<PAGE>
================================================================================

                       SECURITIES AND EXCHANGE COMMISSION
                              WASHINGTON, DC 20549

                                   ----------

                                   FORM 10-QSB

(Mark One)

[X]  QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

     FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2005

[ ]  TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
     OF 1934

     FOR THE TRANSITION PERIOD FROM ________ TO ________

                          BAYOU CITY EXPLORATION, INC.
        (Exact Name of Small Business Issuer as Specified in Its Charter)

<TABLE>
<S>                                                          <C>
             NEVADA                                               61-1306702
(State or Other Jurisdiction of                                 (IRS Employer
 Incorporation or Organization)                              Identification No.)
</TABLE>

               10777 WESTHEIMER RD., SUITE 170, HOUSTON, TX 77042
                    (Address of Principal Executive Offices)

                                 (832) 358-3900
                (Issuer's Telephone Number, Including Area Code)

_______________________________________________________________________________
              (Former Name, Former Address and Former Fiscal Year,
                          if Changed Since Last Report)

Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the past 12 months (or
for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.

                                 Yes [X] No [ ]

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: 22,066,094 shares of common stock as
of November 10, 2005 and 23,300 shares of Series E Preferred Stock as of
November 10, 2005.

                  TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT

                                 Yes [ ] No [X]

================================================================================

<PAGE>

<TABLE>
<CAPTION>
        INDEX                                                           NUMBER
        -----                                                           ------
<S>     <C>                                                             <C>
                                     PART I

                              FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)

        FINANCIAL STATEMENTS OF REGISTRANT

        Balance Sheets as of September 30, 2005 and December 31, 2004        3
        Statements of Operations for the three months and nine months
           ended September 30, 2005 and 2004                                 4
        Statements of Cash Flows for the nine months ended
           September 30, 2005 and 2004                                       5
        Notes to Financial Statements                                     6-12

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF OPERATIONS               13-18
ITEM 3. CONTROLS AND PROCEDURES                                             18

                                     PART II

                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS                                                   19
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS         19
ITEM 3. DEFAULTS UPON SENIOR SECURITIES                                     19
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                 19
ITEM 5. OTHER INFORMATION                                                   19
ITEM 6. EXHIBITS                                                            19
SIGNATURE                                                                   20
</TABLE>


                                        2

<PAGE>

                          BAYOU CITY EXPLORATION, INC.
                                 BALANCE SHEETS

<TABLE>
<CAPTION>
                                                                  SEPTEMBER 30,   DECEMBER 31,
                                                                       2005           2004
                                                                  -------------   ------------
                                                                   (UNAUDITED)
<S>                                                               <C>             <C>
                             ASSETS

CURRENT ASSETS:
   Cash                                                            $   494,012    $ 1,465,675
   Accounts Receivable:
      Managed Limited Partnerships                                      21,505         15,365
      Related parties                                                   30,565         22,354
      Trade and Other                                                  239,643        167,400
   Prepaid Expenses and Other Current Assets                            26,500          5,693
                                                                   -----------    -----------
         TOTAL CURRENT ASSETS                                          812,225      1,676,487

PROPERTY AND EQUIPMENT, NET                                          2,037,693        651,654
OTHER NONCURRENT ASSETS                                                  7,024          7,024
                                                                   -----------    -----------
         TOTAL ASSETS                                              $ 2,856,942    $ 2,335,165
                                                                   ===========    ===========

              LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
   Accounts Payable and Accrued Liabilities                        $   374,441    $   125,545
   Current Portion Long Term Debt                                       57,273         47,523
                                                                   -----------    -----------

      TOTAL CURRENT LIABILITIES                                        431,714        173,068

ASSET RETIREMENT LIABILITY                                              73,292             --
LONG TERM DEBT                                                         430,964        441,173
LONG TERM ADVANCE                                                    1,061,400             --
                                                                   -----------    -----------
      TOTAL LIABILITIES                                              1,997,370        614,241
                                                                   -----------    -----------
COMMITMENTS AND CONTINGENCIES                                               --             --

STOCKHOLDERS' EQUITY:
   Preferred Stock, $0.001 par value; 5,000,000 shares
      authorized; Series E 23,300 shares issued and outstanding
      at September 30, 2005 and December 31, 2004 (liquidation
      preference of $233,000 at September 30, 2005
      and December 31, 2004)                                                23             23
   Common Stock, $0.005 par value; 150,000,000 shares
      authorized; 22,066,094 shares issued and outstanding at
      September 30, 2005 and 21,266,094 shares issued and
      outstanding at December 31, 2004                                 110,331        106,331
   Additional Paid-In Capital                                        9,141,055      8,745,055
   Accumulated Deficit                                              (8,391,837)    (7,130,485)
                                                                   -----------    -----------
      TOTAL STOCKHOLDERS' EQUITY                                       859,572      1,720,924
                                                                   -----------    -----------
      TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                   $ 2,856,942    $ 2,335,165
                                                                   ===========    ===========
</TABLE>

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


                                        3

<PAGE>

                          BAYOU CITY EXPLORATION, INC.
                            STATEMENTS OF OPERATIONS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                            THREE MONTHS ENDED          NINE MONTHS ENDED
                                                               SEPTEMBER 30,              SEPTEMBER 30,
                                                         ------------------------   ------------------------
                                                             2005         2004          2005         2004
                                                         -----------   ----------   -----------   ----------
<S>                                                      <C>           <C>          <C>           <C>
OPERATING REVENUES:
Prospect Fees-Related Parties                            $    40,000   $       --   $    40,000   $       --
Management Fees                                               60,000           --       180,000           --
Oil and Gas Sales                                             36,713      145,475       217,566      405,721
                                                         -----------   ----------   -----------   ----------
      TOTAL OPERATING REVENUES                               136,713      145,475       437,566      405,721
                                                         -----------   ----------   -----------   ----------
OPERATING COSTS AND EXPENSES:
   Lease Operating Costs                                       5,398       61,671        68,336      145,754
   Dry Hole and Abandonment Costs                                 --            2         5,110        3,315

   Exploration Costs                                         110,437           --       387,471           --
   Depreciation, Depletion and Amortization                   56,796       67,374       197,557      196,050
   Accretion Expense                                              --           --        12,500           --
   Marketing Costs                                            17,059           --        28,106           --
   General and Administrative Costs                          406,608      125,479       949,196      690,962
                                                         -----------   ----------   -----------   ----------
      TOTAL OPERATING COSTS AND EXPENSES                     596,298      254,526     1,648,276    1,036,081
                                                         -----------   ----------   -----------   ----------
OPERATING LOSS                                              (459,585)    (109,051)   (1,210,710)    (630,360)
OTHER EXPENSE:
   Interest Expense                                           (9,627)          --       (29,672)          --
   Other Expense                                                  --           --            --       (4,700)
                                                         -----------   ----------   -----------   ----------
      TOTAL OTHER EXPENSE                                     (9,627)          --       (29,672)      (4,700)
                                                         -----------   ----------   -----------   ----------
      LOSS BEFORE INCOME TAXES                              (469,212)    (109,051)   (1,240,382)    (635,060)
INCOME TAX PROVISION                                              --           --            --           --
                                                         -----------   ----------   -----------   ----------
      NET LOSS                                           $  (469,212)  $ (109,051)  $(1,240,382)  $ (635,060)
      SERIES E PREFERRED STOCK CASH DIVIDENDS                 (6,990)      (6,990)      (20,970)     (20,970)
                                                         -----------   ----------   -----------   ----------
      NET LOSS ATTRIBUTABLE TO COMMON
         STOCKHOLDERS                                    $  (476,202)  $ (116,041)  $(1,261,352)  $ (656,030)
                                                         ===========   ==========   ===========   ==========
      NET LOSS PER COMMON SHARE                          $     (0.02)  $    (0.02)  $     (0.06)  $    (0.09)
                                                         ===========   ==========   ===========   ==========

Weighted Average Common Shares Outstanding - Basic and
   Diluted                                                21,522,616    7,516,094    21,352,541    7,516,094
                                                         ===========   ==========   ===========   ==========
</TABLE>

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


                                        4

<PAGE>

                          BAYOU CITY EXPLORATION, INC.
                            STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>
                                                                  NINE MONTHS ENDED
                                                                    SEPTEMBER 30,
                                                              ------------------------
                                                                  2005         2004
                                                              -----------   ----------
<S>                                                           <C>           <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net Loss                                                   $(1,240,382)  $ (635,060)
   Adjustments to Reconcile Net Loss to Net Cash Flows from
   Operating Activities:
      Depreciation, Depletion and Amortization                    197,557      196,050
      Accretion Expense                                            12,500           --
      Dry Hole and Abandonment Costs                                5,110        3,315
      Costs Paid by Related Parties                                    --      140,497
      Change in Operating Assets and Liabilities:
         Accounts Receivable-Trade                                (72,243)      90,188
         Accounts Receivable-Related Parties                      (14,351)          --
         Prepaid Expenses and Other Assets                        (20,807)     (22,775)
         Accounts Payable and Accrued Liabilities                 248,896      (52,058)
                                                              -----------   ----------
      NET CASH USED IN OPERATING ACTIVITIES                      (883,720)    (279,843)
                                                              -----------   ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchase of Furniture and Computer Equipment                   (65,725)     (85,997)
   Purchase of Seismic License                                         --     (351,700)
   Purchase of Oil and Gas Properties                          (1,462,189)     (13,598)
                                                              -----------   ----------
      NET CASH USED IN INVESTING ACTIVITIES                    (1,527,914)    (451,295)
                                                              -----------   ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
   Proceeds from Note Payable                                      42,095           --
   Payments on Long Term Debt                                     (42,554)      (6,000)
   Increase in Advances from Affiliate                                 --       55,629
   Long-Term Advance                                            1,061,400    1,235,900
   Warrants Exercised                                             400,000           --
   Dividends Paid                                                 (20,970)     (20,970)
                                                              -----------   ----------
      NET CASH PROVIDED BY FINANCING ACTIVITIES                 1,439,971    1,264,559
                                                              -----------   ----------
      NET INCREASE (DECREASE) IN CASH                            (971,663)     533,421
CASH AT BEGINNING OF PERIOD                                     1,465,675       71,256
                                                              -----------   ----------
CASH AT END OF PERIOD                                         $   494,012   $  604,677
                                                              ===========   ==========
</TABLE>

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


                                        5

<PAGE>

                          BAYOU CITY EXPLORATION, INC.
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

1.   OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

INTERIM REPORTING

The financial statements of the Registrant included herein have been prepared,
without audit, pursuant to the rules and regulations of the Securities and
Exchange Commission. Although certain information normally included in financial
statements prepared in accordance with accounting principles generally accepted
in the United States has been omitted, the Registrant believes that the
disclosures are adequate to make the information presented not misleading. It is
suggested that these financial statements be read in conjunction with the
financial statements and the notes thereto included in the Form 10-KSB of the
Registrant for its fiscal year ended December 31, 2004 and subsequent filings
with the Securities and Exchange Commission.

The financial statements included herein reflect all adjustments (consisting
only of normal recurring accruals) which, in the opinion of management, are
necessary to present a fair statement of the results for the interim periods.
The results for interim periods are not necessarily indicative of trends or of
results to be expected for a full year.

GENERAL

Bayou City Exploration, Inc. (the Company), a Nevada corporation, was organized
in November, 1994, as Gem Source, Incorporated. The name was subsequently
changed to Blue Ridge Energy, Inc. in May, 1996 and most recently changed to
Bayou City Exploration, Inc. in June 2005. The Company's executive office is
located at 10777 Westheimer Rd., Suite 170, Houston, Texas 77042.

In the second quarter of 2005, the Company began offering a "United States Unit
Private Placement Subscription Agreement" and a "Non-U.S. and Non-Canadian
Private Placement Subscription Agreement" on an exempt private placement basis
to eligible accredited investors pursuant to Regulation S. The Subscriptions are
of its own issue at the price of $1.00 for each unit, with each unit consisting
of one common share and one non-transferable share purchase warrant (the
Warrants) with an exercisable price of $1.75. The Warrants are subject to
adjustment for changes in capital of the Company as to number and price in
accordance with industry practice and expire two years from the date the
Warrants are issued. As of September 30, 2005 the Company had received
$1,061,400 in unit subscriptions and has classified these funds as a long-term
liability. As of November 10, 2005, the Company is in receipt of $1,927,373 in
unit subscriptions. The Company anticipates closing this private placement
arrangement before year end by accepting the subscriptions and reclassifying the
long-term liability into the appropriate components of stockholders' equity

In 2004, the Company conducted a "Non-U.S." private, restricted stock placement
arrangement on an exempt private placement basis pursuant to Regulation S (the
"Offering"). The Company offered up to an aggregate of 12,500,000 units, with no
minimum subscription, of its own issue to eligible sophisticated investors at a
subscription price of $0.20 per unit (each a Unit), with each such Unit
consisting of one common share, one share purchase warrant with an exercise
price of $0.50 expiring on December 31, 2005 and one piggyback warrant with an
exercise price of $1.00 expiring on December 31, 2006. The Company received
subscriptions totaling $2,474,000, net of expenses, for 12,500,000 Units through
December 31, 2004 and the Offering was closed on the same date. Another
1,250,000 Units were issuable as of December 31, 2004 as a finder fee for
services in connection with the Offering. Valuing these shares at the $0.20
offering price equates to a $250,000 fee. On April 28, 2005, the Company and all
of the investors in the Offering as well as the two finders (collectively, the
"Investors") entered into a letter agreement (the "Letter Agreement") having an
effective date of December 31, 2004, whereby all of the Investors agreed to
surrender for cancellation all of the piggyback warrants received in the
Offering in order to prevent dilution and to help attract investors for future
possible financings. In addition, the Company and the Investors agreed to
correct a discrepancy between the subscription agreements and the warrant
certificates to confirm that the exercise period of the warrants is from
December 31, 2004 to December 31, 2005, instead of May 17, 2004 to May 17, 2005
as set out in the subscription agreements. In August 2005, 800,000 warrants were
exercised for $400,000.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the ordinary course of business. It is
management's opinion that the going concern basis of reporting its financial
position and results of operations is appropriate at this time. The Company has
obtained a resolution from Blue Ridge Group, Inc., a related party and the major
stockholder (see Note 3, Related Party, to financial statements), to provide the
necessary financial support for the Company through at least October 1, 2006.


                                        6

<PAGE>

                          BAYOU CITY EXPLORATION, INC.
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

USE OF ESTIMATES

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

RECENTLY ISSUED ACCOUNTING STANDARDS

Consolidation of Variable Interest Entities: Financial Accounting Standards
Board Interpretation (FIN) No. 46(R), Consolidation of Variable Interest
Entities, was issued in December 2003. FIN No. 46(R) addresses consolidation by
business enterprises of variable interest entities. It applies to all variable
interest entities by the end of the first reporting period after December 15,
2004. The adoption of FIN No. 46(R) had no impact on the financial statements
and is not expected to have a material impact on the financial statements in the
future.

Share-Based Payment: Financial Accounting Standards Board Statement (FASB)
123(R), Share-Based Payment was issued in December 2004. This Statement
eliminates the alternative to use Opinion 25's intrinsic value method of
accounting that was provided in FASB Statement 123 as originally issued. Under
Opinion 25, issuing stock options to employees generally resulted in recognition
of no compensation cost. Statement 123(R) requires entities to recognize the
cost of employee services received in exchange for awards of equity instruments
based on the grant-date fair value of those awards. This statement is effective
for public entities that file as small business issuers as of the beginning of
the first interim or annual reporting period that begins after December 15,
2005. This statement will be adopted for the first quarterly reporting period of
2006 beginning on January 1 using the modified prospective application. Under
this method, only new awards and awards modified, repurchased, or cancelled
after the required effective date will be subject to requirements of FAS 123(R).
No restatement of prior periods will be necessary. The impact of this Statement
will depend on the level of options granted.

In April 2005, the FASB issued FSP FAS 19-1 Accounting For Suspended Well Costs.
The FASB Staff concluded that well costs should continue to be capitalized when
the well has found a sufficient quantity of reserves to justify completion as a
producing well and the company is making progress assessing reserves and the
economic viability of the project. In effect, the Staff concluded that the
1-year period for assessing reserves as proved be waived provided that the two
criteria discussed above are consistently met. The FSP was effective for the
first interim period beginning after April 4, 2005. This FSP is not expected to
have a material impact on the Company's financial statements.

In July 2005, the FASB issued FSP SOP 78-9-1 Interaction of AICPA Statement of
Position 78-9 and EITF Issue No. 04-5. The FASB amended SOP 78-9 so that
guidance in determining when a general partner controls a limited partnership is
consistent with guidance provided in EITF Issue No. 04-5. This FSP was effective
after June 29, 2005 for all newly formed partnerships and for the first
reporting period after December 15, 2005 for all other partnerships. This FSP is
not expected to have a material impact on the Company's financial statements.

In May 2005, the FASB issued FASB No. 154 Accounting Changes and Error
Corrections. This statement requires retrospective application to prior periods'
financial statements for changes in accounting principle. Previously, under APB
20, all such changes were recorded as a line item on the statement of operations
only in the period of change. This statement is effective for fiscal years
beginning after December 15, 2005. Future impact of the application of this
statement is unknown.

REVENUE RECOGNITION

Under the sales method, oil and gas revenue is recognized when produced and
sold. Revenues from turnkey contract sales and property sales are recognized
when the contracts and property sales are completed. Management fees are
recognized under the accrual method and recorded when earned. Prospect fees
charged under joint participation agreements are recorded after execution.

ACCOUNTS RECEIVABLE

Accounts receivable are from oil and gas sales produced and sold during the
reporting period but awaiting cash payment, from expenditures paid on behalf of
the limited partnership and related party (BR Group) awaiting collection and
from management fees earned and accrued. Management's assessment of the
receivables indicate all will be collected and there is no provision made for
bad debt. Receivables are reviewed quarterly, and if any are deemed
uncollectible, they are written off as bad debts.


                                        7

<PAGE>

                          BAYOU CITY EXPLORATION, INC.
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents includes cash on
hand and cash on deposit. The Company defines cash equivalents as short-term and
highly liquid investments that are both readily convertible to known amounts of
cash and have an original maturity of less than 90 days.

CONCENTRATIONS OF CREDIT RISK ARISING FROM CASH DEPOSITS IN EXCESS OF INSURED
LIMITS

The Company maintains its cash balances in two financial institutions located in
Houston, Texas and Bowling Green, Kentucky. The balances are insured by the
Federal Deposit Insurance Corporation for up to $100,000. At September 30, 2005,
there was approximately $412,000 in cash that was uninsured by the FDIC.

MARKETING

The Company expenses marketing and advertising costs as these are incurred.
Costs of $28,000 and $-0- were incurred for the nine months ended September 30,
2005 and September 30, 2004, respectively.

MANAGED LIMITED PARTNERSHIPS

Prior to 2004 the Company sponsored limited partnerships for which it served as
the Managing General Partner. The purpose of these partnerships was to acquire
and develop oil and gas leases. For the existing partnerships, the Company
records on its financial statements its pro rata share of the assets,
liabilities, revenues and expenses of each partnership.

PROPERTY AND EQUIPMENT

Property and equipment (other than oil and gas) are stated at cost. Depreciation
is recognized on the straight line method, after considering salvage value, over
the estimated useful lives of the assets as follows:

<TABLE>
<S>                               <C>
Computer Equipment and Software    5
Furniture and Fixtures            10
</TABLE>

The Company follows the successful efforts method of accounting for oil and gas
producing activities. Under the successful efforts method of accounting, costs
which relate directly to the discovery of oil and gas reserves are capitalized.
These capitalized costs include:

     (1)  the costs of acquiring mineral interest in properties,

     (2)  costs to drill and equip exploratory wells that find proved reserves,

     (3)  costs to drill and equip development wells, and

     (4)  costs for support equipment and facilities used in oil and gas
          producing activities.

These costs are depreciated, depleted or amortized on the unit of productions
method, based on estimates of recoverable proved developed oil and gas reserves.
Costs to drill exploratory wells that do not find proved reserves, geological
and geophysical costs, and costs of carrying and retaining unproved properties
are expensed.

The costs of acquiring unproved properties are capitalized as incurred and
carried until the property is reclassified as a producing oil and gas property,
or considered impaired as discussed below. The Company annually assesses its
unproved properties to determine whether they have been impaired. If the results
of this assessment indicate impairment, a loss is recognized by providing a
valuation allowance. When an unproved property is surrendered, the costs related
thereto are first charged to the valuation allowance, with any additional
balance expensed to operations.

The costs of drilling exploration wells are capitalized as wells in progress
pending determination of whether the well has proved reserves. Once a
determination is made, the capitalized costs are charged to expense if no
reserves are found or, otherwise reclassified as part of the costs of the
Company's wells and related equipment. In the absence of a determination as to
whether the reserves that have been found can be classified as proved, the costs
of drilling such an exploratory well are not carried as an asset for more than
one year following completion of drilling. If after a year has passed, and the
Company is unable to determine that proved reserves have been found, the well is
assumed to be impaired, and its costs are charged to expense. At the end of the
reporting periods, the Company had no costs capitalized pending determination,
nor did it expense any costs during the three or nine months ended September 30,
2005 or 2004 for costs that had exceeded the one-year determination period.


                                        8

<PAGE>

                          BAYOU CITY EXPLORATION, INC.
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

ACCOUNTING FOR ASSET RETIREMENT OBLIGATIONS

The Company follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 143, Accounting for Asset Retirement Obligations. SFAS No.
143 requires legal obligations associated with the retirement of long-lived
assets to be recognized at their fair value at the time that the obligations are
incurred. Upon initial recognition of a liability, that cost is capitalized as
part of the related long-lived asset and allocated to expense over the useful
life of the asset. Prior to 2005, management determined that any future costs
related to plugging and abandonment of producing wells would be substantially
offset by the value of equipment removed from the well site and such estimates
were immaterial to the financial statements. Therefore, no liability was
recorded prior to 2005. Due to continued rising rig and fuel costs, a detailed
estimate was made in the second quarter of 2005 to determine how these rising
service costs would affect future plugging and abandonment costs. As a result of
this analysis, management concluded that this future liability should now be
recorded within the financial statements. In the second quarter of 2005, the
following was recorded: 1) an asset of $61,000, 2) accumulated amortization and
amortization expense of $29,000, 3) a long-term liability of $73,000 and 4)
accretion expense of $12,000. These costs will be evaluated annually and
adjusted accordingly under the guidelines of SFAS 143.

SURRENDER OR ABANDONMENT OF DEVELOPED PROPERTIES

Normally, no separate gain or loss is recognized if only an individual well or
individual item of equipment is abandoned or retired or if only a single lease
or other part of a group of proved properties constituting the amortization base
is abandoned or retired as long as the remainder of the property or group of
properties continues to produce oil or gas. The asset being abandoned or retired
is deemed to be fully amortized, and its cost is charged to accumulated
depreciation, depletion or amortization. When the last well on an individual
property or group of properties with common geological structures ceases to
produce and the entire property or property group is abandoned, gain or loss, if
any, is recognized.

OTHER DISPOSITIONS

Upon disposition or retirement of property and equipment other than oil and gas
properties, the cost and related accumulated depreciation are removed from the
accounts and the gain or loss thereon, if any, is expensed. The Company
recognizes the gain or loss on the sale of either a part of a proved oil and gas
property or of an entire proved oil and gas property constituting a part of a
field upon the sale or other disposition of such. The unamortized cost of the
property or group of properties, a part of which was sold or otherwise disposed
of, is apportioned to the interest sold and interest retained on the basis of
the fair value of those interests.

IMPAIRMENT OF LONG-LIVED ASSETS

The Company follows the provisions of SFAS No. 144. Consequently, the Company
reviews its long-lived assets to be held and used, including oil and gas
properties accounted for under the successful efforts method of accounting.
Whenever events or circumstances indicate the carrying value of those assets may
not be recoverable, an impairment loss for proved properties and capitalized
exploration and development costs is recognized. The Company assesses impairment
of capitalized costs of proved oil and gas properties by comparing net
capitalized costs to undiscounted future net cash flows on a field-by-field
basis using known expected prices, based on set agreements. If an impairment is
indicated based on undiscounted expected future cash flows, then an impairment
is recognizable to the extent that net capitalized costs exceed the estimated
fair value of the property. Fair value of the property is estimated by the
Company using the present value of future cash flows discounted at 10%, in
accordance with SFAS No. 69, Disclosures about Oil and Gas Producing Activities.
No impairment expense was recorded for the nine months ended September 30, 2005
or 2004.

INCOME/(LOSS) PER COMMON SHARE

The Company calculates basic earnings per common share ("Basic EPS") using the
weighted average number of common shares outstanding for the period. The income
available to common shareholders is computed after deducting dividends on the
Series E Preferred Stock. The convertible preferred stock and outstanding stock
warrants and options are considered anti-dilutive and therefore, excluded from
the earnings per share calculations. As the Company has recorded losses in 2005
and 2004, common share equivalents outstanding would be anti-dilutive,
therefore, these have not been included in the weighted average shares
outstanding.

Various warrants for the purchase of common stock were outstanding as of
September 30, 2005. These warrants were convertible into 12,985,300 shares of
common stock that are exercisable at prices ranging from $0.40 to $4.00 per
share. In August 2005, 800,000 warrants were exercised for $400,000 resulting in
$4,000 recorded to Common Stock and $396,000 recorded to Additional Paid In
Capital. The 12,985,300 takes into consideration the following agreement. On
April 28, 2005, the Company and all of the investors in the 2004 "Non-U.S."
private, restricted stock placement arrangement (the "Offering") as well as the
two finders (collectively, the


                                        9

<PAGE>

                          BAYOU CITY EXPLORATION, INC.
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

"Investors") entered into a letter agreement (the "Letter Agreement") having an
effective date of December 31, 2004, whereby all of the Investors agreed to
surrender for cancellation all of the piggyback warrants received in the
Offering in order to prevent dilution and to help attract investors for future
possible financings. In addition, the Company and the Investors agreed to
correct a discrepancy between the subscription agreements and the warrant
certificates to confirm that the exercise period of the warrants is from
December 31, 2004 to December 31, 2005, instead of May 17, 2004 to May 17, 2005
as set out in the subscription agreements.

STOCK OPTIONS

The Company accounts for employee stock options in accordance with Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" (APB
25) permitted by SFAS No. 123, "Accounting for Stock-Based Compensation."
Accordingly, the Company has not recognized compensation expense for stock
options granted because all options were issued at fair value. Under the
existing employment agreement with the former CEO and President, the Company
granted 20,000 stock options on March 1, 2005 and 20,000 stock options on March
1, 2004. On February 22, 2005, the Board of Directors adopted the "Blue Ridge
Energy, Inc. 2005 Stock Option and Incentive Plan" (the Plan). The purposes of
the Plan are to (i) attract and retain the best available personnel for
positions of responsibility within the Company, (ii) provide additional
incentives to Employees of the Company, (iii) provide Directors, Consultants and
Advisors of the Company with an opportunity to acquire a proprietary interest in
the Company to encourage their continued provision of services to the Company
and to provide such persons with incentives and rewards for superior performance
more directly linked to the profitability of the Company's business and
increases in shareholder value, and (iv) generally to promote the success of the
Company's business and the interests of the Company and all of its stockholders,
through the grant of options to purchase shares of the Company's Common Stock
and other incentives. Incentive benefits granted hereunder may be either
Incentive Stock Options, Non-qualified Stock Options, stock awards, Restricted
Shares, cash awards or other incentives determined by the board, as such terms
are hereinafter defined. The types of options or other incentives granted shall
be reflected in the terms of written agreements. Subject to adjustments upon
changes in capitalization or merger, the maximum aggregate number of shares
which may be optioned and sold or otherwise awarded under the Plan is seven
million (7,000,000) common shares. Any common shares available for grants and
awards at the end of any calendar year shall be carried over and shall be
available for grants and awards in the subsequent calendar year. The Board of
Directors has all power to administer the Plan and is the body responsible for
the Plan. The Plan will terminate on February 22, 2015. On February 22, 2005,
the Board of Directors granted stock options to purchase 2,517,500 shares to the
directors and officers of the Company with an exercise price of $0.30 per share
and the option period to commence from date of grant and terminating five years
from date of grant. On June 22, 2005, the Board of Directors authorized the
granting of stock options to purchase 100,000 shares to a director of the
Company with an exercise price of $1.13 per share and the option period to
commence from date of grant and terminating five years from date of grant. On
October 6, 2005, the Board of Directors granted stock options to purchase
1,700,000 shares to the officers of the Company with an exercise price of $2.25
per share and the option period to commence from date of grant and terminating
five years from date of grant. These options vest 20% on May 1, 2006 and 20% on
each anniversary thereafter. Under existing employment contracts, there is a
commitment to grant 280,000 options for common stock within the next one to five
years for completion of services. Had compensation cost for employee stock
options been determined based on the fair value at the grant date consistent
with SFAS No. 123, the Company's net loss and loss per share for the nine months
ended would have been as follows:

<TABLE>
<CAPTION>
                                                                    SEPTEMBER 30, 2005   SEPTEMBER 30, 2004
                                                                    ------------------   ------------------
<S>                                                                 <C>                  <C>
Net Loss, as reported ...........................................       $1,240,382            $635,060
Stock Based Compensation ........................................          589,900               3,844
                                                                        ----------            --------
Pro Forma Net Loss ..............................................       $1,830,282            $638,904
                                                                        ==========            ========
Net Loss Attributable to Common Stockholders, as reported .......       $1,261,352            $656,030
Stock Based Compensation ........................................          589,900               3,844
                                                                        ----------            --------
Pro Forma Net Loss ..............................................       $1,851,252            $659,874
                                                                        ==========            ========
Basic and Diluted Income (Loss) per Common Share, as reported ...       $    (0.06)           $  (0.09)
                                                                        ==========            ========
Basic and Diluted Income (Loss) per Common Share, Pro Forma .....       $    (0.09)           $  (0.09)
                                                                        ==========            ========
</TABLE>


                                       10

<PAGE>

                          BAYOU CITY EXPLORATION, INC.
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

The fair value of each option grant to employees was estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions:

<TABLE>
<CAPTION>
                                                        SEPTEMBER 30,   SEPTEMBER 30,
                                                             2005            2004
                                                        -------------   -------------
<S>                                                     <C>             <C>
Risk free interest rate .............................           4.17%        3.86%
Expected option life ................................    3 & 5 years     10 years
Expected dividend yield .............................              0%           0%
Volatility factor ...................................           1.21         1.02
Weighted average grant date fair value of options ...   $       0.22    $    0.31
</TABLE>

SERIES E PREFERRED STOCK DIVIDENDS

The Series E Preferred Stock bears a 12% per annum dividend payable quarterly
and a participating dividend equal to 3% of the net profits from the oil and gas
properties acquired with the proceeds of the offering, also payable quarterly.
The proceeds from the offering, after deducting expenses, were used to drill
three dry holes in September 2002, October 2002 and February 2003; therefore, no
participating dividends will be payable to stockholders.

INCOME TAXES

No income tax provision has been established for the three and nine months ended
September 30, 2005 and 2004, due to the net losses incurred or available via
federal income tax carry forward provisions. Income taxes are provided for under
the liability method in accordance with SFAS No. 109, Accounting for Income
Taxes, which takes into account the differences between financial statement
treatment and tax treatment of certain transactions. It is uncertain as to
whether the Company will generate sufficient future taxable income to utilize
the net deferred tax assets, primarily representing net operating loss carry
forwards, and therefore for financial reporting purposes, a valuation allowance
of $1,830,000 and $1,357,000 as of September 30, 2005 and December 31, 2004,
respectively, has been recognized to offset the net deferred tax assets.

2.   AFFILIATED OIL AND GAS PARTNERSHIPS

Included in the financial statements are contributions made to various sponsored
oil and gas partnerships, less the applicable loss generated by these
partnerships relative to the Company's percentage ownership. The Company has
allocated, on a pro-rata basis, the amounts associated with these investments to
the appropriate asset, liability, income and expense accounts.

3.   RELATED PARTY TRANSACTIONS

COMMON STOCK TRANSACTIONS

As of September 30, 2005, there are 22,066,094 shares of common stock issued and
outstanding. A total of 3,954,075 shares are held by BR Group and the remaining
18,112,019 shares are held by approximately 515 shareholders.

ADVANCES TO/FROM RELATED PARTIES

BR Group provided various management, administrative, accounting and geological
services for the Company at a rate of $10,000 per month from January 1, 2004
through September 30, 2004. Effective October 1, 2004, the $10,000 monthly
charge by BR Group ceased. Both companies agreed that any costs incurred on
behalf of the other will be billed in the following month with a cash settlement
for the balance due. Under this arrangement, BR Group owed the Company
approximately $31,000 and $22,000 at September 30, 2005 and December 31, 2004,
respectively.

At the end of the third quarter of 2004, BR Group had advanced the Company
approximately $640,000 during the previous 18 months to fund the on going
business of the Company. In April 2003, the Company moved into new office space
containing areas for expansion. Pending this expansion, the Company allowed BR
Group to house some of their engineering and landman consultants in the excess
space. During September 2004 the Company reviewed its records over these past 18
months to determine expenditures incurred in the Houston office by the Company
on behalf of BR Group. The analysis showed that for this time period 50% of the
office rent, telephone and office supplies and 100% of a contract administrative
assistant costs were chargeable to BR Group resulting in approximately $140,000
billable to them. Both companies agreed to settle the outstanding cash advances
and the office costs by applying the $140,000 against the $640,000 and
establishing a $500,000 promissory note bearing interest at 7.95% for a term of
eight years, with monthly payments of $7,056 for principal and interest. This
note is secured by any and all oil and gas production income that the Company
holds, now and future until the note has been paid in full.


                                       11

<PAGE>

                          BAYOU CITY EXPLORATION, INC.
                    NOTES TO FINANCIAL STATEMENTS (UNAUDITED)

JOINT PARTICIPATION AGREEMENTS

In September 2005, BR Group entered into a joint participation agreement with
the Company whereby BR Group would reimburse the Company for all acreage costs
on the Swanson Prospect, pay a $40,000 prospect fee and pay for 100% of the
drilling cost on the well. The Company retained an 8% carried working interest.

MANAGEMENT FEE ARRANGEMENTS

Morris T. Hewitt, President and CEO, hired on April 25, 2005, receives a 1%
carried working interest on all new oil and gas wells drilled by the Company.
Patrick A. Kelleher, former President and CEO, now vice-president of geology,
receives a 2% carried working interest on all new prospects identified by him.
James M. Stevens, vice-president of exploration, hired on March 28, 2005,
receives a 2% carried working interest on all new prospects identified and a 1%
carried working interest on third party prospects reviewed by him and accepted
by the Company. Robert A. Kelley, vice-president of drilling and production,
hired on April 25, 2005, receives a 1% carried working interest on all new oil
and gas wells drilled by the Company.

The Company is in negotiation with Morris T. Hewitt, President and CEO, Robert
A. Kelley, Chief Operating Officer and Senior Vice President, and James M.
Stevens, Senior Vice President of Exploration to amend their respective
employment contracts effective on the date of the original contract thereby
canceling their carried working interest in projects drilled after the date of
their employment agreement. Since the date of each of their employment through
November 10, 2005, none of the parties have received any proceeds from a carried
working interest.

4.   CONTINGENCIES

Neither the Company nor any of its properties is subject to any material pending
legal proceedings.

The Company's oil and gas exploration and production operations are subject to
inherent risks, including blowouts, fire and explosions which could result in
personal injury or death, suspended drilling operations, damage to or
destruction of equipment, damage to producing formations and pollution or other
environmental hazards. As a protection against these hazards, the Company
maintains general and umbrella liability insurance coverage of approximately $10
million per occurrence and in the aggregate. The Company believes it is
adequately insured for public liability and property damage to others with
respect to its operations. However, such insurance may not be sufficient to
protect the Company against liability for all consequences of well disasters,
extensive fire damage, or damage to the environment. The Company has never been
fined or incurred liability for pollution or other environmental damage in
connection with its operations.


                                       12

<PAGE>

                 MANAGEMENTS' DISCUSSION AND FINANCIAL ANALYSIS

GENERAL

Bayou City Exploration, Inc. (the Company), a Nevada corporation, was organized
in November, 1994, as Gem Source, Incorporated. The name was subsequently
changed to Blue Ridge Energy, Inc. in May, 1996 and most recently changed to
Bayou City Exploration, Inc. in June 2005. The Company's executive office is
located at 10777 Westheimer Rd., Suite 170, Houston, Texas 77042.

All of the periodic report filings with the Securities and Exchange Commission
("SEC") pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, are available through the SEC web site located at www.sec.gov,
including the annual report on Form 10-KSB, quarterly reports on Form 10-QSB,
current reports on Form 8-K and any amendments to those reports. The Company
will also make available to any stockholder, without charge, copies of its
Annual Report on Form 10-KSB as filed with the SEC. For copies of this, or any
other filings, please contact: Norman Haisler at Bayou City Exploration, Inc.
10777 Westheimer Rd., Suite 170 Houston, Texas 77042 or call (832) 358-3900.

In the second quarter of 2005, the Company began offering a "United States Unit
Private Placement Subscription Agreement" and a "Non-U.S. and Non-Canadian
Private Placement Subscription Agreement" on an exempt private placement basis
to eligible accredited investors pursuant to Regulation S. The Subscriptions are
of its own issue at the price of $1.00 for each unit, with each unit consisting
of one common share and one non-transferable share purchase warrant (the
Warrants) with an exercisable price of $1.75. The Warrants are subject to
adjustment for changes in capital of the Company as to number and price in
accordance with industry practice and expire two years from the date the
Warrants are issued. As of September 30, 2005 the Company had received
$1,061,400 in unit subscriptions and has classified these funds as a long-term
liability. As of November 10, 2005, the Company is in receipt of $1,927,373 in
unit subscriptions. The Company anticipates closing this private placement
arrangement before year end by accepting the subscriptions and reclassifying the
long-term liability into the appropriate components of stockholders' equity

The Company continues the process that will lead in growing our prospect
inventory and once drilling commences, will give the Company the emphasis needed
to grow exponentially. We should not have to depend on acquisitions to increase
our reserve base, however, if the proper opportunity presents itself we will
evaluate it to see if it fits our growth profile. We do not, however, intend to
make an acquisition as a short term fix that would jeopardize our long term
goals. Our operating strategy should enable us to take advantage of these
fundamentals:

     -    Focus in proven geologic trends throughout the onshore Gulf Coast
          Region of Texas and Louisiana.

     -    Control our geological ideas in both data and land positions that are
          starting to comprise our prospect inventory.

     -    Continuous expansion of our prospect inventory through acquisition of
          3-D seismic data and land as well as constant re-processing and
          re-interpretation through fundamental geologic studies and
          sophisticated geophysical interpretive techniques.

     -    Structure our drilling program to enable management to sell down
          enough interest in the well to mitigate risk and improve economics.

     -    Strive to maintain the highest possible ownership of our highest
          potential drilling prospects.

Specific achievements during 2005 are as follows:

     -    Raised $1.9 million in cash from the 2005 private placement offering.

     -    Increased license agreements to 7,200 square miles of 3-D seismic
          data.

     -    Increased license agreements to 11,000 miles of 2-D seismic data.

     -    Hired several experienced oil and gas finders as well as entered into
          consulting arrangements with other experienced oil and gas
          explorationists.

     -    Began exploration, leasing and drilling activity in five project areas
          more fully described in the Undeveloped Properties section of this
          report.

     -    Expended over $1 million in lease acquisition costs. The Company has
          entered into several joint participation agreements, and is seeking to
          enter into additional agreements, with industry partners which provide
          prospect fee income and allow the Company to retain a carried working
          interest.

At September 30, 2005, the Company had total assets of $2,857,000, total
liabilities of $1,997,000 and stockholders' equity of $860,000. The Company had
a net loss of $1,240,000 during the nine months ended September 30, 2005 and net
loss of $635,000 for the same period in 2004. The net loss per common share,
which takes into account cash dividends paid on preferred stock, was $0.06 per
share during the nine months ended September 30, 2005 as compared to $0.09
during the same period in 2004. All per share data in this report has been
adjusted to give effect to applicable stock issues and conversions.


                                       13

<PAGE>

                 MANAGEMENTS' DISCUSSION AND FINANCIAL ANALYSIS

KEY PROPERTIES

As of September 30, 2005, the Company has participated, either directly or
indirectly through its sponsored limited partnerships, in 108 wells, of which 18
are presently productive and located in Kentucky, West Virginia and Texas. In
addition to the 18 producing wells, there are 41 producing wells in four
partnerships operated by Eagle Energy, Inc., an unaffiliated entity.

The working interest owned by the Company, either directly or indirectly through
the oil and gas partnerships, is owned jointly with other working interest
partners. Management does not believe any of these other ownerships materially
detract from the value of the properties or materially interfere with their use.

The following are the primary properties held by the Company as of September 30,
2005:

DEVELOPED PROPERTIES

     Hobblebush Prospect: The Company owns a 4.25% working interest, with a
     3.23% net revenue interest, in 1 well located in Polk County, Texas which
     was drilled during the first quarter of 2004. The well is producing 100 Mcf
     per day.

     May Apple Prospect: The Company owns a 4.25% working interest, with a 3.23%
     net revenue interest, in 1 well located in Polk County, Texas which was
     drilled during the first quarter of 2004. The well is producing 30 Mcf per
     day.

     Wolfsbane Prospect: The Company owns a 13.6% working interest, with a
     10.53% net revenue interest, in 1 well located in Walker County, Texas. The
     well ceased production in January 2004. Additional seismic was shot in the
     fourth quarter of 2004 and was evaluated to determine if the well was to be
     recompleted or if another well should be drilled. A decision in November
     2005 has been made to recomplete the well in an upper zone.

     Pepperbush Prospect: The Company owns a 13.6% working interest, with a
     10.34% net revenue interest, in 1 well located in Polk County, Texas which
     began producing in the second quarter of 2003. It is currently producing
     100 Mcf per day.

     Yarrow Prospect: The Company owns a 13.6% working interest, with a 10.41%
     net revenue interest, in 1 well located in Polk County, Texas which began
     producing in the fourth quarter of 2002. It is currently producing 200 Mcf
     per day.

     West Pebble Island Prospect: The Company owns a 7.7% working interest, with
     a 5.59% net revenue interest, in the 1 well located in Tyler County, Texas
     which began producing in the first quarter of 2003. It is currently
     producing 30 barrels per day.

     Shelby County, Texas: The Company owns a 0.71% working interest, with a
     0.42% net revenue interest, in the Bridges #1 well in Shelby County, Texas
     which began producing in September 2000. It is currently producing 1,100
     Mcf per day.

     In March 2003, the Company transferred all of its rights and interest in
     the Boon's Camp Partnership, the BR Development 2001-II Partnership, the BR
     Development Plus 2000 Partnership and the BR Private Development 2001-A
     Partnership to Eagle Energy, Inc. (an unrelated company formed by the
     Company's former president) in exchange for a 1% interest in these four
     partnerships. In addition, the Company still retains its 25% ownership as a
     limited partner through its direct investment in the BR Development 2000
     Partnership. As noted above, there are 41 gas wells producing in these four
     partnerships.

UNDEVELOPED PROPERTIES

     Iowa Dome 3D Project: The Company owns a 50% working interest in 790 acres
     in two prospects located in Calcasieu and Jefferson Davis Parishes,
     Louisiana. There is one shallow gas prospect and one oil prospect. The
     Company has entered into joint participation agreements with several
     companies whereby they will reimburse the Company for certain acreage
     costs, pay the Company a prospect fee and pay the 50% drilling cost through
     casing point on each of the wells drilled. If an election is made to
     complete the wells, the Company will have a 12.5% working interest in each
     well.


                                       14

<PAGE>

                 MANAGEMENTS' DISCUSSION AND FINANCIAL ANALYSIS

Live Oak Project: The Company owns a 75% working interest in 800 acres (two
Shallow Prospects) and 1,840 acres (one Deep Prospects) in South Texas. The
Company has entered into joint participation agreements with two companies on
25% of the working interest whereby these companies will reimburse the Company
for certain acreage costs, pay a prospect fee and pay for 33.33% of the drilling
cost through casing point on the initial wells drilled on these three prospects.
The Company is in negotiation with other companies using these same terms for
the remaining working interest. If an election is made to complete each of the
initial wells, the Company will have an 18.75% working interest in each well. If
the initial wells on each prospect are successful, the Company will have an
18.75% working interest in any development well. There are potentially two or
more Shallow Prospects and two or more Deep prospects in this area that is being
evaluated by the Company and further acquisition of leases is under negotiation.

East Texas Project: Seven prospects have been identified in East Texas and
leasing of oil and gas rights began in late June 2005. This project is estimated
to contain about 5,000 acres with the Company owning 100% of the leasehold. In
the third quarter 2005, the Company negotiated to sell all of its interest on
the first prospects and retained an 8% carried working interest. The well on
this prospect was drilled in October 2005 and was a dry hole. Since October
2005, the Company has entered into joint participation agreements on three of
the remaining six prospects with BR Group, a related party, and another industry
partner whereby they will pay 100% of prospect cost, pay the Company a prospect
fee and pay 100% of the drilling cost through casing point on the initial well
in the prospect. If an election is made to complete the initial wells, the
Company will have a 25% working interest in each well. For any development wells
drilled on the prospects, the Company will have a 25% working interest. It is
anticipated that at least one well will be drilled in this area before year-end.
The second prospect currently has 318 acres leased with another 217 under
negotiation. The third prospect currently has 346 acres leased with another
1,558 under negotiation. Initial leasing activity has begun on the other
prospects.

McAllen Project: The Company has identified a prospect in South Texas containing
approximately 600 acres. The Company is reprocessing the seismic data in the
area, and if this data further substantiates the original data, leasing activity
will begin.

Texas Gulf Coast Project: The Company has leased 2,081 gross, 1,441 net, acres
in Wharton County, Texas. An exploratory well to test a Wilcox structure is
planned. The Company plans on entering into joint participation agreements with
other companies to further exploit the prospect.

The Company will follow its 2005 business plan strategy in developing these and
any other prospects. The Company intends to fund the lease acquisition and any
additional seismic costs needed to further define the prospects from existing
working capital. For each prospect, the Company will sell all of its working
interest in the prospect to outside or related parties, on the same terms,
whereby 1) it retains a certain carried working interest in the initial well
drilled, 2) it recoups 100% of the actual leasehold costs and any additional
seismic costs incurred and 3) it is paid a prospect fee for identifying the
prospect and bringing it to a drillable state. The reimbursement of costs, the
payment of the prospect fee and the future benefit of oil and gas revenue from
the carried working interest will provide the generation of cash needed to
operate the Company and fund additional projects.

The Company also intends to continue reviewing other undrilled acreage in East
Texas and the Texas and Louisiana Gulf Coast areas through its 3-D seismic data
base in order to generate prospects at the ground level. Another avenue of
participation is reviewing prospects generated by outside parties and if the
economics fit into the business plan, then participating in these projects.
Other areas of interest for acquiring prospects and drilling wells are North
Louisiana, West Texas and North Texas.


                                       15

<PAGE>

                 MANAGEMENTS' DISCUSSION AND FINANCIAL ANALYSIS

RESULTS OF OPERATIONS

THREE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

The Company had a net loss of $469,000 during the third quarter of 2005 compared
to net loss of $109,000 for the same period in 2004. The loss per common share,
which takes into account cash dividends paid on preferred stock, was $0.02 per
share during the third quarter of 2005 and $0.02 per share during the third
quarter of 2004. The major reasons, more fully explained below, for the $360,000
increase in loss are due to a decrease in oil and gas revenue offset by an
increase in management and prospect fee revenue, an increase in general and
administrative expenses and an increase in exploration costs.

OPERATING REVENUES

Operating revenues totaled $137,000 during the three months ended September 30,
2005, as compared to $145,000 during the three months ended September 30, 2004.
During the year, the Company has entered into three agreements to act as
operator of the wells to be drilled and received a management fee for these
services. In the third quarter of 2005, fees of $60,000 were recorded. In August
2005, the Company entered into a Participation Agreement with BR Group, a
related party, for one prospect in Anderson County, Texas, resulting in a
$40,000 prospect fee as revenue. Revenue from oil and gas sales decreased by
$109,000 due to production declines on several of the wells and due to the
Company's decision not to accrue revenue sales on two wells. The operator of
these wells has not remitted payment in over nine months and the Company has not
been able to establish contact with this operator. In past periods, the revenue
approximated $60,000 a quarter on these two wells.

DIRECT OPERATING COSTS

Direct operating costs totaled $5,000 during the three months ended September
30, 2005, as compared to $62,000 during the same period in 2004. The $57,000
decrease is due to lower severance taxes directly related to the decrease in oil
and gas sales and to lower lease operating expenses.

EXPLORATION COSTS

As a result of the prospecting for oil and gas which began after the acquisition
of the Echo 3D seismic data in July of 2004, exploration costs during the third
quarter of 2005 was $110,000. There were no such costs incurred during the
comparable period in 2004.

OTHER OPERATING EXPENSES

Marketing expense for the third quarter of 2005 was $17,000 with no such cost
during the same period in 2004. General and administrative expenses increased by
$282,000 to $407,000 during the third quarter of 2005, as compared to $125,000
during the same period in 2004. The major reason for the increase during the
third quarter of 2005 is the hiring of three additional professional people
earlier in the year and an increase in legal and auditing fees. Depreciation,
depletion and amortization decreased $11,000 due to revised estimates for the
current year.

OTHER EXPENSE

Interest expense increased to $10,000 during the third quarter of 2005 as
compared to $-0- during the third quarter of 2004 due to the note with BR Group
and a promissory note entered into in January 2005 to acquire computer software
for a land/lease system.

INCOME TAX PROVISION

Consistent with prior quarters, the Company did not record a provision for
income taxes due to the continued net losses incurred or available via the
federal income tax carry forward provisions. A valuation allowance continues to
be recorded due to the uncertainty regarding the Company's ability to utilize
the deferred tax assets.


                                       16

<PAGE>

                 MANAGEMENTS' DISCUSSION AND FINANCIAL ANALYSIS

NINE MONTHS ENDED SEPTEMBER 30, 2005 AND 2004

The Company had a net loss of $1,240,000 during the nine months ended September
30, 2005, as compared to a net loss of $635,000 for the same period in 2004. The
loss per common share, which takes into account cash dividends paid on preferred
stock, was $0.06 and $0.09 per share during the nine months ended September 30,
2005 and 2004, respectively. The major reasons, more fully explained below, for
the $605,000 increase in loss are due to a decrease in oil and gas revenue
offset by an increase in management fee and prospect fee revenue, an increase in
general and administrative expenses and an increase in exploration costs.

OPERATING REVENUES

Operating revenues totaled $438,000 during the nine months ended September 30,
2005, as compared to $406,000 during the nine months ended September 30, 2004.
During the year, the Company has entered into three agreements to act as
operator of the wells to be drilled and receives a management fee for these
services. In the nine months ended September 30, 2005, fees of $180,000 were
recorded. In August 2005, the Company entered into a Participation Agreement
with BR Group, a related party, for one prospect in Anderson County, Texas,
resulting in a $40,000 prospect fee as revenue. Revenue from oil and gas sales
decreased by $188,000 due to production declines during 2005 on several of the
wells and due to the Company's decision not to accrue revenue sales in the
second and third quarters of 2005 on two wells. The operator of these wells has
not remitted payment in over nine months and the Company has not been able to
establish contact with this operator. In past periods, the revenue sales
approximated $60,000 a quarter on these two wells.

DIRECT OPERATING COSTS

Direct operating costs totaled $73,000 during the nine months ended September
30, 2005, as compared to $149,000 during the same period in 2004. The $76,000
decrease is due to lower severance taxes directly related to the decrease in oil
and gas sales and lower lease operating expenses.

EXPLORATION COSTS

As a result of the prospecting for oil and gas which began after the acquisition
of the Echo 3D seismic data in July of 2004, exploration costs for the nine
months ended September 30, 2005 was $387,000. There were no such costs incurred
during the comparable period in 2004.

OTHER OPERATING EXPENSES

Marketing expenses increased to $28,000 during the nine months ended September
30, 2005, as compared to $-0- during this period in 2004. General and
Administrative expenses increased by $258,000 to $949,000 during the nine months
ended September 30, 2005 as compared to $691,000 during the same period in 2004.
The major reason for the increase during the nine months of 2005 is the hiring
of three additional professional people earlier in the year and an increase in
legal and auditing fees. Depreciation, depletion and amortization increased
$2,000 to $198,000 in 2005 from $196,000 in 2004. The $12,000 accretion expense
in 2005 is the result of recording capitalized retirement costs during the
second quarter of 2005.

OTHER EXPENSE

Interest expense increased to $30,000 during the nine months ended September 30,
2005 due to the note with BR Group and a promissory note entered into in January
2005 to acquire computer software for a land/lease system. There was no interest
expense incurred during the first nine months of 2004. The 2004 other expense of
$4,700 is related to unrecovered costs on the four partnerships transferred to
Eagle Energy, Inc., as previously discussed.

INCOME TAX PROVISION

Consistent with prior quarters, the Company did not record a provision for
income taxes due to the continued net losses incurred or available via the
federal income tax carry forward provisions. A valuation allowance continues to
be recorded due to the uncertainty regarding the Company's ability to utilize
the deferred tax assets.


                                       17

<PAGE>

                 MANAGEMENTS' DISCUSSION AND FINANCIAL ANALYSIS

CAPITAL RESOURCES AND FINANCIAL CONDITION

The Company's current ratio (current assets / current liabilities) was 1.9 to 1
at September 30, 2005 compared to 9.7 to 1 at December 31, 2004. The lower
current ratio for September 30, 2005 as compared to the ratio for December 31,
2004 was due primarily to expenditures for exploration (G&G) costs, the
acquisition of oil and gas leases and for general and administrative costs
offset by the funds raised in the private placement offering.

The Company's sources of cash during the first nine months of 2005 was the 2005
private placement stock offering, the exercise of warrants, management fee and
prospect fee revenue and oil and gas sales. The primary sources of cash in 2004
were $2,474,000, net of expenses, received from the private placement stock
offering as well as the sale of oil and gas production and short term advances
from BR Group.

During the past three quarters of 2005 and the prior year, the Company has
relied upon net inflows of cash generated by its operating activities, equity
offerings and short term advances from BR Group to fund the purchase of assets
and its expansion. Management intends to fund further growth with current cash
reserves, equity transactions and anticipated improved cash flows from
operations.

As discussed above under the 2005 private placement offering, the Company is
seeking additional funding from investors. Through November 10, 2005 the Company
has received $1,927,373 from the private placement offering and $400,000 from
the exercise of warrants. These funds are expected to provide sources of cash
for the Company to continue with its current business plan during the next
twelve months.

The accompanying financial statements have been prepared assuming the Company
will continue as a going concern, which contemplates the realization of assets
and the satisfaction of liabilities in the ordinary course of business. It is
management's opinion that the going concern basis of reporting its financial
position and results of operations is appropriate at this time. The Company has
obtained a resolution from Blue Ridge Group, Inc., a related party and the major
stockholder (see Note 3, Related Party, to financial statements), to provide the
necessary financial support for the Company through at least October 1, 2006.

Management has taken significant steps designed to address the financial
condition of the Company, to increase cash flows and to achieve improved
operating results, principally by implementing its new business plan and
initiating the 2005 private stock offering.

ITEM 3. CONTROLS AND PROCEDURES

As of the end of the period covered by this quarterly report, an evaluation was
performed under the supervision and with the participation of the Company's
management, including the Chief Executive Officer (the "CEO") and the Chief
Financial Officer (the "CFO"), of the effectiveness of the design and operation
of the disclosure controls and procedures. Based on that evaluation, The
Company's management, including the CEO and CFO, concluded that the disclosure
controls and procedures were effective. There have been no changes in these
internal controls over financial reporting that occurred during the quarter
ended September 30, 2005, that have materially affected, or are reasonably
likely to materially affect, our internal controls over financial reporting.


                                       18

<PAGE>

                                     PART II

                                OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

     There are no legal proceedings pending against the Company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

In 2005, the Company began an unregistered offering of a "United States Unit
Private Placement Subscription Agreement" pursuant to Section 4(2) of the
Security Act of 1933 and a "Non-U.S. and Non-Canadian Private Placement
Subscription Agreement" on an exempt private placement basis to eligible
accredited investors pursuant to Regulation S. The Subscriptions are of its own
issue at the price of $1.00 for each unit, with each unit consisting of one
common share and one non-transferable share purchase warrant with an exercisable
price of $1.75. Through September 30, 2005, the Company has received
subscriptions totaling 1,061,400 units with another 865,973 subscriptions units
received subsequent to this date. The Company anticipates closing this private
placement arrangement before December 31, 2005 by accepting the subscriptions
and issuing 1,927,373 common shares and issuing 1,927,373 warrants, with an
expiration date of two years after issuance.

During 2005, the Company received $400,000 upon the exercise of 800,000 warrants
at a price of $0.50 per share and issued 800,000 shares of Common Stock. The
warrants were issued in 2004 under Regulation S.

Over $1 million of the proceeds were used to purchase oil and gas leases with
the remainder used as working capital.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

     Not Applicable

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

ITEM 5. OTHER INFORMATION

On September 7, 2005, Harry J. Peters resigned as Chief Operating Officer of the
Company and remained a Director and Senior Vice President. Also, on September 7,
2005, the Board of Directors appointed Robert A. Kelley, Vice President of
Drilling and Production, as Senior Vice President and Chief Operating Officer.
Mr. Kelley joined the Company on April 25, 2005, and in his new position will
remain under the two year employment agreement effective on his hire date. By
letter dated November 1, 2005, Harry J. Peters announced his resignation
effective October 12, 2005, as Senior Vice President of the Company. Mr. Peters
will remain as a Director of the Company.

On October 28, 2005, James M. Stevens was appointed Senior Vice President of
Exploration.

ITEM 6. EXHIBITS

<TABLE>
<S>                 <C>
     Exhibit 10.1   Employment Contract of Senior Vice President-Finance
                    and Chief Financial Officer
     Exhibit 31.1   Chief Executive Officer's 302 Certification
     Exhibit 31.2   Chief Financial Officer's 302 Certification
     Exhibit 32.1   Chief Executive Officer's 906 Certification
     Exhibit 32.2   Chief Financial Officer's 906 Certification
</TABLE>


                                       19

<PAGE>

                                   SIGNATURES

     In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                        BAYOU CITY EXPLORATION, INC.


Date: November 11, 2005                 By /s/ Norman G. Haisler
                                           -------------------------------------
                                           Norman G. Haisler
                                           Senior Vice President-Finance &
                                           Chief Financial Officer


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