**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**WASHINGTON,
      D.C. 20549**





**Form
      10-K**


(Mark
      One)





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


**For
      the fiscal year ended December 31, 2005**




**or**





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


**For
      the transition period from _________________** **to_________________**





**Commission
      file number 001-04668**





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


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





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




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


**(850)
      653-2732**





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





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




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





**Title
      of Class**


Common
      stock, par value $.12 per share





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


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








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





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





Indicate
      by check mark if disclosure of delinquent filers pursuant to Item 405 of
      Regulation S-K §229.405 of this chapter) is not contained herein, and will not
      be contained, to the best of registrant’s knowledge, in definitive proxy or
      information statements incorporated by reference in Part III of this Form 10-K
      or any amendment to this Form 10-K.  o Yes   x No





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





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





State
      the
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates computed by reference to the price at which the common equity
      was
      last sold, or the average bid and asked price of such common equity, as of
      the
      last business day of the registrant’s most recently completed second fiscal
      quarter: $5,280,039 (U.S.) at June 30, 2005.





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





Indicate
      the number of shares outstanding of each of the registrant's classes of common
      stock, as of the latest practicable date: Common stock, par value $.12 per
      share, 46,211,604 shares outstanding as of March 7, 2006.








**DOCUMENTS
      INCORPORATED BY REFERENCE**





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





None


2





**TABLE
      OF CONTENTS**





**Page**


**PART
      I**


Item
                  1.
              Business
              5General
              5Crude
                  Oil and Natural Gas Exploration and Development
              6Environmental
                  and Other Regulations
              6Competition
              7Employees
              8Oil
                  and Gas Properties
              8Acreage
                  and Wells
              9Drilling
                  Activity
              9Item
                  1A.
              Risk
                  Factors
              10Item
                  1B.
              Unresolved
                  Staff Comments
              19Item
                  2.
              Properties
              19Item
                  3.
              Legal
                  Proceedings
              20Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              21**PART
                  II**Item
                  5.
              Market
                  for the Company's Common Stock, RelatedStockholder
                  Matters and Issuer Purchases of Equity Securities
              23Item
                  6.
              Selected
                  Consolidated Financial Data
              26Item
                  7.
              Management's
                  Discussion and Analysis of Financial Conditionand
                  Results of Operation
              27Item
                  7A.
              Quantitative
                  and Qualitative Disclosures About Market Risk
              31Item
                  8.
              Financial
                  Statements and Supplementary Data
              32Item
                  9.
              Changes
                  in and Disagreements with Accountants onAccounting
                  and Financial Disclosure
              48Item
                  9A.
              Controls
                  and Procedures
              48
  3
   **PART
                  III**Item
                  10.
              Directors
                  and Executive Officers of the Registrant
              49Item
                  11.
              Executive
                  Compensation
              52Item
                  12.
              Security
                  Ownership of Certain Beneficial Owners and Management
              54and
                  Related Stockholder MattersItem
                  13.
              Certain
                  Relationships and Related Transactions
              56Item
                  14.
              Principal
                  Accountant Fees and Services
              57**PART
                  IV**Item
                  15.
              Exhibits,
                  Financial Statement Schedules
              58


___________________________




All
      monetary figures set forth are expressed in United States currency.





4


**PART I**





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





***Company
      Website***





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





**General**





Coastal
      Caribbean Oils & Minerals, Ltd. (“Company” or “Coastal Caribbean”), was
      organized in Bermuda on February 14, 1962. The Company is the successor to
      Coastal Caribbean Oils, Inc., a Panamanian corporation organized on January
      31,
      1953 to be the holding company for Coastal Petroleum Company (“Coastal
      Petroleum”). Coastal Caribbean, has been engaged, through its subsidiary,
      Coastal Petroleum, in the exploration for oil and gas reserves. At December
      31,
      2005, Coastal Caribbean's principal asset was its 100% interest in its
      subsidiary Coastal Petroleum. Coastal Petroleum's principal assets are its
      nonproducing oil and gas leases in the States of Montana and North Dakota in
      a
      fertile oil producing region know as the Williston Basin. Coastal Petroleum
      is
      the lessee under leases relating to the exploration for and production of oil
      and gas on approximately 131,297 net acres of land in Valley and Blaine
      Counties, Montana and approximately 21,688 net acres of land in Billings, Slope
      and Stark Counties, North Dakota.





Prior
      to
      acquiring leases in Montana and North Dakota, Coastal Petroleum was the lessee
      under State of Florida oil, gas and mineral leases covering approximately
      3,700,000 acres of submerged lands along the Gulf Coast and under certain inland
      lakes and rivers. For more than 15 years, the State of Florida used laws,
      policies and permit denials to prevent Coastal from using its leases. The
      Company vigorously litigated to be able to use its leases or to be compensated
      for the State’s taking of them, but Florida courts ruled against the Company.
      Finally, during 2004, the
      United States Supreme Court refused to hear Coastal’s case. See Item 3. “Legal
      Proceedings”.





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





5





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





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





**Crude
      Oil and Natural Gas Exploration**





Through
      its wholly owned subsidiary, Coastal Petroleum, the Company has begun to explore
      for oil and gas on its recently acquired leases. On January 14, 2006, the
      Company began drilling a well in north-central Montana. On January 30, 2006,
      the
      Company announced that the Blaine County well had been drilled to its objective
      and production casing was set. The Company is currently awaiting the completion
      and testing of multiple zones in the well.





The
      Company expects to drill approximately five more exploratory wells in 2006
      in
      its search for oil from the Lodgepole formation and other formations which
      have
      or may produce oil in the Williston Basin. These wells will be both in Montana
      and in North Dakota on the leases the Company has acquired over the last 9
      months. Some or all of the wells may be drilled with a partner or
      partners.





Meanwhile,
      the Company has continued to acquire acreage and is proceeding with the process
      of permitting a well in its main block of leases in Valley County, in eastern
      Montana.





**Environmental Regulation**




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




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




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




Coastal
      Caribbean maintains insurance coverage that it believes is customary in the
      industry although it is not fully insured against all environmental or other
      risks. The Company is not aware of any environmental claims existing as of
      December 31, 2005 that would have a material impact upon the Company's financial
      position, results of operations, or liquidity.




6


***Regulation
      of Oil and Gas***




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




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




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




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





7




**Competition**





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




**Employees**





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





**Oil
      and Gas Properties**





**Williston
      Basin**





***Blaine
      County, Montana***





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





On
      January 14, 2006, the Company’s wholly owned subsidiary, Coastal Petroleum,
      began drilling a well on this property. On January 30, 2006, the Company
      announced that the well had been drilled to its objective and production casing
      was set. The Company is currently awaiting the completion and testing of
      multiple zones in the well.





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





The
      Company’s assets in Valley County consist of leases covering approximately
      131,297 net acres. The Company’s working interest in these properties is 100%.
      At payout, the Company’s working interest is reduced to 75%. The Company has no
      proved reserves on the property.





Most
      of
      the leases were acquired during 2005, with the latest BLM leases covering
      approximately 27,780 gross acres (27,740 net acres) being acquired on February
      2, 2006. There has been no drilling yet by the Company on these
      leases.





8




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





The
      Company owns leases covering approximately 21,688 net acres in these three
      counties. The Company’s working interest in these properties is 100%. At payout,
      the Company’s working interest is reduced to 75%. The Company has no proved
      reserves on the property.





The
      Company acquired the leases covering approximately 30,345 gross acres in 2005
      and has not yet begun any drilling on them.








**Acreage
      and Wells**





The
      following chart reflects the approximate acreage held under lease by Coastal
      Caribbean through its wholly owned subsidiary Coastal Petroleum, at December
      31,
      2005:




Acreage under lease at December
      31, 2005





**Lease
                Location**
            **Gross
                Acres***
            **Net
                Acres*******Undeveloped***
            ***Developed***
            ***Undeveloped***
            ***Developed***Montana
            104,951.57
            0
            103,557.75
            0North
                Dakota
            30,345.56
            0
            21,688.116
            0**Total:**
            135,297.13
            0
            125,245.866
            0





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


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





No
      wells
      were drilled in 2005.





**Drilling
      Activity**





While
      Coastal Caribbean drilled no wells in 2005, the Company drilled an exploratory
      well beginning on January 14, 2006. Production casing was set in that well
      in
      late January 2006 and the Company is currently awaiting completion and testing
      of multiple horizons in the well.




9


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





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





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




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





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





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





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





We
      have
      and expect to continue to have substantial capital expenditure and working
      capital needs. We believe that current cash on hand, revenues from operations
      and the other sources of liquidity are sufficient enough to fund our operations
      through fiscal 2006. After that time we will need to rely on cash flow from
      operations or raise additional cash to fund our operations, to fund our
      anticipated reserve replacement needs and implement our growth strategy, or
      to
      respond to competitive pressures and/or perceived opportunities, such as
      investment, acquisition, exploration and development activities.





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





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





10


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





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





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





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





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





11


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





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





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





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





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





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





12





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





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





·
            fires;


·
            explosions;


·
            blow-outs
                and surface cratering;


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


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


·
            pipe,
                cement, or pipeline failures;


·
            casing
                collapses;


·
            embedded
                oil field drilling and service
                tools;


·
            abnormally
                pressured formations; and


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


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





·
            injury
                or loss of life;


·
            severe
                damage to and destruction of property, natural resources and
                equipment;


·
            pollution
                and other environmental damage;


·
            clean-up
                responsibilities;


·
            regulatory
                investigation and penalties;


·
            suspension
                of our operations; and


·
            repairs
                to resume operations.





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





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





13





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





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





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





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





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





As
      of
      year end we did not earn any money from oil and gas sales to pay for our
      operating expenses. For the fiscal year ended December 31, 2005 we reported
      net
      income due to the gain on the one time settlement of lawsuits with the State
      of
      Florida. However, we cannot give you any assurance that we will generate profits
      in the near future, or at all. If we fail to generate profits and we are unable
      to obtain financing to continue our operations, we could be forced to severely
      curtail, or possibly even cease, our operations.





14





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





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





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





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





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





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





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





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


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


·
            weather
                conditions;


·
            domestic
                and foreign governmental
                regulations;


·
            political
                conditions in natural gas and oil producing
                regions;


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


·
            the
                price and availability of other
                fuels.





15





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




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





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





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





·
            discharge
                permits for drilling operations;


·
            drilling
                bonds;


·
            reports
                concerning operations;


·
            the
                spacing of wells;


·
            unitization
                and pooling of properties; and


·
            taxation.





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





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





16





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





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





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


·
            the
                effects of regulation by governmental
                agencies;


·
            future
                oil prices; and


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





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





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





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





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





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





17




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





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





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





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





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





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





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





18





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





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





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





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





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





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





None





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





**Properties**




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





19





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





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





(5)  Undeveloped
      Acreage .





The
      Company's undeveloped acreage as of December 31, 2005 was as
      follows:





Gross Acres
            
            Net AcresMontana
            
            
            104,951.57
            
            
            103,557.750North
                Dakota
            
            
            30,345.56
            
            
            21,688.116**Total:**
            
            
            135,297.13
            
            
            125,245.866





(6)  Drilling Activity .





There
      was
      no drilling activity in 2005. See Drilling Activity section under Item 1
      Business at page 9.





(7)  Present Activities .





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





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





**Agreement
      with the State of Florida**





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





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





20


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


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


·
            Coastal
                Caribbean Royalty Litigation


·
            Lease
                Taking Case (Lease 224-B)





The
      Company is currently not a party to any litigation.





**Contingency
      Fees**





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





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





On
      December 9, 2005, the Company held an annual meeting at which new directors
      were
      elected and other proposals were voted upon and passed as follows:





**PROPOSAL
      I.** To elect
      the following persons as directors of Coastal:





**Number
                of Shares Voted**
            **Number
                of Shareholders****Robert
                J. Angerer, Sr.****For**
            39,751,242
            1477**Withheld**
            1,338,955
            68**Phillip
                W. Ware****For**
            39,550,527
            1477**Withheld**
            1,539,670
            68**Herbert
                D. Haughton****For**
            39,538,377
            1477**Withheld**
            1,551,820
            68**Anthony
                F. Randazzo****For**
            39,473,348
            1477**Withheld**
            1,616,849
            68**Matthew
                D. Cannon****For**
            39,529,534
            1477**Withheld**
            1,560,663
            68





21





**PROPOSAL
      II.** To
      approve the 2005 Employees Incentive Stock Option and Limited Rights
      Plan.





**Number
                of Shares Voted**
            **Number
                of Shareholders****For**
            17,707,411
            1290**Against**
            3,789,442
            232**Abstain**
            573,528
            126





**PROPOSAL
      III** .
      Ratification of the appointment of the firm Baumann, Raymondo & Company as
      the independent auditors of Coastal for the fiscal year ending December 31,
      2005.





**Number
                of Shares Voted**
            **Number
                of Shareholders****For**
            40,062,697
            1453**Against**
            437,669
            35**Abstain**
            589,831
            61





**PROPOSAL
      IV.** The
      approval of the adjournment of the Annual Meeting to solicit additional proxies
      in the event that there are not sufficient votes to approve any one or more
      of
      the proposals.





**Number
                of Shares Voted**
            **Number
                of Shareholders****For**
            39,510,966
            1425**Against**
            1,129,375
            78**Abstain**
            449,856
            71





22





**PART II**





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





**Market Information** **.**





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







**2004**
              
              **1****st****quarter**
              
              **2****nd****quarter**
              
              **3****rd****quarter**
              
              **4****th****quarter**High
              
              
              .09
              
              
              .27
              
              
              .26
              
              
              .15Low
              
              
              .05
              
              
              .06
              
              
              .10
              
              
              .05
 
 **2005**
              
              
              **1****st****quarter**
              
              
              **2****nd****quarter**
              
              
              **3****rd****quarter**
              
              
              **4****th****quarter**High
              
              
              .17
              
              
              .22
              
              
              .21
              
              
              .21Low
              
              
              .075
              
              
              .06
              
              
              .095
              
              
              .085


**Holders** **.**





The
      approximate number of record holders of the Company's common stock at March
      7,
      2006 was 8,100.





**Dividends** **.**





The
      Company has never declared or paid dividends on its common stock and it does
      not
      anticipate declaring or paying any dividends in the foreseeable future. The
      Company plans to retain any future earnings to reduce the deficit accumulated
      during the development stage of $33,358,354 at December 31, 2005 and to finance
      its operations.





***Foreign Exchange Control Regulations***





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





23


***Income
      and Withholding Taxes***





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





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




***Passive
      Foreign Investment Company Rules***





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





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





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





Based
      on
      certain estimates of its gross income and gross assets and the nature of its
      business, Coastal Caribbean would be classified as a PFIC for the years 1987
      through 2005. Once an entity is considered a PFIC for a taxable year, it will
      be
      treated as such for all subsequent years with respect to owners holding the
      stock in a year that it was classified as a PFIC under the income or asset
      test
      described above. Whether the Company will be a PFIC under either of these tests
      in future years will be difficult to determine because the tests are applied
      annually. Based upon Coastal Caribbean's current passive income, it is likely
      that Coastal Caribbean will be classified as a PFIC in 2006.





24


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





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





Another
      alternative election which would allow a U.S. holder to elect to take its pro
      rata share of Coastal Caribbean's undistributed income into gross income as
      it
      is earned by Coastal Caribbean (QEF election) would only be available to a
      U.S.
      holder if Coastal Caribbean provided certain information to the shareholders
      of
      Coastal Caribbean. Coastal Caribbean has had no undistributed income for the
      years 1987 through 2005. If the QEF election is made in a year other than the
      first year of the U.S. holder’s holding period in which the foreign corporation
      is a PFIC, both the QEF regime and interest charge regime can apply, unless
      a
      special election is made. Under this special election, the taxpayer is treated
      as if it disposed of its PFIC stock in a transaction subject to the interest
      charge rules to the extent gain is deemed to be recognized. Once this election
      is made, the holder will be subject only to the QEF regime.





25


**Recent
      Sales of Unregistered Securities**





None





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





None





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





The
      following selected consolidated financial information (in thousands except
      for
      per share amounts) for the Company insofar as it relates to each of the five
      years in the period ended December 31, 2005 has been extracted from the
      Company's consolidated financial statements.





Years
                ended December 31,2005
            
            2004
            
            2003
            
            2002
            
            2001Net
                income (loss)
            
            $
            6,766
            
            $
            (673
            )
            $
            (1,008
            )
            $
            (2,448
            )
            $
            (6,585
            )Net
                income (loss) per share (basic and diluted)
            
            
            .15
            
            
            (.01
            )
            
            (.02
            )
            
            (.05
            )
            
            (.15
            )Cash
                and cash equivalents and marketable securities
            
            
            2,250
            
            
            -
            
            
            3
            
            
            292
            
            
            609Unproved
                oil, gas and, mineral properties (full cost method)
            
            
            1,861
            
            
            -
            
            
            -
            
            
            -
            
            
            -Total
                assets
            
            
            4,387
            
            
            17
            
            
            91
            
            
            707
            
            
            1,077Shareholders'
                (deficit) equity:Common
                stock
            
            
            5,545
            
            
            5,545
            
            
            5,545
            
            
            5,545
            
            
            5,216Capital
                in excess of par value
            
            
            32,138
            
            
            32,138
            
            
            32,138
            
            
            32,068
            
            
            31,498Deficit
                accumulated during the development stage
            
            
            (33,358
            )
            
            (40,124
            )
            
            (39,451
            )
            
            (38,443
            )
            
            (35,996
            )Total
                shareholders’ (deficit) equity
            
            $
            4,325
            
            $
            (2,441
            )
            $
            (1,768
            )
            $
            (830
            )
            $
            718Common
                stock shares outstanding (weighted average)
            
            
            44,212
            
            
            44,212
            
            
            44,212
            
            
            44,734
            
            
            43,468





26


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





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





**General**





This
      has
      been a momentous transitional year for Coastal Caribbean. This year the Company
      settled and ended its ongoing legal battles against the State of Florida to
      allow Coastal Petroleum to use its leases or to be compensated for them. That
      end has given new life to the Company as we refocus our efforts from litigating
      for the right to drill, to actual drilling for oil and gas.




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





In
      Montana, the Company has obtained the rights to explore in two areas: a large
      tract in Valley County in eastern Montana; and a smaller tract in Blaine County
      in north central Montana. The Company has obtained lease rights in approximately
      131,297 net acres in eastern Montana, close to known production from a Lodgepole
      reef in Valley County. This area of Montana has a number of other producing
      formations. This is the Company’s area of primary focus for Montana. The smaller
      tract in north central Montana is more than 130 miles west of the Valley County
      acreage. The first wildcat well was drilled to a depth of 4,600 feet in this
      smaller tract in Blaine County, Montana. The well is considered a “tight hole”
and drilling results will remain confidential until the well is completed and
      tested. We have a second approved permit near this well. We are moving forward
      with permitting prospects on our main leasehold in eastern Montana, in Valley
      County, which is 130 miles east of the first well. We anticipate that the next
      well will commence after March and that we will be joined by partners in that
      well .





27





A
      well to
      test the Lodgepole reefs (our primary target) in eastern Montana will cost
      approximately $500,000. After completion of the first well there and payout
      (complete return of our investment) the Company has the option to continue
      and
      drill more than 50 prospects either alone or with a partner or partners. This
      will allow the Company to become active in this oil play which has very good
      potential but with a small initial investment.





In
      North
      Dakota, the Company controls the working interest on approximately 21,688 net
      acres in Slope, Billings, and Stark Counties, on which 20 drillable prospects
      have been mapped to date. The depth of wells in North Dakota is deeper than
      in
      Montana (approximately 9,500 feet versus approximately 5,000 feet), and thus
      the
      cost of drilling is higher. A typical North Dakota wildcat well costs about
      $1.2
      million to drill. The Company intends to bring in partners to share the risk
      and
      investment in wells it drills in North Dakota until the Company is in a stronger
      financial position.





The
      Company is currently having discussions with potential partners for
      participation in wells in both Montana and North Dakota, but does not yet have
      any commitments from potential partners.





We
      plan
      to drill approximately five exploratory wells in 2006 in addition to the one
      we
      began drilling in January. However, the number of wells that we drill in 2006
      and their cost will be subject to various factors, including the availability
      of
      drilling rigs that we can hire and whether we drill alone or with partners.
      In
      addition, we could reduce the number of wells that we drill if oil and natural
      gas prices were to decline significantly. We expect the cost of drilling the
      five wells to depend upon many factors including those above which may affect
      the cost of operations and whether and to what extent partners participate
      with
      the Company.





The
      drilling deadlines on the leases that were previously set at January 31, 2006,
      have been extended until March 31, 2006.





**Liquidity
      and Capital Resources**




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





28





At
      December 31, 2005, we have $2,250,000 in cash compared to $179 at December
      31,
      2004. In July 2005, we and others settled all our lawsuits with the State of
      Florida for a total of $12,500,000. Our share of the proceeds was $8,105,000,
      from which we paid all our legal related obligations and creditors, and acquired
      the remaining minority interest in Coastal Petroleum, after which we netted
      $4,872,000 in cash.





During
      2005, we have spent $1,860,000 for oil and gas lease rights and related costs
      including:





·
            A
                group of oil and gas lease rights to approximately 103,557 net acres
                in
                Montana for $1,568,000. These leases are subject to various overriding
                royalty interests held by others of up to 19.5%. The leases expire
                in
                years from 2007 to 2014.





·
            Oil
                and gas lease rights to approximately 21,688 acres in Slope County
                North
                Dakota and two well sites in Valley County Montana for $100,000 from
                an
                entity controlled by one of the Company’s directors. The leases include an
                option to drill for additional prospects in the Valley County area.
                The
                leases provide for an after payout 25% working interest, and a 20%
                net
                revenue interest in each well, on a well by well basis, to an entity
                controlled by one of the Company’s directors. The leases are also subject
                to the overriding royalty interest of the landowner. The Company
                expects
                to partner with other entities so that its cost to drill the initial
                well
                in North Dakota to be approximately $425,000 over the next twelve
                months.





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





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





**Development
      Stage Enterprise Presentation**




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





**Oil
      and Gas Accounting**





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





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





29


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





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





**Goodwill
      Impairment**





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





**2005
      vs. 2004**





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


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





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





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




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





30





**2004
      vs. 2003**





For
      most
      of 2004 and 2003, we pursued our legal actions against the State of Florida.
      During this time, we continued to suffer declining financial condition and
      a
      lack of resources to continue pursuing expensive and lengthy litigation. We
      minimized expenses, deferred payments and began borrowed funds from our officers
      to maintain our legal efforts against the State of Florida.





We
      reported a net loss of $(673,000) and $(1,008,000) for 2004 and 2003,
      respectively.




During
      2003, we had two employees. During 2004, in an effort to conserve cash, we
      reduced our personnel to one employee, and began efforts to reduce operating
      expenses. We changed accounting consultants and auditors and eliminated our
      directors and officers insurance and other nonessential operating expenses.
      Our
      operating expenses were $672,908 and $1,008,838 for 2004 and 2003, respectively.
      In 2004, we received a payment extension on our annual lease payments to the
      State of Florida, which were a $59,000 expense in 2003.





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





The
      Company does not have any significant exposure to market risk as the only market
      risk sensitive instruments are its investments in marketable securities. At
      December 31, 2005, the carrying value of such investments (including those
      classified as cash and cash equivalents) was approximately $2,250,236, the
      fair
      value was $2,250,236 and the face value was $2,250,236. Since the Company
      expects to hold the investments to maturity, the maturity value should be
      realized.





31


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





**Report
      of Independent Registered Public Accounting Firm**








To
      the
      Board of Directors


Coastal
      Caribbean Oils & Minerals, Ltd.


Apalachicola,
      Florida





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





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





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





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





/s/ Baumann, Raymondo & Company
                PA




Tampa,
      Florida


February
      15, 2006





32


**Report
      of Independent Registered Public Accounting Firm**





To
      the
      Board of Directors,


Coastal
      Caribbean Oils & Minerals, Ltd.:





We
      have
      audited the accompanying consolidated balance sheet of Coastal Caribbean Oils
      & Minerals, Ltd. (a development stage company) as of December 31, 2004, and
      the related consolidated statements of operations, cash flows and common stock
      and capital in excess of par value for the years ended December 31, 2004 and
      2003. These financial statements are the responsibility of the Company’s
      management. Our responsibility is to express an opinion on these financial
      statements based on our audits.





We
      conducted our audits in accordance with 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. We were not engaged to perform
      an
      audit of the Company’s internal control over financial reporting. Our audit
      included consideration of internal control over financial reporting as a basis
      for designing audit procedures that are appropriate in the circumstances, but
      not for the purpose of expressing an opinion on the effectiveness of the
      Company’s internal control over financial reporting. Accordingly, we express no
      such opinion. An audit also includes examining, on a test basis, evidence
      supporting the amounts and disclosures in the financial statements, assessing
      the accounting principles used and significant estimates made by management,
      and
      evaluating the overall financial statement presentation. We believe that our
      audits provide a reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the consolidated financial position of Coastal
      Caribbean Oils & Minerals, Ltd. as of December 31, 2004, and the
      consolidated results of its operations and cash flows for the years ended
      December 31, 2004 and 2003, in conformity with accounting principles generally
      accepted in the United States of America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As more fully described in Notes
      1
      and 4 to the consolidated financial statements, the Company had a working
      capital deficiency, has incurred recurring losses and has a deficit accumulated
      during the development stage. These situations raise substantial doubt about
      the
      Company’s ability to continue as a going concern. The consolidated financial
      statements do not include any adjustments to reflect the possible future effects
      on the recoverability and classification of assets or amounts and
      classifications or liabilities that may result from the outcome of these
      uncertainties.




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







March
      17,
      2005


Gainesville,
      Florida





33


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


(A
      Bermuda Corporation)


A
      Development Stage Company





**CONSOLIDATED
      BALANCE SHEETS**


(Expressed
      in U.S. dollars)





December
                31,2005
            
            2004**Assets**Current
                assets:Cash
                and cash equivalents
            
            $
            2,250,236
            
            $
            179Prepaid
                expenses and other
            
            
            199,754
            
            
            16,322Total
                current assets
            
            
            2,449,990
            
            
            16,501Certificates
                of deposit
            
            
            75,000
            
            
            -Petroleum
                leases
            
            
            1,860,614
            
            
            -Equipment,
                net
            
            
            1,771
            
            
            -Contingent
                litigation claim (Note 4)
            
            
            -
            
            
            -Total
                assets
            
            $
            4,387,375
            
            $
            16,501**Liabilities
                and Shareholders’ (Deficit) Equity**Current
                liabilities:Accounts
                payable and accrued liabilities
            
            $
            27,526
            
            $
            863,127Income
                taxes payable
            
            
            35,000
            
            
            -Amounts
                due to related parties
            
            
            -
            
            
            1,594,369Total
                current liabilities
            
            
            62,526
            
            
            2,457,496Minority
                interests
            
            
            
            
            
            -Shareholders'
                (deficit) equity:Common
                stock, par value $.12 per share:Authorized
                - 250,000,000 sharesOutstanding
                - 46,211,604
              shares,
                respectively
            
            
            5,545,392
            
            
            5,545,392Capital
                in excess of par value
            
            
            32,137,811
            
            
            32,137,81137,683,203
            
            
            37,683,203Deficit
                accumulated during the development stage
            
            
            (33,358,354
            )
            
            (40,124,198
            )Total
                shareholders’ (deficit) equity
            
            
            4,324,849
            
            
            _(2,440,995
            )Total
                liabilities and shareholders’ (deficit) equity
            
            $
            4,387,375
            
            $
            16,501




See
      accompanying notes.





34


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


(A
      Bermuda Corporation)


A
      Development Stage Company





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**


(Expressed
      in U.S. Dollars)





For
                the
              period
                fromJan.
                31, 1953(inception)Years
                ended December 31,
            
            to2005
            
            2004
            
            2003
            
            Dec.
                31, 2005**Gain
                on settlement**
            
            $
            8,124,016
            
            $
            -
            
            $
            -
            
            $
            8,124,016**Interest
                and other income**
            
            
            50
                723
            
            
            1
            
            
            658
            
            $
            3,928,2948,174,739
            
            
            1
            
            
            658
            
            
            12,052,310**Expenses:**Legal
                fees and costs
            
            
            155,388
            
            
            327,091
            
            
            342,451
            
            
            17,055,067Administrative
                expenses
            
            
            201,847
            
            
            208,414
            
            
            457,649
            
            
            9,937,540Salaries
            
            
            112,020
            
            
            112,838
            
            
            118,745
            
            
            3,867,831Shareholder
                communications
            
            
            102,817
            
            
            24,565
            
            
            30,746
            
            
            4,075,909Goodwill
                impairment
            
            
            801,823
            
            
            -
            
            
            -
            
            
            801,823Write
                off of unproved properties
            
            
            -
            
            
            -
            
            
            59,247
            
            
            5,560,494Exploration
                costs
            
            
            -
            
            
            -
            
            
            -
            
            
            247,465Lawsuit
                judgments
            
            
            -
            
            
            -
            
            
            -
            
            
            1,941,916Minority
                interests
            
            
            -
            
            
            -
            
            
            -
            
            
            (632,974
            )Other
            
            
            -
            
            
            -
            
            
            -
            
            
            364,865Contractual
                services
            
            
            -
            
            
            -
            
            
            -
            
            
            2,155,7281,373,895
            
            
            672,908
            
            
            1,008,838
            
            
            45,375,664**Income
                tax expense**
            
            
            35,000
            
            
            -
            
            
            -
            
            
            35,000**Net
                income (loss)**
            
            $
            6,765,844
            
            $
            (672,907
            )
            $
            (1,008,180
            )Deficit
                accumulated during thedevelopment
                stage
            
            
            
            
            
            
            
            
            
            
            $
            (33,358,354
            )Net
                income (loss) per share based on weighted average number of shares
                outstanding during the period:Basic
                and diluted EPS
            
            $
            .15
            
            $
            (.01
            )
            $
            (.02
            )Weighted
                average number of shares outstanding (basic and diluted)
            
            
            46,211,604
            
            
            46,211,604
            
            
            46,211,604








See
      accompanying notes.


35


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


(A
      Bermuda Corporation)


A
      Development Stage Company





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS**


(Expressed
      in U.S. Dollars)




For
                the period from
              Jan.
                31, 1953(inception)Years
                ended December 31,
            
            To2005
            
            2004
            
            2003
            
            Dec.
                31, 2005**Operating
                activities:**Net
                income (loss)
            
            $
            6,765,844
            
            $
            (672,907
            )
            $
            (1,008,180
            )
            $
            (33,358,355
            )Adjustments
                to reconcile net loss to net cashused
                in operating activities:Gain
                on settlement
            
            
            (8,124,016
            )
            
            -
            
            
            -
            
            
            (8,124,016
            )Goodwill
                impairment
            
            
            801,823
            
            
            -
            
            
            -
            
            
            801,823Minority
                interest
            
            
            -
            
            
            -
            
            
            -
            
            
            (632,974
            )Depreciation
            
            
            120
            
            
            -
            
            
            -
            
            
            120Write
                off of unproved properties
            
            
            -
            
            
            -
            
            
            59,247
            
            
            5,619,741Common
                stock issued for services
            
            
            -
            
            
            -
            
            
            -
            
            
            119,500Compensation
                recognized for stock option grant
            
            
            -
            
            
            -
            
            
            -
            
            
            75,000Recoveries
                from previously written off properties
            
            
            -
            
            
            -
            
            
            -
            
            
            252,173Net
                change in:Prepaid
                expenses and other
            
            
            (183,432
            )
            
            71,625
            
            
            326,752
            
            
            (199,755
            )Accrued
                liabilities
            
            
            (2,349,680
            )
            
            518,296
            
            
            322,208
            
            
            27,528Income
                taxes payable
            
            
            35,000
            
            
            -
            
            
            -
            
            
            35,000Other
                assets
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                cash used in operating activities
            
            
            (3,054,341
            )
            
            (82,986
            )
            
            (299,973
            )
            
            (35,384,215
            )**Investing
                activities:**Additions
                to oil, gas, and mineral propertiesnet
                of assets acquired for common stock and reimbursements
            
            
            (1,860,614
            )
            
            -
            
            
            (59,247
            )
            
            (5,600,796
            )Net
                proceeds from settlement
            
            
            8,124,016
            
            
            -
            
            
            -
            
            
            8,124,016Proceeds
                from relinquishment of surface rights
            
            
            -
            
            
            -
            
            
            -
            
            
            246,733Purchase
                of certificates of deposit
            
            
            (75,000
            )
            
            -
            
            
            -
            
            
            (75,000
            )Purchase
                of Minority interest in CPC
            
            
            (801,823
            )
            
            --
            
            
            -
            
            
            (801,823
            )Purchase
                of equipment
            
            
            (1,891
            )
            
            -
            
            
            -
            
            
            (63,540
            )Net
                cash provided by (used in) investing activities
            
            
            5,384,688
            
            
            -
            
            
            (59,247
            )
            
            1,829,590**Financing
                activities:**Loans
                from Officers
            
            
            31,500
            
            
            80,290
            
            
            -
            
            
            111,790Repayment
                of loans to officers
            
            
            (111,790
            )
            
            -
            
            
            -
            
            
            (111,790
            )Sale
                of common stock, net of expenses
            
            
            -
            
            
            -
            
            
            -
            
            
            30,380,612Shares
                issued upon exercise of options
            
            
            -
            
            
            -
            
            
            -
            
            
            884,249Sale
                of shares by subsidiary
            
            
            -
            
            
            -
            
            
            70,000
            
            
            820,000Sale
                of subsidiary shares
            
            
            -
            
            
            -
            
            
            -
            
            
            3,720,000Net
                cash provided by financing activities
            
            
            (80,290
            )
            
            80,290
            
            
            70,000
            
            
            35,804,861**Net
                increase (decrease) in cash and cash equivalents**
            
            
            2,250,057
            
            
            (2,696
            )
            
            (289,220
            )
            
            2,250,236Cash
                and cash equivalents at beginning of period
            
            
            179
            
            
            2,875
            
            
            292,095
            
            
            -Cash
                and cash equivalents at end of period
            
            $
            2,250,236
            
            $
            179
            
            $
            2,875
            
            $
            2,250,236




See
      accompanying notes.


36


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


(A
      Bermuda Corporation)


A
      Development Stage Company





**CONSOLIDATED
      STATEMENT OF COMMON STOCK**


**AND
      CAPITAL IN EXCESS OF PAR VALUE**


(Expressed
      in U.S. dollars)


For
      the
      period from January 31, 1953 (inception) to December 31, 2005




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








See
      accompanying notes.





37


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


**Notes
      to Consolidated Financial Statements**


**December
      31, 2005**   **1.** **Summary of significant accounting policies**





Consolidation





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





Cash
      and Cash Equivalents





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





Use
      of
      Estimates





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





Unproved
      Oil, Gas and Mineral Properties





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





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





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





38


**COASTAL
        CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**





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





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





Sale
      of Subsidiary Shares





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





Net
      Income (Loss) Per Share





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





Financial
      instruments





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





Stock
      Options





The
      Company follows the disclosure provisions of Statement of Financial
      Accounting Standards (SFAS or Statement) No. 148, “Accounting for Stock-Based
      Compensation -- Transition and Disclosure”, which amends SFAS No.
      123,
“Accounting for Stock-Based Compensation”. SFAS No. 148 provides
      alternative methods of transition for a voluntary change to the fair
      value based method of accounting for stock-based employee compensation,
      which was originally provided under SFAS No. 123.





At
      December 31, 2005, the Company maintains two stock-based employee
      compensation plans (see note 6, Stock Option Plan). The Company accounts for
      the
      employee stock compensation plan in accordance with the intrinsic
      value-based method prescribed by Accounting Principles Board Opinion
      No. 25, “Accounting for Stock Issued to Employees.” No stock-based employee
      compensation expense is reflected in net loss as all options
      granted under the plans have an exercise price equal to the fair market
      value of the underlying common stock on the date of grant.




39





**COASTAL
        CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**





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





New
      Accounting Pronouncements





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





Going
      Concern





The
      Company has no recurring revenues, had recurring losses prior to 2005 and has
      a
      deficit accumulated during the development stage. We, along with various other
      related parties, settled several lawsuits in 2005, which were filed by the
      Company, our subsidiary Coastal Petroleum Company and other related parties
      against the State of Florida (See Note 4). All of these lawsuits were related
      to
      the State’s actions limiting our ability to commence development activities
      through our subsidiary. The cost of that litigation was substantial. Management
      believes its current cash position will allow the Company to move forward to
      explore and develop profitable oil and gas operations, although there is no
      assurance these efforts will be successful.





These
      situations raise substantial doubt about the Company’s ability to continue as a
      going concern. The consolidated financial statements do not include any
      adjustments to reflect the possible future effects on the recoverability and
      classification of assets or amounts and classification of liabilities, which
      may
      result from the outcome of this uncertainty.





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





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





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





40





**COASTAL
        CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**





Coastal
      Petroleum is a wholly owned subsidiary of Coastal Caribbean at December 31,
      2005.




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





North
      Dakota and Montana Leases





In
      November 2005, the Company acquired a group of oil and gas lease rights to
      approximately 103,557 acres in Montana for $1,568,000. These leases are subject
      to a various overriding royalty interests to others up to 19.5%. The leases
      expire in years from 2007 to 2014.





In
      July
      2005, the Company acquired the rights to drill two 6,500 foot wells to test
      a
      Mississippian Lodgepole Reef in Valley County, in northeast Montana for a one
      time fee of $50,000 from an entity controlled by one of the Company’s Directors.
      The Company is obligated to drill a test well before March 31, 2006 and has
      the
      option to drill fifty additional prospects in the Valley County area. The
      Company estimates the cost to drill each of these test wells to be approximately
      $500,000 and expects partners to participate for the bulk of
      expenditures.





Also
      in
      July 2005, the Company acquired leases to the deeper rights in approximately
      21,688 acres in and near Slope County, North Dakota for a one time fee of
      $50,000 from an entity controlled by one of the Company’s Directors. The Company
      is obligated to drill a test well before March 31, 2006, and has the option
      to
      drill the remaining Lodgepole Reef prospects on these leases. The Company plans
      to again partner with other entities to share the cost of the initial 9,700
      foot
      test well the total estimated drilling cost of which would be approximately
      $1,200,000.





The
      Company is currently assessing its oil and gas leases and identifying
      prospective drilling sites.





Florida
      Leases





The
      Florida Leases were surrendered to Florida as a part of the 2005 Agreement
      with
      Florida and are no longer held by the Company.





Prior
      to
      2005, Coastal Petroleum held three unproved and nonproducing oil, gas and
      mineral leases granted by the Trustees of the Internal Improvement Fund of
      the
      State of Florida (Trustees). These leases cover submerged and unsubmerged lands,
      principally along the Florida Gulf Coast, and certain inland lakes and rivers
      throughout the State. The two leases bordering the Gulf Coast were divided
      into
      three areas, each running the entire length of the coastline from Apalachicola
      Bay to the Naples area. Coastal Petroleum held certain royalty interests in
      the
      inner area, no interest in the middle area and a 100% working interest in the
      outside area. Coastal Petroleum also held a 100% working interest in Lake
      Okeechobee, and a royalty interest in other areas. Coastal Petroleum had agreed
      not to conduct exploration, drilling, or mining operations on said lake, except
      with prior approval of the Trustees.





41


**COASTAL
        CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**





**4.**  **Litigation**





**Settlement
      Agreement with the State of Florida**





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


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





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





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





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


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


Royalty
      Taking Case





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




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





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





42
 
 **COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2005**


**5.**  **Common Stock
      (Cont'd)** ****





On
      March
      10, 2003, the Company concluded the sale of two shares of Coastal Petroleum
      at a
      price of $25,000 per share. On October 7 and 28, 2003, the Company concluded
      the
      sale of two shares of Coastal Petroleum at a price of $10,000 per share. The
      Company realized net proceeds of $70,000 in 2003 for these sales.





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





The
      following represents shares issued upon sales of common stock:





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








43





**COASTAL
        CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**





**5.**  **Common Stock
      (Cont'd)** ****





The
      following represents shares issued upon exercise of stock options:





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







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





The
      Company has elected to follow Accounting Principles Board Opinion No. 25,
“Accounting for Stock Issued to Employees” (APB No. 25) and related
      Interpretations in accounting for its stock options because the alternative
      fair
      value accounting provided under FASB Statement No. 123, “Accounting for Stock
      Based Compensation,” requires use of option valuation models that were not
      developed for use in valuing stock options. Under APB No. 25, because the
      exercise price of the Company’s stock options equals the market price of the
      underlying stock on the date of grant, no compensation expense is
      recognized.





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





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





In
      July
      2005, the Company issued an option to its legal counsel to acquire 25,000 shares
      of the Company’s common stock at a price of $.15 per share. The option expires
      in July 2015. As the market value of the stock equaled the exercise price on
      the
      date of issue, the options are noncompensatory, and no expense was recorded
      for
      2005.





In
      December 2005, the Company issued options to its directors to acquire 200,000
      shares of the Company’s common stock at a price of $.15 per share. The option
      expires in December 2015. As the market value of the stock equaled the exercise
      price on the date of issue, the options are noncompensatory, and no expense
      was
      recorded for 2005.




44


**COASTAL
        CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**




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





During
      2005, the Company adopted a Stock Option Plan covering 2,300,000 shares of
      the
      Company’s common stock. In September 2005, the Company issued an option to its
      president to acquire 250,000 shares of the Company’s common stock at a price of
      $.20 per share under the Company’s stock option plan, subject to the approval of
      the Plan by shareholders. The Plan was approved at the shareholders meeting
      on
      December 9, 2005. The option expires in ten years. The Company determined the
      fair value of the stock did not exceed the exercise price on the date of issue
      and no expense was recorded in 2005.





The
      following table summarizes stock option activity:





**Options
                outstanding**
            
            **Number
                of Shares**
            
            **Exercise
                Price ($)**Outstanding
                and exercisable at December 31, 2004
            
            700,000
            
            
            .91Nullified,
                cancelled or released during 2005
            
            (700,000
            )
            
            .91Issued
                during 2005
            
            525,000
            
            
            .15
                -.20Outstanding
                and exercisable at December 31, 2005
            
            525,000
            
            
            .15
                -.20**Available
                for grant at December 31, 2005**
            
            2,775,000




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




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





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





Bermuda
      currently imposes no taxes on corporate income or capital gains outside of
      Bermuda. The Company currently has net taxable income as the result of the
      gain
      on settlement. The Company will be able to deduct approximately $1,600,000
      in
      temporary differences and offset the remaining income tax liability using
      approximately $1,900,000 of its $10,700,000 net operating loss carry forward.
      However, the Company estimates it will have approximately $35,000 due under
      the
      Alternative Minimum Tax. The Company will have approximately $8,800,000 in
      net
      operating losses to carry forward to 2006.The remaining net operating loss
      carry
      forwards expire in periods from 2009 through 2024 as follows: $61,000 in 2009,
      $571,000 in 2010, $955,000 in 2011, $1,281,000 in 2012, $757,000 in 2018,
      $622,000 in 2019, $749,000 in 2020, $1,884,000 in 2021, $1,693,000 in 2022,
      $132,000 in 2023 and $51,000 in 2024. For financial reporting purposes, a
      valuation allowance has been recognized to offset the deferred tax assets
      relating to those carry forwards. Significant components of the Company’s
      deferred tax assets were as follows:




45
 
  **COASTAL
          CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
          to Consolidated Financial Statements**
 **December
          31, 2005**


**7.**  **Income taxes
      (Cont’d)**




2005
            
            2004Net
                operating losses
            
            $
            3,300,000
            
            $
            4,024,000Accruals
                to related parties
            
            
            -
            
            
            268,000Write
                off of unproved properties
            
            
            -
            
            
            1,831,000Total
                deferred tax assets
            
            
            3,300,000
            
            
            6,123,000Valuation
                allowance
            
            
            (3,300,000
            )
            
            (6,123,000
            )Net
                deferred tax assets
            
            $
            -
            
            $
            -


Components
      of the income tax provision are as follows:




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




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





Oil
      and Gas Exploration Activities





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





The
      Company uses an entity controlled by one of the Company’s Directors to perform
      geotechnical analysis of potential drilling sites at a cost of $500 per site
      plus expenses. The Company has paid $50,000 to this entity as of
      2005.




Loans





Since
      2003, Robert Angerer Sr. and Phillip Ware loaned the Company a total of
      $112,000, which was repaid in 2005.





Services





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





46




**COASTAL
        CARIBBEAN OILS & MINERALS, LTD.**
 **Notes
        to Consolidated Financial Statements**
 **December
        31, 2005**


**8.**  **Related
      party transactions (Cont’d)**





The
      Company was billed $44,022 for legal fees by the law firm of Igler &
Dougherty, PA, during 2005 and $7,725 in fees during 2004. Mr. Herbert D.
      Haughton, a shareholder of the firm, was elected a director of Coastal Caribbean
      and of Coastal Petroleum in December 2005.





At
      December 31, 2004, accounts payable included accrued fees from related parties
      of $129,000, $268,000 and $597,000 due to G&OD, INC, Murtha Cullina LLP and
      Angerer & Angerer, respectively and those amounts were paid in 2005.





Murtha
      Cullina LLP provided legal services to the Company prior to 2004. Mr. Timothy
      L.
      Largay, a partner of the firm of Murtha Cullina LLP, was a director and Vice
      President of the Company from January 15, 2001 until his resignation on October
      7, 2002. G&O’D INC provided accounting and administrative services prior to
      2004. G&O’D INC was owned by Mr. James R. Joyce, who was the Company
      Treasurer and Assistant Secretary, until his retirement in December 2002.





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





The
      following is a summary (in thousands, except for per share amounts) of the
      quarterly results of operations for the years ended December 31, 2005 and
      2004:





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




**2004**
            
            **QTR
                1**
            
            **QTR
                2**
            
            **QTR
                3**
            
            **QTR
                4**($)
            
            ($)
            
            ($)
            
            ($)


Total
                revenues
            
            
            -
            
            
            -
            
            
            -
            
            
            -Expenses
            
            
            (192
            )
            
            (171
            )
            
            (152
            )
            
            (158
            )Gains
                and other income
            
            
            -
            
            
            -
            
            
            -
            
            
            -Income
                Taxes
            
            
            -
            
            
            -
            
            
            -
            
            
            -Net
                income (loss)
            
            
            (192
            )
            
            (171
            )
            
            (152
            )
            
            (158
            )Per
                share (basic & diluted)
            
            
            (.004
            )
            
            (.004
            )
            
            (.003
            )
            
            (.003
            )Weighted
                average number of shares outstanding
            
            
            46,212
            
            
            46,212
            
            
            46,212
            
            
            46,212





47


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




***Previous
      Independent Accountants***




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




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




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




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




***New
      Independent Accountants***




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





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





Phillip
      W. Ware, the principal executive officer and the principal financial officer,
      has evaluated the Company’s disclosure controls and procedures (as defined in
      Rules 13a-14(c) and 15d-14(c) adopted under the Securities Act of 1934) within
      the ninety (90) day period prior to the date of this report and have
      concluded:





1.  That
      the
      Company’s disclosure controls and procedures are adequately designed to ensure
      that material information relating to the Company, including its consolidated
      subsidiary, is timely made known to such officers by others within the Company
      and its subsidiary, particularly during the period in which this annual report
      is being prepared; and





2  That
      there were no significant changes in the Company’s internal controls or in other
      factors that could significantly affect these controls subsequent to the date
      of
      our evaluation, including any corrective actions with regard to significant
      deficiencies and material weaknesses.





48





**PART III**





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




**Directors**





As
      of
      December 31, 2005, the board of directors included five members, one of whom,
      Mr. Ware, also serves as an executive officer. The board is divided into three
      classes, with each class serving a term of office of three years or until such
      time as their successors are elected, qualified, and assume office.





Name
            Director
              Since
            Other
                Offices
              Held
                With the Company
            Age
                and Business Experience
              For
                the Past Five YearsDirectors
                With Three Year Terms Expiring at the 2008 Annual
                Meeting:Phillip
                W. Ware
            1985
            President,
                Chief Executive Officer and Principal Accounting Officer
            Mr.
                Ware, age 56, has been employed by Coastal Petroleum Company since
                1976.
                He has served as President of Coastal Petroleum since April 1985.
                Mr. Ware
                is a 1975 graduate of the University of Florida and is a professional
                geologist registered with the State of Florida.Robert
                J. Angerer, Sr.
            2003
            Vice
                President and
              Chairman
                of the Board
            Mr.
              Angerer, age 59, is a partner in Oil For
              America, an oil exploration business formed in 2002, with operations
              primarily in North Dakota and Montana. He is a lawyer and an engineer
              and
              has been a member of the Florida Bar since 1974. He has been a partner
              in
              the Tallahassee law firm of Angerer & Angerer since 1994. He is a
              graduate of the University of Michigan and of Florida State University
              College of Law. He has served as a director of Coastal Petroleum since
              2003.




49




Directors
                With Two Year Terms Expiring at the 2007 Annual MeetingHerbert
                D. Haughton
            N/A
            None
            Mr.
                Haughton, age 63, is a banking, corporate and securities lawyer.
                He is a
                shareholder in the Tallahassee, Florida law firm of Igler & Dougherty,
                PA, where he has practiced law since 1994, following his admission
                to the
                Florida Bar. Prior to entering the practice of law, Mr. Haughton
                spent
                over 30 years in the banking industry serving as president and chief
                executive officer of three different community banks in Florida from
                1977
                to 1991. He is a graduate of Cleary University and Florida State
                University College of Law.Anthony
                F. Randazzo, Ph.D.
            N/A
            None
            Dr.
                Randazzo, age 64, is Professor Emeritus of Geological Sciences at
                the
                University of Florida where he has worked since 1967. He served as
                Chairman of the Department of Geology at the University of Florida
                from
                1988 to 1995. He is also currently a co-principal and President of
                the
                geotechnical consulting firm Geohazards, Inc. which he was instrumental
                in
                forming in1985. He earned his B.S. degree at The City College of
                New York
                in 1963, his M.S. from the University of North Carolina at Chapel
                Hill
                1965, and his Ph.D. from the University of North Carolina at Chapel
                Hill
                in 1968. He is a Registered Professional Geologist in the State of
                Florida
                and the State of Georgia.




50




Director
                With One Year Term Expiring at the 2006 Annual MeetingMatthew
                D. Cannon
            N//A
            None
            Mr.
                Cannon, age 61, is currently a partner in the Cannon Trading Partnership,
                which he formed in 1993. From 1991 to 1992 he served as a partner
                in
                Seisma Drilling Corporation. From 1988 to 1991 he served as vice
                president
                and director of Hilb, Rogal and Hamilton Company, an insurance agency
                located in Gainesville, Florida which specialized in underwriting,
                rating,
                sales, collections and claims associated with commercial lines insurance
                policies. Prior to that he served as vice president and director
                of the
                Cannon-Treweek insurance agency from 1968
                to1988.





**Executive
      Officers**





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




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





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





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





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





51


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





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





**Code
      of Ethics**





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





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





The
      following table sets forth certain summary information concerning the
      compensation of the President of the Company for the three years ending with
      2005. No other company employee received $100,000 or more in total
      compensation.





Summary
                Compensation TableAnnual
                Compensation
            
            Long-Term
              CompensationName
                and
              Principal
                Position
            Year
            Salary
            Bonus(1)
            Other
                Annual
              Compensation(2)(6)
            Stock
              Options(3)Phillip
                W. Ware
            2005
            $112,020
            None
            $
                13,800
            300,000President
              and
              Chief
            2004
            92,000
(4)
            None
            13,800
            NoneExecutive
              Officer
            2003
            92,000(5)
            None
            13,800
            None





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


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


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


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


(5)
            Of
                this amount $23,000 was paid in 2003 and $69,000 was accrued and
                paid in
                2005.


(6)
            Payment
                to SEP-IRA pension plan (all of which was deferred and paid in
                2005).





52


Mr.
      Ware’s current base salary is $125,000. On June 22, 2005, the Company also
      approved of its subsidiary granting an incentive to Mr. Ware and that incentive
      was granted as a 1% overriding interest in any well that he recommends that
      is
      drilled by the Company or its subsidiary Coastal Petroleum. No payments under
      this incentive plan were paid during 2005.




**Compensation
      of Directors**





Directors
      received $71,250 in 2005 as payment for directors fees accrued during the year
      2004. Beginning in the year 2005, the Company paid each director an annual
      fee
      of $25,000 for director service or a prorated share of that amount based upon
      time spent serving as a director during any part of the year. The total amount
      of director fees paid in 2005 for service as a director during 2005 was $54,725.





**Stock
      Options**





The
      Company granted Philip Ware 50,000 stock options, exercisable at $.15 per share
      and 250,000 stock options, exercisable at $.20 per share, for ten years during
      the year ended December 31, 2005. The
      following table provides information about unexercised stock options held by
      the
      Named Executive Officers at December 31, 2005:





**Aggregated
                Option/SAR Exercises in 2004 and December 31, 2005**
              **Option/SAR
                Values**Shares
              Acquired
              On
                Exercise (#)
            Value
              Realized
                ($)
            Number
                of Securities Underlying Unexercised Options/SARs (#)
              at
                December 31, 2005
            Value
                of Unexercised In-The-Money
              Options/SARs
              at
                December 31, 2005Name
            
            
            **Exercisable**
            **Unexercisable**
            **Exercisable**
            **Unexercisable**Phillip
                W. Ware
            -0-
            -0-
            50,000
            -
            -0-
            -Phillip
              W. Ware
            -0-
            -0-
            250,000
            -
            -0-
            -





The
      Company has not adjusted or amended the exercise price of any stock options
      during the year end December 31, 2005.





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





**Compensation
      Committee Interlocks and Insider Participation**





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





53


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





**Security
      Ownership of Certain Beneficial Owners**




As
      of
      December 31, 2005, Mr. Robert J. Angerer, Sr. owned 2,067,487 shares, or 4.47%,
      of our common stock and his son, Mr. Robert J. Angerer, Jr., beneficially owned
      2,256,914 shares, or 4.88%, of our common stock. Mr. Angerer, Sr. disclaims
      beneficial ownership of any shares owned by his son.




As
      of
      March 7, 2006, no persons or apparent groups of persons are known by management
      to own beneficially five percent or more of the Company’s outstanding
      shares.





**Security
      Ownership of Management**





The
      following table sets forth information as to the number of shares of the
      Company's common stock owned beneficially at December 31, 2005, by each director
      of the Company and by all directors and executive officers as a group:





Amount
                and Nature of BeneficialOwnershipName
                of Individual or Group
            
            Shares
                Held Directly orIndirectly
            
            Options
            
            Percent
                ofClassPhillip
                W. Ware
            
            
            144,121
            
            
            300,000
            
            
            0.95
            %Robert
                J. Angerer, Sr.
            
            
            2,067,487
            
            
            50,000
            
            
            4.58
            %Herbert
                D. Haughton
            
            
            50,000
            
            
            50,000
            
            
            0.21
            %Anthony
                F. Randazzo
            
            
            100,000
            
            
            50,000
            
            
            0.32
            %Matthew
                D. Canon
            
            
            99,200
            
            
            50,000
            
            
            0.32
            %Directors
                and executive officersas
                a group (a total of 5 persons)
            
            
            2,460,808
            
            
            500,000
            
            
            6.34
            %


______________________


54


**EQUITY
      COMPENSATION PLAN INFORMATION**





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





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





(1)  1995
      Stock Option Plan


(2)  2005
      Employee’s Incentive Stock Option Plan





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





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





55


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





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





***Angerer
      & Angerer***





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





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





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





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





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





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





***Igler
      & Dougherty, PA***





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




56





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





Baumann,
      Raymondo and Company, P.A. audited the Company’s financial statements for 2005
      and performed the review for the quarter ended September 30, 2005. James Moore
      & Co., P.L. audited the Company’s financial statements for 2004 and 2003 and
      performed the review for the quarters ended March 31, 2005 and June 30, 2005.





Fees
      related to services performed by Baumann, Raymondo and Company, P.A. and James
      Moore & Co., P.L. in 2005 and 2004 were as follows:





2005
            
            2004Audit
                Fees (1)
            
            $
            33,668
            
            $
            22,817Audit-Related
                Fees
            
            
            -0-
            
            
            -0-Tax
                Fees (2)
            
            
            2,350
            
            
            1,200Total
            
            $
            36,018
            
            $
            24,017





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





The
                Audit Committee has reviewed Coastal Caribbean’s audited financial
                statements as of, and for, the fiscal year ended December 31, 2005,
                and
                met with both management and Coastal Caribbean’s independent auditors to
                discuss those financial statements. Management has represented to
                the
                Audit Committee that the financial statements were prepared in accordance
                with accounting principles generally accepted in the United States
                of
                America.





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





57


Based
      on
      the reviews and discussions referred to above, the Audit Committee recommended
      to the Board that Coastal Caribbean’s audited financial statements be included
      in the Company’s Annual Report on Form 10-K for the fiscal year ended December
      31, 2005, and filed with the Securities and Exchange Commission.





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







**PART IV**





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





**Financial Statements**





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




PageReports
                of Independent Registered Public Accounting Firms
            
            
            32Consolidated
                balance sheets at December 31, 2005 and 2004
            
            
            34Consolidated
                statements of operations for each of the three years in the period
                ended
                December 31, 2005 and for the period from January 31, 1953 (inception)
                to
                December 31, 2005.
            
            
            35Consolidated
                statements of cash flows for each of the three years in the period
                ended
                December 31, 2005 and for the period from January 31, 1953 (inception)
                to
                December 31, 2005.
            
            
            36Consolidated
                statement of common stock and capital in excess of par value for
                the
                period from January 31, 1953 (inception) to December 31,
                2005
            
            
            37Notes
                to consolidated financial statements.
            
            
            38-47


**Financial Statement Schedules**





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





58




**Exhibits**





The
      following exhibits are filed as part of this report:


10.
                Material contracts.


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





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





(j)
            Code
                of Ethics applicable to principle executive and financial officers
                adopted
                December 20, 2005.




21.
              Subsidiaries of the registrant.
 
 The
                  Company has one subsidiary, Coastal Petroleum Company, a Florida
                  corporation which is 100 % owned.
 
 23.
              Consent of experts and counsel.
 
 23.1
              Consent
                  of James, Moore&
                  Co., P.L.
 
 23.2
              Consent
                of Baumann, Raymondo & Company PA
 
 31.1
              Certification
                  of Chief Executive Officer and Principal Financial Officer Required
                  by
                  Rule 13a-14(a)-15d-14(a) under the Exchange
                  Act





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





59


**SIGNATURES**





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




**COASTAL CARIBBEAN OILS
&
                MINERALS, LTD.**(Registrant)By:
              /s/ Phillip
                W. Ware**Phillip
                W. Ware**,
                Chief Executive OfficerPresident
                and
                Principal Financial Officer
  Dated:
      March 7, 2006





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





By/s/
                Phillip W. Ware
              **Phillip
                W. Ware**
              Director,
                Chief Executive Officer,
              President
                and Principal Financial Officer
              
              Dated:
                March 7, 2006
            By/s/
                Robert J. Angerer
              **Robert
                J. Angerer**
              Director
                and Vice President
              
              
              Dated:
                March 7, 2006By/s/
                Herbert D. Haughton
              **Herbert
                D. Haughton**
              Director
              
              Dated:
                March 7, 2006
            By/s/Anthony
                F. Randazzo
              **Anthony
                F. Randazzo**
              Director
              
              Dated:
                March 7, 2006By/s/
                Matthew D. Cannon
              **Matthew
                D. Cannon**
              Director
              
              Dated:
                March 7, 2006







60





**INDEX
      TO EXHIBITS**





Exhibit
      No .





10.(j)
              Code
                  of Ethics applicable to principle executive and financial officers
                  adopted
                  December 20, 2005.
 
 23.1
              Consent
                  of James Moore & Co., P.L.
 
 23.2
              Consent of Baumann, Raymondo & Company,
                PA
 
 31.1
              Certification
                pursuant to Rule 13a-14 by Phillip W.
                Ware
 
 32.1
              Certification
                  pursuant to Section 906 by Phillip W.
                  Ware




61