UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington,
DC 20549



FORM 10-Q

(Mark One)



þQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period ended June 30, 2012



or



 ̈TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the transition period from	______________________________	to	______________________________



Commission File Number:	0-27443



|BAYOU CITY EXPLORATION, INC.                          
|------------------------------------------------------
|(Exact name of registrant as specified in its charter)



|Nevada                                                         | 61-1306702                             
|-------------------------------------------------------------- | ---------------------------------------
|(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number)
|                                                               |                                        
|632 Adams Street, Suite-700,
Bowling Green, Kentucky           | 42101                                  
|(Address of principal executive offices)                       | (Zip Code)                             



|(800) 798-3389                                      
|----------------------------------------------------
|(Registrant’s telephone number, including area code)



|                                                                                  
|----------------------------------------------------------------------------------
|(Former name, former address and former fiscal year, if changed since last report)



Indicate by
check mark whether the registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þYes  oNo



Indicate by check
mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files.)	þYes   ̈No



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 definition of “larger accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of the Exchange Act. (Check one):





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





Indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). oYes  þNo



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:



Indicate by check
mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. oYes   ̈No



APPLICABLE ONLY TO CORPORATE ISSUERS:



Shares outstanding
for each class of stock as of the latest practicable date:





|Title or Class                 | Shares Outstanding on August 6, 2012
|------------------------------ | ------------------------------------
|Common Stock, $0.005 par value | 990,176                             


















TABLE OF CONTENTS





|PART I

FINANCIAL INFORMATION
|-----------------------------
|                             
|ITEM 1.                      
|                             
|                             
|                             
|                             
|ITEM 2.                      
|ITEM 3.                      
|ITEM 4.                      
|                             
|PART II

OTHER INFORMATION   
|                             
|ITEM 1.                      
|ITEM 1A.                     
|ITEM 2.                      
|ITEM 3.                      
|ITEM 4.                      
|ITEM 5.                      
|ITEM 6.                      





i









PART I

FINANCIAL INFORMATION



ITEM 1. FINANCIAL STATEMENTS



BAYOU CITY EXPLORATION, INC.

CONSOLIDATED
BALANCE SHEETS





|                                                                                                                                                                                     |  | June 30,    |             |   | December 31, |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ----------- | ----------- | - | ------------ | -
|                                                                                                                                                                                     |  | 2012        |             |   | 2011         |  
|                                                                                                                                                                                     |  | (Unaudited) |             |   | (Audited)    |  
|ASSETS:                                                                                                                                                                              |  |             |             |   |              |  
|                                                                                                                                                                                     |  |             |             |   |              |  
|CURRENT ASSETS:                                                                                                                                                                      |  |             |             |   |              |  
|Cash                                                                                                                                                                                 |  | $           | 1,895,269   |   |              | $
|Accounts receivable:                                                                                                                                                                 |  |             |             |   |              |  
|Trade and other                                                                                                                                                                      |  |             | 24,255      |   |              |  
|Prepaid expenses and other                                                                                                                                                           |  |             | 5,520       |   |              |  
|                                                                                                                                                                                     |  |             |             |   |              |  
|TOTAL CURRENT ASSETS                                                                                                                                                                 |  |             | 1,925,044   |   |              |  
|                                                                                                                                                                                     |  |             |             |   |              |  
|OIL AND GAS PROPERTIES, NET                                                                                                                                                          |  |             | 385,844     |   |              |  
|OTHER FIXED ASSETS, NET                                                                                                                                                              |  |             | 36,469      |   |              |  
|INVESTMENTS AT COST                                                                                                                                                                  |  |             | 198,523     |   |              |  
|                                                                                                                                                                                     |  |             |             |   |              |  
|TOTAL ASSETS                                                                                                                                                                         |  | $           | 2,545,880   |   |              | $
|                                                                                                                                                                                     |  |             |             |   |              |  
|LIABILITIES AND STOCKHOLDERS' EQUITY:                                                                                                                                                |  |             |             |   |              |  
|CURRENT LIABILITIES:                                                                                                                                                                 |  |             |             |   |              |  
|Accounts payable and accrued liabilities                                                                                                                                             |  | $           | 16,285      |   |              | $
|Accounts payable – related party                                                                                                                                                     |  |             | 84,906      |   |              |  
|Deferred liability – oil and gas partnerships                                                                                                                                        |  |             | 927,456     |   |              |  
|Notes payable - minority shareholders                                                                                                                                                |  |             | 100,000     |   |              |  
|                                                                                                                                                                                     |  |             |             |   |              |  
|TOTAL CURRENT LIABILITIES                                                                                                                                                            |  |             | 1,128,647   |   |              |  
|                                                                                                                                                                                     |  |             |             |   |              |  
|TOTAL LIABILITIES                                                                                                                                                                    |  |             | 1,128,647   |   |              |  
|                                                                                                                                                                                     |  |             |             |   |              |  
|STOCKHOLDERS' EQUITY:                                                                                                                                                                |  |             |             |   |              |  
|Preferred stock, $0.001 par value; 5,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2012 and December 31, 2011                                            |  |             | –           |   |              |  
|Common stock, $0.005 par value; 150,000,000 shares authorized; 990,176 shares issued and outstanding at June 30, 2012 and 290,036 shares issued and outstanding at December 31, 2011 |  |             | 4,950       |   |              |  
|Additional paid in capital                                                                                                                                                           |  |             | 13,904,815  |   |              |  
|Accumulated deficit                                                                                                                                                                  |  |             | (12,492,532 | ) |              |  
|                                                                                                                                                                                     |  |             |             |   |              |  
|TOTAL STOCKHOLDERS' EQUITY                                                                                                                                                           |  |             | 1,417,233   |   |              |  
|                                                                                                                                                                                     |  |             |             |   |              |  
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY                                                                                                                                           |  | $           | 2,545,880   |   |              | $







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





1







BAYOU CITY EXPLORATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)



|                                              |  | Three Months Ended |          |   | Six Months Ended |  
|--------------------------------------------- |  | ------------------ | -------- | - | ---------------- | -
|                                              |  | June 30,           |          |   | June 30,         |  
|                                              |  | 2012               |          |   | 2011             |  
|OPERATING REVENUES:                           |  |                    |          |   |                  |  
|Oil and gas sales                             |  | $                  | 22,626   |   |                  | $
|Net turnkey drilling contract revenue         |  |                    | (7,562   | ) |                  |  
|Equity in earnings                            |  |                    | 80,781   |   |                  |  
|                                              |  |                    |          |   |                  |  
|TOTAL OPERATING REVENUES                      |  |                    | 95,846   |   |                  |  
|                                              |  |                    |          |   |                  |  
|OPERATING COSTS AND EXPENSES:                 |  |                    |          |   |                  |  
|Lease operating expenses and production taxes |  |                    | 25,016   |   |                  |  
|Abandonment and dry hole costs                |  |                    | –        |   |                  |  
|Depreciation, depletion and amortization      |  |                    | 5,884    |   |                  |  
|Marketing costs                               |  |                    | 179,656  |   |                  |  
|General and administrative costs              |  |                    | 188,610  |   |                  |  
|                                              |  |                    |          |   |                  |  
|TOTAL OPERATING COSTS                         |  |                    | 399,167  |   |                  |  
|OPERATING INCOME (LOSS)                       |  |                    | (303,321 | ) |                  |  
|                                              |  |                    |          |   |                  |  
|OTHER INCOME (EXPENSE):                       |  |                    |          |   |                  |  
|Miscellaneous income                          |  |                    | –        |   |                  |  
|                                              |  |                    |          |   |                  |  
|NET INCOME (LOSS) BEFORE INCOME TAX           |  |                    | (303,321 | ) |                  |  
|                                              |  |                    |          |   |                  |  
|Income tax provision                          |  |                    | –        |   |                  |  
|                                              |  |                    |          |   |                  |  
|NET INCOME (LOSS)                             |  | $                  | (303,321 | ) |                  | $
|                                              |  |                    |          |   |                  |  
|                                              |  |                    |          |   |                  |  
|NET INCOME (LOSS)  PER COMMON SHARE - BASIC   |  | $                  | (0.31    | ) |                  | $
|                                              |  |                    |          |   |                  |  
|NET INCOME (LOSS) PER COMMON SHARE - DILUTED  |  | $                  | (0.31    | ) |                  | $
|                                              |  |                    |          |   |                  |  
|Weighted average common shares outstanding -  |  |                    |          |   |                  |  
|Basic                                         |  |                    | 990,036  |   |                  |  
|                                              |  |                    |          |   |                  |  
|Diluted                                       |  |                    | 990,036  |   |                  |  



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





2











BAYOU CITY EXPLORATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)



|                                                             |  | Six Months Ended June 30, |          
|------------------------------------------------------------ |  | ------------------------- | ---------
|                                                             |  | 2012                      |          
|CASH FLOW FROM OPERATING ACTIVITIES:                         |  |                           |          
|                                                             |  |                           |          
|Net Income (Loss)                                            |  | $                         | 431,017  
|Adjustments to reconcile net income (loss) to net cash flows |  |                           |          
|Provided by operating activities:                            |  |                           |          
|Depreciation, depletion, and amortization                    |  |                           | 33,873   
|Stock issued for services                                    |  |                           | 22,500   
|Change in operating assets and liabilities:                  |  |                           |          
|Accounts receivable - trade                                  |  |                           | (10,477  
|Accounts payable and accrued liabilities                     |  |                           | (138,420 
|Net turnkey partnership obligation                           |  |                           | 183,855  
|                                                             |  |                           |          
|NET CASH PROVIDED BY OPERATING ACTIVITIES                    |  |                           | 522,348  
|                                                             |  |                           |          
|CASH FLOW FROM INVESTING ACTIVITIES:                         |  |                           |          
|Purchase of oil and gas properties                           |  |                           | (4,568   
|Purchase of investments                                      |  |                           | (209,945 
|                                                             |  |                           |          
|NET CASH (USED IN) INVESTING ACTIVITIES                      |  |                           | (214,513 
|                                                             |  |                           |          
|CASH FLOWS FROM FINANCING ACTIVITIES:                        |  |                           |          
|Proceeds from issuing stock                                  |  |                           | 327,500  
|                                                             |  |                           |          
|NET CASH PROVIDED BY FINANCING ACTIVITIES                    |  |                           | 327,500  
|                                                             |  |                           |          
|NET INCREASE IN CASH                                         |  |                           | 635,335  
|                                                             |  |                           |          
|CASH AT BEGINNING OF PERIOD                                  |  |                           | 1,259,934
|                                                             |  |                           |          
|CASH AT END OF PERIOD                                        |  | $                         | 1,895,269
|                                                             |  |                           |          
|SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:            |  |                           |          
|                                                             |  |                           |          
|Cash paid for interest                                       |  | $                         | –        
|                                                             |  |                           |          
|Cash paid for federal income taxes                           |  | $                         | –        



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





3







BAYOU CITY
EXPLORATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)



|1. | BASIS OF PRESENTATION
|-- | ---------------------



The financial statements
of Bayou City Exploration, Inc. (the “Company”) included herein have been prepared, without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission (“SEC”). Although certain information normally included
in financial statements prepared in accordance with accounting principles generally accepted in the United States has been omitted,
the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these
financial statements be read in conjunction with the financial statements and the notes thereto included in the Form 10-K of the
Company for its fiscal year ended December 31, 2011 and subsequent filings with the SEC.



The financial statements
included herein reflect all adjustments (consisting only of normal recurring accruals) which, in the opinion of management, are
necessary to present a fair statement of the results for the interim periods. The results for interim periods are not necessarily
indicative of trends or of results to be expected for a full year.



|2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|-- | ------------------------------------------



Revenue Recognition



The Company recognizes
revenues for its working interests in oil and gas properties on the basis of the Company’s net revenue interests as oil and
gas is produced and sold by the operators of those properties. The Company’s share of revenues, net of related production
and other related costs, are generally remitted to the Company monthly, with a one or two month delay, and are accompanied by joint
interest billing statements detailing production amounts and related revenues and expenses.



The Company recognizes
net turnkey drilling revenue under a turnkey contract agreement between the Company and the limited partnerships. The revenue is
recognized after the completion of the project.



Accounts Receivable



Accounts receivable
are from oil and gas sales produced and sold during the reporting period but awaiting cash payment, from expenditures paid on behalf
of the limited partnerships, from expenditures on behalf of non-operators, including related parties and on oil and gas properties
operated by the Company. Based upon a review of trade receivables as of June 30, 2012, a total of $0 was considered potentially
uncollectible.



Managed Limited Partnerships



The Company sponsors
limited partnerships for which it serves as the Managing General Partner. The Company normally participates for 10% of the limited
partnerships as the Managing General Partner and accounts for the investment under the equity method. Revenues received and changes
in the partnership investments are recorded as oil and gas revenues and net assets, respectively.



Consolidation Policy



The financial statements
include the accounts of the Company and its wholly owned subsidiary, Rivergreen Financial Group, LLC.



The Company consolidates
its interest in joint ventures and partnerships in the oil and gas industry using the ‘proportionate consolidation’
method provided for in Accounting Standards Codification (ASC) Topic 810-10-45-14, Consolidation – Other Presentation
Matters.   A proportionate consolidation is permitted when the Company does not control the joint venture or partnership
but nonetheless exercises significant influence.  Under this method, the Company recognizes their proportionate share of each
partnership’s assets, liabilities, revenues and expenses which are included in the appropriate classifications on the Company’s
consolidated financial statements.



All significant intercompany
transactions of its consolidated subsidiary and the limited partnerships are eliminated.





4







Investments in Debt Securities



Debt securities consist
of mortgage notes receivable that management has the intent and ability to hold for the foreseeable future or until maturity are
reported at amortized cost. Interest income is accrued based on the unpaid principal balance. The allowance for uncollectible mortgages,
provided as necessary, is based upon management’s estimate of probably losses which have occurred as of the balance sheet
date based on management’s evaluation of risk in the loan portfolio. Loan losses are charged against the allowance when management
believes the uncollectbility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The
allowance for uncollectible mortgages is evaluated on a quarterly basis by management and is based upon management’s periodic
review of the collectability of the loans, historical collection information, and existing economic conditions. Delinquent mortgage
note receivables are written off based on an individual credit evaluation and the specific circumstances of the debtor.



Investment in Unconsolidated Affiliate Company



The Company owns a
non-controlling interest in an affiliated entity that predominately provides mortgage services primarily in Midwest and Southeast
areas of the United States. The net carrying amount of the investment in unconsolidated affiliate company was $80,781 at June 30,
2012. The Company accounts for the investment in which it holds a significant interest but does not have controlling influence,
under the equity method of accounting pursuant to ASC Topic 323-30-35, Investments – Equity Method and Joint Ventures.
The Company evaluates its equity method investments for impairment whenever events or changes in circumstances indicate that the
carrying amounts of such investments may not be recoverable. The differences between the carrying amounts and the estimated fair
values of equity method investments are recognized as an impairment loss when the loss is deemed to be other than temporary.



Oil and Gas Properties



The Company follows
the successful efforts method of accounting for oil and gas producing activities. Under the successful efforts method of accounting,
costs which relate directly to the discovery of oil and gas reserves are capitalized. These capitalized costs include:



| | (1) | the costs of acquiring mineral interest in properties,
| | --- | ------------------------------------------------------



| | (2) | costs to drill and equip exploratory wells that find proved reserves,
| | --- | ---------------------------------------------------------------------



| | (3) | costs to drill and equip development wells, and
| | --- | -----------------------------------------------



| | (4) | costs for support equipment and facilities used in oil and gas producing
activities.
| | --- | ------------------------------------------------------------------------------------



These costs are depreciated,
depleted or amortized on the unit of production method, based on estimates of recoverable proved developed oil and gas reserves.
Costs to drill exploratory wells that do not find proved reserves, geological and geophysical costs, and costs of carrying and
retaining unproved properties are expensed.



The costs of acquiring
unproved properties are capitalized as incurred and carried until the property is reclassified as a producing oil and gas property,
or considered impaired as discussed below. The Company annually assesses its unproved properties to determine whether they have
been impaired. If the results of this assessment indicate impairment, a loss is recognized by providing a valuation allowance.
When an unproved property is surrendered, the costs related thereto are first charged to the valuation allowance, with any additional
balance expensed to operations.



The costs of drilling
exploratory wells are capitalized as wells in progress pending determination of whether the well has proved reserves. Once a determination
is made, the capitalized costs are charged to expense if no reserves are found or, otherwise reclassified as part of the costs
of the Company’s wells and related equipment. In the absence of a determination as to whether the reserves that have been
found can be classified as proved, the costs of drilling such an exploratory well are not carried as an asset for more than one
year following completion of drilling. If, after a year has passed, the Company is unable to determine that proved reserves have
been found, the well is assumed to be impaired and its costs are charged to expense. At June 30, 2012 and December 31, 2011
the Company had $0 in capitalized costs pending determination.



Other Dispositions



Upon disposition or
retirement of property and equipment other than oil and gas properties, the cost and related accumulated depreciation are removed
from the accounts and the gain or loss thereon, if any, is credited or charged to expense. The Company recognizes the gain or loss
on the sale of either a part of a proved oil and gas property or of an entire proved oil and gas property constituting a part of
a field upon the sale or other disposition of such. The unamortized cost of the property or group of properties, a part of which
was sold or otherwise disposed of, is apportioned to the interest sold and interest retained on the basis of the fair value of
those interests.





5







Impairment of Long-Lived Assets



The Company follows
the provisions of ASC Subtopic 360-35, “Property, Plant and Equipment – Subsequent Measurement.” Consequently,
the Company reviews its long-lived assets to be held and used, including oil and gas properties accounted for under the successful
efforts method of accounting. Whenever events or circumstances indicate the carrying value of those assets may not be recoverable,
an impairment loss for proved properties and capitalized exploration and development costs is recognized. The Company assesses
impairment of capitalized costs, or carrying amount, of proved oil and gas properties by comparing net capitalized costs to undiscounted
future net cash flows on a field-by-field basis using known expected prices, based on set agreements. If impairment is indicated
based on undiscounted expected future cash flows, then impairment is recognizable to the extent that net capitalized costs exceed
the estimated fair value of the property. Fair value of the property is estimated by the Company using the present value of future
cash flows discounted at 10%, in accordance with ASC 932-235, “Disclosures about Oil and Gas Producing Activities.”



Stock Options



Effective January 1,
2006, the Company accounts for stock options in accordance with revised Statement of Financial Accounting Standards (SFAS) No. 123,
Share-Based Payment(SFAS 123(R) (ASC 718 and 505). Accordingly, stock compensation expense has been recognized in the statements
of operations based on the grant date fair value of the options for the period ended December 31, 2006 and thereafter.



Under SFAS 123(R) (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 option 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. The Company has several awards that provide for graded vesting. The
Company recognizes 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.



Concentrations of Credit Risk Arising From Cash Deposits
in Excess of Insured Limits



The Company maintains
its cash balances in one financial institution located in Bowling Green, Kentucky. The account the cash balance reflects is insured
by the Federal Deposit Insurance Corporation (“FDIC”) for an unlimited amount since it meets the FDIC’s requirements
as a noninterest-bearing account. At June 30, 2012 the cash balances were at $1,895,269.



Offering Related Expenses



The Company expenses
marketing-related offering expenses as these are incurred. Marketing expenses totaled $254,074 and $81,461 in the six months ended
June 30, 2012 and 2011, respectively.



Fair Value of Financial Instruments



The carrying cash value
and cash equivalents, receivables, prepaids, accounts payable, notes payable and advances payable approximate their fair value.
Management is of the opinion that the Company is not exposed to significant interest or credit risk arising from these financial
instruments.



|3. | CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
|-- | ----------------------------------------------------



Sale of Common Stock to Related Parties



On March 8, 2012, the
Company entered into a Stock Purchase Agreement with eight investors (the “Investors”), pursuant to which the Company
sold 700,000 shares (as adjusted to retroactively reflect the Reverse Split more fully described in Note 6. STOCKHOLDERS’
EQUITY) of the Company’s common stock, $0.005 par value (the “Common Stock”) in a private offering (the “Offering”)
at a price of $0.005 per share, for total consideration to the Company valued at $350,000.  The Investors included Charles
T. Bukowski, Jr., the Company’s President and Chief Executive Officer, as well as a member of the Company’s Board of
Directors (the “Board”), Travis N. Creed, a member of the Board, Stephen C. Larkin, the Company’s Chief Financial
Officer and a member of the Board, Robert D. and Doris R. Burr, the Company’s former Chief Executive Officer and his spouse,
Danny Looney, the Company’s tax accountant, Harry J. Peters, a consultant to the Company, Robert Shallow, a current stockholder
and G2 International, Inc., a consultant to the Company. Of the $350,000, $327,500 was collected in cash and $22,500 was exchanged
for consulting services.





6







As of June 30, 2012,
there were 990,176 shares of common stock issued and outstanding (as adjusted to retroactively reflect the Reverse Split more fully
described in Note 6. STOCKHOLDERS’ EQUITY). Stephen C. Larkin, Director and Chief Financial Officer of the Company, beneficially
owns approximately 27.06% of the issued and outstanding Common Stock as a result of his purchase in the Offering.



Payables and Notes Payable to Related Parties



As of June 30, 2012
and December 31, 2011, the Company had the following debts and obligations to related parties:



|                                             |  | June 30, 2012 |         |  | December 31, 2011 |  
|-------------------------------------------- |  | ------------- | ------- |  | ----------------- | -
|                                             |  |               |         |  |                   |  
|Note Payable to a minority shareholder       |  | $             | 100,000 |  |                   | $
|                                             |  |               |         |  |                   |  
|Total Note Payable to a minority shareholder |  | $             | 100,000 |  |                   | $



During the fourth quarter
2007, Peter Chen, a minority shareholder, loaned the Company $100,000 to finance the Company’s operations. The Company executed
a written promissory note on October 4, 2007 which is due on demand and bears an interest rate of 0%.



|4. | OIL AND GAS PROPERTIES
|-- | ----------------------



Oil and Gas properties, stated at cost,
consisted of the following:



|                                                   |  | June 30, 2012 |          |   | December 31, 2011 |  
|-------------------------------------------------- |  | ------------- | -------- | - | ----------------- | -
|Proved oil and gas properties                      |  | $             | 158,470  |   |                   | $
|Investment in partnerships                         |  |               | 440,833  |   |                   |  
|Investment in undeveloped leases in Illinois Basin |  |               | 190,000  |   |                   |  
|                                                   |  |               |          |   |                   |  
|Total oil and gas properties                       |  |               | 789,303  |   |                   |  
|                                                   |  |               |          |   |                   |  
|Less accumulated depletion and amortization        |  |               | (403,459 | ) |                   |  
|Less impairment                                    |  |               | –        |   |                   |  
|Net oil and gas properties                         |  | $             | 385,844  |   |                   | $



|5. | COMMITMENTS AND CONTINGENCIES
|-- | -----------------------------



Commitments



As of June 30, 2012,neither the Company nor any of its properties is subject to any material pending legal proceedings.



Contingencies



As the managing general
partner of the Company’s investment partnerships, the Company’s operations are subject to environmental protection
regulations established by federal, state, and local agencies that may necessitate significant capital outlays that, in turn, would
materially affect the financial position and business operations of the Company. These regulations, enacted to protect against
waste, conserve natural resources and prevent pollution, could necessitate spending funds on environmental protection measures,
rather than on drilling operations. Because these laws and regulations change frequently and are becoming increasingly more stringent,
the costs to the Company of compliance with existing and future environmental regulations and the overall impact on the Company’s
operations or financial condition cannot be predicted, but are likely to increase. Furthermore, if any penalties or prohibitions
were imposed on the Company for violating such regulations, the Company’s operations could be adversely affected.



7







|6. | STOCKHOLDERS’ EQUITY
|-- | --------------------



Authorization to Issue Shares —
Preferred and Common



The Company is authorized
to issue two classes of stock that are designated as common and preferred stock. As of June 30, 2012, the Company was authorized
to issue 155,000,000 shares of stock, 150,000,000 being designated as Common Stock of which 990,036 were outstanding (as adjusted
to retroactively reflect the Reverse Split more fully described in Note 6. STOCKHOLDERS’ EQUITY), and 5,000,000 shares designated
as preferred stock, of which 0 shares were outstanding.



Issuance of Equity Securities



As described in Note
3 above, on March 8, 2012, the Company conducted a private Offering pursuant to which the Company sold 700,000 shares (as adjusted
to retroactively reflect the Reverse Split more fully described in Note 6. STOCKHOLDERS’ EQUITY) of the Company’s Common
Stock for total consideration to the Company valued at $350,000.   The consideration for the Common Stock was paid primarily
in cash, however, the shares issued to one Investor were issued in exchange for settlement of outstanding invoices for consulting
services rendered.



Stock Options



During the three months
ended June 30, 2012, the Company did not issue any options to purchase shares of the Company’s Common Stock, and no outstanding
options were exercised during this period.



Reverse Split of Common Stock



On June 26, 2012, the
Company’s Board unanimously adopted resolutions declaring the advisability of, and recommending that stockholders approve,
an amendment to the Company’s Articles of Incorporation (the “Amendment”) to effect a 1-for-100 reverse split
of the issued and outstanding shares of the Company’s Common Stock (the “Reverse Split”). In connection with
the adoption of this resolution, the Board elected to seek the written consent of the holders of a majority of the Company’s
issued and outstanding shares of Common Stock in order to reduce the costs and implement the proposals in a timely manner.



On June 26, 2012, shareholders
holding 55,560,905 shares of the Company’s issued and outstanding Common Stock (approximately 56.1%), consented in writing
to the proposed Amendment:



The Reverse Split was
effective on July 26, 2012, all issues and outstanding stock and per share amounts included in the financial statements have been
retroactively adjusted to reflect the reverse stock split.



SUBSEQUENT EVENTS.



|7. | SUBSEQUENT EVENTS
|-- | -----------------



Subsequent to the six
months ended June 30, 2012, the Company effected the Reverse Split more fully described in Note 6. STOCKHOLDERS’ EQUITY.
The Reverse Split resulted in the number of issued and outstanding shares of common stock of the Company decreasing from 99,003,633
to 990,176.





8







ITEM 2. MANAGEMENT’S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



We urge you to read
the following discussion in conjunction with management’s discussion and analysis of financial condition and results of operations
contained in our Annual Report on Form 10-K for the year ended December 31, 2011 as well as with our condensed consolidated financial
statements and the notes thereto included elsewhere herein.



Caution Regarding Forward-Looking Statements



Our prospects are subject
to uncertainties and risks. In this Quarterly Report on Form 10-Q, we make forward-looking statements in this Item 2 and elsewhere
that also involve substantial uncertainties and risks. These forward-looking statements are based upon our current expectations,
estimates and projections about our business and our industry, and reflect our beliefs and assumptions based upon information available
to us at the date of this report. In some cases, you can identify these statements by words such as “if,” “may,”
“might,” “will, “should,” “expects,” “plans,” “anticipates,”
“believes,” “estimates,” “predicts,” “potential,” “continue,” and other
similar terms. These forward-looking statements include, among other things, projections of our future financial performance and
our anticipated growth, descriptions of our strategies, and other objectives, expectations and intentions, the trends we anticipate
in our business and the markets in which we operate, and the competitive nature and anticipated growth of those markets.



We caution readers
that forward-looking statements are predictions based on our current expectations about future events. These forward-looking statements
are not guarantees of future performance and are subject to risks, uncertainties and assumptions that are difficult to predict.
Our actual results, performance or achievements could differ materially from those expressed or implied by the forward-looking
statements as a result of a number of factors, including but not limited to the risks and uncertainties discussed in our other
filings with the SEC or changes in costs associated with our operations. We undertake no obligation to revise or update any forward-looking
statement for any reason.



Overview



Bayou City Exploration,
Inc., (the “Company”), a Nevada corporation, was organized in November 1994, as Gem Source, Incorporated, and subsequently
changed its name to Blue Ridge Energy, Inc. in May 1996. In September 2005, the Company changed its name again to Bayou
City Exploration, Inc. The Company’s corporate headquarters are located at 632 Adams Street, Suite 700, Bowling Green,
Kentucky 42101.



The Company is engaged
in the oil and gas business, and primarily operates in the gulf coast of Texas, East Texas, South Texas and Louisiana. During 2010,
the Company changed its core business strategy. The Company’s primary focus is now the management of partnerships that are
created to explore and develop oil and gas reserves. Pursuant to the current business plan, the Company manages partnerships that
purchase interests in exploratory wells as well as interests in producing oil and gas properties with undrilled reserves. This
growth strategy is based on selling partnership interests to third party investors who will essentially assume the costs associated
with the drilling of wells in exchange for interests in a partnership that holds working interest in the wells they finance. The
Company acts as the Managing General Partner for these partnerships, typically maintains a 10% interests in such partnerships,
and may also maintain a working interest position outside of the partnership in each program, for which we pay our proportionate
share of the actual cost of drilling, testing, and completing the program well(s) and subsequent operating expenses to the extent
that we retain a portion of the working interest. The Company believes this strategy will reduce of financial risk for the Company
in drilling new wells, while still receiving income from present production in addition to income from any new successful new drilling.



When the Company undertakes
a drilling project, a calculation is made to estimate the costs associated with drilling the well(s). The Company then forms and
sells units in a partnership that will acquire working interest in the well(s) and undertake drilling operations. The Company typically
enters into turnkey contracts with the partnerships it manages, pursuant to which we agree to undertake the drilling and completion
of the partnerships’ well(s), for a fixed price, to a specific formation or depth. As such, each partnership essentially
prepays a fixed amount for the drilling and completion of a specified number of wells that the Company records as revenue.



As of June 30, 2012,
the Company had total assets of $2,545,880, total liabilities of $1,128,647 and stockholders’ equity of $1,417,233. The Company
had a net income of $431,017 for the six months ended June 30, 2012 compared to a net loss of $451,830 during the six months ended
June 30, 2011. The net income per common share was $0.61 per share during the six months ended June 30, 2012 as compared to net
loss per common share of ($1.56) during the same period in 2011. All per share data in this report has been adjusted to give effect
to applicable stock issues and conversions.



All of the Company’s
periodic report filings with the SEC pursuant to Section 13 or 15(d) of the Securities and Exchange Act of 1934, as amended,
are available through the SEC web site located at www.sec.gov, including our annual report on Form 10-K, quarterly reports on Form
10-Q, current reports on Form 8-K and any amendments to those reports. The Company will also make available to any stockholder,
without charge, copies of its Annual Report on Form 10-K as filed with the SEC and a copy of its Code of Ethics. For copies of
this, or any other filings, please contact: Stephen C. Larkin at Bayou City Exploration, Inc., 632 Adams Street — Suite 700,
Bowling Green, Kentucky 42101 or call (800) 798-3389.





9









Formation of Investment Partnerships



During the three months
ended June 30, 2012, the Company served as the managing general partner of eight limited partnerships formed for the purpose of
oil and gas exploration and drilling. The Company has entered into turnkey agreements with each of the partnerships pursuant to
which it receives turnkey fees for drilling the partnerships’ wells and, if applicable, completing the wells (the “Turnkey
Fees”).



The 2011 Bayou City
Two Well Drilling Program, L.P. (the “2011 Drilling Program”) was formed in Kentucky on January 10, 2011 and planned
to acquire up to a 2.125% working interest in two oil and gas wells known as the Miller Prospect Well and the Squeeze Box Prospect
Well in Colorado County, Texas. The Company has acquired a 1.78% working interest in the wells. The Company paid for and holds
a 10% interest in this partnership and receives Turnkey Fees equal to the excess, if any, of the Turnkey Fees over the total cost
to the Company of drilling and if applicable, completing the partnership wells. At June 30, 2012, the Company had received $327,750
in Turnkey Fees associated with the 2011 Drilling Program. The Company realized a profit of $197,253 from the Turnkey Fees received
as of June 30, 2012.



The 2011-B Bayou City
Two Well Drilling Program, L.P. (the “2011-B Drilling Program”) was formed in Kentucky on March 4, 2011 to acquire
a 5% working interest in two oil wells, the Friesian Prospect, located in Colorado County, Texas and the Little Chenier Well, located
in Cameron Parish, Louisiana. The Company paid for and holds a 10% interest in this partnership and receives management fees equal
to the excess, if any, of the Turnkey Fees over the total cost to the Company of drilling and if applicable, completing the partnership
wells. At June 30, 2012, the Company had received $818,289 in Turnkey Fees associated with the 2011-B Drilling Program. The Company
realized a profit of $457,758 from the Turnkey Fees received as of June 30, 2012.



The 2011 Bayou City
Drilling & Production Program, L.P. (the “Drilling and Production Program”) was formed on March 18, 2011 to acquire
a 2.875% working interest in the same two wells as the 2011 Drilling Program. The Company paid for and holds a 10% interest in
this partnership and receives management fees equal to the excess, if any, of the Turnkey Fees over the total cost to the Company
of drilling and if applicable, completing the partnership wells. At June 30, 2012, the Company had received $529,000 in Turnkey
Fees associated with the Drilling and Production Program. The Company realized a profit of $343,677 from the Turnkey Fees received
as of June 30, 2012.



The 2011-C Bayou City
Offset Drilling Program, L.P. (the “2011-C Drilling Program”) was formed in Kentucky on April 12, 2011 to acquire
a 5% working interest in the Glasscock Ranch Prospect Well, or Kleimann #1 Well, located in Colorado County, Texas. The Company
ended up only acquiring a 2.625% working interest in the Kleimann #1 Well. The Company paid for and holds a 10% interest in this
partnership and receives management fees equal to the excess, if any, of the Turnkey Fees over the total cost to the Company of
drilling and if applicable, completing the partnership well. At June 30, 2012, the Company had received $234,938 in Turnkey Fees
associated with the 2011-C Drilling Program. The Company realized a profit of $137,865 from the Turnkey Fees received as of June
30, 2012.



The 2011-D Bayou City
Two Well Drilling Program, L.P. (the “2011-D Drilling Program) was formed in Kentucky on May 10, 2011 to acquire a 5%
working interest in the Prairie Bell West Prospect Well and the Prairie Bell East Prospect Well located in Colorado County, Texas.
The Company paid for and holds a 10% interest in this partnership and receives Turnkey Fees equal to the excess, if any, of the
Turnkey Fees over the total cost to the Company of drilling and if applicable, completing the partnership wells. At June 30, 2012,
the Company had received $949,924 in Turnkey Fees associated with the 2011-D Drilling Program. The Company realized a profit of
$524,958 from the Turnkey Fees received as of June 30, 2012.



The 2011 Bayou City
Year End Drilling Program, L.P. (“2011 Year End Program”) was formed in Kentucky on September 13, 2011 to acquire
a 6.48% working interest in the Loma Blanca Well located in Brooks County, Texas. The Company paid for and holds a 10% interest
in this partnership and receives management fees equal to the excess, if any, of the Turnkey Fees over the total cost to the Company
of drilling and if applicable, completing the partnership wells. At June 30, 2012, the Company had received $1,801,500 in Turnkey
Fees associated with the 2011 Year End Program. The Company realized a profit of $956,462 from the Turnkey Fees received as of
June 30, 2012.



The 2012-A Bayou City
Year Drilling Program, L.P. (“2012-A Program”) was formed in Kentucky on December 13, 2011 to acquire a 8.33%
working interest in the Altair Well located in Colorado County, Texas. The Company paid for and holds a 10% interest in this partnership
and receives management fees equal to the excess, if any, of the Turnkey Fees over the total cost to the Company of drilling and
if applicable, completing the partnership wells. At June 30, 2012, the Company had received $1,500,000 in Turnkey Fees associated
with the 2012-A Year End Program. The Company has not realized a profit as of June 30, 2012.



The 2012 Bayou City
Squeezebox Offset Program, L.P. (“2012 Squeezebox Offset”) was formed in Kentucky on March 13, 2012 to acquire
a 5% working interest in the Squeezebox Shallow well located in Cameron Parrish, Louisiana. The Company paid for and holds a 10%
interest in this partnership and receives management fees equal to the excess, if any, of the Turnkey Fees over the total cost
to the Company of drilling and if applicable, completing the partnership wells. At June 30, 2012, the Company had received $351,500
in Turnkey Fees associated with the 2012 Squeezebox Offset program. To date the Company has raised 2.08% working interest and does
not plan to sell anymore interest in the well. The Company has not realized a profit as of June 30, 2012.



10







Description of Properties



The following are the
primary properties held by the Company as of June 30, 2012:



Developed Properties



Chapman No. 75-1: The Company owns
an 8% working interest in 1 well located in Nueces County, Texas, which began production in October 2009. The well produces approximately
28 thousand cubic feet of gas (“Mcf”) per day as of the date of this report.



Garcitas #1: The Company owns an
11.2% working interest in 1 well located in Jackson & Victoria County, Texas, which began production in March 2010. The well
produces approximately 11 barrels of oil (“Bbls”) per day as of the date of this report.



Rooke B-1: The Company owns a 9.5%
working interest in 1 well located in Refugio County, Texas, which began production in February 2010. The well produces approximately
455 Mcf and 11 Bbls per day as of the date of this report.



Rooke #2:The Company owns a 9.5%
working interest in 1 well located in Refugio County, Texas, which began production in May 2010. The well produces approximately
12 Bbls per day as of the date of this report.



Miller A-1: The Company owns a 0.81%
working interest in the Miller A-1, a gas well is located in Colorado County, Texas, which began production in August 2011. The
well is currently being recompleted and is not producing as of the date of this report.



Kleimann #1: The Company owns a
0.26% working interest in the Kleimann #1, a well located in Colorado County, Texas, which began production in March 2012. The
well is currently producing approximately 357 Mcf and 17 Bbls per day as of the date of this report.



Squeeze Box: The Company owns a
0.78% working interest in the Squeezebox well, a gas well located in Cameron Parish, Louisiana, which began production in November
2011. The well produces approximately 1,697 Mcf and 12 Bbls per day as of the date of this report.



Little
Chenier:The Company owns a 0.50% working interest in the Little Chenier well, a gas well located
in Cameron Parish, Louisiana. The well produces approximately 65 Mcf and 9 Bbls per day as of the date of this report.



Prairie
Bell East:The Company owns a 0.49% working interest in the Prairie Bell East well, a gas well
located in Colorado County, Texas, which began production in February 2012. The well produces approximately 2,341 Mcf and 105 Bbls
per day as of the date of this report.



Prairie
Bell West:The Company owns a 0.49% working interest in the Prairie Bell West well, which is located
in Colorado County, Texas. A pipeline is currently being built to get the gas to sales, and production is expected to begin by
the end of July 2012.



Loma
Blanca:The Company owns a 0.59% working interest in the Loma Blanca well, which well is located
in Brookes County, Texas. Completion procedure for the well is currently being designed.



Key Undeveloped Properties



On August 29, 2011,
the Company invested $190,000 and entered into the Next Energy Illinois Basin Oil & Gas Lease Development JV (“Next Energy
JV”), a joint venture with Next Energy, LLC and other industry participants to evaluate, test and purchase mineral leases
in the Illinois Basin. The venture is targeting up to 300,000 net acres of oil and gas leases. The investment entitles the Company
to a 0.005% interest in the joint venture. The Company does not own a direct interest in any of the acreage, but rather an interest
in a joint venture that holds undeveloped acreage.



Critical Accounting Policies



Since the Company filed
its Annual Report on Form 10-K for the fiscal year ended December 31, 2011, there have been no changes to the Company’s Critical
Accounting Policies.



11







Results of Operations



Comparison of Three Month Periods Ended June 30, 2012
and June 30, 2011



The
Company had a net loss of $303,321 for the three months ended June 30, 2012 compared to a net loss of $253,398 for the same period
in 2011. The income per common share was ($0.31) during the second quarter of 2012 compared to a loss per common share of
($0.87) during the second quarter of 2011. The increase in net loss in the second quarter of 2012 was primarily the result of an
increase in marketing costs offset by an increase in operating revenue. Expenses from the second quarter of 2011 to the second
quarter of 2012 include a $108,463 increase in marketing costs, a $27,152 increase in general and administrative costs, a $19,265
decrease in depreciation, depletion and amortization expense, a $16,140 increase in lease operating expenses and production taxes,
and a $22,609 decrease in abandonment and Dryhole costs.



Operating Revenues



The Company’s
operating revenues increased $59,959 in the three months ended June 30, 2012 as compared to the
same period in 2011. This significant increase was primarily a result of $80,781 income from related companies, whereas no such
revenue was realized during the same period in 2011. In addition, operating revenues also decreased $13,261 from the first quarter
of 2011 to the first quarter of 2012 as a result of oil and gas sales by the partnerships managed by the Company. This decrease
was largely due to several wells undergoing recompletion procedures during this time period, so less revenue was received.



Operating Costs and Expenses



The Company’s
total operating costs increased $109,882 from three months ended June 30, 2011 compared to the
three months ended June 30, 2012. The rise in total costs was a result of marketing costs increasing
$108,463, resulting from an increase in the amount of interest sold in the Company’s managed limited partnerships during
the second quarter of 2012 as compared to a lesser amount in 2011.



Direct operating costs
are reflected as lease operating expenses and production taxes on the Company’s statement of operations and were $25,016
for the three months ended June 30, 2012 as compared to $8,876 during the three months ended
June 30, 2011. These costs increased $16,140 during the period because the Company had two wells
had completion procedures performed which increase the expense accordingly.



The Company’s
general and administrative expenses increased to $188,610 for the second quarter 2012 as compared to $161,458 for the second quarter
of 2011. Auditing fees increased significantly for the three months ended June 30, 2012 as compared to June 30, 2011. The increase
of $32,058 was attributable to an increased complexity of the Company’s SEC filings for year-end 2011 and the first quarter
of 2012.



Comparison of the Six Month Periods
Ended June 30, 2012 and June 30, 2011



The
Company had a net income of $431,017 for the six months ended June 30, 2012 compared to a net loss of $451,830 for the same period
in 2011. The income per common share was $0.61 during the first half of 2012 compared to a loss per common share of ($1.56)
during the same period of 2011. The increase in net income in the first half of 2012 was primarily the result of net income from
recognizing turnkey income from limited partnerships the Company manages, offset slightly by increases in operating costs and expenses.
Expenses from the first half of 2011 to the first half of 2012 include a $172,613 increase in marketing costs, an $18,121 decrease
in general and administrative costs, a $21,711 decrease in depreciation, depletion and amortization expense, a decrease of $22,699
in abandonment and dry hole costs, and a $22,955 increase in lease operating expenses and production taxes.



Operating Revenues



The Company’s
operating revenues increased $1,015,884 in the six months ended June 30, 2012 as compared to the same period in 2011. This significant
increase was primarily a result of $926,951 of net turnkey drilling contract revenue during the second quarter of 2012, whereas
no such revenue was realized during the same period in 2011. In addition, operating revenues also increased $18,152 from the first
six months of 2011 to the first six months of 2012 as a result of oil and gas sales by the partnerships managed by the Company.
This increase was largely due to the fact that the Company received revenues from wells it managed during the first six months
of 2012 that it did not hold an interest in during the six months ended June 30, 2011.



12







Operating Costs and Expenses



The Company’s
total operating costs increased $133,037 from six months ended June 30, 2011 compared to the six months ended June 30, 2012. The
rise in total costs was primarily a result of the increase in $172,613 in marketing costs which is from an increased amount of
turnkey fees received during the six month period as compared with 2011.



Direct operating costs
are reflected as lease operating expenses and production taxes on the Company’s statement of operations and were $44,132
for the six months ended June 30, 2012 as compared to $21,177 during the six months ended June 30, 2011. These costs increased
$22,955 during the period because the Company owned interests in eight oil and gas wells that were in operation during the six
months of 2012, whereas during the same period in 2011, the Company only held interest in four operating wells in which reserves
are depleting.



The Company’s
general and administrative expenses decreased to $326,830 for the first six months 2012 as compared to $344,951 for the first six
months of 2011. Legal fees for the period decreased from $57,444 in 2011 to $24,022 in 2012, however, that decrease in expense
was offset by an increase in office rent in the amount of $4,929 and accounting fees in the amount of 8,830. Depreciation, depletion
and amortization costs also decreased by $21,711 during the six months ended June 30, 2012. The increase of $172,613 in marketing
expenses increased contract labor provided to produce the turnkey fees obtained.



Balance Sheet Review



Assets: The
Company’s total assets increased $826,452 from $1,719,428 for the year ended December 31, 2011 to $2,545,880 for the period
ended June 30, 2012. The primary reason for the increase in assets was due to the $635,335 increase in the Company’s cash
during the period, which was attributable to income from turnkey fees and the proceeds from the sale of its Common Stock.



Liabilities:
The Company’s total liabilities increased $45,435 from $1,083,212 for the year ended December 31, 2011 to $1,128,647 for
the quarter ended June 30, 2012. The increase in liabilities was primarily a result of a decrease in accounts payable and accrued
expenses by $138,420 from $154,705 at year end to $16,285 at June 30, 2012, and a increase of $183,855 in net turnkey partnership
obligations owed by the Company at June 30, 2012 as compared to December 31, 2011.



Liquidity and Capital Resources



The Company’s
liquidity position has significantly improved as a result of the Company’s implementation of its current business plan, in
which the Company sponsors and serves as managing general partner of limited partnerships formed for the purpose of conducting
oil and gas exploration and production operations. As a result of its formation and sponsorship of such limited partnerships, the
Company has received turnkey drilling contract revenue in addition to revenues from oil and gas production. The Company intends
to continue to sponsor such partnerships and receive revenues from similar turnkey arrangements in order to fund its operations.
The Company’s ability to continue and maintain profitable operations is contingent upon its continued ability to sponsor
additional partnerships and earn turnkey fees. In addition, the Company believes it will continue to earn revenue from its direct
oil and gas holdings, including holdings from the oil and gas limited partnerships it manages. The total production capability
of the six currently producing wells and their cash flows is known, and diminishing. Revenues from currently producing wells will
not be sufficient to sustain the Company’s operations on a going forward basis. Based on the Company’s projected expenses,
we believe our current cash resources are sufficient to fund operations for at least the next twelve months.



As of June 30, 2012,
the Company’s cash balance was $1,895,269 and its liabilities totaled $1,128,647, which include $927,456 in partnership obligations
pursuant to its turnkey contracts with the partnerships it manages, as well as $16,285 in accounts payable and accrued expenses,
$84,906 in related party accounts payable, and $100,000 in a note payable to a minority shareholder.   Cash on hand at
June 30, 2012, was primarily from turnkey fees received from the partnerships the Company manages and cash provided by financing
activities, offset by costs associated with the purchase of oil and gas properties.



Net cash provided by
operating activities during the six months ended June 30, 2012 was $522,348. A $431,017 net income from the first six months of
2012 was primarily a result of the Company’s 2011 Year End Drilling Program turnkey fees being recognized as income. The
Company did not recognize income from turnkey fees during the comparable period of 2011. In addition, accounts payable and accrued
liabilities decreased by $52,618 during the period in comparison to the six months ended June 30, 2011. Net cash used in investing
activities was $214,513 during the six months ended June 30, 2012, which was a result of the purchase of oil and gas property and
other investments. In addition, the Company recognized $327,500 in cash proceeds from the issuance of 70,000,000 shares of its
Common Stock to eight investors in a private transaction. As a result of increases in cash from operating activities and financing
activities, offset by cash used in investing activities, the Company saw a $635,335 increase in cash during the period ended June
30, 2012.





13







Off Balance Sheet Arrangements



We do not have any
off balance sheet arrangements.



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK



The Company is a “smaller reporting
company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under
this Item.



ITEM 4. CONTROLS AND PROCEDURES



Evaluation of Disclosure Controls and
Procedures



The Company’s
principal executive officer and principal financial officer, conducted an evaluation with the participation of our management of
the effectiveness of the design and operation of the Company's disclosure controls and procedures (as such term is defined in Rules
13a-15(e) and 15d-15(e) promulgated under the Exchange Act) as of June 30, 2012, pursuant to Exchange Act Rule 13a-15. Such disclosure
controls and procedures are designed to ensure that information required to be disclosed by the Company is accumulated and communicated
to the appropriate management on a basis that permits timely decisions regarding disclosure. Based upon that evaluation, our principal
executive officer, our principal financial officer and our management concluded that the Company's disclosure controls and procedures
as of June 30, 2012 were effective to provide reasonable assurance that information required to be disclosed in the Company’s
periodic filings under the Exchange Act is accumulated and communicated to our management to allow timely decisions regarding required
disclosure.



Changes in Internal Control over Financial
Reporting



There
were no changes in our internal controls over financial reporting during our first six months ended June 30, 2012 that
have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.



Limitations on the Effectiveness of
Controls



Our disclosure controls
and procedures provide our principal executive officer and principal financial officer with reasonable assurances that our disclosure
controls and procedures will achieve their objectives. However, our management does not expect that our disclosure controls and
procedures or our internal control over financial reporting can or will prevent all human error. A control system, no matter how
well designed and implemented, can provide only reasonable, not absolute, assurance that the objectives of the control system are
met. Furthermore, the design of a control system must reflect the fact that there are internal resource constraints, and the benefit
of controls must be weighed relative to their corresponding costs. Because of the limitations in all control systems, no evaluation
of controls can provide complete assurance that all control issues and instances of error, if any, within our company are detected.
These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur
due to human error or mistake. Additionally, controls, no matter how well designed, could be circumvented by the individual acts
of specific persons within the organization. The design of any system of controls is also based in part upon certain assumptions
about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated objectives
under all potential future conditions.





14







PART II

OTHER INFORMATION



ITEM 1. LEGAL PROCEEDINGS



None.



ITEM 1A. RISK FACTORS



The Company is a “smaller reporting
company” as defined by Rule 12b-2 of the Exchange Act, and as such, is not required to provide the information required under
this Item.



ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS



There are no unreported sales of unregistered
securities during the quarter ended June 30, 2012.



ITEM 3. DEFAULTS UPON SENIOR SECURITIES



None.



ITEM 4. MINE SAFETY DISCLOSURES.



Not Applicable.



ITEM 5. OTHER INFORMATION



None.



ITEM 6. EXHIBITS



The following exhibits are filed with this
Quarterly Report on Form 10-Q or are incorporated by reference as described below.



|Exhibit | Description                                                                                              
|------- | ---------------------------------------------------------------------------------------------------------
|31.1    | Certification of Principal Executive Officer of Periodic Report pursuant to Rule 13a-14a/Rule 14d-14(a).*
|31.2    | Certification of Principal Financial Officer of Periodic Report pursuant to Rule 13a-14a/Rule 14d-14(a).*
|32.1    | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350.*                        
|32.2    | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350.*                        
|101.1   | Interactive data files pursuant to Rule 405 of Regulation S-T.*                                          
|101.INS | XBRL Instance Document*                                                                                  
|101.SCH | XBRL Schema Document*                                                                                    
|101.CAL | XBRL Calculation Linkbase Document*                                                                      
|101.DEF | XBRL Definition Linkbase Document*                                                                       
|101.LAB | XBRL Label Linkbase Document*                                                                            
|101.PRE | XBRL Presentation Linkbase Document*                                                                     



|* |  | Filed herewith.
|- |  | ---------------

|** |  | Pursuant to Rule 405(a)(2) of Regulation S-T, the Company will furnish the XBRL Interactive
Data Files with detailed footnote tagging as Exhibit 101 in an amendment to this Form 10-Q within the permitted 30-day grace period
granted for the first quarterly period in which detailed footnote tagging is required.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





15









SIGNATURES



Pursuant to the requirements
of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.



|                      | BAYOU CITY EXPLORATION, INC                                                                 
|--------------------- | --------------------------------------------------------------------------------------------
|                      |                                                                                             
|Date: August 14, 2012 | /s/ Charles T. Bukowski                                                                     
|                      | Charles T. Bukowski                                                                         
|                      | Chief Executive Officer and President (Principal Executive Officer and Authorized Signatory)
|                      |                                                                                             
|Date: August 14, 2012 | /s/ Stephen C. Larkin                                                                       
|                      | Stephen C. Larkin                                                                           
|                      | Chief Financial Officer (Principal Financial and Accounting Officer)                        











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