Management Discussions

3 Months Ended

Aug. 31, 2011

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operation

Managerment Discusssions

This Form 10-Q includes certain statements that may be deemed to be "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements in this Form 10-Q, other than statements of historical facts, that address activities, events or developments that we expect, believe or anticipate will or may occur in the future, including operating costs, future capital expenditures (including the amount and nature thereof), and other such matters are forward-looking statements. The words “believe,” “expect,” “anticipate,” “intend,” “estimate,” “may,” “should,” “could,” “will,” “plan,” “future,” “continue,” and other expressions that are predictions of or indicate future events and trends and that do not relate to historical matters identify forward-looking statements. These forward-looking statements are based largely on our expectations or forecasts of future events, can be affected by inaccurate assumptions, and are subject to various business risks and known and unknown uncertainties, a number of which are beyond our control. Therefore, actual results could differ materially from the forward-looking statements contained in this document, and readers are cautioned not to place undue reliance on such forward-looking statements. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. A wide variety of factors could cause or contribute to such differences and could adversely impact revenues, profitability, cash flows and capital needs. There can be no assurance that the forward-looking statements contained in this document will, in fact, transpire or prove to be accurate.

Important factors that may cause the actual results to differ materially from the forward-looking statements, projections or other expectations include, but are not limited to, the following:

· ability to secure adequate financing on a timely basis;

· ability to complete our planned work program, which is a condition of maintaining our permits in good standing;

· if we do not complete our planned work program on a timely basis, we may be required to relinquish our permits;

· changes in our business strategy;

· the timing of exploration expenditures;

· access and availability of materials, equipment, supplies, labor and supervision, power and water;

· results of current and future exploration activities;

· accidents and labor disputes;

· disappointing results from our exploration or development efforts;

· decline in demand for our common stock;

· changes in general market conditions;

· investor perception of our industry or our prospects;

· technological changes in the oil and gas exploration industry, including technological innovations by competitors or in competing technologies;

· the proximity of natural gas production to natural gas pipelines;

· the availability of pipeline capacity;

· the demand for oil and natural gas by utilities and other end users;

· the availability of alternate fuel sources;

· the effect of inclement weather;

· changes in oil and gas exploration, processing and overhead costs;

· unexpected changes in business and economic conditions;

· changes in interest rates and currency exchange rates;

· commodity price fluctuations, including changes in the worldwide price for oil and gas;

· government regulation of oil and natural gas marketing;

· government regulation of natural gas sold or transported in interstate commerce;

· acquisition opportunities or lack of opportunities;

· changes in laws or regulations;

· risk factors listed from time to time in our reports filed with the Securities and Exchange Commission and

· local and community impacts and issues.

The forgoing list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully and readers should not place undue reliance on our forward-looking statements.

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. You should not place undue reliance on these forward-looking statements, which speak only as of the date of this report. Except as required by law, we do not undertake to update or revise any of the forward-looking statements to conform these statements to actual results, whether as a result of new information, future events or otherwise.

As used in this report, “Sentry Petroleum,” the “Company,” “we,” “us,” or “our” refer to Sentry Petroleum Ltd., unless otherwise indicated.

Overview

We were incorporated in Nevada on February 23, 2006 and are a Denver, Colorado-based oil and gas exploration stage company. We are considered an exploration stage company because we are involved in the examination and investigation of land that we believe may contain hydrocarbon reserves.

Our current focus is on the exploration of properties for which we acquired four exploration permits (Authority to Prospect 862, 864, 865, and 866) to exclusively engage in exploration for oil and gas in central Queensland, Australia. ATP 862, 864, 865, and 866 each have a maximum term of 12 years, but can be terminated earlier for failure to carry out exploration work programs on the properties underlying these permits within certain time constraints. Our obligations on the four ATPs include obtaining additional seismic data and drilling of wells on each of the permits prior to February 2012. The total estimated cost to complete our obligations by February 28, 2012 is approximately $13 million (see Footnotes to financial statements for further detail on our exploration obligations). We currently have insufficient funding to complete the required obligations to maintain our permits.

We have commenced our exploration program on ATP 862, 864, 865, and 866. We hold a 100% working interest in ATP 862, 864, 865, and 866, subject to a 7% gross overriding royalty payable to the original tenure holder. In the aggregate, our permits encompass approximately 6.9 million net acres.

On March 14, 2011, we awarded an option to Sino American Oil Company (“Sino”) for consideration of $25,000, which gave Sino the right to earn a 70% interest in ATP 865 and 866 by drilling one conventional well to a depth of 1,660 meters and to shoot 100 line Km of seismic. On June 27, 2011, we reached a mutual agreement with Sino American Oil Company to terminate this option agreement. The termination relieves both parties from any further rights or obligations awarded in the option and Sino is entitled to return of the $25,000 consideration Sino paid to us upon execution of the option agreement in March 2011.

The properties underlying our permits are without known reserves and the proposed plan of exploration detailed below is exploratory in nature. There is no assurance that we will discover commercial quantities of hydrocarbons. In addition, even if hydrocarbons are discovered, the costs of development may render any hydrocarbons found to be not commercially viable. If we do not find hydrocarbon reserves or are unable to develop reserves, either because we do not have sufficient capital or the costs of extraction are uneconomical, we will have to cease operations.

As part of our regular business activities, we routinely review and assess interests in exploration or production properties in Australia and Austral Asia for our possible acquisition. We seek additional properties or permits that we believe have the potential to add shareholder value. There can be no assurance that we will be successful in acquiring additional property interests or permits. In order to acquire any additional exploration or production properties, we will need to secure additional financing.

We require significant additional funding to complete the work program we committed to when acquiring our current exploration properties. We anticipate raising additional financing through the sale of equity securities to finance these exploration obligations, although there can be no assurance that such funding will be available. In the absence of sufficient financing to finance our exploration activity required to carry out our proposed exploration programs, we will not be able to pursue our exploration program or to maintain our permits in good standing. If we do not execute on our proposed exploration programs, we may be required to relinquish our interests in our permits and will be forced to cease operations.

Additionally, there can be no assurance that if we are successful in securing funding that we will be successful in discovering commercial quantities of hydrocarbons, or that we will have access to funds to develop a successful discovery without significant dilution or cost to our stockholders.

Our business plan is limited in its scope and we intend to derive all of our revenue from a discovery of commercial quantities of hydrocarbons. Specifically, discovering sufficient quantities of hydrocarbons to warrant their profitable development. We have no other business plans and if we are unsuccessful in discovering commercial quantities of hydrocarbons our business will fail.

During the three months ended May 31, 2011, we completed the final preparation for our drilling program. We completed contracts with the landowners, finalized the design and budgeting for each well and secured service contracts with the necessary drilling and testing companies. On June 15, 2011, we commended drilling on the initial well in ATP 862, the Talundilly_CSG1. We completed drilling of this initial well on June 24, 2011, after reaching target depth (TD) of 436 meters. A total of 15.26 meters of coal and carbonaceous shale cores were collected and forwarded for gas desorption testing. Net coal thickness collected was 12.7 meters. Due to certain anomalous data from what we believe could have been errors made during the testing process, we are not in a position based on the data received to determine the commerciality of the coal and carbonaceous shale deposit surrounding Talundilly_CSG1. An additional six to eight wells will need to be drilled to obtain more data in order to make any conclusive determination as to the results from the desorption analysis. [what is the anticipated cost and timing?] Drilling of an additional six to eight wells will require significant additional funding to complete.

During the three months ended August 31, 2011, we completed the drilling of the Albilbah_CSG1 well in permit ATP 862 in Queensland Australia. The well reached a total depth of 1,555 feet and 472 feet of core were cut. 35 feet of gaseous coal and carbonaceous rock were sealed in 20 canisters for desorption measurement. In addition, the lower Winton Sandstones were found to contain free gas and 20 feet of these cores were also placed in canisters to measure the gas emitted from the cores. Evidence of gas in the canisters prompted the re-evaluation of the original Albilbah-1 (drilled by a previous operator) well logs to investigate the possibility of gas being present in the pore space of the LWSS. Sentry’s log analysis concluded that gas is present in a net 115 feet of the 250 feet interval. Further drilling and testing is required in order to make any determination as to whether the amount of gas present can be economically produced and no assurance can be provided that the amount of gas found to exist will be capable of being economically produced.

With the completion of our current drilling campaign, we are currently finalizing the laboratory analysis and completion by end of October 2011. Our forward going strategy from that point will be based on our conclusions from this analysis. We will engage independent consultants to review and audit our findings. If our findings support certification of reserves, we will engage consultants to commence the certification process. We anticipate that the testing, analysis, and certification of our results will cost $100,000. We have sufficient funds to complete the laboratory analysis and independent review of our finding, however will require additional funding for any future exploration or appraisal work.

Plan of Operation

Our plan of operations for the next twelve months is to continue our work obligations on ATP 862, 864, 865, and 866 in the Adavale basin in Queensland Australia and to continue our assessment of various onshore exploration permits in Australia and Asia.

To further explore the delineated coal and carbonaceous shale deposit in ATP 862 and 864, we plan to drill eight to ten wells by March of 2012, assuming we are able to secure sufficient financing. This program will quantitatively measure original gas in place using canister desorption and core logging methods and we will commence flow testing of one or two of the wells. In addition to exploration of the coal and carbonaceous shale deposit we intend to drill two well to flow test the Winton Sandstone interval intercepted during drilling of Albilbah_CSG1 and we intend to acquire additional seismic data. We expect that in total these activities would cost $10 million. We do not have sufficient funds to complete such activities, however will require additional funding for any future exploration or appraisal work.

In ATP 865 and 866, we plan to undertake a seismic program to advance our prospects during the next 6 months assuming we are able to secure sufficient financing. We further plan to drill one conventional well, the Ravenscourt, to test the Etonvale Formation at a depth of approximately 1,700 meters (5,580 feet) downdip from the Rosebank-1 well and will be targeting a thicker carbonate section. We expect that such activities would cost $3.5 million. We do not have sufficient funds to complete such activities, however will require additional funding for any future exploration or appraisal work.

Our work program includes acquisition of seismic data and drilling of additional wells. The time to complete the acquisition of seismic data and drilling of wells depends on, among other things, the availability of personnel and equipment in Queensland. The associated costs will be determined by the depth of the wells and the amount of seismic data to be acquired.

In addition to our current permits, we are continuously investigating additional opportunities in Queensland and other parts of South-East Asia.

We do not have sufficient funds to carry out our plan of operations for the next twelve months. We rely principally on the issuance of common shares by private placements to raise funds to finance our business. There is no assurance that market conditions will continue to permit us to raise funds when required. If possible, we will issue more common shares at prices we determine, possibly resulting in dilution of the value of common shares.

With our ATP 862, 864, 865, and 866, we are obliged to complete proposed work programs to maintain our interests in good standing. As of August 31, 2011 our committed expenditures over the next year total $19.5 million. However, the completion of the work program is determined for each permit individually and there is no cumulative analysis on work completed.

The following table details the capital expenditure required by February 28, 2012 for us to maintain good standing on our four permits:

	ATP 862	ATP 864	ATP 865	ATP 866

Deep Upholes	$305,000	$305,000	$-	$-
Seismic Reprocessing	406,000	137,000	142,000	142,000
Shooting of Seismic	2,035,000	2,035,000	1,017,000	1,017,000
Drilling of Petroleum wells	2,797,000	2,797,000	2,797,000	3,560,000

	$5,543,000	$5,274,000	$3,956,000	$4,719,000

We do not have sufficient capital to satisfy the required future exploration expenditures needed to maintain our four ATP permits in good standing and we will rely principally on the issuance of common stock to raise funds to finance the expenditures that we expect to incur. Failure to raise the required funds to complete our commitments will result in the failure to meet our obligations and the relinquishment of one or more of our permits. We have relied principally on the issuance of our common stock in private placements to raise funds to support our business, but there can be no assurance that we will be successful in raising additional funds through the issuance of additional equity. We have planned and budgeted for the required work and at the date of this report have sufficient time to complete most of the required work prior to February 28, 2012 provided that we are able to obtain sufficient financing on a timely basis.

We do not expect any significant purchases of plant and equipment or any increase in the number of employees in the near future.

We anticipate incurring expenses of approximately $19 million over the next 12 months for our exploration program. There can be no guarantee that we will be able to secure the necessary financing and equipment to undertake the work program within the anticipated time frame. If we are unsuccessful in securing sufficient financing and equipment we may be subject to relinquishment of any one or all of our existing permits.

Results of Operations for the Three and Six Months Ended August 31, 2011 and 2010

Revenues

We have not generated any revenues from operations since our inception.

Expenses

We reported total expenses in the amount of $770,781 for the three months ended August 31, 2011, compared to total expenses of $111,978 for the three months ended August 31, 2010. Our total expenses were significantly higher for the three months ended August 31, 2011, as compared to the three months ended August 31, 2010. For the six month period ended August 31, 2011 we reported total expenses of $1,364,539 compared to $213,529 for same period last year. The substantial increase in costs for the six and three month periods are mostly related to increased cost of deferred compensation from additional options awarded, from increased shareholder communication expenditures, write down of exploration assets associated with our surrender of EPC 1758 and from increased travel related to financing activities. EPC 1758 was surrendered during the period ending May 31, 2011 and all capitalized costs were at that time written off.

We incurred general and administrative expenses of $721,094 for the three months ended August 31, 2011, compared to $105,052 for the three months ended August 31, 2010. For the six month period ended August 31, 2011, we reported 1,276,231 compared to $199,076 for the same period in 2010. The increase in our general and administrative expenses for both the three and six month periods are primarily attributable to the increased cost of deferred compensation from additional options awarded, increased investor communication expenses and travel related expenses. For the three months ended August 31, 2011, we incurred deferred compensation of $410,535, compared to $88,045 for the three months ended August 31, 2010. For the six month period ended August 31, 2011, we reported deferred compensation expenses of $821,070 compared to $164,183 for the six month period of 2010. During the three months ended August 31, 2011, we also incurred shareholder communication expenses of $246,217, compared to $859 for the same period in 2010. For the six month period ended August 31, 2011, we incurred shareholder communication expenses of $339,838 compared to $ 1,765 for the same period in 2010. The increase was caused by increased frequency of communication with a substantial greater number of shareholders and from issuing 60,000 shares to a consultant for investor relation services. For the three months ended August 31, 2011, we further incurred $37,762 related to travel and funding activities as compared $2,638 for the three months ended August 31, 2010. For the six months ended August 31, 2011, we incurred $64,492 for these activities compared to $2,638 for the six months ended August 31, 2010.

Professional fees for the three months ended August 31, 2011 did not change significantly from the professional fees reported for the same period in the prior year. We incurred professional fees of $3,134 for the three months ended May 31, 2011, compared to $2,853 for the three months ended August 31, 2010. For the six month periods ended August 31, 2011 and 2010 we incurred professional fees of $27,389 and 13,514, respectively. The increase in professional fees for the six month period is attributable to an increase in our exploration activity and specifically to contract negotiations with land owners and with service providers for our drilling program. We anticipate that we will incur increased professional fees as we continue our work programs and exploration activity.

We recorded no gain or loss on foreign exchange for the three months ended August 31, 2011, compared to a loss of $4,073 for the same period in the prior year. For the six month period ended August 31, 2011, we reported a foreign exchange loss of $350 compared to $939 for the same period in 2010. The loss on foreign exchange was realized during the six months ended August 31, 2011 as a result of fluctuation in the US dollar as compared to the Australian dollars

During the three months ended August 31, 2011, we expensed $6,553 in write down of exploration assets due to our surrender of EPC 1758 during the reporting period. For the six month period ended August 31, 2011, we expensed $60,569. We did not incur any write down of exploration assets during the three or six months ended August 31, 2011.

Other Income

We reported other income of $11,253 for the three months ended August 31, 2011 and other income of $7 for the three months ended August 31, 2010. For the six month periods ending August 31, 2011 and August 31, 2010, we reported other income of $15,108 and $39, respectively. Other income was attributable to interest received on bank deposits and increased do to additional funds held in Australian Dollar at a higher interest rate than U.S. rates.

Net Loss

We had net loss of $719,582 for the three months ended August 31, 2011, as compared to net loss of $111,971 for the three months ended August 31, 2011. We had net loss of $1,349,431 for the six months ended August 31, 2011, as compared to net loss of $213,490 for the six months ended August 31, 2011. The increase in our net loss was attributable to increased expenses described above.

Basic and Diluted Loss per Share

As a result of the above, the basic and diluted loss per common share was $0.02 and $0.00 for the three months ended August 31, 2011 and 2010, respectively. Basic and diluted loss per common share was $0.03 and $0.00 for the six months ended August 31, 2011 and 2010, respectively.

Liquidity and Capital Resources

As of August 31, 2011, we had total current assets of $232,341 (February 2011: $689,015), which included cash of $121,447, prepaid expenses of $7,238, and sales taxes receivable of $103,686. As of August 31, 2011, we had total current liabilities in the amount of $49,232 (February 2011: $103,163). As a result, we had working capital of $183,109 as of August 31, 2011 (February 2011: $585,852).

We anticipate that we will not generate any revenue during the next twelve months. In 2008, the proposal to the local government for permits ATP 862, 864, 865 and 866 of an exploration program with a total estimated commitment of approximately $19.5 million to be completed by February 28, 2012 was approved. As of the date of this report, we have expended approximately $1,600,000 in exploration expenditures in executing on the proposal to the local government for permits ATP 862, 864, 865 and 866 and we are obligated to complete the $19.5 million in exploration expenditures by February 28, 2012 in order to maintain our permits in good standing. If we do not complete our work obligations, there is a risk that we will lose our rights to continue operations on our permits. In order for us to complete our work obligations we will have to raise additional funds. There can be no assurance that we will be able to raise sufficient funds to complete our obligations.

In addition to these expenditures anticipated to be incurred in connection with our proposed exploration programs, we anticipate spending approximately $60,000 in ongoing general and administrative expenses for the next twelve months. The general and administrative expenses for the year will consist primarily of professional fees for the audit and legal work relating to our regulatory filings throughout the year, as well as general office expenses.

Our current cash on hand is insufficient to be able to make our planned exploration expenditures and to pay for our general administrative expenses over the next twelve months. We must obtain additional financing in order to continue our plan of operations for the next twelve months. We do not have any lending arrangements in place with banking institutions and believe that debt financing will not be an alternative for funding our exploration programs as we have limited tangible assets to secure any debt financing. We anticipate that additional funding will be in the form of equity financing from the sale of our common stock. We are currently seeking additional funding in the form of equity financing from the sale of our common stock, but cannot provide any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our proposed exploration programs that is a requirement in order to maintain our permits in good standing. During the six months ended August 31, 2011, we raised $1,000,000 through private equity offerings and entered into an agreement that provided for future financing through the issuance of 400,000 common shares for $1.0 million upon our ability to confirm average gas content of coal of not less than 2.5 cubic meters per ton dry ash free and; for Carbonaceous Shale - not less than average 0.5 cubic meters per ton for shale with total organic content greater than 8 weight percent. This agreement also provides for the issuance of 535,714 shares for $1.5 million upon an initial 3P reserve certification. There is no assurance that these conditions will be satisfied in order to enable us to closing on these financing commitments.

We are considering entering into a joint venture arrangement to finance the exploration activity required to carry out our proposed exploration programs on the properties underlying our permits. We are seeking to locate a joint venture participant, but can provide no assurance that we will be successful. In the event that we enter into a joint venture arrangement, we would likely have to assign a percentage of our property interests to the joint venture participant.

If we are unable to raise additional capital in the immediate future, we will experience liquidity problems and management expects that we will need to curtail operations, liquidate assets, seek additional capital on less favorable terms and/or pursue other remedial measures. In the absence of sufficient financing to finance our exploration activity required to carry out our proposed exploration programs, we will not be able to pursue our exploration program and maintain our permits in good standing. If we do not execute on our proposed exploration programs, we may be required to relinquish our interests in our permits and will be forced to cease operations.

Cash Used in Operating Activities

Cash flows used in operating activities for the six months ended August 31, 2011 were $449,202, as compared to cash flows used in operating activities of $71,760 for the six months ended August 31, 2010. Our net loss of $1,349,431 for the six months ended August 31, 2011 was the primary reason for our negative operating cash flow, as compared to our net loss of $213,490 for the six months ended August 31, 2010. Our reporting negative operating cash flows for the six months ended August 31, 2011 was offset by stock-based compensation of $821,670, services paid for with stock of $180,000, and write off of exploration assets of $60,569 for the reporting period.

Cash Used in Investing Activities

For the six months ended August 31, 2011, we used $1,141,332 in investing activities, as compared to $26,086 for the six months ended August 31, 2010. For the six months ended August 31, 2011, we invested $1,138,810 in unproven properties, as compared to the six months ended August 31, 2010, in which we invested of $26,086 in unproven properties.

Cash from Financing Activities

As we have had no revenues since inception, we have financed our operations primarily by using existing capital reserves and through private placements of our common stock. For the six months ended August 31, 2011, we generated $1,000,000 from the issuance of common shares, as compared to no cash flows provided by financing activities for the six months ended August 31, 2010.

Off-balance sheet arrangements

We do not have any off-balance sheet arrangements.

Going Concern

We have incurred net losses for the period from inception on February 23, 2006 to August 31, 2011 of $3,270,096 and have no source of revenue. The continuity of our future operations is dependent on our ability to obtain financing from issuance of equity securities. These conditions raise substantial doubt about our ability to continue as a going concern.

Recent accounting pronouncements

There have been no recent accounting pronouncements since the filing of our Annual Report on Form 10-K, filed on August 31, 2011, that have a material impact on the Company's financial presentation and disclosure.

Critical Accounting Policies

Our condensed unaudited consolidated financial statements have been prepared in conformity with GAAP. For a full discussion of our accounting policies as required by GAAP, please refer to our Annual Report on Form 10-K for the year ended February 28, 2011. We consider certain accounting policies to be critical to an understanding of our condensed consolidated financial statements because their application requires significant judgment and reliance on estimations of matters that are inherently uncertain. The specific risks related to these critical accounting policies are unchanged at the date of this report and are described in detail in our Annual Report on Form 10-K.

SENTRY PETROLEUM LTD. 10-Q/A