##### 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, 2007
 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
(State or other jurisdiction of incorporation 
or organization)
    
    84-1482290
(IRS Employer
Identification No.)
 410 17th Street  Suite 1850
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
    
    American Stock Exchange
 None
 o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
 INDEX
  
 PART I
    
    
    
    
    1Items 1. and 2.
    
    Business and Properties
    
    
    1Item 1A.
    
    Risk Factors
    
    
    16Item 1B.
    
    Unresolved Staff Comments
    
    
    22Item 3.
    
    Legal Proceedings
    
    
    22Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    22PART II
    
    
    
    
    22Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    22Item 6.
    
    Selected Financial Data
    
    
    25Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risks
    
    
    40Item 8.
    
    Financial Statements and Supplementary Data
    
    
    41Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    73Item 9A.
    
    Controls and Procedures
    
    
    73Item 9B.
    
    Other Information
    
    
    75PART III
    
    
    
    
    75Item 10.
    
    Directors and Executive Officers and Corporate Governance
    
    
    75Item 11.
    
    Executive Compensation
    
    
    75Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    75Item 13.
    
    Certain Relationships and Related Transactions
    
    
    75Item 14.
    
    Principal Accountant Fees and Services
    
    
    75PART IV
    
    
    
    
    76Item 15.
    
    Exhibits and Financial Statement Schedules
    
    
    76Consent of Independent Registered Accounting FirmConsent of Independent Petroleum Engineers and GeologistsCertification by Chief Executive Officer Pursuant to Section 302Certification of Chief Financial Officer Pursuant to Section 302Certification by Chief Executive Officer and Chief Financial Officer Pursuant to Section 1350
  i




---



##### Table of Contents



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 and in Items 1 and
2, Business and Properties, of this Form 10-K.
 Forward-Looking Statements
   
    
    General economic and political conditions, including governmental energy policies, tax
rates or policies and inflation rates;
    
    The market price of, and demand for, oil and natural gas;
    
    Our ability to service current and future indebtedness;
    
    Our success in completing development and exploration activities;
    
    Reliance on outside operating companies for drilling and development of our oil and gas
properties;
    
    Expansion and other development trends of the oil and gas industry;
    
    Acquisitions and other business opportunities that may be presented to and pursued by us;
    
    Our ability to integrate our 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.
   ii




---



##### Table of Contents



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 further to 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
  1




---



##### Table of Contents



Operate Efficiently and Effectively, and Maximize Economies of Scale Where Practical
  Pursuit of Selective Complementary Acquisitions
  Operations, Properties and Recent Events
      2




---



##### Table of Contents



Basin
    
    Gross Acres
    
    Net AcresPiceance
    
    
    6,314
    
    
    
    789DJNoble AMI
    
    
    330,152
    
    
    
    75,310Frenchman Creek*
    
    
    28,204
    
    
    
    11,689S. Frenchman Creek*
    
    
    111,872
    
    
    
    109,688Washco*
    
    
    499,904
    
    
    
    413,786Williston
    
    
    88,472
    
    
    
    16,346Bighorn*
    
    
    16,417
    
    
    
    15,132Total
    
    
    1,081,335
    
    
    
    642,740
 
 *
    
    Represents properties that are either currently operated by us or which are expected to be
operated by us when development commences on the properties.  Piceance Basin
     DJ Basin
    3




---



##### Table of Contents



4




---



##### Table of Contents



Williston Basin
    Big Horn Basin
   Other Recent Developments
   Central Kansas Uplift
  5




---



##### Table of Contents



6




---



##### Table of Contents



Reserves
  As of December 31,2007
    
    
    2006
    
    
    2005(dollars in thousands)Proved developed oil reserves (Bbls)
    
    
    112,173
    
    
    
    
    
    
    
    Proved undeveloped oil reserves (Bbls)
    
    
    16,396
    
    
    
    
    
    
    
    Total proved oil reserves (Bbls)
    
    
    128,569
    
    
    
    
    
    
    
    Proved developed gas reserves (Mcf)
    
    
    7,929,988
    
    
    
    4,927,429
    
    
    
    852,849Proved undeveloped gas reserves (Mcf)
    
    
    5,377,520
    
    
    
    2,165,629
    
    
    
    3,156,300Total proved gas reserves (Mcf)
    
    
    13,307,508
    
    
    
    7,093,058
    
    
    
    4,009,149Total proved gas equivalents (Mcfe) (1)
    
    
    14,078,922
    
    
    
    7,093,058
    
    
    
    4,009,149Present value of estimated future net cash flows
before income taxes, discounted at 10%(2)
    
    $
    27,992
    
    
    $
    8,705
    
    
    $
    8,716Reconciliation of non-GAAP financial measure:PV-10 (3)
    
    $
    27,992
    
    
    $
    8,705
    
    
    $
    8,716Less: Undiscounted income taxes
    
    
    
    
    
    
    
    
    
    
    Plus: 10% discount factor
    
    
    
    
    
    
    
    
    
    
    Discounted income taxes
    
    
    
    
    
    
    
    
    
    
    Standardized measure of discounted future cash flows
    
    $
    27,992
    
    
    $
    8,705
    
    
    $
    8,716
 
 (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.   7




---



##### Table of Contents



Production Data
  Years Ended December 31,2007
    
    2006
    
    2005Total gross oil production, Bbls
    
    
    40,528
    
    
    
    
    
    
    
    Total gross gas production, Mcf
    
    
    6,745,225
    
    
    
    3,744,379
    
    
    
    457,331Net oil production, Bbls
    
    
    16,575
    
    
    
    
    
    
    
    Net gas production, Mcf
    
    
    1,127,568
    
    
    
    737,175
    
    
    
    90,037Average oil sales price after realized hedging results, $/Bbl
    
    $
    74.81
    
    
    $
    
    
    
    
    Average gas sales price after realized hedging results, $/Mcf
    
    $
    5.49
    
    
    $
    5.46
    
    
    $
    8.85Average production cost ($/Mcfe)
    
    $
    1.44
    
    
    $
    1.45
    
    
    $
    2.10
  As of December 31,2007
    
    2006
    
    2005Gross productive wellsOil
    
    
    12.00
    
    
    
    
    
    
    
    Gas
    
    
    120.00
    
    
    
    20.00
    
    
    
    3.00Total
    
    
    132.00
    
    
    
    20.00
    
    
    
    3.00Net productive wells (1)Oil
    
    
    9.37
    
    
    
    
    
    
    
    Gas
    
    
    35.13
    
    
    
    5.00
    
    
    
    0.75Total
    
    
    44.50
    
    
    
    5.00
    
    
    
    0.75
 
 (1)
    
    Net well count is based on Tetons effective net interest as of the end of each year.  8




---



##### Table of Contents



Wells Drilled
  Years Ended December 31,2007
    
    2006
    
    2005Gross
    
    Net (1)
    
    Gross
    
    Net (1)
    
    Gross
    
    Net (1)ExploratoryOil
    
    
    3
    
    
    
    0.33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gas
    
    
    13
    
    
    
    3.25
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    0.75Dry Holes
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    1.00
    
    
    
    
    
    
    
    Total
    
    
    16
    
    
    
    3.58
    
    
    
    4
    
    
    
    1.00
    
    
    
    3
    
    
    
    0.75DevelopmentOil
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gas
    
    
    90
    
    
    
    18.38
    
    
    
    20
    
    
    
    5.00
    
    
    
    
    
    
    
    Dry Holes
    
    
    13
    
    
    
    3.13
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    103
    
    
    
    21.51
    
    
    
    20
    
    
    
    5.00
    
    
    
    
    
    
    
    TotalOil
    
    
    3
    
    
    
    0.33
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gas
    
    
    103
    
    
    
    21.63
    
    
    
    20
    
    
    
    5.00
    
    
    
    3
    
    
    
    0.75Dry Holes
    
    
    13
    
    
    
    3.13
    
    
    
    4
    
    
    
    1.00
    
    
    
    
    
    
    
    Total
    
    
    119
    
    
    
    25.09
    
    
    
    24
    
    
    
    6.00
    
    
    
    3
    
    
    
    0.75
 
 (1)
    
    Net well count is based on Tetons effective net working interest as of the end of each year. Finding and Development Costs
    9




---



##### Table of Contents



Acreage
  Developed Acres
    
    Undeveloped Acres
    
    Total AcresGross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetPiceance Basin
    
    
    690
    
    
    
    86
    
    
    
    5,624
    
    
    
    703
    
    
    
    6,314
    
    
    
    789DJ BasinNoble AMI
    
    
    4,040
    
    
    
    922
    
    
    
    326,112
    
    
    
    74,388
    
    
    
    330,152
    
    
    
    75,310Frenchman Creek*
    
    
    
    
    
    
    
    
    
    
    28,204
    
    
    
    11,689
    
    
    
    28,204
    
    
    
    11,689S. Frenchman Creek*
    
    
    
    
    
    
    
    
    
    
    111,872
    
    
    
    109,688
    
    
    
    111,872
    
    
    
    109,688Washco*
    
    
    1,080
    
    
    
    894
    
    
    
    498,824
    
    
    
    412,892
    
    
    
    499,904
    
    
    
    413,786Williston Basin
    
    
    1,600
    
    
    
    296
    
    
    
    86,872
    
    
    
    16,050
    
    
    
    88,472
    
    
    
    16,346Big Horn Basin*
    
    
    
    
    
    
    
    
    
    
    16,417
    
    
    
    15,132
    
    
    
    16,417
    
    
    
    15,132Total
    
    
    7,410
    
    
    
    2,198
    
    
    
    1,073,925
    
    
    
    640,542
    
    
    
    1,081,335
    
    
    
    642,740
 
 *
    
    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
    
    Volume
    
    Fixed Price
    
    Price Index (1)
    
    Contract PeriodNatural Gas Fixed
Rate Swap Contract
    
    30,000 MMBtu per
month
    
    $5.78/MMBtu
    
    CIGRM
    
    08/01/07  10/31/08Oil Fixed Rate Swap
Contract
    
    60Bbls per day
    
    $80.70/Bbl
    
    WTI
    
    11/01/07  12/31/08
 
 (1)
    
    CIGRM refers to Colorado Interstate Gas Rocky Mountains price as quoted in Platts for
Inside FERC on the first business day of each month. WTI refers to the West Texas Intermediate
price as quoted on the New York Mercantile Exchange.  Type of Contract
    
    Volume
    
    Floor
    
    Ceiling
    
    Price Index (1)
    
    Contract PeriodNatural Gas
Costless Collar
    
    2,000 MMBtu per day
    
    $6.00/MMBtu
    
    $7.10/MMBtu
    
    CIGRM
    
    02/01/08  01/31/09
 
 (1)
    
    CIGRM refers to Colorado Interstate Gas Rocky Mountains price as quoted in Platts for
Inside FERC on the first business day of each month. Title to Properties
  10




---



##### Table of Contents



Seasonality
   Marketing and Major Customers
   Competition
  Governmental Regulation
   11




---



##### Table of Contents



Regulation of Oil and Natural Gas Exploration and Production
   Split Estate Regulation and Access Difficulties
  Natural Gas Marketing, Gathering and Transportation
   12




---



##### Table of Contents



Environmental Regulations
      13




---



##### Table of Contents



Operating Hazards and Insurance
   Employees and Office Space
  Available Information
 http://www.teton-energy.com
 th
  14




---



##### Table of Contents



http://www.teton-energy.com
 Glossary Terms
  3-D seismic 
 AMI
 Basin
 Big Horn Basin
 Cash flow hedge
 Collar
 Denver-Julesburg (DJ) Basin
 Development well
 Exploratory well
 Field
 Gas
 Gross
 Hedging
 Net
 Piceance Basin
 Productive
 Proved reserves
 15




---



##### Table of Contents



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
 We have incurred significant losses. We expect future losses and we may never become profitable.
  Substantially all of our producing properties are located in the Rocky Mountains, making us
vulnerable to risks associated with operating in one geographic area.
  16




---



##### Table of Contents



We may be unable to fund our planned capital expenditures.
  
    
    general economic and financial market conditions;
    
    oil and natural gas prices; and
    
    our market value and operating performance.
  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.
   17




---



##### Table of Contents



Our ability to complete acquisitions could be affected by competition with other companies and our
ability to obtain financing or regulatory approvals.
  Our acquisitions may pose integration risks and other difficulties.
    Competitive industry conditions may negatively affect our ability to conduct operations.
  We have limited operating control over our current production.
  Oil and gas prices fluctuate widely, and low prices for an extended period of time are likely to
have a material adverse impact on our business, results of operations and financial condition.
   
    
    domestic and foreign supply, and perceptions of supply, of oil and natural gas;
    
    level of consumer demand;
 18




---



##### Table of Contents




    
    political conditions in oil and gas producing regions;
    
    weather conditions;
    
    world-wide economic conditions;
    
    domestic and foreign governmental regulations; and
    
    price and availability of alternative fuels.
  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.
  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.
  Our credit facility has substantial restrictions and financial covenants, and we may have
difficulty obtaining additional credit, which could adversely affect our operations.
    Our debt level and the covenants in the agreements governing our debt could negatively impact our
financial condition, results of operations and business prospects.
  19




---



##### Table of Contents




    
    requiring us to dedicate a substantial portion of our cash flow from operations to
required payments on debt, thereby reducing the availability of cash flow for working
capital, capital expenditures and other general business activities;
    
    limiting our ability to obtain additional financing in the future for working capital,
capital expenditures, acquisitions and general corporate and other activities;
    
    limiting our flexibility reacting to changes in our business and the industry in which
we operate;
    
    placing us at a competitive disadvantage relative to other less-leveraged competitors;
and
    
    making us vulnerable to increases in interest rates, because borrowings under our
credit facility may be at floating interest rates which are subject to change from time to
time, based on LIBOR or U.S. prime rates.
 The instruments governing our indebtedness contain various covenants limiting the discretion of our
management in operating our business.
  
    
    pay dividends on, redeem or repurchase our capital stock or redeem or repurchase our
subordinated debt;
    
    make loans to others;
    
    make investments;
    
    incur additional indebtedness;
    
    create certain liens;
    
    sell assets;
    
    enter into agreements that allow dividends or other payments from our subsidiaries to
us;
    
    consolidate, merge or transfer all or substantially all of the assets of us and our
subsidiaries taken as a whole;
    
    engage in transactions with affiliates;
    
    enter into hedging contracts;
    
    create unrestricted subsidiaries; and
    
    enter into sale and leaseback transactions.
  Seasonal weather conditions and lease stipulations can adversely affect the conduct of drilling
activities on our properties.
  20




---



##### Table of Contents



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.
  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, by-laws, and shareholder rights plan, 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.
  21




---



##### Table of Contents




    
    We are authorized to issue blank check preferred stock, which is preferred stock that
can be created and issued by the Board of Directors without prior stockholder approval,
with rights senior to those of our common stockholders;
    
    We have a shareholder rights plan that could make it more difficult for a third party
to acquire us without the support of our Board of Directors and principal shareholders.
    
    We are subject to Section 203 of the Delaware General Corporation Law (the DGCL). In
general, Section 203 of the DGCL prohibits a publicly held Delaware corporation from
engaging in a business combination with an interested stockholder for a period of three
years after the date of the transaction in which the person became an interested
stockholder. A business combination includes a merger, sale of 10% or more of our assets
and certain other transactions resulting in a financial benefit to the stockholder. For
purposes of Section 203, an interested stockholder includes any person that is:
 
    
    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.
  
 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
  22




---



##### Table of Contents



High
    
    LowYear Ended December 31, 2007:First quarter
    
    $
    5.52
    
    
    $
    4.31Second quarter
    
    
    5.98
    
    
    
    3.86Third quarter
    
    
    5.56
    
    
    
    4.09Fourth quarter
    
    
    4.99
    
    
    
    3.75Year Ended December 31, 2006:First quarter
    
    $
    8.95
    
    
    $
    5.80Second quarter
    
    
    7.50
    
    
    
    4.90Third quarter
    
    
    5.97
    
    
    
    3.92Fourth quarter
    
    
    5.46
    
    
    
    4.10
 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
    
    
    703,500
    
    
    

(2
    )
    
    
    3,310,894

(3)Performance-vesting restricted
common stock
    
    
    540,000
    
    
    

(2
    )
    
    
    3,310,894

(3)Restricted common stock grants
    
    
    121,732
    
    
    

(2
    )
    
    
    3,310,894

(3)
 
 (1)
    
    The 2003 Employee Stock Compensation Plan was terminated upon the adoption of the 2005 Long
Term Incentive Plan (the LTIP).(2)
    
    Not applicable.(3)
    
    The Companys 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
   23




---



##### Table of Contents



Performance Graph
  
 
 12/31/02
    
    12/31/03
    
    12/31/04
    
    12/31/05
    
    12//3106
    
    12/31/07Teton Energy Corporation
    
    
    100.00
    
    
    
    115.28
    
    
    
    35.19
    
    
    
    136.57
    
    
    
    115.51
    
    
    
    113.43Russell 2000
    
    
    100.00
    
    
    
    147.25
    
    
    
    174.24
    
    
    
    182.18
    
    
    
    215.64
    
    
    
    212.26Peer Group
    
    
    100.00
    
    
    
    268.66
    
    
    
    283.55
    
    
    
    336.01
    
    
    
    259.65
    
    
    
    108.23
 
 (1)
    
    The seventy companies included in the peer group are: Altex Industries Inc, American Resource
Technologies Inc, Apollo Resources International Inc, Austin Chalk Oil Gas Limited, Avalon Oil And
Gas Inc, Baseline Oil & Gas Corp, Basic Earth Science Systems Inc, Bayou City Exploration Inc, Big
Sky Energy Corp., Capco Energy Inc, 24




---



##### Table of Contents



The stock price performance included in this graph is not necessarily indicative of future stock
price performance.
 
 ITEM 6. SELECTED FINANCIAL DATA.
  Year Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003(in thousands, except per share data)Statement of Operations Data:Total operating revenues
    
    $
    23,694
    
    
    $
    4,022
    
    
    $
    797
    
    
    $
    
    
    
    $
    Net income (loss) from
continuing operations
    
    $
    2,377
    
    
    $
    (5,724
    )
    
    $
    (4,032
    )
    
    $
    (5,193
    )
    
    $
    (4,036
    )Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    12,384
    
    
    $
    (1,599
    )Net income (loss)
    
    $
    2,377
    
    
    $
    (5,724
    )
    
    $
    (4,032
    )
    
    $
    7,190
    
    
    $
    (5,635
    )Basic income (loss) per share:Continuing operations
    
    $
    0.14
    
    
    $
    (0.44
    )
    
    $
    (0.40
    )
    
    $
    (0.64
    )
    
    $
    (1.00
    )Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1.37
    
    
    $
    (0.23
    )Net income
    
    $
    0.14
    
    
    $
    (0.44
    )
    
    $
    (0.40
    )
    
    $
    0.73
    
    
    $
    (1.23
    )Fully diluted income (loss)
per share:Continuing operations
    
    $
    0.13
    
    
    $
    (0.44
    )
    
    $
    (0.40
    )
    
    $
    (0.64
    )
    
    $
    (1.00
    )Discontinued operations
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    1.37
    
    
    $
    (0.23
    )Net income
    
    $
    0.13
    
    
    $
    (0.44
    )
    
    $
    (0.40
    )
    
    $
    0.73
    
    
    $
    (1.23
    )Balance Sheet Data:Total assets
    
    $
    78,299
    
    
    $
    41,244
    
    
    $
    22,131
    
    
    $
    17,612
    
    
    $
    20,718Long-term debt
    
    $
    8,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Total long-term liabilities
    
    $
    8,529
    
    
    $
    78
    
    
    $
    4
    
    
    $
    
    
    
    $
    127
  
 ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
  25




---



##### Table of Contents



Business Overview
    Developments since December 31, 2006:
  
    
    Our non-operated Piceance Basin property had proved reserves of 7.1 Bcf at December 31,
2006. On October 1, 2007, we sold 50% of our 25% working interest in the property,
leaving us with a 12.5% working interest in the Piceance Basin property. For the divested
interest, we received $33 million in cash (prior to post-closing adjustments) plus 1
MMcfed of production and 504,000 gross acres in the DJ Basin. After the divestiture of
one-half of our interest, after production and after drilling during 2007, at December 31,
2007, our interest in the Piceance Basin property had proved reserves of 11.9 Bcfe.
Piceance Basin production for the year ended December 31, 2007, was 976 MMcf of natural
gas, and we participated in the drilling of an additional 41 gross wells, bringing the
total number of gross producing wells to 53 at December 31, 2007. There are currently 13
wells waiting on completion and two in process of drilling, as part of the planned 52
well, $15.3 million Piceance drilling program in 2008.
    
    Fiscal year 2007 saw growth in our acreage position in the DJ Basin of 164% gross and
725% net. At December 31, 2006, we held interests in approximately 267,000 gross acres
(approximately 66,000 net). During the year ended December 31, 2007, we added
approximately 703,600 gross acres (approximately 544,100 net) in the DJ Basin. Of the
2007 growth in acreage, approximately 63,600 gross acres (approximately 8,900 net) are in
the non-operated Teton  Noble AMI, approximately 28,200 gross acres (approximately
11,700 net) are in our operated Frenchman Creek area, approximately 111,900 gross acres
(approximately 109,700 net) are in our operated South Frenchman Creek area and
approximately 499,900 gross acres (approximately 413,800 net) are in our operated Washco
properties. At December 31, 2007 we have 50 producing wells in the non-operated Teton 
Noble AMI and 27 producing wells in our operated Washco properties. DJ Basin production
for the year ended December 31, 2007, was 78 MMcf of natural gas and 12,467 Bbls of oil,
and our total number of gross producing wells is 77 at December 31, 2007. There are
currently 35 wells waiting on completion as part of the 180 well, $17 million DJ Basin
drilling program in 2008 (163 planned in the non-operated DJ Basin  Noble AMI and 17
planned in our operated Frenchman Creek area).
    
    We participated in the drilling of two Bakken test wells and a Red River test well in
the Williston Basin of North Dakota in the year ended December 31, 2007. The operator is
preparing to stake and permit a second Red River test well, and we expect to participate
in 2 additional Bakken wells and 2 additional Red River wells in 2008.
    
    During the year ended December 31, 2007, we acquired a 100% working interest in 16,417
gross acres (15,132 net) in the Big Horn Basin of Wyoming. We are seeking a partner to
share in this acreage and the future drilling in the Greybull and Mowry formations in the
Big Horn Basin. We expect to drill 2 wells in the Greybull and 2 wells in the Mowry in
2008.
 26




---



##### Table of Contents




    
    Our net income was $2.4 million in 2007 as compared to a net loss of $5.7 million in
2006.
    
    We raised $8.3 million after fees and expenses by issuing 8% senior subordinated
convertible notes and warrants to purchase 3.6 million shares of our common stock with a
cashless exercise provision.
    
    We raised $4.5 million after fees and expenses by issuing 964,060 shares of common
stock and warrants to purchase an additional 337,421 shares.
    
    We completed a capital expenditure program totaling $35.6 million in 2007 as compared
to $20.4 million in 2006.
  
    
    We increased our oil and gas sales volumes to 1.2 Bcfe in 2007 from 737 MMcfe in 2006.
    
    Our oil and gas revenues increased to $6.3 million at an average realized wellhead
price of $5.10 per Mcfe ($6.06 after realized hedging results) in 2007 from revenues of
$4.0 million and an average realized wellhead price of $5.46 per Mcfe in 2006.
    
    We sold half of our 25% working interest in the Piceance Basin non-operated properties
for $36.7 million in cash, after post-closing adjustments, plus oil and gas properties and
related production valued at $4.7 million, after post-closing adjustments, for a gain on
sale of assets totaling $17.4 million.
    
    We increased proved reserves to 14.1 Bcfe on December 31, 2007 as compared to 7.1 Bcfe
on December 31, 2006.
    
    We participated in the drilling and completion of 106 gross producing wells (22.0 net)
in 2007 as compared to 20 gross producing wells (5.0 net to us) in 2006.
    
    We increased total gross producing wells to 132 (44.5 net) at December 31, 2007 as
compared to 20 gross producing wells (5.0 net to us) at December 31, 2006.
    
    We acquired 721,257 gross acres (558,753 net) in 2007 , comprised of the following:
 Acres Acquired in 2007Gross
    
    NetPiceance Basin
    
    
    
    
    
    
    (790
    )DJ BasinNoble AMI
    
    
    63,580
    
    
    
    8,926Frenchman Creek
    
    
    28,204
    
    
    
    11,689S. Frenchman Creek
    
    
    111,872
    
    
    
    109,688Washco
    
    
    499,904
    
    
    
    413,786Williston Basin
    
    
    1,280
    
    
    
    322Big Horn Basin
    
    
    16,417
    
    
    
    15,132Total
    
    
    721,257
    
    
    
    558,753
   27




---



##### Table of Contents




    
    We attempt to reduce our overall exposure to commodity price fluctuations through the
use of various hedging contracts for some of our production. The duration of our various
hedging contracts depends on our view of market conditions, available contract prices and
our operating strategy. Use of such contracts may limit the risk of fluctuating cash
flows. As of December 31, 2007, we had hedging contracts in effect for approximately 31%
of our current daily production (increased to approximately 78% when we added 2,000 MMBtus
per day of production via costless collars at February 1, 2008).
    
    We have an inventory of drilling locations that we believe will allow us to grow
reserves and replace and expand production organically without having to rely solely on
acquisitions. We estimate in excess of 2,500 prospective drilling opportunities in the
Piceance, DJ, Williston and Big Horn Basins are expected to last for more than 10 years.
    Developments since December 31, 2007:
     28




---



##### Table of Contents



29




---



##### Table of Contents



Results of Operations
 Percent ChangeYear Ended December 31,
    
    
    Between Years2006 to
    
    
    2005 to2007
    
    
    2006
    
    
    2005
    
    
    2007
    
    
    2006(revenues and expenses in thousands)Net production volumesOil (Bbl)
    
    
    16,575
    
    
    
    
    
    
    
    
    
    
    nm
    
    
    nmGas (Mcf)
    
    
    1,127,568
    
    
    
    737,175
    
    
    
    90,037
    
    
    
    53
    %
    
    
    719
    %Total (Mcfe)
    
    
    1,227,021
    
    
    
    737,175
    
    
    
    90,037
    
    
    
    66
    %
    
    
    719
    %Realized price  pre hedgingOil (per Bbl)
    
    $
    76.32
    
    
    $
    
    
    
    $
    
    
    
    nm
    
    
    nmGas (per Mcf)
    
    $
    4.42
    
    
    $
    5.46
    
    
    $
    8.85
    
    
    
    -19
    %
    
    
    -38
    %Total (per Mcfe)
    
    $
    5.10
    
    
    $
    5.46
    
    
    $
    8.85
    
    
    
    -7
    %
    
    
    -38
    %Realized price  net of
hedgingOil (per Bbl)
    
    $
    74.81
    
    
    $
    
    
    
    $
    
    
    
    nm
    
    
    nmGas (per Mcf)
    
    $
    5.49
    
    
    $
    5.46
    
    
    $
    8.85
    
    
    
    1
    %
    
    
    -38
    %Total (per Mcfe)
    
    $
    6.06
    
    
    $
    5.46
    
    
    $
    8.85
    
    
    
    11
    %
    
    
    -38
    %Oil and gas salesOil sales
    
    $
    1,265
    
    
    $
    
    
    
    $
    
    
    
    nm
    
    
    nmGas sales
    
    
    4,988
    
    
    
    4,022
    
    
    
    797
    
    
    
    24
    %
    
    
    405
    %Total
    
    $
    6,253
    
    
    $
    4,022
    
    
    $
    797
    
    
    
    55
    %
    
    
    405
    %Oil and gas operating expensesLease operating expense
    
    $
    705
    
    
    $
    325
    
    
    $
    51
    
    
    
    117
    %
    
    
    537
    %Transportation expense
    
    
    652
    
    
    
    493
    
    
    
    90
    
    
    
    32
    %
    
    
    448
    %Production taxes
    
    
    412
    
    
    
    251
    
    
    
    48
    
    
    
    64
    %
    
    
    423
    %Total
    
    $
    1,769
    
    
    $
    1,069
    
    
    $
    189
    
    
    
    65
    %
    
    
    466
    %Data on a per Mcfe basisRealized price  net of
hedging
    
    $
    6.06
    
    
    $
    5.46
    
    
    $
    8.85
    
    
    
    11
    %
    
    
    -38
    %Lease operating expense
    
    
    0.57
    
    
    
    0.44
    
    
    
    0.57
    
    
    
    30
    %
    
    
    -23
    %Transportation expense
    
    
    0.53
    
    
    
    0.67
    
    
    
    1.00
    
    
    
    -21
    %
    
    
    -33
    %Production taxes
    
    
    0.34
    
    
    
    0.34
    
    
    
    0.53
    
    
    
    0
    %
    
    
    -36
    %Total production costs
    
    
    1.44
    
    
    
    1.45
    
    
    
    2.10
    
    
    
    -1
    %
    
    
    -31
    %Gross margin
    
    $
    4.62
    
    
    $
    4.01
    
    
    $
    6.75
    
    
    
    15
    %
    
    
    -41
    %Gross margin percentage
    
    
    76
    %
    
    
    74
    %
    
    
    76
    %General and administrativeStock-based compensation
    
    $
    3,288
    
    
    $
    2,928
    
    
    $
    
    
    
    
    12
    %
    
    nmOther compensation
    
    
    2,175
    
    
    
    2,086
    
    
    
    1,278
    
    
    
    4
    %
    
    
    63
    %Professional fees
    
    
    2,373
    
    
    
    967
    
    
    
    1,686
    
    
    
    145
    %
    
    
    -43
    %Other general and
administrative
    
    
    1,145
    
    
    
    1,167
    
    
    
    1,298
    
    
    
    -2
    %
    
    
    -10
    %Total general and
administrative
    
    $
    8,981
    
    
    $
    7,148
    
    
    $
    4,262
    
    
    
    26
    %
    
    
    68
    %Other operating expensesExploration expense
    
    $
    1,847
    
    
    $
    448
    
    
    $
    444
    
    
    
    312
    %
    
    
    1
    %DD&A  oil and gas
    
    $
    3,751
    
    
    $
    1,697
    
    
    $
    161
    
    
    
    121
    %
    
    
    954
    %DD&A  other
    
    $
    81
    
    
    $
    52
    
    
    $
    20
    
    
    
    56
    %
    
    
    160
    %Other income (expense)Realized gain  hedging
    
    $
    1,181
    
    
    $
    
    
    
    $
    
    
    
    nm
    
    
    nmUnrealized gain (loss) 
hedging
    
    
    (857
    )
    
    
    403
    
    
    
    
    
    
    nm
    
    
    nmLoss on derivative contracts
    
    
    (2,624
    )
    
    
    
    
    
    
    
    
    
    nm
    
    
    nmInterest (expense) income, net
    
    
    (2,588
    )
    
    
    265
    
    
    
    247
    
    
    nm
    
    
    nmTotal
    
    $
    (4,888
    )
    
    $
    668
    
    
    $
    247
    
    
    nm
    
    
    nm
 30




---



##### Table of Contents



Results of Operations 2007 Compared to 2006
      
    
    a net increase in compensation expense of approximately $1.2 million due to
approximately $550,000 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 $620,000;
    
    a net increase of approximately $800,000 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.
    31




---



##### Table of Contents



Results of Operations 2006 Compared to 2005
     
    
    compensation expense increasing due to (1) $2.6 million of non-cash compensation
expense from stock-based grants as a result of meeting performance milestones associated
with our long-term incentive plan, (2) a non-cash expense of approximately $490,000
associated with restricted stock grants, and (3) approximately $788,000 resulting from an
increase in the number of full time employees (from six employees in 2005 to 11 employees
in 2006;
    
    consulting expenses associated with engineering, marketing, investor relations and
financial services increasing approximately $200,000 in 2006 from 2005 due to the increased
operations of Teton resulting in additional needs that were not met with hiring of
additional staff;
    
    office expense increasing approximately $160,000 in 2006 from 2005 due to increased
administrative and computer support as well as additional office space leased.
  
    
    legal and accounting costs decreasing by $1.1 million from the prior year, due to
non-cash issuance of common stock for accounting and legal services rendered in 2005 of
$795,000, for which we also received a refund of 50,000 shares of common stock for
accounting services valued at $158,000 (which reduced our general and administrative
expenses) in 2006 and approximately $105,000 due to the replacement of a part-time,
contract CFO with a full-time, in-house CFO.
    32




---



##### Table of Contents



Outlook for 2008
  
    
    Increase production by at least 60% to 2.0 Bcfe from the properties in which we own
interests at December 31, 2007.
    
    Achieve material increase in reserves.
    
    Continue to develop the Piceance, DJ and Williston Basin acreage.
    
    Begin the development of the Big Horn Basin acreage.
    
    Maintain liquidity through increases in our senior credit facility borrowing base and
increased cash flow provided by operations.
    
    Pursue additional operated oil and gas asset and project acquisitions.
    
    Continue to build our operating staff and related capabilities.
 Liquidity and Capital Resources
    Credit Facility
  33




---



##### Table of Contents



Cash Flows and Capital Expenditures
   As of December 31,2007
    
    
    2006
    
    
    2005(in thousands)Property acquisition costs
    
    $
    6,807
    
    
    $
    3,323
    
    
    $
    10,636Exploration
    
    
    2,712
    
    
    
    1,823
    
    
    
    445Development
    
    
    32,900
    
    
    
    17,163
    
    
    
    3,944Total
    
    $
    42,419
    
    
    $
    22,309
    
    
    $
    15,025
 Operating Activities
 Developments since December 31, 2006
  Investing Activities
 34




---



##### Table of Contents



Financing Activities
   Contractual Obligations
  Price IndexType of Contract
    
    Volume
    
    Fixed Price
    
    (1)
    
    Contract PeriodNatural Gas Fixed
Price Swap
    
    30,000 MMBtu per
    
    $5.78/MMBtu
    
    CIGRM
    
    
    08/01/07  10/31/08Contracts
    
    monthOil Fixed Price
Swap Contracts
    
    60Bbls per day
    
    $80.70/Bbl
    
    WTI
    
    
    11/01/07  12/31/08
 
 (1)
    
    CIGRM refers to Colorado Interstate Gas Rocky Mountains price as quoted in Platts for
Inside FERC on the first business day of each month. WTI refers to the West Texas Intermediate
price as quoted on the New York Mercantile Exchange.  Price IndexType of Contract
    
    Volume
    
    Floor
    
    Ceiling
    
    (1)
    
    Contract PeriodNatural Gas
    
    2,000 MMBtu
    
    $6.00/MMBtu
    
    $7.10/MMBtu
    
    CIGRM
    
    02/01/08  01/31/09Costless Collar
    
    per day
 
 (1)
    
    CIGRM refers to Colorado Interstate Gas Rocky Mountains price as quoted in Platts for
Inside FERC on the first business day of each month.  35




---



##### Table of Contents



One Year
    
    
    2  3
    
    
    4  5
    
    
    More thanor Less
    
    
    Years
    
    
    Years
    
    
    5 Years(in thousands)Operating lease for office space
    
    $
    129
    
    
    $
    44
    
    
    $
    
    
    
    $
    Senior bank facility line of credit (a) (b)
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    Interest on line of credit (c)
    
    
    516
    
    
    
    1,032
    
    
    
    311
    
    
    
    8% convertible notes (d)
    
    
    9,000
    
    
    
    
    
    
    
    
    
    
    
    Interest on 8% convertible notes
    
    
    268
    
    
    
    
    
    
    
    
    
    
    
    Total contractual cash commitments
    
    $
    9,913
    
    
    $
    1,076
    
    
    $
    8,311
    
    
    $
    
 
 (a)
    
    The amount listed reflects the balance outstanding at December 31, 2007. Any balance
outstanding at August 9, 2011 is due at that time.(b)
    
    The entire line of credit balance outstanding was paid off on February 11, 2008.(c)
    
    The interest rate assumed on the credit facility is 6.45% per annum, the rate in
effect at December 31, 2007.(d)
    
    The 8% convertible note is due in its entirety on May 16, 2008. Income Taxes, Net Operating Losses and Tax Credits
  Off-Balance Sheet Arrangements
   Critical Accounting Policies and Estimates
  36




---



##### Table of Contents



Derivative Financial Instruments
   Successful Efforts Method of Accounting
    Reserve Estimates
  37




---



##### Table of Contents



Impairment of Oil and Gas Properties
  Stock-Based Compensation
     Asset Retirement Obligations
  38




---



##### Table of Contents



Recently Adopted Accounting Pronouncements
   Recently Issued Accounting Pronouncements
     39




---



##### Table of Contents



ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS.
  Commodity Price Risk
    Type of Contract
    
    Volume
    
    Fixed Price
    
    Price Index (1)
    
    Contract PeriodNatural Gas Fixed 
Rate Swap Contracts
    
    30,000 MMBtu per
month
    
    $5.78/MMBtu
    
    CIGRM
    
    11/01/07  10/31/08Oil Fixed Rate Swap
Contracts
    
    60Bbls per day
    
    $80.70/Bbl
    
    WTI
    
    11/01/07  12/31/08
 
 (1)
    
    CIGRM refers to Colorado Interstate Gas Rocky Mountains price as quoted in Platts for
Inside FERC on the first business day of each month. WTI refers to the West Texas Intermediate
price as quoted on the New York Mercantile Exchange.  Type of Contract
    
    Volume
    
    Floor
    
    Ceiling
    
    Price Index (1)
    
    Contract PeriodNatural Gas 
Costless Collar
    
    2,000 MMBtu per day
    
    $6.00/MMBtu
    
    $7.10/MMBtu
    
    CIGRM
    
    02/01/08  01/31/09
 
 (1)
    
    CIGRM refers to Colorado Interstate Gas Rocky Mountains price as quoted in Platts for
Inside FERC on the first business day of each month.  40




---



##### 



Market Price of Common Stock Risk
   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
  41




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 Internal Control-Integrated Framework
    Internal Control-Integrated Framework
 /s/ Ehrhardt Keefe Steiner & Hottman PCEhrhardt Keefe Steiner & Hottman PC 
 F-1




---



##### Table of Contents



TETON ENERGY CORPORATION
Consolidated Balance Sheet
 December 31,2007
    
    
    2006(in thousands)AssetsCurrent assets:Cash and cash equivalents
    
    $
    24,616
    
    
    $
    4,325Trade accounts receivable
    
    
    2,686
    
    
    
    860Advances to operator
    
    
    
    
    
    
    401Tubular inventory
    
    
    149
    
    
    
    149Fair value of oil and gas derivative contracts
    
    
    
    
    
    
    403Prepaid expenses and other assets
    
    
    131
    
    
    
    142Deferred debt issuance costs  net
    
    
    1,419
    
    
    
    Total current assets
    
    
    29,001
    
    
    
    6,280Oil and gas properties (using successful efforts method of accounting)Proved
    
    
    35,708
    
    
    
    12,326Unproved
    
    
    13,411
    
    
    
    13,959Wells and facilities in progress
    
    
    3,230
    
    
    
    9,856Land
    
    
    153
    
    
    
    300Fixed assets
    
    
    332
    
    
    
    243Total property and equipment
    
    
    52,834
    
    
    
    36,684Less accumulated depreciation and depletion
    
    
    (3,695
    )
    
    
    (1,912
    )Net property and equipment
    
    
    49,139
    
    
    
    34,772Deferred debt issuance costs  net
    
    
    159
    
    
    
    192Total assets
    
    $
    78,299
    
    
    $
    41,244Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
    
    $
    400
    
    
    $
    1,506Accrued liabilities
    
    
    7,833
    
    
    
    4,227Accrued payroll
    
    
    902
    
    
    
    891Accrued purchase consideration
    
    
    
    
    
    
    7758% senior subordinated convertible notes, net of discount of $7,370
    
    
    1,630
    
    
    
    Fair value of oil and gas derivative contracts
    
    
    455
    
    
    
    Derivative contract liabilities
    
    
    9,522
    
    
    
    Total current liabilities
    
    
    20,742
    
    
    
    7,399Long-term liabilities:Long-term debt  senior secured bank debt
    
    
    8,000
    
    
    
    Asset retirement obligations
    
    
    529
    
    
    
    78Total long-term liabilities
    
    
    8,529
    
    
    
    78Total liabilities
    
    
    29,271
    
    
    
    7,477Commitments 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;
17,652,889 and 15,607,167 shares issued and outstanding as of
December 31, 2007 and 2006, respectively
    
    
    18
    
    
    
    16Additional paid-in capital
    
    
    76,857
    
    
    
    63,975Accumulated deficit
    
    
    (27,847
    )
    
    
    (30,224
    )Total stockholders equity
    
    
    49,028
    
    
    
    33,767Total liabilities and stockholders equity
    
    $
    78,299
    
    
    $
    41,244
  F-2




---



##### Table of Contents



TETON ENERGY CORPORATION
Consolidated Statement of Operations
 Years Ended December 31,2007
    
    
    2006
    
    
    2005(in thousands, except per share amounts)Operating revenues:Oil and gas sales
    
    $
    6,253
    
    
    $
    4,022
    
    
    $
    797Gain on sale of oil and gas properties
    
    
    17,441
    
    
    
    
    
    
    
    Total operating revenues
    
    
    23,694
    
    
    
    4,022
    
    
    
    797Operating expenses:Lease operating expense
    
    
    705
    
    
    
    325
    
    
    
    51Transportation expense
    
    
    652
    
    
    
    493
    
    
    
    90Production taxes
    
    
    412
    
    
    
    251
    
    
    
    48Exploration expense
    
    
    1,847
    
    
    
    448
    
    
    
    444General and administrative
    
    
    8,981
    
    
    
    7,148
    
    
    
    4,262Depreciation, depletion and accretion expense
    
    
    3,832
    
    
    
    1,749
    
    
    
    181Total operating expenses
    
    
    16,429
    
    
    
    10,414
    
    
    
    5,076Operating income (loss)
    
    
    7,265
    
    
    
    (6,392
    )
    
    
    (4,279
    )Other income (expense):Realized gain on oil and gas derivative contracts
    
    
    1,181
    
    
    
    
    
    
    
    Unrealized (loss) gain on oil and gas derivative contracts
    
    
    (857
    )
    
    
    403
    
    
    
    Loss on derivative contract liabilities
    
    
    (2,624
    )
    
    
    
    
    
    
    Interest income
    
    
    425
    
    
    
    293
    
    
    
    247Interest expense
    
    
    (3,013
    )
    
    
    (28
    )
    
    
    Total other income (expense)
    
    
    (4,888
    )
    
    
    668
    
    
    
    247Net income (loss)
    
    
    2,377
    
    
    
    (5,724
    )
    
    
    (4,032
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (61
    )Net income (loss) applicable to common shares
    
    $
    2,377
    
    
    $
    (5,724
    )
    
    $
    (4,093
    )Basic income (loss) per common share
    
    $
    .14
    
    
    $
    (.44
    )
    
    $
    (.40
    )Fully diluted income (loss) per common share
    
    $
    .13
    
    
    $
    (.44
    )
    
    $
    (.40
    )Basic weighted-average common shares outstanding
    
    
    16,545
    
    
    
    13,093
    
    
    
    10,282Fully diluted weighted-average common shares outstanding
    
    
    18,061
    
    
    
    13,093
    
    
    
    10,282
  F-3




---



##### Table of Contents



TETON ENERGY CORPORATION
Consolidated Statement of Cash Flows
 Years Ended December 31,2007
    
    
    2006
    
    
    2005(in thousands)Operating activities:Net income (loss)
    
    $
    2,377
    
    
    $
    (5,724
    )
    
    $
    (4,032
    )Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:Depreciation, depletion and accretion
    
    
    3,832
    
    
    
    1,749
    
    
    
    181Debt issuance cost amortization
    
    
    586
    
    
    
    
    
    
    
    Debt discount amortization
    
    
    1,630
    
    
    
    
    
    
    
    Stock-based compensation expense, exclusive of cash
withheld for payroll taxes
    
    
    2,588
    
    
    
    2,928
    
    
    
    Stock issued for outside services, net
    
    
    264
    
    
    
    53
    
    
    
    835Non-cash loss on derivative contract liabilities
    
    
    2,624
    
    
    
    
    
    
    
    Unrealized loss (gain)  oil and gas derivative contracts
    
    
    857
    
    
    
    (403
    )
    
    
    Gain on sale of oil and gas properties
    
    
    (17,441
    )
    
    
    
    
    
    
    Changes in current assets and liabilities:Trade accounts receivable
    
    
    (1,173
    )
    
    
    (612
    )
    
    
    (248
    )Advances to operator
    
    
    
    
    
    
    (177
    )
    
    
    (224
    )Tubular inventory
    
    
    
    
    
    
    (149
    )
    
    
    Prepaid expenses and other current assets
    
    
    10
    
    
    
    (4
    )
    
    
    (37
    )Accounts payable and accrued liabilities
    
    
    1,767
    
    
    
    66
    
    
    
    441Accrued payroll
    
    
    11
    
    
    
    494
    
    
    
    288Net cash used in operating activities
    
    
    (2,068
    )
    
    
    (1,779
    )
    
    
    (2,796
    )Investing activities:Proceeds from sale of oil and gas properties
    
    
    35,125
    
    
    
    2,700
    
    
    
    300Acquisition of corporate fixed assets
    
    
    (89
    )
    
    
    (182
    )
    
    
    (6
    )Development of oil and gas properties
    
    
    (35,635
    )
    
    
    (20,355
    )
    
    
    (11,303
    )Net cash used in investing activities
    
    
    (599
    )
    
    
    (17,837
    )
    
    
    (11,009
    )Financing activities:Proceeds from sale of common stock, net of offering costs of
$368
    
    
    4,500
    
    
    
    10,834
    
    
    
    Proceeds from exercise of options/warrants
    
    
    2,408
    
    
    
    6,235
    
    
    
    3,497Proceeds from 8% senior subordinated convertible notes
    
    
    9,000
    
    
    
    
    
    
    
    Net borrowings from senior bank credit facility
    
    
    8,000
    
    
    
    
    
    
    
    Debt issuance costs
    
    
    (950
    )
    
    
    (192
    )
    
    
    Payment of preferred dividends
    
    
    
    
    
    
    
    
    
    
    (61
    )Net cash provided by financing activities
    
    
    22,958
    
    
    
    16,877
    
    
    
    3,436Increase (decrease) in cash and cash equivalents
    
    
    20,291
    
    
    
    (2,739
    )
    
    
    (10,369
    )Cash and cash equivalents  beginning of period
    
    
    4,325
    
    
    
    7,064
    
    
    
    17,433Cash and cash equivalents  end of period
    
    $
    24,616
    
    
    $
    4,325
    
    
    $
    7,064
  F-4




---



##### Table of Contents



TETON ENERGY CORPORATION
Consolidated Statement of Cash Flows (continued)
 Years Ended December 31,2007
    
    2006
    
    2005(in thousands)Supplemental disclosure of cash and non-cash transactions:Cash paid for interest, net of amounts capitalized
    
    $
    694
    
    
    $
    
    
    
    $
    Capitalized interest
    
    
    121
    
    
    
    
    
    
    
    Stock-based compensation, exclusive of cash withheld for payroll
taxes
    
    
    2,588
    
    
    
    2,928
    
    
    
    Stock issued
for outside services, net of stock returned (in 2005)
    
    
    264
    
    
    
    53
    
    
    
    845Sales of oil and gas properties included in accounts receivable
    
    
    652
    
    
    
    
    
    
    
    Deposits and advances applied to oil and gas properties
    
    
    401
    
    
    
    300
    
    
    
    Accrued purchase consideration recorded as oil and gas properties
    
    
    
    
    
    
    775
    
    
    
    Capital expenditures included in accounts payable and accrued
liabilities
    
    
    5,667
    
    
    
    4,933
    
    
    
    1,256Asset retirement obligation additions and revisions associated
with oil and gas properties
    
    
    241
    
    
    
    50
    
    
    
    4Placement agent warrants recorded as equity issuance costs
    
    
    190
    
    
    
    
    
    
    
    Placement agent warrants recorded as debt issuance costs
    
    
    1,022
    
    
    
    
    
    
    
    Derivative liabilities reclassified to stockholders equity, net
    
    
    3,124
    
    
    
    
    
    
    
    Issuance of common stock and warrants  acquisition of oil and
gas properties
    
    
    
    
    
    
    
    
    
    
    1,882
  F-5




---



##### 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, 2004
    
    
    281
    
    
    $
    
    
    
    
    9,130
    
    
    $
    9
    
    
    $
    37,658
    
    
    $
    (20,468
    )
    
    $
    17,199Common stock issued for settlement of
accrued liabilities
    
    
    
    
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    11Common stock issued for services
    
    
    
    
    
    
    
    
    
    
    298
    
    
    
    
    
    
    
    945
    
    
    
    
    
    
    
    945Common stock issued for asset acquisitions
    
    
    
    
    
    
    
    
    
    
    863
    
    
    
    1
    
    
    
    1,467
    
    
    
    
    
    
    
    1,468Warrants issued for asset acquisitions
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    414
    
    
    
    
    
    
    
    414Warrants exercised net of AMEX fees
    
    
    
    
    
    
    
    
    
    
    744
    
    
    
    1
    
    
    
    3,496
    
    
    
    
    
    
    
    3,497Preferred stock converted to common stock
    
    
    (281
    )
    
    
    
    
    
    
    281
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (61
    )
    
    
    
    
    
    
    (61
    )Net loss for year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,032
    )
    
    
    (4,032
    )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
    )
    
    $
    49,028
  F-6




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Note 1  Business Description and Summary of Significant Accounting Policies
  Principles of Consolidation
     Use of Estimates
  Revenue Recognition
  Gas Balancing
  Oil and Gas Producing Activities
  F-7




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
       Derivative Financial Instruments
   Cash and Cash Equivalents
  F-8




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Accounts Receivable
  Deferred Debt Issuance Costs
  Capitalized Interest
  Fixed Assets
  Impairment of Long-Lived Assets
  Asset Retirement Obligations
   F-9




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
  Year Ended December 31,2007
    
    
    2006(in thousands)Asset retirement obligation  beginning of period
    
    $
    78
    
    
    $
    4Additional liabilities incurred
    
    
    189
    
    
    
    50Revisions in estimated cash flows
    
    
    52
    
    
    
    Obligations settled
    
    
    
    
    
    
    Accretion expense
    
    
    43
    
    
    
    24Obligations acquired
    
    
    239
    
    
    
    Obligations sold
    
    
    (72
    )
    
    
    Asset retirement obligation  end of period
    
    $
    529
    
    
    $
    78
 Income (Loss) per Common Share
  Stock-Based Compensation Expense
   Fair Value of Financial Instruments
  F-10




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
  Income Taxes
  Significant Customers
  Concentrations of Credit Risk
    Recently Adopted Accounting Pronouncements
   Recently Issued Accounting Pronouncements
  F-11




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
     F-12




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Note 2 Income (Loss) per Common Share
  Years Ended December 31,2007
    
    
    2006
    
    
    2005(in thousands, except per share data)Net income (loss) applicable to common shares
    
    $
    2,377
    
    
    $
    (5,724
    )
    
    $
    (4,093
    )Adjustments for dilution
    
    
    
    
    
    
    
    
    
    
    Net income (loss) adjusted for effects of dilution
    
    $
    2,377
    
    
    $
    (5,724
    )
    
    $
    (4,093
    )Weighted average common shares outstanding  basic
    
    
    16,545
    
    
    
    13,093
    
    
    
    10,282Add dilutive effect of:LTIP performance share units  2006 Plan
    
    
    445
    
    
    
    
    
    
    
    LTIP performance-vesting restricted common stock 
2007 Plan
    
    
    373
    
    
    
    
    
    
    
    LTIP restricted common stock
    
    
    13
    
    
    
    
    
    
    
    Stock options
    
    
    393
    
    
    
    
    
    
    
    Warrants
    
    
    292
    
    
    
    
    
    
    
    Weighted average common shares outstanding   diluted
    
    
    18,061
    
    
    
    13,093
    
    
    
    10,282Basic income (loss) per common share
    
    $
    0.14
    
    
    $
    (0.44
    )
    
    $
    (0.40
    )Fully diluted income (loss) per common share
    
    $
    0.13
    
    
    $
    (0.44
    )
    
    $
    (0.40
    )
  Years Ended December 31,2007
    
    2006
    
    2005Securities in-the-money:LTIP performance share units  2005 Plan
    
    
    
    
    
    
    355,000
    
    
    
    596,000LTIP performance share units  2006 Plan
    
    
    
    
    
    
    1,556,000
    
    
    
    LTIP restricted common stock
    
    
    
    
    
    
    193,999
    
    
    
    195,000Stock options
    
    
    
    
    
    
    2,088,545
    
    
    
    2,875,334Warrants
    
    
    
    
    
    
    867,819
    
    
    
    1,368,773Subtotal  securities in-the-money
    
    
    
    
    
    
    5,061,363
    
    
    
    5,035,107Securities out-of-the-money:Convertible Notes
    
    
    1,800,000
    
    
    
    
    
    
    
    Warrants
    
    
    4,374,547
    
    
    
    
    
    
    
    362,991Subtotal  securities out-of-the-money
    
    
    6,174,547
    
    
    
    
    
    
    
    362,991Total
    
    
    6,174,547
    
    
    
    5,061,363
    
    
    
    5,398,098
 Note 3  Acquisitions and Dispositions of Oil and Gas Properties
 Subsequent Event
  F-13




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
    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
 F-14




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
  For the Year EndedDecember 31, 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, 2007
    
    
    22,505Gain on sale of oil and gas properties
    
    $
    17,441
   2006 Acquisitions and Dispositions
   2005 Acquisitions
   F-15




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Note 4  Derivative Contract Liabilities
  Changes in estimated fair value of derivative contract liabilities
  Year EndedDecember 31,2007(in thousands)Derivative financial instruments:Financing warrants
    
    $
    (650
    )Warrants issued to placement agents
    
    
    106Compound embedded derivative
    
    
    306Other warrants
    
    
    561323Day-one loss from derivative allocation
    
    
    2,301Loss on derivative contract liabilities
    
    $
    2,624
    F-16




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Significant valuation assumptions:
   Inception
    
    Reclassification Date
    
    December 31,Date (a)
    
    (a)
    
    2007Trading market value
    
    
    $4.66  $4.67
    
    
    
    $5.11
    
    
    
    $4.90Strike prices
    
    
    $1.75  $5.00
    
    
    
    $1.75  $4.35
    
    
    
    $5.00Estimated term (years).
    
    
    0.64  6.78
    
    
    
    0.52  6.66
    
    
    
    4.38Estimated volatility
    
    
    43.46%  85.04%
    
    
    
    39.01%  80.07%
    
    
    
    65.72%Risk-free rates
    
    
    4.62%  4.86%
    
    
    
    4.95%  5.06%
    
    
    
    3.45%
   Inception
    
    Reclassification DateDate (b)(c)
    
    (b)(c)Trading market value
    
    
    $4.66
    
    
    
    $5.11Conversion price
    
    
    $5.00
    
    
    
    $5.00Estimated term (years)
    
    
    1.00
    
    
    
    0.885Equivalent volatility
    
    
    43.46%  45.50%
    
    
    
    43.43%  50.63%Equivalent risk-adjusted interest rate
    
    
    8.42%  9.00%
    
    
    
    8.42%  9.00%Equivalent credit-risk adjusted annual yield
    
    
    13.67%  22.67%
    
    
    
    13.67%  22.67%
   Note 5  8% Senior Subordinated Convertible Notes
  F-17




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
   Allocation of Proceeds(in thousands)Fair value of derivative financial instruments:Financing warrants
    
    $
    10,172Warrants issued to placement agents
    
    
    1,022Compound embedded derivative
    
    
    1,129Day-one loss from derivative allocation
    
    
    (2,301
    )Direct financing costs
    
    
    (1,732
    )Net proceeds
    
    $
    8,290
     F-18




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Note 6  Senior Bank Facility
  December 31,2007
    
    
    2006(in thousands)Senior bank credit facility
    
    $
    8,000
    
    
    $
    
 BNP Paribas Credit Facility
    JPMorgan Chase Amended and Restated Credit Facility
    F-19




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
   Note 7  Stockholders Equity
 Preferred Stock
  Convertible Preferred Stock
  Common Stock
  Warrants
  WeightedAverageExerciseShares
    
    
    PriceOutstanding  December 31, 2004
    
    
    7,359,727
    
    
    $
    5.62Issued
    
    
    406,481
    
    
    
    1.87Exercised
    
    
    (743,868
    )
    
    
    4.77Forfeited/canceled
    
    
    (5,290,576
    )
    
    
    6.00Outstanding  December 31, 2005
    
    
    1,731,764
    
    
    
    3.93Issued
    
    
    
    
    
    
    Exercised
    
    
    (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
    
    
    
    
    
    
    Outstanding  December 31, 2007
    
    
    5,240,866
    
    
    $
    4.78
 F-20




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
  Weighted AverageRemainingRange of Exercise Prices
    
    Number
    
    Contractual Life(years)$1.75
    
    
    60,748
    
    
    
    0.3$3.24
    
    
    799,571
    
    
    
    3.8$3.48
    
    
    3,700
    
    
    
    0.5$4.35
    
    
    2,300
    
    
    
    0.8$5.00
    
    
    3,960,000
    
    
    
    4.4$6.06
    
    
    414,547
    
    
    
    4.6Total warrants outstanding and exercisable
    
    
    5,240,866
    
    
    
    4.3
 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
    )
 F-21




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Note 8  Stock-Based Compensation
  For the Years Ended December 31,2007
    
    
    2006
    
    
    2005(in thousands)Performance share units  employees and directors
    
    $
    2,421
    
    
    $
    2,413
    
    
    $
    Performance-vesting restricted common stock 
employees and directors
    
    
    278
    
    
    
    
    
    
    
    LTIP restricted common stock  employees and directors
    
    
    571
    
    
    
    487
    
    
    
    Stock options  employees
    
    
    18
    
    
    
    28
    
    
    
    Total stock-based compensation expense
    
    
    3,288
    
    
    
    2,928
    
    
    
    Performance share units  non-employees
    
    
    264
    
    
    
    211
    
    
    
    Restricted common stock  non-employees
    
    
    
    
    
    
    (158
    )
    
    
    796Common stock  non-employees
    
    
    
    
    
    
    
    
    
    
    39Total stock-based compensation expense
    
    $
    3,552
    
    
    $
    2,981
    
    
    $
    835
 Long Term Incentive Plan
  LTIP  Performance Share Units
     F-22




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
    Weighted
    
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    
    AverageUnvested
    
    
    Grant Date
    
    
    Unvested
    
    
    Grant Date2005 Grants
    
    
    Market Price
    
    
    2006 Grants
    
    
    Market Price(shares)
    
    
    
    
    
    
    (shares)Outstanding  December 31, 2004
    
    
    
    
    
    $
    
    
    
    
    
    
    
    $
    Granted
    
    
    745,000
    
    
    
    4.88
    
    
    
    
    
    
    
    Forfeited/returned
    
    
    (149,000
    )
    
    
    4.88
    
    
    
    
    
    
    
    Outstanding  December 31, 2005
    
    
    596,000
    
    
    
    4.88
    
    
    
    
    
    
    
    Granted
    
    
    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
    
    
    $
    6.72
 LTIP  Performance-Vesting Restricted Common Stock
  F-23




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
   WeightedAverageUnvested 2007
    
    
    Grant DateGrants
    
    
    Market Price(shares)Outstanding  December 31, 2006
    
    
    
    
    
    
    Granted in
2007
    
    
    540,000
    
    
    $
    5.15Outstanding  December 31, 2007
    
    
    540,000
    
    
    $
    5.15
  LTIP  Restricted Common Stock
   WeightedUnvested LTIP
    
    
    Average- Restricted
    
    
    Grant DateCommon Stock
    
    
    Market Price(shares)Outstanding  December 31, 2004
    
    
    
    
    
    $
    Granted
    
    
    195,000
    
    
    
    6.06Outstanding  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
    
    
    $
    5.49
 F-24




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Restricted Common Stock
     WeightedAverageRestricted
    
    Grant DateCommon Stock
    
    Market Price(shares)Year ended December 31, 2005:Granted
    
    
    287,500
    
    
    $
    3.15Year ended December 31, 2006:Returned
    
    
    (50,000
    )
    
    $
    3.15
 Stock Options
     F-25




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
  Weighted
    
    
    Weighted AverageAverage
    
    
    Remaining
    
    
    AggregateStock Options
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    Intrinsic Value(shares)
    
    
    
    
    
    
    (in years)
    
    
    (in thousands)Outstanding  December 31, 2004
    
    
    2,993,037
    
    
    $
    3.54
    
    
    
    8.70
    
    
    $
    Granted
    
    
    45,000
    
    
    
    3.11Forfeited/expired
    
    
    (162,703
    )
    
    
    3.52Outstanding  December 31, 2005
    
    
    2,875,334
    
    
    
    3.54
    
    
    
    5.87
    
    
    
    6,788Exercised
    
    
    (770,039
    )
    
    
    3.50
    
    
    
    
    
    
    
    1,648Forfeited/expired
    
    
    (16,750
    )
    
    
    3.11Outstanding  December 31, 2006
    
    
    2,088,545
    
    
    
    3.56
    
    
    
    5.44
    
    
    
    2,867Exercised
    
    
    (672,701
    )
    
    
    3.57
    
    
    
    
    
    
    
    935Outstanding  December 31, 2007
    
    
    1,415,844
    
    
    $
    3.55
    
    
    
    5.77
    
    
    $
    1,916Exercisable at December 31, 2005
    
    
    2,875,334
    
    
    $
    3.54
    
    
    
    5.87
    
    
    $
    6,788Exercisable at December 31, 2006
    
    
    2,075,212
    
    
    $
    3.56
    
    
    
    5.42
    
    
    $
    2,842Exercisable at December 31, 2007
    
    
    1,409,044
    
    
    $
    3.55
    
    
    
    5.76
    
    
    $
    1,904
 Note 9  Benefit Plans
  Note 10  Income Taxes
   Year Ended December 31,2007
    
    
    2006
    
    
    2005(in thousands)Federal statutory income tax provision (benefit)
    
    $
    832
    
    
    $
    (2,004
    )
    
    $
    (1,322
    )State income tax provision (benefit), net of
federal income tax provision/benefit
    
    
    77
    
    
    
    (171
    )
    
    
    (112
    )Loss on
derivative contract liabilities
    
    
    991
    
    
    
    
    
    
    
    Debt
issuance cost amortization
    
    
    619
    
    
    
    16
    
    
    
    5Other
    
    
    129
    
    
    
    
    
    
    
    Change in valuation allowance
    
    
    (2,648
    )
    
    
    2,159
    
    
    
    1,429Income tax expense
    
    $
    
    
    
    $
    
    
    
    $
    
 F-26




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
  December 31,2007
    
    
    2006(in thousands)Current deferred tax assets (liabilities):Other receivables
    
    $
    
    
    
    $
    (265
    )Accounts payable and accrued liabilities
    
    
    
    
    
    
    569Oil and gas
derivatives
    
    
    173
    
    
    
    (153
    )Debt
issuance costs
    
    
    (221)
    
    
    
    Valuation allowance
    
    
    
    
    
    
    (151
    )Net current deferred tax assets (liabilities)
    
    $
    (48
    )
    
    $
    Non-current deferred
tax assets (liabilities)Stock-based compensation
    
    $
    1,108
    
    
    $
    1,057Oil and gas properties
    
    
    (4,481
    )
    
    
    (42
    )Net operating loss
    
    
    12,358
    
    
    
    10,419Valuation allowance
    
    
    (8,937
    )
    
    
    (11,434
    )Net non-current deferred tax assets (liabilities)
    
    $
    48
    
    
    $
    Net deferred tax assets (liabilities)
    
    $
    
    
    
    $
    
     Note 11  Commitments and Contingencies
  F-27




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Type of Contract
    
    Volume
    
    Fixed Price
    
    Price Index (1)
    
    Contract PeriodNatural Gas Fixed
Rate Swap Contract
    
    30,000 MMBtu per
month
    
    $5.78/MMBtu
    
    CIGRM
    
    08/01/07  10/31/08Oil Fixed Rate Swap
Contract
    
    60Bbls per day
    
    $80.70/Bbl
    
    WTI
    
    11/01/07  12/31/08
 
 (1)
    
    CIGRM refers to Colorado Interstate Gas Rocky Mountains price as quoted in Platts
for Inside FERC on the first business day of each month. WTI refers to the West Texas
Intermediate price as quoted on the New York Mercantile Exchange.  Type of Contract
    
    Volume
    
    Floor
    
    Ceiling
    
    Price Index (1)
    
    Contract PeriodNatural Gas
Costless Collar
    
    2,000 MMBtu per day
    
    $6.00/MMBtu
    
    $7.10/MMBtu
    
    CIGRM
    
    02/01/08  01/31/09
 
 (1)
    
    CIGRM refers to Colorado Interstate Gas Rocky Mountains price as quoted in Platts for
Inside FERC on the first business day of each month.   For the Years Ending December 31,2008
    
    
    2009
    
    
    Thereafter
    
    
    Total(in thousands)Operating lease for office space
    
    $
    129
    
    
    $
    44
    
    
    $
    
    
    
    $
    173
  F-28




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Note 12  Supplemental Oil and Gas Disclosures
 Capitalized Costs Relating to Oil and Gas Producing Activities
  For the Years Ended December 31,2007
    
    
    2006
    
    
    2005(in thousands)Oil and gas properties:Proved
    
    $
    4,057
    
    
    $
    259
    
    
    $
    142Unproved
    
    
    13,411
    
    
    
    13,959
    
    
    
    10,636Facilities in progress
    
    
    
    
    
    
    1,364
    
    
    
    121Wells in progress
    
    
    3,230
    
    
    
    8,492
    
    
    
    2,106Development costs
    
    
    31,804
    
    
    
    12,367
    
    
    
    1,575Subtotal
    
    
    52,502
    
    
    
    36,441
    
    
    
    14,580Accumulated depletion and depreciation
    
    
    (3,535
    )
    
    
    (1,833
    )
    
    
    (161
    )Net capitalized costs
    
    $
    48,967
    
    
    $
    34,608
    
    
    $
    14,419
 Costs Incurred in Oil and Gas Property Acquisitions, Exploration and Development Activities
  For the Years Ended December 31,2007
    
    2006
    
    2005(in thousands)Property acquisition costs  unproved properties
    
    $
    2,465
    
    
    $
    3,323
    
    
    $
    10,636Property acquisition costs  proved properties
    
    
    4,342
    
    
    
    
    
    
    
    Development costs
    
    
    32,900
    
    
    
    17,163
    
    
    
    3,944Exploration costs
    
    
    2,712
    
    
    
    1,823
    
    
    
    445
  2007
    
    
    2006
    
    
    2005(in thousands)Beginning Balance at January 1
    
    $
    1,375
    
    
    $
    2,106
    
    
    $
    Additions to capitalized exploratory well costs
pending determination of proved reserves
    
    
    
    
    
    
    1,375
    
    
    
    2,106Reclassification to proved properties and producing
facilities based on the determination of proved
reserves
    
    
    (1,375
    )
    
    
    (2,106
    )
    
    
    Capitalized exploratory well costs charged to expense
    
    
    
    
    
    
    
    
    
    
    Ending balance at December 31
    
    $
    
    
    
    $
    1,375
    
    
    $
    2,106
 F-29




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Results of Operations from Oil and Gas Producing Activities
  For the Years Ended December 31,2007
    
    
    2006
    
    
    2005(in thousands)Oil and gas sales
    
    $
    6,253
    
    
    $
    4,022
    
    
    $
    797Operating expenses:Lease operating expense
    
    
    705
    
    
    
    325
    
    
    
    51Transportation costs
    
    
    652
    
    
    
    493
    
    
    
    90Production taxes
    
    
    412
    
    
    
    251
    
    
    
    48Exploration expense
    
    
    1,847
    
    
    
    448
    
    
    
    444Depletion, depreciation and accretion expense
    
    
    3,751
    
    
    
    1,697
    
    
    
    161Impairment expense
    
    
    
    
    
    
    
    
    
    
    Total operating expenses
    
    
    7,367
    
    
    
    3,214
    
    
    
    794Operating (loss) income
    
    $
    (1,114
    )
    
    $
    808
    
    
    $
    3
 Oil and Gas Reserves (Unaudited)
   For the Years Ended December 31,2007
    
    2006
    
    2005Oil
    
    Gas
    
    Gas
    
    Gas(MBbl)
    
    (MMcf)
    
    (MMcf)
    
    (MMcf)Proved reserves, beginning of year
    
    
    
    
    
    
    7,093
    
    
    
    4,009
    
    
    
    Revisions of estimates
    
    
    40
    
    
    
    4,018
    
    
    
    3,821
    
    
    
    Extensions and discoveries
    
    
    43
    
    
    
    14,505
    
    
    
    
    
    
    
    4,099Purchase of reserves in place
    
    
    87
    
    
    
    574
    
    
    
    
    
    
    
    Sales of reserves in-place
    
    
    (24
    )
    
    
    (11,754
    )
    
    
    
    
    
    
    Production
    
    
    (17
    )
    
    
    (1,128
    )
    
    
    (737
    )
    
    
    (90
    )Proved reserves, end of year
    
    
    129
    
    
    
    13,308
    
    
    
    7,093
    
    
    
    4,009Proved developed reserves, beginning of year
    
    
    
    
    
    
    4,927
    
    
    
    853
    
    
    
    Proved developed reserves, end of year
    
    
    112
    
    
    
    7,930
    
    
    
    4,927
    
    
    
    853
 Standardized Measure of Discounted Future Net Cash Flows (Unaudited)
  F-30




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
     For the Years Ended December 31,2007
    
    
    2006
    
    
    2005(in thousands)Future cash inflows
    
    $
    88,297
    
    
    $
    29,167
    
    
    $
    30,514Future production costs
    
    
    (22,782
    )
    
    
    (10,066
    )
    
    
    (4,643
    )Future development costs
    
    
    (13,708
    )
    
    
    (3,419
    )
    
    
    (5,900
    )Future income tax expense
    
    
    
    
    
    
    
    
    
    
    Future net cash flows (undiscounted)
    
    
    51,807
    
    
    
    15,682
    
    
    
    19,97110% annual discount
    
    
    (23,815
    )
    
    
    (6,977
    )
    
    
    (11,255
    )Standardized measure of discounted future net cash flows
    
    $
    27,992
    
    
    $
    8,705
    
    
    $
    8,716
  For the Years Ended December 31,2007
    
    
    2006
    
    
    2005(in thousands)Standardized measure, beginning of year
    
    $
    8,705
    
    
    $
    8,716
    
    
    $
    Net changes in prices and production costs
    
    
    2,172
    
    
    
    (10,798
    )
    
    
    Sales of oil and gas produced, net of production costs
    
    
    (4,484
    )
    
    
    (2,953
    )
    
    
    (608
    )Development costs incurred during the year
    
    
    2,519
    
    
    
    
    
    
    
    Change in estimated future development costs
    
    
    400
    
    
    
    2,481
    
    
    
    Revisions of previous quantity estimates
    
    
    8,433
    
    
    
    10,387
    
    
    
    Extensions and discoveries
    
    
    31,190
    
    
    
    
    
    
    
    9,324Accretion of discount
    
    
    871
    
    
    
    872
    
    
    
    Purchases of reserves in place
    
    
    5,272
    
    
    
    
    
    
    
    Sales of reserves in place
    
    
    (24,465
    )
    
    
    
    
    
    
    Changes in income taxes, net
    
    
    
    
    
    
    
    
    
    
    Changes in timing and other
    
    
    (2,621
    )
    
    
    
    
    
    
    Aggregate change
    
    
    19,287
    
    
    
    (11
    )
    
    
    8,716Standardized measure, end of period
    
    $
    27,992
    
    
    $
    8,705
    
    
    $
    8,716
 F-31




---



##### Table of Contents



TETON ENERGY CORPORATION
 Notes to Consolidated Financial Statements
 Note 13  Selected Quarterly Information (Unaudited)
  For the Quarter EndedMarch 31,
    
    June 30,
    
    Sept 30,
    
    Dec 31,( In thousands, except per share amounts)2007Total operating revenues (1) (2)
    
    $
    1,198
    
    
    $
    990
    
    
    $
    1,317
    
    
    $
    20,189Operating income (loss) (2)
    
    $
    (1,779
    )
    
    $
    (2,404
    )
    
    $
    (2,564
    )
    
    $
    14,012Net income (loss) (2)
    
    $
    (1,801
    )
    
    $
    (7,246
    )
    
    $
    (951
    )
    
    $
    12,375Income (loss) per common share  basic
    
    $
    (0.12
    )
    
    $
    (0.45
    )
    
    $
    (0.06
    )
    
    $
    0.77Income (loss) per common share  diluted
    
    $
    (0.12
    )
    
    $
    (0.45
    )
    
    $
    (0.06
    )
    
    $
    0.762006Total operating revenues
    
    $
    331
    
    
    $
    754
    
    
    $
    1,628
    
    
    $
    1,309Operating loss
    
    $
    (1,331
    )
    
    $
    (1,587
    )
    
    $
    (882
    )
    
    $
    (2,592
    )Net loss
    
    $
    (1,263
    )
    
    $
    (1,526
    )
    
    $
    (797
    )
    
    $
    (2,138
    )Basic and diluted loss per common share
    
    $
    (0.11
    )
    
    $
    (0.13
    )
    
    $
    (0.06
    )
    
    $
    (0.14
    )
 
 (1)
    
    Quarterly operating revenues have been reclassified to conform to presentation for the
quarter ended December 31, 2007. The total operating revenues includes gross revenues
before gathering and transportation expenses which are now included in transporation
expense in the Consolidated Statement of Operations.(2)
    
    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-32




---



##### Table of Contents



ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
  
 ITEM 9A. CONTROLS AND PROCEDURES.
             73




---



##### Table of Contents



74




---



##### Table of Contents



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 2008
annual meeting of stockholders to be filed within 120 days from December 31, 2007.
 
 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
 75




---



##### Table of Contents



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 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 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
    
    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, 2005.4.4
    
    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, 2007.4.5
    
    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, 2007.4.6
    
    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
    
    Letter Agreement dated as of October 6, 2005, between H. Howard Cooper
and Teton Energy Corporation, incorporated by reference to Exhibit 10.8
of Tetons Form 10-Q filed on November 14, 2005.10.3
    
    First Amendment to Purchase and Sale Agreement Niobrara Shallow Gas
Project, dated January 2005, incorporated by reference to Exhibit 10.1 of
Tetons Form 10-Q filed May 16, 2005.
 76




---



##### Table of Contents



Exhibit No.
    
    Description10.4
    
    Purchase and Sale Agreement Niobrara Shallow Gas Project, dated April 13,
2005, incorporated by reference to Exhibit 10.2 of Tetons Form 10-Q
filed May 16, 2005.10.5
    
    Membership Interest Purchase Agreement between PGR Partners, LLC and
Teton Petroleum Company, dated February 15, 2005, incorporated by
reference to Exhibit 10.3 of Tetons Form 10-Q filed May 16, 2005.10.6
    
    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, 2007.10.7
    
    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, 2007.10.8
    
    Acreage Earning Agreement between Teton and Noble Energy, Inc., dated
December 31, 2005, incorporated by reference to Exhibit 10.18 of Tetons Form 10-K filed on March 10, 2006.10.9
    
    First Amendment to Acreage Earning Agreement between Teton and Noble
Energy, Inc., dated December 31, 2005, incorporated by reference to Exhibit 10.19 of Tetons Form 10-K filed on March 10, 2006.10.10
    
    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, 2005.10.11
    
    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, 2005.10.12
    
    Form of 2005 Long Term Incentive Plan Performance-Based Restricted Stock
Award Agreement, incorporated by reference to Exhibit 10.11 of Tetons
Form 10-Q filed on November 13, 2007.10.13
    
    Employment Agreement, dated April 1, 2006, between Richard Bosher and
Teton, incorporated by reference to Exhibit 10.14 of Tetons Form 10-K
filed March 19, 2007.10.14
    
    Employment Agreement, effective as of September 1, 2006, between Teton
and Karl F. Arleth, incorporated by reference to Exhibit 10.1 to Tetons
Form 8-K filed September 1, 2006.10.15
    
    Employment Agreement, dated December 1, 2006, between Teton and William
P. Brand, Jr., incorporated by reference to Exhibit 10.20 of Tetons Form
10-K filed March 19, 2007.10.16
    
    Employment Agreement, dated February 1, 2007, between Teton and Dominic
J. Bazile II, incorporated by reference to Exhibit 10.21 of Tetons Form
10-K filed March 19, 2007.10.17
    
    Employment Agreement, dated January 1, 2008, between Teton Energy
Corporation and Lonnie Brock, incorporated by reference to Exhibit 10.1
of Tetons Form 8-K filed December 12, 2007.10.18
    
    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, 2007.10.19
    
    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, 2007.10.20
    
    Asset Exchange Agreement dated September 26, 2007, between Teton Energy
Corporation, Teton Piceance LLC, a wholly owned subsidiary of Teton
Energy Corporation and Delta
 77




---



##### Table of Contents



Exhibit No.
    
    DescriptionPetroleum Corporation, incorporated by
reference to Exhibit 10.1 of Tetons Form 8-K filed October 2, 2007.10.21
    
    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, 200710.22
    
    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, 2007.10.23
    
    Form of Subscription Agreement in connection with Tetons July 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, 2007.10.24
    
    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, 2007.14
    
    Code of Ethics and Business Conduct, incorporated by reference to Exhibit
14.1 of Tetons 10-K filed on March 31, 2005.21
    
    List of Subsidiaries, incorporated by reference to Exhibit 21.1 of Tetons
Form 10-K filed on March 31, 2005.23.1
    
    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.
 78




---



##### Table of Contents



SIGNATURES
  TETON ENERGY CORPORATIONBy:
    /s/ Karl F. ArlethKarl. F. Arleth,Chief Executive OfficerDated: March 13, 2008  Signature
    
    Title
    
    Date/s/ James J. Woodcock
James J. Woodcock
    
    Chairman and Director
    
    March 13, 2008/s/ Karl F. Arleth
Karl F. Arleth
    
    President, CEO (principal executive
officer) and Director
    
    March 13, 2008/s/ Thomas F. Conroy
Thomas F. Conroy
    
    Director
    
    March 13, 2008/s/ John T. Connor
John T. Connor
    
    Director
    
    March 13, 2008/s/ Bill I. Pennington
Bill I. Pennington
    
    Director
    
    March 13, 2008/s/ Robert BaileyRobert Bailey
    
    Director
    
    March 13, 2008/s/ Lonnie R. Brock
Lonnie R. Brock
    
    Chief Financial Officer (principal financial officer)
    
    March 13, 2008
 79




---



##### 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 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 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
    
    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, 2005.4.4
    
    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, 2007.4.5
    
    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, 2007.4.6
    
    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
    
    Letter Agreement dated as of October 6, 2005, between H. Howard Cooper
and Teton Energy Corporation, incorporated by reference to Exhibit 10.8
of Tetons Form 10-Q filed on November 14, 2005.10.3
    
    First Amendment to Purchase and Sale Agreement Niobrara Shallow Gas
Project, dated January 2005, incorporated by reference to Exhibit 10.1 of
Tetons Form 10-Q filed May 16, 2005.10.4
    
    Purchase and Sale Agreement Niobrara Shallow Gas Project, dated April 13,
2005, incorporated by reference to Exhibit 10.2 of Tetons Form 10-Q
filed May 16, 2005.




---



##### Table of Contents



Exhibit No.
    
    Description10.5
    
    Membership Interest Purchase Agreement between PGR Partners, LLC and
Teton Petroleum Company, dated February 15, 2005, incorporated by
reference to Exhibit 10.3 of Tetons Form 10-Q filed May 16, 2005.10.6
    
    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, 2007.10.7
    
    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, 2007.10.8
    
    Acreage Earning Agreement between Teton and Noble Energy, Inc., dated
December 31, 2005, incorporated by reference to Exhibit 10.18 of Tetons Form 10-K filed on March 10, 2006.10.9
    
    First Amendment to Acreage Earning Agreement between Teton and Noble
Energy, Inc., dated December 31, 2005, incorporated by reference to Exhibit 10.19 of Tetons Form 10-K filed on March 10, 2006.10.10
    
    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, 2005.10.11
    
    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, 2005.10.12
    
    Form of 2005 Long Term Incentive Plan Performance-Based Restricted Stock
Award Agreement, incorporated by reference to Exhibit 10.11 of Tetons
Form 10-Q filed on November 13, 2007.10.13
    
    Employment Agreement, dated April 1, 2006, between Richard Bosher and
Teton, incorporated by reference to Exhibit 10.14 of Tetons Form 10-K
filed March 19, 2007.10.14
    
    Employment Agreement, effective as of September 1, 2006, between Teton
and Karl F. Arleth, incorporated by reference to Exhibit 10.1 to Tetons
Form 8-K filed September 1, 2006.10.15
    
    Employment Agreement, dated December 1, 2006, between Teton and William
P. Brand, Jr., incorporated by reference to Exhibit 10.20 of Tetons Form
10-K filed March 19, 2007.10.16
    
    Employment Agreement, dated February 1, 2007, between Teton and Dominic
J. Bazile II, incorporated by reference to Exhibit 10.21 of Tetons Form
10-K filed March 19, 2007.10.17
    
    Employment Agreement, dated January 1, 2008, between Teton Energy
Corporation and Lonnie Brock, incorporated by reference to Exhibit 10.1
of Tetons Form 8-K filed December 12, 2007.10.18
    
    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, 2007.10.19
    
    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, 2007.10.20
    
    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, 2007.10.21
    
    Placement Agent Agreement, dated as of May 11, 2007, between Teton and
Commonwealth




---



##### Table of Contents



Exhibit No.
    
    DescriptionAssociates, LP, incorporated by reference to Exhibit 10.3 of
Tetons Form 10-Q filed on August 14, 200710.22
    
    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, 2007.10.23
    
    Form of Subscription Agreement in connection with Tetons July 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, 2007.10.24
    
    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, 2007.14
    
    Code of Ethics and Business Conduct, incorporated by reference to Exhibit
14.1 of Tetons 10-K filed on March 31, 2005.21
    
    List of Subsidiaries, incorporated by reference to Exhibit 21.1 of Tetons
Form 10-K filed on March 31, 2005.23.1
    
    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.