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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, 2009
 or
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from to
 Commission file number: 001-32369
 GASCO ENERGY, INC.
  NEVADA
(State or other jurisdiction of 
incorporation or organization)
    
    98-0204105
(I.R.S. Employer
Identification No.)
 8 Inverness Drive East, Suite 100, Englewood, CO
    
    80112(Address of principal executive offices)
    
    (Zip Code)
 (303) 483-0044
  Title of each classCOMMON STOCK, $0.0001 PAR VALUE
    
    Name of each exchange on which registeredNYSE AMEX LLC
  o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
(Do not check if a smaller reporting company)
    
    Smaller reporting company o
 o þ




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Table of Contents
 Part IItem 1. Business
    
    
    1Item 1 A. Risk Factors
    
    
    14Item 1 B. Unresolved Staff Comments
    
    
    32Item 2. Properties
    
    
    32Item 3. Legal Proceedings
    
    
    39Item 4. Submission of Matters to a Vote of Security Holders
    
    
    41Part IIItem 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    41Item 6. Selected Financial Data
    
    
    41Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    42Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    67Item 8. Financial Statements and Supplementary Data
    
    
    68Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    119Item 9A. Controls and Procedures
    
    
    119Item 9B. Other Information
    
    
    123




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Part IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    123Item 11. Executive Compensation
    
    
    123Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    123Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    123Item 14. Principal Accounting Fees and Services
    
    
    123Item 15. Exhibits, Financial Statement Schedules
    
    
    123EX-23.1EX-23.2EX-31EX-32EX-99.1




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PART I
 
 ITEM 1  BUSINESS
 Business of Gasco
     Recent Developments
 Sale of Gathering Assets
   1




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Acquisition of Petro-Canada Assets
  Amendment to Credit Facility
  Resignation of Former Chief Executive Officer; Appointment of Replacement
  Principal Products or Services and Markets
  2




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For the Years Ended December 31,2009
    
    2008
    
    2007Revenues associated with EnWest Marketing LLC
(EnWest) purchases
    
    $
    1,916,757
    
    
    
    
    
    
    
    Revenues associated with ConocoPhillips purchases
    
    $
    13,429
    
    
    $
    7,537,841
    
    
    $
    15,272,000Revenues associated with Anadarko purchases
    
    $
    13,173,402
    
    
    $
    24,406,071
    
    
    
    Percentage of oil and gas revenues attributable to:EnWest
    
    
    12
    %
    
    
    
    
    
    
    ConocoPhillips
    
    
    
    
    
    
    21
    %
    
    
    80
    %Anadarko
    
    
    84
    %
    
    
    68
    %
    
    
    
  Competitive Business Conditions, Competitive Position in the Industry and Methods of Competition
    Financial Information About Geographic Areas
  Governmental Regulations and Environmental Laws
  3




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4




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Massachusetts,
et al.v. EPA
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c
  6




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Employees
  Available Information
   7




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CAUTIONARY STATEMENT ABOUT FORWARD-LOOKING STATEMENTS
    
    
    fluctuations in natural gas and oil prices;
    
    pipeline constraints;
    
    overall demand for natural gas and oil in the United States;
    
    changes in general economic conditions in the United States;
    
    our ability to manage interest rate and commodity price exposure;
    
    changes in our borrowing arrangements;
    
    our ability to generate sufficient cash flow to operate;
    
    the condition of credit and capital markets in the United States;
    
    the amount, nature and timing of capital expenditures;
    
    estimated reserves of natural gas and oil, including uncertainties about the effects of
the SECs new rules governing reserve reporting;
    
    drilling of wells;
 8




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
    
    acquisition and development of oil and gas properties;
    
    operating hazards inherent to the natural gas and oil business;
    
    timing and amount of future production of natural gas and oil;
    
    operating costs and other expenses;
    
    cash flow and anticipated liquidity;
    
    future operating results;
    
    marketing of oil and natural gas;
    
    competition and regulation; and
    
    plans, objectives and expectations.
  9




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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 well
 Exploratory well
 Farm-in or farm-out
 Field
 Gross acres or gross wells
 Lead
 10




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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
 Productive well
 Prospect
 Proved area
 Proved developed oil and gas reserves
 Proved oil and gas reserves
 11




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Proved properties
 Proved undeveloped reserves
 Reservoir
 Service well.
 12




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Standardized Measure of Discounted Future Net Cash Flows.
 Stratigraphic test well
 Undeveloped acreage
 Unproved properties
 Working interest
 13




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ITEM 1A. Risk Factors
   Future economic conditions in the US and key international markets may materially adversely impact
our operating results.
  We have incurred losses and may continue to incur losses in the future.
   Oil and natural gas prices are volatile. The extended decline in commodity prices has adversely
affected, and in the future will adversely affect, our financial condition and results of
operations, cash flows, access to the capital markets, and ability to grow.
  14




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
    
    changes in global supply and demand for natural gas and oil;
    
    commodity processing, gathering and transportation availability;
    
    domestic and global political and economic conditions;
    
    the ability of members of the Organization of Petroleum Exporting
Countries to agree to and maintain oil price and production controls;
    
    weather conditions, including hurricanes;
    
    technological advances affecting energy consumption;
    
    an increase in alternative fuel sources;
    
    higher fuel taxes and other regulatory actions;
    
    an increase in fuel economy;
    
    additional domestic and foreign governmental regulations; and
    
    the price and availability of alternative fuels.
  15




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
    
    the availability of gathering systems with sufficient capacity to handle local production;
    
    seasonal fluctuations in local demand for production;
    
    local and national gas storage capacity;
    
    interstate pipeline capacity; and
    
    the availability and cost of gas transportation facilities from the Rocky Mountain region.
  We may not be able to maintain adequate cash flow from operations or obtain adequate financing
to grow our operations.
   16




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Lower oil and natural gas prices could negatively impact our ability to borrow. Additionally,
availability under our revolving credit facility is based on a borrowing base which is subject to
redetermination by our lenders. If our borrowing base is reduced, we may be required to repay
amounts outstanding under our revolving credit facility.
  17




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Our revolving 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.
   A failure by the gatherer of our natural gas to perform its obligations under our gas gathering
agreement may negatively affect our ability to deliver our natural gas production for sale.
  18




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Pipeline constraints may limit our ability to sell production and may negatively affect the price
at which we sell our production.
  Our estimates of proved reserves have been prepared under new SEC rules that went into effect for
fiscal years ending on or after December 31, 2009, which may make comparisons to prior periods
difficult and could limit our ability to book additional proved undeveloped reserves in the future.
    Our proved reserves are estimates and depend on many assumptions. Any material inaccuracies in
these assumptions could cause the quantity and value of our oil and gas reserves, and our revenue,
profitability, and cash flow, to be materially different from our estimates.
  19




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
    
    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.
    Lower oil and gas prices and other factors have resulted, and in the future may result, in ceiling
test write-downs and other impairments of our asset carrying values.
   20




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The development of oil and gas properties involves substantial risks that may materially and
adversely affect us.
    21




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Delays in obtaining drilling permits could have a materially adverse effect on our ability to
develop our properties in a timely manner.
  Our drilling operations may be delayed or revised unless we receive approval of our Environmental
Impact Statement.
  We may have difficulty managing any growth in our business .
  Our competitors may have greater resources which could enable them to pay a higher price for
properties and to better withstand periods of low market prices for hydrocarbons.
  22




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We may suffer losses or incur liability for events that we have, or that the operator of a property
has, chosen not to insure against.
  We may incur losses as a result of title deficiencies in the properties in which we invest .
    Our ability to market the oil and gas that we produce is essential to our business.
  Environmental costs and liabilities and changing environmental regulation could materially affect
our cash flow.
  23




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Our operations may incur substantial liabilities to comply with climate change legislation and
regulatory initiatives.
  We are subject to complex governmental regulations which may adversely affect the cost of our
business.
  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.
  24




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Our operations may be interrupted by severe weather or drilling restrictions.
  Shortages of supplies, equipment and personnel may adversely affect our operations.
  Hedging our production may result in losses.
  
    
    production is less than expected;
    
    the counterparty to the contract defaults on its obligations; or
    
    there is a change in the expected differential between the underlying price in
the hedging agreement and actual prices received.
  Our success depends on our key management personnel, the loss of any of whom could disrupt our
business.
  25




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Our directors are engaged in other businesses which may result in conflicts of interest.
    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.
   Certain U.S. federal income tax deductions currently available with respect to oil and gas
exploration and development may be eliminated as a result of future legislation.
  26




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The adoption of climate change legislation by Congress could result in increased operating costs
and reduced demand for the oil and natural gas we produce.
     27




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The adoption of derivatives legislation by Congress could have an adverse impact on our ability to
hedge risks associated with our business.
  Federal and state legislation and regulatory initiatives relating to hydraulic fracturing could
result in increased costs and additional operating restrictions or delays.
  28




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Risks Related to Our Capital Stock
 If we cannot meet the NYSE AMEXs continued listing requirements, the NYSE Amex may delist our
common stock, which would have an adverse impact on the liquidity and market price of our common
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;
 29




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
    
    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;
    
    an inability to regain compliance with the listing requirements of the NYSE AMEX; and
    
    issuances, purchases or sales of blocks of our common stock.
  Shares eligible for future sale may cause the market price for our common stock to drop
significantly, even if our business is doing well.
   We have not previously paid dividends on our common stock and we do not anticipate doing so in the
foreseeable future.
  30




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We have anti-takeover provisions in our certificate of incorporation and by-laws that may
discourage a change of control.
   31




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ITEM 1 B. UNRESOLVED STAFF COMMENTS
  
 ITEM 2   PROPERTIES
 Petroleum and Natural Gas Properties
 Riverbend Project
      32




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Greater Green River Basin Project
   Southern California Project
    Nevada Project
  33




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Oil and Natural Gas Reserves
   Company Reserve Estimates
   34




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Mcf of Gas
    
    
    Bbls of OilTotal Proved Reserve Quantities
    
    
    44,229,950
    
    
    
    450,858
 Proved Undeveloped
    
    
    Proved Developed
    
    
    TotalPresent Value of
Discounted Future
Net Cash Flows (a)
    
    $
    0
    
    
    $
    35,561,400
    
    
    $
    35,561,400
 
 (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 the 12-month unweighted arithmetic average of the
first-day-of-the-month price for the period January 2009 through December 2009, without giving
effect to derivative transactions, and were held constant throughout the life of the
properties. The average prices weighted by production over the lives of the proved reserves
used in the reserve report were of $2.85 per Mcf of gas and $44.46 per bbl of oil. All of our
proved undeveloped reserves became uneconomic at these prices and as a result were not
included in the December 31, 2009 reserve estimates. These prices should not be interpreted as
a prediction of future prices. During February 2010, we closed the sale of our gathering
assets and entered into a gathering agreement with the purchaser. As a result, the gathering
fees used in future reserve reports will increase and the present value of discounted future
net cash flows are expected to decrease.   Qualifications of Technical Persons and Internal Controls Over Reserves Estimation Process
   35




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Reserve Technologies
  Reserve Sensitivities
  Oil and GasOil
    
    Gas
    
    EquivalentPrice Case
    
    (MBbls)
    
    (MMcf)
    
    (Mmcfe)
    
    PV 10SEC pricing (a)
    
    
    450.9
    
    
    
    44,230
    
    
    
    46,935
    
    
    $
    35,561,400Scenario 1 (b)
    
    
    485.7
    
    
    
    46,022
    
    
    
    48,936
    
    
    $
    42,919,000Scenario 2 (c)
    
    
    410.0
    
    
    
    41,909
    
    
    
    44,369
    
    
    $
    28,348,600
 
 (a)
    
    This case represents pricing under SEC rules under which he prices used are the
12-month unweighted arithmetic average of the first-day-of-the-month prices for the period
January 2009 through December 2009 The oil and gas prices used in this scenario, weighted
by production over the lives of the proved reserves are $44.46 per bbl of oil and $2.85 per
Mcf of gas.(b)
    
    Scenario 1 estimates total proved reserves assuming a 10% price increase in both the
oil and the gas price used in the SEC pricing scenario.(c)
    
    Scenario 2 estimates total proved reserves assuming a 10% price decrease in both the
oil and the gas price used in the SEC pricing scenario. Volumes, Prices and Operating Expenses
  36




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For the Years Ended December 31,2009
    
    
    2008
    
    
    2007Natural gas production (Mcf)
    
    
    4,274,849
    
    
    
    4,583,028
    
    
    
    4,011,978Average sales price per Mcf
    
    $
    3.23
    
    
    $
    7.05
    
    
    $
    4.19Oil production (Bbl)
    
    
    42,151
    
    
    
    42,545
    
    
    
    41,454Average sales price per Bbl
    
    $
    45.47
    
    
    $
    77.71
    
    
    $
    56.38Equivalent production of oil and gas (Mcfe)
    
    
    4,527,755
    
    
    
    4,838,298
    
    
    
    4,260,702Expenses per Mcfe:Lease operating
    
    $
    0.96
    
    
    $
    1.38
    
    
    $
    0.92General and administrative
    
    $
    1.75
    
    
    $
    1.90
    
    
    $
    2.12Depreciation, depletion and amortization
    
    $
    0.95
    
    
    $
    1.96
    
    
    $
    2.29Impairment
    
    $
    9.06
    
    
    $
    0.72
    
    
    $
    22.79
 Development, Exploration and Acquisition Capital Expenditures
  For the Years Ended December 31,2009
    
    
    2008
    
    
    2007Property acquisition costs:Unproved
    
    $
    647,721
    
    
    $
    624,815
    
    
    $
    35,578,808Proved
    
    
    
    
    
    
    
    
    
    
    2,496,100Exploration costs
    
    
    1,895,981
    
    
    
    24,607,162
    
    
    
    44,421,848Development costs
    
    
    2,486,858
    
    
    
    11,758,219
    
    
    
    Total
    
    $
    5,030,560
    
    
    $
    36,990,196
    
    
    $
    82,496,756
 Productive Oil and Gas Wells
  Productive Oil and GasWellsGross
    
    
    NetProducing oil wells
    
    
    13
    
    
    
    12.8Shut-in oil wells
    
    
    2
    
    
    
    2.0Producing gas wells
    
    
    116
    
    
    
    64.8Shut-in gas wells
    
    
    1
    
    
    
    1.0132
    
    
    
    80.6
  37




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Oil and Gas Acreage
  Undeveloped Acres
    
    
    Developed AcresGross
    
    
    Net
    
    
    Gross
    
    
    NetUtah
    
    
    111,364
    
    
    
    77,053
    
    
    
    5,080
    
    
    
    3,891Wyoming
    
    
    25,044
    
    
    
    14,848
    
    
    
    80
    
    
    
    60Nevada
    
    
    115,762
    
    
    
    114,380
    
    
    
    
    
    
    
    California
    
    
    24,996
    
    
    
    18,492
    
    
    
    
    
    
    
    Total acres
    
    
    277,166
    
    
    
    224,773
    
    
    
    5,160
    
    
    
    3,951
  Expiring in 2010
    
    
    Expiring in 2011
    
    
    Expiring in 2012Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetUtah
    
    
    4,328
    
    
    
    2,042
    
    
    
    3,179
    
    
    
    3,131
    
    
    
    1,117
    
    
    
    1,117Wyoming
    
    
    19,491
    
    
    
    9,213
    
    
    
    3,633
    
    
    
    3,804
    
    
    
    
    
    
    
    136California
    
    
    8,914
    
    
    
    5,388
    
    
    
    2,573
    
    
    
    2,409
    
    
    
    2,432
    
    
    
    936Nevada
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total
    
    
    32,733
    
    
    
    16,643
    
    
    
    9,385
    
    
    
    9,344
    
    
    
    3,549
    
    
    
    2,189
  38




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Drilling Activity
  For the Years Ended December 31,2009
    
    
    2008
    
    
    2007Gross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetExploratory Wells:Productive
    
    
    2
    
    
    
    0.8
    
    
    
    6
    
    
    
    2.5
    
    
    
    23
    
    
    
    10.1Dry
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total wells
    
    
    2
    
    
    
    0.8
    
    
    
    6
    
    
    
    2.5
    
    
    
    23
    
    
    
    10.1Development Wells:Productive
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    2.8
    
    
    
    
    
    
    
    Dry
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total wells
    
    
    
    
    
    
    
    
    
    
    8
    
    
    
    2.8
    
    
    
    
    
    
    
    
 Office Space
  
 ITEM 3   LEGAL PROCEEDINGS
 EPA Enforcement Action
  39




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Brek Litigation
      Jeffs
 40




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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
    
    
    Low2009First Quarter
    
    $
    0.69
    
    
    $
    0.18Second Quarter
    
    
    0.60
    
    
    
    0.21Third Quarter
    
    
    0.62
    
    
    
    0.21Fourth Quarter
    
    
    0.83
    
    
    
    0.402008First Quarter
    
    $
    2.80
    
    
    $
    1.80Second Quarter
    
    
    4.55
    
    
    
    2.38Third Quarter
    
    
    4.35
    
    
    
    1.44Fourth Quarter
    
    
    1.77
    
    
    
    0.28
 Securities Authorized for Issuance under Equity Compensation Plans
  
 ITEM 6   SELECTED FINANCIAL DATA
  41




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For the Years Ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Summary of OperationsGas revenue
    
    $
    13,801,679
    
    
    $
    32,328,579
    
    
    $
    16,818,623
    
    
    $
    19,851,663
    
    
    $
    13,462,977Oil revenue
    
    
    1,916,757
    
    
    
    3,306,253
    
    
    
    2,337,129
    
    
    
    1,187,509
    
    
    
    605,330General & administrative
expense
    
    
    7,920,014
    
    
    
    9,211,806
    
    
    
    9,021,977
    
    
    
    9,415,787
    
    
    
    5,987,019Impairment
    
    
    41,000,000
    
    
    
    3,500,000
    
    
    
    97,090,000
    
    
    
    51,000,000
    
    
    
    Net income (loss)
    
    
    (51,542,696
    )
    
    
    14,513,945
    
    
    
    (104,373,921
    )
    
    
    (55,817,767
    )
    
    
    (37,635
    )Net income (loss) per shareBasic
    
    
    (0.48
    )
    
    
    0.14
    
    
    
    (1.12
    )
    
    
    (0.65
    )
    
    
    (0.00
    )Diluted
    
    
    (0.48
    )
    
    
    0.13
    
    
    
    (1.12
    )
    
    
    (0.65
    )
    
    
    (0.00
    )
 As of December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Balance SheetWorking capital (deficit)
    
    $
    8,440,548
    
    
    $
    10,894,674
    
    
    $
    (9,330,209
    )
    
    $
    11,129,942
    
    
    $
    86,078,958Cash and cash equivalents
    
    
    10,577,340
    
    
    
    1,053,216
    
    
    
    1,843,425
    
    
    
    12,876,879
    
    
    
    62,661,368Property, plant and
equipment, net
    
    
    67,293,582
    
    
    
    109,000,014
    
    
    
    91,193,894
    
    
    
    115,846,114
    
    
    
    95,743,453Total assets
    
    
    104,741,713
    
    
    
    153,885,508
    
    
    
    122,511,789
    
    
    
    165,454,418
    
    
    
    201,199,972Noncurrent liabilities
    
    
    101,587,581
    
    
    
    97,196,768
    
    
    
    75,090,876
    
    
    
    65,981,536
    
    
    
    65,302,674Stockholders equity (deficit)
    
    
    (4,193,399
    )
    
    
    44,042,888
    
    
    
    25,247,791
    
    
    
    77,171,921
    
    
    
    127,440,160
 
 ITEM 7
    
    - MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
  Forward Looking Statements
  Overview
  42




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##### Table of Contents



Recent Developments
 Sale of Gathering Assets
   Acquisition of Petro-Canada
  Amendment to Credit Facility
  Resignation of Former Chief Executive Officer; Appointment of Replacement
  43




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Impact of Current Credit Markets and Commodity Prices
  Reduced Cash Flows from Operations Could Impact Our Ability to Fund Capital
Expenditures and Meet Working Capital Needs
     44




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##### Table of Contents



Reduced Cash Flows from Operations Could Result in a Default under Our Credit Facility and
Convertible Senior Notes due 2011
   Reduced Commodity Prices Could Impact the Borrowing Base under Our Credit Facility
    45




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Reduced Commodity Prices May Result in Ceiling Test Write-Downs and Other Impairments
    Reduced Commodity Prices May Impact Our Ability to Produce Economically
  Amendments to Credit Facility
   46




---



##### Table of Contents



47




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##### Table of Contents



Asset Sales & Acquisitions
    Notice from the NYSE Amex LLC
  48




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##### Table of Contents



Drilling Activity
  California Projects
    49




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##### Table of Contents



Summary of Capital Expenditures
  Cash paid for acquisitions, development and exploration
    
    $
    10,190,020Cash spent for 2008 property costs that were accrued at 12/31/08
    
    
    (3,560,000
    )Capital expenditures for 2009 projects
    
    $
    6,630,020Lease acquisitions and related costs
    
    $
    647,721Gathering system, facilities and equipment costs
    
    
    1,444,917Drilling, completion and recompletion activity
    
    
    4,537,382Capital expenditures for 2009 projects
    
    $
    6,630,020
 Production and Reserve Information
   50




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For the Years Ended December 31,2009
    
    
    2008
    
    
    2007Natural gas production (Mcf)
    
    
    4,274,849
    
    
    
    4,583,028
    
    
    
    4,011,978Average sales price per Mcf
    
    $
    3.23
    
    
    $
    7.05
    
    
    $
    4.19Year-end estimated proved gas reserves (Mcf)
    
    
    44,229,950
    
    
    
    50,909,308
    
    
    
    104,338,338Oil production (Bbl)
    
    
    42,151
    
    
    
    42,545
    
    
    
    41,454Average sales price per Bbl
    
    $
    45.47
    
    
    $
    77.71
    
    
    $
    56.38Year-end estimated proved oil reserves (Bbl)
    
    
    450,858
    
    
    
    361,185
    
    
    
    1,070,802Production (Mcfe)
    
    
    4,527,755
    
    
    
    4,838,298
    
    
    
    4,260,702Year-end estimated proved reserves (Mcfe)
    
    
    46,935,098
    
    
    
    53,076,418
    
    
    
    110,763,150
      51




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##### Table of Contents



Reserve Quantities
 Gas
    
    
    OilMcf
    
    
    BblsProved Reserves:Balance, December 31, 2006
    
    
    39,975,964
    
    
    
    370,581Extensions and discoveries
    
    
    23,854,007
    
    
    
    160,302Revisions of previous estimates (a)
    
    
    35,609,338
    
    
    
    517,340Sales of reserves in place
    
    
    (681,007
    )
    
    
    (5,302
    )Purchases of reserves in place
    
    
    9,592,014
    
    
    
    69,335Production
    
    
    (4,011,978
    )
    
    
    (41,454
    )Balance, December 31, 2007
    
    
    104,338,338
    
    
    
    1,070,802Extensions and discoveries
    
    
    2,400,000
    
    
    
    17,000Revisions of previous estimates (b)
    
    
    (42,740,002
    )
    
    
    (646,072
    )Sales of reserves in place
    
    
    (8,506,000
    )
    
    
    (38,000
    )Purchases of reserves in place
    
    
    
    
    
    
    Production
    
    
    (4,583,028
    )
    
    
    (42,545
    )Balance, December 31, 2008
    
    
    50,909,308
    
    
    
    361,185Extensions and discoveries
    
    
    1,384,000
    
    
    
    8,000Revisions of previous estimates (c)
    
    
    (3,788,509
    )
    
    
    123,824Sales of reserves in place
    
    
    
    
    
    
    Purchases of reserves in place
    
    
    
    
    
    
    Production
    
    
    (4,274,849
    )
    
    
    (42,151
    )Balance, December 31, 2009
    
    
    44,229,950
    
    
    
    450,858
 Gas
    
    
    OilMcf
    
    
    BblsProved Developed ReservesBalance, December 31, 2009
    
    
    44,229,950
    
    
    
    450,858Balance, December 31, 2008
    
    
    50,909,308
    
    
    
    361,185Balance, December 31, 2007
    
    
    50,820,623
    
    
    
    695,019
 
 (a)
    
    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.(b)
    
    The majority of the revisions of previous estimates during 2008 were primarily due to
the decrease in oil and gas prices from $73.95 per barrel and $6.53 per Mcf at December 31,
2007 to $15.33 per barrel and $4.63 per Mcf at December 31, 2008.(c)
    
    The majority of the revisions of previous estimates during 2009 were primarily due to a
decrease in the gas price used in the reserve report estimates from $4.63 per Mcf at
December 31, 2008 to $2.85 per Mcf at December 31, 2009 and an increase in oil prices from
$15.33 per barrel at December 31, 2008 to $44.46 per barrel at December 31, 2009. 52




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Liquidity and Capital Resources
  Sources and Uses of Funds
  For the Years Ended December 31,2009
    
    
    2008
    
    
    2007Net cash provided by operating activities
    
    $
    16,247,177
    
    
    $
    18,152,640
    
    
    $
    8,883,728Net cash used in investing activities
    
    
    (10,268,022
    )
    
    
    (41,943,076
    )
    
    
    (48,096,453
    )Net cash provided by financing activities
    
    
    3,544,969
    
    
    
    23,000,227
    
    
    
    28,179,271Net cash flow
    
    
    9,524,124
    
    
    
    (790,209
    )
    
    
    (11,033,454
    )
    Monetization of Derivative Contracts
  53




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##### Table of Contents



Sales of Assets
   Schedule of Contractual Obligations
  Payments due by PeriodMore thanContractual Obligations
    

    Total
    
    
    Less than 1 year
    
    
    13 years
    
    
    35 years
    
    
    5 yearsConvertible NotesPrincipal
    

    $
    65,000,000
    
    
    $
    
    
    
    $
    65,000,000
    
    
    $
    
    
    
    $
    Interest
    

    
    6,305,903
    
    
    
    3,575,000
    
    
    
    2,730,903
    
    
    
    
    
    
    
    Credit Facility Principal
    (a)

    
    34,544,969
    
    
    
    
    
    
    
    34,544,969
    
    
    
    
    
    
    
    Operating leases
    (b)

    
    85,491
    
    
    
    85,491
    
    
    
    
    
    
    
    
    
    
    
    Employment & consulting
Contracts
    (c)

    
    247,443
    
    
    
    247,443
    
    
    
    
    
    
    
    
    
    
    
    Asset retirement obligations
    (d)

    
    1,260,965
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,260,965Total Contractual Cash
Obligations
    

    $
    107,744,771
    
    
    $
    3,907,934
    
    
    $
    102,275,872
    
    
    $
    
    
    
    $
    1,260,965
 
 (a)
    
    During February 2010, we made a principal payment of $23,000,000, which reduced the
outstanding Credit Facility principal to $11,544,969.(b)
    
    During February 2010, we extended our current lease through May 31, 2011 at a rate of
approximately $13,800 per month.(c)
    
    In January 2010, in connection with the resignation of Mark Erickson as our President and CEO
we entered into a consulting agreement with him under which we will make payments to him
totaling $1,150,000 through March 1, 2011.(d)
    
    The accuracy and timing of the asset retirement obligations cannot be precisely determined in
advance. See further discussion in Note 2 Significant Accounting Policies  Asset Retirement
Obligation of the accompanying consolidated financial statements. 54




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Forward Sales Contracts
   Capital Budget
  Credit Facility
    55




---



##### Table of Contents



Convertible Notes
     56




---



##### Table of Contents



Derivatives
  Critical Accounting Policies and Estimates
  Oil and Gas Properties and Reserves
  57




---



##### Table of Contents



58




---



##### Table of Contents



Impairment of Long-lived Assets
  Stock-Based Compensation
  Derivatives
   59




---



##### Table of Contents



Results of Operations
 2009 Compared to 2008
 Oil and Gas Revenue and Production
  For the Years Ended December 31,2009
    
    
    2008Natural gas production (Mcf)
    
    
    4,274,849
    
    
    
    4,583,028Average sales price per Mcf
    
    $
    3.23
    
    
    $
    7.05Natural gas revenue
    
    $
    13,801,679
    
    
    $
    32,328,579Oil production (Bbl)
    
    
    42,151
    
    
    
    42,545Average sales price per Bbl
    
    $
    45.47
    
    
    $
    77.71Oil revenue
    
    $
    1,916,757
    
    
    $
    3,306,253Production (Mcfe)
    
    
    4,527,755
    
    
    
    4,838,298Total oil and gas revenue
    
    $
    15,718,436
    
    
    $
    35,634,832
  Gathering Revenue and Expenses
  Rental Income
  60




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##### Table of Contents



Lease Operating Expenses
  For the Years EndedDecember 31,2009
    
    
    2008Direct operating expenses and overhead
    
    $
    3,712,279
    
    
    $
    4,998,412Workover expense
    
    
    65,099
    
    
    
    163,728Total operating expenses
    
    $
    3,777,378
    
    
    $
    5,162,140Operating expenses per Mcfe
    
    $
    0.83
    
    
    $
    1.07Production and property taxes
    
    $
    574,628
    
    
    $
    1,491,558Production and property taxes per Mcfe
    
    $
    0.13
    
    
    $
    0.31Total lease operating expense per Mcfe
    
    $
    0.96
    
    
    $
    1.38
  Depletion, Depreciation and Amortization
  Impairment
   Contract Termination Fee
  61




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Loss on Sale of Assets, net
  General and Administrative Expense
  For the Years Ended December 31,2009
    
    
    2008Total general and administrative costs
    
    $
    7,497,289
    
    
    $
    7,519,064General and administrative costs attributable to
drilling, completion and operating activities
    
    
    (1,311,913
    )
    
    
    (1,410,256
    )General and administrative expense
    
    $
    6,185,376
    
    
    $
    6,108,808General and administrative expenses per Mcfe
    
    $
    1.37
    
    
    $
    1.26Total stock-based compensation costs
    
    $
    1,951,885
    
    
    $
    3,134,024Stock-based compensation costs capitalized
    
    
    (7,110
    )
    
    
    (31,026
    )Stock-based compensation
    
    $
    1,944,775
    
    
    $
    3,102,998Stock-based compensation per Mcfe
    
    $
    0.43
    
    
    $
    0.64Total general and administrative expense
Including stock-based compensation
    
    $
    8,130,151
    
    
    $
    9,211,806Total general and administrative expense per Mcfe
    
    $
    1.80
    
    
    $
    1.90
  Interest Expense
  62




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Derivative Gains (Losses)
  Interest Income
  2008 Compared to 2007
 Oil and Gas Revenue and Production
  For the Years Ended December 31,2008
    
    2007Natural gas production (Mcf)
    
    
    4,583,028
    
    
    
    4,011,978Average sales price per Mcf
    
    $
    7.05
    
    
    $
    4.19Natural gas revenue
    
    $
    32,328,579
    
    
    $
    16,818,623Oil production (Bbl)
    
    
    42,545
    
    
    
    41,454Average sales price per Bbl
    
    $
    77.71
    
    
    $
    56.38Oil revenue
    
    $
    3,306,253
    
    
    $
    2,337,129Production (Mcfe)
    
    
    4,838,298
    
    
    
    4,260,702Total oil and gas revenue
    
    $
    35,634,832
    
    
    $
    19,155,752
  Gathering Revenue and Expenses
  63




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Rental Income
  Lease Operating Expenses
  For the Years Ended December 31,2008
    
    
    2007Direct operating expenses and overhead
    
    $
    4,998,412
    
    
    $
    2,728,738Workover expense
    
    
    163,728
    
    
    
    323,657Total operating expenses
    
    $
    5,162,140
    
    
    $
    3,052,395Operating expenses per Mcfe
    
    $
    1.07
    
    
    $
    0.72Production and property taxes
    
    $
    1,491,558
    
    
    $
    880,529Production and property taxes per Mcfe
    
    $
    0.31
    
    
    $
    0.20Total lease operating expense per Mcfe
    
    $
    1.38
    
    
    $
    0.92
  Depletion, Depreciation and Amortization
  Impairment
  64




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##### Table of Contents



General and Administrative Expense
  For the Years Ended December 31,2008
    
    
    2007Total general and administrative costs
    
    $
    7,519,064
    
    
    $
    7,004,761General and administrative costs attributable to
drilling, completion and operating activities
    
    
    (1,410,256
    )
    
    
    (1,067,905
    )General and administrative expense
    
    $
    6,108,808
    
    
    $
    5,936,856General and administrative expenses per Mcfe
    
    $
    1.26
    
    
    $
    1.40Total stock-based compensation costs
    
    $
    3,134,024
    
    
    $
    3,131,406Stock-based compensation costs capitalized
    
    
    (31,026
    )
    
    
    (46,285
    )Stock-based compensation
    
    $
    3,102,998
    
    
    $
    3,085,121Stock-based compensation per Mcfe
    
    $
    0.64
    
    
    $
    0.72Total general and administrative expense
Including stock-based compensation
    
    $
    9,211,806
    
    
    $
    9,021,977Total general and administrative expense per Mcfe
    
    $
    1.90
    
    
    $
    2.12
  Interest Expense
  65




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##### Table of Contents



Derivative Gain (Loss)
  Interest Income
  Recent Accounting Pronouncements
 
    Off Balance Sheet Arrangements
  66




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##### Table of Contents



ITEM 7A  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 Commodity Price Risk
  
    
    For our swap instruments, we receive 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.
  Remaining
    
    
    
    
    
    Fixed Price
    
    Floating Price (a)Agreement Type
    
    Term
    
    Quantity
    
    Counterparty payer
    
    Gasco payerSwap (b)
    
    
    1/10  12/10
    
    
    3,500 MMBtu/day
    
    $4.418/MMBtu
    
    NW RockiesSwap
    
    
    1/10  3/11
    
    
    3,000 MMBtu/day
    
    $4.825/MMBtu
    
    NW RockiesSwap (b)
    
    
    1/11  3/11
    
    
    2,000 MMBtu/day
    
    $4.418/MMBtu
    
    NW Rockies
 
 (a)
    
    Northwest Pipeline Rocky Mountains  Inside FERC first of month index price.(b)
    
    Includes information pertaining to a portion of a single natural gas derivative
contract with declining volumes. The fixed price represents the weighted average price for
the entire period from June 2009 through March 2011.  Interest Rate Risk
  67




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##### Table of Contents



ITEM 8  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 INDEX TO FINANCIAL STATEMENTS
 Report of Independent Registered Public Accounting Firm
    
    
    69-70Consolidated
Balance Sheets at December 31, 2009 and 2008
    
    
    71-72Consolidated Statements of Operations for the Years Ended
December 31, 2009, 2008 and 2007
    
    
    73Consolidated Statements of Stockholders Equity (Deficit) for the Years
Ended December 31, 2009, 2008 and 2007
    
    
    74Consolidated Statements of Cash Flows for the Years Ended
December 31, 2009, 2008 and 2007
    
    
    75Notes to Consolidated Financial Statements
    
    
    76-118
 68




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
    Internal Control  Integrated Framework
  
 69




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##### Table of Contents



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
    HEIN & ASSOCIATES LLP
 
 70




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##### Table of Contents



GASCO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS
 December 31,2009
    
    
    2008ASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    10,577,340
    
    
    $
    1,053,216Accounts receivableJoint interest billings
    
    
    857,405
    
    
    
    5,436,636Revenue
    
    
    2,979,726
    
    
    
    3,827,950Inventory
    
    
    1,019,913
    
    
    
    4,177,967Derivative instruments
    
    
    
    
    
    
    8,855,947Prepaid expenses
    
    
    292,421
    
    
    
    188,810Total
    
    
    15,726,805
    
    
    
    23,540,526PROPERTY, PLANT AND EQUIPMENT,at costOil and gas properties (full cost method)Proved properties
    
    
    254,682,870
    
    
    
    247,976,854Unproved properties
    
    
    38,638,936
    
    
    
    39,280,348Wells in progress
    
    
    
    
    
    
    644,688Facilities and equipment
    
    
    971,890
    
    
    
    3,696,785Furniture, fixtures and other
    
    
    333,049
    
    
    
    371,605Total
    
    
    294,626,745
    
    
    
    291,970,280Less accumulated depletion, depreciation, amortization and impairment
    
    
    (227,291,163
    )
    
    
    (182,970,266
    )Total
    
    
    67,335,582
    
    
    
    109,000,014Assets held for sale, net of accumulated depreciation
    
    
    20,155,544
    
    
    
    19,712,565Total
    
    
    87,491,126
    
    
    
    128,712,579NON-CURRENT ASSETSDeposit
    
    
    139,500
    
    
    
    139,500Note receivable
    
    
    500,000
    
    
    
    Deferred financing costs
    
    
    884,282
    
    
    
    1,492,9031,523,782
    
    
    
    1,632,403TOTAL ASSETS
    
    $
    104,741,713
    
    
    $
    153,885,508
  71




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##### Table of Contents



GASCO ENERGY, INC.
CONSOLIDATED BALANCE SHEETS (continued
 December 31,2009
    
    
    2008LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIESAccounts payable
    
    $
    1,110,259
    
    
    $
    5,879,150Revenue payable
    
    
    2,245,545
    
    
    
    3,840,985Advances from joint interest owners
    
    
    
    
    
    
    612,222Derivative instruments
    
    
    1,932,513
    
    
    
    Accrued interest
    
    
    844,108
    
    
    
    1,187,495Accrued expenses
    
    
    1,215,106
    
    
    
    1,126,000Total
    
    
    7,347,531
    
    
    
    12,645,852NONCURRENT LIABILITIES5.5% Convertible Senior Notes
    
    
    65,000,000
    
    
    
    65,000,000Long-term debt
    
    
    34,544,969
    
    
    
    31,000,000Derivative instruments
    
    
    761,092
    
    
    
    Asset retirement obligation related to assets held for sale
    
    
    206,595
    
    
    
    187,238Asset retirement obligation
    
    
    1,054,370
    
    
    
    962,941Deferred rent expense
    
    
    20,555
    
    
    
    46,589Total
    
    
    101,587,581
    
    
    
    97,196,768COMMITMENTS AND CONTINGENCIES (NOTE 14)STOCKHOLDERS EQUITY (DEFICIT)Series B Convertible Preferred stock  $.001 par value;
20,000 shares authorized; zero shares outstanding
    
    
    
    
    
    
    Common stock  $.0001 par value; 300,000,000 shares
authorized; 107,789,597 shares issued and 107,715,897 shares
outstanding as of December 31, 2009; 107,825,998 shares
issued and 107,752,298 shares outstanding as of December 31,
2008
    
    
    10,780
    
    
    
    10,783Additional paid-in-capital
    
    
    221,327,256
    
    
    
    219,375,369Accumulated deficit
    
    
    (225,401,140
    )
    
    
    (175,212,969
    )Less cost of treasury stock of 73,700 common shares
    
    
    (130,295
    )
    
    
    (130,295
    )Total
    
    
    (4,193,399
    )
    
    
    44,042,888TOTAL LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
    
    $
    104,741,713
    
    
    $
    153,885,508
  72




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##### Table of Contents



GASCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
 For the Year Ended December 31,2009
    
    
    2008
    
    
    2007REVENUESGas
    
    $
    13,801,679
    
    
    $
    32,328,579
    
    
    $
    16,818,623Oil
    
    
    1,916,757
    
    
    
    3,306,253
    
    
    
    2,337,129Gathering
    
    
    5,004,204
    
    
    
    4,796,409
    
    
    
    1,937,785Rental income
    
    
    366,399
    
    
    
    1,426,932
    
    
    
    1,029,094Total
    
    
    21,089,039
    
    
    
    41,858,173
    
    
    
    22,122,631OPERATING EXPENSESLease operating
    
    
    4,352,006
    
    
    
    6,653,698
    
    
    
    3,932,924Gathering operations
    
    
    2,670,176
    
    
    
    3,457,593
    
    
    
    2,471,645Depletion, depreciation and amortization
    
    
    5,555,095
    
    
    
    9,476,944
    
    
    
    9,780,767Impairment
    
    
    41,000,000
    
    
    
    3,500,000
    
    
    
    97,090,000Contract termination fee
    
    
    4,701,000
    
    
    
    
    
    
    
    Loss (gain) on sale of assets, net
    
    
    794,922
    
    
    
    (318,740
    )
    
    
    General and administrative
    
    
    8,130,151
    
    
    
    9,211,806
    
    
    
    9,021,977Total
    
    
    67,203,350
    
    
    
    31,981,301
    
    
    
    122,297,313OTHER INCOME (EXPENSE)Interest expense
    
    
    (5,617,750
    )
    
    
    (5,151,136
    )
    
    
    (4,274,814
    )Derivative gains (losses)
    
    
    1,510,522
    
    
    
    9,761,826
    
    
    
    (343,759
    )Interest income
    
    
    33,368
    
    
    
    26,383
    
    
    
    419,334Total
    
    
    (4,073,860
    )
    
    
    4,637,073
    
    
    
    (4,199,239
    )NET INCOME (LOSS)
    
    $
    (50,188,171
    )
    
    $
    14,513,945
    
    
    $
    (104,373,921
    )NET INCOME (LOSS) PER COMMON SHARE:Basic
    
    $
    (0.47
    )
    
    $
    0.14
    
    
    $
    (1.12
    )Diluted
    
    $
    (0.47
    )
    
    $
    0.13
    
    
    $
    (1.12
    )WEIGHTED AVERAGE COMMON SHARES OUTSTANDINGBasic
    
    
    107,581,871
    
    
    
    107,312,716
    
    
    
    93,504,982Diluted
    
    
    107,581,871
    
    
    
    109,090,165
    
    
    
    93,504,982
  73




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GASCO ENERGY, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 AdditionalPreferred Stock
    
    
    Common Stock
    
    
    Paid-in
    
    
    Accumulated
    
    
    TreasuryShares
    
    
    Value
    
    
    Shares
    
    
    Value
    
    
    Capital
    
    
    Deficit
    
    
    Stock
    
    
    TotalBalance December 31, 2006
    
    
    
    
    
    $
    
    
    
    
    86,173,715
    
    
    $
    8,617
    
    
    $
    162,646,592
    
    
    $
    (85,352,993
    )
    
    $
    (130,295
    )
    
    $
    77,171,921Issuance of common stock
    
    
    
    
    
    
    
    
    
    
    20,999,868
    
    
    
    2,100
    
    
    
    49,536,807
    
    
    
    
    
    
    
    
    
    
    
    49,538,907Cancellation of common stock
    
    
    
    
    
    
    
    
    
    
    (88,462
    )
    
    
    (8
    )
    
    
    (220,514
    )
    
    
    
    
    
    
    
    
    
    
    (220,522
    )Stock compensation
    
    
    
    
    
    
    
    
    
    
    205,350
    
    
    
    20
    
    
    
    3,131,386
    
    
    
    
    
    
    
    
    
    
    
    3,131,406Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (104,373,921
    )
    
    
    
    
    
    
    (104,373,921
    )Balance December 31, 2007
    
    
    
    
    
    
    
    
    
    
    107,290,471
    
    
    
    10,729
    
    
    
    215,094,271
    
    
    
    (189,726,914
    )
    
    
    (130,295
    )
    
    
    25,247,791Exercise of common stock options
    
    
    
    
    
    
    
    
    
    
    566,566
    
    
    
    56
    
    
    
    1,161,228
    
    
    
    
    
    
    
    
    
    
    
    1,161,284Cancellation of common stock
    
    
    
    
    
    
    
    
    
    
    (80,039
    )
    
    
    (7
    )
    
    
    (14,155
    )
    
    
    
    
    
    
    
    
    
    
    (14,162
    )Stock compensation
    
    
    
    
    
    
    
    
    
    
    49,000
    
    
    
    5
    
    
    
    3,134,025
    
    
    
    
    
    
    
    
    
    
    
    3,134,030Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    14,513,945
    
    
    
    
    
    
    
    14,513,945Balance December 31, 2008
    
    
    
    
    
    
    
    
    
    
    107,825,998
    
    
    
    10,783
    
    
    
    219,375,369
    
    
    
    (175,212,969
    )
    
    
    (130,295
    )
    
    
    44,042,888Cancellation of common stock
    
    
    
    
    
    
    
    
    
    
    (43,901
    )
    
    
    (4
    )
    
    
    4
    
    
    
    
    
    
    
    
    
    
    
    Stock compensation
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    1
    
    
    
    1,951,883
    
    
    
    
    
    
    
    
    
    
    
    1,951,884Net loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (50,188,171
    )
    
    
    
    
    
    
    (50,188,171
    )Balance December 31, 2009
    
    
    
    
    
    
    
    
    
    
    107,789,597
    
    
    $
    10,780
    
    
    $
    221,327,256
    
    
    $
    (225,401,140
    )
    
    $
    (130,295
    )
    
    $
    (4,193,399
    )
  74




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##### Table of Contents



GASCO ENERGY, INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 For the Years Ended December 31,2009
    
    
    2008
    
    
    2007CASH FLOWS FROM OPERATING ACTIVITIESNet income (loss)
    
    $
    (50,188,171
    )
    
    $
    14,513,945
    
    
    $
    (104,373,921
    )Adjustment to reconcile net income (loss) to net cash
provided by
operating activitiesDepletion, depreciation and amortization expense
    
    
    5,445,138
    
    
    
    9,379,223
    
    
    
    9,692,341Impairment expense
    
    
    41,000,000
    
    
    
    3,500,000
    
    
    
    97,090,000Accretion of asset retirement obligation
    
    
    109,956
    
    
    
    97,721
    
    
    
    88,426Stock-based compensation
    
    
    1,944,775
    
    
    
    3,102,998
    
    
    
    3,085,121Change in fair value of derivative instruments, net
    
    
    11,549,552
    
    
    
    (9,199,706
    )
    
    
    343,759Amortization of deferred rent expense
    
    
    (26,034
    )
    
    
    (14,004
    )
    
    
    (12,400
    )Amortization of deferred financing costs
    
    
    608,621
    
    
    
    521,428
    
    
    
    518,233Loss (gain) on sale of assets, net
    
    
    794,922
    
    
    
    (318,740
    )
    
    
    Changes in operating assets and liabilities:Accounts receivable
    
    
    5,427,455
    
    
    
    247,547
    
    
    
    (475,097
    )Inventory
    
    
    3,257,440
    
    
    
    (2,698,902
    )
    
    
    137,173Prepaid expenses
    
    
    (103,611
    )
    
    
    138,220
    
    
    
    177,960Accounts payable
    
    
    (1,723,142
    )
    
    
    (4,367,208
    )
    
    
    2,825,300Revenue payable
    
    
    (1,595,443
    )
    
    
    2,363,717
    
    
    
    (201,159
    )Accrued interest
    
    
    (343,387
    )
    
    
    343,401
    
    
    
    (8
    )Accrued expenses
    
    
    89,106
    
    
    
    543,000
    
    
    
    (12,000
    )Net cash provided by operating activities
    
    
    16,247,177
    
    
    
    18,152,640
    
    
    
    8,883,728CASH FLOWS FROM INVESTING ACTIVITIESCash paid for acquisitions, development and exploration
    
    
    (10,190,020
    )
    
    
    (44,250,250
    )
    
    
    (63,508,879
    )Brek acquisition transaction costs net of cash received
    
    
    
    
    
    
    
    
    
    
    (356,803
    )Cash paid for furniture, fixtures and other
    
    
    (5,230
    )
    
    
    (86,814
    )
    
    
    (43,782
    )Increase (decrease) in advances from joint interest owners
    
    
    (612,222
    )
    
    
    (5,106,012
    )
    
    
    2,762,858Proceeds from property sales
    
    
    539,450
    
    
    
    7,500,000
    
    
    
    3,475,153Proceeds from the sale of short-term investments
    
    
    
    
    
    
    
    
    
    
    6,000,000Cash undesignated as restricted
    
    
    
    
    
    
    
    
    
    
    3,575,000Net cash used in investing activities
    
    
    (10,268,022
    )
    
    
    (41,943,076
    )
    
    
    (48,096,453
    )CASH FLOWS FROM FINANCING ACTIVITIESBorrowings under line of credit
    
    
    13,000,000
    
    
    
    42,000,000
    
    
    
    18,000,000Repayment of borrowings
    
    
    (9,455,031
    )
    
    
    (20,000,000
    )
    
    
    (9,000,000
    )Cash paid for debt issuance costs
    
    
    
    
    
    
    (161,057
    )
    
    
    (120,729
    )Proceeds from sale of common stock
    
    
    
    
    
    
    
    
    
    
    19,300,000Exercise of options to purchase common stock
    
    
    
    
    
    
    1,161,284
    
    
    
    Net cash provided by financing activities
    
    
    3,544,969
    
    
    
    23,000,227
    
    
    
    28,179,271NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
    
    
    9,524,124
    
    
    
    (790,209
    )
    
    
    (11,033,454
    )CASH AND CASH EQUIVALENTS:BEGINNING OF PERIOD
    
    
    1,053,216
    
    
    
    1,843,425
    
    
    
    12,876,879END OF PERIOD
    
    $
    10,577,340
    
    
    $
    1,053,216
    
    
    $
    1,843,425
  75




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##### Table of Contents



GASCO ENERGY INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007
 NOTE 1  ORGANIZATION AND LIQUIDITY
   NOTE 2  SIGNIFICANT ACCOUNTING POLICIES
 Basis of Presentation
  Cash and Cash Equivalents
  Concentration of Credit Risk
   Significant Customers
  76




---



##### Table of Contents



Inventory
  Oil and Gas Properties
     77




---



##### Table of Contents



Capitalized Interest
  Facilities and Equipment
  78




---



##### Table of Contents



Assets Held for Sale
  Impairment of Long-lived Assets
  Deferred Financing Costs
  Forward Sales Contracts
   79




---



##### Table of Contents



Derivatives
  Asset Retirement Obligation
  Year Ended December 31,2009
    
    
    2008Balance beginning of period
    
    $
    1,150,179
    
    
    $
    1,030,283Liabilities incurred
    
    
    830
    
    
    
    52,430Liabilities settled
    
    
    
    
    
    
    (21,674
    )Revisions (a)
    
    
    
    
    
    
    2,526Property dispositions
    
    
    
    
    
    
    (11,107
    )Accretion expense
    
    
    109,956
    
    
    
    97,721Balance end of period (b)
    
    $
    1,260,965
    
    
    $
    1,150,179
 
 (a)
    
    Revisions represent our periodic reassessment of the expected cash flows and
assumptions inherent in the calculation of the asset retirement liability.(b)
    
    $206,595 and $187,238 were reclassified on the accompanying consolidated balance
sheets as asset retirement obligations related to assets held for sale as of December
31, 2009 and 2008, respectively. Contract Termination Fee
  80




---



##### Table of Contents



Off Balance Sheet Arrangements
  Revenue Recognition
   Computation of Net Loss per Share
   81




---



##### Table of Contents



Year EndedDecember 31, 2008Numerator:Basic net income
    
    $
    14,513,945Denominator:Basic weighted average common shares outstanding
    
    
    107,312,716Effect of dilutive securities:Options to purchase common stock
    
    
    4,673,627Assumed treasury shares purchased
    
    
    (3,127,788
    )Unvested restricted stock
    
    
    233,300Diluted weighted average common shares outstanding
    
    
    109,091,855Basic net income per share
    
    $
    0.14Diluted net income per share
    
    $
    0.13
  Use of Estimates
   Other Comprehensive Income (Loss)
  Income Taxes
  82




---



##### Table of Contents



Stock Compensation
  Recently Issued Accounting Pronouncements
 
    83




---



##### Table of Contents



NOTE 3  CHANGE IN METHOD OF DETERMINING OIL AND GAS RESERVES
    NOTE 4  ASSETS HELD FOR SALE
  84




---



##### Table of Contents



Gathering
    
    
    Water DisposalDecember 31, 2009
    
    Assets
    
    
    Facilities
    
    
    TotalLower of book value or fair value
less costs to sell
    
    $
    18,101,536
    
    
    $
    6,264,003
    
    
    $
    24,365,539Accumulated depreciation expense
    
    
    (3,778,695
    )
    
    
    (431,300
    )
    
    
    (4,209,995
    )Assets held for sale
    
    $
    14,322,841
    
    
    $
    5,832,703
    
    
    $
    20,155,544Asset retirement obligations related
to assets held for sale
    
    $
    43,589
    
    
    $
    163,006
    
    
    $
    206,595
 Gathering
    
    
    Water DisposalDecember 31, 2008
    
    Assets
    
    
    Facilities
    
    
    TotalLower of book value or fair value
    
    $
    17,474,738
    
    
    $
    4,853,143
    
    
    $
    22,327,881Accumulated depreciation expense
    
    
    (2,396,582
    )
    
    
    (218,734
    )
    
    
    (2,615,316
    )Assets held for sale
    
    $
    15,078,156
    
    
    $
    4,634,409
    
    
    $
    19,712,565Asset retirement obligations related
to assets held for sale
    
    $
    39,616
    
    
    $
    147,622
    
    
    $
    187,238
 NOTE 5  DERIVATIVES
  Location on Consolidated
    
    
    Fair Value at December 31,Balance Sheets
    
    
    2009
    
    
    2008Natural gas derivative contracts
    
    Current assets
    
    $
    
    
    
    $
    8,855,947Natural gas derivative contracts
    
    Current liabilities
    
    
    1,932,513
    
    
    
    Natural gas derivative contracts
    
    Noncurrent liabilities
    
    
    761,092
    
    
    
    
  
    
    For its swap instruments, the Company 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.
    
    The Companys costless collar contained a fixed floor price (put) and ceiling price
(call). If the market price exceeded the call strike price or fell below the put strike
price, Gasco received the fixed price and paid the market price. If the market price was
between the call and the put strike prices, no payments were due from either party.
 85




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##### Table of Contents



For the Years Ended December 31,2009
    
    
    2008
    
    
    2007Realized gains (losses) on derivative instruments
    
    $
    13,060,074
    
    
    $
    562,120
    
    
    $
    Change in fair value of derivative instruments, net
    
    
    (11,549,552
    )
    
    
    9,199,706
    
    
    
    (343,759
    )Total realized and unrealized gains
(losses) recorded
    
    $
    1,510,522
    
    
    $
    9,761,826
    
    
    $
    (343,759
    )
   Agreement
    
    Remaining
    
    
    
    Fixed Price
    
    Floating Price (a)Type
    
    Term
    
    Quantity
    
    Counterparty payer
    
    Gasco payerSwap (b)
    
    1/10  12/10
    
    3,500 MMBtu/day
    
    $4.418/MMBtu
    
    NW RockiesSwap
    
    1/10  3/11
    
    3,000 MMBtu/day
    
    $4.825/MMBtu
    
    NW RockiesSwap (b)
    
    1/11  3/11
    
    2,000 MMBtu/day
    
    $4.418/MMBtu
    
    NW Rockies
 
 (a)
    
    Northwest Pipeline Rocky Mountains  Inside FERC first of month index price.(b)
    
    Includes information pertaining to a portion of a single natural gas derivative
contract with declining volumes. The fixed price represents the weighted average price for
the entire period from June 2009 through March 2011. NOTE 6  STOCK-BASED COMPENSATION
   86




---



##### Table of Contents



2009
    
    
    2008
    
    
    2007Total stock-based compensation
    
    $
    1,951,885
    
    
    $
    3,134,024
    
    
    $
    3,131,406Consultant compensation expense
capitalized as proved property
    
    
    (7,110
    )
    
    
    (31,026
    )
    
    
    (46,285
    )Stock-based compensation expense
    
    $
    1,944,775
    
    
    $
    3,102,998
    
    
    $
    3,085,121
   Employee and Director Options2009
    
    2008
    
    2007Expected dividend yield
    
    
    
    
    
    
    
    
    
    
    Expected price volatility
    
    
    7580
    %
    
    
    7074
    %
    
    
    8184
    %Risk-free interest rate
    
    
    2.2  2.8
    %
    
    
    1.4  4.0
    %
    
    
    3.58  4.8
    %Expected life of options
    
    56 years
    
    56 years
    
    6 years
   Stock Options
  87




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##### Table of Contents



2009
    
    2008
    
    2007Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageStock
    
    Exercise
    
    Stock
    
    Exercise
    
    Stock
    
    ExerciseOptions
    
    Price
    
    Options
    
    Price
    
    Options
    
    PriceOutstanding at beginning of year
    
    
    11,124,788
    
    
    $
    2.06
    
    
    
    10,729,138
    
    
    $
    2.58
    
    
    
    9,878,502
    
    
    $
    2.74Granted
    
    
    1,752,083
    
    
    $
    0.66
    
    
    
    2,938,750
    
    
    $
    1.76
    
    
    
    1,540,000
    
    
    $
    1.91Exercised
    
    
    
    
    
    
    
    
    
    
    (566,566
    )
    
    $
    2.05
    
    
    
    
    
    
    
    Forfeited
    
    
    (373,489
    )
    
    $
    1.32
    
    
    
    (686,573
    )
    
    $
    3.14
    
    
    
    (276,867
    )
    
    $
    3.00Cancelled
    
    
    (406,710
    )
    
    $
    3.78
    
    
    
    (1,289,961
    )
    
    $
    5.18
    
    
    
    (412,497
    )
    
    $
    3.49Outstanding at the end of year
    
    
    12,096,672
    
    
    $
    1.82
    
    
    
    11,124,788
    
    
    $
    2.06
    
    
    
    10,729,138
    
    
    $
    2.58Exercisable at December 31,
    
    
    8,941,784
    
    
    $
    2.03
    
    
    
    7,461,351
    
    
    $
    2.17
    
    
    
    8,333,472
    
    
    $
    2.44
  Outstanding Options
    
    Vested optionsNumber of shares
    
    
    12,096,672
    
    
    
    8,941,784Weighted Average Remaining
Contractual Life in years
    
    
    4.21
    
    
    
    3.90Weighted Average Exercise Price
    
    
    $1.82
    
    
    
    $2.03Aggregate intrinsic value
    
    
    $36,775
    
    
    
    $7,470
       88




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##### Table of Contents



WeightedAverageNumber of
    
    
    Number of
    
    
    RemainingRange of exercise
    
    Shares
    
    
    Shares
    
    
    Contractual LifePrices per Share
    
    Outstanding
    
    
    Exercisable
    
    
    (years)$0.00  $0.99
    
    
    1,747,500
    
    
    
    83,998
    
    
    
    4.8$1.00  $1.99
    
    
    5,946,089
    
    
    
    4,653,885
    
    
    
    3.8$2.00  $2.99
    
    
    2,021,000
    
    
    
    1,988,490
    
    
    
    3.4$3.00  $3.99
    
    
    2,290,000
    
    
    
    2,136,664
    
    
    
    5.4$4.00  $4.99
    
    
    40,000
    
    
    
    26,664
    
    
    
    8.5$5.00  $5.99
    
    
    52,083
    
    
    
    52,083
    
    
    
    6.3Total
    
    
    12,096,672
    
    
    
    8,941,784
    
    
    
    4.2
 Restricted Stock
  2009
    
    
    2008
    
    
    2007Weighted
    
    
    
    
    
    Weighted
    
    
    
    
    
    WeightedAverage
    
    
    
    
    
    Average
    
    
    
    
    
    AverageRestricted

    
    
    Fair
    
    
    Restricted
    
    
    Fair
    
    
    Restricted

    
    
    FairStock

    
    
    Value
    
    
    Stock

    
    
    Value
    
    
    Stock

    
    
    ValueOutstanding at the
beginning of the
year
    
    
    233,300
    
    
    $
    2.35
    
    
    
    308,820
    
    
    $
    2.36
    
    
    
    365,920
    
    
    $
    2.39Granted
    
    
    7,500
    
    
    $
    0.25
    
    
    
    49,000
    
    
    $
    3.20
    
    
    
    234,500
    
    
    $
    2.02Vested
    
    
    (62,200
    )
    
    $
    2.56
    
    
    
    (56,020
    )
    
    $
    2.97
    
    
    
    (262,450
    )
    
    $
    2.03Forfeited
    
    
    (38,100
    )
    
    $
    1.44
    
    
    
    (68,500
    )
    
    $
    2.31
    
    
    
    (29,150
    )
    
    $
    2.41Outstanding at the
end of the year
    
    
    140,500
    
    
    $
    2.39
    
    
    
    233,300
    
    
    $
    2.35
    
    
    
    308,820
    
    
    $
    2.36
   89




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##### Table of Contents



NOTE 7  OIL AND GAS PROPERTY
  As of December 31,2009
    
    
    2008Proved properties
    
    $
    254,640,870
    
    
    $
    247,976,854Unproved properties
    
    
    38,638,936
    
    
    
    39,280,348Wells in progress
    
    
    
    
    
    
    644,688Facilities and equipment
    
    
    971,890
    
    
    
    3,696,785Total
    
    
    294,251,696
    
    
    
    291,598,675Less accumulated depletion,
depreciation, amortization and
impairment
    
    
    (227,039,725
    )
    
    
    (182,740,948
    )Assets held for sale
    
    
    18,781,745
    
    
    
    19,712 565$
    85,993,716
    
    
    $
    128,570,292
  For the Years Ended December 31,2009
    
    
    2008
    
    
    2007Property acquisition costs:Unproved
    
    $
    647,721
    
    
    $
    624,815
    
    
    $
    35,578,808Proved
    
    
    
    
    
    
    
    
    
    
    2,496,100Exploration costs
    
    
    1,895,981
    
    
    
    24,607,162
    
    
    
    44,421,848Development costs
    
    
    2,486,858
    
    
    
    11,758,219
    
    
    
    Total
    
    $
    5,030,560
    
    
    $
    36,990,196
    
    
    $
    82,496,756
   2009
    
    
    2008Utah
    
    $
    36,980,706
    
    
    $
    37,546,914California
    
    
    1,049,364
    
    
    
    1,357,886Nevada
    
    
    608,866
    
    
    
    409,606$
    38,638,936
    
    
    $
    39,314,406
   90




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##### Table of Contents



Balance
    
    
    Costs Incurred During Years Ended  December 31,12/31/09
    
    
    2009
    
    
    2008
    
    
    2007
    
    
    PriorAcquisition costs
    
    $
    32,040,449
    
    
    $
    457,602
    
    
    $
    251,649
    
    
    $
    30,975,234
    
    
    $
    355,964Exploration costs
    
    
    6,598,487
    
    
    
    190,116
    
    
    
    869,763
    
    
    
    4,603,573
    
    
    
    935,035Total
    
    $
    38,638,936
    
    
    $
    647,718
    
    
    $
    1,121,412
    
    
    $
    35,578,807
    
    
    $
    1,290,999
  NOTE 8  CREDIT FACILITY
    91




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Summary of Amendments to the Credit Facility During 2009
       92




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93




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NOTE 9  CONVERTIBLE SENIOR NOTES
     94




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NOTE 10  FAIR VALUE MEASUREMENTS
       95




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##### Table of Contents



Fair Value Measurements UsingLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    TotalAssets
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Liabilities:Derivative instruments
    
    $
    
    
    
    $
    (2,693,605
    )
    
    $
    
    
    
    $
    (2,693,605
    )
   Derivatives as of December 31,2009
    
    
    2008Balance as of January 1
    
    $
    2,644,534
    
    
    $
    Total gains (losses) (realized or unrealized):Included in earnings
    
    
    916,493
    
    
    
    2,941,534Included in other comprehensive income
    
    
    
    
    
    
    Purchases, issuances and settlements
    
    
    (3,561,027
    )
    
    
    (297,000
    )Transfers in and out of level 3
    
    
    
    
    
    
    Balance as of December 31,
    
    $
    
    
    
    $
    2,644,534Change in unrealized gains (losses) included in earnings
relating to derivatives still held as of December 31,
    
    $
    
    
    
    $
    2,644,534
   96




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NOTE 11  STOCKHOLDERS EQUITY (DEFICIT)
  Series B Convertible Preferred Stock
 Common Stock 
     97




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NOTE 12  STATEMENT OF CASH FLOWS
  
    
    Recognition of an asset retirement obligation for the plugging and abandonment costs
related to the Companys oil and gas properties valued at $830.
    
    Stock-based compensation expense of $7,110 capitalized as proved property.
    
    Additions to oil and gas properties included in accounts payable of $3,087,746.
    
    Sale of assets for a note receivable of $500,000.
    
    Cancellation of 6,301 shares of common stock in satisfaction of income taxes of $3,566
related to the vesting of restricted stock.
    
    Write-off of fully depreciated furniture and fixtures of $43,786.
  
    
    Recognition of an asset retirement obligation for the plugging and abandonment costs
related to the Companys oil and gas properties valued at $52,430. Reduction in asset
retirement obligation of $11,107 due to property dispositions. Increase in asset retirement
obligation of $2,526 due to revisions representing our periodic reassessment of the
expected cash flows and assumptions inherent in the calculation of the asset retirement
liability.
    
    Stock-based compensation of $31,026 capitalized as proved property.
    
    Additions to oil and gas properties included in accounts payable of $3,157,809.
    
    Cancellation of 11,521 shares of common stock in satisfaction of income taxes of
$18,036 related to the vesting of restricted stock.
  
    
    Issuance of 10,999,868 shares of common stock valued at approximately $30,749,300 for
in connection with an acquisition.
    
    Recognition of an asset retirement obligation for the plugging and abandonment costs
related to the Companys oil and gas properties valued at $126,145. Reduction in asset
retirement obligation of $64,568 due to periodic reassessment of the expected cash flows
and assumptions inherent in the calculation of the liability.
    
    Stock-based compensation of $46,285 capitalized as proved property.
    
    Additions to oil and gas properties included in accounts payable of $6,688,799.
    
    Capitalization of interest expense of $548,047.
 98




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
    
    Cancellation of 88,462 shares of common stock in satisfaction of income taxes of
$220,522 related to the vesting of restricted stock.
  NOTE 13  INCOME TAXES
  2009
    
    
    2008
    
    
    2007Current taxes:Federal
    
    $
    
    
    
    $
    
    
    
    $
    State
    
    
    
    
    
    
    
    
    
    
    Deferred taxes:Deferred provision (benefit)
    
    
    (20,159,066
    )
    
    
    6,261,035
    
    
    
    (38,75,921
    )Less: valuation allowance
    
    
    20,159,066
    
    
    
    (6,261,035
    )
    
    
    38,756,921Net income tax provision (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    
  2009
    
    
    2008
    
    
    2007Tax provision (benefit) at federal statutory rate
    
    $
    (17,565,860
    )
    
    $
    5,079,881
    
    
    $
    (36,530,872
    )State taxes, net of federal tax effects
    
    
    (2,330,215
    )
    
    
    320,637
    
    
    
    (2,659,481
    )Change in Tax Rate from Prior Year
    
    
    400,528
    
    
    
    185,057
    
    
    
    Permanent items and other
    
    
    (663,519
    )
    
    
    675,460
    
    
    
    433,432Valuation allowance
    
    
    20,159,066
    
    
    
    (6,261,035
    )
    
    
    38,756,921Net income tax provision (benefit)
    
    $
    
    
    
    $
    
    
    
    $
    
  99




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##### Table of Contents



2009
    
    
    2008Deferred tax assets:Federal and state net operating loss carryovers
    
    $
    69,245,987
    
    
    $
    52,031,562Oil and gas property impairment
    
    
    
    
    
    
    Oil and gas property and other property, plant & equipment
    
    
    13,372,424
    
    
    
    15,123,145Deferred rent
    
    
    7,869
    
    
    
    17,335Deferred compensation
    
    
    2,558,354
    
    
    
    2,210,496Accrued salaries and bonus
    
    
    92,265
    
    
    
    286,882Asset retirement obligation
    
    
    482,751
    
    
    
    428,173Derivative instruments
    
    
    1,031,226
    
    
    
    Other
    
    $
    177,580
    
    
    
    7,019Total deferred tax assets
    
    
    86,968,454
    
    
    
    70,104,612Less: valuation allowance
    
    
    (86,968,454
    )
    
    
    (66,809,388
    )
    
    
    
    3,295,224Deferred tax liabilities:Derivative instruments
    
    
    
    
    
    
    3,295,224Total deferred tax liabilities
    
    
    
    
    
    
    3,295,224Net deferred tax asset
    
    $
    
    
    
    $
    
  NOTE 14  RELATED PARTY TRANSACTIONS
   NOTE 15  COMMITMENTS
  100




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NOTE 16  EMPLOYEE BENEFIT PLANS
  101




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NOTE 17  SELECTED QUARTERLY INFORMATION (Unaudited)
  For the Quarter Ended2009
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Gross revenue
    
    $
    5,413,622
    
    
    $
    4,412,313
    
    
    $
    4,437,856
    
    
    $
    6,825,248Net revenue from oil
and gas operations
    
    
    3,480,085
    
    
    
    2,358,335
    
    
    
    2,668,067
    
    
    
    2,859,943Net income (loss) (a)(b)
    
    
    (43,865,246
    )
    
    
    (3,859,634
    )
    
    
    (2,906,729
    )
    
    
    443,438Net income (loss) per shareBasic
    
    
    (0.41
    )
    
    
    (0.04
    )
    
    
    (0.03
    )
    
    
    0.00Diluted
    
    
    (0.41
    )
    
    
    (0.04
    )
    
    
    (0.03
    )
    
    
    0.00
 
 (a)
    
    The net loss for the first quarter of 2009 includes a $41,000,000 property
impairment related to the Companys oil and gas properties as further discussed in Note 2
of the accompanying consolidated financial statements.(b)
    
    As discussed in Note 3 Change in Method of Determining Oil and Gas Reserves,
effective December 31, 2009, the Company changed its method of determining the quantities
of oil and gas reserves which affected the amount of depreciation, depletion and
amortization and the ceiling test calculation for oil and gas properties in the fourth
quarter of 2009. For the Quarter Ended2008
    
    March 31,
    
    
    June 30,
    
    
    September 30,
    
    
    December 31,Gross revenue (c)
    
    $
    9,755,723
    
    
    $
    14,092,926
    
    
    $
    11,228,854
    
    
    $
    6,780,670Net revenue from oil
and gas operations
    
    
    7,218,390
    
    
    
    10,657,476
    
    
    
    8,443,611
    
    
    
    2,661,657Net income (loss)
    
    
    (4,410,117
    )
    
    
    (788,608
    )
    
    
    21,039,898
    
    
    
    (1,327,228
    )Net income (loss) per shareBasic
    
    
    (0.04
    )
    
    
    (0.01
    )
    
    
    0.20
    
    
    
    (0.01
    )Diluted
    
    
    (0.04
    )
    
    
    (0.01
    )
    
    
    0.17
    
    
    
    (0.01
    )
 
 (c)
    
    The Form 10-Qs for the first three quarters of 2008 reflected derivative gains
(losses) and interest income as revenue. During the fourth quarter of 2008 the Company
reclassified these amounts from revenue to other income (expense) in the accompanying
consolidated statements of operations. The amounts in the table above reflect this
reclassification for all periods presented. NOTE 18 LEGAL PROCEEDINGS
  102




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EPA Enforcement Action
  Sweeney Litigation
  103




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##### Table of Contents



NOTE 19  CONSOLIDATING FINANCIAL STATEMENTS
  104




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##### Table of Contents



Condensed Consolidating Balance Sheet  As of December 31, 2009
(Unaudited)
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    629,170
    
    
    $
    9,948,170
    
    
    $
    10,577,340Accounts receivable
    
    
    43,927
    
    
    
    3,793,204
    
    
    
    3,837,131Inventory
    
    
    
    
    
    
    1,019,913
    
    
    
    1,019,913Prepaid expenses
    
    
    130,096
    
    
    
    162,325
    
    
    
    292,421Total
    
    
    803,193
    
    
    
    14,923,612
    
    
    
    15,726,805PROPERTY, PLANT AND EQUIPMENT,at costOil and gas properties (full cost method)Proved mineral interests
    
    
    78,130
    
    
    
    254,604,740
    
    
    
    254,682,870Unproved mineral interests
    
    
    1,054,096
    
    
    
    37,584,840
    
    
    
    38,638,936Facilities and equipment
    
    
    
    
    
    
    971,890
    
    
    
    971,890Furniture, fixtures and other
    
    
    333,049
    
    
    
    
    
    
    
    333,049Total
    
    
    1,465,275
    
    
    
    293,161,470
    
    
    
    294,626,745Less accumulated depreciation, depletion and amortization
    
    
    (251,438
    )
    
    
    (227,039,725
    )
    
    
    (227,291,163
    )Total
    
    
    1,213,837
    
    
    
    66,121,745
    
    
    
    67,335,582Assets held for sale, net of accumulated depreciation
    
    
    
    
    
    
    20,155,544
    
    
    
    20,155,544Total
    
    
    1,213,837
    
    
    
    86,277,289
    
    
    
    87,491,126OTHER ASSETSDeposit
    
    
    139,500
    
    
    
    
    
    
    
    139,500Note receivable
    
    
    500,000
    
    
    
    
    
    
    
    500,000Deferred financing costs
    
    
    884,282
    
    
    
    
    
    
    
    884,282Intercompany
    
    
    243,997,788
    
    
    
    (243,997,788
    )
    
    
    Total
    
    
    245,521,570
    
    
    
    (243,997,788
    )
    
    
    1,523,782TOTAL ASSETS
    
    $
    247,538,600
    
    
    $
    (142,796,887
    )
    
    $
    104,741,713
 105




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##### Table of Contents



Condensed Consolidating Balance Sheet
As of December 31, 2009
(Unaudited)
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedLIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)CURRENT LIABILITIESAccounts payable
    
    $
    209,153
    
    
    $
    901,106
    
    
    $
    1,110,259Revenue payable
    
    
    
    
    
    
    2,245,545
    
    
    
    2,245,545Derivative instruments
    
    
    1,932,513
    
    
    
    
    
    
    
    1,932,513Accrued interest
    
    
    844,108
    
    
    
    
    
    
    
    884,108Accrued expenses
    
    
    1,215,106
    
    
    
    
    
    
    
    1,215,106Total
    
    
    4,200,880
    
    
    
    3,146,651
    
    
    
    7,347,531NONCURRENT LIABILITIES5.5% Convertible Senior Notes
    
    
    65,000,000
    
    
    
    
    
    
    
    65,000,000Long-term debt
    
    
    34,544,969
    
    
    
    
    
    
    
    34,544,969Derivative instruments
    
    
    761,092
    
    
    
    
    
    
    
    761,092Asset retirement obligation related to assets held for sale
    
    
    
    
    
    
    206,595
    
    
    
    206,595Asset retirement obligation
    
    
    
    
    
    
    1,054,370
    
    
    
    1,054,370Deferred rent expense
    
    
    20,555
    
    
    
    
    
    
    
    20,555Total
    
    
    100,326,616
    
    
    
    1,260,965
    
    
    
    101,587,581STOCKHOLDERS EQUITY (DEFICIT)Common stock
    
    
    10,780
    
    
    
    
    
    
    
    10,780Other
    
    
    143,000,324
    
    
    
    (147,204,503
    )
    
    
    (4,204,179
    )Total
    
    
    143,011,104
    
    
    
    (147,204,503
    )
    
    
    (4,193,399
    )TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY (DEFICIT)
    
    $
    247,538,600
    
    
    $
    (142,796,887
    )
    
    $
    104,741,713
 106




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##### Table of Contents



Condensed Consolidating Balance Sheet
As of December 31, 2008
(Unaudited)
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedASSETSCURRENT ASSETSCash and cash equivalents
    
    $
    501,511
    
    
    $
    551,705
    
    
    $
    1,053,216Accounts receivable
    
    
    451,050
    
    
    
    8,813,536
    
    
    
    9,264,586Inventory
    
    
    
    
    
    
    4,177,967
    
    
    
    4,177,967Derivative instruments
    
    
    8,855,947
    
    
    
    
    
    
    
    8,855,947Prepaid expenses
    
    
    188,485
    
    
    
    325
    
    
    
    188,810Total
    
    
    9,996,993
    
    
    
    13,543,533
    
    
    
    23,540,526PROPERTY, PLANT AND EQUIPMENT,at costOil and gas properties (full cost method)Proved mineral interests
    
    
    71,021
    
    
    
    247,905,833
    
    
    
    247,976,854Unproved mineral interests
    
    
    1,054,096
    
    
    
    38,226,252
    
    
    
    39,280,348Wells in progress
    
    
    
    
    
    
    644,688
    
    
    
    644,688Facilities and equipment
    
    
    
    
    
    
    3,696,785
    
    
    
    3,696,785Furniture, fixtures and other
    
    
    371,605
    
    
    
    
    
    
    
    371,605Total
    
    
    1,496,722
    
    
    
    290,473,558
    
    
    
    291,970,280Less accumulated depreciation, depletion and amortization
    
    
    (229,318
    )
    
    
    (182,740,948
    )
    
    
    (182,970,266
    )Total
    
    
    1,267,404
    
    
    
    107,732,610
    
    
    
    109,000,014Assets held for sale, net of accumulated depreciation
    
    
    
    
    
    
    19,712,565
    
    
    
    19,712,565Total
    
    
    1,267,404
    
    
    
    127,445,175
    
    
    
    128,712,579OTHER ASSETSDeposit
    
    
    139,500
    
    
    
    
    
    
    
    139,500Deferred financing costs
    
    
    1,492,903
    
    
    
    
    
    
    
    1,492,903Intercompany
    
    
    244,524,964
    
    
    
    (244,524,964
    )
    
    
    Total
    
    
    246,157,367
    
    
    
    (244,524,964
    )
    
    
    1,632,403TOTAL ASSETS
    
    $
    257,421,764
    
    
    $
    (103,536,256
    )
    
    $
    153,885,508
 107




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##### Table of Contents



Condensed Consolidating Balance Sheet
As of December 31, 2008
(Unaudited)
 GuarantorParent
    
    
    Subsidiaries
    
    
    ConsolidatedLIABILITIES AND STOCKHOLDERS EQUITYCURRENT LIABILITIESAccounts payable
    
    $
    212,172
    
    
    $
    5,666,978
    
    
    $
    5,879,150Revenue payable
    
    
    
    
    
    
    3,840,985
    
    
    
    3,840,985Advances from joint interest owners
    
    
    
    
    
    
    612,222
    
    
    
    612,222Accrued interest
    
    
    1,187,495
    
    
    
    
    
    
    
    1,187,495Accrued expenses
    
    
    1,126,000
    
    
    
    
    
    
    
    1,126,000Total
    
    
    2,525,667
    
    
    
    10,120,185
    
    
    
    12,645,852NONCURRENT LIABILITIES5.5% Convertible Senior Notes
    
    
    65,000,000
    
    
    
    
    
    
    
    65,000,000Long-term debt
    
    
    31,000,000
    
    
    
    
    
    
    
    31,000,000Asset retirement obligation related to assets held for sale
    
    
    
    
    
    
    187,238
    
    
    
    187,238Asset retirement obligation
    
    
    
    
    
    
    962,941
    
    
    
    962,941Deferred rent expense
    
    
    46,589
    
    
    
    
    
    
    
    46,589Total
    
    
    96,046,589
    
    
    
    1,150,179
    
    
    
    97,196,768STOCKHOLDERS EQUITYCommon stock
    
    
    10,783
    
    
    
    
    
    
    
    10,783Other
    
    
    158,838,725
    
    
    
    (114,806,620
    )
    
    
    44,032,105Total
    
    
    158,849,508
    
    
    
    (114,806,620
    )
    
    
    44,042,888TOTAL LIABILITIES AND STOCKHOLDERS
EQUITY
    
    $
    257,421,764
    
    
    $
    (103,536,256
    )
    
    $
    153,885,508
 108




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##### Table of Contents



Consolidating Statements of Operations  (Unaudited)
 GuarantorFor the Year Ended December 31, 2009
    
    Parent
    
    
    Subsidiaries
    
    
    ConsolidatedREVENUESOil and gas
    
    $
    
    
    
    $
    15,718,436
    
    
    $
    15,718,436Gathering
    
    
    
    
    
    
    5,004,204
    
    
    
    5,004,204Rental income
    
    
    
    
    
    
    366,399
    
    
    
    366,399Total
    
    
    
    
    
    
    21,089,039
    
    
    
    21,089,039OPERATING EXPENSESLease operating
    
    
    
    
    
    
    4,352,006
    
    
    
    4,352,006Gathering operations
    
    
    
    
    
    
    2,670,176
    
    
    
    2,670,176Depletion, depreciation, amortization and accretion
    
    
    65,906
    
    
    
    5,489,189
    
    
    
    5,555,095Impairment
    
    
    
    
    
    
    41,000,000
    
    
    
    41,000,000Contract termination fee
    
    
    
    
    
    
    4,701,000
    
    
    
    4,701,000Loss on sale of assets, net
    
    
    
    
    
    
    794,922
    
    
    
    794,922General and administrative
    
    
    8,130,151
    
    
    
    
    
    
    
    8,130,151Total
    
    
    8,196,057
    
    
    
    59,007,293
    
    
    
    67,203,350OTHER INCOME (EXPENSE)Interest expense
    
    
    (5,617,750
    )
    
    
    
    
    
    
    (5,617,750
    )Derivative gains
    
    
    1,510,522
    
    
    
    
    
    
    
    1,510,522Interest income
    
    
    1,722
    
    
    
    31,646
    
    
    
    33,368Total
    
    
    (4,105,506
    )
    
    
    31,646
    
    
    
    (4,073,860
    )NET INCOME (LOSS)
    
    $
    (12,301,563
    )
    
    $
    (37,886,608
    )
    
    $
    (50,188,171
    )For the Year Ended December 31, 2008
    
    
    
    
    
    GuarantorParent
    
    Subsidiaries
    
    ConsolidatedREVENUESOil and gas
    
    $
    
    
    
    $
    35,634,832
    
    
    $
    35,634,832Gathering
    
    
    
    
    
    
    4,796,409
    
    
    
    4,796,409Rental income
    
    
    
    
    
    
    1,426,932
    
    
    
    1,426,932Total
    
    
    
    
    
    
    41,858,173
    
    
    
    41,858,173OPERATING EXPENSESLease operating
    
    
    
    
    
    
    6,653,698
    
    
    
    6,653,698Gathering operations
    
    
    
    
    
    
    3,457,593
    
    
    
    3,457,593Depletion, depreciation, amortization and accretion
    
    
    64,605
    
    
    
    9,412,339
    
    
    
    9,476,944Impairment
    
    
    
    
    
    
    3,500,000
    
    
    
    3,500,000Gain on sale of assets, net
    
    
    
    
    
    
    (318,740
    )
    
    
    (318,740
    )General and administrative
    
    
    9,211,806
    
    
    
    
    
    
    
    9,211,806Total
    
    
    9,276,411
    
    
    
    22,704,890
    
    
    
    31,981,301OTHER INCOME (EXPENSE)Interest expense
    
    
    (5,151,136
    )
    
    
    
    
    
    
    (5,151,136
    )Derivative gains
    
    
    9,761,826
    
    
    
    
    
    
    
    9,761,826Interest income
    
    
    26,369
    
    
    
    14
    
    
    
    26,383Total
    
    
    4,637,059
    
    
    
    14
    
    
    
    4,637,073NET INCOME (LOSS)
    
    $
    (4,639,352
    )
    
    $
    19,153,297
    
    
    $
    14,513,945
 109




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##### Table of Contents



Consolidating Statements of Operations
(Unaudited)
 GuarantorFor the Year Ended December 31, 2007
    
    Parent
    
    
    Subsidiaries
    
    
    ConsolidatedREVENUESOil and gas
    
    $
    
    
    
    $
    19,155,752
    
    
    $
    19,155,752Gathering
    
    
    
    
    
    
    1,937,785
    
    
    
    1,937,785Rental income
    
    
    
    
    
    
    1,029,094
    
    
    
    1,029,094Total
    
    
    
    
    
    
    22,122,631
    
    
    
    22,122,631OPERATING EXPENSESLease operating
    
    
    
    
    
    
    3,932,924
    
    
    
    3,932,924Gathering operations
    
    
    
    
    
    
    2,471,645
    
    
    
    2,471,645Depletion, depreciation, amortization and accretion
    
    
    62,729
    
    
    
    9,718,038
    
    
    
    9,780,767Impairment
    
    
    
    
    
    
    97,090,000
    
    
    
    97,090,000General and administrative
    
    
    9,021,977
    
    
    
    
    
    
    
    9,021977Total
    
    
    9,084,706
    
    
    
    113,212,607
    
    
    
    122,297,313OTHER INCOME (EXPENSE)Interest expense
    
    
    (4,274,814
    )
    
    
    
    
    
    
    (4,274,814
    )Derivative losses
    
    
    (343,759
    )
    
    
    
    
    
    
    (343,759
    )Interest income
    
    
    418,854
    
    
    
    480
    
    
    
    419,334Total
    
    
    (4,199,719
    )
    
    
    480
    
    
    
    (4,199,239
    )NET LOSS
    
    $
    (13,284,425
    )
    
    $
    (91,089,446
    )
    
    $
    (104,373,921
    )
 110




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##### Table of Contents



Consolidating Statements of Cash Flows
(Unaudited)
 GuarantorFor the Year Ended December 31, 2009
    
    Parent
    
    
    Subsidiaries
    
    
    ConsolidatedCASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    (3,884,523
    )
    
    $
    20,131,700
    
    
    $
    16,247,177CASH FLOWS FROM INVESTING ACTIVITIESCash paid for furniture, fixtures and other
    
    
    (5,230
    )
    
    
    
    
    
    
    (5,230
    )Cash paid for acquisitions, development and exploration
    
    
    
    
    
    
    (10,190,020
    )
    
    
    (10,190,020
    )Decrease in advances from joint interest owners
    
    
    
    
    
    
    (612,222
    )
    
    
    (612,222
    )Proceeds from property sales
    
    
    
    
    
    
    539,450
    
    
    
    539,450Net cash used in investing activities
    
    
    (5,230
    )
    
    
    (10,262,792
    )
    
    
    (10,268,022
    )CASH FLOWS FROM FINANCING ACTIVITIESBorrowings under line of credit
    
    
    13,000,000
    
    
    
    
    
    
    
    13,000,000Repayment of borrowings
    
    
    (9,455,031
    )
    
    
    
    
    
    
    (9,455,031
    )Intercompany
    
    
    527,176
    
    
    
    (527,176
    )
    
    
    Net cash provided by financing activities
    
    
    4,072,145
    
    
    
    (527,176
    )
    
    
    3,544,969NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
    
    
    182,392
    
    
    
    9,341,732
    
    
    
    9,524,124CASH AND CASH EQUIVALENTS:BEGINNING OF PERIOD
    
    
    501,511
    
    
    
    551,705
    
    
    
    1,053,216END OF PERIOD
    
    $
    683,903
    
    
    $
    9,893,437
    
    
    $
    10,577,340
 111




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##### Table of Contents



Consolidating Statements of Cash Flows
(Unaudited)
 GuarantorFor the Year Ended December 31, 2008
    
    Parent
    
    
    Subsidiaries
    
    
    ConsolidatedCASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    (10,580,567
    )
    
    $
    28,733,207
    
    
    $
    18,152,640CASH FLOWS FROM INVESTING ACTIVITIESCash paid for furniture, fixtures and other
    
    
    (86,814
    )
    
    
    
    
    
    
    (86,814
    )Cash paid for acquisitions, development and exploration
    
    
    
    
    
    
    (44,250,250
    )
    
    
    (44,250,250
    )Advances from joint interest owners
    
    
    
    
    
    
    (5,106,012
    )
    
    
    (5,106,012
    )Proceeds from property sales
    
    
    
    
    
    
    7,500,000
    
    
    
    7,500,000Net cash used in investing activities
    
    
    (86,814
    )
    
    
    (41,856,262
    )
    
    
    (41,943,076
    )CASH FLOWS FROM FINANCING ACTIVITIESBorrowings under line of credit
    
    
    42,000,000
    
    
    
    
    
    
    
    42,000,000Repayment of borrowings
    
    
    (20,000,000
    )
    
    
    
    
    
    
    (20,000,000
    )Cash paid for debt issuance costs
    
    
    (161,057
    )
    
    
    
    
    
    
    (161,057
    )Exercise of options to purchase common stock
    
    
    1,161,284
    
    
    
    
    
    
    
    1,161,284Intercompany
    
    
    (13,674,760
    )
    
    
    13,674,760
    
    
    
    Net cash provided by financing activities
    
    
    9,325,467
    
    
    
    13,674,760
    
    
    
    23,000,227NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS
    
    
    (1,341,914
    )
    
    
    551,705
    
    
    
    (790,209
    )CASH AND CASH EQUIVALENTS:BEGINNING OF PERIOD
    
    
    1,843,425
    
    
    
    
    
    
    
    1,843,425END OF PERIOD
    
    $
    501,511
    
    
    $
    551,705
    
    
    $
    1,053,216
 112




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##### Table of Contents



Consolidating Statements of Cash Flows
(Unaudited)
 GuarantorFor the Year Ended December 31, 2007
    
    Parent
    
    
    Subsidiaries
    
    
    ConsolidatedCASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    29,191,369
    
    
    $
    (20,370,083
    )
    
    $
    8,821,286CASH FLOWS FROM INVESTING ACTIVITIESCash paid for furniture, fixtures and other
    
    
    (43,782
    )
    
    
    
    
    
    
    (43,782
    )Cash paid for acquisitions, development and exploration
    
    
    
    
    
    
    (63,508,825
    )
    
    
    (63,508,825
    )Advances from joint interest owners
    
    
    
    
    
    
    2,825,300
    
    
    
    2,825,300Brek acquisition costs net of cash received
    
    
    
    
    
    
    (356,857
    )
    
    
    (356,857
    )Proceeds from property sales
    
    
    
    
    
    
    3,475,153
    
    
    
    3,475,153Proceeds from sale of short-term investments
    
    
    6,000,000
    
    
    
    
    
    
    
    6,000,000Cash undesignated as restricted
    
    
    3,575,000
    
    
    
    
    
    
    
    3,575,000Net cash provided by (used) in investing activities
    
    
    9,531,218
    
    
    
    (57,565,229
    )
    
    
    (48,034,011
    )CASH FLOWS FROM FINANCING ACTIVITIESProceeds from the sale of common stock
    
    
    19,300,000
    
    
    
    
    
    
    
    19,300,000Cash paid for offering costs
    
    
    (120,729
    )
    
    
    
    
    
    
    (120,729
    )Borrowings under line of credit
    
    
    18,000,000
    
    
    
    
    
    
    
    18,000,000Repayment of borrowings
    
    
    (9,000,000
    )
    
    
    
    
    
    
    (9,000,000
    )Intercompany
    
    
    (75,889,515
    )
    
    
    75,889,515
    
    
    
    Net cash provided by (used in) financing activities
    
    
    (47,710,244
    )
    
    
    75,889,515
    
    
    
    28,179,271NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (8,987,657
    )
    
    
    (2,045,797
    )
    
    
    (11,033,454
    )CASH AND CASH EQUIVALENTS:BEGINNING OF PERIOD
    
    
    10,831,082
    
    
    
    2,045,797
    
    
    
    12,876,879END OF PERIOD
    
    $
    1,843,425
    
    
    $
    
    
    
    $
    1,843,425
 113




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##### Table of Contents



Consolidating Statements of Cash Flows
(Unaudited)
 GuarantorFor the Year Ended December 31, 2006
    
    Parent
    
    
    Subsidiaries
    
    
    ConsolidatedCASH FLOWS FROM OPERATING ACTIVITIES
    
    $
    (7,015,061
    )
    
    $
    15,898,016
    
    
    $
    8,882,955CASH FLOWS FROM INVESTING ACTIVITIESCash paid for furniture, fixtures and other
    
    
    (67,994
    )
    
    
    
    
    
    
    (67,994
    )Cash paid for acquisitions, development and
exploration
    
    
    
    
    
    
    (79,557,785
    )
    
    
    (79,557,785
    )Proceeds from sale of short-term investments
    
    
    9,000,000
    
    
    
    
    
    
    
    9,000,000Advances from joint interest owners
    
    
    
    
    
    
    479,296
    
    
    
    479,296Cash designated as restricted
    
    
    (9,980
    )
    
    
    
    
    
    
    (9,980
    )Cash undesignated as restricted
    
    
    10,139,000
    
    
    
    
    
    
    
    10,139,000Net cash provided by (used) in
investing activities
    
    
    19,061,026
    
    
    
    (79,078,489
    )
    
    
    (60,017,463
    )CASH FLOWS FROM FINANCING ACTIVITIESPreferred dividends
    
    
    (1,393
    )
    
    
    
    
    
    
    (1,393
    )Cash paid for offering costs
    
    
    (240,262
    )
    
    
    
    
    
    
    (240,262
    )Exercise of options to purchase common stock
    
    
    1,591,674
    
    
    
    
    
    
    
    1,591,674Intercompany
    
    
    (61,879,245
    )
    
    
    61,879,245
    
    
    
    Net cash provided by (used in)
financing activities
    
    
    (60,529,226
    )
    
    
    61,879,245
    
    
    
    1,350,019NET DECREASE IN CASH AND CASH EQUIVALENTS
    
    
    (48,483,261
    )
    
    
    (1,301,228
    )
    
    
    (49,784,489
    )CASH AND CASH EQUIVALENTS:BEGINNING OF PERIOD
    
    
    59,314,343
    
    
    
    3,347,025
    
    
    
    62,661,368END OF PERIOD
    
    $
    10,831,082
    
    
    $
    2,045,797
    
    
    $
    12,876,879
 114




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##### Table of Contents



NOTE 20 SUPPLEMENTAL OIL AND GAS RESERVE INFORMATION (Unaudited)
   115




---



##### Table of Contents



Reserve Quantities
 Gas
    
    
    OilMcf
    
    
    BblsProved Reserves:Balance, December 31, 2006
    
    
    39,975,964
    
    
    
    370,581Extensions and discoveries
    
    
    23,854,007
    
    
    
    160,302Revisions of previous estimates (a)
    
    
    35,609,338
    
    
    
    517,340Sales of reserves in place
    
    
    (681,007
    )
    
    
    (5,302
    )Purchases of reserves in place
    
    
    9,592,014
    
    
    
    69,335Production
    
    
    (4,011,978
    )
    
    
    (41,454
    )Balance, December 31, 2007
    
    
    104,338,338
    
    
    
    1,070,802Extensions and discoveries
    
    
    2,400,000
    
    
    
    17,000Revisions of previous estimates (b)
    
    
    (42,740,002
    )
    
    
    (646,072
    )Sales of reserves in place
    
    
    (8,506,000
    )
    
    
    (38,000
    )Purchases of reserves in place
    
    
    
    
    
    
    Production
    
    
    (4,583,028
    )
    
    
    (42,545
    )Balance, December 31, 2008
    
    
    50,909,308
    
    
    
    361,185Extensions and discoveries
    
    
    1,384,000
    
    
    
    8,000Revisions of previous estimates (c)
    
    
    (3,788,509
    )
    
    
    123,824Sales of reserves in place
    
    
    
    
    
    
    Purchases of reserves in place
    
    
    
    
    
    
    Production
    
    
    (4,274,849
    )
    
    
    (42,151
    )Balance, December 31, 2009
    
    
    44,229,950
    
    
    
    450,858
 Gas
    
    
    OilMcf
    
    
    BblsProved Developed ReservesBalance, December 31, 2009
    
    
    44,229,950
    
    
    
    450,858Balance, December 31, 2008
    
    
    50,909,308
    
    
    
    361,185Balance, December 31, 2007
    
    
    50,820,623
    
    
    
    695,019
 
 (a)
    
    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.(b)
    
    The majority of the revisions of previous estimates during 2008 were primarily due to
the decrease in oil and gas prices from $73.95 per barrel and $6.53 per Mcf at December 31,
2007 to $15.33 per barrel and $4.63 per Mcf at December 31, 2008.(c)
    
    The majority of the revisions of previous estimates during 2009 were primarily due to a
decrease in the gas price used in the reserve report estimates from $4.63 per Mcf at
December 31, 2008 to $2.85 per Mcf at December 31, 2009 and an increase in oil prices from
$15.33 per barrel at December 31, 2008 to $44.46 per barrel at December 31, 2009. 116




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##### Table of Contents



Standardized Measure of Discounted Future Net Cash Flows
 December 31,2009
    
    
    2008
    
    
    2007Future cash flows
    
    $
    146,019,900
    
    
    $
    241,343,700
    
    
    $
    760,539,800Future production and development costs
    
    
    (79,555,800
    )
    
    
    (108,727,900
    )
    
    
    (339,452,900
    )Future income taxes
    
    
    
    
    
    
    
    
    
    
    (9,765,200
    )Future net cash flows before discount
    
    
    66,464,100
    
    
    
    132,615,800
    
    
    
    411,321,70010% discount to present value
    
    
    (30,902,700
    )
    
    
    (63,133,000
    )
    
    
    (250,857,700
    )Standardized measure of discounted
future net cash flows
    
    $
    35,561,400
    
    
    $
    69,482,800
    
    
    $
    160,464,000
 Changes in the Standardized Measure of Discounted Future Net Cash Flows
 For the Years Ended December 31,2009
    
    
    2008
    
    
    2007Standardized measure of discounted future net
cash flows at the beginning of year
    
    $
    69,482,800
    
    
    $
    160,464,000
    
    
    $
    63,167,200Sales of oil and gas produced, net of production costs
    
    
    (11,366,430
    )
    
    
    (28,981,134
    )
    
    
    (15,322,828
    )Net changes in prices and production costs
    
    
    (26,354,834
    )
    
    
    (34,529,372
    )
    
    
    26,226,507Extensions and discoveries, net of future
production and development costs
    
    
    920,185
    
    
    
    2,311,000
    
    
    
    40,839,394Previously estimated development costs incurred
    
    
    1,703,282
    
    
    
    5,393,989
    
    
    
    4,489,959Changes in estimated future development costs
    
    
    65,560
    
    
    
    (2,981,737
    )
    
    
    (3,882,200
    )Revisions of previous quantity estimates
    
    
    (2,259,462
    )
    
    
    (44,761,342
    )
    
    
    43,121,203Purchases of reserves in place
    
    
    
    
    
    
    
    
    
    
    11,097,303Sales of reserves in place
    
    
    
    
    
    
    (7,703,000
    )
    
    
    (1,798,971
    )Net change in income taxes
    
    
    
    
    
    
    1,378,483
    
    
    
    (1,378,483
    )Accretion of discount
    
    
    5,633,959
    
    
    
    17,711,306
    
    
    
    4,502,716Other
    
    
    (2,263,660
    )
    
    
    1,180,242
    
    
    
    (10,597,800
    )Standardized measure of discounted future net cash
flows at the end of year
    
    $
    35,561,400
    
    
    $
    69,482,800
    
    
    $
    160,464,000
 NOTE 20  SUBSEQUENT EVENTS
 Sale of Gathering Assets
   117




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##### Table of Contents



Acquisition of Petro-Canada
  Amendment to Credit Facility
  Resignation of Former Chief Executive Officer; Appointment of Replacement
  118




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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
   Changes in Internal Controls over Financial Reporting during the Fourth Quarter of 2009
   Managements Report on Internal Control Over Financial Reporting
   119




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##### Table of Contents



/s/ Charles B. CrowellCharles B. CrowellChief Executive Officer/s/ W. King GrantW. King GrantPresident & Chief Financial Officer 120




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
 Internal Control  Integrated Framework Managements Report on Internal Control over Financial Reporting
    Internal Control
 Integrated Framework
 121




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##### Table of Contents



/s/ KPMG LLP 
 122




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##### Table of Contents



ITEM 9B 
    
    OTHER INFORMATION
  
 PART III
 
 ITEM 10 
    
    DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
  
 ITEM 11 
    
    EXECUTIVE COMPENSATION
  
 ITEM 12 
    
    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS
  
 ITEM 13 
    
    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE
  
 ITEM 14 
    
    PRINCIPAL ACCOUNTING FEES AND SERVICES
  
 ITEM 15 
    
    EXHIBITS, FINANCIAL STATEMENT SCHEDULES
  (a)
    
    1. See Index to Financial Statements under
Item 8 on page 68.2. Financial Statement Schedules  none.3. Exhibits  See Index to Exhibits, below.
 123




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##### Table of Contents



INDEX TO EXHIBITS
 1.1
    
    Underwriting Agreement dated April 13, 2007, between Gasco Energy,
Inc. and JP Morgan Securities Inc. (incorporated herein 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).3.1
    
    Amended and Restated Articles of Incorporation (incorporated herein
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
herein 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 herein 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
    
    Second Amended and Restated Bylaws of Gasco Energy, Inc., dated
April 8, 2009 (incorporated herein by reference to Exhibit 3.1 to
the Companys Form 8-K dated April 8, 2009, filed on April 8, 2009,
File No. 001-32369).3.5
    
    Certificate of Designation for Series B Convertible Preferred Stock
(incorporated herein 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
    
    Indenture dated as of October 20, 2004, between Gasco Energy, Inc.
and Wells Fargo Bank, National Association, as Trustee
(incorporated herein 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).4.2
    
    Form of Global Note representing $65 million principal amount of
5.5% Convertible Senior Notes due 2011 (incorporated herein by
reference to Exhibit A to Exibit 4.1 to the Companys Current
Report on Form 8-K filed on October 20, 2004, File No. 000-26321).4.3
    
    Registration Rights Agreement dated October 20, 2004, among Gasco
Energy, Inc., J.P. Morgan Securities Inc. and First Albany Capital
Inc (incorporated herein 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).4.4
    
    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 herein by reference to Exhibit 4.2 to the
Companys Form 8-K dated March 29, 2006, filed March 31, 2006, File
No. 001-32369).4.5
    
    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 herein by reference to Exhibit 4.1 to
the Companys Form 8-K dated March 29, 2006, filed March 31, 2006,
File No. 001-32369).4.6
    
    First Amendment to the Credit Agreement dated April 22, 2008 by
and among Gasco Energy, Inc., Gasco Production Company, Riverbend
Gas Gathering, LLC, Myton Oilfield Rentals, LLC, JPMorgan Chase
Bank, N.A. and J.P. Morgan Securities Inc. (incorporated herein by
reference to Exhibit 4.13 to the Companys Form 10-Q dated March
31, 2008, filed May 6, 2008, File No. 001-32369).
 124




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##### Table of Contents



4.7
    
    Second Amendment to the Credit Agreement, dated as of December 10,
2008, by and among by and among Gasco Energy, Inc., as Borrower,
certain subsidiaries of Gasco Energy, Inc., as Guarantors, the
Lenders party thereto, and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated herein by reference to Exhibit
10.1 to the Companys Form 8-K dated December 12, 2008, filed on
December 12, 2008, File No. 001-32369).4.8
    
    Third Amendment to the Credit Agreement, dated as of May 14, 2009,
by and among Gasco Energy, Inc., as Borrower, certain subsidiaries
of Gasco Energy, Inc., as Guarantors, the Lenders party hereto, and
JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated
herein by reference to Exhibit 10.1 to the Companys Form 8-K dated
May 15, 2009, File No. 001-32369).4.9
    
    Fourth Amendment to the Credit Agreement, dated as of July 6, 2009,
by and among Gasco Energy, Inc., as Borrower, certain subsidiaries
of Gasco Energy, Inc., as Guarantors, the Lenders party thereto,
and JPMorgan Chase Bank, N.A., as Administrative Agent
(incorporated herein by reference to the Companys Form 8-K dated
July 7, 2009, File No. 001-32369).4.10
    
    Fifth Amendment to the Credit Agreement, dated as of August 28,
2009, by and among Gasco Energy, Inc., as Borrower, certain
subsidiaries of Gasco Energy, Inc., as Guarantors, the Lenders
party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated herein by reference to the Companys Form 8-K
dated August 31, 2009, File No. 001-32369).4.11
    
    Sixth Amendment to the Credit Agreement, dated as of September 30,
2009, by and among Gasco Energy, Inc., as Borrower, certain
subsidiaries of Gasco Energy, Inc., as Guarantors, the Lenders
party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated herein by reference to the Companys Form 8-K
dated October 1, 2009, File No. 001-32369).4.12
    
    Seventh Amendment to the Credit Agreement, dated as of October 30,
2009, by and among Gasco Energy, Inc., as Borrower, certain
subsidiaries of Gasco Energy, Inc., as Guarantors, the Lenders
party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated herein by reference to the Companys Form 10-Q
dated September 30, 2009, File No. 001-32369).4.13
    
    Eighth Amendment to the Credit Agreement, dated as of December 1,
2009, by and among Gasco Energy, Inc., as Borrower, certain
subsidiaries of Gasco Energy, Inc., as Guarantors, the Lenders
party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated herein by reference to the Companys Form 8-K
dated December 1, 2009, File No. 001-32369).4.14
    
    Ninth Amendment to the Credit Agreement, dated as of February 1,
2010, by and among Gasco Energy, Inc., as Borrower, certain
subsidiaries of Gasco Energy, Inc., as Guarantors, the Lenders
party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated herein by reference to the Companys Form 8-K
dated February 1, 2010, File No. 001-32369).4.15
    
    Voting Agreement dated September 20, 2006 by and among Gasco
Energy, Inc., Richard N. Jeffs, Gregory Pek, Ian Robinson, Michael
L. Nazmack, Eugene Sweeney and Shawne Malone (incorporated herein
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).# 10.1
    
    1999 Stock Option Plan (incorporated herein 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 herein 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).
 125




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##### Table of Contents



# 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 herein 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 (incorporated herein by reference to 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 (incorporated herein by reference to 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 (incorporated herein by reference to
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 (incorporated herein by reference to
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).#10.10
    
    Employment Agreement dated February 14, 2005 by and between Gasco
Energy, Inc. and W. King Grant (incorporated herein by reference to
Exhibit 4.2 to the Companys Form 10-Q for the quarter ended March
31, 2006, filed May 5, 2006, File No. 001-32369).#10.11
    
    Form of Amendment to Gasco Energy, Inc. Employment Agreement, dated
as of December 31, 2008, and effective as of January 1, 2009, by
and among Gasco Energy, Inc. and certain of its Executives
(incorporated herein by reference to Exhibit 10.1 to the Companys
Form 8-K dated January 7, 2009, filed January 7, 2009, File No.
001-32369).#10.12
    
    Form of Second Amendment to Gasco Energy, Inc. Employment
Agreement, dated as of January 22, 2009, by and among Gasco Energy,
Inc. and certain of its Executives (incorporated herein by
reference to Exhibit 10.12 to the Companys Form 10-K for the
fiscal year ended December 31, 2008, File No. 001-32369).10.13
    
    Asset Purchase Agreement dated January 29, 2010 by and among Gasco
Energy, Inc., Riverbend Gas Gathering, LLC, and Monarch Natural
Gas, LLC (incorporated herein by reference to Exhibit 10.1 to Gasco
Energy, Inc.s Current Report on Form 8-K filed on February 3,
2010).10.14
    
    Consulting Agreement and Release, dated January 29, 2010, by and
between Gasco Energy, Inc. and Mark A. Erickson (incorporated
herein by reference to Exhibit 10.1 to Gasco Energy, Inc.s Current
Report on Form 8-K filed on February 1, 2010).10.15
    
    Gas Gathering and Processing Agreement, effective March 1, 2010, by
and between Gasco Production Company and Monarch Natural Gas, LLC
(incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on March 3, 2010).
 126




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##### Table of Contents



*23.1
    
    Consent of Netherland, Sewell & Associates, Inc.*23.2
    
    Consent of KPMG*31
    
    Rule 13a-14(a)/15d-14(a) Certifications*32
    
    Section 1350 Certifications*99.1
    
    Report of Netherland, Sewell & Associates, Inc., independent
petroleum engineers and geologists.
 
 *
    
    Filed herewith.#
    
    Identifies management contracts and compensatory plans or arrangements. 127




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##### Table of Contents



SIGNATURES
  GASCO ENERGY, INC.
    Dated: March 3, 2010 By:
    /s/ W. King GrantW. King Grant, President and CFO  Signature
    
    Title
    
    Date/s/ Charles B. Crowell

Charles B. Crowell
    
    Director and Chief Executive Officer
(Principal Executive Officer)
    
    March 3, 2010/s/ Marc A. Bruner
    
    Director
    
    March 3, 2010Marc A. Bruner/s/ W. King Grant
W. King Grant
    
    President and Chief Financial Officer
(Principal Financial Officer)
    
    March 3, 2010/s/ Carmen Lotito
    
    Director
    
    March 3, 2010Carmen (Tony) Lotito/s/ Richard S. Langdon
    
    Director
    
    March 3, 2010Richard S. Langdon/s/ R. J. Burgess

R.J. Burgess
    
    Director
    
    March 3, 2010/s/ John A. Schmit

John A. Schmit
    
    Director
    
    March 3, 2010/s/ Peggy A. Herald

Peggy A. Herald
    
    Vice President and Chief Accounting Officer
(Principal Accounting Officer)
    
    March 3, 2010
 128




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##### Table of Contents



INDEX TO EXHIBITS
 1.1
    
    Underwriting Agreement dated April 13, 2007, between Gasco Energy,
Inc. and JP Morgan Securities Inc. (incorporated herein 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).3.1
    
    Amended and Restated Articles of Incorporation (incorporated herein 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
herein 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 herein 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
    
    Second Amended and Restated Bylaws of Gasco Energy, Inc., dated April
8, 2009 (incorporated herein by reference to Exhibit 3.1 to the
Companys Form 8-K dated April 8, 2009, filed on April 8, 2009, File
No. 001-32369).3.5
    
    Certificate of Designation for Series B Convertible Preferred Stock
(incorporated herein 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
    
    Indenture dated as of October 20, 2004, between Gasco Energy, Inc. and
Wells Fargo Bank, National Association, as Trustee (incorporated
herein 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).4.2
    
    Form of Global Note representing $65 million principal amount of 5.5%
Convertible Senior Notes due 2011 (incorporated herein by reference to
Exhibit A to Exibit 4.1 to the Companys Current Report on Form 8-K
filed on October 20, 2004, File No. 000-26321).4.3
    
    Registration Rights Agreement dated October 20, 2004, among Gasco
Energy, Inc., J.P. Morgan Securities Inc. and First Albany Capital Inc
(incorporated herein 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).4.4
    
    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 herein by reference to Exhibit 4.2 to the Companys Form
8-K dated March 29, 2006, filed March 31, 2006, File No. 001-32369).4.5
    
    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 herein by reference to Exhibit 4.1 to the Companys
Form 8-K dated March 29, 2006, filed March 31, 2006, File No.
001-32369).4.6
    
    First Amendment to the Credit Agreement dated April 22, 2008 by and
among Gasco Energy, Inc., Gasco Production Company, Riverbend Gas
Gathering, LLC, Myton Oilfield Rentals, LLC, JPMorgan Chase Bank, N.A.
and J.P. Morgan Securities Inc. (incorporated herein by reference to
Exhibit 4.13 to the Companys Form 10-Q dated March 31, 2008, filed
May 6, 2008, File No. 001-32369).
 129




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##### Table of Contents



4.7
    
    Second Amendment to the Credit Agreement, dated as of December 10,
2008, by and among by and among Gasco Energy, Inc., as Borrower,
certain subsidiaries of Gasco Energy, Inc., as Guarantors, the
Lenders party thereto, and JPMorgan Chase Bank, N.A., as
Administrative Agent (incorporated herein by reference to Exhibit
10.1 to the Companys Form 8-K dated December 12, 2008, filed on
December 12, 2008, File No. 001-32369).4.8
    
    Third Amendment to the Credit Agreement, dated as of May 14, 2009,
by and among Gasco Energy, Inc., as Borrower, certain subsidiaries
of Gasco Energy, Inc., as Guarantors, the Lenders party hereto, and
JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated
herein by reference to Exhibit 10.1 to the Companys Form 8-K dated
May 15, 2009, File No. 001-32369).4.9
    
    Fourth Amendment to the Credit Agreement, dated as of July 6, 2009,
by and among Gasco Energy, Inc., as Borrower, certain subsidiaries
of Gasco Energy, Inc., as Guarantors, the Lenders party thereto,
and JPMorgan Chase Bank, N.A., as Administrative Agent
(incorporated herein by reference to the Companys Form 8-K dated
July 7, 2009, File No. 001-32369).4.10
    
    Fifth Amendment to the Credit Agreement, dated as of August 28,
2009, by and among Gasco Energy, Inc., as Borrower, certain
subsidiaries of Gasco Energy, Inc., as Guarantors, the Lenders
party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated herein by reference to the Companys Form 8-K
dated August 31, 2009, File No. 001-32369).4.11
    
    Sixth Amendment to the Credit Agreement, dated as of September 30,
2009, by and among Gasco Energy, Inc., as Borrower, certain
subsidiaries of Gasco Energy, Inc., as Guarantors, the Lenders
party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated herein by reference to the Companys Form 8-K
dated October 1, 2009, File No. 001-32369).4.12
    
    Seventh Amendment to the Credit Agreement, dated as of October 30,
2009, by and among Gasco Energy, Inc., as Borrower, certain
subsidiaries of Gasco Energy, Inc., as Guarantors, the Lenders
party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated herein by reference to the Companys Form 10-Q
dated September 30, 2009, File No. 001-32369).4.13
    
    Eighth Amendment to the Credit Agreement, dated as of December 1,
2009, by and among Gasco Energy, Inc., as Borrower, certain
subsidiaries of Gasco Energy, Inc., as Guarantors, the Lenders
party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated herein by reference to the Companys Form 8-K
dated December 1, 2009, File No. 001-32369).4.14
    
    Ninth Amendment to the Credit Agreement, dated as of February 1,
2010, by and among Gasco Energy, Inc., as Borrower, certain
subsidiaries of Gasco Energy, Inc., as Guarantors, the Lenders
party thereto, and JPMorgan Chase Bank, N.A., as Administrative
Agent (incorporated herein by reference to the Companys Form 8-K
dated February 1, 2010, File No. 001-32369).4.15
    
    Voting Agreement dated September 20, 2006 by and among Gasco
Energy, Inc., Richard N. Jeffs, Gregory Pek, Ian Robinson, Michael
L. Nazmack, Eugene Sweeney and Shawne Malone (incorporated herein
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).# 10.1
    
    1999 Stock Option Plan (incorporated herein 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).
 130




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##### Table of Contents



# 10.2
    
    Form of Stock Option Agreement under the 1999 Stock Option Plan
(incorporated herein 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 herein 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 (incorporated herein by reference to 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 (incorporated herein by reference to 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 (incorporated herein by reference to
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 (incorporated herein by reference to
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).#10.10
    
    Employment Agreement dated February 14, 2005 by and between Gasco
Energy, Inc. and W. King Grant (incorporated herein by reference to
Exhibit 4.2 to the Companys Form 10-Q for the quarter ended March
31, 2006, filed May 5, 2006, File No. 001-32369).#10.11
    
    Form of Amendment to Gasco Energy, Inc. Employment Agreement, dated
as of December 31, 2008, and effective as of January 1, 2009, by
and among Gasco Energy, Inc. and certain of its Executives
(incorporated herein by reference to Exhibit 10.1 to the Companys
Form 8-K dated January 7, 2009, filed January 7, 2009, File No.
001-32369).#10.12
    
    Form of Second Amendment to Gasco Energy, Inc. Employment
Agreement, dated as of January 22, 2009, by and among Gasco Energy,
Inc. and certain of its Executives (incorporated herein by
reference to Exhibit 10.12 to the Companys Form 10-K for the
fiscal year ended December 31, 2008, File No. 001-32369).10.13
    
    Asset Purchase Agreement dated January 29, 2010 by and among Gasco
Energy, Inc., Riverbend Gas Gathering, LLC, and Monarch Natural
Gas, LLC (incorporated herein by reference to Exhibit 10.1 to Gasco
Energy, Inc.s Current Report on Form 8-K filed on February 3,
2010).10.14
    
    Consulting Agreement and Release, dated January 29, 2010, by and
between Gasco Energy, Inc. and Mark A. Erickson (incorporated
herein by reference to Exhibit 10.1 to Gasco Energy, Inc.s Current
Report on Form 8-K filed on February 1, 2010).10.15
    
    Gas Gathering and Processing Agreement, effective March 1, 2010, by
and between Gasco Production Company and Monarch Natural Gas, LLC
(incorporated by reference to Exhibit 10.1 to the Companys Current
Report on Form 8-K filed on March 3, 2010).
 131




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##### Table of Contents



*23.1
    
    Consent of Netherland, Sewell & Associates, Inc.*23.2
    
    Consent of KPMG*31
    
    Rule 13a-14(a)/15d-14(a) Certifications*32
    
    Section 1350 Certifications*99.1
    
    Report of Netherland, Sewell & Associates, Inc., independent
petroleum engineers and geologists.
 
 *
    
    Filed herewith.#
    
    Identifies management contracts and compensatory plans or arrangements. 132