UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

FORM 10-K

Mark One:

x Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.    
 
 For the fiscal year ended December 31, 2008; 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 No. 0-18956

American Natural Energy Corporation(Name of Small Business Issuer in its Charter)

|Oklahoma                        | 73-1605215         
|------------------------------- | -------------------
|(State or Other Jurisdiction of | (IRS Employer      
|Incorporation or Organization)  | Identification No.)

|6100 South Yale, Suite 300, Tulsa, Oklahoma                    | 74136                                    
|-------------------------------------------------------------- | -----------------------------------------
|(Address of Principal Executive Offices)                       | (Zip Code)                               
|                                                               |                                          
|918-481-1440                                                   |                                          
|(Issuers Telephone Number, Including Area Code)               |                                          
|Securities registered under Section 12(b) of the Exchange Act:
|                                                               |                                          
|Title of Each Class                                            | Name of Each Exchange on Which Registered

None

Securities Registered Pursuant to Section 12(g) of the Exchange Act:


Common Stock, par value $.001 per share(Title of Each Class)

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. o

Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past twelve (12) months (or for such
shorter period that the Issuer was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
x Yes        
o No

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-K in this form, and no disclosure will be contained, to the best of
Issuers knowledge, in definitive proxy or information statements incorporated
by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
x

Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company,
Pursuant to Rule 12b-2 of the Exchange Act.

Large accelerated filer o               Accelerated filer
o             Non-accelerated filer
o             Smaller reporting company
x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). Yes
o       No
x

State Issuers revenues for its most recent fiscal year: $2,197,546.

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked prices of such common equity, as of April 27,
2009, was $540,577. (Non-affiliates have been determined on the basis
 of holdings set forth in Item 12 of this Annual Report on Form 10-K.)

The number of shares outstanding of each of the Issuers classes of common
 equity, as of April 27, 2009, was 54,057,673 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

None

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PART I

Item 1 - Business:

American Natural Energy Corporation is engaged in the acquisition, development, exploitation and production of oil and natural gas.

Our Oil and Natural Gas Interests

Both through our ownership and as a party to joint development agreements, we hold interests in approximately 7,287 acres of land in St. Charles Parish, Louisiana. This acreage includes approximately 1,319 acres in
which we hold a 72% working interest resulting from our acquisition on December 31, 2001, of the assets and outstanding stock of Couba Operating Company (Couba") and 167 acres of leases situated between the 1,319 lease tract and lake Salvador,
in which we hold a 100% working interest. It also currently includes a total of approximately 5,800 acres owned by ExxonMobil Corp. (ExxonMobil), including 2,560 acres to a depth of 14,000 feet, which are the subject of a Joint
Development Agreement we entered into with ExxonMobil which, as extended, currently expires on November 22, 2009. Our agreement with ExxonMobil also creates an area of mutual interest in a total of approximately 11,486 acres. Since our acquisition
of the Couba properties, we have entered into several participation interests with others in order to finance our drilling and exploration activities. These participation agreements are described below. We continue to need and seek material amounts
of additional capital to further our oil and natural gas development and exploitation activities.

Since 2002 through December 31, 2008, we returned to production 9 (7.31 net) well bores drilled by the prior owners on the Couba properties we acquired. Our drilling activities commenced in February 2003 and as of
December 31, 2008, we had drilled and completed 12 (3.13 net) wells. By December 31, 2008, our combined production from all our producing wells (21 gross, 10.45 net) was approximately 178 (36 net) barrels of oil equivalent per day. Production from
our existing wells is subject to fluctuation from time to time based upon the zones of the wells where we are obtaining production.

Our Couba Properties.Couba, organized in 1993, was primarily engaged in the production of oil from properties located in St. Charles Parish, Louisiana. Coubas principal acreage is the Bayou Couba Lease
under which Couba owned a 72% working interest in 1,319.991 gross acres. Production from the wells commenced in 1941 and only oil and noncommercial quantities of natural gas were produced. Natural gas had never been produced in commercial
quantities, and all gas production wells from the original development of the property were plugged.

The principal asset of Couba that we acquired was the Bayou Couba Lease. The lessor is Exxon-Mobil and the lease is held by production of oil and gas on the property. The additional Couba assets we acquired include a gathering system covering
approximately 25 miles located on the Bayou Couba Lease, used solely as a production collection system among the wells on the
leased property leading to a product distribution point, and various production facilities, geological data, well logs and production information. The information includes 3-D seismic information completed in 1997. The seismic information relates to
an area of approximately 23.5 square miles that includes the Bayou Couba Lease, among other acreage. The gathering system we acquired was initially not in operable condition. Subsequently, as part of approximately $1.1 million we expended to
restore existing wells to production, we refurbished and upgraded the system so as to be usable. At present, the system, which consists of flow lines, connections and related facilities, is used to transport our production of oil and gas to points
where it is trans-shipped and sold.

3

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Our ExxonMobil Joint Development Agreement.In November 2002, we entered into a four-year joint development agreement with ExxonMobil relating to both our Couba properties and additional properties owned by
ExxonMobil. In December 2003, we entered into an amendment to that agreement (the Expansion Amendment). The agreement, as amended, creates an area of mutual interest (AMI) covering approximately 11,000 acres, all within the
23.5 square mile area that is the subject of the seismic information acquired from Couba, and calls for both parties to make available for development, leases and/or mineral interests each owns within the AMI. The Expansion Amendment expanded the
AMI by 2,560 acres, to a depth of 14,000 feet in the additional acreage, subject to us drilling two wells on the property to depths of 8,000 and 7,700 feet, respectively, both of which were drilled to depth. The first well was plugged and the second
well was abandoned but is the subject of further evaluation.

In exchange for entering into the Expansion Amendment, ExxonMobil received a carried interest whereby we pay the drilling expenses incurred in the two wells to the point at which a determination is to be made whether or
not to complete the well, after which if ExxonMobil elects to participate in the completion of the well, it will receive a 50% working interest or a 25% royalty interest in the wells.

Under the joint development agreement, both parties may propose wells for drilling and the non-proposing party may elect whether or not to participate, with that election affecting only the proposed location. If both
parties elect to participate in the proposed well, the interest in the well is shared equally. Each party is responsible for its share of costs to develop the acreage within the AMI. Operations of the wells are at the election of ExxonMobil. As is
further described below, Dune Energy, Inc. (Dune Energy) is the operator of the wells within the AMI.

Effective March 31, 2009 the ExxonMobil Joint Development Agreement was terminated by the mutual consent of all parties.

Our Dune Energy Agreements.In September 2005, we entered into a participation agreement with Dune Energy, Inc. (Dune Energy). Pursuant to the agreement, Dune Energy acquired certain exploration and
development rights in our ExxonMobil Corp. joint development agreement. The agreement also creates an area of mutual interest in a total of 31,367 acres including the ExxonMobil lands as well as certain additional lands including our Bayou Couba
Lease lands. Dune Energy paid a prospect fee of $1.0 million upon execution of the agreement. An additional fee of $500,000 was waived by us in consideration of Dune paying 100% of the
costs of a new seismic survey in 2006. The agreement provides Dune Energy with the right to participate in 50% of our development rights in the Bayou Couba lease as well as our exploration rights in the ExxonMobil Corp. acreage. On June 26, 2007, in
consideration of the payment of $3,000,000 Dune Energy increased its participation to 75% of our interest under these agreements, excluding the area under the Bayou Couba lease where it retained a participation of 50% of our interest. On
September 1, 2007 Dune Energy was elected successor operator under the ExxonMobil joint development agreement and in consideration Dune Energy paid us an additional $500,000. Each party will pay their respective share of drilling, completion and
operations costs.

4

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The area of mutual interest created by our agreement with Dune Energy, in which we have agreed to share all rights, title and interest owned or acquired on an equal basis, includes our Bayou Cuba lease acreage of
approximately 1,319 acres, the acreage covered by our joint development agreement with ExxonMobil of approximately 11,486 acres which are included in the 31,367 acre area, as well as any additional acreage offered to us or Dune Energy by ExxonMobil
as the result of the acquisition of additional 3-D seismic data by the parties under the terms of the Agreement. If either party acquires any interests in lands included in the area of mutual interest created by the Agreement, the acquiring party is
required to notify the non-acquiring party which will have the opportunity to participate in the acquisition by paying its proportionate share of the price for such properties.

Under the terms of the Dune Energy agreement, we agreed to share with Dune Energy our 3-D seismic data covering an area of approximately 23.138 square miles within the area of mutual interest. The Agreement provides
that either party can propose drilling prospects with the non-proposing party given the right to participate in the drilling prospect and pay its proportionate share of all drilling and completion costs. The Agreement will remain in effect so long
as our development agreement with ExxonMobil remains in effect. The Agreement excludes certain specified existing wells which we own, certain of our litigation rights, and our production facility and equipment and personal property. Our interest in
the area of mutual interest created by the Agreement is subject to the terms of other agreements to which we are a party.

Our TransAtlantic Agreements.In March 2003, we assigned a 10% participation interest in the Bayou Couba Lease, a lease we had entered into with the State of Louisiana which has since expired, and the ExxonMobil
Corp. AMI to TransAtlantic Petroleum Corp. ("TransAtlantic") in partial consideration for a $2.0 million financing. This agreement, which has a term of four years or the expiration of our agreement with ExxonMobil Corp., whichever is longer,
granted to TransAtlantic the right to acquire a 10% interest in any property we acquire in the 23.5 square mile seismic survey area, including any property interests acquired through our agreement with ExxonMobil Corp.

Effective December 22, 2006, TransAtlantic sold its 10% participation interest in the AMI to Dune Energy. Dune Energy also acquired $3.0 million principal amount of our 8% Convertible Subordinated Debentures
formerly held by TransAtlantic. In addition, subsequent to December 31, 2006, Dune Energy acquired from the holders an additional $4,895,000 principal amount of Debentures, bringing Dune Energys total holdings of our Debentures outstanding
to $7,895,000 principal amount as of December 31, 2008. The principal of the Debentures was due and payable on September 30, 2006 and is currently in default.

5

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Seismic Survey Participation Agreement.On March 8, 2006, we agreed to participate in a 3D seismic survey covering the 23.5 square mile area over which we and Dune Energy presently have 3D seismic coverage as well as approximately 36.5
additional square miles. The one year exclusive license to the survey results over the 60 square miles acquired by us is part of a larger regional survey being conducted by Seismic Exchange, Inc. ("SEI") which includes all of our Bayou Couba project
area subject to our ExxonMobil Corp. joint development agreement. The new survey images more effectively formations deeper than are currently imaged by our 1997 3D seismic survey. As a result of Dune paying 100% of the seismic costs, the terms of
the Exploration and Development Agreement between us and Dune Energy were amended to waive any additional prospect fees that may be due from Dune. Upon the completion of the survey and seismic interpretation, we and ExxonMobil Corp. agreed to extend
our Joint Development Agreement by two years to November 2009.

Our State of Louisiana Lease. From February 2002 to February 2005, we leased 1,729 acres from the State of Louisiana, all within the boundaries of the proprietary 1997 3-D seismic data we acquired from Couba. In
January 2007, Dune Energy re-leased the acreage plus an additional 769 acres for a total of 2,498 acres that became subject to the terms of the ExxonMobil AMI, and is intended to be explored and developed pursuant to the participation percentages
and terms and conditions of our agreement with Dune Energy and the ExxonMobil Joint Development Agreement.

As of April 27, 2009, TransAtlantic remains the beneficial holder of a total of 2,237,136 shares of our common stock.

Unless the context otherwise requires, references to us in this Annual Report includes American Natural Energy Corporation, an Oklahoma corporation, and our wholly-owned subsidiary, Gothic Resources Inc., a corporation organized under the Canada
Business Corporation Act. References to Gothic refer exclusively to our wholly-owned subsidiary, Gothic Resources Inc. and references to ANEC refer exclusively to our parent corporation, American Natural Energy Corporation, organized under the laws
of Oklahoma. Through December 2001, our activities were conducted through Gothic, and Gothic may be deemed a predecessor of ANEC.

Oil and Gas Reserves

The tables below set forth information as of December 31, 2008 with respect to our estimated proved reserves, our estimated future net revenue therefrom and the present value thereof at such date based on the report of
Summa Engineering, Inc. The calculations which Summa Engineering, Inc. used in preparation of such report were prepared using geological and engineering methods generally accepted by the petroleum industry and in accordance with Securities and
Exchange Commission ("SEC") guidelines. All estimates were prepared based upon a review of production histories and other geologic, economic, ownership and engineering data we believe to be accurate. The present value of estimated future net revenue
shown is not intended to represent the current market value of the estimated oil and gas reserves we own.

6

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|                                                        |   |           |  |  | OIL       |  |   | GAS         |  |   | TOTAL     | 
|------------------------------------------------------- | - | --------- |  |  | --------- |  | - | ----------- |  | - | --------- | 
|                                                        |   |           |  |  | (Mbbl)    |  |   | (Mmcf)      |  |   | (Mbble)   | 
|                                                        |   |           |  |  |           |  |   |             |  |   |           | 
|Proved developed producing                              |   |           |  |  | 31.56     |  |   | 1.22        |  |   | 31.76     | 
|Proved developed non-producing                          |   |           |  |  | -         |  |   | -           |  |   | -         | 
|Proved undeveloped                                      |   |           |  |  | 328.51    |  |   | 267.62      |  |   | 373.12    | 
|Total proved                                            |   |           |  |  | 360.07    |  |   | 268.84      |  |   | 404.88    | 
|                                                        |   |           |  |  |           |  |   |             |  |   |           | 
|                                                        |   |           |  |  | Proved    |  |   |             |  |   |           | 
|                                                        |   | Proved    |  |  | Developed |  |   |             |  |   |           | 
|                                                        |   | Developed |  |  | Non-      |  |   | Proved      |  |   | Total     | 
|                                                        |   | Producing |  |  | producing |  |   | Undeveloped |  |   | Proved    | 
|                                                        |   |           |  |  |           |  |   |             |  |   |           | 
|Estimated future net
      revenue(a)                   | $ | 142,614   |  |  | -         |  | $ | 8,317,262   |  | $ | 8,459,876 | 
|Present value of future netrevenue(b)                   | $ | 115,862   |  |  | -         |  | $ | 3,884,109   |  | $ | 3,999,971 | 
|Standardized measure ofdiscounted future net cash flows | $ | 115,862   |  |  | -         |  | $ | 3,884,109   |  | $ | 3,999,971 | 

______________________________(a) Estimated future net revenue represents estimated future
gross revenue to be generated from the production of proved reserves, net of
estimated production and future development costs, using prices and costs in
effect at December 31, 2008. The amounts shown do not give effect to
non-property related expenses, such as general and administrative expenses, debt
service and future income tax expense or to depreciation, depletion and
amortization, but do give effect to net profits obligations arising out of
agreements we made to acquire the Couba assets in the plan of reorganization.
The prices used in these estimates were $37.00 per barrel of oil and $5.35 per
mcf of gas.

(b) Present value of future net revenues represents estimated
future net revenues discounted using an annual discount rate of 10%. The present
value of future net revenue is equivalent to the standardized measure of
discounted future net cash flows at December 31, 2008 as there is no future
income tax provision.

The future net revenue
attributable to our estimated proved undeveloped reserves is calculated to be
$8.3 million at December 31, 2008, with the present value thereof to be $3.9
million, based on us expending approximately $82,000 during 2010 and an
additional $2.8 million in future periods to develop these reserves. The amount
and timing of these expenditures will depend on a number of factors, including
actual drilling results, product prices and the availability of capital to us.
At December 31, 2008, the capital necessary to develop these additional reserves
was unavailable to us. Through December 31, 2008, we had expended approximately
$14.8 million in exploration and development of the Bayou Couba properties.

No estimates of proved reserves
comparable to those included herein have been included in reports to any federal
agency other than the SEC.

Our ownership interest used in
calculating proved reserves and the estimated future net revenue therefrom was
determined after giving effect to the assumed maximum participation by other
parties to our farm-out and participation agreements. There can be no assurance
that all of the estimated proved reserves will be produced and sold at the
assumed prices or that existing contracts will be honored or judicially
enforced.

There are numerous uncertainties
inherent in estimating quantities of proved reserves and in projecting future
rates of production and timing of development expenditures, including many
factors beyond our control. Reserve engineering is a subjective process of
estimating underground accumulations of oil and gas that cannot be measured in
an exact way, and the accuracy of any reserve estimate is a function of the
quality of available data and of engineering and geological interpretation and
judgment. As a result, estimates made by different engineers often vary. In addition, results of drilling, testing and
production subsequent to the date of an estimate may justify revision of such
estimates, and such revisions may be material. Accordingly, reserve estimates
are often different from the actual quantities of oil and gas that are
ultimately recovered. Furthermore, the estimated future net revenue from proved
reserves and the present value thereof are based upon certain assumptions,
including prices, future production levels and costs that may not prove correct.
Fluctuations in commodities prices will impact the economic viability of the
production of oil and gas. Predictions about prices and future production levels
are subject to great uncertainty, and the foregoing uncertainties are
particularly true as to proved undeveloped reserves, which are inherently less
certain than proved developed reserves. Accordingly, our existing claimed
reserves and any reserves we may discover in the future are and will be subject
to these uncertainties.

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The primary area of our operations is St. Charles Parish,
Louisiana. As of December 31, 2008, all of our operations and reserves are
located in that area.

Drilling Activity

The following table sets forth
information as to the wells we completed during the periods indicated. In the
table, "gross" refers to the total wells in which we have a working interest and
"net" refers to gross wells multiplied by our working interest therein.

|               |  | Year Ended December 31, | 
|-------------- |  | ----------------------- | 
|               |  | 2006                    | 
|               |  | Gross                   | 
|Development    |  |                         | 
|Productive     |  | 2.0                     | 
|Non-productive |  | -0-                     | 
|Exploratory    |  |                         | 
|Productive     |  | -0-                     | 
|Non-productive |  | -0-                     | 

Past Drilling and Development Activities

In July 2002, we completed the restoration activities on the
Bayou Couba Lease and brought the operation into compliance with applicable
regulatory requirements. We also completed reprocessing the 1997 3-D seismic
information we acquired as part of the Couba transaction and we are continuing
to review that data. We also were able to get five well bores on the Bayou Couba
lease that had been drilled by the former owners into a producing condition.

Our activities in 2002 also included refurbishing the gathering
line connected to the wells. This gathering line delivers our current production
of natural gas to the Transco pipeline for further delivery to an interstate
pipeline.

In February 2003, we commenced drilling on the Bayou Couba
Lease and by December 31, 2003, we had drilled and completed 6 (2.19 net) wells
on the property. One well drilled during 2003 was unsuccessful and was plugged.

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During 2005, we restored to production 1 (.81 net) well that
had been acquired as part of the original Bayou Couba acquisition. We also
drilled and completed 3 (.61 net) development wells.

During 2006, we drilled and completed 2 (.05 net)
development wells.

At December 31, 2008, combined production from all our
producing wells on the property was approximately 178 (36 net) barrels of oil
equivalents per day. Production from our existing wells is subject to
fluctuation from time to time based upon the zones of the wells where we are
obtaining production.

Activities During 2008 and Present Activities

Because of our limited available capital, our drilling
activities are contingent on our securing industry participation or other
financing for the drilling and completion costs. Such participation or financing
has not yet been secured and we are unable to state at this time the expected
terms of such participation or financing. At December 31, 2008, we have no
commitments to expend funds for drilling activities in 2009 and presently have
no plans to drill any additional wells in 2009.

Additionally, we are subject to
industry limitations on the availability of drilling rigs of sufficient size and
configuration that are required to drill wells in our area of operations.

A development well is defined as a well drilled within a
proved area of an oil or gas reservoir to a depth of a stratagraphic horizon
known to be productive. An exploratory well is a well drilled to find and
produce oil or gas in an unproved area, to find a new reservoir in a field
previously found to be productive of oil or gas in another reservoir, or to
extend a known reservoir.

Productive Well Data Information

The following table sets forth
the interests we own in productive wells as of December 31, 2008.

|Area                                |  | Well Count | 
|----------------------------------- |  | ---------- | 
|                                    |  | Gross(1)   | 
|                                    |  |            | 
|St. Charles
      Parish, Louisiana |  | 21.0       | 

___________________(1)18 (9.10 net) of
the 21 wells have been classified as primarily oil producing wells. 3 (1.35 net)
wells are classified as gas wells.

Production Volumes, Revenue, Prices and Production Costs

The following table sets forth
certain information regarding the production volumes, revenue, average prices
received and average production costs associated with our sale of oil and
natural gas for the three years ended December 31, 2008. All of our production
was from our properties located in St. Charles Parish, Louisiana.

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|                                                            |   | Year Ended December 31, | 
|----------------------------------------------------------- | - | ----------------------- | 
|                                                            |   | 2008                    | 
|Net Production: (1)                                         |   |                         | 
|Oil (Mbbl)                                                  |   | 20.2                    | 
|Natural Gas (Mmcf)                                          |   | 1.1                     | 
|Oil Equivalent (Mbble )                                     |   | 20.4                    | 
|                                                            |   |                         | 
|Oil and Natural Gas Sales: (2)                              |   |                         | 
|Oil                                                         | $ | 2,186,106               | 
|Natural Gas                                                 | $ | 11,441                  | 
|Total                                                       | $ | 2,197,546               | 
|                                                            |   |                         | 
|Average Sales Price:                                        |   |                         | 
|Oil ($per Bbl)                                              | $ | 108.37                  | 
|Natural Gas ($per Mcf)                                      | $ | 9.99                    | 
|Oil Equivalent ($per Bble)                                  | $ | 107.92                  | 
|                                                            |   |                         | 
|Oil and Natural Gas Costs:                                  |   |                         | 
|Lease operating expenses                                    | $ | 1,630,603               | 
|Production                                                  |   |                         | 
|Taxes                                                       | $ | 223,350                 | 
|Depreciation, depletion and amortization                    | $ | 509,087                 | 
|Average production cost per unit of production ($ per Bble) | $ | 91.05                   | 

(1) Includes only production owned by us and produced to our
interest, less royalties and production due others. 169, 265, and 228 barrels of
oil were produced in December 2008, 2007 and 2006 but not sold until January
2009, 2008 and 2007, respectively, and are included in inventory at December 31,
2008, 2007 and 2006 at the lower of production cost and DD&A, or market.

Development, Exploration and Acquisition Expenditures

The following table sets forth
certain information regarding the costs we incurred in our development,
exploration and acquisition activities during the periods indicated:

|                     |   | Year Ended   |   |   | Year Ended   |   |   | Year Ended   | 
|-------------------- | - | ------------ | - | - | ------------ | - | - | ------------ | 
|                     |   | December 31, |   |   | December 31, |   |   | December 31, | 
|                     |   | 2006         |   |   | 2007         |   |   | 2008         | 
|Development Costs    | $ | 1,150,721    |   | $ | 231,949      |   | $ | 405,424      | 
|Exploration Costs    |   | -            |   |   | -            |   |   | -            | 
|Acquisition Costs    |   | -            |   |   | -            |   |   | -            | 
|Sales of Properties  | $ | (162,500     | ) | $ | (3,500,000   | ) |   | -            | 
|Capitalized Interest |   | -            |   |   | -            |   |   | -            | 
|Total                | $ | 988,221      |   | $ | (3,268,051   | ) | $ | 405,424      | 

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Acreage

The following table sets forth as
of December 31, 2008, the gross and net acres of both developed and undeveloped
oil and natural gas leases which we hold. "Gross" acres are the total number of
acres in which we own a working interest. "Net" acres refer to gross acres
multiplied by our fractional working interest.

|          |  |                 |  |  |                   |  |  |             |  |  |     |  |  | Total Developed and | 
|--------- |  | --------------- |  |  | ----------------- |  |  | ----------- |  |  | --- |  |  | ------------------- | 
|          |  | Developed(1)(2) |  |  | Undeveloped(1)(2) |  |  | Undeveloped | 
|Area      |  | Gross           |  |  | Net               |  |  | Gross       |  |  | Net |  |  | Gross               | 
|Louisiana |  | 1,319           |  |  | 866               |  |  | -           |  |  | -   |  |  | 1,319               | 
|Total     |  | 1,319           |  |  | 866               |  |  | -           |  |  | -   |  |  | 1,319               | 

|(1) | Net acreage assumes that we maintain our existing working
      interest percentage in all future development. An election by ExxonMobil
      Corp. to participate in our acreage pursuant to the ExxonMobil Corp. joint
      development agreement we entered into in November 2002 will reduce our net
      owned acreage position. Our participation in ExxonMobil Corp. acreage
      under that agreement will serve to increase our net acreage position. At
      December 31, 2003, ExxonMobil Corp. was providing 3,240 gross acres to the
      joint development agreement area. As the agreement was amended in December
      2003, ExxonMobil Corp. agreed to provide an additional 2,560 gross acres
      (to a depth of 14,000 feet) to the joint development agreement.                                                                                                                                                                                                                                                                                                                             
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|(2) | Assumes participation by Dune Energy pursuant to rights
      granted under an Exploration and Development Agreement. Pursuant to the
      terms of the agreement we entered into on October 19, 2005 with Dune
      Energy, we and Dune Energy created an area of mutual interest in which we
      have agreed with Dune Energy to share all rights, title and interest owned
      or acquired on an equal basis on our Bayou Cuba lease acreage of
      approximately 1,319 acres, the acreage covered by our development
      agreement with ExxonMobil Corporation (ExxonMobil) of approximately
      11,486 acres which are included in the 31,367 acre area, as well as any
      additional acreage offered to us or Dune Energy by ExxonMobil as the
      result of the acquisition of additional 3-D seismic data by the parties
      under the terms of the Agreement. On June 26, 2007 Dune Energy acquired
      additional rights from us relating to the contract areas subject to the
      ExxonMobil joint development agreement but such rights do not affect the
      net acres reflected.

Marketing

Our oil production is sold under
market sensitive or spot price contracts. Our natural gas production is sold to
purchasers under varying percentage-of-proceeds and percentage-of-index
contracts or by direct marketing to end users or aggregators. By the terms of
the percentage-of-proceeds contracts, we receive a percentage of the resale
price received by the purchaser for sales of residue gas and natural gas liquids
recovered after gathering and processing our gas. The residue gas and natural
gas liquids sold by these purchasers are sold primarily based on spot market
prices. The revenue we received from the sale of natural gas liquids is included
in natural gas sales. During 2008, our oil salestoTexon L.P. of
$2,186,106 accounted for 99% of our total oil and gas sales. We believe we are
not materially dependent upon Texon for our sales as we believe there are
numerous other purchasers for our oil production at competitive prices. Our gas
sales to Transcontinental Pipeline Corporation of $11,441 accounted for 1% of
our total oil and gas sales. We believe that the loss of these customers would
not have a material adverse effect on our results of operations or our financial
position.

We have no obligations to provide fixed or determinable
quantities of oil or natural gas in the future under existing contracts or
agreements.

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Hedging Activities

We have not utilized hedging strategies to hedge the price of our future oil and gas production or to manage our fixed interest rate exposure.

Competition

The oil and natural gas industry is highly competitive in all of its phases. We are not a significant factor in the overall production of oil and natural gas. We encounter competition from other oil and natural gas companies in all areas of our
operations, including the marketing of oil and natural gas and the acquisition of producing properties. Most all of these companies possess greater financial and other resources than we do. Because gathering systems are the only practical method for
the intermediate transportation of natural gas, competition, as it relates to market access, is presented by other pipelines and gas gathering systems. Because oil and natural gas is sold as a commodity, pricing is not a factor in our competition.
Competition may also be presented by alternative fuel sources, including heating oil and other fossil fuels. Because the primary markets for natural gas liquids are refineries, petrochemical plants and fuel distributors, prices are generally set by
or in competition with the prices for refined products in the petrochemical, fuel and motor gasoline markets.

Regulation

General

Numerous departments and agencies, federal, state and local, issue rules and regulations binding on the oil and gas industry, some of which carry substantial penalties for failure to comply. The regulatory burden on the
oil and gas industry increases our cost of doing business and, consequently, affects our profitability. At December 31, 2008, we are unable to estimate the costs to be incurred for compliance with environmental laws over the next twelve months;
however, management believes all such costs will be those ordinarily and customarily incurred in the development and production of oil and gas and that no unusual costs will be encountered.

Exploration and Production

Our operations are subject to various types of regulation at the federal, state and local levels. Such regulation includes requiring permits for the drilling of wells, maintaining bonding requirements in order to drill
or operate wells and regulating the location of wells, the method of drilling and casing wells, the surface use and restoration of properties upon which wells are drilled, the plugging and abandoning of wells and the disposal of fluids used or
obtained in connection with operations. Our operations are also subject to various conservation regulations. These include the regulation of the size of drilling and spacing units and the density of wells which may be drilled and the unitization or
pooling of oil and gas properties. In this regard, some states (such as Oklahoma) allow the forced pooling or integration of tracts to facilitate exploration while other states (including Louisiana) rely on voluntary pooling of lands and leases. In
areas where pooling is voluntary, it may be more difficult to form units and, therefore, more difficult to develop a prospect if the operator owns less than 100% of the leasehold. In addition, certain state conservation laws may establish maximum
rates of production from oil and gas wells, generally prohibit the venting or flaring of gas and impose certain requirements regarding the ratability of production. The effect of these regulations is to limit the amount of oil and gas we can produce
from our wells and to limit the number of wells or the locations at which we can drill. The extent of any impact on us of such restrictions cannot be predicted.

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Environmental and Occupational Regulation

General. Our activities are subject to existing federal, state and local laws and regulations governing environmental quality and pollution control. It is anticipated that, absent the occurrence of an extraordinary event, compliance with
existing federal, state and local laws, rules and regulations concerning the protection of the environment and human health will not have a material effect upon our operations, capital expenditures, earnings or competitive position. We cannot
predict what effect additional regulation or legislation, enforcement policies thereunder and claims for damages for injuries to property, employees, other persons and the environment resulting from our operations could have on our activities.

Our activities with respect to exploration, development and production of oil and natural gas are subject to stringent environmental regulation by state and federal authorities including the United States Environmental
Protection Agency ("EPA"). Such regulation has increased the cost of planning, designing, drilling, operating and in some instances, abandoning wells. In most instances, the regulatory requirements relate to the handling and disposal of drilling and
production waste products and waste created by water and air pollution control procedures. Although we believe that compliance with environmental regulations will not have a material adverse effect on our operations or earnings, risks of substantial
costs and liabilities are inherent in oil and gas operations, and there can be no assurance that significant costs and liabilities, including criminal penalties, will not be incurred. Moreover, it is possible that other developments, such as
stricter environmental laws and regulations, and claims for damages for injuries to property or persons resulting from our operations could result in substantial costs and liabilities.

Waste Disposal. We currently own or lease, and have owned or leased, numerous properties that for many years have been used for the exploration and production of oil and gas. Although we believe operating and disposal practices that were
standard in the industry at the time were utilized, hydrocarbons or other wastes may have been disposed of or released on or under the properties we owned or leased or on or under other locations where such wastes have been taken for disposal. In
addition, these properties may have been operated by third parties whose treatment and disposal or release of hydrocarbons or other wastes was not under our control. State and federal laws applicable to oil and natural gas wastes and properties have
gradually become stricter. Under such laws, we could be required to remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators) or property contamination (including groundwater
contamination) or to perform remedial plugging operations to prevent future contamination.

We generate wastes, including hazardous wastes, that are subject to the Federal Resource Conservation and Recovery Act ("RCRA") and comparable state statutes. The EPA and various state agencies have limited the disposal
options for certain hazardous and non-hazardous wastes and are considering the adoption of stricter disposal standards for non-hazardous wastes. Furthermore, certain wastes generated by our oil and natural gas operations that are currently exempt
from treatment as hazardous wastes may in the future be designated as hazardous wastes, and therefore be subject to considerably more rigorous and costly operating and disposal requirements.

Superfund. The Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), also known as the "Superfund" law, imposes liability, without regard to fault
or the legality of the original conduct, on certain classes of persons with respect to the release of a "hazardous substance" into the environment. These persons include the owner and operator of a site and persons that disposed of or arranged for
the disposal of the hazardous substances found at a site. CERCLA also authorizes the EPA and, in some cases, third parties to take actions in response to threats to the public health or the environment and to seek to recover from responsible classes
of persons the costs of such action. In the course of our operations, we may generate wastes that fall within CERCLA's definition of "hazardous substances". We may also be an owner of sites on which "hazardous substances" have been released. We may
be responsible under CERCLA for all or part of the costs to clean up sites at which such wastes have been released. To date, however, we have not and, to our knowledge, our predecessors or successors have not been named a potentially responsible
party under CERCLA or similar state superfund laws affecting property we owned or leased.

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Air Emissions. Our operations are subject to local, state and federal regulations for the control of emissions of air pollution. Legal and regulatory requirements in this area are increasing, and there can be no
assurance that significant costs and liabilities will not be incurred in the future as a result of new regulatory developments. In particular, regulations promulgated under the Clean Air Act Amendments of 1990 may impose additional compliance
requirements that could affect our operations. However, it is impossible to predict accurately the effect, if any, of the Clean Air Act Amendments on us at this time. We may in the future be subject to civil or administrative enforcement actions for
failure to comply strictly with air regulations or permits.

These enforcement actions are generally resolved by payment of monetary fines and correction of any identified deficiencies. Alternatively, regulatory agencies could require us to forego construction or operation of
certain air emission sources.

OSHA. We are subject to the requirements of the federal Occupational Safety and Health Act ("OSHA") and comparable state statutes. The OSHA hazard communication standard, the EPA community right-to-know regulations under Title III of the
federal Superfund Amendment and Reauthorization Act and similar state statutes require us to organize information about hazardous materials used, released or produced in our operations. Certain of this information must be provided to employees,
state and local governmental authorities and local citizens. We are also subject to the requirements and reporting set forth in OSHA workplace standards.

OPA and Clean Water Act. Federal regulations require certain owners or operators of facilities that store or otherwise handle oil, such as us, to prepare and implement spill prevention control plans,
countermeasure plans and facilities response plans relating to the possible discharge of oil into surface waters. The Oil Pollution Act of 1990 ("OPA") amends certain provisions of the federal Water Pollution Control Act of 1972, commonly referred
to as the Clean Water Act ("CWA"), and other statutes as they pertain to the prevention of and response to oil spills into navigable waters. The OPA subjects owners of facilities to strict joint and several liability for all containment and cleanup
costs and certain other damages arising from a spill, including, but not limited to, the costs of responding to a release of oil to surface waters. The CWA provides penalties for any discharges of petroleum products in reportable quantities and
imposes substantial liability for the costs of removing a spill. State laws for the control of water pollution also provide varying civil and criminal penalties and liabilities in the case of releases of petroleum or its derivatives into surface
waters or into the ground. Regulations are currently being developed under OPA and state laws concerning oil pollution prevention and other matters that may impose additional regulatory burdens on us. In addition, the CWA and analogous state laws
require permits to be obtained to authorize discharges into surface waters or to construct
facilities in wetland areas. The EPA has adopted regulations concerning discharges of storm water runoff. This program requires covered facilities to obtain individual permits, participate in a group permit or seek coverage under an EPA general
permit. We believe that we are in material compliance with all permits we are required to obtain and obtaining such permits in the future will not have a material adverse impact on our operations in the future. With respect to our future operations,
we believe we will be able to obtain, or be included under, such permits, where necessary. Compliance with such permits is not expected to have a material adverse effect on us.

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NORM. Oil and gas exploration and production activities have been identified as generators of concentrations of low-level naturally-occurring radioactive materials ("NORM"). NORM regulations have been adopted in
several states. We are unable to estimate the effect of these regulations, although based upon our preliminary analysis to date, we do not believe that our compliance with such regulations will have a material adverse effect on our operations or
financial condition.

Safe Drinking Water Act. Our operations may involve the disposal of produced saltwater and other non-hazardous oilfield wastes by re-injection into the subsurface. Under the Safe Drinking Water Act ("SDWA"), oil and gas operators, such as
us, must obtain a permit for the construction and operation of underground Class II injection wells. To protect against contamination of drinking water, periodic mechanical integrity tests are often required to be performed by the well operator.
While we expect to be able to obtain all such permits as are required, there can be no assurance that these requirements may not cause us to incur additional expenses.

Toxic Substances Control Act. The Toxic Substances Control Act ("TSCA") was enacted to control the adverse effects of newly manufactured and existing chemical substances. Under the TSCA, the EPA has issued specific rules and regulations
governing the use, labeling, maintenance, removal from service and disposal of PCB items, such as transformers and capacitors used by oil and gas companies. We may own such PCB items but do not believe compliance with TSCA will have a material
adverse effect on our operations or financial condition.

Title To Properties

Title to oil and gas properties is subject to royalty, overriding royalty, carried, net profits, working and other similar interests and contractual arrangements customary in the industry, to liens for current taxes not yet due and to other
encumbrances. As is customary in the industry in the case of undeveloped properties, only cursory investigation of record title is made at the time of acquisition. Drilling title opinions are usually prepared before commencement of drilling
operations. Although we have no basis to believe that such will occur, there can be no assurance that our title to oil and gas properties may not be challenged through legal proceedings.

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Operating Hazards and Insurance

The oil and gas business involves a variety of operating risks, including the risk of fire, explosions, blow-outs, pipe failure, abnormally pressured formations and environmental hazards such as oil spills, gas leaks, ruptures or discharges of
toxic gases, the occurrence of any of which could result in substantial losses to us due to injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, clean-up
responsibilities, regulatory investigation and penalties and suspension of operations.

We maintain comprehensive general liability policies with coverage considered adequate by management. Dune Energy carries insurance coverage covering their activities as operator of the Bayou Couba field. While we believe these policies are
customary in the industry, they do not provide complete coverage against all operating risks.

Employees

As of December 31, 2008, we employed six persons, of whom two were executive officers and two were operations personnel and two were accounting staff. We do not employ a significant number of temporary employees. None of our employees is
represented by a labor union, and we believe our relationship with our employees is good.

Organization

We are an Oklahoma corporation organized in January 2001. In June 2001, we became a wholly-owned subsidiary of Gothic Resources Inc., a British Columbia corporation. In January 2002, as a result of an arrangement under Section 192 of the
Canada Business Corporations Act and an order of the Supreme Court of British Columbia, we became the parent corporation of Gothic and the holders of Gothic shares exchanged their shares for our shares. Gothic may be deemed to be our
predecessor.

Prior to our acquisition of Couba, it had commenced in March 2000, an involuntary Chapter 7 Bankruptcy proceeding which was converted to a Chapter 11 debtor in possession proceeding the following month. In early 2000,
Couba had depleted its borrowing availability under a bank line of credit and had insufficient capital to continue in operations. During the pendency of the proceeding, Couba maintained nominal production from four wells on the Bayou Couba Lease in
order to maintain in effect the lease to the property. On May 1, 2001, we joined with Couba in submitting to the Bankruptcy Court a plan of reorganization whereby we would acquire substantially all the assets and capital stock of Couba. Coubas
only assets at the time were its physical oil and gas facilities and it had no other business activities, employees, customers or rights. The plan was finally confirmed by the Court on November 16, 2001.

Office

Our principal office is located at 6100 South Yale, Suite 300, Tulsa, Oklahoma 74136. Additionally, we maintain office space in The Woodlands, Texas. Our leased premises include
approximately 4,899 square feet and are leased for various terms expiring in 2009. The annual aggregate rental is $96,056. The facilities are considered adequate for our present activities.

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Item 1A  Risk Factors:

Risk Factors

An investment in shares of our common stock involves a high degree of risk. You should consider the following factors, in addition to the other information contained in this annual report, in evaluating our business and
proposed activities before you purchase any shares of our common stock. You should also see the Cautionary Statement for Purposes of the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995 regarding risks and
uncertainties relating to us and to forward looking statements in this annual report.

Risks Relating to Us and the Oil and Gas Industry

Our Ability to Continue as a Going Concern is Uncertain

Our financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. We have sustained substantial losses in 2008
and 2007, totaling approximately $61,000 and $3.2 million, respectively, and had a working capital deficiency at December 31, 2008 of approximately $20.3 million. Production from our drilling program increased during 2008 compared to
2007; however, our revenue has not been sufficient to fund our operations. At December 31, 2008, we do not have any available borrowing capacity under existing credit facilities and our current assets are $154,000 compared with current
liabilities of $20.4 million. Our current liabilities include approximately $10.8 million of secured indebtedness, which was due September 2006 and is currently in default and accounts payable, revenues payable, notes payable, and other
current obligations aggregating to approximately $9.6 million. We have substantial needs for funds to pay our outstanding payables and debt due during 2009. All the foregoing lead to questions concerning our ability to meet our obligations as
they come due. We also have a need for substantial funds to develop our oil and gas properties. We have financed our activities using private debt and equity financings, and we have no line of credit or other financing agreement providing borrowing
availability with a commercial lender. As a result of the losses incurred and current negative working capital and other matters described above, there is no assurance that the carrying amounts of our assets will be realized or that liabilities will
be liquidated or settled for the amounts recorded. Our ability to continue as a going concern is dependent upon adequate sources of capital and the ability to sustain positive results of operations and cash flows sufficient to pay our current
liabilities and to continue to explore for and develop our oil and gas reserves.

The independent registered public accounting firms report on our financial statements as of and for the year ended December 31, 2008 includes an explanatory paragraph which states that we have sustained
substantial losses in 2008 and 2007 and have a working capital deficiency and an accumulated deficit at December 31, 2008 that raise substantial doubt about our ability to continue as a going concern.

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We Defaulted in the Repayment of $10.825 Million of Secured Indebtedness on September 30, 2006. There Are Risks That the Holders of This Indebtedness May Seek to Assert Their Rights as Secured Creditors and Foreclose On Our
Assets.

In October 2003, we completed a borrowing of $12.0 million used for repayment of outstanding short-term secured debt, for exploration and development activities on the oil and gas leases within our ExxonMobil joint development project in St.
Charles Parish, Louisiana and for general corporate purposes. As of December 31, 2007, a total of $1.175 million of Debentures was converted to common stock. The remaining $10.825 million borrowing was due to be repaid on September 30, 2006.
In addition, as of December 31, 2007, we are in default in the payment of $1.5 million of interest on the Debentures. The loan is collateralized by a lien against all our oil and natural gas properties and undeveloped leaseholds and bears
interest at 8% per annum, payable quarterly commencing December 31, 2003. As a consequence of the indebtedness being in default, the creditors could foreclose against substantially all of our assets. Under such circumstances, the holders of our
common stock could realize little or nothing from their investment in our shares of common stock. There can be no assurance that we will be successful in paying such amounts or refinancing this indebtedness or that the terms of such refinancing may
not be disadvantageous to the holders of our common stock or result in material dilution. Our inability to pay or refinance this indebtedness could lead to the creditors foreclosing on all our assets which could result in the loss of a
stockholders entire investment.

Our Current Liabilities as of December 31, 2007 Exceed Our Current Assets by $20.3 Million

As of December 31, 2008, our current assets were approximately $154,000 and our current liabilities were approximately $20.4 million. In order to meet our current obligations, we will need to raise additional
capital. At April 27, 2009, we have no commitments from others to provide this capital and without additional capital to meet these obligations, our continued operations cannot be assured. There can be no assurance that we will be successful in
raising additional capital or that the terms on which such additional capital can be raised may not be disadvantageous to the holders of our common stock or result in material dilution. Our inability to reduce our current liabilities relative to our
current assets could lead creditors to refuse to extend us further credit which could materially adversely affect our operations.

Without Substantial Additional Capital We Will Be Unable To Fund The Exploration and Development Activities To Further Develop Our Area Of Mutual Interest With ExxonMobil

We also have substantial needs for funds to further develop our oil and gas prospects and opportunities identified in our AMI with ExxonMobil. At December 31, 2008, we have no plans or commitments for drilling
activities in 2009 and currently lack the funds to engage in such activities. Any capital expenditures must be funded from monies raised through industry participations, borrowings or equity capital. To the extent additional funds are required to
further exploit and develop the ExxonMobil AMI, it is management's plan to raise additional capital through the sale of our equity securities or the sale of interests in our drilling activities, however, we currently have no firm commitment from any
potential investors and such additional capital may not be available to us in the future. Our inability to raise additional capital will limit and perhaps prevent us from further development of the AMI.

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Oil and Gas Prices Fluctuate Widely and Low Oil and Gas Prices Could Adversely Affect Our Financial Results.

Our revenues, operating results, cash flow and future rate of growth depend substantially upon prevailing prices for oil and gas. Historically, oil and gas prices and markets have been volatile, and they are likely to continue to be volatile in the
future. A significant decrease in oil and gas prices, such as that experienced in 1998 and the first half of 1999, could have a material adverse effect on our cash flow and profitability and would adversely affect our financial condition and the
results of our operations.

Prices for oil and gas fluctuate in response to relatively minor changes in the supply of and demand for oil and gas, market uncertainty and a variety of additional factors that are beyond our control, including:

- political conditions in oil producing regions, including the Middle East;
- the domestic and foreign supply of oil and gas;
- the level of consumer demand;
- weather conditions;
- domestic and foreign government regulations;
- the price and availability of alternative fuels;
- overall economic conditions; and
- international political conditions.

In addition, various factors may adversely affect our ability to market our oil and gas production, including:

- the capacity and availability of oil and gas gathering systems and pipelines;
- our ability to produce oil and gas in commercial quantities and to enhance and maintain production from existing wells and wells proposed to be drilled;
- the effect of federal and state regulation of production and transportation;
- general economic conditions;
- changes in supply due to drilling by other producers;
- the availability of drilling rigs and related crews; and
- changes in demand.

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Lower Oil and Gas Prices May Adversely Affect Our Level of Capital Expenditures, Reserve Estimates, Borrowing Capacity and Ability to Repay Notes Payable .

In the ordinary course of business and in order to pursue successfully our business plan, we must make substantial capital expenditures for the exploration and development of oil and natural gas reserves. In the past, we have financed our capital
expenditures, debt service and working capital requirements out of our cash flow, through increases in vendor payables and notes payable and with the proceeds of debt and equity offerings of our securities. Our cash flow from operations is sensitive
to the prices we receive for our oil and natural gas. A reduction in capital spending or an extended decline in oil and natural gas prices could result in less than anticipated cash flow from operations and a lessened ability to repay outstanding
notes payable, raise additional capital or refinance our debt with current lenders or new lenders, which would likely have a further material adverse effect on us.

Lower oil and gas prices have various other adverse effects on our business. A smaller capital expenditure program resulting from reduced cash flows will adversely affect our ability to increase or maintain our oil and natural gas reserves and
production levels. Lower prices may also result in reduced oil and natural gas reserve estimates, the write-off of impaired assets and decreased earnings or losses due to lower oil and natural gas revenues and higher depreciation, depletion and
amortization expense.

Lower oil and gas prices could adversely affect our ability to borrow funds in other ways. Lower commodities prices for oil and natural gas adversely affects the valuations of our oil and natural gas reserves which in turn adversely affects the
amounts lenders may loan to us secured by those oil and natural gas reserves. Furthermore, reduction in such prices could impede our ability to fund future potential acquisitions.

Our Future Borrowings and Other Oil and Gas Development Activities May Be Restricted Because Of The Restrictive Covenants In Our Existing Secured Indebtedness Which, Among Other Things, Restricts Our Ability To Incur Indebtedness In Excess Of
$2.0 Million

The terms of our $12.0 million borrowing in October 2003, include a number of affirmative and negative covenants. Among the covenants is a provision that prohibits us from incurring any indebtedness in excess of $2.0 million without the
prior approval of the holders of the indebtedness at a meeting of the holders by a favorable vote of two-thirds of the principal amount of debt holders present at the meeting. This restriction on our ability to incur indebtedness in excess of
$2.0 million may impede our ability to fund the development of our properties in St. Charles Parish, Louisiana. These limits on our ability to develop these properties may impair our growth in revenues and oil and natural gas reserves. We may be
unable to borrow the funds we may believe we require to fund further well drilling and development activities which would result in our inability to replenish our reserves as they are depleted.

Additional Secured Indebtedness We May Incur In the Future May Increase Our Exposure to Risks Associated With Higher Debt Levels and Possible Defaults.

We intend to seek to refinance our existing indebtedness .The issuance of material amounts of indebtedness would expose us to significant risks including, among others, the following:

- a portion of our cash flow from operations would be utilized for the payment of principal and interest on our indebtedness and would not be available for financing capital expenditures or other purposes;

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- our level of indebtedness and the covenants governing our indebtedness could limit our flexibility in planning for, or reacting to, changes in our business because certain financing options may be limited or prohibited under the terms of our
agreements relating to such indebtedness;
- our level of indebtedness may make us more vulnerable to defaults during periods of low oil and gas prices or in the event of a downturn in our business because of our fixed debt service obligations; and
- the terms of our agreements may require us to make interest and principal payments and to remain in compliance with stated financial covenants and ratios. If the requirements of these agreements are not satisfied, the lenders would be entitled to
accelerate the payment of all outstanding indebtedness and foreclose on the collateral securing payment of that indebtedness. In such event, we cannot assure you that we would have sufficient funds available or could obtain the financing required to
meet our obligations, including the repayment of the outstanding principal and interest on this indebtedness.

In addition to the risks described above, these risks may impose limits on our ability to develop our oil and gas properties and restrict our ability to replenish our reserves of oil and gas as they are depleted.

Our Existing Reserves of Oil and Natural Gas Will Be Depleted Over Time by Production and Therefore Our Future Ability to Earn Revenues and Meet Our Expenses And Repay Our Indebtedness Depends Upon Our Ability to Find or Acquire Additional Oil
and Natural Gas Reserves That Are Economically Recoverable and Result in Revenues to Us.

Unless we successfully replace the oil and natural gas reserves that we produce, our reserves will decline, resulting eventually in a decrease in the quantities of oil and natural gas we are able to produce and lower revenues and cash flow from
operations. We seek to replace reserves through exploitation, development and exploration, as well as through acquisitions. We may not be able to continue to replace reserves from our exploitation, development and exploration activities at
acceptable costs. Lower prices of oil and gas may further limit the kinds of reserves that can be developed at an acceptable cost. Lower prices also decrease our cash flow and may cause us to decrease capital expenditures. The business of exploring
for, developing or acquiring reserves is capital intensive. We may not be able to make the necessary capital investment to maintain or expand our oil and gas reserves if cash flow from operations is reduced and external sources of capital become
limited or unavailable. In addition, exploitation, development and exploration involve numerous risks that may result in dry holes, the failure to produce oil and gas in commercial quantities, the inability to fully produce discovered reserves and
the inability to enhance production from existing wells.

If We Should Make Future Acquisitions of Oil and Gas Properties Where We Believe Commercially Recoverable Quantities of Oil and Natural Gas Exist, These Acquisitions Carry Unknown Risks Including Potential Unsuccessful Drilling Activities or
Environmental Problems.

We expect to continue to evaluate and pursue acquisition opportunities available on terms we consider favorable in order to replace and increase our reserves. Successful acquisition of
producing properties generally requires accurate assessments of recoverable reserves, future oil and gas prices, operating costs, potential environmental and other liabilities and other factors. Such assessments are necessarily inexact, and as
estimates, their accuracy is inherently uncertain. We cannot assure you that we will successfully consummate any acquisition, that we will be able to acquire producing oil and gas properties that contain economically recoverable reserves or that any
acquisition will be profitably integrated into our operations. Our inability to achieve these objectives will restrict our growth and the development of our oil and gas reserves. In addition, acquiring producing oil and gas properties may increase
our potential exposure to liabilities and costs for environmental and other problems existing on such properties. Although we perform a review of the acquired properties that we believe is consistent with industry practice, such reviews are
inherently incomplete and inexact.

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Estimating Reserves and Future Net Revenues Involves Uncertainties and Oil and Gas Price Declines May Lead to Impairment of Oil and Gas Assets.

At December 31, 2008, based on the report of Summa Engineering, Inc., we claimed total estimated proved reserves of 404.88 Mbble of oil and gas. Through December 31, 2008, we were able to return to production 9 (7.31 net) well bores drilled by
prior owners on the Couba properties we acquired, and we had successfully completed 12 (3.13 net) wells. As of that time, our combined production from all our producing wells was approximately 178 (36 net) barrels of oil equivalent per day.
Production from our existing wells is subject to fluctuation from time to time based upon the zones of the wells where we are obtaining production. There can be no assurance that we will be successful in our development activities or that as a
consequence we will claim any material amounts of additional proven reserves as a result of these and further drilling activities. In any event, there are numerous uncertainties inherent in estimating quantities of proved reserves, including many
factors beyond our control.

Reserve information provided in this Annual Report and that we may provide in the future will represent estimates based on reports prepared by our independent petroleum engineers, as well as internally generated reports. Petroleum engineering is
not an exact science. Information relating to proved oil and gas reserves is based upon engineering estimates derived after analysis of information we furnish or furnished to us by the operator of the property. Estimates of economically recoverable
oil and gas reserves and of future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of
regulations by governmental agencies and assumptions concerning future oil and gas prices, future operating costs, severance and excise taxes, capital expenditures and workover and remedial costs, all of which may in fact vary considerably from
actual results. Oil and gas prices, which fluctuate over time, may also affect proved reserve estimates. For these reasons, estimates of the economically recoverable quantities of oil and gas attributable to any particular group of properties,
classifications of such reserves based on risk of recovery and estimates of the future net cash flows expected there from prepared by different engineers or by the same engineers at different times may vary substantially. Actual production, revenues
and expenditures with respect to our reserves will likely vary from estimates, and such variances may be material. Either inaccuracies in estimates of proved undeveloped reserves or the inability to fund development could result in substantially
reduced reserves. In addition, the timing of receipt of estimated future net revenues from proved undeveloped reserves will be dependent upon the timing and implementation of drilling and development activities estimated by us for purposes of the
reserve report.

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Quantities of proved reserves are estimated based on economic conditions in existence in the period of assessment. Lower oil and gas prices may have the impact of shortening the economic lives on certain fields because it becomes uneconomic to
produce all recoverable reserves on such fields, thus reducing proved property reserve estimates. If such revisions in the estimated quantities of proved reserves occur, it will have the effect of increasing the rates of depreciation, depletion and
amortization on the affected properties, which would decrease earnings or result in losses through higher depreciation, depletion and amortization expense. The revisions may also be sufficient to trigger impairment losses on certain properties that
would result in a further non-cash charge to earnings.

Our Reliance On a Limited Number of Key Management Personnel Imposes Risks On Us That We Will Have Insufficient Management Personnel Available If Their Services Are Unavailable.

We are dependent upon the services of our President and Chief Executive Officer, Michael K. Paulk, and Vice President, Finance and Chief Financial Officer, Steven P. Ensz. The loss of either of their services could have a material adverse effect
upon us. The loss of the services of such persons would, in all likelihood, require us to seek the services of one or more other persons who would be less familiar with our oil and gas properties, our business objectives and methods and would
increase the risk that our activities would be unsuccessful. We currently do not have employment agreements with either of such persons.

Drilling For Oil and Natural Gas and Operating Oil and Natural Gas Fields Involves Material Risks Including the Risk That No Commercially Productive Reservoirs Will Be Encountered; We Have Uninsured Risks.

Drilling activities are subject to many risks, including the risk that no commercially productive reservoirs will be encountered. There can be no assurance that new wells drilled by us will be productive or that we will recover all or any portion
of our investment. Drilling for oil and gas may involve unprofitable efforts, not only from dry wells, but from wells that are productive but do not produce sufficient net revenues to return a profit after drilling, operating and other costs. The
cost of drilling, completing and operating wells is often uncertain. Our drilling operations may be curtailed, delayed or canceled as a result of numerous factors, many of which are beyond our control, including economic conditions, mechanical
problems, title problems, weather conditions, compliance with governmental requirements and shortages or delays of equipment and services. Our future drilling activities may not be successful and, if unsuccessful, such failure may have a material
adverse effect on our future results of operations or financial condition.

In addition to the substantial risk that wells drilled will not be productive, hazards such as unusual or unexpected geologic formations, pressures, downhole fires, mechanical failures, blowouts, cratering, explosions, uncontrollable flows of
natural gas, oil or well fluids, pollution and other physical and environmental risks are inherent in oil and gas exploration and production. These hazards could result in substantial losses to us due to injury and loss of life, severe damage to and
destruction of property and equipment, pollution and other environmental damage and suspension of operations. As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses, as is common in the
oil and natural gas industry. We do not fully insure against all risks associated with our business either because such insurance is not available or because the cost thereof is considered prohibitive. The
occurrence of an event that is not covered, or not fully covered, by insurance could have a material adverse effect on our financial condition and results of operations.

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Shortages of Oil Field Equipment, Services and Qualified Personnel Could Adversely Affect Our Results Of Operations.

The demand for qualified and experienced field personnel to drill wells and conduct field operations, geologists, geophysicists, engineers and other professionals in the natural gas and oil industry can fluctuate
significantly, often in correlation with natural gas and oil prices, causing periodic shortages. There have also been shortages of drilling rigs and other equipment, as demand for rigs and equipment has increased along with the number of wells being
drilled.

These factors also cause significant increases in costs for equipment, services and personnel.  Higher natural gas and oil prices generally stimulate increased demand and result in increased prices for drilling rigs, crews and associated supplies,
equipment and services. We cannot be certain when we will experience shortages or price increases, which could adversely affect our profit margin, cash flow and operating results or restrict our ability to drill wells and conduct ordinary
operations.

Risks Relating to the Market for Our Securities

Absence of a Public Market for Our Common Shares.

Our common shares presently have no trading market in the United States or Canada, and there can be no assurance as to the liquidity of any markets that may develop in the future for the common shares, the ability of the holders of common
shares to sell their common shares in the United States or Canada or the price at which holders would be able to sell their common shares. Future trading prices of the common shares will depend on many factors, including, among others, our operating
results and the market for similar securities.

CAUTIONARYSTATEMENTFORPURPOSESOFTHESAFEHARBORPROVISIONSOFTHEPRIVATESECURITIESLITIGATIONREFORMACTOF1996

With the exception of historical matters, the matters we discussed below and elsewhere in this Annual Report are forward-looking statements as defined under the Securities Exchange Act of 1934, as amended that involve risks and
uncertainties. The forward-looking statements appear in various places including under the headings Item 1. Description of Business and Item 6. Managements Discussion and Analysis or Plan of Operation. These risks and uncertainties relate to
our ability to repay or extend the maturity of our Debentures that matured in September 2006, our ability to raise capital and fund our oil and gas well drilling and development plans, our ability to fund the repayment of our current liabilities,
our ability to attain and maintain profitability and cash flow and continue as a going concern, our ability to increase our reserves of oil and gas through successful drilling activities and acquisitions, our ability to enhance and maintain
production from existing wells and successfully develop additional producing wells, our access to debt and equity capital and the availability of joint venture development arrangements, our ability to remain in compliance with the terms of any
agreements pursuant to which we borrow money and to repay the principal and interest when due, our estimates as to our needs for additional capital and the times at which additional capital will be required, our expectations as to our sources for
this capital and funds, our ability to successfully implement our business strategy, our ability to identify, acquire and integrate successfully any additional producing oil and gas properties we acquire and operate such properties profitably, our
ability to
maintain compliance with covenants of our loan documents and other agreements pursuant to which we issue securities or borrow funds and to obtain waivers and amendments when and as required, our ability to borrow funds or maintain levels of
borrowing availability under our borrowing arrangements, our ability to meet our intended capital expenditures, our statements about quantities of production of oil and gas as it implies continuing production rates of those levels, proved reserves
or borrowing availability based on proved reserves and our future net cash flows and their present value.

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Readers are cautioned that the risk factors and uncertainties referred to above, as well as the risk factors described elsewhere in this Annual Report, in some cases have affected, and in the future could affect, our
actual results and could cause our actual consolidated results during 2009 and beyond, to differ materially from those expressed in any forward-looking statements made by or on our behalf.

Item 1B-Unresolved Staff Comments:

We have no unresolved staff comments and, as a smaller reporting company, are not required to respond to this Item.

Item 2 - Properties:

A description of our properties appears in Item 1 of this Annual Report on Form 10-K.

Item 3 - Legal Proceedings:

No legal proceedings are pending against us other than ordinary litigation incidental to our business, the outcome of which we believe will not have a material adverse effect on us.

Item 4 - Submission of Matters to a Vote of Security Holders:

No matter was submitted during the fourth quarter of the year ended December 31, 2008 to a vote of security holders through the solicitation of proxies or otherwise.

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PART II

Item 5 - Market for Registrants Common Equity, Related
Stockholder Matters and Small Business Issuer Purchases of Equity
Securities:

Our common shares are traded on the TSX Venture Exchange, Inc.
under the symbol ANR.U. Our common shares are not currently traded on any United
States stock exchange or in the over-the-counter market in the United States,
and, accordingly, there is currently no public market for our common shares in
the United States.

The reported high and low sales prices, reported in United
States dollars, for our common shares, as reported by the TSX Venture Exchange,
on a calendar quarterly basis for the calendar year ended December 31, 2006 and
through July 25, 2007 (the last date of trading on the Exchange) and November
17, 2008 (the date trading was reinstated on the Exchange) through April 27,
2009 were as follows.

|                                             |   | Prices | 
|-------------------------------------------- | - | ------ | 
|                                             |   | High   | 
|2006                                         |   |        | 
|First Quarter                                | $ | 0.15   | 
|Second Quarter                               | $ | 0.25   | 
|Third Quarter                                | $ | 0.08   | 
|Fourth Quarter                               | $ | 0.12   | 
|2007                                         |   |        | 
|First Quarter                                | $ | 0.10   | 
|Second Quarter                               | $ | 0.05   | 
|Third Quarter through July 25, 2007*         | $ | 0.05   | 
|2008                                         |   |        | 
|Fourth Quarter beginning November 17, 2008** | $ | 0.04   | 
|2009                                         |   |        | 
|First Quarter                                | $ | 0.02   | 

* Effective July 25, 2007, TSX Venture Exchange suspended
trading in our securities as a result of the Cease Trade Order issued by the
British Columbia Securities Commission. 
** Effective November 17, 2008 TSX Venture Exchange reinstated
trading in our securities.

As of April 27, 2009, we had 2,985 stockholders of record.

On May 1, 2007, the British Columbia Securities Commission
issued a cease trade order (the "Management Cease Trade Order")
restricting trading in our securities by certain of our insiders until we file
the Annual Financial Statements and related annual filings. We filed a
Notice of Default dated May 1, 2007 (the "Notice of Default"), and subsequently filed Default Status Report updates dated May 15, 2007 (the First Default Status Report), May 29, 2007 (the Second Default Status
Report), June 12, 2007 (the Third Default Status Report) and June 26, 2007 (the Fourth Default Status Report) as required by 57-301. Effective July 25, 2007, TSX Venture Exchange suspended trading in
our securities as a result of the Cease Trade Order issued by the British Columbia Securities Commission.

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We had been unable to complete the Annual Financial Statements and related annual filings and were unable to file the Annual Financial Statements and related annual filings prior to June 30, 2007 due to our inability to
make payment on outstanding invoices to our auditors for services previously performed. As a result of the delays in completing the Annual Financial Statements, we were also delayed in filing our interim financial statements for the three-months
ended March 31, 2007, the six-months ended June 30, 2007 and the nine-months ended September 30, 2007 (the "Interim Financial Statements") which were due by May 15, 2007, August 14, 2007 and November 14, 2007, respectively. As of June 9, 2008
all of our filings were current and TSX Venture Exchange reinstated trading in our securities on November 17, 2008.

We intend to seek to have a trading market for our common shares develop in the United States. There can be no assurance that we will be successful in this regard. We do not meet the requirements to have our common
shares included in any NASDAQ trading system or listed on any national securities exchange. However, we do intend to seek to have our shares quoted on the OTC Bulletin Board®. In order to do so, a broker-dealer in securities in the United States
may be required to file with the National Association of Securities Dealers, Inc. a notice that will enable the broker-dealer to enter quotations for our common shares on the OTC Bulletin Board®. There can be no assurance that a broker-dealer
will file such a notice or, if filed, that quotations will be accepted on the OTC Bulletin Board®. Further, there can be no assurance that if a broker-dealer commences to enter bid and asked quotations for our common shares in the OTC Bulletin
Board® that a viable and active trading market will develop.

Dividend Policy

We do not intend to pay any dividends on our Common Stock for the foreseeable future. Any determination as to the payment of dividends on our Common Stock in the future will be made by our Board of Directors and will
depend on a number of factors, including future earnings, capital requirements, financial condition and future prospects as well as such other factors as our Board of Directors may deem relevant. Under the terms of the $12.0 million principal
amount of Debentures issued in October 2003, we are prohibited from declaring or paying any dividends, other than stock dividends.

Issuer Purchases of Equity Securities

No purchases of shares of our Common Stock, par value $.001 per share, were made by us or on our behalf or by any affiliated purchaser, as defined in Rule 10b-18(a)(3) under the U.S. Securities Exchange Act of 1934, as amended,
during the year ended December 31, 2008.

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Item 6 - Selected Financial Data:

As a smaller reporting company, we are not required to respond to this Item.

Item 7 - Managements Discussion and Analysis of Financial Condition and Results of Operations:

General

We are engaged in the acquisition, development, exploitation and production of oil and natural gas. Our revenues and profitability can be expected to be dependent, to a significant extent, upon prevailing spot market prices for oil and natural gas
and upon the quantities of oil and natural gas we produce and sell. Prices for oil and natural gas are subject to wide fluctuations in response to changes in supply of and demand for oil and natural gas, market uncertainty and a variety of
additional factors that are beyond our control. Such factors include political conditions, weather conditions, government regulations, the price and availability of alternative fuels and overall economic conditions.

Our financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. We have sustained substantial losses in 2008
and 2007 of approximately $61,000and$3.2 million, respectively, and have a working capital deficiency and an accumulated deficit at December 31, 2008 whichleads to questions concerning our ability to meet our
obligations as they come due. At December 31, 2008, we have $10.8 million principal amount of secured Debentures outstanding that are in default and are immediately due and payable. We also have a need for substantial funds to pay current
liabilities and to develop our oil and gas properties. We have financed our activities using debt and equity financings and drilling participations, and we have no bank or other line of credit or other financing agreement providing borrowing
availability with a commercial lender. Our cash flow from operations is sensitive to the prices we receive for our oil and natural gas in addition to the quantities of oil and natural gas we sell. A reduction in planned capital spending or an
extended decline in oil and gas prices could result in less than anticipated cash flow from operations and a lessened ability to sell more of our common stock or refinance our debt with current lenders or new lenders, which would likely have a
further material adverse effect on us. The uncertainty as to whether or not we can raise additional capital in the future is likely to have an effect on our future revenues and operations if we are unable to raise that additional capital.

As a result of the losses incurred and current negative working capital and other matters described above, there is no assurance that the carrying amounts of our assets will be realized or that liabilities will be
liquidated or settled for the amounts recorded. Our ability to continue as a going concern is dependent upon adequate sources of capital and the ability to sustain positive results of operations and cash flows sufficient to continue to explore for
and develop our oil and gas reserves. See the discussion under the caption How We Have Financed Our Activities.

The independent registered public accounting firms report on our financial statements as of and for the year ended December 31, 2008 includes an explanatory paragraph which states that we have sustained
substantial losses in 2008 and 2007 and have a working capital deficiency
and an accumulated deficit at December 31, 2008 that raise substantial doubt about our ability to continue as a going concern.

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Statements of Operations

A Comparison of Operating Results for the Years Ended December 31, 2008 and December 31, 2007

We reported a net loss of $61,000 during the year ended December 31, 2008 compared to a net loss of $3,229,000 for the year ended December 31, 2007, due to the $2,519,000 unrealized foreign exchange
transaction gain related to an intercompany loan denominated in Canadian Dollar. During the year ended December 31, 2008, our revenues were comprised of oil and gas sales totaling $2,198,000 compared with oil and gas sales and operations income
of $1,353,000 in 2007. Our oil and gas sales and operations income for the year ended December 31, 2008 increased as a result of increased oil and gas production and higher oil prices in 2008. Production ona barrels equivalent basis
increased 19% from 2007 to 2008. Oil prices increased on average 51% from 2007 to 2008. At December 31, 2008, we had 21 (10. 45 net) wells producing approximately 178 (36 net) barrels of oil equivalents per day, whereas at December 31, 2007, we had
21 (10.60 net) wells producing approximately 166 (42 net) barrels of oil equivalents per day. Production from our existing wells is subject to fluctuation from time to time based upon the zones of thewells where we are obtaining production
and typically will decrease over time.

Our total expenses were $2,259,000 for the year ended December 31, 2008 as compared to $4,582,000 for the year ended December 31, 2007. Total expenses decreased by $2,323,000 which was primarily the result
of a foreign exchange gain in 2008 partially offset by increased lease operating expenses, general and administrative expenses, and depreciation, depletion and amortization charges. In addition, a decrease in gain on settlement of debt had a
negative impact on total expenses for the year ended December 31, 2008.

Lease operating expenses in 2008 were $1,631,000 compared to $471,000 in 2007. Lease operating expenses increased on a per unit basis of production after field operations were transferred to Dune Energy.
Production taxes were $ 223,000 for the year ended December 31, 2008 compared to $103,000 for the year ended December 31, 2007. The increase is partially due to an increase in volumes. Depletion, depreciation and amortization of $722,000
in 2008 increased from $601,000 in 2007. This was primarily the result of increased production of oil and natural gas and the related depletion expense and increased depreciation related to field equipment.

Our general and administrative expenses increased from $1,227,000 in 2007 compared to $1,304,000 in 2008. The increase from 2008 to 2007 is primarily due to a reduction in the estimated Canadian taxes due on
dissolution of Gothic Resources for the year ended December 31, 2007.

We had a foreign exchange gain of $2,519,000 for the year ended December 31, 2008 compared to a foreign exchange loss of $1,976,000 for the year ended December 31, 2007. Our foreign exchange gains and losses
arise out of an inter-company indebtedness we owe to our wholly-owned subsidiary, Gothic, which is repayable in Canadian dollars. The foreign exchange gain and loss is caused by the weakening and strengthening of the Canadian dollar against the
US dollar. Effective January 31, 2005, an application has been made to liquidate the Gothic subsidiary and terminate its charter. Therefore, upon final liquidation, amounts reflected in accumulated other comprehensive income will be included in the
gain or loss recognized from the disposal of the subsidiary.

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We settled $78,000 of debt for a net gain of $46,000 in 2008. In 2007, we settled $1.4 million of debt for a net gain of $837,000.

Interest and financing costs decreased from $1,014,000 for the year ended December 31, 2007 to $923,000 for the year ended December 31, 2008. Interest expense was higher in 2007 due to higher debt balances
during 2007 as compared to 2008.

Depreciation, depletion and amortization expense attributable to oil and gas properties increased to $509,000 during the year ended December 31, 2008 from $442,000 during the year ended December 31, 2007 due to
our increased production.

We incurred a charge of $14,000 in 2008 to write-down our inventory to lower of cost or market. There was no such charge in 2007.

We recorded an allowance for doubtful accounts of $7,000 and $26,000 in 2008 and 2007 respectively.

Liquidity and Capital Resources

General

At December 31, 2008, we do not have any available borrowing capacity under existing credit facilities and our current assets are $154,000 compared with current liabilities of $20.4 million. Our current
liabilities include approximately $10.8 million of secured indebtedness, which was due September 2006 and is currently in default, and accounts payable, revenues payable, notes payable, and other current obligations aggregating to approximately
$9.6 million. We have substantial needs for funds to pay our outstanding payables and debt due during 2009.

We have substantial need for capital to develop our oil and gas prospects and opportunities we believe that have been identified in our ExxonMobil AMI. Since 2001, we have funded our capital expenditures and operating
activities through a series of debt and equity capital-raising transactions, drilling participations and through an increase in vendor payables and notes payable. We expect any future capital expenditures for drilling and development to be funded
from the sale of drilling participations and equity capital. It is management's plan to raise additional capital through the sale of interests in our drilling activities or other strategic transactions; however, we currently have no firm commitment
from any potential investors and such additional capital may not be available to us in the future.

Years Ended December 31, 2008 and December 31, 2007

Our net cash provided by operating activities was $294,000 in 2008 as compared to net cash used by operating activities of $1,818,000 in 2007, an increase of $2,112,000. The increase
in net cash provided by operating activities for 2008 was primarily due to positive changes in accounts payable and partially offset by a foreign exchange gain. Changes in working capital items had the effect of increasing cash flows from operating
activities by $2, 178,000 during 2008 due to an increase in accounts payable of $2,159,000. Changes in working capital items had the effect of decreasing cash flows from operating activities by $356,000 during 2007 due to a decrease in
accounts payable of $1,014,000 offset by a decrease in accounts receivable of $633,000.

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We used $374,000 of net cash in investing activities during 2008 compared to net cash generated of $1,405,000 in 2007. The 2008 cash used in investing activities included $386,000 for the purchase and development of oil and gas
properties. We received proceeds of $12,000 from the sale of fixed assets. The 2007 cash provided by investing activities included $2,946,000 in proceeds from the sale of participation rights (which were accounted for as a reduction in
unproved properties), partially offset by $310,000 for the purchase and development of oil and gas properties. We used $253,000 for the purchase of fixed assets and received proceeds of $22,000 from the sale of fixed assets. The
expenditures for oil and gas properties in 2008 and 2007 are primarily the result of the development of oil and gas properties acquired in prior periods.

For the year ended December 31, 2008, we used $92,000 of net cash in financing activities offset by $92,000 of net cash provided by financing activities as a result of the issuance of notes payable. For the same period in 2007, $450,000
of net cash was used in financing activities. For the years ended December 31, 2008 and 2007, net cash outflows from financing activities were primarily a result of payments against outstanding notes and bank overdrafts.

Additional information regarding liquidity and capital resources is included under the caption Future Capital Requirements and Resources.

How We Have Financed Our Activities

On March 19, 2009 the TSX Venture Exchange approved the issuance of 1,060,000 shares of our common stock as payment for an outstanding invoice owed to Wakabayahsi Funds LLC in the amount of $10,600. The shares were
issued on March 26, 2009.

Future Capital Requirements and Resources

At December 31, 2008, we do not have any available borrowing capacity under existing credit facilities and our current assets are $154,000 compared with current liabilities of $20.4 million. Our current
liabilities include approximately $10.8 million of secured indebtedness, which was due September 2006 and is currently in default, and accounts payable, revenues payable, notes payable (a portion of which is past due), and other current
obligations aggregating to approximately $9.6 million. We have substantial needs for funds to pay our outstanding payables and debt due during 2009. In addition, we have substantial need for capital to develop
our oil and gas prospects and opportunities identified in our ExxonMobil AMI. At December 31, 2008, we have no commitments for additional capital to fund drilling activities in 2009.

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Since 2001, we have funded our capital expenditures and operating activities through a series of debt and equity capital-raising transactions, drilling participations and, during the last two quarters of 2004 and all of
2005 and 2006, through an increase in vendor payables and notes payable. Any capital expenditures for drilling purposes during 2009, we expect will be funded from the sale of drilling participations and equity capital. It is our intention to raise
additional capital through the sale of interests in our drilling activities or other strategic transactions; however, we currently have no firm commitment from any potential investors and such additional capital may not be available to us in the
future.

Our business strategy requires us to obtain additional financing and our failure to do so can be expected to adversely affect our ability to further the development of our ExxonMobil AMI, grow our revenues, oil and gas reserves and achieve and
maintain a significant level of revenues and profitability. There can be no assurance we will obtain this additional funding. Such funding may be obtained through the sale of drilling participations, joint ventures, equity securities or by incurring
additional indebtedness. Without such funding, our revenues will continue to be limited and it can be expected that our operations will not be profitable. In addition, any additional equity funding that we obtain may result in material dilution to
the current holders of our common stock.

Critical Accounting Policies

Oil and Gas Properties

We account for our oil and gas exploration and development activities using the full cost method of accounting prescribed by the SEC. Accordingly, all our productive and non-productive costs incurred in connection with
the acquisition, exploration and development of oil and natural gas reserves are capitalized and depleted using the units-of-production method based on proved oil and gas reserves. We capitalize our costs including salaries and related fringe
benefits of employees directly engaged in the acquisition, exploration and development of oil and natural gas properties, asset retirement costs, as well as other directly identifiable general and administrative costs associated with these
activities. These costs do not include any costs related to production, general corporate overhead, or similar activities. Our oil and natural gas reserves will be estimated annually by independent petroleum engineers. Our calculation of
depreciation, depletion and amortization (DD&A) includes estimated future expenditures that we believe we will incur in developing our proved reserves and the estimated dismantlement and abandonment costs, net of salvage values.
Quarterly, we will perform a review of the carrying costs of our oil and gas properties to assess whether such costs are fully recoverable from future cash flows. In the event the unamortized cost of the oil and natural gas properties we are
amortizing exceeds the full cost ceiling as defined by the SEC, we will charge the amount of the excess to expense in the period during which the excess occurs. The full cost ceiling is based principally on the estimated future discounted net cash
flows from our oil and natural gas properties. Changes in our estimates or declines in prevailing oil and natural gas prices could cause us to reduce in the near term our carrying value of our oil and natural gas properties. A write-down arising out
of these conditions is referred to throughout our industry as a full cost ceiling write-down.

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We evaluate oil and natural gas reserve acquisition opportunities in light of many factors only a portion of which may be reflected in the amount of proved oil and natural gas reserves that we propose to acquire. In determining the purchase price
to be offered, we do not solely rely on proved oil and gas reserves or the value of such reserves determined in accordance with Rule 4-10 of Regulation S-X adopted by the SEC. Factors we consider include the probable reserves of the interests
intended to be acquired, anticipated efficiencies and cost reductions that we believe can be made in us operating the producing properties, the additional reserves that we believe can be proven relatively inexpensively based on our knowledge of the
area where the interests are located and existing producing properties we may own. We may also consider other factors if appropriate. We may conclude that an acquisition is favorable, even if there may be a subsequent full cost ceiling write-down
associated with it, based on other factors we believe are important. We do not perform a ceiling test for specific properties acquired because the ceiling test is performed at each quarter and at year end for all of our properties included in our
cost center and is based on prices for oil and natural gas as of that date which may be higher or lower than the prices used when evaluating potential acquisitions. We review the transaction in the light of proved and probable reserves, historic and
seasonal fluctuations in the prices of oil and natural gas, anticipated future prices for oil and natural gas, the factors described above as well as other factors that may relate to the specific properties under review.

Revenue Recognition

Our profitability and revenues are and will be dependent, to a significant extent, upon prevailing spot market prices for oil and natural gas. Oil and natural gas prices and markets have been volatile. Prices are subject to wide fluctuations in
response to changes in supply of and demand for oil and natural gas, market uncertainty and a variety of additional factors that are beyond our control. Such factors include political conditions, weather conditions, government regulations, the price
and availability of alternative fuels and overall economic conditions. Natural gas prices have fluctuated significantly over the past twelve months.

We use the sales method for recording natural gas sales. Our oil and condensate production is sold, title passed, and revenue recognized at or near our wells under short-term purchase contracts at prevailing prices in accordance with arrangements,
which are customary in our industry. Our gas sales are recorded as revenues when the gas is metered and title transferred pursuant to the gas sales contracts. During such times as our sales of gas exceed our pro rata ownership in a well, such sales
will be recorded as revenues unless total sales from the well have exceeded our share of estimated total gas reserves underlying the property at which time the excess will be recorded as a gas balancing liability.

Income taxes

As part of the process of preparing the consolidated financial statements, we are required to estimate the federal and state income taxes in each of the jurisdictions in which we operate. This process involves
estimating the actual current tax exposure together with assessing temporary differences resulting from differing treatment of items, such as depreciation, depletion and amortization, and certain accrued liabilities for tax and accounting purposes.
These differences and the net operating loss ("NOL") carryforwards result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess, using all available positive and negative evidence, the
likelihood that the deferred tax assets will be recovered from future taxable income. If we believe that recovery is not likely, we must
establish a valuation allowance. To the extent we establish a valuation allowance or increase or decrease this allowance in a period, we must include an expense or reduction of expense within the tax provisions in the consolidated statement of
operations.

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Under SFAS 109, Accounting for Income Taxes, an enterprise must use judgment in considering the relative impact of negative and positive evidence. The weight given to the potential effect of negative and positive
evidence should be commensurate with the extent to which it can be objectively verified. The more negative evidence that exists (a) the more positive evidence is necessary and (b) the more difficult it is to support a conclusion that a valuation
allowance is not needed for some portion, or all of the deferred tax asset. Among the more significant types of evidence that we consider are:

- taxable income projections in future years,
- whether the carryforward period is so brief that it would limit realization of tax benefits,
- future sales and operating cost projections that will produce more than enough taxable income to realize the deferred tax asset based on existing sales prices and cost structures, and
- our earnings history exclusive of the loss that created the future deductible amount coupled with evidence indicating that the loss is an aberration rather than a continuing condition.

Since we have no earnings history to determine the likelihood of realizing the benefits of the deferred tax assets, we are unable to determine our ability to realize our NOL carryforwards prior to their expiration.
Accordingly, we are required to provide a valuation allowance against our deferred tax asset. As of December 31, 2008 and 2007, we have a deferred tax asset of approximately $16.1 million and $15.2 million for which we have recognized a
$16.1 million and $15.2 million valuation allowance, respectively.

Notes payable and long-term debt

We account for notes payable and long-term debt by recording the face amount of the debt instrument adjusted for any premium or discount realized on the issuance of the instrument. The premium or discount is amortized to expense utilizing the
effective interest rate method for debt instruments with scheduled repayment terms. Any un-amortized premium or discount remaining at early retirements of a debt instrument is recorded as a gain or loss as applicable.

Asset Retirement Obligation

Effective January 1, 2003, we adopted Statement of Financial Accounting Standards No. 143, Accounting for Asset Retirement Obligations (SFAS 143). This statement applies to obligations associated with
the retirement of tangible long-lived assets that result from the acquisition, construction and development of the assets.

Under SFAS 143 we recognize the fair value of a liability for a retirement obligation in the period in which the liability is incurred. For oil and gas properties, this is the period in which an oil or gas well is
acquired or drilled. The asset retirement obligation is capitalized as part of the carrying amount of the asset at its discounted fair value. The liability is then accreted each period until the liability is settled or the asset is sold, at which
time the liability is reversed.

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Accounting Matters

On December 31, 2008, the
Securities and Exchange Commission (SEC) issued the final rule, Modernization
of Oil and Gas Reporting (Final Rule). The Final Rule adopts revisions to the SECs oil and gas reporting disclosure requirements and is effective for annual
reports on Forms 10-K for years ending on or after December 31, 2009. The
revisions are intended to provide investors with a more meaningful and
comprehensive understanding of oil and gas reserves to help investors evaluate
their investments in oil and gas companies. The amendments are also designed to
modernize the oil and gas disclosure requirements to align them with current
practices and technological advances. Revised requirements in the Final Rule
include, but are not limited to:

- Oil and gas reserves
must be reported using a 12-month average of the closing prices on the first day
of each of such months, rather than a single day year-end price:
- Companies will be
allowed to report, on a voluntary basis, probable and possible reserves,
previously prohibited by SEC rules; and
- Easing the standard
for the inclusion of proved undeveloped reserves (PUDs) and requiring disclosure of information
      indicating any progress toward the development of PUDs.

We are currently evaluating the
potential impact of adopting the Final Rule. The SEC is discussing the Final
Rule with the FASB and IASB staffs to align accounting standards with the Final
Rule. These discussions may delay the required compliance date. Absent any
change in such date, we will begin complying with the disclosure requirements in
our annual report on Form 10-K for the year ended December 31, 2009. Voluntary
early compliance is not permitted.

In February 2007, the FASB issued
SFAS 159, The Fair Value Option for Financial Assets and Financial Liabilities
Including an Amendment of FASB Statement No. 115 (SFAS 159), which permits
entities to choose to measure many financial instruments and certain other items
at fair value (Fair Value Option). Election of the Fair Value Option is made on
an instrument-by-instrument basis and is irrevocable. At the adoption date,
unrealized gains and losses on financial assets and liabilities for which the
Fair Value Option has been elected would be reported as a cumulative adjustment
to beginning retained earnings. Following the election of the Fair Value Option
for certain financial assets and liabilities, the Company would report
unrealized gains and losses due to changes in fair value in earnings at each
subsequent reporting date. The Company adopted SFAS 159 effective January 1,
2008 which did not have a material impact on the Companys operating results,
financial position or cash flows as the Company did not elect the Fair Value
Option for any of its financial assets or liabilities.

In September 2006, the FASB issued SFAS 157, Fair Value
Measurements (SFAS 157), which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements.
This pronouncement applies to other standards that require or permit fair value
measurements. Accordingly, this statement does not require any new fair value
measurements. The Company adopted the provisions of SFAS 157 on January 1, 2008,
which did not have a material impact on the Companys financial statements.

35

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Item 7A - Quantitative and Qualitative Disclosures About Market Risk:

As a smaller reporting company, we are not required to respond to this Item.

Item 8 - Financial Statements and Supplementary Data:

The response to this Item is included in a separate section of this report. See page F-1.

Item 9 - Changes in and Disagreements with Accountants on Accounting and FinancialDisclosure:

During the two fiscal years ended December 31, 2008, we have not filed any Current Report on Form 8-K reporting any change in accountants in which there was a reported disagreement or event on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedure.

Item 9A(T)  Controls and Procedures

(a) Managements Annual Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act, as amended,
as a process designed by, or under the supervision of, a companys principal executive and principal financial officers and effected by a companys board of directors, management and other personnel to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and
procedures that:

|* | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets;                                                                                                                                                                 
|- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                                                                                                                                                                                                  
|* | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being
made only in accordance with authorizations of our management and directors;
|  |                                                                                                                                                                                                                                                                                                                  
|* | and provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.                                                                                                           

Internal control over financial reporting cannot provide absolute assurance of achieving financial reporting objectives because of its inherent limitations. Internal control over financial reporting is a process that involves human diligence and
compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of
such limitations, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process.
Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. In order to evaluate the effectiveness of our internal control over financial reporting as of December 31, 2008, as required by
Sections 404 of the Sarbanes-Oxley Act of 2002, our management commenced an assessment, based on the criteria set forth in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the "
COSO Framework "). A material weakness is a control deficiency, or a combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements will not be prevented
or detected on a timely basis. In assessing the effectiveness of our internal control over financial reporting, our management, including the chief executive officer and chief financial officer, identified the following deficiencies:  (1)
Deficiencies in Segregation of Duties. The Chief Executive Officer and the Chief Financial Officer are actively involved in the preparation of the financial statements, and therefore cannot provide an independent review and quality assurance
function within the accounting and financial reporting group. The limited number of qualified accounting personnel discussed above results in an inability to have independent review and approval of financial accounting entries. Furthermore,
management and financial accounting personnel have wide-spread access to create and post entries in the Companys financial accounting system. There is a risk that a material misstatement of the financial statements could be caused, or at least
not be detected in a timely manner, due to insufficient segregation of duties, and (2) Our financial statement closing process did not identify all the journal entries that needed to be recorded as part of the closing process for certain complex and
non-routine transactions. As part of the audit, our independent registered public accounting firm proposed certain entries that should have been recorded as part of the normal closing process. Our internal control over financial reporting did not
detect such matters and, therefore, was not effective in detecting misstatements in the financial statements.

36

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To address the material weakness, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this annual report have been prepared in accordance with generally accepted
accounting principles. Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented. As a
result, we have put an implementation plan in place whereby in 2009 sufficient testing to satisfy COSO requirements will be performed. The absence of the ability to conclude as to the sufficiency of internal controls is a material weakness. This
annual report does not include an attestation report of our independent registered public accounting firm regarding internal control over financial reporting. Our internal controls were not subject to attestation by our independent registered public
accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only managements report in this annual report.

(b) Changes in Internal Control Over Financial Reporting

There have been no changes in our internal controls over financial reporting during our most recent fiscal quarter that have materially affected, or are reasonable likely to materially affect, our internal controls over financial reporting.

37

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This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our
registered public accounting firm pursuant to temporary rules of the SEC that permit us to provide only management's report in this annual report.

Despite the internal control deficiencies, we believe that our financial statements contained in this Form 10-K filed with the SEC fairly present our financial position, results of operations and cash flows for the fiscal year ending December 31,
2008 in all material respects.

Item 9B  Other Information

No information is required to be disclosed in response to this Item 9B.

38

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PART III

Item 10  Directors, Executive Officers and Corporate
Governance:

Directors, Executive Officers and Significant Employees

The following table contains information concerning the current
Directors, executive officers and significant employees of the Company:

|Name                              | Age | Position                                                               
|--------------------------------- | --- | -----------------------------------------------------------------------
|Directors and Executive Officers: |     |                                                                        
|Michael K. Paulk (1)              | 60  | President and Director                                                 
|Steven P. Ensz                    | 57  | Vice President, Finance, and Chief Financial
      Officer and Director
|Brian E. Bayley(1)                | 56  | Director                                                               
|John K. Campbell(1)               | 75  | Director                                                               
|                                  |     |                                                                        
|Significant Employees:            |     |                                                                        
|Richard O. Mulford                | 56  | Manager of Operations                                                  
|Robert G. Snead                   | 70  | Exploitation Manager                                                   

________________
        (1) Member of our Audit Committee

Each Director of our company has been elected to serve until
our next annual meeting of stockholders and until his successor has been elected
and qualified.

Michael K. Paulk: Mr.
Paulk was elected President and Director of our company in July 2001. From
October 1994 to January 2001, when it was sold to Chesapeake Energy Corporation,
he was the President and a Director of Gothic Energy Corporation ("GEC"). GEC is
neither a predecessor nor affiliate of either us or our subsidiary, Gothic, and
there was no affiliation between Gothic and GEC prior to January 2001. GEC was
engaged, until its acquisition by Chesapeake Energy Corporation in January 2001,
in the acquisition, development, exploration and production of natural gas and
oil. Mr. Paulk has been engaged in the oil and gas industry for more than 19
years.

Steven P. Ensz: Mr. Ensz has been Vice-President,
Finance and Chief Financial Officer of our company since July 2001 and is
responsible for our financial activities. From March 1998 to January 2001, he
held a similar position with GEC. From July 1991 to February 1998, he was
Vice-President, Finance of Anglo-Suisse, Inc., an oil and natural gas
exploration and producing company. He has held various positions within the
energy industry, including President of Waterford Energy, an independent oil and
gas producer, for more than 22 years. He is a certified public accountant.

Brian E. Bayley:Mr.
Bayley was elected a director of the Company in June 2001. With over 25 years of
business experience, Mr. Bayley has experience in areas of asset backed lending,
real estate, corporate restructuring and natural resources. Mr. Bayley is
currently the Co-Chairman and a director of Quest Capital Corp., a publicly
traded mortgage investment corporation listed on the TSX, NYSE AMEX and AIM.
From 2003  2008, Mr. Bayley served
as the Chief Executive Officer and President of Quest Capital Corp. Mr. Bayley is currently a director and/or officer on numerous other public companies. None of the other companies Mr. Bayley is affiliated with are affiliates of ours.  Mr. Bayley
is a Director of TransAtlantic Petroleum (USA) Corp., which provided financing to our company in March 2003 and purchased Debentures in October 2003.

39

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John K. Campbell:Mr. Campbell has been a Director of our company since April 2000 and was President of Gothic from April 2000 to July 2001. Mr. Campbell has been the President and Director of TransAmerica Industries Ltd. since 1986.

In connection with our October 2003 Debenture financing and under the terms of the transaction, two persons were designated to serve as Directors of our company. At present, both of such Director positions are vacant and the holders of the
Debentures have not designated any persons to fill the vacancies.

Our Board of Directors has not adopted procedures by which security holders may recommend nominees to our Board of Directors.

Significant Employees:

Richard O. Mulford:Mr. Mulford has been Manager of Operations since June 2001. From April 1995 to November 1998, he was employed as Operations Manager of GEC and from November 1998 to January 2001 he was employed as Vice President of
Operations of GEC. He has been employed in the oil and natural gas industry since 1978.

Robert G. Snead:Mr. Snead has been our Exploitation Manager since June 2001 and served in the same position with GEC on a full-time consulting basis from April 1997 to January 2001. Between early 1994 and April 1997, he was employed as an
independent geologist and from 1985 to 1994 was the Senior Vice-President/ Exploration Manager of LOGO, Inc., an oil and natural gas well operating company.

Messrs. Paulk and Ensz, as the founders of American Natural Energy Corporation, may be deemed our founders.

Audit Committee and Audit Committee Financial Expert:

As of October 31, 2007, the members of our Audit Committee of our Board of Directors are Messrs. Bayley (Chairman), Campbell and Paulk. Messrs. Bayley and Campbell have been members of the Audit Committee since 2002 and Mr. Paulk was added
in December 2006. Our securities are not listed on any national securities exchange or listed on an automated inter-dealer quotation system.

Our Board of Directors has adopted an Audit Committee Charter. Our Audit Committee Charter, as adopted on April 22, 2004, was attached as Annex A to our Proxy Statement dated June 14, 2004. Under our Audit Committee Charter, our Audit
Committees responsibilities include, among other responsibilities, the appointment, compensation and oversight of the work performed by our independent auditor, the adoption and assurance of compliance with a pre-approval policy with respect
to services provided by the independent auditor, at least annually, obtain and review a report by our independent auditor as to relationships between the independent auditor and our company so as to assure the
independence of the independent auditor, review the annual audited and quarterly
financial statements with our management and the independent auditor, and
discuss with the independent auditor their required disclosure relating to the
conduct of the audit.

40

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Our Board of Directors has determined that we do not have an
Audit Committee Financial Expert serving on our Audit Committee. We do not have
an Audit Committee Financial Expert serving on our Audit Committee because at
this time the limited magnitude of our revenues and operations does not, in the
view of our Board of Directors, justify or require that we obtain the services
of a person having the attributes required to be an Audit Committee Financial
Expert on our Board of Directors and Audit Committee. The Board of Directors may
in the future determine that a member elected to the Board in the future has the
attributes to be determined to be an Audit Committee Financial Expert.

Code of Ethics:

We have adopted a Code of Ethics that applies to our principal
executive officer and principal financial and accounting officer. A copy of our
Code of Ethics was filed as an exhibit to our Annual Report on Form 10-K for the
year ended December 31, 2003.

No Director is a director of any other company with a class of
securities registered pursuant to Section 12 of the Securities Exchange Act of
1934 or subject to the requirements of Section 15(d) of that Act or any company
registered as an investment company under the Investment Company Act of 1940.

Compliance with Section 16(a) of the Exchange Act

Based solely on a review of Forms 3 and 4 and any amendments
thereto furnished to our company pursuant to Rule 16a-3(e) under the Securities
Exchange Act of 1934, or representations that no Forms 5 were required, we
believe that with respect to fiscal 2008, all Section 16(a) filing requirements
applicable to our officers, directors and beneficial owners of more than 10% of
our equity securities were timely complied with during the fiscal year ended
December 31, 2008.

Item 11 - Executive Compensation:

The following table sets forth the compensation of our
principal executive officer and all of our other executive officers for the two
fiscal years ended December 31, 2008 who received total compensation exceeding
$100,000 for the year ended December 31, 2008 and who served in such capacities
at December 31, 2008.

41

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SUMMARY COMPENSATION TABLEAnnual Compensation

|Name      |  | Year |  |  | Salary |  |  | Bonus |  |  | Stock  |   |  | Option |   |  | Non-Equity     |  |  | Nonqualified |  |  | All Other    |  |  | Total | 
|--------- |  | ---- |  |  | ------ |  |  | ----- |  |  | ------ | - |  | ------ | - |  | -------------- |  |  | ------------ |  |  | ------------ |  |  | ----- | 
|and       |  |      |  |  |        |  |  |       |  |  | Awards |   |  | Awards |   |  | Incentive Plan |  |  | Deferred     |  |  | Compensation |  |  |       | 
|Principal |  |      |  |  |        |  |  |       |  |  |        |   |  |        |   |  | Compensation   |  |  | Compensation |  |  |              |  |  |       | 
|Position  |  |      |  |  | ($)    |  |  | ($)   |  |  | ($)(1  | ) |  | ($)(1  | ) |  | ($)            |  |  | Earnings     |  |  | ($)          |  |  | ($)   | 
|          |  |      |  |  |        |  |  |       |  |  |        |   |  |        |   |  |                |  |  | ($)          |  |  |              |  |  |       | 
|(a)       |  | (b)  |  |  | (c)    |  |  | (d)   |  |  | (e)    |   |  | (f)    |   |  | (g)            |  |  | (h)          |  |  | (i)          |  |  | (j)   | 

|Michael   |  | 2008 |  | $ | 150,000 |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  | $ | 150,000 | 
|--------- |  | ---- |  | - | ------- |  |  | --- |  |  | --- |  |  | --- |  |  | --- |  |  | --- |  |  | --- |  | - | ------- | 
|K. Paulk, |  | 2007 |  | $ | 150,000 |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  | $ | 150,000 | 
|President |  |      |  |   |         |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |   |         | 
|and       |  |      |  |   |         |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |   |         | 
|CEO(2)    |  |      |  |   |         |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |   |         | 
|Steven P. |  | 2008 |  | $ | 150,000 |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  | $ | 150,000 | 
|Ensz      |  | 2007 |  | $ | 150,000 |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  |  | -0- |  | $ | 150,000 | 
|Executive |  |      |  |   |         |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |   |         | 
|Vice      |  |      |  |   |         |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |   |         | 
|President |  |      |  |   |         |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |   |         | 
|and       |  |      |  |   |         |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |   |         | 
|CFO(2)    |  |      |  |   |         |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |  |     |  |   |         | 

|(1) | Represents the dollar amount recognized for financial
      statement reporting purposes with respect to the fiscal year in accordance
      with FAS 123R. See Note 1 to Notes to Financial Statements for the year
      ended December 31, 2006.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                    
|(2) | Messrs. Paulk and Ensz are also Directors of our company;
      however they receive no additional compensation for serving in those
      capacities.                                                                                             

We do not have any employment contracts with any of our
executive officers or other significant employees.

Outstanding Equity Awards atDecember 31, 2008.

The following table provides information with respect to our
named executive officers above regarding outstanding equity awards held at
December 31, 2008.

|                 | Option Awards                                                                                        |                                                                                                                | Stock Awards                       
|---------------- | ---------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------------------------------- | -----------------------------------
|Name (a)         | Number of securities underlying
      unexercised Options (#) Exercisable/ Unexercisable
      (b-c) | Equity Incentive Plan Awards: Number
      of Securities Underlying Unexercised Unearned Options
      (#) (d) | Option Exercise Price ($)
      (e)
|                 |                                                                                                      |                                                                                                                |                                    
|Michael K. Paulk | 250,000                                                                                              | -0-                                                                                                            | 0.45                               
|Steven P. Ensz   | 250,000                                                                                              | -0-                                                                                                            | 0.45                               

Director Compensation

The following table provides information with respect to
compensation of our Directors during the year ended December 31, 2008. The
compensation paid to our named executive officers who are also Directors is
reflected in the Summary Compensation Table above.

42

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|Name | Fees | Stock | Option | Non-Equity | Non- | All
      Other | Total
|---- | ---- | ----- | ------ | ---------- | ---- | --------------- | -----

|                 |  | earned  |  |  | Awards |  |  | Awards |  |  | Incentive Plan |  |  | Qualified    |  |  | Compensation |  |  |     | 
|---------------- |  | ------- |  |  | ------ |  |  | ------ |  |  | -------------- |  |  | ------------ |  |  | ------------ |  |  | --- | 
|                 |  | or paid |  |  |        |  |  |        |  |  | Compensation   |  |  | Deferred     |  |  |              |  |  |     | 
|                 |  | in cash |  |  | ($)(1) |  |  | ($)(1) |  |  | ($)            |  |  | Compensation |  |  | ($)          |  |  | ($) | 
|                 |  | ($)     |  |  |        |  |  |        |  |  |                |  |  | Earnings     |  |  |              |  |  |     | 
|                 |  |         |  |  |        |  |  |        |  |  |                |  |  |              |  |  |              |  |  |     | 
|(a)              |  | (b)     |  |  | (c)    |  |  | (d)    |  |  | (e)            |  |  | (f)          |  |  | (g)          |  |  | (h) | 
|                 |  |         |  |  |        |  |  |        |  |  |                |  |  |              |  |  |              |  |  |     | 
|Brian E. Bayley  |  | -0-     |  |  | -0-    |  |  | -0-    |  |  | -0-            |  |  | -0-          |  |  | -0-          |  |  | -0- | 
|John K. Campbell |  | -0-     |  |  | -0-    |  |  | -0-    |  |  | -0-            |  |  | -0-          |  |  | -0-          |  |  | -0- | 

________________
(1) Represents the dollar amount recognized for financial
statement reporting purposes with respect to the fiscal year in accordance with
FAS 123R. See Note 1 to Notes to Financial Statements for the year ended
December 31, 2008.

Our Directors do not receive any
cash compensation for serving in that capacity; however, they are reimbursed for
their out-of-pocket expenses in attending meetings. Pursuant to the terms of our
2001 Stock Incentive Plan, each non-employee Director who is first elected or
appointed after February 1, 2002 automatically receives an option grant for
50,000 shares on the date such person joins the Board. In addition, on the date
of each annual stockholder meeting, provided such person has served as a
non-employee Director for at least six months, each non-employee Board member
who is to continue to serve as a non-employee Board member will automatically be
granted an option to purchase 5,000 shares. Each such option has a term of ten
years, subject to earlier termination following such person's cessation of Board
service, and is subject to certain vesting provisions.

Item 12 - Security Ownership of Certain Beneficial Owners
and Management and Related Stockholder Matters:

The following table sets forth certain information regarding
beneficial ownership of our common stock as of April 27, 2009 (a) by each person
who is known by us to own beneficially more than five percent (5%) of our common
shares, (b) by each of our Directors and officers, and (c) by all Directors and
officers as a group. As of April 27, 2009, we had 54,057,673 common shares
outstanding.

Percentage ofNumber of Shares
    
    
    OutstandingName and Address (1)(2)
    
    Owned
    
    
    Shares(3
    )Michael K. Paulk
    
    2,398,875
    (4)
    
    4.4%Steven P. Ensz
    
    3,398,313
    (5)
    
    6.3%Brian E. Bayley
    
    1,645,625
    (6)
    
    3.0%Suite 300 - 570 Granville StreetVancouver, BC V6C 3P1John K. Campbell
    
    65,528
    
    
    0.1%750 West Pender Street - Suite 710Vancouver, BC V6C 2T7TransAtlantic Petroleum Corp(7)
    
    2,237,136
    (8)
    
    4.1%
    (9)1550, 340 - 12thAvenue, SWCalgary, Alberta T2R 1L5


43

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Percentage ofNumber of Shares
    
    
    OutstandingName and
      Address (1)(2)
    
    Owned
    
    
    Shares(3
    )All Directors and officers as a group (4 persons)
    
    7,508,341
    
    
    13.9%


|(1) | This tabular information is intended to conform with Rule
      13d-3 promulgated under the Securities Exchange Act of 1934 relating to
      the determination of beneficial ownership of securities. The tabular
      information gives effect to the exercise of warrants or options
      exercisable within 60 days of the date of this table owned in each case by
      the person or group whose percentage ownership is set forth opposite the
      respective percentage and is based on the assumption that no other person
      or group exercise their option.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(2) | Unless otherwise indicated, the address for each of the
      above is c/o American Natural Energy Corporation, 6100 South Yale, Suite
      300, Tulsa, Oklahoma 74136.                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(3) | The percentage of outstanding shares calculation is based
      upon 54,057,673 shares outstanding as of April 27, 2009, except as
      otherwise noted.                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(4) | Includes 250,000 shares issuable at an exercise price of
      $0.45 on exercise of an option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(5) | Includes 250,000 shares issuable at an exercise price of
      $0.45 on exercise of an option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(6) | Excludes 60,000 shares held by Mr. Bayleys wife and
      50,000 shares held by a trust for the benefit of Mr. Bayleys minor
      children, as to all of which Mr. Bayley disclaims a beneficial
      interest.                                                                                                                                                                                                                                                                                                                                                           
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(7) | TransAtlantic is a corporation whose shares are publicly
      traded on the Toronto Stock Exchange under the symbol TNP.U. Its Directors
      are Michael Winn, Brian Bayley, Scott Larsen and Alan C. Moon.                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(8) | Includes 2,237,136 shares held by TransAtlantic. Mr.
      Bayley, one of our Directors, is also a Director of TransAtlantic and also
      disclaims a beneficial interest in the Debentures and shares.                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|(9) | The percentage of outstanding shares calculation is based
      upon 54,057,673 shares outstanding as of April 27,
2009.                                                                                                                                                                                                                                                                                                                                                                                                                                                      

Dune Energy Debenture Holdings

Dune Energy holds, as of
December 31, 2008, $7,895,000 principal amount of our 8% Convertible
Subordinated Debentures which are secured by substantially all of our assets.
The principal of the Debentures was due and payable on September 30, 2006 and is
currently in default. In a Schedule 13D filing by Dune Energy with the U.S.
Securities and Exchange Commission, Dune Energy stated, Given Dune Energys
past investment in this joint development project, coupled with the potential
for substantial oil and gas within the area of mutual interest, Dune Energy has
determined that it is in its best interests to acquire the Purchased Debentures
and the corresponding security interest in the Lease. Dune Energy further
disclosed in the Schedule 13D that, except for the foregoing, neither it nor
any control person of it has any plan or proposal which relates to or which
would have the effect of any acquisition of additional, or disposition of any,
securities of ours, does not have any plan or proposal which relates to or would
result in an extraordinary transaction involving us, does not have any plan or
proposal which relates to or would result in a sale or transfer of a material
amount of our assets, does not have any plan or proposal which relates to or
would result in any change in our present board of directors or management,
including any plans or proposals to change the number or term of directors or to
fill any existing vacancies on the board, does not have any plan or proposal
which relates to or would result in a material change in our present
capitalization or dividend policy. Dune Energy further disclosed that it does
not have any plan or proposal which relates to or would result in a material
change in our business or corporate structure, does not have any plan or
proposal which relates to or would result in a change in our charter, by-laws or
instruments corresponding thereto which may impede the acquisition of us by any
person, does not have any plan or proposal which relates to or would result in
causing a class of our securities to be de-listed from a national securities
exchange or to cease to be authorized to be quoted in an inter-dealer quotation
system of a registered national securities association, and does not have any
plan or proposal which relates to or would result in a class of our equity
securities becoming eligible for termination or registration pursuant to Section
12(g)(4) of the Securities Exchange Act of 1934, as amended.

44

---

Securities Authorized for Issuance Under Equity Compensation
Plans

We have one equity compensation plan for our employees,
Directors and consultants pursuant to which options, rights or shares may be
granted or issued. It is referred to as our 2001 Stock Incentive Plan. See Note
8 to the Notes to Financial Statements for further information on the material
terms of this plan.

The following table provides information as of December 31,
2008 with respect to our compensation plans (including individual compensation
arrangements), under which securities are authorized for issuance aggregated as
to (i) compensation plans previously approved by stockholders, and (ii)
compensation plans not previously approved by stockholders:

|Equity Compensation Plan Information                         | 
|------------------------------------------------------------ | 
|Plan Category                                                | 
|Equity compensation plans approved by
      security holders | 
|Equity compensation plans not approved by security holders   | 
|Total                                                        | 

Item 13 - Certain Relationships and Related Transactions
and Director Independence:

On May 4, 2006, we entered into a
note payable with Mr. Mike Paulk, an officer of our company, in the amount of
$198,000. During 2006 an additional $10,000 was loaned to us while $12,000 was
repaid. During 2008 an additional $67,000 was loaned to us while $70,000 was
repaid. The balance of the loan at December 31, 2008 was $193,000. Interest
accrues at the rate of 10% per annum. Note payable was due May 31, 2007, after
that date is due on demand.

We paid Mr. Paulk $17,505 in interest in 2008 on the loans
provided to us.

45

---

Item 14. Principal Accountant Fees and Services

The following sets forth fees we
incurred for services provided by Malone & Bailey, PC for the years ended
December 31, 2008, and 2007, our independent registered public accountants at
those year ends.

|     |   | Audit Fees |  |  | Audit Related Fees |  |   | Tax Fees | 
|---- | - | ---------- |  |  | ------------------ |  | - | -------- | 
|     |   |            |  |  |                    |  |   |          | 
|2008 | $ | 109,000    |  |  | --                 |  |   | -        | 
|2007 | $ | 46,000     |  |  | --                 |  | $ | 26,000   | 

Our Board of Directors believes
that the provision of the services during the years ended December 31, 2008 and
December 31, 2007 is compatible with maintaining the independence of Malone
& Bailey, PC. Our Audit Committee approves before the engagement the
rendering of all audit and non-audit services provided to our company by our
independent auditor. Engagements to render services are not entered into
pursuant to any pre-approval policies and procedures adopted by the Audit
Committee. The services provided by Malone & Bailey, PC included under the
caption Audit Fees include services rendered for the audit of our annual
financial statements, the review of our quarterly financial reports, the
issuance of consents, and assistance with review of documents filed with the
Securities and Exchange Commission. Tax fees include services rendered by
PricewaterhouseCoopers LLP related to Canadian tax matters.

Item 15  Exhibits and Financial Statement
Schedules:

|Exhibit | Description                                                                                                                                                                                                                                                                      
|------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|2.0     | Second Amended Joint Plan of Reorganization Proposed by
      Couba Operating Company, American Natural Energy Corporation and Gothic
      Resources Inc. filed in the United States Bankruptcy Court, Western
      District of Oklahoma. Case No. 00-11837-W (Chapter
  11)(4)
|        |                                                                                                                                                                                                                                                                                  
|2.1     | Order Confirming Plan, filed November 16, 2001 with U.S.
      Bankruptcy Court, Western District of Oklahoma(1)                                                                                                                                                                 
|        |                                                                                                                                                                                                                                                                                  
|3.1     | Certificate of Incorporation of American Natural Energy
      Corporation(1)                                                                                                                                                                                                     
|        |                                                                                                                                                                                                                                                                                  
|3.2     | Certificate of Amendment filed March 23,
      2001(1)                                                                                                                                                                                                                           
|        |                                                                                                                                                                                                                                                                                  
|3.3     | Certificate of Amendment filed December 20,
      2001(1)                                                                                                                                                                                                                        
|        |                                                                                                                                                                                                                                                                                  
|3.4     | Amended Certificate of Incorporation filed June 30,
      2005.(5)                                                                                                                                                                                                               
|        |                                                                                                                                                                                                                                                                                  
|3.4     | By-laws, as amended through September 13,
      2004(5)                                                                                                                                                                                                                          

46

---

|        |                                                                                                                                                                               
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit | Description                                                                                                                                                                   
|10.1    | 2001 Stock Incentive Plan(1)                                                                                                                                                  
|        |                                                                                                                                                                               
|10.2    | Leasehold Acquisition and Development Agreement with The
      Wiser Oil Company(1)                                                                                           
|        |                                                                                                                                                                               
|10.3    | Assignment of Oil, Gas and Mineral Lease dated as of
      February 18, 2002 relating to State Lease Number
    17353.(1)                                                     
|        |                                                                                                                                                                               
|10.4    | Purchase and Exploration Agreement dated March 10, 2003
      between the Registrant and TransAtlantic Petroleum (USA)
      Corp.(4)                                         
|        |                                                                                                                                                                               
|10.5.1  | Form of Subscription Agreement to purchase the
      Registrants 8% Convertible Secured Debenture due September 30,
      2005.(2)                                           
|        |                                                                                                                                                                               
|10.5.2  | Trust Indenture dated as of October 8, 2003 between the
      Registrant and Computershare Trust Company of
  Canada(2)                                                       
|        |                                                                                                                                                                               
|10.5.3  | Trust Indenture (Amended and Restated as of June 29,
      2005) between the Registrant and Computershare Trust Company of
      Canada.(6)                                   
|        |                                                                                                                                                                               
|10.6.1  | Development Agreement dated November 22, 2002 between the
      Registrant and ExxonMobil Corporation(3)                                                                      
|        |                                                                                                                                                                               
|10.6.2  | Amendment dated December 19, 2003 to Development
      Agreement dated November 22, 2002 between the Registrant and ExxonMobil
      Corporation(3)                           
|        |                                                                                                                                                                               
|10.7    | Letter Agreement between the Registrant and Dune Energy,
      Inc.(7)                                                                                                        
|        |                                                                                                                                                                               
|10.7.1  | Consent accepted September 12, 2005 received from
      ExxonMobil Production Corporation pertaining to Letter Agreement between
      the Registrant and Dune Energy, Inc.(7)
|        |                                                                                                                                                                               
|10.7.2  | Exploration and Development Agreement between the
      Registrant and Dune Energy, Inc.(8)                                                                                   
|        |                                                                                                                                                                               
|10.8    | Participation Agreement dated March 8, 2006 between the
      Registrant and Seismic Exchange, Inc.(9)                                                                        
|        |                                                                                                                                                                               
|14.1    | Code of Ethics(4)                                                                                                                                                             
|        |                                                                                                                                                                               
|21.0    | Subsidiaries of the Registrant as of December 31,
      2005:                                                                                                                 
|        |                                                                                                                                                                               
|        | Name                                                                                                                                                                          
|        | Gothic Resources, Inc.                                                                                                                                                        
|        | Couba Operating Company                                                                                                                                                       
|        |                                                                                                                                                                               
|31.1    | Certification of President and Chief Executive Officer
      Pursuant to Rule 13a- 14(a)(10)                                                                                  
|        |                                                                                                                                                                               
|31.2    | Certification of Chief Financial Officer Pursuant to Rule
      13a-14(a)(10)                                                                                                 
|        |                                                                                                                                                                               
|32.1    | Certification of President and Chief Executive Officer
      Pursuant to Section 1350 (furnished, not filed)(10)                                                              

47

---



|Exhibit | Description                                                                                       
|------- | --------------------------------------------------------------------------------------------------
|        |                                                                                                   
|32.2    | Certification of Chief Financial Officer Pursuant to
      Section 1350 (furnished, not
filed)(10)

__________________________
(1)

(2) Filed
as an Exhibit to the Registrants Quarterly Report on Form 10-QSB for the
quarter ended September 30, 2003. (File No. 0-18956).

(3) Filed
with Amendment No. 1 to Registration Statement on Form SB-2 filed February 6,
2004 (File No. 333-111244).

(4) Filed
with the Registrants Annual Report on Form 10-KSB for the year ended December
31, 2003.

(5)Filed
as an Exhibit to the Registrants Quarterly Report on Form 10-QSB for the
quarterly period ended June 30, 2005.

(6) Filed
as an Exhibit to the Registrants Current Report on Form 8-K for June 29, 2005.

(7)Filed
as an Exhibit to the Registrants Quarterly Report on Form 10-QSB for the
quarterly period ended September 30, 2005.

(8) Filed
as an Exhibit to the Registrants Current Report on Form 8-K for October 19,
2005.

(9) Filed
as an Exhibit to the Registrants Current Report on Form 8-K for March 8, 2006.

(10) Filed
with this Annual Report on Form 10-KSB for the year ended December 31, 2005.



48

---

American Natural Energy
Corporation

Consolidated Financial StatementsDecember 31, 2008 and 2007

F-1

---

Report of Independent Registered Public Accounting
Firm

To the Board of Directors and Stockholders of American Natural
Energy Corporation Tulsa, Oklahoma

We have audited the accompanying consolidated balance sheets of
American Natural Energy Corporation (the Company) as of December 31, 2008 and
2007 and the related consolidated statements of operations and other
comprehensive income, stockholders deficit, and cash flows for the years
then ended. These consolidated financial statements are the
responsibility of the Companys management. Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audit included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for purposes of
expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated financial
position of American Natural Energy Corporation at December 31, 2008 and 2007,
and the consolidated results of its operations and its cash flows for the years
then ended, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been
prepared assuming that the Company will continue as a going concern. As
described in Note 2 of the consolidated financial statements, the Company has
incurred substantial losses during 2008 and 2007, has a working capital
deficiency and an accumulated deficit at December 31, 2008 and is in default
with respect to certain debenture obligations. These matters raise substantial
doubt about the Companys ability to continue as a going concern. Managements
plan in regard to these matters is also described in Note 2 to the consolidated
financial statements. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

/s/ Malone & Bailey, PC Houston, Texas www.malone-bailey.com April 27, 2009

F-2

---

AMERICAN NATURAL ENERGY CORPORATION 
Consolidated Balance Sheets

|                                                                                                                                                                                               |  | December 31, |   |  | December 31, |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - |  | ------------ | -
|                                                                                                                                                                                               |  | 2008         |   |  | 2007         |  
|                                                                                                                                                                                               |  | **$**        |   |  | **$**        |  
|ASSETS                                                                                                                                                                                         |  |              |   |  |              |  
|Current assets:                                                                                                                                                                                |  |              |   |  |              |  
|Cash and cash
      equivalents                                                                                                                                                                |  | 56,162       |   |  | 136,856      |  
|Accounts receivable  joint interest billing, net of
      allowance for doubtful accounts of $7,154 and $26,195 respectively                                                                  |  | -            |   |  | 8,822        |  
|Accounts receivable 
      oil and gas sales                                                                                                                                                  |  | 18,761       |   |  | 48,794       |  
|Prepaid expenses and other                                                                                                                                                                     |  | 72,321       |   |  | 67,722       |  
|Oil inventory                                                                                                                                                                                  |  | 6,268        |   |  | 12,273       |  
|Total current assets                                                                                                                                                                           |  | 153,512      |   |  | 274,467      |  
|Proved oil and gas properties using the
      full cost method, net of accumulated depletion, depreciation, 
    amortization
      and impairment of $20,396,736 and $20,087,252 respectively |  | 2,820,011    |   |  | 2,819,355    |  
|Unproved oil and gas properties                                                                                                                                                                |  | 104,379      |   |  | 9,095        |  
|Equipment and other fixed assets, net of
      accumulated depreciation of $963,290 and $764,931 respectively                                                                                  |  | 214,941      |   |  | 523,551      |  
|                                                                                                                                                                                               |  |              |   |  |              |  
|Total assets                                                                                                                                                                                   |  | 3,292,843    |   |  | 3,626,468    |  
|                                                                                                                                                                                               |  |              |   |  |              |  
|                                                                                                                                                                                               |  |              |   |  |              |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                          |  |              |   |  |              |  
|Current liabilities:                                                                                                                                                                           |  |              |   |  |              |  
|Accounts payable and accrued
      liabilities                                                                                                                                                 |  | 3,190,328    |   |  | 2,066,376    |  
|Revenues payable                                                                                                                                                                               |  | 3,347,371    |   |  | 3,347,371    |  
|Accrued interest                                                                                                                                                                               |  | 2,399,233    |   |  | 1,533,229    |  
|Insurance note payable                                                                                                                                                                         |  | 16,746       |   |  | 17,700       |  
|Notes payable (Note 7)                                                                                                                                                                         |  | 99,717       |   |  | 75,217       |  
|Note payable  related
      party (Note 10)                                                                                                                                                   |  | 192,851      |   |  | 195,850      |  
|Taxes due on dissolution of subsidiary
      (Note 9)                                                                                                                                          |  | 140,252      |   |  | 190,252      |  
|Convertible secured
      debentures (Note 7)                                                                                                                                                  |  | 10,825,000   |   |  | 10,825,000   |  
|Other current liabilities                                                                                                                                                                      |  | 202,691      |   |  | 113,785      |  
|Total current liabilities                                                                                                                                                                      |  | 20,414,189   |   |  | 18,364,780   |  
|Asset retirement obligation (Note 6)                                                                                                                                                           |  | 1,951,041    |   |  | 1,753,110    |  
|                                                                                                                                                                                               |  |              |   |  |              |  
|Total liabilities                                                                                                                                                                              |  | 22,365,230   |   |  | 20,117,890   |  
|Commitments and contingencies (Notes 9 and
      12)                                                                                                                                           |  |              |   |  |              |  
|Stockholders deficit:                                                                                                                                                                         |  |              |   |  |              |  
|Common stock                                                                                                                                                                                   |  |              |   |  |              |  
|Authorized  250,000,000 shares
      with par value of $0.001                                                                                                                                 |  |              |   |  |              |  
|Issued
      and outstanding  52,997,673 shares                                                                                                                                               |  | 52,997       |   |  | 52,997       |  
|Additional paid-in capital                                                                                                                                                                     |  | 20,321,226   |   |  | 20,321,226   |  
|Accumulated deficit, since January 1, 2002
      (in conjunction with the quasi-reorganization stated capital 
    was reduced
      by an accumulated deficit of $2,015,495)                  |  | (41,213,342  | ) |  | (41,151,844  | )
|Accumulated other comprehensive income                                                                                                                                                         |  | 1,766,732    |   |  | 4,286,199    |  
|Total stockholders deficit                                                                                                                                                                    |  | (19,072,387  | ) |  | (16,491,422  | )
|Total liabilities and stockholders deficit                                                                                                                                                    |  | 3,292,843    |   |  | 3,626,468    |  

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

F-3

---

AMERICAN NATURAL ENERGY CORPORATION
Consolidated Statements of Operations and Other Comprehensive Income

|                                                                         |  | December 31, 2008 |   |  | December 31, 2007 |  
|------------------------------------------------------------------------ |  | ----------------- | - |  | ----------------- | -
|                                                                         |  | **$**             |   |  | **$**             |  
|Revenues:                                                                |  |                   |   |  |                   |  
|Oil and gas sales                                                        |  | 2,197,546         |   |  | 1,219,461         |  
|Operations income                                                        |  | -                 |   |  | 132,104           |  
|Interest income and other income                                         |  | -                 |   |  | 1,324             |  
|                                                                         |  |                   |   |  |                   |  
|                                                                         |  | 2,197,546         |   |  | 1,352,889         |  
|                                                                         |  |                   |   |  |                   |  
|                                                                         |  |                   |   |  |                   |  
|Expenses:                                                                |  |                   |   |  |                   |  
|Lease operating expense                                                  |  | 1,630,603         |   |  | 470,730           |  
|Production taxes                                                         |  | 223,350           |   |  | 102,968           |  
|General and administrative                                               |  | 1,304,392         |   |  | 1,227,298         |  
|Foreign exchange (gain) loss                                             |  | (2,519,467        | ) |  | 1,976,389         |  
|Interest and bank charges                                                |  | 905,741           |   |  | 991,711           |  
|Related party interest                                                   |  | 17,505            |   |  | 21,885            |  
|Depreciation, depletion, and amortization - oil and gas
      properties |  | 311,156           |   |  | 277,319           |  
|Accretion of asset retirement obligation                                 |  | 197,931           |   |  | 164,445           |  
|Depreciation and amortization  other assets                             |  | 212,999           |   |  | 159,655           |  
|Gain on settlement of debt                                               |  | (46,165           | ) |  | (836,660          | )
|Write-down of inventory to market                                        |  | 13,845            |   |  | -                 |  
|Doubtful accounts expense                                                |  | 7,154             |   |  | 26,195            |  
|                                                                         |  |                   |   |  |                   |  
|Total expenses                                                           |  | 2,259,044         |   |  | 4,581,935         |  
|                                                                         |  |                   |   |  |                   |  
|Net loss                                                                 |  | (61,498           | ) |  | (3,229,046        | )
|                                                                         |  |                   |   |  |                   |  
|Other comprehensive income (loss) net of
      tax:                     |  |                   |   |  |                   |  
|Foreign exchange translation gain (loss)                                 |  | (2,519,467        | ) |  | 1,976,389         |  
|                                                                         |  |                   |   |  |                   |  
|Other comprehensive income (loss)                                        |  | (2,519,467        | ) |  | 1,976,389         |  
|                                                                         |  |                   |   |  |                   |  
|Comprehensive loss                                                       |  | (2,580,965        | ) |  | (1,252,657        | )
|                                                                         |  |                   |   |  |                   |  
|Net loss per share  basic and diluted                                   |  | 0.00              |   |  | (0.06             | )
|                                                                         |  |                   |   |  |                   |  
|Weighted average number of shares outstanding  basic and
      diluted  |  | 52,997,673        |   |  | 52,997,673        |  

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

F-4

---

AMERICAN NATURAL ENERGY CORPORATION
Consolidated Statements of Changes in Stockholders Deficit

|                                  |  |              |  |  |         |  |  |            |  |  |             |   |  | Accumu-    |   |  |             |  
|--------------------------------- |  | ------------ |  |  | ------- |  |  | ---------- |  |  | ----------- | - |  | ---------- | - |  | ----------- | -
|                                  |  |              |  |  |         |  |  |            |  |  |             |   |  | lated      |   |  |             |  
|                                  |  |              |  |  |         |  |  |            |  |  |             |   |  | Other      |   |  |             |  
|                                  |  |              |  |  |         |  |  |            |  |  |             |   |  | compre-    |   |  | Total       |  
|                                  |  |              |  |  |         |  |  | Additional |  |  | Accumu-     |   |  | hensive    |   |  | stock-      |  
|                                  |  | Common stock |  |  | paid-in |  |  | lated      |  |  | income      |   |  | holders   |  
|                                  |  | Shares       |  |  | Amount  |  |  | capital    |  |  | Deficit     |   |  |            |   |  | deficit     |  
|                                  |  |              |  |  |         |  |  |            |  |  |             |   |  |            |   |  |             |  
|                                  |  |              |  |  | **$**   |  |  | **$**      |  |  | **$**       |   |  | **$**      |   |  | **$**       |  
|                                  |  |              |  |  |         |  |  |            |  |  |             |   |  |            |   |  |             |  
|Balance - December 31, 2006       |  | 52,997,673   |  |  | 52,997  |  |  | 20,321,226 |  |  | (37,922,798 | ) |  | 2,309,810  |   |  | (15,238,765 | )
|Foreign exchange translation gain |  | -            |  |  | -       |  |  | -          |  |  | -           |   |  | 1,976,389  |   |  | 1,976,389   |  
|Net loss                          |  | -            |  |  | -       |  |  | -          |  |  | (3,229,046  | ) |  | -          |   |  | (3,229,046  | )
|                                  |  |              |  |  |         |  |  |            |  |  |             |   |  |            |   |  |             |  
|Balance - December 31, 2007       |  | 52,997,673   |  |  | 52,997  |  |  | 20,321,226 |  |  | (41,151,844 | ) |  | 4,286,199  |   |  | (16,491,422 | )
|                                  |  |              |  |  |         |  |  |            |  |  |             |   |  |            |   |  |             |  
|Foreign exchange translation loss |  | -            |  |  | -       |  |  | -          |  |  | -           |   |  | (2,519,467 | ) |  | (2,519,467  | )
|Net loss                          |  | -            |  |  | -       |  |  | -          |  |  | (61,498     | ) |  | -          |   |  | (61,498     | )
|                                  |  |              |  |  |         |  |  |            |  |  |             |   |  |            |   |  |             |  
|Balance - December 31, 2008       |  | 52,997,673   |  |  | 52,997  |  |  | 20,321,226 |  |  | (41,213,342 | ) |  | 1,766,732  |   |  | (19,072,387 | )

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

F-5

---

AMERICAN NATURAL ENERGY CORPORATION 
Consolidated Statements of Cash Flows

|                                                           |  | December 31, 2008 |   |  | December 31, 2007 |  
|---------------------------------------------------------- |  | ----------------- | - |  | ----------------- | -
|                                                           |  | **$**             |   |  | **$**             |  
|Cash flows from operating activities:                      |  |                   |   |  |                   |  
|Net loss                                                   |  | (61,498           | ) |  | (3,229,046        | )
|Non cash items:                                            |  |                   |   |  |                   |  
|Depreciation, depletion
      and amortization             |  | 524,155           |   |  | 436,974           |  
|Accretion
      of asset retirement obligation             |  | 197,931           |   |  | 164,445           |  
|Foreign exchange (gain)
      loss                         |  | (2,519,467        | ) |  | 1,976,389         |  
|Gain on
      settlement of notes payable                  |  | (46,165           | ) |  | (836,660          | )
|Write-down of inventory
      to market                    |  | 13,845            |   |  | -                 |  
|Doubtful
      accounts expense                            |  | 7,154             |   |  | 26,195            |  
|Changes in non-cash working capital items:                 |  |                   |   |  |                   |  
|Accounts
      receivable                                  |  | 5,353             |   |  | 632,840           |  
|Oil inventory                                              |  | (7,840            | ) |  | (2,950            | )
|Prepaid
      expenses                                     |  | 21,890            |   |  | 28,246            |  
|Accounts payable, revenues payable and accrued liabilities |  | 2,158,641         |   |  | (1,014,434        | )
|                                                           |  |                   |   |  |                   |  
|Net cash provided by (used) in operating activities        |  | 293,999           |   |  | (1,818,001        | )
|                                                           |  |                   |   |  |                   |  
|Cash flows from investing activities:                      |  |                   |   |  |                   |  
|Purchase and development of oil and gas
      properties   |  | (386,424          | ) |  | (310,462          | )
|Purchase of equipment and other fixed assets               |  | -                 |   |  | (252,702          | )
|Proceeds from sale of fixed
      assets                   |  | 12,000            |   |  | 21,500            |  
|Proceeds from sale of participation rights                 |  | -                 |   |  | 2,946,418         |  
|                                                           |  |                   |   |  |                   |  
|Net cash provided by (used) in investing activities        |  | (374,424          | ) |  | 1,404,754         |  
|                                                           |  |                   |   |  |                   |  
|Cash flows from financing activities:                      |  |                   |   |  |                   |  
|Issuance of notes payable                                  |  | 91,500            |   |  | -                 |  
|Payments of notes payable                                  |  | (91,769           | ) |  | (443,660          | )
|Change in bank overdrafts
      outstanding                |  | -                 |   |  | (6,728            | )
|                                                           |  |                   |   |  |                   |  
|Net cash used in financing activities                      |  | (269              | ) |  | (450,388          | )
|                                                           |  |                   |   |  |                   |  
|Effect of exchange rate changes on cash                    |  | -                 |   |  | -                 |  
|                                                           |  |                   |   |  |                   |  
|Increase (decrease) in cash and cash
      equivalents     |  | (80,694           | ) |  | 136,365           |  
|                                                           |  |                   |   |  |                   |  
|Cash and cash equivalents beginning of
      period        |  | 136,856           |   |  | 491               |  
|                                                           |  |                   |   |  |                   |  
|Cash and cash equivalents end of period                    |  | 56,162            |   |  | 136,856           |  

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

F-6

---

AMERICAN NATURAL ENERGY CORPORATION Consolidated
Statements of Cash Flows (continued)

|                                                                                                       |  | December 31, 2008 |  |  | December 31, 2007 |  
|------------------------------------------------------------------------------------------------------ |  | ----------------- |  |  | ----------------- | -
|                                                                                                       |  | **$**             |  |  | **$**             |  
|Supplemental disclosures:                                                                              |  |                   |  |  |                   |  
|                                                                                                       |  |                   |  |  |                   |  
|Interest paid                                                                                          |  | 18,494            |  |  | 117,078           |  
|                                                                                                       |  |                   |  |  |                   |  
|Non cash financing and investing
      activities:                                                     |  |                   |  |  |                   |  
|Prepaid expenses financed                                                                              |  | 20,815            |  |  | 21,988            |  
|Change in accounts payable resulting from
      direct payment of obligation by third party            |  | -                 |  |  | 553,581           |  
|Change in accounts payable resulting from the purchase and
      development of oil and gas properties |  | -                 |  |  | (1,055,632        | )
|ARO Liability-changes in estimates                                                                     |  | -                 |  |  | 151,870           |  

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

F-7

---

American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

1     Basis of presentation and summary of
significant accounting policies

Description of company

American Natural Energy Corporation (ANEC) is an oil and
natural gas exploration and production company engaged in the acquisition,
exploration and development of oil and natural gas properties for the production
of crude oil and natural gas. Our properties are located in Louisiana.

ANEC, an Oklahoma corporation, was formed by amalgamation on
July 9, 1991 under the Company Act (British Columbia) and was continued
under the Canada Business Corporations Act on August 1, 1991. On January 22,
2002, Gothic Resources Inc. (Gothic) completed a plan of arrangement under
Section 192 of the Canada Business Corporations Act with ANEC which was
at the time a wholly-owned subsidiary of Gothic, whereby all of the shareholders
of Gothic exchanged their common shares in the capital of Gothic for common
shares in the capital of ANEC, Gothic became a wholly owned subsidiary of ANEC
and the former shareholders of Gothic became shareholders of ANEC. The plan of
arrangement became effective February 8, 2002. The shares of Gothic are no
longer listed on the Toronto Venture Exchange, Inc. and in their place, the
shares of ANEC are listed on that exchange, quoted and traded in U.S. dollars
under the symbol ANR.U. Also on that date, the shareholders approved the
reduction of the stated capital of Gothic by the amount of the accumulated
deficit of $2,015,495. This transaction has been accounted for as a
quasi-reorganization. Gothic may be deemed a predecessor of the Company.

Consolidation

The financial statements include the accounts of ANEC and its
wholly-owned subsidiary Gothic (the Company). All significant intercompany
accounts and transactions are eliminated in consolidation.

The consolidated financial statements contained herein have
been prepared in accordance with accounting principles generally accepted in the
United States of America, which differ in certain respects from accounting
principles generally accepted in Canada.

Cash and cash equivalents

Cash and cash equivalents consist of short-term, highly liquid
investments with maturities of 90 days or less at time of acquisition. Cash and
cash equivalents are deposited with two institutions and the balance at either
institution does not exceed the federally insured limits at December 31, 2008.
While balances may periodically exceed the federal depository insurance limit,
the Company has not experienced any losses on deposits.

Oil and natural gas properties

The Company follows the full cost method of accounting for oil
and natural gas properties. The Company defers the costs of exploring for and
developing oil and natural gas reserves until such time as proved reserves are
attributed to the properties. At that time, the deferred costs are amortized on a unit-of-production basis. Such costs
include land acquisition costs, geological and geophysical costs, costs of
drilling wells, asset retirement costs, interest costs on major development
projects and overhead charges directly related to acquisition, exploration and
development activities.

F-8

---

American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

The capitalized costs are assessed quarterly to determine
whether it is likely such costs will be recovered in the future. To the extent
there are costs which are unlikely to be recovered in the future, they are
written off as an impairment to the carrying value of oil and gas properties.
There was no impairment recorded in 2008 or 2007.

In certain instances, the Company may capitalize interest on
the cost of unevaluated oil and natural gas properties excluded from
amortization, based on the Company's weighted average cost of borrowings used to
finance the expenditures. For the years ended December 31, 2008 and 2007, the
Company did not capitalize any interest to its unevaluated properties.

Unevaluated oil and natural gas properties are reviewed on an
annual basis for impairment.

Proceeds from the sale of properties are accounted for as
reductions of capitalized costs unless such sales involve a significant change
in the relationship between costs and the value of proved reserves or the
underlying value of unproved properties, in which case a gain or loss is
recognized.

The Company is in the process of exploring its unproved oil and
natural gas properties and has not yet determined whether these properties
contain reserves that are economically recoverable. The recoverability of
amounts shown for oil and natural gas properties is dependent upon the discovery
of economically recoverable reserves, confirmation of the Companys interest in
the underlying oil and gas leases, the ability of the Company to obtain
necessary financing to complete their exploration and development and future
profitable production or sufficient proceeds from the disposition thereof. The
Company is, therefore, unable to estimate when these costs will be included in
the amortization computation.

Equipment and other fixed assets

Equipment and other fixed assets are stated at cost less
accumulated depreciation. Depreciation expense is determined using a
straight-line method over the estimated useful lives of the assets. The ranges
of estimated useful lives for financial reporting are as follows:

|Computer equipment                    | 3 years   
|------------------------------------- | ----------
|Office furniture and equipment        | 5-7 years 
|Leasehold improvements                | 3 years   
|Barges and field equipment            | 5-10 years
|Gas gathering and production facility | 10 years  

When assets are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and any gain or
loss is reflected in income for the period. Maintenance and repairs are charged
to expense as incurred.

F- 9

---

American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

Foreign exchange and currency translation

The Company's functional and reporting currency is the U.S.
dollar. Transactions denominated in foreign currencies are translated into U.S.
dollars at exchange rates in effect on the date of the transactions. Exchange
gains or losses on transactions are included in earnings. For Gothic, whose
functional currency is the Canadian dollar, the results of operations are
translated from local currencies into U.S. dollars using average exchange rates
during each period; assets and liabilities are translated using exchange rates
at the end of each period. Adjustments resulting from the translation process
are reported in a separate component of other comprehensive income and are not
included in the determination of the results of operations.

Revenue recognition

Revenues from the sale of oil produced are recognized upon the
passage of title, net of royalties and net profits interests. Revenues from
natural gas production are recorded using the sales method, net of royalties and
net profits interests, which may result in more or less than the Company's share
of pro-rata production from certain wells. When natural gas sales volumes exceed
the Company's entitled share and the overproduced balance exceeds the Company's
share of the remaining estimated proved natural gas reserves for a given
property, the Company will record a liability. Imbalances at December 31, 2008
and 2007 were insignificant. The Company's policy is to expense the pro-rata
share of lease operating costs from all wells as incurred.

The Companys oil production is sold under market sensitive or
spot price contracts. Oil sales to Teppco Crude Oil, L.P. (Teppco) and Texon
L.P. of $2,186,106 and $1,199,893 in 2008 and 2007, respectively, accounted for
99% and 98% of total oil and gas sales. The Companys accounts receivable are
primarily due from exploration and production companies which own an interest in
the properties the Company operates and from purchasers of oil and natural gas.
The industry concentration has the potential to impact the Companys exposure to
credit risk because such companies may be similarly affected by changes in
economic and industry conditions.

Operations income represents charges billed to non-operator
working interest owners who own a working interest in the wells in which the
Company serves as operator. The income is recognized in the month in which oil
and gas is produced.

Asset retirement obligations

Effective January 1, 2003, the Company adopted Statement of
Financial Accounting Standards No. 143, Accounting for Asset Retirement
Obligations (SFAS 143). This statement applies to obligations associated
with the retirement of tangible long-lived assets that result from the
acquisition, construction and development of the assets. SFAS 143 requires that
the fair value of a liability for a retirement obligation be recognized in the
period in which the liability is incurred. For oil and gas properties, this is
the period in which an oil or gas well is acquired or drilled. The asset
retirement obligation is capitalized as part of the carrying amount of our oil and gas properties at its discounted fair value. The liability
is then accreted each period until the liability is settled or the well is sold,
at which time the liability is reversed.

F- 10

---

American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

Income taxes

The Company accounts for income taxes under Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes.Deferred tax assets and liabilities are determined based on the differences
between the tax bases of assets and liabilities and those reported in the
financial statements. The deferred tax assets or liabilities are calculated
using the enacted tax rates in effect for the year in which the differences are
expected to reverse. Deferred tax assets are recognized to the extent that they
are considered more likely than not to be realized. Income taxes and liabilities
are recognized for the expected future tax consequences of events that have been
included in the financia1 statements or income tax returns.

In July 2006, the FASB issued FASB Interpretation (FIN) No. 48,
Accounting for Uncertainty in Income Taxes--an Interpretation of FASB Statement
No. 109. FIN 48 provides guidance for recognizing and measuring uncertain tax
positions, as defined in SFAS 109, Accounting for Income Taxes. FIN 48
prescribes a threshold condition that a tax position must meet for any of the
benefit of the uncertain tax position to be recognized in the financial
statements. Guidance is also provided regarding de-recognition, classification
and disclosure of these uncertain tax positions. FIN 48 is effective for fiscal
years beginning after December 15, 2006. The adoption of FIN 48 did not have a
material impact on the Companys financial position, results of operations or
cash flows.

Use of estimates

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Significant areas requiring the use of estimates are assessing the
recoverability of capitalized oil and natural gas property costs, oil and gas
reserve estimates, asset retirement obligations and recoverability of deferred
tax assets. Actual results could differ from those estimates.

Earnings (loss) per share

Basic earnings (loss) per share are computed by dividing net
income or loss (the numerator) by the weighted average number of shares
outstanding during the period (the denominator). The computation of diluted
earnings per share is the same as for basic earnings per share except the
denominator is increased to include the weighted average additional number of
shares that would have been outstanding if previously granted stock options had
been exercised, unless they are anti-dilutive. Due to losses in 2008 and 2007,
options were excluded from the calculation of diluted earnings per share as they
were anti-di1utive.

F- 11

---

American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

Comprehensive income (loss)

The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to report net income (loss) as a component of comprehensive
income (loss) in the financial statements. Comprehensive income (loss) is
defined as the change in equity of a business enterprise arising from non-owner
sources. The Company had other comprehensive loss of $2,519,467 for the year
ended December 31, 2008 and other comprehensive income of $1,976,389 for the
year ended December 31, 2007 as a result of foreign exchange translation gains
and losses. As of December 31, 2008 and 2007, accumulated other comprehensive
income was comprised solely of foreign currency translation gains.

Stock-based compensation

There is no unrecognized compensation costs related to stock
options not yet vested as all stock options are vested at December 31, 2008.

There was no stock option activity for the years 2008 or 2007.
At December 31, 2008, there were 900,000 options outstanding and exercisable
with a weighted average exercise price of $0.45. The weighted average remaining
contractual term for these options at December 31, 2008 was .33 years. These
options had no intrinsic value at December 31, 2008.

New pronouncements

On December 31, 2008, the Securities and Exchange Commission
(SEC) issued the final rule, Modernization of Oil and Gas Reporting (Final
Rule). The Final Rule adopts revisions to the SECs oil and gas reporting
disclosure requirements and is effective for annual reports on Forms 10-K for
years ending on or after December 31, 2009. The revisions are intended to
provide investors with a more meaningful and comprehensive understanding of oil
and gas reserves to help investors evaluate their investments in oil and gas
companies. The amendments are also designed to modernize the oil and gas
disclosure requirements to align them with current practices and technological
advances. Revised requirements in the Final Rule include, but are not limited
to:

- Oil and gas reserves must be reported using a 12-month
average of the closing prices on the first day of each of such months, rather
than a single day year-end price:
- Companies will be allowed to report, on a voluntary basis,
probable and possible reserves, previously prohibited by SEC rules; and
- Easing the standard for the inclusion of proved undeveloped
reserves (PUDs) and requiring disclosure of information indicating any progress
toward the development of PUDs.

We are currently evaluating the potential impact of adopting
the Final Rule. The SEC is discussing the Final Rule with the FASB and IASB
staffs to align accounting standards with the Final Rule. These discussions may delay the required
compliance date. Absent any change in such date, we will begin complying with
the disclosure requirements in our annual report on Form 10-K for the year ended
December 31, 2009. Voluntary early compliance is not permitted.

F- 12

---

American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

In February 2007, the FASB issued SFAS 159, The Fair Value
Option for Financial Assets and Financial Liabilities Including an Amendment of
FASB Statement No. 115 (SFAS 159), which permits entities to choose to measure
many financial instruments and certain other items at fair value (Fair Value
Option). Election of the Fair Value Option is made on an
instrument-by-instrument basis and is irrevocable. At the adoption date,
unrealized gains and losses on financial assets and liabilities for which the
Fair Value Option has been elected would be reported as a cumulative adjustment
to beginning retained earnings. Following the election of the Fair Value Option
for certain financial assets and liabilities, the Company would report
unrealized gains and losses due to changes in fair value in earnings at each
subsequent reporting date. The Company adopted SFAS 159 effective January 1,
2008 which did not have a material impact on the Companys operating results,
financial position or cash flows as the Company did not elect the Fair Value
Option for any of its financial assets or liabilities.

In September 2006, the FASB issued SFAS 157, Fair Value
Measurements (SFAS 157), which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements.
This pronouncement applies to other standards that require or permit fair value
measurements. Accordingly, this statement does not require any new fair value
measurements. The Company adopted the provisions of SFAS 157 on January 1, 2008,
which did not have a material impact on the Companys financial statements.

Reclassification of Prior Period Statements

Certain reclassifications of prior period financial statements
balances have been made to conform to current reporting practices.

2     Going Concern

The Company has no current borrowing capacity with any lender.
The Company has sustained substantial losses in 2008 and 2007, totalling
approximately $61,000 and $3.2 million, respectively, has a working capital
deficiency and an accumulated deficit at December 31, 2008 and 2007, and is in
default of the payment terms of its 8% convertible secured debentures as further
discussed below, all of which leads to questions concerning the ability of the
Company to meet its obligations as they come due. The Company also has a need
for substantial funds to develop its oil and gas properties and repay borrowings
as well as to meet its other current liabilities.

The accompanying financial statements have been prepared on a
going concern basis which contemplates continuity of operations, realization of
assets and liquidation of liabilities in the ordinary course of business. As a
result of the losses incurred and current negative working capital, there is no
assurance that the carrying amounts of assets will be realized or that
liabilities will be liquidated or settled for the amounts recorded. The ability
of the Company to continue as a going concern is dependent upon adequate sources
of capital and the Companys ability to sustain positive results of operations and cash
flows sufficient to pay its current liabilities and to continue to explore for
and develop its oil and gas reserves. A reduction in planned capital spending or
an extended decline in oil and gas prices could result in less than anticipated
cash flow from operations and an inability to sell more of its common stock or
refinance its debt with current lenders or new lenders, which would likely have
a further material adverse effect on the Company.

F- 13

---

American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

Managements strategy is to obtain additional financing or
participation with industry partners. Certain covenants included in the 8%
convertible secured debentures limit the amount of additional indebtedness the
Company can incur to $2 million. The Debentures have not been repaid or
refinanced and are in default. It is managements intention to raise additional
debt or equity financing to either repay or refinance these debentures and to
fund its operations and capital expenditures. Failure to obtain additional
financing can be expected to adversely affect the Companys ability to pay its
obligations, further the development of its properties, including the ExxonMobil
Corp. area of mutual interest (the AMI), grow revenues, oil and gas reserves
and achieve and maintain a significant level of revenues, cash flows, and
profitability. There can be no assurance that the Company will obtain additional
financing at the time required, at rates that are favorable to the Company, or
at all. Further, any additional equity financing that is obtained may result in
material dilution to the current holders of common stock.

3     Joint Development Agreement

On November 25, 2002, the Company entered into a Joint
Development Agreement with ExxonMobil Corp. whereby the Company gave ExxonMobil
Corp. the right to participate in exploration and development on all lands it
has under lease in the Bayou Couba area, up to 50% of the total interest, and
the use of its 3D seismic covering those leases, in exchange for the rights to
exploration and development on certain lands and leases owned by ExxonMobil
Corp., up to 50% of the total interest. Each party will pay their respective
share of exploration and development costs. The original agreement was supposed
to terminate in 4 years and covered approximately 8,427 acres. On December 19,
2003, the Company entered into a letter agreement with ExxonMobil Corp. covering
a proposed expansion of the lands covered by the agreement and an extension of
the termination date of the agreement (the Expansion Agreement). The Expansion
Agreement added a total of 2,560 acres to the lands covered by the agreement and
extended the term by one year to November 2007.

On March 8, 2006, the Company agreed to participate in a 3D
seismic survey. Upon the completion of the survey and seismic interpretation,
ExxonMobil Corp. and the Company agreed to formally extend their Joint
Development Agreement by two years to November 2009.

Effective March 31, 2009 the ExxonMobil Joint Development
Agreement was terminated by the mutual consent of all parties.

4     Exploration and development agreement

On October 19, 2005 the Company executed the definitive
Exploration and Development Agreement (the Agreement) with Dune Energy, Inc.
(Dune Energy), providing for the creation of an area of mutual interest
covering an area of approximately 31,367 acres.

F- 14

---

American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

Pursuant to the terms of the Agreement, Dune Energy agreed to
pay to the Company a prospect fee in the amount of $1.0 million, of which
$225,000 was paid on September 14, 2005, $225,000 was paid on September 30,
2005, $225,000 was paid on October 19, 2005, $162,500 was paid on November 30,
2005 and $162,500 was paid on January 10, 2006. These amounts reduced the
Company's unproved oil and gas properties. In the event the Company and Dune
Energy elect to complete the first two exploratory wells drilled pursuant to the
Agreement, upon the receipt by Dune Energy of a log from either of those two
wells, Dune Energy agreed to pay to the Company an additional prospect fee of
$500,000. The terms of the Agreement were amended September 14, 2006 to waive
the additional prospect fee in exchange for Dune Energy paying 100% of the costs
of expanded 3D seismic survey over the Bayou Couba area discussed above.

The area of mutual interest created by the Agreement, in which
the Company and Dune Energy have agreed to share all rights, title and interest
owned or acquired on an equal basis, includes the Companys Bayou Couba lease
acreage of approximately 1,319 acres, the acreage covered by the Companys Joint
Development Agreement with ExxonMobil Corporation (ExxonMobil) of
approximately 11,486 acres, as well as any additional acreage offered to the
Company or Dune Energy by ExxonMobil as the result of the acquisition of
additional 3D seismic data by the parties under the terms of the Agreement. If
either party acquires any interests in lands included in the area of mutual
interest created by the Agreement, the acquiring party is required to notify the
non-acquiring party which will have the opportunity to participate in the
acquisition by paying its proportionate share of the price for such properties.
On June 26, 2007 Dune Energy increased its participation to 75% of the Companys
interest under these agreements, excluding the area under the Bayou Couba lease
itself where it retains a participation of 50% of the Companys interest, with
the payment of $3 million. On September 1, 2007 Dune Energy was elected
successor operator under the joint development agreement and Dune Energy paid
the Company an additional $500,000. These payments reduced the Companys
unproved oil and gas properties.

The Agreement provides that either party can propose drilling
prospects with the non-proposing party given the right to participate in the
drilling prospect and pay its proportionate share of all drilling and completion
costs. Dune Energy is presently the operator of each drilling prospect and
completed well, subject to the rights of ExxonMobil and the Company under the
joint development agreement.

The Agreement will remain in effect so long as the Companys
Joint Development Agreement with ExxonMobil remains in effect. The Agreement
excludes certain specified existing wells of the Company, certain litigation
rights of the Company, and the Companys production facility and equipment and
personal property. The Companys interest in the area of mutual interest created
by the Agreement is subject to the terms of other agreements to which the
Company is a party.

5     Equipment and other fixed assets

The carrying value of equipment and other fixed assets as of
December 31, 2008 and 2007 included the following components:

F- 15

---

American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

|                                                |  | 2008      |   |  | 2007      |  
|----------------------------------------------- |  | --------- | - |  | --------- | -
|                                                |  | $         |   |  | $         |  
|                                                |  |           |   |  |           |  
|Computer and office furniture and equipment     |  | 163,060   |   |  | 163,060   |  
|Leasehold improvements                          |  | 5,520     |   |  | 5,520     |  
|Barges and field equipment                      |  | 802,014   |   |  | 739,748   |  
|Gas gathering and production facility expansion |  | 207,637   |   |  | 380,154   |  
|                                                |  |           |   |  |           |  
|                                                |  | 1,178,231 |   |  | 1,288,482 |  
|                                                |  |           |   |  |           |  
|Less: Accumulated depreciation                  |  | (963,290  | ) |  | (764,931  | )
|                                                |  |           |   |  |           |  
|                                                |  | 214,941   |   |  | 523,551   |  

6     Asset retirement obligations

The Companys asset retirement obligations relate to plugging
and abandonment of oil and gas properties. The components of the change in the
Companys asset retirement obligations for the years ended December 31, 2008 and
2007 are shown below.

|                                          |  | For the years ended December 31, | 
|----------------------------------------- |  | -------------------------------- | 
|                                          |  | 2008                             | 
|                                          |  | $                                | 
|Asset retirement obligations, January 1   |  | 1,753,110                        | 
|Additions and revisions                   |  | -                                | 
|Settlements and disposals                 |  | -                                | 
|Accretion expense                         |  | 197,931                          | 
|                                          |  |                                  | 
|Asset retirement obligations, December 31 |  | 1,951,041                        | 

7     Notes payable and long-term debt

Notes payable and long-term debt as of December 31, 2008 and
2007 consisted of the following:

F- 16

---

American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

|                                                                     |  | 2008        |   |  | 2007        |  
|-------------------------------------------------------------------- |  | ----------- | - |  | ----------- | -
|                                                                     |  | $           |   |  | $           |  
|Accounts payable refinanced as notes
      payable                   |  | 75,217      |   |  | 75,217      |  
|Note payable  Officer of Company (Note 10)                          |  | 192,851     |   |  | 195,850     |  
|Note payable  Citizens Bank of Oklahoma                             |  | 24,500      |   |  | -           |  
|8% Convertible secured debentures                                    |  | 10,825,000  |   |  | 10,825,000  |  
|                                                                     |  |             |   |  |             |  
|Total notes payable and long-term debt                               |  | 11,117,568  |   |  | 11,096,067  |  
|Less: Current portion                                                |  | (11,117,568 | ) |  | (11,096,067 | )
|                                                                     |  |             |   |  |             |  
|Total notes payable and long-term debt, net
      of current portion |  | -           |   |  | -           |  

8% Convertible secured debentures

The Debentures are collateralized by substantially all of the
Companys assets. The Debentures have covenants limiting unsecured borrowings to
$2 million and restricting the payment of dividends and capital distributions.

The Company failed to meet any of the interest payments due
quarterly from June 30, 2006 through April 27, 2009 on its outstanding
Debentures. In addition, the Company failed to repay or redeem the Debentures by
the due date of September 30, 2006 and as of April 27, 2009 the Debentures are
still outstanding. Accordingly, pursuant to the Indenture governing the
Debentures, an Event of Default resulting from the Companys failure to timely
pay interest due on June 30, 2006, occurred and is continuing at this time.
Under those circumstances, the Trustee may, and upon request in writing from the
holders of not less than 25% of the principal amount of the Debentures then
outstanding, shall, declare the outstanding principal of and all interest on the
Debentures and other moneys outstanding under the Indenture to be immediately
due and payable. In addition, the Trustee will have the right to enforce its
rights on behalf of the Debenture holders against the collateral for the
Debentures. The Debentures are collateralized by substantially all of the
Companys assets. The principal amount of the Debentures outstanding at December
31, 2008 was $10,825,000 and accrued and unpaid interest at that date amounts to
$2,381,000. Subsequent to June 30, 2006 through April 27, 2009, neither the
Trustee nor the requisite holders of principal amount of Debentures have
declared the Debentures to be immediately due and payable and the Company
remains in default under the interest and repayment terms of its Debentures.

During 2007, Dune Energy acquired from the Debenture holders
$4,895,000 principal amount of Debentures, bringing Dune Energys total holdings
of our Debentures outstanding to $7,895,000 principal amount as of December 31,
2008.

F- 17

---

American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

Notes payable

On November 3, 2008, the Company entered into a $25,000
unsecured short-term note with a NYP floating interest rate with Citizens Bank
of Oklahoma. All accrued interest is payable monthly with a final payment of
outstanding principal plus all accrued interest due November 2009.

On December 16, 2005, the Company converted its $99,000
accounts payable balance to Patterson Services to a note payable. Monthly
payments of $8,710 which include interest at the rate of 10% per annum were to
be made through December 2006. At April 27, 2009, nine payments were past
due.

On October 29, 2008, the Company entered into an agreement to
finance its insurance premiums totaling $21,000. This note is subject to monthly
payments, which include interest at the rate of 6.8% per annum.

8     Capital stock

Options

The Company adopted the 2001 Stock Incentive Plan during the
year ended December 31, 2001. For options granted under the plan, the option
price shall not be less than the discounted market price, as allowed by the TSX
Venture Exchange, on the grant date. The expiration date for each option will be
set by the board at the time of issue of the option and cannot be more than 5
years after the grant date. The maximum number of shares that may be issued
pursuant to options granted under the plan will be 5,000,000 shares or such
additional amount as may be approved from time to time by the shareholders of
the Company. The number of shares issuable to any one optionee under the plan
cannot exceed 5% of the total number of issued and outstanding shares on a
non-diluted basis. The number of shares that can be issued under the plan within
a one year period, in aggregate, shall not exceed 20% of the then outstanding
options issued under the plan and, to any optionee who is an insider, shall not
exceed 5% of the then outstanding options issued under the plan.

Stock option activity for the years ended December 31, 2008 and
2007 is as follows:

|                                |  |           |   |  | Weighted       | 
|------------------------------- |  | --------- | - |  | -------------- | 
|                                |  | Number of |   |  | Average        | 
|                                |  | Options   |   |  | Exercise price | 
|                                |  |           |   |  | $              | 
|Outstanding - December 31, 2006 |  | 1,300,000 |   |  | 0.49           | 
|Expired                         |  | (250,000  | ) |  | 0.61           | 
|Outstanding  December 31, 2007 |  | 1,050,000 |   |  | 0. 46          | 
|Expired                         |  | (150,000  | ) |  | 0.53           | 
|Outstanding  December 31, 2008 |  | 900,000   |   |  | 0.45           | 

F- 18

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American Natural Energy CorporationNotes to Consolidated Financial Statements 
December 31, 2008
and 2007

Exercise price of options outstanding at December 31, 2008 is
$0.45. At December 31, 2008 and 2007, 900,000 and 1,050,000 options have vested
and are exercisable at a weighted average price of $0.45 and $0.46,
respectively. The weighted average remaining contractual life of options granted
at December 31, 2008 and 2007 is 4 and 16 months, respectively.

The 2001 Stock Incentive Plan, as amended (approved by the
shareholders in June 2005), is comprised of a Discretionary Option Grant
Program, a Salary Investment Option Grant Program, a Stock Issuance Program, an
Automatic Option Grant Program, and a Director Fee Option Grant. The 2001 Stock
Incentive Plan terminates upon the earliest of (i) December 14, 2011, (ii) the
date on which all shares available for issuance under the plan have been issued
as fully-vested shares, or (iii) the termination of all outstanding options in
connection with a change in control.

9     Commitments and contingencies

The Company rents office space under a long-term operating
lease that expires July 2009. At December 31, 2008, the future minimum lease
payments required under the operating lease amounted to $50,000 and is to be
paid in 2009.

Rent expense on all operating leases amounted to approximately
$101,000 and $96,000 in 2008 and 2007, respectively.

With respect to the acquisition of the Companys Bayou Couba
lease acreage, the Company agreed that the Class 7 creditors to the ANEC/Couba
Reorganization Plan (Plan) would receive a contingent payable from future
production of the properties in the amount of approximately $4.9 million plus
interest accruing at 8% per annum commencing January 1, 2002, and would receive
payment of 100% of their allowed claims out of an overriding royalty interest in
the amount of 3% of the production from existing and new wells on the Bayou
Couba Lease. In addition, such claims are to be paid out of a net profits
interest granted to the creditors whereby such creditors are allocated 50% of
the net profits from production from the workover of wells existing on December
31, 2001 on the Bayou Couba Lease, 15% of the net profits from production from
the drilling after December 31, 2001 of new wells on the Bayou Couba Lease and
6% of the net profits from production from the drilling after December 31, 2001
of new wells on a 23.5 square mile area of mutual interest, excluding, however,
the Bayou Couba Lease. Upon payment of their allowed claims, inclusive of
interest, such royalty and net profits interests is eliminated. The Company is
accounting for any contingent purchase price payments to the Class 7 creditors
as additions to the full cost pool as production occurs.

The Company agreed that, after repayment to the Company of 200%
of all costs of bankruptcy, drilling, development and field operations from net
revenues of the Bayou Couba Lease and the 23.5 square mile area of mutual
interest with Dune Energy, including payments made by the Company to all
creditors of all classes under the plan, the former holders of equity securities
of Couba will be entitled to a working interest in the wells in the Bayou Couba
Lease equal to 25% of the working interest obtained by the Company directly from
Couba at the time of confirmation and as a result of the plan of reorganization
of Couba, and a 25% interest in the Companys interest in the 23.5 square mile
area of mutual interest held by the Company on the effective date of the plan.

F- 19

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American Natural Energy CorporationNotes to Consolidated Financial Statements 
December 31, 2008
and 2007

On January 31, 2005, the Company made application with
applicable Canadian authorities to dissolve and terminate Gothic Resources Inc.
("Gothic"). In conjunction with the application for dissolution, the prior tax
returns and tax status of Gothic have been reviewed by the Canada Customs and
Revenue Agency (CRA). The CRA has assessed Gothic $190,000 (Cdn$187,000) in
additional taxes and interest based on the review of such returns.

The Company, as an owner or lessee of oil and gas properties,
is subject to various federal, states and local laws and regulations relating to
discharge of materials into, and protection of, the environment. These laws and
regulations, may, among other things, impose liability on the lessee under an
oil and gas lease for the cost of pollution clean-up resulting from operations
and subject the lessee to liability for pollution damages. In some instances,
the Company may be directed to suspend or cease operations in the affected area.
We maintain insurance coverage, which we believe is customary in the industry,
although we are not fully insured against all environmental risks.

The Company is a defendant in a number of legal proceedings
which management considers to be routine litigation that is incidental to its
business. Management does not expect to incur any material liability as a
consequence of such litigation.

10     Related party transactions

The balance of the note payable with Mike Paulk, an officer of
the Company at December 31, 2008 was $193,000. During 2008 $67,000 was loaned to
the Company while $70,000 was repaid. Interest accrues at the rate of 10% per
annum. Note payable is due on demand.

The Company paid Mike Paulk $17,505 in interest in 2008 on the
loans provided to the Company.

11     Income taxes

The tax effects of temporary differences between the tax bases
of assets and liabilities and their financial reporting amounts and the tax
credits and other items that give rise to significant portions of the deferred
tax assets and deferred tax liabilities at December 31, 2008 and 2007 are
presented below:

|                                                                                                          |  | 2008      |  |  | 2007      | 
|--------------------------------------------------------------------------------------------------------- |  | --------- |  |  | --------- | 
|                                                                                                          |  | $         |  |  | $         | 
|Deferred tax assets                                                                                       |  |           |  |  |           | 
|Asset retirement costs                                                                                    |  | 740,615   |  |  | 665,481   | 
|Foreign exchange loss                                                                                     |  | 212,120   |  |  | 1,168,510 | 
|Acquisition, exploration and development costs and related
      depreciation, depletion and amortization |  | 7,319,497 |  |  | 7,210,046 | 
|Contribution carryovers                                                                                   |  | 4,814     |  |  | 3,162     | 
|Change in accounting principle                                                                            |  | 123,894   |  |  | 123,894   | 

|Net operating loss carryforwards     |  | 7,672,315   |   |  | 6,123,450   |  
|------------------------------------ |  | ----------- | - |  | ----------- | -
|Deferred
      tax asset             |  | 16,073,255  |   |  | 15,294,543  |  
|Less: Valuation allowance            |  | (16,073,255 | ) |  | (15,294,543 | )
|Total deferred tax asset (liability) |  | -           |   |  | -           |  

F- 20

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American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

The provision for income taxes is different than the amounts
computed using the applicable statutory federal income tax rate. The differences
for the years ended December 31, 2008 and 2007 are summarized as follows:

|                                      |  | 2008     |   |  | 2007       |  
|------------------------------------- |  | -------- | - |  | ---------- | -
|                                      |  | $        |   |  | $          |  
|                                      |  |          |   |  |            |  
|Federal tax benefit at statutory rate |  | (22,621  | ) |  | 1,097,876  |  
|State taxes, net of federal taxes     |  | 81,700   |   |  | 114,567    |  
|Other                                 |  | 724,083  |   |  | (4,941     | )
|Less: valuation allowance             |  | (783,162 | ) |  | (1,207,502 | )
|                                      |  |          |   |  |            |  
|Total provision for income taxes      |  | -        |   |  | -          |  

As of December 31, 2008, the Company has a net operating loss
carry-forward of approximately $21,791,664 which is available to reduce future
taxable income, if any, through 2029. Management has determined that it is more
likely than not that the benefit of the deferred tax asset will not be realized
and thus has provided a 100% valuation allowance against the deferred tax asset.
If certain substantial changes in the Company's ownership should occur, there
would be an annual limitation on the amount of the carry-forward which can be
utilized.

12     Subsequent Events

On March 19, 2009 the TSX Venture Exchange approved the
issuance of 1,060,000 shares of the Companys common stock as payment for an
outstanding invoice owed to Wakabayahsi Funds LLC in the amount of $10,600. The
shares were issued on March 26, 2009.

13     Disclosures About Oil and Gas Producing
Activities (Unaudited)

Net Capitalized Costs

The following summarizes net capitalized costs as of December
31, 2008 and 2007.

F- 21

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American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

|                                                                               |  | 2008        |   |  | 2007        |  
|------------------------------------------------------------------------------ |  | ----------- | - |  | ----------- | -
|                                                                               |  | **$**       |   |  | **$**       |  
|Oil and gas properties                                                         |  |             |   |  |             |  
|Proved                                                                         |  | 23,216,747  |   |  | 22,906,607  |  
|Unproved                                                                       |  | 104,379     |   |  | 9,095       |  
|Total                                                                          |  | 23,321,126  |   |  | 22,915,702  |  
|                                                                               |  |             |   |  |             |  
|Less accumulated depreciation, depletion and amortization
      and impairment |  | (20,396,736 | ) |  | (20,087,252 | )
|                                                                               |  |             |   |  |             |  
|Net capitalized costs                                                          |  | 2,924,390   |   |  | 2,828,450   |  

Unproved Property Costs

The following summarizes the capitalized unproved property
costs excluded from amortization as of December 31, 2008. All costs represent
investment in unproved property in Louisiana and will be evaluated over several
years as the properties are explored. Property acquisition costs of $78,513 at
December 31, 2007 have been reduced by $3.5 million received from the sale of
participation rights to Dune Energy as of December 31, 2007. (See Note 4).

|                           |  | 2008   |  |  | 2007       |   |  | Prior Years |  |  | Total      |  
|-------------------------- |  | ------ |  |  | ---------- | - |  | ----------- |  |  | ---------- | -
|                           |  | $      |  |  | **$**      |   |  | **$**       |  |  | **$**      |  
|                           |  |        |  |  |            |   |  |             |  |  |            |  
|Property acquisition costs |  | 95,284 |  |  | (3,421,487 | ) |  | 2,001,372   |  |  | (1,324,831 | )
|Capitalized interest       |  | -      |  |  | -          |   |  | 1,429,210   |  |  | 1,429,210  |  
|                           |  |        |  |  |            |   |  |             |  |  |            |  
|                           |  | 95,284 |  |  | (3,421,487 | ) |  | 3,430,582   |  |  | 104,379    |  

Costs Incurred in Oil and Gas Acquisition, Exploration and
Development

|                  |  | 2008    |  |  | 2007    | 
|----------------- |  | ------- |  |  | ------- | 
|                  |  | **$**   |  |  | **$**   | 
|                  |  |         |  |  |         | 
|Development costs |  | 405,424 |  |  | 231,949 | 
|Exploration costs |  | -       |  |  | -       | 
|Acquisition costs |  |         |  |  |         | 
|Proved            |  | -       |  |  | -       | 
|Unproved          |  | -       |  |  | -       | 
|                  |  |         |  |  |         | 
|                  |  | 444,547 |  |  | 231,949 | 

F- 22

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American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

Results of Operations from Oil and Gas Producing Activities

The Companys results of operations from oil and gas producing
activities are presented below for the years 2008 and 2007. The following table
includes revenues and expenses associated directly with the Companys oil and
gas producing activities. It does not include any general and administrative
costs or any interest costs.

|                                                                                                         |  | 2008       |   |  | 2007      |  
|-------------------------------------------------------------------------------------------------------- |  | ---------- | - |  | --------- | -
|                                                                                                         |  | $          |   |  | $         |  
|Oil and gas sales                                                                                        |  | 2,197,546  |   |  | 1,219,461 |  
|Operations income                                                                                        |  | -          |   |  | 132,104   |  
|Lease operating expenses                                                                                 |  | (1,630,603 | ) |  | (470,730  | )
|Production taxes                                                                                         |  | (223,350   | ) |  | (102,968  | )
|Depreciation, depletion and amortization                                                                 |  | (509,087   | ) |  | (441,764  | )
|                                                                                                         |  |            |   |  |           |  
|Results of operations from oil and gas
      activities, excluding corporate overhead and interest costs |  | (165,494   | ) |  | 336,103   |  

Oil and Gas Reserve Quantities (unaudited)

The reserve information presented below is based on reports
prepared by independent petroleum engineers Summa Engineering, Inc.

The information is presented in accordance with regulations
prescribed by the Securities and Exchange Commission. Reserve estimates are
inherently imprecise. These estimates were generally based upon extrapolation of
historical production trends, analogy to similar properties and volumetric
calculations. Accordingly, these estimates are expected to change, and such
change could be material and occur in the near term as future information
becomes available.

Proved oil and gas reserves represent the estimated quantities
of crude oil, natural gas and natural gas liquids which geological and
engineering data demonstrate with reasonable certainty to be recoverable in
future years from known reservoirs under current economic and operating
conditions. Proved developed oil and gas reserves are those expected to be
recovered through existing equipment and operating methods. All of the Companys
oil and natural gas producing activities are located in the United States of
America.

December 31, 2008

|                                            |  | Oil    |   |  | Gas     |   |  | Total   |  
|------------------------------------------- |  | ------ | - |  | ------- | - |  | ------- | -
|                                            |  | (Mbbl) |   |  | (Mmcf)  |   |  | (Mbble) |  
|Proved reserves, beginning of period        |  | 296.64 |   |  | 768.94  |   |  | 424.80  |  
|Extensions, discoveries and other additions |  | -      |   |  | -       |   |  | -       |  
|Revisions of previous estimates             |  | 83.60  |   |  | (498.95 | ) |  | .44     |  
|Production                                  |  | (20.17 | ) |  | (1.15   | ) |  | (20.36  | )

|Sale of reserves in place      |  | -      |  |  | -      |  |  | -      | 
|------------------------------ |  | ------ |  |  | ------ |  |  | ------ | 
|Purchase of reserves in place  |  | -      |  |  | -      |  |  | -      | 
|Proved reserves, end of period |  | 360.07 |  |  | 268.84 |  |  | 404.88 | 
|Proved developed reserves:     |  |        |  |  |        |  |  |        | 
|Beginning of period            |  | 58.02  |  |  | 3.71   |  |  | 58.64  | 
|End of period                  |  | 31.56  |  |  | 1.22   |  |  | 31.76  | 

F- 23

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American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007



|December 31, 2007                           |  |        |   |  |          |   |  |         |  
|------------------------------------------- |  | ------ | - |  | -------- | - |  | ------- | -
|                                            |  | Oil    |   |  | Gas      |   |  | Total   |  
|                                            |  | (Mbbl) |   |  | (Mmcf)   |   |  | (Mbble) |  
|Proved reserves, beginning of period        |  | 328.84 |   |  | 1,386.93 |   |  | 560.00  |  
|Extensions, discoveries and other additions |  | -      |   |  | -        |   |  | -       |  
|Revisions of previous estimates             |  | (15.66 | ) |  | (614.53  | ) |  | (118.08 | )
|Production                                  |  | (16.54 | ) |  | (3.46    | ) |  | (17.12  | )
|Sale of reserves in place                   |  | -      |   |  | -        |   |  | -       |  
|Purchase of reserves in place               |  | -      |   |  | -        |   |  | -       |  
|                                            |  |        |   |  |          |   |  |         |  
|Proved reserves, end of period              |  | 296.64 |   |  | 768.94   |   |  | 424.80  |  
|                                            |  |        |   |  |          |   |  |         |  
|Proved developed reserves:                  |  |        |   |  |          |   |  |         |  
|Beginning of period                         |  | 66.13  |   |  | 91.27    |   |  | 81.35   |  
|                                            |  |        |   |  |          |   |  |         |  
|End of period                               |  | 58.02  |   |  | 3.71     |   |  | 58.64   |  

Standardized Measure of Discounted Future Net Cash Flows
(unaudited)

Statement of Financial Accounting Standards No. 69,
Disclosures About Oil and Gas Producing Activities,("SFAS 69")
prescribes guidelines for computing the standardized measure of future net cash
flows and changes therein relating to estimated proved reserves. The Company has
followed these guidelines which are briefly discussed below.

Future cash inflows and future production and development costs
are determined by applying year-end prices and costs to the estimated quantities
of oil and gas to be produced. The prices used at December 31, 2008 and December
31, 2007 were $37.00 and $94.45 per barrel for oil and $5.35 and $6.83 per mcf
for natural gas, respectively. Estimates are made of quantities of proved
reserves and the future periods during which they are expected to be produced
based on year-end economic conditions. Estimated future income taxes are
computed using current statutory income tax rates including consideration for current
tax basis of properties and related carryforwards, giving effect to permanent
differences and tax credits. The resulting future net cash flows are reduced to
present value amounts by applying a 10% annual discount factor.

F- 24

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American Natural Energy CorporationNotes to
Consolidated Financial Statements 
December 31, 2008 and 2007

The assumptions used to compute the standardized measure are
those prescribed by the Financial Accounting Standards Board and, as such, do
not necessarily reflect our expectations of actual revenue to be derived from
those reserves nor their present worth. The limitations inherent in the reserve
quantity estimation process, as discussed previously, are equally applicable to
the standardized measure computations since these estimates are the basis for
the valuation process.

The following sets forth our future net cash flows relating to
proved oil and gas reserves based on the standardized measure prescribed in SFAS
69:

|                                                         |  | December 31, |  
|-------------------------------------------------------- |  | ------------ | -
|                                                         |  | 2008         |  
|                                                         |  | $            |  
|Future cash inflows                                      |  | 14,760,889   |  
|Future development costs                                 |  | (2,905,725   | )
|Future production costs                                  |  | (3,395,289   | )
|                                                         |  |              |  
|Net future cash flows                                    |  | 8,459,875    |  
|Less effect of a 10% discount factor                     |  | (4,459,902   | )
|                                                         |  |              |  
|Standardized measure of discounted future net cash flows |  | 3,999,973    |  

The principal sources of change in the standardized measure of
discounted future net cash flows are as follows:

|                                                       |  | December 31, |  
|------------------------------------------------------ |  | ------------ | -
|                                                       |  | 2008         |  
|                                                       |  | $            |  
|Standardized measure, beginning of period              |  | 11,148,604   |  
|Sales of oil and gas produced, net of production costs |  | (343,593     | )
|Development costs incurred                             |  | 384,750      |  
|Changes in future development costs                    |  | 586,846      |  
|Revisions of previous quantity estimates               |  | 8,102        |  
|Net change due to extensions and discoveries           |  |              |  
|Net change in prices and production costs              |  | (6,056,854   | )
|Changes in production rate                             |  | (1,929,518   | )
|Accretion of discount                                  |  | 801,378      |  
|Other                                                  |  | (599,742     | )
|                                                       |  |              |  
|Standardized measure, end of period                    |  | 3,999,973    |  

F- 25

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SIGNATURES

Pursuant to the requirements of
Section 13 or 15(d) of the Securities and Exchange Act of 1934, the Registrant
has duly caused this Report to be signed on its behalf by the undersigned,
thereunto duly authorized.

American Natural Energy CorporationBy:/s/ Michael K. PaulkMichael K. Paulk, President




Pursuant to the requirements of
the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the Company and in the capacities and on the
dates indicated.

|Signature            | Title                            | Date          
|-------------------- | -------------------------------- | --------------
|                     |                                  |               
|/s/ Michael K. Paulk | President (Principal             | April 27, 2009
|Michael K. Paulk     | Executive Officer) and Director  |               
|                     |                                  |               
|/s/ Steven P. Ensz   | Director and Principal Financial | April 27, 2009
|Steven P. Ensz       | and Accounting Officer           |               
|                     |                                  |               
|/s/ Brian Bayley     | Director                         | April 27, 2009
|Brian Bayley         |                                  |               
|                     |                                  |               
|/s/ John K. Campbell | Director                         | April 27, 2009
|John K. Campbell     |                                  |               

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