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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, 2007
 Commission File Number: 0-9116
 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
  (405) 948-1560
  CLASS A COMMON STOCK (VOTING)
    
    AMERICAN STOCK EXCHANGE(Title of Class)
    
    (Name of each exchange on which registered)Securities registered under Section 12(g) of the Act:(Title of Class)
 CLASS B COMMON STOCK (NON-VOTING) $1.00 par value
 o þ
 o þ
 þ o
 þ
 o þ o
 o þ
  Documents Incorporated By Reference




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TABLE OF CONTENTS
 PagePART IItem 1
    
    Business
    
    
    1-9Item 1B
    
    Unresolved Staff Comments
    
    
    9Item 2
    
    Properties
    
    
    9-15Item 3
    
    Legal Proceedings
    
    
    15Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    15PART IIItem 5
    
    Market for Registrants Common Equity and Related Stockholder Matters
    
    
    16Item 6
    
    Selected Financial Data
    
    
    17-18Item 7
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    18-27Item 7A
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    27-29Item 8
    
    Financial Statements and Supplementary Data
    
    
    29-54Item 9
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    55Item 9A
    
    Controls and Procedures
    
    
    55PART IIIItem 10-14
    
    Incorporated by Reference to Proxy StatementPART IVItem 15
    
    Exhibits, Financial Statement Schedules and Reports on Form 8-K
    
    
    56Signature Page
    
    
    57Exhibit 21
    
    
    58Exhibit 31.1-31.2
    
    
    59-60Exhibit 32.1-32.2
    
    
    61-62Subsidiaries of the RegistrantCertification of Chief Executive OfficerCertification of Chief Financial OfficerCertification of Chief Executive OfficerCertification of Chief Financial Officer
 SEC Bbl Bcf Mcf Mcfd Mcfe 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
  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.
  
    
    relatively minor changes in the supply of and demand for oil and natural gas;
    
    market uncertainty;
    
    worldwide economic conditions;
    
    weather conditions;
    
    import prices;
    
    political conditions in major oil producing regions, especially the Middle East and West Africa;
    
    actions taken by OPEC;
    
    competition from alternative sources of energy; and
    
    economic, political and regulatory developments.
  (5)




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The Companys hedging activites may reduce the realized prices received for oil and natural gas
sales.
  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.
 Lower oil and natural gas prices may cause impairment charges.
   Although the Companys estimated oil and natural gas reserve data is prepared by a consulting
engineering firm, estimates may still prove to be inaccurate.
  (6)




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
    
    expected reservoir characteristics based on geological, geophysical and engineering
assessments;
    
    future production rates based on historical performance and expected future
operating and investment activities;
    
    future oil and gas prices; and
    
    future development and operating costs.
  Failure to find or acquire additional reserves will cause reserves and production to decline
materially from their current levels.
    Oil and natural gas drilling and producing operations involve various risks.
  (7)




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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.
  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.
  (8)




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ITEM 1B UNRESOLVED STAFF COMMENTS
  
 ITEM 2 PROPERTIES
    ACREAGE
 Mineral Interests Owned
  GrossGross
    
    Net
    
    Acres
    
    Net
    
    GrossNet
    
    Acres
    
    Acres Leased
    
    Leased
    
    Acres
    
    AcresNet
    
    Gross
    
    Acres Prodg
    
    Prodg
    
    to Others
    
    to Others
    
    Open
    
    OpenState
    
    Acres
    
    Acres
    
    (1)
    
    (1)
    
    (2)
    
    (2)
    
    (3)
    
    (3)Arkansas
    
    
    10,038
    
    
    
    44,793
    
    
    
    1,065
    
    
    
    3,089
    
    
    
    8,778
    
    
    
    41,151
    
    
    
    195
    
    
    
    553Colorado
    
    
    8,326
    
    
    
    39,299
    
    
    
    109
    
    
    
    219
    
    
    
    30
    
    
    
    200
    
    
    
    8,187
    
    
    
    38,880Florida
    
    
    5,602
    
    
    
    12,239
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,602
    
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    600
    
    
    
    11,164
    
    
    
    63,686New Mexico
    
    
    57,396
    
    
    
    174,460
    
    
    
    1,352
    
    
    
    7,125
    
    
    
    320
    
    
    
    320
    
    
    
    55,724
    
    
    
    167,015Oklahoma
    
    
    113,013
    
    
    
    940,145
    
    
    
    32,481
    
    
    
    265,472
    
    
    
    3,259
    
    
    
    27,759
    
    
    
    77,273
    
    
    
    646,914South Dakota
    
    
    1,825
    
    
    
    9,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,825
    
    
    
    9,300Texas
    
    
    43,180
    
    
    
    361,444
    
    
    
    7,216
    
    
    
    68,510
    
    
    
    598
    
    
    
    4,909
    
    
    
    35,366
    
    
    
    288,025OTHER
    
    
    44
    
    
    
    279
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    44
    
    
    
    279Total:
    
    
    254,692
    
    
    
    1,676,008
    
    
    
    42,375
    
    
    
    345,695
    
    
    
    13,011
    
    
    
    76,538
    
    
    
    199,306
    
    
    
    1,253,775
 
 (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. (9)




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Leases
  Net AcresHeld byState
    
    Net Acres
    
    Lease Acres Expiring
    
    Production2008
    
    2009
    
    2010Kansas
    
    
    2,117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,117Oklahoma
    
    
    16,561
    
    
    
    1,115
    
    
    
    450
    
    
    
    1,467
    
    
    
    13,529Texas
    
    
    527
    
    
    
    26
    
    
    
    1
    
    
    
    32
    
    
    
    468Other
    
    
    1,532
    
    
    
    92
    
    
    
    67
    
    
    
    
    
    
    
    1,373TOTAL
    
    
    20,737
    
    
    
    1,233
    
    
    
    518
    
    
    
    1,499
    
    
    
    17,487
 PROVED RESERVES
  Barrels of Oil
    
    Mcf of GasProved Developed ReservesSeptember 30, 2007
    
    
    754,866
    
    
    
    31,016,304September 30, 2006
    
    
    566,110
    
    
    
    25,322,756September 30, 2005
    
    
    613,536
    
    
    
    24,011,062Proved Undeveloped ReservesSeptember 30, 2007
    
    
    67,958
    
    
    
    5,989,487September 30, 2006
    
    
    9,081
    
    
    
    5,547,083September 30, 2005
    
    
    20,787
    
    
    
    3,435,341Total Proved ReservesSeptember 30, 2007
    
    
    822,824
    
    
    
    37,005,791September 30, 2006
    
    
    575,191
    
    
    
    30,869,839September 30, 2005
    
    
    634,323
    
    
    
    27,446,403
  (10)




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ESTIMATED FUTURE NET CASH FLOWS
  Estimated Future Net Cash Flows (before federal income taxes)
 9-30-07
    
    
    9-30-06
    
    
    9-30-05Proved Developed
    
    $
    175,044,930
    
    
    $
    94,939,418
    
    
    $
    265,189,328Proved Undeveloped
    
    $
    23,046,080
    
    
    $
    10,734,504
    
    
    $
    31,671,502Total Proved
    
    $
    198,091,010
    
    
    $
    105,673,922
    
    
    $
    296,860,830
 10% Discounted Present Value of Estimated Future Net Cash Flows (before federal income taxes)
 9-30-07
    
    
    9-30-06
    
    
    9-30-05Proved Developed
    
    $
    103,316,060
    
    
    $
    62,920,576
    
    
    $
    169,417,252Proved Undeveloped
    
    $
    13,178,660
    
    
    $
    5,716,092
    
    
    $
    20,978,021Total Proved
    
    $
    116,494,720
    
    
    $
    68,636,668
    
    
    $
    190,395,273
  (11)




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OIL AND GAS PRODUCTION
  Year Ended
    
    Year Ended
    
    Year Ended9-30-07
    
    9-30-06
    
    9-30-05Bbls  Oil
    
    
    107,344
    
    
    
    97,139
    
    
    
    101,581Mcf  Gas
    
    
    5,147,343
    
    
    
    4,299,142
    
    
    
    4,011,226Mcfe
    
    
    5,791,407
    
    
    
    4,881,976
    
    
    
    4,620,712
  AVERAGE SALES PRICES AND PRODUCTION COSTS
  Year Ended
    
    
    Year Ended
    
    
    Year Ended9-30-07
    
    

    9-30-06
    
    
    9-30-05Average Sales PricePer Bbl, Oil
    
    $
    62.81
    
    
    $
    63.44
    
    
    $
    51.30Per Mcf, Gas
    
    $
    5.97
    
    
    $
    6.94
    
    
    $
    6.24Per Mcfe
    
    $
    6.47
    
    
    $
    7.38
    
    
    $
    6.54Average Production (lifting costs)(Per Mcfe of Gas)(1)
    
    $
    0.63
    
    
    $
    0.63
    
    
    $
    0.62(2)
    
    $
    0.42
    
    
    $
    0.45
    
    
    $
    0.42$
    1.05
    
    
    $
    1.08
    
    
    $
    1.04
 
 (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
    
    
    935
    
    
    
    18.89Gas
    
    
    3,371
    
    
    
    76.95Total
    
    
    4,306
    
    
    
    95.84
 (12)




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UNDEVELOPED ACREAGE
  DRILLING ACTIVITY
  Net Productive Wells
    
    Net Dry WellsDevelopment WellsFiscal year ended
September 30, 2005
    
    
    5.485356
    
    
    
    0.142047Fiscal year ended
September 30, 2006
    
    
    5.477069
    
    
    
    0.139168Fiscal year ended
September 30, 2007
    
    
    6.215883
    
    
    
    0.025393Exploratory WellsFiscal year ended
September 30, 2005
    
    
    0.584992
    
    
    
    0.131758Fiscal year ended
September 30, 2006
    
    
    0.747225
    
    
    
    0.159593Fiscal year ended
September 30, 2007
    
    
    1.539561
    
    
    
    0.137873Purchased WellsFiscal year ended
September 30, 2005
    
    
    1.660737
    
    
    
    0Fiscal year ended
September 30, 2006
    
    
    0
    
    
    
    0Fiscal year ended
September 30, 2007
    
    
    0
    
    
    
    0
 (13)




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PRESENT ACTIVITIES
  Gross Wells
    
    Net WellsOil
    
    
    2
    
    
    
    0.01000Gas
    
    
    42
    
    
    
    1.68387
 OTHER FACILITIES
  SAFE HARBOR STATEMENT
      Commodity Prices.
 (14)




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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
  (15)




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PART II
 
 ITEM 5 MARKET FOR REGISTRANTS COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
  Quarter Ended
    
    High
    
    LowDecember 31, 2005
    
    $
    22.00
    
    
    $
    14.23March 31, 2006
    
    $
    23.50
    
    
    $
    17.05June 30, 2006
    
    $
    22.50
    
    
    $
    17.00September 30, 2006
    
    $
    19.78
    
    
    $
    16.68December 31, 2006
    
    $
    19.75
    
    
    $
    17.25March 31, 2007
    
    $
    20.68
    
    
    $
    17.80June 30, 2007
    
    $
    28.80
    
    
    $
    19.70September 30, 2007
    
    $
    28.60
    
    
    $
    20.18
   Date
    
    Rate Per ShareDecember 2005
    
    $
    0.025March 2006
    
    $
    0.08June 2006
    
    $
    0.04September 2006
    
    $
    0.04December 2006
    
    $
    0.04March 2007
    
    $
    0.07June 2007
    
    $
    0.07September 2007
    
    $
    0.07
   (16)




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ITEM 6 SELECTED FINANCIAL DATA
  Year Ended September 30,2007
    
    2006
    
    2005
    
    2004
    
    2003RevenuesOil & Gas Sales
    
    $
    37,449,174
    
    
    $
    36,008,527
    
    
    $
    30,242,210
    
    
    $
    23,578,615
    
    
    $
    22,098,198Lease Bonuses
    
    
    208,625
    
    
    
    410,984
    
    
    
    2,214,992
    
    
    
    115,938
    
    
    
    72,765Interest & Other
    
    
    1,471,112
    
    
    
    1,066,169
    
    
    
    1,140,973
    
    
    
    912,056
    
    
    
    285,075$
    39,128,911
    
    
    $
    37,485,680
    
    
    $
    33,598,175
    
    
    $
    24,606,609
    
    
    $
    22,456,038Costs and ExpensesLease Oper. Exp & Prod. Taxes
    
    $
    6,057,456
    
    
    $
    5,262,834
    
    
    $
    4,802,595
    
    
    $
    4,098,124
    
    
    $
    4,013,572Exploration Costs (A)
    
    
    1,050,069
    
    
    
    222,892
    
    
    
    784,741
    
    
    
    236,939
    
    
    
    469,224Depr. Depl. Amortization
    
    
    15,291,625
    
    
    
    10,142,367
    
    
    
    7,506,571
    
    
    
    6,115,500
    
    
    
    5,783,457Provision for Impairment
    
    
    3,761,832
    
    
    
    3,009,953
    
    
    
    232,295
    
    
    
    841,687
    
    
    
    692,220Loss on Sale of Assets
    
    
    254,395
    
    
    
    119,282
    
    
    
    291,452
    
    
    
    
    
    
    
    Gen. & Administrative
    
    
    3,877,492
    
    
    
    3,335,899
    
    
    
    4,545,208
    
    
    
    3,033,437
    
    
    
    2,666,177Interest Expense
    
    
    133,578
    
    
    
    232,234
    
    
    
    359,527
    
    
    
    488,097
    
    
    
    699,266$
    30,426,447
    
    
    $
    22,325,461
    
    
    $
    18,522,389
    
    
    $
    14,813,784
    
    
    $
    14,323,916Income Before Provision
For Income Taxes
    
    $
    8,702,464
    
    
    $
    15,160,219
    
    
    $
    15,075,786
    
    
    $
    9,792,825
    
    
    $
    8,132,122Cumulative effect of
accounting changes, net
of taxes of $28,500 (B)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,500Provision for Income Taxes
    
    
    2,359,000
    
    
    
    4,586,000
    
    
    
    4,591,000
    
    
    
    3,063,000
    
    
    
    2,217,000Net Income
    
    $
    6,343,464
    
    
    $
    10,574,219
    
    
    $
    10,484,786
    
    
    $
    6,729,825
    
    
    $
    5,961,622Basic Earnings per share
    
    $
    0.75
    
    
    $
    1.25
    
    
    $
    1.25
    
    
    $
    0.80
    
    
    $
    0.71Diluted Earnings per share
    
    $
    0.75
    
    
    $
    1.25
    
    
    $
    1.24
    
    
    $
    0.80
    
    
    $
    0.71Dividends Declared per share
    
    $
    0.25
    
    
    $
    0.185
    
    
    $
    0.125
    
    
    $
    0.09
    
    
    $
    0.07Weighted Average
Shares Outstanding (C)Basic
    
    
    8,499,233
    
    
    
    8,479,406
    
    
    
    8,390,280
    
    
    
    8,357,566
    
    
    
    8,325,488Diluted
    
    
    8,499,233
    
    
    
    8,479,406
    
    
    
    8,450,238
    
    
    
    8,457,602
    
    
    
    8,414,852Net Cash Provided by (used in):Operating Activities
    
    $
    28,106,500
    
    
    $
    23,470,145
    
    
    $
    17,909,249
    
    
    $
    15,583,362
    
    
    $
    13,487,890Investing Activities
    
    $
    (26,940,679
    )
    
    $
    (21,118,606
    )
    
    $
    (10,514,096
    )
    
    $
    (10,631,869
    )
    
    $
    (9,200,810
    )Financing Activities
    
    $
    (610,814
    )
    
    $
    (3,556,019
    )
    
    $
    (6,398,663
    )
    
    $
    (4,902,156
    )
    
    $
    (3,936,910
    )Total Assets
    
    $
    78,539,797
    
    
    $
    70,949,242
    
    
    $
    61,241,692
    
    
    $
    54,186,362
    
    
    $
    49,402,534Long-Term Debt
    
    $
    4,661,471
    
    
    $
    1,166,649
    
    
    $
    3,166,653
    
    
    $
    8,516,657
    
    
    $
    12,666,661Shareholders Equity
    
    $
    53,681,371
    
    
    $
    49,065,697
    
    
    $
    38,635,350
    
    
    $
    28,700,515
    
    
    $
    22,527,685
  
 (A)
    
    The Company uses the successful efforts method of accounting for its oil and
gas activities.


(17)



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##### Table of Contents



(B)
    
    Represents the income effect of the adoption of SFAS No. 143, Accounting for
Asset Retirement Obligationson October 1, 2003. See Note 1: Summary of Significant
Accounting Policies of Notes to the Consolidated Financial Statements herein.(C)
    
    Weighted average shares outstanding for basic and diluted earnings per share
are the same in fiscal year 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 Incr. or
    
    
    
    
    
    Percent Incr.2007
    
    (Decr.)
    
    2006
    
    or (Decr.)
    
    2005Production:Oil (Bbls)
    
    
    107,344
    
    
    
    11
    %
    
    
    97,139
    
    
    
    (4
    %)
    
    
    101,581Gas (Mcf)
    
    
    5,147,343
    
    
    
    20
    %
    
    
    4,299,142
    
    
    
    7
    %
    
    
    4,011,226Mcfe
    
    
    5,791,407
    
    
    
    19
    %
    
    
    4,881,976
    
    
    
    6
    %
    
    
    4,620,712Average Sales Price:Oil (per Bbl)
    
    $
    62.81
    
    
    
    (1
    %)
    
    $
    63.44
    
    
    
    24
    %
    
    $
    51.30Gas (per Mcf)
    
    $
    5.97
    
    
    
    (14
    %)
    
    $
    6.94
    
    
    
    11
    %
    
    $
    6.24Mcfe
    
    $
    6.47
    
    
    
    (12
    %)
    
    $
    7.38
    
    
    
    13
    %
    
    $
    6.54
 2007 Compared to 2006
 Overview
  (18)




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##### Table of Contents



Revenues
   First quarter
    
    1,334,357 mcfeSecond quarter
    
    1,305,041 mcfeThird quarter
    
    1,432,023 mcfeFourth quarter
    
    1,719,986 mcfe
 Realized and Unrealized Gains on Natural Gas Collar Contracts
  Lease Operating Expenses and Production Taxes (LOE)
  Production Taxes
  Exploration Costs
  (19)




---



##### Table of Contents



Depreciation, Depletion and Amortization (DD&A)
  Provision for Impairment
  Loss on Sale of Assets
  General and Administrative Costs (G&A)
  Interest Expense
  (20)




---



##### Table of Contents



Provision for Income Taxes
  Liquidity and Capital Resources
    Contractual Obligations
  (21)




---



##### Table of Contents



Payments Due By PeriodLess than
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsLong-term debt
obligations
    
    $
    4,661,471
    
    
    $
    
    
    
    $
    4,661,471
    
    
    $
    
    
    
    $
    
 Hedging
  First Contract:Production volume covered
    
    30,000 mmbtu/monthJanuary through December of 2007
    
    Floor of $6.00 and a ceiling of $9.20Second Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through December of 2007
    
    Floor of $6.00 and a ceiling of $9.20Third Contract:Production volume covered
    
    30,000 mmbtu/monthJanuary through December of 2007
    
    Floor of $6.00 and a ceiling of $10.20
 (22)




---



##### Table of Contents



First Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through March of 2008
    
    Floor of $6.60 and a ceiling of $8.85April through September of 2008
    
    Floor of $6.20 and a ceiling of $8.15October through December of 2008
    
    Floor of $6.50 and a ceiling of $8.90Second Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through March of 2008
    
    Floor of $6.60 and a ceiling of $9.10April through September of 2008
    
    Floor of $6.40 and a ceiling of $8.60October through December of 2008
    
    Floor of $6.90 and a ceiling of $9.15Third Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through March of 2008
    
    Floor of $6.55 and a ceiling of $8.80April through September of 2008
    
    Floor of $6.15 and a ceiling of $8.05October through December of 2008
    
    Floor of $6.55 and a ceiling of $8.75
  2006 Compared to 2005
 Overview
  Revenues
   (23)




---



##### Table of Contents



First quarter
    
    1,196,923 mcfeSecond quarter
    
    1,173,313 mcfeThird quarter
    
    1,134,814 mcfeFourth quarter
    
    1,376,926 mcfe
 Lease Operating Expenses and Production Taxes (LOE)
  Production Taxes
  Exploration Costs
  Depreciation, Depletion and Amortization (DD&A)
  Provision for Impairment
  (24)




---



##### Table of Contents



Loss on Sale of Assets
  General and Administrative Costs (G&A)
  Interest Expense
  Provision for Income Taxes
  CRITICAL ACCOUNTING POLICIES
   (25)




---



##### Table of Contents



Oil and Gas Reserves
  Hedging
   Successful Efforts Method of Accounting
  (26)




---



##### Table of Contents



Impairment of Assets
  Oil and Gas Sales Revenue Accrual
  Income Taxes
   
 ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  (27)




---



##### Table of Contents



First Contract:Production volume covered
    
    30,000 mmbtu/monthJanuary through December of 2007
    
    Floor of $6.00 and a ceiling of $9.20Second Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through December of 2007
    
    Floor of $6.00 and a ceiling of $9.20Third Contract:Production volume covered
    
    30,000 mmbtu/monthJanuary through December of 2007
    
    Floor of $6.00 and a ceiling of $10.20
  First Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through March of 2008
    
    Floor of $6.60 and a ceiling of $8.85April through September of 2008
    
    Floor of $6.20 and a ceiling of $8.15October through December of 2008
    
    Floor of $6.50 and a ceiling of $8.90Second Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through March of 2008
    
    Floor of $6.60 and a ceiling of $9.10April through September of 2008
    
    Floor of $6.40 and a ceiling of $8.60October through December of 2008
    
    Floor of $6.90 and a ceiling of $9.15Third Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through March of 2008
    
    Floor of $6.55 and a ceiling of $8.80April through September of 2008
    
    Floor of $6.15 and a ceiling of $8.05October through December of 2008
    
    Floor of $6.55 and a ceiling of $8.75
 (28)




---



##### Table of Contents



ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 Managements Report on Internal Control Over Financial Reporting
    
    
    30Report of Registered Public Accounting Firm on Internal Control
Over Financial Reporting
    
    
    31Report of Independent Registered Public Accounting Firm
    
    
    32Consolidated Balance Sheets
As of September 30, 2007 and 2006
    
    
    33-34Consolidated Statements of Income for the
Years Ended September 30, 2007, 2006 and 2005
    
    
    35Consolidated Statements of Stockholders Equity for the
Years Ended September 30, 2007, 2006 and 2005
    
    
    36Consolidated Statements of Cash Flows for the
Years Ended September 30, 2007, 2006 and 2005
    
    
    37-38Notes to Consolidated Financial Statements
    
    
    39-54
 (29)




---



##### 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
 (30)




---



##### Table of Contents



.
   
 (31)




---



##### Table of Contents



(32)




---



##### Table of Contents



September 30,2007
    
    2006AssetsCurrent Assets:Cash and cash equivalents
    
    $
    989,360
    
    
    $
    434,353Oil and gas sales receivables
    
    
    8,103,250
    
    
    
    6,471,623Fair value of derivative contracts
    
    
    106,916
    
    
    
    Refundable income taxes and other
    
    
    112,882
    
    
    
    1,889,636Total current assets
    
    
    9,312,408
    
    
    
    8,795,612Property and equipment at cost, based on successful
efforts accounting:Producing oil and gas properties
    
    
    125,634,251
    
    
    
    103,129,158Non-producing oil and gas properties
    
    
    10,697,854
    
    
    
    11,273,373Furniture and fixtures
    
    
    625,455
    
    
    
    562,047136,957,560
    
    
    
    114,964,578Less accumulated depreciation, depletion, and
amortization
    
    
    68,424,645
    
    
    
    53,654,385Net properties and equipment
    
    
    68,532,915
    
    
    
    61,310,193Investments
    
    
    690,011
    
    
    
    838,974Other
    
    
    4,463
    
    
    
    4,463Total assets
    
    $
    78,539,797
    
    
    $
    70,949,242
  See accompanying notes.
 (33)




---



##### Table of Contents



September 30,2007
    
    2006Liabilities and Stockholders EquityCurrent Liabilities:Accounts payable
    
    $
    1,773,255
    
    
    $
    1,564,176Accrued liabilities
    
    
    348,042
    
    
    
    233,718Long-term debt due within one year
    
    
    
    
    
    
    2,000,004Total current liabilities
    
    
    2,121,297
    
    
    
    3,797,898Long-term debt
    
    
    4,661,471
    
    
    
    1,166,649Deferred income taxes
    
    
    16,827,750
    
    
    
    15,498,750Asset retirement obligation and
other noncurrent liabilities
    
    
    1,247,908
    
    
    
    1,420,248Stockholders equity:Class A voting common stock, $.0166 par value;
24,000,000 shares authorized, 8,431,502 issued
and outstanding (8,422,529 in 2006)
    
    
    140,524
    
    
    
    140,375Capital in excess of par value
    
    
    2,146,071
    
    
    
    1,924,587Deferred directors compensation
    
    
    1,358,778
    
    
    
    1,202,569Retained earnings
    
    
    50,035,998
    
    
    
    45,798,166Total stockholders equity
    
    
    53,681,371
    
    
    
    49,065,697Total liabilities and stockholders equity
    
    $
    78,539,797
    
    
    $
    70,949,242
 See accompanying notes.
 (34)




---



##### Table of Contents



Year ended September 30,2007
    
    2006
    
    2005Revenues:Oil and gas sales
    
    $
    37,449,174
    
    
    $
    36,008,527
    
    
    $
    30,242,210Lease bonuses and rentals
    
    
    208,625
    
    
    
    410,984
    
    
    
    2,214,992Realized gains on gas collar contracts
    
    
    658,400
    
    
    
    
    
    
    
    Unrealized gains on gas collar contracts
    
    
    106,916
    
    
    
    
    
    
    
    Gain on sales and interest
    
    
    322,405
    
    
    
    529,804
    
    
    
    745,800Income from partnerships
    
    
    383,391
    
    
    
    536,365
    
    
    
    395,17339,128,911
    
    
    
    37,485,680
    
    
    
    33,598,175Costs and expenses:Lease operating expenses and production taxes
    
    
    6,057,456
    
    
    
    5,262,834
    
    
    
    4,802,595Exploration costs
    
    
    1,050,069
    
    
    
    222,892
    
    
    
    784,741Depreciation, depletion, and amortization
    
    
    15,291,625
    
    
    
    10,142,367
    
    
    
    7,506,571Provision for impairment
    
    
    3,761,832
    
    
    
    3,009,953
    
    
    
    232,295Loss on sale of assets
    
    
    254,395
    
    
    
    119,282
    
    
    
    291,452General and administrative
    
    
    3,877,492
    
    
    
    3,335,899
    
    
    
    4,545,208Interest expense
    
    
    133,578
    
    
    
    232,234
    
    
    
    359,52730,426,447
    
    
    
    22,325,461
    
    
    
    18,522,389Income before provision for income taxes
    
    
    8,702,464
    
    
    
    15,160,219
    
    
    
    15,075,786Provision for income taxes
    
    
    2,359,000
    
    
    
    4,586,000
    
    
    
    4,591,000Net Income
    
    $
    6,343,464
    
    
    $
    10,574,219
    
    
    $
    10,484,786Basic earnings per common share:Net income
    
    $
    0.75
    
    
    $
    1.25
    
    
    $
    1.25Diluted earnings per common share:Net income
    
    $
    0.75
    
    
    $
    1.25
    
    
    $
    1.24
 See accompanying notes.
 (35)




---



##### Table of Contents



Capital in
    
    DeferredCommon Stock
    
    Excess of
    
    Directors
    
    RetainedShares
    
    Amount
    
    Par Value
    
    Compensation
    
    Earnings
    
    TotalBalances at September 30, 2004
    
    
    8,379,566
    
    
    $
    139,660
    
    
    $
    1,217,020
    
    
    $
    
    
    
    $
    27,343,835
    
    
    $
    28,700,515Issuance of common shares to ESOP
    
    
    9,186
    
    
    
    154
    
    
    
    196,380
    
    
    
    
    
    
    
    
    
    
    
    196,534Issuance of common shares to
directors for services
    
    
    22,134
    
    
    
    368
    
    
    
    301,806
    
    
    
    
    
    
    
    
    
    
    
    302,174Dividends declared ($.125 per share)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,048,659
    )
    
    
    (1,048,659
    )Net Income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,484,786
    
    
    
    10,484,786Balances 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
    
    
    $
    53,681,371
 See accompanying notes.
 (36)




---



##### Table of Contents



Year ended September 30,2007
    
    2006
    
    2005Operating ActivitiesNet income
    
    $
    6,343,464
    
    
    $
    10,574,219
    
    
    $
    10,484,786Adjustments to reconcile net income to net
cash provided by operating activities:Depreciation, depletion, amortization, and impairment
    
    
    19,053,457
    
    
    
    13,152,320
    
    
    
    7,738,866Deferred income taxes
    
    
    1,329,000
    
    
    
    2,177,000
    
    
    
    1,072,750Lease bonus income
    
    
    (45,954
    )
    
    
    (95,892
    )
    
    
    (2,133,337
    )Exploration costs
    
    
    1,050,069
    
    
    
    222,892
    
    
    
    784,741Net loss (gain) on sale of assets
    
    
    22,856
    
    
    
    (415,951
    )
    
    
    (365,288
    )Equity in earnings of partnerships
    
    
    (383,391
    )
    
    
    (536,365
    )
    
    
    (395,173
    )Distributions received from partnerships
    
    
    465,535
    
    
    
    618,509
    
    
    
    497,839Common stock issued to ESOP
    
    
    221,633
    
    
    
    209,574
    
    
    
    196,534Common stock (unissued) to Directors
Deferred Compensation Plan
    
    
    156,209
    
    
    
    149,161
    
    
    
    302,174Cash provided (used) by changes in assets
and liabilitiesOil and gas sales receivables
    
    
    (1,631,627
    )
    
    
    169,824
    
    
    
    (1,678,455
    )Fair value of dervative contracts
    
    
    (106,916
    )
    
    
    
    
    
    
    Refundable income taxes and other
    
    
    1,635,853
    
    
    
    (1,889,363
    )
    
    
    218,375Accounts payable
    
    
    (118,012
    )
    
    
    (21,361
    )
    
    
    131,540Accrued directors deferred compensation
    
    
    
    
    
    
    (281,897
    )
    
    
    470,972Accrued liabilities
    
    
    (96,831
    )
    
    
    37,144
    
    
    
    (16,744
    )Income taxes payable
    
    
    211,155
    
    
    
    (599,669
    )
    
    
    599,669Total adjustments
    
    
    21,763,036
    
    
    
    12,895,926
    
    
    
    7,424,463Net cash provided by operating activities
    
    
    28,106,500
    
    
    
    23,470,145
    
    
    
    17,909,249Investing ActivitiesCapital expenditures, including dry hole costs
    
    
    (27,785,431
    )
    
    
    (21,738,745
    )
    
    
    (14,998,876
    )Proceeds from leasing of fee mineral acreage
    
    
    188,417
    
    
    
    493,652
    
    
    
    2,304,383Sale or (purchase) of investment
    
    
    11,280
    
    
    
    (282,000
    )
    
    
    Proceeds from sale of assets
    
    
    645,055
    
    
    
    408,487
    
    
    
    2,180,397Net cash used in investing activities
    
    $
    (26,940,679
    )
    
    $
    (21,118,606
    )
    
    $
    (10,514,096
    )
  See accompanying notes.
 (37)




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##### Table of Contents



Year ended September 30,2007
    
    2006
    
    2005Financing ActivitiesBorrowings under debt agreement
    
    $
    18,046,213
    
    
    $
    
    
    
    $
    11,350,000Payments of loan principal
    
    
    (16,551,395
    )
    
    
    (2,000,004
    )
    
    
    (16,700,004
    )Payments of dividends
    
    
    (2,105,632
    )
    
    
    (1,556,015
    )
    
    
    (1,048,659
    )Net cash used in financing activities
    
    
    (610,814
    )
    
    
    (3,556,019
    )
    
    
    (6,398,663
    )Increase (decrease) in cash and cash equivalents
    
    
    555,007
    
    
    
    (1,204,480
    )
    
    
    996,490Cash and cash equivalents at beginning of year
    
    
    434,353
    
    
    
    1,638,833
    
    
    
    642,343Cash and cash equivalents at end of year
    
    $
    989,360
    
    
    $
    434,353
    
    
    $
    1,638,833Supplemental Disclosures of Cash Flow
InformationInterest paid
    
    $
    140,350
    
    
    $
    219,898
    
    
    $
    367,333Income taxes paid, net of refunds received
    
    $
    (952,221
    )
    
    $
    4,781,462
    
    
    $
    2,668,870Supplemental schedule of noncash
investing and financing activities:Reclassification of deferred compensation
liability as equity
    
    $
    
    
    
    $
    1,053,408
    
    
    $
    Additions and revisions, net, to asset
retirement obligations
    
    $
    (213,759
    )
    
    $
    141,158
    
    
    $
    494,508Properties and equipment change
included in accounts payable
    
    $
    327,091
    
    
    $
    885,295
    
    
    $
    (257,239
    )
 See accompanying notes.
 (38)




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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
   (39)




---



##### 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
  (40)




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Derivatives
   First Contract:Production volume covered
    
    30,000 mmbtu/monthJanuary through December of 2007
    
    Floor of $6.00 and a ceiling of $9.20Second Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through December of 2007
    
    Floor of $6.00 and a ceiling of $9.20Third Contract:Production volume covered
    
    30,000 mmbtu/monthJanuary through December of 2007
    
    Floor of $6.00 and a ceiling of $10.20
  First Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through March of 2008
    
    Floor of $6.60 and a ceiling of $8.85April through September of 2008
    
    Floor of $6.20 and a ceiling of $8.15October through December of 2008
    
    Floor of $6.50 and a ceiling of $8.90Second Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through March of 2008
    
    Floor of $6.60 and a ceiling of $9.10April through September of 2008
    
    Floor of $6.40 and a ceiling of $8.60October through December of 2008
    
    Floor of $6.90 and a ceiling of $9.15Third Contract:Production volume covered
    
    40,000 mmbtu/monthJanuary through March of 2008
    
    Floor of $6.55 and a ceiling of $8.80April through September of 2008
    
    Floor of $6.15 and a ceiling of $8.05October through December of 2008
    
    Floor of $6.55 and a ceiling of $8.75
 (41)




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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
 (42)




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Investments
  Asset Retirement Obligations
   PluggingLiabilityPlugging Liability as of September 30, 2006
    
    $
    1,374,294Accretion of Discount
    
    
    87,373New Wells Placed on Production
    
    
    73,257Revisions in Estimates (A)
    
    
    (287,016
    )Plugging Liability as of September 30, 2007
    
    $
    1,247,908
 
 (A)
    
    Higher oil and gas prices at September 30, 2007 compared to September 30, 2006
increased the lives of the Companys wells and decreased the discounted amount of the
plugging liability as of September 30, 2007. Environmental Costs
  (43)




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
  Earnings Per Share of Common Stock
  Stock-based Compensation
   Fair Values of Financial Instruments
  (44)




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##### Table of Contents



1. Summary of Significant Accounting Policies (continued)
 Income Taxes
  New Accounting Pronouncements
   Fair Value Measurements.
 The Fair Value Option for Financial Assets and
Financial Liabilities.
  (45)




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##### Table of Contents



2. Commitments
  3. Income Taxes
  2007
    
    2006
    
    2005Current:Federal
    
    $
    1,000,000
    
    
    $
    2,351,000
    
    
    $
    3,488,250State
    
    
    30,000
    
    
    
    58,000
    
    
    
    30,0001,030,000
    
    
    
    2,409,000
    
    
    
    3,518,250Deferred:Federal
    
    
    1,083,000
    
    
    
    1,928,000
    
    
    
    1,004,750State
    
    
    246,000
    
    
    
    249,000
    
    
    
    68,0001,329,000
    
    
    
    2,177,000
    
    
    
    1,072,750$
    2,359,000
    
    
    $
    4,586,000
    
    
    $
    4,591,000
  2007
    
    2006
    
    2005Provision for income taxes at statutory rate
    
    $
    2,958,838
    
    
    $
    5,210,883
    
    
    $
    5,178,799Percentage depletion
    
    
    (604,662
    )
    
    
    (699,384
    )
    
    
    (620,982
    )State income taxes, net of federal benefit
    
    
    272,580
    
    
    
    361,680
    
    
    
    63,700State net operating loss carryforward benefit
    
    
    (102,925
    )
    
    
    (241,000
    )
    
    
    Other
    
    
    (164,831
    )
    
    
    (46,179
    )
    
    
    (30,517
    )$
    2,359,000
    
    
    $
    4,586,000
    
    
    $
    4,591,000
 (46)




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##### Table of Contents



3. Income Taxes (continued)
  2007
    
    2006Deferred tax libilities:Financial basis in excess of tax basis, principally
intangible drilling costs capitalized for financial
purposes and expensed for tax purposes
    
    $
    18,328,498
    
    
    $
    16,538,959Deferred tax assets:Alternative minimum tax credit carryforwards
    
    
    503,000
    
    
    
    State net operating loss carry forwards
    
    
    471,815
    
    
    
    368,890Deferred directors compensation and other
    
    
    525,933
    
    
    
    671,3191,500,748
    
    
    
    1,040,209Net deferred tax liabilities
    
    $
    16,827,750
    
    
    $
    15,498,750
 4. Long-term Debt
  2007
    
    20064.56% term loan
    
    $
    
    
    
    $
    3,166,653Revolving line of credit
    
    
    4,661,471
    
    
    
    Current maturities of long-term debt
    
    
    
    
    
    
    2,000,004$
    4,661,471
    
    
    $
    1,166,649
   (47)




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##### Table of Contents



4. Long-term Debt (continued)
   2008
    
    $
    2009
    
    $
    2010
    
    $
    4,661,4712011
    
    $
    2012
    
    $
    
 5. Shareholders Equity
    (48)




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##### Table of Contents



6. Earnings Per Share
  Year ended September 30,2007
    
    2006
    
    2005Numerator for primary and diluted
earnings per share:Net income
    
    $
    6,343,464
    
    
    $
    10,574,219
    
    
    $
    10,484,786Denominator:For basic earnings per share- weighted average
shares (including for 2007 and 2006,
unissued
vested directors shares of 76,679
and 68,488)
    
    
    8,499,233
    
    
    
    8,479,406
    
    
    
    8,390,280Effect of potential diluted shares:Directors deferred compensation
shares
    
    
    *
    
    
    
    *
    
    
    
    59,958Denominator for diluted earnings per
share-adjusted weighted average
shares and potential shares
    
    
    8,499,233
    
    
    
    8,479,406
    
    
    
    8,450,238
 
 *
    
    Not applicable  see Note 8.  7. Employee Stock Ownership Plan
  Year
    
    Shares
    
    Amount2007
    
    
    8,973
    
    
    $
    221,7812006
    
    
    11,643
    
    
    $
    209,7002005
    
    
    9,186
    
    
    $
    196,842
 (49)




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##### Table of Contents



8. Deferred Compensation Plan for Directors
  9. Information on Oil and Gas Producing Activities
   (50)




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##### Table of Contents



9. Information on Oil and Gas Producing Activities (continued)
 Aggregate Capitalized Costs
  2007
    
    2006Producing properties
    
    $
    125,634,251
    
    
    $
    103,129,158Non-producing properties
    
    
    10,697,854
    
    
    
    11,273,373136,332,105
    
    
    
    114,402,531Accumulated depreciation, depletion and amortization
    
    
    (67,962,465
    )
    
    
    (53,239,322
    )Net capitalized costs
    
    $
    68,369,640
    
    
    $
    61,163,209
 Costs Incurred
  2007
    
    2006
    
    2005 (1)Property acquisition costs
    
    $
    1,592,441
    
    
    $
    983,159
    
    
    $
    2,032,823Exploration costs
    
    
    4,604,380
    
    
    
    2,719,068
    
    
    
    907,385Development costs
    
    
    21,906,032
    
    
    
    18,900,917
    
    
    
    11,799,545$
    28,102,853
    
    
    $
    22,603,144
    
    
    $
    14,739,753
 
 (1)
    
    Property acquisition costs include $900,000 related to the acquisition of proved
properties. 10. Supplementary Information on Oil and Gas Reserves (Unaudited)
 Disclosures About Oil and Gas Producing Activities.
  (51)




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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, 2004
    
    
    760
    
    
    
    28,251Revisions of previous estimates
    
    
    (60
    )
    
    
    (3,122
    )Acquisitions
    
    
    4
    
    
    
    409Divestitures
    
    
    (60
    )
    
    
    (814
    )Extensions and discoveries
    
    
    92
    
    
    
    6,733Production
    
    
    (102
    )
    
    
    (4,011
    )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
    
    
    
    37,006
  
 (1)
    
    The large decrease in the natural gas price for 2006 resulted in a negative revision to gas
reserves of 4,365 mmcf. Other revisions were a positive 808 mmcf. (52)




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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, 2004
    
    
    710
    
    
    
    24,086
    
    
    
    50
    
    
    
    4,165September 30, 2005
    
    
    613
    
    
    
    24,011
    
    
    
    21
    
    
    
    3,435September 30, 2006
    
    
    566
    
    
    
    25,323
    
    
    
    9
    
    
    
    5,547September 30, 2007
    
    
    755
    
    
    
    31,016
    
    
    
    68
    
    
    
    5,990
  Standardized Measure of Discounted Future Net Cash Flows
  2007
    
    2006
    
    2005Future cash inflows
    
    $
    270,149,990
    
    
    $
    146,872,790
    
    
    $
    358,380,000Future production costs
    
    
    61,736,120
    
    
    
    34,045,630
    
    
    
    55,406,990Future development costs
    
    
    9,429,990
    
    
    
    7,101,523
    
    
    
    5,458,591Asset retirement obligation
    
    
    1,247,908
    
    
    
    1,374,294
    
    
    
    1,144,299Future net cash inflows before future
income tax expenses
    
    
    197,735,972
    
    
    
    104,351,343
    
    
    
    296,370,120Future income tax expense
    
    
    61,164,668
    
    
    
    24,394,272
    
    
    
    84,708,027Future net cash flows
    
    
    136,571,304
    
    
    
    79,957,071
    
    
    
    211,662,09310% annual discount
    
    
    59,542,180
    
    
    
    28,765,504
    
    
    
    78,040,774Standardized measure of discounted
future net cash flows
    
    $
    77,029,124
    
    
    $
    51,191,567
    
    
    $
    133,621,319
 (53)




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##### Table of Contents



10. Supplementary Information on Oil and Gas Reserves (Unaudited) (continued)
  2007
    
    2006
    
    2005Beginning of year
    
    $
    51,191,567
    
    
    $
    133,621,319
    
    
    $
    69,149,989Changes resulting from:Sales of oil and gas, net of production costs
    
    
    (31,391,718
    )
    
    
    (30,745,693
    )
    
    
    (25,439,615
    )Net change in sales prices and production costs
    
    
    43,499,178
    
    
    
    (123,034,702
    )
    
    
    96,847,355Net change in future development costs
    
    
    (1,511,175
    )
    
    
    (1,053,612
    )
    
    
    (1,142,715
    )Net change in asset retirement obligation
    
    
    74,315
    
    
    
    (149,267
    )
    
    
    (266,949
    )Extensions and discoveries
    
    
    35,711,533
    
    
    
    23,822,148
    
    
    
    43,200,477Revisions of quantity estimates
    
    
    4,401,619
    
    
    
    (7,891,218
    )
    
    
    (19,409,623
    )Divestitures of reserves-in-place
    
    
    (516,909
    )
    
    
    
    
    
    
    (6,975,566
    )Acquisition of reserves-in-place
    
    
    
    
    
    
    
    
    
    
    2,585,268Accretion of discount
    
    
    6,772,402
    
    
    
    19,006,216
    
    
    
    9,698,899Net change in income taxes
    
    
    (22,707,174
    )
    
    
    39,908,385
    
    
    
    (28,601,833
    )Change in timing and other, net
    
    
    (8,494,516
    )
    
    
    (2,292,009
    )
    
    
    (6,024,368
    )Net change
    
    
    25,837,555
    
    
    
    (82,429,752
    )
    
    
    64,471,330End of year
    
    $
    77,029,122
    
    
    $
    51,191,567
    
    
    $
    133,621,319
 11. Quarterly Results of Operations (Unaudited)
  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
for 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
 Fiscal 2006Quarter EndedDecember 31
    
    March 31
    
    June 30
    
    September 30Revenues
    
    $
    12,207,679
    
    
    $
    8,728,506
    
    
    $
    7,414,606
    
    
    $
    9,134,889Income before provision for
income taxes
    
    
    7,471,118
    
    
    
    3,842,760
    
    
    
    2,815,878
    
    
    
    1,030,463Net income
    
    
    4,894,118
    
    
    
    2,653,760
    
    
    
    2,078,878
    
    
    
    947,463Earnings per share
    
    $
    0.58
    
    
    $
    0.31
    
    
    $
    0.25
    
    
    $
    0.11
 (54)




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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
  (55)




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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)(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
    (56)




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##### Table of Contents



SIGNATURES
   By:
    
    /s/ Michael C. Coffman

Michael C. Coffman 
President; 
Chief Executive Officer
    
    
    
    By:
    
    /s/ Lonnie J. Lowry

Lonnie J. Lowry 
Vice President; 
Chief Financial OfficerDate: December 11, 2007
    
    
    
    
    
    Date: December 11, 2007
  /s/ E. Chris Kauffman
    
    
    
    /s/ Bruce M. BellE. Chris Kauffman, Chairman of Board
    
    
    
    Bruce M. Bell, DirectorDate December 11, 2007
    
    
    
    Date December 11, 2007/s/ Robert A. Reece

Robert A. Reece, Director
    
    
    
    /s/ Robert E. Robotti

Robert E. Robotti, DirectorDate December 11, 2007
    
    
    
    Date December 11, 2007/s/ H. Grant Swartzwelder

H. Grant Swartzwelder, Director
    
    
    
    /s/ Robert O. Lorenz

Robert O. Lorenz, DirectorDate December 11, 2007
    
    
    
    Date December 11, 2007/s/ Duke R. Ligon

Duke R. Ligon, Director,Date December 11, 2007
 (57)