**FORM 10-QSBSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549**
| x                                                 | ** ** | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|---------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
| **For the quarterly period ended  June 30, 2006** |
| ** **                                        |       | **OR**                                                                                        |
| o                                                 | ** ** | **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 -30598**

**WHITTIER ENERGY CORPORATION**(Exact Name of SmallBusiness Issuer as Specified in Its Charter)

| **Nevada**                                                       | **20-0539412**                        |
|------------------------------------------------------------------|---------------------------------------|
| (State or Other  Jurisdiction of  Incorporation or Organization) | (I.R.S. Employer  Identification No.) |
|                                                             |                                  |
| **333  Clay Street, Suite 700**                                  |
| **Houston,  Texas 77002**                                        |
| (Address of  Principal Executive Offices)                        |

 

Issuer’s telephone number, including area code: **(713)850-1880**

Check whether the registrant: (1) filed all reports required to be filedby Section 13 or 15(d) of the Securities Exchange Act of 1934 during thepreceding 12 months, and (2) has been subject to such filing requirements forthe past 90 days.

YES  x                         NO  o

Indicate by check mark whether the registrant is a shell company (asdefined in Rule 12b-2 of the Exchange Act).

YES  o                          NO x

As of August 14, 2006 the Registrant had 12,558,825 shares of its $.001par value common stock issued and outstanding.

 

 

----

 

**Part I — Summarized FinancialInformation**

**Item 1 —Financial Statements**

**Whittier Energy Corporation**

**Consolidated Balance Sheets**

**(InThousands)**

** **
| ** **                                                    | ** ** | **June 30,  2006  (Unaudited)** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|
| ** **                                                    | ** ** | ** **                           | ** ** | ** **                  | ** ** |
|                                                          |       |                                 |       |                        |       |
| **Assets**                                                    |       |                                 |       |                        |       |
| Current assets:                                               |       |                                 |       |                        |       |
| Cash and cash  equivalents                                    |       | $                                    | 3,123      |                        | $          | 5,091 |   |
| Accounts  receivable, net of allowances                       |       | 11,231                               |       | 11,092                      |       |
| Deferred tax  asset - commodity price hedging contracts       |       | 1,146                                |       | 2,080                       |       |
| Prepaid assets                                                |       | 1,748                                |       | 982                         |       |
|                                                          |       |                                 |       |                        |       |
| Total current assets                                          |       | 17,248                               |       | 19,245                      |       |
|                                                          |       |                                 |       |                        |       |
| Oil and gas properties  on the basis of full cost accounting: |       |                                 |       |                        |       |
| Proved  properties, subject to amortization                   |       | 119,259                              |       | 94,111                      |       |
| Unproved  properties, not subject to amortization             |       | 23,161                               |       | 14,990                      |       |
| Other equipment  and fixtures                                 |       | 485                                  |       | 267                         |       |
| Accumulated depletion, depreciation  and amortization         |       | (22,240                              | )          | (14,272                     | )          |
|                                                          |       | 120,665                              |       | 95,096                      |       |
| Goodwill                                                      |       | 1,485                                |       | 1,485                       |       |
| Other assets                                                  |       | 810                                  |       | 725                         |       |
|                                                          |       |                                 |       |                        |       |
| Total assets                                                  |       | $                                    | 140,208    |                        | $          | 116,551 |   |

 

 

*See accompanying notes.*

 

2

----

 

 

 

**Whittier Energy Corporation**

**Consolidated Balance Sheets**

**(InThousands)**

* *
| ** **                                                                                                                                                                      | ** ** | **June 30,  2006  (Unaudited)** | ** ** | **December 31,  2005** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                                      | ** ** | ** **                           | ** ** | ** **                  | ** ** |
|                                                                                                                                                                            |       |                                 |       |                        |       |
| **Liabilities  and stockholders’ equity**                                                                                                                                  |       |                                 |       |                        |       |
| Current  liabilities:                                                                                                                                                           |       |                                 |       |                        |       |
| Accounts payable                                                                                                                                                                |       | $                                    | 9,114      |                        | $          | 9,944 |   |
| Commodity price hedging contracts, current portion                                                                                                                              |       | 3,004                                |       | 5,473                       |       |
| Other current liabilities                                                                                                                                                       |       | 168                                  |       | 353                         |       |
| Total current  liabilities                                                                                                                                                      |       | 12,286                               |       | 15,770                      |       |
|                                                                                                                                                                            |       |                                 |       |                        |       |
| Revolving credit  facility                                                                                                                                                      |       | 33,000                               |       | 14,000                      |       |
| Asset retirement  obligation                                                                                                                                                    |       | 554                                  |       | 488                         |       |
| Commodity price  hedging contracts                                                                                                                                              |       | 776                                  |       | 2,309                       |       |
| Deferred income  tax liability                                                                                                                                                  |       | 25,564                               |       | 23,290                      |       |
|                                                                                                                                                                            |       | 72,180                               |       | 55,857                      |       |
|                                                                                                                                                                            |       |                                 |       |                        |       |
| Commitments and  contingencies                                                                                                                                                  |       |                                 |       |                        |       |
|                                                                                                                                                                            |       |                                 |       |                        |       |
| Stockholders’  equity:                                                                                                                                                     |       |                                 |       |                        |       |
| Common stock, $.001 par value, 100,000,000 shares  authorized, 12,548,465 and 12,515,265 shares issued and outstanding as of  June 30, 2006 and December 31, 2005, respectively |       | 13                                   |       | 13                          |       |
| Additional paid-in capital                                                                                                                                                      |       | 54,328                               |       | 53,446                      |       |
| Accumulated other comprehensive income (loss),  unrealized loss on marketable securities, net of taxes of $55 and $35, at  June 30, 2006 and December 31, 2005, respectively    |       | (89                                  | )          | (57                         | )          |
| Accumulated other comprehensive loss, hedging  contracts, net of taxes of $1,439 and $2,690, at June 30, 2006 and December  31, 2005, respectively                              |       | (2,341                               | )          | (4,389                      | )          |
| Retained earnings                                                                                                                                                               |       | 16,117                               |       | 11,681                      |       |
| Total  stockholders’ equity                                                                                                                                                |       | 68,028                               |       | 60,694                      |       |
|                                                                                                                                                                            |       |                                 |       |                        |       |
| Total liabilities and  stockholders’ equity                                                                                                                                |       | $                                    | 140,208    |                        | $          | 116,551 |   |

 

 

*Seeaccompanying notes.*

 

3

----

**Whittier Energy Corporation**

**Consolidated Statements ofOperations**

**(In Thousands, Except Share Data)**

**(Unaudited)**
| ** **                                | ** ** | **Three Months  Ended  June 30, 2006** | ** ** | **Three Months  Ended  June 30, 2005** | ** ** | **Six Months   Ended  June 30, 2006** | ** ** | **Six Months   Ended  June 30, 2005** | ** ** |
|-------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
| Oil and gas  revenues                     |       | $                                                     | 10,853     |                                                  | $          | 3,857                                                     |       | $                                                         | 20,817     |   | $ | 6,658 |   |
|                                      |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Costs and  expenses:                      |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Lease operating expenses                  |       | 1,599                                                 |       | 1,180                                                 |       | 2,910                                                     |       | 1,993                                                     |       |
| Production taxes                          |       | 792                                                   |       | 314                                                   |       | 1,573                                                     |       | 566                                                       |       |
| Depreciation, depletion, and amortization |       | 4,185                                                 |       | 1,006                                                 |       | 7,968                                                     |       | 1,657                                                     |       |
| Ineffective portion of hedge contracts    |       | (310                                                  | )          | (74                                                   | )          | (706                                                      | )          | 111                                                       |       |
| General and administrative expenses       |       | 1,246                                                 |       | 467                                                   |       | 2,572                                                     |       | 856                                                       |       |
|                                      |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Total costs and  expenses                 |       | 7,512                                                 |       | 2,893                                                 |       | 14,317                                                    |       | 5,183                                                     |       |
|                                      |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Income from  operations                   |       | 3,341                                                 |       | 964                                                   |       | 6,500                                                     |       | 1,475                                                     |       |
|                                      |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Other income  (expense):                  |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Interest and dividend income              |       | 5                                                     |       | 9                                                     |       | 22                                                        |       | 9                                                         |       |
| Interest expense                          |       | (134                                                  | )          | (120                                                  | )          | (134                                                      | )          | (224                                                      | )          |
| Gain from sales of marketable securities  |       | —                                                |       | 309                                                   |       | —                                                    |       | 365                                                       |       |
| Partnership income                        |       | 66                                                    |       | 66                                                    |       | 233                                                       |       | 123                                                       |       |
|                                      |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Other income  (expense)                   |       | (63                                                   | )          | 264                                                   |       | 121                                                       |       | 273                                                       |       |
|                                      |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Income before  income taxes               |       | 3,278                                                 |       | 1,228                                                 |       | 6,621                                                     |       | 1,748                                                     |       |
| Provision for  income taxes               |       | (1,095                                                | )          | (430                                                  | )          | (2,185                                                    | )          | (612                                                      | )          |
| Net income                                |       | $                                                     | 2,183      |                                                  | $          | 798                                                       |       | 4,436                                                     |       | $ | 1,136 |   |
|                                           |            |                                                       |            |                                                       |            |                                                           |            |                                                           |            |  |  |  |  |

 

 

*See accompanying notes.*

** **

4

----

**Whittier Energy Corporation**

**Consolidated Statements ofOperations**

**(In Thousands, Except Share Data)**

**(Unaudited)**

 
| ** **                                                              | ** ** | **Three Months  Ended  June 30, 2006** | ** ** | **Three Months  Ended  June 30, 2005** | ** ** | **Six Months   Ended  June 30, 2006** | ** ** | **Six Months   Ended  June 30, 2005** | ** ** |
|-------------------------------------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------------|------------|-----------------------------------------------------------|------------|
|                                                                    | ** ** | ** **                                            | ** ** | ** **                                            | ** ** | ** **                                                | ** ** | ** **                                                | ** ** |
| Basic earnings  per share:                                              | ** ** | ** **                                            | ** ** | ** **                                            | ** ** | ** **                                                | ** ** | ** **                                                | ** ** |
| Net income per  share                                                   |       | $                                                     | .17        |                                                  | $          | .21                                                       |       | $                                                         | .35        |   | $ | .30 |   |
| Weighted average  number of shares outstanding (basic)                  |       | 12,520,597                                            | ** ** | 3,859,406                                             | ** ** | 12,518,016                                                | ** ** | 3,850,320                                                 | ** ** |
|                                                                    |       |                                                  | ** ** | ** **                                            | ** ** | ** **                                                | ** ** | ** **                                                | ** ** |
| Diluted earnings  per share:                                            |       |                                                  | ** ** | ** **                                            | ** ** | ** **                                                | ** ** | ** **                                                | ** ** |
| Net income per  share                                                   |       | $                                                     | .17        |                                                  | $          | .14                                                       |       | $                                                         | .35        |   | $ | .24 |   |
| Weighted average  number of shares outstanding (dilutive)               |       | 12,587,613                                            |       | 5,757,603                                             |       | 12,634,684                                                |       | 4,953,032                                                 |       |
|                                                                    |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Net income                                                              |       | $                                                     | 2,183      |                                                  | $          | 798                                                       |       | $                                                         | 4,436      |   | $ | 1,136 |   |
| Diluted net  income:                                                    |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Interest on convertible subordinated note                               |       | —                                                |       | 17                                                    |       | —                                                    |       | 38                                                        |       |
| Diluted net  income                                                     |       | $                                                     | 2,183      |                                                  | $          | 815                                                       |       | $                                                         | 4,436      |   | $ | 1,174 |   |
|                                                                    |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Dilutive  securities outstanding:                                       |       |                                                  |       |                                                  |       |                                                      |       |                                                      |       |
| Basic shares outstanding                                                |       | 12,520,597                                            |       | 3,859,406                                             |       | 12,518,016                                                |       | 3,850,320                                                 |       |
| Stock options and warrants                                              |       | 67,016                                                |       | 100,684                                               |       | 116,668                                                   |       | 50,869                                                    |       |
| Convertible subordinated note                                           |       | —                                                |       | 297,888                                               |       | —                                                    |       | 297,888                                                   |       |
| Series A preferred stock                                                |       | —                                                |       | 1,499,625                                             |       | —                                                    |       | 753,955                                                   |       |
| Diluted shares  outstanding, assuming conversion of dilutive securities |       | 12,587,613                                            |       | 5,757,603                                             |       | 12,634,684                                                |       | 4,953,032                                                 |       |

 

*See accompanying notes*

 

5

----

**Whittier Energy Corporation**

**Consolidated Statements of CashFlows**

**(In Thousands)**

**(Unaudited)**

 
| ** **                                                                     | ** ** | **Six Months  Ended  June 30, 2006** | ** ** | **Six Months  Ended  June 30, 2005** | ** ** |
|--------------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
| **Cash  flows from operating activities**                                      |       |                                                |       |                                                |       |
| Net income                                                                     |       | $                                                   | 4,436      |                                                | $          | 1,136 |   |
| Adjustments to  reconcile net income to net cash used in operating activities: |       |                                                |       |                                                |       |
| Depreciation, depletion, and amortization                                      |       | 7,968                                               |       | 1,657                                               |       |
| Amortization of debt issue costs                                               |       | 57                                                  |       | 4                                                   |       |
| Deferred income tax provision                                                  |       | 1,980                                               |       | 612                                                 |       |
| Partnership income                                                             |       | (233                                                | )          | (123                                                | )          |
| Stock based compensation expense                                               |       | 574                                                 |       | —                                              |       |
| Ineffective portion of hedge loss (gain)                                       |       | (706                                                | )          | 111                                                 |       |
| Gain on sale of marketable securities                                          |       | —                                              |       | (365                                                | )          |
| Increase in accounts receivable                                                |       | (139                                                | )          | (2,386                                              | )          |
| Increase in prepaids and other receivables                                     |       | (766                                                | )          | (44                                                 | )          |
| Increase (decrease) in accounts payable                                        |       | (385                                                | )          | 2,701                                               |       |
| Increase (decrease) in other current liabilities                               |       | (185                                                | )          | 7                                                   |       |
| Excess tax benefits from share-based payment  arrangements                     |       | (29                                                 | )          | —                                              |       |
| Net cash  provided from operating activities                                   |       | 12,572                                              |       | 3,310                                               |       |
|                                                                           |       |                                                |       |                                                |       |
| **Cash  flows from investing activities**                                      |       |                                                |       |                                                |       |
| Net investment  in oil and gas properties                                      |       | (15,723                                             | )          | (4,315                                              | )          |
| Acquisition of  RIMCO, net of cash acquired                                    |       | —                                              |       | (55,377                                             | )          |
| Acquisition of  Westhoff Ranch Field                                           |       | (18,059                                             | )          | —                                              |       |
| Proceeds from  sale of oil and gas properties                                  |       | —                                              |       | 96                                                  |       |
| Investments in  partnerships                                                   |       | (16                                                 | )          | (6                                                  | )          |
| Distributions  from partnerships                                               |       | 276                                                 |       | 146                                                 |       |
| Proceeds from  sale of marketable securities                                   |       | —                                              |       | 632                                                 |       |
| Net cash used in  investing activities                                         |       | (33,522                                             | )          | (58,824                                             | )          |
|                                                                           |       |                                                |       |                                                |       |
| **Cash  flows from financing activities**                                      |       |                                                |       |                                                |       |
| Proceeds from  revolving credit facility                                       |       | 19,000                                              |       | 21,000                                              |       |
| Payments on  revolving credit facility                                         |       | —                                              |       | (8,745                                              | )          |
| Debt issue costs                                                               |       | (221                                                | )          | (292                                                | )          |
| Net proceeds  from preferred stock offering                                    |       | —                                              |       | 46,066                                              |       |
| Proceeds from  stock options exercises                                         |       | 174                                                 |       | 111                                                 |       |
| Excess tax  benefits from share-based payment arrangements                     |       | 29                                                  |       | —                                              |       |
| Net cash provided from  financing activities                                   |       | 18,982                                              |       | 58,140                                              |       |
|                                                                                |            |                                                     |            |                                                     |            |  |  |

 

6

----

**Whittier Energy Corporation**

**Consolidated Statements of CashFlows**

**(InThousands)**

**(Unaudited)**

 
| ** **                                                                | ** ** | **Six Months  Ended  June 30, 2006** | ** ** | **Six Months  Ended  June 30, 2005** | ** ** |
|---------------------------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
|                                                                      |       |                                                |       |                                                |       |
| Net increase  (decrease) in cash and cash equivalents                     |       | $                                                   | (1,968     | )                                                   | $          | 2,626 |   |
|                                                                      |       |                                                |       |                                                |       |
| Cash and cash  equivalents at beginning of period                         |       | 5,091                                               |       | 1,461                                               |       |
|                                                                      |       |                                                |       |                                                |       |
| Cash and cash  equivalents at end of period                               |       | $                                                   | 3,123      |                                                | $          | 4,087 |   |
|                                                                      |       |                                                |       |                                                |       |
| **Supplemental  cash flow disclosure**                                    |       |                                                |       |                                                |       |
| Interest paid                                                             |       | $                                                   | 575        |                                                | $          | 314 |   |
| Taxes paid                                                                |       | $                                                   | 205        |                                                | $          | — |   |
|                                                                      | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| **Supplemental  schedule of non-cash investing and financing activities** | ** ** | ** **                                          | ** ** | ** **                                          | ** ** |
| Unrealized gain (loss)  on marketable securities, net                     |       | $                                                   | (32        | )                                                   | $          | 120 |   |

 

*Seeaccompanying notes.*

 

7

----

**Whittier Energy Corporation**

**Notes to Consolidated FinancialStatements**

**(Unaudited)**

**1.             General**

Whittier Energy Corporation, a Nevada corporation (“Whittier”), is anindependent oil and gas exploration and production company engaged in theacquisition, exploration and development of oil and gas properties in thecontinental United States. As of June 30, 2006, Whittier had five wholly ownedsubsidiaries, including Whittier Energy Company (“Whittier Energy”), a Nevadacorporation, Whittier Operating, Inc. (“Whittier Operating”), a Texascorporation, Olympic Resources (Arizona) Ltd., an Arizona corporation, RIMCOProduction Company, Inc. (“RIMCO”), a Delaware corporation, and Vaquero GasCompany, Inc. (“Vaquero”), a Texas corporation. Whittier Operating is a directsubsidiary of Whittier Energy and Vaquero is a direct subsidiary of RIMCO.References to the “Company” refer to Whittier and its subsidiaries.

Certain information and footnote disclosures normally included infinancial statements prepared in accordance with accounting principlesgenerally accepted in the United States have been condensed or omitted.Reference should be made to the relevant notes to the financial statementsincluded in the Company’s Annual Report on Form 10-KSB for the fiscal yearended December 31, 2005. The information furnished herein was taken from thebooks and records of the Company without audit. However, the informationreflects all adjustments, which are, in the opinion of management, normalrecurring adjustments necessary for the fair statement of the results for theinterim periods presented. The results of operations for the interim period arenot necessarily indicative of the results to be expected for any future interimperiod or for the year.

On June 15, 2005,Whittier completed the acquisition of RIMCO Production Company, Inc., aprivately held Delaware corporation, for approximately $57.1 million (the “RIMCOacquisition”). The RIMCO acquisition was structured as a merger of RPCAcquisition Company, Inc., a Delaware corporation wholly owned by Whittier,into RIMCO. Upon closing of the RIMCO acquisition, Whittier became the soleowner of RIMCO. The RIMCO acquisitionsubstantially increased Whittier’s properties, production and undevelopedacreage. Whittier was the accounting and legal acquirer of RIMCO.

Contemporaneously withthe RIMCO acquisition and to fund a portion of the purchase price, Whittierissued and sold 852,912 shares of Series A 8% Automatically ConvertiblePreferred Stock (the “Series A Preferred Stock”) for an aggregate offeringamount of approximately $50 million. The Company’s Series A Preferred Stockautomatically converted into 8,529,120 shares of the Company’s common stock onDecember 27, 2005, in conjunction with the Company’s listing on theNASDAQ.National Market . Whittier also entered into a new $75 million revolvingcredit facility (the “Credit Facility”) as part of the RIMCO acquisition, whichis further described in Note 7.

Inconjunction with the RIMCO acquisition, Whittier adopted the full cost methodof accounting for its oil and gas activities. The Company believes that the full cost method of accounting moreappropriately reflects the operating results of an independent oil and gasproducer that expends significant amounts of capital on exploration activitiesin order to discover proved reserves. Accordingly, the Company believes full cost accounting is the preferred method for thepost-acquisition Company.  The conclusionwas reached based on a number of considerations, including: 1) the material sizeof the transaction and RIMCO’s historical use of full cost accounting; 2) thecomposition of RIMCO’s acquired assets; 3) the nature of RIMCO’s prospectgeneration business and technical personnel; and 4) the Company’s anticipatedexploration projects and capital expenditures subsequent to the RIMCOacquisition.  Additionally, the full costmethod is used by many of Whittier’s peers, and management believes the changeenhances the overall transparency and peer group comparability of the Company’sfinancial statements.

8

----

 

OnJuly 1, 2005, the Company effected a one-for-three reverse split of itsauthorized and outstanding shares of common stock. All historicalweighted average share and per share amounts have been restated to reflect thereverse stock split.In addition tothe retroactive restatement to reflect the conversion to the full cost methodand the one-for-three reverse stock split, certain prior period amounts havebeen reclassified to conform to the current period presentation, includingcombining the Company’s investment in marketable securities with otherassets.  Such reclassifications had noeffect on the Company’s net income or stockholders’ equity.

On June 1, 2006, Whittieracquired a 75% operated working interest (59.5% average revenue interest) inthe Westhoff Ranch Field for approximately $18 million in cash from variousthird party sellers. The Company’s acquisition of the Westhoff Ranch Field isfurther described in Note 10.

**2.             Earnings Per Common Share**

Basic earnings percommon share is calculated by dividing net income by the aggregate weightedaverage number of shares outstanding during the periods. Diluted earnings pershare considers the dilutive effect of the average number of common stockequivalents, consisting of the Company’s common stock options and warrantsoutstanding. The Company’s total weighted average number of anti-dilutivecommon stock equivalents outstanding for the three months ended June 30, 2006and June 30, 2005 were 1,266,456 and none, respectively.  The Company’s total weighted average numberof anti-dilutive common stock equivalents outstanding for the six months endedJune 30, 2006 and June 30, 2005 were 699,621 and 4,545, respectively.

**3.             NewAccounting Standards**

In December 2004, theFASB issued SFAS No. 153, “Exchanges of Non-monetary Assets.”  SFAS No. 153 requires the use of fair valuemeasurement for exchanges of non-monetary assets. The statement was effectivefor the Company beginning in the third quarter of 2005. The adoption ofSFAS No. 153 had no impact on the Company’s financial position orresults of operations.

InMay 2005, the FASB issued SFAS No. 154, “Accounting Changes and ErrorCorrections: a replacement of APB Opinion No. 20 and FASB StatementNo. 3.” SFAS No. 154 requires voluntary changes in accountingprinciples to be applied retrospectively, unless it is impracticable todetermine either the period specific effects or the cumulative effects of thechange. SFAS No. 154’s retrospective application requirement replaces APB20’s requirement to recognize most voluntary changes in accounting principle byincluding in net income of the period of the change the cumulative effect ofchanging to the new accounting principle. If retrospective application for allprior periods is impracticable, the method used to report the change and thereason the retrospective application is impracticable are to be disclosed.

Under SFAS No. 154,retrospective application will be the transition method in the unusual eventthat a newly issued accounting pronouncement does not provide specifictransition guidance. It is expected that most pronouncements will specifytransition methods other than the retrospective method. SFAS No. 154 iseffective for accounting changes made in fiscal years beginning afterDecember 15, 2005, and the adoption of this statement is expected to haveno impact on Whittier’s financial position or results of operations.

InFebruary of 2006, the FASB issued SFAS No. 155 “Accounting for Certain HybridFinancial Instruments.”  SFAS No. 155amends SFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities” and SFAS No. 140 “Accounting for Transfers and Servicing ofFinancial Assets and Extinguishments of Liabilities.”  SFAS No. 155 permits fair value remeasurementfor any hybrid financial instrument that contains  an embedded derivative that would otherwiserequire bifurcation, clarifies which interest-only strips and principal-onlystrips are not subject to the requirements of SFAS No. 133, establishes arequirement to evaluate interests in securitized financial assets

9

----

 

toidentify interests that are freestanding derivatives or that are hybridfinancial instruments that contain an embedded derivative requiringbifurcation, clarifies that concentrations of credit risk in the form of subordinationare not embedded derivatives and amends SFAS No. 140 to eliminate theprohibition on a qualifying special-purpose entity from holding a derivativefinancial instrument that pertains to a beneficial interest other than anotherderivative financial instrument.  SFASNo. 155 is effective for all financial instruments acquired or issued after thebeginning of an entity’s first fiscal year that begins after September 15,2006.  At adoption, any differencebetween the total carrying amount of the individual components of the existingbifurcated hybrid financial instrument and the fair value of the combinedhybrid financial instrument should be recognized as a cumulative-effectadjustment to beginning retained earnings. Adoption of this statement is expected to have no impact on the Company’sfinancial position or results of operations.

In July 2006, the FASBissued FASB Interpretation (FIN) No. 48, “Accounting for Uncertainty in IncomeTaxes — an Interpretation of FASB Statement No. 109.” This Interpretationprovides guidance for recognizing and measuring uncertain tax positions, asdefined in SFAS No. 109, “Accounting for Income Taxes.” FIN 48, which willbecome effective January 1, 2007, defines the threshold for recognizing thebenefits of uncertain tax return positions in the financial statements.Management is currently evaluating the potential impact, if any, the adoptionof this statement could have on the Company’s financial position or results ofoperations.

**4.             Stock Based Compensation**

Prior to 2006 Whittieraccounted for equity based compensation using APB Opinion No. 25 under which nocompensation cost for employee stock options was recognized.  On January 1, 2006 the Company adopted SFASNo. 123(R), “Share—Based Payment,” a revision of SFAS No. 123, “Accounting forStock-Based Compensation.” SFAS No. 123(R) supersedes APB Opinion No. 25, “Accountingfor Stock Issued to Employees” and amends SFAS No. 95, “Statement of CashFlows.” SFAS No. 123(R) requires a company to recognize equity based compensation,including stock option grants, at fair value in the income statement, anddiscontinues accounting for equity based compensation under APB Opinion No. 25,the intrinsic value method. The Companyadopted SFAS No. 123(R) on January 1, 2006, utilizing the modified prospectivemethod to record compensation expense for the unvested portion of all grantsoutstanding as of December 31, 2005 and for all future grants.

Under SFAS 123, the fairvalue of each option granted is estimated on the date of grant.  The Company estimates the fair value foroptions issued during the period, if any, as of the date of grant using theBlack-Scholes option pricing model by using weighted average assumptions,volatility factors of the expected market price of the Company’s common stock,and the weighted average life expectancy of the options.

In December 2003, theCompany’s Board of Directors approved a Long Term Incentive Plan (the “Plan”),which was ratified by the Company’s stockholders in July 2004 and furtheramended in October 2005. The Plan sets aside a total of 1,876,000 shares of theCompany’s common stock for issuance to the Company’s officers, directors, employeesand consultants. During 2004, the Company granted a total of 262,834 options topurchase the Company’s common stock at an average exercise price of $5.22 pershare to certain directors, officers, and employees of the Company, of which5,000 options were cancelled in May 2004. The options vest ratably over athree-year period from the date of grant and have a term of five years. Thefair value of the options outstanding on the date of grant was estimated to be$1.2 million, or $4.41 per share, using the Black-Scholes option pricing modelwith the following weighted average assumptions: risk free interest rate of 4%,dividend yield of 0%, volatility factors of the expected market price of theCompany’s common stock of 4.74, and a weighted average life expectancy of theoptions of 3.5 years.

 

10

----

 

The Company issuedan additional 447,491 options to various directors, officers, employees andconsultants of the Company during the year ended December 31, 2005, with anaverage exercise price of $8.16 per share. The fair  value of the options on the date of grant wasestimated to be approximately $1.3 million, or $2.67 per share, using theBlack-Scholes option pricing model with the following weighted averageassumptions: risk free interest rate of 4.3%, dividend yield of 0%, volatilityfactors of the expected market price of the Company’s common stock of .4, and aweighted average life expectancy of the options of 3 years.

The Companygranted a total of 1,051,637 options to various directors, officers, employeesand consultants of the Company during the six months ended June 30, 2006, withan average exercise price of $9.39 per share. The fair value of the options onthe date of grant was estimated to be approximately $3.0 million, or $2.86 pershare, using the Black-Scholes option pricing model with the following weightedaverage assumptions: risk free interest rates of 4.3% to 5.0%, dividend yieldof 0%, volatility factors of the expected market price of the Company’s commonstock of .34, and a weighted average life expectancy of the options of 3 years.

During the three and six months ended June 30, 2006, the Company recordedcompensation expense of $415,000 and $716,000, respectively, to general andadministrative expense, of which  $88,000and $142,000 was capitalized to oil and gas properties under the full costmethod of accounting for the three and six months ended June 30, 2006,respectively.

As of June 30, 2006, there was approximately $3.0 million of totalunrecognized compensation expense related to unvested stock based compensationthat is expected to be recognized over a weighted average period of 3.6 years.

11

----

 

If compensation expense for the stock options granted to employees and directors had been determined using the fair value method, net income and diluted net income per share for the three months and six months ended June 30, 2005, respectively, would have been reduced to the following pro forma amounts:

 

|                                                                                                    | ** ** | **Three Months  Ended  June 30,  2005** | ** ** | **Six Months  Ended  June 30,  2005** | ** ** |
|----------------------------------------------------------------------------------------------------|------------|---------------------------------------------------|------------|-------------------------------------------------|------------|
| Net income under  APB No. 25                                                                       |       | $                                                 | 798        |                                            | $          | 1,136 |   |
|                                                                                               |       |                                              |       |                                            |       |
| Deduct: Total  stock-based compensationexpense determined under the fair value method, net  of tax |       | (104                                              | )          | (198                                            | )          |
|                                                                                               |       |                                              |       |                                            |       |
| Pro forma net  income                                                                              |       | $                                                 | 694        |                                            | $          | 938 |   |
|                                                                                               |       |                                              |       |                                            |       |
| Pro forma basic  earnings per share                                                                |       | $                                                 | .18        |                                            | $          | .24 |   |
|                                                                                               |       |                                              |       |                                            |       |
| Pro forma  diluted earnings per share                                                              |       | $                                                 | .12        |                                            | $          | .20 |   |
|                                                                                               |       |                                              |       |                                            |       |
| As reported  basic earnings per share                                                              |       | $                                                 | .21        |                                            | $          | .30 |   |
|                                                                                               |       |                                              |       |                                            |       |
| As reported diluted  earnings per share                                                            |       | $                                                 | .14        |                                            | $          | .24 |   |

 

A summary of theCompany’s stock option activity and related information follows:

 
| ** **                                   | ** ** | **Shares**     | ** ** | **Weighted**              | ** ** | **Weighted Average** | ** ** | **Aggregate** | ** ** |
|----------------------------------------------|------------|----------------|------------|---------------------------|------------|---------------------------|------------|---------------|------------|
| ** **                                   | ** ** | **Underlying** | ** ** | **Average Exercise** | ** ** | **Remaining**             | ** ** | **Intrinsic** | ** ** |
| ** **                                   | ** ** | **Options**    | ** ** | **Price**                 | ** ** | **Contractual Term** | ** ** | **Value**     | ** ** |
| Options Outstanding as of December 31, 2005  |       | 753,712        |       | $                         | 7.16       |                      |       |          |       |   |
| Options Issued                               |       | 1,051,637      |       | $                         | 9.39       |                      |       |          |       |   |
| Options Exercised                            |       | (33,200        | )          | $                         | 5.25       |                      |       |          |       |   |
| Options Cancelled                            |       | (14,511        | )          | $                         | 8.71       |                      |       |          |       |   |
| Options Expired                              |       | —         |       | —                    |       |                      |       |          |       |
| Options Outstanding as of June 30, 2006 |       | 1,757,638      |       | $                         | 8.54       |                      | 4.3  Years |          | $          | 990,682 |   |
| Exercisable  options June 30, 2006      |       | 470,659        |       | $                         | 7.10       |                      | 3.7 Years  |          | $          | 548,263 |   |

 

Theintrinsic value of the 33,200 stock options exercised was $90,340.

12

----

** **

**5.             Asset Retirement Obligation**

**As ofJune 30, 2006, the Company had an estimated future abandonment obligation of$554,000, including $485,000 in costs capitalized to oil and gas properties and$69,000 in cumulative accretion expense**.Theactivity related to the Company’s future asset retirement obligation for thesix months ended June 30, 2006, and the year ended December 31, 2005 is asfollows (in thousands):

** **

|                                         | ** ** | **Six Months   Ended June 30,** | ** ** | **Year Ended   December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                              | ** ** | **2006**                                            | ** ** | **2005**                                     | ** ** |
| Beginning asset  retirement obligation  |       | $                                                   | 488        |                                         | $          | 121 |   |
| Liabilities  incurred during the period |       | 96                                                  |       | 341                                          |       |
| Liabilities  settled during the period  |       | (45                                                 | )          | —                                       |       |
| Accretion  expense                      |       | 15                                                  |       | 26                                           |       |
| Ending asset retirement  obligation     |       | $                                                   | 554        |                                         | $          | 488 |   |

 

**6.             Oil and Gas Properties, Equipmentand Fixtures**

In conjunction with the RIMCO acquisition, the Companyadopted the full cost method of accounting for its oil and gas activities.Under the full cost method of accounting, all costs associated with propertyacquisition, exploration, and development activities are capitalized.Exploration and development costs include dry hole costs, geological andgeophysical costs, direct overhead related to exploration and developmentactivities and other costs incurred for the purpose of finding oil and gasreserves. Salaries and benefits paid to employees directly involved in theexploration and development of oil and gas properties as well as other internalcosts that can be specifically identified with acquisition, exploration, anddevelopment activities are also capitalized. The Company capitalizes interestcosts to its unproved oil and gas properties, as well.

All capitalizedcosts of proved oil and gas properties, including the estimated future costs todevelop proved reserves, are amortized on the unit-of-production method usingtotal estimated proved reserves. Investments in unproved properties and majordevelopment projects are not amortized until proved reserves associated withthe projects can be determined or until impairment occurs. If the results of anassessment indicate that the properties are impaired, the amount of theimpairment is added to the cost to be amortized.

The capitalized costs of the Company’s oil and gasproperties, net of accumulated depreciation, depletion, and amortization, maynot exceed the estimated future net cash flows from proved oil and gas reservesdiscounted at 10 percent, plus the lower of cost or fair market value ofunproved properties as adjusted for related tax effects (the “CeilingLimitation”). If capitalized costs exceed the Ceiling Limitation, the excessmust be charged to expense. Whittier did not have any adjustment to earningsdue to the Ceiling Limitation for the periods presented herein.

Salesof proved and unproved properties are accounted for as adjustments ofcapitalized costs with no gain or loss recognized, unless such adjustmentswould significantly alter the relationship between capitalized costs and provedreserves of oil and gas, in which case the gain or loss is recognized in income.Abandonments of properties are accounted for as adjustments of capitalizedcosts with no loss recognized.

**Equipment and fixtures are stated at cost anddepreciated over the estimated useful lives of the assets, which range fromthree to twelve years, using the straight-line method.  Maintenance and repairs, which neithermaterially add to the value of the property nor appreciably prolong its life,are charged to expense as incurred. Gains or losses on the dispositions of property and equipment, other thanoil and gas property, are reflected in the Company’s results from operations.**

13

----

** **

**7.             Note Payable**

Revolving CreditAgreement

In connection with theRIMCO acquisition, on June 15, 2005 Whittier entered into its $75 millionrevolving Credit Facility with BNP Paribas as the lead bank and administrativeagent. Whittier initially borrowed $20 million from the Credit Facility topartially fund the RIMCO acquisition and to fully repay approximately $8.5million in principal and accrued interest outstanding on the Company’s previousrevolving credit facility with Compass Bank, as well as $1 million of bank debtheld by RIMCO. During 2005, the Company repaid $6 million in principaloutstanding on the Credit Facility, leaving $14 million in principaloutstanding as of  December 31, 2005.

On May 11, 2006, theCredit Facility was increased to an aggregate borrowing capacity of $100million. In May 2006, the Company drew down an additional $19 million inprincipal outstanding from the Credit Facility to fund the purchase of theWesthoff Ranch Field discussed in Note 10, leaving $33 million in principaloutstanding as of June 30, 2006.

The borrowing base of theCredit Facility was $38 million as of June 30, 2006, and is subject to reviewand adjustment on a semi-annual basis. Redeterminations of the borrowing baseare based upon a number of factors, including commodity prices and reservelevels. Amounts outstanding under the revolver bear interest at specifiedmargins over the London Interbank Offered Rate (“LIBOR”) of 1.50% to 2.25%.Such margins fluctuate based on the utilization of the Credit Facility. Allamounts drawn under the revolver mature June 15, 2009, which reflects a oneyear extension granted on May 11, 2006.

The Credit Facility iscollateralized by substantially all of the Company’s assets and the Company issubject to various covenants, representations and warranties. The Company issubject to certain financial covenants pertaining to minimum working capitallevels, minimum coverage of interest expense, and a maximum leverage ratio. Inaddition, Whittier is subject to covenants limiting dividends and otherrestricted payments, transactions with affiliates, incurrence of debt, changesof control, asset sales, and liens on properties. The primary covenants underthe Credit Facility include the following:

**·**                 The Company will maintain a ratio of total debt toconsolidated EBITDAX (net income before interest expenses, taxes, depreciation,depletion, amortization, exploration costs, and other non-cash expenses less non-cashincome and capitalized expenses) for the most recent period of four fiscalquarters of no greater than  3.5 to 1.0,calculated on a pro-forma basis for the RIMCO acquisition; and

**·**                 The Company will maintain a currentratio, determined quarterly, of current assets to current liabilities,inclusive of available borrowing base under the Credit Facility and exclusiveof any current portion of principal outstanding under the Credit Facility, thecurrent fair value of outstanding commodity price hedging contracts, and thecurrent balance of asset retirement obligations under FAS 143, of at least oneto one.

The Company was incompliance with these covenants as of June 30, 2006 and has classified all ofits outstanding indebtedness as long-term. The Company’s next borrowing basereview is scheduled for October 1, 2006.

For the three andsix months ended June 30, 2006, the Company incurred $429,280 and $702,549,respectively, in interest cost, of which $294,805 and $568,074 was capitalizedfor the respective periods to its unevaluated oil and gas properties. For thethree and six months ended June 30, 2005, the Company incurred $224,966 and$369,682, respectively, in interest cost, of which $104,470 and $145,186 wascapitalized for the respective periods to its unevaluated oil and gasproperties.

On August 9, 2006,the Company amended the Credit Facility to allow up to $6 million of the total$100 million commitment under the Credit Facility to be borrowed as a term loanbearing interest at a rate of LIBOR plus 3.75%, repayable within 18 months from the drawdown date. On August 9, 2006,the Company borrowed an additional

14

----

 

$11 million underthe Credit Facility to fund its acquisition of various oil and gas propertiesfrom Imperial Petroleum, including $6 million borrowed as a term loan and $5million borrowed under the revolving portion of the  Credit Facility. As of August 14, 2006, theCompany had $44 million in total principal outstanding under the CreditFacility, including $38 million under the revolver out of a total revisedborrowing base of $45 million, and $6 million as a term loan.

Anticipated futurematurities of the Credit Facility as of June 30, 2006, are as follows:

 

| Year   | ** ** | **Amount  (in thousands)** | ** ** |
|--------|------------|---------------------------------|------------|
| 2006   |       | $                               | —     |   |
| 2007   |       | —                          |       |
| 2008   |       |                            |       |
| 2009   |       | 33,000                          |       |
|   |       |                            |       |
| Total  |       | $                               | 33,000     |   |

 

**8.             Commodity Price Risk HedgingInstruments**

**TheCompany held various derivative instruments, including crude oil and naturalgas option agreements known as “swaps” and “collars” as of June 30, 2006 andDecember 31, 2005. Swaps are designed to fix the price of anticipated sales offuture production, while collars are designed to establish floor and ceilingprices on anticipated sales of future production. The Company entered into thecontracts at the time it acquired certain operated oil and gas propertyinterests as a means to reduce the future price volatility on its sales of oiland gas production, as well as to achieve a more predictable cash flow from itsoil and gas properties. The Company has designated its price hedginginstruments as cash flow hedges in accordance with SFAS No. 133.**

15

----

 

Further detailsrelating to the Company’s hedging activities are as follows:

Hedging contractsheld as of June 30, 2006:

 
| ** **                                  | ** ** | ** **        | ** ** | **Nymex Contract Price** | ** ** | ** **              | ** ** |
|---------------------------------------------|------------|-------------------|------------|------------------------------------|------------|-------------------------|------------|
| **Contract Period and Type** | ** ** | **Total  Volume** | ** ** | **Floor**                          | ** ** | **Ceiling/Swap  Price** | ** ** | **Fair Value  (in thousands)** | ** ** |
| ** **                                  | ** ** | ** **        | ** ** | ** **                         | ** ** | ** **              | ** ** | ** ** | ** ** |
| **Crude  Oil Contracts (barrels)**          |       |              |       |                               |       |                    |       |   |   |
| Swap Contracts:                             |       |              |       |                               |       |                    |       |   |   |
| July 2006 — December 2006              |       | 18,000            |       | N/A                                |       | $                       | 58.00      |   | $ | (311 | ) |
| July 2006 — December 2006              |       | 24,000            |       | N/A                                |       | $                       | 74.05      |   | (32 | ) |
| January 2007 — June 2007               |       | 15,000            |       | N/A                                |       | $                       | 73.85      |   | (36 | ) |
| July 2007 — December 2007              |       | 9,000             |       | N/A                                |       | $                       | 73.00      |   | (22 | ) |
| January 2008 — December 2008           |       | 48,000            |       | N/A                                |       | $                       | 71.35      |   | (105 | ) |
|                                        |       |              |       |                               |       |                    |       |   |   |
| Collar  Contracts:                          |       |              |       |                               |       |                    |       |   |   |
| July 2006 — December 2006              |       | 48,000            |       | $                                  | 30.00      |                    | $          | 34.25 |   | (1,948 | ) |
| July 2006 — December 2006              |       | 10,800            |       | $                                  | 49.50      |                    | $          | 68.60 |   | (89 | ) |
| January 2007 — December 2007           |       | 54,000            |       | $                                  | 47.50      |                    | $          | 69.00 |   | (564 | ) |
| January 2007 — December 2007           |       | 78,000            |       | $                                  | 47.50      |                    | $          | 69.25 |   | (806 | ) |
| January 2008 — December 2008           |       | 48,000            |       | $                                  | 60.00      |                    | $          | 83.00 |   | (116 | ) |
|                                        |       |              |       |                               |       |                    |       |   |   |
| **Natural  Gas Contracts (mmbtu)**          |       |              |       |                               |       |                    |       |   |   |
| Swap Contracts:                             |       |              |       |                               |       |                    |       |   |   |
| July 2006 — October 2006 *             |       | 320,000           |       | N/A                                |       | $                       | (0.37      | ) | 28 |   |
| July 2006 — October 2006               |       | 120,000           |       | N/A                                |       | $                       | 7.44       |   | 139 |   |
| November 2006 — March 2007             |       | 151,000           |       | N/A                                |       | $                       | 10.75      |   | 141 |   |
| April 2007 — October 2007              |       | 210,000           |       | N/A                                |       | $                       | 6.97       |   | (292 | ) |
| April 2007 — October 2007              |       | 214,000           |       | N/A                                |       | $                       | 9.25       |   | 163 |   |
| April 2007 — October 2007 *            |       | 490,000           |       | N/A                                |       | $                       | (0.37      | ) | (1 | ) |
| November 2006 — March 2007             |       | 150,000           |       | N/A                                |       | $                       | 8.16       |   | (238 | ) |
| November 2007 — March 2008             |       | 152,000           |       | N/A                                |       | $                       | 10.98      |   | 74 |   |
| April 2008 — October 2008              |       | 214,000           |       | N/A                                |       | $                       | 8.65       |   | 131 |   |
|                                        |       |              |       |                               |       |                    |       |   |   |
| Collar  Contracts:                          |       |              |       |                               |       |                    |       |   |   |
| July 2006 — October 2006               |       | 160,000           |       | $                                  | 6.75       |                    | $          | 8.40 |   | 109 |   |
| July 2006 — December 2006              |       | 60,000            |       | $                                  | 5.00       |                    | $          | 6.45 |   | (69 | ) |
| July 2006 — October 2006               |       | 280,000           |       | $                                  | 7.00       |                    | $          | 7.50 |   | 213 |   |
| November 2006 — March 2007             |       | 151,000           |       | $                                  | 9.00       |                    | $          | 14.50 |   | 106 |   |
| April 2007 — October 2007              |       | 280,000           |       | $                                  | 6.25       |                    | $          | 7.95 |   | (318 | ) |
| April 2007 — October 2007              |       | 214,000           |       | $                                  | 7.50       |                    | $          | 12.65 |   | 103 |   |
| November 2006 — March 2007             |       | 200,000           |       | $                                  | 7.25       |                    | $          | 9.75 |   | (232 | ) |
| November 2007 — March 2008             |       | 152,000           |       | $                                  | 9.00       |                    | $          | 16.25 |   | 85 |   |
| April 2008 — October 2008              |       | 214,000           |       | $                                  | 7.50       |                    | $          | 10.90 |   | 107 |   |
|                                        |       |              |       |                               |       |                    |       |   |   |
|                                        |       |              |       |                               |       | Total                   |       | $ | (3,780 | ) |

----

*Basis Swaps

16

----

 

Hedging Contractsheld as of December 31, 2005:
| ** **                                  | ** ** | ** **        | ** ** | **Nymex Contract Price** | ** ** | ** **              | ** ** |
|---------------------------------------------|------------|-------------------|------------|------------------------------------|------------|-------------------------|------------|
| **Contract Period and Type** | ** ** | **Total  Volume** | ** ** | **Floor**                          | ** ** | **Ceiling/Swap  Price** | ** ** | **Fair Value  (in thousands)** | ** ** |
| ** **                                  | ** ** | ** **        | ** ** | ** **                         | ** ** | ** **              | ** ** | ** ** | ** ** |
| **Crude  Oil Contracts (barrels)**          |       |              |       |                               |       |                    |       |   |   |
| Swap Contracts:                             |       |              |       |                               |       |                    |       |   |   |
| January 2006 — December 2006           |       | 36,000            |       | N/A                                |       | $                       | 58.00      |   | $ | (182 | ) |
|                                        |       |              |       |                               |       |                    |       |   |   |
| Collar  Contracts:                          |       |              |       |                               |       |                    |       |   |   |
| January 2006 — December 2006           |       | 96,000            |       | $                                  | 30.00      |                    | $          | 34.25 |   | (2,709 | ) |
| January 2006 — December 2006           |       | 21,600            |       | $                                  | 49.50      |                    | $          | 68.60 |   | (57 | ) |
| January 2007 — December 2007           |       | 54,000            |       | $                                  | 47.50      |                    | $          | 69.00 |   | (253 | ) |
| January 2007 — December 2007           |       | 78,000            |       | $                                  | 47.50      |                    | $          | 69.25 |   | (359 | ) |
|                                        |       |              |       |                               |       |                    |       |   |   |
| **Natural  Gas Contracts (mmbtu)**          |       |              |       |                               |       |                    |       |   |   |
| Swap Contracts:                             |       |              |       |                               |       |                    |       |   |   |
| January 2006 — March 2006              |       | 90,000            |       | N/A                                |       | $                       | 8.43       |   | (261 | ) |
| April 2006 — October 2006              |       | 210,000           |       | N/A                                |       | $                       | 7.44       |   | (604 | ) |
| November 2006 — March 2007             |       | 150,000           |       | N/A                                |       | $                       | 8.16       |   | (488 | ) |
| April 2007 — October 2007              |       | 210,000           |       | N/A                                |       | $                       | 6.97       |   | (505 | ) |
|                                        |       |              |       |                               |       |                    |       |   |   |
| Collar  Contracts:                          |       |              |       |                               |       |                    |       |   |   |
| January 2006 — March 2006              |       | 150,000           |       | $                                  | 7.50       |                    | $          | 10.10 |   | (215 | ) |
| April 2006 — October 2006              |       | 280,000           |       | $                                  | 6.75       |                    | $          | 8.40 |   | (627 | ) |
| January 2006 — December 2006           |       | 120,000           |       | $                                  | 5.00       |                    | $          | 6.45 |   | (464 | ) |
| November 2006 — March 2007             |       | 200,000           |       | $                                  | 7.25       |                    | $          | 9.75 |   | (505 | ) |
| April 2007 — October 2007              |       | 280,000           |       | $                                  | 6.25       |                    | $          | 7.95 |   | (553 | ) |
|                                        |       |              |       |                               |       |                    |       |   |   |
|                                        |       |              |       |                               |       | Total                   |       | $ | (7,782 | ) |

 

The Companyaccounts for its derivatives as cash flow hedging instruments, and recognizesgains or losses on settlement of its hedging instruments in oil and gasrevenues, and changes in their fair value as a component of other comprehensiveincome, net of deferred taxes. The Company recognized pre-tax losses in oil andgas revenues of $743,000 and $1.7 million for the three and six months endedJune 30, 2006, and $564,000 and $1.1 million for the three and six months endedJune 30, 2005, respectively, due to realized settlements of its price hedgecontracts during the respective periods.

At June 30, 2006, the Company recorded unrealized losses on cash flowhedging contracts of $2.3 million, net of deferred taxes of $1.4 million, inaccumulated other comprehensive income. Comparatively, at December 31, 2005, the Company recordedunrealized losses of $4.4 million, net of deferred taxes of $2.7 million inaccumulated other comprehensive income. As of June 30, 2006, the Company anticipates $1.9 million of unrealizedlosses, net of deferred taxes of $1.1 million, will be reclassified intoearnings during the twelve months following June 30, 2006. The Company recordeda gain from hedge ineffectiveness of $310,000 and  $706,000 for the three and six months endedJune 30, 2006, respectively.

17

----

 

The followingtable details the activity of the cash flow hedges on a pre-tax and after-taxbasis for the period ending June 30, 2006 (in thousands).

 

|                                                          | ** ** | **Pre-tax** | ** ** | **After-tax** | ** ** |
|----------------------------------------------------------|------------|-------------|------------|---------------|------------|
| Accumulated  other comprehensive loss, December 31, 2005 |       | $           | (7,079     | )             | $          | (4,389 | ) |
| Reclassified  into earnings                              |       | 1,661       |       | 1,030         |       |
| Change in fair  market value                             |       | 2,344       |       | 1,456         |       |
| Ineffective  portion of cash flow hedges                 |       | (706        | )          | (438          | )          |
| Accumulated other  comprehensive loss, June 30, 2006     |       | $           | (3,780     | )             | $          | (2,341 | ) |

 

**9.             Commitments and Contingencies**

The Companyentered into a rental lease for approximately 2,910 square feet of corporateoffice space in Houston, Texas on April 1, 2004, for a renewable term of 90months. The lease requires payments of approximately $5,000 per month. In December2005, the Company executed an amendment to the lease, relocating the Company’soffice space to approximately 15,043 square feet within the same building toallow the Company to consolidate the operations of Whittier and RIMCO withinone location. The lease, as amended, has a term of 144 months with expenserecognized on a straight-line basis at approximately $24,500 per month. TheCompany has an early cancellation option on the lease at the end of the 72nd month and again at the end of the 108th month.

As a result of theRIMCO acquisition, the Company assumed two office leases held by RIMCO,including a rental lease in Avon, Connecticut for 6,900 square feet, whichexpired in October 2005 and an office lease in Houston, Texas for 9,110 squarefeet, which expires in October 2007. The RIMCO Houston lease requires paymentsof $21,350 per month. The Company accrued the remaining costs of the RIMCOHouston lease as part of the purchase price of RIMCO. In March 2006, theCompany subleased the RIMCO Houston lease for total lease payments ofapproximately $194,000.

The Company’sexisting future minimum annual lease payments for the next five years as ofJune 30, 2006, are as follows (in thousands):

 

| Year       | ** ** | **Amount  (in thousands)** | ** ** |
|------------|------------|---------------------------------|------------|
| ** ** | ** ** | ** **                      | ** ** |
| 2006       |       | $                               | 33         |   |
| 2007       |       | 267                             |       |
| 2008       |       | 322                             |       |
| 2009       |       | 322                             |       |
| 2010       |       | 322                             |       |
| Thereafter |       | 1,072                           |       |
| Total      |       | $                               | 2,338      |   |

 

 

18

----

 

**10.          Acquisition of Westhoff Ranch WorkingInterests**

On June 1, 2006, Whittieracquired a 75% operated working interest (59.5% average revenue interest) inthe Westhoff Ranch Field for approximately $18 million in cash from variousthird party sellers.  The effective dateof this acquisition is February 1, 2006. The Westhoff Ranch Field is a 2,300 acre property located in JacksonCounty, Texas. The field was used by the sellers for the exploration,development and production of oil and gas, which is the intended continued usefor the acquired assets by the Company. The acquired properties and theirrelated operations are included in Whittier’s consolidated financial statementsfrom the date of closing.

The following unauditedpro forma consolidated results of operations have been prepared as if theacquisition of the Westhoff Ranch working interests had occurred as of thebeginning of the period being reported (in thousands):
| ** **                                 | ** ** | **Three Months  Ended  June 30, 2006** | ** ** | **Three Months  Ended  June 30, 2005** | ** ** | **Six Months  Ended  June 30, 2006** | ** ** | **Six Months  Ended  June 30, 2005** | ** ** |
|--------------------------------------------|------------|-------------------------------------------------------|------------|-------------------------------------------------------|------------|-----------------------------------------------------|------------|-----------------------------------------------------|------------|
|                                       |       |                                                  |       |                                                  |       |                                                |       |                                                |       |
| Oil and gas revenues                       |       | $                                                     | 12,232     |                                                  | $          | 4,971                                               |       | $                                                   | 24,407     |   | $ | 8,676 |   |
|                                       |       |                                                  |       |                                                  |       |                                                |       |                                                |       |
| Costs and expenses:                        |       |                                                  |       |                                                  |       |                                                |       |                                                |       |
| Lease operating  expenses                  |       | 1,803                                                 |       | 1,306                                                 |       | 3,318                                               |       | 2,216                                               |       |
| Production taxes                           |       | 877                                                   |       | 386                                                   |       | 1,797                                               |       | 689                                                 |       |
| Depreciation,  depletion, and amortization |       | 4,638                                                 |       | 1,325                                                 |       | 9,130                                               |       | 2,313                                               |       |
| Ineffective  portion of hedge contracts    |       | (310                                                  | )          | (74                                                   | )          | (706                                                | )          | 111                                                 |       |
| General and  administrative expenses       |       | 1,246                                                 |       | 467                                                   |       | 2,572                                               |       | 856                                                 |       |
|                                       |       |                                                  |       |                                                  |       |                                                |       |                                                |       |
| Total costs and  expenses                  |       | 8,254                                                 |       | 3,410                                                 |       | 16,111                                              |       | 6,185                                               |       |
|                                       |       |                                                  |       |                                                  |       |                                                |       |                                                |       |
| Income from operations                     |       | 3,978                                                 |       | 1,561                                                 |       | 8,296                                               |       | 2,491                                               |       |
| Other income (expense)                     |       | (207                                                  | )          | 160                                                   |       | (208                                                | )          | 66                                                  |       |
|                                       |       |                                                  |       |                                                  |       |                                                |       |                                                |       |
| Income before income  taxes                |       | 3,771                                                 |       | 1,721                                                 |       | 8,088                                               |       | 2557                                                |       |
| Provision Income tax  benefit (provision)  |       | (1,262                                                | )          | (561                                                  | )          | (2,669                                              | )          | (834                                                | )          |
| Net income                                 |       | $                                                     | 2,509      |                                                  | $          | 1,160                                               |       | $                                                   | 5,419      |   | $ | 1,723 |   |
|                                       |       |                                                  |       |                                                  |       |                                                |       |                                                |       |
| Basic net income per  share                |       | $                                                     | 0.20       |                                                  | $          | 0.30                                                |       | $                                                   | 0.43       |   | $ | 0.45 |   |
| Diluted net income per  share              |       | $                                                     | 0.20       |                                                  | $          | 0.20                                                |       | $                                                   | 0.43       |   | $ | 0.36 |   |
| Weighted average shares  outstanding:      |       |                                                  |       |                                                  |       |                                                |       |                                                |       |
| Basic                                      |       | 12,520,597                                            |       | 3,859,406                                             |       | 12,518,016                                          |       | 3,850,320                                           |       |
| Fully diluted                              |       | 12,587,613                                            |       | 5,757,603                                             |       | 12,634,684                                          |       | 4,953,032                                           |       |

** **

19

----

** **

**Item 2. Management’s Discussion and Analysis ofFinancial Condition and Results of Operations**

**EXECUTIVEOVERVIEW**

Whittier Energy Corporation, a Nevadacorporation, is an independent oil and gas exploration and production companyprimarily engaged in the acquisition, exploration and development of oil andgas properties in the continental United States. Our assets consist primarilyof operated and non-operated working interests, royalty interests, partnershipinterests, and mineral acreage in various oil and gas properties, principallylocated in the Gulf Coast region, South Texas and the Permian Basin.

Financial and operatinghighlights for second quarter 2006 include the following:

·                  Netincome of $2.2 million, a 174% increase over second quarter 2005;

·                  Dilutedearnings per share of $0.17, a 21% increase over second quarter 2005;

·                  A147 % percent increase in daily production over second quarter 2005; and

·                  A14% increase in the average realized price per thousand feet of natural gas (“Mcfe”)over second quarter 2005.

On June 1, 2006,Whittier acquired a 75% operated working interest (59.5% average revenueinterest) in the Westhoff Ranch Field for approximately $18 million in cashfrom various third party sellers. The effective date of this acquisition wasFebruary 1, 2006. On August 9, 2006, we also acquired three oil and gas fieldslocated in Mississippi and Texas from Imperial Petroleum, Inc. forapproximately $10.6 million, with an effective date of February 1, 2006.Whittier funded both the acquisition of the Westhoff Ranch Field and the Imperialproperty acquisition using principal borrowings under its $100 million creditfacility further described below.

**LIQUIDITYAND CAPITAL RESOURCES**

We finance our business using a combination of cash flowfrom operations, bank debt and the issuance of equity and/or debt securities.Our future liquidity, in both the short and long-term, is principally dependentupon the volume of our oil and gas production and the market price we receiveon future sales of that production as affected by any hedges we may have inplace.

Ourprimary source of cash during the three months ended June 30, 2006 was fromcash flow from operations of our oil and gas properties and borrowings underour revolving credit facility. Operating cash flow fluctuations aresubstantially driven by commodity prices and changes in our productionvolumes.  Working capital issubstantially influenced by these variables. Fluctuations in cash flow may result in an increase or decrease in ourcapital and exploration expenditures. Total cash flows provided by operating activities of $12.6 million for the six months endedJune 30, 2006 were primarily used to fund our exploration and developmentexpenditures.

We haveapproximately $2.0 million in available cash and $6.2 million in borrowingcapacity under our credit facility as of August 14, 2006, after taking intoaccount outstanding letters of credit and a draw down of $11 million inprincipal from the credit facility on August 9, 2006. Additionally, we areproducing at an average rate of approximately 16.5 Mmcfe per day and generatingnet positive cash flows from operations. Our current production rate is net ofapproximately 1 Mmcfe per day of shut-in production from the Duhon #1 well inLafayette Parish, Louisiana which is undergoing repairs to collapsed casing andis expected to be back on-line at the end of August 2006. Including our recentacquisition from Imperial, we have budgeted $32.2 million in capitalexpenditures for 2006, of which approximately $15.7 million had been incurredthrough June 30, 2006. We intend to fund our 2006 capital expenditures usingoperating cash flows and additional borrowings under our credit facility, ifnecessary.

Revolving Credit Facility

On May11, 2006, Whittier amended its revolving credit facility to increase the aggregateborrowing capacity from $75 million to $100 million and to extend the maturitydate to June 15, 2009. In May 2006, we drew down an additional $19 million inprincipal outstanding from the credit facility to fund the purchase of theWesthoff Ranch 

20

----

 

Field,leaving $33 million in principal outstanding as of June 30, 2006. Amountsoutstanding under the revolver bear interest at specified margins over theLondon Interbank Offered Rate (“LIBOR”) of 1.50% to 2.25%.

On August 9, 2006, weamended the credit facility to allow up to $6 million of the total $100 millioncommitment to be borrowed as a term loan bearing interest at a rate of LIBORplus 3.75%, repayable within 18 months from the drawdown date. We borrowed anadditional $11 million from the credit facility on the same date to fund theacquisition of certain oil and gas properties from Imperial, including $6million borrowed as a term loan and $5 million borrowed under the revolvingcredit portion of the facility. As of August 14, 2006, we had $44 million intotal principal outstanding under the credit facility, including $38 millionfrom the revolving portion of the facility and $6 million as a term loan. Theborrowing base of the revolving credit facility was $45 million as of August14, 2006, and is subject to review and adjustment on a semi-annual basis.

Derivative Instruments and Hedging Activities

We regularly hedge aportion of our production to reduce our exposure to oil and gas pricevolatility, as well as to achieve more predictable cash flows from our oil andgas properties. Our current policy is to hedge a portion of our anticipatedfuture production, either when we believe it is justified by available futureoil and gas prices, in order to finance a planned acquisition of producing oiland gas properties, or to support operating cash flows necessary to fund ouranticipated capital budget. Gains or losses on both realized and unrealizedhedging transactions are determined as the difference between the contractprice and an applicable settlement or reference price. Settlement gains andlosses are determined monthly and are included as increases or decreases in oiland gas revenues in the period the hedged production is sold. Any ineffectiveportion of unrealized gains or losses of such hedges is recognized in earningsin the period they occur.  Our derivativecommodity positions outstanding at June 30, 2006 are disclosed in Note 8 to ourconsolidated financial statements contained herein.

**RESULTSOF OPERATIONS**

*For theQuarter Ended June 30, 2006 compared with the Quarter Ended June 30, 2005*

We generated net incomeof approximately $2.2 million, or $0.17 per diluted share, for the quarterended June 30, 2006, compared to $798,000, or $0.14 per diluted share, for theperiod ended June 30, 2005. The $1.4 million favorable variance was primarilyattributable to higher oil and gas production, the acquisition of RIMCO in June2005, and higher commodity prices. The significant components of Whittier’sresults of operations for the quarters ended June 30, 2006 and 2005 are asfollows:

Oil and Gas Revenues.Oil and gas revenues increased 181% from approximately $3.9 million, or $6.46per Mmcfe, for the quarter ended June 30, 2005 to $10.9 million, or $7.35 perMmcfe, for the quarter ended June 30, 2006, based upon a 147% increase inproduction and 14% increase in realized commodity prices per Mmcfe after hedgesettlements. Whittier recognized pre-tax losses in oil and gas revenues of$743,000 and $564,000 during the quarters ended June 30, 2006 and 2005, respectively,due to realized settlements of its price hedge contracts. Whittier produced 1.5billion cubic feet of natural gas equivalent (“Bcfe”) during the quarter endingJune 30, 2006, consisting of 77,977 barrels (“Bbls”) of oil and 1.0 Bcf of gas,compared to production of 597 Mmcfe for the quarter ending June 30, 2005,consisting of 49,996 Bbls of oil and 297 Mmcf of gas. The increase inproduction was principally due to Whittier’s June 2005 acquisition of RIMCO, aswell as our successful drilling program during 2005 and in the first six monthsof 2006.

Costs and Expenses.Total operating costs and expenses increased by 160% from $2.9 million for thequarter ending June 30, 2005 to $7.5 million for the quarter ending June 30,2006, principally due to Whittier’s increased acquisition, development, andexploration activity from the prior year. The breakdown of variances for thecomponents of operating costs and expenses is as follows:

·                  Lease operatingexpenses increased 35% from $1.2 million for the quarter ending June 30, 2005to $1.6 million for the quarter ending June 30, 2006.  Lease operating expenses per Mcfe, however,fell 45% from $1.98 per Mcfe for the quarter ended June 30, 2005 to $1.08 perMcfe for the quarter ended June 30, 2006, principally due to a higher ratio ofgas production from our properties and reduction in non-recurring workoveractivities from the prior period;

21

----

 

·                  Production taxesincreased 152%, from $314,000, or $0.53 per Mcfe, for the quarter ending June30, 2005, to $792,000, or $0.54 per Mcfe, for the quarter ending June 30,2006.  The increase in production taxeswas attributable to higher production volumes, and a larger ratio of naturalgas production compared to overall production from the prior period;

·                  Depreciation, depletionand amortization (“DD&A”) increased by 316%, from $1.0 million, or $1.68per Mcfe, for the quarter ending June 30, 2005 to $4.2 million, or $2.83 perMcfe, for the quarter ending June 30, 2006. The 68% increase in DD&A perMcfe is related primarily to higher relative production and cost depletionrates from Whittier’s RIMCO acquisition in June 2005;

·                  We recognized anon-cash gain of $310,000 due to the ineffective portion of the fair valueadjustment to our hedge contracts for the quarter ending June 30, 2006 comparedto a non-cash gain of $74,000 for the quarter ended June 30, 2005; and

·                  General andadministrative expense increased from $467,000 for the quarter ending June 30,2005 to $1.2 million for the quarter ending June 30, 2006, reflecting ourenhanced operational activity from the prior year, including increasing theCompany’s staff from 23 to 27 full-time employees, as well as $327,000 innon-cash compensation expense from the issuance of stock options recognized dueto the adoption of FAS 123(R).

*For theSix Months Ended June 30, 2006 compared with the Six Months Ended June 30, 2005*

We generated net incomeof approximately $4.4 million, or $0.35 per diluted share, for the six monthsended June 30, 2006, compared to $1.1 million, or $.24 per diluted share, forthe period ended June 30, 2005. The $3.3 million favorable variance wasprimarily attributable to higher oil and gas production, the acquisition ofRIMCO in June 2005, and higher commodity prices. The significant components ofWhittier’s results of operations for the six months ended June 30, 2006 and2005 are as follows:

Oil and Gas Revenues.Oil and gas revenues increased 213% from approximately $6.7 million, or $6.08per Mcfe, for the six months ended June 30, 2005 to $20.8 million, or $7.62 perMfce, for the six months ended June 30, 2006, based upon a 150% increase inproduction and 25% increase in realized commodity prices per Mcfe after hedgesettlements. Whittier recognized pre-tax losses in oil and gas revenues of $1.7million and $1.1 million during the six months ended June 30, 2006 and 2005,respectively, due to realized settlements of its price hedge contracts.Whittier produced 2.7 Bcfe during the six months ending June 30, 2006,consisting of 154,982 Bbls of oil and 1.8 Bcf of gas, compared to production of1.1 Bcfe for the six months ending June 30, 2005, consisting of 95,282 Bbls ofoil and 523 Mmcf of gas. The increase in production was principally due toWhittier’s June 2005 acquisition of RIMCO, as well as our successful drillingprogram during 2005 and the first six months of 2006.

Costs and Expenses.Total operating costs and expenses increased by 176% from $5.2 million for thesix months ending June 30, 2005 to $14.3 million for the six months ending June30, 2006, principally due to Whittier’s increased acquisition, development, andexploration activity from the prior year. The breakdown of variances for thecomponents of operating costs and expenses is as follows:

·                  Lease operatingexpenses increased 46% from $2.0 million for the six months ending June 30,2005 to $2.9 million for the six months ending June 30, 2006.  Lease operating expenses per Mcfe, however,fell 42% from $1.82 per Mcfe for the six months ended June 30, 2005 to $1.06per Mcfe for the six months ended June 30, 2006, principally due to a higherratio of gas production from our properties and a reduction in non-recurringworkover expenses from the prior period;

·                  Production taxesincreased 178%, from $566,000, or $0.52 per Mcfe, for the six months endingJune 30, 2005, to $1.6 million, or $0.58 per Mcfe, for the six months endingJune 30, 2006.  The increase inproduction taxes was attributable to higher production volumes, and a largerratio of natural gas production compared to overall production from the priorperiod;

22

----

 

·                  DD&Aincreased by 381%, from $1.7 million, or $1.51 per Mcfe, for the six monthsending June 30, 2005 to $8.0 million, or $2.92 per Mcfe, for the six monthsending June 30, 2006. The 93% increase in DD&A per Mcfe is relatedprimarily to higher relative production and cost depletion rates from Whittier’sRIMCO acquisition in June 2005;

·                  We recognized anon-cash gain of $706,000 due to the ineffective portion of the fair valueadjustment to our hedge contracts for the six months ending June 30, 2006compared to a non-cash loss of $111,000 for the six months ended June 30, 2005;and

·                  General andadministrative expense increased from $856,000 for the six months ending June30, 2005 to $2.6 million for the six months ending June 30, 2006, reflectingour enhanced operational activity from the prior year, including increasing theCompany’s staff from 23 to 27 full-time employees, as well as $574,000 innon-cash compensation expense from the issuance of stock options recognized dueto the adoption of FAS 123(R).

**RECENTACCOUNTING PRONOUNCEMENTS**

We adopted Statement ofFinancial Accounting  Standards No,123(R) “Share-Based Payment,” (“SFAS No. 123(R)” ) as of  January 1, 2006 using the modifiedprospective method in which compensation cost is recognized based (1) on therequirements of SFAS No. 123(R) for all share-based payments granted afterJanuary 1, 2006 and (2) on the requirements of SFAS No. 123 for all awardsgranted to employees prior to January 1, 2006, For the three months ended June30, 2006, we recorded approximately $415,000 of pretax expense relating to thisof which $88,000 was capitalized to oil and gas properties under the full costmethod of accounting. See Note 4 to the Consolidated Financial Statements foradditional information.

Off-Balance Sheet Arrangements

We are not a party to any off balance sheet arrangements.

**Forward-Looking Information**

The statements regarding future financial and operating performance andresults, market prices, future hedging activities, and other statements thatare not historical facts contained in this report are forward-lookingstatements.  The words “expect,” “project,”“estimate,” “believe,” “anticipate,” “intend,” “budget,” “plan,” “forecast,” “predict,”“may,” “should,” “could,” “will” and similar expressions are also intended toidentify forward-looking statements. These statements involve risks and uncertainties, including, but notlimited to, market factors, market prices (including regional basis differentials)of natural gas and oil, results of future drilling and marketing activity,future production and costs, and other factors detailed in this document and inour other Securities and Exchange Commission (SEC) filings.  If one or more of these risks oruncertainties materialize, or if underlying assumptions prove incorrect, actualoutcomes may vary materially from those included in this Form 10-QSB.

**Item 3.Controls and Procedures**

**Evaluationof Disclosure Controls and Procedures**

### The term “disclosurecontrols and procedures” (defined in Rule 13a-15(e)) refers to the controls andprocedures of a company that are designed to ensure that information requiredto be disclosed by a company in the reports that it files under the Securitiesand Exchange Act of 1934 (the “Exchange Act”) is recorded, processed,summarized and reported within required time periods.  Bryce W. Rhodes, the Company’s principalexecutive officer, and Michael B. Young, the Company’s principal financialofficer, have evaluated the effectiveness of the Company’s disclosure controlsand procedures as of the end of the period covered by this quarterly report,and each of them has concluded that, as of such date, Whittier’s controls andprocedures were effective. There were no changes in the Company’s internalcontrols over financial reporting that occurred during the quarter covered bythis report that have materially affected, or are reasonably likely tomaterially affect, the Company’s internal controls over financial reporting.

23

----

 

**Item 4 –Submission of Matters to a Vote of Security Holders**

(a)           The annual meeting of Whittier’sstockholders was held on Tuesday, June 27, 2006, at 10:00 a.m. in Houston,Texas, for the purpose of electing the Board of Directors of Whittier.

(b)           Proxies were solicited by Whittier’sBoard of Directors pursuant to Regulation 14A under the Securities Exchange Actof 1934, as amended. There was no solicitation in opposition to the Board ofDirectors’ nominees as listed in the proxy statement and all such nominees wereduly elected.

(c)           Out of a total of 12,515,265 sharesof common stock of Whittier outstanding and entitled to vote, 8,652,041 shareswere present in person or by proxy, representing approximately 69% ofWhittier’s outstanding common stock.

The shareholder votingresults are as follows:

Election of theBoard of Directors of Whittier to serve until the next annual meeting of theCompany’s stockholders.
| ** **          | ** ** | **Number of Shares Voting  For Election as Director** | ** ** | **Number of Shares  Withholding Authority to  Vote For Election as Director** | ** ** |
|---------------------|------------|-------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------|------------|
| James A. Jeffs      |       | 8,635,781                                                                           |       | 16,260                                                                                                                |       |
| Bryce W. Rhodes     |       | 8,635,348                                                                           |       | 16,693                                                                                                                |       |
| David A. Dahl       |       | 8,635,781                                                                           |       | 16,260                                                                                                                |       |
| Charles O. Buckner  |       | 8,515,168                                                                           |       | 136,873                                                                                                               |       |
| David B. Kilpatrick |       | 8,505,149                                                                           |       | 146,892                                                                                                               |       |
| Ray R. Seegmiller   |       | 8,515,134                                                                           |       | 136,907                                                                                                               |       |
| Arlo G. Sorensen    |       | 8,635,781                                                                           |       | 16,260                                                                                                                |       |

 

24

----

** **

**Part II—Other Information**

#### **Item6 — Exhibits**

(a)                                  Theinformation required by this Item 6 is set forth in the Index to Exhibitsaccompanying this quarterly report on Form 10-QSB.

### **Signatures**

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized.

Dated:    August 14, 2006

Whittier Energy Corporation
|        | By:    | * * | */s/ Bryce W. Rhodes*                            |
|--------|--------|----------|--------------------------------------------------|
|   |   |     | Bryce W. Rhodes                                  |
|   |   |     | President, Chief Executive Officer, and Director |
|   | By:    | * * | */s/ Michael B. Young*                           |
|   |   |     | Michael B. Young                                 |
|   |   |     | Chief Financial Officer                          |
|   |   |     | (Principal Financial and Accounting Officer)     |

** **

** **

 

25

----

**INDEX TOEXHIBITS**

 
| Exhibit | ** ** | **Description**                                                                                                                                                                                                                                                                                                |
|---------|------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|    |       |                                                                                                                                                                                                                                                                                                           |
|    |       |                                                                                                                                                                                                                                                                                                           |
| 10.1    |       | First Amendment to Credit Agreement dated May 31,  2006, among Whittier Energy Corporation, as Borrower, and BNP Paribas, as  Administrative Agent, and the lenders party thereto, incorporated by  reference to Exhibit 10.1 of Whittier’s Form 8-K filed June 6, 2006.                                  |
|    |       |                                                                                                                                                                                                                                                                                                           |
| 10.2    |       | First Amendment to Purchase and Sale Agreement dated  June 26, 2006 by and among Whittier Energy Company and Premier Natural  Resources, LLC, on the one hand, and Imperial Petroleum, Inc., on the other  hand, incorporated by reference to Exhibit 10.1 of Whittier’s Form 8-K filed  June 30, 2006.   |
|    |       |                                                                                                                                                                                                                                                                                                           |
| 10.3    |       | Second Amendment to Purchase and Sale Agreement  dated July 28, 2006 by and among Whittier Energy Company and Premier Natural  Resources, LLC, on the one hand, and Imperial Petroleum, Inc., on the other  hand, incorporated by reference to Exhibit 10.1 of Whittier’s Form 8-K filed  August 3, 2006. |
|    |       |                                                                                                                                                                                                                                                                                                           |
| *31.1   |       | Certification of Chief Executive Officer pursuant to  Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).                                                                                                                                                                                             |
|    |       |                                                                                                                                                                                                                                                                                                           |
| *31.2   |       | Certification of Chief Financial Officer pursuant to  Securities Exchange Act of 1934 Rule 13a-14(a) or 15d-14(a).                                                                                                                                                                                             |
|    |       |                                                                                                                                                                                                                                                                                                           |
| *32.1   |       | Certification of Chief Executive Officer pursuant to  Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                          |
|    |       |                                                                                                                                                                                                                                                                                                           |
| *32.2   |       | Certification of Chief Financial Officer pursuant to  Securities Exchange Act of 1934 Rule 13a-14(b) or 15d-14(b) and 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of  2002.                                                                                          |

----

* Filed herewith.

 

----