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

                                   FORM 10-KSB

  (Mark One)

      |X| ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934

                   For the fiscal year ended December 31, 2005

      | | TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934

                          Commission File number 0-8157
                          THE RESERVE PETROLEUM COMPANY
                  (Name of small business issue in its charter)

               DELAWARE                                 73-0237060
    (State or other jurisdiction of         (I.R.S. Employer Identification No.)
     incorporation or organization)

         6801 N. BROADWAY, SUITE 300                           73116-9092
           OKLAHOMA CITY, OKLAHOMA
   (Address of principal executive offices)                    (Zip Code)

Issuer's telephone number: (405) 848-7551

Securities registered under Section 12(b) of the Exchange Act: NONE

Securities registered under Section 12(g) of the Exchange Act:

         COMMON STOCK ($0.50 PAR VALUE)
                (Title of Class)

Check whether the issuer is not required to file reports pursuant to Section 13
or 15(d) of the Exchange Act. | |

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 | |

Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. |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 issuer's revenues for the fiscal year ended December 31, 2005 were
$8,523,346.

The aggregate market value of the voting stock held by non-affiliates was
$18,548,820 as computed by reference to the last reported sale which was on
March 7, 2006.

As of March 17, 2006, there were 163,633.64 common shares outstanding.


<PAGE>


                       DOCUMENTS INCORPORATED BY REFERENCE

Portions of the definitive proxy statement  relating to the registrant's  Annual
Meeting of Shareholders  to be held on May 23, 2004 (the "Proxy  Statement") are
incorporated by reference into Part III of this Form 10-KSB.

Transitional Small Business Disclosure Format (Check one): Yes | | No |X|


                                TABLE OF CONTENTS

                                                                          PAGE
                                                                          ----

Forward Looking Statements..................................................3

                      PART I

Item 1.   Description of Business...........................................3

Item 2.   Description of Property...........................................5

Item 3.   Legal Proceedings.................................................7

Item 4.   Submission of Matters to a Vote of Security
          Holders...........................................................7

                      PART II

Item 5.   Market for Common Equity, Related Stockholder
          Matters and Small Business Issuer Purchase  of
          Equity Securities.................................................7

Item 6.   Management's Discussion and Analysis or Plan of
          Operation.........................................................8

Item 7.   Financial Statements.............................................20

Item 8.   Changes in and Disagreements with Accountants on
          Accounting and Financial Disclosure..............................43

Item 8A.  Controls and Procedures..........................................43

                     PART III

Item  9.  Directors, Executive Officers, Promoters and
          Control Persons; Compliance with Section 16(a) of
          the Exchange Act.................................................44

Item 10.  Executive Compensation...........................................44

Item 11.  Security Ownership of Certain Beneficial Owners
          and Management and Related Stockholder Matters...................44

Item 12.  Certain Relationships and Related Transactions...................44

Item 13.  Exhibits.........................................................44

Item 14.  Principal Accountant Fees and Services...........................45


                                       2
<PAGE>


                           FORWARD-LOOKING STATEMENTS

This report  contains  forward-looking  statements.  Actual events and/or future
results of operations  may differ  materially  from those  contemplated  by such
forward-looking statements. See Item 6, "Management's Discussion and Analysis or
Plan of  Operation"  for a  summation  of some of the  risks  and  uncertainties
inherent in forward-looking statements.

                                     PART I

ITEM 1. DESCRIPTION OF BUSINESS.

OVERVIEW

The Reserve  Petroleum  Company (the  "Company") is engaged  principally  in the
exploration  for and the  development of oil and natural gas  properties.  Other
business segments are not significant factors in the Company's  operations.  The
Company is a  corporation  organized  under the laws of the State of Delaware in
1931.

                         OIL AND NATURAL GAS PROPERTIES

For a summary of certain data relating to the  Company's oil and gas  properties
including production,  undeveloped acreage,  producing and dry wells drilled and
recent  activity,  see Item 2,  "Description of Property".  For a discussion and
analysis of current and prior  years'  revenue and related  costs of oil and gas
operations, and a discussion of liquidity and capital resource requirements, see
Item 6, "Management's Discussion and Analysis or Plan of Operation".

MINERAL PROPERTY MANAGEMENT

The Company owns non-producing  mineral interests in approximately 268,393 gross
acres  equivalent to 92,540 net acres.  These  mineral  interests are located in
nine states with 56,215 net acres in the states of Oklahoma and Texas,  the area
of  concentration  for the Company in its present  exploration  and  development
programs.

Management  continually  reviews various  industry reports and other sources for
activity (leasing, drilling,  significant discoveries,  etc.) in areas where the
Company  has  mineral  ownership.  Based on its  analysis  of any  activity  and
assessment of the potential risk relative to the particular area, management may
negotiate a lease or farmout agreement and accept a royalty interest,  or it may
choose to  participate  as a working  interest  owner and pay its  proportionate
share of costs for any exploration or development drilling.

A substantial  amount of the Company's oil and gas revenue has resulted from its
mineral property management.  In 2005, $4,635,747 (57%) of oil and gas sales was
from royalty  interests as compared to $2,024,362  (52%) in 2004. As a result of
its mineral  ownership,  in 2005 the Company had royalty  interests  in 23 gross
(.48 net) wells which were drilled and  completed as  producing  wells.  See the
following  paragraphs for a discussion of mineral interests in which the Company
chooses to participate as a working interest owner.


                                       3
<PAGE>


DEVELOPMENT PROGRAM

The development of a drilling program is usually initiated in one of three ways.
The  Company  may  participate  as a working  interest  owner with a third party
operator in the development of  non-producing  mineral  interests which it owns;
along with a joint interest operator,  it may participate in drilling additional
wells on its producing leaseholds; or if its exploration program discussed below
results in a successful  exploratory well, it may participate in the development
of  additional  wells  on  the  exploratory   prospect.  In  2005,  the  Company
participated  in the drilling of  twenty-three  development  wells with nineteen
wells (2.17 net) completed as producers, two as dry holes and two in the process
of completion.

EXPLORATION PROGRAM

The Company's  exploration program is normally conducted by purchasing interests
in prospects  developed by  independent  third parties,  participating  in third
party exploration of Company-owned  non-producing  minerals,  developing its own
exploratory prospects, or a combination of the above.

The Company normally acquires interests in exploratory prospects from someone in
the industry with whom  management has conducted  business in the past and/or if
management  has  confidence  in the quality of the  geological  and  geophysical
information  presented  for  evaluation  by  Company  personnel.  If  evaluation
indicates  the prospect is within the  Company's  risk  limits,  the Company may
negotiate  to  acquire  an  interest  in  the  prospect  and  participate  in  a
non-operating capacity.

The Company develops exploratory drilling prospects by identification of an area
of interest,  development of geological and geophysical information and purchase
of leaseholds  in the area.  The Company may then attempt to sell an interest in
the prospect to one or more companies in the petroleum  industry with one of the
purchasing companies functioning as operator.

For a summation of exploratory wells drilled in 2005 or planned for in 2006, see
Item 6, "Management's  Discussion and Analysis of Financial Condition or Plan of
Operation,"  subheading,  "Update  of Oil  and  Gas  Exploration  Activity  from
December 31, 2004."

CUSTOMERS

In 2005, the Company had two customers  whose total  purchases were greater than
10% of revenues from oil and gas sales.  XTO Energy  purchases  were $910,108 or
11.3% of total oil and gas sales.  Burlington Resources purchases were $833,363,
or 10.3% of total oil and gas sales.  The Company  sells most of its oil and gas
under  short-term  sales  contracts  that are based on the spot market price.  A
minor  amount of oil and gas sales are made under fixed price  contracts  having
terms of more than one year.

COMPETITION

The oil and gas industry is highly  competitive in all of its phases.  There are
numerous circumstances within the industry and related market place that are out
of the Company's control such as cost and availability of alternative fuels, the
level of consumer  demand,  the extent of other  domestic  production of oil and
gas, the price and extent of importation of foreign oil and gas, the cost of and
proximity  of  pipelines  and  other  transportation  facilities,  the  cost and
availability of drilling rigs,  regulation by state and Federal  authorities and
the cost of complying with applicable environmental regulations. The


                                       4
<PAGE>


Company is a very  minor  factor in the  industry  and must  compete  with other
persons and  companies  having far greater  financial and other  resources.  The
Company's ability to participate in and/or develop viable prospects,  and secure
the  financial  participation  of other  persons  or  companies  in  exploratory
drilling on these prospects is limited.

REGULATION

The  Company's   operations  are  affected  in  varying   degrees  by  political
developments and Federal and state laws and regulations.  Although released from
Federal  price  controls,  interstate  sales  of  natural  gas  are  subject  to
regulation  by the Federal  Energy  Regulatory  Commission  (FERC).  Oil and gas
operations  are affected by  environmental  laws and other laws  relating to the
petroleum industry and both are affected by constantly  changing  administrative
regulations. Rates of production of oil and gas have for many years been subject
to a variety of conservation laws and regulations, and the petroleum industry is
frequently affected by changes in the Federal tax laws.

Generally, the respective state regulatory agencies supervise various aspects of
oil and gas operations  within the state and  transportation of oil and gas sold
intrastate.

ENVIRONMENTAL PROTECTION

The  operation of the various  producing  properties in which the Company has an
interest is subject to Federal,  state and local provisions regulating discharge
of materials into the environment,  the storage of oil and gas products, and the
contamination  of subsurface  formations.  The Company's  lease  operations  and
exploratory activity have been and will continue to be affected by regulation in
future  periods.  However,  the known effect to date has not been material as to
capital  expenditures,  earnings  or  industry  competitive  position,  nor  are
estimated  expenditures for environmental  compliance expected to be material in
the coming year. Such expenditures produce no increase in productive capacity or
revenue and require more of management's time and attention, a cost which cannot
be estimated with any assurance of certainty.

                                 OTHER BUSINESS

See  Item 6,  "Management's  Discussion  and  Analysis  of  Plan of  Operation",
subheading,  "Equity  Investments" and Item 7, "Notes to Financial  Statements,"
Notes 2 and 7 for a discussion of other business including guarantees.

                                    EMPLOYEES

At December 31, 2005, the Company had eight employees,  including officers.  See
the Proxy Statement for additional  information.  During 2005, all the Company's
employees  devoted a portion of their time to duties with  affiliated  companies
and the  Company  was  reimbursed  for the  affiliates'  share  of  compensation
directly from those companies. See Item 6, "Management's Discussion and Analysis
or  Plan  of   Operation,   subheading   "Certain   Relationships   and  Related
Transactions"  and  Item 7,  "Notes  to  Financial  Statements,"  Note  12,  for
additional information.


                                       5
<PAGE>


ITEM 2. DESCRIPTION OF PROPERTY.

The  Company's  principal  properties  are oil and  natural  gas  properties  as
described below.

                         OIL AND NATURAL GAS OPERATIONS

OIL AND GAS RESERVES

Reference is made to the unaudited  supplemental financial information beginning
on Page 38 for working interest reserve quantity information.

Since  January 1, 2005,  the Company has not filed any reports  with any Federal
authority  or agency  which  included  estimates  of total proved net oil or gas
reserves,  except for its 2004 annual  report on Form 10-KSB and Federal  income
tax return for the year ended  December 31, 2004.  Those reserve  estimates were
identical.

PRODUCTION

The average sales price of oil and gas produced  and, for the Company's  working
interests,  the average  production cost (lifting cost) per equivalent  thousand
cubic feet (MCF) of gas production is presented in the table below for the years
ended  December 31, 2005,  2004 and 2003.  Equivalent  MCF was  developed  using
approximate relative energy content.

<TABLE>
<CAPTION>
                 Royalties                                     Working Interests
          ----------------------                 -----------------------------------------------
                Sales Price                           Sales Price             Average Production
          ----------------------                 ---------------------
            Oil            Gas                     Oil           Gas               Cost per
          Per Bbl        Per MCF                 Per Bbl       Per MCF          Equivalent MCF
          -------        -------                 -------       -------        ------------------

<S>       <C>            <C>                     <C>           <C>                 <C>
2005      $ 54.93        $ 7.55                  $ 54.56       $ 7.55              $ 1.73
2004      $ 38.79        $ 5.42                  $ 40.47       $ 5.65              $ 1.61
2003      $ 28.72        $ 4.82                  $ 28.54       $ 4.81              $ 1.56
</TABLE>

At December 31, 2005, the Company had working interests in 123 gross (14.76 net)
wells producing  primarily gas and/or gas liquids  (condensates) and had working
interests in 76 gross (4.77 net) wells producing  primarily oil. These interests
were in 41,533 gross (4,368 net) producing  acres.  These wells include 44 gross
(.26 net) wells associated with secondary recovery projects.

Twenty percent, or 7,212 barrels of the Company's oil production during 2005 was
derived from royalty interests in mature West Texas water-floods.

UNDEVELOPED ACREAGE

The Company's  undeveloped  acreage consists of non-producing  mineral interests
and undeveloped  leaseholds.  The following table summarizes the Company's gross
and net acres in each at December 31, 2005.

                                                                  Acreage
                                                          ----------------------
                                                           Gross           Net
                                                          -------         ------
Non-producing Mineral Interests                           268,393         92,540
Undeveloped Leaseholds                                     11,606          3,865


                                       6
<PAGE>


NET PRODUCTIVE AND DRY WELLS DRILLED

The following table  summarizes the net wells drilled in which the Company had a
working interest for the years ended December 31, 2003 and thereafter, as to net
productive  and  dry  exploratory  wells  drilled  and  net  productive  and dry
development wells drilled.

<TABLE>
<CAPTION>
                               Number of Net Working Interest Wells Drilled
               ---------------------------------------------------------------------------
                            Exploratory                              Development
               ------------------------------------        -------------------------------
                     Productive             Dry              Productive            Dry
               ----------------------    ----------        --------------      -----------

<S>                       <C>               <C>                   <C>              <C>
2005                      .83               .27                   2.17             .21
2004                     1.03               .50                   1.01              --
2003                      .46               .16                    .19             .28
</TABLE>

RECENT ACTIVITIES

See Item 6, under the subheading,  "Update of Oil and Gas  Exploration  Activity
from  December 31, 2004" for a summary of recent  activities  related to oil and
natural gas operations.

ITEM 3. LEGAL PROCEEDINGS.

There are no material pending legal proceedings  affecting the Company or any of
its properties.

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

None.

                                     PART II

ITEM  5.  MARKET  FOR  COMMON  EQUITY,  RELATED  STOCKHOLDER  MATTERS  AND SMALL
          BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES.

The  Company's  stock is dually  traded in the Pink Sheet  Electronic  Quotation
Service and the OTC Bulletin Board under the symbol  "RSRV".  The following high
and low bid information was quoted on the Pink Sheets OTC Market Report.  Prices
reflect  inter-dealer  prices without retail markup,  markdown or commission and
may not reflect actual transactions.

                                                       Quarterly Ranges
                                              ---------------------------------
              Quarter Ending                   High Bid               Low Bid
          -----------------------             ----------             ----------
                 03/31/04                        35.30                  35.00
                 06/30/04                        39.00                  35.30
                 09/30/04                        41.25                  36.00
                 12/31/04                        55.00                  42.50
                 03/31/05                        58.00                  45.00
                 06/30/05                        83.00                  52.25
                 09/30/05                       120.00                  74.00
                 12/31/05                       172.00                  120.00

There was limited public trading in the Company's common stock in 2005 and 2004.
In 2005 and 2004,  there  were 9  brokered  trades  appearing  in the  Company's
transfer ledger for each year.


                                       7
<PAGE>


At March 17, 2006,  the Company had  approximately  1,457 record  holders of its
common  stock.  The Company paid  dividends on its common stock in the amount of
$2.00  per  share in the  second  quarter  of 2005 and  $1.00 per share in 2004.
Management will review the amount of the annual dividend to be paid in 2006 with
the Board of Directors;  however, it intends to recommend a dividend of at least
$4.00 per share.

              SMALL BUSINESS ISSUER PURCHASES OF EQUITY SECURITIES

<TABLE>
<CAPTION>
                                                                                Total Number of Shares      Approximate Dollar Value
                                                                                Purchased as Part of       of Shares that May Yet Be
                            Total Number of           Average Price         Publicly Announced Plans or   Purchased Under the Plans
          Period            Shares Purchased          Paid Per Share               Programs (1)                or Programs (1)
------------------------------------------------------------------------------------------------------------------------------------

<S>                                <C>                   <C>                             <C>                          <C>
October 1, 2005 to                 33                    $105.00                         -                            -
October 31, 2005
------------------------------------------------------------------------------------------------------------------------------------

November 1, 2005 to                11                    $105.00                         -                            -
November 30, 2005
------------------------------------------------------------------------------------------------------------------------------------

December 1, 2005 to               354                    $105.00                         -                            -
December 31, 2005
------------------------------------------------------------------------------------------------------------------------------------

Total                             398                    $105.00                         -                            -
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)   The Company has no formal equity  security  purchase  program or plan. The
      Company  acts as its own  transfer  agent and most  purchases  result from
      requests made by shareholders  receiving small odd lot share quantities as
      the result of probate transfers.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.

Please refer to the  financial  statements  and related  notes in Item 7 of this
Form 10-KSB to supplement this discussion and analysis.

FORWARD-LOOKING STATEMENTS

In addition to historical information, from time to time the Company may publish
forward-looking  statements  within the meaning of Section 27A of the Securities
Act  of  1933  and  Section  21E  of  the  Securities   Exchange  Act  of  1934.
Forward-looking   statements  provide  the  reader  with  management's   current
expectations of future events.  They include statements relating to such matters
as anticipated financial performance, business prospects such as drilling of oil
and gas wells, technological development and similar matters.

Although   management   believes  that  the   expectations   reflected  in  such
forward-looking  statements  are based on reasonable  assumptions,  a variety of
factors  could  cause the  Company's  actual  results and  experience  to differ
materially from the anticipated  results or other expectations  expressed in the
Company's  forward-looking  statements.  The  risks and  uncertainties  that may
affect the  operations,  performance,  development  and results of the Company's
business include, but are not limited to, the following:


                                       8
<PAGE>


The Company's future operating results will depend upon management's  ability to
employ and retain quality employees, generate revenues and control expenses. Any
decline in  operating  revenues  without  corresponding  reduction  in operating
expenses could have a material adverse effect on the Company's business, results
of operations and financial condition.

Estimates  of  future  revenues  from  oil  and gas  sales  are  derived  from a
combination  of factors which are subject to  significant  fluctuation  over any
given period of time.  Reserve estimates by their nature are subject to revision
in the short-term.  The evaluating  engineer  considers  production  performance
data,  reservoir data and geological  data available to the Company,  as well as
makes  estimates  of  production  costs,  sale  prices  and the time  period the
property can be produced at a profit.  A change in any of the above  factors can
significantly change the timing and amount of net revenues from a property.  The
Company's  producing  properties are composed of many small working interest and
royalty interest  properties.  As a non-operating owner, the Company has limited
access to the underlying data from which working interest reserve  estimates are
calculated,  and estimates of royalty interest reserves are not made because the
information required for the estimation is not available.

The Company has no significant  long-term sales contracts for either oil or gas.
For the most part, the price the Company  receives for its product is based upon
the  spot  market   price  which  in  the  past  has   experienced   significant
fluctuations.  Management  anticipates such price  fluctuations will continue in
the  future,   making  any  attempt  at  estimating  future  prices  subject  to
significant uncertainty.

Exploration  costs have been the most  significant  component  of the  Company's
capital  expenditures  and are expected to remain so, at least in the near term.
Under the successful  efforts  method of accounting for oil and gas  properties,
which  the  Company  uses,  these  costs  are  capitalized  if the  prospect  is
successful,  or  charged  to  operating  costs  and  expenses  if  unsuccessful.
Estimating  the amount of such future  costs which may relate to  successful  or
unsuccessful prospects is extremely imprecise, at best.

The  provisions  for  depreciation,  depletion and  amortization  of oil and gas
properties   constitute   a   particularly    sensitive   accounting   estimate.
Non-producing  leaseholds are amortized  over the life of the leasehold  using a
straight line method;  however,  when a leasehold is impaired or  condemned,  an
appropriate  adjustment to the  provision is made at that time.  Forward-looking
estimates of such  adjustments are very imprecise.  The provision for impairment
of long-lived  assets is determined by review of the estimated future cash flows
from the individual properties.  A significant unforeseen downward adjustment in
future prices and/or  potential  reserves  could result in a material  change in
estimated  long-lived assets  impairment.  Depletion and depreciation of oil and
gas properties are computed using the units-of-production  method. A significant
unanticipated  change in volume of production or estimated reserves would result
in a material  un-forecasted  change in the estimated depletion and depreciation
provisions.

Income  from  available  for sale  securities  and trading  securities  has made
substantial contributions to net income in certain prior periods.  Available for
sale securities and trading  securities are used to invest funds until needed in
the Company's  capital investing and financing  activities.  Net income has been
materially  affected in past and current  years and could be in the future years
by utilization  of those funds in operations as well as significant  fluctuation
in the interest  rates and/or quoted  market values  applicable to the Company's
available for sale securities and trading securities.

The Company's trading securities  consist primarily of equity securities.  These
securities are carried at fair value with  unrealized  gains and losses included
in earnings.  The equity securities are traded on various stock exchanges and/or
the  NASDAQ  and over the  counter  markets.  Therefore,  these  securities  are
market-risk  sensitive  instruments.  The stock  market is subject to wide price
swings in short periods of time.


                                       9
<PAGE>


The Company has equity  investments in organizations  over which the Company has
limited  or  no  control.  These  equity  investments  have  in  the  past  made
substantial  contributions to the Company's net income.  The management of these
entities  could at any time make  decisions  in their own best  interests  which
could materially  affect the Company's net income, or the value of the Company's
investments.  See "Equity  Investments",  below,  in this Item 6 for information
regarding these equity investments.

The Company does not undertake any obligation to publicly revise forward-looking
statements to reflect events or circumstances  that arise after the date hereof.
Readers should carefully review the information described in other documents the
Company  files from time to time with the  Securities  and Exchange  Commission,
including  the  Quarterly  Reports on Form  10-QSB to be filed by the Company in
2006 and any  Current  Reports  on Form 8-K filed by the  Company.  The  Private
Securities   Litigation   Reform  Act  of  1995   provides  a  safe  harbor  for
forward-looking statements.

                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The Company is  affiliated  by common  management  and  ownership  with Mesquite
Minerals,  Inc., (Mesquite),  Mid-American Oil Company (Mid-American),  Lochbuie
Limited  Partnership (LLTD) and Lochbuie Holding Company (LHC). The Company also
owns interests in certain  producing and non-producing oil and gas properties as
tenants in common with Mesquite, Mid-American and LLTD.

Mason McLain and Robert T. McLain,  Directors  and officers of the Company,  are
directors and officers of Mesquite and  Mid-American.  Jerry Crow, a Director of
the Company, is a director of Mesquite and Mid-American. Kyle McLain and Cameron
R. McLain are sons of Mason McLain,  who is a more than 5% owner of the Company,
and are  advisory  directors  and  employees  of the  Company.  Kyle McLain is a
director  and  employee of Mesquite  and an advisory  director  and  employee of
Mid-American.  Cameron R. McLain is a director and employee of Mid-American  and
an advisory  director  and  employee  of  Mesquite.  Mason  McLain and Robert T.
McLain,  who are brothers,  each own an approximate 32% limited partner interest
in LLTD,  and Mason McLain is  president  of LHC,  the general  partner of LLTD.
Robert T. McLain is not an employee  of any of the above  entities,  and devotes
only a small amount of time conducting their business.

The above named officers,  directors and employees as a group  beneficially  own
approximately  33% of the common stock of The Company,  approximately 31% of the
common  stock  of  Mesquite,  and  approximately  17% of  the  common  stock  of
Mid-American.  These  three  corporations  each  have  only  one  class of stock
outstanding.   Item  7,  "Notes  to  Financial  Statements,"  Note  12  includes
additional disclosures regarding these relationships.

                               EQUITY INVESTMENTS

The Company has investments in four entities which it accounts for on the equity
method. In using the equity method, the Company records the original  investment
in an entity as an asset and adjusts the asset balance for the  Company's  share
of  any  income  or  loss  as  well  as  any  additional   contributions  to  or
distributions  from the entity.  The four entities  include one Oklahoma limited
partnership,  and three Oklahoma limited liability  companies.  The Company does
not have actual or effective  control of any of the entities.  The management of
these  entities  could at any time make  decisions  in their own best  interests
which could  materially  effect the  Company's  net income,  or the value of the
Company's investments.


                                       10
<PAGE>


These  entities  are  Broadway   Sixty-Eight,   Ltd.  (33%  limited  partnership
interest),  Millennium  Golf  Properties,  LLC (9%  ownership),  OKC  Industrial
Properties, LLC (10% ownership) and JAR Investments,  LLC (25% ownership). These
entities  collectively  and/or  individually have had a significant effect, both
positively,  and  negatively,  on the  Company's  net income in the past and are
expected to in the future.  Two of these  entities have  guarantee  arrangements
under  which  the  Company  is  contingently  liable.  Item  7,  Note  7 to  the
accompanying financial statements includes related disclosures.

                         LIQUIDITY AND CAPITAL RESOURCES

To supplement  the following  discussion,  please refer to the Balance Sheets on
Pages 23 and 24, and the  Statements of Cash Flows  beginning on page 27 of this
Form 10-KSB.

In 2005, as in prior years, the Company funded its business activity through the
use of internal  sources of capital.  For the most part,  these internal sources
are cash flows from  operations,  cash, cash  equivalents and available for sale
securities.  When cash flows from  operating  activities  are in excess of those
needed for other business activities,  the remaining balance is used to increase
cash, cash equivalents  and/or  available for sale  securities.  When cash flows
from operating  activities  are not adequate to fund other business  activities,
withdrawals  are made from cash,  cash  equivalents  and/or  available  for sale
securities. Cash equivalents are highly liquid debt instruments purchased with a
maturity of three months or less.  Available for sale securities are US Treasury
Bills.

In 2005, net cash provided by operating activities was $4,454,893. Sales, net of
production,  exploration general and administrative  costs and income taxes paid
of  $4,322,097  accounted  for 97%  operations  net  cash  flow.  The  remaining
components  provided  $132,796 or 3% of cash flow. In 2005,  net cash applied to
investing and financing  activities was  $4,321,269.  Net purchases of available
for sale securities  discussed  below,  capitalized  property  additions (net of
disposals) of $3,503,888 and dividend  payments and treasury stock  purchases of
$451,118 accounted for most of the net cash applied. Maturing available for sale
securities  provided  $9,686,787  of gross  cash  flow due to  their  six  month
maturities.  However,  these funds plus $803,272 of excess cash from  operations
were re-invested in the same type of securities.

In 2004, cash utilized for capitalized  property additions (net of disposals) of
$2,102,080 and dividend  payments and treasury stock  purchases of $168,972 were
$605,646 less than cash provided by operating activities.

Other than cash,  cash  equivalents  and  available for sale  securities,  other
significant changes in working capital include the following:

Receivables  increased  $1,423,959 (213%) to $2,092,967 in 2005 from $669,008 in
2004.  For the most part,  the increase was the result of increased  oil and gas
product prices and volumes used for the Company's accrual estimates at year end.
See the discussion of revenues under subheading "Operating Revenues",  below for
more information about the increased sales of oil and natural gas, including new
wells in Robertson County, Texas.

Income taxes payable increased $327,018 to $331,412 in 2005 from $4,394 in 2004.
This was due to the  increased  current tax expense as a result of the increased
pretax income in 2005 versus 2004.

Accounts payable  increased  $154,852 (91%) to $324,675 in 2005 from $169,823 in
2004.  This  increase  was  primarily  due to costs  associated  with  increased
drilling  activity  at year end 2005 versus  2004.  See the  discussion  of this
activity under "Update of Oil and Gas Exploration and Development Activity" from
December 31, 2004 in the "Results of Operations" section below.


                                       11
<PAGE>


The  following  is a  discussion  of  material  changes in cash flow by activity
between the years ending  December 31, 2005 and 2004. Also see the discussion of
changes in operating results under "Results of Operations" below in this Item 6.

OPERATING ACTIVITIES

As noted above,  net cash flows  provided by operating  activities  in 2005 were
$4,454,893,  which  when  compared  against  the  $2,876,698  provided  in 2004,
represents  an  increase  of  $1,578,195  or a 55%  increase  in net cash  flows
provided  by  operating  activities  from 2004 to 2005.  For the most part,  the
increase resulted because of an increase in oil and gas sales of $2,989,515,  an
increase in lease  bonuses  and rentals of $21,329,  and an increase in interest
income of  $83,772.  Those  increases  in cash  flows were  partially  offset by
increased production costs of $395,020, an increase in exploration costs charged
to expense of  $350,742,  a decrease  in class  action  lawsuit  settlements  of
$283,421 and an increase in income taxes paid of $404,641. Additional discussion
of the more significant items follows.

DISCUSSION  OF SELECTED  MATERIAL  LINE ITEMS  RESULTING  IN AN INCREASE IN CASH
FLOWS.  The $2,989,515 (79%) increase in cash received from oil and gas sales to
$6,752,119 in 2005 from $3,762,604 in 2004 was the result of an increase of both
the price and volume of both oil and gas sales.  See  "Results  of  Operations",
below,  for a  price/volume  analysis and the related  discussion of oil and gas
sales.

Cash  received for interest  earned on cash  equivalents  and available for sale
securities  increased  $83,772  (212%) to $123,272 in 2005 from $39,500 in 2004.
The  increase  was  primarily  the result of an increase in the average  rate of
return  to 2.21% in 2005  from  0.88% in 2004 with an  average  balance  of cash
equivalents and available for sale securities  outstanding of $5,582,429 in 2005
and $4,475,655 in 2004.

DISCUSSION  OF  SELECTED  MATERIAL  LINE ITEMS  RESULTING  IN A DECREASE IN CASH
FLOWS.  Production  costs  increased  $395,020  (66%) to  $997,571  in 2005 from
$602,551  in  2004.  Most of the  increase  was due to a  $246,644  increase  in
production  taxes which  increase as oil and gas sales  increase.  The remaining
increase of  $148,376  was due to  increased  lease  operating  expenses in 2005
versus 2004.  Approximately  $41,000 of the increase was  attributable  to wells
which first produced in 2005 and the remaining approximately $107,000 was due to
increased operating expenses on wells which began production prior to 2005.

Cash paid for exploration costs charged to expense increased  $350,742 (252%) to
$489,893 in 2005 from $139,151 in 2004.  This increase is related to an increase
in exploration  activity in 2005 over 2004.  This item consists of  unsuccessful
exploratory  drilling  expenditures as well as geological and geophysical  costs
that are directly  related to the  Company's  oil and gas  exploration  drilling
activity.  That  drilling  activity  also  includes  substantially  all  of  the
Company's  property  additions  discussed below under the subheading  "Investing
Activities".  In addition to the $489,893  classified  as operating  activities,
$3,554,593  was  classified as investing  activities  for a total of $4,044,486.
This compares to 2004 cash applied to property additions which included $139,151
classified  as  operating  activities  and  $2,183,687  classified  as investing
activities for a total of $2,322,838.

Cash received for class action lawsuit  settlements  decreased $283,421 (95%) to
$13,775 in 2005 from $297,196 in 2004. The decrease was due entirely to the 2004
settlement of a class action lawsuit filed in 1995 relating to revenues received
after 1982 from Company owned minerals in Beaver and Texas  Counties,  Oklahoma,
with no similar settlement in 2005.


                                       12
<PAGE>


Income taxes paid increased $404,641 (100%) to $404,641 in 2005 from $-0- in
2004 due to increased income tax expense discussed above and below in the
"Results of Operations".

INVESTING ACTIVITIES

Net  cash  applied  to  investing   activities  increased  $1,386,755  (56%)  to
$3,870,151  in 2005  from  $2,483,396  in 2004.  In 2005,  net cash  flows  from
available for sale securities  decreased  $350,456 from cash applied of $452,816
in 2004 to cash applied of $803,272 in 2005,  as a result of cash  invested from
excess 2005 cash flows provided by  operations.  Most of the additional net cash
applied to  investing  activities  is due to a  $1,401,808  net  increase in the
application of cash to capitalized property additions, discussed above. In 2005,
net cash flows applied to  capitalized  property were  $3,503,888 as compared to
$2,102,080 in 2004. These net cash application increases were offset somewhat by
cash flows from an equity  investment  distribution  increase  of  $199,450  and
$166,059 cash from the surrender of a life insurance policy.

FINANCING ACTIVITIES

Cash applied to financing  activities  increased  $282,146 (167%) to $451,118 in
2005 from $168,972 in 2004. Cash flows applied to financing  activities  consist
of cash  dividends  on common  stock and cash used for the  purchase of treasury
stock.  In 2005,  cash  dividends  paid on common stock  amounted to $315,586 as
compared to $155,052 in 2004.  The increase was the result of an increase in the
2005  dividends  per share to $2.00  from  $1.00 in 2004.  Cash  applied  to the
purchase of treasury stock was $135,532 in 2005 as compared to $13,290 in 2004.

FORWARD-LOOKING SUMMARY

The latest  estimate  of business  to be done in 2006 and beyond  indicates  the
projected  activity  can be funded  from cash  flow  from  operations  and other
internal  sources  including  net  working  capital.  The  Company is engaged in
exploratory  drilling. If this drilling is successful,  substantial  development
drilling may result.  Also,  should  other  exploration  projects  which fit the
Company's risk parameters  become available,  or other investment  opportunities
become known,  capital  requirements may be more than the Company has available.
If so, external sources of financing could be required.

                              RESULTS OF OPERATIONS

As disclosed in the Statements of Operations in Item 7, of this Form 10-KSB,  in
2005 the  Company  had net income of  $3,812,095  as compared to a net income of
$1,748,991 in 2004. Net income per share,  basic and diluted was $23.17 in 2005,
an increase of $12.61 per share from $10.56 in 2004.  Material line item changes
in the Statements of Operations will be discussed in the following paragraphs.

OPERATING REVENUES

Operating  revenues  increased  $4,258,800  (100%)  to  $8,523,346  in 2005 from
$4,264,546 in 2004. Oil and gas sales increased  $4,146,565 (106%) to $8,067,949
in 2005 from  $3,921,384 in 2004. In addition lease bonuses and other  increased
$112,235  (33%) to $455,397 in 2005 from  $343,162 in 2004.  The increase in oil
and gas sales will be discussed in the following paragraphs.


                                       13
<PAGE>


The $4,146,565  increase in oil and gas sales was the net result of a $3,104,192
increase  in gas  sales  plus a  $998,853  increase  in oil  sales and a $43,520
increase in  miscellaneous  oil and gas product sales.  The following  price and
volume  analysis is  presented  to help explain the changes in oil and gas sales
from 2004 to 2005.  Miscellaneous  oil and gas product sales of $108,215 in 2005
and $64,695 in 2004 are not included in the analysis.

                                                    Variance
                                              ---------------------
Production                         2005        Price        Volume        2004
----------                       --------     --------     --------     --------
Oil -
Bbls (000 omitted)                     36                        11           25
$(000 omitted)                   $  1,982     $    546     $    453     $    983
Unit Price                       $  54.69     $  15.07                  $  39.62
Gas -
MCF (000 omitted)                     791                       272          519
$(000 omitted)                   $  5,977     $  1,599     $  1,505     $  2,873
Unit Price                       $   7.55     $   2.02                  $   5.53

The $3,104,192  (108%)  increase in natural gas sales to $5,977,228 in 2005 from
$2,873,036 in 2004 was the result of an increase in both the price and volume of
sales.  A positive  price  variance of $1,599,054  resulted  because the average
price  received  per  thousand  cubic feet (MCF) of natural gas sales  increased
$2.02 per MCF to $7.55 in 2005 from $5.53 in 2004. A positive volume variance of
$1,505,138  resulted  from an  increase in volume sold of 272,176 MCF to 791,374
MCF in 2005 from 519,198 in 2004.  The increase in the volume of production  was
the net result of production of 330,227 MCF from properties which first produced
in 2005 as partially  offset by a 58,050 MCF normal  decline in production  from
mature  producing  properties.  As disclosed in  Supplemental  Schedule 1 of the
Unaudited  Supplemental Financial Information included in Item 7, below, working
interests in natural gas  extensions  and  discoveries  were adequate to replace
reserves produced in 2005 and 2004.

The gas  production  from  properties  which  first  produced  in 2005  includes
production from several new royalty  interest  properties  drilled by Burlington
Resources in Robertson  County,  Texas. The first of these wells began producing
in late March,  2005 and the last one began  producing in October,  2005.  These
properties  accounted  for  approximately  225,000  MCF  and  $1,780,000  of the
increased gas sales for 2005. While the operator is currently drilling and plans
more  drilling in the future on the acreage in which the Company  holds  mineral
interests, the Company has no control over the timing of such activity.

The  $998,853  (102%)  increase  in crude oil sales to  $1,982,506  in 2005 from
$983,653 in 2004 was the result of an  increase  in both the  average  price per
barrel and oil sales volumes. The average price received per barrel (Bbl) of oil
increased  $15.07  (38%) to $54.69  per Bbl in 2005 from  $39.62 per Bbl in 2004
resulting  in an  increase  in oil sales of  $546,259.  An increase in oil sales
volumes of 11,423 Bbls to 36,250 Bbls in 2005 from 24,827 Bbls in 2004  resulted
in a positive volume variance of $452,594.  The positive volume variance was the
net result of production of 14,316 Bbls from properties  which first produced in
2005 as  partially  offset by a 2,893 Bbls  normal  decline in  production  from
mature  producing  properties.  As disclosed in  Supplemental  Schedule 1 of the
Unaudited  Supplemental  Financial Information included in Item 7 below, working
interests in oil extensions and  discoveries  were adequate to replace  reserves
produced  in 2005 and 2004.  For both oil and gas  sales,  the price  change was
mostly the result of a change in the spot  market  prices upon which most of the
Company's  oil and gas  sales are  based.  These  spot  market  prices  have had
significant  fluctuations  in the past and these  fluctuations  are  expected to
continue.


                                       14
<PAGE>


OPERATING COSTS AND EXPENSES

Operating costs and expenses  increased  $1,282,932  (52%) to $3,745,369 in 2005
from  $2,462,437  in 2004,  primarily  due to  increases  in  production  costs,
exploration  costs and depreciation,  depletion and  amortization.  The material
components of operating costs and expenses will be discussed below.

PRODUCTION  COSTS.  Production  costs increased  $385,228 (62%) to $1,005,720 in
2005 from $620,492 in 2004.  For the most part,  the increase was the net result
of a $246,644 (123%) increase in gross  production tax to $447,550 in 2005, from
$200,906 in 2004, plus an increase in lease operating  expense of $126,464 (34%)
to  $494,909  in 2005 from  $368,445 in 2004.  The  increase in lease  operating
expense was the result of the additional  costs of wells which first produced in
late  2004 or in  2005.  Gross  production  taxes  are  state  taxes  which  are
calculated as a percentage of gross proceeds from the sale of products from each
producing oil and gas property; therefore, they fluctuate with the change in the
dollar amount of revenues from oil and gas sales.

EXPLORATION COSTS. Under the successful efforts method of accounting used by the
Company,  geological and geophysical costs are expensed as incurred,  as are the
costs of unsuccessful  exploratory drilling. The costs of successful exploratory
drilling are  capitalized.  Total costs of exploration,  inclusive of geological
and  geophysical  costs were  $4,147,457 in 2005 and  $2,322,918 in 2004.  Costs
charged to operations  were  $495,351 in 2005 and $139,231 in 2004  inclusive of
geological and geophysical costs of $96,979 in 2005 and $36,420 in 2004.

UPDATE OF OIL AND GAS  EXPLORATION  AND  DEVELOPMENT  ACTIVITY FROM DECEMBER 31,
2004. For the twelve months ended December 31, 2005, the Company participated in
the drilling of 12 gross exploratory and 23 gross  development  working interest
wells with net working  interests ranging from a high of 19.6% to a low of 2.9%.
Of the twelve  exploratory  wells,  four were plugged,  abandoned and charged to
expense,  seven were completed as producers and one is still being completed and
tested.  Of the  twenty-three  development  wells,  nineteen  were  completed as
producers, two were plugged,  abandoned and charged to expense and two wells are
still being  completed and tested.  In  management's  opinion,  the  exploratory
drilling  summarized  above has  produced  some  possible  development  drilling
opportunities which could increase the Company's oil and gas reserves.

The following is a summary as of March 13, 2006,  updating both  exploration and
development activity from December 31, 2004.

The Company  participated  with its 18% working interest in the drilling of four
step-out wells on a Barber  County,  Kansas  prospect.  The first was started in
March 2005 and completed in April 2005 as a commercial  gas well. The second was
started in June 2005 and  completed in September  2005 as a marginal oil and gas
well. The third, a re-entry, was started in July 2005 and completed in September
2005 as a commercial  oil and gas well.  The fourth was started in January 2006,
completed in February 2006 and is currently being tested.  Another prospect well
was  recompleted in a new zone in July 2005 and is flowing oil and gas at a good
rate.  Three additional  wells are planned for 2006.  Capitalized  costs for the
period ended December 31, 2005 were $298,082.


                                       15
<PAGE>


The  Company  participated  with a 50%  interest in the  development  of a Bryan
County,  Oklahoma  prospect.  The  Company  sold a portion of its  interest  and
participated  with a 9% working interest in the drilling of an exploratory well.
The well was commenced in July 2005,  hole problems  were  encountered  prior to
reaching the objective depth, and it was plugged in August 2005. The prospect is
being  re-evaluated.  Dry hole costs for the period ended December 31, 2005 were
$31,813.

The  Company  has a 0.96%  Phase I interest  and a 4.32%  Phase II interest in a
Harding  County,  South Dakota  waterflood  unit.  There were six horizontal oil
producers in the unit.  Water injection into one of the wells commenced in March
2006. Cumulative capitalized costs as of December 31, 2005 were $58,772.

The  Company  participated  in the  drilling  of two  step-out  wells on a Dewey
County, Oklahoma prospect. The first well, in which the Company has a 6% working
interest,  was started in March 2005 and completed in May 2005.  The second well
(Company  working  interest 5.4%) was started in April 2005 and completed in May
2005.  Both are  commercial  gas and gas  condensate  producers.  Drilling costs
totaled $156,784 as of December 31, 2005.

In February 2005, the Company participated in the drilling of a step-out well in
Morton County,  Kansas with a 19.6% working interest.  It was completed in March
2005 as a commercial  gas well.  Sales  commenced in June 2005.  Drilling  costs
capitalized as of December 31, 2005 were $120,057.

In  March  2005,  the  Company  participated  with  its  11.7%  interest  in the
recompletion of a non-commercial well on a Woods County,  Oklahoma prospect. The
well is now a marginal gas producer. The Company participated in the drilling of
two  development  wells on the prospect with  interests of 18% and 16.56%.  Both
were  started in August 2005 and  completed in October  2005 as  commercial  gas
wells.  Drilling  costs totaled  $223,528 as of December 31, 2005. An impairment
reserve of $23,788 has been  recorded at December  31, 2005 for the marginal gas
producer.

The Company participated in the drilling of nine development wells on a Canadian
County,  Oklahoma  prospect.  The first well (Company working interest 6.1%) was
started in January  2005 and  completed  in March  2005.  The second  well (3.8%
interest)  was started in February  2005 and  completed in June 2005.  The third
well (7.5%  interest) was started in March 2005 and completed in June 2005.  The
fourth  well (8.5%  interest)  was started in April 2005 and  completed  in July
2005.  The fifth well (15%  interest) was started in April 2005 and completed in
July 2005.  The sixth  well  (6.1%  interest)  was  started  in August  2005 and
completed in September  2005.  The seventh well (10.7%  interest) was started in
December 2005 and completed in February  2006.  The third well is a marginal oil
and gas producer. The other six are commercial oil and gas producers. The eighth
and ninth wells  (3.8% and 7.3%  interests)  were  started in March 2006 and are
currently  drilling.  New zones were added to three other  prospect wells (7.3%,
8.5% and 15%  interests).  Drilling  costs  for 2005  totaled  $1,076,875  as of
December 31, 2005, including prepaid drilling costs. A total of $89,667 has been
recorded for impairment reserve on two marginal wells.

The Company  participated  with its 16% working  interest in the drilling of two
step-out wells on a Creek County,  Oklahoma prospect. The first well was started
in February 2005 and completed in March 2005 as a commercial  gas producer.  The
second well was  started in December  2005,  completed  in February  2006 and is
currently  awaiting  pipeline  connection.  Drilling costs of $109,143 have been
capitalized as of December 31, 2005.


                                       16
<PAGE>


The Company  participated in the drilling of a step-out well,  four  exploratory
wells and three development wells on a Stephens County,  Oklahoma prospect.  The
step-out  well  (Company  working  interest  2.9%) was drilled and  completed in
December 2004 and recompleted in February 2005. It is non-commercial.  The first
exploratory  well (3%  interest)  was started in November  2004 and completed in
March 2005 as a commercial oil and gas producer. A second exploratory well (3.6%
interest) was started in February 2005 and completion  attempts in April and May
2005 were  unsuccessful.  A third  exploratory well (3% interest) was started in
May 2005 and  completed in January 2006. It appears to be a marginal gas well. A
development  well (3%  interest)  was started in October  2005 and  completed in
December 2005 as a commercial oil and gas producer.  Two additional  development
wells (3% interests) were started in November 2005. One was completed in January
2006 and appears to be a commercial gas well. A completion  attempt of the other
is  currently in  progress.  The fourth  exploratory  well (4.7%  interest)  was
started in December 2005 and a completion  attempt is currently in progress.  An
additional development well has been proposed.  Capitalized drilling costs as of
December 31, 2005 (net of an impairment  reserve of $27,194)  totaled  $324,066,
and dry hole costs were $67,014.

The  Company  participated  with a 16% working  interest  in the  drilling of an
exploratory well on a McClain County, Oklahoma prospect. The well was started in
October 2004 and completed in January 2005. Oil and gas production  commenced in
February  2005 at a commercial  rate but declined  rapidly.  Pumping  equipment,
installed in May 2005,  restored the well to commercial  production,  but it has
since  declined  to  marginal  status.  Drilling  costs  totaled  $248,200 as of
December  31,  2005.  An  impairment  reserve of $112,919  has been  recorded at
December 31, 2005 for this well.

The  Company  participated  with a fee mineral  interest  in the  drilling of an
exploratory  horizontal well in Harding County,  South Dakota. The Company has a
10.9%  interest in the well which was started in February  2005 and completed in
April 2005 as a commercial oil well.  Capitalized  costs as of December 31, 2005
were $229,682.

In February  2005,  the Company  purchased a 16%  interest in 3,830 net acres of
leasehold on a Cheyenne and Rawlins Counties, Kansas prospect for $21,380. A 3-D
seismic survey was conducted and an  exploratory  well was started in June 2005.
It was  completed  as a dry hole in July 2005.  No further  drilling is planned.
Drilling  costs  totaling  $28,480 as of December 31, 2005 have been expensed as
dry hole costs.

In August  2005,  the Company  purchased  an 18%  interest in 2,200 net acres of
leasehold on a Woods County,  Oklahoma prospect for $61,875. An exploratory well
was started in October 2005 and completed in November  2005 as a commercial  oil
and gas  producer.  A step-out  well was started in October  2005  following  an
unsuccessful  attempt to re-enter an old dry hole.  It was completed in December
2005 as a  commercial  oil and gas well.  Sales  from both  wells  commenced  in
February 2006. Additional acreage is being acquired and two additional wells are
planned for 2006.  Drilling costs of $8,649 were charged to dry hole expense and
$163,260 were capitalized as of December 31, 2005.

In May 2005, the Company  purchased a 16% interest in 640 net acres of leasehold
on a Woods County,  Oklahoma prospect for $9,600. An old dry hole was re-entered
and washed down in July 2005 and  completed in August 2005 as a marginal oil and
gas well.  Capitalized  costs totaled $45,268 as of December 31, 2005, net of an
impairment reserve of $42,543.

In May 2005, the Company purchased a 16% interest in a McClain County,  Oklahoma
prospect for $20,000. An exploratory well was started in June 2005 and completed
in December  2005 as a commercial  oil and gas  producer.  Capitalized  drilling
costs totaled $326,614 as of December 31, 2005.


                                       17
<PAGE>


In May 2005, the Company purchased a 2% interest in a Juab County, Utah prospect
for $145,212.  An  exploratory  well was started in June 2005 and completed as a
dry hole in November 2005. The prospect is being re-evaluated. Drilling costs of
$245,961 were charged to dry hole expense as of December 31, 2005.

In December  2005,  the Company  purchased  a 14%  interest in an Ellis  County,
Oklahoma prospect for $132,508.  An exploratory well was started in January 2006
and  completed  in  February  2006  as  a  dry  hole.   The  prospect  is  being
re-evaluated. Prepaid drilling costs were $188,886 as of December 31, 2005.

In December  2005,  the  Company  purchased  a 10%  interest in a Grady  County,
Oklahoma  prospect for $49,966.  A 3-D seismic survey will be conducted in March
2006 followed by the drilling of an exploratory well.

In February  2006,  the  Company  purchased  a 15%  interest in a Woods  County,
Oklahoma  prospect for $15,600.  A step-out  well was started in February  2006,
drilled to total depth and casing was set. A completion attempt is pending.

The Company will  participate with its 15.7% working interest in the drilling of
a horizontal development well on a Seminole County,  Oklahoma prospect. The well
is scheduled to commence in March 2006.  Prepaid drilling costs were $112,471 as
of December 31, 2005.

DEPRECIATION,  DEPLETION,  AMORTIZATION AND VALUATION  PROVISIONS (DD&A).  Major
components are the provision for impairment of undeveloped leaseholds, provision
for  impairment  of long-lived  assets,  depletion of producing  leaseholds  and
depreciation  of  tangible  and  intangible  lease and well  costs.  Undeveloped
leaseholds are amortized over the life of the leasehold (most are 3 years) using
a straight  line method  except when the  leasehold  is impaired or condemned by
drilling and/or geological  interpretation of seismic data; if so, an adjustment
to the provision is made at the time of impairment. The provision for impairment
of  undeveloped  leaseholds  was  $261,124  in 2005 and  $168,819  in 2004.  The
increase in the provision for impairment is directly  related to the exploration
activity  discussed under  "Exploration  Costs",  above.  The 2005 provision for
impairment  was  primarily  due  to  the  annual   amortization  of  undeveloped
leaseholds  of  approximately  $239,000  and only about  $22,000 due to specific
leasehold impairments.  In 2004, a Coal County,  Oklahoma marginal well resulted
in an impairment of approximately $121,000.

As discussed in Note 10 to the  accompanying  financial  statements,  accounting
principles  require the recognition of an impairment  loss on long-lived  assets
used  in  operations   when   indicators  of  impairment  are  present  and  the
undiscounted  cash flows estimated to be generated by those assets are less than
the assets  carrying  amount.  Reviews were performed in both 2005 and 2004. The
2005 provision of $367,635 was partly the result of reserve adjustments on wells
which first produced in 2004 but mostly due to wells completed in 2005 for which
the estimated fair market value of future production was less than the Company's
carrying  amount in the well.  The 2004  provision  of  $320,154  was to a great
extent the result of similar declines in 2004.

The depletion and  depreciation  of oil and gas  properties  are computed by the
units-of-production  method. The amount expensed in any year will fluctuate with
the  change  in  estimated  reserves  of oil and gas,  a  change  in the rate of
production  or a change in the basis of the assets.  The provision for depletion
and  depreciation  totaled  $723,980 in 2005 and  $407,142 in 2004.  Most of the
increase of $316,838  is due to  increased  oil and gas  property  additions  in
recent years.


                                       18
<PAGE>


GENERAL,  ADMINISTRATIVE AND OTHER EXPENSES (G&A). G&A increased $70,769 (9%) to
$854,619  in 2005 from  $783,850  in 2004.  The  increase  was the  result of an
increase in employee  salaries and benefits,  an increase in accounting  fees of
approximately $5,000 and in increase in franchise and ad valorem taxes of almost
$40,000.

EQUITY INCOME (LOSS) IN INVESTEES. The following is an analysis of equity income
(loss) in  investees  by entity for the years ended  December 31, 2005 and 2004.
See Note 7 to the accompanying financial statements included in Item 7 below for
more information.


                                         Net Income (Loss)   2005 Income (Loss)
                                       --------------------      Over (Under)
                                          2005      2004           2004
                                       ---------  ---------  ------------------
Broadway Sixty-Eight, Ltd.             $  17,407  $  22,066  $           (4,659)
Millennium Golf Properties, LLC           21,677     13,180               8,497
OKC Industrial Properties, LC             66,662     48,980              17,682
JAR Investment, LLC                       82,952      2,455              80,497
                                       ---------  ---------  ------------------
   Total                               $ 188,698  $  86,681  $          102,017
                                       =========  =========  ==================

OTHER INCOME (LOSS), NET. See Note 11 to the accompanying  financial  statements
for an analysis of the components of this line item for the years ended 2005 and
2004.  Other  income,  net  decreased  $146,016  (47%) to  $167,256 in 2005 from
$313,272 in 2004.

Realized and  unrealized  gain (loss) on trading  securities  decreased  $18,951
(203%) to  $(9,613)  loss in 2005 from $9,338  gain in 2004.  Realized  gains or
losses result when a trading  security which is owned is sold.  Unrealized gains
or losses  result  from  adjusting  the  Company's  carrying  amount in  trading
securities  owned at the reporting date to estimated fair market value. In 2005,
the Company had  realized  gains of $798 and  unrealized  losses of $10,411.  In
2004,  the  Company  had  realized  gains of $35,347  and  unrealized  losses of
$26,009.

Accrual basis interest income increased $103,031 (206%) to $153,059 in 2005 from
$50,028 in 2004.  The increase was the result of an increase in the average rate
of return on cash  equivalents and available for sale securities from which most
of interest  income is derived.  The average rate of return  increased  1.33% to
2.21% in 2005  from  0.88% in  2004,  and the  average  balance  outstanding  of
$5,582,429 increased $1,106,863 (25%) from $4,475,566 in 2004.

Most of the  decrease in this line item was due to the  decrease in class action
lawsuit  settlements of $283,421 (95%) to $13,775 in 2005 from $297,196 in 2004.
All of this  decrease was due to  settlement  of  litigation  in 2004  described
earlier under  "Operating  Activities" in the  "Liquidity and Capital  Reserves"
section. The Company currently has no significant pending lawsuits.

Provision  for (Benefit  from)  Income  Taxes.  See Note 6, to the  accompanying
financial statements for an analysis of the various components of income taxesIn
2005,  the Company had an estimated  provision for income taxes of $1,321,836 as
the result of a current tax  provision of $731,659 plus a deferred tax provision
of $590,177. In 2004, the Company had an estimated provision for income taxes of
$453,071 as the result of a current tax provision of $89,129 plus a deferred tax
provision of $363,942.


                                       19
<PAGE>


ITEM 7. FINANCIAL STATEMENTS.

      Index to Financial Statements.
                                                                            Page

      Report of Independent Registered Public Accounting Firm -
      Murrell, Hall, McIntosh & Co., PLLP, 2005.                             21

      Report of Independent Registered Public Accounting Firm -
      Grant Thornton, LLP 2004, 2003.                                        22

      Balance Sheets - December 31, 2005 and 2004                            23

      Statements of Operations - Years Ended December 31, 2005
      and 2004                                                               25

      Statement of Stockholders' Equity - Years Ended December 31, 2005
      and 2004                                                               26

      Statements of Cash Flows - Years Ended December 31, 2005
      and 2004                                                               27

      Notes to Financial Statements                                          29

      Unaudited Supplemental Financial Information                           38


                                       20
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
The Reserve Petroleum Company

      We have audited the  accompanying  balance sheet of THE RESERVE  PETROLEUM
COMPANY as of December  31,  2005,  and the related  statements  of  operations,
stockholders'  equity,  and cash flows for the year then ended.  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 audit.

      We  conducted  our audit 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.  The  Company is not
required  to have,  nor were we engaged  to  perform,  an audit of its  internal
control over financial  reporting.  Our audit included of internal  control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   assessing  the  accounting  principles  used  and
significant  estimates  made by  management,  as well as evaluating  the overall
financial  statement  presentation.   We  believe  that  our  audit  provides  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 The  Reserve  Petroleum
Company as of December  31,  2005,  and the results of its  operations  and cash
flows  for the  year  then  ended,  in  conformity  with  accounting  principles
generally accepted in the United States of America.

/S/ MURRELL, HALL, MCINTOSH & CO., PLLP

Oklahoma City, Oklahoma
March 17, 2006


                                       21
<PAGE>

             REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
The Reserve Petroleum Company

We have audited the accompanying balance sheets of The Reserve Petroleum Company
as of December  31, 2004 and 2003,  and the related  statements  of  operations,
stockholders'  equity and cash flows for the years then ended.  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.  The Company is not  required to
have,  nor were we  engaged to perform  an audit of its  internal  control  over
financial reporting.  Our audit included  consideration of internal control over
financial  reporting  as  a  basis  for  designing  audit  procedures  that  are
appropriate  in the  circumstances,  but not for the  purpose of  expressing  an
opinion on the  effectiveness  of the Company's  internal control over financial
reporting.  Accordingly,  we express  no such  opinion.  An audit also  includes
examining,  on a test basis,  evidence supporting the amounts and disclosures in
the  financial   statements,   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  provide  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 The Reserve Petroleum Company
as of December 31, 2004 and 2003, and the results of its operations and its cash
flows  for the  years  then  ended  in  conformity  with  accounting  principles
generally accepted in the United States of America.


/s/ GRANT THORNTON LLP

Oklahoma City, Oklahoma
March 11, 2005


                                       22
<PAGE>


                          THE RESERVE PETROLEUM COMPANY
                                 BALANCE SHEETS
                                     ASSETS

<TABLE>
<CAPTION>
                                                                    December 31,
                                                            --------------------------
                                                                2005          2004
                                                            ------------  ------------
<S>                                                        <C>           <C>
Current Assets:
    Cash and Cash Equivalents (Note 2)                      $    704,121  $    570,497
    Available for Sale Securities (Notes 2 & 5)                5,522,100     4,718,828
    Trading Securities (Notes 2 & 5)                             254,434       261,893
    Receivables (Note 2)                                       2,092,067       669,008
                                                            ------------  ------------
                                                               8,572,722     6,220,226
                                                            ------------  ------------
Investments:
    Equity Investments (Notes 2 & 7)                             450,217       532,469
    Other                                                         15,298        15,298
                                                            ------------  ------------
                                                                 465,515       547,767
                                                            ------------  ------------
Property, Plant & Equipment (Notes 2, 8 & 10):
    Oil & Gas Properties, at Cost Based on the
        Successful Efforts Method of Accounting
             Unproved Properties                               1,133,077       624,061
             Proved Properties                                 9,612,125     7,172,141
                                                            ------------  ------------
                                                              10,745,202     7,796,202
        Less - Valuation Allowance and Accumulated
             Depreciation, Depletion & Amortization            5,773,992     5,141,638
                                                            ------------  ------------
                                                               4,971,210     2,654,564
                                                            ------------  ------------
      Other Property & Equipment, at Cost                        404,726       375,568
            Less - Accumulated Depreciation & Amortization       203,480       175,615
                                                            ------------  ------------
                                                                 201,246       199,953
                                                            ------------  ------------
                                                               5,172,456     2,854,517
                                                            ------------  ------------
Other Assets                                                     304,797       461,722
                                                            ------------  ------------
                                                            $ 14,515,490  $ 10,084,232
                                                            ============  ============
</TABLE>

      See Accompanying Notes


                                       23
<PAGE>


                          THE RESERVE PETROLEUM COMPANY
                                 BALANCE SHEETS

                      LIABILITIES AND STOCKHOLDERS' EQUITY

                                                            December 31,
                                                    ----------------------------
                                                        2005           2004
                                                    ------------    ------------
Current Liabilities:
      Accounts Payable (Note 2)                     $    324,675    $    169,823
      Income Taxes Payable                               331,412           4,394
      Other Current Liabilities -
         Deferred Income Taxes and Other                 465,108         147,682
                                                    ------------    ------------
                                                       1,121,195         321,899
                                                    ------------    ------------
Long Term Liabilities:
      Dividends Payable (Note 3)                         184,749         170,928
      Deferred Tax Liability                             655,470         384,484
                                                    ------------    ------------
                                                         840,219         555,412
                                                    ------------    ------------

Commitments & Contingencies (Notes 2 & 7)

Stockholder's Equity: (Notes 3 & 4)
      Common Stock                                        92,368          92,368
      Additional Paid-in Capital                          65,000          65,000
      Retained Earnings                               12,786,650       9,303,963
                                                    ------------    ------------
                                                      12,944,018       9,461,331
      Less  - Treasury Stock, at Cost                    389,942         254,410
                                                    ------------    ------------
                                                      12,554,076       9,206,921
                                                    ------------    ------------
                                                    $ 14,515,490    $ 10,084,232
                                                    ============    ============

      See Accompanying Notes


                                       24
<PAGE>


                          THE RESERVE PETROLEUM COMPANY
                            STATEMENTS OF OPERATIONS


<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                        --------------------------
                                                            2005          2004
                                                        ------------  ------------
<S>                                                     <C>           <C>
Operating Revenues:
     Oil & Gas Sales                                    $  8,067,949  $  3,921,384
     Lease Bonuses & Other                                   455,397       343,162
                                                        ------------  ------------
                                                           8,523,346     4,264,546
                                                        ------------  ------------
Operating Costs and Expenses:
     Production                                            1,005,720       620,492
     Exploration                                             495,351       139,231
     Depreciation, Depletion, Amortization
          & Valuation Provisions                           1,389,679       918,864
     General, Administrative and Other                       854,619       783,850
                                                        ------------  ------------
                                                           3,745,369     2,462,437
                                                        ------------  ------------
Income from Operations                                     4,777,977     1,802,109
Equity Income in Investees (Note 7)                          188,698        86,681
Other Income, Net  (Note 11)                                 167,256       313,272
                                                        ------------  ------------
Income before Income Taxes                                 5,133,931     2,202,062
Provision for Income Taxes (Notes 2 & 6)                   1,321,836       453,071
                                                        ------------  ------------
Net Income                                              $  3,812,095     1,748,991
                                                        ============  ============
Per Share Data (Note 2):
     Net Income, Basic and Diluted                      $      23.17  $      10.56
                                                        ============  ============
     Cash Dividends                                     $       2.00  $       1.00
                                                        ============  ============
Weighted Average Shares Outstanding, Basic and Diluted       164,531       165,661
                                                        ============  ============
</TABLE>

See Accompanying Notes


                                       25
<PAGE>


                          THE RESERVE PETROLEUM COMPANY
                        STATEMENT OF STOCKHOLDERS' EQUITY
                    FOR THE TWO YEARS ENDED DECEMBER 31, 2005

<TABLE>
<CAPTION>
                                                  Additional
                                      Common       Paid-in       Retained       Treasury
                                       Stock       Capital       Earnings        Stock
                                   ------------  ------------  ------------   ------------

<S>                                <C>           <C>           <C>            <C>
Balance at January 1, 2004         $     92,368  $     65,000  $  7,720,645   $   (240,490)

   Net  Income                             --            --       1,748,991           --

   Cash Dividends on Common Stock          --            --        (165,673)          --

   Purchase of Treasury Stock              --            --            --          (13,920)
                                   ------------  ------------  ------------   ------------
Balance at December 31, 2004             92,368        65,000     9,303,963       (254,410)

   Net  Income                             --            --       3,812,095           --

   Cash Dividends on Common Stock          --            --        (329,408)          --

   Purchase of Treasury Stock              --            --            --         (135,532)
                                   ------------  ------------  ------------   ------------

Balance at December 31, 2005       $     92,368  $     65,000  $ 12,786,650   $   (389,942)
                                   ============  ============  ============   ============
</TABLE>

See Accompanying Notes


                                       26
<PAGE>


                          THE RESERVE PETROLEUM COMPANY
                            STATEMENTS OF CASH FLOWS
                Increase (Decrease) in Cash and Cash Equivalents

<TABLE>
<CAPTION>
                                                             Year Ended December 31,
                                                          -----------------------------
                                                               2005            2004
                                                          -------------   -------------
<S>                                                      <C>              <C>
Cash Flows from Operating Activities:
   Cash Received-
      Oil and Gas Sales                                   $   6,752,119   $   3,762,604
      Lease Bonuses and Rentals                                 330,780         309,451
      Agricultural Rentals & Other                                5,303           5,415
   Cash Paid-
      Production Costs                                         (997,571)       (602,551)
      Exploration Costs                                        (489,893)       (139,151)
      General Suppliers, Employees and Taxes,
          Other than Income                                    (874,000)       (786,160)
   Interest Received                                            123,272          39,500
   Interest Paid                                                 (3,778)         (9,375)
   Settlement of Class Action Lawsuits                           13,775         297,196
   Dividends Received on Trading
      Securities                                                  1,681             657
   Purchase of Trading Securities                              (609,393)       (533,568)
   Sale of Trading Securities                                   607,239         532,680
   Income Taxes Paid, net                                      (404,641)           --
                                                          -------------   -------------
      Net Cash Provided by Operating
        Activities                                            4,454,893       2,876,698
                                                          -------------   -------------

Cash Flows from Investing Activities:
   Maturity of Available for Sale Securities                  9,686,787       7,880,588
   Purchase of Available for Sale Securities                (10,490,059)     (8,333,404)
   Property Dispositions                                         50,705          81,607
   Property Additions                                        (3,554,593)     (2,183,687)
   Cash Distributions from Equity Investments                   270,950          71,500
   Distribution for Surrender of Life Insurance Policy          166,059            --
                                                          -------------   -------------
                Net Cash Applied to Investing Activities  $  (3,870,151)  $  (2,483,396)
                                                          -------------   -------------
</TABLE>

      See Accompanying Notes


                                       27
<PAGE>


                          THE RESERVE PETROLEUM COMPANY
                            STATEMENTS OF CASH FLOWS
                Increase (Decrease) in Cash and Cash Equivalents

                                                       Year Ended December 31,
                                                    ---------------------------
                                                        2005           2004
                                                    ------------   ------------
Cash Flows Applied to Financing Activities:
   Dividends Paid to Shareholders                   $   (315,586)  $   (155,052)
   Purchase of Treasury Stock                           (135,532)       (13,920)
                                                    ------------   ------------
     Total Cash Applied to Financing  Activities        (451,118)      (168,972)
                                                    ------------   ------------
Net Change in Cash and Cash Equivalents                  133,624        224,330
Cash and Cash Equivalents at Beginning of Year           570,497        346,167
                                                    ------------   ------------
Cash and Cash Equivalents at End of Year            $    704,121   $    570,497
                                                    ============   ============
Reconciliation of Net Income  to Net
     Cash Provided by Operating Activities:
Net Income                                          $  3,812,095   $  1,748,991
Net Income Increased (Decreased) by -
     Net Change in -
   Unrealized Holding (Gains) Losses
     on Trading Securities                                10,411         26,009
   Accounts Receivable                                (1,438,941)      (181,342)
   Interest and Dividends Receivable                     (29,787)       (10,240)
   Income Taxes Refundable/Payable                       327,018         39,079
   Accounts Payable                                        3,582         55,214
   Trading Securities                                     (2,952)       (36,236)
   Other Assets                                           (9,097)       (14,556)
   Deferred Taxes                                        590,177        413,942
   Other Liabilities                                      (1,765)        (2,334)
   Equity Income  in Investees                          (188,698)       (86,681)
   Disposition of Property & Equipment                    (6,828)         5,988
   Depreciation, Depletion, Amortization
     and Valuation Provisions                          1,389,678        918,864
                                                    ------------   ------------
Net Cash Provided by Operating Activities           $  4,454,893   $  2,876,698
                                                    ============   ============

See Accompanying Notes


                                       28
<PAGE>


                          THE RESERVE PETROLEUM COMPANY
                          NOTES TO FINANCIAL STATEMENTS

Note 1 - NATURE OF OPERATIONS

      The Company is principally  engaged in oil and natural gas exploration and
      development with an area of concentration in Texas and Oklahoma.

Note 2 - SUMMARY OF ACCOUNTING POLICIES

      Cash & Cash Equivalents

      The Company considers all highly liquid debt instruments  purchased with a
      maturity  of three  months  or less to be cash  equivalents.  The  Company
      maintains  its cash in bank  deposit  accounts  which at times may  exceed
      federally  insured limits.  The Company  believes it is not exposed to any
      significant credit risk on such accounts.

      Investments

      Available for sale  securities,  which consist  primarily of US Government
      securities,  are  carried at fair value with  unrealized  gains and losses
      reported as a component of other comprehensive income, when material.

      Trading  securities,  which consist  primarily of equity  securities,  are
      carried  at fair  value  with  unrealized  gains and  losses  included  in
      operations.

      The Company  accounts for its  investments  in a  partnership  and limited
      liability companies on the equity basis and adjusts the investment balance
      to agree with its equity in the  underlying  assets of the  entities.  See
      Note 7 for additional information.

      Receivables and Revenue Recognition

      Oil and gas  sales  and  resulting  receivables  are  recognized  when the
      product is delivered to the purchaser and title has transferred. Sales are
      to credit-worthy  major energy purchasers with payments generally received
      within 60 days of  transportation  from the well  site.  The  Company  has
      historically had little, if any, uncollectible receivables;  therefore, an
      allowance for uncollectible accounts is not required.

      Property and Equipment

      Oil and gas properties are accounted for on the successful efforts method.
      The acquisition, exploration and development costs of producing properties
      are  capitalized.  The Company has not  historically  had any  capitalized
      exploratory drilling costs that are pending  determination of reserves for
      more  than one year.  All  costs  relating  to  unsuccessful  exploration,
      geological and geophysical costs,  delay rentals and abandoned  properties
      are  expensed.  Lease costs related to unproved  properties  are amortized
      over the life of the lease and are assessed  periodically.  Any impairment
      of value is charged to expense.

      Depreciation,  depletion  and  amortization  of  producing  properties  is
      computed  on  the  units-of-production  method  on a  property-by-property
      basis. The  units-of-production  method is based primarily on estimates of
      proved  reserve  quantities.   Due  to  uncertainties   inherent  in  this
      estimation  process,  it is at  least  reasonably  possible  that  reserve
      quantities will be revised in the near term.


                                       29
<PAGE>


Other   property   and   equipment   is   depreciated   on  the   straight-line,
declining-balance or other accelerated methods.

The  following  estimated  useful  lives  are  used for the  different  types of
property:

      Buildings and improvements         10 to 20 years
      Office furniture & fixtures         5 to 10 years
      Automotive equipment                5 to  8 years

Impairment  losses are recorded on  long-lived  assets used in  operations  when
indicators of impairment are present and the  undiscounted  cash flows estimated
to be generated by those assets are less than the assets' carrying  amount.  See
Note 10 for discussion of impairment losses.

Income Taxes

Deferred income taxes are provided for significant  carryforwards  and temporary
differences using the liability method. See Note 6 for additional information.

Net Income Per Share

Net income per share is calculated  based on the weighted  average of the number
of shares outstanding during the year. There are no dilutive shares.

Concentrations of Credit Risk and Major Customers

The Company's  receivables  relate  primarily to sales of oil and natural gas to
purchasers  with operations in Texas,  Kansas and Oklahoma.  The Company had two
purchasers in 2005 and one purchaser in 2004 whose  purchases  were in excess of
10% of total oil and gas sales. In 2005, XTO Energy purchases were $910,108,  or
11.3% of  total  oil and gas  sales  and  Burlington  Resources  purchases  were
$833,363,  or 10.3% of total oil and gas sales.  In 2004,  XTO Energy  purchases
were  $760,446,  or 19.4% of total oil and gas sales  and  Burlington  Resources
purchases were less than 1% of total oil and gas sales.

Use of Estimates

The  preparation  of the  financial  statements in  conformity  with  accounting
principles   generally  accepted  in  the  United  States  of  America  requires
management to make estimates and assumptions that affect the amounts reported in
the financial  statements and  accompanying  notes.  Actual results could differ
from those estimates.

Gas Balancing

Gas  imbalances  are accounted for under the sales method  whereby  revenues are
recognized  based on production sold. A liability is recorded when the Company's
excess takes of natural gas volumes exceed its estimated  remaining  recoverable
reserves (over produced).  No receivables are recorded for those wells where the
Company  has  taken  less  than its  ownership  share of gas  production  (under
produced).


                                       30
<PAGE>


      Guarantees

      In November  2002,  FASB  Interpretation  45,  Guarantor's  Accounting and
      Disclosure  Requirements for Guarantees,  Including Indirect Guarantees of
      Indebtedness  of Others (FIN 45), was issued.  FIN 45 requires a guarantor
      entity,  at the  inception  of a  guarantee  covered  by  the  measurement
      provisions  of the  interpretation,  to  record a  liability  for the fair
      market value of the obligation  undertaken in issuing the  guarantee.  The
      Company   previously  did  not  record  a  liability   when   guaranteeing
      obligations  unless it became  probable  that the  Company  would  have to
      perform under the guarantee.  FIN 45 applied  prospectively  to guarantees
      the  Company  issues or modifies  subsequent  to December  31,  2002.  The
      Company  historically  issues  guarantees  only on a limited basis but has
      issued such guarantees associated with the Company's equity investments in
      Broadway Sixty-Eight, Ltd and JAR Investment, LLC. Disclosures required by
      FIN 45 and the effect of  guarantees  issued in 2002 are discussed in Note
      7.

      Asset Retirement Obligations

      In June 2001, the Financial  Accounting  Standards  Board ("FASB")  issued
      SFAS No. 143,  Accounting for Asset Retirement  Obligations.  SFAS No. 143
      requires  entities  to record the fair value of a  liability  for an asset
      retirement  obligation  in  the  period  in  which  it is  incurred  and a
      corresponding  increase in the carrying  amount of the related  long-lived
      asset,  unless  such  items  are  immaterial.   Subsequently,   the  asset
      retirement  cost should be  allocated to expense  using a  systematic  and
      rational  method.  The Company has assessed the impact of SFAS No. 143 and
      based  on the  results  of the  assessment  believes  the  impact  of this
      statement  is  immaterial  to  its  financial   position  and  results  of
      operations.

      Accounting Changes

      SFAS  123(R),  SFAS 151,  SFAS 152,  SFAS 153 and SFAS 154 - SFAS 123 (R),
      Share  Based  Payment  replaces  SFAS  123,   Accounting  for  Stock-Based
      Compensation,  SFAS No. 151,  Inventory  Costs - an amendment of ARB No. 4
      and SFAS No. 152, Accounting for Real Estate  Time-Sharing  Transactions -
      an amendment of FASB  Statements No. 66 and 67, SFAS No. 153,  Exchange of
      Non-monetary Assets - an amendment of APB Opinion No. 29 and SFAS No. 154,
      Accounting Changes and Error Corrections - a replacement of APB No. 20 and
      SFAS 3 were recently issued.  SFAS No. 123(R),  151, 152, 153 and 154 have
      no  current  applicability  to the  Company  and  have  no  effect  on the
      consolidated financial statements.

Note 3 - DIVIDENDS PAYABLE

      Dividends  payable include  amounts that are due to stockholders  whom the
      Company has been unable to locate and  uncashed  dividend  checks of other
      stockholders.


                                       31
<PAGE>


Note 4 - COMMON STOCK

      The  following  table  summarizes  the changes in common  stock issued and
      outstanding:

<TABLE>
<CAPTION>
                                                              Shares of
                                               Shares         Treasury          Shares
                                               Issued           Stock        Outstanding
                                             -----------     -----------     -----------

      <S>                                     <C>              <C>            <C>
      January 1, 2004, $.50
      par value stock, 400,000
      shares authorized                       184,735.28       18,797.64      165,937.64
      Purchase of stock                          --               429.00         (429.00)
                                             -----------     -----------     -----------

      December 31, 2004, $.50
      par value stock, 400,000
      shares authorized                       184,735.28       19,226.64      165,508.64
      Purchase of stock                          --             1,875.00       (1,875.00)
                                             -----------     -----------     -----------

      December 31, 2005, $.50
      par value stock, 400,000
      shares authorized                       184,735.28       21,101.64      163,633.64
                                             ===========     ===========     ===========
</TABLE>

Note 5 - INVESTMENTS IN DEBT AND EQUITY SECURITIES

      At December 31, 2005 and 2004, the  difference  between the aggregate fair
      value and  amortized  cost  basis of  available  for sale  securities  was
      immaterial;  therefore, reporting of comprehensive income is not required.
      The available for sale  securities by contractual  maturity are as follows
      at December 31, 2005:

            Due within one year or less                  $ 5,522,100
                                                         ===========

      As to the trading securities held at year end, unrealized trading (losses)
      gains included in earnings were $(10,411) for 2005 and $(26,009) for 2004.


                                       32
<PAGE>


Note 6 - INCOME TAXES

   Components of deferred taxes follows:

<TABLE>
<CAPTION>
                                                                  December 31,
                                                         -----------------------------
                                                             2005            2004
                                                         -------------   -------------
     <S>                                                 <C>             <C>
        Assets
          Leasehold Costs                                $     230,052   $     182,338
          Gas Balancing Receivable                              52,379          52,379
          Long-Lived Asset Impairment                          301,263         233,523
          Other                                                  8,431             271
                                                         -------------   -------------
                  Total Assets                                 592,125         468,511
        Liabilities
          Marketable Securities                                  3,335           7,056
          Receivables                                          421,048          98,137
          Intangible Development Costs and Depreciation      1,247,595         852,994
                                                         -------------   -------------
                  Total Liabilities                          1,671,978         958,187
                                                         -------------   -------------

        Net Deferred Tax  Liability                      $  (1,079,853)  $    (489,676)
                                                         =============   =============
</TABLE>

   The following table summarizes the current and deferred portions of income
   tax expense.

<TABLE>
<CAPTION>
                                                           Year Ended December 31,
                                                       ------------------------------
                                                          2005               2004
                                                       -----------        -----------
     <S>                                               <C>                <C>
        Current Tax Provision:
          Federal                                      $   727,162        $    89,129
          State                                              4,497               --
                                                       -----------        -----------
                                                           731,659             89,129

        Deferred Provision                                 590,177            363,942
                                                       -----------        -----------
        Total Provision                                $ 1,321,836        $   453,071
                                                       ===========        ===========
</TABLE>


                                       33
     <PAGE>


      The total  provision  for income tax  expressed as a percentage  of income
      before income tax was 26% in 2005 and 21% in 2004.  These  amounts  differ
      from the amounts  computed by applying the statutory US Federal income tax
      rate of 35% for 2005 and 2004 to income before income tax as summarized in
      the following reconciliation:

<TABLE>
<CAPTION>
                                                          Year Ended December 31,
                                                       ----------------------------
                                                           2005            2004
                                                       -----------      -----------
     Computed Federal Tax
<S>                                                    <C>              <C>
        Provision                                      $ 1,795,302      $   770,722

     Increase (Decrease) in Tax  From:

        Corporate Graduated Tax Rate
                  Structure                                (51,339)         (22,021)
        Refund for Capital Loss Carryback                     --            (49,312)
        Allowable Depletion in Excess of Basis            (439,533)        (246,801)
        Dividend Received Deduction                           (412)            (161)
        State Income Tax Provision                           4,497             --
        Other                                               13,321              644
                                                       -----------      -----------
        Provision for Income Tax                       $ 1,321,836      $   453,071
                                                       ===========      ===========
        Effective Tax Rate                                      26%              21%
                                                       ===========      ===========
</TABLE>


Note 7  -  INVESTMENTS  AND  RELATED  COMMITMENTS  AND  CONTINGENT  LIABILITIES
           INCLUDING GUARANTEES

      The carrying value of Equity Investments consist of the following at
      December 31:

<TABLE>
<CAPTION>
                                                 Ownership %               2005             2004
                                                 -----------         ---------------  ---------------
      <S>                                            <C>             <C>              <C>
      Broadway Sixty-Eight, Ltd.                     33%                     325,691  $       308,284
      JAR Investment, LLC                            25%                       8,022           93,820
      Millennium Golf Properties, LLC                 9%                      63,153           57,676
      OKC Industrial Properties, L.L.C.              10%                      53,351           72,689
                                                                     ---------------  ---------------
                                                                     $       450,217  $       532,469
                                                                     ===============  ===============
</TABLE>

      Broadway   Sixty-Eight,   Ltd.,  an  Oklahoma  limited   partnership  (the
      Partnership),  owns and  operates an office  building  in  Oklahoma  City,
      Oklahoma.  Although the Company invested as a limited partner,  along with
      the other limited partners, it agreed jointly and severally with all other
      limited  partners to reimburse the general partner for any losses suffered
      from  operating  the  Partnership.  The  indemnity  agreement  provides no
      limitation to the maximum potential future payments.

      The  Company  leases  its  corporate  office  from  the  Partnership.  The
      operating  lease under  which the space was rented  expired  December  31,
      1995, and the space is currently rented on a year-to-year  basis under the
      terms of the expired lease. Rent expense for lease of the corporate office
      from the Partnership was approximately $27,000 for each of the years ended
      December 31, 2005 and 2004.


                                       34
<PAGE>


      JAR  Investment,   LLC,  (JAR)  an  Oklahoma  limited  liability  company,
      previously held Oklahoma City  metropolitan area real estate that was sold
      in June  2005 (see  below).  JAR also owns a 70%  management  interest  in
      Main-Eastern,  LLC (M-E), also an Oklahoma limited liability company.  M-E
      was  formed  in  2002  to   establish   a  joint   venture  to  develop  a
      retail/commercial center on a portion of JAR's real estate.

      The Company has a guarantee agreement limited to 25% of JAR's 70% interest
      in  M-E's  outstanding  loan  plus  all  costs  and  expenses  related  to
      enforcement  and  collection,  or $154,359 at December 31, 2005. This loan
      matures  November 27, 2008.  Because the guarantee of the M-E loan has not
      been  modified  subsequent to December 31, 2002, no liability for the fair
      value of the  obligation  is required to be recorded by the  Company.  The
      maximum  potential  amount of future payments  (undiscounted)  the Company
      could be required  to make under the M-E  guarantee  at December  31, 2005
      (based on the original  loan  amount) is $169,750  plus costs and expenses
      related to enforcement and collection.

      In late June 2005,  JAR sold all real estate  except the portion  with the
      retail/commercial  center  developed  by the M-E joint  venture  discussed
      above.  At closing,  the JAR bank loan secured by the property  being sold
      was paid off and the Company's  guarantee  agreement relating to this loan
      was  terminated.  The  Company's  share  of the  gain  on  this  sale  was
      approximately  $80,000 and in early July 2005, the Company received a cash
      distribution of $165,000 from JAR.

      Millennium Golf Properties,  LLC, an Oklahoma limited  liability  company,
      owns and operates two Oklahoma City area golf  courses,  Coffee Creek Golf
      Course and River Oaks Golf  Course.  It is also  involved  in real  estate
      development around each golf course.

      OKC Industrial Properties,  L.L.C., an Oklahoma limited liability company,
      holds  certain  Oklahoma  City   metropolitan   area  real  estate  as  an
      investment.

Note  8 - COSTS INCURRED IN OIL AND GAS PROPERTY ACQUISITION, EXPLORATION, AND
          DEVELOPMENT ACTIVITIES

      All of the Company's  oil and gas  operations  are within the  continental
      United  States.  In  connection  with  its  oil and  gas  operations,  the
      following costs were incurred:

<TABLE>
<CAPTION>
                                                            Year Ended December 31,
                                                        ------------------------------
                                                            2005              2004
                                                        -----------        -----------
      Acquisition of Properties
<S>                                                     <C>                <C>
           Unproved                                     $   856,712        $   359,005
           Proved                                              --          $      --
      Exploration Costs                                 $ 1,649,796        $ 1,333,434
      Development Costs                                 $ 1,640,879        $   636,747
</TABLE>


Note 9 - FINANCIAL INSTRUMENTS

      The following table includes various  estimated fair value  information as
      of December 31, 2005 and 2004,  which pertains to the Company's  financial
      instruments and does not purport to represent the aggregate net fair value
      of the Company. The carrying amounts in the table below are the amounts at
      which the financial instruments are reported in the financial statements.


                                       35
<PAGE>


      All of the Company's  financial  instruments  are held for purposes  other
      than trading, except for trading securities.

      The following methods and assumptions were used to estimate the fair value
      of each class of financial instruments for which it is practicable to
      estimate that value:

      1. Cash and Cash Equivalents The carrying amount  approximates  fair value
      because  of  the  short   maturity  and  highly  liquid  nature  of  those
      instruments.

      2. Available for Sale  Securities The estimated fair values are based upon
      quoted market prices.

      3.  Trading  Securities  The  estimated  fair values are based upon quoted
      market prices.

      4. Dividends  Payable The carrying amount  approximates  fair value.  Fair
      value is the amount that will be paid on demand at the reporting date.

      The carrying amounts and estimated fair values of the Company's  financial
      instruments are as follows:

<TABLE>
<CAPTION>
                                                   2005                       2004
                                        -------------------------   -------------------------
                                          Carrying     Estimated      Carrying     Estimated
                                           Amount     Fair Value       Amount     Fair Value
                                        -----------   -----------   -----------   -----------

       <S>                              <C>           <C>           <C>          <C>
       Financial Assets
         Cash and Cash Equivalents      $   704,121   $   704,121   $   570,497   $   570,497
         Available for Sale Securities    5,522,100     5,522,100     4,718,828     4,718,828
         Trading Securities                 254,434       254,434       261,893       261,893
       Financial Liabilities
         Dividends Payable                 (184,749)     (184,749)     (180,928)     (180,928)
</TABLE>

Note 10 -  LONG-LIVED ASSETS IMPAIRMENT LOSS

      Certain oil and gas producing  properties  have been deemed to be impaired
      because the assets,  evaluated on a  property-by-property  basis,  are not
      expected to recover their entire carrying value through future cash flows.
      Impairment  losses totaling  $367,634 for the year ended December 31, 2005
      and  $320,154  for the year ended  December  31, 2004 are  included in the
      Statements  of  Operations  in the  line  item,  Depreciation,  Depletion,
      Amortization and Valuation Provisions.


                                       36
<PAGE>


Note 11 - OTHER INCOME, NET

      The following is an analysis of the  components  of Other Income,  Net for
      the years ended 2005 and 2004:

<TABLE>
<CAPTION>
                                                               2005            2004
                                                             ---------       ---------
       Realized and Unrealized Gain
<S>                                                          <C>             <C>
            On Trading Securities                            $  (9,613)      $   9,338
       Gain (Loss) on Asset Sales                                6,829         (39,651)
       Interest Income                                         153,059          50,028
       Settlements of Class Action Lawsuits                     13,775         296,908
       Agricultural Rental Income                                5,600           5,600
       Dividend and Other Income                                 1,681             657
       Interest and Other Expenses                              (4,075)         (9,608)
                                                             ---------       ---------
            Other Income,  Net                               $ 167,256       $ 313,272
                                                             =========       =========
</TABLE>

Note 12 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

      The Company is affiliated by common management and ownership with Mesquite
      Minerals,  Inc.,  (Mesquite),  Mid-American  Oil  Company  (Mid-American),
      Lochbuie  Limited  Partnership  (LLTD) and Lochbuie Holding Company (LHC).
      The Company also owns interests in certain producing and non-producing oil
      and gas  properties as tenants in common with Mesquite,  Mid-American  and
      LLTD.

      Mesquite,  Mid-American and LLTD share facilities and employees, including
      executive officers,  with the Company. The Company has been reimbursed for
      services,  facilities and miscellaneous  business expenses incurred during
      2005 by payment to the  Company in the  amount of  $182,013  by  Mesquite,
      $128,480 by Mid-American and $85,653 by LLTD. Reimbursements for 2004 were
      $169,950  by  Mesquite,  $119,965  by  Mid-American  and  $79,976 by LLTD.
      Included in the 2005 amounts, Mesquite paid $119,594, Mid-American $84,419
      and LLTD  $56,280  for  their  share of  salaries.  In 2004,  the share of
      salaries paid by Mesquite was  $112,888,  Mid-American  $79,686,  and LLTD
      $53,124.


                                       37
<PAGE>


                  UNAUDITED SUPPLEMENTAL FINANCIAL INFORMATION


                                       38
<PAGE>


                                                         SUPPLEMENTAL SCHEDULE 1

                          THE RESERVE PETROLEUM COMPANY
                 WORKING INTERESTS RESERVE QUANTITY INFORMATION
                                   (Unaudited)

                                                        Year Ended December 31,
                                                        -----------------------
                                                           2005        2004
                                                        ----------   ----------
Oil & Natural Gas Liquids (Bbls)
      Proved Developed and Undeveloped Reserves
           Beginning of Year                                90,473       53,605
           Revisions of Previous Estimates                   1,063        6,088
           Extensions and Discoveries                       44,556       43,100
           Production                                      (23,453)     (12,320)
                                                        ----------   ----------
           End of Year                                     112,639       90,473
                                                        ==========   ==========
      Proved Developed Reserves
           Beginning of Year                                90,473       53,605
           End of Year                                     112,639       90,473
Gas (MCF)
      Proved Developed and Undeveloped Reserves
           Beginning of Year                             1,329,700    1,089,402
           Revisions of Previous Estimates                  39,485       66,204
           Extensions and Discoveries                      553,830      421,434
           Production                                     (285,134)    (247,340)
                                                        ----------   ----------
           End of Year                                   1,637,881    1,329,700
                                                        ==========   ==========
      Proved Developed Reserves
           Beginning of Year                             1,329,700    1,089,402
           End of Year                                   1,637,881    1,329,700

      See notes on next page


                                       39
<PAGE>


                                                         SUPPLEMENTAL SCHEDULE 1

                          THE RESERVE PETROLEUM COMPANY
                 WORKING INTERESTS RESERVE QUANTITY INFORMATION
                                   (Unaudited)

Notes 1.    Estimates  of  royalty  interests  reserves  have not been  included
            because the information required for the estimation of said reserves
            is not  available.  The Company's  share of production  from its net
            royalty  interests was 12,797 Bbls of oil and 506,241 MCF of gas for
            the year ended December 31, 2005, and 12,507 Bbls of oil and 271,858
            MCF of gas for the year ended December 31, 2004.

      2.    The preceding  table sets forth  estimates of the  Company's  proved
            developed oil and gas  reserves,  together with the changes in those
            reserves as prepared by the  Company's  engineer for the years ended
            December  31, 2005 and 2004.  All  reserves  are located  within the
            United States.

      3.    The Company  emphasizes that the reserve volumes shown are estimates
            which by their nature are subject to revision in the near term.  The
            estimates have been made by utilizing geological and reservoir data,
            as well as  actual  production  performance  data  available  to the
            Company.  These  estimates  are  reviewed  annually  and are revised
            upward or downward, as warranted by additional performance data.


                                       40
<PAGE>


                                                         SUPPLEMENTAL SCHEDULE 2

                          THE RESERVE PETROLEUM COMPANY
            STANDARDIZED MEASURE OF DISCOUNTED FUTURE NET CASH FLOWS
                      RELATING TO PROVED WORKING INTERESTS
                              OIL AND GAS RESERVES
                                   (Unaudited)

                                                         At December 31,
                                                 ------------------------------
                                                     2005              2004
                                                 ------------      ------------

Future Cash Inflows                              $ 21,759,009      $ 12,666,911
Future Production and
    Development Costs                              (5,945,084)       (3,701,502)
Future Income Tax Expense                          (4,411,695)       (2,504,856)
                                                 ------------      ------------
Future Net Cash Flows                              11,402,230         6,460,553
    10% Annual Discount for
    Estimated Timing of Cash Flows                 (3,820,779)       (1,932,192)
                                                 ------------      ------------
Standardized Measure of Discounted
    Future Net Cash Flows                        $  7,581,451      $  4,528,361
                                                 ============      ============

Estimates of future net cash flows from the Company's  proved working  interests
oil and gas  reserves are shown in the table above.  These  estimates,  which by
their  nature are subject to  revision in the near term,  are based on prices in
effect at year end with no escalation.  The development and production costs are
based on year-end cost levels,  assuming the  continuation of existing  economic
conditions.  Cash flows are  further  reduced  by  estimated  future  income tax
expense  calculated  by applying the current  statutory  income tax rates to the
pretax net cash flows less  depreciation  of the tax basis of the properties and
depletion applicable to oil and gas production.


                                       41
<PAGE>


                                                         SUPPLEMENTAL SCHEDULE 3

                          THE RESERVE PETROLEUM COMPANY
              CHANGES IN STANDARDIZED MEASURE OF DISCOUNTED FUTURE
         NET CASH FLOWS FROM PROVED WORKING INTERESTS RESERVE QUANTITIES
                                   (Unaudited)

                                                      Year Ended December 31,
                                                    ---------------------------
                                                       2005            2004
                                                    -----------     -----------
Standardized Measure,
   Beginning of Year                                $ 4,528,361     $ 2,240,748

   Sales and Transfers, Net of
     Production Costs                                (2,700,022)     (1,380,392)

   Net Change in Sales and Transfer
     Prices, Net of Production Costs                  2,237,750       1,314,998

   Extensions, Discoveries and Improved
     Recoveries, Net of Future Production
     and Development Costs                            3,527,634       2,376,102

   Revisions of Quantity Estimates                      650,125         500,544

   Accretion of Discount                                628,402         309,122

   Net Change in Income Taxes                        (1,177,682)       (905,186)
   Changes in Production Rates
     (Timing) and Other                                (113,117)         72,425
                                                    -----------     -----------
Standardized Measure,
   End of Year                                      $ 7,581,451     $ 4,528,361
                                                    ===========     ===========


                                       42
<PAGE>


ITEM  8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
      FINANCIAL DISCLOSURE.

Information   regarding  changes  in  and  disagreements   with  accountants  on
accounting  and  financial  disclosure  in the Proxy  Statement is  incorporated
herein by reference.

ITEM 8A. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

As defined in Rules  13a-15(e) and 15d-15(e) of the  Securities  Exchange Act of
1934 (the "Exchange Act"), the term "disclosure  controls and procedures"  means
controls  and other  procedures  of an issuer  that are  designed to ensure that
information  required to be disclosed by the issuer in the reports that it files
or  submits  under the  Exchange  Act is  recorded,  processed,  summarized  and
reported,  within  the time  periods  specified  in the SEC's  rules and  forms.
Disclosure  controls and procedures include,  without  limitation,  controls and
procedures  designed to ensure that  information  required to be disclosed by an
issuer  in the  reports  that it files or  submits  under  the  Exchange  Act is
accumulated and communicated to the issuer's management, including its principal
executive  and  principal  financial  officers,  or persons  performing  similar
functions,   as  appropriate  to  allow  timely  decisions   regarding  required
disclosure.

The  Company's  Principal  Executive  Officer and  Principal  Financial  Officer
evaluated the effectiveness of the Company's  disclosure controls and procedures
and  concluded  that the  Company's  disclosure  controls  and  procedures  were
effective as of December 31, 2005.

INTERNAL CONTROL OVER FINANCIAL REPORTING

As defined  in Rule  13a-15(f)  and  15d-15(f)  of the  Exchange  Act,  the term
"internal  control over  financial  reporting"  means a process  designed by, or
under the  supervision  of,  the  issuer's  principal  executive  and  principal
financial officers, or persons performing similar functions, and effected by the
issuer's  board  of  directors,  management  and  other  personnel,  to  provide
reasonable  assurance  regarding the reliability of financial  reporting and the
preparation  of financial  statements for external  purposes in accordance  with
generally  accepted  accounting  principles  and  includes  those  policies  and
procedures that:

      (1)   Pertain to the  maintenance  of records  that in  reasonable  detail
            accurately and fairly reflect the  transactions  and dispositions of
            the assets of the issuer;

      (2)   Provide  reasonable  assurance  that  transactions  are  recorded as
            necessary  to  permit   preparation   of  financial   statements  in
            accordance with generally accepted accounting  principles,  and that
            receipts  and  expenditures  of the  issuer  are being  made only in
            accordance  with  authorizations  of management and directors of the
            issuer; and

      (3)   Provide  reasonable   assurance   regarding   prevention  or  timely
            detection of  unauthorized  acquisition,  use or  disposition of the
            issuer's  assets  that could have a material  adverse  effect on the
            financial statements.

The  Company's  management  is  responsible  for  establishing  and  maintaining
adequate internal control over financial  reporting for the Company.  There were
no changes in the Company's internal control over financial reporting during the
quarter ended December 31, 2005 that have materially affected, or are reasonably
likely to materially  affect,  the  Company's  internal  control over  financial
reporting.


                                       43
<PAGE>


                                    PART III

ITEM  9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
      COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.

Information  regarding  directors,  executive  officers,  promoters  and control
persons and  compliance  with  Section  16(a) of the  Exchange  Act in the Proxy
Statement is incorporated herein by reference.

ITEM  10. EXECUTIVE COMPENSATION.

Information   regarding  executive   compensation  in  the  Proxy  Statement  is
incorporated herein by reference.

ITEM  11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
      RELATED STOCKHOLDER MATTERS.

Information  regarding  security  ownership  of  certain  beneficial  owners and
management  and  related  stock  holder  matters  in  the  Proxy   Statement  is
incorporated herein by reference.

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

See Item 6,  "Management's  Discussion and Analysis or Plan of  Operation"  and
Item 7, Note 12 to Financial Statements.

ITEM 13. EXHIBITS.

The following  documents are exhibits to this Form 10-KSB.  Each document marked
by an asterisk is filed electronically herewith.

EXHIBIT
NUMBER                              DESCRIPTION

3.1   Restated   Certificate  of   Incorporation   dated  November  1,  1988  is
      incorporated  by  reference  to  Exhibit  3.1  of  The  Reserve  Petroleum
      Company's Annual Report on Form 10-KSB  (Commission File No. 0-8157) filed
      March 28, 1997.

3.2*  Amended By-Laws dated November 16, 2004.

14*   Code of Ethics

31.1* Certification of Principal  Executive  Officer Pursuant to Rules 13a-14(a)
      and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

31.2* Certification of Principal  Financial  Officer Pursuant to Rules 13a-14(a)
      and 15d-14(a) under the Securities Exchange Act of 1934, as amended.

32*   Certification  of  Principal  Executive  Officer and  Principal  Financial
      Officer Pursuant to 18 U.S.C. Section 1350.


                                       44
<PAGE>


ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information  regarding fees billed to the Company by its independent  registered
public  accounting  firms in the  Proxy  Statement  is  incorporated  herein  by
reference.


                                       45
<PAGE>


                                   SIGNATURES


In  accordance  with  Section 13 or 15(d) of the Exchange  Act,  the  registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.

                                      THE RESERVE PETROLEUM COMPANY
                                                  (Registrant)


                                        /s/ Mason W. McLain
                                      ---------------------------------------
                                      By:  Mason W. McLain, President
                                           (Principal Executive Officer)


                                      /s/ James L. Tyler
                                      ---------------------------------------
                                      By:  James L. Tyler, 2nd Vice President
                                           (Principal Financial Officer)

Date: March 24, 2006

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:


/s/ Mason McLain                           /s/ Jerry L. Crow
--------------------------------           --------------------------------
Mason W. McLain (Director)                 Jerry L. Crow (Director)
March 24,  2006                            March 24, 2006


/s/ Robert L. Savage                       /s/ William M. Smith
--------------------------------           --------------------------------
Robert L. Savage (Director)                William M. Smith  (Director)
March 24, 2006                             March 24, 2006


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