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

        For the fiscal year ended September 30, 2003

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

      For the transition period from January 1, 2003 to September 30, 2003

                         Commission file number 0-25579

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

         NEVADA                                                 87-0571853
_______________________________                             ___________________
(State or other jurisdiction of                              (I.R.S. Employer
incorporation of organization)                              Identification No.)

                       3200 Southwest Freeway, Suite 3300
                              Houston, Texas 77027
                    ________________________________________
                    (Address of Principal Executive Offices)

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


                                       n/a
              ____________________________________________________
              (Former name, former address and former fiscal year,
                          if changed since last report)


     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
September 30, 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 December 31, 2003: $378,849.80.

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

Class                                    Outstanding as of January 5, 2004

Common Stock, $.001 par value            10,613,291


<PAGE>


INDEX

ITEM 1. DESCRIPTION OF BUSINESS

ITEM 2. DESCRIPTION OF PROPERTY

ITEM 3. LEGAL PROCEEDINGS

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

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
           MATTERS

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

ITEM 7. FINANCIAL STATEMENTS

        AUDITOR'S REPORT

        CONSOLIDATED BALANCE SHEETS

        CONSOLIDATED STATEMENTS OF OPERATIONS

        CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)

        CONSOLIDATED STATEMENTS OF CASH FLOWS

        NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

ITEM 10.EXECUTIVE COMPENSATION

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

ITEM 12.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 13.EXHIBITS AND REPORTS ON FORM 8-K

ITEM 14. CONTROLS AND PROCEDURES

SIGNATURES


<PAGE>


PART I

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 and Berlin Stock Exchanges 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.  Contrasting its traditional  exploration and production (E&P) peers, the
Company  follows a lower risk  exploitation  approach of properties with a known
history of production.  The Company's  core strategy is to acquire  interests in
proved developed reserves that couple immediate recompletion  opportunities with
undeveloped upside.

         The Company's  principal  geographic  areas of focus lie in the Gulf of
Mexico,  Rocky Mountains and Permian Basin regions,  with core assets  presently
located in the Baxterville  Field in southern  Mississippi,  Enos Creek Field in
central  Wyoming and Emily Hawes Field in southern  Texas.  Since its inception,
the Company has acquired interests in three properties spanning over 3,100 acres
with what management  estimates to be net proven reserves of approximately  31.0
billion cubic feet  equivalent  (Bcfe).  Management  also estimates  there is an
additional  14.0 Bcfe of net "probable"  reserves that can potentially be tapped
longer term with targeted exploration efforts.


<PAGE>

         On November 15, 2002,  Petrogen  entered into a drilling and  operating
agreement with Petrogen  International Inc , 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 Agreement  ("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.  On January 7, 2004,  the Company  announced  that Petrogen
International  and the Company had agreed to amend the  Operating  agreement and
enter into an associated  assignment  agreement  pursuant to which: (i) Petrogen
International will assign to the Company all of its assets consisting of certain
oil and gas properties; (ii) Petrogen International will terminate the operating
agreement  pursuant to which it was the  exclusive  operator to all such oil and
gas assets;  (iii)  Petrogen  International  will  terminate a ten percent (10%)
carried interest in and to such oil and gas assets,  which included  termination
of the right to charge an  administrative  fee of ten  percent  (10%) of project
costs for all development expenditures incurred; and (iv) Petrogen International
will retain its equity ownership of 1,695,000 shares of the Company's restricted
Common Stock.  In order to avoid any potential  conflict of interest,  the terms
and provisions of the proposed 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 utilize  other  operators at its  discretion.  Management  of the
Company  believes that  consummation of the assignment  agreement  increases the
asset base of the  Company  by  approximately  10%,  reduces  the  developmental
expenses by  approximately  10%, and provides the Company  access to  additional
development opportunities.

         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 amended.  However,  during fiscal year
ended September 30, 2003,  $156,315 was incurred to Petrogen  International  and
$77,756  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,  management  of the  Company
estimates  that the Company has  acquired  net  reserves of  approximately  31.0
billion cubic feet gas  equivalent("BCFGE")  of proven  developed  non-producing
("PDNP") and proven  undeveloped  ("PUD")  reserves.  Management  of the Company
believes that  additional  probable  reserves may be estimated at 14 BCFGE.  The
Company's principal  geographic areas of focus lie in the Gulf of Mexico,  Rocky
Mountains and Permian Basin regions,  with core assets presently  located in the
Baxterville Field in southern  Mississippi,  Enos Creek Field in central Wyoming
and Emily Hawes Field in southern  Texas.  It is anticipated  that the Company's
ongoing efforts,  subject to adequate funding being available,  will 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.


<PAGE>


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.

         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 lessees.  As of fiscal year ended September
30, 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  held by  production  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.

         Management of the Company  believes that of the 14 BCFG reserves proven
by these  three  wells,  only 1.8 BCFG has been  produced,  leaving a balance of
approximately 12.2 billion cubic feet of proven gas reserves to be produced.  To
realize these existing proven reserves, the Company, subject to financing, 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 nine 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 60 BCFG of  recoverable
reserves.


<PAGE>


         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.  Management of the Company  believes  that such drilling  operations
when commenced may result in the spudding of at least one gas wellbore test.

         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, the
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.  Such oil and gas
leases are "farm-in"  style  agreements,  which provide for certain  performance
criteria  that is being  met and  currently  subject  to  re-negotiation  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 Baxterville  Field is an
excellent example 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
has been developing  operations at the Baxterville  Field  throughout the summer
months  of  2003.  To  date,  the  Company  has  recompleted  one  wellbore  and
anticipates that it will commence production from the wellbore immediately after
hooking up all relevant surface equipment.  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  represent a total of eight  re-completion
opportunities  with an estimated  403,000 BO and 11.25 BCFG of proven  developed
non-producing reserves and 1.5 MMBO of proven undeveloped reserves.

         S. J. HOOPER #1.  Additionally,  the Company  recently  acquired a 100%
working interest and a 77% net revenue interest in the S.J. Hooper #1 well-bore,
which lies adjacent to the Baxterville Field (the "Hooper Lease"). Management of
the  Company  believes  that the  Hooper  Lease is a  valuable  addition  to the
Company's ongoing Baxterville Field acquisition  strategy.  The Hooper Lease has
one shut-in  well-bore  and  although  falls below the  Company's  criteria  for
acquisition, geophysical log analysis of the well-bore indicates that there is a


<PAGE>


high  probability  of  significant   productive  gas  zones.  Coupled  with  the
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 the estimated reserves of 54,750 BO will
be  exploited  through the initial  recompletion  and  secondary  work and will,
thereafter,  perforate the gas zones to attempt a 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.


         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 (which combined have produced a
total of 489,000 BO with a  remaining  10 BCFG proven  reserves in the  existing
recompletion  well)  and  produce  the  remaining  reserves  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 seven oil and two gas infill drilling  locations to
exploit  the  estimated  1.5 MMBO of  proven  undeveloped  reserves.  Management
believes  that  some of these  locations  may be opened  up as  bookable  proven
undeveloped  reserves upon the successful  recompletion  of each of the existing
shut-in  well-bores,  as well  as  additional  gas  proven  undeveloped  reserve
locations  being  opened  up  upon  completion  of  successful  infill  drilling
operations.

         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  will soon be  undertaken  on the Hooper Lease to
re-establish  and increase the  initially  experienced  well-bore  productivity,
after  which  time  sufficient  production  data  will have  been  gathered  for
interpretation by the Company  providing insight as to which specific  work-over
treatments  will  result  in the  most  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


<PAGE>


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 proven acres. This asymmetric basin has produced in excess of
2 BO of oil and more than 1 trillion  CFG 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.

         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 initially slated for re-initiation  within
the month of August 2003. However,  as of the date of this Annual Report,  plans
are  underway to commence  operations  with the  Bureau's  assistance  for first
quarter 2004.

         PRESENT ACTIVITIES. The Company and Sierra Gas Corporation ("SGC") have
entered into a gas sales contract (the "Gas Sales Contract"),  pursuant to which
SGC shall  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 first quarter 2004.

         In light of  consummation  of the Gas Sales  Contract,  the Company has
initiated the first phase of  redevelopment  operations for the Brown Government
Lease, which will focus exclusively upon remaining  recoverable  reserves within
multiple gas charged  sands.  A workover rig was  mobilized on May 1, 2003,  and
operations  to place the #1  wellbore  back  into the  condition  of  production
commenced shortly  thereafter.  The Company perforated three additional frontier
sands,  providing for over 52 feet of known  productive pay within the wellbore,
which the Company anticipated would produce potentially marketable quantities of
natural gas, but at the date of this Annual Report, the recompletion  initiative
remains incomplete and is currently not producing.  The Company anticipates that
recompletion  operations  may  re-commence  within  the next  four to six  weeks
subject to adequate funding. Management further anticipates that if recompletion


<PAGE>


of the #1  wellbore  on the  Brown  Government  Lease is  successful,  the daily
average natural gas production  from the wellbore could  approximate 500 MCF per
day.

         If successful  operations upon the #1 Brown  Government  Lease wellbore
result in marketable quantities of natural gas production and sufficient control
data pertaining to the wellbore is compiled, the Company will thereafter execute
plans to re-enter the wellbore and perform a fracture stimulation job to attempt
an increase in daily natural gas production. In general, the Company anticipates
that gas  production  may be  re-established  by  re-working  and  returning  to
production the three existing  shut-in gas wells.  These wells will be evaluated
relative to completion zones,  completion method and production  parameters.  If
current  completed  intervals are deemed  depleted,  management  intends to then
perforate 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  remaining  recoverable  reserves.   Management
anticipates that the third phase will include  evaluation of potential  reserves
by utilizing existing well-bores to test the productive potential of these zones
with the drilling of additional well-bores if needed.  Management of the Company
believes that the three existing shut-in  well-bores  provides for an additional
2.6 BCFG of proven  undeveloped  reserves,  totaling estimated gross reserves in
the Brown Government Lease, including the AMI, of approximately 11.8 BCFG.

         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 in all reserves
produced from gas wells drilled by Petrogen located on approximately 9,000 gross
(6,750  net) of  undeveloped  acreage on the Adams  Ranch  prospect  in Crockett
County,  Texas (the "Adams Ranch  Property").  The terms and  provisions  of the
formal contractual arrangements are currently being formalized by the Company.

         Management  of the  Company  estimates  that the Adams  Ranch  Property
represents a potential natural gas resource base of 42.8 BCF associated with the
Canyon,  Strawn and  Ellenberger  formations  located in the Permian Basin.  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.

         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


<PAGE>


to conduct a series of earn-in  development  initiatives  to fully  develop  the
Adams Ranch Property containing an estimated potential natural gas resource base
of 42.8 BCF;  and (ii) the Company  holds a net  revenue  interest of 75% in the
reserves.

         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 first quarter 2004.  Management of
the Company believes that the Adams Ranch Property represents the opportunity to
develop  twenty-four  Canyon sand PUD wellbore  locations  and eight  commingled
Strawn and Ellenberger PUD wellbore locations, as well as the future opportunity
to develop an  additional  seventy-two  Canyon PUD  locations.  In  addition  to
providing substantial long-term growth potential,  there are currently seventeen
wellbores in various stages of production that management of the Company intends
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
$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.  As  discussed  above,  pursuant  to the  Assignment
Agreement,  Petrogen  International  has  assigned  all of its right,  title and
interest in the Lease Agreement to the Company.

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 as follows (a) 1,000,000 stock options exercisable at
$0.50 per share to  previous  holders of stock  options of  Petrogen  to replace
stock options  previously  granted by Petrogen,  and (b) 1,000,000 stock options
exercisable  at $0.50 per share to Investor  Communications  International  Inc.
and/or its  employees  or  consultants;  (iii)  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


<PAGE>


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 of the date of this Annual Report,  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 of the date of
this Annual  Report,  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.

         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.


<PAGE>


         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.

         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  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.

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  President  is
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

         The Company and Neville  Henry,  the President of the Company,  entered
into a management  consulting  services  agreement  dated November 18th 2003 and


<PAGE>


effective January 1st, 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"),  provided  that only
$7,500.00 of the Fee shall actually be paid by the Company to Mr. Henry from the
effective date up to and including  January 2004 and thereafter  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.

         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, 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


<PAGE>


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 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.


<PAGE>


         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  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.


<PAGE>


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.

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.


<PAGE>


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 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 debtholders (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


<PAGE>


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.

         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 SECURITY 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


<PAGE>


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 ending December 31, 2002.


PART II

ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER 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 YEARS ENDED
                           ______________________________________________
                           SEPTEMBER 30, 2003          DECEMBER 31, 2002
                           ______________________________________________
                           HIGH BID    LOW BID        HIGH BID    LOW BID
                           ______________________________________________

First Quarter               $0.50       $0.30          $2.09       $1.08
Second Quarter              $0.44       $0.16*         $2.00       $0.13
Third Quarter               $0.22       $0.15*         $0.35       $0.12
Fourth Quarter              $0.29       $0.15*         $0.42       $0.06

         *Due to the change in fiscal year end from  December  31st to September
30th,  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 January 6, 2004, the Company had  approximately  272 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


<PAGE>


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.

     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 10,000,000 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.


<PAGE>


         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  exercised  by his  estate  within one (1) year of his death or
such longer period as the Board of Directors may determine.

     The exercise price of a Stock Option  granted  pursuant to the Stock Option
Plan shall be paid in cash or certified funds upon exercise of the option.

         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>


         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.

         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 8,000,000  Stock  Options as follows:  (i) 1,000,000
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; and (ii) 1,000,000 Stock Options at $0.50 per share
expiring  February 12, 2006 to ICI and/or ICI's employees or consultants who, in
such capacities, rendered bona fide services on behalf of the Company including,
but not limited to, administrative and managerial, to replace the previous stock
options of Petrogen;  (iii)  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; (iv) 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;  (vi) 750,000  Stock  Options at
$0.75 per share  expiring  September  10, 2006 to the  officers,  directors  and
consultants  of the Company;  (vii)  1,600,000  Stock Options at $0.20 per share
expiring  November 1, 2008 to 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; and (viii) 600,000 Stock Options at $0.25
per share expiring  November 1, 2013,  (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 1,245,000  Stock
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) 215,000 Stock Options exercised at $0.25 per share for
aggregate  proceeds of $53,750 by  officers,  directors  or  consultants  of the
Company in accordance  with the terms of the respective  notice and agreement of
exercise of option;  and (iii) 30,000 Stock Options exercised at $0.50 per share
for aggregate  proceeds of $15,000.00 by officers,  directors or  consultants of


<PAGE>


the Company in accordance with the terms of the respective  notice and agreement
of exercise of option.  Of the Stock  Options  exercised,  Messrs.  Spindler and
Kerrigan each exercised 100,000 Stock Options for aggregate  proceeds of $55,000
pursuant  to  assignment  of debt,  which  amount was  utilized  to off-set  the
aggregate  amounts  due and owing  Messrs.  Spindler  and  Kerrigan  pursuant to
consulting services provided.  Management of the Company also 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.

         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
235,000  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 5,000
shares of Common Stock of the Company to a certain consultant of the Company who
provided bona fide services to the Company.

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  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.


<PAGE>

<TABLE>
<CAPTION>


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

_____________________________________________________________________________________________________________

<FN>

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  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
8,000,000 Stock Options. Of those 8,000,000 Stock Options granted: (i) 1,000,000
Stock Options have been  exercised at $0.50 per share for aggregate  proceeds of
$500,000 in  accordance  with the terms of a notice and agreement of exercise of
option;  (ii) 215,000 Stock  Options have been  exercised at $0.25 per share for
aggregate  proceeds of $53,750 by  officers,  directors  or  consultants  of the
Company in accordance  with the terms of the respective  notice and agreement of
exercise of option;  and (iii) 30,000 Stock Options have been exercised at $0.50
per share for  aggregate  proceeds  of  $15,000.00  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,  Messrs.
Spindler  and  Kerrigan  each  exercised  100,000  Stock  Options for  aggregate
proceeds of $55,000 pursuant to assignment of debt, which amount was utilized to
off-set  the  aggregate  amounts due and owing  Messrs.  Spindler  and  Kerrigan
pursuant to consulting  services  provided.  As a result, the Company has issued
1,235,000 shares of its Common Stock. As of the date of this Report, the Company


<PAGE>


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.

</FN>
</TABLE>


         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."


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

         The following  discussions  of the results of operations  and financial
position  of the  Company  should  be read in  conjunction  with  the  financial
statements  and notes  pertaining  to them that  appear  elsewhere  in this Form
10-KSB.  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. These factors include adverse economic conditions, highly speculative
nature of oil and gas exploration and development,  risks of foreign  operation,
entry of new and stronger competitors, inadequate capital and unexpected costs.
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.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION OR PLAN OF OPERATION

         FOR FISCAL YEAR ENDED SEPTEMBER 30, 2003 COMPARED TO PERIOD FROM
         NOVEMBER 15, 2001 (INCEPTION) TO SEPTEMBER 30, 2002

         The Company's  net losses  during fiscal year ended  September 30, 2003
were  approximately  ($1,148,723)  compared  to  a  net  loss  of  approximately
($154,947)  during the period from November 15, 2001 (inception) ended September
30,  2002.  During  fiscal  year ended  September  30,  2003 and the period from
November  15,  2001 ended  September  30,  2003,  the Company  recorded  $-0- in
revenue.

         During  fiscal year ended  September  30,  2003,  the Company  recorded
operating expenses of approximately $1,148,723 compared to $154,947 of operating
expenses  recorded  during the period  from  November  15, 2001  (inception)  to
September  30, 2002.  During  fiscal year ended  September  30, 2003,  operating
expenses  consisted  of: (i)  $335,909  in general and  administrative  expenses
compared to $61,390 in general and  administrative  expenses incurred during the
period November 15, 2001 to September 30, 2002; (ii) $157,145 in management fees
compared to $84,500 in management  fees incurred  during the period November 15,
2001 to September 30, 2002; (iii) $223,690 in professional fees compared to $-0-
in  professional  fees incurred during the period November 15, 2001 to September
30, 2002;  (iv) $362,230 in stock based  compensation  compared to $-0- in stock
based compensation incurred during the period November 15, 2001 to September 30,


<PAGE>


2002;  (v) $53,446 in interest  expense  compared to $8,814 in interest  expense
incurred during the period November 15, 2001 to September 30, 2002; (vi) $15,147
in loss on  settlement  of debt  compared to $-0- in loss on  settlement of debt
incurred  during the period  November 15, 2001 to September 30, 2002;  and (vii)
$1,156 in  depreciation  compared to $243 in  depreciation  incurred  during the
period November 15, 2001 to September 30, 2002.

         The increase in operating  expenses was 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.

         Of the $157,145  incurred as management  and  consulting  fees expenses
during  fiscal  year ended  September  30,  2003,  an  aggregate  of $60,000 was
incurred by the Company due and owing to Investor Communications  International,
Inc.  ("ICI") for  services  rendered by ICI to the Company  including,  but not
limited  to,  financial,  administrative,  investor  relations  and  oil and gas
management.  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 interests; and (ii) the Company would pay to
ICI a fee commensurate with the services provided by ICI on a monthly basis, but
not to exceed $10,000 monthly.

         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
acquired  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 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.


<PAGE>

         As discussed  above,  the increase in net loss during fiscal year ended
September 30, 2003 as compared to the period  November 15, 2001  (inception)  to
September  30, 2002 is  attributable  primarily  to the  increase in general and
administrative  expenses and professional  fees, in stock based compensation and
in professional  fees. The Company's net loss during fiscal year ended Septemebr
30,  2003 was  ($1,148,723)  or  ($0.13)  per  share  compared  to a net loss of
approximately  ($154,947)  or ($0.02) per share  during the period  November 15,
2001 to September 30, 2002. The weighted  average  number of shares  outstanding
was 9,180,118 for fiscal year ended September 30, 2003 compared to 7,300,000 for
the period November 15, 2001 to September 30, 2002.

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.

         AS OF SEPTEMBER 30, 2003

         As of fiscal year ended  September  30,  2003,  the  Company's  current
assets were $96,058 and its current  liabilities  were $861,555,  resulting in a
working deficit of $765,497. As of fiscal year ended September 30, 2003, current
assets were comprised of $86,058 in cash and $10,000 in prepaid expenses.  As of
fiscal year ended September 30, 2003, current  liabilities were comprised of (i)
$338,010 in  accounts  payable and accrued  liabilities;  (ii)  $220,453  due to
related parties;  (iii) $131,578 in debentures  payable;  (iv) $75,000 in demand
loan  payable;  (v) $68,626 due to affiliate  company;  and (vi) $27,888 in note
payable. See "Item 6. Management's  Discussion and Anaylsis or Plan of Operation
- Material Commitments."

         As of fiscal year ended  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).  As of  September  30,  2002,  the  Company's  total  assets were
$216,834  comprised of (i) $-0- in current assets;  (ii) $214,646 in oil and gas
properties ; and (ii) $2,188 in furniture and  equipment,  net of  depreciation.
The increase in total assets  during  fiscal year ended  September 30, 2003 from
September 30, 2002 was primarily due to the increased oil and gas properties and
an increase in cash.

         As of fiscal  year  ended  September  30,  2003,  the  Company's  total
liabilities  were $1,493,763  comprised of (i) $861,555 in current  liabilities;
and (ii) $632,198 in long-term debentures payable. As of September 30, 2002, the
Company's  total  liabilities  were  $324,170  comprised  of (i) $191,031 due to
related  parties;  (ii) $79,100 in  debenture  payable;  (iii)  $51,859 in notes
payable;  and (iv) $2,180 in  accounts  payable  and  accrued  liabilities.  The
increase in total  liabilities  during fiscal year ended September 30, 2003 from
September 30, 2002 was due primarily to the long-term debentures payable and the
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."


<PAGE>


         Stockholders'  deficit increased from ($107,336) for September 30, 2002
to ($705,146) for fiscal year ended September 30, 2003.

         For fiscal year ended  September  30, 2003,  net cash used in operating
activities was ($636,579)  compared to net cash used in operating  activities of
($59,210) for the period November 15, 2001 (inception) to September 30, 2002. As
noted above, the increase in net cash used in operating activities was primarily
due to: (i) net loss of  ($1,148,723)  for fiscal year ended  September 30, 2003
compared to net loss of ($154,947) for the period November 15, 2001 to September
30, 2002;  (ii) stock based  compensation  of $362,230  compared to $-0- for the
period  November 15, 2001  (inception) to September 30, 2003; and (iii) accounts
payable of $121,674 for fiscal year ended  September 30, 2003 compared to $2,180
for the period November 15, 2001 (inception) to September 30, 2002.

         The Company's  cash flow used in investing  activities  for fiscal year
ended  September 30, 2003 was ($278,247)  compared to ($2,431) used in investing
activities  during the period  November 15, 2001  (inception)  to September  30,
2002. The increase in net cash used in investing activities was primarily due to
acquisition of oil and gas properties and acquisition  advances of $100,000 from
Petrogen Corp. prior to the acquisition.

         Cash flows from  financing  activities  was  $1,000,884 for fiscal year
ended  September  30, 2003 compared to cash flows from  financing  activities of
$61,841 for the period November 15, 2001  (inception) to September 30, 2002. Net
cash flows from financing activities during fiscal year ended September 30, 2003
resulted  primarily from proceeds of $585,000 received from sale of common stock
and $318,900 from cash advances from former related parties.

PLAN OF OPERATION

         FUNDING

      As of the date of this Annual  Report,  the Company has generated  limited
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  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


<PAGE>


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.

         HENRY CONSULTING AGREEMENT

         The Company,  Petrogen and Neville Henry, the President of the Company,
entered into a management  consulting  services  agreement  dated November 18th,
2003 and  effective  January  1st,  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"),  provided
that only  $7,500.00  of the Fee shall  actually  be paid by the  Company to Mr.
Henry from the effective  date up to and including  January 2004 and  thereafter
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>


         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;  (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
aunnum;  (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 $10,828 has 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 $219,735 in principal due and owing to Messrs.


<PAGE>


Spindler and Kerrigan resulting from consulting services provided to the Company
and to Petrogen.  During fiscal year ended  September 30, 2003,  management fees
aggregating  $174,145  were incurred to Messrs  Spindler and  Kerrigan.  Messrs.
Spindler  and  Kerrigan  each  exercised   100,000  Stock  Options  pursuant  to
assignment of debt in the aggregate  amount of $55,000 each,  which such amounts
was utilized to off-set the aggregate  debt due and owing  Messrs.  Spinderl and
Kerrigan.  As of  September  30, 2003,  Messrs.  Spindler and Kerrigan are owned
approximately  an  aggregate  of $230,941,  including  approximately  $11,205 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.

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 FEES

         During  fiscal year ended  September  30,  2003,  the Company  incurred
approximately  $33,000  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 September 30, 2003 and for the review
of the Company's  financial  statements for the fiscal  quarters ended March 31,
2003 and June 30, 2003.


<PAGE>


         FINANCIAL INFORMATION SYSTEMS DESIGN AND IMPLEMENTATION FEES

         During fiscal year ended  September 30, 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  September 30, 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.

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".


PETROGEN CORP.
(Formerly Hadro Resources, Inc.)
(AN EXPLORATION STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2003


<PAGE>


PETROGEN


TABLE OF CONTENTS


   AUDITORS' REPORT

   CONSOLIDATED BALANCE SHEETS                                              F-1

   CONSOLIDATED STATEMENTS OF OPERATIONS                                    F-2

   CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  [DEFICIT]               F-3

   CONSOLIDATED STATEMENTS OF CASH FLOWS                                    F-4

   NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS                           F-5


<PAGE>



              LABONTE & CO.                        #610 - 938 HOWE STREET
_______________________________________________    VANCOUVER, BC  CANADA
C H A R T E R E D A C C O U N T A N T S            V6Z 1N9
_______________________________________________    TELEPHONE      (604) 682-2778
                                                   FACSIMILE      (604) 689-2778
                                                   EMAIL    INFO@LABONTECO.COM






                                AUDITORS' REPORT
________________________________________________________________________________



To the Stockholders and Board of Directors of Petrogen Corp.

We have audited the consolidated balance sheet of Petrogen Corp. (an exploration
stage  company) as at  September  30, 2003 and the  consolidated  statements  of
operations,  stockholders'  equity and cash flows for the year then ended. These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audit.

We conducted our audit 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 audit  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 September 30, 2003 and the
results of its  operations  and its cash flows and the changes in  stockholders'
equity  for the year then  ended 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 $765,497
and has realized  significant  losses from its oil and gas operations that 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 1. The
financial  statements do not include any adjustments that might result from this
outcome of this uncertainty.



                                                                 "LABONTE & CO."

                                                           CHARTERED ACCOUNTANTS




Vancouver, B.C.
December 30, 2003, except Note 15, which is dated as of January 7, 2004.



<PAGE>


PETROGEN


                                               Consolidated Financial Statements
                                                              September 30, 2003


PETROGEN CORP.
(Formerly Hadro Resources, Inc.)
[AN EXPLORATION STAGE COMPANY]
CONSOLIDATED BALANCE SHEETS


                                                 September 30,     September 30,
                                                          2003              2002
________________________________________________________________________________
                                                                   (Note 1)
ASSETS

Current
  Cash                                             $    86,058       $       -
  Prepaid                                               10,000               -
________________________________________________________________________________

Total Current Assets                                    96,058               -

Furniture and Equipment, net                             6,118           2,188

Oil and Gas Properties (Note 5)                        686,431         214,646
________________________________________________________________________________

Total Assets                                       $   788,607       $ 216,834
================================================================================

LIABILITIES

Current
  Accounts payable and accrued liabilities         $   338,010       $   2,180
  Due to affiliate company                              68,626               -
  Debentures payable (Note 9)                          131,578          79,100
  Note payable (Note 10)                                27,888          51,859
  Demand loan payable (Note 11)                         75,000               -
  Due to related parties (Note 12)                     220,453         191,031
________________________________________________________________________________

Total Current Liabilities                              861,555         324,170

Long Term
  Debentures payable (Note 9)                          632,198               -
________________________________________________________________________________

Total Liabilities                                    1,493,753         324,170
________________________________________________________________________________

STOCKHOLDERS' EQUITY (DEFICIT)

Common stock $0.001 par value;
   100,000,000 shares authorized;
   10,613,291 (2002 - 817,699) post reverse-split
   shares issued and outstanding (Note 13)              10,613             115
Additional paid-in capital                             924,745          39,496
Common stock purchase warrants (Note 13)               357,800               -
Obligation to issue shares                               5,000           8,000
Deficit accumulated deficit during exploration
   stage                                            (2,003,304)       (154,947)
________________________________________________________________________________

Total Stockholders' Deficit                           (705,146)       (107,336)
________________________________________________________________________________

Total Liabilities and Stockholders' Equity         $   788,607       $ 216,834
================================================================================

Contingencies and Going Concern (Notes 1,4 and 7)

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


                                                                        Page F-1


<PAGE>

<TABLE>
<CAPTION>

PETROGEN


                                               Consolidated Financial Statements
                                                              September 30, 2003


PETROGEN CORP.
(Formerly Hadro Resources, Inc.)
[AN EXPLORATION STAGE COMPANY]
CONSOLIDATED STATEMENTS OF OPERATIONS


_____________________________________________________________________________________________________________
                                                 For the year     For the period from     For the period from
                                                        ended       November 15, 2001       November 15, 2001
                                                September 30,          (Inception) to          (Inception) to
                                                         2003      September 30, 2002      September 30, 2003
                                                                             (Note 1)     (Note 1)
_____________________________________________________________________________________________________________
<S>                                              <C>                   <C>                   <C>

OPERATING EXPENSES
Depreciation                                     $     1,156           $      243            $     1,399
General & administrative                             335,909               61,390                397,299
Interest expense                                      53,446                8,814                 62,260
Loss on settlement of debt                            15,147                    -                 15,147
Management & consulting fees - related party         157,145               84,500                241,645
Stock based compensation                             362,230                    -                362,230
Professional fees                                    223,690                    -                223,690
_____________________________________________________________________________________________________________

Loss for the period                              $(1,148,723)          $ (154,947)           $(1,303,670)
=============================================================================================================


Basic net loss per share                         $     (0.13)          $    (0.02)
=====================================================================================

Weighted Average Shares Outstanding                9,180,118            7,300,000
=====================================================================================


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


                                                                                                     Page F-2

</TABLE>

<PAGE>

<TABLE>
<CAPTION>

PETROGEN


                                               Consolidated Financial Statements
                                                              September 30, 2003


PETROGEN CORP.
(Formerly Hadro Resources, Inc.)
[AN EXPLORATION STAGE COMPANY]
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY  [DEFICIT]
FOR THE PERIOD FROM NOVEMBER 15, 2001 [DATE OF INCEPTION] TO SEPTEMBER 30, 2003



____________________________________________________________________________________________________________________________________
                                                                                                                          Total
                                                                     Paid-in                    Share                  Stockholders'
                                                                     capital         Share      Purchase  Accumulated     Equity
                                             Shares      Amount     (Deficit)    subscriptions  Warrants  Deficit       (Deficit)
____________________________________________________________________________________________________________________________________
<S>                                         <C>         <C>        <C>              <C>         <C>       <C>           <C>

Stock issued for cash, November 15, 2001
  [Date of Iinception]                      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, Balance, February 12, 2003        11,807,000       118        77,493            -            -     (154,947)      (77,336)
Acquisition costs charged to deficit                 -         -             -            -            -      (60,000)      (60,000)
Petrogen Corp. balance, February 12,
   2003                                      9,378,291    30,689     8,172,846            -            -   (8,553,602)     (350,067)
Reverse acquisition recapitalization
   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)
                                           _________________________________________________________________________________________
                                            10,613,291  $ 10,613   $   924,745      $ 5,000     $357,800  $(2,003,304)  $  (705,146)
                                           =========================================================================================

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


                                                                                                                            Page F-3

</TABLE>


<PAGE>

<TABLE>
<CAPTION>

PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


PETROGEN CORP.
(Formerly Hadro Resources, Inc.)
[AN EXPLORATION STAGE COMPANY]
CONSOLIDATED STATEMENTS OF CASH FLOWS


_______________________________________________________________________________________________________________
                                                  For the year      For the period from     For the period from
                                                          ended       November 15, 2001       November 15, 2001
                                                  September 30,          (Inception) to          (Inception) to
                                                           2003      September 30, 2002      September 30, 2003
                                                                               (Note 1)                (Note 1)
_______________________________________________________________________________________________________________
<S>                                                <C>                   <C>                   <C>

Cash Flows from (used in) operating actvities
Net (loss) for the period                          $ (1,148,723)         $(154,947)            $ (1,303,670)
Adjustments to reconcile net loss to net cash
   used in operating activities:
   - depreciation                                         1,156                243                    1,399
   - accrued interest                                    19,437              8,814                   28,251
   - accounts payable                                   121,674              2,180                  123,854
   - loss on conversion of debt                          15,147                  -                   15,147
   - non-cash management fees                             2,500                  -                    2,500
   - accrue management fees                                   -             84,500                   84,500
   - prepaid                                            (10,000)                 -                  (10,000)
   - Stock based compensation                           362,230                  -                  362,230
_______________________________________________________________________________________________________________

Cash flows used in operating activities                (636,579)           (59,210)               (695,789)
_______________________________________________________________________________________________________________

Cash flows from (used in) investing activities
Oil and gas properties                                 (374,029)                 -                 (374,029)
Purchase of furniture and fixture                        (5,086)            (2,431)                  (7,517)
Pre reverse acquisition advances to
  Petrogen Inc.                                         100,000                  -                  100,000
Cash acquired in reverse acquisition of
  Petrogen Inc.                                             868                  -                      868
_______________________________________________________________________________________________________________

Cash flows from investing activities                   (278,247)            (2,431)                (280,678)
_______________________________________________________________________________________________________________

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 party                              29,422             28,531                   57,953
Due to affiliate company                                 63,626                  -                   63,626
Repayment of debenture                                  (49,295)                 -                  (49,295)
Obligation to issue shares                                5,000              8,000                   13,000
Proceeds on sale of common stock                        585,000             25,110                  610,110
_______________________________________________________________________________________________________________

Cash flows used in financing activities               1,000,884             61,641                1,062,525
_______________________________________________________________________________________________________________

Net Increase (decrease) in Cash                          86,058                  -                   86,058

Cash, Beginning of period                                     -                  -                        -
_______________________________________________________________________________________________________________

Cash, End of Period                                $     86,058          $       -             $     86,058
===============================================================================================================


Supplemental Cash Flow Information

On August 18, 2003, the Company issued a $723,673 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.


                                                                                                       Page F-4

</TABLE>

<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 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.) was
incorporated  in the State of Nevada.  The Company  currently  trades on the OTC
Bulletin  Board  under the symbol  "PTGC"  and the  Frankfurt  and Berlin  Stock
Exchanges under the symbol "PTD".

On October 11, 2002,  Petrogen  Inc.  ("Petrogen")  entered into an Agreement in
Principle  (collectively with the share exchange  agreement,  referred to as the
"Agreement", or the "Acquisition") to exchange all of its outstanding shares for
an aggregate of 7,000,000  restricted  common  shares of the Company.  As of the
acquisition date, Petrogen had 11,807,000 common shares  outstanding.  Effective
February 12, 2003, in connection with this  transaction,  Hadro Resources,  Inc.
changed its name to Petrogen  Corp. and completed a 1 for 20 reverse stock split
of its common  stock.  Effective  February  12, 2003 the Company  completed  the
acquisition  of  Petrogen  by way  of a  Share  Exchange  Agreement  and  issued
7,000,000  restricted  post-reverse  stock split  shares of common  stock to the
Petrogen shareholders and 300,000 restricted  post-reverse stock split shares of
common stock as a finder's fee  resulting in a change in control of the Company.
(See  Note  3)  These  consolidated  financial  statements  should  be  read  in
connection with the audited financial statements of Petrogen as at September 30,
2002 and for the period from November 15, 2001 (Inception) to September 30, 2002
included in the Company's Def 14C filed on December 31, 2002.

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. Since its 2001 inception,  Petrogen has
acquired  interests  in three  properties  spanning  over 3,100  acres with what
management  estimates to be net proven  reserves of  approximately  31.0 billion
cubic feet equivalent  (Bcfe).  Management also estimates there is an additional
14.0 Bcfe of net "probable"  reserves that can potentially be tapped longer term
with targeted exploration efforts.

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.

This  acquisition has been accounted for as a reverse merger with Petrogen being
treated as the accounting parent,  and PTGC, the legal parent,  being treated as
the accounting subsidiary.  Accordingly, these consolidated financial statements
of the Company  present the accounts of Petrogen for all periods  shown,  and of
PTGC from the effective date of the acquisition (February 12, 2003) to September
30, 2003 (See Note 3). With the  exception of the disposal of Oak Hills  Energy,
Inc. as described in Note 6, PTGC had no material operations or transactions for
the period from January 1, 2003 to February 12, 2003.


                                                                        Page F-5


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


NOTE 1 - NATURE OF OPERATIONS & BASIS OF PRESENTATION (CONTINUED)
________________________________________________________________________________

As at  September  30,  2003,  the Company had a working  capital  deficiency  of
$765,497  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.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
________________________________________________________________________________

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

PRINCIPLES OF CONSOLIDATION
The consolidated  financial  statements  include the accounts of the Company and
its wholly-owned  subsidiary,  Petrogen, Inc. The acquisition has been accounted
for by the  purchase  method  of  accounting,  using  principles  applicable  to
accounting for reverse mergers.  All significant  intercompany  transactions and
account balances have been eliminated.

During the year Hadro Resources disposed of its interest Oak Hills Energy,  Inc.
as described in Note 6.

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.

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

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

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


                                                                        Page F-6


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


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

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

USE OF ESTIMATES AND ASSUMPTIONS
Preparation of the Company's  financial  statements in conformity with 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", foreign denominated monetary assets and liabilities are translated
to their United States dollar  equivalents  using foreign  exchange  rates which
prevailed at the balance  sheet date.  Revenue and expenses  are  translated  at
average rates of exchange during the year. Related  translation  adjustments are
reported as a separate  component  of  stockholders'  equity,  whereas  gains or
losses resulting from foreign  currency  transactions are included in results of
operations.

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


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


                                                                        Page F-7


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


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

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 December 31, 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 for
stock-based  employee  compensation  using the fair value provisions of SFAS No.
123 using the assumptions as described in Note 14:

_____________________________________________________________________________
                                                          For the period from
                                                           November 15, 2001
                                   For the Year ended       (Inception) to
                                   September 30, 2003     September 30, 2002
_____________________________________________________________________________

Net loss as reported                  $(1,148,723)             $(154,947)

SFAS 123 Compensation Expense         $  (191,580)                     -
                                      ___________              _________
Pro forma net loss under SFAS
  No. 123                             $(1,340,303)             $(154,947)
                                      ===========              =========
Basic and diluted net loss per
  common share as reported            $     (0.13)             $   (0.02)

Pro forma net loss per common
share under SFAS No. 123              $     (0.15)             $   (0.02)


                                                                     Page F-8


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 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. FIN 44 is
generally  effective July 1, 2000 with the exception of certain events occurring
after December 15, 1998.

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.

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. FIN 44 is
generally  effective July 1, 2000 with the exception of certain events occurring
after December 15, 1998.

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
enactment date.

RECENT ACCOUNTING PRONOUNCEMENTS
In July 2001, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards No. 141 ("SFAS 141"), "Business Combinations",
which  eliminates  the pooling  method of accounting  for business  combinations
initiated  after June 30, 2001. In addition,  SFAS 141 addresses the  accounting
for  intangible  assets and goodwill  acquired in a business  combination.  This
portion of SFAS 141 is effective for business combinations  completed after June
30, 2001. The Company has adopted the provisions of SFAS 141, which did not have
a material impact on the Company's financial position, or results of operations.

In July 2001, the FASB issued  Statement of Financial  Accounting  Standards No.
142 ("SFAS 142"), "Goodwill and Intangible Assets", which revises the accounting
for  purchased  goodwill and  intangible  assets.  Under SFAS 142,  goodwill and
intangible  assets with indefinite lives will no longer be amortized and will be
tested for impairment annually or whenever events or circumstances indicate that
the estimated  fair value is less than the related  carrying value as determined
on a reporting  unit basis.  SFAS 142 is effective  for fiscal  years  beginning
after December 15, 2001. The adoption of SFAS 142 has not had a material  impact
on the Company's financial position or results of operations.


                                                                        Page F-9


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


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

In June 2001,  the FASB issued SFAS No. 143,  "Accounting  for Asset  Retirement
Obligations"  ("SFAS 143"), which addresses  financial  accounting and reporting
for obligations associated with the retirement of tangible long-lived assets and
the  associated  asset  retirement  costs.  Currently,  expenditures  related to
ongoing  environmental  activities  are charged  against  earnings as  incurred.
Estimated  reclamation  and closure  costs  including  site  rehabilitation  are
accrued by annual  charges to  earnings  over the  estimated  useful life of the
mine.  Under SFAS 143, the Company will  recognize  the liability as part of the
asset cost and depreciate it over the estimated useful life.

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.

NOTE 3 - ACQUISITION OF PETROGEN INC.
________________________________________________________________________________

On October 11, 2002, Petrogen entered into an Agreement in Principle to exchange
all of its outstanding  shares for an aggregate of 7,000,000  restricted  common
shares of the Company.  As of the contemplated  acquisition  date,  Petrogen had
11,807,0000 common shares outstanding.

Pursuant to a written  consent of the  shareholders  of the  Company,  effective
February 12 2003, the  shareholders  approved the following  ratifications:  (i)
name change from Hadro Resources,  Inc to Petrogen Corp.,  (ii) the Stock Option
Plan,  and (iii) the reverse  Stock Split.  Moreover,  on February 6, 2003,  the
shareholders  of Petrogen  approved the terms and conditions of the Agreement in
Principle  and of the  Share  Exchange  Agreement,  which  became  effective  on
February 12, 2003.

Pursuant to the terms of the Agreement as finalized in the Share  Exchange,  the
Company  acquired  from  the  Petrogen  Shareholders  100%  of  the  issued  and
outstanding  shares of common  stock of Petrogen in exchange for issuance to the
Petrogen  Shareholders  of  7,000,000  post-reverse  stock  split  shares of the
Company's  restricted common stock and an additional 300,000  post-reverse stock
split 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 with
the previous Petrogen  Shareholders owning  approximately 78% of the then issued
and outstanding  post-reverse stock split common shares of the Company.  Also in
connection  with  the  acquisition,  the  Company  granted  options  to  acquire
2,000,000  post-reverse  stock split shares of the Company's  restricted  common
stock and granted share purchase warrants to acquire 167,189  post-reverse stock
split shares of the  Company's  restricted  common stock to previous  option and
warrant holders in Petrogen. (Refer to Note 13)


                                                                       Page F-10


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


NOTE 3 - ACQUISITION OF PETROGEN INC. (CONTINUED)
________________________________________________________________________________

On October 23, 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 Merger  Agreement  and the
resulting  continuation of the corporate entity PTGC under the Merger, which has
a September 30 fiscal year end.

Under generally accepted  accounting  principles,  this business  acquisition is
accounted for as a capital transaction in substance. In essence, the acquisition
is a  recapitalization  and is accounted  for as a change in capital  structure.
Under  reverse  takeover  accounting,   the  comparative   historical  financial
statements of the "legal acquiror" (PTGC) are those of the "accounting acquiror"
(Petrogen).  Costs  associated with reverse merger have been charged to deficit.
Shares  issued  in the  transaction  are  shown as  outstanding  for all  period
presented.  Activities  of the legal  aquiror are included  from the date of the
transaction onward.

The value assigned to the capital stock of  consolidated  PTGC on acquisition of
Petrogen  is equal to the book value of the capital  stock of Petrogen  plus the
book value of the net assets of Petrogen Corp. as at the date of the acquisition
with any excess being  charged to the  consolidated  deficit.  The book value of
Petrogen  Corp.'s capital stock  subsequent to the acquisition is calculated and
allocated as follows:

     Petrogen Inc. capital stock                      $  77,611
     Petrogen Corp. net assets (Liabilities)           (350,067)
                                                      _________
                                                       (272,456)
     Excess value charged to consolidated deficit       639,634
                                                      _________
                                                      $ 367,178
                                                      =========
     Allocated as follows:

     Capital stock                                    $   9,378
     Additional paid-in capital                               -
     Common stock purchase warrants                     357,800
                                                      _________
     Consolidated Capital accounts post reverse
       acquisition                                    $ 367,178
                                                      =========

NOTE 4 - GOING CONCERN
________________________________________________________________________________

Since  inception,  the Company has incurred  cumulative net losses of $1,303,670
and has a  stockholders'  deficit of $705,146 at September 30, 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


                                                                       Page F-11


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003




NOTE 4 - GOING CONCERN (CONTINUED)
________________________________________________________________________________

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.

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. In  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 9 and 10).  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 Petrogen has capitalized a total of $169,695 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
Petrogen has  capitalized a total of $381,362 of  expenditures  relating to this
property.

The Company has been developing  operations at Baxterville  Field throughout the
summer months,  which were commenced on June 5th, 2003. To date, the Company has
recompleted  the  Moody  #6  wellbore,  and  anticipates  that it will  commence
production from the wellbore  immediately  after hooking up all relevant surface
equipment.


                                                                       Page F-12


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


NOTE 5 - OIL AND GAS PROPERTIES  (CONTINUED)
________________________________________________________________________________

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
Petrogen has  capitalized  a total of $83,820 of  expenditures  relating to this
property.

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 PI will acquire a
100% WI and 77% NRI in the S.J. Hooper #1. Petrogen paid $22,500 to acquire this
interest. To date the Company has capitalized a total of $51,554 of expenditures
relating to this property.

MATAGORDA ISLAND PIPELINE

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

The terms of the Lease  stipulate  that  Petrogen  advances the sum of $3,000 to
Roche as a partial  payment  toward the debt owing to Roche under the terms of a
Promissory Note entered into between Petrogen and Roche on May 22nd, 2002. Refer
to Note 9.

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.


                                                                       Page F-13


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


NOTE 6 - DISPOSAL OF OAKHILLS ENERGY, INC.
________________________________________________________________________________

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.

In the December 31, 2002  financial  statements of Hadro,  the carrying value of
the net assets of Oak Hills were  adjusted to their  estimated  net  recoverable
amount being the total purchase price of $10 as shown below.  This resulted in a
gain on disposal  at December  31, 2002 of $41,191  which,  in  accordance  with
accounting  for the reverse  acquisition of Petrogen Inc. is not included in the
consolidated results of the Company for the year ended September 30, 2003.

     Cash                                   $      63
     Oil and gas properties                   638,795
     Accounts payable                        (304,232)
     Bank loans                              (334,616)
                                            _________
     Net assets of discontinued operations  $      10
                                            _________

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  Share  Exchange  Agreement,  Newport  agreed  to
indemnify  the  Company  against  any loss  arising  from  the  loan  guarantee.
Accordingly, the Company is not responsible for repayment of any debt associated
with  Oak  Hills,  or any  liability  associated  with  such  debt.  It is  also
management's  belief that the Company is fully  indemnified  from any  potential
liability associated with such debt.

NOTE 7 - LITIGATION
________________________________________________________________________________

CASE NO.  S034268, SUPREME COURT OF BRITISH COLUMBIA

On approximately  August 5, 2003, certain  debtholders (the "Plaintiffs") of the
Company initiated  litigation against the Company by filing a statement of claim
in the Supreme Court of British Columbia. The claims against the Company involve
the  prior  advancements  of  funds  made by the  Plaintiffs  pursuant  to share
purchase agreements between the Plaintiffs and the Company, respectively, for an
approximate  amount  of  $758,500.  On  August  8,  2003,  the  Company  and the
Plaintiffs  entered into a memorandum of agreement  ("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; and (iii) execution of release agreements at the time of issuance of
the debenture.

On  August  18,  2003,  the  Company  issued  the  subordinated  debenture.  The
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) 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. Refer to Note 9.

The Company and Investor Communications International, Inc. ("ICI") entered into
a  consulting  services  agreement  dated  February  12,  2003.  Pursuant to the
provisions  of the  consulting  agreement:  (i) ICI provided to the Company such


                                                                       Page F-14


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


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 interests; and (ii) the Company would pay to ICI a fee
commensurate  with the services  provided by ICI on a monthly basis,  but not to
exceed $10,000 monthly.

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

NOTE 8 - INCOME TAXES
________________________________________________________________________________

The Company and its subsidiary have tax losses at September 30, 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 9 - DEBENTURE PAYABLE
________________________________________________________________________________

DEBENTURE

In connection with the Emily Hawes acquisition  described in Note 5, the Company
issued a debenture in the amount of $75,000,  bearing interest at 15% per annum,
secured by a floating charge  security on all assets of the Company,  and due on
May 20, 2003 which was extended to December 30, 2003.  (Refer to Note 5). During
the year ended  September 30, 2003,  $54,250 of principal was repaid  (including
the $6,250 for options  exercised by the holder of the debenture).  To September
30, 2003 interest of $10,828 has been accrued in connection with this debenture.


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  date  of  issuance;  (iii)
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. To September 30,
2003 interest of  approximately  $8,525 has been accrued in connection with this
debenture.  As at September 30, 2003,  the current  portion of this debenture is
$100,000, and the long-term portion is $632,198.


                                                                       Page F-15


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


NOTE 10 - 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 due,  interest  free, 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.  The note bears interest at 1% per
month,  compounded  monthly.  In the year ended  September  30, 2003,  $2,888 in
interest  has been  accrued in  connection  with this note and  $10,000 has been
repaid.

NOTE 11 - 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.

NOTE 12 - RELATED PARTY TRANSACTIONS
________________________________________________________________________________

From  February  12,  2003 to August 8,  2003,  a  director  of the  Company  was
contracted  by  Investor  Communications,  Inc.  ("ICI")  and  was  part  of the
management  team  provided  to the  Company  by ICI,  a  shareholder.  Effective
February  12, 2003 the Company and ICI had entered  into a  consulting  services
agreement whereby ICI provided finance,  administrative  and general  managerial
services  to the  Company  for an amount not to exceed  $10,000  per month for a
period of one year and on a month-to-month basis thereafter. Effective August 8,
2003,  ICI  resigned  its  tenure as  management  consultant  to the  Company in
accordance with the terms of the Memorandum of Agreement as described in Note 7.
Effective  August 8, 2003, this director also resigned.  This former director of
the Company  received $19,625 (2002 - $3,500) from ICI for fees relating to work
with the Company.

During  the  year  ended  September  30,  2003,  the  following   related  party
transactions  with  ICI and  its  affiliated  parties  occurred:

o  The Company acquired $389,536 of debt owed to ICI and affiliated parties by
   PTGC in connection with the reverse merger;
o  The Company received $634,206 in cash advances from ICI and its affiliated
   parties;
o  The  Company  incurred  $60,000  for  managerial,   administrative  and
   investor  relations  services  provided  to the  Company by ICI and its
   affiliated parties, and $21,736 in miscellaneous expenses;
o  The Company paid $363,811 of the debt accrued and owed to ICI and affiliated
   parties;
o  The  Company  accrued  interest  in the  amount of  $22,785  on  outstanding
   debt due to ICI and  affiliated parties;
o  The Company paid $5,926 of the interest accrued and owed to ICI and
   affiliated parties;
o  On August 18,  2003,  the  Company  settled  all  outstanding  debt and
   accrued  interest  due to ICI in the amount of  $758,526 by making cash
   payment  of  50,000,  and  issuing a  $723,673  convertible  debenture,
   resulting in a loss on settlement of debt of $15,147. Refer to Note 7 &
   Note 9.


                                                                       Page F-16


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


NOTE 12 - RELATED PARTY TRANSACTIONS  (CONTINUED)
________________________________________________________________________________

During the year ended  September  30,  2003,  management  fees of $174,145  were
incurred to two  directors  and officers of the Company.  $79,500 (2002 : $0) of
the management fees have been capitalized as oil and gas development  costs. The
directors have each exercised 100,000 options,  and the proceeds of $55,000 have
been utilized to reduce the debt owed to these directors. At September 30, 2003,
these directors are owed approximately $219,735 (2002 : $184,287) for management
fees due and payments  made on behalf of the Company.  These  amounts  accrue 1%
interest per month, and are without  specific  repayment terms. At September 30,
2003,  the Company has accrued  $11,205 (2002 : $0) in interest due to these two
directors.

The Company is owed  approximately  $10,500  from a company  whose  officer is a
director of the Company.

During the period,  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  will remain in effect as long as any of the Interests  covered by the
Operator's Agreement continue to be in operation. At September 30, 2003 $156,315
was  incurred to PIL,  and  $77,756 is owing to PIL for work on the  Baxterville
Field,  Enos Creek Field and S.J.  Hooper #1. In  addition,  the Company is owed
$9,130 from PIL for payments made to PIL.  Subsequent  to year-end,  the Company
amended
the terms of the agreement with PIL.  Refer to Note 5 and Note 15.


NOTE 13 - CAPITAL STOCK
________________________________________________________________________________

PETROGEN'S CAPITAL STOCK

Petrogen's  authorized capital stock is 100,000,000 common shares,  $0.00001 par
value,  of which  11,475,000  were issued and outstanding at September 30, 2002.
Prior to the reverse acquisition,  Petrogen issued 32,000 shares of common stock
in connection with the sale of 32,000 units at $0.25 per unit for which proceeds
of $8,000 were received prior to September 30, 2002.  Each unit consisted on one
common  share and one common  share  purchase  warrant  entitling  the holder to
acquire an  additional  common share at a price of $0.50 per share to October 7,
2003 and a price of $0.75 per share to October 7, 2004.

Prior to the reverse  acquisition,  Petrogen sold an additional 300,000 units at
$0.10 per unit for proceeds of $30,000.  Each unit consisted of one common share
and one-half  common share purchase  warrant  entitling the holder to acquire an
additional  common  share for each whole  share  purchase  warrant at a price of
$0.25 per share for a period of two years.

PTGC'S CAPITAL STOCK

Effective  February 12, 2003,  and prior to completing the merger with Petrogen,
the Company  completed a 1 for 20 reverse  stock  split  reducing  the number of
shares of common stock then outstanding from 22,431,693 to 1,121,625.


                                                                       Page F-17


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


NOTE 13 - CAPITAL STOCK (CONTINUED)
________________________________________________________________________________

Prior to the reverse  acquisition,  two outstanding  convertible  notes totaling
$21,525 were converted into a total of 956,666  post-reverse  stock split shares
of the Company's common stock.

For the period from  December 31, 2002 to February 12, 2003,  the changes in the
capital structure of the company were as follows:

<TABLE>
<CAPTION>

______________________________________________________________________________________________________________________
                                                                                                         Total
                                                                     Paid-in     Share                   Stockholders'
                                                                     capital     Purchase  Accumulated   Equity
                                             Shares      Amount     (Deficit)    Warrants  Deficit       (Deficit)
______________________________________________________________________________________________________________________
<S>                                         <C>         <C>        <C>           <C>       <C>           <C>

Balance, December 31, 2002, as previously
  reported by Hadro                         22,431,693   $22,432   $2,779,578      $ -     $(3,132,448)   $ (330,438)
1 for 20 Reverse stock split               (21,310,068)        -            -        -               -             -
Stock issued on conversion of notes
  payable                                      956,666       957       20,568        -               -        21,525
Hadro net loss for period January 1,
  to February 12, 2003                               -         -            -        -         (41,154)      (41,154)
Stock issued for finders' fees,
  February 12, 2003                            300,000       300      719,700        -        (720,000)            -
Fair value of stock options granted
  with reverse acquisition                           -         -    4,660,000        -      (4,660,000)            -
Shares issued to effect reverse acquisition,
  February 12, 2003                          7,000,000     7,000       (7,000)       -               -             -
                                           ___________________________________________________________________________
Balance, Post-reverse acquisition,
  February 12, 2003                          9,378,291   $30,689   $8,172,846      $ -     $(8,553,602)     (350,067)
                                           ___________________________________________________________________________

</TABLE>

On February 12, 2003, pursuant to the terms of the merger agreement, the Company
issued 7,000,000  post-reverse stock split 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.

As at September 30, 2003, 10,613,291 shares were issued and outstanding.

WARRANTS

On February 12, 2003, pursuant to the terms of the merger agreement, the Company
issued 167,189 warrants to various parties.  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%.


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


                                                                       Page F-18


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


NOTE 13 - CAPITAL STOCK (CONTINUED)

<TABLE>
<CAPTION>

________________________________________________________________________________
                                                              Weighted     Weighted
                                                              Average      Average
Petrogen Corp.                     Exercise                   Exercise     Remaining
# of Warrants    Date of issue     Price       Expiry date    Price        Contractual Life

<S>              <C>                 <C>        <C>            <C>            <C>
    23,715       12-Feb-03           1.20       18-Dec-03
    23,715       12-Feb-03           1.20       20-Dec-03
    14,822       12-Feb-03           0.40       29-Oct-04
    11,857       12-Feb-03           0.50       22-Jun-03
                 & thereafter@       0.80       22-Jun-04
    18,972       12-Feb-03           0.50       09-Aug-03
                 & thereafter @      0.80       09-Aug-04
    29,643       12-Feb-03           0.40       13-Nov-04
    29,643       12-Feb-03           0.40       13-Nov-04
    14,822       12-Feb-03           0.40       14-Nov-04
   _______                                                     ______         __________
   167,189                                                     $ 0.70         0.81 years
   _______                                                     ______         __________

</TABLE>

NOTE 14 - STOCK OPTION PLAN
________________________________________________________________________________

On October 15,  2002,  the Board of Directors  of Hadro  Resources  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 (post-Reverse Stock Split). 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.


                                                                       Page F-19


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


NOTE 14 - STOCK OPTION PLAN (CONTINUED)
________________________________________________________________________________

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 period 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,  60,000 are subject to vesting on a straight-line  basis over 12 months
of which NIL have vested as at September 30, 2003,  and the remaining  1,375,000
vested  immediately.  The  remaining  1,365,000  stock  options  were granted to
employees,  including officers and directors,  of the Company. Of these employee
stock options,  515,000 are subject to vesting on a straight-line  basis over 12
months of which 11,000 have vested as at September  30, 2003,  and the remaining
850,000 vested immediately.

Certain of the stock  options  granted to employees  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.

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 disclosed
during the period and the remaining  $113,120 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  $360,400  of which  $345,600  was  recorded  during the period and the
remaining  $18,670  will be recorded  upon the 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 an expected life of
three years, a risk-free interest rate of 3% and an expected volatility of 174%.

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.

As at September  30, 2003,  4,800,000  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 September 30, 2003, 3,555,000 options were outstanding
of which 2,991,000 were vested.


                                                                       Page F-20


<PAGE>


PETROGEN


                                  Notes to the Consolidated Financial Statements
                                                              September 30, 2003


NOTE 14 - STOCK OPTION PLAN (CONTINUED)
________________________________________________________________________________

<TABLE>
<CAPTION>

_________________________________________________________________________________________________________
                                                                                               Weighted
                                                                                   Weighted     Average
                                                                                   Average     Remaining
                              Number of                   Exercise                 Exercise   Contractual
                               Options    Date of issue    Price     Expiry date   Price         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
                                215,000                     0.25
                              _________                                            ________   ___________

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

</TABLE>


NOTE 15 - SUBSEQUENT EVENTS
________________________________________________________________________________

o        On November 1, 2003, the Company granted  3,200,000  stock options,  at
         exercise prices of $0.20 and $0.25, respectively, per common share, and
         for various periods and, subject to various vesting provisions;
o        On November 1, 2003, the Company 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
         10,000,000 shares;
o        On November 1, 2003,  the Company  granted a total of  3,200,000  stock
         options, at exercise prices of $0.20 and $0.25 respectively, per common
         share.   Of  these   options,   1,550,000   options   were  granted  to
         non-employees;
o        On November 11, 2003, the Company  appointed  Mr. Neville  M. Henry  as
         President of the Company.  Pursuant to the terms and  conditions of the
         consulting agreement, the Company will pay Mr. Henry a one-time signing
         -up fee of  $35,000,  and will  accrue  monthly  fees in the  amount of
         $15,000;
o        On January 7, 2004, the Company  announced  that  it has entered into a
         new agreement  with its  affiliated  company,  Petrogen  International,
         where PTGC will be assigned 100% of Petrogen  International oil and gas
         assets,  also  eliminating the 10% operating  expenses owed to Petrogen
         International for development costs on oil and gas properties.


BACK TO TABLE OF CONTENTS


                                                                       Page F-21


<PAGE>


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

         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 1140 West  Pender  St.,  Vancouver,  British  Columbia,
Canada.


PART III

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

IDENTIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS

         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


<PAGE>


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


         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


<PAGE>


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.

         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 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


<PAGE>


Company  believes that these persons have  complied with all  applicable  filing
requirements during the fiscal year ended September 30, 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  $15,000.00 per month ($7,500.00 up to
August 18,  2003),  plus  expenses.  During the year ended  September  30, 2003,
$94,645 was accrued for such monthly  fees for services  rendered to the Company
and to Petrogen,  which commenced September 2001. Of the $94,645,  approximately
$30,500 is due and owing by the  Company to Mr.  Spindler  as at  September  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.  As of the date of this Annual Report,  Mr.  Spindler  exercised  100,000
Stock Options for aggregate  proceeds of $55,000 pursuant to assignment of debt,
which amount was utilized to off-set the aggregate  amounts due and owing to Mr.
Spindler.  Therefore, at September 30, 2003, Mr. Spindler was owed approximately
$77,776 for accrued advances, consulting fees and interest.

         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  September  30, 2003,  $79,500 was accrued for
such monthly fees for  services  rendered to the Company and to Petrogen,  which
commenced  September  2001.  Of the  $79,500,  $58,500  is due and  owing by the
Company to Mr. Kerrigan as at September 31, 2003. Furthermore,  Mr. Kerrigan has
advanced funds to the Company,  and incurred  expenses on behalf of the Company.
These amounts,  including,  in addition to the consulting  fees owed,  accrue 1%
interest per month, and are without specific  repayment terms. As of the date of
this Annual Report,  Mr. Kerrigan  exercised 100,000 Stock Options for aggregate
proceeds of $55,000,  which amount was utilized to off-set the aggregate amounts
due and owing to Mr.  Kerrigan.  Therefore,  at September 30, 2003, Mr. Kerrigan
was owed  approximately  $153,164  for  accrued  advances,  consulting  fees and
interest. See "Summary Compensation Table" below.

         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"),  provided


<PAGE>


that only  $7,500.00  of the Fee shall  actually  be paid by the  Company to Mr.
Henry from the effective  date up to and including  January 2004 and  thereafter
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.

         CONSULTING SERVICES AGREEMENT

         As of August 8, 2003,  the following  amounts were due and owing to ICI
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.  See "Item 3.
Legal  Proceedings",  "Item 5. Market for Common Equity and Related  Stockholder
Matters"  and  "Item  6,  Management's   Discussion  and  Analysis  or  Plan  of
Operation." See "Summary Compensation Table" below.

<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>

                                                  (1)
Gene D. Wilson        2000     0        0     $ 1,050    0        0         0       0
Prior Director        2001     0        0           0    0        0         0       0
                      2002     n/a
                      2003     n/a

Jurgen A. Wolf        2001     0        0           0    0        0         0       0
Prior Director        2002     0        0           0    0        0         0       0
                      2003     n/a

                                                  (2)
Grant Atkins          2000     0        0           0    0        0         0       0
Director              2001     0        0     $18,500    0        0         0       0
                      2002     0        0     $19,625    0        0         0       0
                      2003     0        0     $          0        0         0       0

                                                  (3)
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
                      2003     0        0     $94,645    0    1,250,000*    0       0




<PAGE>


                                                  (4)
L. William Kerrigan   2000     0        0           0    0        0         0       0
Exec. Vice Pres./     2001     0        0     $25,000    0        0         0       0
CFO and Director      2002     0        0     $75,000    0        0         0       0
                      2003     0        0     $79,500    0      675,000*    0       0

Neville M. Henry      2003     n/a      0           0    0    1,400,000*    0       0
Pres.

Timothy G. Russell    2003     0        0     $   -0-    0      358,000*    0       0
Director
_______________________________________________________________________________________

<FN>

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

         (1)
         Received pursuant to a contractual  arrangement between the Company and
Gene D.  Wilson  during  the time he was a  director  of the  Company  regarding
certain New Mexico prospects.
         (2)
         Grant Atkins indirectly receives  compensation from the Company through
the previous contractual relationship between the Company and ICI.
         (3)
         Amounts  reflected  are the  accrual  of  compensation  to be  received
pursuant to monthly  amounts  invoiced by Mr.  Spindler for consulting  services
performed, of which $64,145 has been received by Mr. Spindler.
         (4)
         Amounts  reflected  are the  accrual  of  compensation  to be  received
pursuant to monthly  amounts  invoiced by Mr.  Kerrigan for consulting  services
performed, of which $21,000 has been received by Mr. Kerrigan.

</FN>
</TABLE>


STOCK OPTION PLAN

         As of the  date  of this  Annual  Report,  there  are an  aggregate  of
8,000,000  stock  options  granted and  outstanding.  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.

<TABLE>
<CAPTION>

         OPTIONS/SAR GRANTS TABLE

____________________________________________________________________________________
                   Number of
                   Securities
                   Underlying     Percent of Total                        Date of
Name               Options        Options Granted      Exercise Price     Expiration
____________________________________________________________________________________
<S>                 <C>                <C>                 <C>             <C>

                          (1)
Investor            1,000,000          12.50%              $0.50           02/12/06
 Communications
 International,
 Inc.(2)


Sacha Spindler        500,000                              $0.50           02/12/06
                      325,000                               0.25           09/10/06
                      175,000                               0.50           09/10/06
                      250,000                               0.20           11/01/08
                    _________

              Total 1,250,000          15.63%


<PAGE>


William Kerrigan      300,000                              $0.50           02/12/06
                      225,000                               0.25           09/10/06
                      100,000                               0.50           09/10/06
                    _________

              Total   625,000           7.81%

                          (3)
Neville Henry         200,000                              $0.25           11/01/08
                      600,000                               0.25           11/01/08
                      600,000                               0.25           11/01/13
                    _________
                          (4)
              Total 1,400,000          17.50%

                          (5)
Timothy Russell        18,000                              $0.50           02/12/06
                       40,000                               0.25           09/10/06
                       50,000                               0.50           09/10/06
                      250,000                               0.75           09/10/06
                    _________
                          (6)
              Total   358,000           4.48%

Total               4,683,000          57.54%
____________________________________________________________________________________

<FN>

  (1)
    Pursuant to certain Notice and Agreements of Option,  certain contractors to
ICI exercised  1,000,000 Stock Options at the exercise price of $0.50 per option
to acquire 1,000,000 shares of the Common Stock of the Company.  Pursuant to the
terms and provisions of the Consulting Agreement, the Company previously granted
to ICI  1,000,000  Stock  Options  (which  were  subject to an S-8  registration
statement filed with the Securities and Exchange Commission). In connection with
the  exercise of the Stock  Options,  the shares of Common  Stock of the Company
were issued to certain  contractors  of ICI who have provided bona fide services
to the Company under the Consulting Agreement.
  (2)
    Grant Atkins,  a director of the Company until August 8, 2003,  was employed
by and a part of the management team of ICI.
  (3)
    Of the 1,400,000  Stock Options  granted to Mr. Henry:  (i) 1,200,000  Stock
Options vest over a thirty-six-month period commencing from November 1, 2003 (of
which 33,333 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 thirty-six-month period with cancellation twelve months from
each  vesting  period (of which 33,333 Stock  Options  exercisable  at $0.25 per
share  expiring  November  1,  2008 have  vested  as of the date of this  Annual
Report).
 (4)
   Calculated  upon an aggregate  8,000,000 Stock Options granted as of the date
of this Annual Report and assuming that all Stock Options will vest accordingly.
 (5)
   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 from September 10, 2003 (of which 13,336 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


<PAGE>


commencing from September 10, 2003 (of which 16,664 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 from September 10, 2003 (of which 83,336 Stock Options exercisable at
$0.75 per share  expiring  September 10, 2006 have vested as of the date of this
Annual Report).
 (6)
   Calculated  upon an aggregate of 8,000,000  Stock  Options  granted as of the
date of this  Annual  Report  and  assuming  that all  Stock  Options  will vest
accordingly.

</FN>
</TABLE>

<TABLE>
<CAPTION>


         AGGREGATED OPTIONS/SAR EXERCISES
__________________________________________________________________________________________________
                                                       Number of Securities         Value of
               Shares Acquired                        Underlying Unexercised      Unexercised in-
Name             On Exercise       Value Realized            Options             the-money Options
__________________________________________________________________________________________________
<S>               <C>                   <C>                 <C>                         <C>

                        (1)
Investor          1,000,000             n/a                       -0-                   -0-
 Communications
 International,
 Inc.

                        (2)
Sacha               100,000           $350.00               1,150,000                   n/a
 Spindler

                        (3)
William             100,000           $350.00                 525,000                   n/a
 Kerrigan
__________________________________________________________________________________________________

<FN>

 (1)
   Pursuant to certain Notice and Agreements of Option,  certain  contractors to
ICI have  exercised  1,000,000  Stock Options at the exercise price of $0.50 per
option to acquire 1,000,000 shares of the Common Stock of the Company.  Pursuant
to the terms and provisions of the Consulting  Services  Agreement,  the Company
previously  granted to ICI 1,000,000 Stock Options (which were subject to an S-8
registration  statement filed with the Securities and Exchange  Commission).  In
connection with the exercise of the Stock Options, the shares of Common Stock of
the Company were issued to certain  contractors  of ICI who have  provided  bona
fide services to the Company under the Consulting Services Agreement. Therefore,
no value was realized by ICI pursuant to the exercise of such Stock Options.
 (2)
  Pursuant to certain Notice and Agreements of Option, Mr. Spindler exercised an
aggregate 100,000 Stock Options to acquire 100,000 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; and (ii) 90,000 Stock Options were
exercised on September 29, 2003 at an exercise  price of $0.25 per share.  Based
upon an average  trading  price of $0.22 on  September  23,  2003 and an average
trading  price of $0.285  on  September  29,  2003,  Mr.  Spindler  realized  an
aggregate net value of approximately $350.00.
 (3)
  Pursuant to certain Notice and Agreements of Option, Mr. Kerrigan exercised an
aggregate 100,000 Stock Options to acquire 100,000 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; and (ii) 90,000 Stock Options were
exercised on September 29, 2003 at an exercise  price of $0.25 per share.  Based
upon an average  trading  price of $0.22 on  September  23,  2003 and an average
trading  price of $0.285  on  September  29,  2003,  Mr.  Kerrigan  realized  an
aggregate net loss of approximately $350.00.

</FN>
</TABLE>


<PAGE>


ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
         RELATED STOCKHOLDER 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  10,613,291  shares of
Common Stock issued and outstanding.

<TABLE>
<CAPTION>

_______________________________________________________________________________________
Title of Class          Name and Address of          Amount and Nature          Percent
                         Beneficial Owner                of Class              of Class
_______________________________________________________________________________________
<S>                                                      <C>                    <C>

                                                            (1)(2)
Common Stock       Sacha Spindler                        3,359,485              28.56%
                   Unit Holdings Ltd.
                   4450 Arapahoe Avenue
                   Boulder, Colorado 80303

                                                            (1)(3)
Common Stock       L. William Kerrigan                   2,615,932              23.49%
                   3130 Caldwell Road
                   Ashland City, Tennessee 37015

                                                               (4)
Common Stock       Neville M. Henry                      1,400,000              13.19%
                   3200 Southwest Freeway
                   Suite 3300
                   Houston, Texas 77027

                                                               (5)
Common Stock       Timothy G. Russell                      380,233               3.58%
                   3200 Southwest Freeway
                   Suite 3300
                   Houston, Texas 77027

                                                               (1)
Common Stock       Petrogen International Ltd.           1,750,000              16.49%
                   3200 Southwest Freeway
                   Suite 3300
                   Houston, Texas 77027

                                                               (6)
Common Stock       All current officers and              7,755,650              55.13%
                   directors as a group
                   (4 persons)
_______________________________________________________________________________________


<PAGE>


<FN>

 (1)
     These are restricted shares of common stock.
 (2)
     Held of record either by Sacha Spindler or Unit Holdings Ltd., of which Mr.
Spindler is the sole  director/officer  and majority  shareholder.  Includes the
assumption  of the  exercise of  1,150,000  Stock  Options to acquire  1,150,000
shares of Common Stock. Mr. Sacha H. Spindler is an initial founding shareholder
of Petrogen.
 (3)
     Includes the assumption of the exercise of 525,000 Stock Options to acquire
525,000 shares of Common Stock.  Mr. L. William  Kerrigan is an initial founding
shareholder of Petrogen.
 (4)
     This  figure  includes  the  assumption  of the  exercise  by Mr.  Henry of
1,400,000 Stock Options to acquire  1,400,000  shares of Common Stock. As of the
date of this Annual Report, an aggregate of 66,666 Stock Options have vested. Of
the remaining 1,360,000 Stock Options:  (i) 580,000 Stock Options exercisable at
$0.25 per share  expiring  November 1, 2013 will vest over the next  thirty-four
months;  and (ii) 580,000 Stock Options  exercisable at $0.25 per share expiring
November 1, 2008 will vest over the next thirty-four  months.  As of the date of
this Annual Report, no Stock Options have been exercised by Mr. Henry.
 (5)
     This figure  includes  the  assumption  of the  exercise by Mr.  Russell of
358,000 Stock Options to acquire  358,000 shares of Common Stock. As of the date
of this Annual Report, an aggregate of 131,336 Stock Options have vested. Of the
remaining 226,664 Stock Options:  (i) 26,664 Stock Options  exercisable at $0.25
per share expiring September 10, 2006 will vest over the next eight months; (ii)
33,336  Stock  Options  exercisable  at $0.50 per share  will vest over the next
eight months;  and (iii) 166,664  Stock Options  exercisable  at $0.75 per share
expiring September 10, 2006 will vest over the next eight months.
 (6)
     Includes  the  assumption  of the exercise of  3,455,233  Stock  Options to
acquire 3,455,233 shares of Common Stock.

</FN>
</TABLE>

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 September 30, 2003, $94,645 was accrued for such
monthly  fees for  services  rendered  to the  Company  and to  Petrogen,  which
commenced September 2001. Of the $94,645, approximately $30,500 is due and owing
by the Company to Mr.  Spindler  as at  September  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. As of the date of
this Annual Report,  Mr. Spindler  exercised 100,000 Stock Options for aggregate
proceeds of $55,000 , which amount was utilized to off-set the aggregate amounts
due and owing to Mr.  Spindler.  Therefore,  at September 30, 2003, Mr. Spindler
was  owed  approximately  $77,776  for  accrued  advances,  consulting  fees and
interest.

         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 September 30, 2003,  $79,500 was accrued
for such  monthly  fees for  services  rendered to the Company and to  Petrogen,
which commenced September 2001. Of the $79,500,  $58,500 is due and owing by the


<PAGE>


Company to Mr. Kerrigan as at September 31, 2003. Furthermore,  Mr. Kerrigan has
advanced funds to the Company,  and incurred  expenses on behalf of the Company.
These amounts,  including,  in addition to the consulting  fees owed,  accrue 1%
interest per month, and are without specific  repayment terms. As of the date of
this Annual Report,  Mr. Kerrigan  exercised 100,000 Stock Options for aggregate
proceeds of $55,000 , which amount was utilized to off-set the aggregate amounts
due and owing to Mr.  Kerrigan.  Therefore,  at September 30, 2003, Mr. Kerrigan
was owed  approximately  $153,164  for  accrued  advances,  consulting  fees and
interest.

         HENRY CONSULTING AGREEMENT

         The Company,  Petrogen and Neville Henry, the President of the Company,
entered into a management  consulting services agreement dated November 18, 2003
and effective  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"),  provided  that only
$7,500.00 of the Fee shall actually be paid by the Company to Mr. Henry from the
effective date up to and including  January 2004 and thereafter  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  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.


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

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

                   10.1 Management Consulting Services Agreement between
                        Petrogen Corp., Petrogen, Inc. and Neville M. Henry
                        dated November 18, 2003 and effective January 1, 2004.

                   10.02 Management Services Agreement between Petrogen Corp.,
                         Petrogen, Inc. and Timothy Roche dated March 10, 2003.

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


<PAGE>


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

                   32.1 Certification of Chief Executive Officer and Chief
                        Financial Officer 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. 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.

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: January 14, 2004                   By:  /s/ SACHA H. SPINDLER
                                              __________________________________
                                              Sacha H. Spindler
                                              Chief Executive Officer


Dated: January 14, 2004                   By: /s/ L. WILLIAM KERRIGAN
                                              __________________________________
                                              L. William Kerrigan
                                              Executive Vice President and
                                              Chief Financial Officer