UNITED STATES

SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-KSB/A



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

SECURITIES EXCHANGE
ACT OF 1934



For the fiscal year
ended December 31, 2004



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

SECURITIES EXCHANGE
ACT OF 1934



Commission File Number:
000-30009



PETROL OIL AND GAS, INC.


(Name of small
business issuer in its charter)



|Nevada                            |  | 90-0066187           
|--------------------------------- |  | ---------------------
|(State or
		other jurisdiction of |  | (I.R.S.
		Employer   
|incorporation
		or organization)  |  | Identification
		No.)



|3161 E. Warm
		Springs Rd., Ste. 300       |  |           
|------------------------------------------ |  | ----------
|Las Vegas,
		Nevada                        |  | 89120     
|(Address of
		principal executive offices) |  | (Zip Code)



Issuer's telephone
number including area code: (702) 454-7318



Securities registered
pursuant to Section 12(b) of the Act: None



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



Common Stock,
	$0.001 par value


(Title of Class)



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



Check if there is no
disclosure of delinquent filers in response to Item 405 of Regulation S-B is not
contained in this form, and no disclosure will 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
this Form 10-KSB. [ ]



The issuer's revenues
for its most recent fiscal year ended December 31, 2004. $866,924



---



The aggregate market
value of the voting and non-voting common equity held by non-affiliates computed
by reference to the average bid and ask price, as of March 31, 2005 was
$50,211,928.30 based on a share value of $2.35.



The number of shares
of Common Stock, $0.001 par value, outstanding on March 31, 2005 was 24,966,778
shares.



Transitional Small
Business Disclosure Format (check one): Yes No X



---



PETROL OIL AND GAS,
INC.

FOR THE FISCAL YEAR
ENDED

DECEMBER 31, 2004



Index to Report

on Form 10-KSB





|PART I  | Page                                                 
|------- | -----------------------------------------------------
|        |                                                      
|Item 1. | Description of Business                              
|Item 2. | Description of Property                              
|Item 3. | Legal Proceedings                                    
|Item 4. | Submission of Matters to a
		Vote of Security Holders



PART II



|Item 5.  | Market for Common Equity and
		Related Stockholder Matters                             | 16
|-------- | -------------------------------------------------------------------------------------- | --
|Item 6.  | Management's
		Discussion and Analysis of Financial Condition                          | 20
|Item 7.  | Financial Statements                                                                   | 41
|Item 8.  | Changes in and Disagreements
		With Accountants on Accounting and Financial Disclosure | 42
|Item 8A. | Controls and Procedures                                                                | 42
|Item 8B. | Other Information                                                                      | 42



PART III



|Item 9.  | Directors, Executive
		Officers, Promoters and Control Persons; Compliance With Section 16(a)
		of the Exchange Act | 42
|-------- | ------------------------------------------------------------------------------------------------------------------- | --
|Item 10. | Executive Compensation                                                                                              | 47
|Item 11. | Security Ownership of Certain
		Beneficial Owners and Management and Related Stockholder Matters                    | 49
|Item 12. | Certain Relationships and
		Related Transactions                                                                    | 50
|Item 13. | Exhibits                                                                                                            | 51
|Item 14. | Principle
		Accountant Fees and Services                                                                            | 51



---



FORWARD-LOOKING
STATEMENTS



This document
contains "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. All statements other than statements
of historical fact are "forward-looking statements" for purposes of federal and
state securities laws, including, but not limited to, any projections of
earnings, revenue or other financial items; any statements of the plans,
strategies and objections of management for future operations; any statements
concerning proposed new services or developments; any statements regarding
future economic conditions or performance; any statements or belief; and any
statements of assumptions underlying any of the foregoing.



Forward-looking
statements may include the words "may," "could," "estimate," "intend,"
"continue," "believe," "expect" or "anticipate" or other similar words. These
forward-looking statements present our estimates and assumptions only as of the
date of this report. Except for our ongoing securities laws, we do not intend,
and undertake no obligation, to update any forward-looking statement.



Although we believe
that the expectations reflected in any of our forward-looking statements are
reasonable, actual results could differ materially from those projected or
assumed in any or our forward-looking statements. Our future financial condition
and results of operations, as well as any forward-looking statements, are
subject to change and inherent risks and uncertainties. The factors impacting
these risks and uncertainties include, but are not limited to:

- increased
	competitive pressures from existing competitors and new entrants;
- increases in
	interest rates or our cost of borrowing or a default under any material debt
	agreements;
- deterioration in
	general or regional economic conditions;
- adverse state or
	federal legislation or regulation that increases the costs of compliance, or
	adverse findings by a regulator with respect to existing operations;
- loss of customers
	or sales weakness;
- inability to
	achieve future sales levels or other operating results;
- fluctuations of
	oil and gas prices;
- the
	unavailability of funds for capital expenditures; and
- operational
	inefficiencies in distribution or other systems.

For a detailed
description of these and other factors that could cause actual results to differ
materially from those expressed in any forward-looking statement, please see
"Factors That May Affect Our Results of Operation" in this document.



In this form 10-KSB
references to "PETROL", "the Company", "we," "us," and "our" refer to PETROL OIL
AND GAS, INC.



Throughout this
document we may use certain terms or phrases that are specific to the oil and
gas industry. We have included a glossary containing these terms and phrases. We
encourage you to refer to the glossary to gain a better understanding of
industry terms used throughout this filing.



1

---



GLOSSARY




|Term                    | Definition                                                                                                                                                                                                                                                                                    
|----------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                        |                                                                                                                                                                                                                                                                                               
|Adsorb                  | A process by which molecules
		are taken up on the surface of a solid by physical or chemical action.
		Large amounts of gases may be adsorbed on the surface of a porous
		material such as coal.                                                                                            
|                        |                                                                                                                                                                                                                                                                                               
|Barrel                  | In the energy industry, a
		barrel is a unit of volume measurement used for petroleum and is
		equivalent to 42 U.S. gallons measured at 60° Fahrenheit.                                                                                                                                      
|                        |                                                                                                                                                                                                                                                                                               
|Basin                   | A depressed area where
		sediments have accumulated during geologic time and considered to be
		prospective for oil and gas deposits.                                                                                                                                                         
|                        |                                                                                                                                                                                                                                                                                               
|Blowout                 | An uncontrolled flow of oil,
		gas, water or mud from a wellbore caused when drilling activity
		penetrates a rock layer with natural pressures greater than the drilling
		mud in the borehole.                                                                                              
|                        |                                                                                                                                                                                                                                                                                               
|Coal rank               | The classification of coal
		relative to other coals, according to their degree of metamorphism, or
		progressive alteration, in the natural series from lignite to
		anthracite. Synonymous with coal quality.                                                                               
|                        |                                                                                                                                                                                                                                                                                               
|Coalification process   | A progressive process
		(bacterial decay and heat) that turns decayed plant material (peat) into
		the various ranks of coal. The first stage (peat to lignite) is decay
		and the remaining stages are thermal. The major by-products are methane,
		carbon dioxide, and water.              
|                        |                                                                                                                                                                                                                                                                                               
|Completion / Completing | A well made ready to produce
		oil or natural gas. Completion involves cleaning out the well, running
		and cementing steel casing in the hole, adding permanent surface control
		equipment, and perforating the casing so oil or gas can flow into the
		well and be brought to the surface.
|                        |                                                                                                                                                                                                                                                                                               
|Desorb                  | The release of materials
		(e.g., gas molecules) from being adsorbed onto a surface. The opposite
		of adsorb.                                                                                                                                                                                
|                        |                                                                                                                                                                                                                                                                                               
|Development             | The phase in which a proven
		oil or gas field is brought into production by drilling production
		(development) wells.                                                                                                                                                                       
|                        |                                                                                                                                                                                                                                                                                               
|Division order          | A contract for the sale of
		oil or gas, by the holder of a revenue interest in a well or property,
		to the purchaser (often a pipeline transmission company).                                                                                                                               
|                        |                                                                                                                                                                                                                                                                                               
|Drilling                | The using of a rig and crew
		for the drilling, suspension, production testing, capping, plugging and
		abandoning, deepening, plugging back, sidetracking, redrilling or
		reconditioning of a well. Contrast to "Completion" definition.                                                    
|                        |                                                                                                                                                                                                                                                                                               
|Drilling logs           | Recorded observations made of
		rock chips cut from the formation by the drill bit, and brought to the
		surface with the mud, as well as rate of penetration of the drill bit
		through rock formations. Used by geologists to obtain formation data.                                        
|                        |                                                                                                                                                                                                                                                                                               
|Exploration             | The phase of operations which
		covers the search for oil or gas by carrying out detailed geological and
		geophysical surveys followed up where appropriate by exploratory
		drilling. Compare to "Development" phase.                                                                       



2

---



|Farm out                   | Assignment or partial
		assignment of an oil and gas lease from one lessee to another lessee                                                                                                                                                                                                                                                                                                                              
|-------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Gathering line / system    | A pipeline that transports
		oil or gas from a central point of production to a transmission line or
		mainline.                                                                                                                                                                                                                                                                                                          
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Gross acre                 | An acre in which a working
		interest is owned. The number of gross acres is the total number of
		acres in which a working interest is owned                                                                                                                                                                                                                                                                             
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Gross well                 | A well in which a working
		interest is owned. The number of gross wells is the total number of
		wells in which a working interest is owned.                                                                                                                                                                                                                                                                             
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Held-By-Production (HBP)   | Refers to an oil and gas
		property under lease, in which the lease continues to be in force,
		because of production from the property.                                                                                                                                                                                                                                                                                  
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Land services              | Services performed by an oil
		and gas company or agent, or landman, who negotiates oil and gas leases
		with mineral owners, cures title defects, and negotiates with other
		companies on agreements concerning the lease.                                                                                                                                                                                              
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Logging (electric logging) | Process of lowering sensors
		into a wellbore to acquire downhole recordings that indicate a well's
		rock formation characteristics and indications of hydrocarbons                                                                                                                                                                                                                                                      
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Methane                    | An organic chemical compound
		of hydrogen and carbon (i.e., hydrocarbon), with the simplest molecular
		structure (CH4)                                                                                                                                                                                                                                                                                                  
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Mineral Lease              | A legal instrument executed
		by a mineral owner granting exclusive right to another to explore,
		drill, and produce oil and gas from a piece of land                                                                                                                                                                                                                                                                    
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Natural gas quality        | The value of natural gas is
		calculated by its BTU content. A cubic foot of natural gas on the
		average gives off 1000 BTU, but the range of values is between 500 and
		1500 BTU. Energy content of natural gas is variable and depends on its
		accumulations which are influenced by the amount and types of energy
		gases they contain: the more non-combustible gases in a natural gas, the
		lower the Btu value.
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Net acre                   | A net acre is deemed to exist
		when the sum of fractional working interests owned in gross acres equals
		one. The number of net acres is the sum of fractional working interests
		owned in gross acres expressed as whole numbers and fractions thereof.                                                                                                                                                               
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Net well                   | A net well is deemed to exist
		when the sum of fractional working interests owned in gross wells equals
		one. The number of net wells is the sum of fractional working interests
		owned in gross wells expressed as whole numbers and fractions thereof.                                                                                                                                                               
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Operator                   | A person, acting for himself
		or as an agent for others and designated to the state authorities as the
		one who has the primary responsibility for complying with its rules and
		regulations in any and all acts subject to the jurisdiction of the state                                                                                                                                                              
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Pennsylvanian age          | Geologic age of sediments
		deposited 320 to 286 million years ago                                                                                                                                                                                                                                                                                                                                                        
|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|Permeability               | The property of a rock
		formation which quantifies the flow of a fluid through the pore spaces
		and into the wellbore.                                                                                                                                                                                                                                                                                                  



3

---



|Pooled, Pooled Unit    | A term frequently used
		interchangeably with "Unitization" but more properly used to denominate
		the bringing together of small tracts sufficient for the granting of a
		well permit under applicable spacing rules.                                                                                                                               
|---------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Proved Reserves        | Estimated quantities of crude
		oil, natural gas, condensate, or other hydrocarbons that geological and
		engineering data demonstrate with reasonable certainty to be
		commercially recoverable in the future from known reservoirs under
		existing conditions using established operating procedures and under
		current governmental regulations.
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Re-completion          | Completion of an existing
		well for production from one formation or reservoir to another formation
		or reservoir that exists behind casing of the same well.                                                                                                                                                                                       
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Reserves               | Generally the amount of oil
		or gas in a particular reservoir that is available for production.                                                                                                                                                                                                                                                      
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Reservoir              | The underground rock
		formation where oil and gas has accumulated. It consists of a porous
		rock to hold the oil or gas, and a cap rock that prevents its escape                                                                                                                                                                                    
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Reservoir Pressure     | The pressure at the face of
		the producing formation when the well is shut-in. It equals the shut in
		pressure at the wellhead plus the weight of the column of oil in the
		hole.                                                                                                                                                                  
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Shut-in well           | A well which is capable of
		producing but is not presently producing. Reasons for a well being
		shut-in may be lack of equipment, market or other.                                                                                                                                                                                                  
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Stratigraphic Trap     | A variety of sealed geologic
		containers capable of retaining hydrocarbons, formed by changes in rock
		type or pinch-outs, unconformities, or sedimentary features.                                                                                                                                                                                 
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Structural Trap        | A variety of sealed geologic
		structures capable of retaining hydrocarbons, such as a faults or a
		folds.                                                                                                                                                                                                                                           
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Tight gas sandstones   | Low permeability (having
		lower capacity to flow fluids through pore spaces) sedimentary rocks
		with natural gas occuring in the pore spaces. Contrast to high
		permeability sandstone definition.                                                                                                                                                 
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Undeveloped acreage    | Leased acreage which has yet
		to be drilled on to test the potential for hydrocarbons.                                                                                                                                                                                                                                                               
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Unitize, Unitization   | Joint operations to maximize
		produced hydrocarbon recovery among separate operators within a common
		reservoir                                                                                                                                                                                                                                     
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Western Interior Basin | Ancient inland sea and area
		of sediment deposition which divided North America into two separate
		landmasses in the Late Cretaceous Period, approximately 75 to 80 million
		years ago.                                                                                                                                                            
|                       |                                                                                                                                                                                                                                                                                                                                                       
|Working Interest       | The right granted to the
		lessee of a property to explore for and to produce and own oil, gas, or
		other minerals. The working interest owners bear the exploration,
		development, and operating costs on either a cash, penalty, or carried
		basis.                                                                                              



4

---



PART I



ITEM 1. DESCRIPTION
OF BUSINESS



(a) Business
Development



Petrol Oil and Gas,
Inc. was incorporated in the State of Nevada in March of 2000 as Euro Technology
Outfitters. On August 19, 2002, we executed an Asset Purchase Agreement with
Petrol Energy, Inc., whereby we issued 10,918,300 shares of our restricted
common stock to Petrol Energy in exchange for certain assets and liabilities.
The assets we acquired from Petrol Energy included approximately 289 oil and gas
mineral leases.



On August 20, 2002,
we amended our Articles of Incorporation to change our name from Euro Technology
Outfitters to Petrol Oil and Gas, Inc.



On August 21, 2002,
our then sole officer and director tendered 5,826,240 shares of our stock for
cancellation.



The above mentioned
events provide the platform for the current formation and operation of the
Company.



(b) Business of
Issuer



Petrol is an oil and
gas exploration, development and production company. Our primary business
objective is to create value in the company through the acquisition, development
and production of economic quantities of natural gas from buried coal seams,
denoted as coal-bed methane (CBM) and other gas bearing formations, as well as
the production of oil. The first step in value creation was achieved through the
acquisition of the mineral leases from Petrol Energy and others. Petrol has
continued its mineral leasing efforts and as of December 31, 2004 we have
acquired mineral lease agreements totaling approximately 169,000 gross acres.
Last quarter of 2004 was the first quarter of any significant income for Petrol
with total revenues from oil and gas production of approximately $866,924.



Petrol has Net Proved
Gas and Oil reserves which will generate Discounted Future Net Cash Flows of
about $23.28 Million. In addition, Petrol has Probable Gas reserves totaling
5.41 Billion cubic feet which will generate Discounted Future Net Cash Flow of
about $8.61 Million. Petrol's daily gas production at year end from its
Petrol-Neodesha project averaged about 2.90 Million cubic feet per day.



Petrol has drilled
and tested a total of 23 CBM wells on selected leases in its Kansas and Missouri
projects. Data from these wells will help us design a future drilling and gas
gathering program for these project areas.



Continued development
of Petrol's leased acreage that contains Proven reserves will be financed
primarily through revenues derived from current and ongoing oil and gas sales
and from debt related funding. Should we be successful in acquiring debt related
funding it should substantially accelerate the development process.



5

---

In Petrol's
leased areas that contain Probable and Possible gas reserves, Petrol will
determine whether it can produce sufficient amounts of oil and/or natural gas to
be commercially viable. If an area is shown to be commercially productive, we
intend to explore several methods of funding development and gas gathering
operations in that area. The most conservative method would be to limit
development to the extent it could be funded through revenues obtained from
sales of our ongoing oil and gas production. An accelerated development program
could be established by making use of Working Interest (WI) or Joint Venture
(JV) partners that would contribute to the costs of drilling and completion and
then share in revenues derived from future production. A further acceleration
plan could be established which would incur debt to fund drilling and gathering
activities at a pace that would allow greater leverage of our current lease
position. These economic alternatives may allow us to utilize our own financial
assets for the creation of value through the growth of our leased acreage
holdings, the acquisition of strategic oil and gas producing companies and
generally expand our existing operations.

The Market:
Natural Gas Supply and Demand

The National
Petroleum council estimates the US demand for natural gas to increase from 22
Trillion cubic feet (TCF) in 1998 to over 31 TCF by 2015. This nearly 50%
increase in demand for natural gas coupled with constrained supplies from
conventional sources and storage facilities suggests an urgent need for new gas
sources. Although conventional gas sources such as high permeability sandstones
currently supply about 60% of the US demand (13 TCF in 1998), projections
indicate a flat to declining supply through year 2015. The shortfall in
conventional gas supply is expected to be taken up by production from
un-conventional sources such as tight gas sandstones/shales, associated gas, and
CBM.

CBM shows great
promise as a future source of natural gas, with the US Geological Survey
estimating some 700 TCF contained in 6 major CBM basins in the continental US.
This constitutes an enormous reserve, almost the entire US demand for the next
25 years. The Western Interior Basin covering portions of Oklahoma, Kansas, and
Missouri is one of those 6 major basins. The Gas Research Institute estimates
CBM gas reserves in the Forrest City and Cherokee basin, the two sub-basins of
the Western Interior Basin contain approximately 7 TCF. Petrol's leases all lie
within one or both of these sub-basins

Given the
current volatility of the natural gas market, hedging has become a part of
Petrol's operating strategy. We believe the current supply and demand
fundamentals will lead to a strengthening in prices. Consequently, Petrol
intends to continually evaluate its hedge position, if any, and enter into
contracts accordingly.

CBM Production

CBM production
is similar to conventional natural gas production in terms of the physical
production facilities and the product produced. However, surface mechanics and
some production characteristics of CBM wells are quite different from
traditional natural gas production wells. Methane gas is created as part of the
coalification process. Coals vary in their methane gas content which is defined
by the industry as cubic feet of gas per ton of coal. Conventional natural gas
wells assume a porous and permeable reservoir, hydrocarbon migration and a
natural structural or stratigraphic trap. However, CBM is trapped in the
molecular structure of the coal itself until it is released by pressure changes,
resulting from water removal from the coal-bed.

6

---

Water
completely permeates coal-beds and the natural fracture system or cleats as they
are normally referred. In good producing areas the cleats are pervasive
throughout the coal-beds. CBM gas, principally methane, is adsorbed onto the
grain surfaces of the coal. To produce CBM, the water must be drawn off first,
lowering the pressure so that the methane gas will desorb from the coal thus
allowing gas to flow from the coal into the de-watered cleats that act as high
permeable conduits to the well bore, where gas can be produced at the well head.
These cleats are assumed to have been formed during the coalification and
uplifting processes. If cleat permeability is adequately developed it may allow
commercial quantities of methane gas to be produced from the well. The qualities
of productive CBM wells include coal quality, the content of natural gas per ton
of coal, thickness of the coal-beds, reservoir pressure, existence of natural
fractures, and overall permeability of the coal-bed.

CBM production
also differs from conventional gas production that normally starts at its
highest production rate and then declines with time. Because coal-beds have
water residing within the cleats the water needs to be withdrawn in order to
promote production of the adsorbed gases. Thus, for the case of CBM, initial
water production is high and diminishes with time. CBM gas production, however,
starts at a relatively low rate reaching a peak some months later and then
begins to decline.

CBM production
is attractive due to several geological factors. Coal stores six or seven times
as much gas as a conventional natural gas reservoir of equal rock volume due to
the large internal surface area of coal. Significant amounts of coal are
accessible at shallow depths, making well drilling and completion relatively
inexpensive. Finding costs are also low since methane occurs in coal deposits,
and the location of the Nation's coal resources is well defined by the USGS.

Corporate
Business Objectives

Petrol's
primary business objective is to create value in the company through the
production of economic quantities of natural gas from CBM and other producible
intervals. In the 6 major US CBM basins the coal-beds vary greatly in thickness,
quality and gas content. They also range in depths from very near surface, less
than 500 ft, to very deep, greater than 25,000 ft. The difficulty, risks and
costs associated with extracting CBM from deep formations increases quite
rapidly and nonlinearly with depth. Average depth for a well in the areas where
Petrol holds leases range between 600 ft and 1,700 ft.

Petrol intends
to achieve its objective of continuously creating value by:

1. Establishing
	suitable scaled and financed development programs to realize commercial
	production from proven reserves on our existing leased acreage.
2. Determining the
	appropriate financing and development methods to realize production from
	probable reserves in relative close proximity to our existing proven leased
	acreage.
3. Assessing farm
	out arrangements for non core leases or geographies.
4. Adding mineral
	leases in core areas to achieve economies of scale, while continually
	selling marginal and non strategic leased properties.
5. Acquiring and
	developing potentially high profit margin leased properties, including
	producing oil and gas fields.
6. Enhancing the
	value of our production through the use of marketing arrangements and
	forward sales of known production.

7

---

Developmental
Program

Petrol acquired
leases in the Forrest City and Cherokee Basins because the leased area had the
following attributes:

- relatively
	shallow CBM (<2,500 ft),
- good coal rank,
	gas content and distribution within the basin,
- low cost mineral
	leases,
- access to
	interstate pipeline systems, and
- nearby oil and
	gas services.

The Western
Interior Basin located in the mid-continent, where the Petrol leases are
located, shows great promise because the basin embodies an extensive aerial
distribution of near shallow buried coal-beds, appears to contain large
quantities of high quality natural gas and has several readily available
interstate pipelines for sales and distribution. It appeared that an area well
suited for Petrol's Coal Creek Project was in and around Coffey County, Kansas,
where gas bearing coals are contained within the Forrest City and Cherokee
basins, sub-basins of the larger Western Interior basin.

Since portions
of the acquired mineral leases have existing oil or gas wells, some of them are
being considered for re-completion in sandstones and/or coal-beds that appear
economically productive. These will add to our knowledge base and may provide
financial support for anticipated expansion. This developmental strategy is
exemplified in our Petrol-Neodesha project which produces approximately 2.9
Million cubic feet of gas per day.

Operational
Area

As an oil and
gas exploration and development company, Petrol's primary objective is the
development of CBM gas production projects. We identified CBM early on as an
area in the oil and gas industry that was gaining recognition as a viable source
of natural gas and was experiencing above average growth. Petrol expects to
focus investment efforts in natural gas well development projects located within
known or highly-likely gas-bearing CBM formations in southeastern Kansas and
western Missouri.

The Western
Interior Coal Region includes three basins in the central United States that
contain gas bearing coal deposits of similar area and rank. They are the Arkoma,
Forest City and Cherokee Basins. Together these three basins stretch from
western Arkansas and central Oklahoma northward through eastern Kansas and
western Missouri into central Iowa. Our primary interests lie within areas
overlaying the Cherokee basin and portions of the Forest City Basin which are
defined geographically as the area bounded to the north by Bourbon Arch, to the
east and southeast by Ozark Dome, and to the west by the Nemaha uplift,
encompassing northern Oklahoma, southeastern Kansas, and southwestern Missouri.

The Cherokee
Basin formation contains Pennsylvanian age coal-beds which are believed to be
relatively contiguous throughout the entire basin. Coal found throughout the
basin is generally of the same age and type and therefore theoretically should
contain similar quantities and quality of gas. Historically, the majority of CBM
gas production in Kansas has been in southeastern counties such as Labette,
Wilson, Neosho and Cherokee counties, where coal seams and black shale averaging
four feet in thickness produce commercial quantities of CBM gas. Our
Petrol-Neodesha project is located within this producing Cherokee basin area.

8

---

Petrol's
producing leases known as Petrol-Neodesha, in the Neosho and Wilson counties,
account for approximately 10,000 of the total 169,000 leased acres. These
properties are in active production with 72 CBM producing wells that produce
approximately 2.9 million cubic feet of gas per day. Studies to drill additional
wells, improve existing wells and enhance the gas gathering system are currently
being evaluated. These studies should serve to enhance the value of these
properties and provide knowledge for development of remaining leases in other
nearby counties where the company has leases. These properties have provided the
company with a revenue stream and certain value in proven reserves.

Currently there
are some CBM wells producing in the area of Petrol's Coal Creek project in
Coffey County, Kansas. That production information, along with drilling logs
from oil exploration in and surrounding our Coal Creek project area, typically
confirm the uniformity of the coal-beds, indicating coal seams similar to those
found to the south in our Petrol-Neodesha area. Furthermore, data derived from
logs, cores and gas production tests on Petrol's exploratory wells in Coffey
County overlying the northern extent of the Cherokee basin and the southern
portion of the Forrest City basin have shown good gas content and the ability to
produce gas during the de-watering process. The rate and scope of production and
delivery for this area is currently being analyzed.

We are
concentrating our efforts towards realizing value from existing production and
developmental leases, but will continue to enhance and perfect our lease
portfolio as and when opportunities arise.

Leasing
Activities

As of December
31, 2004, we have about 900 signed lease agreements totaling approximately
169,000 acres. These leases are contained within Coffey County, Kansas and the
adjacent counties of Anderson, Osage, Lyon, Franklin, Woodson, Wilson and Neosho
as well as Cass and Bates counties in western Missouri. In the event that we are
successful in the development phase of our plan and find commercially producible
gas or oil, we intend to lease additional available mineral rights to the extent
that we believe such land will further our exploration and development
activities and provide increased value to Petrol.

All of the
mineral leases that Petrol has executed grant it the exclusive right to explore
for and develop oil, gas and other hydrocarbons and minerals that may be
produced from wells drilled on the leased property without any depth
restrictions. Each lease also grants us rights of way to easements for laying
pipelines and servicing or drilling other wells in the vicinity of the leased
property.

Our lease
agreements vary both in term and price per acre. Some of our leases are for 2
year periods at $2/acre with extensions for 3 additional years, others are for 3
year periods at $3/acre with extensions for 3 additional years, while others are
for 5 years at $1/acre with extensions for 3 additional years, and finally
others are for 5 years at $10/acre with extensions for 3 additional years.

9

---

Our leases are
on a paid up basis. Petrol has agreed to pay each lessor a royalty equal to
12.5% of any oil, gas or other minerals that may be produced from wells drilled
on their leased property. In the event of a shut-in well capable of producing
oil or gas, we have agreed to pay the lessor a royalty per net mineral acre. All
the lease agreements allow Petrol to hold the lease with production.

Under its
leases, Petrol has the right to pool the leased property with other land owned
or leased by it in the immediate vicinity for the production of oil or gas. With
respect to shallow gas and associated hydrocarbons produced in conjunction
therewith, we have the right to pool or unitize the leased properties into a
development pool of a maximum of 3,000 acres if we have drilled at least 2 wells
within the pooled unit no later than 1 year after the expiration of the primary
term of the lease.

We have
completed a standard due diligence process on our leased property, including
obtaining a title or title insurance to confirm our rights to any oil, gas or
other minerals produced pursuant to our leases. Our final interest in any oil,
gas or other mineral that we produce may vary depending upon negotiations with
the mineral owners, financers, if any, as well organizations that we may
contract to perform drilling, completion and operating activities on our wells.

Petrol has
rights to a 100% working interest in approximately 169,000 gross acres located
in southeast Kansas and Western Missouri. A "working interest" is the operating
interest that gives us, as the operator, the right to drill, produce and conduct
operating activities on the property and a share of production. Petrol has a Net
Revenue interest (NRI) between 79.5% and 84.375% on all 169,000 gross acres. In
addition, Petrol has oil producing properties covering approximately 5,620
acres. On 2,560 acres of those 5,620 acres Petrol currently receives a NRI of
80%. Petrol also is a 20% member in Petrol Oil II LLC which receives a NRI of
80% from production covering about 680 acres. Similarly, Petrol is a 20% member
in Petrol-Paola LLC which receives a NRI of 80% from production on 460 acres.

Until the
acquisition of the Petrol-Neodesha gas producing property in Neosho and Wilson
counties, most of our capital expenditures were associated with the acquisition
of oil and gas mineral leases, raising capital and administrative costs. Our
strategy now shifts to that of realizing value from those expenditures through
the drilling and production of our properties, starting in our proven reserve
areas. We intend to continue to expand our lease base, as appropriate. The rate
of development will be carefully designed to blend external financing with
income form existing production and other sources.

Gas Purchase
and Sale Agreement



10

---

To reduce our
exposure to unfavorable changes in natural gas prices we utilize energy swaps in
order to have a fixed-price contract. These contracts allow us to be able to
predict with greater certainty the effective natural gas prices to be received
for hedged production and benefit operating cash flows and earnings when market
prices are less than the fixed prices provided under the contracts. However, we
will not benefit from market prices that are higher than fixed prices in
contracts for hedged production. If we are unable to provide the quantity that
we have contracted for we will have to go to the open market to purchase the
required amounts that hawse have contracted to provide.

In 2005, Petrol
entered into contracts with Seminole Energy Services LLC to sell 60,000 mmbtu
per month for the period of March 2005 to February 2006 at various fixed prices
with the overall average price of $5.99.

Governmental
Regulations

Regulation of
Oil and Natural Gas Production. Our oil and natural gas exploration,
production and related operations, when developed, are subject to extensive
rules and regulations promulgated by federal, state, tribal and local
authorities and agencies. For example, some states in which we may operate
require permits for drilling operations, drilling bonds and reports concerning
operations and impose other requirements relating to the exploration and
production of oil and natural gas. Such states may also have statutes or
regulations addressing conservation matters, including provisions for the
unitization or pooling of oil and natural gas properties, the establishment of
maximum rates of production from wells, and the regulation of spacing, plugging
and abandonment of such wells. Failure to comply with any such rules and
regulations can result in substantial penalties. The regulatory burden on the
oil and gas industry will most likely increase our cost of doing business and
may affect our profitability. Although we believe we are currently in
substantial compliance with all applicable laws and regulations, because such
rules and regulations are frequently amended or reinterpreted, we are unable to
predict the future cost or impact of complying with such laws. Significant
expenditures may be required to comply with governmental laws and regulations
and may have a material adverse effect on our financial condition and results of
operations.

Federal
Regulation of Natural Gas. The Federal Energy Regulatory Commission ("FERC")
regulates interstate natural gas transportation rates and service conditions,
which may affect the marketing of natural gas produced by us, as well as the
revenues that may be received by us for sales of such production. Since the
mid-1980's, FERC has issued a series of orders, culminating in Order Nos. 636,
636-A and 636-B ("Order 636"), that have significantly altered the marketing and
transportation of natural gas. Order 636 mandated a fundamental restructuring of
interstate pipeline sales and transportation service, including the unbundling
by interstate pipelines of the sale, transportation, storage and other
components of the city-gate sales services such pipelines previously performed.
One of FERC's purposes in issuing the order was to increase competition within
all phases of the natural gas industry. The United States Court of Appeals for
the District of Columbia Circuit largely upheld Order 636 and the Supreme Court
has declined to hear the appeal from that decision. Generally, Order 636 has
eliminated or substantially reduced the interstate pipelines' traditional role
as wholesalers of natural gas in favor of providing only storage and
transportation service, and has substantially increased competition and
volatility in natural gas markets.

11

---

The price we
may receive from the sale of oil and natural gas liquids will be affected by the
cost of transporting products to markets. Effective January 1, 1995, FERC
implemented regulations establishing an indexing system for transportation rates
for oil pipelines, which, generally, would index such rates to inflation,
subject to certain conditions and limitations. We are not able to predict with
certainty the effect, if any, of these regulations on our intended operations.
However, the regulations may increase transportation costs or reduce well head
prices for oil and natural gas liquids.

Environmental
Matters.

Our operations
and properties subject to extensive and changing federal, state and local laws
and regulations relating to environmental protection, including the generation,
storage, handling, emission, transportation and discharge of materials into the
environment, and relating to safety and health. The recent trend in
environmental legislation and regulation generally is toward stricter standards,
and this trend will likely continue. These laws and regulations may:

- require the
	acquisition of a permit or other authorization before construction or
	drilling commences and for certain other activities;
- limit or
	prohibit construction, drilling and other activities on certain lands lying
	within wilderness and other protected areas; and
- impose
	substantial liabilities for pollution resulting from our operations.

The permits
required for our operations may be subject to revocation, modification and
renewal by issuing authorities. Governmental authorities have the power to
enforce their regulations, and violations are subject to fines or injunctions,
or both. In the opinion of management, we are in substantial compliance with
current applicable environmental laws and regulations, and have no material
commitments for capital expenditures to comply with existing environmental
requirements. Nevertheless, changes in existing environmental laws and
regulations or in interpretations thereof could have a significant impact on us,
as well as the oil and natural gas industry in general.

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

12

---

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

Competition

We compete with
numerous other oil and gas exploration companies. Many of these competitors have
substantially greater resources than we do. Should a larger and better financed
company decide to directly compete with us, and be successful in its competitive
efforts, our business could be adversely affected.

Personnel

We currently
have four full time employees and two part time employees as well as eight
contract personnel that support and operate our field operations. As drilling
production activities increase, we intend to hire additional technical,
operational and administrative personnel as appropriate. None of our employees
are subject to any collective bargaining agreements; however, we have entered
into employment agreements with Paul Branagan, Gary Bridwell and John C.
Garrison. We expect a significant change in the number of full time employees
over the next 12 months. However, at this time we are unable to quantify exactly
how many. We intend to use the services of independent consultants and
contractors to perform various professional services, particularly in the area
of land services, drilling, water hauling, pipeline construction, well design,
well-site monitoring and surveillance, permitting and environmental assessment.
We believe that this use of third-party service providers may enhance our
ability to contain general and administrative expenses.

Our proposed
personnel structure could be divided into three broad categories: management and
professional, administrative, and project field personnel. As in most small
companies, the divisions between these three categories are somewhat indistinct,
as employees are engaged in various functions as projects and work loads demand.

AVAILABLE
INFORMATION

We file annual,
quarterly and special reports and other information with the SEC that can be
inspected and copied at the public reference facility maintained by the SEC at
450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549. Information regarding
the public reference facilities may be obtained from the SEC by telephoning
1-800-SEC-0330. The Company's filings are also available through the SEC's
Electronic Data Gathering Analysis and Retrieval System which is publicly
available through the SEC's website (www.sec.gov). Copies of such materials may
also be obtained by mail from the public reference section of the SEC at 450
Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.

13

---

ITEM 2.
DESCRIPTION OF PROPERTY

General Background

In fiscal 2004
we continued to build a solid asset base of mineral leases and in the fourth
quarter completed a significant asset purchase, which has substantial jump
started our operations. We anticipate commencing additional field development
through fiscal 2005.  Although our focus will be on development of our existing
properties, we also intend to continue seeking acquisition opportunities which
compliment our current portfolio. We intend to fund our development activity
primarily through use of cash flow from operations and cash on hand, while
pursuing substantial debt financing to fully develop our lease holdings.

As of December
31, 2004, we had estimated net reserves and future net income of:

|                           | Proved     
|-------------------------- | -----------
|                           | Developed  
|                           | Producing  
|Net Remaining Reserves     |            
|Oil
		(stock-tank barrels) | 63,251     
|Gas (mcf)                  | 3,923,563  
|                           |            
|Income Date                |            
|Future Net
		Cash Flows    | $15,234,926
|Discounted
		FNCF @10%     | $11,755,536

Current State
of Operations

Petrol-Neodesha
Project

On November 1,
2004, Petrol purchased mineral leases covering lands in Neosho and Wilson
Counties, Kansas, that included 72 producing gas wells and a gas gathering
system. The total purchase price was $10,000,000. Funding was accomplished using
funds received from a unit offering and a convertible note from Laurus Master
Fund. The producing property was named Petrol-Neodesha.

Petrol-Neodesha
covers about 10,000 gross mineral acres and includes 72 producing gas wells, 8
water disposal wells, about 56 miles of gas gathering and water lines as well as
gas compressor sites and a fully equipped operations and maintenance shop. Daily
gas production from Petrol-Neodesha at the end of December 2004 averaged
approximately 2.90 Million cubic feet per day.

Coal Creek
Project

As of December
31, 2004, Petrol had drilled and tested eighteen (18) wells in a
pilot/exploration program located within its leased acreage in Coffey County,
Kansas. Following drilling, logging and setting steel casing, these wells were
perforated in some of the coal intervals that appeared to contain gas. The
perforated coal intervals in some wells were acidizied and subsequently
fractured using conventional hydraulic techniques in order to stimulate
production. Wellheads and downhole pumping systems were used in the process of
de-watering the coals and their fractures or cleats. Daily water production
ranged between 50-350 barrels per day while produced gases were either flare
tested or shut-in at the wellhead. Petrol owns and operates two salt water
disposal wells on its Coal Creek properties.

14

---

Based on a
December 31, 2004 reserve report, Petrol has Proved Undeveloped gas reserves on
its Coal Creek Project totaling 1.08 Billion cubic feet and Probable Net
reserves of about 1.01 Billion cubic feet. Various alternatives for further
development of the field and the gas gathering infrastructure in this project
are currently being evaluated

Missouri
Project

During 2004
Petrol continued to acquire and evaluate mineral leases in Missouri. Petrol
drilled and tested five (5) exploratory wells in Cass County, Missouri and has
been acquiring leases covering about 20,000 acres in Cass and Bates counties,
Missouri.

Pomona Project

In 2004 Petrol
acquired mineral leases amounted to about 36,000 acres from CBM Energy Inc. The
acquisition included 17 wells, several miles of gas gathering and water disposal
pipelines, and a salt water disposal well. The Pomona project is located in
Douglas, Franklin and Osage counties, Kansas.

Petrol Oil
Project

Petrol also
owns and operates mineral leases covering about 5,620 acres that are oil
producing. Daily oil production from those leases as of the end of December 2004
averaged about 73.4 barrels of oil per day. Two of these oil field projects,
Petrol-Rantoul and Petrol Paolo, located within our leased area are operated and
maintained by Petrol and include 209 oil wells and 62 water flood injection
wells. Petrol is the managing member of the Limited Liability Companies that
provided funding for the purchase and renovation of these oil fields. The LLC's
receive the net revenue from these producing oil wells and Petrol receives
twenty percent (20%) of that net revenue.

Executive and
Field Offices

We currently maintain an
executive office at 3161 E. Warm Springs Road, Suite 300, Las Vegas, Nevada
89120. The space consists of approximately 1,864 square feet, which houses
administrative and corporate offices. The monthly rental for the space is $3,450
per month (increasing by the consumer price index as defined in the lease with
minimum annual increase of 3%) commencing April 15, 2004 and ending June 30,
2007 with the first three months free.

We also lease approximately
2,500 square feet of space in Waverly, Kansas, where our field and leasing
offices are located. This facility is leased on a month-to-month basis with our
monthly lease obligation being $300.

15

---

ITEM 3. LEGAL
PROCEEDINGS

Petrol is and
may become involved in various routine legal proceedings incidental to its
business. However, to Petrol's knowledge as of the date of this report, there
are no material pending legal proceedings to which Petrol is a party or to which
any of its property is subject.

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

We held our
annual meeting of stockholders on October 27, 2004. Business conducted at the
meeting included the following proposals:

1. To elect
	new directors to serve until the next annual meeting or until their
	successors are elected and qualified; Paul Branagan and Loren Moll were
	re-elected to serve as the Company's directors;
2. To confirm
	the reaffirmation of Weaver & Martin LLC as our independent auditors; and
3. To schedule
	the next annual meeting of stockholders.

Each share of
Common Stock was entitled to one vote. Only stockholders of record at the close
of business on September 15, 2004, were entitled to vote. The number of
outstanding shares at the time was 23,570,799 held by approximately 137
stockholders. The required quorum of stockholders was present at this meeting.

Votes on the
election of a new director were as follows:

|Director      | For        | Against | Abstentions
		and Broker Non-Votes
|------------- | ---------- | ------- | ----------------------------------
|Paul Branagan | 13,367,830 | 0       | 10,202,969                        
|Loren Moll    | 13,367,830 | 0       | 10,202,969                        

PART II

ITEM 5. MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) Market
Information

Since March 4,
2004, we have been eligible to participate in the over-the-counter securities
market through the National Association of Securities Dealers Automated
Quotation Bulletin Board System, under the trading symbol "POIG". The following
table sets forth the quarterly high and low bid prices for our Common Stock
during our last two fiscal years, as reported by a Quarterly Trade and Quote
Summary Report of the OTC Bulletin Board. The quotations reflect inter-dealer
prices, without retail mark-up, markdown or commission, and may not necessarily
represent actual transactions.

|            | 2004
|----------- | ----
|            | High
|1st Quarter | 0   
|2nd Quarter | 3.75
|3rd Quarter | 2.30
|4th Quarter | 2.50



16

---



(b) Holders of
Common Stock

As of March 31,
2005, we had approximately 128 stockholders of record of the 24,966,778 shares
outstanding. As of March 31, 2005, the closing price of our shares of common
stock was $2.35 per share.

(c) Dividends

We have never
declared or paid dividends on our Common Stock. We intend to follow a policy of
retaining earnings, if any, to finance the growth of the business and do not
anticipate paying any cash dividends in the foreseeable future. The declaration
and payment of future dividends on the Common Stock will be the sole discretion
of the Board of Directors and will depend on our profitability and financial
condition, capital requirements, statutory and contractual restrictions, future
prospects and other factors deemed relevant.

(d) Securities
Authorized for Issuance under Equity Compensation Plans

We currently
maintain a stock option plan to which incentive stock options to purchase shares
of common stock may be granted to employees, directors and consultants. This
2002/2003 stock option plan was adopted by our board of directors on December
16, 2002 and has not been approved by our stockholders. The following table sets
forth information as of December 31, 2004 regarding outstanding options granted
under the plan, warrants issued to consultants and options reserved for future
grant under the plan.

|Plan Category                                            | Number
		of shares to
		be issued upon exercise of outstanding options, warrants and rights
		(a) | Weighted-average exercise price of outstanding options, warrants and
		rights
		(b) | Number of
		shares remaining available for future issuance under equity compensation
		plans (excluding shares reflected in column (a))
		(c)
|-------------------------------------------------------- | ------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------- | ---------------------------------------------------------------------------------------------------------------------------------------------
|                                                         |                                                                                                   |                                                                                     |                                                                                                                                              
|Equity compensation plans
		approved by stockholders     | --                                                                                                | $ --                                                                                | --                                                                                                                                           
|                                                         |                                                                                                   |                                                                                     |                                                                                                                                              
|Equity compensation plans not
		approved by stockholders | 1,650,000                                                                                         | $ 1.30                                                                              | 650,000 (1)                                                                                                                                  
|                                                         |                                                                                                   |                                                                                     |                                                                                                                                              
|Total                                                    | 1,650,000                                                                                         | $ 1.30                                                                              | 650,000                                                                                                                                      

1. Options
	available for issuance under our 2002/2003 stock option plan, which we have
	issued 2,350,000 options as of December 31, 2004.

17

---

In our
2002/2003 Stock Option Plan, we have reserved for issuance an aggregate of
3,000,000 shares of common stock. This plan is intended to encourage directors,
officers, employees and consultants to acquire ownership of common stock. The
opportunity so provided is intended to foster in participants a strong incentive
to put forth maximum effort for its continued success and growth, to aid in
retaining individuals who put forth such effort, and to assist in attracting the
best available individuals to the Company in the future. As of December 31,
2004, 650,000 shares remain available for issuance under the stock option plan.

Recent Sales of
Unregistered Securities

On October 7,
2004, we completed a unit offering of 5,633,333 units, each unit consisting of 1
share of common stock and 1 warrant, resulting in cash net of offering costs of
$6,141,200. Each warrant entitles the investor the right to purchase 1 share of
our common stock at $1.50 per share at any time through September 8, 2007. We
believe that the issuance and sale of the shares was exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933
by virtue of Section 4(2) and Regulation D Rule 506. As part of the unit
offering, we were required to use commercially reasonable efforts to file a
registration statement with the SEC covering the units and have the registration
declared effective within 120 days of the last Closing under the unit offering.
As of the date of this report, the registration statement has not been declared
effective. The subscription agreement for the unit offering contains a
liquidated damage clause calling for us to pay damages ranging from 1%-2% for
each thirty day period the registration statement is not effective as follows; (i)
1% of the purchase price of the Units for the first 30 day period, (ii) 1.5% of
the purchase price of the Units for the second 30 day period, and (iii) 2% of
the purchase price of the Units for each 30 day period thereafter (i) and (ii).
We believe we have used commercially reasonable best efforts in an attempt to
have the registration statement declared effective and therefore will not be
subject to payment of the liquidated damages. However, in the event we are
required to pay the liquidated damages, the impact on our operations could be
material.

On December 2,
2004, we issued 35,000 shares of our restricted common stock to Fidelity
Insurance Company, Ltd. in accordance with Consulting Solutions' request
pursuant to its consulting agreement dated January 14, 2004. We believe that the
issuance of the shares was exempt from the registration and prospectus delivery
requirements of the Securities Act of 1933 by virtue of Section 4(2).

On December 2,
2004, we issued 90,000 shares of our restricted common stock to Hard Funding
Inc. pursuant to its consulting agreement dated January 14, 2004. We believe
that the issuance of the shares was exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).

On December 16,
2004, we issued a total of 90,000 shares of our restricted common stock to
CEOcast, Inc. 40,000 shares were issued pursuant to its consulting agreement
dated August 7, 2004 and 50,000 shares were issued as a finder's fee for the
Laurus transaction. We believe that the issuance of the shares was exempt from
the registration and prospectus delivery requirements of the Securities Act of
1933 by virtue of Section 4(2).

18

---

Subsequent
Issuances

On January 11,
2005, we issued 10,000 shares of our restricted common stock in lieu of cash
compensation to Anthony LoCascio for land and other services rendered to the
Company. We believe that the issuance of the shares was exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933
by virtue of Section 4(2).

On January 11,
2005, we issued 60,000 shares of our restricted common stock in lieu of cash
compensation to Russell A. Frierson for land and administrative support rendered
to the Company. We believe that the issuance of the shares was exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933
by virtue of Section 4(2).

On January 11,
2005, we issued 50,000 shares of our restricted common stock in lieu of a cash
bonus to David Polay for past CFO services rendered to the Company. We believe
that the issuance of the shares was exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).

On January 11,
2005, we issued 100,000 shares of our restricted common stock to Gary Bridwell
for completing one year of employment with the Company pursuant to his
employment agreement dated November 1, 2003. We believe that the issuance of the
shares was exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933 by virtue of Section 4(2).

On February 1,
2005, we entered into an agreement with Robert Howell wherein we agreed to grant
125,000 options to Mr. Howell at a price equal to the average of the last 22
trading days ending April 29, 2005. The options expire in 5 years. We believe
that the issuance of the shares was exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).

On February 7,
2005, we entered into a Consulting Agreement with CEOcast, Inc., wherein we
agreed to issue 40,000 shares of our common stock to CEOcast. We believe that
the issuance of the shares was exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).
As of the date of this filing the shares have not been issued.

On March 16,
2005, we entered into an agreement with CSC Group, wherein we agreed to grant
150,000 options to CSC at $2.04 per share of our common stock. The options
expire in 5 years. We believe that the issuance of the shares was exempt from
the registration and prospectus delivery requirements of the Securities Act of
1933 by virtue of Section 4(2).

On March 23,
2005, Laurus Master Fund, Ltd. converted $190,677.37 of accrued interest due
under the Convertible Term Note. Pursuant to the conversion rate of $1.50 we
issued 127,118 shares of our restricted common stock to Laurus on March 31,
2005. We believe that the issuance of the shares was exempt from the
registration and prospectus delivery requirements of the Securities Act of 1933
by virtue of Section 4(2).

On April 13,
2005, Laurus Master Fund, Ltd. converted $52,819.75 of accrued interest due
under the Convertible Term Note. Pursuant to the conversion rate of $1.50 we
will issue 35,213 shares of our restricted common stock to Laurus. We believe
that the issuance of the shares was exempt from the registration and prospectus
delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).
As of the date of this filing the shares have not been issued.

19

---

ITEM 6.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION

With the
exception of historical matters, the matters discussed herein are
forward-looking statements that involve risks and uncertainties. Forward-looking
statements include, but are not limited to, statements concerning anticipated
trends in revenues and net income, the date of introduction or completion of our
products, projections concerning operations and available cash flow. Actual
results and events could differ materially from those projected, anticipated, or
implicit, in the forward-looking statements as a result of the risk factors set
forth below and elsewhere in this report. The following discussion of our
financial condition and results of operations should be read in conjunction with
our financial statements and the related notes thereto appearing elsewhere
herein.

The following
review of operations for the year ended December 31, 2004 should be read in
conjunction with our Financial Statements and Notes included in this Form
10-KSB.

OVERVIEW AND
OUTLOOK

We are an oil
and gas exploration, development and production company. Our properties are
located in the Cherokee Basin along the Kansas and Missouri border. Our
corporate strategy is to continue building value in the Company through the
development and acquisition of gas and oil assets that exhibit consistent,
predictable, and long-lived production. Our current focus is Coal Bed Methane
reservoirs in the central U.S., which produce both Coal Bed Methane and
conventional gas.

Our recent
activities have consolidated a strong lease position in CBM that contains
quality proven gas reserves, some of which are adjacent to interstate pipeline
systems which would provide ready sales market for our produced gas. Our focus
now turns to developing and producing those leases so as to realize the value
held in them. With 169,000 gross leased acres the task of developing the
properties with wells on 160 acre spacing will involve in excess of 1,000 wells.

The last
quarter of 2004 was our first quarter to generate any significant income with
total revenues from oil and gas production amounting to approximately $822,739.
The revenues generated were primarily derived from the $10 million acquisition
of certain assets owned by Savage Resources, LLC and Savage Pipeline, LLC (the
"Petrol-Neodesha"). The acquisition includes leasehold rights to approximately
10,000 acres and 72 producing gas wells in the Thayer Gas Field, in Southeast
Kansas, 8 water disposal wells, about 56 miles of gas gathering and water lines
as well as gas compressor sites and a fully equipped operations and maintenance
shop. Daily gas production from Petrol-Neodesha at the end of December 2004
averaged 2.90 Million cubic feet per day. This purchase provides an ongoing
source of revenue and cash for the company, and moves us to the next stage of
value creation. A copy of the audited statement of combined revenues and direct
operating expenses and pro forma condensed financial statements for the purchase
of the assets from Savage Resources, LLC and Savage Pipeline, LLC are attached
to the Form 8-K/A filed on April 14, 2005.

20

---

During the
latter half of 2004 we acquired several oil producing properties with financing
primarily from outside investors that formed LLC's. These properties included
mineral leases, oil producing and water injection flood wells. We own the
mineral leases and operate the wells on behalf of the LLC's. In total we operate
about 318 oil wells and 120 water flood wells on about 5,620 gross acres. Daily
oil production as of the end of December 2004 averaged 73.4 barrels of oil per
day.

We intend to
continue seeking acquisition opportunities which compliment our current
production. We intend to fund our development activity primarily through use of
cash flow from operations and cash on hand, while seeking larger debt funding
opportunities sufficient enough to develop a greater portion of our mineral
leases.

Our revenue,
profitability and future growth rate depend substantially on factors beyond our
control, such as economic, political and regulatory developments and competition
from other sources of energy. Oil and natural gas prices historically have been
volatile and may fluctuate widely in the future. Sustained periods of low prices
for oil or natural gas could materially and adversely affect our financial
position, our results of operations, the quantities of oil and natural gas
reserves that we can economically produce and our access to capital.

Results of
Operations

The following
overview provides a summary of key information concerning our financial results
for the years ended December 31, 2004 and 2003.

|                                         | 2004         | 2003         | Increase    
|---------------------------------------- | ------------ | ------------ | ------------
|                                         | Amount       | Amount       | (Decrease)  
|Revenue                                  | $ 866,924    | $ -          | $ 866,924   
|                                         |              |              |             
|Expenses:                                |              |              |             
|Direct cost                              | 221,339      | -            | 221,339     
|General and administrative               | 1,000,029    | 343,941      | 656,088     
|Professional and consulting fees         | 1,906,036    | 1,374,754    | 531,282     
|Depreciation, depletion and amortization | 213,475      | -            | 213,475     
|Acquisition cost                         | 654,000      | -            | 654,000     
|Total                                    | 3,994,879    | 1,718,695    | 2,276,184   
|                                         |              |              |             
|Net loss from operations                 | (3,127,955)  | (1,718,695)  | (1,409,260) 
|Other income (expense):                  |              |              |             
|Interest and other income                | 39,417       | 1,067        | 38,350      
|Interest expense                         | (1,435,369)  | (16,156)     | (1,419,213) 
|Net loss                                 | $(4,523,907) | $(1,733,784) | $(2,790,123)

21

---

Year Ended
December 31, 2004 Compared to Year Ended December 31, 2003

Revenue:
Total revenue for the years ended December 31, 2004 and 2003 was $866,924 and
$0. Historically, we have been in a development stage, acquiring various mineral
leases and implementing all necessary capital improvements in order to become
efficient in our production efforts. During the first three quarters of 2004 we
had acquired and developed specific properties in order to begin production
during the fourth quarter of 2004. Upon commencement of production, we have
earned $142,298 through oil drilling efforts and $724,626 in gas production
efforts.

Expenses:

Direct costfor the years ended December 31, 2004 and 2003 were $221,339 and $-0-,
respectively, for and increase of $221,339. The increase is attributable to
costs associated with the production of gas and oil.

General and
administrative expenses for the years ended December 31, 2004 and 2003 were
$1,000,029 and $343,941, respectively, for an increase of $656,088. The increase
is attributable to the additional overhead incurred in connection with the
commencement of field operations.

Acquisition
cost for the years ended December 31, 2004 and 2003 were $654,000 and $0,
respectively, for an increase of $654,000. The increase is attributable to the
acquisition of leases from CBM Energy, Inc.

Professional
and consulting fees were $1,906,036 and $1,374,754 during the years ended
December 31, 2004 and 2003, for an increase of $531,282. During the first and
second quarters of 2004, we entered into several professional consulting
agreements in order to successfully execute the private placement in the third
quarter as well as obtain the required financing to complete the Petrol-Neodesha
acquisition, which was the primary reason for the increase in professional and
consulting fees.

Depreciation, depletion and amortization expense for the years ended
December 31, 2004 and 2003 were $213,475 and $0. Historically, as a development
stage company, we had not placed in service depreciable assets nor had we begun
production eliminating the need for a depletion expense. As of December 31,
2004, we have completed all current acquisitions obligations and have commenced
production.

Other
Income (Expense):

Interest and
other income for the years ended December 31, 2004 and 2003 was $39,417 and
$1,067, respectively, for an increase of $38,350 which was derived from our
$200,000 investment with CPA Investments.

Interest
Expense for the years ended December 31, 2004 and 2003 was $1,435,369 and
$16,156, respectively, for an increase of $1,419,213. During the year ended
December 31, 2004, we acquired financing in the form of a convertible note in
the amount of $8,000,000. Due to the nature of this debt instrument, we have
calculated and expensed beneficial conversion of the note, which attributes
$1,013,000 to the amount expensed. The additional increase over the prior year
is allocated to the accrual of normal principal balance of the loan.

22

---

Net Loss:
Our net loss for the years ended December 31, 2004 and 2003 was $4,523,907 and
$1,733,784, respectively, for an increase loss in the amount of $2,790,123. Of
these losses, approximately $1,800,000 was attributable to asset acquisitions
and financing arrangements and the balance to increased overhead in connection
with field operations and production costs.

Operation Plan

During the next
twelve months we plan to continue to focus our efforts on the sustained
development and production of CBM on our existing properties, pursuing strategic
acquisitions of producing properties and creating value by furthering our
business plan.

We intend to
fund portions of our field operations and development program through, capital
raised in our unit offering, from revenues obtained from sales of our CBM gas
and oil production, from outside lenders, and from proceeds of exercised
warrants and options. In addition, we may take on Joint Venture (JV) or Working
Interest (WI) partners that will contribute to the capital costs of drilling and
completion and then share in revenues derived from production. This economic
strategy may allow us to realize the value in our own financial assets toward
the growth of our leased acreage holdings, pursue the acquisition of strategic
oil and gas producing properties or companies and generally expand our existing
operations.

Our future
financial results will depend primarily on: (i) the ability to continue to
produce gas and oil from existing wells; (ii) the ability to discover commercial
quantities of natural gas and oil; (iii) the market price for oil and gas; and
(iv) the ability to fully implement our exploration and development program,
which is dependent on the availability of capital resources. In order to be
successful in all or any of these respects, the prices of oil and gas prevailing
at the time of production must be at a level allowing for profitable production,
and we must be able to obtain additional funding to increase our capital
resources.

Until late in
2004, we financed cash flow requirements through debt financing and the issuance
of common stock for cash and services. With the acquisition of the
Petrol-Neodesha and certain oil properties, we are currently providing ongoing
revenue and cash from these properties. As we expand operational activities, we
will weigh the pace of further drilling and development against the availability
of internal and external funding.

Liquidity and
Capital Resources

Financing.
On October 28, 2004, we entered into agreements with Laurus Master Fund, Ltd., a
Cayman Islands corporation. Under the terms of the Laurus Funds agreements we
issued a Secured Convertible Term Note (the "Note") in the aggregate principal
amount of $8.0 million and a five-year warrant (the "Warrant") to purchase
3,520,000 shares of our common stock at $2.00 per share and 1,813,333 shares of
our common stock at $3.00 per share. The Note is convertible into shares of our
common stock at a fixed conversion price of $1.50 per share. The Note has a
three-year term and bears an interest rate equivalent to the "prime rate"
published by the Wall Street Journal from time to time plus 3%, subject to a
floor of 7.5% per annum.

Our net
proceeds from the financing, after payment of fees and expenses to Laurus Funds
and its affiliates, were $7,652,500. We utilized $7.0 million of the proceeds
for the Petrol-Neodesha acquisition. In addition, we paid finders' fees of: (i)
$345,000 in cash; (ii) 50,000 shares of restricted common stock; and (iii)
issued a warrant to purchase 100,000 shares of our common stock at $2.00 per
share for a period of three years.

23

---

On January 28,
2005, we amended the Laurus Funds Secured Convertible Term Note and the
Registration Rights Agreement. Laurus agreed to move six months of principal
payments (January through May of 2005) to be paid on the Maturity Date (October
28, 2007). Additionally, Laurus agreed to extend certain filing and
effectiveness dates under the registration rights agreement. In consideration
for the amendment, we issued an additional common stock purchase warrant to
Laurus to purchase up to 1,000,000 shares of our common stock at $2.50 per share
for the first 666,667 shares and $3.00 per share for the next 333,333 shares.
Further, we are required to file a registration statement covering the new
warrant on or before August 1, 2005.

Cash Flows.
Since inception, we have financed cash flow requirements through debt financing
and the issuance of common stock for cash and services. As we expand operational
activities, we may continue to experience net negative cash flows from
operations, pending receipt of sales or development fees, and will be required
to obtain additional financing to fund operations through common stock offerings
and debt borrowings to the extent necessary to provide working capital.

In our unit
offering completed on October 7, 2004, we sold 5,633,333 units for a total
purchase price of $6,760,000, which net of the offering costs totaled
$6,141,200, all of which was paid in cash. Each unit consisted of 1 share of
restricted common stock and 1 warrant.

The following
summarizes private placement offerings completed during 2004 and 2003:

|Date    | Description                  | Shares    | Price per
		Share | Net Cash
		Proceeds | Warrants              | Exercise Price
|------- | ---------------------------- | --------- | ----------------- | ------------------- | --------------------- | --------------
|        |                              |           |                   |                     |                       |               
|4/2003  | Miscellaneous Sales          | 450,000   | $0.75             | $337,500            | N/a                   | N/a           
|        |                              |           |                   |                     |                       |               
|12/2003 | IPO - Common Stock           | 2,350,473 | $1.00             | $2,286,098          | N/a                   | N/a           
|        |                              |           |                   |                     |                       |               
|10/2004 | Unit Offering - Common Stock | 5,633,333 | $1.20             | $6,141,200          | 5,633,333             | $1.50         
|        |                              |           |                   |                     |                       |               
|10/2004 | Convertible Note             | n/a       | n/a               | $8,000,000          | 4,186,667
		2,146,666 | $2.00
		$3.00 

Satisfaction of
our cash obligations for the next 12 months.

A critical
component of our operating plan impacting our continued existence is to
efficiently manage the production from the Savage acquisition, our ability to
obtain additional capital through additional equity and/or debt financing, and
Joint Venture or Working Interest partnerships will also be important to our
expansion plans. In the event we experience any significant problems
assimilating acquired assets into our operations or cannot obtain the necessary
capital to pursue our strategic plan, we may have to significantly curtail our
operations. This would materially impact our ability to continue operations.

24

---

We believe that
with the proceeds of our unit offering, combined with the funds remaining in the
Laurus restricted account, we are able to proceed with the next phase of our
operations which is large field scale development. However, we anticipate the
need for a significant amount of funds in order to fully develop our leased
acreage.

Over the next
twelve months we believe that existing capital combined with cash flow from
operations will be sufficient to sustain operations and planned expansion.

We may incur
operating losses over the next twelve months. Our lack of operating history
makes predictions of future operating results difficult to ascertain. Our
prospects must be considered in light of the risks, expenses and difficulties
frequently encountered by companies in their early stage of development and
production, particularly companies in the oil and gas industry. Such risks
include, but are not limited to, an evolving and unpredictable business model
and the management of growth. To address these risks we must, among other
things, implement and successfully execute our business and marketing strategy,
continue to develop and upgrade technology and products, respond to competitive
developments, and attract, retain and motivate qualified personnel. There can be
no assurance that we will be successful in addressing such risks, and the
failure to do so can have a material adverse effect on our business prospects,
financial condition and results of operations.

Under our
current operating plan, we are required to make certain lease payments to
maintain our rights to develop and drill for oil and gas. These lease payments
are material obligations to us.

As of December
31, 2004, we had assets of $17,832,354, and $7,803,727 in liabilities (total
current liabilities of $2,588,433). Resulting in a stockholder's equity of
$10,028,627.

Summary of
product and research and development that we will perform for the term of our
plan.

Field
Development

Our original
plan of operation for field development started with identifying the most
promising and cost-effective drill sites on our current leased acres, drilling
and testing wells to prove reserves, completing the more promising test wells,
extracting the gas, oil and other hydrocarbons that we find, and delivering them
to market. We believe that we have leased enough land to move forward with our
field development and with the proceeds of our unit offering, combined with
approximately $850,000 being held in a restricted account by Laurus, we are
proceeding with the next phase of our operations which is large field scale
development.

Our
Petrol-Neodesha project has spacing for at least another 50 wells to fully
develop this existing leased acreage. As part of our agreement with Laurus
Master Funds during the purchase of this property approximately $850,000 was set
aside to continue developing and improving Petrol-Neodesha. With those available
funds, Petrol expects to begin drilling new infill wells, during the second
quarter of 2005. In addition we are in the process of enhancing our gas
gathering system with the addition of a set of new booster pumps and larger
diameter trunk lines. Finally, we have instituted a well remediation program for
some older producing wells that is anticipated to also enhance production.

25

---

During our two
year exploration and development phase of our plan of operation for the Coal
Creek and Missouri projects, we drilled and tested a total of 23 CBM wells.
These drilling and testing efforts have provided our geologists and engineers
with data that support the quantitative determination concerning the gas content
and commercially produceable amounts of CBM or other types of natural gas.
Eighteen of these exploratory/test wells are contained within our Coal Creek
project in Coffey county, Kansas. Most are in proximity to an existing
interstate gas pipeline and one is already included in a recent gas sales
contract. The total drilling depth for our Kansas project wells is approximately
1,700 ft.

Our Reserve
Report dated December 31, 2004 indicates Petrol has Proven Undeveloped gas
reserves on its leases in the Coal Creek Project totaling 1.08 Billion cubic
feet and Probable Net reserves of approximately 1.01 Billion cubic feet. Various
alternatives for further development of the field and the gas gathering
infrastructure in this project are currently being evaluated

The remaining
five exploratory/test wells were drilled on our Missouri Project in Cass County
Missouri. Again most were located in close proximity to an interstate gas
pipeline system. Since the Cherokee basin dips to the west the CBM formations in
Missouri are considerably shallower than in Kansas, with total depths being
about 700 ft.

In the field development stages
of our plan, each new well will be drilled and tested individually. The well,
upon a favorable evaluation of its producing capabilities, will be fully
completed and connected to our local gas gathering and water disposal pipelines.

When we have
identified a proposed drilling site, we as a licensed operator in the State of
Kansas and Missouri, will be engaged in all aspects of well site operations. As
the operator we will be responsible for permitting the well, which will include
obtaining permission from the Kansas Oil and Gas commission or Missouri relative
to spacing requirements and any other state and federal environmental clearances
required at the time that the permitting process commences. Additionally, we
will formulate and deliver to all interest owners an operating agreement
establishing each participant's rights and obligations in that particular well
based on the location of the well and the ownership. In addition to the
permitting process, we as the operator will be responsible for hiring the
driller, geologist and land men to make final decisions relative to the zones to
be targeted, confirming that we have good title to each leased parcel covered by
the spacing permit and to actually drill the well to the target zones. We will
be responsible for completing each successful well and connecting it to the most
appropriate portion of our gas gathering system.

As the operator
we will be the caretaker of the well once production has commenced. As the
operator, we will be responsible for paying bills related to the well, billing
working interest owners for their proportionate expenses in drilling and
completing the well, and selling the production from the well. Once the
production has been sold, we anticipate that the purchaser thereof will carry
out its own research with respect to ownership of that production and will send
out a division order to confirm the nature and amount of each interest owned by
each interest owner. Once a division order has been established and confirmed by
the interest owners, the production purchaser will issue the checks to each
interest owner in accordance with its appropriate interest. From that point
forward, we as operator will be responsible for maintaining the well and the
wellhead site during the entire term of the production or until such time as we
have been replaced or the site appropriately abandoned.

26

---

All aspects of
this described development process are in fact similar if not identical to those
we employ in our Petrol-Neodesha project that currently produces about 2.9
Million cubic feet of gas per day from 72 wells. In total Petrol operates in
excess of 500 wells, with 375 wells being oil or gas producing and the remaining
125 wells being injection/flood wells or salt water disposal wells.

We amended our
agreement with Mr. William Stoeckinger, a Certified Petroleum Geologist, from
Bartlesville, Oklahoma to extend the term of his agreement to November 1, 2006.
Mr. Stoeckinger provides geological services both in the assessment process and
in the development program. To date, Mr. Stoeckinger has reported good gas shows
in a number of the coal seams contained in the Cherokee Group, the primary
source of CBM production in the area.

Kansas Geologic
Society (KGS) joined us in our scientific effort designed to assess the gas
reserves from our CBM exploratory/test wells in eastern Kansas. KGS took samples
from coal beds found in our Coffey County wells. Their laboratory test results
yielded similar gas content values to those obtained by our geologist, Mr.
William Stoeckinger, that were derived from sampling of our other
exploratory/test wells. We view these independent gas content values quite
favorably since they indicate quantitative similarities to the CBM producing
coal beds found in other counties to the south. Woodson county being adjacent to
Coffey county.

Based on our
first series of exploratory/test wells we anticipate that each well in our
targeted area will cost approximately $30,000 to locate, drill and test, an
additional $105,000 to complete, plus an additional $1,000 per month per well to
pay for electricity, pulling and repairs, pumping and other miscellaneous
charges. In support of these operations we have working agreements with local
third parties to monitor and maintain our wells and perform drilling and
work-over activities.

Along with the
drilling and completion of our CBM production wells Petrol will formulate,
design and install a gas gathering and compression system to transport the gas
from wellhead to the high pressure interstate pipeline tap and sales market. Our
experience in Petrol-Neodesha will be brought to bear on these new areas in Coal
Creek or Missouri. We have identified several major interstate distribution
pipelines that operate within and pass through the counties in which we have
lease holdings. These include pipelines owned and operated by Southern Star, CMS
Energy, Enbridge and Kinder Morgan. We have initiated contact with two of these
companies to ascertain the specific locations of their pipelines, their
requirements to transport gas from us (including volume of gas and quality of
gas), and the costs to connect to their pipelines.

Presently, we
are determining the costs of transporting our gas products to these existing
interstate pipelines. The cost of installing a distribution infrastructure or
local gathering system will vary depending upon the distance the gas must travel
from wellhead to the compressor station and high pressure pipeline tap, and
whether the gas must be treated to meet the purchasing company's quality
standards. However, based on the close proximity of several major distribution
pipelines to our leased properties, plus our intent to drill as close to these
pipelines as practicable, we anticipate that the total cost of installing a
distribution infrastructure for a group of about 50-75 producing wells will be
approximately $6,500 each plus a one-time expense of $5,000 per well to tap into
the high pressure interstate pipeline and support a compressor and monitoring
system.

27

---

The prices
obtained for oil and gas are dependent on numerous factors beyond our control,
including domestic and foreign production rates of oil and gas, market demand
and the effect of governmental regulations and incentives. We have entered into
forward sales contracts for a portion of the gas and oil we presently produce.
We do not have any delivery commitments for gas or oil from wells not currently
drilled. However, due to the U.S. government's recent push toward increased
domestic production of energy sources, and the high demand for natural gas, we
do not anticipate any difficulties in selling any oil and gas we produce, once
it has been delivered to a distribution facility.

The timing of
most of our capital expenditures is discretionary. Currently there are no
material long-term commitments associated with any capital expenditure plans,
that are currently in the investigative planning stage. Consequently, we have a
significant degree of flexibility to adjust the level of such expenditures as
circumstances warrant. The level of our capital expenditures will vary in future
periods depending on energy market conditions and other related economic
factors.

Significant
changes in the number of employees.

We currently
have four full time employees and two part time employees as well as eight
contract personnel that support and operate our field operations. As drilling
production activities increase, we intend to hire additional technical,
operational and administrative personnel as appropriate. None of our employees
are subject to any collective bargaining agreements; however, we have entered
into employment agreements with Paul Branagan, Gary Bridwell and John C.
Garrison. We expect a significant change in the number of full time employees
over the next 12 months. However, at this time we are unable to quantify exactly
how many. We intend to use the services of independent consultants and
contractors to perform various professional services, particularly in the area
of land services, drilling, water hauling, pipeline construction, well design,
well-site monitoring and surveillance, permitting and environmental assessment.
We believe that this use of third-party service providers may enhance our
ability to contain general and administrative expenses.

Our proposed
personnel structure could be divided into three broad categories: management and
professional, administrative, and project field personnel. As in most small
companies, the divisions between these three categories are somewhat indistinct,
as employees are engaged in various functions as projects and work loads demand.

Off-Balance
Sheet Arrangements

We do not have
any off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results or operations, liquidity, capital
expenditures or capital resources that is material to investors.

28

---

Derivatives

Description of contracts.

To reduce our
exposure to unfavorable changes in natural gas prices we have entered into an
agreement to utilize energy swaps in order to have a fixed-price contract. This
contracts allows us to be able to predict with greater certainty the effective
natural gas prices to be received for hedged production and benefit operating
cash flows and earnings when market prices are less than the fixed prices
provided under the contracts. However, we will not benefit from market prices
that are higher than the fixed prices in our contracts for hedged production. If
we are unable to provide the quantity that we have contracted for we will have
to go to the open market to purchase the required amounts that we have
contracted to provide. For the year ended December 31, 2004 our fixed price
contracts hedged approximately 72% of our natural gas production. There was no
production in 2003.

The following table
summarizes our fixed price contracts as of December 31, 2004:



|                         | Year ended
		December 31,
|------------------------ | -------------------------
|                         | 2005                     
|Contract volume          | 480,000                  
|Weighted-ave fixed price | $5.85                    
|Fixed-price sales        | $2,810,250               
|Fair value liability     | ($157,960)               

Accounting.

All of our
fixed price contracts have been executed in connection with our natural gas
hedging program. The differential between the fixed price and the floating price
for each contract settlement period multiplied by the associated contract volume
is the contract profit or loss. All of our contracts are considered to be cash
flow hedges and there was no realized gains or losses in the year ending
December 31, 2004. For the contracts that were open at December 31, 2004, the
change in the fair value is shown as an adjustment to other comprehensive income
with a corresponding balance sheet asset or liability recorded.

Credit risk.

The counter
party to our fixed-price contracts is the customer buying our product. Should
the counter party default on a contract there can be no assurance that we will
be able to enter into a new contract with a third party on terms comparable to
the original contract. We have not experienced non-performance by our counter
party. Cancellation or termination of a fixed-price contract would subject a
greater portion of our natural gas production to market prices, which in a low
price environment, could have an adverse effect on our operating results.

Market risk.

Market risk for
fixed-price contracts has significantly been hedged.

29

---

Critical
Accounting Policies and Estimates

Our discussion
of financial condition and results of operations is based upon the information
reported in our financial statements. The preparation of these statements
requires us to make assumptions and estimates that affect the reported amounts
of assets, liabilities, revenues and expenses as well as the disclosure of
contingent assets and liabilities at the date of our financial statements. We
base our assumptions and estimates on historical experience and other sources
that we believe to be reasonable at the time. Actual results may vary from our
estimates due to changes in circumstances, weather, politics, global economics,
mechanical problems, general business conditions and other factors. Our
significant accounting policies are detailed in Note 1 to our financial
statements included in this Annual Report. We have outlined below certain of
these policies as being of particular importance to the portrayal of our
financial position and results of operations and which require the application
of significant judgment by our management.

Revenue
Recognition.    It is our policy to recognize revenue when production is
sold to a purchaser at a fixed or determinable price.

Full Cost
Method of Accounting.    We account for our oil and natural gas operations
using the full cost method of accounting. Under this method, all costs
associated with property acquisition, exploration and development of oil and gas
reserves are capitalized. Costs capitalized include acquisition costs,
geological and geophysical expenditures, lease rentals on undeveloped properties
and cost of drilling and equipping productive and non-productive wells. Drilling
costs include directly related overhead costs. All of our properties are located
within the continental United States.

Oil and Natural
Gas Reserve Quantities.    Reserve quantities and the related estimates of
future net cash flows affect our periodic calculations of depletion and
impairment of our oil and natural gas properties. Proved oil and natural gas
reserves are the estimated quantities of crude oil, natural gas and natural gas
liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future periods from known reservoirs under
existing economic and operating conditions. Reserve quantities and future cash
flows included in this Annual Report are prepared in accordance with guidelines
established by the SEC and FASB. The accuracy of our reserve estimates is a
function of:

the quality
	and quantity of available data;

the
	interpretation of that data;

the
	accuracy of various mandated economic assumptions; and

the
	judgments of the persons preparing the estimates.

Our proved
reserve information included in this Annual Report is based on estimates
prepared by McCune Engineering, P.E., independent petroleum engineers. Because
these estimates depend on many assumptions, all of which may differ
substantially from actual results, reserve estimates may be different from the
quantities of oil and natural gas that are ultimately recovered. We continually
make revisions to reserve estimates throughout the year as additional properties
are acquired. We make changes to depletion rates and impairment calculations in
the same period that changes to the reserve estimates are made.

30

---

All capitalized
costs of oil and gas properties, including estimated future costs to develop
proved reserves and estimated future costs of site restoration, are amortized on
the unit-of-production method using estimates of proved reserves as determined
by independent engineers. Investments in unproved properties and major
development projects are not amortized until proved reserves associated with the
projects can be determined.

Impairment of
Oil and Natural Gas Properties.    We review the value of our oil and
natural gas properties whenever management judges that events and circumstances
indicate that the recorded carrying value of properties may not be recoverable.
We provide for impairments on undeveloped property when we determine that the
property will not be developed or a permanent impairment in value has occurred.
Impairments of proved producing properties are calculated by comparing future
net undiscounted cash flows on a field-by-field basis using escalated prices to
the net recorded book cost at the end of each period. If the net capitalized
cost exceeds net future cash flows, the cost of the property is written down to
"fair value," which is determined using net discounted future cash flows from
the producing property. Different pricing assumptions or discount rates could
result in a different calculated impairment. We have never recorded any property
impairments.

Income Taxes.
   We provide for income taxes in accordance with Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes." Deferred income
taxes are provided for the difference between the tax basis of assets and
liabilities and the carrying amount in our financial statements. This difference
will result in taxable income or deductions in future years when the reported
amount of the asset or liability is settled. Since our tax returns are filed
after the financial statements are prepared, estimates are required in valuing
tax assets and liabilities. We record adjustments to actual in the period we
file our tax returns.

Effects of
Inflation and Pricing

The oil and
natural gas industry is very cyclical and the demand for goods and services of
oil field companies, suppliers and others associated with the industry puts
extreme pressure on the economic stability and pricing structure within the
industry. Typically, as prices for oil and natural gas increase, so do all
associated costs, and this proved to be the case in 2004 as oil and gas prices
rose significantly.  Costs for oilfield services and materials increased during
2004 due to higher demand as a result of the higher oil and gas prices.
 Material changes in prices impact revenue stream, estimates of future reserves,
borrowing base calculations of bank loans and value of properties in purchase
and sale transactions. Material changes in prices can impact the value of oil
and natural gas companies and their ability to raise capital, borrow money and
retain personnel. We anticipate the increased business costs will continue while
the commodity prices for oil and natural gas, and the demand for services
related to production and exploration, both remain high (from a historical
context) in the near term.

Asset Retirement Obligations

Our asset
retirement obligations relate to the abandonment of oil and gas wells. The
amounts recognized are based on numerous estimates and assumptions, including
future retirement costs, inflation rates and credit adjusted risk-free interest
rates. The following shows the changes in asset retirement obligations for the
financial statements presented herein.

|                                                 | Year ended
		December 31,
|------------------------------------------------ | -------------------------
|                                                 | 2004                     
|Asset retirement obligation,
		beginning of year | $ 6,200                  
|Liabilities incurred during
		the year           | 432,760                  
|Liabilities settled during
		the year            | --                       
|Accretion of expense                             | 6,657                    
|Asset retirement obligations,
		end of year      | $ 445,617                

Quantitative
and Qualitative Disclosure About Market Risk

Commodity Price
Risk

Since new well
development is an ongoing program, management expects revenue to grow in the
foreseeable future. In order to reduce natural gas price volatility, we have
entered into hedging transactions.

Normal hedging
arrangements have the effect of locking in for specified periods the prices we
would receive for the volumes and commodity to which the hedge relates.
Consequently, while hedges are designed to decrease exposure to price decreases,
they also have the effect of limiting the benefit of price increases.

Interest Rate
Risk

Our current
long term debt with Laurus Funds has a floating interest rate, with a floor of
7.5%.  Therefore, interest rate changes will impact future results of operations
and cash flows.

FACTORS THAT
MAY AFFECT OUR RESULTS OF OPERATION

At this stage
of our business operations, even with our good faith efforts, potential
investors have a possibility of losing their investment.

Because the
nature of our business is expected to change as a result of shifts in the market
price of oil and natural gas, competition, and the development of new and
improved technology, management forecasts are not necessarily indicative of
future operations and should not be relied upon as an indication of future
performance.

While
Management believes its estimates of projected occurrences and events are within
the timetable of its business plan, our actual results may differ substantially
from those that are currently anticipated.

We may need
additional capital in the future to finance our planned growth, which we may not
be able to raise or it may only be available on terms unfavorable to us or our
stockholders, which may result in our inability to fund our working capital
requirements and harm our operational results.

32

---

We have and
expect to continue to have substantial capital expenditure and working capital
needs. We believe that current cash on hand and the other sources of liquidity
are only sufficient enough to fund our operations through fiscal 2005. After
that time we will need to rely on cash flow operations or raise additional cash
to fund our operations, to fund our anticipated reserve replacement needs and
implement our growth strategy, or to respond to competitive pressures and/or
perceived opportunities, such as investment, acquisition, exploration and
development activities.

If low natural
gas and oil prices, operating difficulties or other factors, many of which are
beyond our control, cause our revenues or cash flows from operations to
decrease, we may be limited in our ability to spend the capital necessary to
complete our development, production exploitation and exploration programs. If
our resources or cash flows do not satisfy our operational needs, we will
require additional financing, in addition to anticipated cash generated from our
operations, to fund our planned growth. Additional financing might not be
available on terms favorable to us, or at all. If adequate funds were not
available or were not available on acceptable terms, our ability to fund our
operations, take advantage of unanticipated opportunities, develop or enhance
our business or otherwise respond to competitive pressures would be
significantly limited. In such a capital restricted situation, we may curtail
our acquisition, drilling, development, and exploration activities or be forced
to sell some of our assets on an untimely or unfavorable basis.

If we raise
additional funds through the issuance of equity or convertible debt securities,
the percentage ownership of our stockholders would be reduced, and these newly
issued securities might have rights, preferences or privileges senior to those
of existing stockholders.

Because our
common stock is deemed a low-priced "Penny" stock, an investment in our common
stock should be considered high risk and subject to marketability restrictions.

Since our
common stock is a penny stock, as defined in Rule 3a51-1 under the Securities
Exchange Act, it will be more difficult for investors to liquidate their
investment even if and when a market develops for the common stock. Until the
trading price of the common stock rises above $5.00 per share, if ever, trading
in the common stock is subject to the penny stock rules of the Securities
Exchange Act specified in rules 15g-1 through 15g-10. Those rules require
broker-dealers, before effecting transactions in any penny stock, to:

- Deliver to the
	customer, and obtain a written receipt for, a disclosure document;
- Disclose certain
	price information about the stock;
- Disclose the
	amount of compensation received by the broker-dealer or any associated
	person of the broker-dealer;
- Send monthly
	statements to customers with market and price information about the penny
	stock; and
- In some
	circumstances, approve the purchaser's account under certain standards and
	deliver written statements to the customer with information specified in the
	rules.

Consequently,
the penny stock rules may restrict the ability or willingness of broker-dealers
to sell the common stock and may affect the ability of holders to sell their
common stock in the secondary market and the price at which such holders can
sell any such securities. These additional procedures could also limit our
ability to raise additional capital in the future.

33

---

We may incur
substantial write-downs of the carrying value of our gas and oil properties,
which would adversely impact our earnings.

We intend to
periodically review the carrying value of our gas and oil properties under the
full cost accounting rules of the Securities and Exchange Commission. Under
these rules, capitalized costs of proved gas and oil properties may not exceed
the present value of estimated future net revenues from proved reserves,
discounted at an annual rate of 10%. Application of this "ceiling" test requires
pricing future revenue at the un-escalated prices in effect as of the end of
each fiscal quarter and requires a write-down for accounting purposes if the
ceiling is exceeded, even if prices were depressed for only a short period of
time. We may be required to write down the carrying value of our gas and oil
properties when natural gas and oil prices are depressed or unusually volatile,
which would result in a charge against our earnings. Once incurred, a write-down
of the carrying value of our natural gas and oil properties is not reversible at
a later date.

Competition in
our industry is intense. We are very small and have an extremely limited
operating history as compared to the vast majority of our competitors, and we
may not be able to compete effectively.

We intend to
compete with major and independent natural gas and oil companies for property
acquisitions. We will also compete for the equipment and labor required to
operate and to develop natural gas and oil properties. The majority of our
anticipated competitors have substantially greater financial and other resources
than we do. In addition, larger competitors may be able to absorb the burden of
any changes in federal, state and local laws and regulations more easily than we
can, which would adversely affect our competitive position. These competitors
may be able to pay more for natural gas and oil properties and may be able to
define, evaluate, bid for and acquire a greater number of properties than we
can. Our ability to acquire additional properties and develop new and existing
properties in the future will depend on our ability to conduct operations, to
evaluate and select suitable properties and to consummate transactions in this
highly competitive environment. In addition, some of our competitors have been
operating in our core areas for a much longer time than we have and have
demonstrated the ability to operate through industry cycles.

We are highly
dependent on Paul Branagan, our CEO, president and chairman. The loss of Mr.
Branagan, whose knowledge, leadership and technical expertise upon which we
rely, would harm our ability to execute our business plan.

Our success
depends heavily upon the continued contributions of Paul Branagan, whose
knowledge, leadership and technical expertise would be difficult to replace, and
on our ability to retain and attract experienced engineers, geoscientists and
other technical and professional staff. We have entered into an employment
agreement with Mr. Branagan; however, maintain no key person insurance on Mr.
Branagan. In addition, Mr. Branagan is an officer and director of other public
companies, which may impact the amount of his time spent on our business
matters. If we were to lose his services, our ability to execute our business
plan would be harmed and we may be forced to cease operations until such time as
we could hire a suitable replacement for Mr. Branagan.

34

---

Gas and Oil
prices are volatile. This volatility may occur in the future, causing negative
change in cash flows which may result in our inability to cover our capital
expenditures.

Our future
revenues, profitability, future growth and the carrying value of our properties
is anticipated to depend substantially on the prices we may realize for our
natural gas and oil production. Our realized prices may also affect the amount
of cash flow available for capital expenditures and our ability to borrow and
raise additional capital.

Natural gas and
oil prices are subject to wide fluctuations in response to relatively minor
changes in or perceptions regarding supply and demand. Historically, the markets
for natural gas and oil have been volatile, and they are likely to continue to
be volatile in the future. For example, natural gas and oil prices declined
significantly in late 1998 and 1999 and, for an extended period of time,
remained substantially below prices obtained in previous years. Among the
factors that can cause this volatility are:

- worldwide or
	regional demand for energy, which is affected by economic conditions;
- the domestic and
	foreign supply of natural gas and oil;
- weather
	conditions;
- domestic and
	foreign governmental regulations;
- political
	conditions in natural gas and oil producing regions;
- the ability of
	members of the Organization of Petroleum Exporting Countries to agree upon
	and maintain oil prices and production levels; and
- the price and
	availability of other fuels.

It is
impossible to predict natural gas and oil price movements with certainty. Lower
natural gas and oil prices may not only decrease our future revenues on a per
unit basis but also may reduce the amount of natural gas and oil that we can
produce economically. A substantial or extended decline in natural gas and oil
prices may materially and adversely affect our future business enough to force
us to cease our business operations. In addition, our financial condition,
results of operations, liquidity and ability to finance planned capital
expenditures will also suffer in such a price decline. Further, natural gas and
oil prices do not necessarily move together.

Drilling wells
is speculative, often involving significant costs that may be more than our
estimates, and may not result in any addition to our production or reserves. Any
material inaccuracies in drilling costs, estimates or underlying assumptions
will materially affect our business.

Developing and
exploring for natural gas and oil involves a high degree of operational and
financial risk, which precludes definitive statements as to the time required
and costs involved in reaching certain objectives. The budgeted costs of
drilling, completing and operating wells are often exceeded and can increase
significantly when drilling costs rise due to a tightening in the supply of
various types of oilfield equipment and related services. Drilling may be
unsuccessful for many reasons, including title problems, weather, cost overruns,
equipment shortages and mechanical difficulties. Moreover, the successful
drilling of a natural gas or oil well does not ensure a profit on investment.
Exploratory wells bear a much greater risk of loss than development wells. A
variety of factors, both geological and market-related, can cause a well to
become uneconomical or only marginally economic. Our initial drilling and
development sites, and any potential additional sites that may be developed,
require significant additional exploration and development, regulatory approval
and commitments of resources prior to commercial development. Any success that
we may have with these wells or any future drilling operations will most likely
not be indicative of our current or future drilling success rate, particularly,
because we intend to emphasize on exploratory drilling. If our actual drilling
and development costs are significantly more than our estimated costs, we may
not be able to continue our business operations as proposed and would be forced
to modify our plan of operation.

35

---

Development of
our reserves, when established, may not occur as scheduled and the actual
results may not be as anticipated. Drilling activity may result in downward
adjustments in reserves or higher than anticipated costs. Our estimates will be
based on various assumptions, including assumptions required by the Securities
and Exchange Commission relating to natural gas and oil prices, drilling and
operating expenses, capital expenditures, taxes and availability of funds. The
process of estimating our natural gas and oil reserves is anticipated to be
extremely complex, and will require significant decisions and assumptions in the
evaluation of available geological, geophysical, engineering and economic data
for each reservoir. Due to our inexperience in the oil and gas industry and
development stage operations, our estimates may not be reliable enough to allow
us to be successful in our intended business operations. Our actual production,
revenues, taxes, development expenditures and operating expenses will likely
vary from those anticipated. These variances may be material.

The natural gas
and oil business involves numerous uncertainties and operating risks that can
prevent us from realizing profits and can cause substantial losses.

Our
development, exploitation and exploration activities may be unsuccessful for
many reasons, including weather, cost overruns, equipment shortages and
mechanical difficulties. Moreover, the successful drilling of a natural gas and
oil well does not ensure a profit on investment. A variety of factors, both
geological and market-related, can cause a well to become uneconomical or only
marginally economical. In addition to their cost, unsuccessful wells can hurt
our efforts to replace reserves.

The natural gas
and oil business involves a variety of operating risks, including:

- fires;
- explosions;
- blow-outs and
	surface cratering;
- uncontrollable
	flows of oil, natural gas, and formation water;
- natural
	disasters, such as hurricanes and other adverse weather conditions;
- pipe, cement, or
	pipeline failures;
- casing collapses;
- embedded oil
	field drilling and service tools;
- abnormally
	pressured formations; and
- environmental
	hazards, such as natural gas leaks, oil spills, pipeline ruptures and
	discharges of toxic gases.

36

---

If we
experience any of these problems, it could affect well bores, gathering systems
and processing facilities, which could adversely affect our ability to conduct
operations. We could also incur substantial losses as a result of:

- injury or loss of
	life;
- severe damage to
	and destruction of property, natural resources and equipment;
- pollution and
	other environmental damage;
- clean-up
	responsibilities;
- regulatory
	investigation and penalties;
- suspension of our
	operations; and
- repairs to resume
	operations.

Because we
intend to use third-party drilling contractors to drill our wells, we may not
realize the full benefit of worker compensation laws in dealing with their
employees. Our insurance does not protect us against all operational risks. We
do not carry business interruption insurance at levels that would provide enough
funds for us to continue operating without access to other funds. For some
risks, we may not obtain insurance if we believe the cost of available insurance
is excessive relative to the risks presented. In addition, pollution and
environmental risks generally are not fully insurable. If a significant accident
or other event occurs and is not fully covered by insurance, it could impact our
operations enough to force us to cease our operations.

The
unavailability or high cost of drilling rigs, equipment, supplies, personnel and
other services could adversely affect our ability to execute on a timely basis
our development, exploitation and exploration plans within our budget.

Shortages or an
increase in cost of drilling rigs, equipment, supplies or personnel could delay
or interrupt our operations, which could impact our financial condition and
results of operations. Drilling activity in the geographic areas in which we
conduct drilling activities may increase, which would lead to increases in
associated costs, including those related to drilling rigs, equipment, supplies
and personnel and the services and products of other vendors to the industry.
Increased drilling activity in these areas may also decrease the availability of
rigs. We do not have any contracts with providers of drilling rigs and we cannot
assure you that drilling rigs will be readily available when we need them.
Drilling and other costs may increase further and necessary equipment and
services may not be available to us at economical prices.

We are subject
to complex laws and regulations, including environmental regulations, which can
adversely affect the cost, manner or feasibility of doing business.

Development,
production and sale of natural gas and oil in the United States are subject to
extensive laws and regulations, including environmental laws and regulations. We
may be required to make large expenditures to comply with environmental and
other governmental regulations. Matters subject to regulation include:

- location and
	density of wells;
- the handling of
	drilling fluids and obtaining discharge permits for drilling operations;

37

---

- accounting for
	and payment of royalties on production from state, federal and Indian lands;
- bonds for
	ownership, development and production of natural gas and oil properties;
- transportation of
	natural gas and oil by pipelines;
- operation of
	wells and reports concerning operations; and
- taxation.

Under these
laws and regulations, we could be liable for personal injuries, property damage,
oil spills, discharge of hazardous materials, remediation and clean-up costs and
other environmental damages. Failure to comply with these laws and regulations
also may result in the suspension or termination of our operations and subject
us to administrative, civil and criminal penalties. Moreover, these laws and
regulations could change in ways that substantially increase our costs.
Accordingly, any of these liabilities, penalties, suspensions, terminations or
regulatory changes could materially adversely affect our financial condition and
results of operations enough to possibly force us to cease our business
operations.

Our oil and gas
operations may expose us to environmental liabilities.

Any leakage of
crude oil and/or gas from the subsurface portions of our wells, our gathering
system or our storage facilities could cause degradation of fresh groundwater
resources, as well as surface damage, potentially resulting in suspension of
operation of the wells, fines and penalties from governmental agencies,
expenditures for remediation of the affected resource, and liabilities to third
parties for property damages and personal injuries. In addition, any sale of
residual crude oil collected as part of the drilling and recovery process could
impose liability on us if the entity to which the oil was transferred fails to
manage the material in accordance with applicable environmental health and
safety laws.

Our lease
ownership may be diluted due to financing strategies we may employ in the future
due to our lack of capital.

To accelerate
our development efforts we plan to take on working interest partners that will
contribute to the costs of drilling and completion and then share in revenues
derived from production. In addition, we may in the future, due to a lack of
capital or other strategic reasons, establish joint venture partnerships or farm
out all or part of our development efforts. These economic strategies may have a
dilutive effect on our lease ownership and will more than likely reduce our
operating revenues.

We recently
completed an acquisition of certain assets and we may acquire more assets or
other businesses in the future.

We recently
acquired certain assets owned by Savage Resources, LLC and Savage Pipeline, LLC
for the purchase price of approximately $10 million, all of which was paid in
cash. This is the first big acquisition for our Company and Management team. Our
ability to successfully integrate the Savage acquisition into our existing
operations is anticipated to depend on a number of factors.

38

---

We may consider
acquisitions of other assets or other business. Any acquisition involves a
number of risks that could fail to meet our expectations and adversely affect
our profitability. For example:

The acquired
	assets or business may not achieve expected results;

We may incur
	substantial, unanticipated costs, delays or other operational or financial
	problems when integrating the acquired assets;

We may not be
	able to retain key personnel of an acquired business;

Our management's
	attention may be diverted; or

Our management
	may not be able to manage the acquired assets or combined entity effectively
	or to make acquisitions and grow our business internally at the same time.

If these
problems arise we may not realize the expected benefits of an acquisition.

Risks
Associated with Laurus Funds Financing

We have
substantial indebtedness to Laurus Master Fund, Ltd. which is secured by certain
assets acquired from Savage Resources, LLC and Savage Pipeline, LLC. If an event
of default occurs under the secured note issued to Laurus Funds, Laurus Funds
may foreclose on these assets and we may be forced to curtail our operations or
sell some of these assets to repay the note.

On October 28,
2004, we entered into an $8 million credit facility with Laurus Master Fund,
Ltd. pursuant to a secured convertible term note and related agreements. Subject
to certain grace periods, the notes and agreements provide for the following
events of default (among others):

Failure to pay
	interest and principal when due;

An uncured
	breach by us of any material covenant, term or condition in any of the notes
	or related agreements;

A breach by us
	of any material representation or warranty made in any of the notes or in
	any related agreement;

Any money
	judgment or similar final process is filed against us for more than $50,000;

Any form of
	bankruptcy or insolvency proceeding is instituted by or against us; and

Suspension of
	our common stock from our principal trading market for five consecutive days
	or five days during any ten consecutive days.

In the event of
a future default under our agreements with Laurus Funds, Laurus Funds may
enforce its rights as a secured party and we may lose all or a portion of the
acquired assets or be forced to materially reduce our business activities.

39

---

There can be no
assurance that we will satisfy all of the conditions of the agreements executed
in the private placement with Laurus Funds.

Pursuant to the
terms of certain agreements, we are subject to a condition subsequent to obtain
an effective registration statement permitting the resale of common stock issued
upon the exercise of the conversion rights of the purchaser and the exercise of
the warrants by the purchaser on or before one hundred days. Although we believe
that we will meet the deadline for obtaining an effective registration
statement, there can be no assurance that such a statement will be declared
effective within the time required. Failure to satisfy this condition subsequent
would constitute a default. In connection with the transaction, we have granted
to Laurus Funds a security interest in the assets purchased.

The issuance of
shares to Laurus Funds upon conversion of the convertible term note and exercise
of its warrants may cause immediate and substantial dilution to our existing
stockholders.

The issuance of
shares upon conversion of the convertible term note and exercise of warrants may
result in substantial dilution to the interests of other stockholders. Laurus
Funds may ultimately convert and sell the full amount issuable on conversion.
Although Laurus Funds in some cases may not, subject to certain exceptions,
convert their term note 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 Laurus Funds from converting and/or
exercising some of their holdings and then converting the rest of their
holdings. In this way, Laurus Funds could sell more than this limit while never
holding more than this limit, which will have the effect of further diluting the
proportionate equity interest and voting power of holders of our common stock.

It is likely at
the time shares of common stock are issued to Laurus Funds, the conversion price
of such securities will be less than the market price of the securities. The
issuance of common stock under the terms of our agreements with Laurus Funds
will result in dilution of the interests of the existing holders of common stock
at the time of the conversion. Furthermore, the sale of common stock owned by
Laurus Funds as a result of the conversion of the convertible term note may
result in lower prices for the common stock if there is insufficient buying
interest in the markets at the time of conversion.

Laurus Funds
has no obligation to convert shares if the market price is less than the
conversion price.

Laurus Funds
has no obligation to cause us to issue common stock if the market price is less
than the applicable conversion price. On October 28, 2004, the closing price of
our stock was $1.69. The convertible note has a conversion price of $1.50. Thus
the conversion rights granted to Laurus Funds was at a discount to the recent
closing price of the common stock. Laurus Funds has no obligation to convert the
securities or to accept common stock as payment for interest if the market price
of the securities for five trading days prior to a conversion date is less than
115% the conversion price. The amount of common stock that may be issued to
Laurus Funds is subject to certain limitations based on price, volume and/or the
inventory of our common stock held by Laurus Funds.

40

---

ITEM 7.
FINANCIAL STATEMENTS

See Index to
Financial Statements and Financial Statement Schedules appearing on page F-1
through F-23 of this Form 10-KSB.

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

None.

ITEM 8A. CONTROLS AND PROCEDURES

We maintain
disclosure controls and procedures designed to ensure that information required
to be disclosed in reports filed under the Securities Exchange Act of 1934, as
amended, is recorded, processed, summarized and reported within the specified
time periods. As of the end of the period covered by this report, our Chief
Executive Officer and Chief Financial Officer evaluated the effectiveness of our
disclosure controls and procedures. Based on the evaluation, which disclosed no
significant deficiencies or material weaknesses, our Chief Executive Officer and
Chief Financial Officer concluded that our disclosure controls and procedures
are effective. There were no changes in our internal control over financial
reporting that occurred during our most recent fiscal quarter that have
materially affected, or are reasonably likely to materially affect, our internal
control over financial reporting.

ITEM 8B. OTHER INFORMATION

None.

PART III

ITEM 9.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT.

The following
table sets forth the names and positions of our executive officers and
directors. Directors will be elected at our annual meeting of stockholders and
serve for one year or until their successors are elected and qualify. Officers
are elected by the Board and their terms of office are, except to the extent
governed by employment contract, at the discretion of the Board.

|NAME             | AGE | POSITION                                       
|---------------- | --- | -----------------------------------------------
|Paul T. Branagan | 61  | President, CEO, Chairman,
		Secretary/Treasurer
|Loren Moll       | 48  | Director                                       
|John C. Garrison | 53  | Chief Financial Officer                        

Duties,
Responsibilities and Experience

Paul Branagan,
president, CEO and chairman of the Company. Mr. Branagan graduated from the
University of Las Vegas Nevada with a B.S. in physics. From 1993 to the present
Mr. Branagan has been the President and Senior Scientist of Branagan &
Associates, Inc. From 1975 to 1993 he was the Project Manager, Assistant Oil and
Gas Division Manager and Senior Scientist of CER Corporation of Las Vegas,
Nevada. Since 1999, Mr. Branagan has been the President and a member of the
board of directors of Millennium Plastics Corporation, a 34 Act Reporting Nevada
Corporation.

41

---

Potential
conflict of interest: Paul Branagan, our president, chief executive officer
and chairman of the board, is an officer and director of Millennium Plastics
Corporation, another public company, which may impact the amount of his time
spent on our business matters. Further, Mr. Branagan is a director of Integrated
Environmental Technologies, Ltd., a 34 Act reporting company. Mr. Branagan may
have demands placed on his time, which will detract from the amount of time he
is able to devote to us. Mr. Branagan devotes at least 40 hours per week of his
business time and attention to our activities as required. Although Mr. Branagan
has other current business interests he will attend to our business as his first
priority. We consent to and understand this potential conflict of interest.

Loren W. Moll,
a director of the Company,has been a member of the law firm of Caldwell
& Moll, L.C. in Overland Park, Kansas since its establishment in November 1996.
Mr. Moll concentrates his practice in all areas of real estate law, including
commercial real estate transactions, breach of contract, escrow and title
disputes, commercial leasehold disputes, real estate broker liability, and oil
and gas. Mr. Moll holds a B.A. degree from the University of Kansas (1983) and
his Juris Doctor degree, Order of the Coif, from the University of Kansas School
of Law (1986) where he was Research Editor for the University of Kansas Law
Review. Mr. Moll was formerly a partner of the real estate law firm Lewis,
Rice & Fingersh from 1986 to 1994 and was associated with the international law
firm Bryan Cave LLP from 1994 to 1996.

John C.
Garrison, is Chief Financial Officer of the Company. Mr. Garrison
graduated from Kansas State University of Manhattan, Kansas with a B.S. in
Business Administration and Accounting. Mr. Garrison is a certified public
accountant with over twenty-five years of progressive experience in accounting,
auditing and financial management. From 1990 to the present Mr. Garrison serves
as the Certified Public Accountant for many companies, providing financial
management and accounting. From 1998 to present Mr. Garrison serves as a
Director and consultant for Quest Resource Corporation, a publicly held company.
From 1994 through 1999 Mr. Garrison served as Chief Accounting Officer and
Director for Infinity, Inc., a publicly held company. From 1986 through 1990 Mr.
Garrison served as Chief Financial Officer for Burnox, Inc., a multi-location
industrial distribution company. From 1976 through 1985, Mr. Garrison served as
a Certified Public Accountant, providing tax and audit staff of national and
local accounting firms.

Neither Mr.
Branagan nor Mr. Moll are considered independent directors.

Limitation of Liability of
Directors

Pursuant to the
Nevada General Corporation Law, our Articles of Incorporation exclude personal
liability for our Directors for monetary damages based upon any violation of
their fiduciary duties as Directors, except as to liability for any breach of
the duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, or any transaction from
which a Director receives an improper personal benefit. This exclusion of
liability does not limit any right which a Director may have to be indemnified
and does not affect any Director's liability under federal or applicable state
securities laws. We have agreed to indemnify our directors against expenses,
judgments, and amounts paid in settlement in connection with any claim against a
Director if he acted in good faith and in a manner he believed to be in our best
interests.

42

---

Election of
Directors and Officers.

Directors are
elected to serve until the next annual meeting of stockholders and until their
successors have been elected and qualified. Officers are appointed to serve
until the meeting of the Board of Directors following the next annual meeting of
stockholders and until their successors have been elected and qualified.

No Executive
Officer or Director of the Corporation has been the subject of any Order,
Judgment, or Decree of any Court of competent jurisdiction, or any regulatory
agency permanently or temporarily enjoining, barring suspending or otherwise
limiting him from acting as an investment advisor, underwriter, broker or dealer
in the securities industry, or as an affiliated person, director or employee of
an investment company, bank, savings and loan association, or insurance company
or from engaging in or continuing any conduct or practice in connection with any
such activity or in connection with the purchase or sale of any securities.

No Executive
Officer or Director of the Corporation has been convicted in any criminal
proceeding (excluding traffic violations) or is the subject of a criminal
proceeding which is currently pending.

No Executive
Officer or Director of the Corporation is the subject of any pending legal
proceedings.

Strategic
Advisory Board

We have
established a Strategic Advisory Board to provide our management with assistance
as the Company grows, with support, strategy, advice, debt facility and insight
on how best to position the Company. We entered into agreements with the two
members of the board that provide for expense reimbursements and stock and cash
compensation. The following is a discussion of our advisory board members'
background:

Robert
Howell has effectively managed corporate growth efforts in both start-up
companies and Fortune 100 companies for 35 years. Since 1988 his efforts have
been directed to the oil and gas, power and utility sectors in the energy
industry. As Executive Vice President for Duke Energy, he implemented various
programs that drove several of the growth efforts for the fastest growing
portion of the company for 4 years. As a Senior Vice President of UtiliCorp
United (Aquila), Mr. Howell directed the Corporate Development efforts of the
Company for 11 years. He now operates RL Howell & Associates, Inc. from which he
provides business organization, growth, financing and business operations
consulting services to a host of start up and mid size organizations. Prior to
1988, Mr. Howell's activities included corporate and venture capital work in the
high tech industry. During his career Mr. Howell has successfully executed over
75 acquisitions, joint ventures and divestitures throughout the U.S., Australia
and Europe. Mr. Howell's development programs have been responsible for over $10
Billion of asset growth. Mr. Howell received a BSEE degree from Iowa State
University (Tau Beta Pi and Eta Kappa Nu honor societies). Mr. Howell also holds
an MBA degree from the University of Minnesota.

43

---

Steve
Cochennet has spent over 18 years in corporate and operational roles in
the energy sector. From 1985 to 2002, Mr. Cochennet held several executive
positions with UtiliCorp United (Aquila) in Kansas City. His responsibilities
included finance, administration, operations, human resources, corporate
development, gas/energy marketing, and managing several start up operations.
Prior to his experience at UtiliCorp United, Mr. Cochennet served 6 years with
the Federal Reserve System. Mr. Cochennet formed the CSC Group, LLC through
which he supports a number of clients that include Fortune 500 corporations,
international companies, gas/electric utilities, outsource service providers, as
well as various start up organizations. The services provided include strategic
planning, capital formation, corporate development, executive networking and
transaction structuring. He also serves on several advisory boards. Mr.
Cochennet graduated from the University of Nebraska in Lincoln with a bachelor's
degree in economics and finance.

Advisory Board
Member Agreements

On March 16,
2005, we executed an agreement with CSC Group, wherein Steve Cochennet,
President of CSC Group, agreed to provide us with services to further our long
term strategy. The term of the agreement began on January 1, 2005. We agreed to
pay Mr. Cochennet $5,000 per month plus grant 150,000 options to CSC Group at
$2.04 per share for a period of five years. Mr. Cochennet will also receive 3%
of any debt facility or mezzanine financing he puts in place prior to December
31, 2005.

On March 18,
2005, we executed an agreement with Robert Howell, wherein Mr. Howell agreed to
provide us with services on specified assignments as needed by the Company. The
term of the agreement is for three months and began on February 1, 2005. We
agreed to compensate Mr. Howell $10,000 for each month plus pay for all
reasonable business and travel expenses, and grant Mr. Howell 125,000 options to
purchase our common stock at a price equal to the average of the last 22 trading
days ending April 29, 2005. The options will be fully vested and will have five
years in which to exercise them. If Mr. Howell is involved in finding sources of
debt for the Company, he will work with Mr. Cochennet and be paid an additional
fee by Mr. Cochennet.

Section 16(a)
Beneficial Ownership Reporting Compliance

Section 16(a)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
requires our executive officers and directors, and persons who beneficially own
more than ten percent of our common stock, to file initial reports of ownership
and reports of changes in ownership with the SEC. Executive officers, directors
and greater than ten percent beneficial owners are required by SEC regulations
to furnish us with copies of all Section 16(a) forms they file. Based upon a
review of the copies of such forms furnished to us and written representations
from our executive officers and directors, we believe that during the year ended
2004 there were no delinquent filers.

44

---

Audit Committee

We do not have
an Audit Committee, our board of directors during 2004, performed some of the
same functions of an Audit Committee, such as: recommending a firm of
independent certified public accountants to audit the annual financial
statements; reviewing the independent auditors independence, the financial
statements and their audit report; and reviewing management's administration of
the system of internal accounting controls. The Company does not currently have
a written audit committee charter or similar document.

Code of Ethics

A code of
ethics relates to written standards that are reasonably designed to deter
wrongdoing and to promote:

1. Honest and
	ethical conduct, including the ethical handling of actual or apparent
	conflicts of interest between personal and professional relationships;
2. Full, fair,
	accurate, timely and understandable disclosure in reports and documents that
	are filed with, or submitted to, the Commission and in other public
	communications made by an issuer;
3. Compliance with
	applicable governmental laws, rules and regulations;
4. The prompt
	internal reporting of violations of the code to an appropriate person or
	persons identified in the code; and
5. Accountability
	for adherence to the code.

We have not
adopted a corporate code of ethics that applies to our principal executive
officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions in that of our officers and
directors serves in all the above capacities.

Our decision to
not adopt such a code of ethics results from our having only two officers and
two directors operating as the sole management for the Company in 2004. We
believe that as a result of the limited interaction which occurs with having
only two officers and two directors for the Company eliminates the current need
for such a code, in that violations of such a code would be reported to the
party generating the violation.

Nominating Committee



Stock Option
and Non-Employee Directors' Plan

The following
description applies to the stock option plan which we adopted in December of
2002; 2,350,000 options have been granted as of December 31, 2004.

In December of
2002 reserved for issuance an aggregate of 3,000,000 shares of common stock
under our 2002/2003 Stock Option Plan and Non-Employee Directors' Plan. These
plans are intended to encourage directors, officers, employees and consultants
to acquire ownership of common stock. The opportunity so provided is intended to
foster in participants a strong incentive to put forth maximum effort for its
continued success and growth, to aid in retaining individuals who put forth such
efforts, and to assist in attracting the best available individuals to the
Company in the future. As of December 31, 2004, 650,000 shares remain available
for issuance.

45

---

Stock Option
Plan

Officers
(including officers who are members of the board of directors), directors (other
than members of the stock option committee to be established to administer the
stock option plan and the directors' plan) and other employees and consultants
and its subsidiaries (if established) will be eligible to receive options under
the planned stock option plan. The committee will administer the stock option
plan and will determine those persons to whom options will be granted, the
number of options to be granted, the provisions applicable to each grant and the
time periods during which the options may be exercised. No options may be
granted more than ten years after the date of the adoption of the stock option
plan.

Non-qualified
stock options will be granted by the committee with an option price equal to the
fair market value of the shares of common stock to which the non-qualified stock
option relates on the date of grant. The committee may, in its discretion,
determine to price the non-qualified option at a different price. In no event
may the option price with respect to an incentive stock option granted under the
stock option plan be less than the fair market value of such common stock to
which the incentive stock option relates on the date the incentive stock option
is granted.

Each option
granted under the stock option plan will be exercisable for a term of not more
than ten years after the date of grant. Certain other restrictions will apply in
connection with this plan when some awards may be exercised. In the event of a
change of control (as defined in the stock option plan), the date on which all
options outstanding under the stock option plan may first be exercised will be
accelerated. Generally, all options terminate 90 days after a change of control.

Option Grants

The board of
directors adopted a 2002/2003 stock option plan pursuant to which incentive
stock options or nonstatutory stock options to purchase up to 3,000,000 shares
of common stock may be granted to employees, directors and consultants. As of
December 31, 2004, 650,000 shares remain available for issuance under the stock
option plan. Pursuant to the plan, stock options were granted as follows:

|Date Granted      | Exercise Price
		Per Share | Number of
		Shares
|----------------- | -------------------------- | ------------------
|                  |                            |                   
|December 19, 2002 |                            |                   
|Granted           | $0.50 to $2.50             | 1,350,000         
|Exercised         | -                          | -0-               
|Cancelled         | -                          | -0-               
|Expired           |                            | 100,000           
|                  |                            |                   



46

---



|December 27, 2002   |                |          
|------------------- | -------------- | ---------
|Granted             | $0.50          | 700,000  
|Exercised           | $0.50          | 700,000  
|Cancelled           | -              | -0-      
|                    |                |          
|March 1, 2004       |                |          
|Granted             | $1.25 to $1.50 | 300,000  
|Exercised           | -              | -0-      
|Cancelled           | -              | -0-      
|                    |                |          
|November 1, 2004    |                |          
|Granted             | $0.50 - $1.00  | 100,000  
|Exercised           | -              | -0-      
|Cancelled           | -              | -0-      
|                    |                |          
|Total
		outstanding | $0.50 to $2.50 | 1,650,000

ITEM 10.
EXECUTIVE COMPENSATION

The following
table sets forth the cash compensation of our executive officer Paul Branagan
and our non-executive employee Gary Bridwell.

Summary
Compensation Table

|                               |      | Annual Compensation | Long Term Compensation
|------------------------------ | ---- | ------------------- | ----------------------
|                               |      |                     |                       
|Name and
			Principal Position | Year | Salary              | Bonus                 

|Paul
		Branagan,
		President               | 2004
		2003
		2002 | $166,666.75
		$145,417
		$35,000 | -0-
		-0-
		-0- | -0-
		-0-
		-0- | -0-
		-0-
		-0- | -0-
		-0-
		1,250,000(2) | -0-
		-0-
		-0- | $10,725(1)(3)
		-0-
		-0-
|------------------------------------------ | ------------------ | -------------------------------- | --------------- | --------------- | --------------- | ------------------------ | --------------- | -------------------------
|Gary Bridwell
		Field
		Operations Manager | 2004               | $125,000                         | -0-             | -0-             | 100,000         | -0-                      | -0-             | -0-                      

1. In November 20,
	2003, we amended Mr. Branagan's employment agreement granting Mr. Branagan a
	1/100 over riding royalty on wells we complete. On April 20, 2004, we
	amended Mr. Branagan's agreement to amend the royalty provisions. The over
	riding royalty is described in further detail below.
2. The options are
	exercisable at prices ranging from $.50 to $2.50 per share, pursuant to Mr.
	Branagan's Employment Agreement.
3. As of December
	31, 2004, $8,940 of the $10,725 over riding royalties has not been paid to
	Mr. Branagan.

47

---

Employment
Agreements

Paul Branagan

On December 19,
2002, we entered into an employment agreement with Paul Branagan. The term of
employment is three (3) years. Mr. Branagan serves as President, CEO, Chairman,
Secretary/Treasurer and Director. We agreed to pay Mr. Branagan a base salary of
$135,000 per annum for the first year of employment, increasing to $160,000 per
annum for the second and third year of his employment. In addition to the cash
compensation earned by Mr. Branagan, we granted Mr. Branagan an option to
purchase shares of our common stock as follows:

|Number of Shares Purchasable | Price Per Share
|---------------------------- | ---------------
|250,000                      | $0.50          
|250,000                      | $1.00          
|250,000                      | $1.50          
|250,000                      | $2.00          
|250,000                      | $2.50          

The options are
exercisable at any time and expire on the third anniversary of issuance or the
termination of Mr. Branagan's employment agreement.

On November 20,
2003, we amended Mr. Branagan's employment agreement to add a royalty provision
as follows:

1. Mr. Branagan
	shall receive a 1/100 Over Riding Royalty on any wells completed.
2. The Over Riding
	Royalty shall be paid as determined by our Board of Directors.
3. The term of the
	payment of the Over Riding Royalty shall be for the remaining term of the
	employment agreement and may be changed and/or extended at any time by our
	Board of Directors.
4. The term "Over
	Riding Royalty" shall be defined as a fractional interest in the gross
	production of oil and gas, in addition to the usual royalties paid to any
	lessor.

On April 20,
2004, we further amended Mr. Branagan's Employment Agreement to amend the
royalty provisions as follows:

1. Mr. Branagan
	shall receive a 1/100 Over Riding Royalty on production from any wells
	completed on Petrol's leased acreage.
2. The term of
	payment of the Over Riding Royalty shall be in perpetuity.

John C.
Garrison

On July 18,
2004, we executed an Employment Agreement with John C. Garrison, wherein Mr.
Garrison agreed to serve as our Chief Financial Officer. Mr. Garrison agreed to
work part time until his position requires a full time effort. We agreed to pay
Mr. Garrison an hourly rate of $150.00 with the expectation that the total
monthly efforts on behalf of the Company will require about 40 hours.

48

---

Non-Executive
Employment Agreement

On November 1,
2003, Petrol executed an Employment Agreement with Gary Bridwell, wherein Mr.
Bridwell agreed to serve as the Company's Field Operations Manager. We agreed to
pay Mr. Bridwell a starting salary of $10,000.00 per month and he is entitled to
participate in the Company's group health insurance and also is entitled to
utilize the Company credit card, which is for the sole use of Company business
and is subject to the policies of the Company covering such matters. On January
11, 2005, we issued 100,000 shares to Mr. Bridwell for completing on year of
employment with the Company.

Compensation
Committee

We currently do
not have a compensation committee of the board of directors. However, the board
of directors intends to establish a compensation committee, which is expected to
consist of three inside directors and two independent members. Until a formal
committee is established our entire board of directors will review all forms of
compensation provided to our executive officers, directors, consultants and
employees including stock compensation and loans.

Director
Compensation and Other Arrangements

Our Directors
who are not employees receive compensation of $1,000 for each meeting of the
board, as well as travel expenses if required. From time to time, certain
directors who are not employees may receive grants of options to purchase shares
of our common stock.

Termination of
Employment

There are no
compensatory plans or arrangements, including payments to be received from the
Company, with respect to any person named in Cash Consideration set out above
which would in any way result in payments to any such person because of his
resignation, retirement, or other termination of such person's employment with
the Company, or any change in control of the Company, or a change in the
person's responsibilities following a change in control of the Company.

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

The following
table presents information, to the best of our knowledge, about the beneficial
ownership of our common stock on March 31, 2005, held by those persons known to
beneficially own more than 5% of our capital stock and by our directors and
executive officers. The percentage of beneficial ownership for the following
table is based on 24,966,778 shares of common stock outstanding as of March 31,
2005.

Beneficial
ownership is determined in accordance with the rules of the Securities and
Exchange Commission and does not necessarily indicate beneficial ownership for
any other purpose. Under these rules, beneficial ownership includes those shares
of common stock over which the stockholder has sole or shared voting or
investment power. It also includes (unless footnoted) shares of common stock
that the stockholder has a right to acquire within 60 days after March 31, 2005
through the exercise of any option, warrant or other right. The percentage
ownership of the outstanding common stock, however, is based on the assumption,
expressly required by the rules of the Securities and Exchange Commission, that
only the person or entity whose ownership is being reported has converted
options or warrants into shares of our common stock.

49

---

Security Ownership of
Management

|Name of
		Beneficial Owner (1)              | Number
		of Shares | Percent of
		Outstanding Shares of Common Stock (2)
|------------------------------------------- | ------------------ | ---------------------------------------------------
|Paul
		Branagan, President                  | 1,750,000 (3)      | 7%                                                 
|Loren Moll,
		Director                      | 3,100,000          | 12%                                                
|John C. Garrison, Chief
		Financial Officer | 0                  | 0%                                                 
|Directors and Officers as a
		Group         | 4,850,000          | 19%                                                

1. As used in this
	table, "beneficial ownership" means the sole or shared power to vote, or to
	direct the voting of, a security, or the sole or shared investment power
	with respect to a security (i.e., thepower to dispose of, or to
	direct the disposition of, a security). The address of each person is care
	of the Company.
2. Figures are
	rounded to the nearest whole percent.
3. Includes
	1,250,000 options to purchase our restricted common stock at prices ranging
	from $0.50 to $2.50 per share.

Security Ownership of Certain
Beneficial Owners

|Name of
		Beneficial Owner (1)                                               | Number
		of Shares | Percent of
		Class (2)
|---------------------------------------------------------------------------- | ------------------ | ----------------------
|Wellington
		Management Company, LLP (3)
		75 State St.
		Boston, MA
		02109 | 2,500,000          | 10%                   
|Beneficial
		Owners as a Group                                               | 2,500,000          | 10%                   

1. As used in this
	table, "beneficial ownership" means the sole or shared power to vote, or to
	direct the voting of, a security, or the sole or shared investment power
	with respect to a security (i.e., thepower to dispose of, or to
	direct the disposition of, a security).
2. Figures are
	rounded to the nearest whole percent.
3. The 2,500,000
	shares represents the amount of shares Wellington Management Company, LLP ("WMC")
	may be deemed to beneficially own as investment advisor, which are held of
	record by clients of WMC. No such client of WMC is known to have such right
	or power with respect to more than five percent of this class of securities.

* The
information used for the table of Security Ownership of Certain Beneficial
Owners is based on the information reported on the beneficial owners Schedule
13G filings.

ITEM 12.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Paul Branagan

As part of Mr.
Branagan's employment agreement, as amended, we are obligated to pay Mr.
Branagan a perpetual 1/100 Over Riding Royalty on production from any wells
completed on our leased acreage. For the year ended December 31, 2004, Mr.
Branagan earned a total of $10,725 as part of the Over Riding Royalty.

50

---

ITEM 13.
EXHIBITS

|Exhibit
		Number | Description                                                                        
|---------------- | -----------------------------------------------------------------------------------
|(31-1)*          | Certification pursuant to
		Section 302 of the Sarbanes-Oxley Act for Paul Branagan
|(31-2)*          | Certification pursuant to
		Section 302 of the Sarbanes-Oxley Act for John Garrison
|(32-1)*          | Certification pursuant to
		Section 906 of the Sarbanes-Oxley Act for Paul Branagan
|(32-2)*          | Certification pursuant to
		Section 906 of the Sarbanes-Oxley Act for John Garrison

________________________

* Filed herewith

ITEM 14.
PRINCIPAL ACCOUNTANT FEES AND SERVICES

(1) AUDIT FEES

The aggregate
fees billed for professional services rendered by Weaver & Martin, LLC, for the
audit of our annual financial statements and review of the financial statements
included in our Form 10-QSB or services that are normally provided by the
accountant in connection with statutory and regulatory filings or engagements
for fiscal years 2004 and 2003 were $98,127 and $38,996, respectively.

(2)
AUDIT-RELATED FEES

NONE

(3) TAX FEES

The aggregate
fees to be billed by Weaver & Martin LLC for professional services to be
rendered for tax fees for fiscal years 2004 and 2003 were $5,000 and $805,
respectively.

(4) ALL OTHER
FEES

The aggregate
fees for professional services for audit related services relating to the
Registration Statement on Form SB-2 for fiscal years 2004 and 2003 were $20,426
and $15,000, respectively. There were no other fees to be billed by Weaver &
Martin LLC for the fiscal years 2004 and 2003 other than the fees described
herein and above.

(5) AUDIT
COMMITTEE POLICIES AND PROCEDURES

We do not have
an audit committee.

(6) If greater
than 50 percent, disclose the percentage of hours expended on the principal
accountant's engagement to audit the registrant's financial statements for the
most recent fiscal year that were attributed to work performed by persons other
than the principal accountant's full-time, permanent employees.

Not applicable.

51

---

SIGNATURES

In accordance
with Section 13 or 15(d) of the Securities Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

PETROL OIL AND
GAS, INC.

By: /s/Paul
Branagan

Paul Branagan, President

Date: April
27, 2005

In accordance
with the Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.

Signature
			Title
			Date/s/Paul Branagn
			President, Secretary/Treasurer,
			April 27, 2005Paul Branagan
			CEO, Chairman/s/Loren Moll
			Director
			April 27, 2005Loren Moll/s/John C. Garrison
			Chief Financial Officer
			April 27, 2005John C. Garrison




52

---



Petrol Oil and Gas, Inc.


Index To Financial Statements





Report of Independent Certified Public Accountants
			F-1Balance Sheets, December 31, 2004 and 2003
			F-2Statement of Operations for the Years Ended December 31, 2004, 2003
			F-3Statement of Stockholders' Equity from January 1, 2003 toDecember 31, 2004
			F-4Statement of Cash Flows for the Year Ended December 31, 2004 and
			2003
			F-5Notes to Financial Statements
			F-6 - F-23





53







Report of Independent
Registered Public Accounting Firm



Stockholders and
Directors

Petrol Oil and Gas,
Inc.



We have audited the
accompanying balance sheet of Petrol Oil and Gas, Inc. as of December 31, 2004
and 2003 and the related statements of operations, stockholders' equity, and
cash flows for each of the two years in the period ended December 31, 2004.
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 audit to obtain reasonable assurance about whether the financial
statements are free of material misstatements. 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 Petrol Oil and Gas, Inc. as of December 31, 2004 and
2003 and the results of its operations and cash flows for each of the two years
in the period ended December 31, 2004 in conformity with U.S. generally accepted
accounting principles.







Weaver & Martin, LLC

Kansas City, Missouri

April 15, 2005



F-1

---



Petrol Oil and Gas,
Inc.

Balance Sheet



|                                                                                                                                         | December 31,
		2004 | December 31,
		2003
|---------------------------------------------------------------------------------------------------------------------------------------- | ------------------- | -------------------
|Assets                                                                                                                                   |                     |                    
|Current assets:                                                                                                                          |                     |                    
|Cash                                                                                                                                     | $ 1,792,885         | $ 1,059,838        
|Cash, restricted                                                                                                                         | 852,346             | -                  
|Accounts receivable                                                                                                                      | 312,982             | -                  
|Prepaid expenses                                                                                                                         | 11,526              | -                  
|Investments                                                                                                                              | 15,778              | 200,000            
|Total current assets                                                                                                                     | 2,985,517           | 1,259,838          
|                                                                                                                                         |                     |                    
|Fixed assets, net                                                                                                                        | 1,682,151           | 28,036             
|                                                                                                                                         |                     |                    
|Other assets:                                                                                                                            |                     |                    
|Oil
		and gas properties using full cost accounting:                                                                                     |                     |                    
|Properties not subject to amortization                                                                                                   | 1,614,599           | 1,289,573          
|Properties subject to amortization                                                                                                       | 10,813,087          | -                  
|Capitalized loan costs, net                                                                                                              | 737,000             | -                  
|Total other assets                                                                                                                       | 13,164,686          | 1,289,573          
|                                                                                                                                         |                     |                    
|                                                                                                                                         | $ 17,832,354        | $ 2,577,447        
|                                                                                                                                         |                     |                    
|Liabilities and Stockholders'
		Equity                                                                                                   |                     |                    
|                                                                                                                                         |                     |                    
|Current liabilities:                                                                                                                     |                     |                    
|Accounts payable                                                                                                                         | $ 462,153           | $ 268,071          
|Accrued liabilities                                                                                                                      | 276,129             | 25,116             
|Short-term derivative liability                                                                                                          | 157,960             | -                  
|Asset retirement obligation                                                                                                              | 445,617             | 6,200              
|Accrued payable - related party                                                                                                          | 270,000             | -                  
|Note
		payable - related party                                                                                                           | -                   | 47,500             
|Current portion of long term debt                                                                                                        | 976,574             | 4,000              
|Total liabilities                                                                                                                        | 2,588,433           | 350,887            
|                                                                                                                                         |                     |                    
|Long-term derivative
		liability                                                                                                         | 71,475              | -                  
|Long-term debt, less current
		portion                                                                                                   | 5,143,819           | 22,923             
|                                                                                                                                         | 5,215,294           | 22,923             
|                                                                                                                                         |                     |                    
|Commitments and contingencies                                                                                                            |                     |                    
|                                                                                                                                         |                     |                    
|Stockholders' equity:                                                                                                                    |                     |                    
|Preferred stock, $.001 par, authorized 10,000,000 shares; no shares
		issued                                                             | -                   | -                  
|Common stock, $.001 par, authorized 100,000,000 shares; 24,619,660 and
		17,247,466 issued and outstanding at December 31, 2004 and 2003 | 24,620              | 17,247             
|Stock for services not issued 75,500 and 160,000 shares at December 31,
		2004 and 2003                                                  | 175                 | 160                
|Unamortized cost of stock issued for services                                                                                            | (50)                | (1,000)            
|Additional paid in capital                                                                                                               | 17,200,707          | 4,630,713          
|Other comprehensive (loss)                                                                                                               | (229,435)           | -                  
|Accumulated (deficit)                                                                                                                    | (6,967,390)         | (2,443,483)        
|                                                                                                                                         | 10,028,627          | 2,203,637          
|                                                                                                                                         |                     |                    
|                                                                                                                                         | $ 17,832,354        | $ 2,577,447        



See notes to financial
statements.



F-2

---



Petrol Oil and Gas,
Inc.

Statement of
Operations



|                                                                                 | For the Years
		Ended December 31,
|-------------------------------------------------------------------------------- | ----------------------------------
|                                                                                 | 2004                              
|                                                                                 |                                   
|Revenue                                                                          | $ 866,924                         
|                                                                                 |                                   
|Expenses:                                                                        |                                   
|Direct costs                                                                     | 221,339                           
|General and administrative                                                       | 1,000,029                         
|Professional and consulting fees                                                 | 1,906,036                         
|Depreciation, depletion and amortization                                         | 213,475                           
|Acquisition costs                                                                | 654,000                           
|Total expenses                                                                   | 3,994,879                         
|                                                                                 |                                   
|Net operating (loss)                                                             | (3,127,955)                       
|                                                                                 |                                   
|Other income (expense):                                                          |                                   
|Interest and other income                                                        | 39,417                            
|Interest expense                                                                 | (1,435,369)                       
|Total other income (expense)                                                     | (1,395,952)                       
|                                                                                 |                                   
|Net (loss)                                                                       | $ (4,523,907)                     
|                                                                                 |                                   
|Weighted average number of
		common shares Outstanding - basic and fully diluted | 20,647,542                        
|                                                                                 |                                   
|Net (loss) per share - basic
		and fully diluted                                 | $ (0.22)                          



See notes to financial
statements.



F-3

---



Petrol Oil and Gas,
Inc.

Statements of Changes
in Stockholders' Equity



| | Common Stock | Additional
		Paid-in
		Capital | Unamortized
		Cost of Stock Issued for Services | Stock for
		Services
		Not Issued | Other
		Comprehensive Loss | Accumulated
		Deficit | Total
		Stockholders'
		Equity
| | ------------ | ------------------------------ | ----------------------------------------------- | --------------------------------- | -------------------------- | --------------------- | ------------------------------
| | Shares       | Amount                        

|                                              |             |          |              |       |         |             |               |             
|--------------------------------------------- | ----------- | -------- | ------------ | ----- | ------- | ----------- | ------------- | ------------
|Balance, January 1, 2003                      | 13,151,993  | $ 13,152 | $ 1,006,155  | $ 215 | $ -     | $ -         | $ (709,699)   | $ 309,823   
|                                              |             |          |              |       |         |             |               |             
|Shares issued for services                    | 80,000      | 80       | 89,880       | 40    | -       | -           | -             | 90,000      
|Shares issued for services
		not yet received | -           | -        | 119,880      | 120   | -       | -           | -             | 120,000     
|Shares issued for cash                        | 450,000     | 450      | 337,050      | -     | -       | -           | -             | 337,500     
|Shares issued for services                    | 215,000     | 215      | -            | (215) | -       | -           | -             | -           
|Shares issued as collateral                   | 1,000,000   | 1,000    | -            | -     | (1,000) | -           | -             | -           
|Warrants issued for services                  | -           | -        | 794,000      | -     | -       | -           | -             | 794,000     
|Shares issued for cash                        | 2,350,473   | 2,350    | 2,283,748    | -     | -       | -           | -             | 2,286,098   
|                                              |             |          |              |       |         |             |               |             
|Net (loss)                                    |             |          |              |       |         |             |               |             
|For the year ended December
		31, 2003        | -           | -        | -            | -     | -       | -           | (1,733,784)   | (1,733,784) 
|Balance, December 31, 2003                    | 17,247,466  | 17,247   | 4,630,713    | 160   | (1,000) | -           | (2,443,483)   | 2,203,637   
|                                              |             |          |              |       |         |             |               |             
|Shares issued for services                    | 413,861     | 415      | 904,085      | -     | -       | -           | -             | 904,500     
|Shares issued                                 | 160,000     | 160      | -            | (160) | -       | -           | -             | -           
|Shares issued for asset
		acquisition         | 765,000     | 765      | 764,235      | -     | -       | -           | -             | 765,000     
|Warrants and options issued
		for services    | -           | -        | 548,600      | -     | -       | -           | -             | 548,600     
|Shares for services not yet
		issued          | -           | -        | 200,873      | 125   | -       | -           | -             | 200,998     
|Shares for acquisition not
		yet issued       | -           | -        | 94,950       | 50    | -       | -           | -             | 95,000      
|Options exercised                             | 1,350,000   | 1,350    | 836,150      | -     | -       | -           | -             | 837,500     
|Shares returned from
		collateral             | (1,000,000) | (1,000)  | -            | -     | 1,000   | -           | -             | -           
|Shares held by lender as
		collateral         | 50,000      | 50       | -            | -     | (50)    | -           | -             | -           
|Shares issued for cash                        | 5,633,333   | 5,633    | 6,135,567    | -     | -       | -           | -             | 6,141,200   
|Beneficial conversion of
		convertible stock  | -           | -        | 1,013,000    | -     | -       | -           | -             | 1,013,000   
|Warrants issued in financing                  | -           | -        | 2,072,534    | -     | -       | -           | -             | 2,072,534   
|Other comprehensive loss                      | -           | -        | -            | -     | -       | (229,435)   | -             | (229,435)   
|                                              |             |          |              |       |         |             |               |             
|Net (loss)                                    |             |          |              |       |         |             |               |             
|For the year ended December
		31, 2004        | -           | -        | -            | -     | -       | -           | (4,523,907)   | (4,523,907) 
|Balance, December 31, 2004                    | 24,619,660  | $ 24,620 | $ 17,200,707 | $ 175 | $ (50)  | $ (229,435) | $ (6,967,390) | $ 10,028,627



See notes to financial
statements.



F-4

---



Petrol Oil and Gas,
Inc.

Statement of Cash
Flows



|                                                                            | For the Years
		Ended December 31,
|--------------------------------------------------------------------------- | ----------------------------------
|                                                                            | 2004                              
|Cash flows from operating
		activities                                      |                                   
|Net loss                                                                    | $ (4,523,907)                     
|Depreciation, depletion and amortization                                    | 383,987                           
|Shares issued for services                                                  | 972,000                           
|Shares issued for asset acquisitions                                        | 654,000                           
|Warrants issued for services                                                | 585,598                           
|Beneficial conversion                                                       | 1,013,000                         
|Adjustments to reconcile net (loss) to cash used in operating
		activities- |                                   
|(Increase) in accounts receivable                                           | (312,982)                         
|(Increase) in prepaid expenses                                              | (11,526)                          
|Increase in accounts payable                                                | 194,081                           
|Increase in accrued liabilities                                             | 251,013                           
|Increase (decrease) in due to officer                                       | (47,500)                          
|Increase in due to related party                                            | 270,000                           
|Net cash (used) by operating
		activities                                   | (572,236)                         
|                                                                            |                                   
|Cash flows from investing
		activities                                      |                                   
|Purchase of proven properties                                               | (8,410,000)                       
|Purchase of oil and gas equipment                                           | (1,590,000)                       
|Purchase of other property and equipment                                    | (95,214)                          
|Purchase of oil and gas leases                                              | (367,506)                         
|Investment                                                                  | 184,222                           
|Addition to restricted cash                                                 | (852,346)                         
|Additions to capitalized oil and gas costs                                  | (1,831,023)                       
|Net cash (used) by investing
		activities                                   | (12,961,867)                      
|                                                                            |                                   
|Cash flows from financing
		activities                                      |                                   
|Amortized loan fees                                                         | (707,500)                         
|Payments on note payable                                                    | (4,050)                           
|Proceeds from loans payable                                                 | 8,000,000                         
|Proceeds from sale of common stock                                          | 6,978,700                         
|Net cash provided from
		financing activities                               | 14,267,150                        
|                                                                            |                                   
|Net increase in cash                                                        | 733,047                           
|Cash - beginning                                                            | 1,059,838                         
|Cash - ending                                                               | $ 1,792,885                       
|                                                                            |                                   
|Supplemental cash flow
		information:                                       |                                   
|Interest paid                                                               | $ 26,685                          
|Income taxes paid                                                           | $ -                               
|                                                                            |                                   
|Non-cash transactions                                                       |                                   
|Shares issued for asset purchase                                            | $ 860,000                         
|Shares issued for services and loan fees                                    | $ 1,653,923                       
|Warrants and options issued for services and financing                      | $ 2,621,134                       
|Shares for services and acquisition not issued                              | $ 175                             
|Beneficial conversion                                                       | $ 1,013,000                       



See notes to financial
statements.



F-5

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



1. Significant Accounting
Policies

Basis of Presentation

We are no longer a development
stage enterprise.

Nature of Business

The Company was
originally organized on March 3, 2000, under the laws of the State of Nevada, as
Euro Technology Outfitters (Euro). On August 19, 2002 Euro acquired, in an asset
purchase agreement, land leases and accumulated expenditures and assumed
liabilities from Petrol Energy, Inc. On August 20, 2002, the Company amended its
Articles of Incorporation to rename the Company Petrol Oil and Gas, Inc. and
increased the authorized capital stock to 100,000,000 shares of Common Stock
$0.001 par value and, 10,000,000 shares of Preferred Stock $0.001 par value.

The Company is
now engaged in the exploration, development, production and marketing of oil and
natural gas. The Company's primary objective is the development of Coalbed
Methane (CBM) gas production projects. CBM was identified early on as an area in
the oil and gas industry that was gaining recognition as a viable source of
natural gas and was experiencing above average growth. The Company has focused
its efforts to eastern Kansas and western Missouri where leases were acquired
that appeared geologically suitable for CBM exploration.

Use of Estimates

The preparation
of financial statements in conformity with generally accepted accounting
principles requires the Company to make estimates and assumptions that affect
the reported amounts of assets and liabilities and accompanying notes. Actual
results could differ from those estimates.

Investment in Unconsolidated
Companies

The Company
uses the equity method of accounting for its investments in which its interest
is over 20% but is non-controlling and less than 50% ownership. Under the equity
method, the Company records its share of the net income or loss as an increase
or decrease in the investment less its share of distributions.

Stock-Based Compensation

Common stock,
warrants and options issued for services by non-employees is accounted for based
on the fair market value at the date the services are performed. If the services
are to be performed over a period of time the value is amortized over the life
of the period that services are performed.

The Company
accounts for its stock option plan in accordance with the provisions of SFAS No.
123, "Accounting for Stock Based Compensation". SFAS No. 123 permits entities to
recognize as expense over the vesting period the fair value of all stock-based
awards on the date of the grant.

F-6

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

Income Taxes

The Company
accounts for income taxes under SFAS 109, Accounting for Income Taxes. The asset
and liability approach requires the recognition of deferred tax liabilities and
assets for the expected future tax consequences of temporary differences between
the carrying amounts and the tax basis of assets and liabilities. The provision
for income taxes differ from the amounts currently payable because of temporary
differences in the recognition of certain income and expense items for financial
reporting and tax reporting purposes.

Fair value of financial
instruments

The carrying
value of current assets and liabilities reasonably approximates their fair value
due to their short maturity periods. The carrying value of the Company's debt
obligations reasonably approximates their fair value at the stated interest rate
approximates current market interest rates of debt with similar terms that is
available to the Company.

Earnings per common share

SFAS No. 128,
Earnings Per Share requires presentation of "basic" and "diluted" This standard
requires dual presentation of basic and diluted earnings per share on the face
of the income statement for all entities with complex capital structures and
requires a reconciliation of the numerator and denominator of the diluted loss
per share computation.

Potentially
issuable shares of common stock pursuant to outstanding stock options and
warrants are excluded from the diluted computation, as their effect would be
anti-dilutive.

Cash and cash equivalents

Cash and cash
equivalents include cash in banks and certificates of deposit that mature within
three months of the date of purchase.

Revenue recognition

It is the
Company's policy to recognize revenue when production is sold to a purchaser at
a fixed or determinable price.

Debt issue costs

Costs related
to securing the Company's long-term convertible debt are recorded as an asset
and are amortized over the life of the debt.

Depreciation

Depreciation is
provided by the straight-line method using an estimated life of the asset.
Depreciation periods range from 5 to 30 years.

Oil and gas properties

The Company
follows the full cost method of accounting for oil and gas properties.
Accordingly, all costs associated with acquisition, exploration, and development
are capitalized.

F-7

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

All capitalized
costs including in the estimated future costs to develop proved reserves, are
amortized on the unit-of-production method using estimates of proved reserves.
Investments in unproved properties and major developments projects are not
amortized until proved reserves associated with the projects can be determined
or until impairment occurs. If the results of an assessment indicate that the
properties are impaired, the amount of the impairment is added to the
capitalized costs to be amortized. Abandonment's of oil and gas properties are
charged to the full cost pool and amortized.

Under the full
cost method, the net book value of oil and gas properties are subject to a
"ceiling". The ceiling is the estimated after-tax future net revenue from proved
oil and gas properties, discounted at 10% per annum plus the lower of cost or
fair market value of unproved properties. In calculating future net revenues,
prices and costs in effect at the time of the calculation are held constant
indefinitely, except for changes that are fixed and determinable by existing
contracts. The excess, if any, of the net book value above the ceiling is
required to be written off as an expense.

Sales of proved
and unproved properties are accounted for as adjustments of capitalized costs
with no gain or loss recognized, unless such adjustments would significantly
alter the relationship between capitalized costs and proved reserves of oil and
gas, in which case the gain or loss is recognized as income.

Long-lived assets

The Company
reviews the carrying value of long-lived assets at each balance sheet date if
indication of impairment exists. Recoverability is assessed using undiscounted
cash flows based upon historical results and current projections of earnings
before interest and taxes. Impairment is measured using discounted cash flows of
future operating results based upon a rate that corresponds to the cost of
capital. Impairments are recognized in operating results to the extent that
carrying value exceeds discounted cash flows of future operations.

Asset retirement obligations

The Company
accrues for asset retirement obligations, primarily for assets on leased sites,
in the period in which the obligations are incurred. The Company accrues these
costs at estimated fair value. When the related liability is initially recorded,
the Company capitalizes the cost by increasing the carrying amount of the
long-lived asset. Over time, the liability is accreted to its settlement value
and the capitalized cost is depreciated over the useful life of the related
asset. Upon settlement of the liability, the Company recognizes a gain or loss
for any difference between the settlement amount and the liability recorded. The
Company has identified asset retirement obligations pertaining to the closure of
wells on its land leases. The Company has estimated the fair value of its asset
retirement obligations, based in part on the terms of quoted agreements.

Concentration of credit risk

The Company
substantially sells all oil and gas production to two customers. In 2004, the
two largest customers accounted for 83% and 16% of sales and accounts
receivable.

F-8

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

Accounting for Derivative
Instruments and Hedging Activities

The Company
seeks to reduce its exposure to unfavorable changes in natural gas prices by
utilizing energy swap contracts (effectively fixed price contracts). The Company
has adopted SFAS 133, as amended by SFAS 138, Accounting for Derivative
Contracts and Hedging Activities. It requires that all derivative instruments be
recognized as assets or liabilities in the statement of financial position,
measured at fair value. Accounting for changes in the fair value of the
derivative depends on the intended use of the derivative and the resulting
designation. For derivatives that are designated as cash flow hedges changes in
fair value are recognized in other comprehensive income until the hedged item is
recognized in earnings. Hedge effectiveness is measured at least quarterly based
on the relative changes in fair value between the derivative contract and the
hedged item over time. Any change in fair value resulting from ineffectiveness
is recognized immediately in earnings.

Although the
Company's fixed price contracts may not qualify for special hedge accounting
treatment from time to time under specific guidelines of SFAS 133, the Company
refers to these contracts as hedges inasmuch as this was the intent when such
contracts were executed, the characterization is consistent with the actual
economic performance of the contracts, and the Company expects the contracts to
continue to mitigate its commodity price risk in the future. The accounting for
the contracts is consistent with the requirements of SFAS 133.

Accounting for Derivative
Instruments and Hedging Activities - continued

The Company has
established the fair value of all derivative instruments using estimates
determined by using established index prices and bases adjustments. The values
reported in the financial statements change as these estimates are revised to
reflect actual results, changes in market conditions or other factors.

Recent issued accounting
Standards

In January
2003, the Financial Accounting Standards Board (FASB) issued Interpretation No.
46, "Consolidation of Variable Interest Entities, an Interpretation of
Accounting Research Bulletin No. 51" (the Interpretation). The Interpretation
requires the consolidation of variable interest entities in which an enterprise
absorbs a majority of the entity's expected losses, receives a majority of the
entity's expected residual returns, or both, as a result of ownership,
contractual or other financial interests in the entity. Currently, entities are
generally consolidated by an enterprise that has a controlling financial
interest through ownership of a majority voting interest in the entity. The
Interpretation was originally immediately effective for variable interest
entities created after January 31, 2003, and effective in the fourth quarter of
fiscal 2003 for those created prior to February 1, 2003. However, in October
2003, the FASB deferred the effective date for those variable interest entities
created prior to February 1, 2003, until the first quarter of fiscal 2004. This
interpretation did not affect the Company's financial statements.

In November
2004, the FASB issued SFAS No. 151, Inventory Costs, an amendment of ARB No. 43,
Chapter 4. SFAS No. 151 amends the guidance in ARB No. 43, Chapter 4, Inventory
Pricing, to clarify the accounting for abnormal amounts of idle facility
expense, freight, handing costs, and spoilage. This statement requires that
those items be recognized as current period charges regardless of whether they
meet the criterion of "so abnormal" which was the criterion specified in ARB No.
43. In addition, this Statement requires that allocation of fixed production
overheads to the cost of production be based on normal capacity of the
production facilities. This pronouncement is effective for the Company beginning
October 1, 2005. The Company does not believe adopting this new standard will
have a significant impact to its financial statements.

In December
2004, the FASB issued SFAS No. 123 (revised 2004). Share-Based Payment, which is
a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No.
123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees
and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS
No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS
No. 123(R) requires all share-based payments to employees, including grants of
employee stock options, to be recognized in the income statement based on their
fair values. Pro forma disclosure is no longer an alternative. The new standard
will be effective for the Company in the first interim or annual reporting
period beginning after December 15, 2005. The Company expects the adoption of
this standard will have a material impact on its financial statements assuming
employee stock options are granted in the future.

F-9

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

Reclassifications

Certain reclassifications have
been made to prior periods to conform to current presentation.

2. Stockholders' Equity

Common stock

As of December
31, 2004 and 2003, there was an additional 75,500 and 160,000 shares,
respectively, that we needed to issue. The 2003 shares were issued in 2004.

Stock Transactions

The Company
entered into a geologist/technical advisor consulting agreement on December 1,
2002 with Mr. William Stoeckinger. The agreement was for a one year term
(amended to a thirteen month term) and Mr. Stoeckinger received 160,000 shares
upon signing the agreement, 20,000 shares per month for thirteen months (as
amended in a subsequent agreement). At December 31, 2002 Mr. Stoeckinger had
earned 180,000 shares that weren't issued. The shares were issued in 2003.
During 2003 Mr. Stoeckinger earned 240,000 shares of stock that was valued at
$210,000. He was issued 80,000 shares and at December 31, 2003 was due 160,000
shares. The shares that were due to him were recorded at the par value of $160
as stock earned but not issued at December 31, 2003 and were issued in 2004. At
December 31, 2004, Mr. Stoeckinger earned an additional 20,000 shares of stock
with a fair market value of $20,000. All shares were issued in January 2004. The
fair market value of the stock was determined by the price that we were selling
shares to our investors as the shares were earned. Professional and consulting
expense was charged $20,000 and $210,000 in 2004 and 2003 respectively.

The Company
sold 450,000 shares of stock at a price of $.75 per share and 2,350,473 shares
at a price of $1.00 per share in 2003. The costs associated with the sale of
these shares totaled $60,000 for professional fees and $4,375 for other costs.
These costs were netted against the additional paid in capital associated with
the sale of the stock.

On April 18,
2003, the Company issued 1,000,000 shares of its common stock to Cornerstone
Bank as collateral for a note payable to the bank. On July 7, 2003, the Company
paid off the note and the bank returned the shares. On July 2, 2003 the Company
entered into a loan agreement with CPA Directed Investments (CDI). As part of
that agreement the Company was required to issue 1,000,000 shares of Company
stock in CDI's name. The par value of the shares of $1,000 was recorded as
common stock with an offsetting amount recorded as a reduction of equity in the
account unamortized cost of stock issued for collateral. The loan was repaid and
the stock was returned to the Company on January 26, 2004.

F-10

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

On January 14,
2004, we entered into a twelve-month consulting agreement with Consulting
Solutions whereby Consulting Solutions would provide introduction to
international strategic alliance partners for investment in drilling activities
related to CBM production. At December 31, 2004, we issued 35,000 shares in the
name of Fidelity Insurance Company on behalf of Consulting Solutions for
services provided per the consulting agreement. The value of the stock as
determined by the market price of our stock on the day of the agreement was
$73,500 and this was recorded as professional and consulting fee expense.

On January 15,
2004 the Company to exchange 765,000 shares of its stock to Mr. John Haas, Mr.
Mark Haas and Mr. W.B. Mitchell, principals of CBM Energy, Inc. for oil and gas
mineral leases covering approximately 36,000 acres and title to approximately 10
existing wells. The value of the transaction was $765,000. $31,000 of value was
assigned to capitalized mineral leases based on the unamortized lease cost of
each leased acre. $80,000 of value was assigned to capitalized oil & gas costs
based on the fair market value of the test wells on the leased property. The
remaining $654,000 was expensed in January 2004.

On February 9,
2004, the Company agreed to issue 10,000 shares of common stock to Joseph
Blankenship. The value of the stock of $10,000 was recorded as a professional
and consulting fees expense. Stock earned but not issued was recorded at par
value at December 31, 2004.

On April 13,
2004, Goran Blagojevic exercised 250,000 warrants at a price of $.75 per share.
On August 1, 2004 Mr. Blagojevic exercised 400,000 warrants at a price of $.75
per share.

On May 3, 2004,
the Company issued 100,000 shares of its common stock to CPA Directed
Investments (CDI) pursuant to a $250,000 secured promissory note dated May 5,
2004. CDI was to return 50,000 shares for cancellation at such time as the loan
and interest are paid in full. On October 8, 2004, the Company repaid the loan
and 50,000 shares of our stock were issued to CDI for extending the payment
period three months. This fee was determined based on the market value of our
stock on the date of the agreement and totaled $132,500. The par value of $50
which represented the 50,000 shares held as collateral was recorded as
unamortized cost of stock issued for collateral until such time as the shares
are returned.

On June 17,
2004, the Company issued 120,000 shares of its common stock to XXR Consulting
Inc. pursuant to a consulting agreement executed on June 4, 2004. The value of
the stock as determined by the market price of our stock on the day of the
agreement was $276,000 and this was recorded as professional and consulting fee
expense.

The Company
sold 5,633,333 shares of its common stock during the third quarter. Each share
was sold for $1.20 and it included a warrant to purchase an additional share of
common stock for a price of $1.50 per share expiring on September 8, 2007. The
proceeds raised totaled $6,760,000. The proceeds were offset by direct costs
relating to commissions paid, totaling $479,800, legal fees of $131,500 and
other costs of $7,500. We also issued 845,000 warrants as additional commission
to Energy Capital Solutions (see options and warrants below) The value assigned
to the warrants would normally be recorded as additional paid-in capital,
however, since this was a cost of the offering there was no additional paid-in
capital. The net amount received from the sale was $6,141,200.

F-11

---

A supplier has
agreed to be paid in stock for 10% of any invoice. Stock earned but not issued
to the supplier at December 31, 2004 was recorded at par value.

On June 15,
2004 the Company entered into a consulting agreement with ECON Investor
Relations, Inc. The monthly fee is $10,000 of which $6,000 is payable in stock
and the agreement is for one year with either party able to terminate the
agreement based on 30 days written notice. On October 27, 2004, we issued 8,861
shares of common stock to ECON valued at $21,000. Stock earned but not yet
issued of to the consultant at December 31, 2004 was recorded at par value.

The Company
entered into an agreement with Haas Oil Group whereby the Company agreed to
issue 50,000 shares of common stock in exchange for 100% working interest in
certain leases that Haas owned. The shares were valued at $1.90 per share, which
was the trading price of the Company's common stock on September 20, 2004 the
date the agreement was signed. At December 31, 2004, the shares were earned but
not issued.

On August 7,
2004, the Company entered into a consulting agreement with CEOcast, Inc.,
wherein we agreed to issue 40,000 shares of its common stock. The 40,000 shares
were issued on December 16, 2004 and the expense was recorded based on the value
of our common stock on the date of issue.

On December 2,
2004, we issued 35,000 shares of common stock to Fidelity Insurance Company,
Ltd., in accordance with Consulting Solutions request pursuant to a consulting
agreement. The expense was recorded based on the value of our common stock on
the date of issue.

On December 2,
2004 the Company issued 90,000 shares of its common stock to Hard Funding, Inc.
pursuant to the twelve-month financial consulting agreement entered into on
January 14, 2004. The value of the stock was determined by the market price of
our stock on the day of issue.

On December 16,
2004 the Company issued 50,000 shares of its common stock to CEOcast, Inc. as a
finder's fee resulting from the successful execution of financing arrangements
valued at $84,500. The value was determined by the underlying value of the stock
at the time of issuance and recorded as amortizable loan fees.

On November 1,
2004 we recorded as additional compensation $152,000 that represented the market
value (as determined based on the price our shares were trading on that day) of
100,000 shares of our common stock that was earned by Mr. Gary Bidwell. The
shares were not issued at December 31, 2004 and the par value of the stock was
recorded as stock for services not issued.

Options and
warrants

The Board of
Directors on December 16, 2002 adopted the 2002 stock option plan for 3,000,000
shares.

F-12

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

On November 21,
2003, the Company entered into an agreement with NIO Fund Ltd. whereby NIO
received 1,500,000 warrants to purchase shares of the Company's common stock at
a price of $.875 per share with a three-year life. The value of the options
using the Black-Scholes pricing model was $461,000 and this was recorded as
professional and consulting expense.

On November 24,
2003, NIO assigned 1,000,000 warrants to Mr. Paolo Simoni and 500,000 warrants
to Mr. Goren Blagojevic.

Mr. Blagojevic
received 900,000 warrants on September 1, 2003. The warrants had a strike price
of $.75 and expiration date of August 31, 2006. The value of the warrants, using
the Black-Scholes pricing model, was $333,000 and this was recorded as a
professional and consulting expense.

The weighted
average of the assumptions used to value the warrants in 2003 were: Interest
rate-2.10%, Days to expiration-1,095, Stock price $1.00, Strike price-$.92,
Volatility-32.75%, Yield-0%.

On January 15,
the Company entered into an agreement with Mr. John Haas, Mr. Mark Hass and Mr.
W.B.Mitchell whereas the Company would be allowed access to approximately 10,000
acres of leased mineral rights for the purpose of exploring, and evaluating gas
production for 6 months. Mr. John Haas agreed to join the Board of Directors of
the Company. Mr. Mark Haas agreed to be a project manager and consultant for the
Company. Mr. W.B. Mitchell agreed to provide consulting support for lease/land
acquisitions. Each of the three individuals received 600,000 stock warrants
(1,800,000 total) to purchase shares at a price of $1.20 per share; 400,000
stock warrants (1,200,000 total) to purchase shares at a price of $1.50 per
share; and 300,000 stock warrants (900,000 total) to purchase shares at a price
of $2.00 per share. The warrants expire on July 15, 2006. The value of the
warrants, using the Black-Scholes pricing model, is $420,700 and this was
recorded in January 2004 as a professional and consulting fees expense.

On February 9,
2004 the Company granted Joseph Blankenship an option to purchase 50,000 shares
at $2.50 per share for the first 25,000 shares and $4.00 for the remaining
25,000 shares. The option was granted pursuant to the Research Agreement. The
term of the option is for two years. The value of the options, using the Black-Scholes
pricing model, of $200 was recorded as a professional and consulting fees
expense.

On February 18,
2004, we granted to CSC Group LLC (owned by Mr. Steve Cochennet an advisory
board member) a stock warrant giving CSC the right to purchase 200,000 shares of
its common stock. The term and exercise price of the warrant shares shall be: (i)
100,000 shares at $1.50 per share for a term of two years; and (ii) 100,000
shares at $2.50 per share for a period of two years. The value of the warrants,
using the Black-Scholes pricing model, was $7,400 and this was recorded as a
professional fees expense.

On March 1,
2004 the Company issued 100,000 stock options with an exercise price of $1.25
per share and 200,000 stock options with an exercise price of $1.50 per share to
Mr. William Burk. Mr. Burk has performed consulting services for the Company.
The options expire in three years. The value of the options, using the Black-Scholes
pricing model, was $38,500 and this was recorded as a professional and
consulting fees expense.

F-13

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

In connection
with the sale of 5,533,333 shares of common stock during the third quarter each
share purchased included a warrant to purchase an additional share of common
stock for a price of $1.50 per share expiring on September 8, 2007.

We issued
845,000 warrants to Energy Capital Solutions in connection with the stock sales.
The warrants are for the purchase of common stock at a price of $1.35 per share
and the warrants expire October 29, 2009. The value of the warrants issued to
Energy Capital Solutions, using the Black-Scholes pricing model, was $447,850.
Since these warrants were part of the cost of the offering there was no entry
into additional paid-in capital.

On October 28,
2004 the Company issued 5,333,333 warrants to Laurus Master Fund, Ltd., in
connection with the convertible note agreement entered into on the same day.
Pursuant to the agreement, Laurus Master Fund was issued 3,520,000 warrants to
purchase common stock for a price of $2.00 per share expiring on October 28,
2009 and an additional 1,813,333 warrants to purchase common stock at a price of
$3.00 per share expiring on October 28, 2004. The value of the warrants using
the Black-Scholes pricing model was $2,072.534, which was off set against the
long-term liability. The Company also issued 100,000 warrants to Draper &
Associates in connection with the financing arrangement. The warrants are for
the purchase of common stock at a price of $2.00 per share and will expire on
October 29, 2007. As of December 31, 2004, the warrants have not been issued.
The value of the warrants using the Black-Scholes pricing model was $12,000 was
recorded as professional and consulting fees.

The weighted
average of the assumptions used to value the warrants in 2004 were: Interest
rate-2.32%, Days to expiration-936, Stock price $1.41, Strike price-$1.39,
Volatility-23%, Yield-0%.

On April 13,
2004, Goran Blagojevic exercised 250,000 warrants at a price of $.75 per share.
On August 1, 2004 Mr. Blagojevic exercised 400,000 warrants at a price of $.75
per share.

On March 19,
2004, Mr. Kehoe exercised 325,000 options at a price of $.50 per share, Mr.
Felton exercised 325,000 options at a price of $.50 per share and Mr. Frierson
exercised 50,000 options at a price of $.50 per share.

A summary of stock options and
warrants is as follows:

|                    | Options   | Average
		Price | Warrants   | Average
		Price
|------------------- | --------- | --------------- | ---------- | ---------------
|Outstanding 1/1/03  | 2,050,000 | $1.12           | 500,000    | $.75           
|Granted             | 2,050,000 | $1.12           | 2,400,000  | $.83           
|Cancelled           | --        | --              | (500,000)  | $.75           
|Exercised           | -         | -               | --         | --             
|Outstanding12/31/03 | 2,050,000 | $1.12           | 2,400,000  | $.83           
|                    |           |                 |            |                
|Outstanding 1/1/04  | 2,050,000 | $1.12           | 2,400,000  | $.83           
|Granted             | 350,000   | 1.68            | 16,011,666 | 1.68           
|Cancelled           | --        | --              | --         | --             
|Exercised           | (700,000) | .50             | (650,000)  | .75            
|Outstanding12/31/04 | 1,700,000 | $1.49           | 17,761,666 | $1.49          

F-14

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

4. Commitments

On July 1 2003
the Company entered into an agreement with Enutroff LLC (Enutroff) whereby
Enutroff would be paid for introductions that result in completed transactions
as follows: 1). Debt financing, notes, loans- for any introductions made by
Enutroff a $10,000 fee would be paid plus 12% of the total value of the
financing. 2). Mergers and acquisitions-for any introductions made by Enutroff a
fee of 7.5% of the total value of the merger or acquisition. 3). Sale or
purchase of real property or mineral rights- a fee of up to 1/32 overriding
royalty interest on those mineral rights involved in a transaction. 4). Working
interest partners-a fee of up to 1/32 overriding royalty interest on any mineral
rights involved with a working interest partner and a fee of 10% of the ultimate
value of the transaction. 5). A fee of $40,000 to retain the services of
Enutroff for a period of one year was due on July 1, 2003. Enutroff introduced
the Company to CPA Directed Investments (CDI) and received a $58,000 fee based
on the $400,000 the Company borrowed from CDI. Total fees paid to Enutroff for
the year ended December 31, 2003 was $98,000. The fees were recorded as a
professional and consulting fee expense.

On January 21,
2003, the Company entered into a lease agreement for office space. The term of
the agreement is one year and rent is $300 per month. The rent is currently
month- to- month. On April 2, 2004, the Company entered into a 39-month lease
for office space. The monthly lease payment is $3,448.40. The lease amount
increases each year based on the Consumer Price Index as defined within the
lease with a minimum annual increase of 3%. For the year ended December 31, 2004
and 2003 rent expense was approximately $33,290 and $3,600 respectively. Future
rent payments on non-cancelable operating leases with an initial or remaining
term of greater than one year is as follows- 2005 $42,300 2006 $43,600 and
2007-$22,300.

On May 19, 2004
the Company entered into a consulting agreement with Tom Bibiyan of Florence
Equity, LLC. The agreement was for 90 days and we paid a fee of $50,000.

5. Short-Term Notes Payable

The Company
borrowed $240,000 from Cornerstone Bank under a note that was due August 3,
2003. Interest was 2% over the corporate base rate (6.25%). The note was repaid
on July 7, 2003.

In July 2003,
the Company borrowed $400,000 from CDI. The interest rate on the loan was 10%.
1,000,000 shares of common stock were issued to CDI as collateral that was held
until the loan was paid. The loan was for 180 days. Pursuant to the loan
agreement, upon the occurrence and during a continuance of default, all
remaining amounts of the loan shall, at the option of CDI, become immediately
due and payable, and CDI may exercise at any time any rights and remedies
available to it under applicable law of the State of Nevada. The loan is due and
payable upon the earlier of: (i)180 days from the date of the agreement, or (ii)
within 30 days from closing of the Company's registered offering. The loan was
repaid by December 31, 2003. Interest paid to CDI was $13,501.

On May 3, 2004,
we issued 100,000 shares of our common stock to CPA Directed Investments (CDI)
pursuant to a $250,000 secured promissory note dated May 5, 2004. CDI was to
return 50,000 shares for cancellation at such time as the loan and interest are
paid in full. On October 8, 2004, we repaid the loan and we issued 50,000 shares
of common stock to CDI for extending the payment period three months. The
expense was determined based on the market value of our stock on the date of the
stock issue and totaled $132,500.

F-15

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

6. Long-Term Debt

Long-term debt
consists of the following:

|                                                | December 31,
|----------------------------------------------- | ------------
|                                                | 2004        
|Convertible Note payable
		- Laurus Master Fund | $           
|Note payable
		- GMAC                           |             
|Total                                           |             
|                                                |             
|Less
		unamortized cost of warrants             |             
|                                                |             
|                                                |             
|Less current
		portion                          |             
|Total long-term debt                            | $           

In October
2004, the Company issued an $8,000,000 secured convertible term note ("Note") to
Laurus Master Fund, Ltd. ("Laurus"). The Note is convertible into shares of the
Company's common stock at a fixed conversion price of $1.50 per share. Pursuant
to this agreement, the Company also issued to Laurus a warrant ("Warrant") to
purchase up to 5,333,333 shares of its common stock, of which 3,520,000 shares
have an exercise price of $2.00 and 1,813,333 shares have an exercise price of
$3.00. The warrants expire on October 29, 2009. The unamortized cost of the
warrants issued to Laurus of $1,902,530 (see Note 2, Stockholders' Equity) will
accrete to interest expense over the period of the loan based on interest
method. For the period ended December 31, 2004 the accreted amount unamortized
cost of warrants was $170,054 and was reported as interest expense.

There was a
beneficial conversion feature to the convertible note. On the day the note was
issued the difference between the price the note could be converted to based on
the price our common stock was trading and the conversion price for Laurus
totaling $1,013,000. The beneficial conversion was recorded as interest expense
for the year ended December 31, 2004.

The Note has a
term of three years and accrues interest at the prime rate plus 3% per year
(8.0% as of December 31, 2004). The Note is secured by all of the assets the
Company acquired from Savage Resources and Savage Pipeline. The Note consists of
a non-restricted facility of $7,000,000 and a restricted facility of $1,000,000.
The non-restricted facility was used as part of the acquisition of Savage
Resources, LLC and Savage Pipeline, LLC. The remaining million facility, after
expenses, was reduced to approximately $850,000 and is restricted for future
development of the Savage assets. These funds are under the sole dominion and
control of Laurus as security for our obligations under the Securities Purchase
Agreement and other related agreements.

Interest on the
unrestricted principal amount is payable monthly, in arrears, on the first
business day of each calendar month until the maturity date. Under the terms of
the Note, the monthly interest payment and the monthly principal payment are
payable either in cash at 102% of the respective monthly amortization amounts
or, if certain criteria are met, in shares of the Company's common stock. The
minimum monthly principal repayment of $200,000 together with any accrued or
unpaid interest, commences on December 1, 2004, and continues through the
maturity date. The principal criteria for the monthly payments to be made in
shares of the Company's common stock include:

F-16

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

the effectiveness of a
	current registration statement covering the shares of the Company's common
	stock into which the principal and interest under the Note are convertible;

an average closing price of
	the Company's common stock for the previous five trading days greater than
	or equal to 115% of the fixed conversion price; and

the amount of such
	conversion not exceeding 25% of the aggregate dollar-trading volume of the
	Company's common stock for the previous 22 trading days.

The Company may
prepay the non-restricted and the restricted facility of the Note at any time by
paying 130% of the amortizing principal amount then outstanding, together with
accrued but unpaid interest thereon. Upon an event of default under the Note,
Laurus may demand repayment of the outstanding principal balance at a rate of
130% of the Note plus any accrued interest.

On a
month-by-month basis, if the Company registers the shares of common stock
issuable upon conversion of the Note and upon exercise of the Warrant on a
registration statement declared effective by the Securities and Exchange
Commission, and the market price of its common stock for five consecutive
trading days exceeds the conversion price by at least 25%, then the interest
rate on the Note for the succeeding calendar month shall be reduced by 1% for
every 25% increase in the market price of its common stock above the conversion
price of the Note, but in no event shall the interest rate be less than 7.5%.

Laurus also has
the option to convert all or a portion of the Note into shares of the Company's
common stock at any time, subject to limitations described below, at a
conversion price of $1.50 per share, subject to adjustment as described below.
The Note is currently convertible into 5,333,333 shares of the Company's common
stock, excluding the conversion of any accrued interest. Laurus is limited on
its ability to convert if the conversion of the Note or the exercise of the
Warrant would cause the shares then held by Laurus to exceed 4.99% of the
Company's outstanding shares of common stock unless there has been an event of
default or Laurus provides the Company with 75 days prior notice.

The Company is
obligated to file a registration statement with the Securities and Exchange
Commission ("SEC") registering the resale of shares of its common stock issuable
upon conversion of the Note and exercise of the Warrant by December 12, 2004,
and to have such Statement declared effective by the SEC by no later than
February 5, 2005. The Company timely filed the registration statement, but it
has not yet been declared effective. If the registration statement is not
declared effective within the timeframe described, or the registration statement
is suspended other than as permitted in the Registration Rights Agreement, or if
the Company's common stock is not listed for three consecutive trading days, the
Company is obligated to pay Laurus additional cash fees. The cash fees are 2.0%
of the original principal amount of the Note for each 30-day period in which the
Company fails to correct these issues.

The Company
acquired a truck on September 10, 2003 and financed the purchase with a
five-year loan from GMAC bearing an interest rate of 8.74%. The amount owed to
GMAC at December 31, 2004 and 2003 is $22,923 and $26,923, respectively.

F-17

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

The aggregate principal
payments of long-term debt are approximately as follows:

|Year |   | Amount   
|---- | - | ---------
|     |   |          
|2005 | $ | 1,605,574
|2006 |   | 2,405,600
|2007 |   | 4,006,109
|2008 |   | 5,640    
|     | $ | 8,022,923



7. Income Taxes



Deferred income taxes
are determined based on the tax effect of items subject to differences in book
and taxable income. The Company had no income tax provision for the years ended December
31, 2004 and 2003. There is approximately $6,815,000 of net operating loss
carry-forwards, which expires in 2017-2019. The net deferred tax is as follows:



|                                                | Year ended
		December 31,
|----------------------------------------------- | -------------------------
|Non-current deferred tax
		asset (liabilities): | 2004                     
|Net operating loss
		carry-forward              | $ 2,522,000              
|Oil & gas properties
		Valuation allowance      | (1,096,000)
		(1,426,000)
|Total deferred tax net                          | $ --                     

A reconciliation of the
provision for income taxes to the statutory federal rate for continuing
operations is as follows:

| | Year ended
		December 31,
| | -------------------------

|Statutory tax rate                                                                  | 34.0%                  | 34.0%         
|----------------------------------------------------------------------------------- | ---------------------- | --------------
|Non-deductible expense
		Oil & gas property expense
		Change in valuation allowance | 40.0
		(40.0)
		<34.0> | -
		-
		<34.0>
|Effective tax rate                                                                  | 0.0%                   | 0.0%          

8. Related Party Transactions

During the year
ended December 31, 2004, we paid the outstanding payable due to our President in
the amount of $47,500. At December 31, 2004 the amounts due to Officers was $0.
In 2004 we paid $9,000 in rent to an entity owned by our President. In 2004 our
President earned overriding royalties on properties owned by us of $10,725.

Total fees to
Mr. Stoeckinger for the years ended December 31, 2004 and 2003 were $61,159 and
$244,699, respectively.

Total fees to
Mr. Blagojevic for the years ended December 31, 2004 and 2003 were $3,500 and
$469,302, respectively.

F-18

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

Total interest
paid to CPA Directed Investments (see note 5), a shareholder of the Company, for
the years ended December 31, 2004 and 2003 was $10,592 and $13,501 and
additional fees in 2004 of $132,500 relating to stock issued for an extension of
a note. We invested $200,000 in a fund that is being managed by CPA Directed
Investments in 2003. In 2004 we liquidated $200,000 of that investment and at
December 31, 2004, the remaining investment was $15,778.

Total fees to
Mr. Frierson for the year ended December 31, 2004 and 2003 were $0 and $5,900,
respectively.

Total fees paid
to Mr. David Polay (a former officer) and his company for the year ended
December 31, 2004 and 2003 were $13,342 and $55,134.

In 2004 we
acquired oil leases and existing wells on properties from BTB Energy Partners
for $270,000 (owned by a stockholder and consultant). This is included as an
accrued payable-related party at December 31, 2004.

We issued
200,000 stock options to CSC Group LLC (owned by Mr. Cochennet)- see note 2
options and warrants.

In 2004, we
paid $150,000 ($75,000 to a company that is a shareholder and $75,000 to a
company that is owned by one of our contract laborers) for oil leases and
existing wells. We utilized the services of Mallard Management Inc., a
shareholder, for consulting and paid $32,200.

9. Acquisitions

On January 15,
2004, the Company agreed to exchange 765,000 shares of common stock to Mr. John
Haas, Mr. Mark Haas and Mr. W.B. Mitchell, principals of CBM Energy, Inc for oil
and gas mineral leases covering approximately 36,000 acres and title to
approximately 10 existing wells. The value of the transaction is $765,000.
$31,000 of value was assigned to properties not subject to amortization based on
the unamortized lease cost of each leased acre. $80,000 of value was assigned to
properties subject to amortization costs based on the fair market value of the
test wells on the leased property. The remaining $654,000 was expensed.

Effective
November 4, 2004, the Company completed the acquisition of certain assets owned
by Savage Resources, LLC and Savage Pipeline, LLC for the purchase price of $10
million. The acquisition includes leasehold rights to approximately 10,000 acres
and 71 producing gas wells in Southeast Kansas.

In accordance
with the terms of the purchase agreement, the purchase price was allocated as
follows:

|Proved producing
		properties | $8,410,000 
|----------------------------- | -----------
|Equipment and vehicles        | 90,000     
|Pipeline                      | 1,500,000  
|Total                         | $10,000,000

The following
pro forma summary data for the year ending December 31, 2004 and 2003 presents
the results of operations as if the Savage acquisition had occurred on January
1, 2003. The pro-forma detail for the year ended December 31, 2004 only contains
the activity for Savage for January 1, 2004 through September 30, 2004, as
information was not available to the Company for the period of October 1, 2004
through November 4, 2004. These pro-forma results have been made for comparative
purposes only and do not purport to be indicative of what would have occurred
had the acquisitions been made at January 1, 2003 or of results that may occur
in the future.

F-19

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



|                        | Year
		ended December 31,
|----------------------- | -------------------------
|                        | 2004                     
|Proforma revenue        | $7,470,786               
|Proforma loss           | (4,652,126)              
|Proforma loss per share | $(.23)                   

10. Derivatives

Description of contracts.

To reduce its
exposure to unfavorable changes in natural gas prices the Company utilizes
energy swaps in order to have a fixed-price contract. These contracts allow the
Company to be able to predict with greater certainty the effective natural gas
prices to be received for hedged production and benefit operating cash flows and
earnings when market prices are less than the fixed prices provided under the
contracts. However, the Company will not benefit from market prices that are
higher than fixed prices in contracts for hedged production. If the Company is
unable to provide the quantity that it has contracted for it will have to go to
the open market to purchase the required amounts that it has contracted to
provide. For the year ended December 31, 2004 fixed price contracts hedged
approximately 72% of the Company's natural gas production. There was no
production in 2003.

The following
table summarizes the Company's fixed price contracts as of December 31, 2004:

|                               | Year
		ended December 31,
|------------------------------ | -------------------------
|                               | 2005                     
|Contract volume                | 480,000                  
|Weighted-average fixed
		price | $5.85                    
|Fixed-price sales              | $2,810,250               
|Fair value liability           | ($157,960)               

Accounting.

All fixed price
contracts have been executed in connection with the Company's natural gas
hedging program. The differential between the fixed price and the floating price
for each contract settlement period multiplied by the associated contract volume
is the contract profit or loss. All of the Company's contracts are considered to
be cash flow hedges and there were no realized gains or losses in the year
ending December 31, 2004. For contracts that were open at December 31, 2004 the
change in the fair value is shown as an adjustment to other comprehensive income
with a corresponding balance sheet asset or liability recorded.

Credit risk.

The counter
party to the Company's fixed-price contracts is the customer buying the
Company's product. Should the counter party default on a contract there can be
no assurance that the Company will be able to enter into a new contract with a
third party on terms comparable to the original contract. The Company has not
experienced non-performance by its counter party. Cancellation or termination of
a fixed-price contract would subject a greater portion of the Company's natural
gas production to market prices, which in a low price environment, could have an
adverse effect on its operating results.

F-20

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

Market risk.

Market risk for
fixed-price contracts has significantly been hedged.

11. Asset Retirement
Obligations

The Company's
asset retirement obligations relate to the abandonment of oil and gas wells. The
amounts recognized are based on numerous estimates and assumptions, including
future retirement costs, inflation rates and credit adjusted risk-free interest
rates. The following shows the changes in asset retirement obligations for the
financial statements presented.

|                                                 | Year
		ended December 31,
|------------------------------------------------ | -------------------------
|                                                 | 2004                     
|Asset retirement
		obligation, beginning of year | $ 6,200                  
|Liabilities incurred
		during the year           | 432,760                  
|Liabilities settled
		during the year            | --                       
|Accretion of expense                             | 6,657                    
|Asset retirement
		obligations, end of year      | $ 445,617                

12. Cost of Oil and Gas
Properties

(a) General.

This following is information
on the Company's oil and gas development and producing activities in accordance
with SFAS No. 69, "Disclosures about Oil and Gas Producing Activities"

(b) Results of operations from
oil and gas producing activities

The following
table shows the results of operations from the Company's oil and gas producing
activities during the years presented in the financial statements. Results of
operations from these activities are determined using historical revenues,
production costs and depreciation, depletion and amortization of the capitalized
costs subject to amortization. General and administrative expenses and interest
expense is excluded from this determination.

|                                                                   | Year
		ended December 31,
|------------------------------------------------------------------ | -------------------------
|                                                                   | 2004                     
|Production revenues                                                | $866,924                 
|Production costs                                                   | (221,339)                
|Depreciation and
		depletion                                       | (134,568)                
|Income tax (allocated
		on gross profits based On statutory rates) | (145,000)                
|Results of operations
		for producing activities                   | $337,492                 

F-21

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

(c) Capitalized costs for oil
and gas producing activities

The Company's aggregate
capitalized costs related to natural gas and oil producing activities are as
follows:

|                                         | December 31, 2004
|---------------------------------------- | -----------------
|Proved                                   | $10,921,805      
|Unproved                                 | 1,621,256        
|                                         | 12,543,061       
|Accumulated
		depreciation and depletion | (115,375)        
|Net capitalized costs                    | $12,427,686      

Unproved
properties not subject to amortization consisted mainly of leases, and wells
that haven't been completed. The Company will continue to evaluate its unproved
properties, however, the timing of ultimate evaluation and disposition of the
properties has not been determined.

(d) Costs incurred

Costs incurred in natural gas
and oil property acquisition, exploration and development activities, which have
been capitalized, are summarized as follows:

|                                              | Year
		ended December 31,
|--------------------------------------------- | -------------------------
|                                              | 2004                     
|Acquisition of
		properties proved & unproven | $8,912,126               
|Development costs                             | 1,911,023                
|Total                                         | $10,823,149              

13. Subsequent Events

On January 4,
2005, the Company awarded Mr. David Polay 50,000 shares and Mr. LoCascio 10,000
shares of its common stock for services.

On January 11,
2005, the Company issued 60,000 shares of our restricted common stock in lieu of
cash compensation to Russell A. Frierson for land and administrative support
rendered to the Company.

On January 11,
2005, the Company issued 100,000 shares of its restricted common stock to Gary
Bridwell.

On January 28,
2005, in exchange for delaying the Company's monthly principal payment until
May, 2005 on the note due to Laurus the Company issued to Laurus 666,667
warrants at an exercise price of $2.50 and 333,333 warrants at an exercise price
of $3.00.

F-22

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

The Company
entered into various contracts with Seminole Energy Services LLC to sell 60,000
mmbtu per month for the period of March 2005 to February 2006 at various fixed
prices with the overall average price of $5.99.

On February 7,
2005, the Company entered into a Consulting Agreement with CEOcast, Inc.,
wherein they agreed to issue 40,000 shares of its common stock to CEOcast.

On March 23,
2005, Laurus Master Fund, Ltd. converted $190,677.37 of accrued interest due
under the Convertible Term Note. Pursuant to the conversion rate of $1.50 the
Company issued 127,118 shares of its restricted common stock to Laurus on March
31, 2005.

On March 16,
2005, the Company executed an agreement with CSC Group, wherein Steve Cochennet,
(an Advisory Board Member) President of CSC Group, agreed to provide the Company
with services to further its long-term strategy. The term of the agreement began
on January 1, 2005. The Company agreed to pay Mr. Cochennet $5,000 per month
plus grant 150,000 options to CSC Group at $2.04 per share for a period of five
years. Mr. Cochennet will also receive 3% of any debt facility or mezzanine
financing he puts in place prior to December 31, 2005.

On March 18,
2005, the Company executed an agreement with Robert Howell, (an Advisory Board
Member) wherein Mr. Howell agreed to provide the Company with services on
specified assignments as needed by the Company. The term of the agreement is for
three months and began on February 1, 2005. The Company agreed to compensate Mr.
Howell $10,000 for each month plus pay for all reasonable business and travel
expenses, and grant Mr. Howell 125,000 options to purchase its common stock at a
price equal to the average of the last 22 trading days ending April 29, 2005.
The options will be fully vested and will have five years in which to exercise
them. If Mr. Howell is involved in finding sources of debt for the Company, he
will work with Mr. Cochennet and be paid an additional fee by Mr. Cochennet.

On April 13,
2005, Laurus Master Fund, Ltd. converted $52,819.75 of accrued interest due
under the Convertible Term Note. Pursuant to the conversion rate of $1.50 the
Company will issue 35,213 shares of its restricted common stock to Laurus. As of
the date of this filing the shares have not been issued.

14. Supplemental Oil and Gas
Reserve Information (Unaudited)

(a) General

The Company's
estimated net proved oil and gas reserves and the present value of estimated
cash flows from those reserves are summarized below. The reserves were estimated
by McCune Engineering, independent petroleum engineers, using market prices at
the end of each of the years presented in the financial statements. Those prices
were held constant over the estimated life of the reserves. There are numerous
uncertainties inherent in estimating quantities and values of proved oil and gas
reserves and in projecting future rates of production and the timing of
development expenditures, including factors involving reservoir engineering,
pricing and both operating and regulatory constraints. All reserves estimates
are to some degree speculative, and various classifications of reserves only
constitute attempts to define the degree of speculation involved. Accordingly,
oil and gas reserve information represents estimates only and should not be
construed as being exact.

F-23

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

(b) Estimated Oil and Gas
Reserve Quantities

The Company's ownership
interests in estimated quantities of proved oil and gas reserves and changes in
net proved reserves, all of which are located in the United States, are
summarized below.

|                                | Gas -mcf   | Oil
		-bbls
|------------------------------- | ---------- | -----------
|Proved reserves:                |            |            
|Balance December 31,
		2003     | ---        | ---        
|Purchase of
		reserves-in-place | 12,837,406 | 111,296    
|Production                      | (142,968)  | (306)      
|Balance December 31,
		2004     | 12,694,438 | 110,990    

There were no extensions and
discoveries during the year. Since this was the first year that the Company had
reserves there was no revision of previous estimates of reserves.

|                                                                             | Gas-mcf   | Oil-bbls
|---------------------------------------------------------------------------- | --------- | --------
|Proved developed
		reserves at the end of the year Balance December 31, 2003 | ----      | ----    
|                                                                             |           |         
|Balance December 31,
		2004                                                  | 5,799,463 | 110,990 

(c) Standardized measure of
discounted future cash flows

The
standardized measure of discounted future net cash flows from the Company's
proved reserves for each of the years presented in the financial statements is
summarized below. There were no proved reserves for the year ended December 31,
2003. The standardized measure of future cash flows as of December 31, 2004 is
calculated using a price per Mcf of natural gas of $6.20 and a price per barrel
of oil at $49.55. The gas price was the Williams/Southern Star Central spot gas
price (inside FERC index) at the end of the year. The oil price was what the
Company was receiving at December 31, 2004. The resulting estimated future cash
inflows are reduced by estimated future costs to develop and produce the
estimated proved reserves. These costs are based on year-end cost levels. Future
income taxes are based on year-end statutory rates. The future net cash flows
are reduced to present value by applying a 10% discount rate. The standardized
measure of discounted future cash flows is not intended to represent the
replacement cost or fair market value of the Company's oil and gas properties.

There were no proved reserves
at the year ended December 31, 2003.

|Year ended December 31,
		2004                            |             
|--------------------------------------------------------- | ------------
|Future production
		revenue                               | $84,195,000 
|Future production costs                                   | (24,012,000)
|Future development
		costs                                | (6,093,000) 
|Future cash flows
		before income taxes                   | 54,090,000  
|Future income taxes                                       | (17,613,000)
|Future net cash flows                                     | 36,477,000  
|10% annual discount for
		estimating of future cash flows | (13,198,000)
|Standardized measure of
		discounted net cash flows       | $23,279,000 



F-24

---

PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS

(d) Changes in Standardized
Measure of Discounted Future Net Cash Flows

The following
table summarizes the changes in the standardized measure of discounted future
net cash flows from estimated production of the Company's proved oil and gas
reserves after income taxes for each of the years presented in the financial
statements. There were no proved reserves at December 31, 2003. The proved
reserves were purchased in the final quarter of fiscal 2004 therefore there are
no revisions of quantity estimates. There were no extensions, discoveries and
improved recoveries for the year ended December 31, 2004. In future periods it
is expected that there will be extensions, discoveries and improved recovery,
changes in prices and production costs, accretion of discount and changes in
future income taxes.

|Balance December 31,
		2003           | $ ---      
|------------------------------------- | -----------
|Sales, net of
		production costs      | (645,585)  
|Acquisition of oil and
		gas in place | 23,924,585 
|Balance December 31,
		2004           | $23,279,000

F-25