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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, 2008
 Commission File Number: 001-31759
 PANHANDLE OIL AND GAS INC.
  OKLAHOMA
    
    73-1055775(State or other jurisdiction of incorporation
    
    (I.R.S. Employer Identification No.)or organization)
 Grand Centre, Suite 300, 5400 North Grand Blvd., Oklahoma City, OK
    
    73112(Address of principal executive offices)
    
    (Zip code)
 (405) 948-1560
  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
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer   o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 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
    
    
    1-9Item 1B
    
    Unresolved Staff Comments
    
    
    9Item 2
    
    Properties
    
    
    9-16Item 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
    
    
    17-18Item 6
    
    Selected Financial Data
    
    
    19-20Item 7
    
    Management's Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20-29Item 7A
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    29-30Item 8
    
    Financial Statements and Supplementary Data
    
    
    31-55Item 9
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    56Item 9A
    
    Controls and Procedures
    
    
    56PART IIIItem 10-14
    
    Incorporated by Reference to Proxy StatementPART IVItem 15
    
    Exhibits, Financial Statement Schedules and Reports on Form 8- K
    
    
    57Signature Page
    
    
    58Exhibit 21
    
    
    59Exhibit 31.1-31.2
    
    
    60-61Exhibit 32.1-32.2
    
    
    62-63EX-21EX-31.1EX-31.2EX-32.1EX-32.2
  SEC Bbl Bcf Mcf Mcfd Mcfe CO2 PV-10 gross net Minerals mineral acres mineral interests Working Interest Royalty Interest




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PART I
 
 ITEM 1 BUSINESS
 GENERAL
       BUSINESS STRATEGY
  (1)




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PRINCIPAL PRODUCTS AND MARKETS
    COMPETITIVE BUSINESS CONDITIONS
   (2)




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SOURCES AND AVAILABILITY OF RAW MATERIALS
  MAJOR CUSTOMERS
  PATENTS, TRADEMARKS, LICENSES, FRANCHISES AND ROYALTY AGREEMENTS
  REGULATION
    (3)




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(4)




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ENVIRONMENTAL MATTERS
  EMPLOYEES
  RISK FACTORS
 Economic conditions worldwide and in the United States have declined in recent months having 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;
 (5)




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
    
    actions taken by OPEC; and
    
    competition from alternative sources of energy.
  A substantial or extended decline in oil and natural gas prices 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 hedging activities may reduce the realized prices received for oil and natural gas
sales.
  Lower oil and natural gas prices may cause impairment charges.
   (6)




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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.
     Disclosures about Oil and Gas Producing Activities
 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; and
    
    seeking to acquire the equipment and expertise necessary to develop and operate
properties.
  
 ITEM 1B UNRESOLVED STAFF COMMENTS
  
 ITEM 2 PROPERTIES
    ACREAGE
 Mineral Interests Owned
  (9)




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Net
    
    GrossNet
    
    Gross
    
    Acres
    
    Acres
    
    Net
    
    GrossAcres
    
    Acres
    
    Leased
    
    Leased
    
    Acres
    
    AcresNet
    
    Gross
    
    Producing
    
    Producing
    
    to Others
    
    to Others
    
    Open
    
    OpenState
    
    Acres
    
    Acres
    
    (1)
    
    (1)
    
    (2)
    
    (2)
    
    (3)
    
    (3)Arkansas
    
    
    10,030
    
    
    
    45,034
    
    
    
    2,216
    
    
    
    7,498
    
    
    
    7,649
    
    
    
    37,063
    
    
    
    165
    
    
    
    473Colorado
    
    
    8,326
    
    
    
    39,299
    
    
    
    109
    
    
    
    219
    
    
    
    
    
    
    
    
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11,179
    
    
    
    64,286New Mexico
    
    
    57,396
    
    
    
    174,460
    
    
    
    1,352
    
    
    
    7,125
    
    
    
    380
    
    
    
    480
    
    
    
    55,664
    
    
    
    166,855Oklahoma
    
    
    113,004
    
    
    
    939,456
    
    
    
    34,870
    
    
    
    280,333
    
    
    
    1,850
    
    
    
    18,832
    
    
    
    76,284
    
    
    
    640,291South Dakota
    
    
    1,825
    
    
    
    9,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,825
    
    
    
    9,300Texas
    
    
    43,179
    
    
    
    361,445
    
    
    
    7,268
    
    
    
    68,795
    
    
    
    358
    
    
    
    4,717
    
    
    
    35,553
    
    
    
    287,933OTHER
    
    
    44
    
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    279Total:
    
    
    254,661
    
    
    
    1,675,561
    
    
    
    45,967
    
    
    
    365,250
    
    
    
    10,248
    
    
    
    62,691
    
    
    
    198,446
    
    
    
    1,247,620
 
 (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 AcresNet
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Held byState
    
    Acres
    
    Net Lease Acres Expiring
    
    Production2009
    
    2010
    
    2011
    
    2012Kansas
    
    
    2,117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,117Oklahoma
    
    
    17,457
    
    
    
    314
    
    
    
    1,836
    
    
    
    1,884
    
    
    
    25
    
    
    
    13,397Texas
    
    
    483
    
    
    
    12
    
    
    
    32
    
    
    
    
    
    
    
    
    
    
    
    439Other
    
    
    1,401
    
    
    
    29
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,373TOTAL
    
    
    21,458
    
    
    
    355
    
    
    
    1,868
    
    
    
    1,884
    
    
    
    25
    
    
    
    17,326
 PROVED RESERVES
  (10)




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Barrels of Oil
    
    Mcf of GasProved Developed ReservesSeptember 30, 2008
    
    
    895,430
    
    
    
    35,970,450September 30, 2007
    
    
    754,866
    
    
    
    31,016,304September 30, 2006
    
    
    566,110
    
    
    
    25,322,756Proved Undeveloped ReservesSeptember 30, 2008
    
    
    94,530
    
    
    
    12,180,220September 30, 2007
    
    
    67,958
    
    
    
    5,989,487September 30, 2006
    
    
    9,081
    
    
    
    5,547,083Total Proved ReservesSeptember 30, 2008
    
    
    989,960
    
    
    
    48,150,670September 30, 2007
    
    
    822,824
    
    
    
    37,005,791September 30, 2006
    
    
    575,191
    
    
    
    30,869,839
   ESTIMATED FUTURE NET CASH FLOWS
  (11)




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Estimated Future Net Cash Flows
 9-30-08
    
    
    9-30-07
    
    
    9-30-06Proved Developed
    
    $
    182,996,389
    
    
    $
    173,797,222
    
    
    $
    93,565,124Proved Undeveloped
    
    
    31,863,340
    
    
    
    23,046,080
    
    
    
    10,734,504Income Tax Expense
    
    
    67,278,008
    
    
    
    60,887,878
    
    
    
    24,394,272Total Proved
    
    $
    147,581,721
    
    
    $
    135,955,424
    
    
    $
    79,905,356
 10% Discounted Present Value of Estimated Future Net Cash Flows
 9-30-08
    
    
    9-30-07
    
    
    9-30-06Proved Developed
    
    $
    104,840,854
    
    
    $
    102,583,540
    
    
    $
    62,007,929Proved Undeveloped
    
    
    15,068,040
    
    
    
    13,178,660
    
    
    
    5,716,092Income Tax Expense
    
    
    41,896,610
    
    
    
    39,068,713
    
    
    
    16,532,454Total Proved
    
    $
    78,012,284
    
    
    $
    76,693,487
    
    
    $
    51,191,567
  OIL AND GAS PRODUCTION
  Year Ended
    
    Year Ended
    
    Year Ended9-30-08
    
    9-30-07
    
    9-30-06Bbls  Oil
    
    
    132,402
    
    
    
    107,344
    
    
    
    97,139Mcf  Gas
    
    
    6,928,038
    
    
    
    5,147,343
    
    
    
    4,299,142Mcfe
    
    
    7,722,450
    
    
    
    5,791,407
    
    
    
    4,881,976
  AVERAGE SALES PRICES AND PRODUCTION COSTS
  Year Ended
    
    
    Year Ended
    
    
    Year Ended9-30-08
    
    
    9-30-07
    
    
    9-30-06Average Sales PricePer Bbl, Oil
    
    $
    103.91
    
    
    $
    62.81
    
    
    $
    63.44Per Mcf, Gas
    
    $
    7.98
    
    
    $
    5.97
    
    
    $
    6.94Per Mcfe
    
    $
    8.94
    
    
    $
    6.47
    
    
    $
    7.38Average Production
(lifting costs)(Per Mcfe of Gas)(1)
    
    $
    0.86
    
    
    $
    0.63
    
    
    $
    0.63(2)
    
    
    0.44
    
    
    
    0.42
    
    
    
    0.45$
    1.30
    
    
    $
    1.05
    
    
    $
    1.08
 (12)




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(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
    
    
    958
    
    
    
    19.79Gas
    
    
    3,635
    
    
    
    85.50Total
    
    
    4,593
    
    
    
    105.29
   UNDEVELOPED ACREAGE
  DRILLING ACTIVITY
  (13)




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Net Productive Wells
    
    Net Dry WellsDevelopment WellsFiscal year ended
September 30, 2006
    
    
    5.477069
    
    
    
    0.139168Fiscal year ended
September 30, 2007
    
    
    6.215883
    
    
    
    0.025393Fiscal year ended
September 30, 2008
    
    
    8.120236
    
    
    
    0.067177Exploratory WellsFiscal year ended
September 30, 2006
    
    
    0.747225
    
    
    
    0.159593Fiscal year ended
September 30, 2007
    
    
    1.539561
    
    
    
    0.137873Fiscal year ended
September 30, 2008
    
    
    0.985659
    
    
    
    0.083333Purchased WellsFiscal year ended
September 30, 2006
    
    
     0 
    
    
    
     0 Fiscal year ended
September 30, 2007
    
    
     0 
    
    
    
     0 Fiscal year ended
September 30, 2008
    
    
     0 
    
    
    
     0 
 PRESENT ACTIVITIES
  Gross Wells
    
    Net WellsOil
    
    
    3
    
    
    
    0.02719Gas
    
    
    71
    
    
    
    5.15100
 OTHER FACILITIES
  SAFE HARBOR STATEMENT
  (14)




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Commodity Prices.
  Uncertainty of Oil and Natural Gas Reserves.
 (15)




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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
 
   Quarter Ended
    
    High
    
    LowDecember 31, 2006
    
    $
    19.75
    
    
    $
    17.25March 31, 2007
    
    $
    20.68
    
    
    $
    17.80June 30, 2007
    
    $
    28.80
    
    
    $
    19.70September 30, 2007
    
    $
    28.60
    
    
    $
    20.18December 31, 2007
    
    $
    28.41
    
    
    $
    23.75March 31, 2008
    
    $
    31.69
    
    
    $
    24.75June 30, 2008
    
    $
    39.90
    
    
    $
    27.25September 30, 2008
    
    $
    39.98
    
    
    $
    23.91
 (17)




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Date
    
    Rate Per ShareDecember 2006
    
    $
    0.04March 2007
    
    $
    0.07June 2007
    
    $
    0.07September 2007
    
    $
    0.07December 2007
    
    $
    0.07March 2008
    
    $
    0.07June 2008
    
    $
    0.07September 2008
    
    $
    0.07
    Total Number of
    
    
    Approximate DollarTotal Number
    
    
    Average
    
    
    Shares Purchased
    
    
    Value of Shares thatof Shares
    
    
    Price Paid
    
    
    as Part of Publicly
    
    
    May Yet Be PurchasedPeriod
    
    Purchased
    
    
    per Share
    
    
    Announced Program
    
    
    Under the Program6/1 - 6/30/08
    
    
    54,514
    
    
    $
    35.88
    
    
    
    54,514
    
    
    $
    44,2397/1 - 7/31/08
    
    
    1,300
    
    
    $
    33.44
    
    
    
    1,300
    
    
    $
    3,000,7728/1 - 8/31/08
    
    
    61,000
    
    
    $
    37.51
    
    
    
    61,000
    
    
    $
    712,7229/1 - 9/30/08
    
    
    22,200
    
    
    $
    32.06
    
    
    
    22,200
    
    
    $
    0
  (18)




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ITEM 6 SELECTED FINANCIAL DATA
  Year Ended September 30,2008
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    2004RevenuesOil and gas sales
    
    $
    69,026,785
    
    
    $
    37,449,174
    
    
    $
    36,008,527
    
    
    $
    30,242,210
    
    
    $
    23,578,615Lease bonuses and rentals
    
    
    167,559
    
    
    
    208,625
    
    
    
    410,984
    
    
    
    2,214,992
    
    
    
    115,938Interest and other
    
    
    (75,223
    )
    
    
    1,471,112
    
    
    
    1,066,169
    
    
    
    1,140,973
    
    
    
    912,05669,119,121
    
    
    
    39,128,911
    
    
    
    37,485,680
    
    
    
    33,598,175
    
    
    
    24,606,609Costs and ExpensesLease oper. exp
and prod. taxes
    
    
    10,055,762
    
    
    
    6,057,456
    
    
    
    5,262,834
    
    
    
    4,802,595
    
    
    
    4,098,124Exploration costs (A)
    
    
    455,943
    
    
    
    1,050,069
    
    
    
    222,892
    
    
    
    784,741
    
    
    
    236,939Depr. depl. and amortization
    
    
    19,784,660
    
    
    
    15,291,625
    
    
    
    10,142,367
    
    
    
    7,506,571
    
    
    
    6,115,500Provision for impairment
    
    
    526,380
    
    
    
    3,761,832
    
    
    
    3,009,953
    
    
    
    232,295
    
    
    
    841,687Loss on sales of assets
    
    
    204,189
    
    
    
    254,395
    
    
    
    119,282
    
    
    
    291,452
    
    
    
    Gen. and administrative
    
    
    5,006,512
    
    
    
    3,877,492
    
    
    
    3,335,899
    
    
    
    4,545,208
    
    
    
    3,033,437Bad debt expense
    
    
    591,258
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Interest expense
    
    
    44,346
    
    
    
    133,578
    
    
    
    232,234
    
    
    
    359,527
    
    
    
    488,09736,669,050
    
    
    
    30,426,447
    
    
    
    22,325,461
    
    
    
    18,522,389
    
    
    
    14,813,784Income before provision
for income taxes
    
    
    32,450,071
    
    
    
    8,702,464
    
    
    
    15,160,219
    
    
    
    15,075,786
    
    
    
    9,792,825Provision for income taxes
    
    
    10,894,302
    
    
    
    2,359,000
    
    
    
    4,586,000
    
    
    
    4,591,000
    
    
    
    3,063,000Net income
    
    $
    21,555,769
    
    
    $
    6,343,464
    
    
    $
    10,574,219
    
    
    $
    10,484,786
    
    
    $
    6,729,825Basic Earnings per share
    
    $
    2.54
    
    
    $
    0.75
    
    
    $
    1.25
    
    
    $
    1.25
    
    
    $
    0.80Diluted Earnings per share
    
    $
    2.54
    
    
    $
    0.75
    
    
    $
    1.25
    
    
    $
    1.24
    
    
    $
    0.80Dividends Declared per share
    
    $
    0.28
    
    
    $
    0.25
    
    
    $
    0.185
    
    
    $
    0.125
    
    
    $
    0.09Weighted Average
Shares Outstanding (B)Basic
    
    
    8,492,378
    
    
    
    8,499,233
    
    
    
    8,479,406
    
    
    
    8,390,280
    
    
    
    8,357,566Diluted
    
    
    8,492,378
    
    
    
    8,499,233
    
    
    
    8,479,406
    
    
    
    8,450,238
    
    
    
    8,457,602Net cash provided by (used in):Operating activities
    
    $
    39,924,719
    
    
    $
    28,106,500
    
    
    $
    23,470,145
    
    
    $
    17,909,249
    
    
    $
    15,583,362Investing activities
    
    $
    (37,706,995
    )
    
    $
    (26,940,679
    )
    
    $
    (21,118,606
    )
    
    $
    (10,514,096
    )
    
    $
    (10,631,869
    )Financing activities
    
    $
    (2,311,376
    )
    
    $
    (610,814
    )
    
    $
    (3,556,019
    )
    
    $
    (6,398,663
    )
    
    $
    (4,902,156
    )Total assets
    
    $
    122,007,183
    
    
    $
    78,539,797
    
    
    $
    70,949,242
    
    
    $
    61,241,692
    
    
    $
    54,186,362Long-term debt
    
    $
    9,704,100
    
    
    $
    4,661,471
    
    
    $
    1,166,649
    
    
    $
    3,166,653
    
    
    $
    8,516,657Shareholders equity
    
    $
    68,348,901
    
    
    $
    53,681,371
    
    
    $
    49,065,697
    
    
    $
    38,635,350
    
    
    $
    28,700,515
  
 (A)
    
    The Company uses the successful efforts method of accounting for its oil and
gas activities. (19)




---



##### Table of Contents



(B)
    
    Weighted average shares outstanding for basic and diluted earnings per share
are the same in fiscal year 2008, 2007 and 2006 due to the October 2005 amendment to
the Deferred Compensation Plan for Non-Employee Directors. 
 ITEM 7 MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  General
   For the Year Ended September 30,Percent
    
    
    
    
    
    Percent2008
    
    Incr. or (Decr.)
    
    2007
    
    Incr. or (Decr.)
    
    2006Production:Oil (Bbls)
    
    
    132,402
    
    
    
    23
    %
    
    
    107,344
    
    
    
    11
    %
    
    
    97,139Gas (Mcf)
    
    
    6,928,038
    
    
    
    35
    %
    
    
    5,147,343
    
    
    
    20
    %
    
    
    4,299,142Mcfe
    
    
    7,722,450
    
    
    
    33
    %
    
    
    5,791,407
    
    
    
    19
    %
    
    
    4,881,976Average Sales Price:Oil (per Bbl)
    
    $
    103.91
    
    
    
    65
    %
    
    $
    62.81
    
    
    
    (1
    %)
    
    $
    63.44Gas (per Mcf)
    
    $
    7.98
    
    
    
    34
    %
    
    $
    5.97
    
    
    
    (14
    %)
    
    $
    6.94Mcfe
    
    $
    8.94
    
    
    
    38
    %
    
    $
    6.47
    
    
    
    (12
    %)
    
    $
    7.38
 Fiscal Year 2008 Compared to Fiscal Year 2007
 Overview
  (20)




---



##### Table of Contents



Revenues
   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
 (Losses) Gains on Natural Gas Collar Contracts
  (Losses) gains 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)
  (21)




---



##### Table of Contents



Exploration Costs
  Depreciation, Depletion and Amortization (DD&A)
  Provision for Impairment
  Loss on Sale of Assets
  General and Administrative Costs (G&A)
  Bad Debt Expense
  (22)




---



##### Table of Contents



Provision for Income Taxes
  Liquidity and Capital Resources
    (23)




---



##### Table of Contents



Contractual Obligations
    Payments Due By PeriodLess than
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsLong-term debt
obligations
    
    $
    9,704,100
    
    
    $
    
    
    
    $
    9,704,100
    
    
    $
    
    
    
    $
    
 Fiscal Year 2007 Compared to Fiscal Year 2006
 Overview
  Revenues
  (24)




---



##### Table of Contents



First quarter
    
    
    1,334,357
    
    
    mcfeSecond quarter
    
    
    1,305,041
    
    
    mcfeThird quarter
    
    
    1,432,023
    
    
    mcfeFourth quarter
    
    
    1,719,986
    
    
    mcfeTotal
    
    
    5,791,407
    
    
    mcfe
 Realized and Unrealized Gains on Natural Gas Collar Contracts
  Lease Operating Expenses and Production Taxes (LOE)
   Exploration Costs
  Depreciation, Depletion and Amortization (DD&A)
  (25)




---



##### Table of Contents



Provision for Impairment
  Loss on Sale of Assets
  General and Administrative Costs (G&A)
  Provision for Income Taxes
  CRITICAL ACCOUNTING POLICIES
   (26)




---



##### Table of Contents



Oil and Gas Reserves
  Hedging
   (27)




---



##### Table of Contents



Successful Efforts Method of Accounting
  Impairment of Assets
  Oil and Gas Sales Revenue Accrual
  Income Taxes
  Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 (28)




---



##### Table of Contents



ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
    (29)




---



##### Table of Contents



Production volume
    
    Floor price range
    
    Ceiling price rangeContract period
    
    covered per month
    
    (per mmbtu)
    
    (per mmbtu)January  December, 2007 (1)
    
    100,000 mmbtu
    
    $
    6.00
    
    
    $
    9.20 to $10.20January  March, 2008 (2)
    
    120,000 mmbtu
    
    $
    6.55 to $6.60
    
    
    $
    8.80 to $9.10April  September, 2008 (2)
    
    120,000 mmbtu
    
    $
    6.15 to $6.40
    
    
    $
    8.05 to $8.60April  September, 2008 (2)
    
    90,000 mmbtu
    
    $
    6.60 to $6.85
    
    
    $
    7.50 to $7.80April  September, 2008 (2)
    
    30,000 mmbtu
    
    $
    7.20 to $7.45
    
    
    $
    8.15 to $8.45October  December, 2008 (2)
    
    120,000 mmbtu
    
    $
    6.50 to $6.90
    
    
    $
    8.75 to $9.15
 
 (1)
    
    Entered into agreement in fiscal year 2007(2)
    
    Entered into agreement in fiscal year 2008  (Losses) gains on
    
    Fiscal yearderivative contracts
    
    2008
    
    
    2007Realized
    
    $
    (1,480,100
    )
    
    $
    658,400Unrealized
    
    
    539,277
    
    
    
    106,916Total
    
    $
    (940,823
    )
    
    $
    765,316
 (30)




---



##### Table of Contents



ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Managements Report on Internal Control Over Financial Reporting
    
    
    32Report of Registered Public Accounting Firm on Internal Control Over Financial Reporting
    
    
    33Report of Independent Registered Public Accounting Firm
    
    
    34Consolidated Balance Sheets As of September 30, 2008 and 2007
    
    
    35-36Consolidated Statements of Income for the Years Ended September 30, 2008, 2007 and 2006
    
    
    37Consolidated Statements of Stockholders Equity for the Years Ended September 30, 2008, 2007 and 2006
    
    
    38Consolidated Statements of Cash Flows for the Years Ended September 30, 2008, 2007 and 2006
    
    
    39-40Notes to Consolidated Financial Statements
    
    
    41-55
 (31)




---



##### 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
 (32)




---



##### Table of Contents



.
   
 (33)




---



##### Table of Contents



(34)




---



##### Table of Contents



September 30,2008
    
    2007AssetsCurrent Assets:Cash and cash equivalents
    
    $
    895,708
    
    
    $
    989,360Oil and gas sales receivables, net of allowance for
uncollectible accounts
    
    
    17,183,128
    
    
    
    8,103,250Fair value of derivative contracts
    
    
    646,193
    
    
    
    106,916Refundable income taxes and other
    
    
    2,379,996
    
    
    
    112,882Total current assets
    
    
    21,105,025
    
    
    
    9,312,408Properties and equipment at cost, based on successful
efforts accounting:Producing oil and gas properties
    
    
    175,727,196
    
    
    
    125,634,251Non-producing oil and gas properties
    
    
    11,216,103
    
    
    
    10,697,854Furniture and fixtures
    
    
    491,321
    
    
    
    625,455187,434,620
    
    
    
    136,957,560Less accumulated depreciation, depletion, and
amortization
    
    
    87,661,433
    
    
    
    68,424,645Net properties and equipment
    
    
    99,773,187
    
    
    
    68,532,915Investments
    
    
    736,314
    
    
    
    690,011Other
    
    
    392,657
    
    
    
    4,463Total assets
    
    $
    122,007,183
    
    
    $
    78,539,797
  See accompanying notes.
 (35)




---



##### Table of Contents



September 30,2008
    
    2007Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    15,897,565
    
    
    $
    1,773,255Accrued liabilities
    
    
    608,456
    
    
    
    348,042Total current liabilities
    
    
    16,506,021
    
    
    
    2,121,297Long-term debt
    
    
    9,704,100
    
    
    
    4,661,471Deferred income taxes
    
    
    25,943,750
    
    
    
    16,827,750Asset retirement obligations
    
    
    1,504,411
    
    
    
    1,247,908Stockholders equity:Class A voting common stock, $.0166 par value;
24,000,000 shares authorized, 8,431,502 issued at
September 30, 2008 and at September 30, 2007
    
    
    140,524
    
    
    
    140,524Capital in excess of par value
    
    
    2,090,070
    
    
    
    2,146,071Deferred directors compensation
    
    
    1,605,811
    
    
    
    1,358,778Retained earnings
    
    
    69,236,604
    
    
    
    50,035,99873,073,009
    
    
    
    53,681,371Treasury stock, at cost; 131,374 shares at
September 30, 2008 and no shares at
September 30, 2007
    
    
    (4,724,108
    )
    
    
    Total stockholders equity
    
    
    68,348,901
    
    
    
    53,681,371Total liabilities and stockholders equity
    
    $
    122,007,183
    
    
    $
    78,539,797
 See accompanying notes.
 (36)




---



##### Table of Contents



Year ended September 30,2008
    
    2007
    
    2006Revenues:Oil and gas sales
    
    $
    69,026,785
    
    
    $
    37,449,174
    
    
    $
    36,008,527Lease bonuses and rentals
    
    
    167,559
    
    
    
    208,625
    
    
    
    410,984(Losses) gains on gas collar contracts
    
    
    (940,823
    )
    
    
    765,316
    
    
    
    Gain on sales of assets and interest
    
    
    233,709
    
    
    
    322,405
    
    
    
    529,804Income from partnerships
    
    
    631,891
    
    
    
    383,391
    
    
    
    536,36569,119,121
    
    
    
    39,128,911
    
    
    
    37,485,680Costs and expenses:Lease operating expenses and production
taxes
    
    
    10,055,762
    
    
    
    6,057,456
    
    
    
    5,262,834Exploration costs
    
    
    455,943
    
    
    
    1,050,069
    
    
    
    222,892Depreciation, depletion, and amortization
    
    
    19,784,660
    
    
    
    15,291,625
    
    
    
    10,142,367Provision for impairment
    
    
    526,380
    
    
    
    3,761,832
    
    
    
    3,009,953Loss on sales of assets
    
    
    204,189
    
    
    
    254,395
    
    
    
    119,282General and administrative
    
    
    5,006,512
    
    
    
    3,877,492
    
    
    
    3,335,899Bad debt expense
    
    
    591,258
    
    
    
    
    
    
    
    Interest expense
    
    
    44,346
    
    
    
    133,578
    
    
    
    232,23436,669,050
    
    
    
    30,426,447
    
    
    
    22,325,461Income before provision for income taxes
    
    
    32,450,071
    
    
    
    8,702,464
    
    
    
    15,160,219Provision for income taxes
    
    
    10,894,302
    
    
    
    2,359,000
    
    
    
    4,586,000Net income
    
    $
    21,555,769
    
    
    $
    6,343,464
    
    
    $
    10,574,219Basic earnings per common share:Net income
    
    $
    2.54
    
    
    $
    0.75
    
    
    $
    1.25
 See accompanying notes.
 (37)




---



##### 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, 2005
    
    
    8,410,886
    
    
    $
    140,182
    
    
    $
    1,715,206
    
    
    $
    
    
    
    $
    36,779,962
    
    
    
    
    
    
    $
    
    
    
    $
    38,635,350Issuance of common shares to ESOP
    
    
    11,643
    
    
    
    193
    
    
    
    209,381
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    209,574Increase in deferred directors
compensation:Reclassification of liability
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,053,408
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,053,408Charged to expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149,161
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    149,161Dividends declared ($.185 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,556,015
    )
    
    
    
    
    
    
    
    
    
    
    (1,556,015
    )Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,574,219
    
    
    
    
    
    
    
    
    
    
    
    10,574,219Balances 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    221,633Issuance of common shares 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 treasury shares to ESOP
    
    
    
    
    
    
    
    
    
    
    (56,001
    )
    
    
    
    
    
    
    
    
    
    
    7,640
    
    
    
    274,734
    
    
    
    218,733Issuance of common shares 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
    )
    
    $
    68,348,901
 See accompanying notes.
 (38)




---



##### Table of Contents



Year ended September 30,2008
    
    2007
    
    2006Operating ActivitiesNet income
    
    $
    21,555,769
    
    
    $
    6,343,464
    
    
    $
    10,574,219Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation, depletion, amortization,
and impairment
    
    
    20,311,040
    
    
    
    19,053,457
    
    
    
    13,152,320Deferred income taxes
    
    
    9,116,000
    
    
    
    1,329,000
    
    
    
    2,177,000Lease bonus income
    
    
    
    
    
    
    (45,954
    )
    
    
    (95,892
    )Exploration costs
    
    
    455,943
    
    
    
    1,050,069
    
    
    
    222,892Net loss (gain) on sales of assets
    
    
    20,632
    
    
    
    22,856
    
    
    
    (415,951
    )Income from partnerships
    
    
    (631,891
    )
    
    
    (383,391
    )
    
    
    (536,365
    )Distributions received from partnerships
    
    
    585,588
    
    
    
    465,535
    
    
    
    618,509Common stock issued to ESOP
    
    
    218,733
    
    
    
    221,633
    
    
    
    209,574Common stock (unissued) to Directors
Deferred Compensation Plan
    
    
    247,033
    
    
    
    156,209
    
    
    
    149,161Bad debt expense
    
    
    591,258
    
    
    
    
    
    
    
    Cash provided (used) by changes in assets
and liabilities:Oil and gas sales receivables
    
    
    (9,671,136
    )
    
    
    (1,631,627
    )
    
    
    169,824Fair value
of derivative contracts
    
    
    (539,277
    )
    
    
    (106,916
    )
    
    
    Refundable income taxes and other
    
    
    (2,267,114
    )
    
    
    1,635,853
    
    
    
    (1,889,363
    )Other non-current assets
    
    
    (388,194
    )
    
    
    
    
    
    
    Accounts payable
    
    
    59,921
    
    
    
    (118,012
    )
    
    
    (21,361
    )Accrued directors deferred compensation
    
    
    
    
    
    
    
    
    
    
    (281,897
    )Accrued liabilities
    
    
    260,414
    
    
    
    114,324
    
    
    
    (562,525
    )Total adjustments
    
    
    18,368,950
    
    
    
    21,763,036
    
    
    
    12,895,926Net cash provided by operating activities
    
    
    39,924,719
    
    
    
    28,106,500
    
    
    
    23,470,145Investing ActivitiesCapital expenditures, including dry hole costs
    
    
    (38,747,749
    )
    
    
    (27,785,431
    )
    
    
    (21,738,745
    )Proceeds from leasing of fee mineral acreage
    
    
    200,356
    
    
    
    188,417
    
    
    
    493,652Sale (purchase) of investments
    
    
    
    
    
    
    11,280
    
    
    
    (282,000
    )Proceeds from sales of assets
    
    
    840,398
    
    
    
    645,055
    
    
    
    408,487Net cash used in investing activities
    
    
    (37,706,995
    )
    
    
    (26,940,679
    )
    
    
    (21,118,606
    )
  (39)




---



##### Table of Contents



Year ended September 30,2008
    
    2007
    
    2006Financing ActivitiesBorrowings under debt agreement
    
    $
    47,281,411
    
    
    $
    18,046,213
    
    
    $
    Payments of loan principal
    
    
    (42,238,782
    )
    
    
    (16,551,395
    )
    
    
    (2,000,004
    )Purchases of treasury stock
    
    
    (4,998,842
    )
    
    
    
    
    
    
    Payments of dividends
    
    
    (2,355,163
    )
    
    
    (2,105,632
    )
    
    
    (1,556,015
    )Net cash used in financing activities
    
    
    (2,311,376
    )
    
    
    (610,814
    )
    
    
    (3,556,019
    )(Decrease) increase in cash and cash equivalents
    
    
    (93,652
    )
    
    
    555,007
    
    
    
    (1,204,480
    )Cash and cash equivalents at beginning of year
    
    
    989,360
    
    
    
    434,353
    
    
    
    1,638,833Cash and cash equivalents at end of year
    
    $
    895,708
    
    
    $
    989,360
    
    
    $
    434,353Supplemental Disclosures of Cash Flow
InformationInterest paid
    
    $
    167,732
    
    
    $
    140,350
    
    
    $
    219,898Income taxes paid, net of refunds received
    
    $
    4,145,122
    
    
    $
    (952,221
    )
    
    $
    4,781,462Supplemental schedule of noncash
investing and financing activities:Reclassification of deferred compensation
liability as equity
    
    $
    
    
    
    $
    
    
    
    $
    1,053,408Additions and revisions, net, to asset
retirement obligations
    
    $
    151,998
    
    
    $
    (213,759
    )
    
    $
    141,158Properties and equipment change
included in accounts payable
    
    $
    14,064,389
    
    
    $
    327,091
    
    
    $
    885,295
 See accompanying notes.
 (40)




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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
   (41)




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
  Cash and Cash Equivalents
  Oil and Gas Sales and Gas Imbalances
   Concentration of Credit Risk
   Oil and Gas Producing Activities
  (42)




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Derivatives
    Production volume
    
    Floor price range
    
    Ceiling price rangeContract period
    
    covered per month
    
    (per mmbtu)
    
    (per mmbtu)January  December, 2007 (1)
    
    100,000 mmbtu
    
    $
    6.00
    
    
    $
    9.20 to $10.20January  March, 2008 (2)
    
    120,000 mmbtu
    
    $
    6.55 to $6.60
    
    
    $
    8.80 to $9.10April  September, 2008 (2)
    
    120,000 mmbtu
    
    $
    6.15 to $6.40
    
    
    $
    8.05 to $8.60April  September, 2008 (2)
    
    90,000 mmbtu
    
    $
    6.60 to $6.85
    
    
    $
    7.50 to $7.80April  September, 2008 (2)
    
    30,000 mmbtu
    
    $
    7.20 to $7.45
    
    
    $
    8.15 to $8.45October  December, 2008 (2)
    
    120,000 mmbtu
    
    $
    6.50 to $6.90
    
    
    $
    8.75 to $9.15
 
 (1)
    
    Entered into agreement in fiscal year 2007(2)
    
    Entered into agreement in fiscal year 2008  (Losses) gains on
    
    Fiscal yearderivative contracts
    
    2008
    
    
    2007Realized
    
    $
    (1,480,100
    )
    
    $
    658,400Unrealized
    
    
    539,277
    
    
    
    106,916Total
    
    $
    (940,823
    )
    
    $
    765,316
 (43)




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Depreciation, Depletion, Amortization, and Impairment
   Accounting
for the Impairment or Disposal of Long-Lived Assets
  (44)




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Investments
  Asset Retirement Obligations
   PluggingLiabilityPlugging Liability as of September 30, 2007
    
    $
    1,247,908Accretion of Discount
    
    
    104,505New Wells Placed on Production
    
    
    217,257Wells Sold or Plugged
    
    
    (65,259
    )Plugging Liability as of September 30, 2008
    
    $
    1,504,411
 Environmental Costs
   (45)




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Earnings Per Share of Common Stock
  Share-based Compensation
   Fair Values of Financial Instruments
  Income Taxes
  Accounting for
Uncertainty in Income Taxes  an Interpretation of FASB Statement No. 109 Accounting for Income Taxes
 (46)




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
    New Accounting Pronouncements
 Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities.
  2. Commitments
  (47)




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##### Table of Contents



3. Income Taxes
  2008
    
    2007
    
    2006Current:Federal
    
    $
    1,728,000
    
    
    $
    1,000,000
    
    
    $
    2,351,000State
    
    
    50,302
    
    
    
    30,000
    
    
    
    58,0001,778,302
    
    
    
    1,030,000
    
    
    
    2,409,000Deferred:Federal
    
    
    8,090,000
    
    
    
    1,083,000
    
    
    
    1,928,000State
    
    
    1,026,000
    
    
    
    246,000
    
    
    
    249,0009,116,000
    
    
    
    1,329,000
    
    
    
    2,177,000$
    10,894,302
    
    
    $
    2,359,000
    
    
    $
    4,586,000
  2008
    
    2007
    
    2006Provision for income taxes at statutory rate
    
    $
    11,336,596
    
    
    $
    2,958,838
    
    
    $
    5,210,883Percentage depletion
    
    
    (1,072,282
    )
    
    
    (604,662
    )
    
    
    (699,384
    )State income taxes, net of federal benefit
    
    
    797,550
    
    
    
    272,580
    
    
    
    361,680State net operating loss carryforward benefit
    
    
    (143,000
    )
    
    
    (102,925
    )
    
    
    (241,000
    )Other
    
    
    (24,562
    )
    
    
    (164,831
    )
    
    
    (46,179
    )$
    10,894,302
    
    
    $
    2,359,000
    
    
    $
    4,586,000
  2008
    
    2007Deferred tax
liabilities:Financial basis in excess of tax basis, principally
intangible drilling costs capitalized
for financial
purposes and expensed for tax purposes
    
    $
    29,236,442
    
    
    $
    18,328,498Deferred tax assets:Alternative minimum tax credit carryforwards
    
    
    1,532,770
    
    
    
    503,000State net operating loss carry forwards
    
    
    915,032
    
    
    
    471,815Deferred directors compensation, allowance
for uncollectible accounts and other
    
    
    844,890
    
    
    
    525,9333,292,692
    
    
    
    1,500,748Net deferred tax liabilities
    
    $
    25,943,750
    
    
    $
    16,827,750
 (48)




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##### Table of Contents



4. Long-term Debt
   5. Shareholders Equity
    Total Number of
    
    Approximate DollarTotal Number
    
    Average
    
    Shares Purchased
    
    Value of Shares thatof Shares
    
    Price Paid
    
    as Part of Publicly
    
    May Yet Be PurchasedPeriod
    
    Purchased
    
    per Share
    
    Announced Program
    
    Under the Program6/1 - 6/30/08
    
    
    54,514
    
    
    $
    35.88
    
    
    
    54,514
    
    
    $
    44,2397/1 - 7/31/08
    
    
    1,300
    
    
    $
    33.44
    
    
    
    1,300
    
    
    $
    3,000,7728/1 - 8/31/08
    
    
    61,000
    
    
    $
    37.51
    
    
    
    61,000
    
    
    $
    712,7229/1 - 9/30/08
    
    
    22,200
    
    
    $
    32.06
    
    
    
    22,200
    
    
    $
    0
 (49)




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##### Table of Contents



5. Shareholders Equity (continued)
  6. Earnings Per Share
  Year ended September 30,2008
    
    2007
    
    2006Numerator for earnings per share:Net income
    
    $
    21,555,769
    
    
    $
    6,343,464
    
    
    $
    10,574,219Denominator for earnings per share  weighted
average shares (including for 2008, 2007
and 2006, unissued, vested directors
shares
of 85,504, 76,679 and 68,488,
respectively)
    
    
    8,492,378
    
    
    
    8,499,233
    
    
    
    8,479,406
 7. Employee Stock Ownership Plan
  Year
    
    Shares
    
    Amount2008
    
    
    7,640
    
    
    $
    218,7332007
    
    
    8,973
    
    
    $
    221,7812006
    
    
    11,643
    
    
    $
    209,700
 (50)




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##### Table of Contents



8. Deferred Compensation Plan for Directors
  9. Information on Oil and Gas Producing Activities
   Aggregate Capitalized Costs
  2008
    
    2007Producing properties
    
    $
    175,727,196
    
    
    $
    125,634,251Non-producing properties
    
    
    11,216,103
    
    
    
    10,697,854186,943,299
    
    
    
    136,332,105Accumulated depreciation, depletion and
amortization
    
    
    (87,329,312
    )
    
    
    (67,962,465
    )Net capitalized costs
    
    $
    99,613,987
    
    
    $
    68,369,640
 (51)




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##### Table of Contents



9. Information on Oil and Gas Producing Activities (continued)
 Costs Incurred
  2008
    
    2007
    
    2006Property acquisition costs
    
    $
    2,359,988
    
    
    $
    1,592,441
    
    
    $
    983,159Exploration costs
    
    
    1,887,182
    
    
    
    4,604,380
    
    
    
    2,719,068Development costs
    
    
    48,503,130
    
    
    
    21,906,032
    
    
    
    18,900,917$
    52,750,300
    
    
    $
    28,102,853
    
    
    $
    22,603,144
 10. Supplementary Information on Oil and Gas Reserves (Unaudited)
 Disclosures About Oil and Gas Producing Activities.
   (52)




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##### Table of Contents



10. Supplementary Information on Oil and Gas Reserves (Unaudited) (continued)
 Estimated Quantities of Proved Oil and Gas Reserves
  Proved ReservesOil
    
    Gas(Mbarrels)
    
    (MMcf)September 30, 2005
    
    
    634
    
    
    
    27,446Revisions of previous estimates
    
    
    (11
    )
    
    
    (3,557
    ) (1)Extensions and discoveries
    
    
    49
    
    
    
    11,279Production
    
    
    (97
    )
    
    
    (4,299
    )September 30, 2006
    
    
    575
    
    
    
    30,869Revisions of previous estimates
    
    
    219
    
    
    
    19Divestitures
    
    
    (2
    )
    
    
    (162
    )Extensions and discoveries
    
    
    138
    
    
    
    11,396Production
    
    
    (107
    )
    
    
    (5,116
    )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
    
    
    
    48,151
  
 (1)
    
    A decrease in the natural gas price for 2006 as compared to the price for 2005 resulted in a
negative revision to gas reserves of 4,365 mmcf. Other revisions were a positive 808 mmcf. (53)




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##### Table of Contents



10. Supplementary Information on Oil and Gas Reserves (Unaudited) (continued)
 Proved Developed Reserves
    
    Proved Undeveloped ReservesOil
    
    Gas
    
    Oil
    
    Gas(Mbarrels)
    
    (MMcf)
    
    (Mbarrels)
    
    (MMcf)September 30, 2005
    
    
    613
    
    
    
    24,011
    
    
    
    21
    
    
    
    3,435September 30, 2006
    
    
    566
    
    
    
    25,323
    
    
    
    9
    
    
    
    5,547September 30, 2007
    
    
    755
    
    
    
    31,016
    
    
    
    68
    
    
    
    5,990September 30, 2008
    
    
    895
    
    
    
    35,970
    
    
    
    95
    (1)
    
    
    12,181
    (1)
  
  Standardized Measure of Discounted Future Net Cash Flows
  2008
    
    2007
    
    2006Future cash inflows
    
    $
    318,004,410
    
    
    $
    270,149,990
    
    
    $
    146,872,790Future production costs
    
    
    79,668,500
    
    
    
    61,736,120
    
    
    
    34,045,630Future development costs
    
    
    19,364,580
    
    
    
    9,429,990
    
    
    
    7,101,523Asset retirement obligation
    
    
    1,504,411
    
    
    
    1,247,908
    
    
    
    1,374,294Future income tax expense
    
    
    68,086,237
    
    
    
    61,164,668
    
    
    
    24,394,272Future net cash flows
    
    
    149,380,682
    
    
    
    136,571,304
    
    
    
    79,957,07110% annual discount
    
    
    70,585,957
    
    
    
    59,542,180
    
    
    
    28,765,504Standardized measure of discounted
future net cash flows
    
    $
    78,794,725
    
    
    $
    77,029,124
    
    
    $
    51,191,567
 (54)




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##### Table of Contents



10. Supplementary Information on Oil and Gas Reserves (Unaudited) (continued)
  2008
    
    2007
    
    2006Beginning of year
    
    $
    77,029,122
    
    
    $
    51,191,567
    
    
    $
    133,621,319Changes resulting from:Sales of oil and gas, net of production
costs
    
    
    (58,971,023
    )
    
    
    (31,391,718
    )
    
    
    (30,745,693
    )Net change in sales prices and
production costs
    
    
    9,274,593
    
    
    
    43,499,178
    
    
    
    (123,034,702
    )Net change in future development costs
    
    
    (5,841,539
    )
    
    
    (1,511,175
    )
    
    
    (1,053,612
    )Net change in asset retirement obligation
    
    
    (142,847
    )
    
    
    74,315
    
    
    
    (149,267
    )Extensions and discoveries
    
    
    46,677,163
    
    
    
    35,711,533
    
    
    
    23,822,148Revisions of quantity estimates
    
    
    2,417,457
    
    
    
    4,401,619
    
    
    
    (7,891,218
    )Divestitures of reserves-in-place
    
    
    (208,419
    )
    
    
    (516,909
    )
    
    
    Acquisition of reserves-in-place
    
    
    
    
    
    
    
    
    
    
    Accretion of discount
    
    
    11,626,875
    
    
    
    6,772,402
    
    
    
    19,006,216Net change in income taxes
    
    
    (3,072,975
    )
    
    
    (22,707,174
    )
    
    
    39,908,385Change in timing and other, net
    
    
    6,318
    
    
    
    (8,494,516
    )
    
    
    (2,292,009
    )Net change
    
    
    1,765,603
    
    
    
    25,837,555
    
    
    
    (82,429,752
    )End of year
    
    $
    78,794,725
    
    
    $
    77,029,122
    
    
    $
    51,191,567
 11. Quarterly Results of Operations (Unaudited)
  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
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
 Fiscal 2007Quarter EndedDecember 31
    
    March 31
    
    June 30
    
    September 30Revenues
    
    $
    8,931,895
    
    
    $
    8,143,733
    
    
    $
    10,988,346
    
    
    $
    11,064,937Income (loss) before provision
income taxes
    
    
    2,876,937
    
    
    
    (271,396
    )
    
    
    4,176,578
    
    
    
    1,920,345Net income (loss)
    
    
    1,983,493
    
    
    
    (218,745
    )
    
    
    2,904,078
    
    
    
    1,674,638Earnings (loss) per share
    
    $
    0.23
    
    
    $
    (0.03
    )
    
    $
    0.34
    
    
    $
    0.20
 (55)




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##### 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
  
 PART III
  (56)




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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)
    
    
    Amendment to Loan Agreement (incorporated by reference to Form 10-K dated September 30, 2003)(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)(21)
    
    
    Subsidiaries of the Registrant(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
 REPORTS ON FORM 8-K
  (57)




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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 10, 2008
    
    
    
    Date: December 10, 2008
  /s/ Bruce M. Bell
    
    
    
    /s/ E. Chris KauffmanBruce M. Bell, Director
    
    
    
    E. Chris Kauffman, DirectorDate December 10, 2008
    
    
    
    Date December 10, 2008/s/ Duke R. Ligon

Duke R. Ligon, Director
    
    
    
    /s/ Robert O. Lorenz

Robert O. Lorenz, Lead Independent DirectorDate December 10, 2008
    
    
    
    Date December 10, 2008/s/ Robert A. Reece
    
    
    
    /s/ Robert E. RobottiRobert A. Reece, Director
    
    
    
    Robert E. Robotti, DirectorDate December 10, 2008
    
    
    
    Date December 10, 2008/s/ H. Grant Swartzwelder

H. Grant Swartzwelder, DirectorDate December 10, 2008
 (58)