FORM 10-KSB

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549


MARK ONE

_X_  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

     For the fiscal year ended December 31, 2002

___  Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934

     For the transition period from N/A to N/A

                       Commission file number:  333-46164

                              Arena Resources, Inc.
                              ---------------------
             (Exact name of registrant as specified in its charter)

          Nevada                                 73-1596109
          ------                                 ----------
  (State of incorporation)         (I.R.S. Employer Identification Number)

     4920 South Lewis Street, Suite 107
     Tulsa, Oklahoma                                    74105
     ---------------                                    -----
     (Address of Principal Executive Offices)         (Zip Code)

Registrant's telephone number, including area code:  (918) 747-6060

                                        Name of each exchange on
     Title of each class                     which registered
     -------------------                     ----------------
 Common - $0.001 Par Value      None: Traded on Electronic Bulletin Board

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

Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  YES _X_  NO  ___

State issuer's revenues for tis most recent fiscal year.  $1,657,037

As of March 5, 2003, the aggregate market value of the common voting stock held
by non-affiliates of the Registrant, based upon the closing stock price of
$4.25 per share, was approximately $15,792,000. The Company is currently traded
on the NASD Electronic Bulletin Board.  During the year 2002, the stock has
traded within a range from $2.40 to $4.60.

As of March 5, 2003, the registrant had outstanding 6,365,856 shares of common
stock ($0.001 par value).



                                1


                        TABLE OF CONTENTS

                             PART I
                                                                    Page
ITEM 1  BUSINESS                                                      3

ITEM 2  PROPERTIES                                                   10

ITEM 3  LEGAL PROCEEDINGS                                            14

ITEM 4  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS          14


                             PART II


ITEM 5  MARKET FOR REGISTRANT'S COMMON EQUITY                        15

ITEM 6  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
        CONDITION AND RESULTS OF OPERATIONS                          16

ITEM 7  FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA                   17

ITEM 8  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
        ACCOUNTING AND FINANCIAL DISCLOSURES                         17


                                    PART III

ITEM 9  DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT               18

ITEM 10  EXECUTIVE COMPENSATION                                      20

ITEM 11  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
         AND MANAGEMENT                                              21

ITEM 12  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS              21

ITEM 13  CONTROLS AND PROCEDURES                                     22


                                     PART IV

ITEM 14  EXHIBITS, FINANCIAL STATEMENTS AND SCHEDULES
          AND REPORTS ON FORM 8-K                                    22

SIGNATURES                                                           23

CERTIFICATIONS                                                       24



                                        2



                                     PART I

                                Item 1 - BUSINESS

       The  statements regarding future financial and operating performance  and
results, market prices, future hedging activities, and other statements that are
not  historical  facts contained in this report are forward-looking  statements.
The  words  "expect," "project," "estimate," "believe," "anticipate,"  "intend,"
"budget,"  "plan," "forecast," "predict," "may," "should," "could,"  "will"  and
similar  expressions  are also intended to identify forward-looking  statements.
These statements involve risks and uncertainties, including, but not limited to,
market  factors,  market  prices  (including regional  basis  differentials)  of
natural gas and oil, results for future drilling and marketing activity,  future
production  and costs, and other factors detailed in this document  and  in  our
other  Securities and Exchange Commission filings. If one or more of these risks
or  uncertainties  materialize, or if underlying  assumptions  prove  incorrect,
actual outcomes may vary materially from those included in this document.

GENERAL DESCRIPTION OF COMPANY AND BUSINESS

      Arena  Resources,  Inc., ("Arena" or the "Company") a Nevada  Corporation,
incorporated in August 2000, is an independent energy company engaged in oil and
gas acquisition and development with operations in the states of Texas, Oklahoma
and  Kansas.  The principal office of the Company is located at 4920 South Lewis
Street, Suite 107, Tulsa, Oklahoma.  The telephone number is (918) 747-6060.

(A) 2002 RESULTS OF OPERATIONS

      In  2002,  our natural gas and oil production increased dramatically. We
produced  67,465 barrels of oil equivalents (BOE), or 184.8 BOE per day this
year, from 17,143 in  2001.  We also increased our reserves to over 6.5 million
barrels of oil equivalents (MBOE), from approximately 1 MBOE in 2001. Net
income, before  preferred stock dividends, was  $402,694, increased  from
$18,165 in 2001 and the Company had positive net cash flow from operations of
$570,748, increased from $84,023 in 2001. This was all primarily  accomplished
through  acquisition of producing properties with upside potential to match the
Company's long term objectives.

(B) PROPERTIES

      The  present  assets of Arena consist of the following:  (i)  94%  working
interest and 2-1/2% overriding royalty interest in the Casey lease  in  Muskogee
County,  Oklahoma  (ii) 100% working interest in two drill sites  on  properties
around  the Casey lease in Muskogee County, Oklahoma (iii) 100% working interest
in  the  Y-6 lease in Fisher County, Texas (iv) a 100% working interest  in  the
Dodson lease in Montague County, Texas (v) a 100% working interest before payout
and  a  75%  working interest after payout in the Koehn well in Haskell  County,
Kansas  (vi)  a 100% working interest in the Ona Morrow Sand Unit in  Texas  and
Cimarron  Counties, Oklahoma (vii) a 100% working interest and a .89% overriding
royalty  interest in the Eva South Sand Unit in Texas County, Oklahoma (viii)  a
100%  working  interest  in the Midwell, Appleby, Smaltz  and  Hanes  leases  in
Cimarron County, Oklahoma (ix) a 24-1/2% working  interest  in  a  non-operated
property, the Roy Hanes lease in Texas County, Oklahoma.. These leases are  more
particularly described beginning on page 10 of this Report.


                                3


(C) RESERVE ESTIMATES

     The following table summarizes the existing net oil and gas properties held
by  Arena as of December 31, 2002, showing both estimated proven developed and
proven non-developed reserves  with  estimated recoverable natural gas revenues
from those reserves expressed in increments of a thousand cubic feet (MCF) and
estimated recoverable oil revenues from those reserves expressed in increments
of barrels (BBL). Proven developed reserves are proven reserves upon which there
is actual production. The estimates of proven reserves were determined by
independent engineers.

                                                                 Estimated
                                         Crude      Natural  Net Future Cash
                                          Oil      Gas (MCF)   Flow Before
                                                                 Tax at
                                       (Barrels)              Current Prices
                                                               Discounted at
                                                              10% to Present
                                                                  Value

Oklahoma Proved Developed Reserves       606,420     595,913   $  5,063,838
Kansas Proved Developed Reserves            -        527,236        662,852
Texas Proved Developed Reserves          144,044      37,490      1,195,182
Oklahoma Proved Undeveloped Reserves   2,984,208     877,428     28,364,276
Kansas Proved Undeveloped Reserves          -      1,083,430      1,160,988
Texas Proved Undeveloped Reserves      2,248,015      66,260     26,511,392
Total Proved Reserves                 ----------  ----------   ------------
                                       5,982,687   3,187,757   $ 62,958,528
                                      ==========  ==========   ============

  Estimated net future cash flows after tax, discounted at 10% to the present
value was $42,476,827 at December 31, 2002.

  The Company does not have any information regarding any unproven oil or gas
reserves and therefore have not disclosed any such information.


(D) NUMBER OF PERSONS EMPLOYED

      The  Company  currently has 5 full time employees.  Additionally,  certain
engineers,  geologists, landman, pumpers and others necessary for our operations
are retained on a contract or fee basis as their services are required.

(E) MANAGEMENT'S CURRENT PLANS

      Management plans to use the proceeds of it's current Private Placement and
net  revenues to acquire additional proven operating properties; acquire,  drill
and  complete  proven non-operating properties or drill and  complete  wells  on
currently  owned proven non-operating properties.  No reasonable  projection  of


                                4


drilling and completion of additional wells to be completed, if at all,  can  be
made  at  this  time because Arena is not certain of when additional  properties
will  be  acquired.   As  the  economic factors  upon  which  these  alternative
development  decisions must be made changes on an almost daily basis  for  small
independent  oil  and  gas producers, such as Arena, it is  impossible  to  make
economic  forecasts as to the ultimate structure of Arena's oil and gas  program
within the over-all parameters outlined earlier.

(F) CURRENT ACTIVITIES

      Arena  is involved in an ongoing Private Placement Offering that commenced
November  1, 2002 and is anticipated to close during the first quarter of  2003.
As  of  December  31,  2002 the Private Placement Offering has  generated  gross
proceeds  of $715,000.  The terms of this offering and use of proceeds are  more
fully described on page 8 of this Report.

      In  December 2002 Arena also began the application process to  have  Arena
Resources, Inc. common stock listed on the American Stock Exchange.  As  of  the
date of this filing, the status of that application was still pending.

 (G) MAJOR CUSTOMERS

     During the year ended December 31, 2002, sales to two customers constituted
approximately  78%  of total sales.  These two customers were Plains  Marketing,
making up 47% of total sales, and Sun Oil Co., making up 31% of total sales.

 (H) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

      The  following  table  summarizes  the  net  production  and  net  revenue
recognized  from  inception  to December 31, 2002,  segregated  by  product  and
geographic area.


                NET PRODUCTION AND REVENUE - FROM INCEPTION TO 12/3/2002
           -------------------------------------------------------------------
                 2002 Oil               2001 Oil               2000 Oil
           ---------------------  ---------------------  ---------------------
              Net         Net        Net         Net        Net         Net
           Production   Revenue   Production   Revenue   Production   Revenue
           ----------  ---------  ----------  ---------  ----------  ---------

Oklahoma       37,260  $ 976,428           -  $       -           -  $       -
Texas          22,207  $ 555,616      16,211    302,423
                                                                  -  $       -

                 2002 Gas               2001 Gas               2000 Gas
           ---------------------  ---------------------  ---------------------
              Net         Net        Net         Net        Net         Net
           Production   Revenue   Production   Revenue   Production   Revenue
           ----------  ---------  ----------  ---------  ----------  ---------

Oklahoma       42,391  $ 114,682       1,635  $   2,355           -  $       -
Texas           5,594  $  10,310       3,955  $   6,954           -  $       -




                                        5



      The  following table summarizes average price and average production costs
from inception to December 31, 2002, segregated by geographic area.

       SALES PRICE & PRODUCTION COSTS -past three years by geographic area
       -------------------------------------------------------------------
               AVERAGE SALES      AVERAGE SALES       AVERAGE SALES PRICE
                PRICE  2002         PRICE  2001    8/2000 (Inception)-Year End

OKLAHOMA      Oil  $ 26.21 Bbl    Oil  $   -   Bbl      Oil  $  -  Bbl
              Gas  $  2.71 Mcf    Gas  $  1.44 Mcf      Gas  $  -  Mcf
TEXAS         Oil  $ 25.02 Bbl    Oil  $ 18.66 Bbl      Oil  $  -  Bbl
              Gas  $  1.84 Mcf    Gas  $  1.76 Mcf      Gas  $  -  Mcf


                AVERAGE PROD.     AVERAGE PROD.           AVERAGE PROD.
                   COSTS              COSTS          COSTS 8/2000 (Inception)
                    2002              2001                 - Year End

OKLAHOMA       Oil $  9.58 Bbl    Oil  $   -   Bbl      Oil  $  - Bbl
               Gas $  1.01 Mcf    Gas  $  1.37 Mcf      Gas  $  - Mcf
TEXAS          Oil $  9.53 Bbl    Oil  $  6.11 Bbl      Oil  $  - Bbl
               Gas $   -   Mcf    Gas  $   -   Mcf      Gas  $  - Mcf


      The  following table summarizes the number of productive wells and acreage
as of December 31, 2002, segregated by geographic area.

               PRODUCTIVE WELLS & ACREAGE - As of December 31, 2002

                  GROSS
                WELLS OIL     NET OIL     NET GAS      TOTAL ACREAGE
                  & GAS        WELLS       WELLS      WITH PRODUCTION

Oklahoma           25           24          1              5,249
Texas              16           16          -              1,738
Kansas              1            -          1                160



     The following table summarizes the leased acreage that is currently
undeveloped, segregated by geographic area.

                  UNDEVELOPED ACREAGE-As of December 31, 2002

                          TOTAL UNDEVELOPED ACREAGE
                    ----------------       -----------------
                        PROVEN                   UNPROVEN
                    ----------------       -----------------
Oklahoma            Gross Acres  160       Gross Acres     -
                    Net Acres    127       Net Acres      _-
Texas               Gross Acres    -       Gross Acres   376
                    Net Acres      -       Net Acres     301


Kansas              Gross Acres  480       Gross Acres     -
                    Net Acres    288       Net Acres       -


See prior narrative description as to remaining lease terms, acreage
concentrations and related leasehold information.


                                6



      The  following table summarizes all drilling activities from inception  to
December 31, 2002, segregated by geographic area.


                  DRILLING ACTIVITY - from inception to 12/31/2002

Area        2002 Developmental     2001 Developmental     2000 Developmental
           ---------------------  ---------------------  ---------------------
           Net Prod.    Net Dry   Net Prod.    Net Dry   Net Prod.    Net Dry
           ----------  ---------  ----------  ---------  ----------  ---------

Oklahoma            -          -           1          1           -          -
Kansas              1          -           -          -           -          -
Texas               -          -           -          -           -          -


Area         2002 Exploration       2001 Exploration       2000 Exploration
           ---------------------  ---------------------  ---------------------
           Net Prod.    Net Dry   Net Prod.    Net Dry   Net Prod.    Net Dry
           ----------  ---------  ----------  ---------  ----------  ---------
Oklahoma            -          -           -          -           -          -
Kansas              -          -           -          -           -          -
Texas               -          -           -          -           -          -



(I) DESCRIPTION OF COMMITMENTS

      In  addition  to  the described oil and gas properties, Arena  has  rental
office  space, equipment and facilities.  At present, it leases office space  at
4920  South  Lewis, Suite 107, Tulsa, Oklahoma.  As of December 31,  2002,  this
lease consists of approximately 951 square feet of office space and is leased by
the  Company  for  $728  per month including all standard office  equipment  and
furnishings.  The terms of this lease expire in May 2004.

      The current facilities are believed adequate for the current operations of
Arena.

      The Company also has a lease agreement for gas compressor equipment.   The
lease  became effective in September 2002 and has a minimum term of  12  months.
Following the twelve month minimum term, the lease will continue on a  month  to
month  basis  until  either party provides a thirty (30) day written  notice  of
termination.  The lease payments are $1,400 a month.

      A  commercial bank has issued standby letters of credit on behalf  of  the
Company  to  the  states of Texas and Oklahoma totaling  $75,000  to  allow  the
Company to do business in those states.  The standby letters of credit are valid
through  August 2004 and are collateralized by an assignment of certificates  of
deposit  totaling $76,502. No amounts have been drawn under the standby  letters
of credit.

(J) REPORT ON PUBLIC FINANCINGS

      The  Company completed a public offering of 800,000 shares of common stock
on February 14, 2001 for $200,000 in cash, net of $51,497 of offering costs.

      In  June  2001,  Arena  commenced  a Private  Placement  Offering  of  10%
convertible  preferred shares to accredited investors to raise between  $525,000
and $3,500,000 for drilling and completions, as well as additional acquisitions.
The  offering  closed June 30, 2002 with gross proceeds of  $3,301,128  and  net
proceeds of $2,961,495, after cash offering costs totaling $339,633.


                                7


      The  preferred shares were sold at $1.75 per share with a minimum offering
of 300,000 shares ($525,000) and a maximum of 2,000,000 shares ($3,500,000). The
preferred  shares  paid dividends at a rate of $0.175 per share  annually,  paid
quarterly.  Under the provisions of the Class "A" preferred stock, the preferred
shares outstanding automatically converted into shares of common stock when  the
price  of  the  common  shares equaled or exceeded $4.00 per  share  for  twenty
consecutive  trading  days.  On July 30, 2002, the Company's  common  stock  was
priced  at  or  above  $4.00  per  share  for  the  twentieth  consecutive  day.
Accordingly,  the 1,886,359 shares of Class "A" preferred stock  were  converted
into  1,886,359 shares of common stock on July 30, 2002. The provisions  of  the
preferred stock dictate that dividends will be paid up to the date of conversion
or  for one year from the date of issuance, whichever is later; accordingly, the
company accrued all remaining dividends that will be paid under the provision on
July 30, 2002.

      In  November  2002,  Arena  commenced  a  Private  Placement  Offering  to
accredited investors to raise up to $3,000,000 for drilling and completions,  as
well  as  additional acquisitions.  The offering is anticipated to close  during
the  first  quarter 2003.  Gross proceeds as of December 31, 2002 were $715,000,
with offering costs totaling $112,864 for net proceeds of $602,136.

      The  offering is of Arena Resources, Inc. common stock with at a price  of
$2.50  per  share and includes a detachable warrant, exercisable  at  $5.00  per
share with a maximum offering of 1,200,000 units ($3,000,000).

(K) COMPETITIVE FACTORS

      Current  competitive  factors in the domestic oil  and  gas  industry  are
unique.   The  actual price range of crude oil is largely established  by  major
international  producers.  Pricing for natural gas is  more  regional.   Because
domestic  demand for oil and gas exceeds supply, there is little risk  that  all
current production will not be sold at relatively fixed prices.  To this  extent
Arena  does not see itself as directly competitive with other producers, nor  is
there  any  significant risk that the company could not sell all  production  at
current   prices  with  a  reasonable  profit  margin.   The  risk  of  domestic
overproduction  at  current  prices  is not  deemed  significant.   The  primary
competitive  risks  would  come from falling international  prices  which  could
render current production uneconomical.

      Secondarily,  Arena  is presently committed to use  the  services  of  the
existing  gatherers  in its present areas of production.   This  gives  to  such
gatherers  certain short term relative monopolistic powers to set gathering  and
transportation costs, because obtaining the services of an alternative gathering
company would require substantial additional costs since an alternative gatherer
would  be  required to lay new pipeline and/or obtain new rights of way  in  the
lease.

     It is also significant that more favorable prices can usually be negotiated
for larger quantities of oil and/or gas product, such that Arena views itself as
having  a price disadvantage to larger producers.  Large producers also  have  a
competitive advantage to the extent they can devote substantially more resources
to acquiring prime leases and resources to better find and develop prospects.


                                8



(L)  ENVIRONMENTAL COMPLIANCE AND RISKS

      Oil and gas production is a highly regulated activity which is subject  to
significant  environmental and conservation regulations both on  a  federal  and
state level.  Historically, most of the environmental regulation of oil and  gas
production  has  been  left  to state regulatory boards  or  agencies  in  those
jurisdictions  where there is significant gas and oil production,  with  limited
direct  regulation  by  such  federal agencies as the  Environmental  Protection
Agency.   However, while the Company believes this generally to be the case  for
its  production activities in Texas, Oklahoma and Kansas, it should  be  noticed
that  there are various Environmental Protection Agency regulations which  would
govern significant spills, blow-outs, or uncontrolled emissions.

      In  Oklahoma,  Texas  and Kansas specific oil and  gas  regulations  exist
related to the drilling, completion and operations of wells, as well as disposal
of  waste  oil.   There  are  also  procedures  incident  to  the  plugging  and
abandonment of dry holes or other non-operational wells, all as governed by  the
Oklahoma  Corporations  Commission, Oil and Gas  Division,  the  Texas  Railroad
Commission, Oil and Gas Division or the Kansas Corporation Commission.

      Compliance  with these regulations may constitute a significant  cost  and
effort for Arena.  No specific accounting for environmental compliance has  been
maintained or projected by Arena to date.  Arena does not presently know of  any
environmental  demands, claims, or adverse actions, litigation or administrative
proceedings in which it or the acquired properties are involved or subject to or
arising out of its predecessor operations.

      In the event of a breach of environmental regulations, these environmental
regulatory agencies have a broad range of alternative or cumulative remedies  to
include:  ordering a clean up of any spills or waste material and restoration of
the  soil  or water to conditions existing prior to the environmental violation;
fines;  or enjoining further drilling, completion or production activities.   In
certain  egregious  situations the agencies may also  pursue  criminal  remedies
against the Company or its principals.

(M) DISTINCTIVE CHARACTERISTICS OF BUSINESS AND INDUSTRY

       There  are  certain  special  or  distinctive  characteristics  of   this
registrants  business  which  should  be  understood.   While  some   of   these
characteristics  have been earlier discussed or alluded to, we  are  summarizing
below the more significant of these factors:

  .  Oil  and  gas  production is a highly regulated industry. The Oklahoma
     Corporation Commission, Oil and Gas Division, Texas Railroad Commission,
     Oil and Gas Division, Kansas Corporation Commission, as well as similar
     regulatory agencies in other states, impose limitations on the number of
     wells per geographic area and also may regulate the amount of production
     from wells in a formation or given conservation area.

  .  Environmental issues, including disposal of drilling fluids and chemicals,
     waste oil and surface contamination are regulated by the Oklahoma
     Corporation Commission, the Texas Railroad Commission, Kansas Corporation
     Commission and similar agencies in other states; and, secondarily, by the
     Federal Environmental Protection Agency (EPA).  Typically the EPA does not
     impose specific standards or regulations unless there is a significant
     environmental contamination.


                                        9


  .  Any drilling and completion of a well must be considered high risk due to
     the danger a well may be drilled and completed at substantial cost only to
     be determined to be a dry hole or non-commercial well.

  .  The pricing for oil and gas has historically been extremely volatile and
     these price changes could render, in a short period, an otherwise
     commercially successful well non-commercial and require it to be shut-in.
     Additionally, there are risks to production including casing or formation
     collapses, blow-outs, flooding silting, as well as equipment failures.


                               Item 2 - PROPERTIES

(A) DRILLING ACTIVITIES

      During the year ended 2002, Arena Resources completed the drilling of  one
well  in  Haskell County, Kansas, which is expected to be completed  and  placed
into production during 2003.  Detailed information regarding this well is below.
The well found proved gas reserves but is currently shut-in pending a pipeline
connection.

(B) LEASE INFORMATION

      Arena  Resources currently owns an interest in the Casey lease in Muskogee
County,  Oklahoma.  The Company began with a 40% working interest in this  lease
which  was  contributed by the two principal shareholders Mr. Rochford  and  Mr.
McCabe.   The  Company  has  subsequently acquired  an  additional  54%  working
interest and a 2-1/2% overriding royalty interest in the lease.  Total interest
in the well consists of a 94% working interest and a 2-1/2% overriding royalty
interest,  which  equates to approximately a 74.48% net revenue interest. The
Casey  lease  has been completed and had first production during late December
2001.

      Arena Resources owns a 100% working interest, 80% net revenue interest, in
the  Y6  lease  in Fisher County, Texas.  Arena purchased the Y6 lease  with  an
effective  date of June 1, 2001 and has had production on this lease  from  that
date.

      Arena  Resources  owns a 100% working interest, 80% net revenue  interest,
before payout and a 75% working interest, 60% net revenue interest, after payout
in  the  Koehn well, in Haskell County, Kansas.  Arena entered into  a  farm-out
agreement  on this property on March 12, 2002 and has subsequently  drilled  the
Koehn well.  No revenue has been received from this lease.

      Arena Resources owns a 100% working interest, 81.25% net revenue interest,
in the Dodson lease in Montague County, Texas.  Arena purchased the Dodson lease
with an effective date of June 1, 2002 and has had production on this lease from
that date.

      Arena Resources owns a 100% working interest, 81.32% net revenue interest,
in  the  Ona  Morrow Sand Unit in Texas and Cimarron Counties, Oklahoma.   Arena
purchased  a  90% working interest, 73.23% net revenue interest  in  this  lease
effective  July  1, 2002.  The Company subsequently acquired the  remaining  10%
working interest effective December 1, 2002.  The Company has had production  on
this lease from the original acquisition date of July 1, 2002.

      Arena Resources owns a 100% working interest and a .89% overriding royalty
interest,  total  net revenue interest of 85.41%, in the Eva South  Morrow  Sand
Unit.   Arena  purchased the Eva South Unit effective July 1, 2002 and  has  had
production on this lease from that date.


                                10


      Arena  Resources  owns  a 100% working interest in the  Midwell,  Appleby,
Smaltz  and Hanes leases in Cimarron County, Oklahoma, 80% net revenue interest,
and  24.50%  working interest, 21.44% net revenue interest in  a  separate  non-
operated  property,  the  Roy  Hanes lease, in Texas  County,  Oklahoma.   Arena
purchased these interests effective September 1, 2002 and has had production  on
them from that date.

      The  essential  terms, including acquisition basis, for  these  leases  is
summarized below:

Casey Lease -

 (a)  The initial 40% working interest in the Casey lease was initially acquired
      by the principal shareholders and was contributed to Arena.  The Company
      expended $61,174 in 2000 and $121,274 in 2001 for the 40% working interest
      costs to work over one well and drill and complete another.

 (b)  In May 2001, the Company acquired an additional 30% working interest in
      the Casey lease from a third party.  The additional working interest was
      value at $300,000 and was acquired by the issuance of 80,000 shares of
      common stock valued at $1.75 per share totaling $140,000, the assumption
      of a $50,000 obligation of the seller and the issuance of a notes payable
      for $110,000, which has been settled through cash payments of $45,000 and
      the issuance of an additional 37,143 shares of common stock valued at
      $1.75 per share totaling $65,000.  There was no beneficial conversion
      feature associated with the conversion of debt into common stock incurred
      prior to acquisition.  The $50,000 liability assumed from the seller
      related to the seller's previous obligation to the operator of the
      properties and has been paid.

 (c)  In October 2001, the Company acquired an additional 24% working interest
      and a 2-1/2% overriding royalty interest in the Casey lease from a third
      party. The acquired interests were valued at $266,250 and were acquired by
      the issuance of 81,857 shares of common stock valued at $1.75 per share
      totaling $143,250, a cash payment of $90,000 and the issuance of a notes
      payable for $33,000.  The entire note has been paid.

 (d)  The Casey lease began first production in late December 2001.

 (e)  This lease is be held by production.


                                11


Y6 Lease -

 (a)  The 100% working interest in the Y6 lease was acquired effective June 01,
      2001 from a third party for a cash payment of $750,000.

 (b)  The Y6 lease has had production from the date of acquisition.

 (c)  The Y6 lease is being held by production.

 (d)  In connection with this acquisition, Arena issued 2,500 shares.

Koehn -

 (a) On  March  12,  2002, the Company entered into a farm  out  agreement
     relating  to  certain oil and gas property in Haskell  and  Gray  Counties,
     Kansas     referred  to  as the Koehn property.  Under  the  terms  of  the
     agreement,  the       Company  agreed to drill one  well  and  could  drill
     additional     wells on the property.   In exchange for drilling each well,
     the  Company  would  be assigned 100% of the    working interest  (80%  net
     revenue interest) in the well and related oil and gas  until payout of  all
     costs of drilling, equipping, completing and operating the well.      After
     payout the Company's working interest in the wells and related oil and  gas
     will decrease to 75% (60% net revenue interest).

 (b) On  March 20, 2002, the Company entered into an agreement with  Petro
     Consultants,  Inc. ("Petro"), a related-party shareholder of  the  Company,
     that       created a joint venture between the two companies to  drill  and
     operate one well on the above mentioned property.  Under the terms  of  the
     agreement, Petro    purchased 27% of the working interest in the  well  for
     $88,200.  On May 20, 2002,    after the well was successfully drilled,  the
     Company issued 70,000 share shares of   common stock to Petro to repurchase
     the  27%  working interest in the well.  The   transaction with  Petro  was
     recognized  as  a financing with the issuance of 70,000  shares  of  common
     stock for $88,200 in cash, or $1.26 per share, without other     rights  to
     the property.

 (e) The Koehn well lease has not had any production to date.

 (f) This lease will be held by production.

Dodson Lease -

 (a) The 100% working interest in the Dodson lease was acquired effective
     June 01, 2002 from a third party for a cash payment of $200,000 and the
     issuance of 25,000 shares of common stock as a finder's fee valued at
     $2.50 per share, or $62,500.

 (b)  The Dodson lease has had production from the date of acquisition.

 (c)  The Dodson lease is being held by production.


                                12


Ona Morrow Unit -

 (a) Effective July 1, 2002 the Company purchased a 90% working interest in
     the Ona Morrow Unit from a third party for a cash payment of $735,000.

 (b) Effective  December 1, 2002 the Company purchased the  remaining 10%
     working interest  in the Ona Morrow Unit from a third  party  for a cash
     payment of $5,000 and the forgiveness of $23,027 in Joint Interest Billing
     indebtedness to Arena.

 (c) The Ona Morrow Unit has had production from the date of acquisition.

 (d) The Ona Morrow unit is being held by production.

Eva South Morrow Unit -

 (a) The  100%  working  interest in the  Eva  Morrow  Unit  was  acquired
     effective  July  01, 2002 from a third party for  a  cash  payment  of
     $827,500  and the  issuance of 25,000 shares of common  stock  as  a
     finder's fee valued at $4.00 per share, or   $100,000.

 (b) The  Eva  South  Morrow  Unit has had production  from  the  date  of
     acquisition.

 (c) The Eva South Morrow unit is being held by production.

M.A.S.H. leases -

 (a) The 100% working interests in the Midwell, Appleby, Smaltz and  Hanes
     leases and the 24-1\2% working interest in a non-operated property, the Roy
     Hanes  lease,    were acquired effective September 01, 2002  from  a  third
     party.   The  mineral      interests acquired were valued at $550,179  with
     the  consideration  given  consisting of a cash payment  of  $100,000,  the
     issuance  of 99,885 shares of  common stock valued at $4.00 per  share,  or
     $399,540, the issuance of a put option  whereby the seller has the right on
     September  1, 2004 to require the Company to  repurchase the 99,885  common
     shares  at $4.00 per share, less a call option     received from the seller
     whereby  the  Company has the option to repurchase  50,000  of  the  common
     shares  at $5.00 per share from the date issued through      September  11,
     2004.

     The  issuance of the put option was recorded as a liability based  on
     the   holder's  ability to require the Company to pay cash  to  redeem  the
     common     stock.  The liability was recorded at its fair value of  $87,269
     on  the date issued.      The fair value of the put was computed using  the
     Black-Scholes  option  pricing  model with the following  assumptions:   0%
     dividend yield;     two years expected  life; 43% expected volatility and a
     2.2%  risk-free interest rate.  At December 31,    2002 the  liability  was
     revalued to its fair value as at that date of $50,604.  The fair      value


                                13


     of the put was calculated using the Black-Scholes option pricing model with
     the  following   assumptions: 0% dividend yield;  610  day  expected  life;
     36.41%     volatility  and a 1.84% risk-free interest  rate.   The  put  is
     derivative and as such, the   liability will be revalued to its fair  value
     at  each  balance sheet date  with adjustments to fair  value  being
     charged or credited to operations.

     The  call option is exercisable at the Company's discretion  and  was
     therefore  recorded as a reduction of additional paid-in capital  based
     on  its fair value of  $36,630 on the date received.  The fair value  of
     the  call option was determined     using the Black-Scholes option  pricing
     model  with  the  following  assumptions:   0%  dividend  yield;  two  year
     expected  life; 43% expected volatility and a 2.2%      risk-free  interest
     rate.   The  call  option  is part of permanent  equity  and  will  not  be
     revalued at any future date.

 (b) The Midwell, Appleby, Smaltz, Hanes and Roy Hanes have had production
     from the date of acquisition.

 (c) These properties are being held by production.

      As used in this Report total production is the total recoverable amount of
product produced from an oil or gas well, usually expressed in quantity (barrels
for  oil;  thousand  cubic feet "MCF" for gas) or dollar amount  of  production.
Royalty  payments  are  a portion of the total production (usually  5-25%)  paid
directly  to the landowner, and sometimes others, from the net cash proceeds  of
production  after extraction taxes, but before charging any costs.  The  mineral
interest owner is usually the person who ultimately owns the oil and gas and  is
usually  the "lessor" or person creating the lease.  The mineral interest  owner
usually  retains  a royalty interest.  A net revenue interest is  a  term  which
defines the actual revenues which a working interest holder will obtain  from  a
given  lease after payment of its pro rata share of production costs  and  after
royalty payments.


                           Item 3 - LEGAL PROCEEDINGS


     There are no legal actions or claims in which the Company is engaged.


                   Item 4 - SUBMISSION OF MATTERS TO A VOTE OF
                                SECURITY HOLDERS

      The Company did not hold a shareholders meeting in 2002, thus there was no
vote of securities holders in 2002.  The Company anticipates holding its initial
annual shareholder meeting in the late summer or early fall, 2003.



                                        14



                                     Part II

                   Item 5 - MARKET FOR REGISTRANT'S COMMON AND
                           RELATED STOCKHOLDER MATTERS

      Arena began trading on the NASD Electronic Bulletin Board March 29,  2001.
Arena  is  also  listed in Standard and Poors industrial listing  and  claims  a
secondary  trading exemption based on such listing.  During the year  2002,  the
stock  has  traded within a range of from $2.40 to $4.60. Following is  a  table
showing the high and low bid per quarter since active trading commenced:

           Period              High Bid           Low Bid

   1st Quarter 2001             1.230              0.250
   2nd Quarter 2001             2.000              1.125
   3rd Quarter 2001             2.250              1.875
   4th Quarter 2001             2.500              2.250

   1st Quarter 2002             2.650              2.400
   2nd Quarter 2002             4.000              2.400
   3rd Quarter 2002             4.250              3.990
   4th Quarter 2002             4.600              4.000

   Trhough March 05, 2003       4.500              4.250



       Approximately 40%, or 2,566,340, of Arena's 6,365,856 issued and
outstanding shares are held by management or affiliated parties with the balance
being publicly held.

       On February 14, 2003, the Company responded to a comment letter from the
American Stock Exchange regarding Arena's application to be listed on the
American Stock Exchange.



                                        15



                      Item 6 - MANAGEMENT'S DISCUSSION AND
                        ANALYSIS OF FINANCIAL CONDITION

      This  Form  10-KSB  includes  "forward-looking"  statements  about  future
financial  results, future business changes and other events that have  not  yet
occurred.   For  example, statements like we "expect,"  we  "anticipate"  or  we
"believe" are forward-looking statements.  Investors should be aware that actual
results  may differ materially from our expressed expectations because of  risks
and  uncertainties  about  the  future.  We  will  not  necessarily  update  the
information in this Form 10-KSB if any forward-looking statement later turns out
to be inaccurate.  Details about risks affecting various aspects of our business
are  discussed throughout this Form 10-KSB.  Investors should read all of  these
risks carefully.

RESULTS OF OPERATIONS

     The following constitutes only a selected summary of significant accounting
information  and  is  qualified in its entirety by  reference  to  the  complete
audited  Financial  Statements attached hereto and incorporated,  including  the
notes thereto.

                                              For the Year  For the Year
                                                  Ended        Ended
                                              December 31,  December 31,
                                                  2002         2001
                                              -----------   -----------
Operations
  Oil and Gas Revenues                        $ 1,657,037   $   296,936
  Oil and gas production costs                   (594,863)     (106,927)
  Oil and gas production taxes                   (117,164)      (14,797)
  Depreciation and depltion expense              (127,847)      (44,148)
  General and administration expense             (248,018)     (119,696)
  Non-cash services contributed by
   majority shareholders                                -        (8,000)
                                              -----------   -----------
  Net Other Income                                 36,665             -
  Income Before Provision for Income Taxes        589,887        18,165
  Provision for Income Taxes                     (187,193)            -
                                              -----------   -----------
  Net Income                                      402,694        18,165
  Preferred dividends                             798,018        63,092
                                              -----------   -----------
  Loss applicable to common shares            $  (395,324)  $   (44,927)
                                              ===========   ===========
  Basic and Diluted Loss per common share     $     (0.09)  $     (0.01)
                                              ===========   ===========
Working Capital                               $   937,120   $   379,468
Liabilities                                       925,656        99,735
Total Assets                                    6,050,493     2,137,689
Stockholders Equity                             5,124,836     2,037,954
Dividends per Common Share                              -             -



                                        16


      For  the  year  ended  December 31, 2002, the Company realized  $1,657,037
revenue  on  production of 59,607 barrels of oil and 47,986 MCF  of  gas,  at  a
weighted-average price per barrel of oil equivalent (BOE) of $24.51 compared  to
$311,733 in revenue on production of 16,211 barrels of oil and 5,590 MCF of gas,
at  a weighted-average price per BOE of $18.18 for the same period in 2001. This
increase was based primarily on increased production from leases acquired during
2002.   Net income before preferred stock dividends for the year ended  December
31,  2002  was  $402,694 compared to $18,165 for the same period in  2001.   The
Company  also had positive net cash flows from operations of $570,748,  compared
to  $84,023  for  the same period in 2001.  After including the preferred  stock
dividends, the Company had a net loss applicable to common shares of $395,324 or
$0.09  per  share for the year ended December 31, 2002, compared to a  net  loss
applicable  to common shares of $44,927 or $0.01 per share for the  same  period
2001.   The Company has an accumulated deficit of $550,674 at December 31, 2002.
The  loss  applicable to common shares includes the accrual  for  all  remaining
preferred dividends.

      Operating  expenses  for the year ended December 31, 2002  were  $594,863,
compared  to  $106,927  for the same period in 2001.  This  increase  was  based
primarily  on  expenses relating to leases acquired during 2002.   Oil  and  gas
production taxes for the year ended December 32, 3003 were $117,164, compared to
$14,797  for  the  same period in 2001.  This increase was  based  on  increased
production  and  revenue  from leases acquired during  2002.   Depreciation  and
depletion  for the year ended December 31, 2002 was $127,847 or $1.90  per  BOE,
compared to $44,148 or $2.57 per BOE for the same period in 2001.  This increase
was  based  primarily on increased production from leases acquired during  2002.
General  and administrative expenses for the year ended December 31,  2002  were
$248,018,  consisting  primarily  of payroll salaries  and  taxes,  compared  to
$119,696 for the same period in 2001, consisting primarily of the fair value  of
services  and  office  space contributed by officers and  payroll  salaries  and
taxes, for the same period in 2001.

CAPITAL RESOURCES AND LIQUIDITY

      As shown in the financial statements for the year ended December 31, 2002,
the  Company had cash on hand of $796,915, compared to $444,564 as of  the  same
date in 2001.  The Company has positive net cash flows from operating activities
for  the  year ended December 31, 2002 of $570,748, compared to $84,023 for  the
same  period  2001.  Other significant sources of cash inflow were the  Class  A
preferred stock private placement (which closed June 30, 2002) with net proceeds
of  $1,589,606 in 2002 and $1,371,888 in 2001, the on-going common stock private
placement  with  net proceeds in 2002 of $532,836, the initial  public  offering
(which  closed February 14, 2001) with net proceeds in 2001 of $154,470,  common
stock  warrant exercises for proceeds of $130,876 in 2002 and the proceeds  from
the  issuance of two notes payable to two of the Company's officers for $400,000
in  2002.  The most significant cash outflows during the year ended December 31,
2002 and 2001 were capital expenditures of $2,603,279 in 2002 and $1,035,620  in
2001 and payment of preferred stock dividends of $196,048 in 2002.

      The  Company  had  current assets of $1,224,979 as of December  31,  2002,
compared  to  $479,203 as of the same date 2001.  The primary  components  being
cash  of  $796,915 for 2002 and $444,564 for 2001, trade accounts receivable  of
$269,436  for 2002 and $33,733 for 2001 and subscription receivable of  $157,500
in 2002.  Current liabilities as of December 31, 2002 were $287,859, compared to
$99,735 as of the same date 2001.  The primary components being accounts payable
of  $173,174  for 2002 and $40,576 for 2001 and accrued preferred  dividends  of
$114,685  for 2002 and $36,144 for 2001.  Accordingly, the Company  had  working
capital  of  $937,120 as of December 31, 2002 and $379,468 as of the  same  date
2001.

     On February 3, 2003, the Company established a $10,000,000 revolving credit
facility with a bank with an initial borrowing base of $2,000,000.  The interest
rate  is  a floating rate equal to the JP Morgan Chase Prime rate plus  1%  with
interest payable monthly. Annual fees for the facility are 1/2 of 1% of the
unused portion of the borrowing base. Amounts borrowed under the revolving
credit facility will be due in February 2005. The revolving credit facility is
secured by the Company's principal mineral interests. In order to obtain the
revolving credit  facility, loans from two officers were subordinated to the
position  of the  bank  and  the  credit  facility was guaranteed by  two of the
Company's officers. The Company is required under the terms of the  credit
facility to maintain a tangible net worth of $4,000,000, maintain a 5-to-1 ratio
of income before  interest,  taxes, depreciation, depletion and amortization to
interest expense and maintain a current asset to current liability ratio of
1-to-1.

      Management  plans to continue to make acquisitions, using net  cash  flows
from operations and possibly the above referenced credit facility and additional
equity capital.



                        Item 7 - FINANCIAL STATEMENTS AND
                                SUPPLEMENTAL DATA

      Information  required  by  this item appears in the  Consolidated  Audited
Financial Statements and Auditors Report for Arena for the year ending  December
31, 2002 as listed under Item 14.

                   Item 8 - CHANGES IN AND DISAGREEMENTS WITH
               ACCOUNTANTS AND ACCOUNTING AND FINANCIAL DISCLOSURE

     None.


                                        17



                                    PART III

                   Item 9 - DIRECTORS, EXECUTIVE OFFICERS AND
                              SIGNIFICANT EMPLOYEES

      Following this table is a brief biographical description for each  of  the
management principals with a brief description of their business experience  and
present  relationship to Arena, together with all required relevant  disclosures
for  the  past  five  years.   Following the biographical  information  for  the
directors and officers is a remuneration table showing current compensation  and
following this table is a security ownership table showing security ownership of
the principal officers and directors, as well as those holding 5% or more of the
issued and outstanding stock.

      NAME             POSITION              CURRENT TERM OF OFFICE
Mr. Lloyd "Tim"  Director/CEO/President         Appointed in
    Rochford             ent                    Organizational Minutes
                                                - September, 2000.
                                                Will serve as director
                                                until first annual
                                                meeting, not yet set.
                                                Will serve as an
                                                officer without
                                                term/contract pursuant
                                                to leave of the Board
                                                of Directors.
  Mr. Stanley    Director/Treasurer/            Appointed in
     McCabe      Secretary/Accounting           Organizational Minutes
                      Officer                   - September, 2000.
                                                Will serve as director
                                                until first annual
                                                meeting, not yet set.
                                                Will serve as an
                                                officer without
                                                term/contract pursuant
                                                to leave of the Board
                                                of Directors.
  Mr. Charles          Director                 Appointed in
    Crawford                                    Organizational Minutes
                                                - September, 2000.
                                                Will serve as director
                                                until first annual
                                                meeting, not yet set.
  Mr. William     Vice President/CFO            Will serve as an
    "Randy"                                     officer without
   Broaddrick                                   term/contract pursuant
                                                to leave of the Board
                                                of Directors.
 Mr. Robert J.    Vice President of             Will serve as an
     Morley       Investor Relations            officer without
                                                term/contract pursuant
                                                to leave of the Board
                                                of Directors.



                                        18


BACKGROUND

MR. LLOYD "TIM" ROCHFORD - DIRECTOR/CEO/PRESIDENT
Age: 56

      Mr.  Rochford has been active as an individual consultant and entrepreneur
in the oil and gas industry since 1973.  In this capacity, he has primarily been
engaged  in  the  organization and funding of private oil and gas  drilling  and
completion  projects and ventures within the mid continent region of the  United
States.

      In  1989 Mr. Rochford was co-founder, director and CEO of a public company
known as Magnum Petroleum, Inc. ("Magnum") which is listed on the New York Stock
Exchange.  Subsequently, Magnum acquired Hunter Resources, Inc. in August, 1995.
Mr.  Rochford  served  as Chairman of the Board of the combined  companies  from
August, 1995 - June, 1997.  Since July, 1997, Mr. Rochford has primarily devoted
his time and efforts to individual oil and gas acquisition and development prior
to  his commitment to participate in Arena Resources.  In 1982, Mr. Rochford was
co-founder  of  Dana Niguel Bank, a publicly held California bank operation  and
served  as  a director until 1994.  Mr. Rochford attended various college  level
courses in business from 1967-1970 in California.

MR. STANLEY McCABE - DIRECTOR/SECRETARY/TREASURER
Age: 70

      From  1979  to  1995, Mr. McCabe was involved in Stanton Energy,  Inc.,  a
Tulsa,  Oklahoma natural resource company specializing in contract drilling  and
operation of oil and gas wells.  From 1990 to 1995, he was Chairman and  CEO  of
that  company.   In  1990,  Mr. McCabe also became a co-founder  and  subsequent
officer  and  director  of Magnum Petroleum, Inc., along with  Mr.  Rochford  as
previously discussed.  Subsequently, Mr. McCabe served as a director  of  Magnum
Hunter Resources, Inc., through December, 1996.  Since January, 1997, Mr. McCabe
has  been  involved as an independent investor and developer of  oil  and  other
natural resource companies.

      Mr.  McCabe  attended  college  courses at  the  University  of  Maryland,
primarily in business in 1961-1962.

MR. CHARLES CRAWFORD - DIRECTOR
Age: 50

      For  the  past  twenty-five years from 1975 to present, Mr.  Crawford  has
served  as an independent oil and gas exploration consultant to various  private
and  public oil and gas companies within the United States.  He has acted  as  a
consultant  to  such  firms  as  Texaco Corporation,  Phillips  Petroleum,  Mid-
Continent  and Energy as well as other regional and national companies primarily
acting in the mid-continent area.


                                        19


      Mr.  Crawford  is  not  presently affiliated with any  private  or  public
companies other that his participation on the board of directors with Arena.

      Mr. Crawford received a Masters Degree in geology from Miami University of
Ohio, in 1976.  Mr. Crawford will serve the company on an as needed basis as  an
outside director.

MR. WILLIAM "RANDY" BROADDRICK - VICE PRESIDENT/CFO
Age:  25

      From  1997  to  2000,  Mr. Broaddrick was employed with  Amoco  Production
Company,  performing  lease  revenue accounting and  state  production  tax  and
regulatory  reporting  functions.  During 2000, Mr. Broaddrick  became  employed
with  Duke  Energy Field Services    performing state production tax  functions.
During  2001,  Mr.  Broaddrick joined Arena as chief accountant  and,  effective
February 1, 2002, assumed responsibilities as Vice President and Chief Financial
Officer.

      Mr.  Broaddrick received a Bachelor's Degree in Accounting  from  Langston
University, through Oklahoma State University - Tulsa, in 1999.  Mr.  Broaddrick
is a Certified Public Accountant (CPA).

MR. ROBERT MORLEY - VICE PRESIDENT OF INVESTOR RELATIONS
Age:  56

      Mr. Morley graduated from California State University, Chico and taught at
the  secondary level prior to becoming a registered Principal in 1973 with North
Pacific  Securities,  Inc.   From 1985 to 1987,  Mr.  Morley  was  the  National
Marketing  Director  for Adaptive Communications Systems,  Inc.   From  1988  to
present  Mr.  Morley  has  been associated with Petro  Consultants,  Inc.  in  a
consulting capacity.  Mr. Morley is currently on the Board of Directors  and  is
Senior Vice-President of Marketing for Freedom Door Company, Inc.



                        Item 10 - EXECUTIVE COMPENSATION

     As of December 31, 2002, Mr. McCabe and Mr. Rochford are receiving a salary
of  $36,000/year each, Mr. Broaddrick receives a salary of $45,000/year and  Mr.
Morley  does not receive a salary.  Additionally, Mr. Broaddrick received  3,000
shares of Arena Resources, Inc. restricted stock as a bonus.

     As of January 1, 2003, the Company has adopted a non-qualified stock option
program for its officers, directors and employees.


                                        20



                   Item 11 - SECURITY OWNERSHIP OF MANAGEMENT
                          AND CERTAIN BENEFICIAL OWNERS

SHARES OWNED BY MANAGEMENT AND CERTAIN SECURITY HOLDERS

     The following table includes all shares issued to a director, officer or 5%
or  greater shareholder.  There are no created or issued stock options or  other
stock rights in Arena as of December 31, 2002:

  Title or       Name of Owner     Amount Owned   Percent
    Class                                         of Class

Common Stock   Lloyd T. Rochford     1,287,500      20%
Common Stock    Stanley McCabe       1,138,000      18%
Common Stock     Robert Morley        136,340        2%
Common Stock      William R.           4,500         0%
                  Broaddrick
                      All            2,566,340      40%
              Officers/Directors
                  as a group

      As of February 4, 2003, in addition to the management shares listed above,
Arena has approximately 409 public shareholders.

     Item 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

      There are certain transactions related to Arena which are not deemed to be
"arms-length" transactions.  That is, the parties on both sides of the  contract
or  agreement  have  substantial relationships or common  interests.   All  such
material transactions are believed to be disclosed in this section.

      1.   The initial capital assets contributed to Arena were supplied by  its
two initial shareholders.  In contributing these assets there was no independent
board of directors or shareholders to determine the reasonable valuation of  the
cash,  oil  and gas properties and related interest for the share hold  interest
obtained  by  the founders and initial shareholders.  For the initial  1,300,000
shares acquired by both Mr. McCabe and Mr. Rochford, each contributed $33,695 in
cash and a carried working interest obligation worth approximately $134,000.  Of
the  cash contributed, $61,174 was employed to acquire the three initial leases.
The contributed cash increased both shareholders' equity in Arena. The estimated
future  development  costs  to  Messrs. McCabe and  Rochford  of  $134,000  were
estimated  by independent engineers and have been accounted for as an  estimated
receivable  from  stockholders in the accompanying financial statements.   Total
actual costs incurred in relation to the carried working interest were $121,274.
The remaining $12,726 was closed against additional paid in capital.

      During  the  year the Company borrowed $400,000 from two of its  officers.
The  related  notes  payable  bear interest at 10% per  annum  payable  monthly.
Principal and accrued interest were due December 31, 2002. The notes are secured
by all mineral interest, rights and equipment. On December 30, 2002, the Company
and the officers agreed to an 18 month extension to the notes payable, extending
the  maturity date to June 30, 2004.  All other terms of the notes remained  the
same.



                                        21


      During  the year the Company issued common shares to a potentially related
party,  Petro Consultants, Inc ("Petro").  On April 26, 2002, the Company issued
25,000 shares of restricted common stock to Petro as a finders fee relating to a
property  acquisition.  The company valued these shares at $2.50 per  share,  or
$62,500.  On May 20, 2002, the Company issued 70,000 shares of restricted common
stock  to Petro in what was recognized as a financing agreement for the drilling
of  a  well.  These shares were valued at $1.26 per share, or $88,200.  On  July
16,  2002, the Company issued 25,000 shares of restricted common stock to  Petro
as  a  finders fee relating to a property acquisition.  The company valued these
shares at $4.00 per share, or $100,000.

                        Item 13 - CONTROL AND PROCEDURES

      The  Company  maintains controls and procedures designed  to  ensure  that
information  required to be disclosed in the reports that the Company  files  or
submits  under  the  Securities  Exchange Act of 1934  is  recorded,  processed,
summarized and reported within the time periods specified in the rules and forms
of  the Securities and Exchange Commission. Based upon their evaluation of those
controls  and  procedures performed within 90 days of the filing  date  of  this
report, the chief executive officer and the principal financial officer  of  the
Company  concluded  that the Company's disclosure controls and  procedures  were
adequate.

Changes  in internal controls - The Company made no significant changes  in  its
internal  controls  or  in other factors that could significantly  affect  these
controls subsequent to the date of the evaluation of those controls by the chief
executive officer and principal financial officer.

     As of February 1, 2003, the Company expanded the Board of Directors to five
members, adding Robert J. Morley and Chris V. Kemendo, Jr., CPA (retired).

     Also as of February 1, 2003, the Company established an audit committee and
adopted an audit committee charter.  Charles Crawford and Chris V. Kemendo, Jr.,
CPA  (retired)  are  the  directors elected to the audit  committee.   Chris  V.
Kemendo, Jr., CPA (retired) satisfies the requirements for a financial expert on
the audit committee.




                                 Part IV

               Item 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
                            AND REPORTS ON FORM  8-K

1.     Financial Statements:   See attached Index to  Financial Statements,
       Financial Statement and Supplemental Information as referenced in Part
       II, Item 7.

2.     Reports on Form 8-K:  None

3.     Exhibit Index:

       3.1  Articles of Incorporation of Registrant. Earlier filed and
            incorporated as part of SB-1 Registration Statement.

       3.2  By-Laws of Registrant.  Earlier filed and incorporated as part
            of SB-1 Registration Statement.

      10.1  Acquisition Documents for Mineral Lease - Ona Morrow Unit. Earlier
            filed and incorporated as part of the 2nd Quarter 10-Q

      10.2  Acquisition Documents for Mineral Lease - Eva South Unit

      10.3  Acquisition Documents for Mineral Lease - Midwell Properties

      10.4  Acquisition Documents for Mineral Lease - Koehn Lease

      10.5  Promissory Note for credit facility

      99.1  Certifications pursuant to 18 U.S.C. Section 1350, as adopted
            pursuant to Section 906 of the Sarbanes-Oxley Act of 2002



                                        22




                                   SIGNATURES

     Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
behalf by the undersigned, thereunto duly authorized.


                                   REGISTRANT:


                                   ARENA RESOURCES, INC.


Date:     March 5, 2003            By: /s/ Lloyd T. Rochford
                                   ---------------------------------
                                   Mr. Lloyd T. Rochford, President,
                                   Chief Executive Officer


Date:     March 5, 2003            By: /s/ Stanley McCabe
                                   ---------------------------------
                                   Mr. Stanley McCabe
                                   Treasurer, Secretary


Date:     March 5, 2003            By: /s/ William R. Broaddrick
                                   ---------------------------------
                                   Mr. William R. Broaddrick
                                   Chief Financial Officer


     Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.


Date:     March 5, 2003            By: /s/ Lloyd T. Rochford
                                   ---------------------------------
                                   Mr. Lloyd T. Rochford,
                                   President/Director


Date:     March 5, 2003            By: /s/ Stanley McCabe
                                   ---------------------------------
                                   Mr. Stanley McCabe
                                   Director


Date:     March 5, 2003            By: /s/ Charles Crawford
                                   ---------------------------------
                                   Mr. Charles Crawford
                                   Director



                                        23



                             Attachment A

                 Form of Certification for Form 10-KSB

                            CERTIFICATIONS

I, Lloyd T. Rochford, certify that:

     1.   I have reviewed this annual report on Form 10-KSB of Arena
Resources, Inc.;

     2.   Based on my knowledge, this annual report does not contain
          any untrue statement of a material fact necessary to make
          the statements made, in light of the circumstances under
          which such statements were made, not misleading with respect
          to the period covered by this annual report;

     3.   Based on my knowledge, the financial statements, and other
          financial information included in this annual report, fairly
          present in all material respects the financial condition,
          results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;

     4.   The registrant's other certifying officers and I are
          responsible for establishing and maintaining disclosure
          controls and procedures (as defined in Exchange Act Rules
          13a-14 and 15d-14) for the registrant and we have:

          a)   designed such disclosure controls and procedures to ensure that
             material information relating to the registrant, including its
             consolidated subsidiaries, is made known to us by others within
             those entities, particularly during the period in which this annual
             report is being prepared;

          b)   evaluated the effectiveness of the registrant's disclosure
             controls and procedures as of a date within 90 days prior to the
             filing date of this annual report (the "Evaluation Date"); and

          c)   presented in this annual report our conclusions about the
             effectiveness of the disclosure controls and procedures based on
             our evaluation as of the Evaluation Date;

         5.   The registrant's other certifying officers and I have
          disclosed, base on our most recent evaluation, to the
          registrant's auditors and the audit committee of
          registrant's board of directors (or persons performing the
          equivalent function):

          a)   all significant deficiencies in the design or operation of
             internal controls which could adversely affect the registrant's
             ability to record, process, summarize and report financial data
             and have identified for the registrant's auditors any material
             weaknesses in internal controls; and

          b)   any fraud, whether or not material, that involves management or
             other employees who have a significant role in the registrant's
             internal controls; and

     6.   The registrant's other certifying officers and I have indicated
          in this annual report whether or not there were significant changes in
          internal controls or in other factors that could significantly affect
          internal controls subsequent to the date of our most recent
          evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.


Date:  March 5, 2003

/s/  Lloyd T. Rochford
_____________________________________
Lloyd T. Rochford
Chief Executive Officer


                                 24



                             Attachment A

                 Form of Certification for Form 10-KSB

                            CERTIFICATIONS

I, William R. Broaddrick, certify that:

     1.   I have reviewed this annual report on Form 10-KSB of Arena
Resources, Inc.;

     2.   Based on my knowledge, this annual report does not contain
          any untrue statement of a material fact necessary to make
          the statements made, in light of the circumstances under
          which such statements were made, not misleading with respect
          to the period covered by this annual report;

     3.   Based on my knowledge, the financial statements, and other
          financial information included in this annual report, fairly
          present in all material respects the financial condition,
          results of operations and cash flows of the registrant as
          of, and for, the periods presented in this annual report;

     4.   The registrant's other certifying officers and I are
          responsible for establishing and maintaining disclosure
          controls and procedures (as defined in Exchange Act Rules
          13a-14 and 15d-14) for the registrant and we have:

          d)   designed such disclosure controls and procedures to ensure that
             material information relating to the registrant, including its
             consolidated subsidiaries, is made known to us by others within
             those entities, particularly during the period in which this annual
             report is being prepared;

          e)   evaluated the effectiveness of the registrant's disclosure
             controls and procedures as of a date within 90 days prior to the
             filing date of this annual report (the "Evaluation Date"); and

          f)   presented in this annual report our conclusions about the
             effectiveness of the disclosure controls and procedures based on
             our evaluation as of the Evaluation Date;

         5.   The registrant's other certifying officers and I have
          disclosed, base on our most recent evaluation, to the
          registrant's auditors and the audit committee of
          registrant's board of directors (or persons performing the
          equivalent function):

          c)   all significant deficiencies in the design or operation of
             internal controls which could adversely affect the registrant's
             ability to record, process, summarize and report financial data
             and have identified for the registrant's auditors any material
             weaknesses in internal controls; and

          d)   any fraud, whether or not material, that involves management or
             other employees who have a significant role in the registrant's
             internal controls; and

     6.   The registrant's other certifying officers and I have indicated
          in this annual report whether or not there were significant changes
          in internal controls or in other factors that could significantly
          affect internal controls subsequent to the date of our most recent
          evaluation, including any corrective actions with regard to
          significant deficiencies and material weaknesses.


Date:  March 5, 2003

/s/  William R. Broaddrick
_____________________________________
William R. Broaddrick
Chief Financial Officer


                                        25









                              ARENA RESOURCES, INC.

                          INDEX TO FINANCIAL STATEMENTS


                                                                  Page
                                                                  ----

Report of Independent Certified Public Accountants                 F-2

Balance Sheets - December 31, 2002 and 2001                        F-3

Statements of Operations for the Years Ended December 31,
2002 and 2001                                                      F-4

Statements of Stockholders' Equity for the Years Ended
December 31, 2001 and 2002                                         F-5

Statements of Cash Flows for the Years Ended December 31,
 2002 and 2001                                                     F-6

Notes to Financial Statements                                      F-8

Supplemental Information on Oil and Gas Producing
Activities                                                         F-16


                                F-1



HANSEN, BARNETT & MAXWELL                         (801) 532-2200
A Professional Corporation                      Fax (801) 532-7944
CERTIFIED PUBLIC ACCOUNTANTS                5 Triad Center, Suite 750
                                         Salt Lake City, Utah 84180-1128
Member of AICPA SEC Practice Section             www.hbmcpas.com
Member of Baker Tilly International


               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS


To the Board of Directors and the Stockholders
Arena Resources, Inc.

We  have audited the accompanying balance sheets of Arena Resources, Inc. as of
December  31,  2002  and  2001,  and  the  related  statements  of  operations,
stockholders' equity, and cash flows for the years then ended. These  financial
statements   are   the   responsibility  of  the  Company's   management.   Our
responsibility is to express an opinion on these financial statements based  on
our audits.

We  conducted  our  audits  in  accordance with  auditing  standards  generally
accepted in the United States of America. Those standards require that we  plan
and  perform  the  audits  to  obtain reasonable assurance  about  whether  the
financial  statements  are  free of material misstatement.  An  audit  includes
examining, on a test basis, evidence supporting the amounts and disclosures  in
the  financial  statements.  An audit also includes  assessing  the  accounting
principles  used  and  significant estimates made by  management,  as  well  as
evaluating  the overall financial statement presentation. We believe  that  our
audits provide a reasonable basis for our opinion.

In  our opinion, the financial statements referred to above present fairly,  in
all  material respects, the financial position of Arena Resources, Inc.  as  of
December  31,  2002 and 2001, and the results of its operations  and  its  cash
flows  for  the  years  then  ended in conformity  with  accounting  principles
generally accepted in the United States of America.



                                   /s/   HANSEN, BARNETT & MAXWELL

Salt Lake City, Utah
January 24, 2003


                                F-2



                    ARENA RESOURCES, INC.
                        BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                     December 31,
                                                               --------------------------
                                                                   2002          2001
                                                               -----------    -----------
<S>                                                           <C>            <C>
ASSETS

Current Assets
 Cash                                                          $   796,915    $   444,564
  Account receivable                                               269,436         33,733
 Subscription receivable                                           157,500              -
 Prepaid expenses                                                    1,128            906
                                                               -----------    -----------
 Total Current Assets                                            1,224,979        479,203
                                                               -----------    -----------

Property and Equipment, Using Full Cost Accounting
 Office equipment                                                   14,672          7,078
 Equipment                                                          21,794              -
 Oil and gas properties subject to amortization                  4,884,804      1,645,819
 Less:  Accumulated depreciation, depletion and amortization      (172,258)       (44,411)
                                                               -----------    -----------
 Net Property and Equipment                                      4,749,012      1,608,486
                                                               -----------    -----------
Long-Term Deposits                                                  76,502         50,000
                                                               -----------    -----------

Total Assets                                                   $ 6,050,493    $ 2,137,689
                                                               ===========    ===========

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities
 Accounts payable                                              $   173,174    $    40,576
 Accrued liabilities                                                     -          5,015
 Notes payable                                                           -         18,000
 Accrued preferred dividends                                       114,685         36,144
                                                               -----------    -----------
 Total Current Liabilities                                         287,859         99,735
                                                               -----------    -----------

Long-Term Liabilities
 Put option                                                         50,604              -
 Notes payable to officers                                         400,000              -
 Deferred income taxes                                             187,193              -
                                                               -----------    -----------
 Total Long-Term Liabilities                                       637,797              -
                                                               -----------    -----------

Stockholders' Equity
 Preferred stock - $0.001 par value; 10,000,000 shares
  authorized; zero shares and 857,573 shares outstanding,
  respectively                                                           -      1,274,021
 Common stock - par value $0.001 per share; 100,000,000
  shares authorized; 6,282,056 shares and 3,604,500 shares
  outstanding, respectively                                          6,282          3,605
 Additional paid-in capital                                      5,287,189        817,811
 Options and warrants outstanding                                  382,040        103,600
 Receivable from preferred stockholder                                   -         (5,733)
 Accumulated deficit                                              (550,674)      (155,350)
                                                               -----------    -----------
 Total Stockholders' Equity                                      5,124,837      2,037,954
                                                               -----------    -----------

Total Liabilities and Stockholders' Equity                     $ 6,050,493    $ 2,137,689
                                                               ===========    ===========

</TABLE>

The accompanying notes are an integral part of these financial statements.

                                        F-3



                   ARENA RESOURCES, INC.
                  STATEMENTS OF OPERATIONS

                                                         For the Years Ended
                                                             December 31,
                                                        -----------------------
                                                           2002         2001
                                                        ----------   ----------

Oil and Gas Revenues                                    $1,657,037   $  311,733

Costs and Operating Expenses
 Oil and gas production costs                              594,863      106,927
 Oil and gas production taxes                              117,164       14,797
 Depreciation, depletion and amortization expense          127,847       44,148
 General and administrative expense                        248,018      119,696
 Non-cash services contributed by majority shareholders          -        8,000
                                                        ----------   ----------
  Total Costs and Operating Expenses                     1,087,892      293,568
                                                        ----------   ----------

Other Income (Expense)
 Interest expense                                          (15,923)           -
 Gain from change in fair value of put options              36,665            -
                                                        ----------   ----------
  Net Other Income                                          20,742            -
                                                        ----------   ----------

Income Before Provision for Income Taxes                   589,887       18,165

Provision for Deferred Income Taxes                        187,193            -
                                                        ----------   ----------
Net Income                                                 402,694       18,165

Preferred Stock Dividends                                  798,018       63,092
                                                        ----------   ----------

Loss Attributable to Common Shareholders                $ (395,324)  $  (44,927)
                                                        ==========   ==========

Basic and Diluted Loss Per Common Share                 $    (0.09)  $    (0.01)
                                                        ==========   ==========

Weighted-Average Common Shares Outstanding              $4,556,921   $3,367,774
                                                        ==========   ==========


The accompanying notes are an integral part of these financial statements.

                                        F-4



                                   ARENA RESOURCES, INC.
                           STATEMENTS OF STOCKHOLDERS' EQUITY

<TABLE>
<CAPTION>


                            Preferred Stock          Common Stock      Additional  Options and  Receivable                Total
                        ----------------------  ----------------------   Paid-in    Warrants      from    Accumulated Stockholders'
                          Shares      Amount      Shares      Amount     Capital   Outstanding Shareholders  Deficit      Equity
                        ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------
<S>                    <C>         <C>         <C>         <C>         <C>         <C>         <C.         <C>         <C>

Balance December 31, 2000        -  $        -   2,600,000  $    2,600  $  298,789  $        -  $ (134,000) $ (110,423) $   56,966

Issuance for cash                -           -     800,000         800     147,703           -           -           -     148,503
Fair value of services
 and office space
 contributed by officers         -           -           -           -      25,000           -           -           -      25,000
Settlement of shareholder
 receivable                      -           -           -           -     (12,726)          -     134,000           -     121,274
Issuance in conversion of
 notes payable                   -           -      37,143          37      64,963           -           -           -      65,000
Issuance for partial working
 interest in properties          -           -     161,857         162     283,088           -           -           -     283,250
Issuance for services in
 acquisition of properties       -           -       2,500           3       4,997           -           -           -       5,000
Issuance for services            -           -       3,000           3       5,997           -           -           -       6,000
Issuance for cash          857,573   1,274,021           -           -           -     103,600      (5,733)          -   1,371,888
Preferred stock cash
 dividends accrued               -           -           -           -           -           -           -     (63,092)    (63,092)
Net Income                       -           -           -           -           -           -           -      18,165      18,165
                        ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------

Balance December
 31, 2001                  857,573   1,274,021   3,604,500       3,605     817,811     103,600      (5,733)   (155,350)  2,037,954

Issuance for cash        1,028,786   1,214,582           -           -     114,402     254,889           -           -   1,583,873
Issuance for cash to a
 related party                   -           -      70,000          70      88,130           -           -           -      88,200
Issuance for property
 acquisitions                    -           -     149,885         150     525,260           -           -           -     525,410
Preferred stock beneficial
 conversion dividends            -     114,402           -           -           -           -           -    (114,402)          -
Preferred stock cash
 dividends accrued               -           -           -           -           -           -           -    (274,589)   (274,589)
Preferred stock dividends
 paid with common stock          -           -     199,526         199     408,828           -           -    (409,027)          -
Conversion of preferred
 stock to common stock  (1,886,359) (2,603,005)  1,886,359       1,886   2,601,119           -           -           -           -
Issuance upon exercise
 of warrants                     -           -      74,786          75     215,565     (84,764)          -           -     130,876
Issuance for cash                -           -     286,000         286     493,535     108,315           -           -     602,136
Issuance for services            -           -      11,000          11      22,539           -           -           -      22,550
Collection of receivable
 from shareholder                -           -           -           -           -           -       5,733           -       5,733
Net Income                       -           -           -           -           -           -           -     402,694     402,694
                        ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------  ----------

Balance December
 31, 2002                        -  $        -   6,282,056  $    6,282  $5,287,189  $  382,040  $        -  $ (550,674) $5,124,837
                        ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========  ==========

</TABLE>

    The accompanying notes are an integral part of these financial statements.

                                        F-5



                                    ARENA RESOURCES, INC.
                                  STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
                                                                   For the Years Ended
                                                                    December 31,
                                                                       2002         2001
                                                                    ----------   ----------
<S>                                                                <C>          <C>
Cash Flows From Operating Activities
  Net income                                                        $  402,694   $   18,165
  Adjustments to reconcile net income to net cash
    provided by operating activities:
      Services and use of office space contributed by officers             -          8,000
      Shares issued for services                                        22,550        6,000
      Depreciation, depletion and amortization                         127,847       44,148
      Gain from change in fair value of put option                     (36,665)         -
      Changes in assets and liabilities:
          Accounts receivable                                         (258,730)     (33,733)
          Prepaid expenses                                                (222)        (906)
          Interest capitalized on certificates of deposit               (1,502)         -
          Accounts payable and accrued liabilities                     127,583       42,349
          Deferred income tax payable                                  187,193          -
                                                                    ----------   ----------
  Net Cash Provided by Operating Activities                            570,748       84,023
                                                                    ----------   ----------
Cash Flows from Investing Activities
  Purchase of oil and gas properties                                (2,603,279)  (1,035,620)
  Proceeds from sale of equipment                                          -         20,500
  Purchase of office equipment                                          (7,594)      (7,078)
  Purchase of plant & equipment                                        (21,794)         -
  Increase in long-term deposits                                       (25,000)     (50,000)
  Advance to unrelated party                                               -        (30,000)
  Collection of advance to unrelated party                                 -         30,000
                                                                    ----------   ----------
  Net Cash Used in Investing Activities                             (2,657,667)  (1,072,198)
                                                                    ----------   ----------
Cash Flows From Financing Activities
  Proceeds from issuance of common stock, net of offering costs        532,836      154,470
  Proceeds from issuance of preferred stock, net of offering costs   1,589,606    1,371,888
  Proceeds from issuance of loan payable to stockholders                   -         20,000
  Proceeds from warrant exercise                                       130,876            -
  Proceeds from issuance of note payables                              400,000            -
  Payment of loan from stockholders                                        -        (45,000)
  Payment on note payable                                              (18,000)     (60,000)
  Payment of dividends to preferred stockholders                      (196,048)     (26,948)
                                                                    ----------   ----------
  Net Cash Provided by Financing Activities                          2,439,270    1,414,410
                                                                    ----------   ----------
Net Increase in Cash                                                   352,351      426,235

Cash at Beginning of Period                                            444,564       18,329
                                                                    ----------   ----------
Cash at End of Period                                               $  796,915   $  444,564
                                                                    ==========   ==========
</TABLE>

  The accompanying notes are an integral part of these financial statements.

                                        F-6



                           ARENA RESOURCES, INC.
                    STATEMENTS OF CASH FLOWS (CONTINUED)

<TABLE>
<CAPTION>
                                                                     For the Years Ended
                                                                         December 31,
                                                                    -----------------------
                                                                       2002         2001
                                                                    ----------   ----------
<S>                                                                <C>          <C>

Supplemental Cash Flows Information
  Cash paid for interest                                            $   17,425   $      -

Supplemental Schedule of Noncash Investing and Financing Activities
  Accrual of preferred stock dividends                              $  274,589   $   63,092
  Common stock issued for oil and gas properties less call
    options granted                                                    525,410      283,500
  Receivable from shareholders related to stock offerings              157,500        5,733
  Preferred stock dividends paid with common stock                     409,027          -
  Beneficial conversion feature on convertible preferred stock         114,402          -
  Value of put option included in cost to acquire partial
    working interest in oil and gas propreties                          87,269          -
  Settlement of receivable for partial working interest
    in oil and gas property                                             23,027          -
  Note payable issued for oil and gas properties                           -        143,000
  Common stock issued for services related to property acquisition         -          5,000
  Settlement of esimated receivable from stockholder by
    stockholder's payments of developments costs                           -        121,274
  Elimination of remaining estimated receivable from
    stockholder against additional paid-in capital                         -         12,726
  Services contributed by officers and capitalized as
    development costs                                                      -         17,000

</TABLE>


        See accompanying notes to audited condensed financial statements.

                                        F-7




                      ARENA RESOURCES, INC.
                  NOTES TO FINANCIAL STATEMENTS
                    DECEMBER 31, 2002 AND 2001



NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Nature of Operations - Arena Resources, Inc. (the "Company")
began operations as an unincorporated joint venture on March 3, 2000. On August
31, 2000, the joint venture was incorporated under the laws of the State of
Nevada.

The Company owns interests in oil and gas properties located in Oklahoma, Texas
and Kansas. The Company is engaged primarily in the acquisition, exploration and
development of oil and gas properties and the production and sale of oil and
gas.

Use of Estimates - The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.

Financial Instruments and Cash Equivalents - The Company's financial instruments
consist of cash equivalents and notes payable to officers.  The carrying value
of these financial instruments approximates fair value because they bear
interest at rates which approximate market rates. Cash and cash equivalents
include investments in highly-liquid debt instruments with an original maturity
of three months or less. The Company has deposits with a bank that are $718,580
in excess of federally insured limits at December 31, 2002. Certificates of
deposit totaling $76,502 are classified as long-term deposits as they are
assigned as collateral under long-term standby letters of credit.

Held to Maturity Investments - The Company is required to maintain a $50,000
certificate of deposit at a federally insured institution in order to do
business in the state of Texas.  The maturity date of the investment is July
2003.  The Company is also required to maintain a $25,000 certificate of deposit
at a federally institution in order to do business in the state of Oklahoma.
The maturity date of the investment is April 2004. The Company intends to
maintain these investments for a long duration; accordingly, the investments
have been classified as long-term deposits in the accompanying balance sheet.

Oil and Gas Properties - The Company uses the full cost method of accounting for
oil and gas properties.  Under this method, all costs associated with
acquisition, exploration, and development of oil and gas properties are
capitalized.  Costs capitalized include acquisition costs, geological and
geophysical expenditures, lease rentals on undeveloped properties and costs of
drilling and equipping productive and non-productive wells.  Drilling costs
include directly related overhead costs.  Capitalized costs are categorized
either as being subject to amortization or not subject to amortization.

All capitalized costs of oil and gas properties, including the estimated future
costs to develop proved reserves and estimated future costs of site restoration,
are amortized on the unit-of-production method using estimates of proved
reserves as determined by independent engineers.  Investments in unproved
properties and major development projects are not amortized until proved
reserves associated with the projects can be determined or until impairment
occurs.  If the results of an assessment indicate that the properties are
impaired, the amount of the impairment is added to the capitalized costs to be
amortized.  Depletion and amortization expense for the year ended December 31,
2002, was $124,391, based on depletion at the rate of $1.84 per barrel of oil
and for the year ended December 31, 2001, was $43,818, based on depletion at the
rate of $2.57 per barrel of oil.


                                F-8


In addition, capitalized costs are subject to a "ceiling test," which limits
such costs to the aggregate of the "estimated present value," discounted at a
10-percent interest rate of future net revenues from proved reserves, based on
current economic and operating conditions, plus the lower of cost or fair market
value of unproved properties.

Property and Equipment - Depreciation of equipment is computed using the
straight-line method over the estimated useful life of the asset which is
currently seven years. Depreciation expense was $3,456 and $330 for the years
ended December 31, 2002 and 2001, respectively.

Income Taxes - Provisions for income taxes are based on taxes payable or
refundable for the current year and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and between the
tax bases of assets and liabilities and their reported amounts in the financial
statements. Deferred tax assets and liabilities are included in the financial
statements at currently enacted income tax rates applicable to the period in
which the deferred tax assets and liabilities are expected to be realized or
settled. As changes in tax laws or rate are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.

Basic and Diluted Loss Per Share - Basic income (loss) per common share is
computed by dividing loss attributable to common shareholders by the weighted-
average number of common shares outstanding during the period.  Diluted loss per
share is calculated to give effect to potentially issuable common shares except
during loss periods when those potentially issuable common shares would decrease
loss per common share. There were 857,573 shares of Class A preferred stock
outstanding at December 31, 2001 that were excluded from the calculation of
diluted loss per common share during the year ended December 31, 2001 because
they were anti-dilutive. There were 221,200 warrants outstanding at December 31,
2002 that were excluded from the calculation of diluted loss per common share
during the year ended December 31, 2002 because they were anti-dilutive.

Major Customers - During the year ended December 31, 2002 sales to a customer
represented 34% of total sales, sales to another customer represented 32% and
sales to another customer represented 30%.  At December 31, 2002, these three
customers made up 19%, 36% and 20% of accounts receivable, respectively.

Reclassifications - The presentation of certain 2001 amounts have been
reclassified to conform with the presentation of the 2002 financial statements.

Recent Accounting Pronouncements - In August 2001, the FASB issued SFAS No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets."  SFAS No. 144
establishes a single accounting model for long-lived assets to be disposed of by
sale and the recognition of impairment of long-lived assets to be held and used.
The Company implemented SFAS No. 144 effective January 1, 2002.  The adoption of
this standard has had no material effect on the Company's financial position or
results of operations.

In April 2002, the FASB issued SFAS No. 145, "Rescission of FASB Statements No.
4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections."
Among other provisions, the statement modifies the criteria classification of
gains and losses on debt extinguishments such that they are not required to be
classified as extraordinary items if they do not meet the criteria for
classification as extraordinary items in APB Opinion No. 30.  The Company
elected to adopt this standard during the year ended December 31, 2002 and has
had no material effect on the Company's financial position or results of
operations.


                                        F-9


In July 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal activities."  The statement requires companies to
recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan.
Examples of costs covered by the standard include lease termination costs and
certain employee plan severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.  The
Company will be required to apply this statement prospectively for any exit or
disposal activities initiated after December 31, 2002.  The adoption of this
standard is not expected to have a material effect on the Company's financial
position or results of operations.

In December 2002, the FASB issued Statement No. 148, "Accounting for Stock-Based
Compensation-Transition and Disclosure."  This statement amends Statement No.
123, Accounting for Stock-Based Compensation, to provide alternative methods of
transition for an entity that voluntarily changes to the fair value method of
accounting for stock-based employee compensation.  It also amends the disclosure
provisions of Statement No. 123 to require prominent disclosure about the
effects on reported net income of an entity's accounting policy decisions with
respect to stock-based employee compensation.  Statement No. 148 also requires
disclosure about those effects in interim financial information.  The Company
will adopt the disclosure requirements of Statement No. 148 beginning with its
quarter ended March 31, 2003.

NOTE 2 - ACQUISITION OF OIL AND GAS PROPERTIES

Casey - Upon incorporation, certain property interests were transferred to the
Company by its founders.  These interests included a 40% working interest in
certain gas properties in Oklahoma. In May 2001, the Company acquired an
additional 30% working interest in the gas properties from a third party.  The
additional working interest was valued at $300,000 and was acquired by the
issuance of 80,000 shares of common stock valued at $1.75 per share totaling
$140,000, the assumption and payment of $50,000 in obligations of the seller and
the issuance of two notes payable totaling $110,000.  The $65,000 note was due
in 90 days with the remaining balance of $45,000 due in 120 days.  The notes
bore no interest and imputed interest on the notes was not material due to their
short term. The $50,000 liability transferred from the seller related to the
seller's previous obligation with the operator of the properties and was paid in
May 2001.  During 2001, the Company paid $45,000 of principal on notes and
issued 37,143 shares of common stock at $1.75 per share in settlement of the
remaining $65,000 of principal of the note.  The value of the stock was based on
its market value at the date of the settlement and resulted in no gain or loss
on the settlement of the note payable.

In October 2001, the Company acquired an additional 24% working interest and a
2.5% overriding royalty interest in the gas properties in Oklahoma.  The total
purchase price was $266,250.  The consideration provided by the Company consists
of 81,857 shares of common stock valued at $143,250 or $1.75 per share; $90,000
paid in cash; and a $33,000 note payable due on December 31, 2001, without
interest. The value of the stock was based on its market value on the date
issued. As of December 31, 2001 Arena had paid $15,000 towards the balance of
the note leaving a remaining balance of $18,000 payable at December 31, 2001
which was paid during 2002.

Y6 Property - During July 2001, the Company completed the acquisition of a 100%
working interest (80% net revenue interest) in oil and gas properties located in
Texas.  Though the acquisition didn't close until July, the effective date of
this agreement was June 1, 2001 and the Company became responsible for operating
costs for June's production and was entitled to June's production revenues.  The
working interest was valued at $750,000 and was purchased with a $750,000 cash
payment.  The funds were derived from the private placement offering of the
Company's Class A preferred stock.


                                        F-10


Koehn Property - On March 12, 2002, the Company entered into a farm out
agreement relating to certain oil and gas property in Haskell and Gray Counties,
Kansas referred to as the Koehn Property. Under the terms of the agreement, the
Company agreed to drill one well and could drill additional wells on the
property. In exchange for each well drilled, the Company will be assigned 100%
of the working interest (80% of the net revenue interest) in the well and
related oil and gas until payout of all costs of drilling, equipping, completing
and operating the well. After payout, the Company's working interest in the
wells and related oil and gas will decrease to 75% (60% of the net revenue
interest). The Company successfully drilled one well at a cost of approximately
$127,000. The well found proved gas reserves but is currently shut-in pending a
pipeline connection.

On March 20, 2002, the Company entered into an agreement with Petro Consultants,
Inc. ("Petro"), a related-party shareholder of the Company, that created a joint
venture between the two companies to drill and operate the well on the above-
mentioned property. Under the terms of the agreement, Petro purchased 27% of the
working interest in the well for $88,200. On May 20, 2002, after the well was
successfully drilled, the Company issued 70,000 shares of common stock to Petro
to repurchase the 27% working interest in the well. The transactions with Petro
have been recognized as a financing arrangement and have been accounted for as
the issuance of 70,000 shares of common stock for $88,200 in cash, or $1.26 per
share, without other rights to the property.

Dodson - On April 26, 2002, the Company purchased a working interest in a
mineral lease located in Montague County, Texas in exchange for a cash payment
of $200,000. In addition, the Company issued 25,000 shares of common stock to
Petro as a finder's fee, valued at $2.50 per share, or $62,500, based on the
market value of the common stock on the date issued. The finder's fee was
capitalized as a cost of the mineral lease.

Ona Morrow - On June 18, 2002, the Company purchased a working interest in a
mineral lease located in Texas County, Oklahoma for a cash payment of $735,000.

Eva South - On July 16, 2002, the Company purchased a working interest in a
mineral lease located in Texas County, Oklahoma in exchange for a cash payment
of $827,500. In addition, the Company issued 25,000 shares of common stock to
Petro as a finder's fee, valued at $4.00 per share, or $100,000, based on the
market value of the common stock on the date issued. The finder's fee was
capitalized as a cost of the mineral lease.

Midwell - On August 23, 2002, the Company entered into an agreement to purchase
a working interest in mineral leases located in Cimarron County, Oklahoma. The
cost of mineral interests acquired was $550,179 with the consideration given
consisting of a cash payment of $100,000, the issuance of 99,885 shares of
common stock valued at $399,540 or $4.00 per share based on the market value of
the common stock on the date issued, the issuance of a put option to the seller
valued at $87,269, less a call option received from the seller valued at
$36,630.

Under the terms of the put option, the seller has the right on September 1, 2004
to require the Company to repurchase the 99,885 common shares at $4.00 per
share. The issuance of the put option was recorded as a liability based on the
holder's ability to require the Company to pay cash to redeem the common stock
and was recorded at its fair value of $87,269 on the date issued.  The fair
value of the put option was computed using the Black-Scholes option pricing
model with the following assumptions: 2.2% risk-free interest rate; 43% expected
volatility; two years expected life and 0% dividend yield. The put is derivative
and as such, the liability will be revalued to its fair value at each balance


                                        F-11


sheet date with adjustments to fair value being charged or credited to
operations. At December 31, 2002 the liability was revalued to its fair value of
$50,604 calculated using the Black-Scholes option pricing model with the
following assumptions: 1.8% risk-free interest rate; 36% volatility; 1.7 year
expected life and 0% dividend yield.

The call option received by the Company granted the Company the option to
repurchase 50,000 of the common shares at $5.00 per shares from the date issued
through September 11, 2004. The call option is exercisable at the Company's
discretion and was therefore recorded as a reduction of additional paid-in
capital based on its fair value of $36,630 on the date received. The fair value
of the call option was determined using the Black-Scholes option pricing model
with the following assumptions: 2.2% risk-free interest rate; 43% expected
volatility; two year expected life and 0% dividend yield. The call option is
part of permanent equity and will not be revalued at any future date.

NOTE 3 - STOCKHOLDERS' EQUITY

The Company is authorized to issue 100,000,000 common shares, with a par value
of $0.001 per share, and 10,000,000 Class "A" convertible preferred shares, with
a par value of $0.001 per share.

Preferred Stock - From July through November 2001, the Company issued 857,573
shares of 10% Class A convertible preferred stock in a private placement
offering at $1.75 per share. The Company received gross proceeds of $1,500,753
before offering costs of $123,132. The placement agents received a cash
commission of 10% on shares they placed and warrants to purchase 59,200 shares
of common stock at $1.75 per share for a period of three years. The fair value
of the warrants was $103,600 and was accounted for as an additional offering
cost. Through December 31, 2001, gross proceeds received consisted of $1,495,020
in cash and $5,733 in a subscription agreement receivable from a shareholder.
During the year ended December 31, 2002, the Company collected $5,733 of
subscriptions receivable that were outstanding at December 31, 2001.

From January 1, 2002 through July 1, 2002, the Company issued an additional
1,028,786 shares of Class A convertible preferred stock at $1.75 per share under
the terms of the private placement offering and realized gross proceeds during
that period of $1,800,376 before cash offering costs of $216,503. Offering costs
included a 10% cash commission paid to the placement agents on shares they
placed. The private placement offering was closed on July 1, 2002. The Company
issued the placement agents warrants to purchase 236,786 shares of common stock
at $1.75 per share for a period of three years.  The Company valued the warrants
issued to the placement agents at $254,889 and accounted for the warrants as an
additional offering cost. The fair value of the warrants was determined using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: risk free interest rate of 3.4%, volatility of 47%, expected life
of 3 years and expected dividend yield of 0%. The Company has committed to
include the common shares underlying the warrants issued to the placement agents
during 2001 and 2002 in any registration statement filed with the U.S.
Securities and Exchange Commission during the three-year period from the date
the warrants were issued.

The Company determined that the issuance of Class A preferred stock issued in
2002 resulted in the related shareholders receiving a beneficial conversion
option at the dates the preferred stock was issued. This beneficial conversion
option was valued at $114,402 based on the difference between the effective


                                        F-12


conversion price and the market value of the Company's common stock on the dates
issued.  Since the preferred shares were immediately convertible into common
stock, the Company recognized the beneficial conversion option as preferred
stock dividends on the dates the preferred stock was issued.

The Class A preferred stock was convertible into common shares from the date of
issuance on a 1-for-1 ratio.  The Class A preferred shares were automatically
convertible into common shares if the price of the common shares was equal to or
greater than $4.00 for 20 consecutive days.  After one year, the Class A
preferred shares were redeemable by the Company, subject to a 30-day notice, at
$1.84 per share plus payment of any accrued dividends.  The Class A preferred
shares accrue dividends at the rate of $0.175 per share annually and are payable
quarterly.  The Class A preferred shares were non-voting and were entitled to
priority over the common shares in the payment of dividends and in liquidation.

On July 30, 2002, the Company's common stock was priced at or above $4.00 per
share for the twentieth consecutive day. Accordingly, the 1,886,359 shares of
Class "A" preferred stock were converted into 1,886,359 shares of common stock
on July 30, 2002.

During the year ended December 31, 2001, the Company accrued $63,092 in Class A
preferred stock dividends.  Of this amount, $26,948 was paid during 2001 and the
remaining $36,144 was paid during 2002. The provisions of the preferred stock
dictate that dividends will be paid up to the date of conversion or for one year
from the date of issuance, whichever is later; accordingly, the Company accrued
all remaining cash dividends that will be paid in connection with the Series A
preferred stock conversion on July 30, 2002. The total Series A preferred stock
2002 dividends payable in cash were $274,589. The Company paid $196,048 in
preferred dividends during the year ended December 31, 2002, of which $159,904
related to dividends accrued during 2002.

On October 1, 2002, the Company offered all former Class A preferred
shareholders additional restricted common shares equal to 10% of the common
issued upon conversion of the preferred stock, shares, in exchange for their
agreement and consent not to engage in any sales, assignments or rights related
to the common stock issued for a period of twelve months from the earliest date
the common stock could otherwise be traded under existing restricted stock
agreements or federal securities regulations. Under that offer, the Company
issued 181,387 common shares to the former Class A preferred shareholders. In
addition, the Company issued the placement agents 18,139 common shares as
compensation for obtaining relating to the lock up agreements. The Company
recognized the common shares issued as preferred stock dividends and valued them
at $409,027 or $2.05 per share based on the market value of the common stock on
the dates the offer was accepted.

Common Stock - The Company completed a public offering of 800,000 shares of
common stock on February 14, 2001 for $200,000 in cash, net of $51,497 of
offering costs.

During the year ended December 31, 2001, two officers/stockholders contributed
services to the Company with an estimated value of $25,000.  Of this amount,
$8,000 represents compensation expenses and $17,000 represents direct and
incremental costs of acquiring gas properties and was capitalized as part of oil
and gas properties.

During the year ended December 31, 2001, the Company issued a total of 5,500
shares of restricted common stock, valued at $11,000 based on a stock price of
$2.00, as payment for services. The Company capitalized as part of oil and gas
properties $5,000 and the remaining $6,000 was charged to expense.



                                        F-13


On August 22, 2002, the Company initiated a private placement offering of common
stock at $2.50 per share with a detachable warrant exercisable at $5.00 per
share through September 30, 2005. Through December 31, 2002, the Company had
issued 286,000 shares of common stock and warrants under the terms of the
private placement offering for gross proceeds of $715,000 before cash offering
costs of 112,864 and were allocated to the common stock issued and the warrants
based upon their relative fair value. Accordingly, $493,821 was allocated to the
286,000 shares of common stock, and $108,315 was allocated to the 286,000
warrants. Although the amount allocated to the warrants was less than their fair
value, the fair value of the warrants was $278,015 determined using the Black-
Scholes option pricing model with the following assumptions: risk free interest
rate of 1.8%, expected dividend yield of 0%, volatility of 36.5%, and expected
lives of 2.8 years.

During the year ended December 31, 2002, warrant holders exercised 74,786
warrants for the purchase of common stock for $130,876 or $1.75 per share.

NOTE 4 - RELATED PARTY TRANSACTIONS

A stockholder loaned the Company $20,000 in July 2001.  The loan was short-term
with no due date and no interest rate.  The loan was repaid in July 2001.

In March 2001, the Company paid $30,000 to a company that is related to the
Company through common management for the acquisition of an oil and gas lease.
Shortly after the payment had been made to the related party, the transaction
was negated and the oil and gas lease was not acquired.  The advance was repaid
to the Company in April 2001.

On July 1, 2002, the Board of Directors authorized the Company to borrow up to
$500,000 from its officers. On July 26, 2002, the Company borrowed $400,000 from
two of its officers.  The related notes payable bear interest at 10% per annum
payable monthly.  Principal and accrued interest were due December 31, 2002. The
notes are secured by all mineral interest, rights and equipment. On December 30,
2002, the Company and the officers agreed to an 18 month extension to the notes
payable, extending the maturity date to June 30, 2004.  All other terms of the
notes remained the same.

NOTE 5 - INCOME TAXES

The Company has paid no federal or state income taxes since its incorporation.
As of December 31, 2002, the Company had net operating loss carry forwards for
federal income tax reporting purposes of $209,559 which, if unused, will expire
in 2022. The principal temporary differences are from depletion related
deductions for intangible drilling costs deducted for income tax purposes but
capitalized for financial reporting purposes and net operating loss carry
forwards. The net deferred tax liability consisted of the following at December
31, 2002 and 2001:

                                                     2002          2001
                                                  ----------   ----------

     Deferred tax asset - operating loss
       carry forwards                             $   77,658   $   41,041
     Deferred tax asset valuation allowance                -      (10,667)
     Deferred tax liability - depletion             (264,851)     (30,374)
                                                  ----------   ----------
       Total Deferred Income Tax Assets           $ (187,193)  $        -
                                                  ==========   ==========



                                F-14


The following is a reconciliation of income taxes computed using the U.S.
federal statutory rate to the provision for income taxes for the years ended
December 31, 2002 and 2001:

                                                     2002         2001
                                                  ----------   ----------

     Tax at federal statutory rate (34%)          $  200,562   $    6,176
     State tax, net of federal benefit                19,466          600
     Benefit of operating loss carry forwards        (10,667)      (6,776)
     Other                                           (22,168)           -
                                                  ----------   ----------

     Provision for Income Taxes                   $  187,193   $        -
                                                  ==========   ==========

NOTE 6 - COMMITMENTS

Operating Leases - Effective June 1, 2002, the Company entered into a two-year
extension to an existing operating lease agreement for office space.  Under
terms of the lease, the  Company pays $728 per month through May 1, 2004. The
Company incurred lease expense of $7,626 for the year ended December 31, 2002.
The future minimum lease payments under the operating lease agreement as of
December 31, 2002 consist of $8,736 due during the year ending December 31,
2003 and $3,640 due during the year ending December 31, 2004.

Effective September 15, 2002, the Company entered into a lease agreement for gas
compressor  equipment.  The rental rate on the agreement is  $1,400  per  month.
The  agreement  has  a  minimum term of 12 months, after which  the  lease  will
continue on a month to month basis until canceled by either party.  Either party
may terminate the agreement upon 30 days written notice.

Standby Letters of Credit - A commercial bank has issued standby letters of
credit on behalf of the Company to the states of Texas and Oklahoma totaling
$75,000 to allow the Company to do business in those states. The standby letters
of credit are valid through August 2004 and are collateralized by an assignment
of certificates of deposit totaling $76,502. The Company intends to renew the
standby letters of credit for as long as the Company does business in those
states. No amounts have been drawn under the standby letters of credit.

NOTE 7 - SUBSEQUENT EVENTS

Subsequent to December 31, 2002, the Company has issued 48,000 common shares  as
part  of  its ongoing private placement offering.  Net proceeds received  during
2003 were $120,000.

As  of  January  1, 2003, the Company has adopted a non-qualified  stock  option
program for its officers, directors and employees.

On  February  3,  2003, the Company established a $10,000,000  revolving  credit
facility with a bank with an initial borrowing base of $2,000,000.  The interest
rate is a floating rate equal to the JP Morgan Chase Prime rate plus 1% with
interest payable monthly. Annual fees for the facility are 1/2 of one percent of
the unused portion of the borrowing base. Amounts borrowed under the revolving
credit facility will be due in February 2005.  The revolving  credit  facility
is secured by the Company's principal mineral interests. In order to obtain the
revolving credit facility, loans from two officers were subordinated to the
position of the bank and the credit facility was guaranteed by two of the
Company's officers. The Company is required under the terms of the credit
facility to maintain a tangible net worth of $4,000,000, maintain a 5-to-1 ratio
of income before interest, taxes, depreciation, depletion and amortization to
interest expense and maintain a current asset to current liability ratio of
1-to-1.



                                        F-15


Capitalized Costs Relating to Oil and Gas Producing Activities

                                                        December 31,
                                                     2002         2001
                                                  -----------  -----------
  Proved oil and gas properties                   $ 4,884,804  $ 1,645,819
  Less accumulated depletion and amortization        (168,472)     (44,081)
                                                  -----------  -----------
  Net Capitalized Costs                           $ 4,716,332  $ 1,601,738
                                                  ===========  ===========

Costs Incurred in Oil and Gas Producing Activities for the Years Ended December
31, 2002 and 2001

                                                        December 31,
                                                     2002         2001
                                                  -----------  -----------

  Acquisition of proved properties                $ 2,659,832  $ 1,383,908
  Development costs                                   579,153      201,120
                                                  -----------  -----------

  Total Costs Incurred                            $ 3,238,985  $ 1,585,028
                                                  ===========  ===========

Results of Operations from Oil and Gas Producing Activities for the Years Ended
December 31, 2002 and 2001
                                                     2002         2001
                                                  -----------  -----------

  Oil and Gas revenues                            $ 1,657,037  $   311,733
  Production costs                                   (594,863)    (106,927)
  Production taxes                                   (117,164)     (14,797)
  Depletion and amortization                         (124,391)     (43,818)
                                                  -----------  -----------

  Results of Oil and Gas Producing Operations     $   820,619  $   146,191
                                                  ===========  ===========

Reserve Information - The following estimates of proved developed and proved
undeveloped reserve quantities and related standardized measure of discounted
net cash flow are estimates only, and do not purport to reflect realizable
values or fair market values of the Company's reserves.  The Company emphasizes
that reserve estimates are inherently imprecise and that estimates of new
discoveries are more imprecise than those of producing oil and gas properties.
Accordingly, these estimates are expected to change as future information
becomes available.  All of the Company's reserves are located in the United
States of America.

Proved undeveloped reserves are estimated reserves of crude oil (including
condensate and natural gas liquids) and gas that geological and engineering data
demonstrate with reasonable certainty to be recoverable in future years from
known reservoirs under existing economic and operating conditions.  Proved
developed reserves are those expected to be recovered through existing wells,
equipment, and operating methods.

The standardized measure of discounted future net cash flows is computed by
applying period-end prices of oil and gas (with consideration of price changes
only to the extent provided by contractual arrangements) to the estimated future
production of proved oil reserves, less estimated future expenditures (based on
year-end costs) to be incurred in developing and producing the proved reserves,
less estimated future income tax expenses (based on year-end statutory tax
rates, with consideration of future tax rates already legislated) to be incurred
on pretax net cash flows less tax basis of the properties and available credits,
and assuming continuation of existing economic conditions.  The estimated future
net cash flows are then discounted using a rate of 10 percent per year to
reflect the estimated timing of the future cash flows.



                                F-16


                                         For the Years Ended December 31,
                                  ---------------------------------------------
                                           2002                   2001
                                  ----------------------  ---------------------
                                     Oil 1       Gas 1       Oil 1       Gas 1
                                  ----------  ----------  ---------  ----------
Proved Developed and Undeveloped
  Reserves
   Beginning of period               494,823   2,960,373          -     478,263
   Purchases of minerals in place  5,465,906   1,676,706    493,649   1,636,959
   Extensions and discoveries              -           -          -     843,512
   Production                        (58,717)    (46,819)   (16,211)     (5,590)
   Revisions of previous estimates    80,674  (1,402,503)    17,385       7,229
                                  ----------  ----------  ---------  ----------
   End of Year                     5,982,686   1,187,757    494,823   2,960,373
                                  ==========  ==========  =========  ==========
Ending Proved Developed Reserves     750,464   1,151,985    142,371   1,038,564
                                  ==========  ==========  =========  ==========
_______________________________
 1 Oil reserves are stated in barrels; gas reserves are stated in thousand
    cubic feet.



Standardized Measure of Discounted Future Net Cash Flows at December 31, 2002
and 2001
                                                  2002            2001
                                              ------------    ------------
  Future cash inflows                         $154,639,383    $ 16,985,483
  Future production and development costs      (42,401,610)     (5,914,164)
  Future income tax expenses                   (36,580,859)     (3,257,738)
  Future net cash flows                         75,656,914       7,813,581
                                              ------------    ------------
  10% annual discount for estimated timing
    of cash flows                              (33,180,087)     (2,610,209)
                                              ------------    ------------
  Standardized Measure of Discounted
    Future Net Cash Flows                     $ 42,476,827    $  5,203,372
                                              ============    ============

The following are the principal sources of change in the standardized measure of
discounted future net cash flows during the years ended December 31, 2002 and
2001:

                                                  2002            2001
                                              ------------    ------------

Standardized measure of discounted future
 net cash flows at beginning of year          $  5,203,372    $    743,452
Changes during the year
  Purchase of minerals in place                 48,956,314       9,656,702
  Extensions and discoveries                           -           938,208
  Development costs incurred                       215,433         201,120
  Sales of oil and gas produced, net of
    production costs                            (1,057,366)       (195,692)
  Accretion of discount                          3,525,683         699,440
  Net changes in prices and production
    costs                                        6,456,827      (5,168,422)
  Revision of estimated future development
    costs                                         (142,491)        (36,620)
  Revision of estimated recoverable reserves    (2,497,666)        174,560
  Net change in income taxes                   (18,183,279)     (1,809,376)
                                              ------------    ------------

  Net change during the year                    37,273,455       4,459,920
                                              ------------    ------------

Standardized measure of discounted future
  net cash flows at end of year               $ 42,476,827    $  5,203,372
                                              ============    ============


                                        F-17