SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549





FORM
10-K/A


Amendment
No. 1





ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d)


OF THE
SECURITIES EXCHANGE ACT OF 1934





For
      the Fiscal Year Ended December 31, 2007
                Commission
      File No. 001-31852





TRI-VALLEY
CORPORATION


(Exact
Name of Registrant as Specified in its Charter)





Delaware
              
              84-0617433(State
      or other jurisdiction of incorporation or
                organization)
              
              (I.R.S.
      Employer Identification No.)





4550
California Avenue, Suite 600, Bakersfield, California 93309


(Address
of Principal Executive Offices)





Registrant's
Telephone Number Including Area Code:  (661) 864-0500





Securities
Registered Pursuant to Section 12(b) of the Act:


Title
      of each class
            Name
      of exchange on which registeredCommon
      Stock, $0.001 par value
            American
      Stock Exchange





Securities
Registered Pursuant to Section 12(g) of the Act:  None





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act


Yes  o  No  x





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act.  Yes  o  Nox





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 requirement for the past
90 days.


Yes  x  No  o





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





Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non accelerated filer or a smaller reporting
company.


Large
accelerated filer o        Accelerated
filer x        Non-accelerated
filer o        Smaller
reporting company o





Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Act).


Yeso  Nox





As of
January 10, 2009, 27,380,000 common shares were issued and
outstanding.





The
aggregate market value of the common shares of Tri-Valley Corporation held by
non-affiliates on the last day of the registrant’s most recently completed
second fiscal quarter was approximately $179 million.





DOCUMENTS
INCORPORATED BY REFERENCE: None





TABLE
OF CONTENTS





PART
      IITEM
      1
                Business
                1Competition
                2Governmental
      Regulation
                3Environmental
      Regulation
                3Employees
                5Available
      Information
                5ITEM
      1A
                Risk
      Factors
                5ITEM
      2
                Properties
                10Oil
      and Gas Operations
                11Minerals
      Properties
                14ITEM
      4
                Submission
      of Matters to a Vote of Security Holders
                16PART
      IIITEM
      5
                Market
      Price of the Registrant's Common Stock and Related Security Holder
      Matters
                17Performance
      Graph
                18Equity
      Compensation Plan Information
                19Recent
      Sales of Unregistered Securities
                19ITEM
      6
                Selected
      Historical Financial Data
                20ITEM
      7
                Management's
      Discussion and Analysis of Financial Condition
                20Notice
      Regarding Forward-Looking Statements
                20Overview
                20Critical
      Accounting Policies
                21Other
      Significant Accounting Polices
                23Accounting
      for Oil and Gas Producing Activities
                24Rig
      Operations
                25Mining
      Activity
                25Results
      of Operations
                26Financial
      Condition
                29Operating
      Activities
                30Investing
      Activities
                30Financing
      Activities
                30Liquidity
      and Capital Resources
                30ITEM
      7A
                Quantitative
      and Qualitative Disclosures about Market Risk
                31ITEM
      8
                Financial
      Statements
                32ITEM
      9A
                Controls
      and Procedures
                71Evaluation
      of Disclosure Controls
                71Management’s
      Report on Internal Control over Financial Reporting
                71Changes
      in Internal Control
                72PART
      IIIITEM
      10
                Directors
      and Executive Officers of the Registrant
                74ITEM
      11
                Executive
      Compensation
                79Compensation
      Committee Report
                80Summary
      Compensation Table
                81Employment
      Agreement with Our President
                81Aggregated
      2007 Option Exercises and Year-End Values
                82Option
      Grants During the Fiscal Year Ended December 31, 2007 to Named Executive
      Officers
                82Outstanding
      Equity Awards Table to Named Executive Officers and
    Directors
                83Compensation
      of Directors
                84ITEM
      12
                Security
      Ownership of Certain Beneficial Owners and Management
                85ITEM
      13
                Certain
      Relationships and Related Transactions
                86ITEM
      14
                Principal
      Accountant Fees and Services
                86ITEM
      15
                Exhibits
      and Financial Statement Schedules
                87SIGNATURES
                88




ii


PART I





ITEM
1  Business





Tri-Valley
Corporation (“TVC” or the Company), a Delaware corporation formed in 1971, is in
the business of exploring, acquiring and developing petroleum and metal and
mineral properties and interests therein.





The
Company identifies reportable segments by product.  The Company
includes revenues from both external customers and revenues from transactions
with other operating segments in its measure of segment profit or
loss.  The Company also includes interest revenue and expense,
DD&A, and other operating expenses in its measure of segment profit or
loss.  The results of these four segments are presented in Note 9 to
the Consolidated Financial Statements.





The
      Company’s four industry segments are:-
            Oil and gas operations
      include our share of revenues from oil and gas wells on which TVOG serves
      as operator, royalty income and production revenue from other partnerships
      in which we have operating or non-operating interests.  It also
      includes revenues for consulting services for oil and gas related
      activities.-
            Rig operations began in
      2006, when the Company acquired drilling rigs and began operating them
      through subsidiaries GVPS and GVDC.  Rig operations include
      income from rental of oil field equipment.-
            Minerals include the
      Company’s mining and mineral prospects and operations, and expenses
      associated with those operations.  In 2007, the Company recorded
      minerals revenue from consulting services performed for the mining and
      minerals industry, which are included on the operating statement as other
      income.-
            Drilling and
      development includes revenues received from oil and gas drilling
      and development operations performed for joint venture partners, including
      the Opus-I drilling partnership.


The
Company has five subsidiaries:





•
            Tri-Valley
      Oil & Gas Company (“TVOG”) operates the oil & gas
      activities.  TVOG derives the majority of its revenue from oil
      and gas drilling and turnkey development. TVOG primarily generates its own
      exploration prospects from its internal database, and also screens
      prospects from other geologists and companies.  TVOG generates
      these geological “plays” within a certain geographic area of mutual
      interest.  The prospect is then presented to potential
      co-ventures.  The company deals with both accredited individual
      investors and energy industry companies.  TVOG serves as the
      operator of these co-ventures. TVOG operates both the oil and gas
      production segment and the drilling and development segment of our
      business lines.




•
            Select
      Resources Corporation (“Select”) was created in late 2004 to manage, grow
      and operate the minerals segment of our business
  lines.




•
            Great
      Valley Production Services, LLC, (“GVPS”) was formed in 2006 to operate
      oil production services, well work over and drilling rigs, primarily for
      TVOG.  Tri-Valley currently owns 90% of GVPS, and the remainder
      is owned by outside investors.




•
            Great
      Valley Drilling Company, LLC (“GVDC”) was formed in 2006 to operate oil
      drilling rigs, primarily in Nevada where Tri-Valley has 17,000 acres of
      prospective oil leases.  However, because rig availability is
      scarce in Nevada, GVDC has an exceptional opportunity to do contract
      drilling for third parties in both petroleum and geothermal
      projects.  For the time being GVDC, whose operation began in the
      first quarter of 2007, expects its primary activity will be contract
      drilling for third parties.




•
            Tri-Valley
      Power Corporation is inactive at the present
  time.




1


We sell
substantially all of our oil and gas production to Pacific Summit Energy and Big
West of California.  Other gatherers of oil and gas production operate
within our area of operations in California, and we are confident that if these
companies ceased purchasing our production we could find another purchaser on
similar terms with no adverse consequences to our income or
operations.




In 1987,
we acquired precious metals claims on state lands near Richardson,
Alaska.  We have conducted exploration operations on these properties
and have reduced our original claims to a block of approximately 28,720 acres
(44.9 square miles).  We have conducted trenching, core drilling, bulk
sampling and assaying activities to date and have reason to believe that
mineralization exists to justify additional exploration
activities.  While the management and our technical team believe these
properties hold considerable promise from data secured to date, we have not
defined proven or probable mineral reserves on these
properties.  There is no assurance that a commercially viable mineral
deposit exists on any of these above mentioned mineral
properties.  Further exploration is required before a final evaluation
as to the economic and legal feasibility can be determined. The same is true for
other mineral properties acquired in 2005 and 2006.




In 2004,
Select acquired the Shorty Creek gold claims near Livengood,
Alaska.  In 2005, we transferred our existing gold exploration
properties located near Richardson, Alaska to Select.  In 2005, Select
also entered into mineral leases on precious metals properties south of Dawson,
Yukon, and acquired a calcium carbonate mine, located northwest of Ketchikan,
Alaska.  The latter is a very high grade, high bright deposit deemed
to be among the top 1% of deposits in the world.  The mine is in a
care and maintenance mode while Select arranges a customer base before
restarting the mine.  In 2005 and 2006, Select also owned and operated
our 50% interest in an industrial minerals joint venture, Trans-Western
Resources, which we sold in 2006.




In late
2005 and early 2006, exploration activities were conducted on all three gold
properties.  The Yukon property was dropped in 2006 due to
disappointing results.  Further exploration is required on each of the
other two gold properties before an evaluation as to the economic and technical
feasibility can be determined.   Select also seeks to acquire and
develop additional metal and industrial mineral properties.




Competition




The oil
and gas industry is highly competitive in all its phases, including both our
drilling segment and our production segment.  Competition is
particularly intense with respect to the acquisition of desirable producing
properties, the acquisition of oil and gas prospects suitable for enhanced
production efforts, and the hiring of experienced personnel.  Our
competitors in oil and gas acquisition, development, and production include the
major oil companies in addition to numerous independent oil and gas companies,
individual proprietors and drilling programs.  Many of these
competitors possess and employ financial and personnel resources substantially
greater than those which are available to us and may be able to pay more for
desirable producing properties and prospects and to define, evaluate, bid for,
and purchase a greater number of producing properties and prospects than we
can.  Our financial and personnel resources to generate reserves in
the future will be dependent on our ability to select and acquire suitable
producing properties and prospects in competition with these
companies.




The rig
operations industry is very competitive.  Our drilling subsidiaries
are able to charge the prevailing rates of the industry and we are able to keep
our available rigs and crews contracted.  We are competing with other
oilfield services companies and other industries for personnel to crew our
workover and drilling rig operation, which is very challenging as we continue to
rapidly increase our operations.  This segment of our business is new
in 2007.




The
Company’s drilling and development segment is also competitive in that we are
competing with other oil exploration companies, drilling partnerships and other
investment alternatives in order to secure funds.  In order to secure
funds for those prospects that we have acquired, we have a continuing need for
new funds.




The
mining industry is also highly competitive.  Competition is
particularly intense with respect to the acquisition of mineral prospects and
deposits suitable for exploration and development, the acquisition of proven and
probable reserves, and the hiring of experienced personnel.  Our
competitors in mineral property exploration, acquisition, development, and
production include the major mining companies in addition to numerous
intermediate and junior mining companies, mineral property investors, and
individual proprietors.  Many of these competitors possess and employ
financial and personnel resources substantially greater than those that are
available to us and may be able to pay more for desirable mineral properties and
prospects and to define, evaluate, bid for, and purchase a greater number of
mineral properties and prospects than we can.  Our financial and
personnel resources to generate mineral reserves and resources in the future
will be dependent on our ability to identify, select and acquire suitable
mineable properties and prospects in competition with these
companies.




2


Governmental
Regulation




Domestic
exploration for the production and sale of oil and gas is extensively regulated
at both the federal and state levels.  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, and have
issued, rules and regulations affecting the oil and gas industry, which often
are difficult and costly to comply with, and which carry substantial penalties
for noncompliance.  State statutes and regulations require permits for
drilling operations, drilling bonds, and reports concerning
operations.  Most states in which we will operate also have statutes
and regulations governing conservation matters, including the unitization or
pooling of properties and the establishment of maximum rates of production from
wells.  Many state statutes and regulations may limit the rate at
which oil and gas could otherwise be produced from acquired
properties.  Some states have also enacted statutes prescribing
ceiling prices for natural gas sold within their states.  Our
operations are also subject to numerous laws and regulations governing plugging
and abandonment, the discharge of materials into the environment or otherwise
relating to environmental protection.  The heavy regulatory burden on
the oil and gas industry increases its costs of doing business and consequently
affects its profitability.  We cannot be sure that a change in such
laws, rules, regulations, or interpretations, will not harm our financial
condition or operating results.




Domestic
exploration, development and operation of minerals and metals are extensively
regulated at both the federal and state levels.  Legislation affecting
the mineral 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, and have issued, rules and regulations affecting the mineral industry
that often are difficult and costly to comply with and which carry substantial
penalties for noncompliance.  State statutes and regulations require
permits for exploration, including drilling, construction and operational
permits, reclamation bonds, and reports concerning
operations.    Our activities are subject to numerous laws
and regulations reclamation and abandonment, the discharge of materials into the
environment or otherwise relating to environmental protection.  Our
activities are also subject to numerous laws and regulations related to health
and safety of mine and mine related workers.  The heavy regulatory
burden on the mineral industry increases its costs of doing business and
consequently affects its profitability.  Delays in obtaining or
failure to obtain government permits and approvals may adversely impact our
activities. The regulatory environment in which Select Resources operates could
change in ways that would substantially increase costs to achieve compliance, or
otherwise could have a material adverse effect on Select Resources’ activities
or financial position.




Environmental
Regulation




Energy
Operations




Our
energy operations are subject to risks of fire, explosions, blow-outs, pipe
failure, abnormally pressured formations and environmental hazards, such as oil
spills, natural gas leaks, ruptures or discharges of toxic gases, the occurrence
of any of which could result in substantial losses due to injury or loss of
life, severe damage to or destruction of property, natural resources and
equipment, pollution or other environmental damage, clean-up responsibilities,
regulatory investigation and penalties and suspension of
operations.  In accordance with customary industry practice, we
maintain insurance against these kinds of risks, but we cannot be sure that our
level of insurance will cover all losses in the event of a drilling or
production catastrophe.  Insurance is not available for all
operational risks, such as risks that we will drill a dry hole, fail in an
attempt to complete a well or have problems maintaining production from existing
wells.




Oil and
gas activities can result in liability under federal, state, and local
environmental regulations for activities involving, among other things, water
pollution and hazardous waste transport, storage and disposal.  Such
liability can attach not only to the operator of record of the well, but also to
other parties that may be deemed to be current or prior operators or owners of
the wells or the equipment involved.  Numerous governmental agencies
issue rules and regulations to implement and enforce such laws, which are often
difficult and costly to comply with and which carry substantial administrative,
civil and criminal penalties and in some cases injunctive relief for failure to
comply. Some laws, rules and regulations relating to the protection of the
environment may, in certain circumstances, impose "strict liability" for
environmental contamination.  These laws render a person or company
liable for environmental and natural resource damages, cleanup costs and, in the
case of oil spills in certain states, consequential damages without regard to
negligence or fault.  Other laws, rules and regulations may require
the rate of oil and gas production to be below the economically optimal rate or
may even prohibit exploration or production activities in environmentally
sensitive areas.  In addition, state laws often require some form of
remedial action, such as closure of inactive pits and plugging of abandoned
wells, to prevent pollution from former or suspended operations.




3


The
Federal Comprehensive Environmental Response, Compensation and Liability Act, or
CERCLA, also known as the "Superfund" law, imposes liability, without regard to
fault, on certain classes of persons with respect to the release of a "hazardous
substance" into the environment.  These persons include the current or
prior owner or operator of the disposal site or sites where the release occurred
and companies that transported disposed or arranged for the transport or
disposal of the hazardous substances found at the site.  Persons who
are or were responsible for releases of hazardous substances under CERCLA may be
subject to joint and several liability for the costs of cleaning up the
hazardous substances that have been released into the environment and for
damages to natural resources, and it is not uncommon for the federal or state
government to pursue such claims.  It is also not uncommon for
neighboring landowners and other third parties to file claims for personal
injury or property or natural resource damages allegedly caused by the hazardous
substances released into the environment.  Under CERCLA, certain oil
and gas materials and products are, by definition, excluded from the term
"hazardous substances."  At least two federal courts have held that
certain wastes associated with the production of crude oil may be classified as
hazardous substances under CERCLA.  Similarly, under the federal
Resource, Conservation and Recovery Act, or RCRA, which governs the generation,
treatment, storage and disposal of "solid wastes" and "hazardous wastes,"
certain oil and gas materials and wastes are exempt from the definition of
"hazardous wastes." This exemption continues to be subject to judicial
interpretation and increasingly stringent state interpretation. During the
normal course of operations on properties in which we have an interest, exempt
and non-exempt wastes, including hazardous wastes, that are subject to RCRA and
comparable state statutes and implementing regulations are generated or have
been generated in the past.  The federal Environmental Protection
Agency and various state agencies continue to promulgate regulations that limit
the disposal and permitting options for certain hazardous and non-hazardous
wastes.




Compliance
with environmental requirements, including financial assurance requirements and
the costs associated with the cleanup of any spill, could have a material
adverse effect on our capital expenditures or earnings.  These laws
and regulations have not had a material affect on our capital expenditures or
earnings to date.  Nevertheless, changes in environmental laws have
the potential to adversely affect operations.  At this time, we have
no plans to make any material capital expenditures for environmental control
facilities.




Mineral
Operations




Select’s
United States exploration and property development activities are subject to
various federal and state laws and regulations governing the protection of the
environment, including the Clean Air Act; The Federal Water Pollution Control
Act (the Clean Water Act); Compensation and Liability Act, Toxic Substance
Control Act (CERCLA); the Emergency Planning and Community Right-to-Know Act;
the Endangered Species Act; the Federal Land Policy and Management Act; the
National Environmental Policy Act; the Resource Conservation and Recovery Act
(RECRA), the Safe Drinking Water Act; the Solid Waste Disposal Act; the Toxic
Substance Control Act; the Migratory Bird Treaty Act; the Federal Mine Safety
and Health Act; the Rivers and Harbors Act; the Mining Law of 1872; the National
Historic Preservation Act; and the Law Authorizing Treasury’s Bureau of Alcohol,
Tobacco and Firearms to Regulate Sale, Transport and Storage of Explosives,and related state laws.
These laws and regulations are continually changing and are generally becoming
more restrictive. Select’s activities in Canada are also subject to federal and
provincial governmental regulations for the protection of the environment. In
general, environmental regulations have not had, and are not expected to have, a
material adverse impact on Select’s activities or our competitive position.
Because we do not have active mining operations at present, these regulations
have little impact on our current activities.  In 2007, 2006 and 2005,
the regulatory requirements had no significant effect on our precious metals or
industrial mineral activities as we continued our exploration and project
development efforts.




4


We
believe that Select complies with all laws and regulations imposed by the US
Federal Government and the various states in which it operates for its
activities.  We conduct our operations so as to protect public health
and environment and believe our activities are in compliance with applicable
laws and regulations in all material respects. We have made, and expect to make
in the future, expenditures to comply with such laws and regulations. We have
made estimates of the amount of such expenditures, but cannot precisely predict
the amount of such future expenditures. Estimated future reclamation costs are
based principally on legal and regulatory requirements that are applicable to
each individual property.




Employees




We had a
total of forty-seven employees on December 31, 2007.




Available
Information




We file
annual and quarterly reports, proxy statements and other information with the
Securities and Exchange Commission using SEC's EDGAR system.  The SEC
maintains a site on the Internet at http://www.sec.gov that contains all of the
Company filings free of charge including reports, proxy and information
statements and other information regarding us and other registrants that file
reports electronically with the SEC.  You may read and copy any
materials that we file with the SEC at its Public Reference Room at 100 F
Street, NE, Washington, D.C. 20549.  Our common stock is listed on the
American Stock Exchange, under the symbol TIV.  Please call the SEC at
1-800-SEC-0330 for further information about their public reference
rooms.  Our website is located at
http://www.tri-valleycorp.com.




We
furnish our shareholders with a copy of our annual report on Form 10-K, which
contains audited financial statements, and such other reports as we, from time
to time, deem appropriate or as may be required by law.  We use the
calendar year as our fiscal year.




ITEM 1A  Risk
Factors




In
addition to the other information contained in this Form 10-K, the following
risk factors should be considered in evaluating our business.




Risks
Involved in Oil and Gas Operations/Drilling and Development




Our success depends heavily on market
conditions and prices for oil and gas.




Our
success depends heavily upon our ability to market oil and gas production at
favorable prices.  In recent decades, there have been both periods of
worldwide overproduction and underproduction of hydrocarbons and periods of
increased and relaxed energy conservation efforts. As a result the world has
experienced periods of excess supply of, and reduced demand for, crude oil on a
worldwide basis and for natural gas on a domestic basis; these periods have been
followed by periods of short supply of, and increased demand for, crude oil and
to a lesser extent, natural gas.  The excess or short supply of oil
and gas has placed pressures on prices and has resulted in dramatic price
fluctuations.  The dramatic price increases of the past couple of
years have greatly increased the value of oil and gas reserves and the potential
to profit from production wells that were formerly not considered commercially
productive, but there are no guarantees that this situation will
continue.




Estimating oil and gas reserves leads
to uncertain results and thus our estimates of value of those reserves could be
incorrect.




Our
reserves are annually evaluated by a qualified, independent engineering
firm.  The process of estimating oil and gas reserves is complex,
requiring significant decisions and assumptions in the evaluation of available
geological, geophysical, engineering and economic data for each
reservoir.  As a result, such estimates are inherently
imprecise.  Actual future production, oil and gas prices, revenues,
taxes, development expenditures, operating expenses and quantities of
recoverable oil and gas reserves may vary substantially from those estimated in
reserve reports that we periodically obtain from independent reserve
engineers.




5


Any
significant variance in these assumptions could materially change the estimated
quantities and present value of our reserves.  In addition, our proved
reserves may be subject to downward or upward revision based upon production
history, results of future exploration and development, prevailing oil and gas
prices and other factors, many of which are beyond our control. Actual
production, revenues, taxes, development expenditures and operating expenses
with respect to our reserves will likely vary from the estimates used, and such
variances may be material.




Continued production of oil and gas
depends on our ability to find or acquire additional reserves, which we may not
be able to accomplish.




In
general, the volume of production from oil and gas properties declines as
reserves are produced.  Except to the extent that we acquire
properties containing proved reserves or conduct successful development and
exploitation activities, or both, our proved reserves will decline as reserves
are produced.  Our future oil and gas production is, therefore, highly
dependent upon our ability to find or acquire additional
reserves.  The business of acquiring, enhancing or developing reserves
is capital intensive.  We require cash flow from operations as well as
outside investments to fund our acquisition and development
activities.  If our cash flow from operations is reduced and external
sources of capital become limited or unavailable, our ability to make the
necessary capital investment to maintain or expand our asset base of oil and gas
reserves would be impaired.




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




Our
industry is cyclical and, from time to time, there is a shortage of drilling
rigs, equipment, supplies or qualified personnel.  During these
periods, the costs and delivery times of rigs, equipment and supplies are
substantially greater.  In addition, the demand for, and wage rates
of, qualified drilling rig crews rise as the number of active rigs in service
increases.  As a result of increasing levels of exploration and
production in response to strong prices of oil and natural gas, the demand for
oilfield services has risen, and the costs of these services are increasing,
while the quality of these services may suffer.  The unavailability or
high cost of drilling rigs, equipment, supplies or qualified personnel has
become particularly severe in California and has materially and adversely
affected us because our operations and properties are concentrated in those
areas.




Our oil and gas reserves are
concentrated in California.




Because
we are not diversified geographically, local conditions may have a greater
effect on us than on other companies.  All of our oil and gas reserves
are located in California.  Because our reserves are not diversified
geographically, our business is more subject to local conditions than other,
more diversified companies.




Oil and gas drilling and production
activities are subject to numerous mechanical and environmental risks that could
cause less production.




These
risks include the risk that no commercially productive oil or gas reservoirs
will be encountered, that operations may be curtailed, delayed or canceled and
that title problems, weather conditions, compliance with governmental
requirements, mechanical difficulties or shortages or delays in the delivery of
drilling rigs and other equipment may limit our ability to develop, produce or
market our reserves.  New wells we drill may not be productive and we
may not recover all or any portion of our investment in the well.




Drilling
for oil and gas may involve unprofitable efforts, not only from dry wells but
also from wells that are productive but do not produce sufficient net revenues
to return a profit after drilling, operating and other costs.  In
addition, our properties may be susceptible to hydrocarbon drainage from
production by other operators on adjacent properties.




Industry
operating risks include the risks of fire, explosions, blow-outs, pipe failure,
abnormally pressured formation and environmental hazards, such as oil spills,
natural gas leaks, ruptures or discharges of toxic gases, the occurrence of any
of which could result in substantial losses due to injury or loss of life,
severe damage, clean-up responsibilities, regulatory investigation and penalties
and suspension of operations.  In accordance with customary industry
practice, we maintain insurance against these kinds of risks, but our level of
insurance may not cover all losses in the event of a drilling or production
catastrophe.  Insurance is not available for all operational risks,
such as risks that we will drill a dry hole, fail in an attempt to complete a
well or have problems maintaining production from existing wells.




6


Oil and
gas activities can result in liability under federal, state, and local
environmental regulations for activities involving among other things, water
pollution and hazardous waste transport, storage and disposal.  Such
liability can attach not only to the operator of record of the well, but also to
other parties that may be deemed to be current or prior operators or owners of
the wells or the equipment involved.  Environmental laws could subject
us to liabilities for environmental damages even where we are not the operator
who caused the environmental damage.




Drilling is a speculative activity,
because assessments of drilling prospects are inexact.




The
successful acquisition of oil and gas properties depends on our ability to
assess recoverable reserves, future oil and gas prices, operating costs,
potential environmental and other liabilities and other
factors.  Exploratory drilling remains a speculative
activity.  Even when fully utilized and properly interpreted, seismic
data and other advanced technologies only assist geoscientists in identifying
subsurface structures and do not enable the interpreter to know whether
hydrocarbons are in fact present.




Therefore,
our assessment of drilling prospects are necessarily inexact and their accuracy
inherently uncertain.  In connection with such an assessment, we
perform a review of the subject properties that we believe to be generally
consistent with industry practices.  Such a review, however, will not
reveal all existing or potential problems, nor will it permit us to become
sufficiently familiar with the properties to fully assess their deficiencies and
capabilities.  Inspections may not always be performed on every well,
and structural and environmental problems are not necessarily observable even
when an inspection is undertaken.




In most
cases, we are not entitled to contractual indemnification for pre-closing
liabilities, including environmental liabilities and we generally acquire
interests in the properties on an “as is” basis with limited remedies for
breaches of representations and warranties.  In those circumstances in
which we have contractual indemnification rights for pre-closing liabilities,
the seller may not be able to fulfill its contractual obligation.  In
addition, competition for producing oil and gas properties is intense and many
of our competitors have financial and other resources, which are substantially
greater than ours.  Therefore, we may not be able to acquire producing
oil and gas properties which contain economically recoverable reserves or that
we make such acquisitions at acceptable prices.




Governmental regulations make
production more difficult and production costs higher.




Domestic
exploration for the production and sale of oil and gas are extensively regulated
at both the federal and state levels.  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, and have
issued, rules and regulations affecting the oil and gas industry that often are
difficult and costly to comply with and which carry substantial penalties for
noncompliance.  State statutes and regulations require permits for
drilling operations, drilling bonds and reports concerning
operations.  Most states in which we operate also have statutes and
regulations governing conservation matters, including the unitization or pooling
of properties and the establishment of maximum rates of production from
wells.  Many state statutes and regulations may limit the rate at
which oil and gas could otherwise be produced from acquired
properties.  Some states have also enacted statutes proscribing
ceiling prices for natural gas sold within their states.  Our
operations are also subject to numerous laws and regulations governing plugging
and abandonment, the discharge of material into the environment or otherwise
relating to environmental protection.  The heavy regulatory burden on
the oil and gas industry increases its cost of doing business and consequently
affects its profitability.  Any change in such laws, rules,
regulations, or interpretations, may harm our financial condition or operating
results.




7


Risks
Involved in Our Rig Operations Business




Our rig operations have not yet had
significant consistent revenue.




Our
operations began in 2006.  We have not realized a high rig utilization
to date, and we cannot predict when we may begin to see an increased rig
utilization.




Our
rig operations may not be profitable due to:




New,
lower cost competitors;




Low
utilization of our rigs; and




Write-downs
of asset values.




Our
operations may be adversely affected by risks and hazards associated with the
rig operations industry that may not be fully covered by insurance.




Our
business is subject to a number of risks and hazards including:




•
            Environmental
      hazards; and




•
            Industrial
      accidents




Such
risks could result in:




•
            Personal
      injury or fatalities; and




•
            Environmental
      damage




For some
of these risks, we maintain insurance to protect against these losses at levels
consistent with our historical experience, industry practice and circumstances
surrounding each identified risk. Occurrence of events for which we are not
insured may affect our cash flow and overall profitability.




Risks
Involved in Our Mineral Exploration Business




Our industrial mineral operations
have not yet begun to realize significant revenue.




Select
was formed in late 2004.  We realized no significant revenue from our
investment in Select to date, and we cannot predict when, if ever, we may begin
to see significant returns from these mining investments.




Our
mining operations may not be profitable.




The
economic value of mining operations may be adversely affected by:




Declines
or changes in demand;




Declines
in the market price of the various metals or minerals;




Increased
production or capital costs;




Increasing
environmental and/or permitting requirements and government
regulations;




Reduction
in the grade or tonnage of the deposit;




8


Increase
in the dilution of the ore;




Reduced
recovery rates;




Delays in
new project development;




New,
lower cost competitors;




Reductions
in reserves; and




Write-downs
of asset values.




We
have no employees dedicated to our minerals segment and would require additional
staff to develop these properties.




During
2007, our staff at Select resigned, and we have no employees currently dedicated
full time to managing or developing our mineral properties.  Any
substantial development of any of these properties would require that we hire
new staff to oversee them.  We cannot be sure that we can find
qualified people to manage this business segment, or that we could hire such
people at affordable prices.




Our
operations may be adversely affected by risks and hazards associated with the
mining industry that may not be fully covered by insurance.




Our
business is subject to a number of risks and hazards including:




•
            Environmental
      hazards;




•
            Industrial
      accidents;




•
            Unusual
      or unexpected geologic formations;
and




•
            Unanticipated
      hydrologic conditions, including flooding and periodic interruptions due
      to inclement or hazardous weather
conditions.




Such
risks could result in:




•
            Personal
      injury or fatalities;




•
            Damage
      to or destruction of mineral properties or producing
      facilities;




•
            Environmental
      damage; and




•
            Delays
      in exploration, development or
mining.




For some
of these risks, we maintain insurance to protect against these losses at levels
consistent with our historical experience, industry practice and circumstances
surrounding each identified risk. Insurance against environmental risks is
generally either unavailable or, we believe, too expensive for us, and,
therefore, we do not maintain environmental insurance. Occurrence of events for
which we are not insured may affect our cash flow and overall
profitability.




9


Risks
Involved in Our Operations Generally




Forward
Looking Statements




Some of
the information in this 10-K contains forward-looking statements that involve
substantial risks and uncertainties. You can identify these statements by
forward-looking words such as “may,” “will,” “expect,” “anticipate,” “believe,”
“estimate” and “continue,” or similar words. You should read statements that
contain these words carefully because they:




•  discuss
our future expectations;


•  contain
projections of our future results of operations or of our financial condition;
and


•  state
other “forward-looking” information.





We
believe it is important to communicate our expectations. However, there may be
events in the future that we are not able to accurately predict and/or over
which we have no control. The risk factors listed in this section, other risk
factors about which we may not be aware, as well as any cautionary language in
this prospectus, provide examples of risks, uncertainties and events that may
cause our actual results to differ materially from the expectations we describe
in our forward-looking statements. You should be aware that the occurrence of
the events described in these risk factors could have an adverse effect on our
business, results of operations and financial condition.




If we are unable to obtain additional
funding our business operations will be harmed.




We
believe that our cash position and estimated 2008 cash from operations will be
sufficient to meet our estimated operating and general and administrative
expenses for fiscal year 2008; however, the Company will require additional
funding to complete our aggressive drilling activities. Although we have always
been successful in the past attracting sufficient capital and have sufficient
capital for 2008 operations, we do not know if additional financing will be
available when needed, or if it is available, if it will be available on
acceptable terms. Insufficient funds may prevent or limit us from implementing
our full business strategy.




The departure of any of our key
personnel would slow our operation until we could fill the position
again.




Our
success will depend in large part on the continued services of our president and
chief executive officer, F. Lynn Blystone.  Our employment agreement
with Mr. Blystone ended at the end of 2007 and is awaiting formal extension
through December 31, 2011 by the Board of Directors.  On March 3,
2007, the Board elected Mr. Blystone to the additional post of Chairman. The
loss of his services would be particularly detrimental to us because of his
background and experience in the oil and gas industry.  We carry key
man insurance of $500,000 on Mr. Blystone’s life.




We also
consider the president of our TVOG subsidiary, Joseph R. Kandle, to be a key
employee whose loss would be detrimental to us because of his oil and gas
industry experience.  We do not have an employment contract with Mr.
Kandle.  We carry key man life insurance of $1,000,000 on Mr.
Kandle.




Another
former key employee, Thomas J. Cunningham, retired effective January 15, 2008,
and we are actively seeking a replacement to fill his role as chief
administrative officer.  Mr. Cunningham’s experience in the oil and
gas industry was also considered important to us, and our business may suffer if
we are unable to find a qualified successor.




ITEM
2  Properties




Our
headquarters and administrative offices are located at 4550 California Avenue,
Suite 600, Bakersfield, California 93309. We lease approximately 10,300 square
feet of office space at that location. Our principal properties consist of
proven and unproven oil and gas properties, mining claims on unproven precious
metals properties, maps and geologic records related to prospective oil and gas
and unproven precious metal properties, office and other
equipment.  TVOG has a worldwide geologic library with petroleum data
on every continent except Antarctica including over 700 leads and prospects in
California, our present area of emphasis, along with more than 20,000 line miles
of digitized 2-D seismic, the workhorse of the majority of the seismic in
California.




10


Oil
and Gas Operations




In 2005,
Tri-Valley acquired several oil and gas properties and transferred them to the
Opus-I Partnership for development.  Tri-Valley receives a 25% carried
working interest in the initial wells drilled on these properties and any
initial reworks of existing wells and will then pay its 25% pro rata share of
subsequent development drilling and operations on the properties.  The
following properties are part of the Opus-1 Partnership:  1) Temblor Valley West, 2) Temblor Valley East, 3) Pleasant Valley, 4) Moffat Ranch, 5) and major interest in the
Ekho No. 1 deep play and the Sunrise Natural Gas Project.




Temblor
Valley West/South Belridge Field:  Our South
Belridge lease includes 50 wells, 28 producing, 18 idle and 4 injector
wells, plus five new
drill wells overthe last two years, the
Lundin-Weber D352-30, D540-30, D344-30, D188-30, and D24-30 which served to
extend the known oil bearing formations to the west by over a half
mile.  The latter three wells were drilled in 2007.  In
mid-2007, two of these wells, D-352-30 and D-344-30, supported a
regulatory-approved cyclic steam stimulation pilot in the Diatomite zone
utilizing two of our recently refurbished, and company owned steam
generators.  A small-scale waterflood pilot in the Etchegoin formation
was also initiated in mid-2007 including the conversion of two wells to injector
service to evaluate incremental recovery potential and water movement prior to a
planned waterflood expansion. Well test facilities were also installed and
upgraded in 2007 to support the evaluation of pilot project production. Several
idle wells were also returned to production in 2007, which included remedial
wellwork to upgrade several wellbores to support our pilot
operations.




In 2008,
we plan to further evaluate the waterflood potential via sustained and filtered
injection and the injection of radioactive tracers to pinpoint water movement
and waterflood efficiency.  We are working on a detailed design to
expand the waterflood operation.  The objective of the water flood is
the potential recovery of some 2.5 million barrels of oil from the Etchegoin
zone.  In 2008, we plan additional Diatomite cyclic steaming
operations of uphole intervals and production tests on other Etchegoin and
Tulare formations in our five most recently drilled wells. We may also include a
continuous steamflood pilot and horizontal well in our 2008 development plan. If
results from our waterflood and/or cyclic steaming projects are favorable,
additional drilling and facility upgrades in the field and procurement of a
permanent water or steam source may follow.




Temblor
Valley East/Edison Oil Field:  This property consists of four
separate leases in the Edison and Edison Grove Fields consisting of 31 total
wells. It includes the Shields & Arms area, consisting of 7 wells including
3 producers, 1 injector, and 3 idle wells.  In late 2007, all three
current producers were restored to full-time production service and water
injection was diverted to lower intervals to boost production.  In
2008, we plan to restore production to the other producing leases which include
24 idle wells.




Pleasant
Valley Field:  This property lies in Ventura County in the
Pleasant Valley Field.  During 2007, we initiated thermal development
of the heavy oil Upper Vaca Tar Sands by drilling and coring a vertical pilot
hole followed by a 1500’ horizontal sidetrack, which represents the first
horizontal well technology application in this oil field.  A
successful, cyclic steam stimulation pilot was initiated in this well which
resulted in first production from this development in December
2007.  Based on these results, we also initiated full surface facility
installations in 2007.  In 2008, we plan to drill at least six more
horizontal wells in the Vaca Tar Sands to expand our cyclic steam injection
development and boost production from this zone.  We expect to install
a permanent gas line to deliver fuel to our steaming operations.  Also
in 2007, we drilled a deeper, vertical test well to below 8000 feet from the
same drilling/production location to evaluate a potential, complementary light
oil development.  In 2008, we will further evaluate the productive
potential of the multiple oil bearing zones encountered in this test well;
including hydraulic fracture stimulations.




Moffat
Ranch:  This gas field is located in the southern area of the
California gas country in Madera County approximately 2.5 hours north of our
Bakersfield, CA headquarters.  Upon acquisition, this field consisted
of three idle wellbores and deeper drilling potential.  In late 2007,
the Company drilled the deepest wellbore penetration in the field, to below
10,000 feet, to evaluate more than 14 potential producing
horizons.  Two of these potential gas zones were evaluated for
productive potential in 2007 and one was successfully tested at over one million
cubic feet per day.  In 2008 we plan to tie this well into an adjacent
gas sales pipeline and drill a follow-up gas producer.  Our plans in
2008 also include restoring the three idle wells to production
service.




11


Chowchilla
Ranch Gas Field: We purchased approximately 6,670 acres of mineral
rights, which basically covers what was the Chowchilla Ranch in Madera County,
California.  This land position is held by production at this
time.  We believe this land to be very under developed and under
exploited.  We plan to re-enter, recomplete and further infill drill
the leasehold position.  We have also leased approximately 7,500
additional acres offsetting the 6,670 acre Chowchilla property.




Ekho:
In 2005, we successfully hydraulically fractured the Ekho #1 well in the Vedder
Zone of completion in the interval between 18,018’ and 18,525’ injecting
approximately 5,000 barrels of fluid, which carried approximately 118,000-pounds
of bauxite propping material.  While very successful mechanically, the
operation did not result in the well producing hydrocarbons at commercial
rates.  This well still has multiple targets to evaluate further up
the hole.  We have been reviewing the resulting data from the
fracturing operation both internally and with outside firms as it believes the
potential reserve of the Vedder Zone deserves that degree of attention. We have
not made a final decision yet concerning the next course of action pending a
joint study by Tri-Valley and a worldwide scientific research firm we retained
in December 2006.




Sunrise-Mayel:
Also in 2005, we successfully hydraulically fractured a 1,000’ portion of the
3,000’ horizontal portion of the well bore in the Sunrise-Mayel #2H Redrill #2
well in the Sunrise Natural Gas Project in Delano, California.  The
well was hydraulically fractured utilizing gelled diesel, which carried in
approximately 138,000 pounds of sand.  Again, while mechanically
successful, the operation did not result in the well producing hydrocarbons at
commercial rates. As with the Ekho Project, we continue to review all available
techniques to bring the Sunrise Project potential to commercial realization
because of the volume of natural gas in place in the tight
reservoir.  The Sunrise project is included in the joint study with
the scientific research organization.  We believe the tight McClure
Shale which hosts an estimated 3 TCF of gas in the mapped area of closure can
ultimately be stimulated to release a portion of the gas in place at commercial
rates once the right method is identified.




We hold
approximately 17,000 acres in Nevada, all chosen from proprietary data as
prospective for oil and gas exploration.  We have producing interests
in gas fields in the Sacramento Valley of Northern California including the Rio
Vista and Dutch Slough Gas Fields.  In 2007, we performed remedial rig
work on the top Rio Vista producing well, which served to more than double
historical production rates from the well/field.  Our 2008 plans
include additional work on our Rio Vista gas wells to boost gas
production.




Other key
operational activity in 2007 included the ongoing procurement and refurbishment
of a steam generator fleet, which now includes 18 units, to support our thermal,
heavy oil developments.  Three of these units were restored to
field-ready status in 2007 and have been mobilized and used in our field
developments.  Our fleet of rigs have been idle since the third
quarter of 2007 in support of a refurbishment and certification campaign to
upgrade our rigs for increased utility for us and other operators.




The trend
of demand of petroleum products outstripping available supplies continues and
has become more acute in the last year both worldwide and particularly in
California which is currently importing nearly 60% of its oil and nearly 90% of
its natural gas. This is all reflected in the extreme spiraling up price trend
in the last year.  While we expect occasional dips in the oil price,
barring catastrophic terrorist or natural disaster, we believe the overall
long-term price trend is up.




We do not
own any bulk storage facilities or refineries.  We own a small segment
of a pipeline in Tracy, California.  To counter the shortage of
production and drilling rigs, we are assembling a fleet to service our wells and
contract out when not in use.




We have
retained the services of Cecil Engineering, an independent petroleum engineer
qualified to estimate our net share of proved developed and undeveloped oil and
gas reserves on all of our oil and gas properties at December 31, 2007 for SEC
filing.  For 2007, our independent engineer prepared an oil and gas
reserve report using guidelines established by the U. S. Securities and Exchange
Commission for valuation of oil and gas reserves. Price is a material factor in
our stated reserves, because higher prices permit relatively higher-cost
reserves to be produced economically.  Higher prices generally permit
longer recovery, hence larger reserves at higher values.  Conversely,
lower prices generally limit recovery to lower-cost reserves, hence smaller
reserves. The process of estimating oil and gas reserve quantities is inherently
imprecise.  Ascribing monetary values to those reserves, therefore,
yields imprecise estimated data.




12


Our
estimated future net recoverable oil and gas reserves from proved developed
properties as of December 31, 2007, 2006 and 2005 were as follows:




BBL
                  
                  MCFDecember
      31, 2007
                  Oil
                  
                  
                  372,048
                  
                  Natural Gas
                  
                  
                  791,128December
      31, 2006
                  Oil
                  
                  
                  275,452
                  
                  Natural Gas
                  
                  
                  787,017December
      31, 2005
                  Oil
                  
                  
                  154,673
                  
                  Natural Gas
                  
                  
                  779,598





Using
year-end oil and gas prices and current levels of lease operating expenses, the
estimated present value of the future net revenue to be derived from our proved
developed and undeveloped oil and gas reserves, discounted at 10%, was
$12,324,390 at December 31, 2007, $6,121,295 at December 31, 2006, and
$7,056,072 at December 31, 2005.  The unaudited supplemental
information attached to the consolidated financial statements provides more
information on oil and gas reserves and estimated values.




The
following table sets forth the net quantities of natural gas and crude oil that
we produced during:




Year
      Ended December 31,2007
                        
                        
                        2006
                        
                        
                        2005Natural
      Gas (MCF)
                        
                        
                        45,928
                        
                        
                        
                        86,177
                        
                        
                        
                        128,602Crude
      Oil (BBL)
                        
                        
                        7,006
                        
                        
                        
                        6,600
                        
                        
                        
                        17





The
following table sets forth our
average sales price and average production (lifting) cost per unit of oil and
gas produced during:




Year
      Ended December 31,2007
                    
                    
                    2006
                    
                    
                    2005Gas
      (Mcf)
                    
                    
                    Oil
      (BBL)
                    
                    
                    Gas
      (Mcf)
                    
                    
                    Oil
      (BBL)
                    
                    
                    Gas
      (Mcf)
                    
                    
                    Oil*Sales
      Price
                    
                    $
                    7.15
                    
                    
                    $
                    58.23
                    
                    
                    $
                    6.45
                    
                    
                    $
                    57.10
                    
                    
                    $
                    7.00
                    
                    
                    $
                    44.34Production
      Costs
                    
                    $
                    1.55
                    
                    
                    $
                    16.28
                    
                    
                    $
                    1.41
                    
                    
                    $
                    15.23
                    
                    
                    $
                    0.73
                    
                    
                    
                    *Net
      Profit
                    
                    $
                    5.60
                    
                    
                    $
                    41.95
                    
                    
                    $
                    5.04
                    
                    
                    $
                    41.87
                    
                    
                    $
                    6.27
                    
                    
                    
                    *


* Amount
represents total sales price of associated condensate, unable to determine
production cost per barrel.




As of
December 31, 2007, we had the following gross and net position in wells and
developed acreage:




Wells (1)
                  
                  
                  Acres (2)Gross
                  
                  
                  Net
                  
                  
                  Gross
                  
                  
                  Net72
                  
                  
                  
                  20.62
                  
                  
                  
                  3,730
                  
                  
                  
                  1,044





All of
our producing wells and acres where the Company has a working interest are
located within California.




(1)
            "Gross"
      wells represent the total number of producing wells in which we have a
      working interest.  "Net" wells represent the number of gross
      producing wells multiplied by the percentages of the working interests,
      which we own.  "Net wells" recognizes only those wells in which
      we hold an earned working interest.  Working interests earned at
      payout have not been included.




13


(2)
              "Gross"
      acres represent the total acres in which we have a working interest; "net"
      acres represent the aggregate of the working interests, which we own in
      the gross acres.
 
 The
following table sets forth the number of productive and dry exploratory and
development wells which we drilled during:
 
 Year Ended December 31,2007
                      
                      
                      2006
                      
                      
                      2005ExploratoryProducing
                      
                      
                      -0-
                      
                      
                      
                      -0-
                      
                      
                      
                      -0-Dry
                      
                      
                      -0-
                      
                      
                      
                      -0-
                      
                      
                      
                      1Total
                      
                      
                      -0-
                      
                      
                      
                      -0-
                      
                      
                      
                      1DevelopmentProducing
                      
                      
                      -5-
                      
                      
                      
                      -2-
                      
                      
                      
                      -0-Dry
                      
                      
                      -0-
                      
                      
                      
                      -0-
                      
                      
                      
                      -0-Total
                      
                      
                      -5-
                      
                      
                      
                      -2-
                      
                      
                      
                      -0-
 
 The
following table sets forth information regarding undeveloped oil and gas acreage
in which we had an interest on December 31, 2007:
  State
                        
                        Gross Acres
                        
                        
                        Net AcresCalifornia
                        
                        
                        26,447
                        
                        
                        
                        22,176Nevada
                        
                        
                        18,559
                        
                        
                        
                        18,559
 
 Our
undeveloped acreage is held pursuant to leases from landowners.  Such
leases have varying dates of execution and generally expire one to five years
after the date of the lease.  In the next three years, the following
lease gross acreage expires:
  Expires in 2008
                5,550 acresExpires in 2009
                3,618 acresExpires in 2010
                22,985 acres
 
 Mineral
Properties
  Metals
  Select’s
precious metals properties are located in interior Alaska. They are the
Richardson and Shorty Creek.
  We
acquired the Richardson claim block in 1987.  It covers about 44.9
square miles or 28,720 acres of land, all of which is owned by the State of
Alaska.  All fees due to the State are current.  The claims
lie immediately north of the Richardson Highway, an all-weather paved highway
that connects Fairbanks, Alaska, with points south and
east.  Fairbanks is approximately 65 miles northwest of Richardson,
and Delta Junction, also on the highway, is about 30 miles to the
southeast.  The Trans Alaska Pipeline corridor is near the
northeastern edge of the claim block and the service road along the pipeline
provides access to the claims from the north.  Numerous good to fair
dirt roads traverse the claims.
  14
  The
following table sets forth the information regarding the acreage position of our
Richardson, Alaska claim block as of December 31, 2007:
  Gross Acres
                Net Acres28,720
                27,926
 
 The
Richardson project is an early stage gold exploration project in the Richardson
District with past placer and load gold production and prospective geophysical
and geochemical signatures consistent with intrusion-related gold
systems.  A number of highly prospective zones have been identified in
previous exploration programs carried out by the Company and third-party mining
companies.  Geophysical assessment, geochemical sampling, and drilling
programs have been carried out over several previous exploration campaigns on
known gold bearing areas, including the Richardson Lineament (which includes the
historic Democrat Mine and the adjacent May’s Pit [not a Select property]),
Hilltop, Shamrock, Buckeye and other property locations.  In
late-2005, Select carried out geophysical and satellite interpretation programs
over the entire Richardson property and a multi-element soil auger geochemical
program extending along an approximate 4.5 mile section of the Richardson
Lineament (the Richardson Lineament has been identified and appears to extend in
excess of 12 to 15 miles in length).  The surveys defined a series of
six adjacent, yet discrete precious metal and other element anomalies along the
4.5 mile strike length and one mile width of the geochemical area
tested.  Select also drilled eight shallow diamond drill holes in the
Democrat Mine area for a total of 3,050 feet, which indicated low grade gold and
silver mineralization.
  In 2007,
Select continued the interpretation of the work initiated in late-2005, and
identified additional geochemical targets that would potentially extend the
previous sampling program further along the strike of the Richardson
Lineament.  Select also conducted a series of local surveys in order
to prepare additional areas on the Richardson Lineament and in the Hilltop for
future geochemical sampling, trenching and drilling.  Select also
conducted annual maintenance and repair work on the Richardson Roadhouse,
associated buildings and core storage areas.
  Select
obtained the Shorty Creek property in 2004.  It is located about 60
miles northwest of Fairbanks, Alaska on the all-weather paved Elliott Highway
that connects Fairbanks, Alaska with the North Slope petroleum production
areas.  Fairbanks is approximately 60 miles to the southwest, and the
property is about 3 miles south of the abandoned townsite of
Livengood.  At Shorty Creek, Select controls mineral rights to 178
State of Alaska mining claims through staking and lease arrangements from Gold
Range Ltd., covering approximately 17 square miles.
  The
following table sets forth the information regarding the acreage position of the
Shorty Creek claim block as of December 31, 2007:
  State
                Gross Acres
                Net AcresAlaska
                11,080
                11,080
 
 Mineral
properties claimed on open state land require minimum annual assessment work of
$100 worth per State of Alaska claim. All fees are current.
  The
Shorty Creek Project is an early stage gold exploration project in the Livengood
District with historical exploration, geochemical sampling and drilling over
several previous exploration campaigns identifying anomalous concentrations of
gold, copper, molybdenum and their pathfinder elements.  In 2005
Select carried out a geophysical and satellite interpretation programs over the
entire Shorty Creek property.  Select also conducted a multi-element
soil auger geochemical program extending over one of four distinctive
aeromagnetic anomalies, covering an area approximately of 1 mile, resulting in
the identification of five precious metal and base metal anomalies.
  To date,
Select has not identified proven or probable mineral reserves on these
properties.  There is no assurance that a commercially viable mineral
deposit exists on any of these mineral properties.  Further
exploration is required before a final evaluation as to the economic and
technical feasibility can be determined.  However, the Alaska State
Geologist has said that the Shorty Creek property is the best undrilled prospect
in the State of Alaska.
  15
  Industrial
Minerals
  Select’s
industrial mineral project consists of the Admiral calcium carbonate mine in
Alaska.  The Admiral Mine was obtained in 2005 from Sealaska
Corporation.  It is located on the north-west side of Prince of Wales
Island, approximately 150 (air) miles south of Juneau and 88 (air) miles
northwest of Ketchikan.  The mine consists of  drilled high
chemical grade, high brightness and high whiteness mineralized material, and is
considered to be in the top 1% of high grade, high white, high bright, CaCO3
deposits in the world. “Mineralized material” means a mineralized body, which
has been delineated by appropriately spaced drilling and/or underground sampling
to support a sufficient tonnage and average grade of metals. Determinations of
mineralized material are based upon unit cost, grade, recoveries, and other
material factors to reach conclusions regarding legal and economic feasibility.
Grade and brightness tests were conducted by Hazen Research Inc. of Golden,
Colorado on selected run-of-mine and core sample material. Hazen’s and
independent geological engineer, M. G. Bright's grade and tonnage figures
correspond and support the earlier grade and tonnage figures represented by
Sealaska and SeaCal, LLC.  No proven or probable ore reserves have
been determined which meet the standards set forth in the SEC's Industry Guide
7. (In the case of industrial minerals, proven and probable ore reserves are
those which are currently in production and being sold.  Relative to
the Admiral mine, the operation previously had proven and probable ore reserves,
however, while on standby status, the mineable material moves from the ore
reserve category to mineralized material.  Once production is
restarted, the mineralized material will reconvert to proven and probable ore
reserves.)  We have obtained a preliminary estimate on the mine from
M. G. Bright, independent registered professional geologist, which identifies
high grade to ultra high grade (+94% to +98% CaCO3), high
brightness (+95 GE Brightness @ -325 mesh) calcium carbonate mineralized
material in place. The purchase also includes all associated infrastructure and
equipment that the previous owner installed at a cost exceeding $20
million.  The current mine covers only 15 acres; the entire property
covers 572 acres of patented mining ground, and includes all operating permits
and tideland leases.  Less than 10% of the gross acreage has been
explored and we believe additional resources may yet be discovered. We do not
currently have plans to proceed with redevelopment of the mine but intend to
hold it while Select pursues other previously identified opportunities. Select
also owns the timber rights on the acreage and believes that value alone could
repay the cost of acquisition of the property.
  Also in
2006, Select arranged to evaluate some 200 industrial mineral properties in
Nevada from the inventory of Newmont Mining Corporation.  Select had
the option to negotiate exploration and development opportunities it chooses
from this inventory. Select did not find any properties that fit its corporate
needs, and this project is concluded.
  ITEM 4  Submission
of Matters To A Vote Of Security Holders
  We held
our annual meeting on October 6, 2007.  At the meeting, the
shareholders elected all of the eight directors who were recommended by the
board.
  The
shareholder votes were as follows:
 
 Election
of Directors
 
 FOR
                ABSTAINF.
      Lynn Blystone
                18,682,991
                1,083,187Milton
      J. Carlson
                18,695,290
                1,070,888Loren
      J. Miller
                18,698,890
                1,067,288Henry
      Lowenstein
                18,658,842
                1,107,336William
      H. Marumoto
                18,671,842
                1,094,336G.
      Thomas Gamble
                18,680,242
                1,085,936Edward
      M. Gabriel
                18,689,898
                1,076,280Paul
      W. Bateman
                18,688,998
                1,077,180
  16
 
 Vote
      on Proposal – To amend the 2005 Stock Option and Incentive
      PlanFOR
              AGAINST
              ABSTAIN10,343,253
              3,081,016
              1,041,749
 
 Vote
      to ratify the board’s and management’s actions and
resolutions
                taken
      and made since the previous shareholder meetingFOR
              AGAINST
              ABSTAIN17,762,007
              941,887
              1,062,284
 
 PART II
  ITEM 5  Market
Price Of The Registrant's Common Stock And Related  Security Holder
Matters
  Our
common stock trades on the American Stock Exchange under the symbol
“TIV”.  The following table shows the high and low sales prices and
high and low closing prices reported on AMEX for the years ended December 31,
2007 and 2006:
  Sales Prices
                                          
                                          
                                          Closing PricesHigh
                                          
                                          
                                          Low
                                          
                                          
                                          High
                                          
                                          
                                          Low2007Fourth
      Quarter
                                          
                                          $
                                          8.20
                                          
                                          
                                          $
                                          5.85
                                          
                                          
                                          $
                                          8.20
                                          
                                          
                                          $
                                          6.12Third
      Quarter
                                          
                                          $
                                          8.20
                                          
                                          
                                          $
                                          6.00
                                          
                                          
                                          $
                                          8.15
                                          
                                          
                                          $
                                          6.27Second
      Quarter
                                          
                                          $
                                          9.36
                                          
                                          
                                          $
                                          7.37
                                          
                                          
                                          $
                                          9.17
                                          
                                          
                                          $
                                          7.56First
      Quarter
                                          
                                          $
                                          9.67
                                          
                                          
                                          $
                                          6.80
                                          
                                          
                                          $
                                          9.37
                                          
                                          
                                          $
                                          7.152006Fourth
      Quarter
                                          
                                          $
                                          10.20
                                          
                                          
                                          $
                                          6.75
                                          
                                          
                                          $
                                          10.07
                                          
                                          
                                          $
                                          6.77Third
      Quarter
                                          
                                          $
                                          8.01
                                          
                                          
                                          $
                                          5.80
                                          
                                          
                                          $
                                          7.49
                                          
                                          
                                          $
                                          5.84Second
      Quarter
                                          
                                          $
                                          9.50
                                          
                                          
                                          $
                                          5.52
                                          
                                          
                                          $
                                          9.01
                                          
                                          
                                          $
                                          5.63First
      Quarter
                                          
                                          $
                                          8.77
                                          
                                          
                                          $
                                          7.30
                                          
                                          
                                          $
                                          8.69
                                          
                                          
                                          $
                                          7.35
 
 As of
December 31, 2007, we estimate that we have approximately 4,500 shareholders in
the United States and several foreign countries held our common
stock.
  We
historically have paid no dividends and at this time do not plan to pay any
dividends in the immediate future.  Rather, we strive to add share
value through discovery success.  In 2007, trading volume exceeded 10
million shares.
  17
  Performance
Graph
  The
following table compares the performance of Tri-Valley Corporation’s common
stock with the performance of the Standard & Poor’s 500 Composite Stock
Index and the Amex Oil Index from December 31, 2002 through December 31,
2007.  The table shows the appreciation of our common stock relative
to two broad-based stock performance indices.  The information is
included for historical comparative purposes only and should not be considered
indicative of future stock performance.  The table and graph compares
the yearly percentage change in the cumulative total stockholder return on $100
invested in our common stock with the cumulative total return of the two stock
indices.
  The stock
performance graph assumes for comparison that the value of the Company’s Common
Stock and of each index was $100 on December 31, 2002 and that all dividends
were reinvested.  Past performance is not necessarily an indicator of
future results.
  
 
 2002
                    
                    
                    2003
                    
                    
                    2004
                    
                    
                    2005
                    
                    
                    2006
                    
                    
                    2007Tri-Valley
      Corporation
                    
                    $
                    100
                    
                    
                    $
                    314
                    
                    
                    $
                    874
                    
                    
                    $
                    556
                    
                    
                    $
                    678
                    
                    
                    $
                    529S
      & P 500 Index
                    
                    $
                    100
                    
                    
                    $
                    128
                    
                    
                    $
                    142
                    
                    
                    $
                    149
                    
                    
                    $
                    172
                    
                    
                    $
                    182AMEX
      Oil Index
                    
                    $
                    100
                    
                    
                    $
                    129
                    
                    
                    $
                    170
                    
                    
                    $
                    236
                    
                    
                    $
                    290
                    
                    
                    $
                    387
  18
  Equity
Compensation Plan Information
  The
following table sets forth, for the Company's equity compensation plans, the
number of options and restricted stock outstanding under such plans, the
weighted-average exercise price of outstanding options, and the number of shares
that remain available for issuance under such plans, as of December 31,
2007.
  Total securities to be issued upon exercise
                    of outstanding options or vesting of
                    restricted stock
                  
                  
                  Securities remaining
                    available for future issuance
                    under equity compensationPlan category
                  
                  Number
                  
                  
                  Weighted-average
                    exercise price
                  
                  
                  plans (excluding securities
                    reflected in column (a))(a)
                  
                  
                  (b)
                  
                  
                  (c)Equity
      compensation plans approved by security holders
                  
                  
                  2,727,350
                  
                  
                  $
                  3.76
                  
                  
                  
                  1,831,500Equity
      compensation plans not approved by security holders
                  
                  
                  240,000
                  
                  
                  $
                  0.50
                  
                  
                  
                  -Total
                  
                  
                  2,967,350
                  
                  
                  $
                  3.50
                  
                  
                  
                  1,831,500
 
 Recent
Sales of Unregistered Securities
  On
December 17, 2007, 150,000 shares of our restricted common stock were sold at a
price of $6.00 per share to six private individuals along with 50,000 of
attached warrants for a total consideration of $900,000.  The warrants
have a two-year life and are exercisable at $7.00 per share.  The
closing price of our stock on that day was $6.19 per share.  Also on
December 14, we sold 200,000 shares of restricted common stock to a director, G.
Thomas Gamble for $6.25 per share for a total consideration of
$1,250,000.  The closing price of our stock on that day was $6.20 per
share.  The aggregate selling price of these transactions was
$2,150,000.  All of these shares were sold in privately negotiated
transactions in reliance on the exemption contained in Section 4(2) of the
Securities Act.
  19
  ITEM
6 Selected Historical Financial Data
  2007
                  
                  
                  2006
                  
                  
                  2005
                  
                  
                  2004
                  
                  
                  2003Income
      Statement Data:Revenues
                  
                  $
                  11,016,107
                  
                  
                  $
                  4,936,723
                  
                  
                  $
                  12,526,110
                  
                  
                  $
                  4,498,670
                  
                  
                  $
                  6,464,245Operating
      Income (Loss)
                  
                  $
                  (8,746,830
                  )
                  
                  $
                  (5,881,276
                  )
                  
                  $
                  (4,919,707
                  )
                  
                  $
                  (1,097,999
                  )
                  
                  $
                  456,109Loss
      from discontinuedoperations
                  
                  $
                  -
                  
                  
                  $
                  (4,774,840
                  )
                  
                  $
                  (4,810,364
                  )
                  
                  $
                  (73,006
                  )
                  
                  $
                  -Gain
      on disposal ofdiscontinued
      operations
                  
                  $
                  -
                  
                  
                  $
                  9,715,604
                  
                  
                  $
                  -
                  
                  
                  $
                  -
                  
                  
                  $
                  -Income
      (loss) beforeminority
      interest
                  
                  $
                  (8,746,830
                  )
                  
                  
                  (940,512
                  )
                  
                  
                  (9,730,071
                  )
                  
                  
                  (1,171,005
                  )
                  
                  
                  456,109Minority
      interest
                  
                  $
                  (139,939
                  )
                  
                  
                  (27,341
                  )
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Net
      loss
                  
                  $
                  (8,606,891
                  )
                  
                  $
                  (913,171
                  )
                  
                  $
                  (9,730,071
                  )
                  
                  $
                  (1,171,005
                  )
                  
                  $
                  456,109Basic
      Earnings per share:Loss
      from continuingoperations
                  
                  $
                  (0.35
                  )
                  
                  $
                  (0.25
                  )
                  
                  $
                  (0.22
                  )
                  
                  $
                  (0.05
                  )
                  
                  $
                  0.02Income
      (loss) from dis-continued
      operations, net
                  
                  $
                  -
                  
                  
                  $
                  0.21
                  
                  
                  $
                  (0.21
                  )
                  
                  $
                  (0.01
                  )
                  
                  $
                  0.00Basic
      Earnings Per Share
                  
                  $
                  (0.35
                  )
                  
                  $
                  (0.04
                  )
                  
                  $
                  (0.43
                  )
                  
                  $
                  (0.06
                  )
                  
                  $
                  0.02Balance
      Sheet Data:Property
      and Equipment, net
                  
                  $
                  16,232,653
                  
                  
                  $
                  12,076,043
                  
                  
                  $
                  13,635,981
                  
                  
                  $
                  1,778,208
                  
                  
                  $
                  1,543,121Total
      Assets
                  
                  $
                  25,254,895
                  
                  
                  $
                  28,654,125
                  
                  
                  $
                  19,738,730
                  
                  
                  $
                  14,473,326
                  
                  
                  $
                  8,341,782Long
      Term Obligations
                  
                  $
                  2,355,707
                  
                  
                  $
                  2,963,562
                  
                  
                  $
                  4,528,365
                  
                  
                  $
                  6,799
                  
                  
                  $
                  16,805Minority
      Interest
                  
                  
                  249,945
                  
                  
                  
                  5,410,746
                  
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Stockholder's
      Equity
                  
                  $
                  12,112,184
                  
                  
                  $
                  11,232,872
                  
                  
                  $
                  7,572,720
                  
                  
                  $
                  6,796,903
                  
                  
                  $
                  1,851,783
  No cash
dividends have been declared.
  ITEM
7 Management’s Discussion And Analysis of Financial Condition
  Notice
Regarding Forward-Looking Statements
  This
report contains forward-looking statements.  The words, "anticipate,"
"believe," "expect," "plan," "intend," "estimate," "project," "could," "may,"
"foresee," and similar expressions are intended to identify forward-looking
statements.  These statements include information regarding expected
development of the Company's business, lending activities, relationship with
customers, and development in the oil and gas industry.  Should one or
more of these risks or uncertainties occur, or should underlying assumptions
prove incorrect, actual results may vary materially and adversely from those
anticipated, believed, estimated or otherwise indicated.
  Overview
  Thanks to
the acquisition of producing properties, TVOG’s reserves are increasing while
demand for petroleum products increases.  While the trend for demand
to outstrip available supplies is worldwide as well as national, we believe that
it is particularly acute in California, our primary venue for exploration and
production, which imports nearly 60% of its oil and nearly 90% of its natural
gas demand.  Oil prices tend to be set based on supply and demand,
while natural gas prices seem to be more dependent on local
conditions.   We expect that gas prices will hold steady or
possibly increase over this year.  If, however, prices should fall,
for instance due to new regulatory measures or the discovery of new and easily
producible reserves or a terrorist attack that would reduce flying and traveling
to create a temporary glut from reduced fuel use, our revenue from oil and gas
sales would also fall.
  20
  In 2002
we created a limited partnership called the OPUS-I.  The purpose of
this partnership is to raise one hundred million dollars by selling partnership
interests. For the year ended December 31, 2007, OPUS I partnership raised
$15,972,108 for drilling and development and spent $17,789,571 primarily on the
purchase of the Moffat East Ranch prospect; on drilling the Lundin-Weber 188,
Lundin-Weber 344, Lundin-Weber 24, and Lundin-Weber 270; the turnkey and
completion of the Pleasant Valley #1; the drilling and in progress completion of
the Pleasant-Valley #2; and the turnkey and completion of the Moffat Ranch
48X-7.
  At the
end of 2005, with the acquisition of Pleasant Valley, Temblor Valley and Moffat
Ranch East on behalf of the partnership, it was determined to end the raising of
funds for the remainder of exploration plays in favor of capitalizing
development of the properties to build production and revenue to achieve a high
multiple return to Opus investors rather than continue further exploration risk
for the Opus I partners.  A new partnership is envisioned for further
exploration.
  We
continue grading and prioritizing our proprietary geologic library, which
contains over 700 California leads and prospects, for exploratory
drilling.  We use our library and our seismic database and other
geoscientific data to decide where we should seek oil and gas leases for future
exploration.  From this library we were able to put together many of
the prospects currently in OPUS-I.  Of course, we cannot be sure that
any future prospect can be obtained at an attractive lease price or that any
exploration efforts would result in a commercially successful well.
  We
believe that we have acquired an inventory of under explored/under-exploited
properties with the potential to yield a multiple return on investment with
further development.  We believe our existing inventory of projects
bears a high enough ratio of potentially successful to unsuccessful projects to
deliver value to our drilling partners and our shareholders from successful
wells, in excess of the total costs of all successful and unsuccessful projects.
Our future results will depend on our success in finding new reserves and
commercial production, and there can be no assurance what revenue we can
ultimately expect from any new discoveries.  We do not engage in
hedging activities and do not use commodity futures or forward contracts for
cash management functions.
  Critical
Accounting Policies
  We
prepare Consolidated Financial Statements for inclusion in this Report in
accordance with accounting principles that are generally accepted in the United
States ("GAAP"). Note 2 to our Consolidated Financial Statements (contained in
Item 8 of this Annual Report) contains a comprehensive discussion of our
significant accounting policies. Critical accounting policies are those that may
have a material impact on our financial statements and also require management
to exercise significant judgment due to a high degree of uncertainty at the time
the estimate is made. Our senior management has discussed the development and
selection of our accounting policies, related accounting estimates and
disclosures with the Audit Committee of our Board of Directors.
  Successful Efforts Method of
Accounting
  We
utilize the successful efforts method of accounting for oil and gas activities
as opposed to the alternate acceptable full cost method. In general, we believe
that, during periods of active exploration, net assets and net income are more
conservatively measured under the successful efforts method of accounting for
oil and gas producing activities than under the full cost method. The critical
difference between the successful efforts method of accounting and the full cost
method of accounting is as follows: Under the successful efforts method,
exploratory dry holes and geological and geophysical exploration costs are
charged against earnings during the periods in which they occur; whereas, under
the full cost method of accounting, such costs and expenses are capitalized as
assets, pooled with the costs of successful wells and charged against the
earnings of future periods as a component of depletion expense.
  Use of
Estimates
  Preparation
of our Consolidated Financial Statements under GAAP requires management to make
estimates and assumptions that affect reported assets, liabilities, revenues,
expenses, and some narrative disclosures. The estimates that are most critical
to our Consolidated Financial Statements involve oil and gas reserves,
recoverability and impairment of reserves, and useful lives of
assets.
  21
  Oil and Gas Reserves.
Estimates of our proved oil and gas reserves included in this report are
prepared in accordance with GAAP and SEC guidelines and were based on
evaluations prepared by independent petroleum engineers with respect to our
properties. The accuracy of a reserve report estimate is a function
of:
  -           The
quality and quantity of available data;
 -           The
interpretation of that data;
 -           The
accuracy of various mandated economic assumptions; and
 -           The
judgment of the persons preparing the estimate.
 
 Because
these estimates depend on many assumptions, all of which may substantially
differ from future actual results, reserve estimates will be different from the
quantities of oil and gas that are ultimately recovered. In addition, results of
drilling, testing and production after the date of an estimate may justify
material revisions to the estimate.
  In 2007,
our proved, developed gas reserve estimates were revised upward by approximately
50,039 million cubic feet.  After 2007 production of 45,298 million
cubic feet, our year-end proved, developed gas reserves increased to
approximately 791,128 million cubic feet.
  Also in
2007, our proved oil reserves estimated were increased by approximately 148,049
barrels of oil due to development of our Pleasant Valley project along with
drilling and completing one well and two offset wells and an adjustment downward
of approximately 44,448 barrels of oil due to lower than expected
performance.  The net result after production of 7,006 barrels was to
increase the potential future recoverable reserve to approximately 372,047
barrels of oil.
  It should
not be assumed that the present value of future net cash flows included in this
Report as of December 31, 2007 is the current market value of our estimated
proved reserves. In accordance with SEC requirements, we have based the
estimated present value of future net cash flows from proved reserves on prices
and costs on the date of the estimate. Actual future prices and cost may be
materially higher or lower than the prices and costs as of the date of the
estimate.
  Estimates
of proved reserves materially impact depletion expense. If the estimates of
proved reserves decline, the rate at which we record depletion expense will
increase, reducing future net income. Such a decline may result from lower
market prices, which may make it uneconomic to drill for and produce higher cost
fields. In addition, a decline in proved reserve estimates may impact the
outcome of our assessment of its oil and gas producing properties for
impairment.
  Impairment of Proved Oil and
Gas Properties. We review our long-lived proved properties, consisting of
oil and gas reserves, at least annually and record impairments to those
properties, whenever management determines that events or circumstances indicate
that the recorded carrying value of the properties may not be recoverable.
Proved oil and gas properties are reviewed for impairment by depletable field
pool, which is the lowest level at which depletion of proved properties is
calculated. Management assesses whether or not an impairment provision is
necessary based upon its outlook of future commodity prices and net cash flows
that may be generated by the properties. We determine that a property is
impaired when prices being paid for oil or gas make it no longer profitable to
drill on, or to continue production on, that property.  Price
increases over the past three years have reduced the instances where impairment
of reserves appeared to be required, though we did record impairment expense of
$481,930 in 2007, $459,243 in 2006 and $90,165 in 2005 as a result of reducing
potential future recoverable reserves.  The impairment expense for
2007 was related to unproved oil and gas properties which management does not
see any future activity on these assets in the foreseeable
future.  These assets are expected to remain impaired.
  Additional
production data for some of our properties indicated the initial reserve
estimates would not be achievable, so we reduced reserves accordingly. If
petroleum prices, particularly natural gas prices, in Northern California begin
to fall in the future, more of our proved developed reserves could become
impaired, which would reduce our estimates of future revenue, our proved reserve
estimates and our profitability.
  22
  Asset Retirement
Obligations. We adopted SFAS No. 143, "Accounting for Asset Retirement
Obligations" effective January 1, 2003. Under this guidance, management
is required to make judgments based on historical experience and future
expectations regarding the future abandonment cost of its oil and gas properties
and equipment as well as an estimate of the discount rate to be used in order to
bring the estimated future cost to a present value. The discount rate is based
on the risk free interest rate which is adjusted for our credit worthiness. The
adjusted risk free rate is then applied to the estimated abandonment costs to
arrive at the obligation existing at the end of the period under review. We
review our estimate of the future obligation quarterly and accrue the estimated
obligation based on the above.
  Stock-Based
Compensation. We
adopted SFAS No. 123(R) to account for our stock option plan beginning
January 1, 2006. This standard requires us to measure the cost of employee
services received in exchange for an award of equity instruments based on the
grant-date fair value of the award. The modified prospective method was selected
as described in SFAS 148, Accounting for Stock-Based
Compensation—Transition and Disclosure. Under this method, we recognize
stock option compensation expense as if we had applied the fair value method to
account for unvested stock options from the original effective date. Stock
option compensation expense is recognized from the date of grant to the vesting
date. The fair value of each option award is estimated on the date of grant
using the Black-Scholes option pricing model that uses the following
assumptions. Expected volatilities are based on the historical volatility of our
stock. We use historical data to estimate option exercises and employee
terminations within the valuation model. The expected term of options granted is
based on historical exercise behavior and represents the period of time that
options granted are expected to be outstanding. The Securities and Exchange
Commission issued SAB 110 providing for a safe harbor in calculating the
expected life using the contractual life of the option + one, divided by
two.  The Company used this methodology for valuing four of the stock
option grants issued during 2007; the risk free rate for periods within the
contractual life of the option is based on U.S. Treasury rates in effect at the
time of grant.
  Other
Significant Accounting Policies
  In
addition to those significant accounting policies described in Note 2 to our
Consolidated Financial Statements, we have adopted the following accounting
policies which may require the use of estimates.
  Deferred Tax Asset Valuation
Allowances. We maintain a valuation allowance against our deferred tax
assets, which result from net operating losses and statutory depletion
carryforwards from prior years. SFAS No. 109, Accounting for Income Taxes
as interpreted by FIN 48, Accounting for Uncertainty in Income
Taxes, requires that the Company continually assess both positive and
negative evidence to determine whether it is more likely than not that the
deferred tax asset can be realized prior to their
expiration.  Considerable judgment is required in determining when
these events may occur and whether recovery of an asset is more likely than
not.  Additionally, our federal and state income tax returns are
generally not filed before the financial statements are
prepared.  Therefore, we estimate the tax basis of our assets and
liabilities at the end of each calendar year as well as the effects of tax rate
changes, tax credits, and tax credit carry forwards.  Due to
uncertainties involved with tax matters, the future effective tax rate may vary
significantly from the estimated current year effective tax rate.  FIN
48 clarifies the accounting for income taxes by prescribing the mini8mum
recognition threshold an uncertain tax position is required to meet before tax
benefits associated with such uncertain tax positions are recognized in the
financial statements.  As of December 31, 2007, the Company has
concluded that it is more likely than not that it will not realize its gross
deferred tax asset position after giving consideration to relevant facts and
circumstances. See Note 7 to our Consolidated Financial Statements.
  We will
continue to monitor company-specific, oil and gas industry economic factors and
will reassess the likelihood that the Company’s net operating loss and statutory
depletion carryforwards will be utilized prior to their expiration.
  Commitments and
Contingencies. We make judgments and estimates regarding possible
liabilities for litigation and environmental remediation on a quarterly basis.
Management’s judgment is based on the advice and opinions of legal counsel and
other advisers, and the interpretation of laws and regulations, which can be
interpreted differently by regulators or courts of the law. We have no ongoing
litigation or environmental remediation. We routinely have clean-up and
maintenance obligations in connection with oil and gas drilling and production
activities, but we have never had a material environmental liability or
claim.  Actual costs can vary from such estimates for a variety of
reasons.  Environmental remediation liabilities are subject to change
because of changes in laws and regulations; additional information obtained
relating to the extent and nature of site contamination and improvements in
technology.  In accordance with SFAS No.5, Accounting for
Contingencies, a liability is recorded for these types of contingencies
if the Company determines the loss to be both probable and reasonably
estimated.  A change in estimate could impact our oil and gas
operating costs and the liability, if applicable, recorded on our balance
sheet.  See Note 11 of Notes to Consolidated Financial Statements
included in Item 8 of our Consolidated Financial Statements for additional
information regarding the Company’s commitments and
contingencies.
  23
  Goodwill. At December
31, 2007, goodwill, which consists of purchased assets of our subsidiary, TVOG,
constituted less than 1% of our total assets. The Company has adopted Financial
Accounting Standards Board (FASB) Statement of Financial Accounting Standards
(SFAS) No. 142, "Goodwill and Other Intangible Assets" (SFAS
142).  Under SFAS 142, goodwill is a non-amortizable asset, and the
impairment of goodwill is evaluated annually.
  The
following is a discussion of the Company’s most critical accounting estimates,
judgments and uncertainties that are inherent in the Company’s application of
GAAP:
  Accounting
for Oil and Gas Producing Activities
  Revenue recognition:Oil and gas revenues from producing wells are recognized when title and
risk of loss is transferred to the purchaser of the oil or gas.  Oil
and gas production is recorded each month based on when the cash is
received.
  Accounting for Suspended
Well Costs:  The Company has adopted FASB Staff Position FAS
19-1, “Accounting for Suspended Well Costs” effective January 1, 2005. Under
this guidance, management is required to expense the capitalized costs of
drilling an exploratory well if proved reserves are not found unless reserves
are found and the enterprise is making sufficient progress on assessing the
reserves and the economic and operating viability of the project.
  Oil and Gas
Production:  The Company sells its production at the monthly
spot price.  In 2007, 2006 and 2005, we sold our gas 100% on the spot
market.  Because we expect gas prices to be steady or to rise, we
intend to sell 100% of our production on the spot market in
2008.  Thus, a drop in the price of gas in 2008 could possibly have a
more adverse impact on us than if we entered into some fixed price contracts for
sale of future production.
  Our
proved hydrocarbon reserves were valued using a standardized measure of
discounted future net cash flows of $12,324,390 at December 31, 2007, compared
to $6,121,295  and to $7,056,072 on December 31, 2006, and 2005 after
taking into account a 10% discount rate and also taking into consideration the
effect of income tax.  This increase was due primarily to higher
projected production costs being partially offset by our share of the
acquisition of the Temblor Valley project.  Estimates such as these
are subject to numerous uncertainties inherent in the estimation of quantities
of proved reserves.
  Because
of unpredictable variances in expenses and capital forecasts, crude oil and
natural gas price changes, largely influenced and controlled by U.S. and foreign
government actions and the fact that the basis for such estimates vary
significantly, management believes the usefulness of these projections is
limited. Estimates of future net cash flows presented do not represent
management's assessment of future profitability or future cash flows to the
Company. This value does not appear on the balance sheet because accounting
rules require discovered reserves to be carried on the balance sheet at the cost
of obtaining them rather than the actual future net revenue from producing
them.  Tri-Valley typically has no discovery cost to put on the
balance sheet as explained below.
  Drilling and Development
Activities: We sold working interests in test wells to the Opus-1
drilling partnership.  The sales price of the interest is intended to
pay for all drilling and testing costs on the property.  We retain a
minority "carried" revenue interest in the well and do not pay our proportionate
share of drilling and testing costs for the first well drilled on each prospect.
However, we do pay our proportionate cost of any subsequent well drilled on each
prospect.  Under these arrangements, we usually minimize our cost to
drill and also receive a minority interest in revenues from the reserves we
discover.  On the other hand, we occasionally incur extra expenses for
drilling or development that we choose, in our discretion, not to pass on to
other venture participants.
  24
  In 2005,
we acquired a 25% working interest in three (3) oil properties that we believe
to be under developed and under exploited oil properties.  One
property consisted of three separate leases in the Oxnard Oil Field in Ventura
County, California and two properties were in Kern County,
California.
  We also
have approximately 6,670-acres of mineral rights, which basically covers what
was the Chowchilla Ranch Gas Field in Madera County, California. Currently, the
land position is held by a single producing gas well.  We believe this
land position to be under developed and under exploited and we plan to being
re-entering, recompleting and further infill drill the leasehold
position.
  In
addition to these properties, we also hold producing interests in gas leases in
the Sacramento Valley of Northern California in the RioVista and Dutch Slough
Gas Fields.
  During
2007, the Company drilled three step-out wells on the Lundin-Weber lease in the
Temblor Project in the South Belridge Oil Field, Kern County, California to
further delineate and define the extent of the three producing zones in this
700-acre lease development.  The wells drilled where the Lundin-Weber
24,188 and 344 wells.  In May 2007, Tri-Valley also initiated a pilot
waterflood on this property in the Etchegoin Zone to recover additional
reserves.  During 2007, an additional 12-wells were returned to production
bringing the total wells on production up from 28 to 40 of the 49-wells that
existed on the Lease at the time of purchase in December 2005.
  The
Company also first vertically drilled, and cored, followed by ultimately
horizontally drilling 1320-feet, its first SAG-D (Steam Assisted Gravity
Drainage) development well in the Vaca Tar Sand in the Oxnard Oil Field in
Oxnard, California.  The well was successfully steamed with the well
initially flowing at an initial flow rate of 288-BOPD the first 24-hrs of
production.
  The
Company also drilled a 10,000’ deep exploratory test well below existing
previously established production in the Moffat Ranch Gas Field, Madera County,
California, 50-miles west of Fresno, California, the Moffat Ranch 48-X-7 well in
the Moffat Ranch Gas Field.  The well was spudded November 17, 2007. 
As of December 31, 2007 the well was in the process of being completed.
Currently, the well has been successfully tested and completed and we are
awaiting a tie-in to a nearby gas line.  Tri-Valley currently owns two
(2) other existing wells in its approximate 6900-acre land position in the Field
which it plans to rework and return to production.
  Rig
Operations
  In 2006
we created two new subsidiaries, Great Valley Production Services (GVPS) and
Great Valley Drilling (GVDC). GVPS is owned 90% by Tri-Valley and 10% by third
parties.  As of year-end 2007 GVDC is 100% owned by
Tri-Valley.
  GVPS is a
production services/well work over company whose services will primarily be
contracted to TVOG.  Operations began in the third quarter of
2006.  However, from time to time GVPS may contract various units to
third parties when not immediately needed for TVOG projects.
  GVDC is
based in Nevada and the majority of its work will be drilling wells for third
parties.  There may be occasion where TVOG contracts services from
GVDC for its own account.  GVDC began operation in the first quarter
of 2007.
  We expect
these companies to contribute to our operations in 2008.
  Mining
Activity
  In 2007
our Select staff resigned to take full time positions with Duluth Metals and
replacements have yet to be hired.  We plan to continue our mining
activities on a limited basis by outsourcing and using other
staff.
  25
  Precious
Metals
  During
2007, the price of gold has fluctuated between $608 and $841 per ounce
continuing the support for the exploration and development of precious metals,
including the support of junior exploration ventures.  Accordingly,
management is advancing its precious metal opportunities.
  The 2007
precious metal program consisted largely of continued assessment and compilation
of the geologic information collected in previous work programs associated with
the Richardson and Shorty Creek properties in Alaska.  Select also
undertook an on-site reconnaissance for carrying out a 2007 field program for
both the Richardson and Shorty Creek properties, including resolving access
routing issues.
  Select
also continued annual repair and maintenance activities associated with the
Richardson Roadhouse, 65 miles southeast of Fairbanks on the Alaska Richardson
Highway, which is owned by us and has been used in the past as a base camp for
Richardson related exploration activities.
  Base
Metals
  Select
acquired two copper exploration properties in Nevada.  The first
property, the FARJK claims, target oxide copper in Nye County and covers roughly
one square mile and the claim position can be expanded.  Select
controls 100% of this claim block.  The second property, the Delcer
property, with oxide and sulphide copper, covers approximately one square mile
in Elko County.  This property has experienced limited copper
production that dates back to World War I.  Select is a joint venture
participant in the Delcer property.
  We agreed
in April 2006 to assist Duluth Metals Limited, a Canadian corporation, in its
initial public offering and listing on the Toronto Stock
Exchange.  Duluth Metals is involved in the acquisition and
exploration of copper, nickel and platinum group metals in the Duluth Complex in
northern Minnesota.  Duluth Metals is providing Select financial
remuneration, stock options and assistance by Duluth Metals on the monetizing of
Select and its properties as compensation for Select’s providing management and
technical assistance to Duluth Metals.  Duluth Metals’ initial
offering became listed on the Toronto Stock Exchange on October 10,
2006.  Select continued to assist Duluth Metals in 2007 in its early
stages of operation as Duluth Metals provides assistance to Select on the
monetizing of Select and its properties.
  Industrial
Minerals
  The
Admiral Calder calcium carbonate mine in Alaska (100% owned and managed by
Select) was on care and maintenance during the fourth quarter.  Select
continued its market and operational assessment studies for the Admiral Calder
quarry product as the mine is in the top 1% of high grade chemical and high
brightness calcium carbonate deposits in the world, and one of the few deposits
to be directly on tidewater.  Repair and maintenance activities at the
site were initiated in 2007.
  Select
had an exclusive agreement with the Trabits Group granting the right to evaluate
up to 200 industrial minerals properties within Newmont Mining Corporation’s
property portfolio.  The majority of these properties are located
along Nevada rail corridors leading into California and Arizona.  The
evaluation of these properties continued through 2007.  As of the end
of 2007, no properties of interest to Select have been identified and this
agreement has been concluded.
  Results
of Operations
  We lost
approximately $8.6 million in 2007 compared to losses of $0.9 million in 2006
and $9.7 million in 2005.  Total revenue was $11.0 million in 2007
compared to revenues of $4.9 million in 2006 and $12.5 million in
2005.  In 2007 and 2005 we had comparatively high levels of both
revenue and loss due in large part to our execution of large scale drilling
projects during those years.
  26
  Revenues
  The
Company identifies reportable segments by product.  The Company
includes revenues from both external customers and revenues from transactions
with other operating segments in its measure of segment profit or
loss.  The Company also allocates interest revenue and expense,
DD&A, and other operating expenses in its measure of segment profit or
loss.
  Results
of Operations (continued)
  The
following table sets forth our revenues by segment for 2007, 2006 and 2005, in
thousands.
  2007
                    
                    
                    2006
                    
                    
                    2005$
                    
                    
                    
                    %
                    
                    
                    $
                    
                    
                    
                    %
                    
                    
                    $
                    
                    
                    
                    %Oil
      and gasSale
      of oil and gas
                    
                    $
                    761
                    
                    
                    
                    8
                    %
                    
                    $
                    1,030
                    
                    
                    
                    23
                    %
                    
                    $
                    901
                    
                    
                    
                    7
                    %Royalty
      income
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    1
                    
                    
                    
                    -Partnership
      income
                    
                    
                    30
                    
                    
                    
                    1
                    %
                    
                    
                    45
                    
                    
                    
                    1
                    %
                    
                    
                    30
                    
                    
                    
                    -Total
      oil and gas revenue
                    
                    
                    791
                    
                    
                    
                    9
                    %
                    
                    
                    1,075
                    
                    
                    
                    24
                    %
                    
                    
                    932
                    
                    
                    
                    7
                    %Rig
      operations
                    
                    
                    2,727
                    
                    
                    
                    28
                    %
                    
                    
                    873
                    
                    
                    
                    20
                    %
                    
                    
                    -
                    
                    
                    
                    -Drilling
      and development
                    
                    
                    6,132
                    
                    
                    
                    63
                    %
                    
                    
                    2,497
                    
                    
                    
                    56
                    %
                    
                    
                    11,422
                    
                    
                    
                    93
                    %Total
      revenues
                    
                    $
                    9,650
                    
                    
                    
                    100
                    %
                    
                    $
                    4,445
                    
                    
                    
                    100
                    %
                    
                    $
                    12,354
                    
                    
                    
                    100
                    %
 
 Oil and
gas operations include our share of revenues from oil and gas wells on which
TVOG serves as operator, royalty income and production revenue from other
partnerships in which we have operating or non-operating
interests.  It also includes revenues for consulting services for oil
and gas related activities, which we include in “other income” on the statement
of operations, and interest revenue attributable to our oil and gas operations,
which we include in interest income on the statement of operations.
  Total
Revenues from the oil and gas segment were 14% lower in 2007 than in
2006.  Sales of oil and gas decreased from $1,030,000 in 2006 to
761,000 in 2007.  The decrease of $270,000 in oil revenue was a result
of declining production in the Martin-Severins, Webb Tract and Hanson wells
being partially offset by an increase in production in the Pleasant Valley and
Belridge wells.  Revenues from oil and gas operations were 17% higher
in 2006 than 2005.  Nearly all of this increase resulted from a rise
in average gas prices.  Other income from consulting increased by
$248,000 in 2007 compared to $80,000 in 2006. Interest income increased $210,000
to $283,000 in 2007.  This was due to maintaining higher average cash
balances.  Overall interest income decreased from about $121,000 in
2005 to about $73,000 in 2006.  This decrease was due to a decreased
average cash balance during the year.
  In 2006,
we acquired drilling rigs and began rig operations through our subsidiaries,
GVPS and GVDC.  Our revenue from our rig operations in 2007 was $2.9
million compared to $1.0 million in 2006.  We had no rig operations or
revenues in 2005.
  In each
of the past three years, our largest source of revenue has been oil and gas
drilling and development.  Revenues from drilling and development
activities were $6.1 million, an increase of $3.6 million over
2006.  This increase was due to an increase in the number of wells
drilled in 2007 to seven in our drilling program.   In 2006, we
drilled two wells and our revenue from drilling and development decreased to
about $2.5 million, compared to $11.4 million in 2005. In 2005 we recorded
drilling and development revenues of $3.4 million from drilling the Midland
Trail well in Nevada, and we spent $3.5 million on a frac job on our Ekho
well.  We record revenue received by us from joint ventures for
drilling and development when we complete drilling wells that have been sold to
joint venture partners, including the Opus-I drilling
partnership.
  27
  In 2007
we earned $573,000 compared to $179,000 in 2006 from consulting services
pertaining to our minerals operations, which is included in other income in our
operating statement.  We earned insignificant revenues from such
services in prior years.  We earned no significant income from sales
of minerals in 2007, 2006 or 2005.
  Costs and
Expenses
  The
following table sets forth our operating cost and expenses by segment in
thousands:
  2007
                      
                      
                      2006
                      
                      
                      2005Oil
      and gas
                      
                      $
                      659
                      
                      
                      $
                      397
                      
                      
                      $
                      3,299Rig
      operations
                      
                      
                      2,142
                      
                      
                      
                      726
                      
                      
                      
                      -Minerals
                      
                      
                      618
                      
                      
                      
                      644
                      
                      
                      
                      3,663Drilling
      and development
                      
                      
                      5,011
                      
                      
                      
                      1,990
                      
                      
                      
                      9,268Total
      cost and expenses
                      
                      $
                      8,430
                      
                      
                      $
                      3,757
                      
                      
                      $
                      16,230
 
 Total
operating costs and expenses were $4.8 million more for the year ended December
31, 2007, compared to year end 2006.  Minerals operating expenses were
$322,000 more for the period ended December 31, 2007 than for the same period in
2006, due to increase expenses due to our minerals consulting.  Oil
and gas cost and expense was $1.0 million for the year ended December 31, 2007
compared to $0.4 million for the year ended December 31, 2006.  The
increase was mainly due to activity on the new oil and gas properties drilled
during 2007.  Costs from drilling and development activities were $3.0
million more this year than in 2006 because of the increased drilling activity
(seven wells drilled in 2007 compared to two wells drilled in
2006).  Rig operating costs for GVPS and GVDC increased to $1.6
million from $0.4 million in 2006 due to an increased activity
level.
  The
following table summarizes our total operating income (loss) by segment in
thousands:
  2007
                    
                    
                    2006
                    
                    
                    2005Oil
      and gas
                    
                    $
                    132
                    
                    
                    $
                    830
                    
                    
                    $
                    (2,248
                    )Rig
      operations
                    
                    
                    585
                    
                    
                    
                    307
                    
                    
                    
                    -Minerals
                    
                    
                    (618
                    )
                    
                    
                    (465
                    )
                    
                    
                    (3,610
                    )Drilling
      and development
                    
                    
                    1,121
                    
                    
                    
                    507
                    
                    
                    
                    2,155Total
      operating income (loss)
                    
                    $
                    1,220
                    
                    
                    $
                    1,179
                    
                    
                    $
                    (3,704
                    )
  Nonsegmented
Items
  General
and administrative costs were $4.3 million higher this year than last year due
in large part to the increased stock issuance expense and the increased activity
in the rig operations segment of the Company.  Increased salaries
expense, insurance expense and legal and accounting expense were higher due to a
general increase in the Company activity level. In 2007, we recognized
impairment costs of about $482,000 primarily from the Onyx Ranch and Wildwood
prospects.  This was a $23,000 increase from 2006.  The
total Company interest expense for 2007 was $259,000 versus $397,000 during
2006.  The decrease was attributed to a decrease in
debt.  Investment expense was $204,000 during the year.  The
expense was attributable to additional cost of buying back minority interest in
GVPS and GVDC during 2007 above par value.  There was no investment
expense in 2006 or 2005.
  We expect
our costs and expenses to increase significantly in 2008 primarily due to
proposed drilling and workover activities on the Pleasant Valley, Moffat Ranch
and Belridge properties in advance of production revenue.
  28


Total
Company costs and expenses were $6.6 million less for the year ended December
31, 2006, compared to year end 2005.  Mining exploration expenses were
$3.6 million less for the period ended December 31, 2006 than for the same
period in 2005, due to decreased mining exploration activity because of 2005
expenses incurred in the purchase of royalties and properties which were
immediately expensed.  Oil and gas lease activity expense was $388,700
for the year ended December 31, 2006 and $93,429 for the year ended December 31,
2005.  The increase was mainly due to activity on the new oil and gas
properties acquired at the end of 2005.  Costs from drilling and
development activities were $7.4 million less this year than in 2005 because of
the decreased drilling activity (one well complete in 2005 and one well which
drilling was in progress but not completed until January 2006), a $3.5 million
frac job on the Ekho well and the redrill of the Sunrise well which was incurred
in 2005. Operating costs on our recently formed Great Valley Production
Services, LLC and our Great Valley Drilling Company, LLC in 2006 were $566,000.
In 2005 it was nothing.  General and administrative costs were $2.6
million higher this year than last year due in large part to the increased
activity in our minerals segment of the Company.  Tri-Western
Resources and Select Resources had greatly increased travel costs, start-up
expenses, insurance premiums and fees to consulting geologists in 2006. In 2006,
we recognized impairment costs of about $459,000, primarily from the Tracy
Subthrust.  This was a $369,000 increase from 2005.




Revenues from Discontinued
Operations in 2006




In 2006,
we sold our interest in the Tri-Western Resources, LLC, joint venture and an
industrial site used for Tri-Western’s mineral operations.  These
transactions had a total sales price of $13.8 million and resulted in a
non-operating gain of about $9.7 million.  The Company sold its
interest in order to redeploy the capital into ventures it believes will
increase share value at a faster rate. The sale also caused us to reclassify
certain expenses in 2006 and prior years as losses from discontinued operations,
but this reclassification did not change our total net loss in any
year.  See note 12 to the Consolidated Financial Statements for a
schedule of pro forma results.




Financial
Condition




Balance
Sheet




At
December 31, 2007, we had $7.7 million in cash compared to $15.6 million at
December 31, 2006.  $3.7 million of the cash at year end 2007 is
restricted for use by the OPUS I drilling partnership.  The decrease
was due primarily to an increase in property and equipment of $3.6 million for
the current period compared to last year primarily because of the increase of
$1.4 million in rigs and a $2.4 million increase in other property and
equipment.  The increase in OPUS I drilling partnership cash was
related to increase funding into our partnership program by
investors.  Deposits increased about $29 thousand in 2007 compared to
2006.  Investment in marketable securities increased by $440 thousand
because of the Company receiving Duluth Metals common stock for providing
executive and geological services.  There were no marketable
securities held in previous years. (see Note 13 to the consolidated financial
statements)




Notes
payable decreased from $1.1 million in 2006 to $0.4 million in
2007.  This was due to the payoff and paydown of our notes
payable.  (see Note 4 to the consolidated financial
statements)




Accounts
payable and accrued expenses increased to $5.7 million from $2.2 million in
2006.  The increase was all due to purchases for our recently
accelerated drilling and production activities.  Advances from joint
venture participants, net decreased $1.7 million, from 5.4 million in 2006 to
$3.7 million in 2007.  This was due to the increase in drilling
activity for our joint venture participants.




Shareholder
equity increased from $11.2 million in 2006 to $12.1 million for
2007.  This increase was due mainly to the net proceeds from issuance
of common stock in the amount of $8.4 million and additional paid in capital
from warrants and stock options in the amount of $1.1 million offset by a net
loss for 2007 of $8.6 million. In 2007, the Company bought back interest in GVPS
and GVPC.  The buyback was recorded at the par value of $5.0 million
in the minority interest section of the balance sheet.




29




Commitments




Generally,
our financial commitments arise from selling interests in our drilling prospects
to third parties, which result in obligations to drill and develop the
prospect.  If we are unable to sell sufficient interests in a prospect
to fund its drilling and development, we must either amend our agreements to
drill the prospect or locate a substitute prospect acceptable to the
participants.




Delay
rentals for oil and gas leases amounted to $501,000 in 2007.  Advance
royalty payments and gold mining claims maintenance fees were $247,000 for the
same period.  We expect that approximately equal delay rentals and
fees will be paid in 2008 from operating revenues.




Operating
Activities




Net cash
used by operating activities was $3.9 million for 2007, compared to $2.1 million
in 2006.  Net income decreased from a $8.6 million loss in 2007 to a
$0.9 million loss in 2006. Stock based compensation costs decreased from $1.3
million in 2006 to $0.9 million in 2007.  We adopted SFAS No. 123R
“Shared Based Payment”
on January 1, 2006 which required expensing of stock options.




Warrant
cost increased from $247,000 in 2006 to $384,000 in 2007.  In 2007 and
2006, we did not have any expense for property, mining claims & services
paid with common stock, and while in 2005 we expensed $5.7
million.  We had $3.7 million provided by an increase in accounts
payable, compared to $0.6 million used by an increase in accounts payable in
2006.  The 2007 increase is due to the increase in accounts payable
balances due to the increase drilling activity near year end.




Investing
Activities




Cash used
by investing activities in 2007 was $11.1 million compared to cash provided of
$8.3 million for the same period in 2006.  In 2007, $5.0 million in
cash was used to buy back 39% of the outside third party interest in GVPS and
all of the outside third party interest in GVDC.  In 2006, $13.8
million in cash was provided by the sale of our interest in Tri-Western
Resources and the sale of our industrial minerals site.




Financing
Activities




Cash
provided by financing activities was $7.0 million in 2007 compared to $4.5
million for the period ending December 31, 2006. Proceeds from long-term
debt decreased to zero to 2007 from $2.2 million in 2006. Principal payments on
long term debt used $1.1 million in cash in 2007 compared to $4.9 million in
2006.  This change was due primarily to the payoff of long term debt
in conjunction with the sale of Tri-Western Resources in 2006.  The
net proceeds from the issuance of common stock increased from $2.4 million in
2006 to $7.9 million in 2007.  The net proceeds from the issuance of
warrants increase from zero in 2006 to $268 thousand in 2007 due to the number
of warrants issued.




Liquidity
and Capital Resources




The
recoverability of our oil and gas reserves depends on future events, including
obtaining adequate financing for our exploration and development program,
successfully completing our planned drilling program, and achieving a level of
operating revenues that is sufficient to support our cost
structure.  At various times in our history, it has been necessary for
us to raise additional capital through private placements of equity
financing.  When such a need has arisen, we have met it
successfully.  It is management’s belief that we will continue to be
able to meet our needs for additional capital as such needs arise in the
future.  We may need additional capital to pay for our share of costs
relating to the drilling prospects and development of those that are successful,
and to acquire additional oil and gas leases, drilling equipment and other
assets.  The total amount of our capital needs will be determined in
part by the number of prospects generated within our exploration program and by
the working interest that we retain in those prospects.




30




During
2008, we expect to expend approximately $25 million on drilling activities.
Funds for the majority of these activities will be provided by sales of
partnership interests in the Opus-I drilling partnership, which will still be
raising funds for development purposes.  Tri-Valley’s portion is
expected to be approximately $6 million.  We are evaluating and
finalizing results of recently drilled Pleasant Valley and Moffat Ranch in order
to design the optimum development plan for the property.  We expect to
drill several wells there in 2008.  Our ability to complete our
planned drilling activities in 2008 depends on some factors beyond our control,
such as availability of equipment and personnel.  Our actual capital
commitments for fiscal year 2008 are less than $4 million, but to expend $25
million we will require additional capital from the OPUS partnership or other
outside parties.




In 2008,
we expect expenditures of approximately $ 0.8 million on mining activities,
including mining lease and exploration expenses.




Should we
choose to make an acquisition of producing oil and gas properties, such an
acquisition would likely require that some portion of the purchase price be paid
in cash, and thus would create the need for additional
capital.  Additional capital could be obtained from a combination of
funding sources.  The potential funding sources include:




●
            Cash
      flow from operating activities,


●
            Borrowings
      from financial institutions (which we typically
  avoid),


●
            Debt
      offerings, which could increase our leverage and add to our need for cash
      to service such debt (which we typically
avoid),


●
            Additional
      offerings of our equity securities, which would cause dilution of our
      common stock,


●
            Sales
      of portions of our working interest in the prospects within our
      exploration program, which would reduce future revenues from its
      exploration program,


●
            Sale
      to an industry partner of a participation in our exploration
      program,


●
            Sale
      of all or a portion of our producing oil and gas properties, which would
      reduce future revenues.





Our
ability to raise additional capital will depend on the results of our operations
and the status of various capital and industry markets at the time such
additional capital is sought.  Accordingly, there can be no assurances
that capital will be available to us from any source or that, if available, it
will be on terms acceptable to us.  The Company has no off balance
sheet arrangements.




ITEM
7A.  Quantitative and Qualitative Disclosures about Market
Risk




Oil and gas prices. Our
financial condition, results of operations and capital resources are highly
dependent upon the prevailing market prices of, and demand for, oil and gas.
These commodity prices are subject to wide fluctuations and market uncertainties
due to a variety of factors that are beyond our control. We cannot predict
future oil and gas prices with any degree of certainty. Sustained declines in
oil and gas prices may adversely affect our financial condition and results of
operations, and may also reduce the amount of net oil and gas reserves that we
can produce economically. Based on our year ended December 31, 2007
production, our gross revenues from oil and gas sales would change approximately
$45,928 for each $1.00 change in gas prices and $7,006 for each $1.00 change in
oil prices.




We do not
engage in hedging activities or purchases and sales of commodity futures
contracts.


31


ITEM
8: FINANCIAL STATEMENTS




TRI-VALLEY
CORPORATION


INDEX





PageReport
      of Independent Auditor
                          33Consolidated
      Balance Sheets at December 31, 2007 and 2006
                          34Consolidated
      Statements of Operations for the Years EndedDecember
      31, 2007, 2006 and 2005
                          36Consolidated
      Statements of Changes in Shareholders' Equity for theYears
      Ended December 31, 2007, 2006 and 2005
                          37Consolidated
      Statements of Cash Flows for the Years EndedDecember
      31, 2007, 2006 and 2005
                          38Notes
      to Consolidated Financial Statements
                          40Supplemental
      Information about Oil and Gas ProducingActivities
      (Unaudited)
                          65


32


REPORT
OF INDEPENDENT REGISTERED


PUBLIC
ACCOUNTING FIRM





To the
Board of Directors and


Shareholders
of Tri-Valley Corporation





We have
audited the accompanying balance sheets of Tri-Valley Corporation as of December
31, 2007 and 2006, and the related statements of income, stockholders’ equity
and comprehensive income, and cash flows for each of the years in the three-year
period ended December 31, 2007. Tri-Valley Corporation’s management is
responsible for these financial statements. Our responsibility is to express an
opinion on these financial statements based on our audits.




We
conducted our audits 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 audits provide a
reasonable basis for our opinion.




In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Tri-Valley Corporation as of
December 31, 2007 and 2006, and the results of its operations and its cash flows
for each of the years in the three-year period ended December 31, 2007 in
conformity with accounting principles generally accepted in the United States of
America.




We also
have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), Tri-Valley Corporation’s internal control over
financial reporting as of December 31, 2007, based on criteria established in
Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 13, 2008 expressed an
unqualified opinion.




BROWN
ARMSTRONG PAULDEN


McCOWN
STARBUCK THORNBURGH & KEETER


ACCOUNTANCY
CORPORATION





Bakersfield,
California


March 13,
2008


33


TRI-VALLEY
CORPORATION


CONSOLIDATED
BALANCE SHEETS





2007
                    
                    
                    2006ASSETSCurrent
      assetsCash
                    
                    $
                    3,955,610
                    
                    
                    $
                    11,457,427Cash
      restricted to OPUS I use
                    
                    
                    3,712,083
                    
                    
                    
                    4,140,788Accounts
      receivable, trade
                    
                    
                    313,521
                    
                    
                    
                    377,278Prepaid
      expenses
                    
                    
                    12,029
                    
                    
                    
                    42,529Total
      current assets
                    
                    
                    7,993,243
                    
                    
                    
                    16,018,022Property
      and equipment, netProved
      properties
                    
                    
                    2,143,907
                    
                    
                    
                    1,407,925Unproved
      properties
                    
                    
                    2,414,843
                    
                    
                    
                    2,792,340Rigs
                    
                    
                    6,731,758
                    
                    
                    
                    5,371,593Other
      property and equipment
                    
                    
                    4,942,145
                    
                    
                    
                    2,504,185Total
      property and equipment, net (Note 3)
                    
                    
                    16,232,653
                    
                    
                    
                    12,076,043Other
      assetsDeposits
                    
                    
                    338,772
                    
                    
                    
                    309,833Investment
      in marketable securities (Note 13)
                    
                    
                    440,000
                    
                    
                    
                    -Investments
      in partnerships (Note 5)
                    
                    
                    17,400
                    
                    
                    
                    17,400Goodwill
                    
                    
                    212,414
                    
                    
                    
                    212,414Other
                    
                    
                    20,413
                    
                    
                    
                    20,413Total
      other assets
                    
                    
                    1,028,999
                    
                    
                    
                    560,060Total
      assets
                    
                    $
                    25,254,895
                    
                    
                    $
                    28,654,125





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


34


TRI-VALLEY
CORPORATION


CONSOLIDATED
BALANCE SHEETS





December 31,2007
                    
                    
                    2006LIABILITIES AND STOCKHOLDERS’
      EQUITYCurrent
      liabilitiesNotes
      payable
                    
                    $
                    402,003
                    
                    
                    $
                    619,069Notes
      payable – related parties
                    
                    
                    
                    
                    
                    
                    501,036Deferred
      revenue
                    
                    
                    242,163
                    
                    
                    
                    -Accounts
      payable and accrued expenses
                    
                    
                    5,699,153
                    
                    
                    
                    2,237,116Amounts
      payable to joint venture participants
                    
                    
                    281,419
                    
                    
                    
                    280,815Advances
      from joint venture participants, net
                    
                    
                    3,671,927
                    
                    
                    
                    5,408,909Total
      current liabilities
                    
                    
                    10,296,665
                    
                    
                    
                    9,046,945Non-Current
      LiabilitiesDue
      to joint ventures
                    
                    
                    -
                    
                    
                    
                    -Asset
      Retirement Obligation
                    
                    
                    240,394
                    
                    
                    
                    216,714Long-term
      portion of notes payable – related parties
                    
                    
                    
                    
                    
                    
                    698,963Long-term
      portion of notes payable
                    
                    
                    2,355,707
                    
                    
                    
                    2,047,885Total
      non-current liabilities
                    
                    
                    2,596,101
                    
                    
                    
                    2,963,562Total
      liabilities
                    
                    
                    12,892,766
                    
                    
                    
                    12,010,507Minority
      interest
                    
                    
                    249,945
                    
                    
                    
                    5,410,746Stockholders’
      equityCommon
      stock, $.001 par value; 100,000,000 shares authorized; 25,077,184 and
      23,546,655 issued and  outstanding at December 31, 2007, and
      2006
                    
                    
                    25,077
                    
                    
                    
                    23,407Less:
      common stock in treasury, at cost, 100,025 shares at December 31, 2007 and
      2006.
                    
                    
                    (13,370
                    )
                    
                    
                    (13,370
                    )Capital
      in excess of par value
                    
                    
                    37,090,714
                    
                    
                    
                    28,692,780Additional
      paid in capital – warrants
                    
                    
                    782,729
                    
                    
                    
                    247,313Additional
      paid in capital – stock options
                    
                    
                    1,800,642
                    
                    
                    
                    1,262,404Accumulated
      deficit
                    
                    
                    (27,586,553
                    )
                    
                    
                    (18,979,662
                    )Accumulated
      other comprehensive income
                    
                    
                    12,945
                    
                    
                    
                    -Total
      stockholders’ equity
                    
                    
                    12,112,184
                    
                    
                    
                    11,232,872Total
      liabilities, minority interest and stockholder’s equity
                    
                    $
                    25,254,895
                    
                    
                    $
                    28,654,125





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


35


TRI-VALLEY
CORPORATION


CONSOLIDATED
STATEMENTS OF OPERATIONS





2007
                
                
                2006
                
                
                2005RevenuesSale
      of oil and gas
                
                $
                761,279
                
                
                $
                1,029,606
                
                
                $
                901,159Rig
      income
                
                
                2,726,692
                
                
                
                873,368
                
                
                
                -Royalty
      income
                
                
                -
                
                
                
                -
                
                
                
                883Partnership
      income
                
                
                30,000
                
                
                
                45,000
                
                
                
                30,000Interest
      income
                
                
                282,785
                
                
                
                72,707
                
                
                
                118,608Drilling
      and development
                
                
                6,131,613
                
                
                
                2,497,256
                
                
                
                11,422,234Other
      income
                
                
                1,083,738
                
                
                
                418,786
                
                
                
                53,226Total
      revenues
                
                
                11,016,107
                
                
                
                4,936,723
                
                
                
                12,526,110Costs
      and expensesMining
      exploration costs
                
                
                391,255
                
                
                
                510,583
                
                
                
                4,112,717Production
      costs
                
                
                430,068
                
                
                
                388,700
                
                
                
                93,429Drilling
      and development
                
                
                5,010,799
                
                
                
                1,799,792
                
                
                
                9,267,621Rig
      operating expenses
                
                
                1,374,649
                
                
                
                566,649
                
                
                
                -General
      and administrative
                
                
                10,372,892
                
                
                
                6,110,921
                
                
                
                3,521,311Interest
                
                
                258,829
                
                
                
                396,672
                
                
                
                118,047Investment
                
                
                203,782
                
                
                
                -
                
                
                
                -Depreciation,
      depletion and amortization
                
                
                1,238,733
                
                
                
                585,439
                
                
                
                242,527Impairment
      of acquisition costs
                
                
                481,930
                
                
                
                459,243
                
                
                
                90,165Total
      costs and expenses
                
                
                19,762,937
                
                
                
                10,817,999
                
                
                
                17,445,817Loss
      from continuing operations, before income taxes and discontinued
      operations
                
                
                (8,746,830
                )
                
                
                (5,881,276
                )
                
                
                (4,919,707
                )Tax
      provision
                
                
                -
                
                
                
                -
                
                
                
                -Loss
      from continuing operations, before discontinued operations
                
                
                (8,746,830
                )
                
                
                (5,881,276
                )
                
                
                (4,919,707
                )Loss
      from discontinued operations (Note 12)
                
                
                -
                
                
                
                (4,774,840
                )
                
                
                (4,810,364
                )Gain
      on disposal of discontinued operations (Note 12)
                
                
                -
                
                
                
                9,715,604
                
                
                
                -Loss
      before minority interest
                
                $
                (8,746,830
                )
                
                $
                (940,512
                )
                
                $
                (9,730,071
                )Minority
      interest
                
                
                (139,939
                )
                
                $
                (27,341
                )
                
                
                -Net
      Loss
                
                $
                (8,606,891
                )
                
                $
                (913,171
                )
                
                $
                (9,730,071
                )Basic
      net loss per share:Loss
      from continuing operations
                
                $
                (0.35
                )
                
                $
                (0.25
                )
                
                $
                (0.22
                )Income
      (loss)  from discontinued operations, net
                
                $
                -
                
                
                $
                0.21
                
                
                $
                (0.21
                )Basic
      loss per common share
                
                $
                (0.35
                )
                
                $
                (0.04
                )
                
                $
                (0.43
                )Weighted
      average number of shares outstanding
                
                
                24,723,766
                
                
                
                23,374,205
                
                
                
                22,426,580Potentially
      dilutive shares outstanding
                
                
                28,061,401
                
                
                
                26,377,537
                
                
                
                25,030,468





No
dilution is reported since net income is a loss per SFAS 128


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


36


TRI-VALLEY
CORPORATION


CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ EQUITY




AdditionalPaid inTotal
                          
                          
                          
                          
                          
                          
                          
                          
                          Capital in
                          
                          
                          Warrants &
                          
                          
                          Common
                          
                          
                          Accumu-Common
                          
                          
                          Treasury
                          
                          
                          Par
                          
                          
                          Excess of
                          
                          
                          Stock
                          
                          
                          Stock
                          
                          
                          lated
                          
                          
                          Treasury
                          
                          
                          Other
                          
                          
                          Stockholders’Shares
                          
                          
                          Shares
                          
                          
                          Value
                          
                          
                          Par Value
                          
                          
                          Options
                          
                          
                          Receivable
                          
                          
                          Déficit
                          
                          
                          Stock
                          
                          
                          Comprehensive
                            Income
                          
                          
                          EquityBalance
      at December 31, 2004
                          
                          
                          21,836,052
                          
                          
                          
                          100,025
                          
                          
                          
                          21,836
                          
                          
                          
                          15,125,607
                          
                          
                          
                          -
                          
                          
                          
                          (750
                          )
                          
                          
                          (8,336,420
                          )
                          
                          
                          (13,370
                          )
                          
                          
                          
                          
                          
                          6,796,903Issuance
      of common stock
                          
                          
                          970,124
                          
                          
                          
                          -
                          
                          
                          
                          970
                          
                          
                          
                          9,199,610
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          9,200,580Stock
      issuance cost
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (432,067
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          (432,067
                          )Common
      stock receivable
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          750
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          750Drilling
      program equity
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          1,736,625
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          1,736,625Net
      loss
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (9,730,071
                          )
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          (9,730,071
                          )Balance
      atDecember
      31, 2005
                          
                          
                          22,806,176
                          
                          
                          
                          100,025
                          
                          
                          $
                          22,806
                          
                          
                          $
                          25,629,775
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          (18,066,491
                          )
                          
                          $
                          (13,370
                          )
                          
                          
                          
                          
                          $
                          7,572,720Issuance
      of common stock
                          
                          
                          740,479
                          
                          
                          
                          
                          
                          
                          
                          601
                          
                          
                          
                          3,373,745
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          3,374,346Stock
      issuance cost
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (310,740
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          (310,740
                          )Warrants
      (see note 10)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          247,313
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          247,313Stock
      Based Compensation (see note 5)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,262,404
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          1,262,404Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (913,171
                          )
                          
                          
                          
                          
                          
                          
                          
                          
                          
                          (913,171
                          ))Balance
      atDecember
      31, 2006
                          
                          
                          23,546,655
                          
                          
                          
                          100,025
                          
                          
                          $
                          23,407
                          
                          
                          $
                          28,692,780
                          
                          
                          $
                          1,509,717
                          
                          
                          
                          -
                          
                          
                          $
                          (18,979,662
                          )
                          
                          $
                          (13,370
                          )
                          
                          
                          
                          
                          $
                          11,232,872Issuance
      of common stock
                          
                          
                          1,530,529
                          
                          
                          
                          
                          
                          
                          
                          -
                          
                          
                          
                          9,479,833
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          9,479,833Stock
      issuance cost
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,670
                          
                          
                          
                          (1,081,900
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (1,080,230
                          )Warrants
      (see note 10)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          $
                          1,073,654
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          1,073,654Stock
      Based Compensation (see note 5)
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          
                          
                          
                          
                          -Other
      Comprehensive
                            income
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          12,945
                          
                          
                          
                          12,945Net
      loss
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (8,606,891
                          )
                          
                          
                          -
                          
                          
                          
                          -
                          
                          
                          
                          (8,606,891
                          )Balance
      atDecember
      31, 2007
                          
                          
                          25,077,184
                          
                          
                          
                          100,025
                          
                          
                          $
                          25,077
                          
                          
                          $
                          37,090,713
                          
                          
                          $
                          2,583,371
                          
                          
                          
                          -
                          
                          
                          $
                          (27,586,553
                          )
                          
                          $
                          (13,370
                          )
                          
                          
                          12,945
                          
                          
                          $
                          12,112,183





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


37




TRI-VALLEY
CORPORATION


CONSOLIDATED
STATEMENTS OF CASH FLOWS





For the Years Ended December 31,2007
                  
                  
                  2006
                  
                  
                  2005CASH
      PROVIDED (USED) BY OPERATING ACTIVITIESNet
      loss
                  
                  $
                  (8,606,891
                  )
                  
                  $
                  (913,171
                  )
                  
                  $
                  (9,730,071
                  )Loss
      from discontinued operations
                  
                  
                  -
                  
                  
                  
                  4,774,840
                  
                  
                  
                  4,810,364Gain
      on disposal of discontinued operations, net
                  
                  
                  -
                  
                  
                  
                  (9,715,604
                  )
                  
                  
                  -Loss
      from continuing operations
                  
                  
                  (8,606,891
                  )
                  
                  
                  (5,853,935
                  )
                  
                  
                  (4,919,707
                  )Adjustments
      to reconcile net (loss) to net cash provided (used) by operating
      activities:Depreciation,
      depletion, and amortization
                  
                  
                  1,238,733
                  
                  
                  
                  585,439
                  
                  
                  
                  242,527Impairment,
      dry hole and other disposals of property
                  
                  
                  481,930
                  
                  
                  
                  459,243
                  
                  
                  
                  90,165Minority
      interest
                  
                  
                  (139,939
                  )
                  
                  
                  (27,341
                  )
                  
                  
                  -Loss
      on buyback of minority interest
                  
                  
                  169,374
                  
                  
                  
                  -
                  
                  
                  
                  -Stock-based
      compensation costs, net of taxes
                  
                  
                  831,752
                  
                  
                  
                  1,262,404
                  
                  
                  
                  -Warrant
      costs from issuance of restricted common stock
                  
                  
                  384,352
                  
                  
                  
                  247,313
                  
                  
                  
                  -Marketable
      securities
                  
                  
                  (380,000
                  )
                  
                  
                  -
                  
                  
                  
                  -(Gain)
      or loss on sale of property
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  131,766Property,
      mining claims & services paid with common stock
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  5,666,575Director
      stock compensation
                  
                  
                  112,428Changes
      in operating capital:(Increase)
      decrease in accounts receivable
                  
                  
                  63,757
                  
                  
                  
                  85,419
                  
                  
                  
                  (89,862
                  )(Increase)
      decrease in prepaids
                  
                  
                  30,500
                  
                  
                  
                  -
                  
                  
                  
                  53,527(Increase)
      decrease in deposits and other assets
                  
                  
                  (28,939
                  )
                  
                  
                  (19,088
                  )
                  
                  
                  (14,874
                  )Increase
      (decrease) in income taxes payable
                  
                  
                  -
                  
                  
                  
                  -
                  
                  
                  
                  -Increase
      (decrease) in accounts payable, deferred revenue and accrued
      expenses
                  
                  
                  3,704,199
                  
                  
                  
                  635,880
                  
                  
                  
                  (445,454
                  )Increase
      (decrease) in amounts payable to joint venture participants and related
      parties
                  
                  
                  604
                  
                  
                  
                  (82,680
                  )
                  
                  
                  263,380Increase
      (decrease) in advances from joint
      venture  participants
                  
                  
                  (1,736,982
                  )
                  
                  
                  90,264
                  
                  
                  
                  (1,003,031
                  )Net
      cash provided by (used in) continuing operations
                  
                  
                  (3,875,122
                  )
                  
                  
                  (2,617,082
                  )
                  
                  
                  (24,988
                  )Net
      cash provided by (used in) discontinued operations
                  
                  
                  -
                  
                  
                  
                  543,073
                  
                  
                  
                  (4,446,650
                  )Net
      Cash Provided (Used) by Operating Activities
                  
                  
                  (3,875,122
                  )
                  
                  
                  (2,074,009
                  )
                  
                  
                  (4,471,638
                  )





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


38


TRI-VALLEY CORPORATIONCONSOLIDATED
STATEMENTS OF CASH FLOWS (Continued)





For the Years Ended December 31,2007
                      
                      
                      2006
                      
                      
                      2005CASH
      PROVIDED (USED) BY INVESTING ACTIVITIESProceeds
      from sale of property
                      
                      
                      -
                      
                      
                      
                      461,752
                      
                      
                      
                      -Buy
      back of minority interest in GVDC/GVPS
                      
                      
                      (5,019,440
                      )
                      
                      
                      -
                      
                      
                      
                      -Proceeds
      from sale of discontinued operations
                      
                      
                      -
                      
                      
                      
                      13,838,625
                      
                      
                      
                      -Member
      capital distributions
                      
                      
                      (170,796
                      )
                      
                      
                      -
                      
                      
                      
                      -Capital
      expenditures
                      
                      
                      (5,853,593
                      )
                      
                      
                      (5,760,034
                      )
                      
                      
                      (6,494,822
                      )(Investment
      in) marketable securities
                      
                      
                      (47,056
                      )
                      
                      
                      -
                      
                      
                      
                      -Net
      cash provided by (used in) continuing operations
                      
                      
                      (11,090,885
                      )
                      
                      
                      8,540,343
                      
                      
                      
                      (6,494,822
                      )Net
      cash provided by (used in) discontinued operations
                      
                      
                      -
                      
                      
                      
                      (225,042
                      )
                      
                      
                      (4,256,602
                      )Net
      Cash Provided (Used) by Investing Activities
                      
                      
                      (11,090,885
                      )
                      
                      
                      8,315,301
                      
                      
                      
                      (10,751,424
                      )CASH
      PROVIDED (USED) BY FINANCING ACTIVITIESProceeds
      from long-term debt
                      
                      
                      -
                      
                      
                      
                      1,017,559
                      
                      
                      
                      -Proceeds
      from long-term debt – related parties
                      
                      
                      -
                      
                      
                      
                      1,200,000
                      
                      
                      
                      3,666,765Principal
      payments on long-term debt
                      
                      
                      (1,109,241
                      )
                      
                      
                      (4,909,204
                      )
                      
                      
                      (311,673
                      )Net
      proceeds from the sale of minority
                      
                      
                      -
                      
                      
                      
                      5,438,087
                      
                      
                      
                      -Net
      proceeds from the issuance of warrants
                      
                      
                      268,197
                      
                      
                      
                      -
                      
                      
                      
                      -Net
      proceeds from issuance of common stock
                      
                      
                      7,876,529
                      
                      
                      
                      2,442,890
                      
                      
                      
                      3,101,938Net
      cash provided by (used in) continuing operations
                      
                      
                      7,035,485
                      
                      
                      
                      5,189,332
                      
                      
                      
                      6,457,030Net
      cash provided by (used in) discontinued operations
                      
                      
                      -
                      
                      
                      
                      (709,330
                      )
                      
                      
                      1,830,033Net
      Cash Provided (Used) by Financing Activities
                      
                      
                      7,035,485
                      
                      
                      
                      4,480,002
                      
                      
                      
                      8,287,063Net
      Increase (Decrease) in Cash and Cash Equivalents
                      
                      
                      (7,930,522
                      )
                      
                      
                      10,721,294
                      
                      
                      
                      (6,935,999
                      )Cash
      at Beginning of Year
                      
                      
                      15,598,215
                      
                      
                      
                      4,876,921
                      
                      
                      
                      11,812,920Cash
      of End of Year
                      
                      $
                      7,667,693
                      
                      
                      $
                      15,598,215
                      
                      
                      $
                      4,876,921Interest
      paid
                      
                      $
                      258,829
                      
                      
                      $
                      352,815
                      
                      
                      $
                      377,943Income
      taxes paid
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      -Property
      purchased with debt
                      
                      $
                      31,948
                      
                      
                      $
                      -
                      
                      
                      $
                      -Property
      & services paid with common stock
                      
                      $
                      -
                      
                      
                      $
                      620,716
                      
                      
                      $
                      2,662,075Stock
      issued in exchange for mining claims
                      
                      $
                      -
                      
                      
                      $
                      -
                      
                      
                      $
                      3,004,500





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


39


TRI-VALLEY
CORPORATION


NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE
1 – GENERAL





History and Business
Activity





Tri-Valley
Corporation (“TVC” or the Company), a Delaware corporation formed in 1971, is in
the business of exploring, acquiring and developing petroleum and precious
metals properties and interests therein.  Tri-Valley has five
subsidiaries.  Tri-Valley Oil & Gas Company (“TVOG”) operates the
oil & gas activities and derives the majority of its revenue from oil and
gas; Select Resources which handles all precious and industrial mineral
interests; Great Valley Production Services, Inc., which was formed in February
2006 to operate oil production, rigs, primarily for TVOG; Great Valley Drilling
Company which was formed in 2006 to operate oil drilling rigs, primarily for
third parties and Tri-Valley Power Corporation which is inactive (see Item 1
Business for detail of GVPS and GVDC).  The Company sold its joint
venture interest in Tri-Western Resources, LLC on November 15,
2006.  GVPS had minority interest of 10% outside ownership by outside
third parties as of December 31, 2007.  GVDC’s is wholly owned by TVC
as of year-end 2007.




The
Company conducts its oil and gas business primarily through Tri-Valley Oil &
Gas Company. TVOG is engaged in the exploration, acquisition and production of
oil and gas properties.  Substantially all of the Company’s oil and
gas reserves are located in California.




In 1987,
the Company added precious metals exploration.  Select conducts
precious metals exploration activities. TVC has traditionally sought acquisition
or merger opportunities within and outside of petroleum and mineral
industries.




For
purposes of reporting operating segments, the Company is involved in four
areas.  These are oil and gas production, rig operations, minerals,
and drilling and development.




NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




This
summary of significant accounting policies of Tri-Valley Corporation is
presented to assist in understanding the Company's financial statements. The
financial statements and notes are representations of the Company's management,
which is responsible for their integrity and objectivity.  These
accounting policies conform to accounting principles generally accepted in the
United States of America and have been consistently applied in the preparation
of the financial statements.




Principles of
Consolidation




The
consolidated financial statements include the accounts of the Company, its
wholly owned subsidiaries, TVOG, Select, GVDC, Tri-Valley Power Corporation,
since their inception.  GVPS, where the Company has retained a 90%
ownership interest, is also included in the consolidation.  Other
partnerships in which the Company has an operating or nonoperating interest in
which the Company is not the primary beneficiary and owns less than 51%, are
proportionately combined.  This includes Opus I, Martins-Severin,
Martins-Severin Deep, and Tri-Valley Exploration 1971-1
partnerships.  All material intra and intercompany accounts and
transactions have been eliminated in combination and consolidation.




Use of Estimates in the
Preparation of Financial Statements




The
preparation of our consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
assets, liabilities, revenues, expenses and some narrative disclosures. Actual
results could differ from those estimates.  The estimates that are
most critical to our consolidated financial statements involve oil and gas
reserves, recoverability and impairment of reserves, and useful lives of
assets.




40




Oil and
Gas Reserves. Estimates of our proved oil and gas reserves included in this
report are prepared in accordance with GAAP and SEC guidelines and were based on
evaluations audited by independent petroleum engineers with respect to our major
properties. The accuracy of a reserve report estimate is a function
of:




-           The
quality and quantity of available data;


-           The
interpretation of that data;


-           The
accuracy of various mandated economic assumptions; and


-           The
judgment of the persons preparing the estimate.





Because
these estimates depend on many assumptions, all of which may substantially
differ from future actual results, reserve estimates will be different from the
quantities of oil and gas that are ultimately recovered. In addition, results of
drilling, testing and production after the date of an estimate may justify
material revisions to the estimate.




It should
not be assumed that the present value of future net cash flows included in this
Report as of December 31, 2007 is the current market value of our estimated
proved reserves. In accordance with SEC requirements, we have based the
estimated present value of future net cash flows from proved reserves on prices
and costs on the date of the estimate. Actual future prices and cost may be
materially higher or lower than the prices and costs as of the date of the
estimate.




Estimates
of proved reserves materially impact depletion expense. If the estimates of
proved reserves decline, the rate at which we record depletion expense will
increase, reducing future net income. Such a decline may result from lower
market prices, which may make it uneconomic to drill for and produce higher cost
fields. In addition, a decline in proved reserve estimates may impact the
outcome of our assessment of its oil and gas producing properties for
impairment.




Impairment
of Proved Oil and Gas Properties. We review our long-lived proved properties,
consisting of oil and gas reserves, at least annually and record impairments to
those properties, whenever management determines that events or circumstances
indicate that the recorded carrying value of the properties may not be
recoverable. Proved oil and gas properties are reviewed for impairment by
depletable field pool, which is the lowest level at which depletion of proved
properties are calculated. Management assesses whether or not an impairment
provision is necessary based upon its outlook of future commodity prices and net
cash flows that may be generated by the properties. We determine that a property
is impaired when prices being paid for oil or gas make it no longer profitable
to drill on, or to continue production on, that property. Price increases over
the past three years have reduced the instances where impairment of reserves
appeared to be required.




Additional
production data indicated the initial reserve estimates would not be achievable,
so we reduced reserves accordingly. If petroleum prices, particularly natural
gas prices, in Northern California begin to fall in the future, more of our
proved developed reserves could become impaired, which would reduce our
estimates of future revenue, our proved reserve estimates and our
profitability.




Asset
Retirement Obligations. We adopted SFAS No. 143, "Accounting for Asset Retirement
Obligations" effective January 1, 2003. Under this guidance, management
is required to make judgments based on historical experience and future
expectations regarding the future abandonment cost of its oil and gas properties
and equipment as well as an estimate of the discount rate to be used in order to
bring the estimated future cost to a present value. The discount rate is based
on the risk free interest rate which is adjusted for our credit worthiness. The
adjusted risk free rate is then applied to the estimated abandonment costs to
arrive at the obligation existing at the end of the period under review. We
review our estimate of the future obligation quarterly and accrue the estimated
obligation based on the above.




Cash Equivalent and
Short-Term Investments




Cash
equivalents include cash on hand and on deposit, and highly liquid debt
instruments with original maturities of three months or less.  The
majority of these funds are held at Smith Barney.




41




Goodwill




The
consolidated financial statements include the net assets purchased of Tri-Valley
Corporation’s wholly owned oil and gas subsidiary, TVOG.  Net assets
are carried at their fair market value at the acquisition date.  On
January 1, 2002, Tri-Valley Corporation adopted Financial Accounting Standards
Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 142, “Goodwill and Other Intangible
Assets” (SFAS 142).  Under SFAS 142, goodwill is a
non-amortizable asset, and is subject to a periodic review for
impairment.  Prior to the implementation of SFAS 142, the Company had
goodwill of $212,414 that was being amortized.   The carrying
amount of goodwill is evaluated periodically.  Factors used in the
evaluation include the Company’s ability to raise capital as a public company
and anticipated cash flows from operating and non-operating mineral
properties.




Advances from Joint Venture
Participants




Advances
received by the Company from joint venture partners for contract drilling
projects, which are to be spent by the Company on behalf of the joint venture
partners, are classified within operating inflows on the basis they do not meet
the definition of financing or investing activities. When the cash advances are
spent, the payable is reduced accordingly. These advances do not contribute to
the Company's operating profits and are accounted for or disclosed as balance
sheet entries only i.e. within cash and payable to joint venture
participants.




Revenue
Recognition




Sale
of Oil and Gas


Crude oil
and natural gas revenues are recognized as production occurs, the title and risk
of loss transfers to a third party purchaser, net of royalties, discounts, and
allowances, as applicable. Oil and gas revenues from producing wells are
recognized when title and risk of loss is transferred to the purchaser of the
oil or gas.  Oil and gas production is recorded each month based on
when the cash is received.




Drilling
and Development


Oil and
gas prospects are developed by the Company for sale to industry partners and
drilling investors.  These prospects are usually exploratory, and
include costs of leasing, acquisition, and other geological and geophysical
costs (hereafter referred to as “GGLA”) plus a profit to the
Company.  Prior to 2002, the Company recognized revenue and profit
from prospects sales when sold, irrespective of drilling commencement
(“spudding”).




Starting
2002 the Company changed its prospect offerings by inclusion of estimated costs
of drilling in addition to GGLA costs. This offering is termed a “turnkey”
exploratory drilling opportunity because drilling investors are charged only one
certain amount in return for Tri-Valley drilling a well to the agreed total
depth.  The drilling investor only is charged the total “turnkey”
amount, and is not liable for any additional costs associated with drilling to
the agreed total depth.  Once the well is drilled to total depth and
revenue has been recognized, the drilling partners own 75% of the well and
Tri-Valley owns 25% of the well.




If the
well has been spudded and the well is not drilled to total depth or goes
unlogged, Tri-Valley is responsible to drill another well to the agreed total
depth per the “turnkey” contract.  The drilling partners are not
obligated for any additional costs to drill another well other than the original
“turnkey” amount.




Once the
well is spudded, drilling investor money is not refundable.  In
conformity with the guidelines provided in SEC Staff Accounting Bulletin (SAB)
Topic 13, Tri-Valley only recognizes revenue when it is realized and
earned.  Tri-Valley considers “turnkey” revenue to be earned when the
well is logged. Amounts charged are included in an Authority for Expenditure
(AFE), which is a budget for each project well.  Tri-Valley prepares
the AFE and bears all risk of well completion to total depth.  If the
well is drilled to total depth for actual costs less than the AFE amounts, the
Company realizes a profit. Conversely, if actual costs exceed the AFE,
Tri-Valley realizes a loss and is liable for all costs beyond the “turnkey”
amount.




Drilling
Agreements/Joint Ventures


Tri-Valley
frequently participates in drilling agreements whereby it acts as operator of
drilling and producing activities.  As operator, TVOG is liable for
the activities of these ventures.  In the initial well in a prospect,
the Company owns a carried interest and/or overriding royalty interest in such
ventures, earning a working interest upon commencement of
drilling.  Costs of subsequent wells drilled in a prospect are shared
by a pro rata interest.




42




Receivables
from and amounts payable to these related parties (as well as other related
parties) have been segregated in the accompanying financial statements. For
turnkey projects, amounts received for drilling activities, which have not been
spudded are deferred and remain within the joint venture liability, in
accordance with the Company’s revenue recognition policies.  Revenue
is recognized upon the completion of drilling operations and the well is
logged.  Actual or estimated costs to complete the drilling are
charged as costs against this revenue.




Impairment of Long-lived and
Intangible Assets




The
Company evaluates its long-lived assets (property, plant and equipment) and
definite-lived intangible assets for impairment whenever indicators of
impairment exist, or when it commits to sell the asset. The accounting standards
require that if the sum of the undiscounted expected future cash flows from a
long-lived asset or definite-lived intangible asset is less than the carrying
value of that asset, an asset impairment charge must be recognized. The amount
of the impairment charge is calculated as the excess of the asset’s carrying
value over its fair value, which generally represents the discounted future cash
flows from that asset, or in the case of assets the Company evaluates for sale,
at fair value less costs to sell. A number of significant assumptions and
estimates are involved in developing operating cash flow forecasts for the
Company’s discounted cash flow model, sales volumes and prices, costs to
produce, working capital changes and capital spending requirements. The Company
considers historical experience, and all available information at the time the
fair values of its assets are estimated. However, fair values that could be
realized in an actual transaction may differ from those used to evaluate the
impairment of long-lived assets and definite-lived intangible assets. Therefore,
assumptions and estimates used in the determination of impairment losses may
affect the carrying value of long-lived and intangible assets, and possible
impairment expense in the Company’s Consolidated Financial
Statements.




Oil and Gas Property and
Equipment (Successful Efforts)




The
Company accounts for its oil and gas exploration and development costs using the
successful efforts method.  Under this method, costs to acquire
mineral interests in oil and gas properties, to drill and complete exploratory
wells that find proved reserves and to drill and complete development wells are
capitalized.  Exploratory dry-hole costs, geological and geophysical
costs and costs of carrying and retaining unproved properties are expensed when
incurred, except those GGLA expenditures incurred on behalf of joint venture
drilling projects, which the Company defers until the GGLA is sold at the
completion of project funding and the target prospect is drilled. Expenditures
incurred in drilling exploratory wells are accumulated as work in process until
the Company determines whether the well has encountered commercial oil and gas
reserves.




If the
well has encountered commercial reserves, the accumulated cost is transferred to
oil and gas properties; otherwise, the accumulated cost, net of salvage value,
is charged to dry hole expense. If the well has encountered commercial reserves
but cannot be classified as proved within one year after discovery, then the
well is considered to be impaired, and the capitalized costs (net of any salvage
value) of drilling the well are charged to expense. In 2007, 2006, and 2005
there was $481,930, $459,243and $90,165 respectively, charged to expense for
impairment of exploratory well costs. Depletion, depreciation and amortization
of oil and gas producing properties are computed on an aggregate basis using the
units-of-production method based upon estimated proved developed
reserves.




At
December 31, 2007 and 2006, the Company carried unproved property costs of $1.80
million and $2.79 million, respectively.  Generally accepted
accounting principles require periodic evaluation of these costs on a
project-by-project basis in comparison to their estimated
value.  These evaluations will be affected by the results of
exploration activities, commodity price outlooks, planned future sales or
expiration of all or a portion of the leases, contracts and permits appurtenant
to such projects.  If the quantity of potential reserves determined by
such evaluations is not sufficient to fully recover the cost invested in each
project, the Company will recognize non cash charges in the earnings of future
periods.




Capitalized
costs relating to proved properties are depleted using the unit-of-production
method based on proved reserves.  Costs of significant non-producing
properties, wells in the process of being drilled and development projects are
excluded from depletion until such time as the related project is completed and
proved reserves are established or, if unsuccessful, impairment is
determined.


43


Upon the
sale of oil and gas reserves in place, costs less accumulated amortization of
such property are removed from the accounts and resulting gain or loss on sale
is reflected in operations. Impairment of non-producing leasehold costs and
undeveloped mineral and royalty interests are assessed periodically on a
property-by-property basis, and any impairment in value is currently charged to
expense.




Oil and Gas Property and
Equipment (Successful Efforts, continued)




In
addition, we assess the capitalized costs of unproved properties periodically to
determine whether their value has been impaired below the capitalized costs. We
recognize a loss to the extent that such impairment is indicated. In making
these assessments, we consider factors such as exploratory drilling results,
future drilling plans, and lease expiration terms.  When an entire
interest in an unproved property is sold, gain or loss is recognized, taking
into consideration any recorded impairment. When a partial interest in an
unproved property is sold, the amount is treated as a reduction of the cost of
the interest retained, with excess revenue and carrying costs being recognized.
Upon abandonment of properties, the reserves are deemed fully depleted and any
unamortized costs are recorded in the statement of operations under leases sold,
relinquished and impaired.




As of
January 1, 2005, the Company adopted FASB Staff Position FAS 19-1, “Accounting for Suspended Well
Costs.”  Upon adoption of the FSP, the Company evaluated all
existing capitalized exploratory well costs under the provisions of the
FSP.  As a result, the Company determined that there were no
capitalized costs of exploratory wells during 2007, 2006 and 2005, and does not
include amounts that were capitalized and subsequently expensed in the same
period.




Asset
retirement obligations.  The Company has significant obligations to
remove tangible equipment and facilities and to restore land at the end of oil
and gas production operations. The Company’s removal and restoration obligations
are primarily associated with plugging and abandoning wells and removing and
disposing of oil and gas wells. Estimating the future restoration and removal
costs is difficult and requires management to make estimates and judgments
because most of the removal obligations are many years in the future and
contracts and regulations often have vague descriptions of what constitutes
removal. Asset removal technologies and costs are constantly changing, as are
regulatory, political, environmental, safety and public relations
considerations.




On
January 1, 2003, the Company adopted the provisions of SFAS 143.
SFAS 143 significantly changed the method of accruing for costs an entity
is legally obligated to incur related to the retirement of fixed assets.
SFAS 143, together with the related FASB Interpretation No. 47, “Accounting for Conditional Asset
Retirement Obligations, an Interpretation of FASB Statement No. 143”
(“FIN 47”), requires the Company to record a separate liability for the
discounted present value of the Company’s asset retirement obligations, with an
offsetting increase to the related oil and gas properties on the balance
sheet.




Inherent
in the present value calculation are numerous assumptions and judgments
including the ultimate settlement amounts, inflation factors, credit adjusted
discount rates, timing of settlement, and changes in the legal, regulatory,
environmental and political environments. To the extent future revisions to
these assumptions impact the present value of the existing asset retirement
obligations, a corresponding adjustment is made to the oil and gas property
balance.




The
Company’s asset retirement obligations primarily relate to the future plugging
and abandonment of proved properties and related facilities.  The
Company has no assets that are legally restricted for purposes of settling asset
retirement obligations.  The following table summarizes the Company’s
asset retirement obligation transactions recorded in accordance with the
provisions of SFAS 143 during the years ended December 31, 2007, 2006, and
2005.


44


NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




December 31,
                                          
                                          
                                          December 31,
                                          
                                          
                                          December 31,2007
                                          
                                          
                                          2006
                                          
                                          
                                          2005Beginning
      asset retirement obligations
                                          
                                          $
                                          216,714
                                          
                                          
                                          $
                                          92,108
                                          
                                          
                                          $
                                          0Liabilities
      assumed in acquisitions
                                          
                                          
                                          2,380
                                          (3)
                                          
                                          
                                          111,364
                                          (2)
                                          
                                          
                                          92,108
                                          (1)Accretion
      of discount
                                          
                                          
                                          21,300
                                          
                                          
                                          
                                          13,242Ending
      asset retirement obligations
                                          
                                          $
                                          240,394
                                          
                                          
                                          $
                                          216,714
                                          
                                          
                                          $
                                          92,108





Oil and Gas Property and
Equipment (Successful Efforts, continued)




(1)
            The
      Company’s portion of the liability for the plugging and abandonment of the
      wells acquired from the Temblor Valley, Pleasant Valley and previous
      acquisitions.




(2)
            The
      Company’s portion of the liability for the plugging and abandonment of the
      wells acquired from the C & L/Crofton & Coffee lease, the Claflin
      lease and the SP/Chevron lease.




(3)
            The
      Company’s portion of the liability for the plugging and abandonment of
      wells drilled from the Temblor Valley and Pleasant Valley
      acquisitions.




Gold Mineral
Property




The
Company has invested in several gold mineral properties with exploration
potential. All mineral claim acquisition costs and exploration and development
expenditures are charged to expense as incurred. We capitalize acquisition and
exploration costs only after persuasive engineering evidence is obtained to
support recoverability of these costs (ideally upon determination of proven
and/or probable reserves based upon dense drilling samples and feasibility
studies by a recognized independent engineer).  Currently, no amounts
have been capitalized.




Other Properties and
Equipment




Properties
and equipment are depreciated using the straight-line method over the following
estimated useful lives:




Office
      furniture and fixtures
                Vehicle,
      machinery & equipment
                Building
              3 -
      7 years
                5 -
      10 years
                15
      years





Leasehold
improvements are amortized over the life of the lease.




Maintenance
and repairs, which neither materially add to the value of the property nor
appreciably prolong its life, are charged to expense as
incurred.  Gains or losses on dispositions of property and equipment
other than oil and gas are reflected in operations.




Concentration of Credit Risk
and Fair Value of Financial Instruments




The
Company places its temporary cash investments with high credit quality financial
institutions and limits the amount of credit exposure to any one financial
institution.  Total uninsured cash at year end was $2.3
million.


45




NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




Fair
value of financial instruments is estimated to approximate the related book
value, unless otherwise indicated, based on market information available to the
Company.




Restriction on Cash in OPUS
I partnership




At
year-end 2007, there was $3.7 million in cash in the OPUS I partnership, which
is restricted for use by the OPUS partnership only.




Stock Based Compensation
Plans /Share-Based Payment




In
December 2004, the FASB issued SFAS No. 123(R), “Share-Based Payment”
(“SFAS No. 123 (R)”). This Statement revises SFAS No. 123 and
supersedes APB No. 25. SFAS No. 123(R) focuses primarily on the
accounting for transactions in which an entity obtains employee services in
share-based payment transactions. SFAS No. 123(R) requires companies
to recognize in the statement of operations the cost of employee services
received in exchange for awards of equity instruments based on the grant-date
fair value of those awards. This Statement is effective and was adopted in the
first quarter of 2006. The Company adopted SFAS No. 123(R) using the
modified prospective method, whereby the Company expensed the remaining portion
of the requisite service under previously granted unvested awards outstanding as
of January 1, 2006 and new share-based payment awards granted or modified
after January 1, 2006. The Company used the Black-Scholes valuation method
to estimate the fair value of its options. The Company calculates that
implementation of SFAS No. 123(R) resulted in additional expense
related to share-based employee and director compensation of approximately
$1,600,000 before tax in 2007.   See Note 5 to the Consolidated
Financial Statements in Item 8 for a further discussion related to the Company’s
Stock Incentive Plan.




December 31,
                    
                    
                    December 31,
                    
                    
                    December 31,2007
                    
                    
                    2006
                    
                    
                    2005Net
      Income
                    As
      reported
                    
                    $
                    ( 8,606,891
                    )
                    
                    $
                    ( 913,171
                    )
                    
                    $
                    (9,730,071
                    )Add:
      Stock-based compensation expense included in reported net income, net of
      tax benefit
                    
                    
                    
                    868,962
                    
                    
                    
                    1,262,404
                    
                    
                    
                    —Deduct:  Stock-based
      compensation expense determined under fair value based method for all
      awards, net of tax
                    
                    
                    
                    (868,962
                    )
                    
                    
                    (1,262,404
                    )
                    
                    
                    (631,000
                    )Pro
      forma
                    
                    $
                    (8,606,891
                    )
                    
                    $
                    (913,171
                    )
                    
                    $
                    (10,361,071
                    )Earnings
      per share
                    As
      reported
                    
                    
                    (0.35
                    )
                    
                    
                    (0.04
                    )
                    
                    
                    (0.43
                    )Pro
      forma
                    
                    
                    (0.35
                    )
                    
                    
                    (0.04
                    )
                    
                    
                    (0.46
                    )





Warrants
are accounted for under the guidelines established by APB Opinion No. 14 Accounting for Convertible Debt and
Debt issued with Stock Purchase Warrants (APB14)under the direction of
Emerging Issues Task Force (EITF) 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, (EITF 98-5)EITF 00-27 Application of Issue No 98-5 to
Certain Convertible Instruments and (EITF 00-27)


46





NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)




The
Company calculates the fair value of warrants issued with the convertible
instruments using the Black-Scholes valuation method, using the same assumptions
used for valuing employee stock options for purposes of SFAS No. 123R, except
that the expected life of the warrant is used. Under these guidelines,
the Company allocates the value of the proceeds received. The price allocated
for the warrants is calculated by subtracting the current market price of the
stock from the total proceeds of the sale of the restricted stock with the
warrant attached. The allocated fair value is recorded as capital paid in –
warrants.  This allocated fair value of the proceeds from the sale of
warrants is subtracted from the value of the warrants using the Black-Scholes
valuation method to calculate the stock issuance expense.




Treasury
Stock




The
Company records acquisition of its capital stock for treasury at cost.
Differences between proceeds for reissuance of treasury stock and average cost
are charged to retained earnings or credited thereto to the extent of prior
charges and thereafter to capital in excess of par value.




Recently
Issued Accounting Pronouncements




Asset Retirement
Obligation




In March
2005, the Financial Accounting Standards Board issued FASB Interpretation
No. 47, “Accounting for
Conditional Asset Retirement Obligations.”, Under the provisions of FIN
No. 47, the term conditional asset retirement obligation as used in SFAS
No. 143, “Accounting for
Asset Retirement Obligations”,refers to a legal obligation to perform an
asset retirement activity in which the timing and/or method of settlement are
conditional on a future event that may or may not be within the control of the
entity while the obligation to perform the asset retirement activity is
unconditional. Accordingly, an entity is required to recognize a liability for
the fair value of a conditional asset retirement obligation if the fair value of
the liability can be reasonably estimated. The fair value of a liability for the
conditional asset retirement obligation is required to be recognized when
incurred—generally upon acquisition, construction, or development and/or through
the normal operation of the asset. We have adopted FIN No. 47 as of
December 31, 2005. Adoption of this pronouncement did not have a
significant effect on our 2005, 2007 or 2007 consolidated financial statements,
and we do not expect this pronouncement to have a significant effect on our
future reported financial position or earnings.




Accounting for Certain
Hybrid Financial Instruments




In
February 2006, SFAS No. 155, Accounting for Certain Hybrid
Financial Instruments—an amendment of FASB Statements No. 133 and 140was
issued. This Statement resolves issues addressed in Statement 133 Implementation
Issue No. D1, Application of
Statement 133 to Beneficial Interests in Securitized Financial Assets.
SFAS No. 155 will become effective for our fiscal year beginning after December
31, 2006. We adopted this Interpretation in the first quarter of 2007 and the
adoption did not have a material impact on our financial position or results of
operations for the year ended December 31, 2007.




Accounting for Uncertainty
in Income Taxes




In July
2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation
No. 48, “Accounting for
Uncertainty in Income Taxes – An interpretation of FASB Statement No.
109” (“FIN 48”). This Interpretation provides a comprehensive model for the
financial statement recognition, measurement, presentation and disclosure of
uncertain tax positions taken or expected to be taken in income tax returns. We
adopted this Interpretation in the first quarter of 2007 and the adoption to
have a material impact on our financial position or results of
operations.


47




Fair Value
Measurements




In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.”
This Statement replaces multiple existing definitions of fair value with a
single definition, establishes a consistent framework for measuring fair value
and expands financial statement disclosures regarding fair value measurements.
This Statement applies only to fair value measurements that already are required
or permitted by other accounting standards and does not require any new fair
value measurements. SFAS No. 157 is effective for fiscal years beginning
subsequent to November 15, 2007. We will adopt this Statement in the first
quarter of 2008 and do not expect the adoption to have a material impact on our
financial position or results of operations.




The Fair Value Option for
Financial Assets and Financial Liabilities




In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities,” which permits an entity to measure
certain financial assets and financial liabilities at fair value. The objective
of SFAS No. 159 is to improve financial reporting by allowing entities to
mitigate volatility in reported earnings caused by the measurement of related
assets and liabilities using different attributes, without having to apply
complex hedge accounting provisions. Under SFAS No. 159, entities that elect the
fair value option (by instrument) will report unrealized gains and losses in
earnings at each subsequent reporting date. The fair value option election is
irrevocable, unless a new election date occurs. SFAS No. 159 establishes
presentation and disclosure requirements to help financial statement users
understand the effect of the entity’s election on its earnings, but does not
eliminate disclosure requirements of other accounting standards. Assets and
liabilities that are measured at fair value must be displayed on the face of the
balance sheet. This statement is effective beginning January 1, 2008 and we
do not expect the adoption to have a material impact on our financial position
or results of operations.


48




NOTE
3 – PROPERTY AND EQUIPMENT




Properties,
equipment and fixtures consist of the following:




2007
                                              
                                              
                                              2006Oil
      and gas – CaliforniaProved
      properties, gross
                                              
                                              $
                                              3,026,660
                                              
                                              
                                              $
                                              2,169,496Accumulated
      depletion
                                              
                                              
                                              (882,753
                                              )
                                              
                                              
                                              (761,571
                                              )Proved
      properties, net
                                              
                                              
                                              2,143,907
                                              
                                              
                                              
                                              1,407,925Unproved
      properties
                                              
                                              
                                              2,414,843
                                              
                                              
                                              
                                              2,792,340Total
      oil and gas properties
                                              
                                              
                                              4,558,750
                                              
                                              
                                              
                                              4,200,265Rigs
                                              
                                              
                                              7,492,975
                                              
                                              
                                              
                                              5,444,646Accumulated
      depreciation
                                              
                                              
                                              (761,217
                                              )
                                              
                                              
                                              (73,053
                                              )Total
      Rigs
                                              
                                              
                                              6,731,758
                                              
                                              
                                              
                                              5,371,593Other
      property and equipmentLand
                                              
                                              
                                              21,281
                                              
                                              
                                              
                                              21,281Building
                                              
                                              
                                              45,124
                                              
                                              
                                              
                                              45,124Machinery
      and Equipment
                                              
                                              
                                              4,875,326
                                              
                                              
                                              
                                              2,414,824Vehicles
                                              
                                              
                                              803,296
                                              
                                              
                                              
                                              407,739Transmission
      tower
                                              
                                              
                                              51,270
                                              
                                              
                                              
                                              51,270Office
      furniture and equipment
                                              
                                              
                                              149,229
                                              
                                              
                                              
                                              159,2415,945,526
                                              
                                              
                                              
                                              3,099,479Accumulated
      depreciation
                                              
                                              
                                              (1,003,381
                                              )
                                              
                                              
                                              (595,294
                                              )Total
      other property and equipment, net
                                              
                                              
                                              4,942,145
                                              
                                              
                                              
                                              2,504,185Property
      and equipment, net
                                              
                                              $
                                              16,232,653
                                              
                                              
                                              $
                                              12,076,043





Depreciation
expense for the year ended December 31, 2007 was $1,096,251 and for the year
ended December 31, 2006 was $473,418.  Carrying amount of assets
pledged as collateral for the year ended December 31, 2007 was
$5,027,268.  In 2006, the carrying amount of assets pledged as
collateral was $5,514,578.


49


NOTE
4 – NOTES PAYABLE




December 31,2007
                                                                          
                                                                          
                                                                          2006Note
      payable to Rabobank dated October 5, 2005, secured by a vehicle, interest
      at 6.5%, payable in 60 monthly installments of $599.
                                                                          
                                                                          $
                                                                          18,527
                                                                          
                                                                          
                                                                          $
                                                                          25,119Note
      payable to Jim Burke Ford dated November 18, 2005; secured by
      a vehicle; interest at 6.49%; payable in 60 monthly installments of
      $714.
                                                                          
                                                                          
                                                                          22,677
                                                                          
                                                                          
                                                                          
                                                                          30,520Note
      payable to Sealaska Corporation dated July 15, 2005; secured
      by mining machines and equipment; imputed interest at 7.5%; payable
      in 10 yearly installments of $200,000. Face amount was $2,000,000
      before the imputed interest discount of $627,184 which resulted in a
      principal amount of $1,372,816.
                                                                          
                                                                          
                                                                          1,171,461
                                                                          
                                                                          
                                                                          
                                                                          1,275,777Note
      payable to Jim Burke Ford dated November 18, 2005 paid in full
      during 2007; secured by a vehicle; interest at  6.49%; payable
      in 60 monthly installments of $493.
                                                                          
                                                                          
                                                                          -
                                                                          
                                                                          
                                                                          
                                                                          20,351Note
      payable to Three Way Chevrolet dated April 03, 2006; secured by a vehicle;
      interest at 5.90%; payable in 60 monthly installments of
    $577.
                                                                          
                                                                          
                                                                          20,926
                                                                          
                                                                          
                                                                          
                                                                          27,356Note
      payable to Three Way Chevrolet dated February 24, 2006; secured by a
      vehicle; interest at 9.70%; payable in 60 monthly installments of
      $1,324.
                                                                          
                                                                          
                                                                          44,018
                                                                          
                                                                          
                                                                          
                                                                          56,864Note
      payable to Moss Family Trust dated February 14, 2006; secured by 100,000
      shares of Tri Valley corporation unregistered restricted common stock;
      interest at 12.00%; payable in 60 monthly installments of
      $13,747.
                                                                          
                                                                          
                                                                          442,147
                                                                          
                                                                          
                                                                          
                                                                          547,108Note
      payable to Moss Family Trust dated March 8, 2006; secured by 40,000 shares
      of Tri Valley corporation unregistered restricted common stock; interest
      at 12.00%; payable in 60 monthly installments of $5,728
                                                                          
                                                                          
                                                                          184,228
                                                                          
                                                                          
                                                                          
                                                                          227,961




50





NOTE
4 – NOTES PAYABLE (Continued)





December 31,2007
                                
                                
                                2006Note
      payable to F. Lynn Blystone and Patricia L Blystone dated March 21, 2006
      paid in full during 2007; secured by 6% overriding royalty interest in the
      Temblor Valley Production; interest at 1.00% per month, paid in full April
      2007.
                                
                                
                                -
                                
                                
                                
                                150,000Note
      payable to Sun Valley Trust dated December 01, 2006 paid in full during
      2007; payable in 6 monthly installments of $50,000.
    Unsecured
                                
                                
                                -
                                
                                
                                
                                300,000Note
      payable to Three Way Chevrolet dated January 22, 2007; secured by a
      vehicle; interest at 6.90%; payable in 60 monthly installments of
      $622.
                                
                                
                                26,504
                                
                                
                                
                                -Note
      payable to Three Way Chevrolet dated September 11, 2006; secured by a
      vehicle; interest at 4.90%; payable in 60 monthly installments of
      $927.
                                
                                
                                38,000
                                
                                
                                
                                46,994Note
      payable to Three Way Chevrolet dated September 11, 2006; secured by a
      vehicle; interest at 6.90%; payable in 60 monthly installments of
      $633.
                                
                                
                                24,999
                                
                                
                                
                                30,631Note
      payable to Three Way Chevrolet dated October 31, 2006; secured by a
      vehicle; interest at 9.70%; payable in 60 monthly installments of
      $1,679.43.
                                
                                
                                62,259
                                
                                
                                
                                78,272Note
      payable to Gary D, Borgna and Julie R. Borgna, and Equipment 2000 dated
      December 30, 2006; secured by Rig Equipment; imputed interest at 8.00%;
      payable in 120 monthly installments of $9,100 and a payment of $300,000
      paid January 3, 2007.  Face amount was $1,392,000 before the
      discount of $342,000 which resulted in a principal amount of $1,050,000.
      (also see note 5 – related party transactions)
                                
                                
                                698,964
                                
                                
                                
                                1,050,0002,757,710
                                
                                
                                
                                3,866,953Less
      current portion
                                
                                
                                402,003
                                
                                
                                
                                1,120,105Long-term
      portion of notes payable
                                
                                $
                                2,355,707
                                
                                
                                $
                                2,746,848





Maturities
of long-term debt for the years subsequent to December 31, 2007 are as
follows:





2008
                      
                      $
                      402,0032009
                      
                      
                      440,7202010
                      
                      
                      481,9702011
                      
                      
                      304,2932012-2016
                      
                      
                      1,128,724$
                      2,757,710




51





NOTE
5 - RELATED PARTY TRANSACTIONS




Employee Stock
Options




The
Company has a qualified and a nonqualified stock option plan, which provides for
the granting of options to key employees, consultants, and non employee
directors of the Company.  The 2007 stock option expense was
$868,962.




The
purpose of the Company's stock option plans is to further the interest of the
Company by enabling officers, directors, employees and consultants of the
Company to acquire an interest in the Company by ownership of its stock through
the exercise of stock options granted under its stock option plan which are
vested in one to five years.




The
option price, number of shares and grant date are determined at the discretion
of the Company’s board of directors. The 1998 stock option plan was supplemented
with the 2005 plan.  All newly issued stock option grants are issued
from the 2005 plan. The 2005 plan provides for the issuance of 2,625,000 stock
options with 1,831,500 remaining to be issued as of December 31, 2007. Options
granted under the plans are exercisable upon vesting.  The vesting
dates are determined in the stock option award and the contractual life is up to
ten years. The plan expires in October 2015.




The fair
value of each option grant is estimated on the date of grant using the
Black-Scholes American option-pricing model with the following weighted-average
assumptions used for grants in 2007.




Year
                        
                        Expected
                          Life
                        
                        Expected
                          Dividends
                        
                        Expected
                          Volatility
                        
                        
                        Risk-Free
                          Interest Rates2007
                        
                        
                        4.28
                        
                        None
                        
                        
                        45
                        %
                        
                        
                        3.7
                        %





The
expected exercise life is based on management estimates of future attrition and
early exercise rates after giving consideration to recent employee exercise
behavior.  Expected dividend yield is based on the Company’s dividend
history and anticipated dividend policy.  Expected volatility is based
on historical volatility for the Company’s common stock.  The
risk-free interest rate is based on a yield curve of interest rates at the time
of the grant based on the contractual life of the option.




The
following table summarizes information about fixed stock options outstanding at
December 31, 2007:





Number
                          Outstanding
                        
                        
                        Number
                          Outstanding &
                          exercisable
                        
                        Weighted-
                          Average
                        
                        Weighted-
                          Average
                        
                        
                        Intrinsic Value(1)
                          at December 31,Range of
                          Exercise Prices
                        
                        at December
                          31, 2007
                        
                        
                        at December 31,
                          2007
                        
                        Remaining
                          Contractual Life
                        
                        Exercise
                          Price
                        
                        
                        2007
                          (in thousands)$.50
      - $10.00
                        
                        
                        2,967,350
                        
                        
                        
                        2,417,850
                        
                        3.8
      years
                        
                        $
                        2.64
                        
                        
                        $
                        11,509





(1) Based
on the difference between the exercise price per share and the $7.40 market
price per share as of December 31, 2007




52


NOTE
5 - RELATED PARTY TRANSACTIONS (Continued)





Employee
Stock Options (continued)





The
following table summarizes information about fixed stock options outstanding at
December 31, 2006:





Number
                      Outstanding
                    
                    
                    Number
                      Outstanding &
                      exercisable
                    
                    Weighted-
                      Average
                    
                    Weighted-
                      Average
                    
                    
                    Intrinsic Value(1)
                      at December 31,Range of
                      Exercise Prices
                    
                    at December
                      31, 2006
                    
                    
                    at December 31,
                      2006
                    
                    Remaining
                      Contractual Life
                    
                    Exercise
                      Price
                    
                    
                    2006
                      (in thousands)$.50
      - $10.00
                    
                    
                    2,914,850
                    
                    
                    
                    2,674,850
                    
                    3.6
      years
                    
                    $
                    2.26
                    
                    
                    $
                    19,340





(1) Based
on the difference between the exercise price per share and the $9.49 market
price per share as of December 31, 2006





The
following table summarizes information about fixed stock options outstanding at
December 31, 2005:





Number
                    Outstanding
                  
                  
                  Number
                    Outstanding &
                    exercisable
                  
                  Weighted-
                    Average
                  
                  Weighted-
                    Average
                  
                  
                  Intrinsic Value(2)
                    at December 31,Range of
                    ExercisePrices
                  
                  at December
                    31,2005
                  
                  
                  at December 31,
                    2005
                  
                  Remaining
                    Contractual Life
                  
                  Exercise
                    Price
                  
                  
                  2005
                    (in thousands)$.50
      - $10.00
                  
                  
                  2,757,600
                  
                  
                  
                  2,647,600
                  
                  4.2
      years
                  
                  $
                  1.70
                  
                  
                  $
                  16,097





(2) Based
on the difference between the exercise price per share and the $7.78 market
price per share as of December 31, 2005.


53





NOTE
5 - RELATED PARTY TRANSACTIONS (continued)





Employee Stock Options
(continued)




Unrecognized Compensation
Expense.  At December 31, 2007 there was $2,095,000 of
unrecognized compensation expense related to unvested awards granted under the
Company’s stock option plan.  This amount is expected to be charged to
expense over a weighted-average period of 2 years.




A summary
of the status of the Company's fixed stock option plan as of December 31, 2007,
2006 and 2005 and changes during the years ending on those dates is presented
below:





2007
                                            
                                            
                                            2006
                                            
                                            
                                            2005Weighted-
                                            
                                            
                                            
                                            
                                            
                                            Weighted-
                                            
                                            
                                            
                                            
                                            
                                            Weighted-Average
                                            
                                            
                                            
                                            
                                            
                                            Average
                                            
                                            
                                            
                                            
                                            
                                            AverageExercise
                                            
                                            
                                            
                                            
                                            
                                            Exercise
                                            
                                            
                                            
                                            
                                            
                                            ExerciseShares
                                            
                                            
                                            Price
                                            
                                            
                                            Shares
                                            
                                            
                                            Price
                                            
                                            
                                            Shares
                                            
                                            
                                            PriceFixed OptionsOutstanding
      at beginning of year
                                            
                                            
                                            2,914,850
                                            
                                            
                                            $
                                            2.67
                                            
                                            
                                            
                                            2,757,600
                                            
                                            
                                            $
                                            2.03
                                            
                                            
                                            
                                            2,553,600
                                            
                                            
                                            $
                                            1.28Granted
                                            
                                            
                                            700,000
                                            
                                            
                                            $
                                            7.41
                                            
                                            
                                            
                                            445,000
                                            
                                            
                                            $
                                            6.19
                                            
                                            
                                            
                                            271,000
                                            
                                            
                                            $
                                            5.82Exercised
                                            
                                            
                                            (440,000
                                            )
                                            
                                            $
                                            1.99
                                            
                                            
                                            
                                            (287,750
                                            )
                                            
                                            $
                                            2.03
                                            
                                            
                                            
                                            (67,000
                                            )
                                            
                                            $
                                            1.94Cancelled
                                            
                                            
                                            (207,500
                                            )
                                            
                                            $
                                            8.26
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -
                                            
                                            
                                            
                                            -Outstanding
      at end of year
                                            
                                            
                                            2,967,350
                                            
                                            
                                            $
                                            3.50
                                            
                                            
                                            
                                            2,914,850
                                            
                                            
                                            $
                                            2.67
                                            
                                            
                                            
                                            2,757,600
                                            
                                            
                                            $
                                            2.03Options
      exercisable at year-end
                                            
                                            
                                            2,417,850
                                            
                                            
                                            $
                                            2.64
                                            
                                            
                                            
                                            2,674,850
                                            
                                            
                                            $
                                            2.26
                                            
                                            
                                            
                                            2,647,600
                                            
                                            
                                            $
                                            1.70Weighted-average
      fair value of options granted during the year
                                            
                                            $
                                            4.00
                                            
                                            
                                            
                                            
                                            
                                            
                                            $
                                            4.78
                                            
                                            
                                            
                                            
                                            
                                            
                                            $
                                            3.32Available
      for issuance
                                            
                                            
                                            1,831,500
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            824,000
                                            
                                            
                                            
                                            
                                            
                                            
                                            
                                            119,000





A summary
of the status of the Company’s nonvested options as of December 31, 2006 and
changes during the year ended December 31, 2007, is presented
below:




Number of
                      Shares
                    
                    
                    Weighted-
                      Average
                      Grant-Date
                      Fair ValueNonvested at December
      31, 2006
                    
                    
                    245,000
                    
                    
                    $
                    6.95Granted
                    
                    
                    700,000
                    
                    
                    $
                    7.41Vested
                    
                    
                    (395,500
                    )
                    
                    $
                    7.31Nonvested
      at December 31, 2007
                    
                    
                    549,500
                    
                    
                    $
                    7.28




54





NOTE
5 - RELATED PARTY TRANSACTIONS (continued)




Partnerships




Tri-Valley
sells oil and gas drilling prospects to partnerships that are sponsored by
Tri-Valley and sold to private investors for the purpose of oil and gas drilling
and development.  The Company accounts for these partnerships on the
pro rata combination method.  Drilling and development revenue related
to the Opus-I partnership for the fiscal year ended December 31, 2007, 2006 and
2005 are as follows:




December 31,2007
                      
                      
                      2006
                      
                      
                      2005Drilling
      and development revenue
                      
                      $
                      6,131,613
                      
                      
                      $
                      2,497,256
                      
                      
                      $
                      11,422,234Drilling
      and development costs
                      
                      $
                      5,010,799
                      
                      
                      $
                      1,799,792
                      
                      
                      $
                      9,267,621





Oil and
gas income from the Tri-Valley Oil & Gas Exploration Programs 1971-1 for
fiscal year ended December 31, 2007, 2006 and 2005 are as follows:





December 31,2007
                      
                      
                      2006
                      
                      
                      2005Partnership
      income,  net of expenses
                      
                      $
                      30,000
                      
                      
                      $
                      45,000
                      
                      
                      $
                      30,000





NOTE
6 – EARNINGS PER SHARE




Year
                    
                    Full Year Basic
                      Earnings (Loss)
                      Per Share
                    
                    
                    Weighted-
                      Average
                      Shares
                      Outstanding
                    
                    
                    Weighted-Average
                      Potentially Dilutive
                      Shares Outstanding2007
                    
                    $
                    (0.35
                    )
                    
                    
                    24,723,766
                    
                    
                    
                    28,061,4012006
                    
                    $
                    (0.04
                    )
                    
                    
                    23,374,205
                    
                    
                    
                    26,377,5372005
                    
                    $
                    (0.43
                    )
                    
                    
                    22,426,580
                    
                    
                    
                    25,030,468





The
diluted earnings per share amounts are based on weighted-average shares
outstanding plus common stock equivalents.  Common stock equivalents
include stock options and awards, and common stock warrants.  Common
stock equivalents excluded from the calculation of diluted earnings per share
due to the effect was antidilutive.




55


NOTE
7 - INCOME TAXES




As of
December 31, 2007, the Company had available net operating loss carryforwards
for federal and state tax purposes of $21,867,798 and $20,183,091, respectively,
which begin to expire in 2025 and 2015, respectively.  The Company
also had available as of December 31, 2007 federal and state statutory depletion
allowance carryforwards of $1,356,441, which do not expire.




The
components of deferred tax assets at December 31, 2007, 2006 and 2005 are
composed of:




December 31,
                          
                          
                          December 31,
                          
                          
                          December 31,2007
                          
                          
                          2006
                          
                          
                          2005Net
      operating loss carryforwards
                          
                          $
                          9,219,236
                          
                          
                          $
                          4,867,050
                          
                          
                          $
                          5,229,460Statutory
      depletion carryforwards
                          
                          
                          540,330
                          
                          
                          
                          508,050
                          
                          
                          
                          455,0709,759,566
                          
                          
                          
                          5,375,119
                          
                          
                          
                          5,684,530Less:
      deferred tax asset valuation allowance
                          
                          
                          (9,759,566
                          )
                          
                          
                          (5,375,119
                          )
                          
                          
                          (5,684,530
                          )Net
      deferred tax assets
                          
                          $
                          -
                          
                          
                          $
                          -
                          
                          
                          $
                          -





Income
tax benefit (provision) is computed as follows:





December 31,
                                          
                                          
                                          December 31,
                                          
                                          
                                          December 31,2007
                                          
                                          
                                          2006
                                          
                                          
                                          2005Current:Federal
                                          
                                          $
                                          0
                                          
                                          
                                          $
                                          0
                                          
                                          
                                          $
                                          0State
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0$
                                          0
                                          
                                          
                                          $
                                          0
                                          
                                          
                                          $
                                          0Deferred:Federal
                                          
                                          $
                                          0
                                          
                                          
                                          $
                                          0
                                          
                                          
                                          $
                                          0State
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0
                                          
                                          
                                          
                                          0$
                                          0
                                          
                                          
                                          $
                                          0
                                          
                                          
                                          $
                                          0
  Total
income tax benefit (provision):
  December 31,
                                  
                                  
                                  December 31,
                                  
                                  
                                  December 31,2007
                                  
                                  
                                  2006
                                  
                                  
                                  2005Continuing
      operations
                                  
                                  $
                                  0
                                  
                                  
                                  $
                                  0
                                  
                                  
                                  $
                                  0Discontinued
      operations
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0
                                  
                                  
                                  
                                  0$
                                  0
                                  
                                  
                                  $
                                  0
                                  
                                  
                                  $
                                  0





56


NOTE
8 - MAJOR CUSTOMERS





Oil and
Gas





Substantially
all oil and gas sales have occurred in the California market. The Company
receives substantially all of its oil and gas revenue from two
customers.   Our total oil and gas sales amounted to $761,279,
$1,029,606 and $901,359 for the year ended December 31, 2007, 2006, and 2005,
respectively.  We receive about 70% of our revenue from Company A and
about 30% from Company B.  All of our oil and gas is sold at spot
market.




NOTE
9 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS




The
Company reports operating segments according to SFAS No. 131, “Disclosure about Segments of an
Enterprise and Related Information”.




The
Company identifies reportable segments by product.  The Company
includes revenues from both external customers and revenues from transactions
with other operating segments in its measure of segment profit or
loss.  The Company also includes interest revenue and expense,
DD&A, and other operating expenses in its measure of segment profit or
loss.




The
Companies’ total reportable segment revenue and segment net income (loss) do not
correspond with the enterprises consolidated revenue and consolidated income
(loss) before income taxes.  The Company’s segment revenue excludes
other income and partnership income which are not affiliated with external
customers, when compared to the enterprises consolidated revenue.  The
company’s segment net income (loss) does not include minority interest when
compared to the enterprise’s consolidated income (loss) before income
taxes.




The
      Company’s operations are classified into four principal industry
      segments:-
            Oil and gas operations
      include our share of revenues from oil and gas wells on which TVOG serves
      as operator, royalty income and production revenue from other partnerships
      in which we have operating or non-operating interests.  It also
      includes revenues for consulting services for oil and gas related
      activities.-
            Rig operations began in
      2006, when the Company acquired drilling rigs and began operating them
      through subsidiaries GVPS and GVDC.  Rig operations include
      income from rental of oil field equipment.-
            Minerals include the
      Company’s mining and mineral prospects and operations, and expenses
      associated with those operations.  In 2006, the Company recorded
      minerals revenue from consulting services performed for the mining and
      minerals industry, which are included on the operating statement as other
      income.-
            Drilling and
      development includes revenues received from oil and gas drilling
      and development operations performed for joint venture partners, including
      the Opus-I drilling partnership.




57


NOTE
9 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS (Continued)





Oil and Gas
                    
                    
                    Rig
                    
                    
                    
                    
                    
                    Drilling andProduction
                    
                    
                    Operations
                    
                    
                    Minerals
                    
                    
                    Development
                    
                    
                    TotalYear ended December 31,
2007Revenues
      from external customers
                    
                    $
                    761,279
                    
                    
                    $
                    3,236,990
                    
                    
                    $
                    573,440
                    
                    
                    $
                    6,131,613
                    
                    
                    $
                    10,703,322Interest
      revenue
                    
                    $
                    281,502
                    
                    
                    $
                    -
                    
                    
                    $
                    1,283
                    
                    
                    $
                    -
                    
                    
                    $
                    282,785Interest
      expense
                    
                    $
                    101,322
                    
                    
                    $
                    71,859
                    
                    
                    $
                    85,644
                    
                    
                    $
                    -
                    
                    
                    $
                    258,829Operating
      income (loss)
                    
                    $
                    131,857
                    
                    
                    $
                    585,137
                    
                    
                    $
                    (618,130
                    )
                    
                    $
                    1,120,813
                    
                    
                    $
                    1,219,677Expenditures
      for segment assets
                    
                    $
                    2,280,187
                    
                    
                    $
                    3,471,352
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    5,751,539Depreciation,
      depletion, and amortization
                    
                    $
                    229,354
                    
                    
                    $
                    766,905
                    
                    
                    $
                    242,473
                    
                    
                    $
                    -
                    
                    
                    $
                    1,238,732Total
      assets
                    
                    $
                    23,033,171
                    
                    
                    $
                    (139,739
                    )
                    
                    $
                    2,361,463
                    
                    
                    $
                    -
                    
                    
                    $
                    25,254,895Estimated
      income tax benefit (expense)
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Net
      income (loss)
                    
                    $
                    (7,011,433
                    )
                    
                    $
                    (2,061,340
                    )
                    
                    $
                    (654,932
                    )
                    
                    $
                    1,120,814
                    
                    
                    $
                    (8,606,891
                    )Year ended December 31,
2006Revenues
      from external customers
                    
                    $
                    1,029,606
                    
                    
                    $
                    873,368
                    
                    
                    $
                    178,500
                    
                    
                    $
                    2,497,256
                    
                    
                    $
                    4,578,730Interest
      revenue
                    
                    $
                    72,707
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    72,707Interest
      expense
                    
                    $
                    26,834
                    
                    
                    $
                    2,373
                    
                    
                    $
                    267,465
                    
                    
                    $
                    -
                    
                    
                    $
                    396,672Operating
      income (loss)
                    
                    $
                    830,475
                    
                    
                    $
                    306,719
                    
                    
                    $
                    (465,153
                    )
                    
                    $
                    507,465
                    
                    
                    $
                    1,179,506Expenditures
      for segment assets
                    
                    $
                    1,146,146
                    
                    
                    $
                    5,444,646
                    
                    
                    $
                    15,000
                    
                    
                    $
                    -
                    
                    
                    $
                    6,605,792Depreciation,
      depletion, and amortization
                    
                    $
                    159,289
                    
                    
                    $
                    81,530
                    
                    
                    $
                    344,620
                    
                    
                    $
                    -
                    
                    
                    $
                    585,439Total
      assets
                    
                    $
                    18,517,488
                    
                    
                    $
                    7,853,046
                    
                    
                    $
                    2,283,591
                    
                    
                    $
                    -
                    
                    
                    $
                    28,654,125Estimated
      income tax benefit (expense)
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Net
      income (loss)
                    
                    $
                    (4,638,280
                    )
                    
                    $
                    (24,002
                    )
                    
                    $
                    3,051,646
                    *
                    
                    $
                    697,465
                    
                    
                    $
                    (913,171
                    )





*  In
the fourth quarter we sold our interest in Tri-Western Resources and an
associated industrial site for a net gain of $9,715,604.  See note 12
for a pro forma schedule.


58





NOTE
9 - FINANCIAL INFORMATION RELATING TO INDUSTRY SEGMENTS (Continued)





Oil and Gas
                    
                    
                    
                    
                    
                    Drilling andProduction
                    
                    
                    Minerals
                    
                    
                    Development
                    
                    
                    TotalYear ended December 31,
2005Revenues
      from external customers
                    
                    $
                    901,159
                    
                    
                    $
                    200
                    
                    
                    $
                    11,422,234
                    
                    
                    $
                    12,323,593Interest
      revenue
                    
                    $
                    118,609
                    
                    
                    $
                    2,295
                    
                    
                    $
                    -
                    
                    
                    $
                    120,904Interest
      expense
                    
                    $
                    2,115
                    
                    
                    $
                    375,829
                    
                    
                    $
                    -
                    
                    
                    $
                    377,944Operating
      income (loss)
                    
                    $
                    (2,248,486
                    )
                    
                    $
                    (3,610,142
                    )
                    
                    $
                    2,154,613
                    
                    
                    
                    (3,704,015
                    )Expenditures
      for segment assets
                    
                    $
                    1,260,884
                    
                    
                    $
                    9,490,540
                    
                    
                    $
                    -
                    
                    
                    $
                    10,751,424Depreciation,
      depletion, and amortization
                    
                    $
                    58,319
                    
                    
                    $
                    442,134
                    
                    
                    $
                    -
                    
                    
                    $
                    500,453Total
      assets
                    
                    $
                    8,427,037
                    
                    
                    $
                    9,614,726
                    
                    
                    $
                    1,696,967
                    
                    
                    $
                    19,738,730Estimated
      income tax benefit(expense)
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -
                    
                    
                    $
                    -Net
      income (loss)
                    
                    $
                    (5,615,595
                    )
                    
                    $
                    (6,269,089
                    )
                    
                    $
                    2,154,613
                    
                    
                    $
                    (9,730,071
                    )





NOTE
10 - COMMON STOCK and WARRANTS and MINORITY INTEREST





Common
Stock





During
2007 the Company issued the following shares of common stock. All of these
securities were issued pursuant to privately negotiated transactions in reliance
on the exemption contained in Section 4(2) of the Securities Act.




-
            During
      the year various directors and employees of the Company exercised stock
      options previously granted.  The new shares issued pursuant to
      the stock option plan amounted to 377,791
  shares.




-
            The
      Company issued 5,000 shares to one employee in accordance with his
      employment contract.




-
            The
      Company issued 2,000 shares each to six board members for services
      rendered.




-
            The
      remaining 1,135,738 shares were issued in private placements at prices of
      $6.00 to $9.00 per share for a total consideration of $8,958,430, or a
      weighted average price of $7.72.




-
            During
      the year the common stock issuance cost amounted to approximately
      $1,081,900.


59


NOTE
10 - COMMON STOCK and WARRANTS and MINORITY INTEREST (Continued)




During
2006 the Company issued the following shares of common stock. All of these
securities were issued pursuant to privately negotiated transactions in reliance
on the exemption contained in Section 4(2) of the Securities Act.




-
            During
      the year various directors and employees of the Company exercised stock
      options previously granted.  The new shares issued pursuant to
      the stock option plan amounted to 237,593 shares.  Cash
      consideration received totaled to
$318,375.




-
            The
      Company pledged 140,000 common shares as security of two notes
      payable.




-
            The
      Company issued 5,000 shares to one employee in accordance with his
      employment contract.




-
            The
      Company issued 16,261 shares as a deposit to Sun Valley
      Trust.  The stock was valued at $6.15 per share.  The
      deposit was subsequently applied to the purchase price of three leases at
      the date of closing.




-
            The
      Company issued 5,280 shares to a consultant for $43,042 in services at an
      agreed price of $8.15 per share.




-
            The
      Company issued 54,870 shares as partial payment to purchase a drilling rig
      for Great Valley Drilling Company, LLC valued at $9.49 per share for a
      consideration of $520,716.




-
            The
      Company issued 35,000 shares to a director who exercised warrants at
      $10.00 per share, for total cash consideration of
  $350,000.




-
            The
      remaining 281,475 shares were issued in private placements at prices of
      $7.00 to $8.60 per share for a total consideration of $2,054,719, or a
      weighted average price of $7.30.




-
            During
      the year the common stock issuance cost amounted to approximately
      $310,740.




Warrants




During
2007, the Company issued warrants to accredited investors in conjunction with
the sale of restricted common stock.  291,443 warrants were attached
to these restricted shares.  The warrants are exercisable for a period
of two years from the date of issuance.   The warrants are
exercisable at $7.00 to $10.00, depending on when they were issued. The warrants
were valued using the Black-Scholes option-pricing model, which resulted in
charges to additional paid in capital of $652,549 and resulted in charges to
stock issuance expense of $384,352.




Warrants
are accounted for under the guidelines established by APB Opinion No. 14 Accounting for Convertible Debt and
Debt issued with Stock Purchase Warrants (APB14)under the direction of
Emerging Issues Task Force (EITF) 98-5, Accounting for Convertible
Securities with Beneficial Conversion Features or Contingently Adjustable
Conversion Ratios, (EITF 98-5)EITF 00-27 Application of Issue No 98-5 to
Certain Convertible Instruments and (EITF 00-27.The Company
calculates the fair value of warrants issued with theconvertible instruments using the Black-Scholes valuation method, using the same
assumptions used for valuing employee options for purposes of SFAS No. 123R,
except that the expected life of the warrant is used. Under these guidelines,
the Company allocates the value of the proceeds received. The price allocated
for the warrants is calculated by subtracting the current market price of the
stock from the total proceeds of the sale of the restricted stock with the
warrant attached. The allocated fair value is recorded as capital paid in –
warrants.  This allocated fair value of the proceeds from the sale of
warrants is subtracted from the value of the warrants using the Black-Scholes
valuation method to calculate the stock issuance expense.


60


NOTE
10 - COMMON STOCK and WARRANTS and MINORITY INTEREST (Continued)




Minority Interest from the
Sale and Purchase of Interest in Subsidiaries




During
2006, the Company sold 49% of the interest in GVPS to 35 individuals for
$3,881,447.  Also during 2006, the Company sold 49% of the interest in
GVDC to 15 individuals for $1,556,640.  The total minority interest
for these two LLC’s was $5,438,087, which is being consolidated under FASB
Interpretation No. 46R, “Consolidation of Variable Interest Entities”. In 2007,
the Company bought back all of the minority interest in GVDC making it 100%
owned by Tri-Valley at year-end 2007.  The Company bought back 39% of
the minority interest in GVPS, making it owned 90% by Tri-Valley and a minority
interest of 10% owned by outside third parties.  The company recorded
an investment expense of $203,782 during the year due the buyback of minority
interest above par value.




NOTE
11 - COMMITMENTS AND CONTINGENCIES




Contingencies




The
Company is subject to possible loss contingencies pursuant to federal, state and
local environmental laws and regulations. These include existing and potential
obligations to investigate the effects of the release of certain hydro-carbons
or other substances at various sites; to remediate or restore these sites; and
to compensate others for damages and to make other payments as required by law
or regulation. These obligations relate to sites owned by the Company or others,
and are associated with past and present oil and gas operations.




The
amount of such obligations is indeterminate and will depend on such factors as
the unknown nature and extent of contamination, the unknown timing, extent and
method of remedial actions which may be required, the determination of the
Company's liability in proportion to other responsible parties, and the state of
the law.




Natural Gas
Contracts




The
Company sells its gas under three separate gas contracts.  During
2007, 2006, and 2005, the Company sold all of its produced gas under these
agreements. The terms of the agreements are identical among the
contracts.  During 2007, 2006, and 2005, the terms of the agreements
were as follows: 100% of the produced gas was sold at the monthly spot
price.




Joint Venture
Advances




As
discussed in Note 1, the Company receives advances from joint venture
participants, which represent funds raised to drill exploratory wells. The
Company receives a carried working interest if the well is successfully drilled
and completed. The Company acts as both the fiduciary agent and Operator during
the period required to drill and equip the well, and as Operator while the well
is produced. The Company is obligated to use these funds for expenditures of the
joint venture prospect. The joint venture agreements specify that the Company
must drill the subject well or substitute another prospect. Some agreements
require that the interest earned on joint venture advances be credited to the
project account. Expenditures of the projects are charged directly against the
obligation.




The
balance of the joint venture advance represents the sum of amounts contributed
for drilling prospects, net of expenditures for the projects. Residual project
balances are held until the Company makes a final determination concerning any
remedial obligations of the joint ventures. The balance at December 31, 2007
consists primarily of the following projects:




Opus




In May of
2002 the Company began raising funds for a one hundred million dollar wildcat
exploration drilling program named OPUS-I.  The program originally
called for the drilling of 26 prospects, 23 in California and 3 in
Nevada.  As of December 31, 2006 the program has drilled twenty
wells.  The drilling portion of these prospects is turn-keyed, meaning
the drilling portion is done for a fixed cost and the completion portion is done
at the actual  cost. However, in 2006, the OPUS I program changed to a
development program for the Pleasant Valley, Temblor Valley and Moffat Ranch
East properties.


61


The Opus
Drilling Program joint venture status at December 31, 2007 is as
follows:




Total
      Opus Contributions
                                    
                                    $
                                    64,763,796Total
      Opus Expenditures
                                    
                                    $
                                    61,864,663Remaining
      advances
                                    
                                    $
                                    2,899,133Interest
      credited to joint account
                                    
                                    $
                                    686,802




Contractual Obligations and
Contingent Liabilities and Commitments




The table
below presents our fixed, non-cancelable contractual obligations and commitments
primarily related to our outstanding purchase orders, certain capital
expenditures and lease arrangements as of December 31, 2007




Payments
      Due By PeriodLess than 1
                                                year
                                              
                                              
                                              1-3 years
                                              
                                              
                                              3-5 years
                                              
                                              
                                              After 5
                                                years
                                              
                                              
                                              TotalLong
      term debt(1)
                                              
                                              $
                                              402,003
                                              
                                              
                                              $
                                              1,324,693
                                              
                                              
                                              $
                                              786,267
                                              
                                              
                                              $
                                              244,747
                                              
                                              
                                              $
                                              2,757,710Operating
      lease commitments (2)
                                              
                                              
                                              185,640
                                              
                                              
                                              
                                              371,280
                                              
                                              
                                              
                                              30,940
                                              
                                              
                                              
                                              -
                                              
                                              
                                              
                                              587,860Total
      contractual cash obligations
                                              
                                              $
                                              587,643
                                              
                                              
                                              
                                              1,695,973
                                              
                                              
                                              $
                                              817,207
                                              
                                              
                                              $
                                              244,747
                                              
                                              
                                              $
                                              3,345,570


(1)
            Represents
      cash obligations for principal payments and interest payments on various
      loans that are all secured by the asset financed. For further detail, see
      Note 4 to the Consolidated Financial
Statements.




(2)
            Lease
      agreement of corporate headquarters in Bakersfield, California, lease
      terms are until March 2011 at a monthly payment of
  $15,470.





NOTE
12 – ACQUISITIONS AND DISPOSITIONS




Sale of interest in
Tri-Western Resources, LLC and an industrial minerals site - Pro Forma
Information




In 2006,
the company had a $9,715,604 gain on disposal of discontinued
operations.




The
following pro forma unaudited financial information has been prepared by
management to present consolidated financial results of operations of the
Company to give effect to the loss of control over our interest in Tri-Western
Resources, LLC.  The pro forma condensed consolidated statement of
losses for the years ended December 31, 2007, 2006 and 2005 present pro forma
results as if the Company never owned an interest in Tri-Western
Resources.




The
unaudited pro forma financial information is not necessarily indicative of the
actual results of operations or the financial position which would have been
attained had the acquisitions been consummated at either of the foregoing dates
or which may be attained in the future.


62





TRI-VALLEY
CORPORATION


UNAUDITED
PROFORMA CONDENSED CONSOLIDATED STATEMENT OF LOSSES


DECEMBER
31, 2007


For
      the year ended December 31, 2007As
                                                                                                      
                                                                                                      
                                                                                                      Pro
      FormaPresented
                                                                                                      
                                                                                                      
                                                                                                      Adjustment
                                                                                                      
                                                                                                      
                                                                                                      Pro
      FormaTotal
      Revenue
                                                                                                      
                                                                                                      $
                                                                                                      11,016,107
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      11,016,107Total
      Costs and Expenses
                                                                                                      
                                                                                                      $
                                                                                                      19,758,682
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      19,742,749Net
      loss from continued operations
                                                                                                      
                                                                                                      $
                                                                                                      (8,742,575
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (8,742,575
                                                                                                      )Loss
      from discontinued operations
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      -Gain
      from sell of discontinued operations
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      -Income
      (loss) before minority interest
                                                                                                      
                                                                                                      $
                                                                                                      (8,742,575
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (8,742,575
                                                                                                      )Minority
      interest
                                                                                                      
                                                                                                      
                                                                                                      (139,939
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (133,939
                                                                                                      )Net
      loss
                                                                                                      
                                                                                                      
                                                                                                      (8,606,891
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      (8,606,891
                                                                                                      )Continued
      operations loss per common share
                                                                                                      
                                                                                                      $
                                                                                                      (0.35
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (0.35
                                                                                                      )Discontinued
      operations earnings per common share
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      -Basic
      loss per common share
                                                                                                      
                                                                                                      $
                                                                                                      (0.35
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (0.35
                                                                                                      )Weighted
      average number of shares outstanding
                                                                                                      
                                                                                                      
                                                                                                      24,723,766
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      24,723,766Potentially
      dilutive shares outstanding
                                                                                                      
                                                                                                      
                                                                                                      28,061,401
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      28,061,401For
      the year ended December 31, 2006As
                                                                                                      
                                                                                                      
                                                                                                      Pro
      FormaPresented
                                                                                                      
                                                                                                      
                                                                                                      Adjustment
                                                                                                      
                                                                                                      
                                                                                                      Pro
      FormaTotal
      Revenue
                                                                                                      
                                                                                                      $
                                                                                                      4,936,723
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      4,936,723Total
      Costs and Expenses
                                                                                                      
                                                                                                      $
                                                                                                      10,817,999
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      10,817,999Net
      loss from continued operations
                                                                                                      
                                                                                                      $
                                                                                                      (5,881,276
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (5,881,276
                                                                                                      )Loss
      from discontinued operations
                                                                                                      
                                                                                                      $
                                                                                                      (4,774,840
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      (4,774,840
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      -Gain
      from sell of discontinued operations
                                                                                                      
                                                                                                      $
                                                                                                      9,715,604
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      9,715,604
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      -Income
      (loss) before minority interest
                                                                                                      
                                                                                                      $
                                                                                                      (940,512
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      4,940,764
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (5,881,276
                                                                                                      )Minority
      interest
                                                                                                      
                                                                                                      
                                                                                                      (27,341
                                                                                                      )
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -Net
      loss
                                                                                                      
                                                                                                      
                                                                                                      (913,171
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      4,940,764
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (5,881,276
                                                                                                      )Continued
      operations loss per common share
                                                                                                      
                                                                                                      $
                                                                                                      (0.25
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (0.25
                                                                                                      )Discontinued
      operations earnings per common share
                                                                                                      
                                                                                                      $
                                                                                                      0.21
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      0.21
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      0.00Basic
      loss per common share
                                                                                                      
                                                                                                      $
                                                                                                      (0.04
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      (
      0.21
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      (0.25
                                                                                                      )Weighted
      average number of shares outstanding
                                                                                                      
                                                                                                      
                                                                                                      23,374,205
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      23,374,205Potentially
      dilutive shares outstanding
                                                                                                      
                                                                                                      
                                                                                                      26,377,537
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      26,377,537$
                                                                                                      4,936,723
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      4,936,723For
      the year ended December 31, 2005As
                                                                                                      
                                                                                                      
                                                                                                      Pro
      FormaPresented
                                                                                                      
                                                                                                      
                                                                                                      Adjustment
                                                                                                      
                                                                                                      
                                                                                                      Pro
      FormaTotal
      Revenue
                                                                                                      
                                                                                                      $
                                                                                                      12,526,110
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      12,526,110Total
      Costs and Expenses
                                                                                                      
                                                                                                      $
                                                                                                      17,445,817
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      17,445,817Net
      loss from continued operations
                                                                                                      
                                                                                                      $
                                                                                                      (4,919,707
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (4,919,707
                                                                                                      )Loss
      from discontinued operations
                                                                                                      
                                                                                                      $
                                                                                                      (4,810,364
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      (4,810,364
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      -Net
      loss
                                                                                                      
                                                                                                      $
                                                                                                      (9,730,071
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      (4,810,364
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      (4,919,707
                                                                                                      )Continued
      operations loss per common share
                                                                                                      
                                                                                                      $
                                                                                                      (0.43
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      0.21
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (0.22
                                                                                                      )Basic
      loss per common share
                                                                                                      
                                                                                                      $
                                                                                                      (0.43
                                                                                                      )
                                                                                                      
                                                                                                      $
                                                                                                      0.21
                                                                                                      
                                                                                                      
                                                                                                      $
                                                                                                      (0.22
                                                                                                      )Weighted
      average number of shares outstanding
                                                                                                      
                                                                                                      
                                                                                                      22,426,580
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      22,426,580Potentially
      dilutive shares outstanding
                                                                                                      
                                                                                                      
                                                                                                      25,030,468
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      -
                                                                                                      
                                                                                                      
                                                                                                      
                                                                                                      25,030,468
  63


NOTE
13 – INVESTMENT




In the
second quarter the Company received 150,000 stock options for Duluth Metals
common stock for providing executive and geological services for Duluth
Metals.  The stock options are exercisable at $0.30
Canadian.  During the fourth quarter the options were exercised and
converted into stock at a cost of $47,056. The market value of the stock on
December 31, 2007 was $3.00 Canadian.  The Company follows the
provisions of Statement of Financial Accounting Standards No. 115 (SFAS 115),
“Accounting for Certain
Investments in Debt and Equity Securities.” SFAS 115 requires companies
to classify their investments as trading, available-for-sale or
held-to-maturity. The Company’s securities consist of stock which has been
classified as available-for-sale. These are recorded in the financial statements
at fair market value and any unrealized gains (losses) will be reported as a
component of shareholder equity. At December 31, 2007, the cost basis net of
write-downs, unrealized gains, unrealized losses and fair market value of the
Company's holdings are as follows:




December 31, 2007Net
      cost of equities
                      
                      $
                      427,055Unrealized
      Losses
                      
                      
                      (10,000
                      )Unrealized
      Gains
                      
                      
                      22,945Fair
      Market Value
                      
                      $
                      440,000





SFAS 115
requires that for each individual security classified as available-for-sale, a
company shall determine whether a decline in fair value below the cost basis is
other than temporary. If the decline in fair value is judged as such, the cost
basis of the individual security shall be written down to fair value as a new
cost basis and the amount of the write-down shall be reflected in other
comprehensive income of the equity section. At December 31, 2007, the company's
marketable securities had a fair market value of $ 440,000.  The net
unrealized gain of $12,945 is reported as accumulated other income.




This
investment was translated into U.S. Dollars in accordance with SFAS
No. 52,“Foreign Currency
Translation.”  The investment was translated at the rate of
exchange on the balance sheet date.




NOTE
14 – SUBSEQUENT EVENTS




After 23
years of service, Director Milton Carlson, 77, retired from the board of
directors effective February 2, 2008.  He most recently served on
Tri-Valley's audit committee, was chair of the nominating and corporate
governance committee and the designated director to receive any employee
complaints.  In resigning, Mr. Carlson did not report any disagreement
with Tri-Valley on any matter relating to the company's operations, policies or
practices.


64


SUPPLEMENTAL
INFORMATION (unaudited)





The
following estimates of proved oil and gas reserves, both developed and
undeveloped, represent interests owned by the Company located solely in the
United States.




Disclosures
of oil and gas reserves, which follow, are based on estimates prepared by
independent petroleum engineers for the years ended December 31, 2007,
2006, and 2005. Such analyses are subject to numerous uncertainties inherent in
the estimation of quantities of proved reserves and in the projection of future
rates of production and the timing of development expenditures. These estimates
do not include probable or possible reserves.




These
estimates are furnished and calculated in accordance with requirements of the
Financial Accounting Standards Board and the Securities and Exchange Commission
("SEC"). Because of unpredictable variances in expenses and capital forecasts,
crude oil and natural gas price changes, largely influenced and controlled by
U.S. and foreign government actions, and the fact that the basis for such
estimates vary significantly, management believes the usefulness of these
projections is limited. Estimates of future net cash flows presented do not
represent management's assessment of future profitability or future cash flows
to the Company. Management's investment and operating decisions are based upon
reserve estimates that include proved reserves as well as probable reserves, and
upon different price and cost assumptions from those used here.




It should
be recognized that applying current costs and prices and a 10 percent standard
discount rate does not convey fair market value. The discounted amounts arrived
at are only one measure of the value of proved reserves.




Capitalized
costs relating to oil and gas producing activities and related accumulated
depletion, depreciation and amortization were as follows:




December 31,
                
                
                December 31,
                
                
                December 31,2007
                
                
                2006
                
                
                2005Aggregate
      capitalized costs:Proved
      properties
                
                $
                3,026,660
                
                
                $
                2,169,496
                
                
                $
                1,795,653Unproved
      properties
                
                
                2,414,843
                
                
                
                2,792,340
                
                
                
                3,009,564Accumulated
      depletion, depreciation and amortization
                
                
                (882,753
                )
                
                
                (761,571
                )
                
                
                (649,550
                )Net
      capitalized assets
                
                $
                4,558,750
                
                
                $
                4,200,265
                
                
                $
                4,155,667


Supplemental Information
(unaudited)





The
following sets forth costs incurred for oil and gas property acquisition,
exploration and development activities, whether capitalized or expensed,
during:




December 31,
                
                
                December 31,
                
                
                December 31,2007
                
                
                2006
                
                
                2005Acquisition
      of producing  properties and productive and non-productive
      acreage
                
                $
                -
                
                
                $
                400,000
                
                
                $
                1,736,625Exploration
      costs and development activities
                
                $
                -
                
                
                $
                -
                
                
                $
                -


65





Supplemental
Information (unaudited)




Results Of Operations From
Oil And Gas Producing Activities




The
results of operations from oil and gas producing activities are as
follows:




December 31,
                
                
                December 31,
                
                
                December 31,2007
                
                
                2006
                
                
                2005Sales
      to unaffiliated parties
                
                $
                791,279
                
                
                $
                1,074,606
                
                
                $
                932,042Production
      costs
                
                
                (430,068
                )
                
                
                (388,700
                )
                
                
                (93,429
                )Depletion,
      depreciation and amortization
                
                
                (229,354
                )
                
                
                (159,289
                )
                
                
                (28,226
                )131,857
                
                
                
                526,617
                
                
                
                810,387Income
      tax expense
                
                
                -
                
                
                
                -
                
                
                
                -Results
      of operations from activities before extraordinary items (excluding
      corporate Overhead and interest costs)
                
                $
                131,857
                
                
                $
                526,617
                
                
                $
                810,387





Supplemental
Information (unaudited)





Changes In Estimated Reserve
Quantities


The net
interest in estimated quantities of proved developed and undeveloped reserves of
crude oil and natural gas at December 31, 2007, 2006, and 2005, and changes in
such quantities during each of the years then ended, were as
follows:




December 31, 2007
                  
                  
                  December 31, 2006
                  
                  
                  December 31, 2005Oil
                  
                  
                  Gas
                  
                  
                  Oil
                  
                  
                  Gas
                  
                  
                  Oil
                  
                  
                  Gas(BBL)
                  
                  
                  (MCF)
                  
                  
                  (BBL)
                  
                  
                  (MCF)
                  
                  
                  (BBL)
                  
                  
                  (MCF)Proved
      developed and undeveloped reserves:Beginning
      of year
                  
                  
                  275,452
                  
                  
                  
                  787,017
                  
                  
                  
                  218,030
                  
                  
                  
                  779,598
                  
                  
                  
                  162
                  
                  
                  
                  742,401Revisions
      (a), (b), (e), (f)
                  
                  
                  (44,448
                  )
                  
                  
                  20,299
                  
                  
                  
                  (65,673
                  )
                  
                  
                  88,336
                  
                  
                  
                  (144
                  )
                  
                  
                  119,453Purchases
      (c), (g), (h)
                  
                  
                  148,049
                  
                  
                  
                  -
                  
                  
                  
                  125,413
                  
                  
                  
                  -
                  
                  
                  
                  218,029
                  
                  
                  
                  -Improved
      recovery (d),(i),(j)
                  
                  
                  -
                  
                  
                  
                  29,741
                  
                  
                  
                  4,282
                  
                  
                  
                  5,260
                  
                  
                  
                  -
                  
                  
                  
                  46,346Production
                  
                  
                  (7,006
                  )
                  
                  
                  (45,928
                  )
                  
                  
                  (6,600
                  )
                  
                  
                  (86,177
                  )
                  
                  
                  (17
                  )
                  
                  
                  (128,602
                  )End
      of year
                  
                  
                  372,047
                  
                  
                  
                  791,128
                  
                  
                  
                  275,452
                  
                  
                  
                  787,017
                  
                  
                  
                  218,030
                  
                  
                  
                  779,598Proved
      developed reserves:Beginning
      of year
                  
                  
                  275,452
                  
                  
                  
                  787,017
                  
                  
                  
                  154,673
                  
                  
                  
                  779,598
                  
                  
                  
                  162
                  
                  
                  
                  742,401End
      of year
                  
                  
                  372,048
                  
                  
                  
                  791,128
                  
                  
                  
                  275,452
                  
                  
                  
                  787,017
                  
                  
                  
                  154,673
                  
                  
                  
                  779,598




66


Supplemental
Information (Unaudited)




(a)   In
2007, 44,448 barrels of oil, previously classified as proved undeveloped, were
eliminated from reserves because wells drilled did not justify further
development in Kern County, California.




(b)   In
2007, our estimated proved developed producing gas reserves were revised upward
by 20,299 mcf as a result of improved performance on a producing lease in Solano
County, California.




(c)  In
2007, we drilled and completed a well, and two offset wells are being completed
in Ventura County, California.




(d)  In
2007, improved recovery estimates on proved developed producing gas wells
resulted from a partially successful recompletion and improved performance from
leases in Contra Costa County, California.




(e)   In
2006, our estimated proved developed producing gas reserves were revised upward
by 175,295 mcf as a result of improved performance on a producing lease in
Solano County, California.  This was partially offset by a net
downward revision of 86,959 mcf to proofed developed non-producing reserves and
a minor change in proved developed non-producing oil reserves due to a partially
successful recompletion that was not as beneficial as expected in Contra Costa
County, California.  In 2006, 63,357 barrels of oil, previously
classified as proved undeveloped, were eliminated from reserves after two new
wells drilled did not justify further development.  This drilling
activity also resulted in reduction of proved developed non-producing oil
reserves by 3,380 barrels and an increase in proved producing oil reserves of
1,065 barrels.




(f)   In
2005, our estimated proved developed producing gas reserves were revised upward
by 190,451 mcf as a result of improved performance on a producing lease in
Solano County.  This was partially offset by a net downward revision
of 70,988 mcf to proved developed non-producing reserves and a minor change in
proved developed non-producing oil reserves due to a partially successful
recompletion that was not as beneficial as expected in Contra Costa
County.




(g)   In
the third quarter of 2006, we purchased two properties in Kern County,
California, which are estimated to contain 125,413 barrels of proved
non-producing oil reserves.




(h)   In
2005, we purchased two properties near our existing properties in Kern County
containing an estimated 218,029 barrels of proved producing, non-producing and
undeveloped oil reserves in Kern County.




(i)  In
2006, improved recovery estimates on proved developed producing gas wells
resulted from a partially successful recompletion and improved performance from
leases in Contra Costa County.




(j)  In
2005, improved recovery estimates on proved developed producing gas wells
resulted from a partially successful recompletion and improved performance from
leases in Contra Costa County.




Standardized Measure Of
Discounted Future Net Cash Flows Relating To Proved Oil And Gas
Reserves




A
standardized measure of discounted future net cash flows is presented below for
the year ended December 31, 2007, 2006, and 2005.




The
future net cash inflows are developed as follows:




(1)
            Estimates
      are made of quantities of proved reserves and the future periods during
      which they are expected to be produced based on year-end economic
      conditions.


(2)
            The
      estimated future production of proved reserves is priced on the basis of
      year-end prices.


(3)
            The
      resulting future gross revenue streams are reduced by estimated future
      costs to develop and to produce proved reserves, based on year end cost
      estimates.


67


Supplemental
Information (Unaudited)




(4)
            The
      resulting future net revenue streams are reduced to present value amounts
      by applying a ten percent discount.





Disclosure
of principal components of the standardized measure of discounted future net
cash flows provides information concerning the factors involved in making the
calculation.  In addition, the disclosure of both undiscounted and
discounted net cash flows provides a measure of comparing proved oil and gas
reserves both with and without an estimate of production timing.  The
standardized measure of discounted future net cash flows relating to proved
reserves reflects income taxes.




December 31,
                      
                      
                      December 31,
                      
                      
                      December 31,2007
                      
                      
                      2006
                      
                      
                      2005Future
      cash in flows
                      
                      $
                      36,745,611
                      
                      
                      $
                      19,415,065
                      
                      
                      $
                      19,154,814Future
      production and development costs
                      
                      
                      (12,714,080
                      )
                      
                      
                      (5,858,187
                      )
                      
                      
                      (4,292,152
                      )Future
      income tax expenses
                      
                      
                      (1,568,917
                      )
                      
                      
                      (722,868
                      )
                      
                      
                      (659,464
                      )Future
      net cash flows
                      
                      
                      22,462,614
                      
                      
                      
                      12,834,010
                      
                      
                      
                      14,203,19810%
      annual discount for estimated timing of cash flows
                      
                      
                      10,138,224
                      
                      
                      
                      6,712,715
                      
                      
                      
                      7,147,126Standardized
      measure of discounted future net cash flow
                      
                      $
                      12,324,390
                      
                      
                      $
                      6,121,295
                      
                      
                      $
                      7,056,072





* Refer
to the following table for analysis in changes in standardized
measure.




Changes In Standardized
Measure Of Discounted Future Net Cash Flow From Proved Reserve
Quantities


This
statement discloses the sources of changes in the standardized measure from year
to year. The amount reported as "Net changes in prices and production costs"
represents the present value of changes in prices and production costs
multiplied by estimates of proved reserves as of the beginning of the
year.  The "accretion of discount" was computed by multiplying the ten
percent discount factor by the standardized measure as of the beginning of the
year.  The "Sales of oil and gas produced, net of production costs" is
expressed in actual dollar amounts.  "Revisions of previous quantity
estimates" is expressed at year-end prices.




68


Supplemental
Information (unaudited)





Changes In Standardized
Measure Of Discounted Future Net Cash Flow From Proved Reserve Quantities
(Continued)





The "Net
change in income taxes" is computed as the change in present value of future
income taxes.




December 31,
                
                
                December 31,
                
                
                December 31,2007
                
                
                2006
                
                
                2005Standardized
      measure - beginning of period
                
                $
                6,121,295
                
                
                $
                7,056,072
                
                
                $
                1,958,238Sales
      of oil and gas produced, net of production costs
                
                
                (690,155
                )
                
                
                (640,515
                )
                
                
                (807,930
                )Revisions
      of estimates of reserves provided in prior years:Net
      changes in prices
                
                
                8,801,793
                
                
                
                (2,215,972
                )
                
                
                1,412,965Revisions
      of previous quantity estimates
                
                
                1,641,446
                
                
                
                (2,512,220
                )
                
                
                1,630,965Extensions
      and discoveries
                
                
                4,718,914
                
                
                
                -
                
                
                
                11,345,272Property
      acquisition
                
                
                -
                
                
                
                2,370,080
                
                
                
                -Accretion
      of discount
                
                
                (15,970,845
                )
                
                
                434,411
                
                
                
                (6,204,768
                )Changes
      in production and development costs.
                
                
                6,855,893
                
                
                
                1,566,035
                
                
                
                (1,580,186
                )Net
      change in income taxes
                
                
                846,049
                
                
                
                63,404
                
                
                
                (698,484
                )Net
      increase (decrease)
                
                
                6,203,095
                
                
                
                (934,777
                )
                
                
                5,097,834Standardized
      measure - end of period
                
                $
                12,324,390
                
                
                $
                6,121,295
                
                
                $
                7,056,072




69


Supplemental
Information (unaudited)





Quarterly Financial Data
(unaudited)





2007First
                  
                  
                  Second
                  
                  
                  Third
                  
                  
                  FourthQuarter
                  
                  
                  Quarter
                  
                  
                  Quarter
                  
                  
                  QuarterOperating
      Revenues
                  
                  $
                  1,516,300
                  
                  
                  $
                  1,299,709
                  
                  
                  $
                  3,912,591
                  
                  
                  $
                  4,004,721Net
      Income (Loss)
                  
                  $
                  (2,402,019
                  )
                  
                  $
                  (2,810,243
                  )
                  
                  $
                  (1,038,643
                  )
                  
                  $
                  (2,355,986
                  )Net
      Income per Common Share - Basic
                  
                  $
                  (0.09
                  )
                  
                  $
                  (0.11
                  )
                  
                  $
                  (0.05
                  )
                  
                  $
                  (0.10
                  )





2006First
                  
                  
                  Second
                  
                  
                  Third
                  
                  
                  FourthQuarter
                  
                  
                  Quarter
                  
                  
                  Quarter
                  
                  
                  QuarterOperating
      Revenues
                  
                  $
                  369,765
                  
                  
                  $
                  978,340
                  
                  
                  $
                  1,356,311
                  
                  
                  $
                  2,532,307Net
      Income (Loss)
                  
                  $
                  (3,064,107
                  )
                  
                  $
                  (3,240,179
                  )
                  
                  $
                  (2,673,198
                  )
                  
                  $
                  8,064,313
                  *Net
      Income (Loss) per Common Share
                  
                  $
                  (0.13
                  )
                  
                  $
                  (0.14
                  )
                  
                  $
                  (0.11
                  )
                  
                  $
                  0.34





* In the
fourth quarter we sold Tri-Western Resources and an associated building for a
net gain of $9,715,604.





2005First
                              
                              
                              Second
                              
                              
                              Third
                              
                              
                              FourthQuarter
                              
                              
                              Quarter
                              
                              
                              Quarter
                              
                              
                              QuarterOperating
      Revenues
                              
                              $
                              202,108
                              
                              
                              $
                              1,846,630
                              
                              
                              $
                              6,781,574
                              
                              
                              $
                              3,698,294Net
      Income (Loss)
                              
                              $
                              (3,375,111
                              )
                              
                              $
                              (717,680
                              )
                              
                              $
                              (345,932
                              )
                              
                              $
                              (5,291,348
                              )Net
      Income (Loss) per Common Share
                              
                              $
                              (0.15
                              )
                              
                              $
                              (0.03
                              )
                              
                              $
                              (0.02
                              )
                              
                              $
                              (0.23
                              )




70


ITEM
9A  Controls and Procedures




Evaluation
of Disclosure Controls




The
Company conducted an evaluation, under the supervision and with the
participation of the Company’s principal executive officer and principal
financial officer, of the effectiveness of the design and operation of the
Company’s disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of December 31,
2007.




Based
upon that evaluation, the Chief Executive Officer and Chief Financial Officer
concluded that the Company’s disclosure controls and procedures as of the end of
the period covered by this report were effective as of December 31, 2007 as
discussed in Management’s Report on Internal Control.




Limitations on the
Effectiveness of Controls




Our
management, including our CEO and CFO, does not expect that our Disclosure
Controls or our internal control over financial reporting will prevent all error
and all fraud.  A control system, no matter how well conceived and
operated, can provide only reasonable, but not absolute, assurance that the
objectives of a control system are met.  Further, any control system
reflects limitations on resources, and the benefits of a control system must be
considered relative to its costs.  Because of the inherent limitations
in all control systems, no evaluation of controls can provide absolute assurance
that all control issues and instances of fraud, if any, within Tri-Valley
Corporation have been detected.  These inherent limitations include
the realities that judgments in decision-making can be faulty and that
breakdowns can occur because of simple error or
mistake.  Additionally, controls can be circumvented by the individual
acts of some persons, by collusion of two or more people, or by management
override of a control.  A design of a control system is also based
upon certain assumptions about potential future conditions; over time, controls
may become inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate.  Because
of the inherent limitations in a cost-effective control system, misstatements
due to error or fraud may occur and may not be detected.




Management’s
Report on Internal Control over Financial Reporting




Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting, as defined by SEC rules adopted under the
Securities Exchange Act of 1934, as amended. Our internal control over financial
reporting is designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. It
consists of policies and procedures that:




•
              
              Pertain
      to the maintenance of records that, in reasonable detail, accurately and
      fairly reflect the transactions and dispositions of our
      assets;•
              
              Provide
      reasonable assurance that transactions are recorded as necessary to permit
      preparation of the financial statements in accordance with generally
      accepted accounting principles, and that our receipts and expenditures are
      being made only in accordance with authorizations of our management and
      directors; and•
              
              Provide
      reasonable assurance regarding prevention or timely detection of
      unauthorized acquisition, use or disposition of our assets that could have
      a material effect on the financial
statements.





Under the
supervision and with the participation of management, including the President
and Chief Financial Officer, we made an assessment of the effectiveness of our
internal control over financial reporting as of December 31, 2007. In
making this assessment, we used the criteria established in Internal Control — Integrated
Frameworkissued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on our evaluation, we concluded that our
internal control over financial reporting was effective as of December 31,
2007.




71


Changes
in Internal Control




There
have not been any changes in the Company’s internal control over financial
reporting during the fiscal quarter ended December 31, 2007 that have materially
affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.





REPORT
OF INDEPENDENT REGISTERED


PUBLIC
ACCOUNTING FIRM





To the
Board of Directors and


Stockholders
of Tri-Valley Corporation


Bakersfield,
California





We have
audited Tri-Valley Corporation’s internal control over financial reporting as of
December 31, 2007, based on criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Tri-Valley Corporation’s management is responsible
for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting
included in the accompanying report from management. Our responsibility is to
express an opinion on the company’s internal control over financial reporting
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 effective
internal control over financial reporting was maintained in all material
respects. Our audit of internal control over financial reporting included
obtaining an understanding of internal control over financial reporting,
assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered
necessary in the circumstances. We believe that our audit provides a reasonable
basis for our opinion.




A
company’s internal control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s
assets that could have a material effect on the financial
statements.




Because
of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.




In our
opinion, Tri-Valley Corporation maintained, in all material respects, effective
internal control over financial reporting as of December 31, 2007, based on
criteria established in Internal Control—Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).




72


We have
also audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the balance sheets and the related statements
of income, stockholders’ equity and comprehensive income, and cash flows of
Tri-Valley Corporation, and our report dated March 13, 2008 expressed an
unqualified opinion.




BROWN
      ARMSTRONG PAULDENMcCOWN
      STARBUCK THORNBURGH & KEETERACCOUNTANCY
      CORPORATION





March 13,
2008


Bakersfield,
California


73





PART
III





ITEM 10  Directors
and Executive Officers of the Registrant




All of
our directors serve one year terms from the time of their election to the time
their successor is elected and qualified.  The following information
is furnished with respect to each director and executive officer who served as
such during the fiscal year ended December 31, 2007:




Year
      FirstBecame
      Director or
                                          
                                          Position
      WithName of Director
                                          
                                          Age
                                          
                                          Executive Officer
                                          
                                          CompanyF.
      Lynn Blystone
                                          
                                          
                                          72
                                          
                                          1974
                                          
                                          President,
      CEO, Director, TVCCEO
      and Director, TVOGPresident,
      CEO, Director, TVPCCHOB,
      CEO, Director SelectMilton
      J. Carlson(1)
      (3)(4)
                                          
                                          
                                          77
                                          
                                          1985
                                          
                                          DirectorLoren
      J. Miller(1)(6)
                                          
                                          
                                          62
                                          
                                          1992
                                          
                                          DirectorHenry
      Lowenstein, Ph.D(2)(3)
                                          
                                          
                                          53
                                          
                                          2005
                                          
                                          DirectorWilliam
      H.“Mo”Marumoto(2)(3)
                                          
                                          
                                          72
                                          
                                          2005
                                          
                                          DirectorG.
      Thomas Gamble(1)(2)(6)
                                          
                                          
                                          46
                                          
                                          2006
                                          
                                          DirectorPaul
      W. Bateman(1)
                                          
                                          
                                          50
                                          
                                          2007
                                          
                                          DirectorEdward
      M. Gabriel(3)
                                          
                                          
                                          57
                                          
                                          2007
                                          
                                          DirectorThomas
      J. Cunningham(5)
                                          
                                          
                                          65
                                          
                                          1997
                                          
                                          VP,
      CAO, Treasurer andSecretary,
      TVC, TVOG, and TVPCDirector
      SelectArthur
      M. Evans
                                          
                                          
                                          59
                                          
                                          2005
                                          
                                          Chief
      Financial OfficerJoseph
      R. Kandle
                                          
                                          
                                          65
                                          
                                          1999
                                          
                                          President,
      TVOGRobert
      A. Bell
                                          
                                          
                                          49
                                          
                                          2007
                                          
                                          VP
      of Operations, TVOGJames
      G. Bush
                                          
                                          
                                          58
                                          
                                          2007
                                          
                                          VP
      of Exploration,
TVOG





(1)-
            Member
      of Audit Committee


(2)-
            Member
      of Personnel & Compensation
Committee


(3)-
            Member
      of Nominating and Corporate Governance
Committee


(4)-
            Retired
      February 2, 2008


(5)-
            Retired
      January 15, 2008


(6)-
            Member
      of Finance Committee


74





F. Lynn Blystone - 72
                    President
      and Chief Executive Officer of Tri-Valley Corporation and Tri-Valley Power
      Corporation, CEO of Tri-Valley Oil & Gas Company and Select Resources
      Corporation, which are three wholly owned subsidiaries of Tri-Valley
      Corporation - Bakersfield, California
                    1974





Mr.
Blystone became president of Tri-Valley Corporation in October, 1981, and was
nominally vice president from July to October, 1981.  His background
includes institution management, venture capital and various management
functions for a mainline pipeline contractor including the Trans Alaska Pipeline
Project.  He has founded, run and sold companies in several fields
including Learjet charter, commercial construction, municipal finance and land
development.  He is also president of a family corporation, Bandera
Land Company, Inc., with real estate interests in  Orange County
California.  A graduate of Whittier College, California, he did
graduate work at George Williams College, Illinois in organization
management.  He gives full time to Tri-Valley and its
subsidiaries.





Milton J. Carlson – 77
                  Director
                  1985





Since
      1989, Mr. Carlson has been a principal in Earthsong Corporation, which, in
      part, consults on environmental matters and performs environmental audits
      for government agencies and public and private concerns.  Mr.
      Carlson attended the University of Colorado at Boulder and the University
      of Denver.  Mr. Carlson was an independent member of our Board
      of Directors.  His former career experience included being
      corporate secretary of Union Sugar, a unit of Sara Lee Corporation and
      chairman of the Energy End Users Committee of the California Manufacturers
      Association.  Mr. Carlson retired from our Board of Directors in
      February 2008.





Loren J. Miller, CPA – 62
                  Director
                  1992





Mr.
Miller has served as Treasurer of the Jankovich Company from 2001 until his
retirement in 2008.  Prior to that he served in other positions at
Jankovich from 1994 to 2001.  Prior to that he served successively as
vice president and chief financial officer of Hershey Oil Corporation from 1987
to 1990 and Mock Resources from 1991 to 1992.  Prior to that he was
vice president and general manager of Tosco Production Finance Corporation from
1975 to 1986 and was a senior auditor for the accounting firm of Touche Ross
& Company from 1968 to 1973.  He is experienced in exploration,
production, product trading, refining and distribution as well as corporate
finance.  He holds a B.S. in accounting and a M.B.A. in finance from
the University of Southern California.  Mr. Miller is an independent
member of our Board of Directors.





Henry Lowenstein, Ph.D - 53
                  Director
                  2005


Dr.
Lowenstein is Dean and Professor of Management at the E. Craig Wall Sr. College
of Business Administration, Coastal Carolina University, Conway, South Carolina.
Prior to joining the Coastal Carolina University faculty in 2007, he was Dean of
Business and Public Administration at California State University Bakersfield
since 2002.   Dr. Lowenstein has broad background in management
within business, academic, government and public service
organizations.  He serves on the Pre-Accreditation Committee of AACSB
International, the top accreditation agency for business schools worldwide.
Previous academic positions include universities in Illinois, Virginia and West
Virginia. Dr. Lowenstein is published in fields of human resource management,
public policy and transportation.  In business he was a corporate
officer for Kemper Group-Insurance and Financial Services, Dominion Bankshares
Corporation, and Americana Furniture, Inc.  He previously served as a
management analyst for the Executive Office of the President of the United
States-Office of Management and Budget under the Gerald Ford
Administration.  Dr. Lowenstein received his Ph.D. in Labor and
Industrial Relations from the University of Illinois; an M.B.A. from George
Washington University; and B.S. in Business Administration from Virginia
Commonwealth University.  He serves on Tri-Valley's Personnel and
Compensation Committee and is Chairman of the Nominating and Corporate
Governance Committee.  Dr. Lowenstein is an independent member of our
Board of Directors.


75





William H. “Mo” Marumoto -
    72
                  Director
                  2005


Mr.
Marumoto had over 30 years experience in the executive and personnel search
profession as chairman and chief executive officer of his own retained search
firm, The Interface Group Ltd, where he worked from 1975 to
2005.  Here he was named to the Global Top 200 Executive Recruiters
and several other worldwide professional awards and
recognitions.  Upon retirement from Interface Group, he accepted a
position as President and CEO of The Asian Pacific Institute for Congressional
Studies (APAICS) in September 2006, which he held until his death in November
2008.  He has 40 years experience in public, private and academic
sectors.  He worked for three years as presidential aide in the Nixon
White House.  Earlier he was assistant to the secretary of health,
education and welfare.  Mr. Marumoto was an advisor to numerous
organizations, colleges, public agencies and businesses.  In 2002 he
was appointed by President George W. Bush to the advisory committee of the John
F. Kennedy Center for the Performing Arts.  In fiscal 2007, Mr.
Marumoto served as Chair of our Compensation committee and as an independent
member of our Board of Directors.





G. Thomas Gamble - 46
                  Director
                  2006


A
graduate of UCLA, Mr. Gamble is a successful rancher and businessman with
current active investments in agriculture, food processing, educational
services, oil, gas and minerals.  From 2001 to the present, Mr. Gamble
is a manager and partner in Davis and Gamble, a wine production and sales
company.  In 2003, the California State Senate proclaimed privately
owned Davies and Gamble, which produces critically acclaimed wines in
California’s Napa Valley, its Green Entrepreneur Of The Year, and in 2005,
Mozzarella Fresca, the nation’s premier producer of fresh Italian cheeses, of
which he is a director and original investor, received the Certificate of
Special Congressional Recognition as business of the year.  He is also
a director and original investor in Boston Reed College which provides
educational opportunities to busy adults seeking stable and growing careers in
the California health care industry.  Mr. Gamble is an independent
member of our Board of Directors.





Paul W. Bateman - 50
                  Director
                  2007


Mr.
Bateman is the President of the Klein & Saks Group, a Washington, DC-based
public affairs firm, that advises companies, industry organizations and
coalitions, principally in the mining and metals industries, on the political,
regulatory and public policy environment. He joined the firm in 1994, and has
been its chief executive since 1998. Since March 2004, Mr. Bateman also has been
President of the Economic Club of New York, the nation’s leading nonpartisan
policy forum. In 2005, Mr. Bateman was elected Chairman and chief executive of
the International Cyanide Management Institute, which administers a voluntary
industry program aimed at improving the management of cyanide used in gold
mining and assisting in the protection of human health and the reduction of
environmental impacts. Mr. Bateman’s knowledge of the precious metals industry
is extensive, having earlier served as Executive Director of the Silver
Institute, an international association serving the silver industry, and
President of the Gold Institute, a North American industry group. Mr. Bateman
began his career in San Clemente, California in the late 1970s, as an aide to
then former President Richard Nixon. In 1981, he joined the White House staff
under President Reagan, and subsequently served in that administration in senior
positions at the Departments of Commerce and Treasury.  From 1989 to
1993, he served on President George H.W. Bush’s White House staff as Deputy
Assistant to the President for Management.  Mr. Bateman is an independent
member of our board of directors.





Edward M. Gabriel - 57
                  Director
                  2007


Dr.
Gabriel is the former. U.S. Ambassador to Morocco and since 2002 is President
and CEO of the Washington D.C. based public affairs firm, The Gabriel Company,
LLC.  Ambassador Gabriel brings a diverse background in a variety of
petroleum and other energy sources. Mr. Gabriel’s experience is both domestic
and international, with extensive relationships in U.S. and Middle Eastern
governments, as well as capital resources interested in energy. He is on the
advisory board of Guggenheim Partners, a private wealth management firm. His
career includes senior management positions with firms such as CONCORD and
Madison Public Affairs Group in which he advised Fortune 100 Companies on
multi-national matters in technology, energy, banking, environmental, and tax
policies. Ambassador Gabriel served the Federal Energy Administration/U.S.
Department of Energy as Senior Economic Analysts. He serves as Member, Global
Advisory Board of George Washington University and Vice-Chairman of the American
Task Force for Lebanon. He is on the board of directors of the American School
of Tangier and the Casablanca American School. He is a graduate of Gannon
University, was awarded an honorary Doctorate of Laws from Gannon, and he is a
member of the University Economics Honor Society. Mr. Gabriel is an independent
member of our board of directors.


76





Thomas J. Cunningham - 65
                  Secretary,
      Treasurer and Chief Administrative Officer of Tri-Valley Corporation, and
      its wholly owned subsidiaries, Tri-Valley Oil & Gas Company,
      Tri-Valley Power Corporation and Select Resources
Corporation,
                    Bakersfield,
      California
                  1997





Named as
Tri-Valley Corporation’s treasurer and chief financial officer in February 1997,
and as corporate secretary on December 1998, promoted to Chief Administrative
Officer in November 2005.  From 1987 to 1997 he was a self employed
management consultant in finance, marketing and human
resources.  Prior to that he was executive vice president, chief
financial officer and director for Star Resources from 1977 to
1987.  He was the controller for Tucker Drilling Company from 1974 to
1977.  He has over 25 years experience in corporate finance,
Securities Exchange Commission public company reporting, shareholder relations
and employee benefits.  He received his education from Angelo State
University, Texas.  Mr. Cunningham retired January 15,
2008.





Arthur M.  Evans, CPA, CMA,CFM -
      59
                        Chief
      Financial Officer of Tri-Valley Corporation, and its wholly owned
      subsidiaries, Tri-Valley Oil & Gas Company, Tri-Valley Power
      Corporation, Select Resources Corporation and Great Valley Production
      Services, Inc.
                          Bakersfield,
      California
                        2005





Named as
Tri-Valley Corporation’s chief financial officer in November
2005.  Prior to coming to Tri-Valley, Art was a self-employed
financial consultant from 2000 to 2005.  Mr. Evans has a full range of
accounting, mergers and acquisitions and financial management experience in
several industries as well as oil, gas and mining and with Fortune 500 companies
as well as independents like Tri-Valley.  He held several senior
financial management positions with Getty Oil and Texaco.  He holds a
B.S. in accounting from Weber State University, a M.B.A. in finance from Golden
State University and a M.S. in systems management from the University of
Southern California.  His professional designations include Certified
Public Accountant, Certified Management Accountant and Certified Financial
Manager.





Joseph R. Kandle – 65
                  President
      and Chief Operating Officer Tri-Valley Oil & Gas Company, wholly owned
      subsidiary of Tri-Valley Corporation Bakersfield,
    California
                  1998





Mr.
Kandle was named as president of Tri-Valley Oil & Gas Co. February 1999
after joining the Company June 1998 as vice president - engineering. From 1995
to 1998 he was employed as a petroleum engineer for R & R Resources,
self-employed as a consulting petroleum engineer from 1994 to
1995.  He was vice president - engineering for Atlantic Oil Company
from 1983 to 1994.  From 1981 to 1983 he was vice president for Star
Resources.  He was vice president and chief engineer for Great Basins
Petroleum from 1973 to 1981.  He began his career with Mobil Oil (from
1965 to 1973) after graduating from the Montana School of Mines in
1965.


77





Robert A. Bell - 49
                    Vice
      President of Operations Tri-Valley Oil & Gas Company, wholly owned
      subsidiary of Tri-Valley Corporation Bakersfield,
    California
                    2007




Mr. Bell
joined Tri-Valley in June 2007, and served in a dual executive role spanning
TVOG and GVPS. Mr. Bell leads our oil and gas assets exploitation operations,
our engineering & field management personnel, and all company-owned rig and
shop/yard operations and personnel.  Robert has over 26 years of
domestic and international experience in engineering and management
that includes both major and independent oil & gas companies as well as
the service sector.  He served as V.P. of Exploitation for Plains E & P
Co. from 2000 to 2003 and V.P. of Operations Bonanza Creek Oil Co., LLC from
2003 to 2004.  Mr. Bell has field development experience ranging from
large-scale world class projects to marginal/mature oil and gas
developments, which includes the full E&P spectrum spanning light and
heavy oil to mature, gas production, and from exploration conceptual engineering
to full field development and tertiary recovery. His domestic
experience includes the areas of California, Alaska, the
Rockies, Texas (E/SE/S), and the Gulf Coast/Gulf of Mexico.  His
international residence experience includes Perth, Australia and Quito,
Ecuador.  Robert has extensive training in French and Spanish languages,
and has co-authored several industry papers on state-of-the-art operations
technology.  He is a Petroleum and Natural Gas Engineering graduate of Penn
State University, and is a member of SPE and AADE.  Mr. Bell resigned
from Tri-Valley in October 2008.





James G. Bush - 58
                  Vice
      President Exploration Tri-Valley Oil & Gas Company, wholly owned
      subsidiary of Tri-Valley Corporation Bakersfield,
    California
                  2007




Mr. Bush
joined the Company in June 2007.  Mr. Bush brings a wide range of
experience with over 30 years in the natural resource industry (oil, gas, and
minerals), the consulting business, and in heavy industry.  Prior to
Tri-Valley, Jim spent 10 years with the Department of Energy’s Pacific Northwest
National Laboratory as a manager of Business and Technology Development from
1996 to 2007, and the previous 10 years with ICF Kaiser Engineers.  Prior
to that, he worked for Atlantic Richfield (on and off-shore Alaska and Texas),
Aspen Exploration, and the Anaconda Copper Co.  His areas of expertise
include oil and gas exploration and drilling, uranium exploration and drilling,
and metals exploration, with particular expertise in gold placer exploration and
mining (he was the finding geologist for Alaska’s recent Valdez Creek gold
mine).  Jim received his Bachelors of Science degree in Geology from Ohio
State University and his Masters of Science from South Dakota School of Mines
and Technology.  Jim is certified by the American Institute of Professional
Geologists, and is a registered geologist in the States of Alaska and
Washington.  It should be noted that Jim also served three years in the
U.S. Navy Seabees.




AuditCommittee





The
independent directors that serve on the audit committee are Loren J. Miller,
Chair, Paul W. Bateman, G. Thomas Gamble and Milton J. Carlson.  The
board of directors has determined that Loren J. Miller is considered to be the
audit committee financial expert.  Please see his biography
above.




Finance
Committee




The
independent directors that serve on the finance committee are G. Thomas Gamble,
Chair and Loren J. Miller.




Personnel and Compensation
Committee




The
independent directors that serve on the personnel and compensation committee are
William H. “Mo” Marumoto, Chair, Dr. Henry Lowenstein and G. Thomas Gamble as of
year-end 2007.


78


Nominating and Corporate
Goverance Committee




The
independent directors that serve on the Nominating and Corporate Governance
Committee are Milton Carlson, Chair, and William H. “Mo” Marumoto and Edward M.
Gabriel.  (Milton Carlson retired February 2, 2008 and Dr. Henry
Lowenstein was appointed to succeed Mr. Carlson as Chair.




Compliance with Section
16(a) of the Exchange Act




Section
16(a) of the Securities Exchange Act of 1934 and Securities and Exchange
Commission regulations require that the Company's directors, certain officers,
and greater than 10 percent shareholders file reports of ownership and changes
in ownership with the SEC and must furnish the Company with copies of all such
reports they file.  Based solely on the information furnished to the
Company, we believe that no person failed to file required Section 16(a) reports
on a timely basis during 2007.




Code of
Ethics




We have
adopted a code of ethics that applies to our directors, officers and
employees.  The code is also posted on our website
(www.tri-valleycorp.com).




ITEM 11  Executive
Compensation




Compensation
Discussion and Analysis




The core
mission of Tri-Valley Corporation isto increase the
value and liquidity of Tri-Valley stock and build the wealth of our
investors. To fulfill this mission, we have developed a tightly defined
business strategy. This strategy is to identify, obtain, and exploit exploration
projects of exceptional size where exploration, discovery, and operational
success can substantially grow the intrinsic value of the company and market
value of its stock.




Tri
Valley strives to incorporate a “team” approach in order to achieve strong
operating and financial results   Consistent with this approach,
Tri-Valley maintains a policy of executive compensation commensurate with the
long-term risk-value assumed by our investors and
shareholders.  Consequently, Tri-Valley’s Chief Executive Officer
compensation is structured as a base cash compensation that is recognized to be
below peer corporate levels, coupled with stock options which may result in
competitive to above competitive levels at some future date, depending on the
market performance of TIV’s stock.




The
philosophy of low base salary coupled with options has now been implemented in
the recruitment of executives at the Vice President level of Tri-Valley and its
subsidiary companies.  This approach has proved successful in
attracting key individuals with major industry experience who share the Company
long-term shareholder value philosophy and performance
motivation.  Given the competitive market within our industry for
human resources necessary to support our ventures, equity options are now being
used to secure key staff and operating personnel within the organization as a
means to offset lower base compensation.




EXECUTIVE
COMPENSATION ANALYSIS




Tri-Valley
Corporation compares its executive salaries to six peer corporations used by
market analysts as a basis of comparing Tri-Valley operations.  The
comparison group all has market capitalization of $179 million to $210
million.  All six of the peer companies are in the oil exploration and
production industry.  The six companies used in the peer analysis are:
Gasco Energy; Panhandle Oil & Gas; Prime Energy; CanArgo Energy; Meridian
Resource Corp.; and Double Eagle.


79


The
following chart shows the comparison of Tri-Valley executive compensation to the
peer group average:




2006 President/CEO
Comparison


TIV to
Peer Group Average





Tri-Valley
                      Corporation
                    
                    
                    Industry Peer Group
                      AveragePresident/CEOBase
      Salary
                    
                    $
                    159,000
                    
                    
                    $
                    306,000Bonus
                    
                    
                    0
                    
                    
                    $
                    644,000Stock/Options
                    
                    $
                    47,000
                    
                    
                    $
                    194,000Other
      Comp.
                    
                    $
                    5,000
                    
                    
                    $
                    127,000TOTAL
                    
                    $
                    211,000
                    
                    
                    $
                    1,078,000Vice
      President LevelBase
      Salary
                    
                    $
                    131,000
                    
                    
                    $
                    206,000Bonus
                    
                    
                    0
                    
                    
                    $
                    303,000Stock/Options
                    
                    
                    0
                    
                    
                    $
                    147,000Other
      Comp.
                    
                    $
                    4,000
                    
                    
                    $
                    16,000TOTAL
                    
                    $
                    135,000
                    
                    
                    $
                    620,000





Tri-Valley
base line executive compensation is approximately 20% of industry average for
President/CEO, and, 22% of industry average for Vice Presidents.




These
results assure shareholders that Tri-Valley Corporation does not engage in
excessive executive compensation.  It is further assurance that our
executives, like our shareholders, accept compensation based upon the long-term
performance of TIV to ultimately provide the rewards tomorrow that would in
other organizations be received today.




Section 162(m).    The
Company believes that all compensation paid or payable to its executive officers
covered under Section 162(m) of the Internal Revenue Code will qualify for
deductibility under such Section.




Compensation
Committee Report




The
Compensation Committee has reviewed and discussed the foregoing Compensation
Discussion and Analysis with management, and based on such review and
discussion, it has recommended to the Board of Directors that the Compensation
Discussion and Analysis be included in the Company’s Annual Report on Form
10-K.




Submitted
by the Compensation Committee of the Board of Directors.




William
      H. “Mo” Marumoto, Chair
                    Dr.
      Henry Lowenstein
                    G.
      Thomas Gamble


80





Summary
Compensation Table




The
following table summarizes the compensation of the executive officers of the
Company and its subsidiaries for the fiscal years ended December 31, 2007, 2006,
and 2005.




(a)
                                      (b)
                                      
                                      ( c
      )
                                      
                                      
                                      (d)
                                      
                                      
                                      (e)
                                      
                                      
                                      (f)Name
                                      Fiscal
      Year
                                        Ending
                                      
                                      Salary
                                      
                                      
                                      Stock
                                        Awards
      (1)
                                      
                                      
                                      Option
                                        Awards
      (2)
                                      
                                      
                                      Company
                                        401-K
                                        Contribution
                                      
                                      
                                      Total
      CompensationF.
      Lynn
                                      12/31/07
                                      
                                      $
                                      159,000
                                      
                                      
                                      $
                                      37,000
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      4,770
                                      
                                      
                                      $
                                      200,770Blystone,
      CEO
                                      12/31/06
                                      
                                      $
                                      159,000
                                      
                                      
                                      $
                                      47,450
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      4,770
                                      
                                      
                                      $
                                      211,22012/31/05
                                      
                                      $
                                      159,000
                                      
                                      
                                      $
                                      38,900
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      2,782
                                      
                                      
                                      $
                                      200,682Thomas
                                      12/31/07
                                      
                                      $
                                      135,000
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      4,050
                                      
                                      
                                      $
                                      139,050Cunningham,
      CAO
                                      12/31/06
                                      
                                      $
                                      130,833
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      
                                      3,925
                                      
                                      
                                      $
                                      134,75812/31/05
                                      
                                      $
                                      115,000
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      2,012
                                      
                                      
                                      $
                                      117,012Arthur
      M.
                                      12/31/07
                                      
                                      $
                                      120,000
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      17,000
                                      
                                      
                                      $
                                      3,600
                                      
                                      
                                      $
                                      140,600Evans,
      CFO
                                      12/31/06
                                      
                                      $
                                      120,000
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      56,550
                                      
                                      
                                      $
                                      3,600
                                      
                                      
                                      $
                                      180,15012/31/05
                                      
                                      $
                                      15,000
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      34,000
                                      
                                      
                                      $
                                      450
                                      
                                      
                                      $
                                      49,450Joseph  Kandle,
                                      12/31/07
                                      
                                      $
                                      170,000
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      5,100
                                      
                                      
                                      $
                                      175,100Pres.
      TVOG
                                      12/31/06
                                      
                                      $
                                      163,333
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      5,875
                                      
                                      
                                      $
                                      169,20812/31/05
                                      
                                      $
                                      150,000
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      2,625
                                      
                                      
                                      $
                                      152,625Robert
      A. Bell,
                                      12/31/07
                                      
                                      $
                                      83,125
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      144,990
                                      
                                      
                                      $
                                      2,494
                                      
                                      
                                      $
                                      230,609Vice
      Pres. Operations, TVOGJames
      G. Bush,
                                      12/31/07
                                      
                                      $
                                      112,560
                                      
                                      
                                      $
                                      0
                                      
                                      
                                      $
                                      96,000
                                      
                                      
                                      $
                                      3,377
                                      
                                      
                                      $
                                      211,937Vice
      Pres. Exploration, TVOG





(1)  Stock
awards are valued at the closing market price on the date of
issuance.


(2)  Stock
option awards are valued on the date of grant using the Black-Scholes model –
see note 5 to the Consolidated Financial Statements in Item 8.





Employment
Agreement with Our President





We have
an employment agreement with F. Lynn Blystone, our President and Chief Executive
Officer, which ended on December 31, 2007 and is pending extension until
December 31, 2011, The terms of the expired contract were for a base salary
amount of $159,000 per year plus 5,000 shares of our common stock at the end of
each year of service.  Mr. Blystone is also entitled to a bonus (not
to exceed $25,000) equal to 10% of net operating cash flow before taxes,
including interest income and excluding debt service.  Mr. Blystone is
also entitled to a bonus of 4% of the company's annual net after-tax
income.  The total of the bonuses from cash flow and net income may
not exceed $50,000 per year, although the Board of Directors may authorize
additional bonuses and compensation if it so desires.  The employment
agreement also provides a severance payment to Mr. Blystone if he is terminated
within 12 months after a sale of control of Tri-Valley.  The severance
payment equals $150,000.  For purposes of the severance provision, a
sale of control is deemed to be the sale of ownership of 30% of the outstanding
stock of Tri-Valley or the acquisition by one person of enough stock to appoint
a majority of the board of directors of the company.




At the
regular meeting of the board of directors March 3, 2007 the independent
directors unanimously elected Mr. Blystone to the additional post of chairman of
the board.


81


We carry
key man life insurance of $500,000 on Mr. Blystone's life.




Employee
Pension, Profit Sharing or Other Retirement Plans




During
2007, the Company established a 401-K program allowing for the deferral of
employee income.  The plan provides for the Company to contribute 3%
of gross wages.  For the year ended December 31, 2007 the Company
contributed $88,124 to such plan.




Aggregated
2007 Option Exercises and Year-End Values




The
following table summarizes the number and value of all unexercised stock options
held by the Named Executive Officers and the Directors at the end of
2007.




(
      a )
                    
                    (b)
                    
                    
                    (c)
                    
                    
                    (d)
                    
                    
                    (e)Name
                    
                    Shares
                      Acquired
                      On
      Exercise(#)
                    
                    
                    Value
                      Realized
      ($)
                    
                    
                    Number
      of Securities
                      Underlying
      Unexercised
                      Options
      at FY End
                      Exercisable/
                      Unexercisable
                    
                    
                    Value
      of Unexercised In
                      The
      Money Options at FY
                      End
      ($)
                      Excercisable/
                      UnexercisableF.
      Lynn Blystone
                    
                    
                    47,500
                    
                    
                    $
                    341,640
                    
                    
                    
                    729,350/0
                    
                    
                    $
                    4,378,015/$0Milton
      Carlson
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    240,000/0
                    
                    
                    $
                    0/$0Thomas
      J. Cunningham
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    523,000/0
                    
                    
                    $
                    3,215,450/$0Arthur
      M. Evans
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    35,000/10,000
                    
                    
                    $
                    7,800/$0G.
      Thomas Gamble
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    40,000/40,000
                    
                    
                    $
                    42,000/$42,000Paul
      W. Bateman
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    20,000/80,000
                    
                    
                    $
                    18,200/$72,800Edward
      M. Gabriel
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    20,000/80,000
                    
                    
                    $
                    20,600/$82,400Joseph
      R. Kandle
                    
                    
                    50,000
                    
                    
                    $
                    335,500
                    
                    
                    
                    475,000/0
                    
                    
                    $
                    2,614,250/0Robert
      A. Bell
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    27,000/108,000
                    
                    
                    $
                    0/$0James
      G. Bush
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    20,000/110,000
                    
                    
                    $
                    0/$0Henry
      Lowenstein
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    
                    60,000/40,000
                    
                    
                    $
                    63,800/$42,000Loren
      J.Miller
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    0/0
                    
                    
                    $
                    0/0William
      H. “Mo” Marumoto
                    
                    
                    0
                    
                    
                    
                    0
                    
                    
                    
                    60,000/40,000
                    
                    
                    $
                    63,800/$42,000


*Based on
a fair market value of $7.40 per share, which was the closing price of the
Company's Common Stock on the American Stock Exchange on December 31,
2007




Option Grants During the Fiscal Year
Ended December 31, 2007 to Named Executive Officers




The
following table sets forth information regarding options for the purchase of
shares granted during the fiscal year ended December 31, 2007 to the Named
Executive Officers.




% of Total
                    
                    
                    
                    
                    
                    Market ValueNumber of Shares
                    
                    
                    Options Granted
                    
                    
                    Exercise Price
                    
                    
                    of SecuritiesUnderlying Options
                    
                    
                    to Employees
                    
                    
                    Per Share
                    
                    
                    Underlying
                    
                    
                    ExpirationName
                    
                    Granted
                    
                    
                    in Fiscal Year
                    
                    
                    ($/Security)
                    
                    
                    Options(3)
                    
                    
                    DateRobert
      A. Bell(1)
                    
                    
                    135,000
                    
                    
                    
                    23.5
                    %
                    
                    $
                    8.81
                    
                    
                    $
                    0
                    
                    
                    
                    6/2017James
      G. Bush(2)
                    
                    
                    130,000
                    
                    
                    
                    22.6
                    %
                    
                    $
                    7.88
                    
                    
                    $
                    0
                    
                    
                    
                    5/2017




(1)
            The
      options were granted June 5, 2007 and 27,000 options were vested as of
      December 31, 2007


(2)
            The
      options were granted May 23, 2007 and 20,000 options were vested as of
      December 31, 2007


(3)
            Based
      on the difference between the exercise price per share and the market
      price of $7.40 per share as of December 31,
2007


82


Outstanding
Equity Awards Table to Named Executive Officers and Directors





Name
                                                  
                                                  Number
      of Securities Underlying
                                                  
                                                  
                                                  Option
      Exercise
                                                  
                                                  Option
      ExpirationUnexercised
      Options
                                                  
                                                  
                                                  Price
                                                  
                                                  DateExercisable
                                                  
                                                  
                                                  Unexercisable( a
      )
                                                  
                                                  (b)
                                                  
                                                  
                                                  (c)
                                                  
                                                  
                                                  (d)
                                                  
                                                  (e)Paul
      W. Bateman
                                                  
                                                  
                                                  20,000
                                                  
                                                  
                                                  
                                                  80,000
                                                  
                                                  
                                                  $
                                                  6.37
                                                  
                                                  8/2/2017Robert
      A. Bell
                                                  
                                                  
                                                  27,000
                                                  
                                                  
                                                  
                                                  108,000
                                                  
                                                  
                                                  $
                                                  8.81
                                                  
                                                  6/5/2017F.
      Lynn Blystone
                                                  
                                                  
                                                  100,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  2.00
                                                  
                                                  8/22/200879,350
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  0.50
                                                  
                                                  6/19/200950,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  2.43
                                                  
                                                  9/16/2010200,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  1.22
                                                  
                                                  11/10/2010300,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  1.35
                                                  
                                                  10/22/2011James
      G. Bush
                                                  
                                                  
                                                  20,000
                                                  
                                                  
                                                  
                                                  110,000
                                                  
                                                  
                                                  $
                                                  7.88
                                                  
                                                  5/23/2017Milton
      Carlson
                                                  
                                                  
                                                  40,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  0.55
                                                  
                                                  8/22/200850,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  2.43
                                                  
                                                  9/16/2010100,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  1.22
                                                  
                                                  11/10//201050,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  1.35
                                                  
                                                  10/22/2011Thomas
      J. Cunningham
                                                  
                                                  
                                                  100,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  1.50
                                                  
                                                  8/22/200898,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  0.50
                                                  
                                                  6/19/200950,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  1.00
                                                  
                                                  9/1/200950,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  2.43
                                                  
                                                  9/16/2010150,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  1.22
                                                  
                                                  11/10/201075,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  1.35
                                                  
                                                  10/22/2011Arthur
      M. Evans
                                                  
                                                  
                                                  30,000
                                                  
                                                  
                                                  
                                                  10,000
                                                  
                                                  
                                                  $
                                                  9.55
                                                  
                                                  11/18/20155,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  5.84
                                                  
                                                  8/15/2016Edward
      M. Gabriel
                                                  
                                                  
                                                  20,000
                                                  
                                                  
                                                  
                                                  80,000
                                                  
                                                  
                                                  $
                                                  6.49
                                                  
                                                  8/1/2017G.
      Thomas Gamble
                                                  
                                                  
                                                  40,000
                                                  
                                                  
                                                  
                                                  40,000
                                                  
                                                  
                                                  $
                                                  6.35
                                                  
                                                  5/8/2016Joseph
      R. Kandle
                                                  
                                                  
                                                  100,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  0.50
                                                  
                                                  6/19/2009100,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  1.00
                                                  
                                                  9/1/200950,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  2.43
                                                  
                                                  9/16/2010150,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  1.22
                                                  
                                                  11/10/201075,000
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  $
                                                  1.35
                                                  
                                                  10/22/2011Henry
      Lowenstein
                                                  
                                                  
                                                  60,000
                                                  
                                                  
                                                  
                                                  40,000
                                                  
                                                  
                                                  $
                                                  6.35
                                                  
                                                  5/8/2016Loren
      J. Miller
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  
                                                  
                                                  0
                                                  
                                                  0William
      H. Marumoto
                                                  
                                                  
                                                  60,000
                                                  
                                                  
                                                  
                                                  40,000
                                                  
                                                  
                                                  $
                                                  6.35
                                                  
                                                  5/8/2016




83


Compensation
of Directors





The
Company compensates non-employee directors for their service on the board of
directors.




The
following table sets forth information regarding the compensation paid to
outside directors in 2007.




(a)
                  
                  (b)
                  
                  
                  (c)
                  
                  
                  (d)
                  
                  
                  (e)Name
                  
                  Fees
                  
                  
                  Stock
                    Awards (1)
                  
                  
                  Option
                    Awards (2)
                  
                  
                  Total
                    CompensationPaul
      W. Bateman
                  
                  $
                  3,000
                  
                  
                  
                  
                  
                  $
                  40,200
                  
                  
                  $
                  43,200Milton
      Carlson
                  
                  $
                  9,500
                  
                  
                  $
                  14,500
                  
                  
                  
                  -
                  
                  
                  $
                  24,000Edward
      M. Gabriel
                  
                  
                  0
                  
                  
                  
                  
                  
                  
                  $
                  40,800
                  
                  
                  $
                  40,800G.
      Thomas Gamble
                  
                  $
                  10,000
                  
                  
                  $
                  14,500
                  
                  
                  $
                  98,000
                  
                  
                  $
                  122,500Dr.
      Henry Lowenstein
                  
                  $
                  7,200
                  
                  
                  $
                  14,500
                  
                  
                  $
                  98,000
                  
                  
                  $
                  119,700Loren
      J. Miller
                  
                  $
                  9,500
                  
                  
                  $
                  14,500
                  
                  
                  
                  -
                  
                  
                  $
                  24,000William
      Marumoto
                  
                  $
                  7,400
                  
                  
                  $
                  14,500
                  
                  
                  $
                  98,000
                  
                  
                  $
                  119,900





(1) This
column represents the dollar amount recognized for financial statement reporting
purposes with respect to the 2007 fiscal year for the fair value of stock
granted in 2007.  Fair value is initially calculated using the closing
price of our stock on the date of grant.  In 2007, each director was
granted shares of common stock on January 2, 2007, per share, for services
rendered in 2006.  The initial value of the stock granted to each
director on that date was $14,500, based on a closing market price of $7.25 per
share.




(2) Stock
option awards relate to the accounting expense for options vested in accordance
with Statement of Financial Accounting Standards No. 123 (revised 2004)
Share-Based Payment, which requires the expensing of equity stock awards based
on the grant date of the option. The grant date for Mr. Bateman was August 2,
2007; Mr. Gabriel is August 1, 2007; Mr. Gamble, Dr. Lowenstein and Mr. Marumoto
the grant date was May 6, 2006.




Each
director is compensated at the rate of $2,000 per board meeting and $500 for
each committee meeting as of December 31, 2007


84


ITEM 12  Security
Ownership of Certain Beneficial Owners and Management





As of
December 31, 2007, there were 25,077,184 shares of the Company's common stock
outstanding.  The following persons were known by the Company to be
the beneficial owners of more than 5% of such outstanding common
stock:




Number
      of
                                    
                                    
                                    Percent
      ofName and Address
                                    
                                    Shares
                                    
                                    
                                    TotalF.
      Lynn Blystone
                                    
                                    
                                    1,227,853
                                    (1)
                                    
                                    
                                    4.8
                                    %P.O.
      Box 1105Bakersfield,
      CA 93302G.
      Thomas Gamble
                                    
                                    
                                    2,183,834
                                    (2)
                                    
                                    
                                    8.7
                                    %1250
      Church StreetSt.
      Helena, CA  94574




(1)
            Includes
      729,350 shares of stock Mr. Blystone has the right to acquire upon the
      exercise of options.


(2)
            Includes
      96,667 shares of stock Mr. Gamble has the right to acquire upon the
      exercise of warrants and options.





The
following table sets forth the beneficial ownership of the Company's common
stock as of December 31, 2007 by each director, by each of the executive
officers named in Item 11, and by the executive officer named in Item 10 and
directors as a group:





Number
      of
                  
                  
                  Percent
      ofDirectors and Executive
      Officers
                  
                  Shares (1)
                  
                  
                  Total (2)F.
      Lynn Blystone
                  
                  
                  1,227,853
                  
                  
                  
                  4.8
                  %Milton
      J. Carlson
                  
                  
                  347,000
                  
                  
                  
                  1.4
                  %Thomas
      J. Cunningham
                  
                  
                  540,000
                  
                  
                  
                  2.1
                  %Arthur
      M. Evans
                  
                  
                  45,000
                  
                  
                  
                  0.2
                  %G.
      Thomas Gamble
                  
                  
                  2,183,834
                  
                  
                  
                  8.7
                  %Paul
      W. Bateman
                  
                  
                  101,000
                  
                  
                  
                  0.4
                  %Edward
      M. Gabriel
                  
                  
                  100,000
                  
                  
                  
                  0.4
                  %Joseph
      R. Kandle
                  
                  
                  500,000
                  
                  
                  
                  2.0
                  %Robert
      A. Bell
                  
                  
                  135,000
                  
                  
                  
                  0.5
                  %James
      G. Bush
                  
                  
                  130,000
                  
                  
                  
                  0.5
                  %Henry
      Lowenstein, Ph.D.
                  
                  
                  102,200
                  
                  
                  
                  0.4
                  %William
      H. “Mo” Marumoto
                  
                  
                  102,000
                  
                  
                  
                  0.4
                  %Loren
      J. Miller
                  
                  
                  295,800
                  
                  
                  
                  1.2
                  %


85


Directors
and Executive Officers (continued)





Number
      of
                    
                    
                    Percent
      ofShares (1)
                    
                    
                    Total (2)Total group
      (all directors andExecutive
      officers - 13 persons)
                    
                    
                    5,608,687
                    
                    
                    
                    22.1
                    %





(1)
            Includes
      shares which the listed shareholder has the right to acquire from options
      as follows:  F. Lynn Blystone 729,350, Milton J. Carlson
      240,000, Thomas J. Cunningham 523,000, Arthur M. Evans 45,000, G. Thomas
      Gamble  96,667, Joseph R. Kandle 475,000;  Dr. Henry
      Lowenstein 100,000, William H. ”Mo” Marumoto
  100,000




(2)
            Based
      on total outstanding shares of 25,077,184 as of December 31,
      2007.  The persons named herein have sole voting and investment
      power with respect to all shares of common stock shown as beneficially
      owned by them, subject to community property laws where
      applicable.




ITEM 13  Certain
Relationships and Related Transactions





On March
21, 2006, a promissory note was issued to F. Lynn Blystone and Patricia L.
Blystone in the amount of $150,000.  Mr. Blystone is the Chairman,
President and Chief Executive Officer of Tri-Valley Corporation.  The
note is to be paid on an interest only basis of 1.0% per month and to be paid in
full on or before April 21, 2007.  The note was secured by a six
percent (6%) overriding royalty interest in the Temblor Valley production. The
purpose was to provide interim funding for increased bonding requirements with
the California Division of Oil, Gas and Geothermal Resources resulting from the
acquisition of more wells by the Company.  The note was paid in full
in April 2007.




ITEM 14  Principal
Accountant Fees and Services




YEAR
                  
                  AUDIT
      SERVICES
                  
                  
                  TAX
      SERVICES
                  
                  
                  AUDIT
      RELATED2007
                  
                  $
                  132,592
                  
                  
                  $
                  60,390
                  
                  
                  $
                  54,2022006
                  
                  $
                  85,417
                  
                  
                  $
                  43,925
                  
                  
                  $
                  28,177





All of
our auditors were full time, permanent employees of the accounting firm auditing
our financial statements.




Policy
on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of
Independent Auditors




The Audit
Committee pre-approves all audit and non-audit services provided by the
independent auditors prior to the engagement of the independent auditors with
respect to such services.  The Chairman of the Audit Committee has been
delegated the authority by the Committee to pre-approve interim services by the
independent auditors other than the annual exam.  The Chairman must report
all such pre-approvals to the entire Audit Committee at the next committee
meeting.


86


ITEM
15  Exhibits and Financial Statement Schedules




ExhibitNumber
                  
                  Description
      of Exhibit3.1
                  
                  Amended
      and Restated Certificate of Incorporation, incorporated by reference to
      Exhibit A of the Company’s 2000 Proxy Statement and Definitive Schedule
      14A, filed with the SEC on July 26, 2000.3.2
                  
                  Amended
      and Restated Bylaws, incorporated by reference to Exhibit 3.3 of the
      Company's Form 10-Q for the quarter ended September 30, 2007, filed with
      the SEC on November 9, 2007.4.1
                  
                  Rights
      Agreement, incorporated by reference to Exhibit 99.1 of the Company’s Form
      10-KSB for the year ended December 31, 1999, filed with the SEC on March
      24, 2000.10.1
                  
                  Employment
      Agreement with F. Lynn Blystone, incorporated by reference to Exhibit 10.1
      of the Company's Form 10-KSB/A, Amendment No. 3 to Form 10-KSB for the
      year ended December 31, 2000, filed with the SEC on December 14,
      2001.10.2
                  
                  Tri-Valley
      Corporation 2005 Stock Option Plan, as amended, incorporated by reference
      to Exhibit A of the Company’s 2007 Proxy Statement and Definitive Schedule
      14A, filed with the SEC on August 2, 2007.10.3
                  
                  Purchase
      and Sale Agreement between Brea Oil Company, Brea Properties, Inc., Kurt
      Sickles, Geraldine M. Barker, as Trustee of the Barker Bypass Trust under
      the Barker Trust, dated January 21, 1999, Geraldine M. Barker and
      Alexander W. Barker, as Co-Trustees of the Barker Trust dated January 21,
      1999, and Tri-Valley Oil and Gas Co., incorporated by reference to Exhibit
      2.1 of the Company’s Form 8-K filed with the SEC on January 10,
      2006.14.1
                  
                  Code
      of Business Conduct & Ethics, incorporated by reference to Exhibit
      14.1 of the Company’s Form 10-K filed with the SEC on April 2,
      200721.1
                  
                  Subsidiaries
      of the Registrant, incorporated by reference to Exhibit 21.1 of the
      Company’s Form 10-K filed with the SEC on April 2,
  2007




31.1
                
                Certification
      Pursuant to Rule 13a-14(a) /  15d-14(a), filed
      herewith.31.2
                
                Certification
      Pursuant to Rule 13a-14(a) /  15d-14(a), filed
      herewith.32.1
                
                Certification
      Pursuant to 18 U.S.C. §1350, previously filed.32.2
                
                Certification
      Pursuant to 18 U.S.C. §1350, previously
filed.




87





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.





January
      30, 2009
                    By:
                    /s/ F. Lynn BlystoneF.
      Lynn BlystonePresident
      and Chief Executive Officer, andCHOBJanuary
      30, 2009
                    By:
                    /s/ Arthur M. EvansArthur
      M. EvansChief
      Financial
Officer


88