##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR
THE TRANSITION PERIOD FROM _____ TO _____
 COMMISSION FILE NUMBER 1-31679
 TETON ENERGY CORPORATION
  DELAWARE
    
    84-1482290(State or other jurisdiction of incorporation 
or organization)
    
    (IRS Employer
Identification No.)600 17th Street, Suite 1600 North 
Denver, Colorado
(Address of principal executive offices)
    
    80202
(Zip Code)
 (303) 565-4600
  Title of each class
    
    Name of each exchange on which registeredCommon Stock, par value $0.001
    
    NASDAQ Capital Market
 None
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
  INDEX
 PART I
    
    
    3Items 1. and 2. Business and Properties
    
    
    3Item 1A. Risk Factors
    
    
    19Item 1B. Unresolved Staff Comments
    
    
    25Item 2. Properties
    
    
    25Item 3. Legal Proceedings
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25PART II
    
    
    25Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    25Item 6. Selected Financial Data
    
    
    28Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    28Item 7A. Quantitative and Qualitative Disclosures about Market Risks
    
    
    46Item 8. Financial Statements and Supplementary Data
    
    
    47Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    81Item 9A. Controls and Procedures
    
    
    81Item 9B. Other Information
    
    
    82PART III
    
    
    82Item 10. Directors, Executive Officers and Corporate Governance
    
    
    82Item 11. Executive Compensation
    
    
    82Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    82Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    82Item 14. Principal Accountant Fees and Services
    
    
    82PART IV
    
    
    83Item 15. Exhibits and Financial Statement Schedules
    
    
    83EX-10.19EX-10.20EX-10.21EX-10.22EX-10.23EX-21.1EX-23.1EX-23.2EX-31.1EX-31.2EX-32
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The terms Teton, Company, we, our and us refer to Teton Energy Corporation and its
subsidiaries, as a consolidated entity, unless the context suggests otherwise. We have included
technical terms important to an understanding of our business under Glossary on page 18 and in
Items 1 and 2, Business and Properties, of this Form 10-K .
 Forward-Looking Statements
   
    
    General economic and political conditions, including constrained credit markets, tax
rates or policies, inflation rates and governmental energy policies;
    
    Our ability to access capital markets;
    
    The market price of, and supply/demand for, oil and natural gas;
    
    Our ability to service our existing and future indebtedness;
    
    Our ability to meet bank covenants on our outstanding indebtedness;
    
    Our ability to replace our reserves;
    
    Our success in completing development and exploration activities;
    
    Our ability to maintain an adequate borrowing base on our bank credit facility;
    
    Reliance on outside operating companies for drilling and development of our non-operated
oil and gas properties;
    
    Our ability to pursue and integrate acquisitions into our company structure;
    
    Changes in laws and regulations; and
    
    Other Risk Factors described in Item 1A of this Annual Report on Form 10-K.
   2




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PART I
 
 ITEMS 1. and 2. BUSINESS and PROPERTIES.
 Background
   www.teton-energy.com
 Overview and Strategy
  
    
    economically growing reserves and production by acquiring under-valued properties with
reasonable risk-reward potential and by participating in, or actively conducting, drilling
operations in order to further exploit our existing properties;
    
    seeking high-quality exploration and development projects with potential for providing
operated, long-term drilling inventories; and
    
    selectively pursuing strategic acquisitions that may expand or complement our existing
operations.
  Pursue Attractive Reserve and Leasehold Acquisitions
  Drive Growth through Drilling
  Maximize Operational Control
  3




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Operate Efficiently and Effectively, and Maximize Economies of Scale Where Practical
  Pursuit of Selective Complementary Acquisitions
    Operations, Properties and Recent Events
   4




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Basin
    
    Gross Acres
    
    
    Net AcresCentral Kansas Uplift*
    
    
    55,260
    
    
    
    36,396Piceance
    
    
    6,314
    
    
    
    789DJNoble AMI
    
    
    330,152
    
    
    
    68,789Frenchman Creek*
    
    
    31,912
    
    
    
    13,939S. Frenchman Creek*
    
    
    122,802
    
    
    
    120,598Washco*
    
    
    254,884
    
    
    
    205,484Williston
    
    
    88,472
    
    
    
    16,346Bighorn*
    
    
    32,115
    
    
    
    25,953Total
    
    
    921,911
    
    
    
    488,294
 
 *
    
    Represents properties that are either currently operated by us or which are expected to be
operated by us when development commences on the properties.  Central Kansas Uplift
   5




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Piceance Basin
     DJ Basin
   6




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7




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Williston Basin
       8




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Big Horn Basin
   Other Recent Developments
      9




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Reserves
  As of December 31,2008
    
    
    2007
    
    
    2006(dollars in thousands)Proved developed oil reserves (Bbls)
    
    
    1,443,782
    
    
    
    112,173
    
    
    
    Proved undeveloped oil reserves (Bbls)
    
    
    114,119
    
    
    
    16,396
    
    
    
    Total proved oil reserves (Bbls)
    
    
    1,557,901
    
    
    
    128,569
    
    
    
    Proved developed gas reserves (Mcf)
    
    
    9,484,586
    
    
    
    7,929,988
    
    
    
    4,927,429Proved undeveloped gas reserves (Mcf)
    
    
    7,396,191
    
    
    
    5,377,520
    
    
    
    2,165,629Total proved gas reserves (Mcf)
    
    
    16,880,777
    
    
    
    13,307,508
    
    
    
    7,093,058Total proved gas equivalents (Mcfe) (1)
    
    
    26,228,183
    
    
    
    14,078,922
    
    
    
    7,093,058Present value of estimated future net cash flows before
income taxes, discounted at 10% (2)
    
    $
    28,233
    
    
    $
    27,992
    
    
    $
    8,705Reconciliation of non-GAAP financial measure:PV-10 (3)
    
    $
    28,233
    
    
    $
    27,992
    
    
    $
    8,705Less: Undiscounted income taxes
    
    
    
    
    
    
    
    
    
    
    Plus: 10% discount factor
    
    
    
    
    
    
    
    
    
    
    Discounted income taxes
    
    
    
    
    
    
    
    
    
    
    Standardized measure of discounted future cash flows
    
    $
    28,233
    
    
    $
    27,992
    
    
    $
    8,705
 
 (1)
    
    Oil is converted to Mcfe of gas equivalent at six Mcfe per barrel.(2)
    
    The present value of estimated future net cash flows as of each date shown was calculated
using oil and gas prices being received by each respective property as of that date.(3)
    
    Our standardized measure of discounted future cash flows assumes no future income taxes will
be paid as a result of our cumulative net operating loss carryforwards. As a result, the
normal reconciling items between the non-GAAP financial measure of PV-10 and our standardized
measure of discounted future net cash flows are zero.   10




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Production Data
  Years Ended December 31,2008
    
    2007
    
    2006Total gross oil production, Bbls
    
    
    671,534
    
    
    
    40,528
    
    
    
    Total gross gas production, Mcf
    
    
    14,383,312
    
    
    
    6,745,225
    
    
    
    3,744,379Net oil production, Bbls
    
    
    192,437
    
    
    
    16,575
    
    
    
    Net gas production, Mcf
    
    
    1,657,728
    
    
    
    1,127,568
    
    
    
    737,175Average oil sales price after realized
hedging results, $/Bbl
    
    $
    92.03
    
    
    $
    74.81
    
    
    $
    Average gas sales price after realized
hedging results, $/Mcf
    
    $
    7.30
    
    
    $
    5.49
    
    
    $
    5.46Average production cost ($/Mcfe)
    
    $
    2.93
    
    
    $
    1.44
    
    
    $
    1.45
  As of December 31,2008
    
    
    2007
    
    
    2006Gross productive wellsOil
    
    
    72
    
    
    
    12
    
    
    
    Gas
    
    
    243
    
    
    
    120
    
    
    
    20Total
    
    
    315
    
    
    
    132
    
    
    
    20Net productive wells (1)Oil
    
    
    60.63
    
    
    
    9.37
    
    
    
    Gas
    
    
    64.26
    
    
    
    35.13
    
    
    
    5.00Total
    
    
    124.89
    
    
    
    44.50
    
    
    
    5.00
 
 (1)
    
    Net well count is based on Tetons effective net interest as of the end of each year. 11




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Wells Drilled
  Years Ended December 31,2008
    
    
    
    
    
    
    
    2007
    
    
    
    
    
    
    
    2006Gross
    
    
    Net (1)
    
    
    Gross
    
    
    Net (1)
    
    
    Gross
    
    
    Net (1)ExploratoryOil
    
    
    6
    
    
    
    0.25
    
    
    
    3
    
    
    
    0.33
    
    
    
    
    
    
    
    Gas
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    3.25
    
    
    
    
    
    
    
    Dry Holes
    
    
    2
    
    
    
    1.00
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    1.00Total
    
    
    8
    
    
    
    1.25
    
    
    
    16
    
    
    
    3.58
    
    
    
    4
    
    
    
    1.00DevelopmentOil
    
    
    9
    
    
    
    7.13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gas
    
    
    102
    
    
    
    19.90
    
    
    
    90
    
    
    
    18.38
    
    
    
    20
    
    
    
    5.00Salt Water Disposal
    
    
    2
    
    
    
    2.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dry Holes
    
    
    25
    
    
    
    9.42
    
    
    
    13
    
    
    
    3.13
    
    
    
    
    
    
    
    Total
    
    
    138
    
    
    
    38.45
    
    
    
    103
    
    
    
    21.51
    
    
    
    20
    
    
    
    5.00TotalOil
    
    
    15
    
    
    
    7.38
    
    
    
    3
    
    
    
    0.33
    
    
    
    
    
    
    
    Gas
    
    
    102
    
    
    
    19.90
    
    
    
    103
    
    
    
    21.63
    
    
    
    20
    
    
    
    5.00Salt Water Disposal
    
    
    2
    
    
    
    2.00
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dry Holes
    
    
    27
    
    
    
    10.42
    
    
    
    13
    
    
    
    3.13
    
    
    
    4
    
    
    
    1.00Total
    
    
    146
    
    
    
    39.70
    
    
    
    119
    
    
    
    25.09
    
    
    
    24
    
    
    
    6.00
  (1)
    
    Net well count is based on Tetons effective net working interest as of the end of each year. Finding and Development Costs
   12




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Acreage
  Developed Acres
    
    
    Undeveloped Acres
    
    
    Total AcresGross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetCentral Kansas Uplift*
    
    
    9,378
    
    
    
    9,378
    
    
    
    45,882
    
    
    
    27,018
    
    
    
    55,260
    
    
    
    36,396Piceance Basin
    
    
    3,640
    
    
    
    455
    
    
    
    2,674
    
    
    
    334
    
    
    
    6,314
    
    
    
    789DJ Basin
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Noble AMI
    
    
    16,322
    
    
    
    2,511
    
    
    
    313,830
    
    
    
    66,278
    
    
    
    330,152
    
    
    
    68,789Frenchman Creek*
    
    
    
    
    
    
    
    
    
    
    31,912
    
    
    
    13,939
    
    
    
    31,912
    
    
    
    13,939S. Frenchman Creek*
    
    
    
    
    
    
    
    
    
    
    122,802
    
    
    
    120,598
    
    
    
    122,802
    
    
    
    120,598Washco*
    
    
    1,080
    
    
    
    894
    
    
    
    253,804
    
    
    
    204,590
    
    
    
    254,884
    
    
    
    205,484Williston Basin
    
    
    1,399
    
    
    
    210
    
    
    
    87,073
    
    
    
    16,136
    
    
    
    88,472
    
    
    
    16,346Big Horn Basin*
    
    
    
    
    
    
    
    
    
    
    32,115
    
    
    
    25,953
    
    
    
    32,115
    
    
    
    25,953Total
    
    
    31,819
    
    
    
    13,448
    
    
    
    890,092
    
    
    
    474,846
    
    
    
    921,911
    
    
    
    488,294
  *
    
    Represents properties that are either currently operated by us or which are expected to be
operated by us when development commences on the properties. Hedge Contracts
  Type of Contract
    
    Remaining Volume
    
    
    Fixed Price per Barrel
    
    Price Index (1)
    
    Remaining PeriodOil Costless Collar
    
    
    143,545
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    
    01/01/09-12/31/09Oil Costless Collar
    
    
    106,876
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    
    01/01/10-12/31/10Oil Costless Collar
    
    
    87,920
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    
    01/01/11-12/31/11Oil Costless Collar
    
    
    79,611
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    
    01/01/12-12/31/12Oil Costless Collar
    
    
    25,192
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    
    01/01/13-04/30/13Total Bbl
    
    
    443,144
  (1)
    
    WTI refers to West Texas Intermediate price as quoted on the New York Mercantile
Exchange. Title to Properties
  Seasonality
  13




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Marketing and Major Customers
   Competition
  Governmental Regulation
    Regulation of Oil and Natural Gas Exploration and Production
  14




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Split Estate Regulation and Access Difficulties
  Natural Gas Marketing, Gathering and Transportation
    15




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Environmental Regulations
         16




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Operating Hazards and Insurance
   Employees and Office Space
  Available Information
 http://www.teton-energy.com
 th
 http://www.teton-energy.com
 http://www.sec.gov
 17




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Glossary
  3-D seismic 
 AMI
 Basin
 Big Horn Basin
 Cash flow hedge
 Central Kansas Uplift
 Collar
 Denver-Julesburg (DJ) Basin
 Development well
 EUR
 Exploratory well
 Field
 Gas
 Gross
 Hedging
 IRR
 Net
 Piceance Basin
 Productive
 18




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Proved reserves
 Proved developed reserves
 Proved undeveloped reserves
 Reserves
 Transportation
 Williston Basin
 Working interest
 MEASUREMENTS
 Barrel  Bbl  Bcf  Bcfe  Btu  MBbl  Mcf  Mcfe  MMBtu  MMcf  MMcfe
 
 ITEM 1A. RISK FACTORS.
  Risks Related to our Business and the Economy
 We have incurred significant losses. We expect future losses and we may never become consistently
profitable.
  19




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Our leverage may limit our ability to borrow additional funds, comply with the terms of our
indebtedness or capitalize on business opportunities.
  We may be unable to obtain funding on acceptable terms or at all because of the deterioration of
the credit and capital markets, and oil and gas commodity prices. This may hinder or prevent us
from meeting our future capital needs.
    
    
    domestic and foreign supply, and perceptions of supply, of oil and natural gas;
    
    level of consumer demand;
    
    political conditions in oil and gas producing regions;
    
    weather conditions;
    
    world-wide economic conditions;
 20




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
    
    domestic and foreign governmental regulations; and
    
    price and availability of alternative fuels.
  Our credit facility has borrowing base restrictions, which could adversely affect our operations.
   We may be unable to fully execute our growth strategy if we encounter illiquid capital markets.
   Our oil and gas production results are dependent on factors, including commodity prices and
commodity price basis differentials, which are subject to various external influences that cannot
be controlled.
  Our use of oil and natural gas price hedging contracts involves credit risk and may limit future
revenues from price increases while not hedging may result in significant fluctuations in our net
income and stockholders equity.
  21




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Drilling for and producing oil and natural gas are high risk activities with many uncertainties
that could adversely affect our business, financial condition, or results of operations.
  Acquisitions are a part of our business strategy and are subject to the risks and uncertainties of
evaluating recoverable reserves and potential liabilities.
   Our acquisitions may pose integration risks and other difficulties.
   We have limited operating control over our current production.
  22




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The marketability of our production depends upon the availability, proximity and capacity of gas
gathering systems, pipelines and processing facilities, which are owned by third parties.
  Seasonal weather conditions and lease stipulations can adversely affect the conduct of drilling
activities on our properties.
  Our reserves and future net revenues may differ significantly from our estimates.
   The loss of key personnel could adversely affect our business.
  We may incur non-cash charges to our operations as a result of current and future financing
transactions.
  23




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Risks Relating To Our Common Stock
 Our insiders beneficially own a significant portion of our stock.
  
    
    elect or defeat the election of our directors;
    
    amend or prevent amendment of our articles of incorporation or bylaws;
    
    effect or prevent a merger, sale of assets or other corporate transaction; and
    
    affect the outcome of any other matter submitted to the stockholders for vote.
  The anti-takeover effects of provisions of our charter and by-laws and of certain provisions of
Delaware corporate law, could deter, delay, or prevent an acquisition or other change in control
of us and could adversely affect the price of our common stock.
  
    
    the owner of 15% or more of the outstanding voting stock of the corporation;
    
    an affiliate or associate of the corporation and was the owner of 15% or more of
the outstanding voting stock of the corporation, at any time within three years
immediately prior to the relevant date; and
    
    an affiliate or associate of the persons defined as an interested stockholder.
  The price of our common stock may fluctuate significantly, which may make it difficult for
investors to resell common stock when they want to or at prices they find attractive.
  
    
    low average daily trading volume;
    
    quarterly variations in operating results;
    
    operating results that vary from the expectations of management, securities analysts and
investors;
 24




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
    
    changes in expectations as to future financial performance, including financial
estimates by securities analysts and investors;
    
    developments generally affecting the oil and gas industry;
    
    announcements by us, or other industry companies, of significant contracts,
acquisitions, joint ventures, capital commitments or operational successes;
    
    future sales of our equity or equity-linked securities; and
    
    general domestic and international economic conditions including the availability of
short- and long-term financing.
  
 ITEM 1B. UNRESOLVED STAFF COMMENTS.
  
 ITEM 2. PROPERTIES.
  
 ITEM 3. LEGAL PROCEEDINGS.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  
 PART II
 
 ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
 Market Information
   High
    
    LowYear Ended December 31, 2008:First quarter
    
    $
    5.20
    
    
    $
    4.00Second quarter
    
    
    6.43
    
    
    
    4.50Third quarter
    
    
    5.01
    
    
    
    2.45Fourth quarter
    
    
    3.15
    
    
    
    0.69Year Ended December 31, 2007:First quarter
    
    $
    5.52
    
    
    $
    4.31Second quarter
    
    
    5.98
    
    
    
    3.86Third quarter
    
    
    5.56
    
    
    
    4.09Fourth quarter
    
    
    4.99
    
    
    
    3.75
 25




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Holders
  Dividends
  Equity Compensation Plan Information
  Number of Securities
    
    Weighted Averageto be Issued upon
    
    Exercise PriceExercise
    
    of Outstanding
    
    Number of Securitiesof Outstanding Options,
    
    Options,
    
    Remaining AvailablePlan Category
    
    Warrants and Rights
    
    Warrants and Rights
    
    for Future IssuanceEquity compensation plans approved by
security holders:2003 Employee Stock Compensation Plan (1)
    
    
    1,415,844
    
    
    $
    3.55
    
    
    
    2005 Long Term Incentive Plan:Performance
Share Units (2)Performance-vesting restricted
common stock (2)Restricted common stock grants
    
    
    319,732
    
    
    
    
    
    
    
    4,734,108
    (3)
  (1)
    
    The 2003 Employee Stock Compensation Plan was terminated upon the adoption of the 2005 Long
Term Incentive Plan (the LTIP).(2)
    
    Other than for the restricted common stock grants that vest generally over a three year
period, our LTIP plans that were in place at January 1, 2008 were terminated at the end of
2008. The rights to all future vesting of performance based common stock was waived by all
employees and directors.(3)
    
    Our LTIP provides for the issuance of a maximum number of shares of common stock equal to 20%
of the total number of shares of common stock outstanding as of the effective date for the
LTIPs first year and, for each subsequent LTIP year, (i) that number of shares equal to 10%
of the total number of shares of common stock outstanding as of the first day of each
respective LTIP year, plus (ii) that number of shares of common stock reserved and available
for issuance but unissued during any prior plan year during the term of the LTIP; provided,
however, that in no event shall the number of shares of common stock available for issuance
under the LTIP as of the beginning of any year plus the number of shares of common stock
reserved for outstanding awards under the LTIP exceed 35% percent of the total number of
shares of common stock outstanding at that time, based on a three-year period of grants. Recent Issuances of Unregistered Securities
  26




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Performance Graph
  
  The stock price performance included in this graph is not necessarily indicative of future stock
price performance.
 27




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ITEM 6. SELECTED FINANCIAL DATA.
  Year Ended December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004(in thousands, except per share data)Statement of Operations Data:Total operating revenues
    
    $
    28,810
    
    
    $
    23,694
    
    
    $
    4,022
    
    
    $
    797
    
    
    $
    Net income (loss) from continuing operations
    
    $
    (14,173
    )
    
    $
    2,377
    
    
    $
    (5,724
    )
    
    $
    (4,032
    )
    
    $
    (5,193
    )Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,384Net income (loss)
    
    $
    (14,173
    )
    
    $
    2,377
    
    
    $
    (5,724
    )
    
    $
    (4,032
    )
    
    $
    7,190Basic income (loss) per share:Continuing operations
    
    $
    (0.67
    )
    
    $
    0.14
    
    
    $
    (0.44
    )
    
    $
    (0.38
    )
    
    $
    (0.64
    )Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.02
    )
    
    $
    1.37Net income
    
    $
    (0.67
    )
    
    $
    0.14
    
    
    $
    (0.44
    )
    
    $
    (0.40
    )
    
    $
    0.73Fully diluted income (loss) per share:Continuing operations
    
    $
    (0.67
    )
    
    $
    0.13
    
    
    $
    (0.44
    )
    
    $
    (0.38
    )
    
    $
    (0.64
    )Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    (0.02
    )
    
    $
    1.37Net income
    
    $
    (0.67
    )
    
    $
    0.13
    
    
    $
    (0.44
    )
    
    $
    (0.40
    )
    
    $
    0.73Balance Sheet Data:Total assets
    
    $
    126,858
    
    
    $
    78,299
    
    
    $
    41,244
    
    
    $
    22,131
    
    
    $
    17,612Long-term debt
    
    $
    55,900
    
    
    $
    8,000
    
    
    $
    
    
    
    $
    
    
    
    $
    Total long-term liabilities
    
    $
    57,198
    
    
    $
    8,529
    
    
    $
    78
    
    
    $
    4
    
    
    $
    
 
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ($ in thousands, except per Mcf amounts).
  Business Overview
   Current Economic Conditions and Credit Crisis
  (1)
    
    acquiring under-valued properties with reasonable risk-reward potential and by participating
in, or actively conducting, drilling operations in order to further exploit our existing
properties,
 28




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##### Table of Contents



(2)
    
    seeking high-quality exploration and development projects with potential for providing
operated, long-term drilling inventories, and
 (3)
    
    selectively pursuing strategic acquisitions that may expand or complement our existing
operations.
  Significant Developments since December 31, 2007
  
    
    On April 2, 2008, we completed the purchase of reserves, production and certain oil and
gas properties in the Central Kansas Uplift of Kansas for approximately $53.6 million,
after post closing adjustments. The effective date of the transaction was March 1, 2008.
The purchase price was funded with $40.2 million of cash and borrowing capacity available
under our revolving credit facility with JPMorgan Chase, $13.0 million of our common stock,
or 2,746,124 common shares, and 625,000 warrants valued at $434.
    
    On May 16, 2008, we repaid $6.6 million of the $9.0 million face value of 8% Senior
Subordinated Convertible Notes that closed on May 16, 2007 (the Notes). The remaining
$2.4 million was converted into 480,000 shares of our common stock at a conversion price of
$5.00 per share.
    
    On June 18, 2008, we closed on the private placement of $40 million aggregate principal
amount of 10.75% Secured Convertible Debentures due on June 18, 2013 (the Debentures).
The holders each had a 90-day put option, expiring September 18, 2008, whereby they elected
to reduce their investment in the Debentures by a total of 25% of the face amount, or $10
million in the aggregate. We repaid the $10 million to our investors on September 18,
2008, reducing the total outstanding amount on the Debentures to $30 million. The net
proceeds from the issuance of the Debentures, after fees and related expenses (and
excluding the 90-day 25% put options) were approximately $28 million. These funds were
used to pay down our outstanding indebtedness on our revolving credit facility.
    
    In connection with the privately placed 10.75% Secured Convertible Debenture, the
borrowing base on our $150 million revolving credit facility was reduced from $50 million
to $32.5 million. On August 1, 2008 the borrowing base was re-determined and increased to
$34.5 million (on November 1, 2008, the borrowing base was reaffirmed at $34.5 million).
The balance outstanding at December 31, 2008 was $29,650,000.
    
    On October 7, 2008, we and all of the investors who held the 3,600,000 warrants (issued
in connection with the May 2007 financing transaction which consisted of the $9.0 million
Convertible Notes and warrants to purchase 3,600,000 shares of the Companys common stock
at a $5.00 strike price for a period of five years, with a cashless exercise option) agreed
to exchange the warrants for 900,000 shares of the Companys common stock. As a result,
the carrying value of the current liability for the financing warrants was reduced to the
fair value as of the date of the exchange and we recognized a gain of $6.9 million as a
result.
    
    On November 13, 2008, one of our investors, who held a $3.75 million investment in the
10.75% Secured Convertible Debentures, elected to convert, bringing the total outstanding
amount on the Debentures to $26.25 million. We issued 576,924 shares of our Common Stock
(based on the $6.50 stated conversion rate), 216,541 shares of our Common Stock related to
the interest make-whole provision and paid $893,000 in cash related to accrued interest
through the conversion date and for the remaining amount of the interest
 29




---



##### Table of Contents



make-whole. The total cost to the Company was $1.7 million or $2.05 million less than the
outstanding amount of the debt that was converted.
    
    During the twelve months ended December 31, 2008, we recognized impairment expense,
under SFAS No. 144, related to our non-operated properties in the Teton-Noble AMI of $11.8
million. During 2008, we received and signed AFEs for a total of 105 wells in the
Teton-Noble AMI. During the fourth quarter of 2008, we notified the operator of our
election to go non-consent on the remaining 2008 drilling program for two reasons: (1) we
wanted time to evaluate the results of adding pumping units to existing production to bring
the production volumes up to economic levels, and (2) we believe it is more prudent to
retain the funds that would be expended for additional new wells in this area while we are
in these times of credit and capital market constraints and lower commodity prices. Noble
agreed with our approach and has informed us that they will not drill any additional wells
in the Teton Noble-AMI until the production issues are resolved. The results of these
wells have been disappointing for the amount of investment made to date. The gathering
system problems that are being addressed by the operator are resulting in marginal
economics for the project, and we intend to exercise our right to go non-consent until the
volume-related problems are resolved.
 Significant Developments since December 31, 2008
 
    
    On January 16, 2009, we retired an additional $750 of the 10.75% Secured Covertible
Debentures for $273, bringing the total outstanding on the Debentures to $25.5 million.
 The remainder of this page is intentionally left blank.
 30




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##### Table of Contents



Results of Operations
 Year Ended December 31,
    
    
    Percent Change Between2007 to
    
    
    2006 to2008
    
    
    2007
    
    
    2006
    
    
    2008
    
    
    2007(revenues and expenses in thousands)Net production volumesOil (Bbl)
    
    
    192,437
    
    
    
    16,575
    
    
    
    
    
    
    
    1061
    %
    
    nmGas (Mcf)
    
    
    1,657,728
    
    
    
    1,127,568
    
    
    
    737,175
    
    
    
    47
    %
    
    
    53
    %Total (Mcfe)
    
    
    2,812,350
    
    
    
    1,227,021
    
    
    
    737,175
    
    
    
    129
    %
    
    
    66
    %Realized price  pre hedgingOil (per Bbl)
    
    $
    95.27
    
    
    $
    76.32
    
    
    $
    0.00
    
    
    
    25
    %
    
    nmGas (per Mcf)
    
    $
    6.11
    
    
    $
    4.42
    
    
    $
    5.46
    
    
    
    38
    %
    
    
    -19
    %Total (per Mcfe)
    
    $
    10.12
    
    
    $
    5.10
    
    
    $
    5.46
    
    
    
    98
    %
    
    
    -7
    %Realized price  net of hedgingOil (per Bbl)
    
    $
    92.03
    
    
    $
    74.81
    
    
    $
    0.00
    
    
    
    23
    %
    
    nmGas (per Mcf)
    
    $
    7.30
    
    
    $
    5.49
    
    
    $
    5.46
    
    
    
    33
    %
    
    
    1
    %Total (per Mcfe)
    
    $
    10.60
    
    
    $
    6.06
    
    
    $
    5.46
    
    
    
    75
    %
    
    
    11
    %Oil and gas salesOil sales
    
    $
    18,334
    
    
    $
    1,265
    
    
    $
    
    
    
    
    1349
    %
    
    nmGas sales
    
    
    10,135
    
    
    
    4,988
    
    
    
    4,022
    
    
    
    103
    %
    
    
    24
    %Total
    
    $
    28,469
    
    
    $
    6,253
    
    
    $
    4,022
    
    
    
    355
    %
    
    
    55
    %Oil and gas operating expensesLease operating expense
    
    $
    4,481
    
    
    $
    705
    
    
    $
    325
    
    
    
    536
    %
    
    
    117
    %Transportation expense
    
    
    1,827
    
    
    
    652
    
    
    
    493
    
    
    
    180
    %
    
    
    32
    %Production taxes
    
    
    1,932
    
    
    
    412
    
    
    
    251
    
    
    
    369
    %
    
    
    64
    %Total
    
    $
    8,240
    
    
    $
    1,769
    
    
    $
    1,069
    
    
    
    366
    %
    
    
    65
    %Data on a per Mcfe basisRealized price  net of hedging
    
    $
    10.60
    
    
    $
    6.06
    
    
    $
    5.46
    
    
    
    75
    %
    
    
    11
    %Lease operating expense
    
    
    1.59
    
    
    
    0.57
    
    
    
    0.44
    
    
    
    180
    %
    
    
    30
    %Transportation expense
    
    
    0.65
    
    
    
    0.53
    
    
    
    0.67
    
    
    
    23
    %
    
    
    -21
    %Production taxes
    
    
    0.69
    
    
    
    0.34
    
    
    
    0.34
    
    
    
    102
    %
    
    
    0
    %Total production costs
    
    
    2.93
    
    
    
    1.44
    
    
    
    1.45
    
    
    
    103
    %
    
    
    -1
    %Gross margin
    
    $
    7.67
    
    
    $
    4.62
    
    
    $
    4.01
    
    
    
    66
    %
    
    
    15
    %Gross margin percentage
    
    
    72
    %
    
    
    76
    %
    
    
    73
    %General and administrativeStock-based compensation, net of
exploration reclass
    
    $
    3,192
    
    
    $
    3,288
    
    
    $
    2,928
    
    
    
    -3
    %
    
    
    12
    %Other compensation
    
    
    2,772
    
    
    
    2,175
    
    
    
    2,086
    
    
    
    27
    %
    
    
    4
    %Professional fees
    
    
    1,904
    
    
    
    2,373
    
    
    
    967
    
    
    
    -20
    %
    
    
    145
    %Other general and administrative
    
    
    1,720
    
    
    
    1,145
    
    
    
    1,167
    
    
    
    50
    %
    
    
    -2
    %Total general and administrative
    
    $
    9,588
    
    
    $
    8,981
    
    
    $
    7,148
    
    
    
    7
    %
    
    
    26
    %Other operating expensesExploration expense
    
    $
    4,831
    
    
    $
    1,847
    
    
    $
    448
    
    
    
    162
    %
    
    
    312
    %DD&A  oil and gas
    
    $
    14,396
    
    
    $
    3,751
    
    
    $
    1,697
    
    
    
    284
    %
    
    
    121
    %DD&A  other
    
    $
    229
    
    
    $
    81
    
    
    $
    52
    
    
    
    183
    %
    
    
    56
    %Other income (expense)Realized gain  hedging
    
    $
    1,349
    
    
    $
    1,181
    
    
    $
    
    
    
    
    14
    %
    
    nmUnrealized gain (loss)  hedging
    
    
    12,662
    
    
    
    (857
    )
    
    
    403
    
    
    
    1577
    %
    
    
    -313
    %Gain (loss) on derivative contracts
    
    
    7,762
    
    
    
    (2,624
    )
    
    
    
    
    
    
    396
    %
    
    nmInterest (expense) income, net
    
    
    (11,976
    )
    
    
    (2,588
    )
    
    
    265
    
    
    
    363
    %
    
    
    -1077
    %Interest make-whole premium on debt
conversion
    
    
    (1,236
    )
    
    
    
    
    
    
    
    
    
    nm
    
    
    nmTotal
    
    $
    8,561
    
    
    $
    (4,888
    )
    
    $
    668
    
    
    
    -275
    %
    
    
    -832
    %
 31




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##### Table of Contents



Results of Operations 2008 Compared to 2007
        
    
    a net increase in compensation expense of approximately $400 from staffing increases
throughout the year for the significant increase in operations in 2008, split as
approximately $530 of cash compensation in the form of salaries (no bonuses were accrued,
or to be paid, for 2008) and a decrease of approximately $130 of non-cash compensation;
    
    an increase in office supplies and rent expense for the larger number of staff of
approximately $624; and
    
    an increase in Board of Directors cash compensation of approximately $177 (the Board
members have permanently waived their rights to 93,000 shares of common stock that was
earned in 2008);
    
    all offset somewhat by $133 savings in public company compliance costs related to
efficiencies implemented throughout 2008 and various other smaller items.
  32




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33




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##### Table of Contents



Results of Operations 2007 Compared to 2006
      
    
    a net increase in compensation expense of approximately $1.2 million due to
approximately $550 of non-cash compensation expense increase from stock-based grants as a
result of meeting performance milestones associated with our long-term incentive plan and
an increase in salaries of approximately $620;
    
    a net increase of approximately $800 in consulting and related expenses associated with
SOX compliance, oil and gas accounting services, investor relations, compensation
benchmarking reports and study, and financial and legal services related to acquisitions,
financings and the divestiture of part of the Piceance properties.
   34




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##### Table of Contents



Liquidity and Capital Resources
    35




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##### Table of Contents



1.
    
    Ratio of total debt to EBITDAX (as defined in the credit facility agreement): We will
not, as of the last day of the fiscal quarter, permit our ratio of total debt as of the end
of such fiscal quarter to EBITDAX for the four fiscal quarters ending on the last day of the fiscal quarter immediately preceding the
date of determination for which financial statements are available to be greater than 3.5
to 1.0.2.
    
    Current ratio: We will not, as of the last day of any fiscal quarter, permit our ratio
of (i) consolidated current assets (including the unused amount of the total commitments
under the credit facility, but excluding non-cash assets under SFAS 133) to (ii)
consolidated current liabilities (excluding non-cash obligations, SFAS 133 liabilities and
current maturities under or with respect to the credit facility, the convertible debt or
any other senior subordinated debt, whether such amounts are reflected as a liability under
GAAP or not) to be less than 1.0 to 1.0.
       36




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##### Table of Contents



Cash Flows, Capital Expenditures and Other Cash Requirements
      As of December 31,2008
    
    
    2007
    
    
    2006Property acquisition costs
    
    $
    40,827
    
    
    $
    6,807
    
    
    $
    3,323Exploration
    
    
    3,113
    
    
    
    2,712
    
    
    
    1,823Development
    
    
    30,826
    
    
    
    32,900
    
    
    
    17,163Total
    
    $
    74,766
    
    
    $
    42,419
    
    
    $
    22,309
 37




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##### Table of Contents



Other Cash Requirements
  st st
 Operating Activities
  38




---



##### Table of Contents



Investing Activities
  Financing Activities
 Other Cash Requirements
  39




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##### Table of Contents



Contractual Obligations
  Type of Contract
    
    Remaining Volume
    
    
    Fixed Price per Barrel
    
    
    Price Index (1)
    
    
    Remaining PeriodOil Costless Collar
    
    
    143,545
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    
    01/01/09-12/31/09Oil Costless Collar
    
    
    106,876
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    
    01/01/10-12/31/10Oil Costless Collar
    
    
    87,920
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    
    01/01/11-12/31/11Oil Costless Collar
    
    
    79,611
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    
    01/01/12-12/31/12Oil Costless Collar
    
    
    25,192
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    
    01/01/13-04/30/13Total Bbl
    
    
    443,144
 
 (1)
    
    WTI refers to West Texas Intermediate price as quoted on the New York Mercantile Exchange.    One Year
    
    
    2  3
    
    
    4  5
    
    
    More thanor Less
    
    
    Years
    
    
    Years
    
    
    5 Years(in thousands)Operating lease for office space
    
    $
    372
    
    
    $
    839
    
    
    $
    867
    
    
    $
    257Senior bank facility line of credit (a)
    
    
    
    
    
    
    29,650
    
    
    
    
    
    
    
    Interest on line of credit (b)
    
    
    1,339
    
    
    
    2,161
    
    
    
    
    
    
    
    10.75% Secured Convertible
Debentures
    
    
    750
    
    
    
    
    
    
    
    25,500
    
    
    
    Interest on 10.75% Debentures
    
    
    2,745
    
    
    
    5,483
    
    
    
    4,765
    
    
    
    Total contractual cash commitments
    
    $
    5,206
    
    
    $
    38,133
    
    
    $
    31,132
    
    
    $
    257
 
 (a)
    
    The amount listed reflects the balance outstanding at December 31, 2008. Any balance
outstanding at April 2, 2011 is due at that time.(b)
    
    The interest rate assumed on the credit facility is 4.5% per annum, the rate in
effect at December 31, 2008.(c)
    
    The 10.75% Secured Convertible Debentures are due in their entirety on June 18, 2013. 40




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##### Table of Contents



Debt and Credit Facility
 Secured Convertible Debentures
      Other Cash Requirements
 Credit Facility
  41




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##### Table of Contents



Bank Covenants
  Income Taxes, Net Operating Losses and Tax Credits
  Off-Balance Sheet Arrangements
   Critical Accounting Policies and Estimates
  42




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##### Table of Contents



Impairment of Oil and Gas Properties
  Reserve Estimates
  Derivative Financial Instruments
   43




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##### Table of Contents



Successful Efforts Method of Accounting
    Stock-Based Compensation
   Asset Retirement Obligations
  44




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##### Table of Contents



Recently Adopted Accounting Pronouncements
    New Accounting Pronouncements
    45




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##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
  Commodity Price Risk
  46




---



##### 



Type of Contract
    
    Remaining Volume
    
    Fixed Price per Barrel
    
    Price Index
    
    Remaining PeriodOil Costless Collar
    
    143,545
    
    $90.00 Floor/$104.00
Ceiling
    
    WTI
    
    01/01/09-12/31/09Oil Costless Collar
    
        106,876
    
    $90.00 Floor/$104.00
Ceiling
    
    WTI
    
    01/01/10-12/31/10Oil Costless Collar
    
        87,920
    
    $90.00 Floor/$104.00
Ceiling
    
    WTI
    
    01/01/11-12/31/11Oil Costless Collar
    
        79,611
    
    $90.00 Floor/$104.00
Ceiling
    
    WTI
    
    01/01/12-12/31/12Oil Costless Collar
    
        25,192
    
    $90.00 Floor/$104.00
Ceiling
    
    WTI
    
    01/01/13-04/30/13Total Bbl
    
        443,144
   Interest Rate Risk
   ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
  PageReport of Independent Registered Public Accounting Firm
    
    
    F - 1Consolidated Financial StatementsConsolidated Balance Sheet
    
    
    F - 2Consolidated Statement of Operations
    
    
    F - 3Consolidated Statement of Cash Flows
    
    
    F - 4Consolidated Statement of Changes in Stockholders Equity
    
    
    F - 6Notes to Consolidated Financial Statements
    
    
    F - 7
 47




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control-Integrated
Framework
  
 Internal Control-Integrated Framework
  
  F-1




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##### Table of Contents



TETON ENERGY CORPORATION
  Consolidated Balance Sheet
 December 31,2008
    
    
    2007(in thousands)AssetsCurrent assets:Cash and cash equivalents (Note 1)
    
    $
    
    
    
    $
    24,616Trade accounts receivable
    
    
    4,176
    
    
    
    2,686Tubular inventory
    
    
    373
    
    
    
    149Fair value of oil and gas derivative contracts
    
    
    5,217
    
    
    
    Prepaid expenses and other assets
    
    
    249
    
    
    
    131Deferred debt issuance costs  net
    
    
    540
    
    
    
    1,419Total current assets
    
    
    10,555
    
    
    
    29,001Oil and gas properties, successful efforts method:Developed properties
    
    
    94,529
    
    
    
    35,708Wells and facilities in progress
    
    
    7,702
    
    
    
    3,230Undeveloped properties
    
    
    22,005
    
    
    
    13,411Corporate and other assets
    
    
    1,460
    
    
    
    485Total property and equipment
    
    
    125,696
    
    
    
    52,834Less accumulated depreciation and depletion
    
    
    (18,317
    )
    
    
    (3,695
    )Net property and equipment
    
    
    107,379
    
    
    
    49,139Fair value of oil and gas derivatives contracts
    
    
    6,991
    
    
    
    Deferred debt issuance costs  net
    
    
    1,933
    
    
    
    159Total assets
    
    
    126,858
    
    
    
    78,299Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    
    1,915
    
    
    
    400Accrued liabilities
    
    
    6,272
    
    
    
    7,833Accrued payroll
    
    
    202
    
    
    
    9028% senior
subordinated convertible notes, net of discount of $7,370 at December 31, 2007
    
    
    
    
    
    
    1,630Fair value of oil and gas derivative contracts
    
    
    
    
    
    
    455Derivative warrant liabilities
    
    
    
    
    
    
    9,522Total current liabilities
    
    
    8,389
    
    
    
    20,742Long-term liabilities:Long-term debt  senior secured bank debt
    
    
    29,650
    
    
    
    8,000Long-term debt  10.75% Secured Convertible Debentures
    
    
    26,250Asset retirement obligations
    
    
    1,298
    
    
    
    529Total long-term liabilities
    
    
    57,198
    
    
    
    8,529Total liabilities
    
    
    65,587
    
    
    
    29,271Commitments and contingencies (see Note 11)Stockholders equity:Preferred stock, $.001 par value; 25,000,000 shares authorized;
none outstanding
    
    
    
    
    
    
    Common stock, $.001 par value; 250,000,000 shares authorized;
23,821,573 and 17,652,889 shares issued and outstanding as of
December 31, 2008 and 2007, respectively
    
    
    24
    
    
    
    18Additional paid-in capital
    
    
    103,267
    
    
    
    76,857Accumulated deficit
    
    
    (42,020
    )
    
    
    (27,847
    )Total stockholders equity
    
    
    61,271
    
    
    
    49,028Total liabilities and stockholders equity
    
    
    126,858
    
    
    
    78,299
  F-2




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##### Table of Contents



TETON ENERGY CORPORATION
  Consolidated Statement of Operations
 Years Ended December 31,2008
    
    
    2007
    
    
    2006(in thousands, except per share amounts)Operating revenues:Oil and gas sales
    
    $
    28,469
    
    
    $
    6,253
    
    
    $
    4,022Gain on sale of oil and gas properties
    
    
    
    
    
    
    17,441
    
    
    
    Miscellaneous Income, net
    
    
    341
    
    
    
    
    
    
    
    Total revenues
    
    
    28,810
    
    
    
    23,694
    
    
    
    4,022Operating expenses:Lease operating expense
    
    
    4,247
    
    
    
    705
    
    
    
    325Workover Expense
    
    
    234
    
    
    
    
    
    
    
    Transportation expense
    
    
    1,827
    
    
    
    652
    
    
    
    493Production taxes
    
    
    1,932
    
    
    
    412
    
    
    
    251Exploration expense
    
    
    4,831
    
    
    
    1,847
    
    
    
    448General and administrative
    
    
    9,588
    
    
    
    8,981
    
    
    
    7,148Depreciation, depletion and accretion expense
    
    
    14,625
    
    
    
    3,832
    
    
    
    1,749Impairment expense
    
    
    14,260
    
    
    
    
    
    
    
    Total operating expenses
    
    
    51,544
    
    
    
    16,429
    
    
    
    10,414Operating income (loss)
    
    
    (22,734
    )
    
    
    7,265
    
    
    
    (6,392
    )Other income (expense):Realized gain on oil and gas derivative contracts
    
    
    1,349
    
    
    
    1,181
    
    
    
    Unrealized gain (loss) on oil and gas derivative contracts
    
    
    12,662
    
    
    
    (857
    )
    
    
    403Gain (loss) on derivative contract liabilities
    
    
    7,762
    
    
    
    (2,624
    )
    
    
    Interest income (expense), net
    
    
    (11,976
    )
    
    
    (2,588
    )
    
    
    265Interest make-whole premium on conversion of debt
(Note 5)
    
    
    (1,236
    )
    
    
    
    
    
    
    Total other income (expense)
    
    
    8,561
    
    
    
    (4,888
    )
    
    
    668Net income (loss) applicable to common shares
    
    $
    (14,173
    )
    
    $
    2,377
    
    
    $
    (5,724
    )Basic income (loss) per common share
    
    $
    (0.67
    )
    
    $
    0.14
    
    
    $
    (0.44
    )Fully diluted income (loss) per common share
    
    $
    (0.67
    )
    
    $
    0.13
    
    
    $
    (0.44
    )Basic weighted-average common shares outstanding
    
    
    21,064
    
    
    
    16,545
    
    
    
    13,093Fully diluted weighted-average common shares outstanding
    
    
    21,064
    
    
    
    18,061
    
    
    
    13,093
  F-3




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##### Table of Contents



TETON ENERGY CORPORATION
  Consolidated Statement of Cash Flows
 Years Ended December 31,2008
    
    
    2007
    
    
    2006(in thousands)Operating activities:Net income (loss)
    
    $
    (14,173
    )
    
    $
    2,377
    
    
    $
    (5,724
    )Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities:Depreciation, depletion and accretion
    
    
    14,625
    
    
    
    3,832
    
    
    
    1,749Impairment of oil and gas properties
    
    
    14,260
    
    
    
    
    
    
    
    Lease Expirations
    
    
    3,401
    
    
    
    
    
    
    
    Debt issuance cost amortization
    
    
    1,886
    
    
    
    586
    
    
    
    Debt discount amortization
    
    
    7,370
    
    
    
    1,630
    
    
    
    Stock-based compensation expense, exclusive of cash withheld
for payroll taxes of $779, $700 and $0, respectively
    
    
    2,890
    
    
    
    2,588
    
    
    
    2,928Stock issued for outside services, net
    
    
    
    
    
    
    264
    
    
    
    53Non-cash loss on derivative contract liabilities
    
    
    (7,762
    )
    
    
    2,624
    
    
    
    Unrealized loss (gain)  oil and gas derivative contracts
    
    
    (12,662
    )
    
    
    857
    
    
    
    (403
    )Stock Issued for Interest Make-Whole related to Conversion of
10.75% Convertible Debt (Note 5)
    
    
    279
    
    
    
    
    
    
    
    Gain on sale of oil and gas properties
    
    
    
    
    
    
    (17,441
    )
    
    
    Changes in current assets and liabilities:Trade accounts receivable
    
    
    (1,490
    )
    
    
    (1,173
    )
    
    
    (612
    )Advances to operator
    
    
    
    
    
    
    
    
    
    
    (177
    )Prepaid expenses and other current assets
    
    
    (343
    )
    
    
    10
    
    
    
    (153
    )Accounts payable and accrued liabilities
    
    
    1,513
    
    
    
    1,767
    
    
    
    66Accrued payroll
    
    
    (700
    )
    
    
    11
    
    
    
    494Net cash provided by operating activities
    
    
    9,094
    
    
    
    (2,068
    )
    
    
    (1,779
    )Investing activities:Proceeds from sale of oil and gas properties
    
    
    
    
    
    
    35,125
    
    
    
    2,700Acquisition of corporate fixed assets
    
    
    (949
    )
    
    
    (89
    )
    
    
    (182
    )Acquisition and development of oil and gas properties
    
    
    (76,945
    )
    
    
    (35,635
    )
    
    
    (20,355
    )Net cash used in investing activities
    
    
    (77,894
    )
    
    
    (599
    )
    
    
    (17,837
    )Financing activities:Proceeds from issuance of common stock and warrants  net of
offering costs of $0, $368 and $1,127, respectively
    
    
    
    
    
    
    4,500
    
    
    
    10,834Proceeds from exercise of options/warrants
    
    
    1,915
    
    
    
    2,408
    
    
    
    6,235Proceeds from 8% Senior Subordinated Convertible Notes
    
    
    
    
    
    
    9,000
    
    
    
    Proceeds from 10.75% Convertible debt (Note 5)
    
    
    30,000
    
    
    
    
    
    
    
    Net borrowings from senior bank credit facility
    
    
    21,650
    
    
    
    8,000
    
    
    
    Payments on 8% Convertible Notes
    
    
    (6,600
    )
    
    
    
    
    
    
    Debt issuance costs
    
    
    (2,781
    )
    
    
    (950
    )
    
    
    (192
    )Net cash provided by financing activities
    
    
    44,184
    
    
    
    22,958
    
    
    
    16,877Increase (decrease) in cash and cash equivalents
    
    
    (24,616
    )
    
    
    20,291
    
    
    
    (2,739
    )Cash and cash equivalents  beginning of period
    
    
    24,616
    
    
    
    4,325
    
    
    
    7,064Cash and cash equivalents  end of period
    
    $
    
    
    
    $
    24,616
    
    
    $
    4,325
  F-4




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##### Table of Contents



TETON ENERGY CORPORATION
Consolidated Statement of Cash Flows (continued)
 Years Ended December 31,2008
    
    2007
    
    2006(in thousands)Supplemental disclosure of cash and non-cash transactions:Cash paid for interest, net of amounts capitalized
    
    $
    1,859
    
    
    $
    694
    
    
    $
    Cash paid for interest make-whole premium on conversion of debt
    
    $
    957
    
    
    $
    
    
    
    $
    Capitalized interest
    
    $
    372
    
    
    $
    121
    
    
    $
    Stock-based compensation expense included in capital expenditures
    
    $
    
    
    
    $
    
    
    
    $
    Sales of oil and gas properties included in accounts receivable
    
    $
    
    
    
    $
    652
    
    
    $
    Deposits and advances applied to oil and gas properties
    
    $
    
    
    
    $
    401
    
    
    $
    300Accrued purchase consideration recorded as oil and gas properties
    
    $
    
    
    
    $
    
    
    
    $
    775Capital expenditures included in accounts payable and accrued
liabilities
    
    $
    4,107
    
    
    $
    5,667
    
    
    $
    4,933ARO additions, revisions and acquired obligations
    
    $
    740
    
    
    $
    241
    
    
    $
    50Placement agent warrants recorded as equity issuance costs
    
    $
    
    
    
    $
    190
    
    
    $
    Placement agent warrants recorded as debt issuance costs
    
    $
    
    
    
    $
    1,023
    
    
    $
    Reclassification of derivative liabilities to stockholders equity
    
    $
    
    
    
    $
    3,124
    
    
    $
    Conversion of 8% Subordinated Debt into Common Stock
    
    $
    2,400
    
    
    $
    
    
    
    $
    Conversion of 10.75% Convertible Debt into Common Stock
    
    $
    3,750
    
    
    $
    
    
    
    $
    Common Stock and Warrants issued in connection with the
acquisition of oil and gas properties
    
    $
    13,423
    
    
    $
    
    
    
    $
    
  F-5




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##### Table of Contents



TETON ENERGY CORPORATION
  Consolidated Statement of Changes in Stockholders Equity
 Additional
    
    
    
    
    
    
    TotalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    StockholdersShares
    
    
    Amount
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    Deficit
    
    
    Equity(in thousands)Balance-December 31, 2005
    
    
    
    
    
    $
    
    
    
    
    11,329
    
    
    $
    11
    
    
    $
    43,930
    
    
    $
    (24,500
    )
    
    $
    19,441Warrants and options exercised
    
    
    
    
    
    
    
    
    
    
    1,531
    
    
    
    2
    
    
    
    6,234
    
    
    
    
    
    
    
    6,236Sale of common stock, net
    
    
    
    
    
    
    
    
    
    
    2,300
    
    
    
    2
    
    
    
    10,831
    
    
    
    
    
    
    
    10,833Return of common stock
    
    
    
    
    
    
    
    
    
    
    (50
    )
    
    
    
    
    
    
    (158
    )
    
    
    
    
    
    
    (158
    )Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    463
    
    
    
    1
    
    
    
    2,927
    
    
    
    
    
    
    
    2,928Common stock issued for services
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    
    
    
    
    211
    
    
    
    
    
    
    
    211Net loss for year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,724
    )
    
    
    (5,724
    )Balance-December 31, 2006
    
    
    
    
    
    
    
    
    
    
    15,607
    
    
    
    16
    
    
    
    63,975
    
    
    
    (30,224
    )
    
    
    33,767Options exercised
    
    
    
    
    
    
    
    
    
    
    673
    
    
    
    1
    
    
    
    2,404
    
    
    
    
    
    
    
    2,405Warrants exercised
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Sale of common stock, net of offering costs of $368
    
    
    
    
    
    
    
    
    
    
    964
    
    
    
    1
    
    
    
    4,499
    
    
    
    
    
    
    
    4,500Stock-based compensation, exclusive of amounts withheld for
payroll taxes
    
    
    
    
    
    
    
    
    
    
    364
    
    
    
    
    
    
    
    2,588
    
    
    
    
    
    
    
    2,588Common stock issued for services
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    
    
    
    
    264
    
    
    
    
    
    
    
    264Reclassification of derivative liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,124
    
    
    
    
    
    
    
    3,124Net income for year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,377
    
    
    
    2,377Balance-December 31, 2007
    
    
    
    
    
    
    
    
    
    
    17,653
    
    
    
    18
    
    
    
    76,857
    
    
    
    (27,847
    )
    
    
    49,028Warrants and options exercised
    
    
    
    
    
    
    
    
    
    
    599
    
    
    
    1
    
    
    
    1,914
    
    
    
    
    
    
    
    1,915Warrant Exchange Agreement
    
    
    
    
    
    
    
    
    
    
    990
    
    
    
    1
    
    
    
    1,758
    
    
    
    
    
    
    
    1,759Conversion of 8% Subordinated Debt into Common Stock
    
    
    
    
    
    
    
    
    
    
    480
    
    
    
    
    
    
    
    2,400
    
    
    
    
    
    
    
    2,400Common stock issued upon conversion of $3.75 million 10.75%
Secured Convertible Debentures (Note 5)
    
    
    
    
    
    
    
    
    
    
    794
    
    
    
    1
    
    
    
    4,028
    
    
    
    
    
    
    
    4,029Common Stock
issued in connection with the acquisition of oil
and gas properties
    
    
    
    
    
    
    
    
    
    
    2,746
    
    
    
    3
    
    
    
    13,420
    
    
    
    
    
    
    
    13,423Stock-based compensation for Performance Share Units,
exclusive of amounts withheld for payroll taxes
    
    
    
    
    
    
    
    
    
    
    457
    
    
    
    
    
    
    
    2,010
    
    
    
    
    
    
    
    2,010Stock-based compensation for Restricted Stock, exclusive of
amounts withheld for payroll taxes
    
    
    
    
    
    
    
    
    
    
    102
    
    
    
    
    
    
    
    880
    
    
    
    
    
    
    
    880Net loss for year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,173
    )
    
    
    (14,173
    )Balance-December 31, 2008
    
    
    
    
    
    $
    
    
    
    
    23,821
    
    
    $
    24
    
    
    $
    103,267
    
    
    $
    (42,020
    )
    
    $
    61,271
  F-6




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##### Table of Contents



Note 1  Business Description and Summary of Significant Accounting Policies
  Principles of Consolidation
     Cash and Cash Equivalents
  Accounts Receivable
  Use of Estimates
  Revenue Recognition
  F-7




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##### Table of Contents



Gas Balancing
  Oil and Gas Producing Activities
        2008Beginning balance at January 1, 2008
    
    $
    Additions to capitalized exploratory well costs pending
the determination of proved reserves
    
    
    530Reclassifications to wells, facilities and equipment
based on the determination of proved reserves
    
    
    Capitalized exploratory well costs charged to expense
    
    
    Ending balance at December 31, 2008
    
    $
    530
  F-8




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##### Table of Contents



Asset Retirement Obligations
    Year Ended December 31,2008
    
    
    2007(in thousands)Asset retirement obligation  beginning of period
    
    $
    529
    
    
    $
    78Additional liabilities incurred
    
    
    285
    
    
    
    189Revisions in estimated cash flows
    
    
    262
    
    
    
    52Obligations settled
    
    
    
    
    
    
    Accretion expense
    
    
    29
    
    
    
    43Obligations acquired
    
    
    193
    
    
    
    239Obligations sold
    
    
    
    
    
    
    (72
    )Asset retirement obligation  end of period
    
    $
    1,298
    
    
    $
    529
 Deferred Debt Issuance Costs
  Capitalized Interest
  Corporate and Other Assets
  F-9




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##### Table of Contents



Impairment of Long-Lived Assets
   Accrued Liabilities
  Income (Loss) per Common Share
  Stock-Based Compensation Expense
   F-10




---



##### Table of Contents



Derivative Financial Instruments
   Income Taxes
  Significant Customers
  Concentrations of Credit Risk
   F-11




---



##### Table of Contents



Recently Adopted Accounting Pronouncements
    New Accounting Pronouncements
   F-12




---



##### Table of Contents



F-13




---



##### Table of Contents



Note 2 Income (Loss) per Common Share
  Years Ended December 31,2008
    
    
    2007
    
    
    2006(in thousands, except per share data)Net income (loss) applicable to common shares
    
    $
    (14,173
    )
    
    $
    2,377
    
    
    $
    (5,724
    )Adjustments for avoidable interest
    
    
    
    
    
    
    
    
    
    
    Adjusted Net income (loss)
    
    $
    (14,173
    )
    
    $
    2,377
    
    
    $
    (5,724
    )Weighted average common shares outstanding  basic
    
    
    21,064
    
    
    
    16,545
    
    
    
    13,093Add dilutive effect of:LTIP performance share units  2007 Plan
    
    
    
    
    
    
    445
    
    
    
    LTIP performance-vesting restricted common stock  2008 Plan
    
    
    
    
    
    
    373
    
    
    
    LTIP restricted common stock
    
    
    
    
    
    
    13
    
    
    
    Stock options
    
    
    
    
    
    
    393
    
    
    
    Warrants
    
    
    
    
    
    
    292
    
    
    
    Weighted average common shares outstanding   diluted
    
    
    21,064
    
    
    
    18,061
    
    
    
    13,093Basic income (loss) per common share
    
    $
    (0.67
    )
    
    $
    0.14
    
    
    $
    (0.44
    )Fully diluted income (loss) per common share
    
    $
    (0.67
    )
    
    $
    0.13
    
    
    $
    (0.44
    )
  Years Ended December 31,2008
    
    
    2007
    
    
    2006Convertible Notes
    
    
    3,467,487
    
    
    
    1,800,000
    
    
    
    Warrants
    
    
    1,125,003
    
    
    
    4,374,547
    
    
    
    867,819Stock Options
    
    
    125,220
    
    
    
    
    
    
    
    2,088,545LTIP Performance Units
    
    
    
    
    
    
    
    
    
    
    1,911,000Restricted Common Stock
    
    
    68,467
    
    
    
    
    
    
    
    193,999Total
    
    
    4,786,177
    
    
    
    6,174,547
    
    
    
    5,061,363
   F-14




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##### Table of Contents



Note 3  Acquisitions of Oil and Gas Properties
 2008 Acquisition
     Allocation of Purchase PriceUndeveloped properties
    
    $
    11,371Oil and gas properties and related facilities
    
    
    42,057Asset retirement obligations
    
    
    193$
    53,621
   Year Ended December 31,2008
    
    2007Revenues
    
    $
    31,960
    
    
    $
    34,953Income from continuing operations
    
    $
    (13,477
    )
    
    $
    915Earnings per share from continuing operations  basic
    
    $
    (0.64
    )
    
    $
    0.05Earnings per share from continuing operations  diluted
    
    $
    (0.64
    )
    
    $
    0.04
  F-15




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##### Table of Contents



2007 Acquisitions and Dispositions
      As of October 1, 2007(in thousands)Proved oil and gas properties
    
    $
    4,343Unproved oil and gas properties
    
    
    362Fixed assets
    
    
    13Less:Asset retirement obligation
    
    
    239Net purchase price
    
    $
    4,479
  For the Year Ended December31, 2007(in thousands)Cash component of initial sales price
    
    $
    33,000Sales price adjustments applicable to oil and gas properties sold
    
    
    3,682Initial
price of oil and gas properties acquired including asset retirement obligations
    
    
    5,200Sales price adjustments applicable to oil and gas properties acquired
    
    
    (482
    )Less:Transaction costs, net of $
169,000 capitalized
    
    
    1,287Asset retirement obligation assumed with oil and gas properties acquired
    
    
    239Asset retirement obligation assumed by purchaser with properties sold
    
    
    (72
    )Carrying value of properties sold as of October 1, 2008
    
    
    22,505Gain on sale of oil and gas properties
    
    $
    17,441
  F-16




---



##### Table of Contents



2006 Acquisitions and Dispositions
   Note 4  Fair Value of Financial Instruments
      Debt and Equity Securities
  Derivative Instruments
  F-17




---



##### Table of Contents



Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets:Oil and gas derivative contracts
    
    $
    
    
    
    $
    12,208
    
    
    $
    
    
    
    $
    12,208Liabilities:Oil and gas derivative contracts
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Derivative contracts  Warrants
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
 Changes in estimated fair value of derivative assets and liabilities
  Note 5 Convertible Notes
 8% Senior Subordinated Convertible Notes
   F-18




---



##### Table of Contents



10.75% Secured Convertible Debentures
      F-19




---



##### Table of Contents



Note 6  Senior Bank Facility
  December 31,2008
    
    
    2007(in thousands)Senior bank credit facility
    
    $
    29,650
    
    
    $
    8,000
      F-20




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##### Table of Contents



Note 7  Stockholders Equity
 Preferred Stock
  Common Stock & Warrants
    Weighted AverageShares
    
    Exercise PriceOutstanding  December 31, 2005
    
    
    1,731,764
    
    
    $
    3.93Issued
    
    
    
    
    
    $
    0.00Exercised
    
    
    (760,959
    )
    
    $
    4.65Forfeited/canceled
    
    
    (102,986
    )
    
    $
    5.36Outstanding  December 31, 2006
    
    
    867,819
    
    
    $
    3.14Issued
    
    
    4,374,547
    
    
    $
    5.10Exercised
    
    
    (1,500
    )
    
    $
    1.75Forfeited/canceled
    
    
    
    
    
    $
    0.00Outstanding  December 31, 2007
    
    
    5,240,866
    
    
    $
    4.78Issued
    
    
    625,000
    
    
    $
    6.00Exercised
    
    
    (599,468
    )
    
    $
    3.18Warrant Exchange Agreement
    
    
    (3,960,000
    )
    
    $
    5.00Forfeited/canceled
    
    
    (33,947
    )
    
    $
    1.77Outstanding  December 31, 2008
    
    
    1,272,451
    
    
    $
    5.51
 F-21




---



##### Table of Contents



Weighted Average RemainingRange of Exercise Prices
    
    Number
    
    Contractual Life(years)$3.24
    
    
    232,904
    
    
    
    4.0$6.00
    
    
    625,000
    
    
    
    1.3$6.06
    
    
    414,547
    
    
    
    3.6Total warrants outstanding and exercisable
    
    
    1,272,451
    
    
    
    2.5
 Derivative Financial Instruments
  Year EndedDecember 31, 2007(in thousands)Reclassifications of derivative liabilities from (to)
stockholders equity:Existing warrants tainted to derivative liabilities
    
    $
    4,951Compound embedded derivative no longer requiring
bifurcation
    
    
    (1,435
    )Financing warrants issued to placement agents no longer
tainted
    
    
    (1,128
    )Existing warrants no longer tainted to stockholders equity
    
    
    (5,512
    )Net change in stockholders equity
    
    $
    (3,124
    )
 Note 8  Stock-Based Compensation
  F-22




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##### Table of Contents



For the Years Ended December 31,2008
    
    
    2007
    
    
    2006(in thousands)Performance
share units  employees and directors
    
    $
    2,744
    
    
    $
    2,421
    
    
    $
    2,413Performance-vesting restricted common stock 
employees and directors
    
    
    917
    
    
    
    278
    
    
    
    LTIP restricted common stock  employees and directors
    
    
    
    
    
    
    571
    
    
    
    487Stock options  employees
    
    
    9
    
    
    
    18
    
    
    
    28Total stock-based compensation expense
    
    
    3,670
    
    
    
    3,288
    
    
    
    2,928Performance share units  non-employees
    
    
    
    
    
    
    264
    
    
    
    211Restricted common stock  non-employees
    
    
    
    
    
    
    
    
    
    
    (158
    )Total stock-based compensation expense
    
    $
    3,670
    
    
    $
    3,552
    
    
    $
    2,981
 Long Term Incentive Plan
  LTIP  Performance Share Units
      F-23




---



##### Table of Contents



Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageUnvested
    
    Grant Date
    
    Unvested
    
    Grant Date2005
    
    Market
    
    2006
    
    MarketGrants
    
    Price
    
    Grants
    
    Price(shares)
    
    
    
    
    
    (shares)Outstanding  December 31, 2005
    
    
    596,000
    
    
    $
    4.88
    
    
    
    
    
    
    $
    0.00Granted
    
    
    150,000
    
    
    $
    5.23
    
    
    
    1,969,250
    
    
    $
    6.71Vested
    
    
    (134,767
    )
    
    $
    4.95
    
    
    
    (291,750
    )
    
    $
    6.71Forfeited/returned
    
    
    (256,233
    )
    
    $
    4.94
    
    
    
    (121,500
    )
    
    $
    6.74Outstanding  December 31, 2006
    
    
    355,000
    
    
    $
    4.95
    
    
    
    1,556,000
    
    
    $
    6.71Vested, net of shares withheld for payroll taxes
    
    
    (133,507
    )
    
    $
    4.91
    
    
    
    (177,619
    )
    
    $
    6.74Forfeited/returned
    
    
    (221,493
    )
    
    $
    4.98
    
    
    
    (674,881
    )
    
    $
    6.68Outstanding  December 31, 2007
    
    
    
    
    
    $
    
    
    
    
    703,500
    
    
    $
    6.72Vested, net of shares withheld for payroll taxes
    
    
    
    
    
    
    
    
    
    
    Forfeited/returned/canceled
    
    
    
    
    
    
    
    
    
    
    (703,500
    )
    
    $
    6.72Outstanding  December 31, 2008
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    
  F-24




---



##### Table of Contents



WeightedAverageUnvested
    
    Grant Date2007
    
    MarketGrants
    
    Price(shares)Outstanding  December 31, 2006
    
    
    Granted in 2007
    
    
    540,000
    
    
    $
    5.15Outstanding  December 31, 2007
    
    
    540,000
    
    
    $
    5.15Vested, net of shares withheld for payroll taxes
    
    
    (105,071
    )
    
    $
    5.15Forfeited/returned/canceled
    
    
    (434,929
    )
    
    $
    5.15Outstanding  December 31, 2008
    
    
    
   WeightedAverageUnvested

    
    Grant Date2008
    
    MarketGrants
    
    Price(shares)Outstanding  December 31, 2007
    
    
    
    
    
    $
    0.00Granted in 2008
    
    
    2,960,400
    
    
    $
    4.83Vested, net of shares withheld for payroll taxes
    
    
    (370,667
    )
    
    $
    4.76Forfeited/returned/canceled
    
    
    (183,333
    )
    
    $
    4.84Outstanding  December 31, 2008
    
    
    2,406,400
    
    
    $
    4.85
  LTIP  Restricted Common Stock
  F-25




---



##### Table of Contents



Unvested
    
    
    WeightedLTIP -
    
    
    AverageRestricted
    
    
    Grant DateCommon
    
    
    MarketStock
    
    
    Price(shares)Outstanding  December 31, 2005
    
    
    195,000
    
    
    $
    6.06Granted
    
    
    69,000
    
    
    $
    5.84Vested
    
    
    (70,001
    )
    
    $
    6.08Outstanding  December 31, 2006
    
    
    193,999
    
    
    $
    5.98Granted
    
    
    57,400
    
    
    $
    5.07Vested
    
    
    (96,335
    )
    
    $
    5.99Forfeited/canceled
    
    
    (33,332
    )
    
    $
    6.18Outstanding  December 31, 2007
    
    
    121,732
    
    
    $
    5.49Granted
    
    
    389,550
    
    
    $
    4.97Vested
    
    
    (97,549
    )
    
    $
    5.58Forfeited/canceled
    
    
    (94,001
    )
    
    $
    5.22Outstanding  December 31, 2008
    
    
    319,732
    
    
    $
    4.98
 Restricted Common Stock
  Stock Options
     F-26




---



##### Table of Contents



WeightedAverage
    
    
    Weighted AverageStock
    
    
    Exercise
    
    
    Remaining
    
    
    Aggregate IntrinsicOptions
    
    
    Price
    
    
    Contractual Term
    
    
    Value(shares)
    
    
    
    
    
    (in years)
    
    
    (in thousands)Outstanding  December 31, 2005
    
    
    2,875,334
    
    
    $
    3.54
    
    
    
    5.9
    
    
    $
    6,788Exercised
    
    
    (770,039
    )
    
    
    3.50
    
    
    
    
    
    
    
    1,648Forfeited/expired
    
    
    (16,750
    )
    
    
    3.11Outstanding  December 31, 2006
    
    
    2,088,545
    
    
    
    3.56
    
    
    
    5.4
    
    
    
    2,867Exercised
    
    
    (672,701
    )
    
    
    3.57
    
    
    
    
    
    
    
    935Outstanding  December 31, 2007
    
    
    1,415,844
    
    
    
    3.55
    
    
    
    5.8
    
    
    
    1,916Exercised
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    Forfeited/expired
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    Outstanding  December 31, 2008
    
    
    1,415,844
    
    
    $
    3.55
    
    
    
    4.8
    
    
    $
    Exercisable at December 31, 2006
    
    
    2,075,212
    
    
    $
    3.56
    
    
    
    5.4
    
    
    $
    2,842Exercisable at December 31, 2007
    
    
    1,415,844
    
    
    $
    3.55
    
    
    
    5.8
    
    
    $
    1,904Exercisable at December 31, 2008
    
    
    1,415,844
    
    
    $
    3.55
    
    
    
    4.8
    
    
    $
    
 Note
9  Benefit Plans
  Note 10  Income Taxes
   Year Ended December 31,2008
    
    
    2007
    
    
    2006(in thousands)Federal statutory income tax provision (benefit)
    
    $
    (4,960
    )
    
    $
    832
    
    
    $
    (2,004
    )State income tax provision (benefit), net of federal income
tax provision/benefit
    
    
    (417
    )
    
    
    77
    
    
    
    (171
    )Loss on derivative contract liabilities
    
    
    (2,950
    )
    
    
    991
    
    
    
    Debt issuance discount amortization
    
    
    2,801
    
    
    
    619
    
    
    
    16Other
    
    
    551
    
    
    
    129
    
    
    
    Change in valuation allowance
    
    
    4,975
    
    
    
    (2,648
    )
    
    
    2,159Income tax expense
    
    $
    
    
    
    $
    
    
    
    $
    
  F-27




---



##### Table of Contents



December 31,2008
    
    
    2007(in thousands)Current deferred tax assets (liabilities):Other receivables
    
    $
    (83
    )
    
    $
    Accounts payable and accrued liabilities
    
    
    
    
    
    
    Oil and gas derivatives
    
    
    (1,982
    )
    
    
    173Debt issuance costs
    
    
    (221
    )
    
    
    (221
    )Valuation allowance
    
    
    
    
    
    
    Net current deferred tax assets (liabilities)
    
    
    (2,286
    )
    
    
    (48
    )Non-current deferred tax assets (liabilities):Stock-based compensation
    
    
    
    
    
    
    1,108Debt issuance costs
    
    
    20
    
    
    
    Oil and gas properties
    
    
    (3,758
    )
    
    
    (4,481
    )Oil and gas derivatives
    
    
    (2,656
    )
    
    
    Net operating loss
    
    
    22,598
    
    
    
    12,358Valuation allowance
    
    
    (13,918
    )
    
    
    (8,937
    )Net non-current deferred tax assets (liabilities)
    
    
    2,286
    
    
    
    48Net deferred tax assets (liabilities)
    
    $
    
    
    
    $
    
    F-28




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##### Table of Contents



Note 11  Commitments and Contingencies
  Type
of Contract
    
    Remaining Volume
    
    
    Fixed Price per Barrel
    
    Price Index (1)
    
    Remaining PeriodOil Costless Collar
    
    
    143,545
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    01/01/09-12/31/09Oil Costless Collar
    
    
    106,876
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    01/01/10-12/31/10Oil Costless Collar
    
    
    87,920
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    01/01/11-12/31/11Oil Costless Collar
    
    
    79,611
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    01/01/12-12/31/12Oil Costless Collar
    
    
    25,192
    
    
    $90.00 Floor/$104.00 Ceiling
    
    WTI
    
    01/01/13-04/30/13Total Bbl
    
    
    443,144
 
 (1)
    
    Fixed price is per Bbl. WTI refers to West Texas Intermediate price as quoted on the New
York Mercantile Exchange.   For the Years Ending December 31,2009
    
    2010
    
    Thereafter
    
    Total(in thousands)Operating lease for office space
    
    $
    372
    
    
    $
    416
    
    
    $
    1,548
    
    
    $
    2,336
  Note 12  Supplemental Oil and Gas Disclosures
 Capitalized Costs Relating to Oil and Gas Producing Activities
  For the Years Ended December 31,2008
    
    
    2007
    
    
    2006(in thousands)Oil and gas properties:Proved
    
    $
    94,682
    
    
    $
    35,861
    
    
    $
    259Unproved
    
    
    22,005
    
    
    
    13,411
    
    
    
    13,959Facilities in progress
    
    
    
    
    
    
    
    
    
    
    1,364Wells in progress
    
    
    7,702
    
    
    
    3,230
    
    
    
    8,492Subtotal
    
    
    124,389
    
    
    
    52,502
    
    
    
    24,074Accumulated depletion and depreciation
    
    
    (17,902
    )
    
    
    (3,535
    )
    
    
    (1,833
    )Net capitalized costs
    
    $
    106,487
    
    
    $
    48,967
    
    
    $
    22,241
 F-29




---



##### Table of Contents



Costs Incurred in Oil and Gas Property Acquisitions, Exploration and Development Activities
  For the Years Ended December 31,2008
    
    2007
    
    2006(in thousands)Property acquisition costs  unproved properties
    
    $
    8,609
    
    
    $
    2,465
    
    
    $
    3,323Property acquisition costs  proved properties
    
    
    32,218
    
    
    
    4,342
    
    
    
    Development costs
    
    
    30,826
    
    
    
    32,900
    
    
    
    17,163Exploration costs
    
    
    3,113
    
    
    
    2,712
    
    
    
    1,823
  2008
    
    
    2007
    
    
    2006Beginning balance at January 1, 2008
    
    $
    
    
    
    $
    1,375
    
    
    $
    2,106Additions to capitalized exploratory well costs pending
the determination of proved reserves
    
    
    530
    
    
    
    
    
    
    
    1,375Reclassifications to wells, facilities and equipment
based on the determination of proved reserves
    
    
    
    
    
    
    (1,375
    )
    
    
    (2,106
    )Capitalized exploratory well costs charged to expense
    
    
    
    
    
    
    
    
    
    
    Ending balance at December 31, 2008
    
    $
    530
    
    
    $
    
    
    
    $
    1,375
 Results of Operations from Oil and Gas Producing Activities
  For the Years Ended December 31,2008
    
    
    2007
    
    
    2006(in thousands)Oil and gas sales
    
    $
    28,469
    
    
    $
    6,253
    
    
    $
    4,022Operating expenses:Lease operating expense
    
    
    4,247
    
    
    
    705
    
    
    
    325Workover expense
    
    
    234
    
    
    
    
    
    
    
    Transportation costs
    
    
    1,827
    
    
    
    652
    
    
    
    493Production taxes
    
    
    1,932
    
    
    
    412
    
    
    
    251Exploration expense
    
    
    4,831
    
    
    
    1,847
    
    
    
    448Depletion, depreciation and accretion expense
    
    
    14,396
    
    
    
    3,751
    
    
    
    1,697Impairment expense
    
    
    14,260
    
    
    
    
    
    
    
    Total operating expenses
    
    
    41,727
    
    
    
    7,367
    
    
    
    3,214Operating (loss) income
    
    $
    (13,258
    )
    
    $
    (1,114
    )
    
    $
    808
 Oil and Gas Reserves (Unaudited)
  F-30




---



##### Table of Contents



For the Years Ended December 31,2008
    
    
    2007
    
    
    2006Oil
    
    
    Gas
    
    
    Oil
    
    
    Gas
    
    
    Gas(MBbl)

    (MMcf)

    (MBbl)

    (MMcf)

    (MMcf)Proved reserves, beginning of year
    
    
    129
    
    
    
    13,308
    
    
    
    
    
    
    
    7,093
    
    
    
    4,009Revisions of estimates
    
    
    (3
    )
    
    
    (4,202
    )
    
    
    40
    
    
    
    4,018
    
    
    
    3,821Extensions and discoveries
    
    
    50
    
    
    
    9,124
    
    
    
    43
    
    
    
    14,505
    
    
    
    Purchase of reserves in place
    
    
    1,574
    
    
    
    309
    
    
    
    87
    
    
    
    574
    
    
    
    Sales of reserves in place
    
    
    
    
    
    
    
    
    
    
    (24
    )
    
    
    (11,754
    )
    
    
    Production
    
    
    (192
    )
    
    
    (1,658
    )
    
    
    (17
    )
    
    
    (1,128
    )
    
    
    (737
    )Proved reserves, end of year
    
    
    1,558
    
    
    
    16,881
    
    
    
    129
    
    
    
    13,308
    
    
    
    7,093Proved developed reserves, beginning of year
    
    
    112
    
    
    
    7,930
    
    
    
    
    
    
    
    4,927
    
    
    
    853Proved developed reserves, end of year
    
    
    1,444
    
    
    
    9,485
    
    
    
    112
    
    
    
    7,930
    
    
    
    4,927
 Standardized Measure of Discounted Future Net Cash Flows (Unaudited)
     F-31




---



##### Table of Contents



As of December 31,2008
    
    
    2007
    
    
    2006Future cash inflows
    
    $
    136,985
    
    
    $
    88,297
    
    
    $
    29,167Future production costs
    
    
    (61,747
    )
    
    
    (22,782
    )
    
    
    (10,066
    )Future development costs
    
    
    (23,030
    )
    
    
    (13,708
    )
    
    
    (3,419
    )Future income taxes
    
    
    
    
    
    
    
    
    
    
    Future net cash flows
    
    
    52,208
    
    
    
    51,807
    
    
    
    15,68210% annual discount
    
    
    (23,975
    )
    
    
    (23,815
    )
    
    
    (6,977
    )Standardized measure ofDiscounted future net cash flows
    
    $
    28,233
    
    
    $
    27,992
    
    
    $
    8,705
  As of December 31,2008
    
    
    2007
    
    
    2006Standard measure, as of January 1,
    
    $
    27,992
    
    
    $
    8,705
    
    
    $
    8,716Sales of oil and gas produced, net of
production costs
    
    
    (20,451
    )
    
    
    (4,484
    )
    
    
    (2,953
    )Net change in prices and production costs
related to future production
    
    
    (5,716
    )
    
    
    2,172
    
    
    
    (10,798
    )Extensions and discoveries
    
    
    5,251
    
    
    
    31,190
    
    
    
    Development costs incurred during the
year
    
    
    29,655
    
    
    
    2,519
    
    
    
    Changes in estimated future development
costs
    
    
    (25,963
    )
    
    
    400
    
    
    
    2,481Sales of reserves in place
    
    
    
    
    
    
    (24,465
    )
    
    
    Purchases of reserves in place
    
    
    20,838
    
    
    
    5,272
    
    
    
    Revisions of previous quantity estimates
    
    
    (5,433
    )
    
    
    8,433
    
    
    
    10,387Accretion of discount
    
    
    2,799
    
    
    
    871
    
    
    
    872Net change in income taxes
    
    
    
    
    
    
    
    
    
    
    Changes in timing and other
    
    
    (739
    )
    
    
    (2,621
    )
    
    
    Standardized measure, as of December 31,
    
    $
    28,233
    
    
    $
    27,992
    
    
    $
    8,705
 F-32




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Note 13  Selected Quarterly Information (Unaudited)
  For the Quarter EndedMarch 31,
    
    June 30,
    
    Sept 30,
    
    Dec 31,(In thousands, except per share amounts)2008Total operating revenues
    
    $
    3,640
    
    
    $
    10,121
    
    
    $
    9,765
    
    
    $
    4,943Operating income (loss)
    
    $
    (3,378
    )
    
    $
    (700
    )
    
    $
    6,423
    
    
    $
    (25,079
    )Net income (loss)
    
    $
    (8,223
    )
    
    $
    (30,028
    )
    
    $
    19,304
    
    
    $
    4,774Income (loss) per common share  basic
    
    $
    (0.46
    )
    
    $
    (1.40
    )
    
    $
    0.88
    
    
    $
    0.20Income (loss) per common share  fully
diluted (1)
    
    $
    (0.46
    )
    
    $
    (1.40
    )
    
    $
    0.74
    
    
    $
    0.202007Total operating revenues (2) (3)
    
    $
    1,198
    
    
    $
    990
    
    
    $
    1,317
    
    
    $
    20,189Operating income (loss) (3)
    
    $
    (1,779
    )
    
    $
    (2,404
    )
    
    $
    (2,564
    )
    
    $
    14,012Net income (loss) (3)
    
    $
    (1,801
    )
    
    $
    (7,246
    )
    
    $
    (951
    )
    
    $
    12,375Basic and diluted loss per common share
    
    $
    (0.12
    )
    
    $
    (0.45
    )
    
    $
    (0.06
    )
    
    $
    0.72Income (loss) per common share  diluted
    
    $
    (0.12
    )
    
    $
    (0.45
    )
    
    $
    (0.06
    )
    
    $
    0.67
 
 (1)
    
    Since there was net income in some quarters but a net loss for the year, the Income
(loss) per common share  fully diluted for the individual quarters of 2008 do not total
the Loss per common share  fully diluted for the entire year as shown in the financial
statements.(2)
    
    Quarterly operating revenues for the quarterly periods ended March 31, June 30,
September 30 and December 31, 2007 have been reclassified to conform to presentation for
the quarters ended March 31, June 30, September 30 and December 31, 2008. The total
operating revenues includes gross revenues before gathering and transportation expenses
which are now included in transportation expense in the Consolidated Statement of
Operations.(3)
    
    The gain on sale of oil and gas properties of $17,441 is included in the total operating
revenues, operating income (loss) and net income (loss) amounts for the quarter ended December
31, 2007. F-33




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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 9A. CONTROLS AND PROCEDURES.
            81




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ITEM 9B. OTHER INFORMATION.
  
 PART III
 Pursuant to instruction G(3) to Form 10-K, the following Items 10,11,12,13 and 14 are incorporated
by reference to the information provided in the Companys definitive proxy statement for the 2009
annual meeting of stockholders to be filed within 120 days from December 31, 2008.
 
 ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
 
 ITEM 11. EXECUTIVE COMPENSATION
 
 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
 
 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
 
 ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
 82




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PART IV
  ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
 Exhibits .
 Exhibit No.
    
    Description3.1.1
    
    Certificate of Incorporation of EQ Resources Ltd incorporated by
reference to Exhibit 2.1.1 of Tetons Form 10-SB (File No. 000-31170),
filed July 3, 2001.3.1.2
    
    Certificate of Domestication of EQ Resources Ltd incorporated by
reference to Exhibit 2.1.2 of Tetons Form 10-SB (File No. 000-31170),
filed July 3, 2001.3.1.3
    
    Articles of Merger of EQ Resources Ltd. and American-Tyumen Exploration
Company incorporated by reference to Exhibit 2.1.3 of Tetons Form 10-SB
(File No. 000-31170), filed July 3, 2001.3.1.4
    
    Certificate of Amendment to Certificate of Incorporation of Teton
Petroleum Company incorporated by reference to Exhibit 2.1.4 of Tetons
Form 10-SB (File No. 000-31170), filed July 3, 2001.3.1.5
    
    Certificate of Amendment to Certificate of Incorporation of Teton
Petroleum Company incorporated by reference to Exhibit 2.1.5 of Tetons
Form 10-SB (File No. 000-31170), filed July 3, 2001.3.1.6
    
    Certificate of Amendment to Certificate of Incorporation, dated June 28,
2005, incorporated by reference to Exhibit 10.1 of Tetons Form 10-Q
filed on August 15, 2005.3.2
    
    Bylaws, as amended, of Teton Petroleum Company incorporated by reference
to Exhibit 3.2 of Tetons Form 10-QSB, filed August 20, 2002.4.1
    
    Certificate of Designation for Series A Convertible Preferred Stock,
incorporated by reference to Exhibit 3.1.6 of Tetons Form SB-2 (File No.
333-112229), filed January 27, 2004.4.2
    
    Certificate of Designations, Preferences and Rights of the Terms of the
Series C Preferred Stock, incorporated by reference to Exhibit 3.1 of
Tetons 8-K filed on June 8, 2005.4.3
    
    Secured Subordinated Convertible Debenture Indenture dated September 19,
2008 among Teton Energy Corporation, Teton North America LLC, Teton
Piceance LLC, Teton DJ LLC, Teton Williston LLC, Teton Big Horn LLC,
Teton DJCO LLC and The Bank of New York Mellon Trust Company, N.A.
(incorporated by reference to Exhibit 10.1 of Tetons Form 8-K filed with
the SEC on September 23, 2008).4.4
    
    Form of 10.75% Secured Convertible Debenture dated June 18, 2008 issued
by Teton Energy Corporation (incorporated by reference to Exhibit 4.1 of
Tetons Form 8-K filed with the SEC on June 19, 2008).4.5
    
    Form of Global 10.75% Secured Subordinated Convertible Debenture
(included in Exhibit 4.3).4.6
    
    Form of Securities Purchase Agreement dated June 9, 2008, entered into by
and between Teton Energy Corporation and the investors (incorporated by
reference to Exhibit 10.1 of Tetons Form 8-K filed with the SEC on June
19, 2008).4.7
    
    Letter Agreement dated September 19, 2008 amending and supplementing the
Securities Purchase Agreement dated June 9, 2008 (incorporated by
reference to Exhibit 10.2 of Tetons Form 8-K filed with the SEC on
September 23, 2008).
 83




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Exhibit No.
    
    Description4.8
    
    Form of Registration Rights Agreement (incorporated by reference to
Exhibit 10.2 of Tetons Form 8-K filed with the SEC on June 19, 2008).4.9
    
    Subordinated Guaranty and Pledge Agreement dated June 18, 2008, entered
into by and between Teton Energy Corporation, Teton North America LLC,
Teton Piceance LLC, Teton DJ LLC, Teton Williston LLC, Teton Big Horn
LLC, Teton DJCO LLC and Whitebox Advisors LLC (incorporated by reference
to Exhibit 10.4 of Tetons Form 8-K filed with the SEC on June 19, 2008).4.10
    
    Form of Amended and Restated Subordinated Guaranty and Pledge Agreement
dated September 19, 2008 (incorporated by reference to Exhibit 10.3 of
Tetons Form 8-K filed with the SEC on September 23, 2008).4.11
    
    Form of Intercreditor and Subordination Agreement dated June 9, 2008,
entered into by and between, Teton Energy Corporation, JPMorgan Chase
Bank, N.A. as administrative agent and the representative for the
subordinated holders (incorporated by reference to Exhibit 10.3 of
Tetons Form 8-K filed with the SEC on June 19, 2008).4.12
    
    Rights Agreement between Teton and Computershare Investors Services, LLC,
dated June 3, 2005, incorporated by reference to Exhibit 4.1 of Tetons
Form 8-K filed on June 8, 2005.4.13
    
    Form of Senior Subordinated Convertible Note in connection with Tetons
May 2007 financing, incorporated by reference to Exhibit 4.1 of Tetons
Form 10-Q filed on August 14, 2007.4.14
    
    Form of Common Stock Purchase Warrant issued to investors in connection
with Tetons May 2007 financing, incorporated by reference to Exhibit 4.2
of Tetons Form 10-Q filed on August 14, 2007.4.15
    
    Form of Common Stock Purchase Warrant issued to investors and placement
agents in connection with Tetons July 2007 financing, incorporated by
reference to Exhibit 4.3 of Tetons Form 10-Q filed on August 14, 2007.10.1
    
    International Swap Dealers Association, Inc. Master Agreement, dated
October 24, 2006, between BNP Paribas and Teton, incorporated by
reference to Exhibit 10.18 of Tetons Form 10-K filed March 19, 2007.10.2
    
    Purchase and Sale Agreement, West Greybull Project, Big Horn County,
Wyoming, dated as of April 25, 2007 between Teton, and Melange
International LLC, Mike A. Tinker individually and Desert Moon Gas
Company, and Hannon & Associates, Inc., as assignors, incorporated by
reference to Exhibit 10.1 of Tetons Form 10-Q filed on August 14, 2007.10.3
    
    Purchase and Sale Agreement, Oil and Gas Leasehold Purchase, Big Horn
County Wyoming, dated as of April 25, 2007 between Teton and Kirkwood Oil
and Gas Company, incorporated by reference to Exhibit 10.2 of Tetons
Form 10-Q filed on August 14, 2007.10.4
    
    Form of 2005 Long-Term Incentive Plan 2005 Performance Share Unit Award
Agreement, Employees and Directors, incorporated by reference to Exhibit
10.5 of Tetons Form 10-Q filed November 14, 2005.10.5
    
    Form of 2005 Long-Term Incentive Plan 2005 Performance Share Unit Award
Agreement, Patrick A. Quinn, incorporated by reference to Exhibit 10.6 of
Tetons Form 10-Q filed November 14, 2005.10.6
    
    Form of 2005 Long Term Incentive Plan Performance-Based Restricted Stock
Award Agreement, incorporated by reference to Exhibit 10.1 of Tetons
Form 10-Q filed on November 13, 2007.
 84




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Exhibit No.
    
    Description10.7
    
    Amended and Restated Credit Agreement, dated as of August 9, 2007,
between and among Teton, as Borrowers, each of the lenders party thereto,
and JPMorgan Chase Bank, NA, as Administrative Agent for the lenders,
incorporated by reference to Exhibit 10.1 to Tetons Form 8-K, filed on
August 10, 2007.10.8
    
    Amended and Restated Guaranty and Pledge Agreement, dated as of August 9,
2007, made by Teton, in favor of JPMorgan Chase Bank, NA, incorporated by
reference to Exhibit 10.2 to Tetons Form 8-K, filed on August 10, 2007.10.9
    
    Asset Exchange Agreement dated September 26, 2007, between Teton Energy
Corporation, Teton Piceance LLC, a wholly owned subsidiary of Teton
Energy Corporation and Delta Petroleum Corporation, incorporated by
reference to Exhibit 10.1 of Tetons Form 8-K filed October 2, 2007.10.10
    
    Placement Agent Agreement, dated as of May 11, 2007, between Teton and
Commonwealth Associates, LP, incorporated by reference to Exhibit 10.3 of
Tetons Form 10-Q filed on August 14, 2007.10.11
    
    Placement Agency Agreement dated as of July 19, 2007, between Teton,
Commonwealth Associates, LP and Ferris, Baker Watts, Incorporated,
incorporated by reference to Exhibit 10.4 to Tetons Quarterly Report on
Form 10-Q filed August 14, 2007.10.12
    
    Form of Subscription Agreement in connection with Tetons May 2007
financing. incorporated by reference to Exhibit 10.2 to Tetons
Registration Statement on Form S-3/A (File No. 333-145164), filed
September 5, 2007.10.13
    
    Advisory Services Agreement dated as of July 1, 2007, between Teton and
Commonwealth Associates, L.P., incorporated by reference to Exhibit 10.4
to Tetons Registration Statement on Form S-3/A (File No. 333-145164),
filed September 18, 2007.10.14
    
    Purchase, Sale and Exploration Agreement dated March 24, 2008, entered
into on March 28, 2008 by and between, Teton Energy Corporation and
Shelby Resources LLC, incorporate by reference to Exhibit 10.1 of Tetons
Form 8-K filed April 3, 2008.10.15
    
    Form of Registration Rights Agreement in connection with the issuances of
the shares of Common Stock and the Warrants, in connection with the
Purchase, Sale and Exploration Agreement dated March 24, 2008 by and
between, Teton Energy Corporation and Shelby Resources LLC, incorporated
by reference to Exhibit 10.2 of Tetons Form 8-K filed April 3, 2008.10.16
    
    Form of Teton Energy Corporation Common Stock Purchase Warrant issued in
connection with the Purchase, Sale and Exploration Agreement dated March
24, 2008 by and between, Teton Energy Corporation and Shelby Resources
LLC, incorporated by reference to Exhibit 10.3 of Tetons Form 8-K filed
April 3, 2008.10.17
    
    Second Amended and Restated Credit Agreement dated as of April 2, 2008
among Teton Energy Corporation, as Borrower, JPMorgan Chase Bank, N.A.,
as Administrative Agent, and the Lenders party thereto, incorporated by
reference to Exhibit 10.4 of Tetons Form 8-K filed on April 3, 2008.10.18
    
    Warrant Exchange Agreement by and between Teton Energy Corporation and
the Investors, dated October 4, 2008 and fully executed on October 7,
2008 (incorporated by reference to Exhibit 10.1 of Tetons Form 8-K filed
with the SEC on October 14, 2008).10.19
    
    Employment Agreement, dated December 4, 2008, between Karl F. Arleth and
Teton Energy Corporation, filed herewith.
 85




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##### Table of Contents



Exhibit No.
    
    Description10.20
    
    Employment Agreement, dated December 4, 2008, between Dominic J. Bazile,
II and Teton Energy Corporation, filed herewith.10.21
    
    Employment Agreement, dated December 4, 2008, between Lonnie Brock and
Teton Energy Corporation, filed herewith.10.22
    
    Employment Agreement, dated December 4, 2008, between Rich Bosher and
Teton Energy Corporation, filed herewith.10.23
    
    Employment Agreement, dated December 4, 2008, between Steve Godfrey and
Teton Energy Corporation, filed herewith.14
    
    Code of Ethics and Business Conduct, incorporated by reference to Exhibit
14.1 of Tetons 10-K filed on March 31, 2005.21.1
    
    List of Subsidiaries, filed herewith.23.1
    
    Consent of independent registered accounting firm, filed herewith.23.2
    
    Consent of Independent Petroleum Engineers and Geologists, filed herewith.31.1
    
    Certification by Chief Executive Officer pursuant to Sarbanes-Oxley
Section 302, filed herewith.31.2
    
    Certification by Chief Financial Officer pursuant to Sarbanes-Oxley
Section 302, filed herewith.32
    
    Certification by Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, filed herewith.
 86




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##### Table of Contents



SIGNATURES
  TETON ENERGY CORPORATION
 By:
    /s/ Karl F. ArlethKarl. F. Arleth,Chief Executive Officer
Dated: March 5, 2009  Signature
    
    Title
    
    Date/s/ James J. Woodcock
    
    Chairman and Director
    
    March 5, 2009James J. Woodcock/s/ Karl F. Arleth
    
    President, CEO (principal executive
    
    March 5, 2009Karl F. Arleth
    
    officer) and Director/s/ Thomas F. Conroy
    
    Director
    
    March 5, 2009Thomas F. Conroy/s/ John T. Connor
    
    Director
    
    March 5, 2009John T. Connor/s/ Bill I. Pennington
    
    Director
    
    March 5, 2009Bill I. Pennington/s/ Robert Bailey
    
    Director
    
    March 5, 2009Robert Bailey/s/ Dominic J. Bazile II.
    
    Executive Vice President, COO and Director
    
    March 5, 2009Dominic J. Bazile II/s/ Lonnie R. Brock

Lonnie R. Brock
    
    Chief Financial Officer (principal financial and accounting officer)
    
    March 5, 2009
 87




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##### Table of Contents



Exhibits .
 Exhibit No.
    
    Description3.1.1
    
    Certificate of Incorporation of EQ Resources Ltd incorporated by
reference to Exhibit 2.1.1 of Tetons Form 10-SB (File No. 000-31170),
filed July 3, 2001.3.1.2
    
    Certificate of Domestication of EQ Resources Ltd incorporated by
reference to Exhibit 2.1.2 of Tetons Form 10-SB (File No. 000-31170),
filed July 3, 2001.3.1.3
    
    Articles of Merger of EQ Resources Ltd. and American-Tyumen Exploration
Company incorporated by reference to Exhibit 2.1.3 of Tetons Form 10-SB
(File No. 000-31170), filed July 3, 2001.3.1.4
    
    Certificate of Amendment to the Certificate of Incorporation of Teton
Petroleum Company incorporated by reference to Exhibit 2.1.4 of Tetons
Form 10-SB (File No. 000-31170), filed July 3, 2001.3.1.5
    
    Certificate of Amendment to the Certificate of Incorporation of Teton
Petroleum Company incorporated by reference to Exhibit 2.1.5 of Tetons
Form 10-SB (File No. 000-31170), filed July 3, 2001.3.1.6
    
    Certificate of Amendment to Certificate of Incorporation, dated June 28,
2005, incorporated by reference to Exhibit 10.1 of Tetons Form 10-Q
filed on August 15, 2005.3.2
    
    Bylaws, as amended, of Teton Petroleum Company incorporated by reference
to Exhibit 3.2 of Tetons Form 10-QSB, filed August 20, 2002.4.1
    
    Certificate of Designation for Series A Convertible Preferred Stock,
incorporated by reference to Exhibit 3.1.6 of Tetons Form SB-2 (File No.
333-112229), filed January 27, 2004.4.2
    
    Certificate of Designations, Preferences and Rights of the Terms of the
Series C Preferred Stock, incorporated by reference to Exhibit 3.1 of
Tetons 8-K filed on June 8, 2005.4.3
    
    Secured Subordinated Convertible Debenture Indenture dated September 19,
2008 among Teton Energy Corporation, Teton North America LLC, Teton
Piceance LLC, Teton DJ LLC, Teton Williston LLC, Teton Big Horn LLC,
Teton DJCO LLC and The Bank of New York Mellon Trust Company, N.A.
(incorporated by reference to Exhibit 10.1 of Tetons Form 8-K filed with
the SEC on September 23, 2008).4.4
    
    Form of 10.75% Secured Convertible Debenture dated June 18, 2008 issued
by Teton Energy Corporation (incorporated by reference to Exhibit 4.1 of
Tetons Form 8-K filed with the SEC on June 19, 2008).4.5
    
    Form of Global 10.75% Secured Subordinated Convertible Debenture
(included in Exhibit 4.3).4.6
    
    Form of Securities Purchase Agreement dated June 9, 2008, entered into by
and between Teton Energy Corporation and the investors (incorporated by
reference to Exhibit 10.1 of Tetons Form 8-K filed with the SEC on June
19, 2008).4.7
    
    Letter Agreement dated September 19, 2008 amending and supplementing the
Securities Purchase Agreement dated June 9, 2008 (incorporated by
reference to Exhibit 10.2 of Tetons Form 8-K filed with the SEC on
September 23, 2008).4.8
    
    Form of Registration Rights Agreement (incorporated by reference to
Exhibit 10.2 of Tetons Form 8-K filed with the SEC on June 19, 2008).
 88




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Exhibit No.
    
    Description4.9
    
    Subordinated Guaranty and Pledge Agreement dated June 18, 2008, entered
into by and between Teton Energy Corporation, Teton North America LLC,
Teton Piceance LLC, Teton DJ LLC, Teton Williston LLC, Teton Big Horn
LLC, Teton DJCO LLC and Whitebox Advisors LLC (incorporated by reference
to Exhibit 10.4 of Tetons Form 8-K filed with the SEC on June 19, 2008).4.10
    
    Form of Amended and Restated Subordinated Guaranty and Pledge Agreement
dated September 19, 2008 (incorporated by reference to Exhibit 10.3 of
Tetons Form 8-K filed with the SEC on September 23, 2008).4.11
    
    Form of Intercreditor and Subordination Agreement dated June 9, 2008,
entered into by and between, Teton Energy Corporation, JPMorgan Chase
Bank, N.A. as administrative agent and the representative for the
subordinated holders (incorporated by reference to Exhibit 10.3 of
Tetons Form 8-K filed with the SEC on June 19, 2008).4.12
    
    Rights Agreement between Teton and Computershare Investors Services, LLC,
dated June 3, 2005, incorporated by reference to Exhibit 4.1 of Tetons
Form 8-K filed on June 8, 2005.4.13
    
    Form of Senior Subordinated Convertible Note in connection with Tetons
May 2007 financing, incorporated by reference to Exhibit 4.1 of Tetons
Form 10-Q filed on August 14, 2007.4.14
    
    Form of Common Stock Purchase Warrant issued to investors in connection
with Tetons May 2007 financing, incorporated by reference to Exhibit 4.2
of Tetons Form 10-Q filed on August 14, 2007.4.15
    
    Form of Common Stock Purchase Warrant issued to investors and placement
agents in connection with Tetons July 2007 financing, incorporated by
reference to Exhibit 4.3 of Tetons Form 10-Q filed on August 14, 2007.10.1
    
    International Swap Dealers Association, Inc. Master Agreement, dated
October 24, 2006, between BNP Paribas and Teton, incorporated by
reference to Exhibit 10.18 of Tetons Form 10-K filed March 19, 2007.10.2
    
    Purchase and Sale Agreement, West Greybull Project, Big Horn County,
Wyoming, dated as of April 25, 2007 between Teton, and Melange
International LLC, Mike A. Tinker individually and Desert Moon Gas
Company, and Hannon & Associates, Inc., as assignors, incorporated by
reference to Exhibit 10.1 of Tetons Form 10-Q filed on August 14, 2007.10.3
    
    Purchase and Sale Agreement, Oil and Gas Leasehold Purchase, Big Horn
County Wyoming, dated as of April 25, 2007 between Teton and Kirkwood Oil
and Gas Company, incorporated by reference to Exhibit 10.2 of Tetons
Form 10-Q filed on August 14, 2007.10.4
    
    Form of 2005 Long-Term Incentive Plan 2005 Performance Share Unit Award
Agreement, Employees and Directors, incorporated by reference to Exhibit
10.5 of Tetons Form 10-Q filed November 14, 2005.10.5
    
    Form of 2005 Long-Term Incentive Plan 2005 Performance Share Unit Award
Agreement, Patrick A. Quinn, incorporated by reference to Exhibit 10.6 of
Tetons Form 10-Q filed November 14, 2005.10.6
    
    Form of 2005 Long Term Incentive Plan Performance-Based Restricted Stock
Award Agreement, incorporated by reference to Exhibit 10.1 of Tetons
Form 10-Q filed on November 13, 2007.10.7
    
    Amended and Restated Credit Agreement, dated as of August 9, 2007,
between and among Teton, as Borrowers, each of the lenders party thereto,
and JPMorgan Chase Bank, NA, as Administrative Agent for the lenders,
incorporated by reference to Exhibit 10.1 to Tetons Form 8-K, filed on
August 10, 2007.
 89




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Exhibit No.
    
    Description10.8
    
    Amended and Restated Guaranty and Pledge Agreement, dated as of August 9,
2007, made by Teton, in favor of JPMorgan Chase Bank, NA, incorporated by
reference to Exhibit 10.2 to Tetons Form 8-K, filed on August 10, 2007.10.9
    
    Asset Exchange Agreement dated September 26, 2007, between Teton Energy
Corporation, Teton Piceance LLC, a wholly owned subsidiary of Teton
Energy Corporation and Delta Petroleum Corporation, incorporated by
reference to Exhibit 10.1 of Tetons Form 8-K filed October 2, 2007.10.10
    
    Placement Agent Agreement, dated as of May 11, 2007, between Teton and
Commonwealth Associates, LP, incorporated by reference to Exhibit 10.3 of
Tetons Form 10-Q filed on August 14, 2007.10.11
    
    Placement Agency Agreement dated as of July 19, 2007, between Teton,
Commonwealth Associates, LP and Ferris, Baker Watts, Incorporated,
incorporated by reference to Exhibit 10.4 to Tetons Quarterly Report on
Form 10-Q filed August 14, 2007.10.12
    
    Form of Subscription Agreement in
connection with Tetons May 25, 2007
financing. incorporated by reference to Exhibit 10.2 to Tetons
Registration Statement on Form S-3/A (File No. 333-145164), filed
September 5, 2007.10.13
    
    Advisory Services Agreement dated as of July 1, 2007, between Teton and
Commonwealth Associates, L.P., incorporated by reference to Exhibit 10.4
to Tetons Registration Statement on Form S-3/A (File No. 333-145164),
filed September 18, 2007.10.14
    
    Purchase, Sale and Exploration Agreement dated March 24, 2008, entered
into on March 28, 2008 by and between, Teton Energy Corporation and
Shelby Resources LLC, incorporate by reference to Exhibit 10.1 of Tetons
Form 8-K filed April 3, 2008.10.15
    
    Form of Registration Rights Agreement in connection with the issuances of
the shares of Common Stock and the Warrants, in connection with the
Purchase, Sale and Exploration Agreement dated March 24, 2008 by and
between, Teton Energy Corporation and Shelby Resources LLC, incorporated
by reference to Exhibit 10.2 of Tetons Form 8-K filed April 3, 2008.10.16
    
    Form of Teton Energy Corporation Common Stock Purchase Warrant issued in
connection with the Purchase, Sale and Exploration Agreement dated March
24, 2008 by and between, Teton Energy Corporation and Shelby Resources
LLC, incorporated by reference to Exhibit 10.3 of Tetons Form 8-K filed
April 3, 2008.10.17
    
    Second Amended and Restated Credit Agreement dated as of April 2, 2008
among Teton Energy Corporation, as Borrower, JPMorgan Chase Bank, N.A.,
as Administrative Agent, and the Lenders party thereto, incorporated by
reference to Exhibit 10.4 of Tetons Form 8-K filed on April 3, 2008.10.18
    
    Warrant Exchange Agreement by and between Teton Energy Corporation and
the Investors, dated October 4, 2008 and fully executed on October 7,
2008 (incorporated by reference to Exhibit 10.1 of Tetons Form 8-K filed
with the SEC on October 14, 2008).10.19
    
    Employment Agreement, dated December 4, 2008, between Karl F. Arleth and
Teton Energy Corporation, filed herewith.10.20
    
    Employment Agreement, dated December 4, 2008, between Dominic J. Bazile,
II and Teton Energy Corporation, filed herewith.10.21
    
    Employment Agreement, dated December 4, 2008, between Lonnie Brock and
Teton Energy Corporation, filed herewith.10.22
    
    Employment Agreement, dated December 4, 2008, between Rich Bosher and
Teton Energy Corporation, filed herewith.
 90




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Exhibit No.
    
    Description10.23
    
    Employment Agreement, dated December 4, 2008, between Steve Godfrey and
Teton Energy Corporation, filed herewith.14
    
    Code of Ethics and Business Conduct, incorporated by reference to Exhibit
14.1 of Tetons 10-K filed on March 31, 2005.21.1
    
    List of Subsidiaries, filed herewith.23.1
    
    Consent of independent registered accounting firm, filed herewith.23.2
    
    Consent of Independent Petroleum Engineers and Geologists, filed herewith.31.1
    
    Certification by Chief Executive Officer pursuant to Sarbanes-Oxley
Section 302, filed herewith.31.2
    
    Certification by Chief Financial Officer pursuant to Sarbanes-Oxley
Section 302, filed herewith.32
    
    Certification by Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350, filed herewith.
 91