UNITED STATES

SECURITIES AND
EXCHANGE COMMISSION

Washington, D.C. 20549



FORM 10-KSB



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

SECURITIES EXCHANGE
ACT OF 1934



For the fiscal year
ended December 31, 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 X  No _____



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. $____



---



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
$47,274,428.30 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.

(A DEVELOPMENT STAGE
COMPANY)

FOR THE FISCAL YEAR
ENDED

DECEMBER 31, 2004



Index to Report

on Form 10-KSB





|PART I  | Page(s)                                              
|------- | -----------------------------------------------------
|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                             | 18-27
|-------- | -------------------------------------------------------------------------------------- | -----
|Item 6.  | Management's
		Discussion and Analysis of Financial Condition                          | 27-34
|Item 7.  | Financial Statements                                                                   | 34   
|Item 8.  | Changes in and Disagreements
		With Accountants on Accounting and Financial Disclosure | 34   
|Item 8A. | Controls and Procedures                                                                | 35   
|Item 8B. | Other Information                                                                      | 35   



PART III



|Item 9.  | Directors, Executive
		Officers, Promoters and Control Persons; Compliance With Section 16(a)
		of the Exchange Act | 35-39
|-------- | ------------------------------------------------------------------------------------------------------------------- | -----
|Item 10. | Executive Compensation                                                                                              | 39-41
|Item 11. | Security Ownership of Certain
		Beneficial Owners and Management and Related Stockholder Matters                    | 41-42
|Item 12. | Certain Relationships and
		Related Transactions                                                                    | 43-44
|Item 13. | Exhibits                                                                                                            | 44-45
|Item 14. | Principle
		Accountant Fees and Services                                                                            | 45-46



---



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

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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

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|                           |                                                                                                                                                                                                                                                                                                                                                                                                                           
|-------------------------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|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

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|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

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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 $863,740.



Petrol has Net Proved
Gas reserves amounting to 12.69 Billion cubic feet representing a 10% Discounted
Future Net Cash Flow of about $31.02 Million. In addition, Petrol has Probable
Gas reserves totaling 5.14 Billion cubic feet representing an additional 10%
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 though 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

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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 that fields development and gas
gathering operations. 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

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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 on 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

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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 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 along with WI's 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 and
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.



8

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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 south of our targeted area, including
production in Labette, Wilson, Neosho and Cherokee Counties, Kansas, where coal
seams and black shale averaging four feet in thickness have been reported and
initial water production generally has been less than 50 barrels per day,
eventually dropping to below 10 barrels per day. Although currently there are no
CBM wells producing in our targeted area, drilling logs from oil exploration in
and surrounding our targeted area typically confirm the uniformity of the
coal-beds, indicating coal seams similar to those found in the south of the
targeted area. Additionally, a small number of CBM gas wells are producing in
Woodson County, Kansas (the southern adjacent county to Coffey County,) and
Anderson County, Kansas (the eastern adjacent county to Coffey in which we have
acquired leases).



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.



The acquired leases
in the Neosho and Wilson counties account for approximately 10,000 of the total
169,000 leased acreage. 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.



The company is
concentrating its efforts to realizing value from existing leases, but will
continue to enhance and perfect its lease portfolio.



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, others are for 5 years at
$1/acre with extensions for 3 additional years, while others are for 5 years at
$10/acre with extensions for 3 additional years.



9

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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 complete 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



On July 7, 2004,
Petrol entered into a Gas Purchase and Sale Agreement with Big Creek Field
Services, LLC, a Kansas limited liability company, wherein we agreed to sell and
Big Creek agreed to purchase our available supply of gas. The term of the
agreement is for 10 years and shall continue year-to-year thereafter, unless
terminated by either party.



10

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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.



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:



11

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- 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.



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.



12

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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.



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.



13

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We had as of December
31, 2004 estimated net reserves and future net income of:



|                           | Proved     
|-------------------------- | -----------
|                           | Developed  
|                           | Producing  
|Net Remaining Reserves     |            
|Oil
		(stock-tank barrels) | 63,246     
|Gas (mcf)                  | 3,923,570  
|                           |            
|Income Date                |            
|Future Net
		Income        | $15,234,926
|Discounted
		FNI @10%      | $11,755,536



Proved Reserves



|                              | Remaining     |            | Remain. Net
		Reserves     | Petrol Oil and
		Gas, Inc.
|----------------------------- | ------------- | ---------- | -------------------------- | --------------------------
|                              | Gross Reserve |            | Petrol Oil and
		Gas, Inc. | Future Net                
|                              | Oil (STB)     | Gas (MCF)  | Oil (STB)                  | Gas (MCF)                 
|Proved, Developed
		Producing | 179,342       | 5,054,802  | 63,251                     | 3,923,563                 
|                              |               |            |                            |                           
|Proved, Dev.
		Non-producing  | 90,163        | 2,220,000  | 47,739                     | 1,875,900                 
|                              |               |            |                            |                           
|Proved Undeveloped            | 0             | 8,605,000  | 0                          | 6,894,975                 
|                              |               |            |                            |                           
|Total                         | 269,505       | 15,879,802 | 110,990                    | 12,694,438                



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 about
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



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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. 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. Daily oil production from those leases as of the
end of December 2004 averaged about 73.4 barrels of oil per day. 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. Warms 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 not to exceed $3,450
per month 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

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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

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(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 | 3,250,000 (1)                                                                                     | $ 0.96                                                                              | 650,000 (2)                                                                                                                                  
|                                                         |                                                                                                   |                                                                                     |                                                                                                                                              
|Total                                                    | 3,250,000                                                                                         | $ 0.96                                                                              | 650,000                                                                                                                                      
|                                                         |                                                                                                   |                                                                                     |                                                                                                                                              

1. Includes
		900,000 warrants granted to a consultant.
2. 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

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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.



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 of $6,760,000. 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 use 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, 2005,
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).



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).



18

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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 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.



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. As of the date of this
filing the shares have not been issued.



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.



19

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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 $836,740. The
revenues generated were primarily derived from the $10 million in the
acquisition of certain assets owned by Savage Resources, LLC and Savage
Pipeline, LLC (the "Petrol-Neodesha Project"). 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 Project 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.



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 operate these
leases 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 operations
sufficient 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.



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|                                         | 2004         | 2003 | Increase    
|---------------------------------------- | ------------ | ---- | ------------
|                                         | Amount       | %    | Amount      
|Revenue                                  | $ 863,740    |      | $ -         
|Expenses:                                |              |      |             
|General and administrative               | 848,028      |      | 343,941     
|Professional and consulting fees         | 1,906,036    |      | 1,374,754   
|Depreciation, depletion and amortization | 213,475      |      | -           
|Total                                    | 2,967,539    |      | 1,718,695   
|                                         |              |      |             
|Net loss from operations                 | (2,975,955)  |      | (1,718,695) 
|Other income (expense):                  |              |      |             
|Interest and other income                | 39,416       |      | 1,067       
|Interest expense                         | (1,435,369)  |      | (16,156)    
|Net loss                                 | $(4,371,908) |      | $(1,733,784)



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
effect 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 $724,625 in gas production efforts.



Expenses



General and
administrative expensesfor the years ended December 31, 2004 and 2003 were
$848,028 and $343,941, respectively, for an increase of $504,087. The increase
is attributable to the following primary factors; additional overhead incurred
in connection with the commencement of field operations.



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 Savage Oil, LLC
acquisition.



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.



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Other Income
(Expense):



Interest and other
income for the years ended December 31, 2004 and 2003 was $39,416 and
$1,067, respectively, for an increase of $38,349 which was derived from our
investment in the amount of $200,000 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 the debt instrument, we have calculated and
expensed beneficial conversion of the note, which attributes $1,013,000 to the
amount expensed. The additional increase is over the prior year is allocated to
the accrual of normal principal balance of the loan.



Net Loss:
Our net loss for the years ended December 31, 2004 and 2003 was $4,371,907 and
$1,733,784, respectively, for an increase loss in the amount of $2,638,125. 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.



Other than our lease
holdings we did not have any significant results from our operations and or
production prior to the fourth quarter of 2004. Therefore the following is a
discussion of our operating data for the fourth quarter of 2004.



Oil and natural gas
sales.  Oil and natural gas sales generated approximately $866,924 in
revenues in 2004. Oil sales accounted for $142,298 of the total amount while the
natural gas generated $724,625 or 84% of total revenue.



Lease operating
expenses.  Our aggregate lease operating expenses increased from $1,289,573
in 2003 to $1,831,023 in 2004.



Production taxes.
 Production taxes as a percentage of oil and natural gas sales were 5% during
2004.  Production taxes vary from state to state.  Therefore, these taxes are
likely to vary in the future depending on the mix of production we generate from
various states, and on the possibility that any state may raise its production
tax.



Depreciation,
depletion and amortization.  Our depreciation, depletion and amortization
expense was $213,475 in 2004.



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 and 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.



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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 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 leased assets of the company. 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
Savage acquisition described below. 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.



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 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 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.



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In our unit offering
completed on October 7, 2004, we sold 5,633,333 units for a total purchase price
of $6,760,000, 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 or
		Principal | Price per
		Share | Net Cash
		Proceeds | Warrants  | Exercise Price
|-------- | ---------------------------- | --------------------- | ----------------- | ------------------- | --------- | --------------
|         |                              |                       |                   |                     |           |               
|12/2003  | IPO - Common Stock           | 2,350,473             | $1.00             | $2,350,473          | n/a       | n/a           
|10/07/04 | Unit Offering - Common Stock | 5,633,333             | $1.20             | $6,760,000          | 5,633,333 | $1.50         



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 JV or WI
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.



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.



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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.



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, 2005 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.



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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.



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.



26

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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.



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.



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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.



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.
   We predominantly derive our revenue from the sale of produced crude oil and
natural gas. Revenue is recorded in the month the product is delivered to the
purchaser. We receive payment from one to three months after delivery. At the
end of each month, we estimate the amount of production delivered to purchasers
and the price we will receive. Variances between our estimated revenue and
actual payment are recorded in the month the payment is received; however,
differences have been insignificant.



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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.



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.



29

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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.



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.



30

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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.



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:



31

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- 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.



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.



32

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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.



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.



33

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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.



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.



34

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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.

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.



35

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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;
- 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.



36

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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.



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;

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- 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.





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.





38








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.





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
			POSITIONPaul T. Branagan
			62
			President, CEO, Chairman, Secretary/TreasurerLoren Moll
			48
			DirectorJohn C. Garrison
			53
			Chief Financial Officer





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.





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 intends to devote 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.





40








Neither Mr. Branagan nor Mr. Moll is 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.





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:





41








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.





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.





42


---




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.





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.





43








Nominating
	Committee





We do not have a Nominating Committee or Nominating Committee Charter. Our
	board of directors performed some of the functions associated with a
	Nominating Committee. We have elected not to have a Nominating Committee in
	that we are a development stage company with limited operations and
	resources.





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.





We have 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.





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.





44






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. Pursuant to the plan, stock options were granted as follows:





Date Granted
			
			Exercise Price Per Share
			
			Number of SharesDecember 19, 2002Granted
			
			$0.50 to $2.50
			
			1,350,000Exercised
			
			-
			
			-0-Cancelled
			
			-
			
			-0-December 27, 2002Granted
			
			$0.50
			
			700,000Exercised
			
			$0.50
			
			700,000Cancelled
			
			-
			
			-0-March 1, 2004Granted
			
			$1.25 to $1.50
			
			300,000Exercised
			
			-
			
			-0-Cancelled
			
			-
			
			-0-Total outstanding
			
			$0.50 to $2.50
			
			2,350,000





ITEM 10.
		EXECUTIVE COMPENSATION





The following table sets forth the cash compensation of our executive
	officers: Paul Branagan, president, since his appointment on August 21, 2002
	through December 31, 2004.





Summary
	Compensation Table





Annual Compensation
			Long Term CompensationAwards
			PayoutsName and
			Principal Position
			Year
			Salary
			Bonus
			Other
			Annual
			Compen-
			sation
			Restricted
			Stock
			Options
			LTIP
			Payouts
			All Other
			CompensationPaul 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-
			-0-
			-0-(1)
			-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.

45








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 Share250,000
			
			$0.50250,000
			
			$1.00250,000
			
			$1.50250,000
			
			$2.00250,000
			
			$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.





46








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 one 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 December 31, 2004 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.





Security
	Ownership of Management


Name of Beneficial Owner (1)
			
			Number
			of Shares
			
			Percent of Outstanding Shares of Common Stock (2)Paul Branagan, President
			3161 E. Warm Springs Rd., Suite 300
			Las Vegas, NV 89120
			
			1,750,000 (3)
			
			7%Loren Moll, Director
			3161 E. Warm Springs Rd., Suite 300
			Las Vegas, NV 89120
			
			3,100,000
			
			12%John C. Garrison, Chief Financial Officer
			3161 E. Warm Springs Rd., Suite 300
			Las Vegas, NV 89120
			
			0
			
			0%Directors and Officers as a Group
			
			4,850,000
			
			19%


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.


Figures are
	rounded to the nearest whole percent.


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)Spindrift Investors (Bermuda) L.P. (3) (4) (5)
			Clarendon House, 2 Church Street
			Hamilton
			
			987,700
			
			4%Wellington Global Holdings, Ltd. (3) (5) (6)
			Clarendon House, 2 Church Street
			Hamilton
			
			987,700
			
			4%Wellington Global Administrator, Ltd. (3) (5) (6)
			Clarendon House, 2 Church Street
			Hamilton
			
			987,700
			
			4%Spindrift Partners, L.P. (3) (5) (7)
			75 State Street
			Boston, MA 02109
			
			816,900
			
			3%Wellington Hedge Management, LLC (3) (5) (8)
			75 State Street
			Boston, MA 02109
			
			816,900
			
			3%Wellington Hedge Management, Inc. (3) (5) (9)
			75 State Street
			Boston, MA 02109
			
			816,900
			
			3%Wellington Management Company, LLP (10)
			75 State St.
			Boston, MA 02109
			
			2,500,000 (11)
			
			10%Beneficial Owners as a Group
			
			7,913,800
			
			32%





48





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. Spindrift
		Investors (Bermuda) L.P., Wellington Global Holdings, Ltd., and
		Wellington Global Administrator, Ltd. have shared dispositive power over
		1,975,700 shares after exercise of warrants. Spindrift Partners, L.P.,
		Wellington Hedge Management, LLC, and Wellington Hedge Management, Inc.
		have shared dispositive power over 1,633,800 after exercise of warrants.
4. A Bermuda
		limited partnership.
5. Each have the
		right to receive, or the power to direct the receipt of, dividends from,
		or the proceeds from the sale of, such securities. No other person is
		known to have such right or power with respect to more than five percent
		of this class of securities, except for Wellington Management Company,
		LLP.
6. Each a
		Bermuda limited company, which are the general partners of Spindrift
		Investors (Bermuda) L.P.
7. A
		Massachusetts limited partnership.
8. A
		Massachusetts limited liability company, which is the sole general
		partner of Spindrift Partners, L.P.
9. A
		Massachusetts corporation which is the managing member of Wellington
		Hedge Management, LLC.
10. A Bermuda
		limited liability partnership.
11. 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, except for Spindrift Investors (Bermuda)
		L.P. and Spindrift partners, L.P.

* 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.





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 herwith





49








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





50





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 15, 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 15, 2005Paul Branagan
			CEO, Chairman/s/Loren Moll
			Director
			April 15, 2005Loren Moll/s/John C. Garrison
			Chief Financial Officer
			April 15, 2005John C. Garrison





51







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





52







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, shareholders' deficit, 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.

(A Development Stage
Company)

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                                                                                                                        | 1,682,150           | 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 Stockholder's
		Equity                                                                                                   |                     |                    
|                                                                                                                                         |                     |                    
|Current liabilities:                                                                                                                     |                     |                    
|Accounts payable                                                                                                                         | $ 462,152           | $ 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                                                  | 76                  | 160                
|Unamortized cost of stock issued for services                                                                                            | (50)                | (1,000)            
|Additional paid in capital                                                                                                               | 17,048,807          | 4,630,713          
|Other comprehensive (loss)                                                                                                               | (229,435)           | -                  
|Accumulated (deficit)                                                                                                                    | (6,815,390)         | (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.

(A Development Stage
Company)

Statement of
Operations



|                                                                                 | For the Years
		Ended
		December 31,
|-------------------------------------------------------------------------------- | ------------------------------------
|                                                                                 | 2004                                
|                                                                                 |                                     
|Revenue                                                                          | $ 866,924                           
|                                                                                 |                                     
|Expenses:                                                                        |                                     
|Direct costs                                                                     | 221,339                             
|General and administrative                                                       | 848,028                             
|Professional and consulting fees                                                 | 1,906,036                           
|Depreciation, depletion and amortization                                         | 213,475                             
|Acquisition costs                                                                | 654,000                             
|Total expenses                                                                   | 3,842,879                           
|                                                                                 |                                     
|Net operating (loss)                                                             | (2,975,955)                         
|                                                                                 |                                     
|Other income (expense):                                                          |                                     
|Interest and other income                                                        | 39,416                              
|Interest expense                                                                 | (1,435,369)                         
|Total other income (expense)                                                     | (1,395,952)                         
|                                                                                 |                                     
|Net (loss)                                                                       | $ (4,371,907)                       
|                                                                                 |                                     
|                                                                                 |                                     
|                                                                                 |                                     
|Weighted average number of
		common shares Outstanding - basic and fully diluted | $ 20,647,542                        
|                                                                                 |                                     
|Net (loss) per share - basic
		and fully diluted                                 | $ (0.21)                            



See notes to financial
statements.



F-3

---



Petrol Oil and Gas,
Inc.

(A Development Stage
Company)

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)                   
|                                            |              |                                |                                                 |                                   |                            |                       |                               
|Shares issued for services                  | 80,000       | 80                             | 89,880                                          | 40                                | -                          | -                     | -                             
|Shares issued for services not yet received | -            | -                              | 119,880                                         | 120                               | -                          | -                     | -                             
|Shares issued for cash                      | 450,000      | 450                            | 337,050                                         | -                                 | -                          | -                     | -                             
|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                                         | -                                 | -                          | -                     | -                             
|Shares issued for cash                      | 2,350,473    | 2,350                          | 2,283,748                                       | -                                 | -                          | -                     | -                             
|                                            |              |                                |                                                 |                                   |                            |                       |                               
|Net (loss)                                  |              |                                |                                                 |                                   |                            |                       |                               
|For
		the year ended December 31, 2003      | -            | -                              | -                                               | -                                 | -                          | -                     | (1,733,784)                   
|Balance, December 31, 2003                  | 17,247,466   | 17,247                         | 4,630,713                                       | 160                               | (1,000)                    | -                     | (2,443,483)                   
|                                            |              |                                |                                                 |                                   |                            |                       |                               
|Shares issued for services                  | 413,861      | 415                            | 904,085                                         | -                                 | -                          | -                     | -                             
|Shares issued for cash                      | 160,000      | 160                            | -                                               | (160)                             | -                          | -                     | -                             
|Shares issued for asset acquisition         | 765,000      | 765                            | 764,235                                         | -                                 | -                          | -                     | -                             
|Warrants and options issued for services    | -            | -                              | 548,600                                         | -                                 | -                          | -                     | -                             
|Shares for services not yet issued          | -            | -                              | 48,973                                          | 25                                | -                          | -                     | -                             
|Shares for acquisition not yet issued       | -            | -                              | 94,950                                          | 50                                | -                          | -                     | -                             
|Options exercised                           | 1,350,000    | 1,350                          | 836,150                                         | -                                 | -                          | -                     | -                             
|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                                       | -                                 | -                          | -                     | -                             
|Beneficial conversion of convertible stock  | -            | -                              | 1,013,000                                       | -                                 | -                          | -                     | -                             
|Warrants issued in financing                | -            | -                              | 2,072,534                                       | -                                 | -                          | -                     | -                             
|Other comprehensive loss                    | -            | -                              | -                                               | -                                 | -                          | (229,435)             |                               
|                                            |              |                                |                                                 |                                   |                            |                       |                               
|Net (loss)                                  |              |                                |                                                 |                                   |                            |                       |                               
|For the year ended December 31, 2004        | -            | -                              | -                                               | -                                 | -                          | -                     | (4,371,907)                   
|Balance, December 31, 2004                  | 24,619,660   | $ 24,620                       | $ 17,048,807                                    | $ 75                              | $ (50)                     | $ (229,435)           | $ (6,815,390)                 



See notes to financial
statements.



F-4

---



Petrol Oil and Gas,
Inc.

(A Development Stage
Company)

Statement of Cash
Flows

For the Twelve Months
Ending December 31, 2004 and 2003



|                                                                                                            | For the Years
		Ended
		December 31,
|----------------------------------------------------------------------------------------------------------- | ------------------------------------
|                                                                                                            | 2004                                
|Cash flows from operating
		activities                                                                      |                                     
|Net loss                                                                                                    | $ (4,371,907)                       
|Depreciation, depletion and amortization                                                                    | 383,987                             
|Shares issued for services                                                                                  | 820,000                             
|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                             
|Additions to capitalized oil and gas costs                                                                  | (1,831,023)                         
|Net cash (used) by investing
		activities                                                                   | (12,109,521)                        
|                                                                                                            |                                     
|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                                                                                        | 1,585,393                           
|Cash - beginning                                                                                            | 1,059,838                           
|Cash - ending                                                                                               | $ 2,645,231                         
|                                                                                                            |                                     
|Supplemental cash flow
		information:                                                                       |                                     
|Interest paid                                                                                               | $ 1,435,369                         
|Income taxes paid                                                                                           | $ -                                 
|                                                                                                            |                                     
|Non-cash transactions                                                                                       |                                     
|Shares issued for asset purchase                                                                            | $ 765,000                           
|Shares issued for services                                                                                  | $ 820,000                           
|Shares issued for loan fees                                                                                 | $ 96,500                            
|Shares for services not issued                                                                              | $ 75                                
|                                                                                                            |                                     
|Addition to oil & gas property not subject to amortization and
		accounts payable assumed in asset purchase | $ -                                 



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. (Petro). 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.



We are 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. We have focused our 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 us 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



We use the equity
method of accounting for our investments in which our interest is over 20% but
is non-controlling and less than 50% ownership. Under the equity method, we
record our share of the net income or loss as an increase or decrease in the
investment less our 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.



We account for our
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



We account 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 our 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 us.



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



Debt issue costs



Costs related to
securing our 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



We follow 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



We review 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



We accrue for asset
retirement obligations, primarily for assets on leased sites, in the period in
which the obligations are incurred. We accrue these costs at estimated fair
value. When the related liability is initially recorded, we capitalize 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, we recognize a gain or loss for any difference between the settlement
amount and the liability recorded. We have identified asset retirement
obligations pertaining to the closure of wells on our land leases. We have
estimated the fair value of our asset retirement obligations, based in part on
the terms of quoted agreements.



Concentration of credit risk



We substantially sell
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



We seek to reduce our
exposure to unfavorable changes in natural gas prices by utilizing energy swap
contracts (effectively fixed price contracts). We have 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 our fixed
price contracts may not qualify for special hedge accounting treatment from time
to time under specific guidelines of SFAS 133, we refer 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 we expect the contracts to continue to mitigate our 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



We have 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 our 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.



F-9

---



PETROL OIL AND GAS,
INC.

NOTES TO 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.



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



We 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 (as amended in a subsequent
agreement) months. 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.



We sold 450,000 share
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, we
issued 1,000,000 shares of our common stock to Cornerstone Bank as collateral
for a note payable to the bank. On July 7, 2003 we paid off the note and the
bank returned the shares. On July 2, 2003 we entered into a loan agreement with
CPA Directed Investments (CDI). As part of that agreement we were 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 us on January 26,
2004.



F-10

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



On January 15, 2004
we agreed to exchange 765,000 shares of our 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 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,
we 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. The shares have not been issued to Mr. Blankenship at December 31, 2004
and the par value of the stock ($10) is recorded as stock earned but not issued.



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 and all shares were issued on October 27, 2004.



On May 3, 2004, we
issued 100,000 shares of our common stock to CPA Directed Investments (CDI)
pursuant to a secured promissory note agreement dated May 5, 2004. CDI will
return 50,000 shares for cancellation at such time the loan and interest are
paid in full. The remaining 50,000 shares will be retained by CDI as a loan fee.
Due to the nature of this being a short-term loan the loan fee was expensed. The
expense 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 we
issued 120,000 shares of our common stock to XXR Consulting Inc. pursuant to a
consulting agreement we 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.



We sold 5,633,333
shares of our 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. We offset the proceeds by direct costs relating to
commissions paid, totaling $934,410, legal fees of $131,500 and other costs of
$7,500. The value of the warrants was determined to be $3,380,000, which was
recorded as additional paid-in capital. The net additional paid-in capital from
the sale of the shares was $2,187,517.



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 of $1, which represented
1,000 shares.



F-11

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



On June 15, 2004 we
agreed to 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. Stock earned but not yet issued to the consultant at December 31, 2004
was recorded at par value.



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



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 Co. 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 December 2, 2004,
we issued 90,000 shares of 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 as determined by the market price of our stock on the day
of the agreement was $189,000 and this was recorded as professional and
consulting fee expense.



On December 16, 2004,
we issued 50,000 shares of common stock to CEOcast as a finders 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.



Options and warrants



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



On November 21, 2003
we entered into an agreement with NIO whereby NIO received 1,500,000 warrants to
purchase our shares 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.



F-12

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



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 15,2004 we
entered into an agreement with Mr. John Haas, Mr. Mark Hass and Mr. W.B.Mitchell
whereas we 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 Hass 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,
we 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 a stock warrant giving CSC the right to purchase
200,000 shares of our 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 we
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.



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. The value of the
warrants, using the Black-Scholes pricing model was $3,380,000, which was
included as paid in capital. We also 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, using the Black-Scholes pricing model was
$447,850 and this was offset to the paid in capital relating to the equity
offering.



On October 28, 2004,
we 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.
We also agreed to 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.



F-13

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



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. At December 31, 2004 all shares had been issued.



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          



4. Commitments



On July 1, 2003 we
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 us 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.



F-14

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



On January 21, 2003 we entered into a
lease agreement for office space. The term of the agreement is one year and rent
is $300 per month.



On April 2, 2004 we entered into a
39-month lease for office space. The monthly lease payment is $3,448.40.



On May 19, 2004 we 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



We 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 July 7, 2003.



In July 2003, we
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.



6. Long-Term Debt



Long-term debt
consists of the following:



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



On October 2004 we
issued an $8,000,000 secured convertible term note ("Note") to Laurus Master
Fund, Ltd. ("Laurus"). The Note is convertible into shares of our common stock
at an initial conversion price of $1.50 per share. Pursuant to this agreement,
we also issued to Laurus a warrant ("Warrant") to purchase up to 5,333,333
shares of our common stock, of which 3,520,000 shares will have an exercise
price of $2.00 and 1,813,333 shares will 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.



F-15

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



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 our assets. The Note consists
of a non-restricted facility of $7,150,000 and a restricted facility of
$850,000. The non-restricted facility was used to acquire Savage Resources, LLC
and Savage Pipeline, LLC. The remaining $850,000 million facility 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 our 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
our common stock include:

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

an average closing price of
	our 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 our common stock
	for the previous 22 trading days.

We 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
of the Note plus any accrued interest.



On a month-by-month
basis, if we register 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 our
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 our
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 our 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 our common stock, excluding the conversion
of any accrued interest. Laurus is limited on its ability to convert is the
conversion of the Note or the exercise of the Warrant would cause the shares
then held by Laurus to exceed 4.99% of our outstanding shares of common stock
unless there has been an event of default or Laurus provides us with 75 days
prior notice.



F-16

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



We were obligated to
file a registration statement with the Securities and Exchange Commission
("SEC") registering the resale of shares of our 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. We 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 our common stock
is not listed for three consecutive trading days, we are 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 we fail to correct these issues. Since
the registration statement has not yet been declared effective, we are incurring
monthly cash fees to Laurus.



We 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.



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    



7. Income Taxes



Deferred income taxes
are determined based on the tax effect of items subject to differences in book
and taxable income. We 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                          | $ --                     



F-17

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



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%                    
|Change in valuation allowance | <34.0>                   
|Effective tax rate            | 0.0%                     



8. Related Party Transactions



During the year ended
December 31, 2004, we paid the outstanding due to Officer liability in the
amount of $47,500. At December 31, 2004 the amounts due to Officers was $0.



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.



Total interest paid
to CDI (see note5), a shareholder of the Company, for the year ended December
31, 2004 and 2003 was $15,778 and $13,501. We invested $200,000 in a fund that
is being managed by CPA Directed Investments. At December 31, 2004 we withdrew
our investment of $200,000. There were no Investment management fees charged in
the year ended December 31, 2004 and 2003.



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 and his company for the year ended December 31, 2004 and 2003
was $13,342 and $55,134.



We acquired gas
leased and existing wells on properties from BTB Energy for $270,000 and is
included as an accrued liability at December 31, 2004. We also paid $150,000 to
two of our shareholders for an operating property.



9. Acquisitions



On January 15, 2004
we agreed to exchange 765,000 shares of 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 we 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.



F-18

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



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 us 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.



|                        | 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 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 we have contracted to provide. For the year ended December
31, 2004 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 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. 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.



F-19

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



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.



11. 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.



|                                                 | 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 our
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 our 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.



F-21

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



|                                                                     | 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                 



(c) Capitalized costs for oil and gas
producing activities



Our 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. We will continue to evaluate our 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 we
awarded Mr. David Polay 50,000 shares and Mr. LoCascio 10,000 shares of our
common stock for services.



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



We 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.



F-21

---



PETROL OIL AND GAS,
INC.

NOTES TO FINANCIAL
STATEMENTS



14. Supplemental Oil and Gas Reserve
Information (Unaudited)



(a) General



Our 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.



(b) Estimated Oil and Gas Reserve
Quantities



Our 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 -bblsProved reserves:Balance December 31, 2003
			---
			---Purchase of
			reserves-in-place
			12,837,406
			111,296Production
			(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 we 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 our proved reserves for the
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 we were
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 



(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
			23,924,585Balance December 31, 2004
			$23,279,000