<PAGE>
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

--------------------------------------------------------------------------------

                                   FORM 10-K/A




            |X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
                        SECURITIES EXCHANGE ACT OF 1934

                  For the fiscal year ended September 30, 2002

                                       OR

            |_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
                      THE SECURITIES EXCHANGE ACT OF 1934

       For the transition period from _______________ to _________________



--------------------------------------------------------------------------------
                         Commission file number: 0-10990

                            CASTLE ENERGY CORPORATION
             (Exact name of registrant as specified in its charter)


                 Delaware                              76-0035225
     (State or other jurisdiction of                (I.R.S. Employer
      incorporation or organization)             Identification Number)

       One Radnor Corporate Center
      Suite 250, 100 Matsonford Road
           Radnor, Pennsylvania                          19087
 (Address of principal executive offices)              (Zip Code)

      Registrant's telephone number:                 (610) 995-9400

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

Securities registered pursuant to Section 12(g) of the Act:  Common Stock --
                                                             $.50 par value and
                                                             related Rights

         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
                                              ---   ---

         Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ].

         As of December 13, 2002, there were 6,592,884 shares of the
registrant's Common Stock ($.50 par value) outstanding. The aggregate market
value of voting stock held by non-affiliates of the registrant as of such date
was $21,037,947 (5,009,035 shares at $4.20 per share).

                      DOCUMENTS INCORPORATED BY REFERENCE:

         Portions of the Proxy Statement for the 2002 Annual Meeting of
Stockholders are incorporated by reference in Items 10, 11, 12 and 13


<PAGE>



                            CASTLE ENERGY CORPORATION
                                 2002 FORM 10-K
                                TABLE OF CONTENTS


The purpose of this amendment to the Company's Annual Report on Form 10-K is to
restate the Company's financial statements to correct general and administrative
expenses for a $258,000 charge that should have been recorded as a reduction to
accrued expenses during the fourth quarter of fiscal 2002. This amendment
reflects only the revisions necessary for such restatement.

<TABLE>
<CAPTION>
        Item                                                                                                    Page
        ----                                                                                                    ----
        <S>               <C>                                                                                    <C>

                                     PART II
                                     -------

               6.    Selected Financial Data...........................................................           1

               7.    Management's  Discussion  and  Analysis  of  Financial  Condition  and  Results of
                     Operations........................................................................           2

               8.    Financial Statements and Supplementary Data.......................................          12


                                     PART IV
                                     -------

              14.   Internal Controls and Procedures...................................................          51

              15.   Exhibits, Financial Statement Schedules, and Reports on Form 8-K...................          51
</TABLE>

<PAGE>





                         ITEM 6. SELECTED FINANCIAL DATA

         During the five fiscal years ended September 30, 2002, the Company
consummated a number of transactions affecting the comparability of the
financial information set forth below. See Note 4 to the Company's Consolidated
Financial Statements included in Item 8 of this Form 10-K.

         The following selected financial data have been derived from the
Consolidated Financial Statements of the Company for each of the five years
ended September 30, 2002. The information should be read in conjunction with the
Consolidated Financial Statements and notes thereto included in Item 8 of this
Form 10-K.
<TABLE>
<CAPTION>
                                                                            For the Fiscal Year Ended September 30,
                                                         ----------------------------------------------------------------------
                                                                        (in Thousands, except per share amounts)
                                                             2002          2001          2000          1999          1998
                                                         ------------- ------------- ------------- ------------- --------------
                                                              (As
                                                           Restated)
<S>                                                       <C>              <C>          <C>            <C>            <C>
Net sales:
    Natural gas marketing and transmission..........                                                    $50,067        $70,001
    Exploration and production......................           $9,445       $21,144       $17,959        $7,190         $2,603
Gross Margin:
    Natural gas marketing and transmission (gas
      sales less gas purchases).....................                                                    $19,005        $26,747
    Exploration and production (oil and gas sales less
      production expenses)..........................           $6,178       $13,745       $11,765        $4,802         $1,828
Income (loss) before provision for income taxes
   (benefit of)                                                 ($759)       $2,097        $2,778       $11,222        $15,260
Net Income (loss) from continuing operations per
   share outstanding (diluted)......................            ($.28)         $.25          $.71          $.99          $1.22
Dividends declared per common shares outstanding....             $.15          $.20          $.20          $.25           $.15
</TABLE>

<TABLE>
<CAPTION>
                                                                                     September 30,
                                                         ----------------------------------------------------------------------
                                                             2002          2001          2000          1999          1998
                                                         ------------- ------------- ------------- ------------- --------------
                                                             (As
                                                           Restated)
<S>                                                      <C>               <C>           <C>           <C>            <C>
Total assets........................................          $51,941       $59,118       $63,295       $60,796        $67,004
Long-term obligations...............................                0             0             0             0              0
Redeemable preferred stock..........................                0             0             0             0              0
Capital leases......................................                0             0             0             0              0
</TABLE>


      Share data have been retroactively restated to reflect the 200% stock
dividend that was effective January 31, 2000.


<PAGE>



ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
        OF OPERATIONS

                   ("$000's" Omitted Except Per Unit Amounts)
--------------------------------------------------------------------------------

RESULTS OF OPERATIONS

General

      From August 1989 to September 30, 1995, two of the Company's subsidiaries
conducted refining operations. By December 12, 1995, the Company's refining
subsidiaries had sold all of their refining assets. As a result, the Company
accounted for its refining operations as discontinued operations in the
Company's financial statements as of September 30, 1995 and retroactively.
Accordingly, discussion of results of operations has been confined to the
results of continuing operations and the anticipated impact, if any, of
liquidation of the Company's remaining inactive refining subsidiaries and
contingent and litigated environmental liabilities of the Company and/or its
inactive refining subsidiaries.

Fiscal 2002 versus Fiscal 2001

Exploration and Production

      As noted above, the Company sold all of its domestic oil and gas
properties to Delta on May 31, 2002. As a result, the following exploration and
production financial data for the year ended September 30, 2002 represent only
eight months of revenue and expense whereas the data for the year ended
September 30, 2001 represent a full twelve months of revenue and expense.
<TABLE>
<CAPTION>

                                                                                        Fiscal Year Ended September 30,
                                                                                      ----------------------------------
                                                                                            2002                2001
                                                                                      --------------    ----------------
                <S>                                                                        <C>                <C>
            Production Volumes:
            -------------------
                  Barrels of crude oil (net).................................              179,000             262,000
                  Mcf (thousand cubic feet) of natural gas (net).............            2,254,000           3,083,000
                  Mcf equivalents (net) (mcfe)*..............................            3,328,000           4,655,000

            Oil/Gas Prices:-
            ---------------
                  Crude Oil/Barrel:
                  -----------------
                  Gross......................................................               $21.51              $27.39
                  Hedging effects............................................
                                                                                            ------              ------
                  Net of hedging.............................................               $21.51              $27.39
                                                                                            ======              ======

                  Natural Gas/Mcf:
                  ----------------
                  Gross......................................................               $ 2.48              $ 4.53
                  Hedging effects............................................
                                                                                            ------              ------
                  Net of hedging.............................................               $ 2.48              $ 4.53
                                                                                            ======              ======

            Oil and Gas Production Expenses/Mcf Equivalent...................               $  .98              $ 1.59
            ----------------------------------------------                                  ======              ======
</TABLE>
--------------
      *  Barrels of crude oil have been converted to mcf based upon relative
         energy content of 6 MCF of natural gas per barrel of crude oil.

      Oil and gas sales decreased approximately $5,670 from fiscal 2001 to
fiscal 2002 due to significant decreases in oil and gas prices. The average
price per mcfe decreased from $4.54/mcfe for the year ended September 30, 2001
to $2.84/mcfe for the year ended September 30, 2002. The decline in the price
received for natural gas was especially precipitous. For the year ended
September 30, 2001, the average price received per mcf of natural gas sold was
$4.53 versus only $2.48 per mcf for the year ended September 30, 2002.

                                      -2-

<PAGE>


      Oil and gas sales decreased approximately $6,029 as a result of decreases
in oil and gas production. The production decreases were caused primarily by the
sale of the Company's domestic oil and gas properties to Delta on May 31, 2002.
From the year ended September 30, 2001 to the year ended September 30, 2002 oil
production decreased by approximately 83,000 barrels and natural gas production
decreased by 829,000 mcf.

      As a result of the $5,670 decrease in oil and gas sales due to a decrease
in oil and gas prices and the $6,029 decrease due to a decrease in oil and gas
production, there was a net decrease of $11,699 or 55.3% in oil and gas sales
from the year ended September 30, 2001 to the year ended September 30, 2002.

      Oil and gas production expenses decreased $4,132 or 55.8% from fiscal 2001
to fiscal 2002. A significant portion of the decrease is attributable to the
sale of the Company's domestic oil and gas properties to Delta on May 31, 2002,
resulting in only eight months of production expense during the year ended
September 30, 2002 versus twelve months of production expenses during the year
ended September 30, 2001. For the year ended September 30, 2002, such expenses
were $.98 per equivalent mcf of production versus $1.59 per equivalent mcf of
production for the year ended September 30, 2001. The decrease in production
expenses per equivalent mcf is primarily attributable to a higher volume of
nonrecurring repairs and maintenance incurred during the year ended September
30, 2001 than were incurred during the year ended September 30, 2002. The higher
level of repairs and maintenance expenses incurred during the year ended
September 30, 2001 related primarily to the wells acquired from AmBrit in June
1999 since it appeared AmBrit did not repair such wells pending their sale to
the Company. Furthermore, oil and gas production expenses are typically not
incurred ratably throughout any given year but are incurred when and if certain
wells require repair and maintenance. As a result, such comparisons are more
appropriate on a multi-year basis than on an annual basis.

      General and administrative expenses increased $34 or .6% from the year
ended September 30, 2001 to the year ended September 30, 2002. General and
administrative expenses increased $998 as a result of severance expenses
primarily related to employees who were terminated or whose compensation was
reduced as a result of the sale of the Company's oil and gas properties to
Delta. Legal fees also increased significantly as a result of the Texaco lawsuit
(see Item 3 of this Form 10-K). These increases were partially offset by
decreased insurance and compensation expenses and by $181 of non-recurring costs
incurred during the year ended September 30, 2001 related to a previous effort
by the Company to sell its oil and gas properties that terminated in December
2000 without a sale. These offsetting factors resulted in the net increase of
$34.

      Depreciation, depletion and amortization decreased $319 or 9.2% from
fiscal 2001 to fiscal 2002. This net decrease consists of a decrease of $43 in
depreciation of equipment and furniture and fixtures from $122 to $79 and a $276
decrease in depletion of oil and gas properties from $3,348 to $3,072. For the
year ended September 30, 2002, the depletion rate was $.92 per mcfe versus $.72
per mcfe for the year ended September 30, 2001. The increase in the depletion
rate is indirectly attributable to the significant decreases in oil and gas
prices that occurred between the two periods being compared. The reserve reports
used to compute depletion rates are prepared annually as of September 30, the
Company's fiscal year end. As a result of lower oil and gas prices at September
30, 2001 as compared to those at September 30, 2000, the Company's economic oil
and gas reserves decreased significantly and the resultant cost per mcfe and
depletion rate per mcfe increased significantly. The Company did not cause its
reserves to be evaluated at September 30, 2002, having sold all of its domestic
oil and gas properties to Delta on May 31, 2002 (see Note 4).

      Interest income decreased $484 from fiscal 2001 to fiscal 2002. The
decrease was caused by a significant decrease in the average balance of invested
cash and a decrease in the rate of interest earned on such invested cash.

      The following operating items for the year ended September 30, 2002 have
no counterpart for the year ended September 30, 2001:

         Gain on sale of domestic oil and gas properties         $1,295
                                                                =======
         Loss on sale of unproved Romanian properties           ($  311)
                                                                =======

      The $1,295 gain recorded on the Delta sale is analyzed in Note 4 to the
consolidated financial statements included in Item 8 of this Form 10-K. The $311
loss on the sale of the unproven Romanian properties results from the Company's
sale of its remaining interest in Romania. The Company had originally intended
to participate in a wildcat well in the Black Sea but instead sold its interest
before drilling commenced. The Company has been informed that such drilling
subsequently resulted in a dry hole.

      The following other income (expense) items for the year ended September
30, 2002 are primarily related to the sale of the Company's domestic oil and gas
properties to Delta at May 31, 2002 and have no counterpart during the year
ended September 30, 2001.

                                      -3-
<PAGE>

<TABLE>
<CAPTION>
                <S>                                                                                 <C>

            Impairment provision - marketable securities..................................       ($   388)
            Equity in loss of Delta Petroleum Company before June 1, 2002.................       ($   165)
            Equity in loss of Delta Petroleum Company after May 31, 2002..................       ($   433)
            Decrease in fair value of option granted to Delta Petroleum Corporation.......        $ 2,250
</TABLE>

         The impairment provision for marketable securities relates to 382,289
shares of Delta's common stock acquired by the Company in September 2000. The
provision consists of a $204 impairment provision recorded in the quarter ended
March 31, 2002 and a $184 provision recorded effective May 31, 2002 to reduce
the book value of the 382,289 shares of Delta then owned by the Company to
market value prior to accounting for the Company's investment in Delta using the
equity method of accounting. The $2,250 decrease in the value of the option
granted to Delta is the result of a decrease in the fair value of the option
which, in turn, resulted from a decrease in Delta's share price. The equity in
the estimated losses of Delta represent the Company's share of Delta's estimated
losses. The loss prior to May 31, 2002 is applicable only to the 382,289 shares
of Delta owned by the Company before May 31, 2002 and approximates 3.4% of
Delta's losses for the period from October 1, 2001 to May 31, 2002. The loss
after May 31, 2002 applies to all 9,948,289 shares of Delta owned by the Company
after the closing of the Delta transaction on May 31, 2002. These shares
represent approximately 44% of Delta's outstanding shares.

        The Company's equity in the loss of Network increased $77 from $99 for
the year ended September 30, 2001 to $176 for the year September 30, 2002. The
increase results from increased expenses incurred by Network, a start up company
that has not yet earned operating revenue. The Company owns 45% of Network.

        The $1,085 tax provision for the year ended September 30, 2002 results
primarily because of changes in the Company's expectations that it will not
generate future taxable income. The Company increased its valuation allowance by
$1,345 at September 30, 2002, resulting in a deferred tax asset, net of $274 of
accrued income taxes on appreciation of marketable securities, of $521. The net
deferred tax asset at September 30, 2002 relates to income that has been
recognized for tax purposes, but has not yet been recognized for financial
reporting purposes.

        Since November of 1996, the Company has reacquired 4,911,020 shares or
69% of its common stock (after taking into account a three for one stock split
in January 2000). As a result of these share acquisitions, earnings and losses
per outstanding share have been higher than would be the case if no shares had
been repurchased.

Fiscal 2001 vs Fiscal 2000

OIL AND GAS SALES

        Oil and gas sales increased $3,185 or 17.7% from fiscal 2000 to fiscal
2001. An analysis of the increase is as follows:
<TABLE>
<CAPTION>
                                                                             Fiscal Year Ended September 30,
                                                                           ---------------------------------   Increase
                                                                               2001               2000         (Decrease)
                                                                           ----------          ---------       ----------
          <S>                                                                   <C>                <C>             <C>
       Production (Net):
               Barrels of crude oil............................               262,000            279,000         (17,000)
               Mcf of natural gas..............................             3,083,000          3,547,000        (464,000)
               Equivalent net of natural gas...................             4,655,000          5,221,000        (566,000)

       Oil and Gas Sales:
               Before hedging..................................               $21,144            $19,487          $1,657
               Effect of hedging...............................                                   (1,528)          1,528
                                                                              -------            -------          ------
               Net of hedging..................................               $21,144            $17,959          $3,185
                                                                              =======            =======          ======

       Average Price/MCFE:
          Before hedging.......................................               $  4.54            $  3.73          $  .81
          Effect of hedging....................................                                    (0.29)           0.29
                                                                              -------            -------          ------
          Net..................................................               $  4.54            $  3.44          $ 1.10
                                                                              =======            =======          ======

       Analysis of Increase:
          Price (5,221,000 mcfe x $.81/mcfe)...................                                                   $4,229
          Volume (566,000 mcfe x $4.54/mcfe)...................                                                   (2,570)
          Decrease in hedging losses...........................                                                    1,528
          Rounding.............................................                                                       (2)
                                                                                                                  ------
                                                                                                                  $3,185
                                                                                                                  ======
</TABLE>

                                      -4-
<PAGE>



        For the year ended September 30, 2001, the Company's net production
averaged 718 barrels of crude per day and 8,447 mcfe of natural gas per day
versus 764 barrels of crude oil per day and 9,718 mcf of natural gas per day for
the year ended September 30, 2000.

        The decline in production volumes is primarily attributable to the
depletion of the Company's oil and gas reserves and the fact that all but one of
the exploratory wells drilled in fiscal 2000 and 2001 by the Company resulted in
dry holes rather than production. The decline in production would have been
greater by 467,000 mcfe had the Company not acquired twenty-one producing East
Texas properties in April 2001 (see Items 1 and 2 above).

        Oil and gas production expenses increased $1,205 or 19.5% from fiscal
2000 to fiscal 2001. The increase is primarily attributable to the acquisition
of twenty-one (21) producing properties in East Texas in April 2001. For the
year ended September 30, 2001 oil and gas production expenses, net of
non-operator reimbursements, were $1.59 per equivalent mcf sold versus $1.19 per
equivalent mcf sold for the year ended September 30, 2000. The increase results
primarily from two factors. When oil and gas prices increased substantially in
the beginning of fiscal 2001, so did operating costs. Such operating costs,
however, did not decrease or decreased less than oil and gas prices when oil and
gas prices receded sharply later in the fiscal year. A second factor
contributing to the increase is the fact that the average age of the Company's
producing properties is increasing - especially given the unsuccessful results
of the Company's exploratory drilling programs and the resultant lack of
reserves added by new drilling. Mature wells typically carry a higher production
expense burden than do newer wells that have not yet been significantly
depleted.

GENERAL AND ADMINISTRATIVE COSTS

        General and administrative costs decreased $210 or 10.3% from fiscal
2000 to fiscal 2001. The decrease is primarily attributable to transferring some
costs associated with the Company's Oklahoma City office to corporate, general
and administrative costs and decreased consulting costs. Also, see "Corporate
General and Administrative Expenses" below.

DEPRECIATION, DEPLETION AND AMORTIZATION

        Depreciation, depletion and amortization increased $261 on 8.1% from
fiscal 2000 to fiscal 2001. The components of depreciation, depletion and
amortization were as follows:
<TABLE>
<CAPTION>
                                                                                            Year Ended September 30,
                                                                                     ----------------------------------------
                                                                                                                 Increase
                                                                                         2001         2000      (Decrease)
                                                                                     ------------- ----------- --------------
            <S>                                                                         <C>             <C>         <C>
       Depreciation and amortization of furniture and fixtures and equipment....        $ 122           $ 219       ($ 97)
       Depreciation, depletion and amortization of oil and gas properties.......        3,348           2,990         358
                                                                                       ------          ------        ----
                                                                                       $3,470          $3,209        $261
                                                                                       ======          ======        ====
</TABLE>

        Depreciation and amortization of furniture and fixtures and equipment
decreased $97 from fiscal 2000 to fiscal 2001 primarily because certain
furniture and fixture assets and vehicles were fully depreciated in fiscal 2000.

        For the year ended September 30, 2001, the depletion rate per equivalent
mcf was $.72 in fiscal 2001 versus $.57 in fiscal 2000. The increase resulted
primarily from two factors. First, in April 2001, the Company acquired
twenty-one (21) East Texas wells at a higher cost per equivalent mcfe of
reserves than that for the Company's existing reserves, causing the Company's
average cost per mcfe of reserves to increase. Second, the depletion rate
increased significantly because of significantly lower reserves at September 30,
2001 compared to those at September 30, 2000. Reserves decreased primarily
because of much lower oil and gas prices at September 30, 2001 compared to
September 30, 2000. The lower reserves and higher costs at September 30, 2001
caused the depletion rate to increase.

IMPAIRMENT OF UNPROVED PROPERTIES

        The impairment reserve for unproved properties increased $1,933 from
fiscal 2000 to fiscal 2001. To date, the Company has spent $3,597 participating
in the drilling of five dry holes or uneconomical wells on three concessions in
Romania and $110 with respect to the planned drilling of a sixth wildcat well in
the Black Sea on a second phase of one concession. In fiscal 2000, the Company
recorded an $832 reserve related to one drilling concession. The $2,765 reserve
incurred in 2001 relates to the other two drilling concessions. At September 30,


                                      -5-

<PAGE>


2001, impairment reserves have been provided for all costs incurred in Romania
except the $110 applicable to the planned sixth well in the Black Sea (see Note
4 to the Consolidated Financial Statements included in Item 8 of this Form
10-K).

        See Note 10 to the consolidated financial statements included in Item 8
of this Form 10-K concerning the impairment of the Company's domestic oil and
gas revenues.

CORPORATE GENERAL AND ADMINISTRATIVE EXPENSES

        Corporate, general and administrative expenses increased $452 or 12.2%
from fiscal 2000 to fiscal 2001. The increase is primarily attributable to legal
costs related to the Long Trusts Litigation and the Texaco claim and $181
related to the Company's effort to sell its oil and gas properties earlier in
the fiscal year.

OTHER INCOME (EXPENSE)

        Interest income decreased $143 or 18.2% from fiscal 2000 to fiscal 2001.
The decrease is primarily attributable to a decrease in the average balance of
cash invested during the periods being compared and to a decrease in the
interest rate received by the Company on invested funds.

        The composition of other income (expense) for the years ended September
30, 2001 and 2000 is as follows:
<TABLE>
<CAPTION>
                                                                                                  Year Ended September 30,
                                                                                             --------------------------------
                                                                                                   2001            2000
                                                                                             ---------------- ---------------
            <S>                                                                                      <C>             <C>
       Litigation recovery (costs)......................................................                            ($45)
       Miscellaneous....................................................................             $42              70
                                                                                                     ---             ---
                                                                                                     $42             $25
                                                                                                     ===             ===
</TABLE>

PROVISION FOR INCOME TAXES

        The tax provisions (benefit) for the years ended September 30, 2001 and
2000 consist of the following components:
<TABLE>
<CAPTION>
                                                                                                 Year Ended September 30,
                                                                                             --------------------------------
                                                                                                   2001            2000
                                                                                             ---------------- ---------------
             <S>                                                                                   <C>             <C>
       Decrease in net deferred tax asset using 36% Federal and state blended
            tax rate....................................................................           $808           $ 948
       Change in valuation allowance....................................................           (431)         (3,204)
       Other (primarily revisions of previous estimates)................................              4             (35)
                                                                                                   ----         -------
                                                                                                   $381         ($2,291)
                                                                                                   ====         =======
</TABLE>

        The tax provision for the year ended September 30, 2001 consists
primarily of deferred taxes of $808 related to timing differences originating in
fiscal 2001 and a decrease of $431 in the valuation allowance from fiscal 2000.
The decrease in the valuation allowance resulted because the Company determined
that a portion of the deferred tax asset would more likely than not be realized
based upon estimates of future taxable income and upon the projected taxable
income resulting from the anticipated sale of its oil and gas assets to Delta
and, accordingly, decreased the valuation allowance by $431 to $3,559.

        The tax provision for the year ended September 30, 2000 consists
primarily of deferred taxes of $948 related to timing differences originating in
fiscal 2000 and the reversal of a $3,204 valuation reserve from fiscal 1999. The
reversal of the valuation reserve resulted because of positive evidence that the
Company would be able to generate sufficient taxable income in the future to
utilize its deferred tax asset. Such positive evidence consists primarily of the
increased value of the Company's oil and gas reserves as a result of
substantially higher oil and gas prices.

        Since November 1996, the Company has repurchased 4,871,020 or 69% of its
common shares. As a result of these share acquisitions, earnings per share are
significantly higher than they would be if no shares had been repurchased.

                                      -6-
<PAGE>

Earnings Per Share

        Basic earnings per common share are based upon the weighted average
number of common shares outstanding. Diluted earnings per common share are based
upon maximum possible dilution calculated using average stock prices during the
year.

LIQUIDITY AND CAPITAL RESOURCES

        During the year ended September 30, 2002, the Company used $3,639 from
operating activities. During the same period the Company invested $810 in oil
and gas properties and $150 in Network. At September 30, 2002, the Company had
$15,539 of unrestricted cash, $21,537 of working capital, no long-term debt and
no operating assets or operating revenues, having sold all of its domestic oil
and gas properties to Delta on May 31, 2002.

        In December 2002, the Company loaned an additional $125 to Network.

        At the present time the two most likely future courses of action for the
Company are liquidation and continuing to operate. As noted in previous public
filings, the most likely course of action is liquidation given the Company's
lack of operating assets and the ever-increasing regulatory, legal, accounting
and administrative costs of being a public company. The Company's Board of
Directors has not, however, formally adopted a plan of liquidation given the
recent lawsuit filed by ChevronTexaco. (See Item 3 to this Form 10-K.) The
Company's general counsel, management and special counsel believe
ChevronTexaco's claims are without merit and that ChevronTexaco is using the
legal system to disrupt the Company's business activities and to coerce the
Company to pay ChevronTexaco a settlement in order to allow the Company to
liquidate. The Company expects that it will incur significant legal costs to
defend itself against ChevronTexaco's lawsuit. The Company's management and
Board of Directors are continuously monitoring the legal situation. Since the
Company's Board of Directors has discussed but not yet formally adopted a plan
of liquidation, the future impacts of both liquidation and continuing operations
are discussed below.

LIQUIDATION

        If a decision is made to liquidate, the Company anticipates that it
would distribute some cash and Delta shares to its stockholders in complete
liquidation of their stock as soon as possible while retaining sufficient assets
to reasonably provide for existing and anticipated future liabilities, including
those related to the contingent and litigated environmental claims and other
current litigation. Such provision would include the Company's $4,020
certificate of deposit provided for the letter of credit supporting its
supersedeas bond as required for the Company's appeal of the Long Trust
litigation plus interest (see Item 3 to this Form 10-K) and sufficient assets to
provide a reasonable reserve for the Company's other outstanding litigation
liabilities, if any, including any outstanding contingent environmental
litigation and other liabilities. If any net assets remain after the Company
pays or provides for such remaining liabilities, the net proceeds of such assets
would then be distributed to stockholders as a final distribution. The Company
would probably also file a no action letter with the Securities and Exchange
Commission ("SEC") seeking relief from continuing SEC reporting requirements.
Such a plan of liquidation or any other plan of liquidation would be subject to
prior approval by the Company's stockholders. The primary risks associated with
such a liquidation scenario are as follows:

         a.  Litigation - As noted above, the Company is a defendant in three
             significant unsettled lawsuits. Although the Company does not
             believe it has any material liabilities with respect to any of
             these lawsuits, any or several of the plaintiffs in these lawsuits
             could undertake legal actions to prevent the Company from making
             liquidating distributions to its stockholders. Any resulting
             litigation could not only cause the Company to incur significant
             legal costs but could also delay any distributions to stockholders
             for years and/or reduce or eliminate entirely such distributions.
             If ChevronTexaco were to prevail on its indemnity claim in its
             lawsuit (see Item 3 of this Form 10-K), ChevronTexaco's recovery
             could conceivably exceed the Company's net worth and prevent
             liquidating distributions to stockholders. ChevronTexaco could also
             conceivably sue larger stockholders of the Company after a
             distribution had been made. In addition, even if the Company's
             stockholders approve any future plan of liquidation, dissident
             stockholders of the Company could conceivably also take legal
             actions to prevent the Company from implementing any liquidation
             plan.

         b.  Tax Risks - As a result of the Delta transaction, the Company
             received 9,566,000 shares of Delta's common stock in addition to
             the 382,289 shares of Delta common stock it previously owned. If
             Delta's stock price increases before any distribution to
             stockholders, the Company could be subject to federal and state
             income tax at the corporate level on the interim appreciation of
             Delta's stock if the Company's remaining tax carryforwards are not


                                      -7-
<PAGE>


             sufficient to offset income taxes on such appreciation. Under such
             circumstance the tax treatment is the same as if the Company had
             sold its Delta shares for their fair market value and then
             distributed the proceeds to its stockholders. Such could be the
             case if there are delays in making distributions to stockholders
             and Delta's stock price increases in the interim. Any resulting
             gain would essentially constitute phantom income to the Company
             since the Company would realize a taxable gain without receiving
             any related proceeds.

        c.   Continuing Public Company Administrative Burden - If the Company's
             directors decide to liquidate, the Company will probably seek
             relief from most of its public company reporting requirements. If
             such a request is denied by the SEC, the Company would continue
             incurring the costs of being a public company while having no
             operating revenues to absorb such costs. Such costs are significant
             and probably will increase in the future given the myriad of post
             Enron regulatory requirements that are currently being mandated.
             The result would be a diminution of assets available for
             distribution to stockholders.

         d.  Lack of Liquidity - If the Company's directors decide to liquidate
             and the related plan of liquidation is approved by the Company's
             stockholders, it is likely that the Company's stock would cease to
             trade after the plan of liquidation is filed. In such a case,
             stockholders would not be able to trade their stock. Stockholders
             who have used their Company stock as collateral for margin loans
             would probably be required to provide other collateral to support
             such loans. Even if the Company is able to distribute Delta stock
             as part of its initial distribution to stockholders without any
             legal challenges or other delays, there could be a delay between
             the date the Company's stock is delisted and the date when the
             Company's stockholders receive Delta shares that could be
             substituted as collateral for a margin loan. Stockholders would
             presumably have to provide other collateral in the interim.

         e.  Liquidation of Assets - The Company's primary remaining assets
             consist of cash and cash equivalents and the Company's investments
             in Penn Octane Corporation (1,343,000 shares) and Delta (9,948,289
             shares). Although all of the Company's shares of Delta have
             recently been registered and most of the Company's shares of Penn
             Octane are already registered, both Penn Octane and Delta are
             small, thinly capitalized companies with small trading volumes and
             the Company may not be able to sell its Penn Octane stock and/or
             its Delta stock for their listed market prices if the Company needs
             cash to distribute to its stockholders or to liquidate liabilities.
             In addition, the Company owns 45% of Network. Network is a private
             limited liability company with no public market for its membership
             units. As a result, the Company expects that it would be difficult
             at the present time to sell its interest in Network if liquidation
             is required.

CONTINUING TO OPERATE

        If the Company does not liquidate but instead continues to operate, the
Company would still be subject to several of the risks noted above, including
litigation risk, the continuing public company administrative burden, the lack
of liquidity and liquidation of asset risk (if the Company decides to liquidate
its remaining assets). The Company estimates that its annual general and
administrative costs, if it continues to exist as a public company, would be
$700-$900, excluding litigation - related legal costs. In addition, the Company
would lack operating assets, operating personnel (since most of its personnel
have already been severed) and a business to operate. Under such circumstances,
the Company would be subject to many competitive disadvantages if it again
decides to acquire energy assets or other assets and businesses. For example,
few analysts believe it is possible to acquire oil and gas properties at
favorable prices at the present time or in the near future given current high
prices for oil and gas production and reserves. Many energy companies have more
financial resources than the Company and could easily outbid the Company in such
an acquisition scenario. Furthermore, failure by the Company to be engaged
primarily in a business other than that of investing, reinvesting, owning,
holding or trading in securities within one year following closing of the sale
to Delta could subject the Company to federal regulation under the Investment
Company Act of 1940, and this would result in even more significant regulatory
compliance costs and obligations.

        In addition, if the Company continues to operate, it would continue to
be subject to the following risk factors:

        a.   Contingent and litigated environmental liabilities (see Item 3 to
             this Form 10-K).

        b.   Public market for Company's stock - the small trading volumes in
             the Company's stock may create liquidation problems for large
             investors in the Company.

        c.   Other risks including general business risks, insurance claims
             against the Company in excess of insurance coverage, tax
             liabilities resulting from tax audits and litigation risk.


                                      -8-
<PAGE>



QUALITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK

        The Company currently owns no oil or gas reserves and is thus no longer
directly subject to market risks with respect to oil and gas prices.

        At September 30, 2002 and December 13, 2002, the Company owned 9,948,289
shares of Delta and 1,343,600 shares of Penn Octane. Both Delta and Penn Octane
are thinly traded public companies with small market capitalizations. The stock
price of each company has fluctuated significantly in the last three years and
thus the Company's investments in Delta and Penn Octane remain subject to
significant changes in the market prices of these stocks and limited liquidity.

INFLATION AND CHANGING PRICES

        The Company currently has no active business and thus does not expect
inflation and changing prices to affect its future results of operations in a
material manner.

NEW ACCOUNTING PRONOUNCEMENTS

         Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS No. 141") and Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142") were issued in
July 2001. SFAS No. 141 requires that all business combinations entered into
subsequent to June 30, 2001 be accounted for under the purchase method of
accounting and that certain acquired intangible assets in a business combination
be recognized and reported as assets apart from goodwill. SFAS No. 142 requires
that amortization of goodwill be replaced with periodic tests of the goodwill's
impairment at least annually in accordance with the provisions of SFAS No. 142
and that intangible assets other than goodwill be amortized over their useful
lives. The Company adopted SFAS No. 141 in July 2001 and adopted SFAS No. 142 on
October 1, 2002. The Company does not expect that its adoption of SFAS No. 142
will have a material effect on its future financial position or results of
operations.

        In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"), which provides accounting requirements
for retirement obligations associated with tangible long-lived assets,
including: 1) the timing of liability recognition; 2) initial measurement of the
liability; 3) allocation of asset retirement cost to expense; 4) subsequent
measurement of the liability; and 5) financial statement disclosures. SFAS No.
143 requires that asset retirement cost be capitalized as part of the cost of
the related long-lived asset and subsequently allocated to expense using a
systematic and rational method. Any transition adjustment resulting from the
adoption of SFAS No. 143 would be reported as a cumulative effect of a change in
accounting principle. The Company will adopt this statement effective October 1,
2002. The Company does not expect that adoption of this statement will have a
material effect on its future financial position or results of operations.

        In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which will be
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. SFAS No. 144
requires that long-lived assets to be disposed of by sale be measured at the
lower of the carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations. SFAS No. 144 broadens
the reporting of discontinued operations to include all components of an entity
with operations that can be distinguished from the rest of the entity and that
will be eliminated from the ongoing operations of the entity in a disposal
transaction. After its effective date, SFAS No. 144 will be applied to those
transactions where appropriate. The Company adopted SFAS No 144 effective
October 1, 2002. The Company does not expect that adoption of this statement
will have a material effect on its future financial position or results of
operations.

        Statement of Financial Accounting Standards No. 145, Recission of FASB
Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical
Corrections ("SFAS No. 145") was issued in April 2002. This statement rescinds
SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, which
required all gains and losses from extinguishment of debt to be aggregated and,
if material, classified as an extraordinary item, net of income taxes. As a
result, the criteria in Accounting Principles Board No. 30 ("APB 30") will now
be used to classify those gains and losses. Any gain or loss on the
extinguishment of debt that was classified as an extraordinary item in prior
periods presented that does not meet the criteria in APB 30 for classification
as an extraordinary item shall be reclassified. The provisions of this Statement
are effective for fiscal years beginning after January 1, 2003 and the Company
expects to adopt SFAS No. 145 on October 1, 2003. The Company does not expect
that adoption of this statement will have a material effect on its future
financial position or results of operations.


                                      -9-
<PAGE>


         Statement of Financial Accounting Standards No. 146, Accounting for
Exit or Disposal Activities ("SFAS No. 146"), was issued in June 2002. SFAS No.
146 addresses significant issues regarding the recognition, measurement and
reporting of disposal activities, including restructuring activities that are
currently accounted in EITF Issue No. 94-3, "Liability Recognition for Certain
Employee Termination Activity." The provisions of SFAS 146 are effective for
exit or disposal activities initiated after December 31, 2002.

CRITICAL ACCOUNTING POLICIES:

        The accounting policies critical to the Company in the future, are as
follows:

Equity Method of Accounting

        The Company currently owns approximately 44% of Delta and accounts for
its investment in Delta using the equity method of accounting. Under this
method, the Company is required to increase its investment in Delta by its share
of Delta's income and decrease such investment by its share of Delta's losses
and any distributions from Delta. If Delta incurs future losses, the Company
would thus include its share of such losses in its consolidated statement of
operations. In addition, the Company estimates that its investment in Delta
exceeded the Company's proportional share of Delta's equity by approximately
$6,900 at closing. The Company has allocated such excess to Delta's ownership
interests in offshore California leases and the related potential recovery from
a lawsuit Delta and other owners of offshore California leases have instituted
against the United States for breach of contract. The Company will be required
to evaluate the recoverability of the leases periodically and write them off or
reduce them to the extent it is not deemed recoverable. In addition, if Delta
incurs recurring losses in the future and/or the market value of its stock
declines significantly, the Company's investment in Delta may be impaired and
the Company may then be required to recognize the impairment.

Discontinued Refining Operations

        At September 30, 2002, the Company had recorded net refining liabilities
retained of $3,016 and an estimated value of discontinued net refining assets of
$612 resulting in a recorded net liability of $2,406. As noted in Note 13 to the
consolidated financial statements included in Item 8 to this Form 10-K.
ChevronTexaco has sued the Company for environmental remediation costs that have
been estimated at $80,000-$150,000. The Company's accounting policy with respect
to contingent environmental liabilities is to record environmental liabilities
when and if environmental assessment and/or remediation costs are probable and
can be reasonably estimated. Although the Company and its special counsel
believe that ChevronTexaco's claims are utterly without merit, the Company would
be required to record additional environmental liabilities if it becomes
probable that the Company will incur liabilities related to ChevronTexaco's
claims or other environmental liabilities and such liabilities exceed $2,404. As
noted above, if such liabilities exceed the value of the Company's assets, the
Company would not have the financial capability to pay such liabilities. The
Company has classified the estimated realizable value of discontinued net
refining assets and net refining liabilities retained as non current because it
appears that these items will not be realized in the next year given the recent
lawsuit filed against the Company by ChevronTexaco (see Item 3 to this Form
10-K). The amounts and classification of the estimated values of discontinued
net refining assets and net refining liabilities retained could change
significantly in the future as a result of litigation or other factors.

Future Distributions to Stockholders, If Any

        If the Company's Board of Directors decides to liquidate the Company, it
is probable that the related plan of liquidation would contemplate distributions
to stockholders of shares of Delta common stock and perhaps of other assets of
the Company. If the Company distributes Delta stock or other assets to
stockholders, the Company will first adjust the book value of the assets to be
distributed to their fair market values, if appropriate, for an indicated
impairment of value, recognizing the resultant loss. The Company would then
record the distribution as a charge to retained earnings equal to the book value
of the assets being distributed.

Changes in the Value Allocated to the Delta's Repurchase Option

        As part of the Delta sale, the Company granted Delta an option to
repurchase up to 3,188,667 of its shares for $4.50/share until May 31, 2003. At
closing on May 31, 2002, the Company valued that option at $2,682 using the
Black Scholes method. The Company will be required to account for changes in the
value of this option by recording gains or losses, as applicable, in its
Statement of Operations. At September 30, 2002, the value of option had been
reduced to $432 and the Company had recorded a $2,250 gain. If the option
expires by its own terms or is only partially exercised at expiration, the
Company would then record a gain equal to the remaining book value of the
unexercised options. If Delta exercises the option the Company would record a
gain per share exercised equal to the difference between $4.50 and the book
value per share at the time of exercise.

                                      -10-
<PAGE>


Valuation Allowance for Deferred Income Tax Asset

        At September 30, 2002, the Company recorded a valuation allowance of
$4,904 offsetting its gross deferred tax asset of $5,534 at that date. That
valuation allowance is based upon the Company's assessment that the Company will
not generate future taxable income to utilize all of its gross deferred tax
assets at September 30, 2002 based on the Company's expectations that it will
incur significant general and administrative expenses liquidating its assets
without earning offsetting revenue. In addition, the Company is a party to
several lawsuits including a complaint for environmental indemnification for
which the Company has recorded no liability. The net deferred tax asset at
September 30, 2002 relates to income that has been recognized for tax purposes
but has not yet been recognized for financial reporting purposes. If
circumstances change such that the Company expects future taxable income, the
Company will revise its valuation allowance, resulting in tax recoveries.

RECENT SALES OF UNREGISTERED SECURITIES:  NOT APPLICABLE

                                      -11-
<PAGE>

                            CASTLE ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF OPERATIONS
              ("$000's" Omitted Except Share and Per Share Amounts)

<TABLE>
<CAPTION>
                                                                                       Year Ended September 30,
                                                                           ----------------------------------------------
                                                                                2002            2001             2000
                                                                                ----            ----             ----
                                                                            (As Restated)
<S>                                                                           <C>             <C>             <C>
Revenues:
    Oil and gas sales..............................................           $     9,445     $    21,144     $    17,959
    Gain on sale of domestic oil and gas properties................                 1,295
                                                                              -----------     -----------     -----------
                                                                                   10,740          21,144          17,959
                                                                              -----------     -----------     -----------

Expenses:
    Oil and gas production.........................................                 3,267           7,399           6,194
    General and administrative.....................................                 6,031           5,997           5,755
    Depreciation, depletion and amortization.......................                 3,151           3,470           3,209
    Impairment of unproved properties (Romania)....................                                 2,765             832
    Loss on sale of unproven Romanian properties...................                   311
                                                                              -----------     -----------     -----------

                                                                                   12,760          19,631          15,990
                                                                              -----------     -----------     -----------

Operating income (loss)............................................                (2,020)          1,513           1,969
                                                                              -----------     -----------     -----------

Other income (expense):
 Interest income...................................................                   157             641             784
 Other income......................................................                    16              42              25
 Impairment provision - marketable securities......................                  (388)
 Decrease in fair value of option granted to Delta
    Petroleum Corporation                                                           2,250
 Equity in loss of Networked Energy LLC............................                  (176)            (99)
 Equity in loss of Delta Petroleum Corporation
    before June 1,2002.............................................                  (165)
 Equity in estimated loss of Delta Petroleum Corporation
    after May 31, 2002.............................................                  (433)
                                                                              -----------     -----------     -----------
                                                                                    1,261             584             809
                                                                              -----------     -----------     -----------

Income (loss) before provision for (benefit of) income taxes.......                  (759)          2,097           2,778
                                                                              -----------     -----------     -----------
Provision for (benefit of) income taxes:
    State..........................................................                    30              11             (64)
    Federal........................................................                 1,055             370          (2,227)
                                                                              -----------     -----------     -----------
                                                                                    1,085             381          (2,291)
                                                                              -----------     -----------     -----------

Net income (loss)..................................................          ($     1,844)    $     1,716     $     5,069
                                                                              ===========     ===========     ===========

Net income (loss) per share:
    Basic..........................................................          ($       .28)    $       .26     $       .73
                                                                              ===========     ===========     ===========
    Diluted........................................................          ($       .28)    $       .25     $       .71
                                                                              ===========     ===========     ===========

 Weighted average number of common and potential dilutive common shares
    outstanding:
    Basic..........................................................             6,629,376       6,643,724       6,939,350
                                                                              ===========     ===========     ===========
    Diluted........................................................             6,629,376       6,818,855       7,102,803
                                                                              ===========     ===========     ===========
</TABLE>


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

                                      -12-
<PAGE>


                            CASTLE ENERGY CORPORATION
                           CONSOLIDATED BALANCE SHEETS
              ("$000's" Omitted Except Share and Per Share Amounts)

<TABLE>
<CAPTION>
                                                                                                September 30,
                                                                                      --------------------------------
                                                                                            2002             2001
                                                                                            ----             ----
                                      ASSETS                                            (As Restated)
<S>                                                                                           <C>            <C>
Current assets:
    Cash and cash equivalents.....................................................          $ 15,539       $  5,844
    Restricted cash...............................................................             4,230            370
    Accounts receivable...........................................................               108          2,787
    Marketable securities.........................................................             3,046          6,722
    Prepaid expenses and other current assets.....................................               197            277
    Estimated realizable value of discontinued net refining assets................                              612
    Deferred income taxes.........................................................               429          1,879
                                                                                            --------       --------
      Total current assets........................................................            23,549         18,491
Estimated realizable value of discontinued net refining assets....................               612
Property, plant and equipment, net:
    Natural gas transmission......................................................                               51
    Furniture, fixtures and equipment.............................................               153            222
    Oil and gas properties, net (full cost method):
      Proved properties (United States)...........................................                           39,843
      Unproved properties not being amortized (Romania)...........................                              110
Investment in Networked Energy LLC................................................               375            401
Investment in Delta Petroleum Corporation.........................................            26,886
Deferred income taxes.............................................................               366
                                                                                            --------       --------
    Total assets..................................................................          $ 51,941       $ 59,118
                                                                                            ========       ========

                       LIABILITIES AND STOCKHOLDERS' EQUITY

Current liabilities:
    Dividend payable..............................................................            $  330         $  331
    Accounts payable..............................................................               413          3,543
    Accrued expenses..............................................................               563            292
    Accrued taxes on appreciation of marketable securities........................               274            900
    Fair value of options granted to Delta Petroleum Corporation..................               432
    Net refining liabilities retained.............................................                            3,016
                                                                                            --------       --------
      Total current liabilities...................................................             2,012          8,082
Net refining liabilities retained.................................................             3,016
Long-term liabilities.............................................................                11              9
                                                                                            --------       --------
      Total liabilities...........................................................             5,039          8,091
                                                                                            --------       --------
Commitments and contingencies.....................................................
Stockholders' equity:
    Series B participating preferred stock; par value - $1.00;
      10,000,000 shares authorized; no shares issued
    Common stock; par value - $0.50; 25,000,000 shares authorized;
      11,503,904 shares issued at September 30, 2002 and 2001.....................             5,752          5,752
    Additional paid-in capital....................................................            67,365         67,365
    Accumulated other comprehensive income - unrealized gains on marketable
      securities, net of taxes....................................................               487          1,600
    Retained earnings.............................................................            39,965         42,816
                                                                                            --------       --------
                                                                                             113,569        117,533
    Treasury stock at cost - 4,911,020 shares at September 30, 2002 and 4,871,020
      shares at September 30, 2001................................................           (66,667)       (66,506)
                                                                                            --------       --------
      Total stockholders' equity..................................................            46,902         51,027
                                                                                            --------       --------
      Total liabilities and stockholders' equity..................................          $ 51,941       $ 59,118
                                                                                            ========       ========
</TABLE>

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

                                      -13-

<PAGE>



                            CASTLE ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
              ("$000's" Omitted Except Share and Per Share Amounts)


<TABLE>
<CAPTION>
                                                                                               Year Ended September 30,
                                                                                     --------------------------------------------
                                                                                           2002           2001          2000
                                                                                           ----           ----          ----
                                                                                      (As Restated)
<S>                                                                                          <C>           <C>           <C>
Cash flows from operating activities:
 Net income (loss)..............................................................          ($1,844)      $ 1,716       $ 5,069
                                                                                           ------       -------       -------
 Adjustments to reconcile net income to cash provided by operating activities:
    Depreciation, depletion and amortization....................................            3,151         3,470         3,209
    Decrease in fair value of option granted to Delta Petroleum Corporation.....           (2,250)
    Impairment of foreign unproved properties...................................                          2,765           832
    Deferred income tax expense (benefit).......................................            1,085           377        (2,256)
    Gain on sale of domestic oil and gas properties.............................           (1,295)
    Loss on sale of unproved Romanian properties................................              311
    Impairment of marketable securities.........................................              388
    Equity in loss of Networked Energy LLC......................................              176            99
    Equity in loss of Delta Petroleum Corporation...............................              598
    Changes in assets and liabilities:
       (Increase) decrease in restricted cash...................................           (3,860)        1,372          (972)
       Decrease in accounts receivable..........................................            2,678           971         1,414
       (Increase) decrease in prepaid expenses and other current assets.........               80           (26)          343
       Decrease in other assets.................................................                                           29
       Increase (decrease) in accounts payable..................................           (3,130)        1,110          (436)
       Increase (decrease) in accrued expenses..................................              271            27          (537)
       Increase in other long-term liabilities..................................                2             3             6
                                                                                           ------       -------       -------
          Total adjustments.....................................................           (1,795)       10,168         1,632
                                                                                           ------       -------       -------
          Net cash flow provided by (used in) operating activities..............           (3,639)       11,884         6,701
                                                                                           ------       -------       -------
Cash flows from investment activities:
 Investment in note receivable - Penn Octane Corporation........................                                         (500)
 Investment in marketable securities............................................                            (34)
 Proceeds from sale of oil and gas assets.......................................           15,478            48         1,427
 Investment in other oil and gas properties.....................................             (810)      (15,449)      (11,226)
 Investment in Networked Energy LLC.............................................             (150)         (150)         (350)
 Purchase of furniture, fixtures and equipment..................................               (7)          (82)         (173)
 Other..........................................................................                                          (35)
                                                                                           ------       -------       -------
          Net cash provided by (used in) investing activities...................           14,511       (15,667)      (10,857)
                                                                                           ------       -------       -------
</TABLE>


                            (continued on next page)

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

                                      -14-

<PAGE>


                            CASTLE ENERGY CORPORATION
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                               ("$000's" Omitted)
                         (continued from previous page)

<TABLE>
<CAPTION>
                                                                                             Year Ended September 30,
                                                                                   --------------------------------------------
                                                                                         2002           2001           2000
                                                                                         ----           ----           ----
                                                                                     (As Restated)
<S>                                                                                       <C>           <C>          <C>
Cash flows from financing activities:
 Acquisition of treasury stock ...............................................             (161)         (572)        (5,208)
 Dividends paid to stockholders ..............................................           (1,016)       (1,326)        (1,363)
                                                                                        -------       -------        -------
      Net cash (used in) financing activities.................................           (1,177)       (1,898)        (6,571)
                                                                                        -------       -------        -------
Net increase (decrease) in cash and cash equivalents..........................            9,695        (5,681)       (10,727)
Cash and cash equivalents - beginning of period...............................            5,844        11,525         22,252
                                                                                        -------       -------        -------
Cash and cash equivalents - end of period.....................................          $15,539       $ 5,844        $11,525
                                                                                        =======       =======        =======

Supplemental disclosures of cash flow information are as follows:
 Cash paid during the period:
   Income taxes...............................................................                        $    11        $   188
                                                                                                      =======        =======

   Accrued dividends..........................................................          $   330       $   331        $   333
                                                                                        =======       =======        =======
   Conversion of Penn Octane Corporation note and accrued interest receivable
      to marketable securities................................................                        $   521
                                                                                                      =======
   Unrealized gain (loss) on investment in available-for-sale marketable
       securities.............................................................         ($ 1,113)     ($ 3,071)       $ 2,275
                                                                                        =======       =======        =======
   Exchange of oil and gas properties for Delta Petroleum Corporation
      common stock............................................................          $26,952                      $ 1,937
                                                                                        =======                      =======

Estimated value of Delta option to repurchase 3,188,667 Delta shares..........          $ 2,682
                                                                                        =======
</TABLE>

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

                                      -15-

<PAGE>


                            CASTLE ENERGY CORPORATION
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                         AND OTHER COMPREHENSIVE INCOME
                   ("$000's" Omitted Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                               Years Ended September 30, 2002, 2001 and 2000
                                ----------------------------------------------------------------------------------------------------
                                                                                Accumulated
                                    Common Stock     Additional                    Other                 Treasury Stock
                                --------------------   Paid-In  Comprehensive Comprehensive  Retained  -------------------
                                  Shares    Amount     Capital     Income      Income (Loss) Earnings    Shares    Amount    Total
                                ---------- --------- ---------- ------------- -------------- --------  --------- ---------  --------

<S>                             <C>          <C>       <C>      <C>              <C>         <C>      <C>        <C>       <C>
Balance - October 1, 1999.....   6,828,646    $3,414    $67,365                   $2,396      $41,054  4,282,217  ($60,726) $53,503
Stock split ratio
  retroactively applied.......   4,675,258     2,338                                           (2,338)
                                ----------    ------    -------                   ------      -------  ---------   -------  -------
Balance-September 30, 1999 -    11,503,904     5,752     67,365                    2,396       38,716  4,282,217   (60,726)  53,503
  restated....................
Stock acquired................                                                                           508,803    (5,208)  (5,208)
Dividends declared ($.20 per                                                                   (1,363)                       (1,363)
  share)......................
Comprehensive income:.........
  Net income..................                                     $ 5,069                      5,069                         5,069
  Other comprehensive income:
     Unrealized gain on
      marketable securities,
      net of tax.............                                        2,275         2,275                                      2,275
                                                                   -------
                                                                   $ 7,344
                                ----------    ------    -------    =======        ------      -------  ---------   -------  -------
Balance - September 30, 2000.   11,503,904     5,752     67,365                    4,671       42,422  4,791,020   (65,934)  54,276

Stock acquired...............                                                                             80,000      (572)    (572)
Dividends declared ($.20 per                                                                   (1,322)                       (1,322)
  share).....................
Comprehensive income:........
  Net income.................                                      $ 1,716                      1,716                         1,716
  Other comprehensive income
    (loss):..................
     Unrealized gain (loss)
      on marketable
      securities, net of tax.                                       (3,071)       (3,071)                                    (3,071)
                                                                   -------
                                                                   ($1,355)
                                ----------    ------    -------    =======        ------      -------  ---------   -------  -------
Balance - September 30, 2001.   11,503,904     5,752     67,365                    1,600       42,816  4,871,020   (66,506)  51,027

Stock acquired...............                                                                             40,000      (161)    (161)
Dividends declared ($.15 per                                                                   (1,007)                       (1,007)
  share)......................
Comprehensive income (loss):.
  Net income (loss) (as                                            ($1,844)                    (1,844)                       (1,844)
    restated).................
  Other comprehensive income
    (loss):...................
     Unrealized gain (loss)
      on marketable
      securities, net of tax.                                       (1,113)       (1,113)                                    (1,113)
                                                                   -------
                                                                   ($2,957)
                                ----------    ------    -------    =======        ------      -------  ---------  --------  -------
Balance - September 30, 2002
   (as restated).............   11,503,904    $5,752    $67,365                   $  487      $39,965  4,911,020  ($66,667) $46,902
                                ==========    ======    =======                   ======      =======  =========  ========  =======
</TABLE>

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

                                      -16-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)



NOTE 1 - BUSINESS AND ORGANIZATION

     Business

     References to Castle Energy Corporation mean the Company, the parent,
and/or one or more of its subsidiaries. Such references are for convenience only
and are not intended to describe legal relationships.

     Castle Energy Corporation (the "Company") is a public company incorporated
in Delaware. Mr. Joseph L. Castle II, Chairman of the Board and Chief Executive
Officer, and his wife owned approximately twenty-three percent (23%) of the
Company's outstanding common stock at September 30, 2002 and December 13, 2002.

     Exploration and Production

     From inception until May 31, 2002, the Company was engaged in the
exploration and production segment of the energy business. On May 31, 2002, the
Company sold all of its domestic oil and gas properties to Delta Petroleum
Corporation, another public exploration and production company engaged in
exploration and production ("Delta"). On September 6, 2002, a subsidiary of the
Company sold all of its interests in oil and gas concessions in Romania to the
operator of the Romanian concessions. As a result of these sales, the Company
owns no operating assets and is not currently directly engaged in any active
business. Nevertheless, as the result of its 44% ownership of Delta, the Company
is still indirectly involved in the exploration and production business - see
Note 4.

     Natural Gas Marketing

     In December 1992, the Company acquired a long-term natural gas sales
contract with Lone Star Gas Company ("Lone Star Contract"). The Company also
entered into two long-term gas sales contracts and one long-term gas purchase
contract with MG Natural Gas Corp. ("MGNG"), a subsidiary of MG Corp. ("MG"),
which, in turn, is a United States subsidiary of Metallgesellschaft A.G.
("MGAG"), a German conglomerate. In May 1997, the Company sold its Rusk County,
Texas natural gas pipeline to a subsidiary of Union Pacific Resources
Corporation ("UPRC") and thus exited the gas transmission business while still
conducting gas marketing operations. Effective May 31, 1999, the aforementioned
gas sales and gas purchases contracts expired by their own terms and were not
replaced by other third party gas marketing business. With the exception of the
Long Trusts Lawsuit (see Note 13), the Company and its subsidiaries are not
involved with any matters related to their former natural gas marketing
business.

     Refining

     IRLP

     The Company indirectly entered the refining business in 1989 when one of
its subsidiaries acquired the operating assets of an idle refinery located in
Lawrenceville, Illinois (the "Indian Refinery"). The Indian Refinery was
subsequently operated by one of the Company's subsidiaries, Indian Refining I
Limited Partnership ("IRLP"), until September 30, 1995 when it was shut down. On
December 12, 1995, IRLP sold the Indian Refinery assets to American Western
Refining, L.P. ("American Western"). American Western subsequently filed for
bankruptcy and sold the Indian Refinery to an outside party which has
substantially dismantled it. American Western subsequently filed a Plan of
Liquidation and is awaiting confirmation of that Plan by the governing
bankruptcy court. If the Plan is confirmed, IRLP expects to receive $612 which
it intends to distribute to its vendors.


     In August 2002, ChevronTexaco sued the Company and two of its inactive
subsidiaries concerning environmental liabilities related to the Indian Refinery
(see Note 12).

     Powerine

     In October 1993, a former subsidiary of the Company purchased Powerine Oil
Company ("Powerine"), the owner of a refinery located in Santa Fe Springs,
California (the "Powerine Refinery"), from MG. On September 29, 1995, Powerine
sold substantially all of its refining plant to Kenyen Projects Limited

                                      -17-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


("Kenyen"). On January 16, 1996, Powerine merged into a subsidiary of Energy
Merchant Corp. ("EMC"), an unaffiliated entity, and EMC acquired the Powerine
Refinery from Kenyen. EMC subsequently sold that refinery to an outside party
which, we are informed, continues to seek financing to restart it.

     As a result of the transactions with American Western, Kenyen and EMC, the
Company's refining subsidiaries disposed of their interests in the refining
business. The results of refining operations were shown as discontinued
operations in the Consolidated Statement of Operations for the year ended
September 30, 1995 and retroactively. Discontinued refining operations have not
impacted operations since fiscal 1995. Amounts on the consolidated balance sheet
reflect the remaining assets and liabilities from discontinued refining
operations. Such amounts remain on the consolidation balance sheet pending final
resolution.

     Networked Energy LLC

     In August 2000, the Company purchased thirty-five percent (35%) of the
membership interests of Networked Energy LLC ("Network") for $500. Network is a
private company engaged in the operation of energy facilities that supply power,
heating and cooling services directly to retail customers. In March 2002, the
Company invested an additional $150 in Network, increasing its interest to 45%.
Network is a start up company and recently acquired its first contract.

     After the sale of all of the Company's domestic oil and gas properties to
Delta, the Company's management and Board of Directors were leaning toward
liquidation of the Company and distribution of the Company's assets to its
stockholders. Such liquidation has been suspended as a result of the lawsuit
filed against the Company by ChevronTexaco (see Note 12).

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

     General

     The significant accounting policies discussed are limited to those
applicable to the business segments in which the Company operated during the
fiscal years ended September 30, 2002, 2001 and 2000 - during which time the
Company and its subsidiaries operated only in the exploration and production
segment of the energy business. References should be made to Forms 10-K for
prior periods for summaries of accounting principles applicable to the Company's
discontinued refining operations and the Company's previous natural gas
marketing business.

     Principles of Consolidation

     The consolidated financial statements presented include the accounts of the
Company and all of its subsidiaries. All intercompany transactions have been
eliminated in consolidation.

     Revenue Recognition

     Oil and gas revenues are recorded under the sales method when oil and gas
production volumes are delivered to the purchaser. Reimbursement of costs from
well operations is netted against the related oil and gas production expenses.

     Cash and Cash Equivalents

     The Company considers all highly liquid investments, such as time deposits
and money market instruments, purchased with a maturity of three months or less,
to be cash equivalents.

     Marketable Securities

     The Company currently classifies its investment securities, other than
those accounted for on the equity method, as available-for-sale securities.
Pursuant to Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
such securities are measured at fair market value in the financial statements
with unrealized gains or losses recorded in other comprehensive income until the
securities are sold or otherwise disposed of. At such time gain or loss is

                                      -18-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


included in earnings. A decline in the market value of any available for sale
security below cost that is deemed to be other than temporary results in a
reduction in the carrying amount to fair value. The impairment is charged to
earnings and a new cost basis for the security results.

     Furniture, Fixtures and Equipment

     Furniture, fixtures and equipment are depreciated on a straight-line basis
over periods of three to ten years and rolling stock is depreciated on a
straight-line basis over four to five years. Such periods are the estimated
useful lives of such furniture, fixtures and equipments.

     Oil and Gas Properties

     The Company follows the full-cost method of accounting for oil and gas
properties and equipment costs. Under this method of accounting, all productive
and nonproductive costs incurred in the acquisition, exploration and development
of oil and gas reserves are capitalized. Capitalized costs are amortized on a
composite unit-of-production method by country using estimates of proved
reserves. Capitalized costs which relate to unevaluated oil and gas properties
are not amortized until proved reserves are associated with such costs or
impairment of the related property occurs. Management and drilling fees earned
in connection with the transfer of oil and gas properties to a joint venture and
proceeds from the sale of oil and gas properties are recorded as reductions in
capitalized costs unless such sales are material and involve a significant
change in the relationship between the cost and the value of the remaining
proved reserves, in which case a gain or loss is recognized. The Company
accounts for all unincorporated entities involved in oil and gas exploration and
production using proportionate gross financial presentation. Under the
proportionate gross basis, the Company records its share of assets and
liabilities on the balance sheet and related operating data in its income
statement. Expenditures for repairs and maintenance of wellhead equipment are
expensed as incurred. Net capitalized costs, less related deferred income taxes,
in excess of the present value of net future cash inflows (oil and gas sales
less production expenses) from proved reserves, tax-effected and discounted at
10%, and the cost of properties not being amortized, if any, are charged to
current expense. Amortization and excess capitalized costs, if any, are computed
separately for the Company's investment in Romania.

     Environmental Costs

     The Company is subject to extensive federal, state and local environmental
laws and regulations. These laws, which are constantly changing, regulate the
discharge of materials into the environment and may require the Company to
remove or mitigate the environmental effects of the disposal or release of
petroleum or chemical substances at various sites. Environmental expenditures
are expensed or capitalized depending on their future expected economic benefit
to the Company. Expenditures that relate to an existing condition caused by past
operations and that have no future economic benefits are expensed. Liabilities
for expenditures are recorded when environmental assessment and/or remediation
is probable and the costs can be reasonably estimated. Environmental liabilities
are accrued on an undiscounted basis unless the aggregate amount of the
obligation and the amount and timing of the cash payments are fixed and reliably
determined for that site.

     Impairment of Long-Term Assets

     The Company reviews its long-term assets other than oil and gas properties
for impairment whenever events or changes in circumstances indicated that the
carrying amount of an asset might not be recoverable. If the sum of the expected
future cash flows expected to result from the use of the asset and its eventual
disposition were less than the carrying amount of the asset, an impairment loss
would have been recognized. Measurement of an impairment loss would have been
based on the fair market value of the asset. Impairment for oil and gas
properties was computed in the manner described above under "Oil and Gas
Properties."

     Hedging Activities

     The Company used hedging strategies to hedge a significant portion of its
crude oil and natural gas production through July 31, 2000. The Company used

                                      -19-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


futures contracts to hedge such production. Gains and losses from hedging
activities were deferred and debited or credited to the item being hedged, oil
and gas sales, when they occurred. In order to qualify as a hedge the change in
fair market value of the hedging instrument was highly correlated with the
corresponding change in the hedged item. When the hedging instrument ceased to
qualify as a hedge, changes in fair value were charged against or credited to
earnings.










                                      -20-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)



     Gas Balancing

     Gas balancing activities have been immaterial during the periods reported.

     Investments In Network and Delta

     The Company's investments in Network and Delta (the Company owns 45% of
Network and 44% of Delta at September 30, 2002) are recorded on the equity
method. Under this method, the Company records its share of Network's and
Delta's income or loss with an offsetting entry to the carrying value of the
Company's investment. Cash distributions, if any, are recorded as reductions in
the carrying value of the Company's investment.

     The Company's investment in Network exceeded the fair value of the
Company's share of Network's assets. Such excess was allocated to goodwill and
amortized on a straight-line method over forty (40) years until September 30,
2002. Commencing October 1, 2002, amortization of goodwill has been replaced
with periodic tests for impairment at least annually in accordance with the
provisions of Statement of Financial Accounting Standards No. 142 (SFAS No.
142). Per SFAS No. 142 the Company will be required to perform a transitional
impairment test by March 31, 2003 (See Note 7).

     The Company's investment in Delta exceeded the Company's proportional share
of Delta's equity. The Company has allocated such excess to Delta's ownership
interests in offshore California leases and the related potential legal recovery
from a lawsuit Delta and other owners of offshore California leases have
instituted against the United States for breach of contract. The ownership
interests are considered an intangible asset and the Company is required to
evaluate the recoverability of such asset periodically and write them off or
reduce them to the extent they are not deemed recoverable (see Note 8).

     If Network and/or Delta incurs significant recurring losses in the future
and/or the market value of either of their stocks declines significantly, the
Company's investments may be impaired and the Company will then be required to
recognize such impairment.

     Comprehensive Income

     Comprehensive income includes net income and all changes in an enterprise's
other comprehensive income including, among other things, unrealized gains and
losses on certain investments in debt and equity securities.

     Stock Based Compensation

     SFAS 123, "Accounting for Stock-Based Compensation," allows an entity to
continue to measure compensation costs in accordance with Accounting Principle
Board Opinion No. 25 ("APB 25"). The Company has elected to continue to measure
compensation cost in accordance with APB 25 and to comply with the required
disclosure-only provisions of SFAS 123.

     Income Taxes

     The Company follows Statement of Financial Accounting Standards No. 109
("SFAS No. 109"), "Accounting for Income Taxes." SFAS No. 109 is an accounting
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company's financial statements and tax returns. In estimating future tax
consequences, SFAS 109 generally considers all expected future events other than
anticipated enactments of changes in the tax law or tax rates. SFAS 109 also
requires that deferred tax assets, if any, be reduced by a valuation allowance
based upon whether realization of such deferred tax asset is or is not more
likely than not. (See Note 17)

                                      -21-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


     Derivative Instruments

     Statement of Financial Accounting Standards No. 133, as amended, Accounting
for Derivative Instruments and Hedging Activities ("SFAS No. 133"), was issued
by the Financial Accounting Standards Board in June 1998. Subsequently, SFAS No.
138 "Accounting for Certain Derivative Instruments" (SFAS No. 138), an amendment
of SFAS No. 133, was issued. SFAS 133 standardize the accounting for derivative
instruments, including certain derivative instruments embedded in other
contracts. Under the standard, entities are required to carry all derivative
instruments in the statement of financial position at fair value. The Company
adopted SFAS No. 133 effective October 1, 2000. The Company ceased hedging its
oil and gas production in July 2000. At September 30, 2002, Delta held an option
to acquire 3,188,667 of its shares held by the Company for $4.50/share until May
31, 2003. Pursuant to SFAS No. 133, the Company accounts for changes in the
value of this option by recording gains or losses, as applicable, in its
Statement of Operations.

     Reclassifications

     Certain reclassifications have been made to make the periods presented
comparable.

     Use of Estimates

     The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these estimates.

     New Accounting Pronouncements

     Statement of Financial Accounting Standards No. 141, "Business
Combinations" ("SFAS No. 141") and SFAS 142, "Goodwill and Other Intangible
Assets" ("SFAS No. 142") were issued in July 2001. SFAS No. 141 requires that
all business combinations entered into subsequent to June 30, 2001 be accounted
for under the purchase method of accounting and that certain acquired intangible
assets in a business combination be recognized and reported as assets apart from
goodwill. SFAS No. 142 requires that amortization of goodwill be replaced with
periodic tests of the goodwill's impairment at least annually in accordance with
the provisions of SFAS No. 142 and that intangible assets other than goodwill be
amortized over their useful lives. The Company adopted SFAS No. 141 in July 2001
and adopted SFAS No. 142 on October 1, 2002. The Company will be required to
perform transitional impairment tests as of October 1, 2002. The Company does
not expect that its adoption of SFAS No. 142 will have a material effect on its
results of operations or financial position. See Notes 7 and 8.

     In June 2001, the FASB issued Statement No. 143, "Accounting for Asset
Retirement Obligations" ("SFAS No. 143"), which provides accounting requirements
for retirement obligations associated with tangible long-lived assets,
including: 1) the timing of liability recognition; 2) initial measurement of the
liability; 3) allocation of asset retirement cost to expense; 4) subsequent
measurement of the liability; and 5) related financial statement disclosures.
SFAS No. 143 requires that asset retirement costs be capitalized as part of the
cost of the related long-lived asset and subsequently allocated to expense using
a systematic and rational method. Any transition adjustment resulting from the
adoption of SFAS No. 143 would be reported as a cumulative effect of a change in
accounting principle. The Company adopted the statement effective October 1,
2002. The Company does not expect that adoption of this statement will affect
either its future financial position or results of operations as it currently
has no long lived assets to which SFAS No. 143 would apply.

     In August 2001, the FASB issued Statement No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets" ("SFAS No. 144"), which will be
effective for financial statements issued for fiscal years beginning after
December 15, 2001 and interim periods within those fiscal years. SFAS No. 144
requires that long-lived assets to be disposed of by sale be measured at the
lower of the carrying amount or fair value less cost to sell, whether reported
in continuing operations or in discontinued operations. SFAS No. 144 broadens
the reporting of discontinued operations to include all components of an entity
with operations that can be distinguished from the rest of the entity and that
will be eliminated from the ongoing operations of the entity in a disposal
transaction. After its effective date, SFAS No. 144 will be applied to those
transactions where appropriate. The Company adopted SFAS No 144 effective
October 1, 2002. The Company does not believe that adoption of this statement
will have a material effect on its future financial position or results of
operations.

                                      -22-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


     Statement 145, Recission of FASB Statements No. 4, 44 and 64, Amendment of
FASB Statement No. 13, and Technical Corrections ("SFAS No. 145") was issued in
April 2002. This statement rescinds SFAS No. 4, Reporting Gains and Losses from
Extinguishment of Debt, which required all gains and losses from extinguishment
of debt to be aggregated and, if material, classified as an extraordinary item,
net of income taxes. As a result, the criteria in Accounting Principles Board
No. 30 ("APB 30") will now be used to classify those gains and losses. Any gain
or loss on the extinguishment of debt that was classified as an extraordinary
item in prior periods presented that does not meet the criteria in APB 30 for
classification as an extraordinary item shall be reclassified. The provisions of
this Statement are effective for fiscal years beginning after January 1, 2003,
and the Company expects to adopt SFAS No. 145 on October 1, 2003. The Company
does not expect that adoption of this statement will have a material impact on
the Company's future financial condition or results of operations.

     Statement 146, Accounting Exit or Disposal Activities ("SFAS No. 146") was
issued in June 2002. SFAS No. 146 addresses significant issues regarding the
recognition, measurement and reporting of disposal activities, including
restructuring activities that are currently accounted in EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Activity." The
provisions of SFAS No. 146 are effective for exit or disposal activities
initiated after December 31, 2002.

NOTE 3 - DISCONTINUED REFINING OPERATIONS

     Effective September 30, 1995, the Company's refining subsidiaries
discontinued their refining operations.

     An analysis of the assets and liabilities related to the refining segment
for the period October 1, 1999 to September 30, 2002 is as follows:

<TABLE>
<CAPTION>
                                                                                   Estimated
                                                                               Realizable Value
                                                                                of Discontinued           Net Refining
                                                                             Net Refining Assets      Liabilities Retained
                                                                            ---------------------    ----------------------
<S>                                                                            <C>                   <C>
      Balance - October 1, 1999.........................................               $800                  $3,205
      Cash transactions.................................................                                       (153)
      Adjustment of vendor liabilities..................................                                        152
                                                                                       ----                  ------
      Balance - September 30, 2000......................................                800                   3,204
      Cash transactions.................................................                                        (80)
      Adjustment of vendor liabilities..................................                                         80
      Adjustments resulting from American Western's Plan of
              Liquidation...............................................               (188)                   (188)
                                                                                       ----                  ------
      Balance - September 30, 2001......................................                612                   3,016
      Adjustment of liabilities.........................................                                       (106)
      Cash transactions.................................................                                        106
                                                                                       ----                  ------
      Balance - September 20, 2002......................................               $612                  $3,016
                                                                                       ====                  ======
</TABLE>

        As of September 30, 2002, the estimated realizable value of discontinued
net refining assets consisted of $612 of estimated recoverable proceeds from the
American Western note. The estimated value of net refining liabilities retained
consisted of net vendor liabilities of $1,281 and accrued costs related to
discontinued refining operations of $2,049, offset by cash of $314.

        "Estimated realizable value of discontinued net refining assets" is
based on the transactions consummated by the Company with American Western and
transactions consummated by American Western and IRLP subsequently with others

                                      -23-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


and includes management's best estimates of the amounts expected to be realized
upon the complete disposal of the refining segment. "Net refining liabilities
retained" includes management's best estimate of amounts expected to be paid and
amounts expected to be realized upon the settlement of this net liability. The
amounts the Company ultimately realizes or pays could differ materially from
such amounts.

        See Note 12.


                                      -24-

<PAGE>



                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)



NOTE 4 - ACQUISITIONS AND DISPOSITIONS

     Investment in Drilling Joint Ventures

     In fiscal 1999, the Company entered into two drilling ventures to
participate in the drilling of up to sixteen exploratory wells in south Texas.
During fiscal 2000, the Company participated in the drilling of nine exploratory
wells pursuant to the related joint venture operating agreements. Eight wells
drilled resulted in dry holes and one well was completed as a producer. The
Company has no further drilling obligations under these joint ventures and has
terminated participation in each drilling venture. The total cost incurred to
participate in the drilling of the exploratory wells was $6,003.

     Offshore Louisiana Property Acquisition

     In December 1999, a subsidiary of the Company purchased majority interests
in twenty-six offshore Louisiana wells from Whiting Petroleum Company, a public
company engaged in oil and gas exploration and development ("Whiting"). The
adjusted purchase price was $890.

     In September 2000, the subsidiary sold its interests in the offshore
Louisiana wells to Delta. The effective date of the sale was July 1, 2000. The
adjusted purchase price of $3,059 consisted of $1,122 cash plus 382,289 shares
of Delta's common stock valued at the market price or $1,937 (see Note 6).

     Investment in Romanian Concessions

     In April 1999, the Company purchased an option to acquire a fifty percent
(50%) interest in three oil and gas concessions granted to a subsidiary of
Costilla Energy Corporation, a public oil and gas exploration and production
company ("Costilla"), by the Romanian government. The Company paid Costilla $65
for the option. In May 1999, the Company exercised the option. As of September
30, 2001, the Company had participated in the drilling of five onshore wildcat
wells. Four of those wells resulted in dry holes. Although the fifth well
produced some volumes of natural gas when tested, the Company was not able to
obtain a sufficiently high gas price to justify future production and elected
not to undertake an offset drilling program where the fifth well was drilled. As
a result, the Company recorded impairment provisions of $2,765 and $832 for the
years ended September 30, 2001 and 2000, respectively, for costs incurred for
the five onshore wells. In fiscal 2001, the Company also agreed to participate
in the drilling of a sixth well offshore in the Black Sea. In August 2002, the
Company purchased a 12.5% net profit interest in the Company's 50% interest in
the Romanian concessions from an unaffiliated company for $8. On September 6,
2002, the Company sold all of its interests in Romania to the operator of the
Romanian concessions for one dollar, resulting in a loss on the sale of $311.

     See Note 10.

     Other Exploration and Production Investments

     In November and December 1999, the Company acquired additional outside
interests in several Alabama and Pennsylvania wells, which it operated until May
31, 2002, for $2,580.

     East Texas Property Acquisition

     On April 30, 2001, the Company consummated the purchase of several East
Texas oil and gas properties from a private company. The effective date of the
purchase was April 1, 2001. These properties included majority interests in
twenty-one (21) operated producing oil and gas wells and interests in
approximately 6,500 gross acres in three counties in East Texas. The Company
estimated the proved reserves acquired were approximately 12.5 billion cubic
feet of natural gas and 191,000 barrels of crude oil. The consideration paid,
net of purchase price adjustments, was $10,040. The Company used its own
internally generated funds to make the purchase.


                                      -25-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


     On May 31, 2002, the Company consummated the sale of all of its domestic
oil and gas properties to Delta. The sale was pursuant to a definitive purchase
and sale agreement dated January 15, 2002. At closing, the Company received
$18,236 cash plus 9,566,000 shares of Delta's common stock. The $18,236 cash
represented a $20,000 purchase price cash component as of October 1, 2001, the
effective date of the sale, less $1,764 of net cash flow received by the Company
applicable to production from the properties subsequent to the effective date.
It did not include an estimated $2,564 of net production revenue (oil and gas
sales less oil and gas production expenses) applicable to production subsequent
to October 1, 2001 that the Company did not receive but has been or will be
received by Delta. In September 2002, the Company paid Delta an additional $194,
as the final purchase price adjustment, resulting in net cash proceeds of
$18,042. Pursuant to the governing purchase and sale agreement, the Company
granted Delta an option to repurchase up to 3,188,667 of Delta's shares at
$4.50/share for a period of one year after closing. That option was valued at
$2,682 at May 31, 2002 using the Black Scholes method. The Delta stock received
by the Company was valued at $26,952 based upon an evaluation by an independent
appraiser, excluding the value of the option granted to Delta. The value of the
9,566,000 shares of Delta stock was based upon a share price of $4.025, the
average price on the closing date, May 31, 2002, discounted by 30%. The Company
believes that the 30% discount to the traded price is reasonable due to the
illiquidity of Delta's stock and other factors. As a result of the sale, the
Company owns approximately 44% of Delta, which was accounted for under the
equity method effective May 31, 2002.

     For book purposes the Company recorded a gain on the sale of its domestic
oil and gas properties to Delta of $1,295 as follows:

<TABLE>
<CAPTION>
         Proceeds received
<S>                                                                                          <C>              <C>
            Cash price at October 1, 2001, effective date........................            $20,000
            Cash flow received by the Company October 1, 2001-May 31 2002........             (1,764)
            Final purchase price adjustment......................................               (194)
            Estimated production revenue earned by the Company October 1,
               2001 to May 31, 2002 but received by or to be received by Delta...             (2,564)
                                                                                             -------
                                                                                                               15,478
            Value of Delta stock received per appraisal (9,566,000 shares x
               $2.8175/share.....................................................                              26,952
                                                                                                              -------
                                                                                                               42,430
         Net book value of assets sold:
            Oil and gas properties...............................................                             (37,388)
            Pipeline.............................................................                                 (48)
                                                                                                              -------
         Gross gain on sale......................................................                               4,994
         Estimated value of Delta option to repurchase 3,188,667 shares..........                              (2,682)
                                                                                                              -------
         Net gain on sale........................................................                               2,312
         Portion of gain deferred (approximately 44%)............................                              (1,017)
                                                                                                              -------
         Net gain recorded.......................................................                             $ 1,295
                                                                                                              =======
</TABLE>


     Under generally accepted accounting principles, the Company's gross gain on
the sale is reduced by the fair value of Delta's option which was computed using
the Black Scholes method. In addition, a portion of the net gain on the sale,
equal to the Company's ownership interest in Delta after the transaction, was
deferred and offset against the Company's investment in Delta in accordance with
generally accepted accounting principles in the United States. The Company's
investment in Delta at September 30, 2002, computed using the equity method of
accounting (see below), is as follows:


                                      -26-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


<TABLE>
<CAPTION>
<S>                                                    <C>                                 <C>
      Book value of the Company's initial investment in Delta (382,289 shares) prior
         to May 31, 2002................................................................    $ 1,733
      Reduction of initial investment to market value upon conversion to equity
         method of accounting...........................................................       (184)
      "Catch up" adjustment necessary to convert the Company's initial
         investment in Delta to the equity method retroactively.........................       (165)
      Value of Delta stock received in Delta transaction (9,566,000 shares).............     26,952
      Portion of gain deferred (approximately 44%)......................................     (1,017)
      Estimated share of Delta loss for period June 1, 2002 to September 30, 2002
         (44% x 984)....................................................................       (433)
                                                                                            -------
                                                                                            $26,886
                                                                                            =======
</TABLE>

     Prior to May 31, 2002, the Company owned 382,289 shares of Delta, which
represented approximately 3.4% of Delta. At May 31, 2002, the Company was
required to account for their initial investments under the equity method.

     Under generally accepted accounting principles in the United States an
adjustment was first made to reduce the Company's cost of Delta's stock to its
market value before such market value is added to the Company's equity
investment in Delta. Next, an adjustment was made to record the Company's share
of Delta's net income (loss) under the equity method retroactively ("catch up"
adjustment).

     The Company's investment in Delta exceeded its proportional share of
Delta's equity by approximately $6,900 at closing, May 31, 2002. The Company has
allocated the excess to Delta's ownership interests in offshore California
leases and the related potential legal recovery from its offshore California oil
and gas leases. Delta and eight other energy companies which own interests in
oil and gas leases off the California coast have sued the United States for in
excess of $1,200,000 for reimbursement damages for breach of contract with
respect to these offshore oil and gas fields.

     See Note 8.

NOTE 5 - RESTRICTED CASH

     Restricted cash consists of the following:

<TABLE>
<CAPTION>
                                                                                                      September 30,
                                                                                              -----------------------------
                                                                                                   2002          2001
                                                                                                   ----          ----
<S>                                                                                              <C>            <C>
  Drilling deposits in escrow - Romania..................................................                        $  7
  Funds supporting letters of credit issued for operating bonds..........................         $  210          209
  Funds escrowed for Larry Long litigation settlement....................................                         154
  Funds supporting bond posted for Long Trusts Lawsuit, including $134 of accrued
        interest.........................................................................          4,020
                                                                                                  ------         ----
                                                                                                  $4,230         $370
                                                                                                  ======         ====
</TABLE>

     The drilling deposits in escrow - Romania - were included in the assets
sold to the operator of the Romanian concessions in September 2002 (see Note 4).

     The funds supporting letters of credit issued for operating bonds are being
replaced by Delta and it is expected that these funds will no longer be
restricted by March 31, 2003.

     See Note 13 concerning the funds supporting the bond posted for the Long
Trusts Lawsuits.


                                      -27-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


NOTE 6 - MARKETABLE SECURITIES

     The Company's investment in marketable securities consists of common shares
of Penn Octane Corporation, a public company that sells liquid propane gas into
Mexico ("Penn Octane"), Delta and ChevronTexaco Corporation. The Company's
investments in Penn Octane, Delta and ChevronTexaco common stock and options to
buy Penn Octane stock were as follows:

<TABLE>
<CAPTION>
                                                                     Common Stock
                                                               ------------------------
                                                               Penn Octane        Delta      Chevron/Texaco         Total
                                                               -----------        -----      --------------         -----
<S>                                                                 <C>         <C>          <C>                    <C>
      September 30, 2002:
        Cost...........................................             $2,271                         $14              $2,285
        Unrealized gain (loss).........................                763                          (2)                761
                                                                    ------                         ---              ------
        Book value (market value)......................             $3,034                         $12              $3,046
                                                                    ======                         ===              ======

      September 30, 2001:
        Cost...........................................             $2,271       $1,937            $14              $4,222
        Unrealized gain................................              3,308         (808)                             2,500
                                                                    ------       ------            ---              ------
        Book value (market value)......................             $5,579       $1,129            $14              $6,722
                                                                    ======       ======            ===              ======
</TABLE>


     The fair market values of Penn Octane, Delta and Chevron/Texaco shares were
based on one hundred percent (100%) of the closing price on the last trading day
in the Company's fiscal year.

     At September 30, 2002 and 2001, the fair market values of the Penn Octane
shares include $38 and $164, respectively, related to options to acquire Penn
Octane common stock held by the Company. The value of such options was computed
using the Black-Scholes method (see Note 16).

     As a result of the receipt of 9,566,000 shares of Delta's common stock in
conjunction with the sale of all of its domestic oil and gas properties to Delta
on May 31, 2002, the Company henceforth owned approximately 44% of Delta and
commenced accounting for Delta using the equity method of accounting (see Notes
4 and 8).

     The Company owned 1,343,600 shares of Penn Octane and 177 shares of
Chevron/Texaco at September 30, 2002. Of these 1,067,667 shares of Penn Octane
and all 177 shares of Chevron/Texaco were registered. The remaining shares are
either in the process of being registered or the Company has registration rights
with respect to such shares. At September 30, 2002, the Company also owned
options to purchase 74,067 common shares of Penn Octane common stock at $2.50
per share. These options expire in December 2003.

NOTE 7 - INVESTMENT IN NETWORKED ENERGY LLC

     The Company's investment in Network and its percentage ownership of
Network's membership interests were as follows:

<TABLE>
<CAPTION>
                                                                                                        September 30,
                                                                                                    ----------------------
                                                                                                     2002            2001
                                                                                                     ----            ----

<S>                                                                                                  <C>              <C>
  Investment...........................................................................              $650             $500
  Cumulative share of Network's losses.................................................              (256)             (90)
  Accumulated amortization of goodwill.................................................               (19)              (9)
                                                                                                     ----             ----
                                                                                                     $375             $401
                                                                                                     ====             ====

     Percentage of Network's membership units owned....................................               45%              35%
                                                                                                      ===              ===
</TABLE>

                                      -28-

<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


     The Company accounts for its investment in Network using the equity method
of accounting (see Note 2). In fiscal 2002 the Company invested an additional
$150 in Network, increasing its ownership from 35% to 45%.

     The components of the Company's equity in Network losses are as follows:

<TABLE>
<CAPTION>
                                                                                                   Year Ended September 30,
                                                                                                   ------------------------
                                                                                                     2002            2001
                                                                                                     ----            ----
<S>                                                                                                 <C>             <C>
  Share of Network's losses, excluding amortization of goodwill........................              $167              $90
  Amortization of goodwill.............................................................                 9                9
                                                                                                     ----              ---
                                                                                                     $176              $99
                                                                                                     ====              ===
</TABLE>

     The differences between the Company's investment in Network and the
Company's share of Network's underlying equity was $375 at September 30, 2002.
The Company allocated the difference to goodwill and amortized such differences
over 40 years on a straight-line method until September 30, 2002. Under the
provision of SFAS No. 142, commencing October 1, 2002, the Company will
periodically test such goodwill for impairment rather than amortizing it on a
straight-line basis over 40 years. The Company is required to compare the
carrying value of goodwill to its fair value as of October 1, 2002 by March 31,
2003.

     Network's membership units are held by the Company and one other member who
owns 55% of Network. The membership interests are not publicly traded.

     See Notes 2 and 22.

NOTE 8 - INVESTMENT IN DELTA PETROLEUM CORPORATION

        The Company's investment in Delta at September 30, 2002 was as follows:

<TABLE>
<CAPTION>
<S>                                                                                                                <C>
  Investment...............................................................................                        $27,484
  Cumulative share of Delta's losses.......................................................                           (598)
  Amortization of excess of Company's investment in Delta over its equity in Delta.........
                                                                                                                   -------
                                                                                                                   $26,886
                                                                                                                   =======
</TABLE>

     The Company currently accounts for its investment in Delta using the equity
method of accounting. Prior to June 1, 2002, the Company accounted for its
interest in Delta as available for sale securities. The Company currently owns
approximately 44% of Delta's common stock. Prior to June 1, 2002, the Company
owned approximately 3.4% of Delta's stock.

     The components of the Company's equity in Delta's loss for the year ended
September 30, 2002 are as follows:

<TABLE>
<CAPTION>
<S>                                                                                       <C>   <C>
  Share of Delta's loss................................................................       $598
     Amortization of excess of Company's investment over its equity in Delta...........
                                                                                              ----
                                                                                              $598
                                                                                              ====
</TABLE>

     The difference between the Company's investment in Delta and its
proportional share of Delta's equity was approximately $6,900 at May 31, 2002.
The Company has allocated the excess to Delta's ownership interests in offshore
California leases and the related potential legal recovery from Delta's offshore
California oil and gas leases.

        See Notes 2 and 4.

                                      -29-

<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


        Condensed financial information concerning Delta is as follows:

<TABLE>
<CAPTION>
                                                                                                        September 30,
                                                                                                 -------------------------
                                                                                                    2002            2001
                                                                                                    ----            ----
                                 Condensed Balance Sheet                                                 (Unaudited)

                                         Assets

<S>                                                                                                <C>              <C>
  Current assets....................................................................              $ 8,392          $ 3,473
  Oil and gas properties, net.......................................................               66,147           24,399
  Other assets......................................................................                  432            1,197
                                                                                                  -------          -------
                                                                                                  $74,971          $29,069
                                                                                                  =======          =======
                          Liabilities and Stockholders' Equity

  Current liabilities, including current portion of long-term debt..................              $ 7,085          $ 5,413
  Long-term debt....................................................................               23,584            5,728
  Shareholder's equity..............................................................               44,302           17,928
                                                                                                  -------          -------
                                                                                                  $74,971          $29,069
                                                                                                  =======          =======


                                                                                                     For the Year Ended
                                                                                                        September 30,
                                                                                                 -------------------------
                                                                                                    2002            2001
                                                                                                    ----            ----
                                                                                                         (Unaudited)
                            Condensed Statement of Operations

  Revenue:
        Oil and gas sales..............................................................           $11,172          $12,311
        Other..........................................................................               243              596
                                                                                                  -------          -------
                                                                                                   11,415           12,907
                                                                                                  -------          -------
  Expense:
        Lease operating expenses.......................................................             5,877            4,476
        General and administrative.....................................................             3,833            2,665
        Depreciation, depletion and amortization.......................................             4,239            2,861
        Other..........................................................................             1,998            1,380
                                                                                                  -------          -------
                                                                                                   15,947           11,382
                                                                                                  -------          -------
  Other income (loss)..................................................................            (1,360)          (1,694)
                                                                                                  -------          -------
  Income (loss) before taxes...........................................................            (5,892)            (169)
  Income taxes.........................................................................
                                                                                                  -------          -------
  Net income (loss)....................................................................          ($ 5,892)        ($   169)
                                                                                                  =======          =======
</TABLE>

     The above condensed financial information has been compiled using Delta's
audited financial statements for the years ended June 30, 2002 and 2001 and its
unaudited quarterly financial statements for the quarters ended September 30,
2000, 2001 and 2002.

     Delta' stock is traded on the Nasdaq stock market under the symbol "DPTR."
At September 30, 2002, the closing price of Delta's common stock was $3.29.

     At September 30, 2002, there were 5,332,487 options and warrants to acquire
Delta's stock outstanding, including options and warrants that are out of the
money. The Company holds none of these options and warrants. If all such options
and warrants had been exercised at September 30, 2002, the Company's percentage
ownership of Delta would decrease to approximately 36%.

                                      -30-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


NOTE 9 - FURNITURE, FIXTURES AND EQUIPMENT

        Furniture, fixtures and equipment are as follows:

<TABLE>
<CAPTION>
                                                                                                         September 30,
                                                                                                   -------------------------
                                                                                                     2002             2001
                                                                                                     ----             ----
<S>                                                                                                  <C>              <C>
       Cost:
             Furniture and fixtures....................................................              $700             $693
             Automobile and trucks.....................................................               269              269
                                                                                                     ----             ----
                                                                                                      969              962
       Accumulated depreciation........................................................              (816)            (740)
                                                                                                     ----             ----
                                                                                                     $153             $222
                                                                                                     ====             ====
</TABLE>

NOTE 10 - OIL AND GAS PROPERTIES (Unaudited)

        Oil and gas properties consist of the following:

<TABLE>
<CAPTION>
                                                                                             September 30, 2001
                                                                                 -------------------------------------------
                                                                                   United
                                                                                   States         Romania           Total
                                                                                 ----------       -------           -----

<S>                                                                                <C>            <C>              <C>
      Proved properties..................................................          $56,100                         $56,100
      Less: Accumulated depreciation, depletion and amortization.........          (16,257)                        (16,257)
                                                                                   -------                         -------
      Proved properties..................................................           39,843                          39,843
      Unproved properties not being amortized............................                          $3,707            3,707
      Impairment of unproved properties..................................                          (3,597)          (3,597)
                                                                                   -------         ------          -------
                                                                                   $39,843         $  110          $39,953
                                                                                   =======         ======          =======
</TABLE>

     The Company sold all of its domestic oil and gas properties to Delta on May
31, 2002 and sold all of its oil and gas interests in Romania to the operator of
the Romanian concession on September 6, 2002 (see Note 4) and thus had no oil
and gas properties at September 30, 2002. As required by SFAS No. 69,
"Disclosures about Oil and Gas Producing Activities," the Company has presented
its interest in Delta's results of operations from oil and gas operations.

     The Company's 44% interest in Delta's net capitalized costs at September
30, 2002 was $29,105 (unaudited).

     Capital costs incurred by the Company in oil and gas activities are as
follows:

<TABLE>
<CAPTION>
                                                                       Year Ended September 30,
                                                  ------------------------------------------------------------------------
                                                                2002                                 2001
                                                  ------------------------------------------------------------------------
                                                  United                               United
                                                  States       Romania      Total      States       Romania       Total
                                                  ------       -------      -----      ------       -------       -----
         Acquisition of properties:
<S>                                               <C>            <C>        <C>       <C>           <C>         <C>
              Proved properties............                                           $10,002                   $10,002
              Unproved properties..........         $154         $221       $375          346                       346
         Exploration.......................                                             1,560        $1,428       2,988
         Development.......................          434                     434        2,113                     2,113
                                                    ----         ----       ----      -------        ------     -------
                                                    $588         $221       $809      $14,021        $1,428     $15,449
                                                    ====         ====       ====      =======        ======     =======
</TABLE>

                                      -31-

<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


<TABLE>
<CAPTION>
                                                                                           Year Ended September 30, 2000
                                                                                       ------------------------------------
                                                                                        United
                                                                                        States       Romania         Total
                                                                                       --------      -------         -----
      Acquisition of properties:
<S>                                                                                    <C>           <C>            <C>
            Proved properties....................................................      $ 3,642                      $ 3,642
            Unproved properties..................................................          678        $  999          1,677
      Exploration................................................................        2,966           346          3,312
      Development................................................................        2,595                        2,595
                                                                                       -------        ------        -------
                                                                                       $ 9,881        $1,345        $11,226
                                                                                       =======        ======        =======
</TABLE>

     For the years ended September 30, 2002, 2001 and 2000, the Company incurred
development related to booked proved undeveloped reserves of $434, $773 and
$2,324, respectively.

     The Company's 44% interest in Delta's costs of property acquisition,
exploration and development are as follows:

<TABLE>
<CAPTION>
                                                                                                Year Ended June 30, 2002
                                                                                       -----------------------------------------
                                                                                         Onshore        Offshore         Total
                                                                                       -----------     ----------      ---------
<S>                                                                                    <C>             <C>             <C>
      Acquisition of properties:
            Proved properties....................................................        $16,848                         $16,848
            Unproved properties..................................................          4,011         $ 160             4,171
      Exploration................................................................             48            21                69
      Development................................................................            434           527               961
                                                                                         -------         -----           -------
                                                                                         $21,341         $ 708           $22,049
                                                                                         =======         =====           =======
</TABLE>

     All of Delta's offshore properties are located in offshore California.

     The Company's 44% interest in Delta's capital historical costs incurred in
oil and gas activities is presented for annual periods ending June 30 because
this is Delta's fiscal year end.

     Results of operations, excluding corporate overhead and interest expense,
from the Company's oil and gas producing activities are as follows:

<TABLE>
<CAPTION>
                                                                                             Year Ended September 30,
                                                                                     --------------------------------------
                                                                                        2002            2001         2000
                                                                                        ----            ----         ----
<S>                                                                                    <C>            <C>           <C>
      Revenues:
         Crude oil, condensate, natural gas liquids and natural gas sales..            $9,445         $21,144       $17,959
                                                                                       ------         -------       -------
      Costs and expenses:
         Production costs..................................................            $3,267          $7,399        $6,194
         Depreciation, depletion and amortization..........................             3,072           3,348         2,990
         Impairment of foreign unproved properties.........................                             2,765           832
                                                                                       ------         -------       -------
         Total costs and expenses..........................................             6,339          13,512        10,016
                                                                                       ------         -------       -------
      Income tax provision (benefit).......................................             3,313           1,387        (6,553)
                                                                                       ------         -------       -------
      Income (loss) from oil and gas producing activities..................           ($  207)         $6,245       $14,496
                                                                                       ======         =======       =======
</TABLE>


     The income tax provision was computed at the effective tax rate for the
related fiscal year.

                                      -32-

<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


     The Company's 44% interest in Delta's historical results of operations,
excluding corporate overhead and interest expense, from oil and gas producing
activities are as follows:

<TABLE>
<CAPTION>
                                                                                                            Year Ended
                                                                                                           June 30, 2002
                                                                                                           -------------

<S>                                                                                                            <C>
      Loss from oil and gas producing activities..................................................             $673
                                                                                                               ====
</TABLE>

     Assuming conversion of oil and gas production into common equivalent units
of measure on the basis of energy content, depletion rates per equivalent MCF
(thousand cubic feet) of natural gas were as follows:

<TABLE>
<CAPTION>
                                                                                         Year Ended September 30,
                                                                                 ----------------------------------------
                                                                                    2002          2001           2000
                                                                                    ----          ----           ----

<S>                                                                                <C>           <C>            <C>
        Depletion rate per equivalent MCF of natural gas...................        $0.92         $0.72          $0.57
                                                                                   =====         =====          =====
</TABLE>

     The increases in the depletion rate in fiscal 2002 and 2001 resulted
primarily because the Company's reserves decreased significantly as a result of
lower oil and gas prices at September 30, 2001. The decrease in reserve
quantities without a similar decrease in related costs resulted in a higher
depletion rate. The decreased reserves affected only the last quarter of fiscal
2001 but affected the first three quarters of fiscal 2002. Since the Company
sold all of its domestic oil and gas properties to Delta on May 31, 2002, the
Company did not incur depletion costs for the last quarter of fiscal 2002 and
did not have any oil and gas reserves to be evaluated at September 30, 2002. In
addition, in fiscal 2001, the Company acquired significant East Texas reserves
at a higher cost per mcfe than the cost for the Company's existing reserves at
the time of the acquisition.

     See Note 4

     Under the full cost method of accounting, the net book value of oil and gas
properties less related deferred income taxes (the "costs to be recovered"), may
not exceed a calculated "full cost ceiling." The ceiling limitation is the
discounted estimated after-tax future net revenues from oil and gas properties.
The ceiling is imposed separately by country. In calculating future net
revenues, current prices and costs are generally held constant indefinitely. The
costs to be recovered are compared to the ceiling on a quarterly basis. If the
costs to be recovered exceed the ceiling, the excess is written off as an
expense, except as discussed in the following paragraph.

     If, subsequent to the end of the reporting period, but prior to the
applicable financial statements being published, prices increase to levels such
that the ceiling would exceed the costs to be recovered, a write down otherwise
indicated at the end of the reporting period is not required to be reported. A
write down indicated at the end of a reporting period is also not required if
the value of additional reserves proved up on properties after the end of the
reporting period, but prior to the publishing of the financial statements, would
result in the ceiling exceeding the costs to be recovered, as long as the
properties were owned at the end of the reporting period.

     An expense recorded in one period may not be reversed in a subsequent
period even though higher oil and gas prices may have increased the ceiling
applicable to the subsequent period.

     Based on oil and natural gas cash market prices as September 30, 2001, the
Company's costs to be recovered for its domestic reserves exceeded the related
ceiling values by $437. However, the cash market prices of natural gas
subsequently increased significantly. Based on cash market prices of oil and
natural gas as at December 18, 2001, the Company determined that there was no
impairment of its domestic oil and gas properties. Accordingly, the Company did
not record a reduction in the carrying value of its domestic oil and gas
properties at September 30, 2001.


                                      -33-

<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


NOTE 11 - PROVED OIL AND GAS RESERVES AND RESERVE VALUATION (UNAUDITED)

     Reserve estimates are based upon subjective engineering judgements made by
the Company's independent petroleum reservoir engineers, Huntley & Huntley and
Ralph E. Davis Associates, Inc. and may be affected by the limitations inherent
in such estimations. The process of estimating reserves is subject to continuous
revisions as additional information is made available through drilling, testing,
reservoir studies and production history. There can be no assurance such
estimates will not be materially revised in subsequent periods.

     Estimated quantities of proved reserves and changes therein, all of which
are domestic reserves, are summarized below:

<TABLE>
<CAPTION>
                                                                                             ("000's" Omitted)
                                                                                ------------------------------------------
                                                                                 Oil (BBLS)             Natural Gas (MCF)
                                                                                 ----------             -----------------
    Proved developed and undeveloped reserves:
<S>                                                                              <C>                     <C>
          As of September 30, 1999.....................................               2,030                   28,402
              Acquisitions.............................................               1,063                    6,639
              Divestitures.............................................                (974)                    (236)
              Discoveries..............................................                   1                      317
              Revisions of previous estimates..........................               2,894                   12,728
              Production...............................................                (279)                  (3,547)
                                                                                     ------                  -------
          As of September 30, 2000.....................................               4,735                   44,303
              Acquisitions.............................................                 266                   10,183
              Revisions of previous estimates..........................              (1,730)                 (20,711)
              Production...............................................                (262)                  (3,083)
                                                                                     ------                  -------
          As of September 30, 2001.....................................               3,009                   30,692
              Production...............................................                (179)                  (2,160)
              Divestitures.............................................              (2,830)                 (28,532)
                                                                                     ------                  -------
          As of September 30, 2002.....................................
                                                                                     ======                  =======
    Proved developed reserves:
          September 30, 1999...........................................               1,788                   23,547
                                                                                     ======                  =======
          September 30, 2000...........................................               2,963                   35,815
                                                                                     ======                  =======
          September 30, 2001...........................................               1,890                   26,480
                                                                                     ======                  =======
          September 30, 2002...........................................
                                                                                     ======                  =======

    Company's 44% interest in reserves of Delta (proved
       developed and undeveloped reserves).............................
          June 30, 2002................................................               2,121                   19,340
                                                                                     ======                  =======
</TABLE>


     The Company owned no oil and gas properties at September 30, 2002 having
sold all of its domestic oil and gas properties to Delta on May 31, 2002 (see
Note 4).

     Delta's fiscal year is June 30th and reserve information with respect to
the Company's share of Delta's reserves is therefore presented as of that date.

     Although the Company participated in the drilling of five wildcat wells in
Romania, no proved reserves were assigned to any of these wells.

     The following is a standardized measure of discounted future net cash flows
and changes therein relating to estimated proved oil and gas reserves, as
prescribed in Statement of Financial Accounting Standards No. 69. The
standardized measure of discounted future net cash flows does not purport to
present the fair market value of the Company's oil and gas properties. An
estimate of fair value would also take into account, among other factors, the
likelihood of future recoveries of oil and gas in excess of proved reserves,
anticipated future changes in prices of oil and gas and related development and
production costs, a discount factor based on market interest rates in effect at
the date of valuation and the risks inherent in reserve estimates:

                                      -34-

<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


<TABLE>
<CAPTION>
                                                                                                         September 30,
                                                                                                   -------------------------
                                                                                                      2001           2000
                                                                                                      ----           ----

<S>                                                                                                 <C>            <C>
        Future cash inflows...........................................................              $130,289       $371,784
        Future production costs.......................................................               (41,193)       (87,162)
        Future development costs......................................................                (8,585)       (12,620)
        Future income tax expense.....................................................               (10,892)       (84,445)
                                                                                                    --------       --------
        Future net cash flows.........................................................                69,619        187,557
        Discount factor of 10% for estimated timing of future cash flows..............               (33,599)       (96,438)
                                                                                                    --------       --------
        Standardized measure of discounted future cash flows..........................              $ 36,020       $ 91,119
                                                                                                    ========       ========
</TABLE>

     No standardized measure of discounted future cash flows exists at September
30, 2002 because the Company sold all of its domestic oil and gas properties to
Delta on May 31, 2002 (see Note 4).

     The future cash flows were computed using the applicable year-end prices
and costs that related to then existing proved oil and gas reserves in which the
Company has interests. The estimates of future income tax expense were computed
at the blended rate (Federal and state combined) of 36%.

     The following were the sources of changes in the standardized measure of
discounted future net cash flows:

<TABLE>
<CAPTION>
                                                                                                  September 30,
                                                                                   ----------------------------------------
                                                                                       2002            2001          2000
                                                                                       ----            ----          ----
<S>                                                                                   <C>             <C>           <C>
       Standardized measure, beginning of year...........................             $36,020         $91,119       $41,244
       Sale of oil and gas, net of production costs......................              (6,178)        (13,745)      (11,083)
       Net changes in prices.............................................                             (62,271)       45,757
       Sale of reserves in place.........................................             (32,678)                       (1,457)
       Purchase of reserves in place.....................................                               7,662         6,757
       Changes in estimated future development costs.....................                               1,518        (5,039)
       Development costs incurred during the period that reduced future
          development costs..............................................                 434           2,113         2,595
       Revisions in reserve quantity estimates...........................                             (27,596)       76,355
       Discoveries of reserves...........................................                                               963
       Net changes in income taxes.......................................                              31,054       (32,031)
       Accretion of discount.............................................               2,402           9,112         4,286
       Other:
          Change in timing of production.................................                                (944)      (36,168)
          Other factors..................................................                              (2,002)       (1,060)
                                                                                      -------         -------       -------
       Standardized measure, end of year.................................             $               $36,020       $91,119
                                                                                      =======         =======       =======

       The Company's 44% interest in Delta's standardized measure of
          discounted future cash flows at June 30, 2002..................             $27,647
                                                                                      =======
</TABLE>

     The Company's share of Delta's standardized measure of discounted future
cash flow was computed as of June 30 because this is Delta's fiscal year end.

NOTE 12 - ENVIRONMENTAL LIABILITY

     ChevronTexaco Litigation

     On August 13, 2002, three subsidiaries of ChevronTexaco, Inc.
(collectively, "ChevronTexaco") filed Cause No. 02-4162-JPG in the United States
District Court for the Southern District of Illinois against the Company, as
well as against two inactive subsidiaries of the Company and three unrelated
parties. The lawsuit seeks damages and declaratory relief under contractual and

                                      -35-

<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


statutory claims arising from environmental damage at the now dismantled Indian
Refinery. In particular, the lawsuit claims that the Company is contractually
obligated to indemnify and defend ChevronTexaco against all liability and costs,
including lawsuits, claims and administrative actions initiated by the EPA and
others, that ChevronTexaco has or will incur as a result of environmental
contamination at and around the Indian Refinery, even if that environmental
contamination was caused by Texaco, Inc. and its present and former subsidiaries
("Texaco" - now merged into ChevronTexaco) which previously owned the refinery
for over 75 years. The suit also seeks costs, damages and declaratory relief
against the Company under CERCLA, OPA and the Solid Waste Disposal Act, as
amended, ("RCRA").

     History

     In December 1995, IRLP sold its refinery, the Indian Refinery, to American
Western, an unaffiliated party. As part of the related purchase and sale
agreement, American Western assumed all environmental liabilities and
indemnified IRLP with respect thereto. Subsequently, American Western filed for
bankruptcy and sold large portions of the Indian Refinery to an outside party
pursuant to a bankruptcy proceeding. The outside party has substantially
dismantled the Indian Refinery. American Western filed a Liquidation Plan in
2001. American Western anticipated that the Liquidation Plan would be confirmed
in January 2002 but confirmation has been delayed primarily because of legal
challenges by Texaco, and now ChevronTexaco.

     During fiscal 1998, the Company was informed that the United States
Environmental Protection Agency ("EPA") had investigated offsite acid sludge
waste found near the Indian Refinery and had investigated and remediated surface
contamination on the Indian Refinery property. Neither the Company nor IRLP was
initially named with respect to these two actions.

     In October 1998, the EPA named the Company and two of its inactive refining
subsidiaries as potentially responsible parties for the expected clean-up of an
area of approximately 1,000 acres, which the EPA later designated as the Indian
Refinery-Texaco Lawrenceville Superfund Site. In addition, eighteen other
parties were named including Texaco and a subsidiary of Texaco which had owned
the refinery until December of 1988. The Company subsequently responded to the
EPA indicating that it was neither the owner nor the operator of the Indian
Refinery and thus not responsible for its remediation.

     In November 1999, the Company received a request for information from the
EPA concerning the Company's involvement in the ownership and operation of the
Indian Refinery. The Company responded to the EPA information request in January
2000.

     Claims by Texaco

     On August 7, 2000, the Company received notice of a claim against it and
two of its inactive refining subsidiaries from Texaco. Texaco had made no
previous claims against the Company although the Company's subsidiaries had
owned the refinery from August 1989 until December 1995. In its claim, Texaco
demanded that the Company and its former subsidiaries indemnify Texaco for all
liability resulting from environmental contamination at and around the Indian
Refinery. In addition, Texaco demanded that the Company assume Texaco's defense
in all matters relating to environmental contamination at and around the Indian
Refinery, including lawsuits, claims and administrative actions initiated by the
EPA, and indemnify Texaco for costs that Texaco had already incurred addressing
environmental contamination at the Indian Refinery. Finally, Texaco also claimed
that the Company and two of its inactive subsidiaries were liable to Texaco
under the Federal Comprehensive Environmental Response Compensation and
Liability Act ("CERCLA") as owners and operators of the Indian Refinery. The
Company responded to Texaco disputing the factual and legal contentions for
Texaco's claims against the Company. The Company's management and special
counsel subsequently met with representatives of Texaco but the parties
disagreed concerning Texaco's claims. In October 2001, Texaco merged with
Chevron and the merged Company was named ChevronTexaco.

     In May 2002, the Company received a letter from ChevronTexaco which
asserted a new claim against the Company and its subsidiaries pursuant to the
Oil Pollution Act of 1990 ("OPA") for costs and damages incurred or to be
incurred by ChevronTexaco resulting from actual or threatened discharges of oil
to navigable waters at or near the Indian Refinery. ChevronTexaco estimated
these costs and damages to be $20,500.


                                      -36-
<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


     The Company's general counsel subsequently corresponded with ChevronTexaco
and the Company voluntarily provided a number of documents requested by
ChevronTexaco. In June 2002, ChevronTexaco's counsel indicated to the Company's
general counsel that ChevronTexaco did not intend to sue the Company.
Subsequently, ChevronTexaco requested additional documents from the Company,
which the Company promptly and voluntarily supplied to ChevronTexaco.

     In August 2002, the Company's management and special counsel met with legal
and management representatives of ChevronTexaco in an effort to resolve
outstanding issues. At the meeting a special outside counsel of ChevronTexaco
asserted claims against the Company based upon newly expressed legal theories.
ChevronTexaco also informed the Company that residential landowners adjacent to
the Indian Refinery site had recently filed a toxic torts suit against
ChevronTexaco in Illinois state court. The meeting ended in an impasse.

     Litigation

     On August 13, 2002, ChevronTexaco filed the above litigation in federal
court. By letter dated August 28, 2002, ChevronTexaco tendered the Illinois
state court litigation to the Company for indemnification, but the Company
promptly responded, denying responsibility. The Company has retained Bryan Cave
LLP as trial counsel.

     On October 25, 2002, the Company filed motions to dismiss as a matter of
law the contractual claims in Texaco's complaint, as well as the OPA and RCRA
claims. At the same time, the Company filed its answer to ChevronTexaco's
lawsuit on the remaining CERCLA claim. The Federal District Court has not set a
preliminary trial date for this matter due to the complexity of this matter and
the crowded docket of the Court. The Company does intend to pursue all available
opportunities for early dismissal of this matter, including requests for summary
judgement prior to trial.

     The central argument to both ChevronTexaco's contractual and statutory
claims is that the Company should be treated as a "successor" and "alter ego" of
certain of its present and former subsidiaries, and thereby should be held
directly liable for ChevronTexaco's claims against those entities. ChevronTexaco
makes this argument notwithstanding the fact that the Company never directly
owned the refinery or was a party to any of the disputed contracts.
ChevronTexaco has also claimed that the Company itself directly operated the
refinery. The leading opinion in this area of the law, as issued by the U.S.
Supreme Court in June 1998 in the comparable matter of United States v.
Bestfoods, 524 U.S. 51, 118 S.Ct. 1876 (1998), supports the Company's positions.

     Estimated gross undiscounted clean-up costs for this refinery are at least
$80,000-$150,000 according to public statements by Texaco to the Company and
third parties. ChevronTexaco has asserted in its contractual claim that the
Company should indemnify ChevronTexaco for all environmental liabilities related
to the Indian Refinery. If ChevronTexaco were to prevail on this theory, the
Company could be held liable for the entirety of the estimated clean up costs, a
sum far in excess of the Company's financial capability. On the other hand, if
the Company were found liable by reason of ChevronTexaco's statutory claims for
contribution and reimbursement under CERCLA and OPA, the Company could be
required to pay a percentage of the clean-up costs based on equitable allocation
factors such as comparative time of ownership and operation, toxicity and amount
of hazardous materials released, remediation funded to date, as well as other
factors. Since the Company's subsidiary only operated the Indian Refinery five
years, whereas Texaco operated it over seventy five years the Company would
expect that its share of remediation liability would at a minimum be reduced to
an amount proportional to the years of operation by its subsidiary, although
such may not be the case. Additionally, since Texaco and its subsidiaries
intentionally disposed of hazardous wastes on site at the Indian Refinery while
the Company's subsidiary arranged to remove for offsite destruction and disposal
any hazardous wastes it may have generated, any allocation to the Company and
its subsidiaries might be further reduced.

     The Company and its special counsel, Reed Smith LLP, believe that
ChevronTexaco's previous and current claims, including ChevronTexaco's newly
expressed legal theories, are utterly without merit and the Company intends to
vigorously defend itself against all of ChevronTexaco's claims in the litigation
and any lawsuits that may follow. In addition to the numerous defenses that the
Company has against ChevronTexaco's contractual claim for indemnity, the Company
and its special counsel believe that by the express language of the agreement
which ChevronTexaco construes to create an indemnity, ChevronTexaco has
irrevocably elected to forego all rights of contractual indemnification it might
otherwise have had against any person, including the Company.

                                      -37-
<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


     Contingent Environmental Liabilities

     Although the Company does not believe it is liable for any of its
subsidiaries' clean-up costs and intends to vigorously defend itself in such
regard, the Company cannot predict the ultimate outcome or timing of these
matters due to inherent uncertainties. If funds for environmental clean-up are
not provided by former and/or present owners, it is possible that the Company
and/or one of its former refining subsidiaries could be held responsible or
could be named parties in additional legal actions to recover remediation costs.
In recent years, government and other plaintiffs have often sought redress for
environmental liabilities from the party most capable of payment without regard
to responsibility or fault.

     Although any environmental liabilities related to the Indian Refinery have
been transferred to others, there can be no assurance that the parties assuming
such liabilities will be able to pay them. American Western, owner of the Indian
Refinery, filed for bankruptcy and is in the process of liquidation.

     As noted above, the EPA named the Company as a potentially responsible
party for remediation of the Indian Refinery and requested and received relevant
information from the Company and ChevronTexaco has tendered the defense of a
state court toxic torts action to the Company. Whether or not the Company is
ultimately held liable in the current litigation or other proceedings, it is
probable that the Company will incur substantial legal fees and experience a
diversion of corporate resources from other opportunities.

     Powerine

     In September 1995, Powerine sold the Powerine Refinery to Kenyen Resources
("Kenyen"), an unaffiliated party. In January 1996, Powerine merged into a
subsidiary of Energy Merchant Corp. ("EMC"), an unaffiliated party, and EMC
assumed all environmental liabilities of Powerine. In August 1998, EMC sold the
Powerine Refinery, which it had subsequently acquired from Kenyen, to a third
party.

     In July of 1996, the Company was named a defendant in a class action
lawsuit concerning emissions from the Powerine Refinery. In April of 1997, the
court granted the Company's motion to quash the plaintiff's summons based upon
lack of jurisdiction and the Company is no longer involved in the case.

NOTE 13 - COMMITMENTS, CONTINGENCIES AND LINE OF CREDIT

     Operating Lease Commitments

     The Company has the following noncancellable operating lease commitments
and noncancellable sublease rentals at September 30, 2002:

                                                     Lease          Sublease
     Year Ending September 30,                     Commitments       Rentals
     ----------------------------------------- ------------------ --------------

           2003...........................           $470             $74
           2004...........................            240               8
           2005...........................             76               8
                                                     ----             ---
           Total..........................           $786             $90
                                                     ====             ===

     Rent expense for the years ended September 30, 2002, 2001 and 2000 was
$517, $456 and $412, respectively.



                                      -38-
<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)



     Severance/Retention Obligations

     At September 30, 2001, the Company had severance agreements with
substantially all of its employees, including five of its officers, that
provided for severance compensation in the event substantially all of the
Company's or its subsidiaries' assets were sold and the employees were
terminated as a result of such sale. On May 31, 2002, the Company sold all of
its oil and gas assets to Delta (see Note 4). As a result all officers and
employees of the Company except one were either severed or had their
compensation significantly reduced or had their severance approved by the
Company's Compensation Committee. Total severance obligations incurred by the
Company with respect to severance of these officers and employees was $898. All
such severance obligations were recorded by the Company in the third or fourth
quarters of fiscal 2002. At September 30, 2002, $366 of this amount had not yet
been paid. At September 30, 2002, the Company still had a severance agreement
with the one officer who had not been severed or whose compensation had not been
reduced. Such severance obligation aggregated $39 at September 30, 2002.

     Line of Credit

     The Company has a $40,000 line of credit with an energy bank. Pursuant to
the related agreement the energy bank agreed to make available to the Company
loans and letters of credit not to exceed a borrowing base determined by the
value of the Company's oil and gas reserves using parameters set by the bank.
Such borrowing based will be determined no less than semi-annually. The loans
and letters of credit will be secured by the Company's oil and gas properties to
the extent the amount outstanding under the facility exceeds $10,000. Interest
under the facility will accrue at the bank's prime rate or at a LIBOR rate - the
choice of rates being determined by the Company. Letters of credit issued under
the facility will accrue interest at 2.25% annually. Loans outstanding under the
facility will be repaid pursuant to a schedule set by the bank but redetermined
at each borrowing base determination date. In addition, the Company is subject
to typical financial covenants including minimum tangible net worth, debt
service coverage, interest coverage and current ratio limitations. The facility
terminates February 1, 2005. The facility also includes a provision to provide
such letters of credit as may be required for the Long Trusts Lawsuit litigation
(see Note 13 below).

     At September 30, 2002, a $3,886 letter of credit supporting a bond for the
Long Trusts Lawsuit litigation was outstanding. The Company has secured this
letter of credit with a certificate of deposit at the energy bank. The Company
cannot currently draw further borrowings or letters of credit under this
facility because it has no remaining letter of credit capacity remaining and
because it has no oil and gas reserves with which to secure its existing loans.
There are currently no restrictions on payment of dividends by the Company so
long as the Company secures outstanding letters of credit with its own funds as
is currently the case.

     Legal Proceedings

            Contingent Environmental Liabilities

            See Note 12.

            General

     Litigation

           Long Trusts Lawsuit

         In November 2000, the Company and three of its subsidiaries were
defendants in a jury trial in Rusk County, Texas. The plaintiffs in the case,
the Long Trusts, are non-operating working interest owners in wells previously
operated by Castle Texas Production Limited Partnership ("CTPLP"), an inactive
exploration and production subsidiary of the Company. The wells were among those
sold to UPRC in May 1997. The Long Trusts claimed that CTPLP did not allow them
to sell gas from March 1, 1996 to January 31, 1997 as required by applicable
joint operating agreements, and they sued CTPLP and the Company's other
subsidiaries, claiming (among other things) breach of contract, breach of
fiduciary duty, conversion and conspiracy. The plaintiffs sought actual damages,
exemplary damages, pre-judgment and post-judgment interest, attorney's fees and
court costs. CTPLP counterclaimed for approximately $150 of unpaid joint
interests billings plus interest, attorneys' fees and court costs.



                                      -39-
<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


         After a three-week trial, the District Court in Rusk County submitted
36 questions to the jury which covered all of the claims and counterclaims in
the lawsuit. Based upon the jury's answers, the District Court entered judgement
granting the plaintiffs' claims against the Company and its subsidiaries, as
well as CTPLP's counterclaim against the plaintiffs. The District Court issued
an amended judgment on September 5, 2001 which became final December 19, 2001.
The net amount awarded to the plaintiffs was approximately $2,700. The Company
and its subsidiaries and the plaintiffs subsequently filed notices of appeal and
each party submitted legal briefs with the Tyler Court of Appeals in April 2002
and reply briefs in June and July 2002. In October 2002, the Company and the
plaintiffs argued the case before the Tyler Court of Appeals. A decision from
that court is expected in fiscal 2003.

         Special counsel to the Company, Jenkens & Gilchrist, does not consider
an unfavorable outcome to this lawsuit probable. The Company's management and
general counsel believe that several of the plaintiffs' primary legal theories
are contrary to established Texas law and that the court's charge to the jury
was fatally defective. They further believe that any judgment for plaintiffs
based on those theories or on the jury's answers to certain questions in the
charge cannot stand and will be reversed on appeal. As a result, the Company has
not accrued any liability for this litigation. Nevertheless, to pursue the
appeal, the Company and its subsidiaries were required to post a bond to cover
the gross amount of damages awarded to the plaintiffs, including interest and
attorney's fees, and to maintain that bond until the resolution of the appeal,
which may take several years. Originally, the Company and its subsidiaries
anticipated posting a bond of approximately $3,000 based upon the net amount of
damages but the Company and its subsidiaries later decided to post a bond of
$3,886 based upon the gross damages in order to avoid on-going legal expenses
and to expeditiously move the case to the Tyler Court of Appeals. The letter of
credit supporting this bond was provided by the Company's lender pursuant to the
Company's line of credit with that lender and such letter of credit was
supported by a certificate of deposit of the Company.

         Pilgreen Litigation

         As part of the oil and gas properties acquired from AmBrit Energy Corp.
("AmBrit") in June 1999, Castle Exploration Company, Inc., a wholly-owned
subsidiary of the Company ("CECI") acquired a 10.65% overriding royalty interest
("ORRI") in the Simpson lease in south Texas, including the Pilgreen #2ST gas
well. CECI subsequently transferred that interest to Castle Texas Oil and Gas
Limited Partnership ("CTOGLP"), an indirect wholly-owned subsidiary. Because the
operator suspended revenue attributable to the ORRI from first production due to
title disputes, AmBrit, the previous owner, had filed claims against the
operator of the Pilgreen well, and CTOGLP acquired rights in that litigation
with respect to the period after January 1, 1999. The Company and the operator
signed an agreement to release $282 of the suspended revenue attributable to
CTOGLP's ORRI in the Pilgreen well to CTOGLP subject to judicial approval.
Because of a claim by Dominion Oklahoma Texas Exploration and Production, Inc.
("Dominion") (see below), a working interest owner in the same well, that
CTOGLP's ORRI in the Simpson lease should be deemed burdened by 3.55% overriding
royalty interest, there is still a title dispute as to approximately $151 of the
suspended CTOGLP Pilgreen #2ST production proceeds of which $120 is for the
Company's account and $31 is for Delta's account. (The Company sold all of its
oil and gas assets, including the Pilgreen #2ST well, to Delta on May 31, 2002.)
The Company has named Dominion as a defendant in a legal action seeking a
declaratory judgment that the Company is entitled to its full 10.65% overriding
royalty interest in the Pilgreen well. The Company believes that Dominion's
title exception to CTOGLP's overriding royalty interest is erroneous and notes
that several previous title opinions have confirmed the validity of CTOGLP's
interest.

         CTOGLP has also been informed that production proceeds from an
additional well on the Simpson lease in which CTOGLP has a 5.325% overriding
royalty interest have been suspended by the court because of title disputes. The
Company intends to contest this matter vigorously. At the present time, the
amount held in escrow applicable to the additional well accruing to the
Company's account is $66.

         In August 2002, $282 was released to the Company, of which $249 was
recorded in income by the Company and the remaining $33 paid to Delta.

         The Company's policy with respect to any amounts recovered is to record
them as income only when and if such amounts are actually received.


                                      -40-
<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)



         Dominion Litigation

         On March 18, 2002, Dominion, operator of the Mitchell and Migl-Mitchell
wells in the Southwest Speaks field in south Texas and a working interest owner
in the Pilgreen #2ST well, filed suit in Texas against CTOGLP seeking
declaratory judgement in a title action that the overriding royalty interest
held by CTOGLP in these wells should be deemed to be burdened by certain other
overriding royalty interests aggregating 3.55% and should therefore be reduced
from 10.65% to 7.10%. Dominion is also seeking an accounting and refund of
payments for overriding royalty to CTOGLP in excess of the 7.10% since April
2000. The Company preliminarily estimates the amount in controversy net to the
Company's interests to September 30, 2001, the effective date of the sale to
Delta, to be approximately $1,180. Dominion threatened to suspend all revenue
payable to the Company from the Mitchell and Migl-Mitchell to offset its claim.
The Company and Dominion are currently examining land and lease documents
concerning the overriding royalty interests. The Company believes that
Dominion's title exception to CTOGLP's overriding royalty interest is erroneous
and notes that several previous title opinions have confirmed the validity of
CTOGLP's interest. The Company is contesting this matter vigorously and has
accordingly made no provision for Dominion's claim in its September 30, 2002
financial statements.

         GAMXX

         On February 27, 1998, the Company entered into an agreement with
Alexander Allen, Inc. ("AA") concerning amounts owed to the Company by AA and
its subsidiary, GAMXX Energy, Inc. ("GAMXX"). The Company had made loans to
GAMXX through 1991 in the aggregate amount of approximately $8,000. When GAMXX
was unable to obtain financing, the Company recorded a one hundred percent loss
provision on its loans to GAMXX in 1991 and 1992 while still retaining its
lender's lien against GAMXX.

         Pursuant to the terms of the GAMXX Agreement, the Company was to
receive $1,000 cash in settlement for its loans when GAMXX closed on its
financing. GAMXX expected such closing not later than May 31, 1998 but failed to
do so. As a result, the Company elected to terminate the GAMXX Agreement.
Pursuant to the Agreement, GAMXX agreed to assist the Company in selling GAMXX's
assets or the Company's investment in GAMXX. The Company is currently seeking to
dispose of its lender's interest in GAMXX and recover some of the loan to GAMXX.

         The Company has carried its loans to GAMXX at zero for the last nine
years. The Company will record any proceeds as "other income" if and when it
collects such amount.

         Hedging Activities

         As of October 1, 1999, the Company had hedged approximately 54% of its
anticipated consolidated crude oil production and approximately 39% of its
anticipated consolidated natural gas production for the period from October 1,
1999 to September 30, 2000. The Company used futures contracts to hedge such
production. The average hedged prices for crude oil and natural gas, which are
based upon futures price on the New York Mercantile Exchange, were $19.85 per
barrel of crude oil and $2.66 per mcf of gas. The Company accounted for these
futures contracts as hedges and the differences between the hedged price and the
exchange price increased or decreased the oil and gas revenues resulting from
the sale of production by the Company. Oil and gas production was not hedged
after July 2000 production. As a result of these hedging transactions, oil and
gas sales decreased $1,528 for the fiscal year ended September 30, 2000. The
Company has not hedged its oil and gas production since July 2000.

         Having sold all of its domestic oil and gas properties to Delta on May
31, 2002 (see Note 4), the Company currently has no oil and gas production to
hedge.


                                      -41-
<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


NOTE 14 - EMPLOYEE BENEFIT PLAN

         401(K) PLAN

         On October 1, 1995, the Company adopted a 401(k) plan (the "Plan") for
its employees and those of its subsidiaries. All employees are eligible to
participate. Employees participating in the Plan can authorize the Company to
contribute up to 15% of their gross compensation to the Plan. The Company
matches such voluntary employee contributions up to 3% of employee gross
compensation. Employees' contributions to the Plan cannot exceed thresholds set
by the Secretary of the Treasury. Vesting of Company contributions is immediate.
During the years ended September 30, 2002, 2001 and 2000, the Company's
contributions to the Plan aggregated $46, $50 and $46, respectively.

         Post-Retirement Benefits

         Neither the Company nor its subsidiaries provide any other
post-retirement plans for employees.

NOTE 15 - STOCKHOLDERS' EQUITY

         On December 29, 1999, the Company's Board of Directors declared a stock
split in the form of a 200% stock dividend applicable to all stockholders of
record on January 12, 2000. The additional shares were paid on January 31, 2000
and the Company's shares first traded at post-split prices on February 1, 2000.
The stock split applied only to the Company's outstanding shares on January 12,
2000 (2,337,629 shares) and did not apply to treasury shares (4,491,017 shares)
on that date. As a result of the stock split, 4,675,258 additional shares were
issued and the Company's common stock book value was increased $2,338 to reflect
additional par value applicable to the additional shares issued to effect the
stock split. All share changes, including those affecting the recorded book
value of common stock, have been recorded retroactively.

         From November 1996 until September 30, 2001, the Company's Board of
Directors authorized the Company to purchase up to 5,267,966 of its outstanding
shares of common stock on the open market. As of September 30, 2002, 4,911,020
shares (14,013,054 shares before taking into account the 200% stock dividend
effective January 31, 2000) had been repurchased at a cost of $66,667. The
repurchased shares are held in treasury.

         On June 30, 1997, the Company's Board of Directors approved a dividend
policy of $.20 per share per year, payable quarterly. The dividend policy
remains in effect until rescinded or changed by the Board of Directors.
Quarterly dividends of $.05 per share have subsequently been paid for all
quarters except that ending June 30, 2002.

         At September 30, 2002, the Company's investment in Delta aggregated
$26,886. Since Delta's current loan covenants with its lenders do not permit the
payment of dividends and the Company currently expects no distributions from
Delta.

NOTE 16 - STOCK OPTIONS AND WARRANTS

         Option and warrant activities during each of the three years ended
September 30, 2002 are as follows (in whole units):
<TABLE>
<CAPTION>
                                                                       Incentive
                                                                         Plan           Other
                                                                        Options        Options        Total
                                                                       ---------       -------       -------
<S>                                                                   <C>             <C>            <C>
   Outstanding at September 30, 1999.................................   175,000        20,000        195,000
   Effect of 200% stock dividend (see Note 15).......................   350,000        40,000        390,000
   Issued............................................................   105,000                      105,000
                                                                        -------        ------        -------
   Outstanding at September 30, 2000.................................   630,000        60,000        690,000
   Issued............................................................    60,000                       60,000
                                                                        -------        ------        -------
   Outstanding at September 30, 2001.................................   690,000        60,000        750,000
   Issued............................................................    60,000                       60,000
                                                                        -------        ------        -------
   Outstanding at September 30, 2002.................................   750,000        60,000        810,000
                                                                        =======        ======        =======
</TABLE>

                                      -42-
<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                       Incentive
                                                                         Plan           Other
                                                                        Options        Options      Total
                                                                       ---------       -------     -------
<S>                                                                   <C>             <C>            <C>

        Exercisable at September 30, 2002......................         750,000        60,000        810,000
                                                                      =========        ======      =========
        Reserved at September 30, 2002.........................       1,687,500        60,000      1,747,500
                                                                      =========        ======      =========
        Reserved at September 30, 2001.........................       1,687,500        60,000      1,747,500
                                                                      =========        ======      =========
        Reserved at September 30, 2000.........................       1,687,500        60,000      1,747,500
                                                                      =========        ======      =========
        Reserved at September 30, 1999.........................       1,687,500        60,000      1,747,500
                                                                      =========        ======      =========

        Exercise prices at:

                September 30, 2002.............................          $3.42-         $3.79
                                                                         $8.58
                September 30, 2001.............................          $3.42-         $3.79
                                                                         $8.58
                September 30, 2000.............................          $3.42-         $3.79
                                                                         $8.58


                Exercise Termination Dates.....................      5/17/2003-     4/23/2007     5/17/2003-
                                                                     1/02/2012                    1/02/2012
</TABLE>

         In fiscal 1993, the Company adopted the 1992 Executive Equity Incentive
Plan (the "Incentive Plan"). The purpose of the Incentive Plan is to increase
the ownership of common stock of the Company by those non-union key employees
(including officers and directors who are officers) and outside directors who
contribute to the continued growth, development and financial success of the
Company and its subsidiaries, and to attract and retain key employees and reward
them for the Company's profitable performance.

         The Incentive Plan provides that an aggregate of 1,687,500 shares
(after taking into account the 200% stock dividend effective January 31, 2000)
of common stock of the Company will be available for awards in the form of stock
options, including incentive stock options and non-qualified stock options
generally at prices at or in excess of market prices at the date of grant.

         The Incentive Plan also provided that each outside director of the
Company would annually be granted an option to purchase 15,000 shares of common
stock at fair market value on the date of grant. Effective October 1, 2002, the
Company's Compensation Committee terminated the annual option grants to outside
directors.

         The Company applies Accounting Principles Board Opinion Number 25 in
accounting for options and warrants and accordingly recognizes no compensation
cost for its stock options and warrants for grants with an exercise price equal
to the current fair market value. The following reflect the Company's pro-forma
net income and net income per share had the Company determined compensation
costs based upon fair market values of options and warrants at the grant date
pursuant to SFAS 123 as well as the related disclosures required by SFAS 123.

         A summary of the Company's stock option and warrant activity from
October 1, 1999 to September 30, 2002 is as follows:

                                                                      Weighted
                                                                       Average
                                                          Options       Price
                                                          -------     --------
      Outstanding - October 1, 1998...................    215,000      $12.96
      Issued..........................................     15,000       17.25
      Exercised.......................................    (25,000)      10.25
      Repurchased.....................................    (10,000)      10.75
                                                         --------      ------
      Balance - September 30, 1999....................    195,000       13.75

      Effect of 200% stock dividend (see Note 15).....    390,000       (9.17)
      Issued..........................................    105,000        7.89
                                                         --------      ------
      Outstanding - September 30, 2000................    690,000        5.09
      Issued..........................................     60,000        7.00
                                                         --------      ------
      Outstanding - September 30, 2001................    750,000        5.24
      Issued..........................................     60,000        5.93
                                                         --------      ------
      Outstanding - September 30, 2002................    810,000      $ 5.29
                                                         ========      ======


                                      -43-
<page>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


         At September 30, 2002, exercise prices for outstanding options ranged
from $3.42 to $8.58. The weighted average remaining contractual life of such
options was 4.96 years.

         The per share weighted average fair values of stock options issued
during fiscal 2002, 2001 and fiscal 2000 were $1.03, $2.41 and $3.29,
respectively, on the dates of issuance using the Black-Scholes option pricing
model with the following weighted average assumptions: average expected dividend
yield - 2.7% in 2002, 3.0% in 2001 and 3.0% in 2000; risk free interest rate -
2.64% in 2002, 3.50% in 2001 and 5.54%; expected life of 10 years in 2002, 2001
and 2000 and volatility factor of .40 in 2002, .38 in 2001 and .44 in 2000.

         Proforma net income and earnings per share had the Company accounted
for its options under the fair value method of SFAS 123 is as follows:
<TABLE>
<CAPTION>
                                                          Year Ending September 30,
                                                    --------------------------------------
                                                    2002              2001            2000
                                                    ----              ----            ----
                                               (As Restated)
<S>                                            <C>                  <C>             <C>
      Net income (loss) as reported.......        ($1,844)           $1,716          $5,069
      Adjustment required by SFAS 123.....            (62)             (145)           (346)
                                                  -------            ------          ------
      Pro-forma net income (loss).........        ($1,906)           $1,571          $4,723
                                                  =======            ======          ======
      Pro-forma net income per share:
         Basic............................        ($ 0.29)            $0.24           $ .68
                                                  =======            ======          ======
         Diluted..........................        ($ 0.29)            $0.23           $ .66
                                                  =======            ======          ======
</TABLE>

NOTE 17 - INCOME TAXES

   Provisions for (benefit of) income taxes consist of:

<TABLE>
<CAPTION>
                                                                                    September 30,
                                                                       ------------------------------------
                                                                            2002          2001       2000
                                                                            ----          ----       ----
<S>                                                                     <C>              <C>      <C>
 Provision for (benefit of) income taxes:                               (As Restated)
      Current:
        Federal..................................................                        $   4     ($   35)
        State....................................................
      Deferred:
        Federal..................................................         ($  252)          786         922
        State....................................................              (8)           22          26
      Adjustment to the valuation allowance for deferred taxes:
        Federal..................................................           1,307         (419)     (3,115)
        State....................................................              38          (12)        (89)
                                                                           ------         ----     -------
                                                                           $1,085         $381     ($2,291)
                                                                           ======         ====     =======
</TABLE>


                                      -44-
<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


         Deferred tax assets (liabilities) are comprised of the following at
September 30, 2002 and 2001:
<TABLE>
<CAPTION>
                                                                                       September 30,
                                                                                    ------------------
                                                                                   2002            2001
                                                                                   ----            ----
                                                                              (As Restated)

<S>                                                                               <C>          <C>
         Fair value of option granted to Delta Petroleum Corporation.....        $  155
         Investment in Delta Petroleum Corporation.......................           489
         Operating losses and tax credit carryforwards...................         1,969          $4,715
         Statutory depletion carryovers..................................         2,167           3,903
         Depletion accounting............................................                        (5,341)
         Discontinued net refining operations............................           866             866
         Losses in foreign subsidiaries..................................                         1,295
         Other...........................................................            53
                                                                                 ------          ------
                                                                                  5,699           5,438
         Valuation allowance.............................................        (4,904)         (3,559)
                                                                                 ------          ------
                                                                                 $  795          $1,879
                                                                                 ======          ======
         Deferred tax assets - current...................................        $  429          $1,879
         Deferred tax assets - long-term.................................           366
                                                                                 ------          ------
                                                                                 $  795          $1,879
                                                                                 ======          ======
</TABLE>

         At September 30, 2002, the Company increased the valuation allowance by
$1,345 based upon its assessment of the amount of gross deferred tax asset that
would more likely than not be realized based on an estimate of no future taxable
income and accordingly increased the valuation allowance. The net deferred tax
asset at September 30, 2002 relates to income that has been recognized for tax
purposes and has not been recognized for financial reporting purposes.

         The income tax provision (benefit) differs from the amount computed by
applying the statutory federal income tax rate to income before income taxes as
follows:
<TABLE>
<CAPTION>

                                                                   Year Ended September 30,
                                                             -------------------------------------
                                                                 2002           2001          2000
                                                                 ----           ----          ----
<S>                                                           <C>               <C>           <C>
                                                             (As Restated)

        Tax (benefit) at statutory rate....................   ($  265)          $734         $ 972
        State taxes, net of federal benefit................        (8)             7           (42)
        Revision of tax estimates and contingencies........                       50
        Increase (decrease) in valuation allowance.........     1,345           (431)       (3,204)
        Other..............................................        13             21           (17)
                                                               ------           ----       -------
                                                               $1,085           $381       ($2,291)
                                                               ======           ====       =======
</TABLE>


         At September 30, 2002, the Company had the following tax carryforwards
available:

                                                        Federal Tax
                                             --------------------------------
                                                                  Alternative
                                                                    Minimum
                                               Regular                Tax
                                             ---------------   --------------
       Net operating loss....................       --            $13,633
       Alternative minimum tax credits.......   $1,969                N/A
       Statutory depletion...................   $6,019                 --


                                      -45-
<PAGE>

                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


         The net operating loss carryforwards expire from 2002 through 2010.

         The Company also estimates that it has approximately $50,000 in
individual state tax loss carryforwards available at September 30, 2002.
Approximately $47,287 of such carryforwards are primarily available to offset
taxable income apportioned to certain states in which the Company has no
operations and currently has no plans for future operations. As a result, it is
probable most of such state tax carryforwards will expire unused.

NOTE 18 - RELATED PARTIES

         An officer of the Company is a 10% shareholder in an unaffiliated
company that was entitled to receive 12.5% of the Company's share of net cash
flow from its Romanian joint venture after the Company had recovered its
investment in Romania. In August 2002, the Company purchased the 12.5% net cash
interest from the unaffiliated company for $8. (See Note 4.)

         During the last four months of fiscal 2002, Delta paid two officers of
the Company $140 for consulting compensation. As a result of the Company's sale
of all of its domestic oil and gas properties to Delta on May 31, 2002 (see Note
4), the Company reduced the salaries of the two officers by approximately 65%.

NOTE 19 - BUSINESS SEGMENTS

         As of September 30, 1995, the Company had disposed of its refining
business (see Note 3) and operated in only two business segments - natural gas
marketing and transmission and exploration and production. During 2002, the
equity method losses incurred as a result of the Company's investment in Network
exceeded a threshold for identifying and reporting Network as an additional
segment. Network is engaged in the planning, installation and operation of
natural gas fueled energy generating facilities. This segment is referred to as
the Power Business. In May 1997, the Company sold its pipeline (natural gas
transmission) to a subsidiary of UPRC. As a result, the Company was no longer in
the natural gas transmission segment but continued to operate in the natural gas
marketing and exploration and production segments. On May 31, 1999, the
Company's long-term gas sales and gas supply contracts expired by their own
terms and the Company exited the natural gas marketing business.

         The Company does not allocate interest income, interest expense or
income tax expense to these segments.

<TABLE>
<CAPTION>
                                                       Year Ended September 30, 2002 (As Restated)
                                  ------------------------------------------------------------------------------------------
                                   Natural Gas       Oil & Gas                                  Eliminations
                                    Marketing       Exploration                                      and
                                       and              and           Refining         Power      Corporate
                                  Transmission      Production     (Discontinued)    Business       Items       Consolidated
                                  ------------      -----------    --------------    --------   -------------   ------------
<S>                               <C>               <C>            <C>               <C>        <C>             <C>
Revenues....................                          $ 9,445                                                      $ 9,445
Equity in net (loss) of equity
   method investees.........                         ($   598)                        ($176)                      ($   774)
Operating income (loss).....                          $   676                                    ($ 2,696)        ($ 2,020)
Identifiable assets.........        $66,973*          $82,832                                    ($97,864)         $51,941
Investment in equity method
   investees................                          $26,886                                     $   375          $27,261
Capital expenditures........                          $   816                                                      $   816
Depreciation, depletion and
   amortization.............                          $ 3,149                                     $     2          $ 3,151


</TABLE>

                                      -46-
<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


<TABLE>
<CAPTION>
                                                                Year Ended September 30, 2001
                                  ------------------------------------------------------------------------------------------
                                   Natural Gas       Oil & Gas                                  Eliminations
                                    Marketing       Exploration                                      and
                                       and              and           Refining         Power      Corporate
                                  Transmission      Production     (Discontinued)    Business       Items       Consolidated
                                  ------------      -----------    --------------    --------   -------------   ------------
<S>                               <C>               <C>            <C>               <C>        <C>             <C>
Revenues....................                         $ 21,144                                                       $21,144
Equity in net (loss) of equity
   method investees.........                                                            ($99)                      ($    99)
Operating income (loss).....                         $  5,682                                    ($  4,169)         $ 1,513
Identifiable assets.........        $67,702*         $105,238                                    ($113,822)         $59,118
Investment in equity method
   investees................                                                                      $    401          $   401
Capital expenditures........                         $ 15,531                                                       $15,531
Depreciation, depletion and
   amortization.............                         $  3,468                                     $      2          $ 3,470
</TABLE>


<TABLE>
<CAPTION>
                                                                Year Ended September 30, 2000
                                  ------------------------------------------------------------------------------------------
                                   Natural Gas       Oil & Gas                     Eliminations
                                    Marketing       Exploration                         and
                                       and              and           Refining       Corporate
                                  Transmission      Production     (Discontinued)      Items       Consolidated
                                  ------------      -----------    --------------  -------------   ------------
<S>                               <C>               <C>            <C>               <C>           <C>
Revenues........................                      $17,959                                         $17,959
Operating income (loss).........                      $ 5,686                         ($ 3,717)       $ 1,969
Identifiable assets.............    $67,727*          $92,229                         ($96,661)       $63,295
Capital expenditures............                      $11,399                                         $11,399
Depreciation, depletion and
   amortization.................                      $ 3,207                          $     2        $ 3,209

</TABLE>

         * Consists primarily of intracompany receivables.

     No purchaser of the Company's oil and gas production accounted for ten
percent or more of the Company's oil and gas sales for the year ended September
30, 2002.

NOTE 20 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS

     Cash and Cash Equivalents -- the carrying amount is a reasonable estimate
of fair value.

     Marketable securities are related solely to the Company's investment in
Penn Octane and Chevron/Texaco common stock and options to buy Penn Octane stock
and are recorded at fair market value. Market value for common stock is computed
to equal the closing share price at year end times the number of shares held by
the Company. Fair market value for options is computed using the Black - Scholes
option valuation model.

     Other Current Assets and Current Liabilities - the Company believes that
the book values of other current assets and current liabilities approximate the
market values.


                                      -47-
<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)


NOTE 21 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>

                                                           First             Second           Third            Fourth
                                                          Quarter            Quarter         Quarter           Quarter
                                                       (December 31)       (March 31)       (June 30)      (September 30)
                                                       -------------       ----------       ---------      --------------
                                                                                                           (As Restated)
<S>                                                    <C>                  <C>              <C>            <C>
     Year Ended September 30, 2002:
        Revenues...............................            $3,441           $3,258           $2,525             $  221
        Operating income (loss)................           ($  426)         ($  500)          $  359            ($1,453)
        Net income (loss)......................           ($  327)         ($  529)          $  632            ($1,620)
        Net income (loss) per share (diluted)..           ($  .05)         ($  .08)          $  .09            ($  .24)


                                                           First             Second           Third            Fourth
                                                          Quarter            Quarter         Quarter           Quarter
                                                       (December 31)       (March 31)       (June 30)      (September 30)
                                                       -------------       ----------       ---------      --------------
     Year Ended September 30, 2001:
        Revenues...............................            $5,394           $6,316           $5,347             $4,087
        Operating income (loss)................            $1,533           $2,174           $  511            ($2,705)
        Net income (loss)......................            $1,110           $1,531           $  397            ($1,322)
        Net income (loss) per share (diluted)..            $  .16           $  .22           $  .06            ($  .20)
</TABLE>

     The quarterly financial information for the 2002 quarters differs from that
filed on Forms 10-Q by the Company for these periods because the above quarterly
financial information retroactively includes the Company's share of Delta's
losses for these periods on the equity method and a reclassification whereas the
corresponding Forms 10-Q do not.

     The sums of the quarterly per share amounts differ from the annual per
share amounts for the year ended September 30, 2001 primarily because the stock
purchases made by the Company were not made in equal amounts and at
corresponding times each quarter.

NOTE 22 - SUBSEQUENT EVENTS

     In December 2002, the Company loaned $125 to Network. (See Note 7.)


NOTE 23 - SUBSEQUENT EVENTS

     Restatement of September 30, 2002 Financial Statements

     The Company has restated its September 30, 2002 financial statements to
correct a journal entry recorded at September 30, 2002. The restatement
corrected a $258 charge to corporate general and administrative expense that
should have been charged to accrued expenses during the fourth quarter of fiscal
2002. The restatement decreased the reported net loss by $258 ($.04 per share)
for the quarter and year ended September 30, 2002. (See Note 21.)

     The significant effects of the restatement on the accompanying consolidated
financial statements from amounts previously reported are as follows:


                                      -48-
<PAGE>


                            Castle Energy Corporation
                   Notes to Consolidated Financial Statements
                   ("$000's" Omitted Except Per Share Amounts)

<TABLE>
<CAPTION>
                                                                                   Year Ended September 30, 2002
                                                                                  -------------------------------
                                                                                   Previously
                                                                                    Reported          As Restated
                                                                                  ------------       -------------
<S>                                                                            <C>                   <C>
      General and administrative expenses.................................         $ 6,289             $ 6,031


      Operating income (loss).............................................        ($ 2,020)             (2,278)


      Net income (loss) before provision for (benefit of) income taxes....        ($ 1,017)               (759)
      Net income (loss)...................................................        ($ 2,102)           ($ 1,844)
      Net income (loss) per share
           Basic..........................................................        ($   .32)           ($   .28)

           Diluted........................................................        ($   .32)           ($   .28)

      Accrued expenses....................................................         $   821             $   563
      Current liabilities.................................................         $ 2,270             $ 2,012
      Total liabilities...................................................         $ 5,297             $ 5,039
      Total stockholders' equity..........................................         $46,644             $46,902
</TABLE>

     The restatement did not impact the net cash flow used in operations for the
year ended September 30, 2002.


                                      -49-
<PAGE>

                          Independent Auditors' Report


The Board of Directors
Castle Energy Corporation:

We have audited the accompanying consolidated balance sheets of Castle Energy
Corporation and subsidiaries as of September 30, 2002 and 2001, and the related
consolidated statements of operations, stockholders' equity and other
comprehensive income, and cash flows for each of the years in the three year
period ended September 30, 2002. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United State of America. Those standards require that we plan and perform
the audit 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Castle Energy
Corporation and subsidiaries as of September 30, 2002 and 2001, and the results
of their operations and their cash flows for each of the years in the three year
period ended September 30, 2002 in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 23 to the consolidated financial statements, the
consolidated financial statements as of and for the year ended September 30,
2002, have been restated.

                  KPMG LLP

Houston, Texas
December 10, 2002, except as to Note 23 which is as of December 11, 2003


                                      -50-
<PAGE>


                                     PART IV

ITEM 14. CONTROLS AND PROCEDURES

     The conclusions of the Company's Chief Executive Officer and Chief
Financial Officer concerning the effectiveness of the Company's disclosure
controls and procedures and changes in internal controls as of September 30,
2002 are as follows:

        a) They have concluded that the Company's disclosure controls and
           procedures were effective in promptly identifying items that should
           be included in our reports required under the Exchange Act except as
           indicated below.

        b) There have not been any significant changes in our internal controls
           or in other factors that could affect such controls subsequent to
           September 30, 2002 except as indicated below.

     As noted in Note 23 to the consolidated financial statements included in
Item #8 to this Form 10-K, the Company was required to restate its September 30,
2002 financial statements because of a charge to general and administrative
expenses that should have been recorded as a reduction to accrued expenses. As a
result of this restatement, the Company instituted an additional internal
control procedure whereby the Company's Chief Financial Officer will review all
quarterly closing journal entries in excess of $25,000. The Company's management
believes that this new procedure will preclude future restatements arising from
charges to incorrect account(s).

ITEM 15.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

     (a) 1. and 2. Financial Statements and Financial Statement Schedules

     Financial statements and schedules filed as part of this Report on Form
10-K are listed in Item 8 of this Form 10-K.

         3.   Exhibits

     The Exhibits required by Item 601 of Regulation S-K and filed herewith or
incorporated by reference herein are listed in the Exhibit Index below.


     Exhibit Number      Description of Document
     --------------      -----------------------
          3.1            Restated Certificate of Incorporation(15)

          3.2            Bylaws(10)

          4.1            Specimen Stock Certificate representing Common Stock(8)

          4.2            Rights Agreement between Castle Energy Corporation and
                         American Stock Transfer and Trust Company as Rights
                         Agent, dated as of April 21, 1994(10)

          10.33          Castle Energy Corporation 1992 Executive Equity
                         Incentive Plan(8)

          10.34          First Amendment to Castle Energy Corporation 1992
                         Executive Equity Incentive Plan, effective May 11,
                         1993(8)

          10.124         Asset Purchase Agreement dated February 27, 1998 by and
                         between Castle Energy Corporation and Alexander Allen,
                         Inc. (21)

          10.125         Rollover and Assignment Agreement, dated December 1,
                         1998 between Penn Octane Corporation and Certain
                         Lenders, including Castle Energy Corporation (22)

          10.126         Purchase and Sale Agreement by and between AmBrit
                         Energy Corp. and Castle Exploration Company, Inc.,
                         effective January 1, 1999 (23)

          10.127         Agreement to Exchange $.9 Million Secured Notes Into
                         Senior Preferred Stock of Penn Octane Corporation dated
                         March 3, 1999 (23)

          10.128         Credit Agreement by and among Castle Exploration
                         Company, Inc. and Comerica Bank-Texas, effective May
                         28, 1999 (24)


                                      -51-
<PAGE>


     Exhibit Number      Description of Document
     --------------      -----------------------

          10.129         Purchase and Sale Agreement by and between Costilla
                         Redeco Energy LLC and Castle Exploration Company, Inc.,
                         effective May 31, 1999 (24)

          10.130         Letter dated July 22, 1999 between Penn Octane
                         Corporation and Castle Energy Corporation (26)

          10.131         Letter dated July 29, 1999 between Penn Octane
                         Corporation and Castle Energy Corporation (26)

          10.132         Castle Energy Corporation Severance Benefit Plan (26)

          10.133         Asset Acquisition Agreement between Castle Exploration
                         Company, Inc., Deerlick Creek Partners, I., L.P. and
                         Deven Resources, Inc, effective September 1, 1999 (27)

          10.134         Purchase and Sale Agreement, dated December 15, 1999,
                         between Whiting Park Production, Ltd. and Castle
                         Exploration Company, Inc. (27)

          10.135         Asset Acquisition Agreement between Castle Exploration
                         Company, Inc, and American Refining and Exploration
                         Company, Deven Resources, Inc., CMS/Castle Development
                         Fund I L.P., effective as of October 1, 1999 (27)

          10.136         Promissary Note between CEC, Inc. and Penn Octane
                         Corporation (28)

          10.137         Purchase Agreement between CEC, Inc. and Penn Octane
                         Corporation Effective January 5, 2000 (28)

          10.138         Purchase and Sale Agreement, dated August 6, 2000
                         between and among Castle Exploration Company, Inc.,
                         Parks and Luttrell Energy Partners L.P. and Parks and
                         Luttrell Energy, Inc. (31)

          10.139         Purchase and Sale Agreement dated August 4, 2000
                         between Castle Offshore LLC, BWAB Limited Liability
                         Company and Delta Petroleum Company (31)

          10.140         Agreement to Transfer a Membership Interest In
                         Networked Energy LLC to CEC, Inc., dated August 31,
                         2000 (31)

          10.141         Second Amendment - Promissary Note of Penn Octane
                         Corporation (29)

          10.142         Purchase and Sale Agreement, dated April 1, 2001,
                         between Strand Energy LC and Castle Exploration
                         Company, Inc. (30)

          10.143         Credit Agreement as of November 26, 2001 among Castle
                         Exploration Company, Inc. and Castle Energy Corporation
                         and Bank of Texas National Association

          10.144         Purchase and Sale Agreement between Castle Energy
                         Corporation and Delta Petroleum Corporation, executed
                         January 15, 2002 (32)

          10.145         Amended Number One to Purchase and Sale Agreement
                         between Castle Energy Corporation and Delta Petroleum
                         Corporation, March 2002 (33)

          10.146         Purchase and Sale Agreement between Redeco Petroleum
                         Company Limited and Hemco Romania Limited, dated
                         September 6, 2002

          11.1           Statement re: Computation of Earnings Per Share

          21             List of subsidiaries of Registrant

          21.1           Separate financial statements of Delta Petroleum
                         Corporation - Year Ended June 30, 2002 (34)

          99.1           Certificate of Chief Executive Officer (Section 302 of
                         Sarbanes-Oxley Act)

          99.2           Certificate of Chief Financial Officer (Section 302 of
                         Sarbanes-Oxley Act)

          99.3           Certificate of Chief Executive Officer (Section 906 of
                         Sarbanes-Oxley Act)

          99.4           Certificate of Chief Financial Officer (Section 906 of
                         Sarbanes-Oxley Act)

   (b) Reports on Form 8-K

         The Company filed no reports on Form 8-K during the last quarter of the
Company's fiscal year ended September 30, 2001.


                                      -52-
<PAGE>
_________________

(8)       Incorporated by reference to the Registrant's Form S-1 (Registration
          Statement), dated September 29, 1993 (File 33-69626)
(10)      Incorporated by reference to the Registrant's Form 10-Q for the second
          quarter ended March 31, 1994 (File 0-10990)
(15)      Incorporated by reference to the Registrant's Form 10-K for the fiscal
          year ended September 30, 1994 (File 0-10990)
(23)      Incorporated by reference to the Registrant's Form 10-Q for quarter
          ended March 31, 1999 (File 0-10990)
(24)      Incorporated by reference to the Registrant's Form 10-Q for quarter
          ended June 30, 1999 (File 0-10990)
(26)      Incorporated by reference to the Registrant's Form 10-K for the fiscal
          year ended September 30, 1999 (File 0-10990)
(27)      Incorporated by reference to the Registrant's Form 10-Q for quarter
          ended December 31, 1999 (File 0-10990)
(28)      Incorporated by reference to the Registrant's Form 10-Q for quarter
          ended March 31, 2000 (File 0-10990)
(29)      Incorporated by reference to the Registrant's Form 10-Q for quarter
          ended December 31, 2000 (File 0-10990)
(30)      Incorporated by reference to the Registrant's Form 10-Q for quarter
          ended March 31, 2001 (File 0-10990)
(31)      Incorporated by reference to the Registrant's Form 10-K for year ended
          September 30, 2000 (File 0-10990)
(32)      Incorporated by reference to the Registrant's Form 10-Q for quarter
          ended December 31, 2001 (File 0-10990)
(33)      Incorporated by reference to the Registrant's Form 10-Q for quarter
          ended March 31, 2002 (File 0-10990)
(34)      Incorporated by reference to Item 8 of Form 10-K of Delta Petroleum
          Corporation for year ended June 30, 2002 as filed with the Securities
          and Exchange Commission (File 0-10990)


                                      -53-
<PAGE>

                                   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
its behalf by the undersigned, thereunto duly authorized.

                            CASTLE ENERGY CORPORATION


Date:   January 2, 2004             By:/s/JOSEPH L. CASTLE II
                                       -----------------------
                                          Joseph L. Castle II
                                          Chairman of the Board
                                          and Chief Executive Officer

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

<TABLE>
<CAPTION>
<S>                           <C>                                   <C>
/s/JOSEPH L. CASTLE II        Chairman  of the  Board  and Chief    January 2, 2004
----------------------
   Joseph L. Castle II        Executive Officer
                              Director


/s/MARTIN R. HOFFMANN         Director                              January 2, 2004
---------------------
   Martin R. Hoffmann


/s/JOHN P. KELLER             Director                              January 2, 2004
-----------------
   John P. Keller


/S/RUSSELL S. LEWIS           Director                              January 2, 2004
-------------------
   Russell S. Lewis


/s/RICHARD E. STAEDTLER       Senior Vice President                 January 2, 2004
-----------------------
   Richard E. Staedtler       Chief Financial Officer
                              Chief Accounting Officer
                              Director

/s/SIDNEY F. WENTZ            Director                              January 2, 2004
------------------
   Sidney F. Wentz
</TABLE>


                                      -54-
<PAGE>

                   DIRECTORS, OFFICERS, BOARD OF DIRECTORS AND
                                  PROFESSIONALS
                               (December 19, 2002)
<TABLE>
<CAPTION>
<S>                                    <C>                               <C>
JOSEPH L. CASTLE II                                                       RICHARD E. STAEDTLER
Chairman & Chief Executive Officer                                        Chief Financial Officer and Chief
                                                                             Accounting Officer

MARTIN R. HOFFMANN                                                        SIDNEY F. WENTZ
Former Secretary of the Army                                              Former Chairman of The Robert Wood
                                                                             Johnson Foundation


JOHN P. KELLER                                                            RUSSELL S. LEWIS
President, Keller Group, Inc.                                             President, Lewis Capital Group

                                         OPERATING OFFICERS

JOSEPH L. CASTLE II                                                       RICHARD E. STAEDTLER
Chief Executive Officer                                                   Chief Financial Officer
                                                                          Chief Accounting Officer

MARY A. CADE
Company Controller and Treasurer

WILLIAM C. LIEDTKE III
Vice President and General Counsel

                                         PRINCIPAL OFFICES

One Radnor Corporate Center                                               512 Township Line Road
Suite 250                                                                 Three Valley Square, Suite 100
100 Matsonford Road                                                       Blue Bell, PA 19422
Radnor, PA 19087

5623 North Western Avenue, Suite A
Oklahoma City, OK 73118

                                          PROFESSIONALS

Counsel                                                                   Registrar and Transfer Agent

Duane, Morris LLP                                                         American Stock Transfer & Trust Company
One Liberty Place, 42nd Floor                                             40 Wall Street, 46th Floor
Philadelphia, PA 19103-7396                                               New York, New York 10005

Independent Accountants

KPMG LLP
700 Louisiana
Houston, Texas 77002
</TABLE>