The following is a discussion and analysis (“MD&A”) of the operations, results, and financial position

of the Montello Resources Ltd. (the “Company” or “Montello”) as at January 31, 2011 and for the six

months ended January 31, 2011, and should be read in conjunction with the unaudited consolidated

financial statements for the six months ended January 31, 2011. The consolidated financial statements

and related notes are presented in accordance with Canadian generally accepted accounting principles.

This document may contain "forward-looking information" within the meaning of Canadian securities

legislation and "forward-looking statements" within the meaning of the United States Private

Securities Litigation Reform Act of 1995 (collectively, "forward-looking statements"). These forwardlooking

statements are made as of the date of this document and Montello Resources Ltd. (the

"Company") does not intend, and does not assume any obligation, to update these forward-looking

statements, except as required under applicable securities legislation.

Forward-looking statements relate to future events or future performance and reflect Company

management's expectations or beliefs regarding future events and include, but are not limited to,

statements with respect to the estimation of mineral reserves and resources, the realization of mineral

reserve estimates, the timing and amount of estimated future production, costs of production, capital

expenditures, success of mining operations, environmental risks, unanticipated reclamation expenses,

title disputes or claims and limitations on insurance coverage. In certain cases, forward-looking

statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is

expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not

anticipate", or "believes", or variations of such words and phrases or statements that certain actions,

events or results "may", "could", "would", "might" or "will be taken", "occur" or "be achieved" or the

negative of these terms or comparable terminology. By their very nature forward-looking statements

involve known and unknown risks, uncertainties and other factors which may cause the actual results,

performance or achievements of the Company to be materially different from any future results,

performance or achievements expressed or implied by the forward-looking statements. Such factors

include, among others, risks related to actual results of current exploration activities; changes in

project parameters as plans continue to be refined; future prices of resources; possible variations in ore

reserves, grade or recovery rates; accidents, labour disputes and other risks of the mining industry;

delays in obtaining governmental approvals or financing or in the completion of development or

construction activities; as well as those factors detailed from time to time in the Company's interim

and annual financial statements and management's discussion and analysis of those statements, all of

which are filed and available for review on SEDAR at www.sedar.com. Although the Company has

attempted to identify important factors that could cause actual actions, events or results to differ

materially from those described in forward-looking statements, there may be other factors that cause

actions, events or results not to be as anticipated, estimated or intended. There can be no assurance

that forward-looking statements will prove to be accurate, as actual results and future events could

differ materially from those anticipated in such statements.

In this MD&A, Boes are derived by converting gas to oil in the ratio of six thousand cubic feet of gas

to one barrel of oil (6 Mcf:1 bbl) and Mcfes are derived by converting oil to gas in the ratio of one

barrel of oil to six thousand cubic feet of gas (1 bbl:6 Mcf). Per barrel oil equivalent amounts (“boe”)

and one thousand cubic feet of gas equivalent (“Mcfe”) amounts may be misleading, particularly if

used in isolation. A boe conversion of 6 Mcf of natural gas to 1 bbl of oil, or a Mcfe conversion ratio

of 1 bbl of oil to 6 Mcf of natural gas is based on an energy equivalency conversion method primarily

applicable at the burner tip and does not represent a value equivalency at the well head. When it

comes to Production Information, readers should be aware that historical results are not necessarily

indicative of future performance.

The Company is a reporting issuer in British Columbia and Alberta. The Company is a junior natural

resource company engaged in the acquisition, exploration and development of oil and gas properties

in Canada and the U.S.A. The Company is listed on the TSX Venture Exchange (“TSX-V”) under the

symbol

The Company is in early stage negotiations with several financially strong groups with significant

high quality oil and gas assets which will develop Montello into a major player in the resource sector

creating value for its shareholders.

Montello remains in continuous contact with the landowners and they are in agreement to proceed as

Montello and the other partners await the operating group to initiate an Authority-For-Expenditures

(AFE) and finally begin the process of turning this discovery into revenue. At this time, Montello has

not received a timetable from the operator and will, if necessary, file an independent operator's notice

if the current operator is unable to proceed.

On December 8, 2010 the Company entered into an option agreement to sell up to 10% working

interest in its Pincher Creek property to the future operator of the property (the “Optionee”).

Consideration for the first 5% working interest was to be $260,000, payable $185,000 in cash and

$75,000 in costs related to the Company’s full portion of future pipeline and surface facilities required

to put the well into production, carried by the Optionee. Upon signing the option agreement the

Company received a non-refundable deposit of $13,000 from the Optionee The remaining cash

consideration of $172,000 was due and payable by December 31, 2010 but was not received by the

Company.

An option to purchase a further 5% working interest for consideration of $260,000 was to be granted

on January 1, 2011, which required a nonrefundable deposit of $15,000 upon signing the option

agreement and the remaining $245,000 payable on or before February 28, 2011. This option was not

exercised and no payment was received. The payment for $172,000 regarding the first 5% option was

not received and the option on the second 5% has expired, thus the offer to sell has been revoked.

On February 2, 2011 the Company received an additional loan of $12,500 from Tosca, resulting in

total loan payable to Tosca of $250,000. The Company and Tosca finalized the purchase of the 5%

working interest in the Company’s Pincher Creek Property, as stated in the Letter of Intent dated June

8, 2010, by applying the loan of $250,000 as full consideration.

The company is currently in negotiations with several potential strategic purchasers and is also

pursuing financing alternatives and additional joint venture opportunities.

On January 29, 2010, the Alberta Securities Commission issued a general Cease Trade Order against

the Company for failure to file its audited financial statements, management’s discussion and analysis,

and related CEO and CFO certifications for the year ended July 31, 2009 and its interim unaudited

financial statements and interim management's discussion and analysis for the quarter ended October

31, 2009. In turn, the Company's securities were suspended from trading on the TSX Venture

Exchange until such time as the Cease Trade Order has been revoked and the Company meets TSX

Venture Exchange requirements in relation to reinstatement for trading.

Management has completed its pre-filing conference with the TSX Venture Exchange and has

initiated the process for re-instatement which includes calling an Annual General Meeting (AGM) and

raising capital to meet the Exchange requirements. A date for the AGM will be determined following

discussions with legal counsel and in conjunction with fund raising initiatives.

Montello entered into a farm-in agreement to participate in the recompletion of the Pincher Creek 1-

11-4-29W4 well. By farming into the petroleum and natural gas rights in the lands which were held by

Pennine Petroleum Corporation (“Pennine”) at the time, the Company earned a 25% interest before

payout, 15% after payout in a discovery well that is capable of producing high grade condensate and

associated gas from two zones. By paying an additional fee Montello earned a 25% in the remainder

of the interests at Pincher Creek.

The recompletion of the well was initiated on August 30, 2007 and resulted in completions in the

Cadomin and Brown Sand with initial swabbing rates of up to 337 barrels of condensate and 500 Mcf.

per day of natural gas. The success of this well enhanced the prospectivity of the group’s lands in the

area.

Pincher Creek has been one of the most prolific fields in Alberta. It is a structurally controlled, overthrusted

imbricate stack that has been producing since 1947 and has produced some 600 Bcf. of gas

and over one million barrels of associated liquids from the Mississippian-age carbonates of the Turner

Valley (Rundle) formation.

On January 28, 2009 a public hearing was held in Pincher Creek by the Energy Resources

Conservation Board (“ERCB”) to review the application by the Operator of the property to obtain

access for the construction of a pipeline to tie into the Waterton Gas Plant. The result of this meeting

was to have Pennine granted the pipeline license. However, Pennine was unsuccessful in securing

right of entry with the landowners and also unsuccessful in applying for an extension to the license as

the company was on Global Refer at the time. Pennine is no longer on Global Refer and Montello has

been informed that the Pipeline License will be reapplied for in the third quarter of 2010. On August

19, 2009, Pennine sold its interest to a private company, later identified as Highwood Oil and Gas, but

operatorship has not been transferred at this time. It is understood that the ERCB has been reviewing

both the pipeline license and the license transfers. To Montello’s knowledge, Pennine will not remain

the operator of record.

As a result of the delay of novating Montello interest in Pincher Creek and Pennine’s inability to bring

the well to production in a timely manner, on October 26, 2009 Montello initiated a statement of claim

against Pennine for $2,500,000 primarily due to lost revenues. Pennine responded to the claim on

October 28, 2009. During September 2010 Montello entered into an agreement with Pennine to settle

all Montello’s claims against Pennine and its president Desmond Smith. This settlement agreement

included non-disclosure and confidentiality provisions and does not reflect any admission by either

Pennine or Montello, their affiliates, directors or officers. The settlement was entered into on the basis

that it best serves the interests of both companies and their shareholders.

In December 2007, Montello, under a farm-in agreement, participated in the drilling of two

exploratory wells in the Grouard area of northwestern Alberta. Under the farm-in agreement the

company paid 50% of the drilling, completion and equipping costs to earn a 35% interest. By

participating in the wells Montello earned a 35% interest in 1,470 gross acres of P&NG rights with

additional drilling locations.

Both of the earning wells were production tested and deemed capable of gas production of 150 Mcf.

Per day. A gathering system is required to place the wells on production.

During the three months ended January 31, 2011 and the years ended July 31, 2010 and 2009, no

capital costs were incurred at Grouard, Alberta. Due to the operator’s poor financial condition

Montello does not contemplate participating in any optimization programs, or facility construction

until the condition is sufficiently improved.

Montello, under a farm-out agreement held a 2.5% interest in 2,560 acres of petroleum and natural gas

rights on lands in the T’suu Tina Reserve. In November 2007, the Company increased its interest to

8.5% by issuing 11,663,333 shares at $0.30 per share to Vanguard Exploration Corp. for an additional

6% working interest. Due to the lack of activity on the property and management’s unwillingness to

accept the new terms for continuance (which were not deemed to be economic) the lands were

returned to the T’sui Tina Band in May 2009.

A Quit Claim was signed on September 10, 2009, in connection with the transfer of all assets and

liabilities related to the Sarcee Property to Canadian Phoenix Resources Corp. on July 22, 2009.

Montello and its joint venture partners Austin Developments Ltd., Nexgen Petroleum Corp., signed a

letter dated July 5, 2008 formally confirming Farm-out and Participation agreements dated March 10

and April 11, 2008, whereby Nexgen Petroleum Corp was confirmed to have earned 30% undivided

working interests in the said test wells and farm out lands for the Lavender #1, Southeast #1, and

Southeast #2 Wells (otherwise known as the Morgan Highpoint Project Wells #5, #3, and #4). This

letter also stated that from and after July 1, 2008 all operations on these Farm-out lands and test wells

would be governed by CAPL Operating Procedure including the Accounting Procedure.

On July 7, 2008, a Joint Operating and Equalization Agreement was formally signed by the Morgan

Highpoint joint venture partners with regards to operations to be carried out in the Bowen Block /

Bowen Lands. Also subject to specific terms, for example, based on economic viability of John

Bowen #2 Well, Nexgen could elect to earn an additional undivided 5% working interest in the

Bowen Block from Montello. During the year ended July 31, 2009 Nexgen purchased the additional

5% interest for gross proceeds of US$446,000.

During the year ended July 31, 2009, the Company and its joint venture partners sold 107 acres of

land and associated buildings for gross proceeds of US$248,000 netting US$98,648 after deducting

liabilities and for costs incurred on the sale. Montello and its partners retain a 3.7 acre parcel around

the two Bowen well bores and the access road to the well sites, along with all mineral rights.

No work was performed on the property in the three months ended January 31, 2011 or the year ended

July 31, 2010. A pump jack that was not suitable for the expected depth of well on the property was

sold in the prior. Instead of attempting to operate the Tennessee property, the management intends to

cede its operatorship in all its properties to a farm-in partner.

During the year ended July 31, 2009 Montello was exploring the potential of the shallower zones such

as the Chattanooga Shales in the surrounding area. Due to the current wellhead price for gas the

Company has no immediate plans to exploit and test these shallower gas zones. Instead Montello had

decided to try to stimulate and clean up the Morgan Highpoint #3. In late 2009 Montello began work

on this well in the 500 foot open section at the base of the wellbore, from where oil had previously

flowed.

The results of this work proved that rather than the oil emulsifying the zone though fractured was tight

and largely impermeable and not conducive to flow without a large fracture program over the whole

of the 500 feet of open wellbore. Montello did not deem this process to be economic at this time and

has been working with local companies with the view to farming out its interests.

Attempts were made during the year ended July 31, 2010 to produce from the Morgan Highpoint #3

well. The tubing and rods were removed and examined for damage and wax build up. No damage or

wax was found and the tubing and rods were run back into the hole. The well bore was then treated

with chemicals with a hope of stimulating flow. This did not happen and it was decided that the 500

feet of open hole needed a very large "frac" to stimulate flow. This was deemed to too expensive a

procedure in the present economic environment and it is not agreed to by all partners.

With regard to all its projects in Tennessee, Montello is in the process of looking for alternative farmin

partners. At the time of this report no partners have been identified.

The Company’s fiscal year ends on July 31 of each year. The following is a summary of certain

selected audited financial information for the last three completed fiscal years of the Company:

Revenues 7,521 197,515 552,613

Net loss (484,256) (3,823,148) (4,274,858)

Loss per share, basic and diluted (0.00) (0.02) (0.02)

Total assets 6,489,548 6,803,590 11,040,819

The company had revenues of $7,521 for the year ended July 31, 2010 compared to $197,515 in the

prior year. The significant decrease is due primarily to the Mulligan wells being shut in for the

construction of a water pipeline and for overhaul of the compressor station at the 14-23-81-8W6

Battery. In year ended July 31, 2009 the Mulligan properties were transferred to Texokcan. These

wells made up the bulk of the company’s production.

Production costs were $910 in the year ended July 31, 2010 compared to $254,127 in the prior year.

Despite a reduction in revenue for the year ended July 31, 2009, production costs were similar to those

in the year ended July 31, 2008 primarily due to the construction of the water pipeline on the 14-23 to

resolve the voidage problem in the Mulligan Area in order to be compliant with the ERCB

regulations. Shut downs and repairs as noted above were also responsible for the decreased

production costs as well.

General and administrative expenses in the year ended July 31, 2010 were $451,205 compared to

$696,304 in the prior year, a decrease of approximately $245,000. Approximately $275,000 was

incurred in legal, management and consulting fees in relation to efforts to reorganize the company, to

review and improve financial reporting and disclosure processes and to protect the company’s

remaining asset, the Pincher Creek property. Among other cost saving measures audit and accounting

fees were lower by $65,000 and insurance expense was reduced to nil from $35,000 in the prior year.

General and administrative expenses, not including stock-based compensation, for the year ended July

31, 2009 were approximately $600,000 higher than in the year ended July 31, 2008 primarily due to

$474,000 recorded in allowances for bad debts as required under GAAP. The Company has engaged

an experienced oil and gas accountant on a contract basis to assist in preparing all outstanding joint

interest receivables and related supporting documentation to actively pursue collection of the amounts

due from its partners. The balance of the increase to due to a legal and accounting expenses related to

management changes, the AGM and continuous disclosure matters. Stock-based compensation

included in the year ended July 31, 2008 was $3,936,231 compared to nil for the 2009 year end.

Total revenues $Nil $Nil $579 Nil

Loss from operations $(65,544) $(47,088) $(145,133) $(56,110)

Loss per share, basic and diluted

Total revenues Nil $6,942 $5,968 $29,536

Loss from operations $(143,630) $(139,383) $(194,981) $(200,812)

Loss per share, basic and diluted $(0.00) $(0.00) $(0.00) $(0.00)

Montello did not generate revenue during the first two quarters ended January 31, 2011 and October

31, 2011 as the pipeline for the Pincher Creek well has not been constructed and the company

continues to identify farm-in partners for its Tennessee properties.

Revenue during the year ended July 31, 2010 was the result of adjustments and corrections made for

revenue earned in prior periods. For all four quarters in the year there were no current revenues as the

well in Tennessee is shut down, the Pincher Creek well is still not on-line due to the inability of the

operator of record to obtain the permits to do so and the absence of revenues from the Mulligan wells

which were sold in the prior year,

Revenue for the quarter ended July 31, 2009, April 30, 2009 and January 31, 2009 were much lower

than previous quarters due to decreased production from Mulligan. The Mulligan wells which were

responsible for the bulk of the company’s production in prior periods were shut in for the construction

of a water pipeline during the month of December 2008 and for overhaul of the compressor station at

the 14-23-81-8W6 Battery. The lack of production from the 14-23 was due to repairs needed on the

compressor. Other production interruptions were due to pump jack motor repairs carried out on the 6-

9 and treator on the 14-4.

General and administrative expense for the three months ended January 31, 2011 was $ 73,872

consistent with the previous quarter not including the reduction from legal fees recovery of $23,500

from the settlement with Pennine. Expenses in the quarter ended January 31, 2011 decreased by

$50,702 compared to the three months ended January 31, 2010 due to the management’s continued

efforts to streamline operations.

General and administrative expenses for the three months ended July 31, 2010 were approximately

$150,000, the same amount as those in the same period in the previous year. Expenses for this period

were approximately $67,000 higher than in the quarter ended April 30, 2010 due primarily to

increased legal and consulting expenses related to the Pennine matter. Overall general and

administrative expenses for each quarter this year were lower than the same quarters last year due

primarily to management’s continued cost reduction measures and the absence of expenses relating to

the Tennessee operations. General and administrative expenses were approximately $42,000 higher in

the quarter ended January 31, 2010 than the quarter ended April 30, 2010 due to higher consultant fees

and legal fees relating to the Pennine matter.

General and administrative expenses for the October 31, 2009 quarter were approximately $30,000

higher than the preceding four quarters due to management change s and additional expenses related

to the Tennessee operations. Typical general and administrative expenses for those four quarters were

approximately $150,000 on average.

General and administrative expenses for the three months ended July 31, 2009 were approximately

$149,000, approximately $35,000 higher than the quarter ended April 30, 2009 due to accrued audit

fees, legal fees and additional expenses related to continuous disclosure matters and costs incurred to

bringing the company back trading from the cease trade invoked by ASC on December 1, 2009.

The Company did not incur production costs during the six months ended January 31, 2011, as the

pipeline for the Pincher Creek well has not been constructed and the company continues to identify

farm-in partners for its Tennessee properties.

Production costs were $910 in the year ended July 31, 2010 and relate primarily to adjustments for

prior periods. Production costs in the three months ended January 31, 2010, were primarily from

additional expenses incurred in relation to the attempts to produce from the Morgan Highpoint #3

well. The USD$35,000 bond relating to the Oneida wells that were transferred to a partner company

of Montello's were retained by the government of Tennessee for work not performed by the new

owners. This amount was included in production costs for the three months ended October 31, 2009

along with other costs related to work on Morgan Highpoint #3 well. Production costs for four

quarters preceding October 31, 2009, exceeded revenue due to the production problems described

above.

Loss from operations in the three months ended January 31, 2011 was $65,544, reduced from

$143,630 in the same period last year, primarily due to the reduced general and administrative

expenses mentioned above and the fact that Montello incurred production costs of $11, 304 last year

and Nil in the current period.

Loss from operations in the three months ended July 31, 2010 was approximately $90,000 higher than

the loss in the quarter ended April 30, 2010 primarily due to higher general and administrative costs.

The loss from operations in the three months ended January 31, 2010 was lower by $2,700,000

compared to the same period last year due to a $3,515,546 write down of the Sarcee property during

that period. The loss from operations in the three months ended October 31, 2009 was lower than the

same period in the prior year due to lower general and administration costs, the absence of stock based

compensation, a gain on foreign exchange of $4,400 versus a loss of $111,802 and lower depletion,

deprecation and accretion. Loss from operations in the three months ended July 31, 2009 and April

30, 2009 are fairly consistent as they relate primarily to production costs, depreciation, depletion and

accretion costs as well as production costs offset by very low revenue.

As at January 31, 2011, the Company had a working capital deficit of

During the six months ended January 31, 2011, the Company was involved in the following related

party transactions:

The Company has not entered into any off-balance sheet arrangements.

On October 26, 2009, Montello Resources Ltd. filed with the Court of Queen's Bench of Alberta a

statement of claim against Pennine and Desmond Smith. The statement of claim alleges that the

defendants breached their obligations by failing to prepare and circulate assignment and conveyance

documents for the Section 11 lands and Section 12 lands located near Pincher Creek, Alberta; failing

to make payments to landowners required to enable the construction and operation of a .26 kilometre

pipeline for the 1-11 Well; and failing to initiate drilling in the deep Rundle formation by 31 March

2009. In the statement of claim, Montello has sought various forms of relief, including but not limited

to damages of $2,500,000, an order that Pennine convey its interest in 11-4-29 W4M to Montello, and

an order that Pennine be removed as operator.

On September 9, 2010 Montello entered into an agreement with Pennine Petroleum Corporation to

settle all claims against Pennine and Desmond Smith. The settlement agreement included nondisclosure

and confidentiality provisions and does not reflect any admission by either Pennine or

Montello, their affiliates, directors or officers. The settlement has been entered into on the basis that it

best serves the interests of both companies and their shareholders. As a result of the settlement

Montello recovered legal cost of $23,500 incurred during the legal proceedings.

During the year ended July 31, 2009, the Company was sued for $40,700 relating to a builders’ lien

for work performed on a minerals lease. A default judgment of $40,700 was entered against the

Company on May 12, 2010, of which $25,217 was paid in May 2010 and $15,483 was paid in

September 2010.

There are no ongoing legal proceedings of any kind initiated by third parties against the company and

there are no contingent liabilities and no default under debt or other contractual obligations. There

were no special resolutions passed by shareholders.

The Company did not enter into any material contracts during the period.

As at April 1, 2011, the Company had 199,325,406 common shares issued and outstanding

As at April 1, 2011, the Company did not have any share purchase warrants or stock options

outstanding.

The Company did not enter into any investor relations contracts in the period.

Montello had been subject to a voluntary management cease trade order issued by the Alberta

Securities Commission (the "ASC") on December 1, 2009 related to the delay in its filing of the

Annual Disclosure (the "MCTO") which was set to expire on January 29, 2010. After discussions with

its auditors, Montello confirmed with the ASC that the Required Filings would not be ready prior to

the expiry of the MCTO.

As a result, on January 29, 2010, the Alberta Securities Commission issued a general Cease Trade

Order against the Company for failure to file its audited financial statements, management's

discussion and analysis, and related CEO and CFO certifications for the year ended July 31, 2009 and

its interim unaudited financial statements, interim management's discussion and analysis for the

quarter ended October 31, 2009.

In turn, the Company's securities were suspended from trading on the TSX Venture Exchange until

such time as the Cease Trade Order has been revoked and the Company meets TSX Venture Exchange

requirements in relation to reinstatement of trading, including meeting Tier Maintenance

Requirements.

Upon filing of the interim consolidated financial statements for the three months ended October 31,

both the annual reporting requirements and the interim reporting requirements will have been

completed. However until the filings are reviewed and accepted and additional documentation is

filed, the cease trade order (“CTO”) issued by the Alberta Securities Commission (“ASC”) on January

29, 2010 will remain in effect.

On February 28, 2011 Montello had its pre-filing conference with the TSX Venture regarding reinstatement

for trading. The purpose of this conference was to outline the steps to be taken to meet the

TSX Venture requirements that will allow the company to trade after its revocation application has

been accepted by the Alberta Securities Commission. Having completed this conference, the

company is now in a position to submit its revocation application which includes setting a date for the

company's Annual General Meeting (AGM). Since the AGM has not been held within the prescribed

time, the company is required to petition the court for an extension. Management has begun the

process of petitioning the court and the completion of other requirements.

Montello will inform its shareholders once the court has responded and given the extension. Upon

receipt of a positive response from the revocation process, the company will then formally submit a

relisting request to the TSX.

On February 2, 2011 the Company received an additional loan of $12,500 from Tosca Capital Corp.,

resulting in total loan payable to Tosca of $250,000. The Company and Tosca finalized the purchase

of the 5% working interest in the Company’s Pincher Creek Property, as stated in the Letter of Intent

dated June 8, 2010, by applying the loan of $250,000 as full consideration.