U.S. SECURITIES AND EXCHANGE COMMISSION

                             Washington, D.C. 20549

                                   FORM 10-KSB

(Mark One)

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



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

       For the transition period from October 1, 2003 to December 31, 2003


                         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)


                               September 30, 2003
              ____________________________________________________
              (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,
2003): $-0-.

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 30, 2004: $589,457.

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 March 31, 2004
_____                                       ________________________________

Common Stock, $.001 par value                           12,833,291


TO TABLE OF CONTENTS


                                                                          Page 2


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


TABLE OF CONTENTS

      TABLE OF CONTENTS.......................................................3

   PART  1....................................................................6

      ITEM 1. DESCRIPTION OF BUSINESS.........................................6

            BUSINESS DEVELOPMENT..............................................6

            CURRENT BUSINESS OPERATIONS.......................................6

            OIL AND GAS PROPERTIES............................................7

                  EMILY HAWES FIELD PROJECT...................................8

                  BAXTERVILLE FIELD...........................................9

                  S. J. HOOPER #1.............................................9

                  BROWN GOVERNMENT LEASE.....................................10

                  ADAMS RANCH................................................11

                  MATAGORDA ISLAND PIPELINE..................................12

            PRIOR BUSINESS OPERATIONS........................................13

                  ACQUISITION OF PETROGEN INC................................13

            EMPLOYEES........................................................15

                  MANAGEMENT CONSULTING SERVICES AGREEMENT...................15

                  MANAGEMENT SERVICES AGREEMENT..............................16

                  CONSULTING SERVICES AGREEMENT..............................16

            RISK FACTORS.....................................................16

      ITEM 2. DESCRIPTION OF PROPERTIES......................................21

            OIL AND GAS PROPERTIES...........................................21

            OFFICE LOCATION..................................................21

      ITEM 3. LEGAL PROCEEDINGS..............................................21

      ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS..........22


   PART II...................................................................23

      ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS......23

            MARKET INFORMATION...............................................23

                  HOLDERS....................................................23

                  DIVIDENDS..................................................23

                  REVERSE STOCK SPLIT........................................23

            SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION
            PLANS............................................................24

                  STOCK OPTION PLAN..........................................24

                  COMMON STOCK PURCHASE WARRANTS.............................27

            RECENT SALES OF UNREGISTERED SECURITIES AND CHANGES IN CONTROL
            OF THE COMPANY...................................................28

      ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION......29

            FOR FISCAL YEAR DECEMBER 31, 2003 (THREE MONTHS).................29

            LIQUIDITY AND CAPITAL RESOURCES..................................30

            PLAN OF OPERATION................................................31

            MATERIAL COMMITMENTS.............................................32

                  HENRY CONSULTING AGREEMENT.................................32

                  CONSULTING SERVICE AGREEMENT/SUBORDINATED DEBENTURE........33

                  DEBENTURE..................................................34

            AMOUNTS DUE TO RELATED PARTIES...................................34

            OFF-BALANCE SHEET ARRANGEMENTS...................................34

      ITEM 7. FINANCIAL STATEMENTS...........................................34

      INDEX TO FINANCIAL STATEMENTS..........................................35

            AUDITORS' REPORT.................................................36

            CONSOLIDATED BALANCE SHEETS......................................37

            CONSOLIDATED STATEMENTS OF OPERATIONS............................38


                                                                          Page 3


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


            CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  [DEFICIT].......39

            CONSOLIDATED STATEMENTS OF CASH FLOWS............................41

            NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS...................42

      ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
              AND FINANCIAL DISCLOSURES......................................59


   PART III..................................................................59

      ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
              PERSONS; COMPLIANCE WITH 16(A) OF THE EXCHANGE ACT.............59

            IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS...............59

                  BIOGRAPHIES OF THE EXECUTIVE OFFICERS/DIRECTORS............60

                  INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS...................62

            AUDIT COMMITTEE..................................................62

            AUDIT COMMITTEE FINANCIAL EXPERT.................................62

            COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT................62

      ITEM 10. EXECUTIVE COMPENSATION........................................63

            COMPENSATION OF OFFICERS AND DIRECTORS...........................63

                  HENRY CONSULTING AGREEMENT.................................63

                  SUMMARY COMPENSATION TABLE.................................65

            STOCK OPTION PLAN................................................66

                  OPTIONS/SAR GRANTS TABLE...................................66

                  AGGREGATED OPTIONS/SAR EXERCISES...........................67

      ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
               MANAGEMENT AND RELATED STOCK MATTERS..........................68

      ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................70

               HENRY CONSULTING AGREEMENT....................................70

               INDEMNIFICATION OF DIRECTORS AND OFFICERS.....................71

      ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K..............................72

      ITEM 14. PROFESSIONAL ACCOUNTANT FEES AND SERVICES.....................72

                  AUDIT FEES.................................................72

                  FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION
                  FEES.......................................................72

                  ALL OTHER FEES.............................................72

   SIGNATURES................................................................73

   EXHIBIT 10.2..............................................................75

   EXHIBIT 31.1..............................................................76

   EXHIBIT 31.2..............................................................77

   EXHIBIT 32.1..............................................................78

   EXHIBIT 32.1..............................................................79


                                                                          Page 4


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


                           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.  The Company
intends that such forward-looking  statements be subject to the safe harbors for
such  statements.  The  Company  wishes 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 the control of the Company
that could cause actual results and events to differ  materially from historical
results of operations and events and those  presently  anticipated or projected.
The Company disclaims 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 5


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


PART  1

ITEM 1. DESCRIPTION OF BUSINESS

BUSINESS DEVELOPMENT

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

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

As of the date of this Annual Report,  the Company is 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.

CURRENT BUSINESS OPERATIONS

The Company is an energy  company  specializing  in the  development of domestic
energy.  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.
In contrast to traditional exploration and production competitor companies,  the
Company  follows a lower risk  exploitation  approach of properties with a known
history of  production.  The  Company's  core  business  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,  Emily  Hawes  Field in  southern  Texas and Adams  Ranch Field in east
Texas.  The Company has acquired  interests  in four  properties  spanning  over
approximately  8,750  net  acres  with  what  management  believes  to be proven
reserves in several  reserve  categories  that can  potentially be tapped longer
term with targeted exploration efforts.

On November 15, 2002,  Petrogen entered into a drilling and operating  agreement
(the  "Operating   Agreement")  with  Petrogen   International   Inc  ("Petrogen
International"),    whereby   Petrogen   International   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 Operating Agreement, the Company was required to reimburse Petrogen
International  for  all  costs  incurred  by  Petrogen   International  plus  an
administration fee equal to 10% of the costs incurred by Petrogen International.
As further consideration, Petrogen International retained a 10% carried interest
in the Interests.

The Operating  Agreement was to remain in effect as long as any of the Interests
covered  by  the  Operating  Agreement  were  to  continue  to be in  operation.
Effective  November 15, 2003,  Petrogen  International and the Company agreed to
terminate the Operating  Agreement.  The termination of the Operating  Agreement
includes (i) the assignment by Petrogen  International  to the Company of all of
Petrogen  International's assets,  consisting of certain oil and gas properties;


                                                                          Page 6


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


(ii) the  termination  of the  Operating  Agreement  pursuant to which  Petrogen
International was the exclusive  operator to all such oil and gas assets;  (iii)
the  termination of a ten percent (10%) carried  interest in and to such oil and
gas assets by Petrogen  International,  which  included the  termination  of the
right to charge administrative fee of ten percent (10%) of project costs for all
development  expenditures  incurred.  Petrogen  International  has  retained its
equity ownership of 1,695,000 shares of the Company's  restricted  Common Stock.
Furthermore, in order to avoid any potential conflict of interest, the terms and
provisions of the  assignment  agreement will not require the Company to pay any
consideration to Petrogen International for assignment of the oil and gas assets
or for termination of the Operating Agreement.

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

Under the terms and  provisions of the Operating  Agreement as described  above,
the  Company was  required to  reimburse  Petrogen  International  for all costs
incurred by Petrogen  International  plus an administration  fee equal to 10% of
the costs  incurred  by  Petrogen  International.  As of the date of this Annual
Report, the Operating  Agreement has been terminated.  However,  at December 31,
2003,  $161,315 was incurred to Petrogen  International  and $73,626 was due and
owing to  Petrogen  International  pursuant to the terms and  provisions  of the
Operating Agreement.  As of the date of this Annual Report, these amounts remain
due and owing by the Company to Petrogen International.

As of the date of this Annual Report, 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, Emily Hawes Field in southern
Texas and Adams Ranch Field in east Texas. It is anticipated  that the Company's
ongoing efforts,  subject to adequate  funding being available,  will be focused
upon the  development of its Texas  properties  through  potential joint venture
development   opportunities  the  Company  is  currently  negotiating  and  will
additionally  continue to be focused upon placing  shut-in gas wells  located on
its  properties in the states of Mississippi  and Wyoming back into  production,
and to  thereafter  implement  additional  development  operations on these same
properties with the  commencement of drilling new wells into proven  undeveloped
reserves. The Company plans to continue building and increasing a strategic base
of proven  reserves and  production  opportunities  that  represent  outstanding
growth opportunity for the Company and its shareholders over the immediate, near
and long term.

OIL AND GAS PROPERTIES

As of the date of this Annual Report,  the Company has not reported or filed any
reserve estimates with any Federal  Agencies,  and has plans to commence limited
production from certain  properties.  As of the date of this Annual Report,  the
Company  does  not  maintain  any  developed  acreage.   The  Company  maintains
approximately  an aggregate of 11,691  gross  undeveloped  acreage and 8,749 net
undeveloped  acreage  pursuant to leases and/or  concessions as discussed below.
The following is a description of the Company's oil and gas operations.


                                                                          Page 7


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


Emily Hawes Field Project

PRODUCTIVE  WELLS AND ACREAGE.  The Company  holds a 95% working  interest and a
77.5%  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"). In consideration therefore, the Company
issued a floating charge debenture in the amount of $75,000.00 and 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 will terminate by October 31, 2004 unless  operations have
commenced upon the property prior thereto, which, in such event, the leases will
continue indefinitely. See "Item 6. Management's Discussion and Analysis or Plan
of Operation - Material Commitments".

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.

As of the date of this Annual Report,  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.  The same  anticlinal  structure  responsible  for the Miocene gas
production at the Emily Hawes Field is also recognized at the Frio level.

To realize what  management  of the Company  believes to be  remaining  existing
reserves,  the  Company,   subject  to  financing  or  joint  venture  operating
agreements with industry peers,  plans to drill offset wells,  utilizing  proper
completion techniques to control sand production.  Management intends to utilize
data  derived from the new wells to  subsequently  drill  step-out  locations to
efficiently and economically drain the reservoir. Management believes 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
sands in the Frio.  Management  anticipates  that a test well in the Frio  could
potentially prove significant recoverable reserves.

PRESENT  ACTIVITIES.  As of the date of this Annual  Report,  the Company is not
engaged in any  drilling  activity  on the Emily  Hawes  Field.  The Company has
submitted  initial  documentation  to the Texas  State  Railroad  Commission  to
receive  permitting to commence drilling  operations.  Management of the Company
has been advised that receipt of a drilling permit from the Texas State Railroad
Commission  is valid for a limited  period of time.  Therefore,  management  has
determined that the Company will not commence or meet drilling  commitment dates
until the  Company is in receipt of  sufficient  funding to  implement  drilling
operations or has entered into joint venture operating commitments that will see
the  development of the property.  Management of the Company  believes that such
drilling  operations  when  commenced may result in the spudding of at least one
gas wellbore test.


                                                                          Page 8


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


Baxterville Field

PRODUCTIVE WELLS AND ACREAGE.  Pursuant to an agreement  between Petrogen and US
Gas Systems Corp. (the "Baxterville Agreement"), the Company holds a 75% working
interest and a 75% net revenue  interest in all oil production and a 50% working
interest and a 75% net revenue  interest on all gas development 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, 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  by  the  Company.   However,   the  Company  has  recently  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 by the Company.

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.  Management of the Company believes that the tracts it controls within
the legal limits of Baxterville Field are excellent examples of this type of oil
and gas productive structure.

PRESENT  ACTIVITIES.  As of the  date of this  Annual  Report,  there  are  four
existing  shut-in  well-bores  located on the  Baxterville  Field.  The  Company
developed  operations at Baxterville Field throughout the summer months of 2003.
To date, the Company has  recompleted one wellbore  anticipating  oil production
after completion.  However,  after  significant  water  production,  the Company
shut-in  operations  and is currently  analyzing the  reservoir and  alternative
recovery methods with the aid of a third party production  engineer.  Management
believes  that these four well bores have  produced a total of 489,000 BO and 11
BCFG.  Management  believes that combined,  the four  well-bores may represent a
total of eight  re-completion  opportunities  with  proven  reserves  in several
reserve categories.

S. J. Hooper #1.

Additionally, the Company controls 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").  Management of the Company believes that the Hooper
Lease  is a  valuable  addition  to  the  Company's  ongoing  Baxterville  Field
development  strategy.  The Hooper well-bore falls below the Company's  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  the  Company's  development  of  potential  gas  reserves  in its
Baxterville Field interests. Management anticipates 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.  The Company is 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.


                                                                          Page 9


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


PRESENT  ACTIVITIES.  Management of the Company  believes  that the  Baxterville
Field represents an outstanding opportunity to develop low-risk low-cost oil and
gas  reserves  and,  as of the  date  of this  Annual  Report,  plans a  twofold
development  strategy  to  realize  these  reserves.  Pursuant  to the terms and
provisions  of the  Baxterville  Agreement,  the Company  plans to re-enter  and
re-complete the four existing shut-in  well-bores and produce remaining reserves
management   believes  are  exploitable  from  the  existing   well-bores.   The
Baxterville  Agreement  provides  that the  Company  must  further  develop  the
property after commencing recompletion operations by meeting certain operational
milestones within a set period of time.  Management of the Company believes that
this may  enable  the  Company  to engage  upon full  development  of the entire
acreage block through six potential oil and two gas infill-drilling locations to
exploit what management believes to be undeveloped reserves.

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 BOD for  approximately  two  weeks.  Secondary  recompletion
operations were initiated resulting in a hole in the tubing temporarily shutting
in the  well-bore.  Management  of the Company  anticipates  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 the Company providing insight as to which specific work-over  treatments will
result in the most potential increase in daily production from the well-bore.

Brown Government Lease

PRODUCTIVE WELLS AND ACREAGE.  As of the date of this Annual Report, the Company
holds 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) the Company  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
the Company completes its development operations and recoups all of its expenses
related  to  those  developments  and  Coronado  Oil  Company  forfeits  its  5%
overriding  royalty  interest.  The oil and gas  leases  relating  to the  Brown
Government  Lease will  continue in existence  subject to the Wyoming  Bureau of
Land Management.

The Company also currently is 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 the  Company  shall  hold,  upon
completion  of  acquisition,  a 100%  working  interest  of an 80%  net  revenue
interest,  which will subsequently convert to a 75% working interest of an 82.5%
net  revenue  interest,  in  existing  and  future  wells  located  in 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  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.


                                                                         Page 10


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


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.
Management of the Company  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 2004.

PRESENT  ACTIVITIES.  On May 8th, 2003,  the Company and Sierra Gas  Corporation
("SGC")   entered  into  a  preliminary  gas  sales  contract  (the  "Gas  Sales
Contract"),  pursuant to which 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.  The
terms of the Gas Sales  Contract  also provide that the Company 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,   the  Company   initiated  the  first  phase  of
redevelopment   operations  upon  the  Brown  Government  Lease,  which  focused
exclusively upon what management believes 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. The
Company perforated three additional  Frontier sands,  providing for over 52 feet
of  previously  known  productive  pay within the  wellbore,  which the  Company
anticipated  would  potentially  produce  marketable  quantities of natural gas.
However, at the date of this Annual Report, the recompletion  initiative remains
incomplete.  Management of the Company anticipates that recompletion  operations
will re-commence  within the second quarter of 2004 subject to adequate funding.
The  Company is  currently,  with the aid of third party  production  engineers,
designing  operations  plans to  re-enter  the #1 Brown  Government  wellbore to
perform a fracture  stimulation  operation in an attempt to bring on natural gas
production from the wellbore.

In general,  the Company  anticipates  that gas  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 complete new zones.

Management  anticipates  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 two additional wells. These
wells will also target what  management  believes  to be  remaining  recoverable
reserves. Management anticipates that the third phase will include evaluation of
what  management  believes  to  be  potential  reserves  by  utilizing  existing
well-bores to test the productive  potential of these zones with the drilling of
additional well-bores if needed.


                                                                         Page 11


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


Adams Ranch

PRODUCTIVE WELLS AND ACREAGE.  As of the date of this Annual Report, the Company
holds the rights to develop a 75% net revenue  interest located on approximately
9,000  acres of  undeveloped  acreage on the Adams  Ranch  prospect  in Crockett
County, Texas (the "Adams Ranch Property"), which consists of 1,530 net acres of
shallow development rights and 6,750 net acres of deep development rights. Adams
Ranch field is located in the Permian Basin upon what management  believes to be
potentially  productive  reserves  which  could be  produced  from new gas wells
Petrogen  plans to drill in calendar year 2004 if adequate  funding is acquired.
The Company is  currently  formalizing  the terms and  provisions  of the formal
contractual  arrangements,  as well as  negotiating  with several  third parties
interested  in  the  potential  of  entering  into  joint  venture   development
agreements to commence operations upon the property.

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.  Management  of the Company  believes  that the Adams  Ranch  Property
represents a potential  natural gas resource  base  associated  with the Canyon,
Strawn and Ellenberger formations.

PRESENT ACTIVITIES. Pursuant to the Assignment Agreement, Petrogen International
assigned to the Company all of its right, title and interest in and to a farm-in
agreement   entered  into  with  Adams  Fee   Properties,   Inc.  (the  "Farm-In
Agreement"), relating to the 9,000 acre Adams Ranch prospect located in Crockett
County, Texas (the "Adams Ranch Property"). Pursuant to the terms and provisions
of the  Assignment  Agreement,  in the event the Company  files for  bankruptcy,
becomes insolvent and/or is placed into  receivership,  or, is unable to perform
its duties and obligations under the Farm-In  Agreement,  such right,  title and
interest in and to the Farm-In  Agreement as assigned to the Company by Petrogen
International will revert back to Petrogen International.  Pursuant to the terms
and  provisions  of the  Farm-In  Agreement:  (i) the  Company  has the right to
conduct a series of earn-in  development  initiatives to fully develop the Adams
Ranch Property.

As of the date of this Annual Report, the Company has not commenced  development
or  re-stimulation  initiatives  on the Adams  Ranch  Property,  but  intends to
commence such initiatives during second quarter 2004.  Management of the Company
believes that the Adams Ranch  Property  represents  the  opportunity to develop
numerous  Canyon sand new well drill site locations and  potentially up to eight
commingled Strawn and Ellenberger 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 the  Company has the right to
attempt to re-stimulate to establish an initial base of production.

Matagorda Island Pipeline

Petrogen  International  and  Timothy  Roche  ("Roche")  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 a certain  natural  gas  transmission  pipeline  located  on
Matagorda  Island,  Texas; and (ii) Petrogen  International  advanced the sum of


                                                                         Page 12


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


$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 the Company
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 the Company (the "Lease Assignment") for the consideration of
certain  gas  transmission  payments  to be  made  by the  Company  to  Petrogen
International, however as discussed above, pursuant to the Assignment Agreement,
Petrogen   International  will  no  longer  have  any  entitlement  to  any  gas
transmission payments payable by the Company to Petrogen International as noted.

PRIOR BUSINESS OPERATIONS

Acquisition of Petrogen Inc.

         Share Exchange Agreement

         On October 11, 2002 and 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,  the Company  acquired from
         the Petrogen  Shareholders one hundred percent (100%) of the issued and
         outstanding shares of common stock of Petrogen.

         Pursuant to the terms of the Share  Exchange  Agreement,  and as of the
         date  of  this  Annual  Report,  the  Company:   (i)  issued  7,000,000
         post-Reverse  Stock Split shares of its restricted  common stock to the
         Petrogen  Shareholders  in proportion to their  respective  holdings in
         Petrogen; (ii) granted an aggregate of 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 granted an aggregate
         of 167,189  post-Reverse  Stock Split common stock purchase warrants to
         replace all common stock purchase warrants then outstanding in Petrogen
         pursuant  to which the holder  thereof  has the right to  convert  such
         warrant into shares of restricted common stock on a one-to-one basis as
         follows: (a) 23,715 warrants exercisable at the rate of $1.20 per share
         expiring December 18, 2003, (b) 23,715 warrants exercisable at the rate
         of $1.20 per share  expiring  December  20, 2003,  (c) 14,822  warrants
         exercisable at the rate of $0.40 per share  expiring  October 29, 2004,
         (d) 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, (e) 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, (f) 59,286  warrants  exercisable at the
         rate of $0.40 per share  expiring  November  13,  2004,  and (g) 14,822
         warrants  exercisable at the rate of $0.40 per share expiring  November
         14, 2004;  and (iv) issued 300,000  post-Reverse  Stock Split shares of
         its restricted common stock as a finder's fee.

         As at December 31, 2003, the 23,715 warrants exercisable at the rate of
         $1.20 per share expired on December 18, 2003, were not exercised by the
         holders thereof, and are deemed terminated and void. As at December 31,
         2003,  the 23,715  warrants  exercisable at the rate of $1.20 per share
         expired  on  December  20,  2003,  were not  exercised  by the  holders
         thereof, and are deemed terminated and void.


                                                                         Page 13


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


         In  accordance  with the terms of the  Share  Exchange  Agreement:  (i)
         Petrogen is a wholly-owned  subsidiary of the Company; (ii) the Company
         changed its name to "Petrogen Corp." and its trading symbol;  (iii) the
         Company sold  substantially all of its remaining assets consequent upon
         the  consummation  of the Share Exchange  Agreement and disposed of its
         wholly-owned  subsidiary,  Oakhills Energy,  Inc.; and (iv) the Company
         adopted and  implemented  a stock option plan for key  personnel of the
         Company,  which was approved by the  shareholders  of the Company.  See
         "Item 4. Submission of Matters to a Vote of Security  Holders" and Item
         5. Market for Common Equity and related Stockholder Matters."

         Voluntary Pooling Agreement

         Pursuant to the terms and provisions of the Share  Exchange  Agreement,
         the  Company  and  the  Petrogen  Shareholders,  representing  up to an
         aggregate  of  7,000,000  shares of  common  stock  (collectively,  the
         "Pooled  Shares"),  entered into a voluntary  pooling  agreement  dated
         February 12, 2003 (the "Pooling  Agreement").  The Company and Petrogen
         desired to provide  for and  maintain  an  orderly  trading  market and
         stable  price for the  Company's  shares of  Common  Stock.  Therefore,
         pursuant  to the terms and  provisions  of the Pooling  Agreement,  the
         Pooled Shares shall not be traded and will become available for trading
         and  release  and sale in the  following  manner:  (i) an  initial  ten
         percent  (10%) of the  Pooled  Shares  will be  released  to the pooled
         shareholders  on the date which is one  calendar  year from the closing
         date of the Agreement  (the "First Release  Date");  and (ii) a further
         ten percent (10%) will be released to the pooled  shareholders  on each
         of the dates which are every three (3)  calendar  months from the First
         Release Date in accordance  with each pooled  shareholder's  respective
         shareholdings.

         As of the date of this Annual  Report,  the Pooling  Agreement has been
         terminated in accordance with its terms and provisions.  Such terms and
         provisions  provided  that the Pooling  Agreement may not be challenged
         without  the prior  written  consent of at least such  number of Pooled
         Shareholders who hold, from time to time during the pool term, not less
         than three-quarters (3/4's) of the Pooled Shares remaining in the pool.

         Loan Agreement

         As a  condition  to  entering  into and in  accordance  with the  Share
         Exchange  Agreement,  the  Company  agreed to advance to  Petrogen  the
         aggregate  principal  sum of not less  than  $250,000  within  five (5)
         business  days of raising a minimum of  $250,000.  During  fiscal  year
         ended  September  30, 2003,  the Company  advanced an aggregate  sum of
         $600,000 to Petrogen. In accordance with the loan made to Petrogen, the
         principal  sum loan amount bears  interest  accruing at the rate of ten
         percent (10%) per annum,  and is secured pursuant to a senior fixed and
         floating   charge  on  all  of  the  assets  of  Petrogen   (the  "Loan
         Agreement").  As  a  result  of  consummation  of  the  Share  Exchange
         Agreement,  the loan became an intercompany  account between parent and
         subsidiary and are no longer interest bearing.

         Purchase and Sale Agreement

         Pursuant  to the terms of the Share  Exchange  Agreement,  the  Company
         authorized the sale of substantially  all of the assets of the Company,
         which  primarily  included  the  sale  of its  wholly-owned  subsidiary
         Oakhills Energy Inc.  ("Oakhills").  On February 12, 2003, the Company,
         Oakhills and Newport Capital Corporation, a Belize corporation carrying


                                                                         Page 14


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


         on business in London, England ("Newport"), entered into a purchase and
         sale  agreement (the  "Purchase and Sale  Agreement").  Pursuant to the
         terms  and  provisions  of the  Purchase  and Sale  Agreement:  (i) the
         Company  sold and  transferred  to Newport all of the capital  stock of
         Oakhills held by the Company;  (ii) the Company conveyed to Newport the
         Company's  then  interest in four wells owned by  Oakhills,  subject to
         certain assignments  currently in place with The Bank N.A. of Oklahoma;
         and (iii) Newport  acknowledged the existence of certain liabilities of
         Oakhills in the approximate amount of $638,848.

         During  fiscal  year  2001,  Oakhills  arranged  for a term loan in the
         amount of $450,000 and an operating  line of credit to a maximum amount
         of $50,000  with The Bank N.A. in  Oklahoma.  The  proceeds of the term
         loan  were  used to  repay  certain  outstanding  debts  to  creditors,
         including  $219,838 owed to a private company  controlled by a previous
         director and officer of Oakhills for production  services and equipment
         rentals,  and to retire all  previous  outstanding  bank  loans.  As of
         December 31, 2002,  the term loan was in default as Oakhills was in two
         months arrears in principal payments of $25,000 and interest of $6,265.
         Upon the sale of Oakhills,  the loan was brought current by Newport and
         Newport agreed to indemnify the Company against any losses arising from
         the  Company's  loan  guarantee.  It is  management's  position that in
         accordance  with  the  terms  and  provisions  of  the  Share  Exchange
         Agreement,  such  debt is not a  liability  of the  Company,  that  the
         Company is not responsible for any re-payment,  and that the Company is
         fully  indemnified  from any potential  liability  associated with such
         debt.

         On April 8,  2004,  the Oak Hills  loans for  which the  Company  was a
         guarantor  were  repaid  in  full  by the  borrower,  and  the  Company
         guarantee agreements were fully satisfied and released.

EMPLOYEES

As of the date of this Annual Report, the Company does not employ any persons on
a full-time or on a part-time  basis.  The  Company's  CEO and the President 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 the  best  interests  of the  Company.  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  18th,  2003 the Company and Neville  Henry,  the  President  of the
Company,  have  agreed  to  certain  terms in regard  to the  consummation  of a
management  consulting  services agreement to be made effective as at January 1,
2004 (the "Henry Consulting Agreement"). Pursuant to the terms and provisions of
the Henry  Consulting  Agreement,  Mr. Henry has agreed to provide  operational,
managerial and consulting  services to the Company  consistent with his position
as President of the Company.  Pursuant to further  terms and  provisions  of the
Henry Consulting  Agreement,  the Company shall: (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, and provided that
only  $10,000.00 of the Fee shall actually be paid monthly by the Company to Mr.
Henry, with the balance of each monthly fee being accrued without interest until
such time as the Company is 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)
reimburse certain expenses.


                                                                         Page 15


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


During  fiscal year ended  December 31, 2003, no fees were paid to Neville Henry
as the contract had not yet been consummated,  and upon  consummation,  shall be
effective January 1, 2004.


Management Services Agreement

The Company and Timothy  Roche  ("Roche")  entered  into a  management  services
agreement dated March 10, 2003 (the "Management Services  Agreement").  Pursuant
to the terms and provisions of the Management Services Agreement: (i) Roche will
provide  quality  land man services to the Company  specializing  in oil and gas
property acquisition  opportunities  throughout the Texas Gulf Coast region; and
(ii) the Company will grant to Roche 25,000 Stock  Options at an exercise  price
of $0.50 per share.

Consulting Services Agreement

Pursuant  to the  terms and  provisions  of the Share  Exchange  Agreement,  the
Company  and   Investor   Communications   International,   Inc.,  a  Washington
corporation  ("ICI") entered into a consulting services agreement dated February
12, 2003 (the "Consulting  Services  Agreement").  Pursuant to the provisions of
the Consulting Services Agreement:  (i) ICI provided to the Company such finance
and general managerial  services as may be determined by the Board of Directors,
from time to time, and in its sole and absolute discretion,  in order to develop
the various business interests of the Company in the energy industry,  including
the oil and gas  interest;  and (ii) the Company paid to ICI a fee  commensurate
with  the  services  provided  by ICI on a  monthly  basis,  but  not to  exceed
$10,000.00 monthly.

Effective  August 8, 2003,  ICI resigned its tenure as management  consultant to
the Company.  In accordance with the terms of a certain  memorandum of agreement
dated  August  8,  2003,  the  Consulting  Services  Agreement  was  terminated.
Therefore,  effective  August  8,  2003,  ICI  no  longer  performs  managerial,
administrative or consulting services for the Company and an aggregate amount of
$60,000 had been  incurred by the Company for such  services  rendered by ICI to
the Company.

As of August  18,  2003,  the  following  amounts  were due and owing to ICI and
affiliate parties by the Company: (i) $21,736 as accounts payable; (ii) $104,789
as  advances;  (iii)$6,784  as accrued  interest on advances;  (iv)  $590,500 as
demand loans;  and (v) 17,566 as accrued interest on the demand loans. Mr. Grant
Atkins,  a prior director of the Company,  was contracted by ICI and was part of
the  management  team  provided by ICI to the Company.  During fiscal year ended
September 30, Mr. Atkins  received an aggregate of $19,625 from ICI for services
provided to the Company. As of August 18, 2003, the Company also owed Mr. Atkins
an aggregate of $15,385 plus $1,767 in accrued interest for payments  personally
made by Mr.  Atkins on behalf of the Company.  All such amounts due and owing to
ICI,  affiliate parties and Mr. Atkins formed part of amounts due by the Company
to certain  various  debtholders  under a subordinated  debenture.  See "Item 3.
Legal  Proceedings",  "Item 5. Market for Common Equity and Related  Stockholder
Matters",  "Item 6,  Management's  Discussion and Analysis or Plan of Operation"
and "Item 10, Executive Compensation."

RISK FACTORS

         Oil and Gas Prices are Volatile

         Management  of the Company  expects  that  markets for oil and gas will
         continue to be volatile.  Any  substantial  or extended  decline in the
         price of oil or gas would negatively affect the financial condition and


                                                                         Page 16


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


         results of operation of the Company.  The Company's potential revenues,
         operating  results,  profitability,  and future  rate of growth  depend
         heavily on prevailing market prices for oil and gas. A material decline
         could reduce potential cash flow and borrowing capacity, as well as the
         value and amount of  reserves.  Various  factors  beyond the  Company's
         control can affect prices of oil and gas.  These  external  factors and
         the volatile nature of the energy markets make it difficult to estimate
         future commodity prices.


         Inadequate Capital to Finance Operations

         If the  Company  is unable to  realize  revenues  and could not  obtain
         capital  through  financings  or otherwise,  the  Company's  ability to
         execute its development  plans and achieve  production  levels could be
         greatly limited.  Current development plans require the Company to make
         capital expenditures for the exploration and development of the oil and
         natural  gas  properties.  Historically,  the  Company  has  funded its
         business  operations  through  the  issuance  of equity and  short-term
         financing  arrangements.  Additional  financing may not be available to
         the Company on acceptable terms. Future cash flows and the availability
         of  financing  will be  subject  to a number  of  variables,  including
         potential  production  and the prices of oil and natural  gas.  Issuing
         equity securities to satisfy the Company's financing requirements could
         case substantial dilution to existing shareholders.  In addition,  debt
         financing  could  lead to a  diversion  of cash  flow to  satisfy  debt
         servicing obligations and create restrictions on business operations.

         Estimates of Oil and Gas Reserves are not Precise

         The Company's  future  reports may contain  estimates of proved oil and
         gas reserves and the estimated  future net revenues from such reserves.
         Actual  results  will  likely  vary  from  amounts  estimated,  and any
         significant  variance  could  have a  material  adverse  effect  on the
         Company's future results of operation.

         Reserve  estimates  are  based  upon  various  assumptions,   including
         assumptions  required by the Securities and Exchange  Commission  rules
         and regulations relating to oil and gas prices,  drilling and operating
         expenses,  capital  expenditures,  taxes and availability of funds. The
         process of  estimating  reserves  is  complex.  This  process  requires
         significant  decisions and  assumptions  in the evaluation of available
         geological,  geophysical,   engineering  and  economic  data  for  each
         reservoir.  Therefore,  these estimates are not precise.  However,  the
         likelihood of recovery of these  reserves is  considerably  more likely
         than not.

         Actual  future  production,   oil  and  gas  prices,  revenues,  taxed,
         development   expenditures,   operating   expenses  and  quantities  of
         recoverable  oil and gas  reserves  will most  likely  vary from  those
         estimates.   Any  significant  variance  could  materially  affect  the
         estimated quantities and present value of such reserves as disclosed by
         the Company.  In addition,  the Company may adjust  estimates of proved
         reserves to reflect  production  history,  results of  exploration  and
         development,  prevailing oil and gas prices and other factors,  many of
         which are beyond the Company's control.

         Geographical and Regional Risks

         As a result  of the  Company's  recent  acquisition  of  Petrogen,  the
         Company's  working  interests  are  primarily  located  in the State of
         Oklahoma.  The prices to be received by the Company for the natural gas


                                                                         Page 17


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


         production from these  properties will be determined  mainly by factors
         affecting the regional  supply of and demand for natural gas.  Based on
         studies,  regional  differences  could  cause  published  indices  used
         generally to establish the price received for natural gas production in
         the United  States to be higher than the market price to be received by
         the  Company  for natural gas  produced  from its  properties.  Reduced
         regional  seasonal  demand  and  inadequate   pipeline   transportation
         capacity  linking the  Company's  production  in this area to consuming
         regions   are   principal   factors   contributing   to   these   price
         differentials.  Continued  volatility  is expected to affect the future
         price to be received for natural gas produced from these properties.

         Acquisition Activities may not be Successful

         As part of the Company's growth strategy,  additional  acquisitions may
         be made of properties.  Such acquisitions may pose substantial risks to
         the Company's business,  financial condition and results of operations.
         In pursuing  acquisitions,  the Company  competes with other companies,
         many of which have  greater  financial  and other  resources to acquire
         attractive properties.  Even if future acquisitions are completed,  the
         following are some of the associated  risks: (i) some of the properties
         may not produce  revenues at anticipated  levels;  (ii) the Company may
         not be able to integrate acquired  properties  successfully which could
         result in substantial costs and delays or other operational,  technical
         or  financial  problems;   (iii)  acquisitions  could  disrupt  ongoing
         business operations, divert resources and make it difficult to maintain
         current business standards and procedures; (iv) future acquisitions may
         be financed by issuing  common  stock for some or all of the  expenses,
         which  could  dilute  the   ownership   interests   of  the   Company's
         shareholders; and (v) additional debt may be incurred related to future
         acquisitions.

         Competition

         The Company operates in a highly competitive industry. It competes with
         major  oil  companies,  independent  producers  and  institutional  and
         individual investors, which are actively seeking oil and gas properties
         throughout  the world  along with the  equipment,  labor and  materials
         required to operate properties.  Many of the Company's competitors have
         financial and technological  resources vastly exceeding those available
         to  the  Company.  Many  oil  and  gas  properties  and  or  leases  or
         concessions are available in a competitive bidding process in which the
         Company may lack  technological  information or expertise  available to
         other  bidders.  Therefore,  the  Company  may  not  be  successful  in
         acquiring  and  developing  profitable  properties  in the face of this
         competition.

         Financial Risks of Oil and Gas Exploration

         The business of exploring for and  developing oil and gas properties is
         an activity that involves a high degree of business and financial risk.
         Exploration  and development  decisions  generally are based on various
         assumptions  and  subjective  judgments  that  are  speculative.  It is
         impossible to predict accurately the ultimate production potential,  if
         any,  of a  particular  property  or  well.  Moreover,  the  successful
         completion  of an  oil  or  gas  well  does  not  ensure  a  profit  on
         investment.  A variety of factors,  both geological and market-related,
         can cause a well to become uneconomic or marginally economic.

         Operating Risks and Environmental Hazards

         The oil and natural gas  business  involves  operating  hazards such as
         well blowouts,  craterings,  explosions,  uncontrollable  flows of oil,
         natural gas or well fluids, fires,  formations with abnormal pressures,
         pipeline ruptures or spills, pollution, releases of toxic gas and other
         environmental hazards and risks, any of which could cause the Company a
         substantial loss.


                                                                         Page 18


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                                                                     FORM 10-KSB
                                                               December 31, 2003


         Exploratory and Development Drilling Activities may not be Successful

         The Company's future drilling activities may not be successful, and our
         management  cannot be sure that the Company's  overall drilling success
         rate or drilling  success  rate for activity  within a particular  area
         will not  decline.  In  addition,  the wells that the  Company  may not
         recover all or any portion of the Company's  capital  investment in the
         wells or the  underlying  leaseholds.  The Company is  currently in the
         early stages of various exploration projects and can offer no assurance
         that the  development of these projects will occur as scheduled or that
         actual  results  will be in line with initial  estimates.  Unsuccessful
         drilling  activities could negatively  affect the Company's  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.  In addition,  the Company may not be able to obtain any
         lease  rights  in  potential   drilling   locations  that  the  Company
         identifies. There is no guarantee that the potential drilling locations
         that the Company has or will identify will ever produce  natural gas or
         oil.

         Federal, State and Local Laws and Regulations

         Federal,  state and local authorities  extensively regulate the oil and
         gas industry.  The overall  regulatory burden on the industry increases
         the cost of doing  business  and,  in  turn,  decreases  profitability.
         Regulations  affect  various  aspects  of  oil  and  gas  drilling  and
         production  activities,  including the pricing and marketing of oil and
         gas  production,  the  drilling  of wells  (through  permit and bonding
         requirements),  the  positioning  of wells,  the  sharing  of  markets,
         production limitations, plugging and abandonment and restoration. These
         laws and  regulations  are  under  constant  review  for  amendment  or
         expansion.

         The  Company's  business  operations  are also  subject to complex  and
         constantly  changing  environmental  laws and  regulations  adopted  by
         federal, state and local governmental authorities. The Company could be
         forced  to expend  significant  resources  to  comply  with new laws or
         regulations  or  changes to current  requirements.  Federal,  state and
         local environmental agencies have relatively little experience with the
         regulation of coal bed methane  operations,  which are  technologically
         different from  conventional oil and gas operations.  This inexperience
         has created  uncertainty  regarding how these  agencies will  interpret
         air,  water and waste  requirements  and other  regulations to coal bed
         methane drilling,  fracture stimulation  methods,  production and water
         disposal  operations.   The  Company  may  be  subject  to  uncertainty
         associated  with  new  regulatory   interpretations   and  inconsistent
         interpretations between federal, state and local agencies.

         Dependence on Transportation Facilities Owned by Others

         The  marketability  of the Company's gas production  depends in part on
         the  availability,  proximity and capacity of pipeline systems owned by
         third parties, and changes in contractual arrangements with these third
         parties could materially affect the Company's operations.  In addition,
         federal  and  state   regulation   of  gas  and  oil   production   and
         transportation,  tax and energy policies, changes in supply and demand,
         pipeline  pressures,  and general  economic  conditions could adversely
         affect the Company's  ability to transport  its natural gas.  Moreover,
         gas  transportation  contract  may  require  the  Company to  transport
         minimum  volumes of natural  gas.  If the Company  should ship  smaller


                                                                         Page 19


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


         volumes,  the  Company  may be  liable  for the  shortfall.  Unforeseen
         events,  including production problems or substantial  decreases in the
         price or demand for natural  gas,  could cause the Company to ship less
         than the required volumes, resulting in losses on these contracts.

         Dependence on Key Personnel

         The  Company's  success  depends  on  the  continued  services  of  its
         executive  officers and directors.  The Company's key personnel include
         Neville M. Henry,  its President,  Sacha Spindler,  its Chief Executive
         Officer  and  a  director,   William  Kerrigan,  its  Treasurer,  Chief
         Financial Officer and a director and Timothy Russell, a director.  Loss
         of the services of any of these people could result in financial losses
         and interruptions in operations.


ITEM 2. DESCRIPTION OF PROPERTIES

OIL AND GAS PROPERTIES

The Company is 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 as described above.

OFFICE LOCATION

Except as described above regarding the oil and gas properties, the Company does
not own any other real estate or property.  The Company  leases office space and
its offices are located at 3200 Southwest Freeway,  Suite 3300,  Houston,  Texas
77027.


ITEM 3. LEGAL PROCEEDINGS

On approximately  August 5, 2003, certain debt holders (the "Plaintiffs") of the
Company initiated  litigation against the Company by filing a statement of claim
in the Supreme Court of British  Columbia,  Case No. S034268 (the  "Statement of
Claim"). The claims against the Company involved the prior advancements of funds
made by the  Plaintiffs  pursuant  to  share  purchase  agreements  between  the
Plaintiffs and the Company, respectively. On August 8, 2003, the Company and the
Plaintiffs   entered  into  a  memorandum  of  agreement  (the   "Memorandum  of
Agreement").  Pursuant to the terms of the Memorandum of Agreement,  the Company
and the  Plaintiffs  agreed  to  settle  the  alleged  claims  contained  in the
Statement of Claim by: (i) immediate payment of $50,000 to the Plaintiffs;  (ii)
issuance of a subordinated debenture by the Company in the amount of $723,673 to
the Plaintiffs (the  "Subordinated  Debenture");  and (iii) execution of release
agreements at the time of issuance of the debenture.

On approximately August 18, 2003, the Company issued the Subordinated Debenture.
The Subordinated Debenture: (i) bears interest at 10% per annum payable annually
in  arrears;  (ii) has a term of two years from the date of  issuance;  (iii) is
subordinate to bank or lending institutional debt financing; (iv) is 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)
requires monthly payments of $10,000 beginning  December 2003. As of the date of
this  Annual  Report,  the  Company  has paid  $10,000  for each of the month of
December 2003 and January 2004.


                                                                         Page 20


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                                                                     FORM 10-KSB
                                                               December 31, 2003


Management  is not  aware of any other  legal  proceedings  contemplated  by any
governmental  authority  or  any  other  party  involving  the  Company  or  its
properties.  As of the date of this  Annual  Report,  no  director,  officer  or
affiliate  of the  Company is (i) a party  adverse  to the  Company in any legal
proceedings,  or (ii)  has an  adverse  interest  to the  Company  in any  legal
proceedings.  Management is not aware of any other legal proceedings  pending or
that have been threatened against the Company or its properties.


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

Based upon review of a wide variety of factors considered in connection with its
evaluation of the Agreement and the sale of  substantially  all of the Company's
assets, which included the sale of its wholly-owned subsidiary, Oakhills Energy,
Inc., the Board of Directors of the Company  believed that  consummation  of the
Agreement and the sale of  substantially  all of the  Company's  assets would be
fair to and in the best interests of the Company and its shareholders. The Board
of  Directors,   therefore,   authorized  and  directed  the  submission  of  an
Information  Statement pursuant to Section 14(c) of the Securities  Exchange Act
of 1934, as amended (the "Information Statement").

The Information  Statement was filed with the Securities and Exchange Commission
on October 17, 2002 and amended December 16, 2002. The Information Statement was
circulated to the  shareholders  of the Company in connection with the taking of
corporate  action without a meeting upon the written consent of ten (10) or less
shareholders  holding  of record a  majority  of the  outstanding  shares of the
Company's  Common Stock (the  "Written  Consent").  As of November 30, 2002 (the
"Record  Date"),  there were  22,431,693  shares of the  Company's  Common Stock
issued and  outstanding.  The names of the  shareholders  who signed the Written
Consent and their  respective  equity ownership of the Company were: (i) TriStar
Financial  Services,  Inc.  ("TriStar")  holding of record  6,015,211  shares of
Common Stock (26.82%); (ii) Investor Communications International,  Inc. ("ICI")
holding of record 5,787,517 shares of Common Stock (25.80%); and (iii) Alexander
W. Cox holding of record 2,177,300 shares of Common Stock (9.71%).

The matters upon which action was taken effective  February 12, 2003 pursuant to
the Written Consent included: (i) approval of the Share Exchange Agreement,  the
related  conversion of any proposed  loans to equity  interest by the Company in
Petrogen, and the resulting change in control of the Company upon the completion
and consummation of the Share Exchange Agreement;  (ii) approval of an amendment
to the Articles of  Incorporation  to effectuate a name change of the Company to
"Petrogen  Corp."  upon  completion  and  consummation  of  the  Share  Exchange
Agreement;  (iii)  approval of the sale of  substantially  all of the  remaining
assets of the Company  consequent upon completion and  consummation of the Share
Exchange  Agreement;  (iv)  authorization for the Board of Directors to effect a
reverse  stock  split of  one-for-twenty  (the  "Reverse  Stock  Split")  of the
Company's outstanding common stock,  depending upon a determination by the Board
of Directors that a Reverse Stock Split was in the best interests of the Company
and its  shareholders;  (v) approval of a stock option plan for key personnel of
the Company (the "Stock Option Plan"); and (vi) ratification of the selection of
LaBonte & Co. as the Company's  independent  public  accountants  for the fiscal
year ended December 31, 2002.


                                                                         Page 21


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS

MARKET INFORMATION

Petrogen  Corp.'s  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 the Company's Common Stock is limited, volatile
and  sporadic.  The  following  table sets  forth the high and low sales  prices
relating to the  Company's  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.


                              Fiscal year ended
                   ________________________________________
                   December 31, 2003     September 30, 2003
                   ________________________________________
                    High       Low         High       Low

First Quarter       $0.27     $0.25        $0.50     $0.30
Second Quarter       N/A       N/A         $0.44     $0.16*
Third Quarter        N/A       N/A         $0.22     $0.15*
Fourth Quarter       N/A       N/A         $0.29     $0.15*

*During  fiscal year ended  September 30, 2003,  the Company  changed its fiscal
year end from December 31st to September 30th. Due to this change, these figures
represent  high and low sale prices for the first  quarter ended March 31, 2003,
the third quarter ended June 30, 2003 and fiscal year ended September 30, 2003.


Holders

As of March 24th,  2004,  the  Company had  approximately  170  shareholders  of
record.

Dividends

No dividends have ever been declared by the Board of Directors of the Company on
its Common Stock.  The Company's  previous losses do not currently  indicate the
ability  to pay any  cash  dividends,  and the  Company  does not  indicate  the
intention  of paying  cash  dividends  on its  Common  Stock in the  foreseeable
future.

Reverse Stock Split

In conjunction with consummation of the Share Exchange  Agreement,  the Board of
Directors of the Company and the  shareholders  pursuant to the Written Consent,
authorized and approved a reverse stock split of one-for-twenty of the Company's
issued and outstanding  shares of Common Stock (the "Reverse Stock Split").  The
Reverse Stock Split was effectuated by the Board based on market conditions. The
intent of the Reverse Stock Split is to increase the marketability and liquidity
of the Company's Common Stock.


                                                                         Page 22


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


The  Reverse  Stock  Split was  effected  upon a  determination  by the Board of
Directors  that the Reverse Stock Split is in the best  interests of the Company
and the  shareholders.  In the Board's  judgment  the Reverse  Stock Split would
result in the greatest  marketability  and liquidity of the Common Stock,  based
upon prevailing market conditions,  the likely effect on the market price of the
Common Stock and other relevant factors.

The Reverse  Stock Split was  effectuated  on February 12, 2003 (the  "Effective
Date") upon filing the appropriate  documentation with NASDAQ. The Reverse Stock
Split reduced the Company's  issued and outstanding  shares of Common Stock from
22,431,693 to 1,121,585  shares of Common Stock.  The Common Stock will continue
to be $0.001 par value.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

Stock Option Plan

On October 9, 2002, the Board of Directors of the Company  unanimously  approved
and adopted a stock option plan (the "Stock Option Plan"), which was approved by
the shareholders of the Company pursuant to the Written Consent.  The purpose of
the Stock  Option  Plan is to  advance  the  interests  of the  Company  and its
shareholders  by  affording  key  personnel  of the Company an  opportunity  for
investment  in the  Company  and the  incentive  advantages  inherent  in  stock
ownership in the Company.  Pursuant to the  provisions of the Stock Option Plan,
stock options (the "Stock Options") will be granted only to key personnel of the
Company, generally defined as a person designated by the Board of Directors upon
whose  judgment,  initiative  and efforts the  Company  may rely  including  any
director, officer, employee or consultant of the Company.

The Stock  Option Plan is to be  administered  by the Board of  Directors of the
Company, 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 the Board of  Directors to grant
Stock  Options  to  purchase  a total  number of  shares of common  stock of the
Company,  not to presently exceed 15,000,000 shares (as amended) of Common Stock
as at the date of adoption by the Board of  Directors  of the Stock Option Plan.
At the time a Stock  Option is granted  under the Stock Option Plan the Board of
Directors  shall fix and determine the exercise  price at which shares of common
stock of the Company 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 the Company.

In the event an optionee  who is a director or officer of the Company  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 an employee or consultant of the
Company  ceases to be employed  by the  Company,  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


                                                                         Page 23


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


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) by cashier's check,  certified cheque,  or other acceptable  banker's
note payable to the order of the Company;  (iii) by net exercise  notice whereby
the option holder will  authorize the return to the Stock Option Plan pool,  and
deduction  from the option  holder's  Stock Option,  of sufficient  Stock Option
shares whose net value (fair value less option  exercise price) is sufficient to
pay the option price of the shares exercise (the fair value of the shares of the
Stock  Option to be returned to the pool as payment  will be  determined  by the
closing  price of the  Company's  shares of Common  Stock on the date  notice is
delivered);  (iv) by delivery to the  Company of a properly  executed  notice of
exercise together with irrevocable  instructions (referred to in the industry as
`delivery  against  payment') to a broker to deliver to the Company promptly the
amount of the proceeds of the sale of all or a portion of the stock or of a loan
from the broker to the option holder necessary to pay the exercise price; of (v)
such other method as the option  holder and the Board of Directors may determine
as adequate including delivery of acceptable securities (including securities of
the Company),  set-off for wages or invoices due,  property,  or other  adequate
value. In the discretion of the Board of Director,  the Company may grant a loan
or guarantee a third-party  loan obtained by an option holder to pay part of all
of the  exercise  option  price of the  shares  provided  that  such loan or the
Company's guaranty is secured by the shares of Common Stock.

         Incentive Stock Options

         The Stock Option Plan further provides that,  subject to the provisions
         of the Stock Option Plan and prior shareholder  approval,  the Board of
         Directors  may  grant to any key  personnel  of the  Company  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.

          Pursuant to the terms and provisions of the Share Exchange  Agreement,
         the  Company  caused  to be filed  with  the  Securities  and  Exchange
         Commission on February 21, 2003 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  2,000,000  shares at $0.50 per
         share.

         Amendments to Stock Option Plan

         Subsequently,  on April 13, 2003, the Board of Directors of the Company
         ratified,  approved and  confirmed  the adoption of an amendment to the
         Stock  Option  Plan,  which  provided  for the grant of up to 3,000,000
         shares of Common Stock.


                                                                         Page 24


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


         Subsequently,  on  September  10,  2003,  the Board of Directors of the
         Company  ratified,  approved and confirmed the adoption of an amendment
         to the  Stock  Option  Plan,  which  provided  for the  grant  of up to
         5,000,000  shares of Common Stock.  On September 12, 2003,  the Company
         caused  to be filed  with the  Securities  and  Exchange  Commission  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 following amounts: (i) 1,550,000 shares at $0.25 per share; (ii)
         500,000  shares at $0.50 per share;  and (iii) 950,000  shares at $0.75
         per share.

         Subsequently,  on  November  1,  2003,  the Board of  Directors  of the
         Company  ratified,  approved and confirmed the adoption of an amendment
         to the  Stock  Option  Plan,  which  provides  for the  grant  of up to
         10,000,000 shares of Common Stock. November 2, 2003, the Company caused
         to be filed with the Securities and Exchange  Commission 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 following
         amounts:  (i) 1,600,000  shares at $0.20 per share;  and (ii) 1,600,000
         shares at $0.25 per share.

         Subsequently, on March 3rd, 2004, the Board of Directors of the Company
         ratified,  approved and  confirmed  the adoption of an amendment to the
         Stock Option  Plan,  which  provides for the grant of up to  15,000,000
         shares of Common Stock.  On March 5th,  2004,  the Company caused to be
         filed  with the  Securities  and  Exchange  Commission  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 following
         amounts: (i) 2,515,000 shares at $0.25 per share; (ii) 2,110,000 shares
         at $0.50 per share; and (iii) 375,000 shares at $0.75 per share.


         Stock Options Granted and Exercised

         In accordance  with the terms and  provisions of the Stock Option Plan,
         and as of the date of this Annual Report, the Board of Directors of the
         Company  has  granted  an  aggregate  of  13,000,000  Stock  Options as
         follows:  (i) 2,000,000 Stock Options exercisable at $0.50 per share to
         previous  holders of stock options of Petrogen to replace stock options
         previously  granted  by  Petrogen  expiring  February  12,  2006;  (ii)
         1,550,000 Stock Options at $0.25 per share expiring  September 10, 2006
         to the officers,  directors and consultants of the Company who, in such
         capacities,  rendered bona fide services to the Company including,  but
         not limited to,  administrative  and  managerial;  (iii)  475,000 Stock
         Options at $0.50 per share expiring September 10, 2006 to the officers,
         directors and  consultants of the Company;  (v) 25,000 Stock Options at
         $0.50 per share  expiring May 13, 2004, to a consultant of the Company;
         (v) 750,000  Stock  Options at $0.75 per share  expiring  September 10,
         2006 to the officers,  directors and  consultants of the Company;  (vi)
         1,600,000 Stock Options at $0.20 per share expiring November 1, 2008 to


                                                                         Page 25


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


         the  directors  and  officers of the  Company;  (vii)  1,000,000  Stock
         Options at $0.25 per share  expiring  November 1, 2008 to the directors
         and officers of the Company;  (viii) 600,000 Stock Options at $0.25 per
         share expiring  November 1, 2013; (ix) 1,675,000 Stock Options at $0.25
         per  share  expiring  March  4,  2007 to the  officers,  directors  and
         consultants  of the  Company;  (x) 840,000  Stock  Options at $0.25 per
         share expiring March 4, 2014 to the officers, directors and consultants
         of the  Company;  (xi)  1,750,000  Stock  Options  at $0.50  per  share
         expiring  March 4, 2007 to the officers,  directors and  consultants of
         the Company;  (xii) 360,000  Stock Options at $0.50 per share  expiring
         March  4,  2014  to the  officers,  directors  and  consultants  of the
         Company; (xiii) 250,000 Stock Options at $0.75 per share expiring March
         4, 2007 to consultants of the Company, and; (xiv) 125,000 Stock Options
         at $0.75  per  share  expiring  March 4,  2014 to a  consultant  of the
         Company;  (all of which such shares were subject to an S-8 registration
         statement as filed with the Securities and Exchange Commission).

         As of the date of this Annual  Report,  an aggregate of 3,465,000  Sock
         Options have been  exercised as follows:  (i)  1,000,000  Stock Options
         exercised  at $0.50 per share for  aggregate  proceeds  of  $500,000 by
         employees or  consultants  of ICI in  accordance  with the terms of the
         respective  notice and  agreement  of exercise of option;  (ii) 110,000
         Stock Options  exercised at $0.50 per share for  aggregate  proceeds of
         $55,000  by  officers,  directors  or  consultants  of the  Company  in
         accordance  with the terms of the  respective  notice and  agreement of
         exercise of option;  (iii) 925,000 Stock Options exercised at $0.25 per
         share for  aggregate  proceeds of $231,250 by  officers,  directors  or
         consultants  of  the  Company  in  accordance  with  the  terms  of the
         respective  notice and  agreement  of  exercise  of option,  and;  (iv)
         1,430,000  Stock  Options  exercised  at $0.20 per share for  aggregate
         proceeds of $286,000  by  officers,  directors  or  consultants  of the
         Company  in  accordance  with the terms of the  respective  notice  and
         agreement of exercise of option.  Of the Stock Options  exercised,  Mr.
         Spindler  exercised  625,000 Stock  Options for  aggregate  proceeds of
         $258,750  pursuant to assignment of debt,  which amount was utilized to
         off-set the aggregate  amounts due and owing Mr.  Spindler  pursuant to
         consulting  services  provided.  Of the Stock  Options  exercised,  Mr.
         Kerrigan  exercised  325,000 Stock  Options for  aggregate  proceeds of
         $93,750  pursuant to assignment  of debt,  which amount was utilized to
         off-set the aggregate  amounts due and owing Mr.  Kerrigan  pursuant to
         consulting services provided.

         Management of the Company  believes that such services  provided by the
         employees or consultants  of ICI or by any other  consultants on behalf
         of the Company did not include  services  which  directly or indirectly
         promoted or maintained a market for the Company's  securities  nor were
         rendered  in  connection  with  the  offer or sale of  securities  in a
         capital-raising transaction.


         Common Stock Purchase Warrants

         Pursuant  to the terms of the Share  Exchange  Agreement,  the  Company
         granted an aggregate of 167,189  post-Reverse  Stock Split common stock
         purchase  warrants  (the  "Warrant(s)")  pursuant  to which the  holder
         thereof  has the right to convert  such  Warrant  into shares of 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


                                                                         Page 26


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


         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,  167,189  Warrants  have  been
         granted.  As of the date of this  Annual  Report:  (i) 23,715  Warrants
         exercisable  at the rate of $1.20 per share  expired  on  December  18,
         2003,  were  not  exercised  by the  holders  thereof,  and are  deemed
         terminated and void; and (ii) 23,715  Warrants  exercisable at the rate
         of $1.20 per share expired on December 20, 2003,  were not exercised by
         the holders thereof, and are deemed terminated and void. Therefore,  as
         of the date of this Annual Report, 119,759 Warrants are outstanding. As
         granted,  the 119,759  Warrants may be converted into 119,759 shares of
         restricted Common Stock.

<TABLE>
<CAPTION>


                      Equity Compensation Plan Information
__________________________________________________________________________________________________________
                           Number of Securities                                      Number of Securities
                             To be Issued Upon        Weighted-Average Exercise           Remaining
                          Exercise of Outstanding       Price of Outstanding         Future Issuance Under
Available for                Options, Warrants            Options, Warrants           Equity Compensation
Plan Category                   and Rights                   and Rights              (excluding column (a))
Plans                               (a)                          (b)                          (c)
__________________________________________________________________________________________________________
<S>                            <C>                              <C>                           <C>

Equity Compensation                -0-                           -0-
Plans Approved by
Security Holders

Equity Compensation            14,822 shares                    $0.40                         -0-
Plans Not Approved by
Security Holders -             11,857 shares                    $0.80                         -0-
Warrants
                               18,972 shares                    $0.80                         -0-

                               59,286 shares                    $0.40                         -0-

                               14,822 shares                    $0.40                         -0-

Total                         119,759 shares

__________________________________________________________________________________________________________
</TABLE>


RECENT SALES OF UNREGISTERED SECURITIES AND CHANGES IN CONTROL OF THE COMPANY

     (a)  Pursuant  to the terms of the Share  Exchange  Agreement,  the Company
     issued: (i) 7,000,000 shares of its restricted Common Stock to the Petrogen
     Shareholders in proportion to their  respective  holdings in Petrogen;  and
     (ii) 300,000 shares of restricted Common Stock to a third party.

     (b)  Pursuant  to the terms of the Share  Exchange  Agreement,  the Company
     granted an  aggregate  of  167,189  Warrants  pursuant  to which the holder
     thereof has the right to convert  such  Warrant  into shares of  restricted
     Common  Stock  on a  one-to-one  basis  as  follows:  (i)  23,715  Warrants


                                                                         Page 27


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


     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, 119,759 Warrants are outstanding.  As granted, the 119,759 Warrants
     may be converted into 119,759 shares of Common Stock.

     (c) In accordance  with the terms and  provisions of the Stock Option Plan,
     the  Board  of  Directors  of the  Company  has  granted  an  aggregate  of
     13,000,000 Stock Options.  Of those  13,000,000 Stock Options granted:  (i)
     1,000,000 Stock Options exercised at $0.50 per share for aggregate proceeds
     of $500,000 by employees or consultants of ICI in accordance with the terms
     of the respective notice and agreement of exercise of option;  (ii) 110,000
     Stock  Options  exercised  at $0.50  per share for  aggregate  proceeds  of
     $55,000 by officers,  directors or consultants of the Company in accordance
     with the terms of the  respective  notice  and  agreement  of  exercise  of
     option;  (iii)  925,000  Stock  Options  exercised  at $0.25  per share for
     aggregate proceeds of $231,250 by officers, directors or consultants of the
     Company in accordance with the terms of the respective notice and agreement
     of exercise of option, and; (iv) 1,430,000 Stock Options exercised at $0.20
     per share for  aggregate  proceeds of $286,000 by  officers,  directors  or
     consultants  of the Company in accordance  with the terms of the respective
     notice and agreement of exercise of option. Of the Stock Options exercised,
     Mr.  Spindler  exercised  625,000 Stock  Options for aggregate  proceeds of
     $258,750  pursuant to  assignment  of debt,  which  amount was  utilized to
     off-set  the  aggregate  amounts  due and owing Mr.  Spindler  pursuant  to
     consulting services provided. Of the Stock Options exercised,  Mr. Kerrigan
     exercised 325,000 Stock Options for aggregate  proceeds of $93,750 pursuant
     to assignment  of debt,  which amount was utilized to off-set the aggregate
     amounts  due  and  owing  Mr.  Kerrigan  pursuant  to  consulting  services
     provided.  As of the date of this  Report,  the Company is obliged to issue
     5,000 shares of Common Stock of the Company to a certain  consultant of the
     Company who provided bona fide services to the Company.

     Therefore,  in  connection  with the  exercise  of such Stock  Options,  an
     aggregate of 1,000,000 shares of Common Stock of the Company were issued to
     certain  employees or consultants of ICI who provided bona fide services to
     the  Company  under  the  Consulting  Services  Agreement,  and  a  further
     aggregate of 2,465,000 shares of Common Stock of the Company were issued to
     certain officers, directors of consultants of the Company who provided bona
     fide services to the Company. As of the date of this Report, the Company is
     obliged to issue 10,000  shares of Common Stock of the Company to a certain
     consultant  of the Company who provided  bona fide  services to the Company
     and 37,500 other shares for options exercised.

      As a result of the  issuance  of shares,  there was a change in control of
     the Company.  See "Item 11. Security Ownership of Certain Beneficial Owners
     and Management and Related Stockholder Matters."


                                                                         Page 28


<PAGE>



                                                                     FORM 10-KSB
                                                               December 31, 2003


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


FOR FISCAL YEAR DECEMBER 31, 2003 (THREE MONTHS)

On January 20,  2004,  the  Company  approved a change in fiscal year end from a
September  30 year-end to a calendar  year-end  of  December  31. The  Company's
decision to change it's year end is intended to assist the  financial  community
in its  analysis  of  the  business  and to  synchronize  the  Company's  fiscal
reporting period with the Securities and Exchange  Commission  required year-end
reserve  reporting of December 31.  Consequently,  the results of operations for
the fiscal year ended  December 31, 2003 are for a three month period only,  and
therefore are not directly comparable with the results for the fiscal year ended
September 30, 2003.

The Company's net losses during the  three-month  fiscal year ended December 31,
2003 were  approximately  ($569,279).  During the three month  fiscal year ended
December 31, the Company recorded $-0- in revenue.

During the three-month fiscal year ended December 31, 2003, the Company recorded
operating expenses of approximately $569,279. During the three-month fiscal year
ended December 31, 2003, operating expenses consisted of: (i) $47,929 in general
and administrative expenses; (ii) $52,500 in management and consulting fees to a
related party;  (iii) $80,193 in professional fees; (iv) $360,215 in stock based
compensation; (v) $28,136 in interest expense; and (vi) $306 in depreciation.

If these  expenses  were  annualized,  there would be an  increase in  operating
expenses  comparing to the twelve months period ended  September 30, 2003.  This
would be due  primarily to an increase in overhead and  administrative  expenses
resulting  from the  increased  scale and scope of  overall  corporate  activity
pertaining to the  acquisition  of Petrogen and subsequent  consummation  of the
Share Exchange Agreement, and the exploration,  reorganization,  and development
of oil and natural gas properties. General and administrative expenses generally
include  corporate  overhead,  administrative  management,  consulting costs and
professional fees.

During the year ended  September 30, 2003,  the Company  received  approximately
$634,206  in cash  advances  from ICI and  affiliated  parties.  Interest in the
approximate   amount  of  $22,785  was   accrued,   and  the  Company   incurred
approximately  $389,536 due and owing to ICI and affiliate parties in connection
with  consummation of the Share Exchange  Agreement and acquisition of Petrogen.
During  the year ended  September  30,  2003,  the  Company  paid out to ICI and
affiliate parties approximately $363,811 in settlement of this debt.

ICI  resigned its tenure as  management  consultant  to the  Company,  effective
August  8,  2003.  In  accordance  with the  terms of a  certain  memorandum  of
agreement  dated August 8, 2003, the Consulting  Agreement has been  terminated.
Therefore,  effective  August  8,  2003,  ICI  no  longer  performs  managerial,
administrative or consulting services to the Company.

The Company's net loss during fiscal year ended December 31, 2003 was ($569,279)
or ($0.05) per share.  The weighted  average  number of shares  outstanding  was
10,613,291 for fiscal year ended December 31, 2003.

LIQUIDITY AND CAPITAL RESOURCES

The Company's  financial  statements  have been  prepared  assuming that it will
continue  as a  going  concern  and,  accordingly,  do not  include  adjustments
relating to the  recoverability  and realization of assets and classification of
liabilities  that might be necessary should the Company be unable to continue in
operation.


                                                                         Page 29


<PAGE>



                                                                     FORM 10-KSB
                                                               December 31, 2003


As of December 31, 2003

As of fiscal year ended  December 31, 2003,  the Company's  current  assets were
$8,377 and its  current  liabilities  were  $1,042,468,  resulting  in a working
deficit of $1,034,091. As of fiscal year ended December 31, 2003, current assets
were  comprised  of $8,377 in cash.  As of fiscal year ended  December 31, 2003,
current  liabilities  were  comprised  of (i)  $415,488 in accounts  payable and
accrued  liabilities;  (ii) $359,625 due to related  parties;  (iii) $153,561 in
debentures  payable;  (iv)  $75,000 in demand loan  payable;  and (v) $38,794 in
notes  payable.  See "Item 6.  Management's  Discussion  and Analysis or Plan of
Operation - Material Commitments."

As of fiscal year ended  December  31,  2003,  the  Company's  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.  As of September  30,
2003,  the  Company's  total  assets were  $788,607  comprised of (i) $96,058 in
current  assets;  (ii)  $686,431 in oil and gas  properties  and (iii) $6,118 in
furniture  and  equipment,  net of  depreciation.  The  decrease in total assets
during fiscal year ended December 31, 2003 from September 30, 2003 was primarily
due to the  increase in oil and gas  properties  being  off-set by a decrease in
cash.

As of fiscal year ended December 31, 2003, the Company's total  liabilities were
$1,662,822,  comprised  of (i)  $1,042,468  in current  liabilities,  and;  (ii)
$620,354  in  long-term  debentures  payable.  As of  September  30,  2003,  the
Company's  total  liabilities  were  $1,493,753,  comprised  of (i)  $861,555 in
current  liabilities,  and: (ii) $632,198 in debenture payable.  The increase in
total liabilities  during fiscal year ended December 31, 2003 from September 30,
2003 was due primarily an increase in accounts  payable and accrued  liabilities
and amounts due to related  parties.  See "Item 6.  Management's  Discussion and
Analysis or Plan of Operation - Material Commitments."

Stockholders'  deficit  increased  from  ($705,146)  for  September  30, 2003 to
($906,710) for fiscal year ended December 31, 2003.

For fiscal year ended December 31, 2003,  net cash used in operating  activities
was ($100,236).  Net cash used in operating  activities was primarily  comprised
of: (i) net loss of ($569,279); (ii) stock based compensation of $360,215; (iii)
accounts payable of $77,477; and (iv) accrued interest of $21,045.

The  Company's  cash flow used in  investing  activities  for fiscal  year ended
December 31, 2003 was $(55,492).  The net cash used in investing  activities was
for the acquisition of oil and gas properties.

Cash flows from financing activities were $78,047. Net cash flows from financing
activities  during fiscal year ended  December 31, 2003 resulted  primarily from
proceeds of $70,547 from cash advances from related parties.

PLAN OF OPERATION

FUNDING

As of the date of this Annual Report, the Company has generated no revenues from
operations.  During the prior fiscal years, the Company focused primarily on the
exploration of potential oil and gas projects and generated no revenues.  During
those prior fiscal years, the Company relied upon internally generated funds and
advances, funds from the sale of shares of stock and loans from its shareholders


                                                                         Page 30


<PAGE>



                                                                     FORM 10-KSB
                                                               December 31, 2003


and private  investors to finance its operations  and growth.  Management of the
Company  anticipates  a possible  increase  in  operating  expenses  and capital
expenditures relating to oil and gas operating properties and acquisitions.

The Company may finance  further  expenditures  with future  issuances of common
stock of the Company. The Company believes that any private placements of equity
capital and debt financing, if successful, may be adequate to fund the Company's
operations over the next year. The Company 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 the
Company  raises  additional  funds through the issuance of equity or convertible
debt securities other than to current shareholders,  the percentage ownership of
its  current  shareholders  would be  reduced,  and such  securities  might have
rights,  preferences  or  privileges  senior  to its  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,  the Company
may not be able to take advantage of prospective new oil and gas acquisitions or
opportunities,  which could  significantly and materially restrict the Company's
business operations.

As of the date of this Annual Report, management of the Company believes that an
estimated  $2,000,000  to  $5,000,000  is  required  over the next two years for
payment  of  expenses  associated  with  the  ongoing  oil and gas  exploration,
development and production  operations of the Company.  Management believes that
the Company can satisfy its cash  requirements  for  approximately  the next six
months based on 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.

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

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

MATERIAL COMMITMENTS

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


                                                                         Page 31


<PAGE>



                                                                     FORM 10-KSB
                                                               December 31, 2003


Henry Consulting Agreement

On November  18th,  2003 the Company and Neville  Henry,  the  President  of the
Company,  have  agreed  to  certain  terms in regard  to the  consummation  of a
management  consulting  services agreement to be made effective as at January 1,
2004 (the "Henry Consulting Agreement"). Pursuant to the terms and provisions of
the Henry Consulting  Agreement  currently under negotiation between the Company
and Mr.  Henry,  Mr.  Henry has agreed to provide  operational,  managerial  and
consulting  services to the Company consistent with his position as President of
the Company.  Pursuant to further terms and  provisions of the Henry  Consulting
Agreement,  the Company  shall:  (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, and provided that only $10,000.00
of the Fee shall actually be paid monthly by the Company to Mr. Henry,  with the
balance of each monthly fee being accrued  without  interest  until such time as
the Company is 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) reimburse
certain expenses.

During  fiscal year ended  December 31, 2003, no fees were paid to Neville Henry
as the contract had not yet been consummated,  and upon  consummation,  shall be
effective January 1, 2004.

Consulting Service Agreement/Subordinated Debenture

Pursuant  to the  terms and  provisions  of the Share  Exchange  Agreement,  the
Company and ICI entered into a consulting  services agreement dated February 12,
2003 (the "Consulting  Services  Agreement").  Pursuant to the provisions of the
Consulting Services Agreement:  (i) ICI provided to the Company such finance and
general managerial services as may be determined by the Board of Directors, from
time to time, and in its sole and absolute  discretion,  in order to develop the
various business interests of the Company in the energy industry,  including the
oil and gas interest;  and (ii) the Company paid to ICI a fee commensurate  with
the services  provided by ICI on a monthly basis,  but not to exceed  $10,000.00
monthly.

ICI  resigned its tenure as  management  consultant  to the  Company,  effective
August  8,  2003.  In  accordance  with the  terms of a  certain  memorandum  of
agreement  dated August 8, 2003, the Consulting  Agreement has been  terminated.
Therefore,  effective  August  8,  2003,  ICI  no  longer  performs  managerial,
administrative or consulting services to the Company.

As of August  18,  2003,  the  following  amounts  were due and owing to ICI and
affiliate parties by the Company: (i) $21,736 as accounts payable; (ii) $104,789
as advances;  (iii) $6,784 as accrued  interest on  advances;  (iv)  $590,500 as
demand loans;  and (v) 17,566 as accrued interest on the demand loans. Mr. Grant
Atkins,  a prior director of the Company,  was contracted by ICI and was part of
the  management  team  provided by ICI to the Company.  During fiscal year ended
September  30, 2003,  Mr.  Atkins  received an aggregate of $19,625 from ICI for
services  provided to the Company.  As of August 18, 2003, the Company also owed
Mr. Atkins an aggregate of $15,385 plus $1,767 in accrued  interest for payments
personally made by Mr. Atkins on behalf of the Company. All such amounts due and
owing to ICI, affiliate parties and Mr. Atkins formed part of amounts due by the
Company to certain various debtholders under a subordinated debenture.

On approximately  August 18, 2003, the Company issued the $723,673  Subordinated
Debenture.  The  Subordinated  Debenture:  (i) bears  interest  at 10% per annum
payable  annually  in  arrears;  (ii) has a term of two  years  from the date of
issuance;  (iii) is subordinate to bank or lending institutional debt financing;


                                                                         Page 32


<PAGE>



                                                                     FORM 10-KSB
                                                               December 31, 2003


(iv) is  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) requires monthly payments of $10,000 beginning December 2003.
As of the date of this Annual Report, the Company has paid $10,000 for the month
of December 2003.

Debenture

In connection with the acquisition of the Emily Hawes Field,  the Company issued
a debenture in the amount of $75,000 (the "Debenture"). The terms and provisions
of the Debenture  provides:  (i) interest at the rate of 15% per annum;  (ii) is
secured by a floating charge security on all assets of the Company; and (iii) is
due on May 20, 2003,  which was extended to December 30, 2003. As of the date of
this Annual Report, the Company has repaid  approximately  $54,250 of principal.
Interest of $12,811 has been accrued in connection with the Debenture.

AMOUNTS DUE TO RELATED PARTIES

A significant  and estimated  commitment for the Company for fiscal year 2004 is
the  aggregate  amount of $296,487 in  principal  and  interest due and owing to
Messrs. Spindler and Kerrigan resulting from consulting services provided to the
Company, and for expenses incurred by Messrs. Spindler and Kerrigan on behalf of
the  Company.  During  fiscal year ended  December  31,  2003,  management  fees
aggregating $66,000 were incurred to Messrs.  Spindler and Kerrigan.  Subsequent
to year-end, Mr. Spindler exercised 625,000 Stock Options pursuant to assignment
of debt in the aggregate amount of $258,750, which such amounts were utilized to
off-set  the  aggregate  debt  due and  owing  to Mr.  Spindler.  Subsequent  to
year-end, Mr. Kerrigan exercised 325,000 Stock Options pursuant to assignment of
debt in the  aggregate  amount of $93,750,  which such  amounts was  utilized to
off-set the  aggregate  debt due and owing to Mr.  Kerrigan.  As of December 31,
2003,  Messrs.  Spindler  and Kerrigan  are owed  approximately  an aggregate of
$288,987,  including  approximately  $17,504 in interest accrued.  See "Item 10.
Executive Compensation."

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Annual Report,  the Company does not have any off-balance
sheet  arrangements that have or are reasonably like to have a current or future
effect on the Company's  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 the Company is a party, under
which the Company has (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".


                                                                         Page 33


<PAGE>

















                                 PETROGEN CORP.
                         (AN EXPLORATION STAGE COMPANY)
                       CONSOLIDATED FINANCIAL STATEMENTS
                               DECEMBER 31, 2003

























<PAGE>



                                                                     FORM 10-KSB
                                                               December 31, 2003
                                               Consolidated Financial Statements





INDEX TO FINANCIAL STATEMENTS


   Independent Auditors' Report

   Consolidated Balance Sheets                                               F-1

   Consolidated Statements of Operations                                     F-2

   Consolidated Statement of Stockholders' Equity                            F-3

   Consolidated Statements of Cash Flows                                     F-5

   Notes to the Consolidated Financial Statements                            F-6





<PAGE>


DALE MATHESON
CARR-HILTON LABONTE
CHARTERED ACCOUNTANTS
________________________________________________________________________________


                          INDEPENDENT AUDITORS' REPORT



We  have  audited  the  consolidated   balance  sheets  of  Petrogen  Corp.  (an
exploration  stage  company) as at December 31, 2003 and  September 30, 2003 and
the consolidated  statements of operations,  stockholders' equity and cash flows
for the three month period ended December 31, 2003, the year ended September 30,
2003 and the period from  November  15, 2001  (inception)  to December 31, 2003.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States.  Those standards require that we plan and perform an 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 audits  provide a  reasonable  basis for our
opinion.

In our opinion,  these  financial  statements  present  fairly,  in all material
respects,  the  financial  position of the  Company as at December  31, 2003 and
September 30, 2003 and the results of its  operations and its cash flows and the
changes in  stockholders'  equity for the three month period ended  December 31,
2003,  the year ended  September  30, 2003 and the period from November 15, 2001
(inception)  to December 31, 2003 in  accordance  with United  States  generally
accepted accounting principles.

The  accompanying  financial  statements  have been  prepared  assuming that the
Company  will  continue  as a  going  concern.  As  discussed  in  Note 1 to the
financial statements, the Company has a working capital deficiency of $1,034,091
and has realized  significant  losses from its oil and gas  operations , and its
continued  operations are contingent upon raising additional  capital,  settling
outstanding  debts and on the future  acquisition and development of its oil and
gas properties.  These facts raise substantial doubt about the Company's ability
to continue as a going  concern.  Management's  plans in regard to these matters
are also  described  in Note 4. These financial statements  do not  include  any
adjustments that might result from this outcome of this uncertainty.



                                           /s/ DALE MATHESON CARR-HILTON LABONTE
                                                           CHARTERED ACCOUNTANTS


Vancouver, B.C.
March 31, 2004, except for Note 14, which is as of April 8, 2004


Vacouver Offices: Suite 1700 - 1140 West Pender Street; Vancouver, B.C., Canada
                  V6E 4GI, Tel 604 687 4747 * Fax: 604 587-4216
                  Suite 610 - 938 Howe Street, Vancouver, B.C., Canada V6Z 1N9,
                  Tel: 604 682-2778 * Fax: 604-689-2778

Surrey Office:    Suite 303-7337-137th Street, Surrey, B.C., Canada V3W 1A4
                  Tel: 604 572-4586 * Fax: 604 572 4587

<PAGE>


                                               Consolidated Financial Statements
                                                               December 31, 2003


<TABLE>
<CAPTION>


PETROGEN CORP.
[AN EXPLORATION STAGE COMPANY]
CONSOLIDATED BALANCE SHEETS


                                                December 31,   September 30,
                                                        2003            2003
____________________________________________________________________________
<S>                                              <C>             <C>
                                                                    (Note 1)
ASSETS

Current
  Cash                                           $     8,377     $    86,058
  Prepaids                                                 -          10,000
____________________________________________________________________________

Total Current Assets                                   8,377          96,058

Furniture and Equipment, net                           5,812           6,118

Oil and Gas Properties (Note 5)                      741,923         686,431
____________________________________________________________________________

Total Assets                                     $   756,112     $   788,607
============================================================================

LIABILITIES

Current
  Accounts payable and accrued liabilities       $   415,488     $   338,010
  Current portion of Debentures payable (Note 8)     153,561         131,578
  Notes payable (Note 9)                              38,794          27,888
  Demand loan payable (Note 10)                       75,000          75,000
  Due to related parties (Note 11)                   359,625         289,079
____________________________________________________________________________

Total Current Liabilities                          1,042,468         861,555

Long Term
  Debentures payable (Note 8)                        620,354         632,198
____________________________________________________________________________

Total Liabilities                                  1,662,822       1,493,753
____________________________________________________________________________

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock $0.001 par value;
100,000,000 shares authorized;
10,613,291 (2002 - 10,613,291) shares issued and
outstanding (Note 12)                                 10,613          10,613
Additional paid-in capital                         1,386,460         924,745
Common stock purchase warrants (Note 12)             256,300         357,800
Obligation to issue shares                            12,500           5,000
Deficit accumulated during exploration stage      (2,572,583)     (2,003,304)
____________________________________________________________________________

Total Stockholders' Deficit                         (906,710)       (705,146)
____________________________________________________________________________

Total Liabilities and Stockholders' Equity       $   756,112     $   788,607
============================================================================

Contingencies and Going Concern (Notes 1,4 and 6)

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

</TABLE>


                                                                        Page F-1


<PAGE>


                                               Consolidated Financial Statements
                                                               December 31, 2003


<TABLE>
<CAPTION>


PETROGEN CORP.
[AN EXPLORATION STAGE COMPANY]
CONSOLIDATED STATEMENTS OF OPERATIONS


_________________________________________________________________________________________________________
                                                 For the Three       For the Year     For the period from
                                                  Months ended              ended       November 15, 2001
                                                  December 31,     September 30,           (inception) to
                                                          2003               2003       December 31, 2003
                                                                         (Note 1)                (Note 1)
_________________________________________________________________________________________________________
<S>                                                <C>              <C>                  <C>

OPERATING EXPENSES
Depreciation                                       $       306      $     1,156          $     1,705
General & administrative                                47,929          335,909              445,228
Interest expense                                        28,136           53,446               90,396
Loss on settlement of debt                                   -           15,147               15,147
Management & consulting fees - related party            52,500          157,145              294,145
Management & consulting fees-stock based
   compensation                                        360,215          362,230              722,445
Professional fees                                       80,193          223,690              303,883
_________________________________________________________________________________________________________
LOSS FOR THE PERIOD                                $  (569,279)     $(1,148,723)         $(1,872,949)
=========================================================================================================

BASIC NET LOSS PER SHARE                           $     (0.05)     $     (0.13)
================================================================================

WEIGHTED AVERAGE SHARES OUTSTANDING                 10,613,291        9,180,118
================================================================================


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

</TABLE>


                                                                        Page F-2


<PAGE>


                                               Consolidated Financial Statements
                                                               December 31, 2003





<TABLE>
<CAPTION>

PETROGEN CORP.
[AN EXPLORATION STAGE COMPANY]
CONSOLIDATED  STATEMENTS OF  STOCKHOLDERS'  EQUITY [DEFICIT]
FOR THE PERIOD FROM NOVEMBER 15, 2001 [DATE OF INCEPTION] TO DECEMBER 31, 2003

____________________________________________________________________________________________________________________________________
                                                                                                           Deficit        Total
                                                                Paid-in                      Share       Accumulated   Stockholders'
                                                                capital         Share       Purchase       During         Equity
                                       Shares       Amount      (Deficit)   subscriptions   Warrants  Exploration 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 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 a 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, BLANCE, 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 on 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 on exercise of
   options, September 29, 2003          235,000         235        63,515            -              -              -         63,750
Net loss for year ended
   September 30,  2003                        -           -             -            -              -     (1,148,723)    (1,148,723)
                                   ________________________________________________________________________________________________

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


                                                                        Page F-3


<PAGE>


                                               Consolidated Financial Statements
                                                               December 31, 2003


PETROGEN CORP.
[AN EXPLORATION STAGE COMPANY]
CONSOLIDATED  STATEMENTS OF  STOCKHOLDERS'  EQUITY [DEFICIT]
FOR THE PERIOD FROM NOVEMBER 15, 2001 [DATE OF INCEPTION] TO DECEMBER 31, 2003

____________________________________________________________________________________________________________________________________
                                                                                                           Deficit         Total
                                                                Paid-in                      Share       Accumulated   Stockholders'
                                                                capital         Share       Purchase       During          Equity
                                       Shares       Amount      (Deficit)   subscriptions   Warrants  Exploration Stage  (Deficit)
____________________________________________________________________________________________________________________________________

Obligation to issue 37,500
   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)
                                   ================================================================================================


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

</TABLE>


                                                                        Page F-4


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


<TABLE>
<CAPTION>

PETROGEN CORP.
[AN EXPLORATION STAGE COMPANY]
CONSOLIDATED STATEMENTS OF CASH FLOWS

_________________________________________________________________________________________________________
                                                 For the Three       For the Year     For the period from
                                                  Months ended              ended       November 15, 2001
                                                  December 31,      September 30,          (inception) to
                                                          2003               2003       December 31, 2003
                                                                         (Note 1)                (Note 1)
_________________________________________________________________________________________________________
<S>                                                <C>              <C>                  <C>

Cash Flows from (used in) operating actvities
Net (loss) for the period                          $  (569,279)     $1,148,723)          $(1,872,949)
Adjustments to reconcile net loss to net cash
   used in operating activities:
   - depreciation                                          306           1,156                 1,705
   - accrued interest                                   21,045          19,437                49,296
   - accounts payable                                   77,476         121,674               201,330
   - loss on conversion of debt                              -          15,147                15,147
   - non-cash management fees                                -           2,500                 2,500
   - accrue management fees                                  -               -                84,500
   - prepaid                                            10,000         (10,000)                    -
   - Stock based compensation                          360,215         362,230               722,445
_________________________________________________________________________________________________________
Cash flows used in operating activities               (100,236)       (636,579)             (796,025)
_________________________________________________________________________________________________________
Cash flows from (used in) investing activities
Oil and gas properties                                 (55,492)       (374,029)             (429,521)
Purchase of furniture and fixture                            -          (5,086)               (7,517)
Pre reverse acquisition advances from Petrogen Corp.         -         100,000               100,000
Cash acquired in reverse acquisition of Petrogen
   Inc.                                                      -             868                   868
_________________________________________________________________________________________________________
Cash flows used in investing activities                (55,492)       (278,247)             (336,170)
_________________________________________________________________________________________________________
Cash flows from (used in) financing activities
Notes payable                                                -         (26,859)              (26,859)
Demand loans payable                                         -          75,000                75,000
Cash advances from former related parties
   (Note 12)                                                 -         318,990               318,990
Advances from related parties                           70,547          93,048               192,126
Repayment of debenture                                       -         (49,295)              (49,295)
Obligation to issue shares                               7,500           5,000                20,500
Proceeds on sale of common stock                             -         585,000               610,110
_________________________________________________________________________________________________________
Cash flows from financing activities                    78,047       1,000,884             1,140,572
_________________________________________________________________________________________________________
Net Increase (decrease) in Cash                        (77,681)         86,058                 8,377

Cash, Beginning of period                               86,058               -                     -
_________________________________________________________________________________________________________
Cash, End of Period                                     $8,377      $   86,058           $     8,377
=========================================================================================================

Supplemental Cash Flow Information

On August 18,  2003,  the  Company  issued a $723,673  convertible  subordinated
debenture in settlement of approximately  $708,525 of debt,  resulting on a loss
for conversion of debt of $15,147;

On September 29, 2003, the Company issued 235,000 shares for options  exercised.
The net proceeds of $63,750 were used to reduce  existing  debt.  The Company is
obliged to issue another 10,000 shares for options  exercised,  for net proceeds
of $5,000.

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

</TABLE>


                                                                        Page F-5


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - NATURE OF OPERATIONS & BASIS OF PRESENTATION
________________________________________________________________________________

Petrogen  Corp.  ("PTGC" or the "Company")  (formerly  Hadro  Resources,  Inc.),
("Hadro") 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).

On January 20th,  2004, the Company  approved a change in fiscal year end from a
September  30 year-end to a calendar  year-end  of  December  31. The  Company's
decision to change it's year end is intended to assist the  financial  community
in its  analysis  of  the  business  and to  synchronize  the  Company's  fiscal
reporting period with the Securities and Exchange  Commission  required year-end
reserve  reporting  of  December  31. As a result,  these  financial  statements
present the Company's  results of operations  for the  three-month  period ended
December 31, 2003. These  consolidated  financial  statements  should be read in
connection with the audited financial  statements of the Company as at September
30, 2003 and for the period from November 15, 2001  (Inception) to September 30,
2003.

With operations based in Houston,  Texas, PTGC, 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. Contrasting
its traditional exploration and production (E&P) peers, Petrogen follows a lower
risk  exploitation  approach of properties  with a known history of  production.
Petrogen's core strategy is to acquire  interests in proved  developed  reserves
that couple immediate recompletion opportunities with undeveloped upside.

PTGC'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 and the Adams Ranch Field in East Texas.
Since its 2001  inception,  Petrogen 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 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.

As at  December  31,  2003,  the  Company had a working  capital  deficiency  of
$1,034,091  and has  realized  significant  losses from its existing oil and gas
operations.  The  Company's  continuance  of operations is contingent on raising
additional capital, settling its outstanding debts and on the future acquisition
and  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.

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.

CASH AND CASH EQUIVALENTS
The Company considers all liquid investments, with an original maturity of three
months or less when purchased, to be cash equivalents.


                                                                        Page F-6


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
________________________________________________________________________________

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.

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 generally
accepted  accounting  principles  requires  management  to  make  estimates  and
assumptions that affect certain  reported amounts and disclosures.  Accordingly,
actual results could differ from those estimates.

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  Statement of Financial  Accounting  Standards  No. 52,  "Foreign  Currency
Translation",  since the functional currency of the Company is U.S. dollars, the
foreign  currency  financial  statements  of  the  Company's   subsidiaries  are
re-measured into U.S.  dollars.  Monetary assets and liabilities are re-measured
using the  foreign  exchange  rate that  prevailed  at the  balance  sheet date.
Revenue and expenses are translated at weighted average rates of exchange during
the year and  stockholders'  equity  accounts and  furniture  and  equipment are
translated by using historical  exchange rates. Any re-measurement  gain or loss
incurred is reported in the consolidated income statement.

NET EARNINGS (LOSS) PER COMMON SHARE
Basic earnings  (loss) per 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.

For the period from  November 15, 2001  (inception)  to February  11, 2003,  the
weighted average number of common shares  outstanding is deemed to be 7,300,000,
being the number of shares issued by PTGC to effect the reverse  acquisition  of
Petrogen.


                                                                        Page F-7


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________

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 year 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.

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 13:

_____________________________________________________________________________
                                            For the Three        For the Year
                                             Months ended     ended September
                                        December 31, 2003            30, 2003
_____________________________________________________________________________

Net loss as reported                       $ (569,279)         $(1,148,723)

SFAS 123 Additional Compensation
   Expense                                 $ (155,110)         $  (191,580)
                                           _______________________________
Pro forma net loss under SFAS No.
   123                                     $ (724,389)         $(1,340,303)
                                           ===============================
Basic and diluted net loss per
   common share as reported                $    (0.05)         $     (0.13)

Pro forma net loss per common
   share under SFAS No. 123                $    (0.07)         $     (0.15)


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 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.


                                                                        Page F-8


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________

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 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.

RECENT ACCOUNTING PRONOUNCEMENTS
In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal  Activities." Such standard requires costs associated with
exit or disposal activities (including restructurings) to be recognized when the
costs are  incurred,  rather than at a date of commitment to an exit or disposal
plan.  SFAS No. 146 nullifies EITF Issue No. 94-3,  "Liability  Recognition  for
Certain  Employee  Termination  Benefits  and  Other  Costs to Exit an  Activity
(including  Certain Costs Incurred in a  Restructuring)."  Under SFAS No. 146, a
liability  related to an exit or disposal  activity is not recognized until such
liability  has actually been  incurred and becomes  determinable,  whereas under
EITF Issue No. 94-3 a liability  was  recognized at the time of commitment to an
exit or disposal plan. The provisions of this standard are effective for exit or
disposal activities  initiated after December 31, 2002. The adoption of SFAS 146
has not had any  impact  on the  Company's  financial  position  or  results  of
operations.

On April 30, 2003, the FASB issued SFAS No. 149,  "Amendment of Statement 133 on
Derivative  Instruments  and  Hedging  Activities".  SFAS  No.  149  amends  and
clarifies  accounting for derivative  instruments,  including certain derivative
instruments  embedded in other contracts,  and for hedging activities under SFAS
No. 133. The new guidance  amends SFAS No. 133 for decisions made as part of the
Derivatives  Implementation  Group  ("DIG")  process that  effectively  required
amendments  to SFAS No. 133, and decisions  made in  connection  with other FASB
projects   dealing  with   financial   instruments   and  in   connection   with
implementation issues raised in relation to the application of the definition of
a derivative that contains financing components.  In addition, it clarifies when
a derivative  contains a financing  component that warrants special reporting in
the statement of cash flows.  SFAS No. 149 is effective  for  contracts  entered
into or modified  after June 30, 2003 and for hedging  relationships  designated
after June 30, 2003. The Company adopted SFAS 149, as required,  on July 1, 2003
with no material impact on its financial statements.

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 effect the  Company's  financial
position or results of operations.


                                                                        Page F-9


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
________________________________________________________________________________

In  November  2002,  the FASB issued FASB  Interpretation  No. 45,  "Guarantor's
Accounting  for  Disclosure  Requirements  for  Guarantees,  Including  Indirect
Guarantees of Indebtedness of Others,  an  interpretation of FASB Statements No.
5, 57 and 107 and  rescission  of FASB  Interpretation  No.  34,  Disclosure  of
Indirect  Guarantees of Indebtedness of Others" ("FIN 45"). FIN 45 clarifies the
requirements  for a  guarantor's  accounting  for, and  disclosure  of,  certain
guarantees issued and outstanding. It also requires a guarantor to recognize, at
the inception of a guarantee,  a liability for the fair value of the  obligation
undertaken  in issuing the  guarantee.  This  interpretation  also  incorporates
without  reconsideration  the guidance in FASB  Interpretation  No. 34, which is
being  superseded.  The adoption of FIN 45 did not have a material effect on the
Company's financial statements.


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 (Refer to Note 12).

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  accounting,  the  comparative  historical  financial
statements of PTGC, 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 transaction.

Costs associated with the reverse merger totalling  $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  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.

On October 23rd, 2003 the Board of Directors of the Company approved a change in
fiscal year end of the Company  from a calendar  year-end of December  31st to a
year-end  of  September  30th.  The Board of  Directors'  decision to change the
fiscal  year end was  based  upon  consummation  of the share  exchange  and the
resulting  continuation of the corporate  entity PTGC,  which has a September 30
fiscal year end.

On January 20th,  2004, the Company  approved a change in fiscal year end from a
September  30 year-end to a calendar  year-end  of  December  31. The  Company's
decision to change it's year end is intended to assist the  financial  community
in its  analysis  of  the  business  and to  synchronize  the  Company's  fiscal
reporting period with the Securities and Exchange  Commission  required year-end
reserve reporting of December 31.


NOTE 4 - GOING CONCERN
________________________________________________________________________________

Since  inception,  the Company has incurred  cumulative net losses of $1,872,949
and has a  stockholders'  deficit of $906,710 at December 31, 2003.  The Company
expects to continue to incur  substantial  losses to develop  operations  of its
properties,  and does not  expect to attain  profitability  in the near  future.
Since its  inception,  the  Company  has funded  operations  through  short-term
borrowings and equity investments in order to meet its strategic objectives. The
Company's future  operations are dependent upon external funding and its ability
to increase  revenues and reduce expenses.  Management  believes that sufficient
funding will be available from additional  related party  borrowings and private
placements to meet its business objectives, including anticipated cash needs for
working  capital,  for a  reasonable  period of time.  However,  there can be no
assurance that the Company will be able to obtain  sufficient  funds to continue
the development of its properties.


                                                                       Page F-10


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTE 4 - GOING CONCERN (CONTINUED)
________________________________________________________________________________

As a result of the foregoing, there exists substantial doubt about the Company's
ability to continue as a going concern.  These consolidated financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.


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 a floating
charge  debenture in the amount of $75,000,  and issued notes  payable  totaling
$47,145  to  various  lessors  (Refer to Notes 8 and 9). In  addition,  Petrogen
issued  75,000  common  shares for a total  consideration  of $1.  Petrogen also
issued  290,000  common  shares  valued at  $14,500  for  services  provided  in
connection  with oil and gas  properties,  which has been allocated to the Emily
Hawes Field.

During the year ended  September 30, 2003 the notes payable were repaid in full.
To date the Company has capitalized a total of $177,160 of expenditures relating
to this property.

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 a 75% 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  for a period of 18 months (the  "Option
Period").  The agreement  provides  that Petrogen can further  extend the Option
Period by meeting  certain  operational and  development  milestones  within set
periods of time.

Effective  November  12,  2002  Petrogen  completed  its due  diligence  on this
acquisition and the terms of the Letter of Intent became effective.  To date the
Company has  capitalized  a total of $413,413 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  anticipates  that it will  commence
production from the wellbore  immediately  after hooking up all relevant surface
equipment.

ENOS CREEK FIELD, WYOMING

Effective  September  26,  2002,  Petrogen  entered into a Letter of Intent with
Coronado Oil Company (Coronado) of Colorado whereby Petrogen agreed to acquire 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.

Effective  October  31,  2002  Petrogen  completed  its  due  diligence  on this
acquisition and the terms of the Letter of Intent became effective.  To date the
Company  has  capitalized  a total of $99,796 of  expenditures  relating to this
property.


                                                                       Page F-11


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTE 5 - OIL AND GAS PROPERTIES (CONTINUED)
________________________________________________________________________________

S.J. HOOPER #1, MARION COUNTY, MISSISSIPPI

Effective October 25, 2002,  Petrogen entered into a Letter of Intent with Crown
Royalties of Louisiana, Inc. ("CR") of Mississippi, whereby the Company acquired
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.

ADAMS RANCH, TEXAS

Effective November 15, 2003,  Petrogen has been assigned the rights to develop a
75% net revenue  interest  located on  approximately  9,000 acres of undeveloped
acreage on the Adams Ranch prospect in Crockett County, Texas, which consists of
1,530  net  acres of  shallow  development  rights  and  6,750 net acres of deep
development rights.

MATAGORDA ISLAND PIPELINE

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

PIL  thereafter  entered into an assignment  agreement (the  "Assignment")  with
Petrogen,  whereby  PIL  assigned  its  interest  in the Lease to  Petrogen  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.

Additionally,  the Company  entered into a Management  Services  Agreement  with
Roche  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 subsequent  years
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.


NOTE 6 - CONTINGENCIES
________________________________________________________________________________

As a condition  of the  acquisition  of Petrogen as  described  in Note 3, Hadro
agreed to sell all of its  remaining  assets,  being its  interest  in Oak Hills
Energy, Inc. ("Oak Hills") concurrent with completing the acquisition. Effective
February  12, 2003 the  Company  sold 100% of the  outstanding  shares of common
stock of Oak Hills for  consideration of $10 to Newport Capital Corp., a private
Belize company of which an officer was a member of the management  team provided
by Investor Communications, Inc. to the Company.

Hadro was a guarantor of the Oak Hills bank loans.  In accordance with the terms
of the sale of Oak Hills to Newport  Capital Corp.,  and in accordance  with the
terms and conditions of the Petrogen Share Exchange Agreement, Newport agreed to
indemnify the Company against any loss arising from the loan guarantee.

On April 8, 2004, the Oak Hills loans for which the Company was a guarantor were
repaid in full by the borrower,  and the Company guarantee agreements were fully
satisfied and released.


                                                                       Page F-12


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTE 7 - INCOME TAXES
________________________________________________________________________________


The Company and its subsidiary  have tax losses at December 31, 2003,  which may
be  available  to  reduce  future  year's  taxable  income.   These  tax  losses
carryforward will expire, if not utilized,  beginning in 2014. The potential tax
benefit  of these  losses has not been  recorded  as a  full-deferred  tax asset
valuation  allowance  has been  provided due to the  uncertainty  regarding  the
realization of these losses.


NOTE 8 - DEBENTURES PAYABLE
________________________________________________________________________________

DEBENTURE

In  connection  with the Emily Hawes  acquisition  described in Note 5, Petrogen
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). During the
year ended September 30, 2003,  $54,250 of principal was repaid. At December 31,
2003, the Company has accrued $12,811 (September 30, 2003 : $10,828) in interest
in connection with this debenture, resulting in $33,561 owing as at December 31,
2003.


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 the  Memorandum  of  Agreement  between  the Company and certain
debtors. The debenture:  (i) bears interest at 10% per annum payable annually in
arrears;  (ii)  has a term of two  years  from  the  August  18,  2003  (date of
issuance); (iii) is subordinate to bank or lending institutional debt financing;
(iv) is  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) requires monthly payments of $10,000 beginning December 2003.

At December 31,  2003,  the Company has accrued $ 26,681  (September  30, 2003 :
$8,525) in interest in connection with this debenture.  As at December 31, 2003,
the current portion of this debenture is $120,000,  and the long-term portion is
$620,354.


NOTE 9 - NOTE PAYABLE
________________________________________________________________________________

In connection with the Emily Hawes acquisition described in Note 5, Petrogen had
outstanding  loans payable  totaling  $47,145 at September  30, 2002.  Under the
terms of the loan  agreements,  the amounts  owing were  initially  non-interest
bearing  and were due, on August 20,  2002.  Pursuant to the terms of the loans,
the due date was automatically  extended by 90 days, to November 30, 2002, and a
flat interest charge of 10% of the  outstanding  loan balance was incurred since
Petrogen defaulted on the repayment of the loans. Interest of $4,714 was accrued
in  connection  with these loans.  The loans were repaid in full during the year
ended September 30, 2003.

Effective  December 10, 2002 Petrogen  issued a promissory note in the amount of
$35,000 which is unsecured and due on demand. To date,  $10,000 has been repaid.
The note bears  interest at 1% per month,  compounded  monthly.  At December 31,
2003, the Company has accrued  $3,733  (September 30, 2003 : $2,888) in interest
in connection with this note.

On December 9, 2003,  the Company was advanced  $10,000 by way of a demand note.
The note is unsecured, payable on demand, and accrues interest of 10% per annum,
compounded  semi-annually and not in advance.  At December 31, 2003, the Company
has accrued $ 61 in interest in connection with this note.


                                                                       Page F-13


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTE 10 - DEMAND LOAN
________________________________________________________________________________

On August 19, 2003,  the Company was  advanced  $75,000 by way of a demand loan,
which is  unsecured,  non-interest  bearing  and is without  specific  repayment
terms. Refer to Note 14.


NOTE 11 - RELATED PARTY TRANSACTIONS
________________________________________________________________________________

During the period ended December 31, 2003, management fees of $66,000 (September
30, 2003 : $174,145) were incurred to two directors and officers of the Company,
of which $21,000  (September 30, 2003 : $79,500) has been capitalized as oil and
gas development  costs. At December 30, 2003,  these directors are owed $271,483
(September  30, 2003  :$219,735)  for  management  fees due and payments made on
behalf of the Company.  These amounts accrue interest at a rate of 1% per month,
and are without specific  repayment terms. At December 31, 2003, the Company has
accrued  $17,504  (September  30, 2003 :  $11,205) in interest  due to these two
directors.

During the period ended December 31, 2003,  management fees of $7,500 (September
30, 2003 : $0) were incurred to a director of the Company. At December 31, 2003,
this amount was unpaid.

The Company also is owed $10,487  (September  30, 2003:  $10,500) from a company
whose  officer is an officer  of the  Company.  These  advances  are  unsecured,
non-interest bearing and is without specific repayment terms.

Petrogen   retained  a  Drilling  and  Operating   Agreement  (the   "Operator's
Agreement")  entered  into  with  PIL  on  November  15,  2002,  whereby  PIL is
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  is
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
retains  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 continue to be in operation;  however,  effective November
24, 2003 the Company and PIL agreed to terminate  the  Operator's  Agreement and
cancel any future payment and carried interests  originally granted to PIL there
under.  In addition,  PIL agreed to assign to the Company 100% of PIL's  rights,
title  and  interest  in  and to  any  agreements  entered  into  by  PIL  which
specifically  include the farm-in  agreement for the Adams Ranch Field Property.
No  consideration  was paid by either party in connection with the  termination,
cancellations  and assignment  described  above. At December 31, 2003,  $161,315
(September 30, 2003 : $156,315) was incurred to PIL, and $ 73,626 (September 30,
2003 : $77,756) is owing to PIL for work on the  Baxterville  Field,  Enos Creek
Field and S.J. Hooper #1. Refer to Note 5.


NOTE 12 - CAPITAL STOCK
________________________________________________________________________________

COMMON SHARES
On February 12, 2003, pursuant to the terms of the merger agreement, the Company
issued  7,000,000  shares of its restricted  common stock in exchange of all the
outstanding shares of Petrogen, and issued 300,000 shares for finder's fees.

On March 21,  2003,  the Company  issued  1,000,000  shares of common  stock for
options  exercised.  The net proceeds of $500,000  were used to reduce  existing
debt.

On September 29, 2003, the Company issued 235,000 shares for options  exercised.
The net proceeds of $63,750 were used to reduce  existing  debt.  The Company is
obliged to issue another 10,000 shares for options  exercised,  for net proceeds
of $5,000.

On December 12, 2003, the Company  received  $7,500 for options  exercised.  The
Company is obliged to issue 37,500 shares for the exercise of these options.

As at December 31, 2003, 10,613,291 shares were issued and outstanding.


                                                                       Page F-14


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


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 PTGC 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 period  ended  December 31,  2003,  47,430 of the  warrants  expired,
resulting in a charge to additional paid in capital of $101,500.

 The following table lists the exercise prices and expiry dates of the warrants.

                                           _____________________________
                                           Weighted         Weighted
                                           Average          Average
 Balance at        Expiry     Exercise     Exercise        Remaining
Dec. 30, 2003       date       Price        Price       Contractual Life
_______________________________________________________________________

  14,822          29-Oct-04     0.40

  11,857          22-Jun-04     0.80

  18,972          09-Aug-04     0.80

  29,643          13-Nov-04     0.40

  29,643          13-Nov-04     0.40

  14,822          14-Nov-04     0.40       ________     _______________

 119,759                                    $ 0.50        0.79 years
________                                   ________     _______________


                                                                       Page F-15


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTE 13 - STOCK OPTION PLAN
________________________________________________________________________________

On October 15, 2002,  the Board of Directors of Hadro approved the adoption of a
new  incentive  stock option plan.  The plan  provides 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 2,000,000 shares. As per the
terms of the merger  agreement,  on  February  12,  2003,  the  Company  granted
2,000,000 options at $0.50,  under the Stock Option Plan to the previous holders
of options in Petrogen to replace the options previously granted by Petrogen.

The Company  accounts for  stock-based  employee  compensation  arrangements  in
accordance  with the provisions of Accounting  Principles  Board Opinion No. 25,
ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES,  ("APB No. 25") and complies with SFAS
No. 123 ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123").

In accordance with accounting  principles  applicable to accounting for business
combinations,  the fair value of the stock options  granted in connection with a
business combination is included in the determination of the purchase price. The
fair value of these  options at the date of grant of  $4,660,000  was  estimated
using the  Black-Scholes  option-pricing  model with an  expected  life of three
years, a risk-free interest rate of 3% and an expected volatility of 210%.

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,  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  September  30,  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 15,000
have  vested at December  31, 2003  (September  30, 2003 : NIL).  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 450,000 were subject to vesting on a straight-line  basis over
12 months,  of which  124,003  have vested at December 31, 2003  (September  30,
2003:  11,000).  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 25. This intrinsic  value
will be expensed as the underlying stock options vest. As at September 30, 2003,
$16,830 of this intrinsic  value has been expensed,  a further $515 was expensed
to December 31, 2003 and a further $1,105 related to cancelled  unvested options
was never 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 $191,580 was reported
in the year ended  September 30, 2003,  $24,600 was reported in the period ended
December  31, 2003 and  $19,660  related to  cancelled,  unvested  options.  The
remaining $68,860 will be reported 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  $360,400 of which $345,600 was recorded to September 30, 2003,  $3,700
to December  31,  2003,  and the  remaining  $11,100  will be recorded  upon the
vesting of the underlying stock options.

On September 29, 2003, the Company issued 235,000 shares for options  exercised.
The net proceeds of $63,750 were used to reduce existing debt.


                                                                       Page F-16


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTE 13 - STOCK OPTION PLAN (CONTINUED)
________________________________________________________________________________

On November 1, 2003,  the Board of Directors of the Company  ratified,  approved
and  confirmed  the  adoption of a further  amendment  to the Stock Option Plan,
which provides for the grant of up to 10,000,000 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 20,000 have vested at December
31, 2003.

Certain of the stock options granted to employees  during the three month period
ended  December 31, 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 $12,000 as determined  in  accordance  with APB 25 which was
expensed as at December 31, 2003 upon vesting of the options.

In  accordance  with the  provisions  of SFAS 123, with respect to stock options
granted to employees,  pro-forma stock based  compensation  totaling $382,600 of
which  $130,510 was  disclosed to December 31, 2003 and the  remaining  $252,090
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 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%.

As at December 31, 2003  8,000,000  options  have been  granted  under the stock
option plan. 1,245,000 options have been exercised for net proceeds of $568,750.
1,235,000  common  shares have been issued,  and the Company is obliged to issue
another 10,000 shares. As December 31, 2003,  5,631,000 options were outstanding
of which  3,419,003 were vested.  The Company also received $7,500 as an advance
payment  for options  that were  exercised  subsequent  to  December  31,  2003.
Therefore, the Company is obliged to issue another 37,500 shares.

The Company has completed S-8 Registration  Statements  registering an aggregate
of  13,200,000 of the Company's  common shares  pursuant to the Company's  stock
option plan as follows: February 12, 2003 - 2,000,000 shares; September 12, 2003
-  2,800,000  shares;  November  2,  2003 -  3,200,000  shares;  March 4, 2004 -
5,000,000 shares.

A summary of the  Company's  stock  options as of December  31, 2003 and changes
during the period is presented below:


                                                                       Page F-17


<PAGE>


                                  Notes to the Consolidated Financial Statements
                                                               December 31, 2003


NOTE 13 - STOCK OPTION PLAN (CONTINUED)
________________________________________________________________________________

<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
                               ==========                                                 ======        ==========

</TABLE>


NOTE 14 - SUBSEQUENT EVENTS
________________________________________________________________________________

     o On January 7th,  2004,  The Company  issued  200,000 shares of its common
       stock  to a  director  of the  Company  for  options  exercised.  The net
       proceeds of $ 40,000  were  utilized  to reduce  existing  debt with this
       director;
     o On January 20th,  2004,  the Company  issued 375,000 shares of its common
       stock to various option holders for options  exercised.  Of the total net
       proceeds of $76,000,  $15,000 was utilized to reduce  existing  debt with
       these options holders;
     o On February 11th, 2004, the Company issued 1,645,000 shares of its common
       stock to various option holders for options  exercised.  Of the total net
       proceeds of $387,500,  $232,500 was utilized to reduce existing debt with
       these option holders
     o On  March 4,  2004,  the  Company  granted  5,000,000  stock  options  to
       consultants, officers and directors of the Company; On March 4, 2004, the
       Company  granted  5,000,000  Stock Options to  consultants,  officers and
       directors of the Company,  as follows:  (i)  1,675,000  Stock  Options at
       $0.25 per share  expiring  March 4, 2007 to the  officers,  directors and
       consultants of the Company; (ii) 840,000 Stock Options at $0.25 per share
       expiring March 4, 2014 to the officers,  directors and consultants of the
       Company;  (iii) 1,750,000 Stock Options at $0.50 per share expiring March
       4, 2007 to the officers,  directors and consultants of the Company;  (iv)
       360,000  Stock Options at $0.50 per share  expiring  March 4, 2014 to the
       officers,  directors and  consultants  of the Company;  (v) 250,000 Stock
       Options at $0.75 per share  expiring  March 4, 2007 to consultants of the
       Company,  and;  (vi) 125,000  Stock  Options at $0.75 per share  expiring
       March 4, 2014 to a consultant of the Company;
     o Between  January  1  2004  and  March  31,  2004,  the  Company  received
       approximately $1,196,000 in advances from non-related parties. There are
       currently no specific terms for repayment of these advances, which are
       subject to further negotiations.
     o On April 8,  2004,  the  Oak Hills  loans  for which  the  company  was a
       guarantor were repaid in full by the borrower,  and the Company guarantee
       agreements were fully satisfied and released.


                                                                       Page F-18


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


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

The Company's  principal  independent  accountant from March 2001 to the current
date is LaBonte & Co., #610 - 938 Howe Street,  Vancouver,  British Columbia V6Z
1N9.  Effective  January  1,  2004,  LaBonte & Co.  merged  with  Dale  Matheson
Carr-Hilton  Chartered  Accountants  pursuant to which the name of the Company's
principal  independent  accountant changed to Dale Matheson  Carr-Hilton LaBonte
("DMCL").  DMCL's  address  will  remain at #610,  938 Howe  Street,  Vancouver,
British  Columbia until  approximately  mid-summer of 2004.  Thereafter,  DMCL's
address  will be #1700,  1140 West  Pender  St.,  Vancouver,  British  Columbia,
Canada.

ITEM 8A. CONTROLS AND PROCEDURES

The Company, under the supervision of the President, has conducted an evaluation
of the  effectiveness  of the design and operation of the  Company's  disclosure
controls  and  procedures  within  ninety  (90) days of the filing  date of this
Annual Report.  Based upon the results of this evaluation,  the Company believes
that they maintain proper procedures for gathering, analyzing and disclosing all
information  in a timely fashion that is required to be disclosed in its reports
under the  Securities  Exchange  Act of 1934,  as  amended.  There  have been no
significant changes in the Company's controls subsequent to the evaluation date.

There were no significant  changes in the Company's internal control or in other
factors  that  could  significantly   affect  the  Company's  internal  controls
subsequent to the evaluation date.


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

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

         NAME             AGE       POSITION

Neville M. Henry          53        President

Sacha H. Spindler         41        Chief Executive Officer
                                    and Chairman/Director

L. William Kerrigan       48        Executive Vice President/
                                    Chief Financial Officer/
                                    Secretary and Director

Timothy G. Russell        62        Director


                                                                         Page 34


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


Biographies of the Executive Officers/Directors

NEVILLE M. HENRY is the  President  of the  Company.  Mr. Henry will develop and
implement tactical execution of the Company's day-to-day business operations and
growth  strategy.   During  the  past  thirty  years,  Mr.  Henry  has  acquired
considerable  operational  expertise  and  knowledge  within  the  oil  and  gas
industry,   which  includes   involvement  in  the  location,   acquisition  and
development of over four billion barrels of oil throughout his career.  Prior to
Mr.  Henry's  appointment  as President  of the Company,  Mr. Henry held several
senior management positions for over twelve years with Anadarko Petroleum,  most
notably manager of international  exploration and manager of worldwide  business
development. Prior to Mr. Henry's association with Anadarko Petroleum, Mr. Henry
was employed at Adobe Petroleum,  Marathon Oil and Unocal Corporation. Mr. Henry
has a B.A. in Geology from  Macquarie  University  (Sydney,  Australia) and is a
graduate  of  the  International  Executive  Management  Program  from  Columbia
University.

SACHA H.  SPINDLER  is the  Chairman  of the  Board,  a  Director  and the Chief
Executive Officer of the Company. 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
the Company as its  President and CEO,  ensuring a long-term  vision of creating
value through focused commitment and responsible company building methodologies.

L.  WILLIAM   KERRIGAN  is  the   Executive   Vice   President/Chief   Financial
Officer/Secretary  and a director of the Company. Mr. Kerrigan was the executive
vice  president,  chief  operating  officer  and a  director  of  Petrogen.  Mr.
Kerrigan,  as a co-founder  of  Petrogen,  provides the Company with a broad and
practical  knowledge of the Oil and Gas business in North  America and Central &
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 a director of the Company.  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.


                                                                         Page 35


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


Involvement in Certain Legal Proceedings

As of the date of this Annual  Report,  no director or executive  officer of the
Company  is or has 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)  within the past five years;  (iii) being
subject to any order,  judgment or decree 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,  the Company has not appointed  members to
an audit committee and, therefore, the respective role of an audit committee has
been conducted by the Board of Directors of the Company.  When established,  the
audit committee's primary function will be to provide advice with respect to the
Company's  financial  matters and to assist the 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 the Company's
financial  reporting  process  and  internal  control  system;  (ii)  review and
appraise  the audit  efforts of the  Company's  independent  accountants;  (iii)
evaluate the Company's quarterly financial performance as well as its 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
the 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,  the Board of Directors of the Company has
determined  that the Company does not have an audit committee  financial  expert
nor does the Company 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 the
Company's directors and officers, and the persons who beneficially own more than
ten percent of the Common Stock of the Company, 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 the Company pursuant to Rule 16a-3
promulgated  under the Exchange Act. Based solely on the reports received by the
Company  and on  the  representations  of the  reporting  persons,  the  Company
believes  that  these  persons  have   complied  with  all   applicable   filing
requirements during the fiscal year ended December 31, 2003.


                                                                         Page 36


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


ITEM 10. EXECUTIVE COMPENSATION

COMPENSATION OF OFFICERS AND DIRECTORS

As of the date of this Annual  Report,  none of the directors or officers of the
Company are  compensated  for their roles as directors  or  executive  officers.
However, as of the date of this Annual Report,  Messrs.  Spindler,  Kerrigan and
Henry  derive  remuneration  from the  Company as  compensation  for  consulting
services  rendered.  Officers and directors of the Company may be reimbursed for
any  out-of-pocket  expenses  incurred  by them on  behalf of the  Company.  The
Company presently has no pension, health, annuity,  insurance, profit sharing or
similar benefit plans.

Mr.  Spindler,  a  director  and the Chief  Executive  Officer  of the  Company,
currently invoices the Company $15,000 per month, plus expenses. During the year
ended  December  31, 2003 $45,000 was accrued for such monthly fees for services
rendered to the Company and to Petrogen,  which commenced September 2001. Of the
$45,000,  approximately  $19,750 is due and owing by the Company to Mr. Spindler
as at December 31, 2003.  Furthermore,  Mr.  Spindler has advanced  funds to the
Company,  and incurred  expenses on behalf of the  Company.  These  amounts,  in
addition to the  consulting  fees owed,  accrue 1% interest  per month,  and are
without specific  repayment  terms.  During fiscal year ended December 31, 2003,
the Company paid $25,250 to Mr.  Spindler for  consulting  fess,  and $5,027 for
reimbursement  of expenses.  Therefore,  at December 31, 2003, Mr.  Spindler was
owed approximately $103,794 for advances,  consulting fees and accrued interest.
As of the date of this Annual  Report,  Mr.  Spindler  exercised  625,000  Stock
Options for aggregate proceeds of $258,750, which amount was utilized to off-set
the aggregate amounts due and owing to Mr. Spindler.

Mr.  Kerrigan,  the Executive Vice President and Chief Financial  Officer of the
Company,  currently  invoices the Company  $7,000.00 per month (plus  expenses).
During the year ended  December 31,  2003,  $21,000 was accrued for such monthly
fees for  services  rendered  to the Company and to  Petrogen,  which  commenced
September  2001. Of the $21,000,  approximately  $18,000 is due and owing by the
Company to Mr. Kerrigan as at December 31, 2003.  Furthermore,  Mr. Kerrigan has
advanced funds to the Company,  and incurred  expenses on behalf of the Company.
These amounts,  in addition to the consulting fees owed,  accrue 1% interest per
month,  and are  without  specific  repayment  terms.  During  fiscal year ended
December 31, 2003, the Company paid $3,000 to Mr. Kerrigan for consulting  fees.
Therefore,  at December 31, 2003, Mr. Kerrigan was owed  approximately  $185,193
for advances,  consulting fees and accrued interest.  See "Summary  Compensation
Table"  below.  As of the date of this Annual  Report,  Mr.  Kerrigan  exercised
325,000  Stock  Options for  aggregate  proceeds of  $93,750,  which  amount was
utilized to off-set the aggregate amounts due and owing to Mr. Kerrigan.

Henry Consulting Agreement

On November 18, 2003 and effective  January 1, 2004,  the Company,  Petrogen and
Neville M. Henry,  the  President  of the  Company,  entered  into a  management
consulting  services agreement (the "Henry Consulting  Agreement").  Pursuant to
the terms and provisions of the Henry Consulting Agreement, Mr. Henry has agreed
to provide  operational,  managerial  and  consulting  services  to the  Company
consistent  with his position as  President of the Company.  Pursuant to further
terms and provisions of the Henry Consulting  Agreement,  the Company shall: (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, and provided that only  $10,000.00 of the Fee shall actually be
paid monthly by the Company to Mr.  Henry,  with the balance of each monthly fee
being accrued  without  interest until such time as the Company is 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) reimburse certain expenses.

During  fiscal year ended  December 31, 2003,  no fees were  incurred to Neville
Henry as his contract is effective January 1, 2004.


                                                                         Page 37

<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


<TABLE>
<CAPTION>


Summary Compensation Table

                                           Annual Compensation                Awards              Payouts
                                       ____________________________      _________________    _______________
Name and Position            Year      Salary$    Bonus$     Other$      RSA$     Options#    LTIP$    Other$
_____________________________________________________________________________________________________________
<S>                            <C>       <C>        <C>           <C>     <C>            <C>    <C>      <C>

Sacha Spindler                 2000      0          0             0       0              0      0        0
Director/CEO                   2001      0          0       $26,000       0              0      0        0
                               2002      0          0       $78,000       0              0      0        0
                            09/2003      0          0       $94,645       0      1,000,000*     0        0
                            12/2003      0          0       $45,000/1     0        250,000*     0        0

William Kerrigan               2000      0          0             0       0              0      0        0
Exec. Vice President and       2001      0          0       $25,000       0              0      0        0
Director                       2002      0          0       $75,000       0              0      0        0
                            09/2003      0          0       $79,500       0        625,000*     0        0
                            12/2003      0          0       $21,000/2     0         50,000*     0        0

Neville M. Henry            09/2003     N/A         0             0       0              0      0        0
President                   12/2003     N/A         0             0       0      1,400,000*     0        0

Timothy G. Russell          09/2003      0          0             0       0        358,000*     0        0
Director                    12/2003      0          0       $ 7,500/3     0              0      0        0

Grant Atkins                   2000      0          0             0       0              0      0        0

Prior Director                 2001      0          0             0       0              0      0        0
                               2002      0          0       $18,500       0              0      0        0
                            09/2003      0          0       $19,625/4     0              0      0        0
                            12/2003     N/A         0

</TABLE>


*See "Item 10. Executive  Compensation - Stock Option Plan - Options/SAR  Grants
Table" below.

     (1) Amounts  reflected  are the  accrual  of  compensation  to be  received
       pursuant to monthly  amounts  invoiced  by Mr.  Spindler  for  consulting
       services performed, of which $25,250 has been received by Mr. Spindler;
     (2) Amounts  reflected  are the  accrual  of  compensation  to be  received
       pursuant to monthly  amounts  invoiced  by Mr.  Kerrigan  for  consulting
       services performed, of which $3,000 has been received by Mr. Kerrigan;
     (3) Amounts  reflected  are the  accrual  of  compensation  to be  received
       pursuant  to monthly  amounts  invoiced  by Mr.  Russell  for  consulting
       services performed, of which $ - NIL - has been received by Mr. Russell;
     (4) Grant Atkins indirectly received  compensation from the Company through
       the previous contractual relationship between the Company and ICI;


                                                                         Page 38


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


STOCK OPTION PLAN

As of the date of this Annual Report, there are an aggregate of 13,000,000 stock
options  granted.  Stock options granted to executive  officers and directors of
the Company 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.

Options/SAR Grants Table


                     Number of     Percent of
                     Securities      Total
                     Underlying     Options       Exercise      Date of
Name                  Options       Granted        Price       Expiration
_________________________________________________________________________

Sacha Spindler          500,000                    $ 0.50      12-Feb-06
                        325,000                      0.25      10-Sep-06
                        175,000                      0.50      10-Sep-06
                        200,000                      0.20      01-Nov-08
                         50,000                      0.25      01-Nov-08
                        365,000                      0.25      04-Mar-14
                        260,000                      0.50      04-Mar-14
                      _________
               Total  1,875,000/1    14.42%

William Kerrigan        300,000                    $ 0.50      12-Feb-06
                        225,000                      0.25      10-Sep-06
                        100,000                      0.50      10-Sep-06
                         50,000                      0.25      01-Nov-08
                        300,000                      0.25      04-Mar-14
                      _________
               Total    975,000/1     7.50%

Neville Henry           100,000                    $ 0.20      01-Nov-08
                        700,000/2                    0.25      01-Nov-08
                        600,000/2                    0.25      01-Nov-13
                      _________
               Total  1,400,000/1    10.77%

Timothy Russell          18,000                    $ 0.50      12-Feb-06
                         40,000/3                    0.25      10-Sep-06
                         50,000/3                    0.50      10-Sep-06
                        250,000/3                    0.75      10-Sep-06
                         50,000                      0.50      04-Mar-07
                      _________
               Total    408,000/1     3.14%

Total                 4,658,000/1    35.83%


                                                                         Page 39


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


(1)           Calculated upon an aggregate  13,000,000  Stock Options granted as
              of the date of this  Annual  Report  and  assuming  that all Stock
              Options will vest accordingly;

(2)           Of the 1,400,000 Stock Options  granted to Mr. Henry:  (i) 600,000
              Stock Options vest over a sixty-month  period commencing  December
              1, 2003 (of which 50,000 Stock  Options  exercisable  at $0.25 per
              share expiring November 1, 2013 have vested as of the date of this
              Annual  Report);  and  (ii)  600,000  Stock  Options  vest  over a
              sixty-month  period commencing  December 1, 2003 with cancellation
              twelve  months from each  vesting  period (of which  50,000  Stock
              Options  exercisable at $0.25 per share expiring  November 1, 2008
              have vested as of the date of this Annual Report);

(3)           Of the 358,000 Stock Options  granted to Mr.  Russell:  (i) 18,000
              Stock  Options  vested upon grant;  (ii) 40,000 Stock Options vest
              over a twelve-month  period commencing  October 10, 2003 (of which
              23,335  Stock  Options  exercisable  at $0.25 per  share  expiring
              September  10,  2006  have  vested  as of the date of this  Annual
              Report); (ii) 50,000 Stock Options vest over a twelve-month period
              commencing  October  10,  2003 10,  2003 (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  October
              10, 2003 (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


                                                 Number of       Value of
                      Shares                    securities     Unexercised
                    Acquired on      Value      underlying     in-the-money
Name                 Exercise       Realised    Unexercised      Options
____________________________________________________________________________

Sacha Spindler      625,000/1       $(1,150)     1,250,000         n/a

William Kerrigan    325,000/2       $(5,150)       650,000         n/a

Timothy Russell      40,000/3       $   800        368,000         n/a

Neville Henry       240,000/4       $ 9,800      1,160,000         n/a

(1)           Pursuant to certain Notices and Agreements of Option, Mr. Spindler
              exercised an aggregate  625,000 Stock  Options to acquire  625,000
              shares of the Common  Stock of the Company as follows:  (i) 10,000
              Stock Options were  exercised on September 23, 2003 at an exercise
              price of $0.50 per share; (ii) 90,000 Stock Options were exercised
              on  September  29, 2003 at an  exercise  price of $0.25 per share;
              (iii) 200,000 Stock Options were  exercised on January 14, 2004 at
              an exercise  price of $0.20 per share;  (iv) 285,000 Stock Options
              were  exercised on February 11, 2004 at an exercise price of $0.25
              per share; and (v) 40,000 Stock Options were exercised on February
              11,  2004 at an exercise  price of $0.50 per share.  Based upon an
              average  trading  price of $0.22 on September 23, 2003, an average
              trading price of $0.285 on September 29, 2003, an average  trading
              price of $0.21 on January 14, 2004 and an average trading price of
              $0.27 on February 11, 2004, Mr. Spindler realized an aggregate net
              value of approximately $(1,150);


                                                                         Page 40


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


(2)           Pursuant to certain Notices and Agreements of Option, Mr. Kerrigan
              exercised an aggregate  325,000 Stock  Options to acquire  325,000
              shares of the Common  Stock of the Company as follows:  (i) 10,000
              Stock Options were  exercised on September 23, 2003 at an exercise
              price of $0.50 per share; (ii) 90,000 Stock Options were exercised
              on  September  29, 2003 at an  exercise  price of $0.25 per share;
              (iii) 185,000 Stock Options were exercised on February 11, 2004 at
              an  exercise  price of $0.25  per  share;  and (iv)  40,000  Stock
              Options were  exercised on February 11, 2004 at an exercise  price
              of $0.50 per share.  Based upon an average  trading price of $0.22
              on  September  23,  2003,  an average  trading  price of $0.285 on
              September  29,  2003  and an  average  trading  price  of $0.27 on
              February 11, 2004, Mr. Kerrigan realized an aggregate net value of
              approximately $(5,150);
(3)           Pursuant to certain Notice and  Agreements of Option,  Mr. Russell
              exercised an  aggregate  40,000  Stock  Options to acquire  40,000
              shares of the Common  Stock of the Company 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
              $0.27 on February 11, 2004, Mr. Russell  realized an aggregate net
              value of approximately $800;
(4)           Pursuant to certain  Notices and  Agreements of Option,  Mr. Henry
              exercised an aggregate  240,000 Stock  Options to acquire  240,000
              shares of the Common Stock of the Company as follows:  (i) 140,000
              Stock  Options were  exercised on February 11, 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 $0.27 on February
              11,  2004,   Mr.  Henry   realized  an  aggregate   net  value  of
              approximately $(9,800).


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

The  following  table  sets forth the name and  address,  as of the date of this
Annual  Report,  and the  approximate  number of  shares of Common  Stock of the
Company owned of record or beneficially  by each person who owned of record,  or
was known by the Company to own beneficially, more than five percent (5%) of the
Company's  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.

As of the date of this  Annual  Report,  there are  12,833,291  shares of Common
Stock issued and outstanding.


                                                                         Page 41


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


                                                   Amount and
                                                   Nature of
                  Name and Address of              beneficial    Percent of
Title of Class     Beneficial Owner                Ownership       Class
___________________________________________________________________________

Common Stock      Sacha H. Spindler/1               4,608,834      28.34%
                  Suite 310-2000 South Dairy
                  Ashford, Houston, TX 77077

Common Stock      L. William Kerrigan/2             3,322,532      20.43%
                  3130 Caldwell Road
                  Ashland City, Tenessee
                  37015

Common Stock      Neville M. Henry/3                1,400,000       8.61%
                  3200 Soutwest Freeway
                  Suite 3300
                  Houston, Texas 77027

Common Stock      Timothy G. Russell/5                430,233       2.65%
                  3200 Soutwest Freeway
                  Suite 3300
                  Houston, Texas 77027

Common Stock      Petrogen International/5          1,695,000      10.42%
                  3200 Soutwest Freeway
                  Suite 3300
                  Houston, Texas 77027

Common Stock      All officers and directors as     9,761,599      60.03%
                  a group (4 persons)


     (1) This  figure  includes  2,378,884  restricted  shares of common  stock.
       Includes the  assumption  of the exercise of 1,250,000  Stock  Options to
       acquire 1,250,000 shares of Common Stock;
     (2) This  figure  includes  2,197,932  restricted  shares of common  stock.
       Includes the  assumption  of the exercise of 1,150,000  Stock  Options to
       acquire 1,150,000 shares of Common Stock;
     (3) This figure  includes the assumption of the exercise of 1,160,000 Stock
       Options to acquire  1,160,000  shares of Common Stock.  As of the date of
       this Annual Report, an aggregate of 60,000 Stock Options have vested.
     (4) This figure  includes the  assumption of the exercise by Mr. Russell of
       368,000 Stock Options to acquire  368,000  shares of Common Stock.  As of
       the date of this Annual  Report,  an aggregate of 266,335  Stock  Options
       have vested.
     (5) These shares are restricted common shares.


                                                                         Page 42


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

As of the date of this Annual  Report,  Messrs.  Spindler  and  Kerrigan  derive
remuneration from the Company as compensation for consulting  services rendered.
During the year ended  December  31, 2003  $45,000 was accrued for such  monthly
fees for  services  rendered  to the Company and to  Petrogen,  which  commenced
September  2001. Of the $45,000,  approximately  $19,750 is due and owing by the
Company to Mr. Spindler as at December 31, 2003.  Furthermore,  Mr. Spindler has
advanced funds to the Company,  and incurred  expenses on behalf of the Company.
These amounts,  in addition to the consulting fees awed,  accrue 1% interest per
month, and are without  specific  repayment  terms.  Therefore,  at December 31,
2003, Mr. Spindler was owed approximately $103,794 for advances, consulting fees
and  accrued  interest.  As of the  date of this  Annual  Report,  Mr.  Spindler
exercised 625,000 Stock Options for aggregate proceeds of $258,750, which amount
was utilized to off-set the aggregate amounts due and owing to Mr. Spindler.

Mr.  Kerrigan,  the  Executive  Vice  President/Chief  Financial  Officer  and a
director of the  Company,  currently  invoices the Company  $7,000.00  per month
(plus  expenses).  During the year ended December 31, 2003,  $21,000 was accrued
for such  monthly  fees for  services  rendered to the Company and to  Petrogen,
which commenced September 2001. Of the $21,000, approximately $18,000 is due and
owing by the Company to Mr. Kerrigan as at December 31, 2003.  Furthermore,  Mr.
Kerrigan has advanced funds to the Company,  and incurred  expenses on behalf of
the Company.  These amounts,  in addition to the consulting fees owed, accrue 1%
interest per month, and are without  specific  repayment  terms.  Therefore,  at
December 31, 2003, Mr.  Kerrigan was owed  approximately  $185,193 for advances,
consulting fees and accrued interest.  As of the date of this Annual Report, Mr.
Kerrigan  exercised  325,000 Stock  Options for  aggregate  proceeds of $93,750,
which amount was utilized to off-set the aggregate  amounts due and owing to Mr.
Kerrigan.

HENRY CONSULTING AGREEMENT

On November  18th,  2003 the Company and Neville  Henry,  the  President  of the
Company,  have  agreed  to  certain  terms in regard  to the  consummation  of a
management  consulting  services agreement to be made effective as at January 1,
2004 (the "Henry Consulting Agreement"). Pursuant to the terms and provisions of
the Henry Consulting  Agreement  currently under negotiation between the Company
and Mr.  Henry,  Mr.  Henry has agreed to provide  operational,  managerial  and
consulting  services to the Company consistent with his position as President of
the Company.  Pursuant to further terms and  provisions of the Henry  Consulting
Agreement  currently under  negotiation  between the Company and Mr. Henry,  the
Company  shall:  (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,  and provided  that only  $10,000.00 of the Fee
shall actually be paid monthly by the Company to Mr. Henry,  with the balance of
each monthly fee being accrued  without  interest until such time as the Company
is 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)  reimburse  certain
expenses.

The  officers  and  directors  of the Company  are 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.  The


                                                                         Page 43


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


directors  of the Company 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 the Company  and its  directors.  Such
conflicts  can be resolved  through the  exercise by the  directors  of judgment
consistent  with  their  fiduciary  duties  to the  Company.  The  officers  and
directors of the Company  intend to resolve such conflicts in the best interests
of the Company. The officers and directors will devote their time to the affairs
of the Company as necessary.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Section  78.7502  of  the  Nevada  Revised  Statutes  contains   provisions  for
indemnification  of the  officers  and  directors  of the  Company.  Nevada  law
provides for  indemnification  (which may eliminate any personal  liability of a
director  to the  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.

The officers and directors of the Company are accountable to the shareholders of
the Company as fiduciaries, which means such officers and directors are required
to exercise good faith and integrity in handling the Company's affairs.

A shareholder may be able to institute legal action on behalf of himself and all
other similarly  situated  shareholders to recover damages where the Company has
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 in the Company due to a
breach  of a  fiduciary  duty  by an  officer  or  director  of the  Company  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 the Company.

Insofar as indemnification  for liabilities arising under the Securities Act may
be  permitted to  directors,  officers  and  controlling  persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has 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 the Company of expenses  incurred or paid by a director,  officer
or controlling  person of the Company 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,  the Company 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.

The Company has no agreements  with any of its  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 a director or
executive officers of the Company as to which indemnification is being sought.


                                                                         Page 44


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.

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

                   2.1  Share Exchange Agreement Among the Shareholders of
                        Petrogen Inc., Petrogen Inc. and Hadro Resources, Inc.;

                   10.1 Drilling and Operating Agreement between Petrogen Corp.
                        and Petrogen International Ltd., dated November 15, 2002

                   10.2 Termination of Drilling and Operating Agreement, dated
                        November 15, 2003;

                   10.3 Stock Option Plan of Petrogen Corp., dated March 5,
                        2004;

                   10.4 Memorandum of understanding between Adams Fees
                        Properties, Inc., and Petrogen International Ltd., dated
                        September 3, 2003;

                   10.5 Memorandum of understanding between Adams Fees
                        Properties, Inc., and Petrogen International Ltd., dated
                        August 4, 2003;

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

                   31.2 Certification of Chief Financial Officer Pursuant to
                        Rule 13a-14(a) or 15d-14(a).

                   32.1 Certifications Under Section 1350 as Adopted Pursuant to
                        Section 906 of theSarbanes -Oxley Act.

                   32.1 Certifications Under Section 1350 as Adopted Pursuant to
                        Section 906 of the Sarbanes -Oxley Act.

              (b) Reports on Form 8-K:

                 (i) 8-K  Report  filed on  February  19,  2003 -
                     Item 1.  Changes  in Control of Registrant.

                (ii) 8-K Report filed on August 14, 2003 -
                     Item 5. Other Events and Regulation FD Disclosure.


ITEM 14. PROFESSIONAL ACCOUNTANT FEES AND SERVICES

Audit Fees

During fiscal year ended December 31, 2003, the Company  incurred  approximately
$7,500 in fees to its principal independent accountant for professional services
rendered in connection with the audit of the Company's financial  statements for
fiscal year ended December 31, 2003.


                                                                         Page 45


<PAGE>


                                                                     FORM 10-KSB
                                                               December 31, 2003


Financial Information Systems Design and Implementation Fees

During fiscal year ended  December 31, 2003,  the Company did not incur any fees
for professional services rendered by its principal  independent  accountant for
certain information  technology  services which may include,  but is not limited
to, operating or supervising or managing the Company's 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, 2003, the Company did not incur any other
fees for professional services rendered by its 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, 2004       By:  /s/ Sacha H. Spindler
                                 ______________________________________________
                                   Sacha H. Spindler, Chief Executive Officer


Dated: April 14, 2004      By: /s/ L. William Kerrigan
                               ________________________________________________
                                   L. William Kerrigan, Executive Vice President


                                                                         Page 46