UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

OR

For the transition period from _______________________ to _______________________

Commission file number:  001-35245

(Exact name of registrant as specified in its charter)

Registrant's telephone number, including area code: (720) 616-4300

SYNERGY RESOURCES CORPORATION

Index

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

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

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

SYNERGY RESOURCES CORPORATION

NOTES TO CONDENSED FINANCIAL STATEMENTS

The Company prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

In management's opinion, the unaudited condensed financial statements contained herein reflect all adjustments, consisting solely of normal recurring items, which are necessary for the fair presentation of the Company's financial position, results of operations, and cash flows on a basis consistent with that of its prior audited financial statements.  However, the results of operations for interim periods may not be indicative of results to be expected for the full fiscal year.

Based on the current demand for oil and natural gas, the availability of other buyers, and the Company having the option to sell to other buyers if conditions warrant, the Company believes that its oil and gas production can be sold in the market in the event that it is not sold to the Company’s existing customers. However, in some circumstances, a change in customers may entail significant transition costs and/or shutting in or curtailing production for weeks or even months during the transition to a new customer.

Accounts receivable consist primarily of trade receivables from oil and gas sales and amounts due from other working interest owners who are liable for their proportionate share of well costs. The Company typically has the right to withhold future revenue disbursements to recover outstanding joint interest billings on outstanding receivables from joint interest owners.

Customers with balances greater than 10% of total receivable balances as of each of the periods presented are shown in the following table:

The Company operates exclusively within the United States of America and, except for cash and short-term investments, all of the Company’s assets are employedutilized in, and all of its revenues are derived from, the oil and gas industry.

The capitalized costs related to the Company’s oil and gas producing activities were as follows (in thousands):

The Company periodically reviews its oil and gas properties to determine if the carrying value of such assets exceeds estimated fair value. For proved producing and non-producing properties, the Company performs a ceiling test each quarter to determine whether there has been an impairment to its capitalized costs. Under the ceiling test, the value of the Company’s reserves is calculated using the average of the published spot prices for WTI oil (per barrel) as of the first day of each of the previous twelve months, as well as the average of the published spot prices for Henry Hub (per MMBtu) as of the first day of each of the previous twelve months, each adjusted by lease or field for quality, transportation fees and regional price differentials. The ceiling test as of November 30, 2015March 31, 2016 used average realized prices of $42.54$37.32 per barrel and $2.77$2.41 per Mcf. The oil prices used at November 30, 2015March 31, 2016 were approximately 20%10% lower than the AugustDecember 31, 2015 price of $53.27,$41.33, and the gas prices were approximately 16%7% lower than the August

The Company also reviews the fair value of its unproved properties. The reviews for the three months ended November 30,March 31, 2016 and 2015 and 2014 indicated that estimated fair values of such assets exceeded the carrying values. Therefore, no reclassifications to proved property were recognized during either period to impair the carrying value of the unproved properties.

During the three months ended November 30, 2015, theThe Company acquired certain oil and gas and other assets that affect the comparability between the three months ended March 31, 2016, and the three months ended March 31, 2015, as described below.

The Kauffman acquisition encompassed approximately 4,300 net acres of oil and gas leasehold interests and related assets in the D-J Basin of Colorado and net production of approximately 1,200 barrels of oil equivalent per day (BOED). at the time of purchase. The purpose of the transaction was to provide additional mineral acres upon which the Company could drill wells and produce hydrocarbons. It is believed that the transaction will improve the Company's cash flow.

The following table presents the unaudited pro forma combined results of operations for the three months ended November 30,March 31, 2015 and 2014 as if the Kauffman transaction had occurred on SeptemberJanuary 1, 2014, the first day of our 2015 fiscal year.2015.  The unaudited pro forma results reflect significant pro forma adjustments related to funding the acquisition through the issuance of common stock and cash, additional depreciation expense, costs directly attributable to the acquisition, and operating costs incurred as a result of the assets acquired.  The pro forma results do not include any cost savings or other synergies that may result from the acquisition or any estimated costs that have been or will be incurred by the Company to integrate the properties acquired.  The pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been completed as of the beginning of the period, nor are they necessarily indicative of future results.

Depletion, depreciation, accretion, and amortizationaccretion consisted of the following (in thousands):

Capitalized costs of proved oil and gas properties are depleted quarterly using the units-of-production method based on a depletion rate, which is calculated by comparing production volumes for the quarter to estimated total reserves at the beginning of the quarter. For the three months ended November 30, 2015,March 31, 2016, production of 9591,047 MBOE represented 1.5% of estimated total proved reserves. For the three months ended November 30, 2014,March 31, 2015, production of 753633 MBOE represented 2.3%1.6% of estimated total proved reserves. DDADD&A expense was $15.30$11.55 per BOE and $21.84$22.24 per BOE for the three months ended November 30,March 31, 2016 and 2015, and 2014, respectively.

The following table summarizes the changes in asset retirement obligations associated with the Company's oil and gas properties (in thousands).

The Company maintains a revolving credit facility ("Revolver") with a bank syndicate. The Revolver is available for working capital requirements, capital expenditures, acquisitions, general corporate purposes, and to support letters of credit. As most recently amended on June 2, 2015,of March 31, 2016, the terms of the Revolver provide for up to $500 million in borrowings, subject to a borrowing base limitation, as further described below.which was $145 million. As of March 31, 2016, there was no outstanding principal balance. The maturity date of the Revolver is December 15, 2019.

Certain ofOn January 28, 2016, the Company’s assets, including substantially all of its producing wells and developed oil and gas leases, have been designated as collateral underRevolver was amended in connection with the Revolver. The borrowing commitment is subject to adjustment based upon a borrowing base calculation that includes the value of oil and gas reserves.semi-annual redetermination. The borrowing base limitation is subject to scheduled redeterminations on a semi-annual basis. In certain events, and at the discretion of the bank syndicate, an unscheduled redetermination may be required. During the quarter ended August 31, 2015, the Company's borrowing base was adjusted to $163 million. Accordingly, as of November 30, 2015, based on a borrowing base ofreduced from $163 million to $145 million, and anthe Revolver was further amended to (i) delete the minimum interest rate floor, (ii) delete the minimum liquidity covenant, (iii) add a current ratio covenant of 1.0 to 1.0, and (iv) delete the minimum hedging requirement. In January 2016, the Company reduced its outstanding principal balance ofborrowings under the Revolver from $78 million the unused borrowing base available for future borrowing totaled approximately $85 million.  The next semi-annual redetermination has been rescheduled for January 2016.to nil.

Interest under the Revolver is payable monthly and accrues at a variable rate, subject to a minimum rate of 2.5%.rate.  For each borrowing, the Company designates its choice of reference rates, which can be either the Prime Rate plus a margin or the London Interbank Offered Rate (“LIBOR”) plus a margin. The interest rate margin, as well as other bank fees, varies with utilization of the Revolver. The average annual interest rate for borrowings during the three months ended November 30, 2015March 31, 2016 was 2.5%.

The Revolver also contains covenants that, among other things, restrict the payment of dividends and limits the minimum and maximum usedividends. Additionally, as of derivative contracts.  Specifically,March 31, 2016, the Revolver requiresrequired an overall commodity derivative position that forcovers a rolling 24 month period no less than 45% and no more thanmonths of estimated future production with a maximum position of 85% of the proved developed producing reserveshydrocarbon production as projected in the Company’s most recent semi-annual reserve report be covered by Commodity Derivative Instruments as discussed in Note 7 below.report.

  

The Company has entered into commodity derivative instruments, as described below. The Company has utilized swaps, puts, Our commodity derivative instruments may include but are not limited to “collars,” “swaps,” and “put” positions. Our derivative strategy, including the volume amounts, whether we utilize oil and/or collars to reducenatural gas instruments, and at what commodity prices the effectinstruments are associated with, is based in part on our view of price changes on a portionexpected future market conditions and our analysis of its future oil and gas production. A swap requires a payment to the counterparty if the settlement price exceeds the strike price and the same counterparty is required to make a payment if the settlement price is less than the strike price. A put requires the counterparty to make a payment if the settlement price is below the strike price. A collar requires a payment to the counterparty if the settlement price is above the ceiling price and requires the counterparty to make a payment if the settlement price is below the floor price. The objective of the Company’swell-level economic return potential. In addition, our use of derivative financial instrumentscontracts is subject to achieve more predictable cash flowsstipulations set forth in an environment of volatile oil and gasthe Revolver.

A “put” option gives the owner the right, but not the obligation, to sell the underlying commodity at a specified price (strike price) within a specific time period. Depending on market conditions, strike prices, and the value of the contracts, we may, at times, purchase put options, which require us to manage its exposurepay premiums at the time we purchase the contracts. These premiums represent the fair value of the purchased put as of the date of purchase. The ownership of put options is consistent with our derivative strategy inasmuch as the value of the puts will increase as commodity prices decline, helping to offset the cash flow impact of a decline in realized prices for the underlying commodity. However, if the underlying commodity increases in value, there is a risk that the put option will expire worthless and the net premiums paid would be recognized as a loss.

Conversely, a “call” option gives the owner the right, but not the obligation, to purchase the underlying commodity at a specified price risk. While(strike price) within a specific time period. Depending on market conditions, strike prices, and the usevalue of thesethe contracts, we may, at times, sell call options in conjunction with the purchase of put options to create “collars.” We regularly utilize “no premium” (a.k.a. zero cost) collars constructed by selling call options while simultaneously buying put options, in which the premiums paid for the puts is offset by the premiums received for the calls. Collars are consistent with our derivative instruments limitsstrategy inasmuch as the downside riskthey establish a known range of adverseprices to be received for the associated volume equivalents, that being bound at the upper end by the call’s strike price movements, such use(the “ceiling”) and at the lower end by the put’s strike price (the “floor.”)

Additionally, at times, we may also limitenter into swaps. Swaps are derivative contracts which obligate two counterparties to effectively trade the Company’s abilityunderlying commodity at a set price over a specified term. Swaps are consistent with our derivative strategy inasmuch as they establish a known future price to benefit from favorable price movements. be received for the associated equivalent volumes.

The Company may, from time to time, add incremental derivatives to cover additional production, restructure existing derivative contracts or enter into new transactions to modify the terms of current contracts in order to realize the current value of the Company’s existing positions. The Company does not enter into derivative contracts for speculative purposes.

The use of derivatives involves the risk that the counterparties to such instruments will be unable to meet the financial terms of such contracts. The Company’s derivative contracts are currently with four counterparties and an exchange. Two of the counterparties are lenders in the Company’s credit facility.Revolver. The Company has netting arrangements with the counterparties that provide for the offset of payables against receivables from separate derivative arrangements with the counterparty in the event of contract termination. The derivative contracts may be terminated by a non-defaulting party in the event of default by one of the parties to the agreement.

The Company’s commodity derivative instruments are measured at fair value and are included in the accompanying balance sheets as commodity derivative assets. Unrealized gains and losses are recorded based on the changes in the fair values of the derivative instruments. Both the unrealized and realized gains and losses resulting from contract settlement of derivatives

The Company’s valuation estimate takes into consideration the counterparty’s creditworthiness, the Company’s

The Company’s commodity derivative contracts as of November 30, 2015March 31, 2016 are summarized below:

As of November 30, 2015March 31, 2016 and AugustDecember 31, 2015, all derivative instruments held by the Company were subject to enforceable master netting arrangements held by various financial institutions. In general, the terms of the Company’s agreements provide for offsetting of amounts payable or receivable between the Company and the counterparty, at the election of both parties, for transactions that occur on the same date and in the same currency. The Company’s agreements also provide that, in the event of an early termination, the counterparties have the right to offset amounts owed or owing under that and any other agreement with the same counterparty. The Company’s accounting policy is to offset these positions in its accompanying Balance Sheets.

The following table provides a reconciliation between the net assets and liabilities reflected on the accompanying balance sheets and the potential effect of master netting arrangements on the fair value of the Company’s derivative contracts (in thousands):

The amount of gain recognized in the statements of operations related to derivative financial instruments was as follows (in thousands):

As of November 30, 2015,March 31, 2016, two of the four counterparties to the Company's derivative instruments were members of the Company’s credit facility syndicate. The Company’s obligations under the credit facility and its derivative contracts are secured by liens on substantially all of the Company’s producing oil and gas properties. The agreement with the third counterparty, which is not a lender under the credit facility, is unsecured and does not require the posting of collateral. The agreement with the fourth counterparty is subject to an inter-creditor agreement between the counterparty and the Company’s lenders under the credit facility.

ASC Topic 820, Fair Value Measurements and Disclosure, establishes a hierarchy for inputs used in measuring fair value for financial assets and liabilities that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available.  Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company.  Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability based on the best information available in the circumstances.  The hierarchy is broken down into three levels based on the reliability of the inputs as follows:

The financial assets and liabilities are classified based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment, and may affect the valuation of the fair value of assets and liabilities and their placement within the fair value hierarchy levels.

The Company’s non-recurring fair value measurements include asset retirement obligations and purchase price allocations for the fair value of assets and liabilities acquired through business combinations. Please refer to Notes 3 and 5 for further discussion of business combinations and asset retirement obligations, respectively.

The Company determines the estimated fair value of its asset retirement obligations by calculating the present value of estimated cash flows related to plugging and abandonment liabilities using Level 3 inputs. The significant inputs used to calculate such liabilities include estimates of costs to be incurred, the Company’s credit adjusted discount rates,credit-adjusted risk-free rate, inflation rates and estimated dates of abandonment. The asset retirement liability is accreted to its present value each period, and the capitalized asset retirement cost is depleted as a component of the full cost pool using the units-of-production method. See Note 5 for additional information.

The acquisition of a group of assets in a business combination transaction requires fair value estimates for assets acquired and liabilities assumed.  The fair value of assets and liabilities acquired through business combinations is calculated using a net discounted cash flow approach for the producing properties. The discounted cash flows are developed using the income approach and are based on management’s expectations for the future.  Unobservable inputs include estimates of future oil and gas production from the Company’s reserve reports, commodity prices based on the NYMEX forward price curves as of the date of the estimate (adjusted for basis differentials), estimated operating and development costs, and a risk-adjusted discount rate (all of which are designated as Level 3 inputs within the fair value hierarchy). For unproved properties, fair value is determined using unobservable market comparables. For the asset retirement liability assumed, the fair value is determined using the same inputs as describedescribed in the paragraph above. See Note 3 for additional information.

The following table presents the Company’s financial assets and liabilities that were accounted for at fair value on a recurring basis as of November 30, 2015March 31, 2016 and AugustDecember 31, 2015 by level within the fair value hierarchy (in thousands):

The Company determines its estimate of the fair value of commodity derivative instruments using a market approach based on several factors, including quoted commoditymarket prices in active markets, quotes from third parties, the credit rating of each counterparty, and the Company’s own credit standing. In consideration of counterparty credit risk, the Company assessed the possibility of whether the counterparties to its derivative contracts would default by failing to make any contractually required payments. The Company considers the counterparties to be of substantial credit quality and believes that they have the financial resources and willingness to meet their potential repayment obligations associated with the derivative transactions. At November 30, 2015,March 31, 2016, derivative instruments utilized by the Company consist of puts and collars. The crude oil and natural gas derivative markets are highly active. Although the Company’s derivative instruments are based on several factors, including public indices, the instruments themselves are primarily traded with third-party counterparties and are not openly traded on an exchange.counterparties. As such, the Company has classified these instruments as Level 2.

The Company’s financial instruments consist primarily of cash and cash equivalents, accounts receivable, accounts payable, commodity derivative instruments (discussed above) and credit facility borrowings. The carrying values of cash and cash equivalents, accounts receivable and accounts payable are representative of their fair values due to their short-term maturities. The carrying amount of the Company’s credit facility approximated fair value as it bears interest at variable rates over the term of the loan.

The components of interest expense are (in thousands):

The Company's classes of stock are summarized as follows:

Preferred stock may be issued in series with such rights and preferences as may be determined by the Board of Directors.  Since inception, the Company has not issued any preferred shares.

Basic earnings per share includes no dilution and is computed by dividing net income by the weighted-average number of shares outstanding during the period.  Diluted earnings per share reflects the potential dilution of securities that could share in the earnings of the Company.  The number of potential shares outstanding relating to stock options, performance stock units, non-vested restricted stock and stock bonus shares, and warrants is computed using the treasury stock method.  Potentially dilutive securities outstanding are not included in the calculation when such securities would have an anti-dilutive effect on earnings per share.

The following table sets forth the share calculation of diluted earnings per share:

The following potentially dilutive securities outstanding for the fiscal periods presented were not included in the respective earnings per share calculation above, as such securities had an anti-dilutive effect on earnings per share:

In addition to cash compensation, the Company may compensate certain service providers, including employees, directors, consultants, and other advisors, with equity-based compensation in the form of stock options, restricted stock, stock bonus shares, warrants and warrants.other equity awards.  The Company records an expense related toits equity compensation by pro-rating the estimated grant date fair value of each grant over the period of time that the recipient is required to provide services to the Company (the “vesting phase”).  The calculation of fair value is based, either directly or indirectly, on the quoted market value of the Company’s common stock.  Indirect valuations are calculated using the Black-Scholes-Merton option pricing model. For the periods presented, all stock-based compensation expense was classified either as a component within general and administrative expense in the Company's statements of operations, or, for that portion which is directly attributable to individuals performing acquisition, exploration, and development activities, was capitalized to the full cost pool.

Stock-basedThe amount of stock-based compensation was recognized as follows (in thousands):

During the three months ended November 30,March 31, 2016 and 2015, and 2014, the Company granted the following stock options:

The assumptions used in valuing stock options granted during each of the three monthsperiods presented were as follows:

The following table summarizes activity for stock options for the three months ended November 30, 2015:

The following table summarizes information about issued and outstanding stock options as of November 30, 2015:March 31, 2016:

The estimated unrecognized compensation cost from unvested stock options not vested as of November 30, 2015,March 31, 2016, which will be recognized ratably over the remaining vesting phase, is as follows:

The Company grants shares of time-based restricted stock and stock bonus awards to directors, eligible employees and officers as a part of its equity incentive plan.  Restrictions and vesting periods for the awards are determined by the Compensation Committee of the Board of Directors and are set forth in the award agreements. Each share of restricted stock or stock bonus award represents one share of the Company’s common stock to be released from restrictions upon completion of the vesting period. The time-based restricted stock awards typically vest in equal increments over three to five years. Shares of restricted stock and stock bonus awards are valued at the closing price of the Company’s common stock on the grant date and are recognized over the vesting period of the award.

The following table summarizes activity for restricted stock and stock bonus awards for the three months ended November 30, 2015:

The estimated unrecognized compensation cost from unvested restricted stock and stock bonus awards not vested as of November 30, 2015,March 31, 2016, which will be recognized ratably over the remaining vesting phase, is as follows:

We evaluate and update our estimated annual effective income tax rate on a quarterly basis based on current and forecasted operating results and tax laws. Consequently, based upon the mix and timing of our actual earnings compared to annual projections, our effective tax rate may vary quarterly and may make quarterly comparisons not meaningful. A tax expense or benefit unrelated to the current year income or loss is recognized in its entirety as a discrete item of tax in the period identified. The quarterly income tax provision is generally comprised of tax expense on income or benefit on loss at the most recent estimated annual effective tax rate, adjusted for the effect of discrete items.

The effective tax rate for the three months ended November 30, 2015March 31, 2016 was 8%0% compared to 36%42% for the three months ended November 30, 2014.March 31, 2015. The effective tax rate for the three months ended November 30, 2015March 31, 2016 is based upon a full year forecasted tax provision and differs from the statutory rate, primarily due to the recognition of a valuation allowance recorded against deferred tax assets. The effective tax rate for the three months ended November 30, 2014March 31, 2015 differs from the statutory rate primarily due to state taxes and nondeductible officers' compensation, partially offset by percentage depletion. There were no significant discrete items recorded during the three months ended November 30, 2015March 31, 2016 and 2014.2015.

As of November 30, 2015,March 31, 2016, we had no liability for unrecognized tax benefits. The Company believes that there are no new items, nor changes in facts or judgments that should impact the Company’s tax position.  Given the substantial NOL carryforwards at both the federal and state levels, it is anticipated that any changes resulting from a tax examination would simply adjust the carryforwards, and would not result in significant interest expense or penalties.  Most of the Company's tax returns filed since August 31, 2011 are still subject to examination by tax authorities. As of the date of this report, we are current with our income tax filings in all applicable state jurisdictions, and we are not currently under any state income tax examinations.

Whenever the Company engages in transactions with its officers, directors, or other related parties, the terms of the transaction are reviewed by the disinterested directors. All transactions must be on terms no less favorable to the Company than similar transactions with unrelated parties.

During fiscal 2015, the Company entered into crude oil transportation agreements with three counterparties and a volume commitment to a third party refiner. Deliveries under two of the transportation agreements commenced during the quarter ended November 30, 2015. Deliveries under the third transportation agreement are not expected to commence until late in fiscal 2016. The third party refinery volume commitment expired on December 31, 2015.

Pursuant to these agreements, we must deliver specific amounts of crude oil either from our own production or from oil we acquire from third parties. If we are unable to fulfill all of our contractual obligations, we may be required to pay penalties or damages pursuant to these agreements. As of January 1,March 31, 2016, our commitments over the next five years are as follows:

During the quarter ended November 30, 2015,March 31, 2016, the Company incurred a transportation deficiency charge of $1.5 million$68,000 as we were unable to meet all of the obligations during the quarter, and we estimate we could incur an additional $1.0 million deficiency charge in the month of December 2015.quarter. As of January 1,March 31, 2016, our current production exceeds our delivery obligations, subsequent to the expiration of the volume commitment to a third party refiner.obligations.

From time to time, the Company is a party to various commercial and regulatory claims, pending or threatened legal action, and other proceedings that arise in the ordinary course of business. It is the opinion of management that none of the current matters of contention are reasonably likely to have a material adverse impact on its business, financial position, results of operations, or cash flows.

The following table supplements the cash flow information presented in the financial statements for the periods presented (in thousands):

On December 15, 2015,In April 2016, the Company heldcompleted a public offering of its annual meetingcommon stock, which resulted in the issuance of shareholders.an additional 22,425,000 shares at a price of $7.3535 per share. This transaction is described more fully in Note 10.

In April 2016, the Company agreed to divest approximately 3,700 net undeveloped acres and 107 vertical wells primarily in Adams County, Colorado for total consideration of approximately $27 million in cash, subject to customary purchase price adjustments, in two transactions. The shareholders approveddivested assets had associated production of approximately 200 BOED. The vertical well transaction closed in April 2016, and the undeveloped acreage transaction is expected to close in the second quarter of 2016.

On May 3, 2016, the Company entered into an amendment to its revolving credit facility the Company’s Articleseffect of Incorporationwhich, among other things, is to increasepermit the number of authorized shares of common stockissuance by the Company of the Company from 200,000,000 to 300,000,000. Additionally, the shareholders approved the Company's 2015 Equity Incentive Plan (the "2015

Cautionary Statement Concerning Forward-Looking Statements

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties and are based on the beliefs and assumptions of management and information currently available to management. The use of words such as “believes,” “expects,” “anticipates,” “intends,” “plans,” “estimates,” “should,” “likely,” or similar expressions indicate forward-looking statements. Forward-looking statements included in this report include statements relating to future capital expenditures and projects, the adequacy and nature of future sources of financing, possible future impairment charges, midstream capacity issues, future differentials, and future production relative to volume commitments.commitments, and the closing and effect of proposed transactions.

The identification in this report of factors that may affect our future performance and the accuracy of forward-looking statements is meant to be illustrative and by no means exhaustive. All forward-looking statements should be evaluated with the understanding of their inherent uncertainty.

FactorsImportant factors that could cause our actual results to differ materially from those expressed or implied by forward-looking statements include, but are not limited to:

Introduction

The following discussion and analysis was prepared to supplement information contained in the accompanying unaudited condensed financial statements and is intended to explain certain items regarding the Company's financial condition as of November 30, 2015,March 31, 2016, and its results of operations for the three months ended November 30, 2015March 31, 2016 and 2014.2015.  It should be read in conjunction with the accompanying unaudited condensed financial statements and related notes thereto contained in this report as well as the audited

Overview

Synergy Resources Corporation ("we," "us," "Synergy," or the "Company") is a growth-oriented independent oil and natural gas company engaged in the acquisition, development, and production of crude oil and natural gas in and around the D-J Basin, which we believe to be one of the premier, liquids-rich oil and gas resource plays in the United States. The D-J Basin generally extends from the Denver metropolitan area throughout northeast Colorado into Wyoming, Nebraska, and Kansas. It contains hydrocarbon-bearing deposits in several formations, including the Niobrara, Codell, Greenhorn, Shannon, Sussex, J-Sand and D-Sand. The area has produced oil and gas for over fifty years and benefits from established infrastructure including midstream and refining capacity, long reserve life, and multiple service providers.

Our drilling and completion activities are focused in the Wattenberg Field, an area that covers the western flank of the D-J Basin, predominantly in Weld County, Colorado. Currently, we are focused on the horizontal development of the Codell and Niobrara formations, which are characterized by relatively high liquids content. We operate the majority of the horizontal wells we have working interests in, and we strive to maintain a high net revenue interest in all of our operations.

Substantially all of our producing wells are either in or adjacent to the Wattenberg Field. We operate over 74%approximately 75% of our proved producing reserves, and over 98% of our planned fiscal 2016 drilling and completion expenditures are focused on the Wattenberg Field. This gives us both operational focus and development flexibility to maximize returns on our leasehold position.

The following table provides details about our ownership interests with respect to vertical and horizontal producing wells as of November 30, 2015: