U.S. SECURITIES AND EXCHANGE
COMMISSION






WASHINGTON,
D.C. 20549













FORM
10-K






Mark
One






[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES






EXCHANGE
ACT OF 1934






For the
fiscal year ended December 31, 2009






[
] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES






EXCHANGE
ACT OF 1934




For
      the transition period from ______ to _______
              
              COMMISSION
      FILE NO. 000-52139
              
              MORGAN
      CREEK ENERGY CORP.
              ________________________
              (Name
      of small business issuer in its charter)
              
              NEVADA                                                                    201777817
              __________                                                          _______________
              (State
      or other jurisdiction of
      incorporation                            (I.R.S.
      Employer
              or
      organization)                    
                                               Identification
      No.)





5050 QUORUM DRIVE, SUITE
700


DALLAS,
TEXAS 75254


(Address
of principal executive offices)





(214)
      321-0603
              _____________
              (Issuer's
      telephone number)
              
              Securities
      registered pursuant to Section    Name of each
      exchange on which
              12(b)
      of the
      Act:                         registered:
              NONE
              ____











1





Securities
registered pursuant to Section 12(g) of the Act:


COMMON STOCK,
$0.001


(Title of
Class)




Check
whether the issuer is not required to file reports pursuant to Section
13


or 15(d)
of the Exchange Act. [   ]






Indicate
by check mark if the registration is a well-known seasoned issuer as defined in
Rule 403 of the Securities Act.  [   ]
Yes   [ X ] No






Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  [ X ]
Yes   [   ] No






Indicate
by check mark whether the registrant has (i) filed all reports required to be
filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (ii) has been subject to such filing requirements for the past 90 days. Yes
[X] No [   ]




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




Indicate by check mark if disclosure of
delinquent filers pursuant to Item 405 of Regulation S-K is not contained in
this form, and will not be contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K. [X]






Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated file, or a smaller reporting company. See
the definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.






Large
accelerated filed
[   ]                                                                                  Accelerated
filer [   ]






Non-accelerated
filer
[   ]                                                                                     Smaller
reporting company [X]






Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act). Yes [   ] No [X]






State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
sold, or the average bid and asked price of such common equity, as of a
specified date within the past 60 days. April 7, 2010: $9,529,070












2






ISSUERS
INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS






N/A






Check
whether the issuer has filed all documents and reports required to be filed by
Section 12, 13 and 15(d) of the Securities Exchange Act of 1934 after the
distribution of securities under a plan confirmed by a court. Yes[ ] No[
]






APPLICABLE
ONLY TO CORPORATE REGISTRANTS






State the
number of shares outstanding of each of the issuer’s classes of common equity,
as of the latest practicable date.




Class
            Outstanding
      as of  April 7, 2010Common
      Stock, $0.001
            34,032,392*







*Increased
from 17,016,196 shares of common stock to 34,032,392 shares of common stock
based upon the forward stock split of two shares for each one share issued and
outstanding effected on the market as of August 3, 2009.






DOCUMENTS
INCORPORATED BY REFERENCE






If the
following documents are incorporated by reference, briefly describe them and
identify the part of the Form 10-K (e.g., Part I, Part II, etc.) into which the
document is incorporated: (i) any annual report to security holders; (ii) any
proxy or information statement; and (iii) any prospectus filed pursuant to Rule
424(b) or (c) of the Securities Act of 1933 (the "Securities Act"). The listed
documents should be clearly described for identification purposes (e.g. annual
reports to security holders for fiscal year ended December 24,
1990).






N/A






Transitional
Small Business Disclosure Format (Check one): Yes [ ] No [X]





































3
















MORGAN
CREEK ENERGY CORP.


Form
10-K




INDEX




Item
      1.
            Business
            5Item
      1A.
            Risk
      Factors
            17Item
      1B.
            Unresolved
      Staff Comments
            29Item
      2.
            Properties
            29Item
      3.
            Legal
      Proceedings
            29Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            29Item
      5.
            Market
      for Registrant’s Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities
            31Item
      6.
            Selected
      Financial Data
            36Item
      7.
            Management’s
      Discussion and Analysis of Financial Condition and Results of
      Operation
            37Item
      7A.
            Quantitative
      and Qualitative Disclosure About Market RisksItem
      8.
            Financial
      Statements and Supplemental Data
            42Item
      9.
            Changes
      in and Disagreements With Accountants on Accounting and Financial
      Disclosure
            60Item
      9A
            Controls
      and Procedures
            60Item
      9B
            Other
      Information
            61Item
      10.
            Directors,
      Executive Officers and Corporate Governance
            62Item
      11.
            Executive
      Compensation
            70Item
      12.
            Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters
            74Item
      13.
            Certain
      Relationships and Related Transactions and Director
      Independence
            75Item
      14.
            Principal
      Accountant Fees and Services
            75Item
      15.
            Exhibits
      and Financial Statement Schedules
            76













4











Statements made in this Form 10-K that are
not historical or current facts are "forward-looking statements" made pursuant
to the safe harbor provisions of Section 27A of the Securities Act of 1933 (the
"Act") and Section 21E of the Securities Exchange Act of 1934. These statements
often can be identified by the use of terms such as "may," "will," "expect,"
"believe," "anticipate," "estimate," "approximate" or "continue," or the
negative thereof. We intend that such forward-looking statements be subject to
the safe harbors for such statements. We wish to caution readers not to place
undue reliance on any such forward-looking statements, which speak only as of
the date made. Any forward-looking statements represent management's best
judgment as to what may occur in the future. However, forward-looking statements
are subject to risks, uncertainties and important factors beyond our control
that could cause actual results and events to differ materially from historical
results of operations and events and those presently anticipated or projected.
We disclaim any obligation subsequently to revise any forward-looking statements
to reflect events or circumstances after the date of such statement or to
reflect the occurrence of anticipated or unanticipated events.





Available
Information





Morgan
Creek Energy Corp. files annual, quarterly, current reports, proxy statements,
and other information with the Securities and Exchange Commission (the
“Commission”). You may read and copy documents referred to in this Annual Report
on Form 10-K that have been filed with the Commission at the Commission’s Public
Reference Room, 450 Fifth Street, N.W., Washington, D.C.  You may
obtain information on the operation of the Public Reference Room by calling the
Commission at 1-800-SEC-0330.  You can also obtain copies of our
Commission filings by going to the Commission’s website at
http://www.sec.gov








PART
I





ITEM
1. BUSINESS





BUSINESS
DEVELOPMENT





Morgan
Creek Energy Corp. was incorporated under the laws of the State of Nevada on
October 19, 2004 and has been engaged in the business of exploration of oil and
gas bearing properties in the United States since its inception. After the
effective date of our registration statement filed with the Securities and
Exchange Commission (February 14, 2006), we commenced trading on the
Over-the-Counter Bulletin Board under the symbol “MCKE:OB”. Our shares are also
traded on the Frankfurt Stock Exchange in Germany under the symbol
“M6C”.





Please
note that throughout this Annual Report, and unless otherwise noted, the words
"we," "our," "us," the "Company," or "Morgan Creek," refers to Morgan Creek
Energy Corp.


















5





RECENT
DEVELOPMENTS





August
3, 2009 Forward Stock Split





On July
14, 2009, our Board of Directors pursuant to a Board of Directors meeting
authorized and approved a forward stock split of two for one of our total issued
and outstanding shares of common stock (the “Forward Stock Split”).





The
Forward Stock Split was effectuated based on market conditions and upon a
determination by our Board of Directors that the Forward Stock Split was in our
best interests and of the shareholders. Certain factors were discussed among the
members of the Board of Directors concerning the need for the Forward Stock
Split, including the increased potential for financing. The intent of the
Forward Stock Split is to increase the marketability of our common
stock.





The
Forward Stock Split was effectuated on August 3, 2009 upon filing the
appropriate documentation with NASDAQ. The Forward Stock Split increased our
total issued and outstanding shares of common stock from 17,016,196 to
approximately 34,032,392 shares of common stock. The common stock will continue
to be $0.001 par value.





Amendment
to Articles of Incorporation





Commensurate
with the Forward Stock Split, the authorized share capital was increased from
33,333,333 shares of common stock to 66,666,666 shares of common stock with a
par value of $0.001 per share.  An amendment to our Articles of
Incorporation was filed with the Nevada Secretary of State on July 31, 2009
affecting the increase in our authorized capital.




TRANSFER
AGENT




Our
transfer agent is Transfer Online, Inc., 512 S.E. Salmon Street, Portland,
Oregon 97214





CURRENT
BUSINESS OPERATIONS





We are an
exploration stage company that was organized to enter into the oil and gas
industry.  We intend to locate, explore, acquire and develop oil and
gas properties in the United States and within North America. Our primary
activity and focus is our leases in New Mexico (“New Mexico Prospect”). The
leases are unproven. To date we have leased approximately 7,576 net acres within
the State of New Mexico. We have also acquired approximately an additional 5,763
net acres in New Mexico. We have entered into an Option Agreement to participate
in approximately 8,000 net acres in Oklahoma. In addition, we acquired leases in
Texas (the “Quachita Prospect”).  As of the date of this Annual
Report, we have acquired approximately 1,971 net acres. During the production
testing and evaluation period on the first well on the property, the Boggs #1,
four of the five tested zones produced significant volumes of natural gas.
Analysis of the gas indicates a “sweet” condensate rich gas with BTU values of
1,000. This quality will yield a premium price over the current U.S. average
natural gas price.  As formation water was also produced with the
natural gas in the tested zones, the Boggs #1 is currently under
evaluation.













6





OIL
GAS PROPERTIES





The
acreage and location of our oil and gas properties is summarized as
follows:





Net Acres(*)New
      Mexico
            13,339Total:
            13,339







(*)
            Certain
      of our interests in our oil and gas properties may be less than
      100%.  Accordingly, we have presented the acreage of our oil and
      gas properties on a net acre basis.





Quachita
Prospect





As of the
date of this Annual Report, we lease approximately 1,971 net acres within the
Quachita Trend in the State of Texas for a three-year term in consideration of
approximately $338,000. We have a 100% working interest and a 77% net revenue
interest in the Quachita Prospect leases. During 2009, the balances of the
leases within the Quachita trend were allowed to lapse without renewal by the
Company.  Accordingly, during the year the Company wrote off the
original cost of these leases toltaling $338,353.  As allowed for
under the lease wihich included the Boggs #1 well, the Company has paid a
nominal fee to maintain its rights and access to the Boggs #1 well.





Boggs #1 Well.We
completed the drilling portion of the Boggs #1 well on July 13, 2007.
Subsequently, we began production testing and evaluation of the well. Of the
five tested zones, four produced significant volumes of natural gas. As
formation water was also produced with the natural gas in the tested zones, the
Boggs #1 is currently under evaluation. We intend to secure all immediate rights
relating to oil and gas in the areas providing control over any potential major
structural play that develops as a result of this in-depth
exploration.





The Boggs
#1 had been privately funded with the funding investors receiving a 75% working
interest and a 54% net revenue interest in exchange for providing 100% of all
drilling and completion costs. Therefore, we initially retained a 25% working
interest and a 23% net revenue interest in the Boggs #1 well. As of June 30,
2009, we incurred $1,357,208 in drilling and completion costs. As of June 30,
2009, we had received a total of $759,000 in funding from private investors. On
March 24, 2008, we negotiated with the funding investors to acquire their
interest in the Boggs #1 for $759,000 (which amount is equal to the total amount
of the funding investors’ initial investment) and forgiveness of any additional
amounts owing. Effective on March 24, 2008, we completed the acquisition and
settlement of related party advances totaling $962,980 through the issuance of
3,057,076 shares of our restricted common stock at $0.315 per share. The
difference between the estimated fair value of the common shares at issuance and
the amount of the debt settled totaling $45,857 was recorded as a finance cost.
See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.













7





New
Mexico Prospect





As of the
date of this Annual Report, we have leased various properties in the New Mexico
Prospect totaling approximately 7,576 net acres within the State of New Mexico
for a five year term in consideration for $112,883. We have a 100% working
interest and an 84.5% net revenue interest in the leases comprising the New
Mexico Prospect.





Westrock Land Corp. Option Agreement.Effective on October 31, 2008, our Board of Directors authorized the
execution of an option agreement (the “Option Agreement”) with Westrock Land
Corp, a private Texas corporation (“Westrock”). In accordance with the terms and
provisions of the Option Agreement: (i) Westrock owns all right, title and
interest in and to approximately 7,763 net acres of  property within
the State of New Mexico with a net revenue interest of 81.5% pertaining to 5,746
of the net acres (the “New Mexico Leases”); (b) Westrock ; (iii) we desire to
acquire a 100% working interest in the New Mexico Leases for a total purchase
price of approximately $388,150; and (iv) we have until April 16, 2009 to
complete our due diligence (the “Option Period”).




The
Option Agreement was subsequently extended on March 31, 2009 and June 1, 2009
whereby the option period was extended to September 15, 2009. We exercised our
option with Westrock and acquired the approximate 5,746 net acres in New
Mexico.




Formcap Corporation
Option Agreement.Effective on July 14, 2009, our Board of Directors,
pursuant to unanimous vote at a special meeting of the Board, authorized the
execution of a letter agreement dated July 9, 2009 (the “Option Agreement”) with
Formcap Corporation (“Formcap”), to purchase a 50% working interest (40.75% net
revenue interest) of our 81.5% leasehold interest in and to certain leases
located in Curry County, State of New Mexico (the “Frio Draw Prospect
Interest”).




In
accordance with the terms and provisions of the Option Agreement: (i) Formcap
agreed to pay us a $100,000 initial payment (the “Initial Payment”) within five
business days from the completion of its due diligence; (ii)  the
balance of funds for the initial well would be advanced by FormCap to us within
five business days from receipt of a mutually agreed upon approval for
expenditure, which balance of such funds for the initial well were to be
received by us no later than September 8, 2009; and (iii) the Initial Payment
would be applied towards the total consideration to be paid by FormCap to us,
which would include the cost of drilling and completing two wells at a total
estimated cost of approximately $1,300,000.




In
accordance with the further terms and provisions of the Option Agreement: (i)
FormCap would provide to us the dry hole and completion costs estimated at
$650,000 in advance of drilling the first well; (ii) upon drilling and
completion of the first well, we would assign to FormCap a 25% working interest
(20.375% net revenue interest) in the Frio Draw Prospect Interest; and (iii)
upon receipt by us of the funds from Formcap in advance of drilling the second
well, we would assign to FormCap the additional 25% working interest (20.375%
net revenue interest). Costs associated with the drilling of all subsequent
wells were to be shared on an equal basis between us and FormCap.




We
granted to FormCap the time period between the date of execution of the Option
Agreement and August 15, 2009 to complete its due diligence (the “Option
Period”). During the period FormCap advanced a non-refundable $100,000 deposit
under the terms of the Option to secure the project in connection with which we
paid a finders’ fee of $20,000.  On September 24, 2009, we announced
that FormCap could not meet the requirements of the Option Agreement and thus
forfeited its rights to the project. We retained the $100,000 non-refundable
deposit and recorded it as a gain on expired option.










8




Oklahoma
Prospect




Effective
on June 2, 2009, our Board of Directors, pursuant to unanimous vote at a special
meeting of the Board, authorized the execution of a letter agreement dated May
28, 2009, as amended (the “Option Agreement”) with Bonanza Resources (Texas)
Inc., the wholly owned subsidiary of Bonanza Resources Corporation (“Bonanza
Resources”), to purchase a certain percentage of Bonanza Resources’ eighty-five
percent (85%) leasehold interest (the “Bonanza Resources Interest”) in and to
certain leases located in Beaver County, State of Oklahoma, known as the North
Fork 3-D Prospect (the “Prospect”). In accordance with the terms and provisions
of the Option Agreement: (i) we agreed to make a non-refundable payment to
Bonanza Resources of $150,000 within sixty (60) days from the date of the Option
Agreement; and (ii) Bonanza Resources agreed to grant to us an option having an
exercise period of one year (the “Option Period”) to purchase a sixty percent
(60%) partial interest (the “Partial Interest”) in the Bonanza Resources
Prospect. In further accordance with the terms and provisions of the Option
Agreement, in the event we do not pay the $150,000 to Bonanza Resources within
sixty days from the date of the Option Agreement, the Option Agreement will
terminate.






The
Bonanza Resources Interest is held by Bonanza Resources pursuant to that certain
letter agreement between Bonanza Resources, Ryan Petroleum LLC and Radian Energy
L.C. dated February 25, 2009 (the “Original Agreement”). In accordance with the
terms and provisions of the Original Agreement, Bonanza Resources acquired the
Bonanza Resources Interest and subsequently represented to us that the acreage
of the Bonanza Resources Interest consisted of 8,555 acres. Therefore, the
Option Agreement reflected the acreage of the Bonanza Resources Interest to
consist of 8,555 acres, which has been subsequently disclosed by us in numerous
filings with the Securities and Exchange Commission.






Furthermore,
in the event we pay the $150,000 to Bonanza Resources within the sixty day
period from the date of the Option Agreement, and in accordance with the further
terms and provisions of the Option Agreement: (i) we shall assume that amount of
Bonanza Resources’ right, title and interest and obligations under the Original
Agreement as is proportionate to the Partial Interest; and (ii) we must incur
$2,400,000 in exploration and drilling expenditures (the “Exploration
Expenditures”) during the Option Period. In the event that we do not exercise
the Option Agreement, Bonanza Resources shall retain the $150,000 as liquidated
damages for our failure to incur the Exploration Expenditures.






During
the course of our due diligence, we discovered that the size of the Bonanza
Resources Interest is not the original represented 8,555 acres but approximately
5,600 acres, which we alleged was materially less than represented by Bonanza
Resources and contracted for under the Option Agreement. Bonanza Resources has
stated to us that the actual lesser amount of acreage forming the Bonanza
Resources Interest was due to certain leases not being renewed by the operator
of the Prospect, thus expiring prior to the date of the Option Agreement,
without first advising Bonanza Resources either orally or in writing of the
operator’s intention to allow those leases to expire. Bonanza Resources further
stated to us that it discovered the facts regarding the acreage approximately
November 26, 2009. We in good faith relied on the representations of Bonanza
Resources when we entered into the Option Agreement and now know that such
representations were not correct.










9




Therefore,
as of November 30, 2009, we entered into an amendment of the Option Agreement
with Bonanza Resources (the “Amendment”). In accordance with the terms and
provisions of the Amendment, Bonanza Resources granted to us an option to
acquire a 75% interest in the Bonanza Resources Interest (a 59.50% working
interest) by incurring the full costs of drilling one well to completion on the
Prospect, which will deem us as having earned an interest in that well and in
the balance of the Prospect. In the event we incur the full cost of drilling the
first well which results in a dry hole, we will then have the exclusive right
and option to participate in any and all further drilling programs on the
Prospect and to incur the full costs of drilling a second well to completion on
the Prospect. This will deem us as having earned its option to acquire the 75%
interest of the Bonanza Resources Interest in both that well and the balance of
the Prospect.






Therefore,
in light of the fact that the Bonanza Resources Interest is actually comprised
of a number of acres materially less than originally represented by Bonanza
Resources, we hereby: (i) advise the public that we believed the accurate number
of acres forming the Bonanza Resources Interest is approximately 5,600 acres and
that our website has been amended accordingly; and (ii) advise the public of the
Amendment.






During
fiscal year ended December 31, 2009, we paid to Bonanza $115,000. The balance of
$35,000 was due by December 31, 2009. Subsequently on January 12, 2010, the
non-refundable payment was amended from $150,000 to $125,000. On January 15,
2010, we made the final payment of $10,000.






Subsequently
on January 15, 2010, we entered into a participation agreement to finance
drilling and completion costs with two partners who will pay 67% of the costs of
the first well in the Prospect. We will pay 33% of the drilling and completion
costs.






Our
management decided to prioritize the exploration drilling program on the North
Fork 3D prospect in Beaver County. We have completed a multi-component
interpretive 3-D survey on approximately 8,500 acres to image the Morrow A and B
sands. Management believes that this 3-D interpretive survey has identified
forty drill ready target locations. On February 1, 2010, we were informed by our
operator that it had drilled the Nowlin #1-19 well to a depth of 8,836 feet.
After review of the drilling logs, we have determined that oil is not producible
in the targeted Morrow A and B sand formations. We are currently reviewing the
geological and geophysical data with our partners to determine if there are any
further targets within the leased acreage on the Prospect.






DRILLING
ACTIVITY






As of the
date of this Annual Report, we have not commenced drilling on any of our
wells.










10




GROSS
      WELLS                                                                NET
      WELLS
              
              
              Total       Producing        Dry                                                   Total      Producing      Dry
              -0-               -0-               
       -0-                                                     -0-               
      -0-            
        -0-




PRODUCTION
INFORMATION






During
fiscal year ended December 31, 2009 and previously, we had no oil and gas
production.






GROSS
AND NET PRODUCTIVE GAS WELLS, DEVELOPED ACREAGE






PRODUCTIVE
WELLS AND DEVELOPED ACRES






As of the
date of this Annual Report, the tables below set forth our leasehold interest in
productive and shut-in gas wells, and in developed acres:




PROSPECT                                       GROSS
      (1)                                        NET
      (2)
              
              New
      Mexico
      Prospect                           -0-                                                    -0-
              Oklahoma
      Prospect                               -0-                                                    -0-
              
              Total                                                    
         -0-                                               
          -0-




(1) A
gross well is a well in which a working interest is owned. The number of gross
wells is the total number of wells in which a working interest is
owned.






(2) A net
well is deemed to exist when the sum of fractional ownership working interest in
gross wells equals one. The number of net wells is the sum of the fractional
working interests owned in gross wells expressed as whole numbers and fractions
thereof.






DEVELOPED
ACREAGE TABLE(1)




PROSPECT                            GROSS
      (2)                                             NET
      (3)
              
              New
      Mexico
      Prospect                -0-                                                        -0-
              Oklahoma
      Prospect                    -0-                                                        -0-
              
              Total                                       
          -0-                                                         -0-




(1)
Consists of acres spaced or assignable to productive wells.










11




(2) A
gross acre is an acre in which a working interest is owned. The number of gross
acres is the total number of acres in which a working interest is
owned.






(3) A net
acre is deemed to exist when the sum of fractional ownership working interests
in gross acres equals one. The number of net acres is the sum of the fractional
working interests owned in gross acres expressed as whole numbers and fractions
thereof.











PROPOSED
FUTURE BUSINESS OPERATIONS





Our
strategy is to complete the further acquisition of additional oil and gas
opportunities that fall within the criteria of providing a geological basis for
development of drilling initiatives that can provide near term revenue potential
and fast drilling capital repatriation from production cash flows to create
expanding reserves. We anticipate that our ongoing efforts, subject to adequate
funding being available, will continue to be focused on successfully concluding
negotiations for additional tracts of prime acreage in the coal bed methane and
other gas producing domains, and to implement the drilling of new wells to
develop reserves and to provide revenues. We plan to build a strategic base of
proven reserves and production.





Our
ability to continue to complete planned exploration activities and expand land
acquisitions and explore drilling opportunities is dependent on adequate capital
resources being available and further sources of debt and equity being obtained.
The two following alternatives provide the basis for business development
options:





Development
of Current Leases





The
requirement to raise further funding for oil and gas exploration beyond that
obtained for the next six month period continues to depend on the outcome of
geological and engineering testing occurring over this interval. Based upon the
completion of current property evaluations on the Quachita Prospect and the
Oklahoma Prospect, and if results provide the basis to continue development and
geological studies indicate high probabilities of sufficient production
quantities, we will attempt to raise capital to further our drilling program to
establish up to six wells on leases in hand, build production infrastructure and
pipeline, and raise additional capital for drilling on the New Mexico Prospect
and the Oklahoma Prospect and further land acquisitions. This has included the
following activity:





·
            Site
      preparation for entry into current wellbores including roadway upgrade and
      operations site, design, review, and finalize testing procedures, book
      zone fracture and testing consultants, arrange equipment
      required.





·
            Pull
      old well tubing, run test tools in wellbore, cut well casing, test target
      gas zones with acid and water.





·
            If
      gas content conducive to production, complete well by inserting downhole
      pump and rods, set pumping unit, wellhead, and gas
  line.













12




·
            Complete
      pipeline.





·
            Create
      well development model and investment documents to develop wells on
      subject leases including funding
plan.





·
            Create
      investor communications materials, corporate
  identity.





·
            Raise
      funding for well development.





·
            Drill,
      complete, and produce from well drilling program and selective re-entry
      programs.





·
            Target
      further leases for exploration potential and obtain further funding to
      acquire new development targets.





New
Lease Acquisition and Development





If gas
quality and quantities are not deemed sufficient from work to be conducted on
our current leases during the first six months of operation, additional land
acquisitions will be assessed and obtained subject to adequate capital resources
being available and further sources of debt and equity being obtained. The
following outlines anticipated activities pursuant to this business
option.





·
            Site
      preparation for entry into current wellbores including roadway upgrade and
      operations site, design, review, and finalize testing procedures, book
      zone fracture and testing consultants, arrange equipment
      required.





·
            Pull
      old well tubing, run test tools in wellbore, cut well casing, test target
      gas zones with acid and water,





·
            If
      gas content not deemed conducive to production, target further leases for
      exploration potential and obtain further funding to acquire new
      development targets.





We will
require additional funding to implement our proposed future business activities.
See "Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operation."





We do not
expect to purchase any significant equipment or increase significantly the
number of our employees during the next twelve months. Our current business
strategy is to obtain resources under contract where possible because management
believes that this strategy, at its current level of development, provides the
best services available in the circumstances, leads to lower overall costs, and
provides the best flexibility for our business operations.





COMPETITION













13





We
operate in a highly competitive industry, competing with major oil and gas
companies, independent producers and institutional and individual investors,
which are actively seeking oil and gas properties throughout the world together
with the equipment, labor and materials required to operate properties. Most of
our competitors have financial resources, staffs and facilities substantially
greater than ours. The principal area of competition is encountered in the
financial ability to acquire good acreage positions and drill wells to explore
for oil and gas, then, if warranted, drill production wells and install
production equipment. Competition for the acquisition of oil and gas wells is
intense with many oil and gas properties and/or leases or concessions available
in a competitive bidding process in which we may lack technological information
or expertise available to other bidders. Therefore, we may not be successful in
acquiring and developing profitable properties in the face of this competition.
No assurance can be given that a sufficient number of suitable oil and gas wells
will be available for acquisition and development.





GOVERNMENT
REGULATION





The
production and sale of oil and gas are subject to various federal, state and
local governmental regulations, which may be changed from time to time in
response to economic or political conditions and can have a significant impact
upon overall operations. Matters subject to regulation include discharge permits
for drilling operations, drilling bonds, reports concerning operations, the
spacing of wells, unitization and pooling of properties, taxation, abandonment
and restoration and environmental protection. These laws and regulations are
under constant review for amendment or expansion. From time to time, regulatory
agencies have imposed price controls and limitations on production by
restricting the rate of flow of oil and gas wells below actual production
capacity in order to conserve supplies of oil and gas. Changes in these
regulations could require us to expend significant resources to comply with new
laws or regulations or changes to current requirements and could have a material
adverse effect on our business operations.





Regulation
of Oil and Natural Gas Production





Our oil
and natural gas exploration, production and related operations are subject to
extensive rules and regulations promulgated by federal, state and local
authorities and agencies. Failure to comply with such rules and regulations can
result in substantial penalties. The regulatory burden on the oil and natural
gas industry increases our cost of doing business and affects our profitability.
Although we believe we are in substantial compliance with all applicable laws
and regulations, because such rules and regulations are frequently amended or
reinterpreted, we are unable to predict the future cost or impact of complying
with such laws.





Many
states require permits for drilling operations, drilling bonds and reports
concerning operations and impose other requirements relating to the exploration
and production of oil and natural gas. Such states also have statutes or
regulations addressing conservation matters, including provisions for the
unitization or pooling of oil and natural gas properties, the establishment of
maximum rates of production from wells, and the regulation of spacing, plugging
and abandonment of such wells.





Federal
Regulation of Natural Gas





The
Federal Energy Regulatory Commission ("FERC") regulates interstate natural gas
transportation rates and service conditions, which affect the marketing of
natural gas produced by us, as well as the revenues received by us for sales of
such production. Since the mid-1980's, FERC has issued a series of orders that
have significantly altered the marketing and transportation of natural gas.
These orders mandate a fundamental restructuring of interstate pipeline sales
and transportation service, including the unbundling by interstate pipelines of
the sale, transportation, storage and other components of the city-gate sales
services such pipelines previously performed. One of FERC's purposes in issuing
the orders was to increase competition within all phases of the natural gas
industry. Certain aspects of these orders may be modified as a result of various
appeals and related proceedings and it is difficult to predict the ultimate
impact of the orders on us and others. Generally, the orders eliminate or
substantially reduce the interstate pipelines' traditional role as wholesalers
of natural gas in favor of providing only storage and transportation service,
and have substantially increased competition and volatility in natural gas
markets.











14





The
price, which we may receive for the sale of oil and natural gas liquids, would
be affected by the cost of transporting products to markets. FERC has
implemented regulations establishing an indexing system for transportation rates
for oil pipelines, which, generally, would index such rates to inflation,
subject to certain conditions and limitations. We are not able to predict with
certainty the effect, if any, of these regulations on any future operations.
However, the regulations may increase transportation costs or reduce wellhead
prices for oil and natural gas liquids.





Environmental
Matters





Our
operations and properties will be subject to extensive and changing federal,
state and local laws and regulations relating to environmental protection,
including the generation, storage, handling, emission,
transportation  and discharge of materials into the environment, and
relating to safety and health. The recent trend in environmental legislation and
regulation generally is toward stricter standards, and this trend will likely
continue. These laws and regulations may (i) require the acquisition of a permit
or other authorization before construction or drilling commences and for certain
other activities; (ii) limit or prohibit construction, drilling and other
activities on certain lands lying within wilderness and other protected areas;
and (iii) impose substantial liabilities for pollution resulting from our
operations. The permits required for several of our operations are subject to
revocation, modification and renewal by issuing authorities. Governmental
authorities have the power to enforce their regulations, and violations are
subject to fines or injunctions, or both. In the opinion of management, we are
in substantial compliance with current applicable environmental law and
regulations, and we have no material commitments for capital expenditures to
comply with existing environmental requirements. Nevertheless, changes in
existing environmental laws and regulations or in interpretations thereof could
have a significant impact on our business operations, as well as the oil and
natural gas industry in general.





The
Comprehensive Environmental, Response, Compensation, and Liability Act ("CERCL
") and comparable state statutes impose strict, joint and several liabilities on
owners and operators of sites and on persons who disposed of or arranged for the
disposal of "hazardous substances" found at such sites. It is not uncommon for
the neighboring landowners and other third parties to file claims for personal
injury and property damage allegedly caused by the hazardous substances released
into the environment. The Federal Resource Conservation and Recovery Act
("RCRA") and comparable state statutes govern the disposal of "solid waste" and
"hazardous waste" and authorize the imposition of substantial fines and
penalties for noncompliance. Although CERCLA currently excludes petroleum from
its definition of "hazardous substance," state laws affecting our operations
impose clean-up liability relating to petroleum and petroleum related products.
In addition, although RCRA classifies certain oil field wastes as
"non-hazardous," such exploration and production wastes could be reclassified as
a hazardous wastes, thereby making such wastes subject to more stringent
handling and disposal requirements.










15





We intend
to acquire leasehold interests in properties that for many years have produced
oil and natural gas. Although the previous owners of these interests may have
used operating and disposal practices that were standard in the industry at the
time, hydrocarbons or other wastes may have been disposed of or released on or
under the properties. In addition, some of our properties may be operated in the
future by third parties over which we have no control. Notwithstanding our lack
of control over properties operated by others, the failure of the operator to
comply with applicable environmental regulations may, in certain circumstances,
adversely impact our business operations.





The
National Environmental Policy Act ("NEPA") is applicable to many of our planned
activities and operations. NEPA is a broad procedural statute intended to ensure
that federal agencies consider the environmental impact of their actions by
requiring such agencies to prepare environmental impact statements ("EIS") in
connection with all federal activities that significantly affect the
environment. Although NEPA is a procedural statute only applicable to the
federal government, a portion of our properties may be acreage located on
federal land. The Bureau of Land Management's issuance of drilling permits and
the Secretary of the Interior's approval of plans of operation and lease
agreements all constitute federal action within the scope of NEPA. Consequently,
unless the responsible agency determines that our drilling activities will not
materially impact the environment, the responsible agency will be required to
prepare an EIS in conjunction with the issuance of any permit or
approval.





The
Endangered Species Act ("ESA") seeks to ensure that activities do not jeopardize
endangered or threatened animals, fish and plant species, nor destroy or modify
the critical habitat of such species. Under ESA, exploration and production
operation, as well as actions by federal agencies, may not significantly impair
or jeopardize the species or their habitat. ESA provides for criminal penalties
for willful violations of the Act. Other statutes that provide protection to
animal and plant species and that may apply to our operations include, but are
not necessarily limited to, the Fish and Wildlife Coordination Act, the Fishery
Conservation and Management Act, the Migratory Bird Treaty Act and the National
Historic Preservation Act. Although we believe that our operations are in
substantial compliance with such statutes, any change in these statutes or any
reclassification of a species as endangered could subject us to significant
expense to modify our operations or could force to discontinue certain
operations altogether.





Management
believes that we are in substantial compliance with current applicable
environmental laws and regulations.





RESEARCH
AND DEVELOPMENT ACTIVITIES





No
research and development expenditures have been incurred, either on our account
or sponsored by customers, to the date of our inception.





EMPLOYEES





We do not
employ any persons on a full-time or on a part-time basis. Peter Wilson is our
President/Chief Executive Officer and William Thomas is our Chief Financial
Officer/Treasurer. These individuals are primarily responsible for all of our
day-to-day operations. Other services are provided by outsourcing and consultant
and special purpose contracts.














16





ITEM
1A. RISK FACTORS





An
investment in our common stock involves a number of very significant risks. You
should carefully consider the following risks and uncertainties in addition to
other information in evaluating our company and its business before purchasing
shares of our common stock. Our business, operating results and financial
condition could be seriously harmed due to any of the following risks. The risks
described below are all of the material risks that we are currently aware of
that are facing our company. Additional risks not presently known to us may also
impair our business operations. You could lose all or part of your investment
due to any of these risks.





RISKS
RELATED TO OUR BUSINESS





We
Will Need to Raise Additional Financing to Complete Further
Exploration.




We will
require significant additional financing in order to continue our exploration
activities and our assessment of the commercial viability of our oil and gas
properties. Furthermore, if the costs of our planned exploration programs are
greater than anticipated, we may have to seek additional funds through public or
private share offerings or arrangements with corporate partners. There can be no
assurance that we will be successful in our efforts to raise these required
funds, or on terms satisfactory to us. The continued exploration of our oil and
gas properties and the development of our business will depend upon our ability
to establish the commercial viability of our oil and gas properties and to
ultimately develop cash flow from operations and reach profitable operations. We
currently are in the exploration stage and we have no revenue from operations
and we are experiencing significant negative cash flow. Accordingly, the only
other sources of funds presently available to us are through the sale of equity.
We presently believe that debt financing will not be an alternative to us as all
of our properties are in the exploration stage. Alternatively, we may finance
our business by offering an interest in our oil and gas properties to be earned
by another party or parties carrying out further exploration and development
thereof or to obtain project or operating financing from financial institutions,
neither of which is presently intended. If we are unable to obtain this
additional financing, we will not be able to continue our exploration activities
and our assessment of the commercial viability of our oil and properties.
Further, if we are able to establish that development of our oil and gas
properties is commercially viable, our inability to raise additional financing
at this stage would result in our inability to place our oil and gas properties
into production and recover our investment.






As our
oil and gas properties do not contain any reserves, we may not discover
commercially exploitable quantities of oil or gas on our properties that would
enable us to enter into commercial production, achieve revenues and recover the
money we spend on exploration.












17




Our
properties do not contain reserves in accordance with the definitions adopted by
the SEC and there is no assurance that any exploration programs that we carry
out will establish reserves. All of our oil and gas properties are in the
exploration stage as opposed to the development stage and have no known body of
reserves. The known reserves at these projects have not yet been determined to
be economic, and may never be determined to be economic. We plan to conduct
further exploration activities on our oil and gas properties, which future
exploration may include the completion of feasibility studies necessary to
evaluate whether commercial reserves exist on any of our mineral properties.
There is a substantial risk that these exploration activities will not result in
discoveries of commercially recoverable reserves of oil or gas. Any
determination that our properties contain commercially recoverable quantities of
oil or gas may not be reached until such time that final comprehensive
feasibility studies have been concluded that establish that a potential reserve
is likely to be economic. There is a substantial risk that any preliminary or
final feasibility studies carried out by us will not result in a positive
determination that our oil and gas properties can be commercially
developed.




Our
Exploration Activities on Our Oil and Gas Properties May Not Be Commercially
Successful, Which Could Lead Us to Abandon Our Plans to Develop the Property and
Our Investments in Exploration.


Our
long-term success depends on our ability to establish commercially recoverable
quantities of oil and natural gas on our properties that can then be developed
into commercially viable operations. Oil and gas exploration is highly
speculative in nature, involves many risks and is frequently non-productive.
These risks include unusual or unexpected geologic formations, and the inability
to obtain suitable or adequate machinery, equipment or labor. The success of oil
and gas exploration is determined in part by the following
factors:


·  identification
of potential oil and natural gas reserves based on superficial
analysis;
  ·  availability
of government-granted exploration permits;
  ·  the
quality of management and geological and technical
expertise; and
  ·  the
capital available for exploration.


Substantial
expenditures are required to establish proven and probable reserves through
drilling and analysis, to develop processes to extract oil and gas, and to
develop the drilling and processing facilities and infrastructure at any chosen
site. Whether an oil and gas reserve will be commercially viable depends on a
number of factors, which include, without limitation, the particular attributes
of the reserve; oil and natural gas prices, which fluctuate widely; and
government regulations, including, without limitation, regulations relating to
prices, taxes, royalties, land tenure, land use, importing and exporting of oil
and gas and environmental protection. We may invest significant capital and
resources in exploration activities and abandon such investments if we are
unable to identify commercially exploitable reserves. The decision to abandon a
project may reduce the trading price of our common stock and impair our ability
to raise future financing. We cannot provide any assurance to investors that we
will discover or acquire any oil or gas reserves in sufficient quantities on any
of our properties to justify commercial operations. Further, we will not be able
to recover the funds that we spend on exploration if we are not able to
establish commercially recoverable reserves of oil or natural gas on our
properties.
    18
   Our
Business is Difficult to Evaluate Because We Have a Limited Operating
History.





In
considering whether to invest in our common stock, you should consider that
there is only limited historical financial and operating information available
on which to base your evaluation of our performance. Our inception was October
19, 2004 and, as a result, we have a limited operating history.





We
Have a History of Operating Losses and There Can Be No Assurance We Will Be
Profitable in the Future.





We have a
history of operating losses, expect to continue to incur losses, and may never
be profitable, and we must be considered to be in the exploration stage.
Further, we have been dependent on sales of our equity securities and debt
financing to meet our cash requirements. We have incurred losses totaling
approximately $8,845,303 from October 19, 2004 (inception) to December 31, 2009
and had incurred losses of approximately $1,860,595 during fiscal year ended
December 31, 2009. Further, we do not expect positive cash flow from operations
in the near term. There is no assurance that actual cash requirements will not
exceed our estimates. In particular, additional capital may be required in the
event that: (i) the costs to acquire additional leases are more than we
currently anticipate; (ii) drilling and completion costs for additional wells
increase beyond our expectations; or (iii) we encounter greater costs associated
with general and administrative expenses or offering costs.





Our
development of and participation in what could evolve into an increasing number
of oil and gas prospects may require substantial capital expenditures. The
uncertainty and factors described throughout this section may impede our ability
to economically find, develop, produce, and acquire natural gas and oil
reserves. As a result, we may not be able to achieve or sustain profitability or
positive cash flows from operating activities in the future.





We
Have Received a Going Concern Opinion From Our Independent Auditors’ Report
Accompanying Our December 31, 2009 and December 31, 2008 Financial
Statements.





The
independent auditor's report accompanying our December 31, 2009 and 2008 audited
financial statements contains an explanatory paragraph expressing substantial
doubt about our ability to continue as a going  concern. The financial
statements have been prepared "assuming that the Company will continue as a
going concern." Our ability to continue as a going concern is dependent on
raising additional capital to fund our operations and ultimately on generating
future profitable operations. There can be no assurance that we will be able to
raise sufficient additional capital or eventually have positive cash flow from
operations to address all of our cash flow needs. If we are not able to find
alternative sources of cash or generate positive cash flow from operations, our
business and shareholders will be materially and adversely
affected.





We
Will Require Additional Funding in the Future.










19





Based
upon our historical losses from operations, we will require additional funding
in the future. If we cannot obtain capital through financings or otherwise, our
ability to execute our development plans and achieve production levels will be
greatly limited. Our current development plans require us to make capital
expenditures for the exploration and development of our oil and natural gas
properties. Historically, we have funded our operations through the issuance of
equity. We may not be able to obtain additional financing on favorable terms, if
at all. Our future cash flows and the availability of financing will be subject
to a number of variables, including potential production and the market prices
of oil and natural gas. Further, debt financing, if utilized, could lead to a
diversion of cash flow to satisfy debt-servicing obligations and create
restrictions on business operations. If we are unable to raise additional funds,
it would have a material adverse effect upon our operations.





As
Part of Our Growth Strategy, We Intend to Acquire Additional Oil and Gas
Properties.





As part
of our growth strategy, we intend to acquire additional oil and gas production
properties. Current and subsequent acquisitions may pose substantial risks to
our business, financial condition, and results of operations. In pursuing
acquisitions, we will compete with other companies, many of which have greater
financial and other resources to acquire attractive properties. Even if we are
successful in acquiring additional properties, some of the properties may not
produce revenues at  anticipated levels or failure to conduct drilling
on prospects within specified time periods may cause the forfeiture of the lease
in that prospect. There can be no assurance that we will be able to successfully
integrate acquired properties, which could result in substantial costs and
delays or other operational, technical, or financial problems. Further,
acquisitions could disrupt ongoing business operations. If any of these events
occur, it would have a material adverse effect upon our operations and results
from operations.





We
Are a New Entrant Into the Oil and Gas Exploration and Development Industry
Without Profitable Operating History.





Since
inception, our activities have been limited to organizational efforts, obtaining
working capital and acquiring and developing a very limited number of
properties. As a result, there is limited information regarding property related
production potential or revenue generation potential. Further, our Leases have
no probable, proved or developed producing reserves. As a result, our future
revenues may be limited or non-existent.





The
business of oil and gas exploration and development is subject to many risks and
if oil and natural gas is found in economic production quantities, the potential
profitability of future possible oil and gas ventures depends upon factors
beyond our control. The potential profitability of oil and natural gas
properties if economic quantities are found is dependent upon many factors and
risks beyond our control, including, but not limited to: (i) unanticipated
ground conditions; (ii) geological problems; (iii) drilling and other processing
problems; (iv) the occurrence of unusual weather or operating conditions and
other force majeure events; (v) lower than expected reserve quantities; (vi)
accidents; (vii) delays in the receipt of or failure to receive necessary
government permits; (viii) delays in transportation; (ix) labor disputes; (x)
government permit restrictions and regulation restrictions; (xi) unavailability
of materials and equipment; and (xii) the failure of equipment or drilling to
operate in accordance with specifications or expectations.











20





Our
Drilling Operations May Not Be Successful.





We intend
to test certain zones in wellbores already drilled on certain of the properties
and if results are positive and capital is available, drill additional wells and
begin production operations from existing and new wells. There can be no
assurance that our current well re-completion activities or future drilling
activities will be successful, and we cannot be sure that our overall drilling
success rate or our production operations within a particular area will ever
come to fruition, and if it does, will not decline over time. We may not recover
all or any portion of our capital investment in the wells or the underlying
leaseholds. Unsuccessful drilling activities would have a material adverse
effect upon our results of operations and financial condition. The cost of
drilling, completing, and operating wells is often uncertain, and a number of
factors can delay or prevent drilling operations including: (i) unexpected
drilling conditions; (ii) pressure or irregularities in geological formations;
(iii) equipment failures or accidents; (iv) adverse weather conditions; and (v)
shortages or delays in availability of drilling rigs and delivery of
equipment.





Our
Production Initiatives May Not Prove Successful.





The coal
beds from which we intend to produce natural gas frequently contain water, which
may hamper our ability to produce gas in commercial quantities. The amount of
natural gas that can be commercially produced depends upon the coal quality, the
original gas content of the coal seam, the thickness of the seam, the reservoir
pressure, the rate at which gas is released from the coal, and the existence of
any natural fractures through which the gas can flow to the well bore. However,
coal beds frequently contain water that must be removed in order for the gas to
detach from the coal and flow to the well bore. The average life of a coal bed
well is only five to six years. Our ability to remove and dispose of sufficient
quantities of water from the coal seam will determine whether or not we can
produce coal bed methane in commercial quantities.





There is
no guarantee that the potential drilling locations we have or acquire in the
future will ever produce natural gas or oil, which could have a material adverse
effect upon our results of operations.





Prospects
That We Decide to Drill May Not Yield Natural Gas or Oil in Commercially Viable
Quantities.





We
describe some of our current prospects in this Annual Report. Our prospects are
in various stages of preliminary evaluation and assessment and we have not
reached the point where we will decide to drill at all on the subject prospects.
However, the use of seismic data, historical drilling logs, offsetting well
information, and other technologies and the study of producing fields in the
same area will not enable us to know conclusively prior to drilling and testing
whether natural gas or oil will be present or, if present, whether natural gas
or oil will be present in sufficient quantities or quality to recover drilling
or completion costs or to be economically viable. In sum, the cost of drilling,
completing and operating any wells is often uncertain and new wells may not be
productive.





We
May Be Unable to Identify Liabilities Associated With the Properties or Obtain
Protection From Sellers Against Them.










21





One of
our growth strategies is to capitalize on opportunistic acquisitions of oil and
natural gas reserves. However, our reviews of acquired properties are inherently
incomplete because it generally is not feasible to review in depth every
individual property involved in each acquisition. A detailed review of records
and properties may not necessarily reveal existing or potential problems, nor
will it permit a buyer to become sufficiently familiar with the properties to
assess fully their deficiencies and potential. Further, environmental problems,
such as ground water contamination, are not necessarily observable even when an
inspection is undertaken. We may not be able to obtain indemnification or other
protections from the sellers against such potential liabilities, which would
have a material adverse effect upon our results of operations.





The
Potential Profitability of Oil and Gas Ventures Depends Upon Global Political
and Market Related Factors Beyond Our Control.





World
prices and markets for oil and gas are unpredictable, highly volatile,
potentially subject to governmental fixing, pegging, controls, or any
combination of these and other factors, and respond to changes in domestic,
international, political, social, and economic environments. Additionally, due
to worldwide economic uncertainty, the availability and cost of funds for
production and other expenses have become increasingly difficult, if not
impossible, to project. These and other changes and events may materially affect
our financial performance. The potential profitability of oil and gas properties
is dependent on these and other factors beyond our control.





Production
or Oil and Gas Resources if Found Are Dependent on Numerous Operational
Uncertainties Specific to the Area of the Resource That Affects its
Profitability.





Production
area specifics affect profitability. Adverse weather conditions can hinder
drilling operations and ongoing production work. A productive well may become
uneconomic in the event water or other deleterious substances are encountered
which impair or prevent the production of oil and/or gas from the well.
Production and treatments on other wells in the area can have either a positive
or negative effect on our production and wells. In addition, production from any
well may be unmarketable if it is impregnated with water or other deleterious
substances. The content of hydrocarbons is subject to change over the life of
producing wells. The marketability of oil and gas from any specific reserve
which may be acquired or discovered will be affected by numerous factors beyond
our control. These factors include, but are not limited to, the proximity and
capacity of oil and gas pipelines, availability of room in the pipelines to
accommodate additional production, processing and production equipment operating
costs and equipment efficiency, market fluctuations of prices and oil and gas
marketing relationships, local and state taxes, mineral owner and other
royalties, land tenure, lease bonus costs and lease damage costs, allowable
production, and environmental protection. These factors cannot be accurately
predicted and the combination of these factors may result in us not receiving an
adequate return on our invested capital.





If
Production Results From Operations, We are Dependent Upon Transportation and
Storage Services Provided by Third Parties.





We will
be dependent on the transportation and storage services offered by various
interstate and intrastate pipeline companies for the delivery and sale of our
gas supplies. Both the performance of transportation and storage services by
interstate pipelines and the rates charged for such services are subject to the
jurisdiction of the Federal Energy Regulatory Commission or state regulatory
agencies. An inability to obtain transportation and/or storage services at
competitive rates could hinder our processing and marketing operations and/or
affect our sales margins.








22





Our
Results of Operations are Dependent Upon Market Prices for Oil and Gas, Which
Fluctuate Widely and are Beyond Our Control.





If and
when production from oil and gas properties is reached, our revenue,
profitability, and cash flow depend upon the prices and demand for oil and
natural gas. The markets for these commodities are very volatile and even
relatively modest drops in prices can significantly affect our financial results
and impede our growth. Prices received also will affect the amount of future
cash flow available for capital expenditures and may affect our ability to raise
additional capital. Lower prices may also affect the amount of natural gas and
oil that can be economically produced from reserves either discovered or
acquired. Factors that can cause price fluctuations include: (i) the level of
consumer product demand; (ii) domestic and foreign governmental regulations;
(iii) the price and availability of alternative fuels; (iv) technical advances
affecting energy consumption; (v) proximity and capacity of oil and gas
pipelines and other transportation facilities; (vi) political conditions in
natural gas and oil producing regions; (vii) the domestic and foreign supply of
natural gas and oil; (viii) the ability of members of Organization of Petroleum
Exporting Countries to agree to and maintain oil price and production controls;
(ix) the price of foreign imports; and (x) overall domestic and global economic
conditions.





The
availability of a ready market for our oil and gas depends upon numerous factors
beyond our control, including the extent of domestic production and importation
of oil and gas, the relative status of the domestic and international economies,
the proximity of our properties to gas gathering systems, the capacity of those
systems, the marketing of other competitive fuels, fluctuations in seasonal
demand and governmental regulation of production, refining, transportation and
pricing of oil, natural gas and other fuels.





The
Oil and Gas Industry in Which We Operate Involves Many Industry Related
Operating and Implementation Risks That Can Cause Substantial Losses Including,
But not Limited to, Unproductive Wells, Natural Disasters, Facility and
Equipment Problems and Environmental Hazards.





Our
drilling activities are subject to many risks, including the risk that we will
not discover commercially productive reservoirs. Drilling for oil and natural
gas can be unprofitable, not only from dry holes, but from productive wells that
do not produce sufficient revenues to return a profit. In addition, our drilling
and producing operations may be curtailed, delayed or canceled as a result of
other drilling and production, weather and natural disaster, equipment and
service failure, environmental and regulatory, and site specific related
factors, including but not limited to: (i) fires; (ii) explosions; (iii)
blow-outs and surface cratering; (iv) uncontrollable flows of underground
natural gas, oil, or formation water; (v) natural disasters; (vi) facility and
equipment failures; (vii) title problems; (viii) shortages or delivery delays of
equipment and services; (ix) abnormal pressure formations; and (x) environmental
hazards such as natural gas leaks, oil spills, pipeline ruptures and discharges
of toxic gases.










23





If any of
these events occur, we could incur substantial losses as a result of: (i) injury
or loss of life; (ii) severe damage to and destruction of property, natural
resources or equipment; (iii) pollution and other environmental damage; (iv)
clean-up responsibilities; (v) regulatory investigation and penalties; (vi)
suspension of our operations; or (vii) repairs necessary to resume
operations.





If we
were to experience any of these problems, it could affect well bores, gathering
systems and processing facilities, any one of which could adversely affect our
ability to conduct operations. We may be affected by any of these events more
than larger companies, since we have limited working capital.





The
Oil and Gas Industry is Highly Competitive and There is No Assurance That We
Will Be Successful in Acquiring Leases.





The oil
and natural gas industry is intensely competitive, and we compete with other
companies that have greater resources. Many of these companies not only explore
for and produce oil and natural gas, but also carry on refining operations and
market petroleum and other products on a regional, national or worldwide basis.
These companies may be able to pay more for productive oil and natural gas
properties and exploratory prospects or define, evaluate, bid for and purchase a
greater number of properties and prospects than our financial or human resources
permit. In addition, these companies may have a greater ability to continue
exploration activities during periods of low oil and natural gas market prices.
Our larger competitors may be able to absorb the burden of present and future
federal, state, local and other laws and regulations more easily than we can,
which would adversely affect our competitive position. Our ability to acquire
additional properties and to discover reserves in the future will be dependent
upon our ability to evaluate and select suitable properties and to consummate
transactions in a highly competitive environment. In addition, because we have
fewer financial and human resources than many companies in our industry, we may
be at a disadvantage in bidding for exploratory prospects and producing oil and
natural gas properties.





The
Marketability of Natural Resources Will be Affected by Numerous Factors Beyond
Our Control, Which May Result in Us not Receiving an Adequate Return on Invested
Capital to be Profitable or Viable.





The
marketability of natural resources which may be acquired or discovered by us
will be affected by numerous factors beyond our control. These factors include
market fluctuations in oil and gas pricing and demand, the proximity and
capacity of natural resource markets and processing equipment, governmental
regulations, land tenure, land use, regulation concerning the importing and
exporting of oil and gas and environmental protection regulations. The exact
effect of these factors cannot be accurately predicted, but the combination of
these factors may result in us not receiving an adequate return on invested
capital to be profitable or viable.





Oil
and Gas Operations are Subject to Comprehensive Regulation Which May Cause
Substantial Delays or Require Capital Outlays in Excess of Those Anticipated
Causing an Adverse Effect on Our Business Operations.










24





Oil and
gas operations are subject to federal, state, and local laws relating to the
protection of the environment, including laws regulating removal of natural
resources from the ground and the discharge of materials into the environment.
Oil and gas operations are also subject to federal, state, and local laws and
regulations which seek to maintain health and safety standards by regulating the
design and use of drilling methods and equipment. Various permits from
government bodies are required for drilling operations to be conducted; no
assurance can be given that such permits will be received. Environmental
standards imposed by federal, provincial, or local authorities may be changed
and any such changes may have material adverse effects on our activities.
Moreover, compliance with such laws may cause substantial delays or require
capital outlays in excess of those anticipated, thus causing an adverse effect
on us. Additionally, we may be subject to liability for pollution or other
environmental damages which we may elect not to insure against due to
prohibitive premium costs and other reasons. To date we have not been required
to spend material amounts on compliance with environmental regulations. However,
we may be required to do so in the future and this may affect our ability to
expand or maintain our operations.





In
general, our exploration and production activities are subject to certain
federal, state and local laws and regulations relating to environmental quality
and pollution control. Such laws and regulations increase the costs of these
activities and may prevent or delay the commencement or continuance of a given
operation. Compliance with these laws and regulations has not had a material
effect on our operations or financial condition to date. Specifically, we are
subject to legislation regarding emissions into the environment, water
discharges and storage and disposition of hazardous wastes. In addition,
legislation has been enacted which requires well and facility sites to be
abandoned and reclaimed to the satisfaction of state authorities. However, such
laws and regulations are frequently changed and we are unable to predict the
ultimate cost of compliance. Generally, environmental requirements do not appear
to affect us any differently or to any greater or lesser extent than other
companies in the industry.





We
believe that our operations comply, in all material respects, with all
applicable environmental regulations. We need insurance to protect our self
against risks associated with the leases obtained. The leases allow for entry
onto the properties for the purposes of oil and gas exploration. The insurance
we require relates solely to developments on the properties for the purposes of
oil and gas exploration.





When and
if we are convinced that our current leases or those subsequently acquired are
capable of hydrocarbon production and sales, and we plan to drill more than one
well, we intend to maintain a $2,000,000 per year limit policy on bodily injury
and general liability with regard to risks incurred for the drilling of up to 25
wells. This will allow for our growth to contain non contract labor that would
require us to carry such additional insurance for risks pertaining to oil and
gas exploration conducted directly by us. Such a policy would include coverage
for numerous locations for pollution, environmental damage, chemical spills and
commercial general liability, fire, and personal injury. Such a policy will not
be required until such time and date as we believe that we will begin a
sustained drilling and operating program, and that at least one well has been
drilled and is producing to justify and warrant further drilling and a sustained
drilling and operating program.





Any
Change to Government Regulation/Administrative Practices May Have a Negative
Impact on Our Ability to Operate and Our Profitability.








25





The laws,
regulations, policies or current administrative practices of any government
body, organization or regulatory agency in the United States or any other
jurisdiction, may be changed, applied or interpreted in a manner which will
fundamentally alter our ability to carry on business. The actions, policies or
regulations, or changes thereto, of any government body or regulatory agency, or
other special interest groups, may have a detrimental effect on us. Any or all
of these situations may have a negative impact on our ability to operate and/or
our profitability.





We
May be Unable to Retain Key Employees or Consultants or Recruit Additional
Qualified Personnel.





Our
extremely limited personnel means that we would be required to spend significant
sums of money to locate and train new employees in the event any of our
employees resign or terminate their employment with us for any reason. Due to
our limited operating history and financial resources, we are entirely dependent
on the continued service of Peter Wilson, our Chief Executive Officer, and
William Thomas, our Chief Financial Officer. Further, we do not have key man
life insurance on either of these individuals. We may not have the financial
resources to hire a replacement if one or both of our officers were to die. The
loss of service of either of these employees could therefore significantly and
adversely affect our operations.





Our
Officers and Directors May be Subject to Conflicts of Interest.





Our
officers and directors serve only part time and are subject to conflicts of
interest. Each devotes part of his working time to other business endeavors,
including consulting relationships with other entities, and has responsibilities
to these other entities. Such conflicts include deciding how much time to devote
to our affairs, as well as what business opportunities should be presented to
us. Because of these relationships, our officers and directors will be subject
to conflicts of interest. Currently, we have no policy in place to address such
conflicts of interest.





Nevada
Law and Our Articles of Incorporation May Protect our Directors From Certain
Types of Lawsuits.





Nevada
law provides that our officers and directors will not be liable to us or our
stockholders for monetary damages for all but certain types of conduct as
officers and directors. Our Bylaws permit us broad indemnification powers to all
persons against all damages incurred in connection with our business to the
fullest extent provided or allowed by law. The exculpation provisions may have
the effect of preventing stockholders from recovering damages against our
officers and directors caused by their negligence, poor judgment or other
circumstances. The indemnification provisions may require us to use our limited
assets to defend our officers and directors against claims, including claims
arising out of their negligence, poor judgment, or other
circumstances.





RISKS
RELATED TO OUR COMMON STOCK





Sales
of a Substantial Number of Shares of Our Common Stock Into the Public Market by
Certain Stockholders May Result in Significant Downward Pressure on the Price of
Our Common Stock and Could Affect Your Ability to Realize the Current Trading
Price of Our Common Stock.








26





Sales of
a substantial number of shares of our common stock in the public market by
certain stockholders could cause a reduction in the market price of our common
stock.  As of the date of this Annual Report, we have 34,032,392
shares of common stock issued and outstanding. Of the total number of issued and
outstanding shares of common stock, certain stockholders are able to resell up
to 2,778,466 (Post-Forward Stock Split) shares of our common stock pursuant to
the Registration Statement declared effective on February 14, 2006. As a result
of the Registration Statement, 2,778,466 Post-Forward Stock Split shares of our
common stock were issued and are available for immediate resale which could have
an adverse effect on the price of our common stock.





As of the
date of this Annual Report, there are 13,938,510 outstanding shares of our
common stock that are restricted securities as that term is defined in Rule 144
under the Securities Act of 1933, as amended (the “Securities Act”). Although
the Securities Act and Rule 144 place certain prohibitions on the sale of
restricted securities, restricted securities may be sold into the public market
under certain conditions. Further, as of the date of this Annual Report, there
are an aggregate of 3,566,666 Stock Options outstanding and an aggregate of
3,600,000 Warrants outstanding. See “Item 5. Market for Registrant’s Common
Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities.”





Any
significant downward pressure on the price of our common stock as the selling
stockholders sell their shares of our common stock could encourage short sales
by the selling stockholders or others. Any such short sales could place further
downward pressure on the price of our common stock.





The
Trading Price of Our Common Stock on the OTC Bulletin Board Will Fluctuate
Significantly and Stockholders May Have Difficulty Reselling Their
Shares.





As of the
date of this Annual Report, our common stock trades on the Over-the-Counter
Bulletin Board. There is a volatility associated with Bulletin Board securities
in general and the value of your investment could decline due to the impact of
any of the following factors upon the market price of our common stock: (i)
disappointing results from our discovery or development efforts; (ii) failure to
meet our revenue or profit goals or operating budget; (iii) decline in demand
for our common stock; (iv) downward revisions in securities analysts' estimates
or changes in general market conditions; (v) technological innovations by
competitors or in competing technologies; (vi) lack of funding generated for
operations; (vii) investor perception of our industry or our prospects; and
(viii) general economic trends.





In
addition, stock markets have experienced price and volume fluctuations and the
market prices of securities have been highly volatile. These fluctuations are
often unrelated to operating performance and may adversely affect the market
price of our common stock. As a result, investors may be unable to sell their
shares at a fair price and you may lose all or part of your
investment.










27





Additional
Issuance of Equity Securities May Result in Dilution to Our Existing
Stockholders.





Our
Articles of Incorporation, as amended, authorize the issuance of 66,666,666
shares of common stock, which authorized capital was reduced simultaneously in
accordance with the Reverse Stock Split. Common stock is our only authorized
class of stock. The board of directors has the authority to issue additional
shares of our capital stock to provide additional financing in the future and
the issuance of any such shares may result in a reduction of the book value or
market price of the outstanding shares of our common stock. If we do issue any
such additional shares, such issuance also will cause a reduction in the
proportionate ownership and voting power of all other stockholders. As a result
of such dilution, your proportionate ownership interest and voting power will be
decreased accordingly. Further, any such issuance could result in a change of
control.





Our
Common Stock is Classified as a “Penny Stock” Under SEC Rules Which Limits the
Market for Our Common Stock.





The SEC
has adopted rules that regulate broker-dealer practices in connection with
transactions in "penny stocks." Penny stocks generally are equity securities
with a price of less than $5.00 (other than securities registered on certain
national securities exchanges or quoted on the NASDAQ system, provided that
current price and volume information with respect to transactions in such
securities is provided by the exchange or system). Penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not otherwise exempt from
those rules, to deliver a standardized risk disclosure document prepared by the
SEC, which specifies information about penny stocks and the nature and
significance of risks of the penny stock market. A broker-dealer must also
provide the customer with bid and offer quotations for the penny stock, the
compensation of the broker-dealer, and sales person in the transaction, and
monthly account statements indicating the market value of each penny stock held
in the customer's account. In addition, the penny stock rules require that,
prior to a transaction in a penny stock not otherwise exempt from those rules,
the broker-dealer must make a special written determination that the penny stock
is a suitable investment for the purchaser and receive the purchaser's written
agreement to the transaction. These disclosure requirements may have the effect
of reducing the trading activity in the secondary market for stock that becomes
subject to those penny stock rules. If a trading market for our common stock
develops, our common stock will probably become subject to the penny stock
rules, and shareholders may have difficulty in selling their
shares.





A
Majority of Our Directors and Officers are Outside the United States With the
Result That it May Be Difficult for Investors to Enforce Within the United
States Any Judgments Obtained Against Us or Any of Our Directors or
Officers.





A
majority of our directors and officers are nationals and/or residents of
countries other than the United States, and all or a substantial portion of such
persons' assets are located outside the United States. As a result, it may be
difficult for investors to effect service of process on our directors or
officers, or enforce within the United States or Canada any judgments obtained
against us or our officers or directors, including judgments predicated upon the
civil liability provisions of the securities laws of the United States or any
state thereof. Consequently, you may be effectively prevented from pursuing
remedies under U.S. federal securities laws against them. In addition, investors
may not be able to commence an action in a Canadian court predicated upon the
civil liability provisions of the securities laws of the United
States.











28





ITEM
1B. UNRESOLVED STAFF COMMENTS





As of the
date of this Annual Report, there are no unresolved comments pending from the
Securities and Exchange Commission.











ITEM
2. PROPERTIES





We lease
our principal office space located at 5050 Quorum Drive, Suite 700, Dallas,
Texas 75254. The office costs us approximately $2,000 monthly. The office and
services related thereto are on an annual basis with the office lease coming due
in June 2010.





ITEM
3. LEGAL PROCEEDINGS





Management
is not aware of any legal proceedings other than disclosed below contemplated by
any governmental authority or any other party involving us or our properties. As
of the date of this Annual Report, no director, officer or affiliate is (i) a
party adverse to us in any legal proceeding, or (ii) has an adverse interest to
us in any legal proceedings. Other than discussed below, management is not aware
of any other legal proceedings pending or that have been threatened against us
or our properties.





During
August 2009, we were included in a third party lawsuit filed by Abigail
Investments LLC against David Urquhart in the United States District Court for
the State of Nevada, Case No. 09-CV-1174. The lawsuit includes a counter-claim
by David Urquhart against us and others. Our management is of the position that
the former director has made certain false allegations against us including, but
not limited to, issuance of shares of our common stock and grant of stock
options.





Although
we refute these allegations and believe that we should not be included in this
action and that the claims contained within the complaint are without merit, it
is possible that we may be exposed to a loss contingency.  However,
the amount of such loss, if any, cannot be reasonably estimated at this time and
accordingly, no amount has been recorded to date. As of the date of this Annual
Report, the former director has filed an answer to the complaint with
counter-claims.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





SPECIAL
MEETING OF SHAREHOLDERS





On March
3, 2010, a special meeting of our shareholders (the "Special Meeting") was to be
held for the following purposes: (i) to elect the following five (5) persons to
serve as directors of our Board of Directors until their successor shall have
been elected and qualified: Peter Wilson, D. Bruce Horton, Angelo Viard, Peter
Carpenter and John Clayton Weldy Jr.; (ii) to approve an amendment to the
Articles of Incorporation, as amended, to increase the authorized shares of
common stock from 66,666,666 shares to 400,000,000 shares, par value $0.001; and
(iii) to consider and act upon such other business as may properly come before
the Special Meeting or any adjournment thereof. On January 28, 2010, we filed a
definitive proxy statement dated January 11, 2010 (the “Proxy Statement”), which
was distributed to our shareholders.










29





Only
shareholders of record at the close of business on January 28, 2010 (the "Record
Date") were entitled to notice and to vote the shares of common stock held by
them on such date at the Meeting or any and all adjournments thereof. As of the
Record Date, an aggregate 34,032,392 shares of common stock were outstanding.
There was no other class of voting securities outstanding at that date. Each
share of common stock held by a shareholder entitled such shareholder to one
vote on each matter that was voted at the Special Meeting. The presence, in
person or by proxy, of the holders of a majority of the outstanding share of
common stock was necessary to constitute a quorum at the Special Meeting.
Assuming that a quorum was present, the affirmative vote of the holders of a
majority of the shares of common stock outstanding was required to approve the
matters presented for approval at the Special Meeting.





On March
3, 2010, the Special Meeting of shareholders was called to order. However, there
were insufficient votes representative of a quorum present either in person or
proxy at the Special Meeting. Therefore, the Special Meeting was adjourned and
re-scheduled for March 29, 2010. The Special Meeting of shareholders was held on
March 29, 2010 and there were insufficient votes representative of a quorum
present either in person or proxy at the Special Meeting. Therefore, the Special
Meeting was adjourned.








PART
II





ITEM
5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES





MARKET
FOR COMMON EQUITY





Shares of
our common stock commenced trading on the OTC Bulletin Board under the symbol
“MCKE:OB” on approximately May 24, 2006. The market for our common stock is
limited, and can be volatile. The following table sets forth the high and low
bid prices relating to our common stock on a quarterly basis for the periods
indicated as quoted by the NASDAQ stock market. These quotations reflect
inter-dealer prices without retail mark-up, mark-down, or commissions, and may
not reflect actual transactions.










30






Quarter
      Ended
            High
      Bid
            Low
      BidDecember
      31, 2009
            $0.00
            $0.00September
      30, 2009
            $0.00
            $0.00June 30,
      2009
            $0.00
            $0.00March
      31, 2009
            $0.00
            $0.00December
      31, 2008
            $1.05
            $0.21September
      30, 2008
            $2.41
            $0.81June
      30, 2008
            $3.00*
            $0.79March
      31,2008
            $0.35
            $0.20





*Reflects
Reverse Stock Split.





As of
March 1, 2010, we had 38 shareholders of record, which does not include
shareholders whose shares are held in street or nominee names.











DIVIDEND
POLICY





No
dividends have ever been declared by the Board of Directors on our common stock.
Our losses do not currently indicate the ability to pay any cash dividends, and
we do not indicate the intention of paying cash dividends either on our common
stock in the foreseeable future.





SECURITIES
AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS





We have
one equity compensation plan, the Morgan Creek Energy Corp. 2006 Stock Option
Plan (the “2006 Plan”). The table set forth below presents information relating
to our equity compensation plans as of the date of this Annual
Report:





Plan
      Category
            Number
      of Securities to be Issued Upon Exercise of Outstanding Options, Warrants
      and Rights
                (a)
            Weighted-Average
      Exercise Price of Outstanding Options, Warrants and Rights
                (b)
            Number
      of Securities Remaining Available for Future Issuance Under Equity
      Compensation Plans (excluding column (a))Equity
      Compensation Plans Approved by Security Holders (2006 Stock Option
      Plan)
            166,666
              3,400,000
            $
      0.50
              0.27
            6,433,334Equity
      Compensation Plans Not Approved by Security Holders
              
              Warrants
            3,600,000
            $0.25
            -0-Total
            10,766,666













31





2006
Stock Option Plan




On April
3, 2006, our Board of Directors authorized and approved the adoption of the 2006
Plan effective April 3, 2006, under which an aggregate of 5,000,000 of our
shares may be issued. On April 22, 2008, we effected the reverse stock split,
which decreased the number of shares issuable under the Stock Option Plan from
5,000,000 shares to 1,666,666 shares. On April 28, 2008, our Board of Directors
approved an amendment to the Stock Option Plan to increase the number of shares
issuable under the Stock Option Plan to an aggregate of 5,000,000 shares. On
August 3, 2009, we effected the Forward Stock Split, which increased the number
of shares issuable under the Stock Option Plan from 5,000,000 shares to
10,000,000 shares.




The
purpose of the 2006 Plan is to enhance our long-term stockholder value by
offering opportunities to our directors, officers, employees and eligible
consultants to acquire and maintain stock ownership in order to give these
persons the opportunity to participate in our growth and success, and to
encourage them to remain in our service.





The 2006
Plan is to be administered by our Board of Directors or a committee appointed by
and consisting of one or more members of the Board of Directors, which shall
determine (i) the persons to be granted Stock Options under the 2006 Plan; (ii)
the number of shares subject to each option, the exercise price of each Stock
Option; and (iii) whether the Stock Option shall be exercisable at any time
during the option period up to ten (10) years or whether the Stock Option shall
be exercisable in installments or by vesting only. The 2006 Plan provides
authorization to the Board of Directors to grant Stock Options to purchase a
total number of shares of Common Stock of the Company, not to exceed 5,000,000
shares as at the date of adoption by the Board of Directors of the 2006 Plan (as
increased to 10,000,000 shares in accordance with the Forward Stock Split). At
the time a Stock Option is granted under the 2006 Plan, the Board of Directors
shall fix and determine the exercise price at which shares of our common stock
may be acquired.





In the
event an optionee ceases to be employed by or to provide services to us for
reasons other than cause, retirement, disability or death, any Stock Option that
is vested and held by such optionee generally may be exercisable within up to
ninety (90) calendar days after the effective date that his position ceases, and
after such 90-day period any unexercised Stock Option shall expire. In the event
an optionee ceases to be employed by or to provide services to us for reasons of
retirement, disability or death, any Stock Option that is vested and held by
such optionee generally may be exercisable within up to one-year after the
effective date that his position ceases, and after such one-year period any
unexercised Stock Option shall expire.













32





No Stock
Options granted under the Stock Option Plan will be transferable by the
optionee, and each Stock Option will be exercisable during the lifetime of the
optionee subject to the option period up to ten (10) years or limitations
described above. Any Stock Option held by an optionee at the time of his death
may be exercised by his estate within one (1) year of his death or such longer
period as the Board of Directors may determine.





The
exercise price of a Stock Option granted pursuant to the 2006 Plan shall be paid
in full to us by delivery of consideration equal to the product of the Stock
Option in accordance with the requirements of the Nevada Revised Statutes. Any
Stock Option settlement, including payment deferrals or payments deemed made by
way of settlement of pre-existing indebtedness may be subject to such
conditions, restrictions and contingencies as may be determined.





Grant
of Stock Options During Fiscal Year Ended December 31, 2009





We had
adopted the Stock Option Plan pursuant to which there was an aggregate of
5,000,000 shares available for issuance under the Stock Option Plan, reduced to
3,333,334 shares in accordance with a reverse stock split effective April 22,
2008, and subsequently increased to 5,000,000 shares by Board of Director
approval and resolution on April 28, 2008. Our Board of Directors had authorized
the grant of an aggregate 3,733,336 Stock Options under the Stock Option Plan,
of which 1,066,670 Stock Options were granted exercisable at $1.65 per share
expiring on December 12, 2016, taking into effect the reverse stock split
(collectively, the “2006 Stock Options”) and 2,500,000 stock options were
granted exercisable at $0.50 per share expiring on April 30, 2018 (collectively,
the “2008 Stock Options”).





On July
14, 2009, our Board of Directors approved the cancellation of certain of the
2006 Stock Options and the 2008 Stock Options, which aggregated 3,566,670 Stock
Options. Our Board of Directors further approved the re-issuance of 3,000,000
Stock Options (the “2009 Stock Options”) to certain of our officers, directors
and consultants at an exercise price of $0.25 for a period of ten years.
Effective July 31, 2009, our Board of Directors authorized the specific number
of 2009 Stock Options to be granted to each of our officers, directors and
consultants.





On
September 1, 2009, our Board of Directors approved the further grant of 400,000
stock options to two of our directors of which 200,000 Stock Options are
exercisable at $0.39 for a period of ten years and 200,000 Stock Options are
exercisable at $0.58 per share for a period of ten years. See “Item 11.
Executive Compensation” and “Item 12. Security Ownership of Certain Beneficial
Owners and Management and Related Stockholder Matters.”





Incentive
Stock Options





The 2006
Plan further provides that, subject to the provisions of the Stock Option Plan
and prior shareholder approval, the Board of Directors may grant to any key
individuals who are our employees eligible to receive options one or













33





more
incentive stock options to purchase the number of shares of common stock
allotted by the Board of Directors (the "Incentive Stock Options"). The option
price per share of common stock deliverable upon the exercise of an Incentive
Stock Option shall be at least 100% of the fair market value of the common
shares of the Company, and in the case of an Incentive Stock Option granted to
an optionee who owns more than 10% of the total combined voting power of all
classes of our stock, shall not be less than 100% of the fair market value of
our common shares. The option term of each Incentive Stock Option shall be
determined by the Board of Directors, which shall not commence sooner than from
the date of grant and shall terminate no later than ten (10) years from the date
of grant of the Incentive Stock Option, subject to possible early termination as
described above.





Common
Stock Purchase Warrants





As of the
date of this Annual Report, there are an aggregate of 3,600,000 common stock
purchase warrants issued and outstanding (the “Warrants”). During fiscal year
ended December 31, 2009, we issued 3,600,000 Warrants and an aggregate of
2,448,000 Warrants expired. The 3,600,000 Warrants to purchase shares of common
stock and the shares of common stock underlying the Warrants were issued in a
private placement by us during fiscal year 2009 at an exercise price of $0.25
per share exercisable for a period of twelve months from the date of share
issuance, which expiration date is July 20, 2010.





As of the
date of this Annual Report, none of the Warrants have been
exercised.

















RECENT
SALES OF UNREGISTERED SECURITIES





As of the
date of this Annual Report and during fiscal year ended December 31, 2009, to
provide capital, we sold stock in private placement offerings, issued stock in
exchange for our debts or pursuant to contractual agreements as set forth
below.





July
2009 Private Placement Offering





During
July 2009, we completed a private placement offering (the “July 2009 Private
Placement”) with certain non-United States residents (collectively, the
“Investors”). In accordance with the terms and provisions of the July 2009
Private Placement, we issued to the Investors an aggregate of 1,960,000 units at
a per unit price of $0.125  (the “Unit”) in our capital for aggregate
proceeds of $245,000. Each Unit was comprised of one share of restricted common
stock and one-half non-transferable warrant (the “Warrant”). Each Warrant is
exercisable at $0.50 per share for a period of one year from the date of
issuance (the “Exercise Period”). The July 2009 Private Placement Offering was
completed in reliance on Regulation S of the Securities Act of 1933, as amended
(the “Securities Act”). Sales were made to only non-U.S. residents. The July
2009 Private Placement Offering was not registered under the Securities Act or
under any state securities laws and may not be offered or sold without
registration with the Securities and Exchange Commission or an applicable
exemption from the registration requirements. The per share price of the July
2009 Private Placement Offering was arbitrarily determined by our Board of
Directors based upon analysis of certain factors including, but not limited to,
stage of development, industry status, investment climate, perceived investment
risks, our assets and net estimated worth. The Investors executed subscription
agreements and acknowledged that the securities to be issued have not been
registered under the Securities Act, that they understood the economic risk of
an investment in the securities, and that they had the opportunity to ask
questions of and receive answers from our management concerning any and all
matters related to acquisition of the securities.













34





Planned
Private Placement Offering





During
fiscal year ended December 31, 2009, we received $1,475,000 towards a planned
private placement of Units to be offered at $0.50 per Unit with each Unit
consisting of one share of our restricted common stock and one-half Warrant to
acquire an additional common share, exercisable at $1.00 for twelve months. A
finders fee of 7% ($7,000) was paid on $100,000 of the planned private placement
proceeds received. Subsequent to December 31, 2009 and through February 9, 2010,
we received a further $265,000 towards a planned private placement of Units to
be offered at $0.50 per Unit with each Unit consisting of one share of
restricted common stock and one-half warrant to acquire an additional common
share exercisable at $1.00 for twelve months (collectively, the “Planned Private
Placements”). The Units under the Planned Private Placements were sold to
non-United States Investors in reliance on Regulation S promulgated under the
Securities Act. The Planned Private Placement has not been registered under the
Securities Act or under any state securities laws and may not be offered or sold
without registration with the United States Securities and Exchange Commission
or an applicable exemption from the registration requirements. The per share
price of the Units was arbitrarily determined by our Board of Directors based
upon analysis of certain factors including, but not limited to, stage of
development and exploration of properties, industry status, investment climate,
perceived investment risks, our assets and net estimated worth. The Investors
executed subscription agreements and acknowledged that the securities to be
issued have not been registered under the Securities Act, that they understood
the economic risk of an investment in the securities, and that they had the
opportunity to ask questions of and receive answers from our management
concerning any and all matters related to acquisition of the
securities.




Debt
Settlement






During
July 2009, we issued 1,640,000 Units at a per share price of $0.125 in
accordance with the terms and provisions of a settlement agreement. We settled
an aggregate of $200,000 in related party advances and $5,000 in accounts
payable. Each Unit was comprised of one share of restricted common stock and one
non-transferable Warrant. Each Warrant is exercisable at $0.25 per share for a
period of one year from the date of issuance. The shares of common stock were
issued in reliance on Regulation S promulgated under the Securities Act. The per
share price of the Units was arbitrarily determined by our Board of Directors
based upon analysis of certain factors including, but not limited to, stage of
development and exploration of properties, industry status, investment climate,
perceived investment risks, our assets and net estimated worth.










35






FORWARD
STOCK SPLIT




On July
14, 2009, our Board of Directors pursuant to a Board of Directors meeting
authorized and approved the Forward Stock Split of two shares for one share of
our total issued and outstanding shares of common stock. The Forward Stock Split
was effectuated based on market conditions and upon a determination by our Board
of Directors that the Forward Stock Split was in our best interests and of the
shareholders. Certain factors were discussed among the members of the Board of
Directors concerning the need for the Forward Stock Split, including the
increased potential for financing. The intent of the Forward Stock Split is to
increase the marketability of our common stock.





The
Forward Stock Split was effectuated on August 3, 2009 upon filing the
appropriate documentation with NASDAQ. The Forward Stock Split increased our
total issued and outstanding shares of common stock from 17,016,196 to
approximately 34,032,392 shares of common stock. The common stock will continue
to be $0.001 par value.





ITEM
6. SELECTED FINANCIAL DATA





The
following selected financial information is qualified by reference to, and
should be read in conjunction with our financial statements and the notes
thereto, and “Management’s Discussion and Analysis of Financial Condition and
Results of Operation” contained elsewhere herein. The selected income statement
data for fiscal years ended December 31, 2009 and 2008 and the selected balance
sheet data as of December 31, 2009 and 2008 are derived from our audited
consolidated financial statements which are included elsewhere
herein.




Fiscal
      Years Ended December 31
                2009
      and 2008
            
            
            For
      the Period from October 19, 2004 (inception) to December 31,
      2009STATEMENT
      OF OPERATIONS DATAGeneral
      and Administrative ExpensesInvestor
      relations expenses
            
            $
            584,250
            
            
            $
            159,944
            
            
            $
            906,268Consulting
      expenses
            
            
            4,612
            
            
            
            228,502
            
            
            
            861,572Management
      fees – related party
            
            
            193,600
            
            
            
            263,386
            
            
            
            1,081,683Management
      fees – stock based compensation
            
            
            466,470
            
            
            
            436,955
            
            
            
            2,430,595Impairment
      of oil and gas  properties
            
            
            338,343
            
            
            
            -0-
            
            
            
            1,611,753Office
      and general
            
            
            139,181
            
            
            
            235,534
            
            
            
            661,156Professional
      Fees
            
            
            210,837
            
            
            
            245,527
            
            
            
            846,589Net
      Operating Loss
            
            $
            (1,937,293
            )
            
            $
            (1,569,848
            )
            
            $
            (8,399,616
            )Other
      Income (Expenses)Gain
      on expired   option
            
            
            100,000
            
            
            
            -0-
            
            
            
            100,000Financing
      Costs
            
            
            -
            
            
            
            (424,660
            )
            
            
            (424,660
            )Interest
      expense
            
            
            (23,302
            )
            
            
            (27,422
            )
            
            
            (121,027
            )Total
      Other Income (Expenses)
            
            
            76,698
            
            
            
            (452,082
            )
            
            
            (445,687
            )Net
      Loss
            
            $
            (1,860,595
            )
            
            $
            (2,021,930
            )
            
            $
            (8,845,303
            )BALANCE
      SHEET DATATotal
      Assets
            
            $
            2,722,161
            
            
            $
            1,843,630Total
      Liabilities
            
            
            993,276
            
            
            
            635,121Stockholders
      Equity
            
            $
            1,728,885
            
            
            $
            1,208,509













36





ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION





The
summarized financial data set forth in the table above is derived from and
should be read in conjunction with our audited financial statements for the
period from inception (October 19, 2004) to fiscal year ended December 31, 2009,
including the notes to those financial statements which are included in this
Annual Report. The following discussion should be read in conjunction with our
audited financial statements and the related notes that appear elsewhere in this
Annual Report. The following discussion contains forward-looking statements that
reflect our plans, estimates and beliefs. Our actual results could differ
materially from those discussed in the forward looking statements. Factors that
could cause or contribute to such differences include, but are not limited to
those discussed below and elsewhere in this Annual Report, particularly in the
section entitled "Risk Factors". Our audited financial statements are stated in
United States Dollars and are prepared in accordance with United States
Generally Accepted Accounting Principles.





We are an
exploration stage company and have not generated any revenue to date. The above
table sets forth selected financial information for the periods indicated. We
have incurred recurring losses to date. Our financial statements have been
prepared assuming that we will continue as a going concern and, accordingly, do
not include adjustments relating to the recoverability and realization of assets
and classification of liabilities that might be necessary should we be unable to
continue in operation.




We expect
we will require additional capital to meet our long term operating requirements.
We expect to raise additional capital through, among other things, the sale of
equity or debt securities.





RESULTS
OF OPERATION





Fiscal
Year Ended December 31, 2009 Compared to Fiscal Year Ended December 31,
2008.





Our net
loss for fiscal year ended December 31, 2009 was ($1,860,595) compared to a net
loss of ($2,021,930) during fiscal year ended December 31, 2008 (a decrease of
$161,335). During fiscal years ended December 31, 2009 and 2008, we did not
generate any revenue.





During
fiscal year ended December 31, 2009, we incurred general and administrative
expenses of approximately $1,937,293 compared to $1,569,848 incurred during
fiscal year ended December 31, 2008 (a decrease of $367,445). These general and
administrative expenses incurred during fiscal year ended December 31, 2009
consisted of: (i) investor relations of $584,250 (2008: $159,944); (ii)
consulting fees of $4,612 (2008: $228,502); (iii) management fees – related
party of $193,600 (2008: $263,386); (iv) management fees – stock based
compensation of $466,470 (2008: $436,955); (v) impairment of oil and gas
properties $338,343 (2008: $0); (vi) office and general of $139,181 (2008:
$235,534); and (vii) professional fees of $210,837 (2008:
$245,527).





During
fiscal years ended December 31, 2009 we recorded a total of $338,343 (2008: $0)
impairment of oil and gas properties. General and administrative expenses
incurred during fiscal year ended December 31, 2009 compared to fiscal year
ended December 31, 2008 increased primarily due to the increase in investor
relations of $424,306 and impairment of oil and property increase of $338,343.
General and administrative expenses generally include corporate overhead,
financial and administrative contracted services, marketing, and consulting
costs.









37






Of the
$1,937,293 incurred as general and administrative expenses during fiscal year
ended December 31, 2009, we incurred management fees of $193,600 payable to our
officers and directors.





During
fiscal year ended December 31, 2009, we recorded total other income of $76,698
compared to total other expenses of ($452,082) during fiscal year ended December
31, 2008. During fiscal year ended December 31, 2009, a gain on expired option
of $100,000 (2008: $-0-) was recorded relating to the Option Agreement with
Formcap. Financing costs incurred during fiscal year ended December 31, 2009 of
$-0- were recorded as compared to $424,660 during fiscal year ended December 31,
2008. Interest expense of $23,302 was recorded during fiscal year ended December
31, 2009 compared to interest expense of $27,422 recorded during fiscal year
ended December 31, 2008. Thus, our net loss during fiscal year ended December
31, 2009 was ($1,860,595) or ($0.06) per share compared to a net loss of
($2,021,930) or ($0.08) per share during fiscal year ended December 31, 2008.
The weighted average number of shares outstanding was 32,020,337 for fiscal year
ended December 31, 2009 compared to 27,666,646 for fiscal year ended December
31, 2008.





LIQUIDITY
AND CAPITAL RESOURCES





Fiscal
Year Ended December 31, 2009





As at
fiscal year ended December 31, 2009, our current assets were $247,349 and our
current liabilities were $993,276, which resulted in a working capital
deficiency of ($745,927). As at fiscal year ended December 31, 2009, current
assets were comprised of: (i) $193,109 in cash; (ii) $54,240 in other current
assets. As at fiscal year ended December 31, 2009, current liabilities were
comprised of: (i) $794,809 in accounts payable and accrued liabilities; and (ii)
$198,467 in amounts due to related parties.





As at
December 31, 2009, our total assets were $2,722,161 comprised of: (i) $247,349
in current assets; and (ii) $2,474,812 in unproven oil and gas properties. The
increase in total assets during fiscal year ended December 31, 2009 from fiscal
year ended December 31, 2008 was primarily due to the increase in valuation of
the unproved oil and gas properties and the increase in current assets relating
to cash and other current assets.





As at
December 31, 2009, our total liabilities were $993,276 comprised entirely of
current liabilities. The increase in liabilities during fiscal year ended
December 31, 2009 from fiscal year ended December 31, 2008 was primarily due to
the increase in accounts payable and accrued liabilities.





Stockholders’
Equity increased from $1,208,509 for fiscal year ended December 31, 2008 to
Stockholders’ Equity of $1,728,885 for fiscal year ended December 31,
2009.





Cash
Flows from Operating Activities





We have
not generated positive cash flows from operating activities. For fiscal year
ended December 31, 2009, net cash flows used in operating activities was
($567,062), consisting primarily of a net loss of ($1,860,595). Net cash flows
used in operating activities was adjusted by $466,470 in stock based
compensation and $338,343 in impairment of oil and gas properties. Net cash
flows used in operating activities was further changed by $23,302 in interest
expense, $1,996 relating to accrued amounts due to related parties, $495,850 in
accounts payable and accrued liabilities, and a decrease of ($28,436) related to
other current assets. For fiscal year ended December 31, 2008, net cash flows
used in operating activities was ($1,194,461), consisting primarily of a net
loss of ($2,021,930). Net cash flows used in operating activities was adjusted
by $436,955 in stock based compensation, $27,422 in interest expense and
$424,660 in financing costs. Net cash flows used in operating activities was
further changed by a decrease of ($7,913) in other current assets and ($85,653)
in accounts payable and accrued liabilities and by an increase of $31,998 in
accrued amounts due to related parties.








38





Cash
Flows from Investing Activities





For
fiscal year ended December 31, 2009, net cash flows used in investing activities
was ($1,010,212) for oil and gas property expenditures and deposits. For fiscal
year ended December 31, 2008, net cash flows used in investing activities was
($78,841) for oil and gas property expenditures and deposits.





Cash
Flows from Financing Activities





We have
financed our operations primarily from either advancements or the issuance of
equity and debt instruments. For fiscal year ended December 31, 2009, net cash
flows provided from financing activities was $1,755,500 compared to $1,272,087
for fiscal year ended December 31, 2008. Cash flows from financing activities
for fiscal year ended December 31, 2009 consisted of $1,709,500 in proceeds on
sale and subscriptions of common stock and a net total of $46,000 in advances
from related parties. Cash flows from financing activities for fiscal year ended
December 31, 2008 consisted of $897,087 in proceeds on sale and subscriptions of
common stock and a net total of $375,000 in advances from related
parties.





We expect
that working capital requirements will continue to be funded through a
combination of our existing funds and further issuances of securities. Our
working capital requirements are expected to increase in line with the growth of
our business.





PLAN
OF OPERATION AND FUNDING





Existing
working capital, further advances and debt instruments, and anticipated cash
flow are expected to be adequate to fund our operations over the next six
months. We have no lines of credit or other bank financing arrangements.
Generally, we have financed operations to date through the proceeds of the
private placement of equity and debt instruments. In connection with our
business plan, management anticipates additional increases in operating expenses
and capital expenditures relating to: (i) oil and gas operating properties; (ii)
possible drilling initiatives on current properties and future properties; and
(iii) future property acquisitions. We intend to finance these expenses with
further issuances of securities, and debt issuances. Thereafter, we expect we
will need to raise additional capital and generate revenues to meet long-term
operating requirements. Additional issuances of equity or convertible debt
securities will result in dilution to our current shareholders. Further, such
securities might have rights, preferences or privileges senior to our common
stock. Additional financing may not be available upon acceptable terms, or at
all. If adequate funds are not available or are not available on acceptable
terms, we may not be able to take advantage of prospective new business
endeavors or opportunities, which could significantly and materially restrict
our business operations.





During
fiscal year ended December 31, 2009, we completed the 2009 Private Placement
consisting of 1,960,000 Units at the price of $0.125 per Unit for total gross
proceeds of $245,000 excluding a finder’s fee of ($3,500). During fiscal year
ended December 31, 2009 and subsequent to February 9, 2010, we received an
aggregate of $1,740,000 excluding a finder’s fee of ($7,000) relating to the
Planned Private Placements.





MATERIAL
COMMITMENTS





During
fiscal year ended December 31, 2007, an aggregate of $1,365,500 was due and
owing to one of our shareholders relating to advances. Subsequently, during
fiscal year ended December 31, 2008, additional advances were made by this same
shareholder to us of $885,000 for an aggregate amount of $2,250,500 due and
owing. During fiscal year ended December 31, 2008, we repaid $500,000 to this
shareholder. Further, the shareholder assigned the amount of $1,894,017 to
various assignees and settled the $1,894,017 pursuant to the issuance of
5,050,712 shares of our restricted common stock at $0.375 per share. During the
period, this shareholder made further advances of $100,000 and was repaid
$24,000. And, on July 20, 2009, we issued an aggregate of 1,600,000 Units at
$0.125 per Unit on settlement of shareholder advances of $200,000. As a result,
as of December 31, 2009, $156,000 was due and owing, which bears interest at 8%
per annum and has no specific repayment terms. As of December 31, 2009, total
accrued interest was $42,467.










39





PURCHASE
OF SIGNIFICANT EQUIPMENT





We do not
intend to purchase any significant equipment during the next twelve
months.





OFF-BALANCE
SHEET ARRANGEMENTS





As of the
date of this Annual Report, we do not have any off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our
financial condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital resources that
are material to investors.





GOING
CONCERN





The
independent auditors' report accompanying our December 31, 2009 and December 31,
2008 financial statements contains an explanatory paragraph expressing
substantial doubt about our ability to continue as a going concern. The
financial statements have been prepared "assuming that we will continue as a
going concern," which contemplates that we will realize our assets and satisfy
our liabilities and commitments in the ordinary course of business.




RECENT
ACCOUNTING PRONOUNCEMENTS




In June
2009, the FASB issued FASB ASC 855-10, “Subsequent Events.” FASB ASC 855-10
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. FASB ASC 855-10 applies to both interim financial
statements and annual financial statements. FASB ASC 855-10 is effective for
interim or annual financial periods ending after June 15, 2009. The adoption of
FASB ASC 855-10 during the period did not have a material impact on the
Company’s financial position, cash flows or results of operations.





In
June 2009, the FASB issued FASB ASC 860-10, “Transfers and Servicing”, FASB
ASC 860-10 eliminates the concept of a “qualifying special-purpose entity,”
changes the requirements for derecognizing financial assets, and requires
additional disclosures in order to enhance information reported to users of
financial statements by providing greater transparency about transfers of
financial assets, including securitization transactions, and an entity’s
continuing involvement in and exposure to the risks related to transferred
financial assets. FASB ASC 860-10 is effective for fiscal years beginning after
November 15, 2009. The Company will adopt FASB ASC 860-10 in fiscal
2010. The Company does not expect that the adoption of FASB ASC 860-10 will have
a material impact on the financial statements.





In June
2009, the FASB issued FASB ASC 810-10,“Consolidation”, which
included the following: (1) the elimination of the exemption for qualifying
special purpose entities, (2) a new approach for determining who should
consolidate a variable-interest entity, and (3) changes to when it is necessary
to reassess who should consolidate a variable-interest entity. FASB ASC 810-10
is effective for the first annual reporting period beginning after November 15,
2009 and for interim periods within that first annual reporting period. The
Company will adopt FASB ASC 810-10 in fiscal 2010. The Company does not expect
that the adoption of FASB ASC 810-10 will have a material impact on the
financial statements.











40





In June
2009, the FASB issued FASB ASC 105-10, “Generally Accepted Accounting Principles
replaces SFAS No. 162, which establishes the FASB Accounting Standards
Codification (“Codification”) as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with
GAAP.  Rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. The FASB will no longer issue new
standards in the form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts; instead the FASB will issue Accounting Standards Updates.
Accounting Standards Updates will not be authoritative in their own right as
they will only serve to update the Codification. The issuance of FASB ASC
105-10and the Codification does not change GAAP. FASB ASC 105-10 becomes
effective for interim and annual periods ending after September 15,
2009.  The adoption of this statement did not have  a
material impact on the Company’s financial position, cash flows and results of
operations.





In August
2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2009-05, “Fair Value Measurements and Disclosures (Topic
820): Measuring Liabilities at Fair Value”. The guidance provided in this update
is effective for the first reporting period beginning after issuance. The
adoption of this statement has had no material effect on the Company’s financial
condition or results of operations.





In
September 2009, the Financial Accounting Standards Board (FASB) issued ASU
2009-12, “Fair Value Measurements and Disclosures” (Topic 820): Investments in
Certain Entities That Calculate Net Asset Value Per Share (or Its
Equivalent).This
update provides amendments to subtopic 820-10, Fair Value Measurements and
Disclosures – Overall, for the fair value measurement of investments in certain
entities that calculate net asset value per share (or its equivalent). The
amendments in this update are effective for interim and annual periods ending
after December 15, 2009. Early application is permitted in financial statements
for earlier interim and annual periods that have not been issued. The adoption
of this update will have no material effect on the Company’s financial condition
or results of operations.





In
January 2010, the FASB issued Accounting Standards Update (ASU) 2010-01, “Equity
(Topic 505-10): Accounting for Distributions to Shareholders with Components of
Stock and Cash (A Consensus of the FASB Emerging Issues Task
Force)”.  This amendment to Topic 505 clarifies the stock portion of a
distribution to shareholders that allows them to elect to receive cash or stock
with a limit on the amount of cash that will be distributed is not a stock
dividend for purposes of applying Topics 505 and 260. This standard is effective
for interim and annual periods ending on or after December 15, 2009, and would
be applied on a retrospective basis.  The Company does not expect the
provisions of ASU 2010-01 to have a material effect on the financial position,
results of operations or cash flows of the Company.





InJanuary 2010, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2010-02, “Consolidation (Topic 810): Accounting and Reporting for
Decreases in Ownership of a Subsidiary”.  This amendment
to Topic 810 clarifies, but does not change, the scope of current US
GAAP.  It clarifies the decrease in ownership provisions of Subtopic
810-10 and removes the potential conflict between guidance in that Subtopic and
asset derecognition and gain or loss recognition guidance that may exist in
other US GAAP.  An entity will be required to follow the amended
guidance beginning in the period that it first adopts FAS 160 (now included in
Subtopic 810-10).  For those entities that have already adopted FAS
160, the amendments are effective at the beginning of the first interim or
annual reporting period ending on or after December 15, 2009. The amendments
should be applied retrospectively to the first period that an entity adopted FAS
160.  The Company does not expect the provisions of ASU 2010-02 to
have a material effect on the financial position, results of operations or cash
flows of the Company.




In
January 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2010-6, “Improving Disclosures about Fair Value
Measurements.” This update requires additional disclosure within the roll
forward of activity for assets and liabilities measured at fair value on a
recurring basis, including transfers of assets and liabilities between Level 1
and Level 2 of the fair value hierarchy and the separate presentation of
purchases, sales, issuances and settlements of assets and liabilities within
Level 3 of the fair value hierarchy. In addition, the update requires enhanced
disclosures of the valuation techniques and inputs used in the fair value
measurements within Levels 2 and 3. The new disclosure requirements are
effective for interim and annual periods beginning after December 15, 2009,
except for the disclosure of purchases, sales, issuances and settlements of
Level 3 measurements. Those disclosures are effective for fiscal years beginning
after December 15, 2010. As ASU 2010-6 only requires enhanced disclosures,
the Company does not expect that the adoption of this update will have a
material effect on its financial statements.











41






ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA






REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM DATED APRIL 09, 2010.






BALANCE
SHEETS AS AT DECEMBER 31, 2009 AND DECEMBER 31, 2008.






STATEMENTS
OF OPERATIONS FOR FISCAL YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008 AND
FOR THE PERIOD FROM INCEPTION (OCTOBER 19, 2004) TO DECEMBER 31,
2009.






STATEMENT
OF STOCKHOLDERS' EQUITY (DEFICIT) FOR THE PERIOD FROM INCEPTION (OCTOBER 19,
2004) TO DECEMBER 31, 2009.






STATEMENTS
OF CASH FLOWS FOR THE FISCAL YEARS ENDED DECEMBER 31, 2009 AND DECEMBER 31, 2008
AND FOR THE PERIOD FROM INCEPTION (OCTOBER 19, 2004) TO DECEMBER 31,
2009.






NOTES
TO FINANCIAL STATEMENTS.























42






MORGAN
CREEK ENERGY CORP.
 
 (An
Exploration Stage Company)
 
 FINANCIAL
STATEMENTS
 
 DECEMBER
31, 2009
 
 
 (AUDITED)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 BALANCE
SHEETS
 
 STATEMENTS
OF OPERATIONS
 
 STATEMENT
OF STOCKHOLDER’S EQUITY
 
 STATEMENTS
OF CASH FLOWS
 
 NOTES
TO FINANCIAL STATEMENTS
 
 
     43
  De
Joya Griffith & Company, LLC
  Report of Independent
Registered Public Accounting Firm
 
 To The
Board of Directors and Stockholders
 Morgan
Creek Energy, Corp.
 Dallas,
Texas
 
 We have
audited the accompanying balance sheets of Morgan Creek Energy, Corp. (An
Exploration Stage Company) as of December 31, 2009 and 2008, and the related
statements of operations, stockholders’ equity, and cash flows for the years
then ended and from inception (October 19, 2004) to December 31, 2009. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audit.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States).  Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement.  An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audit provides a reasonable basis
for our opinion.
 
 In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Morgan Creek Energy, Corp. (An
Exploration Stage Company) as of December 31, 2009 and 2008, and the results of
their operations and cash flows for the years then ended and from inception
(October 19, 2004) to December 31, 2009 in conformity with accounting principles
generally accepted in the United States.
 
 The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. As discussed in Note 1 to the financial statements,
the Company has suffered recurring losses from operations, which raise
substantial doubt about its ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 1. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
 
 De Joya
Griffith & Company, LLC
 
 /s/ De
Joya Griffith & Company, LLC
 Henderson,
Nevada
 April 9,
2010
       2580
Anthem Village Drive, Henderson, NV  89052
 Telephone
(702) 563-1600  ●  Facsimile (702)
920-8049
 44
 MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 BALANCE
SHEETS
 
 December
      31,
                    2009
                  
                  
                  December
      31,
                    2008ASSETS
                  
                  (Audited)
                  
                  
                  (Audited)CURRENT
      ASSETSCash
                  
                  $
                  193,109
                  
                  
                  $
                  14,883Other current
    assets
                  
                  
                  54,240
                  
                  
                  
                  25,804TOTAL
      CURRENT ASSETS
                  
                  
                  247,349
                  
                  
                  
                  40,687OIL AND GAS PROPERTIES,unproven(Note
      3)
                  
                  
                  2,474,812
                  
                  
                  
                  1,802,943TOTAL
      ASSETS
                  
                  $
                  2,722,161
                  
                  
                  $
                  1,843,630LIABILITIES
      AND STOCKHOLDERS’ EQUITYCURRENT
      LIABILITIESAccounts
      payable and accrued liabilities
                  
                  $
                  794,809
                  
                  
                  $
                  303,959Due
      to related parties (Note 6)
                  
                  
                  198,467
                  
                  
                  
                  331,162TOTAL
      CURRENT LIABILITIES
                  
                  
                  993,276
                  
                  
                  
                  635,121GOING CONCERN (Note
      1)STOCKHOLDERS’ EQUITY(DEFICIT)(Note 4)Common
      stock, 66,666,666 shares authorized with $0.001 par valueIssued
      and outstanding34,032,392
      common shares (December 31, 2008 –30,432,392)
                  
                  
                  34,032
                  
                  
                  
                  30,432Additional
      paid-in-capital
                  
                  
                  9,072,156
                  
                  
                  
                  8,162,785Private
      placement subscriptions
                  
                  
                  1,468,000
                  
                  
                  
                  -Deficit accumulated during
      exploration stage
                  
                  
                  (8,845,303
                  )
                  
                  
                  (6,984,708
                  )TOTAL
      STOCKHOLDERS’ EQUITY
                  
                  
                  1,728,885
                  
                  
                  
                  1,208,509TOTAL
      LIABILITIES & STOCK HOLDERS’ EQUITY
                  
                  $
                  2,722,161
                  
                  
                  $
                  1,843,630
 
 
 
 
 
 
 
 
 
 
 
 The
accompanying notes are an integral part of these financial
statements.
   45
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 STATEMENTS
OF OPERATIONS
 
 Year
      ended
                    December
      31,
                    2009
                  
                  
                  Year
      ended
                    December
      31,
                    2008
                  
                  
                  Inception
      (October 19, 2004) to December 31, 2009(Audited)
                  
                  
                  (Audited)
                  
                  
                  (Audited)GENERAL
      AND ADMINISTRATIVE EXPENSESInvestor
      relations
                  
                  $
                  584,250
                  
                  
                  $
                  159,944
                  
                  
                  $
                  906,268Consulting
      fees
                  
                  
                  4,612
                  
                  
                  
                  228,502
                  
                  
                  
                  861,572Management
      fees – related party
                  
                  
                  193,600
                  
                  
                  
                  263,386
                  
                  
                  
                  1,081,683Management
      fees - stock based compensation
                  
                  
                  466,470
                  
                  
                  
                  436,955
                  
                  
                  
                  2,430,595Impairment
      of oil and gas properties (Note 3)
                  
                  
                  338,343
                  
                  
                  
                  -
                  
                  
                  
                  1,611,753Office and
general
                  
                  
                  139,181
                  
                  
                  
                  235,534
                  
                  
                  
                  661,156Professional fees
                  
                  
                  210,837
                  
                  
                  
                  245,527
                  
                  
                  
                  846,589NET
      OPERATING LOSS
                  
                  
                  (1,937,293
                  )
                  
                  
                  (1,569,848
                  )
                  
                  
                  (8,399,616
                  )OTHER
      INCOME (EXPENSES)Gain
      on expired oil and gas lease option
                  
                  
                  100,000
                  
                  
                  
                  -
                  
                  
                  
                  100,000Financing
      costs
                  
                  
                  -
                  
                  
                  
                  (424,660
                  )
                  
                  
                  (424,660
                  )Interest
      expense
                  
                  
                  (23,302
                  )
                  
                  
                  (27,422
                  )
                  
                  
                  (121,027
                  )TOTAL
      OTHER INCOME (EXPENSES)
                  
                  
                  76,698
                  
                  
                  
                  (452,082
                  )
                  
                  
                  (445,687
                  )NET
      LOSS FOR THE YEAR
                  
                  $
                  (1,860,595
                  )
                  
                  $
                  (2,021,930
                  )
                  
                  $
                  (8,845,303
                  )
 
 
 
 BASIC
      LOSS PER COMMON SHARE
                  
                  $
                  (0.06
                  )
                  
                  $
                  (0.08
                  )WEIGHTED
      AVERAGE NUMBER OF COMMON
                    SHARES
      OUTSTANDING-BASIC
                  
                  
                  32,020,337
                  
                  
                  
                  27,666,646
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 The
accompanying notes are an integral part of these financial
statements.
   46
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 STATEMENT
OF STOCKHOLDERS’ EQUITY
 FOR
THE PERIOD FROM INCEPTION (OCTOBER 19, 2004) TO DECEMBER 31, 2009
 (Audited)
 
 Common
      Stock
                  
                  
                  Additional
                  
                  
                  Private
                  
                  
                  Deficit
      accumulated
                  
                  
                  Total
                    Stockholders’Number
      of Shares
                  
                  
                  Amount
                  
                  
                  Paid
      in Capital
                  
                  
                  Placement
                    Subscriptions
                  
                  
                  during
      exploration stage
                  
                  
                  EquityBalance,
      October 19, 2004
                  
                  
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Common
      stock issued for oil and gas property
                    at
      $0.0375 per share – November 19, 2004
                  
                  
                  16,000,000
                  
                  
                  
                  16,000
                  
                  
                  
                  584,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  600,000Capital
      distribution to founding share holder
                    on
      acquisition of oil and gas property (Note 3)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (600,000
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (600,000
                  )Common
      stock issued for cash at $0.0375 per share
                    –
      November 26, 2004 and December 15, 2004
                  
                  
                  9,166,666
                  
                  
                  
                  9,166
                  
                  
                  
                  334,584
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  343,750Common
      stock issued for cash at $0.1875 per share
                    –
      December 15, 2004
                  
                  
                  1,760,534
                  
                  
                  
                  1,791
                  
                  
                  
                  328,339
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  330,100Net
      loss for the period
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (23,729
                  )
                  
                  
                  (23,729
                  )Balance,
      December 31, 2004
                  
                  
                  26,927,200
                  
                  
                  
                  26,927
                  
                  
                  
                  646,923
                  
                  
                  
                  -
                  
                  
                  
                  (23,729
                  )
                  
                  
                  650,121Common
      stock issued for cash at $0.1875 per share
                    –
      March 9, 2005
                  
                  
                  186,666
                  
                  
                  
                  187
                  
                  
                  
                  34,813
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  35,000Net
      loss for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (204,026
                  )
                  
                  
                  (204,026
                  )Balance,
      December 31, 2005
                  
                  
                  27,113,866
                  
                  
                  
                  27,114
                  
                  
                  
                  681,736
                  
                  
                  
                  -
                  
                  
                  
                  (227,755
                  )
                  
                  
                  481,095Common
      stock issued for cash at $2.25 per share
                    -
      October 16, 2006
                  
                  
                  629,404
                  
                  
                  
                  629
                  
                  
                  
                  1,415,529
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,416,158Common
      stock issued for oil and gas property
                    at
      $2.625 per share – October 17, 2006 (Note 3)
                  
                  
                  133,334
                  
                  
                  
                  133
                  
                  
                  
                  349,867
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  350,000Stock-based
      compensation
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,527,170
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,527,170Restricted
      common shares cancelled
                    –
      December 19, 2006
                  
                  
                  (8,000,000
                  )
                  
                  
                  (8,000
                  )
                  
                  
                  8,000
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      loss for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (3,918,002
                  )
                  
                  
                  (3,918,002
                  )Balance,
      December 31, 2006
                  
                  
                  19,876,604
                  
                  
                  
                  19,876
                  
                  
                  
                  3,982,302
                  
                  
                  
                  -
                  
                  
                  
                  (4,145,757
                  )
                  
                  
                  (143,579
                  )Net
      loss for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (817,021
                  )
                  
                  
                  (817,021
                  )Balance,
      December 31, 2007
                  
                  
                  19,876,604
                  
                  
                  
                  19,876
                  
                  
                  
                  3,982,302
                  
                  
                  
                  -
                  
                  
                  
                  (4,962,778
                  )
                  
                  
                  (960,600
                  )Shares
      for debt at $0.375 per  share – February 13,
2008
                  
                  
                  5,050,712
                  
                  
                  
                  5,051
                  
                  
                  
                  1,888,966
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,894,017Shares
      for debt at $0.315 per  share – March 24, 2008
                  
                  
                  3,057,076
                  
                  
                  
                  3,057
                  
                  
                  
                  959,923
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  962,980Common
      stock issued for cash at $0.375 per share
                    –
      July 3, 2008 and October 23, 2008, net of finder’s fees
                  
                  
                  2,448,000
                  
                  
                  
                  2,448
                  
                  
                  
                  894,639
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  897,087Stock
      based compensation – options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  436,955
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  436,955Net
      loss for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (2,021,930
                  )
                  
                  
                  (2,021,930
                  )Balance,
      December 31, 2008
                  
                  
                  30,432,392
                  
                  
                  
                  30,432
                  
                  
                  
                  8,162,785
                  
                  
                  
                  -
                  
                  
                  
                  (6,984,708
                  )
                  
                  
                  1,208,509
 
 
 
 
 The
accompanying notes are an integral part of these financial
statements.
   47
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 STATEMENT
OF STOCKHOLDERS’ EQUITY
 FOR
THE PERIOD FROM INCEPTION (OCTOBER 19, 2004) TO DECEMBER 31, 2009
 (Audited)
 
 Common
      Stock
                  
                  
                  Additional
                  
                  
                  Private
                  
                  
                  Deficit
      accumulated
                  
                  
                  Total
                    Stockholders’Number
      of Shares
                  
                  
                  Amount
                  
                  
                  Paid
      in Capital
                  
                  
                  Placement
                    Subscriptions
                  
                  
                  during
      exploration stage
                  
                  
                  EquityBalance
      forward, December 31, 2008
                  
                  
                  30,432,392
                  
                  
                  
                  30,432
                  
                  
                  
                  8,162,786
                  
                  
                  
                  -
                  
                  
                  
                  (6,984,708
                  )
                  
                  
                  1,208,510Shares
      for debt at $0.125 per  share –   July 20,
      2009
                  
                  
                  1,640,000
                  
                  
                  
                  1,640
                  
                  
                  
                  203,360
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  205,000Common
      stock issued for cash at $0.125 per share
                    –September  30,
      2009, net of finder’s fees
                  
                  
                  1,960,000
                  
                  
                  
                  1,960
                  
                  
                  
                  239,540
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  241,500Stock
      based compensation – options
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  466,470
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  466,470Subscription
      proceeds received (Note 4)
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  1,468,000
                  
                  
                  
                  -
                  
                  
                  
                  1,468,000Net
      loss for the year
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  (1,860,595
                  )
                  
                  
                  (1,860,595
                  )Balance,
      December 31, 2009
                  
                  
                  34,032,392
                  
                  
                  $
                  34,032
                  
                  
                  $
                  9,072,156
                  
                  
                  $
                  1,468,000
                  
                  
                  $
                  (8,845,303
                  )
                  
                  $
                  1,728,885
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 The
accompanying notes are an integral part of these financial
statements.
     48
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 STATEMENTS
OF CASH FLOWS
 
 Year
      Ended
                    December
      31,
                  
                  
                  Inception
      (October 19, 2004) to December 31,2009
                  
                  
                  2008
                  
                  
                  2009(Audited)
                  
                  
                  (Audited)
                  
                  
                  (Audited)CASH
      FLOWS FROM OPERATING ACTIVITIESNet loss for the
      period
                  
                  $
                  (1,860,595
                  )
                  
                  $
                  (2,021,930
                  )
                  
                  $
                  (8,845,303
                  )Adjustments to reconcile net
      loss
                    to
      net cash used in operating activities:-
      Stock based compensation
                  
                  
                  466,470
                  
                  
                  
                  436,955
                  
                  
                  
                  2,430,595-
      Impairment of oil and gas properties
                  
                  
                  338,343
                  
                  
                  
                  -
                  
                  
                  
                  1,611,753-
      Financing costs
                  
                  
                  -
                  
                  
                  
                  424,660
                  
                  
                  
                  424,660CHANGES
      IN OPERATING ASSETS AND LIABILITIES-
      Interest accrued
                  
                  
                  23,302
                  
                  
                  
                  27,422
                  
                  
                  
                  42,467-
      Other current assets
                  
                  
                  (28,436
                  )
                  
                  
                  (7,913
                  )
                  
                  
                  (79,240
                  )-
      Due to related parties accrued
                  
                  
                  (1,996
                  )
                  
                  
                  31,998
                  
                  
                  
                  267,428- Accounts payable
      and accrued liabilities
                  
                  
                  495,850
                  
                  
                  
                  (85,653
                  )
                  
                  
                  760,132NET
      CASH USED IN OPERATING ACTIVITIES
                  
                  
                  (567,062
                  )
                  
                  
                  (1,194,461
                  )
                  
                  
                  (3,387,508
                  )CASH
      FLOWS FROM INVESTING ACTIVITIESOil and gas property
      expenditures and deposits
                  
                  
                  (1,010,212
                  )
                  
                  
                  (78,841
                  )
                  
                  
                  (3,771,478
                  )NET
      CASH FLOWS USED IN INVESTING ACTIVITIES
                  
                  
                  (1,010,212
                  )
                  
                  
                  (78,841
                  )
                  
                  
                  (3,771,478
                  )CASH
      FLOWS FROM FINANCING ACTIVITIESProceeds
      on sale and subscriptions of common stock
                  
                  
                  1,709,500
                  
                  
                  
                  897,087
                  
                  
                  
                  4,731,595Drilling
      Advances
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  759,000Payments
      to related parties
                  
                  
                  (124,000
                  )
                  
                  
                  (500,000
                  )
                  
                  
                  (1,494,000
                  )Advances
      from related parties
                  
                  
                  170,000
                  
                  
                  
                  875,000
                  
                  
                  
                  3,355,500NET
      CASH PROVIDED BY FINANCING ACTIVITIES
                  
                  
                  1,755,500
                  
                  
                  
                  1,272,087
                  
                  
                  
                  7,352,095INCREASE
      (DECREASE)  IN CASH
                  
                  
                  178,226
                  
                  
                  
                  (1,215
                  )
                  
                  
                  193,109CASH,
      BEGINNING OF PERIOD
                  
                  
                  14,883
                  
                  
                  
                  16,098
                  
                  
                  
                  -CASH,
      END OF PERIOD
                  
                  $
                  193,109
                  
                  
                  $
                  14,883
                  
                  
                  $
                  193,109SUPPLEMENTAL
      CASH FLOW INFORMATION AND
                    NONCASH
      INVESTING AND FINANCING ACTIVITIES:Cash
      paid for interest
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Cash
      paid for income taxes
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Common
      stock issued for acquisition of oil and gas property
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  950,000Transfer
      of bond against settlement of debt
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  25,000Non-cash
      sale of oil and gas property
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  65,000Common
      stock issued for settlement of debts (Note 4)
                  
                  $
                  205,000
                  
                  
                  $
                  2,856,997
                  
                  
                  $
                  3,061,997
 
 
 The
accompanying notes are an integral part of these financial
statements.
   49
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
      31, 2009
                      (Audited)
   NOTE
1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
 
 Morgan
Creek Energy Corp. (the “Company”) is an exploration stage company that was
organized to enter into the oil and gas industry.  The Company intends
to locate, explore, acquire and develop oil and gas properties in the United
States and within North America. The primary activity and focus of the Company
is its leases in New Mexico (“New Mexico Prospect”). The leases are unproven. To
date we have leased approximately 7,576 net acres within the State of New
Mexico. The Company has also acquired approximately an additional 5,763 net
acres in New Mexico. (Refer to Note 3). The Company has entered into an Option
Agreement to participate in approximately 5,600 net acres in Oklahoma (Refer to
Note 3).  In addition, we acquired leases in Texas (the “Quachita
Prospect”).  To date the Company has acquired approximately 1,971 net
acres. During the production testing and evaluation period on the first well on
the property, the Boggs #1, four of the five tested zones produced significant
volumes of natural gas. Analysis of the gas indicates a “sweet” condensate rich
gas with BTU values of 1,000. This quality will yield a premium price over the
current U.S. average natural gas price.  As formation water was also
produced with the natural gas in the tested zones, the Boggs #1 is currently
under evaluation.
 
 Going
concern
 The
Company commenced operations on October 19, 2004 and has not realized any
revenues since inception.  As of December 31, 2009, the Company has an
accumulated deficit of $8,506,960.  The ability of the Company to
continue as a going concern is dependent on raising capital to fund ongoing
operations and carry out its business plan and ultimately to attain profitable
operations.  Accordingly, these factors raise substantial doubt as to
the Company’s ability to continue as a going concern. The financials statements
do not include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts of and classification of liabilities that
might be necessary in the event the Company cannot continue in existence. To
date the Company has funded its initial operations by way of private placements
of common stock and advances from related parties.
 
 
 NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Organization
 The
Company was incorporated on October 19, 2004 in the State of
Nevada.  The Company’s fiscal year end is December 31.
 
 Basis
of presentation
 These
financial statements are presented in United States dollars and have been
prepared in accordance with United States generally accepted accounting
principles.
 
 Oil
and gas properties
 The
Company follows the full cost method of accounting for its oil and gas
operations whereby all costs related to the acquisition of methane, petroleum,
and natural gas interests are capitalized. Under this method, all productive and
non-productive costs incurred in connection with the exploration for and
development of oil and gas reserves are capitalized. Such costs include land and
lease acquisition costs, annual carrying charges of non-producing properties,
geological and geophysical costs, costs of drilling and equipping productive and
non-productive wells, and direct exploration salaries and related
benefits.  Proceeds from the disposal of oil and gas properties are
recorded as a reduction of the related capitalized costs without recognition of
a gain or loss unless the disposal would result in a change of 20 percent or
more in the depletion rate.  The Company currently operates solely in
the U.S.
 
 Depreciation
and depletion of proved oil and gas properties is computed on the
units-of-production method based upon estimates of proved reserves, as
determined by independent consultants, with oil and gas being converted to a
common unit of measure based on their relative energy content.
 
 
 
 
 
 50
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
      31, 2009
                      (Audited)
 
 NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Oil
and gas properties (continued)
 The costs
of acquisition and exploration of unproved oil and gas properties, including any
related capitalized interest expense, are not subject to depletion, but are
assessed for impairment either individually or on an aggregated basis. The costs
of certain unevaluated leasehold acreage are also not subject to depletion.
Costs not subject to depletion are periodically assessed for possible impairment
or reductions in recoverable value. If a reduction in recoverable value has
occurred, costs subject to depletion are increased or a charge is made against
earnings for those operations where a reserve base is not yet
established.
 
 Estimated
future removal and site restoration costs are provided over the life of proven
reserves on a units-of-production basis.  Costs, which include
production equipment removal and environmental remediation, are estimated each
period by management based on current regulations, actual expenses incurred, and
technology and industry standards.  The charge is included in the
provision for depletion and depreciation and the actual restoration expenditures
are charged to the accumulated provision amounts as incurred.
 
 The
Company applies a ceiling test to capitalized costs which limits such costs to
the aggregate of the estimated present value, using a ten percent discount rate
of the estimated future net revenues from production of proven reserves at year
end at market prices less future production, administrative, financing, site
restoration, and income tax costs plus the lower of cost or estimated market
value of unproved properties.  If capitalized costs are determined to
exceed estimated future net revenues, a write-down of carrying value is charged
to depletion in the period.
 
 Asset
retirement obligations
 The
Company has adopted the provisions of FASB ASC 410-20 “Asset Retirement and
Environmental Obligations," which requires the fair value of a liability for an
asset retirement obligation to be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
related oil and gas properties.
 
 Use
of estimates
 The
preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the
period.  Actual results could differ from those estimates. Significant
areas requiring management’s estimates and assumptions are the determination of
the fair value of transactions involving common stock and financial instruments.
Other areas requiring estimates include deferred tax balances and asset
impairment tests.
 
 Cash
and cash equivalents
 For the
statements of cash flows, all highly liquid investments with maturity of three
months or less are considered to be cash equivalents.  There were no
cash equivalents as of December 31, 2009 and 2008 that exceeded federally
insured limits.
 
 Financial
instruments
 The fair
value of the Company’s financial assets and financial liabilities approximate
their carrying values due to the immediate or short-term maturity of these
financial instruments.
 
 Earnings
(loss) per common share
 Basic
earnings (loss) per share includes no dilution and is computed by dividing
income available to common stockholders by the weighted average number of common
shares outstanding for the period.  Dilutive earnings (loss) per share
reflects the potential dilution of securities that could share in the earnings
of the Company.  Dilutive earnings (loss) per share is equal to that
of basic earnings (loss) per share as the effects of stock options and warrants
have been excluded as they are anti-dilutive.
 
 
 
 
 
 51
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
      31, 2009
                      (Audited)
 
 NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Income
taxes
 The
Company follows the liability method of accounting for income
taxes.  Under this method, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax balances.  Deferred tax assets and liabilities
are measured using enacted or substantially enacted tax rates expected to apply
to the taxable income in the years in which those differences are expected to be
recovered or settled.  The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that
includes the date of enactment or substantive enactment.  As at
December 31, 2009, the Company had net operating loss carryforwards, however,
due to the uncertainty of realization, the Company has provided a full valuation
allowance for the deferred tax assets resulting from these loss
carryforwards.
 
 Stock-based
compensation
 On June
1, 2006, the Company adopted FASB ASC 718-10, “Compensation- Stock
Compensation”, under this method, compensation cost recognized for the year
ended May 31, 2007 includes: a) compensation cost for all share-based payments
granted prior to, but not yet vested as of May 31, 2006, based on the grant-date
fair value estimated in accordance with the original provisions of SFAS 123, and
b) compensation cost for all share-based payments granted subsequent to May 31,
2006, based on the grant-date fair value estimated in accordance with the
provisions of FASB ASC 718-10.  In addition, deferred stock
compensation related to non-vested options is required to be eliminated against
additional paid-in capital upon adoption of FASB ASC 718-10. The results for the
prior periods were not restated.
 
 The
Company accounts for equity instruments issued in exchange for the receipt of
goods or services from other than employees in accordance with FASB ASC 718-10
and the conclusions reached by the FASB ASC 505-50.  Costs are
measured at the estimated fair market value of the consideration received or the
estimated fair value of the equity instruments issued, whichever is more
reliably measurable.  The value of equity instruments issued for
consideration other than employee services is determined on the earliest of a
performance commitment or completion of performance by the provider of goods or
services as defined by FASB ASC 505-50.
 
 Recent
accounting pronouncement
 In June
2009, the FASB issued FASB ASC 855-10, “Subsequent Events.” FASB ASC 855-10
establishes general standards of accounting for and disclosure of events that
occur after the balance sheet date but before financial statements are issued or
are available to be issued. FASB ASC 855-10 applies to both interim financial
statements and annual financial statements. FASB ASC 855-10 is effective for
interim or annual financial periods ending after June 15, 2009. The adoption of
FASB ASC 855-10 during the period did not have a material impact on the
Company’s financial position, cash flows or results of operations.
 
 In
June 2009, the FASB issued FASB ASC 860-10, “Transfers and Servicing”, FASB
ASC 860-10 eliminates the concept of a “qualifying special-purpose entity,”
changes the requirements for derecognizing financial assets, and requires
additional disclosures in order to enhance information reported to users of
financial statements by providing greater transparency about transfers of
financial assets, including securitization transactions, and an entity’s
continuing involvement in and exposure to the risks related to transferred
financial assets. FASB ASC 860-10 is effective for fiscal years beginning after
November 15, 2009. The Company will adopt FASB ASC 860-10 in fiscal
2010. The Company does not expect that the adoption of FASB ASC 860-10 will have
a material impact on the financial statements.
 
 In June
2009, the FASB issued FASB ASC 810-10,“Consolidation”, which
included the following: (1) the elimination of the exemption for qualifying
special purpose entities, (2) a new approach for determining who should
consolidate a variable-interest entity, and (3) changes to when it is necessary
to reassess who should consolidate a variable-interest entity. FASB ASC 810-10
is effective for the first annual reporting period beginning after November 15,
2009 and for interim periods within that first annual reporting period. The
Company will adopt FASB ASC 810-10 in fiscal 2010. The Company does not expect
that the adoption of FASB ASC 810-10 will have a material impact on the
financial statements.
 
 
 
 52
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
      31, 2009
                      (Audited)
 
 NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Recent
accounting pronouncement (continued)
 In June
2009, the FASB issued FASB ASC 105-10, “Generally Accepted Accounting Principles
replaces SFAS No. 162, which establishes the FASB Accounting Standards
Codification (“Codification”) as the source of authoritative accounting
principles recognized by the FASB to be applied by nongovernmental entities in
the preparation of financial statements in conformity with
GAAP.  Rules and interpretive releases of the Securities and Exchange
Commission (“SEC”) under authority of federal securities laws are also sources
of authoritative GAAP for SEC registrants. The FASB will no longer issue new
standards in the form of Statements, FASB Staff Positions, or Emerging Issues
Task Force Abstracts; instead the FASB will issue Accounting Standards Updates.
Accounting Standards Updates will not be authoritative in their own right as
they will only serve to update the Codification. The issuance of FASB ASC
105-10and the Codification does not change GAAP. FASB ASC 105-10 becomes
effective for interim and annual periods ending after September 15,
2009.  The adoption of this statement did not have  a
material impact on the Company’s financial position, cash flows and results of
operations.
 
 In August
2009, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2009-05, “Fair Value Measurements and Disclosures (Topic
820): Measuring Liabilities at Fair Value”. The guidance provided in this update
is effective for the first reporting period beginning after issuance. The
adoption of this statement has had no material effect on the Company’s financial
condition or results of operations.
 
 In
September 2009, the Financial Accounting Standards Board (FASB) issued ASU
2009-12, “Fair Value Measurements and Disclosures” (Topic 820): Investments in
Certain Entities That Calculate Net Asset Value Per Share (or Its
Equivalent).This
update provides amendments to subtopic 820-10, Fair Value Measurements and
Disclosures – Overall, for the fair value measurement of investments in certain
entities that calculate net asset value per share (or its equivalent). The
amendments in this update are effective for interim and annual periods ending
after December 15, 2009. Early application is permitted in financial statements
for earlier interim and annual periods that have not been issued. The adoption
of this update will have no material effect on the Company’s financial condition
or results of operations.
 
 In
January 2010, the FASB issued Accounting Standards Update (ASU) 2010-01, “Equity
(Topic 505-10): Accounting for Distributions to Shareholders with Components of
Stock and Cash (A Consensus of the FASB Emerging Issues Task
Force)”.  This amendment to Topic 505 clarifies the stock portion of a
distribution to shareholders that allows them to elect to receive cash or stock
with a limit on the amount of cash that will be distributed is not a stock
dividend for purposes of applying Topics 505 and 260. This standard is effective
for interim and annual periods ending on or after December 15, 2009, and would
be applied on a retrospective basis.  The Company does not expect the
provisions of ASU 2010-01 to have a material effect on the financial position,
results of operations or cash flows of the Company.
 
 InJanuary 2010, the
Financial Accounting Standards Board (FASB) issued Accounting Standards Update
(ASU) 2010-02, “Consolidation (Topic 810): Accounting and Reporting for
Decreases in Ownership of a Subsidiary”.  This amendment
to Topic 810 clarifies, but does not change, the scope of current US
GAAP.  It clarifies the decrease in ownership provisions of Subtopic
810-10 and removes the potential conflict between guidance in that Subtopic and
asset derecognition and gain or loss recognition guidance that may exist in
other US GAAP.  An entity will be required to follow the amended
guidance beginning in the period that it first adopts FAS 160 (now included in
Subtopic 810-10).  For those entities that have already adopted FAS
160, the amendments are effective at the beginning of the first interim or
annual reporting period ending on or after December 15, 2009. The amendments
should be applied retrospectively to the first period that an entity adopted FAS
160.  The Company does not expect the provisions of ASU 2010-02 to
have a material effect on the financial position, results of operations or cash
flows of the Company.
 
 
 
 
 
 
 
 
 53
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
      31, 2009
                      (Audited)
 
 NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
 
 Recent
accounting pronouncement (continued)
 
 In
January 2010, the Financial Accounting Standards Board (FASB) issued Accounting
Standards Update (ASU) 2010-6, “Improving Disclosures about Fair Value
Measurements.” This update requires additional disclosure within the roll
forward of activity for assets and liabilities measured at fair value on a
recurring basis, including transfers of assets and liabilities between Level 1
and Level 2 of the fair value hierarchy and the separate presentation of
purchases, sales, issuances and settlements of assets and liabilities within
Level 3 of the fair value hierarchy. In addition, the update requires enhanced
disclosures of the valuation techniques and inputs used in the fair value
measurements within Levels 2 and 3. The new disclosure requirements are
effective for interim and annual periods beginning after December 15, 2009,
except for the disclosure of purchases, sales, issuances and settlements of
Level 3 measurements. Those disclosures are effective for fiscal years beginning
after December 15, 2010. As ASU 2010-6 only requires enhanced disclosures,
the Company does not expect that the adoption of this update will have a
material effect on its financial statements.
 
 NOTE
3 – OIL AND GAS PROPERTIES
 
 (a)
Quachita Prospect
 The
Company has leased various properties totalling approximately 1,971 net acres
within the Quachita Trend within the state of Texas for a three year term, all
expiring during the year ended 2009, in consideration for
$338,353.  The Company has a 100% Working Interest and a 77% N.R.I. in
the leases.  During 2009 the balances of the leases within the
Quachita trend were allowed to lapse without renewal by the
Company.  Accordingly, during the year the Company wrote off the
original cost of these leases totaling $338,353. As allowed for under the lease
which included the Boggs #1 well, the Company has paid a nominal fee to maintain
its rights and access to the Boggs #1 well.
 
 
 Boggs
#1
 On June
7, 2007, the Company began drilling its first well on the Quachita Prospect
(Boggs #1).  During 2007 the Company began production testing and
evaluation of the well.  Of the five tested zones, four produced
significant volumes of natural gas.  As formation water was also
produced with the natural gas in the tested zones, the Boggs # 1 is currently
under evaluation.  To date, $1,352,751 has been incurred on drilling
and completion expenditures on the Boggs #1.  The Boggs #1 was
initially privately funded with the funding investors receiving a 75% Working
Interest and a 54% Net Revenue Interest in exchange for providing 100% of all
drilling and completion costs. To December 31, 2007, the Company had incurred
$1,335,780 of costs on Boggs #1 and had received $759,000 in funding from the
private investors. On March 24, 2008, the Company negotiated with the funding
investors to acquire their interest in the well for an amount equal to the total
amount of their initial investment being $759,000 and forgiveness of any
additional amounts owing.  Effective March 24, 2008, the Company
completed this acquisition and settlement through the issuance of 1,265,000
shares of common stock at $0.63 per share (refer to Note 4).
 
 (b)
New Mexico Prospect
 The
Company to date has leased various properties totalling approximately 7,576 net
acres within the state of New Mexico for a five year term in consideration for
$112,883.  The Company has a 100% Working Interest and an 84.5% N.R.I.
in the leases.  On October 31, 2008, the Company entered into an
agreement to acquire from Westrock Land Corp. approximately 5,763 additional net
acres of property within the State of New Mexico for a five year term in
consideration for $388,150.  The Company acquired a 100% working
interest in approximately 5,763 net acres; and an 81.5% N.R.I. in the leases in
approximately 5,763 net acres.
 
 On July
9, 2009, the Company entered into a Letter Agreement with FormCap Corp.
(“FormCap”), for joint drilling on the Company’s New Mexico prospect whereby
FormCap is required to drill and complete two mutually defined targets on the
Company’s leases in return for an earned 50% Working Interest in the entire New
Mexico Prospect.  During the period FormCap advanced a non-refundable
$100,000 deposit under the terms of the Option to secure the project in
connection with which the Company paid a finders’ fee of $20,000.  On
September 24, 2009, the Company announced that FormCap could not meet the
requirements of the Option Agreement and thus forfeited its rights to the
project. The Company retained the $100,000 non-refundable deposit and recorded
it as a gain on expired oil and gas lease option.
    
 54
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
      31, 2009
                      (Audited)
 
 NOTE
3 – OIL AND GAS PROPERTIES (continued)
 
 (c)
Oklahoma Prospect
 On May
28, 2009, the Company entered into a Letter Agreement with Bonanza Resources
Corporation (“Bonanza”) for an option to earn a 60% interest of Bonanza’s 85%
interest in the North Fork 3-D prospect in Beaver County, Oklahoma in
approximately 5,600 net acres. The parties intended to enter into a definitive
agreement regarding the option and purchase of the 60% interest within 60 days.
A non-refundable payment of $150,000 will be paid to Bonanza, whereby Bonanza
will grant the Company an
 exercise
period of one year. As per a verbal agreement, the 60 day period was extended to
August 17, 2009 and subsequently extended to October 28, 2009. On November 30,
2009 an amendment to the original agreement was made whereby the Company
increased its option to acquire from 60% to 70% interest of Bonanza’s 85%
interest. The Company paid $50,000 during August
 2009 and
on October 23, 2009 paid an additional $65,000.  The balance of
$35,000 is due by December 31, 2009. Subsequently on January 12, 2010 the
cumulative non-refundable payment was amended from $150,000 to $125,000. On
January 15, 2010 the Company made the final payment of $10,000.
 
 In order
to exercise the option, the Company will be required to incur $2,400,000 in
exploration and drilling expenditures during the Option Period which will be one
year. In the event that the Company does not do so the option will terminate,
the Company will cease to have any interest in the prospect and Bonanza will
retain the benefit of any drilling or exploration expenditures made by the
Company during the Option Period. On November 30, 2009 the Agreement between
Bonanza and the Company was amended whereby the Company agreed to incur the full
cost of drilling one well to completion on the prospect and will have exercised
its option to earn its interest in the well and the balance of the
Prospect.  In the event that the first well is a dry hole, the Company
will have the exclusive right and option to participate in any and all further
drilling programs on the Prospect and to incur the full cost of drilling a
second well to acquire a 75% interest of Bonanza’s 85% interest (59.50% working
interest) in both that well and the balance of the Prospect.
 
 Subsequently
on January 15, 2010 the Company entered into a Participation Agreement to
finance drilling and completion costs with two partners who will pay 67% of the
costs of the first well in the Prospect.  Morgan will pay 33% of the
drilling and completion costs.
 
 Subsequently,
on February 1, 2010 the Company was informed by its operator that it had drilled
the Nowlin #1-19 well to a depth of 8,836 feet.  After review of the
drilling logs, the Company has determined that oil in not producible in the
targeted Morrow A and B sand formations.  The Company is currently
reviewing the geological and geophysical data with the partners to determine if
there are any further targets within the leased acreage on the
Prospect.
 NOTE
4 – STOCKHOLDERS’ EQUITY (DEFICIT)
 
 (a)           Share
Capital
 The
Company’s capitalization is 66,666,666 common shares with a par value of $0.001
per share.
 
 On April
22, 2008, the directors of the Company approved a special resolution to
undertake a reverse split of the common stock of the Company on a basis of 1 new
share for 3 old shares.  On July 26, 2006, the directors of the
Company approved a special resolution to undertake a forward split of the common
stock of the Company on a basis of 2 new shares for 1 old share.  On
May 10, 2006, the directors of the Company approved a special resolution to
undertake a forward split of the common stock of the Company on a basis of 2 new
shares for 1 old share.  On July 14, 2009, the directors of the
Company approved a special resolution to undertake a forward split of the common
stock of the Company on a basis of 2 new shares for 1 old share.
 
 All
references in these financial statements to number of common shares, price per
share and weighted average number of common shares outstanding prior to the 2:1
forward stock split on May 10, 2006, the 2:1 forward split on August 8, 2006,
the 3:1 reverse stock split on April 22, 2008 and the 2:1 forward split on
August 3, 2009, have been adjusted to reflect these stock splits on a
retroactive basis, unless otherwise noted.
 
 On
December 19, 2006, a founding shareholder of the Company returned 8,000,000
restricted shares of common stock to treasury and the shares were subsequently
cancelled by the Company.  The shares were returned to treasury for no
consideration to the shareholder.
    
 55
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
      31, 2009
                      (Audited)
 NOTE
4 – STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
 
 (b)           Private
Placements
 On
November 26, 2004, the Company issued 4,133,332 shares of common stock at
$0.0375 per share for proceeds of $155,000.
 
 On
December 15, 2004, the Company issued 5,033,334 shares of common stock at
$0.0375 per share for proceeds of $188,750 and 1,760,534 shares of common stock
at $0.1875 per share for proceeds of $330,100.
 
 On March
9, 2005, the Company issued 186,666 shares of common stock at a price of $0.1875
per share for proceeds of $35,000.
 
 On
October 16, 2006, the Company completed a private placement consisting of
629,404 units at $2.25 per unit for proceeds of $1,416,158.  Each unit
consists of one common share and one non-transferable share purchase warrant
exercisable at $4.50 per share for the period commencing on October 16, 2006 and
ending on October 16, 2008, being the day which is the earlier of 24 months from
the date of issuance of the units or 18 months from the effective date of a
planned registration statement.  Of this private placement, 375,556 of
the units issued were in exchange for $845,000 previously advanced to the
Company by a shareholder. The estimated fair value of the warrants at the date
of grant of $592,210, which has been included in additional paid in capital, was
determined using the Black-Scholes option pricing model with an expected life of
2 years, risk free interest rate of 4.49%, a dividend yield of 0% and an
expected volatility of 153%.
 
 During
2008, the Company completed a private placement consisting of 2,448,000 units at
$0.375 per unit for total gross proceeds of $918,000.  Each unit
consists of one common share and one non-transferable share purchase warrant
exercisable at $0.75 per share for a period of 12 months from the date of share
issuance.  A finders fee of 3.5% ($20,913) was paid on $597,500 of the
private placement proceeds received.
 
 During
2009, the Company completed a private placement consisting of 1,960,000 units at
$0.125 per unit for total proceeds of $245,000. Each unit consists of one common
share and one-half non-transferable share purchase warrant exercisable at $0.50
per share for a period of 12 months from the date of issuance. A finder’s fee of
7% ($3,500) was paid on $50,000 of the private placement proceeds
received.
 
 (c)           Other
issuances
 On
February 13, 2008, the Company issued 5,050,712 shares of common stock at a
price of $0.375 per share on settlement of related party advances and accrued
interest totaling $1,515,214.  The difference between the estimated
fair value of the common shares issued at issuance and the amount of debt
settled totaling $378,803 was recorded as a finance cost during the period
(refer to Note 6).
 
 On March
24, 2008, the Company issued 3,057,076 shares of common stock at a price of
$0.315 per share on settlement of related party advances and the acquisition of
the interest in the Boggs #1 well totalling $962,980.  The difference
between the estimated fair value of the common shares at issuance and the amount
of debt settled totaling $45,857 was recorded as a finance cost during the
period (refer to Notes 3 and 6).
 
 On July
20, 2009, the Company issued 1,640,000 units at $0.125 per unit on settlement of
related party advances of $200,000 and accounts payable of $5,000. Each unit
consists of one common share and one non-transferable share purchase warrant
exercisable at $0.25 per share for a period of 12 months from the date of
issuance.
 
 During
2009, the Company received $1,475,000 towards a planned private placement of
Units to be offered at $0.50 per unit with each unit consisting of one common
share and one-half warrant to acquire an additional common share, exercisable at
$1.00 for twelve months. A finders fee of 7% ($7,000) was paid on $100,000 of
the planned private placement proceeds received.
 
 Subsequent
to the period, between January 5, 2010 and February 9, 2010, the Company
received $265,000 towards a planned private placement of Units to be offered at
$0.50 per unit with each unit consisting of one common share and one-half
warrant to acquire an additional common share, exercisable at $1.00 for twelve
months.
 
   
 56
   MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
      31, 2009
                      (Audited)
 NOTE
4 – STOCKHOLDERS’ EQUITY (DEFICIT) (continued)
 
 (d)           Share
Purchase Warrants
 Details
of the Company’s share purchase warrants issued and outstanding as of December
31, 2009 are as follows:
 
 Exercise
      price
                  Number
      of warrants to purchase shares
                  Expiry
      Date$0.25
                  3,600,000
                  July
      20, 2010
 
 The
Company’s share purchase warrants activity for the period ended December 31,
2009 is summarized as follows:
 
 Number
      of Warrants
                  Weighted
      average exercise
                    Price
      per share
                  Weighted
      average remaining
                    In
      contractual life (in years)Balance,
      December 31, 2007
                  629,404
                  $         4.50
                  0.80Issued
                  2,448,000
                  0.75
                  -Expired
                  (629,404)
                  4.50
                  -Exercised
                  -
                  -
                  -Balance,
      December 31, 2008
                  2,448,000
                  0.75
                  0.71Issued
                  3,600,000
                  0.25
                  -Expired
                  (2,448,000)
                  0.75
                  -Exercised
                  -
                  -
                  -Balance,
      December 31, 2009
                  3,600,000
                  $          0.25
                  0.55
 
 All
warrants are exercisable as at December 31, 2009.
 
 NOTE
5 – STOCK OPTION PLAN
 
 On April
3, 2006, the Board of Directors of the Company ratified, approved and adopted a
Stock Option Plan for the Company in the amount of 3,333,334 shares with an
exercisable period up to 10 years. In the event an optionee ceases to be
employed by or to provide services to the Company for reasons other than cause,
any Stock Option that is vested and held by such optionee may be exercisable
within up to ninety calendar days after the effective date that his position
ceases. No Stock Option granted under the Stock Option Plan is transferable. Any
Stock Option held by an optionee at the time of his death may be exercised by
his estate within one year of his death or such longer period as the Board of
Directors may determine. On April 28, 2008, the Board of Directors deemed it
necessary to approve an amendment to the Stock Option Plan to an aggregate of
5,000,000 shares.
 
 As
approved by the Board of Directors, on December 12, 2006, the Company granted
1,233,336 stock options to certain officers, directors and management of the
Company at $1.65 per share.  The term of these options are five
years.  The total fair value of these options at the date of grant was
estimated to be $1,527,170 and was recorded as a stock based compensation
expense during 2006.  The fair value of these options was estimated
using the Black-Scholes option pricing model with the following assumptions:
expected life of 3 years; risk free interest rate of 4.49%; dividend yield of 0%
and expected volatility of 187%.
 
 As
approved by the Board of Directors on April 30, 2008, the Company granted
2,500,000 stock options to certain officers, directors and management of the
Company at $0.50 per share.  The term of these options are ten
years.  The total fair value of these options at the date of grant was
estimated to be $436,955 and was recorded as a stock based compensation expense
during the period.  The fair value of these options was estimated
using the Black-Scholes option pricing model with the following assumptions:
expected life of 10 years; risk free interest rate of 3.77%; dividend yield of
0% and expected volatility of 210%.
 
   
 57
  MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
      31, 2009
                      (Audited)
 NOTE
5 – STOCK OPTION PLAN (continued)
 
 On July
14, 2009, the Company cancelled 3,566,670 stock options to certain officers,
directors and management of the Company and authorized the issuance of 3,000,000
new stock options to certain officers, directors and management of the Company
at $0.25 per share. The term of the new options is ten years.
 
 As
approved by the Board of Directors on July 14, 2009, the Company granted
3,000,000 stock options to certain officers, directors and management of the
Company at $0.25 per share of which 1,300,000 options were cancelled and
re-issued to certain individuals and 1,700,000 were new options
issued.  The term of these options are ten years.  The total
fair value of these options at the date of grant was estimated to be $236,810
and was recorded as a stock based compensation expense during the
period.  The fair value of these options was estimated using the
Black-Scholes option pricing model with the following assumptions: expected life
of 10 years; risk free interest rate of 3.50%; dividend yield of 0% and expected
volatility of 180%.
 
 As
approved by the Board of Directors on September 1, 2009, the Company granted
200,000 stock options to a director of the Company at $0.39 per
share.  The term of these options are ten years.  The total
fair value of these options at the date of grant was estimated to be $99,860 and
was recorded as a stock based compensation expense during the
period.  The fair value of these options was estimated using the
Black-Scholes option pricing model with the following assumptions: expected life
of 10 years; risk free interest rate of 3.38%; dividend yield of 0% and expected
volatility of 198%.
 
 As
approved by the Board of Directors on December 8, 2009, the Company granted
200,000 stock options to a director of the Company at $0.58 per
share.  The term of these options are ten years.  The total
fair value of these options at the date of grant was estimated to be $129,800
and was recorded as a stock based compensation expense during the
period.  The fair value of these options was estimated using the
Black-Scholes option pricing model with the following assumptions: expected life
of 10 years; risk free interest rate of 3.40%; dividend yield of 0% and expected
volatility of 196%.
 
 The
Company’s stock option activity for the period ended December 31, 2009 is
summarized as follows:
 
 Number
      of Options
                  Weighted
      average exercise
                    Price
      per share
                  Weighted
      average remaining
                    In
      contractual life (in years)Balance,
      December 31, 2007
                  1,233,336
                  $          1.65
                  3.95Granted
                  2,500,000
                  0.50
                  -Expired
                  -
                  -
                  -Exercised
                  -
                  -
                  -Balance,
      December 31, 2008
                  3,733,336
                  0.88
                  7.22Granted
                  3,400,000
                  0.27
                  -Expired
      - cancelled
                  (3,566,670)
                  0.84
                  -Exercised
                  -
                  -
                  -Balance,
      December 31, 2009
                  3,566,666
                  $          0.33
                  9.21
 
 All
options are exercisable as at December 31, 2009.
 
 NOTE
6 – RELATED PARTY TRANSACTIONS
 
 As of
December 31, 2007, $1,365,500 was owed to a shareholder for advances made to the
Company.  During 2008, this shareholder made further advances to the
Company of $885,000 and $500,000 was repaid to the shareholder. On February 13,
2008, the Company issued 5,050,712 shares of common stock at a price of $0.375
per share on settlement of related party advance and related accrued interest
totaling $1,894,017 (Refer to Note 4).  During the period, this
shareholder made further advances of $100,000 and was repaid
$24,000.  On July 20, 2009 the Company issued 1,600,000 units at
$0.125 per unit on settlement of shareholder advances of $200,000. Each unit
consists of one common share and one non-transferable share purchase warrant
exercisable at $0.25 per share for a period of 12 months from the date of
issuance. As a result, as of December 31, 2009, $156,000
 58
 
 MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
      31, 2009
                        (Audited)
 
 NOTE
6 – RELATED PARTY TRANSACTIONS (continued)
 
 (December
31, 2008 - $310,000) was owed which bears interest at 8% per annum and has no
specific repayment terms.  As of December 31, 2009, total accrued
interest was $42,467 (December 31, 2008 - $19,164).
 
 Management
Fees
 During
2009, the Company incurred $193,600 (December 31, 2008 -$263,386) for management
fees to officers and directors. As of December 31, 2009, total amount owing in
accrued and unpaid management fees and expenses was $33,759 (December 31, 2008 -
$1,998).
 
 NOTE
7 – INCOME TAXES
 
 The
Company has adopted FASB ASC 740-10, “Income Taxes”. As of December 31, 2009,
and 2008 the Company had net operating loss carry forwards of approximately
$5,990,048 and $4,595,923 respectively that may be available to reduce future
years’ taxable income through 2028. Future tax benefits which may arise as a
result of these losses have not been recognized in these financial statements,
as their realization is determined not likely to occur and accordingly, the
Company has recorded a valuation allowance for the deferred tax asset relating
to these tax loss carryforwards.
 
 At
December 31, 2009 and 2008, the Company had a federal operating loss carry
forward of $5,990,048 and $4,595,923 respectively.
 
 Components
of net deferred tax assets, including a valuation allowance, are as follows at
December 31:
 
 2009
                  
                  2008Deferred
      tax assets:Net
      operating loss carryforward
                  
                  $    5,990,048
                  
                  $    4,595,923Total
      deferred tax assets
                  
                  2,096,517
                  
                  1,608,573Less:
      Valuation Allowance
                  
                  (2,096,517)
                  
                  (1,608,573)Net
      Deferred Tax Assets
                  
                  $                 --
                  
                  $                 --
 
 The
valuation allowance for deferred tax assets as of December 31, 2009 and 2008 was
$2,096,517 and $1,608,573 respectively.  In assessing the recovery of
the deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be
realized.  The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income in the periods in which
those temporary differences become deductible.  Management considers
the scheduled reversals of future deferred tax assets, projected future taxable
income, and tax planning strategies in making this assessment.  As a
result, management determined it was more likely than not the deferred tax
assets would be realized as of December 31, 2009 and 2008.
 59
 
 MORGAN
CREEK ENERGY CORP.
 (An
Exploration Stage Company)
 
 NOTES
TO FINANCIAL STATEMENTS
 DECEMBER
      31, 2009
                        (Audited)
  NOTE
7 – INCOME TAXES (continued)
 
 Reconciliation
between the statutory rate and the effective tax rate is as follows at December
31:
 
 2009
                  
                  2008Federal
      statutory tax rate
                  
                  (35.0)%
                  
                  (35.0)%Change
      in valuation allowance
                  
                  35.0
      %
                  
                  35.0
      %Effective
      tax rate
                  
                  0
      %
                  
                  0
      %
 
 NOTE
8 – SUBSEQUENT EVENTS
 
 The
Company has evaluated subsequent events through April 9, 2010, the date which
the financial statement were available to be issued.
 
 Between
January 5, 2010 and February 9, 2010, the Company received $265,000 towards a
planned private placement of Units to be offered at $0.50 per unit with each
unit consisting of one common share and one-half warrant to acquire an
additional common share, exercisable at $1.00 for twelve months.
 
 On
January 15, 2010, the Company entered into a Participation Agreement to finance
drilling and completion costs with two partners who will pay 67% of the costs of
the first well in the Prospect.  Morgan will pay 33% of the drilling
and completion costs.
 
 On
January 12, 2010, amended its Agreement with Bonanza Resources Corporation
whereby its cumulative non-refundable payment was reduced from $150,000 to
$125,000. On January 15, 2010 Morgan made the final payment of
$10,000.
 
 On
February 1, 2010, the Company was informed by its operator that it had drilled
the Nowlin #1-19 well to a depth of 8,836 feet.  After review of the
drilling logs, the Company has determined that oil in not producible in the
targeted Morrow A and B sand formations.  The Company is currently
reviewing the geological and geophysical data with the partners to determine if
there are any further targets within the leased acreage on the
Prospect.
 
 NOTE
9 –CONTINGENCIES
 
 During
August 2009, the Company was included in a third party lawsuit by a former
director/officer of the Company.  The former Director has made certain
false allegations against the Company, as specifically described in the body of
the Company’s December 31, 2009 filing on Form 10-K.  Although the
Company refutes these allegations and believes it should not be included in this
action and that the claims contained within the lawsuit are without merit, it is
possible that the Company may be exposed to a loss
contingency.  However, the amount of such loss, if any, cannot be
reasonably estimated at this time and accordingly, no amount has been recorded
to date.





60




ITEM 9. CHANGES IN AND
DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE




Effective
July 31, 2007, our Board of Directors appointed De Joya Griffith & Company,
LLC (De Joya Griffith) as our principal independent registered public accounting
firm.






The
reports of De Joya Griffith on our financial statements for each of the fiscal
years ended December 31, 2009 and 2008 did not contain an adverse opinion or
disclaimer of opinion, nor were they modified as to uncertainty, audit scope or
accounting principles, other than to state that there is substantial doubt as to
our ability to continue as a going concern. During our fiscal years ended
December 31, 2009 and 2008, there were no disagreements between us and De Joya
Griffith, whether or not resolved, on any matter of accounting principles or
practices, financial statement disclosure, or auditing scope or procedure,
which, if not resolved to the satisfaction of De Joya Griffith, would have
caused De Joya Griffith to make reference thereto in their reports on our
audited financial statements.






ITEM 9A. CONTROLS AND
PROCEDURES






EVALUATION
OF DISCLOSURE CONTROLS AND PROCEDURES






We have
performed an evaluation under the supervision and with the participation of our
management, including our Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of our disclosure controls and procedures,
(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based on
that evaluation, our management, including our CEO and CFO, concluded that our
disclosure controls and procedures were effective as of December 31, 2009 to
provide reasonable assurance that information required to be disclosed by us in
the reports filed or submitted by us under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the
SEC’s rules and forms.




Management’s
Annual Report on Internal Control Over Financial reporting





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Exchange Act). Under the supervision and with the participation of the Company’s
management, including the chief executive officer and principal financial
officer, we evaluated the effectiveness of our internal control over financial
reporting as of December 31, 2009. In making this assessment, management used
the criteria set forth by the Committee of Sponsoring Organizations of the
Treadway Commission (“COSO”) in Internal Control-Integrated
Framework.





This
Annual Report does not include an attestation report of our registered public
accounting firm De Joya Griffith & Company, LLC regarding internal control
over financial reporting. Management’s report was not subject to attestation by
our registered public accounting firm pursuant to temporary rules of the SEC
that permit us to provide only management’s report in this Annual Report on Form
10-K.













61





Inherent
Limitations on Effectiveness of Controls





We
believe that a controls system, no matter how well designed and operated, cannot
provide absolute assurance that the objectives of the controls system are met,
and no evaluation of controls can provide absolute assurance that all control
issues and instances of fraud, if any, within a company have been detected. Our
disclosure controls and procedures are designed to provide reasonable assurance
of achieving their objectives, and our CEO and our CFO have concluded that these
controls and procedures are effective at the “reasonable assurance”
level.





Changes
in internal controls





There
were no changes in internal controls for the fiscal year ended December 31,
2009.





Our
management has remediated the material weaknesses that were reported from our
10-K/A for the fiscal year end December 31, 2007, which were filed on October 2,
2008 as follows. (A) Management implemented an audit committee that oversees and
monitors our financials (See Paragraph on Audit committee report below). (B)
Adequate segregation of duties were put in place to reduce the likelihood that
errors (intentional or unintentional) will remain undetected by providing for
separate processing by different individuals at various stages of a transaction
and for independent reviews of the work performed. No further significant
changes were implemented in our internal controls over financial reporting
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.





AUDIT
COMMITTEE REPORT





The Board
of Directors has established an audit committee. The members of the audit
committee are Mr. Peter Carpenter, Mr. Angelo Viard and Mr. D. Bruce Horton. All
of the members of the audit committee are “independent” within the meaning of
Rule 10A-3 under the Exchange Act. The current audit committee was organized on
December 18, 2008 and operates under a written charter adopted by our Board of
Directors.





The audit
committee has received and reviewed the written disclosures and the letter from
De Joya Griffith & Company, LLC required by Independence Standards Board
Standard No. 1, Independence Discussions with Audit Committees, as
amended.





Based on
the reviews and discussions referred to above, the audit committee has
recommended to the Board of Directors that the financial statements referred to
above be included in our Annual Report on Form 10-K for fiscal year ended
December 31, 2009 filed with the Securities and Exchange
Commission.




ITEM 9B. OTHER
INFORMATION






Not
applicable.















62




ITEM 10. DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE






IDENTIFICATION
OF DIRECTORS AND EXECUTIVE OFFICERS






All of
our directors hold office until the next annual general meeting of the
shareholders or until their successors are elected and qualified. Our officers
are appointed by our board of directors and hold office until their earlier
death, retirement, resignation or removal.






Our
directors and executive officers, their ages and positions held are as
follows:




Name
            Age
            Position
      with the CompanyPeter
      Wilson
            42
            President,
      Chief Executive Officer/Principal Executive Officer, a Director and
      Compensation Committee member and Nominating Committee
      chairmanWilliam
      D. Thomas
            58
            Secretary/Treasurer,
      Chief Financial Officer, and Principal Accounting
  OfficerJohn
      C. Weldy Jr.
            47
            Director
      and Compensation Committee memberD.
      Bruce Horton
            65
            Director
      and Audit Committee memberErik
      Essiger
            44
            DirectorAngelo
      Viard
            37
            Director,
      Compensation Committee chairman and Audit Committee
    chairmanPeter
      Carpenter
            69
            Director
      and Nominating Committee member





Business
Experience





The
following is a brief account of the education and business experience of each
director, executive officer and key employee during at least the past five
years, indicating each person's principal occupation during the period, and the
name and principal business of the organization by which he or she was employed,
and including other directorships held in reporting companies.




Peter Wilson.Mr. Wilson has
been our President/Chief Executive Officer and a member of our Board of
Directors since September 29, 2008. During the past fifteen years, Mr. Wilson
has been involved in the senior level management of public companies. His
experience spans a wide range of project development and contract negotiations
within the mining, energy and real estate industries. Mr. Wilson has focused on
the creation and implementation of market strategies, contract negotiations and
financing options for maximum return on investments. His business experience
includes diverse international assignments in the United Kingdom, Canada, the
United States, Switzerland and Norway. Mr. Wilson has worked extensively with
overseas investor groups and within the E&P market in Louisiana and
Texas.










63




From
approximately 2007 through the current date, Mr. Wilson is the president of Hana
Mining Ltd., a publicly listed exploration company seeking to develop a
copper-silver project in Botswana, Africa. During approximately 2005 to 2006,
Mr. Wilson served as the president and chief executive officer of Sun Oil and
Gas Corp. During approximately 1997 to 2005, Mr. Wilson was a director and the
vice president of International Operations for Petroreal Oil Corp., a small oil
producer engaged in energy asset purchases aggregating more than $130,000,000.
During approximately 1993 to 1999, Mr. Wilson was the vice president of Samoth
Equity Corporation (now Sterling Center Corp.), where he began his involvement
with capital markets and finance. Samoth Equity Corporation gained prominence
through the 1990s and grew to a $150,000,000 TSX-listed real estate merchant
banking organization involved in lending throughout the southwestern United
States and Canada.






Mr.
Wilson continues to serve as an advisor to several public and private
Houston-based E&P companies, and serves as a director of Offset Energy
Corporation operating in the GOM and Houston, Texas.




William Thomas.Mr. Thomas has
been our Chief Financial Officer/Secretary/Treasurer since January 8, 2009. Mr.
Thomas has thirty years of experience in the finance and accounting areas for
the natural resource sector. Currently, Mr. Thomas is also the chief financial
officer of Mainland Resources, Inc., a Nevada corporation that trades on the OTC
Bulletin Board, and the chief financial officer and a director of Uranium
International Corp., a Nevada corporation that trades on the OTC Bulletin Board
and chief financial officer and director of Mira Resources, an Canadian public
resources company. Mr. Thomas has held various successive management positions
with Kerr McGee Corporation's China operations based in Beijing, China, ending
in 2004 with his final position as director of business services. For a brief
period after leaving Kerr McGee, Mr. Thomas acted as a self-practitioner in the
accounting and finance field. In July 2007, he took on the role of chief
financial officer for two public resource companies; Hana Mining Inc. and NWT
Uranium Corp.  Recently, Mr. Thomas resigned from NWT Uranium Corp.
but continues to serve as CFO for Hana Mining. Mr. Thomas was previously general
manager (1999-2002), and finance and administration manager (1996-1999) of Kerr
McGee's China operations. While in China, Mr. Thomas was responsible for finance
including Sarbanes Oxley reporting, budgeting, treasury, procurement, taxation,
marketing, insurance and business development, including commercial negotiations
with the Chinese partner, China National Offshore Oil Co (CNOOC) and other
Chinese and joint venture partners. Mr. Thomas focused heavily on supporting
exploration and development operations for three operated blocks in Bohai Bay,
as well as evaluation and negotiation of new venture blocks in East China Sea
and the South China Sea. He was also responsible for the liaison with CNOOC and
other Chinese oil companies, Kerr McGee US management and joint venture
partners, where his main focus was to ensure cost effective














64





and
timely achievement of various approved work programs and budgets. He was also
Chief Representative for Kerr McGee on the Joint Management Committee (JMC). Mr.
Thomas previously worked as manager of fixed asset accounting for Kerr McGee
Corporation's US operations (1996), as finance director of Kerr McGee's UK
operations based in London/Aberdeen (1992-1996), and Kerr McGee's Canadian
operations in Calgary, Alberta, Canada (1984-1992), including the predecessor
company, Maxus Canada Ltd, which was acquired by Kerr McGee Ltd. Over the course
of his career, he has been involved in all aspects of managing accounting,
budgeting, human resources, administration, insurance, taxation and other
business support aspects surrounding gas properties for Kerr McGee. Mr. Thomas
was responsible to ensure compliance with COPAS, SEC, FASB and international
accounting regulations. He participated on a team that developed the Oracle
accounting system application to the Kerr McGee's worldwide operations. He was
most notably involved in the company’s initial entry into both China and the UK
North Sea – start ups of local and expatriate personnel that eventually
developed into core areas (over $1 Billion) for Kerr McGee, including the
company’s first operated offshore oil fields in China (CFD 1-1) and the UK
(Gryphon). In his early career, Mr. Thomas also held senior management positions
in the finance divisions of Norcen Energy Ltd of Calgary, Alberta (1981-1984),
Denison Mines Ltd of Ontario Canada (1978-1981) and Algoma Steel Corporation of
Sault Ste Marie, Ontario, Canada (1977). He was also a Senior Auditor for the
accounting firm, Coopers & Lybrand in Toronto, Canada (1975-1977). Mr.
Thomas attained his Chartered Accountant (CA) designation from the Canadian
Institute of Chartered Accountants in 1977. He holds an Honors Bachelor of
Commerce and Finance from the University of Toronto, Ontario, Canada. Mr. Thomas
is also a member of the Board of Directors and the chief financial officer for
Mainland Resources, Inc., a publicly traded company.





John Clayton Weldy Jr.Mr.
Weldy has been a member of our Board of Directors since December 8, 2009. Mr.
Weldy has eighteen years of diversified experience as a petroleum, mechanical
and environmental engineer. His areas of specialized knowledge extend from
personal management, completions, operations and production engineering to
project engineering and management. Mr. Weldy’s expertise also includes
conceptualization, design, planning and managing people and projects to achieve
goals efficiently. From February 2009 to current date, Mr. Weldy is a senior
completion engineer for Eni Petroleum, where he is responsible for leading
subsea and shelf well completions and intervention projects in the Gulf of
Mexico. From approximately September 2008 to February 2009, Mr. Weldy was the
senior operations/production/completions engineer at SandRidge Energy. He
managed all phases of operations, production and facility engineering for
properties offshore, onshore and inland in the Gulf of Mexico. He was further
responsible for engineering design and project management of Hurricane Ike
repairs, managed all rig completions and remedial workover procedures, including
written procedures, completion strategy, cost estimating and securing of
equipment and services. Mr. Weldy was also responsible for the design, layout
and management of the construction of production facilities, preparation of
procedures for and supervision of wellhead remedial operations on existing oil
and gas wells, the performance of nodal analysis on various production wells
using nodal analysis software and the design, troubleshooting and installation
of gas lifts for offshore wells.





From
approximately August 2005 through September 2008, Mr. Weldy was the deepwater
subsea completions engineer for Shell International and Exploration Company.
From approximately February 2004, through August 2005, Mr. Weldy was the vice
president of operations for Petroreal of America, Inc. From approximately
January 2003 through January 2004, Mr. Weldy was a self employed consultant.
From approximately May 2001 through December 2002, Mr. Weldy was the production
manager for Century Exploration Inc. From approximately August 2000 through May
2001, Mr. Weldy was the senior petroleum engineer for Watson Energy LLC. And
from approximately April 2000 through August 2000, Mr. Weldy was the operations
engineer for Operational Services Inc.













65





Prior to
2000, Mr. Weldy worked for nine years at Texaco Exploration Company as a
production, facility and completions engineer.





Mr. Weldy
earned a Master of Science degree in environmental engineering from Tulane
University. He also earned a Bachelor of Science degree in mechanical
engineering and in petroleum engineering from the University of Alabama. Mr.
Weldy co-authored a SPE paper on “Best Completion Practices”.





D.  Bruce Horton.Mr. Horton was our Chief Financial Officer/Secretary/Treasurer until his
resignation in January 8, 2009, and remains a member of our Board of Directors,
a member of the Compensation Committee and a member of the Audit Committee. He
has been one of our directors since August 21, 2006. During the past five years,
Mr. Horton has been active in the financial arena in both the private and public
sectors as an accountant and financial management consultant with an emphasis on
corporate financial reporting, financing and tax planning. Mr. Horton has
specialized in corporate management, re-organization, merger and acquisition,
international tax structuring, and public and private financing for over thirty
years. From 1972 through 1986, Mr. Horton was a partner in a public accounting
firm. In 1986, Mr. Horton co-founded the Clearly Canadian Beverage Corporation,
of which he was a director and chief financial officer from June 1986 to May
1997. He is a principal consultant in Calneva Financial Services Ltd. that
provides accounting and financial management consulting services as well as
investment banking services focusing on venture capital opportunities in Asia.
Mr. Horton is also an officer and director of Geneva Resources, Inc. since May
2006, which is a publicly traded company.




Erik Essiger.Mr. Essiger has
been one of our directors since August 21, 2006. Mr. Essiger has more than
fifteen years of experience in corporate finance and lead advisory services
relating to strategic and commercial development projects across a wide variety
of sectors and including, in particular, within the industrial, automotive,
business services, retail and consumer goods sectors. In this respect, Mr.
Essiger has performed various commercial and strategy services as both an
external consultant and as a board member and managing director of a number of
companies, including a venture capital company. During the past five years, Mr.
Essiger has been: (i) the Managing Director and the founder of Precisetech GmbH,
a corporate finance advisory company focused on international M&A
transactions (from October 2004 to present); (ii) a member of the Supervisory
Board of Corix Capital AG (from December 2003 to present); (iii) the Senior
Manager, Transaction Services Strategy Group, with PricewaterhouseCoopers AG,
heading up the commercial and due diligence practice of that group in Germany
which provided services mainly to private equity clients of the firm (from April
2003 to September 2004); and (iv) a member of the Executive Board (Vorstand) of
MultiMedia Technologies AG, a producer of set-top-boxes and a company operating
in the fields of interactive digital television and the streaming media market
(from July 2000 to July 2002) Mr. Essiger also has extensive international
experience in corporate restructuring; especially in Germany, Russia, Hong Kong
and Switzerland; and he was a member of the German-Russian co-operation council.
Mr. Essiger is also a director of Uranium Energy Corp., a publicly traded
company.










66






Angelo Viard.Mr. Viard has
been one of our directors since September 29, 2008. Mr. Viard is also a member
of the Compensation Committee and a member of the Audit Committee. During the
past ten years, Mr. Viard has been involved in providing companies with advisory
services including, but not limited to, managerial, investment strategy,
finance, information technology, compliance, accounting, business development,
mergers and acquisitions, and capital fund raising in a wide range of industry
sectors across the United States, South America and Europe. From approximately
June 2007 through current date, Mr. Viard has been the president/chief executive
officer of VCS Group, Inc. formerly known as “Viard Consulting Services”. His
role as director of advisory services requires development of an advisory
services sector. Mr. Viard’s functions include full budgeting responsibilities,
management of budgets and planning, creation of policies and administrative
procedures to restructure business processes, authoring multi-company employee
manuals, design work order tracking and billing interface systems for
accounting, and updating business plans, accounting structures and
organizational changes to maximize business growth. From approximately August
2006 through June 2007, Mr. Viard was the IT operations manager for Bare
Escentuals where he was responsible for developing and coordinating multiple
related projects in alignment with strategic and tactical company goals, served
as a primary customer advocate, planned and coordinated long term systems
strategy, and managed the day to day operations of the IT department, including
LAN/WAN architecture, telecommunications and hardware/software support and
development. From approximately August 2005 through August 2006, Mr. Viard was a
senior IT audit consultant for PricewaterhouseCoopers LLP where he was
responsible for determining the audit documentation, strategy and plan. From
approximately December 2004 through August 2005, Mr. Viard was the chief
executive officer and founder of Technology Mondial Inc., which was a start-up
company specializing in broadband wireless technology in Costa Rica and
management and development of wireless connection planning for Latin America.
Mr. Viard was also previously employed with OpenTV Inc, where he was manager of
information system and technology, Thomas Weisel Partners LLC where he was an
information technology brokerage services manager, BancBoston Robertson Stephens
& Co. where he was a senior system engineer, and Environmental Chemical
Corporation where he was a technical analyst.






Mr. Viard
holds a master in computer science, a BS in business management and
administration, and an A/A in computer business administration and
network.




Peter Carpenter, P. Eng.,
CFA.Mr. Carpenter has been a member of our Board of Directors
since September 1, 2009. Mr. Carpenter has been involved in the oil and gas
industry for the past forty years. From 2004 to current date, Mr. Carpenter is
the president and chief executive officer of Claridge House Partners, Inc.,
which provides corporate restructuring and financial advisory services to the
Canadian oil and gas industry. From approximately 1998 through 2002, Mr.
Carpenter was the chief financial officer for Cybernetic Capital Management Inc;
from approximately 1996 through 1998, Mr. Carpenter was a consulting oil and gas
analyst for First Associates Securities; and from approximately 1885 through
1996, Mr. Carpenter was the vice president of investment bank with Moss, Lawson
& Co., Limited.













67





Mr.
Carpenter also was employed as the senior oil and gas analyst from approximately
1981 through 1993 with Deutsche Morgan Grenfell Canada, where he was responsible
for the preparation of oil company equity analysis. He was employed at Texaco
Canada from 1976 through 1981 as a chief economist where he supervised economic
planning at Texaco and maintained liaison with the worldwide economics group in
Harrison, New York. From approximately 1971 through 1976, Mr. Carpenter was the
manager of special projects at PanCanadian Petroleum where his responsibilities
included overseeing the economic and business analysis of major capital
expenditure opportunities involving oil and gas production facilities, chemical,
heavy oil and coal projects. From approximately 1965 through 1971, Mr. Carpenter
was an engineer at Exxon where he was responsible for the refinery and
petrochemicals plant in Sarnia, Ontario, pipeline optimization studies with
Interprovincial Pipeline in Toronto, logistics analyst in Esso International’s
supply and transportation group located in New York City, and logistics
coordinator in Esso International’s light hydrocarbon sales group. From
approximately 1962 through 1963, Mr. Carpenter was employed as a process
engineer at DuPont’s Maitland works near Brockville, Ontario.





Mr.
Carpenter earned a B.SC in Chemical Engineering from the University of Alberta,
an MBA from the University of Western Ontario and a Doctoral Programme in
Economics from New York University. Mr. Carpenter also became a chartered
financial analyst with the Institute of Chartered Financial
Analysis.





FAMILY
RELATIONSHIPS





There are
no family relationships among our directors or officers.





INVOLVEMENT
IN CERTAIN LEGAL PROCEEDINGS





During
the past five years, none of our directors, executive officers or persons that
may be deemed promoters is or have been involved in any legal proceeding
concerning: (i) any bankruptcy petition filed by or against any business of
which such person was a general partner or executive officer either at the time
of the bankruptcy or within two years prior to that time; (ii) any conviction in
a criminal proceeding or being subject to a pending criminal proceeding
(excluding traffic violations and other minor offenses); (iii) being subject to
any order, judgment or decree, not subsequently reversed, suspended or vacated,
of any court of competent jurisdiction permanently or temporarily enjoining,
barring, suspending or otherwise limiting involvement in any type of business,
securities or banking activity; or (iv) being found by a court, the Securities
and Exchange Commission or the Commodity Futures Trading Commission to have
violated a federal or state securities or commodities law (and the judgment has
not been reversed, suspended or vacated).




COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT






Section
16(a) of the Exchange Act requires our directors and officers, and the persons
who beneficially own more than ten percent of our common stock, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Copies of all filed reports are required to be furnished to us
pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely on the
reports received by us and on the representations of the reporting persons, we
believe that these persons have complied with all applicable filing requirements
during the fiscal year ended December 31, 2009.








68






COMMITTEES
OF THE BOARD OF DIRECTORS





Audit
Committee





As of the
date of this Annual Report, Messrs. Viard, Carpenter and Horton have been
appointed as members to our Audit Committee. All of the three members are
“independent” within the meaning of Rule 10A-3 under the Exchange Act and are in
addition financial experts. The Audit Committee operates under a written charter
adopted by the Board of Directors on November 20, 2004. The Board of Directors
pursuant to a special meeting held on December 18, 2008 adopted an amended audit
committee charter and responsibilities.





The Audit
Committee's primary function is to provide advice with respect to our financial
matters and to assist the Board of Directors in fulfilling its oversight
responsibilities regarding finance, accounting, and legal compliance. The Audit
Committee's primary duties and responsibilities will be to: (i) serve as an
independent and objective party to monitor our financial reporting process and
internal control system; (ii) review and appraise the audit efforts of our
independent accountants; (iii) evaluate our quarterly financial performance as
well as our compliance with laws and regulations; (iv) oversee management's
establishment and enforcement of financial policies and business practices; and
(v) provide an open avenue of communication among the independent accountants,
management and the Board of Directors.





Compensation
Committee





As of the
date of this Annual Report, Messrs. Viard, Wilson and Weldy have been appointed
as members to our Compensation Committee. The Compensation Committee operates
under a written charter adopted by the Board of Directors pursuant to a special
meeting held on December 18, 2008.





Overview of Compensation
Process




The
Compensation Committee of our Board of Directors is responsible for setting the
compensation of our executive officers, overseeing the Board’s evaluation of the
performance of our executive officers and administering our equity-based
incentive plans, 401(k) plan and deferred compensation plan, among other things.
The Compensation Committee undertakes these responsibilities pursuant to a
written charter adopted by the Compensation Committee and the Board of
Directors, which will be reviewed at least annually by the Compensation
Committee. The charter may be viewed in full on our website,
www.morgancreekcorp.com under the “Corporate Governance” tab on the Investor
Relations page.




The
Compensation Committee is composed solely of “non-employee directors” as defined
in Rule 16b-3 of the rules promulgated under the Exchange Act, “outside
directors” for purposes of regulations promulgated pursuant to Section 162(m) of
the Internal Revenue Code (“IRC”), and “independent directors” as defined in
Section 303A of the New York Stock Exchange (“NYSE”) corporate governance
listing standards, in each case as determined by the Board of Directors. Our
Board of Directors recommends Compensation Committee membership based on such
knowledge, experience and skills that it deems appropriate in order to
adequately perform the responsibilities of the Compensation Committee.
Messrs. Johnson, Horton and Viard serve as members of the Compensation
Committee.















69





The
Compensation Committee annually reviews executive compensation and our
compensation policies to ensure that the Chief Executive Officer and the other
executive officers are rewarded appropriately for their contributions to us and
that the overall compensation strategy supports the objectives and values of our
organization, as well as stockholder interests. The Compensation Committee will
conduct this review and compensation determination through a comprehensive
process involving a series of meetings typically occurring in the first quarter
of each year.




Compensation Philosophy




The fundamental objective of our
executive compensation policies is to attract, retain and motivate executive
leadership for us that will execute our business strategy, uphold our values and
deliver results and long-term value to our stockholders. Accordingly, the
Compensation Committee seeks to develop compensation strategies and programs
that will attract, retain and motivate highly qualified and high-performing
executives through compensation that is:




(i) Performance
based:a significant component of compensation should be determined based
on whether or not we meet certain performance criteria that in the view of our
Board of Directors are indicative of our success;




(ii) Stockholder
based:equity incentives should be used to align the interests of our
executive officers with those of our stockholders;




(iii) Fair:compensation should take into account compensation among similarly
situated companies, our success relative to peer companies and our overall pay
scale.




It is the
Compensation Committee’s goal to have a substantial portion of each executive
officer’s compensation contingent upon our performance, as well as upon his or
her individual performance. The Compensation Committee’s compensation philosophy
for an executive officer emphasizes an overall analysis of the executive’s
performance for the year, projected role and responsibilities, required impact
on execution of our strategy, external pay practices, total cash and total
direct compensation positioning, and other factors the Compensation Committee
deems appropriate. The Compensation Committee’s philosophy also considers
employee retention, vulnerability to recruitment by other companies and the
difficulty and costs associated with replacing executive talent. Based on these
objectives, compensation programs for similarly situated companies and the
philosophies of the Compensation Committee, the Compensation Committee has
determined that we should provide our executive officers compensation packages
composed of the following elements: (i) base salary, which reflects
individual performance and is designed primarily to be competitive with salary
levels at comparably sized companies; and (ii) long-term stock-based
incentive awards which strengthen the mutuality of interests between executive
officers and our stockholders.





COMPLIANCE
WITH SECTION 16(a) OF THE EXCHANGE ACT





Section
16(a) of the Exchange Act requires our directors and officers, and the persons
who beneficially own more than ten percent of our common stock, to file reports
of ownership and changes in ownership with the Securities and Exchange
Commission. Copies of all filed reports are required to be furnished to us
pursuant to Rule 16a-3 promulgated under the Exchange Act. Based solely on the
reports received by us and on the representations of the reporting persons, we
believe that these persons have complied with all applicable filing requirements
during the fiscal year ended December 31, 2009.













70





ADDITIONAL
CORPORATE GOVERNANCE POLICIES





Our Board
of Directors considered additional corporate governance issues, structure,
policies and principles. Therefore, pursuant to a Board of Directors meeting
held on December 18, 2008, our Board of Directors adopted the following
documents as additional governing corporate governance documents (collectively,
the Corporate Governance Documents”): (i) Morgan Creek Energy Corp. Corporate
Governance Principles; (ii) Morgan Creek Energy Corp. Nominating and Governance
Committee Charter and Responsibilities; (iii) Morgan Creek Energy Corp. Board
Committees Policy; (iv) Morgan Creek Energy Corp. Code of Business Conduct and
Ethics; (v) Morgan Creek Energy Corp. Code of Conduct for the Board of
Directors; (vi) Morgan Creek Energy Corp. Corporate Governance Guideline; (vii)
Morgan Creek Energy Corp. Corporate Governance Policy’ (viii) Morgan Creek
Energy Corp. Conflict of Interest Policy; (ix) Morgan Creek Energy Corp.
Whistleblower Policy; (x) Morgan Creek Energy Corp. Board Roles and
Responsibilities.





On March
25, 2010, the Board of Directors held a special meeting pursuant to which the
Corporate Governance Documents, as amended, were approved and the members were
appointed to the Audit Committee, the Compensation Committee and the Nominating
Committee, respectively. The Corporate Governance Documents may be viewed in
full on our website, www.morgancreekcorp.com under the “Corporate Governance”
tab on the Investor Relations page.





ITEM
11. EXECUTIVE COMPENSATION





The
following table sets forth the compensation paid to our Chief Executive Officer
and those executive officers that earned in excess of $100,000 during fiscal
years ended December 31, 2009 and 2008 and 2007 (collectively, the “Named
Executive Officers”):







SUMMARY
COMPENSATION TABLE




Name
      and Principal Position
            Year
            Salary
              ($)
      (1)
            Bonus
              ($)
            Stock
      Awards
              ($)
            Option
      Awards ($)(2)
            Non-Equity
      Incentive Plan Compensation
              
              
              ($)
            Non-Qualified
      Deferred Compensation Earnings
              
              ($)
            All
      Other Compensation
              
              
              
              ($)
            Total
              ($)
      (2)(3)Peter
      Wilson, current President and CEO
            2009
            $69,000
            -0-
            -0-
            $216,000
            ---
            ---
            -0-
            $285,000Marcus
      Johnson, prior President and CEO
            2007
              2008
              
              2009
            -
              
              $71,250
              -0-
              
              -0-
            -0-
              -0-
              
              -0-
            -0-
              -0-
            $-0-
              87,500
      *
              
              81,000
            ---
              ---
              
              ---
            ---
              
              ---
              ---
            $  71,250
              -0-
              
              -0-
            $71,250
      158,750
              
              
              81,000David
      Urquhart, prior President and CEO
            2008
              2009
            $42,000
              -0-
            -0-
              -0-
            -0-
              -0-
            $175,000
              -0-
            ---
              ---
            ---
              ---
            ---
              ---
            $217,000
              -0-Thomas
      Markham, prior Chief Geologist
            2007
              2008
              2009
            $120,869
              111,693
              81,000
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              $87,500
              -0-
            ---
              ---
              ---
            ---
              ---
              ---
            ----
              ----
              ----
            $120,869
              199,193
              81,000















71




(1)
      This amount represents fees accrued and/or paid by us to the Named
      Executive Officers during the past year pursuant to consulting services
      provided in connection with their respective position as Chief Executive
      Officer and Chief Geologist:









During
      fiscal year ended December 31, 2009, we paid $69,000 to Peter Wilson, our
      current President/Chief Executive Officer, and granted an aggregate of
      800,000 (post split) Stock Options of which $216,000 represents the fair
      value of the Stock Options at the date of grant estimated using the
      Black-Scholes pricing.









During
      fiscal year ended December 31, 2009, we paid $-0- to Marcus Johnson, our
      prior President/Chief Executive Officer, and granted 300,000 (post
      split) Stock Options of which $81,000 represents the fair value of
      the Stock Options at the date of grant estimated using the Black-Scholes
      pricing. During fiscal year ended December 31, 2008, we paid: (i) $158,750
      to Marcus Johnson, represented by the grant of 500,000 (post split) Stock
      Options (which have been cancelled) of which $87,500 represented the fair
      value of the Stock Options at the date of grant estimated using the
      Black-Scholes pricing and settlement of the salary accrued and owing from
      fiscal year ended December 31, 2007 of $71,250 by the issuance of 356,250
      shares of common stock.









During
      fiscal year ended December 31, 2009, we paid $45,000 to Thomas Markham,
      our prior Chief Geologist. During fiscal year ended December 31, 2008, we
      paid $199,193 to Thomas Markham, represented by the grant of 500,000 (post
      split)  Stock Options (which Stock Options have been cancelled) of
      which $87,500 represented the fair value of the Stock Options at the date
      of grant estimated using the Black-Scholes pricing and salary of
      $111,693.









During
      fiscal year ended December 31, 2008, we paid $42,000 to David Urquhart,
      one of our prior directors, and granted 1,000,000 (post split) Stock
      Options of which $175,000 represents the fair value of the Stock Options
      at the date of grant estimated using the Black-Scholes pricing. These
      Stock Options have been cancelled.









During
      fiscal year ended December 31, 2007, we accrued: (i) $71,250 to Marcus
      Johnson, our then President/Chief Executive Officer; and paid: (ii)
      $120,000 and an additional $869 in accordance with the 1.5% royalty
      interest to Thomas Markham, our then Chief
  Geologist.









(2)
      This amount represents the fair value of these Stock Options at the date
      of grant which was estimated using the Black-Scholes option pricing
      model.









(3)  The
      amount paid to Marcus Johnson during fiscal year ended December 31, 2008
      includes the aggregate amount of $71,250 in debt due and owing to Mr.
      Johnson by the issuance of 356,250 Pre Reverse Stock Split shares (118,750
      post reverse stock split) of our restricted common stock at $0.20 per
      share.













72





STOCK
OPTIONS/SAW GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2008





The
following table sets forth information as at December 31, 2009 relating to Stock
Options that have been granted (post split) to the Named Executive Officers. All
Stock Options that were granted during fiscal year ended December 31, 2008 were
cancelled:





OUTSTANDING
      EQUITY AWARDS AT FISCAL YEAR-ENDOPTION
      AWARDS
            STOCK
      AWARDSName
            Number
      of Securities Underlying Unexercised Options
              Exercisable
              (#)
            Number
      of Securities Underlying Unexercised Options
              Unexercisable
              (#)
            Equity
      Incentive Plan Awards: Number of Securities Underlying Unexercised
      Unearned Options
              (#)
            Option
      Exercise Price
              ($)
            Option
      Expiration Date
            Number
      of Shares or Units of Stock That Have Not Vested
              (#)
            Market
      Value of Shares or Units of Stock That Have Not Vested
              ($)
            Equity
      Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights
      That Have Not Vested
              (#)
            Equity
      Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or
      Other Rights That Have Not Vested
              (#)Peter
      Wilson, current President/CEO
            800,000
            -0-
            -0-
            $0.25
            
            -0-
            -0-
            -0-
            -0-Marcus
      Johnson, prior  President/CEO
            300,000
            -0-
            -0-
            $0.25
            
            -0-
            -0-
            -0-
            -0-Thomas
      Markham, prior Chief Geologist
            300,000
            -0-
            -0-
            $0.25
            
            -0-
            -0-
            -0-
            -0-





The
following table sets forth information relating to compensation paid to our
directors during fiscal year ended December 31, 2009, 2008 and
2007:





DIRECTOR
COMPENSATION TABLE




Name
            Fees
              Earned
      or
              Paid
      in
              Cash
              ($)
            Stock
              Awards
              ($)
            Option
              Awards
              ($)
            Non-Equity
              Incentive
              Plan
              Compensation
              ($)
            Change
      in
              Pension
              Value
      and
              Nonqualified
              Deferred
              Compensation
              Earnings
              ($)
            All
              Other
              Compensation
              ($)
            Total
              ($)Marcus
      Johnson, Chairman
              2007
              2008
              2009
            -0-
              -0-
              -0-(1)
            -0-
              -0-
              -0-
            (3)
              $     -0-
              87,500
              81,000
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            $    -0-
              87,500
              81,000Thomas
      Markham
              2007
              2008
              2009
            $-0-
              -0-
              45,000(2)
            -0-
              -0-
              -0-
            (3)
              $   -0-
              87,500
              81,000
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            $     -0-
              87,500
              126,000Erik
      Essinger
              2007
              2008
              2009
            $-0-
              -0-
              -0-(4)
            -0-
              -0-
              -0-
            (3)
              $     -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            $     -0-
              -0-
              -0-D.
      Bruce Horton
              2007
              2008
              2009
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            (3)
              $   -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            -0-
              -0-
              -0-
            $       -0-
              -0-
              -0-David
      Urquhart
              2008
            (5)
              -0-
            -0-
            (3)
              $175,000
            -0-
            -0-
            -0-
            $175,000Peter
      Wilson
              2008
              2009
            3,000
              69,000
      (6)
            -0-
              -0-
            (3)
              -0-
              $216,000
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-
            3,000
              $285,000Angelo
      Viard
              2008
              2009
            -0-
              -0-(7)
            -0-
              -0-
            -0-
              $108,000
            -0-
              -0-
            -0-
              -0-
            -0-
              -0-
            -0-
              $108,000WWilliam
      Thomas
              2009
            (8)
              $4,600
            -0-
            $135,000
            -0-
            -0-
            -0-
            $139,600John
      Weldy Jr.
              2009
            (9)
              -0-
            -0-
            $128,000
            -0-
            -0-
            -0-
            $128,000Peter
      Carpenter
              2009
            (10)
              -0-
            -0-
            $100,000
            -0-
            -0-
            -0-
            $1008,000












73






(1)
      During fiscal year ended December 31, 2009, Marcus Johnson was granted
      300,000 (post split) Stock Options exercisable into 300,000 (post
      split) shares of common stock at $0.25 per share with a Black Scholes
      valuation of $81,000. During fiscal year ended December 31, 2008, Marcus
      Johnson: (i) received $71,250 in accordance with settlement of amounts due
      and owing relating to his salary as executive compensation by way of
      issuance of 356,250 shares of common stock; and (ii) granted 500,000 (post
      split)  Stock Options with a Black-Sholes valuation of $87,500.
      The 500,000 Stock Options were cancelled effective July 14, 2009.
      Concurrently, on July 14, 2009, based upon an analysis of the oil and gas
      industry and general economic conditions affecting the marketplace, our
      Board of Directors approved the grant to Mr. Johnson of 500,000 Stock
      Options under our Stock Option Plan at an exercise price of $0.25 per
      share with a Black-Scholes valuation of $81,000. Mr. Johnson resigned from
      the Board of Directors effective as of December 9,
  2009.









(2)
      During fiscal year ended December 31, 2009, Thomas Markham, our prior
      Chief Geologist: (i) received $45,000 as salary; and (ii) granted 300,000
      (post split) Stock Options exercisable into 300,000 shares of common
      stock at $0.25 per share with a Black Scholes valuation of $40,500. During
      fiscal year ended December 31, 2008, Thomas Markham: (i) received $111,693
      as executive compensation in connection with his role as our prior Chief
      Geologist; and (ii) granted 500,000 Stock Options with a Black Scholes
      valuation of $87,500. The 500,000 Stock Options were cancelled effective
      July 14, 2009. Concurrently, on July 14, 2009, based upon an analysis of
      the oil and gas industry and general economic conditions affecting the
      marketplace, our Board of Directors approved the grant to Mr. Markham of
      300,000 Stock Options under our Stock Option Plan at an exercise price of
      $0.25 per share with a Black Scholes valuation of $81,000. Mr. Markham
      resigned from the Board of Directors effective as of April 30,
      2008.









(3)
      This amount represents the fair value of these options at the date of
      grant which was estimated using the Black-Sholes option pricing
      model.









(4)
      Erik Essiger received $97,118 during fiscal year ended December 31, 2006
      as compensation for services rendered to us in connection with business
      related consulting and promotional services performed in Europe on our
      behalf.









(5)
      David Urquhart received $42,000 during fiscal year ended December 31, 2008
      as compensation in connection with his role as our prior President/Chief
      Executive Officer. Mr. Urquhart resigned from the Board of Directors
      effective as of August 8, 2008.









(6)
      During fiscal year ended December 31, 2009, Peter Wilson: (i) received
      $69,000 as salary; and (ii) granted 800,000 Stock Options exercisable into
      800,000 shares of common stock at $0.25 per share with a Black Scholes
      valuation of $216,000. Mr. Wilson received $3,000 during fiscal year ended
      December 31, 2008 as executive compensation in connection with his role as
      our President/Chief Executive Officer commencing September 29, 2008. Mr.
      Wilson also became a member of our Board of Directors effective as of
      September 29, 2008.









(7)
      During fiscal year ended December 31, 2009, Angelo Viard was granted
      400,000 Stock Options exercisable into 400,000 shares of common stock at
      $0.25 per share with a Black Scholes valuation of
  $108,000.









(8)
      During fiscal year ended December 31, 2009, William Thomas: (i) received
      $4,600 in salary; and (ii) granted 500,000 Stock Options exercisable into
      500,000 shares of common stock at $0.25 per share with a Black Scholes
      valuation of $135,000.









(9)
      During fiscal year ended December 31, 2009, John Weldy was granted 200,000
      Stock Options exercisable into 200,000 shares of common stock at $0.39 per
      share with a Black Scholes valuation of
  $128,000.









(10)
      During fiscal year ended December 31, 2009, Peter Carpenter was granted
      250,000 Stock Options exercisable into 200,000 shares of common stock at
      $0.39 per share with a Black Scholes valuation of
  $99,860.
















74





ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS





As of the
date of this Annual Report, the following table sets forth certain information
with respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock and
by each of our current directors and executive officers. Each person has sole
voting and investment power with respect to the shares of common stock, except
as otherwise indicated. Beneficial ownership consists of a direct interest in
the shares of common stock, except as otherwise indicated. As of the date of
this Annual Report, there are 34,032,392 shares of common stock issued and
outstanding.





Name
      and Address of Beneficial Owner(1)
            Amount
      and Nature of Beneficial Ownership(1)
            Percentage
      of Beneficial OwnershipDirectors
      and Officers:D.
      Bruce Horton
              2443
      Alder Street
              Vancouver,
      British Columbia
              Canada,
      V6H 4A4
            150,000
      (2)
            NilPeter
      Wilson
              69
      Glenmore Drive
              West
      Vancouver, British Columbia
              Canada
      V7S 1A5
            400,000(3)
            NilErik
      Essiger
              P.O.
      Box 37491
              Dubai
              United
      Arab Emeriates
            249,999
      (5)
            NilWilliam
      D. Thomas
              17314
      State Highway Suite 306
              Houston,
      Texas 77064
            303,332
      (6)
            NilAngelo
      Viard
              190
      Cleaveland Road #3
              Pleasant
      Hill, California 94523
            203,300(7)
            NilJohn
      Weldy Jr.
              139
      Willow Wood
              Slidell,
      Louisiana, 70461
            200,000(8)
            NilPeter
      Carpenter
              142
      Evelyn Crescent
              Toronto,
      Ontario
              Canada
      M6P 3E2
            200,000(9)
            NilAll
      executive officers and directors as a group (7 persons)
            2,164,964(10)
            6.36%Beneficial
      Owners Greater than 5%Marcus
      Johnson
              2020
      Prospect Way
              Bellingham,
      Washington 98229
            2,387,500
      (11)
            7.00%









*
            Less
      than one percent.




(1)
            Under
      Rule 13d-3, a beneficial owner of a security includes any person who,
      directly or indirectly, through any contract, arrangement, understanding,
      relationship, or otherwise has or shares: (i) voting power, which includes
      the power to vote, or to direct the voting of shares; and (ii) investment
      power, which includes the power to dispose or direct the disposition of
      shares. Certain shares may be deemed to be beneficially owned by more than
      one person (if, for example, persons share the power to vote or the power
      to dispose of the shares). In addition, shares are deemed to be
      beneficially owned by a person if the person has the right to acquire the
      shares (for example, upon exercise of an option) within 60 days of the
      date as of which the information is provided. In computing the percentage
      ownership of any person, the amount of shares outstanding is deemed to
      include the amount of shares beneficially owned by such person (and only
      such person) by reason of these acquisition rights. As a result, the
      percentage of outstanding shares of any person as shown in this table does
      not necessarily reflect the person’s actual ownership or voting power with
      respect to the number of shares of common stock actually outstanding as of
      the date of this Annual Report. As of the date of this Annual Report,
      there are 34,032,392 shares issued and outstanding. Beneficial ownership
      amounts reflect the Forward Stock
Split.








75






(2)
            This
      figure includes 150,000 Stock Options to purchase 150,000 shares of our
      common stock at an exercise price of $0.50 per share expiring on expiring
      on July 14, 2019.




(3)
            This
      figure includes 400,000 Stock Options to purchase 400,000 shares of our
      common stock at an exercise price of $0.50 per share expiring on July 14,
      2019.




(4)
            This
      figure includes: (i) 208,333 shares of common stock; (ii) 166,666 Stock
      Options to purchase 500,000 shares of our common stock at an exercise
      price of $1.10 per share expiring on December 15, 2011; and (iii) 250,000
      Stock Options to purchase 250,000 shares of our common stock at an
      exercise price of $1.00 per share expiring on April 30,
    2018.




(5)
            This
      figure includes:  (i) 166,666 shares of common stock; and (ii)
      83,333 Stock Options to purchase 83,333 shares of our common stock at an
      exercise price of $1.10 per share expiring on December 15,
      2011.




(6)
            This
      figure includes: (i) 53,332 shares of common stock; and (ii) 250,000 Stock
      Options to purchase 250,000 shares of our common stock at an exercise
      price of $0.50 per share expiring on July 14,
  2019.




(7)
            This
      figure includes: 3,300 shares of common stock; and (ii) 200,000 Stock
      Options to purchase 200,000 shares of our common stock at an exercise
      price of $0.50 per share expiring on July 14,
  2019.




(8)
            This
      figure includes 200,000 Stock Options to purchase 200,000 shares of our
      common stock at an exercise price of $0.58 per share expiring on December
      8, 2019.




(9)
            This
      figure includes 200,000 Stock Options to purchase 200,000 shares of our
      common stock at an exercise price of $0.39 per share expiring on September
      1, 2019.




(10)
            This
      figure includes: (i) 431,631 shares of common stock; and (ii) 1,733,333
      Stock Options to purchase 1,733,333 shares of our
  common.




(11)
            This
      figure includes: (i) 2,237,500 shares of common stock; and (ii) 150,000
      Stock Options to purchase 150,000 shares of our common stock at an
      exercise price of $0.50 per share expiring on July 14,
    2019.









CHANGES
IN CONTROL





We are
unaware of any contract, or other arrangement or provision, the operation of
which may at a subsequent date result in a change of control of our
company.





ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE





Except
for the transactions described below, none of our directors, officers or
principal stockholders, nor any associate or affiliate of the foregoing, have
any interest, direct or indirect, in any transaction or in any proposed
transactions, which has materially affected or will materially affect us during
fiscal year ended December 31, 2009.





ITEM 14.  PRINCIPAL ACCOUNTING
FEES AND SERVICES





During
fiscal year ended December 31, 2009, we incurred approximately $52,000 in fees
to our principal independent accountant for professional services rendered in
connection with the audit of our financial statements for fiscal year ended
December 31, 2009 and for the review of our financial statements for the
quarters ended March 31, 2009, June 30, 2009 and September 30,
2009.










76





During
fiscal year ended December 31, 2008, we incurred approximately $43,000 in fees
to our principal independent accountants for professional services rendered in
connection with the audit of our financial statements for fiscal year ended
December 31, 2008 and for the review of our financial statements for the
quarters ended March 31, 2008, June 30, 2008 and September 30,
2008.





During
fiscal year ended December 31, 2009, we did not incur any other fees for
professional services rendered by our principal independent accountant for all
other non-audit services which may include, but is not limited to, tax-related
services, actuarial services or valuation services.





ITEM
15. EXHIBITS AND FINANCIAL SCHEDULES





The
following exhibits are filed as part of this Annual Report.





Exhibit
No.                                                                           Document





3.1                                                                Articles
of Incorporation (1)




3.2                                                                Bylaws
(1)





4.1                                                                Chapman
Oil and Gas Lease (2)





4.2                                                                Hurley
Oil and Gas Lease (2)





4.3                                                                Lease
Assignment between Geneva Energy Corp. And
Morgan Energy Corp. dated December 17, 2004
(2)





4.4                                                                Fletcher
Lewis Letter (3)





4.5                                                                Fletcher
Lewis Consent dated December 31, 2004
(3)





4.6                                                                American
News Publishing Letter dated January
13, 2006 (3)





10.1                                                              Asset
Purchase Agreement between Morgan Creek
Energy Corp.
and Geneva Energy Corp. Dated
December 15, 2004 (1)





10.1                                                              Charter
of Audit Committee (1)





10.2                                                              Executive
Services Agreement between Morgan Creek
Energy Corp,
Westhampton Ltd., and David
Urquhart dated April 30, 2008. (5)





10.3                                                              Option
Agreement between Morgan Creek Energy Corp.
and Westrock
Land Corp dated October 31, 2008.  (6)












77





14                                                                
Code of Business Conduct (1)





16                                                                
Letter of Dale Matheson Carr-Hilton LaBonte LLP Chartered
Accountants (4)





31.1                                                              Certification
of Chief Executive Officer Pursuant
to Rule 13a-14(a) or
15d-14(a) of The
Securities Exchange Act.





31.2                                                              Certification
of Chief Financial Officer Pursuant
to Rule 13a-14(a) or
15d-14(a) of The
Securities Exchange Act.





32.1                                                              Certification
of Chief Executive Officer and Chief
Financial Officer under
Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act.





(1)
Incorporated by reference from Form SB-2 filed with the Commission on April 11,
2005.





(2)
Incorporated by reference from Form SB-2/A filed with the Commission on June 14,
2005.





(3)
Incorporated by reference from Form SB-2/A filed with the Commission on January
13, 2006.





(4)
Incorporated by reference from Form Current Report on 8-K filed with the
Commission on August 3, 2008.





(5)
Incorporated by reference from Form Current Report on 8-K filed with the
Commission on April 5, 2008.





(6)
Incorporated by reference from Form Current Report on 8-K filed with the
Commission on November 5, 2008.














78





SIGNATURES





In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.







MORGAN CREEK ENERGY
CORP.




SIGNATURES




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




MORGAN
      CREEK ENERGY CORP.Dated:
      April 9, 2010
            By:
            /s/ PETER
      WILSONPeter
      Wilson, President/ChiefExecutive
      OfficerDated:
      April 9, 2010
            By:
            /s/ WILLIAM THOMASWilliam
      Thomas, Chief Financial Officer






Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.








Dated:
      April 9, 2010
            By:
            /s/ PETER
      WILSONDirector





Dated:
      April 9, 2010
            By:
            /s/ WILLIAM
      THOMASDirector





Dated:
      April 9, 2010
            By:
            /s/ ANGELO
      VIARDDirector



























79