U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
       ACT OF 1934



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

                         Commission file number 0-25579

                                 PETROGEN CORP.
         ---------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

                            NEVADA                  97-0571853
               ------------------------------   -----------------
              (State or other jurisdiction of    (I.R.S. Employer
               incorporation of organization)    Identification No.)



                       3220 Southwest Freeway, Suite 3300
                              Houston, Texas 77027
                     --------------------------------------
                    (Address of Principal Executive Offices)

                                 (713) 402-6115
                            -------------------------
                           (Issuer's telephone number)


                                       N/A
               ---------------------------------------------------
               (Former name, former address and former fiscal year,
                          if changed since last report)

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

                                      None
                               ------------------
                                (Title of class)

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

                         Common Stock, Par Value $0.001
                        --------------------------------
                                (Title of class)



<PAGE>

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

         Yes  X    No
            -----    -----
Check here if there is no disclosure  of  delinquent  filers in response to Item
405 of  Regulation  S-B  contained  in  this  Form,  and no  disclosure  will be
contained,  to the  best of  Registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]

State the issuer's revenues for its more recent fiscal year (ending December 31,
2004): $107,312.

State the aggregate market value of the voting and non-voting common equity held
by non-affiliates  computed by reference to the price at which the common equity
was sold,  or the average  bid and asked  prices of such  common  equity,  as of
January 31, 2005: $4,148,013.65.

   Issuers Involved in Bankruptcy Proceedings During the Preceding Five Years

                                       N/A

Check  whether the issuer has filed all  documents  and  reports  required to be
filed by Section 12, 13 and 15(d) of the  Securities  Exchange Act of 1934 after
the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]

                    Applicable Only to Corporate Registrants

State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:

Class                            Outstanding as of April 12, 2005
------                          ----------------------------------

Common Stock                        28,501,581
$0.001 par value

                       Documents Incorporated by Reference

If the following documents are incorporated by reference,  briefly describe them
and   identify  the  part  of  the  Form  10-KSB  into  which  the  document  is
incorporated:  (i) any  annual  report  to  security  holders;  (2) any proxy or
information  statement;  and (3) any prospectus filed pursuant to Rule 424(b) or
(c) of the Securities Act of 1933 (the  "Securities  Act"). The listed documents
should be clearly described for identification purposes.

None

Transitional Small Business Disclosure Format (Check one): Yes [   ]  No [ X ]

<PAGE>
<TABLE>
<CAPTION>


TABLE OF CONTENTS

<S>                                                                                                                <C>
      TABLE OF CONTENTS.............................................................................................
   PART  1..........................................................................................................
      ITEM 1. DESCRIPTION OF BUSINESS...............................................................................
            BUSINESS DEVELOPMENT....................................................................................
            CURRENT BUSINESS OPERATIONS.............................................................................
            OIL AND GAS PROPERTIES..................................................................................
            EMPLOYEES...............................................................................................
            RISK FACTORS............................................................................................
      ITEM 2. DESCRIPTION OF PROPERTIES.............................................................................
      ITEM 3. LEGAL PROCEEDINGS.....................................................................................
      ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS.................................................

   PART II..........................................................................................................
      ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.............................................
            MARKET INFORMATION
            HOLDERS.................................................................................................
            DIVIDENDS...............................................................................................
            SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS......................................
            STOCK OPTION PLAN.......................................................................................
            COMMON STOCK PURCHASE WARRANTS..........................................................................
            RECENT SALES OF UNREGISTERED SECURITIES AND CHANGES IN CONTROL OF THE COMPANY...........................
      ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.............................................
            RESULTS OF OPERATION
            LIQUIDITY AND CAPITAL RESOURCES.........................................................................
            PLAN OF OPERATION.......................................................................................
            MATERIAL COMMITMENTS....................................................................................
            AMOUNTS DUE TO RELATED PARTIES..........................................................................
            OFF-BALANCE SHEET ARRANGEMENTS..........................................................................
      ITEM 7. FINANCIAL STATEMENTS..................................................................................
      INDEX TO FINANCIAL STATEMENTS.................................................................................
            AUDITORS' REPORT........................................................................................
            CONSOLIDATED BALANCE SHEETS.............................................................................
            CONSOLIDATED STATEMENTS OF OPERATIONS...................................................................
            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  [DEFICIT]..............................................
            CONSOLIDATED STATEMENTS OF CASH FLOWS...................................................................
            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS..........................................................
      ITEM 8A. CONTROLS AND PROCEDURES..............................................................................
      ITEM 8B. OTHER INFORMATION....................................................................................

   PART III.........................................................................................................
      ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH
      16(A) OF THE EXCHANGE ACT.....................................................................................
            IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS......................................................
            INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS................................................................
            AUDIT COMMITTEE.........................................................................................
            AUDIT COMMITTEE FINANCIAL EXPERT........................................................................
            COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.......................................................
      ITEM 10. EXECUTIVE COMPENSATION...............................................................................
            COMPENSATION OF OFFICERS AND DIRECTORS..................................................................
            SUMMARY COMPENSATION TABLE..............................................................................
            STOCK OPTIONS/SAR GRANTS TABLE..........................................................................
            AGGREGATED OPTIONS/SAR EXERCISES........................................................................

<PAGE>

      ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.......
      ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.......................................................
            INDEMNIFICATION OF DIRECTORS AND OFFICERS...............................................................
      ITEM 13. EXHIBITS.............................................................................................
      ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES...............................................................
               AUDIT FEES...........................................................................................
               FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES.........................................
               ALL OTHER FEES.......................................................................................

   SIGNATURES.......................................................................................................

   EXHIBIT 10.2.....................................................................................................

   EXHIBIT 99.1.....................................................................................................

   EXHIBIT 99.2.....................................................................................................

   EXHIBIT 99.3.....................................................................................................

</TABLE>

<PAGE>

                           FORWARD LOOKING STATEMENTS

Statements made in this Form 10-KSB that are not historical or current facts are
"forward-looking  statements"  made  pursuant to the safe harbor  provisions  of
Section  27A of the  Securities  Act of 1933 (the  "Act") and Section 21E of the
Securities Exchange Act of 1934. These statements often can be identified by the
use  of  terms  such  as  "may,"  "will,"  "expect,"  "believe,"   "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. We intend that
such  forward-looking  statements  be  subject  to the  safe  harbors  for  such
statements.  We wish to caution  readers not to place undue reliance on any such
forward-looking  statements,   which  speak  only  as  of  the  date  made.  Any
forward-looking  statements represent  management's best judgment as to what may
occur in the future. However,  forward-looking  statements are subject to risks,
uncertainties  and important  factors beyond our control that could cause actual
results and events to differ  materially from  historical  results of operations
and events  and those  presently  anticipated  or  projected.  We  disclaim  any
obligation  subsequently  to revise any  forward-looking  statements  to reflect
events or  circumstances  after the date of such  statement  or to  reflect  the
occurrence of anticipated or unanticipated events.

AVAILABLE INFORMATION

Petrogen Corp. files annual, quarterly and current reports, proxy statements and
other   information   with  the   Securities   and  Exchange   Commission   (the
"Commission"). You may read and copy documents referred to in this Annual Report
on Form  10-KSB  that have been filed with the  Commission  at the  Commission's
Public Reference Room, 450 Fifth Street, N.W.,  Washington,  D.C. You may obtain
information  on the  operation  of the  Public  Reference  Room by  calling  the
Commission  at  1-800-SEC-0330.  You can also  obtain  copies of our  Commission
filings by going to the Commission's website at http://www.sec.gov


<PAGE>

PART  1

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS DEVELOPMENT

Petrogen Corp. is a corporation organized under the laws of the State of Nevada.
We currently  trade on the OTC Bulletin Board under the symbol "PTGC" and on the
Frankfurt Stock Exchange in Germany under the symbol "PTD".

Petrogen  Corp.  was  incorporated  under  the laws of the  State of  Nevada  on
December 3, 1997 under the name  "Hadrosaurus  Resources,  Inc.". On January 20,
1998, we filed an amendment to its articles of  incorporation  changing our name
to "Hadro Resources,  Inc." On February 12, 2003,  subsequent to the acquisition
of  Petrogen,  Inc.  ("Petrogen"),  we filed an  amendment  to its  articles  of
incorporation changing our name to "Petrogen Corp."

On October 11, 2002,  effective  February 12, 2003, Hadro  Resources,  Inc. (now
known as Petrogen Corp.),  Petrogen,  Inc.  ("Petrogen") and the shareholders of
Petrogen (the "Petrogen  Shareholders")  entered into a share exchange agreement
(the "Share  Exchange  Agreement").  Pursuant to the terms of the Share Exchange
Agreement:  (i) we acquired from the Petrogen  Shareholders  one hundred percent
(100%) of the issued and outstanding shares of common stock of Petrogen; (ii) we
issued  7,000,000  shares  of  our  restricted  Common  Stock  to  the  Petrogen
Shareholders in proportion to their  respective  holdings in Petrogen;  (iii) we
granted  2,000,000 Stock Options at $0.50 per share to previous holders of stock
options of Petrogen to replace stock options previously granted by Petrogen; and
(iv) granted an aggregate of 167,189 common stock  purchase  warrants to replace
all common stock  purchase  warrants then  outstanding  in Petrogen  pursuant to
which the holder  thereof had the right to convert  such  warrant into shares of
our restricted Common Stock on a one-to-one basis. As of the date of this Annual
Report, none of the warrants were exercised and expired on their terms.

This acquisition has been accounted for with Petrogen Corp. being treated as the
accounting parent and Petrogen being treated as the accounting  subsidiary.  The
consolidated financial statements include the accounts of Petrogen Corp. and its
wholly-owned subsidiary, Petrogen. All significant intercompany transactions and
account balances have been eliminated.

CURRENT BUSINESS OPERATIONS

General

We  are  an  independent  oil  and  gas   development  and  production   company
specializing in the development of domestic  energy  including,  but not limited
to,  the  acquisition,  exploration  and  development  of oil  and  natural  gas
properties  throughout  the United  States,  with  operations  based in Houston,
Texas. We are,  together with Petrogen,  a junior domestic  upstream oil and gas
company focused on acquiring, developing and producing proven reserves in mature
areas.  Our core business  strategy is to acquire  interests in fields that have
proven  hydrocarbon  reserve  development  opportunities  as well as to  acquire
properties  that have previously  produced  hydrocarbons  from proved  developed
reserves that provide for immediate undeveloped upside potential.

<PAGE>

Our principal geographic areas of focus lie in the Gulf of Mexico, Texas Permian
Basin and Rocky  Mountain  regions,  with core assets  presently  located in the
Emily Hawes Field on the Texas Gulf Coast,  Enos Creek Field in central  Wyoming
and  Baxterville  Field in  southern  Gulf  Coast of  Mississippi.  We have also
acquired the option to develop the Adams Ranch Field and the Harrell Ranch Field
in the east Texas Permian Basin area. We have acquired  interests and the rights
to develop interests in five properties  spanning over approximately  13,700 net
acres with what  management  believes  to be  developmental  opportunities  that
represent  probable  proven  reserves  in several  reserve  categories  that can
potentially be developed  longer term with targeted  exploration and development
efforts.  Management  anticipates that our ongoing efforts,  subject to adequate
funding being  available,  will be primarily  focused upon the  development  and
expansion of the Company's Texas properties,  as well as ongoing developments of
its Wyoming  property  through of the drilling of new wells into what management
anticipates will thereafter be proven producing reserves. Currently, the Company
is assessing  divestiture  opportunities related to its Mississippi property. We
plan to continue building and increasing a strategic base of proven reserves and
production  opportunities that represent outstanding growth opportunities for us
and our shareholders over the immediate, near and long term.

On November 15, 2002,  we entered into a drilling and operating  agreement  (the
"Operating    Agreement")   with   Petrogen    International   Ltd.   ("Petrogen
International"),  which was terminated November 24, 2003. The termination of the
Operating Agreement included:  (i) assignment by Petrogen International to us of
all of  Petrogen  International's  assets,  consisting  of  certain  oil and gas
properties; (ii) termination of Petrogen International as the exclusive operator
to all such oil and gas assets; (iii) termination of a ten percent (10%) carried
interest  in and to such oil and gas  assets by  Petrogen  International,  which
included termination of the right to charge an administrative fee of ten percent
(10%) of  project  costs for all  development  expenditures  incurred.  Petrogen
International  had  retained its equity  ownership  of  1,695,000  shares of our
restricted Common Stock. As of July 31, 2004, Petrogen International distributed
the 1,695,000  shares of our restricted  Common Stock to its  shareholders  on a
pro-rata basis.

As of the date of this Annual  Report,  Petrogen has the right to operate  these
and additional properties or to utilize other operators at its discretion.

Oil and Gas Properties

As of the date of this Annual Report, we have not reported nor filed any reserve
estimates with any Federal agencies,  and have plans to commence production from
certain properties. As of the date of this Annual Report, we do not maintain any
developed  acreage.  We maintain  approximately  an  aggregate  of 17,691  gross
undeveloped acreage and 13,700 net undeveloped acreage pursuant to leases and/or
concessions  as discussed  below.  The following is a description of our oil and
gas operations.

         Emily Hawes Field Project

PRODUCTIVE WELLS AND ACREAGE. As of the date of this Annual Report we hold a 75%
working interest and a 58.125% net revenue interest in approximately 1,571 gross
(1,156.65  net)  undeveloped  acreage of oil and gas leases located in Matagorda
Island,  Calhoun County,  Texas (the "Emily Hawes Field").  Previously we held a
95% working  interest and a 77.5% net revenue interest in the Emily Hawes Field.
Subsequently,  we  entered  into  farm-in  agreements  with  Nortex  Corporation
("Nortex")  and  Darcy  Energy  LLC,  formerly  known as Bazmo  Exploration  LLC
("Bazmo"),  respectively,  pursuant  to  which  we  assinged  a  portion  of our
interests  and  retained  a  37.5%  working  interest  and a 29.1%  net  revenue
interest.  Then, on September 20, 2004, we entered into an agreement  with Leila
Clark Wynn Mineral  Trust which  resulted in a 29.06% net revenue  interest of a
37.51% working interest for payment of $3,536.  Lastly,  on approximately  April
13, 2005,  we acquired an  additional  37.5 working  interest in the Emily Hawes
Field Project,  thus doubling our working  interest,  all as discussed below. In
consideration  for the original  working interest and net revenue  interest,  we

<PAGE>

issued:  (i) 365,000  shares of our  restricted  common  stock;  (ii) a floating
charge  debenture  in the amount of $75,000;  and (iii)  certain  notes  payable
totaling  $47,145  to  certain  lessors.  As at  December  31,  2003,  the notes
aggregating  $47,145 have been paid in full. The oil and gas leases  relating to
the Emily Hawes Field were to  terminate  by October 31, 2004 unless  operations
commenced upon the property prior thereto which, in such event,  the leases will
continue indefinitely.  As of the date of this Annual Report, acquisition of the
additional  37.5%  working  interest to provide us with an aggregate 75% working
interest  increases our net potential reserves to more than 9 billion cubic feet
(Bcf) of natural  gas. We believe that our net revenue from the sale of upcoming
gas production from the Emily Hawes Field Project will thus double.

As of October 4, 2004,  we  announced  that a drilling rig  commenced  sidetrack
drilling  operations on the Emily Hawes #3-A Sidetrack (EH-3A) well on September
28, 2004.  The EH-3A is the first of a potential  four well drilling  program on
Hawes Field in an effort to stimulate the  development of natural gas production
from the area. We anticipated encountering,  based on pre-drill expectations, as
many as six  recognized  pay sands on the Emily  Hawes Field  between  depths of
6,250 feet and 6,750 feet,  with  projected  net pay of  approximately  50 feet.
Subsequently,  we performed  post-drill  analysis and announced log results that
the drilling had  encountered  up to eight  potential  pay sands after the EH-3A
well had been  drilled to a total  measured  depth of 6,725 feet.  Log  analysis
reflected 75 feet of gross sand and greater than 60 feet of possible natural gas
pay.

As of November 23, 2004, we announced completion of the analysis and development
operations  of the EH-3A  and the  successful  four-point  gas test on the lower
Miocene  sand.  The  Miocene  sand tested at 978 mcf per day of natural gas on a
14/64"  choke  with  flowing  tubing  pressure  of 1395 psi.  The final  shut-in
pressure  was  recorded  at 1950  psi,  and  calculated  absolute  open flow was
recorded at 1,998 mcf per day of natural gas.  The test  results  were  achieved
against  400 lbs of  backpressure.  As of the  date of this  Annual  Report,  we
anticipate that we can hook-up the EH-3A to the pipeline and commence  producing
and selling  natural  gas.  We believe  that this  validates  our  strategy  and
developmental  model of re-establishing  gas production at the Emily Hawes Field
and provides the platform to `prove-up' a portion of the estimated  12.3 billion
cubic feet of gross possible reserves.

The  Emily  Hawes  Field  is  located  on  a  simple  anticlinal  closure  on  a
down-to-the-coast  normal  fault within the oil and gas  producing  Miocene-Frio
Trend.  The  Miocene-Frio  Trend  consists of hundreds of individual oil and gas
fields that produce from multiple  sands of Miocene and/or Frio age located in a
fairway that  parallels the present day Texas Gulf Coast.  At the Miocene level,
approximately  800 feet of structural  closure is encompassed  within the leased
area. At Emily Hawes Field,  gas production has previously  been  established in
multiple  Miocene sands between  6,190 feet and 6,450 feet.  Additional  Miocene
sands  remain to be  definitively  tested,  but log and sidewall  core  analyses
strongly suggest that these sands may also be productive.

The Emily Hawes Field had previously been developed by the drilling of three gas
wells. Although exhibiting excellent reservoir and production characteristics, a
gravel pack completion was not employed and,  therefore,  sand production forced
the premature  abandonment of these wells. To realize we believe to be remaining
existing  reserves,  we plan,  subject to financing or joint  venture  operating
agreements with industry  peers,  plan to drill offset wells,  utilizing  proper
completion  techniques  to control  sand  production.  We intend to utilize data
derived  from  the  new  wells  to  subsequently  drill  step-out  locations  to
efficiently and economically  drain the reservoir.  We believe that three to six
wells  will be  needed to  completely  develop  the  Miocene  reservoir.  Future
drilling  will also include a well to test the oil and gas potential of multiple

<PAGE>

sands in the Frio. We anticipate that a test well in the Frio could  potentially
prove  significant  recoverable  reserves.  We believe that there is a potential
resource of over 21.5 bcf of probable and  possible  natural gas reserves in the
deeper Frio formation.

PRESENT  ACTIVITIES.  As of the date of this Annual  Report,  and as part of our
commencement  of  operations  at the Emily  Hawes  Field,  we  entered  into two
separate  farm-out  agreements  with  Nortex  Corporation  ("Nortex")  and Bazmo
Exploration, LLC ("Bazmo"), respectively,  pursuant to which: (i) we will retain
a 37.5%  working  interest and a 29.1% net revenue  interest in all  hydrocarbon
developments  to depths  above  7,100  feet;  (ii) we will be  required  to fund
approximately 17% of developmental  costs of the initial well; (iii) the parties
have agreed to test and  potentially  develop the Frio Formation at depths of up
to  approximately  12,000  feet under the same  percentage  interests;  and (iv)
Nortex  and Bazmo  have the right to opt out of those  Frio  Formation  tests by
assigning  their  currently held respective  interests to us.  Additionally,  we
entered  into an  operations  and  development  agreement  with a Houston  based
drilling  services  contractor  to  provide  Petrogen  as project  operator  all
drilling and development requirements at Emily Hawes Field.

We  anticipate  that the EH-3A well will be the first of a  potential  four well
drilling program to be undertaken in an effort to develop natural gas production
from Emily Hawes Field.  Control data from the  property  represents  that Emily
Hawes Field previously produced  approximately 1.7 billion cubic feet of natural
gas. Based upon multiple third party engineering,  geophysical and petrophysical
analysis that indicates the potential of as much as  approximately  12.2 billion
cubic feet of estimated  natural gas reserves,  we believe that  re-establishing
production  from  the well  could  lead to  booking  all or a  portion  of these
estimated reserves as proved.

Plans to develop  the Emily  Hawes  Field  encompass  re-entry  into the Miocene
formation  through a previously  existing wellbore ("Emily Hawes #3) and to then
drill  directionally  to the  expected  pay  zone to test a  series  of  Miocene
sandstone  formations between 6,250 and 6,750 feet with an anticipated gross pay
interval of  approximately  50 feet that has proven to be natural gas productive
at Emily Hawes Field.  We believe that  potential  production  revenues from the
EH-3A may  qualify  for a 7.5%  state  severance  tax relief for a period of ten
years,  which may  greatly  enhance the  wellbores  potential  economic  rate of
return.

NORTEX.  On May 26, 2004, we also entered into a  participation  agreement  with
Nortex (the "Nortex  Agreement").  Pursuant to the terms and  provisions  of the
Nortex  Agreement:  (i) we assigned to Nortex a 50% working  interest  and a net
revenue interest equal to 37.5% of 77.5% of all of the oil and gas produced; and
(ii)  Nortex  paid  to  us  approximately   $66,112  as  consideration  for  the
assignment,  which we utilized to offset future costs from drilling  activities.
Subsequently,  we entered into a purchase and sale agreement with Nortex,  Danny
L. Stephens  Intersts and Robert W. Kent (the  "Purchase  and Sale  Agreement").
Pursuant to the terms of the Purchase and Sale Agreement,  we purchased a 37.51%
working interest for a one time aggregate cash payment of $300,000, plus accrual
of any and all associated costs commencing January 1, 2005.

DARCY.  On June 4, 2004, we entered into a  participation  agreement  with Darcy
Energy,  LLC  ("Darcy"),  formerly known as Bazmo  Exploration,  LLC. Bazmo (the
"Bazmo Agreement"). Pursuant to the terms and provisions of the Bazmo Agreement:
(i) we assigned to Bazmo a 25% working interest and a net revenue interest equal
to 25% of 77.5% of all of the oil and gas  produced;  and (ii)  Bazmo paid to us
approximately $42,680 as consideration for the assignment,  which we utilized to
offset future costs from drilling activities.

         Baxterville Field

PRODUCTIVE WELLS AND ACREAGE.  Pursuant to a farm-in  agreement between Petrogen
and US Gas Systems Corp. (the  "Baxterville  Agreement"),  we hold a 75% working
interest and a 26.25% net revenue  interest on any and all oil development and a
50% working  interest and a 37.5% net revenue  interest on all gas production in
approximately  680 gross  (513 net)  undeveloped  acreage  of oil and gas leases
located  in LaMar  County  and  Marion  County,  Mississippi  (the  "Baxterville
Field").  Pursuant to the terms and  provisions  of the  Baxterville  Agreement,

<PAGE>

Petrogen  agreed to recomplete  four  existing  well-bores  and further  develop
additional  infill  drilling  opportunities  and proven  undeveloped oil and gas
reserves  located on the Baxterville  Field.  The oil and gas leases relating to
the  Baxterville  Field may  terminate  in the event  that  certain  performance
criteria are not adhered to or complied with. However, we made arrangements with
US Gas Systems Corp.  to extend the terms of the existing  agreement by at least
an additional eighteen month period. Such oil and gas leases are "farm-in" style
agreements,  which provide for certain  performance  criteria that are currently
being met.

The Baxterville  Field is located within the Interior Salt Basin of Mississippi.
Within  this basin,  deformation  of deeply  buried  salt has  created  numerous
faulted  anticlines.   When  overlain  by  porous  and  permeable  sands,  these
structures create excellent traps for oil and natural gas. The Baxterville Field
consists of a faulted  anticline  overlying a deep-seated  salt structure.  This
well-defined  geologic  structure has a proven aerial extent in excess of 13,000
acres. More than 300 wells in this area have produced approximately 262 MMBO and
450 BCFG.  We believe  that the tracts it  controls  within the legal  limits of
Baxterville Field are excellent  examples of this type of oil and gas productive
structure.

         S. J. Hooper #1.

On  October  25,  2002,  we also  entered  into a letter  of intent  with  Crown
Royalties  of  Louisianna,  Inc.,  pursuant to which we acquired a 100%  working
interest and a 77% net revenue  interest in the S.J. Hooper #1 well-bore,  which
lies adjacent to the Baxterville Field (the "Hooper Lease"). We believe that the
Hooper Lease is a valuable addition to our ongoing Baxterville Field development
strategy.  The Hooper Lease well-bore falls below our criteria for  acquisition,
however,  geophysical  log analysis of the well-bore  indicates  that there is a
high probability of significant  productive gas zones.  Coupled with Baxterville
Field, the Hooper Lease meets Mississippi's minimum acreage spacing requirements
for a gas  wellbore  completion  and  is,  therefore,  a key  component  in  our
development of potential gas reserves in its  Baxterville  Field  interests.  We
anticipate that  potentially  recoverable oil reserves can be exploited  through
the  recompletion  and  secondary  work-over  operations  and will,  thereafter,
attempt to perforate  the  potential  gas bearing zones to attempt a natural gas
completion.  We are also  considering  the  potential  to  "twin"  the well bore
(hydrocarbons  produced  from two  zones at the same  time)  once  clarification
pursuant to spacing  requirements is received from the Mississippi State Oil and
Gas Board and adequate funding is available.

PRESENT  ACTIVITIES.  As of the  date of this  Annual  Report,  there  are  four
existing  shut-in  well-bores  located on the  Baxterville  Field.  We developed
operations at Baxterville  Field  throughout the summer months of 2003. To date,
we have  recompleted one wellbore (the "Moody #6"). We anticipated  commencement
of  production  from the Moody #6  wellbore  immediately  after  hooking  up all
relevant  surface  equipment,  however,  bad reservoir  performance and geologic
structure  issues resulted in the majority of production from the wellbore being
salt  water.  We  have   subsequently   analyzed  the  reservoir  and  potential
alternative  recovery methods with the aid of a third party production  engineer
and  petrophysicist  and expects that alternate recovery methods may potentially
result in  successful  hydrocarbon  production.  We currently  have no plans for
implementing  secondary  recovery  initiatives  at Baxterville  Field,  but have
identified  methods  of  recovery  in  areas of the  field.  Control  data  from
Baxterville  Field  indicate that these four well bores have produced a total of
489,000 BO and 11 BCFG.  We  believe  that  combined,  the four  well-bores  may

<PAGE>

represent a total of eight  re-completion  opportunities  which could  result in
proven reserves in several reserve  categories being achieved through  secondary
recovery methods.

Initial  recompletion  operations on the Hooper Lease were  commenced on January
12, 2003 and  successfully  completed  on January  17,  2003.  A separator  tank
required repairs  thereafter.  After tank repairs were completed,  the well-bore
produced about 17 barrels of oil per day for approximately two weeks.  Secondary
recompletion operations were initiated resulting in a hole in the tubing causing
the well above to fail. We attempted to establish production, however, formation
waters were too  significant to overcome and operations were shut down to reduce
any  further  costs.  We  anticipate  that  an  additional  work-over  could  be
undertaken  on the S.J.  Hooper # 1 wellbore  to  potentially  re-establish  and
increase the initial well-bore  productivity  described above,  after which time
sufficient  production data could be gathered for interpretation by us providing
insight  as to which  specific  work-over  treatments  will  result  in the most
potential increase in daily production from the well-bore.

Currently,  we are assessing  opportunities related to the potential divestiture
of our interests in Baxterville Field.


         Enos Creek Field/Brown Government Lease

PRODUCTIVE  WELLS AND ACREAGE.  We hold a 100% working  interest and a 77.5% net
revenue interest in all existing and future wells located on  approximately  440
gross  (330 net)  undeveloped  acreage in the Enos  Creek  field in Hot  Springs
County,  Wyoming (known as the "Brown Government Lease").  Pursuant to the terms
and provisions of the Brown  Government  Lease:  (i) we will pay to Coronado Oil
Company 50% of its  production  income net of royalties to a maximum of $75,000;
and (ii) Coronado Oil Company has the right to back-in to a 50% working interest
at the time when we complete our  development  operations  and recoup all of our
expenses related to those developments, and upon Coronado Oil Company exercising
that back-in  right,  they will forfeit  their  existing 5%  overriding  royalty
interest which will  effectively  thereafter  increase the Company's net revenue
interest  from  77.5% to 82.5%.  The oil and gas  leases  relating  to the Brown
Government  Lease will continue in existence  subject to the Company  performing
the required operations to attempt to bring the property back into the status of
production  as set forth  under the  guidelines  of the  Wyoming  Bureau of Land
Management.

We are also  currently  under the terms of an  agreement  with the vendor of the
Brown Government Lease,  Coronado Oil Company, that delineates an additional 440
acres within an area of mutual interest (the "AMI"). The AMI also comprises part
of the Brown  Government  Lease,  in which we shall  hold,  upon  completion  of
acquisition,  a 100% working interest of an 80% net revenue  interest.  Coronado
Oil Company has the right to back-in to a 25% working  interest at the time when
we complete our development operations and recoup all of our expenses related to
those  developments upon the AMI, and upon Coronado Oil Company  exercising that
back-in right,  they will forfeit their existing 5% overriding  royalty interest
which will  effectively  thereafter  increase the Company's net revenue interest
from 77.5% to 82.5% in all existing and future new wells located  within the AMI
of the Brown Government Lease.

The Brown  Government Lease is located on the western flank of the Bighorn Basin
and exhibits 1,000 feet of closure and encompasses approximately 800 acres. This
asymmetric  basin has  produced  in excess of 2 million  barrels of oil and more
than 1 trillion cubic feet of natural gas.  Compressional  forces related to the

<PAGE>

building of the Rocky Mountains created numerous  structural folds (anticlines),
which  subsequently  filled with oil and/or gas.  Within a 15-mile radius of the
Brown Government Lease, twenty such anticlines are located which are oil and gas
productive.

The Brown  Government  Lease  consists of twelve  wells  previously  drilled and
completed,  of which six have been oil  productive,  three gas  productive,  one
dually  completed  as both  oil and gas  productive,  and two as dry  holes.  We
reformulated  an operations  agenda with the Wyoming Bureau of Land  Management,
which was initiated during the month of September 2003.  However, as of the date
of this  Annual  Report,  plans are  underway to  commence  operations  with the
Bureau's assistance for second quarter 2005.

PRESENT  ACTIVITIES.  On May 8th, 2003, we entered into a preliminary  gas sales
contract  (the "Gas  Sales  Contract")  with  Sierra  Gas  Corporation  ("SGC").
Pursuant to the terms and provisions of the Gas Sales  Contract:  (i) SGC shall,
upon Petrogen's  successful  production of natural gas hydrocarbons,  gather gas
from the Enos Creek  property  as  productive  capacity is brought on stream and
made available for purchase; and (ii) we will be paid 90% of Colorado Interstate
Gas at First of Month Index Price. As of the date of this Annual Report,  no gas
sales have been made due to the relationship  with the Enos Creek operations vis
a vis the Brown  Government  Lease.  Management of the Company  anticipates that
subject to successful well recompletions being conducted, its first gas sales in
this regard may commence by approximately third quarter 2004.

In  anticipation of completing the Gas Sales Contract with Sierra and as part of
the  commitments  made  between  Petrogen,  Coronado Oil Company and the Wyoming
Bureau  of Land  Management,  we  initiated  the  first  phase of  redevelopment
operations upon the Brown Government Lease, which focused  exclusively upon what
we believe to be remaining  recoverable reserves within multiple potentially gas
charged  Frontier  sands.  A workover  rig was  mobilized  on May 1,  2003,  and
operations to place the #1 Brown Government  wellbore back into the condition of
production commenced shortly thereafter. We perforated three additional Frontier
sands,  providing for over 52 feet of previously known productive pay within the
wellbore,  which we anticipated would potentially produce marketable  quantities
of natural gas. On August 18, 2004, we announced that we had commenced secondary
development  operations on the property by re-entering  the Brown  Government #1
wellbore.  Test results of the recompletion  operation on the wellbore  provided
for  additional  technical  data that we had analyzed by third party analysts to
ascertain the best possible  completion  technique that could be utilized at the
Brown Government #1 wellbore,  which could result in potentially reinstating gas
and/or oil production from the wellbore.

In general,  we anticipate  that gas and/or oil  production  may be  potentially
re-established from the formerly productive Brown Government Lease by re-working
and returning to production  the three existing  shut-in gas wells.  These wells
will  be  evaluated  relative  to  completion  zones,   completion  methods  and
production  parameters.  If current  completed  intervals  are deemed  depleted,
management intends to then perforate,  potentially  perform additional  fracture
stimulation  operations  within the newly perforated zones as it deems necessary
and  economic,  and  thereafter  attempt to complete  new zones to the status of
production.

We anticipate that the second development phase of Enos Creek Field will include
the acquisition of additional leases within the AMI, subject to adequate funding
availability,  and the  drilling of three  additional  wells within the existing
leased  area as well as  within  the AMI,  targeting  what we  believe  could be
remaining  recoverable reserves. We anticipate that the third phase will include

<PAGE>

evaluation  of what we believe to be potential  reserves by  utilizing  existing
well-bores to test the productive  potential of these zones with the drilling of
additional infill locations if needed in order to effectively drain the field.

         Adams Ranch and Harrell Ranch Properties

PRODUCTIVE  WELLS AND ACREAGE.  We hold certain  rights to develop the Adams and
Harrell  Ranches  based upon an average  100%  working  interest and a 77.5% net
revenue  interest.  The properties are located on approximately  15,000 acres of
developed and undeveloped  acreage on the Adams Ranch and Harrell Ranch prospect
in Crockett County,  Texas (the "Adams/Harrell  Properties"),  which consists of
6,480 net acres of  shallow  development  rights  and  13,700  net acres of deep
development  rights. The Adams/Harrell  Properties are located directly adjacent
to the each  other in the east  Texas  Permian  Basin upon what we believe to be
potentially  productive reserves,  which could be produced from new gas wells we
plan  to  drill  in 2005 if  adequate  funding  is  acquired.  We are  currently
formalizing the terms and provisions of formal contractual  arrangements  elated
to the Adams  /Harrell  Properties,  as well as  negotiating  with several third
parties  interested in the potential of entering into joint venture  development
agreements to commence operations upon the properties.

The  Permian  Basin is  considered  to be one of the most  prolific  oil and gas
producing regions within the United States,  and is flanked on all four sides by
significant oil and gas production and infrastructure.  Historically, the Canyon
sand formation has provided  approximately 0.3 BCF on average per wellbore,  the
Strawn formation has provided approximately 1.5 BCF on average per wellbore, and
the  Ellenberger  formation  has provided  approximately  5.0 BCF on average per
wellbore.  We believe  that the Adams  Ranch  Property  represents  a  potential
natural gas resource base  associated  with the Canyon,  Strawn and  Ellenberger
formations.

Present  Activities.  We have  negotiated  specific  terms to  farm-in to and/or
develop the Adams/Harrell Properties (the "Farm-In Agreement"),. Pursuant to the
terms and  provisions of the Farm-In  Agreement,  we have the right to conduct a
series of earn-in  development  initiatives  to fully develop the  Adams/Harrell
Properties through all depths to 12,000 feet.

As of the date of this  Annual  Report,  we have not  commenced  development  or
re-stimulation  initiatives  on the  Adams/Harrell  Properties,  but  intend  to
commence  such  initiatives  during  calendar  year 2005.  We  believe  that the
Adams/Harrell  Properties  represent the opportunity to develop  numerous Canyon
sand and  commingled  Strawn  and  Ellenberger  formation  new well  drill  site
locations.  In addition to providing  substantial  long-term  growth  potential,
there are currently  eleven  wellbores in various  stages of production  that we
have the right to attempt  to  re-stimulate  to  establish  an  initial  base of
production if economically viable.

         Matagorda Island Pipeline

On March  10,  2003,  Petrogen  International  entered  into a lease  assignment
agreement  (the "Lease  Agreement")  with Timothy Roche  ("Roche"),  pursuant to
which Petrogen  International leased a natural gas transmission pipeline located
on Matagorda  Island in the Texas Gulf Coast.  Subsequently,  we entered into an
assignment  agreement  with Petrogen  International  pursuant to which  Petrogen
International  assigned to us all of its right,  title and interest in the Lease
Agreement.

Subsequently,  on March 31,  2005,  we entered  into a purchase  agreement  (the
"Purchase  Agreement"),  with Roche,  pursuant to which we purchased the natural
gas transmission  pipeline located on Matagorda  Island.  In accordance with the
Purchase  Agreement:  (i) we issued to Roche  175,000  shares of our  restricted
Common  Stock at $0.50 per  share for an  aggregate  value of  $87,500;  (ii) we
further agreed to pay additional  consideration to Roache a royalty of $0.16 per
mcfg transmitted through the pipeline up to $50,000 and,  thereafter,  $0.12 per
mcfg transmitted  through the pipeline,  both amounts which will be payable upon
an accrued total of natural gas transmitted through the pipeline of no more than
4 bcf. As a result of  consummation  of the Purchase  Agreement,  we control the

<PAGE>

only  gas  gathering  right-of-way  on  Matagorda  Island,  as this is the  only
existing pipeline on Matagorda Island.  This ownership results in our ability to
transport our own  production  from the Emily Hawes Field as well as to transfer
production  from other  operators  on  Matagorda  Island.  We  believe  that the
Matagorda  Island  natural gas  pipeline  has the  capacity to  transport  up to
20,000,000 gross cf of natural gas per day.  Previously,  we conducted integrity
tests on the  Matagorda  Island  Pipeline  and  repaired  minor  damages  to the
pipeline  to  ensure  that  transmission  capacity  would be in  place  prior to
anticipated  natural gas  production  from Emily Hawes Field.  As of the date of
this Annual Report,  the pipeline is fully ready for production and transport of
natural gas.

Previously Petrogen International and Timothy Roche ("Roche") had entered into a
lease  assignment  agreement  dated  March  10,  2003 (the  "Lease  Agreement").
Pursuant  to the  terms and  provisions  of the Lease  Agreement:  (i)  Petrogen
International leased from Roche the natural gas transmission pipeline located on
Matagorda Island; and (ii) Petrogen  International advanced the sum of $3,000.00
to Roche as a partial  payment  towards an aggregate debt due and owing to Roche
under the terms of a  promissory  note  entered into between us and Roche on May
22, 2002.  Upon  consummation  of the Lease  Agreement,  Petrogen  International
assigned all of its rights, title and interests in and to the Lease Agreement to
us (the "Lease  Assignment") for the  consideration of certain operator fees and
royalties of between  $0.09 and $0.25 per MCF payable to Petrogen  International
by us as lease  assignee upon the sales of any natural gas  transmitted  through
the pipeline.

As of the date of this Annual Report,  the Lease Agreement and Lease  Assignment
have been terminated and are no longer binding upon the parties.

Drilling Activity

The  following  table sets  forth the  results of our  drilling  activity  as of
December 31, 2004:


   -----------------------------------  ------------------------------------
   Gross Wells                          Net Wells
   -------------- ------------ -------  ------------ ------------- ---------

   Total          Producing    Dry      Total        Producing     Dry
   -------------- ------------ -------  ------------ ------------- ---------

   2              Shut-in               1.12         Shut-in
   -------------- ------------ -------  ------------ ------------- ---------


Production Information

During the prior three fiscal years, we had no oil and gas production.

Producing Wells and Acreage

         Gross and Net Productive Gas Wells, Developed Acreage and Overriding
Royalty Interests

Productive  wells and developed  acres. The tables below set forth our leasehold
interest in productive and shut-in wells,  and in developed  acres,  at December
31, 2004:

<PAGE>


              ------------------ ------------ ----------
              Prospect           Gross(1)     Net (2)
              ------------------ ------------ ----------

              Emily Hawes Field  3            1.12
              ------------------ ------------ ----------

              Enos Creek Field   3            2.25
              ------------------ ------------ ----------

              Adams         and  Nil          Nil
              Harrell Ranches
              ------------------ ------------ ----------

              Baxterville Field  5            4.32
              ------------------ ------------ ----------

(1) A gross well is a well in which a working  interest is owned.  The number of
gross wells is the total number of wells in which a working interest is owned.

(2) A net well is deemed to exist when the sum of fractional  ownership  working
interest  in gross wells  equals one.  The number of net wells is the sum of the
fractional working interests owned in gross wells expressed as whole numbers and
fractions thereof.

Developed Acreage Table (1)

              ------------------ ------------ ----------

              Prospect           Gross (2)    Net (3)
              ------------------ ------------ ----------

              ------------------ ------------ ----------

(1) Consists of acres spaced or assignable to productive wells.

(2) A gross acre is an acre in which a working  interest is owned. The number of
gross acres is the total number of acres in which a working interest is owned.

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

Undeveloped Acreage

Leasehold Interests

The table  below sets forth our  leasehold  interest in  undeveloped  acreage at
December 31, 2004:

              ----------------------- --------------- ------------
              Prospect                Gross           Net
              ----------------------- --------------- ------------

              Emily Hawes Field       1,571.5         589.31
              ----------------------- --------------- ------------

              Enos Creek Field        440             330
              ----------------------- --------------- ------------

               Adams/Harrell Ranches  15,000          13,700
              ----------------------- --------------- ------------

              Baxterville Field       660             495
              ----------------------- --------------- ------------
<PAGE>

Delivery Commitments

We have no delivery  commitments.  We contract with  Northern  Natural Gas (Gulf
Coast)  and  Sierra  Gas  (Rocky  Mountains)  for  pipeline  to sell  oil or gas
produced.

COMPETITION

         We operate in a highly competitive  industry,  competing with major oil
and gas  companies,  independent  producers  and  institutional  and  individual
investors,  which are actively  seeking oil and gas  properties  throughout  the
world  together  with the  equipment,  labor and  materials  required to operate
properties.  Most  of our  competitors  have  financial  resources,  staffs  and
facilities substantially greater than ours. The principal area of competition is
encountered in the financial ability to acquire good acreage positions and drill
wells to explore for oil and gas, then, if warranted, drill production wells and
install  production  equipment.  Competition  for the acquisition of oil and gas
wells is intense with many oil and gas  properties  and or leases or concessions
available in a competitive  bidding  process in which we may lack  technological
information or expertise  available to other bidders.  Therefore,  we may not be
successful in acquiring and developing profitable properties in the face of this
competition.  No assurance can be given that a sufficient number of suitable oil
and gas wells will be available for acquisition and development.

GOVERNMENT REGULATION

General

         The production and sale of oil and gas are subject to various  federal,
state and local governmental regulations, which may be changed from time to time
in  response  to economic or  political  conditions  and can have a  significant
impact upon overall operations.  Matters subject to regulation include discharge
permits for drilling operations,  drilling bonds, reports concerning operations,
the  spacing  of  wells,  unitization  and  pooling  of  properties,   taxation,
abandonment  and  restoration  and  environmental  protection.  These  laws  and
regulations are under constant  review for amendment or expansion.  From time to
time,  regulatory  agencies  have  imposed  price  controls and  limitations  on
production  by  restricting  the rate of flow of oil and gas wells below  actual
production  capacity  in order to conserve  supplies of oil and gas.  Changes in
these  regulations  could require us to expend  significant  resources to comply
with new laws or regulations or changes to current requirements and could have a
material adverse effect on us.

Oil and Gas Regulation

The governmental  laws and regulations which could have a material impact on the
oil and gas exploration and production industry are as follows:

<PAGE>

         Drilling and Production

Our  operations  are subject to various types of  regulation at federal,  state,
local and Native  American  tribal  levels.  These types of  regulation  include
requiring  permits  for the  drilling  of  wells,  drilling  bonds  and  reports
concerning operations. Most states, and some counties, municipalities and Native
American tribes, in which we operate also regulate one or more of the following:
(i) the location of wells;  (ii) the method of drilling and casing wells;  (iii)
the rates of production or "allowables"; (iv) the surface use and restoration of
properties  upon  which  wells are  drilled  and other  third  parties;  (v) the
plugging and  abandoning of wells;  and (vi) notice to surface  owners and other
third parties.

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

Natural Gas Sales Transportation

Historically,  federal  legislation  and  regulatory  controls have affected the
price of the  natural  gas we  produce  and the  manner in which we  market  our
production.  The Federal Energy Regulatory  Commission ("FERC") has jurisdiction
over the  transportation  and sale  for  resale  of  natural  gas in  interstate
commerce  by natural  gas  companies  under the  Natural Gas Act of 1938 and the
Natural Gas Policy Act of 1978.

FERC also  regulates  interstate  natural gas  transportation  rates and service
conditions,  which affects the marketing of natural gas that we produce, as well
as the  revenues we receive for sales of our natural  gas.  Commencing  in 1985,
FERC  promulgated  a  series  of  orders,  regulations  and  rule  makings  that
significantly fostered competition in the business of transporting and marketing
gas.   Today,   interstate   pipeline   companies   are   required   to  provide
nondiscriminatory  transportation  services to  producers,  marketers  and other
shippers,  regardless of whether such shippers are affiliated with an interstate
pipeline company. Under FERC's current regulatory regime,  transmission services
must be provided on an open-access, non-discriminatory basis at cost-based rates
or at market-based rates if the  transportation  market at issue is sufficiently
competitive.

Mineral Act

The Mineral  Leasing Act of 1920 ("Mineral  Act")  prohibits  direct or indirect
ownership  of any  interest  in federal  onshore oil and gas leases by a foreign
citizen of a country that denies "similar or like privileges" to citizens of the
United  States.  Such  restrictions  on citizens of a  "non-reciprocal"  country
include  ownership or holding or controlling stock in a corporation that holds a
federal  onshore  oil and  gas  lease.  If this  restriction  is  violated,  the
corporation's  lease can be canceled in a  proceeding  instituted  by the United
States  Attorney  General.  Although  the  regulations  of the  Bureau  of  Land
Management (which  administers the Mineral Act) provide for agency  designations
of non-reciprocal countries, there are presently no such designations in effect.

<PAGE>

Environmental Regulation

Our  activities  will be subject to existing  federal,  state and local laws and
regulations   governing   environmental   quality  and  pollution  control.  Our
operations  will be subject to stringent  environmental  regulation by state and
federal authorities including the Environmental  Protection Agency ("EPA"). Such
regulation  can increase the cost of such  activities.  In most  instances,  the
regulatory requirements relate to water and air pollution control measures.

Waste Disposal

The Resource  Conservation  and  Recovery Act  ("RCRA"),  and  comparable  state
statutes,  affect oil and gas exploration and production  activities by imposing
regulations on the generation, transportation,  treatment, storage, disposal and
cleanup of "hazardous wastes" and on the disposal of non-hazardous wastes. Under
the auspices of the EPA, the  individual  states  administer  some or all of the
provisions of RCRA,  sometimes in  conjunction  with their own,  more  stringent
requirements.  Drilling fluids,  produced  waters,  and most of the other wastes
associated  with the  exploration,  development,  and  production  of crude oil,
natural gas, or geothermal energy constitute "solid wastes", which are regulated
under  the  less  stringent  non-hazardous  waste  provisions,  but  there is no
guarantee  that the EPA or the  individual  states will not adopt more stringent
requirements  for the  handling  of  non-hazardous  wastes  or  categorize  some
non-hazardous wastes as hazardous for future regulation.

Comprehensive Environmental Response, Compensation and Liability Act

The federal Comprehensive Environmental Response, Compensation and Liability Act
("CERCLA")  imposes joint and several  liability for costs of investigation  and
remediation  and for natural  resource  damages,  without regard to fault or the
legality of the original conduct,  on certain classes of persons with respect to
the release  into the  environment  of  substances  designated  under  CERCLA as
hazardous  substances  ("Hazardous  Substances").  These  classes  of persons or
potentially  responsible parties include the current and certain past owners and
operators  of a facility  or  property  where  there is or has been a release or
threat of release of a  Hazardous  Substance  and  persons  who  disposed  of or
arranged for the disposal of the Hazardous  Substances found at such a facility.
CERCLA also authorizes the EPA and, in some cases, third parties to take actions
in response to threats to the public  health or the  environment  and to seek to
recover the costs of such action.  Although CERCLA generally  exempts  petroleum
from the definition of Hazardous Substances in the course operations,  we may in
the future  generate  wastes that fall within  CERCLA's  definition of Hazardous
Substances.  We may also in the future  become an owner of  facilities  on which
Hazardous Substances have been released by previous owners or operators.  We may
in the future be responsible  under CERCLA for all or part of the costs to clean
up  facilities or property at which such  substances  have been released and for
natural resource damages.

Air Emissions

Our  operations  are  subject to local,  state and federal  regulations  for the
control of emissions  of air  pollution.  Major  sources of air  pollutants  are
subject  to  more  stringent,   federally   imposed   permitting   requirements.
Administrative  enforcement  actions  for  failure to comply  strictly  with air
pollution  regulations or permits are generally  resolved by payment of monetary
fines and correction of any identified deficiencies.  Alternatively,  regulatory
agencies could require us to forego  construction,  modification or operation of
certain air emission sources.

<PAGE>

Clean Water Act

The Clean Water Act ("CWA") imposes  restrictions and strict controls  regarding
the discharge of wastes, including produced waters and other oil and natural gas
wastes,  into waters of the United States, a term broadly defined.  Permits must
be obtained to discharge  pollutants into federal  waters.  The CWA provides for
civil, criminal and administrative penalties for unauthorized discharges of oil,
hazardous  substances and other  pollutants.  It imposes  substantial  potential
liability for the costs of removal or remediation  associated with discharges of
oil or  hazardous  substances.  State laws  governing  discharges  to water also
provide  varying  civil,  criminal  and  administrative   penalties  and  impose
liabilities in the case of a discharge of petroleum or it derivatives,  or other
hazardous  substances,  into state waters. In addition,  the EPA has promulgated
regulations  that may  require us to obtain  permits to  discharge  storm  water
runoff.  In the event of an unauthorized  discharge of wastes,  we may be liable
for penalties and costs.

We  believe  that  we are in  substantial  compliance  with  current  applicable
environmental laws and regulations.

RESEARCH AND DEVELOPMENT ACTIVITIES

No research  and  development  expenditures  have been  incurred,  either on our
account or sponsored by customers, during the past three years.

EMPLOYEES

As of the  date of  this  Annual  Report,  we do not  employ  any  persons  on a
full-time or on a part-time  basis.  Our Chief Executive  Officer and Presidents
are primarily  responsible for all day-to-day  operations of the Company.  Other
services are  provided by  outsourcing  and  management  contracts.  As the need
arises and funds become  available,  however,  management  may seek employees as
necessary in our best  interests.  The  following  lists and  describes  certain
services  performed  for the  Company by  consultants.  See "Item 10.  Executive
Compensation" and "Item 12. Certain Relationships and Related Transactions."

Management Consulting Services Agreement

On November 18, 2003, effective as of January 1, 2004, we proposed to enter into
a  management  consulting  services  agreement  with  Neville  Henry,  our prior
President  of the  Company,  which  contemplated  the  execution of a management
consulting  services  agreement (the  "Proposed  Henry  Consulting  Agreement").
Pursuant to the terms and provisions of the Proposed Henry Consulting Agreement,
Mr. Henry had agreed to provide to us  operational,  managerial  and  consulting
services  consistent  with his position as President.  Pursuant to further terms
and provisions of the Proposed Henry Consulting  Agreement,  we were to: (i) pay
to Mr. Henry a one-time  signing fee of $35,000 at the effective  date; (ii) pay
to Mr. Henry a monthly fee of $15,000.00 (the "Fee"),  starting at the effective
date, provided that only $10,000.00 of the Fee shall actually be paid monthly by
us to Mr.  Henry,  with the balance of each  monthly fee being  accrued  without
interest  until such time as we were in a  position  to be able to afford to pay
the entire monthly Fee from future financings and/or positive monthly cash flow;
and (iii) reimbursement of certain expenses.

<PAGE>

During  fiscal year ended  December  31,  2004,  $171,997  fees were paid to Mr.
Henry.  Mr. Henry was terminated as our President  effective as of February 1st,
2005.  The Proposed  Henry  Consulting  Agreement  was never entered into by Mr.
Henry nor us and  therefore was not required to be  terminated.  Due to the fact
that the Proposed Henry Consulting Agreement was never executed by Mr. Henry nor
us, there are no fees accrued or owing to Mr. Henry.

Management Services Agreement

We entered into a management  services  agreement with Mr. Roche dated March 15,
2003 (the "Management Services Agreement"). Pursuant to the terms and provisions
of the Management Services  Agreement:  (i) Mr. Roche shall provide his services
to us as a qualified land man  specializing in oil and gas property  acquisition
opportunities  throughout  the Texas Gulf Coast  region;  (ii) we granted to Mr.
Roche 25,000 Stock Options to acquire  shares of Common Stock at $0.50 per share
during the first year;  and (iii) we granted to Mr. Roche an  additional  25,000
Stock Options to acquire shares of Common Stock at a price 20% below the average
trading price during the subsequent years at a rate of 3,000 shares in the first
month and 2,000 shares over the next  following  eleven  months.  The Management
Service Agreement renews automatically on year by year basis if not specifically
terminated  in  accordance  with  provisions  outlined in the MSA. To date,  the
Management Service Agreement remains in effect.

RISK FACTORS

An investment in our common stock involves a number of very  significant  risks.
You should carefully  consider the following risks and uncertainties in addition
to  other  information  in  evaluating  our  company  and  its  business  before
purchasing  shares of our common  stock.  Our  business,  operating  results and
financial condition could be seriously harmed due to any of the following risks.
The risks  described  below are all of the material  risks that we are currently
aware of that are facing our company. Additional risks not presently known to us
may also  impair  our  business  operations.  You could lose all or part of your
investment due to any of these risks.

Risks Related to Our Business

         Our  business  is  difficult  to  evaluate  because  we have a  limited
operating history.

In considering  whether to invest in our common stock,  you should consider that
there is only limited historical financial and operating  information  available
on which to base your evaluation of our performance.  Our inception was November
15, 2001 and, as a result, we have a limited operating history.

We have a history of operating  losses and there can be no assurances we will be
profitable  in the  future.  We have a history of  operating  losses,  expect to
continue to incur losses, and may never be profitable, and we must be considered
to be in the development stage.  Further, we have been dependent on sales of our
equity  securities  and debt  financing to meet our cash  requirements.  We have
incurred losses totaling approximately $4,205,748 for fiscal year ended December
31, 2004. As of December 31, 2004, we had an  accumulated  deficit of $6,778,331
and a working capital of $48,798.  Further,  we do not expect positive cash flow
from  operations  in the near  term.  There is no  assurance  that  actual  cash
requirements will not exceed our estimates.  In particular,  additional  capital
may be required in the event that:  (i) the costs to acquire  additional  leases
are more than we currently  anticipate;  (ii) drilling and completion  costs for
additional wells increase beyond our expectations; or (iii) we encounter greater
costs associated with general and administrative expenses or offering costs.

<PAGE>

Our development of and participation in an increasingly larger number of oil and
gas  prospects  has required and will  continue to require  substantial  capital
expenditures.  The uncertainty and factors described throughout this section may
impede our ability to economically find, develop,  exploit,  and acquire natural
gas and oil  reserves.  As a result,  we may not be able to  achieve  or sustain
profitability or positive cash flows from operating activities in the future.

         We have received a going concern opinion from our independent auditors.

We have received a going concern opinion from our independent  auditor's  report
accompanying our December 31, 2004 and 2003 consolidated  financial  statements.
The independent  auditor's  report  accompanying  our December 31, 2004 and 2003
consolidated  financial statements contains an explanatory  paragraph expressing
substantial  doubt  about  our  ability  to  continue  as a going  concern.  The
consolidated  financial statements have been prepared "assuming that the Company
will continue as a going concern," which  contemplates  that we will realize our
assets and satisfy our  liabilities  and  commitments in the ordinary  course of
business.  Our ability to continue as a going  concern is  dependent  on raising
additional  capital to fund our operations  and ultimately on generating  future
profitable  operations.  There can be no assurance that we will be able to raise
sufficient  additional  capital  or  eventually  have  positive  cash  flow from
operations  to address  all of our cash flow  needs.  If we are not able to find
alternative sources of cash or generate positive cash flow from operations,  our
business and shareholders will be materially and adversely affected.

         We will require additional funding in the future.

We will  require  additional  funding in the future.  Based upon our  historical
losses from operations,  we will require additional funding in the future. If we
cannot obtain capital  through  financings or otherwise,  our ability to execute
our development plans and achieve production levels will be greatly limited. Our
current  development  plans  require  us to make  capital  expenditures  for the
exploration and development of our oil and natural gas properties. Historically,
we have funded our operations through the issuance of equity and short-term debt
financing  arrangements.  We may not be able to obtain  additional  financing on
favorable  terms,  if at all.  Our  future  cash flows and the  availability  of
financing  will  be  subject  to a  number  of  variables,  including  potential
production and the market prices of oil and natural gas. Further, debt financing
could lead to a diversion of cash flow to satisfy debt-servicing obligations and
create restrictions on business operations. If we are unable to raise additional
funds, it would have a material adverse effect upon our operations.

         Our acquisitions may not be successful.

Our  acquisitions  may not be  successful.  As part of our growth  strategy,  we
intend  to  acquire   additional  oil  and  gas  production   properties.   Such
acquisitions may pose substantial  risks to our business,  financial  condition,
and results of operations. In pursuing acquisitions,  we will compete with other
companies,  many of which have greater  financial and other resources to acquire
attractive  properties.  Even  if we  are  successful  in  acquiring  additional
properties,  some of the  properties  may not produce  revenues  at  anticipated
levels or failure to conduct drilling on prospects within specified time periods
may  cause  the  forfeiture  of the  lease  in that  prospect.  There  can be no
assurance that we will be able to successfully  integrate  acquired  properties,
which  could  result  in  substantial  costs and  delays  or other  operational,
technical,  or financial problems.  Further,  acquisitions could disrupt ongoing
business  operations.  If any of these  events  occur,  it would have a material
adverse effect upon our operations and results from operations.

<PAGE>

         Our exploratory and development drilling and production  operations may
not be successful.

Our exploratory and  development  drilling and production  operations may not be
successful.  We  intend  to  drill  additional  wells  and  continue  production
operations  on our  current  wells.  There can be no  assurance  that our future
drilling  activities will be successful,  and we cannot be sure that our overall
drilling success rate or our production operations within a particular area will
not decline.  We may not recover all or any portion of our capital investment in
the wells or the underlying  leaseholds.  Unsuccessful drilling activities would
have a material  adverse  effect upon our results of  operations  and  financial
condition.  The  cost of  drilling,  completing,  and  operating  wells is often
uncertain,  and a number of  factors  can delay or prevent  drilling  operations
including:  (i) unexpected drilling conditions;  (ii) pressure or irregularities
in  formation;  (iii)  equipment  failures or  accidents;  (iv) adverse  weather
conditions;  and (iv) shortages or delays in  availability  of drilling rigs and
delivery of equipment.

Further,  coal beds from which gas is produced  may  frequently  contain  water,
which may hamper any production of gas in commercial  quantities.  The amount of
gas that can be  commercially  produced  depends  upon  the  coal  quality,  the
original gas content of the coal seam,  the thickness of the seam, the reservoir
pressure,  the rate at which gas is released from the coal, and the existence of
any natural fractures through which the gas can flow to the well bore.  However,
coal beds frequently  contain water that must be removed in order for the gas to
detach from the coal and flow to the well bore.  The average  life of a coal bed
well is only five to six  years.  Ability to remove  and  dispose of  sufficient
quantities of water from the coal seam will determine  whether or not production
of gas can occur in commercial quantities.

There is no guarantee  that the  potential  drilling  locations  that we have or
acquire in the future will ever produce oil or natural  gas,  which could have a
material adverse effect upon our results of operations.

         A decline in the price of our Common  Stock could affect our ability to
         raise further working capital and adversely impact our operations.

A decline in the price of our common  stock  could  affect our  ability to raise
further  working capital and adversely  impact our operations.  A decline in the
price of our common stock could  result in a reduction  in the  liquidity of our
common stock and a reduction in our ability to raise additional  capital for our
operations.  Because  our  operations  to date  have been  principally  financed
through  the sale of equity  securities,  a decline  in the price of our  common
stock  could  have an  adverse  effect  upon  our  liquidity  and our  continued
operations.  A reduction  in our ability to raise  equity  capital in the future
would have a material  adverse  effect upon our  business  plan and  operations,
including  our ability to continue  our current  operations.  If our stock price
declines,  we may not be able to raise additional capital or generate funds from
operations sufficient to meet our obligations.

         We are a new entrant into the oil and gas industry.

We are a new entrant into the oil and gas industry without profitable  operating
history.  Since November 15, 2001 (inception),  our activities have been limited
to  organizational   efforts,   obtaining  working  capital  and  acquiring  and
developing a very limited  number of properties.  As a result,  there is limited
information regarding production or revenue generation.  As a result, our future
revenues may be limited.

<PAGE>

The Emily Hawes  Field is the oil and gas  property  where most of our  drilling
capital resources have been employed.  This prospect is still in the development
stage,  and estimates made at this time as to proved or probable oil and natural
gas reserves cannot be guaranteed that sufficient reserves will be maintained or
new reserves  discovered for production.  The absence of a sustained  production
history provides risk regarding  independent  reserve estimates.  Property lease
positions in other locations that have been acquired by us are unproven,  having
little to no production, which prevents us from assigning any proved or probable
reserves to these other properties.

         No assurance of the accuracy of the estimates of oil and gas reserves.

There is no assurance of the accuracy of the  estimates of oil and gas reserves.
Reserve  estimates  are based upon various  assumptions,  including  assumptions
relating to oil and gas prices,  drilling  and  operating  expenses,  production
levels,  capital  expenditures,  taxes and  availability  of  funds.  No one can
measure  underground  accumulations of oil and natural gas in an exact way. As a
result,   estimated  quantities  of  proved  reserves,   projections  of  future
production  rates, and the timing of development  expenditures may be incorrect.
Any significant  variance from these assumptions to actual figures could greatly
affect our estimates of reserves, the economically recoverable quantities of oil
and  natural  gas  attributable  to any  particular  group  of  properties,  the
classifications  of reserves  based on risk of  recovery,  and  estimates of the
future net cash flows.

Further,  the present value of future net cash flows from any proved reserves is
not  necessarily  the same as the current  market value of any estimated oil and
natural  gas  reserves.  Actual  future net cash flows from oil and  natural gas
properties  also will be  affected  by factors  such as:  (i)  actual  prices we
receive  for oil  and  natural  gas;  (ii)  the  amount  and  timing  of  actual
production; (iii) supply of and demand for oil and natural gas; and (iv) changes
in governmental regulations or taxation.

The timing of both  production and incurrence of expenses in connection with the
development  and  production of oil and natural gas  properties  will affect the
timing of actual  future  net cash flows from  proved  reserves,  and thus their
actual present value.  In addition,  any discount  factor used when  calculating
discounted future net cash flows may not be the most appropriate discount factor
based on interest rates in effect from time to time and risks associated with us
or the oil and natural gas industry in general.  Actual future  production,  oil
and gas prices, revenues,  taxes, development  expenditures,  operating expenses
and  quantities of  recoverable  oil and gas reserves will most likely vary from
those  estimates  and any  significant  variance  could have a material  adverse
effect on our future results from operations.

         Unless we replace our oil and gas reserves, our reserves and production
will decline.

Unless we replace our oil and natural gas reserves,  our reserves and production
will decline, which would adversely affect our business, financial condition and
results of operations.  Producing oil and natural gas  reservoirs  generally are
characterized  by declining  production rates that vary depending upon reservoir
characteristics and other factors. Thus, our future oil and natural gas reserves
and production and, therefore,  our cash flow and income are highly dependent on
our success in efficiently  developing  and exploiting our current  reserves and
economically finding or acquiring additional recoverable reserves. We may not be
able to develop,  find or acquire additional reserves to replace our current and
future production at acceptable costs.

<PAGE>

         Prospects  that we decide to drill may not yield  natural gas or oil in
commercially viable quantities.

Prospects  that  we  decide  to  drill  may  not  yield  natural  gas  or oil in
commercially  viable  quantities.  We describe some of our current  prospects in
this prospectus. Our prospects are in various stages of evaluation, ranging from
prospects  that are ready to drill to prospects  that will  require  substantial
additional  seismic data  processing  and  interpretation.  However,  the use of
seismic data and other  technologies  and the study of  producing  fields in the
same area will not enable us to know conclusively  prior to drilling and testing
whether  natural gas or oil will be present or, if present,  whether natural gas
or oil  will  be  present  in  sufficient  quantities  to  recover  drilling  or
completion  costs  or to be  economically  viable.  If we  drill  wells  that we
identify as dry holes in our current and future prospects,  our drilling success
rate may decline and materially harm our business. In sum, the cost of drilling,
completing  and operating any wells is often  uncertain and new wells may not be
productive.

         We are substantially dependent upon only one or two properties.

We are  substantially  dependent upon only one property located in Texas,  which
causes our risk to be concentrated.  As a result,  we may be  disproportionately
exposed to the impact of delays or  interruptions of production from these wells
caused  by  significant   governmental   regulation,   transportation   capacity
constraints,  curtailment of production or  interruption  of  transportation  of
natural gas produced from the wells.

         Properties that we acquire may not produce as projected.

Properties  that we buy may not  produce  as  projected  and we may be unable to
determine reserve potential, identify liabilities associated with the properties
or obtain  protection from sellers against them. One of our growth strategies is
to capitalize  on  opportunistic  acquisitions  of oil and natural gas reserves.
However, our reviews of acquired properties are inherently incomplete because it
generally is not feasible to review in depth every individual  property involved
in each  acquisition.  A  detailed  review of  records  and  properties  may not
necessarily reveal existing or potential problems, nor will it permit a buyer to
become  sufficiently   familiar  with  the  properties  to  assess  fully  their
deficiencies  and potential.  Further,  environmental  problems,  such as ground
water contamination,  are not necessarily  observable even when an inspection is
undertaken.  Acquiring properties with liabilities would have a material adverse
effect upon our results of operations.

         The  potential  profitability  of oil and  gas  ventures  depends  upon
factors beyond our control.

The potential  profitability of oil and gas ventures depends upon factors beyond
our control. The potential  profitability of oil and gas properties is dependent
upon many factors beyond our control. For instance, world prices and markets for
oil  and  gas  are  unpredictable,   highly  volatile,  potentially  subject  to
governmental fixing,  pegging,  controls,  or any combination of these and other
factors, and respond to changes in domestic,  international,  political, social,
and economic environments.  Additionally, due to worldwide economic uncertainty,
the availability and cost of funds for production and other expenses have become
increasingly difficult,  if not impossible,  to project. These and other changes
and events may materially affect our financial performance.

Adverse  weather  conditions can also hinder drilling  operations.  A productive
well may become  uneconomic in the event water or other  deleterious  substances
are  encountered  which impair or prevent the  production of oil and/or gas from

<PAGE>

the well. In addition,  production  from any well may be  unmarketable  if it is
impregnated with water or other deleterious substances. The marketability of oil
and gas,  which may be  acquired  or  discovered  will be  affected  by numerous
factors beyond our control.  These factors include,  but are not limited to, the
proximity and capacity of oil and gas pipelines and processing equipment, market
fluctuations of prices, taxes, royalties,  land tenure, allowable production and
environmental  protection.  These factors cannot be accurately predicted and the
combination  of these factors may result in us not receiving an adequate  return
on our invested capital.

         We are dependent upon transportation and storage services provided by a
third party.

We are and  will  continue  to be  dependent  upon  transportation  and  storage
services provided by third parties.  We will be dependent on the  transportation
and storage  services  offered by various  interstate  and  intrastate  pipeline
companies  for the  delivery  and  sale of our oil and gas  supplies.  Both  the
performance of transportation  and storage services by interstate  pipelines and
the rates  charged  for such  services  are subject to the  jurisdiction  of the
Federal Energy Regulatory  Commission or state regulatory agencies. An inability
to obtain  transportation  and/or storage  services at  competitive  rates could
hinder our processing and marketing operations and/or affect our sales margins.

         Our results of operation are dependent upon market prices.

Our results of operations  are dependent  upon market prices for oil and natural
gas,  which  fluctuate   widely  and  are  beyond  our  CONTROL.   Our  revenue,
profitability,  and cash flow  depend  upon the  prices  and  demand for oil and
natural  gas.  The  markets for these  commodities  are very  volatile  and even
relatively modest drops in prices can significantly affect our financial results
and impede our  growth.  Prices  received  also will affect the amount of future
cash flow available for capital expenditures and may affect our ability to raise
additional  capital.  Lower prices may also affect the amount of natural gas and
oil that  can be  economically  produced  from  reserves  either  discovered  or
acquired.

Factors  that can cause price  fluctuations  include:  (i) the level of consumer
product demand; (ii) weather conditions; (iii) domestic and foreign governmental
regulations; (iv) the price and availability of alternative fuels; (v) technical
advances  affecting energy  consumption;  (vi) proximity and capacity of oil and
gas pipelines and other transportation facilities; (vii) political conditions in
natural gas and oil producing regions; (viii) the domestic and foreign supply of
natural gas and oil;  (ix) the ability of members of  Organization  of Petroleum
Exporting Countries to agree to and maintain oil price and production  controls;
(x) the price of foreign imports;  and (xi) overall domestic and global economic
conditions.

         The  availability  of a ready  market for our oil and gas depends  upon
numerous factors beyond our control.

The  availability  of a ready market for our oil and gas depends  upon  numerous
factors  beyond our control,  including  the extent of domestic  production  and
importation   of  oil  and  gas,  the  relative   status  of  the  domestic  and
international  economies,  the  proximity  of our  properties  to gas  gathering
systems,  the capacity of those  systems,  the  marketing  of other  competitive
fuels,   fluctuations  in  seasonal  demand  and   governmental   regulation  of
production,  refining,  transportation and pricing of oil, natural gas and other
fuels.

         The oil and gas industry  involves many operating  risks that can cause
substantial losses.

<PAGE>

The oil and gas industry in which we operate  involves many operating risks that
can cause substantial losses. Our drilling activities are subject to many risks,
including the risk that we will not discover commercially productive reservoirs.
Drilling for oil and natural gas can be  unprofitable,  not only from dry holes,
but from productive  wells that do not produce  sufficient  revenues to return a
profit.  In addition,  our drilling and producing  operations  may be curtailed,
delayed or canceled as a result of other  factors,  including:  (i) fires;  (ii)
explosions;  (iii) blow-outs and surface cratering; (iv) uncontrollable flows of
underground  natural gas, oil, or formation water; (v) natural  disasters;  (vi)
facility and  equipment  failures;  (vii) title  problems;  (viii)  shortages or
delivery delays of equipment and services;  (ix) abnormal  pressure  formations;
and (x)  environmental  hazards such as natural gas leaks, oil spills,  pipeline
ruptures and discharges of toxic gases.

If any of these events occur, we could incur  substantial  losses as a result of
(i) injury or loss of life;  (ii) severe damage to and  destruction of property,
natural resources or equipment;  (iii) pollution and other environmental damage;
(iv) clean-up responsibilities; (v) regulatory investigation and penalties; (vi)
suspension of our operations;  or (vii) repairs necessary to resume  operations.
If we were to  experience  any of these  problems,  it could  affect well bores,
gathering  systems and processing  facilities,  any one of which could adversely
affect our  ability to conduct  operations.  We may be  affected by any of these
events more than larger  companies,  since we have limited working  capital.  We
currently do not maintain  liability  insurance  on bodily  injury,  which would
include coverage for pollution,  environmental  damage and chemical spills.  For
other risks, we may further elect not to obtain insurance if we believe the cost
of  available  insurance  is  excessive  relative  to the  risks  presented.  In
addition,  pollution and environmental  risks generally are not fully insurable.
If a significant accident or other event occurs and is not covered by insurance,
it could adversely affect operations. Moreover, even if we obtained insurance in
the  future,  we  cannot  provide  assurance  that we would be able to  maintain
adequate insurance at rates considered reasonable.

         The oil and gas industry is highly competitive.

The oil and gas industry is highly competitive and there is no assurance that we
will be successful in acquiring the leases.  The oil and natural gas industry is
intensely  competitive,  and we compete with other  companies  that have greater
resources.  Many of these  companies  not only  explore  for and produce oil and
natural  gas, but also carry on refining  operations  and market  petroleum  and
other products on a regional,  national or worldwide basis.  These companies may
be  able  to pay  more  for  productive  oil  and  natural  gas  properties  and
exploratory prospects or define, evaluate, bid for and purchase a greater number
of properties and prospects  than our financial or human  resources  permit.  In
addition,  these  companies may have a greater  ability to continue  exploration
activities  during periods of low oil and natural gas market prices.  Our larger
competitors  may be able to absorb  the burden of  present  and future  federal,
state, local and other laws and regulations more easily than we can, which would
adversely  affect our competitive  position.  Our ability to acquire  additional
properties  and to discover  reserves in the future will be  dependent  upon our
ability  to  evaluate  and  select   suitable   properties   and  to  consummate
transactions in a highly competitive environment.  In addition,  because we have
fewer financial and human resources than many companies in our industry,  we may
be at a disadvantage in bidding for exploratory  prospects and producing oil and
natural gas properties.

         There can be no assurance we will be able to obtain drilling equipment.

<PAGE>

There can be no assurance we will be able to obtain  drilling  equipment to meet
our  drilling  requirements.  There is  currently  a high  demand  for  drilling
equipment in the State of Texas. We may experience delays in obtaining  drilling
rigs  due  to the  high  drilling  demand  in  the  areas  where  we  have  been
concentrating our oil and gas targeted  production and leasing  programs.  There
can be no  assurance  that we will be able  to  obtain  the  requisite  drilling
equipment to meet our planned drilling  initiatives  according to our timetable.
In the event  that we are unable to obtain  drilling  equipment  to conduct  our
exploration  operations,  it  could  have a  material  adverse  effect  upon our
business and our results of operations.

         The  marketability  of natural  resources  will be affected by numerous
factors.

The  marketability  of natural  resources  will be affected by numerous  factors
beyond our control  which may result in us not  receiving an adequate  return on
invested  capital to be  profitable  or  viable.  The  marketability  of natural
resources which may be acquired or discovered by us will be affected by numerous
factors beyond our control. These factors include market fluctuations in oil and
gas pricing and demand,  the proximity and capacity of natural  resource markets
and  processing  equipment,  governmental  regulations,  land tenure,  land use,
regulation   concerning   the  importing  and  exporting  of  oil  and  gas  and
environmental  protection regulations.  The exact effect of these factors cannot
be accurately  predicted,  but the combination of these factors may result in us
not receiving an adequate return on invested capital to be profitable or viable.

         Oil and gas operations are subject to comprehensive regulation.

Oil and gas operations are subject to  comprehensive  regulation which may cause
substantial  delays or require  capital  outlays in excess of those  anticipated
causing an adverse  effect us. Oil and gas  operations  are  subject to federal,
state, and local laws relating to the protection of the  environment,  including
laws regulating  removal of natural  resources from the ground and the discharge
of materials  into the  environment.  Oil and gas operations are also subject to
federal, state, and local laws and regulations which seek to maintain health and
safety  standards  by  regulating  the design and use of  drilling  methods  and
equipment.  Various  permits  from  government  bodies are required for drilling
operations to be conducted;  no assurance can be given that such permits will be
received.  Environmental  standards  imposed by  federal,  provincial,  or local
authorities  may be  changed  and any such  changes  may have  material  adverse
effects  on our  activities.  Moreover,  compliance  with  such  laws may  cause
substantial  delays or require capital  outlays in excess of those  anticipated,
thus  causing  an  adverse  effect on us.  Additionally,  we may be  subject  to
liability for pollution or other environmental damages which we may elect not to
insure  against due to prohibitive  premium costs and other reasons.  To date we
have  not  been  required  to  spend   material   amounts  on  compliance   with
environmental  regulations.  However,  we may be required to do so in future and
this may affect our ability to expand or maintain our operations.

         Exploration  and  production  activities  are subject to  environmental
regulations.

Exploration  and  production  activities  are  subject to certain  environmental
regulations  which may prevent or delay the  commencement  or continuance of our
operations. In general, our exploration and production activities are subject to
certain federal,  state and local laws and regulations relating to environmental
quality and pollution control.  Such laws and regulations  increase the costs of
these  activities and may prevent or delay the  commencement or continuance of a
given  operation.  Compliance  with  these  laws and  regulations  has not had a
material effect on our operations or financial condition to date.  Specifically,
we are subject to legislation  regarding  emissions into the environment,  water
discharges  and  storage and  disposition  of  hazardous  wastes.  In  addition,

<PAGE>

legislation  has been  enacted  which  requires  well and  facility  sites to be
abandoned and reclaimed to the satisfaction of state authorities.  However, such
laws and  regulations  are  frequently  changed and we are unable to predict the
ultimate cost of compliance. Generally, environmental requirements do not appear
to affect us any  differently  or to any  greater  or lesser  extent  than other
companies in the industry.

We  believe  that  our  operations  comply  in all  material  respects  with all
applicable  environmental  regulations.  However, we are not insured against all
possible environmental risks.

         Any change to government regulation/administrative practices may have a
         negative impact on our ability to operate and our profitability.

Any change to government regulation/administrative practices may have a negative
impact on our ability to operate and our profitability.  The laws,  regulations,
policies  or  current   administrative   practices  of  any   government   body,
organization   or   regulatory   agency  in  the  United  States  or  any  other
jurisdiction,  may be changed,  applied or  interpreted  in a manner  which will
fundamentally alter our ability to carry on business.  The actions,  policies or
regulations, or changes thereto, of any government body or regulatory agency, or
other special interest groups,  may have a detrimental  effect on us. Any or all
of these  situations may have a negative impact on our ability to operate and/or
our profitably.

         We may be unable to retain key employees or consultants.

We may be unable to retain key employees or  consultants  or recruit  additional
qualified  personnel.  Our extremely  limited  personnel  means that we would be
required to spend significant sums of money to locate and train new employees in
the event any of our employees  resign or terminate their employment with us for
any reason. Due to our limited operating history and financial resources, we are
entirely  dependent on the continued service of Sacha Spindler,  Chief Executive
Officer, and L. William Kerrigan, Co-President.  Further, we do not have key man
life  insurance on either of these  individuals.  We may not have the  financial
resources to hire a replacement  if one or both of our officers were to die. The
loss of service of either of these employees could therefore  significantly  and
adversely affect our operations.

         Certain of our  officers and  directors  may be subject to conflicts of
interest.

Our officers and directors  may be subject to conflicts of interest.  Certain of
our officers and directors  serve only part time and are subject to conflicts of
interest.  Certain of these  officers  and  directors  each  devote  part of his
working time to other business  endeavors.  These business  endeavors as well as
other business  opportunities should be presented to the company. Such conflicts
include  deciding  how  much  time to  devote  to our  affairs,  as well as what
business  opportunities  should be presented  to the  company.  Because of these
relationships,  our  officers  and  directors  may be  subject to  conflicts  of
interest.

Risks Related to our Common Stock

         Sales of a  substantial  number of share or our  Common  Stock into the
         public market may result in significant  downward pressure on the price
         of our Common Stock.

Sales of a  substantial  number of shares of our  common  stock  into the public
market by certain  stockholders may result in significant  downward  pressure on
the price of our common  stock and could  affect  your  ability  to realize  the

<PAGE>

current  trading  price of our common stock.  Sales of a  substantial  number of
shares of our common stock in the public  market by certain  stockholders  could
cause a reduction  in the market  price of our common  stock.  As of the date of
this  Annual  Report,  we have  27,221,581  shares of common  stock  issued  and
outstanding.  As of December 31, 2004, there are 17,900,202 shares of our common
stock that are  restricted  securities as that term is defined in Rule 144 under
the  Securities  Act of 1933, as amended (the  "Securities  Act").  Although the
Securities Act and Rule 144 place certain prohibitions on the sale of restricted
securities,  restricted  securities  may be sold into the  public  market  under
certain conditions.  Further, as of December 31, 2004, there are an aggregate of
8,276,400 Stock Options and 3,642,000 Warrants outstanding.

Any  significant  downward  pressure on the price of our common stock as certain
stockholders  sell their shares of our common stock could  encourage short sales
by the selling  stockholders or others. Any such short sales could place further
downward pressure on the price of our common stock.

         The trading  price of our Common  Stock on the OTC  Bulletin  Board has
         been and may continue to fluctuate significantly.

The trading price of our Common Sock on the OTC Bulletin  Board has been and may
continue  to  fluctuate  significantly  and  stockholders  may  have  difficulty
reselling  their shares.  During fiscal year ended December 31, 2004, our Common
Sock has traded as low as $0.17 and as high as $0.68.  In addition to volatility
associated  with  Bulletin  Board  securities  in  general,  the  value  of your
investment could decline due to the impact of any of the following  factors upon
the market  price of our common  stock:  (i) changes in the world wide price for
oil or natural gas; (ii) disappointing results from our discovery or development
efforts;  (iii) failure to meet our revenue or profit goals or operating budget;
(iv)  decline  in  demand  for our  common  stock;  (v)  downward  revisions  in
securities  analysts'  estimates or changes in general market  conditions;  (vi)
technological  innovations by competitors  or in competing  technologies;  (vii)
lack of funding  generated for  operations;  (viii)  investor  perception of our
industry or our prospects; and (ix) general economic trends.

In  addition,   stock  markets  have   experienced   extreme  price  and  volume
fluctuations  and the market  prices of  securities  have been highly  volatile.
These  fluctuations  are  often  unrelated  to  operating  performance  and  may
adversely  affect the market price of our common stock.  As a result,  investors
may be unable to sell their  shares at a fair price and you may lose all or part
of your investment.

         Additional issuances of equity securities may result in dilution to our
         existing shareholders.

Additional issuances of equity securities may result in dilution to our existing
stockholders.   Our  Articles  of   Incorporation   authorize  the  issuance  of
100,000,000  shares of Common Stock. The Board of Directors has the authority to
issue additional shares of our capital stock to provide additional  financing in
the future and the  issuance of any such shares may result in a reduction of the
book value or market price of the outstanding  shares of our Common Stock. If we
do issue any such additional  shares,  such issuance also will cause a reduction
in the proportionate ownership and voting power of all other stockholders.  As a
result of such  dilution,  if you  acquire  shares  of our  common  stock,  your
proportionate  ownership interest and voting power could be decreased.  Further,
any such issuances could result in a change of control.

<PAGE>

         Our Common Stock is classified as a "penny stock" under SEC rules which
         limits the market for our Common Stock.

Our Common Stock is  classified  as a "penny stock" under SEC rules which limits
the  market  for our Common  Stock.  Because  our stock is not traded on a stock
exchange or on the NASDAQ  National  Market or the NASDAQ Small Cap Market,  and
because  the  market  price of the Common  Stock is less than $5 per share,  the
Common Stock is classified as a "penny stock." Our stock has not traded above $5
per share.  SEC Rule 15g-9  under the  Exchange  Act  imposes  additional  sales
practice  requirements on broker-dealers  that recommend the purchase or sale of
penny  stocks to  persons  other  than  those  who  qualify  as an  "established
customer" or an  "accredited  investor."  This includes the  requirement  that a
broker-dealer  must make a  determination  that  investments in penny stocks are
suitable for the customer and must make  special  disclosures  to the  customers
concerning the risk of penny stocks. Many broker-dealers  decline to participate
in penny stock transactions  because of the extra requirements  imposed on penny
stock  transactions.  Application  of the penny stock rules to our common  stock
reduces the market liquidity of our shares, which in turn affects the ability of
holders of our Common Stock to resell the shares they purchase, and they may not
be able to resell at prices at or above the prices they paid.

         Nevada law and our Articles of Incorporation  may protect our directors
         from certain types of lawsuits.

Nevada law and our  Articles of  Incorporation  may protect our  directors  from
certain  types of lawsuits.  Nevada law provides that our officers and directors
will not be liable to us or our  stockholders  for monetary  damages for all but
certain types of conduct as officers and  directors.  Our Bylaws permit us broad
indemnification powers to all persons against all damages incurred in connection
with our  business  to the  fullest  extent  provided  or  allowed  by law.  The
exculpation  provisions  may have the  effect of  preventing  stockholders  from
recovering   damages  against  our  officers  and  directors   caused  by  their
negligence, poor judgment or other circumstances. The indemnification provisions
may require us to use our limited  assets to defend our officers  and  directors
against claims, including claims arising out of their negligence, poor judgment,
or other circumstances.

ITEM 2. DESCRPTION OF PROPERTIES

Except as described above  regarding the oil and gas  properties,  we do own any
other real estate or property. We lease office space and its offices are located
at 3200 Southwest Freeway, Suite 3300, Houston, Texas 77027.

ITEM 3. LEGAL PROCEEDINGS

We are not  aware  of any  legal  proceeding  contemplated  by any  governmental
authority  or any other  party  involving  us or our  properties  other  than as
discussed below. As of the date of this Annual Report,  no director,  officer or
affiliate is: (i) a party adverse to us in any legal proceeding;  of (ii) has an
adverse interest to us in any legal  proceedings.  We are not aware of any other
legal  proceedings  pending  or that  have  been  threatened  against  us or our
properties other than as follows.

On or about September 15, 2004, a lawsuit was filed by Petroguard Company,  Inc.
("Petroguard")  against Petrogen,  Inc. On or about October 12, 2004,  Petrogen,
Inc.  removed  this case to the United  States  District  Court for the Southern
District of Texas,  Victoria  Division,  Civil  Action No.  V-04-94,  Petroguard
Company,  Inc. v. Petrogen,  Inc. and Leo William  Kerrigan.  The claims made by
Petroguard  Company,  Inc.  in its  complaint  against  Petrogen,  Inc.  and Mr.
Kerrigan   allege   conversion,   unjust   enrichment,   fraud   and   negligent
representation,  and a request for declaratory  judgement and injunctive  relief
regarding  a cease  and  desist  order for  utilization  and  distribution  of a
three-dimensional  seismic survey. The complaint further alleges that Petroguard
incurred   certain   expenses    developing   the   geologic   and   geophysical
interpretations  of a  three-dimensional  seismic  survey of  approximately  135
square miles  constituting  Esperitu-Santo Bay and most of Matagorda Island, and
that Petrogen wrongfully obtained the seismic survey.  Petrogen has responded in
its answer to the complaint  denying  receipt of the seismic data as alleged and
counterclaiming  that Petrogen is in possession of some related data that is not
three-dimensional,  which it properly acquired from a company named Fortune.  As
of the date of this Annual  Report,  we intend to  aggressively  defend all such
claims and to pursue all such legal actions remedies against Petroguard.

On or about April 6, 2005,  Petrogen,  Inc.  filed a lawsuit  against Davis Gulf
Coast  ("Davis") in the 55th Judicial  District Court of Harris  County,  Texas,
Civil Action No. 2004-65553.  The claims made by Petrogen, Inc. in its complaint
against  Davis  generally  allege breach of contract.  Previously,  Petrogen and
Davis had entered  into an  agreement  pursuant to which Davis agreed to provide
support and services for the drilling program on Matagorda Island. The complaint
alleges that Davis  breached its  agreement by failing to perform  services in a
time and  proper  manner.  Davis  has filed an answer  and  counterclaim  to the
complaint  alleging  that  Petrogen  failed to  compensate  it in the  amount of
$177,234.53.  As of the date of this Annual  Report,  we intend to  aggressively
pursue all such claims and to pursue all such legal actions and remedies against
Davis.

On  approximately  October 20, 2004, we commenced an action  against  X-Clearing
Corp, our previous transfer agent ("X-Clearing"),  in the District Court for the
City and County of Denver, state of Colorado, Case No. 04-CV-8749, for return of
our stock record documents. X-Clearing Corp has filed an answer and counterclaim
asserting that we are liable to X-Clearing  for certain legal expenses  incurred
by  X-Clearing  Corp in  prosecuting  an action  against  the  Depository  Trust
Company, which legal expenses are undeterminable at this time. As of the date of
this  Annual  Report,  we intend to  aggressively  pursue all such claims and to
pursue all such legal actions and remedies against X-Clearing.

<PAGE>

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

During  fiscal year ended  December 31, 2004,  no matters were  submitted to our
stockholders for approval.

PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

MARKET INFORMATION

Our Common Stock is traded on the OTC Bulletin Board under the symbol "PTGC" and
on the Frankfurt  and Berlin Stock  Exchanges in Germany under the symbol "PTD".
The market for our Common Stock is limited, volatile and sporadic. The following
table sets forth the high and low sales prices  relating to our Common Stock for
the last two fiscal years. These quotations reflect  inter-dealer prices without
retail  mark-up,   mark-down,  or  commissions,   and  may  not  reflect  actual
transactions.

        Quarter Ended                High Bid          Low Bid
        12/31/04                     $0.58             $0.49
        09/310/04                    $0.55             $0.41
        06/30/04                     $0.52             $0.33
        03/31/04                     $0.39             $0.22
        12/31/03                     $0.29             $0.15
        09/30/03                     $0.22             $0.15
        06/30/03                     $0.44             $0.16
        03/31/03                     $0.27             $0.25


HOLDERS

As of the date of this Annual Report, we have  approximately 139 shareholders of
record.

DIVIDENDS

No  dividends  have ever been  declared by our Board of  Directors on our Common
Stock. Our previous losses do not currently indicate the ability to pay any cash
dividends,  and we do not have any  intention  of paying cash  dividends  on our
Common Stock in the foreseeable future.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER COMPENSATION PLANS

We have one equity  compensation plan, the Petrogen Corp. Stock Option Plan. The
table set forth below  presents the  securities  authorized  for  issuance  with
respect to the Stock Option Plan under which equity  securities  are  authorized
for issuance as of December 31, 2004:

<PAGE>
<TABLE>
<CAPTION>

                                      Equity Compensation Plan Information
         ---------------------------------------------------------------------------------------------

                    Number of Securities     Weighted-Average Exercise     Number of Securities
                      To Be Issued Upon        Price of Outstanding        Remaining Available
                  Exercise of Outstanding       Options, Warrants          for Future Issuance
                      Options, Warrants            and Rights              Equity Compensation
                        and Rights                                         Plans (excluding (a))

                          (a)                        (b)                           (c)
         ---------------------------------------------------------------------------------------------

<S>                       <C>                         <C>                         <C>
Equity Compensation
Plans Approved by
Security Holders

Stock Option               8,276,400                  $0.45                       2,215,000

Equity Compensation
Plans Not Approved
By Security Holders

Warrants                   3,642,000                  $0.50                           -0-

Total                     11,918,400                                              2,215,000

------------------------------------------------------------------------------------------------------
</TABLE>

Petrogen Corp. 2004 Stock Option Plan

On July 23, 2004, our Board of Directors unanimously approved and adopted a 2004
stock  option plan (the "Stock  Option  Plan").  The purpose of the Stock Option
Plan is to advance  our  interests  and the  interests  of our  shareholders  by
affording  our key  personnel  opportunity  for  investment  and  the  incentive
advantages inherent in stock ownership.  Pursuant to the provisions of the Stock
Option Plan, stock options (the "Stock Options") will be granted only to our key
personnel,  generally  defined as a person  designated by our Board of Directors
upon whose  judgment,  initiative  and efforts we may rely  including any of our
directors, officers, employees or consultants.

The Stock Option Plan is to be  administered  by our Board of  Directors,  which
shall  determine  (i) the persons to be granted  Stock  Options  under the Stock
Option  Plan;  (ii) the number of shares  subject to each  option,  the exercise
price of each  Stock  Option;  and  (iii)  whether  the  Stock  Option  shall be
exercisable  at any time  during the option  period of ten (10) years or whether
the Stock Option shall be  exercisable in  installments  or by vesting only. The
Stock  Option Plan  provides  authorization  to our Board of  Directors to grant
Stock  Options to purchase a total  number of shares of our Common  Stock of the
Company, not to presently exceed 6,000,000 shares of Common Stock as at the date
of adoption by our Board of Directors  of the Stock  Option Plan.  At the time a
Stock  Option is granted  under the Stock  Option  Plan,  our Board of Directors
shall fix and determine  the exercise  price at which shares of our Common Stock
may be acquired;  provided,  however,  that any such exercise price shall not be
less than that  permitted  under the rules and policies of any stock exchange or
over-the-counter market which is applicable to us.

<PAGE>

In the event an optionee who is one of our directors or officers ceases to serve
in that  position,  any Stock  Option  held by such  optionee  generally  may be
exercisable within up to ninety (90) calendar days after the effective date that
his position ceases,  and after such 90-day period any unexercised  Stock Option
shall  expire.  In the  event  an  optionee  who is  one  of  our  employees  or
consultants  ceases to be employed by us, any Stock Option held by such optionee
generally  may be  exercisable  within up to sixty (60)  calendar days (or up to
thirty (30)  calendar days where the optionee  provided only investor  relations
services to the Company) after the effective  date that his  employment  ceases,
and after such 60- or 30-day period any unexercised Stock Option shall expire.

No Stock Options granted under the Stock Option Plan will be transferable by the
optionee,  and each Stock Option will be exercisable  during the lifetime of the
optionee subject to the option period of ten (10) years or limitations described
above.  Any Stock  Option  held by an  optionee  at the time of his death may be
exercised by his estate  within one (1) year of his death or such longer  period
as the Board of Directors may determine.

Unless restricted by the option  agreement,  the exercise price shall by paid by
any of the following methods or any combination of the following methods: (i) in
cash; (ii)  non-forfeitable,  unrestricted or restricted shares of Common Stock,
which are already  owned by the Optionee and have a market  referenced  value at
the time of exercise  that is equal to the Option  price;  (iii) any other legal
consideration  that the  Board of  Directors  may  deem  appropriate,  including
without  limitation  any for of  consideration  authorized  on such basis as our
Board of Directors may determine in accordance  with the Stock Option Plan;  and
(iv) any  combination  of the  foregoing.  Out  Board of  Directors  in its sole
discretion may permit a so-called "cashless exercise" (net exercise of the Stock
Options.

The Stock Option Plan further  provides  that,  subject to the provisions of the
Stock Option Plan and prior  shareholder  approval,  our Board of Directors  may
grant to any of our key personnel who is an employee eligible to receive options
one or more  incentive  stock options to purchase the number of shares of Common
Stock allotted by the Board of Directors (the "Incentive  Stock  Options").  The
option  price per share of Common  Stock  deliverable  upon the  exercise  of an
Incentive  Stock  Option  shall be no less than fair market  value of a share of
Common Stock on the date of grant of the Incentive  Stock Option.  In accordance
with the terms of the Stock Option Plan,  "fair market  value" of the  Incentive
Stock  Option as of any date  shall not be less than the  closing  price for the
shares of Common Stock on the last trading day preceding the date of grant.  The
option term of each  Incentive  Stock Option shall be determined by the Board of
Directors, which shall not commence sooner than from the date of grant and shall
terminate  no later than ten (10) years from the date of grant of the  Incentive
Stock Option, subject to possible early termination as described above.

We caused to be filed with the  Securities  and Exchange  Commission on July 23,
2004  a  registration  statement  on  "Form  S-8 - For  Registration  Under  the
Securities  Act of 1933 of  Securities  to Be Offered to  Employees  Pursuant to
Employee  Benefit  Plans".  The  S-8  registration  statement  became  effective
registering Stock Options under the Stock Option Plan in the amount of 5,000,000
shares at $0.38 per share. As of the date of this Annual Report, an aggregate of
3,785,000 Stock Options have been granted under the Stock Option Plan.

<PAGE>

Petrogen Corp. 2003 Stock Option Plan

On November 1, 2003, our Board of Directors unanimously approved an amendment to
the 2003 stock option plan (the "2003 Stock  Option  Plan"),  providing  for the
authorization  to grant up to 10,000,000  Stock Options.  As of the date of this
Annual Report,  an aggregate of 10,000,000 Stock Options have been granted under
the 2003 Stock Option Plan.

As of the date of this Annual  Report,  under the Stock Option Plan and the 2003
Stock Option Plan, an aggregate of  16,290,000  Stock Options have been granted,
an aggregate of 7,584,600 Stock Options have been exercised, and an aggregate of
1,124,000 Stock Options have been cancelled.

COMMON STOCK PURCHASE WARRANTS

Private Placement Offering

During  fiscal year ended  December 31, 2004,  we completed a private  placement
offering whereby we issued 7,284,000 units (the "Units").  Each Unit consists of
one share of our Common  Stock,  one-half  of one share  purchase  warrant  (the
"Share Purchase  Warrant") and one piggyback warrant (the "Piggyback  Warrant").
Each whole Share  Purchase  Warrant  entitles the holder thereof to purchase one
additional  share of our Common Stock until January 31, 2005 at a purchase price
of $0.50 per whole Share Purchase  Warrant and each Piggyback  Warrant  entitles
the holder thereof to purchase one  additional  shares of our Common Stock until
January 31, 2006 at a purchase price of $1.00 per Piggyback Warrant, only if the
Share Purchase Warrants are first exercised in full.

As of the date of this  Annual  Report,  no Share  Purchase  Warrants  have been
exercised  by the holder  thereof,  thus have expired in  accordance  with their
terms,  and are  deemed  null and void.  As of the date of this  Annual  Report,
7,284,000 Piggyback Warrants remain outstanding.

Share Exchange Agreement

Pursuant to the terms of the Share Exchange  Agreement,  we granted an aggregate
of 167,189 common stock purchase warrants (the  "Warrant(s)")  pursuant to which
the holder  thereof  had the right to convert  such  Warrant  into shares of our
Common Stock on a one-to-one basis as follows:  (i) 23,715 Warrants  exercisable
at the rate of $1.20 per share expiring  December 18, 2003; (ii) 23,715 Warrants
exercisable  at the rate of $1.20 per share  expiring  December 20, 2003;  (iii)
14,822 Warrants  exercisable at the rate of $0.40 per share expiring October 29,
2004; (iv) 11,857 Warrants exercisable at the rate of $0.50 per share until June
22,  2003 and  thereafter  at the rate of $0.80 per share  expiring  on June 22,
2004;  (v)  18,972  Warrants  exercisable  at the rate of $0.50 per share  until
August 9, 2003 and thereafter at the rate of $0.80 per share expiring  August 9,
2004; (vi) 59,286  Warrants  exercisable at the rate of $0.40 per share expiring
November 13, 2004;  and (vii) 14,822  Warrants  exercisable at the rate of $0.40
per share expiring November 14, 2004.

As of the date of this Annual Report, none of the Warrants were exercised by the
holders  thereof,  have expired in accordance  with their terms,  and are deemed
null and void.

<PAGE>

RECENT SALES OF UNREGISTERED SECURITIES AND CHANGE IN CONTROL OF COMPANY

Private Placement Offering

During  fiscal year ended  December 31, 2004,  we completed a private  placement
offering  whereby we issued  7,284,000  Units for gross  proceeds of $1,821,000.
Each Unit  consists  of one share of our  Common  Stock,  one-half  of one Share
Purchase  Warrant and one Piggyback  Warrant.  Each whole Share Purchase Warrant
entitles the holder thereof to purchase one additional share of our Common Stock
until  January  31, 2005 at a purchase  price of $0.50 per whole Share  Purchase
Warrant and each Piggyback  Warrant  entitles the holder thereof to purchase one
additional shares of our Common Stock until January 31, 2006 at a purchase price
of $1.00 per Piggyback  Warrant,  only if the Share Purchase  Warrants are first
exercised in full.

Therefore,  we issued 7,284,000 shares of our restricted Common Stock underlying
the Units.  The Units were offered and sold to accredited  and/or  sophisticated
investors in reliance on  Regulation S and Rule 506  promulgated  under  Section
4(2) of the Securities Act of 1933, as amended (the "1933 Securities  Act"). The
Units sold in the offering have not been  registered  under the 1933  Securities
Act or state securities laws and may not be offered or sold absent  registration
with the Securities and Exchange Commission or an applicable  exemption from the
registration requirements.

As of the  date  of this  Annual  Report,  we  have  issued  -0-  shares  of our
restricted Common Stock pursuant to the exercise of the Share Purchase Warrants.

Subordinated Debentures

As of August  18,  2003,  certain  amounts  were due and owing by us to  certain
affiliate parties (collectively, the "Debenture Group"). All such amounts in the
aggregate  of  $723,673  were  due and  owing  to the  Debenture  Group  under a
subordinated debenture (the "Subordinated  Debenture").  On approximately August
18,  2003,  we issued the  Subordinated  Debenture  in the  aggregate  amount of
$723,673. The Subordinated Debenture: (i) bore interest at 10% per annum payable
annually  in  arrears;  (ii) had a term of two years from the date of  issuance;
(iii) was subordinate to bank or lending institutional debt financing;  (iv) was
convertible into shares of our restricted  Common Stock at $1.00 per share under
terms  requiring  full payout of  outstanding  principal and  interest;  and (v)
required monthly payments of $10,000 beginning December 2003. We accrued $61,127
in interest  in  connection  with the  Subordinated  Debenture,  and had paid an
aggregate of $80,000.  Therefore,  as at June 30, 2004,  an aggregate  amount of
$714,800 remained due and owing on the Subordinated Debenture.

On July 8, 2004, we entered into a settlement agreement with the Debenture Group
(the  "Settlement  Agreement").  Pursuant  to the  terms and  provisions  of the
Settlement  Agreement:  (i) the Debenture  Group agreed to sell and transfer the
Subordinated  Debenture  to Acceder  Technology  PTE  ("Acceder")  pursuant to a
debenture assignment agreement;  (ii) the Debenture Group agreed to grant to the
Chelsea Group Inc.  ("Chelsea") an assignable option to purchase up to 1,134,457
shares  of the  restricted  Common  Stock  respectively  held of  record  by the
individual  members of the Debenture Group at $0.25 per share exercisable on the
following  terms:  (a) 25% on or before September 15, 2004, (b) 25% on or before
December 15, 2004, (c) 25% on or before March 15, 2005, and (d) 25% on or before
June 15, 2005; and (iii) subject to the  performance  of the above,  the parties
agreed to release,  remise and forever  discharge  one another  from any and all
manner of actions, causes of action, suits, debts, contracts, claims relating to
or arising from the matters encompassed in the Subordinated Debenture.

Subsequently,  on  August  6,  2004,  we  entered  into a  debenture  conversion
agreement with Acceder (the "Debenture Conversion  Agreement").  Pursuant to the
terms and  provisions of the Debenture  Conversion  Agreement:  (i) we agreed to

<PAGE>

settle the debt due and owing to Acceder under the Subordinated Debenture in the
aggregate  amount  of  $733,672.53  by  issuance  of  2,934,690  shares  of  our
restricted  Common Stock at $0.25 per share; (ii) we acknowledged the assignment
of such debt by Acceder to certain  designees of Acceder;  (iii) we acknowledged
the  respective  election  of  conversion  of  such  proportionate  debt  by the
designees  at $0.25 per share;  and (iv) we agreed to issue to such  designees a
specified number of the 2,934,690 shares of restricted  Common Stock as directed
by Acceder and pursuant to the notice of conversion.

Therefore,  we issued  2,934,690  shares of our  restricted  Common  Stock.  The
designees acknowledged that the securities to be issued have not been registered
under the 1933 Securities Act, that the designee understood the economic risk of
an investment in the  securities,  and that the designee had the  opportunity to
ask questions of and receive answers from our management  concerning any and all
matters related to acquisition of the securities. No underwriter was involved in
the  transaction  and no commissions  were paid. The shares of Common Stock were
issued  under the  exemption  from  registration  pursuant to  Regulation  S and
Section 4(2) of the 1933 Securities Act.

Stock Options Exercised

During fiscal year ended  December 31, 2004, we issued an aggregate of 6,339,600
shares of our  restricted  Common  Stock  pursuant to the  exercise of 6,339,600
Stock  Options at  exercise  prices  ranging  from $0.20 to $0.50 per share.  We
received an aggregate of $1,702,900 in proceeds,  of which $221,000 was received
in cash, $632,500 was notes receivable (of which $550,000 was repaid and $50,000
was settled for debt), and $849,400 was used to reduce existing debt.

ITEM 6. MANAGEMENT'S DUSCUSSION AND ANALYSIS OR PLAN OF OPERATION

The following  discussions of our results of operations  and financial  position
should be read in conjunction with the financial statements and notes pertaining
to them that appear elsewhere in this Form 10-KSB

FISCAL YEAR ENDED  DECEMBER 31, 2004 COMPARED TO FISCAL YEAR ENDED  DECEMBER 31,
2003.

Results of Operation

Our net losses  during  fiscal year ended  December 31, 2004 were  approximately
($4,003,722)  compared to  ($1,679,387)  for fiscal year ended December 31, 2003
(an increase of  $2,324,335).  During  fiscal year ended  December 31, 2004,  we
recorded  revenue  in the  form  of  operator  fees  of  approximately  $105,716
resulting from amounts we charge for management services and interest revenue in
the amount of $1,596 compared to $-0- revenue  recorded during fiscal year ended
December 31, 2003.

During fiscal year ended  December 31, 2004, we incurred  operating  expenses of
approximately  $4,111,034  compared to operating expenses of $1,679,387 incurred
during fiscal year ended December 31, 2003. These operating  expenses  consisted
of: (i) $652,002 (2003: $369,890) in general and administrative  expenses;  (ii)
$609,000  (2003:  $190,145) in management and consulting  fees to related party;
(iii)  $2,046,650  (2003:  $722,445) in management and  consulting  fees - stock
based compensation relating to the fair valuation of Stock Options granted; (iv)
$521,674 (2003:  $301,839) in professional fees; (v) $52,428 (2003:  $78,678) in
interest expense; (vi) $4,979 (2003: $1,243) in amortization; and (vii) $224,301
(2003: $15,147) in loss on settlement of debt.

<PAGE>

The increase in operating  expenses  during fiscal year ended  December 31, 2004
compared to fiscal year ended  December 31, 2003 was  primarily  due to: (i) the
incurrence of management  fees - stock based  compensation  relating to the fair
valuation of Stock Options granted; (ii) the amount of management and consulting
fees incurred to related parties;  (iii) the incurrence of loss on settlement of
debt; and (iv) the incurrence of  professional  fees. The increase in management
fees to related  party was  primarily the result of the increase in provision of
services to us by our executive  officers and  consultants  under the respective
contractual  relations  relating  to the  increased  scale and scope of  overall
corporate activity pertaining to the ongoing  exploration,  reorganization,  and
development of oil and natural gas properties. The increase in management fees -
stock  based  compensation  was  primarily  the result of the  increase in Stock
Options  granted to the  officers/directors  and  consultants.  The  increase in
professional fees was primarily the result of the higher legal costs relating to
settlement of debt and potential financing opportunities.

Mr. Spindler,  our Chief Executive Officer and a director,  derives remuneration
from us as compensation for management and consulting services rendered.  During
fiscal year ended December 31, 2004,  approximately  $189,000 was incurred by us
to  Mr.  Spindler  for  management  and  consulting  services  rendered,  and an
additional $245,000 was incurred by us to Mr. Spindler as bonus management fees.
At December 31, 2004,  Mr.  Spindler  owed $17,903 for monies  advanced  towards
unbilled  expenses  incurred on behalf of us. During fiscal year ended  December
31, 2004,  Mr.  Spindler  exercised  200,000  Stock  Options at $0.20 per share,
750,000 Stock Options at $0.25 per share, and 240,000 Stock Options at $0.50 per
share, for aggregate proceeds of $347,500,  which amount was utilized to off-set
the aggregate amount due and owing to Mr. Spindler.

Mr. Kerrigan, our Co-President/Chief  Financial Officer and a director,  derives
remuneration  from us as  compensation  for management  and consulting  services
rendered.  During fiscal year ended December 31, 2004, approximately $86,000 was
incurred by us to Mr. Kerrigan for management and consulting  services rendered,
and an additional $70,000 was incurred by us to Mr. Kerrigan as bonus management
fees.  Furthermore,  at December  31,  2004,  Mr.  Kerrigan  was owed $1,224 for
expenses  incurred on behalf of us. During fiscal year ended  December 31, 2004,
Mr.  Kerrigan  exercised  390,000  Stock  Options at $0.50 per share and 215,000
Stock  Options at $0.25 per share,  for  aggregate  proceeds of $248,750,  which
amount  was  utilized  to  off-set  the  aggregate  amount  due and owing to Mr.
Kerrigan.

Mr. Russell, one of our directors,  derives remuneration from us as compensation
for management  services  rendered.  During fiscal year ended December 31, 2004,
approximately  $60,000 was incurred by us to Mr. Russell for management services
rendered,  and an additional  $10,000 was incurred by us to Mr. Russell as bonus
management  fees.  At December  31, 2004,  Mr.  Russell was owed an aggregate of
$67,500 for accrued management fees. During fiscal year ended December 31, 2004,
Mr.  Russell  exercised  40,000 Stock  Options at $0.25 per share for  aggregate
proceeds of $10,000,  which amount was utilized to off-set the aggregate  amount
due and owing to Mr. Russell.

Mr. Henry, our prior President, derived remuneration from us as compensation for
management  services  rendered.  During  fiscal year ended  December  31,  2004,
approximately  $126,997 was incurred by us to Mr. Henry for management  services

<PAGE>

rendered,  and an  additional  $45,000 was  incurred by us to Mr. Henry as bonus
management fees. During fiscal year ended December 31, 2004, Mr. Henry exercised
100,000  Stock Options at $0.20 per share and 140,000 Stock Options at $0.25 per
share, for aggregate  proceeds of $55,000,  which amount was utilized to off-set
the aggregate amount due and owing to Mr. Henry.

Our net loss during  fiscal year ended  December  31, 2004 was  ($4,003,722)  or
($0.22) per share  compared to a net loss of  ($1,679,387)  or ($0.17) per share
for fiscal year ended December 31, 2004.  The weighted  average number of shares
outstanding  was  18,008,981  at December  31, 2004  compared to  10,015,249  at
December 31, 2003.

Liquidity and Capital Resources

As of fiscal year ended December 31, 2004,  our current  assets were  $1,117,856
and our current  liabilities  were  $979,976,  resulting  in working  capital of
$137,880.  As of fiscal  year ended  December  31,  2004,  current  assets  were
comprised of: (i) $827,326 in cash; (ii) $170,863 in accounts receivable;  (iii)
$34,096 in notes  receivables;  (iv)  $40,571 in  prepaids;  and (v)  $45,000 in
restricted cash. As of fiscal year ended December 31, 2004, current  liabilities
were  comprised  of: (i) $820,189 in accounts  payable and accrued  liabilities;
(ii)  $155,233 due to related  parties;  and (iii) $4,554 in current  portion of
debenture payable.

As of fiscal year ended  December  31, 2004,  our total  assets were  $2,624,196
comprised of: (i)  $1,117,856  in current  assets;  (ii)  $1,475,409 in carrying
value of oil and gas  properties;  and (iii)  $30,931 in furniture and equipment
(net of amortization of $6,685).  As of December 31, 2003, our total assets were
$756,112  comprised of: (i) $8,377 in current  assets;  (ii) $741,923 in oil and
gas  properties;  and (iii) $5,812 in furniture and  equipment.  The increase in
total assets during  fiscal year ended  December 31, 2004 from fiscal year ended
December 31, 2003 was primarily due to the increase cash in hand  resulting from
the exercise of approximately  6,339,600 Stock Options for aggregate proceeds of
$1,702,900,  of which  $221,000 was received in cash, the proceeds of $1,721,000
received  from the  private  placement  offering,  and an  increase  in accounts
receivable.

As of fiscal year ended December 31, 2004, our total  liabilities  were $979,976
consisting  of  current  liabilities.   As  of  December  31,  2003,  our  total
liabilities were $1,662,822 comprised of: (i) $1,042,469 in current liabilities,
and:  (ii)  $620,354 in  long-term  debentures  payable.  The  decrease in total
liabilities  during fiscal year ended  December 31, 2004 compared to fiscal year
ended December 31, 2003 was due primarily to a decrease in long-term liabilities
of  debentures  payable from  $620,354 to $-0- and a  corresponding  decrease in
current portion of debentures payable from $153,5651 to $4,554.

Stockholders'  equity  increased  from a deficit of ($906,710)  for December 31,
2003 to $1,644,220 for fiscal year ended December 31, 2004.

For fiscal year ended December 31, 2004,  net cash used in operating  activities
was ($937,491).  Net cash used in operating  activities during fiscal year ended
December 31, 2004 was primarily  comprised of a net loss of ($4,003,722),  which
was adjusted  by: (i) stock based  compensation  of  $2,046,650;  (ii)  accounts
payable of $470,011; (iii) accounts receivable of ($170,863);  and (iv) prepaids
of ($40,571).

For  fiscal  year  ended  December  31,  2004,  our cash flow used in  investing
activities  was  ($763,486).  The net cash used in investing  activities  during
fiscal year ended December 31, 2004 was primarily  comprised of: (i) acquisition
of oil and gas  properties  in the  amount of  $733,486;  and (ii)  purchase  of
furniture and equipment of $30,098.

<PAGE>

For fiscal year ended December 31, 2004, our cash flow from financing activities
was $2,520,024.  The net cash flow from financing  activities during fiscal year
ended  December 31, 2004 was primarily  comprised of $2,093,000 in proceeds from
sale of Common Stock, $550,000 in loans receivable, and $96,091 in advances from
related  parties,  which was  adjusted  by: (i) $75,000 in loans  payable;  (ii)
$10,061 in notes payable; and (iii) $89,007 in repayment of debenture.

PLAN OF OPERATION

As of the date of this Annual  Report,  we have  generated  little  revenue from
operations.  During  the  prior  fiscal  years,  we  focused  primarily  on  the
exploration of potential oil and gas projects and generated no revenues.  During
those  prior  fiscal  years,  we  relied  upon  internally  generated  funds and
advances, funds from the sale of shares of stock and loans from its shareholders
and private  investors  to finance our  operations  and growth.  Our  management
anticipates a possible increase in operating  expenses and capital  expenditures
relating to oil and gas operating properties and acquisitions.

During  fiscal year ended  December 31, 2004,  we completed a private  placement
offering  whereby we issued  7,284,000  Units for gross  proceeds of $1,821,000.
Each Unit consists of one share of Common Stock,  one-half of one share purchase
warrant (the "Share Purchase Warrant") and one piggyback warrant (the "Piggyback
Warrant").  Each whole Share  Purchase  Warrant  entitles the holder  thereof to
purchase one additional  share of our restricted  Common Stock until January 31,
2005 at a purchase  price of $0.50 per whole  Share  Purchase  Warrant  and each
Piggyback  Warrant entitles the holder thereof to purchase one additional shares
of  common  stock  until  January  31,  2006 at a  purchase  price of $1.00  per
Piggyback  Warrant,  only if the Warrants are first exercised in full. As of the
date of this Annual  Report,  an aggregate of -0- Share  Purchase  Warrants have
been exercised for gross proceeds of $nil.

We may finance further  expenditures  with future issuances of our Common Stock.
We believe that any private placements of equity capital and debt financing,  or
the sale of working interests in our properties, if successful,  may be adequate
to fund our operations over the next year. We may encounter  business  endeavors
that require significant cash commitments or unanticipated  problems or expenses
that could result in a requirement  for additional  cash before that time. If we
raise  additional  funds  through  the  issuance of equity or  convertible  debt
securities other than to current  shareholders,  the percentage ownership of our
current  shareholders  would be reduced,  and such securities might have rights,
preferences or privileges senior to our Common Stock.  Additional  financing may
not be available  upon  acceptable  terms,  or at all. If adequate funds are not
available or are not available on acceptable  terms,  we may not be able to take
advantage of prospective new oil and gas  acquisitions or  opportunities,  which
could significantly and materially restrict our business operations.

As of the date of this Annual Report, we believe that an estimated $2,000,000 to
$5,000,000  is  required  over  the next  two  years  for  payment  of  expenses
associated with our ongoing oil and gas exploration,  development and production
operations.   We  believe  that  we  can  satisfy  our  cash   requirements  for
approximately the next twelve months based on proceeds received from its private
placement  offering and its ability to successfully  generate  revenues from oil
and gas production  and to obtain  advances or equity  private  placements  from
certain investors and other parties, as necessary.

<PAGE>

As of the date of this Annual Report,  there is substantial  doubt regarding our
ability to continue as a going concern as we have not generated  sufficient cash
flow to fund our business  operations  and material  commitments.  We must raise
additional  capital.  We have not generated  sufficient cash flow in the past to
fund its operations and activities. Historically, we have relied upon internally
generated  funds,  funds  from the sale of shares  of stock  and loans  from our
shareholders and private investors to finance our operations and growth.

Our future  success  and  viability  are  entirely  dependent  upon our  current
management  to  generate  revenues  from  our  business   operations  and  raise
additional  capital through further private offerings of our stock or loans from
private  investors.  Management is optimistic  that we will be successful in our
capital raising  efforts.  There can be no assurance,  however,  that we will be
able to generate sufficient revenues or raise additional capital. Our failure to
successfully  generate  sufficient revenues and/or raise additional capital will
have a material and adverse affect upon us and our shareholders.

MATERIAL COMMITMENTS

In  connection  with the oil and gas  exploration,  development  and  production
expenses and other overhead costs  incurred,  we and/or our subsidiary  incurred
liability  or  borrowed  funds  pursuant  to  various  contractual  arrangements
representing the following material commitments.

Amounts Due to/From Related Parties

Mr. Spindler,  our Chief Executive Officer and a director,  derives remuneration
from us as  compensation  for management and consulting  services  rendered.  At
December  31,  2004,  Mr.  Spindler  owed  $17,903 for monies  advanced  towards
unbilled expenses incurred on behalf us.

Mr. Kerrigan, our Co- President/Chief Financial Officer and a director,  derives
remuneration  from us as  compensation  for management  and consulting  services
rendered.  At December 31, 2004, we owed Mr.  Kerrigan an aggregate of $1,224 in
unpaid and accrued fees.

Mr. Russell, one of our directors,  derives remuneration from us as compensation
for management and consulting  services rendered.  At December 31, 2004, we owed
Mr. Russell an aggregate of $67,500 in unpaid and accrued fees.

Debentures

In  connection  with the  acquisition  of the  Emily  Hawes  Field,  we issued a
debenture in the amount of $75,000 (the  "Debenture").  The terms and provisions
of the  Debenture  provide:  (i)  interest at the rate of 15% per annum;  (ii) a
floating charge security interest on all our assets; and (iii) a due date of May
20, 2003,  which was  extended to June 30,  2004.  As of the date of this Annual
Report,  we have  repaid  approximately  $75,000  of  principal,  including  the
exercise by the holder  thereof of 25,000  Stock  Options at $0.25 per share for
aggregate proceeds of $6,250, which amount was utilized to off-set the aggregate
amount  due and owing on the  Debenture.  Interest  of  $13,305  has  accrued in
connection with the Debenture.  Therefore, at December 31, 2004, an aggregate of
$4,554 remains due and owing.

<PAGE>

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this  Annual  Report,  we do not have  any  off-balance  sheet
arrangements that have or are reasonably like to have a current or future effect
on  our  financial  condition,  changes  in  financial  condition,  revenues  or
expenses,  results of operations,  liquidity,  capital  expenditures  or capital
resources  that  are  material  to  investors.   The  term  "off-balance   sheet
arrangement"  generally means any  transaction,  agreement or other  contractual
arrangement to which an entity unconsolidated with us is a party, under which we
have:  (i)  any  obligation  arising  under  a  guarantee  contract,  derivative
instrument or variable  interest;  or (ii) a retained or contingent  interest in
assets transferred to such entity or similar  arrangement that serves as credit,
liquidity or market risk support for such assets.

ITEM 7. FINANCIAL STATEMENTS

The information required under Item 310(a) of Regulation S-B is included in this
report as set forth in the "Index to Financial Statement".

INDEX TO FINANCIAL STATEMENTS

   Independent Auditors' Report ......................................

   Consolidated Balance Sheets .......................................

   Consolidated Statements of Operations .............................

   Consolidated Statement of Stockholders' equity ....................

   Consolidated Statements of Cash Flows .............................

   Notes to the Consolidated Financial Statements ....................



<PAGE>















                                 PETROGEN CORP.
                         (AN EXPLORATION STAGE COMPANY)

                        CONSOLIDATED FINANCIAL STATEMENTS


                                DECEMBER 31, 2004



























REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

CONSOLIDATED BALANCE SHEETS

CONSOLIDATED STATEMENTS OF OPERATIONS

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


                                       1


<PAGE>


DALE MATHESON
CARR-HILTON LABONTE
LETTERHEAD HEADER APPEARS HERE


________________________________________________________________________________


             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


To the Stockholders and Board of Directors of Petrogen Corp.
(An Exploration Stage Company)

We have audited the accompanying  consolidated balance sheets of Petrogen Corp..
(An Exploration  Stage Company) as of December 31, 2004 and 2003 and the related
consolidated  statements of operations,  stockholders' equity and cash flows for
the years then ended.  These financial  statements are the responsibility of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

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

In our opinion,  these consolidated  financial statements present fairly, in all
material  respects,  the financial  position of the Company,  as of December 31,
2004 and 2003,  and the  results  of its  operations  and its cash flows and the
changes in  stockholders'  equity for the years then ended,  in conformity  with
generally accepted accounting principles used in the United States of America.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
financial  statements,  to date the Company has not  generated  any  significant
revenues from operations and requires  additional  funds to meet its obligations
and fund the costs of its  operations.  These  factors raise  substantial  doubt
about the Company's ability to continue as a going concern.  Management's  plans
in this regard are described in Note 1. The financial  statements do not include
any adjustments that might result from the outcome of this uncertainty.


                                               DALE MATHESON CARR HILTON LABONTE

                                                           CHARTERED ACCOUNTANTS


Vancouver, Canada
March 31, 2005, except Notes 10 & 11 which are as of April 6, 2005








DALE MATHESON
CARR-HILTON LABONTE
LETTERHEAD FOOTER APPEARS HERE


                                       2


<PAGE>

<TABLE>
<CAPTION>


                                 PETROGEN CORP.
                         (AN EXPLORATION STAGE COMPANY)

                           CONSOLIDATED BALANCE SHEETS


                                                                             December 31,        December 31,
                                                                                     2004                2003
_____________________________________________________________________________________________________________
<S>                                                                          <C>                 <C>

                                                             ASSETS
CURRENT ASSETS
   Cash                                                                      $    827,326        $      8,377
   Restricted cash                                                                 45,000                   -
   Accounts receivable                                                            170,863                   -
   Notes receivable (Note 4)                                                       34,096                   -
   Prepaids and deposits                                                           40,571                   -
_____________________________________________________________________________________________________________
                                                                                1,117,856               8,377

FURNITURE AND EQUIPMENT, net of depreciation of $6,685 (2003 - $1,705)             30,931               5,812
OIL AND GAS PROPERTIES (Note 5)                                                 1,475,409             741,923
_____________________________________________________________________________________________________________
                                                                             $  2,624,196        $    756,112
=============================================================================================================


                                              LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES
   Accounts payable and accrued liabilities                                  $    820,189        $    415,488
   Current portion of debentures payable (Note 6)                                   4,554             153,561
   Notes payable                                                                        -              38,794
   Demand loans payable                                                                 -              75,000
   Due to related parties (Note 7)                                                155,233             359,625
_____________________________________________________________________________________________________________
                                                                                  979,976           1,042,468
LONG TERM LIABILITIES
   Debentures payable (Note 6)                                                          -             620,354
_____________________________________________________________________________________________________________

                                                                                  979,976           1,662,822
_____________________________________________________________________________________________________________

STOCKHOLDERS' EQUITY (CAPITAL DEFICIENCY) (Note 8)
   Common stock,  $0.001 par value, 100,000,000 shares authorized
      27,221,581 (2003 - 10,613,291) shares issued and outstanding                 27,222              10,613
   Additional paid-in capital                                                   7,966,203           1,386,460
   Obligation to issue shares                                                      45,000              12,500
   Common stock purchase warrants                                                 182,100             256,300
   Deficit accumulated during the exploration stage                            (6,576,305)         (2,572,583)
_____________________________________________________________________________________________________________
                                                                                1,644,420            (906,710)
_____________________________________________________________________________________________________________
                                                                             $  2,624,196        $    756,112
=============================================================================================================

Contingencies - Note 10

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

</TABLE>


                                       3


<PAGE>

<TABLE>
<CAPTION>


                                 PETROGEN CORP.
                         (AN EXPLORATION STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF OPERATIONS


                                                                                                   November 15,
                                                                                                       2001
                                                                  Year Ended       Year Ended     (Inception) to
                                                                 December 31,     December 31,     December 31,
                                                                     2004             2003             2004
________________________________________________________________________________________________________________
<S>                                                                 <C>              <C>              <C>

REVENUE
   Operator fees                                                    $  105,716       $        -       $  105,716
   Interest income                                                       1,596                -            1,596
________________________________________________________________________________________________________________
                                                                       107,312                -          107,312
________________________________________________________________________________________________________________

EXPENSES
   Depreciation                                                          4,979            1,243            6,684
   General and administrative                                          652,002          369,890        1,097,230
   Interest expense                                                     52,428           78,678          142,824
   Loss on settlement of debt (Note 6)                                 224,301           15,147          239,448
   Management & consulting fees - related party                        609,000          190,145          903,145
   Management & consulting fees - stock based compensation           2,046,650          722,445        2,769,095
   Professional fees                                                   521,674          301,839          825,557
________________________________________________________________________________________________________________
                                                                     4,111,034        1,679,387        5,983,982
________________________________________________________________________________________________________________
NET LOSS FOR THE PERIOD                                             $4,003,722       $1,679,387       $5,876,671
================================================================================================================



BASIC NET LOSS PER SHARE                                            $    (0.22)      $    (0.17)
===============================================================================================

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING (Note 3)                 18,008,981       10,015,249
===============================================================================================


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

</TABLE>


                                       4


<PAGE>

<TABLE>
<CAPTION>


                                 PETROGEN CORP.
                         (AN EXPLORATION STAGE COMPANY)

                      CONSOLIDATED STATEMENTS OF CASH FLOWS


                                                                                                                       November 15,
                                                                                                                               2001
                                                                                    Year ended         Year ended    (inception) to
                                                                                  December 31,        December 31,     December 31,
                                                                                          2004               2003              2004
___________________________________________________________________________________________________________________________________
                                                                                                                           (Note 1)
<S>                                                                                <C>               <C>                <C>

CASH FLOWS FROM OPERATING ACTIVITIES
  Net loss for the period                                                          $(4,003,722)      $ (1,679,387)      $(5,876,671)
  Adjustments to reconcile net loss to net cash from operating activities:
  - depreciation                                                                         4,979              1,243             6,684
  - accounts receivable                                                               (170,863)                 -          (170,863)
  - accrued interest receivable                                                          1,596                  -             1,596
  - prepaids & deposits                                                                (40,571)                 -           (40,571)
  - accrued interest expense                                                            32,421             37,241            81,717
  - accounts payable                                                                   470,011            275,476           671,343
  - loss on conversion or settlement of debt                                           224,301             15,147           239,448
  - accrued management fees                                                                  -             84,500            84,500
  - stock based compensation                                                         2,046,650            722,445         2,769,095
  - expenses paid for by the issuance of shares                                        497,707                  -           500,207
___________________________________________________________________________________________________________________________________

NET CASH USED IN OPERATING ACTIVITIES                                                 (937,491)          (543,335)       (1,733,515)
___________________________________________________________________________________________________________________________________

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
  Purchase of furniture and equipment                                                  (30,098)            (5,086)          (37,615)
  Oil and gas properties                                                              (733,486)          (316,667)       (1,163,007)
  Pre reverse acquisition advances from Petrogen Corp. (Note 3)                              -            100,000           100,000
  Cash acquired on reverse acquisition of Petrogen Inc. (Note 3)                             -                868               868
___________________________________________________________________________________________________________________________________

NET CASH USED IN INVESTING ACTIVITIES                                                 (763,584)          (220,885)       (1,094,754)
___________________________________________________________________________________________________________________________________

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds on sale of common stock                                                   2,093,000            567,500         2,723,610
  Restricted cash                                                                      (45,000)                 -           (45,000)
  Notes payable                                                                        (10,061)           (26,859)          (36,920)
  Loans payable                                                                        (75,000)            75,000                 -
  Debenture payable                                                                    (89,007)           (47,795)         (138,302)
  Loans receivable                                                                     550,000                  -           550,000
  Cash advances from former related parties                                                  -            318,990           318,990
  Advances from related parties                                                         96,091           (114,544)          288,217
___________________________________________________________________________________________________________________________________

NET CASH FLOWS FROM FINANCING ACTIVITIES                                             2,520,024            772,292         3,660,595
___________________________________________________________________________________________________________________________________

INCREASE IN CASH                                                                       818,949              8,072           827,326

CASH, BEGINNING OF PERIOD                                                                8,377                305                 -
___________________________________________________________________________________________________________________________________

CASH, END OF PERIOD                                                                $   827,326       $      8,377       $   827,326
===================================================================================================================================


   Non-cash transactions:  Refer to Notes 3 and 8.

   SUPPLEMENTARY DISCLOSURE:
   Interest paid                                                                   $         -       $          -       $         -
                                                                                   ================================================
   Income taxes paid                                                               $         -       $          -       $         -
                                                                                   ================================================


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

</TABLE>


                                       5


<PAGE>

<TABLE>
<CAPTION>


                                 PETROGEN CORP.
                         (AN EXPLORATION STAGE COMPANY)

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

 FOR THE PERIOD FROM NOVEMBER 15, 2001 (DATE OF INCEPTION) TO DECEMBER 31, 2004

                                                                                                            Deficit
                                                                Additional                               Accumulated       Total
                                            Common Stock         Paid In                       Share       during      Stockholders'
                                        Number of                Capital          Share       Purchase   Exploration      Equity
                                         Shares       Amount     (Deficit)    Subscriptions   Warrants      Stage        (Deficit)
____________________________________________________________________________________________________________________________________
<S>                                    <C>          <C>        <C>              <C>          <C>        <C>            <C>

Stock issued for cash, November 15,
    2001  (Date of Inception)          11,000,000   $    110   $         -      $     -      $      -   $         -    $       110
Stock issued for cash, May 3, 2002         10,000          -             -            -             -             -              -
Stock Issued for oil and gas
   property, May 20, 2002                  75,000          1             -            -             -             -              1
Stock Issued for services,
   June 3, 2002                           240,000          2        11,998                                                  12,000
Stock issued for cash, July 8, 2002       100,000          1        24,999            -             -             -         25,000
Subscriptions received for 32,000
   units,  August 9, 2002                       -          -             -        8,000             -             -          8,000
Stock Issued for services,
   August 13, 2002                         50,000          1         2,499            -             -             -          2,500
Net loss for the period November
   15, 2001  to September 30, 2002              -          -             -            -             -      (154,947)      (154,947)
                                      ____________________________________________________________________________________________

BALANCE, SEPTEMBER 30, 2002            11,475,000        115        39,496        8,000             -      (154,947)      (107,336)
Stock issued for subscriptions
   received in prior period,
   October 7, 2002                         32,000          -         8,000       (8,000)            -             -              -
Stock issued for cash, November
   26, 2002                               300,000          3        29,997            -             -             -         30,000
                                      ____________________________________________________________________________________________

PETROGEN, BALANCE, FEBRUARY 12,
   2003                                11,807,000        118        77,493            -             -      (154,947)       (77,336)
Acquisition costs charged to
   deficit                                      -          -             -            -             -       (60,000)       (60,000)
Petrogen Corp., Balance, February
   12, 2003                             9,378,291     30,689     8,172,846            -                  (8,553,602)      (350,067)
Reverse acquisition recapitali-
   zation adjustment                  (11,807,000)   (21,429)   (8,250,339)           -       357,800     7,913,968              -
                                      ____________________________________________________________________________________________

Balance, post-reverse acquisition       9,378,291      9,378             -            -       357,800      (854,581)      (487,403)
Stock issued for exercise of
   options, March 21, 2003              1,000,000      1,000       499,000            -             -             -        500,000
Obligation to issue 10,000 shares               -          -             -        5,000             -             -          5,000
Stock based compensation, options
   granted  on September 10, 2003               -          -       362,230            -             -             -        362,230
Stock issued for exercise of options,
   September 29, 2003                     235,000        235        63,515            -             -             -         63,750
Net loss for the year ended
   September 30, 2003                           -          -             -            -             -    (1,148,723)    (1,148,723)
                                      ____________________________________________________________________________________________

BALANCE, SEPTEMBER 30, 2003            10,613,291   $ 10,613   $   924,745      $ 5,000      $357,800   $(2,003,304)   $  (705,146)
                                      ==============================================================================================


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

</TABLE>


                                       6


<PAGE>

<TABLE>
<CAPTION>


                                 PETROGEN CORP.
                         (AN EXPLORATION STAGE COMPANY)

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

 FOR THE PERIOD FROM NOVEMBER 15, 2001 (DATE OF INCEPTION) TO DECEMBER 31, 2004


                                                                                                            Deficit
                                                                Additional                               Accumulated       Total
                                            Common Stock         Paid In                       Share       during      Stockholders'
                                        Number of                Capital          Share       Purchase   Exploration      Equity
                                         Shares       Amount     (Deficit)    Subscriptions   Warrants      Stage        (Deficit)
____________________________________________________________________________________________________________________________________
<S>                                    <C>          <C>        <C>              <C>          <C>        <C>            <C>

BALANCE, SEPTEMBER 30, 2003            10,613,291   $ 10,613   $   924,745      $ 5,000      $357,800   $(2,003,304)   $  (705,146)
Obligation to issue shares on
   exercise of options, December
   12, 2003                                                                       7,500                                      7,500
Stock based compensation, options
   granted on November 1, 2003                  -          -       360,215            -             -             -        360,215
Warrants expired                                -          -       101,500            -      (101,500)            -              -
Net loss for the three months
   ended December 31, 2003                      -          -             -            -             -      (569,279)      (569,279)
                                      ____________________________________________________________________________________________

BALANCE, DECEMBER 31, 2003             10,613,291     10,613     1,386,460       12,500       256,300    (2,572,583)      (906,710)
Stock issued for exercise of
   options, January 14, 2004              200,000        200        39,800            -             -             -         40,000
Stock issued for exercise of
   options, January 20, 2004              375,000        375        75,625       (7,500)            -             -         68,500
Stock cancelled, January 30, 2004         (50,000)       (50)           50            -             -             -              -
Stock issued for exercise of
   options, February 11, 2004           1,645,000      1,645       385,855            -             -             -        387,500
Stock based compensation, options
   granted on March 4, 2004                     -          -       947,550                          -             -        947,550
Stock issued for exercise of
   options, April 30, 2004              1,185,000      1,185       424,065       (5,000)            -             -        420,250
Stock issued for exercise of
   options, May 18, 2004                  250,000        250        62,250            -             -             -         62,500
Stock issued for exercise of
   options, May 21, 2004                1,309,600      1,310       326,091            -             -             -        327,401
Stock issued for exercise of
   options, June 1, 2004                   20,000         20         4,980            -             -             -          5,000
Stock issued for exercise of
   options, June 16, 2004                 295,000        295        73,455            -             -             -         73,750
Stock based compensation, options
   granted on March 4, 2004                     -          -       176,950            -             -             -        176,950
Stock issued for exercise of
   options, August 12, 2004             1,000,000      1,000       299,000            -             -             -        300,000
Stock issued for settlement of
   debenture, August 18, 2004           2,934,690      2,935       936,166            -             -             -        939,101
Stock issued for cash, September
   21, 2004                             7,384,000      7,384     1,631,516            -       182,100             -      1,821,000
Stock based compensation, options
   granted on July 22, 2004                     -          -       852,050            -             -             -        852,050
Stock issued for exercise of
   options, October 12, 2004               30,000         30         8,970            -             -             -          9,000
Stock issued for exercise of
   options, November 1, 2004               20,000         20         5,980            -             -             -          6,000
Stock issued for exercise of
   options, November 8, 2004               10,000         10         2,990            -             -             -          3,000
Stock based compensation, options
   granted on October 1, 2004                   -          -        70,100            -             -             -         70,100
Warrants expired                                -          -       256,300            -      (256,300)            -              -
Share subscriptions received                    -          -             -       45,000             -             -         45,000
Net loss for the year ended
   December 31, 2004                            -          -             -            -             -    (4,003,722)    (4,030,722)
                                      ____________________________________________________________________________________________

BALANCE, DECEMBER 31, 2004             27,221,581   $ 27,222   $ 7,966,203      $45,000      $182,100   $(6,576,305)   $ 1,644,220
                                      ============================================================================================


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

</TABLE>


                                       7


<PAGE>




                                 PETROGEN CORP.
                 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                DECEMBER 31, 2004
________________________________________________________________________________


NOTE 1 - NATURE OF OPERATIONS & BASIS OF PRESENTATION

Petrogen Corp.  (the  "Company") was  incorporated  in the State of Nevada.  The
Company  currently  trades on the OTC Bulletin Board under the symbol "PTGC" and
the Frankfurt Stock Exchanges under the symbol "PTD".

Effective  February 12, 2003 the Company  completed the  acquisition of Petrogen
Inc.  ("Petrogen")  by way of a Share  Exchange  Agreement and issued  7,000,000
restricted  shares of common  stock to the  Petrogen  shareholders  and  300,000
restricted  shares of common  stock as a finder's  fee  resulting in a change in
control of the Company (See Note 3).

With  operations  based in Houston,  Texas,  the  Company  and its wholly  owned
subsidiary,  Petrogen, is a junior domestic upstream oil and gas company focused
on acquiring,  developing  and producing  proven  reserves in mature areas.  The
Company's  core strategy is to acquire  interests in proved  developed  reserves
that couple immediate recompletion opportunities with undeveloped upside.

The  Company's  principal  geographic  areas of focus lie in the Gulf of Mexico,
Rocky Mountains and Permian Basin regions, with core assets presently located in
the  Baxterville  Field in  southern  Mississippi,  Enos Creek  Field in central
Wyoming  and Emily Hawes Field in  southern  Texas.  The Company  also holds the
rights to develop  interests  in the Adams Ranch Field in east Texas.  Since its
2001 inception,  the Company has acquired interests in four properties  spanning
over 6,750 net acres.

The Company is an exploration  stage  company.  To date, the Company has not yet
commenced  commercial  operations  or generated  any  production  revenues.  The
Company's  efforts to date have focused on the  investigation and acquisition of
oil and gas property  interests,  implementing its business strategy and raising
working capital through equity financing or short-term  borrowings.  The Company
is currently  commencing  operations on it Emily Hawes Field  interests in Texas
and its Enos Creek Field interests in Wyoming.

As at December  31,  2004,  the Company had working  capital of $137,880 and has
realized significant losses to date. The Company's  continuance of operations is
contingent on raising additional capital,  settling its outstanding debts and on
the future  acquisition  and successful  development of oil and gas  properties.
Accordingly,  these factors raise  substantial doubt about the Company's ability
to continue as a going concern.  Advances from certain significant  shareholders
and funding from private  placements  will form the primary source of short-term
funding for the Company during the next twelve months.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

BASIS OF PRESENTATION
These  consolidated  financial  statements  have been presented in United States
dollars  and  prepared  in  accordance  with United  States  Generally  Accepted
Accounting Principles ("US GAAP").

PRINCIPLES OF CONSOLIDATION
The consolidated  financial  statements  include the accounts of the Company and
its  wholly-owned  subsidiary,   Petrogen,  Inc.  All  significant  intercompany
transactions and account balances have been eliminated.

OIL AND GAS PROPERTIES
The  Company  follows  the full cost  method of  accounting  for its oil and gas
operations  whereby all cost related to the acquisition of petroleum and natural
gas interests  are  capitalized.  Such costs include land and lease  acquisition
costs,  annual  carrying  charges of  non-producing  properties,  geological and
geophysical costs, costs of drilling and equipping productive and non-productive
wells, and direct exploration  salaries and related benefits.  Proceeds from the
disposal of oil and gas  properties  are  recorded as a reduction of the related
capitalized  costs  without  recognition  of a gain or loss unless the  disposal
would  result in a change  of 20  percent  or more in the  depletion  rate.  The
Company operates in one cost center, being the U.S.A.

Depletion  and  depreciation  of the  capitalized  costs are computed  using the
unit-of-production  method based on the estimated proven reserves of oil and gas
determined by independent consultants.

Estimated future removal and site  restoration  costs are provided over the life
of proven reserves on a unit-of-production  basis. Costs, which include the cost
of production equipment removal and environmental  clean-up,  are estimated each
period  by  management  based on  current  regulations,  costs,  technology  and
industry  standards.  The charge is included in the  provision for depletion and
depreciation  and  the  actual  restoration  expenditures  are  charged  to  the
accumulated provision accounts as incurred.


<PAGE>


PETROGEN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________


OIL AND GAS PROPERTIES (CONTINUED)

The  Company  applies a ceiling  test to  capitalized  costs to ensure that such
costs do not exceed  estimated  future net revenues  from  production  of proven
reserves  at year end market  prices  less  future  production,  administrative,
financing,  site  restoration,  and  income  tax costs plus the lower of cost or
estimated  market  value  of  unproved  properties.  If  capitalized  costs  are
determined to exceed estimated future net revenues, a write-down of the carrying
value is charged to depletion in the period.

USE OF ESTIMATES AND ASSUMPTIONS
Preparation  of the Company's  financial  statements in conformity  with US GAAP
requires  management  to make  estimates  and  assumptions  that affect  certain
reported amounts and disclosures.  Accordingly, actual results could differ from
those  estimates.   Significant  areas  requiring   management's  estimates  and
assumptions  are reviewing  the carrying  values of oil and gas  properties  for
impairment,  determining  fair  value  for  stock  based  compensation  and  the
amortization rate for furniture and equipment.

FURNITURE AND EQUIPMENT
Furniture  and  equipment  are stated at cost.  Depreciation  is  computed  on a
declining balance basis at 20% per year.

FOREIGN CURRENCY TRANSLATION
The financial  statements are presented in United States dollars.  In accordance
with SFAS No. 52, "Foreign Currency  Translation",  foreign denominated monetary
assets and liabilities are translated to their United States dollar  equivalents
using foreign exchange rates which prevailed at the balance sheet date.  Revenue
and  expenses are  translated  at average  rates of exchange  during the period.
Related  translation  adjustments  are  reported  as  a  separate  component  of
stockholders'  equity,  whereas gains or losses  resulting from foreign currency
transactions are included in results of operations

NET EARNINGS (LOSS) PER COMMON SHARE
Basic  earnings  (loss) per common share  include no dilution and is computed by
dividing income available to common  stockholders by the weighted average number
of common shares outstanding for the period.  Dilutive earnings (loss) per share
reflect the potential dilution of securities that could share in the earnings of
the Company. Diluted loss per share figures are equal to those of basic loss per
share for each period since the effects of stock  options and warrants have been
excluded as they are anti-dilutive.

STOCK-BASED COMPENSATION
In December  2002, the Financial  Accounting  Standards  Board issued  Financial
Accounting  Standard  No.  148,  "Accounting  for  Stock-Based   Compensation  -
Transition  and  Disclosure"   ("SFAS  No.  148"),  an  amendment  of  Financial
Accounting Standard No. 123 "Accounting for Stock-Based Compensation" ("SFAS No.
123").  The  purpose of SFAS No. 148 is to: (1) provide  alternative  methods of
transition for an entity that voluntarily changes to the fair value based method
of accounting for stock-based  employee  compensation,  (2) amend the disclosure
provisions  to require  prominent  disclosure  about the effects on reported net
income of an entity's  accounting  policy  decisions with respect to stock-based
employee compensation, and (3) to require disclosure of those effects in interim
financial information.  The disclosure provisions of SFAS No. 148 were effective
for the Company for the period ended September 30, 2003.

The Company has  elected to  continue  to account for stock  options  granted to
employees and officers using the intrinsic value based method in accordance with
the provisions of Accounting  Principles  Board Opinion No. 25,  "Accounting for
Stock  Issued to  Employees",  ("APB No.  25") and  comply  with the  disclosure
provisions of SFAS No. 123 as amended by SFAS No. 148 as described above.  Under
APB No. 25, compensation expense is recognized based on the difference,  if any,
on the date of grant between the estimated fair value of the Company's stock and
the amount an employee  must pay to acquire the stock.  Compensation  expense is
recognized  immediately  for past services and pro-rata for future services over
the option-vesting period. In addition, with respect to stock options granted to
employees,  the Company provides  pro-forma  information as required by SFAS No.
123  showing  the  results  of  applying   the  fair  value   method  using  the
Black-Scholes option-pricing model.

STOCK-BASED COMPENSATION (CONTINUED)

In accordance with SFAS No. 123, the Company applies the fair value method using
the  Black-Scholes  option-pricing  model in accounting  for options  granted to
consultants.

The following  table  illustrates  the pro forma effect on net income (loss) and
net income (loss) per share as if the Company had accounted for its  stock-based
employee  compensation using the fair value provisions of SFAS No. 123 using the
assumptions as described in Note 9:


<PAGE>


PETROGEN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________

<TABLE>
<CAPTION>

                                                          For the year ended December 31,
                                                              2004             2003
                                                           ____________________________

<S>                                                        <C>              <C>
Net loss as reported                                       $(4,003,722)     $(1,679,387)

SFAS 123 Additional Compensation Expense                   $  (981,100)     $  (346,690)
                                                           ___________________________
Pro forma net loss under SFAS No. 123                      $(4,984,822)     $(2,026,077)
                                                           ============================
Basic loss per common share as reported                    $      0.22      $      0.17

Pro forma net loss per common share under SFAS No. 123     $      0.28      $      0.20

</TABLE>


The Company accounts for equity  instruments  issued in exchange for the receipt
of goods or services from other than  employees in accordance  with SFAS No. 123
and the conclusions  reached by the Emerging Issues Task Force ("EITF") in Issue
No.  96-18.  Costs  are  measured  at the  estimated  fair  market  value of the
consideration  received or the  estimated  fair value of the equity  instruments
issued,  whichever is more reliably measurable.  The value of equity instruments
issued for  consideration  other than  employee  services is  determined  on the
earliest  of a  performance  commitment  or  completion  of  performance  by the
provider of goods or services as defined by EITF 96-18.

The  Company  has  also  adopted  the  provisions  of the  Financial  Accounting
Standards  Board  Interpretation  No. 44,  Accounting  for Certain  Transactions
Involving  Stock  Compensation - An  Interpretation  of APB Opinion No. 25 ("FIN
44"), which provides guidance as to certain applications of APB No. 25.

INCOME TAXES
The Company follows the liability  method of accounting for income taxes.  Under
this method,  deferred  income tax assets and liabilities are recognized for the
estimated tax  consequences  attributable  to differences  between the financial
statement  carrying  values and their  respective  income  tax basis  (temporary
differences).  The effect on  deferred  income tax assets and  liabilities  of a
change in tax rates is recognized in income in the period that includes the date
of enactment or  substantial  enactment.  A valuation  allowance is provided for
deferred  tax assets if it is more  likely  than not that the  Company  will not
realize the future benefit, or if future deductibility is uncertain.

FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the  requirements of SFAS No. 107, the Company has determined
the  estimated  fair  value of  financial  instruments  using  available  market
information and appropriate valuation methodologies. The fair value of financial
instruments   classified  as  current  assets  or  liabilities  including  cash,
restricted cash, accounts receivable,  notes receivable,  prepaids and deposits,
accounts payable and accrued  liabilities,  debenture payable and amounts due to
related parties  approximate  carrying values due to the short-term  maturity of
the instruments.

RECENT ACCOUNTING PRONOUNCEMENTS

In May 2003,  SFAS 150,  "Accounting  for  Certain  Financial  Instruments  with
Characteristics  of both  Liabilities  and Equity",  was issued.  This Statement
establishes  standards  for  how  an  issuer  classifies  and  measures  certain
financial  instruments with  characteristics  of both liabilities and equity. It
requires that an issuer classify a financial instrument that is within its scope
as a liability (or an asset in some  circumstances).  Many of those  instruments
were previously classified as equity. Generally, a financial instrument, whether
in the form of shares or otherwise,  that is mandatorily  redeemable,  i.e. that
embodies  an  unconditional  obligation  requiring  the  issuer  to redeem it by
transferring its shares or assets at a specified or determinable date (or dates)
or upon an event that is certain to occur, must be classified as a liability (or
asset in some  circumstances).  In some cases,  a financial  instrument  that is
conditionally  redeemable  may  also be  subject  to the  same  treatment.  This
Statement does not apply to features that are embedded in a financial instrument
that is not a derivative (as defined) in its entirety. For public entities, this
Statement is effective for financial  instruments entered into or modified after
May 31, 2003.  The adoption of SFAS 150 did not affect the  Company's  financial
position or results of operations.

In January 2003, the FASB issued FASB  Interpretation  No. 46,  Consolidation of
Variable Interest Entities,  an interpretation of Accounting  Research Bulletins
("ARB") No. 51,  Consolidated  Financial  Statements  ("FIN 46"). FIN 46 applies
immediately to variable interest entitles created after January 31, 2003, and in


<PAGE>


PETROGEN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________


the first interim  period  beginning  after June 15, 2003 for variable  interest
entities created prior to January 31, 2003. The  interpretation  explains how to
identify variable interest entities and how an enterprise  assesses its interest
in a variable interest entity to decide whether to consolidate that entity.  The
interpretation requires existing unconsolidated variable interest entities to be
consolidated by their primary  beneficiaries  if the entities do not effectively
disperse  risks  among  parties   involved.   Variable  interest  entities  that
effectively  disperse risks will not be consolidated unless a single party holds
an interest or combination of interests that  effectively  recombines risks that
were previously dispersed. The adoption of FIN 46 did not have a material effect
on the Company's financial position or results of operations.  In December 2003,
the  FASB  issued  FASB   Interpretations   No.  46  (Revised   December   2003)
Consolidation of Variable  Interest  Entities,  an  Interpretation of ARB No. 51
("FIN  46R").   FIN  46R  is  an  update  of  FIN  46  and  contains   different
implementation  dates based on the types of entities subject to the standard and
based on whether a company has  adopted FIN 46. The Company  does not expect the
adoption FIN 46R will have a material impact on the Company's financial position
or results of operations.

In December 2004, the FASB issued  Statement of Financial  Accounting  Standards
("SFAS") No. 123R,  Share-Based  Payment,  which  establishes  standards for the
accounting for transactions in which an entity exchanges its equity  instruments
for goods or services. A key provision of this statement is the requirement of a
public entity to measure the cost of employee  services received in exchange for
an award of equity instruments (including stock options) based on the grant date
fair value of the award.  That cost will be  recognized  over the period  during
which an  employee is  required  to provide  service in  exchange  for the award
(i.e., the requisite  service period or vesting  period).  This standard becomes
effective  for the Company for its first  annual or interim  period  ended on or
after  December  15,  2005.  The Company  will adopt SFAS 123R no later than the
beginning of the Company's fourth quarter ending December 31, 2005. The adoption
of SFAS 123 did not have a material impact on the Company's  financial  position
or results of operations.

In  December  2004,  the FASB issued SFAS No.  153,  EXCHANGES  OF  NON-MONETARY
ASSETS,  AN  AMENDMENT  OF APB  OPINION  NO.  29,  ACCOUNTING  FOR  NON-MONETARY
TRANSACTIONS  ("SFAS 153") SFAS 153  requires  that  exchanges  of  non-monetary
assets are to be measured  based on fair value and  eliminates the exception for
exchanges of non-monetary,  similar productive assets, and adds an exemption for
non-monetary  exchanges that do not have commercial substance.  SFAS 153 will be
effective for fiscal periods beginning after June 15, 2005.  Management does not
believe that the adoption of this  standard  will have a material  impact on the
Company's financial position or results of operations.

In December 2003, the United States  Securities and Exchange  Commission  issued
Staff  Accounting  Bulletin  No. 104,  "Revenue  Recognition"  (SAB 104),  which
supersedes SAB 101, "Revenue  Recognition in Financial  Statements." The primary
purpose  of SAB  104 is to  rescind  accounting  guidance  contained  in SAB 101
related to multiple  element  revenue  arrangements,  which was  superseded as a
result of the issuance of EITF 00-21,  "Accounting for Revenue Arrangements with
Multiple  Deliverables." While the wording of SAB 104 has changed to reflect the
issuance of EITF 00-21,  the revenue  recognition  principles  of SAB 101 remain
largely  unchanged  by the  issuance of SAB 104. The adoption of SAB 104 did not
have a  material  impact on the  Company's  financial  position  or  results  of
operations.

NOTE 3 - ACQUISITION OF PETROGEN INC.

Effective  February 12, 2003,  the Petrogen  shareholders  exchanged  all of the
issued  and  outstanding  shares  of  Petrogen  for an  aggregate  of  7,000,000
restricted  common shares of the Company,  and the Company changed its name from
Hadro Resources,  Inc to Petrogen Corp. The Company issued an additional 300,000
shares  of the  Company's  restricted  common  stock  as a  finder's  fee.  Upon
completion  of the  acquisition,  there was a change in control of the  Company.
Also in connection with the acquisition,  the Company granted options to acquire
2,000,000  shares of the  Company's  restricted  common stock and granted  share
purchase  warrants to acquire 167,189 shares of the Company's  restricted common
stock to previous option and warrant holders in Petrogen .

Under generally accepted accounting  principles,  this business  acquisition was
accounted for as a capital transaction in substance. In essence, the acquisition
was a  recapitalization  and has  been  accounted  for as a  change  in  capital
structure. Under reverse merger accounting, the comparative historical financial
statements  of the Company,  the "legal  acquiror,"  are those of Petrogen,  the
"accounting  acquiror"  prior to the date of the  transaction  and  include  the
consolidated results for all periods presented subsequent to the reverse merger.

Costs  associated with the reverse merger totaling  $60,000 have been charged to
deficit.  In addition,  the excess of the purchase  price over the fair value of
the net  assets  acquired  resulted  in a charge to deficit  accumulated  during
exploration  stage  of  $639,634  in  accordance  with  accounting  for  reverse
acquisitions.  The weighted  average number of shares  outstanding  prior to the
transaction  is  deemed  to be  the  number  of  shares  issued  to  effect  the
transaction, being 7,300,000.


<PAGE>


PETROGEN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________


NOTE 4 - NOTES RECEIVABLE

Pursuant to the  Company's  2004 Stock Option  Plan,  during the year a total of
2,530,000 stock options were exercised at a price of $.25 per share for proceeds
of $632,500  which the Company  agreed to loan the  optionees.  These loans were
secured by demand promissory notes bearing interest at 8% per annum. At December
31, 2004 interest of $1,596 has been accrued,  $550,000 was repaid,  and $50,000
was  offset  against  outstanding  debt with  $32,500 of these  notes  remaining
outstanding at year end.


NOTE 5 - OIL AND GAS PROPERTIES

EMILY HAWES FIELD, CALHOUN COUNTY, TEXAS

By agreement dated May 20, 2002 Petrogen  acquired a 95% working interest ("WI")
and 77.5% net revenue  interest  ("NRI") in 1,571.5  acres of oil and gas leases
located in Calhoun  County,  Texas.  As  consideration  Petrogen  issued 365,000
shares of common  stock,  issued a floating  charge  debenture  in the amount of
$75,000,  and issued notes payable totaling  $47,145 to various lessors.  During
the year ended September 30, 2003 the notes payable were repaid in full. To date
Petrogen has  capitalized a total of $601,424 of  expenditures  relating to this
property.

On May 26, 2004 the Company entered into a  participation  agreement with Nortex
Corporation  of Texas for a 50% WI,  and a 29.063%  NRI.  The  Company  received
$66,112 as cash  consideration  for the assignment of Nortex's  proportionate WI
share of the leases and charged the monies  against  oil and gas  properties  to
offset future costs from drilling the property.

On June 4, 2004 the Company  entered into a  participation  agreement with Darcy
Energy, LLC. ("Darcy") (formerly Bazmo Exploration,  LLC) of Texas for a 25% WI,
and a 19.375% NRI . The Company received $42,680 as cash  consideration  for the
assignment  of Darcy's  proportionate  WI share of the leases  and  charged  the
monies  against oil and gas  properties to offset future costs from drilling the
property.

On September 20, 2004, the Company entered an agreement whereby it purchased the
remaining 5% working  interest for $3,536  resulting in the Company  retaining a
total  29.06% net  revenue  interest of a 37.5%  working  interest in and to the
Emily Hawes Field.

Subsequent  to December 31, 2004,  the Company  entered into a purchase and sale
agreement to purchase an additional  37.5%  working  interest in the Emily Hawes
Field property. Refer to Note 11.

BAXTERVILLE FIELD, MISSISSIPPI

Effective  September 25, 2002,  Petrogen entered into a Letter of Intent with US
Gas Systems,  Inc. (USG) of Mississippi,  whereby  Petrogen agreed to recomplete
four  existing   well-bores  and  further  develop  additional  infill  drilling
opportunities and proven undeveloped oil and gas reserves upon six hundred acres
of the USG Dunn and Swan  Tracts  of North  Baxterville  Field,  Marion  County,
Mississippi. Upon completion,  Petrogen, as operator, will have earned the right
to further  develop the underlying  leases and Petrogen shall farm-in to a75% WI
and  56.25% NRI on any and all oil  development  and a 50% WI and a 37.5% NRI on
all gas  production  from the property The agreement  provides that Petrogen can
further extend the Option Period by meeting certain  operational and development
milestones within set periods of time, and to date, has negotiated the necessary
extensions with USG to enable  Petrogen the opportunity to further  evaluate its
future operational presence within Baxterville Field.

Effective  November  12,  2002  Petrogen  completed  its due  diligence  on this
acquisition  and the terms of the  Letter of Intent  became  effective.  To date
Petrogen has  capitalized a total of $409,076 of  expenditures  relating to this
property.

S.J. HOOPER #1 WELLBORE, BAXTERVILLE FIELD, MISSISSIPPI

Effective October 25, 2002,  Petrogen entered into a Letter of Intent with Crown
Royalties of  Louisiana,  Inc.  ("CR") of  Mississippi,  whereby  Petrogen  will
acquire a 100% WI and 77% NRI in the S.J.  Hooper #1.  Petrogen  paid $22,500 to
acquire this interest. To date the Company has capitalized a total of $51,554 of
expenditures relating to this property.

The Company has been developing  operations at Baxterville Field and to date has
recompleted  the Moody #6 wellbore  and the SJ Hooper # 1  wellbore.  Initially,
production was  established at the SJ Hooper #1 wellbore with a production  rate
of 17 barrels of oil per day.  The  Company  thereafter  attempted  a  secondary
recompletion upon the wellbore to increase production from it, however resulting
in a hole in the tubing  causing  the  wellbore to fail.  The Company  completed
operations  upon the Moody #6 wellbore and  attempted  to establish  production,
however,  formation  waters were too significant to overcome and operations were
shut down to reduce any further costs, Currently,  the Moody #6 wellbore and the


<PAGE>


PETROGEN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________


SJ Hooper #1  wellbore  are in a shut-in  status as they are not  producing  any
economic  quantities  of  hydrocarbons.   The  Company  is  currently  assessing
opportunities   related  to  the  potential  divestiture  of  its  interests  in
Baxterville Field.

ENOS CREEK FIELD, WYOMING

Effective  October 31, 2002,  Petrogen  acquired  from  Coronado Oil Company LLC
(Coronado)  a  100%  WI and a  77.5%  NRI in the  Brown  Government  Lease  (the
"Property"),  located in the Enos Creek gas field, Hot Springs County,  Wyoming.
Petrogen  has  agreed to pay to  Coronado  50% of its  production  income net of
royalties to a maximum of $75,000. In addition,  the agreement provides Coronado
the right to  back-in to a 50% WI upon  Petrogen  having  completed  development
operations upon the Property and recouping all of its expenses  related to those
developments and upon Coronado forfeiting its 5% overriding royalty interest. To
date Petrogen has  capitalized a total of $316,987 of  expenditures  relating to
this property.

ADAMS RANCH AND HARRELL RANCH PROPERTIES, CROCKETT COUNTY, TEXAS

The Company holds certain rights to develop an average 100% working interest and
77.5% net revenue interest  located on  approximately  15,000 acres of developed
and  undeveloped  acreage on the Adams  Ranch and  Harrell  Ranch  prospects  in
Crockett County, Texas (the "Adams/Harrell Properties"), which consists of 6,480
net acres of shallow development rights and 13,700 net acres of deep development
rights. The Adams/Harrell  Properties are located in the Permian Basin upon what
management believes to be potentially productive natural gas reserve which could
be exploited  through the development of new gas wells.  Petrogen plans to drill
if adequate  funding can be raised.  The Company is  currently  formalizing  the
terms and  provisions  of the  formal  contractual  arrangements  related to the
Adams/Harrell  Properties,  as well as  negotiating  with several  third parties
interested  in  the  potential  of  entering  into  joint  venture   development
agreements to commence operations upon the project.

The  Company  has  negotiated  certain  rights to farm-in to and/or  develop the
15,000 acre  Adams/Harrell  Properties.  Pursuant to the terms and provisions of
the Farm-In Agreement currently in place and/or being finalized: (i) the Company
would have the right to conduct a series of earn-in  development  initiatives to
fully develop the Adams/Harrell  Properties. To date the Company has capitalized
a total of $96,368 of expenditures relating to Adams/Harrell Properties.

MATAGORDA ISLAND PIPELINE

On March 10,  2003,  Petrogen  International  Limited  ("PIL"),  a company  with
directors in common with the Company,  entered into a Lease Assignment Agreement
(the "Lease") with James Timothy Roche  ("Roche"),  whereby PIL leased a natural
gas transmission  pipeline located on Matagorda  Island,  Calhoun County,  Texas
from Roche.

The terms of the Lease  stipulate  that  Petrogen  advances the sum of $3,000 to
Roche as a partial  payment  toward the debt owing to Roche under the terms of a
Promissory  Note entered into  between  Petrogen and Roche on May 22, 2002.  PIL
thereafter  entered into an assignment  agreement  (the  "Assignment")  with the
Company,  whereby PIL assigned in Lease to for consideration of certain operator
fees and royalties of between $.09 and $.25 per MCF payable to PIL from Petrogen
as Lease  assignee  upon the sales of any  natural gas  transmitted  through the
pipeline.  In December of 2003,  PIL assigned all rights,  title and interest in
and to the pipeline  lease to the Company for no  consideration  and any and all
terms related to payment of royalties from the Company to PIL were extinguished.

On March 30, 2005, the Company entered into a purchase  agreement (the "Purchase
Agreement"),  with  Roche  pursuant  to  which  it  purchased  the  natural  gas
transmission  pipeline located on Matagorda  Island.  As  consideration  for the
pipeline the Company paid to Roche 175,000  restricted shares of common stock at
an agreed value of $.50 per share and agreed to pay a further  consideration for
the  pipeline  purchase  whereby it will pay a combined  Royalty of $.16 per MCF
transmitted through the pipeline up to a total amount of $50,000 and thereafter,
pay to Roche $.12 per MCF  transmitted  through the  pipeline,  both  amounts of
which will be payable upon an accrued total of natural gas  transmitted  through
the pipeline of no more than 4 billion cubic feet of natural gas.

Additionally,   the  Company  previously  entered  into  a  Management  Services
Agreement (the "MSA") with Tim Roche, on March 15th,  2003,  whereby Roche is to
provide his services to the Company as a qualified land man  specializing in oil
and gas  property  acquisition  opportunities  throughout  the Texas  Gulf Coast
region. As consideration to Roche under the Management Services  Agreement,  the
Company has  provided  Roche with a stock option  agreement  to purchase  25,000
shares of common stock in the first year at a price of $.50 per share and 25,000
shares of common stock in the  subsequent  year at a price 20% below the average
trading  price at a rate of 3,000  shares in the first month and 2,000 shares in
the next 11 months.  The MSA renews  automatically  on year by year basis if not
specifically  terminated in accordance with the provisions  outlined in the MSA.
To date, the MSA remains in effect.


<PAGE>


PETROGEN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________


NOTE 6 - DEBENTURES PAYABLE

DEBENTURE
In connection with the Emily Hawes acquisition  described in Note 5, the Company
issued a debenture in the amount of $75,000,  bearing interest at 15% per annum,
secured by a floating charge  security on all assets of the Company,  and due on
May 20, 2003 which was extended to June 30, 2004. (Refer to Note 5). At December
31, 2004, $75,000 of principal has been was repaid (including $6,250 for options
exercised by the holder of the debenture) and $4,554 remains owing.

CONVERTIBLE DEBENTURE
On August 18,  2003,  the Company  issued a $723,673  subordinated  debenture in
settlement of approximately  $708,525 of debt. The debenture was issued pursuant
to the terms of a  Memorandum  of  Agreement  between  the  Company  and certain
debtors ("Debenture Group").  The debenture:  (i) bore interest at 10% per annum
payable  annually in  arrears;  (ii) had a term of two years from the August 18,
2003 (date of issuance);  (iii) was subordinate to bank or lending institutional
debt financing;  (iv) was convertible into shares of restricted  common stock of
the Company at $1.00 per share under terms  requiring full payout of outstanding
principal and interest;  and (v) required monthly payments of $10,000  beginning
December 2003.

On July 8, 2004, the Company,  certain directors and the Debenture Group entered
into  a  settlement  agreement  and  general  mutual  release  (the  "Settlement
Agreement").  Pursuant to the terms and provisions of the Settlement  Agreement:
(i) the Debenture Group agreed to sell and transfer the  Subordinated  Debenture
to  Acceder  Technology  PTE  ("Acceder")  pursuant  to a  debenture  assignment
agreement;  (ii) the  Debenture  Group agreed to grant to the Chelsea Group Inc.
("Chelsea")  an  assignable  option to  purchase up to  1,134,457  shares of the
restricted  Common  Stock of the  Company  respectively  held of  record  by the
individual  members of the Debenture Group at $0.25 per share exercisable on the
following  terms:  (a) 25% on or before September 15, 2004, (b) 25% on or before
December 15, 2004, (c) 25% on or before March 15, 2005, and (d) 25% on or before
June 15, 2005; and (iii) subject to the  performance of the above,  the Company,
the  directors  and the  Debenture  Group agreed to release,  remise and forever
discharge  one  another  from any and all manner of  actions,  causes of action,
suits,  debts,  contracts,  claims  relating  to or  arising  from  the  matters
encompassed in the Subordinated Debenture.

On August 6, 2004, the Company and Acceder  entered into a debenture  conversion
agreement  (the  "Debenture  Conversion  Agreement").  Pursuant to the terms and
provisions  of the Debenture  Conversion  Agreement:  (i) the Company  agreed to
settle the debt due and owing to Acceder under the Subordinated Debenture in the
aggregate  amount of  $733,673 by issuance  of  2,934,690  shares of  restricted
Common Stock at $0.25 per share; (ii) the Company acknowledged the assignment of
such debt by  Acceder  to  certain  designees  of  Acceder;  (iii)  the  Company
acknowledged  the election of  conversion of such debt by the designees at $0.25
per share;  and (iv) the  Company  agreed to issue to such  certain  designees a
specified number of the 2,934,690 shares of restricted  Common Stock as directed
by Acceder and pursuant to the notice of conversion.

Accordingly, during the current year, the Company issued the 2,934,690 shares in
full  settlement of the debt which had a book value at the time of settlement of
$714,800.  As the  shares  had a fair  market  value  of  $939,101  the  Company
recognized a loss on settlement of $224,301.


NOTE 7 - RELATED PARTY TRANSACTIONS

During the year ended  December 31,  2004,  management  fees of $275,000  (2003:
$66,000)  were  incurred to two  directors  and officers of the Company of which
$86,000  (2003:  $Nil) has been  capitalized as oil and gas  development  costs.
During  the year  ended  December  31,  2004  additional  management  bonuses of
$315,000  (2003:  $Nil) were incurred to these two directors and officers of the
Company. The Company is committed to pay these two directors $24,750 in combined
management fees per month.

At December 31, 2004,  these directors and officers owe $16,679 (2003:  $282,688
was owed) for monies  advanced.  During the year ended December 31, 2004,  these
directors exercised 1,795,000 Stock Options for net proceeds of $596,250,  which
such amounts were utilized to off-set the debt, including bonuses, due and owing
to these two directors.

During the year ended  December  31,  2004,  management  fees of $60,000  (2003:
$7,500)  were  incurred  to a  director  of the  Company.  During the year ended
December 31, 2004, a bonus of $10,000 (2003: $Nil) was incurred to this director
of the  Company.  At December  31, 2004,  this  director is owed $67,500  (2003:
$7,500)  for  management  fees due.  During  the  current  year,  this  director
exercised 40,000 Stock Options for net proceeds in the amount of $10,000,  which
such amounts were utilized to off-set the debt due and owing to this director.

During the year ended  December 31,  2004,  management  fees of $126,997  (2003:
$Nil) were  incurred to an officer of the Company and have been  capitalized  as
oil and gas development costs.  During the year ended December 31, 2004, a bonus
of $45,000  (2003:  $Nil) was paid to this  officer of the  Company.  During the


<PAGE>


PETROGEN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________


current year, this officer  exercised  240,000 Stock Options for net proceeds in
the amount of $55,000,  which such amounts were utilized to off-set the debt due
and owing to this director.

Petrogen   retained  a  Drilling  and  Operating   Agreement  (the   "Operator's
Agreement")  entered  into  with  PIL on  November  15,  2002,  whereby  PIL was
responsible  for  administering  the  drilling,   production,   maintenance  and
re-working  of the  Company's  current  and  future oil and gas  interests  (the
"Interests").  Under the terms of the  Operator's  Agreement,  the  Company  was
required to reimburse PIL for all costs  incurred by PIL plus an  administration
fee equal to 10% of the costs  incurred  by PIL.  As further  consideration  PIL
retained a 10%  carried  interest  in the  Petrogen  Interests.  The  Operator's
Agreement was to remain in effect as long as any of the Interests covered by the
Operator's Agreement continued to be in operation.  In December of 2003, PIL and
the Company  entered into an  agreement  whereby PIL assigned all of its rights,
title  and  interests  in and to the  Company's  assets  to the  Company  for no
consideration. Additionally at that time, the Operators Agreement was terminated
between PIL and the Company for no  consideration.  At December 31,  2004,  $nil
(2003:  $161,315) was incurred to PIL, and $63,626  (2003:  $73,626) is owing to
PIL for work on the Baxterville Field, Enos Creek Field and S.J. Hooper #1.

All related  party  transactions  are in the normal  course of business  and are
measured  at  the  exchange  amount,   which  is  the  amount  of  consideration
established and agreed to by the related parties.


NOTE 8 - CAPITAL STOCK

Common Shares

On January 30, 2004, 50,000 shares were returned to treasury and cancelled.

During the year ended  December  31,  2004,  the Company  issued an aggregate of
6,339,600  shares of common stock for options  exercised at prices  ranging from
$0.20 to $0.50  per  share.  The  proceeds  received  were  $1,715,400  of which
$239,500 was received in cash,  $632,500 was notes receivable (of which $550,000
was repaid and $50,000 was  settled  for debt) and  $843,400  was used to reduce
existing debt.

On August 18, 2004 the Company issued 2,934,690 shares to retire the convertible
debenture detailed in Note 6.

On September 21, 2004 the Company issued 7,284,000 units at a price of $0.25 per
unit for cash  proceeds of  $1,821,000.  Each unit consists of one common share,
one 1/2 warrant,  whereby  each full  warrant can be  converted  into one common
share at a price of $0.50  exercisable  to January 31,  2005,  and a  piggy-back
warrant  with a  conversion  price of $1.00 that can be exercised to January 31,
2006,  subsequent  to the  exercise  of the $0.50 half  warrants.  In  addition,
100,000 units were issued as a finder's fee. Management  estimated that the fair
value of all the share purchase  warrants  associated with the private placement
was $182,100.

Warrants

On February 12, 2003, pursuant to the terms of the merger agreement, the Company
issued  167,189  warrants to previous  Petrogen  warrant  holders.  Each warrant
entitles the holder to purchase an additional share of the Company common stock.
In accordance with accounting  principles  applicable to accounting for business
combinations,  the  fair  value  of  the  share  purchase  warrants  assumed  in
connection with a business  combination is included in the  determination of the
purchase price.  The fair value of these share purchase  warrants as at the date
of the reverse  acquisition  of $357,800 was estimated  using the  Black-Scholes
option pricing model with an expected life of 1.59 years,  a risk-free  interest
rate of 3% and an expected volatility of 188%.

During  the year  ended  December  31,  2003,  47,430 of the  warrants  expired,
resulting in a charge to additional paid in capital of $101,500. During the year
ended December 31, 2004, 119,759 of the warrants expired,  resulting in a charge
to additional paid in capital of $256,300.


<PAGE>


PETROGEN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________


A summary of the  Company's  warrants at  December  31, 2004 and the changes for
2003 and 2004 are as follows:

                                               Weighted       Weighted
                                               Average        Average
                                 Warrants      Exercise      Remaining
                               Outstanding      Price           Life
                               ___________     ________      _________

Balance, December 31, 2002               -            -
         Issued                    167,189        $0.50
         Exercised                       -            -
         Cancelled                       -            -
         Expired                   (47,430)           -
                               ___________     ________

Balance, December 31, 2003         119,759        $0.50     0.79 years
                                                            ==========
         Granted                 3,642,000        $0.50
         Exercised                       -            -
         Cancelled                       -            -
         Expired                  (119,759)           -
                               ___________     ________
Balance December 31, 2004        3,642,000        $0.50     0.72 years
                               ===========     ========     ==========

All  3,642,000  warrants  are  exercisable  at $0.50  per  share  and  expire on
September 21, 2005.

NOTE 9 - STOCK OPTION PLAN

On April 13, 2003,  the Company  approved the amendment of its  incentive  stock
option  plan  to  provide  for the  issuance  of  stock  options  to  employees,
consultants  and  directors to purchase a total number of shares of common stock
of the Company not to exceed 3,000,000 shares.

On September 10, 2003, the Company approved the amendment of its incentive stock
option plan ("2003  Stock  Option  Plan"),  to provide for the issuance of stock
options to  employees,  consultants  and directors to purchase a total number of
shares of common stock of the Company not to exceed 5,000,000 shares.

During  the year  ended  December  31,  2003,  the  Company  granted  a total of
2,800,000  stock  options at  exercise  prices  ranging  from $0.25 to $0.75 per
common share. Of these options, 1,435,000 options were granted to non-employees.
Of these non-employee stock options,  1,375,000 vested  immediately,  and 60,000
were subject to vesting on a straight-line basis over 12 months, of which 60,000
have vested at December 31, 2004  (December  31, 2003:  15,000).  The  remaining
1,365,000  stock  options  were  granted to  employees,  including  officers and
directors,  of the Company.  Of these  employee  stock  options,  915,000 vested
immediately,  and 485,000 were subject to vesting on a straight-line  basis over
12 months, of which 485,000 have vested at December 31, 2004 (December 31, 2003:
124,003). During the period ended December 31, 2003, 1,000,000 vested consultant
options were cancelled and 124,000 vested employee options were cancelled.

Certain  of the  stock  options  granted  to  employees  during  the year  ended
September 30, 2003 were granted with exercise  prices less than the market price
of the Company's  common stock as at the date of grant resulting in an intrinsic
value of $20,700 as  determined in  accordance  with APB No. 25. This  intrinsic
value will be expensed as the underlying  stock options vest. As at December 31,
2003,  $17,345 of this intrinsic value has been expensed.  During the year ended
December 31, 2004, a further  $2,250 was expensed and another  $1,105 related to
cancelled unvested options was expensed.

In  accordance  with the  provisions  of SFAS 123, with respect to stock options
granted  to  employees,  pro  forma  disclosures  have been  provided  in Note 2
reflecting the results of applying the fair value method to these stock options.
The  application  of the fair value  method as described  below  resulted in pro
forma stock based compensation  totaling $304,700 of which $216,180 was reported
to December 31, 2003,  $68,860 was reported in the year ended  December 31, 2004
and $19,660 related to cancelled, unvested options.

In accordance  with the  provisions  of SFAS 123, the Company  expenses the fair
value of stock options  granted to  non-employees.  The  application of the fair
value method as described below resulted in additional stock based  compensation
totaling  $360,400 of which  $349,300 was  recorded to December  31,  2003,  and
$11,100 to December 31, 2004.

On November 1, 2003,  the Board of Directors of the Company  ratified,  approved
and confirmed the adoption of a further amendment to the 2003 Stock Option Plan,
which  provides for the grant of up to  10,000,000  additional  shares of Common
Stock.

On November 1, 2003, the Company  granted a total of 3,200,000  stock options at
exercise prices of $0.20 to $0.25 per common share. Of these options,  1,500,000
options were granted to  non-employees.  These  non-employee  stock  options all
vested  immediately.  The  remaining  1,700,000  stock  options  were granted to
employees,  including officers and directors,  of the Company. Of these employee
stock options, 500,000 vested immediately, and 1,200,000 were subject to vesting
on a  straight-line  basis  over 60  months,  of which  260,000  have  vested at
December 31, 2004 (December 31, 2003: 20,000).


<PAGE>


PETROGEN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________


In  accordance  with the  provisions  of SFAS 123, with respect to stock options
granted  to  employees,  pro-forma  disclosures  have  been  provided  in Note 2
reflecting the results of applying the fair value method to these  options.  The
application  of the fair value method as described  below  resulted in pro-forma
stock based  compensation  totaling  $382,600 of which $130,510 was disclosed to
December 31, 2003,  $32,680 was disclosed to December 31, 2004 and the remaining
$219,410 will be disclosed upon vesting of the underlying stock options.

In accordance  with the  provisions  of SFAS 123, the Company  expenses the fair
value of stock options  granted to  non-employees.  The  application of the fair
value method as described below resulted in additional stock based  compensation
totaling  $344,000  which was  recorded to December 31, 2003 upon vesting of the
underlying stock options.

The Company  estimated  the fair value of the November 1, 2003 stock  options by
applying the fair value  method using the  Black-Scholes  option  pricing  model
using expected lives ranging from three to ten years, a risk-free  interest rate
of 3% and an expected volatility of 174%

During the year ended December 31, 2004 the Company granted a total of 8,985,000
stock  options at exercise  prices  ranging from $0.25 to $1.00 per common share
under the 2003 Stock  Option  Plan  (5,000,000)  and the 2004 Stock  Option Plan
(3,985,000).  Of these options, 5,810,000 options were granted to non-employees.
These non-employee  stock options vested  immediately.  The remaining  3,175,000
stock options were granted to employees,  including  officers and directors,  of
the Company. These employee stock options all vested immediately.

The Company estimated the fair value of stock options by applying the fair value
method using the Black-Scholes option pricing model using expected lives ranging
from  three  to  ten  years,  a  risk-free  interest  rate  of 3%  and  expected
volatilities ranging from 172% to 205%

Of the options  granted  during the year,  certain of the employee  options were
granted with exercise prices less than the market value of the Company's  common
stock  resulting in an  intrinsic  value  expense in the period of $163,600.  In
addition,  with respect to the employee options  disclosure has been provided in
Note 2 reflecting the results of applying the fair value method to share options
resulting in a further  pro-forma  stock based  compensation  of $981,000.  With
respect to the options granted to  non-employees,  the Company  recorded a stock
based compensation expense of $1,883,050.

On July 22, 2004, the Board of Directors of the Company  ratified,  approved and
confirmed the adoption of a 2004 Stock Option Plan providing for the granting of
up to 6,000,000  shares of common stock.  The Company filed an S-8  Registration
Statement  for  5,000,000  shares  under the 2004 Plan  during July 2004 and has
granted 3,985,000 options to officers, directors and consultants.


<PAGE>


PETROGEN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________


<TABLE>
<CAPTION>

                                                                                         Weighted        Weighted
                                                                                         Average         Average
                               Number of                      Exercise                   Exercise       Remaining
                                Options      Date of issue     Price      Expiry date     Price      Contractual Life
                               ______________________________________________________________________________________
<S>                             <C>            <C>              <C>        <C>            <C>           <C>

Granted, February 12, 2003      2,000,000      12-Feb-03        0.50       12-Feb-06

Granted, September 10, 2003     1,550,000      10-Sep-03        0.25       10-Sep-06
                                  500,000      10-Sep-03        0.50       10-Sep-06
                                  750,000      10-Sep-03        0.75       10-Sep-06

Exercised during the year      (1,030,000)                      0.50       10-Sep-06
                                 (215,000)                      0.25       10-Sep-06
                               __________

Balance, September 30, 2003     3,555,000                                                 $ 0.46        2.79 years
                               ==========                                                 ======        ==========

Granted, November 1, 2003       1,600,000      01-Nov-03        0.20       01-Nov-08
                                1,000,000      01-Nov-03        0.25       01-Nov-08
                                  600,000      01-Nov-03        0.25       01-Nov-13

Cancelled during the period       (34,000)                      0.50       12-Feb-06
                                 (540,000)                      0.25       10-Sep-06
                                  (50,000)                      0.50       10-Sep-06
                                 (500,000)                      0.75       10-Sep-06

Balance, December 31, 2003      5,631,000                                                 $ 0.32        3.30 years
                               ==========                                                 ======        ==========

Granted during the year         1,750,000       4-Mar-04        0.25        4-Mar-07
                                  765,000       4-Mar-04        0.25        4-Mar-14
                                1,650,000       4-Mar-04        0.50        4-Mar-07
                                  460,000       4-Mar-04        0.50        4-Mar-14
                                  375,000       4-Mar-04        0.75        4-Mar-07
                                  700,000      22-Jul-04        0.30       22-Jul-14
                                2,250,000      22-Jul-04        0.30       22-Jul-07
                                   60,000      22-Jul-04        0.30        3-Mar-07
                                  450,000      22-Jul-04        0.75       22-Jul-14
                                  325,000      22-Jul-04        1.00       22-Jul-14
                                  200,000       1-Oct-04        0.50       30-Sep-06

Exercised during the year        (530,000)                      0.50       12-Feb-06
                                 (470,000)                      0.25       10-Sep-06
                                 (100,000)                      0.50       10-Sep-06
                                  (60,000)                      0.25       10-Sep-06
                               (1,600,000)                      0.20        1-Nov-08
                                 (400,000)                      0.25        1-Nov-08
                                  (40,000)                      0.25        1-Nov-13
                                 (495,000)                      0.50        4-Mar-14
                               (1,584,600)                      0.75        4-Mar-07
                                  (60,000)                      0.30        3-Mar-07
                               (1,000,000)                      0.30       22-Jul-07


Balance, December 31, 2004      8,276,400                                                 $ 0.45        4.62 years
                                =========                                                 ======        ==========

</TABLE>


<PAGE>


PETROGEN CORP.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
________________________________________________________________________________


NOTE 10 - CONTINGENCIES

On  September  15,  2004,  a  lawsuit  was  filed by  Petroguard  Company,  Inc.
("Petroguard") against Petrogen and a director of Petrogen, Inc. The claims made
by  Petroguard  Company,  Inc.  in  its  complaint  allege  conversion,   unjust
enrichment,  fraud,  and  negligent  representation  regarding  the geologic and
geophysical   interpretations   of  a   three-dimensional   seismic   survey  of
approximately  135  square  miles  constituting  Esperitu-Santo  Bay and most of
Matagorda  Island,  and that Petrogen  wrongfully  obtained the seismic  survey.
Petroguard  is claiming  injunctive  relief  including a cease and desist  order
against Petrogen.  Petrogen has responded in its answer to the complaint denying
receipt of the seismic data as alleged and  counterclaiming  that Petrogen is in
possession of some related data that is not three-dimensional, which it properly
acquired from a third party.  Petrogen  intends to aggressively  defend all such
claims and to pursue all such legal actions remedies against Petroguard.

On April 6, 2005, Petrogen filed a lawsuit against Davis Gulf Coast ("Davis") in
the 55th Judicial  District  Court of Harris County,  Texas.  The claims made by
Petrogen in its complaint  against Davis allege breach of contract.  Previously,
Petrogen and Davis had entered into an agreement  pursuant to which Davis agreed
to provide  support and services for the drilling  program on Matagorda  Island.
The  complaint  alleges that Davis  breached its agreement by failing to perform
services  in a  timely  and  proper  manner.  Davis  has  filed  an  answer  and
counterclaim to the complaint  alleging that Petrogen failed to compensate it in
the  amount of  $177,234.  As of the date of this  Annual  Report,  we intend to
aggressively  defend all such  claims and to pursue all such legal  actions  and
remedies against Davis.

On October 20, 2004 the Company  commenced an action  against  X-Clearing  Corp.
(X-Clearing),  the Company's  previous transfer agent, in the District Court for
the City and County of Denver,  State of Colorado for return of our stock record
documents.  X-Clearing has filed an answer and  counterclaim  asserting that the
Company  is  liable  to  X-Clearing  for  certain  legal  expenses  incurred  by
X-Clearing  Corp. in prosecuting an action against the Depository Trust Company,
which  legal  expenses  are  undeterminable.  The Company  presently  intends to
aggressively pursue all such claims and to pursue all legal actions and remedies
against X-Clearing.

The  likelihood  of  losses,  if any,  relating  to the above  contingencies  is
currently not determinable.


NOTE 11 - SUBSEQUENT EVENTS

Subsequent to December 31, 2004, the Company  entered into a purchase  agreement
to acquire the natural gas transmission pipeline on Matagorda Island as detailed
in Note 5.

Subsequent  to December 31, 2004,  the Company  entered into a purchase and sale
agreement  with Nortex  Corporation,  Danny L. Stephens  Interests and Robert W.
Kent ("Nortex,  et al"),  pursuant to which it purchased  Nortex,  et al's 37.5%
working  interests (the "Nortex  Interests") in and to the Company's Emily Hawes
Field  property,   Calhoun  County,  Texas.  As  consideration  for  the  Nortex
Interests,  the  Company  made a one  time  cash  payment  to  Nortex,  et al of
$300,000.  As additional  consideration  for the Nortex  Interests,  the Company
agreed  to  accrue  any and all  costs  associated  with  the  Nortex  Interests
commencing January 1st, 2005.


<PAGE>

ITEM  8.  CHANGES  IN AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
FINANCIAL DISCLOSURE.

Our principal independent accountant from March 2001 to the current date is Dale
Matheson Carr-Hilton LaBonte Chartered Accountants  ("DMCL").  DMCL's address is
1300-1140 West Pender Street, Vancouver, British Columbia, Canada V6E 4G1.

ITEM 8A. CONTROLS AND PROCEDURES

An evaluation was conducted under the supervision and with the  participation of
our management,  including Sacha Spindler,  our Chief Executive Officer ("CEO"),
and  L.  William  Kerrigan,   our  Chief  Financial  Officer  ("CFO"),   of  the
effectiveness  of the  design  and  operation  of our  disclosure  controls  and
procedures as of December 31, 2004. Based on that evaluation,  Messrs.  Spindler
and  Kerrigan  concluded  that  our  disclosure  controls  and  procedures  were
effective as of such date to ensure that information required to be disclosed in
the  reports  that we file or  submit  under  the  Exchange  Act,  is  recorded,
processed,  summarized  and reported  within the time  periods  specified in SEC
rules and forms.  Such  officers  also  confirm  that there was no change in our
internal  control over  financial  reporting  during the year ended December 31,

<PAGE>

2004 that has materially affected, or is reasonably likely to materially affect,
our internal control over financial reporting.

ITEM 8B. OTHER INFORMATION.

Not applicable.

PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

All of our directors  hold office until the next annual  general  meeting of the
shareholders or until their  successors are elected and qualified.  Our officers
are  appointed  by our Board of Directors  and hold office  until their  earlier
death, retirement, resignation or removal.

As of the date of this Annual Report,  our directors and executive  officers are
as follows:

         Name                      Age              Position

S. Sam Sen                          45              Co-President

Sacha H. Spindler                   43              Chief Executive Officer
                                                    and Chairman/Director

L. William Kerrigan                 50              Co-President/Chief
                                                    Financial Officer and
                                                    Director

Timothy G. Russell                  64              Director

Biographies of the Executive Officers/Directors

The following is a brief  account of the  education  and business  experience of
each director,  executive officer and key employee during at least the past five
years,  indicating each person's principal occupation during the period, and the
name and principal business of the organization by which he or she was employed.

S. SAM SEN has been our  Co-President  since  February 1st,  2005. Mr. Sen is an
international  commercial  development  executive with over  twenty-three  years
applied business and technical  experience in the energy  industry.  Mr. Sen has
focused on commercial leadership in analysis, negotiation,  support, and capture
of value-adding upstream, midstream, downstream, and acquisition and divestiture
deals ranging in size from  $10,000,000  to over  $1,000,000,000.  His technical
expertise features geological  leadership in discovery of gross onshore reserves
of 100 MMBOE.  Mr. Sen has been successful in entering  commercially  attractive
areas/countries and enhancing economic viability of existing business positions.

<PAGE>

SACHA H.  SPINDLER  is our  Chairman  of the  Board,  a  Director  and the Chief
Executive Officer. Mr. Spindler was previously the president,  of Petrogen.  Mr.
Spindler,  as  a  co-founder  of  Petrogen,  has  developed  an  entrepreneurial
expertise that has spanned over twenty-one  years through his having started and
operated several successful business ventures, as well as providing supervisory,
management  and  corporate  development  expertise as a  consultant  to numerous
companies and  non-profit  organizations  over the past 15 years.  Mr.  Spindler
possesses in-depth knowledge of the equity markets and investment  industry,  as
well  as a  strong  fundamental  background  in the  daily  responsibilities  of
corporate  operations.  During the past six years, Mr. Spindler has developed an
in-depth knowledge and understanding of the oil and gas business in the areas of
finance,  structure,  negotiations  and prospect  leveragability  coupled with a
fundamentally streamlined approach in the day to day operations of the business.
Through his  operational  acumen and  international  finance  affiliations,  Mr.
Spindler brings a wealth of knowledge and influence to us as our Chief Executive
Officer,   ensuring  a  long-term  vision  of  creating  value  through  focused
commitment and responsible company building methodologies.

L.  WILLIAM  KERRIGAN is our  Co-Vice  President/Chief  Financial  Officer and a
director. Mr. Kerrigan was the executive vice president, chief operating officer
and a director of Petrogen. Mr. Kerrigan, as a co-founder of Petrogen,  provides
us with a broad and  practical  knowledge  of the oil and gas  business in North
America and Central and South  America,  and has developed  strong  affiliations
throughout the entire industry. Through his over twenty years in the industry as
a geologist  and  operator,  Mr.  Kerrigan  has  specialized  in the  day-to-day
hands-on  operations  in the oil and gas field.  He has been involved in oil and
gas  drilling  and  production  from  Wyoming to Florida  during the span of his
career, resulting in numerous discoveries.  Additionally, he has gained an acute
ability in the  development  and  expansion  of  existing  production  utilizing
extremely  cost-effective methods resulting in highly optimized operations.  Mr.
Kerrigan  completed the detailed  regional study of the Mississippian Age Strata
of the  Cumberland  Plateau of Northeast  Tennessee  and has  provided  Geologic
consulting  services  and  expertise  on an  international  level to oil and gas
companies  in Ireland,  Norway and  throughout  the United  States.  Some of his
clients  include  DuPont,  Rice Services,  and Eastern Natural Gas. Mr. Kerrigan
received  his  degree  as  an  Exploration  Geologist  from  the  University  in
Tennessee.

TIMOTHY G. RUSSELL is one of our  directors.  Mr.  Russell is also currently the
president  of  exploration  and a  director  of  Wattenberg  Properties,  LLC, a
wholly-owned subsidiary of Petrogen  International.  During the past twenty-five
years,  Mr. Russell was employed as exploration  manager and division  geologist
with Amoco  Production  Company  pursuant  to which he was  instrumental  in the
development of exploration  operations throughout the Middle East. Mr. Russell's
tenure  with  Amoco  Production   Company  included  numerous   exploration  and
development  initiatives in countries in Africa and the Middle East resulting in
several  discoveries  of oil and gas reserves.  Mr.  Russell has also acted as a
company  representative  to local  Ministries  of Petroleum  in several  foreign
countries.  Mr.  Russell  possesses  excellent  business  acumen,  planning  and
supervisory skills as well as strengths in dealing at the government, management
and  technical  levels.  Mr.  Russell  earned a B.A.  in Geology  at  Vanderbilt
University  and received his Masters  Degree in Geology from the  University  of
Tennessee.

Family Relationships

There are no family relationships among our directors or officers.


<PAGE>

Involvement in Certain Legal Proceedings

During the past five years, none of our directors, executive officers or persons
that may be deemed  promoters is or have been  involved in any legal  proceeding
concerning (i) any bankruptcy petition filed by or against any business of which
such person was a general partner or executive officer either at the time of the
bankruptcy  or within two years  prior to that time;  (ii) any  conviction  in a
criminal proceeding or being subject to a pending criminal proceeding (excluding
traffic violations and other minor offenses);  (iii) being subject to any order,
judgment or decree, not subsequently  reversed,  suspended,  or vacated,  of any
court of competent jurisdiction  permanently or temporarily enjoining,  barring,
suspending or otherwise limiting involvement in any type of business, securities
or banking activity; or (iv) being found by a court, the Securities and Exchange
Commission  or the  Commodity  Futures  Trading  Commission  to have  violated a
federal or state  securities or  commodities  law (and the judgment has not been
reversed, suspended or vacated).

Audit Committee

As of the date of this Annual Report,  we have not appointed members to an audit
committee and,  therefore,  the respective  role of an audit  committee has been
conducted by our Board of Directors.  When  established,  the audit  committee's
primary function will be to provide advice with respect to our financial matters
and  to  assist   our  Board  of   Directors   in   fulfilling   its   oversight
responsibilities  regarding finance,  accounting,  tax and legal compliance. The
audit committee's primary duties and  responsibilities  will be to: (i) serve as
an independent  and objective party to monitor our financial  reporting  process
and internal  control system;  (ii) review and appraise the audit efforts of our
independent  accountants;  (iii) evaluate our quarterly financial performance as
well as our  compliance  with laws and  regulations;  (iv) oversee  management's
establishment and enforcement of financial policies and business practices;  and
(v) provide an open avenue of communication  among the independent  accountants,
management and our Board of Directors.

The Board of  Directors  has  considered  whether the  regulatory  provision  of
non-audit  services is compatible  with  maintaining  the principal  independent
accountant's independence.

Audit Committee Financial Expert

As of the date of this Annual Report, our Board of Directors has determined that
we do not  have an  audit  committee  financial  expert  nor do we have an audit
committee.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Securities  Exchange Act of 1934, as amended,  requires our
directors  and  officers,  and the  persons who  beneficially  own more than ten
percent  of our  common  stock,  to file  reports of  ownership  and  changes in
ownership  with the  Securities  and  Exchange  Commission.  Copies of all filed
reports are required to be  furnished  to us pursuant to Rule 16a-3  promulgated
under the Exchange  Act.  Based solely on the reports  received by us and on the
representations  of the  reporting  persons,  we believe that these persons have
complied with all applicable  filing  requirements  during the fiscal year ended
December 31, 2004.

<PAGE>

ITEM 10. EXECUTIVE COMPENSATION

COMPENSATION OF OFFICERS AND DIRECTORS

During  fiscal years ended  December 31, 2004 and 2003,  certain of our officers
and directors were  compensated for their roles as executive  officers.  Messrs.
Spindler,  Kerrigan and Sen derive  remuneration from us for consulting services
rendered. See "Summary Compensation Table" below. Our officers and directors may
be reimbursed for any out-of-pocket  expenses incurred by them on our behalf. We
presently have no pension, health, annuity, insurance, profit sharing or similar
benefit plans.

Executive  compensation is subject to change  concurrent with our  requirements.
Currently, Mr. Spindler receives compensation in the amount of $17,250 per month
and Mr. Kerrigan receives compensation in the amount of $7,500 per month.

Contractual Arrangement with Mr. Spindler

Mr. Spindler,  our Chief Executive  Officer and one of our directors,  currently
invoices us $17,250 per month, plus expenses.  During fiscal year ended December
31, 2004,  $189,000  was accrued for such monthly fees for services  rendered by
Mr.  Spindler to us and to Petrogen,  which  commenced  September  2001.  During
fiscal year ended  December  31,  2004,  a bonus of $245,000 was incurred to Mr.
Spindler.  During  fiscal  year  ended  December  31,  2004,  we paid a total of
$434,000  to Mr.  Spindler  for  consulting  fess  and  bonus  and  $27,110  for
reimbursement  of expenses.  Therefore,  at December 31, 2004, Mr. Spindler owed
approximately $17,903.  During fiscal year ended December 31, 2004, Mr. Spindler
exercised  200,000  Stock  Options at $0.20 per share,  750,000 Stock Options at
$0.25 per share,  and 240,000  Stock  Options at $0.50 per share,  for aggregate
proceeds of $347,500,  which amount was utilized to off-set the aggregate amount
due and owing to Mr. Spindler.

Contractual Arrangement with Mr. Kerrigan

Mr. Kerrigan, our Co-President and Chief Financial Officer currently invoices us
$7,500 per month,  plus  expenses.  During fiscal year ended  December 31, 2004,
$86,000 was accrued for such monthly fees for services  rendered by Mr. Kerrigan
to us and to Petrogen,  which commenced September 2001. During fiscal year ended
December  31,  2004,  a bonus of $70,000 was  incurred to Mr.  Kerrigan.  During
fiscal year ended December 31, 2004, we paid a total of $156,000 to Mr. Kerrigan
for  consulting  fees and bonus  and  $28,273  for  reimbursement  of  expenses.
Therefore, at December 31, 2004, Mr. Kerrigan was owed approximately $1,224. Mr.
Kerrigan  exercised  390,000  Stock Options at $0.50 per share and 215,000 Stock
Options at $0.25 per share, for aggregate proceeds of $248,750, which amount was
utilized to off-set the aggregate amount due and owing to Mr. Kerrigan.

Proposed Henry Consulting Agreement

On November 18, 2003, to be effective January 1, 2004, we proposed to enter into
a  management  consulting  services  agreement  with  Neville  Henry,  our prior
President (the "Proposed Henry Consulting Agreement"). Pursuant to the terms and
provisions  of the  Proposed  Henry  Consulting  Agreement,  Mr. Henry agreed to
provide  operational,  managerial and consulting  services to us consistent with
his position as our  president.  Pursuant to further terms and provisions of the
Proposed Henry Consulting Agreement, we were to: (i) pay to Mr. Henry a one-time
signing fee of $45,000 at the  effective  date;  (ii) pay to Mr. Henry a monthly
fee of $15,000.00  (the "Fee") at the effective  date, and further agreed to pay
only  $10,000.00  of the Fee  monthly  to Mr.  Henry,  with the  balance of each
monthly fee accruing  without  interest until such time as we were in a position
to be able to afford to pay the entire monthly Fee from future financings and/or
positive monthly cash flow; and (iii) reimbursed certain expenses.

<PAGE>

During fiscal year ended December 31, 2004, $126,997 was accrued pursuant to the
Proposed Henry Consulting Agreement. During fiscal year ended December 31, 2004,
we paid $171,997 to Mr. Henry for  consulting  fees. Mr. Henry was terminated as
our President  effective as of February 1, 2005. The Proposed  Henry  Consulting
Agreement was never executed by Mr. Henry nor us. Therefore,  the Proposed Henry
Consulting Agreement is not required to be terminated.  Due to the fact that the
Proposed  Henry  Consulting  Agreement  was never  executed by Mr. Henry nor us,
there are no fees accrued or owing to Mr. Henry.

<TABLE>
<CAPTION>

SUMMARY COMPENSATION TABLE

                               ANNUAL COMPENSATION               AWARDS           PAYOUTS
                               ------------------------------------------------------------
NAME/POSITION    YEAR          SALARY    BONUS    OTHER        RSA   OPTIONS    LTIP  OTHER
-------------------------------------------------------------------------------------------

<S>              <C>           <C>    <C>       <C>            <C> <C>           <C>   <C>
Sacha Spindler   2004          -0-    $245,000  $189,000       -0-   800,000     -0-   -0-
CEO              2003          -0-       -0-    $139,645       -0- 1,250,000     -0-   -0-
                 2002          -0-       -0-    $ 78,000       -0-     -0-       -0-   -0-

William Kerrigan 2004          -0-     $70,000  $ 86,000       -0-   800,000     -0-   -0-
Co-Pres/CFO      2003          -0-       -0-    $ 90,500       -0-   675,000     -0-   -0-
                 2002          -0-       -0-    $ 75,000       -0-     -0-       -0-   -0-

Neville Henry    2004          -0-     $45,000  $126,997       -0-     -0-       -0-   -0-
Pres.            2003          -0-       -0-       -0-         -0- 1,400,000     -0-   -0-
                 2002          -0-       -0-       -0-         -0-     -0-       -0-   -0-

Timothy Russell  2004          -0-     $10,000  $ 60,000       -0-               -0-   -0-
Director         2003          -0-       -0-    $  7,500       -0-               -0-   -0-

-------------------------------------------------------------------------------------------
</TABLE>

STOCK OPTIONS/SAR GRANTS IN FISCAL YEAR ENDED DECEMBER 31, 2004

As of the date of this Annual  Report,  there are an  aggregate  of 16,290 Stock
Options have been  granted.  During  fiscal year ended  December  31,  2004,  an
aggregate of 8,785,000 Stock Options were granted.  Stock Options granted to our
executive  officers and directors during fiscal year ended December 31, 2004 are
as reflected  below in the  "Options/SAR  Grants  Table." As of the date of this
Annual  Report,  certain  Stock  Options  have been  exercised.  See  "Aggregate
Options/SAR Exercises" below.

<PAGE>

Stock Option/SAR Grants in Last Fiscal Year

Name             Number of   Percent of Total      Exercise Price   Date of
                 Securities  Options Granted (1)                   Expiration
                 Underlying
                 Options
-----------------------------------------------------------------------------
Sacha             365,000                               $0.25       03/04/14
Spindler          260,000                               $0.50       03/04/14
                  175,000                               $0.50       09/10/06
                  -------
Total             800,000         9.11%

William           500,000                               $0.25       03/04/14
Kerrigan          300,000                               $0.50       03/04/14
                  -------
Total             800,000         9.11%

                    (2)
Neville           600,000         6.82%                 $0.25       11/01/13
Henry
                    (3)
Timothy            50,000                               $0.50       03/04/07
Russell            18,000                               $0.50       02/12/06
                   50,000                               $0.50       09/10/06
                  250,000                               $0.75       09/10/06
                  -------
Total             368,000         4.19%
---------------------------------------------------
(1)
Calculated upon an aggregate  8,785,000 Stock Options granted during fiscal year
ended  December  31,  2004  and  assuming  that  all  Stock  Options  will  vest
accordingly.
(2)
Due to Mr. Henry's  termination as our President  effective  February 1st, 2005,
all Stock  Options  granted  to Mr.  Henry  were  forfeited  on March 1, 2005 in
accordance with the terms and provisions of the Stock Option Plan.
(3)
Of the 368,000 Stock Options  granted to Mr.  Russell:  (i) 18,000 Stock Options
vested upon grant;  (ii) 50,000 Stock  Options vest over a  twelve-month  period
commencing March 4, 2004 (of which 23,335 Stock Options exercisable at $0.25 per
share expiring March 4, 2007 have vested as of the date of this Annual  Report);
(ii) 50,000 Stock Options vest over a twelve-month  period commencing  September
10, 2004 (of which 29,165 Stock Options  exercisable at $0.50 expiring September
10, 2006 have vested as of the date of this Annual  Report);  and (iii)  250,000
Stock Options vest over a twelve-month period commencing  September 10, 2004 (of
which 145,835 Stock Options  exercisable at $0.75 per share  expiring  September
10, 2006 have vested as of the date of this Annual Report).

Aggregated Options/SAR Exercises in Last Fiscal Year

                                                  Number of       Value of
                       Shares                     Securities     Unexercised
                      Acquired on   Value         Underlying    in the money
Name                   Exercise     Realized      Unexercised     Options
-----------------------------------------------------------------------------
           (1)
Sacha Spindler        20,000         $   600        300,000        n/a
                     235,000        ($ 2,350)        90,000        n/a
                      50,000        ($   500)         -0-          n/a
                     240,000         $15,600         60,000        n/a
                     365,000         $79,600          -0-          n/a
           (2)
William Kerrigan     135,000        ($ 1,350)        90,000        n/a
                      50,000        ($   500)         -0-          n/a
                     290,000        ($52,900)        10,000        n/a
                     100,000        ($17,000)         -0-          n/a
                      30,000         $ 7,200        470,000        n/a
           (3)
Neville Henry        260,000         $17,800        440,000        n/a
                     100,000         $ 4,000          -0-          n/a
           (4)
Timothy Russell       40,000        ($   400)         -0-          n/a
-----------------------------------------------------------------------------

<PAGE>

(1)
Pursuant to certain Notices and Agreements of Option,  Mr. Spindler exercised an
aggregate 910,000 Stock Options to acquire 910,000 shares of our Common Stock as
follows:  (i) 20,000  Stock  Options  were  exercised  on January 12, 2004 at an
exercise price of $0.20 per share;  (ii) 235,000 Stock Options were exercised on
February  11, 2004 at an exercise  price of $0.25 per share;  (iii) 50,000 Stock
Options were  exercised  on February 11, 2004 at an exercise  price of $0.25 per
share; (iv) 40,000 Stock Options were exercised on February 11, 2004 and 200,000
Stock Options were exercised on April 28, 2004 at an exercise price of $0.25 per
share;  and (v) 200,000 Stock Options were exercised on May 21, 2004 and 165,000
Stock Options were  exercised on June 16, 2004 at an exercise price of $0.25 per
share.  Based upon an average  trading  price of: (i) $0.23 on January 12, 2004;
(ii) $0.24 on February  11, 2004;  (iii) $0.33 on April 28, 2004;  (iv) $0.45 on
May 21, 2004; and (v) $0.49 on June 16, 2004. Mr. Spindler realized an aggregate
net value of approximately $92,350.
(2)
Pursuant to certain Notices and Agreements of Option,  Mr. Kerrigan exercised an
aggregate 605,000 Stock Options to acquire 605,000 shares of our Common Stock as
follows:  (i) 135,000  Stock  Options were  exercised on February 11, 2004 at an
exercise  price of $0.25 per share;  (ii) 50,000 Stock Options were exercised on
February  11, 2004 at an exercise  price of $0.25 per share;  (iii) 40,000 Stock
Options  were  exercised  on February  11, 2004 and 250,000  Stock  Options were
exercised  on April  28,  2004 at an  exercise  price of $0.50 per  share;  (iv)
100,000 Stock Options were  exercised on April 28, 2004 at an exercise  price of
$0.50 per share; and (v) 30,000 Stock Options were exercised on June 16, 2004 at
an exercise  price of $0.25 per share.  Based upon an average  trading price of:
(i) $0.24 on February  11, 2004;  (ii) $0.33 on April 28,  2004;  (iii) $0.49 on
June 16, 2004,  Mr.  Kerrigan  realized an aggregate net value of  approximately
$(64,550).
(3)
Pursuant to certain  Notices and  Agreements of Option,  Mr. Henry  exercised an
aggregate 360,000 Stock Options to acquire 360,000 shares of our Common Stock as
follows:  (i) 140,000  Stock  Options  were  exercised  on February 11, 2004 and
120,000  Stock Options were  exercised on June 25, 2004 at an exercise  price of
$0.25 per share;  and (ii) 100,000 Stock Options were  exercised on February 11,
2004 at an  exercise  price of $0.20 per share.  Based  upon an average  trading
price of: (i) $0.24 on February 11, 2004;  and (ii) $0.41 on June 25, 2004,  Mr.
Henry realized an aggregate net value of approximately $21,800.
(4)
Pursuant to certain  Notice and Agreements of Option,  Mr. Russell  exercised an
aggregate  40,000 Stock Options to acquire  40,000 shares of our Common Stock as
follows:  (i) 40,000  Stock  Options  were  exercised on February 11, 2004 at an
exercise price of $0.25 per share.  Based upon an average trading price of $0.24
on  February  11,  2004,  Mr.  Russell   realized  an  aggregate  net  value  of
approximately $(400).


<PAGE>

ITEM 11.  SECURITY  OWNERSHIP OF CERTAIN  BENEFICIAL  OWNERS AND  MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

As of the date of this Annual  Report,  the following  table sets forth the name
and address and the  approximate  number of our shares of Common  Stock owned of
record or beneficially by each person who owned of record, or was known by us to
own beneficially,  more than five percent (5%) of our Common Stock, and the name
and  shareholdings of each officer and director,  and all officers and directors
as a group.

As of the date of this  Annual  Report,  there are  27,221,581  shares of Common
Stock issued and outstanding.

Name and Address of         Amount and Nature of           Percent of Class
 Beneficial Owner           Beneficial Ownership
---------------------------------------------------------------------------
                                         (1)
Sacha Spindler                  3,431,284                       12.61%
3200 Southwest Freeway
Suite 3300
Houston, Texas 77027
                                         (2)
William Kerrigan                3,417,932                       12.56%
3130 Caldwell Road
Ashland City, Tennessee
37015
                                         (3)
Timothy G. Russell                390,233                        1.43%
3200 Southwest Freeway
Suite 3300
Houston, Texas 77027
                                         (4)
S. Sam Sen                             -0-                          0%
3200 Southwest Freeway
Suite 3300
Houston, Texas 77027

All officers and directors.     7,239,449                       26.60%
as a group (4 persons)
---------------------------------------------------------------------------
(1)
This figure includes:  (i) 2,546,284 shares of restricted Common Stock; and (ii)
the assumption of the exercise by Mr.  Spindler of an aggregate of 885,000 Stock
Options to acquire 885,000 shares of Common Stock.
(2)
This figure includes:  (i) 2,547,932 shares of restricted Common Stock; and (ii)
the assumption of the exercise by Mr.  Kerrigan of an aggregate of 870,000 Stock
Options to acquire 870,000 shares of Common Stock.

<PAGE>

(3)
This figure includes: (i) 22,233 shares of restricted Common Stock; and (ii) the
assumption  of the  exercise by Mr.  Russell of an  aggregate  of 368,000  Stock
Options to acquire 368,000 shares of Common Stock. As of the date of this Annual
Report, an aggregate of 60,000 Stock Options have vested.
(5)
This figure includes:  (i) 5,116,449 shares of restricted Common Stock; and (ii)
the  assumption  of the exercise of an aggregate of 2,123,000  Stock  Options to
acquire 2,123,000 shares of Common Stock.

Changes in Control
         We are unaware of any contract or other  arrangement  the  operation of
which may at a subsequent date result in a change in control of our company.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

CONTRACTUAL RELATIONS WITH SACHA SPINDLER

As of the date of this Annual Report, Mr. Spindler,  our Chief Executive Officer
and  one of our  directors,  currently  invoices  us  $17,250  per  month,  plus
expenses.  During fiscal year ended December 31, 2004,  $189,000 was accrued for
such monthly fees for services  rendered by Mr.  Spindler to us and to Petrogen,
which commenced  September  2001.  During fiscal year ended December 31, 2004, a
bonus of  $245,000  was  incurred  to Mr.  Spindler.  During  fiscal  year ended
December 31, 2004,  we paid a total of $434,000 to Mr.  Spindler for  consulting
fess and bonus and $27,110 for reimbursement of expenses. Therefore, at December
31, 2004,  Mr.  Spindler owed  approximately  $17,903.  During fiscal year ended
December 31, 2004,  Mr.  Spindler  exercised  200,000 Stock Options at $0.20 per
share,  750,000 Stock  Options at $0.25 per share,  and 240,000 Stock Options at
$0.50 per share, for aggregate  proceeds of $347,500,  which amount was utilized
to off-set the aggregate amount due and owing to Mr. Spindler.

CONTRACTUAL RELATIONS WITH WILLIAM KERRIGAN

As of the date of this Annual Report,  Mr. Kerrigan,  our Co-President and Chief
Financial Officer currently invoices us $7,500 per month, plus expenses.  During
fiscal year ended  December 31, 2004,  $86,000 was accrued for such monthly fees
for services  rendered by Mr.  Kerrigan to us and to Petrogen,  which  commenced
September  2001.  During fiscal year ended December 31, 2004, a bonus of $70,000
was incurred to Mr.  Kerrigan.  During  fiscal year ended  December 31, 2004, we
paid a total of  $156,000  to Mr.  Kerrigan  for  consulting  fees and bonus and
$28,273 for  reimbursement  of expenses.  Therefore,  at December 31, 2004,  Mr.
Kerrigan was owed  approximately  $1,224.  During fiscal year ended December 31,
2004,  Mr.  Kerrigan  exercised  390,000  Stock  Options  at $0.50 per share and
215,000  Stock Options at $0.25 per share,  for aggregate  proceeds of $248,750,
which amount was utilized to off-set the  aggregate  amount due and owing to Mr.
Kerrigan.

<PAGE>

Our  officers  and  directors  may  be  engaged  in  other  businesses,   either
individually or through  partnerships and corporations in which they may have an
interest, hold an office or serve on the boards of directors.  Our directors may
have other  business  interests to which they may devote a major or  significant
portion of their time.  Certain  conflicts  of  interest,  therefore,  may arise
between  us and our  directors.  Such  conflicts  can be  resolved  through  the
exercise by our directors of judgment  consistent with their  fiduciary  duties.
Our  officers  and  directors  intend  to  resolve  such  conflicts  in our best
interests.  Our officers and directors  will devote their time to our affairs as
necessary.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section  78.7502  of  the  Nevada  Revised  Statutes  contains   provisions  for
indemnification  of  our  officers  and  directors.   Nevada  law  provides  for
indemnification  (which may eliminate any personal  liability of a director to a
company or its shareholders for monetary damages for gross negligence or lack of
care in carrying out the director's  fiduciary  duties) if a director or officer
acts in good faith in a manner reasonably  believed to be in, or not opposed to,
the best  interests of the company.  A director or officer may be indemnified as
to any matter in which he successfully defends himself.

Our officers and directors are  accountable to our  shareholders as fiduciaries,
which means such  officers and directors are required to exercise good faith and
integrity in handling our affairs.

A shareholder may be able to institute legal action on behalf of himself and all
other similarly situated shareholders to recover damages where we have failed or
refused to observe the law.  Shareholders  may,  subject to applicable  rules of
civil  procedure,  be able to bring a class action or derivative suit to enforce
their rights,  including  rights under certain federal and state securities laws
and  regulations.  Shareholders  who have suffered losses in connection with the
purchase or sale of their interest due to a breach of a fiduciary duty by one of
our officers or directors in  connection  with such sale or purchase  including,
but not limited to, the  misapplication  by any such  officer or director of the
proceeds  from the sale of any  securities,  may be able to recover  such losses
from us.

Insofar as indemnification  for liabilities arising under the Securities Act may
be permitted to our directors,  officers and controlling persons pursuant to the
foregoing provisions,  or otherwise, we have been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore,  unenforceable.  In the event that a claim for
indemnification  against  such  liabilities  (other  than the  payment  by us of
expenses  incurred  or paid by one of our  directors,  officers  or  controlling
persons in the successful defense or any action, suit or proceeding) is asserted
by  such  director,  officer  or  controlling  person  in  connection  with  the
securities being  registered,  we will, unless in the opinion of its counsel the
matter  has  been  settled  by  controlling  precedent,  submit  to a  court  of
appropriate  jurisdiction  the question  whether such  indemnification  by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.

We have no agreements with any of our directors or executive  officers providing
for indemnification of any such persons with respect to liability arising out of
their capacity or status as officers and directors.

At present,  there is no pending  litigation or proceeding  involving any of our
directors or executive officers as to which indemnification is being sought.

<PAGE>

ITEM 13. EXHIBITS

The following exhibits are filed as part of this Annual Report:

          2.1 Share Exchange Agreement (1)

         10.1 Emily Hawes Field Oil and Lease dated October 24, 2001

         10.2 Lease Assignment Agreement between James T. Roche and Petrogen,
               Inc. dated May 20, 2002.

         10.3 Farm-out Agreement with Nortex Corporation dated June 17, 2004

         10.4 Farm-Out Agreement with Darcy Energy LLC (formerly known as Bazmo
              Exploration) dated June 18, 2004

         10.5 Sierra Gas Corp. Purchase Agreement with Petrogen Corp. dated May
              8, 2003.

         10.6 Farm-In Acquisition Agreement between Coronado Oil Co. and
              Petrogen, Inc. dated Decemebr 31, 2002.

         10.7 Assignment and Bill of Sale between Crown Royalties and Petrogen,
              Inc. dated December 16, 2002.

         10.8 Memorandum of Understanding between Adam Fees Properties Inc. and
              Petrgoen International Limited dated August 4, 2003. (1)

         10.9 Memorandum of Understanding between Adam Fees Properties, Inc. and
                  Petrogen International Limited dated Septemebr 3, 2003. (1)

        10.10 Debenture Agreement between Petrogen Corp. and Acceder Technology
              Pte. Ltd. dated for reference August 5, 2004. (2)

        10.11 Purchase and Sale Agreement between Petrogen, Inc. and James T.
              Rouche dated March 30, 2005.

        10.12 Oil and Gas Lease between Petrogen, Inc. and Leila Clark Wynn
              Mineral Trust dated August 31, 2004

        10.13 2004 Stock Option Plan for Petrogen Corp.

        10.14 Amended Management Consulting Services Agreement among Petrogen
              Corp., Petrogen, Inc. and Leo William Kerrigan dated for reference
              effective February 12, 2003, executed effective August 18, 2003.

        10.15 Amended Management Consulting Services Agreement among Petrogen
              Corp., Petrogen, Inc. and Sacha Spindler dated for reference
              effective February 12, 2003, executed effective August 18, 2003.

        31.1  Certification of Chief Executive Officer Pursuant to Rule
              13a-14(a) or 15d-14(a) of the Securities Exchange Act.

        32.2  Certification of Chief Financial Officer Pursuant to Rule
              13a-14(a) or 15d-14(a) of the Securities Exchange Act.

        33.3  Certification of Chief Executive Officer and Chief Financial
              Officer Under Section 1350 as Adopted Pursuant to Section
              906 of the Sarbanes-Oxley Act.

(1)  Incorporated  by reference to Exhibits of Petrogen  Corp.  Annual Report on
Form 10-KSB filed with the Commission on April 14, 2004

(2)  Incorporated  by reference to Exhibit of Petrogen Corp.  Report on Form 8-K
filed with the Commission on August 18, 2004.


<PAGE>

ITEM 14. PROFESSIONAL ACCOUNTANT FEES AND SERVICES

Audit Fees

During fiscal year ended December 31, 2004, we incurred approximately $40,000 in
fees to our principal independent  accountant for professional services rendered
in connection  with the audit of our financial  statements for fiscal year ended
December 31, 2004 and the review of our  financial  statements  for the quarters
ended March 31, 2004, June 30, 2004 and September 30, 2004.

Financial Information Systems Design and Implementation Fees

During  fiscal  year  ended  December  31,  2004,  we did not incur any fees for
professional  services  rendered by our  principal  independent  accountant  for
certain information  technology  services which may include,  but is not limited
to,  operating or supervising or managing our  information or local area network
or designing or implementing a hardware or software system that aggregate source
data underlying the financial statements.

All Other Fees

During fiscal year ended  December 31, 2004, we did not incur any other fees for
professional services rendered by our principal  independent  accountant for all
other non-audit  services which may include,  but is not limited to, tax-related
services, actuarial services or valuation services.

SIGNATURES

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

                                    PETROGEN CORP.

Dated: April 14, 2005               By:  /s/ SACHA H. SPINDLER
                                         ----------------------------------
                                         Sacha H. Spindler, Chief Executive
                                         Officer



Dated: April 14, 2005               By: /s/ L. WILLIAM KERRIGAN
                                    ----------------------------------------
                                        L. William Kerrigan, Chief Financial
                                        Officer