##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 Amendment No. 3
to
 FORM 10-K
 
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2005
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to.
 Commission file number 001-32438
 JMG Exploration, Inc.
 (Exact name of registrant as specified in its charter)
 Nevada
(Jurisdiction of incorporation)
    
    20-1373949
(I.R.S. Employer Identification No.)
 Suite 2200, 500 4 th Avenue S.W.
Calgary Alberta, Canada
T2P 2V6
(Address of principal executive offices)
 Registrants telephone number: (403) 537-3250
 Securities registered pursuant to Section 12(b) of the Act:
 Name
of each exchangeTitle of each class
    

on which registeredCommon StockCommon Stock Purchase Warrants
    

NYSE ArcaNYSE Arca
 Securities registered pursuant to Section 12(g) of the Act:
 Not applicable
(Title of Class)
 o þ
 o þ
 þ o
 o
  o o þ
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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TABLE OF CONTENTS  PART IItem 1: BusinessItem 1A: Risk FactorsItem 1B. Unresolved Staff CommentsItem 2: PropertiesItem 3: Legal ProceedingsItem 4: Submission of Matters to a Vote of Security HoldersPART IIItem 5: Market For Our Common Equity And Related Stockholder MattersItem 6: Selected Financial DataItem 7: Managements Discussion And Analysis Of Financial Conditions And Results Of OperationsItem 7A: Quantitative And Qualitative Disclosures About Market RiskItem 8: Financial Statements and Supplementary DataItem 9: Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A: Controls And ProceduresItem 9B: Other InformationPART IIIItem 10: Directors and Executive Officers of the RegistrantItem 11: Executive CompensationItem 12: Security Ownership of Certain Beneficial Owners and Management and related Stockholder MattersItem 13: Certain Relationships and Related TransactionsItem 14: Principle Accountant Fees and ServicesPART IVItem 15. Exhibits and Financial Statement SchedulesSIGNATURESEXHIBIT INDEXEXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2    Table of Contents




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FORWARD LOOKING STATEMENTS
  
 PART I
 
 Item 1: Business
 Overview
   
    
    A large farm-in agreement and direct purchase of acreage for several Williston Basin
prospects in Divide and Burke Counties, northern North Dakota. To date JMG has
participated in 4 Upper Devonian Bakken sandstone horizontal oil wells (results being
reviewed) and 4 Mississippian Midale carbonate oil wells. For 2006 the Midale is
targeted for up to 16 horizontal oil wells with other deeper potential zones being
evaluated. These prospect areas are referred to as Candak (approx. 35,000 gross acres),
Myrtle (approx. 5,000 gross acres), Bluffton (approx. 5,000 gross acres), and Crosby
(approx. 60,000 gross acres).
    
    A joint venture on the Pinedale anticline in the Jonah field (Green River Basin) of
western Wyoming targeting gas in the Upper Cretaceous Lance sandstone. 2 vertical wells
are planned for drilling before year-end 2006.
 2




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
    
    A joint area of interest in the Fellows Prospects in Weston County in eastern
Wyoming on the eastern edge of the Powder River Basin. Targets are the Lower Cretaceous
Dakota channel sands and the Permian/Pennsylvanian Minnelusa sands. Approximately
20,000 acres have been acquired with no wells drilled to date. Also included in the
Fellows deal is over 5,000 acres in the Gordon Creek project in Carbon County, Utah
with no wells drilled to date.
 Company History
   Strategy
  Business Relationships with JED and Enterra
 Agreement of Business Principles: nd
 bona fide
 3




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##### Table of Contents



nd
 Services Agreements:
  Interpersonal Relationships with JED and Enterra:
 
    
    H. S. (Scobey) Hartley is our Chief Executive Officer, President, and is a director
of Enterra. Mr. Hartley has announced that he will not stand for re-election to the
Board of Enterra at the 2006 annual general meeting. Mr. Hartley passed away in June
2006.
    
    Thomas J. Jacobsen is a director of JMG, and is Chief Executive Officer and a
director of JED.
    
    Reg J. Greenslade is Chairman of the JMG board, and is Chairman of Enterra and JED
boards. Mr. Greenslade is resigning as Chairman and a director of Enterra at March 31,
2006.
 Proposed Merger with JED:
 JED:
 Enterra:
 4




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Exploratory projects
  Consolidation of adjacent assets
  Use of seismic and other data in site selection
  Selection of prospects
   Sales and Marketing
  5




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Competition
   Geographic Segments
  Employees
  Government regulation
  United States regulation
  6




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Exploration and production.
 
    
    requiring permits for the drilling of wells;
    
    maintaining bonding requirements in order to drill or operate wells;
    
    implementing spill prevention plans;
    
    submitting notification and receiving permits relating to the presence, use and
release of certain materials incidental to oil and gas operations; regulating the
location of wells;
    
    regulating the method of drilling and casing wells;
    
    regulating the use, transportation, storage and disposal of fluids and materials
used in connection with drilling and production activities;
    
    regulating surface usage and the restoration of properties upon which wells have
been drilled;
    
    regulating the plugging and abandoning of wells; and
    
    regulating the transporting of production.
  Environmental and occupational regulations.
  7




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Canadian regulation
  The North American Free Trade Agreement.
 
    
    reduce the proportion of energy exported relative to the supply of the energy resource;
    
    impose an export price higher than the domestic price; or
    
    disrupt normal channels of supply. All parties to NAFTA are also prohibited from
imposing minimum export or import price requirements.
 Exploration and production.
 Royalties and incentives.
 8




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Pricing and marketing.
 Land tenure.
 Environmental regulation.
  Kyoto protocol.
 Investment Canada Act.
 9




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The following are our executive officers:
 H. S. (Scobey) Hartley
 Joanne Finnerty
 
 Item 1A: Risk Factors
 Risks related to our company and the oil and natural gas industry
 Other than our executive officers, we have no operating personnel and are dependent upon JED for
drilling, field operations and related administrative services. The loss of JEDs services could
substantially increase our costs.
 Relationships with JED and Enterra Services Agreements
 We depend on our executive officers for critical management decisions and industry contacts. We
have no employment agreements or key person insurance with these individuals and therefore the loss
of their services would be costly to us.
  10




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Potential conflicts of interest in our relationship with JED and Enterra may cause us to
receive proceeds from the sale of our exploration prospects that are less favorable than we might
have obtained from third parties.
  
    
    H. S. (Scobey) Hartley is our Chief Executive Officer, President, and is a director
of Enterra. He has announced that he will not stand for re-election at Enterras 2006
annual general meeting.
    
    Thomas J. Jacobsen is a director of JMG, and is Chief Executive Officer and a
director of JED.
    
    Reg J. Greenslade is Chairman of the JMG board, and is Chairman of the Enterra and
JED boards. He is resigning as Chairman and a director of Enterra at March 31, 2006.
 Relationships with JED and Enterra Agreement of Business Principles
 We have a limited operating history, which makes it difficult to predict our future performance.
  A substantial or extended decline in oil and natural gas prices could reduce our future revenue and
earnings.
  
    
    changes in global supply and demand for oil and natural gas;
    
    actions by the Organization of Petroleum Exporting Countries, or OPEC;
    
    priced and quantities of imports of foreign oil and natural gas in Canada and the U.S.;
    
    political conditions, including embargoes, which affect other oil-producing activities;
    
    levels of global oil and natural gas exploration and production activity;
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
    
    levels of global oil and natural gas inventories;
    
    weather conditions affecting energy consumption;
    
    technological advances affecting energy consumption; and
    
    prices and availability of alternative fuels.
  Drilling for and producing oil and natural gas are high risk activities with many uncertainties
that could substantially increase our costs and reduce our profitability.
   
    
    delays imposed by or resulting from compliance with regulatory requirements;
    
    pressure or irregularities in geological formations;
    
    shortages of or delays in obtaining equipment and qualified personnel;
    
    equipment failures or accidents;
    
    adverse weather conditions;
    
    reductions in oil and natural gas prices;
    
    land title problems; and
    
    limitations in the market for oil and natural gas.
 Our insurance coverage does not cover all risks and we may incur substantial losses and be subject
to substantial liability claims as a result of our oil and natural gas operations.
  12




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
    
    environmental hazards, such as uncontrollable flows of oil, natural gas, brine, well
fluids, toxic gas or other pollution into the environment, including groundwater
contamination;
    
    abnormally pressured formations;
    
    mechanical difficulties, such as stuck oilfield drilling and service tools and casing collapse;
    
    fires and explosions;
    
    personal injuries and death; and
    
    natural disasters.
   General liability
    
    $
    1,000,000Pollution liability
    
    $
    1,000,000Umbrella legal liability
    
    $
    14,000,000Operators extra expense
    
    $
    20,000,000
 Market conditions or operational impediments may hinder our access to oil and natural gas markets
or delay our production.
  We are subject to complex laws that can affect the cost, manner and feasibility of doing business
thereby increasing our costs and reducing our profitability.
  
    
    discharge permits for drilling operations;
 13




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
    
    drilling bonds;
    
    reports concerning operations;
    
    spacing of wells;
    
    unitization and pooling of properties; and
    
    taxation.
  We may incur substantial liabilities to comply with environmental laws and regulations.
  
    
    require acquisition of a permit before drilling commences;
    
    restrict the types, quantities and concentration of substances that can be released
into the environment in connection with drilling and production activities;
    
    limit or prohibit drilling activities on certain lands lying within wilderness,
wetlands and other protected areas; and
    
    impose substantial liabilities for pollution resulting from our operations.
  The unavailability or high cost of drilling rigs, equipment, supplies, personnel and oilfield
services could adversely affect our ability to execute our plans on a timely basis and within our
budget.
  14




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Competition in the oil and natural gas industry is intense, which may increase our costs and
otherwise adversely affect our ability to compete.
  We may not be able to compete successfully in acquiring prospective reserves, developing reserves,
marketing oil and natural gas, attracting and retaining quality personnel and raising additional
capital.
  
 Item 1B. Unresolved Staff Comments
  
 Item 2: Properties
 Divide and Burke Counties, North Dakota
 0 0
 15




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Pinedale Anticline
  Weston County, Wyoming
  Carbon County, Utah
  
 Item 3: Legal Proceedings
  
 Item 4: Submission of Matters to a Vote of Security Holders
  16




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PART II
 
 Item 5: Market For Our Common Equity And Related Stockholder Matters
 Price Range of Common Stock
  Period
    
    High
    
    LowAugust 5 - 31, 2005
    
    
    18.75
    
    
    
    12.01September, 2005
    
    
    18.00
    
    
    
    3.25October, 2005
    
    
    15.60
    
    
    
    10.00November, 2005
    
    
    12.50
    
    
    
    8.50December, 2005
    
    
    9.25
    
    
    
    6.00January, 2006
    
    
    11.75
    
    
    
    6.75February, 2006
    
    
    11.30
    
    
    
    7.50March 1 - 24, 2006
    
    
    11.00
    
    
    
    7.50
 ,
  Recent Sales of Unregistered Securities
  
 Item 6: Selected Financial Data
  17




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Twelve month
    
    Period from the date ofperiod ended
    
    incorporation on July 16,December 31
    
    2004 to December 31$
    
    $
    
    $2005
    
    2004
    
    2003Statement of Operations Data:Revenues
    
    
    627,460
    
    
    
    
    
    
    
    n/aOperating expenses:Production
    
    
    189,598
    
    
    
    
    
    
    
    n/aGeneral and administrative
    
    
    1,768,712
    
    
    
    286,060
    
    
    
    n/aStock-based compensation
    
    
    78,589Geophysical and Geological
    
    
    256,484Depreciation and amortization
    
    
    4,265,162
    
    
    
    479,702
    
    
    
    n/aAccretion
    
    
    3,385Total operating expenses
    
    
    6,561,930
    
    
    
    765,762
    
    
    
    n/aOperating income (loss)
    
    
    (5,934,470
    )
    
    
    (765,762
    )
    
    
    n/aInterest expense
    
    
    
    
    
    
    
    
    
    
    n/aInterest income
    
    
    120,461
    
    
    
    64,630
    
    
    
    n/aGain on warrant liability
    
    
    
    
    
    
    
    
    
    
    n/aNet income (loss)
    
    
    (5,814,009
    )
    
    
    (701,132
    )
    
    
    n/aLess cumulative preferred dividends
    
    
    (458,342
    )
    
    
    (323,157
    )Net loss applicable to common shareholders
    
    
    (6,272,351
    )
    
    
    (1,024,289
    )Earnings (loss) per share:Basic
    
    
    (2.97
    )
    
    
    (4.10
    )
    
    
    n/aDiluted
    
    
    (2.97
    )
    
    
    (4.10
    )
    
    
    n/aWeighted average shares outstanding:Basic
    
    
    2,111,351
    
    
    
    250,000
    
    
    
    n/aDiluted Diluted
    
    
    2,111,351
    
    
    
    250,000
    
    
    
    n/a
 Twelve month
    
    Period from the date ofperiod ended
    
    incorporation on July 16,December 31
    
    2004 to December 31$
    
    $
    
    $2005
    
    2004
    
    2003Total assets
    
    
    17,773,179
    
    
    
    8,429,049
    
    
    
    n/aCurrent Liabilities
    
    
    2,793,111
    
    
    
    656,238
    
    
    
    n/aLong-term obligations, less current portion
    
    
    78,642
    
    
    
    
    
    
    
    n/aTotal shareholders equity
    
    
    14,901,426
    
    
    
    7,772,811
    
    
    
    n/a
 18




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Item 7: Managements Discussion And Analysis Of Financial Conditions And Results Of Operations
  FORWARD-LOOKING STATEMENTS
     Barrel of Oil Equivalent (BOE) 
 19




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Overview
     nd
 bona fide
  20




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Financial operations overview
 Summarized Financial and Operational Data (In US$ thousands, except per share data)Period fromYear ended
    
    
    incorporationDecember
    
    
    July 16, 2004Q4
    
    
    Q4
    
    
    
    
    
    
    31,
    
    
    to December2005
    
    
    2004
    
    
    Change
    
    
    2005
    
    
    31, 2004
    
    
    ChangePetroleum revenue
    
    
    286
    
    
    
    
    
    
    
    286
    
    
    
    627
    
    
    
    
    
    
    
    627Net loss
    
    
    (4,435
    )
    
    
    (627
    )
    
    
    (3,808
    )
    
    
    (5,814
    )
    
    
    (701
    )
    
    
    (5,113
    )Per share basic and diluted
    
    
    (0.91
    )
    
    
    (3.29
    )
    
    
    2.38
    
    
    
    (2.97
    )
    
    
    (4.10
    )
    
    
    1.13Exit production rate (BOE/d)
    
    
    129
    
    
    
    
    
    
    
    129
    
    
    
    129
    
    
    
    
    
    
    
    129Weighted average number of
shares outstanding  basic
    
    
    4,897
    
    
    
    250
    
    
    
    4,647
    
    
    
    2,111
    
    
    
    250
    
    
    
    1,861
 Quarterly Information
 Quarterly information(In US$ thousands, except per share data)Q1
    
    
    Q2
    
    
    Q3
    
    
    Q4
    
    
    Q1
    
    
    Q2
    
    
    Q3
    
    
    Q42005
    
    
    2005
    
    
    2005
    
    
    2005
    
    
    2004
    
    
    2004
    
    
    2004
    
    
    2004Revenue
    
    
    
    
    
    
    7
    
    
    
    334
    
    
    
    286
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net loss
    
    
    (217
    )
    
    
    (467
    )
    
    
    (695
    )
    
    
    (4,435
    )
    
    
    
    
    
    
    
    
    
    
    (74
    )
    
    
    (627
    )Per share,
basic and
diluted
    
    
    (1.64
    )
    
    
    (2.65
    )
    
    
    (0.26
    )
    
    
    (0.91
    )
    
    
    
    
    
    
    
    
    
    
    (0.80
    )
    
    
    (3.29
    )
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2 Year Summary
 Summarized financial and operational data(In US$ thousands except for volumes and per share amounts)Period fromincorporationYear ended
    
    
    July 16, 2004 toDecember
    
    
    December 31,31, 2005
    
    
    2004Revenue
    
    
    627
    
    
    
    Net loss
    
    
    (5,814
    )
    
    
    (701
    )Net loss per share  basic and diluted
    
    
    (2.97
    )
    
    
    (4.10
    )Weighted average number of shares  basic and diluted
    
    
    2,111
    
    
    
    250Total assets
    
    
    17,773
    
    
    
    8,429Total long-term debt
    
    
    
    
    
    
    
 Results of operations
 Revenue.
 Year ended to December 31, 2005 Compared to Year Ended December 31, 2004
 PercentageYear ended December 31,
    
    2005
    
    
    2004
    
    
    IncreaseProduction (BOE)
    
    
    11,339
    
    
    
    
    
    
    
    N/aAverage Price
    
    $
    55.34
    
    
    
    Revenues
    
    $
    627,460
    
    
    
    
    
    
    
    N/a
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Period from incorporation on July 16, 2004 to December 31, 2005
 Incorporation July 16, 2004 to December 31, 2005.Production (BOE)
    
    
    11,339Average Price
    
    $
    55.34Revenues
    
    $
    627,460
  December 31,
    
    2005
    
    
    2004West Texas Intermediate grade crude oil, per barrel
    
    $
    59.78
    
    
    $
    41.10
  Interest income
 Production expense.
 Year ended to December 31, 2005 Compared to Year Ended December 31, 2004
 % of
    
    
    
    
    
    
    % of
    
    
    PercentageYear Ended December 31,
    
    2005
    
    
    revenue
    
    
    2004
    
    
    revenue
    
    
    IncreaseProduction expense
    
    $
    189,598
    
    
    
    30.2
    %
    
    
    
    
    
    
    
    
    
    
    100
    %Production expense per
BOE:
    
    $
    16.72
    
    
    
    
    
    
    
    
    
    
    
    
 Period from incorporation on July 16, 2004 to December 31, 2005
 % ofIncorporation July 16, 2004 to December 31, 2005.
    
    
    
    
    
    revenueProduction expense
    
    $
    189,598
    
    
    
    30.2
    %Production expense per BOE:
    
    $
    16.72
    
    
    
    
 General and administrative expense.
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Year ended to December 31, 2005 Compared to Year Ended December 31, 2004
 PercentageYear ended December 31,
    
    2005
    
    
    2004
    
    
    IncreaseGeneral and administrative expense
    
    $
    1,768,712
    
    
    $
    286,060
    
    
    
    518
    %
 Period from incorporation on July 16, 2004 to December 31, 2005
 Incorporation July 16, 2004 to December 31, 2005.General and administrative expense
    
    $
    2,054,772
 Stockbased Compensation.
 for Stock Issued to
Employees
 Geophysical and geological expense.
 Depletion, depreciation expense.
 24




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Year ended to December 31, 2005 Compared to Year Ended December 31, 2004
 % of
    
    
    
    
    
    
    % of
    
    
    PercentageYear Ended December 31,
    
    2005
    
    
    revenue
    
    
    2004
    
    
    revenue
    
    
    IncreaseDepletion,
depreciation
expense
    
    $
    4,265,162
    
    
    
    679.8
    %
    
    $
    479,702
    
    
    
    
    
    
    
    789.1
    %Depletion,
depreciation
expense per BOE:
    
    $
    376.15
    
    
    
    
    
    
    
    
    
    
    
    
 Period from incorporation on July 16, 2004 to December 31, 2005
 % ofIncorporation July 16, 2004 to December 31, 2005.
    
    
    
    
    
    revenueDepletion, depreciation expense
    
    $
    4,744,864
    
    
    
    756.2
    %Depletion, depreciation expense per BOE:
    
    $
    418.46
 Accretion expense.
 Preferred dividend.
 Income taxes.
 2004
    
    
    2005
    
    
    Cumulative$
    
    
    $
    
    
    $Loss for the period before income taxes
    
    
    (701,132
    )
    
    
    (5,814,009
    )
    
    
    (6,515,141
    )Effective tax rate
    
    
    39
    %
    
    
    39
    %
    
    
    39
    %Expected income tax recovery
    
    
    (273,442
    )
    
    
    (2,424,463
    )
    
    
    (2,540,905
    )Deferred tax asset valuation allowance
    
    
    273,442
    
    
    
    2,424,463
    
    
    
    2,540,905Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
 Earnings (Loss).
 25




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Year ended to December 31, 2005 Compared to Year Ended December 31, 2004
 Year Ended December
    
    
    
    
    
    % of
    
    
    
    
    
    
    % of
    
    
    Percentage31,
    
    2005
    
    
    revenue
    
    
    2004
    
    
    revenue
    
    
    Increase$
    
    
    
    
    
    $Net loss
    
    
    (5,814,009
    )
    
    
    (680.1
    %)
    
    
    (701,132
    )
    
    
    100
    %
    
    
    (129.2
    %)Net loss per share
    
    
    (2.97
    )
    
    
    
    
    
    
    (4.10
    )Average number of
shares outstanding
    
    
    2,111,351
    
    
    
    
    
    
    
    250,000
    
    
    
    
 Period from incorporation on July 16, 2004 to December 31, 2005
 % ofIncorporation July 16, 2004 to December 31, 2005.
    
    
    
    
    revenue$Net loss
    
    
    (6,515,141
    )
    
    
    (762.1
    %)Per share informationNet loss per share
    
    
    (4.88
    )Average number of shares outstanding
    
    
    1,494,620
    
    
    
    
 Reserves
   Constant Prices and Costs
  Light Crude OilNetReserves Category
    
    (bbl)PROVEDDeveloped Producing
    
    
    53,907Developed Non-Producing
    
    
    7,749TOTAL PROVED
    
    
    61,656
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Net Present Values of Future Net Revenues
Constant Prices and Costs
as at December 31, 2005
 Before Income Taxes Discounted at (%/ year)10%Reserves Category
    
    (US$ thousands)PROVEDDeveloped Producing
    
    
    1,307Developed Non-Producing
    
    
    142TOTAL PROVED
    
    
    1,449
  Producing and Non-producing Wells
as at December 31, 2005
 North Dakota
    
    
    Wyoming
    
    
    TotalGross
    
    
    Net
    
    
    Gross
    
    
    Net
    
    
    Gross
    
    
    NetOil WellsProducing
    
    
    3
    
    
    
    2.04
    
    
    
    2
    
    
    
    .8
    
    
    
    5
    
    
    
    2.84Non-Producing
    
    
    1
    
    
    
    .12
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1.2
 Capital Expenditures
  Period from the
    
    
    Period from thedate of
    
    
    date ofFor the twelve month
    
    
    incorporation
    
    
    incorporationperiod ended
    
    
    July 16, 2004 to
    
    
    July 16, 2004 toDecember 31, 2005
    
    
    December 31, 2004
    
    
    December 31, 2005PropertyAcquisitions
    
    $
    5,719,929
    
    
    $
    136,760
    
    
    $
    5,856,689Drilling Exploration
    
    $
    11,302,720
    
    
    $
    1,916,617
    
    
    $
    13,219,339Other Assets
    
    $
    106,835
    
    
    $
    120,482
    
    
    $
    227,317Reclassification of
capital accrual
    
    ($
    1,210,809
    )
    
    ($
    202,660
    )
    
    ($
    1,413,469
    )$
    15,918,765
    
    
    $
    1,971,199
    
    
    $
    17,889,874
 27




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##### Table of Contents



Liquidity and capital resources
 Cash flows and capital expenditures
    Numberof warrants
    
    
    
    
    
    
    MaximumWarrant summary as of December 31, 2005.
    
    outstanding
    
    
    Exercise price
    
    
    proceedsWarrants issued in the preferred stock
private placement
    
    
    378,187
    
    
    $
    6.00
    
    
    $
    2,269,122Warrants
issued upon conversion of preferred
stock
    
    
    1,777,500
    
    
    
    4.25
    
    
    $
    7,554,375Warrants issued our initial public offering
    
    
    1,854,235
    
    
    
    5.00
    
    
    $
    9,271,1754,009,922
    
    
    $
    4.25-$6.00
    
    
    $
    19,094,672
 Cash flow used in operations.
   Cash flow used in investing activities.
 28




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##### Table of Contents



Cash flow used in financing activities.
  Critical accounting estimates
   29




---



##### Table of Contents



Successful-efforts method of accounting
       30




---



##### Table of Contents



Proved Oil and Gas Reserves
  Long-lived assets
  Asset Retirement Obligations
 Accounting for Asset Retirement Obligations
 Stock-based compensation
 Accounting for Stock Issued to
Employees
   31




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##### Table of Contents



Contingencies
  Contractual obligations and commitments
  Related Party Transactions
      Recent accounting pronouncements
 Share-Based Payment Accounting for Stock-Based Compensation
 32




---



##### Table of Contents



Accounting for Stock Issued to Employees Statement of
Cash Flows
   
    
    A modified prospective method in which compensation cost is recognized beginning
with the effective date (a) based on the requirements of Statement 123 for all awards
granted to employees prior to the effective date of Statement 123(R) that remain
unvested on the effective date; or
    
    A modified retrospective method which includes the requirements of the modified
prospective method described above, but also permits entities to restate based on the
amounts previously recognized under Statement 123 for purposes of pro forma disclosures
either for (a) all periods presented or (b) prior interim periods of the year of
adoption.
      33




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##### Table of Contents



Item 7A: Quantitative And Qualitative Disclosures About Market Risk
  Credit Risk.
 Market Risk.
 Interest Rate Risk.
 34




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##### Table of Contents



Item 8: Financial Statements and Supplementary Data
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 JMG Exploration Inc.
Financial Statements
 PageReports of Ernst & Young, LLP, , Independent Registered Public Accounting Firm
    
    
    35Consolidated Balance Sheets as of December 31, 2005 and 2004
    
    
    37Consolidated Statements of Operations and Deficit for the years ended December 31,
2005 and 2004
    
    
    38Consolidated Statements of Cash Flows for the years ended December 31, 2005 and 2004
    
    
    39Consolidated Statements of Shareholders Equity for the years ended
December 31, 2005 and 2004
    
    
    40Consolidated Statements of Comprehensive Loss for the years ended
December 31, 2005 and 2004
    
    
    42Notes to Consolidated Financial Statements
    
    
    43
 35




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
     Calgary, CanadaMarch 23, 2006
    
    /S/ERNST & YOUNG LLP
 36




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##### Table of Contents



Consolidated Financial Statements
 JMG Exploration, Inc. (a development stage enterprise)
December 31, 2005
 37




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##### Table of Contents



JMG Exploration, Inc.
 CONSOLIDATED
 BALANCE SHEETS
 (In United States Dollars)
 As at December 31
    
    2005
    
    2004$
    
    $ASSETSCurrentCash and cash equivalents
    
    
    1,150,965
    
    
    
    5,040,800Accounts receivable
    
    
    1,284,474
    
    
    
    Loan receivable [note 3]
    
    
    
    
    
    
    1,179,205Prepaid expenses and deposits
    
    
    34,701
    
    
    
    104,8872,470,140
    
    
    
    6,324,892Other assets [note 5]
    
    
    230,000
    
    
    
    50,000Property and equipment [notes 4 and 8]
    
    
    15,073,039
    
    
    
    2,054,15717,773,179
    
    
    
    8,429,049LIABILITIES AND STOCKHOLDERS EQUITYCurrentAccounts payable
    
    
    845,507
    
    
    
    58,616Accrued liabilities
    
    
    1,660,648
    
    
    
    20,000Dividends payable
    
    
    
    
    
    
    196,603Due to JED Oil Inc. [note 8]
    
    
    286,956
    
    
    
    376,855Due to related party
    
    
    
    
    
    
    4,1642,793,111
    
    
    
    656,238Asset retirement obligations [note 9]
    
    
    78,642
    
    
    
    2,871,753
    
    
    
    656,238Stockholders equityShare capital [note 6]Common stock  $.001 par value; 25,000,000
shares authorized; 4,997,578 shares issued
and outstanding at December 31, 2005
    
    
    4,997
    
    
    
    250Preferred stock  $.001 par value;
10,000,000 shares authorized; 0 shares
issued and outstanding at December 31,
2005 and 1,950,000 outstanding December
31, 2004
    
    
    
    
    
    
    1,950Additional paid-in capital
    
    
    20,044,296
    
    
    
    8,790,025Share purchase warrants
    
    
    2,151,470
    
    
    
    4,875Deficit accumulated during the development
stage
    
    
    (7,296,640
    )
    
    
    (1,024,289
    )Accumulated other comprehensive earnings
    
    
    (2,697
    )
    
    
    14,901,426
    
    
    
    7,772,81117,773,179
    
    
    
    8,429,049
 The accompanying notes are an integral part of these audited consolidated financial statements.
 38




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##### Table of Contents



JMG Exploration, Inc.
 CONSOLIDATED STATEMENTS OF OPERATIONS AND DEFICIT
 For the
    
    
    
    
    
    Period from the
    
    Period from thedate of
    
    date ofTwelve month
    
    incorporation on
    
    incorporation onperiod ended
    
    July 16, 2004 to
    
    July 16, 2004 toDecember 31,
    
    December 31,
    
    December 31,2005
    
    2004
    
    2005$
    
    $
    
    $RevenuePetroleum revenue
    
    
    627,460
    
    
    
    
    
    
    
    627,460Interest
    
    
    120,461
    
    
    
    64,630
    
    
    
    185,091747,921
    
    
    
    64,630
    
    
    
    812,551ExpensesProduction
    
    
    189,598
    
    
    
    
    
    
    
    189,598General and administrative [note 8]
    
    
    1,768,712
    
    
    
    286,060
    
    
    
    2,054,772Stock-based compensation [note 6]
    
    
    78,589
    
    
    
    
    
    
    
    78,589Geophysical and Geological
    
    
    256,484
    
    
    
    
    
    
    
    256,484Depletion, depreciation [note 4]
    
    
    4,265,162
    
    
    
    479,702
    
    
    
    4,744,864Accretion on asset retirement
obligation [note 9]
    
    
    3,385
    
    
    
    
    
    
    
    3,3856,561,930
    
    
    
    765,762
    
    
    
    7,327,692Net loss for the period [note 7]
    
    
    (5,814,009
    )
    
    
    (701,132
    )
    
    
    (6,515,141
    )Less: cumulative preferred dividends
    
    
    (458,342
    )
    
    
    (323,157
    )
    
    
    (781,499
    )Net loss applicable to common
shareholders
    
    
    (6,272,351
    )
    
    
    (1,024,289
    )
    
    
    (7,296,640
    )Deficit, beginning of period
    
    
    (1,024,289
    )
    
    
    
    
    
    
    Deficit, end of period
    
    
    (7,296,640
    )
    
    
    (1,024,289
    )
    
    
    (7,296,640
    )Basic weighted average shares
outstanding [note 6]
    
    
    2,111,351
    
    
    
    250,000
    
    
    
    1,494,620Net loss for the period per share,
basic and diluted [note 6]
    
    
    (2.97
    )
    
    
    (4.10
    )
    
    
    (4.88
    )
 The accompanying notes are an integral part of these audited consolidated financial statements.
 39




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##### Table of Contents



JMG Exploration, Inc.
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In United States Dollars)
 Period fromTwelve
    
    the date of
    
    Period from themonth
    
    incorporation
    
    date ofperiod ended
    
    on July 16,
    
    incorporation onDecember
    
    2004 to
    
    July 16, 2004 toFor the
    
    31,
    
    December 31,
    
    December 31,2005
    
    2004
    
    2005$
    
    $
    
    $OPERATIONSNet loss for the period
    
    
    (5,814,009
    )
    
    
    (701,132
    )
    
    
    (6,515,141
    )Adjustments to reconcile net loss to cash
flows from operating activities:Stock-based compensation
    
    
    78,589
    
    
    
    
    
    
    
    78,589Depletion and depreciation and accretion
    
    
    4,268,547
    
    
    
    479,702
    
    
    
    4,748,249Other changes:Increase in accounts receivable
    
    
    (508,601
    )
    
    
    
    
    
    
    (508,601
    )Decrease (Increase) in prepaid expenses and
deposits
    
    
    70,186
    
    
    
    (104,887
    )
    
    
    (34,701
    )Increase in accounts payable and accrued
liabilities
    
    
    382,917
    
    
    
    82,780
    
    
    
    252,166Decrease (increase) in due to JED Oil Inc.
    
    
    (89,899
    )
    
    
    170,031
    
    
    
    286,956Decrease in due to related party
    
    
    (4,164
    )
    
    
    4,164
    
    
    
    Decrease (increase) in accrued interest on
Loan receivable
    
    
    16,683
    
    
    
    (39,205
    )
    
    
    (15,815
    )Cash used in operating activities
    
    
    (1,599,751
    )
    
    
    (108,547
    )
    
    
    (1,708,298
    )INVESTINGRepayment (advance) of loan receivable
    
    
    750,000
    
    
    
    (1,500,000
    )
    
    
    (750,000
    )Proceeds on disposition of property
    
    
    391,249
    
    
    
    
    
    
    
    391,249Additions to property and equipment
    
    
    (15,918,765
    )
    
    
    (1,971,199
    )
    
    
    (17,889,964
    )Increase in other assets
    
    
    (180,000
    )
    
    
    (50,000
    )
    
    
    (230,000
    )Cash used in investing activities
    
    
    (14,957,516
    )
    
    
    (3,521,199
    )
    
    
    (18,478,715
    )FINANCINGIssue of common shares, net of issue costs
    
    
    11,178,479
    
    
    
    1,000,000
    
    
    
    19,970,704Issue of preferred shares
    
    
    
    
    
    
    7,797,100
    
    
    
    Issue of share purchase warrants
    
    
    2,146,595
    
    
    
    
    
    
    
    2,151,470Preferred share dividends
    
    
    (654,945
    )
    
    
    (126,554
    )
    
    
    (781,499
    )Cash provided by financing activities
    
    
    12,670,129
    
    
    
    8,670,546
    
    
    
    21,340,675Effect of foreign exchange on cash and cash
equivalents
    
    
    (2,697
    )
    
    
    
    
    
    
    (2,697
    )Net (decrease) increase in cash and cash
equivalents
    
    
    (3,889,835
    )
    
    
    5,040,800
    
    
    
    1,150,965Cash and cash equivalents, beginning of period
    
    
    5,040,800
    
    
    
    
    
    
    
    Cash and cash equivalents, end of period
    
    
    1,150,965
    
    
    
    5,040,800
    
    
    
    1,150,965
 The accompanying notes are an integral part of these audited consolidated financial statements.
 40




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##### Table of Contents



JMG Exploration, Inc.
 STATEMENTS OF CONSOLIDATED STOCKHOLDERS EQUITY
  Shares
    
    Total#
    
    $Common stock, $.001 par value:Balance at July 16, 2004 and December 31,
2004
    
    
    250,000
    
    
    
    1,000,000Preferred shares converted to common stock
    
    
    1,950,000
    
    
    
    7,792,225Issuance of common stock, stock issued for
cash pursuant to initial public offering
    
    
    2,185,000
    
    
    
    11,143,500Warrants exercised for common stock
    
    
    612,578
    
    
    
    3,042,828Share issue costs
    
    
    
    
    
    
    (861,254Portion of proceeds attributed to share purchase warrants
    
    
    
    
    
    
    (2,146,595
    )Balance at December 31, 2005
    
    
    4,997,578
    
    
    
    19,970,704Additional paid in capitalBalance, July 16, 2004 (inception) and
December 31,2004
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    78,589Balance at December 31, 2005
    
    
    
    
    
    
    78,589Preferred stock, $.001 par value:Balance at December 31, 2004
    
    
    1,950,000
    
    
    
    7,792,225Preferred shares converted to common stock
    
    
    (1,950,000
    )
    
    
    (7,792,225
    )Balance at December 31, 2005
    
    
    
    
    
    
    Share purchase warrants:Balance at December 31, 2004
    
    
    487,500
    
    
    
    4,875Share purchase warrants: issued pursuant to
initial public offering $5.00
    
    
    2,185,000
    
    
    
    693,866Share purchase warrants: issued pursuant conversion preferred shares $4.25
    
    
    1,950,000
    
    
    
    1,816,766Warrants exercised for common stock
    
    
    (612,578
    )
    
    
    (364,037
    )Balance at December 31, 2005
    
    
    4,009,922
    
    
    
    2,151,470Deficit:Balance at beginning of period July 16, 2004
    
    
    
    
    
    
    Net loss for the period to December 31, 2004
    
    
    
    
    
    
    (701,132
    )Preferred share dividends
    
    
    
    
    
    
    (323,157
    )Balance at December 31, 2004
    
    
    
    
    
    
    (1,024,289
    )Net loss for the twelve-month period ended
December 31, 2005
    
    
    
    
    
    
    (5,814,009
    )Preferred share dividends
    
    
    
    
    
    
    (458,342
    )Balance at December 31, 2005
    
    
    
    
    
    
    (7,296,640
    )
 41




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##### Table of Contents



Shares
    
    Total#
    
    $Accumulated other comprehensive incomeBalance at beginning of period July 16, 2004
    
    
    
    
    
    
    Balance December 31, 2004
    
    
    
    
    
    
    Foreign exchange translation adjustment
    
    
    
    
    
    
    (2,697
    )Balance at December 31, 2004
    
    
    
    
    
    
    (2,697
    )Total stockholders equity at December 31,
2005
    
    
    
    
    
    
    (14,901,426
    )
 The accompanying notes are an integral part of these audited consolidated financial statements.
 42




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##### Table of Contents



JMG Exploration, Inc.
 CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
 For the period
    
    For the periodFor the
    
    from the date of
    
    from the date oftwelve month
    
    incorporation on
    
    incorporation onperiod ended
    
    July 16, 2004 to
    
    July 16, 2004 toDecember 31,
    
    December 31,
    
    December 31,2005
    
    2004
    
    2005$
    
    $
    
    $Net loss for the period
    
    
    (5,814,009
    )
    
    
    (701,132
    )
    
    
    (6,515,141
    )Other comprehensive
income:Foreign exchange
translation adjustment
    
    
    (2,697
    )
    
    
    
    
    
    
    (2,697
    )Comprehensive loss for
the period
    
    
    (5,816,706
    )
    
    
    (701,132
    )
    
    
    (6,517,838
    )
 The accompanying notes are an integral part of these audited consolidated financial statements.
 43




---



##### Table of Contents



1. INCORPORATION AND NATURE OF OPERATIONS
    2. SIGNIFICANT ACCOUNTING POLICIES
   a) Principles of consolidation
  b) Cash and cash equivalents
  c) Foreign currency translation
  44




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##### Table of Contents



d) Revenue recognition
  e) Joint operations
  f) Property and equipment
      g) Asset retirement obligations
  45




---



##### Table of Contents



h) Measurement uncertainty
  i) Income taxes
  j) Other comprehensive income (loss)
  k) Stock-based compensation
  Accounting for Stock Issued to Employees,
 46




---



##### Table of Contents



l) Net loss per share
  m) Allowance for doubtful accounts
  3. LOAN RECEIVABLE
   4. PROPERTY AND EQUIPMENT
   47




---



##### Table of Contents



December 31, 2005Accumulateddepletion,Cost
    
    depreciation
    
    Net book value$
    
    $
    
    $Petroleum and natural gas
properties
    
    
    13,720,365
    
    
    
    4,706,137
    
    
    
    9,014,228Undeveloped Land
    
    
    5,868,691
    
    
    
    
    
    
    
    5,868,691Other assets
    
    
    227,317
    
    
    
    37,197
    
    
    
    190,12019,816,373
    
    
    
    4,743,334
    
    
    
    15,073,039
 December 31, 2004Accumulateddepletion,depreciationCost
    
    and accretion
    
    Net book value$
    
    $
    
    $Petroleum and natural gas
properties
    
    
    2,053,378
    
    
    
    472,172
    
    
    
    1,941,206Other assets
    
    
    120,481
    
    
    
    7,530
    
    
    
    112,9512,173,859
    
    
    
    479,702
    
    
    
    2,054,157
 5. OTHER ASSETS
  48




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##### Table of Contents



6. SHARE CAPITAL
 a) Authorized
  b) Issued and outstanding
 AdditionalCapital
    
    Paid-inStock
    
    Capital
    
    Total#
    
    $
    
    $
    
    $Common Stock, $.001 par
value:Balance, at July 16, 2004
and December 31, 2004
    
    
    250,000
    
    
    
    250
    
    
    
    999,750
    
    
    
    1,000,000Preferred shares converted
to common stock
    
    
    1,950,000
    
    
    
    1,950
    
    
    
    7,790,275
    
    
    
    7,792,225Issued for cash, pursuant to
initial public offering
    
    
    2,185,000
    
    
    
    2,185
    
    
    
    11,141,315
    
    
    
    11,143,500Warrants exercised for
common stock
    
    
    612,578
    
    
    
    612
    
    
    
    3,042,216
    
    
    
    3,042,828Share Issue Costs
    
    
    
    
    
    
    
    
    
    
    (861,254
    )
    
    
    (861,254
    )Portion of proceeds
attributed to share purchase
warrants
    
    
    
    
    
    
    
    
    
    
    (2,146,595
    )
    
    
    (2,146,595
    )Balance at December 31, 2005
    
    
    4,997,578
    
    
    
    4,997
    
    
    
    19,965,707
    
    
    
    19,970,704Preferred StockBalance, at July 16, 2004
and December 31, 2004
    
    
    1,950,000
    
    
    
    1,950
    
    
    
    7,798,050
    
    
    
    7,800,000Preferred shares converted
to common stock
    
    
    (1,950,000
    )
    
    
    (1,950
    )
    
    
    (7,790,275
    )
    
    
    (7,792,225
    )Share issue costs, net of tax
    
    
    
    
    
    
    
    
    
    
    (2,900
    )
    
    
    (2,900
    )Portion of proceeds
attributed to share purchase
warrants
    
    
    
    
    
    
    
    
    
    
    (4,875
    )
    
    
    (4,875
    )Balance at December 31, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Share Purchase WarrantsBalance, at July 16, 2004
and December 31, 2004
    
    
    487,500
    
    
    
    
    
    
    
    
    
    
    
    4,875Issued pursuant to initial
public offering
    
    
    2,185,000
    
    
    
    
    
    
    
    
    
    
    
    693,866Issued pursuant to
conversion of preferred
shares
    
    
    1,950,000
    
    
    
    
    
    
    
    
    
    
    
    1,816,766Warrants exercised for
common stock
    
    
    (612,578
    )
    
    
    
    
    
    
    
    
    
    
    (364,037
    )Balance at December 31, 2005
    
    
    4,009,922
    
    
    
    
    
    
    
    
    
    
    
    2,151,470
 49




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##### Table of Contents



AdditionalCapital
    
    Paid-inStock
    
    Capital
    
    Total#
    
    $
    
    $
    
    $Additional paid in capitalBalance, July 16, 2004
(inception) and December 31, 2004
    
    
    
    
    
    
    
    
    
    
    Stock-based compensation
    
    
    
    
    
    
    
    
    
    
    78,589Total December 31, 2005
    
    
    
    
    
    
    4,997
    
    
    
    20,044,296
    
    
    
    22,122,174
 c) Initial Public Offering
   d) Stock options
  50




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##### Table of Contents



WeightedaverageNumber of
    
    exercise priceoptions
    
    $Outstanding as at December 31, 2004
    
    
    260,000
    
    
    
    4.00Granted  April 5, 2005
    
    
    387,750
    
    
    
    5.00Granted  July 21, 2005
    
    
    79,500
    
    
    
    5.00Granted
 August 19, 2005
    
    
    1,500
    
    
    
    15.25Granted
 August 29, 2005
    
    
    5,000
    
    
    
    14.74Granted
 November 1, 2005
    
    
    10,000
    
    
    
    12.25Cancelled
    
    
    (260,000
    )
    
    
    4.00Cancelled
    
    
    (4,500
    )
    
    
    5.00Options outstanding as at December 31, 2005
    
    
    479,250Exercisable as at December 31, 2005
    
    
    250,000
    
    
    
    5.00
 Pro forma disclosure
  Twelve months endedAs reported
    
    Pro FormaDecember 31, 2005
    
    $
    
    $Net loss
    
    
    (6,272,351
    )
    
    
    (6,485,985
    )Net loss per share, basic and diluted
    
    
    (2.97
    )
    
    
    (3.07
    )
  Risk-free interest rate (%)
    
    
    4.3Expected life (years)
    
    
    5.0Expected volatility (%)
    
    
    10 to 50Expected dividend yield (%)
    

    NilVesting period (years)
    
    
    0 to 3
  d) Loss per share
  51




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##### Table of Contents



7. INCOME TAXES
  (a) Income tax expense (recovery)
  2004
    
    2005
    
    Cumulative$
    
    $
    
    $Loss for the period before income taxes
    
    
    (701,132
    )
    
    
    (5,814,009
    )
    
    
    (6,515,141
    )Effective tax rate
    
    
    39
    %
    
    
    39
    %
    
    
    39
    %Expected income tax recovery
    
    
    (273,442
    )
    
    
    (2,267,463
    )
    
    
    (2,540,905
    )Deferred tax asset valuation allowance
    
    
    273,442
    
    
    
    2,267,463
    
    
    
    2,540,905Income tax benefit
    
    
    
    
    
    
    
    
    
    
    
 (b) Deferred income taxes
  Deferred Tax Assets
 2004
    
    2005$
    
    $
    
    CumulativeNon-capital loss carry forward
    
    
    340,805
    
    
    
    1,303,797
    
    
    
    1,644,602Property Impairments
    
    
    
    
    
    
    963,666
    
    
    
    963,666Total
    
    
    340,805
    
    
    
    2,267,463
    
    
    
    2,608,268Expense of Intangibles
    
    
    (67,363
    )
    
    
    
    
    
    
    (67,363
    )Impairment
    
    
    (273,442
    )
    
    
    (2,267,463
    )
    
    
    (2,540,905
    )
  8. RELATED PARTY TRANSACTIONS
  52




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##### Table of Contents



9. ASSET RETIREMENT OBLIGATIONS
  Asset retirement obligation at December 31, 2004
    
    
    Liabilities incurred
    
    $
    75,257Liabilities settled
    
    
    Accretion expense
    
    $
    3,385Asset retirement obligations at December 31, 2005
    
    $
    78,642
 10. FINANCIAL INSTRUMENTS
     53




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11. RECENT PRONOUNCEMENTS
 Share-Based Payment Accounting for Stock-Based Compensation Accounting for Stock Issued to Employees Statement of Cash
Flows requires
       12. SUBSEQUENT EVENTS
  54




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13. COMPARATIVE FIGURES
  55




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Item 9: Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A: Controls And Procedures
 Evaluation of Disclosure Controls and Procedures
       56




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Changes in Internal Control Over Financial Reporting
  
 Item 9B: Other Information
  57




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##### Table of Contents



PART III
 
 Item 10: Directors and Executive Officers of the Registrant
  Name
    
    Age
    
    PositionsJoanne R Finnerty
    
    
    47
    
    
    Chief Financial OfficerReginald Greenslade.
    
    
    43
    
    
    Chairman,Director and CEOReuben Sandler, Ph.D.
    
    
    69
    
    
    DirectorThomas J. Jacobsen
    
    
    70
    
    
    DirectorJoseph W. Skeehan
    
    
    65
    
    
    DirectorDonald P Wells
    
    
    41
    
    
    Director
 Joanne Finnerty
 Thomas J. Jacobsen
 Reuben Sandler, Ph.D
 58




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##### Table of Contents



Reginald (Reg) J. Greenslade
 Joseph W. Skeehan
 Donald Wells
 Board of Directors
   Committees of the Board of Directors
  59




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##### Table of Contents



Audit committee
  Compensation committee
  Corporate Governance Committee
  Code of Ethics
   Form
    
    Director/Officer/10%
    
    Owner
    
    Date of Earliest Transaction
    
    Date of Filing4
    
    Herman S Hartley
    
    Officer
    
    08/03/2005
    
    10/02/20054
    
    Thomas J Jacobsen
    
    Director
    
    08/03/2005
    
    10/02/20054
    
    Fred P Heller. Trustee
for Heller 2002 Trust
    
    10% Owner
    
    08/03/2005
    
    08/25/20054
    
    Joseph W Skeehan
    
    Director
    
    08/03/2005
    
    08/25/20054
    
    Rueben Sandler
    
    Director
    
    08/03/2005
    
    08/25/20054
    
    Joanne R Finnerty
    
    Officer
    
    08/03/2005
    
    08/25/2005
 60




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##### Table of Contents



Item 11: Executive Compensation
  Long-termAnnual compensation
    
    compensationSecuritiesName and
    
    Annualized
    
    Actual
    
    
    
    
    
    underlying
    
    All Otherprincipal position
    
    salary
    
    salary
    
    Bonus
    
    options (1)
    
    compensationH. S. (Scobey) Hartley  
Chief Executive Officer and President
    
    $
    121,000
    
    
    $
    121,000
    
    
    $
    29,000
    
    
    
    30,000
    
    
    
    Joanne R. Finnerty  
Chief Financial Officer (2)
    
    $
    94,000
    
    
    $
    43,000
    
    
    $
    10,300
    
    
    
    30,000
    
    
    
    
 
 (1)
    
    All option grants were made pursuant to the equity compensation
plan. These options were issued in April 2005, 30,000 options each to
purchase shares of our common stock at $5.00 per share.(2)
    
    Ms. Finnerty began employment of JMG in July 2005. Stock options granted during the most recently completed financial year
  61




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##### Table of Contents



Individual grantsPercentage oftotaloptionsgranted toemployees inperiod fromNumber
    
    incorporation
    
    
    
    
    
    
    
    
    
    Potential realizable value atof
    
    on January 1,
    
    
    
    
    
    
    
    
    
    assumed annual rate ofshares of
    
    2005to
    
    Exercise
    
    
    
    
    
    stock price appreciationcommon
    
    December 31,
    
    price per
    
    Expiration
    
    for option term (3)stock
    
    2005
    
    share
    
    date
    
    5%
    
    10%H. S. (Scobey) Hartley
    
    
    30,000
    (1)
    
    
    6.5
    %
    
    $
    5.00
    
    
    April 2010
    
    $
    57,000
    
    
    $
    307,000Joanne R. Finnerty (2)
    
    
    30,000
    
    
    
    6.5
    %
    
    $
    5.00
    
    
    July 2010
    
    $
    57,000
    
    
    $
    307,000
 
 (1)
    
    Granted under our equity compensation plan. The options are fully vested and exercisable. In April 2005 these grants
were issued for 30,000 options to acquire shares of common stock at $5.00 per share, expiring in April 2010 .(2)
    
    In July 2005 we granted under our equity compensation plan, 30,000 options to acquire shares of common stock at $5.00
per share, expiring in July 2010. These options will vest as to one-third on each of the first, second and third anniversaries of
the grant date.(3)
    
    Potential realizable values are net of exercise price, but before taxes associated with exercise. Amounts representing
hypothetical gains are those that could be achieved if options are exercised at the end of the option term. The assumed 5% and 10%
rates of stock price appreciation are provided in accordance with rules of the Securities and Exchange Commission based on the
assumed price of $5.00 per share, and do not represent our estimate or projection of the future stock price. Option exercises in last fiscal year and fiscal year-end option values
  Number of shares
    
    Value of unexercisedNumber
    
    
    
    
    
    underlying unexercised
    
    in-the-money optionsof shares
    
    Value
    
    options at December 31, 2005
    
    at December 31, 2005acquired
    
    realized
    
    Exercisable
    
    Unexercisable
    
    Exercisable
    
    UnexercisableH.S. (Scobey)
Hartley
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    $
    224,700
    
    
    
    Joanne R. Finnerty
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30,000
    
    
    
    
    
    
    
    224,700
 
 Item 12: Security Ownership of Certain Beneficial Owners and Management and related
Stockholder Matters
 Equity compensation plan
  62




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##### Table of Contents




    
    determine who should receive an award;
 
    
    determine the type, number, vesting requirements and other features and conditions of an award;
 
    
    interpret the equity compensation plan; and
 
    
    make all other decisions relating to the operation of the equity compensation plan.
   
    
    a merger or consolidation after which our then current
stockholders own less than 50% of the surviving corporation;
 
    
    a sale of all or substantially all of our assets; or
 
    
    an acquisition of 50% or more of our outstanding stock by a person
other than a corporation owned by our stockholders in
substantially the same proportions as their stock ownership in us.
  
    
    the assumption of outstanding awards by the surviving corporation or its parent;
 
    
    their continuation by us if we are the surviving corporation;
 
    
    accelerated vesting; or
 
    
    settlement in cash followed by cancellation of outstanding awards.
  63




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##### Table of Contents



Equity compensation plan information as of March 31, 2006Number of securitiesremaining available forNumber of securities
    
    Weighted-average
    
    future issuanceto be issued upon
    
    exercise price of
    
    under equityexercise of outstanding
    
    outstanding options
    
    compensation plansPlan category
    
    options and warrants
    

    and warrants
    
    

    (1)Equity compensation
plan
    
    
    479,250
    
    
    $
    5.28
    
    
    
    20,508
 Beneficial Ownership of Common Stock
  
    
    each of our executive officers and directors;
 
    
    all executive officers and directors as a group; and
 
    
    each person who is known by us to beneficially own more than 5% of
our outstanding common stock.
 th
 Number of Shares
    
    PercentageName of beneficial owner
    
    beneficially owned
    
    of shares outstandingExecutive officers and directors:H. S. (Scobey) Hartley
    
    
    48,833
    (1)
    
    
    0.95
    %Joanne R. Finnerty
    
    
    34,621
    (2)
    
    
    0.67
    %Thomas J. Jacobsen
    
    
    172,391
    (3)
    
    
    3.32
    %Reuben Sandler, Ph.D.
    
    
    99,625
    (4)
    
    
    1.90
    %Reginald Greenslade
    
    
    138,876
    (5)
    
    
    2.69
    %Donald P. Wells
    
    
    30,000
    (6)
    
    
    0.59
    %Joseph W. Skeehan
    
    
    48,908
    (7)
    
    
    0.95
    %All executive officers and directors as a group
(7 persons)
    
    
    573,254
    
    
    
    10.45
    %Stockholders owning 5% or more:Fred P. Heller, Trustee Heller 2002 Trust
2310 Pleasure Drive, Reno, Nevada 89509
    
    
    1,069,358
    (8)
    
    
    19.4
    %Jay Kuhne Family Trust
315 West Hyman, Aspen, Colorado 81611
    
    
    506,250
    (9)
    
    
    9.4
    %John P. McGrain
233 South Orange Grove, Pasadena, California 91105
    
    
    476,562
    (10)
    
    
    8.92
    %
 
 (1)
    
    Beneficial ownership includes of 30,000 shares of common stock underlying stock options, 10,000 common stock
warrants exercisable at $5.00 and 8,833 shares of common stock.(2)
    
    Beneficial ownership includes of 30,000 shares of common stock underlying stock options, 2,000 common stock
warrants exercisable at $5.00 and 2,621 shares of common stock.(3)
    
    Includes 30,000 shares of common stock underlying stock options, 69,633 shares of common stock, 57,133 shares of
common stock underlying warrants issuable upon exercise of warrants at $5.00 per share, 3,125 shares of common stock
issuable upon exercise of warrants at $6.00 per share and 12,500 shares of common stock issuable upon exercise of
warrants at $4.25 per share.(4)
    
    Includes 30,000 shares of common stock underlying stock options, 28,375 shares of common stock 10,000 shares of
common stock underlying warrants issuable upon exercise of warrants at $5.00 per share, 6,250 shares of common stock
issuable upon exercise of warrants at $6.00 per share and 25,000 shares of common stock issuable upon exercise of
warrants at $4.25 per share.(5)
    
    Includes 30,000 shares of common stock underlying stock options, 61,938 shares of common stock 46,938 shares of
common stock underlying warrants issuable upon exercise of warrants at $5.00 per share.(6)
    
    Beneficial ownership consists of 30,000 shares of common stock underlying stock options.(7)
    
    Includes 40,000 shares of common stock underlying stock options, 4,454 shares of common stock, 4,454 shares of
common stock underlying warrants issuable upon exercise of warrants at $5.00 per share.(8)
    
    Information based on Schedule 13D filed with the SEC on February 28, 2006. Includes 189,920 shares of common stock
underlying warrants issuable upon exercise at $5.00 per share and 225,000 shares of common stock issuable upon exercise
of warrants at $4.25.(9)
    
    Information based on Schedule 13D filed with the SEC on August 8, 2005. Includes 225,000 shares of common stock
underlying warrants issuable upon exercise at $4.25 per share and 56,250 shares of common stock issuable upon exercise
of warrants at $6.00. Jay Kuhne is the trustee for the Jay Kuhne Family Trust.(10)
    
    Includes 206,250 shares of common stock underlying warrants issuable upon exercise at $4.25 per share and 51,562
shares of common stock issuable upon exercise of warrants at $6.00. 64




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##### Table of Contents



Item 13: Certain Relationships and Related Transactions
  Business Relationships with JED and Enterra
 Agreement of Business Principles
   Services Agreements
 65




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##### Table of Contents



Interpersonal Relationships with JED and Enterra
    Proposed Merger with JED
 JED
 Enterra
 Conflicts of Interest Policies
   66




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##### Table of Contents



Item 14: Principle Accountant Fees and Services
  Year ended December 31,2005
    
    2004Audit fees
    
    $
    171,500
    
    
    $
    10,000Audit related fees
    
    $
    30,000
    
    
    
    Tax fees
    
    
    
    
    
    
    All other fees
    
    
    
    
    
    
    
 67




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##### Table of Contents



PART IV
 
 Item 15. Exhibits and Financial Statement Schedules
 Financial Statements
  PageReports of Independent Registered Public Accounting Firm
    
    
    35Consolidated Balance Sheet as of December 31, 2005 and 2004
    
    
    37Consolidated Statements of Operations and Deficit for the year ended
December 31, 2005, the period from the date of incorporation on July
16, 2004 to December 31, 2004 and to December 31, 2005
    
    
    38Consolidated Statements of Cash Flows for the year ended December
31, 2005, the period from the date of incorporation on July 16, 2004
to December 31, 2004 and to December 31, 2005
    
    
    39Consolidated Statements of Shareholders Equity for the year ended
December 31, 2005, the period from the date of incorporation on July
16, 2004 to December 31, 2004 and to December 31, 2005
    
    
    40Consolidated Statements of Comprehensive Loss for the year ended
December 31, 2005, the period from the date of incorporation on July
16, 2004 to December 31, 2004 and to December 31, 2005
    
    
    42Notes to Consolidated Financial Statements
    
    
    43-54
 Financial Statement Schedules
 (a)3 Exhibits:
 Number
    
    Exhibit3.1(1)
    
    Amended and Restated Articles of Incorporation of the registrant *3.2(1)
    
    By-laws of the registrant *3.3(1)
    
    Certificate of Designation of the Rights and Preferences of the Series A
Convertible Preferred Stock4.1(1)
    
    Specimen of Common stock Certificate *4.1(1)
    
    Form of Lockup Agreement  Officers and Directors *4.3(1)
    
    Form of $4.25 Warrant *4.4(1)
    
    Form of $6.00 Warrant *4.5(1)
    
    Form of $5.00 Warrant *4.6(1)
    
    Form of Underwriters Warrant Agreement10.1(1)*
    
    Equity compensation plan *10.2(1)
    
    Hooligan Draw Farm-in Agreement*10.3(1)
    
    Cut Bank Farm-in Agreement*10.4(1)
    
    Fiddler Creek Farm-in Agreement *10.5(1)
    
    JED Oil Technical Services Agreement, as amended *10.6(1)
    
    2nd Amended and Restated Agreement of Business Principles with
Enterra Energy Trust, JED Oil Inc. and JMG Exploration, Inc. *10.7(1)
    
    Fellows Energy Ltd. Exploration and Development and Conveyance Agreement *10.8(1)
    
    Fellows Energy Ltd. Promissory Note *
 68




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##### Table of Contents



Number
    
    Exhibit10.9(1)
    
    Fellows Energy Ltd. General Security Agreement *10.10(1)
    
    Candak Farm-in Agreement *10.11(1)
    
    Myrtle Beach Farm-in Agreement *10.12(1)
    
    Bluffton Farm-in Agreement *10.13(1)
    
    Pinedale  Jonah Farm-in Agreement *10.14(1)
    
    Pinedale  Desert Mining, Inc. Agreement *10.15(2)
    
    Termination Agreement dated January 1, 2006 relating to JED Oil Technical
Services Agreement, as amended10.16(2)
    
    Joint Services Agreement between JMG Exploration Inc. and JED Oil Inc.
dated January 1, 200614.1(2)
    
    Code of Business Conduct*23.1
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm23.2(2)
    
    Consent of DeGolyer and Mac Naughton Canada Limited, Independent Engineers31.1
    
    Certificate of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certificate of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 
 *
    
    Management contract(1)
    
    Incorporated by reference to the Companys registration statement on Form SB-2 (333-120082)(2)
    
    Previously filed 69




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##### Table of Contents



SIGNATURES
 Securities Exchange Act of 1934
 September 11, 2006
    
    JMG Exploration Inc.By:
    
    /s/ David HoDavid HoActing Chief Financial Officer
 70




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##### Table of Contents



Number
    
    Exhibit23.1
    
    Consent of Ernst & Young LLP, Independent Registered Public Accounting Firm31.1
    
    Certificate of Chief Executive Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200231.2
    
    Certificate of Chief Financial Officer pursuant to Section 302 of the
Sarbanes-Oxley Act of 200232.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
 71