DAYBREAK OIL AND GAS, INC. 1414 S. FRIENDSWOOD DRIVE, SUITE 212 FRIENDSWOOD, TX 77546 OFFICE: (281) 996-4176  

April 27, 2023

Via Edgar

United States Securities and Exchange Commission

Division of Corporation Finance

Office of Energy & Transportation

100 F Street, N.E.

Washington, D.C. 20549-7010

Attention: Robert Babula

Staff Accountant

Re: Daybreak Oil and Gas, Inc.

Form 10-K for the Fiscal Year ended February 28, 2022 Filed June 15, 2022

Form 10-Q for the Fiscal Quarter ended August 31, 2022 Filed October 28, 2022

File No. 000-50107

Dear Mr. Babula:

We are responding to comments received from the staff (the “Staff”) of the Securities and Exchange Commission (the “Commission”) by letter dated March 28, 2023 (the “Comment Letter”), which was received by Daybreak Oil and Gas, Inc. (“Daybreak”, the “Company”, “we”, “us” or “our”) regarding the filings listed above. Each comment is included below and is numbered to correspond to the numbered paragraph in the Comment Letter. The Company’s responses immediately follow each comment.

Form 10-K for the Fiscal Year ended February 28, 2022 Properties

Reserves, page 23

1. We have read your response to prior comment 2 and note that as a result of receiving a commitment for funding from a third party in May of 2022, you plan to begin drilling your proved undeveloped locations in mid-2023.

However, the reasons that you identify for disclosing the 273,265 barrels of proved undeveloped reserves that have remained undeveloped for a period greater than five years from initial disclosure (e.g. economic and financial limitations, such as depressed crude oil and natural gas prices, and the resulting lack of capital for drilling these reserves in periods prior to February 28, 2022), do not include circumstances that would justify the continued disclosure of the reserves, where the period required for conversion of the undeveloped reserves to developed reserves is longer than five years.

 We note that you have made similar representations in each of your annual reports on Form 10-K for the last five fiscal years (from February 28, 2018 through February 28, 2022) stating “Under our current drilling plans, we intend to convert all... [of the net quantities identified] or 100.0% of the proved undeveloped reserves disclosed... [as of the end of each fiscal year] into proved developed reserves within the next five years.”

However, for each of the last five fiscal years, it appears that you have not progressed the development of any of the proved undeveloped reserves disclosed at the prior fiscal year- end and have not subsequently removed as of the current fiscal year-end those net quantities not converted within five years of initial disclosure.

We believe that you will need to revise your estimates of proved reserves as of February 28, 2022 to remove the 273,265 barrels of proved undeveloped reserves and any additional proved undeveloped reserves for individual locations in the development plan adopted for the fiscal year ended February 28, 2022 that are currently scheduled to be drilled, completed and converted to developed status on a date that is more than five years from initial disclosure in an annual filing made with the SEC.

Please submit the revisions that you propose to address the concerns outlined above. You may refer to the following guidance if you require further clarification regarding the requirements for reporting proved undeveloped reserves.

• Rule 4-10(a)(26) of Regulation S-X regarding the requirement to have obtained the financing needed to implement the project or having established a reasonable expectation that such financing will exist, as of the date the reserves are initially disclosed and at each subsequent disclosure date.

• Rule 4-10(a)(31)(ii) of Regulation S-X and the answer to Question 131.04 in our Compliance and Disclosure Interpretations (C&DIs) regarding the requirement to have adopted a development plan indicting the undeveloped reserves are scheduled to be drilled within five years of initial disclosure as proved reserves.

• The answer to Question 131.03 in our Compliance and Disclosure Interpretations (C&DIs) that describe the factors a company should consider in determining whether or not the specific circumstances justify a period longer than five years to begin development of its reserves.

Response:

We have reviewed the guidance provided under Rule 4-10(a)(26) regarding the requirement to have obtained the financing needed to implement the project or having established a reasonable expectation that such financing will exist; Rule 4-10(a)(31)(ii) of Regulation S-X and the answer to question 131.04 in the Compliance and Disclosure Interpretations (C&DIs) regarding the requirement to have adopted a development plan indicating the undeveloped reserves to be drilled within five years of initial disclosure; and the answer to Question 131.03 in the Compliance and Disclosure Interpretations (C&DIs) that describe the factors a company should consider in determining whether or not there exist specific circumstances to justify a period longer than five years to begin development of its reserves.

We agree with the staff’s belief that we will need to revise our disclosure of estimates of proved reserves as of February 28, 2022. We will be removing the estimated 273,265 barrels of proved undeveloped reserves that have remained undeveloped for a period greater than five years as presented in the original 10-K filing for the fiscal year ended February 28, 2022 from our disclosure.

Additionally, we will be removing an additional 78,723 barrels of estimated proved undeveloped reserves for individual locations in the development plan for the fiscal year ended February 28, 2022 that were currently scheduled to be drilled, completed and converted to developed status on a date that is now more than five years from the initial disclosure in an annual filing made with the SEC.

The total proved undeveloped reserves presented in our original 10-K filing as of February 28, 2022 was 399,311 barrels. After revising our disclosure of proved undeveloped reserves as of February 28, 2022 to remove the above mentioned 273,265 barrels and the 78,723 barrels; the revised amount of proved undeveloped reserves will be 47,323 barrels, as shown on our revised reserve report identified as EXHIBIT A with this response letter.

2. Please provide us with your development schedule incorporating the revisions necessary to remove the reserves identified in the comment above relating to your proved undeveloped reserves as of February 28, 2022, including details that show for each future annual period, (i) the individual locations to be drilled, (ii) the associated net quantities of reserves, (iii) the initial dates these reserves were disclosed in a filing with the SEC, (iv) the estimated capital expenditures necessary to convert such reserves to developed reserves, and (v) any changes made or expected to be made in the schedule that would deviate from the definition in Rule 4-10(a)(31)(ii) of Regulation S-X.

Response:

The development schedule below incorporates the revisions necessary to remove reserves identified in comment one above, relating to our proved undeveloped reserves as of February 28, 2022. The development schedule includes details that show for each annual period, (1) the individual locations to be drilled, (ii) the associated net quantities of reserves, (iii) the initial dates these reserves were disclosed in a filing with the SEC, (iv) the estimated capital expenditure necessary to convert such reserves to developed reserves, and (v) any changes made or expected to be made in the schedule that would deviate from the definition in Rule 4-10(a)(31)ii) of Regulation S-X.

Year and Location	Net Reserves	Disclosure Year	D&C Cost	Deviation Reserves	Remaining Reserves
FYE 2/29/24
Reservoir 4
Location 11	15,846	2/28/2019	$144,375	None	15,846
FYE 2/28/25
Reservoir 1
Location 4	15,261	2/28/2022	144,375	None	15,261
Reservoir 4
Location 12	16,216	2/28/2022	$144,375	None	16,216
Totals	47,323				47,323

3. Tell us the amount of third party financing received in May 2022 that has been specifically allocated to drilling the proved undeveloped reserves that you disclosed as of February 28, 2022. Also tell us the amounts of expenditures that are scheduled to be incurred during fiscal 2023, and during each subsequent fiscal year in order to fully develop your proved undeveloped reserves; and clarify whether these funds are part of a formally adopted budget plan and schedule covering your 2023 fiscal year.

Response:

The amount of third party financing received in May 2022 that had been specifically allocated to drilling proved undeveloped reserves that remain after revisions from the proved undeveloped reserves that were disclosed as of February 28, 2022 was $150,000.

The amount of expenditures that were scheduled to be incurred after the elimination of the proved undeveloped reserves in comment one, during the fiscal year ended February 28, 2023 from the revised proved undeveloped schedule was $-0-. The amount of expenditures that are scheduled to be incurred after the elimination of the proved undeveloped reserves in comment one, during the fiscal year ended February 29, 2024 is $150,000. The amount of expenditures that are scheduled to be incurred after the elimination of the proved undeveloped reserves in comment one, during the fiscal year ended February 28, 2025 is $300,000.

In the East Slopes project, which comprised all of our proved undeveloped reserves as of February 28, 2022, we are not the majority working interest partner. Our proposed company drilling schedules are subject to change pending the approval of the majority working interest partners. Our proposed drilling schedule for the fiscal year ended February 28, 2023 was changed, when it was not approved by the majority working interest partners. This resulted in no drilling taking place during the year ended February 28, 2023. Future scheduled drilling plans are still subject to change or revision pending approval of the majority working interest partners.

The amount of expenditures that were scheduled to be incurred during the fiscal years ended February 28, 2023, February 29, 2024 and February 28, 2025 were not part of a formally adopted budget plan and schedule because they had not been approved by the majority working interest partners and are still subject to change.

4. If the third party financing received in May 2022 is insufficient to cover all of the annual development costs in your development schedule as of February 28, 2022, provide us with a schedule identifying the extent of any deficiency for each subsequent period. Also provide us with an analysis and documentation identifying the specific sources of additional funds that you expect to obtain for each annual period in which a shortfall in financing will otherwise occur; it should be clear how you have formulated a reasonable expectation that all financing will be obtained prior to the scheduled development.

Response:

The third party financing received in May 2022 for development costs was not sufficient to cover all of the annual development costs in our development schedule before the removal of the proved undeveloped reserves in comment one for the fiscal years ended February 28, 2022 and 2023. The third party funding received was intended to cover the drilling and completion costs of the first well, with additional funds forthcoming through verbal commitments depending on the success of the first development well.

With the revision of the reported proved undeveloped reserves and the associated development schedule, we do not currently have sufficient funds to meet the needs of the revised development schedule for the fiscal year ended February 28, 2025. The amount of the shortfall is approximately $300,000. We are currently in discussions with possible funding sources to cover this shortfall in development funds, however there are no documented written commitments on future funding.

Financial Statements

Note 17 - Supplemental Information for Crude Oil Producing Activities (Unaudited), page 73

5. We understand from your response to prior comment 4 that you would prefer to limit compliance with FASB ASC 932-235-50-5 to future disclosures, rather than correct disclosures in your annual report for the fiscal year ended February 28, 2022.

To facilitate our understanding of your proposed changes, provide us with an illustration of your revised reconciliation of the changes in total proved reserves and proved undeveloped reserves as would appear in your most recently filed annual report.

Response:

To facilitate the Staff’s understanding of the proposed changes we would make in the disclosure found in Note 17 – Supplemental Information for Crude Oil Producing Activities, we are providing the Staff with a draft illustration of the proposed changes in total proved and proved undeveloped reserves as shown below:

As of February 28, 2022, our total reserves were comprised of our working interest in East Slopes Project located in Kern County, California.

Our proved reserves are summarized in the table below:

	Oil (Barrels)			Natural Gas (Mcf)		BOE (Barrels)
Proved reserves:
February 29, 2020		495,977			—		495,977
Revisions(1)		(50,784)			—		(50,784)
Discoveries and extensions		—			—		—
Production		(10,970	)		—		(10,970	)
February 28, 2021		434,223			—		434,223
Revisions(2)		(259,443)			—		(259,443)
Discoveries and extensions		—			—		—
Production		(9,613	)		—		(9,613	)
February 28, 2022		165,167			—		165,167

(1) The revisions of previous estimates resulted from a decrease in the estimated economic life of the reservoirs due to lower realized crude oil prices in the energy markets.

(2) The downward revision of previous estimates resulted from 351,988 barrels of proved undeveloped reserves being removed as proved undeveloped reserves since they had remained undeveloped for a period greater than five years from initial disclosure, offset by an increase of proved developed and undeveloped reserves of 92,545 barrels due to an increase in the estimated economic life of reserves due to higher realized crude oil prices in the energy markets.

The Company’s proved reserves are set forth in the table below.

	Developed		Undeveloped		Total Reserves
	Oil (Bbls)	BOE (Bbls)	Oil (Bbls)	BOE (Bbls)	Oil (Bbls)	BOE (Bbls)
February 29, 2020	113,779	113,779	382,198	382,198	495,977	495,977
February 28, 2021	95,120	95,120	339,103	339,103	434,223	434,223
February 28, 2022	117,844	117,844	47,323	47,323	165,167	165,167

Exhibits

6. We note your response to prior comment 6 indicating that you will obtain and file a revised reserves report to address the various concerns identified in our comment, once those concerns have been satisfied.

To facilitate our understanding of the changes that you propose, provide us with the draft revised reserves report as correspondence along with your response to this comment.

Response:

To facilitate the Staff’s understanding of the changes that we propose to make in a revised reserve report for February 28, 2022, we are providing the staff with the revised reserve report identified as EXHIBIT A with this response letter.

This revised reserve report will include the adjustments necessary to incorporate our responses to comments number five and six from the Staff’s original comment letter.

Form 10-Q for the Fiscal Quarter ended August 31, 2022

Note 4 - Crude Oil Properties, page 9

7. We note your disclosure regarding crude oil properties acquired with Reabold California, LLC on May 25, 2022, stating “This property includes producing wells in both the Monterey and Contra Costa counties of California. This project includes four producing wells, five shut-in wells and the potential for two disposal wells.”

However, in a press release attached as an exhibit to the Form 8-K that you filed on October 27, 2021, you stated that “Reabold California owns a 50% working interest and operates 10 producing wells in the Sacramento Basin in Northern California with proved reserves of 613,000 barrels of oil equivalent. After the transaction is completed, Daybreak will have 1,085,000 barrels of proved oil equivalent with a value of approximately $17.0 million. Reabold California’s production is approximately 70 barrels of oil per day. Combined, the production would be approximately 100 barrels of oil per day.”

Please address the discrepancy in the number of producing wells referenced in these disclosures and any similar differences concerning the proved reserves and levels of production ascribed to the interests to be acquired in advance of the transaction relative to the interests actually acquired; and provide us with details of the associated oil and gas interests that will be reported as having been acquired pursuant to FASB ASC 932-235- 50-5, 50-35, and Item 1203 of Regulation S-K. If you acquired undeveloped proved reserves, also describe your development plans, including the expected costs and your schedule for development of those interests.

Also provide us with the “Company Reserve Report” covering the oil and gas interests of Reabold California, LLC, as referenced in Section 3.10 to the Equity Exchange Agreement that was attached to the current report referenced above, and explain any differences between its content and the information that you will report.

Response:

The Form 10-Q filing for the fiscal quarter ended August 31, 2022, containing Note 4 - Crude Oil Properties disclosure stated the number of producing wells was four and the number of shut-in wells was five. That disclosure was correct. The initial press release attached as an exhibit to the Form 8-K that was filed on October 27, 2021 mentioned 10 producing wells. There was a typographical omission in the press release in that the words “and shut-in” were accidently omitted from the description of the wells. The correct description should have been “10 producing and shut-in wells”. There were seven producing wells and three shut-in wells.

By the end of the fiscal quarter ended August 31, 2022, the number of shut-in wells had increased from three to five due to excessive water production. The other remaining well was in the regulatory approval process to be converted to a disposal well and was not considered to be a shut-in well. When we receive regulatory approval to complete the two proposed disposal wells, we should then be able to return to production a total of nine wells.

The proved reserves ascribed to the interests to be acquired in advance of the transaction relative to the interest actually acquired declined by approximately 52,807 BOE. Of this decline in proved reserves, approximately 31,882 BOE can be attributed to changes in estimates of proved reserves and 18,514 BOE in production between the two reserve report effective dates of April 1, 2021 and April 1, 2022. Another 2,411 BOE can be attributed to production between April 1, 2022, the date of the most recent reserve report and the acquisition date. The proved reserves associated with the original and additional shut-in wells as of the fiscal quarter ended August 31, 2022, 10-Q filing are still considered to be proved reserves since they will become available when we receive regulatory approval for the disposal wells and they are put on production.

The level of daily production ascribed to the interests to be acquired in advance of the transaction relative to the interest actually acquired was 70 barrels of oil per day in the press release for the Reabold 50% working interest and for the month of May 2022 (month actually acquired) the average daily production was 53 barrels of oil per day from the four producing wells for the 50% Reabold working interest.

The pro forma disclosure of the estimated associated oil and gas interest that will be reported as acquired pursuant to FASB ASC 932-235-50-5, 50-35, and Item 1203 of Regulation S-K are detailed in the tables below.

	Proved Reserves (BOE)
Balance as of press release (October 2021)	612,992
Revisions	(31,882)
Discoveries and extensions	-
Production	(20,925	)
Balance as acquisition (May 2022)	560,185

	Proved Reserves
Reserve Category	Crude Oil (Barrels)	Natural Gas (Mcf)	Total Crude Oil Equivalents (BOE)	Percent of Oil Equivalents (BOE)
Developed	236,885	45,720	244,505	43.6	%
Undeveloped	315,680	—	315,680	56.4	%
Total Proved	552,565	45,720	560,185	100.0	%

In the acquisition, we did acquire two proved undeveloped locations. The most recent estimate on the cost to development these two locations is approximately $1.2 million in aggregate. The timing for development of both of these proved undeveloped locations is dependent upon receiving regulatory approval for our two proposed disposal wells. There would be one disposal well for each proved undeveloped location. We do not currently have the funding to pay for the cost of these two wells. At the current time we believe regulatory approval will allow for the development to occur in the 2024-2025 fiscal year.

We are including with this response letter copy of the Reabold California, LLC, reserve report dated July 13, 2021 identified as EXHIBIT B. The reserve report dated July 13, 2021 is a revised report from the June 9, 2021 reserve report that is referenced in Section 3.10 of the Equity Exchange Agreement. The June 9, 2021 date was not updated in the Equity Exchange Agreement to reflect the receipt of the revised reserve report dated of July 13, 2021. Since Reabold California, LLC was a privately held company, the reserve report dated July 13, 2021 does not include all of the disclosures required by Item 1202(a)(8)(viii) of Regulation S-K that a reserve report for a public company would be required to contain in a reserve report. When we file a reserve report for the year ended February 28, 2023 as an exhibit to our 10-K filing, we will ensure that the reserve report does contain all the disclosures required by Item 1202(a)(8)(viii) of Regulation S-K.

Note 5 - Acquisition, page 9

8. We note your response to prior comment 8 indicating that you intend to file audited financial statements of Reabold California LLC, covering the two fiscal years ended February 28, 2022, and pro forma financial statements to illustrate the effects of the transaction, to comply with Rule 8-04 and Rule 8-05 of Regulation S-X.

However, you explain that the audit has been delayed due to various obstacles including “a complete turnover of accounting personnel and accounting systems” and missing documentation; you state that you are “working to reconstruct the historical documents” where financial backup detail is not available.

You were required to file the historical and pro forma financial statements in an amendment to your Form 8-K by August 10, 2022, nearly eight months ago. The absence of the required historical and pro forma financial statements, including an illustration of the effects of the transaction on your proved reserves and standardized measure, represent a material deficiency that you should address without further delay.

Please describe the nature of your efforts to reconstruct the historical documents, the extent of any progress in this regard, and how you expect to proceed without the underlying documentation, to the extent your efforts are not successful. Tell us the date that you expect to comply with your reporting obligations under Rule 13a-11 of Regulation 13A, including the financial reporting requirements referenced above.

Response:

In our efforts to reconstruct historical documents for the completion of the two- year audit for the calendar years ended December 31, 2020 and 2021, the main hurdles we have had to overcome has been the inability to verify the December 31, 2019 ending balances (representing the audit starting balances) and some first half of 2020 transaction details.

The contracted accounting Controller prior to July 2020, was released by Reabold California LLC in June of 2020. The accounting records including the general ledger, subsidiary ledgers and payables along with electronic copies of invoices that were being kept in a “cloud” environment and are no longer available to us.

Our efforts to reconstruct historical documents and transactions have included contacting some vendors who supplied materials and services during that time period and requesting copies of invoices from their files. While some vendors have been able to assist us in this search, others have not. Generally speaking, most vendors could supply us with transaction amounts, but not transaction invoice details as to specific products or materials supplied or used at that time.

We are continuing to work with our auditors on validating missing information or in trying to find alternative methods to verify and validate the December 31, 2019 balances and first half of 2020 transaction details.

Upon completion of the audit, we intend to file the historical and pro forma financial statements in an amendment to our 8-K filing. The anticipated filing date is no later than May 26, 2023.

Closing Comments

We agree with the purpose and scope of the staff reviewing our Annual Form 10-K and Quarterly 10-Q filings to aid public companies in ensuring that all information investors require to make an informed investment decision is disclosed.

We acknowledge that:

· the Company is responsible for the adequacy and accuracy of the disclosure in the filing;

· staff comments or changes to disclosure in response to staff comments do not foreclose the Commission from taking any action with respect to the filing; and

· the Company may not assert staff comments as a defense in any proceeding initiated by the Commission or any person under the federal securities laws of the United States.

We are currently working on both completing the required two-year audit of the acquired company and with preparing our Annual Report on Form 10-K for the fiscal year ended February 28, 2023, which we expect to timely file on or before May 30, 2023. We will ensure that the above comments are incorporated as appropriate into that filing.

We believe the foregoing is responsive to your comments. If you should have any questions or further comments, please call me at (281) 996-4176.

Sincerely,

/s/ JAMES F. WESTMORELAND

James F. Westmoreland

President and Chief Executive Officer

Exhibit A

Comments 1 and 6 Response

Exhibit B

Comment 13 Response