**UNITED
      STATES**






**SECURITIES
      AND EXCHANGE COMMISSION**






**WASHINGTON,
      D.C. 20549**






**FORM
      10-KSB**






[x]           **ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934**






**For
      the Fiscal Year Ended December 31, 2006**






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






**For
      the Transition Period From _____ to _____**






Commission
      File Number 000-33321






**FELLOWS
      ENERGY LTD.**






(Exact
      name of small business issuer as specified in its charter)




**Nevada**
            **33-0967648**(State
                or other jurisdiction of incorporation
              or
                organization)
            (IRS
                Employer Identification No.)**1942
                Broadway St. Suite 320**
              **Boulder,
                Colorado**
            **80302                      (303)
                926-4415**(Address
                of principal executive office)
            (Postal
                Code)                  (Issuer's
                telephone number)


370
      Interlocken Boulevard, Suite 400,Broomfield,Colorado80021


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





Securities
      registered under Section 12(b) of the Exchange Act:





Securities
      registered under Section 12(g) of the Exchange Act:  Common Stock,
      $0.001 par value





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





Yes  
      [ x ]   No  [   ]





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





Yes [   ]   No  [
      x ]


Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-B is not contained herein, 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-KSB or any amendment
      to
      Form 10-KSB.





Yes [   ]   No  [
      x ]   Delinquent filers are disclosed herein.







Fellows
      had $424,000 in revenue in 2006.







The
      aggregate market value of the Common Stock held by non-affiliates (as affiliates
      are defined in Rule 12b-2 of the Exchange Act) of the registrant, computed
      by
      reference to the average of the high and low sale price on April 14, 2006,
      was
      $17,262,556.





As
      of
      April 11, 2007 there were 100,000,000 shares of issuer’s common stock
      outstanding.







1
 Table
            of Contents








**FELLOWS
      ENERGY LTD.**




**FORM
      10-KSB**





**For
      the Fiscal Year Ended December 31, 2006**




Part
                I
            
            PageItem
                1
            Description
                of Business
            3Item
                2
            Description
                of Property
            11Item
                3
            Legal
                Proceedings
            15Item
                4
            Submission
                of Matters to a Vote of Security
                Holders
            16Part
                II
            
            PageItem
                5
            Market
                for Common Equity and Related Stockholder
                Matters
            16Item
                6
            Management's
                Discussion and Analysis or Plan of
                Operation
            17Item
                7
            Financial
                Statements
            22Item
                8
            Changes
                In and Disagreements With Accountants on Accounting
                and Financial Disclosure
            39Item
                8A
            Controls
                and Procedures
            40Item
                8B
            Other
                Information
            41Part
                III
            
            PageItem
                9
            Directors,
                Executive Officers, Promoters and Control
                Persons; Compliance with Section 16(a) of the Exchange
                Act
            41Item
                10
            Executive
                Compensation
            42Item
                11
            Security
                Ownership of Certain Beneficial Owners and
                Management and Related Stockholder Matters
            44Item
                12
            Certain
                Relationships and Related
                Transactions
            45Item
                13
            Exhibits
            45Item
                14
            Principal
                Accountant Fees and Services
            48Item
                15
            Signatures
            49











2
 Table
            of Contents





**PART
      I**





**FORWARD-LOOKING
      INFORMATION**





This
      Annual Report of Fellows Energy Ltd. on Form 10-KSB contains forward-looking
      statements, particularly those identified with the words, "anticipates,"
      "believes," "expects," "plans," “intends”, “objectives” and similar expressions.
      These statements reflect management's best judgment based on factors known
      at
      the time of such statements. The reader may find discussions containing such
      forward-looking statements in the material set forth under "Legal Proceedings"
      and "Management's Discussion and Analysis and Plan of Operations," generally,
      and specifically therein under the captions "Liquidity and Capital Resources"
      as
      well as elsewhere in this Annual Report on Form 10-KSB. Actual events or results
      may differ materially from those discussed herein.





**ITEM
      1.  DESCRIPTION OF BUSINESS.**





**Company
      History**




Fellows
      Energy Ltd. was incorporated in Nevada on April 9, 2001 as Fuel Centers,
      Inc.  In November 2001, the Commission declared effective our
      registration statement to register 31,185,150, as adjusted, shares of common
      stock held by our stockholders. We were originally formed to offer business
      consulting services in the retail automobile fueling industry. During the fourth
      quarter of 2003, we decided to change management, enter the oil and gas business
      and cease all activity in the automobile refueling industry. On November 12,
      2003, we changed our name to Fellows Energy Ltd. and shifted our focus to
      exploration for oil and gas in the Rocky Mountain Region. On January 5, 2004,
      we
      acquired certain interests in certain oil and gas leases and other interests
      owned by Diamond Oil & Gas Corporation, a Nevada corporation. Diamond is
      wholly owned by George S. Young, our CEO, President and a Director. Our common
      stock is publicly traded over-the-counter and quoted on the OTC Bulletin Board
      under the symbol “FLWE.OB.”





We
      are an
      early stage oil and gas company led by an experienced management team and
      focused on exploration and production of natural gas, especially from
“unconventional plays” such as tight sands and coal beds, and oil in the Rocky
      Mountain Region. In many unconventional plays accumulations of hydrocarbons
      are
      found over a large area expanse and/or a thick vertical section, which when
      compared to conventional plays, typically have a higher geological and/or
      commercial development risk and lower average decline rate. Whereas a
“conventional play” is an accumulation of hydrocarbons in a structural or
      stratigraphic setting within high-quality reservoirs. Our strategy is to pursue
      selected opportunities that are characterized by reasonable entry costs,
      favorable economic terms, high reserve potential relative to capital
      expenditures and the availability of existing technical data that may be further
      developed using current technology.   In 2006, we also turned our
      emphasis away from early stage exploration projects to focus on advanced-stage
      and producing properties.





**Business
      Strategy**





We
      seek
      to: (1) achieve attractive returns on capital for the benefit of our
      stockholders through investment in exploration and development of unconventional
      plays; (2) maintain a strong balance sheet to preserve maximum financial and
      operational flexibility; and (3) create strong employee incentives through
      equity ownership.




***Disciplined
      Acquisition Strategy***




We
      intend
      to acquire producing oil and gas properties where we believe significant
      additional value can be created. Management is primarily interested in
      unconventional play properties with a combination of these factors:
      (1) opportunities for long life production with stable production levels;
      (2) geological formations with multiple producing horizons;
      (3) substantial exploitation potential; and (4) relatively low capital
      investment production costs.




***Exploitation
      of Properties***




We
      intend
      to maximize the value of our properties through a combination of successful
      exploration, drilling, increasing production, increasing recoverable reserves
      and reducing operating costs. Where we deem appropriate, we will employ
      technology to improve recoveries such as directional and horizontal drilling.
      Directional and horizontal drilling and completion methods have historically
      produced oil and gas at faster rates and with lower operating costs basis than
      traditional vertical drilling.




***Experienced
      and Dedicated Personnel***




We
      intend
      to maintain a highly competitive team of experienced and technically proficient
      employees and consultantsand motivate them through a positive work environment
      and stock ownership. We believe that employee ownership, which is encouraged
      through our stock option plan, is essential for attracting, retaining and
      motivating qualified personnel.





3
 Table
            of Contents








**Company
      and Industry Highlights**





***Solid
      Rocky Mountain Fundamentals***




According
      to the report *Balancing Natural Gas Policy - Fueling Demands of a Growing
      Economy* (September 25, 2003), released in the fall of 2003 by the National
      Petroleum Council:




Current
      higher gas prices are the result of a fundamental shift in the supply and demand
      balance. North America is moving to a period in its history in which it will
      no
      longer be self-reliant in meeting its growing natural gas needs as production
      from traditional U.S. and Canadian basins has plateaued. Government policy
      encourages the use of natural gas but does not address the corresponding need
      for additional natural gas supplies.




Furthermore,
      within the State of Wyoming, as indicated by data compiled by the Wyoming Oil
      & Gas Conservation Commission and available on its website at
      wogcc.state.wy.us, gas production has increased 80% since the mid-1990s and
      is
      expected to surpass 6 Bcf per day this year, largely from coal bed methane
      production in the Powder River Basin and tight sands gas production from the
      Green River Basin. In the Powder River Basin, 16,000 wells have been drilled
      to
      date (mostly in the last five years) and approximately 50,000 additional drill
      locations have been identified. Although this area has been historically
      challenged by pipeline capacity restraints and tough environmental regulations,
      substantial progress has been made with the doubling of capacity of the Kern
      River Pipeline and the completion of the Grasslands and Cheyenne Plains
      Pipelines, which Management believes bodes well for future development, growth
      and economics in the Rocky Mountain Region.




***Focus
      on Unconventional Plays***




In
      building our inventory of oil and gas projects, we have concentrated on
      unconventional plays as well as conventional oil and gas projects.




Compared
      to conventional plays, unconventional plays present different advantages and
      risks. Typically, unconventional plays involve less geologic risk than
      conventional plays with respect to locating gas because hydrocarbons are known
      to exist and because unconventional plays are typically larger in size.
      Similarly, due to the greater size of typical unconventional plays, they
      inherently have greater reserve potential than conventional plays. In general,
      unconventional plays have not been developed to the extent of conventional
      plays
      and therefore greater opportunities exist for acquiring additional
      unconventional plays and increasing reserves.




However,
      development of typical unconventional plays may involve greater extraction
      and
      retrieval costs than are involved in development of typical conventional plays.
      In the typical unconventional play, the existence of gas is known but the
      quantity of such gas, and commercial viability, is unknown. The process of
      developing an unconventional play requires significant costs before the
      commercial viability can be ascertained. Therefore, there is a greater risk
      of
      cost overrun and the risk of inadequate gas recoveries is not
      avoided.




It
      is
      important to recognize that unconventional plays offer attractive potential
      for
      large reserve additions. This is because the large conventional traps have
      largely been found and developed, and because unconventional plays inherently
      have much greater size and therefore greater reserve potential. All of the
      top
      five onshore “gas giant” fields discovered and developed in the 1990s (including
      Powder River Basin coal bed methane, Jonah, Pinedale, Madden Deep and Ferron
      coal bed methane) were in the Rocky Mountain Region.




***Strong
      Acquisition Market***




The
      recent sales of major Rocky Mountain independent oil and gas companies such
      as
      Westport Resources Corporation, Tom Brown, Inc., Evergreen Resources, Inc.,
      Patina Oil & Gas Corporation and Prima Energy Corporation for an estimated
      total consideration of over ten billion dollars, in the opinion of our
      management, bear testimony to the strength of the acquisition market for
      companies that have established proven reserve growth from unconventional plays.
      While only Evergreen was a pure unconventional-play oriented company, each
      of
      the others has had a major component of such plays as part of their portfolio
      which helped to increase their exit valuations due to the large amount of proven
      undeveloped category reserves associated with them.







4
 Table
            of Contents








***Large
      Strategic Land Position***




Through
      our direct ownership of mineral rights in the Powder River Basin and Uinta
      Basin, we have a strategic land position in the oil and gas producing basins
      of
      the Rocky Mountains. Known hydrocarbon resources in reservoirs in unconventional
      plays such as coal seams, thick oil-bearing shales, and extensive bodies of
      tight gas-bearing sands throughout the properties create the potential for
      a
      large inventory of drilling locations should initial exploration efforts prove
      successful. Although there are no assurances, this inventory could support
      future net reserve additions and production growth over the next several
      years.




***Strong
      Underlying Industry Fundamentals***




According
      to the National Petroleum Council Gas Report, the domestic natural gas
      fundamentals will continue to be attractive, for the foreseeable future. The
      U.S. faces a significant natural gas supply problem due to the maturing of
      its
      traditional producing basins, the increase in exploration and development costs,
      and demand increases coupled with production decline rates. The U.S. has several
      ways to combat this supply problem through measures including increased
      development and importation of Canadian and Alaskan gas and delivery of
      liquefied natural gas. However, the impact of these efforts is expected to
      only
      mitigate the supply decline or at best increase supply marginally.




***Proven
      Management Expertise***




Our
      CEO
      and President George S. Young and our Vice President Steve Prince have
      experience in operating and growing an oil and gas public company. Mr. Young
      brings strong leadership and business qualifications, an understanding from
      having been trained as both an attorney and engineer and 25 years of natural
      resource industry experience. Mr. Prince brings 13 years of oil and gas industry
      experience as a geologist and as a significant contributor to the development
      of
      major producing fields in areas of interest to us.





**Financing
      Strategy**





We
      intend
      to access debt and equity markets for private and public financings from time
      to
      time based on our needs on terms in the market then available to us. Initially,
      we expect that the bulk of capital formation will be in the form of convertible
      debt to equity capital to support the initial phases of exploration and
      exploitation work required on our projects. To the extent the plays mature
      into
“Proven” status as determined by independent third-party engineers, we plan to
      utilize debt sources for a large percentage of our capital requirements so
      as to
      maximize the return on equity that these projects generate. This debt may be
      in
      the form of senior bank debt, junior or subordinated bank debt, and/or mezzanine
      debt. We cannot provide any assurance that we will be able to raise additional
      debt or equity to fund future operational and exploration needs or terms
      acceptable to us.




Additionally,
      we may generate funds through (1) a joint venture, sale or farm out on an
      interest in one or more of its properties and/or (2) divesting one or more
      of
      our properties that are determined not to fit with its strategic core
      holdings.




**Property
      Summary**





In
      our
      short operating history in the oil and gas industry, we have positioned our
      company to control and exploit potential reserves from a number of large
      unconventional oil and gas resource type projects covering approximately 57,000
      acres. These projects focus on coal bed methane, tight sands gas and oil from
      fractured shales. Such projects are characterized by their widespread
      occurrence, large reserve potential, low finding and development costs, high
      drilling success rates, and low geologic and operating risks. Such projects
      are
      also subject to certain risks and development of such projects requires
      substantial capital.  Our Carbon County project is in exploration,
      development and production stages. This project has proven producing reserves
      in
      excess of 1.36 Bcf, proven developed non-producing in excess of 2.23 Bcf, proven
      undeveloped reserves in excess of 6.93 Bcf, and probable and possible reserves
      of in excess of 3.78 Bcf and 12.6 Bcf, for a total of 26.9 Bcf. Please see
      Item
      2 Description of Property under Note 10 to the financials for more discussion
      related to the property and reserves.




**Competition**





Oil
      and
      gas exploration and acquisition of undeveloped properties is a highly
      competitive and speculative business. We compete with a number of other
      companies, including major oil companies and other independent operators which
      are more experienced and which have greater financial resources. Such companies
      may be able to pay more for prospective oil and gas properties. Additionally,
      such companies may be able to evaluate, bid for and purchase a greater number
      of
      properties and prospects than our financial and human resources permit. We
      do
      not hold a significant competitive position in the oil and gas
      industry.





5
 Table
            of Contents







**Regulation**





Our
      operations are or will be subject
      to various types of regulation at the federal, state and local levels. Such
      regulation includes requiring permits for the drilling of wells; maintaining
      bonding requirements in order to drill or operate wells; implementing spill
      prevention plans; submitting notification and receiving permits relating to
      the
      presence, use and release of certain materials incidental to oil and gas
      operations; and regulating the location of wells, the method of drilling and
      casing wells, the use, transportation, storage and disposal of fluids and
      materials used in connection with drilling and production activities, surface
      usage and the restoration of properties upon which wells have been drilled,
      the
      plugging and abandoning of wells and the transporting of production. Our
      operations are or will be also subject to various conservation matters,
      including the regulation of the size of drilling and spacing units or proration
      units, the number of wells which may be drilled in a unit, and the unitization
      or pooling of oil and gas properties. In this regard, some states allow the
      forced pooling or integration of tracts to facilitate exploration while other
      states rely on voluntary pooling of lands and leases, which may make it more
      difficult to develop oil and gas properties. In addition, state conservation
      laws establish maximum rates of production from oil and gas wells, generally
      limit the venting or flaring of gas, and impose certain requirements regarding
      the ratable purchase of production. The effect of these regulations is to limit
      the amounts of oil and gas we may be able to produce from our wells and to
      limit
      the number of wells or the locations at which we may be able to
      drill.




Our
      business is affected by numerous laws and regulations, including energy,
      environmental, conservation, tax and other laws and regulations relating to
      the
      oil and gas industry. We plan to develop internal procedures and policies to
      ensure that our operations are conducted in full and substantial environmental
      regulatory compliance.




Failure
      to comply with any laws and regulations may result in the assessment of
      administrative, civil and criminal penalties, the imposition of injunctive
      relief or both. Moreover, changes in any of these laws and regulations could
      have a material adverse effect on business. In view of the many uncertainties
      with respect to current and future laws and regulations, including their
      applicability to us, we cannot predict the overall effect of such laws and
      regulations on our future operations.




We
      believe that our operations comply in all material respects with applicable
      laws
      and regulations and that the existence and enforcement of such laws and
      regulations have no more restrictive an effect on our operations than on other
      similar companies in the energy industry. We do not anticipate any material
      capital expenditures to comply with federal and state environmental
      requirements.




**Environmental
      Matters**





Operations
      on properties in which we have an interest are subject to extensive federal,
      state and local environmental laws that regulate the discharge or disposal
      of
      materials or substances into the environment and otherwise are intended to
      protect the environment. Numerous governmental agencies issue rules and
      regulations to implement and enforce such laws, which are often difficult and
      costly to comply with and which carry substantial administrative, civil and
      criminal penalties and in some cases injunctive relief for failure to
      comply.




Some
      laws, rules and regulations relating to the protection of the environment may,
      in certain circumstances, impose “strict liability” for environmental
      contamination. These laws render a person or company liable for environmental
      and natural resource damages, cleanup costs and, in the case of oil spills
      in
      certain states, consequential damages without regard to negligence or fault.
      Other laws, rules and regulations may require the rate of oil and gas production
      to be below the economically optimal rate or may even prohibit exploration
      or
      production activities in environmentally sensitive areas. In addition, state
      laws often require some form of remedial action, such as closure of inactive
      pits and plugging of abandoned wells, to prevent pollution from former or
      suspended operations.




Legislation
      has been proposed in the past and continues to be evaluated in Congress from
      time to time that would reclassify certain oil and gas exploration and
      production wastes as “hazardous wastes.” This reclassification would make these
      wastes subject to much more stringent storage, treatment, disposal and clean-up
      requirements, which could have a significant adverse impact on operating costs.
      Initiatives to further regulate the disposal of oil and gas wastes are also
      proposed in certain states from time to time and may include initiatives at
      the
      county, municipal and local government levels. These various initiatives could
      have a similar adverse impact on operating costs.




The
      regulatory burden of environmental laws and regulations increases our cost
      and
      risk of doing business and consequently affects our profitability. The federal
      Comprehensive Environmental Response, Compensation and Liability Act, or CERCLA,
      also known as the “Superfund” law, imposes liability, without regard to fault,
      on certain classes of persons with respect to the release of a “hazardous
      substance” into the environment. These persons include the current or prior
      owner or operator of the disposal site or sites where the release occurred
      and
      companies that transported, disposed or arranged for the transport or disposal
      of the hazardous substances found at the site. Persons who are or were
      responsible for releases of hazardous substances under CERCLA may be subject
      to
      joint and several liability for the costs of cleaning up the hazardous
      substances that have been released into the environment and for damages to
      natural resources, and it is not uncommon for the federal or state government
      to
      pursue such claims.





6
 Table
            of Contents







It
      is
      also not uncommon for neighboring landowners and other third parties to file
      claims for personal injury or property or natural resource damages allegedly
      caused by the hazardous substances released into the environment. Under CERCLA,
      certain oil and gas materials and products are, by definition, excluded from
      the
      term “hazardous substances.” At least two federal courts have held that certain
      wastes associated with the production of crude oil may be classified as
      hazardous substances under CERCLA. Similarly, under the federal Resource,
      Conservation and Recovery Act, or RCRA, which governs the generation, treatment,
      storage and disposal of “solid wastes” and “hazardous wastes,” certain oil and
      gas materials and wastes are exempt from the definition of “hazardous wastes.”
This exemption continues to be subject to judicial interpretation and
      increasingly stringent state interpretation. During the normal course of
      operations on properties in which we have an interest, exempt and non-exempt
      wastes, including hazardous wastes, that are subject to RCRA and comparable
      state statutes and implementing regulations are generated or have been generated
      in the past. The federal Environmental Protection Agency and various state
      agencies continue to promulgate regulations that limit the disposal and
      permitting options for certain hazardous and non-hazardous wastes.




We
      believe that the operator of the properties in which we have an interest is
      in
      substantial compliance with applicable laws, rules and regulations relating
      to
      the control of air emissions at all facilities on those properties. Although
      we
      maintain insurance against some, but not all, of the risks described above,
      including insuring the costs of clean-up operations, public liability and
      physical damage, there is no assurance that our insurance will be adequate
      to
      cover all such costs, that the insurance will continue to be available in the
      future or that the insurance will be available at premium levels that justify
      our purchase. The occurrence of a significant event not fully insured or
      indemnified against could have a material adverse effect on our financial
      condition and operations. Compliance with environmental requirements, including
      financial assurance requirements and the costs associated with the cleanup
      of
      any spill, could have a material adverse effect on our capital expenditures,
      earnings or competitive position. We do believe, however, that our operators
      are
      in substantial compliance with current applicable environmental laws and
      regulations. Nevertheless, changes in environmental laws have the potential
      to
      adversely affect operations. At this time, we have no plans to make any material
      capital expenditures for environmental control facilities.




**EMPLOYEES**





As
      of
      April 11, 2007, we have eight full-time employees. The majority of development
      services have been provided to us by the officers and outside, third-party
      vendors. Currently, there exist no organized labor agreements or union
      agreements between us and our employees. We do not have employment agreements
      with any of our employees. We believe that our relations with our employees
      are
      good.





**RISKS
      RELATED TO BUSINESS**





You
      should carefully consider the following risk factors and all other information
      contained herein as well as the information included in this Annual Report
      in
      evaluating our business and prospects. The risks and uncertainties described
      below are not the only ones we face. Additional risks and uncertainties, other
      than those we describe below, that are not presently known to us or that we
      currently believe are immaterial may also impair our business operations. If
      any
      of the following risks occur, our business and financial results could be
      harmed. You should refer to the other information contained in this Annual
      Report, including our consolidated financial statements and the related
      notes.





**We
      Have a History Of Losses Which May Continue, and May Negatively Impact Our
      Ability to Achieve Our Business Objectives.**




We
      incurred net losses of $8,590,847 and $2,498,816 for the years ended December
      31, 2006 and 2005, respectively. We cannot assure you that we can achieve or
      sustain profitability on a quarterly or annual basis in the future. Our
      operations are subject to the risks and competition inherent in the
      establishment of a business enterprise. There can be no assurance that future
      operations will be profitable. Revenues and profits, if any, will depend upon
      various factors, including whether we will be able to continue expansion of
      our
      revenue. We may not achieve our business objectives and the failure to achieve
      such goals would have an adverse impact on us.




**If
      We Are Unable to Obtain Additional Funding, Our Business Operations Will be
      Harmed and If We Do Obtain Additional Financing, Our Then Existing Shareholders
      May Suffer Substantial Dilution.**




We
      will
      require additional funds to sustain and expand our acquisition, exploration
      and
      production of natural gas from coal bed methane. We anticipate that we will
      require up to approximately $500,000 to fund our continued operations for
      the next twelve months from the date of this prospectus, depending on revenues
      from operations. Additional capital will be required to effectively support
      the
      operations and to otherwise implement our overall business strategy. There
      can
      be no assurance that financing will be available in amounts or on terms
      acceptable to us, if at all. The inability to obtain additional capital will
      restrict our ability to grow and may reduce our ability to continue to conduct
      business operations. If we are unable to obtain additional





7
 Table
            of Contents





financing,
      we will likely be required to curtail our marketing and development plans and
      possibly cease our operations. Any additional equity financing may involve
      substantial dilution to our then existing shareholders.




**Our
      Independent Registered Public Accounting Firm Has Stated There is Substantial
      Doubt About Our Ability to Continue As a Going Concern, Which May Hinder Our
      Ability to Obtain Future Financing.**





In
      their
      report dated April 17, 2007 on our financial statements as of and for the year
      ended December 31, 2006, our independent registered public accounting firm
      stated that our significant losses from operations and our limited financial
      resources raised substantial doubt about our ability to continue as a going
      concern. Since December 31, 2006, we have continued to experience losses from
      operations. Our ability to continue as a going concern is subject to our ability
      to generate a profit and/or obtain necessary debt or equity funding from outside
      sources, including  the sale of our securities, and/or loans and
      grants from various financial institutions where possible.




**We
      Have a Limited Operating History and if We are not Successful in Continuing
      to
      Grow Our Business, Then We may have to Scale Back or Even Cease Our Ongoing
      Business Operations.**





We
      have a
      limited history of revenues from operations and have no individually significant
      tangible assets.  We have yet to generate positive earnings and there
      can be no assurance that we will ever operate profitably.  Our success is
      significantly dependent on a successful acquisition, drilling, completion and
      production program. Our operations will be subject to all the risks inherent
      in
      the establishment of a developing enterprise and the uncertainties arising
      from
      the absence of a significant operating history. Except for our Carbon County
      prospect, we are in the development stage and potential investors should be
      aware of the difficulties normally encountered by enterprises in the development
      stage. We may be unable to locate recoverable reserves or operate on a
      profitable basis. If our business plan is not successful, and we are not able
      to
      operate profitably, investors may lose some or all of their investment in our
      company.





**If
      We Are Unable to Retain the Services of Mr. Young or If We Are Unable to
      Successfully Recruit Qualified Managerial and Field Personnel Having Experience
      in Oil and Gas Exploration, We May Not Be Able to Continue Our
      Operations.**





Our
      success depends to a significant extent upon the continued service of Mr. George
      S. Young, our President, Chief Executive Officer and a director. Loss of the
      services of Mr. Young could have a material adverse effect on our growth,
      revenues, and prospective business. We do not maintain key-man insurance on
      the
      life of Mr. Young. In addition, in order to successfully implement and manage
      our business plan, we will be dependent upon, among other things, successfully
      recruiting qualified managerial and field personnel having experience in the
      oil
      and gas exploration business. Competition for qualified individuals is intense.
      There can be no assurance that we will be able to find, attract and retain
      existing employees or that we will be able to find, attract and retain qualified
      personnel on acceptable terms.





**As
      Most of Our Properties are in the Exploration and Development Stage, There
      Can
      be no Assurance That We Will Establish Commercial Discoveries on Our
      Properties.**





Exploration
      for economic reserves of oil and gas is subject to a number of risk factors.
      Few
      properties that are explored are ultimately developed into producing oil and/or
      gas wells. Most of our properties are in the exploration and development stage
      only and are without proven reserves of oil and gas. We may not establish
      commercial discoveries on any of our properties beyond that already discovered
      and developed at our Carbon County project.





**The
      Potential Profitability of Oil and Gas Ventures Depends Upon Factors Beyond
      the
      Control of Our Company.**





The
      potential profitability of oil and gas properties is dependent upon many factors
      beyond our control. For instance, 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. In addition, adverse
      weather conditions can also hinder drilling operations. These changes and events
      may materially affect our financial performance. These factors cannot be
      accurately predicted and the combination of these factors may result in our
      company not receiving an adequate return on invested capital.





**Even
      if We are Able to Discover and Generate a Gas Well, There Can be no Assurance
      the Well Will Become Profitable**





We
      have
      not yet made a discovery of coalbed methane gas or drilled a gas well to capture
      any gas other than at our Carbon County project. Even if we are able to, 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. In addition, production from any well may be unmarketable
      if
      it is impregnated with water or other deleterious substances. In addition,
      the
      marketability of oil and gas which may be acquired or discovered will be
      affected by numerous factors, including the proximity and capacity of oil
      and





8
 Table
            of Contents




gas
      pipelines and processing equipment, market fluctuations of prices, taxes,
      royalties, land tenure, allowable production and environmental protection,
      all
      of which could result in greater expenses than revenue generated by the
      well.





**Competition
      In The Oil And Gas Industry Is Highly Competitive And There Is No Assurance
      That
      We Will Be Successful In Acquiring The Leases.**





The
      oil
      and gas industry is intensely competitive. We compete with numerous individuals
      and companies, including many major oil and gas companies, which have
      substantially greater technical, financial and operational resources and staffs.
      Accordingly, there is a high degree of competition for desirable oil and gas
      leases, suitable properties for drilling operations and necessary drilling
      equipment, as well as for access to funds. We cannot predict if the necessary
      funds can be raised or that any projected work will be completed. Our budget
      anticipates our acquisition of additional acreage in the Rocky Mountain Region.
      This acreage may not become available or if it is available for leasing, that
      we
      may not be successful in acquiring the leases.





**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 Company.**





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. To date we have not been required to spend any material
      amount on compliance with environmental regulations. However, we may be required
      to do so in future and this may affect our ability to expand or maintain our
      operations.





**Exploration
      and Production Activities are Subject to Certain Environmental Regulations
      Which
      May Prevent or Delay the Commencement or Continuance of 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.





Our
      operating partners maintain insurance coverage customary to the industry;
      however, we are not fully insured against all possible environmental
      risks.





**Exploratory
      Drilling Involves Many Risks and We May Become Liable for Pollution or Other
      Liabilities Which May Have an Adverse Effect on Our Financial
      Position.**





Drilling
      operations generally involve a high degree of risk. Hazards such as unusual
      or
      unexpected geological formations, power outages, labor disruptions, blow-outs,
      sour gas leakage, fire, inability to obtain suitable or adequate machinery,
      equipment or labor, and other risks are involved. We may become subject to
      liability for pollution or hazards against which it cannot adequately insure
      or
      which it may elect not to insure. Incurring any such liability may have a
      material adverse effect on our financial position and operations.





9
 Table
            of Contents





**Risks
      Relating to Our Current Financing Arrangements:**





**There
      Are a Large Number of Shares Underlying Our Convertible Debentures and Warrants
      That May be Available for Future Sale and the Sale of These Shares May Depress
      the Market Price of Our Common Stock.**





As
      of
      April 13, 2007, we had 100,000,000 shares of common stock issued and
      outstanding, convertible debentures issued in June 2005, September 2005 and
      February 2007 outstanding that may be converted into an estimated 24,024,197
      shares of common stock and outstanding warrants issued in June and September
      2005 to purchase 1,516,668 shares of common stock. To the extent registered
      pursuant to our registration statements, all of the shares issuable upon
      conversion of the June and September 2005 debentures and upon exercise of our
      June and September 2005 warrants, may be sold without restriction. The sale
      of
      these shares may adversely affect the market price of our common
      stock.





**The
      Issuance of Shares Upon Conversion of the Convertible Debentures and
      Exercise of Outstanding Warrants May Cause Immediate and Substantial Dilution
      to
      Our Existing Stockholders.**




The
      issuance of shares upon conversion of the convertible debentures and exercise
      of
      warrants may result in substantial dilution to the interests of other
      stockholders since the selling stockholders may ultimately convert and sell
      the
      full amount issuable on conversion. Although the selling stockholders may not
      convert their convertible debentures and/or exercise their warrants if such
      conversion or exercise would cause them to own more than 4.99% of our
      outstanding common stock, this restriction does not prevent the selling
      stockholders from converting and/or exercising some of their holdings and then
      converting the rest of their holdings. In this way, the selling stockholders
      could sell more than this limit while never holding more than this limit. There
      is no upper limit on the number of shares that may be issued which will have
      the
      effect of further diluting the proportionate equity interest and voting power
      of
      holders of our common stock, including investors in this offering.




**If
      We Are Required for any Reason to Repay Our Outstanding Secured Convertible
      Debentures, We Would Be Required to Deplete Our Working Capital, If Available,
      Or Raise Additional Funds.  Our Failure to Repay the Secured
      Convertible Debentures, If Required, Could Result in Legal Action Against Us,
      Which Could Require the Sale of Substantial Assets.**





Between
      2005 and 2007, we entered into Securities Purchase Agreements for the sale
      of an
      aggregate of $9,323,700 principal face amount of secured convertible debentures,
      of which approximately $2,993,938 remains outstanding. The secured convertible
      debentures are due and payable, with interest, in September 2007 unless sooner
      converted into shares of our common stock. In addition, any event of default
      such as our failure to repay the principal when due, our failure to issue shares
      of common stock upon conversion by the holder, our failure to timely file a
      registration statement or have such registration statement declared effective,
      breach of any covenant, representation or warranty in the Securities Purchase
      Agreement or related convertible debentures, the assignment or appointment
      of a
      receiver to control a substantial part of our property or business, the filing
      of a money judgment, writ or similar process against our company in excess
      of
      $50,000, the commencement of a bankruptcy, insolvency, reorganization or
      liquidation proceeding against our company and the delisting of our common
      stock
      could require the early repayment of the convertible debentures, including
      default interest on the outstanding principal balance of the convertible
      debentures if the default is not cured with the specified grace period. We
      anticipate that the full amount of the convertible debentures will be converted
      into shares of our common stock, in accordance with the terms of the convertible
      debentures. If we are required to repay the convertible debentures, we would
      be
      required to use our limited working capital and raise additional funds. If
      we
      were unable to repay the convertible debentures when required, the debenture
      holders could commence legal action against us and foreclose on all of our
      assets to recover the amounts due. Any such action would require us to curtail
      or cease operations.





**Risks
      Relating to Our Common Stock:**





**If
      We Fail to Remain Current on Our Reporting Requirements, We Could be Removed
      From the OTC Bulletin Board Which Would Limit the Ability of Broker-Dealers
      to
      Sell Our Securities and the Ability of Stockholders to Sell Their Securities
      in
      the Secondary Market.**





Companies
      trading on the OTC Bulletin Board, such as us, must be reporting issuers under
      Section 12 of the Securities Exchange Act of 1934, as amended, and must be
      current in their reports under Section 13, in order to maintain price quotation
      privileges on the OTC Bulletin Board. If we fail to remain current on our
      reporting requirements, we could be removed from the OTC Bulletin Board. As
      a
      result, the market liquidity for our securities could be severely adversely
      affected by limiting the ability of broker-dealers to sell our securities and
      the ability of stockholders to sell their securities in the secondary
      market.







10
 Table
            of Contents








**Our
      Common Stock is Subject to the "Penny Stock" Rules of the SEC and the Trading
      Market in Our Securities is Limited, Which Makes Transactions in Our Stock
      Cumbersome and May Reduce the Value of an Investment in
      Our**


**Stock.**





The
      Securities and Exchange Commission has adopted Rule 15g-9 which establishes
      the
      definition of a "penny stock," for the purposes relevant to us, as any equity
      security that has a market price of less than $5.00 per share or with an
      exercise price of less than $5.00 per share, subject to certain exceptions.
      For
      any transaction involving a penny stock, unless exempt, the rules
      require:




▪
            that
                a broker or dealer approve a person's account for transactions in
                penny
                stocks; and▪
            that
                broker or dealer receive from the investor a written agreement to
                the
                transaction, setting forth the identity and quantity of the penny
                stock to
                be purchased.




In
      order
      to approve a person's account for transactions in penny stocks, the broker
      or
      dealer must:




▪
            obtain
                financial information and investment experience objectives of the
                person;
                and▪
            make
                a reasonable determination that the transactions in penny stocks
                are
                suitable for that person and the person has sufficient knowledge
                and
                experience in financial matters to be capable of evaluating the risks
                of
                transactions in penny stocks.




The
      broker or dealer must also deliver, prior to any transaction in a penny stock,
      a
      disclosure schedule prescribed by the Commission relating to the penny stock
      market, which, in highlight form:




▪
            sets
                forth the basis on which the broker or dealer made the suitability
                determination; and▪
            that
                the broker or dealer received a signed, written agreement from the
                investor prior to the transaction.





Generally,
      brokers may be less willing to execute transactions in securities subject to
      the
      "penny stock" rules. This may make it more difficult for investors to dispose
      of
      our common stock and cause a decline in the market value of our
      stock.




Disclosure also has to be made about the risks of investing in penny stocks
      in
      both public offerings and in secondary trading and about the commissions payable
      to both the broker-dealer and the registered representative, current quotations
      for the securities and the rights and remedies available to an investor in
      cases
      of fraud in penny stock transactions. Finally, monthly statements have to be
      sent disclosing recent price information for the penny stock held in the account
      and information on the limited market in penny stocks.




11
 Table
            of Contents





**ITEM
      2.  DESCRIPTION OF PROPERTY.**





Our
      principal executive offices are located at 1942 Broadway Street, Suite 320,
      Boulder, Colorado 80302, and our telephone number is (303) 926-4415. In exchange
      for administrative services, we pay no rent for the 300 square foot suite we
      now
      occupy. We believe that our current office space and facilities are sufficient
      to meet our present needs and do not anticipate any difficulty securing
      alternative or additional space, as needed, on terms acceptable to us. In
      addition, we have the following oil and gas properties in connection with our
      principal business activities:





**Carbon
      County Project, Utah**





On
      September 12, 2005, we entered into an option agreement to purchase a gas field
      in Carbon County, Utah currently producing approximately 30 million cubic feet
      of natural gas per month.  The field comprises 5,953 gross acres
      (2,440 net acres) with three gas wells currently producing and has an additional
      five wells drilled that are presently shut-in. Production is derived from the
      Ferron Sandstone formation, and the gas is marketed into the adjacent gas
      pipeline operated by Questar Gas Resources.  The acquisition included
      an associated gas gathering system and a 6 mile pipeline and compression
      facility servicing the project and adjacent production. The field has potential
      for 20 additional well sites on 160 acre spacing on the undeveloped
      acreage.  The property is adjacent to our Gordon Creek project and to
      the very successful Drunkards Wash field originally developed by River Gas
      Corp.





The
      purchase
      option called for an acquisition price of $3 million, and we closed the purchase
      of the acquisition on March 13, 2006 with an industry partner, Thunderbird
      Energy Corporation (“TBD”) formerly MBA Resource Corp. of Canada.  TBD
      paid $1.5 million and arranged third party financing of $750,000 for part of
      our
      share of the $3 million purchase price in exchange for a 50% interest in the
      project.  We previously paid a deposit toward the purchase price and
      received production credits since October 1, 2005.  We thus acquired a
      50% interest in the project with only an additional payment of
      $241,000.  Together with TBD we formed Gordon Creek, LLC a joint
      operating company incorporated in the state of Utah to carry out gas production
      and drilling operations as well as gas gathering activities for both project
      gas
      and adjacent third party production.





We
      will
      use the experience of its personnel who participated in the development of
      Drunkards Wash to increase current production and expand production in both
      the
      Ferron Sandstone and in the underlying coal bed methane seams that are not
      currently being exploited by the existing wells. We will immediately undertake
      to increase production in the existing wells, complete those wells in the coal
      for their coal bed methane potential, and thereafter drill additional wells
      on
      the acreage being acquired.





**Weston
      County Project, Wyoming**





The
      Weston County play will focus initially on the development of a conventional
      oil
      field followed by exploration for conventional oil reservoirs in the Dakota
      and
      Minnelusa on 19,290 gross and net acres. The South Coyote Creek Field thus
      far
      has no identifiable reserves but we hope that it will provide short-term cash
      flow to cover our overhead.




We
      acquired an option to purchase a 100% working interest for 19,290 acres of
      oil
      and gas rights in Weston County, Wyoming for a total purchase price of $750,000.
      We closed that purchase on June 15, 2004 and concluded a reevaluation of
      drilling production data and seismic surveys. This resulted in the delineation
      of 18 conventional oil and gas well locations on the property which are ready
      to
      drill that are potential extensions of an existing producing field called South
      Coyote Creek Field. South Coyote Creek Field was discovered and developed back
      in the 1960s and has produced approximately 3 million barrels of oil to date.
      We
      signed a joint venture agreement with JMG Exploration to drill our Weston County
      and Gordon Creek projects. Under the agreement, JMG Exploration will receive
      a
      50% interest in exchange for incurring $2,000,000 in exploration and drilling
      expenditures on the two projects by November 7, 2005.  In addition,
      JMG Exploration loaned $1,500,000 to us with a short-term note. In connection
      with repayment of the JMG Exploration loan, we assigned the remaining 50%
      interest in the Weston County project to JMG Exploration, subject to our right
      to reacquire those interests for approximately $391,000 by June 30, 2005, which
      right has been exercised. As part of the full settlement of the $1,500,000
      note,
      JMG Exploration’s commitment to spend $2,000,000 in exploration and drilling
      activity by November 7, 2005 was terminated. In connection with this
      transaction, we recorded a gain from extinguishment of debt of
      $383,531.





The
      Weston County play has two deeper horizons at drilling depths of 5,000 to 7,500
      feet that add enormous oil and gas reserve potential to the acreage position
      we
      own. The Cretaceous Dakota and Permo-Penn Minnelusa are both highly productive
      sandstone reservoirs when found in trapping positions and have accounted for
      hundreds of millions of barrels of production in the Powder River Basin. Some
      of
      the largest Dakota and Minnelusa fields are located within 10 miles of the
      Fellows’ acreage including the 75 million barrel Raven Creek and 25 million
      barrel Donkey Creek.




The
      Dakota and Minnelusa are also both amenable to seismic exploration and can
      be
      resolved clearly with 3-D seismic. We have access to 200 miles of a regional
      2-D
      seismic data base that covers the Weston County play area. On the basis of
      this
      seismic, a series of prospects in the Dakota and Minnelusa have been identified
      with the potential for up to 50 million barrels of oil reserves. One of these
      prospects is a Minnelusa field with only one producer drilled to date that
      appears to be on the edge of a much larger accumulation.




**Carter
      Creek Project, Wyoming**





The
      Carter Creek Project targets an unconventional play for oil on 14,196 gross
      and
      9,959 net acres from fractured shales in the Niobrara and Mowry.




In
      January 2004, we acquired a 100% working interest of 10,678 acres known as
      the
      Carter Creek Project in the southern Powder River Basin of Wyoming for $223,000.
      This project was generated by Thomasson Partner Associates.





12
 Table
            of Contents










The
      Carter Creek Project offers large-scale reserve potential from a section of
      over-pressured Lower Cretaceous zones including the Niobrara, Turner (Frontier),
      Mowry, Muddy, and the normally pressured Dakota formations. All these zones
      are
      currently productive in the region of the Carter Creek Project. Drilling depths
      to the Dakota range from 10,000 feet to 11,500 feet. The primary
      objectives in the Carter Creek Project are the Niobrara and Mowry formations
      which are both thick hydrocarbon-rich shale units. These shale units are
      referred to as “source beds” because under sufficient heat and pressure they are
      the source of petroleum that feeds the conventional oil and gas traps in a
      given
      basin. In this case, the source beds also act as oil reservoirs due to
      fracturing that has been induced along shear zones created by regional tectonic
      forces. Within these shear zones are fractures which provide both storage of
      oil
      and gas, as well as the permeability necessary for them to flow to a well bore.
      The shear zones also provide a pathway for thermal energy from deeper in the
      basin to flow into a local area and promote oil generation and maturation,
      thus
      improving the hydrocarbon recovery potential within the shear zone. Over
      pressuring is caused by hydrocarbon generation within the source beds which
      also
      contributes to the fracture system.




The
      current plan for this project is to acquire additional seismic and leasehold,
      then drill one horizontal well into the Niobrara section at a location where
      the
      available seismic data suggests good fractured reservoir conditions exist.
      To
      minimize formation damage, the well will be drilled under-balanced. Cost of
      the
      well is projected at $1,250,000. The risk of finding producible reserves in
      this project is considered low due to the widespread occurrence of hydrocarbons
      within the objective formations, the remaining question is whether the
      production levels achieved will provide economic returns on a consistent
      basis.




**Gordon
      Creek Project, Utah**





The
      Gordon Creek Project targets an unconventional play on 5,242 gross and 3,184
      net
      acres for gas from tight sands in the Ferron formation, plus coal bed natural
      gas from coals in the Emery formation.




In
      January 2004, we acquired an option to purchase 5,242 acres known as the Gordon
      Creek Project. We closed the purchase for $288,000 in July 2004. The Gordon
      Creek Project is located in Carbon County, eastern Utah.




The
      Gordon Creek Project targets natural gas reserves in two large unconventional
      plays: (1) the Cretaceous Ferron sandstone play and (2) the Cretaceous Emery
      coal bed natural gas play. The Cretaceous Ferron sandstone play is established
      by the Clear Creek Field which has had cumulative production of 137 Bcf from
      16
      wells or an average of 8.6 Bcf per well to date. The Clear Creek Field is
      located 7 miles to the west of the Fellows acreage.




During
      2001, 2002 and 2003, Klabzuba Oil & Gas drilled a series of six wells
      previously drilled into the 100 foot thick Ferron sandstone at Gordon Creek
      Field and completed them for production. Gordon Creek Field is located 3 miles
      south of Fellows’ acreage. The six wells have produced 1.5 Bcf in their first
      year of production according to state records.




As
      previously mentioned, we have signed a joint venture agreement with JMG
      Exploration to drill our Weston County and Gordon Creek projects. This agreement
      was amended in June 2005 and we assigned the remaining 50% interest in the
      Gordon Creek project to JMG Exploration, subject to our rights to reacquire
      such
      interest for $390,000 which has been exercised.  As of December 2006
      Thunderbird, our partner in the Carbon County project, has negotiated the
      purchase of JMG's half of the Weston and Gordon Creek projects.




In
      addition to the Ferron sandstone, the Gordon Creek project has potential in
      the
      Emery coal. While the Emery coal play is in an early stage it may have similar
      potential to the Drunkard’s Wash field which produces from the Ferron coal. The
      Drunkard’s Wash Field is located 6 miles to the southeast of out Gordon Creek
      land holdings. Our project personnel were previously involved in drilling for
      River Gas Corporation in the Drunkard’s Wash field.




**Bacaroo
      Project, Baca County, Colorado**




The
      Bacaroo Project targets conventional oil and gas reserves from prolific
      reservoirs in the Pennsylvanian Topeka, Lansing-Kansas City and Morrow
      formations as well as the Mississippian Keyes formations. The Bacaroo Project
      has been developed by Thomasson Partner Associates and is located in Baca
      County, Colorado on the northwest flank of the greater Anadarko Basin. Nearby
      analog fields include the Morrow Stateline and Interstate fields with production
      of 25 to 50 MMBO; and the Keyes Dome, which has produced 1 TCF of gas from
      the
      Mississippian Keyes section. Currently, we have six prospects undergoing lease
      acquisition. Three of these prospects have multiple objectives with seismically
      and subsurface defined structural or stratigraphic traps, and are adjacent
      to or
      on-trend with proven production. All of the selected drill sites are near to
      or
      offsetting excellent shows of oil and gas with drilling depths of objectives
      ranging from 1,200 to 5,000 feet. The estimated initial cost to acquire 34,720
      acres and drill eight evaluation wells is $2.3 million.





13
 Table
            of Contents








**Uintah
      Basin Workover Project, Uintah Basin, Utah (formerly known as the Creston
      Project)**





On
      October 25, 2005, we entered into a participation agreement with Mountain Oil
      and Gas, Inc., Creston Resources Ltd, and Homeland Gas and Oil Ltd.
      (collectively “Creston”), and began negotiations with private investors, to
      supply operating expertise and program supervision to earn working interests
      in
      up to 45 producing oil wells in the Uintah Basin of Utah.  Thereafter,
      we immediately commenced a rework operation on the first well chosen for the
      program to re-complete previously-completed zones and extend behind pipe
      reserves.  This well is located in the prolific Altamont-Bluebell
      Field, which has produced over 350 million barrels of oil equivalent. Creston
      will retain the current or historical production in this well, while we and
      the
      private investors will earn a variable percentage of the production increase
      resulting from the reworking operations. We completed work on the first well
      and
      commenced production in the first quarter of 2006.   Although we
      plan to continue our interest in this well and generate revenue from it, we
      are
      seeking new opportunities from parties other than Creston in order to pursue
      our
      reworking efforts, since, due to Creston’s own financial difficulties, we have
      not been able to maintain our interests in the other wells and properties as
      previously contemplated with Creston.  As a result, our efforts will
      now focus on wells of other parties.





In
      many
      areas of the Altamont-Bluebell field and other areas of the Uintah Basin, due
      to
      the over-pressured, fractured nature of the reservoirs and the heavy nature
      of
      the oil, as well as the large vertical extent of potential pay zones, many
      of
      the wells have formation damage resulting from high drilling mud weights and
      cementing operations.  These conditions have left many zones unable to
      produce to their potential.  We will employ a variety of conventional
      and innovative proprietary techniques to reduce the effects of formation damage
      and increase oil and gas recovery.





**Johns
      Valley Project, Utah**





In
      2004,
      we acquired an agreement with Johns Valley Limited Partnership whereby we have
      the option to earn a 70% working interest in 25,201 acres of oil and gas leases
      from the Utah School and Institutional Trust Lands Administration. Due to
      permitting delays and other operating parameters in the field, we negotiated
      to
      restructure the potential option and the timing and amounts of our work
      commitments as provided under the option assignment agreement. During the fourth
      quarter of 2006, due to capital constraints, we determined not to pursue the
      option on this project and relinquish our rights related
      thereto.  Accordingly, we recorded a charge in the amount of
      $1,873,295 for the year ended December 31, 2006.





**Overthrust
      Coal Bed Methane Project, Utah and Wyoming**





The
      Overthrust Coal Bed Methane Project was an unconventional play with 183,000
      gross and 118,950 net acres targeting coal bed natural gas in southwestern
      Wyoming and northeastern Utah that we entered into with Quaneco, LLC in 2004.
      This project also had the potential for conventional oil and gas.




As
      of
      December 31, 2006, due to a technical reanalysis of the project, new data
      relating to seismic work done in the area, capital constraints, and the
      inability to renegotiate with Quaneco and the leaseholders a more workable
      framework to carry forward with this early-stage project, we determined to
      relinquish our rights to the project and pursue more advance-stage projects
      in
      producing areas in the Uintah Basin and elsewhere.  As such, we
      recorded a charge in the amount of $1,025,092 for the year ended December 31,
      2006.





**Deposits
      on Other Projects**





During
      the year ended December 31, 2006, the Company also recorded charges of
      approximately $391,000 related to the relinquishment of options for cash
      deposits previously made on certain other properties.





14
 Table
            of Contents








**Summary
      of Our Projects, Acreage Holdings, and Wells**




**Project**
            **Objective**
            **Play
                Type**
            **Gross**
              **Acres**
            **Net**
              **Acres****Bacaroo
                Project, Baca County, Colorado**Conventional
                  Oil
            
            3,400
            
            3,400**Uintah
                  Basin Workover Project, Utah**Conventional
                Oil
            
            9,000
            
            160**Carbon
                County Project, Utah**Tight
                  Sands Gas and Coal
            
            5,953
            
            2,440**Weston
                  County Project, Wyoming**Turner
            Conventional
                Oil
            
            19,290
            
            9,645Dakota
            Conventional
                  OilMinnelusa
            Conventional
                Oil**Carter
                Creek, Converse County, Wyoming**Niobrara
            Oil
                  from Fractured Shale
            
            14,196
            
            9,959Mowry
            Oil
                from Fractured ShaleTurner,
                  Muddy, Dakota
            Conventional
                  Oil**Gordon
                  Creek, Carbon County, Utah**Ferron
                Sandstone
            Tight
                Sands Gas
            
            5,242
            
            1,592Emery
                  Coal
            Coal
                  Bed Natural Gas**Totals**
            
            **57,081**
            
            **27,196**




**ITEM
      3.  LEGAL PROCEEDINGS.**





From
      time
      to time, we may become involved in various lawsuits and legal proceedings,
      which
      arise in the ordinary course of business. However, litigation is subject to
      inherent uncertainties, and an adverse result in these or other matters may
      arise from time to time that may harm our business. Except as disclosed below,
      we are currently not aware of any such legal proceedings or claims that we
      believe will have, individually or in the aggregate, a material adverse affect
      on our business, financial condition or operating results.





We
      were
      sued in the Sixth Judicial District Court, Garfield County, Utah on November
      10,
      2004, by Midway Perforating and Drilling, Inc. in a complaint alleging
      nonpayment of charges connected with drilling the Johns Valley 10-33C2 well
      in
      Garfield County, UT. The complaint seeks damages of $100,000 and costs of
      $10,000. We filed our Answer and Counterclaim on January 19, 2005. We plan
      to
      vigorously defend this case because we believe that the plaintiff failed to
      follow our instructions to use appropriate equipment for controlling deviation
      of the wellbore, and that such failure caused the well to be unusable. The
      suit
      is currently in its discovery stages. Although we believe we have a strong
      defense and counterclaim, we cannot predict the final outcome of the
      suit.





15
 Table
            of Contents








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





None.





**PART
      II**





**ITEM
      5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
      MATTERS.**





**MARKET
      INFORMATION**





Our
      common stock is quoted on the OTC Bulletin Board under the symbol "FLWE". For
      the periods indicated, the following table sets forth the high and low bid
      prices per share of common stock. These prices represent inter-dealer quotations
      without retail markup, markdown, or commission and may not necessarily represent
      actual transactions.




High
                ($)
            
            
            Low
                ($)**Fiscal
                Year 2005**First
                  Quarter
            
            
            1.25
            
            
            
            0.71Second
                Quarter
            
            
            1.00
            
            
            
            0.42Third
                  Quarter
            
            
            1.40
            
            
            
            0.48Fourth
                Quarter
            
            
            0.82
            
            
            
            0.31**Fiscal
                Year 2006**First
                  Quarter
            
            
            0.60
            
            
            
            0.30Second
                Quarter
            
            
            0.44
            
            
            
            0.15Third
                  Quarter
            
            
            0.43
            
            
            
            0.14Fourth
                Quarter
            
            
            0.19
            
            
            
            0.07**Fiscal
                Year 2007**First
                  Quarter
            
            
            0.10
            
            
            
            0.03Second
                Quarter (1)
            
            
            0.04
            
            
            
            0.04




(1)
      As of
      April 14, 2007





**HOLDERS**





As
      of
      April 11, 2007, we had approximately 86 holders of our common stock. The number
      of record holders was determined from the records of our transfer agent and
      does
      not include beneficial owners of common stock whose shares are held in the
      names
      of various security brokers, dealers, and registered clearing agencies. The
      transfer agent of our common stock is Pacific Stock Transfer Company, 500 E.
      Warm Springs Road, Suite 240, Las Vegas, Nevada 89119.





**DIVIDENDS**





We
      have
      never declared or paid any cash dividends on our common stock. We do not
      anticipate paying any cash dividends to stockholders in the foreseeable future.
      In addition, any future determination to pay cash dividends will be at the
      discretion of the Board of Directors and will be dependent upon our financial
      condition, results of operations, capital requirements, and such other factors
      as the Board of Directors deem relevant.





16
 Table
            of Contents








**RECENT
      SALE OF UNREGISTERED SECURITIES**





Unless
      otherwise noted, the issuances noted below are all considered exempt from
      registration by reason of Section 4(2) of the Securities Act of 1933, as
      amended.




In
      October
      2006, we issued 800,000 shares of common stock at $0.14 pursuant to a legal
      consulting agreement. The shares were issued pursuant to an exemption under
      Section 4(2) of the Securities Act of 1933.





In
      November 2006, we issued 1,083,607 shares of common stock at $0.14 in accordance
      with ratchet down rights under the May 18, 2005 private placement. The shares
      were issued pursuant to an exemption under Section 4(2) of the Securities Act
      of
      1933.





During
      the three months ended December 31, 2006, we issued 5,031,413 shares of common
      stock upon conversion of $522,898 of previously issued convertible debentures.
      The shares were issued pursuant to an exemption under Section 4(2) of the
      Securities Act of 1933.





**ITEM
      6.  MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION.**





The
      following information should be read in conjunction with the consolidated
      financial statements and the notes thereto contained elsewhere in this report.
      The Private Securities Litigation Reform Act of 1995 provides a "safe harbor"
      for forward-looking statements. Information in this Item 6, "Management's
      Discussion and Analysis or Plan of Operation," and elsewhere in this 10-KSB
      that
      does not consist of historical facts, are "forward-looking statements."
      Statements accompanied or qualified by, or containing words such as "may,"
      "will," "should," "believes," "expects," "intends," "plans," "projects,"
      "estimates," "predicts," "potential," "outlook," "forecast," "anticipates,"
      "presume," and "assume" constitute forward-looking statements, and as such,
      are
      not a guarantee of future performance. The statements involve factors, risks
      and
      uncertainties including those discussed in the “Risk Factors” section contained
      elsewhere in this report, the impact or occurrence of which can cause actual
      results to differ materially from the expected results described in such
      statements. Risks and uncertainties can include, among others, fluctuations
      in
      general business cycles and changing economic conditions; changing product
      demand and industry capacity; increased competition and pricing pressures;
      advances in technology that can reduce the demand for the Company's products,
      as
      well as other factors, many or all of which may be beyond the Company's control.
      Consequently, investors should not place undue reliance on forward-looking
      statements as predictive of future results. The Company disclaims any obligation
      to update the forward-looking statements in this report.





**Overview**




On
      January 5, 2004, we began operations as an oil and gas exploration company.
      We
      acquired interests in certain assets owned by Diamond Oil & Gas Corporation,
      in exchange for 3,500,000 shares of common stock. The transaction was deemed
      to
      have a value of $6,405,000. The assets included certain oil and gas projects,
      as
      well as the right to enter into the Exploration Services Funding Agreement
      with
      Thomasson Partner Associates, Inc. of Denver, Colorado. Diamond is controlled
      by
      our CEO, George S. Young. Our goal is to discover substantial commercial
      quantities of oil and gas, including coalbed methane, on the properties as
      well
      as to acquire and explore additional property.




Projects
      acquired from Thomasson Partner Associates under the Exploration Services
      Funding Agreement (as Amended) include the Weston County project in Wyoming,
      the
      Gordon Creek project in Utah, the Carter Creek project in Wyoming, the Circus
      project in Montana, the Bacaroo project in Colorado, the Platte project in
      Nebraska, and the Badger project in South Dakota.   During the
      year ended December 31, 2006, we abandoned the Platte and Badger
      projects.  In 2005, we paid Thomasson a total of $1,350,000, including
      the $800,000 acquisition consulting fee. As of December 31, 2006, we terminated
      our formal agreement with Thomasson Partner Associates, and will continue
      accessing projects informally, without having any first right to any
      project.




**Operations
      Plan**





During
      the next twelve months, we expect to pursue oil and gas operations on some
      or
      all of our property, including the acquisition of additional acreage through
      leasing, farmout or option and participation in the drilling of oil and gas
      wells. We intend to continue to evaluate additional opportunities in areas
      where
      we feel there is potential for oil and gas reserves and





17
 Table
            of Contents





production
      and may participate in areas other than those already identified, although
      we
      cannot assure that additional opportunities will be available, or if we
      participate in additional opportunities, that those opportunities will be
      successful.




Our
      current cash position is not sufficient to fund our cash requirements during
      the
      next twelve months, including operations and capital expenditures. We intend
      to
      continue joint venture or obtain equity and/or debt financing efforts to support
      our current and proposed oil and gas operations and capital expenditures. We
      may
      sell interests in our properties. We cannot assure that continued funding will
      be available.




We
      have
      not entered into commodity swap arrangements or hedging transactions. Although
      we have no current plans to do so, we may enter into commodity swap and/or
      hedging transactions in the future in conjunction with oil and gas production.
      We have no off-balance sheet arrangements.




Our
      future financial results continue to depend primarily on (1) our ability to
      discover or purchase commercial quantities of oil and gas; (2) the market price
      for oil and gas; (3) our ability to continue to source and screen potential
      projects; and (4) our ability to fully implement our exploration and development
      program with respect to these and other matters. We cannot assure that we will
      be successful in any of these activities or that the prices of oil and gas
      prevailing at the time of production will be at a level allowing for profitable
      production.




**Recent
      Activity**





On
      March
      13, 2006 we purchased a gas field in Carbon County, Utah. The field comprises
      5,953 gross acres (2,440 net acres) with four gas wells currently producing
      and
      an additional six wells drilled that are presently shut-in. Production is
      derived from the Ferron Sandstone formation, and the gas is marketed into the
      adjacent gas pipeline operated by Questar Gas Resources. The field has potential
      for 20 additional well sites on 160 acre spacing on the undeveloped acreage.
      The
      property is adjacent to our Gordon Creek project and to the successful Drunkards
      Wash field originally developed by River Gas Corp.  A favorable
      engineering study has been completed by MHA Petroleum Consultants verifying
      in
      excess of 10.5 BCF of gas in the proven reserve category for the
      project.





We
      will
      use the experience of our personnel who participated in the development of
      Drunkards Wash to increase current production and expand production in both
      the
      Ferron Sandstone and in the associated coal bed methane seams that are not
      currently being exploited by the existing wells. Over the past year, we have
      reworked two wells, both of which showed potential for sustained production
      at
      levels well above what they had produced in the past.  We plan to
      rework additional wells that show similar potential in 2007.  Six
      drilling permits are currently being processed by the State of Utah which will
      allow us to drill additional wells in strategic locations.  We expect
      the new wells to perform at least as well as our best wells which directly
      offset the new wells.





The
      operations we plan for the balance of 2007 include continuing development
      drilling and reworking activities on the Carbon County, exploring leases on
      the
      other projects we have acquired as well as seeking to acquire and explore
      additional property, and implementing production on one or more of our projects.
      Our goal is to discover and continue to produce substantial additional
      commercial quantities of oil and gas, including coalbed methane, on the
      properties, although no assurances can be given that commercial quantities
      are
      available, if at all.





**Liquidity and
      Capital Resources**




In
      2006,
      we incurred a loss of approximately $8,591,000. At December 31, 2006, we had
      approximately $180,000 of cash and cash equivalents, and a $234,000 note
      receivable.  Our total current assets were $496,000, and current
      liabilities were $3,866,000, including accounts payable and the current portions
      of interest payable, notes payable, and convertible debentures
      payable.





Based
      upon our significant operating losses from inception, there is substantial
      doubt
      as to our ability to continue as a going concern. Our audited financial
      statements have been prepared on a basis that contemplates our continuation
      as a
      going concern and the realization of assets and liquidation of liabilities
      in
      the ordinary course of business. Our audited consolidated financial statements
      do not include any adjustments relating to the recoverability and classification
      of recorded asset amounts or the amounts and classification of liabilities
      that
      might be necessary should we be unable to continue as a going
      concern.





The
      Carbon County and Creston projects were acquired in late 2005, and were not
      brought into production until the first quarter of 2006. They have not yet
      been
      in production for a sufficient time, and have not yet been sufficiently reworked
      by additional field operations to determine their ultimate productive
      capacities.  At this point, we have not generated sufficient oil and
      gas sales to sustain our operations.  To fully carry out our business
      plans we need to increase production revenues, raise a substantial amount of
      additional capital, sell project assets, or obtain industry joint venture
      financing, which we are currently seeking. We can give no assurance that we
      will
      be able to increase production or raise such capital. We have limited
      financial





18
 Table
            of Contents





resources
      until such time that we are able to generate such additional financing or
      additional cash flow from operations. Our ability to maintain profitability
      and
      positive cash flow is dependent upon our ability to exploit our mineral
      holdings, generate revenue from our planned business operations and control
      our
      exploration cost. To fully carry out our business plans we need to raise a
      substantial amount of additional capital, which we are currently seeking. We
      can
      give no assurance that we will be able to raise such capital. We have limited
      financial resources until such time that we are able to generate positive cash
      flow from operations. Our ability to maintain profitability and positive cash
      flow is dependent upon our ability to locate profitable natural gas or oil
      properties, generate revenue from our planned business operations, and control
      exploration cost. Should we be unable to raise adequate capital or to meet
      the
      other above objectives, it is likely that we would have to substantially curtail
      our business activity, and that our investors would incur substantial losses
      of
      their investment.





**Financing
      and Restructuring**





On
      February 15, 2007, we entered into a series of transactions to restructure
      securities issued pursuant to securities purchase agreements dated June 17,
      2005
      and September 21, 2005.





*Background*





June
      2005 Financing





On
      June
      17, 2005, we closed a financing pursuant to a securities purchase agreement
      with
      three accredited investors, Palisades Master Fund, L.P. (“Palisades”), Crescent
      International Ltd. (“Crescent”) and JGB Capital L.P. (“JGB”) for the issuance of
      $5,501,199.95 in face amount of debentures maturing September 16, 2008 (the
      “June Debentures”). The June Debentures were unsecured and we were obligated to
      pay 1/24th of the face amount of the debenture on the first of every month,
      starting October 1, 2005, which payment could be made in cash or in shares
      of
      our common stock. We could pay this amortization payment in cash or in stock
      at
      the lower of $0.60 per share or 80% of the volume weighted average price of
      our
      stock for the five trading days prior to the repayment date. In the event that
      we made the payment in cash, we paid 110% of the monthly redemption
      amount.




In
      addition, we issued warrants to the investors, expiring June 17, 2008, to
      purchase 4,584,334 shares of restricted common stock, exercisable at a per
      share
      of $0.649 (the “June Warrants”). In addition, the exercise price of the June
      Warrants would be adjusted in the event we issued common stock at a price below
      the exercise price, with the exception of any securities issued pursuant to
      a
      stock or option plan adopted by our board of directors, issued in connection
      with the debentures issued pursuant to the securities purchase agreement, or
      securities issued in connection with acquisitions or strategic
      transactions.





If
      in any
      period of 20 consecutive trading days our stock price exceeds 250% of the June
      Warrants’ exercise price, all of the June Warrants shall expire on the 30th
      trading day after we send a call notice to the June Warrant holders. If at
      any
      time after one year from the date of issuance of the June Warrants there is
      not
      an effective registration statement registering, or no current prospectus
      available for, the resale of the shares underlying the June Warrants, then
      the
      holder may exercise the June Warrant at such time by means of a cashless
      exercise.




September
      2005 Financing





On
      September 21, 2005, we closed a financing pursuant to a securities purchase
      agreement with two accredited investors, Palisades and Crescent for the issuance
      of $3,108,000 in face amount of debentures maturing December 20, 2008 (the
      “September Debentures” and together with the June Debentures, the “Old
      Debentures”). The September Debentures were unsecured and we were obligated to
      pay 1/24th of the face amount of the debenture on the first of every month,
      starting January 1, 2006, which payment could be made in cash or in shares
      of
      our common stock. We could pay this amortization payment in cash or in stock
      at
      the lower of $0.75 per share or 80% of the volume weighted average price of
      our
      stock for the five trading days prior to the repayment date. In the event that
      we made the payment in cash, we paid 110% of the monthly redemption
      amount.




In
      addition, we issued warrants to the investors, expiring September 21, 2008,
      to
      purchase 2,172,000 shares of restricted common stock, exercisable at a per
      share
      of $0.80 (the “September Warrants” and together with the June Warrants, the “Old
      Warrants”). In addition, the exercise price of the September Warrants would be
      adjusted in the event we issued common stock at a price below the exercise
      price, with the exception of any securities issued pursuant to a stock or option
      plan adopted by our board of directors, issued in connection with the debentures
      issued pursuant to the securities purchase agreement, or securities issued
      in
      connection with acquisitions or strategic transactions.





If
      in any
      period of 20 consecutive trading days our stock price exceeds 250% of the
      September Warrants’ exercise price, all of the September Warrants shall expire
      on the 30th trading day after we send a call notice to the September Warrant
      holders. If at any time after one year from the date of issuance of the
      September Warrants there is not an effective registration statement registering,
      or no current prospectus available for, the resale of the shares underlying
      the
      September Warrants, then the holder may exercise the September Warrant at such
      time by means of a cashless exercise.





19
 Table
            of Contents





*Restructuring*





On
      February 15, 2007, the following transactions took place with regards to the
      Old
      Debentures and Old Warrants:





1)         JGB
      entered into an assignment
      agreement with Crescent, pursuant to which Crescent purchased from JGB the
      June
      Debentures issued to JGB.  The face value of the June Debentures
      issued to JGB at the time of the transaction was $333,333.33 and Crescent paid
      $250,000 to JGB for the assignment;


2)         We
      entered into a settlement agreement
      with JGB for the sum of $83,333.33.  We amended the terms of the Old
      Warrants held by JGB to remove the ratchet and call provisions and JGB agreed
      to
      release any shares reserved for issuance of the Old Warrants and to not exercise
      such Old Warrants until we obtain an increase in the authorized shares of common
      stock.  Upon obtaining the increase in authorized shares, we agreed to
      issue JGB 500,000 shares of restricted common stock;


3)         We
      entered into a first amendment and
      waiver agreement with Palisades for the amendment of the Old Debentures issued
      toPalisades(the “Palisades Amendment Agreement”);
      and


4)         We
      entered into a first amendment and
      waiver agreement with Crescent for the amendment of the Old Debentures issued
      to
      JGB (and purchased by Crescent) and Crescent (the “Crescent Amendment Agreement”
and together with the Palisades Amendment Agreement, the “Restructuring
      Amendments”).





Palisades
      and Crescent agreed to amend the Old Debentures to remove the mandatory monthly
      liquidation provision and to amend the fixed conversion price of the Old
      Debentures to $0.1375 (the “Fixed Conversion Price”).  As a result,
      the principal amount remaining on the Old Debentures is now due and payable
      at
      maturity, unless sooner converted into shares of common stock by the investors,
      at the Fixed Conversion Price.  Palisades and Crescent further agreed
      to waive any and all existing defaults under the Old Debentures.





Pursuant
      to the Palisades Amendment Agreement, we agreed to issue 7,025,789 shares of
      common stock (the “Monthly Redemption Shares”) to Palisades upon conversion of
      $608,433.15 in principal amount of the Old Debentures.  Such Monthly
      Redemption Shares were issued as payment for monthly redemptions owed to
      Palisades on December 1, 2006 and January 1, 2007 and February 1, 2007 pursuant
      to the Old Debentures.  These Monthly Redemption Shares were not
      issued while we negotiated the terms of a potential buy-out or restructuring
      of
      the Old Debentures.  The Monthly Redemption Shares were previously
      registered for resale pursuant to resale registration statements filed with
      the
      Securities and Exchange Commission and represent the remaining shares of common
      stock registered thereunder for Palisades pursuant to the Old
      Debentures.  As a result of the Monthly Redemption Shares, the
      exercise price of the Old Warrants was reduced to $0.0866, which Palisades
      exercised on a cashless basis and received 2,970,758 shares of common stock
      which were previously registered for resale pursuant to resale registration
      statements filed with the Securities and Exchange Commission.





We
      agreed
      to pay Palisades a forbearance fee of $150,000 a month, for six months, which
      fee was paid in shares of common stock at an issuance price of $0.1375, for
      a
      total issuance of 5,454,546 shares of restricted common stock.  In
      addition, we agreed to issue Palisades 1,449,825 shares of common stock as
      a
      commitment fee for the restructuring of the Old Debentures.





In
      connection with the restructuring, we executed a security agreement (the
“Security Agreement”) in favor of Palisades and JGB granting them a first
      priority security interest in all of our goods, inventory, contractual rights
      and general intangibles, receivables, documents, instruments, chattel paper,
      and
      intellectual property, except for our Carbon County prospect, which Palisades
      and JGB took a second priority interest and for our Carter Creek and Weston
      County prospects, which the investors were not granted any security
      interest.  The Security Agreements state that if an event of default
      occurs under the Old Debentures or Security Agreement, the Investors have the
      right to take possession of the collateral, to operate our business using the
      collateral, and have the right to assign, sell, lease or otherwise dispose
      of
      and deliver all or any part of the collateral, at public or private sale or
      otherwise to satisfy our obligations under these agreements.





*New
      Financing*





On
      February 15, 2007, we closed a financing pursuant to a securities purchase
      agreement with Palisades for the issuance of a $714,500 face amount debenture
      maturing September 15, 2007 (the “New Debenture”). The New Debenture does not
      accrue interest and the investors paid $500,000 for the New Debenture. We paid
      a
      commission of $100,000 to HPC Capital Management (a registered broker-dealer)
      in
      connection with the transaction, resulting in net proceeds to us of $400,000
      before our legal fees. We used the net proceeds to pay our settlement agreement
      payment to JGB, repayment of a bridge loan to Petro Capital Securities, LLC
      and
      the remainder for general working capital purposes.  We also issued
      HPC Capital Management 6,458,063 shares of restricted common stock and agreed
      to
      issue an additional 1,041,937 shares of restricted common stock upon obtaining
      an increase in our authorized shares of common stock, which shares are
      additional compensation for its services in connection with the transaction
      with
      the investors.





The
      convertible debentures are secured and are convertible into our common stock,
      at
      Palisades option, at a fixed conversion price of $0.1375. Based on this
      conversion price, the $714,500 secured convertible debenture is convertible
      into
      5,196,364 shares of our common stock.





20
 Table
            of Contents








In
      the
      event of default, the investors may require payment, which shall be the greater
      of: (A) 130% of the principal amount of the face amount of the debenture to
      be
      prepaid, or (B) the principal amount of the debenture to be prepaid, divided
      by
      the conversion price on (x) the date the default amount is demanded or otherwise
      due or (y) the date the default amount is paid in full, whichever is less,
      multiplied by the closing price on (x) the date the default amount is demanded
      or otherwise due or (y) the date the default amount is paid in full, whichever
      is greater





The
      conversion price of the debenture may be adjusted in certain circumstances
      such
      as if we pay a stock dividend, subdivide or combine outstanding shares of common
      stock into a greater or lesser number of shares, or take such other actions
      as
      would otherwise result in dilution of the investor’s position.





We
      have
      agreed to file a registration statement with the Securities and Exchange
      Commission to cover the future sale by the investors of the shares issuable
      upon
      conversion of the Old and New Debentures. If the registration statement is
      not
      filed by the filing deadline or if the registration statement is not declared
      effective by the effective deadline, we are required to pay liquidated damages
      to the investors.




***Cash
      flow*****.** In 2006, we used approximately $2,700,000
      in our operating activities. We used $600,000 in investing activity primarily
      for equipment, property and option acquisitions, and obtained $3,134,000 in
      financing activity from capital obtained through financings and loans. We
      decreased our 2005 cash balance of approximately $348,000 to $180,000 at
      December 31, 2006.




**Results
      of Operations**





***Revenues.***
      For the year ended December 31, 2006, we had revenues of $424,000 compared
      to no
      revenue in 2005, other than revenue in the fourth quarter 2005 from the Carbon
      County project applied as a credit towards the purchase price of the project,
      which closed in March of 2006.




***Operating
      Expenses.***  Operating expenses for 2006 were
      approximately $5,834,000 as compared to $4,558,000 for 2005, or an increase
      of
      approximately 28%.  This increase is primarily related to the
      following increases:





In
      2006, our exploration and production expenses were $1,027,000, which included
      $463,000 of lease operating expenses and $564,000 of exploration related
      expenses.




Our
      2006
      general and administrative expense was approximately $2,365,000, which included
      $371,000 in legal fees, $713,000 in stock issuance expense including ratchet
      down rights, $453,000 of business advisory, consulting, financial and investor
      services including accounting fees, $547,000 of employee compensation, and
      $280,000 in insurance expense, travel expense, depreciation expense, and other
      office related expenses.




Also
      during the year ended December 31, 2006, we recorded charges of approximately
      $3,289,000 related to the relinquishment of the Kirby and Castle Rock, Platte,
      Badger, Overthrust, and the Johns Valley project options, as well as other
      options for cash deposits previously made on certain other
      properties.




***Interest
      Expense.***Our 2006 interest expense was approximately $2,722,000,
      up by $1,739,000 from 2005 of $982,000 due to additional convertible debenture
      related interest, issuance cost, and discount expense.




**Critical
      Accounting Policies**





*Investment
      in Oil and Gas Properties*





We
      follow
      the successful-efforts method of accounting for oil and gas property as defined
      under Statement of Financial Accounting Standards No. 19, Financial Accounting
      and Reporting by Oil and Gas Producing Companies (“FAS 19”). Under this method
      of accounting, we capitalize all property acquisition cost and cost of
      exploratory and development wells when incurred, pending determination of
      whether the well has found proved reserves. If an exploratory well does not
      find
      proved reserves, we charge to expense the cost of drilling the well. We include
      exploratory dry hole cost in cash flow from investing activities within the
      cash
      flow statement. We capitalize the cost of development wells whether productive
      or nonproductive. We had no exploratory well cost that had been suspended for
      one year or more as of December 31, 2006.





We
      expense as incurred geological and geophysical cost and the cost of carrying
      and
      retaining unproved property. We will provide depletion, depreciation and
      amortization (DD&A) of capitalized cost of proved oil and gas property on a
      field-by-field basis using the units-of-production method based upon proved
      reserves. In computing DD&A we will take into consideration restoration,
      dismantlement and abandonment cost and the anticipated proceeds from equipment
      salvage. When applicable, we will apply
      the
      provisions of Statement of Financial Accounting Standards No. 143, Accounting
      for Asset Retirement Obligations, which provides guidance on accounting for
      dismantlement and abandonment cost.





We
      review
      our long-lived assets for impairment when events or changes in circumstances
      indicate that an impairment may have occurred. In the impairment test we compare
      the expected undiscounted future net revenue on a field-by-field basis with
      the
      related net capitalized cost at the end of each period. We will calculate
      expected future cash flow on all proved reserves using a 10% discount rate
      and
      escalated prices. Should the net capitalized cost exceed the undiscounted future
      net revenue of a property, we will write down the cost of the property to fair
      value, which we will determine using discounted future net revenue. We will
      provide an impairment allowance on a property-by-property basis when we
      determine that the unproved property will not be developed.





*****Revenue
      Recognition*





We
      record
      revenues from the sales of natural gas and oil when delivery to the customer
      has
      occurred and title has transferred.  This occurs when oil or gas has
      been delivered to a pipeline or a tank lifting has occurred. We may have a
      gas
      marketer on certain properties, in which case we use the sales method to account
      for gas imbalances.  Under this method, revenue is recorded on the
      basis of natural gas actually sold by the Company.








21
 Table
            of Contents








**ITEM
      7.  FINANCIAL STATEMENTS.**





FELLOWS
      ENERGY LTD.





INDEX
      TO
      FINANCIAL STATEMENTS





PageReport
                of Independent Registered Public Accounting Firm
            
            23Balance
                Sheets
            
            24Statements
                of Operations
            
            25Statements
                of Changes in Stockholders' Equity
            
            26Statements
                of Cash Flows
            
            27Notes
                to Financial Statements
            
            28








22
 Table
            of Contents








Report
      of Independent Registered Public Accounting Firm




To
      the
      Board of Directors and Stockholders of


Fellows
      Energy Ltd.




We
      have
      audited the accompanying balance sheets of Fellows Energy Ltd., as of December
      31, 2006 and 2005, and the related statements of operations, changes in
      stockholders’ equity, and cash flows for the years then ended. These financial
      statements are the responsibility of the Company’s management. Our
      responsibility is to express an opinion on these financial statements based
      on
      our audits.




We
      conducted our audits in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). Those standards require that we
      plan
      and perform the audits to obtain reasonable assurance about whether the
      financial statements are free of material misstatement. The Company is not
      required to have, nor were we engaged to perform, an audit of its internal
      control over financial reporting. Our audits included consideration of internal
      control over financial reporting as a basis for designing audit procedures
      that
      are appropriate in the circumstances, but not for the purpose of expressing
      an
      opinion on the effectiveness of the Company’s internal control over financial
      reporting. Accordingly, we express no such opinion. 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 audits provide
      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 Fellows Energy Ltd. as of December
      31, 2006 and 2005, and the results of its operations and its cash flows for
      the
      years then ended in conformity with accounting principles generally accepted
      in
      the United States of America.




The
      accompanying financial statements have been prepared assuming that the Company
      will continue as a going concern. As discussed in Note 3 to the financial
      statements, the Company has significant 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 described in Note 3. The financial
      statements do not include any adjustments that might result from the outcome
      of
      this uncertainty.







/s/
      Mendoza Berger & Company


Mendoza
      Berger & Company


Irvine,
      California


April
      17,
      2007







23
 Table
            of Contents





**Fellows
      Energy Ltd.**


**Balance
      Sheets**




**Year
                Ended**
            
            
            **Year
                Ended****Dec.
                31, 2006**
            
            
            **Dec.
                31, 2005**AssetsCash
                  and Cash Equivalents
            
            $
            179,926
            
            
            $
            347,558Marketable
                securities, available-for-sale
            
            
            —
            
            
            
            405,556Interest
                  Receivable
            
            
            2,568
            
            
            
            179Accounts
                Receivable
            
            
            80,258Note
                  Receivable
            
            
            233,634
            
            
            
            99,879Total
                current assets
            
            
            496,386
            
            
            
            853,172Proved
                and unproved oil & gas property
            
            
            7,468,809
            
            
            
            9,575,813Equipment,
                net of $118,651 and $18,418 accumulated depreciation
                respectively
            
            
            1,509,932
            
            
            
            287,836Deposits
            
            
            —
            
            
            
            716,000Restricted
                cash
            
            
            160,000
            
            
            
            235,000Deferred
                  debt issue costs
            
            
            228,758
            
            
            
            533,769Total
                  assets
            
            $
            9,863,885
            
            
            $
            12,201,590Liabilities
                  And Stockholders’ EquityAccounts
                payable
            
            $
            359,662
            
            
            $
            188,003Joint
                  venture partner interest payable
            
            
            99,167
            
            
            
            —Taxes
                payable
            
            
            9,433
            
            
            
            —Interest
                  payable current portion
            
            
            205,700
            
            
            
            125,700Notes
                payable current portion
            
            
            1,583,111
            
            
            
            —Convertible
                  debenture current portion
            
            
            1,608,433
            
            
            
            3,879,441Total
                  current liabilities
            
            
            3,865,506
            
            
            
            4,193,144Interest
                  payable – net of current portion
            
            
            154,819
            
            
            
            —Notes
                payable – related party
            
            
            1,733,000
            
            
            
            12,000Notes
                  payable – net of current portion
            
            
            428,000
            
            
            
            —Convertible
                debenture – net of current portion
            
            
            1,385,505
            
            
            
            1,184,407Stockholders’
                equityPreferred
                  stock, $.001 par value; 25,000,000 shares authorized; none
                  outstanding
            
            
            —
            
            
            
            —Common
                stock, $.001 par value; 100,000,000 shares authorized; 73,447,619
                and
                52,545,329 shares issued and outstanding
            
            
            73,447
            
            
            
            52,545Additional
                  paid-in capital
            
            
            19,963,497
            
            
            
            15,973,152Stock
                issuance obligation
            
            
            61,055
            
            
            
            —Stock
                  pledged as collateral
            
            
            (1,665,000
            )
            
            
            (1,665,000
            )Accumulated
                deficit
            
            
            (16,135,944
            )
            
            
            (7,548,658
            )Total
                stockholders’ equity
            
            
            2,297,055
            
            
            
            6,812,039Total
                liabilities and stockholders’ equity
            
            $
            9,863,885
            
            
            $
            12,201,590








See
      accompanying notes.





24
 Table
            of Contents





**Fellows
      Energy Ltd.**


**Statements
      of Operations**





**Years
                Ended****December
                31,****2006**
            
            
            **2005**Revenue
            
            $
            423,761
            
            
            $
            —Operating
                  expensesExploration
                and Production
            
            
            1,027,459
            
            
            
            1,141,202Relinquishment
                  of property options
            
            
            3,289,387
            
            
            
            1,143,882General
                and administrative
            
            
            2,365,137
            
            
            
            2,273,022Operating
                loss
            
            
            (6,258,221
            )
            
            
            (4,558,106
            )Other
                income (expense)Interest
                  expense, net
            
            
            (2,721,506
            )
            
            
            (982,031
            )Gain
                on sale of unproved property
            
            
            —
            
            
            
            1,550,797Gain
                  on extinguishment of debt
            
            
            —
            
            
            
            383,531Project
                revenue applied as credit to purchase
            
            
            246,939
            
            
            
            —Note
                  receivable default penalty
            
            
            80,000
            
            
            
            —Re-sale
                of pipe
            
            
            34,644
            
            
            
            —Insurance
                  rebates and project purchase credit
            
            
            19,993
            
            
            
            —Miscellaneous
            
            
            7,304
            
            
            
            14,132Total other income (expense)
            
            
            (2,332,626
            )
            
            
            966,429Loss
                  before income tax
            
            
            (8,590,847
            )
            
            
            (3,591,677
            )Income
                  tax expense
            
            
            —
            
            
            
            —Deferred
                tax benefit
            
            
            —
            
            
            
            —Net
                loss
            
            $
            (8,590,847
            )
            
            $
            (3,591,677
            )Other
                comprehensive income (loss)Unrealized
                  holding gains on marketable securities
            
            
            3,561
            
            
            
            516Comprehensive
                  loss
            
            $
            (8,587,286
            )
            
            $
            (3,591,161
            )Basic
                  and diluted loss per share
            
            $
            (0.14
            )
            
            $
            (0.08
            )Basic
                and diluted weighted average shares outstanding
            
            
            61,726,047
            
            
            
            47,599,638








See
      accompanying notes.








25
 Table
            of Contents





**Fellows
      Energy Ltd.**


**Statements
      of Changes in Stockholders’ Equity**


**December
      31, 2006**




**Additional**
                          
                          
                          **Stock****Common
                              Stock**
                          
                          
                          **Paid-In**
                          
                          
                          **Obligation/**
                          
                          
                          **Accumulated****Shares**
                          
                          
                          **Amount**
                          
                          
                          **Capital**
                          
                          
                          **Pledged**
                          
                          
                          **Deficit**
                          
                          
                          **Total**Balance,
                                December 31, 2004
                          
                          
                          41,743,150
                          
                          
                          $
                          41,743
                          
                          
                          $
                          9,556,702
                          
                          
                          $
                          362,500
                          
                          
                          $
                          (3,957,497
                          )
                          
                          $
                          6,003,448Issue
                                200,000 shares for drilling purchase agreement
                          
                          
                          200,000
                          
                          
                          
                          200
                          
                          
                          
                          193,800
                          
                          
                          
                          (194,000
                          )
                          
                          
                          —
                          
                          
                          
                          —Issue
                              550,000 shares to business advisors
                          
                          
                          550,000
                          
                          
                          
                          550
                          
                          
                          
                          432,450
                          
                          
                          
                          (168,500
                          )
                          
                          
                          —
                          
                          
                          
                          264,500Issue
                                1,000,000 shares for oil and gas interests
                          
                          
                          1,000,000
                          
                          
                          
                          1,000
                          
                          
                          
                          599,000
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          600,000Issue
                              2,449,265 shares for conversion of note
                          
                          
                          2,449,265
                          
                          
                          
                          2,449
                          
                          
                          
                          392,262
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          394,711Issue
                                1,936,391 shares under private placement
                          
                          
                          1,936,391
                          
                          
                          
                          1,936
                          
                          
                          
                          1,061,714
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          1,063,650Warrant
                              valuation under convertible debentures
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          1,099,673
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          1,099,673Issue
                                200,000 shares to financial advisors
                          
                          
                          200,000
                          
                          
                          
                          200
                          
                          
                          
                          117,800
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          118,000Issue
                              1,000,000 shares converted under convertible debentures
                          
                          
                          1,000,000
                          
                          
                          
                          1,000
                          
                          
                          
                          599,000
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          600,000Issue
                                50,000 shares as fee under convertible debenture
                          
                          
                          50,000
                          
                          
                          
                          50
                          
                          
                          
                          29,950
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          30,000Issue
                              2,652,632 shares held as collateral in escrow
                          
                          
                          2,652,632
                          
                          
                          
                          2,653
                          
                          
                          
                          1,662,348
                          
                          
                          
                          (1,665,000
                          )
                          
                          
                          —
                          
                          
                          
                          —Issue
                                763,891 shares as redemption under convertible
                                debenture
                          
                          
                          763,891
                          
                          
                          
                          764
                          
                          
                          
                          228,453
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          229,218Comprehensive
                              loss
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (3,591,161
                          )
                          
                          
                          (3,591,161
                          )Balance,
                              December 31, 2005
                          
                          
                          52,545,329
                          
                          
                          
                          52,545
                          
                          
                          
                          15,973,152
                          
                          
                          
                          (1,665,000
                          )
                          
                          
                          (7,548,658
                          )
                          
                          
                          6,812,039Issue
                              617,433 shares for debenture redemption
                          
                          
                          617,433
                          
                          
                          
                          617
                          
                          
                          
                          228,599
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          229,216Issue
                                1,341,500 shares for debenture redemption
                          
                          
                          1,341,500
                          
                          
                          
                          1,342
                          
                          
                          
                          357,375
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          358,717Issue
                              554,697 shares for debenture redemption
                          
                          
                          554,697
                          
                          
                          
                          555
                          
                          
                          
                          151,743
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          152,298Issue
                                751,818 shares for debenture redemption
                          
                          
                          751,818
                          
                          
                          
                          752
                          
                          
                          
                          205,667
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          206,419Issue
                              1,425,192 shares for debenture redemption
                          
                          
                          1,425,192
                          
                          
                          
                          1,425
                          
                          
                          
                          357,292
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          358,717Issue
                                700,000 shares under drilling agreement
                          
                          
                          700,000
                          
                          
                          
                          700
                          
                          
                          
                          195,300
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          196,000Issue
                              861,921 shares pursuant to ratchet down rights
                          
                          
                          861,921
                          
                          
                          
                          862
                          
                          
                          
                          216,084
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          216,946Issue
                                790,000 pursuant to financing agreement
                          
                          
                          790,000
                          
                          
                          
                          790
                          
                          
                          
                          252,010
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          252,800Issue
                              1,737,976 shares for debenture redemption
                          
                          
                          1,737,976
                          
                          
                          
                          1,738
                          
                          
                          
                          356,979
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          358,717Issue
                                48,980 shares pursuant to financing agreement
                          
                          
                          48,980
                          
                          
                          
                          49
                          
                          
                          
                          11,973
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          12,022Issue
                              118,057 shares for debenture redemption
                          
                          
                          118,057
                          
                          
                          
                          118
                          
                          
                          
                          32,223
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          32,341Obligation
                                to issue 50,000 shares pursuant to financing
                                agreement
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          22,500
                          
                          
                          
                          —
                          
                          
                          
                          22,500Obligation
                              to issue 250,000 shares to business advisors
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          61,055
                          
                          
                          
                          —
                          
                          
                          
                          61,055Issue
                                137,257 for debenture redemption
                          
                          
                          137,257
                          
                          
                          
                          137
                          
                          
                          
                          39,063
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          39,200Issue
                              50,000 shares pursuant to financing agreement
                          
                          
                          50,000
                          
                          
                          
                          50
                          
                          
                          
                          22,450
                          
                          
                          
                          (22,500
                          )
                          
                          
                          —
                          
                          
                          
                          —Issue
                                1,898,013 shares for debenture redemption
                          
                          
                          1,898,013
                          
                          
                          
                          1,898
                          
                          
                          
                          356,819
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          358,717Issue
                              250,000 shares pursuant to financing agreement
                          
                          
                          250,000
                          
                          
                          
                          250
                          
                          
                          
                          62,250
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          62,500Issue
                                2,586,369 shares for debenture redemption
                          
                          
                          2,586,369
                          
                          
                          
                          2,586
                          
                          
                          
                          356,130
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          358,716Issue
                              118,057 shares for debenture redemption
                          
                          
                          118,057
                          
                          
                          
                          118
                          
                          
                          
                          14,108
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          14,226Issue
                                487,070 shares for debenture redemption
                          
                          
                          487,070
                          
                          
                          
                          487
                          
                          
                          
                          58,204
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          58,691Issue
                              800,000 shares to business advisors
                          
                          
                          800,000
                          
                          
                          
                          800
                          
                          
                          
                          107,200
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          108,000Issue
                                3,130,267 shares for debenture redemption
                          
                          
                          3,130,267
                          
                          
                          
                          3,130
                          
                          
                          
                          355,587
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          358,717Issue
                              1,083,607 shares pursuant to ratchet down rights
                          
                          
                          1,083,607
                          
                          
                          
                          1,084
                          
                          
                          
                          149,213
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          150,297Issue
                                1,414,076 shares for debenture redemption
                          
                          
                          1,414,076
                          
                          
                          
                          1,414
                          
                          
                          
                          104,076
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          105,490Comprehensive
                              loss
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          —
                          
                          
                          
                          (8,587,286
                          )
                          
                          
                          (8,587,286
                          )Balance,
                              December 31, 2006
                          
                          
                          73,447,619
                          
                          
                          
                          73,447
                          
                          
                          
                          19,963,497
                          
                          
                          
                          (1,603,945
                          )
                          
                          
                          (16,135,944
                          )
                          
                          
                          2,297,055





See
      accompanying notes.








26
 Table
            of Contents





**Fellows
      Energy Ltd.**


**Statements
      of Cash Flows**





**Years
                Ended****December
                31,****2006**
            
            
            **2005**Cash
                flow from operating activities:Net
                  loss
            
            $
            (8,590,847
            )
            
            $
            (3,591,677
            )Adjustments
                  to reconcile net income to net cash used in operating
                  activities:Gain
                on sale of marketable securities
            
            
            50,530
            
            
            
            7,989Gain
                  on sale of unproved property
            
            
            —
            
            
            
            (1,550,797
            )Gain
                from extinguishment of debt
            
            
            —
            
            
            
            (383,531
            )Relinquishment
                  of property option
            
            
            3,289,387
            
            
            
            1,143,882Debt
                issue costs and discount amortization
            
            
            1,740,462
            
            
            
            819,622Depreciation
            
            
            100,233
            
            
            
            13,391Expenses
                paid with stock issuance
            
            
            653,821
            
            
            
            294,500Expenses
                  paid with stock issuance obligation
            
            
            61,055
            
            
            
            —Interest
                paid with stock issuance
            
            
            —
            
            
            
            44,711Changes
                  in operating assets and liabilities:Receivables
            
            
            (216,402
            )
            
            
            (100,058
            )Prepaid
                  expense
            
            
            —
            
            
            
            (15,000
            )Deferred
                debt issue costs
            
            
            (305,011
            )
            
            
            (533,769
            )Joint
                  venture partner interest payable
            
            
            99,167
            
            
            
            —Interest
                payable
            
            
            234,819
            
            
            
            —Accounts
                  payable
            
            
            181,092
            
            
            
            (120,708
            )Net
                cash provided by (used in) operating activities
            
            $
            (2,701,694
            )
            
            $
            (3,971,445
            )Cash
                flow from investing activities:Purchase
                  and sale of marketable securities
            
            
            355,026
            
            
            
            (413,545
            )Deposits
                on unproved oil and gas property
            
            
            716,000
            
            
            
            (716,000
            )Proceeds
                  on sale of oil and gas property
            
            
            —
            
            
            
            2,038,206Unproved
                oil and gas property additions
            
            
            (405,364
            )
            
            
            (2,163,456
            )Restricted
                  Cash
            
            
            75,000
            
            
            
            (100,000
            )Purchase
                of equipment
            
            
            (1,340,747
            )
            
            
            (284,664
            )Net
                  cash provided by (used in) investing activities
            
            $
            (600,085
            )
            
            $
            (1,639,459
            )Cash
                  flow from financing activities:Proceeds
                from issuance of convertible debenture
            
            
            —
            
            
            
            6,024,633Payments
                  on convertible debenture
            
            
            (857,400
            )
            
            
            —Proceeds
                from issuance of common stock
            
            
            —
            
            
            
            945,650Proceeds
                  from notes payable
            
            
            4,449,962
            
            
            
            171,000Payments
                on notes payable
            
            
            (458,416
            )
            
            
            (1,331,848
            )Net
                  cash provided by financing activities:
            
            
            3,134,146
            
            
            
            5,809,435Net
                  increase in cash and equivalents
            
            
            (167,632
            )
            
            
            198,531Cash
                and equivalents at beginning of period
            
            
            347,558
            
            
            
            149,027Cash
                and equivalents at end of period
            
            $
            179,926
            
            
            $
            347,558Supplemental
                Disclosure of Cash Flow and Non-cash Investing and Financing
                Activity:Income
                  tax paid
            
            $
            —
            
            
            $
            —Interest
                paid
            
            $
            —
            
            
            $
            81,750Non
                  cash:Conversion
                of $350,000 convertible note into common stock
            
            $
            —
            
            
            $
            394,711Acquisition
                  of oil & gas interest in exchange for common stock (as
                  restated)
            
            $
            —
            
            
            $
            600,000Contribution
                of oil & gas interest in exchange for stock issuance
            
            $
            196,000
            
            
            $
            —Convertible
                  debenture paid with stock
            
            $
            2,950,982
            
            
            $
            829,218Legal
                and advisory services in exchange for stock issuance
                obligation
            
            $
            61,055
            
            
            $
            —Fees
                  paid with stock
            
            $
            85,000
            
            
            $
            309,211


See
      accompanying notes.





27
 Table
              of Contents
 Fellows
              Energy Ltd. Notes
                to Financial Statements
 December
                31, 2006 and 2005





**Note
      1 - Nature of Operations and Significant Accounting
      Policies**




Nature
      of
      Operations - Fellows Energy Ltd. is engaged in the exploration, extraction,
      processing and reclamation of coalbed methane, natural gas, and oil projects
      within the Western United States. We incorporated in the state of Nevada on
      April 9, 2001 as Fuel Centers, Inc. On November 12, 2003, we changed our name
      to
      Fellows Energy Ltd. Our principal offices are in Boulder, Colorado.




Cash
      Equivalents - We consider all highly liquid debt instruments purchased with
      maturity of three months or less to be cash equivalents. At December 31, 2006
      and 2005, we had approximately $180,000 and $348,000 in cash equivalents
      respectively.




Fair
      Value of Financial Instruments - The carrying amount of our financial
      instruments, which includes cash and accounts payable, approximate their fair
      value due to the short period to maturity of these instruments.




Restricted
      Cash - Restricted cash is cash balances held in the form of bank certificates
      of
      deposit, and with the state of Utah as a reclamation bond. At December 31,
      2006
      and 2005, $160,000 and $235,000 respectively, of restricted cash was on deposit
      with custodians to secure reclamation of oil and gas property.




Revenue
      Recognition - we record revenue when title passes, delivery occurs to our
      customers and the customer assumes the risks and rewards of ownership, when
      the
      price is fixed and determinable, and when collectibility is reasonably
      assured.




Income
      Tax - We recognize deferred tax assets and liabilities based on differences
      between the financial reporting and tax bases of assets and liabilities using
      the enacted tax rates and laws that are expected to be in effect when the
      differences are expected to be recovered. We provide a valuation allowance
      for
      deferred tax assets when we consider realization of such assets to be less
      likely than not.




Net
      Loss
      per Common Share - We have adopted Statement of Financial Accounting Standards
      No. 128, Earnings Per Share. Statement 128 requires the reporting of basic
      and
      diluted earnings/loss per share. We calculate basic loss per share by dividing
      net loss by the weighted average number of outstanding common shares during
      the
      period.  We calculate diluted loss per share by dividing net loss by
      the weighted average number of outstanding common shares including all
      potentially dilutive securities during the period.





Comprehensive
      Loss - We apply Statement of Financial Accounting Standards No. 130, Reporting
      Comprehensive Income. Statement 130 establishes standards for the reporting
      and
      display of comprehensive income or loss, requiring its components to be reported
      in a financial statement. For the years ended December 31, 2006 and 2005, our
      comprehensive loss was comprised of our net loss and any unrealized holding
      gain
      on our marketable securities as reported in our statements of
      operations.




Use
      of
      Estimates - Accounting principles generally accepted in the United States
      require us 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 revenue and
      expense during the reporting period. Actual results could differ from those
      estimates.




Concentration
      of Credit Risk - Financial instruments that potentially subject us to
      concentration of credit risk consist of cash. At December 31, 2006, we had
      $79,926 in cash in excess of federally insured limits.




Oil
      and
      Gas Activity - We follow the successful-efforts method of accounting for oil
      and
      gas property as defined under Statement of Financial Accounting Standards No.
      19, Financial Accounting and Reporting by Oil and Gas Producing Companies (“FAS
      19”). Under this method of accounting, we capitalize all property acquisition
      cost and cost of exploratory and development wells when incurred, pending
      determination of whether the well has found proved reserves. If an exploratory
      well does not find proved reserves, we charge to expense the cost of drilling
      the well. We include exploratory dry hole cost in cash flow from investing
      activities within the cash flow statement. We capitalize the cost of development
      wells whether productive or nonproductive. We had no exploratory well cost
      that
      had been suspended for one year or more as of December 31, 2006.







28
 Table
              of Contents
 Fellows
              Energy Ltd. Notes
                to Financial Statements
 December
                31, 2006 and 2005








We
      expense as incurred geological and geophysical cost and the cost of carrying
      and
      retaining unproved property. We will provide depletion, depreciation and
      amortization (DD&A) of capitalized cost of proved oil and gas property on a
      field-by-field basis using the units-of-production method based upon proved
      reserves. In computing DD&A we will take into consideration restoration,
      dismantlement and abandonment cost and the anticipated proceeds from equipment
      salvage. When applicable, we will apply the provisions of Statement of Financial
      Accounting Standards No. 143, Accounting for Asset Retirement Obligations,
      which
      provides guidance on accounting for dismantlement and abandonment
      cost.





We
      review
      our long-lived assets for impairment when events or changes in circumstances
      indicate that an impairment may have occurred. In the impairment test we compare
      the expected undiscounted future net revenue on a field-by-field basis with
      the
      related net capitalized cost at the end of each period. We will calculate
      expected future cash flow on all proved reserves using a 10% discount rate
      and
      escalated prices. Should the net capitalized cost exceed the undiscounted future
      net revenue of a property, we will write down the cost of the property to fair
      value, which we will determine using discounted future net revenue. We will
      provide an impairment allowance on a property-by-property basis when we
      determine that the unproved property will not be developed.





Impairment
      of Unproved (Non-Producing) Properties





Unproved
      properties are assessed periodically, and at least annually, to determine
      whether or not they have been impaired. We provide an impairment allowance
      on
      unproved property at any time we determine that a property will not be
      developed. At December 31, 2006, we still consider our acquired properties
      to be
      economically and operationally viable, in accordance with FAS
      19.   In determining that there was no impairment of the unproved
      properties, we considered such factors our commitment of project personnel
      and
      cost being incurred to develop as well as the existence of our active agreements
      with our venture partners and others. In addition, the Company had no unproved
      properties that were surrendered or abandoned during the year ended December
      31,
      2006 as a result of impairment.




Sales
      of
      Producing and Nonproducing Property - We account for the sale of a partial
      interest in a proved property as normal retirement. We recognize no gain or
      loss
      as long as this treatment does not significantly affect the unit-of-production
      depletion rate. We recognize a gain or loss for all other sales of producing
      properties and include the gain or loss in the results of
      operations.





We
      account for the sale of a partial interest in an unproved property as a recovery
      of cost when substantial uncertainty exists as to recovery of the cost
      applicable to the interest retained. We recognize a gain on the sale to the
      extent that the sales price exceeds the carrying amount of the unproved
      property. We recognize a gain or loss for all other sales of non-producing
      properties and include the gain or loss in the results of
      operations.




Stock
      Options - On October 9, 2003, we adopted an incentive stock option plan,
      pursuant to which shares of our common stock are reserved for issuance to
      satisfy the exercise of options. The purpose of the incentive stock option
      plan
      is to attract and retain qualified and competent officers, employees and
      directors. The plan authorizes up to 2,000,000 shares of authorized common
      stock
      to be purchased pursuant to the exercise of options. Our stockholders approved
      the plan on November 10, 2003. On September 15, 2004, we granted an option
      for
      200,000 shares to our CEO, 150,000 shares to our vice president and 125,000
      shares to an employee. These options are exercisable at $0.80 per share, the
      price of our stock on the grant date. The options vested 50% on the grant date
      and vest 50% on September 15, 2005. On October 3, 2005, we granted an option
      for
      100,000 shares to our CEO, 150,000 to our Vice President and 175,000 and 200,000
      shares to two employees respectively. The options vest 6 months from the date
      of
      grant.  On November 1, 2006, we granted an option for 300,000 shares
      to our Vice President of Business Development.  The options vest 6
      months from the date of grant.




We
      account for stock options to employees in accordance with Accounting Principles
      Board Opinion No. 25 (APB 25), Accounting for Stock Issued to Employees, and
      related interpretations. Pursuant to APB No. 25, we record no compensation
      expense to employees on the date of grant because in issuing the grants we
      set
      the exercise price of the underlying stock at or above the market value of
      the
      stock on the date of the grant. Stock options granted to consultants are
      accounted for under the fair value method, in accordance with Statement of
      Financial Accounting Standards No. 123, Accounting for Stock-Based
      Compensation.




Statement
      123 and Statement 148, Accounting for Stock-Based Compensation Transition and
      Disclosure, require disclosure of pro forma information regarding net income
      and
      earnings per share. The Statements require that the information be determined
      as
      if we had accounted for employee stock options under the fair value method
      of
      the statements. We estimate the fair value of the options we grant at the date
      of grant using a Black-Scholes option pricing model with the following
      weighted-average assumptions for the year ended December 31, 2006: a risk-free
      interest rate of 4.37%; no expected dividend; a volatility factor of 97.5%;
      and
      a maturity date of ten years.







29
 Table
              of Contents
 Fellows
              Energy Ltd. Notes
                to Financial Statements
 December
                31, 2006 and
                2005








For
      purposes of pro forma disclosures, we amortize to expense the estimated fair
      value of the options over the options’ vesting period. Our pro forma information
      for 2006 is as follows:





**Year
                Ended**
              **December 31, 2006**Net
                  loss
            
            $
            (8,590,847
            )Deduct:
                Total stock-based employee compensation expense determined under
                fair
                value based method for all awards
            
            
            (191,497
            )Pro
                forma net loss
            
            $
            (8,782,344
            )Loss
                per share—as reported
            
            $
            (0.11
            )Loss
                per share—pro forma
            
            $
            (0.11
            )




The
      Black-Scholes option-pricing model was developed for use in estimating the
      fair
      value of traded options that have no vesting restrictions, are fully
      transferable, and are not subject to trading restrictions or blackout periods.
      In addition, option valuation models require the input of highly subjective
      assumptions, including the expected stock price volatility. Because our employee
      stock options have characteristics significantly different from those of traded
      options, and because changes in the subjective input assumptions can materially
      affect the fair value estimate, it is our opinion that the existing models
      do
      not necessarily provide a reliable single measure of the fair value of our
      employee stock options.




We
      have
      not adopted any of the early transition methods provided for in Statement No.
      148. In December 2004 the Financial Accounting Standards Board issued Statement
      No. 123 (Revised 2004), Share-Based Payment. This statement requires companies
      to recognize the fair value of stock options and other stock-based compensation
      as expense for reporting periods beginning in July 2005. For awards issued
      prior
      to the effective date, the standard requires companies to utilize prior
      valuation models of fair value and recognize as expense the remaining unvested
      portion of the awards over the remaining vesting periods. The adoption of this
      statement is not expected to have a material impact on the Company’s operating
      results, financial position or cash flow.







**Note
      2 – Asset Retirement Obligation - Significant Accounting Policies,
      continued**






The
      Company follows Statement of Financial Accounting Standards (“SFAS”) No. 143,
*“Accounting for Asset Retirement Obligations”*, which requires that the
      fair value of a liability for an asset retirement obligation 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 long-lived asset.  The increase in carrying value of
      a property associated with the capitalization of an asset retirement cost is
      included in proved oil and gas properties in the consolidated balance
      sheets.  The Company depletes the amount added to proved oil and gas
      property costs.  The future cash outflows for oil and gas properties
      associated with settling the asset retirement obligations that have been accrued
      in the accompanying balance sheets are excluded from the ceiling test
      calculations.  The Company’s asset retirement obligation consists of costs
      related to the plugging of wells and removal of facilities and equipment on
      its
      oil and gas properties.  The asset retirement liability is allocated to
      operating expenses using a systematic and rational method. At December 31,
      2006,
      the asset retirement obligation and accretion expense were not booked because
      these amounts were not considered to be material.







**Note
      3 - Going Concern**




As
      shown
      in the accompanying financial statements, we have incurred significant operating
      losses since inception and previously incurred a loss on our discontinued
      automotive fuel business. As of December 31, 2006, we have limited financial
      resources until such time that we are able to generate positive cash flow from
      operations. These factors raise substantial doubt about our ability to continue
      as a going concern. Our ability to achieve and maintain profitability and
      positive cash flow is dependent upon our ability to locate profitable mineral
      properties, generate revenue from our planned business operations, and control
      exploration cost. Management plans to fund its future operation by joint
      venturing, obtaining additional financing, and attaining additional commercial
      production. However, there is no assurance that we will be able to obtain
      additional financing from investors or private lenders, or that additional
      commercial production can be attained.  Although management believes
      that production from the Carbon County and Creston projects will generate
      revenues sufficient to sustain the Company, no assurance can be given that
      such
      revenues will be generated from the projects.





30
 Table
              of Contents
 Fellows
              Energy Ltd. Notes
                to Financial Statements
 December
                31, 2006 and 2005




**Note
      4 – Note Receivable**





In
      August
      and September 2005 as part of our earn-in arrangement, we agreed to advance
      Mountain Oil and Gas a total of $66,000 for purposes of working capital in
      exchange for oilfield and rig services.  Originally this balance was
      classified as a deposit, and has since been reclassified as a note
      receivable.  As indicated in the agreement, in the event that
      sufficient services were not performed, the amount was to be treated as a loan,
      and would take on a 12% interest payable beginning February of
      2006.  The amount is secured with field equipment including a pumping
      unit, engine, treater, and rods.  We are in the process of negotiating
      repayment, and consider the amount fully collectible.





In
      October 2005, we entered into an agreement to obtain up to a 75% working
      interest in certain well bores owned by Mountain Oil and Gas.  In
      connection with this, we agreed to advance Mountain Oil and Gas a total of
      $100,000 for the purpose of well bonding and working capital.  This
      was due and payable back to the Company on December 30, 2005 either in cash
      or
      labor towards the workover of the well bore. In the event that we were not
      paid
      by December 30, 2005, we are entitled to $160,000 of the net revenues from
      the
      1-16A1E well beginning January 1, 2006.  Repayment is secured by a
      pumping unit located on the Dye-Hall well for the value of the working capital
      and well bonding.  As of December 31, 2006, we have collected $20,000
      on the note, and are negotiating payment or collection of security for the
      remaining portion.  We consider the remaining portion as fully
      collectible.





**Note
      5 – Sale of Unproved Property**





In
      February 2005 we sold the Circus project for $2.04 million to an unrelated
      third
      party. We acquired the leases in October, 2004, with a total cost of $487,000
      and thus realized a gain of $1.5 million on the sale. Additionally, we incurred
      $53,000 of closing cost on the sale.





**Note
      6 - Convertible Note Payable**




On
      September 9, 2003, we received $350,000 for issuance of a convertible note
      payable to a third party investor. The principal is due and payable on March
      9,
      2005 together with interest at the rate of 8% per year. The note also contains
      a
      conversion feature that gives the holder the right to convert all or any portion
      of the principal indebtedness into shares of common stock on or before its
      due
      date. On March 3, 2005, the note holder notified us that they were exercising
      their right to convert the entire $350,000 note at a conversion rate of $0.1429
      per share, or 2,449,265 shares.




**Note
      7 - Convertible Debentures**




In
      June
      2004 we issued a convertible debenture with a conversion price of $1.25 per
      share of common stock, subject to anti-dilution adjustments, in a private
      placement to two purchasers. The convertible debenture is secured by our assets.
      In connection with the issuance, we also issued warrants to purchase up to
      400,000 shares of common stock at $1.50 per share. The warrants are exercisable
      for two years following conversion of the convertible debenture at an exercise
      price of $1.50. The offering resulted in gross proceeds to us, prior to the
      deduction of fees and cost, of approximately $1,000,000. We used the proceeds
      from the offering for working capital and general corporate
      purposes.




The
      conversion price of the convertible debenture and the exercise price of the
      warrants are subject to customary anti-dilution rights. In addition, if we
      issue
      common stock at a price less than the conversion price of the convertible
      debenture, then the conversion price will be reduced to the lower price. Under
      such circumstances, the exercise price of the warrants will be adjusted to
      the
      same price as the conversion price. As part of the placement, we agreed to
      provide piggyback registration rights to register for resale all of the shares
      of common stock issuable upon conversion of the debenture and upon exercise
      of
      the warrants.  We are currently in negotiations to repay the
      convertible debenture.





We
      issued
      the above securities utilizing an exemption from registration requirements
      of
      the Securities Act of 1933 pursuant to Section 4(2) of the Securities Act and
      Regulation D promulgated under the Securities Act based on the representations
      of the Purchaser that it was an “accredited investor” (as defined under Rule 501
      of Regulation D) and that it was purchasing the securities without a present
      view toward a distribution of the securities. In addition, we conducted no
      general solicitation in connection with the sale of the securities.





31
 Table
              of Contents
 Fellows
              Energy Ltd. Notes
                to Financial Statements
 December
                31, 2006 and 2005








On
      June
      17, 2005, we closed a financing pursuant to a securities purchase agreement
      with
      three accredited investors for the issuance of $5,501,200 in face amount of
      debentures maturing at the end of the 27th month from the date of issuance,
      and
      three year warrants to purchase common stock of the company. The debentures
      bear
      no interest and the investors paid $3,849,685, after discounts of $1,651,515,
      for the debentures. A commission of 9% on the $3.85 million was paid in
      connection with the transaction, and we paid $100,000 in legal fees, resulting
      in net proceeds to the company of $3,403,267. The debentures are unsecured
      and
      we are obligated to pay 1/24th of the face amount of the debenture on the first
      of every month, starting October 1, 2005, which payment can be made in cash
      or
      in common stock. We may pay this amortization payment in cash or in stock at
      the
      lower of $0.60 per share (the Set Price) or 80% of the volume weighted average
      price of the stock for the five trading days prior to the repayment date. In
      the
      event that we make the payment in cash, we shall pay 110% of the monthly
      redemption amount. At any time after 90 days from the date that a registration
      statement registering the shares of common stock underlying the debentures
      and
      warrants is declared effective (the Effective Date), and if certain conditions
      are met, we have the right to redeem some or all of the debentures in a cash
      amount equal to 110% of the face amount of the debentures being redeemed. At
      any
      time, the debentures are convertible into common stock at the Set
      Price.





We
      issued
      warrants to the investors, expiring June 17, 2008, to purchase 4,584,334 shares
      of restricted common stock, exercisable at a per share of $0.649. In addition,
      the exercise price of the warrants will be adjusted in the event we issue common
      stock at a price below the exercise price, with the exception of any securities
      issued pursuant to a stock or option plan adopted by our board of directors,
      issued in connection with the debentures issued pursuant to the securities
      purchase agreement, or securities issued in connection with acquisitions or
      strategic transactions. Upon an issuance of shares of common stock below the
      exercise price, the exercise price of the warrants will be reduced to equal
      the
      share price at which the additional securities were issued and the number of
      warrant shares issuable will be increased such that the aggregate exercise
      price
      payable for the warrants, after taking into account the decrease in the exercise
      price, shall be equal to the aggregate exercise price prior to such
      adjustment.





Warrants
      to purchase 250,000 shares, at the same price and for the same term as the
      warrants issued to the investors, have been issued to HPC Capital Management
      as
      additional compensation for its services in connection with the transaction
      with
      the investors.





In
      addition to the $1,651,515 cash discount, we also recorded a discount of
      $626,042 based on a Black-Scholes model valuation of the 4,584,334 warrants
      issued to the debenture holders and the 250,000 warrants issued to HPC Capital
      Management.




On
      September 21, 2005, we closed a financing pursuant to a securities purchase
      agreement with two accredited investors for the issuance of $3,108,000 in face
      amount of debentures maturing December 21, 2008, and three year warrants to
      purchase common stock of the company. The debentures do not accrue interest
      and
      the investors paid $2,174,947.52 for the debentures. A commission of 8% on
      $2,000,000 raised was paid to in connection with the transaction, and we placed
      $50,000 in escrow for the payment of future legal fees, resulting in net
      proceeds to the company of $1,964,947.52 before $39,000 in associated current
      legal fees. Net proceeds will be used for general working capital. The
      debentures are unsecured and we are obligated to pay 1/24th of the face amount
      of the debenture on the first of every month, starting January 1, 2006, which
      payment can be made in cash or in restricted common stock. We may pay this
      amortization payment in cash or in stock at the lower of $0.75 per share (the
      Set Price) or 80% of the volume weighted average price of the stock for the
      five
      trading days prior to the repayment date, provided that there is an effective
      registration statement and the monthly conversion price is greater of than
      $0.60. In the event that we make the payment in cash, we shall pay 110% of
      the
      monthly redemption amount. At any time after 90 days from the date that a
      registration statement registering the shares of common stock underlying the
      debentures and warrants is declared effective (the Effective Date), and if
      certain conditions are met, we have the right to redeem some or all of the
      debentures in a cash amount equal to 110% of the face amount of the debentures
      being redeemed. At any time, the debentures are convertible to restricted common
      stock at the Set Price.





We
      issued
      warrants to the investors, expiring September 21, 2008, to purchase 2,072,000
      shares of restricted common stock, at a price per share of $0.80. The number
      of
      shares underlying the warrants equals 50% of the shares issuable on full
      conversion of the debentures at the set price (as if the debentures were so
      converted on September 21, 2005). In addition, the exercise price of the
      warrants will be adjusted in the event we issue common stock at a price below
      the exercise price, with the exception of any securities issued pursuant to
      a
      stock or option plan adopted by our board of directors, issued in connection
      with the debentures issued pursuant to the securities purchase agreement, or
      securities issued in connection with acquisitions or strategic transactions.
      Upon an issuance of shares of common stock below the exercise price, the
      exercise price of the warrants will be reduced to equal the share price at
      which
      the additional securities were issued and the number of warrant shares issuable
      will be increased such that the aggregate exercise price payable for the
      warrants, after taking into account the decrease in the exercise price, shall
      be
      equal to the aggregate exercise price prior to such adjustment.





Warrants
      to purchase 100,000 shares, at the same price and for the same term as the
      warrants issued to the investors, have been issued to HPC Capital Management
      as
      additional compensation for its services in connection with the transaction
      with
      the investors.





32
 Table
              of Contents
 Fellows
              Energy Ltd. Notes
                to Financial Statements
 December
                31, 2006 and 2005








In
      addition to the $933,052 cash discount, we also recorded a discount of $614,905
      based on a Black-Scholes model valuation of the 2,072,000 warrants issued to
      the
      debenture holders and the 100,000 warrants issued to HPC Capital
      Management.





**Note
      8 - Notes Payable**







Over
      the
      period October 2005 through December 2006 we borrowed a total of $1,747,000
      on
      an unsecured 8% demand note payable to an entity controlled by our CEO. During
      the 2006, we paid back a total of $301,000 in principal on the
      note.





Also
      in
      2005, we entered into a 45-well workover program, the Creston Project, in which
      we completed and placed the first well into production in the first quarter
      of
      2006.  We obtained $1.25 million in industry partner financing to
      carry the project forward. In connection with the transaction, we acquired
      the
      rights to up to a 75% working interest, reduced to 45% interest in 18 months,
      in
      the wells to be completed in the program as well as $1.25 million in project
      financing from an industry partner in exchange for 1,642,632 shares of
      restricted common stock and warrants to purchase 1.8 million shares at $0.70
      per
      share.  The repayment of the $1.25 million in financing is secured
      with 1.8 million shares of restricted stock held in escrow and is personally
      guaranteed by George S. Young, our CEO, and by his private company, Diamond
      Oil
      and Gas Corporation.  At December 31, 2006 there was $900,000 outstanding
      on this financing.





In
      March
      2006, we borrowed $750,000 on a secured 12% note payable for a period of 36
      months in exchange for a 5% overriding royalty interest in Carbon County, as
      well as the right to participate in any future exploration activities on the
      project on the basis of a 10% working interest.  At December 31, 2006 all
      of the principal was outstanding on this financing.





In
      May
      2006, we borrowed $500,000 at 12% interest in exchange for a 2% overriding
      royalty interest in Carbon County as well as 50,000 shares of common
      stock.  As of December 31, 2006, we have paid $139,000 towards the
      principal and interest.





In
      November 2004 we entered into a joint venture agreement with an unrelated
      company in which the company received a 50% interest in certain of our
      properties in exchange for a $2,000,000 commitment for exploration and drilling
      on the properties. In addition, the company loaned us $1,500,000, 50% of which
      was due on January 31, 2005 and we have repaid with interest and 50% of which
      was payable on April 30, 2005, with interest at 18%. This note was secured
      by
      all of our assets.  In February 2005 we paid $750,000 principal of the
      18% $1,500,000 note payable to JMG, plus accrued interest of $82,000. In May
      2005, we assigned our remaining 50% interest in the Gordon Creek and Weston
      County properties to JMG as full payment of the unpaid principal and accrued
      interest on the note. As part of the settlement agreement, JMG's commitment
      to
      spend $2,000,000 in exploration and drilling activity on the two projects by
      November 7, 2005 was terminated and JMG granted us the option to re-acquire
      our
      50% ownership by June 30, 2005 for the amount of $391,000. We exercised this
      option in June 2005. Under this transaction, the Company removed itself from
      the
      liability of the note payable, and re-acquired the 50% ownership in the Gordon
      Creek and Weston County properties for $391,000. In connection with this
      transaction, we recorded a gain from extinguishment of debt of
      $383,531.





**Note
      9 - Common Stock**




For
      debt
      service of our convertible debentures, we issued 2,513,630 shares , 4,033,043
      shares, 4,739,696 shares, and 5,031,413 shares of common stock in the first,
      second, third and fourth quarters of 2006, respectively. First quarter
      redemption share payments amounted to 617,433 shares, 1,341,500 shares, and
      554,697 shares at an average price of $0.37, $0.27, and $0.27 per share
      respectively. Second quarter redemption share payments amounted to 751,818
      shares, 1,425,192 shares, 1,737,976 shares, and 118,057 shares at an average
      price of $0.27, $0.25, $0.21, and $0.27 per share respectively. Third quarter
      redemption payments amounted to 137,257 shares, 1,898,013 shares, 2,586,369
      shares, and 118,057 shares at an average price of $0.29, $0.19, $0.14, and
      $0.12
      per share respectively. Fourth quarter redemption payments amounted to 487,070
      shares, 3,130,267 shares, and 1,414,076 shares, at an average price of $0.12,
      $0.12, and $0.08 per share respectively.





In
      May
      2006 we issued 700,000 shares in connection with the joint venture of one of
      our
      projects with a price of $0.28, we also issued 861,921 shares at $0.25 in
      accordance with ratchet down rights under the May 18, 2005 private placement.
      In
      addition, we issued 790,000 shares at $0.32 in connection with the joint venture
      secured project funding.





In
      June
      2006, we issued 48,980 shares at $0.25 in accordance with the May 2006 note
      payable.





In
      July
      2006, we issued 50,000 shares at $0.45 in accordance with the May 2006 note
      payable. We also issued 250,000 shares at $0.25 in accordance with the April
      2006 financing.





In
      October 2006, we issued 800,000 shares of common stock at $0.14 pursuant to
      a
      legal consulting agreement.





33
 Table
              of Contents
 Fellows
              Energy Ltd. Notes
                to Financial Statements
 December
                31, 2006 and 2005








In
      November 2006, we issued 1,083,607 shares of common stock at $0.14 in accordance
      with ratchet down rights under the May 18, 2005 private placement





As
      of
      December 31, 2006, we intend to issue common stock for obligations amounting
      to
      $76,000.





**Note
      9 - Related Party Transactions**




Over
      the
      period October 2005 through December 2006 we borrowed a total of $2,034,000
      on
      an unsecured 8% demand note payable to an entity controlled by our CEO. During
      the 2006, we paid back a total of $301,000 in principal on the
      note.





**Note
      10 – Property Reserves (Unaudited)**





The
      following reserve quantity and future net cash flow information represents
      proved reserves located in the State of Utah in the United States. The reserves
      as of December 31, 2006 have been estimated by MHA Petroleum Consultants,
      independent petroleum engineers.  We did not have any proved reserves in
      the State of Utah at December 31, 2005.  The determination of oil and gas
      reserves is based on estimates, which are highly complex and interpretive.
      The
      estimates are subject to continuing change as additional information becomes
      available.




The
      standardized measure of discounted future net cash flows is prepared under
      the
      guidelines set forth by the Securities and Exchange Commission (SEC) that
      require the calculation to be performed using year-end oil and gas prices.
      The
      oil and gas prices used as of December 31, 2006 were based on the Nymax
      forecasted prices and costs.  Future production costs are based on
      year-end costs and include severance taxes.  The present value of
      future cash inflows is based on a 10% discount rate.




**Reserve
      Quantities**





**Table
                1**
            
            **Gas******
            
            **MMcf**Proven
                  developed producing reserves
            
            
            1,362Proven
                developed non-producing reserves
            
            
            2,231Proven
                  undeveloped reserves
            
            
            6,931Total
                  proved reserves as of  December 31, 2006
            
            
            10,524Probable
                  reserves
            
            
            3,780Possible
                reserves
            
            
            12,600Total
                proved , possible, and probable reserves as of December 31,
                2006
            
            
            26,904







**Standardized
      Measure of Discounted Future Net Cash Flows**





**Table
                2 ( In thousands)**
            
            **December
                31,****2006**Future
                  cash flows
            
            $
            76,363Future
                production and development costs
            
            
            (1,680
            )Future
                  income taxes
            
            
            (30,624
            )Future
                net cash flows before discount
            
            $
            44,05910%
                  discount to present value
            
            
            (4,005
            )Standardized
                measure of discountedfuture
                  net cash flows
            
            $
            40,054







34
 Table
              of Contents
 Fellows
              Energy Ltd. Notes
                to Financial Statements
 December
                31, 2006 and 2005








**Volumes,
      Prices and Operating Expenses**




The
      following table presents information regarding the production volumes, average
      sales prices received and average production costs associated with our sales
      of
      natural gas and oil for the periods indicated.




**Table
                3****Production
                and Sales Data**
            
            **December
                31,****2006**Natural
                  gas production (Mcf)
            
            
            235,378Average
                sales price per Mcf
            
            $
            5.5Expenses
                per McfLease
                  operating
            
            $
            1.91Gathering
            
            $
            0.94General
                  and administrative
            
            $
            9.73Depletion
                and accretion
            
            $
            .31




**Development,
      Exploration and Acquisition Capital Expenditures**




During
      the year ended December 31, 2006, we spent $1,027,000****in
      development and exploration activities.  During the year ended
      December 31, 2005, we spent $1,141,000 on development and exploration
      activities, and $738,000 on the acquisition of acreage and option maintenance
      for John’s Valley, Overthrust, and the Bacaroo project.  As of
      December 31, 2006, we held a working interest of approximately 46% in 5,953
      gross acres (2,440 net acres) located in Carbon County, Utah.  As of
      December 31, 2006, we held an interest in four gross (1.84 net) producing and
      four gross shut-in (1.84 net) gas wells located on these
      properties.




Table
      4 presents information regarding our net costs incurred in the purchase of
      proved and unproved properties and in exploration and development
      activities:




**Table
                4**
            
            **December
                31,****2006**
            
            
            **2005**Property
                acquisition costs:Unproved
            
            $
            -
            
            
            $
            738,241Proved
            
            
            1,200,000
            
            
            
            300,000Exploration
            
            
            564,196
            
            
            
            1,141,202Development
            
            
            463,263
            
            
            
            -$
            2,227,459
            
            
            $
            2,179,443





**Productive
      Wells and Acreage**




Table
      5
      summarizes our productive and shut-in gas wells as of December 31, 2006.
 Productive wells are producing wells and wells capable of production.
 Shut-in wells are wells that are capable of production but are not
      producing.  Gross wells are the total number of wells in which we have an
      interest.  Net wells are the sum of our fractional interests owned in the
      gross wells.





**Table
                5**
            
            **Productive
                gas wells****Gross**
            
            
            **Net**Producing
                  gas wells
            
            
            4
            
            
            
            1.8Shut-in
                gas wells
            
            
            4
            
            
            
            1.8








35
 Table
              of Contents
 Fellows
              Energy Ltd. Notes
                to Financial Statements
 December
                31, 2006 and 2005





**Undeveloped
      Acreage**




Table
      6
      summarizes the undeveloped and developed leasehold acreage, by area, that we
      hold as of December 31, 2006.  Undeveloped acres are acres on which wells
      have not been drilled or completed to a point that would permit the production
      of commercial quantities of oil and gas, regardless of whether or not the
      acreage contains proved reserves.  Developed acres are acres that are
      spaced or assignable to productive wells.  Gross acres are the total number
      of acres in which we have a working interest.  Net acres are the sum of our
      fractional interests owned in the gross acres.  The table does not include
      acreage that we have a contractual right to acquire or to earn through drilling
      projects, or any other acreage for which we have not yet received leasehold
      assignments.  In certain leases, our ownership is not the same for all
      depths.  The net acres in these leases are calculated using the greatest
      ownership interest at any depth.  Generally, this greater interest
      represents our ownership in the primary objective formation.




**Table
                6****Summary
                of Acreage**
            
            **Undeveloped
                acres**
            
            
            **Developed
                acres****Gross**
            
            
            **Net**
            
            
            **Gross**
            
            
            **Net**Utah
            
            
            14,242
            
            
            
            1,752
            
            
            
            5,953
            
            
            
            2,440Wyoming
            
            
            33,486
            
            
            
            19,604
            
            
            
            –
            
            
            
            –Colorado
            
            
            3,440
            
            
            
            3,440
            
            
            
            –
            
            
            
            –Total
                  acres
            
            
            51,168
            
            
            
            24,796
            
            
            
            5,953
            
            
            
            2,440




**Note
      11 - Income Tax**




At
      December 31, 2006, we have available for federal income tax purposes a net
      operating loss carryforward of approximately $10,600,000, expiring at various
      times through 2024 that may be used to offset future taxable income. Therefore,
      we have provided no provision for income tax.




In
      addition, we have deferred tax assets of approximately $3,600,000 at December
      31, 2006. We have not recorded a benefit from our net operating loss
      carryforward because realization of the benefit is uncertain and, therefore,
      a
      valuation allowance of $(3,600,000) has been provided for the deferred tax
      assets. The following table reports our carryforwards and the related deferred
      tax assets by year through December 31, 2006:






**Year**
                    
                    **NOL carryforward**
                    
                    
                    **Deferred tax asset**2001
                    
                    $
                    10,241
                    
                    
                    $
                    3,4812002
                    
                    
                    21,560
                    
                    
                    
                    7,3302003
                    
                    
                    122,915
                    
                    
                    
                    41,7912004
                    
                    
                    3,138,118
                    
                    
                    
                    1,066,9602005
                    
                    
                    1,957,800
                    
                    
                    
                    665,7002006
                    
                    
                    5,301,500
                    
                    
                    
                    1,802,500Less:
                        valuation allowance
                    
                    
                    —
                    
                    
                    
                    (3,587,762
                    )Totals:
                    
                    $
                    10,582,157
                    
                    
                    $
                    —





**Note
      12 - Commitments and contingencies**




We
      were sued in the Sixth Judicial District Court, Garfield County, Utah on
      November 10, 2004, by Midway Perforating and Drilling in a complaint alleging
      nonpayment of charges connected with drilling the Johns Valley 10-33C2 well
      in
      Garfield County, UT. The complaint seeks damages of $100,000 and costs of
      $10,000. We filed our Answer and Counterclaim on January 19, 2005. We believe
      we
      have a strong defense and counterclaim in that the plaintiff failed to follow
      our instructions to use appropriate equipment for controlling deviation of
      the
      wellbore, and that such failure caused significant deviation of the wellbore,
      causing the well to be unusable and a breach of contract. The well bore failed
      to penetrate the target zone within the permitted drilling spacing unit due
      to
      horizontal deviation improperly allowed to occur by the plaintiff contractor.
      The suit is in its early stages. Although we believe we have a strong defense
      and counterclaim, we cannot predict the final outcome of the suit.





36
 Table
              of Contents
 **Fellows
              Energy Ltd.**
 Notes
              to Financial Statements
 December
              31, 2006 and 2005




**Note
      13 - Subsequent Events**





On
      February 15, 2007, we entered into a series of transactions to restructure
      securities issued pursuant to securities purchase agreements dated June 17,
      2005
      and September 21, 2005.





***Background***





**June
      2005 Financing**





On
      June
      17, 2005, we closed a financing pursuant to a securities purchase agreement
      with
      three accredited investors, Palisades Master Fund, L.P. (“Palisades”), Crescent
      International Ltd. (“Crescent”) and JGB Capital L.P. (“JGB”) for the issuance of
      $5,501,199.95 in face amount of debentures maturing September 16, 2008 (the
      “June Debentures”). The June Debentures were unsecured and we were obligated to
      pay 1/24th of the face amount of the debenture on the first of every month,
      starting October 1, 2005, which payment could be made in cash or in shares
      of
      our common stock. We could pay this amortization payment in cash or in stock
      at
      the lower of $0.60 per share or 80% of the volume weighted average price of
      our
      stock for the five trading days prior to the repayment date. In the event that
      we made the payment in cash, we paid 110% of the monthly redemption
      amount.




In
      addition, we issued warrants to the investors, expiring June 17, 2008, to
      purchase 4,584,334 shares of restricted common stock, exercisable at a per
      share
      of $0.649 (the “June Warrants”). In addition, the exercise price of the June
      Warrants would be adjusted in the event we issued common stock at a price below
      the exercise price, with the exception of any securities issued pursuant to
      a
      stock or option plan adopted by our board of directors, issued in connection
      with the debentures issued pursuant to the securities purchase agreement, or
      securities issued in connection with acquisitions or strategic
      transactions.





If
      in any
      period of 20 consecutive trading days our stock price exceeds 250% of the June
      Warrants’ exercise price, all of the June Warrants shall expire on the 30th
      trading day after we send a call notice to the June Warrant holders. If at
      any
      time after one year from the date of issuance of the June Warrants there is
      not
      an effective registration statement registering, or no current prospectus
      available for, the resale of the shares underlying the June Warrants, then
      the
      holder may exercise the June Warrant at such time by means of a cashless
      exercise.




**September
      2005 Financing**





On
      September 21, 2005, we closed a financing pursuant to a securities purchase
      agreement with two accredited investors, Palisades and Crescent for the issuance
      of $3,108,000 in face amount of debentures maturing December 20, 2008 (the
      “September Debentures” and together with the June Debentures, the “Old
      Debentures”). The September





Debentures
      were unsecured and we were obligated to pay 1/24th of the face amount of the
      debenture on the first of every month, starting January 1, 2006, which payment
      could be made in cash or in shares of our common stock. We could pay this
      amortization payment in cash or in stock at the lower of $0.75 per share or
      80%
      of the volume weighted


average
      price of our stock for the five trading days prior to the repayment date. In
      the
      event that we made the payment in cash, we paid 110% of the monthly redemption
      amount.





In
      addition, we issued warrants to the investors, expiring September 21, 2008,
      to
      purchase 2,172,000 shares of restricted common stock, exercisable at a per
      share
      of $0.80 (the “September Warrants” and together with the June Warrants, the “Old
      Warrants”). In addition, the exercise price of the September Warrants would be
      adjusted in the event we issued common stock at a price below the exercise
      price, with the exception of any securities issued pursuant to a stock or option
      plan adopted by our board of directors, issued in connection with the debentures
      issued pursuant to the securities purchase agreement, or securities issued
      in
      connection with acquisitions or strategic transactions.





If
      in any
      period of 20 consecutive trading days our stock price exceeds 250% of the
      September Warrants’ exercise price, all of the September Warrants shall expire
      on the 30th trading day after we send a call notice to the September Warrant
      holders. If at any time after one year from the date of issuance of the
      September Warrants there is not an effective registration statement registering,
      or no current prospectus available for, the resale of the shares underlying
      the
      September Warrants, then the holder may exercise the September Warrant at such
      time by means of a cashless exercise.





37
 Table
              of Contents
 Fellows
              Energy Ltd. Notes
                to Financial Statements
 December
                31, 2006 and 2005








***Restructuring***





On
      February 15, 2007, the following transactions took place with regards to the
      Old
      Debentures and Old Warrants:





1)         JGB
      entered into an assignment
      agreement with Crescent, pursuant to which Crescent purchased from JGB the
      June
      Debentures issued to JGB.  The face value of the June Debentures
      issued to JGB at the time of the transaction was $333,333.33 and Crescent paid
      $250,000 to JGB for the assignment;


2)         We
      entered into a settlement agreement
      with JGB for the sum of $83,333.33.  We amended the terms of the Old
      Warrants held by JGB to remove the ratchet and call provisions and JGB agreed
      to
      release any shares reserved for issuance of the Old Warrants and to not exercise
      such Old Warrants until we obtain an increase in the authorized shares of common
      stock.  Upon obtaining the increase in authorized shares, we agreed to
      issue JGB 500,000 shares of restricted common stock;


3)         We
      entered into a first amendment and
      waiver agreement with Palisades for the amendment of the Old Debentures issued
      toPalisades(the “Palisades Amendment Agreement”);
      and


4)         We
      entered into a first amendment and
      waiver agreement with Crescent for the amendment of the Old Debentures issued
      to
      JGB (and purchased by Crescent) and Crescent (the “Crescent Amendment Agreement”
and together with the Palisades Amendment Agreement, the “Restructuring
      Amendments”).





Palisades
      and Crescent agreed to amend the Old Debentures to remove the mandatory monthly
      liquidation provision and to amend the fixed conversion price of the Old
      Debentures to $0.1375 (the “Fixed Conversion Price”).  As a result,
      the principal amount remaining on the Old Debentures is now due and payable
      at
      maturity, unless sooner converted into shares of common stock by the investors,
      at the Fixed Conversion Price.  Palisades and Crescent further agreed
      to waive any and all existing defaults under the Old Debentures.





Pursuant
      to the Palisades Amendment Agreement, we agreed to issue 7,025,789 shares of
      common stock (the “Monthly Redemption Shares”) to Palisades upon conversion of
      $608,433.15 in principal amount of the Old Debentures.  Such Monthly
      Redemption Shares were issued as payment for monthly redemptions owed to
      Palisades on December 1, 2006 and January 1, 2007 and February 1, 2007 pursuant
      to the Old Debentures.  These Monthly Redemption Shares were not
      issued while we negotiated the terms of a potential buy-out or restructuring
      of
      the Old Debentures.  The Monthly Redemption Shares were previously
      registered for resale pursuant to resale registration statements filed with
      the
      Securities and Exchange Commission and represent the remaining shares of common
      stock registered thereunder for Palisades pursuant to the Old
      Debentures.  As a result of the Monthly Redemption Shares, the
      exercise price of the Old Warrants was reduced to $0.0866, which Palisades
      exercised on a cashless basis and received 2,970,758 shares of common stock
      which were previously registered for resale pursuant to resale registration
      statements filed with the Securities and Exchange Commission.





We
      agreed
      to pay Palisades a forbearance fee of $150,000 a month, for six months, which
      fee was paid in shares of common stock at an issuance price of $0.1375, for
      a
      total issuance of 5,454,546 shares of restricted common stock.  In
      addition, we agreed to issue Palisades 1,449,825 shares of common stock as
      a
      commitment fee for the restructuring of the Old Debentures.





In
      connection with the restructuring, we executed a security agreement (the
“Security Agreement”) in favor of Palisades and JGB granting them a first
      priority security interest in all of our goods, inventory, contractual rights
      and general intangibles, receivables, documents, instruments, chattel paper,
      and
      intellectual property, except for our Carbon County prospect, which Palisades
      and JGB took a second priority interest and for our Carter Creek and Weston
      County prospects, which the investors were not granted any security
      interest.  The Security Agreements state that if an event of default
      occurs under the Old Debentures or Security Agreement, the Investors have the
      right to take possession of the collateral, to operate our business using the
      collateral, and have the right to assign, sell, lease or otherwise dispose
      of
      and deliver all or any part of the collateral, at public or private sale or
      otherwise to satisfy our obligations under these agreements.





On
      February 15, 2007, we closed a financing pursuant to a securities purchase
      agreement with Palisades for the issuance of a $714,500 face amount debenture
      maturing September 15, 2007 (the “New Debenture”). The New Debenture does not
      accrue interest and the investors paid $500,000 for the New Debenture. We paid
      a
      commission of $100,000 to HPC Capital Management (a registered broker-dealer)
      in
      connection with the transaction, resulting in net proceeds to us of $400,000
      before our legal fees. We used the net proceeds to pay our settlement agreement
      payment to JGB, repayment of a bridge loan to Petro Capital Securities, LLC
      and
      the remainder for general working capital purposes. We also issued HPC Capital
      Management 6,458,063 shares of restricted common stock and agreed to issue
      an
      additional 1,041,937 shares of restricted common stock upon obtaining an
      increase in our authorized shares of common stock, which shares are additional
      compensation for its services in connection with the


transaction
      with the investors





The
      convertible debentures are secured and are convertible into our common stock,
      at
      Palisades option, at a fixed conversion price of $0.1375. Based on this
      conversion price, the $714,500 secured convertible debenture is convertible
      into
      5,196,364 shares of our common stock.





In
      the
      event of default, the investors may require payment, which shall be the greater
      of: (A) 130% of the principal amount of the face amount of the debenture to
      be
      prepaid, or (B) the principal amount of the debenture to be prepaid, divided
      by
      the conversion price on (x) the date the default amount is demanded or otherwise
      due or (y) the date the default amount is paid in full, whichever is less,
      multiplied by the closing price on (x) the date the default amount is demanded
      or otherwise due or (y) the date the default amount is paid in full, whichever
      is greater





The
      conversion price of the debenture may be adjusted in certain circumstances
      such
      as if we pay a stock dividend, subdivide or combine outstanding shares of common
      stock into a greater or lesser number of shares, or take such other actions
      as
      would otherwise result in dilution of the investor’s position.





The
      Company has agreed to file a registration statement with the Securities and
      Exchange Commission to cover the future sale by the investors of the shares
      issuable upon conversion of the Old and New Debentures. If the registration
      statement is not filed by the filing deadline or if the registration statement
      is not declared effective by the effective deadline, we are required to pay
      liquidated damages to the investors.





. 38
 Table
            of Contents





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





On
      March
      10, 2006, Fellows Energy, Ltd. (the “Company”) engaged the firm of Mendoza
      Berger & Company, LLP (“Mendoza Berger”) to serve as its independent
      registered public accountants for the fiscal year ending December 31,
      2005.  On March 9, 2006, the Company notified Hall and Company, CPAs
      (“Hall and Company”) that it was terminating Hall and Company’s
      services.  The decision to change accountants was recommended and
      approved by the Company’s Audit Committee and Board of Directors.  The
      Company decided to switch its independent registered public accountanting firm
      because the audit engagement partner it had worked with at Hall and Company
      left
      to join Mendoza Berger.  The Company believes this partner’s intimate
      knowledge of its operations from inception merits a transition to Mendoza
      Berger.





During
      the two fiscal years ended December 31, 2003 and 2004, and through March 9,
      2006, (i) there were no disagreements between the Company and Hall and Company
      on any matter of accounting principles or practices, financial statement
      disclosure or auditing scope or procedure which, if not resolved to the
      satisfaction of Hall and Company would have caused Hall and Company to make
      reference to the matter in its reports on the Company’s financial statements,
      and (ii) except for Hall and Company’s report on the Company's December 31, 2004
      financial statements dated March 29, 2005, except for Note 12, as to which
      the
      date is February 13, 2006, which included an explanatory paragraph wherein
      they
      expressed substantial doubt about the Company's ability to continue as a going
      concern, Hall and Company’s reports on the Company’s financial statements did
      not contain an adverse opinion or disclaimer of opinion, or was modified as
      to
      audit scope or accounting principles. During the two fiscal years ended December
      31, 2004 and 2003 and through March 9, 2006, there were no reportable events
      as
      the term described in Item 304(a)(1)(iv) of Regulation S-B.





During
      the two fiscal years ended December 31, 2004 and 2003 and through March 9,
      2006,
      the Company has not consulted with Mendoza Berger regarding either:





1.      The
      application of accounting
      principles to any specific transaction, either completed or proposed, or the
      type of audit opinion that might be rendered on the Company’s financial
      statements, and neither a written report was provided to Mendoza Berger nor
      oral
      advice was provided that Mendoza Berger concluded was an important factor
      considered by the Company in reaching a decision as to the accounting, auditing
      or financial reporting issue; or


2.      Any
      matter that was either subject of
      disagreement or event, as defined in Item 304(a)(1)(iv) of Regulation S-B and
      the related instruction to Item 304 of Regulation S-B, or a reportable event,
      as
      that term is explained in Item 304(a)(1)(iv) of Regulation
      S-B.





39
 Table
            of Contents








**ITEM
      8A – CONTROLS AND PROCEDURES**





*(a)
      Evaluation of disclosure controls and procedures.*


Our
      management, with the participation of our chief executive officer and chief
      financial officer, evaluated the effectiveness of our disclosure controls and
      procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934
      as
      of December 31, 2006. In designing and evaluating the disclosure controls
      and procedures, management recognizes that any controls and procedures, no
      matter how well designed and operated, can provide only reasonable assurance
      of
      achieving the desired control objectives. In addition, the design of disclosure
      controls and procedures must reflect the fact that there are resource
      constraints and that management is required to apply its judgment in evaluating
      the benefits of possible controls and procedures relative to their
      costs.





Based
      on our evaluation, our chief executive officer and chief financial officer
      concluded that our disclosure controls and procedures are designed at a
      reasonable assurance level and are effective to provide reasonable assurance
      that information we are required to disclose in reports that we file or submit
      under the Exchange Act is recorded, processed, summarized and reported within
      the time periods specified in Securities and Exchange Commission rules and
      forms, and that such information is accumulated and communicated to our
      management, including our chief executive officer and chief financial officer,
      as appropriate, to allow timely decisions regarding required
      disclosure.





*(b)
      Changes in internal control over financial reporting.*





We regularly
      review our system of internal control over financial reporting and make changes
      to our processes and systems to improve controls and increase efficiency, while
      ensuring that we maintain an effective internal control environment. Changes
      may
      include such activities as implementing new, more efficient systems,
      consolidating activities, and migrating processes.





There
      were no changes in our internal control over financial reporting that occurred
      during the period covered by this Annual Report on Form 10-KSB that have
      materially affected, or are reasonably likely to materially affect, our internal
      control over financial reporting.





40
 Table
            of Contents








**ITEM
      8B – OTHER INFORMATION**





None.




**ITEM
      9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
      PERSONS.**




**DIRECTORS
      AND EXECUTIVE OFFICERS**




Name
            Age
            PositionGeorge
                S. Young
            55
            Chairman,
                Chief Executive Officer and PresidentSteven
                L. Prince
            48
            Vice
                President and Director




Directors
      are elected to serve until the next annual meeting of stockholders and until
      their successors are elected and qualified. Currently there are three seats
      on
      our board of directors.





Directors
      serve without cash compensation and without other fixed remuneration. Officers
      are elected by the Board of Directors and serve until their successors are
      appointed by the Board of Directors. Biographical resumes of each officer and
      director are set forth below.





***George
      S. Young***




On
      January 5, 2004, our board of directors appointed Mr. Young as our President,
      Chief Executive Officer and Chairman of the board of directors. Mr. Young is
      an
      experienced business executive in the mining and petroleum industries. He is
      an
      attorney and engineer by profession, and began his legal career in the law
      department of Exxon Company USA. Mr. Young also worked at Kennecott Copper
      Corporation as a metallurgical engineer involved in the construction and
      start-up of a new copper smelter. From 1998 to 2002, Mr. Young practiced
      natural resource law in Salt Lake City, Utah. Prior to that Mr. Young was
      the President of Oro Belle Resources Corporation in Golden, Colorado from 1996
      to 1998. Previous positions also include General Counsel and Acting General
      Manager for the Intermountain Power Project, a $4.4 billion coal-fired power
      project; Domestic Minerals Division Counsel for Getty Oil Company; and General
      Counsel for Bond International Gold, Inc. Mr. Young currently serves as a
      director of Palladon Ventures Ltd., a British Columbia corporation which trades
      on the TSX Venture Exchange under the trading symbol PLL.V, and International
      Royalty Corporation, a company listed on the Toronto Stock Exchange and the
      American Stock Exchange. Mr. Young is the sole owner, officer and director
      of Diamond Oil & Gas Corporation, a privately held Nevada corporation. He
      holds a B.Sc. in Metallurgical Engineering, which he earned in 1975 from the
      University of Utah and a J.D. degree, which he earned in 1979 from the
      University of Utah. Mr. Young is a member of the Society of Mining Engineers,
      and the state bars of Utah, Colorado and Texas.




***Steven
      L. Prince***




As
      of
      January 5, 2004, our board of directors appointed Mr. Prince as our Vice
      President and a member of our board of directors. Mr. Prince is a petroleum
      engineer with over 20 years of operating experience in conventional oil and
      gas
      drilling and in coal bed natural gas drilling and field development. Prior
      to
      joining Fellows Energy, Mr. Prince had been the Senior Petroleum Engineer for
      the Navajo Nation of Indians. From 2001 to 2003, Mr. Prince was the Operations
      Manager for Coal Bed Methane Production Consultants. From 1997 to 2002, he
      served as Executive Director of the Castle Valley Gas Producers Council, a
      gas
      industry trade association. Previous positions also include Drilling Engineer
      for Shell Western Exploration & Production; Operations Manager and
      Engineering Manager for River Gas Corporation, Facilities Engineer for Atlantic
      Richfield Co., and Production Engineer for Amoco Production Co.  Mr.
      Prince is a member of the Society of Petroleum Engineers.  Mr. Prince
      received his B.S. in Petroleum Engineering with honors from Montana College
      of
      Mineral Science and Technology in 1987.








41
 Table
            of Contents








**COMPLIANCE
      WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934**





Section
      16(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) requires the
      Company's directors and executive officers, and persons who own more than ten
      percent of a registered class of the Company's equity securities, to file with
      the Commission initial reports of ownership and reports of changes in ownership
      of the Company's Common Stock and other equity securities of the Company.
      Officers, directors and greater than ten percent shareholders are required
      by
      the Commission's regulations to furnish the Company with copies of all Section
      16(a) forms they filed.





We
      have
      been provided with copies of all forms (3, 4 and 5) filed by officers,
      directors, or ten percent shareholders within three days of such filings. Based
      on our review of such forms that we received, or written representations from
      reporting persons that no Forms 5s were required for such persons, we believe
      that, during fiscal 2006, all Section 16(a) filing requirements have been
      satisfied on a timely basis for members of the Board of Directors and Executive
      Officers.





**Code
      of Ethics**




We
      have
      adopted a code of ethics that applies to our principal executive officers,
      principal financial officer, principal accounting officer or controller, or
      persons performing similar functions. We filed our code of ethics as an exhibit
      to a previous SEC filing. We incorporate it by reference as an exhibit to this
      Form 10-KSB.




**Audit
      Committee Financial Expert**




We
      do not
      yet have an audit committee financial expert serving on our audit committee
      because we have been focusing our efforts on our new operational direction
      in
      the oil and gas business.




**ITEM
      10.  EXECUTIVE
      COMPENSATION.**





The
      following table sets forth the annual and long-term compensation paid to our
      Chief Executive Officer and the other executive officers who earned more than
      $100,000 per year at the end of the last completed fiscal year.  We
      refer to all of these officers collectively as our "named executive
      officers."




**Summary
      Compensation Table**





Name
                & Principal Position
            Year
            Salary
                ($)
            Bonus
                ($)
            Stock
                Awards($)
            Option
                Awards ($)
            Non-Equity
                Incentive Plan Compensation ($)
            Change
                in Pension Value and Non-Qualified Deferred Compensation Earnings
                ($)
            All
                Other Compensation ($)
            Total
                ($)George
                S. Young, CEO, Principal Executive Officer
            2006
            $120,000
            $2,000
            
            
            
            
            
            $122,000Steven
                Prince, VP of Operations
            2006
            $108,000
            $2,000
            
            
            
            
            
            $110,000










42
 Table
            of Contents





**Outstanding
      Equity Awards at Fiscal Year-End Table.**




Name
            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
              ($)George
                Young
            
            300,000
            
            
            $
            0.80
            October
                3, 2015Steven
                Prince
            
            300,000
            
            
            $
            0.80
            October
                3, 2015





**Employment
      Agreements with Executive Officers**





None.





**Director
      Compensation**





Our
      Directors are elected by the vote of a majority in interest of the holders
      of
      our voting stock and hold office until the expiration of the term for which
      he
      or she was elected and until a successor has been elected and
      qualified.





A
      majority of the authorized number of directors constitutes a quorum of the
      Board
      for the transaction of business.  The directors must be present at the
      meeting to constitute a quorum.  However, any action required or
      permitted to be taken by the Board may be taken without a meeting if all members
      of the Board individually or collectively consent in writing to the
      action.





Directors
      did not receive any compensation for their services during fiscal year
      2006.





The
      following tables set forth certain information regarding our CEO and each of
      our
      most highly-compensated executive officers whose total annual salary and bonus
      for the fiscal years ending December 31, 2005, 2004 and 2003 exceeded
      $100,000:





**Stock
      Option Plan**





On
      October 9, 2003, we adopted an incentive stock option plan, pursuant to which
      shares of our common stock are reserved for issuance to satisfy the exercise
      of
      options. The purpose of the incentive stock option plan is to retain qualified
      and competent officers, employees and directors. As noted in the table below,
      the incentive stock option plan for our executive officers authorizes up to
      2,000,000 shares of our common stock, to be purchased pursuant to the exercise
      of options. The effective date of the stock option plan was October 9, 2003,
      and
      the stock option plan was approved by our shareholders on November 10, 2003.
      On
      September 15, 2004, we granted an option for 200,000 shares to our CEO, 150,000
      shares to our Vice President and 125,000 shares to an employee. These options
      are exercisable at $0.80 per share, the price of our stock on the grant date.
      The options vested 50% on the grant date and vest 50% on September 15, 2005.
      On
      October 3, 2005, we granted an option for 100,000 shares to our CEO, 150,000
      to
      our Vice President and 175,000 and 200,000 shares to two employees
      respectively.  The options vest 6 months from the date of
      grant.





Our
      board
      of directors, or a committee thereof, administers the stock option plan and
      is
      authorized, in its discretion, to grant options thereunder to all of our
      eligible employees, including officers, and to our directors, whether or not
      those directors are also our employees. Options will be granted pursuant to
      the
      provisions of the incentive stock option plan on such terms, subject to such
      conditions and at such exercise prices as shall be determined by our board
      of
      directors. Options granted pursuant to the stock option plan will not be
      exercisable after the expiration of ten years from the date of
      grant.





43
 Table
            of Contents











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





The
      following table sets forth certain information regarding beneficial ownership
      of
      our common stock as of April 11, 2007




 by
      each person who is known by us to
      beneficially own more than 5% of our common stock;


 by
      each of our officers and directors;
      and


 by
      all of our officers and directors as
      a group.





NAME
                AND ADRESS
            
            
            NUMBER
                OF
            
            
            PERCENTAGE
                OFOF
                OWNER
            TITLE
                OF CLASS
            
            SHARES
                OWNED (1)
            
            
            CLASS
                (2)George
                S. Young
            Common
                Stock
            
            
            3,800,000
            (3)
            
            
            3.8
            %1942
                Broadway St., Suite 320Boulder,
                CO  80302Steven
                L. Prince
            Common
                Stock
            
            
            300,000
            (4)
            
            
            *1942
                Broadway St., Suite 320Boulder,
                CO  80302All
                Officers and Directors
            Common
                Stock
            
            
            4,100,000
            (3)
            
            
            4.4
            %As a
                Group (2 persons)




(1)
      Beneficial Ownership is determined in accordance with the rules of the
      Securities and Exchange Commission and generally includes voting or investment
      power with respect to securities. Shares of common stock subject to options
      or
      warrants currently exercisable or convertible, or exercisable or convertible
      within 60 days of April 11, 2007 are deemed outstanding for computing the
      percentage of the person holding such option or warrant but are not deemed
      outstanding for computing the percentage of any other person.





(2)
      Percentage based on 100,000,000 shares of common stock outstanding as of April
      11, 2007.





(3)
      Includes 300,000 shares issuable pursuant to options and 3,500,000 shares owned
      by Diamond Oil & Gas Corporation, of which Mr. Young is the sole owner and
      is therefore deemed to be the beneficial owner.





(4)
      Includes 300,000 shares issuable pursuant to options.











44
 Table
            of Contents








**ITEM
      12.  CERTAIN RELATIONSHIPS AND RELATED
      TRANSACTIONS.**





Since
      the
      beginning of our prior fiscal year, there have been no transactions, or proposed
      transactions, which have materially affected or will materially affect us in
      which any director, executive officer or beneficial holder of more than 10%
      of
      the outstanding common stock, or any of their respective relatives, spouses,
      associates or affiliates, has had or will have any direct or material indirect
      interest. We have no policy regarding entering into transactions with affiliated
      parties.





**ITEM
      13.  EXHIBITS.**





Exhibit
                No.
            Description





3.1
            Articles
                of Incorporation, filed
                as an exhibit to the registration statement on Form SB-2 filed with
                the
                Securities and Exchange Commission (the "Commission") on August 10,
                2001,
                and incorporated herein by
                reference.





3.2
            Certificate
                of Amendment to
                Articles of Incorporation, filed as an exhibit to the amended annual
                report on Form 10-KSB/A filed with the Commission on May 2, 2005,
                and
                incorporated herein by
                reference.





3.3
            Bylaws,
                filed as an exhibit to
                the registration statement on Form SB-2 filed with the Commission
                on
                August 10, 2001, and incorporated herein by
                reference.





4.1
            Form
                of Convertible Debenture
                issued by Fellows Energy, Ltd., dated June 4, 2004, filed as an exhibit
                to
                the current report on Form 8-K filed with the Commission on June
                17, 2004,
                and incorporated herein by
                reference.





4.2
            Form
                of Warrant to Purchase
                Common Stock of Fellows Energy, Ltd., dated June 4, 2004, filed as
                an
                exhibit to the current report on Form 8-K filed with the Commission
                on
                June 17, 2004, and incorporated herein by
                reference.





4.3
            Form
                of Security Agreement of
                Fellows Energy, Ltd., dated June 4, 2004, filed as an exhibit to
                the
                current report on Form 8-K filed with the Commission on June 17,
                2004, and
                incorporated herein by
                reference.





4.4
            Form
                of Warrant to Purchase
                Common Stock of Fellows Energy Ltd. dated May 18, 2005, filed as
                an
                exhibit to the quarterly report on Form 10-QSB filed with the Commission
                on May 23, 2005, and incorporated herein by
                reference.





4.5
            Form
                of Registration Rights
                Agreement dated May 18, 2005, filed as an exhibit to the quarterly
                report
                on Form 10-QSB filed with the Commission on May 23, 2005, and incorporated
                herein by reference.





4.6
            Form
                of Subscription Agreement
                dated May 18, 2005, filed as an exhibit to the registration statement
                on
                Form SB-2 filed with the Commission on August 10, 2005, and incorporated
                herein by reference.





4.7
            Form
                of Securities Purchase
                Agreement of Fellows Energy Ltd. dated June 17, 2005, filed as an
                exhibit
                to the registration statement on Form SB-2 filed with the Commission
                on
                August 10, 2005, and incorporated herein by
                reference.





4.8
            Form
                of Debenture issued by the
                Company, dated June 17, 2005, filed as an exhibit to the registration
                statement on Form SB-2 filed with the Commission on August 10, 2005,
                and
                incorporated herein by
                reference.





4.9
            Form
                of Warrant to purchase
                Common Stock of the Company, dated June 17, 2005, filed as an exhibit
                to
                the registration statement on Form SB-2 filed with the Commission
                on
                August 10, 2005, and incorporated herein by
                reference.





4.10
            Form
                of Registration Rights
                Agreement of Fellows Energy Ltd. dated June 17, 2005, filed as an
                exhibit
                to the registration statement on Form SB-2 filed with the Commission
                on
                August 10, 2005, and incorporated herein by
                reference.





45
 Table
            of Contents




4.11
              Form
                  of Securities Purchase
                  Agreement
                  of Fellows Energy Ltd. dated September 21, 2005, filed as an exhibit
                  to
                  the current report on Form 8-K filed with the Commission on September
                  22,
                  2005, and incorporated herein by
                  reference








4.12
            Form
                of Debenture issued by the
                Company, dated September 21, 2005, filed as an exhibit to the current
                report on Form 8-K filed with the Commission on September 22, 2005,
                and
                incorporated herein by
                reference





4.13
            Form
                of Warrant to purchase
                Common Stock of the Company, dated September 21, 2005, filed as an
                exhibit
                to the current report on Form 8-K filed with the Commission on September
                22, 2005, and incorporated herein by
                reference





4.14
            Form
                of Registration Rights
                Agreement of Fellows Energy Ltd. dated September 21, 2005, filed
                as an
                exhibit to the current report on Form 8-K filed with the Commission
                on
                September 22, 2005, and incorporated herein by
                reference





4.15
            First
                Amendment and Waiver
                Agreement, dated as of February 15, 2007, by and between Fellows
                Energy
                Ltd. and Palisades Master Fund, L.P., filed as an exhibit to the
                current
                report on Form 8-K filed with the Commission on February 21, 2007,
                and
                incorporated herein by
                reference





4.16
            First
                Amendment and Waiver
                Agreement, dated as of February 15, 2007, by and between Fellows
                Energy
                Ltd. and Crescent International Ltd., filed as an exhibit to the
                current
                report on Form 8-K filed with the Commission on February 21, 2007,
                and
                incorporated herein by
                reference





4.17
            Securities
                Purchase Agreement by
                and between Fellows Energy Ltd. and Palisades Master Fund, L.P.,
                filed as
                an exhibit to the current report on Form 8-K filed with the Commission
                on
                February 21, 2007, and incorporated herein by
                reference





4.18
            Debenture
                issued to Palisades
                Master Fund, L.P., filed as an exhibit to the current report on Form
                8-K
                filed with the Commission on February 21, 2007, and incorporated
                herein by
                reference





4.19
            Registration
                Rights Agreement by
                and between Fellows Energy Ltd. and Palisades Master Fund, L.P.,
                filed as
                an exhibit to the current report on Form 8-K filed with the Commission
                on
                February 21, 2007, and incorporated herein by
                reference





4.20
            Security
                Agreement by and among
                Fellows Energy Ltd., Palisades Master Fund, L.P. and Crescent
                International Ltd., filed as an exhibit to the current report on
                Form 8-K
                filed with the Commission on February 21, 2007, and incorporated
                herein by
                reference





10.1
            Purchase
                Agreement of October 22,
                2003 with Diamond Oil and Gas Corporation, filed as an exhibit to
                the
                proxy statement on Schedule 14A filed with the Commission on October
                22,
                2003, and incorporated herein by
                reference.





10.2
            Stock
                Option Plan, filed as an
                exhibit to the quarterly report on Form 10-QSB filed with the Commission
                on May 23, 2005, and incorporated herein by
                reference.





10.3
            Exploration
                Services Funding
                Agreement, dated January 26, 2004, between Fellows Energy Ltd. and
                Thomasson Partner Associates, Inc., filed as an exhibit to the
                registration statement on Form SB-2 filed with the Commission on
                October
                6, 2005, and incorporated herein by
                reference.





10.4
            Agreement
                to Extend and Amend
                Exploration Funding Service Agreement, dated February 24, 2005, between
                Fellows Energy Ltd. and Thomasson Partner Associates, Inc. filed
                as an
                exhibit to the amended annual report on Form 10-KSB/A filed with
                the
                Commission on May 2, 2005, and incorporated herein by
                reference.





10.5
            Purchase
                and Option Agreement,
                dated March 16, 2004, between Fellows Energy Ltd. and Quaneco, L.L.C.,
                filed as an exhibit to the registration statement on Form SB-2 filed
                with
                the Commission on October 14, 2005, and incorporated herein by
                reference.





10.6
            Amendment
                to Purchase and Option
                Agreement, dated September 14, 2004, between Fellows Energy Ltd.
                and
                Quaneco, L.L.C., filed as an exhibit to the registration statement
                on Form
                SB-2 filed with the Commission on October 6, 2005, and incorporated
                herein
                by reference.








46
 Table
            of Contents





10.7
            Agreement
                for Purchase of
                Interests in the Castle Rock and Kirby CBNG Projects of March 4,
                2005 with
                Quaneco, L.L.C., filed as an exhibit to the registration statement
                on Form
                SB-2 filed with the Commission on October 6, 2005, and incorporated
                herein
                by reference.





10.8
            Promissory
                Note of November 8,
                2004 with JMG Exploration, Inc., filed as an exhibit to the quarterly
                report on Form 10-QSB filed with the Commission on November 15, 2004,
                and
                incorporated herein by
                reference.





10.9
            General
                Security Agreement of
                November 8, 2004 with JMG Exploration, Inc., filed as an exhibit
                to the
                quarterly report on Form 10-QSB filed with the Commission on November
                15,
                2004, and incorporated herein by
                reference.





10.10
            Exploration
                and Development and
                Conveyance Agreement of November 8, 2004 with JMG Exploration, Inc.,
                filed
                as an exhibit to the quarterly report on Form 10-QSB filed with the
                Commission on November 15, 2004, and incorporated herein by
                reference.





10.11
            Consultant
                Agreement, dated
                February 1, 2005, between Fellows Energy, Ltd. and CEOCast, Inc.,
                filed as
                an exhibit to the amended annual report on Form 10-KSB/A filed with
                the
                Commission on May 2, 2005, and incorporated herein by
                reference.





10.12
            Consultant
                Agreement, dated
                August 1, 2004, between Fellows Energy, Ltd. and CEOCast, Inc., filed
                as
                an exhibit to the amended annual report on Form 10-KSB/A filed with
                the
                Commission on May 2, 2005, and incorporated herein by
                reference.





10.13
            Letter
                Agreement, dated December
                1, 2004, between Fellows Energy, Ltd. and Axiom Capital Management,
                Inc.,
                filed as an exhibit to the amended annual report on Form 10-KSB/A
                filed
                with the Commission on May 2, 2005, and incorporated herein by
                reference.





10.14
            Carter
                Creek Project Purchase
                Agreement, dated January 9, 2004, between Thomasson Partner Associates,
                Inc. and Fellows Energy Ltd., filed as an exhibit to the registration
                statement on Form SB-2 filed with the Commission on October 6, 2005,
                and
                incorporated herein by
                reference.





10.15
            Letter
                Agreement regarding
                Bacaroo Project, dated April 14, 2004, between Thomasson Partner
                Associates, Inc. and Fellows Energy Ltd., filed as an exhibit to
                the
                registration statement on Form SB-2 filed with the Commission on
                October
                6, 2005, and incorporated herein by
                reference.





10.16
            Note
                between Deseado, LLC and
                Fellows Energy Ltd., dated September 24, 2004, filed as an exhibit
                to the
                amended annual report on Form 10-KSB/A filed with the Commission
                on May 2,
                2005, and incorporated herein by
                reference.




10.17
            Settlement
                Agreement, dated as of
                February 15, 2007, by and between Fellows Energy Ltd. and JGB Capital,
                L.P., filed as an exhibit to the current report on Form 8-K filed
                with the Commission on February 21, 2007, and incorporated herein
                by
                reference 
 31.1
              Certification
                  of Chief Executive
                  Officer pursuant to Rule 13a-14 and Rule 15d-14(a), promulgated
                  under the
                  Securities and Exchange Act of 1934, as
                  amended
 
 31.2
              Certification
                  of Chief Financial
                  Officer pursuant to Rule 13a-14 and Rule 15d 14(a), promulgated
                  under the
                  Securities and Exchange Act of 1934, as
                  amended
 
 32.1
              Certification
                  pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002 (Chief Executive
                  Officer)
 
 32.2
              Certification
                  pursuant to 18
                  U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                  Sarbanes-Oxley Act of 2002 (Chief Financial
                  Officer)








47
 Table
            of Contents











**ITEM
      14. PRINCIPAL ACCOUNTANT FEES AND
      SERVICES.**





**Audit
      Fees**




The
      aggregate fees billed by our auditors, for professional services rendered for
      the audit of the Company's annual financial statements for the years ended
      December 31, 2006 and 2005, and for the reviews of the financial statements
      included in the Company's Quarterly Reports on Form 10-QSB during the fiscal
      years were $89,778 and $105,823, respectively.




**Audit-Related
      Fees**




There
      have not been any fees billed in each of the last two years for assurance and
      related services by the principal independent accountant that are reasonably
      related to the performance of the audit or review of our financial
      statements.




**Tax
      Fees**




The
      aggregate fees billed for each of the last two fiscal years total $5,263 for
      professional services rendered by the principal independent accountant for
      tax
      compliance, tax advice, and tax planning.




**All
      Other Fees**




No
      other
      fees have been billed in the last two years for products and services provided
      by the principal accountant other than the services reported pursuant to the
      above portions of this Item 14.




Our
      board
      of directors acts as the audit committee and had no “pre-approval policies and
      procedures” in effect for the auditors’ engagement for the audit years 2005 and
      2006.








48
 Table
            of Contents














**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.





**FELLOWS
      ENERGY LTD.**





Date:  April
                20, 2007
            By:**/s/
                GEORGE S. YOUNGGeorge
                S. YoungChief
                Executive Officer (Principal Executive Officer), Chief Financial
                Officer
                (Principal Financial Officer and Principal Accounting Officer), President
                and Chairman of the Board





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.





Name
            Position
            Date/s/
                GEORGE S. YOUNG
              George
                S. Young
            Chief
                Executive Officer (Principal Executive Officer), Chief Financial
                Officer
                (Principal Financial Officer and Principal Accounting Officer), President
                and Chairman of the Board
            April
                20, 2007/s/
                STEVEN L. PRINCE
              Steven
                L. Prince
            Director
            April
                20, 2007




















49
 Table
            of Contents