##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-KSB
 Mark One:
 þ
    
    Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the fiscal year ended December 31, 2006; or
 o
    
    Transition Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
 For the transition period from  to .
 Commission File No. 0-18956
 American Natural Energy Corporation
  Oklahoma
    
    73-1605215(State or Other Jurisdiction of 
Incorporation or Organization)
    
    (IRS Employer
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
 o þ
 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
    
    
    45Item 8.
    
    Changes In and Disagreements With Accountants On
Accounting and Financial Disclosure
    
    
    46Item 8A
    
    Controls and Procedures
    
    
    46Item 8B
    
    Other Information
    
    
    47Part IIIItem 9.
    
    Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act
    
    
    48Item 10.
    
    Executive Compensation
    
    
    51Item 11.
    
    Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters
    
    
    53Item 12.
    
    Certain Relationships and Related Transactions
    
    
    55Item 13.
    
    Exhibits
    
    
    55Item 14.
    
    Principal Accountant Fees and Services
    
    
    57Certification of President and Chief Executive OfficerCertification of Chief Financial OfficerCertification of President and Chief Executive Officer Pursuant to Section 1350Certification of Chief Financial Officer Pursuant to Section 1350
  2




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PART I
 
 Item 1  Description of Business :
   Our Louisiana Properties .
  3




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ExxonMobil Joint Development Agreement.
   4




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Our TransAtlantic Agreements.
 Our Dune Energy Agreements.
   5




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Seismic Survey Participation Agreement.
 Our State of Louisiana Lease
  Oil and Gas Reserves
  6




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##### Table of Contents



OIL
    
    GAS
    
    TOTAL(Mbbl)
    
    (Mmcf)
    
    (Mbble)Proved developed producing
    
    
    66.13
    
    
    
    91.27
    
    
    
    81.34Proved developed non-producing
    
    
    
    
    
    
    
    
    
    
    Proved undeveloped
    
    
    262.71
    
    
    
    1,295.66
    
    
    
    478.65Total proved
    
    
    328.84
    
    
    
    1,386.93
    
    
    
    559.99
 ProvedProved
    
    DevelopedDeveloped
    
    Non-
    
    Proved
    
    TotalProducing
    
    producing
    
    Undeveloped
    
    ProvedEstimated future net revenue(a)
    
    $
    2,742,117
    
    
    
    
    
    
    $
    10,142,915
    
    
    $
    12,885,032Present value of future net
revenue(b)
    
    $
    2,077,792
    
    
    
    
    
    
    $
    5,407,998
    
    
    $
    7,485,790Standardized measure of discounted future net
cash flows
    
    $
    2,077,792
    
    
    
    
    
    
    $
    5,407,998
    
    
    $
    7,485,790
 
 (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, 2006. 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
$60.00 per barrel of oil and $5.23 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, 2006 as there is no future income tax provision.    7




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Drilling Activity
  Year Ended December 31,2004(1)
    
    2005(2)
    
    2006Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetDevelopmentProductive
    
    
    -0-
    
    
    
    -0-
    
    
    
    3.0
    
    
    
    0.61
    
    
    
    2.0
    
    
    
    0.05Non-productive
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-ExploratoryProductive
    
    
    1.0
    
    
    
    0.42
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Non-productive
    
    
    2.0
    
    
    
    1.49
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
 
 (1)
    
    Excludes 3 (2.44 net) wells drilled by prior owners on the Bayou Couba
properties which we returned to production during 2004.(2)
    
    Excludes 1 (.81 net) well drilled by prior owners on the Bayou Couba properties
which we returned to production during 2005. 8




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Past Drilling and Development Activities
     Activities During 2006 and Present Activities
     9




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Productive Well Data Information
  Well CountArea
    
    Gross(1)
    
    Net(1)St. Charles Parish, Louisiana
    
    
    21.0
    
    
    
    10.39
 
 (1)
    
    18 (9.04 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 31,2006
    
    2005
    
    2004Net Production: (1)(2)Oil (Mbbl)
    
    
    23.5
    
    
    
    42.8
    
    
    
    59.8Natural Gas
(Mmcf)
    
    
    14.9
    
    
    
    6.1
    
    
    
    134.6Oil Equivalent
(Mbble )
    
    
    26.0
    
    
    
    43.8
    
    
    
    82.2Oil and Natural Gas
Sales: (2)Oil
    
    $
    1,525,194
    
    
    $
    2,458,123
    
    
    $
    2,476,267Natural Gas
    
    $
    97,058
    
    
    $
    55,963
    
    
    $
    660,935Total
    
    $
    1,622,252
    
    
    $
    2,514,086
    
    
    $
    3,137,202Average Sales Price:Oil ($per Bbl)
    
    $
    64.88
    
    
    $
    57.41
    
    
    $
    41.42Natural Gas ($per
Mcf)
    
    $
    6.51
    
    
    $
    9.24
    
    
    $
    4.91Oil Equivalent
($per Bble)
    
    $
    62.41
    
    
    $
    57.36
    
    
    $
    38.16Oil and Natural Gas
Costs:Lease operating
expenses
    
    $
    345,854
    
    
    $
    496,275
    
    
    $
    429,315Production Taxes
    
    $
    103,111
    
    
    $
    241,854
    
    
    $
    232,135
 10




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Year Ended December 31,2006
    
    2005
    
    2004Net gain (loss) from sale of
oil and natural gas properties
    
    
    
    
    
    
    
    
    
    $
    (44,411
    )Impairment of oil and natural
gas properties
    
    
    
    
    
    
    
    
    
    $
    7,676,670Depreciation, depletion and
amortization
    
    $
    638,104
    
    
    $
    1,003,961
    
    
    $
    2,558,719Average production cost per unit
of production ($  per Bble)
    
    $
    17.27
    
    
    $
    16.84
    
    
    $
    8.05
 
 (1)
    
    Includes only production owned by us and produced to our interest, less royalties and
production due others. 228, 366, and 519 barrels of oil were produced in December 2006, 2005 and
2004 but not sold until January 2007, 2006 and 2005, respectively, and are included in inventory at
December 31, 2006, 2005 and 2004 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 31,2004
    
    2005
    
    2006Development Costs
    
    $
    2,385,689
    
    
    $
    2,043,759
    
    
    $
    1,150,721Exploration Costs
    
    $
    5,259,630
    
    
    
    
    
    
    
    Acquisition Costs
    
    $
    229,673
    
    
    
    
    
    
    
    Sales of Properties
    
    
    
    
    
    $
    (837,500
    )
    
    $
    (162,500
    )Capitalized Interest
    
    $
    439,135
    
    
    $
    417,934
    
    
    
    Total
    
    $
    8,314,127
    
    
    $
    1,624,193
    
    
    $
    988,221
 Acreage
  11




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Total Developed andDeveloped(1)(2)
    
    Undeveloped(1)(2)
    
    UndevelopedArea
    
    Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetLouisiana
    
    
    1,320
    
    
    
    866
    
    
    
    
    
    
    
    
    
    
    
    1,320
    
    
    
    866Total
    
    
    1,320
    
    
    
    866
    
    
    
    
    
    
    
    
    
    
    
    1,320
    
    
    
    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. 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 to contract areas
subject to the ExxonMobil joint development agreement but such rights do not affect the net
acres reflected. Marketing
   Hedging Activities
  12




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Competition
  Regulation
 General
  Exploration and Production
  13




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Environmental and Occupational Regulation
 General
  Waste Disposal
  14




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Superfund
 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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Offices
  
 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. www.tsx.com
  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, 2006 and December 31, 2005
       22




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23




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A Comparison of Operating Results For The Years Ended December 31, 2005 and December 31, 2004
       24




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25




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Liquidity and Capital Resources
 General
  26




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Years Ended December 31, 2006 and December 31, 2005
      Years Ended December 31, 2005 and December 31, 2004
    27




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How We Have Financed Our Activities
    28




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29




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30




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Future Capital Requirements and Resources
    Critical Accounting Policies
 Oil and Gas Properties
  31




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Revenue Recognition
  32




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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.
  33




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Notes payable and long-term debt
  Asset Retirement Obligation
 Accounting for Asset Retirement Obligations
  Accounting Matters
 Share-Based Payment Accounting for Stock-Based
Compensation Accounting for Stock Issued to Employees
  34




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Transition
Election Related to Accounting for the Tax Effects of Share-Based Payment Awards
 Accounting for Conditional
Asset Retirement Obligations  an interpretation of FASB Statement No. 143
 Accounting Changes and Error Corrections
 Accounting for Certain Hybrid Financial Instruments  an
amendment of FASB Statements No. 133 and 140 (SFAS No. 155).
  35




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Fair
Value Measurements (SFAS 157)
 Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans. Employers Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for
Termination Benefits, Employers
Disclosures about Pensions and Other Postretirement Benefits,
  36




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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
   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.
 37




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Our Current Liabilities as of December 31, 2006 Exceed Our Current Assets by $20.5 Million
  Without Substantial Additional Capital We May Be Unable To Fund The Exploration and Development
Activities To Further Develop Our Area Of Mutual Interest With ExxonMobil
 38




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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;
 39




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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
  40




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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
 41




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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.
  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.
  42




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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.
  43




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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.
  44




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Risks Relating to the Market for Our Securities
 Absence of a U.S. Public Market for Our Common Shares.
  Cautionary Statement For Purposes Of The Safe Harbor Provisions Of The Private Securities
Litigation Reform Act Of 1996
   45




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Item 7  Financial Statements :
  
 Item 8  Changes In and Disagreements With Accountants on Accounting and Financial
Disclosure :
       46




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Item 8A  Controls and Procedures
 Disclosure Controls
  Changes in Internal Controls
  
 Item 8B  Other Information
  47




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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)
    
    
    58
    
    
    President and DirectorSteven P. Ensz
    
    
    55
    
    
    Vice President, Finance,
and Chief Financial
Officer and DirectorBrian E. Bayley(1)
    
    
    54
    
    
    DirectorJohn K. Campbell(1)
    
    
    73
    
    
    DirectorSignificant Employees:Richard O. Mulford
    
    
    54
    
    
    Manager of OperationsRobert G. Snead
    
    
    68
    
    
    Exploitation Manager
 
 (1)
    
    Member of our Audit Committee  Michael K. Paulk
 Steven P. Ensz
 48




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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:
   49




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Code of Ethics:
  50




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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,
    
    
    2006
    
    
    $
    125,000
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    125,000President and
CEO(2)
    
    
    2005
    
    
    $
    125,000
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    125,000Steven P. Ensz
    
    
    2006
    
    
    $
    125,000
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    125,000Executive Vice
President and
CFO(2)
    
    
    2005
    
    
    $
    125,000
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-
    
    
    $
    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.  51




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##### Table of Contents



Outstanding Equity Awards at  December 31, 2006 .
  Stock AwardsNumber
    
    Market
    
    Equityof
    
    value of
    
    IncentiveOption Awards
    
    shares
    
    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, 2006.  52




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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 July 25, 2007, 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. 53




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##### Table of Contents



(10)
    
    The percentage of outstanding shares calculation is based upon 52,997,673 shares outstanding
as of July 25, 2007. Securities Authorized for Issuance Under Equity Compensation Plans
   Equity Compensation Plan Information
 (c)Number of securitiesremaining availablefor future issuance(a)
    
    
    
    
    
    under equityNumber of securities
    
    (b)
    
    compensation plansto be issued upon
    
    Weighted-average
    
    (excludingexercise of
    
    exercise price of
    
    securitiesoutstanding options,
    
    outstanding options,
    
    reflected in columnPlan Category
    
    warrants and rights
    
    warrants and rights
    
    (a))Equity compensation
plans approved by
security holders
    
    
    1,300,000
    
    
    $
    0.49
    
    
    
    3,700,000Equity compensation
plans not approved
by security holders
    
    
    -0-
    
    
    
    -0-
    
    
    
    -0-Total
    
    
    1,300,000
    
    
    $
    0.49
    
    
    
    3,700,000
 54




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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)
 55




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##### 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).(4)
    
    Filed with the Registrants Annual Report on Form 10-KSB for the year ended
December 31, 2003. 56




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##### Table of Contents



(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 Fees2006
    
    $
    110,200
    
    
    
    
    
    
    $
    35,0002005
    
    $
    262,500
    
    
    
    
    
    
    $
    35,000
 Audit Fees
 57




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##### Table of Contents



American Natural Energy Corporation
 December 31, 2006 and 2005
 F-1




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
      
 F-2




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
    
 F-3




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##### Table of Contents



AMERICAN NATURAL ENERGY CORPORATION  Consolidated Balance Sheets
 December 31,
    
    
    December 31,2006
    
    
    2005$
    
    
    $ASSETSCurrent assets:Cash and cash equivalents
    
    
    491
    
    
    
    185,268Accounts receivable  joint interest billing
    
    
    427,736
    
    
    
    625,963Accounts receivable  oil and gas sales
    
    
    555,453
    
    
    
    375,079Prepaid expenses and other
    
    
    98,593
    
    
    
    139,145Oil inventory
    
    
    9,004
    
    
    
    11,283Total current assets
    
    
    1,091,277
    
    
    
    1,336,738Proved oil and gas properties using the full cost method, net of accumulated depletion, depreciation, amortization and impairment of
$19,809,614 and $19,353,778, respectively
    
    
    3,016,913
    
    
    
    2,625,550Unproved oil and gas properties
    
    
    3,430,582
    
    
    
    3,278,257Equipment and other fixed assets, net of accumulated depreciation of $659,025 and $532,174
    
    
    452,005
    
    
    
    572,708Deposits
    
    
    20,000
    
    
    
    Deferred expenses, net of accumulated amortization of $93,707 in 2005
    
    
    
    
    
    
    208,887Total assets
    
    
    8,010,777
    
    
    
    8,022,140LIABILITIES AND STOCKHOLDERS DEFICITCurrent liabilities:Accounts payable and accrued liabilities
    
    
    3,201,002
    
    
    
    3,686,485Revenues payable
    
    
    4,767,006
    
    
    
    3,273,800Accrued interest
    
    
    705,153
    
    
    
    12,404Insurance note payable
    
    
    40,491
    
    
    
    17,587Notes payable (Note 7)
    
    
    1,107,628
    
    
    
    1,252,361Note payable  related party (Note 10)
    
    
    195,850
    
    
    
    Asset retirement obligation (Note 6)
    
    
    451,740
    
    
    
    408,799Taxes due on dissolution of subsidiary (Note 9)
    
    
    302,870
    
    
    
    302,870Convertible secured debentures, net of discount of $205,169 in 2005 (Note 7)
    
    
    10,825,000
    
    
    
    10,969,831Total current liabilities
    
    
    21,596,740
    
    
    
    19,924,137Noncurrent notes payable (Note 7)
    
    
    
    
    
    
    142,259Asset retirement obligation (Note 6)
    
    
    1,288,795
    
    
    
    1,139,848Other noncurrent liabilities
    
    
    364,007
    
    
    
    Total liabilities
    
    
    23,249,542
    
    
    
    21,206,244Commitments 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 (2005  50,664,342) shares
    
    
    52,997
    
    
    
    50,664Additional paid-in capital
    
    
    20,321,226
    
    
    
    19,973,090Accumulated deficit, since January 1, 2002 (in conjunction with the quasi-reorganization stated capital was reduced by an accumulated deficit of
$2,015,495)
    
    
    (37,922,798
    )
    
    
    (35,471,289
    )Accumulated other comprehensive income
    
    
    2,309,810
    
    
    
    2,263,431Total stockholders deficit
    
    
    (15,238,765
    )
    
    
    (13,184,104
    )Total liabilities and stockholders deficit
    
    
    8,010,777
    
    
    
    8,022,140
  F-4




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##### Table of Contents



AMERICAN NATURAL ENERGY CORPORATION  Consolidated Statements of Operations
 December 31, 2006
    
    
    December 31, 2005$
    
    
    $Revenues:Oil and gas sales
    
    
    1,622,252
    
    
    
    2,514,086Operations income
    
    
    160,900
    
    
    
    112,676Interest income and other income
    
    
    56
    
    
    
    391,783,208
    
    
    
    2,626,801Expenses:Lease operating expense
    
    
    345,854
    
    
    
    496,275Production taxes
    
    
    103,111
    
    
    
    241,854General and administrative
    
    
    1,596,639
    
    
    
    1,563,928Foreign exchange loss
    
    
    46,379
    
    
    
    347,219Interest and bank charges
    
    
    1,274,130
    
    
    
    3,110,442Depreciation, depletion, and amortization -
oil and gas properties
    
    
    638,104
    
    
    
    1,003,961Depreciation and amortization  other assets
    
    
    338,587
    
    
    
    585,381Gain on settlement of debt
    
    
    (108,087
    )
    
    
    Taxes due on dissolution of subsidiary
    
    
    
    
    
    
    302,870Loss on extinguishment of debt
    
    
    
    
    
    
    1,146,674Total expenses
    
    
    4,234,717
    
    
    
    8,798,604Net loss
    
    
    (2,451,509
    )
    
    
    (6,171,803
    )Other comprehensive income net of tax:Foreign exchange translation
    
    
    46,379
    
    
    
    347,219Other comprehensive income
    
    
    46,379
    
    
    
    347,219Comprehensive loss
    
    
    (2,405,130
    )
    
    
    (5,824,584
    )Net loss per share  basic and diluted
    
    
    (0.05
    )
    
    
    (0.15
    )Weighted average number of shares
outstanding  basic and diluted
    
    
    51,884,888
    
    
    
    41,514,081
  F-5




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##### Table of Contents



AMERICAN NATURAL ENERGY CORPORATION  Consolidated Statements of Changes in Stockholders Equity (Deficit)
 Accumu-latedOther
    
    
    TotalAdditional
    
    
    Accumu-
    
    
    compre-
    
    
    stock-Common stock
    
    
    paid-in
    
    
    lated
    
    
    hensive
    
    
    holdersShares
    
    
    Amount
    
    
    capital
    
    
    Deficit
    
    
    income
    
    
    deficit$
    
    
    $
    
    
    $
    
    
    $
    
    
    $Balance  December 31, 2004
    
    
    35,138,219
    
    
    
    351,382
    
    
    
    17,435,536
    
    
    
    (29,299,486
    )
    
    
    1,916,212
    
    
    
    (9,596,356
    )Stock issued on conversion
of debentures
    
    
    1,162,790
    
    
    
    11,628
    
    
    
    488,372
    
    
    
    
    
    
    
    
    
    
    
    500,000Stock issued for
professional services
    
    
    2,170,000
    
    
    
    2,170
    
    
    
    247,830
    
    
    
    
    
    
    
    
    
    
    
    250,000Stock issued pursuant to
private placement
    
    
    12,193,333
    
    
    
    12,193
    
    
    
    1,450,974
    
    
    
    
    
    
    
    
    
    
    
    1,463,167Stock option compensation
expense
    
    
    
    
    
    
    
    
    
    
    54,000
    
    
    
    
    
    
    
    
    
    
    
    54,000Restate stock @ .001 par value
    
    
    
    
    
    
    (326,709
    )
    
    
    326,709
    
    
    
    
    
    
    
    
    
    
    
    Costs of private placement
    
    
    
    
    
    
    
    
    
    
    (35,055
    )
    
    
    
    
    
    
    
    
    
    
    (35,055
    )Costs of rights offering
    
    
    
    
    
    
    
    
    
    
    4,724
    
    
    
    
    
    
    
    
    
    
    
    4,724Foreign exchange translation
gain
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    347,219
    
    
    
    347,219Net loss (total comprehensive
loss of $5,824,584)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (6,171,803
    )
    
    
    
    
    
    
    (6,171,803
    )Balance  December 31, 2005
    
    
    50,664,342
    
    
    
    50,664
    
    
    
    19,973,090
    
    
    
    (35,471,289
    )
    
    
    2,263,431
    
    
    
    (13,184,104
    )
  F-6




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##### Table of Contents



AMERICAN NATURAL ENERGY CORPORATION  Consolidated Statements of Changes in Stockholders Equity (Deficit) (cont.)
 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-7




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##### Table of Contents



AMERICAN NATURAL ENERGY CORPORATION
Consolidated Statements of Cash Flows
 December 31, 2006
    
    December 31, 2005$
    
    $Cash flows from operating activities:Net loss
    
    
    (2,451,509
    )
    
    
    (6,171,803
    )Non cash items:Depreciation, depletion and amortization
    
    
    976,691
    
    
    
    1,589,342Foreign exchange loss
    
    
    46,379
    
    
    
    347,219Amortization of discount on convertible
secured debentures
    
    
    205,169
    
    
    
    2,516,541Non-cash compensation expense
    
    
    469
    
    
    
    54,000Loss on extinguishment of debt
    
    
    
    
    
    
    1,146,674Changes in non-cash working capital items:Accounts receivable
    
    
    26,535
    
    
    
    377,656Oil inventory
    
    
    597
    
    
    
    (3,684
    )Prepaid expenses
    
    
    112,012
    
    
    
    177,242Taxes due on dissolution of subsidiary
    
    
    
    
    
    
    302,870Accounts payable, revenues payable and accrued
liabilities
    
    
    2,783,243
    
    
    
    519,495Net cash provided by operating activities
    
    
    1,699,586
    
    
    
    855,552Cash flows from investing activities:Purchase and development of oil and gas properties
    
    
    (1,500,813
    )
    
    
    (2,695,175
    )Purchase of equipment and other fixed assets
    
    
    (8,998
    )
    
    
    (27,534
    )Proceeds from sale of participation rights
    
    
    162,500
    
    
    
    837,500Net cash used in investing activities
    
    
    (1,347,311
    )
    
    
    (1,885,209
    )Cash flows from financing activities:Issuance of notes payable
    
    
    220,601
    
    
    
    100,000Payments of notes payable
    
    
    (697,760
    )
    
    
    (635,754
    )Proceeds from issuance of common stock in private
placement
    
    
    
    
    
    
    1,463,167Private placement/debenture amendment costs
    
    
    
    
    
    
    (87,650
    )Change in bank overdrafts outstanding
    
    
    (59,893
    )
    
    
    66,621Other
    
    
    
    
    
    
    4,724Net cash provided (used) by financing activities
    
    
    (537,052
    )
    
    
    911,108Effect of exchange rate changes on cash
    
    
    
    
    
    
    Decrease in cash and cash equivalents
    
    
    (184,777
    )
    
    
    (118,549
    )Cash and cash equivalents beginning of period
    
    
    185,268
    
    
    
    303,817Cash and cash equivalents end of period
    
    
    491
    
    
    
    185,268
  F-8




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AMERICAN NATURAL ENERGY CORPORATION
Consolidated Statements of Cash Flows (continued)
 December 31, 2006
    December 31, 2005$
    
    $Supplemental disclosures:Interest paid (net of amount capitalized)
    
    
    342,954
    
    
    
    593,070Non cash financing and investing activities:Common stock issued for professional services provided
relating to restructuring of debentures
    
    
    
    
    
    
    250,000Principal amount of 8% debentures converted to common stock
    
    
    350,000
    
    
    
    500,000Accounts payable refinanced as notes payable
    
    
    339,850
    
    
    
    1,695,387Prepaid expenses financed
    
    
    166,143
    
    
    
    215,219Change in accounts payable resulting from the purchase and
development of oil and gas properties
    
    
    (350,092
    )
    
    
    (233,482
    )
  F-9




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American Natural Energy Corporation
 1 Basis of presentation and summary of significant accounting policies
 Description of company
  Company
Act (British Columbia) Canada Business Corporations Act
 Consolidation
   Cash and cash equivalents
  Inventory
  F-10




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American Natural Energy Corporation
  Oil and natural gas properties
       Equipment and other fixed assets
  F-11




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American Natural Energy Corporation
  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
  Deferred expenses
  Foreign exchange and currency translation
  Revenue recognition
   F-12




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American Natural Energy Corporation
    Asset retirement obligations
 Accounting for Asset Retirement Obligations
 Income taxes
 Accounting for Income Taxes.
 Use of estimates
  F-13




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American Natural Energy Corporation
 Earnings (loss) per share
  Comprehensive income (loss)
  Stock-based compensation
    F-14




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American Natural Energy Corporation
  Weighted average life, in years
    
    
    5.00Risk-Free interest rate
    
    
    3.60
    %Expected volatility
    
    
    107.3
    %Expected Dividend Rate
    
    None
   TwelveMonthsEndedDecember 31,2005$Net loss, as reported
    
    
    (6,171,803
    )Add back: Total stock-based compensation expense
included in net loss, net of related tax effects
    
    
    54,000Less: Total stock-based employee compensation
expense determined under fair value based method for
all awards, net of related tax effects
    
    
    (400,656
    )Pro forma net loss
    
    
    (6,518,459
    )Loss per shareBasic and diluted-as reported
    
    
    (0.15
    )Basic and diluted-pro forma
    
    
    (0.16
    )
  F-15




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American Natural Energy Corporation
 New pronouncements
 Accounting for Certain Hybrid Financial Instruments 
an amendment of FASB Statements No. 133 and 140 (SFAS No. 155).
 Accounting for
Income Taxes
 Fair Value Measurements (SFAS 157)
 2 Going Concern
   F-16




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American Natural Energy Corporation
   3 Joint Development Agreement
   F-17




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American Natural Energy Corporation
 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 paying 100% of the costs of an expanded 3D
seismic survey over the Bayou Couba area.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 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 the Company or Dune Energy by ExxonMobil as the result of the
acquisition of additional 3D seismic data by the parties under the terms of the Agreement. If
either party acquires any interests in lands included in the area of mutual interest created
by the Agreement, the acquiring party is required to notify the non-acquiring party which will
have the opportunity to participate in the acquisition by paying its proportionate share of
the price for such properties. On June 26, 2007 Dune Energy increased its participation to 75%
of the Companys interest under these agreements, excluding the area under the Bayou Couba
lease itself where it retains a participation of 50% of the Companys interest, with the
payment of $3 million. On September 1, 2007 Dune Energy was elected successor operator under
the joint development agreement and Dune Energy paid the Company an additional $500,000.Under the terms of the Agreement, the Company agreed to share with Dune Energy the Companys
3D seismic data covering an area of approximately 23.138 square miles within the area of
mutual interest. The Company and Dune Energy agreed to initiate discussions with ExxonMobil to
acquire additional 3D seismic data with each party to pay equally for the cost of acquiring
the data.The Agreement provides that either party can propose drilling prospects with the non-proposing
party given the right to participate in the drilling prospect and pay its proportionate share
of all drilling and completion costs. The Company will be the operator of each drilling
prospect and completed well, subject to the rights of ExxonMobil under its development
agreement with the Company.The Agreement will remain in effect so long as the Companys 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
 F-18




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American Natural Energy Corporation
 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, 2006 and 2005
included the following components:
 2006
    
    2005$
    
    $Computer and office furniture and equipment
    
    
    163,060
    
    
    
    156,912Leasehold improvements
    
    
    5,520
    
    
    
    5,520Barges and field equipment
    
    
    734,748
    
    
    
    734,748Gas gathering and production facility expansion
    
    
    207,702
    
    
    
    207,7021,111,030
    
    
    
    1,104,882Less: Accumulated depreciation
    
    
    (659,025
    )
    
    
    (532,174
    )452,005
    
    
    
    572,708
 6
    
    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 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 the asset at its discounted fair value. The
liability is then accreted each period until the liability is settled or the asset is sold, at
which time the liability is reversed.The Companys asset retirement obligations relate to plugging and abandonment of oil and gas
properties. The components of the change in the Companys asset retirement obligations for
the years ended December 31, 2006 and 2005 are shown below.
 F-19




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American Natural Energy Corporation
 For the years ended December 31,2006
    
    2005$
    
    $Asset retirement obligations,
January 1
    
    
    1,548,647
    
    
    
    1,603,064Additions and revisions
    
    
    11,303
    
    
    
    (146,368
    )Settlements and disposals
    
    
    
    
    
    
    Accretion expense
    
    
    180,585
    
    
    
    91,951Asset retirement obligations,
December 31
    
    
    1,740,535
    
    
    
    1,548,647
 7
    
    Notes payable and long-term debtNotes payable and long-term debt as of December 31, 2006 and 2005 consisted of the following:
 2006
    
    2005$
    
    $Accounts payable refinanced as notes payable
    
    
    1,007,628
    
    
    
    1,294,620Note payable  Officer of Company (Note 10)
    
    
    195,850
    
    
    
    Note payable  Citizens Bank of Oklahoma
    
    
    100,000
    
    
    
    100,0008% Convertible secured debentures
    
    
    10,825,000
    
    
    
    11,175,000Discount on 8% Convertible secured
debentures, net of amortization of $338,095
and $132,926
    
    
    
    
    
    
    (205,169
    )Total notes payable and long-term debt
    
    
    12,128,478
    
    
    
    12,364,451Less: Current portion
    
    
    (12,128,478
    )
    
    
    (12,222,192
    )Total notes payable and long-term debt, net
of current portion
    
    
    
    
    
    
    142,259
 8% Convertible secured debentures
  F-20




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American Natural Energy Corporation
      F-21




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American Natural Energy Corporation
   Notes payable
        F-22




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American Natural Energy Corporation
 January 20, 2007. Payments include interest at the rate of 15% per annum. All payments are
current.8
    
    Capital stockOptionsThe Company adopted the 2001 Stock Incentive Plan during the year ended December 31, 2001. 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 shall be set by the board at
the time of issue of the option and should not be more than 5 years after the grant date. The
maximum number of shares which may be issued pursuant to options granted under the plan shall
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
shall not exceed 5% of the total number of issued and outstanding shares on a non-diluted
basis. The number of shares which may be issuable under the plan within a one year period, in
aggregate shall not exceed 20% of the then outstanding options issued under such plan and to
any optionee who is an insider shall not exceed 5% of the then outstanding options issued
under such plan.Stock option activity for the years ended December 31, 2006 and 2005 is as follows:
 WeightedNumber of
    
    
    AverageOptions
    
    
    Exercise price$Outstanding  December 31, 2004
    
    
    700,000
    
    
    
    0.58Granted (1)
    
    
    1,050,000
    
    
    
    0.44Expired
    
    
    (150,000
    )
    
    
    0.47Outstanding  December 31, 2005
    
    
    1,600,000
    
    
    
    0.50Expired
    
    
    (300,000
    )
    
    
    0.62Outstanding  December 31, 2006
    
    
    1,300,000
    
    
    
    0.49
 
 (1)
    
    Includes options granted on April 22, 2004 and
October 15, 2004 that were subject to the approval of the
shareholders. Approval was obtained in June 2005. The fair value
price of the options granted was $0.31 and $0.33 respectively.  F-23




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American Natural Energy Corporation
 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 maximum number of shares of Common Stock initially reserved for issuance over the term of
the 2001 Stock Incentive Plan shall not exceed 5,000,000 shares. 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 and equipment under long-term operating leases that expire
through 2009. The future minimum lease payments required under the operating leases that have
initial non-cancelable lease terms in excess of one year amounted to $222,000 of which $86,000
is to be paid in 2007 and 2008, and $50,000 is to be paid in 2009.Rent expense on all operating leases amounted to approximately $101,000 and $97,000 in 2006
and 2005, respectively.Citizens Bank of Oklahoma, N.A. has issued an irrevocable standby letter of credit, dated
January 12, 2006 and originally expiring January 12, 2007, in the amount of $125,000 drawn in
favor of RLI Insurance Company securing a surety bond in favor of the Louisiana Office of
Conservation for plugging and abandonment obligations which may occur as a result of drilling
operations in St. Charles Parish, Louisiana. The standby letter of credit has been withdrawn
and surety bond released effective with Dune Energy assuming field operations on September 1,
2007.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, including payments made by the Company to all
creditors of all classes under the plan, the former holders of equity
 F-24




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American Natural Energy Corporation
 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 planEffective January 31, 2005, the Company made application with applicable Canadian authorities
to dissolve and terminate Gothic. In conjunction with the application for dissolution, the
prior tax returns and tax status of Gothic are being reviewed by the Canada Customs and
Revenue Agency (CRA). While no final determination, claim or assessment has been made by
CRA, the Company has accrued $302,870 as an estimate of taxes due on dissolution of Gothic
relating to questions by CRA on paid up capital and imputed interest. Additional amounts
which may be assessed as a result of the review by CRA are uncertain and no estimate can be
made of any additional exposure by the Company at this time.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.The Company paid Mike Paulk $13,426 in interest in 2006 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,
2006 and 2005 are presented below:
 2006
    
    2005$
    
    $Deferred tax assetsAsset retirement costs
    
    
    660,707
    
    
    
    587,866Foreign exchange loss
    
    
    418,273
    
    
    
    400,667Acquisition, exploration and development
costs and related depreciation, depletion
and amortization
    
    
    7,107,758
    
    
    
    6,955,877Contribution carryovers
    
    
    3,162
    
    
    
    3,162Change in accounting principle
    
    
    123,894
    
    
    
    123,894Net operating loss carryforwards
    
    
    6,885,024
    
    
    
    5,901,001Deferred tax asset
    
    
    15,198,819
    
    
    
    13,972,468Less: Valuation allowance
    
    
    (15,198,819
    )
    
    
    (13,972,468
    )Total deferred tax asset (liability)
    
    
    
    
    
    
    
 F-25




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American Natural Energy Corporation
  2006
    
    2005$
    
    $Federal tax benefit at statutory rate
    
    
    953,170
    
    
    
    2,149,529State taxes, net of federal taxes
    
    
    125,261
    
    
    
    273,619Other
    
    
    122,306
    
    
    
    157,113Less: valuation allowance
    
    
    (1,200,737
    )
    
    
    (2,580,261
    )Total provision for income taxes
    
    
    
    
    
    
    
 As of December 31, 2006, the Company has a net operating loss carry-forward of approximately
$17,179,000 which is available to reduce future taxable income, if any, through 2027.
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 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 was elected successor operator under the joint development agreement and Dune
paid the Company an additional $500,000.On December 22, 2006, Dune Energy acquired $3.0 million principal amount of the Companys 8%
Convertible Subordinated Debentures. The principal of the Debentures was due and payable on
September 30, 2006 and are currently in default.In January and February, 2007, Dune Energy acquired from the holders an additional $4,895,000
principal amount of Debentures bringing Dune Energys total holdings of the Companys
Debentures outstanding to $7,895,000 principal amount as of November 26, 2007.
 F-26




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American Natural Energy Corporation
 On May 1, 2007, the British Columbia Securities Commission issued a cease trade order
restricting trading in the Companys securities by certain of its insiders until the Company
files the Annual Financial Statements and related annual filings. Effective July 25, 2007, TSX
Venture Exchange suspended trading in the Companys securities as a result of the Cease Trade
Order issued by the British Columbia Securities Commission.13
    
    Disclosures About Oil and Gas Producing ActivitiesNet Capitalized CostsThe following summarizes net capitalized costs as of December 31, 2006 and 2005.
 2006
    
    2005$
    
    $Oil and gas propertiesProved
    
    
    22,826,527
    
    
    
    21,979,328Unproved
    
    
    3,430,582
    
    
    
    3,278,257Total
    
    
    26,257,109
    
    
    
    25,257,585Less accumulated depreciation, depletion
and amortization and impairment
    
    
    (19,809,614
    )
    
    
    (19,353,778
    )Net capitalized costs
    
    
    6,447,495
    
    
    
    5,903,807
 Unproved Property Costs
  2006
    
    2005
    
    Prior Years
    
    Total$
    
    $
    
    $
    
    $Property acquisition costs
    
    
    152,325
    
    
    
    (585,199
    )
    
    
    2,434,246
    
    
    
    2,001,372Capitalized interest
    
    
    
    
    
    
    417,934
    
    
    
    1,011,276
    
    
    
    1,429,21044,239
    
    
    
    (167,265
    )
    
    
    3,445,522
    
    
    
    3,430,582
 F-27




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American Natural Energy Corporation
 Costs Incurred in Oil and Gas Acquisition, Exploration and Development
 2006
    
    2005$
    
    $Development costs
    
    
    988,221
    
    
    
    1,206,259Exploration costs
    
    
    
    
    
    
    Acquisition costsProved
    
    
    
    
    
    
    Unproved
    
    
    
    
    
    
    417,934988,221
    
    
    
    1,624,193
 Results of Operations from Oil and Gas Producing Activities
  2006
    
    2005$
    
    $Oil and gas sales
    
    
    1,622,252
    
    
    
    2,514,086Operations income
    
    
    160,900
    
    
    
    112,676Lease operating expenses
    
    
    (345,854
    )
    
    
    (496,275
    )Production taxes
    
    
    (103,111
    )
    
    
    (241,854
    )Depreciation, depletion and amortization
    
    
    (638,104
    )
    
    
    (1,003,961
    )Results of operations from oil and gas
activities, excluding corporate overhead and
interest costs
    
    
    696,083
    
    
    
    884,672
 Oil and Gas Reserve Quantities (unaudited)
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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
 December 31, 2005
 Oil
    
    Gas
    
    Total(Mbbl)
    
    (Mmcf)
    
    (Mbble)Proved reserves, beginning of period
    
    
    90.51
    
    
    
    50.32
    
    
    
    98.90Extensions, discoveries and other additions
    
    
    174.88
    
    
    
    1,832.36
    
    
    
    480.27Revisions of previous estimates
    
    
    100.86
    
    
    
    (11.23
    )
    
    
    98.98Production
    
    
    (49.32
    )
    
    
    (15.30
    )
    
    
    (51.87
    )Sale of reserves in place
    
    
    
    
    
    
    
    
    
    
    Purchase of reserves in place
    
    
    
    
    
    
    
    
    
    
    Proved reserves, end of period
    
    
    316.93
    
    
    
    1,856.15
    
    
    
    626.28Proved developed reserves:Beginning of period
    
    
    90.51
    
    
    
    50.32
    
    
    
    98.90End of period
    
    
    135.61
    
    
    
    71.87
    
    
    
    147.58
 F-29




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##### Table of Contents



American Natural Energy Corporation
 Standardized Measure of Discounted Future Net Cash Flows (unaudited)
 Disclosures About Oil and Gas Producing
Activities,
    December 31,2006
    
    2005$
    
    $Future cash inflows
    
    
    27,528,968
    
    
    
    38,997,918Future production taxes
    
    
    (2,414,288
    )
    
    
    (4,188,666
    )Future development costs
    
    
    (6,470,310
    )
    
    
    (6,771,413
    )Future production costs
    
    
    (5,221,274
    )
    
    
    (3,324,556
    )Estimated future Net Profits payments
    
    
    (538,064
    )
    
    
    (1,856,089
    )Future income tax provision
    
    
    
    
    
    
    Net future cash flows
    
    
    12,885,032
    
    
    
    22,857,194Less effect of a 10% discount factor
    
    
    (5,399,242
    )
    
    
    (5,907,753
    )Standardized measure of discounted future net cash flows
    
    
    7,485,790
    
    
    
    16,949,441
  F-30




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##### Table of Contents



American Natural Energy Corporation
 December 31,2006
    
    2005$
    
    $Standardized measure, beginning of period
    
    
    16,949,441
    
    
    
    1,878,100Sales of oil and gas produced, net of production costs
    
    
    (703,517
    )
    
    
    (985,026
    )Changes in future development costs
    
    
    1,262,207
    
    
    
    (4,841,516
    )Revisions of previous quantity estimates
    
    
    (1,023,508
    )
    
    
    2,736,072Net change due to extensions and discoveries
    
    
    191,937
    
    
    
    13,274,614Net change in prices and production costs
    
    
    (8,912,923
    )
    
    
    1,770,837Change in estimated net profits payments
    
    
    (1,040,960
    )
    
    
    1,353,558Accretion of discount
    
    
    763,113
    
    
    
    1,762,802Standardized measure, end of period
    
    
    7,485,790
    
    
    
    16,949,441
 F-31




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##### Table of Contents



SIGNATURES
  American Natural Energy CorporationBy:
    /s/ Michael K. PaulkMichael K. Paulk, President  Signature
    
    Title
    
    Date/s/ Michael K. Paulk

Michael K. Paulk
    
    President (Principal
Executive    Officer) and Director
    
    January 7, 2008/s/ Steven P. Ensz

Steven P. Ensz
    
    Director and Principal Financial
and    Accounting Officer
    
    January 7, 2008/s/ Brian Bayley

Brian Bayley
    
    Director
    
    January 7, 2008/s/ John K. Campbell

John K. Campbell
    
    Director
    
    January 7, 2008