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UNITED STATESSECURITIES AND EXCHANGE
COMMISSIONWashington, DC 20549FORM
10-KMark 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, 2009;

or[  ] Transition Report pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934For the
transition period from __________to __________.Commission File No.
0-18956American 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. [  ] 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     [  ] 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 [  ]       Accelerated filer [  ]       Non-accelerated filer [  ]       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 [  ]      No [X]State Issuers revenues for its most recent fiscal year: $1,083,414.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 March 31, 2010, was $5,372,243.(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 March 31,
2010, was 134,306,080 shares of Common Stock.

DOCUMENTS INCORPORATED BY REFERENCE

None

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Table of Contents

|              | Part
      I                                              | Page
|------------- | --------------------------------------------------------- | ----
|Item
      1. | Description
      of Business                             | 4   
|Item
      1A | Risk
      Factors                                        | 17  
|Item
      1B | Unresolved
      Staff Comments                           | 24  
|Item
      2. | Properties                                                | 24  
|Item
      3. | Legal
      Proceedings                                   | 24  
|Item
      4. | Submission
      of Matters to a Vote of Security Holders | 24  

Part II

|Item
      5. | Market
      for Registrants Common Equity, Related Stockholder Matters and Issuer
      Purchases of Equity Securities | 25
|------------- | ------------------------------------------------------------------------------------------------------------------------ | --
|Item
      6  | Selected
      Financial Data                                                                                            | 27
|Item
      7. | Managements
      Discussion and Analysis of Financial Condition and Results of Operations                              | 27
|Item
      7A | Quantitative
      and Qualitative Disclosures About Market Risk                                                         | 36
|Item
      8. | Consolidated
      Financial Statements and Supplementary Data                                                           | 36
|Item
      9. | Changes
      In and Disagreements With Accountants On Accounting and Financial
      Disclosure                         | 36
|Item
      9A | Controls
      and Procedures                                                                                            | 36
|Item
      9B | Other
      Information                                                                                                  | 38

Part III

|Item
      10. | Directors,
      Executive Officers And Corporate Governance                                               | 39
|-------------- | ---------------------------------------------------------------------------------------------------------- | --
|Item
      11. | Executive
      Compensation                                                                               | 42
|Item
      12. | Security
      Ownership of Certain Beneficial Owners and Management and Related
      Stockholder Matters | 44

2

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|Item 13. | Certain Relationships and
      Related Transactions, Director Independence | 46
|-------- | --------------------------------------------------------------------------- | --
|Item 14. | Principal Accountant Fees
      and Services                                | 46
|Item 15. | Exhibits                                                                    | 46

3

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PART I

Item 1 - Description of 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

Through our ownership we hold
interests in approximately 1,320 acres of land in St. Charles Parish, Louisiana.
This acreage is the Bayou Couba leases in which we hold a 94.5% working interest
in the leasehold and 97.25% in all but 6 producing wells. The ownership results
from our acquisition on December 31, 2001, of the assets and outstanding stock
of Couba Operating Company (Couba") and consolidation of other working
interests in the field during 2009. 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,
2009, 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, 2009, we had drilled and completed 12 (3.29
net) wells. By December 31, 2009, our combined production from all our producing
wells (21 gross, 16.9 net) was approximately 227 (83 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 1,320 gross acres. Production from the wells commenced in
1941 and only oil and non-commercial 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.

4

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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. The Joint Development Agreement
expired by mutual agreement of all parties in March 2009.

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 within our Bayou Couba Properties
area. On September 1, 2007 Dune Energy was elected successor operator under the
Joint Operating Agreement.

On August 4, 2009 we completed
the terms of a Purchase Agreement whereby we acquired all of Dune Energys
interest in the producing properties on the Bayou Couba lease, all of the Dune
Energys interest in the undeveloped leasehold from the surface to the top of
the Cib Op formation and all of the outstanding Debentures held by Dune Energy.
Additionally, we assumed operations of the field at that time. Dune Energy
retained a 75% interest in the lease below the Cib Op formation.

Our TransAtlantic Agreements.In March 2003, we assigned a 10% participation interest in the ExxonMobil
Corp. AMI and joint development agreement 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. These Debentures
were acquired as part of our August 4, 2009 Purchase Agreement with Dune
Energy.

As of March 31, 2010,
TransAtlantic remains the beneficial holder of a total of 2,237,136 shares of
our common stock.

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 was 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.
The lease expired in January 2010.

Seismic Survey Participation
Agreement.On March 8, 2006, we agreed to participate in a 3D seismic survey
covering 60 square miles covering our Bayou Couba lease and surrounding acreage
positions. The survey is part of a larger regional survey being conducted by
Seismic Exchange, Inc. We received the survey data in 2008 and
participated in a joint Pre-stack time migration processing of the data. We are
currently completing Pre-stack depth migration processing of the data and upon
completion will continue to evaluate the deeper horizons of our Bayou Couba
lease.

5

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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

Reserves Estimation

We engaged a third-party engineering firm to prepare our
reserve estimates comprising all of our estimated proved reserves (by volume) at
December 31, 2009. Our Manager of Operations is the person primarily responsible
for overseeing the preparation of the companys reserve estimates. His
qualifications include the following:

- 32 years of practical experience in geology, petroleum engineering and
  reserve evaluation
- Bachelor of Science degree in Geology

We maintain internal controls such as the following to ensure
the reliability of reserves estimations:

- No employees compensation is tied to the amount of reserves booked.
- We follow comprehensive SEC-compliant internal policies to determine and
  report proved reserves. Reserves estimates are made by experienced third-party
  reservoir engineers.
- The Manager of Operations reviews all the companys reported proved
  reserves at the close of each quarter.
- Each quarter, the Manager of Operations and the Chief Executive Officer
  review all significant reserve changes and all new proved undeveloped reserves
  additions.

The tables below set forth information as of December 31, 2009
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. This report is included as Exhibit 99.1 to this Annual
Report on Form 10-K. The qualifications of the technical person at each of these
firms primarily responsible for overseeing his firms preparation of the
companys reserve estimates are set forth below.

- Bachelor of Science Degree in Petroleum Engineering
- Over 35 years of practical experience in petroleum engineering
- A registered Professional Engineer in the State of Oklahoma

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     |  | 103.06   |  |  | -      |  |  | 103.06   | 
|Proved developed non-producing |  | -        |  |  | -      |  |  | -        | 
|Proved undeveloped             |  | 1,272,45 |  |  | -      |  |  | 1,272,45 | 
|Total proved                   |  | 1,375.52 |  |  | -      |  |  | 1,375.52 | 

Proved Developed 
      Producing
    
    
    Proved 
      Developed Non-
      producing
    
    
    Proved Undeveloped
    
    
    Total ProvedEstimated future net revenue(a)
    $
    2,847,482
    
    
    -
    
    $
    37,889,908
    
    $
    40,737,390Present value of future net revenue(b)
    $
    2,286,217
    
    
    -
    
    $
    22,543,909
    
    $
    24,830,126Standardized measure of discounted future
      net cash flows
    $
    2,286,217
    
    
    -
    
    $
    22,543,909
    
    $
    24,830,126


___________________(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, 2009. 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
$58.83 per barrel of oil and $3.55 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,
2009 as there is no future income tax provision.

The future net revenue
attributable to our estimated proved undeveloped reserves is calculated to be
$37.9 million at December 31, 2009, with the present value thereof to be $22.5
million, based on us expending approximately $7.7 million during 2010 and an
additional $610,000 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, 2009, the capital necessary to develop these additional reserves
was unavailable to us. Through December 31, 2009, we had expended approximately
$15.4 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.

7

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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.

The primary area of our
operations is St. Charles Parish, Louisiana. As of December 31, 2009, 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 31,2007
    2008
    2009Gross
    Net
    Gross
    Net
    Gross
    NetDevelopmentProductive
    0.0
    0.0
    0.0
    0.0
    0.0
    0.0Non- productive
    -0-
    -0-
    -0-
    -0-
    -0-
    -0-ExploratoryProductive
    -0-
    -0-
    -0-
    -0-
    -0-
    -0-Non- productive
    -0-
    -0-
    -0-
    -0-
    -0-
    -0-


During 2009, 2 Behind Pipe Zones
that were classified as Proved Undeveloped Reserves were re-completed at a cost
of approximately $323,700 and reclassified as Proved Developed Producing at
December 31, 2009. Additional Proved Undeveloped Reserves will be drilled and
completed as cash flow or funding from third party sources becomes
available.

8

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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.

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.

During 2009 we acquired all of
the working interest of Dune Energy as well as other small interest owners in
the field. The acquisitions effectively added an additional 6.56 net wells to
our ownership interest.

At December 31, 2009, combined
production from all our producing wells on the property was approximately 227
(83 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.

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, 2009. All of our production
was from our properties located in St. Charles Parish, Louisiana.

Year Ended December 31,2009
    
    
    2008
    
    
    2007Net Production:(1)Oil (Mbbl)
    
    16.0
    
    
    20.2
    
    
    16.5Natural Gas (Mmcf)
    
    0.0
    
    
    1.1
    
    
    3.5Oil Equivalent
      (Mbble )
    
    16.0
    
    
    20.4
    
    
    17.1Oil and NaturalGas Sales: (2)Oil
    $
    1,054,390
    
    $
    2,186,106
    
    $
    1,199,893Natural Gas
    
    -
    
    $
    11,441
    
    $
    19,568


9

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Total
    $
    1,054,390
    
    $
    2,197,546
    
    $
    1,219,461Average SalesPrice:Oil ($per Bbl)
    $
    66.04
    
    $
    108.37
    
    $
    72.54Natural Gas ($per Mcf)
    
    -
    
    $
    9.99
    
    $
    5.65Oil Equivalent ($per Bble)
    $
    66.04
    
    $
    107.92
    
    $
    71.24Oil and NaturalGas Costs:Lease operating expenses
    $
    766,180
    
    $
    1,630,603
    
    $
    470,730ProductionTaxes
    $
    24,993
    
    $
    223,350
    
    $
    102,968Depreciation,depletion and amortization
    $
    466,803
    
    $
    509,087
    
    $
    441,764Average production cost per
      unit of production ($ per Bble)
    $
    49.56
    
    $
    91.05
    
    $
    33.51


(1) Includes only production owned by us and produced to our
interest, less royalties and production due others. 367, 169, and 265 barrels of
oil were produced in December 2009, 2008 and 2007 but not sold until January
2010, 2009 and 2008, respectively, and are included in inventory at December 31,
2009, 2008 and 2007 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 EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2007
    
    
    2008
    
    
    2009Development Costs
    $
    231,949
    
    $
    405,424
    
    $
    473,981Exploration Costs
    
    -
    
    
    -
    
    
    -Acquisition Costs
    
    -
    
    
    -
    
    
    494,938Sales of Properties
    $
    (3,500,000
    )
    
    -
    
    
    -Capitalized Interest
    
    -
    
    
    -
    
    
    -Total
    $
    (3,268,051
    )
    $
    405,424
    
    $
    968,919


_______________________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.

10

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Developed(1)
    
    
    Undeveloped(1)
    
    
    Total Developed and
      UndevelopedArea
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetLouisiana
    
    1,319
    
    
    1,247
    
    
    -
    
    
    -
    
    
    1,319
    
    
    1,247Total
    
    1,319
    
    
    1,247
    
    
    -
    
    
    -
    
    
    1,319
    
    
    1,247


(1) Net acreage assumes that we
maintain our existing working interest percentage in all future development.

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 2009, our oil sales to Texon L.P. of $1,054,390
accounted for 100% 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. We did not have
any gas sales in 2009. We believe that the loss of this customer 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.

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,
2009, 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.

11

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*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.

*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.

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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.

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.

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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.

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.

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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, 2009, 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 2010. The annual aggregate rental is $93,081. The facilities
are considered adequate for our present activities.

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Item 1A  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 consolidated 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. The Company recorded net income of
$23,953,000 for the twelve months ended December 31, 2009 as the result of a
$27,994,000 gain on extinguishment of debt related to the re-purchase of the
Companys 8% Secured Debentures and a settlement on debt owed to Dune Energy. 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, 2009 of approximately $6.2 million. Production from our drilling
program decreased during 2009 compared to 2008, and our revenue has not been
sufficient to fund our operations. At December 31, 2009, we do not have any
available borrowing capacity under existing credit facilities and our current
assets are $723,000 compared with current liabilities of $6.9 million which
include accounts payable, revenues payable, notes payable, and other current
obligations. We have substantial needs for funds to pay our outstanding payables
and debt due during 2010. 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 consolidated financial statements as of and for
the year ended December 31, 2009 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, 2009 that raise
substantial doubt about our ability to continue as a going concern.

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Our Current Liabilities as of December 31, 2009 Exceed
Our Current Assets by $6.2 Million

As of December 31, 2009, our
current assets were approximately $723,000 and our current liabilities were
approximately $6.9 million. In order to meet our current obligations, we will
need to raise additional capital. At March 31, 2010, 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.

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;

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- 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.

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.

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.

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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.

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, 2009, based on
the report of Summa Engineering, Inc., we claimed total estimated proved
reserves of 1,375.5 Mbble of oil. Through December 31, 2009, we were able to
return to production 9 (8.75 net) well bores drilled by prior owners on the
Couba properties we acquired, and we had successfully completed 12 (7.88 net)
wells. As of that time, our combined production from all our producing wells was
approximately 145 (83 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 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.

23

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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 2010 and beyond, to differ materially from those
expressed in any forward-looking statements made by or on our behalf.

Item 1B  Unresolved Staff Comments:

As of December 31, 2009, we did not have any unresolved
comments from the SEC staff that were received 180 or more days prior to
year-end.

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, 2009 to a vote of security
holders through the solicitation of proxies or otherwise.

24

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PART II

Item 5 - Market for Registrants Common Equity, Related
Stockholder Matters and 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, 2007 through March 31, 2010 were as follows.

|                                             |   |      |  |   | Prices |  |  |              | 
|-------------------------------------------- | - | ---- |  | - | ------ |  |  | ------------ | 
|                                             |   |      |  |   |        |  |  |              | 
|                                             |   | High |  |   | Low    |  |  | Share Volume | 
|                                             |   |      |  |   |        |  |  |              | 
|2007                                         |   |      |  |   |        |  |  |              | 
|First Quarter                                | $ | 0.10 |  | $ | 0.05   |  |  | 2,347,654    | 
|Second Quarter                               | $ | 0.05 |  | $ | 0.03   |  |  | 2,500,333    | 
|Third Quarter through July 25, 2007*         | $ | 0.05 |  | $ | 0.03   |  |  | 378,331      | 
|                                             |   |      |  |   |        |  |  |              | 
|2008                                         |   |      |  |   |        |  |  |              | 
|Fourth Quarter beginning November 17, 2008** | $ | 0.04 |  | $ | 0.01   |  |  | 1,946,879    | 
|                                             |   |      |  |   |        |  |  |              | 
|2009                                         |   |      |  |   |        |  |  |              | 
|First Quarter                                | $ | 0.03 |  | $ | 0.01   |  |  | 1,542,728    | 
|Second Quarter                               | $ | 0.04 |  | $ | 0.01   |  |  | 1,671,590    | 
|Third Quarter                                | $ | 0.10 |  | $ | 0.03   |  |  | 4,253,544    | 
|Fourth Quarter                               | $ | 0.09 |  | $ | 0.03   |  |  | 3,707,730    | 
|                                             |   |      |  |   |        |  |  |              | 
|2010                                         |   |      |  |   |        |  |  |              | 
|First Quarter through March 29 , 2010        | $ | 0.07 |  | $ | 0.03   |  |  | 4,095,829    | 

* 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 March 31, 2010, we had
3,630 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 Consolidated 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.

25

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We had been unable to complete
the Annual Consolidated Financial Statements and related annual filings and were
unable to file the Annual Consolidated 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 Consolidated Financial Statements,
we were also delayed in filing our interim consolidated 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 Consolidated 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.

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,
2009.

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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 ofOperations:

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 consolidated 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 recorded net income of $23,953,000 for
the twelve months ended December 31, 2009 as the result of a $27,994,000 gain on
extinguishment of debt related to the re-purchase of the Companys 8% Secured
Debentures and a settlement on debt owed to Dune Energy. We have sustained
substantial losses in 2008 and 2007 of approximately $61,000 and $3.2 million,
respectively, and have a working capital deficiency and an accumulated deficit
at December 31, 2009 which leads to questions concerning our ability to meet our
obligations as they come due. We 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 consolidated financial statements as of and for
the year ended December 31, 2009 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,
2009 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, 2009 and December 31, 2008

We recorded net income of
$23,953,000 during the year ended December 31, 2009 compared to a net loss of
$61,000 for the year ended December 31, 2008. During the year ended December 31,
2009, our revenues were comprised of oil sales totaling $1,054,000 compared with
oil sales of $2,198,000 during the same period of 2008. Our oil sales for the
twelve months ended December 31, 2009 were lower as a result of lower oil prices
and a decrease in volumes. Our net average daily production for the twelve month
period ended December 31, 2009 decreased by 61% over the same period of the
prior year, from 322 (56 net) barrels of oil equivalent per day to 124 (44 net)
barrels of oil equivalent per day. Oil prices decreased by 39% for the twelve
month period ended December 31, 2009 over the same period of the prior year from
$107.92 per barrel of oil equivalent to $66.04 per barrel of oil equivalent.
Production from our existing wells is subject to fluctuation based upon which
zones of wells are in production and normal declines resulting as the reservoirs
are depleted.

Due to a gain on the
extinguishment of debt and exchange of non-monetary assets, we had income of
$22,869,000 for the year ended December 31, 2009 compared to total expenses of
$2,259,000 for the year ended December 31, 2009. Our general and administrative
expenses increased by $161,000 for the twelve months ended December 31, 2009
compared to the same period in 2008 at $1,465,000 and $1,304,000 respectively.
The increase is due to the financing costs related to the Private Placement of
our stock and to stock based compensation.

Interest and financing costs
decreased by $316,000 for the year ended December 31, 2009 compared to the same
period in 2008 at $607,000 and $923,000 respectively. Interest costs were lower
as a result of re-purchasing our debentures during the third quarter of
2009.

Lease operating expenses of
$760,000, production taxes of $25,000 and depletion, depreciation and
amortization of $576,000 during the year ended December 31, 2009 changed from
$1,631,000, $223,000, and $722,000, respectively, during the year ended December
31, 2008. Lease operating expenses decreased as a result of decreased production
and activity level of the operator of the field. Production taxes decreased
principally as a result of decreased production and lower prices realized for
the sale of oil during the period. The increase in depletion, depreciation and
amortization is primarily due to increased accretion of asset retirement
obligation because of our higher working interest percentages caused by us
purchasing other owners interest. The increase in depletion, depreciation and
amortization is offset by a decrease caused by lower amortization rate and
decreased production.

During the year ended December
31, 2009, we had a foreign exchange loss of $1,687,000, compared to a $2,519,000
foreign exchange gain for the year ended December 31, 2008. Our foreign exchange
gains and losses arise out of an inter-company indebtedness we owe to our
wholly-owned subsidiary, Gothic, which is payable in Canadian dollars. The
foreign exchange loss for the twelve months ended December 31, 2009 was caused
by the weakening of the US dollar against the Canadian dollar.

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We incurred a charge of $14,000
for the year ended December 31, 2009 to write-down our inventory to lower of
cost or market. During the year ended December 31, 2008, there was also a charge
of $14,000 for the write-down of our inventory to lower of cost or market.

We recorded a gain of $27,994,000
for the year ended December 31, 2009 as the result of a gain on extinguishment
of debt related to the re-purchase of our 8% Secured Debentures, and a
settlement on debt owed to Dune Energy. We also settled $16,000 of vendor notes
payable for a net gain of $10,000. During the year ended December 31, 2008, we
settled $78,000 of vendor notes payable for a net gain of $46,000.

We recorded an allowance for
doubtful accounts of $7,000 during the year ended December 31, 2008. There was
no such charge for the same period in 2009.

Liquidity and Capital Resources

*General*

At December 31, 2009, we do not
have any available borrowing capacity under existing credit facilities and our
current assets are $723,000 compared with current liabilities of $6.9 million
which includes accounts payable, revenues payable, notes payable, and other
current obligations. We have substantial needs for funds to pay our outstanding
payables and debt due during 2010.

We have substantial need for
capital to develop our oil and gas prospects. 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 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, 2009 and December 31, 2008

Our net cash used in operating
activities was $861,000 for the year ended December 31, 2009 as compared to net
cash provided by operating activities of $294,000 for the year ended December
31, 2008, a decrease of $1.1 million. The decrease in net cash provided by
operating activities for the year ended December 31, 2009 compared to the same
period of 2008 was primarily due to accounts receivable increases and accounts
payable decreases during the period. Changes in working capital items had the
effect of increasing cash flows from operating activities by $796,889 during the
year ended December 31, 2009 due to an increase in accounts payable, partially
offset by an increase in accounts receivable and other current assets. Changes
in working capital items had the effect of increasing cash flows from operating
activities by $2,178,000 during the year ended December 31, 2008 due to an
increase in accounts payable of $2,158,000.

29

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We used $969,000 of net cash in
investing activities during the year ended December 31, 2009 compared to net
cash used of $374,000 for the same period of 2008. The 2009 cash used in
investing activities was for the purchase and development of oil and gas
properties. We used $386,000 of cash for the purchase and development of oil and
gas properties, partially offset by proceeds of $12,000 received for the sale of
fixed assets for the same period in 2008.

We provided $1.9 million of net
cash in financing activities for the year ended December 31, 2009 compared to
$269 of net cash used in financing activities for the same period in 2008. On
July 29, 2009 we closed the final tranche of a Private Placement of 66.7 million
shares of our common stock at $0.03 per share for total proceeds of $2.0
million. In conjunction with this placement, finders fees were paid to two firms
in Vancouver, BC in the amount of $96,839 and finders warrants were issued for
the purchase of 5.38 million shares of common stock exercisable through July 29,
2010 at $0.05 per share. In addition to proceeds from the Private Placement, we
had issuance of notes payable of $1.6 offset by payments against outstanding
notes of $1.6 million during the year ended December 31, 2009. For the year
ended December 31, 2008, net cash outflows from financing activities were a
result of payments against outstanding notes which were offset by the issuance
of notes payable.

We have no other commitments to
expend additional funds for drilling activities for the rest of 2010.

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

How We Have Financed Our Activities

Our activities since 2002 have been financed primarily from
sales of debt and equity securities and drilling participations. These
transactions during this period of time included the following, among other
previously reported financing transactions we entered into during the
period:

Certain Financing Transactions Prior to January 1, 2009:

On October 21, 2003 and October
31, 2003 we completed financing transactions of $11.695 million and $305,000,
respectively, by issuing our Convertible Secured Debentures (the "Debentures").
Initially, the Debentures were repayable on September 30, 2005 with interest
payable quarterly commencing December 31, 2003 at 8% per annum. At the dates of
issuance, the outstanding principal of the Debentures was convertible by the
holders into our common shares at a conversion price of $0.45 per share, subject
to antidilution adjustment. The Debentures are collateralized by substantially
all of our assets and have covenants limiting unsecured borrowings to $2 million
and restricting the payment of dividends and capital distributions. A finder's
fee in the amount of $360,000 was paid to Middlemarch Partners Limited of
London, England in connection with the financing.

In June 2005, the Debentures were
amended with approval by approximately 86% of the Debentureholders. The
amendments extended the maturity date of the Debentures by one year to September
30, 2006, reduced through the maturity date of the Debentures the per share
price at which the principal of the Debentures could be converted into
shares of common stock to $0.15 per share, and provided for the partial release
of the lien collateralizing the Debentures in the event a third party entered
into an agreement with us pursuant to which the third party is granted the right
to drill one or more wells on our properties and commenced that drilling
activity. Under the amendments, 72,166,667 shares were issuable upon full
conversion of the Debentures at the reduced conversion price; however, the
conversion rights feature expired on September 29, 2006 and was not renewed.

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On October 19, 2005 we executed a
definitive Exploration and Development Agreement (the Agreement) with Dune
Energy, providing for the creation of an area of mutual interest covering an
area of approximately 31,367 acres. Pursuant to the terms of the Agreement, Dune
Energy agreed to pay us in instalments a prospect fee in the amount of $1.0
million, all of which has been paid. Under the original Agreement, in the event
we and Dune Energy elected 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 would pay to us an additional prospect fee of
$500,000. However, as a result of Dune Energy paying 100% of the costs for our
participation in the 3D seismic survey being conducted by SEI and described
above, the terms of the Agreement between us and Dune Energy were amended to
waive any additional prospect fees that may be due from Dune. On June 26, 2007,
Dune Energy increased its participation to 75% of our interest under these
agreements, excluding the area under the Bayou Couba lease itself where it
retained a participation of 50% of our 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 us an additional $500,000. We used
the proceeds from these payments to reduce outstanding obligations.

*Financing Transactions During
the Year Ended December 31, 2009*

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.

On July 29, 2009 we closed the
final tranche of a Private Placement of 66.7 million shares of our common stock
at $0.03 per share for total proceeds of $2.0 million. In conjunction with this
placement, finders fees were paid to two firms in Vancouver, BC in the amount of
$96,839 and finders warrants were issued for the purchase of 5.38 million shares
of common stock exercisable through July 29, 2010 at $0.05 per share. The net
proceeds of the private placement are being used to close the Dune Transaction
and for working capital purposes.

On August 4, 2009 we re-purchased
and retired $7.8 million, plus accrued and unpaid interest, of its 8% Secured
Debentures held by Dune (including release of collateral rights), acquired
Dunes interest in producing wells and certain leasehold rights in the Bayou
Couba field, resumed operations of the Bayou Couba field and settled outstanding
issues between the companies. In exchange, the Company agreed to assign a
portion of certain deep rights held by us and pay Dune a total of $1.3 million
dollars with $1 million due at closing and an additional $300,000 due in
quarterly payments commencing 90 days after resuming operations of the
field.

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We re-purchased its remaining
outstanding 8% Secured Debenture debt totaling $2. million and an additional
$821,000 of accrued interest with various holders with the payment $256,000 and
the issuance of 11.7 million shares of its common stock at a deemed price
US$0.03 per share. The issuance of the shares occurred during the third quarter
of 2009.

In December 2009, we granted
1,600,000 common shares to a group of lenders as a share bonus for the bridge
loan related to the acquisition of an Overriding Royalty Interest. The relative
fair value of these shares of $42,585 was recorded as a discount on the bridge
loan. The issuance of the shares occurred in January 2010.

Future Capital Requirements and Resources

At December 31, 2009, we do not
have any available borrowing capacity under existing credit facilities and our
current assets are $723,000 compared with current liabilities of $6.9 million
which includes accounts payable, revenues payable and notes payable (a portion
of which is past due). We have substantial needs for funds to pay our
outstanding payables and debt due during 2010. In addition, we have substantial
need for capital to develop our oil and gas prospects. At December 31, 2009, we
have no commitments for additional capital to fund drilling activities in
2010.

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 notes payable. Any capital expenditures for drilling purposes during
2010, 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 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.

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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.

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. Oil 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.

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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.

Under FASB ASC 740, 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, 2009 and 2008, we
have a deferred tax asset of approximately $6.4 million and $16.1 million for
which we have recognized a $6.4 million and $16.1 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.

34

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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 FASB ASC 410-20, Accounting for Asset Retirement Obligations(ASC 410-20). 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 ASC 410-20 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.

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:

We have adopted the Final Rule and have begun
complying with the disclosure requirements in this annual report on Form 10-K
for the year ended December 31, 2009.

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  Consolidated Financial Statements and
Supplementary Data:

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

Item 9A(T)  Controls and Procedures

(a) Managements Annual Report
on Internal ControlOver 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 consolidated 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 consolidated 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 consolidated 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, 2009, 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 consolidated 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 consolidated
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
consolidated 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 consolidated 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 consolidated 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. 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.

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

37

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Despite the internal control
deficiencies, we believe that our consolidated 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, 2009 in all
material respects.

Item 9B  Other Information

No information is required to be
disclosed in response to this Item 8B.

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
    PositionDirectors and Executive Officers:Michael K. Paulk
    61
    President and DirectorSteven P. Ensz
    58
    Vice President, Finance, and Chief Financial
      Officer and DirectorBrian E. Bayley(1)
    57
    DirectorJohn K. Campbell(1)
    76
    DirectorWilliam Grant (1)
    48
    DirectorSignificant Employees:Richard O. Mulford
    57
    Manager of OperationsRobert G. Snead
    71
    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 20
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 23 years. He is a certified public accountant.

Brian E. Bayley:Mr.
Bayley was elected a director of the Company in June 2001. With over 26 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.

William A. Grant III:Mr.
Grant has held various leadership roles in the banking and insurance industries
for the past 23 years. Mr. Grant began his career in a position in Bank of
Oklahomas management training program and advanced to the position of Vice
President -energy lending. Subsequent to his tenure at Bank of Oklahoma, he
joined F&M Bank until he purchased an interest and took the reins as
President of the The Holmes Organisation in 1997.

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 December 31, 2009, the
members of our Audit Committee of our Board of Directors are Messrs. Bayley
(Chairman), Campbell, and Grant. Messrs. Bayley and Campbell have been members
of the Audit Committee since 2002. Mr. Grant was added during 2009. 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 consolidated 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

---

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.

41

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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, 2009 who received
total compensation exceeding $100,000 for the year ended December 31, 2009 and
who served in such capacities at December 31, 2009.

SUMMARY COMPENSATION TABLEAnnual
Compensation

Name 
      and Principal Position
      
      (a)
    Year 
      (b)
    Salary 
      ($)(c)
    Bonus 
      ($)(d)
    Stock 
      Awards ($)(1)
      (e)
    Option 
      Awards ($)(1)
      (f)
    Non-Equity 
      Incentive Plan
      Compensation ($) (g)
    Nonqualified 
      Deferred
      Compensation Earnings ($) (h)
    All Other 
      Compensation
      ($) (i)
    Total 
    ($) (j)Michael K. Paulk, President and CEO(2)
    2009 2008
    $150,000 $150,000
    -0- -0-
    -0- -0-
    $97,491 -0-
    -0- -0-
    -0- -0-
    -0- -0-
    $247,491 $150,000Steven P. Ensz Executive Vice President
      and CFO(2)
    2009 2008
    $150,000 $150,000
    -0- -0-
    -0- -0-
    $97,491 -0-
    -0- -0-
    -0- -0-
    -0- -0-
    $247,491 $150,000


| | (1) | Represents the dollar amount recognized for financial
      statement reporting purposes with respect to the fiscal year in accordance
      with FASB ASC 718. See Note 1 to Notes to Consolidated Financial
      Statements for the year ended December 31, 2009.
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (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.

42

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Outstanding Equity Awards at December 31,
2009.

The following table provides
information with respect to our named executive officers above regarding
outstanding equity awards held at December 31, 2009.

Option Awards
    Stock AwardsName (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 ($)
      (e)
    Option Expiration
      Date
      (f)
    Number of 
      shares or units 
      of
      Stock held
      that have
      not vested (#)
      (g)
    Market value
      of shares or 
      units
      of Stock
      held that have 
      not vested ($
      ) 
      (h)
    Equity Incentive 
      Plan Awards:
      Number of
      Unearned Shares, 
      Units or 
      Other Rights 
      That Have
      Not Vested (#)
      (i)
    Equity Incentive
      Plan Awards:
        
        Market or
        payout value
        of Unearned 
        Shares, Units
        or Other 
        Rights That
        Have
      Not 
      Vested ($)
      (j)Michael K. Paulk
    1,500,000
    -0-
    0.09
    9/8/14
    -0-
    -0-
    -0-
    -0-Steven P. Ensz
    1,500,000
    -0-
    0.09
    9/8/14
    -0-
    -0-
    -0-
    -0-


Director Compensation

The following table provides
information with respect to compensation of our Directors during the year ended
December 31, 2009. The compensation paid to our named executive officers who are
also Directors is reflected in the Summary Compensation Table above.

Name (a)
    Fees earned or paid in cash ($)
      (b)
    Stock Awards ($)(1) (c)
    Option Awards ($)(1) (d)
    Non-Equity Incentive Plan
      Compensation ($) (e)
    Non- Qualified Deferred
      Compensation Earnings (f)
    All Other Compensation ($) (g)
    Total ($) (h)Brian E. Bayley
    -0-
    -0-
    $6,500
    -0-
    -0-
    -0-
    $6,500John K. Campbell
    -0-
    -0-
    -0-
    -0-
    -0-
    -0-
    -0-William A. Grant
      III
    -0-
    -0-
    $6,500
    -0-
    -0-
    -0-
    $6,500


(1) Represents the dollar amount
recognized for financial statement reporting purposes with respect to the fiscal
year in accordance with FASB ASC 718. See Note 1 to Notes to Consolidated
Financial Statements for the year ended December 31, 2009.

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.

43

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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
March 31, 2010 (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 March 31,
2010, we had 134,306,080 common shares outstanding.

Percentage ofNumber of Shares
    OutstandingName and Address(1)(2)
    Owned
    Shares(3)Michael K. Paulk
    3,648,875(4)
    2.7%Steven P. Ensz
    7,148,313(5)
    5.3%Brian E. Bayley Suite 300 - 570
      Granville Street Vancouver, BC V6C 3P1
    4,245,625(6)
    3.2%John K. Campbell 750 West Pender Street - Suite 710
      Vancouver, BC V6C 2T7
    65,528
    0.0%William A. Grant (7)1350 S.
      Boulder, Suite 1000 Tulsa, OK 74119
    933,333
    0.7%TransAtlantic Petroleum Corp(8)1550, 340 -
      12thAvenue, SW Calgary, Alberta T2R 1L5
    2,237,136(9)
    1.7%(10)All Directors and officers as a group (5
      persons)
    16,041,674
    11.9%


|(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 134,306,080 shares outstanding as of March 31, 2010, except as
      otherwise noted.                                                                                                                                                                                                                                                                                                                                                                                                                    
|(4)  | Includes 1,500,000 shares issuable at an exercise price
      of $0.09 on exercise of an option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|(5)  | Includes 1,500,000 shares issuable at an exercise price
      of $0.09 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.
      Includes 100,000 shares issuable at an exercise price of $0.09 on exercise
      of an option.                                                                                                                                                                                                                                                            
|(7)  | Includes 100,000 shares issuable at an exercise price of
      $0.09 on exercise of an option.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(8)  | 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.                                                                                                                                                                                                                                                                                                                                                                
|(9)  | 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 shares.                                                                                                                                                                                                                                                                                                                                                                                    
|(10) | The percentage of outstanding shares calculation is based
      upon 134,306,080 shares outstanding as of March 31,
2010.                                                                                                                                                                                                                                                                                                                                                                                                                                                     

44

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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 Stock
Incentive Plan. See Note 8 to the Notes to Consolidated Financial Statements for
further information on the material terms of this plan.

The following table provides
information as of December 31, 2009 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                                                |  | (a) Number of securities
      to be issued upon exercise of outstanding
      options, warrants and rights |  |   | (b) Weighted-average
      exercise price of outstanding options,
      warrants and rights |  |  | (c) Number of securities
      remaining available for future issuance under
      equity compensation plans (excluding securities
      reflected in column (a)) | 
|------------------------------------------------------------ |  | ----------------------------------------------------------------------------------------------------------- |  | - | ------------------------------------------------------------------------------------------- |  |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|Equity compensation plans approved by
      security holders |  | 4,650,000                                                                                                   |  | $ | 0.09                                                                                        |  |  | 350,000                                                                                                                                                           | 
|Equity compensation plans not approved by security holders   |  | -0-                                                                                                         |  |   | -0-                                                                                         |  |  | -0-                                                                                                                                                               | 
|Total                                                        |  | 4,650,000                                                                                                   |  |   | $0.09                                                                                       |  |  | 350,000                                                                                                                                                           | 

45

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Item 13 - Certain Relationships and Related
Transactions:

On May 4, 2006, the Company
entered into a note payable with Mike Paulk, an officer of the Company, in the
amount of $198,000. During 2006 an additional $10,000 was loaned to the Company
while $12,000 was repaid. During 2008 an additional $67,000 was loaned to the
Company while $70,000 was repaid. During 2009, an additional $68,000 was loaned
to the Company and the note was repaid in full in September 2009 with a payment
of $261,000.

The Company paid Mike Paulk
$16,000 in interest in 2009 on the loans provided to the Company.

Item 14. Principal Accountant Fees and
Services

The following sets forth fees we
incurred for services provided by MaloneBailey, LLP for the years ended December
31, 2009 and 2008, our independent registered public accountants at those year
ends.

Audit Fees
    
    
    Audit Related Fees
    
    
    Tax Fees2009
    $
    79,000
    
    
    --
    
    
    -2008
    $
    109,000
    
    
    --
    
    
    -


Our Board of Directors believes
that the provision of the services during the years ended December 31, 2009 and
December 31, 2008 is compatible with maintaining the independence of
MaloneBailey, LLP. 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 MaloneBailey, LLP included under the caption
Audit Feesinclude services rendered for the audit of our annual
consolidated 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.

Item 15  Exhibits:

|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)                                                                                                                                                         

46

---

|Exhibit |  | Description                                                                                                                              
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------
|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)                                                                                  
|10.1    |  | 2001 Stock Incentive Plan(1)                                                                                                             
|10.2    |  | Assignment, Conveyance and Bill of Sale from Dune Energy
      Inc to American Natural Energy Corporation dated August 4, 2009
  (11)    
|10.3    |  | Assignment, Conveyance and Bill of Sale from American
      Natural Energy Corporation to Dune Energy Inc dated August 4, 2009
      (11)
|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
|23.1    |  | Consent of Summa Engineering (11)                                                                                                        
|31.1    |  | Certification of President and Chief Executive Officer
      Pursuant to Rule 13a- 14(a)(11)                                             
|31.2    |  | Certification of Chief Financial Officer Pursuant to Rule
      13a-14(a)(11)                                                            
|32.1    |  | Certification of President and Chief Executive Officer
      Pursuant to Section 1350 (furnished, not filed)(11)                         
|32.2    |  | Certification of Chief Financial Officer Pursuant to
      Section 1350 (furnished, not filed)(11)                                       
|99.1    |  | Summa Engineering Inc. Report of American Natural Energy
Corporation Reserve at December 31, 2009 (11)                                   

(1)Filed as an Exhibit to the Registrants
registration statement on Form 10-SB filed on August 12, 2002 and amended on
July 29, 2003. (File No. 0-18956).(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).

47

---

(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. (11)Filed with this Annual Report on
Form 10-K for the year ended December 31, 2009.

48

---

American Natural Energy Corporation

Consolidated Financial StatementsDecember 31, 2009 and
2008

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, 2009 and
2008 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
consolidated 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 mat0erial 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, 2009 and 2008,
and the consolidated results of its operations and its cash flows for the years
then ended, in conformity with accounting principles generally accepted in the
United States of America.

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
substantial cash used from operating activities during 2009, has a
working capital deficiency and an accumulated deficit at December 31, 2009.
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/ MaloneBailey, LLPHouston,
Texaswww.malonebailey.comMarch 31, 2010

F-2

---

|AMERICAN NATURAL ENERGY CORPORATION                                                                                                                                                                                     |  |              |   |  |              |  
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | - |  | ------------ | -
|Consolidated Balance Sheets                                                                                                                                                                                             |  |              |   |  |              |  
|                                                                                                                                                                                                                        |  |              |   |  |              |  
|                                                                                                                                                                                                                        |  | December 31, |   |  | December 31, |  
|                                                                                                                                                                                                                        |  | 2009         |   |  | 2008         |  
|                                                                                                                                                                                                                        |  | **$**        |   |  | **$**        |  
|ASSETS                                                                                                                                                                                                                  |  |              |   |  |              |  
|Current assets:                                                                                                                                                                                                         |  |              |   |  |              |  
|Cash and cash
      equivalents                                                                                                                                                                                         |  | 142,488      |   |  | 56,162       |  
|Accounts receivable 
      joint interest billing, net of allowance for doubtful
             accounts of $0 and $7,154,
      respectively                                                                            |  | 88,439       |   |  | -            |  
|Accounts
      receivable  oil and gas sales                                                                                                                                                                           |  | 322,059      |   |  | 18,761       |  
|Prepaid expenses and other                                                                                                                                                                                              |  | 156,747      |   |  | 72,321       |  
|Oil inventory                                                                                                                                                                                                           |  | 12,815       |   |  | 6,268        |  
|Total current assets                                                                                                                                                                                                    |  | 722,548      |   |  | 153,512      |  
|Proved oil and natural gas
      properties, full cost method of accounting, net of  accumulated
      depletion, depreciation, amortization and impairment of
       $20,637,643 and $20,396,736 respectively (Note 3) |  | 17,581,389   |   |  | 2,820,011    |  
|Unproved oil and natural gas properties                                                                                                                                                                                 |  | 144,602      |   |  | 104,379      |  
|Equipment and other fixed assets, net
      of accumulated depreciation of                                                                                                                                              |  |              |   |  |              |  
|$1,075,860 and $963,290
      (Note 4)                                                                                                                                                                                  |  | 102,371      |   |  | 214,941      |  
|                                                                                                                                                                                                                        |  |              |   |  |              |  
|Total assets                                                                                                                                                                                                            |  | 18,550,910   |   |  | 3,292,843    |  
|                                                                                                                                                                                                                        |  |              |   |  |              |  
|LIABILITIES AND STOCKHOLDERS' DEFICIT                                                                                                                                                                                   |  |              |   |  |              |  
|Current liabilities:                                                                                                                                                                                                    |  |              |   |  |              |  
|Accounts payable and accrued
      liabilities                                                                                                                                                                          |  | 1,913,645    |   |  | 3,190,328    |  
|Revenue payable                                                                                                                                                                                                         |  | 3,103,090    |   |  | 3,347,371    |  
|Accrued interest                                                                                                                                                                                                        |  | -            |   |  | 2,399,233    |  
|Insurance note
      payable                                                                                                                                                                                            |  | 55,001       |   |  | 16,746       |  
|Notes payable (Note 6)                                                                                                                                                                                                  |  | 1,690,060    |   |  | 99,717       |  
|Note payable 
      related party (Note 12)                                                                                                                                                                            |  | -            |   |  | 192,851      |  
|Taxes due on dissolution of
      subsidiary (Note 11)                                                                                                                                                                  |  | 125,252      |   |  | 140,252      |  
|Convertible
      secured debentures (Note 7)                                                                                                                                                                           |  | -            |   |  | 10,825,000   |  
|Other current liabilities                                                                                                                                                                                               |  | -            |   |  | 202,691      |  
|Total current liabilities                                                                                                                                                                                               |  | 6,887,048    |   |  | 20,414,189   |  
|Asset retirement obligation (Note 5)                                                                                                                                                                                    |  | 2,674,003    |   |  | 1,951,041    |  
|                                                                                                                                                                                                                        |  |              |   |  |              |  
|Total liabilities                                                                                                                                                                                                       |  | 9,561,051    |   |  | 22,365,230   |  
|Commitments and contingencies (Notes
      11)                                                                                                                                                                          |  |              |   |  |              |  
|Stockholders equity (deficit):                                                                                                                                                                                         |  |              |   |  |              |  
|Common stock (
      Note 8)                                                                                                                                                                                            |  |              |   |  |              |  
|Authorized  250,000,000 shares with par value of $0.001
                133,981,080 and
      52,997,673 shares issued and outstanding
                respectively                                                    |  | 133,981      |   |  | 52,997       |  
|Additional
      paid-in capital                                                                                                                                                                                        |  | 22,662,561   |   |  | 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)                                                                                                                                                                                                             |  | (17,260,444  | ) |  | (41,213,342  | )
|Accumulated other comprehensive
      income                                                                                                                                                                            |  | 3,453,761    |   |  | 1,766,732    |  
|Total stockholders equity (deficit)                                                                                                                                                                                    |  | 8,989,859    |   |  | (19,072,387  | )
|Total liabilities and stockholders equity (deficit)                                                                                                                                                                    |  | 18,550,910   |   |  | 3,292,843    |  

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

F-3

---

AMERICAN NATURAL ENERGY CORPORATIONConsolidated
Statements of Operations and Other Comprehensive Income

|                                                                                   |  | December 31, 2009 |   |  | December 31, 2008 |  
|---------------------------------------------------------------------------------- |  | ----------------- | - |  | ----------------- | -
|                                                                                   |  | **$**             |   |  | **$**             |  
|Revenues:                                                                          |  |                   |   |  |                   |  
|Oil and gas sales                                                                  |  | 1,054,390         |   |  | 2,197,546         |  
|Operations income                                                                  |  | 29,024            |   |  | -                 |  
|                                                                                   |  |                   |   |  |                   |  
|                                                                                   |  | 1,083,414         |   |  | 2,197,546         |  
|                                                                                   |  |                   |   |  |                   |  
|                                                                                   |  |                   |   |  |                   |  
|Expenses:                                                                          |  |                   |   |  |                   |  
|Lease operating expense                                                            |  | 760,147           |   |  | 1,630,603         |  
|Production taxes                                                                   |  | 24,993            |   |  | 223,350           |  
|General and administrative                                                         |  | 1,465,332         |   |  | 1,304,392         |  
|Foreign exchange (gain) loss                                                       |  | 1,687,029         |   |  | (2,519,467        | )
|Interest and bank charges                                                          |  | 591,189           |   |  | 905,741           |  
|Related party interest                                                             |  | 16,148            |   |  | 17,505            |  
|Depreciation, depletion, and amortization - oil and gas
      properties           |  | 230,595           |   |  | 311,156           |  
|Accretion of asset retirement obligation                                           |  | 225,896           |   |  | 197,931           |  
|Depreciation and amortization  other assets                                       |  | 119,432           |   |  | 212,999           |  
|Gain on settlement of notes payable                                                |  | (10,042           | ) |  | (46,165           | )
|Write-down of inventory to market                                                  |  | 14,012            |   |  | 13,845            |  
|Doubtful accounts expense                                                          |  | -                 |   |  | 7,154             |  
|Gain on extinguishment of debt and exchange of properties                          |  | (27,994,215       | ) |  | -                 |  
|                                                                                   |  |                   |   |  |                   |  
|Total (income) expenses                                                            |  | (22,869,484       | ) |  | 2,259,044         |  
|                                                                                   |  |                   |   |  |                   |  
|Net income (loss)                                                                  |  | 23,952,898        |   |  | (61,498           | )
|                                                                                   |  |                   |   |  |                   |  
|Other comprehensive income (loss): Foreign exchange
      translation gain (loss) |  | 1,687,029         |   |  | (2,519,467        | )
|                                                                                   |  |                   |   |  |                   |  
|Other comprehensive income (loss)                                                  |  | 1,687,029         |   |  | (2,519,467        | )
|                                                                                   |  |                   |   |  |                   |  
|Comprehensive income (loss)                                                        |  | 25,639,927        |   |  | (2,580,965        | )
|                                                                                   |  |                   |   |  |                   |  
|Net income (loss) per share  basic and diluted                                    |  | 0.27              |   |  | 0.00              |  
|                                                                                   |  |                   |   |  |                   |  
|Weighted average number of shares outstanding  basic and
      diluted            |  | 87,295,649        |   |  | 52,997,673        |  

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

F-4

---

AMERICAN NATURAL ENERGY CORPORATIONConsolidated Statements of Changes in
      Stockholders Equity (Deficit)Additional paid-in
      capital
    
    
    Accumu- lated deficit
    
    
    Accumu-
      lated other compre- hensive
      income
    
    
    Total
      stock- holders equity
      (deficit)Common stockShares
    
    
    Amount$
    
    
    $
    
    
    $
    
    
    $
    
    
    $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 CORPORATIONConsolidated Statements of Changes in
      Stockholders Equity (Deficit) (cont.)Additionalpaid-in capital
    
    
    **Accumu-** lated
      deficitAccumu-
      lated other compre- hensive
      income
    
    
    Total
      stock- holders equity
      (Deficit)Common stockShares
    
    
    Amount$
    
    
    $
    
    
    $
    
    
    $
    
    
    $Balance - December 31, 2008
    
    52,997,673
    
    
    52,997
    
    
    20,321,226
    
    
    (41,213,342
    )
    
    1,766,732
    
    
    (19,072,387
    )Shares issued to settle debt
    
    1,060,000
    
    
    1,060
    
    
    9,540
    
    
    -
    
    
    -
    
    
    10,600Shares issued related to debt
    
    1,600,000
    
    
    1,600
    
    
    40,985
    
    
    -
    
    
    -
    
    
    42,585Shares issued for private placement
    
    66,666,666
    
    
    66,667
    
    
    1,933,333
    
    
    -
    
    
    -
    
    
    2,000,000Shares issued for repurchase of debentures
    
    11,656,741
    
    
    11,657
    
    
    338,045
    
    
    -
    
    
    -
    
    
    349,702Private placement costs
    
    -
    
    
    -
    
    
    (96,839
    )
    
    -
    
    
    -
    
    
    (96,839
    )Stock option compensation expense
    
    -
    
    
    -
    
    
    116,271
    
    
    -
    
    
    -
    
    
    116,271Foreign exchange translation gain
    
    -
    
    
    -
    
    
    -
    
    
    -
    
    
    1,687,029
    
    
    1,687,029Net income
    
    -
    
    
    -
    
    
    -
    
    
    23,952,898
    
    
    -
    
    
    23,952,898Balance - December 31, 2009
    
    133,981,080
    
    
    133,981
    
    
    22,662,561
    
    
    (17,260,444
    )
    
    3,453,761
    
    
    8,989,859


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

F-6

---

|AMERICAN NATURAL ENERGY CORPORATION                                |  |                   |   | 
|------------------------------------------------------------------ |  | ----------------- | - | 
|Consolidated Statements of Cash Flows                              |  |                   |   | 
|                                                                   |  |                   |   | 
|                                                                   |  | December 31, 2009 |   | 
|                                                                   |  | **$**             |   | 
|Cash flows from operating activities:                              |  |                   |   | 
|Net income (loss)                                                  |  | 23,952,898        |   | 
|Non cash items:                                                    |  |                   |   | 
|Depreciation, depletion and amortization                           |  | 350,027           |   | 
|Accretion of asset
      retirement obligation                     |  | 225,896           |   | 
|Foreign
      exchange (gain) loss                                 |  | 1,687,029         |   | 
|Noncash compensation
      expense                                 |  | 116,271           |   | 
|Gain on
      settlement of notes payable                          |  | (10,042           | ) | 
|Write-down of inventory
      to market                            |  | 14,012            |   | 
|Gain on
      extinguishment of debt and exchange of properties    |  | (27,994,215       | ) | 
|Doubtful accounts expense                                          |  | -                 |   | 
|Changes in non-cash working
      capital items:                   |  |                   |   | 
|Accounts receivable                                                |  | (240,462          | ) | 
|Oil
      inventory                                                |  | (12,262           | ) | 
|Prepaid expenses                                                   |  | 20,203            |   | 
|Accounts
      payable, revenues payable and                       |  |                   |   | 
|accrued
      liabilities                                          |  | 1,029,410         |   | 
|                                                                   |  |                   |   | 
|Net cash provided by (used) in operating activities                |  | (861,235          | ) | 
|                                                                   |  |                   |   | 
|Cash flows from investing activities:                              |  |                   |   | 
|Purchase and development of
      oil and gas                      |  |                   |   | 
|properties                                                         |  | (968,919          | ) | 
|Proceeds from sale of fixed
      assets                           |  | -                 |   | 
|                                                                   |  |                   |   | 
|Net cash used in investing activities                              |  | (968,919          | ) | 
|                                                                   |  |                   |   | 
|Cash flows from financing activities:                              |  |                   |   | 
|Payment of notes payable  related party                           |  | (260,852          | ) | 
|Payment of notes payable                                           |  | (1,366,874        | ) | 
|Proceeds from issuance of notes payable                            |  | 1,573,045         |   | 
|Proceeds from issuance of
      notes payable- related party       |  | 68,000            |   | 
|Private placement costs                                            |  | (96,839           | ) | 
|Proceeds from issuance of
      common stock for private placement |  | 2,000,000         |   | 
|                                                                   |  |                   |   | 
|Net cash provided by (used) in financing
      activities          |  | 1,916,480         |   | 
|                                                                   |  |                   |   | 
|Effect of exchange rate changes on cash                            |  | -                 |   | 
|                                                                   |  |                   |   | 
|Increase (decrease) in cash and cash
      equivalents             |  | 86,326            |   | 
|                                                                   |  |                   |   | 
|Cash and cash equivalents beginning of
      period                |  | 56,162            |   | 
|                                                                   |  |                   |   | 
|Cash and cash equivalents end of period                            |  | 142,488           |   | 

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

F-7

---

|AMERICAN NATURAL ENERGY CORPORATION               |  |                   |   | 
|------------------------------------------------- |  | ----------------- | - | 
|Consolidated Statements of Cash Flows (continued) |  |                   |   | 
|                                                  |  |                   |   | 
|                                                  |  |                   |   | 
|                                                  |  | December 31, 2009 |   | 
|                                                  |  | $                 |   | 
|Supplemental disclosures:                         |  |                   |   | 
|                                                  |  |                   |   | 
|Interest paid                                     |  | 34,455            |   | 
|                                                  |  |                   |   | 
|Taxes Paid                                        |  | 15,000            |   | 
|Non cash financing and investing activities:      |  |                   |   | 
|Prepaid expenses financed                         |  | 104,629           |   | 
|Exchange of non-monetary assets                   |  | 13,806,799        |   | 
|Asset retirement obligation addition              |  | 533,784           |   | 
|Asset retirement obligation revision              |  | (36,718           | ) | 
|Reclassification of JIB unbilled                  |  | (216,413          | ) | 
|Stock issued to settle debt                       |  | 10,600            |   | 
|Discount on notes payable                         |  | 238,202           |   | 

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

F-8

---

American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

|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 Actwith 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 consolidated 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 three institutions
and the balance at either institution does not exceed the federally insured
limits at December 31, 2009. 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-9

---

American Natural Energy Corporation
  Notes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

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 impairment to the carrying value of oil and gas
properties. There was no impairment recorded in 2009 or 2008.

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,
2009 and 2008, 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 yearsOffice furniture and equipment
    5-7 yearsLeasehold improvements
    3 yearsBarges and field equipment
    5-10 yearsGas 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.

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.

F-10

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American Natural Energy Corporation
  Notes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

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, 2009 and 2008 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 Texon L.P. of
$1,054,390 and $2,186,106 in 2009 and 2008, respectively, accounted for 100% 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 FASB ASC 410-20, Accounting for Asset Retirement Obligations.
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. ASC 410-20 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.

Income taxes

The Company accounts for income taxes
under Statement of FASB ASC 740, 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 consolidated
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.

F-11

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American Natural Energy Corporation
  Notes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

Use of estimates

The preparation of consolidated financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
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, 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. During
July 2009, share purchase warrants of ANEC were issued for the purchase of 5.38
million shares of common stock exercisable through July 29, 2010 at $0.05 per
share. At December 31, 2009, none of the stock options and share purchase
warrants were added to the diluted weighted average number of shares because all
of these options and warrants would be anti-dilutive.

Comprehensive income (loss)

The preparation of consolidated 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 consolidated 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 income of $1,687,029 for 2009 and other comprehensive loss of
$2,519,467 for 2008 as a result of foreign exchange translation gains and
losses. As of December 31, 2009 and 2008, accumulated other comprehensive income
(loss) was comprised solely of foreign currency translation gains or losses.

Stock-based compensation

During 2009, the Company recognized
compensation costs of $116,271 related to stock options issued September 8,
2009.

There were 4,650,000 stock options issued
September 8, 2009. At December 31, 2009, there were 1,743,750 options
outstanding and exercisable with a weighted average exercise price of $0.09. The
weighted average remaining contractual term for these options at December 31,
2009 was 4.75 years. These options had no intrinsic value at December 31,
2009.

F-12

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American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

New pronouncements

In September 2006, the FASB ASC 157
requires disclosures about fair value of financial instruments for publicly
traded companies for both interim and annual periods. Historically, these
disclosures were only required annually. The interim disclosures are intended to
provide financial statement users with more timely and transparent information
about the effects of current market conditions on an entitys financial
instruments that are not otherwise reported at fair value.

In December 2008, the SEC issued
Release No. 33-8995, Modernization of Oil and Gas Reporting (ASC 2010-3), which
amends the oil and gas disclosures for oil and gas producers contained in
Regulations S-K and S-X. The goal of Release No. 33-8995 was to provide
investors with a more meaningful and comprehensive understanding of oil and gas
reserves. Energy companies affected by Release No. 33-8995 are now required to
price proved oil and gas reserves using the unweighted arithmetic average of the
price on the first day of each month within the 12-month period prior to the end
of the reporting period, unless prices are defined by contractual arrangements,
excluding escalations based on future conditions. SEC Release No. 33-8995 is
effective beginning for financial statements for fiscal years ending on or after
December 31, 2009. The impact on the Companys operating results, financial
position and cash flows has been recorded in the financial statements.

In May 2009, the FASB issued SFAS No.
165, Subsequent Events (ASC 855), to establish general standards of accounting
for and disclosure of events that occur after the balance sheet date but before
financial statements are issued or are available to be issued. FASB ASC 855 is
effective for interim and annual reporting periods ending after June 15, 2009.
The Company adopted the provisions of FASB ASC 855 for the period ended June 30,
2009. There was no impact on the Companys operating results, financial position
or cash flows.

In June 2009, the FAS approved the
FASB Accounting Standards Codification (the Codification) as the single
source of authoritative non-governmental U.S. GAAP to be launched on July 1,
2009. The Codification does not change current U.S. GAAP but it is intended to
simplify user access to all authoritative U.S. GAAP by providing all the
authoritative literature related to a particular topic in one place. All
existing accounting standard documents will be superseded and all other
accounting literature not included in the Codification will be considered
non-authoritative. The Codification was effective for interim and annual periods
ending after September 15, 2009. The Company adopted the provisions of the
Codification during the period ended September 30, 2009 and the adoption did not
have a material impact on its consolidated financial position, results of
operations or cash flows.

Reclassification of Prior Period
Statements

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

|2 | Going Concern
|- | -------------

The Company currently has a severe
shortage of working capital and funds to pay its liabilities. The Company has no
current borrowing capacity with any lender. The Company recorded net income of $23,952,898
during 2009 as the result of a gain on extinguishment of debt related to the
re-purchase of the Companys 8% Secured Debentures and a settlement on debt owed
to Dune Energy. However, the Company has a working capital deficiency and an
accumulated deficit at December 31, 2009 which leads to substantial doubt
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.

F-13

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American Natural Energy Corporation
  Notes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

The accompanying consolidated 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
continue to explore for and develop its oil and gas reserves and pay its
obligations.

Managements strategy has been to
obtain additional financing or industry partners. It is managements intention
to raise additional debt or equity financing to fund its operations and capital
expenditures or to enter into another transaction in order to maximize
shareholder value. 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, 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 this 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 | Oil and Gas Properties
|- | ----------------------

As part of the transactions with Dune
Energy on August 4, 2009, the Company acquired Dunes interest in producing
wells and certain leasehold rights in the Bayou Couba field and assumed
operations of the Bayou Couba field. As part of the consideration in exchange,
the Company assigned to Dune a portion of certain deep leasehold rights it held.
The fair value of the assets acquired was $13,806,799. (Note 14)

In December 2009 the Company completed
8 agreements for the purchase of 5.875% of the working interest in the Companys
Bayou Couba field. Each agreement provided for the purchase of all interests
held by the selling party and was for a collective purchase price of
approximately $175,000 which included cash of $161,000, netting outstanding
joint interest billings of $34,000 against revenues owed of $20,000, and the
issuance of 325,000 shares of the common shares of the Company.

On December 31, 2009 the Company
completed the purchase of 93.4% of the Couba Operating Company Liquidation Agent
overriding royalty interest for approximately $315,000. The acquisition of this
burden amounted to a 2.547% overriding royalty interest on all of the Companys
current and future producing properties.

F-14

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American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

|4 | Equipment and other fixed
assets
|- | --------------------------------

The carrying value of equipment and
other fixed assets as of December 31, 2009 and 2008 included the following
components:

| |                                                       |  | 2009       |   |  | 2008      |  
| | ----------------------------------------------------- |  | ---------- | - |  | --------- | -
| |                                                       |  | $          |   |  | $         |  
| |                                                       |  |            |   |  |           |  
| | Computer and office furniture and equipment           |  | 163,060    |   |  | 163,060   |  
| | Leasehold improvements                                |  | 5,520      |   |  | 5,520     |  
| | Barges and field equipment                            |  | 802,014    |   |  | 802,014   |  
| | Gas gathering and production facility
      expansion |  | 207,637    |   |  | 207,637   |  
| |                                                       |  |            |   |  |           |  
| |                                                       |  | 1,178,231  |   |  | 1,178,231 |  
| |                                                       |  |            |   |  |           |  
| | Less: Accumulated depreciation                        |  | (1,075,860 | ) |  | (963,290  | )
| |                                                       |  |            |   |  |           |  
| |                                                       |  | 102,371    |   |  | 214,941   |  

5
    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 during
2009 and 2008 are shown below.

| |                                           |  | For the years ended December 31, | 
| | ----------------------------------------- |  | -------------------------------- | 
| |                                           |  | 2009                             | 
| |                                           |  | $                                | 
| | Asset retirement obligations, January 1   |  | 1,951,041                        | 
| | Additions and revisions                   |  | 497,066                          | 
| | Settlements and disposals                 |  | -                                | 
| | Accretion expense                         |  | 225,896                          | 
| |                                           |  |                                  | 
| | Asset retirement obligations, December 31 |  | 2,674,003                        | 

The $497,066 addition includes a
$36,718 reduction due to change in the plug and abandon timing and $533,784
addition due to change in the working interest after settlement on debt owed to
Dune Energy, see Note 7, and purchase of working interests from other interest
owners in the Bayou Couba field.

F-15

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American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

|6 | Notes payable and long-term
debt
|- | --------------------------------

Notes payable and long-term debt as of
December 31, 2009 and 2008 consisted of the following:

| |                                                                      |  | 2009       |   |  | 2008        |  
| | -------------------------------------------------------------------- |  | ---------- | - |  | ----------- | -
| |                                                                      |  | $          |   |  | $           |  
| | Accounts payable refinanced as notes
      payable                   |  | 75,217     |   |  | 75,217      |  
| | Note payable  Citizens Bank of Oklahoma                             |  | 500,000    |   |  | 24,500      |  
| | Note payable  Bank of Oklahoma                                      |  | 250,000    |   |  | -           |  
| | Note payable  Dune Energy (Note 7)                                  |  | 300,000    |   |  | -           |  
| | Note payable  Leede Financial                                       |  | 373,045    |   |  | -           |  
| | Note payable  TPC Energy                                            |  | 430,000    |   |  | -           |  
| | Note payable  Officer of Company (Note 12)                          |  | -          |   |  | 192,851     |  
| | Discount on Leede note                                               |  | (42,585    | ) |  | -           |  
| | Discount on TPC Note                                                 |  | (195,617   | ) |  | -           |  
| | 8% Convertible secured debentures                                    |  | -          |   |  | 10,825,000  |  
| |                                                                      |  |            |   |  |             |  
| | Total notes payable and long-term debt                               |  | 1,690,060  |   |  | 11,117,568  |  
| | Less: Current portion                                                |  | (1,690,060 | ) |  | (11,117,568 | )
| |                                                                      |  |            |   |  |             |  
| | Total notes payable and long-term debt, net
      of current portion |  | -          |   |  | -           |  

On December 16, 2005, the Company
converted its $99,000 accounts payable balance to Patterson Services to a note
payable. As of December 31, 2009 $75,217 is outstanding and past due on this
note.

On September 10, 2009, the Company
entered into a $500,000 unsecured short-term note with interest at the rate of
6% per annum with Citizens Bank of Oklahoma. All accrued interest is payable
monthly and the maturity date of the loan is September 10, 2010. Proceeds of
$475,500 from the note were paid to the Company and the remaining proceeds of
$24,500 were used to pay off a prior note with Citizens Bank of Oklahoma.

On September 2, 2009, the Company
entered into a $250,000 unsecured short-term note with a variable interest rate
with Bank of Oklahoma. All accrued interest is payable monthly and the maturity
date of the note is September 2, 2010.

On November 23, 2009, the Company
entered into a $450,000 note with TPC Energy. Interest accrues at 10% per annum
and is payable monthly. Principal payments are to be paid monthly commencing
January 31, 2010 at a rate of 75% of the net cash flow received from the
production of the recompleted DSCI 118 and DSCI 134 wells. The Company agreed
that it will not encumber or sell its interest in these wells as long as the
principal balance is unpaid. Upon payout of the well costs, the Company shall
assign a 25% interest in these wells to TPC Energy. Based on the
relative fair value of the wells, a discount on the note of $195,617 was
recorded. During 2009 $20,000 of the note had been paid back to TPC Energy.

F-16

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American Natural Energy Corporation
  Notes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

On December 23, 2009, the Company
entered into a $373,045 unsecured short-term note with Leede Financial with an
interest rate of 12% per annum payable upon repayment of the note. The maturity
date of the note is March 31, 2010. Due to the unsecured nature of the note,
Leede Financial received a bonus of 1.6 million shares of the Companys common
shares at a deemed price of US$0.03 per share. A discount on the note of $42,585
was recorded based on the relative fair value of the common shares issued.

|7 | Convertible debentures
|- | ----------------------

On August 4, 2009, the Company
re-purchased and retired $7.895 million, plus $2.1 million accrued and unpaid
interest, of its 8% Secured Debentures held by Dune (including release of
collateral rights), acquired Dunes interest in producing wells and certain
leasehold rights in the Bayou Couba field, resumed operations of the Bayou Couba
field, and settled outstanding issues between the companies, which net to $2.1
million payable to Dune. In exchange, the Company assigned a portion of certain
deep rights held by the Company and paid Dune $1 million at the closing and
issued a note payable of $300,000 payable in six consecutive quarterly payments
of $50,000 each, with the first installment due and payable 90 days after
resuming operations of the field. The second installment has not been paid yet
at the time of the Form 10-K filing. The interests acquired from Dune were fair
valued at $13.8 million based on the present value of the future cash flows of
the proved reserves discounted at 10 percent. The certain deep rights assigned
to Dune is unproved property with zero book value. The gain on the settlement of
the debenture and exchange of properties with Dune was $24.86 million.

The Company re-purchased its remaining
outstanding 8% Secured Debenture debt totalling $2.93 million and an additional
$821,000 of accrued interest with various holders with the payment of $256,000
and the issuance of 11.7 million shares of its common stock at a fair market
price of US$0.03 per share. The issuance of the shares occurred during the third
quarter of 2009. The gain on the settlement of the debenture was $3.14 million.

|8 | Common stock
|- | ------------

In March 2009, the Company granted
1,060,000 common shares as payment for an outstanding invoice in the amount of
$10,600. The fair value of the shares was $0.03 cents per share for a total of
$10,600. No gain or loss was recognized in this transaction.

In June and July 2009, the Company
granted 11,656,741 common shares of the Companys common stock were issued at a
fair value of $0.03 per share for partial retirement of the Companys 8% Secured
Debentures.

In December 2009, the Company granted
1,600,000 common shares to a group of lenders as a share bonus for the bridge
loan related to the acquisition of the ORI. The relative fair value of these
shares of $42,585 was recorded as a discount on the bridge loan.

During 2009, the Company issued
66,666,666 common shares through a Private Placement at a price of $0.03 per
share for total proceeds of $2.0 million. Private placement costs of $96,839
were recorded as a reduction to additional paid-in capital.

F-17

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American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

|9 | 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, 2009 and 2008 is as follows:

| |                                 |  |           |   |  | Weighted       | 
| | ------------------------------- |  | --------- | - |  | -------------- | 
| |                                 |  | Number of |   |  | Average        | 
| |                                 |  | Options   |   |  | Exercise price | 
| |                                 |  |           |   |  | $              | 
| | Outstanding - December 31, 2007 |  | 1,050,000 |   |  | 0.46           | 
| | Expired                         |  | (150,000  | ) |  | 0.53           | 
| | Outstanding  December 31, 2008 |  | 900,000   |   |  | 0. 45          | 
| | Issued                          |  | 4,650,000 |   |  | 0.09           | 
| | Expired                         |  | (900,000  | ) |  | 0.45           | 
| | Outstanding  December 31, 2009 |  | 4,650,000 |   |  | 0.09           | 

At December 31, 2009 and 2008,
1,743,750 and 900,000 options have vested and are exercisable at a weighted
average exercise price of $0.09 and $0.45, respectively. The weighted average
remaining contractual life of options granted at December 31, 2009 and 2008 is
57 and 4 months, respectively. There is no intrinsic value for the exercisable
stock options at December 31, 2009.

On January 1, 2006, the Company adopted
ASC 718 which requires companies to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant date
fair value of the award. The fair value of the 4,650,000 stock options granted
during 2009 totaled $301,745. The stock options granted to employees and
directors in 2009 vest at 25% immediately and 12.5% per quarter thereafter and
expire five years after the date of grant.

F-18

---

American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

For the year ended December 31, 2009,
the Company recognized compensation costs of $116,271 related to stock options
granted. At December 31, 2009, there was $185,474 of total unrecognized
compensation costs related to non-vested stock options.

The fair value of stock options granted
was estimated on the date of the grant using a Black-Scholes valuation model
that uses the following weighted average assumptions:

Expected term, in years
    3.25Risk-Free interest rate
    2.38%Expected volatility
    352.71%Expected Dividend Rate
    None


The Company utilizes authorized but
unissued shares when a stock option is exercised.

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.

|10 | Warrants
|-- | --------

Warrant activity for the years ended
December 31, 2009 and 2008 is as follows:

| |                                 |  |           |  |  | Weighted       | 
| | ------------------------------- |  | --------- |  |  | -------------- | 
| |                                 |  | Number of |  |  | Average        | 
| |                                 |  | warrants  |  |  | Exercise price | 
| |                                 |  |           |  |  | $              | 
| | Outstanding - December 31, 2007 |  | -         |  |  | -              | 
| |                                 |  |           |  |  |                | 
| | Outstanding  December 31, 2008 |  | -         |  |  | -              | 
| | Issued                          |  | 5,380,000 |  |  | 0.05           | 
| |                                 |  |           |  |  |                | 
| | Outstanding  December 31, 2009 |  | 5,380,000 |  |  | 0.05           | 

The Company granted a total of
5,380,000 warrants on July 28 and July 29, 2009 with an exercise price of $0.05
as a finders fee for the common share private placement. The warrants vest
immediately and expire on the one year anniversary of the grant date. The
weighted average remaining contractual term is 7 months. The exercisable
warrants have no intrinsic value at December 31, 2009.

|11 | Commitments and
contingencies
|-- | -----------------------------

The Company rents office space under a
long-term operating lease that expires December 2010. At December 31, 2009, the
future minimum lease payments required under the operating lease amounted to
$93,000 and is to be paid in 2010.

Rent expense on all operating leases
amounted to approximately $93,000 and $101,000 in 2009 and 2008,
respectively.

F-19

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American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

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 holds 93.4%
of the Class 7 claims.

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, 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.

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. Approximately
$126,000 remains unpaid at December 31, 2009.

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 being routine litigation that is incidental to its
business. Management does not expect to incur any material liability as a
consequence of such litigation.

F-20

---

American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

|12 | Related party transactions                                                                                                                                                                                                                                                                                                                  
|-- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                             
|   | The Company borrowed an additional $68,000 during 2009
      from Mike Paulk, an officer of the Company. The note payable was later
      repaid in full with a payment of $261,000. The Company paid Mike Paulk
      $16,000 for interest on the loans provided to the Company.                                                           
|   |                                                                                                                                                                                                                                                                                                                                             
|   | As part of the Private Placement of common shares during
      2009, Steven P. Ensz, an officer and director of the company and Brian
      Bayley, a director of the Company each purchased 2.5 million shares at the
      issue price of US$0.03 per share for a total of US $150,000.                                                   
|   |                                                                                                                                                                                                                                                                                                                                             
|13 | 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, 2009
      and 2008 are presented below:

| |                                                                                                           |  | 2009       |   |  | 2008        |  
| | --------------------------------------------------------------------------------------------------------- |  | ---------- | - |  | ----------- | -
| |                                                                                                           |  | $          |   |  | $           |  
| | Deferred tax assets                                                                                       |  |            |   |  |             |  
| | Asset retirement costs                                                                                    |  | 1,015,052  |   |  | 740,615     |  
| | Foreign exchange loss                                                                                     |  | 852,516    |   |  | 212,120     |  
| | Acquisition, exploration and development
      costs and related depreciation, depletion and amortization |  | 1,866,432  |   |  | 7,319,497   |  
| | Contribution carryovers                                                                                   |  | 4,814      |   |  | 4,814       |  
| | Change in accounting principle                                                                            |  | 123,894    |   |  | 123,894     |  
| | Net operating loss carryforwards                                                                          |  | 2,544,002  |   |  | 7,672,315   |  
| | Deferred tax asset                                                                                        |  | 6,406,710  |   |  | 16,073,255  |  
| |                                                                                                           |  |            |   |  |             |  
| | Less: Valuation allowance                                                                                 |  | (6,406,710 | ) |  | (16,073,255 | )
| |                                                                                                           |  |            |   |  |             |  
| | Total deferred tax asset (liability)                                                                      |  | -          |   |  | -           |  

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, 2009 and 2008
are summarized as follows:

| |                                       |  | 2009       |   |  | 2008     |  
| | ------------------------------------- |  | ---------- | - |  | -------- | -
| |                                       |  | $          |   |  | $        |  
| |                                       |  |            |   |  |          |  
| | Federal tax benefit at statutory rate |  | (8,143,985 | ) |  | (22,621  | )
| | State taxes, net of federal taxes     |  | (1,008,966 | ) |  | 81,700   |  
| | Other                                 |  | (585,353   | ) |  | 724,083  |  
| | Less: valuation allowance             |  | 9,738,304  |   |  | (783,162 | )
| |                                       |  |            |   |  |          |  
| | Total provision for income taxes      |  | -          |   |  | -        |  

F-21

---

American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

As of December 31, 2009, the Company
has a net operating loss carry-forward benefit of approximately $8.2 million
which is available to reduce future taxable income, if any, through 2030.
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.

|14 | Fair Value Measurements
|-- | -----------------------

As defined in ASC 820-Fair Value
Measurements and Disclosures, fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date (exit price). This statement
requires disclosure that establishes a framework for measuring fair value and
expands disclosure about fair value measurements. The statement requires fair
value measurements be classified and disclosed in one of the following
categories:

Level 1 - Unadjusted quoted prices in
active markets that are accessible at the measurement date for identical,
unrestricted assets or liabilities. We consider active markets as those in which
transactions for the assets or liabilities occur in sufficient frequency and
volume to provide pricing information on an ongoing basis.

Level 2 - Quoted prices in markets that
are not active or inputs which are observable, either directly or indirectly,
for substantially the full term of the asset or liability.

Level 3 - Measured based on prices or
valuation models that require inputs that are both significant to the fair value
measurement and less observable from objective sources (i.e supported by little
or no market activity). This category includes the proved property acquired from
Dune as part of the settlement of the 8% Secured Debentures held by Dune (see
Note 7) that we valued using the present value of the future cash flows of the
proved reserves discounted at 10 percent. Substantially all of these inputs are
observable in the marketplace throughout the full term of the proved properties,
can be derived from observable data or supported by observable levels at which
transactions are executed in the marketplace.

As required by ASC 820, financial
assets and liabilities are classified based on the lowest level of input that is
significant to the fair value measurement. Our assessment of the significance of
a particular input to the fair value measurement requires judgment and may
affect the valuation of the fair value of assets and liabilities and their
placement within the fair value hierarchy levels. The following table summarizes
the valuation of our investments and financial instruments by ASC 820 pricing
levels as of December 31, 2009:

Fair value measurement

| |                   |  | Level 1 |  |  | Level 2 |  |  | Level 3    |  |  | Total      | 
| | ----------------- |  | ------- |  |  | ------- |  |  | ---------- |  |  | ---------- | 
| | Proved Properties |  | -       |  |  | -       |  |  | 13,806,799 |  |  | 13,806,799 | 
| | Total             |  | -       |  |  | -       |  |  | 13,806,799 |  |  | 13,806,799 | 

F-22

---

American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

|15 | Subsequent Events                                                                                                                                                                                                                                                                                                                          
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   |                                                                                                                                                                                                                                                                                                                                            
|   | Pursuant to FASB ASC 855, we have evaluated all events or
      transactions that occurred from January 1, 2010 through March 31, 2010,
      the date of issuance of the audited consolidated financial statements.
      During this period we did not have any material recognizable subsequent
      events, except as disclosed below:
|   |                                                                                                                                                                                                                                                                                                                                            
|   | In January 2010, the Company granted 325,000 common
      shares for the acquisition of working interest owners rights in Bayou
      Couba. The fair value of 125,000 shares was $.065 per share and 200,000
      shares was $.07 per share for a total of $22,125.                                                                     
|   |                                                                                                                                                                                                                                                                                                                                            
|16 | Disclosures About Oil and Gas Producing Activities
      (Unaudited)                                                                                                                                                                                                                                                                       
|   |                                                                                                                                                                                                                                                                                                                                            
|   | Net Capitalized Costs                                                                                                                                                                                                                                                                                                                      
|   |                                                                                                                                                                                                                                                                                                                                            
|   | The following summarizes net capitalized costs as of
      December 31, 2009 and 2008.                                                                                                                                                                                                                                                     

| |                                                                                |  | 2009        |   |  | 2008        |  
| | ------------------------------------------------------------------------------ |  | ----------- | - |  | ----------- | -
| |                                                                                |  | **$**       |   |  | **$**       |  
| | Oil and gas properties                                                         |  |             |   |  |             |  
| | Proved                                                                         |  | 38,219,032  |   |  | 23,216,747  |  
| | Unproved                                                                       |  | 144,602     |   |  | 104,379     |  
| | Total                                                                          |  | 38,363,634  |   |  | 23,321,126  |  
| |                                                                                |  |             |   |  |             |  
| | Less accumulated depreciation, depletion
      and amortization and impairment |  | (20,637,643 | ) |  | (20,396,736 | )
| |                                                                                |  |             |   |  |             |  
| | Net capitalized costs                                                          |  | 17,725,991  |   |  | 2,924,390   |  

Unproved Property Costs

The following summarizes the
capitalized unproved property costs excluded from amortization as of December
31, 2009 and 2008. All costs represent investment in unproved property in
Louisiana and will be evaluated over several years as the properties are
explored.

| |                            |  | 2009   |  |  | 2008   |  |  | Prior Years |   |  | Total      |  
| | -------------------------- |  | ------ |  |  | ------ |  |  | ----------- | - |  | ---------- | -
| |                            |  | $      |  |  | $      |  |  | $           |   |  | $          |  
| |                            |  |        |  |  |        |  |  |             |   |  |            |  
| | Property acquisition costs |  | 40,223 |  |  | 95,284 |  |  | (1,420,115  | ) |  | (1,284,608 | )
| | Capitalized interest       |  | -      |  |  | -      |  |  | 1,429,210   |   |  | 1,429,210  |  
| |                            |  |        |  |  |        |  |  |             |   |  |            |  
| |                            |  | 40,223 |  |  | 95,284 |  |  | 9,095       |   |  | 144,602    |  

F-23

---

American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

*Costs Incurred in Oil and Gas
Acquisition, Exploration and Development*

| |                   |      | 2009    |  |      | 2008    | 
| | ----------------- | ---- | ------- |  | ---- | ------- | 
| |                   | **** | **$**   |  | **** | **$**   | 
| |                   |      |         |  |      |         | 
| | Development costs |      | 473,981 |  |      | 405,424 | 
| | Exploration costs |      | -       |  |      | -       | 
| | Acquisition costs |      |         |  |      |         | 
| | Proved            |      | 494,938 |  |      | -       | 
| | Unproved          |      | -       |  |      | -       | 
| |                   |      |         |  |      |         | 
| |                   |      | 968,919 |  |      | 405,424 | 

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 2009 and
2008. 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.

| |                                                                                                          |  | 2009      |   |  | 2008       |  
| | -------------------------------------------------------------------------------------------------------- |  | --------- | - |  | ---------- | -
| |                                                                                                          |  | $         |   |  | $          |  
| | Oil and gas sales                                                                                        |  | 1,054,390 |   |  | 2,197,546  |  
| | Operations income                                                                                        |  | 29,024    |   |  | -          |  
| | Lease operating expenses                                                                                 |  | (760,147  | ) |  | (1,630,603 | )
| | Production taxes                                                                                         |  | (24,993   | ) |  | (223,350   | )
| | Depreciation, depletion and amortization                                                                 |  | (466,803  | ) |  | (509,087   | )
| |                                                                                                          |  |           |   |  |            |  
| |                                                                                                          |  |           |   |  |            |  
| | Results of operations from oil and gas
      activities, excluding corporate overhead and interest costs |  | (168,529  | ) |  | (165,494   | )

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.

F-24

---

American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008December 31, 2009

| |                                             |  | **Oil**    |   |  | **Gas**    |   |  | **Total**   |  
| | ------------------------------------------- |  | ---------- | - |  | ---------- | - |  | ----------- | -
| |                                             |  | **(Mbbl)** |   |  | **(Mmcf)** |   |  | **(Mbble)** |  
| |                                             |  |            |   |  |            |   |  |             |  
| | Proved reserves, beginning of period        |  | 360.07     |   |  | 268.84     |   |  | 404.88      |  
| | Extensions, discoveries and other additions |  | -          |   |  | -          |   |  | -           |  
| | Revisions of previous estimates             |  | 495.17     |   |  | (268.84    | ) |  | 450.37      |  
| | Production                                  |  | (15.97     | ) |  | (0.00      | ) |  | (15.97      | )
| | Sale of reserves in place                   |  | -          |   |  | -          |   |  | -           |  
| | Purchase of reserves in place               |  | 536.25     |   |  | -          |   |  | 536.25      |  
| |                                             |  |            |   |  |            |   |  |             |  
| | Proved reserves, end of period              |  | 1,375.52   |   |  | -          |   |  | 1,375.52    |  
| |                                             |  |            |   |  |            |   |  |             |  
| | Proved developed reserves:                  |  |            |   |  |            |   |  |             |  
| | Beginning of period                         |  | 31.56      |   |  | 1.22       |   |  | 31.76       |  
| |                                             |  |            |   |  |            |   |  |             |  
| | End of period                               |  | 103.07     |   |  | 0.00       |   |  | 103.07      |  

| | 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   |  

Standardized Measure of Discounted
Future Net Cash Flows (unaudited)

FASB ASC 932, Disclosures About Oil
and Gas Producing Activities,("ASC 932") 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 from oil and gas
reserves use the unweighted arithmetic average of the price on the first day of
each month within the 12-month period prior to the end of the reporting period.
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, 2009 and December 31, 2008 were $58.83 and $37.00
per barrel for oil, respectively and the price used at December 31, 2008 was
$5.35 per mcf for natural gas. There were no gas reserves at December 31, 2009.
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-25

---

American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

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 ASC 932:

| |                                                          |  | December 31, |  
| | -------------------------------------------------------- |  | ------------ | -
| |                                                          |  | 2009         |  
| |                                                          |  | $            |  
| | Future cash inflows                                      |  | 80,922,056   |  
| | Future development costs                                 |  | (8,398,132   | )
| | Future production costs                                  |  | (31,786,535  | )
| |                                                          |  |              |  
| | Net future cash flows                                    |  | 40,737,389   |  
| | Less effect of a 10% discount factor                     |  | (15,907,262  | )
| |                                                          |  |              |  
| | Standardized measure of discounted future net cash flows |  | 24,830,127   |  

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

| |                                                        |  | December 31, |  
| | ------------------------------------------------------ |  | ------------ | -
| |                                                        |  | 2009         |  
| |                                                        |  | $            |  
| | Standardized measure, beginning of period              |  | 3,999,973    |  
| | Sales of oil and gas produced, net of production costs |  | (269,249     | )
| | Development costs incurred                             |  | 633,321      |  
| | Changes in future development costs                    |  | (6,138,259   | )
| | Revisions of previous quantity estimates               |  | 5,642,612    |  
| | Net change due to extensions and discoveries           |  | -            |  
| | Net change in prices and production costs              |  | (335,516     | )
| | Changes in production rate                             |  | (50,032      | )

F-26

---

American Natural Energy CorporationNotes to
Consolidated Financial StatementsDecember 31, 2009 and 2008

| | Purchases of properties             |  | 15,797,354 |  |  | -         |  
| | ----------------------------------- |  | ---------- |  |  | --------- | -
| | Accretion of discount               |  | 2,922,803  |  |  | 801,378   |  
| | Other                               |  | 2,627,120  |  |  | (599,742  | )
| |                                     |  |            |  |  |           |  
| | Standardized measure, end of period |  | 24,830,127 |  |  | 3,999,973 |  

F-27

---

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 Corporation
| | --- | -----------------------------------
| |     |                                    
| | By: | /s/ Michael K. Paulk               
| |     | Michael 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 Executive Officer) and Director        | March 31, 2010
|Michael K. Paulk     |                                                             |               
|                     |                                                             |               
|                     |                                                             |               
|/s/ Steven P. Ensz   | Director and Principal Financial and Accounting
    Officer | March 31, 2010
|Steven P. Ensz       |                                                             |               
|                     |                                                             |               
|/s/ Brian Bayley     | Director                                                    | March 31, 2010
|Brian Bayley         |                                                             |               
|                     |                                                             |               
|/s/ John K. Campbell | Director                                                    | March 31, 2010
|John K. Campbell     |                                                             |               
|                     |                                                             |               
|                     |                                                             |               
|/s/ William Grant    | Director                                                    | March 31, 2010
|William Grant        |                                                             |               

---