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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 
 Annual
Report Pursuant To Section 13 or 15(d) of the Securities
Exchange Act of 1934
 For
the fiscal year ended September 30, 2009
 Commission
File Number:   001-31759
 PANHANDLE OIL AND GAS INC.
  OKLAHOMA
    
    73-1055775(State or other jurisdiction of incorporation
or organization)
    
    (I.R.S. Employer Identification No.)Grand Centre, Suite 300, 5400 North Grand Blvd., Oklahoma City, OK
    
    73112(Address of principal executive offices)
    
    (Zip code)
   CLASS A COMMON STOCK (VOTING)
    
    NEW YORK STOCK EXCHANGE(Title of Class)
    
    (Name of each exchange on which registered)
 
 CLASS B COMMON STOCK (NON-VOTING) $1.00 par value
  o þ
  o þ
  þ o
   o o
  o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do
not check if a smaller reporting company)
  o þ
  Documents Incorporated By Reference




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##### 



T
A B L E   O F   C O N T E N T S
 PagePART IItem 1
    
    Business
    
    
    1Item 1B
    
    Unresolved Staff Comments
    
    
    9Item 2
    
    Properties
    
    
    9Item 3
    
    Legal Proceedings
    
    
    16Item 4
    
    Submission of Matters to a Vote of
Security Holders
    
    
    16PART IIItem 5
    
    Market for Registrants Common Equity and
Related Stockholder Matters
    
    
    17Item 6
    
    Selected Financial Data
    
    
    19Item 7
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    20Item 7A
    
    Quantitative and Qualitative Disclosures about Market
Risk
    
    
    31Item 8
    
    Financial Statements and Supplementary Data
    
    
    32Item 9
    
    Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure
    
    
    62Item 9A
    
    Controls and Procedures
    
    
    62Item 9B
    
    Other Information
    
    
    62PART IIIItem 1014
    
    Incorporated by Reference to Proxy StatementPART IVItem 15
    
    Exhibits, Financial Statement Schedules and Reports on Form 8- K
    
    
    63Signature Page

    
    
    
    64Exhibit 21
    
    
    
    
    65Exhibit 23
    
    
    
    
    66Exhibit 31.131.2

    
    
    
    67Exhibit 32.132.2

    
    
    
    69Exhibit 99

    
    
    
    71
   SEC
 Bbl
 Bcf




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Mcf  Mcfd
 Mcfe
 CO2  PV-10
 gross  net
 Minerals mineral acres mineral interests
 Working Interest
 Royalty Interest
 ESOP
 Fiscal year references




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PART I
 
 ITEM 1 BUSINESS
 GENERAL
   www.panhandleoilandgas.com
   BUSINESS STRATEGY
  (1)




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PRINCIPAL PRODUCTS AND MARKETS
    COMPETITIVE BUSINESS CONDITIONS
   SOURCES AND AVAILABILITY OF RAW MATERIALS
  (2)




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MAJOR CUSTOMERS
  PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND ROYALTY AGREEMENTS
  REGULATION
     (3)




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ENVIRONMENTAL MATTERS
  (4)




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EMPLOYEES
  RISK FACTORS
  Worldwide and in the United States, economic recession has existed for over a year and is
continuing to have a negative effect on demand for and the price of oil and natural gas, drilling
activity to explore for new reserves and availability of capital through either debt or equity
markets.
  Oil and natural gas prices are volatile. Volatility in oil and natural gas prices can adversely
affect results and the price of the Companys common stock. This volatility also makes valuation
of oil and natural gas producing properties difficult and can disrupt markets.
  
    
    worldwide economic conditions;
    
    economic, political and regulatory developments;
    
    market uncertainty;
    
    relatively minor changes in the supply of and demand for oil and natural gas;
    
    weather conditions;
    
    import prices;
    
    political conditions in major oil producing regions, especially the Middle East and
West Africa;
    
    actions taken by OPEC; and
    
    competition from alternative sources of energy.
 (5)




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A substantial decline in oil and natural gas prices for an extended period of time would have a
material adverse effect on the Company.
  
    
    cash flow would be reduced, decreasing funds available for capital expenditures
employed to replace reserves or increase production;
    
    certain reserves may no longer be economic to produce, leading to both lower proved
reserves and cash flow; and
    
    access to sources of capital, such as equity or long-term debt markets, could be
severely limited or unavailable.
 The Companys derivative activities may reduce the cash flow received for oil and natural gas
sales.
  Lower oil and natural gas prices may cause impairment charges.
   Our estimated proved reserves are based on many assumptions that may prove to be inaccurate. Any
material inaccuracies in these reserve estimates or underlying assumptions will materially affect
the quantities and present value of our reserves.
 (6)




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Failure to find or acquire additional reserves will cause reserves and production to decline
materially from their current levels.
   (7)




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Oil and natural gas drilling and producing operations involve various risks.
   We cannot control activities on properties we do not operate.
  Shortages of oil field equipment, services, qualified personnel and resulting cost increases could
adversely affect results of operations.
  (8)




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Competition in the oil and natural gas industry is intense, and most of our competitors have
greater financial and other resources than we do.
  
    
    seeking to acquire desirable producing properties or new properties for future
exploration;
    
    seeking to acquire the equipment and expertise necessary to develop and operate
properties; and
    
    having sufficient capital to maintain drilling rights in all drilling units.
  
 ITEM 1B UNRESOLVED STAFF COMMENTS
  
 ITEM 2 PROPERTIES
    ACREAGE
 Mineral Interests Owned
  (9)




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Net
    
    GrossNet
    
    Gross
    
    Acres
    
    Acres
    
    NetAcres
    
    Acres
    
    Leased
    
    Leased
    
    Acres
    
    Gross AcresNet
    
    
    
    
    
    Producing
    
    Producing
    
    to Others
    
    to Others
    
    Open
    
    OpenState
    
    Acres
    
    Gross Acres
    
    (1)
    
    (1)
    
    (2)
    
    (2)
    
    (3)
    
    (3)Arkansas
    
    
    10,026
    
    
    
    45,455
    
    
    
    3,481
    
    
    
    13,138
    
    
    
    6,459
    
    
    
    32,037
    
    
    
    86
    
    
    
    280Colorado
    
    
    8,217
    
    
    
    39,080
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    8,217
    
    
    
    39,080Florida
    
    
    5,589
    
    
    
    12,239
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,589
    
    
    
    12,239Kansas
    
    
    3,082
    
    
    
    11,816
    
    
    
    152
    
    
    
    1,280
    
    
    
    
    
    
    
    
    
    
    
    2,930
    
    
    
    10,536Montana
    
    
    1,007
    
    
    
    17,947
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    1,599
    
    
    
    996
    
    
    
    16,348North Dakota
    
    
    11,179
    
    
    
    64,286
    
    
    
    6
    
    
    
    240
    
    
    
    
    
    
    
    
    
    
    
    11,173
    
    
    
    64,046New Mexico
    
    
    57,396
    
    
    
    174,461
    
    
    
    1,352
    
    
    
    7,125
    
    
    
    380
    
    
    
    480
    
    
    
    55,664
    
    
    
    166,856Oklahoma
    
    
    113,015
    
    
    
    945,035
    
    
    
    36,358
    
    
    
    291,946
    
    
    
    1,179
    
    
    
    10,380
    
    
    
    75,478
    
    
    
    642,709South Dakota
    
    
    1,825
    
    
    
    9,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,825
    
    
    
    9,300Texas
    
    
    43,180
    
    
    
    361,343
    
    
    
    7,392
    
    
    
    69,722
    
    
    
    204
    
    
    
    3,690
    
    
    
    35,584
    
    
    
    287,931OTHER
    
    
    44
    
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    279Total:
    
    
    254,560
    
    
    
    1,681,241
    
    
    
    48,741
    
    
    
    383,451
    
    
    
    8,233
    
    
    
    48,186
    
    
    
    197,586
    
    
    
    1,249,604
 
 (1)
    
    Producing represents the mineral acres in which Panhandle owns a royalty or working
interest in a producing well.(2)
    
    Leased represents the mineral acres owned by Panhandle that are leased to third parties but
not producing.(3)
    
    Open represents mineral acres owned by Panhandle that are not leased or in production. Leases
  Net AcresHeld byState
    
    Net Acres
    
    Net Lease Acres Expiring
    
    Production2010
    
    2011
    
    2012
    
    2013Kansas
    
    
    2,117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,117Oklahoma
    
    
    16,371
    
    
    
    1,949
    
    
    
    2,154
    
    
    
    49
    
    
    
    1
    
    
    
    12,218Texas
    
    
    504
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    501Other
    
    
    1,368
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,368TOTAL
    
    
    20,360
    
    
    
    1,949
    
    
    
    2,154
    
    
    
    52
    
    
    
    1
    
    
    
    16,204
 PROVED RESERVES
  (10)




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Barrels of Oil
    
    Mcf of Natural Gas
    
    McfeNet Proved Developed ReservesSeptember 30, 2009
    
    
    882,987
    
    
    
    45,036,460
    
    
    
    50,334,382September 30, 2008
    
    
    895,430
    
    
    
    35,970,450
    
    
    
    41,343,030September 30, 2007
    
    
    754,866
    
    
    
    31,016,304
    
    
    
    35,545,500Net Proved Undeveloped ReservesSeptember 30, 2009
    
    
    37,886
    
    
    
    8,991,350
    
    
    
    9,218,666September 30, 2008
    
    
    94,530
    
    
    
    12,180,220
    
    
    
    12,747,400September 30, 2007
    
    
    67,958
    
    
    
    5,989,487
    
    
    
    6,397,235Net Total Proved ReservesSeptember 30, 2009
    
    
    920,873
    
    
    
    54,027,810
    
    
    
    59,553,048September 30, 2008
    
    
    989,960
    
    
    
    48,150,670
    
    
    
    54,090,430September 30, 2007
    
    
    822,824
    
    
    
    37,005,791
    
    
    
    41,942,735
     (11)




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Modernization of Oil and Gas
Reporting
Requirements,
 ESTIMATED FUTURE NET CASH FLOWS
  Estimated Future Net Cash Flows
 9-30-09
    
    
    9-30-08
    
    
    9-30-07Proved Developed
    
    $
    131,674,245
    
    
    $
    182,996,389
    
    
    $
    173,797,222Proved Undeveloped
    
    
    15,372,040
    
    
    
    31,863,340
    
    
    
    23,046,080Income Tax Expense
    
    
    43,832,666
    
    
    
    67,278,008
    
    
    
    60,887,878Total Proved
    
    $
    103,213,619
    
    
    $
    147,581,721
    
    
    $
    135,955,424
 10% Discounted Present Value of Estimated Future Net Cash Flows
 9-30-09
    
    
    9-30-08
    
    
    9-30-07Proved Developed
    
    $
    73,869,512
    
    
    $
    104,840,854
    
    
    $
    102,583,540Proved Undeveloped
    
    
    6,800,080
    
    
    
    15,068,040
    
    
    
    13,178,660Income Tax Expense
    
    
    26,923,084
    
    
    
    41,896,610
    
    
    
    39,068,713Total Proved
    
    $
    53,746,508
    
    
    $
    78,012,284
    
    
    $
    76,693,487
  (12)




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OIL AND NATURAL GAS PRODUCTION
  Year Ended
    
    Year Ended
    
    Year Ended9-30-09
    
    9-30-08
    
    9-30-07Bbls  Oil
    
    
    128,160
    
    
    
    132,402
    
    
    
    107,344Mcf  Natural Gas
    
    
    9,109,988
    
    
    
    6,928,038
    
    
    
    5,147,343Mcfe
    
    
    9,878,948
    
    
    
    7,722,450
    
    
    
    5,791,407
  AVERAGE SALES PRICES AND PRODUCTION COSTS
  Year Ended
    
    
    Year Ended
    
    
    Year Ended9-30-09
    
    
    9-30-08
    
    
    9-30-07Average Sales PricePer Bbl, Oil
    
    $
    51.79
    
    
    $
    103.91
    
    
    $
    62.81Per Mcf, Natural Gas
    
    $
    3.38
    
    
    $
    7.98
    
    
    $
    5.97Per Mcfe
    
    $
    3.79
    
    
    $
    8.94
    
    
    $
    6.47Average Production (lifting costs)(Per Mcfe of Natural Gas)(1)
    
    $
    0.78
    
    
    $
    0.86
    
    
    $
    0.63(2)
    
    
    0.12
    
    
    
    0.44
    
    
    
    0.42$
    0.90
    
    
    $
    1.30
    
    
    $
    1.05
 
 (1)
    
    Includes actual well operating costs, compression, handling and marketing fees
paid on natural gas sales and other minor expenses associated with well operations.(2)
    
    Includes production taxes only.  GROSS AND NET PRODUCTIVE WELLS AND DEVELOPED ACRES
  Gross Wells
    
    
    Net WellsOil
    
    
    986
    
    
    
    20.78Natural Gas
    
    
    3,875
    
    
    
    90.53Total
    
    
    4,861
    
    
    
    111.31
 (13)




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UNDEVELOPED ACREAGE
  DRILLING ACTIVITY
  Net Productive Wells
    
    Net Dry WellsDevelopment WellsFiscal years ended:September 30, 2009
    
    
    8.893170
    
    
    
    0.092978September 30, 2008
    
    
    8.120236
    
    
    
    0.067177September 30, 2007
    
    
    6.215883
    
    
    
    0.025393Exploratory WellsFiscal years ended:September 30, 2009
    
    
    0.867702
    
    
    
    0.138051September 30, 2008
    
    
    0.985659
    
    
    
    0.083333September 30, 2007
    
    
    1.539561
    
    
    
    0.137873Purchased WellsFiscal years ended:September 30, 2009
    
    
     0 
    
    
    
     0 September 30, 2008
    
    
     0 
    
    
    
     0 September 30, 2007
    
    
     0 
    
    
    
     0 
 PRESENT ACTIVITIES
  Gross Wells
    
    
    Net WellsOil
    
    
    2
    
    
    
    0.00469Natural Gas
    
    
    38
    
    
    
    1.74808
 (14)




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OTHER FACILITIES
  SAFE HARBOR STATEMENT
      Commodity Prices.
  (15)




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Uncertainty of Oil and Natural Gas Reserves.
     
 ITEM 3 LEGAL PROCEEDINGS
  
 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  (16)




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PART II
 
 ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
 
   Quarter Ended
    
    High
    
    LowDecember 31, 2007
    
    $
    28.41
    
    
    $
    23.75March 31, 2008
    
    $
    31.69
    
    
    $
    24.75June 30, 2008
    
    $
    39.90
    
    
    $
    27.25September 30, 2008
    
    $
    39.98
    
    
    $
    23.91December 31, 2008
    
    $
    28.18
    
    
    $
    13.75March 31, 2009
    
    $
    23.75
    
    
    $
    13.15June 30, 2009
    
    $
    24.62
    
    
    $
    15.79September 30, 2009
    
    $
    28.02
    
    
    $
    18.17
 (17)




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Date
    
    Rate Per ShareDecember 2007
    
    $
    0.07March 2008
    
    $
    0.07June 2008
    
    $
    0.07September 2008
    
    $
    0.07December 2008
    
    $
    0.07March 2009
    
    $
    0.07June 2009
    
    $
    0.07September 2009
    
    $
    0.07
     (18)




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##### Table of Contents



ITEM 6   SELECTED FINANCIAL DATA
  As of and for the year ended September 30,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005RevenuesOil and natural gas sales
    
    $
    37,421,688
    
    
    $
    69,026,785
    
    
    $
    37,449,174
    
    
    $
    36,008,527
    
    
    $
    30,242,210Lease bonuses and rentals
    
    
    188,906
    
    
    
    167,559
    
    
    
    208,625
    
    
    
    410,984
    
    
    
    2,214,992Gains (losses) on nat. gas deriv. contr.
    
    
    (661,828
    )
    
    
    (940,823
    )
    
    
    765,316
    
    
    
    
    
    
    
    Gain on sales of assets, int. and other
    
    
    2,684,353
    
    
    
    233,709
    
    
    
    322,405
    
    
    
    529,804
    
    
    
    745,800Income from partnerships
    
    
    323,848
    
    
    
    631,891
    
    
    
    383,391
    
    
    
    536,365
    
    
    
    395,17339,956,967
    
    
    
    69,119,121
    
    
    
    39,128,911
    
    
    
    37,485,680
    
    
    
    33,598,175Costs and ExpensesLease oper. exp and prod. taxes
    
    
    8,897,235
    
    
    
    10,055,762
    
    
    
    6,057,456
    
    
    
    5,262,834
    
    
    
    4,802,595Exploration costs
    
    
    711,582
    
    
    
    455,943
    
    
    
    1,050,069
    
    
    
    222,892
    
    
    
    784,741Depr. depl. and amortization
    
    
    28,168,933
    
    
    
    19,784,660
    
    
    
    15,291,625
    
    
    
    10,142,367
    
    
    
    7,506,571Provision for impairment
    
    
    2,464,520
    
    
    
    526,380
    
    
    
    3,761,832
    
    
    
    3,009,953
    
    
    
    232,295Loss on sales of assets
    
    
    
    
    
    
    204,189
    
    
    
    254,395
    
    
    
    119,282
    
    
    
    291,452Gen. and administrative
    
    
    4,866,044
    
    
    
    5,006,512
    
    
    
    3,877,492
    
    
    
    3,335,899
    
    
    
    4,545,208Bad debt expense (recovery)
    
    
    (185,272
    )
    
    
    591,258
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    6,946
    
    
    
    44,346
    
    
    
    133,578
    
    
    
    232,234
    
    
    
    359,52744,929,988
    
    
    
    36,669,050
    
    
    
    30,426,447
    
    
    
    22,325,461
    
    
    
    18,522,389Income (loss) before provision
(benefit) for income taxes
    
    
    (4,973,021
    )
    
    
    32,450,071
    
    
    
    8,702,464
    
    
    
    15,160,219
    
    
    
    15,075,786Provision (benefit) for income taxes
    
    
    (2,568,000
    )
    
    
    10,894,302
    
    
    
    2,359,000
    
    
    
    4,586,000
    
    
    
    4,591,000Net income (loss)
    
    $
    (2,405,021
    )
    
    $
    21,555,769
    
    
    $
    6,343,464
    
    
    $
    10,574,219
    
    
    $
    10,484,786Basic Earnings per share
    
    $
    (0.29
    )
    
    $
    2.54
    
    
    $
    0.75
    
    
    $
    1.25
    
    
    $
    1.25Diluted Earnings per share
    
    $
    (0.29
    )
    
    $
    2.54
    
    
    $
    0.75
    
    
    $
    1.25
    
    
    $
    1.24Dividends Declared per share
    
    $
    0.28
    
    
    $
    0.28
    
    
    $
    0.25
    
    
    $
    0.185
    
    
    $
    0.125Weighted AverageShares OutstandingBasic
    
    
    8,397,337
    
    
    
    8,492,378
    
    
    
    8,499,233
    
    
    
    8,479,406
    
    
    
    8,390,280Diluted
    
    
    8,397,337
    
    
    
    8,492,378
    
    
    
    8,499,233
    
    
    
    8,479,406
    
    
    
    8,450,238Net cash provided by (used in):Operating activities
    
    $
    37,650,864
    
    
    $
    39,924,719
    
    
    $
    28,106,500
    
    
    $
    23,470,145
    
    
    $
    17,909,249Investing activities
    
    $
    (36,263,250
    )
    
    $
    (37,706,995
    )
    
    $
    (26,940,679
    )
    
    $
    (21,118,606
    )
    
    $
    (10,514,096
    )Financing activities
    
    $
    (1,643,414
    )
    
    $
    (2,311,376
    )
    
    $
    (610,814
    )
    
    $
    (3,556,019
    )
    
    $
    (6,398,663
    )Total assets
    
    $
    108,549,632
    
    
    $
    122,007,183
    
    
    $
    78,539,797
    
    
    $
    70,949,242
    
    
    $
    61,241,692Long-term debt
    
    $
    10,384,722
    
    
    $
    9,704,100
    
    
    $
    4,661,471
    
    
    $
    1,166,649
    
    
    $
    3,166,653Shareholders equity
    
    $
    64,122,343
    
    
    $
    68,348,901
    
    
    $
    53,681,371
    
    
    $
    49,065,697
    
    
    $
    38,635,350
  (19)




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##### Table of Contents



ITEM 7   MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS
 General
    For the Year Ended September 30,Percent
    
    
    
    
    
    Percent2009
    
    Incr. or (Decr.)
    
    2008
    
    Incr. or (Decr.)
    
    2007Production:Oil (Bbls)
    
    
    128,160
    
    
    
    -3
    %
    
    
    132,402
    
    
    
    23
    %
    
    
    107,344Natural Gas (Mcf)
    
    
    9,109,988
    
    
    
    31
    %
    
    
    6,928,038
    
    
    
    35
    %
    
    
    5,147,343Mcfe
    
    
    9,878,948
    
    
    
    28
    %
    
    
    7,722,450
    
    
    
    33
    %
    
    
    5,791,407Average Sales Price:Oil (per Bbl)
    
    $
    51.79
    
    
    
    -50
    %
    
    $
    103.91
    
    
    
    65
    %
    
    $
    62.81Natural Gas (Mcf)
    
    $
    3.38
    
    
    
    -58
    %
    
    $
    7.98
    
    
    
    34
    %
    
    $
    5.97Mcfe
    
    $
    3.79
    
    
    
    -58
    %
    
    $
    8.94
    
    
    
    38
    %
    
    $
    6.47
 Fiscal Year 2009 Compared to Fiscal Year 2008
 Overview
  (20)




---



##### Table of Contents



Revenues
   First quarter
    
    2,495,299
    McfeSecond quarter
    
    2,380,124
    McfeThird quarter
    
    2,647,474
    McfeFourth quarter
    
    2,356,051
    McfeTotal
    
    9,878,948
    Mcfe
 Gains on Sale of Assets
  Gains (Losses) on Natural Gas Derivative Contracts
  Gains (losses) on
    
    Fiscal yearderivative contracts
    
    2009
    
    
    2008Realized
    
    $
    2,497,800
    
    
    
    ($1,480,100
    )Unrealized
    
    
    (3,159,628
    )
    
    
    539,277Total
    
    
    ($661,828
    )
    
    
    ($940,823
    )
 (21)




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##### Table of Contents



Lease Operating Expenses (LOE) and Production Taxes
   Exploration Costs
  Depreciation, Depletion and Amortization (DD&A)
  Provision for Impairment
  Loss on Sale of Assets
  (22)




---



##### Table of Contents



General and Administrative Costs (G&A)
  Bad Debt Expense (Recovery)
  Provision (Benefit) for Income Taxes
   Liquidity and Capital Resources
  (23)




---



##### Table of Contents



Contractual Obligations and Commitments
  (24)




---



##### Table of Contents



Payments due by periodContractual Obligations
    
    
    
    
    
    Less than
    
    
    
    
    
    
    
    
    
    
    More thanand Commitments
    
    Total
    
    
    1 Year
    
    
    1-3 Years
    
    
    3-5 Years
    
    
    5 YearsLong-term debt
obligations
    
    $
    10,384,722
    
    
    $
    
    
    
    $
    10,384,722
    
    
    $
    
    
    
    $
    Building lease
    
    $
    527,230
    
    
    $
    204,089
    
    
    $
    323,141
    
    
    $
    
    
    
    $
    
   Fiscal Year 2008 Compared to Fiscal Year 2007
 Overview
  Revenues
  (25)




---



##### Table of Contents



First quarter
    
    1,831,206
    McfeSecond quarter
    
    1,727,757
    McfeThird quarter
    
    1,979,904
    McfeFourth quarter
    
    2,183,583
    McfeTotal
    
    7,722,450
    Mcfe
 Gains (losses) on Natural Gas Derivative Contracts
  Gains (losses) on
    
    Fiscal yearderivative contracts
    
    2008
    
    
    2007Realized
    
    
    ($1,480,100
    )
    
    $
    658,400Unrealized
    
    
    539,277
    
    
    
    106,916Total
    
    
    ($940,823
    )
    
    $
    765,316
  Lease Operating Expenses and Production Taxes (LOE)
   Exploration Costs
  (26)




---



##### Table of Contents



Depreciation, Depletion and Amortization (DD&A)
  Provision for Impairment
  Loss on Sale of Assets
  General and Administrative Costs (G&A)
  Bad Debt Expense (Recovery)
  Provision for Income Taxes
  (27)




---



##### Table of Contents



CRITICAL ACCOUNTING POLICIES
   Oil and Natural Gas Reserves
  Successful Efforts Method of Accounting
  (28)




---



##### Table of Contents



Derivative contracts
   Impairment of Assets
   (29)




---



##### Table of Contents



Oil and Natural Gas Sales Revenue Accrual
  Income Taxes
  Refundable Production Taxes Accrual
  (30)




---



##### Table of Contents



ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   (31)




---



##### Table of Contents



ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Managements Report on Internal Control Over Financial Reporting
    
    
    33Report of Registered Public Accounting Firm on Internal Control
Over Financial Reporting
    
    
    34Report of Independent Registered Public Accounting Firm
    
    
    35Consolidated Balance Sheets
As of September 30, 2009 and 2008
    
    
    36Consolidated Statements of Operations for the
Years Ended September 30, 2009, 2008 and 2007
    
    
    38Consolidated Statements of Stockholders Equity for the
Years Ended September 30, 2009, 2008 and 2007
    
    
    39Consolidated Statements of Cash Flows for the
Years Ended September 30, 2009, 2008 and 2007
    
    
    40Notes to Consolidated Financial Statements
    
    
    42
 (32)




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##### Table of Contents



Managements Annual Report on Internal Control Over Financial Reporting
  
    
    Pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions and dispositions of the assets of the Company;
    
    Provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the Company; and
    
    Provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Companys assets that could have a
material effect on the financial statements.
  Internal Control  Integrated Framework
 (33)




---



##### Table of Contents



.
   
 (34)




---



##### Table of Contents



(35)




---



##### Table of Contents



September 30,2009
    
    
    2008AssetsCurrent Assets:Cash and cash equivalents
    
    $
    639,908
    
    
    $
    895,708Oil and natural gas sales receivables, net of allowance
for uncollectible accounts
    
    
    7,747,557
    
    
    
    17,183,128Deferred income taxes
    
    
    1,934,900
    
    
    
    Refundable income taxes
    
    
    
    
    
    
    2,162,305Refundable production taxes
    
    
    616,668
    
    
    
    78,882Short-term derivative contracts
    
    
    
    
    
    
    646,193Other
    
    
    68,817
    
    
    
    143,272Total current assets
    
    
    11,007,850
    
    
    
    21,109,488Properties and equipment at cost, based on successful
efforts accounting:Producing oil and natural gas properties
    
    
    198,076,244
    
    
    
    175,727,196Non-producing oil and natural gas properties
    
    
    10,332,537
    
    
    
    11,216,103Furniture and fixtures
    
    
    578,460
    
    
    
    491,321208,987,241
    
    
    
    187,434,620Less accumulated depreciation, depletion, and
amortization
    
    
    112,900,027
    
    
    
    87,661,433Net properties and equipment
    
    
    96,087,214
    
    
    
    99,773,187Investments
    
    
    682,391
    
    
    
    736,314Refundable production taxes
    
    
    772,177
    
    
    
    388,194Total assets
    
    $
    108,549,632
    
    
    $
    122,007,183
  See accompanying notes.
 (36)




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##### Table of Contents



September 30,2009
    
    
    2008Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    4,810,687
    
    
    $
    15,897,565Short-term derivative contracts
    
    
    1,726,901
    
    
    
    Accrued liabilities
    
    
    1,033,570
    
    
    
    608,456Total current liabilities
    
    
    7,571,158
    
    
    
    16,506,021Long-term debt
    
    
    10,384,722
    
    
    
    9,704,100Deferred income taxes
    
    
    24,064,650
    
    
    
    25,943,750Asset retirement obligations
    
    
    1,620,225
    
    
    
    1,504,411Long-term derivative contracts
    
    
    786,534
    
    
    
    Stockholders equity:Class A voting common stock, $.0166 par value;
24,000,000 shares authorized, 8,431,502 issued at
September 30, 2009 and September 30, 2008
    
    
    140,524
    
    
    
    140,524Capital in excess of par value
    
    
    1,922,053
    
    
    
    2,090,070Deferred directors compensation
    
    
    1,862,499
    
    
    
    1,605,811Retained earnings
    
    
    64,507,547
    
    
    
    69,236,60468,432,623
    
    
    
    73,073,009Treasury stock, at cost; 119,866 shares at
September 30, 2009 and 131,374 shares at
September 30, 2008
    
    
    (4,310,280
    )
    
    
    (4,724,108
    )Total stockholders equity
    
    
    64,122,343
    
    
    
    68,348,901Total liabilities and stockholders equity
    
    $
    108,549,632
    
    
    $
    122,007,183
 See accompanying notes.
 (37)




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##### Table of Contents



Year ended September 30,2009
    
    
    2008
    
    
    2007Revenues:Oil and natural gas sales
    
    $
    37,421,688
    
    
    $
    69,026,785
    
    
    $
    37,449,174Lease bonuses and rentals
    
    
    188,906
    
    
    
    167,559
    
    
    
    208,625Gains (losses) on natural gas derivative contracts
    
    
    (661,828
    )
    
    
    (940,823
    )
    
    
    765,316Gain on sales of assets, interest and other
    
    
    2,684,353
    
    
    
    233,709
    
    
    
    322,405Income from partnerships
    
    
    323,848
    
    
    
    631,891
    
    
    
    383,39139,956,967
    
    
    
    69,119,121
    
    
    
    39,128,911Costs and expenses:Lease operating expenses and production taxes
    
    
    8,897,235
    
    
    
    10,055,762
    
    
    
    6,057,456Exploration costs
    
    
    711,582
    
    
    
    455,943
    
    
    
    1,050,069Depreciation, depletion, and amortization
    
    
    28,168,933
    
    
    
    19,784,660
    
    
    
    15,291,625Provision for impairment
    
    
    2,464,520
    
    
    
    526,380
    
    
    
    3,761,832Loss on sales of assets
    
    
    
    
    
    
    204,189
    
    
    
    254,395General and administrative
    
    
    4,866,044
    
    
    
    5,006,512
    
    
    
    3,877,492Bad debt expense (recovery)
    
    
    (185,272
    )
    
    
    591,258
    
    
    
    Interest expense
    
    
    6,946
    
    
    
    44,346
    
    
    
    133,57844,929,988
    
    
    
    36,669,050
    
    
    
    30,426,447Income (loss) before provision (benefit)
for income taxes
    
    
    (4,973,021
    )
    
    
    32,450,071
    
    
    
    8,702,464Provision (benefit) for income taxes
    
    
    (2,568,000
    )
    
    
    10,894,302
    
    
    
    2,359,000Net income (loss)
    
    $
    (2,405,021
    )
    
    $
    21,555,769
    
    
    $
    6,343,464Basic earnings per common share:Net income (loss)
    
    $
    (0.29
    )
    
    $
    2.54
    
    
    $
    0.75
 See accompanying notes.
 (38)




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##### Table of Contents



Class A voting
    
    
    Capital in
    
    
    DeferredCommon Stock
    
    
    Excess of
    
    
    Directors
    
    
    Retained
    
    
    Treasury
    
    
    TreasuryShares
    
    
    Amount
    
    
    Par Value
    
    
    Compensation
    
    
    Earnings
    
    
    Shares
    
    
    Stock
    
    
    TotalBalances at September 30, 2006
    
    
    8,422,529
    
    
    $
    140,375
    
    
    $
    1,924,587
    
    
    $
    1,202,569
    
    
    $
    45,798,166
    
    
    
    
    
    
    $
    
    
    
    $
    49,065,697Issuance of common shares to ESOP
    
    
    8,973
    
    
    
    149
    
    
    
    221,484
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221,633Common shares to be issued to
directors for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156,209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    156,209Dividends declared ($.25 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,105,632
    )
    
    
    
    
    
    
    
    
    
    
    (2,105,632
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,343,464
    
    
    
    
    
    
    
    
    
    
    
    6,343,464Balances at September 30, 2007
    
    
    8,431,502
    
    
    $
    140,524
    
    
    $
    2,146,071
    
    
    $
    1,358,778
    
    
    $
    50,035,998
    
    
    
    
    
    
    $
    
    
    
    $
    53,681,371Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (139,014
    )
    
    
    (4,998,842
    )
    
    
    (4,998,842
    )Issuance of common shares to ESOP
    
    
    
    
    
    
    
    
    
    
    (56,001
    )
    
    
    
    
    
    
    
    
    
    
    7,640
    
    
    
    274,734
    
    
    
    218,733Common shares to be issued to
directors for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    247,033
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    247,033Dividends declared ($.28 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,355,163
    )
    
    
    
    
    
    
    
    
    
    
    (2,355,163
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    21,555,769
    
    
    
    
    
    
    
    
    
    
    
    21,555,769Balances at September 30, 2008
    
    
    8,431,502
    
    
    $
    140,524
    
    
    $
    2,090,070
    
    
    $
    1,605,811
    
    
    $
    69,236,604
    
    
    
    (131,374
    )
    
    $
    (4,724,108
    )
    
    $
    68,348,901Issuance of treasury shares to ESOP
    
    
    
    
    
    
    
    
    
    
    (168,017
    )
    
    
    
    
    
    
    
    
    
    
    11,508
    
    
    
    413,828
    
    
    
    245,811Common shares to be issued to
directors for services
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256,688
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    256,688Dividends declared ($.28 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,324,036
    )
    
    
    
    
    
    
    
    
    
    
    (2,324,036
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,405,021
    )
    
    
    
    
    
    
    
    
    
    
    (2,405,021
    )Balances at September 30, 2009
    
    
    8,431,502
    
    
    $
    140,524
    
    
    $
    1,922,053
    
    
    $
    1,862,499
    
    
    $
    64,507,547
    
    
    
    (119,866
    )
    
    $
    (4,310,280
    )
    
    $
    64,122,343
 See accompanying notes.
 (39)




---



##### Table of Contents



Year ended September 30,2009
    
    
    2008
    
    
    2007Operating ActivitiesNet income (loss)
    
    $
    (2,405,021
    )
    
    $
    21,555,769
    
    
    $
    6,343,464Adjustments
to reconcile net income (loss) to net cash provided by operating activities:Depreciation, depletion, amortization,
and impairment
    
    
    30,633,453
    
    
    
    20,311,040
    
    
    
    19,053,457Deferred income taxes (net)
    
    
    (3,814,000
    )
    
    
    9,116,000
    
    
    
    1,329,000Exploration costs
    
    
    711,582
    
    
    
    455,943
    
    
    
    1,050,069Net (gain) loss on sales of assets
    
    
    (2,654,759
    )
    
    
    20,632
    
    
    
    22,856Income from partnerships
    
    
    (323,848
    )
    
    
    (631,891
    )
    
    
    (383,391
    )Distributions received from partnerships
    
    
    373,063
    
    
    
    585,588
    
    
    
    465,535Other
    
    
    4,708
    
    
    
    
    
    
    
    (45,954
    )Common stock contributed to ESOP
    
    
    245,811
    
    
    
    218,733
    
    
    
    221,633Common stock (unissued) to Directors
Deferred Compensation Plan
    
    
    256,688
    
    
    
    247,033
    
    
    
    156,209Bad debt expense (recovery)
    
    
    (185,272
    )
    
    
    591,258
    
    
    
    Cash provided (used) by changes in assets
and liabilities:Oil and natural gas sales receivables
    
    
    9,620,843
    
    
    
    (9,671,136
    )
    
    
    (1,631,627
    )Fair value of dervative contracts
    
    
    3,159,628
    
    
    
    (539,277
    )
    
    
    (106,916
    )Refundable income taxes
    
    
    2,162,305
    
    
    
    (2,162,305
    )
    
    
    1,772,987Refundable production taxes
    
    
    (537,786
    )
    
    
    (78,882
    )
    
    
    Other current assets
    
    
    74,455
    
    
    
    (25,927
    )
    
    
    3,767Other non-current assets
    
    
    (383,983
    )
    
    
    (388,194
    )
    
    
    (140,901
    )Accounts payable
    
    
    287,883
    
    
    
    59,921
    
    
    
    (118,012
    )Income taxes payable
    
    
    338,511
    
    
    
    (211,155
    )
    
    
    211,155Accrued liabilities
    
    
    86,603
    
    
    
    471,569
    
    
    
    (96,831
    )Total adjustments
    
    
    40,055,885
    
    
    
    18,368,950
    
    
    
    21,763,036Net cash provided by operating activities
    
    
    37,650,864
    
    
    
    39,924,719
    
    
    
    28,106,500Investing ActivitiesCapital expenditures, including dry hole costs
    
    
    (39,915,051
    )
    
    
    (38,747,749
    )
    
    
    (27,785,431
    )Proceeds from leasing of fee mineral acreage
    
    
    209,930
    
    
    
    200,356
    
    
    
    188,417Proceeds from sales of assets
    
    
    3,441,871
    
    
    
    840,398
    
    
    
    656,335Net cash used in investing activities
    
    
    (36,263,250
    )
    
    
    (37,706,995
    )
    
    
    (26,940,679
    )
  (40)




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##### Table of Contents



Year ended September 30,2009
    
    
    2008
    
    
    2007Financing ActivitiesBorrowings under debt agreement
    
    $
    49,027,225
    
    
    $
    47,281,411
    
    
    $
    18,046,213Payments of loan principal
    
    
    (48,346,603
    )
    
    
    (42,238,782
    )
    
    
    (16,551,395
    )Purchases of treasury stock
    
    
    
    
    
    
    (4,998,842
    )
    
    
    Payments of dividends
    
    
    (2,324,036
    )
    
    
    (2,355,163
    )
    
    
    (2,105,632
    )Net cash used in financing activities
    
    
    (1,643,414
    )
    
    
    (2,311,376
    )
    
    
    (610,814
    )Increase (decrease) in cash and cash equivalents
    
    
    (255,800
    )
    
    
    (93,652
    )
    
    
    555,007Cash and cash equivalents at beginning of year
    
    
    895,708
    
    
    
    989,360
    
    
    
    434,353Cash and cash equivalents at end of year
    
    $
    639,908
    
    
    $
    895,708
    
    
    $
    989,360Supplemental Disclosures of Cash Flow
InformationInterest paid (net of capitalized interest)
    
    $
    
    
    
    $
    23,212
    
    
    $
    140,350Income taxes paid, net of refunds received
    
    $
    (1,261,808
    )
    
    $
    4,145,122
    
    
    $
    (952,221
    )Supplemental schedule of noncash
investing and financing activities:Additions and revisions, net, to asset
retirement obligations
    
    $
    95,076
    
    
    $
    151,998
    
    
    $
    (213,759
    )Gross additions to properties and equipment
    
    $
    28,540,290
    
    
    $
    52,812,138
    
    
    $
    28,112,522Net (increase) decrease in accounts payable for
properties and equipment additions
    
    
    11,374,761
    
    
    
    (14,064,389
    )
    
    
    (327,091
    )Capital expenditures, including dry hole costs
    
    $
    39,915,051
    
    
    $
    38,747,749
    
    
    $
    27,785,431
 See accompanying notes.
 (41)




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##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Nature of Business
  Principles of Consolidation and Basis of Presentation
   Use of Estimates
   (42)




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##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Cash and Cash Equivalents
  Oil and Natural Gas Sales and Natural Gas Imbalances
   Concentration of Credit Risk
    (43)




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##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Oil and Natural Gas Producing Activities
    Derivatives
  (44)




---



##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Production volume
    
    Indexed (1)Contract period
    
    covered per month
    
    Pipeline
    
    Fixed priceMarch  December, 2009
    
    60,000 Mmbtu
    
    CEGT
    
    $4.01April  December, 2009
    
    100,000 Mmbtu
    
    CEGT
    
    $3.71May  December, 2009
    
    70,000 Mmbtu
    
    CEGT
    
    $3.615July  December, 2009
    
    70,000 Mmbtu
    
    PEPL
    
    $3.745January  December, 2010
    
    100,000 Mmbtu
    
    CEGT
    
    $5.015January  December, 2010
    
    50,000 Mmbtu
    
    CEGT
    
    $5.050January  December, 2010
    
    100,000 Mmbtu
    
    PEPL
    
    $5.57January  December, 2010
    
    50,000 Mmbtu
    
    PEPL
    
    $5.56
 
 (1)
    
    CEGT  Centerpoint Energy Gas Transmissions East pipeline in OklahomaPEPL  Panhandle Eastern Pipeline Companys Texas/Oklahoma mainline  Gains (losses) on natural gas
    
    Fiscal year endedderivative contracts  short-term
    
    9/30/2009
    
    
    9/30/2008Realized
    
    $
    2,497,800
    
    
    $
    (1,480,100
    )Increase (decrease) in fair value
    
    
    (2,373,094
    )
    
    
    539,277Total
    
    $
    124,706
    
    
    $
    (940,823
    )
 Gains (losses) on natural gas
    
    Fiscal year endedderivative contracts  long-term
    
    9/30/2009
    
    
    9/30/2008Realized
    
    $
    
    
    
    $
    Decrease in fair value
    
    
    (786,534
    )
    
    
    Total
    
    $
    (786,534
    )
    
    $
    
 (45)




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##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
  Balance Sheet
    
    
    9/30/2009
    
    
    9/30/2008Location
    
    
    Fair Value
    
    
    Fair ValueAsset Derivatives:Derivatives not designated as Hedging Instruments:Commodity contracts
    
    Short-term derivative contracts
    
    $
    
    
    
    $
    654,195Commodity contracts
    
    Long-term derivative contracts
    
    
    
    
    
    
    Total Asset Derivatives (a)
    
    $
    
    
    
    $
    654,195Liability Derivatives:Derivatives not designated as Hedging Instruments:Commodity contracts
    
    Short-term derivative contracts
    
    $
    1,726,901
    
    
    $
    8,002Commodity contracts
    
    Long-term derivative contracts
    
    
    786,534
    
    
    
    Total Liability Derivatives (a)
    
    $
    2,513,435
    
    
    $
    8,002
 
 (a)
    
    See Fair Value Measurements section for further disclosures regarding fair value of financial instruments.  Fair Value Measurements
   (46)




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##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Quoted Prices in
    
    
    Significant Other
    
    
    SignificantActive Markets
    
    
    Observable Inputs
    
    
    Unobservable Inputs(Level 1)
    
    
    (Level 2)
    
    
    (Level 3)
    
    
    Total Fair ValueFinancial Assets (Liabilities):Derivative Contracts  Swaps
    
    
    
    
    
    $
    (2,513,435
    )
    
    
    
    
    
    $
    (2,513,435
    )
  Derivatives.
  Derivatives
  DerivativesBalance of Level 3 as of October 1, 2008
    
    $
    646,193Total gains or losses (realized/unrealized):Included in earnings
    
    
    393,007Included in other
comprehensive income
(loss)
    
    
    Purchases, issuances and settlements
    
    
    (1,039,200
    )Transfers in and out of Level 3
    
    
    Balance of Level 3 as of September 30, 2009
    
    $
    
 (47)




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##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Fair Values of Financial Instruments
  Depreciation, Depletion, Amortization, and Impairment
    (48)




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##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Capitalized Interest
  Investments
  Asset Retirement Obligations
   PluggingLiabilityPlugging Liability as of September 30, 2008
    
    $
    1,504,411Accretion of Discount
    
    
    104,991New Wells Placed on Production
    
    
    118,371Wells Sold or Plugged
    
    
    (107,548
    )Plugging Liability as of September 30, 2009
    
    $
    1,620,225
 Environmental Costs
  (49)




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##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
   Earnings Per Share of Common Stock
  Share-based Compensation
   Income Taxes
    (50)




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##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 New Accounting Standards
   Modernization of Oil and Gas
Reporting Requirements,
 Oil and Gas Reserve Estimation and Disclosures. Modernization of Oil and Gas Reporting Requirements
 (51)




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##### Table of Contents



1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
    2. COMMITMENTS
  3. INCOME TAXES
  2009
    
    
    2008
    
    
    2007Current:Federal
    
    $
    1,246,000
    
    
    $
    1,728,000
    
    
    $
    1,000,000State
    
    
    
    
    
    
    50,302
    
    
    
    30,0001,246,000
    
    
    
    1,778,302
    
    
    
    1,030,000Deferred:Federal
    
    
    (3,254,000
    )
    
    
    8,090,000
    
    
    
    1,083,000State
    
    
    (560,000
    )
    
    
    1,026,000
    
    
    
    246,000(3,814,000
    )
    
    
    9,116,000
    
    
    
    1,329,000$
    (2,568,000
    )
    
    $
    10,894,302
    
    
    $
    2,359,000
 (52)




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##### Table of Contents



2009
    
    2008
    
    2007Provision (benefit) for income taxes at statutory rate
    
    $
    (1,690,827
    )
    
    $
    11,336,596
    
    
    $
    2,958,838Percentage depletion
    
    
    (469,962
    )
    
    
    (1,072,282
    )
    
    
    (604,662
    )State income taxes, net of federal provision (benefit)
    
    
    (451,440
    )
    
    
    797,550
    
    
    
    272,580State net operating loss valuation allowance (carryforward)
    
    
    124,000
    
    
    
    (143,000
    )
    
    
    (102,925
    )Other
    
    
    (79,771
    )
    
    
    (24,562
    )
    
    
    (164,831
    )$
    (2,568,000
    )
    
    $
    10,894,302
    
    
    $
    2,359,000
  2009
    
    2008Deferred tax liabilities:Financial basis in excess of tax basis, principally
intangible drilling costs capitalized for financial
purposes and expensed for tax purposes
    
    $
    27,139,652
    
    
    $
    29,236,442Deferred tax assets:Alternative minimum tax credit carryforwards
    
    
    2,207,810
    
    
    
    1,532,770State net operating loss carry forwards, net of
valuation allowance of $278,000 in 2009
    
    
    926,600
    
    
    
    915,032Derivative contracts
    
    
    977,726
    
    
    
    Deferred directors compensation, allowance
for uncollectible accounts and other
    
    
    897,766
    
    
    
    844,8905,009,902
    
    
    
    3,292,692Net deferred tax liabilities
    
    $
    22,129,750
    
    
    $
    25,943,750
  (53)




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##### Table of Contents



4. LONG-TERM DEBT
   5. SHAREHOLDERS EQUITY
    (54)




---



##### Table of Contents



5. SHAREHOLDERS EQUITY (CONTINUED)
  6. EARNINGS PER SHARE
  Year ended September 30,2009
    
    2008
    
    2007Numerator for earnings per share:Net income (loss)
    
    $
    (2,405,021
    )
    
    $
    21,555,769
    
    
    $
    6,343,464Denominator for earnings per share  weighted
average shares (including for 2009, 2008
and 2007, unissued, vested directors shares
of 97,177, 85,504 and 76,679, respectively)
    
    
    8,397,337
    
    
    
    8,492,378
    
    
    
    8,499,233
 7. EMPLOYEE STOCK OWNERSHIP PLAN
  Year
    
    Shares
    
    
    Amount2009
    
    
    11,508
    
    
    $
    245,8112008
    
    
    7,640
    
    
    $
    218,7332007
    
    
    8,973
    
    
    $
    221,781
 8. DEFERRED COMPENSATION PLAN FOR DIRECTORS
  (55)




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##### Table of Contents



8. DEFERRED COMPENSATION PLAN FOR DIRECTORS (CONTINUED)
  9. INFORMATION ON OIL AND NATURAL GAS PRODUCING ACTIVITIES
   Aggregate Capitalized Costs
  2009
    
    
    2008Producing properties
    
    $
    198,076,244
    
    
    $
    175,727,196Non-producing minerals
    
    
    8,036,236
    
    
    
    8,097,518Non-producing leasehold
    
    
    2,241,232
    
    
    
    2,369,748Exploratory wells in progress
    
    
    55,069
    
    
    
    748,837208,408,781
    
    
    
    186,943,299Accumulated depreciation, depletion and
amortization
    
    
    (112,505,428
    )
    
    
    (87,329,312
    )Net capitalized costs
    
    $
    95,903,353
    
    
    $
    99,613,987
 Costs Incurred
  2009
    
    
    2008
    
    
    2007Property acquisition costs
    
    $
    382,239
    
    
    $
    2,359,988
    
    
    $
    1,592,441Exploration costs
    
    
    1,647,456
    
    
    
    1,887,182
    
    
    
    4,604,380Development costs
    
    
    26,411,704
    
    
    
    48,503,130
    
    
    
    21,906,032$
    28,441,399
    
    
    $
    52,750,300
    
    
    $
    28,102,853
 (56)




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##### Table of Contents



10. SUPPLEMENTARY INFORMATION ON OIL AND NATURAL GAS RESERVES (UNAUDITED)
 .
   (57)




---



##### Table of Contents



10. SUPPLEMENTARY INFORMATION ON OIL AND NATURAL GAS RESERVES (UNAUDITED) (CONTINUED)
 Estimated Quantities of Proved Oil and Natural Gas Reserves
  Proved ReservesOil
    
    Natural Gas(Mbarrels)
    
    (MMcf)September 30, 2006
    
    
    575
    
    
    
    30,869Revisions of previous estimates
    
    
    219
    
    
    
    50Divestitures
    
    
    (2
    )
    
    
    (162
    )Extensions and discoveries
    
    
    138
    
    
    
    11,396Production
    
    
    (107
    )
    
    
    (5,147
    )September 30, 2007
    
    
    823
    
    
    
    37,006Revisions of previous estimates
    
    
    136
    
    
    
    117Divestitures
    
    
    (1
    )
    
    
    (83
    )Extensions and discoveries
    
    
    164
    
    
    
    18,039Production
    
    
    (132
    )
    
    
    (6,928
    )September 30, 2008
    
    
    990
    
    
    
    48,151Revisions of previous estimates
    
    
    (30
    )
    
    
    589Divestitures
    
    
    (4
    )
    
    
    (317
    )Extensions and discoveries
    
    
    93
    
    
    
    14,715Production
    
    
    (128
    )
    
    
    (9,110
    )September 30, 2009
    
    
    921
    
    
    
    54,028
     (58)




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##### Table of Contents



10. SUPPLEMENTARY INFORMATION ON OIL AND NATURAL GAS RESERVES (UNAUDITED) (CONTINUED)
  Proved Developed Reserves
    
    Proved Undeveloped ReservesOil
    
    Natural Gas
    
    Oil
    
    Natural Gas(Mbarrels)
    
    (MMcf)
    
    (Mbarrels)
    
    (MMcf)September 30, 2007
    
    
    755
    
    
    
    31,016
    
    
    
    68
    
    
    
    5,990September 30, 2008
    
    
    895
    
    
    
    35,970
    
    
    
    95
    
    
    
    12,181September 30, 2009
    
    
    883
    
    
    
    45,036
    
    
    
    38
    
    
    
    8,991
  Standardized Measure of Discounted Future Net Cash Flows
  2009
    
    
    2008
    
    
    2007Future cash inflows
    
    $
    216,181,210
    
    
    $
    318,004,410
    
    
    $
    270,149,990Future production costs
    
    
    62,102,230
    
    
    
    79,668,500
    
    
    
    61,736,120Future development costs
    
    
    5,412,470
    
    
    
    19,364,580
    
    
    
    9,429,990Asset retirement obligation
    
    
    1,620,225
    
    
    
    1,504,411
    
    
    
    1,247,908Future income tax expense
    
    
    43,832,666
    
    
    
    68,086,237
    
    
    
    61,164,668Future net cash flows
    
    
    103,213,619
    
    
    
    149,380,682
    
    
    
    136,571,30410% annual discount
    
    
    49,467,111
    
    
    
    70,585,957
    
    
    
    59,542,180Standardized measure of discounted
future net cash flows
    
    $
    53,746,508
    
    
    $
    78,794,725
    
    
    $
    77,029,124
 (59)




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##### Table of Contents



10. SUPPLEMENTARY INFORMATION ON OIL AND NATURAL GAS RESERVES (UNAUDITED) (CONTINUED)
  2009
    
    2008
    
    2007Beginning of year
    
    $
    78,794,725
    
    
    $
    77,029,122
    
    
    $
    51,191,567Changes resulting from:Sales of oil and natural gas, net of production costs
    
    
    (28,524,453
    )
    
    
    (58,971,023
    )
    
    
    (31,391,718
    )Net change in sales prices and production costs
    
    
    (59,790,799
    )
    
    
    9,274,593
    
    
    
    43,499,178Net change in future development costs
    
    
    7,769,930
    
    
    
    (5,841,539
    )
    
    
    (1,511,175
    )Net change in asset retirement obligation
    
    
    (63,536
    )
    
    
    (142,847
    )
    
    
    74,315Extensions and discoveries
    
    
    21,677,448
    
    
    
    46,677,163
    
    
    
    35,711,533Revisions of quantity estimates
    
    
    587,215
    
    
    
    2,417,457
    
    
    
    4,401,619Divestitures of reserves-in-place
    
    
    (480,535
    )
    
    
    (208,419
    )
    
    
    (516,909
    )Accretion of discount
    
    
    12,110,733
    
    
    
    11,626,875
    
    
    
    6,772,402Net change in income taxes
    
    
    15,389,517
    
    
    
    (3,072,975
    )
    
    
    (22,707,174
    )Change in timing and other, net
    
    
    6,276,263
    
    
    
    6,318
    
    
    
    (8,494,516
    )Net change
    
    
    (25,048,217
    )
    
    
    1,765,603
    
    
    
    25,837,555End of year
    
    $
    53,746,508
    
    
    $
    78,794,725
    
    
    $
    77,029,122
 11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
  Fiscal 2009Quarter EndedDecember 31
    
    
    March 31
    
    
    June 30
    
    
    September 30Revenues
    
    $
    11,319,702
    
    
    $
    8,874,015
    
    
    $
    8,779,960
    
    
    $
    10,983,290Income (loss) before provision for
income taxes
    
    
    (1,053,629
    )
    
    
    (1,971,256
    )
    
    
    (2,001,512
    )
    
    
    53,376Net income (loss)
    
    
    (874,629
    )
    
    
    (945,256
    )
    
    
    (928,512
    )
    
    
    343,376Earnings (loss) per share
    
    $
    (0.10
    )
    
    $
    (0.11
    )
    
    $
    (0.11
    )
    
    $
    0.04
 Fiscal 2008Quarter EndedDecember 31
    
    
    March 31
    
    
    June 30
    
    
    September 30Revenues
    
    $
    13,703,803
    
    
    $
    12,747,222
    
    
    $
    18,453,206
    
    
    $
    24,214,890Income before provision for income taxes
    
    
    5,299,307
    
    
    
    4,311,281
    
    
    
    9,486,885
    
    
    
    13,352,598Net income
    
    
    3,480,307
    
    
    
    2,831,281
    
    
    
    6,468,885
    
    
    
    8,775,296Earnings per share
    
    $
    0.41
    
    
    $
    0.33
    
    
    $
    0.76
    
    
    $
    1.04
 (60)




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##### Table of Contents



11. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) (CONTINUED)
  12. SUBSEQUENT EVENTS
  (61)




---



##### Table of Contents



ITEM 9
    
    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A
    
    CONTROLS AND PROCEDURES
 (a) EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
  (b) MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
 Internal Control
 Integrated Framework
 (c) CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
  
 ITEM 9B
    
    OTHER INFORMATION
  
 PART III
  (62)




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##### Table of Contents



PART IV
 
 ITEM 15
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
 FINANCIAL STATEMENT SCHEDULES
  EXHIBITS
 (3)
    
    Amended Certificate of Incorporation (incorporated by reference to Exhibit attached
to Form 10 filed January 27, 1980, and to Forms 8-K dated June 1, 1982, December 3,
1982, to Form 10-QSB dated March 31, 1999 and to Form 10-Q dated March 31, 2007).
By-Laws as amended (incorporated by reference to Form 8-K dated October 31, 1994
By-Laws as amended (incorporated by reference to Form 8-K dated February 24, 2006)
By-Laws as amended (incorporated by reference to Form 8-K dated October 29, 2008)(4)
    
    Instruments defining the rights of security holders (incorporated by reference to
Certificate of Incorporation and By-Laws listed above)*(10)
    
    Agreement indemnifying directors and officers (incorporated by reference to
Form 10-K dated September 30, 1989 and Form 8-K dated June 15, 2007)*(10)
    
    Agreements to provide certain severance payments and benefits to executive
officers should a Change-in-Control occur as defined by the agreements (incorporated by
reference to Form 8-K dated September 4, 2007)(21)
    
    Subsidiaries of the Registrant(23)
    
    Consent of Independent Petroleum Engineers(31.1)
    
    Certification of Chief Executive Officer(31.2)
    
    Certification of Chief Financial Officer(32.1)
    
    Certification of Chief Executive Officer(32.2)
    
    Certification of Chief Financial Officer(99)
    
    Credit Agreement dated October 31, 2006 and amendment dated February 3, 2009
(incorporated by reference to Form 10-Q dated June 30, 2009)(99)
    
    Amendment to Credit Agreement dated December 8, 2009
 
 *
    
    Indicates management contract or compensatory plan or arrangement REPORTS ON FORM 8-K
  (63)




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##### Table of Contents



SIGNATURES
  PANHANDLE OIL AND GAS INC.By:
    
    /s/ Michael C. Coffman
    
    
    
    By:
    
    /s/ Lonnie J. LowryMichael C. Coffman
    
    
    
    
    
    Lonnie J. LowryPresident;
    
    
    
    
    
    Vice President;Chief Executive Officer
    
    
    
    
    
    Chief Financial OfficerDate: December 9, 2009
    
    
    
    Date: December 9, 2009By:
    
    /s/ Robb P. WinfieldRobb P. WinfieldController;Chief Accounting OfficerDate: December 9, 2009
  /s/ Bruce M. Bell
    
    /s/ E. Chris KauffmanBruce M. Bell, Director
    
    E. Chris Kauffman, DirectorDate   December 9, 2009
    
    Date  December 9, 2009/s/ Duke R. Ligon
    
    /s/ Robert O. LorenzDuke R. Ligon, Director
    
    Robert O. Lorenz, Lead Independent DirectorDate  December 9, 2009
    
    Date   December 9, 2009/s/ Robert A. Reece
    
    /s/ Robert E. RobottiRobert A. Reece, Director
    
    Robert E. Robotti, DirectorDate  December 9, 2009
    
    Date  December 9, 2009/s/ H. Grant SwartzwelderH. Grant Swartzwelder,
DirectorDate  December 9, 2009
 (64)