##### Table of Contents



United States Securities and Exchange Commission
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended September 30, 2010
 OR
 o
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 1-31900
 AMERICAN OIL & GAS INC.
  Nevada
    
    88-0451554(State or jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)1050 17th Street, Suite 2400, Denver, CO
    
    80265(Address of principal executive offices)
    
    (Zip Code)
 (303) 991-0173
 Yes þ No o
 Yes o No o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o *
(*Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 Yes o No þ




---



##### 



AMERICAN OIL & GAS INC.
FORM 10-Q
INDEX
 PART I. FINANCIAL INFORMATIONItem 1. Financial Statements
    
    
    3Condensed Consolidated Balance Sheets  September 30, 2010 and December 31, 2009
    
    
    3Condensed Consolidated Statements of Operation  Three and Nine Months Ended September 30, 2010 and 2009
    
    
    4Condensed Consolidated Statements of Cash Flows  Nine Months Ended September 30, 2010 and 2009
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16Item 3. Quantitative and Qualitative Disclosures about Market Risks
    
    
    21Item 4. Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    23Item 6. Exhibits
    
    
    25Signatures
    
    
    25Exhibit 2.5Exhibit 10(ii)Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2
   2




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##### Table of Contents



PART I
 
 ITEM 1. FINANCIAL STATEMENTS
 AMERICAN OIL & GAS INC.
 
 CONDENSED CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 September 30,
    
    
    December 31,2010
    
    
    2009ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    13,806,712
    
    
    $
    40,632,284Short-term investments
    
    
    1,650,000
    
    
    
    2,925,000Accounts receivable
    
    
    19,201,075
    
    
    
    564,533Well equipment inventory
    
    
    1,353,183
    
    
    
    1,269,774Prepaid expenses
    
    
    131,024
    
    
    
    149,991Current deferred tax assets
    
    
    114,763
    
    
    
    Total current assets
    
    
    36,256,757
    
    
    
    45,541,582PROPERTY AND EQUIPMENT, AT COSTOil and gas properties, full cost method (including unevaluated costs
of $76,347,322 at 9/30/10 and $35,611,363 at 12/31/09)
    
    
    122,422,388
    
    
    
    44,454,942Other property and equipment
    
    
    449,270
    
    
    
    406,273Total property and equipment
    
    
    122,871,658
    
    
    
    44,861,215Less-accumulated depreciation, depletion and amortization
    
    
    (8,382,557
    )
    
    
    (5,771,547
    )Net property and equipment
    
    
    114,489,101
    
    
    
    39,089,668OTHER ASSETSDrilling prepayments
    
    
    269,020
    
    
    
    Intangible asset, net of accumulated amortization
    
    
    
    
    
    
    60,000Other
    
    
    130,752
    
    
    
    80,652$
    151,145,630
    
    
    $
    84,771,902LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable and accrued liabilities
    
    $
    18,369,405
    
    
    $
    1,032,248Income taxes payable
    
    
    
    
    
    
    Total current liabilities
    
    
    18,369,405
    
    
    
    1,032,248LONG-TERM LIABILITIESAsset retirement obligations
    
    
    225,099
    
    
    
    436,487Deferred income taxes
    
    
    6,239,763
    
    
    
    Total long-term liabilities
    
    
    6,464,862
    
    
    
    436,487COMMITMENTS AND CONTINGENCIES(Note 14)STOCKHOLDERS EQUITYPreferred stock, $.001 par value, authorized 24,100,000 shares; no
outstanding shares at 09/30/10 and 12/31/09
    
    
    
    
    
    
    Common stock, $.001 par value, authorized 100,000,000 shares; issued and
outstanding  61,029,656 shares at 9/30/10, 57,472,399 shares at 12/31/09
    
    
    61,030
    
    
    
    57,472Additional paid-in capital
    
    
    137,685,912
    
    
    
    122,267,594Accumulated deficit
    
    
    (11,435,579
    )
    
    
    (39,096,899
    )Accumulated other comprehensive income
    
    
    
    
    
    
    75,000Total equity
    
    
    126,311,363
    
    
    
    83,303,167$
    151,145,630
    
    
    $
    84,771,902
   3




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AMERICAN OIL & GAS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATION
 (UNAUDITED)
 Three months ended
    
    
    Nine months endedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009REVENUES:Oil and gas sales
    
    $
    4,806,383
    
    
    $
    462,553
    
    
    $
    8,083,918
    
    
    $
    1,285,705OPERATING EXPENSES:Lease operating
    
    
    912,493
    
    
    
    278,429
    
    
    
    1,777,764
    
    
    
    848,354General and administrative
    
    
    2,804,686
    
    
    
    1,198,188
    
    
    
    6,168,688
    
    
    
    4,242,539Depletion, depreciation and amortization
    
    
    1,621,413
    
    
    
    276,417
    
    
    
    2,671,011
    
    
    
    738,732Impairment of oil & gas properties
    
    
    
    
    
    
    1,850,000
    
    
    
    
    
    
    
    3,950,000Impairment of well equipment inventory
    
    
    26,571
    
    
    
    409,852
    
    
    
    200,356
    
    
    
    565,991Accretion of asset retirement obligation
    
    
    3,741
    
    
    
    9,837
    
    
    
    16,849
    
    
    
    30,0575,368,904
    
    
    
    4,022,723
    
    
    
    10,834,668
    
    
    
    10,375,673GAIN ON SALE OF OIL & GAS PROPERTIES
    
    
    
    
    
    
    
    
    
    
    36,400,000
    
    
    
    INCOME (LOSS) FROM OPERATIONS
    
    
    (562,521
    )
    
    
    (3,560,170
    )
    
    
    33,649,250
    
    
    
    (9,089,968
    )OTHER INCOME (LOSS):Investment income
    
    
    38,255
    
    
    
    9,632
    
    
    
    137,070
    
    
    
    47,949INCOME (LOSS) BEFORE INCOME TAXES
    
    
    (524,266
    )
    
    
    (3,550,538
    )
    
    
    33,786,320
    
    
    
    (9,042,019
    )Income tax provision (benefit) -current
    
    
    (200,000
    )
    
    
    (149,965
    )
    
    
    
    
    
    
    (149,965
    )Income tax provision (benefit) -deferred
    
    
    (205,000
    )
    
    
    
    
    
    
    6,125,000
    
    
    
    NET INCOME (LOSS)
    
    $
    (119,266
    )
    
    $
    (3,400,573
    )
    
    $
    27,661,320
    
    
    $
    (8,892,054
    )NET INCOME (LOSS) PER SHARE:Basic
    
    $
    (0.00
    )
    
    $
    (0.07
    )
    
    $
    0.46
    
    
    $
    (0.18
    )Diluted
    
    $
    (0.00
    )
    
    $
    (0.07
    )
    
    $
    0.45
    
    
    $
    (0.18
    )Weighted average common shares outstanding:Basic
    
    
    61,029,384
    
    
    
    48,307,399
    
    
    
    59,790,245
    
    
    
    48,284,846Diluted
    
    
    61,029,384
    
    
    
    48,307,399
    
    
    
    61,108,977
    
    
    
    48,284,846
   4




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AMERICAN OIL & GAS INC.
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 UNAUDITED
 Nine months endedSeptember 302010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    27,661,320
    
    
    $
    (8,892,054
    )Adjustments to reconcile net income (loss) to
net cash from operating activities:Gain on sale of oil and gas assets
    
    
    (36,400,000
    )
    
    
    Deferred income taxes
    
    
    6,125,000
    
    
    
    Depletion, depreciation and amortization
    
    
    2,671,011
    
    
    
    738,732Share-based compensation expenses
    
    
    808,977
    
    
    
    823,130Impairment of oil and gas properties
    
    
    
    
    
    
    3,950,000Impairment of well equipment inventory
    
    
    200,356
    
    
    
    565,991Accretion of asset retirement obligations
    
    
    16,849
    
    
    
    30,057Changes in assets and liabilities:Decrease (increase) in receivables
    
    
    (4,513,769
    )
    
    
    271,629Decrease (increase) in prepaid expenses
    
    
    18,967
    
    
    
    87,080Decrease (increase) in well equipment inventory
    
    
    (283,765
    )
    
    
    (676,696
    )Increase (decrease) in accounts payable and accrued liabilities
    
    
    999,936
    
    
    
    45,057Net cash used in operating activities
    
    
    (2,695,118
    )
    
    
    (3,057,074
    )CASH FLOWS FROM INVESTING ACTIVITIESCash proceeds from sale of oil and gas properties
    
    
    47,774,112
    
    
    
    Cash paid for oil and gas property acquisition, exploration & development
    
    
    (73,546,599
    )
    
    
    (9,728,311
    )Drilling prepayments
    
    
    (269,020
    )Proceeds from redemptions and sales of short-term investments
    
    
    1,200,000
    
    
    
    2,600,000Cash paid for office equipment
    
    
    (42,997
    )
    
    
    (36,464
    )Cash paid for other long-term assets
    
    
    (50,100
    )
    
    
    (50,100
    )Net cash used in investing activities
    
    
    (24,934,604
    )
    
    
    (7,214,875
    )CASH FLOWS FROM FINANCING ACTIVITIESStock option exercises
    
    
    716,650
    
    
    
    Stock warrant exercise
    
    
    87,500
    
    
    
    Net cash provided by financing activities
    
    
    804,150
    
    
    
    NET DECREASE IN CASH
    
    
    (26,825,572
    )
    
    
    (10,271,949
    )CASH, BEGINNING OF PERIODS
    
    
    40,632,284
    
    
    
    23,269,725CASH, END OF PERIODS
    
    $
    13,806,712
    
    
    $
    12,997,776SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATIONCash paid for interest
    
    $
    
    
    
    $
    Cash paid for income taxes
    
    $
    
    
    
    $
    130,000SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING
AND FINANCING ACTIVITIESOil and gas properties acquired for stock
    
    $
    13,804,000
    
    
    $
    Exchange of oil and gas properties
    
    $
    
    
    
    $
    420,000Net increase in payables for capital expenditures
    
    $
    16,337,221
    
    
    $
    Net increase in receivables for capital expenditures
    
    $
    15,908,110
    
    
    $
    
   5




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AMERICAN OIL & GAS INC.
 
 Notes to Condensed Consolidated Financial Statements
 (UNAUDITED)
 September 30, 2010
 NOTE 1  COMPANY AND BUSINESS
   NOTE 2  BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
  FASB Accounting Standards Codification, 
  USE OF ESTIMATES
 SIGNIFICANT ACCOUNTING POLICIES
    6




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RECENT ACCOUNTING PRONOUNCEMENTS
 GAS BALANCING
 INVENTORY
 RECLASSIFICATION 
 ASSET RETIREMENT OBLIGATIONS 
 Three months ended
    
    
    Nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Beginning asset retirement obligation
    
    $
    151,309
    
    
    $
    492,115
    
    
    $
    436,488
    
    
    $
    430,686Liabilities incurred
    
    
    73,791
    
    
    
    142
    
    
    
    125,009
    
    
    
    53,509Liabilities settled
    
    
    
    
    
    
    (79,432
    )
    
    
    (341,709
    )
    
    
    (79,432
    )Revisions in estimated liabilities
    
    
    (3,742
    )
    
    
    (10,830
    )
    
    
    (11,538
    )
    
    
    (22,988
    )Accretion
    
    
    3,741
    
    
    
    9,837
    
    
    
    16,849
    
    
    
    30,057Ending asset retirement obligation
    
    $
    225,099
    
    
    $
    411,832
    
    
    
    225,099
    
    
    $
    411,832Current portion of obligation, end of period
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 NET INCOME (LOSS) PER SHARE
  7




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NOTE 3  PROPERTY AND EQUIPMENT
  September 30,
    
    
    December 31,2010
    
    
    2009Oil and gas properties, full cost methodUnevaluated costs, not yet subject to amortization
    
    $
    76,347,322
    
    
    $
    35,611,363Evaluated costs
    
    
    46,075,066
    
    
    
    8,843,579122,422,388
    
    
    
    44,454,942Less accumulated amortization
    
    
    (8,061,016
    )
    
    
    (5,510,016
    )Net carrying value of oil and gas properties
    
    
    114,361,372
    
    
    
    38,944,926Cost of other property and equipment
    
    
    449,270
    
    
    
    406,273Less accumulated depreciation and amortization
    
    
    (321,541
    )
    
    
    (261,531
    )Net property and equipment
    
    $
    114,489,101
    
    
    $
    39,089,668
   Sales of Oil & Gas Properties
   st
  Unevaluated Oil and Gas Properties
   8




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Ceiling Impairment
   Nine-month PeriodEnded September 30,2010
    
    
    2009Amortization of costs for evaluated oil and gas properties
    
    $
    2,551,000
    
    
    $
    546,000Amortization of Intangible Asset
    
    
    60,000
    
    
    
    135,000Depreciation of office equipment, furniture and software
    
    
    60,011
    
    
    
    57,732Total DD&A expense
    
    $
    2,671,011
    
    
    $
    738,732
 NOTE 4  SIGNIFICANT CHANGES IN PROVED RESERVE ESTIMATES
  Oil (bbls)
    
    
    Gas (mcf)Proved reserves at December 31, 2009
    
    
    147,510
    
    
    
    956,550Less proved reserves of properties sold 3/31/10
    
    
    (22,957
    )
    
    
    (392,601
    )Less production for nine months ended 9/30/10
    
    
    (119,374
    )
    
    
    (68,324
    )Proved reserve additions, nine months ended 9/30/10
    
    
    1,815,264
    
    
    
    2,891,687Net revisions
    
    
    155,733
    
    
    
    (143,937
    )Proved reserves at September 30, 2010
    
    
    1,976,176
    
    
    
    3,243,375Percentage net change in proved reserves
    
    
    1,240
    %
    
    
    239
    %
   NOTE 5  SHORT-TERM INVESTMENTS
   9




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CarryingPar Value
    
    
    ValueAs of December 31, 2009
    
    $
    3,150,000
    
    
    $
    2,925,000Increase in estimated fair value
    
    
    n/a
    
    
    
    25,000As of March 31, 2010
    
    
    3,150,000
    
    
    
    2,950,000Less redemption in May 2010
    
    
    (1,200,000
    )
    
    
    (1,200,000
    )Decrease in estimated fair value at 9/30/10
    
    
    n/a
    
    
    
    (100,000
    )As of September 30, 2010
    
    $
    1,950,000
    
    
    $
    1,650,000
      NOTE 6  FAIR VALUE MEASUREMENTS
 Fair Value Measurements and Disclosures
  
    
    Level 1  Quoted prices in active markets for identical assets or liabilities
    
    Level 2  Quoted prices in active markets for similar assets and liabilities, quoted
prices for identical or similar instruments in markets that are not active, and
model-derived valuations whose inputs are observable or whose significant value drivers
are observable
    
    Level 3  Significant inputs to the valuation model which are unobservable.
  10




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Level 1
    
    
    Level 2
    
    
    Level 3Total
    
    
    inputs
    
    
    inputs
    
    
    inputsAs of December 31, 2009Assets:Short-term investments available for sale:Auction Rate Preferred Shares (ARPS)
    
    $
    2,925,000
    
    
    $
    
    
    
    $
    
    
    
    $
    2,925,000Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    As of September 30, 2010Assets:Short-term investments available for sale:Auction Rate Preferred Shares (ARPS)
    
    $
    1,650,000
    
    
    $
    
    
    
    $
    
    
    
    $
    1,650,000Liabilities
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    NOTE 7  INCOME TAXES
 Income Taxes,
    11




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NOTE 8  EQUITY
 Common Stock
  
    
    On January 26, 2010, we issued to each of our three independent directors 7,519 shares
of common stock.
 
    
    In February 2010, our Vice-President of Land earned on the third anniversary of his
employment 4,000 shares of our common stock.
 
    
    During the quarter ended March 31, 2010, a Director exercised his option, buying 12,500
shares of our common stock, at a $2.38 exercise price per share.
 
    
    During the quarter ended March 31, 2010, our CFO exercised his option, buying 68,000
shares of our common stock, at an exercise price of $2.00 per share.
 
    
    During the quarter ended March 31, 2010, four non-officer employees exercised options to
purchase a total of 121,400 shares of our common stock, at an exercise price of $2.00 per
share.
 
    
    During the quarter ended June 30, 2010, three option holders exercised stock options,
buying a total of 213,800 shares at a total exercise cost of $312,850.
 
    
    During the quarter ended September 30, 2010, an independent contractor exercised his
warrant to purchase 25,000 shares of our common stock at an exercise price of $3.50 per
share.
 
    
    For the quarter ended March 31, 2010, Additional Paid-In Capital increased by $315,499
for recognition of share-based compensation consisting of (i) $174,762 in share-based
compensation related to stock options, (ii) $50,734 related to accruals for granted stock
vesting after grant and (iii) $90,003 relating to stock granted to directors with limited
vesting restrictions.
 
    
    For the quarter ended June 30, 2010, Additional Paid-In Capital increased by $258,914
for recognition of share-based compensation consisting of (i) $170,780 in share-based
compensation related to stock options, and (ii) $88,134 related to accruals for granted
stock vesting after grant.
 
    
    For the quarter ended September 30, 2010, Additional Paid-In Capital increased by
$234,565 for recognition of share-based compensation consisting of (i) $117,631 in
share-based compensation related to stock options and warrants, and (ii) $116,934 related
to accruals for granted stock vesting after grant.
 
    
    On July 1, 2010, we issued and held in escrow a total of 110,000 restricted, unvested
 shares of common stock granted in April 2010 among all employees except for four employees
who were either directors or owned more than 500,000 shares of Company common stock.
 
    
    On July 1, 2010, we issued and held in escrow 80,000 restricted unvested shares of
common stock granted on May 28, 2001 to a petroleum engineer hired to serve as our
Completions and Production Manager for our Goliath Project.
 
    
    Effective March 31, 2010 with the closing of the sale of certain Powder River Basin oil
and gas properties, we increased Additional Paid-In Capital by $13,804,000 in recognition
of the sale fulfilling all obligations of North Finn LLC for its right to receive 2,900,000
restricted shares of our common stock. In May 2010, North Finn LLC formally exercised its
option and received the 2,900,000 shares.
  12




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Warrants
   Stock Options
  Other Comprehensive Income
  NOTE 9  EARNINGS PER SHARE
  Three months ended
    
    
    Nine months endedSeptember 30
    
    
    September 302010
    
    
    2009
    
    
    2010
    
    
    2009Net income (loss)
    
    $
    (119,266
    )
    
    $
    (3,400,573
    )
    
    $
    27,661,320
    
    
    $
    (8,892,054
    )Adjustments for dilution
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net income (loss) adjusted for dilution effects
    
    $
    (119,266
    )
    
    $
    (3,400,573
    )
    
    $
    27,661,320
    
    
    $
    (8,892,054
    )Basic Weighted Average Common Shares
    
    
    61,029,384
    
    
    
    48,307,399
    
    
    
    59,790,245
    
    
    
    48,284,846Add dilutive effects of options and warrants
    
    
    
    
    
    
    
    
    
    
    1,318,732
    
    
    
    Diluted Weighted Ave. Shares Outstanding
    
    
    61,029,384
    
    
    
    48,307,399
    
    
    
    61,108,977
    
    
    
    48,284,846Net income (loss) per common share, basic
    
    $
    (0.00
    )
    
    $
    (0.07
    )
    
    $
    0.46
    
    
    $
    (0.18
    )Net income (loss) per common share, diluted
    
    $
    (0.00
    )
    
    $
    (0.07
    )
    
    $
    0.45
    
    
    $
    (0.18
    )
 NOTE 10  PROPOSED MERGER OF AMERICAN INTO HESS SUBSIDIARY
 Agreement and Plan of Merger
    13




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NOTE 11  HESS CREDIT FACILITY
  NOTE 12  MATERIAL RELATED PARTY TRANSACTIONS
  NOTE 13  ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE
  
    
    Approximately $15.3 million in receivables from other working interest owners for
their share of capital expenditures and operating costs for wells and projects we
operate,
 
    
    Approximately $3.1 million in accrued oil and gas revenues, net of production taxes,
at September 30, 2010 (including approximately $2.4 million due from Hess),
 
    
    A$0.8 million receivable for remaining reimbursement of costs we had incurred on
behalf of an unrelated oil and gas company, and less
 
    
    An allowance for doubtful accounts of $15,011.
  
    
    Approximately $10 million in invoiced trade payables, primarily for cost in
drilling and completing wells in North Dakota, including costs reimbursable to us from
other working interest owners in the wells we operate for various working interest
owner groups, and
 
    
    Approximately $8 million in accrued liabilities, primarily for uninvoiced costs
incurred as of September 30, 2010 in the drilling and completion of wells in North
Dakota.
  NOTE 14 COMMITMENTS AND CONTINGENCIES
    15




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##### Table of Contents



NOTE 15  SUBSEQUENT EVENTS
  IMPORTANT ADDITIONAL
INFORMATION
 INVESTORS AND SECURITY HOLDERS OF AMERICAN ARE URGED TO READ
THE PROXY STATEMENT/PROSPECTUS AND OTHER DOCUMENTS REGARDING THE PROPOSED
TRANSACTION THAT WILL BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY
WHEN THEY BECOME AVAILABLE BECAUSE THEY DO AND WILL CONTAIN IMPORTANT
INFORMATION ABOUT THE PROPOSED TRANSACTION.
    
 ITEM 2.
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
    WELL NAME
    
    LOCATION
    
    STATUSSummerfield 15-15H 
WI=35%
NRI=28.4%
    
    Sec. 15
T147N-R96W, 
Dunn County, ND
    
    Commenced production in May
2010. IP rate of 2,799 barrels
of oil equivalent (BOE).
Average daily rate for initial
30, 60, 90, 120 and 150 days
of 1,046, 812, 693, 608 and
547 BOE, respectively. Total
cumulative production at
10-31-2010 (167 actual
production days) of 86,668 BOE
(71,113 bbls of oil and 76
mmcf of natural gas).Tong Trust 1-20H 
WI=25.3%
NRI=20.2%
    
    Sec. 20
T157N-R96W, 
Williams County, ND
    
    Commenced Production March
2010 at 1,421 BOE. Average
daily rate for initial 30, 60,
90, 120 and 150 days of 652,
496, 401, 346 and 309 BOE,
respectively. Total
cumulative production at
11-5-2010 (173 actual
production days) of 49,812 BOE
(38,283 bbls of oil and 70
mmcf of natural gas).Ron Viall 1-25H 
WI=94%
NRI=75.2%
    
    Sec. 25
T156N-R98W 
Williams County, ND
    
    Commenced production May 2010.
IP rate of 2,844 BOE. Average
daily rate for initial 30, 60,
90 and 120 days of 987, 739,
628 and 561BOE, respectively.
Total cumulative production at
11-5-2010 (144 actual
production days) of 76,534 BOE
(56,075 bbls of oil and 123
mmcf of natural gas).
  16




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##### Table of Contents



WELL NAME
    
    LOCATION
    
    STATUSBergstrom 15-23H 
WI=95%
NRI=76%
    
    Sec. 23
T156N-R98W
Williams County, ND
    
    Commenced production August
2010. IP rate of 3,049 BOE.
Average daily rate for initial
30 and 60 days of 1,061 and
860 BOE, respectively. Total
cumulative production at
11-5-2010 (76 actual
production days) of 58,875 BOE
(45,861 bbls of oil and 78
mmcf of natural gas).Johnson 15-35H
WI=81.9%
NRI=65.5%
    
    Sec. 35
T156N-R98W
Williams County, ND
    
    Commenced production August
2010. Due to North Dakota
Industrial Commission orders,
production flow was choked
back upon initial production
due to excessive smoke from
the flare. Average daily rate
for initial 30 and 60 days of
806 and 711 BOE, respectively.
Total cumulative production
at 11-5-2010 (71 actual
production days) of 47,348 BOE
(36,188 bbls of oil and 67
mmcf of natural gas).Hickel 15-35H
WI=62.3%
NRI=49.8%
    
    Sec. 35
T157N-R97W
Williams County, ND
    
    Drilling operations concluded
on July 27, 2010. Completion
assembly installed to
facilitate a 35-stage
hydraulic fracture stimulation
completion. Remedial work is
underway to prepare this well
for frac as frac crews are
scheduled to commence
completion in mid-November
2010. If this well is not
ready for completion, frac
crews may move to complete the
Hodenfield 15-7H well.Hodenfield 15-33H
WI=57.4%
NRI=45.9%
    
    Sec. 33
T157N-R97W
Williams County, ND
    
    Drilling operations concluded
on August 5, 2010. Completion
assembly installed to
facilitate a 35-stage
hydraulic fracture stimulation
completion. Fracture
stimulation concluded on
November 4, 2010. Temporary
plugs are expected to be
drilled out before November
15, 2010 and the well should
commence production in
mid-November 2010.Hodenfield 15-7H
WI=52.3%
NRI=41.8%
    
    Sec. 7
T157N-R97W
Williams County, ND
    
    Drilling operations concluded
on August 14, 2010.
Completion assembly installed
to facilitate a 35-stage
hydraulic fracture stimulation
completion. Crews are
expected to commence
completion operations on or
about November 15, 2010 and
the well is expected to be
placed on production prior to
the end of November 2010.Bergstrom 2-27H
WI=72.9%
NRI=58.3%
    
    Sec. 27
T156N-R98W
Williams County, ND
    
    Drilling operations concluded
on September 29, 2010.
Completion assembly installed
to facilitate a 27-stage
hydraulic fracture stimulation
completion. Crews are
expected to commence
completion operations
immediately after completing
the Hodenfield 15-7H well.Olson 15-36H
WI=68.2%
NRI=54.5%
    
    Sec. 36
T157N-R98W
Williams County, ND
    
    Drilling operations concluded
on September 17, 2010.
Completion assembly installed
to facilitate a 32-stage
hydraulic fracture stimulation
completion. Frac crews are
finalizing the completion to
place the well on production.Hodenfield 15-23H
WI=55.3%
NRI=44.2%
    
    Sec. 23
T157N-R98W
Williams County, ND
    
    Drilling operations concluded
on September 16, 2010.
Completion assembly installed
to facilitate a 30-stage
hydraulic fracture stimulation
completion. No completion
date has been set.Reid 3-3H
WI=59.3%
NRI=47.4%
    
    Sec. 3
T157N-R97W
Williams County, ND
    
    Drilling operations concluded
on October 17, 2010.
Completion assembly installed
to facilitate a 27-stage
hydraulic fracture stimulation
completion. No completion
date has been set.
  17




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##### Table of Contents



WELL NAME
    
    LOCATION
    
    STATUSBergstrom 2-28H
WI=83.1%
NRI=66.5%
    
    Sec. 28
T156N-R98W


Williams County, ND
    
    Drilling operations also
concluded on October 17, 2010.
Completion assembly installed
to facilitate a 22-stage
hydraulic fracture stimulation
completion. No completion
date has been set.Dustin Brose 2-29H
WI=81.4%
NRI=65.1%
    
    Sec. 29
T156N-R98W

Williams County, ND
    
    Drilling operations concluded
on November 7, 2010.
Completion assembly installed
to facilitate a 30-stage
hydraulic fracture stimulation
completion. No completion
date has been set.Twilight 1-24H
WI=32.75%
NRI=26.2%
    
    Sec. 24
T156N-R99W

Williams County, ND
    
    Ensign drilling rig 24
commenced drilling on October
18, 2010 and is currently
drilling in the lateral
portion in the targeted Bakken
formation.Haug 14-19H
WI=85.4%
NRI=68.3%
    
    Sec. 19
T156N-R98W

Williams County, ND
    
    Unit drilling rig 234
commenced drilling on October
23, 2010 and is currently
drilling the vertical portion
of the well.Dahl 15-22H
WI=64.5%
NRI=51.6%
    
    Sec. 22
T156N-R97W

Williams County, ND
    
    Ensign drilling rig 88
commenced drilling on October
25, 2010 and is currently
cementing the 9-5/8 casing in
the vertical portion of the
well.Foss Family Trust 


15-23H

WI=51.4%

NRI=41.1%
    
    Sec. 23
T156N-R97W

Williams County, ND
    
    Preparations are underway to
move Nabors drilling rig 486
from the Dustin Brose well
location. This well is
expected to commence drilling
during the third week of
November 2010.
 Results of Operations
  The Quarter Ended September 30, 2010 Compared with the Quarter Ended September 30, 2009
   18




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Three months endedSeptember 30,2010
    
    
    2009Oil sold (barrels)
    
    
    73,112
    
    
    
    4,877Average oil price
    
    $
    64.64
    
    
    $
    59.17Oil revenue
    
    $
    4,725,598
    
    
    $
    288,567Gas sold (mcf)
    
    
    17,040
    
    
    
    49,949Average gas price
    
    $
    4.74
    
    
    $
    3.48Gas revenue
    
    $
    80,785
    
    
    $
    173,986Total oil and gas revenues
    
    $
    4,806,383
    
    
    $
    462,553Less lease operating expenses
    
    
    (912,493
    )
    
    
    (278,429
    )Less oil & gas amortization expense
    
    
    (1,601,000
    )
    
    
    (212,001
    )Less accretion of asset retirement obligation
    
    
    (3,741
    )
    
    
    (9,837
    )Less impairment of well equipment inventory
    
    
    (26,571
    )
    
    
    (409,852
    )Less impairment of oil & gas properties
    
    
    
    
    
    
    (1,850,000
    )Income (loss) from oil & gas operations
    
    
    2,262,578
    
    
    
    (2,297,566
    )Less depreciation of office facilities
    
    
    (20,413
    )
    
    
    (19,416
    )Less amortization of other intangible asset
    
    
    
    
    
    
    (45,000
    )Less general and administrative expenses
    
    
    (2,804,686
    )
    
    
    (1,198,188
    )Income (loss) from operations
    
    $
    (562,521
    )
    
    $
    (3,560,170
    )Total barrels of oil equivalent (boe) sold
    
    
    75,952
    
    
    
    13,202Revenue per boe sold
    
    $
    63.28
    
    
    $
    35.04Lease operating expense per boe sold
    
    $
    12.01
    
    
    $
    21.09Amortization expense per boe sold
    
    $
    21.08
    
    
    $
    16.06
  The Nine-month Period ended September 30, 2010 Compared with the Nine-month Period ended
September 30, 2009
   19




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##### Table of Contents



Nine months endedSeptember 30,2010
    
    
    2009Oil sold (barrels)
    
    
    119,374
    
    
    
    14,056Average oil price
    
    $
    64.25
    
    
    $
    46.87Oil revenue
    
    $
    7,669,920
    
    
    $
    658,759Gas sold (mcf)
    
    
    68,324
    
    
    
    183,386Average gas price
    
    $
    6.06
    
    
    $
    3.42Gas revenue
    
    $
    413,998
    
    
    $
    626,946Total oil and gas revenues
    
    $
    8,083,918
    
    
    $
    1,285,705Less lease operating expenses
    
    
    (1,777,764
    )
    
    
    (848,354
    )Less oil & gas amortization expense
    
    
    (2,551,000
    )
    
    
    (546,000
    )Less accretion of asset retirement obligation
    
    
    (16,849
    )
    
    
    (30,057
    )Less impairment of materials & supplies inventory
    
    
    (200,356
    )
    
    
    (565,991
    )Less impairment of oil & gas properties
    
    
    
    
    
    
    (3,950,000
    )Plus gain on sale of oil and gas properties
    
    
    36,400,000
    
    
    
    Producing revenues less direct expenses
    
    
    39,937,949
    
    
    
    (4,654,697
    )Less depreciation of office facilities
    
    
    (60,011
    )
    
    
    (57,732
    )Less amortization of other intangible asset
    
    
    (60,000
    )
    
    
    (135,000
    )Less general and administrative expenses
    
    
    (6,168,688
    )
    
    
    (4,242,539
    )Income (loss) from operations
    
    
    33,649,250
    
    
    $
    (9,089,968
    )Total barrels of oil equivalent (boe) sold
    
    
    130,761
    
    
    
    44,620Revenue per boe sold
    
    $
    61.82
    
    
    $
    28.81Lease operating expense per boe sold
    
    $
    13.60
    
    
    $
    19.01Amortization expense per boe sold
    
    $
    19.51
    
    
    $
    12.24
  Liquidity and Capital Resources
     20




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Net Cash Provided (Used) By Operating Activities
 Net Cash Provided (Used) In Investing Activities
 Net Cash Provided By Financing Activities
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
 Commodity Price Risk
   21




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##### Table of Contents



Operating Cost Risk
   Interest Rate Risk
  
 Item 4. CONTROLS AND PROCEDURES
     22




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##### Table of Contents



PART II
 OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
 Litigation Relating to the Merger
    23




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##### Table of Contents



Speight Kane
 Buckman, Luvara, Smitherman Quiros, Trueman
 Cobb Veigel Finkel Feinman ,
 Settlement of Litigation Relating to the Merger
       24




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##### Table of Contents



Americans Arbitration Claim Against Jefferies
  
 Item 6. EXHIBITS
 Exhibit No.
    
    Description2.1
    
    
    Credit Agreement dated as of August 27, 2010 between American Oil & Gas Inc. and
Hess Corporation (Incorporated by reference from the Companys Current Report on
Form 8-K, filed on August 30, 2010)2.2
    
    
    Security Agreement dated as of August 27, 2010 and entered into by and among
American Oil & Gas Inc. and each Additional Grantor and the Hess Corporation
(Incorporated by reference from the Companys Current Report on Form 8-K, filed
on August 30, 2010)2.3
    
    
    Form of Mortgage, Security Agreement, Financing Statement and Assignment of
Production from American Oil & Gas Inc. to Hess Corporation, dated effective as
of August 27, 2010 (Incorporated by reference from the Companys Current Report
on Form 8-K, filed on August 30, 2010)2.4
    
    

Form of Loan Notice, Note, Form of Compliance Certificate and Solvency Certificate  (Incorporated by reference from the Companys Current Report
on Form 8-K, filed on August 30, 2010)2.5
    
    
    Amendment (dated as of November 11, 2010) to the Credit Agreement dated as of
August 27, 2010 between American Oil & Gas Inc. and Hess
Corporation10
    (i)
    
    Agreement and Plan of Merger dated as of July 27, 2010 among Hess Corporation,
Hess Investment Corp. and American Oil & Gas Inc. (Incorporated by reference from
the Companys Current Report on Form 8-K, filed on July 29, 2010)10
    (ii)
    
    Stipulation and Agreement of Settlement and Release (November 2010)31.1
    
    
    302 Certification of Chief Executive Officer31.2
    
    
    302 Certification of Chief Financial Officer32.1
    
    
    906 Certification of Chief Executive Officer32.2
    
    
    906 Certification of Chief Financial Officer
 
 SIGNATURES
  Signatures
    
    Title
    
    Date/s/ Patrick D. OBrien
    
    Chief Executive Officer and Chairman of The Board of Directors
    
    November 12, 2010Patrick D. OBrien/s/ Joseph B. Feiten
    
    Chief Financial Officer
    
    November 12, 2010Joseph B. Feiten
    
    (principal financial officer and principal accounting officer)
  25