John M.

White, (949) 720-7115

jwhite@roth.com
Sales (800) 933-6830, Trading (800) 933-6820

COMPANY NOTE | EQUITY RESEARCH | April 30, 2019

Resources: Exploration & Production

Torchlight Energy Resources, Inc. | TRCH - $1.45 - NASDAQ | Buy

Company Update
Estimates Changed

Stock Data TRCH: Disputing White Diamond Research

52-Week Low - High $0.53 - $1.98 Report
Shares Out. (mil) 71.70
Mkt. Cap.(mil) $103.96 On 4/29/2019, White Diamond Research published a report on TRCH,
3-Mo. Avg. Vol. 424,724 highlighting what are, in the opinion of White Diamond, negative aspects of
12-Mo.Price Target $2.70 TRCH’s business. In the report, White Diamond states it has a short position
Cash (mil) $0.8 in the shares of TRCH. According to Eikon, the short interest in TRCH on
Tot. Debt (mil) $19.9 1/3/2019 was 1.6 million shares and on 4/18/2019 was 4.4 million shares, an
EPS $ increase of 175%.

Yr Dec —2018— —2019E— —2020E— White Diamond states it is short the shares of TRCH because White Diamond
Curr Prev Curr
believes it is a classic pump-and-dump scheme run by a questionable
1Q (0.03)A (0.02)E (0.02)E -
management team. We infer “pump and dump" means a form of securities
2Q (0.02)A (0.01)E (0.06)E -
3Q (0.01)A (0.01)E (0.02)E -
fraud that involves artificially inflating the price of a stock through false and
4Q (0.02)A (0.01)E (0.06)E - misleading positive statements in order to sell the stock at a higher price.
YEAR (0.08)A (0.05)E (0.16)E (0.06)E
P/E NM NM NM NM
After reading the White Diamond report, it was obvious to us that the White
Revenue ($ millions) Diamond research team does not know the basics of the TRCH story. This is
because White Diamond made no mention of the originators of the Orogrande
Yr Dec —2018— —2019E— —2020E— Project, Gregory McCabe, Chairman of the Board and Rich Masterson,
Curr Prev Curr
Consulting Geologist.
1Q 0.5A 0.4E 0.4E -
2Q 0.3A 0.5E 0.4E -
3Q 0.1A 0.5E 0.4E - Concerning the “pump” portion of this accusation, we are not aware of any
4Q 0.4A 0.5E 0.5E - “false and misleading positive statements” by TRCH. The press releases and
YEAR 1.3A 2.0E 1.8E 2.2E presentations by TRCH have contained the plans for and results of drilling,
testing and geological and geophysical work performed on TRCH’s Orogrande
TRCH One-Year Price and Volume History Basin acreage. In our view, TRCH’s drilling and testing results have met or
2.0 2.50
exceeded our expectations.
1.5 2.00
1.50
1.0 Concerning the “dump” portion of this accusation, we don’t see any evidence
1.00
0.5
of this. Gregory McCabe, TRCH’s Chairman of the Board, is the largest
0.50
shareholder, with 16.1 million shares representing 22.4% of the ownership of
0.0 0.00 TRCH. TRCH advises us Mr. McCabe has not sold any of his TRCH common
May-18

Aug-18

Sep-18

Nov-18

Dec-18

Feb-19
Mar-19
Jun-18

Jan-19
Oct-18

Apr-19

stock since acquiring his shares. In addition, Mr. McCabe has invested,
Jul-18

Vol (m) Price

according to TRCH, approximately $12 million in cash in the drilling, testing
and geological and geophysical work performed on TRCH’s Orogrande Basin
acreage. Mr. McCabe and his related oil and gas companies own a 25%
interest in the Orogrande Project, separate and distinct from his ownership of
TRCH common stock. John A. Brda, CEO, owns 2.3 million shares or 3.2%
of the TRCH equity.

Important Disclosures & Regulation AC Certification(s) are located on page 7 to 8 of this report.
Roth Capital Partners, LLC | 888 San Clemente Drive | Newport Beach CA 92660 | 949 720 5700 | Member FINRA/SIPC
TORCHLIGHT ENERGY RESOURCES, INC. Company Note - April 30, 2019

Gregory McCabe is from Midland, Texas and is an experienced geologist who has over 32 years of oil and gas experience.
Rich Masterson is a Consulting Geologist for TRCH. Mr. Masterson is very well known and enjoys an excellent reputation
within the industry. Mr. McCabe and Mr. Masterson partnered to develop the Orogrande Project.

Since late 2014, our U.S. onshore E&P research has had a Permian Basin focus. In the course of our work, we have met
and developed numerous relationships with public and private management teams, consultants and private equity
professionals. Prior to initialing coverage of TRCH, we were well aware of the Orogrande Project and Messers. McCabe’s
and Masterson’s efforts. Again, our channel checks indicate both enjoy an excellent reputation in the Permian Basin E&P
industry.

The White Diamond report contained a summary with, among other items, the following points:

White Diamond: Torchlight Energy has an enterprise value of over $130M. The company's entire perceived value is based
on possible oil in its Orogrande Project. Our response: This is, in our opinion, a true statement.

White Diamond: TRCH only paid $3.35M in cash and stock for 75% of the Orogrande in August 2014 when oil prices were
much higher than today. Our response: This is true but we don’t understand what it means. TRCH’s Orogrande Project is
a large spread of oil and gas leases in the Orogrande Basin. There is no meaningful oil and gas production in the entire
Orogrande Basin and as such, the acreage traded for a nominal value, reflecting, in our view, the lack of production on the
leases, the lack of production from any nearby leases and the exploration risk of the leases

White Diamond: In April 2018, TRCH said it would sell its Hazel Project, but never did, and raised equity instead. Our
response: White Diamond makes this bullet point sound like TRCH told investors one thing but did another. The facts are
that TRCH announced its intention to sell its Hazel Project and in the press release explained the proceeds would be used
to develop the Orogrande Project. The offering of common stock was announced on 4/18/2018, only ten days from the
Hazel announcement.

In our view, it is common knowledge in the industry that executing divestitures of oil and gas properties typically take a
minimum of 60 to 90 days. Additionally, it is common knowledge in the industry that the market for divestitures of small and
mid-sized properties has been weak and apparently TRCH has not seen an acceptable offer. However, the Hazel Project is
still being marketed for sale.

In the press release on the stock offering, TRCH stated a portion of the proceeds would be used to meet its drilling
obligations at its Hazel Project and the remainder would be deployed to develop the Orogrande Project. If TRCH did not
meet its drilling obligations some of its Hazel leases would have expired. TRCH chose to meet its drilling obligations to keep
the acreage block intact. TRCH has advised us the Hazel wells have been drilled.

White Diamond: In April 2019, TRCH said it will sell its Orogrande Project, but we don’t believe that will ever happen. Our
response: Again, TRCH’s decision to market its Orogrande Project was just made this month. This marketing effort is, in
our view, going to take a considerable amount of time, likely several months. White Diamond offers no analysis supporting
its opinion that the sale will not occur.

In fact, during early 2019, a number of the major oil companies have been signaling in public appearances their intention to
increase their exposure to U.S. onshore assets, in particular, West Texas. Recently, CVX (CVX-NC) announced an
agreement to acquire Anadarko Petroleum (APC-NC), valued at $33 billion at the time of the announcement. This offer has
been countered by Occidental Petroleum (OXY-NC) with a $38 billion offer. One of APC’s primary assets is its Permian
Basin holdings in West Texas.

Other:

Regarding Mr. Brda’s involvement in certain legal proceedings, Mr. Brda advised us this action was vacated due to lack of
proper notice.

Our 1Q 2019 estimates for EPS/CFPS/EBITDA of $(0.02)/$(0.01)/$0.3 million are essentially unchanged from our previous
$(0.07)/$(0.01)/$0.4 million.

Page 2 of 8
TORCHLIGHT ENERGY RESOURCES, INC. Company Note - April 30, 2019

VALUATION
Our valuation is based on a net asset value (NAV) analysis which produced $2.69 per share which we adjusted
higher to our $2.70 per share price target.

Factors that may impede shares from reaching our price target include a significant decrease in oil and natural
gas prices, difficulties encountered in the drilling and completion program, any changes enacted by federal,
state or local governments that materially affect the profitability of oil and gas production and changes in the
key management executives.

RISKS
Oil and natural gas prices: A significant decrease in oil and natural gas prices to levels below our current
forecast would cause actual financial results to be lower than our forecasts for this company. Furthermore, a
significant decrease in oil and gas prices could have a negative impact on investor sentiment and could be
negative for the performance of U.S. exploration and production equities.

Operational risks: These include, but are not limited to, difficulties encountered in the drilling and completion
program including dry holes, cost overruns, or timing problems and or shortages of oil and gas service
equipment and supplies. Tax and regulatory changes: Any changes enacted by federal, state or local
governments that materially affect the profitability of oil and gas production could negatively affect U.S.
exploration and production equities, such as changes in royalty rates, government taxes on oil and natural
gas production, environmental regulations and corporate income taxes.

Petroleum reserve risk: Estimates of economically recoverable oil and natural gas reserves and of future
net revenues are based upon a number of variable factors and assumptions, all of which to some degree may
vary considerably from actual results. Therefore, actual production, revenues, development and operating
expenditures may not occur as estimated. The reserve data are estimates only, are subject to many
uncertainties and are based on data gained from production histories and on assumptions as to geologic
formations and other matters. Actual quantities of oil and natural gas may differ materially from the amounts
estimated.

Concentration and Control Risk: Mr. Gregory McCabe holds the position of Chairman of the Board of
Directors and beneficially owns, either individually or through his affiliates, approximately 23% of the common
stock of Torchlight. Mr. McCabe has also loaned Torchlight $3.25 million in connection with an oil and gas
property acquisition. As a result, Mr. McCabe has significant influence in matters voted on by the shareholders
and the board of directors, including the election of the board members, and in all other facets of the business,
including business strategy and daily operations.

Going Concern Comment from Auditor: The letter from Torchlight’s public accounting firm, which addresses
the audit of the 12/31/2018 financial statements, states that “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 has incurred recurring losses from its operations
and has a net capital deficiency which raises substantial doubt about its ability to continue as a going concern.
Source: Torchlight SEC filings

Page 3 of 8
TORCHLIGHT ENERGY RESOURCES, INC. Company Note - April 30, 2019

COMPANY DESCRIPTION
Torchlight Energy Resources, Inc. is an exploration and production company, engaged in the acquisition,
exploration, and development of oil and natural gas properties in the U.S. Torchlight operates through
Torchlight and four other wholly owned subsidiaries, Torchlight Energy Operating, LLC, Hudspeth Oil
Corporation, Torchlight Hazel LLC, and Warwink Properties LLC.

Torchlight principal interests are in three oil and gas projects. Torchlight’s is primarily pursuing the development
of its large acreage position in the Orogrande Basin, the development and potential divestiture of the Hazel
Project in the Midland Basin, and the development of the Winkler Project in the Delaware Basin.

Page 4 of 8
TORCHLIGHT ENERGY RESOURCES, INC. Company Note - April 30, 2019

Prices and Production 2016A 2017A 1Q 2018A 2Q 2018A 3Q 2018A 4Q 2018A 2018A 1Q 2019E 2Q 2019E 3Q 20198E 4Q 2019E 2019E 2020E
Oil and Gas Prices

Natural Gas ($/MMBtu)

Henry Hub ($/MMBtu) 2.55 3.02 2.85 2.83 2.86 3.72 3.07 2.86 2.50 2.60 2.80 2.69 2.70
Basis ($/MMBtu) (0.78) (0.17) (0.26) (1.38) (1.21) (2.56) (1.35) (0.29) (0.25) (0.26) (0.28) (0.27) (0.27)
Reported / Realized Price ($/MMBtu) 1.77 2.85 2.59 1.45 1.65 1.16 1.71 2.57 2.25 2.34 2.52 2.42 2.43

Oil ($/bbl)
WTI Cushing 43.38 50.86 62.89 67.91 69.43 59.34 64.89 54.90 64.00 62.00 64.00 61.23 60.00
Basis ($/bbl) (9.22) (1.83) (2.32) (10.24) (15.72) (11.41) (9.92) (2.20) (2.56) (2.48) (2.56) (2.45) (2.40)
Reported / Realized Price ($/bbl) 34.15 49.04 60.57 57.67 53.71 47.93 54.97 52.70 61.44 59.52 61.44 58.78 57.60

Production
Natural Gas (Mcf/d) 100 25 22 20 25 126 49 128 129 130 132 130 144
Natural Gas (Mcf) 36,513 9,259 2,008 1,857 2,324 11,632 17,821 11,748 11,866 11,984 12,104 47,703 52,473
Oil (bbl/d) 23 28 87 53 25 85 63 86 87 88 89 87 97
Oil (bbl) 8,488 10,391 7,858 4,865 2,324 7,840 22,887 7,918 7,998 8,078 8,158 32,152 35,367
Total (BOE) 14,574 11,934 8,193 5,175 2,711 9,779 25,857 9,876 9,975 10,075 10,176 40,102 44,113
Total (BOE/d) 40 33 91 57 29 106 71 107 108 110 111 110 121

Production Profile
% Natural gas 42% 13% 4% 6% 14% 20% 11% 20% 20% 20% 20% 20% 20%
% Oil 58% 87% 96% 94% 86% 80% 89% 80% 80% 80% 80% 80% 80%

Sources: SEC filings, Eikon, ROTH Capital

Partners estimates

John M. White
Houston, Texas
Office: 949-720-7115
Cell: 832-415-7848
jwhite@roth.com

Page 5 of 8
TORCHLIGHT ENERGY RESOURCES, INC. Company Note - April 30, 2019

Income statement 2016A 2017A 1Q 2018A 2Q 2018A 3Q 2018A 4Q 2018A(1) 2018A 1Q 2019E 2Q 2019E 3Q 20198E 4Q 2019E 2019E 2020E
Revenues
Natural Gas 64,505 26,267 5,202 2,693 3,835 13,493 25,222 30,240 26,698 28,044 30,503 115,485 127,510
Oil 289,885 544,232 475,962 280,571 124,840 375,767 1,257,140 417,331 491,372 480,776 501,248 1,890,727 2,037,143
Other
NGL - - - - - - - - - - -
Total Revenues 354,390 570,499 481,164 283,263 128,675 389,260 1,282,362 447,572 518,070 508,820 531,751 2,006,212 2,164,653

Operating Expenses
LOE and production taxes 328,438 173,187 228,903 184,425 182,294 210,536 806,158 76,543 77,308 78,081 78,862 310,793 1,009,847
DD&A 636,426 100,156 107,133 154,805 106,136 805,678 1,173,752 129,151 130,443 131,747 133,065 524,406 576,847
G&A Expense 6,447,706 3,652,970 1,675,840 907,595 747,357 722,270 4,053,062 720,000 720,000 720,000 720,000 2,880,000 2,750,000
Total Operating Expenses 7,412,570 3,926,313 2,011,876 1,246,825 1,035,787 1,738,484 6,032,972 925,694 927,751 929,828 931,927 3,715,200 4,336,694

EBIT (7,058,180) (3,355,814) (1,530,712) (963,562) (907,112) (1,349,224) (4,750,610) (478,122) (409,681) (421,008) (400,176) (1,708,987) (2,172,041)

Interest expense 272,837 346,050 103,941 159,260 128,226 156,283 547,710 600,000 600,000 600,000 600,000 2,400,000 2,400,000
Other (expense)/income 36 2,781,954 - (368,957) 261 - (368,401) - - - - - -

EBT (7,330,981) (919,910) (1,634,653) (1,491,779) (1,035,077) (1,505,507) (5,666,721) (1,078,122) (1,009,681) (1,021,008) (1,000,176) (4,108,987) (4,572,041)

Current Tax Expense - - - - - - - - - - -

Deferred Tax Expense - - - - - - - - - - - -
Total Tax Expense - - - - - - - - - - - - -

Net income before non-recurring items (7,330,981) (919,910) (1,634,653) (1,491,779) (1,035,077) (1,505,507) (5,666,721) (1,078,122) (1,009,681) (1,021,008) (1,000,176) (4,108,987) (4,572,041)

Non-Operating / Non-Recurring items

Impairment 70,080 139,891 - - - 139,891 - - - - - -
Asset sales and other (283,285) - - - - - - - - - - -

Reported net income (7,684,346) (919,910) (1,774,544) (1,491,779) (1,035,077) (1,505,507) (5,806,612) (1,078,122) (1,009,681) (1,021,008) (1,000,176) (4,108,987) (4,572,041)

EPS (0.19) (0.02) (0.03) (0.02) (0.01) (0.02) (0.08) (0.02) (0.01) (0.01) (0.01) (0.05) (0.06)
CFPS (0.16) (0.01) (0.02) (0.02) (0.01) (0.01) (0.07) (0.01) (0.01) (0.01) (0.01) (0.05) (0.06)
EBITDA (6,421,754) (3,255,658) (1,423,579) (808,757) (800,976) (543,546) (3,576,858) (348,971) (279,238) (289,261) (267,111) (1,184,581) (1,595,194)

1. 4Q 2018 are ROTH estimates as financial statements

for this period were not released.

Sources: SEC filings, Eikon, ROTH Capital Partners

estimates

John M. White
Houston, Texas
Office: 949-720-7115
Cell: 832-415-7848
jwhite@roth.com

Page 6 of 8
TORCHLIGHT ENERGY RESOURCES, INC. Company Note - April 30, 2019

Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies
the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views
about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or
will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

Disclosures:
ROTH makes a market in shares of Torchlight Energy Resources, Inc. and as such, buys and sells from customers on a
principal basis.
A Research Analyst and/or a member of the Analyst's household own(s) debt or equity securities of Torchlight Energy
Resources, Inc. stock.
Shares of Torchlight Energy Resources, Inc. may be subject to the Securities and Exchange Commission's Penny Stock
Rules, which may set forth sales practice requirements for certain low-priced securities.

Rating and Price Target History for: Torchlight Energy Resources, Inc. (TRCH) as of 04-29-2019
06/18/18 04/02/19
I:B:$1.75 B:$2.7
2.00
1.80
1.60
1.40
1.20
1.00
0.80
0.60
0.40
Q1 Q2 Q3 2017 Q1 Q2 Q3 2018 Q1 Q2 Q3 2019 Q1 Q2

Created by: BlueMatrix

Each box on the Rating and Price Target History chart above represents a date on which an analyst made a change to a
rating or price target, except for the first box, which may only represent the first note written during the past three years.
Distribution Ratings/IB Services shows the number of companies in each rating category from which Roth or an affiliate
received compensation for investment banking services in the past 12 month.

Distribution of IB Services Firmwide

IB Serv./Past 12 Mos.
as of 04/30/19
Rating Count Percent Count Percent
Buy [B] 263 76.23 140 53.23
Neutral [N] 52 15.07 29 55.77
Sell [S] 3 0.87 1 33.33
Under Review [UR] 26 7.54 12 46.15

Our rating system attempts to incorporate industry, company and/or overall market risk and volatility. Consequently, at any
given point in time, our investment rating on a stock and its implied price movement may not correspond to the stated 12-
month price target.
Ratings System Definitions - ROTH employs a rating system based on the following:
Buy: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return of at least
10% over the next 12 months.
Neutral: A rating, which at the time it is instituted and or reiterated, that indicates an expectation of a total return between
negative 10% and 10% over the next 12 months.
Sell: A rating, which at the time it is instituted and or reiterated, that indicates an expectation that the price will depreciate
by more than 10% over the next 12 months.

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TORCHLIGHT ENERGY RESOURCES, INC. Company Note - April 30, 2019

Under Review [UR]: A rating, which at the time it is instituted and or reiterated, indicates the temporary removal of the
prior rating, price target and estimates for the security. Prior rating, price target and estimates should no longer be relied
upon for UR-rated securities.
Not Covered [NC]: ROTH does not publish research or have an opinion about this security.

ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business
relationships with the covered companies mentioned in this report in the next three months. The material, information and
facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from
sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used
as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon
request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are
subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual
results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high
degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the
express written permission of ROTH. Copyright 2019. Member: FINRA/SIPC.

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