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, 2004

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

                   For the transition period from              to
                                                   -----------    -------------

                        Commission file number: 333-118902

                          SIBERIAN ENERGY GROUP INC.
         ---------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

               NEVADA                                    52-2207080
  (State or other jurisdiction of           (IRS Employer Identification No.)
   incorporation or organization)

               275 Madison Ave, 6th Floor, New York, NY 10016, USA
                -------------------------------------------------
                    (Address of principal executive offices)

                                 (212) 828-3011
                         -------------------------------
                         (Registrant's telephone number)

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

                                      NONE

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

                    COMMON STOCK, $.001 PAR VALUE PER SHARE

     Check whether the registrant (1) has 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  not  contained in this form, and no disclosure will be
contained,  to  the  best  of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or  any  amendment  to  this  Form  10-KSB.  [ ]

<PAGE>

     The issuer's revenues for the most recent fiscal year ended December 31,
2004 were $-0-.

     As of March 23, 2005, the issuer had 18,805,771 shares of common stock,
$.001 par value per share outstanding.

                    Documents Incorporated by Reference: NONE

          Transitional Small Business Disclosure Format: Yes [ ] No [X]

                           SIBERIAN ENERGY GROUP INC.
                                   FORM 10-KSB
                          YEAR ENDED December 31, 2004
                                      INDEX

                                     Part I

    Item 1.             Description of Business                                3

    Item 2.             Description of Property                               15

    Item 3.             Legal Proceedings                                     16

    Item 4.             Submission of Matters to a Vote of
                        Security Holders                                      16

                                     Part II

    Item 5.             Market for Common Equity and Related
                        Stockholder Matters                                   16

    Item 6.             Management's Discussion and Analysis or
                        Plan of Operation                                     17

    Item 7.             Financial Statements                                  25

    Item 8.             Changes in and Disagreements with
                        Accountants on Accounting and Financial
                        Disclosure                                            41

    Item 8A.            Controls and Procedures                               41

    Item 8B.            Other Information                                     41

                                    Part III

    Item 9.             Directors, Executive Officers, Promoters
                        and Control Persons; Compliance with
                        Section 16(a) of the Exchange Act                     42

    Item 10.            Executive Compensation                                47

    Item 11.            Security Ownership of Certain Beneficial
                        Owners and Management and Related Stockholder
                        Matters                                               48

                                        2
<PAGE>

    Item 12.            Certain Relationships and Related
                        Transactions                                          49

    Item 13.            Exhibits and Reports on Form 8-K                      50
                        (a)   Exhibits                                        50

                        (b)   Reports on Form 8-K                             51

    Item 14.            Principal Accountant Fees and Services                51

                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

                SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

     Certain  statements  in  this  Annual  Report on Form 10-KSB (this "Form 10
KSB"),  including  statements under "Item 1. Description of Business," and "Item
6.  Management's  Discussion  and  Analysis",  constitute  "forward  looking
statements"  within the meaning of Section 27A of the Securities Act of 1934, as
amended, and the Private Securities Litigation Reform Act of 1995 (collectively,
the  "Reform  Act").  Certain,  but not necessarily all, of such forward-looking
statements  can  be identified by the use of forward-looking terminology such as
"believes",  "expects",  "may",  "should",  or  "anticipates",  or  the negative
thereof or other variations thereon or comparable terminology, or by discussions
of  strategy  that  involve  risks  and  uncertainties.  Such  forward-looking
statements  involve  known  and  unknown  risks, uncertainties and other factors
which  may  cause  the  actual  results, performance or achievements of Siberian
Energy  Group  Inc.  ("Siberian",  "the  Company",  "we",  "us"  or "our") to be
materially  different  from  any  future  results,  performance  or achievements
expressed or implied by such forward-looking statements. References in this form
10-KSB,  unless  another  date  is  stated,  are  to  December  31,  2004.

BUSINESS DEVELOPMENT

     Siberian  Energy  Group  Inc.  was  formed  as  a  Nevada  corporation  on
August  13,  1997,  as  Advanced Rehab Technology Corporation.  Subsequently, on
March  9, 2001, the Company changed its name to Talking Cards, Inc.; on February
12,  2002,  the Company changed its name to Oysterking Incorporated; on December
3,  2002, the Company changed its name to 17388 Corporation Inc., at which point
the  controlling  interest  of the Company was sold and a new board of directors
was  appointed;  on  May  5,  2003, the Company changed its name to Trans Energy
Group  Inc.;  and  on December 3, 2003, the Company changed its name to Siberian
Energy  Group  Inc.

     Following  its  incorporation  in  1997,  the  Company  was  engaged in the
business  of  operating  its  eight  outpatient  rehabilitation  clinics,  which
provided  services  to patients suffering from work, sports and accident-related
injuries.  Pursuant  to  a series of transactions during the period from October
1997 to April 1999, the Company acquired 4 rehabilitation clinics in Toronto and
4  rehabilitation  clinics  in  Ottawa  for  an aggregate of 3,000,000 pre-split
shares  of  its  Common  Stock.

                                        3
<PAGE>

     In  April 1998, pursuant to a 15c2-11 listing application with the National
Association  of  Securities  Dealers  ("NASD"),  the  Company's Common Stock was
cleared  for  trading  on  the  Over-the-Counter  Bulletin  Board (the "OTCBB").
Further  development  of the Company's business depended on the financing of its
expanding operations. The unsuccessful attempt to obtain this required financing
caused  extreme hardship to the Company and in July 1999, the Company was forced
to  close its existing clinics and cease operations. Because the Company was not
filing  reports  with  the  Securities  and Exchange Commission (the "SEC"), the
Company's  Common Stock was ineligible to be quoted on the OTCBB as of March 23,
2000.

     On September 17, 1999, the Company effected a 1-for-30 reverse stock split.
A subsequent 3-for-1 forward split was consummated on October 2, 2000. All share
amounts  subsequently  listed  are retroactively adjusted to reflect these stock
splits  unless  otherwise  provided.  All  activities  related to the Company's
business  were  discontinued  prior  to  January  1,  2000 and the Company began
looking  for  opportunities  to  acquire  an  operating  business.

     In December 2000, the shareholders of the Company ("Shareholders") approved
a  name  change  to  Talking Cards Inc. in anticipation of a merger with Talking
Cards  Inc.,  which  was  not  completed.

     In  November  2001,  the  Shareholders approved a name change to Oysterking
Incorporated, in anticipation of a merger with a Company of the same name, which
was  not  completed.

     In  December  2002, the Shareholders approved a name change for the Company
back  to  its original name 17388 Company. Neither management nor control of the
Company  changed with any of the above mentioned name changes from December 2000
to  April  2003.

     In the spring of 2003, the balance of the Company's shares was purchased by
new  shareholders who stepped into the management of the Company and defined its
new  business  direction as an oil and gas exploration company. In contemplation
of  the  Company's acquisition of a Russian oil and gas exploration company, the
Company  changed  its  name  to  Trans  Energy  Group,  Inc.

     On  May  9,  2003,  the  Company entered into an Acquisition Agreement (the
"Acquisition  Agreement")  by  and among the Company, Zaural Neftegaz, a Russian
corporation  ("ZNG"),  the  shareholders of ZNG and Oleg Zhuravlev, President of
ZNG.  Pursuant to the Acquisition Agreement, the Company acquired a 51% interest
in ZNG by issuing to ZNG 2,000,000 shares of the Company's Common Stock. In June
2004,  the  Company purchased the remaining 49% of ZNG in exchange for 6,900,000
shares  of  the  Company's Common Stock, making ZNG a wholly owned subsidiary of
the  Company.  ZNG holds four (4) oil and gas licenses (see "Patents, Trademarks
and  Licenses"  below) for the rights to prospect, explore, drill and remove oil
and  gas  (the  "Exploration Rights") in the eastern parts of Kurgan Province in
Russia.  The Company had no affiliation with ZNG prior to the acquisition in May
2003.

     After  the acquisition of ZNG, the Company became aware of an entity with a
name  similar  to  "Trans  Energy  Group,  Inc." which was already listed on the
OTCBB. To avoid confusion between the two companies the Company changed its name
in  December  2003,  to  Siberian  Energy  Group  Inc.

                                        4
<PAGE>

     On June 28, 2004, the Company opened a Canadian Subsidiary, Siberian Energy
Group  (Canada)  ("SEG  Canada"), as a private company under the jurisdiction of
the Province of Ontario, Canada. SEG Canada's paid up capital was established as
$10  CAD  (approximately  $7 USD), representing 100 outstanding shares of common
stock.  SEG  Canada  had no other transactions before June 29, 2004, when it was
purchased  by  the  Company.

     SEG  Canada  was created to help facilitate business ventures with Canadian
Farm-in  partners and to allow the Company to open a Canadian office in Toronto,
Ontario (see definition of "Farm-in Agreement" for information regarding Farm-in
partners  under  "Glossary,"  exhibit  99.1  to  this 10-KSB). SEG Canada is not
expected  to  perform  any large-scale business operations, but rather to act on
behalf  of  the  Company.

     On  October  1,  2004,  the  Company  entered  into  a consulting agreement
("Consulting  Agreement")  with  Aspen  Management  Inc., an Ontario corporation
("Aspen").  Under  the Consulting Agreement, Aspen agreed to provide services to
the Company in connection with the ongoing development of the Company's business
plan, development of financial budgets and acquisition of financing, development
of  management,  securities  and listing requirements, and marketing strategies.
Aspen  agreed  to  devote  not  less  than Thirty-Six (36) hours per week to the
Company.  Under  the Consulting Agreement, the Company agreed to pay Aspen a fee
of  Three  Thousand  dollars  ($3,000)  per  month and to grant Aspen options to
purchase 150,000 restricted shares of the Company's Common Stock, exercisable at
$0.16  per  share.  The  150,000  options  will  expire  if not exercised before
December 31, 2008. As of the date of this report, no options have been exercised
by  Aspen  and  no  payments  have been made to Aspen pursuant to the Consulting
Agreement.  All  fees  owed  to  Aspen  under the Consulting Agreement are being
accrued  until  suitable  financing  is  arranged.

THE  PARENT  -  SIBERIAN  ENERGY  GROUP  INC.

     The  Company  is  now a development stage investment and management company
that  intends  to  target  high  potential  long term investments in Russia. The
Company  intends  to  provide  western management experience and ready access to
investment  capital for medium and large cap resource companies, specifically in
the  oil  and  gas  industry.  The  Company  actively  evaluates  investment
opportunities  throughout Russia. Pursuant to its strategy, the Company acquired
a  majority  ownership  interest  in an emerging Russian oil and gas exploration
company,  Zaural Neftegaz ("ZNG"). The majority of the Company's current efforts
are  focused  on operating and raising capital for ZNG, of which there can be no
assurance.

THE  SUBSIDIARY  -  ZAURAL  NEFTEGAZ

     ZNG  is  a development stage oil and gas exploration company located in the
Western  Siberian  Region  of  Russia.  ZNG is one of only two companies to hold
licenses for exploration of the hydrocarbon resources in Kurgan Oblast and holds
four (4) oil and gas licenses (see "Patents, Trademarks and Licenses" below) for
the  rights to prospect, explore, drill and remove oil and gas (the "Exploration
Rights")  in  the  eastern  parts  of Kurgan Province in Russia. The Exploration
Rights involve four blocks of property, which cover a total area of over 643,000
acres  and  which  are  located  close  to  the  existing  natural  gas  and oil
transportation  infrastructure.  The  other  company  to hold licenses in Kurgan
Province  besides  ZNG  is  "Kurganneftegaz."

                                        5
<PAGE>

HISTORY  OF  INDUSTRIAL  DEVELOPMENT  IN  RUSSIA

     During  the  Soviet  regime,  each  region  in  Russia was assigned certain
responsibilities  to  the  State.  Some  regions  were  assigned  to develop oil
products, while others were assigned to produce agricultural products. After the
collapse of the Soviet Union in 1991, each region became free to develop its own
economic  strategy.  Since then, oil and gas has been discovered in many regions
of  West  Siberia such as Omsk, Tomsk, and Novosibirsk. Although oil and gas has
been  found  in  the  surrounding  regions, these discoveries have no bearing on
whether  the  Company's blocks will contain hydrocarbon reserves. Additionally,
Kurgan's  government  is now seeking to develop additional industries which are
likely  to  improve its economy. ZNG believes it was successful in obtaining the
Exploration  Rights  because  of  its  plan  to provide employment in the Kurgan
region  and  its  plan  to  help  to develop the local oil and gas industry. The
Kurgan government is committed to supporting industrial development initiated by
private  enterprises,  such  as  ZNG.

     Russian  oil  and  gas producers in the Western Siberian region are located
adjacent  to  the  transportation  infrastructure.  This proximity presents cost
savings  in  the  development  of  new  fields  and thus provides a greater cost
advantage.  Some of the production and development cost advantages are offset by
the  relatively high costs incurred to transport Russian crude to market as well
as  by  a  quality  discount that is applied to Russian crude as a result of the
heavy  and  sour  properties  of  the  Urals  oil  blend.

     The  current  regulatory  climate  in  Russia  results  in  companies being
allocated  an  export  quota on crude oil equal to 30% of their total production
volume.  The  remainder  can  only  be exported as a refined product.  Even with
domestic  demand increasing over the past few years, suppliers can generate more
profits  exporting  the  oil  they  produce.  In  order  to  sell  more of their
production  in  foreign  markets,  producers  must  increase their total output.
Because of this increased production, the oil which is produced but unable to be
exported  because  of the export quotas causes oversupply in the domestic market
resulting in lower domestic prices as compared to international prices for Urals
blend.

GEOGRAPHY

     ZNG  is located in the Kurgan region of Western Siberia. Kurgan borders the
Chelyabinsk,  Sverdlovsk  and  Tyumen  regions  of  Russia  and  the Republic of
Kazakhstan. The blocks that ZNG holds the Exploration Rights to are located east
of  the  Volga Urals, Russia's oldest oil producing region, immediately south of
the  Tyumen  region, an area covered by a large range of oil producers including
BP-TNK,  Exxon,  Shell,  Yukos,  LUKoil  and  Sibnet.  To  the  south, Kurgan is
neighbored  by Kazakhstan, which has historically been an oil-rich region and is
one  of  the  world's  fastest  growing  oil producing regions. The region has a
well-developed  transportation  infrastructure  with  paved federal and regional
highways and motor roads. This area has been surveyed by the Russian Ministry of
Natural  Resources  ("Ministry")  in the 1980s and in 2000 to 2001. The Ministry
identified  and  parceled  eight  potential  areas  that may contain hydrocarbon
reserves,  and  issued eight licenses for those areas, four of which are held by
ZNG. The allocation of the licensed areas by the Ministry was based primarily on
existing  geological  land  studies  and  preliminary  geologists'' forecasts of
hydrocarbon  potential, aggregated in official reports and prepared on behalf of
geological  institutions  in  Tyumen  and Novosibirsk regions. The allocation of
these  eight  areas  was based primarily on existing geological land studies and
preliminary geologist forecasts. There is no guarantee however that ZNG's blocks
hold  any  oil  or  that  if ZNG finds oil, it will be in commercial quantities.

                                        6
<PAGE>

Exploration  Rights  -  Testing  and  Study

     The region in which ZNG operates has been the subject of government testing
and evaluation since the 1930s.  The Russian government has conducted geological
testing, including the drilling of test wells.  Accelerated testing began in the
1960s  and has continued until very recently.  ZNG has access to this government
research  conducted  using  a  number  of  methods,  including:

     -    Initial  arrival  method  (IA)
     -    Depth  point  measuring  method  (DPM)
     -    Abyssal  entry  method  (AE)
     -    Abyssal  seismic  entry  method  (ASE)

     Please  see  "Glossary,"  exhibit 99.1 to this 10-KSB, for definitions of
these  terms  and  others.

     In  addition  to these methods of testing, the Russian government conducted
parametric drilling operations along with drilling of a stratigraphic test well.

     Over  the  past  few years, Russia has transferred ownership of state-owned
assets  to  private and public companies. As a result, producers have not had to
apply for exploration rights on existing production blocks. However, in the post
state-owned  environment,  all  new  exploration must be conducted under license
granted  by  the  Russian  Ministry  of  Natural  Resources. ZNG has pursued and
obtained  exploration  licenses through formal government application procedures
and  has  obtained  its  Exploration  Rights.

     ZNG  has  compiled  data  in  the  Eastern  part  of  the Kurgan region, by
analyzing  prior  geological,  geophysical and lithographic exploration works in
the  region,  data,  maps, reports from 12 test wells drilled between 1979-1986,
profile sections, correlation schemes, and geographic maps of the region.  After
analyzing  this  data  ZNG  chose  to  concentrate  its activities on four areas
located  in  the  Eastern  part  of  the  Kurgan region and applied for licenses
covering  these  areas.  Currently  ZNG  holds four, 5-year exploration licenses
expiring  in March 2008, for concessions covering the total territory of 643,000
acres.  Mokrousovsky  is  the  largest,  encompassing  a total of 240,000 acres,
followed  by  West  Suersky,  which covers 230,000 acres, Privolny, which covers
123,000  acres,  and  Orlovo-Pashkovsky,  which  covers  50,000  acres.

     Following  detailed  data  collection,  survey and seismic testing ZNG will
proceed  with  development  of  one  block at a time. The West-Suersky block was
chosen  by  the  Company as the most promising block and the Company has already
started  studies on this area. The Company has performed gravimetric surveys and
the  field  part  of 2-dimensional seismic studies through "Bazhenov Geophysical
Expedition"  and JSC "Bashneftegeofizika," experienced and reputable oil and gas
service  organizations in Russia. ZNG has not begun exploratory drilling yet, as
it  is  awaiting  the  two-dimensional  seismic  study  results.  Currently
"Bashneftegeofizika" is processing data they collected during the summer of 2004
and  preparing  it for interpretation, in order to identify the most prospective
sites for drilling. The Company anticipates the results of this processing to be
completed  in the second quarter of 2005. ZNG has also hired GeoData Consulting,
an  international  geosciences service company, which provides daily independent
supervisions  of the exploration works, helping to add assurance to the accuracy
of  the  forthcoming  results.

                                        7
<PAGE>

     If recommended by its technical staff, ZNG may employ land-based methods to
complement  seismic  results  and to maximize the accuracy of drilling, starting
initially  on  the  West-Suersky block and then with financing permitting on its
other  blocks.  These  methods  may  include  thermal, vapour-chromotography and
microbiologic  oil geology methods.  ZNG also intends to conduct geo-dynamic and
local  tectonic  testing  in  order  to attempt to ascertain the location of any
hydrocarbon  reservoirs  utilizing geophysical, geochemical, microbiological and
bio-indicative  research  analyzation  methods.  In  the  event  these tests are
completed,  the  Company  intends  to  conduct a specific geological analysis to
attempt  to  ascertain the best location for three sample test drilling wells to
determine  oil bearing reservoirs and gas volumes.  If conducted, the aerial and
seismic  surveys  will  attempt to ascertain the reservoir heights and establish
the stratum and scope of the faults to be determined in the test drilling phase.

     If  ZNG  determines to develop the areas covered by the Exploration Rights,
and  drills  wells in those areas which are found to contain commercially viable
hydrocarbon  reserves,  ZNG  expects  to encounter Urals blend oil, which is the
most  commonly  encountered  oil  type  in  West  Siberia.  ZNG  has  not  begun
exploratory  drilling  yet.  We are awaiting the two dimensional seismic data to
be  complied  into  a  report  of  appropriate  format  with the announcement of
preliminary  results,  at  which  time  the data will be subject to analysis and
interpretation.

TRANSPORTATION  INFRASTRUCTURE

     Transportation  infrastructure  is  effectively  controlled by Transneft, a
state-owned  monopoly.  The  southern  lines of the Transneft pipeline, commonly
referred  to  as  the Black Sea System, have a capacity of 1.29 m bbl/d and feed
the  ports of Novorossisk, Tuapse and Odessa in the Ukraine.  As of August 2004,
the  transportation  toll  on  the  Transneft  system from ZNG's properties was
$0.15/bbl  to Omsk, $0.20/bbl to Ufa (both being domestic refineries), and $0.79
to Novorossisk, an export port.  In addition, port charges and freight to Europe
must  be  factored in, which results in an estimated total transportation charge
of  close  to  $4/bbl.

     ZNG's  four  blocks  are  located  adjacent to the main Transneft pipelines
which deliver oil and gas throughout Russian and to export markets. Until ZNG is
able to build a pipeline infrastructure, of which there can be no assurance, ZNG
plans  to  use  a  combination  of trucking and rail transportation. ZNG is also
currently  attempting to determine delivery quotas of oil and gas sold in Russia
and  for  export.

INNOVATIVE  TECHNOLOGIES/INNOVATIONS

     ZNG  believes in investing time and effort into up-front survey, geological
work  and  technical  analysis  in order to increase the probability of drilling
productive  wells.  ZNG  also  believes  that  using the newest technologies and
equipment  for  extraction  will  result  in  realizing  the  highest  possible
recoverable  amounts  from  reserves  without  needing  to  overhaul  boreholes.

                                        8
<PAGE>

     In  order  to  benefit  from  the latest technologies, ZNG has enlisted the
services  of  the Russian Academy of Sciences, Institute of Oil and Gas Geology.
This  organization  will  perform  the  geographical survey and analysis using a
series  of methods and will then correlate the data between the methods in order
to  enhance  interpretation.  ZNG  believes that this will allow it to focus its
geological  operations  into  smaller  areas  that  present  the highest yields.

     Some  of  the  more  advanced  and  innovative  technologies to be employed
include  those  that  cover  the  following  areas of operation (see "Glossary,"
exhibit  99.1  to  this  10-KSB,  for  more  explanation  regarding the areas of
operation  found  below):

-     Field  geophysical  data  processing/interpretation;
-     Airborne  geophysical  surveying;
-     Precise  gravity  prospecting;
-     Geochemistry  surveying;
-     High-speed  drilling;
-     Methods  of  enhanced  oil  recovery  (recovery  factor  improvement).

MARKETS  SIZE  AND  SHARE

     After  a  reduction  in the amount of oil and gas produced in Russia during
the  mid  1990s,  there  has  been  a  recent  trend  of steady growth following
increases  in  demand  for  oil  and gas products.  ZNG believes that the key to
gaining  access to this market is to gain access to the delivery infrastructure.
The  delivery infrastructure includes collector pipeline systems passing through
the region which have a rail and truck transfer station with capacity to collect
oil  from  wells  and  deliver  the  oil  to  a  central  depot.  From there, if
necessary,  the  oil  can  be delivered by rail or truck to the domestic market.

     ZNG's  goal  is to increase its share of the Kurgan regional market. If oil
is  discovered,  of  which  there  can  be  no assurance, ZNG will also consider
launching a small oil refinery (i.e. its conversion into an "upstream integrated
company")  as  a means of expanding its ability to secure even greater access to
the  domestic  market.  The  Company  feels  that  this  will  provide a further
competitive  advantage over future rivals, though there can be no assurance that
this  strategy  will  be  successful.

DRILLING  ACTIVITIES  IN  THE  REGION

     There  are  no oil and gas wells that are currently being drilled in Kurgan
oblast  at present.  A number of test wells were drilled from 1972-86 as part of
the  Soviet Union's federal government program to identify land composition and
borne natural resources in each region for license issuance in the future.  This
program  extended throughout Russia, but centered predominantly in West Siberia,
including  Kurgan oblast.  The wells drilled through this program were typically
narrow  wells.  Areas to be licensed for hydrocarbon exploration were determined
upon detecting oil traces.  Corresponding estimates were also computed.  As part
of  the program a series of 12 wells were drilled in Kurgan oblast, ranging from
approximately  500m  to  1200m  deep.  Traces  of  heavy  hydrocarbons  and  gas
eruptions were detected at depths less then 1200m; however, these traces are not
prima facie evidence of commercial deposits.  Two of the 12 wells drilled in the
1980s  have  been drilled on the territory of the licensed areas covered by ZNG,
one  in  the  West-Suersky  block  and  one  in  the  Privolny  block.  No heavy
hydrocarbons  were  detected immediately on the blocks, except for gas eruptions
detected  from  a  well  drilled on the Privolny block, which is not prima facie
evidence  of  commercial  deposits.

                                        9
<PAGE>

     While  there  has  been a number of test wells drilled, and traces of heavy
hydrocarbons and gas eruptions found in Kurgan oblast, this does not make it any
more  likely  that  the  Company's properties contain hydrocarbon reserves or if
found  that  they  will  be  in  commercial  quantities.

FINANCING  STRATEGY

     The  Company  has  planned  an  approach  for attracting investment to ZNG.
Current  shareholders  have  provided  the  capital  required  to  acquire  the
exploration  rights,  acquire  the  licenses for exploration, establish offices,
purchase  equipment and pay salaries for workers in Kurgan. This initial capital
has also been used to establish service contracts for the survey works that were
already  launched.  Furthermore,  the  services  of noted geologists, including:
Alexander  V.  Rilkov, Nikolay .P. Zapivalov, and Andrey U. Belonosov, have been
enlisted  by  the  Company to review the preexisting geological data provided by
the  Russian  government  (See  "Geological  Experts").

     The  Company plans to complete financing through private equity and/or debt
in  the  second  quarter of 2005, with investors providing the capital necessary
for the Company to complete evaluation and exploration activities, for which the
Company  will  require  $1,000,000.  Additional  capital  is required to finance
secondary  surveys,  initial  exploration and prospecting wells beginning in the
first quarter of 2005, and lasting until the point where the Company establishes
proven  reserves,  if  any  are  found.  The  cost of secondary surveys, initial
exploration,  and  prospecting wells is expected to be approximately $5 million.
The Company plans to raise additional capital from equity and/or debt securities
or  to enter into farm-in agreements with established oil and gas companies (see
the  definition  of farm-in agreement under "Glossary," attached as exhibit 99.1
to  this  10-KSB),  of  which  the  Company  can  give  no  assurance.

     If  the  Company obtains sufficient capital and finds hydrocarbon reserves,
of  which  there can be no assurance, the Company plans to continue its drilling
program  and  begin  a  production  infrastructure by the end of 2005, which the
Company  expects  will  cost approximately $8,000,000. The Company believes this
financing,  if  raised,  of  which  there  can  be  no assurance, will cover the
following activities: $4,500,000 to drill three prospecting wells, $1,000,000 to
upgrade  wells  to  begin  production,  and  $2,500,000  to  install oil lifting
equipment  and  oil  reservoirs,  construct  roads and power lines, and purchase
trucks  for  oil  delivery.  The Company  plans to raise this additional capital
from  equity and/or debt securities or to  enter  into farm-in  agreements  with
established  oil  and  gas  companies.

     The  Company  hopes  to  partially  fund  its activities with revenues from
operating  wells,  if reserves are found, of which there can be no assurance. If
the  Company  is  successful  in  raising  the  required  capital  and  finding
hydrocarbon reserves, it hopes to continue the exploration of the other licensed
areas  as well as installation of facilities and the Company's planned collector
pipeline  infrastructure,  between 2007 and 2009. There can be no assurance that
the  Company  will  be able to raise the required capital or complete any of the
other  activities  listed  under  this  heading.

                                       10
<PAGE>

ALLIANCE  AND  PARTNERING  STRATEGY

     If the Company's financial strategy is successful, of which there can be no
assurance,  the  objective  of  ZNG will be to seek investment partnerships with
third  parties  such as financing partners and oil field service partners, while
remaining  a  completely  independent  small-scale  Russian  exploration  and
production  company.  The  Company  would  prefer that ZNG deal with one partner
rather  than many private investors. The Company believes that one partner would
be  advantageous  to  the  Company  because:  (i) a large partner can contribute
professional  management expertise, by planning, executing, and monitoring ZNG's
operations; (ii) dealing with one major investor can offer better terms of trade
in  terms  of  exchange  of ownership for investment; (iii) the Company believes
that  large  organizations  offer  more  stable  investments  and  longer  term
partnerships;  (iv) if the partner carries a history, size, market knowledge and
reputation,  these  factors  may add significant credibility to the Company; (v)
the  Company  believes that an investing entity which enters into a relationship
with  the  Company  as  a  partner is more inclined to have the capacity to meet
short  and  long-term  obligations with the Company if obligations are shared by
both  the  Company  and  the  partner;  and  (vi)  to  enter  into  risk-sharing
arrangements.  While  the  Company believes that there are several advantages to
dealing  with  a  single  partnering  entity,  the  Company  is  not exclusively
targeting  only  large  investors  or  partners.

     Additionally,  the  Company  may  enter  into farm-in agreements. Either of
these  strategies  will facilitate low upfront capital investment on the part of
the  Company.  It would also allow ZNG to focus on the highest value-added areas
of  the  oil  and  gas  business.  ZNG  plans  to outsource much of the physical
exploration  and  development  activities to professional organizations that can
provide  advanced  technologies, expertise and manpower for a lower cost than if
ZNG were to buy its own equipment and hire its own workers. The Company believes
that  this plan, if successful, will offer higher efficiencies, a faster pace of
development  and  more  consistent  results,  all  at  a  lower  cost.

     Using  this  strategy  the  Company has entered into contractual agreements
with  the  Russian  companies  "Bashneftegeofizika"  and  "Bazhenov  Geophysical
Expedition"  which  perform  gravimetric  survey  and  two-dimensional  seismic
studies.

EXPLORATION  AND  PRODUCTION  STRATEGY

     As  described  above,  the  Company plans to outsource virtually all of its
in-field  oil  and  gas activities (including those related to ZNG as well as to
any  future  subsidiaries,  if any) to third parties as part of its alliance and
partnering  strategy.  The Company intends to implement risk sharing by entering
into profit sharing agreements where subcontractors will receive a percentage of
the  revenues  of  a  project (such as drilling operations) as payment for their
services.  Through this strategy, subcontractors share the risks and benefits of
the  project  along  with  the  Company.

     The  Company  plans  to  maintain  managerial,  planning  and  oversight of
critical geological analyses and, at the appropriate time, oversight of in-house
production  management  personnel.

                                       11
<PAGE>

MARKETING  STRATEGY

     If  we  discover hydrocarbon reserves within our five-year licensing period
and  are able to extract commercial quantities of those reserves, of which there
is  no  assurance,  ZNG's marketing efforts will focus on both the domestic and
export  markets.  Domestic marketing will target regional refineries in the Omsk
area, which has one of the largest refineries in the world and is located fairly
close  to  Kurgan, with distances varying from between 420 and 520 kilometers to
the  blocks  ZNG holds.  This refinery, owned by Sibneft, has a total processing
capacity  of  385,000 bbl/d and is currently running at under capacity.  As part
of  its  export  marketing  efforts if hydrocarbons reserves are discovered, ZNG
plans  to  initially  sell its export quotas along with associated production to
larger  third parties who have the market knowledge, customer base and aggregate
volumes  to  make such export profitable.  ZNG may then begin to act directly in
export oriented marketing over time.  In either case, export volumes will likely
be  marketed  to  the  Ufa  area  where three refineries and Black Sea ports are
located.  ZNG  believes  that  crude  sold  to Ufa will be sold for refining and
crude  sold  to the Black Sea ports will be intended for export as crude and not
as  an  oil product, if the Company finds any hydrocarbon reserves  at  all,  of
which  there  can  be  no  assurances.

EMPLOYEES

     Siberian  Energy Group Inc. ("SEG"), currently employs two (2) employees in
management.  Zaural  Neftegaz  ("ZNG")  SEG's  subsidiary,  employs  eleven (11)
employees  in  management  and  seven  (7)  employees  in  support and technical
functions.

GEOLOGICAL  EXPERTS

The  services  of the following geologic experts in Russia have been enlisted by
the  Company  to review the preexisting geologic data provided to the Company by
the  Russia  government:

Andrey  U.  Belonosov

     Andrey  U. Belonsov is an independent scientific consultant specializing in
distance  methods.  Mr.  Belonsov  works with the Company to identify and locate
information available through Universities and other public sources, in order to
find out what studies and reports have previously been prepared on other blocks,
and  whether  the  Company should pursue licenses on those blocks.  Mr. Belonsov
analyzed  the  Mokrousovsky  block,  which  lead the Company to apply for and be
granted  a license on that block from the Russian Ministry of Natural Resources.

     Mr.  Belonsov graduated from the Novosibirsk Government University in 1981.
Since  1988, he has been a participant at 10 international symposia in the USSR,
Russia,  China, France, participated in over 70 all-union, pan-Russian, regional
and  territorial  conferences  and  assemblies,  and authored over 50 scientific
publications.  In  1992,  he  defended  a  doctoral dissertation on the topic of
"Complex  gravimagnetic  and  thermal surveys for exploration and prospecting of
oil  reserves"  at  the  Institute  of  Geology  and  Geochemistry  of Petroleum
Resources  at  Ukrainian  SSR  (L'vov  city).

                                       12
<PAGE>

Alexander  V.  Rilkov

     Alexander  V.  Rilkov is a recognized independent geology expert of Western
Siberia  and vice director of scientific tasks of the West-Siberian Institute of
Geology  Problems of Oil and Gas (WesSibIGPOG). He is also the head professor of
Geology  and Geochemistry of petroleum deposits at the Tyumen Government Oil and
Gas  University and chief expert on the task group for the evaluation of oil and
gas  resources  in  West  Siberia.  In  March 2001, Mr. Rilkov published a major
report  on  the  evaluation  of  hydrocarbon resource prospects specifically for
Kurgan  Province.  His  most  recent  reports  were  prepared  early in 2004 and
concentrated  specifically  on  ZNG's  four  licensed  areas,  which  have  been
extensively  used for the preliminary estimate of the hydrocarbon composition of
the  Company's  blocks and identifying the most prospective sites for conducting
exploratory activities, including the already finalized seismic survey on one of
the  Company's  licensed blocks. Theses studies are used by the Ministry to help
identify  and  parcel  areas  for  license  issuance.

     Additionally,  Mr.  Rilkov  continues  to  contribute  his  independent
professional  expertise  to  the  Company  by  recommending  the  location  and
methodology  of  further  survey  activities.

Dr.  Nikolay  P.  Zapivalov

     Dr.  Nikolay P. Zapivalov is a prominent geologist and oil industry worker.
Dr.  Zapivalov  has worked in the oil and gas industry for over 30 years in both
Siberia  and India. Dr. Zapivalov has been awarded an honorary title of "Deposit
Discoverer"  (certificate  and  medal  awarded).  Dr.  Zapivalov  also  worked
successfully  in  India  in  the  period  1964-68  where  he participated in the
discovery  of  the  Ankleshvar  Deposit  and oil and gas deposits located on the
Bombay  shelf. In 2003, by invitation from India, Dr. Zapivalov took part in the
International  Conference  "Petrotech-2003,"  as head of the Russian delegation.

     Dr.  Zapivalov  works  with  the  Company  in  the  selection  of reputable
subordinate  service  organizations  to  perform  exploration  surveying  and
interpretation  on  the  Company's licensed blocks, reviewing the preexisting as
well  as  newly-generated  data, and planning, executing, and monitoring on-site
activities  conducted  by  ZNG.

COMPETITION

     Given  the  recent  boom  in  the  Russian  oil industry, there has been an
increase  in  interest  and activity in the Western Siberian basin. In September
2003,  a  competitive bid process for eleven newly-opened exploration blocks was
held  in  the Tyumen region, immediately north of Kurgan. Ten of the blocks were
awarded  to  seven  companies.  The  total  value  of  the  purchases  was  over
$2,400,000.  The  closest  of  these blocks lies within 60 miles of the licensed
areas  covered  by the Exploration Rights, with the majority of the blocks lying
within  120  miles of these areas. While additional blocks have recently sold in
areas  surrounding  ZNG's blocks, this does not imply that ZNG is anymore likely
to  find hydrocarbon reserves and it has no bearing on the future success of the
Company's  development  or  exploration  efforts  in  Kurgan.

     Competition  among  Russian  producers  occurs  in two distinct tiers.  The
first  tier includes large corporations such as Surgutneftegaz, LUKoil, Sibneft,
Tatneft,  Slaveft,  YUKOS,  TNK,  Bashneft,  Rosneft  and Sidanco which together
control  more  than  90%  of  the  Russian  oil and gas market.  These companies
operate  large-scale fields and are primarily oriented towards exportation.  The
second  tier,  so  called  junior  players,  includes  a large number of smaller
companies  that  operate  small  and  medium  sized  oil  and gas fields.  These
companies  enjoy  a  limited  but  stable  range  of  customers within Russia's
domestic market, and their customers include the larger companies which purchase
this product for export.  Like other junior players, the Company believes it has
potential  to  succeed given that demand for oil continues to exceed supply both
domestically  and  internationally.

                                       13
<PAGE>

     A  healthy  level  of  competition currently exists among local oil service
companies  and  recent  reductions in demand for their services are leading to a
surplus  of  supply.  The Company believes that having the wide range of service
companies  within  such close proximity creates an opportunity for ZNG to choose
the  best  combination  of price and quality while signing the service contract,
due to the fact that service companies may compete with each other for providing
exploration  works,  drilling  and  other  services  to  ZNG.

     Additionally,  the  Company  believes  ZNG's geographic location presents a
significant competitive advantage that should provide for cost reductions in the
development of its fields and the necessary support infrastructure. The specific
factors  contributing  to  this  competitive  advantage  include:

     -    The  relatively  flat  topography  which  is  dry  and  bog  free;
     -    Non  permafrost  lands  which  reduce  drilling  costs;
     -    Significantly short distances to major pipelines which reduce the time
          and  cost of installing the collector infrastructure from the wells to
          the  main  pipelines;  and
     -    Proximity  to main railroads and highways which allows for greater and
          easier access to the producing site as well as for initial delivery of
          product.

     Another  type  of  competition, which ZNG expects to face is competition in
the process of acquisition of new licenses. The Company expects that competitive
pressures  will  further  increase  if  hydrocarbon  reservoirs are found in the
Kurgan  province  of Russia.  However, the Company believes that by the time new
parcels  become  available  for  distribution  in  this region, ZNG will have an
advantage  over  companies  with  less  experience  in  the region.  The Company
believes  this  will  be  due to ZNG's then acquired experience and through the
expertise  of  its  employees, of which there can be no assurance.  Although ZNG
was  formed  in 2002, many of its directors and officers already have many years
of  experience  in  the  oil and gas industry, specifically in the West-Siberian
Basin.  Additionally,  the  Company  feels  that  ZNG  will  have  a competitive
advantage  because  many of its executives reside in the West-Siberian Basin and
are  dedicated  to  developing  the  local  infrastructure.

DEPENDENCE  ON  ONE  OR  A  FEW  MAJOR  CUSTOMERS

     The nature of the oil industry is not based on individual customers.  Crude
and  refined  products are sold to local and international brokers as well as to
refineries.

PATENTS,  TRADEMARKS  AND  LICENSES

     The  Company  holds  four licenses to explore four individual properties in
the  Kurgan  province  of  Russia. These licenses require the Company to conduct
seismic  surveys on the properties and to report any discoveries to the regional
government. The licenses are currently classified as 5-year exploration licenses
and are convertible to 25-year production licenses upon discovery of hydrocarbon
reserves.

                                       14
<PAGE>

NEED  FOR  GOVERNMENT  APPROVAL

     Federal  and  local government approval will not be required for conversion
of  exploration  licenses  to  production licenses and for extension of licenses
beyond  their  initial  term.  The Company has already received approval for its
exploration licenses, however, additional approval is required if the Company is
to  deliver its crude or refined products on the national pipeline system. These
approvals  can  only  be  guaranteed  once  the  Company  has  proved  reserves.
Alternatively, the Company has also developed plans to deliver crude and product
by  truck  and via rail transport for the early years if there are any delays in
gaining  pipeline  approval,  and  the  Company find hydrocarbon reserves, which
there  can  be  no  assurance.

     Additionally,  under  new  federal  laws  the  Company does not require the
approval  of  state  and/or  federal  agencies  for  conversion of the Company's
exploration licenses to production licenses and extension of production licenses
beyond  their  initial  term as they automatically convert to 25 year production
licenses  upon the discovery of oil and gas, of which the Company can provide no
assurance.

COSTS  AND  EFFECTS  OF  COMPLIANCE  WITH  ENVIRONMENTAL  LAWS

     According  to  the  laws  and  regulations  of  the  Russian  Federation,
organizations  are  permitted  to  carry  out  seismic  and  other  development
activities  on  licensed  fields,  provided  the companies conform to ecological
standards.  Accordingly,  ZNG  has  encountered  two  costs  associated  with
environmental law compliance: costs associated with obtaining licenses and costs
associated  with  obtaining  permission  from  the  Russian  Ministry of Natural
Resources  (the  "Ministry").  These  costs have totaled approximately $183,000,
which  includes  $2,000  relating  to  the ecological review by the Ministry and
$181,000  in  legal costs and fees to obtain the Company's licenses. The Company
had  no  costs  associated with compliance with environmental laws in the fourth
quarter  of  2004.  ZNG  has  successfully  passed a review by the Ministry. The
Company  will face additional costs to comply with environmental laws, which may
be  significant.  In  addition,  the  Ministry  imposes  certain  environmental
obligations  on  the  Company,  such  as  clean-up  procedures.

ITEM 2. PROPERTY

     The  Company's  United  States office is located at 275 Madison Avenue, 6th
Floor,  New  York, NY 10016, USA.  The Lease is at a monthly rate of $250 and is
on  a  year  to  year  basis  and is renewable on March 30, 2005.  This space is
leased from Office Escape, an operator of business centers in New York and other
US  cities.  The  Company is not the sole occupant of the space and consequently
the cost of the rental is shared with other occupants.  The Company does not use
the  office  for  any  purposes  falling  outside  of  its  business  needs.

     The  Principal Executive Office of the Company's subsidiary Zaural Neftegaz
is  1500  square  feet  and  is rented at a monthly rate of 140,000 rubles (U.S.
$4,800)  at  27/X  Lenina St., Kurgan City, 640000 Russia.  In January 2005, the
Company  entered  into  a  one year lease on this office space.  ZNG leases its
office  space from a private individual not associated with the Company.  ZNG is
the  sole occupant of the leased space, which serves exclusively the purposes of
SEG  and  ZNG.

                                       15
<PAGE>

     The  Company's total rent expense for the year ended December 31, 2004 was
$53,526.

ITEM 3.  LEGAL PROCEEDINGS

     From  time  to  time,  we  may  become  party  to litigation or other legal
proceedings  that  we  consider  to  be  a  part  of  the ordinary course of our
business.  We  are  not  currently  involved  in  legal  proceedings  that could
reasonably  be  expected  to  have  a  material  adverse effect on our business,
prospects,  financial condition or results of operations. We may become involved
in  material  legal  proceedings  in  the  future.

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

     The  Company  had no matters submitted to a vote of security holders during
the  fiscal  quarter  ended  December  31,  2004.

                                     PART II

ITEM 5.  MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

     For  the  fiscal  quarter  ended  December  31, 2004, no established public
trading  market  existed  for the Company's Common Stock. On March 22, 2005, the
Compans  Common  Stock  began trading on the OTC Bulletin Board under the symbol
"SIBE."  We have 1,939,000 shares of Common Stock subject to outstanding options
or  warrants  to  purchase, or securities convertible into, the Company's Common
Stock.  We  have  no outstanding shares of preferred stock. As of March 23, 2005
there  were  18,805,771  shares  of  Common  Stock  outstanding,  held  by  84
shareholders  of  record.

RECENT SALES OF UNREGISTERED SECURITIES

     On  October 24, 2001, 150,000 shares of Common Stock at $.15 per share were
issued  to  an  individual  for  a  total  of  $22,500  as  part of a payment of
accounting  fees.

     On  October  17,  2003, 2,000,000 shares of Common Stock at $.008 per share
were issued to an individual for a total of $1,600 as payment for a 51% interest
in  Zaural  Neftegaz,  a  Russian  Oil  Company.

     In  June  2004, 6,900,000 shares of Common Stock were issued to eleven (11)
individuals  in  consideration  for  the purchase of the remaining 49% of Zaural
Neftegaz.

     In  September  2004,  100,000  shares  of  Common  Stock  were issued to an
individual  in  consideration  for  legal  services  rendered.

     For all of the above sales of unregistered securities the Company claims an
exemption  from  registration  afforded  by  Section  4(2)  of the Act since the
foregoing issuances did not involve a public offering, the recipients had access
to  information  that  would  be  included in a registration statement, took the
shares  for  investment and not resale and the Company took appropriate measures
to  restrict  transfer.

                                       16
<PAGE>

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

     This  report  contains  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.  These forward looking statements are subject to certain
risks  and  uncertainties  that  could cause actual results to differ materially
from  historical results or anticipated results, including those set forth under
"Risk  Factors"  in  this  Management's  Discussion  and  Analysis  of Financial
Condition  and  Results  of  Operations"  and  elsewhere  in  this  report.  The
following  discussion  and analysis should be read in conjunction with "Selected
Financial  Data"  and  the  Company's  financial  statements  and  notes thereto
included  elsewhere  in  this  report.

OVERVIEW

     ZNG  aims  to  develop  an  oil  and  gas  industry in the Kurgan region of
South-West  Siberia,  Russia  by  discovering  new  hydrocarbon fields.  ZNG has
compiled  data  in  the  Eastern  part  of  the Kurgan region by analyzing prior
geological,  geophysical and lithographic exploration works in the region, data,
maps,  and  reports  from  12  test  wells  drilled  between  1979-1986, profile
sections,  correlation  schemes,  and  geographic  maps  of  the  region.

     After  analyzing  the  eight  available blocks suggested by the Ministry of
Natural Resources, ZNG chose to concentrate its activities on four areas located
in the Eastern part of the Kurgan region and applied for licenses covering these
areas.  Currently  ZNG holds four, 5-year exploration licenses expiring in March
2008, for concessions covering a total territory of 643,000 acres.  Mokrousovsky
is the largest, encompassing a total of 240,000 acres, followed by West Suersky,
which  covers  230,000  acres,  Privolny,  which  covers  123,000  acres,  and
Orlovo-Pashkovsky,  which  covers  50,000  acres.

     Following  detailed  data  collection,  survey and seismic testing ZNG will
proceed  with  development  of one block at a time.  The Company feels that this
strategy has numerous benefits including: 1) increasing the speed of development
by  concentrating ZNG's efforts and resources; 2) potentially reducing the need
for  additional capital if early blocks generate revenue for the Company; and 3)
generating  revenues which may pay for future development costs and provide cash
that  will  help  to  finance  the  development  of  subsequent  blocks.

     The  West-Suersky  block  was  chosen  by the Company as the most promising
block, and the Company has already started studies on this area. The Company has
performed  gravimetric  surveys  and  the  field  part  of 2-dimensional seismic
studies  through  experienced and reputable oil and gas service organizations in
Russia,  "Bazhenov Geophysical Expedition" and JSC "Bashneftegeofizika." ZNG has
not  begun  exploratory  drilling  yet,  as  it  is awaiting the two-dimensional
seismic  study  results.  Currently "Bashneftegeofizika" is processing data they
collected during the summer of 2004 and preparing it for interpretation in order
to identify the most prospective sites for drilling. The Company anticipates the
results  of  this  processing  to  be  competed  in  the second quarter of 2005.

     ZNG has also hired GeoData Consulting, an international geosciences service
company, which provides daily independent supervisions of the exploration works,
helping  to  add  assurance  to  the  accuracy  of  the  forthcoming  results.

                                       17
<PAGE>

     The  Company has not started production and is not currently generating any
cash,  which  makes  it difficult for it to pay its maturing obligations, as the
Company's  assets  are  illiquid. However, the Company believes that in the long
run a number of trends will favorably affect its liquidity. These trends include
the  steady  trend  of  economic  growth  in Russia in the recent years which is
improving the liquidity of our potential customers, and may favorably impact the
Company's  debt  management  and the increasing overall credit rating in Russia,
which  the  Company  hopes  will lead to increased foreign investment in Russian
companies,  like  ZNG.

PLAN  OF  OPERATION  FOR  THE  NEXT  TWELVE  MONTHS

     The  Company  believes it can satisfy its cash requirements during the next
twelve  months  through  funding  provided  by  existing  stockholders,  without
committing  to  the  scheduled  program  of  oil  fields  development in Russia.
However,  additional  external  funding  is  required in order to align with the
Company's  exploration  and  development program. It is anticipated that private
equity  from  the  current  investor group will finance initial surveys up to $1
million.  The  Company  expects  to  finance  a  secondary  survey  and  initial
exploration  to the point of establishing proven reserves, if commercial amounts
of  hydrocarbon  are  discovered,  through  equity  financing, conducted through
institutional  partners, and/or debt. This cost is estimated at approximately $5
million and includes drilling of an exploratory and a prospecting well, followed
if  necessary by additional geological research to quantify the deposits. Future
exploration  and  development  is expected to be financed through debt which SEG
believes  will  be  forthcoming if reserves are proven. However, the Company can
give  no  assurances that it will be successful in finding hydrocarbon reserves.

     The  following  actions  are  planned  for  the  next twelve months: Office
analysis of field materials projected onto gravimetric diagrams (1:50,000 scale)
and  seismic  works;  their  complex  interpretation  with  the  subsequent
recommendation for placing exploratory wells. Drilling is projected to begin the
third  quarter of 2005 and results on the initial wells are expected as early as
the  fourth  quarter  of  2005.

     The  Company  currently  has  no  plans to purchase any plant facilities or
significant  equipment  within  the  next  12  months.

     In  the  past,  the  Company  has  obtained  cash financing from organizing
stockholders  in  the  form of loans and advances, as a result, amounts totaling
$517,191  and  $278,840 were payable to the stockholders as of December 31, 2003
and 2004 respectively. However, there can be no certainty as to the availability
of continued financing in the future. Failure to obtain sufficient financing may
require the Company to reduce its operating activities. A failure to continue as
a  going  concern would then require stated amounts of assets and liabilities to
be  reflected  on  a liquidation basis which could differ from the going concern
basis.

ESTIMATE  OF  THE  AMOUNT  SPENT  DURING  EACH  OF  THE LAST TWO FISCAL YEARS ON
RESEARCH  AND  DEVELOPMENT  ACTIVITIES

     A  business  plan  was  developed  over the course of three months in 2003.
During  that  time  period,  market  research  was  conducted.  These costs were
directly  borne  by  the  Company  and  are  not being transferred to customers.
Research  and  development  activities  in the oil and gas field are the primary
activities  of  the  Company at the current time.  The Company is conducting the
gravimetric  and  seismic  works  on  the  licensed areas.  Costs incurred as of
December  31,  2004  were  $690,000.

                                       18
<PAGE>

     The  Company  translates  the  assets  and  liabilities  of ZNG and certain
limited  Canadian  operations  at  the  year end exchange rate; income statement
amounts are converted at the average rate of exchange for the year.  Translation
gains  and  losses  have  not  been  significant  to  date.

COMPARISON OF OPERATING RESULTS

Results of Operations for the fiscal year ended December 31, 2004

     The  Company  had no revenues for either the fiscal year ended December 31,
2003,  or  the  fiscal  year  ended  December  31,  2004.

     The  Company's expenses increased $411,051 (or 97.3%) from $422,516 for the
fiscal  year  ended  December  31,  2003  to  $833,567 for the fiscal year ended
December  31, 2004. This increase consisted of increases in salaries of $196,160
(or 68.6%) from $286,004 for the fiscal year ended December 31, 2003 to $482,164
for  the  fiscal  year  ended December 31, 2004, an increase in professional and
consulting  fees  of  $89,982 (or 139.8%) from $64,363 for the fiscal year ended
December  31,  2003  to $154,345 for the fiscal year ended December 31, 2004, an
increase in rent and occupancy of $51,038 (or 2,051%) from $2,488 for the fiscal
year  ended  December 31, 2003 to $53,526 for the fiscal year ended December 31,
2004,  an  increase  in  depreciation  and  amortization  of $566 (or 1.5%) from
$36,740  for  the  fiscal year ended December 31, 2003 to $37,306 for the fiscal
year  ended  December  31, 2004 and an increase in other expenses of $73,305 (or
223%)  from  $32,921 for the fiscal year ended December 31, 2003 to $106,226 for
the  fiscal  year  ended  December  31,  2004.

     Net loss for the three months ended December 31, 2004 increased by $411,051
(or  97.3%) from $422,516 for the fiscal year ended December 31, 2003 to 833,567
for  the  fiscal  year  ended  December  31,  2004.

Liquidity and Capital Resources

     As  of  December  31,  2004,  the  Company's cash totaled $-0-, and current
assets  were  $135,052,  which  consisted  of  prepaid expenses and other. Total
assets for the Company as of December 31, 2004 were $1,729,589. The total assets
consisted  of  $750,000 of net geological data, $734,218 of unproved oil and gas
properties,  $1,820  of property and equipment and net licenses of $108,499. The
$750,000  of  geological  data includes, data, maps and reports from the 12 test
wells  drilled  between  1979-1986,  including a lithologic description of rock,
summaries  of  geophysical  research of well shafts and a laboratory analysis of
rock age; profile sections; correlation schemes; geological and set maps; and an
independent  geological  evaluation  of  oil  reserves  on  the  licensed  areas
performed  in  2004.

     As of December 31, 2004, the Company had current liabilities of $2,259,053.
This was due to $517,191 of accounts payable to related parties, due to expenses
paid on the Company's behalf by organizing shareholders, which includes $119,583
payable  to  the  Company's  Chief  Executive Officer, and $142,660 payable to a
Director  of  the  Company  $968,338 of accounts payable to other parties, which
includes  approximately  $770,129  which  is  owed to consulting and exploration
companies,  and $773,524 in accrued and unpaid salaries for all employees, which
includes $408,482 which is owed to the Company's current officers and directors.

                                       19
<PAGE>

     As of December 31, 2004, the Company had negative working capital of
$2,124,001.

     For  the year ended December 31, 2004, the Company had $754,032 in net cash
flows  from  operating  activities.  This was composed of $1,652,065 of accounts
payable  and accrued expenses, $37,306 of depreciation and amortization, $10,000
in  Common Stock issued for professional services, offset by $111,772 of prepaid
expenses  and  other  and  a  net  loss  of  $833,567.

     The  Company  spent $735,376 in net cash flows for investing activities for
the  year  ended December 31, 2004, which consisted of $734,218 spent on oil and
gas  properties and $1,158 spent for property and equipment. During this period,
the  Company received $34,426 in additional paid-in capital which was the result
of  a non-refundable deposit from a potential farm-in partner in exchange for an
exclusive  option  to conduct due diligence on the business and prospects of the
Company.  The  Company's  effect of exchange rate on cash was ($53,120) for the
year  ended  December  31,  2004.

     As  of  December 31, 2004, the Company effectively had U.S. and Russian tax
net operating loss carry-forwards totaling approximately $1,116,000 and $600,000
respectively.  These carry-forwards may be used to offset future taxable income,
and  generally expire in varying amounts through 2024. Such carry forwards allow
companies  to  account for losses against taxable income for a specified period.
No  tax  benefit has been reported in the financial statements, however, because
the  Company  has taken a conservative approach in estimating the success of the
project  and  has  assigned  a  minimum  of 50% chance that it will not generate
enough  taxable income to utilize the accumulated losses by the time they expire
in  accordance  with  the  applicable  tax  regulations.

     The Company is taking steps in an attempt to raise equity capital and/or to
borrow  additional funds. There can be no assurance that any new capital will be
available  to  the  Company or that adequate funds for the Company's operations,
whether  from  the  Company's  financial  markets, or other arrangements will be
available  when  needed or on terms satisfactory to the Company. The Company has
no  further  commitments  from  officers,  directors  or  affiliates  to provide
funding.  The failure of the Company to obtain adequate additional financing may
require  the  Company  to  delay,  curtail  or  scale  back  some  or all of its
operations.  Any  additional  financing  may  involve  dilution to the Company's
then-existing  shareholders.

RISK FACTORS

     Our  securities  are  highly  speculative  and  should only be purchased by
persons  who  can afford to lose their entire investment in our Company.  If any
of  the following risks actually occur, our business and financial results could
be  negatively  affected  to  a  significant  extent.

     The  Company's  business  is  subject  to many risk factors, including the
following  (references  to "our," "we," "SEG" and words of similar meaning
in  these  Risk  Factors  refer  to  the  Company  and  ZNG):

RISK OF CONTINUING OUR BUSINESS PLAN WITHOUT ADDITIONAL FINANCING

                                       20
<PAGE>

     We depend to a great degree on the ability to attract external financing in
order  to  conduct  future  exploratory  and development activities. The Company
believes  it  can  satisfy  its  cash requirements during the next twelve months
through  funding  provided  by  existing stockholders, without committing to the
scheduled  program  of  oil  fields  development  in Russia. However, additional
external  funding  is  required in order to align with the Company's exploration
and  development program. It is anticipated that private equity from the current
investor group will finance initial surveys up to $1 million. An issue of shares
is  expected  to finance a secondary survey and initial exploration to the point
of  establishing  proven  reserves,  if  commercial  amounts  of hydrocarbon are
discovered.  This  cost  is  estimated  at approximately $5 million and includes
drilling  of  an  exploratory  and  a prospecting well, followed if necessary by
additional  geological research to quantify the deposits. Future exploration and
development  is  expected to be financed through debt which SEG believes will be
forthcoming  if reserves are proven. However, the Company can give no assurances
that  it will be successful in finding hydrocarbon reserves. If we are unable to
raise  the  additional  funds  required  for  planned exploration and extraction
activities,  our  Company may be forced to abandon its current business plan. If
you  invest  in  our Company and we are unable to raise the required funds, your
investment  could  become  worthless.

ADDITIONAL  FINANCING  REQUIRED  AND  TIME  BEFORE  THE  COMPANY  IS EXPECTED TO
GENERATE  REVENUES

     The Company anticipates the need for approximately $15,000,000 prior to the
Company's  expected  generation  of  any revenues. Currently the Company has not
raised  any  of  this financing and the Company can make no assurances that this
financing  will ever be raised. The Company also does not expect to generate any
revenues  until 2006, assuming the $15,000,000 can be raised, of which there can
be  no  assurance.  Therefore,  investors  should  keep in mind that even if the
Company  is  able  to  raise  the substantial amounts of additional financing it
requires,  it  could still be years before the Company generates any revenue, if
ever. If the Company does not raise the $15,000,000 which it anticipates needing
to  generate  revenues,  which  if generated, will likely not be great enough to
solely  sustain the Company, the Company may be forced to abandon or curtail its
current  business  plan.

OUR AUDITORS HAVE EXPRESSED SUBSTANTIAL DOUBT AS TO WHETHER OUR COMPANY CAN
CONTINUE AS A GOING CONCERN

     Our  Company  is  in  its  early  development  stage,  as planned principal
activities  have  not begun.  We have not generated any revenues since inception
and  have incurred substantial losses.  These factors among others indicate that
the  Company  may  be unable to continue as a going concern, particularly in the
event  that  it  cannot  generate sufficient cash flow to conduct its operations
and/or  obtain  additional  sources  of  capital  and  financing.

WE  LACK  AN  OPERATING  HISTORY  WHICH  YOU  CAN USE TO EVALUATE US, MAKING ANY
INVESTMENT  IN  OUR  COMPANY  RISKY

                                       21
<PAGE>

     Our Company lacks a long standing operating history which investors can use
to  evaluate  our  Company's  previous earnings. Therefore, an investment in our
Company  is  risky because we have no business history and it is hard to predict
what  the  outcome  of  our  business  operations  will  be  in  the  future.

WE  MAY CONTINUE TO BE UNPROFITABLE AND MAY NOT GENERATE PROFITS TO CONTINUE OUR
BUSINESS  PLAN

     As  a development stage company, we have no revenues or profits to date and
our  net cumulative deficit attributable to our development stage as of December
31, 2004, was $1,256,083, and the total cumulative deficit was $1,705,868, which
included  $449,785 of pre-development stage deficit. We have $773,524 in accrued
and  unpaid  salaries.  The  Company  is  currently  being  funded  by  existing
shareholders  but  it  will need an additional $1,000,000 to complete geological
works  which  are  underway. There is a risk that we will never begin production
and  our  Company  will  never  generate  any  revenues.  If  throughout our oil
exploration  we  find  no  viable  wells, we will likely be forced to curtail or
abandon  our  business  plan. If this happens, you could lose your investment in
our  Company. If we are unable to generate profits, we will be forced to rely on
external  financing,  of  which  there  is  no  guarantee,  to continue with our
business  plan.

WE  HAVE A POOR FINANCIAL POSITION AND IF WE DO NOT GENERATE REVENUES, WE MAY BE
FORCED  TO  ABANDON  OUR  BUSINESS  PLAN

     Our Company currently has a poor financial position.  We have not generated
any revenues or begun production on any wells.  There is a risk that we will not
find  enough,  or  even  any, viable wells needed to generate enough profits for
your  investment  in  our  Company  to  appreciate.  If  we  never  generate any
revenues, our Company may be forced to abandon its business plan and your shares
may  become  worthless.

OUR  BUSINESS  IS  SPECULATIVE  AND  RISKY  AND  IF  THE  COMPANY  DOES NOT FIND
HYDROCARBON  RESERVES,  WE  MAY  BE  FORCED  TO  CURTAIL  OUR  BUSINESS  PLAN

     There is a risk that we will not find any hydrocarbon reserves and the cost
of  exploration  will  become  too high for us to continue as a corporation.  If
this  happens,  your  investment  in  our  Company  could  become  devalued.

OUR  DRILLING  LICENSES  MAY  NOT BE EXTENDED OR WE MAY NOT GAIN THE APPROVAL OF
FEDERAL  AND  STATE GOVERNMENT AGENCIES TO CONVERT OUR EXPLORATION LICENSES INTO
PRODUCTION  LICENSES

     The  Company holds four (4) exploration licenses acquired on March 7, 2003,
to  explore  four  individual properties in the Kurgan province of Russia. These
licenses require the Company to conduct seismic surveys on the properties and to
report  any  discoveries  to the regional government. The licenses are currently
classified  as  5-year  exploration  licenses  and  are convertible into 25-year
production  licenses  upon  discovery of hydrocarbon reserves. Additionally, the
Company  can  request  and  may  be granted an extension if the Company can show
initiative  to  continue and finalize all exploratory activities on the licensed
areas.  Therefore,  under the Russian Ministry of Natural Resources ("Ministry")
current  policies,  the   Company's  exploration   licenses   may   be  extended
indefinitely as long as all of the terms and conditions of the licenses are met.
The  Ministry  may not withdraw the licenses at the end of the initial five-year
period,  or  thereafter, if the exploration activities are ongoing and privately
funded.  However,  there  is a risk that the Company will not have the financial
resources on March 7, 2008, at the end of the five-year license term, to conduct
exploration  activities  which  will satisfy the license agreement and allow the
Company  to extend the term of the license until viable resources are discovered
and  the license can be converted into a production licenses, of which there can
be  no assurances. Additionally, the Company may require the approval of federal
and  state  government  agencies  for  conversion of its exploration licenses to
production  licenses,  which  may  not  be granted. If the Company's exploration
licenses  expire  because the Company cannot show the initiative to continue and
finalize  exploration activities at the end of the initial five-year term of the
licenses, or the government does not allow the Company's exploration licenses to
be  converted into production licenses, it would cause the Company's revenues to
decrease,  which in turn would lead to a decrease in the value of any securities
held  by  investors  in  the  Company.

                                       22
<PAGE>

IF  WE  DO  PRODUCE  OIL,  WE  WILL  BE  REQUIRED  TO  SELL 70% OF OUR CRUDE OIL
PRODUCTION  IN  THE  DOMESTIC  RUSSIAN MARKET, LEAVING ONLY 30% OF OUR CRUDE OIL
PRODUCTION  TO  BE  SOLD  IN  THE  MORE  LUCRATIVE  FOREIGN  MARKETS

     There  is a risk that if commercial hydrocarbon reserves are discovered, of
which  there  is  no  assurance,  that the Company will be constrained as to the
amounts  it can export to foreign markets.  Currently it is more advantageous to
export  crude  oil, because domestic Russian prices of Urals blend oil are lower
than foreign market prices. However, Russia has export quota restrictions on the
amount  of  oil  which  any  company can export to foreign markets.  The current
percentage  of  crude oil allowed to be exported to foreign markets is 30%.  The
remaining  70%  cannot  be  exported as crude oil, but only as a refined product
such  as  gasoline or kerosene.  If the Company fails to refine its products, if
any,  it  will  be required to sell 70% of its crude oil in the domestic market.
If  the  Company  decides  to  refine  the  oil it finds, if any, it will entail
substantial  expenditures.  Even if we are able to produce oil, we may still not
be  able  to  generate  enough  revenues  to recoup the costs of exploration and
production, because we will only be able to sell 30% of our crude oil production
to  the  larger  more  lucrative  foreign markets.  If we are unable to generate
sufficient  revenues,  we  may be forced to abandon our business plan or curtail
future  exploration  activities.

OUR  INDUSTRY  IS COMPETITIVE AND AS SUCH COMPETITIVE PRESSURES COULD PREVENT US
FROM  OBTAINING  PROFITS

     The  main  factor determining success in the oil exploration and extraction
industry  is  finding  viable  wells. If our Company is unable to find producing
wells  and  our competition is, it is likely that our Company will be driven out
of  business.  Additionally,  our  industry  is  subject  to significant capital
requirements   and   as   such,   larger   companies  such  as  LUKoil,  BP-TNK,
Surgutneftegaz and Sibneft may have an advantage should they compete with us for
exploration licenses, because they may have resources substantially greater than
ours.  Investors  should take into account the above factors and understand that
if  we are unable to raise additional capital or generate the profits we require
for  greater  exploration, the Company may be forced to liquidate its assets and
an  investment  in  our  Company  could  become  worthless.

                                       23
<PAGE>

WE RELY UPON KEY PERSONNEL AND IF THEY LEAVE OUR COMPANY OUR BUSINESS PLAN COULD
BE  ADVERSELY  EFFECTED

     We  rely  on ZNG's Chief Executive Officer and Technical Director, Oleg  V.
Zhuravlev  and  Vladimir  V.  Eret respectively, for the success of our Company,
both  of  whom  are employed under contracts.  Their experience and input create
the  foundation  for  our business and they are responsible for the directorship
and  control  over  the Company's development activities.  The Company does not
hold "key  man" insurance on either of these individuals. Moving forward, should
they  be  lost  for  any  reason,  the  Company will incur costs associated with
recruiting  replacement personnel and any potential delays in operations. If we
are  unable  to  replace  them  with  other  suitably  trained  geologists  and
geophysicists  from  within  Russia  or  other  oil bearing nations such as USA,
Canada,  Norway,  UK, and Kazakhstan, the Company may be forced to scale back or
curtail  its business plan.  As a result of this, any securities you hold in our
Company  could  become  devalued.

OUR  PROJECTIONS,  ESTIMATES  AND  STATISTICAL  ANALYSIS  MAY  BE  INACCURATE OR
SUBSTANTIALLY  WRONG,  WHICH  MAY  PREVENT  US  FROM EXECUTING OUR BUSINESS PLAN

     Risks  from these factors are intertwined with the risky nature inherent in
the  oil  and  gas industry. Projections on future revenues as well as costs and
required  capital  expenditures  are  based  on  estimates. Business statistical
analysis  is  used  in projection of drilling success ratios, average production
costs, world oil price fluctuations and their correspondence to Russian domestic
market,  etc.  If  our  projections  or  estimates  are wrong or our statistical
analysis faulty, our revenues may be adversely affected which could keep us from
executing our business strategy. As an investor, if this happens your securities
in our Company could be adversely affected and you could lose your investment in
our  Company.

INVESTORS  MAY  FACE  SIGNIFICANT RESTRICTIONS ON THE RESALE OF OUR COMMON STOCK
DUE  TO  FEDERAL  REGULATIONS  OF  PENNY  STOCKS

     Since  our  Common  Stock  is  listed  on  the OTC Bulletin Board under the
trading  symbol  "SIBE,",  it  is  subject  to  the requirements of Rule 15(g)9,
promulgated  under the Securities Exchange Act, and will be as long as the price
of  our  Common  Stock is below $5.00 per share. Under such rule, broker-dealers
who  recommend low-priced securities to persons other than established customers
and  accredited  investors  must  satisfy  special  sales practice requirements,
including  a  requirement  that  they make an individualized written suitability
determination for the purchaser and receive the purchaser's consent prior to the
transaction.  The  Securities Enforcement Remedies and Penny Stock Reform Act of
1990,  also  requires  additional  disclosure  in  connection  with  any  trades
involving  a stock defined as a penny stock. Generally, the Commission defines a
penny stock as any equity security not traded on an exchange or quoted on NASDAQ
that  has  a market price of less than $5.00 per share. The required penny stock
disclosures  include  the  delivery,  prior  to any transaction, of a disclosure
schedule  explaining  the  penny  stock market and the risks associated with it.
Such  requirements  could  severely limit the market liquidity of the securities
and  the ability of purchasers to sell their securities in the secondary market.

                                       24
<PAGE>

CRITICAL ACCOUNTING POLICIES

     Our  discussion  and  analysis  of  our  financial condition and results of
Operations  is  based  upon  our  audited  financial statements, which have been
prepared  in  accordance  with  accounting  principals generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues  and  expenses,  and  related  disclosure  of any contingent assets and
liabilities.  On  an  on-going basis, we evaluate our estimates, including those
related  to  uncollectible  receivable,  investment  values,  income  taxes, the
recapitalization and contingencies. We base our estimates on various assumptions
that  we  believe to be reasonable under the circumstances, the results of which
form  the  basis  for  making  judgments  about  carrying  values  of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ  from  these  estimates  under  different  assumptions  or  conditions.

ITEM 7.  FINANCIAL STATEMENTS

     The Financial Statements presented herein are stated in U.S. dollars and
are prepared in accordance with U.S. Generally Accepted Accounting Principles.

                                       25
<PAGE>


                           SIBERIAN ENERGY GROUP INC.
                          (A DEVELOPMENT STAGE COMPANY)

                        CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 2004

                                       26
<PAGE>

REPORT  OF  INDEPENDENT  REGISTERED  PUBLIC  ACCOUNTING  FIRM

The  Board  of  Directors  and  Stockholders
Siberian  Energy  Group  Inc.

We  have audited the accompanying consolidated balance sheets of Siberian Energy
Group  Inc.  (a  development stage company) as of December 31, 2004 and 2003 and
the  related  statements  of operations, stockholders' equity and cash flows for
the  years then ended, and the cumulative period of Development Stage Activity -
January  1,  2003 through December 31, 2004.  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 whether the financial
statements are free of material misstatement.  An audit includes examining, on a
test  basis,  evidence  supporting  the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made  by  management,  as well as evaluating the overall
financial  statement  presentation.  We  believe  that  our  audits  provide  a
reasonable  basis  for  our  opinion.

In  our opinion, the consolidated financial statements referred to above present
fairly,  in  all  material  respects,  the financial position of Siberian Energy
Group  Inc.  as  of December 31, 2004 and 2003 and the results of its operations
and  its  cash  flows  for  the  years  then  ended and the cumulative period of
Development  Stage  Activity  -  January  1,  2003 through December 31, 2004, in
conformity with accounting principles generally accepted in the United States of
America.

The  accompanying financial statements have been prepared assuming that Siberian
Energy  Group Inc. will continue as a going concern.  As discussed in Note 10 to
the  financial  statements,  Siberian  Energy  Group Inc. has not earned revenue
since  inception  of  its  current  endeavor,  and  is  considered  to be in the
development  stage  which raises substantial doubt about its ability to continue
as  a  going  concern.  Management's  plans  relative  to these matters are also
described  in  Note  11  and throughout the financial statements.  The financial
statements  do not include any adjustments that might result from the outcome of
this  uncertainty.

Lumsden  &  McCormick,  LLP
Buffalo,  New  York
February  25,  2005

                                       27
<PAGE>

<TABLE>
<CAPTION>

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)
--------------------------------------------------------

CONSOLIDATED BALANCE SHEETS

December 31,                                                           2004          2003
-------------------------------------------------------------------------------------------
<S>                                                                     <C>           <C>
ASSETS
CURRENT ASSETS:
  Cash                                                             $         -   $      38
  Prepaid expenses and other                                           135,052      23,280
                                                                   ------------------------
                                                                       135,052      23,318
                                                                   ------------------------
Geological data, net                                                   750,000           -

Oil and gas properties, unproved                                       734,218           -

Licenses, net                                                          108,499     144,659

Property and equipment, net                                              1,820       1,808
                                                                   ------------------------
                                                                   $ 1,729,589   $ 169,785
                                                                   ------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable:
    Related party - stockholders                                   $   517,191   $ 278,840
    Others                                                             968,338      43,068
  Accrued payroll                                                      773,524     285,080
                                                                   ------------------------
                                                                     2,259,053     606,988
                                                                   ------------------------

STOCKHOLDERS' EQUITY:
  Common stock - authorized 100,000,000 shares, $.001 par value,
    18,805,771 and 11,805,771 issued and outstanding                    18,806      11,806
  Additional paid-in capital                                         1,210,718     423,292
  Accumulated deficit
    Pre-development stage                                             (449,785)   (449,785)
    Development stage                                               (1,256,083)   (422,516)
  Accumulated other comprehensive income (loss)                        (53,120)          -
                                                                   ------------------------
                                                                      (529,464)   (437,203)
                                                                   ------------------------
                                                                   $ 1,729,589   $ 169,785
-------------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.

                                       28
<PAGE>

<TABLE>
<CAPTION>

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)
---------------------------------------------------------------------------------------
                                                                            For the
        CONSOLIDATED STATEMENTS OF OPERATIONS                              cumulative
                                                                           period of
                                                                          Development
                                                                        Stage Activity-
                                                                        January 1, 2003
                                                                             through
                                                                           December 31,
         For the years ended December 31,           2004          2003        2004
---------------------------------------------------------------------------------------
<S>                                                 <C>            <C>           <C>
Revenues                                       $         -   $         -   $         -

Expenses:
  Salaries                                         482,164       286,004       768,168
  Professional and consulting fees                 154,345        64,363       218,708
  Rent and occupancy                                53,526         2,488        56,014
  Depreciation and amortization                     37,306        36,740        74,046
  Other                                            106,226        32,921       139,147
                                               ----------------------------------------
    Total expenses                                 833,567       422,516     1,256,083
                                               ----------------------------------------

    Loss before income taxes                       833,567       422,516     1,256,083

Provision for income taxes (benefit)                     -             -             -
                                               ----------------------------------------
    Net loss (development stage)               $   833,567   $   422,516   $ 1,256,083
---------------------------------------------------------------------------------------

Basic and diluted loss per common share        $     (0.05)  $     (0.04)  $     (0.10)
                                               ----------------------------------------

Weighted average number of basic and diluted
  common shares outstanding                     15,336,456    11,098,922    13,215,757
                                               ----------------------------------------
</TABLE>

See accompanying notes.

                                       29
<PAGE>

<TABLE>
<CAPTION>

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)
---------------------------------------------------------------------------------------

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the cumulative period of Development Stage Activity - January 1, 2003 through
---------------------------------------------------------------------------------------
December 31, 2004
-----------------

                                                           Common Stock
                                                ----------------------------------
                                                                        Additional
                                                 Number of               Paid-In
                                                  Shares    Par Value    Capital
                                                ----------------------------------
<S>                                                   <C>        <C>        <C>
Balance, January 1, 2003 (pre-development stage)  9,805,771  $ 9,806  $  425,292

Loss for the year - 2003                                  -        -           -

Shares issued in acquisition                      2,000,000    2,000      (2,000)
                                                ---------------------------------

  Balance, December 31, 2003                     11,805,771  $11,806  $  423,292
                                                ---------------------------------
Loss for the year - 2004                                  -        -           -

Foreign currency translation adjustment                   -        -           -

Shares issued in acquisition                      6,900,000    6,900     743,100

Shares issued for professional services             100,000      100       9,900

Other                                                     -        -      34,426
                                                ---------------------------------

  Balance, December 31, 2004                     18,805,771  $18,806  $1,210,718
---------------------------------------------------------------------------------
</TABLE>

See accompanying notes.

                                       30
<PAGE>

<TABLE>
<CAPTION>

                                           Accumulated
                                             Other
Accumulated     Comprehensive            Comprehensive
   Deficit      Income (Loss)     Total      Loss
------------------------------------------------------
<S>                <C>             <C>          <C>
$(449,785)       $          -    $ (14,687)

 (422,516)                  -     (422,516)  $(422,516)
------------------------------------------------------
       -                   -            -
------------------------------------------
$(872,301)       $          -    $(437,203)
------------------------------------------
(833,567)                  -      (833,567)

       -             (53,120)      (53,120)  $(886,687)

       -                   -       750,000

       -                   -        10,000

       -                   -        34,426
------------------------------------------

$(1,705,868)     $   (53,120)    $(529,464)
</TABLE>

See accompanying notes.

                                       31
<PAGE>

<TABLE>
<CAPTION>

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)
                                                                              For the
     CONSOLIDATED STATEMENTS OF CASH FLOWS                                  cumulative
                                                                             period of
                                                                            Development
                                                                          Stage Activity-
                                                                          January 1, 2003
                                                                             through
                                                                            December 31,
     For the years ended December 31,                  2004         2003        2004
----------------------------------------------------------------------------------------
<S>                                                     <C>          <C>         <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss (development stage)                     $ (833,567)  $(422,516)  $(1,256,083)
  Depreciation and amortization                        37,306      36,740        74,046
  Common stock issued for professional services        10,000           -        10,000
  Changes in other current assets and
    current liabilities:
      Prepaid expenses and other                     (111,772)    (17,976)     (129,748)
      Accounts payable and accrued expenses         1,652,065     584,608     2,236,673
                                                   -------------------------------------
        NET CASH FLOWS FROM OPERATING ACTIVITIES      754,032     180,856       934,888
                                                   -------------------------------------

CASH FLOWS FROM INVESTING ACTIVITIES:
  Expenditures for licenses                                 -    (180,824)     (180,824)
  Expenditures for oil and gas properties            (734,218)          -      (734,218)
  Expenditures for property and equipment              (1,158)          -        (1,158)
  Cash received in acquisition                              -           6             6
                                                   -------------------------------------
        NET CASH FLOWS FOR INVESTING ACTIVITIES      (735,376)   (180,818)     (916,194)
                                                   -------------------------------------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Additional paid-in capital                           34,426           -        34,426
                                                   -------------------------------------
Effect of exchange rates on cash                      (53,120)          -       (53,120)
                                                   -------------------------------------
    Net increase (decrease) in cash                       (38)         38             -

Cash - beginning                                           38           -             -
                                                   -------------------------------------
    Cash - ending                                  $        -   $      38   $         -
----------------------------------------------------------------------------------------
</TABLE>

See accompanying notes.

                                       32
<PAGE>

SIBERIAN ENERGY GROUP INC. (A Development Stage Company)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------

1.  SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES:

THE  COMPANY  AND  DESCRIPTION  OF  BUSINESS:

The  Company  exists  primarily  to  exploit and develop certain oil and gas and
other  petroleum  products  licenses  issued  by  Russia's  Kurgan  Provincial
Government  for  the  Eastern  part  of  Kurgan  Province.

The  Company operates through its wholly owned subsidiary Zaural Neftegaz (ZNG).
ZNG has its principle place of business in Kurgan City, Kurgan province, Russia,
and  it  is the sole and exclusive owner of the exploration licenses.  In spring
2004, ZNG has begun geological and geophysical exploration works on the licensed
areas.

The  Company  was  incorporated  in  the State of Nevada on August 13, 1997, and
previously provided comprehensive outpatient rehabilitation services to patients
suffering  from  work,  sports  and  accident  related injuries.  All activities
related  to  the  Company's  previous  business  ventures  were  essentially
discontinued  prior  to January 1, 2000.  Predecessor names of the Company since
its  inception  include Trans Energy Group Inc., 17388 Corporation Inc., Talking
Cards  Inc., Oyster King Incorporated and Advanced Rehab Technology Corporation.

USE  OF  ESTIMATES:

The preparation of 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.

PRINCIPLES  OF  CONSOLIDATION:

The  accompanying  consolidated financial statements include the accounts of the
Company  and  its  wholly-owned  subsidiaries,  ZNG  and  Siberian  Energy Group
(Canada).  All  intercompany  transactions  and  balances  have been eliminated.

FOREIGN  CURRENCY  TRANSLATION:

The  Company  translates  the  assets and liabilities of ZNG and Siberian Energy
Group  (Canada)  at  the  year  end exchange rates; income statement amounts are
converted  at the average rates of exchange for the year.  Translation gains and
losses  are  included  within  other  comprehensive  income  (loss).

                                       33
<PAGE>

CASH:

Cash  in  financial  institutions  may  exceed  insured  limits at various times
throughout  the  year, and subject the Company to concentrations of credit risk.

OIL  AND  GAS  PROPERTIES:

The  Company  follows  the  full  cost  method  of  accounting  for  oil and gas
properties.  Accordingly,  all  costs  associated with acquisition, exploration,
and  development  of  oil  and gas reserves, including directly related overhead
costs,  is  capitalized.  The Company expects to incur costs of over $15,000,000
prior  to  its  expected  generation  of  revenue  in  the  first  half of 2006.
Commercial  production  is  expected  to  begin  in  the  early  part  of  2007.

All  capitalized costs of oil and gas properties, including the estimated future
costs  to  develop  proved reserves, will be amortized on the unit-of-production
method  using  estimates of proved reserves.  Investments in unproved properties
and  major  development  projects  will  not  be amortized until proved reserves
associated  with  the projects can be determined or until impairment occurs.  If
the  results  of  an  assessment  indicate that the properties are impaired, the
amount  of  the  impairment  is  added to the capitalized costs to be amortized.

In  addition,  the  capitalized  costs  are  subject  to a "ceiling test," which
basically  limits  such costs to the aggregate of the "estimated present value,"
discounted  at  a  rate  of  future  net revenues from proved reserves, based on
current economic and operating conditions, plus the lower of cost or fair market
value  of  unproved  properties.

Sales  of proved and unproved properties will be accounted for as adjustments of
capitalized costs with no gain or loss recognized, unless such adjustments would
significantly  alter  the  relationship  between  capitalized  costs  and proved
reserves of oil and gas, in which case the gain or loss is recognized in income.
Abandonments  of  properties will be accounted for as adjustments of capitalized
costs  with  no  loss  recognized.

LICENSES:

Costs  incurred  during 2003 to register and formalize exploration licenses with
the Russian Ministry of Natural Resources are amortized over the five year terms
of  the  licenses.  Amortization  expense  for  2004  and  2003  was $36,160 and
$36,164;  amortization expense for each of the next three years will approximate
the  same  amounts.


                                       34
<PAGE>

PROPERTY  AND  EQUIPMENT:

Property  and  equipment  is  stated  at  cost, net of accumulated depreciation.
Depreciation  is  provided  using  the  straight-line  method.

LONG-LIVED  ASSETS:

Long  lived  assets  to  be  held and used or disposed of other than by sale are
reviewed  for  impairment  whenever  events or changes in circumstances indicate
that  the  carrying  amount  may  not be recoverable.  When required, impairment
losses  on  assets  to  be  held  and used or disposed of other than by sale are
recognized  based  on  the  fair  value  of  the asset.  Long-lived assets to be
disposed  of  by  sale  are reported at the lower of its carrying amount or fair
value  less  cost  to  sell.

INCOME  TAXES:

The  provision  for income taxes is based on pretax financial accounting income.
There  are  no significant differences between financial and tax accounting that
would otherwise give rise to deferred income taxes on the accompanying financial
statements.  The  Company,  however,  recognizes  future  tax  benefits  of  net
operating  loss carryforwards to the extent that realization of such benefits is
more  likely  than  not.

2.  ACQUISITIONS:

Acquisition  of  ZNG  took  part  in two steps.  In May 2003, the Company issued
2,000,000  shares  of its common stock for a 51% interest in ZNG.  In June 2004,
the Company purchased the remaining 49% of ZNG in exchange for 6,900,000 shares.
The  activities  of ZNG have been included in the financial statements since the
date  of  initial acquisition, and will be the foundation from which the Company
intends  to  develop  its  business.

No  accounting  value  was  assigned  to the net assets acquired and liabilities
assumed  as  of  the  date  of  the  initial  purchase  of  51%  of  ZNG:

Cash and other current assets          $   5,310
Property and equipment                     2,383
                                       ---------
                                           7,693
Current liabilities                       (7,693)
  Net assets acquired                  $       -
                                       ---------

                                       35
<PAGE>

The  second  step  of  acquisition  happened  a  year  later (June 30, 2004) and
reflected  the  increased  value  of  ZNG.  The  following  table summarizes the
estimated  fair  values  of the total assets acquired and liabilities assumed at
the  date  of  the  second  step  of  acquisition.  The Company is in process of
obtaining  third-party  valuations  of  certain  intangible  assets;  thus  the
allocation  of  the  purchase  price  is  subject  to  refinement.

Cash and other current assets             $    5,577
Intangible assets (geological data)          750,000
Oil and gas properties                       433,444
Exploration licenses                         126,582
Property and equipment                         1,150
                                           ---------
                                           1,316,753
Current liabilities                         (972,632)
                                           ---------
Net assets of subsidiary                  $  344,121
                                           ---------

Acquired  intangible  assets  of  $750,000 were assigned to a vast collection of
valuable  Geological Data that has led to, and thus supports the conclusion that
hydrocarbon  deposits exist in the Eastern part of the Kurgan region.  This data
has  been  compiled  by  analyzing  and  interpreting  prior  geological  and
lithographic  exploration  works  in  the  region  and  is  represented  by:

-    Data,  maps  and  reports from the 12 test wells drilled between 1979-1986,
     including  a  lithologic  description  of  rock,  summaries  of geophysical
     research  of  well  shafts  and  a  laboratory  analysis  of  rock  age
-    Profile  sections
-    Correlation  schemes
-    Geological  maps  of  South-West  ZNGralye (region east of Urals) and West
     Siberia,  pre-Jurassic  period
-    Set  of  maps based on distance methods of research and interpretations of
     cosmic  and  aerial  photograph
-    Independent  geological  evaluation  of oil reserves on the licensed areas
     performed  in  2004.

All  Geological  data  is  transformed  into  digital format, which enhances its
market  potential.  Estimated  useful  life  of  the  Geological Data covers the
period  of  anticipated  oil  producing  activities  on  the  licensed  area  of
approximately  25  years  starting 2006.  Therefore it will be amortized over 25
years  starting  January  2006.  Geological  data  will be tested for impairment
based on the results of seismic and other exploration works, which are currently
under  way.

On  June  28,  2004,  the  Company  also  opened  a  Canadian subsidiary through
acquisition  of  100% of the outstanding common shares of the newly incorporated
Siberian  Energy  Group  (Canada).  Purchase  price  equaled  $7,  which  also
represents the book value of the subsidiary.  Siberian Energy Group (Canada) was
purchased  for  the  purpose  of  opening  an  office  in  Toronto,  Ontario.


                                       36
<PAGE>

3.  INCOME  TAXES:

At  December  31,  2004,  the  Company  effectively has U.S. and Russian tax net
operating  loss  carryforwards  totaling  approximately $1,116,000 and $600,000,
respectively.  These  carryforwards may be used to offset future taxable income,
and  generally  expire in varying amounts through 2024.  No tax benefit has been
reported  in  the  financial  statements,  however, because the Company believes
there  is  at  least  a  50%  chance  that the carryforwards will expire unused.
Accordingly,  the  $350,000  estimated  cumulative  tax  benefit  of  the  loss
carryforwards  have  been  offset  by  a valuation allowance of the same amount.

4.  LEASES:

Office  rent  expense for the years ended December 31, 2004 and 2003 was $53,526
and  $2,488.  There  currently  are  no  long-term  lease  arrangements that the
Company  is  committed  to,  however,  it  may  negotiate with selected landlord
prospects  for  space  commitments.

5.  RELATED  PARTY  TRANSACTIONS:

During  2004  and  2003,  a  variety  of  expenses  were  paid for by organizing
stockholders.  As  a  result, amounts totaling $517,191 and $278,840 are payable
to  stockholders  from  the  Company  as  of  December  31,  2004  and  2003.

6.  EMPLOYMENT  CONTRACTS:

The Company has entered into employment contracts with certain senior management
employees  through  2008  that  provide  for minimum annual salary, adjusted for
capital  levels raised by the Company.  If terminated without cause, an employee
is  paid,  as  severance,  the  greater  of twelve months salary or one-half the
remaining  amount  owed  under  the contract.  At December 31, 2004, the minimum
total  future  additional  commitment  due  is  approximately  $500,000.

At  December  31,  2004,  accrued  and unpaid salaries for all employees totaled
$773,524.  These  amounts will be paid when appropriate financing is received by
the  Company.

                                       37
<PAGE>

7.  STOCK  OPTION  PLAN:

In  2003, the Company adopted a stock option plan for the benefit of certain key
employees.  Pursuant  to plan terms and related employment agreements, shares of
common  stock  have  been  reserved  for  grant  as  follows:

                        Shares Reserved
                        ---------------
Grant         December 31,      December 31,        Exercise
Year              2003            2004               Price
------------------------------------------------------------------
2003             600,000          400,000            $0.07
2004           1,200,000          936,000            $0.10
2004                   -          150,000            $0.16
2005           1,200,000          936,000            $0.30
2006           1,200,000          936,000            $0.30
2007           1,200,000          936,000     110% of the average
                                              Closing stock price
                                              for the three months
                                              prior to grant date

The  options generally expire four years from the date of grant; no options were
exercised  in  2004  and  2003.

The  following  summarizes  stock  option  activity:

                                   Number     Exercise
                                   Of Shares   Price
                                   ------------------
Outstanding and exercisable at
January 1, 2003                           -   $    -

Grant - 2003                        600,000     0.07

Outstanding and exercisable at
  December 31, 2003                 600,000

Granted - 2004                    1,036,000     0.10
Granted - 2004                      150,000     0.16
Expired - 2004                     (200,000)    0.07
Expired - 2004                     (100,000)    0.10

Outstanding and exercisable at
December 31, 2004                 1,486,000
                                  ---------

The  following  table summarizes information about stock options outstanding and
exercisable:

                 December 31, 2004
                 -----------------
                                Weighted Average
Exercise          Number of     Remaining Years of
Price             Options       Contractual  Life
--------------------------------------------------
$  0.07           $400,000             3
   0.10            936,000             4
   0.16            150,000             4
                 ----------
                $ 1,486,000
                 ----------

                 December 31, 2003
                 -----------------
  Exercise        Number of       Remaining Years of
   Price           Options        Contractual Life
--------------------------------------------------
$     0.07       $  600,000             4
--------------------------------------------------


                                       38
<PAGE>

The Company has elected to recognize compensation based on the fair value method
prescribed  by  Financial  Accounting  Standards  Board  Statement  No.  123,
"Accounting  for  Stock  Based  Compensation."  No compensation expense has been
recognized  in 2004 and 2003 because management has determined the fair value of
its  stock  options  granted  are  minimal in light of the startup nature of the
organization.

8.  FAIR  VALUE  OF  FINANCIAL  INSTRUMENTS:

The  carrying values of cash, accounts payable and accrued expenses approximates
fair  value  due  to  their  short-term  maturity.

9.  LOSS  PER  COMMON  SHARE:

Basic  and  diluted loss per common share is computed using the weighted average
number  of  common  shares  outstanding  during the period.  Shares issuable for
common  stock  options  may have had a dilutive effect on earnings per share had
the  Company  generated  income  during  2004  and  2003.

10.  CASH  FLOWS  INFORMATION:

Noncash  financing  activities  excluded  from  the 2004 statement of cash flows
include  the settlement of accounts payable totaling $10,000 in exchange for the
issuance  of  100,000  shares  of  the  Company's  common  stock.

                                       39
<PAGE>

11.  GOING  CONCERN:

These financial statements have been prepared assuming the Company will continue
as  a gong concern, however, since inception of its current endeavor in 2003, it
has  not  earned  any revenues and is considered to be in the development stage,
which raises substantial doubt about its ability to continue as a going concern.

Management  is  of  the  opinion that sufficient financing will be obtained from
external sources to provide the Company with the ability to continue the process
of  development  to  achieve  commercial  production  and  sales  of  products.

For the cumulative period ended December 31, 2004, the Company has obtained cash
financing  from  organizing  stockholders  and  employees  in the form of loans,
advances,  and  deferred  salaries.  However,  there  can  be no certainty as to
availability of continued financing in the future.  Failure to obtain sufficient
financing may require the Company to reduce its operating activities.  A failure
to  continue  as a going concern would then require stated amounts of assets and
liabilities  be  reflected  on  a  liquidation basis which could differ form the
going  concern  basis.


                                       40
<PAGE>



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

     None.

ITEM 8A.  CONTROLS AND PROCEDURES

(a)  Evaluation  of  disclosure  controls  and  procedures. The Company's chief
     executive  officer  and  principal  financial officer, after evaluating the
     effectiveness  of  the  Company's  "disclosure controls and procedures" (as
     defined  in  the  Securities  Exchange  Act  of  1934  Rules  13a-15(e) and
     15d-15(e))  as  of the end of the period covered by this annual report (the
     "Evaluation  Date"),  have  concluded  that  as of the Evaluation Date, the
     Company's  disclosure controls and procedures were adequate and designed to
     ensure  that  material  information  relating  to  the  Company  and  its
     consolidated  subsidiaries  would  be  made  known to them by others within
     those  entities.

(b)  Changes  in  internal  control  over  financial  reporting.  There  were no
     significant  changes  in  the  Company's  internal  control over financial
     reporting  during the fourth fiscal quarter that materially affected, or is
     reasonably  likely  to  materially  affect, the Company's internal control
     over  financial  reporting.

ITEM 8B.  OTHER INFORMATION

     On  January  24,  2005,  the  Company  entered into an Option Agreement and
Memorandum of Understanding with a third party ("Party"), which was subsequently
modified  by  a  Deed  of  Variation, entered into on March 10, 2005 ("Option").
Under  the  Option, the Company gave the Party the right to participate with the
Company  in  a  joint  venture  company  for  inter  alia  the  exploration  and
Development  of  the  Company's  four (4) licenses for exploration in the Kurgan
region  of  Siberia  (the "Joint Venture"). If the Party chooses to exercise the
Option  and  participate with the Company in the Joint Venture, the Company will
transfer  100%  of the Company's ownership interest in ZNG to the Joint Venture,
and  the  Company  will  transfer  50%  of  the Joint Venture to the Party for a
nominal  sum  and  the  agreement  by the Party to provide future funding to the
Joint  Venture  as  detailed in the Option. Pursuant to the Option, the Party is
currently conducting due diligence on the Company's licenses, which is estimated
to  be completed by April 10, 2005 (the "Due Diligence"). The party has paid the
Company $100,000 for the right to exercise the Option.

                                       41
<PAGE>

                                    PART III

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

DIRECTORS AND OFFICERS

     The  following table sets forth the name, age and position of each director
and  executive  officer  of  the Company.  There are no other persons who can be
classified as a promoter or controlling person of the Company.  The officers and
directors  of  the  Company  are  as  follows:

     NAME                AGE          POSITION
     ----                ---          --------

     David  Zaikin       37           Chairman  of  the  Board  of  Directors
                                        and  Chief  Executive  Officer
     Elena  Pochapski    39           Chief  Financial  Officer  and  Director
     Oleg V. Zhuravlev   44           Director,  President/CEO  Zaural Neftegaz
                                        ("ZNG")  Subsidiary  of  the  Company
     Sergey  Potapov     41           Director,  Vice  President  ZNG
     Vladimir V. Eret    60           Director and Chief Operating Officer and
                                        Technical  Director  of  ZNG

TERM  OF  OFFICE

     David  Zaikin  has  served  as  Chairman  of  the  Board of Directors since
December  2002  and as Chief Executive Officer of the Company since August 2004.
Since  September  1998, Mr. Zaikin has worked as Vice President of Harvey Kalles
R.E. LTD, a Real Estate Company.   In 2003,  Mr. Zaikin was recognized by "Who's
Who"   as   one   of  the  three  Canadian  businessmen  for  his  extraordinary
achievements.  Mr. Zaikin also has a diverse background that includes experience
in sales, marketing, channels, finance and operation.  Mr. Zaikin is currently a
member of TREB (the Toronto Real Estate Board) and OREA (the Ontario Real Estate
Association).  He specializes in both Financial Analysis and Market Analysis for
Commercial  Real  Estate.  Mr.  Zaikin  also has a Bachelors Degree from Kharkov
Government  Pharmaceutical  Institute.

     Elena  Pochapski  has served as Chief Financial Officer and Director of the
Company  since  August  1,  2003.  Before  her  employment  at the Company, Mrs.
Pochapski  served  as  a Senior Accountant at Silver Gold Glatt & Grosman, LLP.,
from  January 2002 to May 2004. Previous to that, Mrs. Pochapski was employed as
an  accountant at Cunningham & Associates, LLP., from September 1999 to December
2001.  Previous  to  that,  Mrs.  Pochapski  worked  as  an  accountant at Price
Waterhouse  Coopers in Moscow Russia from 1997 to April 1999. Mrs. Pochapski has
extensive  experience in public accounting, audits and corporate finance. She is
also  familiar  with  Russian  accounting  procedures  and  has  experience with
translating  Russian  financial  statements  into  US  GAAP  and  International
Accounting  Standards  (IAS).  Ms.  Pochapski  received  a Bachelor of Economics
degree  from  Moscow  State  University.  She  is  also certified as a Certified
General Accountant (CGA) in Canada and as a Certified Public Accountant (CPA) in
the  State  of  Maine,  U.S.  Additionally,  Mrs.  Pochapski  is a member of the
Certified  General  Accountants  Association  of  Ontario.

                                       42
<PAGE>

     Sergey Potapov has served as Director of the Company since January 1, 2003,
where  he  works  in management and acquisition of assets in the Russian oil and
gas  industry.  Additionally  Mr. Potapov has worked as Vice President of ZNG, a
Russian  oil  and  gas  exploration company, and subsidiary of the Company since
October 2002. From January 2000 through October 2002. Mr. Potapov worked as Vice
General  Director  at  Siburalresource  Ltd.,  which  provides  gas distribution
throughout  Kurgan  Province, Russia. Previous to his employ at Siburalresource,
Mr.  Potapov  worked  from  May  1996  to  January  2000,  as  the Head of Sales
Department  of  OAO  Ikar.  Mr.  Potapov  has  an  Engineering  Degree  from The
Engineering  Institute  of  Kurgan.

     Oleg  V. Zhuravlev has served as a Director of the Company since January 1,
2003.  In addition, since January 1, 2003, Mr. Zhuravlev has served as President
and  Chief Executive Officer of the Company's Subsidiary ZNG. Since October 15,
2002,  Mr.  Zhuravlev has worked as a general director of ZNG. Previous to being
employed  by ZNG, Mr. Zhuravlev was employed as Vice Director General in Finance
in  Kurganselectro  Ltd, from May 31, 2002 to October 14, 2002. Before that, Mr.
Zhuravlev  was  Vice  Director  General  in  finance and economics at LLC Kurgan
Neftegazodobivaushaya Company, from December 18, 2001 through May 30, 2002. From
June  13,  2001 to December 17, 2001, Mr. Zhuravlev was Chairman of the Board of
Directors of NCO Gorodskoy Rashetny Centre. From August 1, 1998 to June 8, 2001,
Mr.  Zhuravlev  was  Director  of  the  Kurgan branch of Sibcontact Bank Ltd. In
August  1997,  Mr.  Zhuravlev  became Chief of the Department of Investments and
Securities  Market  for  the  Committee  on  Economic  Policy  (Khanty-Mansysk
Autonomous  Area  Administration),  where he worked until May 1998. From October
10, 1993 to March 11, 1997, Mr. Zhuravlev held various positions at Sibcontact a
commercial bank, ultimately achieving the position of Vice Chairman of the Board
of  Directors.  Mr.  Zhuravlev  was professionally trained as an engineer at the
Kurgan  Institute  of  Engineering,  Motor  Transport  Economics  and Management
Department  in  Kurgan,  Russia.

     Vladimir  V.  Eret  has  served  as  Technical Director and Chief Operating
Officer  of  ZNG since January 1, 2003 and as Director of the Company since July
5, 2004. Before that time Mr. Eret was the Director General of Bentonite Inc. in
Kurgan  City,  Russia,  from  February 1, 1996 to January 31, 2002. Prior to his
employment  at  Bentonite  Inc.,  Mr.  Eret  worked  as the expert of geology at
Regional  Investment  Corporation, in Kurgan City, Russia, from December 1, 1994
to  January  31,  1996.  From  March 1985 to February 1993, Mr. Eret worked as a
director  of  Souzgiprovodxoz, in connection with their geological expedition of
Kurgan.  Prior  to  that time Mr. Eret worked at various jobs as a geologist and
from April 1976 to July 1978, as the chief geologist of the People's Democratic
Republic  of  Algeria.  Mr.  Eret  obtained  his  Bachelors  degree  from  Tomsk
Government  University  in  Geology  and  Engineering  in  1968.  He  obtained a
Doctorate  degree  from  Kurgan  University  in  1990  in  Economics.

                                       43
<PAGE>

     Directors  of  the  Company  are elected annually and hold office until the
annual meeting of the shareholders of the Company and until their successors are
elected and qualified. Officers will hold their positions at the pleasure of the
Board  of  Directors,  absent  any  employment  agreement.  There  are no family
relationships among the Company's officers and directors. Officers and directors
of  the  Company may receive compensation as determined by the Company from time
to  time by vote of the Board of Directors. Vacancies in the Board are filled by
majority vote of the remaining directors. Such compensation might be in the form
of  stock  options.  Directors  may  be  reimbursed  by the Company for expenses
incurred  in  attending  meetings  of  the  Board  of  Directors.

EMPLOYMENT  AGREEMENTS

     David  Zaikin,  the Company's Chief Executive Officer, signed an employment
agreement  effective  as  of  August 1, 2004. Under the agreement, Mr. Zaikin is
obligated  to  perform  at  least  40  hours  per  week of work on behalf of the
Company.  Unless  terminated earlier, Mr. Zaikin's employment agreement shall be
effective  until December 31, 2008. Mr. Zaikin is to be paid an annual salary of
US  $75,000, subject to periodic review by the Board. At the Board's discretion,
it  is  possible  for  Mr.  Zaikin  to  receive  a  performance  based  bonus.

     Mr.  Zaikin  is  provided  eight  (8)  weeks  of  vacation  leave per year.
Additionally,  Mr.  Zaikin  also has the right under his employment agreement to
purchase  stock options in the Company.  Under the 2003 plan, Mr. Zaikin had the
right to purchase 200,000 shares of the authorized and unissued $0.001 par value
restricted stock, at an exercise price of $0.07 per share.  Under the 2004 plan,
Mr.  Zaikin  had  the  right  to  purchase 20,000 shares on January 1, 2004, and
15,000 shares on the first of each month of the year thereafter, for an exercise
price  of  $0.10 per share.  Mr. Zaikin's stock option plan continues like this
until  his  employment contract expires, giving him the right to purchase 20,000
shares  of  Common Stock as of January 1, of each year, and 15,000 shares on the
first  date  of  each month thereafter, with the exercise prices as follows: for
the  year  beginning  January  1,  2005,  $.30 per share, for the year beginning
January  1, 2006, $.30 per share, for the year beginning January 1, 2007 and any
subsequent  year,  the exercise price will be 110% of the average closing prices
for  the  three  months prior to each grant date.  All stock options received by
Mr.  Zaikin  will  terminate  at 5:00 p.m. (Eastern Standard Time) on the fourth
anniversary of December 31st of each year in which the options were granted, and
Mr.  Zaikin can purchase up to 200,000 shares per year.  All options received by
Mr.  Zaikin  are  non-transferable,  except  by  will  or the laws of decent and
distribution,  and  any  attempt  to  do  so  shall  void  the  option.

     Under  Mr. Zaikin's employment agreement, if he is terminated without cause
by the Company or if Mr. Zaikin himself terminates his employment for reasonable
basis,  the  Company shall, in exchange for an execution and general release and
waiver of claims against the Company by Mr. Zaikin, continue to pay as severance
Mr.  Zaikin's  salary  for twelve (12) months or one half (1/2) of the remaining
term  of  the  agreement  whichever  is  greater.

     Elena  Pochapski  is employed as the Company's Chief Financial Officer. She
signed  an  employment  contract  with  the  Company on August 1, 2003, which is
effective until December 31, 2008. Mrs. Pochapski is to be paid an annual salary
of  US  $75,000  subject  to  periodic  review  by  the Board. Mrs. Pochapski is
entitled  to  six  (6)  weeks  of  vacation  time  per  year.

                                       44
<PAGE>

     Additionally,  Mrs.  Pochapski has the right under her employment agreement
to  receive  stock  options in the Company.  Under the 2003 plan, Mrs. Pochapski
had  the  right to purchase 200,000 shares of the authorized and unissued $0.001
par  value  restricted  stock  of  the  Company  for an exercise price of $0.07.
Additionally,  under  the  2004  plan  Mrs.  Pochapski had the right to purchase
20,000  shares  on January 1, 2004, and 15,000 shares on the first of each month
thereafter for the year for an exercise price of $0.10.  Mrs. Pochapski's stock
option  plan  continues  like this until her employment contract expires, giving
her the right to purchase 20,000 shares of Common Stock as of January 1, of each
year, and 15,000 shares on the first date of each month thereafter with exercise
prices  as follows: for 2005 the exercise price is $0.30 per share, for 2006 the
exercise  price  is  $0.30  per  share,  for  2007  and each subsequent year the
exercise  price is 110% of the average closing prices for the three months prior
to  the grant date.  Additionally, Mrs. Pochapski may only purchase an aggregate
of  200,000  shares per year.  All stock options received by Mrs. Pochapski will
terminate  at  5:00  p.m.  (Eastern  Standard Time) on the fourth anniversary of
December  31st  of  each  year  in  which the options were granted.  All options
received  by  Mrs.  Pochapski are non-transferable except by will or the laws of
decent  and  distribution  and  any  attempt  to  do  so  shall void the option.

     Under  Mrs.  Pochapski's employment agreement, if she is terminated without
cause  by the Company or if Mrs. Pochapski herself terminates her employment for
reasonable  basis,  the  Company shall, in exchange for an execution and general
release  and waiver of claims against the Company by Mrs. Pochapski, continue to
pay  as  severance  Mrs.  Pochapski's  salary for twelve (12) months or one half
(1/2)  of  the  remaining  term  of  the  agreement  whichever  is  greater.

     Oleg  V.  Zhuravlev,  the  President and Chief Executive Officer of ZNG the
Company's  subsidiary,  and  a  Director  of SEG, is currently employed under an
employment  agreement  which, unless terminated earlier will last until December
31,  2008.  Mr.  Zhuravlev is to be paid at least 600 rubles a month (roughly US
$20.50,  as of 8/10/04) before financing is raised and 80,000 rubles (roughly US
$2,750,  as of 8/10/04) a month once financing is in place, subject to review by
the  Board.  As  of  the  date of this filing, no financing has been raised. Mr.
Zhuravlev  may  also  receive performance based bonuses at the discretion of the
Board.

     Mr.  Zhuravlev also has the right under his employment agreement to receive
stock  options  in the Company.  Under the 2003 stock option plan, Mr. Zhuravlev
had  the  right  to purchase all or any part of 200,000 shares of the authorized
and  unissued  $.001  par  value  restricted  Common  Stock of the Company at an
exercise  price  of  $.07  per  share.  Additionally  under  the  2004 plan, Mr.
Zhuravlev had the right to purchase 35,000 shares on January 1, 2004, and 15,000
shares on the first of each month thereafter for the year for the exercise price
of  $0.10  per  share.  Mr.  Zhuravlev's  stock option plan continues like this
until  his  employment contract expires, giving him the right to purchase 20,000
shares  of  Common Stock as of January 1, of each year, and 15,000 shares on the
first  date  of  each month thereafter with exercise prices as follows: for 2005
the  exercise price per share is $0.30, for 2006 the exercise price per share is
$0.30,  for  2007  and  every  subsequent year the exercise price is 110% of the
average  closing  prices for the three months prior to each grant.  Additionally
there  is  a  200,000 share per year maximum.  All stock options received by Mr.
Zhuravlev  will  terminate  at  5:00  p.m. (Eastern Standard Time) on the fourth
anniversary  of  December  31st  of each year in which the options were granted.
All options received by Mr. Zhuravlev are non-transferable except by will or the
laws  of decent and distribution and any attempt to do so shall void the option.

                                       45
<PAGE>

     Under  Mr.  Zhuravlev's  employment  agreement, if he is terminated without
cause  by  the Company or if Mr. Zhuravlev himself terminates his employment for
reasonable  basis,  the  Company shall, in exchange for an execution and general
release  and  waiver of claims against the Company by Mr. Zhuravlev, continue to
pay as severance Mr. Zhuravlev's salary for twelve (12) months or one half (1/2)
of  the  remaining  term  of  the  agreement  whichever  is  greater.

     Vladimir  V.  Eret  is  employed as the Chief Operating Officer of ZNG.  He
signed  an  employment  contract  with  the Company on January 1, 2003, which is
effective  until  December 31, 2008.  Mr. Eret is to be paid a minimum amount of
600 rubles a month (roughly US $20.50, as of 8/10/04) before financing is raised
and  75,000  rubles (roughly US $2,580, as of 8/10/04) a month once financing is
in  place,  subject  to  review by the Board.  As of the date of this filing, no
financing has been raised.  As of the date of this filing, no financing has been
raised.

     Additionally,  Mr.  Eret  has  the  right under his employment agreement to
receive  stock  options  in  the Company.  Under the 2004 plan, Mr. Eret had the
right  to  purchase  14,000  shares on January 1, 2004, and 14,000 shares on the
first  of  each  month  thereafter for the year with an exercise price of $0.30.
Mr.  Eret's stock option plan continues like this until his employment contract
expires,  giving  him  the right to purchase 14,000 shares of Common Stock as of
January  1,  of  each  year,  and  14,000 shares on the first date of each month
thereafter, up to a maximum of 168,000 options per year, with exercise prices as
follows:  for  2005 the exercise price per share is $0.30, for 2006 the exercise
price  per share is $0.30, for 2007 and every subsequent year the exercise price
is  110% of the average closing prices for the three months prior to each grant.
Additionally  there  is  a  200,000  share  per year maximum.  All stock options
received  by Mr. Eret will terminate at 5:00 p.m. (Eastern Standard Time) on the
fourth  anniversary  of  December  31st  of  each year in which the options were
granted.  All  options  received by Mr. Eret are non-transferable except by will
or  the  laws of decent and distribution and any attempt to do so shall void the
option.

     Under Mr. Eret's employment agreement, if he is terminated without cause by
the  Company  or  if  Mr.  Eret himself terminates his employment for reasonable
basis,  the  Company shall, in exchange for an execution and general release and
waiver  of  claims against the Company by Mr. Eret, continue to pay as severance
Mr.  Eret's  salary  for  twelve (12) months or 1/2 of the remaining term of the
agreement  whichever  is  greater.

     Sergey  Potapov  is  employed  as  the Vice President of ZNG.  He signed an
employment  contract  with  the  Company  on January 1, 2003, which is effective
until  December  31,  2008.  For  the duration of the contract, Mr. Potapov must
perform  services  on  behalf  of  the Company for at least forty (40) hours per
week.  Mr. Potapov is to be paid a minimum amount of 600 rubles a month (roughly
US  $20.50, as of 8/10/04) before financing is raised and 75,000 rubles (roughly
US  $2,580, as of 8/10/04) a month once financing is in place, subject to review
by  the  Board.  As  of  the  date of this filing, no financing has been raised.

                                       46
<PAGE>

     Additionally, Mr. Potapov also has the right under his employment agreement
to  purchase  stock options in the Company. Under the 2004 plan, Mr. Potapov had
the right to purchase 14,000 shares on January 1, 2004, and 14,000 shares on the
first  of  each  month thereafter for the year at an exercise price of $0.10 per
share.  Mr. Potapov's stock option plan continues like this until his employment
contract expires, giving him the right to purchase 14,000 shares of Common Stock
as of January 1, of each year, and 14,000 shares on the first date of each month
thereafter, up to a maximum of 168,000 options per year, with exercise prices as
follows:  for  2005 the exercise price per share is $0.30, for 2006 the exercise
price  per share is $0.30, for 2007 and every subsequent year the exercise price
is  110% of the average closing prices for the three months prior to each grant.
Additionally  there  is  a  200,000  share  per  year maximum. All stock options
received  by  Mr. Potapov will terminate at 5:00 p.m. (Eastern Standard Time) on
the  fourth  anniversary of December 31st of each year in which the options were
granted. All options received by Mr. Potapov are non-transferable except by will
or  the  laws of decent and distribution and any attempt to do so shall void the
option.

     Under Mr. Potapov's employment agreement, if he is terminated without cause
by  the  Company  or  if  Mr.  Potapov  himself  terminates  his  employment for
reasonable  basis,  the  Company shall, in exchange for an execution and general
release and waiver of claims against the Company by Mr. Potapov, continue to pay
as  severance  Mr.  Potapov's salary for twelve (12) months or one half (1/2) of
the  remaining  term  of  the  agreement  whichever  is  greater.

ITEM 10. EXECUTIVE COMPENSATION

Compensation  paid  to  Officers  and  Directors  is  set  forth  in the Summary
Compensation  Table  below. The Company may reimburse its Officers and Directors
for  any and all out-of-pocket expenses incurred relating to the business of the
Company.

<TABLE>
<CAPTION>

                             EXECUTIVE COMPENSATION

                                                                                LONG-TERM COMPENSATION
                                                                        ---------------------------------------
                         ANNUAL COMPENSATION                            AWARDS                          PAYOUTS
                ---------------------------------                       ------                          -------
NAME AND                                                                  RESPRICTED      OPTIONS/
PRINCIPAL         FISCAL                                OTHER ANNUAL        STOCK           SARs          LTIP
POSITION           YEAR      SALARY(1)     BONUS ($)    COMPENSATION        AWARDS         (#)(2)        PAYOUT
---------         ------     --------      ---------    ------------      ----------       -------       ------
<S>                <C>          <C>          <C>           <C>               <C>             <C>           <C>
David Zaikin      2004       $75,000                                                       200,000
CEO               2003       $50,000                                                       200,000

Shakeel Adam      2004(3)    $37,500
CEO               2003       $25,000
(Sept. 1, 2003-
July 31, 2004)

Bruna             2003       $0
Compagnoni        2002       $0
President (4)
(November 2002 -
November 2003)

Elena Pochapski   2004      $75,000                                                        200,000
CFO               2003       $9,300                                                        200,000
</TABLE>

                                       47
<PAGE>

Salaries above do not include perquisites and other personal benefits in amounts
less  than  10%  of  the  total  annual  salary  and  other  compensation.

Other  than  the  individuals  listed  above, the Company has no other executive
employees  who  have  received  more than $100,000.00 in compensation, including
bonuses  and  options,  during  each  of  the  last  three  (3)  fiscal  years.

(1)  All  salaries  are  accrued  and  unpaid  as  of December 31, 2004.
(2)  Options vested in 2003 are exercisable for $.07, options vested in 2004 are
exercisable for $0.10, and options vested in 2005 are exercisable for $0.30. All
options  are  valid  until 5 P.M. December 31, on the fourth anniversary of each
year  that  the  options  vest.
(3)  Shakeel Adam is no longer employed by the Company as of July 31, 2004.  Mr.
Adam's  salary accrued for 2004 is listed as the total for the period January 1,
2004 to July 31, 2004. All of Mr. Adam's options terminated on October 31, 2004.
(4)  Prior  to  Shakeel  Adam's  being appointed Chief Executive Officer of the
Company  in  September  2003,  the  Company  had no Chief Executive Officer, the
Company's  only  officers  were  Bruna  Compagnoni,  the Company's President and
Secretary  and  Andres  Elmik,  the  Company's  Treasurer,  who  received  no
compensation  for  their  services.

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

The following table provides the names and addresses of each person known to own
directly  or  beneficially  more  than  a 5% of the outstanding Common Stock (as
determined in accordance with Rule 13d-3 under the Exchange Act) as of March 23,
2005 and by the officers and directors, individually  and  as  a  group.  Except
as  otherwise  indicated,  all  shares  are  owned  directly.

          NAME AND ADDRESS             SHARES OF           PERCENT(1)
         OF BENEFICIAL OWNER         COMMON STOCK
                                     BENEFICIALLY
                                        OWNED

         Oleg V. Zhuravlev           2,295,000              12.0%
         Kurgan City Lenina
         St. 27/X Russia
         640000 (2)

         Zaural  Neftegaz  Ltd.      2,000,000              10.6%
         Kurgan  City  Lenina
         St.  27/X  Russia
         640000 (2)

         Victor Repin Kurgan         1,500,000               8.0%
         City, Klimova St. 41,
         Russia 640020

         David Zaikin                 1,295,000              6.7%
         275 Madison Ave., 6th
         Floor, New York,
         New York 10016  (3)

         Elena Pochapski  275           495,000              2.6%
         Madison Ave., 6th
         Floor, New York,
         New York 10016 (4)

         Sergey Potapov                 252,000              1.3%
         Kurgan City Lenina
         St. 27/X Russia
         640000 (5)

         Valdimir Eret                  252,000              1.3%
         Kurgan City Lenina
         St. 27/X Russia
         640000 (6)

        All the Officers and          4,589,000             22.3%
        Directors as a group
        (5 persons)

     1  Using 18,805,771 shares outstanding as of March 23, 2005. All options
are  valid until 5 P.M. December 31, on the fourth anniversary of each year that
the  options  vest.
     2  Mr.  Zhuravlev  is  the beneficial owner of 2,000,000 shares held in the
name  of  "Zaural  Neftegaz Ltd." Additionally the number of shares beneficially
owned  by  Mr. Zhuravlev includes 265,000 vested options of the Company's Common
Stock  and  30,000 options of the Company's Common Stock, which will vest within
60  days  of  the  date  of  the  filing  of  this  report, of which 200,000 are
exercisable  at  $.10  per  share  and  95,000 which are exercisable at $.30 per
share.
     3  Includes 800,000 shares of Common Stock owned by WCM, Ltd, which is 100%
owned  by  Mr.  Zaikin. Additionally, the number of shares beneficially owned by
Mr.  Zaikin  includes  465,000  vested options of the Company's Common Stock and
30,000  options of the Company's Common Stock, which will vest within 60 days of
the  date of the filing of this report, of which 200,000 are exercisable at $.07
per  share,  200,000  are  exercisable  at  $.10 per share, and 95,000 which are
exercisable  at  $.30  per  share.
     4  The  number  of  shares  beneficially  owned  by Mrs. Pochapski includes
465,000  vested  options of the Company's Common Stock and 30,000 options of the
Company's Common Stock, which will vest within 60 days of the date of the filing
of  this report, of which 200,000 are exercisable at $.07 per share, 200,000 are
exercisable  at  $.10  per  share,  and 95,000 which are exercisable at $.30 per
share.
     5  The  number of shares beneficially owned by Mr. Potapov includes 224,000
vested options of the Company's Common Stock and 28,000 options of the Company's
Common  Stock,  which will vest within 60 days of the date of the filing of this
report, of which 168,000 are exercisable at $.10 per share, and 84,000 which are
exercisable  at  $.30  per  share.
     6  The  number  of  shares  beneficially owned by Mr. Eret includes 224,000
vested options of the Company's Common Stock and 28,000 options of the Company's
Common  Stock,  which will vest within 60 days of the date of the filing of this
report, of which 168,000 are exercisable at $.10 per share, and 84,000 which are
exercisable  at  $.30  per  share.

                                       48
<PAGE>

ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

     Oleg  V.  Zhuravlev,  Chief  Executive  Officer  of  ZNG,  entered  into an
employment  agreement on January 1, 2004, which will be in effect until December
31,  2008.  Additionally,  Mr.  Zhuravlev  entered  into  a stock option plan on
January  1,  2003.  (see  Employment Agreements below). Under that plan, 200,000
options  vested  to  him in 2004, at an exercise price of $0.10 per share. As of
March  1, 2005, 65,000 additional options had vested to him at an exercise price
of  $.30  per  share.

     Vladimir  V.  Eret,  Chief  Operating  Officer of ZNG, signed an employment
agreement  with  the  Company  on January 1, 2003, which will be in effect until
December  31,  2008.  Mr.  Eret  also  entered into a stock option plan with the
Company  on  January 1, 2004. (see Employment Agreements below). Under the stock
option  plan, Mr. Eret was granted 168,000 options in 2004, exercisable at $0.10
per  share.  As  of March 1, 2005, he had been granted 56,000 additional options
exercisable  at  $.30  per  share.

     Sergey Potapov, Vice President of ZNG, entered into an employment agreement
with the Company on January 1, 2003 which will be valid until December 31, 2008.
He  also  entered  into  a  stock option plan at the same time as his employment
agreement.  (see  Employment Agreements below). Under his stock option plan, Mr.
Potapov  was granted 168,000 options in 2004, exercisable at $0.10 per share. As
of  March  1, 2005, he had been granted 56,000 additional options exercisable at
$.30  per  share.

     David  Zaikin,  the  Company's  Chief  Executive  Officer, entered into an
employment agreement and a stock option agreement with the Company on January 1,
2003,  which  will  be  in  effect  until  December  31,  2008.  (see Employment
Agreements below). In 2003, 200,000 options vested to Mr. Zaikin under his stock
option  agreement,  exercisable  at  $0.07  per  share. In 2004, 200,000 options
vested to Mr. Zaikin under this stock option agreement, exercisable at $0.10 per
share.  As  of  March 1, 2005, 65,000 additional options had vested to him at an
exercise  price  of  $.30  per  share.

     Elena  Pochapski,  the  Company's Chief Financial Officer, entered into an
employment  agreement and a stock option agreement with the Company on August 1,
2003,  which  will  be valid until December 31, 2008. (see Employment Agreements
below).  Under  her  stock option plan, Mrs. Pochapski vested 200,000 options in
2003, exercisable at $0.07 per share, and an additional 200,000 options in 2004,
exercisable  at  $0.10 per share. As of March 1, 2005, 35,000 additional options
had  vested  to  her  at  an  exercise  price  of  $.30  per  share.

     Shakeel  Adam,  who  served  as the Company's Chief Executive Officer until
July  31, 2004, vested a total of 325,000 options from September 1, 2003 to July
31, 2004. Mr. Adam's employment was terminated effective August 1, 2004, and all
options  vested  to  Mr.  Adam's  terminated  on  October  31,  2004.

     On  October  17,  2003,  the  Company issued a total of 2,000,000 shares of
Common  Stock  at  $.0008 (US) per share for a total of $1,600, as payment for a
51%  interest  in  Zaural  Neftegaz,  a  Russian  Corporation.

                                       49
<PAGE>

     Effective  June  30, 2004, the Company purchased the remaining 49% interest
of  Zaural Neftegaz for 6.9 million common shares of Siberian Energy Group Inc.,
at  $.025  (US)  per  share  for  a  total  of  $172,500.

     As of December 31, 2004, no stock options had been exercised.

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  EXHIBITS

         Exhibit No.           Description of Exhibit
         ----------            ----------------------
Exhibit     3.1(1)     Articles of Incorporation
Exhibit     3.2(1)     Bylaws
Exhibit     10.1(1)    David Zaikin Employment Agreement
Exhibit     10.2(1)    Elena Pochapski Employment Agreement
Exhibit     10.3(1)    Oleg V. Zhuravlev Employment Agreement
Exhibit     10.4(1)    Sergey Potapov Employment Agreement
Exhibit     10.5(1)    Vladimir Eret Employment Agreement
Exhibit     10.6(1)    David Zaikin Stock Option Agreement
Exhibit     10.7(1)    Oleg V. Zhuravlev Stock Option Agreement
Exhibit     10.8(1)    Oleg V. Zhuravlev Employment Agreement ZNG
Exhibit     10.9(1)    Elena Pochapski Stock Option Agreement
Exhibit     10.10(1)   Sergey Potapov Stock Option Agreement
Exhibit     10.11(1)   Sergey Potapov Employment Agreement ZNG
Exhibit     10.12(1)   Vladimir Eret Stock Option Agreement
Exhibit     10.13(1)   Vladimir Eret Employment Agreement ZNG
Exhibit     10.14(1)   Contract to purchase 51% of ZNG
Exhibit     10.15(1)   Contract to purchase 49% of ZNG
Exhibit     10.16(1)   Amendment to contract to purchase 49% of ZNG
Exhibit     10.17(1)   Amendment to David Zaikin Employment Agreement
Exhibit     10.18(2)   Exploratory Contract with Bashneftegeofizika
Exhibit     10.19(2)   Exploratory Contract with Bazhenov Geophysical
                       Expedition
Exhibit     10.20(2)   Consulting Contract with GeoData Consulting
Exhibit     10.21(2)   Exploration License for West-Suersky Block
Exhibit     10.22(2)   Exploration License for Mokrousovsky Block
Exhibit     10.23(2)   Exploration License for Privolny Block
Exhibit     10.24(2)   Exploration License for Orlovo-Pashkovsky Block
Exhibit     10.25(3)   Consulting Agreement with Aspen Management, Inc.
Exhibit     21.1*      Subsidiaries of the Company
Exhibit     23.1(3)    Consent of Andrey U. Belonosov
Exhibit     23.2(3)    Consent of Alexander V. Rilkov
Exhibit     23.3(3)    Consent of Nikolay P. Zapivalov

Exhibit     31.1*      Certificate of the Chief Executive
                       Officer pursuant Section 302 of the Sarbanes-
                       Oxley Act of 2002

Exhibit     31.2*      Certificate of the Chief Financial Officer
                       pursuant Section 302 of the Sarbanes-
                       Oxley Act of 2002

Exhibit     32.1*      Certificate of the Chief Executive Officer
                       pursuant to Section 906 of the Sarbanes-
                       Oxley Act of 2002

Exhibit     32.1*      Certificate of the Chief Financial Officer
                       pursuant to Section 906 of the Sarbanes-
                       Oxley Act of 2002

Exhibit     99.1*      Glossary

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(1)     Filed as an exhibit to our Form SB-2 Registration Statement filed on
        September 10, 2004.
(2)     Filed as an exhibit to amendment number one to our Form SB-2/A
        Registration Statement filed on November 23, 2004.
(3)     Filed as an exhibit to amendment number two to our Form SB-2/A
        Registration Statement filed on February 2, 2005.
*       Filed herein.

     (b)  REPORTS ON FORM 8-K

     None.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

AUDIT FEES

     The  aggregate  fees billed for each of the fiscal years ended December 31,
2004 and 2003 for professional services rendered by the principal accountant for
the  audit  of  the Company's annual financial statements was $5,000 and $3,000,
respectively.  The  aggregate  fees  billed  for  each of the fiscal years ended
December  31,  2004 and 2003 for professional services rendered by the principal
accountant  for  review of the financial statements included in the registrant's
Form  10-QSB  or  for  services  that are normally provided by the accountant in
connection with statutory and regulatory filings or engagements for those fiscal
years  was  $7,400  and  $-0-,  respectively.

AUDIT RELATED FEES

     None.

TAX FEES

     The  aggregate  fees billed for each of the fiscal years ended December 31,
2004 and 2003 for professional services rendered by the principal accountant for
tax  compliance,  tax  advice, and tax planning was $450 and $-0-, respectively.

ALL OTHER FEES

     None.

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                                   SIGNATURES

     In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

                                          SIBERIAN ENERGY GROUP INC.

DATED: March 28, 2005                    By: /s/ David Zaikin
                                            ------------------------
                                            David Zaikin
                                            Chief Executive Officer

     In  accordance  with  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.

NAME                       TITLE                          DATE

/s/ David Zaikin           Chief Executive Officer        March 28, 2005
----------------------     and Director
David Zaikin               (Principal Executive Officer)

/s/  Elena Pochapski       Chief Financial Officer        March 28, 2005
----------------------     and Director
Elena Pochapski            (Principal Financial Officer)

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