##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-KSB
  þ
    
    Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the fiscal year ended December 31, 2007; or
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
 For
the transition period from ___ to ___.
 Commission File No. 0-18956
 American Natural Energy Corporation
 
  Oklahoma
    
    73-1605215(State or Other Jurisdiction of
    
    (IRS EmployerIncorporation or Organization)
    
    Identification No.)
 6100 South Yale, Suite 300, Tulsa, Oklahoma
    
    74136(Address of Principal Executive Offices)
    
    (Zip Code)
 918-481-1440
   Title of Each Class
    
    Name of Each Exchange on Which RegisteredNone
  
 
 o
 þ o
 þ
 o þ
 .
 .
  DOCUMENTS INCORPORATED BY REFERENCE




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##### 



Table of Contents
 PagePart IItem 1. Description of Business
    
    3Item 2. Description of Property
    
    18Item 3. Legal Proceedings
    
    18Item 4. Submission of Matters to a Vote of Security Holders
    
    18Part IIItem 5. Market for Common Equity, Related Stockholder Matters
and Small Business Issuer Purchases of Equity
Securities
    
    19Item 6. Managements Discussion and Analysis or Plan of
Operation
    
    21Item 7. Financial Statements
    
    43Item 8. Changes In and Disagreements With Accountants On
Accounting and Financial Disclosure
    
    43Item 8A Controls and Procedures
    
    43Item 8B Other Information
    
    45Part IIIItem 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act.
    
    46Item 10. Executive Compensation
    
    49Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    51Item 12. Certain Relationships and Related Transactions
    
    54Item 13. Exhibits
    
    54Item 14. Principal Accountant Fees and Services
    
    56CHIEF EXECUTIVE OFFICER CERTIFICATION RULE 13A-14(A)CHIEF FINANCIAL OFFICER CERTIFICATION RULE 13A-14(A)PRINCIPAL EXECUTIVE OFFICER CERTIFICATION SECTION 1350PRINCIPAL EXECUTIVE OFFICER CERTIFICATION SECTION 1350
  2




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PART I
 
 Item 1  Description of Business :
  Our Oil and Natural Gas Interests
   Our Couba Properties .
 3




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Our ExxonMobil Joint Development Agreement.
   Our Dune Energy Agreements.
 4




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Our TransAtlantic Agreements.
 5




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Seismic Survey Participation Agreement.
 Our State of Louisiana Lease
   6




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Oil and Gas Reserves
  OIL
    
    GAS
    
    TOTAL(Mbbl)
    
    (Mmcf)
    
    (Mbble)Proved developed producing
    
    
    58.02
    
    
    
    3.71
    
    
    
    58.64Proved developed non-producing
    
    
    
    
    
    
    
    
    
    
    Proved undeveloped
    
    
    238.62
    
    
    
    765.23
    
    
    
    366.16Total proved
    
    
    296.64
    
    
    
    768.94
    
    
    
    424.80
 ProvedProved
    
    DevelopedDeveloped
    
    Non-
    
    Proved
    
    TotalProducing
    
    producing
    
    Undeveloped
    
    ProvedEstimated future net revenue(a)
    
    $
    2,982,747
    
    
    
    
    
    
    $
    14,367,471
    
    
    $
    17,350,218Present value of future net
revenue(b)
    
    $
    2,143,106
    
    
    
    
    
    
    $
    9,005,498
    
    
    $
    11,148,604Standardized measure of discounted
future net cash flows
    
    $
    2,143,106
    
    
    
    
    
    
    $
    9,005,498
    
    
    $
    11,148,604
 
 (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, 2007. 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 $94.45 per barrel of oil and $6.83 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, 2007 as there is no future income tax provision.  7




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Drilling Activity
  Year Ended December 31,2005(1)
    
    2006
    
    2007Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetDevelopment
Productive
    
    
    3.0
    
    
    
    0.61
    
    
    
    2.0
    
    
    
    0.05
    
    
    
    0.0
    
    
    
    0.0Non-productive
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Exploratory
Productive
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Non-productive
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
 8




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##### Table of Contents



(1)
    
    Excludes 1 (.81 net) well drilled by prior owners on the Bayou Couba properties
which we returned to production during 2005. Past Drilling and Development Activities
       Activities During 2007 and Present Activities
    9




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Productive Well Data Information
  Well CountArea
    
    Gross(1)
    
    Net(1)St. Charles Parish, Louisiana
    
    
    21.0
    
    
    
    10.60
 
 (1)
    
    18 (9.25 net) of the 21 wells have been classified as primarily oil producing wells. 3 (1.35 net) wells are classified as gas wells. Production Volumes, Revenue, Prices and Production Costs
  Year Ended December 31,2007
    
    2006
    
    2005Net Production: (1)(2)Oil (Mbbl)
    
    
    16.5
    
    
    
    23.5
    
    
    
    42.8Natural Gas
(Mmcf)
    
    
    3.5
    
    
    
    14.9
    
    
    
    6.1Oil Equivalent
(Mbble )
    
    
    17.1
    
    
    
    26.0
    
    
    
    43.8Oil and Natural Gas
Sales: (2)Oil
    
    $
    1,199,893
    
    
    $
    1,525,194
    
    
    $
    2,458,123Natural Gas
    
    $
    19,568
    
    
    $
    97,058
    
    
    $
    55,963Total
    
    $
    1,219,461
    
    
    $
    1,622,252
    
    
    $
    2,514,086Average Sales Price:Oil ($per Bbl)
    
    $
    72.54
    
    
    $
    64.88
    
    
    $
    57.41Natural Gas ($per
Mcf)
    
    $
    5.65
    
    
    $
    6.51
    
    
    $
    9.24Oil Equivalent
($per Bble)
    
    $
    71.24
    
    
    $
    62.41
    
    
    $
    57.36Oil and Natural Gas
Costs:Lease operating
expenses
    
    $
    470,730
    
    
    $
    345,854
    
    
    $
    496,275Production Taxes
    
    $
    102,968
    
    
    $
    103,111
    
    
    $
    241,854Depreciation,
depletion and
amortization
    
    $
    441,764
    
    
    $
    638,104
    
    
    $
    1,003,961Average production
cost per unit of
production ($  per
Bble)
    
    $
    33.51
    
    
    $
    17.27
    
    
    $
    16.84
 10




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(1)
    
    Includes only production owned by us and produced to our interest, less royalties and
production due others. 265, 228, and 366 barrels of oil were produced in December 2007, 2006 and
2005 but not sold until January 2008, 2007 and 2006, respectively, and are included in inventory at
December 31, 2007, 2006 and 2005 at the lower of production cost and DD&A, or market.(2)
    
    Reflects effects of prior period adjustments resulting from joint interest audits which
decreased 2005 production by 8.0 Mbble and revenue by $279,874 Development, Exploration and Acquisition Expenditures
  Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,2005
    
    2006
    
    2007Development Costs
    
    $
    2,043,759
    
    
    $
    1,150,721
    
    
    $
    231,949Exploration Costs
    
    
    
    
    
    
    
    
    
    
    Acquisition Costs
    
    
    
    
    
    
    
    
    
    
    Sales of Properties
    
    $
    (837,500
    )
    
    $
    (162,500
    )
    
    $
    (3,500,000
    )Capitalized Interest
    
    $
    417,934
    
    
    
    
    
    
    
    Total
    
    $
    1,624,193
    
    
    $
    988,221
    
    
    $
    (3,268,051
    )
 Acreage
  Total Developed andDeveloped(1)(2)
    
    Undeveloped(1)(2)
    
    UndevelopedArea
    
    Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetLouisiana
    
    
    1,319
    
    
    
    866
    
    
    
    
    
    
    
    
    
    
    
    1,319
    
    
    
    866Total
    
    
    1,319
    
    
    
    866
    
    
    
    
    
    
    
    
    
    
    
    1,319
    
    
    
    866
 
 (1)
    
    Net acreage assumes that we maintain our existing working interest percentage in all
future development. An election by ExxonMobil Corp. to participate in our acreage
pursuant to the ExxonMobil Corp. joint development agreement we entered into in November
2002 will reduce our net owned acreage position. Our participation in ExxonMobil Corp.
acreage under that agreement will serve to increase our net acreage position. At December
31, 2003, ExxonMobil Corp. was providing 3,240 gross acres to the joint development
agreement area. As the agreement was amended in December 2003, ExxonMobil Corp. 11




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agreed to
provide an additional 2,560 gross acres (to a depth of 14,000 feet) to the joint
development agreement.(2)
    
    Assumes participation by Dune Energy pursuant to rights granted under an Exploration
and Development Agreement. Pursuant to the terms of the agreement we entered into on
October 19, 2005 with Dune Energy, we and Dune Energy created an area of mutual interest
in which we have agreed with Dune Energy to share all rights, title and interest owned or
acquired on an equal basis on our Bayou Cuba lease acreage of approximately 1,319 acres,
the acreage covered by our development agreement with ExxonMobil Corporation
(ExxonMobil) of approximately 11,486 acres which are included in the 31,367 acre area,
as well as any additional acreage offered to us or Dune Energy by ExxonMobil as the result
of the acquisition of additional 3-D seismic data by the parties under the terms of the
Agreement.  On June 26, 2007 Dune Energy acquired additional rights from us relating to
the contract areas subject to the ExxonMobil joint development agreement but such rights
do not affect the net acres reflected. Marketing
   Hedging Activities
  Competition
  12




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Regulation
 General
  Exploration and Production
  Environmental and Occupational Regulation
 General
 13




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Waste Disposal
  Superfund
 14




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Air Emissions
  OSHA
 OPA and Clean Water Act
 15




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NORM
 Safe Drinking Water Act
 Toxic Substances Control Act
 Title To Properties
  16




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Operating Hazards and Insurance
   Employees
  Organization
   17




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Office
  
 Item 2  Description of Property :
  
 Item 3  Legal Proceedings :
  
 Item 4  Submission of Matters to a Vote of Security Holders :
  18




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PART II
 
 Item 5  Market for Common Equity, Related Stockholder Matters and Small Business Issuer
Purchases of Equity Securities :
   PricesHigh
    
    Low
    
    Share Volume2005First Quarter
    
    $
    0.31
    
    
    $
    0.12
    
    
    
    4,200,014Second Quarter
    
    $
    0.27
    
    
    $
    0.09
    
    
    
    2,953,769Third Quarter
    
    $
    0.15
    
    
    $
    0.10
    
    
    
    1,918,963Fourth Quarter
    
    $
    0.12
    
    
    $
    0.06
    
    
    
    4,350,1102006First Quarter
    
    $
    0.15
    
    
    $
    0.05
    
    
    
    3,822,078Second Quarter
    
    $
    0.25
    
    
    $
    0.08
    
    
    
    2,224,343Third Quarter
    
    $
    0.08
    
    
    $
    0.03
    
    
    
    5,130,461Fourth Quarter
    
    $
    0.12
    
    
    $
    0.02
    
    
    
    6,073,6072007First Quarter
    
    $
    0.10
    
    
    $
    0.05
    
    
    
    2,347,654Second Quarter
    
    $
    0.05
    
    
    $
    0.03
    
    
    
    2,500,333Third
Quarter through July 25, 2007*
    
    $
    0.05
    
    
    $
    0.03
    
    
    
    378,331
 
 *
    
    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.  Management Cease Trade Order
 19




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Notice of Default First Default Status
Report Second Default Status Report Third Default
Status Report Fourth Default Status Report
 Interim
Financial Statements
  Dividend Policy
  Small Business Issuer Purchases of Equity Securities
  20




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Item 6  Managements Discussion and Analysis or Plan of Operation :
 General
     21




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Statements of Operations
 A Comparison of Operating Results for the Years Ended December 31, 2007 and December 31, 2006
      22




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A Comparison of Operating Results for the Years Ended December 31, 2006 and December 31, 2005
    23




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24




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Liquidity and Capital Resources
 General
   Years Ended December 31, 2007 and December 31, 2006
  25




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Years Ended December 31, 2006 and December 31, 2005
     26




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How We Have Financed Our Activities
      27




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Future Capital Requirements and Resources
 28




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Critical Accounting Policies
 Oil and Gas Properties
  29




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Revenue Recognition
   30




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Income taxes
  Accounting for Income Taxes
 
    
    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.
  Notes payable and long-term debt
 31




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Asset Retirement Obligation
 Accounting for Asset Retirement Obligations
  Accounting Matters
 Share-Based Payment Accounting for Stock-Based
Compensation Accounting for Stock Issued to Employees
  32




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Fair
Value Measurements (SFAS 157)
  33




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Risk Factors
  Risks Relating to Us and the Oil and Gas Industry
 Our Ability to Continue as a Going Concern is Uncertain
   34




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We Defaulted in the Repayment of $10.825 Million of Secured Indebtedness on September 30,
2006. There Are Risks That the Holders of This Indebtedness May Seek to Assert Their Rights as
Secured Creditors and Foreclose On Our Assets.
  Our Current Liabilities as of December 31, 2007 Exceed Our Current Assets by $18.1 Million
  Without Substantial Additional Capital We Will Be Unable To Fund The Exploration and Development
Activities To Further Develop Our Area Of Mutual Interest With ExxonMobil
 35




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Oil and Gas Prices Fluctuate Widely and Low Oil and Gas Prices Could Adversely Affect Our Financial
Results.
   
    
    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.
  
    
    the capacity and availability of oil and gas gathering systems and pipelines;
 36




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
    
    our ability to produce oil and gas in commercial quantities and to enhance and
maintain production from existing wells and wells proposed to be drilled;
    
    the effect of federal and state regulation of production and transportation;
    
    general economic conditions;
    
    changes in supply due to drilling by other producers;
    
    the availability of drilling rigs and related crews; and
    
    changes in demand.
 Lower Oil and Gas Prices May Adversely Affect Our Level of Capital Expenditures, Reserve Estimates,
Borrowing Capacity and Ability to Repay Notes Payable .
    Our Future Borrowings and Other Oil and Gas Development Activities May Be Restricted Because Of The
Restrictive Covenants In Our Existing Secured Indebtedness Which, Among Other Things, Restricts Our
Ability To Incur Indebtedness In Excess Of $2.0 Million
  37




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Additional Secured Indebtedness We May Incur In the Future May Increase Our Exposure to Risks
Associated With Higher Debt Levels and Possible Defaults.
  
    
    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;
    
    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.
  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.
 38




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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.
  Estimating Reserves and Future Net Revenues Involves Uncertainties and Oil and Gas Price Declines
May Lead to Impairment of Oil and Gas Assets.
  39




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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.
  40




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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.
   Shortages of Oil Field Equipment, Services and Qualified Personnel Could Adversely Affect Our
Results Of Operations.
  41




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Risks Relating to the Market for Our Securities
 Absence of a Public Market for Our Common Shares.
  Cautionary Statement For Purposes Of The Safe Harbor Provisions Of The Private Securities
Litigation Reform Act Of 1996
   42




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Item 7  Financial Statements :
  
 Item 8  Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure :
  
 Item 8A(T)  Controls and Procedures
 Report on Internal Control
     43




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44




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Item 8B  Other Information
  45




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PART III
 
 Item 9  Directors, Executive Officers, Promoters and Control Persons; Compliance with Section
16(a) of the Exchange Act :
 Directors, Executive Officers and Significant Employees
  Name
    
    Age
    
    PositionDirectors and Executive Officers:Michael K. Paulk (1)
    
    
    59
    
    
    President and DirectorSteven P. Ensz
    
    
    56
    
    
    Vice President, Finance,
and Chief Financial
Officer and DirectorBrian E. Bayley(1)
    
    
    55
    
    
    DirectorJohn K. Campbell(1)
    
    
    74
    
    
    DirectorSignificant Employees:Richard O. Mulford
    
    
    55
    
    
    Manager of OperationsRobert G. Snead
    
    
    69
    
    
    Exploitation Manager
 
 (1)
    
    Member of our Audit Committee  Michael K. Paulk
 Steven P. Ensz
 46




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Brian E. Bayley:
 John K. Campbell:
   Significant Employees :
 Richard O. Mulford:
 Robert G. Snead:
  Audit Committee and Audit Committee Financial Expert:
  47




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Code of Ethics:
  48




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Item 10  Executive Compensation :
  SUMMARY COMPENSATION TABLE
Annual Compensation
 NonqualifiedName
    

    
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    Deferredand
    

    
    
    
    
    
    
    Stock
    
    Option
    
    Incentive Plan
    
    Compensation
    
    All OtherPrincipal
    

    
    
    Salary
    
    Bonus
    
    Awards
    
    Awards
    
    Compensation
    
    Earnings
    
    Compensation
 
    TotalPosition
    
    Year
    

    ($)
    
    ($)
    
    ($)(1)
    
    ($)(1)
    
    ($)
    
    ($)
    
    ($)
    
    ($)(a)
    
    (b)
    

    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    

    (h)
    
    (i)
    
    (j)Michael K. Paulk,
President and
CEO(2)
    
    20072006
    
    $150,000
$125,000
    
    -0-
-0-
    
    -0-
-0-
    
    -0-
-0-
    
    -0-
-0-
    
    -0-
-0-
    
    -0-
-0-
    
    $150,000
$125,000Steven P. Ensz
Executive Vice
President and
CFO(2)
    
20072006

    $150,000
$125,000
    
    -0-
-0-
    
    -0-
-0-
    
    -0-
-0-
    
    -0-
-0-
    
    -0-
-0-
    
    -0-
-0-
    
    $150,000
$125,000
 
 (1)
    
    Represents the dollar amount recognized for financial statement reporting purposes with
respect to the fiscal year in accordance with FAS 123R. See Note 1 to Notes to Financial
Statements for the year ended December 31, 2006.(2)
    
    Messrs. Paulk and Ensz are also Directors of our company; however they receive no
additional compensation for serving in those capacities.  49




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Outstanding Equity Awards at  December 31, 2007 .
  Option Awards
    

Stock AwardsNumber
    
    Market
    
    Equityof
    
    value of
    
    Incentiveshares
    
    shares
    
    Plan
    
    Equity IncentiveEquity
    
    
    
    
    
    
    
    
    
    or units
    
    or units
    
    Awards:
    
    Plan Awards:Number of
    
    Incentive
    
    
    
    
    
    
    
    
    
    of
    
    of
    
    Number of
    
    Market orsecurities
    
    Plan Awards:
    
    
    
    
    
    
    
    
    
    Stock
    
    Stock
    
    Unearned
    
    payout value ofunderlying
    
    Number of
    
    
    
    
    
    
    
    
    
    held
    
    held
    
    Shares,
    
    Unearnedunexercised
    
    Securities
    
    
    
    
    
    
    
    
    
    that
    
    that
    
    Units or
    
    Shares, Units orOptions
    
    Underlying
    
    Option
    
    
    
    
    
    have
    
    have
    
    Other Rights
    
    Other Rights(#)
    
    Unexercised
    
    Exercise
    
    Option
    
    not
    
    not
    
    That Have
    
    That Have NotExercisable/
    
    Unearned
    
    Price
    
    Expiration
    
    vested
    
    vested
    
    Not Vested
    
    VestedName
    
    Unexercisable
    
    Options (#)
    
    ($)
    
    Date
    
    (#)
    
    ($)
    
    (#)
    
    ($)(a)
    
    (b-c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)
    
    (i)
    
    (j)Michael K. Paulk
    
    
    250,000
    
    
    
    -0-
    
    
    
    0.45
    
    
    
    4/22/09
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Steven P. Ensz
    
    
    250,000
    
    
    
    -0-
    
    
    
    0.45
    
    
    
    4/22/09
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
 Director Compensation
  Fees
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-earned
    
    
    
    
    
    
    
    
    
    Non-Equity
    
    Qualifiedor paid
    
    Stock
    
    Option
    
    Incentive Plan
    
    Deferred
    
    All Otherin cash
    
    Awards
    
    Awards
    
    Compensation
    
    Compensation
    
    Compensation
    
    TotalName
    
    ($)
    
    ($)(1)
    
    ($)(1)
    
    ($)
    
    Earnings
    
    ($)
    
    ($)(a)
    
    (b)
    
    (c)
    
    (d)
    
    (e)
    
    (f)
    
    (g)
    
    (h)Brian E. Bayley
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-John K. Campbell
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
 
 (1)
    
    Represents the dollar amount recognized for financial statement reporting purposes with
respect to the fiscal year in accordance with FAS 123R. See Note 1 to Notes to Financial
Statements for the year ended December 31, 2007.  50




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##### Table of Contents



Item 11  Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters :
  Percentage ofNumber of Shares

    
    OutstandingName and Address(1)(2)
    
    Owned

    
    Shares(3)Michael K. Paulk
    
    
    2,398,875
    (4)
    
    
    4.5
    %Steven P. Ensz
    
    
    3,398,313
    (5)
    
    
    6.4
    %Brian E. Bayley
Suite 300  570 Granville Street
Vancouver, BC V6C 3P1
    
    
    1,645,625
    (6)
    
    
    3.1
    %John K. Campbell
750 West Pender Street  Suite 710
Vancouver, BC V6C 2T7
    
    
    115,528
    (7)
    
    
    0.2
    %TransAtlantic Petroleum Corp(8)
1550, 340  12th Avenue, SW
Calgary, Alberta T2R 1L5
    
    
    2,237,136
    (9)
    
    
    4.2
    %(10)All Directors and officers as a group (4 persons)
    
    
    7,558,341
    
    
    
    14.3
    %
 
 (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 52,997,673 shares outstanding
as of May 20, 2008, except as otherwise noted.(4)
    
    Includes 250,000 shares issuable at an exercise price of $0.45 on exercise of an option.(5)
    
    Includes 250,000 shares issuable at an exercise price of $0.45 on exercise of an option.(6)
    
    Excludes 60,000 shares held by Mr. Bayleys wife and 50,000 shares held by a trust for the
benefit of Mr. Bayleys minor children, as to all of which Mr. Bayley disclaims a beneficial
interest.(7)
    
    Includes 65,528 shares held by Mr. Campbell and 50,000 shares issuable on exercise of options
at an exercise price of $0.68 per share.(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 Debentures and
shares.(10)
    
    The percentage of outstanding shares calculation is based upon 52,997,673 shares outstanding
as of May 20, 2008. 51




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##### Table of Contents



Dune Energy Debenture Holdings
  Securities Authorized for Issuance Under Equity Compensation Plans
   Equity Compensation Plan Information
 52




---



##### Table of Contents



(a)
    
    (b)
    
    (c)Number of securitiesNumber of securities
    
    
    
    
    
    remaining availableto be issued upon
    
    
    
    
    
    for future issuanceexercise of
    
    
    
    
    
    under equityoutstanding
    
    Weighted-average
    
    compensation plansoptions, warrants
    
    exercise price of
    
    (excluding securitiesand
    
    outstanding options,
    
    reflected in columnPlan Category
    
    rights
    
    warrants and rights
    
    (a))Equity compensation plans approved by security holders
    
    
    1,050,000
    
    
    $
    0.46
    
    
    
    3,950,000Equity compensation plans not approved by security holders
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Total
    
    
    1,050,000
    
    
    $
    0.46
    
    
    
    3,950,000
 53




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##### Table of Contents



Item 12  Certain Relationships and Related Transactions :
   
 Item 13  Exhibits:
 Exhibit
    
    Description2.0
    
    Second Amended Joint Plan of Reorganization Proposed by Couba Operating
Company, American Natural Energy Corporation and Gothic Resources Inc.
filed in the United States Bankruptcy Court, Western District of Oklahoma.
Case No. 00-11837-W (Chapter 11)(4)2.1
    
    Order Confirming Plan, filed November 16, 2001 with U.S. Bankruptcy Court,
Western District of Oklahoma(1)3.1
    
    Certificate of Incorporation of American Natural Energy
Corporation(1)3.2
    
    Certificate of Amendment filed March 23, 2001(1)3.3
    
    Certificate of Amendment filed December 20, 2001(1)3.4
    
    Amended Certificate of Incorporation filed June 30, 2005.(5)3.4
    
    By-laws, as amended through September 13, 2004(5)10.1
    
    2001 Stock Incentive Plan(1)10.2
    
    Leasehold Acquisition and Development Agreement with The Wiser Oil
Company(1)10.3
    
    Assignment of Oil, Gas and Mineral Lease dated as of February 18, 2002
relating to State Lease Number 17353.(1)10.4
    
    Purchase and Exploration Agreement dated March 10, 2003 between the
Registrant and TransAtlantic Petroleum (USA) Corp.(4)10.5.1
    
    Form of Subscription Agreement to purchase the Registrants 8% Convertible
Secured Debenture due September 30, 2005.(2)10.5.2
    
    Trust Indenture dated as of October 8, 2003 between the Registrant and
Computershare Trust Company of Canada(2)
 54




---



##### Table of Contents



Exhibit
    
    Description10.5.3
    
    Trust Indenture (Amended and Restated as of June 29, 2005) between the
Registrant and Computershare Trust Company of Canada.(6)10.6.1
    
    Development Agreement dated November 22, 2002 between the Registrant and
ExxonMobil Corporation(3)10.6.2
    
    Amendment dated December 19, 2003 to Development Agreement dated November
22, 2002 between the Registrant and ExxonMobil Corporation(3)10.7
    
    Letter Agreement between the Registrant and Dune Energy, Inc.(7)10.7.1
    
    Consent accepted September 12, 2005 received from ExxonMobil Production
Corporation pertaining to Letter Agreement between the Registrant and Dune
Energy, Inc.(7)10.7.2
    
    Exploration and Development Agreement between the Registrant and Dune
Energy, Inc.(8)10.8
    
    Participation Agreement dated March 8, 2006 between the Registrant and
Seismic Exchange, Inc.(9)14.1
    
    Code of Ethics(4)21.0
    
    Subsidiaries of the Registrant as of December 31, 2005:
 Name
    
    State or Jurisdiction of IncorporationGothic Resources, Inc.
    
    Canada Business Corporations ActCouba Operating Company
    
    Oklahoma
 31.1
    
    Certification of President and Chief Executive Officer Pursuant to Rule
13a-14(a)(10)31.2
    
    Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)(10)32.1
    
    Certification of President and Chief Executive Officer Pursuant to Section
1350 (furnished, not filed)(10)32.2
    
    Certification of Chief Financial Officer Pursuant to Section 1350
(furnished, not filed)(10)
 
 (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).(3)
    
    Filed with Amendment No. 1 to Registration Statement on Form SB-2 filed February 6,
2004 (File No. 333-111244). 55




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##### Table of Contents



(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. 
 Item 14. Principal Accountant Fees and Services
  Audit RelatedAudit Fees
    
    Fees
    
    Tax Fees2007
    
    $
    46,000
    
    
    
    
    
    
    $
    26,0002006
    
    $
    110,000
    
    
    
    
    
    
    $
    35,000
 Audit Fees
 56




---



##### Table of Contents



American Natural Energy Corporation
 December 31, 2007 and 2006
 F-1




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
 F-2




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##### Table of Contents



AMERICAN NATURAL ENERGY CORPORATION
Consolidated Balance Sheets
 December 31,
    
    December 31,2007
    
    2006$
    
    $ASSETSCurrent assets:Cash and cash equivalents
    
    
    136,856
    
    
    
    491Accounts receivable  joint interest billing, net of allowance for doubtful accounts of $26,195 in 2007
    
    
    8,822
    
    
    
    427,736Accounts receivable  oil and gas sales
    
    
    48,794
    
    
    
    555,453Prepaid expenses and other
    
    
    67,722
    
    
    
    98,593Oil inventory
    
    
    12,273
    
    
    
    9,004Total current assets
    
    
    274,467
    
    
    
    1,091,277Proved oil and gas properties using the full cost method, net of accumulated depletion, depreciation, amortization and impairment of $20,087,252 and
$19,809,614 respectively
    
    
    2,819,355
    
    
    
    3,016,913Unproved oil and gas properties
    
    
    9,095
    
    
    
    3,430,582Equipment and other fixed assets, net of accumulated depreciation of $764,931 and $659,025
    
    
    523,551
    
    
    
    452,005Deposits
    
    
    
    
    
    
    20,000Total assets
    
    
    3,626,468
    
    
    
    8,010,777LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued liabilities
    
    
    2,066,376
    
    
    
    3,201,002Revenues payable
    
    
    3,347,371
    
    
    
    4,767,006Accrued interest
    
    
    1,533,229
    
    
    
    705,153Insurance note payable
    
    
    17,700
    
    
    
    40,491Notes payable (Note 7)
    
    
    75,217
    
    
    
    1,107,628Note payable  related party (Note 10)
    
    
    195,850
    
    
    
    195,850Asset retirement obligation (Note 6)
    
    
    
    
    
    
    451,740Taxes due on dissolution of subsidiary (Note 9)
    
    
    190,252
    
    
    
    302,870Convertible secured debentures (Note 7)
    
    
    10,825,000
    
    
    
    10,825,000Other current liabilities
    
    
    113,785
    
    
    
    364,007Total current liabilities
    
    
    18,364,780
    
    
    
    21,960,747Asset retirement obligation (Note 6)
    
    
    1,753,110
    
    
    
    1,288,795Total liabilities
    
    
    20,117,890
    
    
    
    23,249,542Commitments
and contingencies (Notes 9 and 12)Stockholders deficit:Common stockAuthorized  250,000,000 shares with par value of $0.001
Issued and outstanding  52,997,673 shares
    
    
    52,997
    
    
    
    52,997Additional paid-in capital
    
    
    20,321,226
    
    
    
    20,321,226Accumulated deficit, since January 1, 2002 (in conjunction with the quasi-
reorganization stated capital was reduced by an accumulated deficit of
$2,015,495)
    
    
    (41,151,844
    )
    
    
    (37,922,798
    )Accumulated other comprehensive income
    
    
    4,286,199
    
    
    
    2,309,810Total stockholders deficit
    
    
    (16,491,422
    )
    
    
    (15,238,765
    )Total liabilities and stockholders deficit
    
    
    3,626,468
    
    
    
    8,010,777
  F-3




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##### Table of Contents



AMERICAN NATURAL ENERGY CORPORATION
Consolidated Statements of Operations and Other Comprehensive Income
 December 31, 2007
    
    December 31, 2006$
    
    $Revenues:Oil and gas sales
    
    
    1,219,461
    
    
    
    1,622,252Operations income
    
    
    132,104
    
    
    
    160,900Interest income and other income
    
    
    1,324
    
    
    
    561,352,889
    
    
    
    1,783,208Expenses:Lease operating expense
    
    
    470,730
    
    
    
    345,854Production taxes
    
    
    102,968
    
    
    
    103,111General and administrative
    
    
    1,227,298
    
    
    
    1,596,639Foreign exchange loss
    
    
    1,976,389
    
    
    
    46,379Interest and bank charges
    
    
    991,711
    
    
    
    1,260,704Related party interest
    
    
    21,885
    
    
    
    13,426Depreciation, depletion, and amortization   oil and gas properties
    
    
    277,319
    
    
    
    457,519Accretion of asset retirement obligation
    
    
    164,445
    
    
    
    180,585Depreciation and amortization  other assets
    
    
    159,655
    
    
    
    338,587Gain on settlement of debt
    
    
    (836,660
    )
    
    
    (108,087
    )Doubtful accounts expense
    
    
    26,195
    
    
    
    Total expenses
    
    
    4,581,935
    
    
    
    4,234,717Net loss
    
    
    (3,229,046
    )
    
    
    (2,451,509
    )Other comprehensive income net of tax:Foreign exchange translation
    
    
    1,976,389
    
    
    
    46,379Other comprehensive income
    
    
    1,976,389
    
    
    
    46,379Comprehensive loss
    
    
    (1,252,657
    )
    
    
    (2,405,130
    )Net loss per share  basic and diluted
    
    
    (0.06
    )
    
    
    (0.05
    )Weighted average number of shares outstanding  basic and diluted
    
    
    52,997,673
    
    
    
    51,884,888
  F-4




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##### Table of Contents



AMERICAN NATURAL ENERGY CORPORATION  Consolidated Statements of Changes in Stockholders Deficit
 Accumu-latedOther
    
    TotalAdditional
    
    Accumu-
    
    compre-
    
    stock-Common stock
    
    paid-in
    
    lated
    
    hensive
    
    holdersShares
    
    Amount
    
    capital
    
    Deficit
    
    income
    
    deficit$
    
    $
    
    $
    
    $
    
    $Balance  December 31, 2005
    
    
    50,664,342
    
    
    
    50,664
    
    
    
    19,973,090
    
    
    
    (35,471,289
    )
    
    
    2,263,431
    
    
    
    (13,184,104
    )Stock issued on conversion of debentures
    
    
    2,333,331
    
    
    
    2,333
    
    
    
    347,667
    
    
    
    
    
    
    
    
    
    
    
    350,000Stock option compensation expense
    
    
    
    
    
    
    
    
    
    
    469
    
    
    
    
    
    
    
    
    
    
    
    469Foreign exchange translation gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    46,379
    
    
    
    46,379Net loss (total comprehensive loss of $2,405,130)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,451,509
    )
    
    
    
    
    
    
    (2,451,509
    )Balance  December 31, 2006
    
    
    52,997,673
    
    
    
    52,997
    
    
    
    20,321,226
    
    
    
    (37,922,798
    )
    
    
    2,309,810
    
    
    
    (15,238,765
    )
  F-5




---



##### Table of Contents



AMERICAN NATURAL ENERGY CORPORATION  Consolidated Statements of Changes in Stockholders Deficit (cont.)
 Accumu-latedOther
    
    
    TotalAdditional
    
    
    Accumu-
    
    
    compre-
    
    
    stock-Common stock
    
    
    paid-in
    
    
    lated
    
    
    hensive
    
    
    holdersShares
    
    
    Amount
    
    
    capital
    
    
    Deficit
    
    
    income
    
    
    deficit$
    
    
    $
    
    
    $
    
    
    $
    
    
    $Balance  December 31, 2006
    
    
    52,997,673
    
    
    
    52,997
    
    
    
    20,321,226
    
    
    
    (37,922,798
    )
    
    
    2,309,810
    
    
    
    (15,238,765
    )Foreign exchange translation gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,976,389
    
    
    
    1,976,389Net loss (total comprehensive
loss of $1,252,657)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,229,046
    )
    
    
    
    
    
    
    (3,229,046
    )Balance  December 31, 2007
    
    
    52,997,673
    
    
    
    52,997
    
    
    
    20,321,226
    
    
    
    (41,151,844
    )
    
    
    4,286,199
    
    
    
    (16,491,422
    )
  F-6




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##### Table of Contents



AMERICAN NATURAL ENERGY CORPORATION  Consolidated Statements of Cash Flows
 December 31, 2007
    
    
    December 31, 2006$
    
    
    $Cash flows from operating activities:Net loss
    
    
    (3,229,046
    )
    
    
    (2,451,509
    )Non cash items:Depreciation, depletion and amortization
    
    
    436,974
    
    
    
    796,106Accretion of asset retirement obligation
    
    
    164,445
    
    
    
    180,585Foreign exchange loss
    
    
    1,976,389
    
    
    
    46,379Gain on settlement of notes payable
    
    
    (836,660
    )
    
    
    Amortization
of discount on convertible secured debentures
    
    
    
    
    
    
    205,169Doubtful accounts expense
    
    
    26,195
    
    
    
    Non-cash compensation expense
    
    
    
    
    
    
    469Changes in non-cash working capital items:Accounts receivable
    
    
    632,840
    
    
    
    26,535Oil inventory
    
    
    (2,950
    )
    
    
    597Prepaid expenses
    
    
    28,246
    
    
    
    112,012Accounts payable, revenues payable and accrued
Liabilities
    
    
    (1,014,434
    )
    
    
    2,783,243Net cash provided by (used) in operating activities
    
    
    (1,818,001
    )
    
    
    1,699,586Cash flows from investing activities:Purchase and development of oil and gas properties
    
    
    (310,462
    )
    
    
    (1,500,813
    )Purchase of equipment and other fixed assets
    
    
    (252,702
    )
    
    
    (8,998
    )Proceeds from sale of fixed assets
    
    
    21,500
    
    
    
    Proceeds from sale of participation rights
    
    
    2,946,418
    
    
    
    162,500Net cash provided by (used) in investing activities
    
    
    1,404,754
    
    
    
    (1,347,311
    )Cash flows from financing activities:Issuance of notes payable
    
    
    
    
    
    
    220,601Payments of notes payable
    
    
    (443,660
    )
    
    
    (697,760
    )Change in bank overdrafts outstanding
    
    
    (6,728
    )
    
    
    (59,893
    )Net cash used in financing activities
    
    
    (450,388
    )
    
    
    (537,052
    )Effect of exchange rate changes on cash
    
    
    
    
    
    
    Increase (decrease) in cash and cash equivalents
    
    
    136,365
    
    
    
    (184,777
    )Cash and cash equivalents beginning of period
    
    
    491
    
    
    
    185,268Cash and cash equivalents end of period
    
    
    136,856
    
    
    
    491
  F-7




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##### Table of Contents



AMERICAN NATURAL ENERGY CORPORATION  Consolidated Statements of Cash Flows (continued)
 December 31, 2007
    
    
    December 31, 2006$
    
    
    $Supplemental disclosures:Interest paid (net of amount capitalized)
    
    
    117,078
    
    
    
    342,954Income taxes paid
    
    
    
    
    
    
    Non cash financing and investing activities:Principal amount of 8% debentures converted
to common stock
    
    
    
    
    
    
    350,000Accounts payable refinanced as notes payable
    
    
    
    
    
    
    339,850Prepaid expenses financed
    
    
    21,988
    
    
    
    166,143Change in accounts payable resulting from
direct payment of obligation by third party
    
    
    553,581
    
    
    
    Change in accounts payable resulting from
the purchase and development of oil and
gas properties
    
    
    (1,055,632
    )
    
    
    (350,092
    )ARO Liability-changes in estimates
    
    
    151,870
    
    
    
    
  F-8




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##### Table of Contents



American Natural Energy Corporation
 1
    
    Basis of presentation and summary of significant accounting policiesDescription of companyAmerican 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.ConsolidationThe 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 equivalentsCash and cash equivalents consist of short-term, highly liquid investments with maturities of
90 days or less at time of acquisition. Cash and cash equivalents are deposited with two
institutions and the balance at one institution does exceed the federally insured limits at
December 31, 2007 by $34,000. While balances may periodically exceed the federal depository
insurance limit, the Company has not experienced any losses on deposits.Oil and natural gas propertiesThe 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
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American Natural Energy Corporation
 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. The average composite rate used for depletion,
depreciation and amortization was $15.12 and $17.60 per equivalent bbl in 2007 and 2006,
respectively.The capitalized costs are assessed quarterly to determine whether it is likely such costs will
be recovered in the future. To the extent there are costs which are unlikely to be recovered
in the future, they are written off as an impairment to the carrying value of oil and gas
properties. There was no impairment recorded in 2007 or 2006.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, 2007
and 2006, 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 assetsEquipment 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
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American Natural Energy Corporation
 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 translationThe Companys functional and reporting currency is the U.S. dollar. Transactions denominated
in foreign currencies are translated into U.S. dollars at exchange rates in effect on the date
of the transactions. Exchange gains or losses on transactions are included in earnings. For
Gothic, whose functional currency is the Canadian dollar, the results of operations are
translated from local currencies into U.S. dollars using average exchange rates during each
period; assets and liabilities are translated using exchange rates at the end of each period.
Adjustments resulting from the translation process are reported in a separate component of
other comprehensive income and are not included in the determination of the results of
operations.Revenue recognitionRevenues 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, 2007 and 2006 were insignificant. The
Companys policy is to expense the pro-rata share of lease operating costs from all wells as
incurred.The Companys oil production is sold under market sensitive or spot price contracts. Oil
sales to Teppco Crude Oil, L.P. (Teppco) and Texon L.P. of $1,199,893 and $1,525,194 in 2007
and 2006, respectively, accounted for 98% and 94% 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 obligationsEffective January 1, 2003, the Company adopted Statement of Financial Accounting Standards No.
143, Accounting for Asset Retirement Obligations(SFAS 143). This statement applies to
obligations associated with the retirement of tangible long-lived assets
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American Natural Energy Corporation
 that result from the acquisition, construction and development of the assets. SFAS 143 requires that the fair
value of a liability for a retirement obligation be recognized in the period in which the
liability is incurred. For oil and gas properties, this is the period in which an oil or gas
well is acquired or drilled. The asset retirement obligation is capitalized as part
of the carrying amount of our oil and gas properties at its discounted fair value. The
liability is then accreted each period until the liability is settled or the well is sold, at
which time the liability is reversed.Income taxesThe Company accounts for income taxes under Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes.Deferred tax assets and liabilities are determined based on
the differences between the tax bases of assets and liabilities and those reported in the
financial statements. The deferred tax assets or liabilities are calculated using the enacted
tax rates in effect for the year in which the differences are expected to reverse. Deferred
tax assets are recognized to the extent that they are considered more likely than not to be
realized. Income taxes and liabilities are recognized for the expected future tax
consequences of events that have been included in the financia1 statements or income tax
returns.In July 2006, the FASB issued FASB Interpretation (FIN) No. 48, Accounting for Uncertainty in
Income Taxesan Interpretation of FASB Statement No. 109. FIN 48 provides guidance for
recognizing and measuring uncertain tax positions, as defined in SFAS 109, Accounting for
Income Taxes. FIN 48 prescribes a threshold condition that a tax position must meet for any of
the benefit of the uncertain tax position to be recognized in the financial statements.
Guidance is also provided regarding de-recognition, classification and disclosure of these
uncertain tax positions. FIN 48 is effective for fiscal years beginning after December 15,
2006. The adoption of FIN 48 did not have a material impact on the Companys financial
position, results of operations or cash flows.Use of estimatesThe preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenue and expenses during the
reporting period. Significant areas requiring the use of estimates are assessing the
recoverability of capitalized oil and natural gas property costs, oil and gas reserve
estimates, asset retirement obligations and recoverability of deferred tax assets. Actual
results could differ from those estimates.Earnings (loss) per shareBasic 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).
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American Natural Energy Corporation
 The computation of diluted earnings per share is the same as for basic earnings per share except
the denominator is increased to include the weighted average additional number of shares that
would have been outstanding if previously granted stock options had been exercised, unless
they are anti-dilutive. Due to losses in 2007 and 2006, options were excluded from the
calculation of diluted earnings per share as they were anti-di1utive.Comprehensive income (loss)The preparation of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to report net income (loss) as a
component of comprehensive income (loss) in the financial statements. Comprehensive income
(loss) is defined as the change in equity of a business enterprise arising from non-owner
sources. The Company had other comprehensive income of $1,976,389 and $46,379 for the years
ended December 31, 2007 and 2006, respectively, as a result of foreign exchange translation
gains. As of December 31, 2007 and 2006, accumulated other comprehensive income was comprised
solely of foreign currency translation gains.Stock-based compensationOn January 1, 2006, the Company adopted FAS 123(R), 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 Company has elected to use the modified prospective
application method such that FAS 123(R) applies to new awards, the unvested portion of existing
awards and to awards modified, repurchased or canceled after the effective date. The Company
also has equity incentive plans that provide for the issuance of stock options.Prior to January 1, 2006, the Company accounted for its long-term equity incentive plans under
the intrinsic value method described in APB Opinion No. 25, Accounting for Stock Issued to
Employees and related interpretation. The Company, applying the intrinsic value method, did
not record stock-based compensation cost for stock options issued to employees and directors
because the exercise price of the stock options equaled the market price of the underlying
stock at the date of grant.For the twelve months ended December 31, 2006, the Company recognized compensation costs of
$469 related to stock options issued prior to January 1, 2006. There is no unrecognized
compensation costs related to stock options not yet vested as all stock options are vested at
December 31, 2007.There was no stock option activity for the years 2007 or 2006. At December 31, 2007, there
were 1,050,000 options outstanding and exercisable with a weighted average exercise price of
$0.46. The weighted average remaining contractual term for these options at December 31, 2007
was 1.33 years. These options had no intrinsic value at December 31, 2007.
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American Natural Energy Corporation
 New pronouncementsIn September 2006, the FASB issued Statement of Financial Accounting Standards No. 157,
Fair Value Measurements (SFAS 157). SFAS 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and expands
disclosures about fair value measurements. SFAS 157 is effective for financial
statements issued for fiscal years beginning after November 15, 2007. The Company is currently
assessing the impact, if any, SFAS 157 will have on its financial position, results of
operations or cash flows.Reclassification of Prior Period StatementsCertain reclassifications of prior period financial statements balances have been made to
conform to current reporting practices.2
    
    Going ConcernThe Company has no current borrowing capacity with any lender. The Company has sustained
substantial losses in 2007 and 2006, totalling approximately $3.2 and $2.5 million,
respectively, has a working capital deficiency and an accumulated deficit at December 31, 2007
and 2006, and is in default of the payment terms of its 8% convertible secured debentures as
further discussed below, all of which leads to questions concerning the ability of the Company
to meet its obligations as they come due. The Company also has a need for substantial funds
to develop its oil and gas properties and repay borrowings as well as to meet its other
current liabilities.The accompanying financial statements have been prepared on a going concern basis which
contemplates continuity of operations, realization of assets and liquidation of liabilities in
the ordinary course of business. As a result of the losses incurred and current negative
working capital, there is no assurance that the carrying amounts of assets will be realized or
that liabilities will be liquidated or settled for the amounts recorded. The ability of the
Company to continue as a going concern is dependent upon adequate sources of capital and the
Companys ability to sustain positive results of operations and cash flows sufficient to pay
its current liabilities and to continue to explore for and develop its oil and gas reserves. A
reduction in planned capital spending or an extended decline in oil and gas prices could
result in less than anticipated cash flow from operations and an inability to sell more of its
common stock or refinance its debt with current lenders or new lenders, which would likely
have a further material adverse effect on the Company.Managements strategy is to obtain additional financing or participation with industry
partners. Certain covenants included in the 8% convertible secured debentures limit the
amount of additional indebtedness the Company can incur to $2 million. As of May 19, 2008,
the Debentures have not been repaid or refinanced and are in default. It is managements
intention to raise additional debt or equity financing to either repay or refinance these
debentures and to fund its operations and capital expenditures. Failure to obtain additional
financing can be expected to adversely affect the Companys ability to pay its obligations,
further the development of its properties, including the ExxonMobil Corp. area of mutual
interest (the AMI), grow revenues, oil and gas reserves and achieve and maintain a
significant level of revenues, cash flows, and profitability. There can be no
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American Natural Energy Corporation
 assurance that the Company will obtain additional financing at the time required, at rates that are favorable
to the Company, or at all. Further, any additional equity financing that is obtained may
result in material dilution to the current holders of common stock.3
    
    Joint Development AgreementOn November 25, 2002, the Company entered into a Joint Development Agreement with ExxonMobil
Corp. whereby the Company gave ExxonMobil Corp. the right to participate in exploration and
development on all lands it has under lease in the Bayou Couba area, up to 50% of the total
interest, and the use of its 3D seismic covering those leases, in exchange for the rights to
exploration and development on certain lands and leases owned by ExxonMobil Corp., up to 50%
of the total interest. Each party will pay their respective share of exploration and
development costs. The original agreement was supposed to terminate in 4 years and covered
approximately 8,427 acres. On December 19, 2003, the Company entered into a letter agreement
with ExxonMobil Corp. covering a proposed expansion of the lands covered by the agreement and
an extension of the termination date of the agreement (the Expansion Agreement). The
Expansion Agreement added a total of 2,560 acres to the lands covered by the agreement and
extended the term by one year to November 2007.On March 8, 2006, the Company agreed to participate in a 3D seismic survey. Upon the
completion of the survey and seismic interpretation, ExxonMobil Corp. and the Company agreed
to formally extend their Joint Development Agreement by two years to November 2009.4
    
    Exploration and development agreementOn October 19, 2005 the Company executed the definitive Exploration and Development Agreement
(the Agreement) with Dune Energy, Inc. (Dune Energy), providing for the creation of an
area of mutual interest covering an area of approximately 31,367 acres. Pursuant to the terms
of the Agreement, Dune Energy agreed to pay to the Company a prospect fee in the amount of
$1.0 million, of which $225,000 was paid on September 14, 2005, $225,000 was paid on September
30, 2005, $225,000 was paid on October 19, 2005, $162,500 was paid on November 30, 2005 and
$162,500 was paid on January 10, 2006. These amounts reduced the Companys unproved oil and
gas properties. In the event the Company and Dune Energy elect to complete the first two
exploratory wells drilled pursuant to the Agreement, upon the receipt by Dune Energy of a log
from either of those two wells, Dune Energy agreed to pay to the Company an additional
prospect fee of $500,000. The terms of the Agreement were amended September 14, 2006 to waive
the additional prospect fee in exchange for Dune Energy paying 100% of the costs of expanded
3D seismic survey over the Bayou Couba area discussed above.The area of mutual interest created by the Agreement, in which the Company and Dune Energy
have agreed to share all rights, title and interest owned or acquired on an equal basis,
includes the Companys Bayou Couba lease acreage of approximately 1,319 acres, the acreage
covered by the Companys Joint Development Agreement with ExxonMobil Corporation
(ExxonMobil) of approximately 11,486 acres, as well as any additional acreage offered to the
Company or Dune Energy by ExxonMobil as the result of the acquisition of additional 3D seismic
data by the parties under the terms of the Agreement. If either party acquires any interests
in lands included in the area of mutual interest created by
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American Natural Energy Corporation
 the Agreement, the acquiring party
is required to notify the non-acquiring party which will have the opportunity to participate
in the acquisition by paying its proportionate share of the price for such properties. On June
26, 2007 Dune Energy increased its participation to 75% of the Companys interest under these
agreements, excluding the area under the Bayou Couba lease itself where it retains a
participation of 50% of the Companys interest, with the payment of $3 million. On September 1, 2007 Dune Energy was elected successor operator under
the joint development agreement and Dune Energy paid the Company an additional $500,000.
These payments reduced the Companys unproved oil and gas properties.The Agreement provides that either party can propose drilling prospects with the non-proposing
party given the right to participate in the drilling prospect and pay its proportionate share
of all drilling and completion costs. Dune Energy is presently the operator of each drilling
prospect and completed well, subject to the rights of ExxonMobil and the Company under the
joint development agreement.The Agreement will remain in effect so long as the Companys Joint Development Agreement with
ExxonMobil remains in effect. The Agreement excludes certain specified existing wells of the
Company, certain litigation rights of the Company, and the Companys production facility and
equipment and personal property. The Companys interest in the area of mutual interest created
by the Agreement is subject to the terms of other agreements to which the Company is a party.5
    
    Equipment and other fixed assetsThe carrying value of equipment and other fixed assets as of December 31, 2007 and 2006
included the following components:
 2007
    
    
    2006$
    
    
    $Computer and office furniture and equipment
    
    
    163,060
    
    
    
    163,060Leasehold improvements
    
    
    5,520
    
    
    
    5,520Barges and field equipment
    
    
    739,748
    
    
    
    734,748Gas gathering and production facility expansion
    
    
    380,154
    
    
    
    207,7021,288,482
    
    
    
    1,111,030Less: Accumulated depreciation
    
    
    (764,931
    )
    
    
    (659,025
    )523,551
    
    
    
    452,005
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American Natural Energy Corporation
 6
    
    Asset retirement obligationsThe Companys asset retirement obligations relate to plugging and abandonment of oil and gas
properties. The components of the change in the Companys asset retirement obligations for
the years ended December 31, 2007 and 2006 are shown below.
 For the years ended December 31,2007
    
    
    2006$
    
    
    $Asset retirement obligations, January 1
    
    
    1,740,535
    
    
    
    1,548,647Additions and revisions
    
    
    (151,870
    )
    
    
    11,303Settlements and disposals
    
    
    
    
    
    
    Accretion expense
    
    
    164,445
    
    
    
    180,585Asset retirement obligations, December 31
    
    
    1,753,110
    
    
    
    1,740,535
 7
    
    Notes payable and long-term debtNotes payable and long-term debt as of December 31, 2007 and 2006 consisted of the following:
 2007
    
    
    2006$
    
    
    $Accounts payable refinanced as notes payable
    
    
    75,217
    
    
    
    1,007,628Note payable  Officer of Company (Note 10)
    
    
    195,850
    
    
    
    195,850Note payable  Citizens Bank of Oklahoma
    
    
    
    
    
    
    100,0008% Convertible secured debentures
    
    
    10,825,000
    
    
    
    10,825,000Total notes payable and long-term debt
    
    
    11,096,067
    
    
    
    12,128,478Less: Current portion
    
    
    (11,096,067
    )
    
    
    (12,128,478
    )Total notes payable and long-term debt, net of current portion
    
    
    
    
    
    
    
 8% Convertible secured debenturesOn October 21, 2003 and October 31, 2003, the Company completed financing transactions of
$11.695 million and $305,000, respectively, by issuing Convertible Secured Debentures (the
Debentures). 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 common shares of
the Company at any time prior to maturity at a conversion price of $0.45
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American Natural Energy Corporation
 per share, subject to
antidilution adjustment, and the Debentures are redeemable by the Company at any time after
October 1, 2004 if the weighted average price per share on the TSX Venture Exchange for a 20
consecutive trading day period prior to the date notice of redemption is given has exceeded 166
2/3% of the conversion price. A finders fee in the amount of $360,000 was paid to Middlemarch
Partners Limited of London, England in connection with the financing. The Debentures are
collateralized by substantially all of the Companys assets. The Debentures have covenants
limiting unsecured borrowings to $2 million and restricting the payment of dividends and
capital distributions.During the third quarter of 2004, the Company completed a Rights Offering. Due to the
antidilution adjustment provisions contained in the Debenture Agreement, such transaction
changed the conversion price of the debentures from $0.45 to $0.43 per share and as a result,
changed the related Beneficial Conversion Feature by $858,000. The change in the Beneficial
Conversion Feature caused the effective rate of the debentures to increase from 55% to 62%.In June 2005, the Debentures were amended with approval by approximately 86% of the Debenture
holders. 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 the Company pursuant to which the third party is
granted the right to drill one or more wells on Company properties and commenced that drilling
activity. On June 23, 2005, stockholders of the Company voted to amend the Certificate of
Incorporation to increase the number of shares of Common Stock of the Company from 100 million
to 250 million and adjust par value from $0.01 to $0.001 per share. This increase in
authorized shares, along with the approval of the TSX Venture Exchange to the transactions,
provided final approval of the Debenture amendments. Under the amendments, 72,166,667 shares
were issuable upon full conversion of the Debentures at the reduced conversion price; however
the conversion rights expired on September 29, 2006 and were not renewed.The amendments to the Debentures resulted in the extinguishment of debt and recognition of a
loss of $1,147,000. As a result of the extinguishment and recognition of loss, these
Debentures were recorded at their fair market value on June 23, 2005 reflecting the present
value of future cash flows and the option value of the underlying convertible shares.The Company failed to meet any of the interest payments due quarterly from June 30, 2006
through May 19, 2008 on its outstanding Debentures. In addition, the Company failed to repay
or redeem the Debentures by the due date of September 30, 2006 and as of May 19, 2008 the
Debentures are still outstanding. Accordingly, pursuant to the Indenture governing the
Debentures, an Event of Default resulting from the Companys failure to timely pay interest
due on June 30, 2006, occurred and is continuing at this time. Under those circumstances, the
Trustee may, and upon request in writing from the holders of not less than 25% of the
principal amount of the Debentures then outstanding, shall, declare the outstanding principal
of and all interest on the Debentures and other moneys outstanding under the Indenture to be
immediately due and payable. In addition, the Trustee will have the right to enforce its
rights on behalf of the Debenture holders against the collateral for the Debentures. The
Debentures are collateralized by substantially all of the Companys assets. The principal
amount of the Debentures outstanding at December 31, 2007 was $10,825,000
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American Natural Energy Corporation
 and accrued and
unpaid interest at that date amounts to $1,515,000. Subsequent to June 30, 2006 through May
19, 2008, neither the Trustee nor the requisite holders of principal amount of Debentures have
declared the Debentures to be immediately due and payable and the Company remains in default
under the interest and repayment terms of its Debentures.During 2007, Dune Energy acquired from the Debenture holders $4,895,000 principal amount of
Debentures, bringing Dune Energys total holdings of our Debentures outstanding to $7,895,000
principal amount as of December 31, 2007.Notes payableOn February 2, 2005, the Company entered into a $100,000 unsecured short-term note with a NYP
floating interest rate with Citizens Bank of Oklahoma. The note and interest were paid in full
on July 6, 2007.On August 24, 2005, the Company entered into a note payable with Parker Drilling Company for
$507,000, which included the conversion of an accounts payable balance of $486,000 due to
Parker Drilling Company. Monthly payments of $25,000 which include interest at the rate of 7%
per annum were to be made through June 2007. On July 9, 2007 the Company and Parker Drilling
Company entered into a settlement agreement whereby the Company paid $50,000 in full
satisfaction of the outstanding note payable to Parker Drilling Company of $395,000 resulting
in a gain on extinguishment of $345,000.On November 16, 2005, the Company agreed to convert its $420,000 accounts payable balance to
Ambar Drilling Fluids to a note payable. Beginning November 16, 2005, interest accrued at 4%
per annum with payment of principal balance and interest due on or before May 16, 2006. On July
17, 2007 the Company and Ambar Drilling Fluids entered into a settlement agreement whereby the
Company paid $112,000 in full satisfaction of the outstanding note payable to Ambar Drilling
Fluids, resulting in a gain on extinguishment of $310,000.On December 16, 2005, the Company converted its $99,000 accounts payable balance to Patterson
Services to a note payable. Monthly payments of $8,710 which include interest at the rate of
10% per annum were to be made through December 2006. At May 19, 2008, nine payments were past
due.On October 4, 2006, the Company converted its $139,000 accounts payable balance to Landmark
Graphics to a note payable. Payments include interest at the rate of 15% per annum. This note
was paid in full on December 20, 2007.On October 30, 2007, the Company entered into an agreement to finance its insurance premiums
totaling $22,000. This note is subject to monthly payments, which include interest at the rate
of 7.5% per annum.8
    
    Capital stockOptions
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American Natural Energy Corporation
 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, 2007 and 2006 is as follows:
 WeightedAverageNumber of
    
    
    Exercise priceOptions
    
    
    $Outstanding  December 31, 2005
    
    
    1,600,000
    
    
    
    0.50Expired
    
    
    (300,000
    )
    
    
    0.62Outstanding
 December 31, 2006
    
    
    1,300,000
    
    
    
    0.49Expired
    
    
    (250,000
    )
    
    
    0.61Outstanding
 December 31, 2007
    
    
    1,050,000
    
    
    
    0.46
 Exercise prices of options outstanding at December 31, 2007 ranged from $0.45 to $0.68. At
December 31, 2007 and 2006, 1,050,000 and 1,293,750 options have vested and are exercisable at
a weighted average price of $0.46 and $0.49, respectively. The weighted average remaining
contractual life of options granted at December 31, 2007 and 2006 is 16 and 27 months,
respectively.The 2001 Stock Incentive Plan, as amended (approved by the shareholders in June 2005), is
comprised of a Discretionary Option Grant Program, a Salary Investment Option Grant Program, a
Stock Issuance Program, an Automatic Option Grant Program, and a Director Fee Option Grant.
The 2001 Stock Incentive Plan terminates upon the earliest of (i) December 14, 2011, (ii) the
date on which all shares available for issuance under the plan have been issued as
fully-vested shares, or (iii) the termination of all outstanding options in connection with a
change in control.9
    
    Commitments and contingenciesThe Company rents office space under a long-term operating lease that expires July 2009. At
December 31, 2007, the future minimum lease payments required under the operating
 
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American Natural Energy Corporation
 lease amounted to $136,000 of which $86,000 is to be paid in 2008, and $50,000 is to be paid
in 2009.
 Rent expense on all operating leases amounted to approximately $96,000 and $101,000 in 2007
and 2006, respectively.
 With respect to the acquisition of the Companys Bayou Couba lease acreage, the Company agreed
that the Class 7 creditors to the ANEC/Couba Reorganization Plan (Plan) would receive a
contingent payable from future production of the properties in the amount of approximately
$4.9 million plus interest accruing at 8% per annum commencing January 1, 2002, and would
receive payment of 100% of their allowed claims out of an overriding royalty interest in the
amount of 3% of the production from existing and new wells on the Bayou Couba Lease. In
addition, such claims are to be paid out of a net profits interest granted to the creditors
whereby such creditors are allocated 50% of the net profits from production from the workover
of wells existing on December 31, 2001 on the Bayou Couba Lease, 15% of the net profits from
production from the drilling after December 31, 2001 of new wells on the Bayou Couba Lease and
6% of the net profits from production from the drilling after December 31, 2001 of new wells
on a 23.5 square mile area of mutual interest, excluding, however, the Bayou Couba Lease.
Upon payment of their allowed claims, inclusive of interest, such royalty and net profits
interests is eliminated. The Company is accounting for any contingent purchase price payments
to the Class 7 creditors as additions to the full cost pool as production occurs.The Company agreed that, after repayment to the Company of 200% of all costs of bankruptcy,
drilling, development and field operations from net revenues of the Bayou Couba Lease and the
23.5 square mile area of mutual interest with Dune Energy, including payments made by the
Company to all creditors of all classes under the plan, the former holders of equity
securities of Couba will be entitled to a working interest in the wells in the Bayou Couba
Lease equal to 25% of the working interest obtained by the Company directly from Couba at the
time of confirmation and as a result of the plan of reorganization of Couba, and a 25%
interest in the Companys interest in the 23.5 square mile area of mutual interest held by the
Company on the effective date of the planOn 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. At December 31, 2006,
the Company had accrued $302,000 for this potential exposure and the corresponding difference
of $112,000 reduced selling, general and administrative expense for the periods ended December
31, 2007.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.
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American Natural Energy Corporation
 The Company is a defendant in a number of legal proceedings which management considers to be
routine litigation that is incidental to its business. Management does not expect to incur
any material liability as a consequence of such litigation.10
    
    Related party transactionsOn May 4, 2006, the Company entered into a note payable with Mike Paulk, an officer of the
Company, in the amount of $198,000. On August 9, 2006 Mike Paulk loaned an additional $10,000
to the Company. In November 2006, $12,000 was repaid. Interest accrues at the rate of 10% per
annum. Note payable was due May 31, 2007, after that date is due on demand.The Company paid Mike Paulk $21,885 in interest in 2007 on the loans provided to the Company.11
    
    Income taxesThe 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,
2007 and 2006 are presented below:
 2007
    
    2006$
    
    $Deferred tax assetsAsset retirement costs
    
    
    665,481
    
    
    
    660,707Foreign exchange loss
    
    
    1,168,510
    
    
    
    418,273Acquisition, exploration and development
costs and related depreciation, depletion
and amortization
    
    
    7,210,046
    
    
    
    7,107,758Contribution carryovers
    
    
    3,162
    
    
    
    3,162Change in accounting principle
    
    
    123,894
    
    
    
    123,894Net operating loss carryforwards
    
    
    6,123,450
    
    
    
    6,885,024Deferred tax asset
    
    
    15,294,543
    
    
    
    15,198,819Less: Valuation allowance
    
    
    (15,294,543
    )
    
    
    (15,198,819
    )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, 2007 and
2006 are summarized as follows:
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American Natural Energy Corporation
 2007
    
    2006$
    
    $Federal tax benefit at statutory rate
    
    
    1,097,876
    
    
    
    953,170State taxes, net of federal taxes
    
    
    114,567
    
    
    
    125,261Other
    
    
    (4,941
    )
    
    
    122,306Less: valuation allowance
    
    
    (1,207,502
    )
    
    
    (1,200,737
    )Total provision for income taxes
    
    
    
    
    
    
    
 As of December 31, 2007, the Company has a net operating loss carry-forward of approximately
$17,711,408 which is available to reduce future taxable income, if any, through 2028.
Management has determined that it is more likely than not that the benefit of the deferred tax
asset will not be realized and thus has provided a 100% valuation allowance against the
deferred tax asset. If certain substantial changes in the Companys ownership should occur,
there would be an annual limitation on the amount of the carry-forward which can be utilized.12
    
    Subsequent EventsOn January 29, 2008, the Company entered into a settlement with Canary Wellhead Equipment
whereby the Company settled outstanding invoices and costs of $49,000 with a one time payment
of $10,000. The entire amount was unpaid at December 31, 2007.13
    
    Disclosures About Oil and Gas Producing Activities (Unaudited)Net Capitalized CostsThe following summarizes net capitalized costs as of December 31, 2007 and 2006.
 2007
    
    2006$
    
    $Oil and gas propertiesProved
    
    
    22,906,607
    
    
    
    22,826,527Unproved
    
    
    9,095
    
    
    
    3,430,582Total
    
    
    22,915,702
    
    
    
    26,257,109Less accumulated depreciation, depletion
and amortization and impairment
    
    
    (20,087,252
    )
    
    
    (19,809,614
    )Net capitalized costs
    
    
    2,828,450
    
    
    
    6,447,495
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American Natural Energy Corporation
 Unproved Property CostsThe following summarizes the capitalized unproved property costs excluded from amortization as
of December 31, 2007. All costs represent investment in unproved property in Louisiana and
will be evaluated over several years as the properties are explored. Property acquisition
costs of $78,513 and $314,825 at December 31, 2007 and 2006 respectively, have been reduced by
$3.5 million received from the sale of participation rights to Dune Energy and $162,500 for a
prospect fee received from Dune Energy as of December 31, 2007 and 2006 respectively. (See
Note 4).
 2007
    
    2006
    
    Prior Years
    
    Total$
    
    $
    
    $
    
    $Property acquisition costs
    
    
    (3,421,487
    )
    
    
    152,325
    
    
    
    1,849,047
    
    
    
    (1,420,115
    )Capitalized interest
    
    
    
    
    
    
    
    
    
    
    1,429,210
    
    
    
    1,429,210(3,421,487
    )
    
    
    152,325
    
    
    
    3,278,257
    
    
    
    9,095
 Costs Incurred in Oil and Gas Acquisition, Exploration and Development
 2007
    
    2006$
    
    $Development costs
    
    
    231,949
    
    
    
    988,221Exploration costs
    
    
    
    
    
    
    Acquisition costsProved
    
    
    
    
    
    
    Unproved
    
    
    
    
    
    
    231,949
    
    
    
    988,221
 Results of Operations from Oil and Gas Producing ActivitiesThe Companys results of operations from oil and gas producing activities are presented below
for the years 2007 and 2006. 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.
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American Natural Energy Corporation
 2007
    
    2006$
    
    $Oil and gas sales
    
    
    1,219,461
    
    
    
    1,622,252Operations income
    
    
    132,104
    
    
    
    160,900Lease operating expenses
    
    
    (470,730
    )
    
    
    (345,854
    )Production taxes
    
    
    (102,968
    )
    
    
    (103,111
    )Depreciation, depletion and amortization
    
    
    (441,764
    )
    
    
    (638,104
    )Results of operations from oil and gas
activities, excluding corporate overhead and
interest costs
    
    
    336,103
    
    
    
    696,083
 Oil and Gas Reserve Quantities (unaudited)The reserve information presented below is based on reports prepared by independent petroleum
engineers Summa Engineering, Inc.The information is presented in accordance with regulations prescribed by the Securities and
Exchange Commission. Reserve estimates are inherently imprecise. These estimates were
generally based upon extrapolation of historical production trends, analogy to similar
properties and volumetric calculations. Accordingly, these estimates are expected to change,
and such change could be material and occur in the near term as future information becomes
available.Proved oil and gas reserves represent the estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with reasonable
certainty to be recoverable in future years from known reservoirs under current economic and
operating conditions. Proved developed oil and gas reserves are those expected to be
recovered through existing equipment and operating methods. All of the Companys oil and
natural gas producing activities are located in the United States of America.
 December 31, 2007
 Oil
    
    Gas
    
    Total(Mbbl)
    
    (Mmcf)
    
    (Mbble)Proved reserves, beginning of period
    
    
    328.84
    
    
    
    1,386.93
    
    
    
    560.00Extensions, discoveries and other additions
    
    
    
    
    
    
    
    
    
    
    Revisions of previous estimates
    
    
    (15.66
    )
    
    
    (614.53
    )
    
    
    (118.08
    )Production
    
    
    (16.54
    )
    
    
    (3.46
    )
    
    
    (17.12
    )Sale of reserves in place
    
    
    
    
    
    
    
    
    
    
    Purchase of reserves in place
    
    
    
    
    
    
    
    
    
    
    Proved reserves, end of period
    
    
    296.64
    
    
    
    768.94
    
    
    
    424.80Proved developed reserves:Beginning of period
    
    
    66.13
    
    
    
    91.27
    
    
    
    81.35End of period
    
    
    58.02
    
    
    
    3.71
    
    
    
    58.64
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American Natural Energy Corporation
 December 31, 2006
 Oil
    
    Gas
    
    Total(Mbbl)
    
    (Mmcf)
    
    (Mbble)Proved reserves, beginning of period
    
    
    316.93
    
    
    
    1,856.15
    
    
    
    626.28Extensions, discoveries and other additions
    
    
    9.17
    
    
    
    .73
    
    
    
    9.30Revisions of previous estimates
    
    
    26.25
    
    
    
    (455.03
    )
    
    
    (49.59
    )Production
    
    
    (23.51
    )
    
    
    (14.92
    )
    
    
    (25.99
    )Sale of reserves in place
    
    
    
    
    
    
    
    
    
    
    Purchase of reserves in place
    
    
    
    
    
    
    
    
    
    
    Proved reserves, end of period
    
    
    328.84
    
    
    
    1,386.93
    
    
    
    560.00Proved developed reserves:Beginning of period
    
    
    135.61
    
    
    
    71.87
    
    
    
    147.58End of period
    
    
    66.13
    
    
    
    91.27
    
    
    
    81.35
 Standardized Measure of Discounted Future Net Cash Flows (unaudited)Statement of Financial Accounting Standards No. 69, Disclosures About Oil and Gas Producing
Activities,(SFAS 69) prescribes guidelines for computing the standardized measure of future
net cash flows and changes therein relating to estimated proved reserves. The Company has
followed these guidelines which are briefly discussed below.Future cash inflows and future production and development costs are determined by applying
year-end prices and costs to the estimated quantities of oil and gas to be produced. The
prices used at December 31, 2007 and December 31, 2006 were $94.45 and $60.00 per barrel for
oil and $6.83 and $5.23 per mcf for natural gas, respectively. Estimates are made of
quantities of proved reserves and the future periods during which they are expected to be
produced based on year-end economic conditions. Estimated future income taxes are computed
using current statutory income tax rates including consideration for current tax basis of
properties and related carryforwards, giving effect to permanent differences and tax credits.
The resulting future net cash flows are reduced to present value amounts by applying a 10%
annual discount factor.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.
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American Natural Energy Corporation
 The following sets forth our future net cash flows relating to proved oil and gas reserves
based on the standardized measure prescribed in SFAS 69:
 December 31,2007
    
    2006$
    
    $Future cash inflows
    
    
    33,269,026
    
    
    
    27,528,968Future development costs
    
    
    (3,772,696
    )
    
    
    (6,470,310
    )Future production costs
    
    
    (12,146,111
    )
    
    
    (7,635,562
    )Net future cash flows
    
    
    17,350,219
    
    
    
    12,885,032Less effect of a 10% discount factor
    
    
    (6,201,615
    )
    
    
    (5,399,242
    )Standardized measure of discounted future net cash flows
    
    
    11,148,604
    
    
    
    7,485,790
 The principal sources of change in the standardized measure of discounted future net cash
flows are as follows:
 December 31,2007
    
    2006$
    
    $Standardized measure, beginning of period
    
    
    7,485,790
    
    
    
    16,949,441Sales of oil and gas produced, net of production costs
    
    
    (645,762
    )
    
    
    (1,173,287
    )Development costs incurred
    
    
    246,853
    
    
    
    Changes in future development costs
    
    
    2,648,235
    
    
    
    1,262,207Revisions of previous quantity estimates
    
    
    (3,411,393
    )
    
    
    (1,023,508
    )Net change due to extensions and discoveries
    
    
    
    
    
    
    191,937Net change in prices and production costs
    
    
    3,066,348
    
    
    
    (9,484,113
    )Changes in production rate
    
    
    391,101
    
    
    
    Accretion of discount
    
    
    1,276,279
    
    
    
    763,113Other
    
    
    91,153
    
    
    
    Standardized measure, end of period
    
    
    11,148,604
    
    
    
    7,485,790
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SIGNATURES
  American Natural Energy CorporationBy:
    /s/ Michael K. PaulkMichael K. Paulk, President  Signature
    
    Title
    
    Date/s/ Michael K. Paulk
    
    President (Principal
    
    May 22, 2008Michael K. Paulk
    
    Executive Officer) and Director/s/ Steven P. Ensz
    
    Director and Principal Financial
    
    May 22, 2008Steven P. Ensz
    
    and Accounting Officer/s/ Brian Bayley

Brian Bayley
    
    Director
    
    May 22, 2008/s/ John K. Campbell

John K. Campbell
    
    Director
    
    May 22, 2008