731,795, respectively		1,773,278			1,424,729
Other Depreciable Equipment, net of accumulated depreciation of $88,693 and $45,361, respectively		638,599			71,915
Other Assets		31,531			34,790
TOTAL ASSETS	$	3,279,351		$	2,309,699
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities
Bank Overdraft	$	61,737		$	—
Accounts Payable--Trade		1,382,699			716,140
Accounts Payable--Related Party		214,239			18,082
Accrued Liabilities		544,690			375,284
Derivative Liability		85,926			—
Notes Payable--short-term		484,679			170,500
Total Current Liabilities		2,773,970			1,280,006
Asset Retirement Obligation		222,000			40,278
Stock Issuance Liability		1,525,829			5,904,090
Notes Payable--long-term		275,000			250,000
TOTAL LIABILITIES		4,796,799			7,474,374
STOCKHOLDERS' DEFICIT
Preferred Stock, 10,000,000 authorized, 5,911,000 designated as follows:
Series A, $0.001 par value, 1,000 shares designated, issued and outstanding		1			1
Series B, $0.001 par value, 5,910,000 shares designated, 1,389,218 and 5,910,000 shares issued and outstanding, respectively		1,389			5,910
Common Stock, $0.001 par value, 1,000,000,000 shares authorized, 164,190,038 and 11,976,942  issued and outstanding, respectively		164,190			11,977
Additional Paid-In Capital		20,313,750			14,638,660
Accumulated Deficit		(21,996,778	)		(19,821,223	)
Total Stockholders' Deficit		(1,517,448	)		(5,164,675	)
TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT	$	3,279,351		$	2,309,699

The accompanying notes are an integral part of these financial statements.

F-2

PETRON ENERGY II, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
Revenues
Oil & Gas Sales	$	76,403		$	78,808		$	204,037		$	274,384
Costs and Expenses
Cost of Revenue		133,753			42,287			475,750			189,266
Depletion and Depreciation		108,904			50,725			233,149			143,174
Impairment Charge		—			—			—			5,903,000
Derivative Expense		42,052			—			283,352			—
General and Administrative		138,497			310,221			1,120,675			1,388,514
Interest		122,118			5,798			266,666			5,798
Total Expenses		545,324			409,031			2,379,592			7,629,752
Loss from Operations Before Income Taxes		(468,921	)		(330,223	)		(2,175,555	)		(7,355,368	)
Income Taxes		—			—			—			—
Net Loss	$	(468,921	)	$	(330,223	)	$	(2,175,555	)	$	(7,355,368	)
Loss per share--basic and diluted	$	(0.00	)	$	(0.03	)	$	(0.04	)	$	(0.65	)
Weighted average number of shares--basic and diluted		108,475,130			11,339,587			60,440,132			11,347,341

The accompanying notes are an integral part of these financial statements.

F-3

PETRON ENERGY II, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

	Nine Months Ended September 30,
	2013			2012
OPERATING ACTIVITIES
Net Loss	$	(2,175,555	)	$	(7,355,368	)
Adjustments to reconcile net loss to cash used by operating activities:
Depletion and depreciation		233,148			143,174
Amortization of debt discount		155,760			—
Derivative expense		283,352			—
Impairment charge		—			5,903,000
Penalty interest		45,250			—
Common stock issued for services		95,198			149,483
Imputed interest on shareholders' notes payable		22,891			—
Common stock issued for lawsuit settlement		138,000			—
Note payable issued for services		25,000			—
Change in other  asset and liabilities:
(Increase) Decrease in oil and gas receivables		(30,583	)		29,704
Decrease in other assets		3,259			—
Increase in accounts payable		243,715			284,266
Increase in accrued liabilities		173,626			43,612
Decrease in asset retirement obligation		(3,900	)		—
Cash used in operating  activities		(790,839	)		(802,129	)
INVESTING ACTIVITIES
Investment in oil and gas properties		(267,326	)		(215,923	)
Pipeline investment		(121,000	)		—
Purchase of other equipment		(610,016	)		(7,810	)
Accounts payable specifically for fixed asset purchases		619,000			—
Cash used in investing activities		(379,342	)		(223,733	)
FINANCING ACTIVITIES
Bank overdraft		61,737			66,433
Proceeds from sales of common stock		505,150			813,000
Proceeds from notes payable		674,630			63,000
Loan fees		(79,825	)		—
Cash from financing activities		1,161,692			942,433
Decrease in cash		(8,489	)		(83,429	)
Cash at beginning of the period		17,089			106,850
Cash at end of the period	$	8,600		$	23,421
Supplemental Disclosure of Cash Flow Information
Non-Cash Investing and Financing Activities:
Oil & gas properties	$	(185,622	)	$	(5,910,000	)
Note payable		(221,336	)		—
Common stock		107,436			—
Preferred stock		(4,521	)		5,910
Additional paid-in capital		4,996,628			—
Derivative liability		(197,426	)		—
Common stock issuance liability		(4,416,261	)		5,904,090
Accrued Interest		(4,220	)		—
Asset Retirement Obligation		185,622			—
Loan Fees		(260,300	)		—
	$	—		$	—

The accompanying notes are an integral part of these financial statements.

F-4

PETRON ENERGY II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, 2013 and 2012

1. INCORPORATION AND NATURE OF OPERATIONS

Petron Energy II, Inc. (“Petron” or the “Company”) was formerly known as Petron Energy Special Corp. and was incorporated in September 2007 under the laws of the State of Texas; and, on April 2011, was reincorporated in the state of Nevada. Pursuant to a Plan of Merger, the parent company, Petron Energy Special Corp. was merged into its wholly owned subsidiary, Petron Energy II, Inc. The surviving entity was Petron Energy II, Inc. The effective date of the Plan of Merger was January 3, 2012.

The Company is engaged primarily in the acquisition, development, production, exploration for and the sale of oil, gas and gas liquids in the United States. As of September 30, 2013 the Company is operating in the states of Texas and Oklahoma. In addition, the Company operates two gas gathering systems located in Tulsa, Wagoner, Rogers and Mayes counties of Oklahoma. The pipeline consists of approximately 132 miles of steel and poly pipe, a gas processing plant and other ancillary equipment. The Company sells its oil and gas products primarily to a domestic pipeline and to another oil company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries:

Subsidiary Name	Organization Date
Petron Energy II Pipeline, Inc.	April 1, 2008
Petron Energy II Well Service, Inc.	July 1, 2008

The interim consolidated financial statements as of September 30, 2013 and 2012 have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, these consolidated financial statements do not include all of the disclosures required by generally accepted accounting principles for complete financial statements. These interim unaudited consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the year ended December 31, 2012. In the opinion of management, the interim unaudited consolidated financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim periods presented.

The consolidated statements of operations reflect the results of operations of the Company for the three month and nine month periods ended September 30, 2013 and 2012. Operating results for the nine month period ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

F-5

Going concern uncertainty

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred a net loss of $2,175,555 for the nine month period ended September 30, 2013 (2012 - $7,355,368) and at September 30, 2013 had an accumulated deficit of $21,996,778 (2012 – $18,850,528). While the Company has recognized revenues from operations, the revenues generated are not sufficient to sustain operations. The Company does not have sufficient funds to acquire new business assets or maintain its existing operations at this time. Management’s plan is to raise equity and/or debt financing as required but there is no certainty that such financing will be available or that it will be available at acceptable terms. The outcome of these matters cannot be predicted at this time.

These financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty. 

Subsequent events

Subsequent to September 30, 2013 the Company entered into 2 convertible notes payable in the total amount of $145,000 with a financial institution. The notes bear interest at 8% and the conversion terms are a 50% discount of the stock market price based on the average of the three lowest closing prices for the ten trading days before conversion. The Company also entered into 3 convertible notes payable in the total amount of $149,000 with another financial institution. These notes bear interest at 9% and the conversion terms are a 50% discount from the lowest closing bid price during the ten trading days before conversion.

F-6

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Petron Energy II, Inc.

Dallas, TX 75252

We have audited the accompanying consolidated balance sheets of Petron Energy II, Inc. (a Nevada corporation) and subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Petron Energy II, Inc. and subsidiaries as of December 31, 2012 and 2011 and the results of their operations and their cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company’s significant operating losses since inception raise substantial doubt about its ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/KWCO, PC

KWCO, PC

Odessa, TX 79762

May 16, 2013

F-7

PETRON ENERGY  II, INC.

CONSOLIDATED BALANCE SHEETS

	December 31,
	2012			2011
ASSETS
Current Assets
Cash	$	17,089		$	106,850
Accounts Receivable--Oil & gas sales		18,332			53,466
Total Current Assets		35,421			160,316
Pipeline, net of accumulated depreciation of $245,156 and $179,289, respectively		742,844			808,711
Producing Oil & Gas Properties, net of accumulated depletion of $731,795 and $628,795, respectively		1,424,729			1,433,068
Other Depreciable Equipment, net of accumulated depreciation of $45,361 and $31,339, respectively		71,915			180,264
Other  Assets		34,790			31,575
TOTAL ASSETS	$	2,309,699		$	2,613,934
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts Payable--Trade	$	716,140		$	443,114
Accounts Payable--Related Party		18,082			50,617
Accrued Liabilities		375,284			72,158
Notes Payable--short-term		170,500			—
Total Current Liabilities		1,280,006			565,889
Notes Payable--long-term		250,000			—
Asset Retirement Obligation		40,278			25,540
Common Stock Issuance Liability		5,904,090			—
TOTAL LIABILITIES		7,474,374			591,429
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred Stock, 10,000,000 shares authorized, 5,911,000 designated as follows:
Preferred Stock Series B, $0.001 par value, 5,910,000 issued and outstanding		5,910			—
Preferred Stock Series A, $0.001 par value, 1,000 issued and outstanding		1			1
Common Stock, $0.001 par value, 1,000,000,000 shares authorized, 11,976,942 and 11,072,751 issued and outstanding, respectively		11,977			11,073
Additional Paid-In Capital		14,638,660			13,506,591
Accumulated Deficit		(19,821,223	)		(11,495,160	)
Total Stockholders' Equity (Deficit)		(5,164,675	)		2,022,505
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	2,309,699		$	2,613,934
The accompanying notes are an integral part to these consolidated financial statements.

F-8

PETRON ENERGY II, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
	Years Ended December 31,
	2012			2011
Revenues
Oil & Gas Sales	$	293,798		$	192,839
Pipeline Revenue		32,545			6,548
Total Revenue		326,343			199,387
Costs and Expenses
Cost of Revenue		538,616			271,873
Depletion, Depreciation and Amortization		186,014			116,688
Impairment Charge		6,046,000			-
General and Administrative		1,736,427			2,938,568
Interest Expense		145,349			-
Total Expenses		8,652,406			3,327,129
Loss from Operations Before Income Taxes		(8,326,063	)		(3,127,742	)
Income Taxes		-			-
Net Loss		(8,326,063	)		(3,127,742	)
Preferred Stock Dividends		-			(875	)
Net Loss Available to Common Stockholders	$	(8,326,063	)	$	(3,128,617	)
Loss per share--basic and diluted	$	(0.72	)	$	(0.34	)
Weighted average number of shares--basic and diluted		11,517,282			9,243,271
The accompanying notes are an integral part to these consolidated financial statements.

F-9

PETRON ENERGY II, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 2012 and 2011
	Preferred Stock
	Series A		Series B		Common Stock		Additional
	Number		Number		Number		Paid-in	Accumulated
	of Shares	Amount	of Shares	Amount	of Shares	Amount	Capital	Deficit	Total
Balance December 31, 2010	-	$     -	-	$      -	8,308,207	$   8,308	$ 10,189,349	$   (8,366,543)	$   1,831,114
Preferred Stock Issued for Services	1,000	1					4,790		4,791
Common Stock Sales					2,517,361	2,518	2,405,977		2,408,495
Common Stock Issued for Services					247,183	247	711,430		711,677
Issuance of Common Stock Option for Services							377,456		377,456
Costs of Reverse Merger							(182,411)		(182,411)
Net Loss								(3,127,742)	(3,127,742)
Dividends								(875)	(875)
Balance December 31, 2011	1,000	1	-	-	11,072,751	11,073	13,506,591	(11,495,160)	2,022,505
Preferred Stock Issued for Oil Lease Acquisition			5,910,000	5,910					5,910
Common Stock Issued for Services					147,016	147	158,500		158,647
Common Stock Sales					717,175	717	837,609		838,326
Common Stock and Warrants issued for Convertible Note Penalty Interest					40,000	40	135,960		136,000
Net Loss								(8,326,063)	(8,326,063)
Balance December 31, 2012	1,000	$      1	5,910,000	$ 5,910	11,976,942	$ 11,977	$ 14,638,660	$ (19,821,223)	$  (5,164,675)

The accompanying notes are an integral part to these consolidated financial statements.

F-10

PETRON ENERGY II, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
	Years Ended December 31,
	2012		2011
OPERATING ACTIVITIES
Net loss	$	(8,326,063)	$	(3,127,742)
Adjustments to reconcile net loss to net cash used in operating activities:
Depletion and depreciation		186,014		116,688
Impairment charge		6,046,000		-
Issuance of stock options for services		-		377,456
Common stock and warrants issued for penalty		-		-
Interest related to convertible debt		136,000		-
Preferred stock issued for services		-		4,791
Common stock issued for services		158,647		711,677
Change in other asset and liabilities:
Decrease (Increase) in oil & gas receivables		35,134		(38,802)
(Increase) in other assets		(3,215)		(26,575)
(Decrease) Increase in accounts payable		273,026		520,178
Increase in accrued liabilities		303,127		33,336
Increase (Decrease) in related party payable		(32,535)		-
Cash used in operating activities		(1,223,865)		(1,428,993)
INVESTING ACTIVITIES
Investment in oil & gas properties		(94,049)		(584,000)
Purchase of other equipment		(30,673)		(143,769)
Cash used in investing activities		(124,722)		(727,769)
FINANCING ACTIVITIES
Purchase/Retirement of Common Stock, reverse merger		-		(232,750)
Proceeds from sales of common stock		838,326		2,408,495
Proceeds from notes payable		420,500		-
Dividends paid		-		(875)
Cash from financing activities		1,258,826		2,174,870
(Decrease) Increase in cash		(89,761)		18,108
Cash at beginning of year		106,850		88,742
Cash at end of year	$	17,089	$	106,850
Supplemental disclosure of cash flow information:
Cash paid for interest	$	6,849	$	-
Cash paid for income taxes	$	-	$	-
Non-cash Investing and Financing activities:
Oil & gas properties	$	(5,924,738)	$	(25,540)
Other depreciable equipment		100,000		-
Accrued Liabilities		14,738		75,878
Additional Paid-in Capital		-		(50,338)
Stock Issuance Liability		5,904,090		-
Preferred Stock		5,910		-
Accounts Payable		(100,000)		-
	$	-	$	-

The accompanying notes are an integral part to these consolidated financial statements.

F-11

PETRON ENERGY II, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2012 and 2011

1. INCORPORATION AND NATURE OF OPERATIONS

Petron Energy II, Inc. (“Petron Energy” or the “Company”) is engaged primarily in the acquisition, development, production, exploration for and the sale of oil, gas and gas liquids in the United States. The Company was incorporated in August 2008 under the laws of the State of Nevada. As of December 31, 2012 the Company is operating in the states of Texas and Oklahoma. In addition, the Company operates two gas gathering systems located in Tulsa, Wagoner, Rogers and Mayes counties of Oklahoma. The pipeline consists of approximately 132 miles of steel and poly pipe, a gas processing plant and other ancillary equipment. The Company sells its oil and gas products primarily to a domestic pipeline and to another oil company.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of presentation

The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries:

Subsidiary Names

Petron Energy II Pipeline, Inc,

Petron Energy II Well Service, Inc

The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States. All intercompany transactions and account balances have been eliminated in consolidation.

Going concern uncertainty

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. The Company has incurred a net loss of $8,326,063 for the year ended December 31, 2012 (2011 - $3,127,742) and at December 31, 2012 had an accumulated deficit of $19,821,223 (2011 - $11,495,160). While the Company has recognized significant revenues from operations, the revenues generated are not sufficient to sustain operations. The Company does not have sufficient funds to acquire new business assets or maintain its existing operations at this time. Management’s plan is to raise equity and/or debt financing as required but there is no certainty that such financing will be available or that it will be available at acceptable terms. The outcome of these matters cannot be predicted at this time.

These financial statements do not include any adjustments to reflect the future effects on the recoverability and classification of assets or the amounts and classification of liabilities that might result from the outcome of this uncertainty.

Accounting estimates

The preparation of financial statements in conformity with generally accepted accounting principles of the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates and assumptions.

F-12

Cash and cash equivalents

Cash equivalents comprise certain highly liquid instruments with a maturity of three months or less when purchased. As of December 31, 2012 there were no cash equivalents.

Oil and gas properties

The Company utilizes the full cost method to account for its investment in oil and gas properties. Accordingly, all costs associated with acquisition, exploration and development of oil and gas reserves, including such costs as leasehold acquisition costs, capitalized interest costs relating to unproved properties, geological expenditures, tangible and intangible development costs including direct internal costs are capitalized to the full cost pool. When the Company obtains proven oil and gas reserves, capitalized costs, including estimated future costs to develop the reserves and estimated abandonment costs, net of salvage, will be depleted on the units-of-production method using estimates of proved reserves.

Investments in unproved properties are not depleted pending determination of the existence of proved reserves. Unproved properties are assessed periodically to ascertain whether impairment has occurred. Unproved properties whose costs are individually significant are assessed individually by considering the primary lease terms of the properties, the holding period of the properties, and geographic and geologic data obtained relating to the properties. Where it is not practicable to assess individually the amount of impairment of properties for which costs are not individually significant, such properties are grouped for purposes of assessing impairment. The amount of impairment assessed is added to the costs to be amortized, or is reported as a period expense, as appropriate.

Pursuant to full cost accounting rules, the Company must perform a ceiling test periodically on its proved oil and gas assets. The ceiling test provides that capitalized costs less related accumulated depletion and deferred income taxes for each cost center may not exceed the sum of (1) the present value of future net revenue from estimated production of proved oil and gas reserves using current prices, excluding the future cash outflows associated with settling asset retirement obligations that have been accrued on the balance sheet, at a discount factor of 10%; plus (2) the cost of properties not being amortized, if any; plus (3) the lower of cost or estimated fair value of unproved properties included in the costs being amortized, if any; less (4) income tax effects related to differences in the book and tax basis of oil and gas properties. Should the net capitalized costs for a cost center exceed the sum of the components noted above, an impairment charge would be recognized to the extent of the excess capitalized costs. In 2012 the Company recognized an impairment charge of $5,910,000 in accordance with the ceiling test.

Sales of proved and unproved properties are accounted for as adjustments of capitalized costs with no gain or loss recognized, unless such adjustments would significantly alter the relationship between capitalized costs and proved reserves of oil and gas, in which case the gain or loss is recognized in the statement of operations.

Exploration activities conducted jointly with others are reflected at the Company’s proportionate interest in such activities. Cost related to site restoration programs are accrued over the life of the project.

Pipeline and equipment

Depreciation is based on the estimated useful lives of the assets and is computed using the straight line method. Pipeline, trucks and equipment are recorded at cost. Depreciation is provided using the following useful lives:

Pipeline	15 years
Trucks and equipment	5—15 years

F-13

Stock-based compensation

The Company accounts for stock options in accordance with FASB ASC 505, “Equity,” and FASB ASC 718, “Compensation—Stock Compensation.” Accordingly, stock compensation expense has been recognized in the statement of operations based on the grant date fair value of the options for the year ended December 31, 2012.

Under ASC 718 and 505, the fair value of options is estimated at the date of grant using a Black-Scholes-Merton (“Black-Scholes”) option-pricing model, which requires the input of highly subjective assumptions including the expected stock price volatility. Volatility is determined using historical stock prices over a period consistent with the expected term of the option. The Company utilizes the guidelines of Staff Accounting bulletin No. 107 (SAB 107) of the Securities and Exchange Commission relative to “plain vanilla” options in determining the expected term of options grants. SAB 107 permits the expected term of “plain vanilla” options to be calculated as the average of the option’s vesting term and contractual period.

The Company has used this method in determining the expected term of all options. At such time as the Company has options with graded vesting, the Company will recognize compensation cost for awards with graded vesting on a straight-line basis over the requisite service period for the entire award. The amount of compensation expense recognized at any date is at least equal to the portion of the grant date value of the award that is vested at that date.

Advertising costs

The Company expenses advertising costs as these are incurred. Marketing expenses totaled $0 and $46,320 in 2012 and 2011, respectively.

Revenue recognition

Oil and gas revenues are recognized when oil and gas is produced and sold.

Earnings (loss) per share

Basic earnings (loss) per share is computed using the weighted average number of shares outstanding during the period. The treasury stock method is used to determine the diluted effect of stock options and warrants. Diluted loss per share is equal to the basic loss per share for the years ended December 31, 2012 and 2011 because common stock equivalents would have been anti-dilutive.

Income taxes

The Company recognizes deferred tax liabilities and assets for the expected future tax consequences of events that have been recognized in the Company’s financial statements or tax returns using the liability method. Under this method, deferred tax liabilities and assets are determined based on the temporary differences between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect in the year in which the differences are expected to reverse.

Long-lived assets impairment

Long-term assets of the Company are reviewed for impairment when circumstances indicate the carrying value may not be recoverable in accordance with the guidance established in Statement of Financial Accounting Standards No. 144 (SFAS 144) (ASC 360), Accounting for the impairment or Disposal of Long-Lived Assets. For assets that are to be held and used, an impairment loss is recognized when the estimated undiscounted cash flows associated with the asset or group of assets is less than their carrying value. If impairment exists, an adjustment is made to write the asset down to its fair value. Fair values are determined based on discounted cash flows or internal and external appraisals, as applicable. Assets to be disposed of are carried at the lower of carrying value or estimated net realizable value.

F-14

Asset retirement obligations

The Company accounts for asset retirement obligations in accordance with the provisions of SFAS 143 (ASC 410) “Accounting for Asset Retirement Obligations”. SFAS 143 (ASC 410) requires the Company to record the fair value of an asset retirement obligation as a liability in the period in which it incurs a legal obligation associated with the retirement of tangible long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. The Asset Retirement Obligation as of December 31, 2012 is $40,278 which includes an increase of $14,788 for the year ended December 31, 2012.

Concentration of credit risk

The Company has financial instruments that are exposed to concentrations of credit risk and consist primarily of cash and trade accounts receivable. The Company routinely maintains cash and temporary cash investments at certain financial institutions in amounts substantially in excess of Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Management believes that these financial institutions are of high quality and the risk of loss is minimal. At December 31, 2012 the Company had no cash balances in excess of FDIC limits.

Financial instruments

The carrying amount of financial instruments including cash, accounts receivable, accounts payable and accrued liabilities approximate fair value, unless otherwise stated as of December 31, 2012 and 2011.

Fair value estimates of financial instruments are made at the period end based on relevant information about financial markets and specific financial instruments. Because these estimates are subjective in nature, involving uncertainties and matters of significant judgment, they cannot be determined with precision. Changes in assumptions can significantly affect estimated fair value.

Contingencies

Certain conditions may exist as of the date the financial statements are issued, which may result in a loss to the Company, but which will only be resolved when one or more future events occur or fail to occur. Company management and legal counsel assess such contingent liabilities which inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company, or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If management determines that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability is accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, is disclosed.

F-15

 Commitments

During the year ended December 31, 2011, the Company entered into the following agreements:

• A Management Services Agreement with ASL Energy Corp. (“ASL Energy”), which has a five year term, provides for ASL Energy to provide management and consulting services to the Company; provides for the right for ASL Energy and the Company to enter into Joint Venture Agreements regarding the purchase of oil and gas interests having a total value of $5,910,000; provides for ASL Energy to be paid $8,000 per month during the term of the agreement and the right to receive the Series A Preferred stock issued to Floyd L. Smith, President and Chief Executive Officer of Petron Energy II, Inc.
• An Asset Acquisition Agreement with ONE Energy Capital Corp., ONV Energy International Corp. and their affiliated parties, pursuant to which the Company agreed to acquire the assets of ONE Energy Capital Corp., ONE Energy International Corp. and their affiliated parties, upon the mutual agreement of final closing agreements, in aggregate consideration for shares of convertible preferred stock, which convert into shares of the Company having a total value of $5,910,000, based on the trading price of the Company’s common stock on the date converted; votes one-for-one with the common shares; provides that no shares can be converted by the holders thereof if such conversion would result in the acquisition by such holder of more than 9.99% of the Company’s outstanding stock; and provides for such converted shares to be subject to a lock-up agreement.

Management fee expense was $56,973 for the year ended December 31, 2012.

The Company amended its operating lease for its administrative office in Dallas, Texas on May 10, 2011. The lease will expire on April 30, 2014. The following sets forth the future minimum lease payments by year:

Year	Amount
2013	$ 39,904
2014	13,416
Total	$ 53,320

Total rental expense was approximately $40,012 and $37,919 for years ended December 31, 2012 and 2011, respectively.

Recent Accounting Pronouncements

The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

F-16

3. REVERSE MERGER TRANSACTION

On August 9, 2011, Petron Energy II, Inc. (“PEII”), a privately owned company, entered into a stock purchase agreement with three (3) shareholders of Restaurant Concepts of America, Inc. (“RCA”), a publicly traded company. The agreement called for PEII to purchase 10,000,000 shares of RCA’s common stock for $232,750 ($0.02375 per share) from the three shareholders. The shares purchased represented ninety-eight point nine percent (98.9%) of the total outstanding common shares of RCA at August 9, 2011. Immediately after the purchase, PEII cancelled nine million four hundred thousand (9,400,000) shares of RCA’s common stock resulting in the following stock ownership, which was subsequently effected by a one hundred to one forward stock split:

	Pre-Split	Post-Split
Petron Energy II, Inc.	600,000	60,000,000
Other Shareholders	110,003	11,000,300
Total RCA Common Shares Outstanding	710,003	71,000,300

Subsequent to the issuance of the 60,000,000 stock certificate to PEII, management determined that 78,511,478 shares of RCA’s common stock should have been issued based on an exchange rate of two shares of common stock for each share of PEII’s preferred stock outstanding and one share of common stock for each share of PEII’s common stock outstanding. The 60,000,000 share certificate was cancelled. The exchange of shares was effected as follows:

Type of Shares	Outstanding Shares PEII (Private Company)	RCA’s Shares Issued (Public Company)
Preferred Shares	13,629,261	27,258,522
Common Shares	51,252,956	51,252,956
	64,882,217	78,511,478
Other Shareholders		11,000,300
Total Common Shares Outstanding After the Exchange		89,511,778

After PEII gained control of RCA, PEII’s name was changed to “Petron Energy Special Corporation” and RCA’s name was changed to “Petron Energy II, Inc.” The two entities will be statutorily merged, with the surviving entity assuming the name Petron Energy II, Inc., on January 3, 2012.

Subsequent to August 9, 2011, PEII sold 21,215,733 shares of common stock at $0.06 per share, resulting in a total of 110,727,511 outstanding common shares at December 31, 2011.

F-17

As of the date PEII gained control of RCA, RCA’s balance sheet was as follows (unaudited):

Restaurant Concepts of America, Inc.

Balance Sheet

August 9, 2011 (unaudited)

Assets	$	—
Current Liabilities
Accrued Liabilities	$	79,399
Shareholders Payable		34,675
		114,074
Stockholders’ Deficit
Common Stock, $0.001 par value, 1,000,000,000 shares authorized, 71,000,300 issued and outstanding		71,000
Paid-in Capital		(44,499	)
Retained Deficit at August 31, 2010		(111,307	)
Operating Loss from August 31, 2010 to merger date		(29,268	)
Total Retained Deficit		(140,575	)
Total Stockholders’ Deficit		(114,074	)
Total Liabilities and Stockholders’ Deficit	$	—

Included in the Statement of Stockholders’ Equity (Deficit) for the year ended December 31, 2011, is a reduction in paid-in capital related to the reverse merger as follows:

Description		Amount
Purchase of Common Stock	$	(232,750)
Restaurant Concepts of America, Inc.
Accumulated Stockholders’ Deficit		(114,074)
Related Party Debt Forgiveness		164,413
	$	(182,411)

F-18

The following summarizes, on a pro forma basis, the effect on PEII’s common and preferred stock and additional paid-in capital as of December 31, 2009 giving effect to RCA’s outstanding shares and the conversion of preferred stock to common stock:

Petron Energy Special Corp.

Pro Forma Statement of Stockholders’ Equity (Deficit)

As of December 31, 2009

	Preferred Stock		Common Stock		Additional Paid-in Capital	Accumulated Deficit	Total
	Number	Amount	Number	Amount
Balance as reported on December 31, 2009	10,137,737	$   101,377	41,557,284	$ 415,573	$5,679,928	$  (6,824,378)	$  (627,500)
Conversion of Preferred Stock to Common	(10,137,737)	(101,377)	20,267,474	202,675	(101,298)	-
Restaurant Concepts of America, Inc. shares	-	-	11,000,300	11,000	(11,000)	-
Change in par value from $0.01 to $0.001	-	-	-	(556,423)	556,423	-
	(10,137,737)	(101,377)	31,267,774	(342,748)	444,125
Balance as restated on December 31, 2009	-	$    -	72,825,058	$  72,825	$6,124,053	$  (6,824,378)	$  (627,500)

The accumulated (deficit) reflected above and in the accompanying statement of stockholders’ equity (deficit) for the two year period ended December 31, 2011 represent the historical earnings and losses of Petron Energy Special Corp. from its inception in 2007 to December 31, 2011.

4. PRODUCING OIL AND GAS PROPERTIES

The following summarizes the investment in producing oil & gas properties as of December 31, 2012 and 2011:

		2012			2011
Leasehold Cost	$	753,373		$	753,373
Development Cost		537,453			442,792
Tangible Equipment		865,698			865,698
		2,156,524			2,061,863
Accumulated Depletion		(731,795	)		(628,795	)
Net Investment	$	1,424,729		$	1,433,068

Depletion expense for the year ended December 31, 2012 and 2011 was $103,000 and $37,100, respectively.

F-19

5. PIPELINE AND OTHER DEPRECIABLE EQUIPMENT

The following summarizes the investment in pipeline and other depreciable equipment as of December 31, 2012 and 2011:

		2012		2011
Pipeline	$	988,000	$	988,000
Accumulated Depreciation		(245,156)		(179,289)
Net Pipeline	$	742,844	$	808,711
Equipment and Other		117,276		211,603
Accumulated Depreciation		(45,361)		(31,339)
Net Equipment and Other	$	71,915	$	180,264

Depreciation expenses for the years ended December 31, 2012 and 2011 was $83,014 and $79,588, respectively.

6. RELATED PARTY TRANSACTIONS

Petron Energy, Inc. is a company controlled by the Company’s majority shareholder. In 2012 and 2011, the Company paid Petron Energy, Inc. $61,163 and $312,510, respectively. These amounts have been reflected in the accompanying consolidated financial statement as charges from a related party and are included in general and administrative expenses for the respective years.

Effective August 31, 2011, the Company entered into an Executive Employment Agreement with Floyd L. Smith.  Pursuant to the employment agreement, Mr. Smith agreed to serve as President and Chief Executive Officer of the Company for a term of five years, renewable thereafter for additional one year periods if not terminated by either party. The employment agreement provides for Mr. Smith to receive a salary of $200,000 per year; reimbursement for reasonable business expenses; the ability to earn a yearly bonus in the sole discretion of the Board of Directors of the Company; co-investment rights, providing Mr. Smith the right to participate in the amount of up to 20% of any acquisition, transaction or funding undertaken by the Company during the term of the employment agreement; stock options to purchase 12,000,000 shares of the Company’s common stock at an exercise price of $0.0039 per share, with cashless exercise rights and a five year term, which vested immediately upon the parties’ entry into the employment agreement; and 1,000 shares of Series A Preferred Stock which give Mr. Smith Super Majority Voting Rights.

The employment agreement includes a non-competition provision, prohibiting Mr. Smith from competing against the Company in Texas, Louisiana, Oklahoma or New Mexico for a term of 12 months following the termination of the employment agreement.

The employment agreement can be terminated by the Company for cause (as defined in the agreement), without cause, or by Mr. Smith for good reason (as defined in the agreement) or without good reason. If the employment agreement is terminated due to Mr. Smith’s death, disability, with cause by the Company or without good reason by Mr. Smith, he is due the consideration earned by him up until the date of termination of the agreement. If the employment agreement is terminated by the Company without cause or by Mr. Smith for good reason, Mr. Smith is due the consideration earned by him up until the date of termination, plus the lesser of six months of salary due to Mr. Smith under the employment agreement and the remaining amount of consideration due pursuant to the terms of the employment agreement in a lump sum.

Mr. Smith also agreed to assign the Company rights to any intellectual property and inventions which he creates or conceives during the term of the employment agreement relating to the Company’s business pursuant to the employment agreement.

F-20

7. NOTES PAYABLE

The Company did not have any outstanding notes payable as of December 31, 2011. The following summarizes the outstanding notes payable as of December 31, 2012:

Convertible unsecured note from a financial institution, interest at 5%, matures April 30, 2013.  First date of conversion eligibility is January 22, 2013 with an applicable discount rate of 42% from the average trading price for the lowest three trading prices for the common stock during the ten trading days previous to the conversion date.	$	63,000
Convertible unsecured note from a financial institution, interest at 5%, matures April 9, 2013.  First date of conversion eligibility is March 13, 2013 with an applicable discount rate of 42% from the average trading price for the lowest three trading prices for the common stock during the ten trading days previous to the conversion date.		42,500
Unsecured notes from various investors, non - interest bearing, maturing from October to November 2014, issued for overriding and working interests.		250,000
Unsecured convertible note from an investor, interest at 10% maturing February 9, 2013.  Penalty interest on amounts unpaid as of the maturity date is 15%		65,000
		420,500
Short-term portion		(170,500	)
Long-term notes payable	$	250,000

8. INCOME TAXES

The Company uses the liability method in accounting for income taxes. Deferred income tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse.

The potential benefit of net operating loss carry forwards has not been recognized in the accompanying consolidated financial statements since the Company cannot be assured that it is more likely than not that such benefit will be utilized in future years.

The Company is subject to United States federal and state income taxes at an approximate rate of 34%. The reconciliation of the provision for income taxes at the United States federal statutory rate compared to the Company’s income tax expense as reported for the years ended December 31, 2012 and 2011 is as follows:

	2012			2011
Net Loss	$	8,326,063		$	3,127,742
Income Tax Rate		34	%		34	%
Income Tax Recovery		2,830,861			1,063,432
Permanent Difference		(103,664	)		(365,319	)
Valuation Allowance Change		(2,727,197	)		(698,113	)
Deferred Income Tax (Recovery)	$	—		$	—

Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

F-21

Future income taxes arise from temporary differences in the recognition of income and expenses for financial reporting and tax purposes. The significant components of future income tax assets and liabilities at December 31, 2012 and 2011 are as follows:

	2012			2011
Net Operating Loss Carryforwards	$	2,711,283		$	2,025,658
Impairments		2,055,640			—
Depletion and Depreciation		(223,500	)		(209,432	)
Net Deferred Tax Assets		4,543,423			1,816,226
Valuation Allowance		(4,543,423	)		(1,816,226	)
Deferred Tax Asset	$	—		$	—

The Company has recognized a valuation allowance for the deferred tax assets for which it is more likely than not that the realization will not occur. The valuation allowance is reviewed periodically. When circumstance change and this causes a change in management's judgment about the realizeability of deferred tax assets, the impact of the change on the valuation allowance is generally reflected in current income.

The net operating loss carryforwards for income tax purposes are approximately $8,100,000 and will begin to expire in 2025. Neither the Company nor any of its subsidiaries have ever been the subject of an examination by the Internal Revenue Service.

Pursuant to Section 382 of the Internal Revenue Code, use of the Company’s net operating loss carryforwards may be limited if the Company experiences a cumulative change in ownership of greater than 50% in a moving three year period. Ownership changes could impact the Company’s ability to utilize net operating losses and credit carryforwards remaining at the ownership change date. The limitation would be determined by the fair market value of common stock outstanding prior to the ownership change, multiplied by the applicable federal rate.

9. STOCKHOLDERS’ EQUITY

Preferred Stock

The articles of incorporation of the Company authorize the issuance of 10,000,000 shares of $0.001 par value Preferred Stock. The Board of Directors is authorized, from time to time, to divide the preferred shares into “Series” and to fix and determine separately for each Series any or all of the relative rights and preferences.

In connection with an employment agreement, the Company issued 1,000 shares of Series A Preferred Stock in August 2011. The Series A Preferred Stock has voting rights on all shareholder matters equal to fifty-one percent (51%) of the total vote. There are no other liquidation, conversion or redemption rights.

On February 17, 2012, the Board of Directors designated “Series B Convertible Preferred Stock” with the number of shares initially constituting such series being up to 6,000,000 shares, issuing 5,910,000 for the acquisition of oil & gas properties,

The Board of Directors does not formally approve the declaration of the preferred stock dividends; therefore, as checks for payment of preferred dividends are approved by the CEO of the Company, dividend expense is recognized. For the years ended December 31, 2012 and 2011, the preferred stock dividend expense was $0 and $875, respectively.

F-22

Common Stock

The Company is authorized to issue up to 1,000,000,000 shares of $0.001 par value common stock.

In connection with the employment agreement with Floyd L. Smith, the Company issued: (1) stock options to purchase 12,000,000 shares of the Company’s common stock at an exercise price of $0.0039 per share, with cashless exercise rights and a five year term, which vest immediately, and (2) 1,000 shares of Series A Preferred Stock which provide him Super Majority Voting Rights. The stock options and Series A preferred stock were valued at $377,456 and $4,791, respectively, using a Black-Scholes Option Pricing model. In connection with the valuation of the stock options, the Company used the following assumptions: dividend yield 0%, risk free rate 0.96%, volatility 44.44% and an expected term of 5 years.

On August 25, 2011, the Company’s Board of Directors approved a one hundred-to-one (100:1) forward stock split of the issued and outstanding shares of common stock for stockholders of record on August 25, 2011. The effect of this stock split has been applied retroactively in the accompanying financial statements.

In December 2012 the Company’s Board of Directors authorized a ten to one reverse stock split for all outstanding common shares. During 2012, there were 717,175 post-split common shares sold for $838,326 cash, with an additional 147,016 post-split common shares issued for services valued at $158,647. The convertible note included additional consideration of 40,000 post-split common shares valued at $52,000 and 100,000 post-split common stock warrants valued at $84,000.

Warrants

The following summarizes the stock purchase warrant transactions for the year ended December 31, 2012 and 2011:

				Weighted
				Average
	Number of			Exercise
	Warrants			Price
Outstanding, December 31, 2010		518,042		$	0.50
Warrants Issued		—			—
Warrants Exercised		—			—
Warrants Forfeited, Expired or Cancelled		(518,042	)	$	0.50
Outstanding, December 31, 2011		—			—
Warrants Issued with Convertible Debt		100,000		$	0.14
Outstanding, December 31, 2012		100,000		$	0.14

F-23

10. FAIR VALUE ESTIMATES

In February 2007 the FASB issued ASC 820 “Fair Value Measurements and Disclosures”. The objective of ASC 820 is to increase consistency and comparability in fair value measurements and to expand disclosures about fair value measurements. ASC 820 defines fair value establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. ASC 820 applies under other accounting pronouncements that require or permit fair value measurements and does not require any new fair value measurements.

The Company measures its options at fair value in accordance with ASC 820. 820 specifies a valuation hierarchy based on whether the inputs to those valuations techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s own assumptions. These two types of inputs have created the following fair value hierarchy:

Level 1—Quoted prices for identical instruments in active markets;

Level 2—Quoted prices for similar instruments in active markets, quoted process for identical or similar instruments in markets that are not active, and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets; and

Level 3—Valuations derived from valuations techniques in which one or more significant inputs or significant value drivers are unobservable.

This hierarchy requires the Company to minimize the use of unobservable inputs and to use observable market data, if available, when estimating fair value.

	Markets for	Observable	Unobservable
	Identical Assets	Inputs	Inputs
	(Level 1)	(Level 2)	(Level 3)	Total
2011
Stock Options	$                           -	$377,456	$                    -	$377,456
Preferred Stock	$                           -	$4,791	$                    -	$4,791
2012
Stock Warrants	$                           -	$84,000	$                    -	$84,000
Common Stock	$                           -	$52,000	$                    -	$52,000

In connection with the valuation of the stock warrants, the Company used the following assumptions: dividend yield 0%, risk free rate 0.38%, volatility 154.82% and an expected term of 1.5 years.

F-24

11. SUBSEQUENT EVENTS

The Company’s management has evaluated subsequent events through May 16, 2013, the date the consolidated financial statements were issued. In the opinion of the Company’s management, there have been no significant subsequent events since December 31, 2012 other than securing a $5,000,000 revolving line of credit described below:

Under the terms of a credit agreement the Company has pledged all of its oil and gas assets as collateral. The Company makes requests for drawdowns periodically and the lender, in its sole discretion, will approve the requests. The funds are to be used for enhancing the oil and gas producing assets of the Company.

The first draw, under terms of an 11% note payable due October 17, 2013, was received April 17, 2013 for $450,000.

In 2013, 4,189,542 shares of the Company’s Series B Convertible preferred stock converted into an aggregate of 19,255,145 shares of the common stock of the Company. Under the Plan of Reorganization and Asset Purchase Agreement and the Certificate of Designation, these shares of Series B Convertible preferred stock convert into common shares of the Company having a total value of $5,910,000, based on the average trading price of the Company’s common stock on the five days prior to the date of conversion, which was on January 7, 2013 (the “Conversion Date”). However, the Series B cannot be converted by the holders thereof if such conversion would result in the acquisition by such holder of more than 9.99% of the Company’s outstanding stock (the “Ownership Limitation”). At May 16, 2013, we had 1,720,458 shares of Series B Convertible Preferred Stock issued and outstanding, which had not converted because of the Ownership Limitation.

12. SUPPLEMENTAL INFORMATION ON OIL & GAS (Unaudited)

	2012	2011
Capitalized Costs Relating to Oil and Gas Producing Activities at December 31, 2012 and 2011
Unproved Oil and Gas Properties	$202,886	$202,886
Proved Oil and Gas Properties	1,953,638	1,858,977
	2,156,524	2,061,863
Less Accumulated Depletion	(731,795)	(628,795)
Net Capitalized Costs Relating to Oil and Gas Producing Activities	$       1,424,729	$  1,433,068
Costs incurred in Oil and Gas Producing Activities for the year ended December 31, 2012 and 2011
Property acquisition cost:
Proved	$       5,910,000	$              -
Unproved	-	54,100
Exploration and development costs	203,662	555,440
Depletion rate per equivalent barrel of production	$              34.92	$         23.26
Results for Operations for Oil and Gas Producing Activities for the year ended December 31, 2012 and 2011
Oil and Gas Sales	$          293,798	$      192,839
Less: Production Costs	538,616	271,873
Depletion, Depreciation and Amortization	103,000	37,100
Impairment of oil and gas investment	6,046,,000	-
	(6,393,818)	(116,134)
Income Tax Benefit	-	-
Results of Operations for Oil and Gas Producing Activities (excluding corporate overhead and financing costs)	($6,393,818)	($116,134)

F-25

Reserve Information

The following estimates of proved and proved developed reserve quantities and related standardized measure of discounted net cash flow are estimates only, and do not purport to reflect realizable values or fair market values of the Company’s reserves. The Company emphasizes that reserve estimates are inherently imprecise and that estimates of new discoveries are more imprecise than those of producing oil and gas properties. Accordingly, these estimates are expected to change as future information becomes available. All of the Company’s reserves are located in the United States.

Proved reserves are estimated reserves of crude oil (including condensates and natural gas liquids) and natural gas that geological and engineering data demonstrate with reasonable certainty to be recoverable in future years from known reservoirs under existing economic and operating conditions. Proved developed reserves are those expected to be recovered through existing wells, equipment, and operating methods.

The standardized measure of discounted future net cash flows is computed by applying average prices of oil and gas based upon the prior 12 months to the estimated future production of proved oil and gas reserves, less estimated future expenditures (based on year-end costs) to be incurred in developing and producing the proved reserves, less estimated future income tax expenses (based on year-end statutory tax rates, with consideration of future tax rates already legislated) to be incurred on pretax net cash flows less tax basis of the properties and available credits, and assuming continuation of existing economic conditions. The estimated future net cash flows are then discounted using a rate of 10% a year to reflect the estimated timing of the future cash flows. The benchmark oil and gas prices used in the reserve reports is the average of the first day spot prices for each month posted for West Texas Intermediate Crude, Cushing, Oklahoma Crude and Henry Hub natural gas in the respective year adjusted for gravity and regional price differentials.

The reserve estimates as of December 31, 2012 were prepared by Forrest A. Garb & Associates, Inc., a third party, and are primarily overseen by David Knepper, who is also a Director of the Company. Mr. Knepper’s biographical information and qualifications are disclosed on page 37 of our Registration Statement

F-26

The following table sets forth estimated proved oil and gas reserves together with the changes therein for the years ended December 31, 2012 and 2011:

	2012		2011
	Oil	Gas	Oil	Gas
	(bbls)	(mcf)	(bbls)	(mcf)
Proved Developed and Undeveloped Reserves:
Beginning of the year	59,191	-	94,566	148,000
Revisions of previous estimate	(30,283)	106,650	(33,780)	(148,000)
Purchases	8,959	-	-	-
Production	(2,836)	-	(1,595)	-
End of the year	35,031	106,650	59,191	-
Proved Developed Reserves:
Beginning of year	36,557	-	36,456	148,000
End of year	24,901	106,650	36,557	-
	2012	2011
Standardized measure of Discounted Future
Net Cash Flows at December 31
Future cash inflows	$3,611,006	$5,364,574
Future production costs	(1,383,744)	(1,913,921)
Future development costs	(45,000)	(175,000)
	2,182,262	3,275,653
Future net cash flows 10% annual discount for estimated timing of cash flows	(757,410)	(1,525,034)
Standardized measure of Discounted Future
Net Cash Flows relating to Proved Oil and Gas Reserves	$1,424,852	$1,750,619
The following reconciles the change in the standardized measure of discounted future net cash flow during the year
Beginning of the year	$1,750,619	$2,929,194
Purchases of minerals in place	231,772	-
Sales of oil and gas produced, net of production costs	242,597	80,510
Net changes in prices and production costs	(496,481)	1,486,207
Development costs incurred during the year which were previously estimated	94,661	603,999
Net change in estimated future development costs	(35,339)	(278,999)
Revisions of previous quantity estimates	(1,133,600)	(3,944,343)
Change in discount	770,623	874,051
End of year	$1,424,852	$1,750,619

The gas reserves at the beginning of 2011 were all contained in one lease. During 2011 there was no development activity on this lease so the reserve classification was changed to probable in the reserve report as of December 31, 2011. The increase in the gas reserves in 2012 were not related to the aforementioned lease. Development activity undertaken in 2012 resulted in revisions from probable to proved developed on other Company leases.

The decrease in the oil reserves is related to events on two leases in both 2011 and 2012. In 2011 initial develop work on one lease did not have favorable results which resulted in a downward revision in the proved oil reserves of 8,776 barrels. On the second lease in 2011, the development plans were delayed indefinitely plus some wells were taken off line due to needing repairs. As a result the proved oil reserves related to this lease were revised downward by 26,906 barrels in 2011. Other miscellaneous revisions that netted to an increase of 1,902 barrels on all other leases made up for the rest of the revision total in 2011 which was a decrease of 33,780 barrels. In 2012 additional development efforts did not result in a favorable outcome when completed so the reserves on this lease were revised downward by an additional 11,849 barrels after the 2011 decrease of 8,776 barrels. Also in 2012 there were additional wells taken out of production due to repair issues which resulted in a further downward revision of 16,705 barrels. All other revisions resulted in a net decrease in proved reserves of 1,729 barrels for a net total downward revision in 2012 of 30,283 barrels.

F-27

150,866,346 SHARES OF COMMON STOCK

PETRON ENERGY II, INC.

PROSPECTUS

YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT WE HAVE REFERRED YOU TO. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT. THIS PROSPECTUS IS NOT AN OFFER TO SELL COMMON STOCK AND IS NOT SOLICITING AN OFFER TO BUY COMMON STOCK IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.

Until _____________, all dealers that effect transactions in these securities whether or not participating in this offering may be required to deliver a prospectus. This is in addition to the dealer’s obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.

PART II — INFORMATION NOT REQUIRED IN THE PROSPECTUS

Item 13. Other Expenses of Issuance and Distribution. 

Securities and Exchange Commission registration fee	$	77.73
Transfer Agent Fees	$	1,000.00
Accounting fees and expenses	$	5,000.00
Legal fees and expense	$	12,500.00
Miscellaneous	$	1,000.00
Total	$	19,577.73

All amounts are estimates other than the Commission’s registration fee and Legal fees and expenses. CPUS is paying all expenses of the offering listed above.

Item 14. Indemnification of Directors and Officers.

Nevada Revised Statute 78.037 permits a corporation to eliminate or limit the personal liability of a director or officer to the corporation or its stockholders for damages relating to breach of fiduciary duty as a director or officer, but such a provision must not eliminate or limit the liability of a director or officer for (a) acts or omissions which involve intentional misconduct, fraud or a knowing violation of law or (b) the payment of distributions in violation of Nevada Revised Statute 78.300.

II-1

Nevada Revised Statutes 78.7502 provides as follows with respect to indemnification of directors, officers, employees and agents:

(a) We may indemnify any person who was or is a party or is threatened to be made a party to any action, except an action by us, by reason of the fact that he is or was our director, officer, employee or agent, or is or was serving as a director, officer, employee or agent of any other person at our request, against expenses actually and reasonably incurred by him in connection with the action, suit or proceeding if he: (i) is not liable for breach of his fiduciary duties as a director or officer pursuant to Nevada Revised Statutes 78.138; and (ii) acted in good faith and in a manner which he reasonably believed to be in or not opposed to our best interests and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful.

(b)

We may indemnify any person who was or is a party or is threatened to be made a party to any action by us, by reason of the fact that he is or was our director, officer, employee or agent, or is or was serving as a director, officer, employee or agent of any other person at our request, against expenses actually and reasonably incurred by him in connection with the defense or settlement of the action or suit if he: (i) is not liable for breach of his fiduciary duties pursuant to Nevada Revised Statutes 78.138; and (ii) acted in good faith and in a manner which he reasonably believed to be in or not opposed to our best interest.  We may not indemnify him for any claim, issue or matter as to which he has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to us or for amounts paid in settlement to us, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, he is fairly and reasonably entitled to indemnity for such expenses as the court deems proper.

(c)

To the extent that our director, officer, employee or agent has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, we are required to indemnify him against expenses, including attorneys’ fees actually and reasonably incurred by him in connection with the defense.

Our Articles of Incorporation and Bylaws provide for elimination of any liability of our directors and officers and indemnity of our directors and officers to the fullest extent permitted by Nevada law.

The above-described provisions relating to the exclusion of liability and indemnification of directors and officers are sufficiently broad to permit the indemnification of such persons in certain circumstances against liabilities arising under the Securities Act.  Insofar as indemnification for liabilities arising under the Securities Act may be permitted to our directors and officers and to persons controlling us pursuant to the foregoing provisions, we have been informed that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

Item 15. Recent Sales of Unregistered Securities.

Set forth below is information regarding securities issued by us within the past three years that were not registered under the Securities Act:

During the year ended December 31, 2011, the Company sold an aggregate of 10,796,200 shares of the Company’s restricted common stock to 21 “accredited investors” in private transactions for aggregate consideration of $647,772 in a private placement.

II-2

During the year ended December 31, 2012, the Company sold an aggregate of 717,175 shares of the Company’s restricted common stock to 43 “accredited investors” in private transactions for aggregate consideration of $838,326.

On April 18, 2013, in connection with the TCA credit agreement, the Company issued 3,333,334 shares of its common stock to TCA.

During 2013, the Company issued 7,593,037 shares of its common stock to ASC Recap, LLC in connection with a convertible promissory note entered into by and between the Company and ASC Recap, LLC.

During 2013, the Company issued 26,140,220 shares of its common stock to Asher in connection with convertible promissory notes entered into by and between the Company and Asher.

During 2013, the Company sold an aggregate of 41,141,643 shares of the Company’s restricted common stock to 62 “accredited investors” in private transactions for aggregate consideration of $5 2 5,150.

During 2013 4,9 62,502 shares of its Series B Preferred Convertible Stock were converted into 1 42 ,653,320 shares of the Company’s common stock.

During 2013 the Company issued 65,539,280 shares of its common stock to AGS Capital Group, LLC in connection with convertible promissory notes entered into by and between the Company and AGS Capital Group, LLC.

During 2013, the Company issued 63,553,210 shares of its common stock to WHC Capital, LLC in connection with convertible promissory notes entered into by and between the Company and WHC Capital, LLC.

During 2013, the Company issued 68,782,347 shares of its common stock to Continental Equities, LLC in connection with convertible promissory notes entered into by and between the Company and Continental Equities, LLC.

During 2013, the Company issued 4,148,806 shares of its common stock to certain vendors and individuals for services rendered.

During 2013, the Company issued 2, 950 ,477 shares of its common stock to an individual in connection with a settlement agreement.

During 2013, the Company issued 4,273,324 shares to two of the Company’s directors for their fees.

From January 1, 2014 through January 27, 2014, 106,560 shares of its Series B Preferred Convertible Stock were converted into 36,000,000 shares of the Company’s common stock .

From January 1, 2014 through January 27, 2014, the Company issued 3,535,354 shares to two of the Company’s directors for their fees.

From January 1, 2014 through January 27, 2014, the Company sold an aggregate of 54,166,670 shares of the Company’s restricted common stock to 11 “accredited investors” in private transactions for aggregate consideration of $54,900.

From January 1, 2014 through January 27, 2014, the Company issued 15,416,667 shares of its common stock to vendors for services rendered.

II-3

From January 1, 2014 through January 27, 2014, the Company issued 26,000,501 shares of its common stock to AGS Capital Group, LLC in connection with convertible promissory notes entered into by and between the Company and AGS Capital Group, LLC.

From January1, 2014 through January 27, 2014, the Company issued 29,249,131 shares of its common stock to WHC Capital, LLC in connection with convertible promissory notes entered into by and between the Company and WHC Capital, LLC.

From January 1, 2014 through January 27, 2014, the Company issued 28,169,014 shares of its common stock to Continental Equities, LLC in connection with convertible promissory notes entered into by and between the Company and Continental Equities, LLC.

From January 1, 2014 through January 27, 2014, the Company issued 21,000,000 shares of its common stock to Asher in connection with convertible promissory notes entered into by and between the Company and Asher.

From January 1, 2014 through January 27, 2014, the Company issued 22,488,756 shares of its common stock to LG Capital in connection a convertible promissory note entered into by and between the Company and LG Capital.

The above securities were not registered under the Securities Act.  These securities qualified for exemption under Regulation S promulgated under the Securities Act. We made this determination based on the representations of the investors, which included, in pertinent part, that such shareholders were not a “U.S. person” as that term is defined in Rule 902(k) of Regulation S under the Act, and that such shareholders were acquiring our common stock, for investment purposes for their own respective accounts and not as nominees or agents, and not with a view to the resale or distribution thereof, and that the shareholders understood that the shares of our common stock may not be sold or otherwise disposed of without registration under the Securities Act or an applicable exemption therefrom.

II-4

Item 16. Exhibits and Financial Statement Schedules

Exhibit Number	Description of Exhibit
3.1(1)	Articles of Incorporation
3.2(2)	Certificate of Amendment to Articles of Incorporation (100:1 Forward Split)
3.3(2)	Series A Preferred Stock Designation
3.4(1)	Bylaws
3.5(3)	Series B Preferred Stock Designation
3.6(3)	Plan of Reorganization and Asset Purchase Agreement with One Energy
3.7 (5)	Certificate of Amendment to Articles of Incorporation, filed December 5, 2013
3.8	Certificate of Amendment to Articles of Incorporation, filed February 4, 2014
3.9	Certificate of Amendment to Articles of Incorporation, filed February 27, 2014
5.1*	Legal Opinion of Szaferman, Lakind, Blumstein & Blader, P.C.
10.1(2)	Oil and Gas Lease – Wagoner, Oklahoma
10.2	Deleted
10.3(4)	Investment Agreement, dated December 13, 2013, by and between Petron Energy II, Inc. and CP Us Income Group, LLC.
10.4(4)	Registration Rights Agreement dated December 13, 2013, by and between Petron Energy II, Inc. and CP Us Income Group, LLC.
23.1	Consent of KWCO, PC
23.2*	Consent of Szaferman, Lakind, Blumstein & Blader, P.C. (included in Exhibit 5.1)
23.3	Consent of Forrest A. Garb and Associates, Inc
99.1	Independent Reserve Report of Forrest A. Garb & Associates, Inc. for the year ended December 31,2012.

* To be filed by amendment. 

(1) Filed as exhibits to the Company’s Form S-1 Registration Statement filed with the Commission on July 10, 2009, and incorporated herein by reference.

(2) Filed as an exhibit to the Company’s Report on Form 8-K, filed with the Commission on October 18, 2011, and incorporated herein by reference.

(3) Filed as an exhibit to the Company’s Report on Form 8-K, filed with the Commission on February 17, 2012, and incorporated herein by reference.

(4) Filed as an exhibit to the Company’s Report on Form 8-K, filed with the Commission on December 13, 2013, and incorporated herein by reference.

(5) Filed as an exhibit to the Company’s Form S-1 Registration Statement filed with the Commission on December 16, 2013, and incorporated herein by reference.

Item 17. Undertakings.

Undertaking Required by Item 512 of Regulation S-K.

(a) The undersigned registrant hereby undertakes:

                    (1) to file, during any period in which it offers or sells securities are being made, a post-effective amendment to this Registration Statement to:

                            (i) include any prospectus required by Section 10(a)(3) of the Securities Act;

                            (ii) reflect in the prospectus any facts or events arising after the effective date of this registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and

II-5

                              (iii) include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement; provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) of this rule do not apply if the registration statement is on Form S-8, and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the registration statement; and paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-3 or Form F-3 and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnished to the Commission by the registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) that is not part of the registration statement.

Provided further, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is for an offering of asset-backed securities on Form S-1 or Form S-3, and the information required to be included in a post-effective amendment is provided pursuant to item 1100(c) of Regulation AB.

                    (2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.

                    (3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.

(b) For determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, the registrant undertakes that in a primary offering of securities of the registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

                    (1) Any preliminary prospectus or prospectus of the registrant relating to the offering required to be filed pursuant to Rule 424;

                    (2) Any free writing prospectus relating to the offering prepared by or on behalf of the registrant or used or referred to by the registrant;

                    (3) The portion of any other free writing prospectus relating to the offering containing material information about the registrant or its securities provided by or on behalf of the registrant; and

                    (4) Any other communication that is an offer in the offering made by the registrant to the purchaser.

II-6

(c) Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

(d) That, for the purpose of determining liability under the Securities Act to any purchaser:

          If the registrant is relying on Rule 430B:

                    (i) Each prospectus filed by the registrant pursuant to 424(b)(3) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and

                    (ii) Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) for the purpose of providing the information required by section 10(a) of the Securities Act shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or

If the registrant is subject to Rule 430C, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of a registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

If the registrant is relying on Rule 430A:

                    (i) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

                    (ii) For the purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-7

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Dallas, State of Texas, on March 3, 2014 .

PETRON ENERGY II, INC.
By:	/s/ Floyd L. Smith
	Name: Floyd L. Smith
	Title: President, Chief Executive Officer,
	Secretary, Treasurer and Director
	( Duly Authorized , Principal Executive Officer )

By:	/s/ Bob Currier
	Name: Bob Currier
	Title: Chief Financial Officer,
	( Duly Authorized , Principal Accounting and Financial Officer)

Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.

Signature	Title	Date
/s/ Floyd L. Smith	President, Chief Executive Officer	March 3, 2014
Floyd L. Smith	Secretary, Treasurer and Director
	(Principal Executive)

(Principal Accounting and Financial Officer) 

/s/ Bob Currier	Chief Financial Officer	March 3, 2014
Bob Currier	(Principal Accounting and Financial Officer)

/s/ David Knepper	Director	March 3, 2014
David Knepper

/s/ Judson Hoover	Director	March 3, 2014
Judson Hoover

II-8

EX-3.8

Exhibit 3.8

 

EX-3.9

Exhibit 3.9

 

EX-23.1

Exhibit 23.1

CONSENT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

We consent to the use in this Registration Statement on Form S-1, Amendment No. 2, of our report dated May 16, 2013, relating to the consolidated financial statements of Petron Energy II, Inc. (which report expresses an unqualified opinion and includes an explanatory paragraph related to the preparation of the consolidated financial statements assuming that the Company will continue as a going concern), appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading “Experts”, in such Prospectus.

 

KWCO, P.C.

Odessa, Texas

March 3, 2014

EX-23.3

Exhibit 23.3

FORREST A. GARB & ASSOCIATES, INC.

INTERNATIONAL PETROLEUM CONSULTANTS

5310 HARVEST HILL ROAD, SUITE 275

DALLAS, TEXAS 75230 - 5805

(972) 788-1110 Telefax 991-3160

E-Mail: forgarb@forgarb.com

CONSENT OF INDEPENDENT PETROLEUM ENGINEERS

The undersigned hereby consents to the references to our firm in the form and context in which they appear in the Registration Statement on Form S-1 of Petron Energy II, Inc. (the “Registration Statement”). We hereby further consent to the inclusion in the Registration Statement of estimates of oil and gas reserves contained in our report “Estimated Reserves and Future Net Revenue as of December 31, 2012 Attributable to Interests Owned by Petron Energy II, Inc. in Certain Properties Located in Oklahoma and Texas” and to the inclusion of our report dated Febryart 27, 2014 as an exhibit to the Registration Statement.

FORREST A. GARB & ASSOCIATES, INC.

 

______________________________________ 

William D. Harris III

CEO / President

Dallas, Texas 

March 3, 2014

EX-99.1

 Exhibit 99.1

ESTIMATED RESERVES AND FUTURE NET REVENUE

AS OF

DECEMBER 31, 2012

ATTRIBUTABLE TO INTERESTS

OWNED BY

PETRON ENERGY II, INC.

IN CERTAIN PROPERTIES

LOCATED IN

OKLAHOMA AND TEXAS

(SEC CASE) 

FORREST A.GARB& ASSOCIATES,INC.

INTERNATIONAL PETROLEUM CONSULTANTS

FORREST A.GARB&ASSOCIATES, INC.

INTERNATIONAL PETROLEUM CONSULTANTS

5310 HARVEST HILLROAD, SUITE 275,LB 152

DALLAS, TEXAS 75230-5805

(972)788-1110 Telefax(972)991-3160 (EMAIL) forgarb@forgarb.com

February 27,2014

Mr. Floyd Smith

Petron Energy II,Inc.

12850 Preston Road,Suite 960

Dallas, TX75252

Dear Mr.Smith:

At your request, Forrest A.Garb &Associates, Inc.(FGA) has estimated theproved and probable reserves andfuture netrevenue, asofDecember 31,2012,attributable tointerests owned by Petron EnergyII,Inc.(Petron) incertain oil andgasproperties located inOklahoma and Texas. It is our understanding that the reserves in this report constitute 100 percent of the reserves ownedby Petron. Thepurpose ofthis reportisto furnish data to Petron regarding their reserves forinclusion intheir U.S. Securities andExchange Commission (SEC) filings.

This report hasbeen prepared usingthedefinitions andguidelines oftheSEC,andwith the exception ofthe exclusion offuture income taxes, conforms to the FASB Accounting Standards Codification Topic 932,Extractive Industries –OilandGas. These guidelines specify theuse of a 12-month first-day-of-the-month average benchmark price, a ten percent discount factor, and constant oil and gas prices and costs. The assumptions, data, methods, and procedures used inthisreport areappropriate for thepurposed ofthisreport asdescribed above.

The following table summarizes theestimated total netreserves andfuture netrevenue, asofDecember 31,2012:

 

¹ The definitions for allreserves incorporated inthis studyhavebeen set forth inthisreport.

² MBbl =thousands ofbarrels, MMcf =millions ofcubic feet, M$ =thousands ofdollars.

³ The discounted future net revenue is notrepresented tobethefair market value ofthese reserves.

⁴ The reserves andrevenues inthe summary tablewere estimated using theAries economics program. Duetotherounding procedures usedinthis program, there maybeslight differences inthe calculated andsummed values.

ENGINEERING

Proved oiland gasreserves arethosequantities ofoilandgas which,by analysis of engineering andgeoscience data, canbeestimated withreasonable certainty tobeeconomically producible fromagiven dateforward. Thebasis forestimating theproved producing reserves wasthe extrapolation ofhistorical production havinganestablished decline trend. Volumetrics and/oranalogy wereusedfor forecasting properties whereinsufficient datawerepresentfor production declineextrapolation. Production histories wereobtained frompublishedproduction data and state reporting records purchased fromathird partyprovider, HPDI,LLC,and supplemented with data provided by Petron. The reserves for other reserve categories were estimated byanalogy toadjacent comparable wells. Petron provided theavailable geologic and engineering data forFGA's review. FGAhas accepted Petron’s intent to recomplete theproved developed non-producing property and to drill the probable locations. Probable reserves are those additional reserves thatareless certain toberecovered thanproved reserves butwhich, together with proved reserves, areaslikely asnottoberecovered.

The analysis andfindings presented inthis report, represent FGA’sinformed judgments basedonaccepted standards ofprofessional engineering practice, butare subject tothe generally recognized andunforeseen risksassociated withthe interpretation ofgeological, geophysical, andengineering data. Estimates ofreserves wereprepared by the useof appropriate geologic, petroleum engineering, andevaluation principles andtechniques whichareinaccordance with practices generally recognized by the petroleum industry. Future changes in federal, state, or local regulations mayadversely impact the ability to recover the future oil and gas volumes expected. Changes in economic and market conditions from the assumptions and parameters used in this study may cause the total quantity of future oil or gas recovered, actual production rates, prices received, operating expenses and capital coststo vary fromtheresults presented in this report.

Gas volumes areexpressed inmillions ofcubic feet (MMcf) atstandard temperature and pressure. Gassales imbalances havenotbeen taken intoaccountin thereserve estimates. The oilreserves showninthisstudyinclude crudeoiland/or condensate. Oilvolumes areexpressed inthousands of barrels (MBbl), with one barrel equivalent to42 United States gallons.

ECONOMIC CONSIDERATIONS

The benchmark oiland gasprices usedin thisstudyaretheaverage ofthefirst dayof the month spotprices postedforthe WestTexas Intermediate (WTI) oiland Henry Hubnatural gas, per SECguidelines. Oilprices are based on abenchmark price of$94.68 perbarrel and have been adjusted by lease for gravity, transportation fees, and regional price differentials. Gas prices per thousand cubic feet (MCF) are based on abenchmark price of $2.76 per million Britishthermal units(MMBtu) andhave beenadjusted bylease forBtucontent, transportation fees, andregional price differentials. Theaverage realized prices were$94.68 perbarrelfor oil and$2.76perMMBtu forgas. Theoil andgasprices areheld constant forthe economic lifeof theproperties asspecified by theSEC.

Lease operating costsandcapital expenditures, asrequired forworkovers, future development ofnewwells, andfor production equipment, wereprovided by Petron forFGA’s review. Allcostshavebeenheld constant inthis evaluation. Existing orpotential liabilities stemming fromenvironmental conditionscausedbycurrent orpastoperating practices havenot been considered in this report. Nocosts were included forabandonment, asthese notconsidered material. No costs are included in the projections of future net revenue or in our economic

analyses torestore, repair, orimprove theenvironmental conditionsofthe properties studied to meet existing orfuture local, state, orfederal regulations.

Grand total summary economic projections byreserve category andcategory summaries

(including one-line summaries forthe individual properties) arepresented inAttachment A.

Attachment Bpresents thedefinitions ofproved oiland gasreserves inaccordance with theSEC. General comments regarding thisreportandthe estimation offuture reserves and revenue arepresented inAttachment C. Attachment Dcontains theconsulting firm profile.

The estimated future netrevenues shownare thosewhichshouldberealized fromthe sale ofestimated oiland gasreserves after thededuction ofseverance taxes, advalorem taxes, direct operating costs,andfuture capital expenditures. Nodeductions havebeen madeforoverhead, federal income taxes, orother indirect costs,suchasinterest expense andloan repayments. Surfaceandwell equipment salvage values havenotbeenconsidered inthe revenue projections. Theestimated reserves included in the cash flowprojections have notbeen adjusted forrisk. Thereserves included inthis study are estimates onlyand shouldnotbeconstrued as exact quantities. Future conditions may affect recovery ofestimated reserves and revenue, and all categories ofreserves may besubject to revision asmore performance databecome available.

Petron provided ownership interests inthe properties, andFGA accepted theextent and character ofownership (working interest andnet revenue interest) as represented. Our staff conducted noindependent welltests, property inspections, oraudits ofcompletion andoperating expenses aspart ofthis study.

FGA isan independent firm ofgeologists andpetroleum engineers. Neither thefirm nor itsemployees ownany interest inthe properties studied, norhavewebeenemployed ona contingency basis.FGAhas usedall necessary methods andprocedures inthe preparation ofthis reportforthe evaluation ofthese properties.

We appreciate theopportunity tosubmit thisevaluation. Should youhave anyquestions, pleasedonothesitate tocall.

This report was prepared under the supervision of W.D. Harris III, Registered Professional Engineer No. 75222,State ofTexas andcompleted onFebruary 19,2013.

 

ATTACHMENTS

A. CATEGORY AND ONE-LINE SUMMARIES

B. DEFINITIONS FOR OIL AND GAS RESERVES 

C. GENERAL COMMENTS

D. CONSULTING FIRM PROFILE

ATTACHMENT A

CATEGORY AND ONE-LINE SUMMARIES

PROVED

FORREST A. GARB &ASSOCIATES, INC.

FORREST A.GARB&ASSOCIATES, INC.

 

FORREST A. GARB & ASSOCIATES, INC.

PROVED DEVELOPED PRODUCING

FORREST A. GARB &ASSOCIATES, INC.

FORREST A.GARB&ASSOCIATES, INC.

 

FORREST A. GARB & ASSOCIATES, INC.

PROVED DEVELOPED NON-PRODUCING

FORREST A. GARB &ASSOCIATES, INC.

FORREST A.GARB&ASSOCIATES, INC.

 

ATTACHMENT B

DEFINITIONS FOR OIL AND GAS RESERVES

DEFINITIONS FOR OIL AND GAS RESERVES*

(1) Acquisitionofproperties.Costsincurredtopurchase,lease orotherwiseacquire a property, includingcostsoflease bonusesandoptions topurchaseorlease properties,theportionofcosts applicabletomineralswhenlandincludingmineral rightsispurchasedinfee,brokers'fees, recordingfees,legal costs,andothercosts incurredinacquiringproperties.

(2) Analogousreservoir.Analogousreservoirs,asusedinresourcesassessments,havesimilar rockandfluid properties,reservoirconditions(depth,temperature, andpressure)anddrive mechanisms,butaretypicallyat a moreadvancedstageofdevelopmentthanthereservoirof interestandthusmayprovideconceptstoassistintheinterpretationof more limiteddataand estimationofrecovery.Whenusedtosupportprovedreserves,an“analogousreservoir” refersto a reservoirthat sharesthefollowingcharacteristicswith thereservoirofinterest:

(i) Samegeologicalformation (butnotnecessarily inpressurecommunication withthe reservoirofinterest);

(ii) Sameenvironment ofdeposition;

(iii) Similargeologicalstructure;and

(iv) Samedrivemechanism.

(3) Bitumen.Bitumen,sometimes referredtoasnaturalbitumen, ispetroleumin a solidorsemi- solidstate innaturaldepositswitha viscositygreaterthan10,000centipoisemeasured at original temperature in thedepositandatmospheric pressure,ona gasfreebasis.Inits naturalstate it usuallycontains sulfur,metals, andothernon-hydrocarbons.

(4) Condensate.Condensateisamixture ofhydrocarbonsthat exists inthegaseousphaseat originalreservoirtemperature andpressure,butthat,whenproduced,isintheliquidphaseat surfacepressureandtemperature.

(5) Deterministicestimate.Themethodofestimatingreservesorresourcesiscalled deterministic whena singlevalueforeachparameter(fromthegeoscience,engineering,oreconomicdata)in thereservescalculationisusedinthereservesestimation procedure.

(6) Developedoil andgasreserves. Developedoil andgasreservesarereservesofanycategory that canbeexpectedtoberecovered:

(i) Throughexisting wellswithexistingequipmentandoperatingmethodsorinwhichthe costoftherequiredequipmentisrelativelyminor comparedtothecostofa newwell; and

(ii)Through installedextractionequipmentandinfrastructureoperationalat thetime of thereservesestimate iftheextractionisby meansnotinvolvinga well.

*These ReservesDefinitionsarethoseincludedintheSecuritiesandExchangeCommission

Regulation S-XasofJanuary1,2010.

ATTACHMENT B-1 

(7) Developmentcosts.Costsincurredtoobtainaccesstoprovedreservesandtoprovidefacilities forextracting,treating,gathering andstoringtheoil andgas.Morespecifically, development costs, includingdepreciationandapplicableoperatingcostsofsupportequipment andfacilitiesand othercostsofdevelopmentactivities, are costsincurredto:

(i) Gainaccesstoandpreparewelllocationsfordrilling,includingsurveying well locations forthe purposeofdetermining specificdevelopment drillingsites,clearing ground, draining,roadbuilding,andrelocating publicroads,gaslines,andpowerlines,to theextentnecessaryindevelopingtheprovedreserves.

(ii) Drillandequipdevelopmentwells,development-type stratigraphictest wells,and servicewells,includingthecostsofplatformsandofwellequipment suchascasing, tubing,pumpingequipment,andthewellheadassembly.

(iii) Acquire,construct,andinstall productionfacilities suchas lease flowlines, separators,treaters, heaters,manifolds,measuring devices,andproductionstoragetanks, naturalgascyclingandprocessingplants,andcentral utilityandwastedisposalsystems.

(iv) Provideimproved recoverysystems.

(8) Developmentproject.Adevelopmentprojectisthemeansby whichpetroleumresourcesare brought tothestatusofeconomically producible.Asexamples,thedevelopmentofa single reservoirorfield,anincrementaldevelopmentina producingfield,orthe integrateddevelopment ofa groupofseveralfieldsandassociatedfacilitieswitha commonownershipmayconstitutea developmentproject.

(9) Developmentwell.Awelldrilledwithintheproved areaofanoil orgasreservoir tothedepth ofa stratigraphichorizonknowntobeproductive.

(10) Economicallyproducible. Thetermeconomically producible,asit relates toa resource, meansa resourcewhichgeneratesrevenue that exceeds,orisreasonablyexpectedtoexceed,the costsoftheoperation. Thevalueoftheproductsthatgenerate revenueshallbedetermined at the terminalpointofoil andgasproducingactivities asdefinedinparagraph(a)(16)ofthissection.

(11) Estimatedultimaterecovery(EUR).Estimated ultimate recoveryisthesumofreserves remainingas ofa givendate andcumulative productionasofthat date.

(12) Explorationcosts.Costsincurredinidentifyingareasthatmay warrantexamination andin examining specificareasthatareconsideredtohaveprospectsofcontainingoil and gasreserves, includingcostsofdrillingexploratory wellsand exploratory-typestratigraphictest wells. Explorationcostsmaybeincurred bothbeforeacquiringtherelated property(sometimesreferred toinpartasprospectingcosts)andafteracquiringtheproperty. Principaltypesofexploration costs,whichincludedepreciationandapplicableoperatingcostsofsupportequipment and facilities andothercostsofexplorationactivities, are:

(i) Costsoftopographical,geographicalandgeophysical studies,rightsofaccessto propertiestoconductthosestudies,andsalaries andotherexpensesofgeologists, geophysicalcrews,andothersconductingthosestudies.Collectively,theseare sometimes referredtoasgeologicalandgeophysicalorG&Gcosts.

ATTACHMENT B-2

(ii) Costsofcarrying andretainingundevelopedproperties,suchasdelayrentals,ad valoremtaxesonproperties, legal costsfortitledefense,andthemaintenanceoflandand lease records.

(iii) Dryholecontributions andbottom holecontributions.

(iv)Costsofdrillingandequippingexploratorywells.

(v) Costsofdrillingexploratory-type stratigraphictest wells.

(13) Exploratorywell. Anexploratorywell isa welldrilled tofinda newfieldortofinda new reservoirina fieldpreviouslyfoundtobeproductiveofoil orgasinanotherreservoir.Generally, anexploratorywellisanywellthat isnota developmentwell,an extensionwell,a servicewell,or a stratigraphictest wellasthoseitems aredefinedinthissection.

(14) Extensionwell. Anextension wellisa welldrilledtoextendthelimits ofa knownreservoir.

(15)Field.Anareaconsistingofa singlereservoirormultiple reservoirsall groupedonorrelated

to thesameindividualgeologicalstructuralfeatureand/or stratigraphiccondition. Theremaybe twoor morereservoirsina fieldthat areseparatedverticallybyinterveningimpervious,strata,or laterallybylocal geologicbarriers,orbyboth.Reservoirsthat areassociated bybeingin overlappingoradjacentfields maybetreated asa singleorcommonoperationalfield.The geologicaltermsstructural featureandstratigraphicconditionareintendedtoidentifylocalized geological featuresasopposedtothebroader termsofbasins,trends,provinces,plays,areas-of- interest,etc.

(16) Oilandgasproducing activities.(i)Oilandgasproducingactivities include:

(A) Thesearchforcrudeoil, includingcondensate andnaturalgasliquids,ornatural gas

(“oil andgas”)intheirnaturalstatesandoriginallocations;

(B) Theacquisitionofpropertyrightsorpropertiesforthepurposeoffurtherexploration orforthepurpose ofremoving theoil orgasfromsuchproperties;

(C) Theconstruction,drilling,andproductionactivities necessary toretrieveoil andgas fromtheirnatural reservoirs,includingtheacquisition,construction,installation, and maintenanceoffieldgatheringandstoragesystems,suchas:

( 1 )Liftingtheoil andgastothesurface;and

( 2 )Gathering,treating,andfieldprocessing(asinthecaseofprocessing gasto extract liquidhydrocarbons); and

(D) Extractionofsaleable hydrocarbons, inthesolid, liquid,orgaseous state, fromoil sands,shale,coalbeds,orothernonrenewablenaturalresourceswhichareintendedtobe upgradedintosynthetic oilorgas,andactivities undertakenwitha viewtosuch extraction.

ATTACHMENT B-3 

(17) Possiblereserves. Possiblereservesarethoseadditionalreservesthat arelesscertain tobe recoveredthanprobablereserves.

(i) Whendeterministicmethodsareused,thetotal quantitiesultimatelyrecoveredfroma projecthavea lowprobabilityofexceedingprovedplusprobablepluspossiblereserves. Whenprobabilisticmethodsareused,thereshouldbeat least a 10%probabilitythat the total quantitiesultimatelyrecoveredwillequalorexceedtheprovedplusprobableplus possiblereserves estimates.

(ii) Possiblereservesmaybeassignedtoareasofa reservoiradjacenttoprobablereserves wheredatacontrolandinterpretationsofavailable dataareprogressively lesscertain. Frequently, thiswill beinareaswheregeoscience andengineeringdataareunableto define clearlytheareaandvertical limitsofcommercialproductionfromthereservoirby a definedproject.

(iii) Possiblereservesalsoincludeincrementalquantities associatedwitha greater percentagerecoveryof thehydrocarbonsinplace thantherecoveryquantitiesassumed for probablereserves.

(iv) Theprovedplusprobableandprovedplusprobablepluspossiblereservesestimates must bebasedonreasonablealternativetechnicalandcommercialinterpretations within thereservoirorsubjectprojectthat areclearlydocumented,includingcomparisons to resultsinsuccessfulsimilarprojects.

(v) Possiblereservesmaybeassignedwheregeoscience andengineeringdataidentify directlyadjacentportionsofa reservoirwithinthesameaccumulation that maybe separatedfromprovedareasby faultswithdisplacement lessthanformationthicknessor othergeological discontinuitiesandthat havenotbeenpenetratedbya wellbore,andthe registrantbelievesthat suchadjacentportionsareincommunicationwiththeknown (proved)reservoir. Possiblereservesmaybeassignedtoareasthat arestructurallyhigher orlowerthantheprovedareaiftheseareas areincommunication withtheproved reservoir.

(vi) Pursuanttoparagraph(a)(22)(iii)ofthissection,wheredirectobservationhas defineda highest knownoil (HKO)elevation andthepotentialexistsforanassociated gascap,provedoil reservesshouldbe assignedinthestructurallyhigherportions ofthe reservoirabovetheHKOonly ifthehighercontactcanbeestablishedwithreasonable certainty throughreliable technology. Portionsofthe reservoirthat donotmeetthis reasonablecertaintycriterionmaybeassignedasprobableandpossible oil orgasbased onreservoirfluidpropertiesandpressure gradientinterpretations.

(18) Probablereserves. Probablereservesarethoseadditionalreservesthat arelesscertain tobe recoveredthanprovedreservesbutwhich,togetherwith provedreserves,areaslikely asnottobe recovered.

(i) Whendeterministicmethodsareused,itisaslikelyasnotthat actual remaining quantities recoveredwill exceedthesumofestimated provedplusprobablereserves. Whenprobabilisticmethods areused,thereshouldbeat least a 50%probabilitythat the actual quantitiesrecoveredwill equalorexceed theprovedplusprobablereserves estimates.

ATTACHMENT B-4 

(ii) Probablereservesmaybeassignedtoareasofa reservoiradjacenttoprovedreserves wheredatacontrolorinterpretations ofavailabledataarelesscertain,evenifthe interpretedreservoircontinuityofstructureorproductivitydoesnotmeet thereasonable certaintycriterion.Probablereservesmay beassignedtoareasthat arestructurally higher thantheprovedareaifthese areasareincommunication withtheprovedreservoir.

(iii) Probablereservesestimates alsoincludepotentialincrementalquantitiesassociated witha greaterpercentage recoveryofthehydrocarbonsinplace thanassumed forproved reserves.

(iv) Seealsoguidelinesinparagraphs(a)(17)(iv)and(a)(17)(vi)ofthissection.

(19)Probabilistic estimate.Themethodofestimation ofreservesorresourcesis called

probabilistic whenthefullrangeofvaluesthat couldreasonablyoccur foreachunknown parameter (fromthegeoscienceandengineeringdata) isusedtogeneratea fullrangeofpossible outcomesandtheirassociated probabilitiesofoccurrence.

(20) Productioncosts.(i)Costsincurredtooperateandmaintainwellsandrelated equipment and facilities, includingdepreciationand applicableoperatingcostsof supportequipmentand

facilities andothercostsofoperatingandmaintainingthosewellsandrelated equipmentand facilities. Theybecomepartofthecostofoil andgasproduced.Examples ofproductioncosts (sometimes called liftingcosts) are:

(A) Costsoflabortooperatethewellsandrelated equipmentandfacilities. (B)Repairsandmaintenance.

(C) Materials,supplies,andfuelconsumedandsuppliesutilized inoperatingthewells andrelated equipmentandfacilities.

(D) Propertytaxesandinsuranceapplicabletoprovedpropertiesandwellsandrelated equipmentand facilities.

(E) Severancetaxes.

(ii) Somesupportequipmentorfacilities mayservetwoor more oil andgasproducingactivities andmay alsoservetransportation,refining,and marketingactivities. Totheextentthat the supportequipmentandfacilities are usedinoil andgasproducingactivities, theirdepreciation andapplicable operatingcostsbecome exploration,development orproductioncosts,as

appropriate. Depreciation,depletion,andamortization ofcapitalized acquisition,exploration, and developmentcostsarenotproduction costsbutalsobecome partofthecostofoil andgas producedalong withproduction (lifting)costsidentifiedabove.

(21) Provedarea.Thepartofa propertytowhichprovedreserveshavebeenspecifically attributed.

ATTACHMENT B-5 

(22) Provedoil andgasreserves.Provedoil andgasreservesarethosequantitiesofoil andgas, which,by analysis ofgeoscienceandengineeringdata,canbeestimatedwithreasonablecertainty tobeeconomicallyproducible—from agivendate forward,fromknownreservoirs,andunder existingeconomic conditions,operatingmethods,andgovernment regulations—priortothe timeat whichcontractsprovidingtherighttooperateexpire,unlessevidenceindicatesthat renewalis reasonablycertain,regardless ofwhetherdeterministic orprobabilisticmethodsareusedforthe estimation.Theprojecttoextract thehydrocarbons musthavecommenced ortheoperatormust be reasonablycertain that it will commence theproject withina reasonabletime.

(i)Theareaofthereservoirconsideredasprovedincludes:

(A) Theareaidentifiedbydrillingandlimitedbyfluidcontacts,ifany,and

(B) Adjacentundrilledportions ofthereservoir that can,withreasonable certainty, bejudgedto becontinuous withit andto containeconomically producibleoilor gasonthe basisofavailable geoscience andengineering data.

(ii) Intheabsenceofdataonfluidcontacts,provedquantitiesina reservoirarelimitedby thelowestknownhydrocarbons(LKH)asseenina wellpenetrationunlessgeoscience, engineering,or performancedataandreliable technology establishesa lowercontactwith reasonablecertainty.

(iii) Wheredirectobservation fromwellpenetrations hasdefineda highestknownoil (HKO)elevation andthepotentialexistsforanassociatedgascap,provedoil reserves maybeassignedinthestructurallyhigherportionsofthereservoironlyifgeoscience, engineering,or performancedataandreliable technology establishthehighercontact withreasonablecertainty.

(iv) Reserveswhichcanbeproducedeconomically throughapplicationofimproved recoverytechniques(including, butnotlimited to,fluidinjection)areincludedinthe provedclassificationwhen:

(A) Successfultestingbya pilotprojectinanareaofthereservoirwithproperties no morefavorablethaninthereservoirasa whole,theoperationofan installedprograminthereservoiroran analogous reservoir,orother

evidence usingreliable technologyestablishesthereasonablecertaintyofthe engineeringanalysisonwhich theprojectorprogramwasbased;and

(B) Theprojecthasbeenapprovedfordevelopmentbyall necessarypartiesand entities, includinggovernmental entities.

(v) Existingeconomic conditionsincludepricesandcostsat whicheconomic producibilityfroma reservoiristobedetermined. Thepriceshallbetheaverageprice duringthe12-month periodpriorto theendingdateoftheperiodcoveredby the report, determinedasanunweightedarithmeticaverageofthefirst-day-of-the-month pricefor eachmonthwithinsuchperiod,unlesspricesaredefined by contractualarrangements, excludingescalationsbaseduponfuture conditions.

ATTACHMENT B-6 

(23) Provedproperties.Propertieswithprovedreserves.

(24) Reasonablecertainty.Ifdeterministic methodsare used,reasonablecertaintymeans a high degreeofconfidencethat thequantitieswill berecovered.Ifprobabilistic methodsareused,there shouldbeat least a 90% probabilitythatthequantitiesactuallyrecoveredwill equalorexceedthe estimate.Ahighdegreeofconfidenceexistsifthequantityismuchmorelikelyto beachieved than not,and,aschangesduetoincreasedavailabilityofgeoscience(geological,geophysical, and geochemical),engineering,andeconomicdataaremadetoestimated ultimate recovery (EUR) with time, reasonablycertain EUR is muchmorelikelytoincreaseorremain constantthanto decrease.

(25) Reliabletechnology.Reliable technologyisa groupingofoneor moretechnologies (includingcomputationalmethods)that hasbeenfieldtestedandhasbeendemonstratedto providereasonablycertain resultswithconsistency andrepeatabilityintheformation being evaluatedorinananalogousformation.

(26) Reserves.Reservesareestimated remainingquantitiesofoil andgasandrelated substances anticipated tobeeconomically producible,asofa givendate,by application ofdevelopment projectstoknownaccumulations. Inaddition,theremustexist,ortheremust bea reasonable expectationthat there will exist,thelegal righttoproduceora revenueinterestintheproduction, installedmeans ofdeliveringoil andgasorrelated substancestomarket,andall permits and financing requiredtoimplement theproject.

Note toparagraph(a)(26):Reservesshouldnotbeassignedtoadjacent reservoirsisolatedby major,potentiallysealing, faultsuntilthosereservoirsarepenetratedandevaluatedas economically producible.Reservesshouldnotbeassignedtoareasthat areclearly separatedfrom a knownaccumulation by anon-productive reservoir(i.e.,absenceofreservoir,structurallylow reservoir, ornegativetest results).Suchareasmaycontainprospectiveresources(i.e.,

potentially recoverableresourcesfromundiscoveredaccumulations).

(27) Reservoir.Aporousandpermeableunderground formationcontaininga natural accumulation ofproducibleoil and/orgasthat isconfinedby impermeablerockorwaterbarriers andisindividualandseparatefrom otherreservoirs.

(28) Resources.Resourcesarequantitiesofoil andgasestimatedto existinnaturallyoccurring accumulations. Aportionoftheresourcesmaybeestimated toberecoverable, andanother portionmaybeconsideredtobeunrecoverable.Resourcesincludebothdiscoveredand undiscoveredaccumulations.

(29) Servicewell. Awelldrilledorcompleted forthepurposeofsupportingproductioninan existingfield.Specificpurposesofservicewellsincludegasinjection,waterinjection,steam injection,air injection,salt-waterdisposal,watersupplyforinjection, observation,orinjectionfor in-situcombustion.

(30) Stratigraphictest well. Astratigraphictest wellis a drillingeffort,geologicallydirected,to obtaininformation pertainingtoa specificgeologiccondition.Such wellscustomarilyaredrilled withouttheintent ofbeingcompleted forhydrocarbonproduction.The classificationalso includes testsidentifiedas coretestsandall typesofexpendableholesrelated tohydrocarbon exploration.Stratigraphictestsareclassifiedas“exploratorytype” ifnotdrilled in a knownarea or “developmenttype” ifdrilledina knownarea.

ATTACHMENT B-7 

(31) Undevelopedoilandgasreserves.Undevelopedoil andgasreservesarereservesofany categorythatareexpectedtoberecoveredfromnewwellsonundrilledacreage,orfromexisting wellswherea relativelymajor expenditureisrequiredforrecompletion.

(i) Reservesonundrilledacreageshallbelimitedtothosedirectlyoffsettingdevelopment spacing areasthat arereasonably certainofproductionwhendrilled,unlessevidenceusing reliable technologyexists that establishesreasonable certaintyofeconomic producibilityat greaterdistances.

(ii) Undrilledlocationscanbeclassifiedashavingundevelopedreservesonlyifa developmentplanhasbeenadoptedindicatingthatthey arescheduledtobedrilledwithin fiveyears,unlessthespecific circumstances,justifyalongertime.

(iii) Undernocircumstances shallestimatesforundevelopedreservesbeattributableto anyacreageforwhichanapplicationoffluidinjectionorotherimprovedrecovery techniqueiscontemplated,unlesssuchtechniqueshavebeenprovedeffectivebyactual projectsinthesamereservoirorananalogousreservoir,asdefinedinparagraph(a)(2)of thissection,orby otherevidenceusingreliable technologyestablishingreasonable certainty.

(32) Unprovedproperties.Properties withnoprovedreserves.

ATTACHMENT B-8

ATTACHMENT C

GENERALCOMMENTS

GENERAL COMMENTS

(1) Thereserveestimates presentedinthisreporthavebeencalculated usingdeterministic procedures.Thereservesshowninthisreportarethose estimatedtoberecoverableunder thenew guidelinesof theSecurities andExchangeCommission (SEC). Thedefinitionsfor oil and gas reserves inaccordance with SEC Regulation S-X are setforth inthis report.

(2) Theestimated futurenetrevenueshowninthecashflowprojections isthatrevenuewhich shouldberealizedfromthesaleoftheestimatednetreserves. Surface andwellequipment salvagevalueshavenotbeenconsidered intherevenueprojections. Futurenetrevenueas statedinthis reportisbefore thededuction offederal income tax.

(3) Thediscounted futurenetrevenueisnotrepresented tobethe fairmarketvalueofthese reserves. The estimated reserves included in the cash flow projectionshave not been adjustedforrisk.

(4) Thereserves included inthisstudyareestimatesonlyandshouldnotbeconstrued asexact quantities. Futureconditions mayaffect recovery ofestimatedreservesandrevenue,andall categories of reserves may be subject to revision as more performance data become available.

(5) Extentandcharacterofownership,oilandgasprices, productiondata,direct operating costs,requiredcapitalexpenditures, andother datafurnished havebeenacceptedas represented. No independent well tests, property inspections, or audits of operating expenses were conducted byour staff in conjunction with this study.

(6) Ifinvestments orbusiness decisionsare tobemade inrelianceontheseestimates byanyone otherthanour client,suchaperson,withtheapprovalofourclient,isinvited tovisitour officesathisownexpensesothathecanevaluatetheassumptions made andthe completeness andextentofthedata availableonwhichourestimatesarebased.

(7) Gascontractdifferences,includingtakeorpay claims,arenotconsideredinthisreport. (8) Gassales imbalances havenotbeentakenintoaccountinthereserveestimates.

(9) Unlessotherwise stated inthetext,existingorpotentialliabilitiesstemming from environmental conditionscaused by current or past operatingpractices have not been consideredinthisreport.Nocostsareincluded intheprojectionsoffuturenetrevenueorin oureconomic analysesto restore,repair,or improve theenvironmental conditionsof the properties studied to meetexisting orfuture local, state, orfederal regulations.

(10) Anydistribution ofthisreportoranypartthereofmustincludethesegeneralcomments and thecoverletter intheirentirety.

(11) ThisreportwaspreparedunderthesupervisionofW.D.HarrisIII,RegisteredProfessional

Engineer No.75222,StateofTexas.

ATTACHMENT C-1 

ATTACHMENT D

CONSULTING FIRM PROFILE

FORREST A.GARB&ASSOCIATES, INC.

INTERNATIONAL PETROLEUM CONSULTANTS

5310 HARVEST HILLROAD, SUITE275,LB 152

DALLAS, TEXAS 75230–5805 (972)788-1110 Fax(972) 991-3160

E-Mail: forgarb@forgarb.com

Web Site:www.forgarb.com

We arepleased topresent thisprofileof Forrest A. Garb&Associates, Inc.(FGA). FGA isan international petroleum engineering andgeologic consulting firm staffed byexperienced engineers andgeologists. Collectively ourstaff hasmore thanacentury ofworld-wide experience. FGA has no outside ownership. And the firm has no direct or contingent participation inoil orgas ventures. There arenoconflicts ofinterest orconcerns about maintaining theconfidentiality ofourclient’s data. Thecompany isdedicated to providing the highest level ofintegrity, technology, andservice.

FGA expertise includes:

• Exploration andProspect Evaluations

• Reserve Estimation andEvaluation Studies

• Fair MarketValueAnalyses

• Economic andMarket Analyses

• Forensic Engineering andExpert Witness Testimony

• Reservoir Engineering

• Regional andDetailed Geological Studies

• Numeric Simulation Studies

• Special Computer Applications

• Pressure Transient Test Design, Supervision, andEvaluation

• Reservoir Characterization

• Geostatistical Studies

• Oil&GasProductionEnvironmental Studies

• Minerals Evaluations

• Petrophysical Analyses

OUR SENIOR STAFF

Mr. Forrest A.Garb, Founder, Chairman oftheBoardandChief Engineer Emeritus, with morethan50years of practical petroleum industry experience, wasastaffmember and then aprincipal ofamajor consulting firmforover30years, serving aspresident andchief operating officer of this firm for the last 14 of those years. During his tenure, he supervised or prepared over 12,500 assignments varying from simple evaluations to complex reservoir simulations. Using this experience asabase,heassembled thebestwork system offeredtothe oiland gas industry. The use of state of the art computers and office equipment, together with an experienced staff, ensureseconomic service tothe client.

ATTACHMENT D-1 

Mr. William D.Harris III,P.E., joined FGAin August1998,andis nowtheChief Executive Officer. Previously, hewasaVice President withDeGolyer andMacNaughton where heprepared andsupervised engineering studies andreserve andappraisal reportsforfields in many countries. Mr.Harrisholds aB.S. inPetroleum Engineering fromTexas A&MUniversity andaM.B.A. from Southern Methodist University. Heis amember ofthe Society ofPetroleum Engineers andis aregistered professional engineer inthe state ofTexas.

Mr. JohnCooper, Senior Geologist, joined Forrest A.Garb&Associates, Inc. in2007. Mr. Cooperreceived hisBachelor's degree inGeology fromthe University ofLouisiana - Lafayette (formerly theUniversity ofSouthwestern Louisiana) andholds anMBA fromTulane University. Hewasemployed atGreat Southern Oiland Gas, InnexEnergy, andHuntPetroleum in various geological andtechnical positions, andis experienced in log analysis, geological interpretations, andreserves evaluations usingthe latest technologies. Mr.Cooper is a member of the American Association of Petroleum Geologists, the Society of Economic Geophysicists, andthe Dallas Geological & Geophysical Society.

Mr. Gerald K.Ebanks, Senior Geologist, received hisM.A. degree ingeology fromthe University ofTexas atAustin andhas morethan 35years ofexperience in petroleum geology. He was employed with Mobil OilCorporation, andsubsequently with Ray Holifield and Associates, and PXI, Incorporated, in various geological positions. Mr. Ebanksis a member of theAmerican Association ofPetroleum Geologists, Dallas Geological Society, Houston Geological Society, andis a certified petroleum geologist.

Ms. StacyM.Light, P.E.,Senior VicePresident Petroleum Engineering, joined Forrest A.Garb&Associates, Inc.in May2010asareservoir engineer. Ms.Light previously worked for ARCO Oil and Gas as a reservoir/operations engineer and crude oil risk management director. She performed detailed production, reservoir and economic analyses for both onshore and offshore properties, and supervised engineers in the same capacity. Shealso performed risk management duties, trading crudeoil futuresandoptions ontheNewYorkMercantile Exchange. Areasworked include onshore and offshore Gulf Coast and the mid-continent area. Ms. Light received a B.S. in Petroleum Engineering from Texas A&M University and is a registered professional engineer in the state of Texas and a member of the Society of Petroleum Engineers (SPE).

Mr. ClaudeM.(Mike) Rightmire, Senior VicePresident Petroleum Engineering, joined Forrest A.Garb&Associates, Inc. inDecember 2007, asareservoir engineer. Mr.Rightmire previously worked forARCOAlaska and ARCOExploration &Production Technologies as a reservoir and operations engineer and most recently for Pinnacle Technologies as a senior engineer andproject manager. His workexperience includes over25 years of operations and reservoir engineering assignments, reservoir engineering research andapplications development work,andfracture stimulation engineering. Mr.Rightmire holdsaB.S. in Petroleum Engineering from Texas A&M University, a B.S. in Biological Science from the University of Alaska Anchorage, andis amember oftheSociety ofPetroleum Engineers (SPE).

Ms. Sandra W.Wall,Senior VicePresident Petroleum Engineering, joined Forrest A. Garb&Associates, Inc.inAugust 2006. Ms.Wall previously workedforTexas Eastern Corp., Exploration and Production Division, and Transwestern Pipeline Company as a reservoir engineer and project manager. Sheperformed detailed reservoir and economic analyses forboth onshore and offshore properties, ran 3D computer simulation studies for massive hydraulic

ATTACHMENT D-2 

fracturing, water floods,and CO2floods, andcoordinated thedevelopment ofexploration projects. Areasworkedinclude onshore andoffshore GulfCoast, AlaskaNorthSlope, Rocky Mountains, offshore California, offshoreAustralia, Indonesia, andNorth Sea. Ms.Wall holdsa B.S. inPetroleum Engineering fromTexas A&MUniversity, aM.B.A. fromHoustonBaptist University, andis amember oftheSociety ofPetroleum Engineers (SPE).

THE COMPANY

Forrest A.Garb &Associates, Inc.(FGA)isaconsulting firmcomprised ofprofessional petroleum engineers, geologists, andtechnical supportpersonnel withdiversified backgrounds in all phasesofthe petroleum andenergy industries. Thegroupprides itself inoffering thehighest level ofethics, state ofthe art technology, andprompt dedicated service toourclients.

 

The firmoffers acomplete rangeofgeological andengineering services -fromscreening exploration prospectsanddesigning development drillingprojects toestimating reserves, forecasting futureproduction, andpresenting economic analyses. Major financial institutions accept the validity of our studies, particularly in the areas of reserve estimation and appraisal. The fair market value analysis technique developed by FGA is being applied by some of industry’s largest players.

Major integrated andindependent oiland gascompanies haveused ourestimates of futureproduction rates andavailable hydrocarbon resources to design facilities, andto establish contract terms.

FGA is a leader in the development and application of computers to the daily requirements ofpetroleum engineering. Mainframe programs, hand-held computer programs, and personal computer systems designed by Mr. Garb have been installed in many major integrated oil company offices around theworld.

Associations withfacilities design, seismic interpretation, petrology, andenvironmental firms,renownedintheir ownright, enable theFGA organization tooffer acomplete service toits clients underonemaster contract.

Because thecompany hasnohydrocarbon production andbecause ithas nooutside ownershiptodictate opinions,thedeterminations of thefirm areindependent. Itsstudies are withoutbias and are based onthe best interpretation ofall available dataafter processing with "state ofthe art" methods andequipment.

ATTACHMENT D-3 

FGA restricts itsactivities exclusively toconsultation; itdoes notacceptcontingent fees nordoes itownoperating interests in any oil, gas, ormineral properties. Thefirm subscribes toa code ofprofessional conduct, andits employees actively support their related technical and professional societies.

The entireFGAstaff isdedicated toproviding eachclient withapersonalized andcost- efficient approach toserve their individual needs.

ATTACHMENT D-4