DAYBREAK OIL AND GAS, INC.

Southern San Joaquin Basin,
East Slopes Project
Kern County, California

Estimated Future Reserves
and Revenues 
As of March 1, 2011

SEC Guideline Case

(LONQUIST & CO. LLC LOGO)

---



Table of Contents

|                                        |                                           |                                   
|--------------------------------------- | ----------------------------------------- | ----------------------------------
|Letter of Transmittal                  
|                                        |                                           |                                   
|Areas of Interest Map                  
|                                        |                                           |                                   
|SEC Definitions of Oil and Gas Reserves
|                                        |                                           |                                   
|Reserve and Revenue Projections        
|                                        |                                           |                                   
|                                        | Summary by Reserve Classification        
|                                        |                                           |                                   
|                                        | One-Line Property Listing                
|                                        |                                           |                                   
|                                        |                                           | Ranked by Class, State and
 County
|                                        |                                           |                                   
|                                        |                                           | Ranked by Discounted Value        
|                                        |                                           |                                   
|                                        | Detailed Projections and Production Plots
|                                        |                                           |                                   
|                                        |                                           | Proved Developed Producing        
|                                        |                                           |                                   
|                                        |                                           | Proved Developed Non-Producing    
|                                        |                                           |                                   
|                                        |                                           | Proved Undeveloped                

---



|                        |  |                           |                           |                  
|----------------------- |  | ------------------------- | ------------------------- | -----------------
|AUSTIN                  |  | (LONQUIST & CO. LLC LOGO) |                           | HOUSTON          
|3345 Bee Cave Road      |  |                           | 1001
 McKinney           
|Suite 201               |  |                           | Suite
 420               
|Austin, Texas 78746 USA |  |                           | Houston,
 Texas 77002 USA
|Tel 512.732.9812        |  |                           | Tel
 713.559.9950        
|Fax 512.732.9816        |  | WWW.lonquist.com          |                           | Fax
 713.559.9959

April 19, 2011

Mr.
James F. Westmoreland
President & CEO
Daybreak Oil and Gas, Inc.
601 West Main Ave., Suite 1012
Spokane, WA 99201

| |     |                                                                                         
| | --- | ----------------------------------------------------------------------------------------
| | Re: | Daybreak
 Oil and Gas, Inc.
 1P Reserve Report 
 As of March 1, 2011
 SEC Guideline Case

Dear
Mr. Westmoreland:

Pursuant to your request, Lonquist & Co. LLC,
(L&Co) has estimated the future oil and gas Reserves and projected the
associated future revenues for certain properties owned by Daybreak Oil and
Gas, Inc. (Daybreak). The properties evaluated herein are located in Kern
County, California. At the request of Daybreak, we have evaluated Proved
Developed Producing (PDP), Proved Developed Non-Producing (PDNP), and
Proved Undeveloped (PUD) Reserves.

Effective
March 1, 2011, our conclusions are as follows:

|                                              |  |                                    |           |                     |  |                |  |                  |            |                  |  |               |  |  |   |  |  |   |  |  |            | 
|--------------------------------------------- |  | ---------------------------------- | --------- | ------------------- |  | -------------- |  | ---------------- | ---------- | ---------------- |  | ------------- |  |  | - |  |  | - |  |  | ---------- | 
|                                              |  | Net to Daybreak Oil and Gas,
 Inc. |          
|                                              |  |                                    |          
|                                              |  | Proved Developed                   |           | Proved
 Undeveloped |  | Total
 Provedb |  | Total
 Probableb |            | Total
 Possibleb |  | Grand
 Totalb | 
|                                              |  |                                    |           |                     |  |                |  |                 
|SEC Pricing as of March 1, 2011               |  | Producing                          |           | Non-Producinga      |  |                |  |                  |            |                 
|                                              |  |                                    |           |                     |  |                |  |                  |            |                  |  |               |  |  |  
|Estimated
 Future Net Oil/Condensate, bbl     |  |                                    | 80,500    |                     |  | 8,340          |  |                  | 148,990    |                  |  | 237,820       |  |  | 0 |  |  | 0 |  |  | 237,820    | 
|Estimated
 Future Net Gas, MMcf               |  |                                    | 0         |                     |  | 0              |  |                  | 0          |                  |  | 0             |  |  | 0 |  |  | 0 |  |  | 0          | 
|                                              |  |                                    |           |                     |  |                |  |                  |            |                  |  |               |  |  |   |  |  |   |  |  |            | 
|Total
 Future Gross Revenue, $                |  |                                    | 6,139,410 |                     |  | 635,990        |  |                  | 11,363,320 |                  |  | 18,138,730    |  |  | 0 |  |  | 0 |  |  | 18,138,730 | 
|Estimated
 Future Production Taxes, $         |  |                                    | 75,030    |                     |  | 7,780          |  |                  | 138,860    |                  |  | 221,650       |  |  | 0 |  |  | 0 |  |  | 221,650    | 
|Estimated
 Future Operating Expenses, $       |  |                                    | 2,732,540 |                     |  | 221,120        |  |                  | 3,720,810  |                  |  | 6,674,480     |  |  | 0 |  |  | 0 |  |  | 6,674,480  | 
|Estimated
 Future Capital Costs, $            |  |                                    | 0         |                     |  | 36,060         |  |                  | 1,631,250  |                  |  | 1,667,310     |  |  | 0 |  |  | 0 |  |  | 1,667,310  | 
|Estimated
 Future Net Revenue (FNR), $      |  |                                    | 3,331,840 |                     |  | 371,040        |  |                  | 5,872,400  |                  |  | 9,575,290     |  |  | 0 |  |  | 0 |  |  | 9,575,290  | 
|Discounted
 FNR at 10%, $                     |  |                                    | 2,020,050 |                     |  | 258,910        |  |                  | 3,080,820  |                  |  | 5,359,780     |  |  | 0 |  |  | 0 |  |  | 5,359,780  | 
|Discounted
 FNR at 15%, $                     |  |                                    | 1,721,910 |                     |  | 223,360        |  |                  | 2,395,140  |                  |  | 4,340,420     |  |  | 0 |  |  | 0 |  |  | 4,340,420  | 
|                                              |  |                                    |           |                     |  |                |  |                  |            |                  |  |               |  |  |   |  |  |   |  |  |            | 
|Estimated
 Net Revenues by Year, $            |  |                                    |           |                     |  |                |  |                  |            |                  |  |               |  |  |   |  |  |   |  |  |            | 
|2011                                          |  |                                    | 556,280   |                     |  | 50,930         |  |                  | -666,280   |                  |  | -59,070       |  |  | 0 |  |  | 0 |  |  | -59,070    | 
|2012                                          |  |                                    | 451,910   |                     |  | 75,780         |  |                  | 1,312,890  |                  |  | 1,840,590     |  |  | 0 |  |  | 0 |  |  | 1,840,590  | 
|2013                                          |  |                                    | 331,220   |                     |  | 51,220         |  |                  | 827,100    |                  |  | 1,209,550     |  |  | 0 |  |  | 0 |  |  | 1,209,550  | 
|Subtotal                                      |  |                                    | 1,339,410 |                     |  | 177,930        |  |                  | 1,473,710  |                  |  | 2,991,070     |  |  | 0 |  |  | 0 |  |  | 2,991,070  | 
|Thereafter                                    |  |                                    | 1,992,430 |                     |  | 193,110        |  |                  | 4,398,690  |                  |  | 6,584,220     |  |  | 0 |  |  | 0 |  |  | 6,584,220  | 
|Total                                         |  |                                    | 3,331,840 |                     |  | 371,040        |  |                  | 5,872,400  |                  |  | 9,575,290     |  |  | 0 |  |  | 0 |  |  | 9,575,290  | 
|                                              |  |                                    |           |                     |  |                |  |                  |            |                  |  |               |  |  |   |  |  |   |  |  |            | 
|Estimated
 Average Net Production Rate - 2011 |  |                                    |           |                     |  |                |  |                  |            |                  |  |               |  |  |   |  |  |   |  |  |            | 
|Oil/Condensate,
 bbl/D                        |  |                                    | 30.0      |                     |  | 3.6            |  |                  | 42.7       |                  |  | 76 .3         |  |  | 0 |  |  | 0 |  |  | 76.3       | 
|Gas,
 Mcf/D                                   |  |                                    | 0         |                     |  | 0              |  |                  | 0          |                  |  | 0             |  |  | 0 |  |  | 0 |  |  | 0          | 

aColumn
includes the Proved Developed Non-Producing, behind pipe, and shut-in cash
flows and volumes.

bTotals
might not match due to computer rounding.

---



Daybreak Oil and Gas, Inc. 
March 1, 2011 Reserve Report
SEC 1P Reserve Report
April 19, 2011
Page 2 of 5

Purpose of Report and Standards of
Practice

This report was prepared to provide the management
of Daybreak Oil and Gas, Inc. with a projection of estimated remaining
hydrocarbon Reserves and projected future net revenues, effective March 1,
2011. These estimates have not been adjusted for risk.

This report has been prepared in accordance with
our understanding of the Securities and Exchange Commission, S-X Reg.
§210.4-10a, dated December 30, 2008 (Modernization
of Oil and Gas Reporting; Final Rule; January 14, 2009); we have
evaluated the 1P Reserves. The applicable SEC oil and gas Reserve definitions
are attached hereto.

Liquid hydrocarbon volumes are expressed in
standard 42-gallon barrels. All natural gas volumes are sales gas expressed at
the official pressure and temperature bases of the areas in which the gas
Reserves are located.

All currencies in this report are expressed in U.S.
dollars.

Reserve Estimates

Well-by-well production data in this report were
updated through February 28, 2011. Extrapolation of historical production data
was utilized for those producing properties where sufficient data were
available to suggest decline trends. Reserves assigned to the remaining
producing properties and the volumes associated with non-producing assets were
determined by analogy to offset wells producing from similar formations or by
volumetric analyses. Hydrocarbon volumes assigned by analogy and volumetric
analyses are subject to greater revision than those projected using established
performance trends.

As of March 1, 2011, the 1P net remaining Reserves
were estimated to be 237,820 barrels of oil. The net present value, discounted
at 10%, of the total Proved Reserves was $5,359,780. Of the total net revenue,
discounted at 10%, 37.7% was derived from the PDP Reserves. The Reserve life
index (R/P) of the PDP Reserves was estimated to be 7.4 years.

Property Overview

The San Joaquin East Slope Region, located in Kern
County California, is operated by Daybreak Oil and Gas. On this leasehold, 3D
seismic survey data have been shot on 22,000 acres. Using these data, twelve
prospective areas have been identified, of which five have been drilled. The
areas evaluated in this report, Sunday, Bear, Black, Dyer Creek and Ball have
been classified as Proved, and are in the development phase. All production is
from the Vedder formation, which is typically an unconsolidated reservoir
requiring gravel packed completions.

Sunday Prospect

To date, the Sunday #1, #2, #3 and #4 have produced
50,920 barrels of oil from the Vedder formation. The Sunday #4 was drilled as a
horizontal well but is producing as a vertical well after a workover. The
Vedder net pay map over the Sunday Prospect contains 34.6 acres and three PUD
locations were assigned.

---



Daybreak Oil and Gas, Inc. 
March 1, 2011 Reserve Report
SEC 1P Reserve Report
April 19, 2011
Page 3 of 5

Bear Prospect

To date, four wells have been drilled in the Bear
Prospect. The Bear #1, #2, #3 and #4 are all producing from the Vedder
formation. The Bear #3, the southernmost well in the pool, is believed to have
mechanical problems and has never performed up to expectations. As a result of
the mechanical issues, the Bear #3 has an estimated ultimate recovery of 2,818
barrels of oil. An offset location was not assigned in this area. At the time
of this report, the identified pool covers 62 acres, of which 34 acres contain
Proved Reserves. In addition, three PUD locations were identified.

Black Prospect

The Black Prospect is located south of the Bear
Prospect, and contains 13.4 acres in the Vedder formation. The Black #1 is the
only producing property in this area. After looking at core data and low
productivity, a workover has been scheduled at the end of the current economic
life to recover additional Reserves. At the time of this report, two PUD
locations were identified.

Ball Prospect

The Ball Prospect is the northernmost pool in the
Dyer Creek Field Trend and has 37.5 acres of mapped closure in the Vedder
formation. The Ball #1-11 was drilled and completed in October 2010. A workover
has been scheduled for May 2011 to repair a suspected leaking plug below the
Upper Vedder. At the time of this report, two PUD locations were identified.

Dyer Creek Prospect

The Dyer Creek structure, which lies between the
Bear and the Ball, is not closed to the south and therefore may be in
communication with the Bear structure. The Dyer Creek #67X-11 was drilled and
completed in October 2010. Due to completion problems, this well has an
estimated ultimate recovery of 7,613 barrels of oil. At the time of this
report, one PUD was identified.

Product Prices

The base oil price of $82.01 per barrel utilized
herein is the average closing oil price of the first trading day of each month
for the prior twelve months as of February 28, 2011, as reported by the Energy
Information Administration. As stipulated by SEC regulations, no price
escalations were included in this report. Product price differentials were
calculated by comparing the realized prices, as calculated from revenue
statements, to the average NYMEX futures price for the same calendar month.
This average differential is expressed as a percentage multiplier on price in
the economic model.

---



Daybreak Oil and Gas, Inc. 
March 1, 2011 Reserve Report
SEC 1P Reserve Report
April 19, 2011
Page 4 of 5

Operating Expenses

Direct operating expense data, input as dollars per
month in the economic models, were supplied by Daybreak. These direct operating
costs were based on actual expenses from March 2010 through February 2011, and
were adjusted for non-recurring costs, where applicable.

Severance and ad valorem taxes were deducted as a
percentage of gross revenues or as a charge per unit of production. The
individual well projections of oil and gas cease when the operating expenses
exceed the gross revenues.

Operating expenses were not escalated in this
report.

Capital Expenses

Estimated capital costs were input as approximate
costs for the operations that would be performed on wells in the PDNP and PUD
Reserve categories. A more accurate cost estimate for these individual
investments will be generated at the time they are carried out. These
operations were modeled to start at a specific point in the future. Any
deviation from these dates will result in a change in the projected future net
revenues for those properties evaluated herein.

Capital expenditures were not escalated in this
report.

Values Not Considered

In all cases we have attempted to account for all
deductions from gross revenues except for the following:

| |   |                                                           
| | - | ----------------------------------------------------------
| |  | Federal
 Income Tax                                       
| |   |                                                           
| |  | Depreciation,
 depletion, and/or amortization, if any     
| |   |                                                           
| |  | Costs
 in excess of revenues from uneconomic leases       
| |   |                                                           
| |  | Plugging
 and abandonment costs in excess of salvage value
| |   |                                                           
| |  | Environmental
 restoration costs, if any                  
| |   |                                                           
| |  | Product
 price hedges, if any                             

No value has been assigned to non-producing acreage
or to acreage held by production.

Report Qualifications

The future net revenues were based on projections
of recoverable hydrocarbons, rates of production, timing of recompletions and
drilling, proration by state and federal agencies, direct taxes, and product
prices. All estimated future net revenues presented in this report are after
the deduction of royalties, production costs, and development costs. This
evaluation does not include indirect costs such as administrative, overhead,
and other miscellaneous expenses. Any unusual combination of the many factors,
including weather, political risk or acts of terrorism could result in future
receipts being considerably less or more than those estimated herein.

THE REVENUES AND PRESENT
WORTH OF FUTURE NET REVENUES PRESENTED HEREIN ARE NOT REPRESENTED TO BE MARKET
VALUES EITHER FOR THE INDIVIDUAL PROPERTIES OR ON A TOTAL PROPERTY BASIS.

---



Daybreak Oil and Gas, Inc. 
March 1, 2011 Reserve Report
SEC 1P Reserve Report
April 19, 2011
Page 5 of 5

Data Sources

Data including basic well information, geological
interpretations, realized product prices, operating costs, initial test rates,
and ownership interests were supplied by Daybreak. L&Co has accepted these
data as correct.

Historical production data were obtained from
Daybreak as well as public sources, such as Lasser Production Data Services,
DrillingInfo.com, and HPDI Production Data Applications. Production data was
updated though February 2011. We retain in our files digital databases for all
properties and certain other hard copy information that we believe pertinent.

We have not inspected the properties evaluated in
this report, nor have we conducted independent well tests.

Independent Evaluation

Neither Lonquist & Co. LLC nor any of its
employees have any interest or ownership in the subject properties, and neither
our employment nor compensation is contingent on our findings herein.

| |                               
| | ------------------------------
| | Sincerely,                    
| |                               
| | Lonquist & Co., LLC           
| | Texas
 Registration No. F-8952
| |                               
| | /s/ RICHARD R. LONQUIST       
| |                               
| | Richard
 R. Lonquist, P.E.    
| | Petroleum
 Engineer           
| | Texas
 License No. 73008      
| |                               
| | Date
 Signed: April 19, 2011  
| | Austin,
 Texas                
| |                               
| | /s/ TEREASA S. MONTEMAYOR     
| |                               
| | Tereasa
 S. Montemayor        
| | Sr.
 Petroleum Engineer       

---



AREA OF INTEREST

Daybreak Oil and Gas, Inc.

(MAP)

(LONQUIST & CO. LLC LOGO)

---



OIL AND GAS RESERVE DEFINITIONS

The Securities and Exchange Commission, SX Reg. § 210.4-10
dated November 18, 1981 as amended September 19, 1989 requires adherence to the
following definitions of Proved oil and gas reserves:

Definitions:

(2) Proved oil and gas
reserves. Proved
oil and gas reserves are the estimated quantities of crude oil, natural gas,
and natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions, i.e., prices and costs as of
the date the estimate is made. Prices include consideration of changes in
existing prices provided only by contractual arrangements, but not on escalations
based upon future conditions.

(i)
Reservoirs are considered proved if economic producibility is supported by
either actual production or conclusive formation test. The area of a reservoir
considered proved includes (A) that portion delineated by drilling and defined
by gas-oil and/or oil-water contacts, if any; and (B) the immediately adjoining
portions not yet drilled, but which can be reasonably judged as economically
productive on the basis of available geological and engineering data. In the
absence of information on fluid contacts, the lowest known structural
occurrence of hydrocarbons controls the lower proved limit of the reservoir.

(ii)
Reserves which can be produced economically through application of improved
recovery techniques (such as fluid injection) are included in the proved
classification when successful testing by a pilot project, or the operation of
an installed program in the reservoir, provides support for the engineering
analysis on which the project or program was based.

(iii)
Estimates of proved reserves do not include the following: (A) oil that may
become available from known reservoirs but is classified separately as
indicated additional reserves; (B) crude oil, natural gas, and natural gas
liquids, the recovery of which is subject to reasonable doubt because of
uncertainty as to geology, reservoir characteristics, or economic factors; (C)
crude oil, natural gas, and natural gas liquids, that may occur in undrilled
prospects; and (D) crude oil, natural gas, and natural gas liquids, that may be
recovered from oil shales, coal, gilsonite and other such sources.

(3) Proved developed oil
and gas reserves. Proved
developed oil and gas reserves are reserves that can be expected to be recovered
through existing wells with existing equipment and operating methods.
Additional oil and gas expected to be obtained through the application of fluid
injection or other improved recovery techniques for supplementing the natural
forces and mechanisms of primary recovery should be included as proved
developed reserves only after testing by a pilot project or after the
operation of an installed program has confirmed through production response
that increased recovery will be achieved.

(4) Proved undeveloped
reserves. Proved
undeveloped oil and gas reserves are reserves that are expected to be recovered
from new wells on undrilled acreage, or from existing wells where a relatively
major expenditure is required for recompletion. Reserves on undrilled acreage
shall be limited to those drilling units offsetting productive units that are
reasonably certain of production when drilled. Proved reserves for other
undrilled units can be claimed only where it can be demonstrated with certainty
that there is continuity of production from the existing productive formation.
Under no circumstances should estimates, for proved undeveloped reserves be
attributable to any acreage or which an application of fluid injection or other
improved recovery technique is contemplated, unless such techniques have been
proved effective by actual tests in the area and in the same reservoir.

Amended SEC guidelines Reg. § 210.4-10 definitions (Modernization of Oil and Gas Reporting; Final Rule;
January 14, 2009):

(17)Possible reserves.
Possible reserves are those additional reserves that are less certain to be recovered than probable
reserves.

---



(i)
When deterministic methods are used, the total quantities ultimately recovered
from a project have a low probability of exceeding proved plus probable plus
possible reserves. When probabilistic methods are used, there should be at
least a 10 percent probability that the total quantities ultimately recovered
will equal or exceed the estimated proved plus probable plus possible reserves estimates.

(ii)
Possible reserves may be assigned to areas of a reservoir adjacent to probable
reserves where data control and interpretations of available data are
progressively less certain. Frequently, this will be in areas where geoscience
and engineering data are unable to define clearly the area and vertical limits
of commercial production from the reservoir by defined project.

(18)Probable reserves. Probable reserves are those additional
reserves that are less certain to be recovered than proved reserves, but which,
together with proved reserves, are as likely as not to be recovered.

(i)
When deterministic methods are used, that the actual remaining quantities
recovered will exceed the sum of the estimated proved plus probable plus
reserves. When probabilistic methods are used, there should be at least a 50
percent probability that the quantities actually recovered will equal or exceed
the proved plus probable reserves estimates.

(ii)
Probable reserves may be assigned to areas of a reservoir adjacent to proved
reserves where data control or interpretations of available data are less
certain, even if the interpreted reservoir continuity of structure or
productivity does not meet the reasonable certainty criterion. Probable
reserves may be assigned to areas that are structurally higher than the proved
area if these areas are in communication with the proved reservoir.

---