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                               UNITED STATES
                     SECURITIES AND EXCHANGE COMMISSION
                           Washington, D.C.  20549

                                  FORM 10-K

[X]  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
     EXCHANGE ACT OF 1934

                 For the fiscal year ended December 31, 2008

                                    or

[ ]  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 0-5525


                             PYRAMID OIL COMPANY
           (Exact name of registrant as specified in its charter)

          CALIFORNIA                                     94-0787340
(State or other jurisdiction of                       (I.R.S. Employer
 incorporation or organization)                       Identification No.)

        2008 - 21st. Street, P. O. Box 832                 93302
              Bakersfield, California
      (Address of principal executive offices)           (Zip Code)

   Registrant's telephone number:  (661) 325-1000

Securities registered pursuant to Section 12 (b) of the Exchange Act:

     Title of each class         Name of each exchange on which registered

        Common Stock                            NYSE AMEX


Securities registered pursuant to Section 12 (g) of the Exchange Act: NONE


Indicate by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.  Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Exchange Act.  Yes [ ] No [X]




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  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.  Yes [ X ]  No [   ]

  Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  [ X ]

  Indicate by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller reporting company.
See the definitions of large accelerated filer, accelerated filer and smaller
reporting company in Rule 12b-2 of the Exchange Act.

        Large accelerated filer [ ]         Accelerated filer [ ]
        Non-accelerated filer [ ]           Smaller reporting company [x]

  Indicate by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).  Yes [ ] No [x]

  The aggregate market value on December 31, 2008, of the voting shares held
by non-affiliates was approximately $11,268,000 based on the closing sales
price of the registrant's Common Stock on such date.

  At March 30, 2009, there were 4,677,728 shares of Common Stock outstanding.


                     DOCUMENTS INCORPORATED BY REFERENCE

  Portions of the registrant's definitive proxy statement for its 2009 Annual
Meeting of Shareholders to be filed with the Securities and Exchange
Commission within 120 days after the close of the registrant's fiscal year are
incorporated by reference into Part III.







     
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                          PYRAMID OIL COMPANY
                     2008 FORM 10-K ANNUAL REPORT

                          Table of Contents

                                                                Page
                               PART I

Item  1.    Business   . .  . .  . .  . .  . .  . .  . .          5

Item 1A.    Risk Factors    . .  . .  . .  . .  . .  . .          9

Item 1B.    Unresolved Staff Comments   .  . .  . .  . .         14

Item  2.    Properties . .  . .  . . .  .  . .  . .  . .         14

Item  3.    Legal Proceedings .  . .  . .  . .  . .  . .         18

Item  4.    Submission of Matters to a Vote of
              Security Holders.  . .  . .  . .  . .  . .         18

                               PART II

Item  5.    Market for Registrant's Common Equity, Related
              Stockholder Matters and Issuer
              Purchases of Equity Securities .  . .  . .         18

Item  6.    Selected Financial Data   . .  . .  . .  . .         19

Item  7.    Management's Discussion and Analysis of Financial
              Condition and Results of Operations                20

Item 7A.    Quantitative and Qualitative Disclosures
              About Market Risk   .  . .  . .  . .  . .          28

Item  8.    Financial Statements and Supplementary Data          31

Item  9.    Changes In and Disagreements with Accountants
              on Accounting and Financial Disclosure             65

Item  9A(T).  Controls and Procedures  . .  .   . .  . .         65

Item  9B.   Other Information . . . . . .  . .  . .  . .         66

                               PART III

Item 10.    Directors, Executive Officers, and
              Corporate Governance    . .  . .  . .  . .         66

Item 11.    Executive Compensation .  . .  . .  . .  . .         67




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Item 12.    Security Ownership of Certain Beneficial
              Owners and Management and Related
              Stockholder Matters  .  . .  . .  . .  . .         67

Item 13.    Certain Relationships and Related Transactions,
              and Director Independence                          67

Item 14.    Principal Accountant Fees and Services   . .         68


                               PART IV

Item 13.    Exhibits, Financial Statement Schedules  . .         68




CAUTIONARY STATEMENT FOR PURPOSES OF THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995 AND OTHER FEDERAL SECURITIES LAWS

Pyramid Oil Company is including the following discussion to inform existing
and potential security holders generally of some of the risks and
uncertainties that can affect the Company and to take advantage of the "safe
harbor" protection for forward-looking statements afforded under the federal
securities laws.  Statements made in this Annual Report on Form 10-K may be
forward-looking statements.  In addition, from time to time, the Company may
otherwise make forward-looking statements to inform existing and potential
security holders about the Company.  These statements may include projections
and estimates concerning the timing and success of specific projects and the
Company's future (1) income, (2) oil and gas production, (3) oil and gas
reserves and reserve replacement and (4) capital spending.  Forward-looking
statements are generally accompanied by words such as "estimate," "project,"
"predict," "believe," "expect," "anticipate," "plan," "goal" or other words
that convey the uncertainty of future events or outcomes.  In addition, except
for the historical information contained in this report, the matters discussed
in this report are forward-looking statements.  These statements by their
nature are subject to certain risks, uncertainties and assumptions and will be
influenced by various factors.  Should any of the assumptions underlying a
forward-looking statement prove incorrect, actual results could vary
materially.













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                                   PART I
                                   ------

ITEM 1 -  BUSINESS

GENERAL BUSINESS DESCRIPTION

Pyramid Oil Company is a California corporation that has been in the oil and
gas business continuously, since it was incorporated on October 9, 1909.
Pyramid Oil Company, hereinafter referred to as "Pyramid" or the "Company," is
engaged in the business of exploration, development and production of crude
oil and natural gas.

Pyramid acquires interests in land and producing properties through
acquisition and lease on which it drills and/or operates crude oil or natural
gas wells in efforts to discover and/or to produce oil and gas.  Crude oil and
natural gas produced from these properties are sold to various refineries and
pipeline companies.  The majority of all oil and gas properties that Pyramid
owns and operates is for its own account.  Pyramid also participates in
specific joint ventures with other companies in the development of oil and gas
properties.  Pyramid's interests in these properties will vary depending on
the availability of said interests and their locations.  Although the Company
owns some minor oil and gas interests in New York, Wyoming and Texas, all of
the Company's operations and major revenue producing properties are in
California.

The Company's executive offices are located at 2008 21st Street, Bakersfield,
California, 93301, telephone (661) 325-1000, facsimile (661) 325-0100.


DESCRIPTION OF BUSINESS - OIL AND GAS OPERATIONS

EXPLORATION AND DEVELOPMENT

Pyramid operates in a highly competitive industry wherein many companies, from
large multinational companies to small independent producers, are competing
for a finite amount of oil and gas resources.  The Company seeks out
properties to explore for oil and gas by drilling and also seeks out producing
oil and gas properties that can be purchased and operated.  Management
believes that under the right economic conditions, several of the producing
properties that the Company owns could have further developmental potential.
Certain oil properties currently owned and operated by the Company may be
receptive to enhanced oil recovery procedures under certain economic
conditions.

OIL AND GAS PRODUCTION OPERATIONS

Pyramid owns and operates 27 oil and gas leases (properties) located within
Kern and Santa Barbara Counties in the State of California. Nine of these
properties were shut-in during or as of December 31, 2008.  All of these
properties are capable of producing oil or natural gas, although not all of
these properties are considered profitable under certain economic conditions.

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During 2008, the Company operated 19 leases within California, 15 of these
leases had total annual gross oil production exceeding 1,000 barrels per
lease.  Production activities primarily consist of the daily pumping of oil
from a well(s) into tanks, maintaining the production facilities both at the
well and tank settings, preparing and shipping the crude oil to buyers.  Daily
operations differ from one property to another, depending on the number of
wells, the depth of the wells, the gravity of the oil produced and the
location of the property.  All of Pyramid's oil production is classified as
primary recovery production at this time; although certain properties may be
conducive to secondary recovery operations in the future, depending on the
prevailing price of oil.

Primary recovery of oil and gas is by means of natural flow(s) or artificial
lift of oil and gas from a single well bore.  Natural gas and petroleum fluids
enter the well bore by means of reservoir pressure or gravity flow; fluids and
gases are moved to the surface by natural pressure or by means of artificial
lift (pumping).  In secondary recovery operations, liquids or gases are
injected into the reservoirs for the purpose of augmenting reservoir energy or
increasing reservoir temperatures. Secondary recovery operations, usually, but
not always, are done after the primary-recovery phase has passed.

The Company employs field personnel (i.e., pumpers, rig crews, roustabouts and
equipment operators) that perform basic daily activities associated with
producing oil and gas. Daily operations include inspections of surface
facilities and equipment, gauging, reporting and shipping oil, and routine
maintenance and repair activities on wells, production facilities and
equipment. The Company owns and maintains various pieces of equipment
necessary for employees to perform various repair and maintenance tasks on
Company properties. Such equipment consists of service rigs, mobile pumps,
vacuum trucks, hot oil truck, backhoe, trucks and trailers.

Occasionally, the Company drills new wells or redrills existing wells on
properties owned by the Company in an attempt to increase oil and gas
production.  In the last five years, the Company has utilized the services of
outside drilling contractors for drilling new wells and redrilling existing
wells.  Maintenance and repairs of existing wells to maintain or increase oil
and gas production are carried out by Company personnel on a continuing basis.
Most maintenance and repair work is performed with Company rigs.

Economic factors associated with the price of oil and gas and the productive
output of wells determine the number of active wells the Company operates.
Under certain economic conditions, the Company has the potential to operate
approximately 121 wells, and of these, approximately 61 were in operation
during 2008.  The Company also owns other oil and gas interests outside of
California that it does not operate.  These interests are located in Wyoming,
Texas and New York.







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MARKETING OF CRUDE OIL AND NATURAL GAS

The Company sells its crude oil to ConocoPhillips and Kern Oil & Refining,
accounting for approximately 65.3% and 32.3%, respectively, of Pyramid's crude
oil and gas sales in 2008.  While revenue from these customers is significant,
and the loss of any one could have an adverse effect on the Company, it is
management's opinion that the oil and gas it produces could be sold to other
crude oil purchasers, refineries or  pipeline companies.  ConocoPhillips, and
its predecessors, and Kern Oil have been customers of the Company for over
twenty years.  Natural gas is sold to companies in the area of operations.
The Company sells its oil pursuant to short-term contracts.  Accordingly, the
amount of oil the Company sells is dependent upon market demand.  Market
demand for Pyramid's production is subject to various influences and can never
be assured, especially in an era of changing prices.  The base values for
crude oil the Company sells is set by major oil companies in response to area
and market strengths and international influences.  Types and qualities of
crude oil vary substantially in base values posted by crude oil buyers in
various areas of the country.  Pyramid's crude oil sales are not seasonal, but
uniform throughout the year.


COMPETITION AND INDUSTRY CONDITIONS

The profitability of the Company's operations depends primarily on the
production of oil and gas in commercially profitable quantities.  Oil and gas
properties often fail to provide a return sufficient to repay the substantial
sums of money required for their acquisition, exploration and development.
The acquisition, exploration and development of oil and gas properties is a
highly competitive business.  Many entities with which the Company competes
have significantly greater financial and staff resources.  Such competitive
disadvantages could materially and adversely affect the Company's ability to
acquire new properties or develop existing properties.


REGULATIONS

The Company's business is affected by numerous governmental laws and
regulations, including energy, environmental, conservation, tax and other laws
and regulations relating to the petroleum industry.  Changes in any of these
laws and regulations could have a material and adverse effect on the Company's
business and financial stability.  In view of the many uncertainties with
respect to current laws and regulations, including their applicability to the
Company, the Company cannot predict the overall effect of such laws and
regulations on future operations.


TAXATION

The operations of the Company, as is the case in the petroleum industry
generally, are significantly affected by Federal tax laws. Federal, as well as
state, tax laws have many provisions applicable to corporations which could
affect the future tax liability of the Company.

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ENVIRONMENTAL

The Company's activities are subject to existing federal and state laws and
regulations governing environmental quality and pollution control.  These laws
may require the acquisition of permits relating to certain ongoing operations,
for drilling, emissions, waste water disposal and other air and water quality
controls.  In view of the uncertainty and unpredictability of environmental
statutes and regulations, the Company cannot ensure that such laws and
regulations will not materially and adversely affect the business of the
Company.  The Company does not currently anticipate any material effect on its
capital expenditures or earnings as the result of governmental regulations,
enacted or proposed, concerning environmental protection or the discharge of
material into the environment.  The Company is actively pursuing an ongoing
policy of upgrading and restoring older properties to comply with current and
proposed environmental regulations.


COMMITMENTS AND CONTINGENCIES

The Company is liable for future dismantlement and abandonment costs
associated with its oil and gas properties.  These costs include down-hole
plugging and abandonment of wells, future site restoration, post closure and
other environmental exit costs.  The costs of future dismantlement and
abandonment have been accrued and recorded in the financial statements.  See
Note 9 of Notes to Financial Statements included in Item 8 of this Form
10-K.


OTHER

The Company employed thirteen full-time and two part-time people as of
December 31, 2008.  Three full-time and two part-time people were office or
administrative personnel, and the rest of whom were field personnel.  The
Company contracts for additional labor services when needed.  The Company is
not a party to any union or labor contracts.

The Company had no material research and development costs for the three years
ended December 31, 2008.

All of the Company's revenues during 2008 were derived from domestic sources.

The Company does not have any patents or trademarks, and it does not believe
that its business or operations are dependent upon owning any patents or
trademarks.









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ITEM 1A - RISK FACTORS

In addition to other information in this annual report, the following risk
factors should be carefully considered in evaluating the Company's business
because such factors may have a significant impact on the Company's business,
operating results, liquidity and financial condition. As a result of the risk
factors set forth below, actual results could differ materially from those
projected in any forward-looking statements. Additional risks and
uncertainties not presently known to us, or that we currently consider to be
immaterial, may also impact the Company's business, operating results,
liquidity and financial condition. If any such risks occur, the Company's
business, operating results, liquidity and financial condition could be
materially affected in an adverse manner. Under such circumstances, the
trading price of the Company's securities could decline, and you may lose all
or part of YOUR INVESTMENT in the Company.

   RISKS RELATING TO THE COMPANY'S BUSINESS AND THE OIL AND GAS INDUSTRY

THE COMPANY'S FUTURE PERFORMANCE IS DEPENDENT UPON THE COMPANY'S ABILITY TO
CONTINUE TO IDENTIFY, ACQUIRE AND DEVELOP ADDITIONAL OIL AND GAS PROPERTIES,
THE FAILURE OF WHICH COULD RESULT IN UNDER USE OF CAPITAL AND LOSSES.

The Company's future performance depends upon the Company's ability to
continue to identify, acquire and develop additional oil and gas reserves that
are economically recoverable. The Company's success will depend upon the
Company's ability to continue to acquire working and revenue interests in
properties upon which oil and gas reserves are ultimately discovered in
commercial quantities, and the Company's ability to develop additional
prospects that contain proven oil and gas reserves to the point of production.
The successful acquisition and development of oil and gas properties requires
an assessment of recoverable reserves, future oil and gas prices and operating
costs, potential environmental and other liabilities, and other factors. Such
assessments are necessarily inexact and their accuracy inherently uncertain.
In addition, no assurance can be given that the Company's future exploitation
and development activities will result in the discovery of additional
reserves.

THE COMPANY HAS A VERY SMALL MANAGEMENT TEAM AND THE LOSS OF ANY MEMBER OF THE
COMPANY'S TEAM MAY PREVENT US FROM IMPLEMENTING THE COMPANY'S BUSINESS PLAN IN
A TIMELY MANNER.

The Company currently has two executive officers and a small number of full
time employees and consultants upon whom the Company's success largely
depends. We do not maintain key person life insurance policies on the
Company's executive officers or consultants, the loss of which could seriously
harm the Company's business, financial condition and results of operations. In
such an event, we may not be able to recruit personnel to replace the
Company's executive officers or consultants in a timely manner, or at all, on
acceptable terms.




<PAGE> 10

THE OIL AND GAS INDUSTRY IS HIGHLY COMPETITIVE, AND THE COMPANY MAY NOT HAVE
SUFFICIENT RESOURCES TO COMPETE EFFECTIVELY.

The oil and gas industry is highly competitive. The Company competes with oil
and natural gas companies and other individual producers and operators, many
of which have substantially greater financial and other resources than the
Company. The Company's larger competitors, by reason of their size and
relative financial strength, can more easily access capital markets than the
Company can and may enjoy a competitive advantage in the recruitment of
qualified personnel. Competitors may be able to absorb the burden of any
changes in laws and regulations in the jurisdictions in which the Company does
business and handle longer periods of reduced prices for oil and gas more
easily than we can. The Company's competitors may be able to pay more for oil
and gas leases and properties and may be able to define, evaluate, bid for and
purchase a greater number of leases and properties than the Company can.
Further, these companies may enjoy technological advantages and may be able to
implement new technologies more rapidly than the Company can. The Company's
ability to acquire additional properties in the future will depend upon the
Company's ability to conduct efficient operations, evaluate and select
suitable properties, implement advanced technologies and consummate
transactions in a highly competitive environment.

THE COMPANY'S EXPLORATION, DEVELOPMENT AND PRODUCTION ACTIVITIES ARE SUBJECT
TO CERTAIN ENVIRONMENTAL REGULATIONS WHICH MAY AFFECT THE COMPANY'S COSTS OF
OPERATIONS.

In general, the Company's exploration and production activities are subject to
certain federal, state and local laws and regulations relating to
environmental quality and pollution control. Such laws and regulations
increase the costs of these activities and may prevent or delay the
commencement or continuance of a given operation. Specifically, the Company is
subject to legislation regarding emissions into the environment, water
discharges and storage and disposition of hazardous wastes. However, such laws
and regulations are frequently changed and any such changes may have material
adverse effects on the Company's activities. The Company is unable to predict
the ultimate cost of compliance with such laws and regulations. Generally,
environmental requirements do not appear to affect the Company any differently
or to any greater or lesser extent than other companies in the industry. To
date the Company has not been required to spend any material amounts on
compliance with environmental regulations. However, the Company may be
required to do so in future and this may affect the Company's ability to
expand or maintain the Company's operations.

ANY CHANGE TO GOVERNMENT REGULATION/ADMINISTRATIVE PRACTICES MAY HAVE A
NEGATIVE IMPACT ON THE COMPANY'S ABILITY TO OPERATE AND THE COMPANY'S
PROFITABILITY.

The business of oil and gas exploration and development is subject to
substantial regulation under federal, state, local and foreign laws relating
to the exploration for, and the development, upgrading, marketing, pricing,
taxation, and transportation of oil and gas and related products and other
matters. Amendments to current laws and regulations governing operations and

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activities of oil and gas exploration and development operations could have a
material adverse impact on the Company's business. In addition, there can be
no assurance that income tax laws, royalty regulations and government
incentive programs related to the Company's oil and gas properties and the oil
and gas industry generally, will not be changed in a manner which may
adversely affect the Company's progress and cause delays, inability to explore
and develop or abandonment of these interests.

Permits, leases, licenses, and approvals are required from a variety of
regulatory authorities at various stages of exploration and development. There
can be no assurance that the various government permits, leases, licenses and
approvals sought will be granted in respect of the Company's activities or, if
granted, will not be cancelled or will be renewed upon expiry. There is no
assurance that such permits, leases, licenses, and approvals will not contain
terms and provisions which may adversely affect the Company's exploration and
development activities.

THE COMPANY IS REQUIRED TO REPLACE, MAINTAIN OR EXPAND THE COMPANY'S OIL AND
GAS RESERVES IN ORDER TO PREVENT THE COMPANY'S FUTURE RESERVES AND PRODUCTION
FROM DECLINING, WHICH WOULD ADVERSELY AFFECT FUTURE CASH FLOWS AND INCOME.

In general, production from oil and gas properties declines over time as
reserves are depleted, with the rate of decline depending on reservoir
characteristics. The Company's future oil and gas production is highly
dependent upon the Company's ability to economically find, develop, acquire
and maintain reserves in commercial quantities.

To the extent cash flow from operations is reduced, either by a decrease in
prevailing prices for oil and gas or an increase in finding and development
costs, and external sources of capital become limited or unavailable, the
Company's ability to make the necessary capital investment to maintain or
expand the Company's asset base of oil and gas reserves would be impaired.
Even with sufficient available capital, the Company's future exploration and
development activities may not result in additional proved reserves, and we
might not be able to drill productive wells at acceptable costs.

THE OIL AND GAS EXPLORATION AND PRODUCTION INDUSTRY IS HISTORICALLY A CYCLICAL
INDUSTRY AND MARKET FLUCTUATIONS IN THE PRICES OF OIL AND GAS COULD ADVERSELY
AFFECT THE COMPANY'S BUSINESS.

Prices for oil and gas tend to fluctuate significantly in response to factors
beyond the Company's control. These factors include:

     -  weather conditions in the United States and where the Company's
property interests are located;

     -  economic conditions, including demand for petroleum-based products, in
the United States and the rest of the world;

     -  actions by OPEC, the Organization of Petroleum Exporting Countries;
political instability in the Middle East and other major oil and gas producing
regions;

<PAGE> 12

     -  governmental regulations;

     -  domestic tax policy;

     -  the price of foreign imports of oil and gas;

     -  the cost of exploring for, producing and delivering oil and gas;

     -  the discovery rate of new oil and gas reserves;

     -  the rate of decline of existing and new oil and gas reserves;

     -  available pipeline and other oil and gas transportation capacity;

     -  the ability of oil and gas companies to raise capital;

     -  the overall supply and demand for oil and gas; and

     -  the availability of alternate fuel sources.

Changes in commodity prices may significantly affect the Company's capital
resources, liquidity and expected operating results. Price changes will
directly affect revenues and can indirectly impact expected production by
changing the amount of funds available to reinvest in exploration and
development activities. Reductions in oil and gas prices not only reduce
revenues and profits, but could also reduce the quantities of reserves that
are commercially recoverable. Significant declines in prices could result in
non-cash charges to earnings due to impairment.

Changes in commodity prices may also significantly affect the Company's
ability to estimate the value of producing properties for acquisition and
divestiture and often cause disruption in the market for oil and gas producing
properties, as buyers and sellers have difficulty agreeing on the value of the
properties. Price volatility also makes it difficult to budget for and project
the return on acquisitions and the development and exploitation of projects.
We expect that commodity prices will continue to fluctuate significantly in
the future.

EXPLORATORY AND DEVELOPMENTAL DRILLING AND PRODUCTION OPERATIONS INVOLVES MANY
RISKS THAT ARE OUTSIDE THE COMPANY'S CONTROL AND WHICH MAY RESULT IN A
MATERIAL ADVERSE EFFECT ON THE COMPANY'S BUSINESS, FINANCIAL CONDITION OR
RESULTS OF OPERATIONS.

The business of exploring for, developing and producing oil and gas involves a
substantial risk of investment loss. Drilling and operating oil and gas wells
involves the risk that the wells may be unproductive or that, although
productive, the wells may not produce oil or gas in economic quantities. Other
hazards, such as unusual or unexpected geological formations, pressures,
fires, blowouts, power outages, gas leakage, loss of circulation of drilling
fluids or other conditions may substantially delay or prevent completion of
any well. Adverse weather conditions can also hinder drilling operations. A
productive well may become uneconomic if water or other deleterious substances

<PAGE> 13

are encountered that impair or prevent the production of oil or gas from the
well. In addition, production from any well may be unmarketable if it is
impregnated with water or other deleterious substances. There can be no
assurance that oil and gas will be economically produced from all properties
in which the Company has interests.

AT TIMES THE COMPANY PARTICIPATES IN JOINT VENTURES WHEREIN THE COMPANY IS
DEPENDANT UPON THE EFFORTS OF VARIOUS THIRD PARTIES THAT THE COMPANY DOES NOT
CONTROL AND, AS A RESULT, THE COMPANY MAY NOT BE ABLE TO CONTROL THE TIMING OF
DEVELOPMENT EFFORTS, ASSOCIATED COSTS, OR THE RATE OF PRODUCTION OF RESERVES
(IF ANY).

The success of the Company's business interests in certain joint ventures,
where the Company owns less than a majority interest depends upon the efforts
of various third parties that the Company does not control. As a result, the
Company may have limited ability to exercise influence over certain joint
venture decisions, operations or costs in certain joint venture activities.
The Company's dependence on the operator and, where applicable, other working
interest owners for these projects and the Company's limited ability to
influence operations and associated costs could prevent the Company from
realizing targeted returns on capital in drilling or acquisition activities.
The success and timing of development and exploitation activities on joint
venture properties operated by others depend upon a number of factors that
will be largely outside of the Company's control, including:

     -  the timing and amount of capital expenditures;

     -  the operator's expertise and financial resources;

     -  approval of other participants in drilling wells;

     -  selection of technology;

     -  the rate of production of the reserves; and

     -  the availability of suitable drilling rigs, drilling equipment,
production and transportation infrastructure, and qualified operating
personnel.

The Company relies upon various consultants and service companies to provide
us with technical assistance and services. The Company relies upon the
services of geologists, geophysicists, chemists, engineers and other
scientists to explore and analyze oil and gas prospects to determine a method
in which the oil and gas prospects may be developed in a cost-effective
manner. Although the Company's management has relationships with a number of
third-party service providers, we cannot assure you that we will be able to
continue to rely on such consultants or services in the future.






<PAGE> 14

                    RISKS RELATED TO THE COMPANY

THE COMPANY' BY-LAWS CONTAIN PROVISIONS INDEMNIFYING THE COMPANY'S OFFICERS
AND DIRECTORS.

The Company's by-laws provide the indemnification of the Company's directors
and officers to the fullest extent legally permissible under the California
corporate law against all expenses, liability and loss reasonably incurred or
suffered by him in connection with any action, suit or proceeding.
Furthermore, the Company's by-laws provide that the Company's board of
directors may cause the Company to purchase and maintain insurance for the
Company's directors and officers.

THE COMPANY'S BY-LAWS DO NOT CONTAIN ANTI-TAKEOVER PROVISIONS AND THUS THE
COMPANY'S MANAGEMENT AND DIRECTORS MAY CHANGE IF THERE IS A TAKE-OVER OF THE
COMPANY.

We do not currently have a shareholder rights plan or any anti-takeover
provisions in the Company's by-laws. Without any anti-takeover provisions,
there is no deterrent for a take-over of the Company. If there is a take-over
of the Company, the Company's management and directors may change.


ITEM 1B - UNRESOLVED STAFF COMMENTS

        None


ITEM 2 - PROPERTIES

(a)  DESCRIPTION OF PROPERTIES

The principal assets of the Company consist of proven and unproven oil and
gas properties, oil and gas production related equipment and developed and
undeveloped real estate holdings.  The Company's oil and gas properties are
located exclusively in the continental United States, in California, Wyoming,
Texas and New York.

Developed oil and gas properties are those on which sufficient wells have been
drilled to economically recover the estimated reserves calculated for the
property.  Undeveloped properties do not presently have sufficient wells to
recover the estimated reserves.  The Company had proved undeveloped reserves
of 9,500 and 79,600 at January 1, 2008 and 2007, respectively.  The
Company had no significant proved undeveloped properties at January 1, 2006,
2005 and 2004.







<PAGE> 15

(b)  OIL AND GAS PROPERTIES

The Company's estimated future net recoverable oil and gas reserves from
proved reserves, both developed and undeveloped properties, were assembled by
SI International, Inc., independent petroleum engineers, and are as follows:

<Table>
<Caption>
                                  Crude Oil          Natural Gas
                                    (BBLS)              (MCF)
                                  ---------          -----------
<S>                               <C>                <C>
     January 1, 2009               471,000             155,000
                2008               806,000             331,000
                2007               741,000              65,000
                2006               715,000              94,000
                2005               522,000              83,000
</Table>

The Company's estimated future net recoverable oil and gas reserves, noted in
the table above, have not been filed with any other Federal authority or
agency since January 1, 2008.

Using year-end oil and gas prices and lease operating expenses, the estimated
value of future net revenues before income taxes to be derived from Pyramid's
proved developed oil and gas reserves, discounted at 10%, were $4,106,000 at
December 31, 2008, $27,414,000 at December 31, 2007, $12,358,000 at December
31, 2006, $12,694,000 at December 31, 2005, and $4,643,000 at December 31,
2004.

Pyramid participates in the drilling of developmental wells, no single one of
which would cause a significant change in the net reserve figure.

Pyramid's net oil and gas production after royalty and other working interests
for the past five years ending December 31, were as follows.

<Table>
<Caption>
                       2008      2007      2006       2005       2004
                       ----      ----      ----       ----       ----
<S>                  <C>       <C>       <C>         <C>       <C>
Crude oil (Bbls)      65,000    67,000    66,000     71,000     72,000

Natural gas (MCF)      5,000     5,000     7,000      7,000      8,300

</Table>







<PAGE> 16

Pyramid's average sales prices per barrel or per MCF of crude oil and natural
gas, respectively, and production costs per equivalent barrel (gas production
is converted to equivalent barrels at the rate of 6 MCF per barrel,
representing the estimated relative energy content of gas to oil) for the past
five years ending December 31, were as follows:

<Table>
<Caption>
                       2008       2007      2006      2005       2004
                       ----       ----      ----      ----       ----
<S>                   <C>        <C>       <C>       <C>        <C>
Sales price:
  Crude oil           $93.47     $67.83    $58.88    $47.96     $36.24
                       =====      =====     =====     =====      =====
  Natural gas         $ 7.94     $ 7.16    $ 7.28    $ 6.77     $ 5.89
                       =====      =====     =====     =====      =====

Production costs      $27.20     $24.00    $22.80    $19.30     $18.20
                       =====      =====     =====     =====      =====
</Table>

The average selling price of the Company's crude oil at December 31, 2008, was
approximately $34.11 per barrel and the average selling price of the Company's
natural gas at December 31, 2008, was approximately $7.20 per MCF.

As of December 31, 2008, Pyramid had the following gross and net position in
wells and proved acres:

<Table>
                         WELLS                    PROVED ACRES
                   -----------------           -----------------
                   Gross (1)  Net (1)          Gross (2)  Net (2)
                   --------   ------           --------   ------
                   <C>        <C>              <C>        <C>
                     148       132              21,387     5,844
                     ===       ===              ======     =====
</Table>

    (1)  "Gross wells" represents the total number of wells in which the
         Company has a working interest.  "Net wells" represents the number
         of gross wells multiplied by the percentage of the working
         interests therein held by the Company.

    (2)  "Gross acreage" represents all acres in which the Company has a
         working interest.  "Net acres" represents the aggregate of the
         working interests of the Company in the gross acres.

The Company drilled one well in 2008 on the Santa Fe lease.  The Company also
participated as a non-operator, along with a group of partners, in the
drilling of a natural gas well in Texas, that was completed in 2008.  The
Company drilled two wells in 2007 on the Anderson lease.  The Company drilled
four new wells in 2006, two on the Santa Fe lease, one on the Anderson lease

<PAGE> 17

and one joint-venture well.  The Company participated with one other oil
company as non-operator in the drilling of the joint venture well in 2006.
The Company drilled two new wells in 2004, one on the Santa Fe lease and one
joint-venture well.  The Company participated with two other oil companies as
operator in the drilling of the joint venture well in 2004.  The Company also
drilled a well in 2003 on the Anderson lease in the Carneros Creek Field.
No wells were drilled in 2005.

         "Unproven" oil and gas properties are those on which the presence of
         commercial quantities of reserves of crude oil or natural gas has not
         been established.

         "Undeveloped" acreage exists on those oil and gas properties where
         economically recoverable reserves are estimated to exist in proved
         reservoirs from wells to be drilled in the future.

As of December 31, 2008, Pyramid held positions in unproven acreage in the
following locations:

<Table>
<Caption>                                                  ACRES
                                                     ------------------
                                                      Gross        Net
                                                     ------      ------
<S>                                                  <C>         <C>
    New York
        Mount Morris and Livingston Counties         34,800       9,788
    Texas
        McMullen County                               5,700         713
</Table>


(c)  REAL PROPERTY OWNED

Pyramid owned the following real property as of December 31, 2008, all located
in California.

    County of Kern
         Mullaney yard                         20 acres
         Miller property                      112 acres
         Ranton property                       80 acres
         City of Bakersfield                    3 lots

Located on the three lots of real property in the city of Bakersfield is the
Company's executive offices.  This property was acquired by the Company in
1986.  The office building located on this property is a one story structure
with approximately 4,200 square feet in good condition.






<PAGE> 18

ITEM 3 - LEGAL PROCEEDINGS

The Company is subject to potential litigation within the normal course of
business.  The resolution in any reporting period of such litigation could
have a material impact on Pyramid's financial position or results of
operations for that period.  Pyramid is not party to any proceedings or
actions which management believes might have a material effect upon its
financial position or results of operations.


ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth
quarter of 2008.

                                  PART II

ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY,  RELATED STOCKHOLDER MATTERS
           AND ISSUER PURCHASES OF EQUITY SECURITIES

(a)  PRICE RANGE OF COMMON SHARES

The common stock of Pyramid is traded on the NYSE AMEX under the symbol "PDO".
The following are high and low sales prices for each quarter of 2008 and 2007,
and reflect inter-dealer prices without retail markup, markdown or commission.

<Table>
<Caption>
                                        High         Low
                                        ----        -----
<S>                                    <C>         <C>
    Fiscal Quarter Ending 2008
         March 31,                   $ 3.9500      $3.1000
         June 30,                     46.0000       3.2000
         September 30,                38.2000       5.7000
         December 31,                  6.5000       2.7100
    Fiscal Quarter Ending 2007
         March 31,                     4.4000       3.5000
         June 30,                      3.9900       3.1100
         September 30,                 3.7500       3.1000
         December 31,                  4.0000       2.9100
</Table>

At December 31, 2008, the Company had 254 shareholders of record, and an
unknown number of additional holders whose stock is held in "street name".

The Company did not repurchase any securities during 2008, or issue any
securities during 2008 that were not registered under the Securities Act of
1933.



<PAGE> 19

On June 5, 2008, the Company's Board of Directors approved a 5 for 4 stock
split payable on July 3, 2008, to shareholders of record as of June 24, 2008.
The effective date of the split is July 7, 2008.

On March 28, 2006, the Company's Board of Directors approved a 3 for 2 stock
split payable on May 1, 2006, to shareholders of record as of April 17, 2006.


ITEM 6 - SELECTED FINANCIAL DATA

The following selected financial data is not necessarily indicative of our
future financial position or results of future operations, and should be read
in conjunction with Item 7, Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Financial Statements and Notes
thereto included in Item 8, Financial Statements and Supplementary Data of
this Annual Report on Form 10-K.

<Table>                                     Years Ended December 31,
<Caption>                             (In thousands except per share data)
                                    2008     2007     2006     2005     2004
                                    ----     ----     ----     ----     ----
<S>                                <C>      <C>      <C>      <C>     <C>
STATEMENT OF OPERATIONS DATA
  Total Revenue                    $6,611   $4,945   $3,958   $3,761   $2,927
  Income from Operations            1,094    1,767      923    1,087      530
  Net Income                        1,514    1,495      949    1,089      612
  Net Income per Share
    Basic and Diluted               $0.32    $0.32     $0.20   $0.23    $0.13
  Weighted Average Number of
    Shares Outstanding
    Basic and Diluted               4,678    4,678     4,678   4,678    4,678

BALANCE SHEET DATA
  Cash and Cash Equivalents        $1,794   $  618    $  619   $1,333  $  816
  Short-term Investments            2,789    1,479     1,451    1,409     850
  Total Assets                     10,177    8,460     6,696    5,907   4,624
  Notes Payable                        45       71        37       64     115
  Stockholders' Equity              8,352    6,604     5,109    4,160   3,071
  Total Liabilities and
    Stockholders' Equity           10,177    8,460     6,696    5,907   4,624

PER SHARE DATA
  Net Book Value per
    Common Share                    $1.79    $1.41     $1.09    $0.89   $0.66
  Common Shares Outstanding         4,678    4,678     4,678    4,678   4,678
</Table>







<PAGE> 20

ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
           AND RESULTS OF OPERATIONS


IMPACT OF CHANGING PRICES

Average prices increased by approximately $26.20 per equivalent crude oil and
gas barrel sold during 2008 as compared with average prices for 2007.  In 2008
there were 250 separate crude oil price changes, as compared with 246 price
changes in 2007.  The difference between the highest ($137.25) and lowest
($25.80) posted prices in 2008 was $111.45 per barrel.  By comparison, this
same differential in 2007 was $47.30 per barrel.


LIQUIDITY AND CAPITAL RESOURCES

The Company had cash and short-term investments of $4,583,000 at December 31,
2008, for a net increase of $2,485,000, when compared to December 31, 2007.
Short-term investments consist of certificates of deposit having original
maturities of three months or more.  Operating activities generated cash of
$3,638,000 during 2008.  During 2008, cash was consumed by purchase of short-
term investments of $1,250,000, capital spending of $1,127,000 and principal
payments on the Company's long-term debt totaling $27,000.  The components of
the changes in cash for 2008 are described in the Statements of Cash Flows
included in Item 7 of this Form 10-K.  Adequate funds were available to carry
out all necessary oil and gas operations and to maintain its equipment.  A
$500,000 line of credit, unused at December 31, 2008, also provided additional
liquidity during 2008.

The Company believes that its existing current assets and the amount of cash
it anticipates it will generate from current operations will be sufficient to
fund the anticipated liquidity and capital resource needs of the Company for
the fiscal year ended December 31, 2008.  In addition to its current assets,
the Company also has a credit facility for $500,000 available in the event
that it needs other resources to fund its liquidity and capital resource
needs.  Although the Company may increase its capital expenditures during the
current fiscal year to enhance its current oil production capacities, it does
not anticipate that such expenditures would exceed the amount of liquidity
currently available to the Company.  The Company's beliefs that its existing
assets and the cash expected to be generated from operations will be
sufficient during the current fiscal year are based on the following:

     As of December 31, 2008, the amount of cash, cash equivalents, and short
     term investments was equal to $4,583,000 in the aggregate.

     As of December 31, 2008, the Company had approximately $5,173,000 in
     current assets, and only $653,000 of current liabilities.

     As of December 31, 2008, the Company had only $21,000 of long-term
     indebtedness (net of current maturities).


<PAGE> 21

The Company is not a party to any off-balance sheet arrangements and does not
engage in trading activities involving non-exchange traded contracts.  In
addition, the Company has no financial guarantees, debt or lease agreements or
other arrangements that could trigger a requirement for an early payment or
that could change the value of the Company's assets.  Management continues to
examine various alternatives for increasing capital resources including, among
other things, participation with industry and/or private partners in drilling
and exploration prospects and specific rework of existing properties to
enhance production and expansion of its sales of crude oil and natural gas in
California.  If necessary, Pyramid could sell certain nonessential assets to
raise capital for the benefit of these programs.

The Company drilled two wells in the years ended December 31, 2008 and 2007.
The Company drilled four wells in the year ended December 31, 2006.  The
Company drilled two wells in the year ended December 31, 2004.  No wells were
drilled in 2005.  Two of the wells drilled, one each in 2006 and 2004 were
exploratory wells.  The exploratory wells drilled in 2004 and 2006 were
abandoned due to non-economic production of crude oil.

The Company's crude oil reserves for the year ended December 31, 2008
decreased due primarily to a decrease in crude oil sales prices.  Proved
developed producing crude oil reserves decreased by 213,000 barrels at
December 31, 2008.  The crude oil prices at the end of a given year are one of
the most significant factors used to determine the value of crude oil
reserves.  The average prices at December 31, 2008 declined by approximately
$53.00 per barrel compared with the average prices at December 31, 2007.
Based on these prices, many of the Company's leases were uneconomic and no
reserves were attributed to these leases.

The Company's crude oil reserves for the year ended December 31, 2007
increased due primarily to revision of previous estimates.  The drilling of
two new wells in 2007 and higher average crude oil prices at December 31,
2007, combined to generate higher year-end reserves of proved developed
producing properties.  Proved developed producing crude oil reserves increased
by 120,600 barrels at December 31, 2007.

The Company's gas reserves increased by approximately 267,000 MCF's for the
year ended December 31, 2007.  The increase is due to the Company's investment
in a joint venture gas prospect in Texas.

The Company's crude oil reserves for the year ended December 31, 2006
increased due primarily to the drilling of four wells in 2006.  The  Company's
crude oil reserves for the year ended December 31, 2005 increased due
primarily to the recognition of proved developed non-producing and proved
undeveloped reserves as a result of the review of the Company's geological
data by independent petroleum engineers.  The Company's crude oil reserves for
the year ended December 31, 2004 was stable.  The Company was able to replace
current production for 2004 and 2005, by drilling the wells in 2004 and 2003.

Certain properties that the Company owns have become uneconomic and have been
shut-in.  When these properties are not operated, any reserves that could be
assigned to these properties are not included in the year-end engineering

<PAGE> 22

report of total Company reserves.  Another major factor that directly affects
the Company's future reserve base is the price of crude oil at December 31, of
any given year.  The year-end price of oil and gas has a significant impact on
the estimated future net recoverable oil and gas reserves from proved
developed properties.  At certain depressed price levels, some of the
Company's oil and gas properties are not economical to operate and thus its
year-end engineering reserve reports do not assign any oil and gas reserves to
these properties.  Conversely, if year-end prices should increase to a certain
level, the reserves on these leases would be economic to produce and would
increase the Company's reserves.


FORWARD-LOOKING INFORMATION

Looking forward into 2009, crude oil prices have increased by approximately
$17.95 per barrel as of March 26, 2009, compared to prices at December 31,
2008.  There have been 57 separate price changes since December 31, 2008.

Pyramid is well prepared to weather a protracted economic downturn, as
management has positioned the Company with no debt and $4.6 million in cash
reserves.  During the next 12 months, management expects that there will be an
increasing number of opportunities to acquire oil and gas assets at more
attractive valuations than have been available during the past several years.

In March 2009, the Company participated with its Texas joint venture partners
in re-entry operations on a previously abandoned well in McMullen County,
Texas.  The well being re-entered was originally drilled in the mid 1960's and
was tested in several intervals.  Although the tests were favorable, the well
was abandoned because of low gas prices and the lack of a nearby gas sales
pipeline.  The current objective is to clean out the cement plugs and then run
and then cement a new string of casing for adequate control purposes.  The
targeted gas zone will then be perforated, tested and put-on production.  The
Company expects that these operations should be completed by mid-April of
2009.

In mid October 2008 the Company postponed a developmental well in the
Company's Carneros Creek field, located in Kern County California.  Management
intends to re-evaluate the possibility of drilling this well sometime in the
second half of 2009.














<PAGE> 23

The Company continues to seek and evaluate opportunities within the energy
sector, to enhance the value of the Company.  The Company's growth in 2009
will be highly dependant on the amount of success the Company has in its
operations and capital investments, including the outcome of wells that have
not yet been drilled.  The Company's capital investment program may be
modified during the year due to exploration and development successes or
failures, market conditions and other variables.  The production and sales of
oil and gas involves many complex processes that are subject to numerous
uncertainties, including reservoir risk, mechanical failures, human error and
market conditions.

The Company has positioned itself, over the past several years, to withstand
various types of economic uncertainties, with a program of consolidating
operations on certain producing properties and concentrating on properties
that provide the major revenue sources.  The drilling of a new well and
several limited work-overs of certain wells have allowed the Company to
maintain its crude oil reserves for the last three years.  The Company expects
to maintain its reserve base in 2009, by drilling new wells and routine
maintenance of its existing wells.

The Company may be subject to future costs necessary for compliance with the
new implementation of air and water environmental quality requirements of the
various state and federal governmental agencies.  The requirements and costs
are unknown at this time, but management believes that costs could be
significant in some cases.  As the scope of the requirements become more
clearly defined, management may be better equipped to determine the true costs
to the Company.

The Company continues to absorb the costs for various state and local fees and
permits under new environmental programs, the sum of which were not material
during 2008.  The Company retains outside consultants to assist the Company in
maintaining compliance with these regulations.  The  Company is actively
pursuing an ongoing policy of upgrading and restoring older properties to
comply with current and proposed environmental regulations.  The costs of
upgrading and restoring older properties to comply with environmental
regulations have not been determined.  Management believes that these costs
will not have a material adverse effect upon its financial position or results
of operations.














<PAGE> 24

ANALYSIS OF SIGNIFICANT CHANGES IN RESULTS OF OPERATIONS

RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2008
  COMPARED TO THE FISCAL YEAR ENDED DECEMBER 31, 2007


REVENUES

OIL AND GAS SALES

Oil and gas sales increased by 47% for the year ended December 31, 2008, when
compared with the same period for 2007.  The increase in revenues of
$2,107,773 is due primarily to higher average prices for 2008.  The average
price of the Company's oil and gas increased by approximately $26.16 per
equivalent barrel for 2008 when compared to 2007.  Crude oil production/sales
increased by approximately 3,800 barrels due primarily to the fracturing of
three wells in the first quarter of 2008 and increased production on wells
that were drilled in 2007.


OPERATING EXPENSES

Operating expenses increased by 20% for the year ended December 31, 2008, when
compared with the same period of 2007.  The cost to produce an equivalent
barrel of crude oil increased by approximately $3.25 per barrel for 2008 when
compared to 2007, for a total cost of approximately $27.24 per equivalent
barrel.  The increase in operating expenses of approximately $321,000 was due
to many factors.  These include higher costs for labor, down-hole pump
repairs, equipment fuel, parts and supplies, equipment rental and
insurance.

The increase in operating expenses is due primarily to the following (each as
a component of total operating costs):

     Labor costs increased by 6% due primarily to an increase in the number of
field employees.

     Down-hole pump repairs increased by approximately 4% due to the
replacement of down-hole pumps with more expensive pumps that are more
efficient and have better longevity.

     Equipment fuel increased by approximately 2% due primarily to the
increased per unit costs of gasoline and diesel fuel during 2008.

     Repair and maintenance parts and supplies increased by approximately 2%
due to increased levels of repair and maintenance activities.

     Equipment rental increased by approximately 2% due primarily to the
rental of crude oil storage tanks for the new wells that were drilled in 2007
and 2008 on the Anderson and Santa Fe leases.  The Company also rented crude
oil storage tanks for the three wells that were fraced in the first quarter of
2008.

<PAGE> 25

     Insurance costs increased by approximately 1.5% due primarily to higher
premiums for health insurance and workers' compensation insurance.


EXPLORATION COSTS

In the first quarter of 2008, the Company received a payment, from its joint
venture partner, in the amount of $28,812 for its share of certain tangible
completion equipment on an exploratory well that had been abandoned in 2006.


GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased by approximately 26% for the
year ended December 31, 2008, when compared with the same period for 2007.
The increase in General and administrative expenses of $244,444 is due
primarily to the following factors:

     Legal fees increased by approximately 5%, as a component of total
administrative expense, due to services that were rendered for the stock split
that was declared on June 5, 2008 (see footnote 11), increased costs for
compliance with SEC filings and general corporate matters.

     Compensation costs, as a component of total administrative expenses,
increased by 16% due to a number of factors.   The increase is due primarily
to an increase of 11% in stock-based compensation which is due primarily to
warrant that were approved in November of 2008 (see footnote 12).
Compensation costs also increased due to the following: an increase in annual
salaries that was effective June 1, 2008; an increase in bonuses for 2008 when
compared with 2007, a new severance award agreement (see footnote 14); and the
hiring of a part-time employee that was effective July 1, 2007.

     Accounting services increased by 2.5%, as a component of total
administrative expenses, due primarily to continuing compliance costs
associated with Sarbanes-Oxley.


PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION

The provision for depletion, depreciation and amortization increased by
$1,642,000 for the year ended December 31, 2008, when compared with the same
period for 2007.  The increase is due primarily to an increase of $1,159,000
in the valuation allowance for the Company's oil and gas properties and an
increase of approximately $202,000 in the amortization of the leaseholds
on the Company's Texas gas prospect.  Depletion of the Company's other oil and
gas properties increased by approximately $274,000.







<PAGE> 26

ACCRETION EXPENSE

The increase in accretion expense of $46,697 for the year ended December 31,
2008, is due primarily to an increase in the Company's liability for asset
retirement obligations (ARO).  The adjustment to the ARO is due to an increase
in the estimated costs associated with the retirement of its oil and gas
properties.


OTHER COSTS AND EXPENSES

Other costs and expenses increased by approximately $91,000 for the year ended
December 31, 2008, when compared with the same period for 2007.  The increase
is due to the retention of an investor relations consultant at a monthly fee
of $5,000 that was effective March 12, 2008 (see footnote 16).  The remaining
increase in costs is due to an increase in the annual listing fees for the
NYSE AMEX and the payment of a one-time fee to the NYSE AMEX for the stock
split that was declared on June 5, 2008 (see footnote 11).


RESULTS OF OPERATIONS FOR THE FISCAL YEAR ENDED DECEMBER 31, 2007
  COMPARED TO THE FISCAL YEAR ENDED DECEMBER 31, 2006

REVENUES

OIL AND GAS SALES

Oil and gas sales increased by 14% for the year ended December 31, 2007, when
compared with the same period for 2006.  The increase is due primarily to
higher average prices for 2007.  The average price of the Company's oil
and gas increased by approximately $8.43 per equivalent barrel for 2007 when
compared to 2006.  This was offset by a slight decrease in crude oil
production/sales of approximately 350 barrels.


GAIN ON SALE OF FIXED ASSETS

The gain on the sale of fixed assets for 2007, reflects primarily the sale of
real property (160 acres of grazing land).  Proceeds from the sale were
$448,471 for a gain of $440,473.


OPERATING EXPENSES

Operating expenses increased by approximately 5% for the year ended December
31, 2007, when compared with the same period of 2006.  The cost to produce an
equivalent barrel of crude oil increased by approximately $1.20 per barrel for
2007 when compared to 2006, for a total cost of approximately $24.00 per
equivalent barrel.  The increase in operating expenses is due primarily to an
increase of approximately 3.6% in labor costs.  Labor costs increased due to
an increase in hourly labor rates that was effective July 1, 2006 and a bonus
payment for the Company's manager of field operations.

<PAGE> 27

GENERAL AND ADMINISTRATIVE EXPENSES

General and administrative expenses increased by approximately 45% for the
year ended December 31, 2007.  The increase is due primarily to a 30% increase
in audit fees and accounting services.  Compensation costs also increased by
approximately 15%.

Accounting services increased by 17% due to the Company's hiring of a
consulting firm that specializes in compliance with Section 404 of Sarbanes-
Oxley, which requires management to assess the design and operational
effectiveness of its existing internal controls over financial reporting.
Audit fees increased by 12% due to higher audit fee billings and accruals
for the 2007 year-end audit.

Compensation costs increased by 10.5% due to a severance award agreement for
the Company's President, that was approved by the Board of Directors in
January of 2007 (see Note 14 of Notes to Financial Statements).  Salaries
increased by 5% due to the hiring of a part-time employee effective July 1,
2007 and salary increases that were effective July 1, 2006.


PROVISION FOR DEPLETION, DEPRECIATION AND AMORTIZATION

The provision for depletion, depreciation and amortization increased by 44%
for 2007, when compared with the same period for 2006.  The increase is due
primarily to a 41% increase in depletion of the Companies oil and gas
properties.  The increase in depletion is due primarily to an increase in
depletion on two of the Company's oil and gas properties, the Santa Fe Energy
and Anderson leases.  The increase on these two properties is due primarily to
higher crude oil production due to the completion of four new wells in 2006
and two new wells in 2007.


OTHER COSTS AND EXPENSES

Other costs and expenses decreased by approximately $50,000.  The decrease is
due primarily to the one-time costs of approximately $40,000 associated with
the listing of the Company's common stock on the NYSE AMEX that was effective
August 21, 2006.


INTEREST INCOME

Interest income increased by approximately $17,000 due primarily to higher
interest rates for 2007, as compared with the same period of 2006.

INCOME TAXES

Income taxes increased by approximately $299,000 due primarily to an increase
in taxable income for both Federal and California.  Taxable income for 2007,
increased  due primarily to higher sales of oil and gas and a gain of
approximately $442,000 on the sale of fixed assets.

<PAGE> 28

ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

         Not applicable.


CRITICAL ACCOUNTING POLICIES

COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES

The Company has adopted the "successful efforts" method of accounting for its
oil and gas exploration and development activities, as set forth in the
Statement of Financial Accounting Standards No. 19, as amended, issued by the
Financial Accounting Standards Board.

The Company initially capitalizes expenditures for oil and gas property
acquisitions until they are either determined to be successful (capable of
commercial production) or unsuccessful.  The carrying value of all undeveloped
oil and gas properties is evaluated periodically and reduced if such carrying
value appears to have been impaired.  Leasehold costs relating to successful
oil and gas properties remain capitalized while leasehold costs which have
been proven unsuccessful are charged to operations in the period the leasehold
costs are proven unsuccessful.  Costs of carrying and retaining unproved
properties are expensed as incurred.

The costs of drilling and equipping development wells are capitalized, whether
the wells are successful or unsuccessful.  The costs of drilling and equipping
exploratory wells are capitalized until they are determined to be either
successful or unsuccessful.  If the wells are successful, the costs of the
wells remain capitalized.  If, however, the wells are unsuccessful, the
capitalized costs of drilling the wells, net of any salvage value, are charged
to operations in the period the wells are determined to be unsuccessful.

The Company adopted the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (the
Statement).  The Statement specifies when an impairment loss should be
recognized and how impairment losses should be measured for long-lived assets
to be held and used and for long-lived assets to be disposed of.  In
accordance with the Statement, the costs of proved oil and gas properties and
equipment are periodically assessed on a lease by lease basis to determine if
such costs exceed undiscounted future cash flows, and if conditions warrant an
impairment reserve will be provided based on the estimated future discounted
cash flows. The Company recorded an impairment reserve of $1,162,379 and
$3,324 at December 31, 2008 and 2007, respectively.  The accumulated
impairment reserve was $2,410,673 and $1,248,294 at December 31, 2008 and
2007, respectively.







<PAGE> 29

DEPLETION, DEPRECIATION, AND AMORTIZATION

Depletion of leasehold costs of producing oil and gas properties is provided
on the unit-of-production method, by individual property unit, based on
estimated recoverable proved reserves.  Depreciation and amortization of the
costs of producing wells and related equipment are provided on the
unit-of-production method, by individual property unit, based on estimated
recoverable proved developed reserves.  Amortization of the costs of
undeveloped oil and gas properties is based on the Company's experience,
giving consideration to the holding periods of leaseholds.  The average
depletion per equivalent barrel of crude oil produced for 2008, 2007 and 2006
were $27.86, $5.03 and $3.22, respectively.

Drilling and operating equipment, buildings, automotive, office and other
property and equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the shorter of the estimated useful lives or the applicable lease terms (range
of 3 to 19 years).  Any permanent impairment of the carrying value of property
and equipment is provided for at the time such impairments become known.


IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141R, Business Combinations (SFAS 141R).  SFAS 141R requires most
identifiable assets, liabilities, non-controlling interests, and goodwill
acquired in a business combination to be recorded at full fair value.  SFAS
141R applies to all business combinations, including combinations among mutual
entities and combinations by contract alone.  Under Statement 141R, all
business combinations will be accounted for by applying the acquisition
method.  Statement 141R is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  Management anticipates that
the adoption of this standard will have no impact on the Company's financial
position, results of operations or cash flows.

In December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, Non-controlling Interests in Consolidated Financial Statements (SFAS
160).  SFAS 160 requires the ownership interests in subsidiaries held by
parties other than the parent to be treated as a separate component of equity
and be clearly identified, labeled, and presented in the consolidated
financial statements.  SFAS 160 is effective for periods beginning on or after
December 15, 2008.  Earlier adoption is prohibited.  Management anticipates
that the adoption of this standard will have no impact on the Company's
financial position, results of operations or cash flows.

In March, 2008, the FASB issued Statement of Financial Accounting Standards
No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS
161).  SFAS 161 amends and expands the disclosure requirements of SFAS 133 by
providing additional disclosure on the use of derivative instruments including
qualitative disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent

<PAGE> 30

features in derivative agreements.  SFAS 161 is effective for periods
beginning on or after November 15, 2008.  Management anticipates that the
adoption of this standard will have no impact on the Company's financial
position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162).  SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in
the preparation of financial statements of non-governmental entities that are
presented in conformity with generally accepted accounting principles (the
GAAP hierarchy).  SFAS 162 will become effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.  Management anticipates that the adoption of
this standard will have no impact on the Company's financial position, results
of operations or cash flows.

<PAGE>
<PAGE> 31

ITEM 8- FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA


                           PYRAMID OIL COMPANY

                      INDEX TO FINANCIAL STATEMENTS

                            DECEMBER 31, 2008

                                                                     Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM . . . . . .   32


FINANCIAL STATEMENTS:

    Balance sheets - December 31, 2008 and 2007 . . . . . . . . . .   33-34
    Statements of operations - years ended
      December 31, 2008, 2007 and 2006  . . . . . . . . . . . . . .   35-36
    Statements of shareholders' equity - years ended
      December 31, 2008, 2007 and 2006  . . . . . . . . . . . . . .   37
    Statements of cash flows - years
      ended December 31, 2008, 2007 and 2006  . . . . . . . . . . .   38-39
    Notes to financial statements . . . . . . . . . . . . . . . . .   40


<PAGE>
<PAGE> 32


            REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Board of Directors
  and Shareholders of
Pyramid Oil Company
Bakersfield, California


We have audited the balance sheets of Pyramid Oil Company (the Company) as
of December 31, 2008 and 2007, and the related statements of operations,
shareholders' equity and cash flows for each of the three years in the period
ended December 31, 2008.  These financial statements are the responsibility of
the Company's management.  Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States).  Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement.  An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe that our
audits provided a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pyramid Oil Company as of
December 31, 2008 and 2007, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 2008, in
conformity with U.S. generally accepted accounting principles.

We are not engaged to examine management's assertion about the effectiveness
of Pyramid Oil Company's internal control over financial reporting as of
December 31, 2008 included in the accompanying report of management in
Disclosure Controls and Procedures in Item 9A(T) of Form 10K, and
accordingly, we do not express an opinion theron.


SINGERLEWAK LLP

Los Angeles, California
March 30, 2009







<PAGE> 33
                             FINANCIAL STATEMENTS
                              PYRAMID OIL COMPANY
                                BALANCE SHEETS
                                    ASSETS

<Table>
<Caption>                                                December 31,
                                                  --------------------------
                                                     2008            2007
                                                  ----------    ------------
<S>                                              <C>             <C>
CURRENT ASSETS:
   Cash and cash equivalents                    $ 1,793,563       $   618,448
   Short-term investments                         2,789,099         1,478,979
   Trade accounts receivable
     (net of reserve for doubtful accounts
      of $4,000 in 2008 and 2007)                   213,588           643,340
   Crude oil inventory                               82,025            71,298
   Prepaid expenses and other assets                186,353           173,164
   Deferred income taxes                            108,000                --
                                                  ---------        ----------
         Total current assets                     5,172,628         2,985,229
                                                  ---------        ----------
PROPERTY AND EQUIPMENT, at cost:
   Oil and gas properties and equipment
     (successful efforts method)                 15,755,472        14,734,929
   Capitalized asset retirement costs               382,550           310,579
   Drilling and operating equipment               2,109,993         2,050,556
   Land, buildings and improvements               1,065,371         1,010,847
   Automotive, office and
     other property and equipment                 1,162,324         1,141,451
                                                 ----------        ----------
                                                 20,475,710        19,248,362
   Less - accumulated depletion,
     depreciation, amortization
     and valuation allowances                   (16,147,157)      (14,040,610)
                                                 ----------        ----------
                                                  4,328,553         5,207,752
                                                 ----------        ----------
OTHER ASSETS
   Deferred taxes                                   509,245                --
   Deposits                                         250,000           250,000
   Other assets                                      17,013            17,013
                                                 ----------        ----------
                                                $10,277,439       $ 8,459,994
                                                 ==========        ==========

The accompanying notes are an integral part of these balance sheets.
</Table>




<PAGE> 34
                              PYRAMID OIL COMPANY
                                BALANCE SHEETS
                      LIABILITIES AND SHAREHOLDERS' EQUITY

<Table>
<Caption>
                                                     December 31,
                                              ----------------------------
                                                  2008              2007
                                              ----------        ----------
<S>                                           <C>               <C>
CURRENT LIABILITIES:
   Accounts payable                         $    40,820        $   108,500
   Accrued professional fees                    130,261             54,165
   Accrued taxes, other than
     income taxes                                76,222             61,684
   Accrued payroll and related costs             50,451             57,647
   Accrued royalties payable                    132,472            212,916
   Accrued insurance                             59,096             65,999
   Accrued income taxes                         239,815            145,815
   Current maturities of long-term debt          23,901             26,868
                                              ---------         ----------
      Total current liabilities                 753,038            733,594
                                              ---------         ----------
LONG-TERM DEBT, net of current
 maturities                                      20,640             44,542
                                              ---------         ----------
LIABILITY FOR SHARE BASED COMPENSATION               --             67,000
                                              ---------         ----------

DEFERRED INCOME TAXES                                --                 --
                                              ---------         ----------

LIABILITY FOR ASSET RETIREMENT OBLIGATIONS    1,151,706          1,010,903
                                              ---------         ----------
COMMITMENTS AND CONTINGENCIES (Note 6)

SHAREHOLDERS' EQUITY:
   Preferred stock, no par value (Note 12)
     Authorized - 10,000,000 shares
     Issued and outstanding - none                   --                 --
   Common stock, no par value (Note 11 & 12)
     Authorized - 50,000,000 shares
     Issued and outstanding -
       4,677,728 shares                       1,306,010          1,071,610
   Retained earnings                          7,046,045          5,532,345
                                             ----------         ----------
                                              8,352,055          6,603,955
                                             ----------         ----------
                                            $10,277,439        $ 8,459,994
                                             ==========         ==========
The accompanying notes are an integral part of these balance sheets.
</Table>

<PAGE> 35

                             PYRAMID OIL COMPANY
                           STATEMENTS OF OPERATIONS

<Table>
<Caption>                                      Year ended December 31,
                                       --------------------------------------
                                          2008          2007          2006
                                       ----------    ----------    ----------
<S>                                    <C>          <C>           <C>
REVENUES:
  Oil and gas sales                   $ 6,610,628   $ 4,502,855   $ 3,957,588
  Gain on sales of fixed assets               500       441,927            --
                                       ----------    ----------    ----------
                                        6,611,128     4,944,782     3,957,588
                                       ----------    ----------    ----------
COSTS AND EXPENSES:
  Operating expenses                    1,941,888     1,611,269     1,538,227
  Exploration costs                       (28,812)        6,687       348,132
  General and administrative            1,169,191       924,746       637,120
  Taxes, other than income and
    payroll taxes                         131,215       111,909        81,712
  Provision for depletion,
    depreciation and amortization         944,168       460,804       322,909
  Valuation allowances                  1,162,379         3,324            --
  Accretion expense                        68,832        22,135        20,343
  Other costs and expenses                128,090        36,818        86,450
                                        ---------     ---------    ----------
                                        5,516,951     3,177,692     3,034,893
                                        ---------     ---------    ----------
OPERATING INCOME                        1,094,177     1,767,090       922,695
                                        ---------     ---------    ----------
OTHER INCOME (EXPENSE):
  Interest income                          88,792        85,003        67,988
  Other income                             28,431        19,886        41,219
  Interest expense                     (    2,235)   (    1,768)   (    7,205)
                                       ----------     ---------     ---------
                                          114,988       103,121       102,002
                                       ----------     ---------     ---------
INCOME BEFORE INCOME
 TAX PROVISION                          1,209,165     1,870,211     1,024,697
   Income tax provision (benefit)
     Current                              312,710       375,150        75,825
     Deferred                           ( 617,245)           --            --
                                       ----------     ---------    ----------
                                        ( 304,535)      375,150        75,825
                                       ----------     ---------     ---------
NET INCOME                            $ 1,513,700   $ 1,495,061   $   948,872
                                       ==========     =========     =========

The accompanying notes are an integral part of these statements.
</Table>


<PAGE> 36

                             PYRAMID OIL COMPANY
                           STATEMENTS OF OPERATIONS

<Table>
<Caption>                                      Year ended December 31,
                                       --------------------------------------
                                          2008          2007          2006
                                       ----------    ----------    ----------
<S>                                    <C>          <C>           <C>

BASIC INCOME PER COMMON SHARE         $      0.32   $      0.32   $      0.20
                                       ==========     =========     =========
DILUTED INCOME PER COMMON SHARE       $      0.32   $      0.32   $      0.20
                                       ==========     =========     =========
Weighted average number of
 common shares outstanding              4,677,728     4,677,728     4,677,728
                                       ==========     =========     =========
Diluted average number of
 common shares outstanding              4,713,055     4,677,728     4,677,728
                                       ==========     =========     =========


The accompanying notes are an integral part of these statements.
</Table>





























<PAGE> 37

                              PYRAMID OIL COMPANY

                       STATEMENTS OF SHAREHOLDERS' EQUITY




<Table>
<Caption>

                              Common Shares
                               Issued and         Common         Retained
                               Outstanding         Stock         Earnings
                              -------------      ----------     ----------
<S>                           <C>                <C>            <C>

Balances, December 31, 2005      2,494,430       $1,071,610     $3,088,412

  3 for 2 stock split            1,247,291

  Net income                            --               --        948,872
                                 ---------        ---------      ---------
Balances, December 31, 2006      3,741,721        1,071,610      4,037,284

  Net income                            --               --      1,495,061
                                 ---------        ---------      ---------
Balances, December 31, 2007      3,741,721        1,071,610      5,532,345

  5 for 4 stock split              936,007

  Severance award agreements            --          165,400             --

  Stock based compensation              --           69,000             --

  Net income                            --               --      1,513,700
                                 ---------        ---------      ---------
Balances, December 31, 2008      4,677,728       $1,306,010     $7,046,045
                                 =========        =========      =========


The accompanying notes are an integral part of these statements.
</Table>
<PAGE>
<PAGE> 38
                            PYRAMID OIL COMPANY
                          STATEMENTS OF CASH FLOWS


<Table>
<Caption>
                                               Year ended December 31,
                                          --------------------------------
                                             2008       2007        2006
                                          ---------   --------    --------
<S>                                       <C>        <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:

  Net income                             $1,513,700  $1,495,061  $   948,872

   Adjustments to reconcile net income
     to net cash provided
     by operating activities:
      Provision for depletion,
        depreciation, amortization
        and valuation allowances          2,106,547     464,128      322,909
      Accretion expense                      68,832      22,135       20,343
      Costs incurred for asset
        retirement obligations                   --          --      ( 2,722)
      Exploration costs                     (28,812)      6,687      339,459
      Severance award agreement              98,400      67,000           --
      Stock based compensation               69,000          --           --
      Gain on sale of
        property and equipment                 (500)   (441,927)          --
      Loss on disposal of fixed assets           --      18,000           --
      Accrued termination costs                  --    (142,157)    (141,333)
      Deferred taxes                       (617,245)         --           --

   Changes in operating assets
    and liabilities:
      Decrease (increase) in trade
        accounts receivable and
        interest receivable                 429,752    (147,967)    (190,452)
      Decrease (increase) in crude
        oil inventories                     (10,727)    (14,759)       2,423
      (Increase) in prepaid expenses        (12,988)    (18,015)     (32,532)
       Increase (decrease) in accounts
        payable and accrued liabilities      22,410     281,925      (19,407)
                                          ---------   ---------    ---------
  Net cash provided by
    operating activities                  3,638,369   1,590,111    1,247,560
                                          ---------   ---------    ---------

      The accompanying notes are an integral part of these statements.
</Table>




<PAGE> 39
                                PYRAMID OIL COMPANY
                              STATEMENTS OF CASH FLOWS
                                   (CONTINUED)
<Table>
<Caption>
                                                Year ended December 31,
                                            ------------------------------
                                             2008        2007         2006
                                           -------     -------      -------
<S>                                     <C>         <C>          <C>
CASH FLOWS FROM INVESTING ACTIVITIES:

  Capital expenditures                  $(1,126,565) $(2,085,327) $(1,907,023)
  Purchase of short-term investments     (1,250,000)    (180,000)    (100,000)
  Increase in short-term investments        (60,120)     (28,069)     (41,552)
  Redemption of certificate of deposit           --      200,000      100,000
  Other cash deposits                            --           --     ( 1,380)
  Proceeds from sale of fixed assets            500      468,621           --
                                          ---------    ---------    ---------
  Net cash used in investing activities  (2,436,185)  (1,624,775)  (1,949,955)
                                          ---------    ---------    ---------

CASH FLOWS FROM FINANCING ACTIVITIES:

  Proceeds from line of credit                   --      150,000      452,000
  Payments on line of credit                     --     (150,000)    (452,000)
  Principal payments on long-term debt     ( 26,869)    ( 37,054)    ( 59,025)
  Proceeds from issuance
    of long-term debt                            --       71,165       32,393
  Principal payments from
    loans to employees                        2,500        2,000       18,494
  Loans to employees                        ( 2,700)     ( 2,000)     ( 3,300)
                                            -------     --------      -------
Net cash provided by
  (used) in financing activities            (27,069)      34,111     ( 11,438)
                                            -------     --------      -------
Net increase (decrease) in cash
  and cash equivalents                    1,175,115         (553)    (713,833)

Cash and cash equivalents
  at beginning of year                      618,448      619,001    1,332,834
                                          ---------   ----------    ---------
Cash and cash equivalents at end of year $1,793,563  $   618,448   $  619,001
                                          =========   ==========    =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the year
  for interest                           $    2,235    $   1,768    $   7,205
                                            =======      =======      =======
Cash paid during the year
  for income taxes                       $  232,946    $  36,125    $ 268,955
                                            =======      =======      =======
The accompanying notes are an integral part of these statements.
</Table>

<PAGE> 40
                                 PYRAMID OIL COMPANY
                            NOTES TO FINANCIAL STATEMENTS
                                  DECEMBER 31, 2008

1.  SIGNIFICANT ACCOUNTING POLICIES

NATURE OF OPERATIONS

Pyramid Oil Company (the Company), a California Corporation, has been in the
oil and gas business continuously for 99 years since it was incorporated on
October 9, 1909.  The Company is in the business of exploration, development
and production of crude oil and natural gas.  The Company operated and has
interests in 27 oil and gas leases in Kern and Santa Barbara Counties in the
State of California.  The Company also owns oil and gas interests in Wyoming
and New York that it does not operate.  The Company grants short-term credit
to its customers and historically receives payment within 30 days.

USE OF ESTIMATES

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period.  Actual results could differ from those
estimates.

CASH AND CASH EQUIVALENTS

Cash and cash equivalents principally consist of demand deposits and
certificates of deposits having original maturities of three months or less.
At December 31, 2008, the Company had approximately $1,200,000 of cash and
cash equivalents that were not fully insured by the FDIC.

INVESTMENTS

Investments consist of certificates of deposit having original maturities of
three months or more and are valued at cost.

INVENTORY

Inventories of crude oil and condensate are valued at the lower of cost,
predominately on a first-in, first-out (FIFO) basis, or market, and include
certain costs directly related to the production process.

DEPOSITS

In April 2004, the Company replaced its state of California oil and gas
blanket performance surety bond, with a cash bond in the form of an
irrevocable certificate of deposit in the amount of $250,000.



<PAGE> 41

                                 PYRAMID OIL COMPANY
                       NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

COSTS INCURRED IN OIL AND GAS PRODUCING ACTIVITIES

The Company has adopted the "successful efforts" method of accounting for its
oil and gas exploration and development activities, as set forth in the
Statement of Financial Accounting Standards No. 19, as amended, issued by the
Financial Accounting Standards Board.

The Company initially capitalizes expenditures for oil and gas property
acquisitions until they are either determined to be successful (capable of
commercial production) or unsuccessful.  The carrying value of all undeveloped
oil and gas properties is evaluated periodically and reduced if such carrying
value appears to have been impaired.  Leasehold costs relating to successful
oil and gas properties remain capitalized while leasehold costs which have
been proven unsuccessful are charged to operations in the period the leasehold
costs are proven unsuccessful.  Costs of carrying and retaining unproved
properties are expensed as incurred.

The costs of drilling and equipping development wells are capitalized, whether
the wells are successful or unsuccessful.  The costs of drilling and equipping
exploratory wells are capitalized until they are determined to be either
successful or unsuccessful.  If the wells are successful, the costs of the
wells remain capitalized.  If, however, the wells are unsuccessful, the
capitalized costs of drilling the wells, net of any salvage value, are charged
to operations in the period the wells are determined to be unsuccessful.

The Company adopted the Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of" (the
Statement).  The Statement specifies when an impairment loss should be
recognized and how impairment losses should be measured for long-lived assets
to be held and used and for long-lived assets to be disposed of.  In
accordance with the Statement, the costs of proved oil and gas properties and
equipment are periodically assessed on a lease by lease basis to determine if
such costs exceed undiscounted future cash flows, and if conditions warrant an
impairment reserve will be provided based on the estimated future discounted
cash flows.  The Company recorded an impairment reserve of $1,162,379 and
$3,324 at December 31, 2008 and 2007, respectively.  The accumulated
impairment reserve was $2,410,673 and $1,248,294 at December 31, 2008 and
2007, respectively.









<PAGE> 42

                                  PYRAMID OIL COMPANY
                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   DECEMBER 31, 2008


DEPLETION, DEPRECIATION, AND AMORTIZATION

Depletion of leasehold costs of producing oil and gas properties is provided
on the unit-of-production method, by individual property unit, based on
estimated recoverable proved reserves.  Depreciation and amortization of the
costs of producing wells and related equipment are provided on the
unit-of-production method, by individual property unit, based on estimated
recoverable proved developed reserves.  Amortization of the costs of
undeveloped oil and gas properties is based on the Company's experience,
giving consideration to the holding periods of leaseholds.  The average
depletion per equivalent barrel of crude oil produced for 2008, 2007 and 2006
were $27.86, $5.03 and $3.22, respectively.

Drilling and operating equipment, buildings, automotive, office and other
property and equipment and leasehold improvements are stated at cost.
Depreciation and amortization are computed using the straight-line method over
the shorter of the estimated useful lives or the applicable lease terms (range
of 3 to 19 years).  Any permanent impairment of the carrying value of property
and equipment is provided for at the time such impairments become known.


STOCK-BASED COMPENSATION

Commencing January 1, 2006, the Company adopted Statement of Financial
Accounting Standard No. 123R, Share Based Payment, which requires all share-
based payments, including grants of stock options, to be recognized in the
income statement as an operating expense, based on fair values.


MAINTENANCE AND REPAIRS

Maintenance, repairs and replacement expenditures are charged to operations as
incurred, while major renewals and betterments are capitalized and depreciated
over their useful lives.


RETIREMENT OR DISPOSAL OF PROPERTIES AND EQUIPMENT

Costs and accumulated depletion, depreciation, amortization and valuation
allowances of property and equipment retired, abandoned, or otherwise disposed
of are removed from the accounts upon disposal, and any resulting gain or loss
is included in operations in the year of disposition.  However, upon disposal
of a portion of an oil and gas property, any proceeds received are treated as
a recovery of cost and no gain or loss is recognized in the year of
disposition.


<PAGE> 43
                               PYRAMID OIL COMPANY
                     NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                DECEMBER 31, 2008

INCOME TAXES

The Company uses the asset and liability method of accounting for income
taxes.  Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases.  Deferred tax assets
and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected
to be recovered or settled.  The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in the period that includes the
enactment date.

The Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, on January 1, 2007.  As a result of the
implementation of FIN 48, the company made a comprehensive review of its
portfolio of tax positions in accordance with recognition standards
established by FIN 48.  As a result of the implementation of Interpretation
48, the Company recognized no material adjustments to liabilities or
stockholders equity.

The Company files income tax returns in the U.S. Federal jurisdiction,
California and New York states.  With few exceptions, the Company is no longer
subject to U.S. Federal tax examination for the years before 2005.  State
jurisdictions that remain subject to examination range from 2004 to 2007.  The
Company does not believe there will be any material changes in its
unrecognized tax positions over the next 12 months.

The Company policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense.  As of the
date of adoption of FIN 48, the Company did not have any accrued interest or
penalties associated with any unrecognized tax benefits, nor was any interest
expense recognized during the year ended December 31, 2008.


CONCENTRATION OF CREDIT RISK

The Company sells its crude oil to ConocoPhillips and Kern Oil & Refining,
accounting for approximately 65.3%, and 32.3%, respectively, of  Pyramid's
crude oil and gas sales in 2008.  Crude oil sales were approximately 62.7% and
34.9% attributable to ConocoPhillips and Kern Oil and Refining respectively at
December 31, 2007.  While revenue from these customers is significant, and the
loss of any one could have a short-term adverse effect on the Company, it is
management's opinion that the oil and gas it produces could be sold to other
crude oil purchasers, refineries or pipeline companies. Trade receivables were
approximately 60% and 37.6% attributable to ConocoPhillips and Kern Oil and
Refining respectively at December 31, 2008. Trade receivables were
approximately 68.3% and 30.4% attributable to ConocoPhillips and Kern Oil and
Refining respectively at December 31, 2007.

<PAGE> 44

                                  PYRAMID OIL COMPANY
                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   DECEMBER 31, 2008

IMPACT OF RECENT ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued Statement of Financial Accounting Standards
No. 141R, Business Combinations (SFAS 141R).  SFAS 141R requires most
identifiable assets, liabilities, non-controlling interests, and goodwill
acquired in a business combination to be recorded at full fair value.  SFAS
141R applies to all business combinations, including combinations among mutual
entities and combinations by contract alone.  Under Statement 141R, all
business combinations will be accounted for by applying the acquisition
method.  Statement 141R is effective for business combinations for which the
acquisition date is on or after the beginning of the first annual reporting
period beginning on or after December 15, 2008.  Management anticipates that
the adoption of this standard will have no impact on the Company's financial
position, results of operations or cash flows.

In December 2007, the FASB issued Statement of Financial Accounting Standards
No. 160, Non-controlling Interests in Consolidated Financial Statements (SFAS
160).  SFAS 160 requires the ownership interests in subsidiaries held by
parties other than the parent to be treated as a separate component of equity
and be clearly identified, labeled, and presented in the consolidated
financial statements.  SFAS 160 is effective for periods beginning on or after
December 15, 2008.  Earlier adoption is prohibited.  Management anticipates
that the adoption of this standard will have no impact on the Company's
financial position, results of operations or cash flows.

In March, 2008, the FASB issued Statement of Financial Accounting Standards
No. 161, Disclosures about Derivative Instruments and Hedging Activities (SFAS
161).  SFAS 161 amends and expands the disclosure requirements of SFAS 133 by
providing additional disclosure on the use of derivative instruments including
qualitative disclosures about fair value amounts of gains and losses on
derivative instruments, and disclosures about credit-risk-related contingent
features in derivative agreements.  SFAS 161 is effective for periods
beginning on or after November 15, 2008.  Management anticipates that the
adoption of this standard will have no impact on the Company's financial
position, results of operations or cash flows.

In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted
Accounting Principles (SFAS 162).  SFAS 162 identifies the sources of
accounting principles and the framework for selecting the principles used in
the preparation of financial statements of non-governmental entities that are
presented in conformity with generally accepted accounting principles (the
GAAP hierarchy).  SFAS 162 will become effective 60 days following the SEC's
approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, The Meaning of Present Fairly in Conformity With Generally
Accepted Accounting Principles.  Management anticipates that the adoption of
this standard will have no impact on the Company's financial position, results
of operations or cash flows.


<PAGE> 45

                                  PYRAMID OIL COMPANY
                        NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                   DECEMBER 31, 2008


RECLASSIFICATIONS

Certain reclassifications have been made to the prior financial statements to
conform to the 2008 presentation.


REVENUE RECOGNITION

The Company recognizes sales when: (1) persuasive evidence of an arrangement
exists; (2) product delivery has occurred; (3) pricing is fixed or
determinable; and (4) collection is reasonably assured.  To satisfy these
criteria, the Company: (1) has crude oil sales contracts with its crude oil
purchasers; (2) records revenue based upon receipt of evidence of shipment of
crude oil and when risk of loss and title transfer has occurred; (3) the
Company's crude oil contracts specify the pricing terms which are fixed and
determinable; (4) validates creditworthiness through past payment history and
other financial date.  Sales rebates, discounts and customer returns are not
applicable to the oil and gas industry.


TRADE ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS

Our accounts receivable are unsecured and are at risk to the extent such
amounts become uncollectible.  The Company has had the same two major
customers for approximately 20 years with no history of non-payment or
default.  Pursuant to the terms of the crude oil sales contracts, the Company
receives payment around the 20th of the month following crude oil shipments.
The Company has established a nominal allowance for doubtful accounts due to
the Company's evaluation of its customers past payment history,
creditworthiness and other financial data.


PROPERTY AND EQUIPMENT

Property and equipment are carried at cost less accumulated depreciation and
amortization.  Depreciation is recorded on the straight-line basis over the
estimated useful lives of the assets, which range from 3 to 19 years.
Maintenance and repairs are charged to operations as incurred, while
significant improvements are capitalized.  Upon retirement or disposition of
property, the asset and related accumulated depreciation or amortization is
removed from the accounts and any resulting gain or loss is charged to
operations.  The carrying value of property and equipment is assessed
periodically and/or when factors indicating impairment are present.  We
recognize impairment losses when the expected cash flows are less than the
asset's carrying value, in which case the asset is written down to its
estimated fair value.


<PAGE> 46
                                 PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

2.  LONG-TERM DEBT AND LINE OF CREDIT

Long-term debt at December 31, 2008 and 2007, is summarized as follows:

<Table>                                                  December 31,
<Caption>                                           ----------------------
                                                       2008         2007
                                                    ---------    ---------
<S>                                                 <C>          <C>
  Note payable to GMAC, secured by equipment
    purchased with the proceeds of the loan,
    payable in monthly installments of $1,193
    principal and interest, interest at 3.9%
    final payment in 2010.                           $ 25,279    $  38,326

 Note payable to GMAC, secured by equipment
    purchased with the proceeds of the loan,
    payable in monthly installments of $909
    principal and interest, interest at 3.9%
    final payment in 2010.                             19,262       29,204

  Note payable to GMAC, secured by equipment
    purchased with the proceeds of the loan,
    payable in monthly installments of $431
    principal only, zero interest charges,
    final payment in 2008.                                 --        3,880
                                                      -------      -------
                                                       44,541       71,410
  Less - current maturities                          ( 23,901)    ( 26,868)
                                                      -------      -------
                                                     $ 20,640     $ 44,542
                                                      =======      =======
</Table>

At December 31, 2008 approximately $101,000 of gross property and equipment
was pledged as collateral to secure $44,541 principal amount of long-term
debt.

Maturities of long-term debt are as follows:
<Table>
<Caption>
            <S>                                      <C>
            Year ending December 31, 2009            $ 23,901
                                     2010              20,640
                                                      -------
                                                     $ 44,541
                                                      =======
</Table>

<PAGE> 47
                                 PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

At December 31, 2008, the Company had an unsecured line of credit with a bank,
under which the Company may borrow up to $500,000 through May 31, 2009.
Interest on any borrowing is accrued at the bank's index rate plus 0.50
percentage points.  The bank's index rate was 4.25% at December 31, 2008.


3.   INCOME TAXES

   Income tax provision (benefit) consists of the following:
<Table>
<Caption>
                                            Year Ended December 31,
                                      -----------------------------------
                                       2008           2007          2006
                                      -------        -------       ------
<S>                                  <C>            <C>           <C>
   Federal income taxes:
     Current                        $ 276,170       $308,715     $  76,908
     Utilization of NOL's                  --             --      ( 16,908)
     Deferred                        (527,245)            --            --
                                      -------        -------       -------
                                     (251,075)        308,715        60,000
                                      -------        -------       -------
   State income taxes:
     Current                           36,540         66,435        15,825
     Deferred                        ( 90,000)            --            --
                                      -------        -------       -------
                                     ( 53,460)        66,435        15,825
                                      -------        -------       -------
   Income tax provision             $(304,535)      $375,150      $ 75,825
                                      =======        =======       =======
</Table>

















<PAGE> 48                        PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

Differences exist between certain accounting policies and related provisions
included in federal income tax rules.  The amounts by which these differences
and other factors cause the total income tax provision to differ from an
amount computed by applying the federal statutory income tax rate to financial
income is set forth in the following reconciliation:

<Table>                                          Year Ended December 31,
<Caption>                                 -----------------------------------
                                            2008         2007          2006
                                          --------     --------      --------
<S>                                     <C>          <C>           <C>
   Federal income tax expense
     (benefit) at statutory rate         $ 408,745    $ 635,872     $ 313,448
   Net operating loss carryover                 --           --      ( 16,908)
   Statutory depletion                    (551,762)    (156,526)     (143,401)
   Termination pay                              --     ( 44,333)     ( 44,438)
   Intangible Drilling Costs                    --     (161,737)     ( 73,161)
   Prior period tax changes               (136,960)          --            --
   State income taxes                        5,439       66,435        15,825
   Other                                  ( 29,997)      35,439        24,460
                                          --------     --------      --------
   Income tax provision                  $(304,535)   $ 375,150     $  75,825
                                          ========     ========      ========
</Table>

The components of net deferred tax asset (liability) are as follows:
<Table>
<Caption>
                                             December 31,
                               ---------------------------------------
                                   2008          2007          2006
                               -----------   -----------   -----------
<S>                           <C>             <C>           <C>
Current deferred taxes:
  Gross assets                $    107,000   $    69,842   $   104,173
  Gross liabilities                     --            --            --
                                ----------    ----------    ----------
                                   107,000        69,842       104,173
                                ----------    ----------    ----------
Noncurrent deferred taxes:
  Gross assets                   2,272,245     2,287,049     2,118,208
  Gross liabilities                     --    (  599,537)   (  193,269)
  Valuation allowance           (1,762,000)   (1,757,354)   (2,029,112)
                                ----------     ---------     ---------
                                   510,245    (   69,842)   (  104,173)
                                ----------     ---------     ---------
                               $   617,245   $        --   $        --
                                ==========     =========     =========
</Table>

<PAGE> 49
                                 PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

The tax effect of significant temporary differences representing deferred tax
assets and (liabilities) are as follows:

<Table>
<Caption>
                                                  December 31,
                                    ---------------------------------------
                                        2008          2007          2006
                                    -----------   -----------   -----------
<S>                                <C>            <C>           <C>
    Accounts receivable             $     1,600    $    1,712   $     1,712
    Asset retirement obligations        449,000       432,666       420,462
    Statutory depletion
      carryover                       1,762,000     1,825,707     1,697,746
    Accrued liabilities                 107,000        96,806       102,461
                                     ----------     ---------     ---------
    Total deferred tax assets         2,319,600     2,356,891     2,222,381
    Property and equipment               59,645    (  599,537)   (  193,269)
    Valuation allowance              (1,762,000)   (1,757,354)   (2,029,112)
                                     ----------     ---------     ---------
                                    $   617,245   $        --   $        --
                                     ==========     =========     =========
</Table>

At December 31, 2008, a valuation allowance has been provided against the
statutory depletion carryover due to the uncertainty of its future
utilization.

The Company believes that its estimate of deferred tax assets and
determination to record a valuation allowance against the statutory depletion
carryover are critical accounting estimates because they are subject to, among
other things, an estimate of future taxable income, which is susceptible to
change and dependent upon events that may or may not occur, and because the
impact of recording a valuation allowance may be material to the assets
reported on the balance sheet and results of operations.

At December 31, 2008, the Company has no Federal income tax or California
franchise tax net operating loss carryforwards.  At December 31, 2008, the
Company has, for Federal income tax purposes, a statutory depletion carryover
of approximately $4,533,000, which currently has no expiration date.

At December 31, 2006, the Company had income taxes receivable of approximately
$193,000 for overpayment of estimated taxes during 2006.  Approximately
$137,000 of the overpayment of estimated taxes is related to the Company's
decision to write-off the costs, capitalized earlier in the year, for the
drilling of an exploratory well.  The decision to write-off the costs for
drilling the well was made in the fourth quarter of 2006.


<PAGE> 50
                                 PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

The Company adopted the provisions of FASB Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, on January 1, 2007.  As a result of the
implementation of FIN 48, the company made a comprehensive review of its
portfolio of tax positions in accordance with recognition standards
established by FIN 48.  As a result of the implementation of Interpretation
48, the Company recognized no material adjustments to liabilities or
stockholders equity.

The Company files income tax returns in the U.S. Federal jurisdiction,
California and New York states.  With few exceptions, the Company is no longer
subject to U.S. Federal tax examination for the years before 2005.  State
jurisdictions that remain subject to examination range from 2004 to 2007.  The
Company does not believe there will be any material changes in its
unrecognized tax positions over the next 12 months.

The Company policy is to recognize interest and penalties accrued on any
unrecognized tax benefits as a component of income tax expense.  As of the
date of adoption of FIN 48, the Company did not have any accrued interest or
penalties associated with any unrecognized tax benefits, nor was any interest
expense recognized during the year ended December 31, 2008.


4. RELATED-PARTY TRANSACTION

Effective January 1, 1990, John H. Alexander, an officer and director of the
Company participated with a group of investors that acquired the mineral and
fee interest on one of the Company's oil and gas leases (Santa Fe Energy
lease) in the Carneros Creek field after the Company declined to participate.
The thirty-three percent interest owned by Mr. Alexander represents a minority
interest in the investor group.  Royalties on oil and gas production from this
property paid to the investor group approximated $462,800, $324,700 and
$307,600 in 2008, 2007 and 2006, respectively.

During August 2005, after approval by the Company's Board of Directors, the
Company leased additional acreage from the investor group.  The new lease,
Santa Fe Energy Section 32, is adjacent to the Company's existing Santa Fe
Energy lease.  The Company paid the investor group $22,000 for an oil and gas
lease on 440 acres for a term of 3 years.  The Company drilled a discovery
well with a joint venture partner on this property in the first quarter of
2006. A decision was made in the fourth quarter of 2006 to abandon this well.

In December of 2007, Mr. Alexander purchased a used pickup truck from the
Company for $20,150.  The sale of the vehicle resulted in a gain to the
Company of approximately $1,500.

As a director, Mr. Alexander has abstained from voting on any of the above
matters that have been brought before the Board of Directors, involving the
Santa Fe lease.  See Note 14 for discussion of severance awards entered into
with Mr. Alexander.

<PAGE> 51
                                 PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

5. FOURTH QUARTER RESULTS (UNAUDITED)

During the fourth quarter of 2008, the Company made adjustments to the
carrying value of one of its oil and gas properties.  The Company recorded a
valuation allowance in the amount of $1,162,379 to reflect the change in the
projected future undiscounted net cash flows for this property, as the
result of the analysis of the Company's oil and gas reserves by independent
consultants.

During the fourth quarter of 2008, the Company recorded additional depletion
of approximately $60,000 on its oil and gas properties as a result of the
analysis of the Company's oil and gas reserves by independent consultants.

There were no significant adjustments made during the fourth quarter of 2007.

During the fourth quarter of 2006, the Company reclassified its investment in
the costs of drilling and completing a well that was drilled in 2006.
The costs of drilling this well were capitalized during 2006.  A decision was
made in the fourth quarter of 2006 by the Company and its joint-venture
partner to abandon the well.  The Company's share of the costs for this well
in the amount of $348,132 were charged to exploration costs in the fourth
quarter of 2006.  The write-off created a tax benefit of approximately
$141,000 for a net reduction in income of approximately $207,000.

During the fourth quarter of 2006, the Company recorded additional depletion
of approximately $31,000 on its oil and gas properties as a result of the
analysis of the Company's oil and gas reserves by independent consultants.

During the fourth quarter of 2006, the Company made adjustments to the
carrying value of one of its oil and gas properties.  The Company recorded a
valuation allowance in the amount of $9,302 to reflect the change in the
projected future undiscounted net cash flows for this property, as the
result of the analysis of the Company's oil and gas reserves by independent
consultants.


6. COMMITMENTS AND CONTINGENCIES

The Company is liable for future dismantlement and abandonment costs
associated with its oil and gas properties.  These costs include down-hole
plugging and abandonment of wells, future site restoration, post closure and
other environmental exit costs.  The costs of future dismantlement and
abandonment have been accrued and recorded in the financial statements.  See
Note 9, Assets Retirement Obligations.






<PAGE> 52
                                 PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

The Company is subject to potential litigation within the normal course of
business.  In management's opinion, the resolution of such litigation would
not have a material adverse effect upon the financial position of the Company,
although the resolution in any reporting period of such litigation could have
a material impact on Pyramid's results of operations for that period.

In February 2002, the Company entered into an employment agreement with
John H. Alexander pursuant to which Mr. Alexander agreed to serve as the
Company's Vice President. On June 3, 2004, Mr. Alexander was appointed as the
Company's President and Chief Executive Officer.  The employment agreement is
for an initial term of six years, which term automatically renews annually if
written notice is not tendered.

Pursuant to the employment agreement, the Company may terminate Mr.
Alexander's employment with or without cause at any time before its term
expires upon providing written notice.  In the event the Company terminates
Mr. Alexander's employment without cause, Mr. Alexander would be entitled to
receive a severance amount equal to his annual base salary and benefits for
the balance of the term of his employment agreement.  In the event of
termination by reason of Mr. Alexander's death or permanent disability, his
legal representative will be entitled to receive his annual salary and
benefits for the remaining term of his employment agreement.  In the event of,
or termination following, a change in control of the Company, as defined in
the agreement, Mr. Alexander would be entitled to receive his annual salary
and benefits for the remainder of the term of his agreement.  In the event
that Mr. Alexander is terminated the Company would incur approximately
$600,000 in costs.


7.  GAIN ON SALE OF FIXED ASSETS

During 2007, the Company sold real property (160 acres of grazing land) for a
gain of approximately $441,000.  All of the assets sold inn 2007 had
insignificant net book values.


8.  DEFINED CONTRIBUTION PLAN

The Company has a defined contribution plan (Simple IRA) available to all
employees meeting certain service requirements.  Employees may contribute up
to a maximum of $6,000 of their compensation to the plan.  The Company will
make a contribution to the plan in an amount equal to the employees
contributions up to 3% of their salaries.  Contributions of $12,834, $13,119
and $11,748 were made during the years ended December 31, 2008, 2007 and 2006,
respectively.




<PAGE> 53
                                 PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

9.  ASSETS RETIREMENT OBLIGATIONS

The Company recognizes a liability at discounted fair value for the future
retirement of tangible long-lived assets and associated assets retirement cost
associated with the petroleum and natural gas properties. The fair value of
the liability is capitalized as part of the cost of the related asset and
amortized to expense over its useful life. The liability accretes until the
date of expected settlement of the retirement obligations. The related
accretion expense is recognized in the statement of operations. The provision
will be revised for the effect of any changes to timing related to cash flow
or undiscounted abandonment costs. Actual expenditures incurred for the
purpose of site reclamation are charged to the asset retirement obligations to
the extent that the liability exists on the balance sheet. Differences between
the actual costs incurred and the fair value of the liability recorded are
recognized in income in the period the actual costs are incurred.

There are no legally restricted assets for the settlement of asset retirement
obligations.  The Company has recognized deferred tax benefits of
approximately $449,000 for the asset retirement obligations as of December 31,
2008.  A reconciliation of the Company's asset retirement obligations from the
periods presented are as follows:

<Table>
<Caption>
                                               December 31,
                                    ---------------------------------
                                      2008         2007        2006
                                    ---------   ---------   ---------
<S>                                 <C>         <C>         <C>
Beginning balance                 $1,010,903   $  982,389   $955,169
  Incurred during the period              --           --   (  2,722)
  Additions for new wells              9,394        6,379      9,926
  Accretion expense                  131,409       22,135     20,016
                                   ---------    ---------    -------
Ending Balance                    $1,151,706   $1,010,903   $982,389
                                   =========    =========    =======
</Table>



10.  TERMINATION OF EMPLOYMENT AGREEMENT

The Company entered into a Termination of Employment Agreement (the Agreement)
with Benny Hathaway, Jr., Vice President of the Company.  The Agreement was
effective September 30, 2005, and replaced the Employment Agreement that had
been in effect since February 21, 2002.  Mr. Benny Hathaway submitted his
voluntary resignation which was effective November 11, 2005.  The Agreement
provides for a termination payment of $400,000, which may be paid in three

<PAGE> 54
                                 PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

equal annual installments of $133,334, beginning in December 2005.  Under the
terms of the Agreement, the Company will continue to provide health insurance
until the agreed upon termination payments have been paid, approximately two
years.  The Company recorded a one-time charge of $424,000 for the estimated
costs for termination pay and insurance benefits.  The Company made a final
payment on this agreement in December of 2007.


11.  STOCK SPLITS

On March 28, 2006, the Company's Board of Directors approved a 3 for 2 stock
split payable on May 1, 2006, to shareholders of record as of April 17, 2006.

                                                         Common Stock
                                                           ---------
     Shares outstanding at December 31, 2005               2,494,430
     Shares issued 3 for 2 stock split May 1, 2006         1,247,291
                                                           ---------
     Shares outstanding at December 31, 2007               3,741,721
                                                           =========

On June 5, 2008, the Company's Board of Directors approved a 5 for 4 stock
split payable on July 3, 2008, to shareholders of record as of June 24, 2008.
The effective date of the split is July 7, 2008.

                                                         Common Stock
                                                           ---------
     Shares outstanding at June 30, 2008                   3,741,721
     Shares issued 5 for 4 stock split July 3, 2008          936,007
                                                           ---------
     Shares outstanding at July 7, 2008                    4,677,728
                                                           =========

All share and per share data for the periods presented have been retroactively
restated to reflect this stock split.


12.  WARRANTS ISSUED

Effective, November 13, 2008, the Company's Board of Directors approved the
issuance of warrants to Pfeiffer High Investor Relations, Inc. (PHIR), see
footnote 17.  The Company approved the issuance of 25,000 shares of common
stock at an exercise price of $3.20 per share.  The warrants will have a
two-year term, will be assignable and will have piggyback registration rights
and cashless exercise provisions.  The Company valued the warrants using the
Black-Scholes model using inputs of a 2 year expected life, 135% volatility
and a 1.19% risk free interest rate.  The Company recorded stock based
compensation of $69,000 for the period ended December 31, 2008.


<PAGE> 55
                                 PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

The Company has adopted SFAS 123(R) which requires the measurement and
recognition of compensation expense for all share-based payment awards made to
employees, directors and consultants based on estimated fair values.  SFAS
123(R) requires companies to estimate the fair value of the award that is
ultimately expected to vest to be recognized as expense.  SFAS 123(R) requires
companies to estimate the fair value of share-based payment awards on the date
of the grant using an option-pricing model.  The value of the award that is
ultimately expected to vest is recognized as expense over the requisite
service periods.

The Company's determination of fair value of share-based payment awards on the
date of grant uses the Black-Scholes model, which is affected by the Company's
stock price as well as assumptions regarding a number of complex and
subjective variables.  These variables include, but are not limited to, the
expected stock price volatility over the expected term of the awards, and
actual and projected option exercise behaviors.  The Company estimated
expected volatility using historical data.  The fair value of each warrant was
estimated on the date of grant using the Black-Scholes option-pricing model
with the following assumptions:

               Risk-free interest rate                1.19%
               Expected term (years)                   2.0
               Volatility                              135%
               Expected annual dividends                -
               Stock price at November 13, 2008      $3.96


13.  CHANGE IN AUTHORIZED SHARES

At the Annual Meeting of Shareholders held on June 1, 2006, the Shareholders
approved an amendment to the Company's Articles of Incorporation to increase
the number of authorized shares of Common Stock from 10,000,000 to 50,000,000
and to authorize the issuance of up to 10,000,000 shares of a newly created
class of Preferred Stock.


14.  2006 EQUITY INCENTIVE PLAN

At the Annual Meeting of Shareholders held on June 1, 2006, the Shareholders
approved the Pyramid Oil Company 2006 Equity Incentive Plan (the Plan).  The
Plan authorizes the granting of the following types of awards to persons who
are employees, officers or directors of the Company or its subsidiaries or
who are consultants or advisers to such entities:

          INCENTIVE STOCK OPTIONS that are intended to satisfy the
          requirements of Section 422 of the Internal Revenue Code of 1986, as
          amended, and the regulations thereunder;



<PAGE> 56
                                 PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

          NON-QUALIFIED STOCK OPTIONS that are not intended to be incentive
          options;

          Shares of Common Stock that are subject to specified restrictions;
          and

          Stock appreciation rights that permit the holder to receive the
          excess of the fair market value of the Common Stock on the exercise
          date over its fair market value (or a greater specified base value)
          on the grant date, either in tandem with options or as separate and
          independent grants.

A summary of the plan is contained in the Company's Schedule 14a, Proxy
Statement dated May 10, 2006 which is incorporated herein by reference.  A
copy of the Plan is attached as Appendix A to the Proxy Statement.  As of the
date of the filing of this Form 10-KSB, no shares have been awarded under this
Plan.


15.  SEVERANCE AWARD AGREEMENTS

On January 9, 2007, the Company and John Alexander entered into a Severance
Award Agreement pursuant to which the Company awarded Mr. Alexander a
supplemental payment in connection with his future severance of employment
with the Company and recorded a liability for share-based compensation of
$65,400.  Mr. Alexander serves as the Company's Chief Executive Officer.
Pursuant to the Severance Award Agreement and following the termination of Mr.
Alexander's employment, he will be entitled to receive (at the Company's
option) 25,000 shares of the Company's common stock or the then-fair market
value of the shares.  As of December 30, 2008, the Company intends to deliver
the Company's common shares for the Severance Award; therefore, in accordance
with SFAS 123(R), management has reclassified the liability for share-based
compensation to stockholders' equity.

On December 30, 2008, the Company and John Alexander entered into a Severance
Award Agreement pursuant to which the Company awarded Mr. Alexander a
supplemental payment in connection with his future severance of employment
with the Company and recorded an increase to stockholders' equity of $100,000.
Pursuant to the Severance Award Agreement and following the termination of Mr.
Alexander's employment, he will be entitled to receive (at the Company's
option) 25,000 shares of the Company's common stock or the then-fair market
value of the shares.  As of December 31, 2008, the Company intends to deliver
the Company's common shares for the Severance Award; therefore, in accordance
with SFAS 123(R), management has classified the share-based compensation as
stockholders' equity.





<PAGE> 57
                                 PYRAMID OIL COMPANY
                      NOTES TO FINANCIAL STATEMENTS (CONTINUED)
                                  DECEMBER 31, 2008

16.  INCENTIVE AND RETENTION PLAN

On January 9, 2007, the Company's Board of Directors adopted an Incentive and
Retention Plan pursuant to which the Company's officers and other employees
selected by the Company's Compensation Committee are entitled to receive
payments if they are employed by the Company as of the date of a 'Corporate
Transaction,' as defined in the Incentive and Retention Plan.  A 'Corporate
Transaction' includes certain mergers involving the Company, sales of Company
assets, and other changes in the control of the Company, as specified in the
Incentive and Retention Plan.  In general, the amount that is payable to each
plan participant will equal the number of plan units that have been granted to
him or her, multiplied by the increase in the value of the Company between
January 9, 2007 and the date of a Corporate Transaction. There has been no
Corporate Transaction since the adoption of the Incentive and Retention Plan.


17.  INVESTOR RELATIONS CONSULTANTS

On March 12, 2008, the Company entered into an agreement with Pfeiffer High
Investor Relations, Inc. (PHIR) pursuant to which PHIR will serve as an
investor relations consultant to the Company.  PHIR will receive a monthly fee
of $5,000 and will be reimbursed for approved out-of-pocket expenses.  The
agreement also provides for the payment of a 1.5% finder's fee to PHIR upon
the closing of a specified transaction, such as a merger, a sale of assets or
a sale of equity securities, if PHIR is responsible for initiating the
transaction.

The Company and PHIR mutually decided to extend the agreement after its
initial six-month term, the Company granted to PHIR's two principals, fully
vested warrants to purchase a total of 25,000 shares of the Company's common
stock at an exercise price of $3.20 per share.  The warrants will have a
two-year term, will be assignable and will have piggyback registration rights
and cashless exercise provisions.  See Note 12.

The Company and PHIR verbally agreed to extend the arrangement on a
month-to-month basis. Effective April 1, 2009, the Company and PHIR verbally
agreed to reduce the monthly fee from $5,000 to $2,500.
<PAGE>
<PAGE> 58
                                 PYRAMID OIL COMPANY
                          SUPPLEMENTAL INFORMATION (UNAUDITED)
                            OIL AND GAS PRODUCING ACTIVITIES
                                  DECEMBER 31, 2008


Statement of Financial Accounting Standards No. 19 (SFAS No. 19), "Financial
Accounting and Reporting by Oil and Gas Producing Companies", as amended,
requires disclosure of certain financial data for oil and gas operations and
reserve estimates of oil and gas.  This information, presented here, is
intended to enable the reader to better evaluate the operations of the
Company.  All of the Company's oil and gas reserves are located in the United
States.

The aggregate amounts of capitalized costs relating to oil and gas producing
activities and the related accumulated depletion, depreciation, and
amortization and valuation allowances as of December 31, 2008, 2007 and 2006
were as follows:

<Table>
<Caption>
                                         2008         2007         2006
                                      ----------   ----------   ----------
<S>                                  <C>          <C>          <C>
Proved properties                    $15,576,800  $14,556,300  $12,534,500
Unproved properties
  being amortized                        178,600      178,600      178,600
Unproved properties
  not being amortized                         --           --           --
Capitalized asset retirement costs       382,600      310,600      304,200
Accumulated depletion,
  depreciation, amortization
  and valuation allowances           (13,209,000) (11,228,400) (10,879,500)
                                      ----------   ----------   ----------
                                     $ 2,929,000  $ 3,817,100  $ 2,137,800
                                      ==========   ==========   ==========
</Table>
<PAGE>
<PAGE> 59
                                 PYRAMID OIL COMPANY
                        SUPPLEMENTAL INFORMATION (UNAUDITED)
                                  DECEMBER 31, 2008


The estimated quantities and the change in proved reserves, both developed and
undeveloped, for the Company are as follows:

<Table>
<Caption>
                                  2008            2007           2006
                              ------------   -------------  -------------
                               Oil     Gas      Oil    Gas     Oil    Gas
                             (MBbls) (MMCF)  (MBbls) (MMCF) (MBbls) (MMCF)
                              -----   ----    -----   ----   -----   ----
<S>                          <C>     <C>     <C>     <C>    <C>     <C>
Proved developed and
 undeveloped reserves:
  Beginning of year            806     331     741      65     715     94
  Revisions of previous
    estimates                 (270)   (228)    132       4      82    (22)
  Extensions, discoveries
    and other additions         --      57      --     267      10     --
  Production                   (65)    ( 5)    (67)    ( 5)    (66)   ( 7)
                              ----    ----    ----    ----    ----   ----
  End of year                  471     155     806     331     741     65
                              ====    ====    ====    ====    ====   ====
Proved developed reserves:
  Beginning of year            660      64     556      65     539     94
                              ====    ====    ====    ====    ====   ====
  End of year                  447      59     660      64     556     65
                              ====    ====    ====    ====    ====   ====
</Table>

The foregoing estimates have been prepared by the Company from data prepared
by an independent petroleum engineer in respect to certain producing
properties.  Revisions in previous estimates as set forth above resulted from
analysis of new information, as well as from additional production experience
or from a change in economic factors.

The reserve estimates are believed to be reasonable and consistent with
presently known physical data concerning size and character of the reservoirs
and are subject to change as additional knowledge concerning the reservoirs
becomes available.










<PAGE> 60
                                 PYRAMID OIL COMPANY
                        SUPPLEMENTAL INFORMATION (UNAUDITED)
                                 DECEMBER 31, 2008


The present value of estimated future net revenues of proved developed
reserves, discounted at 10%, were as follows:

<Table>
<Caption>
                                            December 31,
                               --------------------------------------
                                  2008          2007          2006
                               ----------    ----------    ----------
<S>                            <C>           <C>           <C>
Proved developed and
 undeveloped reserves
  (Present value before
   income taxes)              $ 4,106,000   $27,414,000   $12,358,000
                               ==========    ==========    ==========

</Table>

SFAS No. 69, "Disclosures About Oil and Gas Producing Activities", requires
certain disclosures of the costs and results of exploration and production
activities and established a standardized measure of oil and gas reserves and
the year-to-year changes therein.

In addition to the foregoing disclosures, SFAS No. 69 established a
"Standardized Measure of Discounted Future Net Cash Flows and Changes Therein
Relating to Proved Oil and Gas Reserves".

Costs incurred, both capitalized and expensed, of oil and gas property
acquisition, exploration and development for the years ended December 31,
2008, 2007 and 2006 were as follows:

<Table>
<Caption>
                                       2008         2007           2006
                                     --------      -------        -------
<S>                                <C>           <C>            <C>
Property acquisition costs         $  393,200    $       --      $  2,000
Exploration costs - expensed          (28,800)        7,000       339,500
Development costs                   1,030,500     1,173,000     1,386,000
Asset retirement costs                 72,000         6,400         9,600

</Table>







<PAGE> 61
                                 PYRAMID OIL COMPANY
                        SUPPLEMENTAL INFORMATION (UNAUDITED)
                                 DECEMBER 31, 2008


The results of operations for oil and gas producing activities for the years
ended December 31, 2008, 2007 and 2006 were as follows:

<Table>
<Caption>
                                     2008          2007         2006
                                  ----------    ----------    ----------
<S>                              <C>           <C>           <C>
Sales                            $ 6,611,000   $ 4,503,000   $ 3,958,000
Production costs                   2,066,000     1,716,000     1,613,000
Exploration costs                    (29,000)        7,000       348,000
Accretion expense                     69,000        22,000        20,000
Depletion, depreciation,
  amortization and
  valuation allowance              1,981,000       349,000       220,000
                                   ---------     ---------     ---------
                                   2,524,000     2,409,000     1,757,000
Income tax (benefit)provision       (305,000)      375,000        76,000
                                   ---------     ---------     ---------
Results of operations from
  production activities          $ 2,829,000   $ 2,034,000   $ 1,681,000
                                   =========     =========     =========

</Table>

The standardized measure of discounted estimated future net cash flows
relating to proved oil and gas reserves for the years ended December 31, 2008,
2007 and 2006 were as follows:

<Table>
<Caption>
                                     2008          2007          2006
                                  ----------    ----------    ----------
<S>                              <C>           <C>           <C>
Future cash inflows              $18,529,000   $75,649,000   $42,353,000
Future development and
  production costs                11,501,000    29,961,000    20,630,000
Future abandonment costs           1,152,000     1,011,000       982,000
Future income tax expense            473,000    12,856,000     4,994,000
                                  ----------    ----------    ----------
Future net cash flow               5,403,000    31,821,000    15,747,000
10% annual discount                1,612,000    12,283,000     6,325,000
Standardized measure              ----------    ----------    ----------
  of discounted future
  net cash flow                  $ 3,791,000   $19,538,000   $ 9,422,000
                                  ==========    ==========    ==========
</Table>


<PAGE> 62
                                 PYRAMID OIL COMPANY
                         SUPPLEMENTAL INFORMATION (UNAUDITED)
                                  DECEMBER 31, 2008


The principal changes in the standardized measure of discounted future net
cash flows during the years ended December 31, 2008, 2007 and 2006 were as
follows:

<Table>
<Caption>
                                         2008          2007          2006
                                      ----------    ----------    ----------
<S>                                 <C>           <C>           <C>
Extensions                           $        --   $ 3,741,000   $   233,000
Revisions of previous estimates
 Price changes                       (19,066,000)   11,969,000    (1,161,000)
 Quantity estimate                    (4,023,000)    2,581,000     1,226,000
Change in production rates,
  timing and Other                      (594,000)   (3,138,000)      160,000
Development costs incurred             1,236,000     1,853,000     1,386,000
Changes in estimated future
  development costs                      919,000      (455,000)     (286,000)
Estimated future
  abandonment costs                     ( 27,000)     ( 14,000)     ( 37,000)
Sales of oil and gas, net of
  production costs                    (4,574,000)   (2,780,000)   (1,996,000)
Accretion of discount                  2,821,000     1,298,000     1,344,000
                                      ----------    ----------    ----------
                                     (23,308,000)   15,055,000       859,000
Net change in income taxes            (7,561,000)    4,939,000       597,000
                                      ----------    ----------    ----------
Net (decrease) increase             $(15,747,000)  $10,116,000   $   262,000
                                      ==========    ==========    ==========
</Table>


Estimated future cash inflows are computed by applying year-end prices of oil
and gas to year-end quantities of proved reserves.  Estimated future
development and production costs are determined by estimating the expenditures
to be incurred in developing and producing the proved oil and gas reserves, as
well as certain abandonment costs, based on year-end cost estimates and
assuming continuation of existing economic conditions.  Estimated future
income tax expense is calculated by applying the year-end effective tax rate
to estimated future pretax net cash flows related to proved oil and gas
reserves, less the tax basis of the properties involved.

These estimates are furnished and calculated in accordance with requirements
of the Financial Accounting Standards Board and the Securities and Exchange
Commission.  Because of the unpredictable variances in expenses and capital
forecasts, crude oil and natural gas price changes being largely influenced
and controlled by United States and foreign governmental actions, and the fact
that the basis for such estimates vary significantly, management believes the

<PAGE> 63
                                 PYRAMID OIL COMPANY
                        SUPPLEMENTAL INFORMATION (UNAUDITED)
                                  DECEMBER 31, 2008

usefulness of these projections is limited.  Estimates of future net cash
flows do not represent management's assessment of future profitability or
future actual cash flows of the Company.  It should be recognized that
applying current costs and prices and a ten percent standard discount rate
allows for comparability but does not convey absolute value.  The discounted
amounts arrived at are only one measure of financial quantification of proved
reserves.

The standardized measure of discounted future cash flows before income taxes
decreased by $23,308,000 at December 31, 2008.  The decrease in income taxes
offset discounted future cash flows by $7,561,000 for a net decrease in
future cash flows of $15,747,000 after income taxes as of December 31, 2008.
The major factor contributing to the decrease in cash flows is lower
crude oil prices.  Average crude oil prices at December 31, 2008, decreased by
approximately $53.00 per barrel.  This price decrease contributed to a
decrease in discounted cash flows due to price changes of $19,066,000 and a
decrease in quantity estimated revisions of $4,023,000.  The decrease in
estimated discounted future income taxes is due to the decrease in the value
of the Company's oil and gas reserves due to the lower crude oil prices.

The standardized measure of discounted future cash flows before income taxes
increased by $15,055,000 at December 31, 2007.  The change in income taxes
decreased discounted future cash flows by $4,939,000 for a net increase in
future cash flows of $10,116,000 after income taxes as of December 31, 2007.
Average crude oil prices at December 31, 2007, increased by approximately
$34.60 per barrel when compared with prices at December 31, 2006.  This price
increase generated an increase in discounted cash flows due to price changes
of $11,969,000.  The Company acquired an interest in a joint venture gas
prospect in Texas that caused an increase in discounted future cash flows of
$3,741,000.

The increase in the standardized measure of discounted future net cash flows
at December 31, 2006, of $262,000 is the result of several offsetting factors.
Discounted future net cash flows increased by $859,000 and was offset by lower
projected income taxes of $597,000.  Sales of oil and gas, net of production
costs, reduced future cash flows by approximately $1,996,000.  Development
costs incurred of $1,386,000 increased future cash flows due to the drilling
of three new wells in 2006.  This was offset by an increase in estimated
future development costs of $286,000.  Accretion of discount also contributed
to a change in future cash flows of $1,344,000.









<PAGE> 64
                                PYRAMID OIL COMPANY
                         SUPPLEMENTAL INFORMATION (UNAUDITED)
                                 QUARTERLY RESULTS

<Table>
<Caption>                              2008          2007
                                    ----------    ----------
<S>                                 <C>           <C>
    REVENUES:

      Quarter Ended:
          March 31                  $ 1,589,896   $   826,180
          June 30                     2,123,186     1,110,413
          September 30                1,999,619     1,608,913
          December 31 (a)               898,427     1,399,276
                                     ----------    ----------
                                    $ 6,611,128   $ 4,944,782
                                     ==========    ==========
    NET INCOME (LOSS):

      Quarter Ended:
          March 31                  $   834,271   $    57,929
          June 30                       907,994       357,349
          September 30                  704,285       652,412
          December 31 (b)              (932,850)      427,371
                                     ----------    ----------
                                    $ 1,513,700   $ 1,495,061
                                     ==========    ==========
    INCOME (LOSS) PER COMMON SHARE:

      Quarter Ended:
          March 31                  $       .18   $       .01
          June 30                           .19           .08
          September 30                      .15           .14
          December 31 (b)                  (.20)          .09
                                     ----------    ----------
                                    $       .32   $       .32
                                     ==========    ==========
</Table>

(a)  Decrease in revenues is due to decline in crude oil prices during the
fourth quarter of 2008.

(b)  Reflects a valuation allowance of $1,162,000 due to write-down of oil and
gas properties (see Note 5 of Notes to Financial Statements included in Item 7
of this Form 10-KSB).







<PAGE> 65

ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
           ON ACCOUNTING AND FINANCIAL DISCLOSURE

                         None

ITEM 9A(T) - CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures that are designed to
ensure that information required to be disclosed in the reports that the
Company files with the Securities and Exchange Commission (the SEC) under the
Securities Exchange Act of 1934 (the Exchange Act) is recorded, processed,
summarized and reported within the time periods specified in the SEC's rules
and forms and that such information is accumulated and communicated to the
Company's management, including the principal executive and financial
officers, as appropriate, to allow for timely decisions regarding required
disclosure.  As required by SEC Rule 13a-15(b), the Company carried out an
evaluation, under the supervision and with the participation of its
management, including it principal executive and financial officers, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of the end of the period covered by this Annual Report.
Based on the foregoing, the Company's principal executive and financial
officers concluded that the Company's disclosure controls and procedures are
effective to ensure that the information required to be disclosed in the
Company's reports filed or submitted under the Exchange Act is timely
recorded, processed and reported within the time periods specified in the
SEC's rules and forms.

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

This report is provided by the Company's management pursuant to Section 404 of
the Sarbanes-Oxley Act of 2002 and the SEC rules promulgated thereunder.
Management is responsible for establishing and maintaining adequate internal
control over financial reporting and for assessing the effectiveness of
internal control over financial reporting.

The Company's control over financial reporting is a process designed to
provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in
accordance with accounting principles generally accepted in the Untied States.
The Company's internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that,
in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the Company's assets; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial
statements in accordance with accounting principles generally accepted in the
United States, and that the Company's receipts and expenditures are being made
only in accordance with authorizations of the Company's management and
directors; and (iii) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisitions, use, or disposition of the
Company's assets that could have a material effect on the financial
statements.

<PAGE> 66

Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.  Also, projections of any evaluation
of effectiveness to future periods are subject to the risk that controls may
become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

Management has assessed the Company's internal control over financial
reporting as of December 31, 2008, based on criteria established in Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).  Based on the assessment of
the Company's internal control over financial reporting, management has
concluded that, as of December 31, 2008, the Company's internal control over
financial reporting was effective.

This annual report does not include an attestation report of the Company's
registered public accounting firm regarding internal control over financial
reporting.  Management's report was not subject to attestation by the
Company's registered public accounting firm pursuant to temporary rules of the
SEC that permit the Company to provide only management's report in this Annual
Report.

There has been no change in the Company's internal control over financial
reporting during the Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.


ITEM 9B - OTHER INFORMATION

The Company is aware of no information that was required to be disclosed in a
report on Form 8-K during the fourth quarter of 2008 but was not reported.


                                  PART III

ITEM 10 - DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

The Company hereby incorporates by reference the information to be contained
under the section entitled "Directors and Executive Officers" or a similarly
entitled section from its definitive Proxy Statement to be filed with the
Securities and Exchange Commission in connection with its 2009 Annual Meeting
of Shareholders.

The Company has adopted a code of ethics that is applicable to all of its
directors, officers and employees.  A copy of the code is available at no
charge to any person who sends a request for a copy to the Corporate
Secretary, Pyramid Oil Company, P.O. Box 832, Bakersfield, California 93302.





<PAGE> 67

ITEM 11 - EXECUTIVE COMPENSATION

The Company hereby incorporates by reference the information to be contained
under the section entitled "Compensation of Directors and Executive Officers"
or a similarly entitled section from its definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with its 2009
Annual Meeting of Shareholders.


ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
            AND RELATED STOCKHOLDER MATTERS

The Company hereby incorporates by reference the information to be contained
under the section entitled "Voting Securities and Principal Holders Thereof"
or a similarly entitled section from its definitive Proxy Statement to be
filed with the Securities and Exchange Commission in connection with its 2009
Annual Meeting of Shareholders.


ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
            INDEPENDENCE

Effective January 1, 1990, John H. Alexander, an officer and director of the
Company participated with a group of investors that acquired the mineral and
fee interest on one of the Company's oil and gas leases (Santa Fe Energy
lease) in the Carneros Creek field after the Company declined to participate.
The thirty-three percent interest owned by Mr. Alexander represents a minority
interest in the investor group.  Royalties on oil and gas production from this
property paid to the investor group approximated $324,700 in 2007, $307,600 in
2006 and $221,400 in 2005.

During August 2005, after approval by the Company's Board of Directors, the
Company leased additional acreage from the investor group.  The new lease,
Santa Fe Energy Section 32, is adjacent to the Company's existing Santa Fe
Energy lease.  The Company paid the investor group $22,000 for an oil and gas
lease on 440 acres for a term of 3 years.  The Company drilled a discovery
well with a joint venture partner on this property in the first quarter of
2006. A decision was made in the fourth quarter of 2006 to abandon this well.

In December of 2007, Mr. Alexander purchased a used pickup truck from the
Company for $20,150.  The sale of the vehicle resulted in a gain to the
Company of approximately $1,500.

As a director, Mr. Alexander has abstained from voting on any of the above
matters that have been brought before the Board of Directors, involving the
Santa Fe lease.







<PAGE> 68

ITEM 14.  PRINCIPAL ACCOUNTING FEES AND SERVICES

The Company hereby incorporates by reference the information contained under
the section entitled ''Principal Accounting Fees and Services'' or a similarly
entitled section from its definitive Proxy Statement to be filed with the
Securities and Exchange Commission in connection with its 2009 Annual Meeting
of Shareholders.


ITEM 15 - EXHIBITS AND FINANCIAL SCHEDULES

         3.1      Registrant's Articles of Incorporation (1)
         3.2      Registrant's By Laws (1)
         3.2.1    Registrant's Amendment to the By Laws (2)
        10.1      Employment Agreement of J. Ben Hathaway, dated August 1,
                    2001 (3)
        10.2      Employment Agreement of John H. Alexander, dated August 1,
                    2001 (3)
        10.3      Employment Agreement of John H. Alexander, dated February
                    21, 2002 (4)
        10.4      Employment Agreement of Benny Hathaway, Jr. dated February
                    21, 2002 (4)

        31.1  Certification of Chief Executive Officer Pursuant to 15 U.S.C.
              Section 7241, as Adopted Pursuant to Section 302 of the
              Sarbanes-Oxley Act of 2002.

        31.2  Certification of Chief Financial Officer pursuant to 15 U.S.C.
              Section 7241, as adopted pursuant to Section 302 of the
              Sarbanes-Oxley Act of 2002.

        32.1  Certification of Chief Executive Officer pursuant to 18 U.S.C.
              Section 1350, as adopted pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002.

        32.2  Certification of Chief Financial Officer pursuant to 18 U.S.C.
              Section 1350, as adopted pursuant to Section 906 of the
              Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference from Exhibits 18-1 and 18-2, respectively, to
         the Registrant's 1971 Form 10.

(2) Incorporated by reference from the Registrant's August 25, 1986 Proxy
         Statement.

(3) Incorporated by reference from Exhibits 10.1 and 10.2 to the Registrants
         June 30, 2001 Form 10-QSB.

(4) Incorporated by reference from Exhibits 10.3 and 10.4 to the
         Registrants December 31, 2001 Form 10-KSB.


<PAGE>
<PAGE> 69

                                  SIGNATURES


Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.

                                            PYRAMID OIL COMPANY


March 30, 2009                         By:   JOHN H. ALEXANDER
                                           ----------------------
                                             John H. Alexander
                                             Director/President
                                          Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.


     JOHN H. ALEXANDER        Director/President            March 30, 2009
---------------------------     Chief Executive Officer
     John H. Alexander


     MICHAEL D. HERMAN        Director                      March 30, 2009
---------------------------     Chairman of the Board
     Michael D. Herman


      THOMAS W. LADD          Director                      March 30, 2009
---------------------------
      Thomas W. Ladd


      GARY L. RONNING         Director                      March 27, 2008
---------------------------
      Gary L. Ronning


       JOHN E.  TURCO         Director                      March 27, 2008
---------------------------
       John E. Turco


   LEE G. CHRISTIANSON       Corporate Secretary/           March 27, 2008
---------------------------    Principal Accounting and
   Lee G. Christianson         Financial Officer