**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington,D. C. 20549**

# ** **

# **FORM10-Q/A**

 

**Amendment No. 1**

 
| **ý** | **QUARTERLY  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                        |
|------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|       |                                                                                                                                                                                                                                                                                                                                                                          |
|       | **For the quarterly period ended  March 31, 2004**                                                                                                                                                                                                                                                                                                                       |
|       |                                                                                                                                                                                                                                                                                                                                                                          |
| **OR**     |
|       |                                                                                                                                                                                                                                                                                                                                                                          |
| **o**      | **TRANSITION  REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                                                                                                       |
| ** ** | ** **                                                                                                                                                                                                                                                                                                                                                                    |
| ** ** | **For the transition period from                               to                            ** |

 

**Commission File Number 1-7796**

 

**TIPPERARYCORPORATION**

(Exact name of registrantas specified in its charter)

 

| **Texas**                                                        | ** ** | **75-1236955**                        |
|------------------------------------------------------------------|------------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
|                                                             |       |                                  |
| **633 Seventeenth Street, Suite 1550  Denver, Colorado**         | ** ** | **80202**                             |
| (Address of principal  executive offices)                        |       | (Zip Code)                            |

 

**(303)293-9379**

(Issuer’s telephonenumber)

 

Check whether the issuer (1) filed all reports required to be filed bySection 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (orfor 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  ý      No  o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).

Yes  o      No  ý

 

State the number of shares outstanding of each of the issuer’s classesof common stock, as of the latest practicable date.

 

| **Class**                     | ** ** | **Outstanding at May 11, 2004** |
|-------------------------------|------------|---------------------------------|
| Common Stock, $.02 par  value |       | 39,326,489 shares               |

 

 

----

 

**TIPPERARY CORPORATION ANDSUBSIDIARIES**

 

Index to Form 10-Q/A

 
| EXPLANATORY NOTE                    |                                                                                        |
|-------------------------------------|---------------------------------------------------------------------------------------------|
|                                |                                                                                        |
| PART I.  FINANCIAL INFORMATION |                                                                                        |
|                                |                                                                                        |   |
| Item 1.                             | Financial Statements                                                                        |   |
|                                |                                                                                        |   |
|                                | Consolidated Balance Sheets  March 31, 2004 and December 31, 2003                           |   |
|                                |                                                                                        |   |
|                                | Consolidated  Statements of Operations  Three months ended March 31, 2004 and 2003          |   |
|                                |                                                                                        |   |
|                                | Consolidated Statements  of Cash Flows  Three months ended March 31, 2004 and 2003          |   |
|                                |                                                                                        |   |
|                                | Notes to Consolidated  Financial Statements                                                 |   |
|                                |                                                                                        |   |
| Item 2.                             | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|                                |                                                                                        |   |
| Item  3.                            | Quantitative  and Qualitative Disclosure About Market Risk                                  |   |
|                                |                                                                                        |   |
| Item 4.                             | Controls and  Procedures                                                                    |   |
|                                |                                                                                        |   |
| PART II.  OTHER INFORMATION    |                                                                                        |
|                                |                                                                                        |   |
| Item 1.                             | Legal Proceedings                                                                           |   |
|                                |                                                                                        |   |
| Item 2.                             | Changes in Securities                                                                       |   |
|                                |                                                                                        |   |
| Item 6.                             | Exhibits and  Reports on Form 8-K                                                           |   |
|                                |                                                                                        |   |
| SIGNATURES                          |                                                                                        |
|                                |                                                                                        |
| EXHIBIT INDEX                       |                                                                                        |

 

----

 

EXPLANATORY NOTE

 

This Amendment No. 1 on Form 10-Q is being filed to amend Part I Item4. of the Company’s Quarterly Report on Form 10-Q for the quarterly period endedMarch 31, 2004, filed on May 14, 2004 (the “Original 10-Q”).  This Amendment No. 1 does not otherwise alterthe disclosures set forth in the Original 10-Q and does not reflect eventsoccurring after the filing of the Original 10-Q.  This Amendment No. 1 is effective for allpurposes as of the date of the filing of the Original 10-Q.

 

1

----

 

# **PART I - FINANCIALINFORMATION**

 

**Item 1. Financial Statements**

 

**TIPPERARYCORPORATION AND SUBSIDIARIES**

Consolidated BalanceSheets

($ in thousandsexcept per share data)

(unaudited)

 
| ** **                                                                                                                                                                                                             | ** ** | **March 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
|                                                                                                                                                                                                                   |       |                |       |                   |       |
| ASSETS                                                                                                                                                                                                                 |       |                |       |                   |       |
| Current assets:                                                                                                                                                                                                        |       |                |       |                   |       |
| Cash and cash  equivalents                                                                                                                                                                                             |       | $                   | 2,309      |                   | $          | 2,996 |   |
| Receivables                                                                                                                                                                                                            |       | 1,662               |       | 1,585                  |       |
| Other current  assets                                                                                                                                                                                                  |       | 208                 |       | 344                    |       |
| Total current  assets                                                                                                                                                                                                  |       | 4,179               |       | 4,925                  |       |
|                                                                                                                                                                                                                   |       |                |       |                   |       |
| Property, plant  and equipment, at cost:                                                                                                                                                                               |       |                |       |                   |       |
| Oil and gas  properties, full cost method                                                                                                                                                                              |       | 125,700             |       | 120,703                |       |
| Other property  and equipment                                                                                                                                                                                          |       | 4,598               |       | 4,431                  |       |
|                                                                                                                                                                                                                   |       | 130,298             |       | 125,134                |       |
|                                                                                                                                                                                                                   |       |                |       |                   |       |
| Less accumulated  depreciation, depletion and amortization                                                                                                                                                             |       | (8,464              | )          | (8,078                 | )          |
| Property, plant  and equipment, net                                                                                                                                                                                    |       | 121,834             |       | 117,056                |       |
|                                                                                                                                                                                                                   |       |                |       |                   |       |
| Deferred loan  costs                                                                                                                                                                                                   |       | 1,557               |       | 1,140                  |       |
| Other noncurrent  assets                                                                                                                                                                                               |       | 494                 |       | 487                    |       |
|                                                                                                                                                                                                                   |       | $                   | 128,064    |                   | $          | 123,608 |   |
|                                                                                                                                                                                                                   |       |                |       |                   |       |
| LIABILITIES AND STOCKHOLDERS’  EQUITY                                                                                                                                                                             |       |                |       |                   |       |
| Current  liabilities:                                                                                                                                                                                                  |       |                |       |                   |       |
| Accounts payable                                                                                                                                                                                                       |       | $                   | 2,713      |                   | $          | 1,883 |   |
| Accrued  liabilities                                                                                                                                                                                                   |       | 1,745               |       | 2,329                  |       |
| Royalties  payable                                                                                                                                                                                                     |       | 71                  |       | 75                     |       |
| Total current  liabilities                                                                                                                                                                                             |       | 4,529               |       | 4,287                  |       |
|                                                                                                                                                                                                                   |       |                |       |                   |       |
| Long-term debt                                                                                                                                                                                                         |       | 82,301              |       | 74,126                 |       |
| Long-term asset  retirement obligation                                                                                                                                                                                 |       | 277                 |       | 268                    |       |
| Commitments and  contingencies (Note 4)                                                                                                                                                                                |       |                |       |                   |       |
| Minority  interest                                                                                                                                                                                                     |       | 63                  |       | 418                    |       |
|                                                                                                                                                                                                                   |       |                |       |                   |       |
| Stockholders’  equity                                                                                                                                                                                             |       |                |       |                   |       |
| Preferred stock:                                                                                                                                                                                                       |       |                |       |                   |       |
| Cumulative; par  value $1.00; 10,000,000 shares authorized;  none issued                                                                                                                                               |       | —              |       | —                 |       |
| Non-cumulative,  par value $1.00; 10,000,000 shares authorized;  none issued                                                                                                                                           |       | —              |       | —                 |       |
| Common stock;  par value $.02; 50,000,000 shares authorized;  39,331,087 and 39,231,087 shares issued, and 39,321,489 and 39,221,489 shares  outstanding as of March 31, 2004 and December 31, 2003, respectively |       | 787                 |       | 785                    |       |
| Capital in  excess of par value                                                                                                                                                                                        |       | 150,299             |       | 149,970                |       |
| Accumulated  deficit                                                                                                                                                                                                   |       | (117,741            | )          | (113,315               | )          |
| Accumulated  other comprehensive income                                                                                                                                                                                |       | 7,574               |       | 7,094                  |       |
| Treasury stock,  at cost; 9,598 shares                                                                                                                                                                                 |       | (25                 | )          | (25                    | )          |
| Total  stockholders’ equity                                                                                                                                                                                       |       | 40,894              |       | 44,509                 |       |
|                                                                                                                                                                                                                   |       | $                   | 128,064    |                   | $          | 123,608 |   |

# ** **

See accompanying notes toConsolidated Financial Statements.

 

2

----

 

# **TIPPERARY CORPORATION AND SUBSIDIARIES**

Consolidated Statements of Operations

(in thousands,except per share data)

(unaudited)

 
| ** **                                                                | ** ** | **Three months ended  March 31,** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                | ** ** | **2004**                          | ** ** | **2003** | ** ** |
|                                                                      |       |                              |       |   |   |
| Revenues                                                                  |       | $                                 | 1,168      |   | $ | 1,341 |   |
|                                                                      |       |                              |       |   |   |
| Costs and  expenses:                                                      |       |                              |       |   |   |
| Operating                                                                 |       | 1,394                             |       | 957 |   |
| Depreciation,  depletion and amortization                                 |       | 251                               |       | 308 |   |
| Asset retirement  obligation accretion                                    |       | 9                                 |       | 6 |   |
| Impairment of  oil and gas properties                                     |       | 150                               |       | — |   |
| General and  administrative                                               |       | 2,044                             |       | 1,521 |   |
| Total costs and  expenses                                                 |       | 3,848                             |       | 2,792 |   |
| Operating loss                                                            |       | (2,680                            | )          | (1,451 | ) |
|                                                                      |       |                              |       |   |   |
| Other income  (expense):                                                  |       |                              |       |   |   |
| Interest and  other income                                                |       | 38                                |       | 7 |   |
| Interest expense                                                          |       | (2,136                            | )          | (1,305 | ) |
| Foreign currency  exchange loss                                           |       | (3                                | )          | (4 | ) |
| Total other  expense                                                      |       | (2,101                            | )          | (1,302 | ) |
| Loss before  income taxes                                                 |       | (4,781                            | )          | (2,753 | ) |
|                                                                      |       |                              |       |   |   |
| Income tax benefit                                                        |       | —                            |       | — |   |
| Loss before  minority interest and cumulative effect of accounting change |       | (4,781                            | )          | (2,753 | ) |
|                                                                      |       |                              |       |   |   |
| Minority  interest in loss of subsidiary                                  |       | 355                               |       | 84 |   |
| Loss before  cumulative effect of accounting change                       |       | (4,426                            | )          | (2,669 | ) |
|                                                                      |       |                              |       |   |   |
| Cumulative  effect of accounting change                                   |       | —                            |       | (46 | ) |
| Net loss                                                                  |       | $                                 | (4,426     | ) | $ | (2,715 | ) |
|                                                                      |       |                              |       |   |   |
| Net loss per  share basic and diluted                                     |       | $                                 | (.11       | ) | $ | (.07 | ) |
| Weighted average  shares outstanding basic and diluted                    |       | 39,321                            |       | 39,221 |   |

 

See accompanying notes toConsolidated Financial Statements.

 

3

----

 

# **TIPPERARY CORPORATION AND SUBSIDIARIES**

Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 
| ** **                                                                   | ** ** | **Three months ended  March 31,** | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                   | ** ** | **2004**                          | ** ** | **2003** | ** ** |
|                                                                         |       |                              |       |   |   |
| Cash flows from  operating activities:                                       |       |                              |       |   |   |
| Net loss                                                                     |       | $                                 | (4,426     | ) | $ | (2,715 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |       |                              |       |   |   |
| Depreciation,  depletion and amortization                                    |       | 251                               |       | 308 |   |
| Amortization of  deferred loan costs                                         |       | 127                               |       | 353 |   |
| Amortization of  deferred compensation                                       |       | 56                                |       | 3 |   |
| Minority  interest in loss of subsidiary                                     |       | (355                              | )          | (84 | ) |
| Asset retirement  obligation accretion                                       |       | 9                                 |       | 6 |   |
| Cumulative  effect of accounting change                                      |       | —                            |       | 46 |   |
| Impairment of  oil and gas properties                                        |       | 150                               |       | — |   |
| Changes in current  assets and current liabilities:                          |       |                              |       |   |   |
| Decrease  (increase) in receivables                                          |       | 182                               |       | (83 | ) |
| Decrease in  other current assets                                            |       | 131                               |       | 187 |   |
| Increase in  accounts payable and accrued liabilities                        |       | 169                               |       | 259 |   |
| Decrease in  royalties payable                                               |       | (4                                | )          | (21 | ) |
| Net cash used in  operating activities                                       |       | (3,710                            | )          | (1,741 | ) |
|                                                                         |       |                              |       |   |   |
| Cash flows from  investing activities:                                       |       |                              |       |   |   |
| Capital  expenditures                                                        |       | (4,209                            | )          | (4,553 | ) |
| Net cash used in  investing activities                                       |       | (4,209                            | )          | (4,553 | ) |
|                                                                         |       |                              |       |   |   |
| Cash flows from  financing activities:                                       |       |                              |       |   |   |
| Proceeds from  issuance of common stock on exercise of options               |       | 275                               |       | — |   |
| Proceeds from  borrowings                                                    |       | 7,568                             |       | 4,700 |   |
| Principal  repayments                                                        |       | —                            |       | (120 | ) |
| Decrease in  restricted cash                                                 |       | —                            |       | 359 |   |
| Payments for  deferred loan costs                                            |       | (495                              | )          | (12 | ) |
| Net cash provided  by financing activities                                   |       | 7,348                             |       | 4,927 |   |
|                                                                         |       |                              |       |   |   |
| Effect of  exchange rate changes on cash                                     |       | (116                              | )          | — |   |
|                                                                         |       |                              |       |   |   |
| Net decrease in  cash and cash equivalents                                   |       | (687                              | )          | (1,367 | ) |
|                                                                         |       |                              |       |   |   |
| Cash and cash  equivalents at beginning of period                            |       | 2,996                             |       | 1,725 |   |
|                                                                         |       |                              |       |   |   |
| Cash and cash  equivalents at end of period                                  |       | $                                 | 2,309      |   | $ | 358 |   |

 

See accompanying notes toConsolidated Financial Statements.

 

4

----

 

**TIPPERARY CORPORATION AND SUBSIDIARIES**

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS**

**(Unaudited)**

 

**NOTE 1 - OPERATIONS AND SIGNIFICANT ACCOUNTINGPOLICIES**

 

## Basis of Presentation

 

In the opinion of management, the accompanyingunaudited Consolidated Financial Statements reflect all adjustments, consistingonly of normal recurring adjustments, which are necessary for a fairpresentation of the financial position of Tipperary Corporation and itssubsidiaries (the “Company”) at March 31, 2004, and the results of itsoperations for the three-month periods ended March 31, 2004 and 2003 and theircash flows for the three-month periods ended March 31, 2004 and 2003. TheConsolidated Financial Statements include the accounts of Tipperary Corporationand its wholly-owned subsidiaries, Tipperary Oil and Gas Corporation and BurroPipeline Corporation, and its 90%-owned subsidiary, Tipperary Oil and Gas(Australia) Pty Ltd (“TOGA”).  Allintercompany balances have been eliminated. The accounting policies followed by the Company are included in Note 1to the Consolidated Financial Statements in its Annual Report on Form 10-K forthe year ended December 31, 2003.  Thesefinancial statements should be read in conjunction with the Form 10-K.

 

Impact of New Accounting Pronouncements

 

In January 2003, theFinancial Accounting Standards Board (“FASB”) issued InterpretationNo. 46, “Consolidation of Variable Interest Entities” (“FIN 46”) whichrequires the consolidation of variable interest entities, as defined. InDecember 2003, the FASB issued Interpretation No. 46R, “Consolidationof Variable Interest Entities—An Interpretation of ARB 51 (RevisedDecember 2003)” (“FIN 46R”), which also addresses consolidation bybusiness enterprises of variable interest entities. The adoption of FIN 46 andFIN 46R did not have a material effect on the Company’s Consolidated FinancialStatements.

 

## Asset Retirement Obligations

 

On January 1, 2003, the Company adopted SFAS No. 143, “Accounting forAsset Retirement Obligations” (“SFAS 143”), which provides accountingrequirements for retirement obligations associated with tangible long-livedassets, including the timing of liability recognition, initial measurement ofthe liability, allocation of asset retirement costs to expense, subsequentmeasurement of the liability, and financial statement disclosures.  SFAS 143 requires that asset retirement costsbe capitalized along with the cost of the related long-lived asset.  The asset retirement costs should then beallocated to expense using a systematic and rational method.  The Company has determined that it has assetretirement costs associated with wells drilled in Australia and the UnitedStates.  The Company also expects toincur retirement costs to dismantle two gas compression plant facilitieslocated in Australia.  The followingtable sets forth the changes in the asset retirement obligations:

 
| **(in thousands)**                                          | ** ** | ** ** | ** ** |
|-------------------------------------------------------------|------------|------------|------------|
| Beginning asset  retirement obligation at December 31, 2003 |       | $          | 268        |   |
| Asset retirement  obligation accretion                      |       | 9          |       |
| Asset retirement  obligation additions                      |       | —     |       |
| Payments on  asset retirement obligation                    |       | —     |       |
| Ending asset  retirement obligation at March 31, 2004  |       | $          | 277        |   |

 

5

----

 

Business Combinations andGoodwill and Intangible Assets

 

In June 2001, theFASB issued SFAS No. 141, “Business Combinations” (“SFAS 141”) andSFAS No. 142, “Goodwill and Intangible Assets” (“SFAS 142”).SFAS 141 and 142 became effective on July 1, 2001 and January 1,2002, respectively. SFAS 141 requires all business combinations initiatedafter June 30, 2001 to be accounted for using the purchase method.Additionally, SFAS 141 requires companies to disaggregate and reportseparately from goodwill certain intangible assets. SFAS 142 establishesnew guidelines for accounting for goodwill and other intangible assets. UnderSFAS 142, goodwill and certain other intangible assets are not amortized,but rather are reviewed annually for impairment. One interpretation that wasconsidered relative to these standards was that oil and gas mineral rights heldunder lease and other contractual arrangements representing the right toextract such reserves for both undeveloped and developed leaseholds should beclassified separately from oil and gas properties, as intangible assets on theCompany’s consolidated balance sheets.  InApril 2004, the Financial Accounting Standards Board amended SFAS Nos. 141 and142 and clarified the interpretation by defining mineral rights, such as oiland gas mineral rights, as tangible assets. Accordingly, the guidelines for accounting for intangible assets asprovided in SFAS 142 would not apply to oil and gas mineral rights.  In accordance with this new guideline, theCompany will continue to classify its contractual rights to extract oil and gasreserves as tangible oil and gas properties.

 

Stock-Based Compensation

 

SFAS Nos. 148 and No. 123 encourage, but do not require, companies torecord the compensation cost for stock-based employee compensation plans atfair value.  At March 31, 2004, theCompany had two stock-based employee option plans and warrants issued todirectors and employees.  The Company haschosen to continue to account for stock-based compensation using the intrinsicvalue method prescribed in Accounting Principles Board Opinion No. 25,“Accounting for Stock Issued to Employees,” (“APB 25”) and has applied thedisclosure provisions of SFAS Nos. 123 and 148. Accordingly, compensation cost for fixed stock options and warrants ismeasured as the excess, if any, of the quoted market price of the Company’sstock at the date of the grant over the amount an employee must pay to acquirethe stock.  Pro forma disclosures as ifthe Company had adopted the cost recognition provisions of SFAS Nos. 148 and123 are presented below:

 
| ** **                                                                                       | ** ** | **Three Months Ended March 31,**          | ** ** |
|--------------------------------------------------------------------------------------------------|------------|-------------------------------------------|------------|
| ** **                                                                                       | ** ** | **2004**                                  | ** ** | **2003** | ** ** |
| ** **                                                                                       | ** ** | **(in thousands, except per share data)** | ** ** |
|                                                                                             |       |                                      |       |   |   |
| Net loss, as  reported                                                                           |       | $                                         | (4,426     | ) | $ | (2,715 | ) |
| Add:                                                                                             |       |                                      |       |   |   |
| Total  compensation cost included in reported net loss, net of $0 tax                            |       | —                                    |       | — |   |
| Deduct:                                                                                          |       |                                      |       |   |   |
| Total  compensation cost determined under fair value based method for all awards,  net of $0 tax |       | (16                                       | )          | (37 | ) |
|                                                                                             |       |                                      |       |   |   |
| Pro forma net  loss                                                                              |       | $                                         | (4,442     | ) | $ | (2,752 | ) |
| Loss per share                                                                                   |       |                                      |       |   |   |
| Basic and  diluted—as reported                                                              |       | $                                         | (.11       | ) | $ | (.07 | ) |
| Basic and  diluted—pro forma                                                                |       | $                                         | (.11       | ) | $ | (.07 | ) |

 

6

----

 

RevenueRecognition and Gas Imbalances

 

The Company recognizesnatural gas and oil revenue from its interests in producing wells as naturalgas and oil are produced and sold from those wells. The Company uses the salesmethod of accounting for these revenues. Under the sales method, revenues arerecognized based on actual volumes sold to purchasers. With natural gasproduction operations, joint owners may take more or less than the productionvolumes entitled to them under the governing operating agreement. The Companyrecords a natural gas imbalance in other liabilities if its excess takes ofnatural gas exceed its remaining proved reserves for the property.  As of March 31, 2004, the Company had takenand sold more than its entitled share of natural gas volumes produced from theComet Ridge project, and was overproduced by approximately 1,669 MMcf (net ofroyalties). Based on the March 31, 2004 average sales price of $1.75 perMcf, this overproduction represents $2.9 million in gas revenues. Noliability has been recorded for the excess volumes taken, as they do not exceedthe Company’s share of remaining proved reserves. Under the terms of thegoverning gas balancing agreement, the Company may be required to reduce themonthly volumes it sells by up to 50% of its entitled share of sales, to enableunderproduced parties to sell more than their entitled share of the gas salesand cure the imbalance.

 

ForeignCurrency

 

The functional currencyof the Company’s Australian subsidiary, TOGA, is the Australian dollar. As thefunctional currency is the local currency, the current rate method is used totranslate Australian dollar financial statements into U.S. dollars for TOGA.All assets and liabilities are translated using current exchange rates, whilerevenues and expenses are translated at rates in existence when thetransactions occurred. The translation adjustment that results from usingvarying rates in the translation process is reported as a component of othercomprehensive income (loss) and is accumulated and reported as a separate componentof stockholders’ equity in the Company’s Consolidated Financial Statements.

 

The cumulative foreigncurrency translation adjustment (net of $0 tax) as of March 31, 2004 andDecember 31, 2003 totaled $7.6 million and $7.1 million,respectively.

 

Comprehensive Loss

 

The following table sets forth the comprehensive loss for the threemonths ended March 31, 2004 and 2003 (in thousands):

 
| ** **                               | ** ** | **2004** | ** ** | **2003** | ** ** |
|------------------------------------------|------------|----------|------------|----------|------------|
| Net loss                                 |       | $        | (4,426     | )        | $          | (2,715 | ) |
| Other  comprehensive income:             |       |     |       |     |       |
| Foreign currency  translation adjustment |       | 480      |       | —   |       |
| Comprehensive  loss                      |       | $        | (3,946     | )        | $          | (2,715 | ) |

 

#### Liquidityand Operations

 

The Company anticipates funding operations and capital expenditures inAustralia for the remainder of 2004 using (a) a commitment from Slough EstatesUSA Inc. ("Slough"), the Company’s majority shareholder, to providefunds for working capital, board-approved capital expenditures and operationsuntil such time as (b) funds from a $150 million AUD (approximately $114million USD) project financing facility becomes available.  The Company anticipates the project financingfacility will close in the second quarter of 2004.

 

The Company anticipates funding operations and capital expenditures inthe United States for 2004 using (a) cash on hand at March 31, 2004 and (b) acommitment from Slough to provide funds for working capital, board-approvedcapital expenditures and operations through April 2005.

 

In order to fund discretionary domestic capital expenditures in 2004 inexcess of these cash resources, the Company contemplates that it will requirealternative sources of capital. Potential additional sources of funding may include additional debtfinancings and asset sales.  With thesale of interests in its prospective acreage, the Company expects to generatecash to reduce its investment in individual projects.  However, in the event that sufficient fundingcannot be obtained, the Company will be required to curtail plannedexpenditures and may have to sell additional acreage and/or relinquish acreage.

 

7

----

 

**NOTE 2 - RELATED PARTY TRANSACTIONS**

 

At March 31, 2004,the Company owed Slough and Slough Trading Estates Limited (“STEL”), a UnitedKingdom company which is the parent of Slough, approximately$82.3 million.

 

In December 2003, SloughEstates plc, STEL’s parent, agreed to guarantee a project financing facilityexpected to close in the second quarter of 2004.  As consideration for the guarantee, theCompany will pay 1% per annum on the daily outstanding balance of the debt guaranteed.

 

In August 2003, TOGAborrowed $29.7 million ($45 million Australian) from STEL for thesole purpose of paying off a $22 million long-term debt owed TCW AssetManagement Company (“TCW”) and to substantially fund a $7.7 million repurchaseof the 6% overriding royalty held by TCW on the Company’s Comet Ridgeproperties.  The STEL loan bears interestat 13% per annum and is due June 2, 2005. An arrangement fee of $250,000 USD was paid to STEL in connection withthis loan. The loan’s stated currency is Australian dollars. The U.S. dollarvalue of the loan principal as of March 31, 2004 was $34.1 million.

 

As of March31, 2004, the Company had two credit facility agreements with STELallowing the Company to borrow on an unsecured basis up to $11.5 millionUSD and $45.0 million AUD for its U.S. and Australian operations,respectively.  As of April 8, 2004, theborrowing limit of the Australian operations credit facility was increased to$50.0 million AUD.  Using borrowings fromthese credit facilities, the Company substantially funded its operating andcapital needs in the United States and Australia during 2003 and through thefirst quarter of 2004. The Company may repay the loans in whole or in partwithout prepayment penalties. Both credit facilities bear interest at 13% perannum and are due April 2, 2012.  STELmay demand repayment prior to the maturity date provided that STEL gives18-months notice. The Company is limited in taking on any additional thirdparty indebtedness, either secured or unsecured, or making a priority paymentin respect of any obligation without first obtaining written approval from STELso long as the STEL indebtedness exists. In connection with these creditfacilities, the Company paid STEL arrangement fees of $40,000 USD and $100,000AUD, respectively. The U.S. dollar values of the outstanding balances of thesefacilities as of March 31, 2004 were $10.0 million and$34.2 million, respectively.

 

In 2002, the Companyborrowed $4 million from Slough which is evidenced by a note payable thatbears interest at LIBOR plus 3.5% (4.62% as of March 31, 2004) and ispayable in full on April 30, 2005.

 

8

----

 

**NOTE 3 - LOSS PER SHARE**

 

The following table sets forth the computation of basic and dilutedloss per share (“EPS”) (in thousands except per share data):

 
| ** **                                                                                                                                        | ** ** | **Three Months Ended March 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------------------------------|------------|
| ** **                                                                                                                                        | ** ** | **2004**                         | ** ** | **2003** | ** ** |
| Numerator:                                                                                                                                        |       |                             |       |   |   |
|                                                                                                                                              |       |                             |       |   |   |
| Net loss                                                                                                                                          |       | $                                | (4,426     | ) | $ | (2,715 | ) |
|                                                                                                                                              |       |                             |       |   |   |
| Denominator:                                                                                                                                      |       |                             |       |   |   |
| Weighted-average  shares outstanding                                                                                                              |       | 39,321                           |       | 39,221 |   |
| Effect of  dilutive securities:                                                                                                                   |       |                             |       |   |   |
| Assumed exercise  of dilutive options and warrants                                                                                                |       | —                           |       | — |   |
| Weighted-average  shares and dilutive potential common shares                                                                                     |       | 39,321                           |       | 39,221 |   |
|                                                                                                                                              |       |                             |       |   |   |
| Basic and  diluted loss per share                                                                                                                 |       | $                                | (.11       | ) | $ | (.07 | ) |
|                                                                                                                                              |       |                             |       |   |   |
| Potentially  dilutive common stock from the exercise of options and warrants not included  in EPS because the effect would have been antidilutive |       | 1,285                            |       | 75 |   |
|                                                                                                                                              |       |                             |       |   |   |
| Total options  and warrants which could potentially dilute basic EPS in future periods                                                            |       | 3,523                            |       | 3,573 |   |

 

**NOTE 4 - COMMITMENTS AND CONTINGENCIES**

 

The Company, TOGA and twounaffiliated working interest owners are plaintiffs in a lawsuit filed in 1998,styled *Tipperary Corporation and TipperaryOil & Gas (Australia) Pty Ltd v. Tri-Star Petroleum Company,James H. Butler, Sr., and James H. Butler, Jr.*, CauseNo. CV42,265, District Court of Midland County, Texas involving the CometRidge project. The plaintiffs allege, among other matters, that Tri-Star and/orthe individual defendants failed to operate the project in a good andworkmanlike manner and committed various other breaches of a joint operatingcontract, breached a previous mediation agreement, committed certain breachesof fiduciary and other duties owed to the plaintiffs, and committed fraud inconnection with the project.  Tri-Starhas answered the allegations, and filed amended pleadings on April 6, 2004,denying liability and raising a number of affirmative defenses.  Tri-Star also amended its counterclaim toinclude claims for various breaches of the joint operating contract by theCompany and TOGA, other breaches of duties, forfeiture of acreage and unjustenrichment.  Tri-Star has also requestedforeclosure of operator’s liens, modification and reformation of the jointoperating contract.  TOGA has operatedthe project since March 2002, after the court entered its Writ ofTemporary Injunction (the “Injunction”) to enforce the votes of amajority-in-interest of the parties under the joint operating agreement toremove Tri-Star as operator and replace it with TOGA.  All available appeals of the Injunction havebeen exhausted and TOGA will continue as operator of the Comet Ridge Project atleast through the conclusion of a trial on the merits, and thereafter ifsuccessful at trial.

 

In June 2002, theDistrict Court ruled as unenforceable the arbitration provisions of theexisting mediation agreement between the parties. The Eighth District Court ofAppeals affirmed the action of the District Court, and on April 9, 2004, theTexas Supreme Court denied Tri-Star’s Petition for Review and Petition for Writof Mandamus.  With the exception of aMotion for Reconsideration which may be filed, all available appeals of thearbitration issues have been exhausted. The case is set for trial beginning the week of September 27, 2004.Both the Company and Tri-Star have filed motions for summary judgment whichwould be dispositive of some pending claims. On May 7, 2004, Tri-Star and the individual defendants filed a motion torecuse or disqualify the presiding judge of the Midland Court which wasdenied.  In accordance with Texas law,the motion was assigned to another judge for hearing, which is set for May 19,2004.  The presiding judge may not ruleon any pending matters until the recusal motion is resolved.  It is not yet known whether the recusalmotion will delay the hearing on the summary judgment motions.

 

In August 2003, theDistrict Court heard the Company’s Motion to Compel Compliance with AmendedWrit of Temporary Injunction. On October 1, 2003, the Court signed anOrder finding that Tri-Star willfully disobeyed the Injunction, orderingTri-Star to cooperate with the Operator and, among other things, to execute apower of attorney to allow the Company to deal directly with the Department ofNatural Resources and Mines in Queensland, and the surface owners, on matters

 

9

----

 

pertaining to the CometRidge Project. Tri-Star filed objections to the power of attorney. InJanuary 2004, the Court conducted a show cause hearing to determinewhether sanctions for Tri-Star’s past violations of the Injunction, andconditional sanctions to deter future violations, should be imposed and heard aTri-Star motion to increase the amount of the bond securing the injunction from$500,000 to $1.0 million and objections to the power of attorney. OnMarch 8, 2004, the Court ruled that the bond will not be increased anddenied Tri-Star’s objections to the power of attorney. The Court has not yetruled on sanctions against Tri-Star. Tri-Star unsuccessfully appealed the October ruling to the EighthDistrict Court of Appeals, and then filed a Petition for Review and Petitionfor Writ of Mandamus in the Texas Supreme Court.  The Company filed response briefs andrequested sanctions against Tri-Star. Hearing the case is discretionary in the Texas Supreme Court, and theCourt has made no decision, at this time, on whether to accept review.

 

**NOTE 5 - OPERATIONS BY GEOGRAPHIC AREA**

 

Segment information has been prepared in accordance with SFAS No. 131,“Disclosures About Segments of an Enterprise and Related Information.”  The Company has two geographic reportingsegments within the oil and gas exploration, development and productionindustry, Australia and the United States. General and administrative expense, interest expense and interest andother income are not allocated to segments. The segment data presented below was prepared on the same basis as theConsolidated Financial Statements. Reportable business segment information as of March 31, 2004 and 2003,and for the three months ended March 31, 2004 and 2003 is as follows (inthousands):

 

**As of and for the three months ended March 31,2004**

** **
| ** **                          | ** ** | **Gas and Oil Operations** | ** ** | **Non-  Segmented  Items(1)** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|----------------------------|------------|-------------------------------|------------|------------|------------|
| ** **                          | ** ** | ** **                 | ** ** | **United  States**            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Australia**              | ** ** | ** **                    | **Total**  | ** ** | ** ** | **Total** | ** ** |
| Revenues                            |       | $                          | 1,166      |                          | $          | 2          |       | $ | 1,168 |   | $ | — |   | $ | 1,168 |   |
| Loss before  income taxes           |       | (215                       | )          | (407                          | )          | (622       | )          | (4,159 | ) | (4,781 | ) |
| Property, plant  and equipment, net |       | 113,903                    |       | 7,510                         |       | 121,413    |       | 421 |   | 121,834 |   |
|                                     |            |                            |            |                               |            |            |            |  |  |  |  |  |  |  |  |  |

 

----

(1)               Loss before incometaxes reconciling items includes $2.0 million of general and administrativeexpenses, $14,000 of corporate depreciation and $2.1 million of interestexpense.  Property, plant and equipment,net, includes $421,000 of corporate office equipment, computer hardware andsoftware.

 

**As of andfor the three months ended March 31, 2003**

 
| ** **                          | ** ** | **Gas and Oil Operations** | ** ** | **Non-  Segmented  Items(1)** | ** ** | ** ** | ** ** |
|-------------------------------------|------------|----------------------------|------------|-------------------------------|------------|------------|------------|
| ** **                          | ** ** | ** **                 | ** ** | **United  States**            | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                          | ** ** | **Australia**              | ** ** | ** **                    | **Total**  | ** ** | ** ** | **Total** | ** ** |
|                                |       |                       |       |                          |       |       |       |   |   |   |   |
| Revenues                            |       | $                          | 1,338      |                          | $          | 3          |       | $ | 1,341 |   | $ | — |   | $ | 1,341 |   |
| Income (loss)  before income taxes  |       | 245                        |       | (163                          | )          | 82         |       | (2,835 | ) | (2,753 | ) |
| Property, plant  and equipment, net |       | 68,981                     |       | 8,745                         |       | 77,726     |       | 392 |   | 78,118 |   |
|                                     |            |                            |            |                               |            |            |            |  |  |  |  |  |  |  |  |  |

 

----

(1)               Loss before incometaxes reconciling items includes $1.5 million of general and administrativeexpenses, $12,000 of corporate depreciation and $1.3 million of interestexpense.  Property, plant and equipment,net, includes $392,000 of corporate office equipment, computer hardware andsoftware.

 

10

----

 

**NOTE 6- PROPERTY, PLANT AND EQUIPMENT**

 

A summary ofproperty, plant and equipment follows:

 

| ** **                                                 | ** ** | **March 31,  2004** | ** ** | **December 31,  2003** | ** ** |
|------------------------------------------------------------|------------|---------------------|------------|------------------------|------------|
| ** **                                                 | ** ** | **(in thousands)**  | ** ** |
| Evaluated oil  and gas properties:                         |       |                |       |                   |       |
| Australian  properties                                     |       | $                   | 107,220    |                   | $          | 105,264 |   |
| Domestic  properties                                       |       | —              |       | —                 |       |
| Unevaluated oil  and gas properties:                       |       |                |       |                   |       |
| Australian  properties                                     |       | 10,970              |       | 9,221                  |       |
| Domestic  properties                                       |       | 7,510               |       | 6,218                  |       |
| Oil and gas  properties                                    |       | 125,700             |       | 120,703                |       |
| Other property  and equipment                              |       | 4,598               |       | 4,431                  |       |
|                                                       |       | 130,298             |       | 125,134                |       |
| Less accumulated  depreciation, depletion and amortization |       | (8,464              | )          | (8,078                 | )          |
| Property, plant  and equipment, net                        |       | $                   | 121,834    |                   | $          | 117,056 |   |

 

**NOTE 7 – STATEMENT OF CASH FLOWS SUPPLEMENTALINFORMATION**

** **

| ** **                                         | ** ** | **Three Months Ended  March 31,** | ** ** |
|----------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                         | ** ** | **2004**                               | ** ** | **2003** | ** ** |
| ** **                                         | ** ** | **(in thousands)**                     | ** ** |
|                                               |       |                                   |       |   |   |
| Cash paid during  the period for interest          |       | $                                      | 2,418      |   | $ | 685 |   |
| Non-cash  investing and financing activities— |       |                                   |       |   |   |
| Net increase in  payables for capital expenditures |       | $                                      | 177        |   | — |   |
|                                                    |            |                                        |            |  |  |  |  |

 

11

----

 

**Item 2.****           Management’sDiscussion and Analysis**

 

Information within this report containsforward-looking statements within the meaning of the Private SecuritiesLitigation Reform Act of 1995 that are based on management’s beliefs,assumptions, current expectations, estimates and projections about the oil andgas industry, the world economy and about the Company itself.  Words such as “may,” “will,” “expect,”“anticipate,” “estimate” or “continue,” or comparable words are intended toidentify such forward-looking statements. In addition, all statements otherthan statements of historical facts that address activities that the Companyexpects or anticipates will or may occur in the future are forward-lookingstatements.  These statements are not guaranteesof future performance and involve certain risks, uncertainties and assumptionsthat are difficult to predict with regard to timing, extent, likelihood anddegree of occurrence.  Therefore, actualresults and outcomes may materially differ from what may be expressed orforecasted in such forward-looking statements. Furthermore, the Companyundertakes no obligation to update, amend or clarify forward-lookingstatements, whether as a result of new information, future events or otherwise.Readers are encouraged to read the SEC filings of the Company, particularly itsForm 10-K for the year ended December 31, 2003, for meaningful cautionarylanguage and discussion of risk factors disclosing why actual results may varymaterially from those anticipated by management.

 

***Overview***

 

*Australia*

 

The Company’s activities in Australia are conductedsubstantially through Tipperary Corporation’s 90%-owned Australian subsidiary,Tipperary Oil & Gas (Australia) Pty Ltd (“TOGA”).  As of March 31, 2004, the Company owned a 73%undivided capital bearing interest in the Comet Ridge project in Queensland,Australia.  This project comprisesapproximately 1,230,500 acres in the Bowen Basin, which includes five petroleumleases covering approximately 288,000 acres, Authority to Prospect (“ATP”) 526covering approximately 712,000 acres, ATP 653 covering approximately 96,000acres and ATP 745 covering approximately 135,000 acres.  Nearby the Comet Ridge project, the Companyholds a 100% interest of approximately 77,000 acres comprising ATP 655.

 

An ATP allows the holder to undertake a range ofexploration activities, including geophysical surveys, field mapping andexploratory drilling. Each ATP requires the expenditure of an amount ofexploration costs as determined by Queensland’s Department of Natural Resourcesand Mines (“Queensland DNRM”) and is subject to renewal every four years. Oncea petroleum resource is identified, the holder of an ATP may apply for apetroleum lease, which provides the lessee with the ability to conductadditional exploration, development and production activities.

 

The Company is in correspondence with the QueenslandDNRM about surface access issues on portions of ATP 526 and as a consequence isnot certain of its 2004 work commitment for ATPs 526 and 653.  The ATP 526 expenditure requirements net tothe Company’s interest will be $3 million or less for a drilling program and $2million or less for a seismic program. The ATP 653 expenditure requirements net to the Company’s interest willbe $3 million or less for a drilling program. During 2004, ATPs 655 and 745 have expenditure requirements totalingapproximately $1.4 million net to the Company’s interest.  The Company expects to meet theserequirements by conducting seismic operations and exploratory drilling. ATPs526, 653, 655 and 745 have initial terms expiring on October 31, 2004,  September 30, 2006, October 31, 2007 andOctober 31, 2007, respectively.  Uponexpiration of an ATP, the stated policy of the Queensland DNRM allows the ATPholder to renew the ATP for an additional four year exploratory period andgenerally requires the holder to relinquish a 20 percent portion of ATP acreagenot held by a petroleum lease.  TheCompany is currently negotiating with the Queensland DNRM regarding the amountof ATP 526 acreage that will be subject to the relinquishment provisions as itsterm expires October 31, 2004.

 

12

----

 

The Company’s gas marketing in eastern Australia isfocused currently on obtaining long-term gas sales agreements that provide fiveto 15 years of firm sales typically starting in 2006 to 2008.  Secondary, short-term sales contracts for2004 and 2005 are also being pursued. Sales growth is estimated by the Company to be limited in the near term,escalating to 17 Bcf net or more per annum in 2008.  The Company anticipates spendingapproximately $30 million over the next three years on development drilling andexpansion of delivery facilities to increase the Company’s annual salesdeliverability to approximately 24 Bcf net by 2008.

 

The followingtable summarizes field development progress on the Comet Ridge project as ofMarch 31, 2004.  In December 2003, theCompany began using its second compression plant facility, which increased thefield’s gas compression capacity to approximately 38 million cubic feet(“MMcf”) per day.

 

**CometRidge Operations Review**

** **

| ** **                         | ** ** | **March 31,  2004** | ** ** |
|------------------------------------|------------|--------------------------|------------|
| **Well  Status (Number of Wells)** |       |                     |       |
| Selling                            |       | 46                       |       |
| Dewatering or  temporarily shut-in |       | 32                       |       |
| Producing                          |       | 78                       |       |
| Being evaluated                    |       | 19                       |       |
| To be plugged  and abandoned       |       | 2                        |       |
| Plugged and  abandoned             |       | 3                        |       |
| Total drilled                      |       | 102                      |       |
|                               |       |                     |       |
| **Gross  Daily Volumes (MMcf)**    |       |                     |       |
| Sold                               |       | 10                       |       |
| Flared                             |       | 6                        |       |
| Used for  compression fuel         |       | 2                        |       |
| Produced                           |       | 18                       |       |

 

The Company drilled two exploratory wells on the CometRidge project during the first quarter of 2004. The 2004 drilling was substantially funded with borrowings from SloughTrading Estates Limited (“STEL”).  TheCompany is actively pursuing short-term gas contracts to reduce the amount offlared gas.

 

During the first quarter of 2004, 100% of theCompany’s gas sales in Australia were under a five-year contract effective June1, 2000 with ENERGEX Retail Pty Ltd (“ENERGEX”), an unaffiliated customer.  The ENERGEX contract has deliveryrequirements of up to approximately 15,000 Mcf of gas per day.  In December 2002, the Company signed a gassupply term sheet with Origin Energy Retail Limited (“OERL”), a subsidiary ofOrigin Energy Limited, to supply approximately 9 Bcf per year, or approximately25,000 Mcf of gas per day net to the Company’s interests, for 13 yearsbeginning May 2007.  Origin Energy Limited is a large Australianintegrated energy company which, through subsidiaries, owns nearly 24% of theComet Ridge project.

 

Effective March 31, 2004, the Company and Queensland Fertilizer AssetsLimited (“QFAL”) extended until September 30, 2004 the Company’s gas salesagreement with QFAL to supply 210 Bcf of gas to QFAL over a 20-year periodbeginning in early 2007 to a fertilizer plant QFAL is proposing to construct insoutheastern Queensland.

 

13

----

 

***United States***

 

*Lay Creek* — The Company holds a50% working interest in Lay Creek, a coalseam gas project located in MoffatCounty, Colorado. The project includes various leasehold interests coveringover 82,000 gross acres. Koch Exploration Company (“Koch”), an unaffiliatedthird party, holds the remaining 50% working interest and operates theproject.  The Company is currentlyevaluating the gas and water production from two five-well pilot programsdrilled in 2001 and 2002 in order to determine economic viability of theproduction.  The Company and Koch drilledfour additional pilot wells offsetting one of the five-well pilot programsduring the period from December 2003 through February 2004 at a cost to theCompany of $1.0 million.  The Companyexpects the four new wells will begin dewatering in late May.

 

*Frenchman* — The Company holds a25% interest in the Frenchman prospect in eastern Colorado.  Total gross acreage in the prospect isapproximately 162,000 acres.  Kerr-McGeeRocky Mountain Corporation (“Kerr-McGee”) holds the remaining 75% interest andis the operator of the prospect.  During2003, five wells were drilled on the Frenchman prospect.  Three of these wells were completed and twowere plugged and abandoned.  In early2004, the Company drilled two additional Frenchman wells in which Kerr-McGeeelected not to participate.  The Companybelieves one of these 100% wells will be a commercial producer and the Companywill earn 100% of offsetting drill sites around the well bore as set forth inthe operating agreement the Company has with Kerr-McGee.  The Company plugged and abandoned the otherwell drilled.  In the first quarter of2004, the Company recorded an asset impairment expense of $150,000 related tounsuccessful exploration costs incurred on wells on the Frenchmanprospect.  The Company and Kerr-McGee areevaluating the economics of connecting the successfully completed wells tonearby pipelines.

 

*Republican* — The Company holds a20% interest in the Republican prospect in eastern Colorado.  Total gross acreage in the prospect isapproximately 170,000 acres.  Kerr-McGeeholds the remaining 80% interest and is the operator of the prospect.  Three wells were drilled on the Republicanprospect in March and April of 2004, and the economics of connecting thesewells to nearby pipelines are being evaluated. At least seven wells on the Republican prospect are expected to bedrilled in 2004 at a cost to the Company of approximately $280,000.

 

*Stateline* — The Company holds a25% interest in the Stateline prospect in western Nebraska.  Total gross acreage in the prospect isapproximately 120,000 acres.  Lance Oil& Gas Company, Inc. (“Lance”) holds the remaining 75% interest and is theoperator of the prospect.  In the firsthalf of 2004, preliminary seismic operations are being conducted at a cost tothe Company of approximately $100,000. Further seismic operations and exploratory drilling may be conducted ifthe results of the current seismic survey are encouraging.

 

*Sand Hill* — During late 2003, theCompany acquired leasehold acreage in western Nebraska totaling approximately51,000 gross acres, which is referred to as the Sand Hill prospect.  This acreage is located in the vicinity of theCompany’s Frenchman, Republican and Stateline prospects.  The Company is actively marketing the SandHill prospect and plans to sell an interest to recover its investment andretain an interest in this acreage.

 

*Nine Mile* — The Company holds a70% interest in the prospective acreage and 40% interest in the outlyingacreage of the Nine Mile prospect, a conventional oil and gas explorationprospect, also located in Moffat County, Colorado, and is the operator of theprospect.  The prospect comprisesapproximately 38,000 gross acres.  TheCompany is currently evaluating exploratory work performed in 2002 and 2003 andis seeking industry partners before resuming exploratory activity.

 

***Financial Condition, Liquidity and Capital Resources***

 

The Company had cash and cash equivalents of $2.3 million as of March31, 2004, compared to approximately $3.0 million as of December 31, 2003.  The Company has funded operations and capitalexpenditures for the three months ended March 31, 2004, using primarily (a)$3.0 million of cash on hand at December 31, 2003 and (b) borrowings from STEL.

 

14

----

 

The Company anticipates funding operations and capital expenditures inAustralia for the remainder of 2004 using (a) a commitment from Slough toprovide funds for working capital, board-approved capital expenditures andoperations until such time as (b) funds from a $150 million AUD (approximately$114 million USD) project financing becomes available.  The Company anticipates the project financingfacility will close in the second quarter of 2004.

 

The Company anticipates funding operations andcapital expenditures in the United States for 2004 using (a) cash on hand atMarch 31, 2004 and (b) a commitment from Slough to provide funds for workingcapital, board-approved capital expenditures and operations through April 2005.

 

In order to fund discretionary capital expenditures in 2004 in excessof these cash resources, the Company contemplates that it will requirealternative sources of capital. Potential additional sources of funding may include additional debtfinancings and asset sales.  With thesale of interests in its prospective acreage, the Company expects to generatecash to reduce its investment in individual projects.  However, in the event that sufficient fundingcannot be obtained, the Company will be required to curtail plannedexpenditures and may have to sell additional acreage and/or relinquish acreage.

 

Net cash used by operating activities was $3.7 million during the threemonths ended March 31, 2004, compared to $1.7 million of cash used during thesame period last year.  The increase innet cash used for operations in the first quarter of 2004 compared with thesame period in 2003 resulted primarily from (a) lower gas revenues (b) higher interest expense on debt used to fundproperty acquisition, exploration and development and (c) higher operatingcosts and general and administrative expenses.

 

The table below provides an analysis of capital expenditures of $4.2million during the three months ended March 31, 2004.

 

**Capital Expenditures Activity**

**(in thousands)**

 
| Australia:                            |   |   |   |
|---------------------------------------|--------|--------|--------|
| Comet Ridge  drilling and completion  |   | $      | 2,201  |   |
| Comet Ridge  facilities and equipment |   | 155    |   |
| Other                                 |   | 409    |   |
| Domestic:                             |   |   |   |
| Leasehold  acquisitions               |   | 441    |   |
| Lay Creek drilling  and completion    |   | 714    |   |
| Other drilling  and completion        |   | 289    |   |
|                                  |   |   |   |
| Total                                 |   | $      | 4,209  |   |

 

Included within the first quarter 2004 capital spending was $421,000 ofcapitalized interest expense associated with the Company’s Australian anddomestic properties.  Capitalexpenditures for the first quarter in 2004 were funded principally under TOGA’scredit facility with STEL.

 

15

----

 

***Results of Operations - Comparison of the Three Months Ended March 31,2004 and 2003***

 

The Company incurred a net loss of $4.3 million forthe three months ended March 31, 2004 compared to a net loss of $2.7 millionfor the three months ended March 31, 2003. The greater net loss for the three months ended March 31, 2004 wasprimarily due to higher interest expense on debt used to fund propertyacquisitions and exploratory costs and higher operating costs and general andadministrative expenses.  The table belowprovides a comparison of operations for the three months ended March 31, 2004 withthose of the prior year’s quarter.  Thetable is intended to provide a comparative review of significant operationalitems.  Accordingly, nominal differencesmay exist from the amounts presented in the accompanying Consolidated FinancialStatements.  Certain prior period amountsmay have been reclassified to ensure comparability.

 
| ** **                                                       | ** ** | **Three Months Ended  March 31,**                                  | ** ** | **Increase  (Decrease)** | ** ** | **%****Increase  (%Decrease)** | ** ** |
|------------------------------------------------------------------|------------|--------------------------------------------------------------------|------------|--------------------------|------------|--------------------------------|------------|
| ** **                                                       | ** ** | **2004**                                                           | ** ** | **2003**                 | ** ** | ** **                     | ** ** |
| ** **                                                       | ** ** | **($ in thousands, except average per Mcf prices and costs)** | ** ** |
| **Worldwide  operations:**                                       |       |                                                               |       |                     |       |                           |       |   |   |
|                                                             |       |                                                               |       |                     |       |                           |       |   |   |
| Operating  revenue                                               |       | $                                                                  | 1,168      |                     | $          | 1,341                          |       | $ | (173 | ) | (13)% |   |
| Gas volumes  (MMcf)                                              |       | 651                                                                |       | 1,012                    |       | (361                           | )          | (36)% |   |
| Average gas  price per Mcf                                       |       | $                                                                  | 1.79       |                     | $          | 1.33                           |       | $ | 0.46 |   | 35% |   |
| Operating  expenses                                              |       | $                                                                  | 1,394      |                     | $          | 957                            |       | $ | 437 |   | 46% |   |
| Average lifting cost per Mcf equivalent (“Mcfe”) sold  |       | $                                                                  | 2.14       |                     | $          | 0.94                           |       | $ | 1.20 |   | 127% |   |
| General and  administrative                                      |       | $                                                                  | 2,044      |                     | $          | 1,521                          |       | $ | 523 |   | 34% |   |
| Depreciation,  depletion and amortization (“DD&A”) |       | $                                                                  | 251        |                     | $          | 308                            |       | $ | (57 | ) | (18)% |   |
| Impairment of  oil and gas properties                            |       | $                                                                  | 150        |                     | $          | —                         |       | $ | 150 |   | N/A |   |
| Interest expense                                                 |       | $                                                                  | 2,136      |                     | $          | 1,305                          |       | $ | 831 |   | 64% |   |
|                                                             |       |                                                               |       |                     |       |                           |       |   |   |
| **Australia  operations:**                                       |       |                                                               |       |                     |       |                           |       |   |   |
|                                                             |       |                                                               |       |                     |       |                           |       |   |   |
| Operating  revenue                                               |       | $                                                                  | 1,166      |                     | $          | 1,338                          |       | $ | (172 | ) | (13)% |   |
| Gas volumes  (MMcf)                                              |       | 650                                                                |       | 1,011                    |       | (361                           | )          | (36)% |   |
| Average gas  price per Mcf                                       |       | $                                                                  | 1.79       |                     | $          | 1.33                           |       | $ | 0.46 |   | 35% |   |
| Operating  expenses                                              |       | $                                                                  | 1,140      |                     | $          | 794                            |       | $ | 346 |   | 44% |   |
| Average lifting  cost per Mcf sold                               |       | $                                                                  | 1.75       |                     | $          | 0.79                           |       | $ | 0.96 |   | 122% |   |
| Oil and Gas  property DD&A                                   |       | $                                                                  | 203        |                     | $          | 283                            |       | $ | (80 | ) | (28)% |   |
| Other DD&A                                                   |       | $                                                                  | 34         |                     | $          | 15                             |       | $ | 19 |   | 127% |   |
| Oil and  Gas DD&A rate per Mcf volumes sold             |       | $                                                                  | 0.31       |                     | $          | 0.28                           |       | $ | 0.03 |   | 11% |   |
|                                                             |       |                                                               |       |                     |       |                           |       |   |   |
| **Domestic  operations:**                                        |       |                                                               |       |                     |       |                           |       |   |   |
|                                                             |       |                                                               |       |                     |       |                           |       |   |   |
| Operating  revenue                                               |       | $                                                                  | 2          |                     | $          | 3                              |       | $ | (1 | ) | (33)% |   |
| Gas volumes  (MMcf)                                              |       | 1                                                                  |       | 1                        |       | —                         |       | — |   |
| Average gas  price per Mcf                                       |       | $                                                                  | 4.00       |                     | $          | 3.25                           |       | $ | 0.75 |   | 23% |   |
| Operating  expenses – producing properties                  |       | $                                                                  | 1          |                     | $          | 2                              |       | $ | (1 | ) | (50)% |   |
| Average lifting  cost on producing properties per Mcfe sold      |       | $                                                                  | 2.27       |                     | $          | 2.10                           |       | $ | 0.17 |   | 8% |   |
| Operating  expenses – non-producing properties              |       | $                                                                  | 253        |                     | $          | 161                            |       | $ | 92 |   | 57% |   |
| Impairment of  oil and gas properties                            |       | $                                                                  | 150        |                     | $          | —                         |       | $ | 150 |   | N/A |   |
| Other DD&A                                                   |       | $                                                                  | 14         |                     | $          | 16                             |       | $ | (2 | ) | (13)% |   |

 

16

----

 

Revenues and Sales Volumes

 

The Company is currently selling its Australian gas under a five-yearcontract with delivery requirements of up to 15,000 Mcf of gas per day toEnergex, an unaffiliated customer.  In2003, the Company had two Energex contracts, one of which expired at the end of2003, with combined delivery requirements of up to 20,300 Mcf of gas perday.  The reduction in gas deliveryrequirements of 5,300 Mcf per day was the principal cause for the 36% declinein gas volumes sold in Australia in the first quarter of 2004 compared with thesame period in 2003.  The Company isactively pursuing short-term gas contracts to increase gas volumes sold andreduce flared gas.  Gas revenues inAustralia decreased by 13% due to the lower sales volumes offset by an increasein the average sales price received and changes in exchange rates.  The 35% increase in average gas sales pricein Australia is due primarily to favorable changes in exchange rates.

 

During the first quarter of 2004, the Company had minimal domesticrevenue.  Domestic revenues and volumesin 2004 and 2003 relate to small, retained interests in properties producing inthe Powder River Basin in Wyoming.

 

Costs and Expenses

 

Operating expenses in Australia increased 44% due to an increase in thenumber of producing wells and the addition of a second compressor facilitywhich commenced operations in December 2003. Australian oil and gas property DD&A expense decreased 28% dueprincipally to lower sales volumes.

 

Domestic operating expenses in the first quarter of 2004 and 2003 areprincipally attributable to the Lay Creek coal-seam gas project where the wellsare in the dewatering phase.

 

The impairment expense of $150,000 was attributed to unsuccessfulexploration costs incurred on wells on the Frenchman prospect.

 

General and administrative (“G&A”) expenses for the first quarterof 2004 increased 34% compared to the three months ended March 31, 2003.  This increase is attributed to higheremployee and consulting costs associated with managing the Comet Ridgeproperties and continuing costs for the Tri-Star litigation.

 

Other Income (Expense)

 

Interest expense increased to $2.1 million from $1.3 million, dueprimarily to increased loan balances in the first quarter of 2004 as comparedto the same period in 2003.

 

17

----

 

**Item 3.****           Quantitativeand Qualitative Disclosure About Market Risk**

 

Market risk is the potential loss arising from adverse changes inmarket rates and prices, such as foreign currency exchange, interest rates andcommodity prices.  The Company does notuse financial instruments to any degree to manage foreign currency, interestrate or commodity risk and does not hold or issue financial instruments to anydegree for trading purposes.  At March31, 2004, the Company was exposed to some market risk with respect to foreigncurrency, long-term debt, and natural gas prices; however, management did notbelieve such risk to be material.  TheCompany’s market risk, discussed in Item 7A in its Annual Report on Form 10-Kfor the year ended December 31, 2003, was unchanged as of March 31, 2004.

 

**Item 4. Controls and Procedures**

 

As of the end of the period covered by this report, we evaluated, underthe supervision and with the participation of our management, including ourChief Executive Officer and Chief Financial Officer, the effectiveness of thedesign and operation of our disclosure controls and procedures over financialreporting pursuant to Rule 13a-15 and 15d-15 of the Securities Exchange Act of1934. Based upon that evaluation, our Chief Executive Officer and our ChiefFinancial Officer concluded that our disclosure controls and procedures overfinancial reporting are adequate and effective at the reasonable assurancelevel in timely alerting them to material information required to be includedin this quarterly report on Form 10-Q.

 

Disclosure controls and procedures, no matter how welldesigned and implemented, can provide only reasonable assurance of achieving anentity’s disclosure objectives. The likelihood of achieving such objectives is affectedby limitations inherent in disclosure controls and procedures. Theselimitations include the fact that human judgment in decision-making can befaulty and that breakdowns in internal control can occur because of humanfailures such as simple errors or mistakes or because of intentionalcircumvention of the established process.

 

During the period covered by this report, there havebeen no changes in our internal controls over financial reporting or in otherfactors, which could significantly affect internal controls over financialreporting, including any corrective actions with regard to significantdeficiencies or material weaknesses.

 

18

----

 

**PART II - OTHER INFORMATION**

 

Item 1.          Legal Proceedings

 

                                                SeeNote 4 to the Consolidated Financial Statements under Part I - Item 1.

 

Item 2.  Changes in Securities

 

During the quarterly period ended March 31, 2004, the Company issued100,000 shares of its common stock upon the exercise of options with a weightedaverage exercise price of $2.75 per share. The issuance of these securities was deemed to be exempt fromregistration under Section 4(2) of the Securities Act of 1933 or Regulation Dthere under as a transaction by an issuer not involving a public offering.

 

Item 6.             Exhibitsand Reports on Form 8-K

 

(a)                                  Exhibits:

 

Filed herewith

 

10.98                     SeventhAmendment to Gas Sales Agreement between Tipperary Oil & Gas (Australia)Pty ltd (ACN 077 536 871) as Seller and Queensland Fertilizer Assets Limited(ACN 011 062 294) as Buyer, dated March 31, 2004, filed herewith.

 

31.1                           Certificationof Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2                           Certificationof Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1                           Certificationof Chief Executive Officer of Tipperary Corporation Pursuant to 18 U.S.C.§1350.

 

32.2                           Certificationof Chief Financial Officer of Tipperary Corporation Pursuant to 18 U.S.C.§1350.

 

The other material contracts of the Company areincorporated herein by reference from the exhibit list in the Company’s AnnualReport on Form 10-K for the year ended December 31, 2003.

 

(b)                                 Reportson Form 8-K:

 

The Registrant submitted a Form 8-K on March 17, 2004,under Item 12 whereby it furnished its earnings press release announcing yearend and fourth quarter 2003 financial results.

 

19

----

 

**SIGNATURES**

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934,the Registrant has duly caused this report to be signed on its behalf by theundersigned thereunto duly authorized.

 

 
|                           |   | Tipperary Corporation                                  |
|--------------------------------|--------|--------------------------------------------------------|
|                           |   | Registrant                                             |
|                           |   |                                                   |
|                           |   |                                                   |
| Date:  December  10, 2004 | By:    | /s/ David L. Bradshaw                                  |
|                           |   | David L. Bradshaw, President, Chief Executive  Officer |
|                           |   | and Chairman of the Board of Directors                 |
|                           |   |                                                   |
|                           |   |                                                   |
| Date:  December  10, 2004 | By:    | /s/ Joseph B. Feiten                                   |
|                           |   | Joseph B. Feiten, Chief Financial Officer and          |
|                           |   | Principal Accounting Officer                           |

 

20

----

 

**EXHIBIT INDEX**

 

10.98                     SeventhAmendment to Gas Sales Agreement between Tipperary Oil & Gas (Australia)Pty ltd (ACN 077 536 871) as Seller and Queensland Fertilizer Assets Limited(ACN 011 062 294) as Buyer, dated March 31, 2004.

 

31.1                           Certificationof Chief Executive Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2                           Certificationof Chief Financial Officer under Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1                           Certificationof Chief Executive Officer of Tipperary Corporation Pursuant to 18 U.S.C.§1350.

 

32.2                           Certificationof Chief Financial Officer of Tipperary Corporation Pursuant to 18 U.S.C.§1350.

 

21

----