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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-KSB
 þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 Commission file no. 0-30502
 JOHN D. OIL AND GAS COMPANY
  MARYLAND
    
    94-6542723(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 8500 STATION STREET, SUITE 345, MENTOR, OHIO 44060
    o
 þ o
 þ
 o þ
     DOCUMENTS INCORPORATED BY REFERENCE
  o þ




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##### 



PagePART IGlossary of Terms
    
    
    
    
    3Item 1:
    
    Description of Business
    
    
    
    
    5Item 1A:
    
    Risk Factors
    
    
    
    
    8Item 2:
    
    Description of Property
    
    
    
    
    13Item 3:
    
    Legal Proceedings
    
    
    
    
    16Item 4:
    
    Submission of Matters to a Vote of Security Holders
    
    
    
    
    16PART IIItem 5:
    
    Market for Common Equity, Related Stockholder Matters and Issuers Purchases of Equity Securities
    
    
    
    
    16Item 6:
    
    Managements Discussion and Analysis or Plan of Operation
    
    
    
    
    17Item 7:
    
    Financial Statements
    
    
    
    
    26Item 8:
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    
    
    26Item 8A(T):
    
    Controls and Procedures
    
    
    
    
    26Item 8B:
    
    Other Information
    
    
    
    
    27PART IIIItem 9:
    
    Directors, Executive Officers, Control
Persons and Corporate Governance; Compliance with Section 16(a) of the Exchange Act
    
    
    
    
    27Item 10:
    
    Executive Compensation
    
    
    
    
    27Item 11:
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    
    
    28Item 12:
    
    Certain Relationships and Related Transactions, and Director Independence
    
    
    
    
    28Item 13:
    
    Exhibits
    
    
    
    
    28Item 14:
    
    Principal Accountant Fees and Services
    
    
    
    
    31EX-10.26EX-10.27EX-31.1EX-31.2EX-32.1
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##### Table of Contents



PART I
 
 Glossary of Terms
  Bbl
 Development well.
 Developed acres
 Dry hole or well
 Field
 Gross acres or gross wells
 Mcf
 Mcfe
 Net acres or net wells
 Oil
 Productive well.
 Proved developed reserves
 Proved reserves
 Proved undeveloped drilling location
 3




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##### Table of Contents



Proved undeveloped reserves or PUDs
 Reservoir
 Standardized Measure.
 Successful well
 Undeveloped acreage
 Working interest
 Workover
 4




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Item 1. Description of Business
     Discontinued Operations.
   Operating Partnership.
  5




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Oil and Natural Gas Overview.
   Oil and Natural Gas Competition.
 Oil and Natural Gas Environmental and Other Regulations.
 
    
    require the acquisition of various permits before drilling commences;
    
    require the installation of expensive pollution control equipment;
    
    restrict the types, quantities and concentration of various substances that can be
released into the environment in connection with drilling and production activities;
    
    limit or prohibit drilling activities on lands lying within wilderness, wetland and
other protected areas;
    
    require remedial measures to prevent pollution from former operations, such as pit
closure and plugging of abandoned wells;
    
    impose substantial liabilities for pollution resulting from operations; and
    
    with respect to operations affecting federal lands or leases, require preparation of a
Resource Management Plan, an Environmental Assessment, and/or an Environmental Impact
Statement.
   6




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##### Table of Contents




    
    Clean Air Act, and its amendments, which governs air emissions;
    
    Clean Water Act, which governs discharges to waters of the United States;
    
    Comprehensive Environmental Response, Compensation and Liability Act, which imposes
liability where hazardous releases have occurred or are threatened to occur;
    
    Energy Independence and Security Act of 2007, which prescribes new fuel economy
standards and other energy saving measures;
    
    National Environmental Policy Act, which governs oil and gas production activities on
federal lands;
    
    Resource Conservation and Recovery Act, which governs the management of solid waste;
    
    Safe Drinking Water Act, which governs the underground injection and disposal of
wastewater; and
    
    U.S. Department of Interior regulations, which impose liability for pollution cleanup
and damages.
  Self-Storage Overview.
  Self-Storage Competition.
 Self-Storage Environmental and Other Regulation.
   7




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##### Table of Contents



Subsequent Events.
  Principal Offices.
  Federal Income Tax.
  Employees.
  
 Item 1A. Risk Factors
 Risks Related to Our Oil and Natural Gas Business
 Our Revenues will depend on natural gas prices.
   Natural gas markets are subject to many factors.
  8




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##### Table of Contents




    
    the domestic and foreign supply of and demand for natural gas;
 
    
    the price and level of foreign imports;
 
    
    the level of consumer product demand;
 
    
    weather conditions;
 
    
    overall domestic and global economic conditions;
 
    
    political and economic conditions in natural gas and oil producing countries, including
those in the Middle East and South America;
 
    
    the ability of members of the Organization of Petroleum Exporting Countries to agree to and
maintain oil price and production controls;
 
    
    the impact of the U.S. dollar exchange rates on natural gas and oil prices;
 
    
    technological advances affecting energy consumption;
 
    
    domestic and foreign governmental regulations and taxation;
 
    
    the impact of energy conservation efforts;
 
    
    the proximity and capacity of natural gas pipelines and other transportation facilities;
and
 
    
    the price and availability of alternative fuels.
  Locations that we decide to drill may not be productive.
  Shortages of drilling rigs, equipment and crews could delay our operations and reduce our revenues.
  Actual quantities and present value of our proved reserves may prove to be lower than we have
estimated.
  9




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Our development operations require substantial capital expenditures.
  We face significant competition.
  We depend on a third party to manage our business.
  Our business depends on gathering and transportation facilities owned by others.
  We depend on a key customer for sales of our natural gas.
  Our business is hazardous.
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The oil and natural gas industry is highly regulated.
  Risks Related to the Self-Storage Facility Business
  
    
    the Companys ability to increase occupancy and rental rates at its self-storage facility;
 
    
    the ability to refinance the Companys debt on its self-storage facility as it becomes due,
including, without limitation, the Companys maturing long-term debt;
 
    
    changes in local real estate conditions;
 
    
    decreases in occupancy rates; and
 
    
    the Companys ability to sell the facility, if business and time warrant in the future.
 Risks Related to the Company
 We need to raise additional capital, which may not be available to us and may limit our operations
or growth.
  We may not be able to repay or refinance our maturing debt.
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We have a limited history of operating the oil and natural gas assets we have acquired.
  Our management team owns a controlling interest in the Company.
  Our management team is subject to various conflicts of interest.
  If we fail to develop or maintain an effective system of internal controls, we may not be able to
accurately report our financial results or prevent fraud.
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Item 2. Description of Property
 Oil and Natural Gas Wells
   2007
    
    
    2006Net ProductionNatural Gas (mcf)
    
    
    349,997
    
    
    
    165,561Oil (bbl)
    
    
    3,715
    
    
    
    1,016Natural Gas Equivalent (mcfe)
    
    
    372,287
    
    
    
    171,654Net SalesNatural Gas
    
    $
    2,730,840
    
    
    $
    1,312,457Oil
    
    
    198,519
    
    
    
    52,040Total Sales
    
    $
    2,929,359
    
    
    $
    1,364,497Average Sale PriceNatural Gas (mcf)
    
    $
    7.80
    
    
    $
    7.93Oil (bbl)
    
    $
    53.44
    
    
    $
    51.25Natural Gas Equivalent (mcfe)
    
    $
    7.87
    
    
    $
    7.95Average Unit Costs per mcfeWell operating expenses
    
    $
    335,135
    
    
    $
    91,439Average Cost/mcfe
    
    $
    0.90
    
    
    $
    0.53
 Estimated Proved Reserves.
 2007
    
    2006Natural Gas
    
    Oil
    
    Natural Gas
    
    Oil(MCF)
    
    (BBLs)
    
    (MCF)
    
    (BBLs)Proved developed and undeveloped
reserves:Beginning of year
    
    
    1,348,600
    
    
    
    14,800
    
    
    
    
    
    
    
    Revision of previous estimates,
extensions and other additions
    
    
    478,380
    
    
    
    4,348
    
    
    
    1,514,200
    
    
    
    15,800Net reserve additions
    
    
    1,169,002
    
    
    
    21,891
    
    
    
    
    
    
    
    Production
    
    
    (349,997
    )
    
    
    (3,715
    )
    
    
    (165,600
    )
    
    
    (1,000
    )End of year
    
    
    2,645,985
    
    
    
    37,324
    
    
    
    1,348,600
    
    
    
    14,800Proved developed reserves:Beginning of year
    
    
    1,348,600
    
    
    
    14,800
    
    
    
    
    
    
    
    End of year
    
    
    2,645,985
    
    
    
    37,324
    
    
    
    1,348,600
    
    
    
    14,800
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Productive Wells.
 2007
    
    2006Gross
    
    Net
    
    Gross
    
    NetProductive Wells:Operated
    
    
    37
    
    
    
    36
    
    
    
    21
    
    
    
    20Non-Operated Properties
    
    
    5
    
    
    
    2
    
    
    
    
    
    
    
    Total
    
    
    42
    
    
    
    38
    
    
    
    21
    
    
    
    20
 Drilling Activity.
 2007
    
    2006Gross
    
    Net
    
    Gross
    
    NetGross wells:Productive
    
    
    21
    
    
    
    18
    
    
    
    21
    
    
    
    20Dry
    
    
    5
    
    
    
    5
    
    
    
    1
    
    
    
    1Total
    
    
    26
    
    
    
    23
    
    
    
    22
    
    
    
    21
 Developed and Undeveloped Acreage.
 Developed Acreage
    
    Undeveloped AcreageGross
    
    Net
    
    Gross
    
    NetGeographic Area:Ohio
    
    
    2,138
    
    
    
    2,066
    
    
    
    5,044
    
    
    
    5,044
 Present Activities.
 Leases.
 Insurance.
 Depreciation.
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Self-Storage Facility
  Property Management.
 Leases.
 Insurance.
 Mortgages.
 Depreciation.
 Investment Policy
  Activities of the Company.
 
    
    issue senior securities;
    
    borrow money;
    
    make loans;
    
    underwrite securities of other issuers;
    
    engage in the purchase or sale of investments;
    
    offer securities in exchange for property;
    
    repurchase or otherwise reacquire its shares or other securities; and
    
    provide annual reports and other reports to stockholders which contain
annual audited financial statements.
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Investment Strategy
 
 Item 3. Legal Proceedings.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
  
 PART II
 
 Item 5. Market for Common Equity, Related Stockholder Matters and Issuers Purchases of Equity
Securities.
 Market Information.
  HIGH
    
    LOW2007First Quarter
    
    $
    0.65
    
    
    $
    0.52Second Quarter
    
    
    0.75
    
    
    
    0.30Third Quarter
    
    
    1.01
    
    
    
    0.55Fourth Quarter
    
    
    0.90
    
    
    
    0.602006First Quarter
    
    $
    1.00
    
    
    $
    0.40Second Quarter
    
    
    0.80
    
    
    
    0.60Third Quarter
    
    
    1.20
    
    
    
    0.61Fourth Quarter
    
    
    0.80
    
    
    
    0.52
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Record Holders.
 Dividends.
  Issuance of Common Stock
  Purchases of Common Stock.
  
 Item 6. Managements Discussion and Analysis or Plan of Operation
    Critical Accounting Policies
  17




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Principles of Consolidation
  Cash and Cash Equivalents
  Accounts Receivable
   Property and Equipment
     18




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Asset Impairment
  Asset Retirement Obligation
 Accounting for Asset Retirement Obligations
 Revenue Recognition
   Comprehensive Income
 Reporting Comprehensive Income
 Stock-Based Compensation
  19




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Accounting for Stock Issued to Employees.
 Income Taxes
   Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement
No. 109 Accounting for Income Taxes
   Use of Estimates
   20




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Cash-flow Restatement
  Fair Value of Financial Instruments
  Liquidity and Capital Resources
    21




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Payments Due by PeriodContractual Obligations
    
    Less than 1 year
    
    1-3 years
    
    TotalLong-Term Debt
    
    $
    100,725
    
    
    $
    1,285,732
    
    
    $
    1,386,457Line of Credit
    
    
    5,700,000
    
    
    
    
    
    
    
    5,700,000Note Payable to Related
Party
    
    
    3,800,000
    
    
    
    
    
    
    
    3,800,000Operating Lease*
    
    
    16,200
    
    
    
    4,050
    
    
    
    20,250Total Contractual Cash
Obligations
    
    $
    9,616,925
    
    
    $
    1,289,782
    
    
    $
    10,906,707
 
 *
    
    The operating lease for office space was renegotiated on April 1, 2006 with a three year term
ending March 2009, at a rental of $1,350 per month, which is reflected in the above table. Material Changes in Results of Operations
 Revenues from Continuing Operations
  Expenses from Continuing Operations
      23




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Loss from Continuing Operations
  Income from Discontinued Operations
  Net Loss
  Interest Rate Risk
   24




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Off-Balance Sheet Arrangements
  Forward-Looking Statements
  
    
    business strategy;
    
    financial strategy;
    
    drilling locations;
    
    natural gas and oil reserves;
    
    realized natural gas and oil prices;
    
    production volumes;
    
    lease operating expenses, general and administrative expenses and finding and development
costs;
    
    future operating results; and
    
    plans, objectives, expectations and intentions.
   Income Taxes
  25




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Recently Issued Accounting Pronouncements
 Fair Value Measurements
 The Fair Value Option for Financial Assets
and Financial Liabilities-Including an Amendment of FASB Statement No. 115
 
 Item 7. Financial Statements
  
 Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
   
 Item 8A(T). Controls and Procedures
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Item 8B. Other Information
  
 PART III
 
 Item 9. Directors, Executive Officers, Control Persons and Corporate Governance; Compliance with
Section 16 (a) of the Exchange Act
  
 Item 10. Executive Compensation
  27




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Item 11. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters
  
 Item 12. Certain Relationships and Related Transactions, and Director Independence
  
 Item 13. Exhibits
 Exhibit No.
    
    Description2.1
    
    
    Agreement and Plan of Merger, dated as of December 28, 1999, by and among Meridian Point
Realty Trust 83, the Company and Liberty Self-Stor Limited Partnership (Exhibits A and B to
the Agreement and Plan of Merger are Exhibits 3.1 and 3.2, respectively) (Filed as Exhibit 2.1
to Registrants Form 8-K dated January 12, 2000 and incorporated herein by reference.)3.1
    
    
    Articles of Incorporation of the Company (Filed as Exhibit 3.1 to Registrants Form 8-K dated
January 12, 2000 and incorporated herein by reference.)3.2
    
    
    Articles of Amendment of Articles of Incorporation of the Company dated June 27, 2005(Filed
as Exhibit 3.1 to Registrants Form 8-K dated July 1, 2005 and incorporated herein by reference.)3.3
    
    
    Articles Supplementary to John D. Oil and Gas Companys Articles of Incorporation, as
amended, restated and supplemented dated February 12, 2008 (Filed as Exhibit 3.1 to
Registrants Form 8-K dated February 19, 2008 and incorporated herein by reference.)3.4
    
    
    Bylaws of the Company (Filed as Exhibit 3.2 to Registrants Form 8-K dated January 12, 2000
and incorporated herein by reference.)4.1
    
    
    Registration Rights Agreement between the Company and the Richard M. Osborne Trust dated
February 28, 2006 (Filed as Exhibit 4.1 to Registrants Form 8-K dated February 24, 2006 and
incorporated herein by reference.)9.1
    
    
    Voting Trust Agreement between the Company, Richard M. Osborne and Gregory J. Osborne dated
February 16, 2006 (Filed as Exhibit 7.1 to Registrants Form SC 13D/A dated April 11, 2006 and
incorporated herein by reference.)10.1
    
    
    1999 Stock Option and Award Plan of the Company (Filed as Exhibit 10.1 to Registrants Form
8-K dated January 12, 2000 and incorporated herein by reference.)10.2
    
    
    Lease between OsAir, Inc. and the Company (Filed as Exhibit 10.2 to Registrants Form 8-K
dated January 12, 2000 and incorporated herein by reference.)10.3
    
    
    Agreement of Limited Partnership of LSS I Limited Partnership, dated December 29, 1999.
(Filed as Exhibit 10.3 to Registrants Form 8-K dated January 12, 2000 and incorporated herein
by reference.)
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Exhibit No.
    
    Description10.4
    
    
    Cost Sharing Agreement, by and between Liberty Self-Stor, Ltd. and Liberty Self-Stor II, Ltd.
dated December 28, 1999 (Filed as Exhibit 10.7 to Registrants Form 10-KSB, dated March 15,
2000 and incorporated herein by reference.)10.5
    
    
    Contract among Acquiport/Amsdell I Limited Partnership and/or its nominee, Liberty Self-Stor,
Ltd. and Liberty Self-Stor II, Ltd dated September 7, 2004 (Filed as Exhibit 10.1 to
Registrants Form 8-K dated September 10, 2004 and incorporated herein by reference)10.6
    
    
    Amended and Restated First Amendment to Agreement of Limited Partnership of LSS I Limited
Partnership dated March 29, 2006 (Filed as Exhibit 10.9 to Registrants form 10-KSB, dated
March 31, 2006 and incorporated herein by reference)10.7
    
    
    Stock Subscription Agreement between the Company and the Richard M. Osborne Trust dated
February 28, 2006 (Filed as Exhibit 10.1 to Registrants Form 8-K dated March 2, 2006 and
incorporated herein by reference.)10.8
    
    
    Stock Subscription Agreement between the Company and Terence P. Coyne dated February 28, 2006
(Filed as Exhibit 10.2 to Registrants Form 8-K dated March 2, 2006 and incorporated herein by reference.)10.9
    
    
    Letter agreement between the Company and Great Plains Exploration, LLC relating to the
transfer of oil and natural gas wells dated as of January 1, 2006 (Filed as Exhibit 10.1 to
Registrants Form 10-QSB dated March 31, 2006 and incorporated herein by reference.)10.10
    
    
    Oil and Gas Operations and Sale Agreement between the Company and Great Plains Exploration,
LLC dated as of January 1, 2006 (Filed as Exhibit 10.2 to Registrants Form 10-QSB dated March
31, 2006 and incorporated herein by reference.)10.11
    
    
    Amendment No 1 to Oil and Gas Operations and Sale Agreement between the Company and Great
Plains Exploration, LLC dated as of November 14, 2006 (Filed as Exhibit 10.4 to Registrants
Form 10-QSB dated September 30, 2006 and incorporated by reference.)10.12
    
    
    Revolving Demand Note of the Company payable to the Richard M. Osborne Trust dated as of
January 1, 2006 (Filed as Exhibit 10.3 to Registrants Form 10-QSB dated March 31, 2006 and
incorporated herein by reference.)10.13
    
    
    Purchase and Sale Agreement between the Company and Buckeye Storage of Gahanna LLC dated as
of October 5, 2006 (Filed as Exhibit 10.1 to Registrants Form 8-K dated October 12, 2006 and
incorporated herein by reference.)10.14
    
    
    Loan Agreement between the Company, Richard M. Osborne and Charter One Bank, N.A. dated as
of September 28, 2006 (Filed as Exhibit 10.1 to Registrants Form 8-K dated October 3, 2006
and incorporated herein by reference.)10.15
    
    
    Revolving Term Note of Company in favor of Charter One Bank, N.A., dated as of September 28,
2006 (Filed as Exhibit 10.2 to Registrants Form 8-K dated October 3, 2006 and incorporated
herein by reference.)10.16
    
    
    Modification Agreement between the Company, Richard M. Osborne and Charter One Bank, N.A.,
effective as of February 20, 2007 (Filed as Exhibit 10.1 to Registrants Form 8-K dated
February 26, 2007 and incorporated herein by reference.)10.17
    
    
    Security Agreement between the Company, Richard M. Osborne and Charter One Bank, N.A.,
effective as of February 20, 2007 (Filed as Exhibit 10.2 to Registrants Form 8-K dated
February 26, 2007 and incorporated herein by reference.)
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Exhibit No.
    
    Description10.18
    
    
    Extension Agreement between Richard M. Osborne, John D. Oil and Gas Company and RBS
Citizens, N.A., d/b/a Charter One dated October 26, 2007 (Filed as Exhibit 10.1 to
Registrants Form 8-K dated October 26, 2007 and incorporated herein by reference.)10.19
    
    
    Extension Agreement effective as of December 28, 2007 between John D. Oil and Gas Company
and RBS Citizens, N.A., d/b/a Charter One (Filed as Exhibit 10.2 to Registrants Form 8-K
dated December 28, 2007 and incorporated herein by reference.)10.20
    
    
    Extension Agreement effective as of February 26, 2008 between John D. Oil and Gas Company
and RBS Citizens, N.A., d/b/a Charter One (Filed as Exhibit 10.1 to Registrants Form 8-K
dated February 26, 2008 and incorporated herein by reference.)10.21
    
    
    Assignment and Assumption of Lease Purchase and Sale Agreement and First Amendment of Lease
Purchase and Sale Agreement entered into as of August 3, 2007 between Great Plains
Exploration, LLC and Kykuit Resources, LLC (Filed as Exhibit 10.1 to Registrants Form 8-K
dated August 3, 2007 and incorporated herein by reference.)10.22
    
    
    Lease Purchase and Sale Agreement dated March 21, 2007 between Hemus, Ltd. and Great Plains
Exploration, LLC and First Amendment to Lease Purchase and Sale Agreement dated July 24, 2007
(Filed as Exhibit 10.2 to Registrants Form 8-K dated August 3, 2007 and incorporated herein
by reference.)10.23
    
    
    Joint Venture Development Agreement between Kykuit Resources, LLC and Hemus, Ltd, effective
August 3, 2007 (Filed as Exhibit 10.3 to Registrants Form 8-K dated August 3, 2007 and
incorporated herein by reference.)10.24
    
    
    Operating Agreement of Kykuit Resources, LLC dated May 8, 2007 (Filed as Exhibit 10.5 to
Registrants Form 8-K dated August 3, 2007 and incorporated herein by reference.)10.25
    
    
    Amended and Restated Operating Agreement of Kykuit Resources, LLC dated October 24, 2007
(Filed as Exhibit 10.18 to Registrants Form 10-QSB dated September 30, 2007 and incorporated
herein by reference.)10.26
    *
    
    First Amendment to Amended and Restated Operating Agreement of Kykuit Resources, LLC dated
December 17, 2007.10.27
    *
    
    Second Amendment to Amended and Restated Operating Agreement of Kykuit Resources, LLC dated
February 27, 2008.10.28
    
    
    Cognovit Promissory Note of John D. Oil and Gas Company dated August 3, 2007 (Filed as
Exhibit 10.4 to Registrants Form 8-K dated August 3, 2007 and incorporated herein by
reference.)10.29
    
    
    Cognovit Promissory Note of John D. Oil and Gas Company dated August 28, 2007 (Filed as
Exhibit 10.1 to Registrants Form 8-K dated August 28, 2007 and incorporated herein by reference.)10.30
    
    
    Cognovit Promissory Note of John D. Oil and Gas Company dated September 12, 2007 (Filed as
Exhibit 10.1 to Registrants Form 8-K dated September 12, 2007 and incorporated herein by reference.)10.31
    
    
    Cognovit Promissory Note of John D. Oil and Gas Company dated October 10, 2007 (Filed as
Exhibit 10.1 to Registrants Form 8-K dated October 10, 2007 and incorporated herein by reference.)
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Exhibit No.
    
    Description10.32
    
    
    Cognovit Promissory Note of John D. Oil and Gas Company dated November 20, 2007 (Filed as
Exhibit 10.1 to Registrants Form 8-K dated November 20, 2007 and incorporated herein by reference.)10.33
    
    
    Cognovit Promissory Note of John D. Oil and Gas Company dated November 30, 2007 (Filed as
Exhibit 10.1 to Registrants Form 8-K dated November 30, 2007 and incorporated herein by reference.)10.34
    
    
    Purchase and Sale Agreement effective as of January 30, 2008 between Liberty Self Stor, Ltd.
and Richard M. Osborne, Trustee (Filed as Exhibit 10.1 to Registrants Form 8-K dated December
28, 2007 and incorporated herein by reference.)31.1
    *
    
    Section 302 Certification of Chairman of the Board and Chief Executive Officer (principal
executive officer) pursuant to the Sarbanes-Oxley Act of 200231.2
    *
    
    Section 302 Certification of Chief Financial Officer (principal financial officer) pursuant
to the Sarbanes-Oxley Act of 200232.1
    *
    
    Certification of Chairman of the Board and Chief Executive Officer (principal executive
officer) and Chief Financial Officer (principal financial officer) pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Filed herewith 
 Item 14. Principal Accountant Fees and Services
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##### Table of Contents



Dated: March 28, 2008
    JOHN D. OIL AND GAS COMPANYBy:
    /s/ Richard M. OsborneRichard M. OsborneChairman and Chief Executive Officer
(Principal Executive Officer)  /s/ Richard M. Osborne

Richard M. Osborne
Chairman, Chief Executive Officer and Director
(Principal Executive Officer)
    
    Dated: March 28, 2008/s/ C. Jean Mihitsch

C. Jean Mihitsch
Chief Financial Officer
(Principal Financial and Accounting Officer)
    
    Dated: March 28, 2008/s/ Steven A. Calabrese

Steven A. Calabrese
Director
    
    Dated: March 28, 2008/s/ Terence P. Coyne

Terence P. Coyne
Director
    
    Dated: March 28, 2008/s/ Richard T. Flenner Jr.

Richard T. Flenner Jr.
Director
    
    Dated: March 28, 2008/s/ Mark D. Grossi

Mark D. Grossi
Director
    
    Dated: March 28, 2008/s/ Marc C. Krantz

Marc C. Krantz
Secretary and Director
    
    Dated: March 28, 2008
 32




---



##### Table of Contents



/s/ Gregory J. Osborne

Gregory J. Osborne
President and Director
    
    Dated: March 28, 2008/s/ James R. Smail

James R. Smail
Director
    
    Dated: March 28, 2008/s/ Thomas J. Smith

Thomas J. Smith
Director
    
    Dated: March 28, 2008
 33




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
 34




---



##### Table of Contents



December 31, 2007
    
    
    December 31, 2006ASSETSCurrent Assets:Cash
    
    $
    30,479
    
    
    $
    23,892Accounts Receivable
    
    
    63,739
    
    
    
    17,334Accounts Receivable from Related Parties
    
    
    919,542
    
    
    
    745,302Available for Sale Securities
    
    
    
    
    
    
    438,422Assets Held for Sale
    
    
    204,762
    
    
    
    Assets Related to Discontinued Operations, Net
    
    
    
    
    
    
    950,891Other Current Assets
    
    
    34,073
    
    
    
    31,127Total Current Assets
    
    
    1,252,595
    
    
    
    2,206,968Property and Equipment, Net
    
    
    12,874,148
    
    
    
    7,304,278Investment in Unconsolidated Affiliate
    
    
    1,261,930
    
    
    
    Other Assets
    
    
    13,894
    
    
    
    32,234TOTAL ASSETS
    
    $
    15,402,567
    
    
    $
    9,543,480LIABILITIES AND SHAREHOLDERS EQUITYCurrent Liabilities:Line of Credit
    
    $
    5,700,000
    
    
    $
    3,085,000Current Maturities of Long Term Debt
    
    
    100,725
    
    
    
    86,780Note Payable to Related Party
    
    
    3,800,000
    
    
    
    Accounts Payable
    
    
    2,063,318
    
    
    
    947,084Accounts Payable to Related Parties
    
    
    16,468
    
    
    
    7,595Liabilities Related to Discontinued Operations, Net
    
    
    
    
    
    
    755,345Accrued Expenses
    
    
    208,735
    
    
    
    288,239Total Current Liabilities
    
    
    11,889,246
    
    
    
    5,170,043Long Term Debt, Net of Current Maturities
    
    
    1,285,732
    
    
    
    1,386,422Asset Retirement Obligation
    
    
    211,777
    
    
    
    90,324Other Long Term Liabilities
    
    
    
    
    
    
    Commitments and Contingencies
    
    
    
    
    
    
    Shareholders Equity:Serial Preferred Stock  $.001 par value: 2,000,000
shares authorized, no shares issued and outstanding
    
    
    
    
    
    
    Common Stock  $.001 par value: 50,000,000 shares
authorized; 9,019,015 and 8,998,180 shares issued and
outstanding, respectively
    
    
    9,019
    
    
    
    8,998Paid-in Capital
    
    
    28,871,616
    
    
    
    28,854,588Accumulated Deficit
    
    
    (26,864,823
    )
    
    
    (25,966,929
    )Accumulated Other Comprehensive Income
    
    
    
    
    
    
    34Total Shareholders Equity
    
    
    2,015,812
    
    
    
    2,896,691TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
    
    $
    15,402,567
    
    
    $
    9,543,480
  35




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##### Table of Contents



2007
    
    
    2006RevenuesOil and Natural Gas Sales
    
    $
    2,929,359
    
    
    $
    1,364,497Self-Storage Operation Revenues
    
    
    348,537
    
    
    
    355,512Interest and Other
    
    
    43,525
    
    
    
    1,941Total Revenues
    
    
    3,321,421
    
    
    
    1,721,950Operating ExpensesInterest
    
    
    569,672
    
    
    
    197,915Property Taxes and Insurance
    
    
    113,293
    
    
    
    117,209Self-Storage Property Operating Expense
    
    
    103,123
    
    
    
    99,740Oil and Natural Gas Production Costs
    
    
    335,135
    
    
    
    91,439Legal and Professional Fees
    
    
    235,640
    
    
    
    228,253General and Administrative
    
    
    786,021
    
    
    
    603,369Loss from Unconsolidated Affiliate
    
    
    28,817
    
    
    
    Impairments
    
    
    1,041,067
    
    
    
    1,013,520Depreciation, Depletion and Amortization
    
    
    1,293,651
    
    
    
    901,539Total Operating Expenses
    
    
    4,506,419
    
    
    
    3,252,984Loss from Continuing Operations Before Minority Interest and Income
Taxes
    
    
    (1,184,998
    )
    
    
    (1,531,034
    )Minority Interest
    
    
    
    
    
    
    (391,672
    )Income Taxes
    
    
    
    
    
    
    (41,187
    )Loss from Continuing Operations
    
    
    (1,184,998
    )
    
    
    (1,963,893
    )Income (Loss) from Discontinued Operations
    
    
    (7,483
    )
    
    
    2,055Gain on Sale of Assets from Discontinued Operations
    
    
    294,587
    
    
    
    Income from Discontinued Operations
    
    
    287,104
    
    
    
    2,055Net Loss
    
    $
    (897,894
    )
    
    $
    (1,961,838
    )Other Comprehensive Income (Loss):Change in Fair Value of Available for Sale Securities
    
    
    (34
    )
    
    
    34Comprehensive Loss
    
    $
    (897,928
    )
    
    $
    (1,961,804
    )Weighted Average Basic and Diluted Shares Outstanding
    
    
    8,999,436
    
    
    
    7,285,434Loss per Common Share from Continuing Operations   Basic and Diluted
    
    $
    (0.13
    )
    
    $
    (0.27
    )Income per Common Share from Discontinued Operations  Basic and Diluted
    
    
    0.03
    
    
    
    Loss per Common Share  Basic and Diluted
    
    $
    (0.10
    )
    
    $
    (0.27
    )
  36




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##### Table of Contents



AccumulatedOtherCommon
    
    Paid-in
    
    Accumulated
    
    ComprehensiveStock
    
    Capital
    
    Deficit
    
    Income (Loss)
    
    TotalBalance at December 31, 2005
    
    $
    3,082
    
    
    $
    25,798,779
    
    
    $
    (24,005,091
    )
    
    $
    
    
    
    $
    1,796,770Common Stock Issued in Private
Placement, Net of Offering Costs
    
    
    4,800
    
    
    
    2,361,570
    
    
    
    
    
    
    
    
    
    
    
    2,366,370Common Stock Issued for Director
Compensation
    
    
    14
    
    
    
    9,986
    
    
    
    
    
    
    
    
    
    
    
    10,000Restricted Common Stock Award
    
    
    
    
    
    
    1,894
    
    
    
    
    
    
    
    
    
    
    
    1,894Common Stock Issued in Exchange for Debt
    
    
    1,102
    
    
    
    682,359
    
    
    
    
    
    
    
    
    
    
    
    683,461Net Loss
    
    
    
    
    
    
    
    
    
    
    (1,961,838
    )
    
    
    
    
    
    
    (1,961,838
    )Change in Fair Market Value of
Available for Sale Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    34
    
    
    
    34Balance at December 31, 2006
    
    $
    8,998
    
    
    $
    28,854,588
    
    
    $
    (25,966,929
    )
    
    $
    34
    
    
    $
    2,896,691Common Stock Issued for Director
Compensation
    
    
    21
    
    
    
    12,480
    
    
    
    
    
    
    
    
    
    
    
    12,501Restricted Common Stock Award
    
    
    
    
    
    
    4,548
    
    
    
    
    
    
    
    
    
    
    
    4,548Net Loss
    
    
    
    
    
    
    
    
    
    
    (897,894
    )
    
    
    
    
    
    
    (897,894
    )Change in Fair Market Value of
Available for Sale Securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34
    )
    
    
    (34
    )Balance at December 31, 2007
    
    $
    9,019
    
    
    $
    28,871,616
    
    
    $
    (26,864,823
    )
    
    $
    
    
    
    $
    2,015,812
  37




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##### Table of Contents



2007
    
    
    2006Cash Flows from Operating Activities:Net Loss
    
    $
    (897,894
    )
    
    $
    (1,961,838
    )Adjustments to Reconcile Net Loss to Net Cash Provided By Operating
ActivitiesImpairments
    
    
    1,041,067
    
    
    
    1,013,520Depreciation, Depletion and Amortization
    
    
    1,293,651
    
    
    
    901,539Gain on Sale of Securities
    
    
    (36,260
    )
    
    
    Loss (Gain) on Sale of Property and Equipment
    
    
    3,703
    
    
    
    (4,079
    )Gain on sale of Discontinued Operations
    
    
    (294,587
    )
    
    
    Loss from Unconsolidated Affiliate
    
    
    28,817
    
    
    
    Minority Interest
    
    
    
    
    
    
    391,672Common Stock Issued as Compensation
    
    
    12,501
    
    
    
    10,000Restricted Common Stock Award
    
    
    4,548
    
    
    
    1,894Changes in Operating Assets and Liabilities:Accounts Receivable
    
    
    (220,645
    )
    
    
    (764,519
    )Other Current Assets
    
    
    (2,946
    )
    
    
    (21,736
    )Other Assets
    
    
    18,340
    
    
    
    (16,660
    )Accounts Payable
    
    
    1,125,107
    
    
    
    789,771Accrued Expenses
    
    
    (85,184
    )
    
    
    47,619Other Liabilities
    
    
    
    
    
    
    (1,118
    )Change in Discontinued Operations, Net
    
    
    (22,349
    )
    
    
    45,807Net Cash Provided By Operating Activities
    
    
    1,967,869
    
    
    
    431,872Cash Flows from Investing Activities:Purchases of Property and Equipment
    
    
    (31,903
    )
    
    
    (22,969
    )Proceeds from Sale of Securities
    
    
    474,648
    
    
    
    Proceeds from Sale of Assets
    
    
    1,245,889
    
    
    
    Expenditures for Oil and Natural Gas Wells
    
    
    (7,970,517
    )
    
    
    (6,106,347
    )Expenditures for Unconsolidated Affiliate
    
    
    (1,290,747
    )
    
    
    Purchases of Securities
    
    
    
    
    
    
    (438,388
    )Net Cash Used In Investing Activities
    
    
    (7,572,630
    )
    
    
    (6,567,704
    )Cash Flows from Financing Activities:Proceeds from Line of Credit, Net
    
    
    2,615,000
    
    
    
    3,085,000Proceeds from Common Stock Private Placement
    
    
    
    
    
    
    2,366,370Proceeds from Related Party Loan
    
    
    3,800,000
    
    
    
    750,000Principal Payments on Long Term Debt
    
    
    (86,745
    )
    
    
    (83,193
    )Principal Payments to Related Party
    
    
    
    
    
    
    (819,041
    )Change in Discontinued Operations, Net
    
    
    (716,907
    )
    
    
    (18,025
    )Net Cash Provided By Financing Activities
    
    
    5,611,348
    
    
    
    5,281,111Net Increase (Decrease) in Cash
    
    
    6,587
    
    
    
    (854,721
    )Cash, Beginning of Period
    
    
    23,892
    
    
    
    878,613Cash, End of Period
    
    $
    30,479
    
    
    $
    23,892
  38




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##### Table of Contents



1. Summary of Significant Accounting Policies
 General
      39




---



##### Table of Contents



Principles of Consolidation
  Cash and Cash Equivalents
  Accounts Receivable
   Property and Equipment
    40




---



##### Table of Contents



Asset Impairment
  Asset Retirement Obligation
 Accounting for Asset Retirement Obligations
  2007
    
    2006Asset retirement obligations, beginning of the year
    
    $
    90,324
    
    
    $
    Liabilities incurred during the year
    
    
    127,133
    
    
    
    85,069Liabilities settled during the year
    
    
    
    
    
    
    Accretion expense
    
    
    24,320
    
    
    
    5,255Asset retirement obligations, end of year
    
    
    241,777
    
    
    
    90,324Less current liabilities
    
    
    30,000
    
    
    
    Asset retirement obligations, net of current maturities
    
    $
    211,777
    
    
    $
    90,324
  41




---



##### Table of Contents



Revenue Recognition
    2008
    
    $
    190,3802009
    
    
    190,3802010
    
    
    108,7202011
    
    
    36,443$
    525,923
  Comprehensive Income
 Reporting Comprehensive Income
 Stock-Based Compensation
  42




---



##### Table of Contents



Accounting
for Stock Issued to Employees.
  2007
    
    2006Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    AverageShares
    
    Price
    
    Shares
    
    PriceOutstanding at beginning of year
    
    
    35,000
    
    
    $
    0.56
    
    
    
    135,000
    
    
    $
    0.56Granted
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    100,000
    
    
    
    0.56Outstanding at end of year
    
    
    35,000
    
    
    $
    0.56
    
    
    
    35,000
    
    
    $
    0.56Options available for grant
    
    
    265,000
    
    
    
    
    
    
    
    265,000Exercisable at end of year
    
    
    35,000
    
    
    $
    0.56
    
    
    
    35,000
    
    
    $
    0.56
 Income Taxes
   Accounting for Uncertainty in Income Taxes  an Interpretation of FASB Statement
No. 109 Accounting for Income Taxes
  43




---



##### Table of Contents



Use of Estimates
    Cash-flow Restatement
  Fair Value of Financial Instruments
  Recently Issued Accounting Pronouncements
 Fair Value Measurements
 44




---



##### Table of Contents



The Fair Value Option for Financial Assets
and Financial Liabilities-Including an Amendment of FASB Statement No. 115
 2. Stockholders Equity
     3. Property and Equipment
  2007
    
    
    2006Oil and Natural Gas Properties:Proved Properties
    
    $
    12,173,194
    
    
    $
    5,328,224Unproved Properties
    
    
    1,803,800
    
    
    
    582,920Accumulated Depletion
    
    
    (2,861,141
    )
    
    
    (722,204
    )Total Oil and Natural gas Properties
    
    
    11,115,853
    
    
    
    5,188,940Other Property and Equipment:Land
    
    
    307,780
    
    
    
    512,542Building and Improvements
    
    
    2,357,822
    
    
    
    2,357,084Furniture and Equipment
    
    
    200,212
    
    
    
    193,182Accumulated Depreciation
    
    
    (1,107,519
    )
    
    
    (947,470
    )Total Other Property and Equipment
    
    
    1,758,295
    
    
    
    2,115,338Property and Equipment, Net
    
    $
    12,874,148
    
    
    $
    7,304,278
 45




---



##### Table of Contents



4. Available for Sale Securities
  5. Investment in Unconsolidated Affiliates
  December 31, 2007Current Assets
    
    $
    316,752Unproved Leaseholds
    
    
    2,707,773Furniture and Fixtures, Net of Depreciation
    
    
    31,536Other Assets
    
    
    42,135$
    3,098,196Current Liabilities
    
    $
    214,791Paid in Capital
    
    
    2,949,248Accumulated Deficit
    
    
    (65,843
    )$
    3,098,196
 For the Year EndedDecember 31, 2007Total Revenues
    
    $
    Total Expenses
    
    
    65,843Net Loss
    
    $
    (65,843
    )
 46




---



##### Table of Contents



6. Discontinued Operations
   2007
    
    
    2006RevenuesRevenues from real estate operations
    
    $
    72,771
    
    
    $
    205,726Operating expensesInterest expense
    
    
    22,982
    
    
    
    58,769Property taxes and insurance
    
    
    11,654
    
    
    
    31,325Property operating expense
    
    
    30,318
    
    
    
    71,860Legal and professional fees
    
    
    2,217
    
    
    
    Depreciation and amortization
    
    
    13,083
    
    
    
    41,717Total Expenses
    
    
    80,254
    
    
    
    203,671Income (loss) from discontinued operations before gain on
sale of self-storage facility
    
    
    (7,483
    )
    
    
    2,055Gain on sale of self-storage facility
    
    
    294,587
    
    
    
    Income from discontinued operations
    
    $
    287,104
    
    
    $
    2,055
 7. Line of Credit and Long-Term Debt
   47




---



##### Table of Contents



Current
    
    
    Outstanding BalancesSite
    
    
    Interest Rate
    
    
    Maturity
    
    
    Interest
    
    
    December 31, 2007
    
    
    December 31, 2006Reference
    
    
    Index
    
    
    Date
    
    
    Rate
    
    
    (Audited)
    
    
    (Audited)Continuing Operations
    
    Painesville
    
    
    30 day LIBOR plus 2.50%
    
    
    
    3-30-09
    
    
    
    7.355
    %
    
    $
    1,386,457
    
    
    $
    1,473,202Discontinued
Operations
    
    Gahanna
    
    Prime
    
    
    3-01-09
    
    
    
    8.250
    %
    
    
    
    
    
    
    716,907Long-Term Debt Total
    
    
    
    
    
    
    
    
    
    
    
    
    1,386,457
    
    
    
    2,190,109Less Continuing Current Maturities
    
    
    
    
    
    
    
    
    
    100,725
    
    
    
    86,780Less Discontinued Operations
    
    
    
    
    
    
    
    
    
    
    
    
    
    716,907Long-Term Debt, Net of Current Maturities
    
    
    
    
    
    
    
    $
    1,285,732
    
    
    $
    1,386,422
  2008
    
    $
    100,7252009
    
    
    1,285,732$
    1,386,457
   8. Notes Payable to Related Party
 48




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##### Table of Contents



9. Earnings/Loss Per Share
    For the YearsEnded December 31,2007
    
    
    2006Weighted average number of common shares outstanding
used in basic earnings per common share calculation
    
    
    8,999,436
    
    
    
    7,285,434Dilutive effect of stock options
    
    
    
    
    
    
    Dilutive effect of Class A Limited Partnership interests
    
    
    
    
    
    
    Weighted average number of common shares outstanding
adjusted for effect of dilutive options and Class A
convertible stock used in diluted EPS calculation
    
    
    8,999,436
    
    
    
    7,285,434Loss from continuing operations
    
    $
    (1,184,998
    )
    
    $
    (1,963,893
    )Income from discontinued operations
    
    
    287,104
    
    
    
    2,055Net Loss
    
    $
    (897,894
    )
    
    $
    (1,961,838
    )Basic and Diluted:Loss per common share from continuing operations
    
    $
    (0.13
    )
    
    $
    (0.27
    )Earnings per common share from discontinued operations
    
    
    0.03
    
    
    
    (Loss) Earnings per common share, net
    
    $
    (0.10
    )
    
    $
    (0.27
    )
  10. Income Taxes
 49




---



##### Table of Contents



2007
    
    
    2006Amount
    
    
    %
    
    
    Amount
    
    
    %Provision (benefit) based on
the federal statutory rate
    
    $
    (305,000
    )
    
    
    (34.0
    )
    
    $
    (520,000
    )
    
    
    (34.0
    )Increase in valuation allowance
    
    
    305,000
    
    
    
    34.0
    
    
    
    561,100
    
    
    
    36.7$
    
    
    
    
    
    
    
    $
    41,100
    
    
    
    2.7
  2007
    
    
    2006Deferred tax assetsNet operating loss carry forwards
    
    $
    4,610,000
    
    
    $
    2,649,000AMT credit
    
    
    41,100
    
    
    
    41,100Total deferred tax assets
    
    
    4,651,100
    
    
    
    2,690,100Deferred tax liabilitiesOil and natural gas properties,
principally due to differences in
depreciation, depletion and amortization
    
    
    (2,920,000
    )
    
    
    (1,593,000
    )Net deferred tax assets
    
    
    1,731,100
    
    
    
    1,097,100Valuation Allowance
    
    
    (1,731,100
    )
    
    
    (1,097,100
    )Net deferred tax assets
    
    $
    
    
    
    $
    
   11. Other Related Party Transactions
 50




---



##### Table of Contents



For the Years EndedDecember 31,2007
    
    
    2006RevenuesNet Revenue From the Sale of Oil
and Natural Gas Production
    
    $
    2,917,900
    
    
    $
    1,364,497Operating expensesWell Management and Water Hauling
    
    $
    202,582
    
    
    $
    64,995Pipeline Transportation Costs
    
    $
    432,915
    
    
    $
    203,013
  51




---



##### Table of Contents



12. Financial Information Relating to Industry Segments
   52




---



##### Table of Contents



Oil and Gas
    
    
    Self-StorageTwelve Months ended December 31, 2007
    
    Production
    
    
    Facilities
    
    
    TotalRevenues from external customers
    
    $
    2,929,359
    
    
    $
    348,537
    
    
    $
    3,277,896Interest revenue
    
    
    43,525
    
    
    
    
    
    
    
    43,5252,972,884
    
    
    
    348,537
    
    
    
    3,321,421Depreciation, depletion and amortization
    
    
    1,170,773
    
    
    
    122,878
    
    
    
    1,293,651Property Operating Costs
    
    
    335,135
    
    
    
    103,123
    
    
    
    438,258Loss from Unconsolidated Affiliate
    
    
    28,817
    
    
    
    
    
    
    
    28,817Other Operating expenses
    
    
    957,074
    
    
    
    177,880
    
    
    
    1,134,954Impairment and dry well costs
    
    
    1,041,067
    
    
    
    
    
    
    
    1,041,067Interest expense
    
    
    452,891
    
    
    
    116,781
    
    
    
    569,6723,985,757
    
    
    
    520,662
    
    
    
    4,506,419Net Loss from Continuing Operations
    
    
    (1,012,873
    )
    
    
    (172,125
    )
    
    
    (1,184,998
    )Net Income from Discontinued Operations
    
    
    
    
    
    
    287,104
    
    
    
    287,104Net Income (Loss)
    
    $
    (1,012,873
    )
    
    $
    114,979
    
    
    $
    (897,894
    )Property and Equipment additions
    
    $
    7,970,517
    
    
    $
    31,903
    
    
    $
    8,002,420Total Assets
    
    $
    13,465,139
    
    
    $
    1,937,438
    
    
    $
    15,402,567
 Oil and Gas
    
    
    Self-StorageTwelve Months ended December 31, 2006
    
    Production
    
    
    Facilities
    
    
    TotalRevenues from external customers
    
    $
    1,364,497
    
    
    $
    355,512
    
    
    $
    1,720,009Interest revenue
    
    
    1,658
    
    
    
    283
    
    
    
    1,9411,366,155
    
    
    
    355,795
    
    
    
    1,721,950Depreciation, depletion and amortization
    
    
    750,851
    
    
    
    150,688
    
    
    
    901,539Property Operating Costs
    
    
    91,439
    
    
    
    99,740
    
    
    
    191,179Other Operating expenses
    
    
    775,081
    
    
    
    173,750
    
    
    
    948,831Impairment and dry well costs
    
    
    280,262
    
    
    
    733,258
    
    
    
    1,013,520Interest expense
    
    
    81,759
    
    
    
    116,156
    
    
    
    197,9151,979,392
    
    
    
    1,273,592
    
    
    
    3,252,984Net Loss before taxes, minority
interest and discontinued operations
    
    
    (613,237
    )
    
    
    (917,797
    )
    
    
    (1,531,034
    )Provision for income taxes  current
    
    
    (41,187
    )
    
    
    
    
    
    
    (41,187
    )Minority Interest
    
    
    
    
    
    
    (391,672
    )
    
    
    (391,672
    )Discontinued Operations
    
    
    
    
    
    
    2,055
    
    
    
    2,055Net Loss
    
    $
    (654,424
    )
    
    $
    (1,307,414
    )
    
    $
    (1,961,838
    )Property and Equipment additions
    
    $
    6,106,347
    
    
    $
    22,969
    
    
    $
    6,129,316Total Assets
    
    $
    6,530,616
    
    
    $
    3,012,864
    
    
    $
    9,543,480
 53




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##### Table of Contents



13. Commitments and Contingencies
 Environmental Matters
  Oil and Gas Contracts
  14. Subsequent Events
   15. Supplemental Disclosures About Oil and Natural Gas Producing Activities  Unaudited
 Estimated Proved Reserves
  54




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##### Table of Contents



2007
    
    2006Natural Gas
    
    Oil
    
    Natural Gas
    
    Oil(MCF)
    
    (BBLs)
    
    (MCF)
    
    (BBLs)Proved developed and undeveloped
reserves:Beginning of year
    
    
    1,348,600
    
    
    
    14,800
    
    
    
    
    
    
    
    Revision of previous estimates,
extensions and other additions
    
    
    456,500
    
    
    
    3,400
    
    
    
    1,514,200
    
    
    
    15,800Net reserve additions
    
    
    1,190,900
    
    
    
    22,800
    
    
    
    
    
    
    
    Production
    
    
    (350,000
    )
    
    
    (3,700
    )
    
    
    (165,600
    )
    
    
    (1,000
    )End of year
    
    
    2,646,000
    
    
    
    37,300
    
    
    
    1,348,600
    
    
    
    14,800Proved developed reserves:Beginning of year
    
    
    1,348,600
    
    
    
    14,800
    
    
    
    
    
    
    
    End of year
    
    
    2,646,000
    
    
    
    37,300
    
    
    
    1,348,600
    
    
    
    14,800
 Capitalized Costs Relating to Oil and Natural gas Producing Activities
 December 31,2007
    
    
    2006Proved oil and natural gas properties
    
    $
    12,173,194
    
    
    $
    5,328,224Unproved oil and natural gas properties
    
    
    1,803,800
    
    
    
    582,920Total
    
    
    13,976,994
    
    
    
    5,911,144Accumulated depreciation, depletion and amortization
    
    
    (2,861,141
    )
    
    
    (722,204
    )Net capitalized costs
    
    $
    11,115,853
    
    
    $
    5,188,940
 Costs Incurred in Oil and Natural gas Producing Activities
 December 31,2007
    
    2006Property acquisition costs
    
    $
    9,724
    
    
    $
    14,177Development costs
    
    $
    8,046,599
    
    
    $
    5,896,967
 55




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##### Table of Contents



Standardized Measure of Discounted Future Net Cash Flows at December 31, 2007 and 2006 (in
thousands of dollars)
 2007
    
    
    2006Future cash inflows from sales of oil and gas
    
    $
    23,737
    
    
    $
    10,100Future production and development costs
    
    
    (8,831
    )
    
    
    (3,902
    )Future asset retirement obligations
    
    
    (853
    )
    
    
    (90
    )Future income tax expense
    
    
    (4,778
    )
    
    
    (2,000
    )Future net cash flows
    
    
    9,275
    
    
    
    4,108Future net cash flows 10% annual discount for estimated
timing of cash flows
    
    
    (3,384
    )
    
    
    (1,301
    )Standardized measure of discounted future net cash flows
    
    $
    5,891
    
    
    $
    2,807
   2007
    
    
    2006Balance, beginning of year
    
    $
    2,807
    
    
    $
    Extensions, discoveries and other additions
    
    
    5,300
    
    
    
    10,599Revision of quantity estimates
    
    
    2,427
    
    
    
    Sales of oil and gas, net of production costs
    
    
    (1,637
    )
    
    
    (499
    )Net change in prices and production costs
    
    
    1,691
    
    
    
    (3,992
    )Net change in income taxes
    
    
    (2,778
    )
    
    
    (2,000
    )Accretion of discount
    
    
    281
    
    
    
    Other
    
    
    (2,200
    )
    
    
    (1,301
    )Balance, end of year
    
    $
    5,891
    
    
    $
    2,807
 56