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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the fiscal Year Ended December 31, 2008
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 Commission file number: 001-32369
 GASCO
ENERGY, INC.
  NEVADA
(State or other jurisdiction of 
incorporation or organization)
    
    98-0204105
(IRS Employer
Identification No)
 8 Inverness Drive East, Suite 100, Englewood, CO
(Address of principal executive offices)
    
    80112
(Zip Code)
 (303) 483-0044
  Title of each classCOMMON STOCK, $00001 PAR VALUE
    
    Name of each exchange on which registeredNYSE ALTERNEXT US LLC
  o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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Table of Contents
 Part IItem 1. Business
    
    
    1Business of Gasco
    
    
    1Principal Products or Services and Markets
    
    
    1Competitive Business Conditions, Competitive Position in the
Industry and Methods of Competition
    
    
    2Governmental Regulations and Environmental Laws
    
    
    2Number of Full-time Employees
    
    
    5Available Information
    
    
    5Cautionary Statement About Forward-Looking Statements
    
    
    6Glossary of Natural Gas and Oil Terms
    
    
    7Item 1 A. Risk Factors
    
    
    11Item 1 B. Unresolved Staff Comments
    
    
    26Item 2. Properties
    
    
    26Petroleum and Natural Gas Properties
    
    
    26Company Reserve Estimates
    
    
    28Volumes, Prices and Operating Expenses
    
    
    29Development, Exploration and Acquisition Capital Expenditures
    
    
    30Productive Oil and Gas Wells
    
    
    31Oil and Gas Acreage
    
    
    31Drilling Activity
    
    
    32Office Space
    
    
    33Item 3. Legal Proceedings
    
    
    33Item 4. Submission of Matters to a Vote of Security Holders
    
    
    34Part IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
    
    
    34Securities Authorized for Issuance Under Equity Compensation Plans
    
    
    35Item 6. Selected Financial Data
    
    
    35Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    35Forward Looking Statements
    
    
    35Overview
    
    
    36Recent Developments
    
    
    36Drilling Activity
    
    
    39Production and Reserve Information
    
    
    40Liquidity and Capital Resources
    
    
    41Capital Budget
    
    
    41




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Sources and Uses of Funds
    
    
    41Schedule of Contractual Obligations
    
    
    42Credit Agreement
    
    
    43Convertible Notes
    
    
    44Forward Sales Contract
    
    
    45Derivatives
    
    
    46Stock Offering
    
    
    46Drilling Program
    
    
    46Acquisition
    
    
    46Critical Accounting Policies and Estimates
    
    
    47Results of Operations
    
    
    50Recent Accounting Pronouncements
    
    
    56Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    59Item 8. Financial Statements and Supplementary Data
    
    
    61Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    112Item 9A. Controls and Procedures
    
    
    112Item 9B. Other Information
    
    
    115Part IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    115Item 11. Executive Compensation
    
    
    116Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
    
    
    116Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    116Item 14. Principal Accounting Fees and Services
    
    
    116Item 15. Exhibits, Financial Statement Schedules
    
    
    116EX-10.12EX-23.1EX-23.2EX-31EX-32




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PART I
 
 ITEM 1  BUSINESS
 
 Business of Gasco
    
 Principal Products or Services and Markets
  1




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For the Years Ended December 31,2008
    
    2007
    
    2006Revenues associated with ConocoPhillips purchases
    
    $
    7,537,841
    
    
    $
    15,272,000
    
    
    $
    19,777,000Revenues associated with Anadarko purchases
    
    $
    24,406,071
    
    
    
    
    
    
    
    Percentage of oil and gas revenues attributable to:ConocoPhillips
    
    
    21
    %
    
    
    80
    %
    
    
    94
    %Anadarko
    
    
    68
    %
    
    
    
    
    
    
    
  
 Competitive Business Conditions, Competitive Position in the Industry and Methods of Competition
    
 Governmental Regulations and Environmental Laws
  2




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3




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Massachusetts,
et al. v. EPA
 4




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Massachusetts Massachusetts.
  Employees
  
 Available Information
  5




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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
    
    
    fluctuations in natural gas and oil prices;
    
    pipeline constraints;
    
    overall demand for natural gas and oil in the United States;
    
    changes in general economic conditions in the United States;
    
    our ability to manage interest rate and commodity price exposure;
    
    changes in our borrowing arrangements;
    
    our ability to generate sufficient cash flow to operate;
 6




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
    
    the condition of credit and capital markets in the United States;
    
    the amount, nature and timing of capital expenditures;
    
    estimated reserves of natural gas and oil;
    
    drilling of wells;
    
    acquisition and development of oil and gas properties;
    
    operating hazards inherent to the natural gas and oil business;
    
    timing and amount of future production of natural gas and oil;
    
    operating costs and other expenses;
    
    cash flow and anticipated liquidity;
    
    future operating results;
    
    marketing of oil and natural gas;
    
    competition and regulation; and
    
    plans, objectives and expectations.
  
 GLOSSARY OF NATURAL GAS AND OIL TERMS
  Bbl.
 Bbl/d.
 Bcf.
 7




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Bcfe.
 Btu
or British Thermal Unit.
 Completion.
 Condensate.
 Developed
acreage.
 Development
well.
 Dry
hole.
 Exploratory
well.
 Farm-in
or farm-out.
 Field.
 Gross
acres or gross wells.
 Lead.
 MBbls.
 Mcf.
 8




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Mcfe
 MMBls
 MMBtu
 MMcf
 MMcf/d
 MMcfe
 Net acres or net wells
 Net feet of pay
 Present value of future net revenues or present value of discounted future net cash flows or
present value or PV-10
 Productive well
 Prospect
 Proved area
 Proved developed oil and gas reserves
 9




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Proved oil and gas reserves i.e.
 Proved properties
 Proved undeveloped reserves
 Reservoir
 Service well.
 Standardized Measure of Discounted Future Net Cash Flows.
 10




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Stratigraphic test well
 Undeveloped acreage
 Unproved properties
 Working interest
 
 ITEM 1A. Risk Factors
 We have incurred losses and may continue to incur losses in the future.
   Oil and natural gas prices are volatile. Recent declines in commodity prices have adversely
affected, and in the future will adversely affect, our financial condition and results of
operations, cash flows, access to the capital markets, and ability to grow.
  11




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
    
    changes in global supply and demand for natural gas and oil;
    
    commodity processing, gathering and transportation availability;
    
    domestic and global political and economic conditions;
    
    the ability of members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls;
    
    weather conditions, including hurricanes;
    
    technological advances affecting energy consumption;
    
    an increase in alternative fuel sources;
    
    higher fuel taxes and other regulatory actions;
    
    an increase in fuel economy;
    
    additional domestic and foreign governmental regulations; and
    
    the price and availability of alternative fuels.
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
    
    the availability of gathering systems with sufficient capacity to handle local
production;
    
    seasonal fluctuations in local demand for production;
    
    local and national gas storage capacity;
    
    interstate pipeline capacity; and
    
    the availability and cost of gas transportation facilities from the Rocky Mountain
region.
  We may not be able to obtain adequate financing to continue our operations.
   13




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Lower oil and natural gas prices could negatively impact our ability to borrow. Additionally,
availability under our revolving bank credit facility is based on a borrowing base which is subject
to redetermination by our lenders. If our borrowing base is reduced, we may be required to repay
amounts outstanding under our revolving bank credit facility.
  Financial difficulties encountered by lenders under our revolving bank credit facility, our
partners or third-party operators could adversely affect our financial condition and results of
operations.
  14




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Our revolving bank credit facility imposes restrictions on us that may affect our ability to
successfully operate our business.
  
    
    incur additional indebtedness;
    
    create liens;
    
    sell our assets to, or consolidate or merge with or into, other companies;
    
    make investments and other restricted payments, including dividends; and
    
    engage in transactions with affiliates.
  15




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Pipeline constraints may limit our ability to sell production and may negatively affect the price
at which we sell our production.
  Our proved reserves are estimates and depend on many assumptions. Any material inaccuracies in
these assumptions could cause the quantity and value of our oil and gas reserves, and our revenue,
profitability, and cash flow, to be materially different from our estimates.
  
    
    the quality and quantity of available data;
    
    the interpretation of that data;
    
    the accuracy of various mandated economic assumptions; and
    
    the judgment of the persons preparing the estimate.
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Lower oil and gas prices and other factors have resulted, and in the future may result, in ceiling
test write-downs and other impairments of our asset carrying values.
   17




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The development of oil and gas properties involves substantial risks that may materially and
adversely affect us.
    18




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Delays in obtaining drilling permits could have a materially adverse effect on our ability to
develop our properties in a timely manner.
  Our drilling operations may be delayed or revised unless we receive approval of our Environmental
Impact Statement.
  We may have difficulty managing any growth in our business .
  Our competitors may have greater resources which could enable them to pay a higher price for
properties and to better withstand periods of low market prices for hydrocarbons.
  19




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We may suffer losses or incur liability for events that we have, or that the operator of a property
has, chosen not to insure against.
  We may incur losses as a result of title deficiencies in the properties in which we invest .
    Our ability to market the oil and gas that we produce is essential to our business.
  20




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Environmental costs and liabilities and changing environmental regulation could materially affect
our cash flow.
  Our operations may incur substantial liabilities to comply with climate change legislation and
regulatory initiatives.
  We are subject to complex governmental regulations which may adversely affect the cost of our
business.
  21




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Because our reserves and production are concentrated in a small number of properties, production
problems or significant changes in reserve estimates related to any property could have a material
impact on our business.
  Our operations may be interrupted by severe weather or drilling restrictions.
  Shortages of supplies, equipment and personnel may adversely affect our operations.
  Hedging our production may result in losses.
  22




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
    
    production is less than expected;
    
    the counterparty to the contract defaults on its obligations; or
    
    there is a change in the expected differential between the underlying price in
the hedging agreement and actual prices received.
  Our success depends on our key management personnel, the loss of any of whom could disrupt our
business.
  Our officers and directors are engaged in other businesses which may result in conflicts of
interest.
  23




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It may be difficult to enforce judgments predicated on the federal securities laws on some of our
board members who are not U.S. residents.
   Risks Related to Our Capital Stock
 Our common stock has experienced, and may continue to experience, price volatility and a low
trading volume.
  
    
    the results of our exploratory drilling;
    
    trends in our industry and the markets in which we operate;
    
    changes in the market price of the commodities we sell;
    
    changes in financial estimates and recommendations by securities analysts;
    
    acquisitions and financings;
 24




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
    
    quarterly variations in operating results;
    
    the operating and stock price performance of other companies that investors may deem
comparable to us; and
    
    issuances, purchases or sales of blocks of our common stock.
  Shares eligible for future sale may cause the market price for our common stock to drop
significantly, even if our business is doing well.
   We have not previously paid dividends on our common stock and we do not anticipate doing so in the
foreseeable future.
  25




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We have anti-takeover provisions in our certificate of incorporation and by-laws that may
discourage a change of control.
   
 ITEM 1 B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2  PROPERTIES
 
 Petroleum and Natural Gas Properties
 Riverbend Project
   26




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Greater Green River Basin Project
   Southern California Project
  Nevada Project
  
 Company Reserve Estimates
  Mcf of Gas
    
    
    Bbls of OilTotal Proved Reserve Quantities
    
    
    50,509,308
    
    
    
    361,185
 Proved
    
    
    ProvedUndeveloped
    
    
    Undeveloped
    
    
    TotalPresent Value of
Discounted Future
Net Cash Flows (a)
    
    $
    0
    
    
    $
    69,482,800
    
    
    $
    69,482,800
 
 (a)
    
    Present value of discounted future net cash flows represents the estimated future gross
revenue to be generated from the production of proved reserves, net of estimated production
and future development costs, using prices and costs in effect at December 31, 2008. The
average prices weighted by production over the lives of the proved reserves used in the
reserve report prepared by Netherland, Sewell & Associates, Inc., independent petroleum
engineers, were of $4.63 per Mcf of gas and $15.33 per bbl of oil. All of our proved
undeveloped reserves became uneconomic at these prices and as a result were not included in
the December 31, 2008 reserve estimates. These prices should not be interpreted as a
prediction of future prices. 28




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OILChange in Price
    
    10% decrease
    
    $15.33/bbl
    
    10% increaseGAS10% increase
    
    $
    80,286,200
    
    
    $
    80,560,200
    
    
    $
    80,847,80053,978 mmcfe
    
    54,085 mmcfe
    
    54,181 mmcfe$4.63/Mcf
    
    $
    69,213,700
    
    
    $
    69,482,800
    
    
    $
    69,776,10052,788 mmcfe
    
    53,076 mmcfe
    
    53,019 mmcfe10% decrease
    
    $
    58,185,200
    
    
    $
    58,454,500
    
    
    $
    58,737,70050,976 mmcfe
    
    51,104 mmcfe
    
    51,230 mmcfe
   
 Volumes, Prices and Operating Expenses
  For the Years Ended December 31,2008
    
    2007
    
    2006Natural gas production (Mcf)
    
    
    4,583,028
    
    
    
    4,011,978
    
    
    
    3,686,638Average sales price per Mcf
    
    $
    7.05
    
    
    $
    4.19
    
    
    $
    5.38Oil production (Bbl)
    
    
    42,545
    
    
    
    41,454
    
    
    
    21,646Average sales price per Bbl
    
    $
    77.71
    
    
    $
    56.38
    
    
    $
    54.86Equivalent production (Mcfe)
    
    
    4,838,298
    
    
    
    4,260,702
    
    
    
    3,816,514Expenses per Mcfe:Lease operating
    
    $
    1.38
    
    
    $
    0.92
    
    
    $
    0.92General and administrative
    
    $
    1.90
    
    
    $
    2.12
    
    
    $
    2.47Depreciation, depletion and amortization
    
    $
    1.96
    
    
    $
    2.29
    
    
    $
    2.86Impairment
    
    $
    0.72
    
    
    $
    22.79
    
    
    $
    13.36
 29




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Development, Exploration and Acquisition Capital Expenditures
     For the Years Ended December 31,2008
    
    
    2007
    
    
    2006Property acquisition costs:Unproved
    
    $
    624,815
    
    
    $
    35,578,808
    
    
    $
    1,285,289Proved
    
    
    
    
    
    
    2,496,100
    
    
    
    2,563,862Exploration costs
    
    
    24,607,162
    
    
    
    44,421,848
    
    
    
    75,523,006Development costs
    
    
    11,758,219
    
    
    
    
    
    
    
    7,898,7262Total
    
    $
    36,990,196
    
    
    $
    82,496,756
    
    
    $
    87,270,883
 30




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Productive Oil and Gas Wells
  Productive Oil and GasWellsGross
    
    
    NetProducing oil wells
    
    
    13
    
    
    
    12.8Shut-in oil wells
    
    
    2
    
    
    
    2.0Producing gas wells
    
    
    113
    
    
    
    64.5Shut-in gas wells
    
    
    3
    
    
    
    3.0131
    
    
    
    82.3
  
 Oil and Gas Acreage
  Undeveloped Acres
    
    
    Developed AcresGross
    
    
    Net
    
    
    Gross
    
    
    NetUtah
    
    
    118,568
    
    
    
    80,006
    
    
    
    5,000
    
    
    
    3,909Wyoming
    
    
    66,211
    
    
    
    40,414
    
    
    
    80
    
    
    
    60Nevada
    
    
    122,409
    
    
    
    75,344
    
    
    
    
    
    
    
    California
    
    
    18,655
    
    
    
    14,750
    
    
    
    
    
    
    
    Total acres
    
    
    325,843
    
    
    
    210,514
    
    
    
    5,080
    
    
    
    3,969
 31




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Expiring in 2009
    
    
    Expiring in 2010
    
    
    Expiring in 2011Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetUtah
    
    
    9,877
    
    
    
    2,672
    
    
    
    1,464
    
    
    
    1,326
    
    
    
    3,179
    
    
    
    3,131Wyoming
    
    
    21,938
    
    
    
    11,731
    
    
    
    1,056
    
    
    
    1,051
    
    
    
    1,936
    
    
    
    1,932California
    
    
    5,855
    
    
    
    5,147
    
    
    
    8,191
    
    
    
    6,018
    
    
    
    2,517
    
    
    
    2,511Nevada
    
    
    1,440
    
    
    
    288
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    39,110
    
    
    
    19,838
    
    
    
    10,711
    
    
    
    8,395
    
    
    
    7,632
    
    
    
    7,574
  
 Drilling Activity
  For the Years Ended December 31,2008
    
    
    2007
    
    
    2006Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetExploratory Wells:Productive
    
    
    6
    
    
    
    2.5
    
    
    
    23
    
    
    
    10.1
    
    
    
    22
    
    
    
    22Dry
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1Total wells
    
    
    6
    
    
    
    2.5
    
    
    
    23
    
    
    
    10.1
    
    
    
    23
    
    
    
    23Development Wells:Productive
    
    
    8
    
    
    
    2.8
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4Dry
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total wells
    
    
    8
    
    
    
    2.8
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    4
 32




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Office Space
  
 ITEM 3  LEGAL PROCEEDINGS
  33




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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
   High
    
    Low2008First Quarter
    
    $
    2.80
    
    
    $
    1.80Second Quarter
    
    
    4.55
    
    
    
    2.38Third Quarter
    
    
    4.35
    
    
    
    1.44Fourth Quarter
    
    
    1.77
    
    
    
    0.282007First Quarter
    
    $
    2.65
    
    
    $
    1.50Second Quarter
    
    
    2.75
    
    
    
    1.73Third Quarter
    
    
    2.69
    
    
    
    1.78Fourth Quarter
    
    
    2.60
    
    
    
    1.62
 34




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Securities Authorized for Issuance under Equity Compensation Plans
  
 ITEM 6  SELECTED FINANCIAL DATA
  For the Years Ended December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004Summary of Operations
Gas revenue
    
    $
    32,328,579
    
    
    $
    16,818,623
    
    
    $
    19,851,663
    
    
    $
    13,462,977
    
    
    $
    2,928,689Oil revenue
    
    
    3,306,253
    
    
    
    2,337,129
    
    
    
    1,187,509
    
    
    
    605,330
    
    
    
    195,199General & administrative
expense
    
    
    9,211,806
    
    
    
    9,021,977
    
    
    
    9,415,787
    
    
    
    5,987,019
    
    
    
    4,191,978Impairment
    
    
    3,500,000
    
    
    
    97,090,000
    
    
    
    51,000,000
    
    
    
    
    
    
    
    Net income (loss)
    
    
    12,513,945
    
    
    
    (104,373,921
    )
    
    
    (55,817,767
    )
    
    
    (37,635
    )
    
    
    (4,205,830
    )Net income (loss) per shareBasic
    
    
    0.14
    
    
    
    (1.12
    )
    
    
    (0.65
    )
    
    
    (0.00
    )
    
    
    (0.07
    )Diluted
    
    
    0.13
    
    
    
    (1.12
    )
    
    
    (0.65
    )
    
    
    (0.00
    )
    
    
    (0.07
    )
 As of December 31,2008
    
    2007
    
    2006
    
    2005
    
    2004Balance SheetWorking capital (deficit)
    
    $
    10,894,674
    
    
    $
    (9,330,209
    )
    
    $
    11,129,942
    
    
    $
    86,078,958
    
    
    $
    52,719,245Cash and cash equivalents
    
    
    1,053,216
    
    
    
    1,843,425
    
    
    
    12,876,879
    
    
    
    62,661,368
    
    
    
    25,717,081Property, plant and
equipment, net
    
    
    128,712,579
    
    
    
    107,676,102
    
    
    
    129,652,008
    
    
    
    100,464,395
    
    
    
    48,731,851Total assets
    
    
    153,885,508
    
    
    
    122,511,789
    
    
    
    165,454,418
    
    
    
    201,199,972
    
    
    
    117,368,168Noncurrent liabilities
    
    
    97,196,768
    
    
    
    75,090,876
    
    
    
    65,981,536
    
    
    
    65,302,674
    
    
    
    65,108,566Stockholders equity
    
    
    44,042,888
    
    
    
    25,247,791
    
    
    
    77,171,921
    
    
    
    127,440,160
    
    
    
    46,213,198
 
 ITEM 7  MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
 Forward Looking Statements
  35




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Overview
  
 Recent Developments
 Impact of Current Credit Markets and Commodity Prices
  Reduced Cash Flows from Operations Could Impact Our Ability to Fund Capital Expenditures and Meet
Working Capital Needs
   36




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##### Table of Contents



Reduced Commodity Prices Could Impact the Borrowing Base under Our Credit Agreement
  37




---



##### Table of Contents



Reduced Cash Flows from Operations Could Result in a Default under Our Credit Agreement and
Convertible Senior Notes due 2011
   Reduced Commodity Prices May Result in Ceiling Test Write-Downs and Other Impairments
    38




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##### Table of Contents



Reduced Commodity Prices May Impact Our Ability to Produce Economically
  
 Drilling Activity
   Cash paid for acquisitions, development and exploration
    
    $
    44,250,250Cash spent for 2007 property costs that were accrued at 12/31/07
    
    
    (6,688,799
    )Capital expenditures for 2008 projects
    
    $
    37,561,451Lease acquisitions and related costs
    
    $
    624,815Gathering system, facilities and equipment costs
    
    
    2,369,918Drilling, completion and recompletion activity
    
    
    34,566,718Capital expenditures for 2008 projects
    
    $
    37,561,451
 39




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##### Table of Contents



Production and Reserve Information
  For the Years Ended December 31,2008
    
    2007
    
    2006Natural gas production (Mcf)
    
    
    4,583,028
    
    
    
    4,011,978
    
    
    
    3,686,638Average sales price per Mcf
    
    $
    7.05
    
    
    $
    4.19
    
    
    $
    5.38Year-end estimated proved gas reserves (Mcf)
    
    
    50,909,308
    
    
    
    104,338,338
    
    
    
    39,975,964Oil production (Bbl)
    
    
    42,545
    
    
    
    41,454
    
    
    
    21,646Average sales price per Bbl
    
    $
    77.71
    
    
    $
    56.38
    
    
    $
    54.86Year-end estimated proved oil reserves (Bbl)
    
    
    361,185
    
    
    
    1,070,802
    
    
    
    370,581Production (Mcfe)
    
    
    4,838,298
    
    
    
    4,260,702
    
    
    
    3,816,514Year-end estimated proved reserves (Mcfe)
    
    
    53,076,418
    
    
    
    110,763,150
    
    
    
    42,199,450
    40




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##### Table of Contents



Liquidity and Capital Resources
  
 Capital Budget
   
 Sources and Uses of Funds
  For the Years Ended December 31,2008
    
    2007
    
    2006Net cash provided by operating activities
    
    $
    18,152,640
    
    
    $
    8,883,728
    
    
    $
    8,882,955Net cash used in investing activities
    
    
    (41,943,076
    )
    
    
    (48,096,453
    )
    
    
    (60,017,463
    )Net cash provided by financing activities
    
    
    23,000,227
    
    
    
    28,179,271
    
    
    
    1,350,019Net cash flow
    
    
    (790,209
    )
    
    
    (11,033,454
    )
    
    
    (49,784,489
    )
 41




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##### Table of Contents



Schedule of Contractual Obligations
  Payments due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    5 yearsConvertible NotesPrincipal
    
    $
    65,000,000
    
    
    $
    
    
    
    $
    65,000,000
    
    
    $
    
    
    
    $
    Interest
    
    
    9,880,903
    
    
    
    3,575,000
    
    
    
    6,305,903
    
    
    
    
    
    
    
    Credit Agreement Principal
    
    
    31,000,000
    
    
    
    
    
    
    
    31,000,000
    
    
    
    
    
    
    
    Drilling rig contracts (a)
    
    
    8,904,000
    
    
    
    7,665,000
    
    
    
    1,239,000
    
    
    
    
    
    
    
    Operating leases
    
    
    1,040,840
    
    
    
    955,349
    
    
    
    85,491
    
    
    
    
    
    
    
    Employment & consulting
contracts
    
    
    839,282
    
    
    
    839,282
    
    
    
    
    
    
    
    
    
    
    
    Asset retirement
obligations (b)
    
    
    1,150,179
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,150,179Total Contractual Cash
Obligations
    
    $
    117,815,204
    
    
    $
    13,034,631
    
    
    $
    103,630,394
    
    
    $
    
    
    
    $
    1,150,179
 
 (a)
    
    The three year drilling contract for the new-build rig contains a provision for the Company
to terminate the contract prior to lease expiration for payments of $12,000 per day for the
number days remaining in the original contract. Subsequent to December 31, 42




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##### Table of Contents



2008, we expect to pay approximately $4,600,000 to terminate this contract prior to its
expiration date.(b)
    
    The accuracy and timing of the asset retirement obligations cannot be precisely determined in
advance. See further discussion in Note 2 of the accompanying consolidated financial
statements. 
 Credit Agreement
     43




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##### Table of Contents



Convertible Notes
  44




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##### Table of Contents



Forward Sales Contract
  45




---



##### Table of Contents



Derivatives
  
 Stock Offering
  
 Drilling Program
  
 Acquisition
  46




---



##### Table of Contents



Critical Accounting Policies and Estimates
  Oil and Gas Properties and Reserves
    47




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##### Table of Contents



Impairment of Long-lived Assets
  48




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##### Table of Contents



Stock-Based Compensation
  Derivatives
   49




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##### Table of Contents



Results of Operations
 2008 Compared to 2007
 Oil and Gas Revenue and Production
  For the Years Ended December 31,2008
    
    2007Natural gas production (Mcf)
    
    
    4,583,028
    
    
    
    4,011,978Average sales price per Mcf
    
    $
    7.05
    
    
    $
    4.19Natural gas revenue
    
    $
    32,328,579
    
    
    $
    16,818,623Oil production (Bbl)
    
    
    42,545
    
    
    
    41,454Average sales price per Bbl
    
    $
    77.71
    
    
    $
    56.38Oil revenue
    
    $
    3,306,253
    
    
    $
    2,337,129Production (Mcfe)
    
    
    4,838,298
    
    
    
    4,260,702Total oil and gas revenue
    
    $
    35,634,832
    
    
    $
    19,155,752
  Gathering Revenue and Expenses
  50




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##### Table of Contents



Rental Income
  Lease Operating Expenses
  For the Years EndedDecember 31,2008
    
    
    2007Direct operating expenses and overhead
    
    $
    4,998,412
    
    
    $
    2,728,738Workover expense
    
    
    163,728
    
    
    
    323,657Total operating expenses
    
    $
    5,162,140
    
    
    $
    3,052,395Operating expenses per Mcfe
    
    $
    1.07
    
    
    $
    0.72Production and property taxes
    
    $
    1,491,558
    
    
    $
    880,529Production and property taxes per Mcfe
    
    $
    0.31
    
    
    $
    0.20Total lease operating expense per Mcfe
    
    $
    1.38
    
    
    $
    0.92
  Depletion, Depreciation and Amortization
  51




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##### Table of Contents



Impairment
   General and Administrative Expense
  For the Years Ended December 31,2008
    
    
    2007Total general and administrative costs
    
    $
    7,519,064
    
    
    $
    7,004,761General and administrative costs attributable to
drilling, completion and operating activities
    
    
    (1,410,256
    )
    
    
    (1,067,905
    )General and administrative expense
    
    $
    6,108,808
    
    
    $
    5,936,856General and administrative expenses per Mcfe
    
    $
    1.26
    
    
    $
    1.40Total stock-based compensation costs
    
    $
    3,134,024
    
    
    $
    3,131,406Stock-based compensation costs capitalized
    
    
    (31,026
    )
    
    
    (46,285
    )Stock-based compensation
    
    $
    3,102,998
    
    
    $
    3,085,121Stock-based compensation per Mcfe
    
    $
    0.64
    
    
    $
    0.72Total general and administrative expense
Including stock-based compensation
    
    $
    9,211,806
    
    
    $
    9,021,977Total general and administrative expense per Mcfe
    
    $
    1.90
    
    
    $
    2.12
 52




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##### Table of Contents



Interest Expense
  Derivative Gain (Loss)
  Interest Income
  2007 Compared to 2006
 Oil and Gas Revenue and Production
  For the Years Ended December 31,2007
    
    2006Natural gas production (Mcf)
    
    
    4,011,978
    
    
    
    3,686,638Average sales price per Mcf
    
    $
    4.19
    
    
    $
    5.38Natural gas revenue
    
    $
    16,818,623
    
    
    $
    19,851,663Oil production (Bbl)
    
    
    41,454
    
    
    
    21,646Average sales price per Bbl
    
    $
    56.38
    
    
    $
    54.86Oil revenue
    
    $
    2,337,129
    
    
    $
    1,187,509Production (Mcfe)
    
    
    4,260,702
    
    
    
    3,816,514Total oil and gas revenue
    
    $
    19,155,752
    
    
    $
    21,039,172
 53




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##### Table of Contents



Gathering Revenue and Expenses
  Rental Income
  Lease Operating Expenses
  For the Years EndedDecember 31,2007
    
    
    2006Direct operating expenses and overhead
    
    $
    2,728,738
    
    
    $
    2,367,488Workover expense
    
    
    323,657
    
    
    
    368,954Total operating expenses
    
    $
    3,052,395
    
    
    $
    2,736,442Operating expenses per Mcfe
    
    $
    0.72
    
    
    $
    0.72Production and property taxes
    
    $
    880,529
    
    
    $
    777,126Production and property taxes per Mcfe
    
    $
    0.20
    
    
    $
    0.20Total lease operating expense per Mcfe
    
    $
    0.92
    
    
    $
    0.92
 54




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Depletion, Depreciation and Amortization
  Impairment
  55




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##### Table of Contents



General and Administrative Expense
  For the Years Ended December 31,2007
    
    
    2006Total general and administrative costs
    
    $
    7,004,761
    
    
    $
    6,424,012General and administrative costs attributable to
drilling, completion and operating activities
    
    
    (1,067,905
    )
    
    
    (1,159,734
    )General and administrative expense
    
    $
    5,936,856
    
    
    $
    5,264,278General and administrative expenses per Mcfe
    
    $
    1.40
    
    
    $
    1.39Total stock-based compensation costs
    
    $
    3,131,406
    
    
    $
    4,158,532Stock-based compensation costs capitalized
    
    
    (46,285
    )
    
    
    (7,023
    )Stock-based compensation
    
    $
    3,085,121
    
    
    $
    4,151,509Stock-based compensation per Mcfe
    
    $
    0.72
    
    
    $
    1.08Total general and administrative expense
Including stock-based compensation
    
    $
    9,021,977
    
    
    $
    9,415,787Total general and administrative expense per Mcfe
    
    $
    2.12
    
    
    $
    2.47
  Interest Expense
  Interest Income
  
 Recent Accounting Pronouncements
  56




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57




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##### Table of Contents




    
    The price used in calculating reserves will change from a single-day closing price
measured on the last day of the companys fiscal year to a 12-month average price, and will
affect our depletion and ceiling test calculations.
    
    Several reserve definitions have changed that could revise the types of reserves that
will be included in our year-end reserve report.
    
    Many of our financial reporting disclosures could change as a result of the new rules.
 58




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##### Table of Contents



Off Balance Sheet Arrangements
  
 ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Commodity Price Risk
  
    
    For our swap instruments, Gasco receives a fixed price for the hedged commodity and
pays a floating market price to the counterparty. The fixed-price payment and the
floating-price payment are netted, resulting in a net amount due to or from the
counterparty.
    
    Our costless collars contain a fixed floor price (put) and ceiling price (call). If the
market price exceeds the call strike price or falls below the put strike price, Gasco
receives the fixed price and pays the market price. If the market price is between the call
and the put strike price, no payments are due from either party.
  Fixed Price
    
    Floating Price (a)Agreement Type
    
    Term
    
    Quantity
    
    Counterparty payer
    
    Gasco payerSwap
    
    1/09  12/09
    
    3,000 Mmbtu/day
    
    $7.025/Mmbtu
    
    NW RockiesSwap
    
    1/09  12/09
    
    3,000 Mmbtu/day
    
    $7.015/Mmbtu
    
    NW Rockies
 59




---



##### Table of Contents



Agreement
    
    
    
    
    
    Index
    
    Call Price
    
    Put PriceType
    
    Term
    
    Quantity
    
    Price (b)
    
    Counterparty buyer
    
    Gasco buyerCostless collar
    
    1/09  12/09
    
    3,000 Mmbtu/day
    
    NW Rockies
    
    $7.50/Mmbtu
    
    $6.50/Mmbtu
 
 (a)
    
    Northwest Pipeline Rocky Mountains  Inside FERC first of month index price.  Interest Rate Risk
  60




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##### Table of Contents



ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    62-63Consolidated Balance Sheets at December 31, 2008 and 2007
    
    
    64-65Consolidated Statements of Operations for the Years Ended
December 31, 2008, 2007 and 2006
    
    
    66Consolidated Statements of Stockholders Equity for the Years
Ended December 31, 2008, 2007 and 2006
    
    
    67Consolidated Statements of Cash Flows for the Years Ended
December 31, 2008, 2007 and 2006
    
    
    68Notes to Consolidated Financial Statements
    
    
    69-111
 61




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    Internal Control  Integrated Framework
 /s/
 62




---



##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     HEIN & ASSOCIATES LLP
 63




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##### Table of Contents



GASCO
ENERGY, INC.
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2008
    
    
    2007ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    1,053,216
    
    
    $
    1,843,425Accounts receivableJoint interest billings
    
    
    5,436,636
    
    
    
    5,639,174Revenue
    
    
    3,827,950
    
    
    
    3,872,959Inventory
    
    
    4,177,967
    
    
    
    1,160,325Derivative instruments
    
    
    8,855,947
    
    
    
    Prepaid expenses
    
    
    188,810
    
    
    
    327,030Total
    
    
    23,540,526
    
    
    
    12,842,913PROPERTY, PLANT AND EQUIPMENT,at costOil and gas properties (full cost method)Proved properties
    
    
    247,976,854
    
    
    
    215,273,593Unproved properties
    
    
    39,314,406
    
    
    
    41,644,348Wells in progress
    
    
    644,688
    
    
    
    1,058,727Gathering assets
    
    
    17,440,680
    
    
    
    15,708,353Facilities and equipment
    
    
    8,549,928
    
    
    
    9,680,010Furniture, fixtures and other
    
    
    371,605
    
    
    
    284,791Total
    
    
    314,298,161
    
    
    
    283,649,822Less accumulated depletion, depreciation, amortization and impairment
    
    
    (185,585,582
    )
    
    
    (175,973,720
    )Total
    
    
    128,712,579
    
    
    
    107,676,102NON-CURRENT ASSETSDeposit
    
    
    139,500
    
    
    
    139,500Deferred financing costs
    
    
    1,492,903
    
    
    
    1,853,2741,632,403
    
    
    
    1,992,774TOTAL ASSETS
    
    $
    153,885,508
    
    
    $
    122,511,789
  64




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##### Table of Contents



GASCO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS (continued
 December 31,2008
    
    
    2007LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    5,879,150
    
    
    $
    13,206,767Revenue payable
    
    
    3,840,985
    
    
    
    1,477,268Advances from joint interest owners
    
    
    612,222
    
    
    
    5,718,234Derivative instruments
    
    
    
    
    
    
    343,759Accrued interest
    
    
    1,187,495
    
    
    
    844,094Accrued expenses
    
    
    1,126,000
    
    
    
    583,000Total
    
    
    12,645,852
    
    
    
    22,173,122NONCURRENT LIABILITIES5.5% Convertible Senior Notes
    
    
    65,000,000
    
    
    
    65,000,000Long-term debt
    
    
    31,000,000
    
    
    
    9,000,000Asset retirement obligation
    
    
    1,150,179
    
    
    
    1,030,283Deferred rent expense
    
    
    46,589
    
    
    
    60,593Total
    
    
    97,196,768
    
    
    
    75,090,876COMMITMENTS AND CONTINGENCIES (NOTE 15)STOCKHOLDERS EQUITYSeries B Convertible Preferred stock  $.001 par value; 20,000
shares authorized; zero shares outstanding
    
    
    
    
    
    
    Common stock  $.0001 par value; 300,000,000 shares authorized;
107,825,998 shares issued and 107,752,298 shares outstanding
as of December 31, 2008; 107,290,471 shares issued and 107,216,771
shares outstanding as of December 31, 2007
    
    
    10,783
    
    
    
    10,729Additional paid-in-capital
    
    
    219,375,369
    
    
    
    215,094,271Accumulated deficit
    
    
    (175,212,969
    )
    
    
    (189,726,914
    )Less cost of treasury stock of 73,700 common shares
    
    
    (130,295
    )
    
    
    (130,295
    )Total
    
    
    44,042,888
    
    
    
    25,247,791TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    153,885,508
    
    
    $
    122,511,789
  65




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##### Table of Contents



GASCO
ENERGY, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Year Ended December 31,2008
    
    
    2007
    
    
    2006REVENUESGas
    
    $
    32,328,579
    
    
    $
    16,818,623
    
    
    $
    19,851,663Oil
    
    
    3,306,253
    
    
    
    2,337,129
    
    
    
    1,187,509Gathering
    
    
    4,796,409
    
    
    
    1,937,785
    
    
    
    1,941,059Rental income
    
    
    1,426,932
    
    
    
    1,029,094
    
    
    
    Total
    
    
    41,858,173
    
    
    
    22,122,631
    
    
    
    22,980,231OPERATING EXPENSESLease operating
    
    
    6,653,698
    
    
    
    3,932,924
    
    
    
    3,513,568Gathering operations
    
    
    3,457,593
    
    
    
    2,471,645
    
    
    
    2,718,357Depletion, depreciation and amortization
    
    
    9,476,944
    
    
    
    9,780,767
    
    
    
    10,885,697Impairment
    
    
    3,500,000
    
    
    
    97,090,000
    
    
    
    51,000,000General and administrative
    
    
    9,211,806
    
    
    
    9,021,977
    
    
    
    9,415,787Total
    
    
    32,300,041
    
    
    
    122,297,313
    
    
    
    77,533,409OTHER INCOME (EXPENSE)Interest expense
    
    
    (5,151,136
    )
    
    
    (4,274,814
    )
    
    
    (3,959,308
    )Derivative gains (losses)
    
    
    9,761,826
    
    
    
    (343,759
    )
    
    
    Gain on sale of inventory
    
    
    318,740
    
    
    
    
    
    
    
    Interest income
    
    
    26,383
    
    
    
    419,334
    
    
    
    2,694,719Total
    
    
    4,955,813
    
    
    
    (4,199,239
    )
    
    
    (1,264,589
    )NET INCOME (LOSS)
    
    
    14,513,945
    
    
    
    (104,373,921
    )
    
    
    (55,817,767
    )Preferred stock dividends
    
    
    
    
    
    
    
    
    
    
    (1,393
    )NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS
    
    $
    14,513,945
    
    
    $
    (104,373,921
    )
    
    $
    (55,819,160
    )NET INCOME (LOSS) PER COMMON SHAREBASIC
    
    $
    0.14
    
    
    $
    (1.12
    )
    
    $
    (0.65
    )DILUTED
    
    $
    0.13
    
    
    $
    (1.12
    )
    
    $
    (0.65
    )WEIGHTED AVERAGE COMMON SHARES
OUTSTANDINGBASIC
    
    
    107,312,716
    
    
    
    93,504,982
    
    
    
    85,383,306DILUTED
    
    
    109,090,165
    
    
    
    93,504,982
    
    
    
    85,383,306
  66




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##### Table of Contents



GASCO
ENERGY, INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY
 AdditionalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Deferred
    
    
    Accumulated
    
    
    TreasuryShares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Capital
    
    
    Compensation
    
    
    Deficit
    
    
    Stock
    
    
    TotalBalance December 31, 2005
    
    
    763
    
    
    $
    1
    
    
    
    85,041,492
    
    
    $
    8,504
    
    
    $
    157,540,755
    
    
    $
    (443,579
    )
    
    $
    (29,535,226
    )
    
    $
    (130,295
    )
    
    $
    127,440,160Adoption of SFAS No. 123(R)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (443,579
    )
    
    
    443,579
    
    
    
    
    
    
    
    
    
    
    
    Conversion of preferred shares
to common shares
    
    
    (763
    )
    
    
    (1
    )
    
    
    479,599
    
    
    
    48
    
    
    
    (47
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of common stock options
    
    
    
    
    
    
    
    
    
    
    604,161
    
    
    
    60
    
    
    
    1,591,614
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,591,674Cancellation of common stock
    
    
    
    
    
    
    
    
    
    
    (82,787
    )
    
    
    (8
    )
    
    
    (199,278
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (199,286
    )Stock compensation
    
    
    
    
    
    
    
    
    
    
    131,250
    
    
    
    13
    
    
    
    4,158,520
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,158,533Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,393
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,393
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55,817,767
    )
    
    
    
    
    
    
    (55,817,767
    )Balance December 31, 2006
    
    
    
    
    
    
    
    
    
    
    86,173,715
    
    
    
    8,617
    
    
    
    162,646,592
    
    
    
    
    
    
    
    (85,352,993
    )
    
    
    (130,295
    )
    
    
    77,171,921Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    20,999,868
    
    
    
    2,100
    
    
    
    49,536,807
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,538,907Cancellation of common stock
    
    
    
    
    
    
    
    
    
    
    (88,462
    )
    
    
    (8
    )
    
    
    (220,514
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (220,522
    )Stock compensation
    
    
    
    
    
    
    
    
    
    
    205,350
    
    
    
    20
    
    
    
    3,131,386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,131,406Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104,373,921
    )
    
    
    
    
    
    
    (104,373,921
    )Balance December 31, 2007
    
    
    
    
    
    
    
    
    
    
    107,290,471
    
    
    
    10,729
    
    
    
    215,094,271
    
    
    
    
    
    
    
    (189,726,914
    )
    
    
    (130,295
    )
    
    
    25,247,791Exercise of common stock options
    
    
    
    
    
    
    
    
    
    
    566,566
    
    
    
    56
    
    
    
    1,161,228
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,161,284Cancellation of common stock
    
    
    
    
    
    
    
    
    
    
    (80,039
    )
    
    
    (7
    )
    
    
    (14,155
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14,162
    )Stock compensation
    
    
    
    
    
    
    
    
    
    
    49,000
    
    
    
    5
    
    
    
    3,134,025
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,134,030Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,513,945
    
    
    
    
    
    
    
    14,513,945Balance December 31, 2008
    
    
    
    
    
    $
    
    
    
    
    107,825,998
    
    
    $
    10,783
    
    
    $
    219,375,369
    
    
    $
    
    
    
    $
    (175,212,969
    )
    
    $
    (130,295
    )
    
    $
    44,042,888
  67




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##### Table of Contents



GASCO
ENERGY, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2008
    
    
    2007
    
    
    2006CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    14,513,945
    
    
    $
    (104,373,921
    )
    
    $
    (55,817,767
    )Adjustment to reconcile net income (loss) to net cash
provided by operating activitiesDepletion, depreciation, amortization and impairment expense
    
    
    12,879,223
    
    
    
    106,782,341
    
    
    
    61,816,513Accretion of asset retirement obligation
    
    
    97,721
    
    
    
    88,426
    
    
    
    69,184Stock-based compensation
    
    
    3,102,998
    
    
    
    3,085,121
    
    
    
    4,151,509Unrealized derivative (gain) loss
    
    
    (9,199,706
    )
    
    
    343,759
    
    
    
    Amortization of deferred rent expense
    
    
    (14,004
    )
    
    
    (12,400
    )
    
    
    (5,734
    )Amortization of deferred financing costs
    
    
    521,428
    
    
    
    518,233
    
    
    
    503,216Gain on sale of inventory
    
    
    (318,740
    )
    
    
    
    
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    247,547
    
    
    
    (475,097
    )
    
    
    (4,129,844
    )Inventory
    
    
    (2,698,902
    )
    
    
    137,173
    
    
    
    (114,516
    )Prepaid expenses
    
    
    138,220
    
    
    
    177,960
    
    
    
    1,064Accounts payable
    
    
    (4,367,208
    )
    
    
    2,825,300
    
    
    
    2,376,327Revenue payable
    
    
    2,363,717
    
    
    
    (201,159
    )
    
    
    20,286Accrued interest
    
    
    343,401
    
    
    
    (8
    )
    
    
    4Accrued expenses
    
    
    543,000
    
    
    
    (12,000
    )
    
    
    12,713Net cash provided by operating activities
    
    
    18,152,640
    
    
    
    8,883,728
    
    
    
    8,882,955CASH FLOWS FROM INVESTING ACTIVITIESCash paid for acquisitions, development and exploration
    
    
    (44,250,250
    )
    
    
    (63,508,879
    )
    
    
    (79,557,785
    )Brek acquisition transaction costs net of cash received
    
    
    
    
    
    
    (356,803
    )
    
    
    Cash paid for furniture, fixtures and other
    
    
    (86,814
    )
    
    
    (43,782
    )
    
    
    (67,994
    )Advances from joint interest owners
    
    
    (5,106,012
    )
    
    
    2,762,858
    
    
    
    479,296Proceeds from property sales
    
    
    7,500,000
    
    
    
    3,475,153
    
    
    
    Proceeds from the sale of short-term investments
    
    
    
    
    
    
    6,000,000
    
    
    
    9,000,000Cash designated as restricted
    
    
    
    
    
    
    
    
    
    
    (9,980
    )Cash undesignated as restricted
    
    
    
    
    
    
    3,575,000
    
    
    
    10,139,000Net cash used in investing activities
    
    
    (41,943,076
    )
    
    
    (48,096,453
    )
    
    
    (60,017,463
    )CASH FLOWS FROM FINANCING ACTIVITIESBorrowings under line of credit
    
    
    42,000,000
    
    
    
    18,000,000
    
    
    
    Repayment of borrowings
    
    
    (20,000,000
    )
    
    
    (9,000,000
    )
    
    
    Cash paid for debt issuance costs
    
    
    (161,057
    )
    
    
    (120,729
    )
    
    
    (240,262
    )Proceeds from sale of common stock
    
    
    
    
    
    
    19,300,000
    
    
    
    Exercise of options to purchase common stock
    
    
    1,161,284
    
    
    
    
    
    
    
    1,591,674Preferred dividends
    
    
    
    
    
    
    
    
    
    
    (1,393
    )Net cash provided by financing activities
    
    
    23,000,227
    
    
    
    28,179,271
    
    
    
    1,350,019NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (790,209
    )
    
    
    (11,033,454
    )
    
    
    (49,784,489
    )CASH AND CASH EQUIVALENTS:BEGINNING OF PERIOD
    
    
    1,843,425
    
    
    
    12,876,879
    
    
    
    62,661,368END OF PERIOD
    
    $
    1,053,216
    
    
    $
    1,843,425
    
    
    $
    12,876,879
  68




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##### Table of Contents



GASCO
ENERGY INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007, 2006 AND 2005
 NOTE 1  ORGANIZATION
  NOTE 2
 SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Cash and Cash Equivalents
  Concentration of Credit Risk
   69




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Significant Customers
 
 Inventory
  Oil and Gas Properties
   70




---



##### Table of Contents



71




---



##### Table of Contents



Capitalized Interest
  Wells in Progress
  Gathering Assets
  Facilities and Equipment
   Impairment of Long-lived Assets
  72




---



##### Table of Contents



Deferred Financing Costs
  Financial Instruments
  Derivatives
  73




---



##### Table of Contents




    
    For our swap instruments, Gasco receives a fixed price for the hedged commodity and
pays a floating market price to the counterparty. The fixed-price payment and the
floating-price payment are netted, resulting in a net amount due to or from the
counterparty.
    
    Our costless collar contains a fixed floor price (put) and ceiling price (call). If the
market price exceeds the call strike price or falls below the put strike price, Gasco
receives the fixed price and pays the market price. If the market price is between the call
and the put strike price, no payments are due from either party.
  Realized gains on derivative instruments
    
    $
    562,120Unrealized gains on derivative instruments
    
    
    9,199,706Total realized and unrealized gains recorded
    
    $
    9,761,826
  74




---



##### Table of Contents



Fixed Price
    
    Floating Price (a)Agreement Type
    
    Term
    
    Quantity
    
    Counterparty payer
    
    Gasco payerSwap
    
    
    1/09  12/09
    
    
    3,000 Mmbtu/day
    
    $7.025/Mmbtu
    
    NW RockiesSwap
    
    
    1/09  12/09
    
    
    3,000 Mmbtu/day
    
    $7.015/Mmbtu
    
    NW Rockies
  Index
    
    Call Price
    
    Put PriceAgreement Type
    
    Term
    
    Quantity
    
    Price (b)
    
    Counterparty buyer
    
    Gasco buyerCostless collar
    

    1/09  12/09
    
    
    3,000 Mmbtu/day
    
    NW Rockies
    
    $7.50/Mmbtu
    
    $6.50/Mmbtu
 
 (a)
    
    Northwest Pipeline Rocky Mountains  Inside FERC first of month index price. Asset Retirement Obligation
  Year Ended December 31,2008
    
    
    2007Balance beginning of period
    
    $
    1,030,283
    
    
    $
    908,543Liabilities incurred
    
    
    52,430
    
    
    
    126,145Liabilities settled
    
    
    (21,674
    )
    
    
    Revisions (a)
    
    
    2,526
    
    
    
    (64,568
    )Property dispositions
    
    
    (11,107
    )
    
    
    (28,263
    )Accretion expense
    
    
    97,721
    
    
    
    88,426Balance end of period
    
    $
    1,150,179
    
    
    $
    1,030,283
 
 (a)
    
    Revisions represent our periodic reassessment of the expected cash flows and
assumptions inherent in the calculation of the asset retirement liability. 75




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Off Balance Sheet Arrangements
  Revenue Recognition
   Computation of Net Loss per Share
   76




---



##### Table of Contents



Year EndedDecember 31, 2008Numerator:Basic net income
    
    $
    14,513,945Denominator:Basic weighted average common shares outstanding
    
    
    107,312,716Effect of dilutive securities:Options to purchase common stock
    
    
    4,673,627Assumed treasury shares purchased
    
    
    (3,127,788
    )Unvested restricted stock
    
    
    233,300Diluted weighted average common shares outstanding
    
    
    109,091,855Basic net income per share
    
    $
    0.14Diluted net income per share
    
    $
    0.13
  Use of Estimates
   Other Comprehensive Income
  77




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Income Taxes
   Stock Compensation
  Reclassifications
  78




---



##### Table of Contents



Year EndedDecember 31,
    
    
    
    
    
    Year Ended2007
    
    
    
    
    
    December 31,(Previously
    
    
    
    
    
    2007Reported)
    
    Reclassification
    
    (As Reclassified)Total revenues
    
    $
    22,198,206
    
    
    $
    (75,575
    )
    
    $
    22,122,631Total operating expenses
    
    
    126,572,127
    
    
    
    4,274,814
    
    
    
    122,297,313Other income (expense)
    
    
    
    
    
    
    (4,199,239
    )
    
    
    (4,199,239
    )Net cash provided by operating activities
    
    
    11,646,586
    
    
    
    (2,762,858
    )
    
    
    8,883,728Net cash (used in) provided by investing
activities
    
    
    (50,859,311
    )
    
    
    2,762,858
    
    
    
    (48,096,453
    )
 Recently Issued Accounting Pronouncements
    79




---



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80




---



##### Table of Contents




    
    The price used in calculating reserves will change from a single-day closing price
measured on the last day of the companys fiscal year to a 12-month average price, and will
affect our depletion and ceiling test calculations.
    
    Several reserve definitions have changed that could revise the types of reserves that
will be included in our year-end reserve report.
    
    Many of our financial reporting disclosures could change as a result of the new rules.
 NOTE 3  STOCK-BASED COMPENSATION
   81




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##### Table of Contents



2008
    
    
    2007
    
    
    2006Stock-based compensation
    
    $
    3,134,024
    
    
    $
    3,131,406
    
    
    $
    4,158,533Consultant compensation capitalized
as proved property
    
    
    (31,026
    )
    
    
    (46,285
    )
    
    
    (7,024
    )Total stock-based compensation expense
    
    $
    3,102,998
    
    
    $
    3,085,121
    
    
    $
    4,151,509
   Employee and Director Options2008
    
    2007
    
    2006Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected price volatility
    
    
    70-74
    %
    
    
    81-84
    %
    
    
    85-88
    %Risk-free interest rate
    
    
    1.4  4.0
    %
    
    
    3.58  4.8
    %
    
    
    4.64  5.08
    %Expected life of options
    
    5-6 years
    
    
    6 years
    
    
    6 years
   82




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##### Table of Contents



Stock Options
  2008
    
    2007
    
    2006Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageStock
    
    Exercise
    
    Stock
    
    Exercise
    
    Options
    
    ExerciseOptions
    
    Price
    
    Options
    
    Price
    
    Stock
    
    PriceOutstanding at beginning of year
    
    
    10,729,138
    
    
    $
    2.58
    
    
    
    9,878,502
    
    
    $
    2.74
    
    
    
    8,812,667
    
    
    $
    2.29Granted
    
    
    2,938,750
    
    
    $
    1.76
    
    
    
    1,540,000
    
    
    $
    1.91
    
    
    
    1,925,000
    
    
    $
    4.97Exercised
    
    
    (566,566
    )
    
    $
    2.05
    
    
    
    
    
    
    
    
    
    
    
    (604,161
    )
    
    $
    2.63Forfeited
    
    
    (686,573
    )
    
    $
    3.14
    
    
    
    (276,867
    )
    
    $
    3.00
    
    
    
    (186,671
    )
    
    $
    4.63Cancelled
    
    
    (1,289,961
    )
    
    $
    5.18
    
    
    
    (412,497
    )
    
    $
    3.49
    
    
    
    (68,333
    )
    
    $
    3.84Outstanding at the end of year
    
    
    11,124,788
    
    
    $
    2.06
    
    
    
    10,729,138
    
    
    $
    2.58
    
    
    
    9,878,502
    
    
    $
    2.74Exercisable at December 31,
    
    
    7,461,351
    
    
    $
    2.17
    
    
    
    8,333,472
    
    
    $
    2.44
    
    
    
    7,543,463
    
    
    $
    2.14
  Outstanding Options
    
    Vested optionsNumber of shares
    
    
    11,124,788
    
    
    
    7,461,351Weighted Average Remaining
Contractual Life in years
    
    
    5.18
    
    
    
    4.69Weighted Average Exercise Price
    
    $
    2.06
    
    
    $
    2.17Aggregate intrinsic value
    
    
    
    
    
    
    
      83




---



##### Table of Contents



WeightedAverageNumber of
    
    Number of
    
    RemainingRange of exercise
    
    Shares
    
    Shares
    
    Contractual LifePrices per Share
    
    Outstanding
    
    Exercisable
    
    (years)$0.00  $0.99
    
    
    184,000
    
    
    
    
    
    
    
    5.0$1.00  $1.99
    
    
    6,252,194
    
    
    
    3,206,097
    
    
    
    4.9$2.00  $2.99
    
    
    2,046,000
    
    
    
    1,899,328
    
    
    
    4.5$3.00  $3.99
    
    
    2,480,933
    
    
    
    2,227,599
    
    
    
    6.4$4.00  $4.99
    
    
    40,000
    
    
    
    6,666
    
    
    
    9.5$5.00  $5.99
    
    
    121,661
    
    
    
    121,661
    
    
    
    7.3Total
    
    
    11,124,788
    
    
    
    7,461,351
    
    
    
    5.2
 Restricted Stock
  2008
    
    2007
    
    2006Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageRestricted
    
    Fair
    
    Restricted
    
    Fair
    
    Restricted
    
    FairStock
    
    Value
    
    Stock
    
    Value
    
    Stock
    
    ValueOutstanding at the
beginning of the
year
    
    
    308,820
    
    
    $
    2.36
    
    
    
    365,920
    
    
    $
    2.39
    
    
    
    565,380
    
    
    $
    1.58Granted
    
    
    49,000
    
    
    $
    3.20
    
    
    
    234,500
    
    
    $
    2.02
    
    
    
    131,250
    
    
    $
    3.02Vested
    
    
    (56,020
    )
    
    $
    2.97
    
    
    
    (262,450
    )
    
    $
    2.03
    
    
    
    (305,710
    )
    
    $
    0.96Forfeited
    
    
    (68,500
    )
    
    $
    2.31
    
    
    
    (29,150
    )
    
    $
    2.41
    
    
    
    (25,000
    )
    
    $
    2.59Outstanding at the
end of the year
    
    
    233,300
    
    
    $
    2.35
    
    
    
    308,820
    
    
    $
    2.36
    
    
    
    365,920
    
    
    $
    2.39
   84




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##### Table of Contents



NOTE 4  OIL AND GAS PROPERTY
  As of December 31,2008
    
    
    2007Proved properties
    
    $
    247,976,854
    
    
    
    215,273,593Unproved properties
    
    
    39,314,406
    
    
    
    41,644,348Wells in progress
    
    
    644,688
    
    
    
    1,058,727Gathering assets
    
    
    17,440,680
    
    
    
    15,708,353Facilities and equipment
    
    
    8,549,928
    
    
    
    9,680,010Total
    
    
    313,926,556
    
    
    
    283,365,031Less accumulated depletion,
depreciation,
amortization and impairment
    
    
    (185,356,264
    )
    
    
    (175,809,007
    )$
    128,570,292
    
    
    $
    107,556,024
  For the Years Ended December 31,2008
    
    
    2007
    
    
    2006Property acquisition costs:Unproved
    
    $
    624,815
    
    
    $
    35,578,808
    
    
    $
    1,285,289Proved
    
    
    
    
    
    
    2,496,100
    
    
    
    2,563,862Exploration costs
    
    
    24,607,162
    
    
    
    44,421,848
    
    
    
    75,523,006Development costs
    
    
    11,758,219
    
    
    
                  7
    
    
    
    ,898,7262Total
    
    $
    36,990,196
    
    
    $
    82,496,756
    
    
    $
    87,270,883
   2008
    
    
    2007Utah
    
    $
    37,546,914
    
    
    $
    39,842,505California
    
    
    1,357,886
    
    
    
    1,639,794Nevada
    
    
    409,606
    
    
    
    162,049$
    39,314,406
    
    
    $
    41,644,348
  85




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Costs Incurred During Years EndedBalance
    
    
    December 31,12/31/08
    
    
    2008
    
    
    2007
    
    
    2006Acquisition costs
    
    $
    31,953,340
    
    
    $
    251,649
    
    
    $
    30,975,234
    
    
    $
    726,457Exploration costs
    
    
    7,361,066
    
    
    
    869,763
    
    
    
    4,603,573
    
    
    
    1,887,730Total
    
    $
    39,314,406
    
    
    $
    1,121,412
    
    
    $
    35,578,807
    
    
    $
    2,614,187
 NOTE 5  PROPERTY ACQUISITION
    PurchasePriceComponentsFair value of common stock issued
    
    $
    30,359,636Acquisition costs
    
    
    389,664Total purchase price
    
    $
    30,749,300
 86




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PurchasePriceAllocationCash
    
    $
    32,807Unproved properties
    
    
    29,183,125Proved properties
    
    
    1,552,836Asset retirement obligation
    
    
    (19,468
    )Total purchase price
    
    $
    30,749,300
  For the Year Ended December 31,2007
    
    2006Net revenue
    
    $
    22,467,277
    
    
    $
    26,061,003Net loss
    
    
    (104,385,718
    )
    
    
    (55,797,507
    )Net loss per share
    
    $
    (1.00
    )
    
    $
    (0.58
    )
 NOTE 6  PROPERTY SALE
  NOTE 7  DRILLING PROGRAM
  87




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NOTE 8  CREDIT AGREEMENT
     88




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NOTE 9  CONVERTIBLE SENIOR NOTES
  89




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90




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NOTE 10  FAIR VALUE MEASUREMENTS
      Fair Value Measurements UsingLevel 1
    
    Level 2
    
    Level 3Assets:Derivative instruments
    
    $
    
    
    
    $
    6,211,413
    
    
    $
    2,644,534Liabilities:$
    
    
    
    $
    
    
    
    $
    
  91




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DerivativesBalance as of January 1, 2008
    
    $
    Total gains (realized or unrealized):Included in earnings
    
    
    2,941,534Included in other comprehensive income
    
    
    Purchases, issuances and settlements
    
    
    (297,000
    )Transfers in and out of level 3
    
    
    Balance as of December 31, 2008
    
    $
    2,644,534Change in unrealized gains included in earnings
relating to derivatives still held as of December 31,
2008
    
    $
    2,644,534
 NOTE 11  STOCKHOLDERS EQUITY
  Series B Convertible Preferred Stock
 Common Stock 
  92




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NOTE 12  STATEMENT OF CASH FLOWS
  
    
    Recognition of an asset retirement obligation for the plugging and abandonment costs
related to the Companys oil and gas properties valued at $52,430. Reduction in asset
retirement obligation of $11,107 due to property dispositions. Increase in asset retirement
obligation of $2,526 due to revisions representing our periodic reassessment of the
expected cash flows and assumptions inherent in the calculation of the asset retirement
liability.
 93




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
    
    Stock-based compensation of $31,026 capitalized as proved property.
    
    Additions to oil and gas properties included in accounts payable of $3,157,809.
    
    Cancellation of 11,521 shares of common stock in satisfaction of income taxes of
$18,036 related to the vesting of restricted stock.
  
    
    Issuance of 10,999,868 shares of common stock valued at approximately $30,749,300 for
the acquisition of Brek, as further described in Note 5.
    
    Recognition of an asset retirement obligation for the plugging and abandonment costs
related to the Companys oil and gas properties valued at $126,145. Reduction in asset
retirement obligation of $64,568 due to periodic reassessment of the expected cash flows
and assumptions inherent in the calculation of the liability.
    
    Stock-based compensation of $46,285 capitalized as proved property.
    
    Additions to oil and gas properties included in accounts payable of $6,688,799.
    
    Capitalization of interest expense of $548,047.
    
    Cancellation of 88,462 shares of common stock in satisfaction of income taxes of
$220,522 related to the vesting of restricted stock.
  
    
    Recognition of an asset retirement obligation for the plugging and abandonment costs
related to the Companys oil and gas properties valued at $545,879. Increase in asset
retirement obligation of $69,533 due to periodic reassessment of the expected cash flows
and assumptions inherent in the calculation of the liability.
    
    Stock-based compensation of $7,024 capitalized as proved property.
    
    Additions to oil and gas properties included in accounts payable of $10,755,910.
    
    Capitalization of interest expense of $231,500.
    
    Conversion of 763 shares of Preferred Stock into 479,599 shares of common stock.
 94




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
    
    Cancellation of 82,787 shares of common stock in satisfaction of the income tax liability of
$199,286 associated with the vesting of restricted stock.
    
    Write-off of fully depreciated furniture and fixtures of $2,592.
 NOTE 13  INCOME TAXES
  2008
    
    
    2007
    
    
    2006Current taxes:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Deferred taxes:Deferred provision (benefit)
    
    
    6,261,035
    
    
    
    (38,75,921
    )
    
    
    (20,681,594
    )Less: valuation allowance
    
    
    (6,261,035
    )
    
    
    38,756,921
    
    
    
    20,681,594Net income tax provision (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    
  2008
    
    
    2007
    
    
    2006Tax provision (benefit) at federal statutory rate
    
    $
    5,079,881
    
    
    $
    (36,530,872
    )
    
    $
    (19,536,218
    )State taxes, net of federal tax effects
    
    
    320,637
    
    
    
    (2,659,481
    )
    
    
    (1,726,051
    )Change in Tax Rate from Prior Year
    
    
    185,057
    
    
    
    
    
    
    
    Permanent items and other
    
    
    675,460
    
    
    
    433,432
    
    
    
    580,675Valuation allowance
    
    
    (6,261,035
    )
    
    
    38,756,921
    
    
    
    20,681,594Net income tax provision (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    
  95




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2008
    
    
    2007Deferred tax assets:Federal and state net operating loss carryovers
    
    $
    52,031,562
    
    
    $
    43,425,200Oil and gas property impairment
    
    
    
    
    
    
    65,332,715Oil and gas property and other property, plant & equipment
    
    
    15,123,145
    
    
    
    Deferred rent
    
    
    17,335
    
    
    
    23,819Deferred compensation
    
    
    2,210,496
    
    
    
    1,999,499Accrued salaries and bonus
    
    
    286,882
    
    
    
    Asset retirement obligation
    
    
    428,173
    
    
    
    Other
    
    
    7,019
    
    
    
    Total deferred tax assets
    
    
    70,104,612
    
    
    
    110,781,233Less: valuation allowance
    
    
    (66,809,388
    )
    
    
    (86,176,357
    )3,295,224
    
    
    
    24,604,876Deferred tax liabilities:Oil and gas property
    
    
    
    
    
    
    12,876,955Other property, plant & equipment
    
    
    
    
    
    
    8,872,435Derivatives
    
    
    3,295,224
    
    
    
    Other
    
    
    
    
    
    
    2,855,486Total deferred tax liabilities
    
    
    3,295,224
    
    
    
    24,604,876Net deferred tax asset
    
    $
    
    
    
    $
    
  NOTE 14  RELATED PARTY TRANSACTIONS
  96




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NOTE 15  COMMITMENTS
   Year Ending December 31,
    
    Annual Rentals2009
    
    $
    201,1342010
    
    
    85,491Total
    
    $
    286,625
     97




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Year Ending December 31,
    
    Annual Drilling Obligations2009
    
    $
    7,665,0002010
    
    
    1,239,000Total
    
    $
    8,904,000
     NOTE 16  EMPLOYEE BENEFIT PLANS
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NOTE 17  SELECTED QUARTERLY INFORMATION (Unaudited)
  For the Quarter Ended2008
    
    March 31,
    
    June 30,
    
    September 30,
    
    December 31,Gross revenue (a)
    
    $
    9,755,723
    
    
    $
    14,092,926
    
    
    $
    11,228,854
    
    
    $
    6,780,670Net revenue from oil
and gas operations
    
    
    7,470,247
    
    
    
    10,695,833
    
    
    
    8,688,033
    
    
    
    3,465,837Net income (loss)
    
    
    (4,410,117
    )
    
    
    (788,608
    )
    
    
    21,039,898
    
    
    
    (1,327,228
    )Net income (loss) per shareBasic
    
    
    (0.04
    )
    
    
    (0.01
    )
    
    
    0.20
    
    
    
    (0.01
    )Diluted
    
    
    (0.04
    )
    
    
    (0.01
    )
    
    
    0.17
    
    
    
    (0.01
    )
 
 (a)
    
    The Form 10-Qs for the first three quarters of 2008 reflected derivative gains
(losses) and interest income as revenue. During the fourth quarter of 2008 the Company
reclassified these amounts from revenue to other income (expense) in the accompanying
consolidated statements of operations. The amounts in the table above reflect this
reclassification for all periods presented. For the Quarter Ended2007
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Gross revenue (b)
    
    $
    6,339,371
    
    
    $
    5,940,463
    
    
    $
    3,926,379
    
    
    $
    5,916,418Net revenue from oil
and gas operations
    
    
    5,388,389
    
    
    
    4,241,645
    
    
    
    2,089,513
    
    
    
    2,969,421Net loss
    
    
    (176,174
    )
    
    
    (66,294,642
    ) (c)
    
    
    (35,146,725
    ) (c)
    
    
    (2,756,380
    )Net loss per share
basic and diluted
    
    
    (0.00
    )
    
    
    (0.70
    )
    
    
    (0.37
    )
    
    
    (0.03
    )
 (b)
    
    During the fourth quarter of 2008 the Company reclassified derivative gains (losses)
and interest income from revenue to other income (expense) in the accompanying consolidated
statements of operations. The amounts in the table above reflect this reclassification for
all periods presented.(c)
    
    The increase in the Companys net loss during the second third quarters as compared
with the other quarters is primarily due to the $64,300,000 impairment recorded at June 30,
2006 and the $32,790,000 impairment recorded at September 30, 2007 as further discussed in
Note 2.
 99




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NOTE 18  LEGAL PROCEEDINGS
   NOTE 19  CONSOLIDATING FINANCIAL STATEMENTS
  100




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Condensed Consolidating Balance Sheet
As of December 31, 2008
(Unaudited)
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    501,511
    
    
    $
    551,705
    
    
    $
    1,053,216Accounts receivable
    
    
    451,050
    
    
    
    8,813,536
    
    
    
    9,264,586Inventory
    
    
    
    
    
    
    4,177,967
    
    
    
    4,177,967Derivative instruments
    
    
    8,855,947
    
    
    
    
    
    
    
    8,855,947Prepaid expenses
    
    
    188,485
    
    
    
    325
    
    
    
    188,810Total
    
    
    9,996,993
    
    
    
    13,543,533
    
    
    
    23,540,526PROPERTY, PLANT AND EQUIPMENT,at costOil and gas properties (full cost method)Proved mineral interests
    
    
    71,021
    
    
    
    247,905,833
    
    
    
    247,976,854Unproved mineral interests
    
    
    1,054,096
    
    
    
    38,260,310
    
    
    
    39,314,406Wells in progress
    
    
    
    
    
    
    644,688
    
    
    
    644,688Gathering assets
    
    
    
    
    
    
    17,440,680
    
    
    
    17,440,680Facilities and equipment
    
    
    
    
    
    
    8,549,928
    
    
    
    8,549,928Furniture, fixtures and other
    
    
    371,605
    
    
    
    
    
    
    
    371,605Total
    
    
    1,496,722
    
    
    
    312,801,439
    
    
    
    314,298,161Less accumulated depreciation, depletion and amortization
    
    
    (229,318
    )
    
    
    (185,356,264
    )
    
    
    (185,585,582
    )Total
    
    
    1,267,404
    
    
    
    127,445,175
    
    
    
    128,712,579OTHER ASSETSDeposit
    
    
    139,500
    
    
    
    
    
    
    
    139,500Deferred financing costs
    
    
    1,492,903
    
    
    
    
    
    
    
    1,492,903Intercompany
    
    
    244,524,964
    
    
    
    (244,524,964
    )
    
    
    Total
    
    
    246,157,367
    
    
    
    (244,524,964
    )
    
    
    1,632,403TOTAL ASSETS
    
    $
    257,421,764
    
    
    $
    (103,536,256
    )
    
    $
    153,885,508LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    212,172
    
    
    $
    5,666,978
    
    
    $
    5,879,150Revenue payable
    
    
    
    
    
    
    3,840,985
    
    
    
    3,840,985Advances from joint interest owners
    
    
    
    
    
    
    612,222
    
    
    
    612,222Accrued interest
    
    
    1,187,495
    
    
    
    
    
    
    
    1,187,495Accrued expenses
    
    
    1,126,000
    
    
    
    
    
    
    
    1,126,000Total
    
    
    2,525,667
    
    
    
    10,120,185
    
    
    
    12,645,852NONCURRENT LIABILITIES5.5% Convertible Senior Notes
    
    
    65,000,000
    
    
    
    
    
    
    
    65,000,000Long-term debt
    
    
    31,000,000
    
    
    
    
    
    
    
    31,000,000Asset retirement obligation
    
    
    
    
    
    
    1,150,179
    
    
    
    1,150,179Deferred rent expense
    
    
    46,589
    
    
    
    
    
    
    
    46,589Total
    
    
    96,046,589
    
    
    
    1,150,179
    
    
    
    97,196,768STOCKHOLDERS EQUITYCommon stock
    
    
    10,783
    
    
    
    
    
    
    
    10,783Other
    
    
    158,838,725
    
    
    
    (114,806,620
    )
    
    
    44,032,105Total
    
    
    158,849,508
    
    
    
    (114,806,620
    )
    
    
    44,042,888TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY
    
    $
    257,421,764
    
    
    $
    (103,536,256
    )
    
    $
    153,885,508
 102




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Condensed Consolidating Balance Sheet
As of December 31, 2008
(Unaudited)
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    1,843,425
    
    
    $
    
    
    
    $
    1,843,425Accounts receivable
    
    
    
    
    
    
    9,512,133
    
    
    
    9,512,133Inventory
    
    
    
    
    
    
    1,160,325
    
    
    
    1,160,325Prepaid expenses
    
    
    326,705
    
    
    
    325
    
    
    
    327,030Total
    
    
    2,170,130
    
    
    
    10,672,783
    
    
    
    12,842,913PROPERTY, PLANT AND EQUIPMENT,at costOil and gas properties (full cost method)Proved mineral interests
    
    
    39,994
    
    
    
    215,233,599
    
    
    
    215,273,593Unproved mineral interests
    
    
    1,504,096
    
    
    
    40,140,252
    
    
    
    41,644,348Wells in progress
    
    
    
    
    
    
    1,058,727
    
    
    
    1,058,727Gathering assets
    
    
    
    
    
    
    15,708,353
    
    
    
    15,708,353Facilities and equipment
    
    
    
    
    
    
    9,680,010
    
    
    
    9,680,010Furniture, fixtures and other
    
    
    284,791
    
    
    
    
    
    
    
    284,791Total
    
    
    1,828,881
    
    
    
    281,820,941
    
    
    
    283,649,822Less accumulated depreciation, depletion and amortization
    
    
    (164,713
    )
    
    
    (175,809,007
    )
    
    
    (175,973,720
    )Total
    
    
    1,664,168
    
    
    
    106,011,934
    
    
    
    107,676,102OTHER ASSETSDeposit
    
    
    139,500
    
    
    
    
    
    
    
    139,500Deferred financing costs
    
    
    1,853,274
    
    
    
    
    
    
    
    1,853,274Intercompany
    
    
    230,850,204
    
    
    
    (230,850,204
    )
    
    
    Total
    
    
    232,842,978
    
    
    
    (230,850,204
    )
    
    
    1,992,774TOTAL ASSETS
    
    $
    236,677,276
    
    
    $
    (114,165,487
    )
    
    $
    122,511,789LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    230,737
    
    
    $
    12,976,030
    
    
    $
    13,206,767Revenue payable
    
    
    
    
    
    
    1,477,268
    
    
    
    1,477,268Advances from joint interest owners
    
    
    
    
    
    
    5,718,234
    
    
    
    5,718,234Derivative instruments
    
    
    343,759
    
    
    
    
    
    
    
    343,759Accrued interest
    
    
    844,094
    
    
    
    
    
    
    
    844,094Accrued expenses
    
    
    583,000
    
    
    
    
    
    
    
    583,000Total
    
    
    2,001,590
    
    
    
    20,171,532
    
    
    
    22,173,122NONCURRENT LIABILITIES5.5% Convertible Senior Notes
    
    
    65,000,000
    
    
    
    
    
    
    
    65,000,000Long-term debt
    
    
    9,000,000
    
    
    
    
    
    
    
    9,000,000Asset retirement obligation
    
    
    
    
    
    
    1,030,283
    
    
    
    1,030,283Deferred rent expense
    
    
    60,593
    
    
    
    
    
    
    
    60,593Total
    
    
    74,060,593
    
    
    
    1,030,283
    
    
    
    75,090,876STOCKHOLDERS EQUITYCommon stock
    
    
    10,729
    
    
    
    
    
    
    
    10,729Other
    
    
    160,604,364
    
    
    
    (135,367,302
    )
    
    
    25,237,062Total
    
    
    160,615,093
    
    
    
    (135,367,302
    )
    
    
    25,247,791TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY
    
    $
    236,677,276
    
    
    $
    (114,165,487
    )
    
    $
    122,511,789


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Consolidating Statements of Operations
(Unaudited)
 For the Year Ended December 31, 2008
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedREVENUESOil and gas
    
    $
    
    
    
    $
    35,634,832
    
    
    $
    35,634,832Gathering
    
    
    
    
    
    
    4,796,409
    
    
    
    4,796,409Rental income
    
    
    
    
    
    
    1,426,932
    
    
    
    1,426,932Total
    
    
    
    
    
    
    41,858,173
    
    
    
    41,858,173OPERATING EXPENSESLease operating
    
    
    
    
    
    
    6,653,698
    
    
    
    6,653,698Gathering operations
    
    
    
    
    
    
    3,457,593
    
    
    
    3,457,593Depletion, depreciation, amortization and accretion
    
    
    64,605
    
    
    
    9,412,339
    
    
    
    9,476,944Impairment
    
    
    
    
    
    
    3,500,000
    
    
    
    3,500,000General and administrative
    
    
    9,211,806
    
    
    
    
    
    
    
    9,211,806Total
    
    
    9,276,411
    
    
    
    23,023,630
    
    
    
    32,300,041OTHER INCOME (EXPENSE)Interest expense
    
    
    (5,151,136
    )
    
    
    
    
    
    
    (5,151,136
    )Derivative gains (losses)
    
    
    9,761,826
    
    
    
    
    
    
    
    9,761,826Gain on sale of inventory
    
    
    
    
    
    
    318,740
    
    
    
    318,740Interest income
    
    
    26,369
    
    
    
    14
    
    
    
    26,383Total
    
    
    4,637,059
    
    
    
    318,754
    
    
    
    4,955,813NET INCOME (LOSS)
    
    $
    (4,639,352
    )
    
    $
    19,153,297
    
    
    $
    14,513,945
 For the Year Ended December 31, 2007
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedREVENUESOil and gas
    
    $
    
    
    
    $
    19,155,752
    
    
    $
    19,155,752Gathering
    
    
    
    
    
    
    1,937,785
    
    
    
    1,937,785Rental income
    
    
    
    
    
    
    1,029,094
    
    
    
    1,029,094Total
    
    
    
    
    
    
    22,122,631
    
    
    
    22,122,631OPERATING EXPENSESLease operating
    
    
    
    
    
    
    3,932,924
    
    
    
    3,932,924Gathering operations
    
    
    
    
    
    
    2,471,645
    
    
    
    2,471,645Depletion, depreciation, amortization and accretion
    
    
    62,729
    
    
    
    9,718,038
    
    
    
    9,780,767Impairment
    
    
    
    
    
    
    97,090,000
    
    
    
    97,090,000General and administrative
    
    
    9,021,977
    
    
    
    
    
    
    
    9,021977Total
    
    
    9,084,706
    
    
    
    113,212,607
    
    
    
    122,297,313OTHER INCOME (EXPENSE)Interest expense
    
    
    (4,274,814
    )
    
    
    
    
    
    
    (4,274,814
    )Derivative losses
    
    
    (343,759
    )
    
    
    
    
    
    
    (343,759
    )Interest income
    
    
    418,854
    
    
    
    480
    
    
    
    419,334Total
    
    
    (4,199,719
    )
    
    
    480
    
    
    
    (4,199,239
    )NET LOSS
    
    $
    (13,284,425
    )
    
    $
    (91,089,496
    )
    
    $
    (104,373,921
    )
 104




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##### Table of Contents



Consolidating Statements of Operations
(Unaudited)
 For the Year Ended December 31, 2006
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedREVENUESOil and gas
    
    $
    
    
    
    $
    21,039,172
    
    
    $
    21,039,172Gathering
    
    
    
    
    
    
    1,941,059
    
    
    
    1,941,059Total
    
    
    
    
    
    
    22,980,231
    
    
    
    22,980,231OPERATING EXPENSESLease operating
    
    
    
    
    
    
    3,513,568
    
    
    
    3,513,568Gathering operations
    
    
    
    
    
    
    2,718,357
    
    
    
    2,718,357Depletion, depreciation and amortization
    
    
    58,513
    
    
    
    10,827,184
    
    
    
    10,885,697Impairment
    
    
    
    
    
    
    51,000,000
    
    
    
    51,000,000General and administrative
    
    
    9,415,787
    
    
    
    
    
    
    
    9,415,787Total
    
    
    9,474,300
    
    
    
    68,059,109
    
    
    
    77,533,409OTHER INCOME (EXPENSE)Interest expense
    
    
    (3,959,308
    )
    
    
    
    
    
    
    (3,959,308
    )Interest income
    
    
    2,693,955
    
    
    
    764
    
    
    
    2,694,719Total
    
    
    (1,265,353
    )
    
    
    764
    
    
    
    (1,264,589
    )NET LOSS
    
    
    (10,739,653
    )
    
    
    (45,078,114
    )
    
    
    (55,817,767
    )Preferred stock dividends
    
    
    (1,393
    )
    
    
    
    
    
    
    (1,393
    )NET LOSS ATTRIBUTABLE TO
COMMON SHAREHOLDERS
    
    $
    (10,741,046
    )
    
    $
    (45,078,114
    )
    
    $
    (55,819,160
    )
 105




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##### Table of Contents



Consolidating Statements of Cash Flows
(Unaudited)
 For the Year Ended December 31, 2008
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedCASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    (10,580,567
    )
    
    $
    28,733,207
    
    
    $
    18,152,640CASH FLOWS FROM INVESTING ACTIVITIESCash paid for furniture, fixtures and other
    
    
    (86,814
    )
    
    
    
    
    
    
    (86,814
    )Cash paid for acquisitions, development and exploration
    
    
    
    
    
    
    (44,250,250
    )
    
    
    (44,250,250
    )Advances from joint interest owners
    
    
    
    
    
    
    (5,106,012
    )
    
    
    (5,106,012
    )Proceeds from property sales
    
    
    
    
    
    
    7,500,000
    
    
    
    7,500,000Net cash used in investing activities
    
    
    (86,814
    )
    
    
    (41,856,262
    )
    
    
    (41,943,076
    )CASH FLOWS FROM FINANCING ACTIVITIESBorrowings under line of credit
    
    
    42,000,000
    
    
    
    
    
    
    
    42,000,000Repayment of borrowings
    
    
    (20,000,000
    )
    
    
    
    
    
    
    (20,000,000
    )Cash paid for debt issuance costs
    
    
    (161,057
    )
    
    
    
    
    
    
    (161,057
    )Exercise of options to purchase common stock
    
    
    1,161,284
    
    
    
    
    
    
    
    1,161,284Intercompany
    
    
    (13,674,760
    )
    
    
    13,674,760
    
    
    
    Net cash provided by financing activities
    
    
    9,325,467
    
    
    
    13,674,760
    
    
    
    23,000,227NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
    
    
    (1,341,914
    )
    
    
    551,705
    
    
    
    (790,209
    )CASH AND CASH EQUIVALENTS:BEGINNING OF PERIOD
    
    
    1,843,425
    
    
    
    
    
    
    
    1,843,425END OF PERIOD
    
    $
    501,511
    
    
    $
    551,705
    
    
    $
    1,053,216
 106




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##### Table of Contents



Consolidating Statements of Cash Flows
(Unaudited)
 For the Year Ended December 31, 2007
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedCASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    29,191,369
    
    
    $
    (20,370,083
    )
    
    $
    8,821,286CASH FLOWS FROM INVESTING ACTIVITIESCash paid for furniture, fixtures and other
    
    
    (43,782
    )
    
    
    
    
    
    
    (43,782
    )Cash paid for acquisitions, development and exploration
    
    
    
    
    
    
    (63,508,825
    )
    
    
    (63,508,825
    )Advances from joint interest owners
    
    
    
    
    
    
    2,825,300
    
    
    
    2,825,300Brek acquisition costs net of cash received
    
    
    
    
    
    
    (356,857
    )
    
    
    (356,857
    )Proceeds from property sales
    
    
    
    
    
    
    3,475,153
    
    
    
    3,475,153Proceeds from sale of short-term investments
    
    
    6,000,000
    
    
    
    
    
    
    
    6,000,000Cash undesignated as restricted
    
    
    3,575,000
    
    
    
    
    
    
    
    3,575,000Net cash provided by (used) in investing
activities
    
    
    9,531,218
    
    
    
    (57,565,229
    )
    
    
    (48,034,011
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from the sale of common stock
    
    
    19,300,000
    
    
    
    
    
    
    
    19,300,000Cash paid for offering costs
    
    
    (120,729
    )
    
    
    
    
    
    
    (120,729
    )Borrowings under line of credit
    
    
    18,000,000
    
    
    
    
    
    
    
    18,000,000Repayment of borrowings
    
    
    (9,000,000
    )
    
    
    
    
    
    
    (9,000,000
    )Intercompany
    
    
    (75,889,515
    )
    
    
    75,889,515
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    (47,710,244
    )
    
    
    75,889,515
    
    
    
    28,179,271NET DECREASE IN CASH AND CASH
EQUIVALENTS
    
    
    (8,987,657
    )
    
    
    (2,045,797
    )
    
    
    (11,033,454
    )CASH AND CASH EQUIVALENTS:BEGINNING OF PERIOD
    
    
    10,831,082
    
    
    
    2,045,797
    
    
    
    12,876,879END OF PERIOD
    
    $
    1,843,425
    
    
    $
    
    
    
    $
    1,843,425
 107




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##### Table of Contents



Consolidating Statements of Cash Flows
(Unaudited)
 For the Year Ended December 31, 2006
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedCASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    (7,015,061
    )
    
    $
    15,898,016
    
    
    $
    8,882,955CASH FLOWS FROM INVESTING ACTIVITIESCash paid for furniture, fixtures and other
    
    
    (67,994
    )
    
    
    
    
    
    
    (67,994
    )Cash paid for acquisitions, development and exploration
    
    
    
    
    
    
    (79,557,785
    )
    
    
    (79,557,785
    )Proceeds from sale of short-term investments
    
    
    9,000,000
    
    
    
    
    
    
    
    9,000,000Advances from joint interest owners
    
    
    
    
    
    
    479,296
    
    
    
    479,296Cash designated as restricted
    
    
    (9,980
    )
    
    
    
    
    
    
    (9,980
    )Cash undesignated as restricted
    
    
    10,139,000
    
    
    
    
    
    
    
    10,139,000Net cash provided by (used) in investing
activities
    
    
    19,061,026
    
    
    
    (79,078,489
    )
    
    
    (60,017,463
    )CASH FLOWS FROM FINANCING ACTIVITIESPreferred dividends
    
    
    (1,393
    )
    
    
    
    
    
    
    (1,393
    )Cash paid for offering costs
    
    
    (240,262
    )
    
    
    
    
    
    
    (240,262
    )Exercise of options to purchase common stock
    
    
    1,591,674
    
    
    
    
    
    
    
    1,591,674Intercompany
    
    
    (61,879,245
    )
    
    
    61,879,245
    
    
    
    Net cash provided by (used in) financing
activities
    
    
    (60,529,226
    )
    
    
    61,879,245
    
    
    
    1,350,019NET DECREASE IN CASH AND CASH
EQUIVALENTS
    
    
    (48,483,261
    )
    
    
    (1,301,228
    )
    
    
    (49,784,489
    )CASH AND CASH EQUIVALENTS:BEGINNING OF PERIOD
    
    
    59,314,343
    
    
    
    3,347,025
    
    
    
    62,661,368END OF PERIOD
    
    $
    10,831,082
    
    
    $
    2,045,797
    
    
    $
    12,876,879
 108




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##### Table of Contents



NOTE 19 SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (Unaudited)
   Gas
    
    OilReserve Quantities
    
    Mcf
    
    BblsProved Reserves:Balance, December 31, 2005
    
    
    74,455,128
    
    
    
    377,288Extensions and discoveries
    
    
    16,006,692
    
    
    
    97,529Revisions of previous estimates (a)
    
    
    (47,010,172
    )
    
    
    (212,400
    )Sales of reserves in place
    
    
    
    
    
    
    Purchases of reserves in place
    
    
    210,954
    
    
    
    129,810Production
    
    
    (3,686,638
    )
    
    
    (21,646
    )Balance, December 31, 2006
    
    
    39,975,964
    
    
    
    370,581Extensions and discoveries
    
    
    23,854,007
    
    
    
    160,302Revisions of previous estimates (b)
    
    
    35,609,338
    
    
    
    517,340Sales of reserves in place
    
    
    (681,007
    )
    
    
    (5,302
    )Purchases of reserves in place
    
    
    9,592,014
    
    
    
    69,335Production
    
    
    (4,011,978
    )
    
    
    (41,454
    )Balance, December 31, 2007
    
    
    104,338,338
    
    
    
    1,070,802Extensions and discoveries
    
    
    2,400,000
    
    
    
    17,000Revisions of previous estimates (c)
    
    
    (42,740,002
    )
    
    
    (646,072
    )Sales of reserves in place
    
    
    (8,506,000
    )
    
    
    (38,000
    )Purchases of reserves in place
    
    
    
    
    
    
    Production
    
    
    (4,583,028
    )
    
    
    (42,545
    )Balance, December 31, 2008
    
    
    50,909,308
    
    
    
    361,185
 109




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##### Table of Contents



Gas
    
    OilMcf
    
    BblsProved Developed ReservesBalance, December 31, 2008
    
    
    50,909,308
    
    
    
    361,185Balance, December 31, 2007
    
    
    50,820,623
    
    
    
    695,019Balance, December 31, 2006
    
    
    38,817,964
    
    
    
    370,581
 (a)
    
    The majority of the revisions of previous estimates during 2006 were a result of the
following:
 
    
    Fifty gross locations previously classified as proved undeveloped were
omitted from the 2006 reserve report because these locations did not yield a
positive net present value at a discount rate of 10% at the then current estimated
capital investment based on historical data to drill and complete wells in this
area.
    
    Four gross locations previously classified as proved undeveloped were
developed in 2006 and two gross proved undeveloped locations were added.
 (b)
    
    The majority of the revisions of previous estimates during 2007 were primarily the
result of an increase in proved undeveloped reserves due to the increase in oil and gas
prices used to estimate the reserves from $45.53 per barrel and $4.47 per Mcf in 2006 to
$73.95 per barrel and $6.53 per Mcf at December 31, 2007.(c)
    
    The majority of the revisions of previous estimates during 2008 were primarily due to
the decrease in oil and gas prices from $73.95 per barrel and $6.53 per Mcf at December 31,
2007 to $15.33 per barrel and $4.63 per Mcf at December 31, 2008.
 Standardized Measure of Discounted Future Net Cash Flows
 December 31,2008
    
    
    2007
    
    
    2006Future cash flows
    
    $
    241,343,700
    
    
    $
    760,539,800
    
    
    $
    195,545,000Future production and development costs
    
    
    (108,727,900
    )
    
    
    (339,452,900
    )
    
    
    (69,135,000
    )Future income taxes
    
    
    
    
    
    
    (9,765,200
    )
    
    
    Future net cash flows before discount
    
    
    132,615,800
    
    
    
    411,321,700
    
    
    
    126,410,00010% discount to present value
    
    
    (63,133,000
    )
    
    
    (250,857,700
    )
    
    
    (63,242,800
    )Standardized measure of discounted
future net cash flows
    
    $
    69,482,800
    
    
    $
    160,464,000
    
    
    $
    63,167,200
 110




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##### Table of Contents



Changes in the Standardized Measure of Discounted Future Net Cash Flows
 For the Years Ended December 31,2008
    
    
    2007
    
    
    2006Standardized measure of discounted future net
cash flows at the beginning of year
    
    $
    160,464,000
    
    
    $
    63,167,200
    
    
    $
    104,621,000Sales of oil and gas produced, net of production
costs
    
    
    (28,981,134
    )
    
    
    (15,322,828
    )
    
    
    (17,525,604
    )Net changes in prices and production costs
    
    
    (34,529,372
    )
    
    
    26,226,507
    
    
    
    (110,791,730
    )Extensions and discoveries, net of future
production and development costs
    
    
    2,311,000
    
    
    
    40,839,394
    
    
    
    26,686,765Previously estimated development costs incurred
    
    
    5,393,989
    
    
    
    4,489,959
    
    
    
    9,571,134Changes in estimated future development costs
    
    
    (2,981,737
    )
    
    
    (3,882,200
    )
    
    
    127,888,117Revisions of previous quantity estimates
    
    
    (44,761,342
    )
    
    
    43,121,203
    
    
    
    (77,662,093
    )Purchases of reserves in place
    
    
    
    
    
    
    11,097,303
    
    
    
    1,592,041Sales of reserves in place
    
    
    (7,703,000
    )
    
    
    (1,798,971
    )
    
    
    Net change in income taxes
    
    
    1,378,483
    
    
    
    (1,378,483
    )
    
    
    3,225,000Accretion of discount
    
    
    17,711,306
    
    
    
    4,502,716
    
    
    
    13,773,265Other
    
    
    1,180,242
    
    
    
    (10,597,800
    )
    
    
    (18,210,695
    )Standardized measure of discounted future net cash flows at the end of year
    
    $
    69,482,800
    
    
    $
    160,464,000
    
    
    $
    63,167,200
 111




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##### Table of Contents



ITEM 9  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
  
 ITEM 9A  CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
   Internal control over financial reporting
  112




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##### Table of Contents



Changes in internal control over financial reporting during the fourth quarter of 2008.
  Managements Report on Internal Control Over Financial Reporting
     113




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated
Framework Managements Report on Internal Control over Financial Reporting
   114




---



##### Table of Contents



Internal Control  Integrated Framework
  KPMG LLP
 
 
 ITEM 9B  OTHER INFORMATION
  
 PART III
 
 ITEM 10  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
  115




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##### Table of Contents



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
  
 ITEM 15  EXHIBITS, FINANCIAL STATEMENT SCHEDULES
 (a)
    
    1. See Index to Financial Statements under Item 8 on page 61.
2. Financial Statement Schedules  none.
3. Exhibits  See Index to Exhibits, below.
 INDEX TO EXHIBITS
 2.1
    
    Agreement and Plan of Reorganization dated January 31, 2001 among San
Joaquin Resources Inc., Nampa Oil & Gas, Ltd., and Pannonian Energy,
Inc. (incorporated by reference to Exhibit 2.1 to the Companys Form
8-K dated January 31, 2001, filed on February 2, 2001, File No.
000-26321).2.2
    
    Agreement and Plan of Reorganization dated December 15, 1999 by and
between LEK International, Inc. and San Joaquin Oil & Gas Ltd.
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K
dated December 31, 1999, filed on January 21, 2000, File No.
000-26321).2.3
    
    Property Purchase Agreement dated as of April 23, 2002, between the
Company and Shama Zoe Limited Partnership (incorporated by reference
to Exhibit 2.1 to the Companys Form 8-K dated May 1, 2002, filed on
May 7, 2002, File No. 000-26321).
 116




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##### Table of Contents



2.4
    
    Purchase Agreement dated as of July 16, 2002, among Gasco, Pannonian
Energy Inc., San Joaquin Oil & Gas Ltd., Brek, Brek Petroleum Inc.,
Brek Petroleum (California), Inc. and certain stockholders of Gasco.
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K
dated July 16, 2002, filed on July 31, 2002, File No. 000-26321).2.5
    
    Purchase and Sale Agreement between ConocoPhillips and the Company
relating to the Riverbend Field, Uintah and Duchesne Counties, Utah,
Effective January 1, 2004 (incorporated by reference to Exhibit 2.1
to the Companys Form 8-K dated March 9, 2004, filed on March 15,
2004, File No. 000-26321).2.6
    
    Net Profits Purchase Agreement between Gasco Production Company, Red
Oak Capital Management, LLC, MBG, LLC and MBGV Partition, LLC, dated
August 6, 2004 (incorporated by reference to Exhibit 2.1 of the
Companys Current Report on Form 8-K filed September 7, 2004, File
No. 000-26321).2.7
    
    Purchase Supplement to Net Profits Purchase Agreement between Gasco
Production Company, Red Oak Capital Management, LLC, MBG, LLC and
MBGV Partition, LLC, dated August 20, 2004 (incorporated by reference
to Exhibit 2.2 of the Companys Current Report on Form 8-K filed
September 7, 2004, File No. 000-26321).2.8
    
    Agreement and Plan of Merger dated January 31, 2007, by and among
Gasco Energy, Inc., Gasco Acquisition, Inc. and Brek Energy
Corporation (incorporated by reference to Exhibit 2.1 to the
Companys Form 8-K dated September 20, 2006, filed September 21,
2006, File No. 001-32369).2.9
    
    First Amendment to Agreement and Plan of Merger dated January 31,
2007, by and between Gasco Energy, Inc. and Brek Energy Corporation
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K
dated January 31, 2007, filed February 2, 2007, File No. 001-32369).2.10
    
    Second Amendment to Agreement and Plan of Merger dated January 31,
2007, by and among Gasco Energy, Inc. and Brek Energy Corporation
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K
dated May 29, 2007, filed May 30, 2007, File No. 001-32369).2.11
    
    Third Amendment to Agreement and Plan of Merger dated October 22,
2007, by and between Gasco Energy, Inc. and Brek Energy Corporation
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K
dated October 22, 2007, filed October 23, 2007, File No. 001-32369).3.1
    
    Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Companys Form 8-K dated December 31,
1999, filed on January 21, 2000, File No. 000-26321).3.2
    
    Certificate of Amendment to Articles of Incorporation (incorporated
by reference to Exhibit 3.1 to the Companys Form 8-K/A dated January
31, 2001, filed on February 16, 2001, File No. 000-26321).3.3
    
    Certificate of Amendment to Articles of Incorporation dated June 21,
2005 (incorporated by reference to Exhibit 3.3 to the Companys Form
10-Q/A for the quarter ended June 30, 2005, filed on August 9, 2005,
File No. 001-32369).3.4
    
    Amended and Restated Bylaws of Gasco Energy, Inc., dated June 26,
2007 (incorporated by reference to Exhibit 3.1 to the Companys Form
8-K dated June 26, 2007, filed on June 27, 2007, File No. 001-32369).3.5
    
    Certificate of Designation for Series B Convertible Preferred Stock
(incorporated by reference to Exhibit 3.5 to the Companys Form S-1
Registration Statement dated April 16, 2003, filed April 17, 2003,
File No. 333-104592).
 117




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##### Table of Contents



4.1
    
    Form of Subscription and Registration Rights Agreement, dated as of
August 14, 2002 between the Company and certain investors Purchasing
Common Stock in August, 2002. (Filed as Exhibit 10.21 to the
Companys Form S-1 Registration Statement dated August 26, 2002,
filed on August 27, 2002, File No. 333-98759).4.2
    
    Form of Gasco Energy, Inc. 8.00% Convertible Debenture, dated October
15, 2003 between each of The Frost National Bank, Custodian FBO
Renaissance US Growth & Investment Trust PLC Trust No. W00740100,
HSBC Global Custody Nominee (U.K.) Limited Designation No. 896414 and
The Frost National Bank, Custodian FBO Renaissance Capital Growth &
Income Fund III, Inc. Trust No. W00740000 (incorporated by reference
to Exhibit 4.6 to the Companys Form 10-Q for the quarter ended
September 30, 2003, filed on November 10, 2003, File No. 000-26321).4.3
    
    Deed of Trust and Security Agreement, dated October 15, 2003 between
Pannonian and BFSUS Special Opportunities Trust PLC, Renaissance
Capital Growth & Income Fund III, Inc. and Renaissance US Growth &
Income Trust PLC (incorporated by reference to Exhibit 4.7 to the
Companys Form 10-Q for the quarter ended September 30, 2003, filed
on November 10, 2003, File No. 000-26321).4.4
    
    Subsidiary Guaranty Agreement, dated October 15, 2003 between
Pannonian and Renn Capital Group, Inc (incorporated by reference to
Exhibit 4.8 to the Companys Form 10-Q for the quarter ended
September 30, 2003, filed on November 10, 2003, File No. 000-26321).4.5
    
    Subsidiary Guaranty Agreement, dated October 15, 2003 between San
Joaquin Oil and Gas, Ltd. And Renn Capital Group, Inc (incorporated
by reference to Exhibit 4.9 to the Companys Form 10-Q for the
quarter ended September 30, 2003, filed on November 10, 2003, File
No. 000-26321).4.6
    
    Form of Subscription and Registration Rights Agreement between the
Company and investors purchasing Common Stock in October 2003
(incorporated by reference to Exhibit 4.10 to the Companys Form 10-Q
for the quarter ended September 30, 2003, filed on November 10, 2003,
File No. 000-26321).4.7
    
    Form of Subscription and Registration Rights Agreement between the
Company and investors purchasing Common Stock in February, 2004
(incorporated by reference to Exhibit 4.7 to the Companys Form 10-K
for the year ended December 31, 2003, filed on March 26, 2004, File
No. 000-26321).4.8
    
    Indenture dated as of October 20, 2004, between Gasco Energy, Inc.
and Wells Fargo Bank, National Association, as Trustee (incorporated
by reference to Exhibit 4.1 to the Companys Current Report on Form
8-K filed on October 20, 2004, File No. 000-26321).4.9
    
    Form of Global Note representing $65 million principal amount of 5.5%
Convertible Senior Notes due 2011 (incorporated by reference to
Exhibit A to Exhibit 4.1 to the Companys Current Report on Form 8-K
filed on October 20, 2004, File No. 000-26321).4.10
    
    Registration Rights Agreement dated October 20, 2004, among Gasco
Energy, Inc., J.P. Morgan Securities Inc. and First Albany Capital
Inc (incorporate by reference to Exhibit 4.10 to the Companys Form
10-Q for the quarter ended September 30, 2004 filed on November 12,
2004, File No. 000-26321).4.11
    
    Pledge and Security Agreement dated March 29, 2006 by and among Gasco
Energy, Inc., Gasco Production Company, Riverbend Gas Gathering, LLC,
Myton Oilfield Rentals, LLC and JPMorgan Chase Bank, N.A.
(incorporated by reference to Exhibit 4.2 to the Companys Form 8-K
dated March 29, 2006, filed March 31, 2006, File No. 001-32369).
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4.12
    
    Credit Agreement dated March 29, 2006 by and among Gasco Energy,
Inc., Gasco Production Company, Riverbend Gas Gathering, LLC,
Myton Oilfield Rentals, LLC, JPMorgan Chase Bank, N.A. and J.P.
Morgan Securities Inc. (incorporated by reference to Exhibit 4.1
to the Companys Form 8-K dated March 29, 2006, filed March 31,
2006, File No. 001-32369).4.13
    
    First Amendment to the Credit Agreement dated April 22, 2008 by
and among Gasco Energy, Inc., Gasco Production Company, Riverbend
Gas Gathering, LLC, Myton Oilfield Rentals, LLC, JPMorgan Chase
Bank, N.A. and J.P. Morgan Securities Inc. (incorporated by
reference to Exhibit 4.13 to the Companys Form 10-Q dated March
31, 2008, filed May 6, 2008, File No. 001-32369).4.14
    
    Second Amendment to the Credit Agreement, dated as of December 10,
2008, by and among by and among Gasco Energy, Inc., as Borrower,
certain subsidiaries of Gasco Energy, Inc., as Guarantors, the
Lenders party thereto, and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.1 to
the Companys Form 8-K dated December 12, 2008, filed on December
12, 2008, File No. 001-32369).4.15
    
    Voting Agreement dated September 20, 2006 by and among Gasco
Energy, Inc., Richard N. Jeffs, Gregory Pek, Ian Robinson, Michael
L. Nazmack, Eugene Sweeney and Shawne Malone (incorporated by
reference to Exhibit 4.1 to the Companys Form 8-K dated September
20, 2006, filed September 21, 2006, File No. 001-32369).4.16
    
    Underwriting Agreement dated April 13, 2007, between Gasco Energy,
Inc. and JP Morgan Securities Inc. (incorporated by reference to
Exhibit 1.1 to the Companys Form 8-K dated April 9, 2007, filed
April 13, 2007, File No. 001-32369).#10.1
    
    1999 Stock Option Plan (incorporated by reference to Exhibit 4.1
to the Companys Form 10-KSB for the fiscal year ended December
31, 1999, filed on April 14, 2000, File No. 000-26321).#10.2
    
    Form of Stock Option Agreement under the 1999 Stock Option Plan
(incorporated by reference to Exhibit 10.8 to the Companys Form
10-K for the fiscal year ended December 31, 2001, filed on March
29, 2002, File No. 000-26321).#10.3
    
    Stock Option Agreement dated January 2, 2001 between Gasco and
Mark A. Erickson (Filed as Exhibit 10.9 to the Companys Form 10-K
for the fiscal year ended December 31, 2001, filed on March 29,
2002, File No. 000-26321).#10.4
    
    Form of Stock Option Agreement between Gasco and each of the
individuals named therein (incorporated by reference to Exhibit
4.6 to the Companys Form S-8 Registration Statement (Reg. No.
333-122716), filed on February 10, 2005).#10.5
    
    Michael Decker Amended and Restated Employment Contract dated
February 14, 2003 (Filed as Exhibit 10.11 to the Companys Form
10-K for the fiscal year ended December 31, 2002, filed on March
29, 2003, File No. 000-26321).#10.6
    
    Mark A. Erickson Amended and Restated Employment Contract dated
February 14, 2003 (Filed as Exhibit 10.12 to the Companys Form
10-K for the fiscal year ended December 31, 2002, filed on March
29, 2003, File No. 000-26321).#10.7
    
    Amended and Restated Consulting Agreement dated February 14, 2003,
between Gasco and Marc Bruner (Filed as Exhibit 10.13 to the
Companys Form 10-K for the fiscal year ended December 31, 2002,
filed on March 29, 2003, File No. 000-26321).#10.8
    
    2003 Restricted Stock Plan (Filed as Appendix B to the Companys
Proxy Statement dated August 25, 2003 for its 2003 Annual Meeting
of Stockholders, filed on August 25, 2003, File No. 000-26321).
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#10.9
    
    Termination and Settlement Agreement, dated as of December 23,
2004, among Gasco Energy, Inc., Marc A. Bruner and Mark A.
Erickson (Filed as Exhibit 10.1 to the Companys Current Report on
Form 8-K filed on January 31, 2005, File No. 001-32369).#10.10
    
    Employment Agreement dated February 14, 2005 by and between Gasco
Energy, Inc. and W. King Grant (incorporated by reference to
Exhibit 4.2 to the Companys Form 10-Q for the quarter ended March
31, 2006, filed May 5, 2006, File No. 001-32369).#10.11
    
    Form of Amendment to Gasco Energy, Inc. Employment Agreement,
dated as of December 31, 2008, and effective as of January 1,
2009, by and among Gasco Energy, Inc. and certain of its
Executives (incorporated by reference to Exhibit 10.1 to the
Companys Form 8-K dated January 7, 2009, filed January 7, 2009,
File No. 001-32369).*#10.12
    
    Form of Second Amendment to Gasco Energy, Inc. Employment
Agreement, dated as of January 22, 2009, by and among Gasco
Energy, Inc. and certain of its Executives.10.13
    
    Participation Agreement dated August 1, 2007 by and between Gasco
Production Company and NFR Uinta Basin LLC (incorporated by
reference to Exhibit 10.11 to the Companys Form 10-Q for the
quarter ended June 30, 2007, filed August 1, 2007, File No.
001-32369).10.14
    
    Muddy Creek Exploration Agreement dated August 15, 2001, between
Gasco, Shama Zoe Limited Partnership and Burlington Oil and Gas
Company (Filed as Exhibit 10.15 to the Companys Form 10-K for the
fiscal year ended December 31, 2001, filed on March 29, 2002, File
No. 000-26321).10.15
    
    CD Exploration Agreement dated August 15, 2001, between Gasco,
Shama Zoe Limited Partnership and Burlington Oil and Gas Company
(Filed as Exhibit 10.16 to the Companys Form 10-K for the fiscal
year ended December 31, 2001, filed on March 29, 2002, File No.
000-26321).10.16
    
    Gamma Ray Exploration Agreement dated August 15, 2001, between
Gasco, Shama Zoe Limited Partnership and Burlington Oil and Gas
Company (Filed as Exhibit 10.17 to the Companys Form 10-K for the
fiscal year ended December 31, 2001, filed on March 29, 2002, File
No. 000-26321).10.17
    
    Sublette County, WY AMI Agreement dated August 22, 2001 between
Gasco, Alpine Gas Company and Burlington Oil and Gas Company
(Filed as Exhibit 10.18 to the Companys Form 10-K for the fiscal
year ended December 31, 2001, filed on March 29, 2002, File No.
000-26321).10.18
    
    Lead Contractor Agreement dated January 24, 2002, between Gasco
and Halliburton Energy Services, Inc. (Filed as Exhibit 10.19 to
the Companys Form 10-K for the fiscal year ended December 31,
2001, filed on March 29, 2002, File No. 000-26321).10.19
    
    Property Purchase Agreement, dated as of April 23, 2002, between
the Company and Shama Zoe Limited Partnership (Filed as Exhibit
2.1 to the Companys Form 8-K dated May 1, 2002, filed on May 9,
2002, File No. 000-26321).10.20
    
    Purchase Agreement, dated as of July 16, 2002, among the Company,
Pannonian Energy Inc., San Joaquin Oil & Gas Ltd., Brek Energy
Corporation, Brek Petroleum Inc., Brek Petroleum (California),
Inc. and certain stockholders (Filed as Exhibit 2.1 to the
Companys Form 8-K dated July 16, 2002, filed on July 31, 2002,
File No. 000-26321).10.21
    
    Amendment No. 1 to Property Purchase Agreement dated as of August
9, 2002 between the Company and Shama Zoe Limited Partnership.
(Filed as Exhibit 10.22 to the Companys Form S-1 dated August 15,
2002, filed on August 17, 2002, File No. 333-98759).
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10.22
    
    Financial Advisory Services Agreement dated August 22, 2002, between
the Company and Energy Capital Solutions LLC. (Filed as Exhibit
10.23 to the Companys Form S-1 dated August 16, 2002, filed on
August 17, 2002 File No. 333-98759).10.23
    
    Termination and Settlement Agreement, dated as of December 23, 2004,
among Gasco Energy, Inc., Marc A. Bruner and Mark A. Erickson (Filed
as Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
January 31, 2005, File No. 001-32369).10.24
    
    Joint Value Enhancement Agreement by and among Pannonian Energy
Inc., M-I, LLC, Nabors Drilling USA, LP, Pool Well Services Co., Red
Oak Capital Management LLC and Schlumberger Technology Corporation
dated January 16, 2004 (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K filed on January 21, 2004,
File No. 000-26321).*23.1
    
    Consent of Netherland, Sewell & Associates, Inc.*23.2
    
    Consent of KPMG*31
    
    Rule 13a-14(a)/15d-14(a) Certifications*32
    
    Section 1350 Certifications
 
 *
    
    Filed herewith.#
    
    Identifies management contracts and compensatory plans or arrangements. 121




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SIGNATURES
  GASCO ENERGY, INC.
    
    Dated: March 4, 2009
 By:
    
    /s/ Mark A. EricksonMark A. Erickson, President and CEO
  Signature
    
    Title
    
    Date/s/ Mark A. Erickson

Mark A. Erickson
    
    Director and President and Chief Executive Officer
    
    March 4, 2009/s/ Marc A. Bruner

Marc A. Bruner
    
    Director
    
    March 4, 2009/s/ Carl Stadelhofer

Carl Stadelhofer
    
    Director
    
    March 4, 2009/s/ W. King Grant

W. King Grant
    
    Executive Vice President and Chief Financial Officer
    
    March 4, 2009/s/ Carmen Lotito

Carmen (Tony) Lotito
    
    Director
    
    March 4, 2009/s/ Charles B. Crowell

Charles B. Crowell
    
    Director
    
    March 4, 2009/s/ Richard S. Langdon

Richard S. Langdon
    
    Director
    
    March 4, 2009/s/ R. J. Burgess

R.J. Burgess
    
    Director
    
    March 4, 2009/s/ John A. Schmit

John A. Schmit
    
    Director
    
    March 4, 2009/s/ Peggy A. Herald

Peggy A. Herald
    
    Vice President and Chief Accounting Officer
    
    March 4, 2009
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INDEX TO EXHIBITS
 2.1
    
    Agreement and Plan of Reorganization dated January 31, 2001 among San
Joaquin Resources Inc., Nampa Oil & Gas, Ltd., and Pannonian Energy,
Inc. (incorporated by reference to Exhibit 2.1 to the Companys Form
8-K dated January 31, 2001, filed on February 2, 2001, File No.
000-26321).2.2
    
    Agreement and Plan of Reorganization dated December 15, 1999 by and
between LEK International, Inc. and San Joaquin Oil & Gas Ltd.
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K
dated December 31, 1999, filed on January 21, 2000, File No.
000-26321).2.3
    
    Property Purchase Agreement dated as of April 23, 2002, between the
Company and Shama Zoe Limited Partnership (incorporated by reference
to Exhibit 2.1 to the Companys Form 8-K dated May 1, 2002, filed on
May 7, 2002, File No. 000-26321).2.4
    
    Purchase Agreement dated as of July 16, 2002, among Gasco, Pannonian
Energy Inc., San Joaquin Oil & Gas Ltd., Brek, Brek Petroleum Inc.,
Brek Petroleum (California), Inc. and certain stockholders of Gasco.
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K
dated July 16, 2002, filed on July 31, 2002, File No. 000-26321).2.5
    
    Purchase and Sale Agreement between ConocoPhillips and the Company
relating to the Riverbend Field, Uintah and Duchesne Counties, Utah,
Effective January 1, 2004 (incorporated by reference to Exhibit 2.1
to the Companys Form 8-K dated March 9, 2004, filed on March 15,
2004, File No. 000-26321).2.6
    
    Net Profits Purchase Agreement between Gasco Production Company, Red
Oak Capital Management, LLC, MBG, LLC and MBGV Partition, LLC, dated
August 6, 2004 (incorporated by reference to Exhibit 2.1 of the
Companys Current Report on Form 8-K filed September 7, 2004, File
No. 000-26321).2.7
    
    Purchase Supplement to Net Profits Purchase Agreement between Gasco
Production Company, Red Oak Capital Management, LLC, MBG, LLC and
MBGV Partition, LLC, dated August 20, 2004 (incorporated by reference
to Exhibit 2.2 of the Companys Current Report on Form 8-K filed
September 7, 2004, File No. 000-26321).2.8
    
    Agreement and Plan of Merger dated January 31, 2007, by and among
Gasco Energy, Inc., Gasco Acquisition, Inc. and Brek Energy
Corporation (incorporated by reference to Exhibit 2.1 to the
Companys Form 8-K dated September 20, 2006, filed September 21,
2006, File No. 001-32369).2.9
    
    First Amendment to Agreement and Plan of Merger dated January 31,
2007, by and between Gasco Energy, Inc. and Brek Energy Corporation
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K
dated January 31, 2007, filed February 2, 2007, File No. 001-32369).2.10
    
    Second Amendment to Agreement and Plan of Merger dated January 31,
2007, by and among Gasco Energy, Inc. and Brek Energy Corporation
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K
dated May 29, 2007, filed May 30, 2007, File No. 001-32369).2.11
    
    Third Amendment to Agreement and Plan of Merger dated October 22,
2007, by and between Gasco Energy, Inc. and Brek Energy Corporation
(incorporated by reference to Exhibit 2.1 to the Companys Form 8-K
dated October 22, 2007, filed October 23, 2007, File No. 001-32369).
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##### Table of Contents



3.1
    
    Amended and Restated Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Companys Form 8-K dated December 31,
1999, filed on January 21, 2000, File No. 000-26321).3.2
    
    Certificate of Amendment to Articles of Incorporation (incorporated by
reference to Exhibit 3.1 to the Companys Form 8-K/A dated January 31,
2001, filed on February 16, 2001, File No. 000-26321).3.3
    
    Certificate of Amendment to Articles of Incorporation dated June 21,
2005 (incorporated by reference to Exhibit 3.3 to the Companys Form
10-Q/A for the quarter ended June 30, 2005, filed on August 9, 2005,
File No. 001-32369).3.4
    
    Amended and Restated Bylaws of Gasco Energy, Inc., dated June 26, 2007
(incorporated by reference to Exhibit 3.1 to the Companys Form 8-K
dated June 26, 2007, filed on June 27, 2007, File No. 001-32369).3.5
    
    Certificate of Designation for Series B Convertible Preferred Stock
(incorporated by reference to Exhibit 3.5 to the Companys Form S-1
Registration Statement dated April 16, 2003, filed April 17, 2003,
File No. 333-104592).4.1
    
    Form of Subscription and Registration Rights Agreement, dated as of
August 14, 2002 between the Company and certain investors Purchasing
Common Stock in August, 2002. (Filed as Exhibit 10.21 to the Companys
Form S-1 Registration Statement dated August 26, 2002, filed on August
27, 2002, File No. 333-98759).4.2
    
    Form of Gasco Energy, Inc. 8.00% Convertible Debenture, dated October
15, 2003 between each of The Frost National Bank, Custodian FBO
Renaissance US Growth & Investment Trust PLC Trust No. W00740100, HSBC
Global Custody Nominee (U.K.) Limited Designation No. 896414 and The
Frost National Bank, Custodian FBO Renaissance Capital Growth & Income
Fund III, Inc. Trust No. W00740000 (incorporated by reference to
Exhibit 4.6 to the Companys Form 10-Q for the quarter ended September
30, 2003, filed on November 10, 2003, File No. 000-26321).4.3
    
    Deed of Trust and Security Agreement, dated October 15, 2003 between
Pannonian and BFSUS Special Opportunities Trust PLC, Renaissance
Capital Growth & Income Fund III, Inc. and Renaissance US Growth &
Income Trust PLC (incorporated by reference to Exhibit 4.7 to the
Companys Form 10-Q for the quarter ended September 30, 2003, filed on
November 10, 2003, File No. 000-26321).4.4
    
    Subsidiary Guaranty Agreement, dated October 15, 2003 between
Pannonian and Renn Capital Group, Inc (incorporated by reference to
Exhibit 4.8 to the Companys Form 10-Q for the quarter ended September
30, 2003, filed on November 10, 2003, File No. 000-26321).4.5
    
    Subsidiary Guaranty Agreement, dated October 15, 2003 between San
Joaquin Oil and Gas, Ltd. And Renn Capital Group, Inc (incorporated by
reference to Exhibit 4.9 to the Companys Form 10-Q for the quarter
ended September 30, 2003, filed on November 10, 2003, File No.
000-26321).4.6
    
    Form of Subscription and Registration Rights Agreement between the
Company and investors purchasing Common Stock in October 2003
(incorporated by reference to Exhibit 4.10 to the Companys Form 10-Q
for the quarter ended September 30, 2003, filed on November 10, 2003,
File No. 000-26321).4.7
    
    Form of Subscription and Registration Rights Agreement between the
Company and investors purchasing Common Stock in February, 2004
(incorporated by reference to Exhibit 4.7 to the Companys Form 10-K
for the year ended December 31, 2003, filed on March 26, 2004, File
No. 000-26321).
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4.8
    
    Indenture dated as of October 20, 2004, between Gasco Energy, Inc.
and Wells Fargo Bank, National Association, as Trustee
(incorporated by reference to Exhibit 4.1 to the Companys Current
Report on Form 8-K filed on October 20, 2004, File No. 000-26321).4.9
    
    Form of Global Note representing $65 million principal amount of
5.5% Convertible Senior Notes due 2011 (incorporated by reference
to Exhibit A to Exhibit 4.1 to the Companys Current Report on Form
8-K filed on October 20, 2004, File No. 000-26321).4.10
    
    Registration Rights Agreement dated October 20, 2004, among Gasco
Energy, Inc., J.P. Morgan Securities Inc. and First Albany Capital
Inc (incorporate by reference to Exhibit 4.10 to the Companys Form
10-Q for the quarter ended September 30, 2004 filed on November 12,
2004, File No. 000-26321).4.11
    
    Pledge and Security Agreement dated March 29, 2006 by and among
Gasco Energy, Inc., Gasco Production Company, Riverbend Gas
Gathering, LLC, Myton Oilfield Rentals, LLC and JPMorgan Chase
Bank, N.A. (incorporated by reference to Exhibit 4.2 to the
Companys Form 8-K dated March 29, 2006, filed March 31, 2006, File
No. 001-32369).4.12
    
    Credit Agreement dated March 29, 2006 by and among Gasco Energy,
Inc., Gasco Production Company, Riverbend Gas Gathering, LLC, Myton
Oilfield Rentals, LLC, JPMorgan Chase Bank, N.A. and J.P. Morgan
Securities Inc. (incorporated by reference to Exhibit 4.1 to the
Companys Form 8-K dated March 29, 2006, filed March 31, 2006, File
No. 001-32369).4.13
    
    First Amendment to the Credit Agreement dated April 22, 2008 by
and among Gasco Energy, Inc., Gasco Production Company, Riverbend
Gas Gathering, LLC, Myton Oilfield Rentals, LLC, JPMorgan Chase
Bank, N.A. and J.P. Morgan Securities Inc. (incorporated by
reference to Exhibit 4.13 to the Companys Form 10-Q dated March
31, 2008, filed May 6, 2008, File No. 001-32369).4.14
    
    Second Amendment to the Credit Agreement, dated as of December 10,
2008, by and among by and among Gasco Energy, Inc., as Borrower,
certain subsidiaries of Gasco Energy, Inc., as Guarantors, the
Lenders party thereto, and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated by reference to Exhibit 10.1 to
the Companys Form 8-K dated December 12, 2008, filed on December
12, 2008, File No. 001-32369).4.15
    
    Voting Agreement dated September 20, 2006 by and among Gasco
Energy, Inc., Richard N. Jeffs, Gregory Pek, Ian Robinson, Michael
L. Nazmack, Eugene Sweeney and Shawne Malone (incorporated by
reference to Exhibit 4.1 to the Companys Form 8-K dated September
20, 2006, filed September 21, 2006, File No. 001-32369).4.16
    
    Underwriting Agreement dated April 13, 2007, between Gasco Energy,
Inc. and JP Morgan Securities Inc. (incorporated by reference to
Exhibit 1.1 to the Companys Form 8-K dated April 9, 2007, filed
April 13, 2007, File No. 001-32369).#10.1
    
    1999 Stock Option Plan (incorporated by reference to Exhibit 4.1 to
the Companys Form 10-KSB for the fiscal year ended December 31,
1999, filed on April 14, 2000, File No. 000-26321).#10.2
    
    Form of Stock Option Agreement under the 1999 Stock Option Plan
(incorporated by reference to Exhibit 10.8 to the Companys Form
10-K for the fiscal year ended December 31, 2001, filed on March
29, 2002, File No. 000-26321).#10.3
    
    Stock Option Agreement dated January 2, 2001 between Gasco and Mark
A. Erickson (Filed as Exhibit 10.9 to the Companys 
Form 10-K for
the fiscal year ended December 31, 2001, filed on March 29, 2002,
File No. 000-26321).
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#10.4
    
    Form of Stock Option Agreement between Gasco and each of the
individuals named therein (incorporated by reference to Exhibit
4.6 to the Companys Form S-8 Registration Statement (Reg. No.
333-122716), filed on February 10, 2005).#10.5
    
    Michael Decker Amended and Restated Employment Contract dated
February 14, 2003 (Filed as Exhibit 10.11 to the Companys Form
10-K for the fiscal year ended December 31, 2002, filed on March
29, 2003, File No. 000-26321).#10.6
    
    Mark A. Erickson Amended and Restated Employment Contract dated
February 14, 2003 (Filed as Exhibit 10.12 to the Companys Form
10-K for the fiscal year ended December 31, 2002, filed on March
29, 2003, File No. 000-26321).#10.7
    
    Amended and Restated Consulting Agreement dated February 14,
2003, between Gasco and Marc Bruner (Filed as Exhibit 10.13 to
the Companys Form 10-K for the fiscal year ended December 31,
2002, filed on March 29, 2003, File No. 000-26321).#10.8
    
    2003 Restricted Stock Plan (Filed as Appendix B to the Companys
Proxy Statement dated August 25, 2003 for its 2003 Annual Meeting
of Stockholders, filed on August 25, 2003, File No. 000-26321).#10.9
    
    Termination and Settlement Agreement, dated as of December 23,
2004, among Gasco Energy, Inc., Marc A. Bruner and Mark A.
Erickson (Filed as Exhibit 10.1 to the Companys Current Report
on Form 8-K filed on January 31, 2005, File No. 001-32369).#10.10
    
    Employment Agreement dated February 14, 2005 by and between Gasco
Energy, Inc. and W. King Grant (incorporated by reference to
Exhibit 4.2 to the Companys Form 10-Q for the quarter ended
March 31, 2006, filed May 5, 2006, File No. 001-32369).#10.11
    
    Form of Amendment to Gasco Energy, Inc. Employment Agreement,
dated as of December 31, 2008, and effective as of January 1,
2009, by and among Gasco Energy, Inc. and certain of its
Executives (incorporated by reference to Exhibit 10.1 to the
Companys Form 8-K dated January 7, 2009, filed January 7, 2009,
File No. 001-32369).*#10.12
    
    Form of Second Amendment to Gasco Energy, Inc. Employment
Agreement, dated as of January 22, 2009, by and among Gasco
Energy, Inc. and certain of its Executives.10.13
    
    Participation Agreement dated August 1, 2007 by and between Gasco
Production Company and NFR Uinta Basin LLC (incorporated by
reference to Exhibit 10.11 to the Companys Form 10-Q for the
quarter ended June 30, 2007, filed August 1, 2007, File No.
001-32369).10.14
    
    Muddy Creek Exploration Agreement dated August 15, 2001, between
Gasco, Shama Zoe Limited Partnership and Burlington Oil and Gas
Company (Filed as Exhibit 10.15 to the Companys Form 10-K for
the fiscal year ended December 31, 2001, filed on March 29, 2002,
File No. 000-26321).10.15
    
    CD Exploration Agreement dated August 15, 2001, between Gasco,
Shama Zoe Limited Partnership and Burlington Oil and Gas Company
(Filed as Exhibit 10.16 to the Companys Form 10-K for the fiscal
year ended December 31, 2001, filed on March 29, 2002, File No.
000-26321).10.16
    
    Gamma Ray Exploration Agreement dated August 15, 2001, between
Gasco, Shama Zoe Limited Partnership and Burlington Oil and Gas
Company (Filed as Exhibit 10.17 to the Companys Form 10-K for
the fiscal year ended December 31, 2001, filed on March 29, 2002,
File No. 000-26321).10.17
    
    Sublette County, WY AMI Agreement dated August 22, 2001 between
Gasco, Alpine Gas Company and Burlington Oil and Gas Company
(Filed as Exhibit 10.18 to the Companys Form 10-K for the fiscal
year ended December 31, 2001, filed on March 29, 2002, File No.
000-26321).
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10.18
    
    Lead Contractor Agreement dated January 24, 2002, between Gasco and
Halliburton Energy Services, Inc. (Filed as Exhibit 10.19 to the
Companys Form 10-K for the fiscal year ended December 31, 2001,
filed on March 29, 2002, File No. 000-26321).10.19
    
    Property Purchase Agreement, dated as of April 23, 2002, between the
Company and Shama Zoe Limited Partnership (Filed as Exhibit 2.1 to
the Companys Form 8-K dated May 1, 2002, filed on May 9, 2002, File
No. 000-26321).10.20
    
    Purchase Agreement, dated as of July 16, 2002, among the Company,
Pannonian Energy Inc., San Joaquin Oil & Gas Ltd., Brek Energy
Corporation, Brek Petroleum Inc., Brek Petroleum (California), Inc.
and certain stockholders (Filed as Exhibit 2.1 to the Companys Form
8-K dated July 16, 2002, filed on July 31, 2002, File No.
000-26321).10.21
    
    Amendment No. 1 to Property Purchase Agreement dated as of August 9,
2002 between the Company and Shama Zoe Limited Partnership. (Filed
as Exhibit 10.22 to the Companys Form S-1 dated August 15, 2002,
filed on August 17, 2002, File No. 333-98759).10.22
    
    Financial Advisory Services Agreement dated August 22, 2002, between
the Company and Energy Capital Solutions LLC. (Filed as Exhibit
10.23 to the Companys Form S-1 dated August 16, 2002, filed on
August 17, 2002 File No. 333-98759).10.23
    
    Termination and Settlement Agreement, dated as of December 23, 2004,
among Gasco Energy, Inc., Marc A. Bruner and Mark A. Erickson (Filed
as Exhibit 10.1 to the Companys Current Report on Form 8-K filed on
January 31, 2005, File No. 001-32369).10.24
    
    Joint Value Enhancement Agreement by and among Pannonian Energy
Inc., M-I, LLC, Nabors Drilling USA, LP, Pool Well Services Co., Red
Oak Capital Management LLC and Schlumberger Technology Corporation
dated January 16, 2004 (incorporated by reference to Exhibit 10.1 to
the Companys Current Report on Form 8-K filed on January 21, 2004,
File No. 000-26321).*23.1
    
    Consent of Netherland, Sewell & Associates, Inc.*23.2
    
    Consent of KPMG*31
    
    Rule 13a-14(a)/15d-14(a) Certifications*32
    
    Section 1350 Certifications
 
 *
    
    Filed herewith.#
    
    Identifies management contracts and compensatory plans or arrangements. 127