**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**Form
      10-K**


(Mark
      One)





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


**For
      the fiscal year ended December 31, 2006**




**or**





o
            
            **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 001-04668**





**Coastal
      Caribbean Oils & Minerals, Ltd.**


*(Exact
      name of Registrant as specified in its charter* )





**BERMUDA**
            **NONE***(State
                or Other Jurisdiction of Incorporation or
                Organization)*
            *(I.R.S.
                Employer Identification No.)***Clarendon
                House, Church Street, Bermuda**
            **HM
                11***(Address
                of Principle Executive Offices)*
            *(Zip
                Code)*








**Registrant’s
      telephone number, including area code:**


**(850)
      653-2732**








**Securities
      registered pursuant to Section 12(b) of the Act:**





**Title
                of each class**
            **Name
                of each exchange on which registered****NONE**
            **NONE**








**Securities
      registered pursuant to Section 12(g) of the Act:**





**Title
      of Class**




Common
      stock, par value $.12 per share





Indicate
      by check mark if the registrant is a well-known seasoned issuer, as defined
      in
      Rule 405 of the Securities Act.  o Yes x No




Indicate
      by check mark if the registrant is not required to file reports pursuant to
      Section 13 or Section 15(d) of the Act.  o Yes x No








**Note** -Checking
      the box above will not relieve any registrant required to file reports pursuant
      to Section 13 or 15(d) of the Exchange Act from their obligations under those
      Sections.





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.   x Yes o No





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K §229.405 of this chapter) 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.  o Yes   x No





Indicate
      by check mark whether the registrant is a large accelerated filer, an
      accelerated filer, or a non-accelerated filer. See definition of “accelerated
      filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
      one):





Large accelerated filer o
            Accelerated
                filer o
            Non-accelerated
                filer x





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      last sold, or the average bid and asked price of such common equity, as of
      the
      last business day of the registrant’s most recently completed second fiscal
      quarter: $14,852,762 (U.S.) at June 30, 2006.





**Note** - If a
      determination as to whether a particular person or entity is an affiliate cannot
      be made without involving unreasonable effort and expense, the aggregate market
      value of the common stock held by non-affiliates may be calculated on the basis
      of assumptions reasonable under the circumstances, provided that the assumptions
      are set forth in this Form.





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). o Yes x No





Indicate
      the number of shares outstanding of each of the registrant's classes of common
      stock, as of the latest practicable date: Common stock, par value $.12 per
      share, 46,211,604 shares outstanding as of March 21, 2007.








**DOCUMENTS
      INCORPORATED BY REFERENCE**





List
      hereunder the following documents if incorporated by reference and the Part
      of
      the Form 10K (e.g. Part I, Part II, etc.) into which the document is
      incorporated: (1) Any annual report to security holders; (2) Any proxy or
      information statement; and (3) Any prospectus filed pursuant to Rule 424(b)
      or
      (c) under the Securities Act of 1933. The listed documents should be clearly
      described for identification purposes (e.g., annual report to security holders
      for fiscal year ended December 24, 1980).





None




2


**TABLE
        OF CONTENTS**
  **Page****PART
                  I**Item
                  1.
              Business
              5General
              5Crude
                  Oil and Natural Gas Exploration and Development
              6Environmental
                  and Other Regulations
              6Competition
              8Employees
              8Oil
                  and Gas Properties
              8Acreage
                  and Wells
              9Drilling
                  Activity
              9Item
                  1A.
              Risk
                  Factors
              10Item
                  1B.
              Unresolved
                  Staff Comments
              19Item
                  2.
              Properties
              20Item
                  3.
              Legal
                  Proceedings
              20Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              21**PART
                  II**Item
                5.
              Market
                    for the Company's Common Stock, RelatedStockholder Matters and
                    Issuer Purchases of Equity Securities
              22Item
                  6.
              Selected
                  Consolidated Financial Data
              25Item
                7.
              Management's
                    Discussion and Analysis of Financial Conditionand Results of
                    Operation
              26Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              31Item
                  8.
              Financial
                  Statements and Supplementary Data
              32Item
                9.
              Changes
                    in and Disagreements with Accountants onAccounting and Financial
                    Disclosure
              52Item
                  9A.
              Controls
                  and Procedures
              52**PART
                  III**Item
                  10.
              Directors
                  and Executive Officers of the Registrant
              53Item
                  11.
              Executive
                  Compensation
              56Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management and
                  Related Stockholder Matters
              64Item
                  13.
              Certain
                  Relationships and Related Transactions
              66
  3
 Item
                  14.
              Principal
                  Accountant Fees and Services
              67**PART
                  IV**Item
                  15.
              Exhibits,
                  Financial Statement Schedules
              69
 
 ___________________________
  All
        monetary figures set forth are expressed in United States currency.
  4


**PART I**





**Item 1.****Business**





***Company
      Website***





The
      Company has a website located at http://www.coastalcarib.com .
      The
      website can be used to access recent news releases, Securities and Exchange
      Commission filings, and other items of interest. The Contents of the Company’s
      website are not incorporated into this document. Securities and Exchange
      Commission filings, including supplemental schedules and exhibits can also
      be
      accessed free of charge through the SEC website at http://www.sec.gov .





**General**





Coastal
      Caribbean Oils & Minerals, Ltd. (“Company” or “Coastal Caribbean”), was
      organized in Bermuda on February 14, 1962. The Company is the successor to
      Coastal Caribbean Oils, Inc., a Panamanian corporation organized on January
      31,
      1953 to be the holding company for Coastal Petroleum Company (“Coastal
      Petroleum”). Coastal Caribbean, has been engaged, through its subsidiary,
      Coastal Petroleum, in the exploration for oil and gas reserves. At December
      31,
      2006, Coastal Caribbean's principal asset was its 100% interest in its
      subsidiary Coastal Petroleum. Coastal Petroleum's principal assets are its
      nonproducing oil and gas leases in the States of Montana and North Dakota in
      a
      fertile oil producing region know as the Williston Basin. Coastal Petroleum
      is
      the lessee under leases relating to the exploration for and production of oil
      and gas on approximately 137,163 net acres of land in Valley and Blaine
      Counties, Montana and approximately 9,150.31 net acres of land in Billings,
      Slope and Stark Counties, North Dakota.





Prior
      to
      acquiring leases in Montana and North Dakota, Coastal Petroleum was the lessee
      under State of Florida oil, gas and mineral leases covering approximately
      3,700,000 acres of submerged lands along the Gulf Coast and under certain inland
      lakes and rivers. For more than 15 years, the State of Florida used laws,
      policies and permit denials to prevent Coastal from using its leases. The
      Company vigorously litigated to be able to use its leases or to be compensated
      for the State’s taking of them, but Florida courts ultimately ruled against the
      Company. See
      Item
      3. “Legal Proceedings”.





After
      the
      United States Supreme Court refused to hear the case in 2004, the State of
      Florida approached the Company regarding a possible buyback of the Company’s
      leases on the condition that all parties with oil, gas or mineral interests
      in
      the lands covered by the leases were joined in one agreement. On June 1, 2005
      the Company, Coastal Petroleum and other royalty holders (“Royalty Holders”)
      entered an agreement to exchange mutual releases, dismiss pending actions and
      to
      surrender the leases and royalty rights back to the State of Florida in exchange
      for a total compensation of
      $12.5
      million to be divided among the parties in interest .





By
      agreement with the State, the compensation received under the Agreement was
      deposited into an escrow account and payments were made to the Royalty Holders,
      Lykes Mineral Corporation, the Settlement Consultant, and creditors of both
      Coastal Caribbean and Coastal Petroleum. The Company and its subsidiary received
      approximately $4,872,000 in net proceeds. The Company also regained 100%
      ownership of its subsidiary, Coastal Petroleum.





5


The
      Company has utilized the funds it received from the Agreement with the State
      of
      Florida to acquire the leases in Montana and North Dakota described above and
      to
      begin drilling there. No commercial oil or gas discoveries have yet been made
      on
      these properties; therefore, the Company has no proved reserves of oil and
      gas
      and has had no production.





**Crude
      Oil and Natural Gas Exploration**





Through
      its wholly owned subsidiary, Coastal Petroleum, the Company has begun to explore
      for oil and gas in Montana. On January 14, 2006, the Company began drilling
      a
      well in north-central Montana. On January 30, 2006, the Company announced that
      the Blaine County well had been drilled to its objective and production casing
      was set. The Company completed and tested multiple zones in the well that
      potentially could contain oil or gas. While the targeted Lodgepole reef was
      reached and while gas was encountered in uphole zones, none of the zones
      contained commercial quantities of oil or gas.





The
      Company also drilled a well, along with several other participants, in Valley
      County, Montana. The well was a twin to the Evaline 1-18 well, the only
      Lodgepole producer in Montana. The well began on September 5, 2006, and after
      some delays, completion and testing recommenced in February of 2007. The
      targeted Lodgepole reef contained oil, but not in sufficient quantities to
      be
      commercial for the Company. Likewise, an uphole test of the Mission Canyon
      Formation resulted in oil being encountered, but not in sufficient quantities
      to
      be commercial for the Company.





The
      Company is working to complete a Formal Agreement with Victory Energy
      Corporation, (“Victory”) with whom it currently has a Letter of Intent. In
      conjunction with Victory, The Company is proceeding with the process of
      permitting wells in its main block of leases in Valley County,
      Montana.





The
      Company expects the Formal Agreement to result in the drilling of approximately
      three more exploratory wells in 2007 in its search for oil and gas from the
      Lodgepole and other formations which have produced or may produce oil or gas
      in
      the Williston Basin. These wells would be on the Montana leases the Company
      currently holds or on additional leases subsequently acquired.





**Environmental Regulation**




Coastal
      Caribbean is committed to responsible management of the environment, health
      and
      safety, as these areas relate to the Company’s operations. The Company strives
      to achieve the long-term goal of sustainable development within the framework
      of
      sound environmental, health and safety practices and standards.




All
      facets of the Company's operations are affected by a myriad of federal, state,
      regional and local laws, rules and regulations. The Company is further affected
      by changes in such laws and by constantly changing administrative regulations.
      Furthermore, government agencies may impose substantial penalties if the Company
      fails to comply with such regulations or for any contamination resulting from
      the Company's operations.




6


The
      costs
      incurred to ensure compliance with environmental, health and safety laws and
      other regulations are inextricably connected to normal operating expenses such
      that the Company is unable to separate the expenses related to these
      matters.




Coastal
      Caribbean maintains insurance coverage that it believes is customary in the
      industry although it is not fully insured against all environmental or other
      risks. The Company is not aware of any environmental claims existing as of
      December 31, 2006 that would have a material impact upon the Company's financial
      position, results of operations, or liquidity.




***Regulation
      of Oil and Gas***




The
      oil
      and gas industry is extensively regulated by numerous federal, state and local
      authorities. Legislation affecting the oil and gas industry is under constant
      review for amendment or expansion, frequently increasing the regulatory burden.
      Also, numerous departments and agencies, both federal and state are authorized
      by statute to issue rules and regulations binding on the oil and gas industry
      and its individual members, some of which carry substantial penalties for
      failure to comply. Although the regulatory burden on the oil and gas industry
      increases the Company's cost of doing business and, consequently, may affect
      profitability, these burdens generally do not affect the Company any differently
      or to any greater or lesser extent than they affect other companies in the
      industry with similar types, quantities and locations of production.




The
      Company's operations are subject to various types of regulation at federal,
      state and local levels. These types of regulation include requiring permits
      for
      the drilling of wells, drilling bonds and reports concerning operations. Most
      states, and some counties and municipalities in which the Company operates
      may
      also regulate one or more of the following: the location of wells; the method
      of
      drilling and casing wells; the rates of production or "allowables;" the surface
      use and restoration of properties upon which wells are drilled; the plugging
      and
      abandoning of wells; and notice to surface owners and other third
      parties.




State
      laws regulate the size and shape of drilling and spacing units or proration
      units governing the pooling of oil and natural gas properties. Some states
      allow
      forced pooling or integration of tracts to facilitate exploration while other
      states rely on voluntary pooling of lands and leases. In some instances, forced
      pooling or unitization may be implemented by third parties and may reduce the
      Company's interest in the unitized properties. In addition, state conservation
      laws establish maximum rates of production from oil and natural gas wells,
      generally prohibit the venting or flaring of natural gas and impose requirements
      regarding the ratability of production. These laws and regulations may limit
      the
      amount of oil and natural gas the Company can produce from its wells or limit
      the number of wells or the locations at which it can drill.




7


Moreover,
      each state generally imposes a property, production or severance tax with
      respect to the production and sale of oil, natural gas and natural gas liquids
      within its jurisdiction.





**Competition**





The
      oil
      and gas industry is highly competitive. The Company must compete with other
      companies that have substantially greater resources available to them. As an
      independent, the Company does not own any refining or retail outlets and,
      therefore, it would have little control over the price it may receive for any
      crude oil it produces. In acquisition activities, significant competition exists
      as integrated and independent companies and individual producers are active
      bidders for desirable oil and gas properties. Although many of these competitors
      have greater financial and other resources than the Company, Management believes
      that Coastal Caribbean is in a position to compete effectively due to its low
      cost structure, transaction flexibility, experience and
      determination.




**Employees**





The
      Company currently has two employees. The Company relies heavily on consultants
      for legal, accounting, geological and administrative services. The Company
      uses
      consultants because it believes it is more cost effective than employing a
      larger full time staff.





**Oil
      and Gas Properties**





**Williston
      Basin**





***Blaine
      County, Montana***





The
      Company owns a 100% working interest in one property consisting of 160 acres
      located in northern Blaine County. At payout, the Company’s working interest is
      reduced to 75%. The Company has no proved reserves on the property.





On
      January 14, 2006, the Company began drilling a well on this property. The well
      was drilled into the targeted Lodgepole reef and the production casing was
      set.
      The Company completed and tested multiple zones in the well that potentially
      could contain oil or gas. While gas was encountered, none of the zones contained
      commercial quantities of oil or gas.





***Valley
      County, Montana*** ****





The
      Company’s assets in Valley County consist of leases covering approximately
      137,163 net acres. The Company’s working interest in these properties is 100%.
      At payout, the Company’s working interest is reduced to 75%. Most of the leases
      were acquired during 2005, but approximately 27,780 gross acres (27,740 net
      acres) were acquired in February of 2006. There has been no drilling yet by
      the
      Company on these leases and the Company has no proved reserves on the
      property.




8





The
      Company has entered into a Letter of Intent with Victory Energy Corporation
      and
      is currently working on a Formal Agreement which would allow Victory to earn
      a
      50% interest in these Valley County, Montana Leases by drilling at least three
      wells at its cost and paying $1,225,000 to Coastal over the next 12-13 months.




***Billings,
      Slope and Stark Counties, North Dakota***





The
      Company owns leases covering approximately 9,150.31 net acres in these three
      counties. The Company’s working interest in these properties is 100%. At payout,
      the Company’s working interest is reduced to 75%. The Company has no proved
      reserves on the property and has not yet begun any drilling on it.





The
      Company originally acquired these and other leases covering approximately 30,345
      gross acres in 2005, however, some of the leases have since expired.




**Acreage
      and Wells**





The
      following chart reflects the approximate acreage held under lease by Coastal
      Caribbean through its wholly owned subsidiary Coastal Petroleum, at
      December 31, 2006:




Acreage under lease at December
      31, 2006




**Gross
                Acres***
            
            
            **Net
                Acres******Lease
              Location**
            
            
            ***Undeveloped***
            
            
            ***Developed***
            
            
            ***Undeveloped***
            
            
            ***Developed***Montana
            
            
            138,897.09
            
            
            0
            
            
            137,163.26
            
            
            0North
                Dakota
            
            
            9,388.94
            
            
            0
            
            
            9,150.31
            
            
            0**Total:**
            
            
            148,286.03
            
            
            0
            
            
            146,313.57
            
            
            0





*  A
      gross
      acre is an acre in which a working interest is owned.


**  A
      net
      acre is deemed to exist when the sum of fractional ownership working interests
      in gross acres equals one. The number of net acres is the sum of the fractional
      working interests owned in gross acres expressed as whole numbers and fractions
      thereof.





Two
      wells
      were drilled in 2006. No wells were drilled in 2005 or 2004.





**Drilling
      Activity**





During
      2006, the Company drilled one well and participated in and operated another
      well
      that was drilled with other participants.




First,
      the Company drilled an exploratory well beginning on January 14, 2006 and set
      production casing in that well in late January 2006. The well hit the target
      Lodgepole reef, but the reef had been flushed with fresh water. Multiple other
      zones, or formations, were drilled through that were prospective for oil or
      gas.
      Each of them was tested and while gas was encountered, none of the formations
      contained economic quantities of oil or gas. This well cost approximately
      $800,000.




9


In
      its
      second well of the year, the Company participated in and acted as operator
      in a
      twin well to the only known well to produce from the Lodgepole in Montana.
      Drilling on the well began in early September and delays and equipment
      difficulties extended the drilling time and added to the cost of the well,
      but completion
      and testing recommenced in February of 2007. The targeted Lodgepole reef
      contained oil, but not in sufficient quantities to be commercial for the
      Company. Likewise, an uphole test of the Mission Canyon Formation resulted
      in
      oil being encountered, but not in sufficient quantities to be commercial for
      the
      Company. The
      Company’s participation costs in the twin well were approximately $225,000 and
      the total cost of the well was approximately $1,220,000.




**Item
      1A.**  **Risk
      Factors**





***An
      investment in our securities involves a high degree of risk. You should
      carefully consider the following risk factors before you decide to buy our
      securities. Any of these factors could cause the value of your investment to
      decline significantly or become worthless. If you decide to buy our securities,
      you should be able to afford a complete loss of your investment.***





**Risks
      Relating to an Investment in Our Stock**




***At
      this stage of our business operations, even with our good faith efforts,
      investors have a high probability of losing their
      investment.***





We
      have
      yet to discover economic quantities of oil or gas products on any of our
      properties. In addition, because the nature of our business is expected to
      change as a result of shifts in the market price of oil and natural gas,
      competition, and the development of new and improved technology, management
      forecasts are not necessarily indicative of future operations and should not
      be
      relied upon as an indication of future performance.





While
      Management believes its estimates of projected occurrences and events are within
      the timetable of its business plan, our actual results may differ substantially
      from those that are currently anticipated.





***We
      may need additional capital in the future to finance our planned growth, which
      we may not be able to raise or it may only be available on terms unfavorable
      to
      us or our stockholders, which may result in our inability to fund our working
      capital requirements and harm our operational results.***





We
      have
      and expect to continue to have substantial capital expenditure and working
      capital needs. We believe that current cash on hand, the proposed agreement
      with
      Victory Energy, revenues from operations and the other sources of liquidity
      are
      sufficient enough to fund our operations through fiscal 2007. After that time
      we
      will need to rely on cash flow from operations or raise additional cash to
      fund
      our operations, to fund our anticipated reserve replacement needs and implement
      our growth strategy, or to respond to competitive pressures and/or perceived
      opportunities, such as investment, acquisition, exploration and development
      activities.





10


If
      operating difficulties or other factors, many of which are beyond our control,
      cause our revenues or cash flows from operations, to decrease, we may be limited
      in our ability to spend the capital necessary to complete our development,
      exploitation and exploration programs. If our resources or cash flows do not
      satisfy our operational needs, we will require additional financing, in addition
      to anticipated cash generated from our operations, to fund our planned growth.





Additional
      financing might not be available on terms favorable to us, or at all. If
      adequate funds were not available or were not available on acceptable terms,
      our
      ability to fund our operations, take advantage of unanticipated opportunities,
      develop or enhance our business or otherwise respond to competitive pressures
      would be significantly limited. In such a capital restricted situation, we
      may
      curtail our acquisition, drilling, development, and exploration activities
      or we
      may be forced to sell some of our assets on an untimely or unfavorable
      basis.





***We
      are subject to the penny stock rules and these rules may adversely effect
      trading in our common shares.***





Our
      common stock is considered a ’low-priced' security under rules promulgated under
      the Securities Exchange Act of 1934. In accordance with these rules,
      broker-dealers participating in transactions in low-priced securities must
      first
      deliver a risk disclosure document which describes the risks associated with
      such stocks, the broker-dealer's duties in selling the stock, the customer's
      rights and remedies and certain market and other information. Furthermore,
      the
      broker-dealer must make a suitability determination approving the customer
      for
      low-priced stock transactions based on the customer's financial situation,
      investment experience and objectives. Broker-dealers must also disclose these
      restrictions in writing to the customer, obtain specific written consent from
      the customer, and provide monthly account statements to the customer. The effect
      of these restrictions will likely be a decrease in the willingness of
      broker-dealers to make a market in our common shares, decreased liquidity of
      our
      common shares and increased transaction costs for sales and purchases of our
      common shares as compared to other securities.





These
      Exchange Act rules may limit the ability or willingness of brokers and other
      market participants to make a market in our shares and may limit the ability
      of
      our shareholders to sell in the secondary market, through brokers, dealers
      or
      otherwise. We also understand that many brokerage firms discourage their
      customers from trading in shares falling within the "penny stock" definition
      due
      to the added regulatory and disclosure burdens imposed by these Exchange Act
      rules. The SEC from time to time may propose and implement even more stringent
      regulatory or disclosure requirements on shares not listed on NASDAQ or on
      a
      national securities exchange. The adoption of the proposed changes that may
      be
      made in the future could have an adverse effect on the trading market for our
      shares.





11


***We
      may incur substantial write-downs of the carrying value of our gas and oil
      properties, which would adversely impact our
      earnings.***





We
      intend
      to periodically review the carrying value of our gas and oil properties under
      the full cost accounting rules of the Securities and Exchange Commission. Under
      these rules, capitalized costs of proved gas and oil properties may not exceed
      the present value of estimated future net revenues from proved reserves,
      discounted at an annual rate of 10%. Application of this “ceiling” test requires
      pricing future revenue at the un-escalated prices in effect as of the end of
      each fiscal quarter and requires a write-down for accounting purposes if the
      ceiling is exceeded, even if prices were depressed for only a short period
      of
      time. We may be required to write down the carrying value of our gas and oil
      properties when natural gas and oil prices are depressed or unusually volatile,
      which would result in a charge against our earnings. Once incurred, a write-down
      of the carrying value of our natural gas and oil properties is not reversible
      at
      a later date.





***Competition
      in our industry is intense. We are very small and have an extremely limited
      operating history as compared to the vast majority of our competitors, and
      we
      may not be able to compete effectively.***





We
      intend
      to compete with major and independent natural gas and oil companies for property
      acquisitions. We will also compete for the equipment and labor required to
      operate and to develop natural gas and oil properties. The majority of our
      anticipated competitors have substantially greater financial and other resources
      than we do. In addition, larger competitors may be able to absorb the burden
      of
      any changes in federal, state and local laws and regulations more easily than
      we
      can, which would adversely affect our competitive position.





These
      competitors may be able to pay more for natural gas and oil properties and
      may
      be able to define, evaluate, bid for and acquire a greater number of properties
      than we can. Our ability to acquire additional properties and develop new and
      existing properties in the future will depend on our ability to conduct
      operations, to evaluate and select suitable properties and to consummate
      transactions in this highly competitive environment. In addition, some of our
      competitors have been operating in our core areas for a much longer time than
      we
      have and have demonstrated the ability to operate through industry
      cycles.





***Drilling
      wells is a high risk activity, often involving significant costs that may be
      more than our estimates, and may not result in any addition to our production
      or
      reserves. Any material inaccuracies in drilling costs, estimates or underlying
      assumptions will materially affect our business.***





Developing
      and exploring for natural gas and oil involves a high degree of operational
      and
      financial risk, which precludes definitive statements as to the time required
      and costs involved in reaching certain objectives. The budgeted costs of
      drilling, completing and operating wells are often exceeded and can increase
      significantly when drilling costs rise due to a tightening in the supply of
      various types of oilfield equipment and related services. Moreover, the
      successful drilling of a natural gas or oil well does not ensure a profit on
      investment. Exploratory wells bear a much greater risk of loss than development
      wells.





12


A
      variety
      of factors, both geological and market-related, can cause a well to become
      uneconomical or only marginally economic. Our initial drilling and development
      sites, and any potential additional sites that may be developed, require
      significant additional exploration and development, regulatory approval and
      commitments of resources prior to commercial development. Any success that
      we
      may have with these wells or any future drilling operations will most likely
      not
      be indicative of our current or future drilling success rate. If our actual
      drilling and development costs are significantly more than our estimated costs,
      we may not be able to continue our business operations as proposed and would
      be
      forced to modify our plan of operation.





***The
      natural gas and oil business involves numerous uncertainties and operating risks
      that can prevent us from realizing profits and can cause substantial
      losses.***





Our
      development, exploitation and exploration activities may be unsuccessful for
      many reasons, including weather, cost overruns, equipment shortages and
      mechanical difficulties. Moreover, the successful drilling of a natural gas
      and
      oil well does not ensure a profit on investment. A variety of factors, both
      geological and market-related, can cause a well to become uneconomical or only
      marginally economical. In addition to their cost, unsuccessful wells can hurt
      our efforts to replace reserves. The natural gas and oil business involves
      a
      variety of operating risks, including:





|· | fires;
|- | ------

|· | explosions;
|- | -----------

|· | blow-outs
              and surface cratering;
|- | ----------------------------------------------

|· | uncontrollable
              flows of oil, natural gas, and formation
              water;
|- | ------------------------------------------------------------------------------------------

|· | natural
              disasters, such as hurricanes and other adverse weather
              conditions;
|- | -------------------------------------------------------------------------------------------------------

|· | pipe,
              cement, or pipeline failures;
|- | -------------------------------------------------

|· | casing
              collapses;
|- | -------------------------------

|· | embedded
              oil field drilling and service tools;
|- | ------------------------------------------------------------

|· | abnormally
              pressured formations; and
|- | --------------------------------------------------

|· | environmental
              hazards, such as natural gas leaks, oil spills, pipeline ruptures and
              discharges of toxic gases.
|- | ------------------------------------------------------------------------------------------------------------------------------------------

|· | If
              we experience any of these problems, it could affect well bores, gathering
              systems and processing facilities, which could adversely affect our
              ability to conduct operations. We could also incur substantial losses
              as a
              result of:
|- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




|a. | injury
              or loss of life;
|-- | -------------------------------------

|b. | severe
              damage to and destruction of property, natural resources and
              equipment;
|-- | ----------------------------------------------------------------------------------------------------------

|c. | pollution
              and other environmental damage;
|-- | -------------------------------------------------------

|d. | clean-up
              responsibilities;
|-- | ----------------------------------------

|e. | regulatory
              investigation and penalties;
|-- | -----------------------------------------------------

|f. | suspension
              of our operations; and
|-- | -----------------------------------------------

|g. | repairs
              to resume operations.
|-- | -------------------------------------------




13




***The
      unavailability or high cost of drilling rigs, equipment, supplies, personnel
      and
      other services could adversely affect our ability to execute on a timely basis
      our development, exploitation and exploration plans within our
      budget.***





Shortages
      or an increase in cost of drilling rigs, equipment, supplies or personnel could
      delay or interrupt our operations, which could impact our financial condition
      and results of operations. Drilling activity in the geographic areas in which
      we
      conduct drilling activities may increase, which would lead to increases in
      associated costs, including those related to drilling rigs, equipment, supplies
      and personnel and the services and products of other vendors to the industry.
      Increased drilling activity in these areas may also decrease the availability
      of
      rigs. We do not have any contracts with providers of drilling rigs and we cannot
      be assured that drilling rigs will be readily available when we need them.
      Drilling and other costs may increase further and necessary equipment and
      services may not be available to us at economical prices.





***Our
      lease ownership may be diluted due to financing strategies we may employ in
      the
      future due to our lack of capital.***





To
      accelerate our development efforts we plan to take on other working interest
      participants that will contribute to the costs of drilling and completion and
      then share in revenues derived from production. In addition, we may in the
      future, due to a lack of capital or other strategic reasons, establish joint
      venture partnerships or farm out all or part of our development efforts. These
      economic strategies may have a dilutive effect on our lease ownership and will
      more than likely reduce our potential operating revenues.





***Our
      business plan anticipates that we will be able to develop our oil and gas
      properties. The cost to develop our oil and gas properties is significant,
      and,
      to date, we have been unable to fully implement our business plan due to our
      limited amount of funds and the availability of drilling equipment. Unless
      we
      can fully implement our business plan, our revenues and results of operations,
      and the value of your investment, will be adversely affected.***





We
      believe that the properties held by our subsidiary, Coastal Petroleum, have
      significant reserves of oil and gas, however, we have not had the time, the
      necessary funds, or equipment availability to fully exploit these resources.
      The
      costs associated with the development of oil and gas properties, including
      engineering studies, equipment purchase or leasing and personnel costs, are
      significant. In order to be profitable we must enhance our oil and gas
      production, which means that we must drill more wells. In order to drill more
      wells, we may need to find additional sources of capital, in addition to the
      revenues we expect to earn from our oil and gas sales. We cannot guarantee
      that
      future financing will be available to us, on acceptable terms or at all. If
      we
      do not earn revenues sufficient to implement our business plan and we fail
      to
      obtain other financing, either through another offering of our securities or
      by
      obtaining loans, we may not become profitable and we may be unable to continue
      our operations. If we were not able to continue our operations, your securities
      would become worthless.





14





***We
      have accumulated losses. Our continued inability to generate revenues that
      will
      allow us to profitably operate our business could adversely affect the value
      of
      your investment.***





As
      of
      year end we did not earn any money from oil and gas sales to pay for our
      operating expenses. For the fiscal year ended December 31, 2006 we reported
      a
      net loss and we cannot give you any assurance that we will generate profits
      in
      the near future, or at all. If we fail to generate profits and we are unable
      to
      obtain financing to continue our operations, we could be forced to severely
      curtail, or possibly even cease, our operations.





***Even
      if we fully develop our oil and gas properties, we may not be profitable. Our
      inability to operate profitably will adversely affect our business and the
      value
      of your investment.***





We
      have
      assumed that once we fully develop our oil and gas properties we will be
      profitable. Our reserves may prove to be lower than expected, production levels
      may be lower than expected, the costs to exploit the oil and gas may be higher
      than expected, new regulations may adversely impact our ability to exploit
      these
      resources and the market price for crude oil and natural gas may be lower than
      current prices. We also face competition from other oil and gas companies in
      all
      aspects of our business, including oil and gas leases, marketing of oil and
      gas,
      and obtaining goods, services and labor.





***We
      may not have enough insurance to cover all of the risks we face. If our
      insurance coverage should prove to be inadequate, our financial condition and
      results of operations, as well as the value of your investment, could be
      adversely affected.***





In
      accordance with customary industry practices, we maintain insurance coverage
      against some, but not all, potential losses in order to protect against the
      risks we face. We do not carry business interruption insurance nor do we have
      a
      policy of insurance on the life of Phillip W. Ware, our President and Chief
      Executive Officer. We may elect not to carry insurance if our management
      believes that the cost of available insurance is excessive relative to the
      risks
      presented. In addition, we cannot insure fully against pollution and
      environmental risks.





The
      occurrence of an event not fully covered by insurance could have a material
      adverse effect on our financial condition and results of operations and on
      the
      value of your investment.





***Oil
      and natural gas prices are highly volatile in general and low prices negatively
      affect our financial results.***





Our
      revenue, profitability, cash flow, future growth and ability to borrow funds
      or
      obtain additional capital, as well as the carrying value of our properties,
      are
      substantially dependent upon prevailing prices of oil and natural gas.
      Historically, the markets for oil and natural gas have been volatile, and such
      markets are likely to continue to be volatile in the future. Prices are subject
      to wide fluctuation in response to relatively minor changes in the supply of
      and
      demand for oil and natural gas, market uncertainty and a variety of additional
      factors that are beyond our control. Among the factors that can cause this
      volatility are:





15


|· | worldwide
              or regional demand for energy, which is affected by economic
              conditions;
|- | --------------------------------------------------------------------------------------------------------------

|· | the
              domestic and foreign supply of natural gas and
              oil;
|- | -----------------------------------------------------------------------------------

|· | weather
              conditions;
|- | ---------------------------------

|· | domestic
                   and foreign governmental regulations;
|- | -----------------------------------------------------------------

|· | political
              conditions in natural gas and oil producing
              regions;
|- | ------------------------------------------------------------------------------------------

|· | the
              ability of members of the Organization of Petroleum Exporting Countries
              to
              agree upon and maintain oil prices and production levels;
              and
|- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|· | the
              price and availability of other fuels.
|- | --------------------------------------------------------




Declines
      in oil and natural gas prices may materially adversely affect our financial
      condition, liquidity, and ability to finance planned capital expenditures and
      results of operations. We may be required in the future to write down the
      carrying value of our oil and natural gas properties when oil and natural gas
      prices are depressed or unusually volatile. Whether we will be required to
      take
      such a charge will depend on the prices for oil and natural gas at the end
      of
      any quarter and the effect of reserve additions or revisions and capital
      expenditures during such quarter. If a write down is required, it would result
      in a charge to earnings, but would not impact cash flow from operating
      activities.




It
      is
      impossible to predict natural gas and oil price movements with certainty. Lower
      natural gas and oil prices may not only decrease our future revenues on a per
      unit basis but also may reduce the amount of natural gas and oil that we can
      produce economically. A substantial or extended decline in natural gas and
      oil
      prices may materially and adversely affect our future business enough to force
      us to cease our business operations. In addition, our financial condition,
      results of operations, liquidity and ability to finance planned capital
      expenditures will also suffer in such a price decline. Further, natural gas
      and
      oil prices do not necessarily move together.





***Government
      regulation and liability for environmental matters may adversely affect our
      business and results of operations.***





Oil
      and
      natural gas operations are subject to various federal, state and local
      government regulations, which may be changed from time to time. Matters subject
      to regulation include:





|· | discharge
              permits for drilling operations;
|- | --------------------------------------------------------

|· | drilling
              bonds;
|- | -----------------------------

|· | reports
              concerning operations;
|- | --------------------------------------------

|· | the
              spacing of wells;
|- | -----------------------------------

|· | unitization
              and pooling of properties; and
|- | --------------------------------------------------------

|· | taxation.
|- | ---------




From
      time
      to time, regulatory agencies have imposed price controls and limitations on
      production by restricting the rate of flow of oil and natural gas wells below
      actual production capacity in order to conserve supplies of oil and natural
      gas.





There
      are
      federal, state and local laws and regulations primarily relating to protection
      of human health and the environment applicable to the development, production,
      handling, storage, transportation and disposal of oil and natural gas,
      by-products thereof and other substances and materials produced or used in
      connection with oil and natural gas operations. In addition, we may be liable
      for environmental damages caused by previous owners of property we purchase
      or
      lease. As a result, we may incur substantial liabilities to third parties or
      governmental entities. We are also subject to changing and extensive tax laws,
      the effects of which cannot be predicted. The implementation of new laws or
      regulations, or the modification of existing laws or regulations, could have
      a
      material adverse effect on us.





16


***Reserve
      estimates depend on many assumptions that may turn out to be inaccurate. Any
      material inaccuracies in these reserve estimates or underlying assumptions
      will
      materially affect the quantities and present value of our reserves.***





Estimating
      proved reserves involves many uncertainties, including factors beyond our
      control. There are uncertainties inherent in estimating quantities of proved
      oil
      reserves since petroleum engineering is not an exact science. Estimates of
      commercially recoverable oil reserves and of the future net cash flows from
      them
      are based upon a number of variable factors and assumptions
      including:





|· | historical
              production from the properties compared with production from other
              producing properties;
|- | -------------------------------------------------------------------------------------------------------------------------------

|· | the
              effects of regulation by governmental
              agencies;
|- | -------------------------------------------------------------------------------

|· | future
              oil prices; and
|- | ------------------------------------

|· | future
              operating costs, severance and excise taxes, abandonment costs,
              development costs and workover and remedial costs.
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------




***Development
      of our reserves, when and if established, may not occur as scheduled and the
      actual results may not be as anticipated.***





Our
      future reserve estimates will be based on various assumptions, including
      assumptions required by the Securities and Exchange Commission relating to
      natural gas and oil prices, drilling and operating expenses, capital
      expenditures, taxes and availability of funds. The process of estimating our
      natural gas and oil reserves is anticipated to be extremely complex, and will
      require significant decisions and assumptions in the evaluation of available
      geological, geophysical, engineering and economic data for each reservoir.
      Our
      actual production, revenues, taxes, development expenditures and operating
      expenses will likely vary from those anticipated. These variances may be
      material.





***Our
      common stock is thinly traded, so you may be unable to sell at or near ask
      prices or at all if you need to sell your stock to raise money or otherwise
      desire to liquidate your shares.***





Our
      common shares are "thinly-traded" on the NASD OTC Bulletin Board, meaning that
      the number of persons interested in purchasing our common shares at or near
      ask
      prices at any given time may be relatively small or non-existent. This situation
      is attributable to a number of factors, including the fact that we are a small
      company which is relatively unknown to stock analysts, stock brokers,
      institutional investors and others in the investment community that generate
      or
      influence sales volume. As a consequence, there may be periods of several days
      or more when trading activity in our shares is minimal or non-existent, as
      compared to issuers which have a large and steady volume of trading activity
      that will generally support continuous sales without an adverse effect on share
      price.





17


We
      cannot
      give you any assurance that a broader or more active public trading market
      for
      our common shares will develop or be sustained, or that current trading levels
      will be sustained. Due to these conditions, we can give you no assurance that
      you will be able to sell your shares at or near ask prices or at all if you
      need
      money or otherwise desire to liquidate your shares.





Examples
      of external factors, which can generally be described as factors that are
      unrelated to the operating performance or financial condition of any particular
      company, include changes in interest rates and worldwide economic and market
      conditions and trends, as well as changes in industry conditions such as changes
      in the cost of energy and the passage of regulatory and environmental rules.
      Changes in the market price of our common stock may have no connection with
      our
      operating results, financial condition or prospects. We cannot make any
      predictions or projections as to what the prevailing market price for our common
      stock will be at any time, or as to what effect, if any, that the availability
      or sale of our common stock will have on the prevailing market price. Because
      of
      the volatility of the price of our common stock, the value of your investment
      could decline substantially.





***Our
      right to issue additional capital stock at any time could have an adverse effect
      on your proportionate ownership and voting and other
      rights.***





We
      are
      entitled under our Certificate of Incorporation to issue up to 250,000,000
      shares of common stock. Our Board of Directors may generally issue those shares,
      or options or warrants to purchase those shares, without further approval by
      our
      shareholders. In the event that we will be required to issue additional
      securities to raise capital to further our development plans, your proportionate
      ownership and voting rights could be adversely affected by the issuance of
      additional common shares, or options or warrants to purchase those shares,
      including a dilution in your proportionate ownership and voting rights. We
      cannot give you any assurance that we will not issue additional common shares,
      or options or warrants to purchase those shares, under circumstances we may
      deem
      appropriate at the time. The issuance of additional common stock by our
      management will have the effect of diluting the proportionate equity interest
      and voting power of holders of our common stock.





***We
      have not paid cash dividends and it is unlikely that we will pay cash dividends
      in the foreseeable future. Investing in our securities will not provide you
      with
      income.***





We
      plan
      to use all of our earnings, to the extent we have earnings, to fund our
      operations. We do not plan to pay any cash dividends in the foreseeable future.
      We cannot guarantee that we will, at any time, generate sufficient surplus
      cash
      that would be available for distribution as a dividend to the holders of our
      common stock. You should not expect to receive cash dividends on our common
      stock.





***Our
      dependence on outside equipment and service providers may hurt our
      profitability.***





We
      need
      to obtain logging equipment and cementing and well treatment services in the
      area of our operations. We may not be able to obtain these items in a timely
      and
      cost-effective manner. Several factors, including increased competition in
      the
      area, may limit their availability. Longer waits and higher prices for equipment
      and services may reduce our profitability.





18


***We
      must increase our oil production revenue or develop additional sources of funds
      to support our oil operations.***





Our
      long
      term success is ultimately dependent on our ability to expand our revenue base
      through the acquisition and development of producing properties. We have made
      significant investments in oil and gas leases in North Dakota and Montana.
      The
      acquisitions are not indicative of future success. All of the projects
      envisioned in our business plan are subject to the risk of failure and the
      loss
      of our investment. In the event we are not able to increase the revenues from
      our leases, the leases could fall into default and we could lose our rights
      to
      those leases.





***Drilling
      for and producing oil is a high risk activity with many uncertainties that
      could
      adversely affect our business, financial condition or results of operations.***





Our
      future success will depend on the success of our exploitation, exploration,
      development and production activities. Our oil exploration and production
      activities are subject to numerous risks beyond our control; including the
      risk
      that drilling will not result in commercially viable oil production. Our
      decisions to purchase, explore, develop or otherwise exploit prospects or
      properties will depend in part on the evaluation of data obtained through
      geophysical and geological analyses, production data and engineering studies,
      the results of which are often inconclusive or subject to varying
      interpretations. Our cost of drilling, completing and operating wells is often
      uncertain before drilling commences.





Overruns
      in budgeted expenditures are common risks that can make a particular project
      uneconomical. The cost of drilling, completing and operating wells is often
      uncertain. Moreover, drilling may be curtailed, delayed or canceled as a result
      of many factors, including title problems, weather conditions, shortages of,
      or
      delays in delivery of equipment, as well as the financial instability of well
      operators, major working interest owners and well servicing companies. Our
      wells
      may be shut-in for lack of a market until a pipeline or gathering system with
      available capacity is extended into our area. Our oil wells may have production
      curtailed until production facilities and delivery arrangements are acquired
      or
      developed for them. The affect of one or more of the above factors could result
      in our becoming unprofitable or ceasing business.





**Item 1B.**  **Unresolved
      Staff Comments**





None


19




**Item 2.**  **Properties**





**Properties**




Information
      required by Item 2 “Properties” is included under Item 1
“Business.”





**Disclosure
      Concerning Oil and Gas Operations** **.**





Since
      the
      properties in which the Company has interests are undeveloped and nonproducing,
      items 2 through 4 of Securities Exchange Act Industry Guide 2 are not
      applicable.





(5)  Undeveloped
      Acreage .





The
      Company's undeveloped acreage as of December 31, 2006 was as
      follows:





Gross Acres
            
            Net AcresMontana
            
            
            138,897.09
            
            
            137,163.26North
                Dakota
            
            
            9,388.94
            
            
            9,150.31**Total:**
            
            
            148,286.03
            
            
            146,313.57




(6)  Drilling Activity .





The
      Company drilled one well and operated and participated in the drilling of a
      second well in 2006. See Drilling Activity section under Item 1 Business at
      page
      9.





(7)  Present Activities .





See Drilling
      Activity section under Item 1 Business at page 9.





**Item 3.****Legal Proceedings**





**Agreement
      with the State of Florida**





For
      years
      the Company’s subsidiary, Coastal Petroleum litigated against the State in an
      effort to secure drilling permits and drill for oil off the coast of Florida.
      The State denied Coastal Petroleum permission to drill on its Leases, a decision
      that was upheld by a Florida court. Florida courts also denied Coastal Petroleum
      compensation for a taking of the Leases. Furthermore, the longstanding State
      policy against any drilling for oil or gas offshore of Florida remains in place
      as a reflection of the Florida Statutes which bans such activity, and there
      is
      no indication that it will change. Given the policy and court decisions, any
      additional attempt by Coastal Petroleum to secure a permit to drill its Florida
      Leases was considered by Management as futile.




20





After
      the
      United States Supreme Court refused to hear Coastal Petroleum’s taking case in
      2004 and the Company’s legal options were limited, the State of Florida
      approached Coastal Petroleum regarding a possible buyback of its leases. With
      limited financial resources to continue a legal fight which was further
      frustrated with recent court decisions, Coastal Petroleum continued discussions
      with the State and ultimately, on June 1, 2005 was joined by Coastal Caribbean
      and other royalty holders in
      accepting an offer by the State of Florida to repurchase Coastal Petroleum’s
      Florida Leases and other royalty rights. The
      proceeds from the State were divided by the parties to the Agreement and
      t he
      Company and its subsidiary received approximately $4.871 million after payment
      to all their creditors. The
      Agreement resulted in the closing and dismissal of all of the Company’s
      litigation concerning the leases including the following:





|· | Drilling
              Permit Litigation - Lease Taking Case (Lease 224-A)
|- | --------------------------------------------------------------------------

|· | Ancillary
              Matters to Lease Taking Case (Lease
              224-A)
|- | --------------------------------------------------------------------------------

|· | Coastal
              Caribbean Royalty Litigation
|- | --------------------------------------------------

|· | Lease
              Taking Case (Lease 224-B)
|- | ---------------------------------------------




The
      Company is currently not a party to any litigation.





**Contingency
      Fees**





All
      contingency fees previously issued to firms or individuals relating to the
      litigation against the State of Florida, were released or nullified by the
      2005
      Agreement with the State of Florida or in the mutual releases exchanged pursuant
      to that Agreement. No contingency fees remain in effect.





**Item 4** **.**  **Submission
      of Matters to a Vote of Security Holders**




None.


21




**PART II**





**Item
      5****.****Market
      for the Company's Common Stock, Related****Stockholder Matters
      and Issuer Purchases of Equity Securities**





**Market Information** **.**





The
      principal market for the Company's common stock is in the over-the-counter
      market on the "Electronic Bulletin Board" of the National Association of
      Securities Dealers, Inc. under the symbol **COCBF** .
      The
      quarterly high and low closing prices on the Electronic Bulletin Board and
      the
      Pink Sheets (Pink Sheets LLC) during the last two years were as
      follows:







**2005**
              
              **1****st****quarter**
              
              **2****nd****quarter**
              
              **3****rd****quarter**
              
              **4****th****quarter**High
              
              
              .17
              
              
              .22
              
              
              .21
              
              
              .21Low
              
              
              .075
              
              
              .06
              
              
              .095
              
              
              .085
 
  **2006**
              
              
              **1****st****quarter**
              
              
              **2****nd****quarter**
              
              
              **3****rd****quarter**
              
              
              **4****th****quarter**High
              
              
              .72
              
              
              .73
              
              
              .39
              
              
              .23Low
              
              
              .15
              
              
              .32
              
              
              .21
              
              
              .12





**Holders** **.**





The
      approximate number of record holders of the Company's common stock at March
      20,
      2007 was 8,015.





**Dividends** **.**





The
      Company has never declared or paid dividends on its common stock and it does
      not
      anticipate declaring or paying any dividends in the foreseeable future. The
      Company plans to retain any future earnings to reduce the deficit accumulated
      during the development stage of $34,979,152 at December 31, 2006 and to finance
      its operations.





***Foreign Exchange Control Regulations***





The
      Company is subject to the applicable laws of The Islands of Bermuda relating
      to
      exchange control, but has the permission of the Foreign Exchange Control of
      Bermuda to carry on business in, to receive, disburse and hold United States
      dollars and dollar securities under its designation as an External Account
      Company. The Company has been advised that, although as a matter of law it
      is
      possible for such designation to be revoked, there is little precedent for
      revocation under Bermuda law.





22


***Income
      and Withholding Taxes***





Coastal
      Caribbean is a Bermuda corporation. Bermuda currently imposes no taxes on
      corporate income or capital gains realized outside of Bermuda. Any amounts
      received by Coastal Caribbean from United States sources as dividends, interest,
      or other fixed or determinable annual or periodic gains, profits and income,
      will be subject to a 30% United States withholding tax. In addition, any
      dividends from its domestic subsidiary, Coastal Petroleum, will not be eligible
      for the 100% dividends received deduction, which is allowable in the case of
      a
      United States parent corporation. Shares of the Company held by persons who
      are
      citizens or residents of the United States are subject to federal estate and
      gift and local inheritance taxation. Any dividends received by such persons
      will
      also be subject to federal, State and local income taxation. The foregoing
      rules
      are of general application only, and reflect law in force as of the date of
      this
      report.





A
      convention between Bermuda and the United States relating to mutual assistance
      on tax matters became operative in 1988.




***Passive
      Foreign Investment Company Rules***





The
      Internal Revenue Code of 1986, as amended, provides special rules for
      distributions received by U.S. holders on stock of a passive foreign investment
      company (PFIC), as well as amounts received from the sale or other disposition
      of PFIC stock.





Under
      the
      PFIC rules, a non-U.S. corporation will be classified as a PFIC for U.S. federal
      income tax purposes in any taxable year in which, after applying certain
      look-through rules, either (1) at least 75 percent of its gross income is
      passive income or (2) at least 50 percent of the gross value of its assets
      is
      attributable to assets that produce passive income or are held for the
      production of passive income.





Passive
      income for this purpose generally includes dividends, interest, royalties,
      rents, and gains from commodities and securities transactions. Special rules
      apply in cases where a foreign corporation owns directly or indirectly at least
      a 25 percent interest in a subsidiary, measured by value. In this case, the
      foreign corporation is treated as holding its proportionate share of the assets
      of the subsidiary and receiving directly its proportionate share of the income
      of the subsidiary when determining whether it is a PFIC. Thus, Coastal Caribbean
      would be deemed to receive its pro rata share of the income and to hold its
      pro
      rata share of the assets, of Coastal Petroleum.





Based
      on
      certain estimates of its gross income and gross assets and the nature of its
      business, Coastal Caribbean would be classified as a PFIC for the years 1987
      through 2006. Once an entity is considered a PFIC for a taxable year, it will
      be
      treated as such for all subsequent years with respect to owners holding the
      stock in a year that it was classified as a PFIC under the income or asset
      test
      described above. Whether the Company will be a PFIC under either of these tests
      in future years will be difficult to determine because the tests are applied
      annually. Based upon Coastal Caribbean's current passive income, it is likely
      that Coastal Caribbean will be classified as a PFIC in 2007.




23





If
      Coastal Caribbean is classified as a PFIC with respect to a U.S. holder any
      gain
      from the sale of, and certain distributions with respect to, shares of our
      common stock, would cause a U.S. holder to become liable for U.S. federal income
      tax under Code section 1291 (the interest charge regime). The tax is computed
      by
      allocating the amount of the gain on the sale or the amount of the distribution,
      as the case may be, to each day in the U.S. shareholder’s holding period. To the
      extent that the amount is allocated to a year, other than the year of the
      disposition or distribution, in which the corporation was treated as a PFIC
      with
      respect to the U.S. holder, the income will be taxed as ordinary income at
      the
      highest rate in effect for that year, plus an interest charge. The interest
      charge would generally be calculated as if the distribution or gain had been
      recognized ratably over the U.S. holder's holding period (for PFIC purposes)
      for
      the shares. To the extent an amount is allocated to the year of the disposition
      or distribution, or to a year before the first year in which the corporation
      qualified as a PFIC, the amount so allocated is included as additional gross
      income for the year of the disposition or distribution. A U.S. holder also
      would
      be required to make an annual return on IRS Form 8621 that describes any
      distributions received with respect to our shares and any gain realized on
      the
      sale or other disposition of our shares.





As
      an
      alternative to taxation under the interest charge regime, a U.S. holder
      generally can elect, subject to certain limitations, to annually take into
      gross
      income the appreciation or depreciation in our common shares' value during
      the
      tax year (mark-to-market election). If a U.S. holder makes the mark-to-market
      election, the U.S. holder will not be subject to the above-described rule.
      Instead, if a U.S. holder makes the mark-to-market election, the U.S. holder
      recognizes each year an amount equal to the difference as of the close of the
      taxable year between the U.S. holder's fair market value of the common shares
      and the adjusted basis in the common shares. Losses would be allowed only to
      the
      extent of net gain previously included by the U.S. holder under the
      mark-to-market election for prior taxable years. Amounts included in or deducted
      from income under the mark-to-market election and actual gains and losses
      realized upon the sale or disposition of the common shares, subject to certain
      limitations, will be treated as ordinary gains or losses. If the mark-to-market
      election is made for a year other than the first year in the U.S. holder’s
      holding period in which the corporation was a PFIC, the first year’s
      mark-to-market inclusion, if any, is taxed as if it were a distribution subject
      to the interest charge regime discussed above.





Another
      alternative election which would allow a U.S. holder to elect to take its pro
      rata share of Coastal Caribbean's undistributed income into gross income as
      it
      is earned by Coastal Caribbean (QEF election) would only be available to a
      U.S.
      holder if Coastal Caribbean provided certain information to the shareholders
      of
      Coastal Caribbean. Coastal Caribbean has had no undistributed income for the
      years 1987 through 2006. If the QEF election is made in a year other than the
      first year of the U.S. holder’s holding period in which the foreign corporation
      is a PFIC, both the QEF regime and interest charge regime can apply, unless
      a
      special election is made. Under this special election, the taxpayer is treated
      as if it disposed of its PFIC stock in a transaction subject to the interest
      charge rules to the extent gain is deemed to be recognized. Once this election
      is made, the holder will be subject only to the QEF regime.





24




**Recent
      Sales of Unregistered Securities**





None





**Purchases
      of Equity Securities by the Issuer and Affiliated
      Purchasers**





None





**Item
      6.**  **Selected
      Consolidated Financial Information**





The
      following selected consolidated financial information (in thousands except
      for
      per share amounts) for the Company insofar as it relates to each of the five
      years in the period ended December 31, 2006 has been extracted from the
      Company's consolidated financial statements.





Years
                ended December 31,2006
            
            2005
            
            2004
            
            2003
            
            2002Net
                income (loss)
            
            $
            (1,621
            )
            $
            6,766
            
            $
            (673
            )
            $
            (1,008
            )
            $
            (2,448
            )Net
                income (loss) per share (basic and diluted)
            
            
            (.04
            )
            
            .15
            
            
            (.01
            )
            
            (.02
            )
            
            (.05
            )Cash
                and cash equivalents and marketable securities
            
            
            343
            
            
            2,250
            
            
            -
            
            
            3
            
            
            292Unproved
                oil, gas and, mineral properties (full cost method)
            
            
            2,200
            
            
            1,861
            
            
            -
            
            
            -
            
            
            -Total
                assets
            
            
            2,709
            
            
            4,387
            
            
            17
            
            
            91
            
            
            707Shareholders'
                (deficit) equity:Common
                stock
            
            
            5,545
            
            
            5,545
            
            
            5,545
            
            
            5,545
            
            
            5,545Capital
                in excess of par value
            
            
            32,138
            
            
            32,138
            
            
            32,138
            
            
            32,138
            
            
            32,068Deficit
                accumulated during the development stage
            
            
            (34,979
            )
            
            (33,358
            )
            
            (40,124
            )
            
            (39,451
            )
            
            (38,443
            )Total
                shareholders’ (deficit) equity
            
            $
            2,704
            
            $
            4,325
            
            $
            (2,441
            )
            $
            (1,768
            )
            $
            (830
            )Common
                stock shares outstanding (weighted average)
            
            
            44,212
            
            
            44,212
            
            
            44,212
            
            
            44,212
            
            
            44,734


25
  **Item
      7.****Management's
      Discussion and Analysis of Financial Condition****and
      Results of Operations**





Statements
      included in Management's Discussion and Analysis of Financial Condition and
      Results of Operations which are not historical in nature are intended to be
      forward looking statements. The Company cautions readers that forward looking
      statements are subject to certain risks and uncertainties that could cause
      actual results to differ materially from those indicated in the forward looking
      statements. For a discussion of certain risk factors affecting the Company,
      please see “Risk Factors” above.





**General**





We
      are
      now an active independent oil and gas exploration company. Through our
      subsidiary Coastal Petroleum, we have acquired mineral rights in Montana and
      North Dakota in the oil producing region known as the Williston Basin. Our
      objective formations on those leases include the Lodgepole and several others.
      The Company's future growth will be driven primarily by exploration and
      development activities. Our business strategy is to increase shareholder value
      by acquiring and drilling reasonably priced prospects that have good potential,
      whether in the Williston Basin or in other parts of the United States, with
      the
      goal of shaping the Company into a producing independent oil and gas firm.
      We
      will continue to seek high quality exploration projects with potential for
      providing long-term drilling inventories that generate high returns.





In
      Montana, we have obtained the rights to explore in one area which will be our
      primary area of focus and we drilled exploratory wells in two other areas:
      the
      primary area is a large tract in Valley County in eastern Montana; and the
      two
      wells were drilled on a smaller tract in Blaine County in north central Montana
      and under a farmin agreement on a location in Valley County, south of the
      Company’s primary acreage. These first two wells reached the targeted Lodgepole
      reef, but were not commercial successes. We are moving forward to begin
      exploration on our primary area of focus.





The
      first
      well we drilled was on the smaller tract in Blaine County in north central
      Montana, more than 130 miles west of our Valley County acreage. We drilled
      to a
      depth of 4,600 feet and reached the targeted Lodgpole reef, but the reef had
      been flushed with water and there was no oil present. The well passed through
      multiple other zones that potentially contained oil or gas while drilling to
      the
      Lodgepole reef. Each of the other zones was tested and while gas was present
      in
      some of the zones, it was not present in commercial quantities. We will not
      pursue any further drilling in this area.





The
      Evaline twin well in Valley County, Montana was the other well that we
      participated in and operated. It was drilled to total depth into the Lodgepole
      reef that was targeted and encountered oil, but not in sufficient quantities
      for
      the Company to earn its interest. We then moved uphole and perforated the
      Mission Canyon Formation which had a significant show of oil while we were
      drilling to the Lodgepole. We tested the Mission Canyon and it too contained
      oil, but again not in sufficient quantities for us to earn an interest in the
      well. Under the Agreement with Farmor Helis, there was a production threshold
      that had to be met to earn the interest and that threshold could not be met.
      The
      Farmor, Helis, may complete the Evaline twin well and establish production
      at
      less than the threshold. However, we will move forward from this well and focus
      on our primary area.





26


Our
      primary area of focus covers approximately 137,163.26 net acres in eastern
      Montana, close to known production from a Lodgepole reef in Valley County.
      This
      area of Montana has a number of other producing formations in addition to the
      Lodgepole. It is in this area of primary focus that we have signed a Letter
      of
      Intent with Victory Energy Corporation (“Victory”). We are currently working
      with Victory to complete the Formal Agreement which should be completed by
      April
      6, 2007. Under the Agreement, Victory will be required to drill a minimum of
      three wells on our Valley County leases and to make payments totaling $1,225,000
      over the next twelve to thirteen months to us in return for a 50% interest
      in
      the leases.





Under
      the
      terms of the Letter of Intent which will be incorporated into the Formal
      Agreement, Victory will commence drilling the first well to test one of our
      Lodgepole reef prospects within three months of the execution of the Agreement.
      A second well will be started within four and half months to test a 34,000
      acre
      shallow gas prospect on the leases. The third well under the Agreement will
      be
      drilled to test another of our Lodgepole reef prospects and will begin within
      eight months of the Agreement. The wells will be drilled at Victory’s sole cost
      and Victory will also participate in paying the lease rentals once the Formal
      Agreement is signed.





Additional
      terms of the Letter of Intent provide for Victory to earn a 50% working interest
      in the spacing unit covered by each well while we will retain the other 50%
      of
      the working interest. Victory will also earn an undivided 1/6 th working
      interest in all of our Valley County Leases after each well is drilled. After
      the three wells are drilled, the Company and Victory will each have a 50%
      working interest in all of the Valley County, Montana leases. We have also
      agreed to work together to explore an Area of Mutual Interest within twenty
      miles of the Leases, encompassing approximately 1,000,000 acres.





We
      expect
      that the relationship with Victory Energy will allow the Company to begin
      exploration of its Valley County leases and to improve the financial standing
      of
      the Company until production can be established. It will also allow the Company
      to become active in this oil play which has very good potential, but with a
      small initial investment.





In
      North
      Dakota, we control the working interest on approximately 9,150 net acres in
      Slope, Billings, and Stark Counties, on which a number of drillable prospects
      have been mapped to date. The depth of wells in North Dakota is deeper than
      in
      Montana (approximately 9,500 feet versus approximately 5,000 feet), and thus
      the
      cost of drilling is higher. A typical North Dakota wildcat well costs about
      $1.2
      million to drill. We intend to bring in others to share the risk and investment
      in wells it drills in North Dakota until the Company is in a stronger financial
      position, but we do not yet have any commitments from potential participants
      for
      drilling in North Dakota. The drilling deadline on the North Dakota leases
      has
      been extended until April 1, 2007.





27


We
      plan
      to drill or participate in approximately three exploratory wells in 2007.
      However, the number of wells that we drill in 2007 and their cost will be
      subject to various factors, including the completion of the agreement with
      Victory, the availability of drilling rigs that we can hire and whether we
      drill
      alone or with other participants. In addition, we could reduce the number of
      wells that we drill if oil and natural gas prices were to decline significantly.
      We expect the cost of drilling the three wells to depend upon many factors
      including those above which may affect the cost of operations and whether and
      to
      what extent others participate with the Company.





**Liquidity
      and Capital Resources**




As
      more
      fully described in Note 1 to the consolidated financial statements, we have
      no
      recurring revenues, have experienced recurring losses and have a deficit
      accumulated during the development stage. We, along with various other related
      parties, settled several lawsuits in 2005, which were filed by the Company,
      our
      subsidiary Coastal Petroleum Company and other related parties against the
      State
      of Florida. All of these lawsuits were related to the State’s actions limiting
      our ability to commence development activities through our subsidiary. The
      cost
      of that litigation was substantial. Management believes its current cash
      position and the proposed agreement with Victory will allow the Company to
      move
      forward to explore and develop profitable oil and gas operations, although
      there
      is no assurance these efforts will be successful. These situations raise
      substantial doubt about our ability to continue as a going concern. Our
      consolidated financial statements do not include any adjustments to reflect
      the
      possible future effects on the recoverability and classification of assets
      or
      amounts and classification of liabilities, which may result from the outcome
      of
      these uncertainties.





At
      December 31, 2006, we have $343,000 in cash compared to $2,250,000 at December
      31, 2005. In July 2005, we and others settled all our lawsuits with the State
      of
      Florida for a total of $12,500,000. Our share of the proceeds was $8,105,000,
      from which we paid all our legal related obligations and creditors, and acquired
      the remaining minority interest in Coastal Petroleum, after which we netted
      $4,872,000 in cash.





During
      2006, we spent $1,358,000 for well drilling costs and acquisition and
      maintenance of our oil and gas lease rights including:





|· | The
              payment of rentals on the 137,163.26 net acres of leases we have in
              Valley
              County, Montana, totaling $340,000. These leases are subject to various
              overriding royalty interests held by others of up to 19.5%. The leases
              expire in years from 2007 to 2014.
|- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




·
              The
                  drilling of two oil and gas exploratory wells. The Blaine County,
                  Montana
                  well was drilled by Coastal Petroleum at its sole cost. The Valley
                  County
                  Evaline twin well was operated by Coastal Petroleum, who was also
                  one of
                  six participants in the well. The Company was responsible for 1/6thof
                  the costs of the drilling, completing and testing of that well.
                  Together
                  the Company spent $1,018,000 on the drilling, completing and testing
                  of
                  the two wells.
  28


We
      expect
      to continue to participate with others to drill additional wells both in Montana
      and North Dakota.




**Results
      of Operations and Critical Accounting Policies and
      Estimates**





**Development
      Stage Enterprise Presentation**




The
      Company is a development stage enterprise. It has never had substantial revenues
      and has operated at a loss each year (except 2005) since its inception in 1953.





**Oil
      and Gas Accounting**





The
      Company follows the full cost method of accounting for its oil and gas
      properties. All costs associated with property acquisition, exploration and
      development activities whether successful or unsuccessful are capitalized.





The
      capitalized costs are subject to a ceiling test which basically limits such
      costs to the aggregate of the estimated present value discounted at a 10% rate
      of future net revenues from proved reserves, based on current economic and
      operating conditions, plus the lower of cost or fair market value of unproved
      properties. The Company assesses whether its unproved properties are impaired
      on
      a periodic basis. This assessment is based upon work completed on the properties
      to date, the expiration date of its leases and technical data from the
      properties and adjacent areas.





Prior
      to
      2005, all costs incurred in connection with the Company’s Florida leases were
      considered impaired by
      the
      actions taken by the State of Florida. The Company recorded an impairment charge
      in 2001 and has expensed
      subsequent costs when incurred.





During
      2005, we acquired new oil and gas leases in North Dakota and Montana. We have
      capitalized these and other related costs and have begun a site selection and
      well drilling program.





During
      2006, the Company drilled one well and participated in the drilling of a second
      well that did not prove commercial quantities of oil or gas, and expensed the
      $1,018,000 of drilling costs.





**Goodwill
      Impairment**





As
      part
      of the 2005 settlement, we acquired the remaining minority interest in our
      subsidiary, Coastal Petroleum representing 15.2% of its outstanding common
      stock
      for $802,000 in cash. Since Coastal did not have any tangible or intangible
      assets, we assigned this amount to goodwill. We then evaluated the goodwill
      and
      determined it was impaired as Coastal Petroleum had no expected revenues or
      cash
      flows at that time and we recorded an impairment expense of $802,000.





29





**2006
      vs. 2005**





During
      2006, we drilled two wells and continued to seek additional leases and prospects
      as well as capital partners with whom to drill them. However, we did not
      recognize any revenue in 2006, wrote off the costs of our two wells and realized
      a loss of $(1,621,000). During 2005, we settled all our legal actions with
      the
      State of Florida and realized a gain of $8,124,000. This gain provided us with
      our first reported net income for 2005 of $6,766,000.





For
      most
      of 2005, we had been working toward resolution of our legal actions against
      the
      State of Florida. During this time, we continued to suffer declining financial
      condition and a lack of resources to continue pursuing expensive and lengthy
      litigation. We minimized expenses, deferred payments and borrowed funds from
      our
      officers to maintain our legal efforts against the State of
      Florida.





Our
      expenses increased overall in 2006 from 2005 due to our operational focus to
      oil
      exploration from pursuing legal actions. Our operating expenses were $678,000
      and $572,000 for 2006 and 2005, respectively. The largest increase was in
      administrative expenses in 2006 from 2005 due to increases in travel, lodging
      and other costs related our well drilling program and the addition of one
      employee. Our shareholder related expenses decreased in 2006 due to holding
      a
      shareholder meeting in 2005 that was not held in 2006.




For
      2005,
      we reported a goodwill impairment expense of $802,000. For 2006, we wrote off
      our drilling costs of $1,018,000.





**2005
      vs. 2004**





During
      2005, we settled all our legal actions with the State of Florida and realized
      a
      gain of $8,124,000. In previous years, we expensed all our oil and gas property
      lease costs as impaired as well as substantial legal costs. This gain provided
      us with our first reported net income for 2005 of $6,800,000, compared to a
      net
      loss of $(673,000) for 2004.





For
      most
      of 2005 and 2004, we were working toward resolution of our legal actions against
      the State of Florida. During this time, we continued to suffer declining
      financial condition and a lack of resources to continue pursuing expensive
      and
      lengthy litigation. We minimized expenses, deferred payments and borrowed funds
      from our officers to maintain our legal efforts against the State of
      Florida.





Our
      interest income increased in 2005 due to the short-term investment of cash
      received from the settlement. We had no such investments in 2004.





For
      2005
      and 2004, we had one employee, and maintained legal counsel on a monthly
      retainer, maintained our periodic reporting obligations and attempted to
      minimize all other operating expenses. Our operating expenses were $572,000
      and
      $673,000 for 2005 and 2004, respectively. The largest decrease was in legal
      expenses in 2005 from 2004 due to our change in focus to settle with the State
      of Florida. Our shareholder related expenses increased in 2005 due to holding
      a
      shareholder meeting in 2005 that was not held in 2004.




30


For
      2005,
      we reported a goodwill impairment expense of $802,000. We had no such impairment
      charges in 2004.




**Item
      7A.****Quantitative
      and Qualitative Disclosure About Market Risk**





The
      Company does not have any significant exposure to market risk as the only market
      risk sensitive instruments are its investments in marketable securities. At
      December 31, 2006, the carrying value of such investments (including those
      classified as cash and cash equivalents) was approximately $342,541, the fair
      value was $342,541and the face value was $342,541. Since the Company expects
      to
      hold the investments to maturity, the maturity value should be realized.




31




**Item
      8.****Financial
      Statements and Supplementary Data**




**Report
      of Independent Registered Public Accounting Firm**




To
      the
      Board of Directors


Coastal
      Caribbean Oils & Minerals, Ltd.


Apalachicola,
      Florida





We
      have
      audited the consolidated balance sheet of Coastal Caribbean Oils & Minerals,
      Ltd. and subsidiary as of December 31, 2006 and 2005, and the related
      consolidated statements of operations, stockholders’ equity and cash flows, for
      the years then ended, and for the period from January 31, 1953 (inception)
      to
      December 31, 2006. These financial statements are the responsibility of the
      Company's management. Our responsibility is to express an opinion on these
      financial statements based on our audit.





We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). 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 audit provided a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Coastal
      Caribbean Oils & Minerals, Ltd. and subsidiary as of December 31, 2006 and
      2005, and the results of their operations and cash flows for the years then
      ended, and for the period from January 31, 1953 (inception) to December 31,
      2006, in conformity with accounting principles generally accepted in the United
      States of America.





The
      accompanying consolidated financial statements have been prepared assuming
      the
      Company will continue as a going concern. As discussed in Notes 1 and 4 to
      the
      consolidated financial statements, the Company suffered recurring losses from
      operations and has not yet realized any revenues from development activities.
      This raises substantial doubt about the Company’s ability to continue as a going
      concern. The consolidated financial statements do not include any adjustments
      that might result from the outcome of this uncertainty.











/s/
      Baumann, Raymondo & Company PA


Tampa,
      Florida





March
      19,
      2007


32




**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**




To
      the
      Board of Directors,


Coastal
      Caribbean Oils & Minerals, Ltd.:




We
      have
      audited the accompanying consolidated statements of operations, cash flows
      and
      common stock and capital in excess of par value of Coastal Caribbean Oils &
Minerals, Ltd. (a development stage company) for the year ended December 31,
      2004. These financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these financial
      statements **** based
      on
      our audit.




We
      conducted our audit in accordance with the standards of the Public Company
      Accounting Oversight Board (United States). 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, and evaluating the overall financial
      statement presentation. We believe that our audit provides a reasonable basis
      for our opinion.




In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated results of operations and cash flows
      of Coastal Caribbean Oils & Minerals, Ltd. for the year ended December 31,
      2004 in conformity with accounting principles generally accepted in the United
      States of America.




The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As more fully described in Note
      1
      to the consolidated financial statements, the Company has a working capital
      deficiency, has incurred recurring losses and has a deficit accumulated during
      the development stage. These situations raise substantial doubt about the
      Company’s ability to continue as a going concern. The consolidated financial
      statements do not include any adjustments to reflect the possible future effects
      on the recoverability and classification of assets or amounts and
      classifications or liabilities that may result from the outcome of these
      uncertainties.






/s/
      James
      Moore & Co., P.L.


March
      15,
      2005


Gainesville,
      Florida





33


**COASTAL
      CARIBBEAN OILS & MINERALS, LTD.**


(A
      Bermuda Corporation)


A
      Development Stage Company





**CONSOLIDATED
      BALANCE SHEETS**


(Expressed
      in U.S. dollars)




December
                31,2006
            
            
            2005**Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            342,541
            
            $
            2,250,236Prepaid
                expenses and other
            
            
            29,255
            
            
            199,754Total
                current assets
            
            
            371,796
            
            
            2,449,990Certificates
                of deposit
            
            
            126,313
            
            
            75,000Petroleum
                leases
            
            
            2,199,809
            
            
            1,860,614Equipment,
                net
            
            
            11,455
            
            
            1,771___________Total
                assets
            
            $
            2,709,373
            
            $
            4,387,375**Liabilities
                and Shareholders’ (Deficit) Equity**Current
                liabilities:Accounts
                payable and accrued liabilities
            
            $
            5,322
            
            $
            27,526Income
                taxes payable
            
            
            -
            
            
            35,000Total
                current liabilities
            
            
            5,322
            
            
            62,526Shareholders'
                (deficit) equity:Common
                stock, par value $.12 per share:Authorized
                - 250,000,000 sharesOutstanding
                - 46,211,604
              shares,
                respectively
            
            
            5,545,392
            
            
            5,545,392Capital
                in excess of par value
            
            
            32,137,811
            
            
            32,137,81137,683,203
            
            
            37,683,203Deficit
                accumulated during the development stage
            
            
            (34,979,152
            )
            
            (33,358,354
            )Total
                shareholders’ (deficit) equity
            
            
            2,704,051
            
            
            4,324,849Total
                liabilities and shareholders’ (deficit) equity
            
            $
            2,709,373
            
            $
            4,387,375




See
      accompanying notes.





34


**COASTAL
      CARIBBEAN OILS & MINERALS, LTD.**


(A
      Bermuda Corporation)


A
      Development Stage Company





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(Expressed
      in U.S. Dollars)




For
                the
              period
                fromJan.
                31, 1953(inception)Years
                ended December 31,
            
            to2006
            
            2005
            
            2004
            
            Dec.
                31, 2006**Gain
                on settlement**
            
            $
            -
            
            $
            8,124,016
            
            $
            -
            
            $
            8,124,016**Interest
                and other income**
            
            
            41,350
            
            
            50
                723
            
            
            1
            
            
            3,969,64441,350
            
            
            8,174,739
            
            
            1
            
            
            12,093,660**Expenses:**Legal
                fees and costs
            
            
            204,169
            
            
            155,388
            
            
            327,091
            
            
            17,259,236Administrative
                expenses
            
            
            313,743
            
            
            201,847
            
            
            208,414
            
            
            10,251,283Salaries
            
            
            143,200
            
            
            112,020
            
            
            112,838
            
            
            4,011,031Shareholder
                communications
            
            
            17,601
            
            
            102,817
            
            
            24,565
            
            
            4,093,510Goodwill
                impairment
            
            
            -
            
            
            801,823
            
            
            -
            
            
            801,823Write
                off of unproved properties
            
            
            1,018,435
            
            
            -
            
            
            -
            
            
            6,578,929Exploration
                costs
            
            
            -
            
            
            -
            
            
            -
            
            
            247,465Lawsuit
                judgments
            
            
            -
            
            
            -
            
            
            -
            
            
            1,941,916Minority
                interests
            
            
            -
            
            
            -
            
            
            -
            
            
            (632,974
            )Other
            
            
            -
            
            
            -
            
            
            -
            
            
            364,865Contractual
                services
            
            
            -
            
            
            -
            
            
            -
            
            
            2,155,7281,697,148
            
            
            1,373,895
            
            
            672,908
            
            
            47,072,812**Net
                income (loss) before income**
            
            
            (1,655,798
            )
            
            6,800,844
            
            
            (672,907
            )
            
            -**taxes****Income
                tax benefit (expense)**
            
            
            35,000
            
            
            (35,000
            )
            
            -
            
            
            -**Net
                income (loss)**
            
            $
            (1,620,798
            )
            $
            6,765,844
            
            $
            (672,907
            )Deficit
                accumulated during thedevelopment
                stage
            
            
            
            
            
            
            
            
            
            
            $
            (34,979,152
            )Net
                income (loss) per share based on weighted average number of shares
                outstanding during the period:Basic
                and diluted EPS
            
            $
            (.035
            )
            $
            .146
            
            $
            (.015
            )Weighted
                average number of shares outstanding (basic and diluted)
            
            
            46,211,604
            
            
            46,211,604
            
            
            46,211,604




See
      accompanying notes.


35


**COASTAL
      CARIBBEAN OILS & MINERALS, LTD.**


(A
      Bermuda Corporation)


A
      Development Stage Company





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(Expressed
      in U.S. Dollars)




For
                the
              period
                from
              Jan.
                31, 1953(inception)Years
                ended December 31,
            
            To2006
            
            2005
            
            2004
            
            Dec.
                31, 2006**Operating
                activities:**Net
                income (loss)
            
            $
            (1,620,798
            )
            $
            6,765,844
            
            $
            (672,907
            )
            $
            (34,979,152
            )Adjustments
                to reconcile net loss to net cashused
                in operating activities:Gain
                on settlement
            
            
            -
            
            
            (8,124,016
            )
            
            -
            
            
            (8,124,016
            )Goodwill
                impairment
            
            
            -
            
            
            801,823
            
            
            -
            
            
            801,823Minority
                interest
            
            
            -
            
            
            -
            
            
            -
            
            
            (632,974
            )Depreciation
            
            
            1,398
            
            
            120
            
            
            -
            
            
            1,518Write
                off of unproved properties
            
            
            1,018,435
            
            
            -
            
            
            -
            
            
            6,638,176Common
                stock issued for services
            
            
            -
            
            
            -
            
            
            -
            
            
            119,500Compensation
                recognized for stock option grant
            
            
            -
            
            
            -
            
            
            -
            
            
            75,000Recoveries
                from previously written off properties
            
            
            -
            
            
            -
            
            
            -
            
            
            252,173Net
                change in:Prepaid
                expenses and other
            
            
            170,499
            
            
            (183,432
            )
            
            71,625
            
            
            (29,256
            )Accrued
                liabilities
            
            
            (22,204
            )
            
            (2,349,680
            )
            
            518,296
            
            
            5,324Income
                taxes payable
            
            
            (35,000
            )
            
            35,000
            
            
            -
            
            
            -Other
                assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                cash used in operating activities
            
            
            (487,670
            )
            
            (3,054,341
            )
            
            (82,986
            )
            
            (35,871,884
            )**Investing
                activities:**Additions
                to oil, gas, and mineral propertiesnet
                of assets acquired for common stock and reimbursements
            
            
            (339,195
            )
            
            (1,860,614
            )
            
            -
            
            
            (5,939,991
            )Well
                drilling costs
            
            
            (1,018,435
            )
            
            -
            
            
            -
            
            
            (1,018,435
            )Net
                proceeds from settlement
            
            
            -
            
            
            8,124,016
            
            
            -
            
            
            8,124,016Proceeds
                from relinquishment of surface rights
            
            
            -
            
            
            -
            
            
            -
            
            
            246,733Purchase
                of certificates of deposit
            
            
            (51,313
            )
            
            (75,000
            )
            
            -
            
            
            (126,313
            )Purchase
                of Minority interest in subsidiary
            
            
            -
            
            
            (801,823
            )
            
            --
            
            
            (801,823
            )Purchase
                of equipment
            
            
            (11,082
            )
            
            (1,891
            )
            
            -
            
            
            (74,623
            )Net
                cash provided by (used in) investing activities
            
            
            (1,420,025
            )
            
            5,384,688
            
            
            -
            
            
            409,564**Financing
                activities:**Loans
                from Officers
            
            
            -
            
            
            31,500
            
            
            80,290
            
            
            111,790Repayment
                of loans to officers
            
            
            -
            
            
            (111,790
            )
            
            -
            
            
            (111,790
            )Sale
                of common stock, net of expenses
            
            
            -
            
            
            -
            
            
            -
            
            
            30,380,612Shares
                issued upon exercise of options
            
            
            -
            
            
            -
            
            
            -
            
            
            884,249Sale
                of shares by subsidiary
            
            
            -
            
            
            -
            
            
            -
            
            
            820,000Sale
                of subsidiary shares
            
            
            -
            
            
            -
            
            
            -
            
            
            3,720,000Net
                cash provided by financing activities
            
            
            -
            
            
            (80,290
            )
            
            80,290
            
            
            35,804,861**Net
                increase (decrease) in cash and cash equivalents**
            
            
            (1,907,695
            )
            
            2,250,057
            
            
            (2,696
            )
            
            342,541Cash
                and cash equivalents at beginning of period
            
            
            2,250,236
            
            
            179
            
            
            2,875
            
            
            -Cash
                and cash equivalents at end of period
            
            $
            342,541
            
            $
            2,250,236
            
            $
            179
            
            $
            342,541




See
      accompanying notes.


36


**COASTAL
      CARIBBEAN OILS & MINERALS, LTD.**


(A
      Bermuda Corporation)


A
      Development Stage Company





**CONSOLIDATED
      STATEMENT OF COMMON STOCK**


**AND
      CAPITAL IN EXCESS OF PAR VALUE**


(Expressed
      in U.S. dollars)


For
      the
      period from January 31, 1953 (inception) to December 31, 2006




Capital
                inNumber
                of
            
            Common
            
            ExcessShares
            
            Stock
            
            of
                Par ValueShares
                issued for net assets and unrecovered costsat
                inception
            
            
            5,790,210
            
            $
            579,021
            
            $
            1,542,868Sales
                of common stock
            
            
            26,829,486
            
            
            3,224,014
            
            
            16,818,844Shares
                issued upon exercise of stock options
            
            
            510,000
            
            
            59,739
            
            
            799,760Market
                value ($2.375 per share) of shares issued in1953
                to acquire an investment
            
            
            54,538
            
            
            5,454
            
            
            124,074Shares
                issued in 1953 in exchange for 1/3rdof
                a 1/60thoverriding
                royalty (sold in prior year) in nonproducingleases
                of Coastal Petroleum
            
            
            84,210
            
            
            8,421
            
            
            -Market
                value of shares issued for services renderedduring
                the period 1954-1966
            
            
            95,188
            
            
            9,673
            
            
            109,827Net
                transfers to restate the par value of common stockoutstanding
                in 1962 and 1970 to $0.12 per share
            
            
            -
            
            
            117,314
            
            
            (117,314
            )Increase
                in Company's investment (equity) due tocapital
                transactions of Coastal Petroleum in 1976
            
            
            -
            
            
            -
            
            
            117,025Balance
                at December 31, 1990
            
            
            33,363,632
            
            
            4,003,636
            
            
            19,395,084Sale
                of subsidiary shares
            
            
            -
            
            
            -
            
            
            300,000Balance
                at December 31, 1991
            
            
            33,363,632
            
            
            4,003,636
            
            
            19,695,084Sale
                of subsidiary shares
            
            
            -
            
            
            -
            
            
            390,000Balance
                at December 31, 1992
            
            
            33,363,632
            
            
            4,003,636
            
            
            20,085,084Sale
                of subsidiary shares
            
            
            -
            
            
            -
            
            
            1,080,000Balance
                at December 31, 1993
            
            
            33,363,632
            
            
            4,003,636
            
            
            21,165,084Sale
                of subsidiary shares
            
            
            -
            
            
            -
            
            
            630,000Balance
                at December 31, 1994
            
            
            33,363,632
            
            
            4,003,636
            
            
            21,795,084Sale
                of subsidiary shares
            
            
            -
            
            
            -
            
            
            600,000Balance
                at December 31, 1995
            
            
            33,363,632
            
            
            4,003,636
            
            
            22,395,084Sale
                of common stock
            
            
            6,672,726
            
            
            800,727
            
            
            5,555,599Sale
                of subsidiary shares
            
            
            -
            
            
            -
            
            
            480,000Exercise
                of stock options
            
            
            10,000
            
            
            1,200
            
            
            12,300Balance
                at December 31, 1996
            
            
            40,046,358
            
            
            4,805,563
            
            
            28,442,983Sale
                of subsidiary shares
            
            
            -
            
            
            -
            
            
            240,000Exercise
                of stock options
            
            
            10,000
            
            
            1,200
            
            
            10,050Balance
                at December 31, 1997,1998 and 1999
            
            
            40,056,358
            
            
            4,806,763
            
            
            28,693,033Sale
                of common stock
            
            
            3,411,971
            
            
            409,436
            
            
            2,729,329Compensation
                recognized for stock option grant
            
            
            -
            
            
            -
            
            
            75,000Balance
                at December 31, 2000 and 2001
            
            
            43,468,329
            
            
            5,216,199
            
            
            31,497,362Sale
                of common stock
            
            
            2,743,275
            
            
            329,193
            
            
            570,449Balance
                as of December 31, 2002
            
            
            46,211,604
            
            
            5,545,392
            
            
            32,067,811Sale of
              subsidiary
              shares
            
            
            -
            
            
            -
            
            
            70,000Balance
                as of December 31, 2003, 2004, 2005 and 2006
            
            
            46,211,604
            
            $
            5,545,392
            
            $
            32,137,811




See
      accompanying notes.





37


**COASTAL
      CARIBBEAN OILS & MINERALS, LTD.**


**Notes
      to Consolidated Financial Statements**


**December
      31, 2006**


**1.** **Summary of significant accounting policies**





Consolidation





The
      accompanying consolidated financial statements include the accounts of Coastal
      Caribbean Oils & Minerals, Ltd., a Bermuda corporation (Coastal Caribbean)
      and its wholly owned subsidiary, Coastal Petroleum Company (“Coastal
      Petroleum”), referred to collectively as the Company. The Company, which has
      been engaged in a single industry and segment, is considered to be a development
      stage company since its exploration for oil, gas and minerals has not yielded
      any significant revenue or reserves. All intercompany transactions have been
      eliminated. Certain prior year amounts have been reclassified to conform with
      the current year presentation.





Cash
      and Cash Equivalents





The
      Company considers all highly liquid short-term investments with maturities
      of
      three months or less at the date of acquisition to be cash equivalents.





Equipment





Equipment
      is recorded at cost. Depreciation is provided using straight-line over five
      years, the estimated useful lives of the assets.





Use
      of
      Estimates





The
      preparation of consolidated financial statements in conformity with accounting
      principles generally accepted in the United States requires management to make
      estimates and assumptions that affect the amounts reported in the financial
      statements and accompanying notes. The outcome of the litigation and the ability
      to develop the Company’s oil and gas properties will have a significant effect
      on the Company’s financial position and results of operations. Actual results
      could differ from those estimates.





Unproved
      Oil, Gas and Mineral Properties





The
      Company follows the full cost method of accounting for its oil and gas
      properties. All costs associated with property acquisition, exploration and
      development activities whether successful or unsuccessful are capitalized.





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





The
      Company assesses whether its unproved properties are impaired on a periodic
      basis. This assessment is based upon work completed on the properties to date,
      the expiration date of its leases and technical data from the properties and
      adjacent areas.





38


**COASTAL
        CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2006**




**1.**  **Summary of significant accounting policies
      (Cont'd)**





Prior
      to
      2005, the Company’s undeveloped and nonproducing Florida properties were subject to extensive
      litigation with the State of Florida and all
      costs
      associated with oil and gas properties were deemed impaired and had been
      expensed.





During
      2006, the Company drilled one well and participated in the drilling of a second
      well that did not prove commercial quantities of oil or gas, and expensed the
      $1,018,000 of drilling costs.





Sale
      of Subsidiary Shares





All
      amounts realized from the sale of Coastal Petroleum shares have been credited
      to
      capital in excess of par value.





Net
      Income (Loss) Per Share





Net
      income (loss) per common share is based upon the weighted average number of
      common and common equivalent shares outstanding during the period. The Company’s
      basic and diluted calculations of EPS are the same because the exercise of
      options is not assumed in calculating diluted EPS, as the result would be
      anti-dilutive.





Financial
      instruments





The
      carrying value for cash and cash equivalents, certificates of deposit, and
      accounts payable approximates fair value based on anticipated cash flows and
      current market conditions.





Stock
      Based Compensation





The
      Company uses the fair value based method of accounting for its stock option
      plans. Effective
      January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), *Share-Based
      Payments* ,
      which
      requires companies to expense stock options and other share-based payments. SFAS
      No.
      123R supersedes SFAS No. 123, which permitted either expensing stock options
      or
      providing pro forma disclosure. The Company adopted the modified prospective
      application transition method as proscribed by SFAS No. 123R, which applies
      to
      all new awards and to awards granted, modified, canceled, or repurchased after
      January 1, 2006, as well as the unvested portion of the prior awards. The
      adoption of SFAS No. 123R resulted in no changes to the 2006 or prior financial
      statement amounts or disclosures.




Prior
      to
      January 1, 2006, the Company followed the provisions of APB Opinion No. 25
      and
      related Interpretations in accounting for stock issued to employees.
      Compensation expense resulting from stock options issued under the stock option
      plan (Note 6) is measured at the grant date based upon the difference between
      the exercise price and the market value of the common stock. All stock options
      issued to employees during 2005 were granted at an exercise price equal to
      the
      market value at the date of grant. Stock-based compensation arrangements
      involving non-employees are accounted for under Statement of Financial
      Accounting Standards No. 123, *Accounting
      for Stock-Based Compensation* (“SFAS
      123”). The Company provides the disclosure




39


**COASTAL
        CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2006**


**1.**  **Summary of significant accounting policies
      (Cont'd)**




requirements
      of SFAS 123 and the Statement of Financial Accounting Standards No. 148, *Accounting
      for Stock-Based Compensation - Transition and Disclosure - an amendment of
      SFAS
      123 for employee arrangements* for 2005
      and 2004 *.* ****




Under
      SFAS No. 123, the fair value of each option granted is estimated using the
      Black-Scholes stock option pricing model. The following assumptions were made
      in
      estimating fair value of options issued to employees and directors: risk-free
      interest rate of 4.52% in 2005; no dividend yield; expected life of five years;
      and expected volatility of 146%. Had the compensation cost of stock options
      issued to employees and directors been determined on the basis of fair value
      pursuant to SFAS No. 123, the net income (loss) and earnings (loss) would have
      been as follows:





**2005**
            
            **2004****Net
                income (loss)**
            
            $
            6,765,844
            
            $
            (672,907
            )Less:
                stock-based employee and director compensation determined under the
                fair
                value method for all awards, net of related tax effect
            
            
            73,000
            
            
            -Proforma
                net income (loss)
            
            $
            6,692,844
            
            $
            (672,907
            )**Earnings
                (loss) per share:**Basic
                and diluted as reported
            
            $
            .146
            
            $
            (.015
            )Less:
                stock-based employee and director compensation determined under the
                fair
                value method for all awards, net of related tax effect
            
            
            (.001
            )
            
            -Proforma
                earnings (loss) per share
            
            $
            .145
            
            $
            (.015
            )





New
      Accounting Pronouncements





The
      Financial Accounting Standards Board (“FASB”) has issued several new standards
      which have implementation dates subsequent to the Company’s year end. Management
      does not believe that any of these new standards will have a material impact
      on
      the Company’s financial position, results of operations or cash
      flows.





Going
      Concern





The
      Company has no recurring revenues, had recurring losses in 2006 and prior to
      2005, and has a deficit accumulated during the development stage. Management
      believes its current cash position and proposed agreement with Victory (see
      Note
      3) will allow the Company to move forward to explore and develop profitable
      oil
      and gas operations, although there is no assurance these efforts will be
      successful.





These
      situations raise substantial doubt about the Company’s ability to continue as a
      going concern. The consolidated financial statements do not include any
      adjustments to reflect the possible future effects on the recoverability and
      classification of assets or




40


**COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006**


**1.**  **Summary of significant accounting policies
      (Cont'd)**





amounts
      and classification of liabilities, which may result from the outcome of this
      uncertainty.





**2.**  **Coastal
      Petroleum Company - Minority Interests**





In
      2005,
      as part of the settlement with the State of Florida, Lykes Minerals Corp.
      (Lykes), a wholly owned subsidiary of Lykes Bros. Inc. returned its 78 Coastal
      Petroleum shares (26.35%) to Coastal Petroleum in order to receive compensation
      from the State of Florida for all its rights and to cancel an agreement with
      Lykes that entitled Lykes to exchange each Coastal Petroleum share for 100,000
      Coastal Caribbean shares, subject to adjustment for dilution and other factors
      and the right to exchange Coastal Petroleum shares for overriding royalty
      interests in Coastal Petroleum's properties.





In
      2005,
      Coastal Petroleum also acquired 45 of its shares (15.20%) from others as part
      of
      the settlement with the State of Florida for $802,000. As Coastal Petroleum
      had
      no tangible or intangible assets at the time the shares were acquired, the
      full
      purchase price was assigned to goodwill. The Company reviewed its goodwill
      related to Coastal Petroleum for impairment and determined the goodwill was
      fully impaired. Therefore, an impairment charge of $802,000 was expensed in
      2005. Coastal Petroleum is a wholly owned subsidiary of Coastal Caribbean at
      December 31, 2006.




**3.**  **Unproved
      Oil, Gas and Mineral Properties**





The
      Company began drilling its initial well in north central Montana in January
      2006
      under a farm-in agreement with the mineral owner on acreage in Blaine County.
      The Company has capitalized $800,000 in drilling costs through December 31,
      2006. The well hit the target Lodgepole reef, but the reef had been flushed
      with
      fresh water. Several other formations were drilled through that were prospective
      for oil or gas and each of them has been tested. While gas was encountered
      in
      the testing, the well did not contain economic quantities of oil or
      gas.





The
      Company has also participated in and acted as operator in a twin well to the
      only known well to produce from the Lodgepole in Montana. The
      targeted Lodgepole reef contained oil, but not in sufficient quantities to
      be
      commercial for the Company. Likewise, an uphole test of the Mission Canyon
      Formation resulted in oil being encountered, but not in sufficient quantities
      to
      be commercial for the Company. The
      Company’s participation costs in the twin well were approximately $225,000. The
      total cost of the well was approximately $1,260,000.





41


**COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006**


**3.**  **Unproved
      Oil, Gas and Mineral** **Properties
      (Cont'd)**





**Montana
      Leases**





The
      Company’s primary presence in Montana is in Valley County, where it holds leases
      covering 137,163.26 net acres, which the Company acquired in three separate
      acquisitions between July 2005 and February 2006. The leases acquired in those
      acquisitions are contiguous to each other and are referred to collectively
      as
“the Valley County Leases.”





The
      first
      acquisition of the Valley County Leases was in July 2005, when the Company
      acquired the rights to drill two 6,500 foot wells to test Mississippian
      Lodgepole reefs in Valley County, in northeast Montana for a one time fee of
      $50,000 from an entity controlled by one of the Company’s Directors. That
      acquisition included a small amount of acreage and the option to drill fifty
      additional prospects in the Valley County area.





The
      second acquisition of the Valley County Leases was in November 2005, when the
      Company acquired a group of oil and gas lease rights to approximately 109,423.26
      net acres in eastern Montana for $1,568,000 from EOG Resources, Inc. and Great
      Northern Gas Company. These leases are subject to various overriding royalty
      interests to others ranging up to 19.5%. These leases expire in years from
      2007
      to 2014.





The
      final
      acquisition of acreage within the Valley County Leases was in February 2006,
      when the Company acquired additional oil and gas leases in eastern Montana
      covering 27,740 net acres contiguous to its existing Montana leases. These
      leases were acquired from the Bureau of Land Management and United States
      Department of the Interior.





The
      Company has an agreement with a consultant entity, controlled by one of the
      Company’s Directors, to identify Mississippian Lodgepole reef prospects to be
      drilled on and near its Valley County Leases. Previously under the agreement,
      the Company was required to drill a test well on an identified Lodgepole reef
      prospect by a certain time, however, there is no longer a drilling obligation
      under the agreement.





The
      Company signed a Letter of Intent with Victory Energy Corporation (“Victory”)
      and is currently working with Victory to complete the Formal Agreement which
      should be completed by April 6, 2007. Under the Agreement, Victory would be
      required to drill a minimum of three wells on the Company’s Valley County leases
      and to make payments totaling $1,225,000 over the next twelve to thirteen months
      to Coastal Petroleum in return for a 50% interest in the leases.





42


**COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006**


**3.**  **Unproved
      Oil, Gas and Mineral** **Properties
      (Cont'd)**





Under
      the
      terms of the Letter of Intent, which will be incorporated into the Formal
      Agreement, Victory will commence drilling the first well to test one of the
      Company’s Lodgepole reef prospects within three months of the execution of the
      Agreement. A second well will be started within four and half months to test
      a
      34,000 acre shallow gas prospect on the leases. The third well under the
      Agreement will be drilled to test another of the Company’s Lodgepole reef
      prospects and will begin within eight months of the Agreement. The wells will
      be
      drilled at Victory’s sole cost and Victory will also participate in paying the
      lease rentals once the Formal Agreement is signed.





Additional
      terms provide that Victory will earn a 50% working interest in the spacing
      unit
      covered by each well while Coastal Petroleum will retain the other 50% of the
      working interest. Victory will also earn an undivided 1/6 th working
      interest in all of the Company’s Valley County Leases after each well is
      drilled. After the three wells are drilled, Coastal Petroleum and Victory will
      each have a 50% working interest in all of the Valley County, Montana leases.
      The parties have also agreed to work together to explore an Area of Mutual
      Interest within twenty miles of the Leases, encompassing approximately 1,000,000
      acres.





The
      Company is working with Victory to begin the permitting process on the first
      wells to be drilled under the formal agreement. The first of the wells is
      expected to begin before the end of July, 2007. The Company estimates the cost
      to drill the initial test well on the Valley County Leases to be approximately
      $800,000.





**North
      Dakota Leases**





In
      July
      2005, the Company acquired leases to the deeper rights in approximately 21,688
      net acres in and near Slope County, North Dakota for a one time fee of $50,000
      from an entity controlled by one of the Company’s Directors. Since that time,
      some of the leases have expired and the Company currently holds leases on
      9,388.94 gross and 9,150.31 net acres in Slope County. The Company is obligated
      to drill a test well before April 1, 2007, and has the option to drill the
      remaining Lodgepole reef prospects on these leases. The Company intends to
      work
      with other entities to share the cost of the initial 9,700 foot test well the
      total estimated drilling cost of which is estimated to be
      $1,200,000.





43


**COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006**


**4.**  **Litigation**





**Settlement
      Agreement with the State of Florida**





The
      State
      paid out the settlement through an intermediary in July 2005. The total
      settlement and the amount received by the Company were as follows:


Gross
                  settlement proceeds
              
              $
              12,500,000Distribution
                  to other parties:Lykes
                  Mineral Corporation
              
              
              1,390,000Outside
                  Royalty Holders
              
              
              2,540,000Settlement
                  Consultant
              
              
              465,000Gross
                  proceeds to Coastal
              
              
              8,105,000Purchase
                  of other CPC shares
              
              
              802,000Paid
                  to Coastal Creditors
              
              
              2,431,000Net
                  proceeds to Company
              
              $
              4,872,000




The
      Company recorded a gain on its share of the settlement of $8,124,000 after
      deducting all direct settlement costs and costs to cancel various royalty rights
      related to the Florida leases.





The
      settlement with the State of Florida in July 2005, included the closing and
      dismissal of the following legal actions:





Drilling
      Permit Litigation - Lease
      Taking Case (Lease 224-A)


Drilling
      Permit Litigation - Lease
      Taking Case (Lease 224-B)


Royalty
      Taking Case





Prior
      to
      2005, Coastal Petroleum had agreed to pay an aggregate of 7.9% in contingent
      fees based on any net recovery from execution on or satisfaction of judgment
      or
      from settlement of the Florida litigation. No contingency fees were deemed
      due
      from the proceeds of the settlement agreement with the State of Florida, as
      the
      past costs and fees for the Florida Litigation exceed the amount of funds the
      Company will receive under the Agreement.




**5.**  **Common Stock**





The
      Company's Bye-Law No. 21 provides that any matter to be voted upon must be
      approved not only by a majority of the shares voted at such meeting, but also
      by
      a majority in number of the shareholders present in person or by proxy and
      entitled to vote thereon.





44


**COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006**


**5.**  **Common Stock
      (cont.)**





There
      was
      no activity in Common Stock during 2006, 2005 and 2004.





The
      following represents shares issued upon sales of common stock:





Number
            
            Common
            
            Capital
                in ExcessYear
            
            of
                Shares
            
            Stock
            
            of
                Par Value1953
            
            
            300,000
            
            $
            30,000
            
            $
            654,0001954
            
            
            53,000
            
            
            5,300
            
            
            114,2651955
            
            
            67,000
            
            
            6,700
            
            
            137,9371956
            
            
            77,100
            
            
            7,710
            
            
            139,5481957
            
            
            95,400
            
            
            9,540
            
            
            152,4921958
            
            
            180,884
            
            
            18,088
            
            
            207,1351959
            
            
            123,011
            
            
            12,301
            
            
            160,7511960
            
            
            134,300
            
            
            13,430
            
            
            131,4311961
            
            
            127,500
            
            
            12,750
            
            
            94,0771962
            
            
            9,900
            
            
            990
            
            
            8,0361963
            
            
            168,200
            
            
            23,548
            
            
            12,0411964
            
            
            331,800
            
            
            46,452
            
            
            45,0441965
            
            
            435,200
            
            
            60,928
            
            
            442,3911966
            
            
            187,000
            
            
            26,180
            
            
            194,1871967
            
            
            193,954
            
            
            27,153
            
            
            249,6081968
            
            
            67,500
            
            
            9,450
            
            
            127,4681969
            
            
            8,200
            
            
            1,148
            
            
            13,5321970
            
            
            274,600
            
            
            32,952
            
            
            117,1541971
            
            
            299,000
            
            
            35,880
            
            
            99,2021972
            
            
            462,600
            
            
            55,512
            
            
            126,1851973
            
            
            619,800
            
            
            74,376
            
            
            251,2021974
            
            
            398,300
            
            
            47,796
            
            
            60,0071975
            
            
            -
            
            
            -
            
            
            (52,618
            )1976
            
            
            -
            
            
            -
            
            
            (8,200
            )1977
            
            
            850,000
            
            
            102,000
            
            
            1,682,7061978
            
            
            90,797
            
            
            10,896
            
            
            158,3431979
            
            
            1,065,943
            
            
            127,914
            
            
            4,124,0631980
            
            
            179,831
            
            
            21,580
            
            
            826,7631981
            
            
            30,600
            
            
            3,672
            
            
            159,3601983
            
            
            5,318,862
            
            
            638,263
            
            
            1,814,6421985
            
            
            -
            
            
            -
            
            
            (36,220
            )1986
            
            
            6,228,143
            
            
            747,378
            
            
            2,178,4711987
            
            
            4,152,095
            
            
            498,251
            
            
            2,407,5221990
            
            
            4,298,966
            
            
            515,876
            
            
            26,3191996
            
            
            6,672,726
            
            
            800,727
            
            
            5,555,5992000
            
            
            3,411,971
            
            
            409,436
            
            
            2,729,3292002
            
            
            2,743,275
            
            
            329,193
            
            
            570,44939,657,458
            
            $
            4,763,370
            
            $
            25,674,221





The
      following represents shares issued upon exercise of stock options:





Number
            
            Common
            
            Capital
                in ExcessYear
            
            
            of
                Shares
            
            
            Stock
            
            
            of
                Par Value1955
            
            
            73,000
            
            $
            7,300
            
            $
            175,2001978
            
            
            7,000
            
            
            840
            
            
            6,1601979
            
            
            213,570
            
            
            25,628
            
            
            265,6191980
            
            
            76,830
            
            
            9,219
            
            
            125,2331981
            
            
            139,600
            
            
            16,752
            
            
            227,5481996
            
            
            10,000
            
            
            1,200
            
            
            12,3001997
            
            
            10,000
            
            
            1,200
            
            
            10,050530,000
            
            $
            62,139
            
            $
            822,110





45


**COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006**


**6.**  **Stock
      Option Plans**





At
      December 31, 2006, the Company maintains two stock-based employee compensation
      plans.




During
      1995, the Company adopted a Stock Option Plan covering 1,000,000 shares of
      the
      Company’s common stock. In July 2005, the Company issued an option to its
      president to acquire 50,000 shares of the Company’s common stock at a price of
      $.15 per share under the Company’s stock option plan. The option expires in ten
      years and was fully vested when issued. The Company determined the fair value
      of
      the stock did not exceed the exercise price on the date of issue and no expense
      was recorded in 2005.





Unexcercised
      options that existed prior to the 2005 Agreement with the State of Florida
      were
      terminated by the Agreement or the releases exchanged during the process of
      closing the Agreement.





In
      December 2005, the Company issued options to its directors to acquire 200,000
      shares of the Company’s common stock at a price of $.15 per share. The option
      expires in December 2015 and was fully vested when issued. The
      Company determined the fair value of the stock did not exceed the exercise
      price
      on the date of issue .





During
      2005, the Company adopted a Stock Option Plan covering 2,300,000 shares of
      the
      Company’s common stock. In September 2005, the Company issued an option to its
      president to acquire 250,000 shares of the Company’s common stock at a price of
      $.20 per share under the Company’s stock option plan, subject to the approval of
      the Plan by shareholders. The Plan was approved at the shareholders meeting
      on
      December 9, 2005. The option expires in ten years and was fully vested when
      issued. The Company determined the fair value of the stock did not exceed the
      exercise price on the date of issue.





Effective
      January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), *Share-Based
      Payments* ,
      which
      requires companies to expense stock options and other share-based payments.
      The
      Company did not issue any stock options or share-based payments in
      2006.





Prior
      to
      January 1, 2006, the Company followed APB Opinion No. 25, *Accounting
      for Stock Issued to Employees,* in
      accounting for options issued to employees, which is referred to as the
      intrinsic value method. Under that method no expense related to the issuance
      of
      stock options has been recognized in the accompanying financial statements
      for
      2005.




46


**COASTAL
        CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2006**


**6.**  **Stock
      Option Plans (Cont'd)**





The
      following table summarizes employee stock option activity:





**Employee
                Options outstanding**
            
            **Number
                of**
              **Shares**
            
            **Range
                of**
              **Per
                Share**
              **Option
                Price**
              **($)**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                ($)**
            
            **Aggregate**
              **Option**
              **Price**
              **($)**Outstanding
                and exercisable at December 31, 2004
            
            
            700,000
            
            
            .91
            
            
            .91
            
            
            637,000Nullified,
                cancelled or released during 2005
            
            
            (700,000
            )
            
            .91
            
            
            .91
            
            
            637,000Issued
                during 2005
            
            
            500,000
            
            
            .15
                - .20
            
            
            .18
            
            
            87,500Outstanding
                and exercisable at December 31, 2005
            
            
            500,000
            
            
            .15
                - .20
            
            
            .18
            
            
            87,500Issued
                during 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -Outstanding
                and exercisable at December 31, 2006
            
            
            500,000
            
            
            .15
                - .20
            
            
            .18
            
            
            87,500**Available
                for grant at December 31, 2006**
            
            
            2,775,000





**Summary
                of Employee Options Outstanding at December 31,
                2006**




**Year
                Granted**
            
            **Number
                of Shares**
            
            **Expiration
                Date**
            
            **Exercise
                Prices ($)**Granted
                2005
            
            
            50,000
            
            
            July
                25, 2015
            
            
            .15Granted
                2005
            
            
            250,000
            
            
            September
                27, 2015
            
            
            .20Granted
                2005
            
            
            200,000
            
            
            December
                20, 2015
            
            
            .15





The
      weighted-average remaining contractual life of the outstanding stock options
      at
      December 31, 2006, 2005 and 2004 was 9 years, 10 years and 8 years,
      respectively.





**Nonqualified
      Stock Options**





In
      July
      2005, the Company issued an option to its legal counsel to acquire 25,000 shares
      of the Company’s common stock at a price of $.15 per share. The option expires
      in July 2015 and was fully vested when issued. The market value of the stock
      equaled the exercise price on the date of issue.





47


**COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006**


**6.**  **Stock
      Option Plans (Cont'd)**





A
      summary
      of non-employee option activity follows:





**Non-Employee
                Options outstanding**
            
            **Number
                of**
              **Shares**
            
            **Range
                of**
              **Per
                Share**
              **Option
                Price**
              **($)**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                ($)**
            
            **Aggregate**
              **Option
                Price**
              **($)**Outstanding
                and exercisable at December 31, 2004
            
            
            -
            
            
            -
            
            
            -
            
            
            -Nullified,
                cancelled or released during 2005
            
            
            -
            
            
            -
            
            
            -
            
            
            -Issued
                during 2005
            
            
            25,000
            
            
            .15
            
            
            .15
            
            
            3,750Outstanding
                and exerciseable at December 31, 2005
            
            
            25,000
            
            
            .15
            
            
            .15
            
            
            3,750Issued
                during 2006
            
            
            -
            
            
            -
            
            
            -
            
            
            -Outstanding
                and exercisable at December 31, 2006
            
            
            25,000
            
            
            .15
            
            
            .15
            
            
            3,750





Effective
      January 1, 2006, the Company adopted SFAS No. 123 (Revised 2004), *Share-Based
      Payments* ,
      which
      requires companies to expense stock options and other share-based payments.
      The
      Company did not issue any stock options or share-based payments to non-employees
      in 2006.





Prior
      to
      January 1, 2006, the Company followed SFAS 123 in accounting for stock options
      issued to non-employees. The fair value of each option granted is estimated
      using the Black-Scholes stock option pricing model. The following assumptions
      were made in estimating fair value: risk-free interest rate of 4.52% in 2005;
      no
      dividend yield; expected life of five years; expected volatility of 144%.





The
      following table summarizes information about non-employee stock
      options:





**Summary
                of Non Employee Options Outstanding at December 31,
                2005**




**Year
                Granted**
            
            **Number
                of Shares**
            
            **Expiration
                Date**
            
            **Exercise
                Prices ($)**Granted
                2005
            
            
            25,000
            
            
            July
                25, 2015
            
            
            .15





48


**COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006**


**7.**  **Income taxes**





The
      Company is organized under the laws of Bermuda. Bermuda currently imposes no
      taxes on corporate income or capital gains outside of Bermuda. The Company’s
      subsidiary is a U.S. corporation and is subject to U.S. income tax and files
      income tax returns in the U.S. and the State of Florida. For 2006, the
      subsidiary has net taxable loss. The subsidiary will have approximately
      $10,000,000 in net operating losses to carry forward to 2007.The remaining
      net
      operating loss carry forwards expire in periods from 2009 through 2026 as
      follows: $62,000 in 2009, $571,000 in 2010, $955,000 in 2011, $1,281,000 in
      2012, $757,000 in 2018, $622,000 in 2019, $749,000 in 2020, $1,884,000 in 2021,
      $1,693,000 in 2022, $132,000 in 2023, $57,000 in 2024, and $1,400,000 in 2026.
      For financial reporting purposes, a valuation allowance has been recognized
      to
      offset the deferred tax assets relating to those carry forwards.





For
      2005,
      the Company provided an estimated U.S. income tax provision of $35,000 resulting
      from the settlement with the State of Florida. The Company ultimately did not
      realize a tax liability for 2005 and this provision was reversed in 2006 as
      an
      income tax benefit.





Significant
      components of the Company’s deferred tax assets were as follows:





2006
            
            2005Net
                operating losses
            
            $
            3,800,000
            
            $
            3,300,000Accruals
                to related parties
            
            
            -
            
            
            -Write
                off of unproved properties
            
            
            -
            
            
            -Total
                deferred tax assets
            
            
            3,800,000
            
            
            3,300,000Valuation
                allowance
            
            
            (3,800,000
            )
            
            (3,300,000
            )Net
                deferred tax assets
            
            $
            -
            
            $
            -





Components
      of the income tax provision are as follows:




**2006**
            
            **2005**
            
            **2004****Provision
                for income taxes**Current
                provision (benefit) for income taxes
            
            $
            (35,000
            )
            $
            1,345,000
            
            $
            -Provision
                for deferred tax liability
            
            
            -
            
            
            -
            
            
            -Benefit
                of other deductible carryforward items
            
            
            -
            
            
            (617,000
            )
            
            -Benefit
                of net operating loss
            
            
            (600,000
            )
            
            (693,000
            )
            
            (253,000
            )Deferred
                asset valuation allowance (reversal)
            
            
            600,000
            
            
            -
            
            
            253,000Net
                income tax provision (benefit)
            
            $
            (35,000
            )
            $
            35,000
            
            $
            -




49


**COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006**


**8.**  **Related
      party transactions**





Oil
      and Gas Exploration Activities





In
      2005,
      the Company acquired various oil and gas rights for one time fees of $100,000
      from an entity controlled by one of the Company’s Directors.





Pursuant
      to a written agreement with respect to the Valley County Leases, the Company
      uses an entity controlled by an individual who is a shareholder, officer and
      director of the Company to perform geotechnical analysis of potential drilling
      sites at a cost of $1,000 per site. The Company capitalized $72,800 and $50,000
      paid to this entity for the year ended December 31, 2006 and 2005,
      respectively.





Services





The
      Company expensed $144,000, $72,000 and $288,000 in fees by Angerer & Angerer
      in 2006, 2005 and 2004, respectively. Robert Angerer, Sr. was elected a director
      of Coastal Caribbean and of Coastal Petroleum on January 30, 2003 and re-elected
      a Vice President of Coastal Caribbean and Coastal Petroleum in December 2005.





The
      Company expensed $50,453, $44,022 and $8,000 for legal fees by the law firm
      of
      Igler & Dougherty, PA, during 2006, 2005, and 2004. Mr. Herbert D. Haughton,
      a shareholder of the firm, was elected a director of Coastal Caribbean and
      of
      Coastal Petroleum in December 2005.





**9.** **Selected
      quarterly financial data (unaudited)** ****





The
      following is a summary (in thousands, except for per share amounts) of the
      quarterly results of operations for the years ended December 31, 2006 and
      2005:





**2006**
            
            **QTR
                1**
            
            **QTR
                2**
            
            **QTR
                3**
            
            **QTR
                4**($)
            
            ($)
            
            ($)
            
            ($)Total
                revenues
            
            
            -
            
            
            -
            
            
            -
            
            
            -Expenses
            
            
            (197
            )
            
            (181
            )
            
            (177
            )
            
            (1,130
            )Gains
                and other income
            
            
            15
            
            
            11
            
            
            9
            
            
            6Income
                Taxes
            
            
            -
            
            
            -
            
            
            35
            
            
            -Impairment
                of goodwill
              Net
                income (loss)
            
            
            -
              (182
            )
            
            -
              (170
            )
            
            -
              (133
            )
            
            -
              (1,136
            )Per
                share (basic & diluted)
            
            
            (.004
            )
            
            (.004
            )
            
            (.003
            )
            
            (.024
            )Weighted
                average number of shares outstanding
            
            
            46,212
            
            
            46,212
            
            
            46,212
            
            
            46
                212




50


**COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2006**


**9.**  **Selected
      quarterly financial data (unaudited)** **(Cont'd)**




**2005**
            
            **QTR
                1**
            
            **QTR
                2**
            
            **QTR
                3**
            
            **QTR
                4**($)
            
            ($)
            
            ($)
            
            ($)Total
                revenues
            
            
            -
            
            
            -
            
            
            -
            
            
            -Expenses
            
            
            (88
            )
            
            (66
            )
            
            (185
            )
            
            (233
            )Gains
                and other income
            
            
            -
            
            
            -
            
            
            8,147
            
            
            28Income
                Taxes
            
            
            -
            
            
            -
            
            
            (35
            )
            
            -Impairment
                of goodwill
              Net
                income (loss)
            
            
            -
              (88
            )
            
            -
              (66
            )
            
            (802)
              7,125
            
            
            -
              (205
            )Per
                share (basic & diluted)
            
            
            (.002
            )
            
            (.001
            )
            
            .154
            
            
            (.004
            )Weighted
                average number of shares outstanding
            
            
            46,212
            
            
            46,212
            
            
            46,212
            
            
            46
                212





**10.**  **Concentrations
      of credit risk**





All
      demand and certificate of deposits are held by national banks. The Company
      has
      no policy requiring collateral or other security to support its deposits,
      although all demand and certificate of deposits with banks are federally insured
      up to $100,000 under FDIC protection. Demand deposit bank balances totaled
      $358,798 and $2,446,458 at December 31, 2006 and 2005 ,
      respectively. Certificate of deposit balances were $126,313 and $75,000 at
      December 31, 2006 and 2005 ,
      respectively.




**11.**  **Significant
      fourth quarter adjustments**





During
      the fourth quarter of 2006, the Company drilled one well and participated in
      the
      drilling of a second well that did not prove commercial quantities of oil or
      gas, and expensed the $1,018,000 of drilling costs.




51





**Item
      9.****Changes
      in and Disagreements with Accountants on****Accounting
      and Financial Disclosure**




***Previous
      Independent Accountants***




On
      August
      18, 2005, James Moore & Co., P.L. ("James Moore") resigned as Coastal
      Caribbean Oils & Minerals, Ltd.'s (the "Company") independent public
      accountants. James Moore's decision to resign was not recommended or approved
      by
      the Company's Board of Directors or any committee thereof.




James
      Moore's report on the Company's consolidated financial statements for the
      Company's fiscal year ended December 31, 2004 did not contain an adverse opinion
      or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
      audit scope or accounting principles.




During
      the fiscal year ended December 31, 2004 and through August 18, 2005, there
      were
      no disagreements with James Moore on any matter of accounting principles or
      practices, financial statement disclosure, or auditing scope or procedure which,
      if not resolved to James Moore's satisfaction, would have caused James Moore
      to
      make reference to the subject matter in connection with their report on the
      Company's consolidated financial statements for such years; and there were
      no
      reportable events as defined in Item 304(a)(1)(v) of the Regulation S-K.




The
      Company provided James Moore with a copy of the foregoing disclosures.




***New
      Independent Accountants***




On
      August
      18, 2005 the Company retained Baumann Raymondo & Company, P.A. as its
      independent public accountants.




**Item
      9A** .   **Controls
      and Procedures**





a.
            Evaluation
                of disclosure controls and procedures.The Company maintains controls and procedures designed to ensure
                that
                information required to be disclosed in the reports that the Company
                files
                or submits under the Securities Exchange Act of 1934 is recorded,
                processed, summarized and reported within the time periods specified
                in
                the rules and forms of the Securities and Exchange Commission.As
                required by Rule 13a-15(b) under the Exchange Act, our Chief Executive
                Officer who is also our Chief Financial Officer carried out an evaluation
                of the effectiveness of the design and operation of our disclosure
                controls and procedures as of the end of the period covered by this
                report. The Company’s Chief Executive Officer has concluded that the
                Company’s disclosure controls and procedures, as of December 31, 2006 were
                effective.





b.
            Changes
                in internal controls.The Company made no changes in its internal control over financial
                reporting that occurred during the Company’s fourth fiscal quarter that
                has materially affected, or which is reasonably likely to materially
                affect the Company’s internal control over financial
                reporting.




52




**PART III**





**Item
      10.**  **Directors
      and Executive Officers of the Company**




**Directors**





As
      of
      December 31, 2006, the board of directors included five members, one of whom,
      Mr. Ware, also serves as an executive officer. The board is divided into three
      classes, with each class serving a term of office of three years or until such
      time as their successors are elected, qualified, and assume office. The Company
      has not held an annual meeting since the annual meeting held in December 2005
      due to the high cost of holding such a meeting. Therefore the director whose
      term expired at the annual meeting to be held in 2006 continues to serve until
      his successor is elected and assumes office.





Name
            Director
              Since
            Other
                Offices Held With the Company
            Age
                and Business Experience For the Past Five YearsDirectors
                With Three Year Terms Expiring at the 2008 Annual
                Meeting:Phillip
                W. Ware
            1985
            President,
                Chief Executive Officer and Principal Accounting Officer
            Mr.
                Ware, age 57, has been employed by Coastal Petroleum Company since
                1976.
                He has served as President of Coastal Petroleum since April 1985.
                Mr. Ware
                is a 1975 graduate of the University of Florida and is a professional
                geologist registered with the State of Florida.Robert
              J. Angerer, Sr.
            2003
            Vice
                President and Chairman of the Board
            Mr.
              Angerer, age 60, is a partner in Oil For America, an oil exploration
              business formed in 2002, with operations primarily in North Dakota
              and
              Montana. He is a lawyer and an engineer and has been a member of the
              Florida Bar since 1974. He has been a partner in the Tallahassee law
              firm
              of Angerer & Angerer since 1994. He is a graduate of the University of
              Michigan and of Florida State University College of Law. He has served
              as
              a director of Coastal Petroleum since 2003.





53





Directors
                With Two Year Terms Expiring at the 2007 Annual MeetingHerbert
                D. Haughton
            N/A
            None
            Mr.
                Haughton, age 65, is a banking, corporate and securities lawyer.
                He is a
                shareholder in the Tallahassee, Florida law firm of Igler & Dougherty,
                PA, where he has practiced law since 1994, following his admission
                to the
                Florida Bar. Prior to entering the practice of law, Mr. Haughton
                spent
                over 30 years in the banking industry serving as president and chief
                executive officer of three different community banks in Florida from
                1977
                to 1991. He is a graduate of Cleary University and Florida State
                University College of Law.Anthony
                F. Randazzo, Ph.D.
            N/A
            None
            Dr.
                Randazzo, age 65, is Professor Emeritus of Geological Sciences at
                the
                University of Florida where he has worked since 1967. He served as
                Chairman of the Department of Geology at the University of Florida
                from
                1988 to 1995. He is also currently a co-principal and President of
                the
                geotechnical consulting firm Geohazards, Inc. which he was instrumental
                in
                forming in1985. He earned his B.S. degree at The City College of
                New York
                in 1963, his M.S. from the University of North Carolina at Chapel
                Hill
                1965, and his Ph.D. from the University of North Carolina at Chapel
                Hill
                in 1968. He is a Registered Professional Geologist in the State of
                Florida
                and the State of Georgia.





54


Director
                With One Year Term Expiring at the 2006 Annual MeetingMatthew
                D. Cannon
            N//A
            None
            Mr.
                Cannon, age 62, is currently a partner in the Cannon Trading Partnership,
                which he formed in 1993. From 1991 to 1992 he served as a partner
                in
                Seisma Drilling Corporation. From 1988 to 1991 he served as vice
                president
                and director of Hilb, Rogal and Hamilton Company, an insurance agency
                located in Gainesville, Florida which specialized in underwriting,
                rating,
                sales, collections and claims associated with commercial lines insurance
                policies. Prior to that he served as vice president and director
                of the
                Cannon-Treweek insurance agency from 1968
                to1988.




**Executive
      Officers**





Phillip
      W. Ware has been President of Coastal Petroleum and Vice President of Coastal
      Caribbean for many years and became President of Coastal Caribbean effective
      March 1, 2003, and Robert J. Angerer, Sr., became a director of Coastal
      Caribbean on January 30, 2003 and Vice President of Coastal Caribbean on
      February 27, 2003. Effective August 18, 2005, Kenneth
      Michael Cornell of Cornell & Associates, Inc. resigned as the Chief
      Financial Officer and Principal Accounting Officer of the Company, at which
      time
      Mr. Ware was appointed Principle Accounting Officer.




Officers
      of Coastal Caribbean are elected annually by the board and report directly
      to
      it.





Only
      Mr.
      Ware received direct compensation for his services as an officer of Coastal
      Caribbean or Coastal Petroleum. $69,000 and $92,000 of Mr. Ware’s compensation
      for his services was deferred during 2003 and 2004, respectively and was paid
      in
      2005. Mr.
      Ware
      devotes 100% of his professional time to the business and affairs of Coastal
      Caribbean and Coastal Petroleum. The
      other
      executive officer devotes a small percentage of his professional time as an
      officer on behalf of the Companies.





The
      business experience described for each director or executive officer above
      covers the past five years.





We
      are
      not aware of any arrangements or understandings between any of the individuals
      named above and any other person by which any of the individuals named above
      was
      selected as a director and/or executive officer. We are not aware of any family
      relationship among the officers and directors of Coastal Caribbean or its
      subsidiary except for the father and son relationship between Mr. Angerer,
      Sr.
      and Robert J. Angerer, Jr., who serves as the Company’s Secretary.





55




**Compliance
      with Section 16(a) of the Securities Exchange Act of
      1934**





Section
      16(a) of the Securities Exchange Act of 1934 requires the Company's executive
      officers, directors and persons who beneficially own more than 10% of the
      Company's Common Stock to file initial reports of beneficial ownership and
      reports of changes in beneficial ownership with the Securities and Exchange
      Commission (the "SEC"). Such persons are required by the SEC regulations to
      furnish the Company with copies of all Section 16(a) forms filed by such
      persons. Based solely on its copies of forms received by it, or written
      representations from certain reporting persons that no Form 5's were required
      for those persons, the Company believes that during the just completed fiscal
      year, its executive officers, directors, and greater than 10% beneficial owners
      compiled with all applicable filing requirements.





**Code
      of Ethics**





The
      Company has adopted a Code of Ethics applicable to principle executive and
      financial officers. The Code of Ethics is posted on the Company’s website at www.coastalcarib.com and may
      be reviewed by following the link entitled “Corporate Governance Materials.” A
      copy of the Code of Ethics is also filed herein as Exhibit (j).





**Item
      11.**  **Executive
      Compensation**





**Compensation
      Discussion and Analysis**





**Compensation
      Philosophy**





The
      Company’s executive compensation program reflects the Company’s philosophy that
      executive’s compensation should be structured so as to closely align executives’
interests with the interests of our shareholders. The primary objectives of
      the
      Company in determining compensation are to emphasize operating performance
      criteria that enhance shareholder value and to establish and maintain a
      competitive executive compensation program that enables the Company to retain
      and motivate a highly qualified executive who will contribute to the long-term
      success of the Company. When used in this Compensation Discussion and Analysis
      section, the term “named executive officer” means the person listed in the
      Summary Compensation Table.





Consistent
      with this philosophy, we seek to provide compensation for the named executive
      officer that is similar to comparable companies in the oil and gas industry.
      In
      making these determinations, we annually review each compensation component
      and
      compare it to market reference points. The application of our compensation
      philosophy to our named executive officer is described below in this
      Compensation Discussion and Analysis section.





56


**Executive
      Compensation Program Design**





The
      objective of the Company and the compensation committee is to attract, retain
      and motivate the most highly qualified executive officer who will contribute
      to
      the Company’s goals by consistently delivering exceptional performance while
      working within the annual budget of a development stage Company. In order to
      accomplish the Company’s goals, we believe compensation paid to the executive
      officer should be designed around a combination of a competitive based salary
      combined with performance-based pay including equity-based or other incentives
      which thereby align the interest of our executive officer with those of the
      Company’s shareholders.





Base
      salary constituted nearly all of the compensation package of the indicated
      named
      executive officer during the year ended December 31, 2006.




At
      the
      request of the compensation committee, our compensation program is reviewed
      on
      an annual basis to ensure it meets the objectives of our compensation program
      and is benchmarked with the market. Prior compensation from the Company, such
      as
      gains from previously awarded stock options, is not generally taken into account
      in setting other elements of compensation, such as base pay and long-term
      incentive awards. We believe that our executive officer should be fairly
      compensated each year relative to market pay levels of our peer groups and
      internal equity within the Company.





**Compensation
      Program Benchmarking**





The
      compensation committee endeavors to conduct its review on an annual basis for
      the named executive officer to ensure that our compensation program works as
      designed and intended. This review by the compensation committee also
      facilitates discussion among the members of the compensation committee regarding
      our compensation program.





**Compensation
      Program Overview**





Following
      is an overview of the principal components of our compensation program:





***How
      Amounts for Compensation Components are Determined***





In
      addition to the information provided above, following are other details on
      specific compensation components for 2006:





*2006
      Base Salary.* Base
      salary level of the named executive officer is determined based on a combination
      of factors, including our compensation philosophy, market compensation data,
      competition for key executive talent, the named executive officer’s experience,
      leadership, achievement of specified business objectives and contribution to
      the
      Company’s success, the Company’s overall annual budget for merit increases and
      the named executive officer’s individual performance. In the compensation
      committee’s first meeting of each year, the compensation committee conducts an
      annual review of the base salary of our named executive officer by taking into
      account these factors.




57




The
      base
      salary of the named executive officer did not increase during 2006 based upon
      the factors set out above. The compensation committee focused on the Company’s
      annual budget and the beginning of new operations in an effort to establish
      production and revenue for the Company.





*2006
      Long-Term Incentives.* The
      Company has in the past provided long-term incentives. Primarily this has been
      done through the issuance of stock options, however there is no set program
      or
      requirements for issuance of the stock options. Instead, stock options may
      be
      issued at the discretion of the compensation committee in conjunction with
      the
      Board of Directors.





In
      addition to our philosophy, internal equity **,** current
      share price, and individual performance during the prior year are considered.
      We
      do not target long-term incentive opportunities to be a particular percentage
      of
      total compensation. The compensation committee did not grant any stock options
      in 2006 to any individuals (including our Chief Executive Officer).





Another
      long-term incentive used in the oil and gas industry is the granting of
      overriding interest in wells to be drilled. On June 22, 2005, the Company
      approved of its subsidiary granting such an incentive to Mr. Ware and that
      incentive was granted as a 1% overriding interest in any well that he recommends
      that is drilled by the Company or its subsidiary Coastal Petroleum. No payments
      under this incentive plan were earned or paid during 2006.





***Retirement
      and Other Benefits***





We
      currently do not offer retirement programs within the Company that are intended
      to supplement the employee’s personal savings and social security. However, the
      Company contributes to the SEP-IRA of the named executive employee. The Company
      believes that this contribution assists the Company in maintaining a competitive
      position in terms of retaining our named executive employee.





***Other
      Benefits*** **





The
      Company does not provide the named executive officer with perquisites or other
      personal benefits. The Company does provide healthcare insurance for its named
      executive officer, which the Company believes assists in maintaining a
      competitive position in terms of retaining him.




58


**Board
      Process and Independent Review of Compensation Program**





The
      compensation committee is responsible for determining the compensation of our
      directors and our Chief Executive Officer. In addition, the compensation
      committee is authorized to exercise all the powers granted to it in its charter.
      The compensation committee charter provides that the compensation committee
      will
      have access to the necessary corporate resources to carry out its charter
      authority.





For
      our
      Chief Executive Officer, the compensation committee evaluates and assesses
      our
      Chief Executive Officer’s performance related to leadership, financial and
      operating results, board relations, and other material considerations. These
      considerations as well as market information concerning compensation for similar
      positions are then incorporated into the compensation committee’s compensation
      adjustment decisions. Market information is obtained through various sources
      including reference to materials published by the American Association of
      Petroleum Geologists (AAPG) annually in their *AAPG
      Explorer* .
      These
      materials review compensation being paid to geologists holding various degrees
      and of varying years of experience in oil and gas companies across the
      country.





The
      following table sets forth the compensation of the President of the Company,
      Mr.
      Ware, who served as our Chief Executive Officer and Principal Financial Officer
      for the three years ending with 2006. We have determined that Mr. Ware is our
      only named executive officer pursuant to the applicable rules of the SEC (the
      “named executive officer”). No other company employee received $100,000 or more
      in total compensation. Mr. Ware’s current base salary is $125,000.





59





**Summary
      Compensation Table**




**Name
                  and Principal Position**
              
              **Year**
              
              **Salary**
                **($)**
              
              **Bonus****(1)**
                **($)**
              
              **Stock**
                **Awards**
                **($)**
              
              **Option**
                **Awards****(3)******
                **($)**
              
              **Non-Equity**
                **Incentive
                  Plan**
                **Compensation**
                **($)**
              
              **Change
                  in**
                **Pension**
                **Value
                  and**
                **Nonqualified**
                **Deferred**
                **Compensation**
                **Earnings**
                **($)**
              
              **All
                  Other**
                **Compensation****(2)(5)**
                **($)**
              
              **Total**
                **($)**Phillip
                  W. Ware, Chief Executive Officer,
              
              
              2006
              
              
              125,000
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              13,800
              
              
              138,800President,
                  Chief Financial Officer,
              
              
              2005
              
              
              112,020
              
              
              -
              
              
              -
              
              
              47,000
              
              
              -
              
              
              -
              
              
              13,800
              
              
              172,820Director
              
              
              2004
              
              
              92,000(4
              )
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              -
              
              
              13,800
              
              
              105,800


(1)
            Annual
                Cash Bonus Award - Annual incentive awards, which were paid during
                the
                year or immediately following the year
                indicated.


(2)
            Other
                Annual Compensation - All additional forms of cash and non-cash
                compensation paid, awarded or earned, including automobile allowances,
                401(k) Plan matching contributions, and club membership
                costs.


(3)
            Stock
                Options - Grant of stock options to acquire 50,000 shares was made
                under
                the Company’s 1995 Stock Option Plan. Grant of stock options to acquire
                250,000 shares was made under the Company’s 2005 Incentive Stock Option
                Plan


(4)
            This
                amount was accrued in 2004 and paid in
                2005.


(5)
            Payment
                to SEP-IRA pension plan (2004 and 2005 amounts were deferred and
                paid in
                2005).





The
      Company does not have a contract with its named executive officer nor does
      it
      have a change of control employment agreement which would be effective upon
      change of control of the Company or in the event of termination of
      employment.





60





**Stock
      Options**





The
      Company granted Mr. Ware an option to acquire 50,000 shares of our common stock,
      exercisable at $.15 per share and 250,000 shares of our common stock,
      exercisable at $.20 per share, for ten years during the year ended
      December 31, 2006. The Company has not adjusted or amended the exercise
      price of any stock options during the year end December 31, 2006.





All
      the
      outstanding options that existed prior to the 2005 Agreement with the State
      of
      Florida were terminated as part of the Agreement with the State of Florida
      and
      through the mutual releases exchanged as a part of the closing under that
      Agreement.





The
      following table sets forth certain information with respect to outstanding
      equity awards at December 31, 2006 held by the named executive officer.





**Outstanding
      Equity Awards at Fiscal Year-End**




**Option
                Awards**
              
              **Stock
                Awards****Number
                  of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options**
                **(#)**
              
              **Number
                  of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Options**
                **(#)**
              
              **Equity**
                **Incentive**
                **Plan**
                **Awards:**
                **Number
                  of**
                **Securities**
                **Underlying**
                **Unexercised**
                **Unearned**
                **Options**
              
              **Option**
                **Exercise**
                **Price**
              
              **Option**
                **Expiration**
              
              **Number of**
                **Shares
                  or**
                **Units
                  of**
                **Stock That**
                **Have
                  Not**
                **Vested**
              
              **Market**
                **Value of**
                **Shares or**
                **Units
                  of**
                **Stock That**
                **Have
                  Not**
                **Vested**
              
              **Equity**
                **Incentive**
                **Plan**
                **Awards:**
                **Number
                  of**
                **Unearned**
                **Shares,**
                **Units**
                **or
                  Other**
                **Rights**
                **That**
                **Have
                  Not**
                **Vested**
              
              **Equity**
                **Incentive**
                **Plan**
                **Awards:**
                **Market
                  or**
                **Payout**
                **Value**
                **of
                  Unearned**
                **Shares,**
                **Units**
                **or
                  Other**
                **Rights**
                **That**
                **Have
                  Not**
                **Vested****Name**
              
              **Exercisable**
              
              **Unexercisable**
              
              **(#)**
              
              **($)**
              
              **Date**
              
              **(#)**
              
              **($)**
              
              **(#)**
              
              **($)**Phillip
                  W. Ware
              
              50,000
              
              
              -
              
              
              -
              
              
              0.15
              
              July
                  25, 2015
              
              
              -
              
              
              -
              
              
              -
              
              
              -250,000
              
              
              -
              
              
              -
              
              
              0.20
              
              September
                  27, 2015
              
              
              -
              
              
              -
              
              
              -
              
              
              -
  61





**Option
      Exercises**





There
      were no options exercised in 2006.





**Compensation
      of Directors**





The
      compensation committee of our Board sets the compensation of our directors.
      In
      determining the appropriate level of compensation for our directors, the
      compensation committee considers the commitment required from our directors
      in
      performing their duties on behalf of the Company, as well as comparative
      information the committee obtains from various sources. Set forth below is
      a
      description of the compensation of our directors.





**Annual
      Retainers and Other Fees and Expenses.**





We
      pay
      our directors an annual retainer of $25,000. There is currently no provision
      for
      paying directors additional fees based upon attending meetings, service on
      a
      committee, or serving as chair of a committee. We do not regularly compensate
      directors for their service through stock options, although in the past the
      Company has issued stock options to Directors. We do reimburse directors for
      travel, lodging and related expenses they may incur in attending shareholder,
      Board and committee meetings.





Directors
      were paid $125,000 and $54,725 in 2006 and 2005, respectively. Beginning in
      the
      year 2005, the Company paid each director an annual fee of $25,000 for director
      service or a prorated share of that amount based upon time spent serving as
      a
      director during any part of the year. Certain directors were also paid $71,250
      in 2005 as payment for directors fees accrued during the year 2004. The
      following table shows the compensation of the Company’s directors for the year
      ended December 31, 2006.





62




**Director
      Compensation**




**Name**
            
            **Fees Earned or**
              **Paid in Cash**
              **($)**
            
            **Stock Awards**
              **($)**
            
            **Option Awards**
              **($)**
            
            **Non-Equity**
              **Incentive
                Plan**
              **Compensation**
              **($)**
            
            **Change**
              **in
                Pension**
              **Value
                and**
              **Nonqualified**
              **Deferred**
              **Compensation**
              **Earnings**
              **($)**
            
            **All
                Other**
              **Compensation**
              **($)**
            
            **Total**
              **($)**Phillip
                W. Ware
            
            
            25,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            25,000Robert
                J. Angerer, Sr.
            
            
            25,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            25,000Herbert
                D. Haughton
            
            
            25,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            25,000Matthew
                D. Cannon
            
            
            25,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            25,000Anthony
                F. Randazzo
            
            
            25,000
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            -
            
            
            25,000





63





**Compensation
      Committee Interlocks and Insider Participation**





The
      Compensation Committee serves with regard to compensation and personnel
      policies, programs and plans, including management development and succession,
      and to approve employee compensation and benefit programs. The Compensation
      Committee’s charter was adopted on December 20, 2005.  A copy of the
      Compensation Committee Charter may be obtained by a written request addressed
      to
      Mr. Robert J. Angerer, Jr., Secretary, P.O. Box 10468, Tallahassee, Florida
      32302.  Members of the Compensation Committee are: Herbert D. Haughton and
      Matthew D. Cannon.





**Compensation
      Committee Report**


To
      the
      Shareholders of


Coastal
      Caribbean Oils & Minerals, Ltd.:





The
      Compensation Committee has reviewed and discussed with management of the Company
      the Compensation Discussion and Analysis included in this annual report on
      Form
      10-K. Based on such review and discussion, the Compensation Committee
      recommended to the Board that the Compensation Discussion and Analysis be
      included in this annual report on Form 10-K.


March 21,
                2007
            
            COMPENSATION
                COMMITTEEMatthew
                D. Cannon, ChairHerbert
                D. Haughton




**Item
      12.**  **Security
      Ownership of Certain Beneficial Owners and Management**





**Security
      Ownership of Certain Beneficial Owners**




As
      of
      December 31, 2006, Mr. Robert J. Angerer, Sr. owned 2,067,487 shares, or
      4.47%, of our common stock and his son, Mr. Robert J. Angerer, Jr., beneficially
      owned 2,256,914 shares, or 4.88%, of our common stock. Mr. Angerer, Sr.
      disclaims beneficial ownership of any shares owned by his son.




As
      of
      March 21, 2006, no persons or apparent groups of persons are known by management
      to own beneficially five percent or more of the Company’s outstanding
      shares.





64




**Security
      Ownership of Management**





The
      following table sets forth information as to the number of shares of the
      Company's common stock owned beneficially at December 31, 2006, by each director
      of the Company and by all directors and executive officers as a group:




Amount
                and Nature of BeneficialOwnershipName
                of Individual or Group
            
            Shares
                Held Directly
              or
              Indirectly
            
            Options
            
            Percent
                ofClassPhillip
                W. Ware
            
            
            204,121
            
            
            300,000
            
            
            1.09
            %Robert
                J. Angerer, Sr.
            
            
            2,067,587
            
            
            50,000
            
            
            4.58
            %Herbert
                D. Haughton
            
            
            50,000
            
            
            50,000
            
            
            0.21
            %Anthony
                F. Randazzo
            
            
            100,000
            
            
            50,000
            
            
            0.32
            %Matthew
                D. Canon
            
            
            105,300
            
            
            50,000
            
            
            0.33
            %Directors
                and executive officersas
                a group (a total of 5 persons)
            
            
            2,527,008
            
            
            500,000
            
            
            6.55
            %


______________________





**EQUITY
      COMPENSATION PLAN INFORMATION**





The
      following table provides information about the Company’s common stock that may
      be issued upon the exercise of options and rights under the Company’s 1995 Stock
      Option Plan and the Company’s 2005 Employee’s Incentive Stock Option Plan as of
      December 31, 2006





Plan
                Category
            
            Number
                of Securities
              to
                be issued upon
              exercise
                of
              outstanding
                options,
              warrants
                and rights
              (a)
                (#)
            
            Weighted
                average
              exercise
                price of
              outstanding
              options,
                warrants
              and
                rights
              (b)
                ($)
            
            Number
                of securities
              remaining
                available for
              issuance
                under equity compensation plans
              (excluding
                securities
              reflected
                in column (a))
              (c)
                (#)Equity
                compensation plans not approved by security holders(1)
            
            
            250,000
            
            $
            0.15
            
            
            750,000Equity
                compensation plans approved by security holders(2)
            
            
            250,000
            
            $
            0.20
            
            
            2,050,000Total:
            
            
            500,000
            
            $
            0.15
                - 0.20
            
            
            2,800,000





(1)  1995
      Stock Option Plan


(2)  2005
      Employee’s Incentive Stock Option Plan





65


The
      Company’s 1995 **** Stock
      Option Plan was adopted by the Board of Directors of the Company in March 1995.
      1,000,000 shares of the Company's common stock were authorized for issuance
      under the terms of the plan. Options under the plan may be granted only to
      directors, officers, key employees of, and consultants and consulting firms
      to,
      (i) the Company, (ii) subsidiary corporations of the Company from time to time
      and any business entity in which the Company from time to time has a substantial
      interest, who, in the sole opinion of the Committee of the Board administering
      the Plan, are responsible for the management and/or growth of all or part of
      the
      business of the Company. The exercise price of each option to be granted under
      the plan shall not be less than the fair market value of the stock subject
      to
      the option on the date of grant of the option.





The
      Company’s 2005
      Employees’ Stock Option and Limited Rights Plan (“Employees’ Plan”) was adopted
      by the Board on September 27, 2005, for the benefit of officers and other key
      employees of Coastal and Coastal Caribbean. The Plan was approved by the
      shareholders at the Annual General Meeting held on December 9, 2005. The
      Employees’ Plan provides for 2,300,000 shares of Coastal common stock to be
      reserved for future issuance pursuant to the exercise of stock options. This
      represents 5% of the total number of shares of the Company’s outstanding common
      stock. Employees of Coastal or Coastal Petroleum may be granted options to
      purchase shares of common stock, as determined by the Board in its sole
      discretion.





Options
      granted under the Program will be “incentive stock options” within the meaning
      of section 422A of the Internal Revenue Code of 1986, as amended, which are
      designed to result in beneficial tax treatment to the employee but no tax
      deduction to Coastal. The per share exercise price at which the shares of common
      stock may be purchased upon exercise of a granted option will be equal to or
      greater than the Fair Market Value of a share of common stock as of the date
      of
      grant. Fair Market Value of a share of common stock is defined in the Employees’
Plan. At no time will Coastal have total cumulative stock options outstanding
      to
      acquire more than 15% of the outstanding common stock of Coastal under all
      of
      its plans.




**Item
      13.**   **Certain
      Relationships and Related Transactions**





***Angerer
      & Angerer***





The
      law
      firm of Angerer & Angerer, Tallahassee, Florida, has been litigation counsel
      to the Company for more than twenty-five years. Mr. Robert J. Angerer, Sr.,
      a
      partner of the firm, was elected a director of Coastal Caribbean and of Coastal
      Petroleum on January 30, 2003, and a Vice President of Coastal Caribbean and
      Coastal Petroleum on February 28, 2003. During 2006 and 2005, Angerer &
Angerer billed Coastal Petroleum $144,000 and $72,000 respectively for legal
      fees.





66


***Robert
      J. Angerer, Sr.***





Mr.
      Robert J. Angerer, Sr., a director, Vice President and Chairman of the Board
      of
      both Coastal Caribbean and Coastal Petroleum, loaned the Companies funds in
      the
      total amount of $106,000 to enable them to continue operating during 2003 and
      2004 and those loans were repaid in 2005.





On
      July
      15, 2005 Coastal Petroleum acquired a lease and the rights to drill two 5,100
      foot wells to test a Mississippian Lodgepole reef in Valley County, in northeast
      Montana. Coastal Petroleum acquired these rights for $50,000 from Oil For
      America, a partnership in which Robert J. Angerer, Sr. is a partner. Included
      in
      the agreement is the right to drill additional prospects in the Valley County
      area.





Coastal
      Petroleum also acquired leases from Oil For America to the deeper rights in
      approximately 21,688 net acres in and near Slope County, North Dakota for an
      additional $50,000. The Company has the option to drill the remaining Lodgepole
      reef prospects on these leases.





The
      leases were acquired on terms and under circumstances that are substantially
      the
      same or at least as favorable as those prevailing at the time for comparable
      transactions with or involving other non-affiliated companies.




***Igler
      & Dougherty, PA***





The
      law
      firm of Igler & Dougherty, PA, Tallahassee, Florida, has been SEC counsel to
      the Company for almost three years. Mr. Herbert D. Haughton, a shareholder
      of
      the firm, was elected a director of Coastal Caribbean and of Coastal Petroleum
      in December 2005. During 2006 and 2005, Igler & Dougherty billed Coastal
      Petroleum $50,453 and 44,022, respectively for legal fees.







**Item
      14.**   **Principal
      Accountant Fees and Services**





Baumann,
      Raymondo and Company, P.A. audited the Company’s financial statements for 2006
      and 2005 and performed the reviews for 2006 and the quarter ended September
      30,
      2005. James Moore & Co., P.L. audited the Company’s financial statements for
      2004 and performed the review for the quarters ended March 31, 2005 and June
      30,
      2005.





Fees
      related to services performed by Baumann, Raymondo and Company, P.A. and James
      Moore & Co., P.L. in 2006 and 2005 were as follows:





2006
            
            2005Audit
                Fees (1)
            
            $
            30,500
            
            $
            33,668Audit-Related
                Fees
            
            
            -0-
            
            
            -0-Tax
                Fees (2)
            
            
            -0-
            
            
            2,350Total
            
            $
            30,500
            
            $
            36,018




67




(1)
            Audit
                fees represent fees for professional services provided in connection
                with
                the audit of our financial statements and review of our quarterly
                financial statements. The Audit Committee must pre-approve audit
                related
                and non-audit services not prohibited by law to be performed by the
                Companies independent auditors. The Audit Committee for the Company
                was
                made up of John D. Monroe and Graham B. Collis until July 28, 2004
                when
                they both resigned as directors. From their resignation until December
                9,
                2005, the Audit Committee was comprised of the only remaining directors,
                Phillip W. Ware and Robert J. Angerer, Sr. Since their appointment
                on
                December 9, 2005, newly elected directors Matthew D. Cannon and Anthony
                F.
                Randazzo have served as the members of the Audit Committee. The Audit
                Committee pre-approved all audit related and non-audit services in
                2006,
                2005 and 2004.





The
                Audit Committee has reviewed Coastal Caribbean’s audited financial
                statements as of, and for, the fiscal year ended December 31, 2006,
                and
                met with both management and Coastal Caribbean’s independent auditors to
                discuss those financial statements. Management has represented to
                the
                Audit Committee that the financial statements were prepared in accordance
                with accounting principles generally accepted in the United States
                of
                America.




The
                Audit Committee has received from, and discussed with Baumann, Raymondo
                & Company, PA, the written disclosure and the letter required by
                Independence Standards Board Standard No. 1*(Independence
                Discussions with Audit Committees)*.
                These items relate to that firm’s independence from Coastal Caribbean. The
                Audit Committee has also discussed with Baumann, Raymondo & Company
                any matters required to be discussed by Statement on Auditing Standards
                No. 61*(Communication
                with Audit Committees)*.




Based
      on
      the reviews and discussions referred to above, the Audit Committee recommended
      to the Board that Coastal Caribbean’s audited financial statements be included
      in the Company’s Annual Report on Form 10-K for the fiscal year ended December
      31, 2006, and filed with the Securities and Exchange Commission.


(2)
              Tax
                    fees principally included tax advice, tax planning and tax return
                    preparation.




68





**PART IV**





**Item 15****.****Exhibits
      and Financial Statement Schedules**





**Financial Statements**





The
      financial statements listed below and included under Item 8 above are filed
      as
      part of this report.




PageReports
                of Independent Registered Public Accounting Firms
            32Consolidated
                balance sheets at December 31, 2006 and 2005
            34Consolidated
                statements of operations for each of the three years in the period
                ended
                December 31, 2006 and for the period from January 31, 1953 (inception)
                to
                December 31, 2006.
            35Consolidated
                statements of cash flows for each of the three years in the period
                ended
                December 31, 2006 and for the period from January 31, 1953 (inception)
                to
                December 31, 2006.
            36Consolidated
                statement of common stock and capital in excess of par value for
                the
                period from January 31, 1953 (inception) to December 31,
                2006
            37Notes
                to consolidated financial statements.
            38-51





**Financial Statement Schedules**





All
      schedules have been omitted since the required information is not present or
      not
      present in amounts sufficient to require submission of the schedule, or because
      the information required is included in the consolidated financial statements
      and the notes thereto.





69




**Exhibits**





The
      following exhibits are filed as part of this report:





10.
            Material contracts.  (g)
            Stock
              Option Plan adopted March 7, 1995 filed as Exhibit 4A to form S-8 dated
              July 28, 1995(File
              Number 001-04668) is incorporated herein by
              reference.  (h)
            Memorandum
                of Settlement dated June 1, 2005 between Coastal Petroleum Company,
                et al.
                and the State of Florida filed as Exhibit 10(h) to form 10K-A dated
                July
                27, 2005 (File Number 001-04668) is incorporated herein by
                reference.





(i)
            Incentive
                Stock Option Plan adopted September 30, 2005 and approved by the
                shareholders on December 9, 2005 filed as Appendix A to form DEF
                14A dated
                November 3, 2005 (File Number 001-04668) is incorporated herein by
                reference.





(j)
            Code
                of Ethics applicable to principle executive and financial officers
                adopted
                December 20, 2005 filed as Exhibit 10(j) to form 10K dated March
                8, 2006
                (File Number 001-04668) is incorporated herein by
                reference.




21.
            Subsidiaries of the registrant.





The
                Company has one subsidiary, Coastal Petroleum Company, a Florida
                corporation which is 100 % owned.





23.
            Consent of experts and counsel.




23.1
            Consent
              of James, Moore&
              Co., P.L.


23.2
            Consent of Baumann, Raymondo & Company
              PA





31.1
            Certification
              of Chief Executive Officer and Principal Financial Officer Required
              by
              Rule 13a-14(a)-15d-14(a) under the Exchange
              Act





32.1
            Certification
                pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section
                906 of
                the Sarbanes-Oxley Act of 2002 executed by Phillip W.
                Ware.





70


**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.




**COASTAL
                CARIBBEAN OILS & MINERALS,
                LTD.**By:
            /s/ *Phillip
              W. Ware***Phillip
              W. Ware**,
              Chief Executive OfficerPresident
              and
              Principal Financial Officer


Dated:
      March 21, 2007





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




By
            /s/ *Phillip
              W. Ware*
            
            
            By
            
            */s/Robert
              J.
              Angerer***Phillip
              W. Ware**
            
            
            
            
            **Robert
              J. Angerer**Director,
              Chief
              Executive Officer,
            
            
            
            
            Director
              and Vice
              PresidentPresident and Principal Financial
              OfficerDated:
              March 21, 2007
            
            Dated:
              March 21, 2007


By
              /s/ *Phillip
                W. Ware*
              
              
              By
              
              */s/Robert
                J.
                Angerer***Phillip
                W. Ware**
              
              
              
              
              **Robert
                J. Angerer**Director,
                Chief
                Executive Officer,
              
              
              
              
              Director
                and Vice
                PresidentPresident and Principal Financial
                OfficerDated:
                March 21, 2007
              
              Dated:
                March 21, 2007
 By
                */s/Herbert
                  D.
                  Haughton*
                
                
                By
                
                */s/Anthony
                  F. Randazzo***Herbert
                  D. Haughton**
                
                
                
                
                **Anthony
                  F. Randazzo**Director
                
                
                
                
                DirectorDated:
                  March 21, 2007
                
                Dated:
                  March 21, 2007
 By
                  */s/Matthew
                    D.
                    Cannon***Matthew
                    D. Cannon**DirectorDated:
                    March 21, 2007
  71





**INDEX
      TO EXHIBITS**




Exhibit
      No .





23.1
            
            Consent of James Moore & Co.,
              P.L.23.2
            
            Consent of Baumann, Raymondo & Company,
              PA31.1
            
            Certification pursuant to Rule 13a-14
              by
              Phillip W. Ware32.1
            
            Certification
              pursuant to Section 906 by Phillip W.
              Ware