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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, 2007
 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
    
    98-0204105(State or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)8 Inverness Drive East, Suite 100, Englewood, CO
    
    80112(Address of principal executive offices)
    
    (Zip Code)
 (303) 483-0044
  Title of each class
    
    Name of each exchange on which registeredCOMMON STOCK, $0.0001 PAR VALUE
    
    AMERICAN STOCK EXCHANGE
  o þ
 o þ
 þ o
 o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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Table of Contents
 Part IItem 1.
    
    Business
    
    
    1Business of Gasco
    
    
    1History
    
    
    1Acquisition, Exploration and Development Expenses
    
    
    2Principal Products or Services and Markets
    
    
    3Competitive Business Conditions, Competitive Position in the
Industry and Methods of Competition
    
    
    3Governmental Regulations and Environmental Laws
    
    
    4Number of Total Employees and Number of Full-Time Employees
    
    
    6Available Information
    
    
    7Cautionary Statement Regarding Forward-Looking Statements
    
    
    7Glossary of Natural Gas and Oil Terms
    
    
    9Item 1 A.
    
    Risk Factors
    
    
    13Item 1 B.
    
    Unresolved Staff Comments
    
    
    25Item 2.
    
    Properties
    
    
    26Petroleum and Natural Gas Properties
    
    
    26Company Reserve Estimates
    
    
    28Volumes, Prices and Operating Expenses
    
    
    29Development, Exploration and Acquisition Capital Expenditures
    
    
    30Productive Gas Wells
    
    
    30Oil 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
    
    
    34Item 6.
    
    Selected Financial Data
    
    
    34Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    35Forward Looking Statements
    
    
    35Overview
    
    
    35Drilling Activity
    
    
    36Forward Sales Contract
    
    
    37Derivatives
    
    
    37




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Stock Offering
    
    
    37Drilling Program
    
    
    37Acquisition
    
    
    38Credit Facility
    
    
    38Production and Reserve Information
    
    
    40Liquidity and Capital Resources
    
    
    41Capital Budget
    
    
    42Schedule of Contractual Obligations
    
    
    42Critical Accounting Policies and Estimates
    
    
    43Results of Operations
    
    
    46Recent Accounting Pronouncements
    
    
    52Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    
    
    54Item 8.
    
    Financial Statements and Supplementary Data
    
    
    56Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    102Item 9A.
    
    Controls and Procedures
    
    
    102Item 9B.
    
    Other Information
    
    
    105Part IIIItem 10.
    
    Directors, Executive Officers and Corporate Governance
    
    
    105Item 11.
    
    Executive Compensation
    
    
    105Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    106Item 13.
    
    Certain Relationships and Related Transactions and Director Independence
    
    
    106Item 14.
    
    Principal Accounting Fees and Services
    
    
    106Item 15.
    
    Exhibits, Financial Statement Schedules
    
    
    106Consent of Netherland, Sewell & Associates, IncConsent of Hein & Associates LLPRule 13a-14(a)/15d-14(a) CertificationsSection 1350 Certifications




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PART I
 
 ITEM 1 - BUSINESS
 
 Business of Gasco
   
 History
   1




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Acquisition, Exploration and Development Expenses
     2




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Principal Products or Services and Markets
  For the Years Ended December 31,2007
    
    2006
    
    2005Revenues associated with ConocoPhillips purchases
    
    $
    15,272,000
    
    
    $
    19,777,000
    
    
    $
    13,506,000Percentage of Gasco revenues
    
    
    80
    %
    
    
    94
    %
    
    
    96
    %
 
 Competitive Business Conditions, Competitive Position in the Industry and Methods of Competition
     3




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Governmental Regulations and Environmental Laws
    4




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5




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Massachusetts, et al. v. EPA
  
 Number of Total Employees and Number of Full-Time Employees
  6




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Available Information
 http://www.gascoenergy.com
 
 CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
  
    
    financial position;
    
    business strategy;
    
    budgets;
    
    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;
    
    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.
 7




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
    
    delays in obtaining drilling permits;
    
    uncertainties in the availability of distribution facilities for our natural gas;
    
    general economic conditions;
    
    natural gas and oil price volatility;
    
    the fluctuation in the demand for natural gas and oil;
    
    uncertainties in the projection of future rates of production and timing of development
expenditures;
    
    operating hazards attendant to the natural gas and oil business;
    
    climatic conditions;
    
    the risks associated with exploration;
    
    our ability to generate sufficient cash flow to operate;
    
    availability of capital;
    
    the strength and financial resources of our competitors;
    
    downhole drilling and completion risks that are generally not recoverable from third
parties or insurance;
    
    actions or inactions of third-party operators of our properties;
    
    environmental risks;
    
    regulatory developments;
    
    potential mechanical failure or under-performance of significant wells;
    
    availability and cost of services, material and equipment;
    
    our ability to find and retain skilled personnel, and
    
    the lack of liquidity of our common stock.
 8




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GLOSSARY OF NATURAL GAS AND OIL TERMS
  Bbl
 Bbl/d
 Bcf
 Bcfe
 Btu or British Thermal Unit
 Completion
 Condensate
 Developed acreage
 Development well
 Dry hole
 Exploratory well
 9




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Farm-in or farm-out
 Field
 Gross acres or gross wells
 Lead
 MBbls
 Mcf
 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
 10




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Productive well
 Prospect
 Proved area
 Proved developed oil and gas reserves
 Proved oil and gas reserves i.e.
 Proved properties
 Proved undeveloped reserves
 11




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Reservoir
 Service well.
 Standardized Measure of Discounted Future Net Cash Flows.
 Stratigraphic test well
 Undeveloped acreage
 Unproved properties
 Working interest
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ITEM 1A. Risk Factors
  We have incurred losses since our inception and may continue to incur losses in the future.
   The volatility of natural gas and oil prices could have a material adverse effect on our business.
 
 
    
    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;
    
    domestic and foreign governmental regulations; and
    
    the price and availability of alternative fuels.
  13




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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.
  Pipeline constraints may limit Gascos ability to sell its gas production and may negatively affect
the price at which Gasco sells its gas.
  14




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Our oil and gas reserve information is estimated and may not reflect our actual reserves .
  
    
    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.
    15




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Future changes in commodity prices or our estimates and operational developments may result in
impairment charges.
    The development of oil and gas properties involves substantial risks that may materially and
adversely affect us.
   16




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We may not be able to obtain adequate financing to continue our operations.
   Delays in obtaining drilling permits could have a materially adverse effect on our ability to
develop our properties in a timely manner.
  We may have difficulty managing growth in our business .
  17




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We compete with larger companies in acquiring properties and operating and drilling services.
   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 .
    18




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Our ability to market the oil and gas that we produce is essential to our business.
  Environmental costs and liabilities and changing environmental regulation could materially affect
our cash flow.
  We are subject to complex governmental regulations which may adversely affect the cost of 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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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.
  Financial difficulties encountered by our partners or third-party operators could adversely affect
the exploration and development of our prospects.
  20




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Shortages of supplies, equipment and personnel may adversely affect our operations .
  Hedging our production may result in losses .
  
    
    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.
  Lower oil and natural gas prices could negatively impact our ability to borrow.
  21




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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.
  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.
  22




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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.
   23




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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;
    
    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.
  24




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We have not previously paid dividends on our common stock and we do not anticipate doing so in the
foreseeable future.
  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
  25




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ITEM 2
- PROPERTIES
 
 Petroleum and Natural Gas Properties
 Riverbend Project
     
    
    The agreement consists of Gascos leasehold position in portions of Uintah County, Utah
and does not include assets in California, Nevada or Wyoming.
    
    The drilling program targets Wasatch, Mesaverde, Blackhawk and Upper Mancos formations.
 26




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
    
    Gasco can continue to independently develop its acreage.
      Greater Green River Basin Project
   27




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Southern California Project
  Nevada Project
  
 Company Reserve Estimates
  Mcf of Gas
    
    Bbls of OilTotal Proved Reserve Quantities
    
    
    104,338,338
    
    
    
    1,070,802
 Proved
    
    
    ProvedUndeveloped
    
    
    Developed
    
    
    TotalPresent
Value of Discounted Future Net Cash
Flows (a)
    
    $
    26,738,800
    
    
    $
    135,104,100
    
    
    $
    161,842,900Standardized Measure (a)(b)
    
    
    
    
    
    
    
    
    
    $
    160,464,000
 
 (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, 2007. The
prices used in the reserve report prepared by Netherland, Sewell & Associates, Inc.,
independent petroleum engineers, were of $6.53 per Mcf of gas and $73.95 per bbl of oil.
These prices should not be 28




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interpreted as a prediction of future prices. Present value of discounted future net cash flows
differs from the standardized measure of future net cash flows only because the former does not
include the effects of estimated future income tax expenses ($2.38 million as of December 31,
2007).Management uses discounted future net cash flows, which is calculated without deducting
estimated future income tax expenses, and the present value thereof as one measure of the value
of the Companys current proved reserves and to compare relative values among peer companies
without regard to income taxes. We also understand that securities analysts and rating agencies
use this measure in similar ways. While future net revenue and present value are based on
prices, costs and discount factors which are consistent from company to company, the
standardized measure of discounted future net cash flows is dependent on the unique tax
situation of each individual company.(b)
    
    The standardized measure of discounted future net cash flows is calculated in accordance with
SFAS 69. Additional information on the standardized measure is presented in Note 17 of the
notes to our consolidated financial statements included in Item 8 of this report.   
 Volumes, Prices and Operating Expenses
  For the Years Ended December 31,2007
    
    2006
    
    2005Natural gas production (Mcf)
    
    
    4,011,978
    
    
    
    3,686,638
    
    
    
    1,648,870Average sales price per Mcf
    
    $
    4.19
    
    
    $
    5.38
    
    
    $
    8.16Oil production (Bbl)
    
    
    41,454
    
    
    
    21,646
    
    
    
    10,636Average sales price per Bbl
    
    $
    56.38
    
    
    $
    54.86
    
    
    $
    56.91Expenses per Mcfe:Lease operating
    
    $
    0.92
    
    
    $
    0.92
    
    
    $
    0.51General and administrative
    
    $
    2.12
    
    
    $
    2.47
    
    
    $
    3.50Depreciation, depletion and amortization
    
    $
    2.29
    
    
    $
    2.85
    
    
    $
    2.83Impairment
    
    $
    22.79
    
    
    $
    13.36
    
    
    $
    
 29




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Development, Exploration and Acquisition Capital Expenditures
   For the Years Ended December 31,2007
    
    
    2006
    
    
    2005Property acquisition costs:Unproved
    
    $
    35,578,808
    
    
    $
    1,285,289
    
    
    $
    410,062Proved
    
    
    2,496,100
    
    
    
    2,563,862
    
    
    
    Exploration costs
    
    
    44,421,848
    
    
    
    75,523,006
    
    
    
    49,659,906Development costs
    
    
    
    
    
    
    7,898,7262
    
    
    
    Total
    
    $
    82,496,756
    
    
    $
    87,270,883
    
    
    $
    50,069,968
 
 Productive Gas Wells
  30




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Productive Oil and GasWellsGross
    
    NetProducing oil wells
    
    
    11
    
    
    
    10.9Shut-in oil wells
    
    
    4
    
    
    
    4.0Producing gas wells
    
    
    101
    
    
    
    58.8Shut-in gas wells
    
    
    1
    
    
    
    1.0117
    
    
    
    74.7
  
 Oil and Gas Acreage
  Undeveloped Acres
    
    Developed AcresGross
    
    Net
    
    Gross
    
    NetUtah
    
    
    119,867
    
    
    
    89,090
    
    
    
    4,680
    
    
    
    3,373Wyoming
    
    
    68,108
    
    
    
    41,312
    
    
    
    80
    
    
    
    60Nevada
    
    
    87,803
    
    
    
    41,893
    
    
    
    
    
    
    
    California
    
    
    16,336
    
    
    
    13,089
    
    
    
    
    
    
    
    Total acres
    
    
    292,114
    
    
    
    185,384
    
    
    
    4,760
    
    
    
    3,433
  31




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Expiring in 2008
    
    Expiring in 2009
    
    Expiring in 2010Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetUtah
    
    
    640
    
    
    
    120
    
    
    
    9,876
    
    
    
    7,627
    
    
    
    1,464
    
    
    
    995Wyoming
    
    
    4,980
    
    
    
    3,264
    
    
    
    3,587
    
    
    
    2,014
    
    
    
    7,076
    
    
    
    1,976California
    
    
    360
    
    
    
    210
    
    
    
    5,615
    
    
    
    4,948
    
    
    
    7,754
    
    
    
    5,219Nevada
    
    
    
    
    
    
    
    
    
    
    1,440
    
    
    
    288
    
    
    
    
    
    
    
    Total
    
    
    5,980
    
    
    
    3,594
    
    
    
    20,518
    
    
    
    14,877
    
    
    
    16,294
    
    
    
    8,190
  
 Drilling Activity
  For the Years Ended December 31,2007
    
    2006
    
    2005Gross
    
    Net
    
    Gross
    
    Net
    
    Gross
    
    NetExploratory Wells:Productive
    
    
    23
    
    
    
    10.1
    
    
    
    22
    
    
    
    13.9
    
    
    
    21
    
    
    
    14.9Dry
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    .25
    
    
    
    
    
    
    
    Total wells
    
    
    23
    
    
    
    10.1
    
    
    
    23
    
    
    
    14.15
    
    
    
    21
    
    
    
    14.9Development Wells:Productive
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    2.6
    
    
    
    
    
    
    
    Dry
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total wells
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    2.6
    
    
    
    
    
    
    
    
 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
    
    Low2007First Quarter
    
    $
    2.65
    
    
    $
    1.50Second Quarter
    
    
    2.75
    
    
    
    1.73Third Quarter
    
    
    2.69
    
    
    
    1.78Fourth Quarter
    
    
    2.60
    
    
    
    1.622006First Quarter
    
    
    7.49
    
    
    
    4.23Second Quarter
    
    
    6.18
    
    
    
    3.55Third Quarter
    
    
    4.74
    
    
    
    2.35Fourth Quarter
    
    
    3.44
    
    
    
    2.10
 
 Securities Authorized for Issuance under Equity Compensation Plans
  
 ITEM 6
- SELECTED FINANCIAL DATA
  34




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For the Years Ended December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Summary of OperationsGas revenue
    
    $
    16,818,623
    
    
    $
    19,851,663
    
    
    $
    13,462,977
    
    
    $
    2,928,689
    
    
    $
    1,206,741Oil revenue
    
    
    2,337,129
    
    
    
    1,187,509
    
    
    
    605,330
    
    
    
    195,199
    
    
    
    56,702General & administrative expense
    
    
    9,021,977
    
    
    
    9,415,787
    
    
    
    5,987,019
    
    
    
    4,191,978
    
    
    
    2,819,675Impairment
    
    
    97,090,000
    
    
    
    51,000,000
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (104,373,921
    )
    
    
    (55,817,767
    )
    
    
    (37,635
    )
    
    
    (4,205,830
    )
    
    
    (2,526,525
    )Net loss per share
    
    
    (1.12
    )
    
    
    (0.65
    )
    
    
    (0.00
    )
    
    
    (0.07
    )
    
    
    (0.07
    )
 As of December 31,2007
    
    2006
    
    2005
    
    2004
    
    2003Balance SheetWorking capital (deficit)
    
    $
    (9,330,209
    )
    
    $
    11,129,942
    
    
    $
    86,078,958
    
    
    $
    52,719,245
    
    
    $
    1,192,246Cash and cash equivalents
    
    
    1,843,425
    
    
    
    12,876,879
    
    
    
    62,661,368
    
    
    
    25,717,081
    
    
    
    3,081,109Property, plant and equipment, net
    
    
    107,676,102
    
    
    
    129,652,008
    
    
    
    100,464,395
    
    
    
    48,731,851
    
    
    
    28,531,708Total assets
    
    
    122,511,789
    
    
    
    165,454,418
    
    
    
    201,199,972
    
    
    
    117,368,168
    
    
    
    33,059,179Noncurrent liabilities
    
    
    75,090,876
    
    
    
    65,981,536
    
    
    
    65,302,674
    
    
    
    65,108,566
    
    
    
    2,483,084Stockholders equity
    
    
    25,247,791
    
    
    
    77,171,921
    
    
    
    127,440,160
    
    
    
    46,213,198
    
    
    
    27,382,083
 
 ITEM 7
- MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
 Forward Looking Statements
  
 Overview
  35




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Drilling Activity
   Cash paid for acquisitions, development and exploration
    
    $
    63,508,879Cash spent for 2006 property costs that were accrued at 12/31/06
    
    
    (12,755,910
    )Capital expenditures for 2007 projects
    
    $
    50,752,969Lease acquisitions and related costs
    
    $
    3,839,830Gathering system, facilities and equipment costs
    
    
    3,656,463Seismic costs
    
    
    2,663,415Drilling and completion of 1 net Mancos well (a)
    
    
    9,175,200Drilling and completion of 9.1 net wells
    
    
    31,418,061Capital expenditures for 2007 projects
    
    $
    50,752,969
 
 (a)
    
    Represents the Federal 14-31-9-19 well in which Gasco has a 100% working interest that
was drilled to the Mancos formation during the third quarter of 2007. 36




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Forward Sales Contract
  
 Derivatives
  
 Stock Offering
  
 Drilling Program
  37




---



##### Table of Contents




    
    The agreement consists of Gascos leasehold position in portions of Uintah County, Utah
and does not include assets in California, Nevada or Wyoming.
    
    The drilling program targets Wasatch, Mesaverde, Blackhawk and Upper Mancos formations.
    
    Gasco can continue to independently develop its acreage.
  
 Acquisition
    
 Credit Facility
  38




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1 2
   39




---



##### Table of Contents



Production and Reserve Information
  For the Years Ended December 31,2007
    
    2006
    
    2005Natural gas production (Mcf)
    
    
    4,011,978
    
    
    
    3,686,638
    
    
    
    1,648,870Average sales price per Mcf
    
    $
    4.19
    
    
    $
    5.38
    
    
    $
    8.16Year-end estimated proved gas reserves (Mcf)
    
    
    104,338,338
    
    
    
    39,975,964
    
    
    
    74,455,128Oil production (Bbl)
    
    
    41,454
    
    
    
    21,646
    
    
    
    10,636Average sales price per Bbl
    
    $
    56.38
    
    
    $
    54.86
    
    
    $
    56.91Year-end estimated proved oil reserves (Bbl)
    
    
    1,070,802
    
    
    
    370,581
    
    
    
    377,288Production (Mcfe)
    
    
    4,260,702
    
    
    
    3,816,514
    
    
    
    1,712,686Year-end estimated proved reserves (Mcfe)
    
    
    110,763,150
    
    
    
    42,199,450
    
    
    
    76,718,856
    40




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##### Table of Contents




    
    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 current estimated capital investment based on recent 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.
 
 Liquidity and Capital Resources
   For the Years Ended December 31,2007
    
    2006
    
    2005Net cash provided by operations
    
    $
    11,646,586
    
    
    $
    9,362,251
    
    
    $
    2,135,032Net cash used in investing activities
    
    
    (50,859,311
    )
    
    
    (60,496,759
    )
    
    
    (45,851,527
    )Net cash provided by financing activities
    
    
    28,179,271
    
    
    
    1,350,019
    
    
    
    80,660,782Net cash flow
    
    
    (11,033,454
    )
    
    
    (49,784,489
    )
    
    
    36,944,287
   41




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Capital Budget
    
 Schedule of Contractual Obligations
  42




---



##### Table of Contents



Payments due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    Total
    
    
    year
    
    
    13 years
    
    
    35 years
    
    
    5 yearsConvertible NotesPrincipal
    
    $
    65,000,000
    
    
    $
    
    
    
    $
    
    
    
    $
    65,000,000
    
    
    $
    Interest
    
    
    13,455,903
    
    
    
    3,575,000
    
    
    
    7,150,000
    
    
    
    2,730,903
    
    
    
    Long-term debt (a)
    
    
    9,000,000
    
    
    
    
    
    
    
    
    
    
    
    9,000,000
    
    
    
    Drilling rig contracts (b)
    
    
    16,611,000
    
    
    
    7,686,000
    
    
    
    8,925,000
    
    
    
    
    
    
    
    Operating leases
    
    
    866,527
    
    
    
    426,898
    
    
    
    439,629
    
    
    
    
    
    
    
    Employment contracts
    
    
    39,167
    
    
    
    39,167
    
    
    
    
    
    
    
    
    
    
    
    Asset retirement
obligations (c)
    
    
    1,030,283
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,030,283Total Contractual Cash
Obligations
    
    $
    106,002,880
    
    
    $
    11,727,065
    
    
    $
    16,514,629
    
    
    $
    76,730,903
    
    
    $
    1,030,283
 
 (a)
    
    Amount represents outstanding principal under our Credit Facility.(b)
    
    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.(c)
    
    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.
 
 Critical Accounting Policies and Estimates
  Oil and Gas Reserves
  43




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44




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##### Table of Contents



Impairment of Long-lived Assets
   Stock-Based Compensation
  Derivatives
  45




---



##### Table of Contents



Results of Operations
 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
  Gathering Revenue and Expenses
  46




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##### Table of Contents



Unrealized Derivative Loss
  Rental Income
  Interest 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
  47




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##### Table of Contents



Depletion, Depreciation and Amortization
  Impairment
  General and Administrative Expense
  48




---



##### Table of Contents



For the Years Ended December 31,2007
    
    
    2006Total general and administrative costs
    
    $
    7,004,761
    
    
    $
    6,424,012General and administrative costs allocated 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
  2006 Compared to 2005
 Oil and Gas Revenue and Production
  49




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##### Table of Contents



For the Years Ended December 31,2006
    
    2005Natural gas production (Mcf)
    
    
    3,686,638
    
    
    
    1,648,870Average sales price per Mcf
    
    $
    5.38
    
    
    $
    8.16Natural gas revenue
    
    $
    19,851,663
    
    
    $
    13,462,977Oil production (Bbl)
    
    
    21,646
    
    
    
    10,636Average sales price per Bbl
    
    $
    54.86
    
    
    $
    56.91Oil revenue
    
    $
    1,187,509
    
    
    $
    605,330Production (Mcfe)
    
    
    3,816,514
    
    
    
    1,712,686Total oil and gas revenue
    
    $
    21,039,172
    
    
    $
    14,068,307
  Gathering Revenue and Expenses
  Interest Income
  50




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##### Table of Contents



Lease Operating Expenses
  For the Years EndedDecember 31,2006
    
    
    2005Direct operating expenses and overhead
    
    $
    2,367,488
    
    
    $
    705,350Workover expense
    
    
    368,954
    
    
    
    2,807Total operating expenses
    
    $
    2,736,442
    
    
    $
    708,157Operating expenses per Mcfe
    
    $
    0.72
    
    
    $
    0.41Production and property taxes
    
    $
    777,126
    
    
    $
    162,436Production and property taxes per Mcfe
    
    $
    0.20
    
    
    $
    0.10Total lease operating expense per Mcfe
    
    $
    0.92
    
    
    $
    0.51
  Depletion, Depreciation and Amortization
  Impairment
  General and Administrative Expense
  51




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##### Table of Contents



For the Years EndedDecember 31,2006
    
    
    2005Total general and administrative costs
    
    $
    6,424,012
    
    
    $
    5,542,534General and administrative costs allocated to
drilling, completion and operating activities
    
    
    (1,159,734
    )
    
    
    (299,750
    )General and administrative expense
    
    $
    5,264,278
    
    
    $
    5,242,784General and administrative expenses per Mcfe
    
    $
    1.38
    
    
    $
    3.06Total stock-based compensation costs
    
    $
    4,158,532
    
    
    $
    744,235Stock-based compensation costs capitalized
    
    
    (7,023
    )
    
    
    Stock-based compensation
    
    $
    4,151,509
    
    
    $
    744,235Stock-based compensation per Mcfe
    
    $
    1.08
    
    
    $
    0.43Total general and administrative expense
including stock-based compensation
    
    $
    9,415,787
    
    
    $
    5,987,019Total general and administrative expense per Mcfe
    
    $
    2.46
    
    
    $
    3.49
  Interest Expense
  
 Recent Accounting Pronouncements
   52




---



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53




---



##### 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.
 
 Agreement Type
    
    Term
    
    Quantity
    
    Fixed Price
    
    Floating Price (b)Counterparty payer
    
    Gasco payerSwap (a)
    
    1/08  12/08
    
    3,000 Mmbtu/day
    
    $6.11/Mmbtu
    
    NW RockiesSwap
    
    2/08  12/08
    
    2,000 Mmbtu/day
    
    $6.91/Mmbtu
    
    NW RockiesSwap
    
    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
 54




---



##### Table of Contents



Index
    
    Call Price
    
    Put PriceAgreement Type
    
    Term
    
    Quantity

  
    Price (b)
    
    Counterparty buyer
    
    Gasco buyerCostless collar
    
    2/08  12/08
    
    3,000 Mmbtu/day
    
    NW Rockies
    
    $6.90/Mmbtu
    
    $6.00/MmbtuCostless collar
    
    1/09  12/09
    
    3,000 Mmbtu/day
    
    NW Rockies
    
    $7.50/Mmbtu
    
    $6.50/Mmbtu
 
 (a)
    
    Contract was initiated in December 2007 and is included in the accompanying
financial statements as derivative instruments at fair market value as a liability of
$343,759.(b)
    
    Northwest Pipeline Rocky Mountains  Inside FERC first of month index price.   Interest Rate Risk
  55




---



##### Table of Contents



ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    57Consolidated Balance Sheets at December 31, 2007 and 2006
    
    58-59Consolidated Statements of Operations for the Years Ended
December 31, 2007, 2006 and 2005
    
    60Consolidated Statements of Stockholders Equity for the Years
Ended December 31, 2007, 2006 and 2005
    
    61Consolidated Statements of Cash Flows for the Years Ended
December 31, 2007, 2006 and 2005
    
    62Notes to Consolidated Financial Statements
    
    63-101
 56




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
     Share-Based
Payment
  HEIN & ASSOCIATES LLP
 57




---



##### Table of Contents



GASCO ENERGY, INC.
 
 CONSOLIDATED BALANCE SHEETS
 December 31,2007
    
    
    2006ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    1,843,425
    
    
    $
    12,876,879Restricted investment
    
    
    
    
    
    
    3,575,000Short-term investments
    
    
    
    
    
    
    6,000,000Accounts receivableJoint interest billings
    
    
    5,639,174
    
    
    
    5,955,186Revenue
    
    
    3,872,959
    
    
    
    3,081,850Inventory
    
    
    1,160,325
    
    
    
    1,297,498Prepaid expenses
    
    
    327,030
    
    
    
    644,490Total
    
    
    12,842,913
    
    
    
    33,430,903PROPERTY, PLANT AND EQUIPMENT,at costOil and gas properties (full cost method)Proved properties
    
    
    215,273,593
    
    
    
    159,407,481Unproved properties
    
    
    41,644,348
    
    
    
    12,538,067Wells in progress
    
    
    1,058,727
    
    
    
    5,215,252Gathering assets
    
    
    15,708,353
    
    
    
    12,703,346Facilities and equipment
    
    
    9,680,010
    
    
    
    8,492,632Furniture, fixtures and other
    
    
    284,791
    
    
    
    241,009Total
    
    
    283,649,822
    
    
    
    198,597,787Less accumulated depletion, depreciation, amortization and impairment
    
    
    (175,973,720
    )
    
    
    (68,945,779
    )Total
    
    
    107,676,102
    
    
    
    129,652,008NON-CURRENT ASSETSDeposit
    
    
    139,500
    
    
    
    Deferred financing costs
    
    
    1,853,274
    
    
    
    2,371,5071,992,774
    
    
    
    2,371,507TOTAL ASSETS
    
    $
    122,511,789
    
    
    $
    165,454,418
  58




---



##### Table of Contents



GASCO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS (continued
 December 31,2007
    
    
    2006LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    13,206,767
    
    
    $
    16,228,056Revenue payable
    
    
    1,477,268
    
    
    
    1,678,427Advances from joint interest owners
    
    
    5,718,234
    
    
    
    2,955,376Derivative instruments
    
    
    343,759
    
    
    
    Accrued interest
    
    
    844,094
    
    
    
    844,102Accrued expenses
    
    
    583,000
    
    
    
    595,000Total
    
    
    22,173,122
    
    
    
    22,300,961NONCURRENT LIABILITIES5.5% Convertible Senior Notes
    
    
    65,000,000
    
    
    
    65,000,000Long-term debt
    
    
    9,000,000
    
    
    
    Asset retirement obligation
    
    
    1,030,283
    
    
    
    908,543Deferred rent expense
    
    
    60,593
    
    
    
    72,993Total
    
    
    75,090,876
    
    
    
    65,981,536COMMITMENTS AND CONTINGENCIES (NOTE 13)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;
107,290,471 shares issued and 107,216,771 shares outstanding as of
December 31, 2007; 86,173,715 shares issued and 86,100,015
shares outstanding as of December 31, 2006
    
    
    10,729
    
    
    
    8,617Additional paid-in-capital
    
    
    215,094,271
    
    
    
    162,646,592Accumulated deficit
    
    
    (189,726,914
    )
    
    
    (85,352,993
    )Less cost of treasury stock of 73,700 common shares
    
    
    (130,295
    )
    
    
    (130,295
    )Total
    
    
    25,247,791
    
    
    
    77,171,921TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
    
    $
    122,511,789
    
    
    $
    165,454,418
  59




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##### Table of Contents



GASCO ENERGY, INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Year Ended December 31,2007
    
    
    2006
    
    
    2005REVENUESGas
    
    $
    16,818,623
    
    
    $
    19,851,663
    
    
    $
    13,462,977Oil
    
    
    2,337,129
    
    
    
    1,187,509
    
    
    
    605,330Unrealized derivative loss
    
    
    (343,759
    )
    
    
    
    
    
    
    Gathering
    
    
    1,937,785
    
    
    
    1,941,059
    
    
    
    1,411,259Rental income
    
    
    1,029,094
    
    
    
    
    
    
    
    Interest income
    
    
    419,334
    
    
    
    2,694,719
    
    
    
    1,383,859Total
    
    
    22,198,206
    
    
    
    25,674,950
    
    
    
    16,863,425OPERATING EXPENSESLease operating
    
    
    3,932,924
    
    
    
    3,513,568
    
    
    
    870,593Gathering operations
    
    
    2,471,645
    
    
    
    2,718,357
    
    
    
    1,166,841Depletion, depreciation and amortization
    
    
    9,780,767
    
    
    
    10,885,697
    
    
    
    4,843,439Impairment
    
    
    97,090,000
    
    
    
    51,000,000
    
    
    
    General and administrative
    
    
    9,021,977
    
    
    
    9,415,787
    
    
    
    5,987,019Interest expense
    
    
    4,274,814
    
    
    
    3,959,308
    
    
    
    4,033,168Total
    
    
    126,572,127
    
    
    
    81,492,717
    
    
    
    16,901,060NET LOSS
    
    
    (104,373,921
    )
    
    
    (55,817,767
    )
    
    
    (37,635
    )Preferred stock dividends
    
    
    
    
    
    
    (1,393
    )
    
    
    (33,347
    )NET LOSS ATTRIBUTABLE TO COMMON
STOCKHOLDERS
    
    $
    (104,373,921
    )
    
    $
    (55,819,160
    )
    
    $
    (70,982
    )NET LOSS
PER COMMON SHARE - BASIC AND
DILUTED
    
    $
    (1.12
    )
    
    $
    (0.65
    )
    
    $
    (0.00
    )WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING  BASIC AND DILUTED
    
    
    93,504,982
    
    
    
    85,383,306
    
    
    
    72,152,977
  60




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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, 2004
    
    
    2,255
    
    
    $
    2
    
    
    
    70,590,909
    
    
    $
    7,059
    
    
    $
    76,346,463
    
    
    $
    (512,440
    )
    
    $
    (29,497,591
    )
    
    $
    (130,295
    )
    
    $
    46,213,198Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    12,929,516
    
    
    
    1,293
    
    
    
    79,449,446
    
    
    
    (172,773
    )
    
    
    
    
    
    
    
    
    
    
    79,277,966Conversion of preferred shares
to common shares
    
    
    (1,492
    )
    
    
    (1
    )
    
    
    937,827
    
    
    
    94
    
    
    
    (93
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercise of common stock options
    
    
    
    
    
    
    
    
    
    
    583,240
    
    
    
    58
    
    
    
    1,275,685
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,275,743Stock compensation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    502,601
    
    
    
    241,634
    
    
    
    
    
    
    
    
    
    
    
    744,235Dividends
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,347
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (33,347
    )Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (37,635
    )
    
    
    
    
    
    
    (37,635
    )Balance 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
    )
    
    $
    25,247,791
  61




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GASCO ENERGY, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2007
    
    
    2006
    
    
    2005CASH FLOWS FROM OPERATING ACTIVITIESNet loss
    
    $
    (104,373,921
    )
    
    $
    (55,817,767
    )
    
    $
    (37,635
    )Adjustment to reconcile net loss to net cash provided by operating activitiesDepletion, depreciation, amortization and impairment expense
    
    
    106,782,341
    
    
    
    61,816,513
    
    
    
    4,829,403Accretion of asset retirement obligation
    
    
    88,426
    
    
    
    69,184
    
    
    
    14,036Stock-based compensation
    
    
    3,085,121
    
    
    
    4,151,509
    
    
    
    744,235Unrealized derivative loss
    
    
    343,759
    
    
    
    
    
    
    
    Amortization of deferred rent expense
    
    
    (12,400
    )
    
    
    (5,734
    )
    
    
    48,727Landlord incentive payment
    
    
    
    
    
    
    
    
    
    
    30,000Amortization of deferred financing costs
    
    
    518,233
    
    
    
    503,216
    
    
    
    458,167Changes in operating assets and liabilities:Accounts receivable
    
    
    (475,097
    )
    
    
    (4,129,844
    )
    
    
    (3,862,148
    )Inventory
    
    
    137,173
    
    
    
    (114,516
    )
    
    
    (173,068
    )Prepaid expenses
    
    
    177,960
    
    
    
    1,064
    
    
    
    (186,999
    )Accounts payable
    
    
    2,825,300
    
    
    
    2,376,327
    
    
    
    (3,109,102
    )Revenue payable
    
    
    (201,159
    )
    
    
    20,286
    
    
    
    1,323,376Advances from joint interest owners
    
    
    2,762,858
    
    
    
    479,296
    
    
    
    1,584,081Accrued interest
    
    
    (8
    )
    
    
    4
    
    
    
    148,959Accrued expenses
    
    
    (12,000
    )
    
    
    12,713
    
    
    
    323,000Net cash provided by operating activities
    
    
    11,646,586
    
    
    
    9,362,251
    
    
    
    2,135,032CASH FLOWS FROM INVESTING ACTIVITIESCash paid for acquisitions, development and exploration
    
    
    (63,508,879
    )
    
    
    (79,557,785
    )
    
    
    (55,181,914
    )Brek acquisition transaction costs net of cash received
    
    
    (356,803
    )
    
    
    
    
    
    
    Cash paid for furniture, fixtures and other
    
    
    (43,782
    )
    
    
    (67,994
    )
    
    
    (106,790
    )Proceeds from property sales
    
    
    3,475,153
    
    
    
    
    
    
    
    828,102Proceeds from the sale of short-term investments
    
    
    6,000,000
    
    
    
    9,000,000
    
    
    
    12,000,000Cash designated as restricted
    
    
    
    
    
    
    (9,980
    )
    
    
    (6,816,967
    )Cash undesignated as restricted
    
    
    3,575,000
    
    
    
    10,139,000
    
    
    
    3,426,042Net cash used in investing activities
    
    
    (50,859,311
    )
    
    
    (60,496,759
    )
    
    
    (45,851,527
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from sale of common stock
    
    
    19,300,000
    
    
    
    
    
    
    
    79,693,764Borrowings under line of credit
    
    
    18,000,000
    
    
    
    
    
    
    
    Repayment of borrowings
    
    
    (9,000,000
    )
    
    
    
    
    
    
    Cash paid for debt issuance costs
    
    
    (120,729
    )
    
    
    (240,262
    )
    
    
    (275,378
    )Exercise of options to purchase common stock
    
    
    
    
    
    
    1,591,674
    
    
    
    1,275,743Preferred dividends
    
    
    
    
    
    
    (1,393
    )
    
    
    (33,347
    )Net cash provided by financing activities
    
    
    28,179,271
    
    
    
    1,350,019
    
    
    
    80,660,782NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    (11,033,454
    )
    
    
    (49,784,489
    )
    
    
    36,944,287CASH AND CASH EQUIVALENTS:BEGINNING OF PERIOD
    
    
    12,876,879
    
    
    
    62,661,368
    
    
    
    25,717,081END OF PERIOD
    
    $
    1,843,425
    
    
    $
    12,876,879
    
    
    $
    62,661,368
  62




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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
  Restricted Investment
  Short-term Investments
  63




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##### Table of Contents



Concentration of Credit Risk
   Significant Customers
  Inventory
  Oil and Gas Properties
   64




---



##### Table of Contents



65




---



##### Table of Contents



Capitalized Interest
  Wells in Progress
  66




---



##### Table of Contents



Gathering Assets
  Facilities and Equipment
   Impairment of Long-lived Assets
  Deferred Financing Costs
  Financial Instruments
  67




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##### Table of Contents



Derivatives
   
    
    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.
 68




---



##### Table of Contents



Fixed Price
    
    Floating Price (b)Agreement Type
    
    Term
    
    Quantity
    
    Counterparty payer
    
    Gasco payerSwap (a)
    
    1/08  12/08
    
    3,000 Mmbtu/day
    
    $6.11/Mmbtu
    
    NW RockiesSwap
    
    2/08  12/08
    
    2,000 Mmbtu/day
    
    $6.91/Mmbtu
    
    NW RockiesSwap
    
    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
  Agreement
    
    
    
    
    
    Index
    
    Call Price
    
    Put PriceType
    
    Term
    
    Quantity
    
    Price (b)
    
    Counterparty buyer
    
    Gasco buyerCostless collar
    
    2/08  12/08
    
    3,000 Mmbtu/day
    
    NW Rockies
    
    $6.90/Mmbtu
    
    $6.00/MmbtuCostless collar
    
    1/09  12/09
    
    3,000 Mmbtu/day
    
    NW Rockies
    
    $7.50/Mmbtu
    
    $6.50/Mmbtu
 
 (a)
    
    Contract was initiated in December 2007 and is included in the accompanying
financial statements as derivative instruments at fair market value as a liability of
$343,759.(b)
    
    Northwest Pipeline Rocky Mountains  Inside FERC first of month index price.   Asset Retirement Obligation
  69




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Year Ended December 31,2007
    
    
    2006Balance beginning of period
    
    $
    908,543
    
    
    $
    223,947Liabilities incurred
    
    
    126,145
    
    
    
    545,879Liabilities settled (a)
    
    
    (28,263
    )
    
    
    Revisions in estimated cash flows (b)
    
    
    (64,568
    )
    
    
    69,533Accretion expense
    
    
    88,426
    
    
    
    69,184Balance end of period
    
    $
    1,030,283
    
    
    $
    908,543
 
 (a)
    
    Liabilities settled represent the reduction in our asset retirement obligation
resulting from the sale of working interests in connection with the drilling program
further described in Note 6.(b)
    
    Revisions represent our periodic reassessment of the expected cash flows and
assumptions inherent in the calculation of the asset retirement liability. Off Balance Sheet Arrangements
  Revenue Recognition
   70




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##### Table of Contents



Computation of Net Loss per Share
  Use of Estimates
   Other Comprehensive Income
   71




---



##### Table of Contents



Income Taxes
   Stock Compensation
  Recent Accounting Pronouncements
   72




---



##### Table of Contents



73




---



##### Table of Contents



Reclassifications
  NOTE 3  STOCK-BASED COMPENSATION
    74




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##### Table of Contents



2007
    
    
    2006
    
    
    2005Stock-based compensation
    
    $
    3,131,406
    
    
    $
    4,158,533
    
    
    $
    744,235Consultant compensation capitalized
as proved property
    
    
    (46,285
    )
    
    
    (7,024
    )
    
    
    Total stock-based compensation expense
    
    $
    3,085,121
    
    
    $
    4,151,509
    
    
    $
    744,235
   For the Year Ended December 31,2005Net loss attributable to common stockholders:As reported
    
    $
    (70,982
    )Add:
Stock-based employee compensation included in net loss
    
    
    344,873Less:
Stock-based employee compensation determined under the fair value method
    
    
    (2,920,997
    )Pro forma
    
    $
    (2,647,106
    )Net loss per common share:As reported
    
    $
    (0.00
    )Pro forma
    
    $
    (0.04
    )
  Employee and Director Options2007
    
    2006
    
    2005Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected price volatility
    
    
    81-84
    %
    
    
    85-88
    %
    
    
    75-79
    %Risk-free interest rate
    
    
    3.58  4.8
    %
    
    
    4.64  5.08
    %
    
    
    3.7-3.9
    %Expected life of options
    
    6 years
    
    
    6 years
    

    
    5 years
  75




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##### Table of Contents



Stock Options
  2007
    
    2006
    
    2005Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageStock
    
    Exercise
    
    Stock
    
    Exercise
    
    Stock
    
    ExerciseOptions
    
    Price
    
    Options
    
    Price
    
    Options
    
    PriceOutstanding at beginning
of year
    
    
    9,878,502
    
    
    $
    2.74
    
    
    
    8,812,667
    
    
    $
    2.29
    
    
    
    7,043,250
    
    
    $
    1.85Granted
    
    
    1,540,000
    
    
    $
    1.91
    
    
    
    1,925,000
    
    
    $
    4.97
    
    
    
    2,450,000
    
    
    $
    3.53Exercised
    
    
    
    
    
    
    
    
    
    
    (604,161
    )
    
    $
    2.63
    
    
    
    (643,083
    )
    
    $
    2.16Forfeited
    
    
    (276,867
    )
    
    $
    3.00
    
    
    
    (186,671
    )
    
    $
    4.63
    
    
    
    (37,500
    )
    
    $
    3.39Cancelled
    
    
    (412,497
    )
    
    $
    3.49
    
    
    
    (68,333
    )
    
    $
    3.84
    
    
    
    0
    
    
    
    n/aOutstanding at the end of
year
    
    
    10,729,138
    
    
    $
    2.58
    
    
    
    9,878,502
    
    
    $
    2.74
    
    
    
    8,812,667
    
    
    $
    2.29Exercisable at December 31,
    
    
    8,333,472
    
    
    $
    2.44
    
    
    
    7,543,463
    
    
    $
    2.14
    
    
    
    6,574,281
    
    
    $
    1.97
  Outstanding Options
    
    
    Vested optionsNumber of shares
    
    
    10,729,138
    
    
    
    8,333,472Weighted
Average Remaining Contractual Life in years
    
    
    6.38
    
    
    
    5.56Weighted Average Exercise Price
    
    $
    2.58
    
    
    $
    2.44Aggregate intrinsic value
    
    $
    2,586,657
    
    
    $
    2,452,250
     76




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##### Table of Contents



WeightedAverageNumber of
    
    
    Number of
    
    
    RemainingRange of exercise
    
    Shares
    
    
    Shares
    
    
    Contractual LifePrices per Share
    
    Outstanding
    
    
    Exercisable
    
    
    (years)$1.00$1.99
    
    
    4,482,304
    
    
    
    3,155,004
    
    
    
    6.1$2.00$2.99
    
    
    2,051,000
    
    
    
    1,905,165
    
    
    
    5.2$3.00$3.99
    
    
    2,840,833
    
    
    
    2,570,829
    
    
    
    6.7$4.00$4.99
    
    
    
    
    
    
    
    
    
    
    $5.00$5.99
    
    
    1,355,001
    
    
    
    702,474
    
    
    
    8.3Total
    
    
    10,729,138
    
    
    
    8,333,472
    
    
    
    6.38
 Restricted Stock
  2007
    
    2006
    
    2005Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageRestricted
    
    Fair
    
    Restricted
    
    Fair
    
    Restricted
    
    FairStock
    
    Value
    
    Stock
    
    Value
    
    Stock
    
    ValueOutstanding at the
beginning of the
year
    
    
    365,920
    
    
    $
    2.39
    
    
    
    565,380
    
    
    $
    1.58
    
    
    
    695,850
    
    
    $
    1.33Granted
    
    
    234,500
    
    
    $
    2.02
    
    
    
    131,250
    
    
    $
    3.02
    
    
    
    23,700
    
    
    $
    6.81Vested
    
    
    (262,450
    )
    
    $
    2.03
    
    
    
    (305,710
    )
    
    $
    0.96
    
    
    
    (154,170
    )
    
    $
    1.26Forfeited
    
    
    (29,150
    )
    
    $
    2.41
    
    
    
    (25,000
    )
    
    $
    2.59
    
    
    
    0
    
    
    
    n/aOutstanding at the
end of the year
    
    
    308,820
    
    
    $
    2.36
    
    
    
    365,920
    
    
    $
    2.39
    
    
    
    565,380
    
    
    $
    1.58
   77




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##### Table of Contents



NOTE 4  OIL AND GAS PROPERTY
  As of December 31,2007
    
    
    2006Proved properties
    
    
    215,273,593
    
    
    
    159,407,481Unproved properties
    
    
    41,644,348
    
    
    
    12,538,067Wells in progress
    
    
    1,058,727
    
    
    
    5,215,252Gathering assets
    
    
    15,708,353
    
    
    
    12,703,346Facilities and equipment
    
    
    9,680,010
    
    
    
    8,492,632Total
    
    
    283,365,031
    
    
    
    193,356,778Less accumulated depletion, depreciation,
amortization and impairment
    
    
    (175,809,007
    )
    
    
    (68,843,794
    )$
    107,556,024
    
    
    $
    124,512,984
  For the Years Ended December 31,2007
    
    
    2006
    
    
    2005Property acquisition costs:Unproved
    
    $
    35,578,808
    
    
    $
    1,285,289
    
    
    $
    410,062Proved
    
    
    2,496,100
    
    
    
    2,563,862
    
    
    
    Exploration costs
    
    
    44,421,848
    
    
    
    75,523,006
    
    
    
    49,659,906Development costs
    
    
    
    
    
    
    7,898,726
    
    
    
    Total
    
    $
    82,496,756
    
    
    $
    87,270,883
    
    
    $
    50,069,968
   2007
    
    
    2006Utah
    
    $
    39,842,505
    
    
    $
    5,325,051Wyoming
    
    
    
    
    
    
    6,210,382California
    
    
    1,639,794
    
    
    
    1,002,634Nevada
    
    
    162,049
    
    
    
    $
    41,644,348
    
    
    $
    12,538,067
 78




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##### Table of Contents



Balance
    
    
    Costs Incurred During Years Ended December 31,12/31/07
    
    
    2007
    
    
    2006
    
    
    2005
    
    
    PriorAcquisition costs
    
    $
    33,881,322
    
    
    $
    30,975,234
    
    
    $
    1,178,073
    
    
    $
    283,114
    
    
    $
    1,444,901Exploration costs
    
    
    7,763,026
    
    
    
    4,603,573
    
    
    
    2,205,099
    
    
    
    791,914
    
    
    
    162,440Total
    
    $
    41,644,348
    
    
    $
    35,578,807
    
    
    $
    3,383,172
    
    
    $
    1,075,028
    
    
    $
    1,607,341
  NOTE 5  PROPERTY ACQUISITIONS
    79




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##### Table of Contents



PurchasePriceComponentsFair value of common stock issued
    
    $
    30,359,636Acquisition costs
    
    
    389,664Total purchase price
    
    $
    30,749,300
  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
    )
  80




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##### Table of Contents



NOTE 6 DRILLING PROGRAM
   
    
    The agreement consists of Gascos leasehold position in portions of Uintah County, Utah
and does not include assets in California, Nevada or Wyoming.
    
    The drilling program targets Wasatch, Mesaverde, Blackhawk and Upper Mancos formations.
    
    Gasco can continue to independently develop its acreage.
  NOTE 7  CREDIT FACILITY
   81




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##### Table of Contents



1 2
   NOTE 8
- CONVERTIBLE SENIOR NOTES
   82




---



##### Table of Contents



NOTE 9
- STOCKHOLDERS EQUITY
  83




---



##### Table of Contents



Series B Convertible Preferred Stock
  Common Stock 
     84




---



##### Table of Contents



NOTE
10 - STATEMENT OF CASH FLOWS
  
    
    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.
 85




---



##### Table of Contents




    
    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.
    
    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.
  
    
    Recognition of an asset retirement obligation for the plugging and abandonment costs
related to the Companys oil and gas properties valued at $123,190.
    
    Additions to oil and gas properties included in accounts payable of $2,007,522.
    
    Reduction in the asset retirement obligation of $21,845 representing the plugging and
abandonment activity during 2005.
    
    Conversion of 1,492 shares of Preferred Stock into 937,827 shares of common stock.
    
    Write-off of fully depreciated furniture and fixtures of $89,773.
 86




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##### Table of Contents



NOTE
11  INCOME TAXES
  2007
    
    
    2006
    
    
    2005Current taxes:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Deferred taxes:Federal
    
    
    (34,665,412
    )
    
    
    (18,026,132
    )
    
    
    (189,075
    )State
    
    
    (4,091,509
    )
    
    
    (2,655,462
    )
    
    
    (783
    )Less: valuation allowance
    
    
    38,756,921
    
    
    
    20,681,594
    
    
    
    189,858Net income tax provision (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    
  2007
    
    
    2006
    
    
    2005Tax provision (benefit) at federal statutory rate
    
    $
    (36,530,872
    )
    
    $
    (19,536,218
    )
    
    $
    (13,172
    )State taxes, net of federal tax effects
    
    
    (2,659,481
    )
    
    
    (1,726,051
    )
    
    
    (509
    )Change in Tax Rate from Prior Year
    
    
    
    
    
    
    
    
    
    
    (182,551
    )Permanent items
    
    
    433,432
    
    
    
    580,675
    
    
    
    6,374Valuation allowance
    
    
    38,756,921
    
    
    
    20,681,594
    
    
    
    189,858Net income tax provision (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    
 87




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##### Table of Contents



2007
    
    
    2006Deferred tax assets:Federal and state net operating loss carryovers
    
    $
    43,425,200
    
    
    $
    20,236,268Oil and gas property impairment
    
    
    65,332,715
    
    
    
    20,647,375Deferred rent
    
    
    23,819
    
    
    
    29,241Deferred compensation
    
    
    1,999,499
    
    
    
    1,420,625Total deferred tax assets
    
    
    110,781,233
    
    
    
    42,333,509Less: valuation allowance
    
    
    (86,176,357
    )
    
    
    (28,827,261
    )24,604,876
    
    
    
    13,506,248Deferred tax liabilities:Oil and gas property
    
    
    12,876,955
    
    
    
    7,178,935Other property, plant & equipment
    
    
    8,872,435
    
    
    
    5,211,582Other
    
    
    2,855,486
    
    
    
    1,151,731Total deferred tax liabilities
    
    
    24,604,876
    
    
    
    13,506,248Net deferred tax asset
    
    $
    
    
    
    $
    
  88




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##### Table of Contents



NOTE
12  RELATED PARTY TRANSACTIONS
   NOTE
13 - COMMITMENTS
   Year Ending December 31,
    
    Annual Rentals2008
    
    $
    159,8642009
    
    
    167,9622010
    
    
    71,390Total
    
    $
    399,219
     89




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##### Table of Contents



Year Ending December 31,
    
    Annual Drilling Obligations2008
    
    $
    7,686,0002009
    
    
    7,686,0002010
    
    
    1,239,000Total
    
    $
    16,611,000
    90




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##### Table of Contents



NOTE
14 - EMPLOYEE BENEFIT PLANS
  NOTE
15  SELECTED QUARTERLY INFORMATION (Unaudited)
  For the Quarter Ended2007
    
    March 31,
    
    June 30,
    
    September 30,
    
    December 31,Gross revenue
    
    $
    6,439,731
    
    
    $
    6,111,470
    
    
    $
    4,037,049
    
    
    $
    5,609,956Net revenue from oil
and gas operations
    
    
    5,388,389
    
    
    
    4,241,645
    
    
    
    2,089,513
    
    
    
    2,625,662Net loss
    
    
    (176,174
    )
    
    
    (66,294,642
    )
    
    
    (35,146,725
    )
    
    
    (2,756,380
    )Net loss per share
basic and diluted
    
    
    (0.00
    )
    
    
    (0.70
    )
    
    
    (0.37
    )
    
    
    (0.03
    )
  91




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##### Table of Contents



For the Quarter Ended2006
    
    March 31,
    
    June 30,
    
    September 30,
    
    December 31,Gross revenue
    
    $
    7,259,522
    
    
    $
    5,784,328
    
    
    $
    6,058,733
    
    
    $
    6,572,367Net revenue from oil
and gas operations
    
    
    5,495,008
    
    
    
    3,740,996
    
    
    
    3,597,027
    
    
    
    3,915,275Net loss
    
    
    (177,157
    )
    
    
    (53,036,083
    )
    
    
    (786,759
    )
    
    
    (1,817,768
    )Net loss per share
basic and diluted
    
    
    (0.00
    )
    
    
    (0.62
    )
    
    
    (0.01
    )
    
    
    (0.02
    )
  NOTE
16  CONSOLIDATING FINANCIAL STATEMENTS
   92




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##### Table of Contents



Condensed Consolidating Balance Sheet
As of December 31, 2007
(Unaudited)
 GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    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 cost 

Oil 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
 93




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##### Table of Contents



Condensed Consolidating Balance Sheet
As of December 31, 2006
(Unaudited)
 GuarantorParent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    10,831,082
    
    
    $
    2,045,797
    
    
    $
    
    
    
    $
    12,876,879Restricted investment
    
    
    3,575,000
    
    
    
    
    
    
    
    
    
    
    
    3,575,000Short-term investments
    
    
    6,000,000
    
    
    
    
    
    
    
    
    
    
    
    6,000,000Accounts receivable
    
    
    
    
    
    
    9,037,036
    
    
    
    
    
    
    
    9,037,036Inventory
    
    
    
    
    
    
    1,297,498
    
    
    
    
    
    
    
    1,297,498Prepaid expenses
    
    
    618,505
    
    
    
    25,985
    
    
    
    
    
    
    
    644,490Total
    
    
    21,024,587
    
    
    
    12,406,316
    
    
    
    
    
    
    
    33,430,903PROPERTY, PLANT AND EQUIPMENT,at cost 

Oil and gas properties (full cost method)Proved mineral interests
    
    
    7,024
    
    
    
    159,400,457
    
    
    
    
    
    
    
    159,407,481Unproved mineral interests
    
    
    506,049
    
    
    
    12,032,018
    
    
    
    
    
    
    
    12,538,067Wells in progress
    
    
    
    
    
    
    5,215,252
    
    
    
    
    
    
    
    5,215,252Gathering assets
    
    
    
    
    
    
    12,703,346
    
    
    
    
    
    
    
    12,703,346Facilities and equipment
    
    
    
    
    
    
    8,492,632
    
    
    
    
    
    
    
    8,492,632Furniture, fixtures and other
    
    
    241,009
    
    
    
    
    
    
    
    
    
    
    
    241,009Total
    
    
    754,082
    
    
    
    197,843,705
    
    
    
    
    
    
    
    198,597,787Less accumulated depreciation, depletion and amortization
    
    
    (101,985
    )
    
    
    (68,843,794
    )
    
    
    
    
    
    
    (68,945,779
    )Total
    
    
    652,097
    
    
    
    128,999,911
    
    
    
    
    
    
    
    129,652,008OTHER ASSETSDeferred financing costs
    
    
    2,371,507
    
    
    
    
    
    
    
    
    
    
    
    2,371,507Intercompany
    
    
    154,960,689
    
    
    
    (154,960,689
    )
    
    
    
    
    
    
    Total
    
    
    157,332,196
    
    
    
    (154,960,689
    )
    
    
    
    
    
    
    2,371,507TOTAL ASSETS
    
    $
    179,008,880
    
    
    $
    (13,554,462
    )
    
    
    
    
    
    $
    165,454,418LIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    218,366
    
    
    $
    16,009,690
    
    
    $
    
    
    
    $
    16,228,056Revenue payable
    
    
    
    
    
    
    1,678,427
    
    
    
    
    
    
    
    1,678,427Advances from joint interest owners
    
    
    
    
    
    
    2,955,376
    
    
    
    
    
    
    
    2,955,376Accrued interest
    
    
    844,102
    
    
    
    
    
    
    
    
    
    
    
    844,102Accrued expenses
    
    
    595,000
    
    
    
    
    
    
    
    
    
    
    
    595,000Total
    
    
    1,657,468
    
    
    
    20,643,493
    
    
    
    
    
    
    
    22,300,961NONCURRENT LIABILITIES5.5% Convertible Senior Notes
    
    
    65,000,000
    
    
    
    
    
    
    
    
    
    
    
    65,000,000Asset retirement obligation
    
    
    
    
    
    
    908,543
    
    
    
    
    
    
    
    908,543Deferred rent expense
    
    
    72,993
    
    
    
    
    
    
    
    
    
    
    
    72,993Total
    
    
    65,072,993
    
    
    
    908,543
    
    
    
    
    
    
    
    65,981,536STOCKHOLDERS EQUITYCommon stock
    
    
    8,617
    
    
    
    
    
    
    
    
    
    
    
    8,617Other
    
    
    112,269,802
    
    
    
    (35,106,498
    )
    
    
    
    
    
    
    77,163,304Total
    
    
    112,278,419
    
    
    
    (35,106,498
    )
    
    
    
    
    
    
    77,171,921TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY
    
    $
    179,008,880
    
    
    $
    (13,554,462
    )
    
    $
    
    
    
    $
    165,454,418
 94




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##### Table of Contents



Consolidating Statements of Operations
 GuarantorFor the Year Ended December 31, 2007
    
    Parent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedREVENUESOil and gas
    
    $
    
    
    
    $
    19,155,752
    
    
    $
    
    
    
    $
    19,155,752Gathering
    
    
    
    
    
    
    5,319,426
    
    
    
    (3,381,641
    )
    
    
    1,937,785Unrealized derivative loss
    
    
    (343,759
    )
    
    
    
    
    
    
    
    
    
    
    (343,759
    )Rental income
    
    
    
    
    
    
    1,029,094
    
    
    
    
    
    
    
    1,029,094Interest income
    
    
    418,854
    
    
    
    480
    
    
    
    
    
    
    
    419,334Total
    
    
    75,095
    
    
    
    25,504,752
    
    
    
    (3,381,641
    )
    
    
    22,198,206OPERATING EXPENSESLease operating
    
    
    
    
    
    
    7,314,565
    
    
    
    (3,381,641
    )
    
    
    3,932,924Gathering operations
    
    
    
    
    
    
    2,471,645
    
    
    
    
    
    
    
    2,471,645Depletion, depreciation and amortization
    
    
    62,729
    
    
    
    9,718,038
    
    
    
    
    
    
    
    9,780,767Impairment
    
    
    
    
    
    
    97,090,000
    
    
    
    
    
    
    
    97,090,000General and administrative
    
    
    9,021,977
    
    
    
    
    
    
    
    
    
    
    
    9,021,977Interest expense
    
    
    4,274,814
    
    
    
    
    
    
    
    
    
    
    
    4,274,814Total
    
    
    13,359,520
    
    
    
    116,594,248
    
    
    
    (3,381,641
    )
    
    
    126,572,127NET LOSS
    
    
    (13,284,425
    )
    
    
    (91,089,496
    )
    
    
    
    
    
    
    (104,373,921
    )NET LOSS ATTRIBUTABLE TO
COMMON STOCKHOLDERS
    
    $
    (13,284,425
    )
    
    $
    (91,089,496
    )
    
    $
    
    
    
    $
    (104,373,921
    )
 GuarantorFor the Year Ended December 31, 2006
    
    Parent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedREVENUESOil and gas
    
    $
    
    
    
    $
    21,039,172
    
    
    $
    
    
    
    $
    21,039,172Gathering
    
    
    
    
    
    
    4,344,616
    
    
    
    (2,403,557
    )
    
    
    1,941,059Interest income
    
    
    2,693,955
    
    
    
    764
    
    
    
    
    
    
    
    2,694,719Total
    
    
    2,693,955
    
    
    
    25,384,552
    
    
    
    (2,403,557
    )
    
    
    25,674,950OPERATING EXPENSESLease operating
    
    
    
    
    
    
    5,917,125
    
    
    
    (2,403,557
    )
    
    
    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
    
    
    
    
    
    
    
    
    
    
    
    9,415,787Interest expense
    
    
    3,959,308
    
    
    
    
    
    
    
    
    
    
    
    3,959,308Total
    
    
    13,433,608
    
    
    
    70,462,666
    
    
    
    (2,403,557
    )
    
    
    81,492,717NET 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
    )
 95




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##### Table of Contents



Consolidating Statements of Operations
 GuarantorFor the Year Ended December 31, 2005
    
    Parent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedREVENUESOil and gas
    
    $
    
    
    
    $
    14,068,307
    
    
    $
    
    
    
    $
    14,068,307Gathering
    
    
    
    
    
    
    2,258,206
    
    
    
    (846,947
    )
    
    
    1,411,259Interest income
    
    
    1,383,740
    
    
    
    119
    
    
    
    
    
    
    
    1,383,859Total
    
    
    1,383,740
    
    
    
    16,326,632
    
    
    
    (846,947
    )
    
    
    16,863,425OPERATING EXPENSESLease operating
    
    
    
    
    
    
    1,717,540
    
    
    
    (846,947
    )
    
    
    870,593Gathering operations
    
    
    
    
    
    
    1,166,841
    
    
    
    
    
    
    
    1,166,841Depletion, depreciation and amortization
    
    
    45,648
    
    
    
    4,797,791
    
    
    
    
    
    
    
    4,843,439General and administrative
    
    
    5,987,019
    
    
    
    
    
    
    
    
    
    
    
    5,987,019Interest expense
    
    
    4,033,168
    
    
    
    
    
    
    
    
    
    
    
    4,033,168Total
    
    
    10,065,835
    
    
    
    7,682,172
    
    
    
    (846,947
    )
    
    
    16,901,060NET INCOME (LOSS)
    
    
    (8,682,095
    )
    
    
    8,644,460
    
    
    
    
    
    
    
    (37,635
    )Preferred stock dividends
    
    
    (33,347
    )
    
    
    
    
    
    
    
    
    
    
    (33,347
    )NET INCOME (LOSS) ATTRIBUTABLE TO
COMMON STOCKHOLDERS
    
    $
    (8,715,442
    )
    
    $
    8,644,460
    
    
    $
    
    
    
    $
    (70,982
    )
 96




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##### Table of Contents



Consolidating Statements of Cash Flows
 GuarantorFor the Year Ended December 31, 2007
    
    Parent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCASH
FLOWS FROFOR THEM OPERATING ACTIVITIES
    
    $
    29,191,369
    
    
    $
    (17,544,783
    )
    
    $
    
    
    
    $
    11,646,586CASH 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
    )Brek 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
    
    
    
    (60,390,529
    )
    
    
    
    
    
    
    (50,859,311
    )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 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
  GuarantorFor the Year Ended December 31, 2006
    
    Parent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    (7,015,061
    )
    
    $
    16,377,312
    
    
    $
    
    
    
    $
    9,362,251CASH 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
    
    
    
    
    
    
    
    
    
    
    
    9,000,000Cash 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
    
    
    
    (79,557,785
    )
    
    
    
    
    
    
    (60,496,759
    )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 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




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##### Table of Contents



Consolidating Statements of Cash Flows
 GuarantorFor the Year Ended December 31, 2005
    
    Parent
    
    
    Subsidiaries
    
    
    Eliminations
    
    
    ConsolidatedCASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    (7,222,953
    )
    
    $
    9,357,985
    
    
    $
    
    
    
    $
    2,135,032CASH FLOWS FROM INVESTING ACTIVITIESCash paid for furniture, fixtures and other
    
    
    (106,790
    )
    
    
    
    
    
    
    
    
    
    
    (106,790
    )Cash paid for acquisitions, development and exploration
    
    
    
    
    
    
    (55,181,914
    )
    
    
    
    
    
    
    (55,181,914
    )Proceeds from property sales
    
    
    
    
    
    
    828,102
    
    
    
    
    
    
    
    828,102Proceeds from sale of short-term investments
    
    
    12,000,000
    
    
    
    
    
    
    
    
    
    
    
    12,000,000Cash designated as restricted
    
    
    (6,816,967
    )
    
    
    
    
    
    
    
    
    
    
    (6,816,967
    )Cash undesignated as restricted
    
    
    3,426,042
    
    
    
    
    
    
    
    
    
    
    
    3,426,042Net cash provided by (used) in investing
activities
    
    
    8,502,285
    
    
    
    (54,353,812
    )
    
    
    
    
    
    
    (45,851,527
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from the sale of common stock
    
    
    79,693,764
    
    
    
    
    
    
    
    
    
    
    
    79,693,764Preferred dividends
    
    
    (33,347
    )
    
    
    
    
    
    
    
    
    
    
    (33,347
    )Cash paid for offering costs
    
    
    (275,378
    )
    
    
    
    
    
    
    
    
    
    
    (275,378
    )Exercise of options to purchase common stock
    
    
    1,275,743
    
    
    
    
    
    
    
    
    
    
    
    1,275,743Intercompany
    
    
    (45,982,844
    )
    
    
    45,982,844
    
    
    
    
    
    
    
    Net cash provided by financing activities
    
    
    34,677,938
    
    
    
    45,982,844
    
    
    
    
    
    
    
    80,660,782NET INCREASE IN CASH AND CASH
EQUIVALENTS
    
    
    35,957,270
    
    
    
    987,017
    
    
    
    
    
    
    
    36,944,287CASH AND CASH EQUIVALENTS:BEGINNING OF PERIOD
    
    
    23,357,073
    
    
    
    2,360,008
    
    
    
    
    
    
    
    25,717,081END OF PERIOD
    
    $
    59,314,343
    
    
    $
    3,347,025
    
    
    $
    
    
    
    $
    62,661,368
 98




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##### Table of Contents



NOTE 17 SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (Unaudited)
   Reserve Quantities
 Gas
    
    OilMcf
    
    BblsProved Reserves:Balance, December 31, 2004
    
    
    39,700,156
    
    
    
    274,074Extensions and discoveries
    
    
    49,217,928
    
    
    
    222,943Revisions of previous estimates (a)
    
    
    (12,814,086
    )
    
    
    (109,093
    )Sales of reserves in place
    
    
    
    
    
    
    Purchases of reserves in place
    
    
    
    
    
    
    Production
    
    
    (1,648,870
    )
    
    
    (10,636
    )Balance, December 31, 2005
    
    
    74,455,128
    
    
    
    377,288Extensions and discoveries
    
    
    16,006,692
    
    
    
    97,529Revisions of previous estimates (b)
    
    
    (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 (c)
    
    
    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
    
    
    
    1.070,802Proved Developed ReservesBalance, December 31, 2007
    
    
    50,820,623
    
    
    
    695,019Balance, December 31, 2006
    
    
    38,817,964
    
    
    
    370,581Balance, December 31, 2005
    
    
    18,974,697
    
    
    
    111,655
 99




---



##### Table of Contents



(a)
    
    The majority of the revisions of previous estimates during 2005 are comprised of the
following:
 
    
    Four proved undeveloped locations were omitted from the 2005 reserve
report because these locations required a higher capital investment than originally
estimated due to drilling and completion problems and due to the lack of historical
data related to completions and recompletions in this area.
    
    Six proved undeveloped locations were omitted from the 2005 reserve
report because drilling activity indicated that these locations may be outside of
or on the edge of a previously identified zone.
    
    Two proved developed non-producing completions significantly
underperformed previous forecasts.
 (b)
    
    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.
 (c)
    
    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.
 Standardized Measure of Discounted Future Net Cash Flows
 December 31,2007
    
    
    2006
    
    
    2005Future cash flows
    
    $
    760,539,800
    
    
    $
    195,545,000
    
    
    $
    618,843,800Future production and development costs
    
    
    (339,452,900
    )
    
    
    (69,135,000
    )
    
    
    (300,991,100
    )Future income taxes
    
    
    (9,765,200
    )
    
    
    
    
    
    
    (23,006,800
    )Future net cash flows before discount
    
    
    411,321,700
    
    
    
    126,410,000
    
    
    
    294,845,90010% discount to present value
    
    
    (250,857,700
    )
    
    
    (63,242,800
    )
    
    
    (190,224,900
    )Standardized measure of discounted
future net cash flows
    
    $
    160,464,000
    
    
    $
    63,167,200
    
    
    $
    104,621,000
 100




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##### Table of Contents



Changes in the Standardized Measure of Discounted Future Net Cash Flows
 For the Years Ended December 31,2007
    
    
    2006
    
    
    2005Standardized measure of discounted future net
cash flows at the beginning of year
    
    $
    63,167,200
    
    
    $
    104,621,000
    
    
    $
    32,301,600Sales of oil and gas produced, net of production
Costs
    
    
    (15,322,828
    )
    
    
    (17,525,604
    )
    
    
    (13,197,714
    )Net changes in prices and production costs
    
    
    26,226,507
    
    
    
    (110,791,730
    )
    
    
    28,283,823Extensions and discoveries, net of future
production and development costs
    
    
    40,839,394
    
    
    
    26,686,765
    
    
    
    107,380,301Previously estimated development costs incurred
    
    
    4,489,959
    
    
    
    9,571,134
    
    
    
    (1,681,163
    )Changes in estimated future development costs
    
    
    (3,882,200
    )
    
    
    127,888,117
    
    
    
    (34,138,277
    )Revisions of previous quantity estimates
    
    
    43,121,203
    
    
    
    (77,662,093
    )
    
    
    (28,607,463
    )Purchases of reserves in place
    
    
    11,097,303
    
    
    
    1,592,041
    
    
    
    Sales of reserves in place
    
    
    (1,798,971
    )
    
    
    
    
    
    
    Net change in income taxes
    
    
    (1,378,483
    )
    
    
    3,225,000
    
    
    
    (3,225,000
    )Accretion of discount
    
    
    4,502,716
    
    
    
    13,773,265
    
    
    
    3,214,885Other
    
    
    (10,597,800
    )
    
    
    (18,210,695
    )
    
    
    14,290,008Standardized measure of discounted future net
cash flows at the end of year
    
    $
    160,464,000
    
    
    $
    63,167,200
    
    
    $
    104,621,000
 101




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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
  102




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##### Table of Contents



Changes in internal control over financial reporting during the fourth quarter of 2007.
  Managements Report on Internal Control Over Financial Reporting
     103




---



##### Table of Contents



/s/ Mark A. EricksonMark A. EricksonPresident & Chief Executive Officer/s/ W. King GrantW. King GrantChief Financial Officer
 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    104




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##### Table of Contents



HEIN & ASSOCIATES LLP
 
 
 ITEM 9B  OTHER INFORMATION
  
 PART III
 
 ITEM 10  DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
  
 ITEM 11  EXECUTIVE COMPENSATION
  105




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##### Table of Contents



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 56.2. 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 9, 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).
 106




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##### Table of Contents



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).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).
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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 30, 2006, File No. 001-32369).
 108




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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 30,
2006, File No. 001-32369).4.13
    
    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).4.14
    
    Underwriting Agreement dated April 9, 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).10.9
    
    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).10.10
    
    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).10.11
    
    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).
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##### Table of Contents



10.12
    
    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).10.13
    
    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).10.14
    
    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).10.15
    
    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).10.16
    
    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).10.17
    
    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).10.18
    
    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).10.19
    
    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).#10.20
    
    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).10.21
    
    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).*23.1
    
    Consent of Netherland, Sewell & Associates, Inc.*23.2
    
    Consent of Hein & Associates LLP*31
    
    Rule 13a-14(a)/15d-14(a) Certifications*32
    
    Section 1350 Certifications
 
 *
    
    Filed herewith.#
    
    Identifies management contracts and compensatory plans or arrangements. 110




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SIGNATURES
  GASCO ENERGY, INC.
    
    Dated: March 3, 2008By:
    
    /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 3, 2008/s/ Marc A. Bruner

Marc A. Bruner
    
    Director
    
    March 3, 2008/s/ Carl Stadelhofer

Carl Stadelhofer
    
    Director
    
    March 3, 2008/s/ W. King Grant

W. King Grant
    
    Executive Vice President and Chief Financial Officer
    
    March 3, 2008/s/ Carmen Lotito

Carmen (Tony) Lotito
    
    Director
    
    March 3, 2008/s/ Charles B. Crowell

Charles B. Crowell
    
    Director
    
    March 3, 2008/s/ Richard S. Langdon

Richard S. Langdon
    
    Director
    
    March 3, 2008/s/ R. J. Burgess

R.J. Burgess
    
    Director
    
    March 3, 2008/s/ John A. Schmit

John A. Schmit
    
    Director
    
    March 3, 2008/s/ Peggy A. Herald

Peggy A. Herald
    
    Vice President and Chief Accounting Officer
    
    March 3, 2008
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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 9, 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).
 112




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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 30, 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 30,
2006, File No. 001-32369).4.13
    
    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).4.14
    
    Underwriting Agreement dated April 9, 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).
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# 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
    
    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).10.10
    
    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).10.11
    
    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).10.12
    
    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).10.13
    
    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).10.14
    
    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).10.15
    
    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).10.16
    
    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).10.17
    
    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).10.18
    
    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).10.19
    
    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).
 115




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##### Table of Contents



#10.20
    
    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).10.21
    
    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).*23.1
    
    Consent of Netherland, Sewell & Associates, Inc.*23.2
    
    Consent of Hein & Associates LLP*31
    
    Rule 13a-14(a)/15d-14(a) Certifications*32
    
    Section 1350 Certifications
 
 *
    
    Filed herewith.#
    
    Identifies management contracts and compensatory plans or arrangements. 116