UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549





FORM 10-Q





|                                                               |                                                                             
|-------------------------------------------------------------- | ----------------------------------------------------------------------------
|ü                                                              | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE 
|                                                               | ACT OF 1934                                                                 
|FOR THE QUARTERLY PERIOD ENDED: MARCH 31, 2009                
|or                                                            
|                                                               |                                                                             
|ü                                                              | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
|                                                               | ACT OF 1934                                                                 
|FOR THE TRANSITION PERIOD FROM: _____________ TO _____________



Commission file number: 000-28015



TREATY ENERGY CORPORATION

(Exact name of registrant as specified in its charter)





|                                                               |                                     
|-------------------------------------------------------------- | ------------------------------------
|Nevada                                                         | 86-0884116                          
|(State or other Jurisdiction of
incorporation or organization) | (I.R.S. Employer
Identification No.)

310 North Willis, Suite 212

Abilene, Texas 79603

(Address of principal executive offices)

(325) 676-0099

(Registrants telephone number, including area code)

|                                                                                                                                                                                                                                              |   |                            |   |                           |   |  |  | 
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | - | -------------------------- | - | ------------------------- | - |  |  | 
|Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 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.                                                                                                                                    | ü | Yes                        |   | No                       
|                                                                                                                                                                                                                                             
|Indicate by check mark whether the registrant is a large accelerated filer, a non-accelerated filer, or a smaller reporting company.                                                                                                         
|                                                                                                                                                                                                                                              |  
|Large accelerated filer                                                                                                                                                                                                                       |   |                            |   | Accelerated filer         |   | 
|Non-accelerated filer                                                                                                                                                                                                                         |   | (Do not check if a smaller |   | Smaller reporting company | ü | 
|                                                                                                                                                                                                                                              |   | reporting company)         |   |                           |   | 
|                                                                                                                                                                                                                                              |  
|Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).                                                                                                                             
|                                                                                                                                                                                                                                              |   | Yes                        | ü | No                       
|                                                                                                                                                                                                                                              |  
|The number of shares of the registrants common stock outstanding as of May 6, 2008, was 460,110,701.                                                                                                                                        









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TREATY ENERGY CORPORATION

FORM 10-Q

INDEX



|                                                                                                 
|-------------------------------------------------------------------------------------------------
|PART I  FINANCIAL INFORMATION
3                                                                 
|Item 1  Financial Statements
3                                                                  
|Item 2 - Managements Discussion And Analysis Of Financial Condition And Results Of Operations
11
|Item 3 - Quantitive And Qualitative Disclosures About Market Risk
12                             
|Item 4  Controls and Procedures
12                                                              
|PART II  OTHER INFORMATION
14                                                                   
|Item 1  Legal Proceedings
14                                                                    
|Item 1A  Risk Factors
14                                                                        
|Item 2 - Unregistered Sales of Equity Securities
14                                              
|Item 3  Defaults Upon Senior Securities
14                                                      
|Item 4 - Submission of Matters to a Vote of Security Holders
14                                  
|Item 5  Other Information
14                                                                    
|Item 6  Exhibits
15                                                                             
|SIGNATURES
16                                                                                    





2



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PART I  FINANCIAL INFORMATION

ITEM 1  FINANCIAL STATEMENTS

TREATY ENERGY CORPORATION

(Formerly Alternate Energy Corp.)

BALANCE SHEETS



|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------- | -------- | ----------------- | - | -------- | -
|                                                                                                                                                                                 |  | March 31,
2009 |          | December 31,
2008 |  
|                                                                                                                                                                                 |  | (Unaudited)    |          | (Audited)         |  
|ASSETS                                                                                                                                                                           |  |                |          |                   |   |          |  
|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|Cash and equivalents                                                                                                                                                             |  | $              | 15,763   |                   | $ | 971      |  
|Accounts receivable                                                                                                                                                              |  |                | 5,244    |                   |   | 7,206    |  
|Total current assets                                                                                                                                                             |  |                | 21,007   |                   |   | 8,177    |  
|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|Oil and gas properties (proved), net (successful efforts method
of accounting)                                                                                                   |  |                | 67,647   |                   |   | 68,846   |  
|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|TOTAL ASSETS                                                                                                                                                                     |  | $              | 88,654   |                   | $ | 77,023   |  
|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|LIABILITIES                                                                                                                                                                      |  |                |          |                   |   |          |  
|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|Accounts payable and accrued liabilities                                                                                                                                         |  | $              | 460,582  |                   | $ | 497,643  |  
|Asset retirement obligation                                                                                                                                                      |  |                | 22,893   |                   |   | 22,444   |  
|Notes and accrued interest to related parties                                                                                                                                    |  |                | 147,074  |                   |   | 135,838  |  
|Short-term portion of long-term related party debt                                                                                                                               |  |                | 5,292    |                   |   | 5,292    |  
|Total current liabilities                                                                                                                                                        |  |                | 635,841  |                   |   | 661,217  |  
|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|Long-term debt to related party, net of short-term portion and net
of discount of $918,584 and $918,634 as of March 31, 2009
and December 31, 2008, respectively                 |  |                | 76,124   |                   |   | 72,651   |  
|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|TOTAL LIABILITIES                                                                                                                                                                |  |                | 711,965  |                   |   | 733,868  |  
|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|STOCKHOLDERS' DEFICIT                                                                                                                                                            |  |                |          |                   |   |          |  
|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|Common stock  par value $0.001, 500 million shares authorized.
460,110,701 and 460,061,553 shares issued and outstanding at
March 31, 2009 and December 31, 2008, respectively. |  |                | 460,111  |                   |   | 460,062  |  
|Additional paid in capital                                                                                                                                                       |  |                | (511,274 | )                 |   | (629,320 | )
|Accumulated deficit                                                                                                                                                              |  |                | (572,148 | )                 |   | (487,587 | )
|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|Total stockholders' deficit                                                                                                                                                      |  |                | (623,311 | )                 |   | (656,845 | )
|                                                                                                                                                                                 |  |                |          |                   |   |          |  
|TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                      |  | $              | 88,654   |                   | $ | 77,023   |  





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



3



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TREATY ENERGY CORPORATION

(Formerly Alternate Energy Corp.)

STATEMENTS OF OPERATIONS

|                                                               |  |                              |             |             |   |             |  
|-------------------------------------------------------------- |  | ---------------------------- | ----------- | ----------- | - | ----------- | -
|                                                               |  | Three Months Ended
March 31, |            
|                                                               |  | 2009                         |             | 2008        |  
|                                                               |  | (Unaudited)                  |             | (Unaudited) |  
|REVENUES                                                       |  |                              |             |             |   |             |  
|Sales of oil                                                   |  | $                            | 5,667       |             | $ | 13,266      |  
|                                                               |  |                              |             |             |   |             |  
|Total revenues                                                 |  |                              | 5,667       |             |   | 13,266      |  
|                                                               |  |                              |             |             |   |             |  
|EXPENSES                                                       |  |                              |             |             |   |             |  
|Lease operating expenses                                       |  |                              | 11,831      |             |   | 16,239      |  
|Transportation costs                                           |  |                              | 515         |             |   | 1,194       |  
|Production taxes                                               |  |                              | 14          |             |   | 610         |  
|General and administrative                                     |  |                              | 69,839      |             |   | 22,439      |  
|Depreciation, depletion and amortization                       |  |                              | 1,199       |             |   | 656         |  
|Accretion of asset retirement obligation                       |  |                              | 449         |             |   | 416         |  
|Interest expense, related parties                              |  |                              | 6,381       |             |   | 5,694       |  
|                                                               |  |                              |             |             |   |             |  
|Total expenses                                                 |  |                              | 90,228      |             |   | 47,248      |  
|                                                               |  |                              |             |             |   |             |  
|NET LOSS                                                       |  | $                            | (84,561     | )           | $ | (33,982     | )
|                                                               |  |                              |             |             |   |             |  
|Net loss per common shares - basic and diluted                 |  | $                            | 0.00        |             | $ | 0.00        |  
|Weighted average common shares outstanding - basic and diluted |  |                              | 460,098,209 |             |   | 460,061,553 |  





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



4



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TREATY ENERGY CORPORATION

(Formerly Alternate Energy Corp.)

STATEMENT OF SHAREHOLDERS DEFICIT

|                                                          |  |        |             |  |   |         |  |                            |          |                  |   |          |   |   |          |  
|--------------------------------------------------------- |  | ------ | ----------- |  | - | ------- |  | -------------------------- | -------- | ---------------- | - | -------- | - | - | -------- | -
|                                                          |  |        |             |  |   |         |  | Additional
Paid In
Capital |          | Accumulated
Loss |   | Total    |  
|Common Stock                                             
|Shares                                                    |  | Amount
|Balances, December 31, 2006                               |  |        | 254,322     |  | $ | 255     |  | $                          | 53,024   |                  | $ | (62,723  | ) | $ | (9,444   | )
|                                                          |  |        |             |  |   |         |  |                            |          |                  |   |          |   |   |          |  
|Shares issued for cash                                    |  |        | 2,029,481   |  |   | 2,029   |  |                            | 97,721   |                  |   |         |   |   | 99,750   |  
|Founder's shares                                          |  |        | 457,777,750 |  |   | 457,778 |  |                            | (457,778 | )                |   |         |   |   |         |  
|Interest imputed on related party
note payable            |  |        |             |  |   |         |  |                            | 2,825    |                  |   |          |   |   | 2,825    |  
|Net loss, year ended 12/31/07                             |  |        |             |  |   |         |  |                            |          |                  |   | (183,350 | ) |   | (183,350 | )
|                                                          |  |        |             |  |   |         |  |                            |          |                  |   |          |   |   |          |  
|Balances, December 31, 2007                               |  |        | 460,061,553 |  | $ | 460,062 |  | $                          | (304,208 | )                | $ | (246,073 | ) | $ | (90,219  | )
|                                                          |  |        |             |  |   |         |  |                            |          |                  |   |          |   |   |          |  
|Interest imputed on related party
note payable            |  |        |             |  |   |         |  |                            | 5,240    |                  |   |          |   |   | 5,240    |  
|Expenses paid on behalf of the
Company by a related party |  |        |             |  |   |         |  |                            | 169,648  |                  |   |          |   |   | 169,648  |  
|Debt acquired in reverse merger                           |  |        |             |  |   |         |  |                            | (500,000 | )                |   |          |   |   | (500,000 | )
|Net loss, year ended 12/31/08                             |  |        |             |  |   |         |  |                            |          |                  |   | (241,514 | ) |   | (241,514 | )
|                                                          |  |        |             |  |   |         |  |                            |          |                  |   |          |   |   |          |  
|Balances, December 31, 2008                               |  |        | 460,061,553 |  |   | 460,062 |  | $                          | (629,320 | )                | $ | (487,587 | ) | $ | (656,845 | )
|                                                          |  |        |             |  |   |         |  |                            |          |                  |   |          |   |   |          |  
|Interest imputed on related party
note payable            |  |        |             |  |   |         |  |                            |          |                  |   |          |   |   |          |  
|Cashless exercise of options                              |  |        | 49,148      |  |   | 49      |  |                            | (49      | )                |   |          |   |   |         |  
|Cash provided by a related party                          |  |        |             |  |   |         |  |                            | 60,000   |                  |   |          |   |   | 60,000   |  
|Expenses paid on behalf of the
Company by a related party |  |        |             |  |   |         |  |                            | 56,378   |                  |   |          |   |   | 56,378   |  
|Interest imputed on related party
note payable            |  |        |             |  |   |         |  |                            | 1,717    |                  |   |          |   |   | 1,717    |  
|Net loss, three months ended
March 31, 2009               |  |        |             |  |   |         |  |                            |          |                  |   | (84,561  | ) |   | (84,561  | )
|                                                          |  |        |             |  |   |         |  |                            |          |                  |   |          |   |   |          |  
|Balances, March 31, 2009                                  |  |        | 460,110,701 |  | $ | 460,111 |  | $                          | (511,274 | )                | $ | (572,148 | ) | $ | (623,311 | )





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



5



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TREATY ENERGY CORPORATION

(Formerly Alternate Energy Corp.)

STATEMENTS OF CASH FLOWS

(Unaudited)

|                                                                           |  |                              |          |      |   |         |  
|-------------------------------------------------------------------------- |  | ---------------------------- | -------- | ---- | - | ------- | -
|                                                                           |  | Three Months Ended
March 31, |         
|                                                                           |  | 2009                         |          | 2008 |  
|                                                                           |  |                              |          |      |   |         |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                       |  |                              |          |      |   |         |  
|                                                                           |  |                              |          |      |   |         |  
|Net loss                                                                   |  | $                            | (84,561  | )    | $ | (33,982 | )
|                                                                           |  |                              |          |      |   |         |  
|Adjustments to reconcile net loss to net cash used in operating activities |  |                              |          |      |   |         |  
|Depreciation, depletion and amortization                                   |  |                              | 1,199    |      |   | 656     |  
|Amortization of discount on related-party note                             |  |                              | 3,633    |      |   | 3,634   |  
|Accretion of asset retirement obligation                                   |  |                              | 449      |      |   | 416     |  
|Interest imputed on related-party notes                                    |  |                              | 1,717    |      |   | 1,288   |  
|                                                                           |  |                              |          |      |   |         |  
|Changes in operating assets and liabilities:                               |  |                              |          |      |   |         |  
|Accounts receivable                                                        |  |                              | 1,962    |      |   | (13,266 | )
|Accounts payable and accrued liabilities                                   |  |                              | (37,061  | )    |   | 18,092  |  
|Interest payable                                                           |  |                              | (441     | )    |   | 773     |  
|                                                                           |  |                              |          |      |   |         |  
|Net cash used in operating activities                                      |  |                              | (113,103 | )    |   | (22,389 | )
|                                                                           |  |                              |          |      |   |         |  
|CASH FLOWS FROM INVESTING ACTIVITIES                                       |  |                              |          |      |   |         |  
|                                                                           |  |                              |          |      |   |         |  
|Net cash provided by / (used in) investing activities                      |  |                              |         |      |   |        |  
|                                                                           |  |                              |          |      |   |         |  
|CASH FLOWS FROM FINANCING ACTIVITIES                                       |  |                              |          |      |   |         |  
|Expenses paid by related-parties on the Companys behalf                   |  |                              | 68,378   |      |   |        |  
|Borrowings from related parties                                            |  |                              |         |      |   | 12,000  |  
|Principal payments on related-party notes payable                          |  |                              | (483     | )    |   |        |  
|Cash contributed by related party                                          |  |                              | 60,000   |      |   |        |  
|                                                                           |  |                              |          |      |   |         |  
|Net cash provided by financing activities                                  |  |                              | 127,895  |      |   | 12,000  |  
|                                                                           |  |                              |          |      |   |         |  
|Net increase / (decrease) in cash and cash equivalents                     |  |                              | 14,792   |      |   | (10,389 | )
|Cash and cash equivalents, beginning of period                             |  |                              | 971      |      |   | 33,347  |  
|Cash and cash equivalents, end of period                                   |  | $                            | 15,763   |      | $ | 22,958  |  
|                                                                           |  |                              |          |      |   |         |  
|SUPPLEMENTAL CASH FLOW INFORMATION                                         |  |                              |          |      |   |         |  
|Cash paid for interest                                                     |  |                              | 1,472    |      |   |        |  
|Cash paid for income taxes                                                 |  |                              |         |      |   |        |  







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



6



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TREATY ENERGY CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS

NOTE 1  ORGANIZATION AND NATURE OF BUSINESS

Information Regarding Forward-Looking Statements

This report contains forward-looking statements that involve risks and uncertainties. We generally use words such as "believe," "may," "could," "will," "intend," "expect," "anticipate," "plan," and similar expressions to identify forward-looking statements. You should not place undue reliance on these forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the risks described below and elsewhere in this report. Although we believe the expectations reflected in the forward-looking statements are reasonable, they relate only to events as of the date on which the statements are made, and our future results, levels of activity, performance or achievements may not meet these expectations. We do not intend to update any of the forward-looking statements after the date of this document to conform these statements to actual results or to changes in our expectations, except as required by law.

History

Treaty Energy Corporation, (Treaty, the Company, we, or us) was incorporated in the State of Nevada in August, 1997. As is more fully explained in Note 10 of our annual report as of December 31, 2008 filed on Form 10-K, in December, 2008, we merged with Treaty Petroleum, Inc., a Texas Corporation under a transaction commonly referred to as a reverse merger.

We own a 100% working interest and 68% revenue interest in two oil leases in Crockett County, Texas containing four oil wells and one water disposal well. We are currently focused on operating, developing and increasing the production of our oil wells on those leases and acquiring additional working interests in oil and gas properties.

We are a crude oil and natural gas producing company.

NOTE 2 - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

The financial statements of the Company have been prepared in accordance with Generally Accepted Accounting Principals in the United States.

Use of Estimates

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates underlying these consolidated financial statements include the estimated quantities of proved oil reserves used to compute depletion of oil and natural gas properties and the estimated fair value of asset retirement obligations.

All of the Companys accounting policies are not included in this Form 10-Q. A more comprehensive set of accounting policies adopted by the Company are included on our Form 10-K as of December 31, 2008 and are herein incorporated by reference.

NOTE 3  RECENT ACCOUNTING PRONOUNCEMENTS

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurement"

("SFAS 157"). SFAS 157 defines fair value, establishes a framework for measuring fair value and expands disclosure of fair value measurements. SFAS 157 applies under other accounting pronouncements that require or permit fair value measurements and accordingly, does not require any new fair value measurements. SFAS 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007. The Company is in the process of evaluating the impact of the adoption of SFAS 157 will have on its statements of operations and financial condition.



7



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TREATY ENERGY CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)



NOTE 3  RECENT ACCOUNTING PRONOUNCEMENTS (Continued)

The Company has adopted SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.  This pronouncement requires us to review for impairment long-lived assets, such as property, plant, equipment, and acquired intangible assets subject to amortization, whenever events or changes in circumstances indicate that the carrying amount of an asset or group of assets may not be recoverable. We assess recoverability of assets to be held and used by comparing their carrying amount to the expected future undiscounted net cash flows they are expected to generate. If an asset or group of assets is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset or group of assets exceeds fair value. We report long-lived assets meeting the criteria to be considered as held-for-sale at the lower of their carrying amount or fair value less anticipated disposal costs. In the years presented, the Company did not recognize any impairment charges on long-lived assets.

In June, 2006, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, which is an interpretation of FASB Statement No. 143 Accounting for Asset Retirement Obligations. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. The Company estimates a fair value of the obligation on each well in which it owns an interest by identifying costs associated with the future dismantlement and removal of production equipment and facilities and the restoration and reclamation of a production operations surface to a condition similar to that existing before oil and natural gas extraction began.

In general, the amount of an Asset Retirement Obligation (ARO) and the costs capitalized will be equal to the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor up to the estimated settlement date which is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company. After recording these amounts, the ARO is accreted to its future estimated value using the same assumed cost of funds and the liability is increased each period as the retirement obligation approaches. See Note 7 for a discussion of our estimated Asset Retirement Obligation.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles (GAAP) in the United States (the GAAP hierarchy). SFAS 162 becomes effective 60 days following the SECs approval of the Public Company Accounting Oversight Board (PCAOB) amendment to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles and is not expected to have a significant impact on our consolidated financial statements.

NOTE 4  GOING CONCERN

The accompanying financial statements have been prepared assuming that Treaty will continue as a going concern. As shown in these financial statements, we have had continuing negative cash flows from operations and working capital deficits. These conditions raise substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Management intends to finance these deficits by making additional shareholder notes and seeking additional outside financing through either debt or sales of its common stock.

NOTE 5  OIL PRODUCING PROPERTIES

The history of our producing properties is found in our report on Form 10-K as of December 31, 2008, filed on March 31, 2009. There have been no changes to our properties for the three months ended March 31, 2009, except that the wells are not producing as of March 31, 2009 and are effectively shut in.

For more information on the status of our wells as of this report, see Results of Operations in Item 2  Management Discussion and Analysis of Operations included in this report on Form 10-Q.



8



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TREATY ENERGY CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)



NOTE 6  NOTES PAYABLE

Note Payable for the Conveyance of Oil Producing Properties

On March 2, 2005, Phoenix Oil and Gas, LLC purchased the working interest in the producing properties in Crockett County, Texas by issuing a $1 million note. For a complete discussion of the terms of this note and its history, please refer to Note 5 of our report filed on Form 10-K as of December 31, 2008, filed March 31, 2009.

During the three months ended March 31, 2009, we made approximately $205 of principal payments on the note and amortized $3,633 of note discount which is included in interest expense.

Notes Payable for Working Capital

During 2007 and 2008, much of our working capital to finance our negative cash flows came from shareholders. At March 31, 2009, our principal balance to these shareholders was $146,132 with unpaid accrued interest of $942.

During the three months ended March 31, 2009, these shareholders funded an additional $12,000 in principal and we accrued an additional $1,031 in interest.

These notes are revolving in nature, are callable at any time by the maker and bear simple interest at 3%. Management believes that the stated interest on these notes is not equivalent to the Companys realistic cost of capital. We therefore imputed an additional 5% interest and charged interest expense with an additional $1,717 for the three months ended March 31, 2009.

NOTE 7  ASSET RETIREMENT OBLIGATION

In June, 2006, the Company adopted Financial Accounting Standards Board (FASB) Interpretation No. 47, Accounting for Conditional Asset Retirement Obligations, which is an interpretation of FASB Statement No. 143 Accounting for Asset Retirement Obligations. Accordingly, an entity is required to recognize a liability for the fair value of a conditional asset retirement obligation if the fair value can be reasonably estimated. The Company estimates a fair value of the obligation on each well in which it owns an interest by identifying costs associated with the future dismantlement and removal of production equipment and facilities and the restoration and reclamation of a fields surface to a condition similar to that existing before oil and natural gas extraction began.

In general, the amount of an Asset Retirement Obligation (ARO) and the costs capitalized will be equal to the estimated future cost to satisfy the abandonment obligation using current prices that are escalated by an assumed inflation factor up to the estimated settlement date which is then discounted back to the date that the abandonment obligation was incurred using an assumed cost of funds for the Company. After recording these amounts, the ARO is accreted to its future estimated value using the same assumed cost of funds and the liability is increased each period as the retirement obligation approaches.

Management has estimated the ARO at $40,000. The well lives are estimated at 15 years.For the three months ended March 31, 2009 and the year ended December 31, 2008, we accreted to expense according to the following table:

|                                 |  |                            |        |                     |   |        | 
|-------------------------------- |  | -------------------------- | ------ | ------------------- | - | ------ | 
|                                 |  | Three Months
Ended
3/31/09 |        | Year Ended
12/31/09 |  
|Beginning balance                |  | $                          | 22,444 |                     | $ | 20,781 | 
|Liabilities incurred             |  |                            |       |                     |   |       | 
|Liabilities settled              |  |                            |       |                     |   |       | 
|Accretion expense                |  |                            | 449    |                     |   | 1,661  | 
|Revision of existing liabilities |  |                            |       |                     |   |       | 
|Ending balance                   |  |                            | 22,893 |                     | $ | 22,444 | 





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TREATY ENERGY CORPORATION

NOTES TO UNAUDITED FINANCIAL STATEMENTS (CONTINUED)



NOTE 7  ASSET RETIREMENT OBLIGATION (Continued)

The asset retirement obligation is secured by a $25,000 Certificate of Deposit, held in trust in lieu of a performance bond, by the Bank of Fayette County, Tennessee with the Texas Railroad Commission as beneficiary should the Company fail to honor its asset retirement obligation. The Certificate of Deposit was purchased and offered as collateral by our Corporate Secretary.

NOTE 8  SHAREHOLDERS EQUITY

We are authorized to issue 500 million shares of our common stock. At December 31, 2008, we had 460,061,553 shares issued and outstanding.

During the three months ended March 31, 2009 we issued 49,148 shares to a consultant to Alternate Energy Corp. upon his cashless exercise of 74,695 options to purchase out stock.

At March 31, 2009, we had 460,110,701 shares issued and outstanding.

Shareholder Contribution of Capital

During the three months ended March 31, 2009, a shareholder contributed $60,000 in cash for working capital and paid expenses on behalf of the Company totaling $56,378 and elected to have those cash contributions and expenses treated as a contribution of capital. We recorded the expenses and with an offsetting credit to Additional Paid In Capital in that amount.

NOTE 9  RELATED PARTY TRANSACTIONS

As is discussed in Note 6, we have partially funded our working capital with loans from shareholders, accruing interest payable to them, and paying interest and principal.

Also as discussed in Note 6, we made payments to a shareholder related to the promissory note that arose from the conveyance of the oil producing properties that we acquired from this shareholder.

As is discussed in Note 8, a shareholder paid expenses totaling $56,378 and made cash contributions of $60,000 and elected to have them treated as capital contributions.

The operator of all of our oil producing properties is a related-party shareholder. Since we own a 100% working (but non-operating) interest, the shareholder-operator controls all decisions with respect to additional development, re-completions and lease operating expenses.



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ITEM 2 - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion in conjunction with managements discussion and analysis contained in our 2008 Annual Report on Form 10-K, as well as the financial statements and notes hereto included in this quarterly report on Form 10-Q. The following discussion contains forward-looking statements that involve risks, uncertainties, and assumptions, such as statements of our plans, objectives, expectations, and intentions. Our actual results may differ materially from those discussed in these forward-looking statements because of the risks and uncertainties inherent in future events.

Results of Operations

Three Months Ended March 31, 2009, compared with Three Months Ended March 31, 2008

Our revenues were significantly reduced for the three months ended March 31, 2009 compared with the same period in 2008. Our oil wells had a small amount of production during January, 2009, but then went off-line and did not produce during February or March of 2009. As of March 31, 2009, the wells are effectively shut in. We need additional capital to work these wells over. As of this report, we have not obtained this capital.

Our lease operating expenses, transportation expenses and production-based taxes are lower for the three months ended March 31, 2009 compared with the same period in 2008, principally due to lower activities.

General and administrative expenses have increased dramatically. They increased from $22,439 for the first quarter of 2008 to $69,839 for the first quarter of 2009. Most of this increase is a result of an increase in costs associated with out statutory filings and other compliance costs.

Liquidity and Capital Resources

Our financial statements have been prepared on a going concern basis that contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.

Currently, we are not able to maintain our existing operations through the existing cash balances and internally generated cash flows from sales of oil production. Moreover, we have determined that our existing capital structure is not adequate to fund our planned growth. We intend to finance our drilling, workover and acquisition program by issuing additional common stock and through loans from our shareholders.There can be no assurance that we will be successful in procuring the financing we are seeking. Future cash flows are subject to a number of variables, including the level of production, natural gas prices and successful drilling efforts. There can be no assurance that operations and other capital resources will provide cash in sufficient amounts to maintain planned or future levels of capital expenditures.

Plan of Operation

Over the next twelve months we intend to develop the following initiatives:

Revenue Generation

We intend to spend approximately $150,000 repairing existing equipment on our four production wells. We believe this will increase production to approximately 1,500 barrels per month which, assuming a $50 price per barrel, will yield around $48,450 per month of net revenues (after taxes and transportation costs).

We intend to also seek acquisitions of oil and gas properties with production capabilities and proven reserves.

There is no guarantee that we can raise the funds to accomplish our production goals, or that the expenditures will produce the increases in production we anticipate.

Drilling and Work-Over Programs

We have identified 14 locations on our existing leases that we believe will significantly increase our production. Our current estimate is that the capital cost of each well will be $505,000 and that each well will generate an additional 15 to 65 barrels of production per day. Assuming a conservative oil price of $50 per barrel, that would generate between $14,000 and $63,000 in monthly incremental revenues.



11



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We currently do not have adequate cash to undertake these plans.

Financing

We hope to finance our workover, drilling and acquisition programs by issuing additional common stock and taking shareholder loans. We are currently seeking $5 million in financing to accomplish our objectives.

There is no guarantee that we can raise the required capital to repair our existing equipment, make additional acquisitions, drill in our current leases, or that undertaking such repairs, acquisitions and drilling program will make us profitable or self-sustaining.

ITEM 3 - QUANTITIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A smaller reporting company is not required to provide the information required by this item.

ITEM 4  CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.

Managements Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Securities Exchange Act, as amended. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. We have identified the following material weaknesses.

1.

As of December 31, 2008, we did not maintain effective controls over the control environment. Specifically we have not developed and effectively communicated to our employees its accounting policies and procedures. This has resulted in inconsistent practices. Further, the Board of Directors does not currently have any independent members and no director qualifies as an audit committee financial expert as defined in Item 407(d)(5)(ii) of Regulation S-B. Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute e a material weakness.



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2.

As of December 31, 2008, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial statements.  Accordingly, management has determined that this control deficiency constitutes a material weakness.

Because of these material weaknesses, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2008, based on the criteria established in "Internal Control-Integrated Framework" issued by the COSO.

Change In Internal Control Over Financial Reporting

There were no changes in our internal control over financial reporting that occurred during the three months ended March 31, 2009 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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PART II  OTHER INFORMATION

ITEM 1  LEGAL PROCEEDINGS

We may be involved from time to time in ordinary litigation, negotiation and settlement matters that will not have a material effect on our operations or finances. We are not aware of any pending or threatened litigation against us or our officers and directors in their capacity as such that could have a material impact on our operations or finances.

ITEM 1A  RISK FACTORS

Our business has many risks. Factors that could materially adversely affect our business, financial condition, operating results or liquidity and the trading price of our common stock are described under Risk Factors in Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2008, filed March 31, 2009.

This information should be considered carefully, together with other information in this report and other reports and materials we file with the Securities and Exchange Commission.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES

During the three months ended March 31, 2009, we issued 49,148 shares upon cashless exercise of 74,695 options by a consultant to Alternate Energy Corp.

At March 31, 2009, we had 460,110,701 shares issued and outstanding.

Options and Warrants

Our options and warrants activity for the three months ended March 31, 2009 is as follows:

|                              |  |             |  |                                           |  |                  |  |           |   |          |   |             | 
|----------------------------- |  | ----------- |  | ----------------------------------------- |  | ---------------- |  | --------- | - | -------- | - | ----------- | 
|                              |  |             |  |                                           |  | 2009 Q1 Activity
|Weighted
Average
Strike
Price |  | Expiry
Date |  | No. of 
Warrants /
Options O/S
@ 12/31/08 |  | New
Grants       |  | Exercises |   | Expiries |   | O/S 3/31/09 | 
|                              |  |             |  |                                           |  |                  |  |           |   |          |   |             | 
|$   0.02                      |  | 03/09/09    |  | 290,067                                   |  |                 |  | (74,695   | ) | (215,372 | ) |            | 
|$   0.02                      |  | 11/28/09    |  | 62,246                                    |  |                 |  |          |   |         |   | 62,246      | 
|$   0.05                      |  | 06/05/10    |  | 561,250                                   |  |                 |  |          |   |         |   | 561,250     | 
|$   0.01                      |  | 06/22/12    |  | 124,492                                   |  |                 |  |          |   |         |   | 124,492     | 
|$   0.01                      |  | 06/22/13    |  | 138,435                                   |  |                 |  |          |   |         |   | 138,435     | 
|$   0.01                      |  | 06/22/14    |  | 124,492                                   |  |                 |  |          |   |         |   | 124,492     | 
|$   0.01                      |  | 06/22/15    |  | 2,300,000                                 |  |                 |  |          |   |         |   | 2,300,000   | 
|TOTALS                        |  |             |  | 3,600,982                                 |  |                 |  | (74,695   | ) | (215,372 | ) | 3,310,915   | 

ITEM 3  DEFAULTS UPON SENIOR SECURITIES

None.

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

None.

ITEM 5  OTHER INFORMATION

None.



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ITEM 6  EXHIBITS

|            |  |                                                                                                                                                                                                 
|----------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit No. |  | Description of Exhibit                                                                                                                                                                          
|            |  |                                                                                                                                                                                                 
|3.1         |  | Articles of Incorporation, as filed August 1, 1997 (included as Exhibit 3.1 to the Form 10-SB12G filed November 10, 1999, and incorporated herein by reference).                                
|            |  |                                                                                                                                                                                                 
|3.2         |  | Bylaws (included as Exhibit 3.2 to the Form 10-SB12G filed November 10, 1999, and incorporated herein by reference).                                                                            
|            |  |                                                                                                                                                                                                 
|3.3         |  | Articles of Amendment to the Articles of Incorporation, as filed August 23, 1997 (included as Exhibit 3.3 to the Form 10-SB12G filed November 10, 1999, and incorporated herein by reference).  
|            |  |                                                                                                                                                                                                 
|3.4         |  | Articles of Amendment to the Articles of Incorporation, as filed November 20, 1998 (included as Exhibit 3.4 to the Form 10-SB12G filed November 10, 1999, and incorporated herein by reference).
|            |  |                                                                                                                                                                                                 
|3.5         |  | Articles of Amendment to the Articles of Incorporation, as filed May 16, 2003 (included as Exhibit 3.5 to the Form 10-SB12G filed November 10, 1999, and incorporated herein by reference).     
|            |  |                                                                                                                                                                                                 
|4.1         |  | 2003 Stock Benefit Plan, dated July, 1, 2003 (included as Exhibit 4.1 to the Form S-8 filed July 23, 2003, and incorporated herein by reference).                                               
|            |  |                                                                                                                                                                                                 
|4.2         |  | Form of Class A Warrant (included as Exhibit 4 to the Form 8-K filed March 15, 2005, and incorporated herein by reference).                                                                     
|            |  |                                                                                                                                                                                                 
|4.3         |  | Form of Class B Warrant (included as Exhibit 4 to the Form 8-K filed March 15, 2005, and incorporated herein by reference).                                                                     
|            |  |                                                                                                                                                                                                 
|4.4         |  | Form of Class C Warrant (included as Exhibit 4 to the Form 8-K filed March 15, 2005, and incorporated herein by reference).                                                                     
|            |  |                                                                                                                                                                                                 
|4.5         |  | Subscription Agreement between the Company and various subscribers (included as Exhibit 10.1 to the Form SB-2/A filed September 14, 2005, and incorporated herein by reference).                
|            |  |                                                                                                                                                                                                 
|4.6         |  | Subscription Agreement between the Company and various subscribers (included as Exhibit 4 to the Form 8-K filed March 15, 2005, and incorporated herein by reference).                          
|            |  |                                                                                                                                                                                                 
|14.1        |  | Corporate Code of Ethics (included as Exhibit 14 to From 10-KSB filed March 16, 2004, and incorporated herein by reference).                                                                    
|            |  |                                                                                                                                                                                                 
|2.1         |  | Subsidiaries of the registrant (filed herewith).                                                                                                                                                
|            |  |                                                                                                                                                                                                 
|31.1        |  | Certification of President and Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith).                                                              
|            |  |                                                                                                                                                                                                 
|31.2        |  | Certification of Chief Financial Officer and Treasurer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                               
|            |  |                                                                                                                                                                                                 
|32.1        |  | Certification of Officers pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                             





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SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

|                   |                                      
|------------------ | -------------------------------------
|                   | Treaty Energy Corporation            
|Date: May 15, 2009 | By: /s/ Ronda Hyatt                  
|                   | Ronda Hyatt                          
|                   | President and Chief Executive Officer

In accordance with the Exchange Act , this report has been duly signed by the following persons on behalf of the Company and in the capacities and on the dates indicated.

|                 |                   
|---------------- | ------------------
|/s/ Ronda Hyatt  |                   
|Ronda Hyatt      | Date: May 15, 2009
|Director         |                   
|                 |                   
|/s/ Gary Dunham  |                   
|Gary Dunham      | Date: May 15, 2009
|Director         |                   
|                 |                   
|/s/ David Hallin |                   
|David Hallin     | Date: May 15, 2009
|Director         |                   





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