**United
      States**


**Securities
      and Exchange Commission**


Washington,
      D.C. 20549





**FORM
      10-QSB**





(Mark
      One)





**[
      X ] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





For
      the
      quarterly period ended June 30, 2005





**[
      ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES**


**EXCHANGE
      ACT OF 1934**





For
      the
      transition period from_____ to _______





*Commission
      file number 000-27783*





**NATHANIEL
      ENERGY CORPORATION**  
 
 (Name
        of
        Small Business Issuer in its Charter)
 
 
 Delaware
              84-1572525(State
                  or other jurisdiction of
              (I.R.S.
                  Employerincorporation
                  or organization)
              Identification
                  No.)
 
 
 8001
        South InterPort Blvd. Suite 260, Englewood, Colorado 80112
 (Address
        of principal executive offices) (Zip Code)
 
 Issuer's
        telephone number: (303) 690-8300
 
 Check
        whether the issuer (1) filed all reports required to be filed by Section
        13 or
        15(d) of the Exchange Act during the past 12 months (or for such shorter
        period
        that the registrant was required to file such reports), and (2) has been
        subject
        to such filing requirements for the past 90 days. Yes [X] No [ ]
 
 Applicable
        only to issuers involved in bankruptcy proceedings during the preceding five
        years
 
 Check
        whether the registrant filed all documents and reports required to be filed
        by
        Section 12, 13 or 15(d) of the Exchange Act after the distribution of securities
        under a plan confirmed by a court. Yes [ ] No [ ]
 
 Applicable
        only to corporate issuers
 
 State
        the
        number of shares outstanding of each of the issuer's class of common equity,
        as
        of the latest practicable date: August 11, 2005, 70,698,263 shares of common
        stock, $.001 par value.
 
 **Transitional
        Small Business Disclosure Format (Check One) Yes [ ] No [X]**
  
 **NATHANIEL
        ENERGY CORPORATION**
 
 
 TABLE
                  OF CONTENTSPART
                  I.
              FINANCIAL
                  INFORMATION
              PageItem
                  1
              Financial
                  Statements (unaudited)Consolidated
                  Balance Sheets as of June 30, 2005 and
                December
                  31, 2004
              2Consolidated
                  Statements of Operations for the Three And Six Months ended
                June
                  30, 2005 and 2004
              3Consolidated
                  Statements of Cash Flows for the Six Months ended June 30,
                2005
                  and 2004
              4Notes
                  to Consolidated Financial Statements
              5Item
                  2.
              Management’s
                  Discussion and Analysis or Plan of Operation
              11Item
                  3.
              Controls
                  and Procedures
              18PART
                  II.
              OTHER
                  INFORMATIONItem
                  1.
              Legal
                  Proceedings
              19Item
                  2.
              Unregistered
                  Sales of Equity Securities And Use of Proceeds
              19Item
                  3.
              Defaults
                  Upon Senior Securities
              19Item
                  4.
              Submission
                  of Matters to a Vote of Security Holders
              19Item
                  5.
              Other
                  Information
              19Item
                  6.
              Exhibits
              19Signatures
  i


**Nathaniel
      Energy Corporation**


**Consolidated
      Balance Sheets**








June
                30,
              2005
              (unaudited)
            
            December
                31,
              2004AssetsCurrent
                assets:Cash
            
            $
            1,082,722
            
            $
            568,151Accounts
                receivable
            
            
            1,112,147
            
            
            1,340,229Inventory
            
            
            535,798
            
            
            1,019,028Prepaid
                expenses
            
            
            317,117
            
            
            136,022Advances
                receivable
            
            
            500
            
            
            529Total
                current assets
            
            
            3,048,284
            
            
            3,063,959Property,
                plant and equipment, net of accumulated
              depreciation
            
            
            10,380,076
            
            
            10,304,828Intangible
                assets, net
            
            
            549,668
            
            
            597,014Restricted
                cash
            
            
            --
            
            
            237,000Deposits
            
            
            196,971
            
            
            85,477TotalAssets
            
            $
            4,174,999
            
            $
            14,288,278Liabilities
                and Stockholders' EquityCurrent
                liabilities:Accounts
                payable
            
            $
            2,385,316
            
            $
            2,686,524Accrued
                compensation and payroll liabilities
            
            
            95,299
            
            
            97,300Accrued
                interest
            
            
            915,549
            
            
            640,033Accrued
                property tax
            
            
            111,213
            
            
            37,080Accrued
                income tax
            
            
            233,245
            
            
            23,584Other
                accrued expenses
            
            
            35,583
            
            
            41,520Notes
                payable, current portion
            
            
            833,490
            
            
            536,135Notes
                payable - stockholder, current portion
            
            
            --
            
            
            1,080,000Total
                current liabilities
            
            
            4,609,695
            
            
            5,142,176Long-term
                debt
            
            
            452,272
            
            
            728,571Long-term
                debt, stockholder
            
            
            8,892,151
            
            
            7,812,151Total
                liabilities
            
            
            13,954,118
            
            
            13,682,898Minority
                interest
            
            
            220,716
            
            
            54,626Stockholders'
                Equity:Preferred
                stock, 2,000,000 shares of $.001 par valueauthorized,
                none issued or outstanding
            
            
            --
            
            
            --Common
                stock, 75,000,000 shares of $.001 par valueauthorized,
                70,698,263 shares and 70,198,263 shares issued and outstanding at
                June 30,
                2005 and
              December
                31, 2004
            
            
            70,698
            
            
            70,198Common
                stock to be issued
            
            
            20,318
            
            
            20,318Additional
                paid-in capital
            
            
            64,938,656
            
            
            64,851,656Accumulated
                deficit
            
            
            (65,029,507
            )
            
            (64,391,418
            )Total
                Stockholders' Equity
            
            
            165
            
            
            550,754Total
                Liabilities and Stockholders' Equity
            
            $
            14,174,999
            
            $
            14,288,278








*The
      accompanying notes are an integral part of the financial
      statements.*





2





**Nathaniel
      Energy Corporation Consolidated Statements of Operations**


(Unaudited)








For
                the Three Months Ended
            
            For
                the Six Months EndedJune
                30,
              2005
            
            June
                30,
              2004
            
            June
                30,
              2005
            
            June
                30,
              2004Revenue
            
            $
            3,867,201
            
            $
            3,609,352
            
            $
            7,800,343
            
            $
            6,956,144Cost
                of revenue
            
            
            3,413,791
            
            
            3,154,537
            
            
            6,585,472
            
            
            6,045,913Gross
                profit
            
            
            453,410
            
            
            454,815
            
            
            1,214,871
            
            
            910,231Selling,
                general and administrative expenses
            
            
            490,212
            
            
            569,066
            
            
            1,062,914
            
            
            1,079,503Research
                and development expense
            
            
            -
            
            
            126,426
            
            
            117,125
            
            
            290,996Write-down
                of inventory
            
            
            -
            
            
            274,000
            
            
            -
            
            
            274,000Impairment
                of assets
            
            
            -
            
            
            1,403,046
            
            
            -
            
            
            1,403,046Total
                operating expenses
            
            
            490,212
            
            
            2,372,538
            
            
            1,180,039
            
            
            3,047,545Income
                (loss) from operations
            
            
            (36,802
            )
            
            (1,917,723
            )
            
            34,832
            
            
            (2,137,314
            )Other
                income (expense)Interest
                expense
            
            
            (152,986
            )
            
            (131,068
            )
            
            (305,012
            )
            
            (275,650
            )Write-off
                of related party receivable
            
            
            -
            
            
            (264,587
            )
            
            -
            
            
            (264,587
            )Loss
                on disposal of equipment
            
            
            -
            
            
            (18,912
            )
            
            -
            
            
            (18,912
            )Other
                income
            
            
            7,842
            
            
            65,800
            
            
            7,842
            
            
            71,800Loss
                before income taxes and minority interest
            
            
            (181,946
            )
            
            (2,266,490
            )
            
            (262,338
            )
            
            (2,624,663
            )Income
                tax expense
            
            
            (68,509
            )
            
            (131,272
            )
            
            (209,661
            )
            
            (258,683
            )Loss
                before minority interest
            
            
            (250,455
            )
            
            (2,397,762
            )
            
            (471,999
            )
            
            (2,883,346
            )Minority
                interest
            
            
            (62,343
            )
            
            (99,638
            )
            
            (166,090
            )
            
            (193,285
            )Net
                loss
            
            $
            (312,798
            )
            $
            (2,497,400
            )
            $
            (638,089
            )
            $
            (3,076,631
            )Loss
                per share, basic and diluted
            
            $
            (0.01
            )
            $
            (0.04
            )
            $
            (0.01
            )
            
            (0.04
            )Weighted
                average common shares outstanding
            
            
            70,698,263
            
            
            69,676,697
            
            
            70,687,213
            
            
            69,698,055






*The
      accompanying notes are an integral part of the financial
      statements.*











3


****Nathaniel
      Energy Corporation**** **Consolidated
      Statements of Cash Flows**


(Unaudited)


For
                the Six Months EndedJune
                30,
              2005
            
            June
                30,
              2004Cash
                flows from operating activities:
              Net
                loss
            
            $
            (638,089
            )
            $
            (3,076,631
            )Adjustments
                to reconcile net loss to net cash provided by (used in) operating
                activities:
              Depreciation
                and amortization
            
            
            423,802
            
            
            516,094Minority
                interest
            
            
            166,090
            
            
            193,285Impairment
                of assets
            
            
            --
            
            
            1,403,046Write
                down of inventory
            
            
            --
            
            
            274,000Loss
                on related party receivables
            
            
            --
            
            
            264,587Loss
                on equipment
            
            
            --
            
            
            18,912Non-cash
                settlement of debt
            
            
            --
            
            
            (65,800
            )Changes
                in operating assets and liabilities:
              (Increase)
                decrease in:
              Inventory
            
            
            483,230
            
            
            (1,914,339
            )Accounts
                receivable
            
            
            228,082
            
            
            (363,856
            )Prepaid
                expenses
            
            
            (181,095
            )
            
            23,648Other
                receivable
            
            
            29
            
            
            11,938Restricted
                cash
            
            
            237,000
            
            
            459,982Related
                party receivable
            
            
            --
            
            
            19,450Other
                assets
            
            
            (111,494
            )
            
            (10,127
            )Increase
                in:
              Accounts
                payable and accrued expenses
            
            
            276,619
            
            
            1,326,114Net
                cash provided by (used in) operating activities
            
            
            884,174
            
            
            (919,697
            )Cash
                flows from investing activities:
              Equipment
                and intangible asset purchases
            
            
            (451,705
            )
            
            (673,977
            )Net
                cash used in investing activities
            
            
            (451,705
            )
            
            (673,977
            )Cash
                flows from financing activities:
              Payments
                on debt
            
            
            (139,505
            )
            
            (36,741
            )Proceeds
                from issuance of notes and loans
            
            
            221,607
            
            
            2,000,000Net
                cash provided by financing activities
            
            
            82,102
            
            
            1,963,259Net
                increase in cash
            
            
            514,571
            
            
            369,585Cash
                and cash equivalents, beginning of period
            
            
            568,151
            
            
            504,782Cash
                and cash equivalents, end of period
            
            $
            1,082,722
            
            $
            874,367Cash
                paid for interest
            
            $
            51,026
            
            $
            20,106Cash
                paid for income taxes
            
            $
            --
            
            $
            --Non
                cash financing activity
              Issuance
                of stock to settle accrued expenses, accounts and notes
                payable
              Cancellation
                of 50,484 shares of common stock to settle a receivable from an
                officer
            
            $
              
              $
            87,500
              
              --
            
            $
              
              $
            218,800
              
              50,484





*The
      accompanying notes are an integral part of the financial
      statements.*





4


**Nathaniel
      Energy Corporation**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


JUNE
      30,
      2005 and 2004


(Unaudited)





1.
      Significant Accounting Policies and Nature of Operations:





***Condensed
      footnotes***





As
      contemplated by the Securities and Exchange Commission instructions to Form
      10-QSB, the following footnotes have been condensed and therefore do not contain
      all disclosures required in connection with annual financial statements.
      Reference should be made to the notes to Nathaniel Energy Corporation's annual
      financial statements set forth in Form 10-KSB for the year ended December 31,
      2004.





***Unaudited
      Interim Financial Statements***





The
      accompanying unaudited interim financial statements, which include the Company's
      51% owned subsidiary, have been prepared by the Company in accordance with
      generally accepted accounting principles pursuant to Regulation S-B of the
      Securities and Exchange Commission. The financial information has not been
      audited and should not be relied on to the same extent as audited financial
      statements. Certain information and footnote disclosures normally included
      in
      audited financial statements prepared in accordance with generally accepted
      accounting principles have been condensed or omitted. Accordingly, these interim
      financial statements should be read in conjunction with the Company's financial
      statements and related notes as contained in Form 10-KSB for the year ended
      December 31, 2004. In the opinion of management, the interim financial
      statements reflect all adjustments, including normal recurring adjustments,
      necessary for fair presentation of the interim periods presented. The results
      of
      operations for the three and six months ended June 30, 2005 are not necessarily
      indicative of results of operations to be expected for the full year.





***Description
      of Business***





Nathaniel
      Energy Corporation is a renewable hydrocarbon-based
      waste-to-energyhydrocarbon-based hydrocarbon-based waste-to-energy company
      that
      provides municipalities and industries with solutions that divert waste from
      landfills while providing a clean alternative energy comparable to that of
      fossil fuels. Our proprietary patented technology, the Thermal GasifierTM, is a
      2-stage gasification system designed to convert waste, biomass, tires and any
      other solid, hydrocarbon-based materials into inexpensive clean electrical
      and
      thermal energy, while exceeding the most stringent EPA and European Union
      regulations.




We
      have
      been in the alternative fuel processing business, including used tire recycling
      and collection services, since 1997. We have operated a 27 acre tire fuel
      processing facility in Hutchins, Texas since 1999 and have operated a helium
      and
      gas processing facility in Keyes, Oklahoma since April 2003. During the three
      and six months ended June 30, 2005, our helium and gas processing facility,
      and
      our tire fuel processing businesses, have generated 97% and 3%, and 96% and
      3%
      of our total revenue, respectively.




We
      plan
      to focus our patented technology, the Thermal GasifierTM in three main areas:
      licensing; creating energy infrastructures; and building, owning and operating
      small hydrocarbon-based waste-to-energy plants. The Company’s mission is to
      become an environmental partner with municipalities and commercial and
      industrial businesses for the diversion of solid waste from landfills, while
      providing an economically cost effective, clean energy alternative to fossil
      fuels worldwide.




We
      plan
      to license the Thermal GasifierTM technology to qualified companies, joint
      venture partners, and distributorships. We plan to build hydrocarbon-based
      waste-to-energy infrastructures for certain industries that have a need to
      dispose of hydrocarbon based materials and seek an independent source of energy
      in the form of heat, steam or electricity. These energy infrastructures would
      be
      built on the businesses' premises ("inside the fence") and can reduce the
      dependence a business has on fossil fuels and power from the local utility.
      In
      some cases, the hydrocarbon-based waste-to-energy infrastructures can become
      a
      business' self sustaining utility. We plan to identify new and existing sites
      where we can build, own and operate small hydrocarbon-based waste-to-energy
      plants through our own resources or in conjunction with joint venture
      partners.


5





Our
      short
      term objective is to complete the start up and testing of our two Thermal
      GasifiersTM recently constructed in Cologna Veneta, Italy. We plan to utilize the
      operating Thermal GasifierTM units in Italy in our sales, marketing and research
      efforts during 2005. Upon completion and acceptance of the second of two Thermal
      GasifiersTM and payment by our customer in Italy, we will recognize revenue on
      those units. We have recognized no revenue from the sale or delivery of our
      Thermal GasifierTM through the period ended June 30, 2005. During the first
      quarter of 2005, we formed a Delaware corporation as a wholly owned subsidiary
      for purposes of advancing our business for the commercialization of our Thermal
      GasifierTM technology through hydrocarbon-based waste-to-energy projects. The
      subsidiary is named Cleanergy, Inc. Cleanergy, Inc. had no financial activity
      through the period ended June 30, 2005. The Company has employed the services
      of
      an experienced executive to advance the business plan and secure a sales
      pipeline of hydrocarbon-based waste-to-energy projects and business development
      activities.





**Critical
      Accounting Policies**





The
      financial statements include the accounts of Nathaniel Energy Corporation and
      its subsidiaries. All material inter-company accounts and transactions have
      been
      eliminated in consolidation. Certain prior period amounts have been reclassified
      to conform to the current period presentation with no effect on the net
      loss.


6


**Nathaniel
      Energy Corporation**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**


JUNE
      30,
      2005 and 2004


(Unaudited)


***Inventory***





Tire
      shred inventory is valued at its cost to produce a salable product using the
      first-in first-out method, but in an amount not to exceed realizable value,
      determined with respect to existing contractual sales prices, less costs to
      complete the tire processing. The tire shred inventory value at June 30, 2005
      is
      zero. The gas processing facility has crude helium inventory in process stored
      in the BLM (Bureau of Land Management) facility in Texas; this inventory is
      based on the first-in-first-out method. There is a contract with the BLM which
      encompasses activity fees, compression fees, storage fees and an annual fee
      to
      the BLM. The BLM fees are expensed as incurred. We are also completing the
      start-up and testing of two Thermal GasifiersTM in Italy, under a contract for
      resale to a customer, which have been installed with the first of the two units
      operating in start up phase. The Thermal GasifiersTM are valued at that portion
      of the contract price we reasonably expect to receive upon completion and
      acceptance by our customer, reduced by our contractual exposure to penalties
      contained in the contract which could be incurred if our Thermal GasifiersTM do
      not produce the volume of steam specified in the contract and payments received.
      We are reimbursed for our out of pocket expenses incurred during this start
      up
      phase and we record those expenses and the reimbursement of those expenses
      in
      cost of revenue and revenue, respectively.





Components
      of inventory at June 30, 2005 are as follows:





Helium
                inventory, valued by first-in, first-out method
              Construction
                in progress, valued by first-in, first-out method
            
            $
              
              $
            391,098
              144,700
              535,798





***Research
      and Development***





Research
      and development expenditures, all of which relate directly to the design and
      development of our Thermal GasifierTM technology, are expensed as incurred. For
      the three and six months ended June 30, 2005 and 2004, we incurred costs for
      outside resources and expensed $-0- and $126,426, and $117,125 and $290,996
      respectively, as research and development expense.





***Property,
      Plant and Equipment and Related Depreciation***





Property,
      plant and equipment purchased or constructed is recorded at cost. Direct costs,
      such as labor and materials, and indirect costs, such as overhead used during
      construction are capitalized. Major units of property replacements or
      improvements are capitalized and minor items are expensed. Gain or loss is
      recorded in income for the difference between the net book value relative to
      proceeds received, if any, when the asset is sold or retired. Depreciation
      is
      provided for using straight-line and accelerated methods. Estimated useful
      lives
      of the assets used in the computation of depreciation are as follows:





Machinery
                and equipment
            5
                -   20 yearsBuildings
            25
                yearsVehicles
            5 yearsGathering
                pipeline
            20
                years





***Long-Lived
      Assets***





In
      accordance with the Financial Accounting Standards Board's ("FASB") Statement
      of
      Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment
      or Disposal of Long-Lived Assets", the Company reviews its long-lived assets,
      including intangible assets, for impairment whenever events or changes in
      circumstances indicate that the related carrying amount may not be recoverable.
      Recovery of assets to be held and used is measured by a comparison of the
      carrying amount of the assets to the future net cash flows expected to be
      generated by the asset. If such assets are considered to be impaired, the
      impairment to be recognized is measured by the amount by which the carrying
      amount of the assets exceeds the fair value of the assets. Assets to be disposed
      of are reported at the lower of the carrying amount or fair value less the
      cost
      to sell. The impairment review performed for fiscal year 2004 indicated an
      impairment of long-lived assets at the Hutchins, TX tire processing facility.
      At
      the time of the impairment review, net realizable value for these assets was
      determined to be $300,000, resulting in a net impairment adjustment of
      $1,403,046. Management uses significant judgments, assumptions and estimates
      to
      calculate future cash flows expected to be generated by the assets under
      impairment review.


7





***Revenue
      Recognition***





Our
      tire
      fuel processing facility recognizes revenue in two ways. First when waste tires
      are accepted at the facility ("tipping fees") and secondly from the sale of
      processed tire shreds. The revenues from tipping fees are fully earned when
      the
      waste tires are accepted at the facility and the processed tire shred revenues
      are recognized when the shreds are delivered to the end user. Internal quality
      controls are in place to ensure that shreds meet the standards required in
      contracts for the delivery of shreds. This quality control reduces the risk
      of
      significant returns and allowances of tire shreds sold. Sales returns are
      reprocessed and added back to the existing tire shreds. Sales returns are booked
      based on the Company’s historical experience.


8




**Nathaniel
      Energy Corporation**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**


JUNE
      30,
      2005 and 2004


(Unaudited)





Our
      helium, natural gas liquids and natural gas revenues are recognized in the
      period of delivery. The revenues are fully earned when recognized. The
      processing plant has various types of quality control equipment in place to
      ensure that the processed gases meet the requirements of the Bureau of Land
      Management ("BLM"), the natural gas pipeline operators and its wholesale gas
      customers. The Company has a month-to-month contract in place with a natural
      gas
      marketing firm for the natural gas delivered to the pipeline and a long term
      contract for the helium processed. The natural gas liquids processed are
      currently sold as produced under a month to month agreement.




We
      recognize revenue from the sale of our Thermal GasifiersTM upon completion,
      delivery and customer acceptance, using the completed contract method of
      accounting.





***Net
      Income (Loss) Per Common Share***





SFAS
      No.
      128, "Earnings Per Share" requires presentation of basic (loss) or earnings
      per
      share ("Basic EPS") and diluted (loss) or earnings per share ("Diluted EPS").





The
      computation of basic loss per share is computed by dividing loss available
      to
      common stockholders by the weighted average number of outstanding common shares
      during the period. Diluted loss per share gives effect to all dilutive potential
      common shares outstanding during the period. The computation of diluted EPS
      does
      not assume conversion, exercise or contingent exercise of securities that would
      have an anti-dilutive effect on earnings. During the periods presented, we
      had
      no potentially dilutive securities outstanding.





***Use
      of Estimates***





The
      preparation of our financial statements in conformity with generally accepted
      accounting principles requires our 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.


**2.
      Notes Payable**





On
      March
      17, 2004 we borrowed $2,000,000 from Richard Strain, a related party, bringing
      our total indebtedness to Mr. Strain to $8,892,151 at June 30, 2005 and December
      31, 2004. Our Promissory Note II to Mr. Strain relating to the $2,000,000 loan
      provides a fixed effective interest rate of 3.49% and is payable in equal
      installments of $540,000 due on October 1, 2005, January 1, 2006, April 1,
      2006
      and July 1, 2006. Mr. Strain has the right, at any time, to convert all or
      any
      portion of the outstanding indebtedness of $8,892,151 into shares of our common
      stock. The conversion price is equal to 103% of the average closing price of
      our
      common stock for the five trading days prior to March 17, 2004, which was $0.78
      per share. The conversion price exceeded the market value of the stock on March
      17, 2004.





On
      April
      14, 2005, Mr. Strain agreed to restructure payment terms on the outstanding
      debt
      and accrued interest due from us so that no payments will be required during
      our
      fiscal year ending 2005 and that we would revise the debt repayment schedule
      to
      allow us to satisfy those payments from either operating cash flows or other
      financing activities. The terms and conditions of the debt restructuring have
      not yet been completed; however, we believe these terms and conditions will
      be
      favorable to us. The $8,892,151 due Mr. Strain is presented as long term debt
      on
      our balance sheet as the debt is expected to be refinanced.





**3.
      Economic Dependency - Major Customer**





Approximately
      41% and 42% and 41% and 40% of our total revenue for the three and six months
      ended June 30, 2005 and 2004, respectively is from helium sales to Air Products
      and Chemicals, Inc. (“Air Products”) from the Keyes Helium and the Sturgis gas
      processing plant and compressor station and Keyes gathering system. Although
      we
      generate additional sales of natural gas liquids and market our natural gas
      through Tenaska Energy Marketing which reduces our dependency on any one
      customer, Air Products purchases all of our helium produced under a long-term
      take or pay contract that continues through 2021. Our contract with Air Products
      is subject to early termination in 2008 and 2015 if either party requests a
      price determination that is not agreed to by the other party. If the contract
      is
      not terminated by either party in 2021, it will continue unless terminated
      by
      either party providing two years' advance notice of their intent to terminate.
      Should Air Products terminate this contract, we believe we would be able to
      sell
      the helium produced to other major companies which continue to have a state
      interest in purchasing the helium.


9


**Nathaniel
      Energy Corporation**


**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS - Continued**


JUNE
      30,
      2005 and 2004


(Unaudited)


**4.
      Related Party Transactions**





On
      October 1, 2004, we entered into a consulting agreement with CJM Group, Inc.,
      a
      company affiliated with Corey Morrison, to provide senior management and
      consulting services, contract negotiation and deal structure services, and
      business and planning services. The agreement has a term of 24 months, unless
      terminated by either party, and provides that the consultant receive a
      consulting fee of $12,500 monthly for services provided. During the six months
      ended June 30, 2005, the Company paid CJM Group, Inc. $37,500.




As
      of and
      for the year ended December 31, 2004, an additional $250,000 in marketing and
      communication related expenses was accrued to Strong Wilken, Inc., an entity
      affiliated with Corey Morrison, for corporate marketing and communication
      services, which was paid during January 2005.





On
      April
      12, 2005 we terminated its October 1, 2004 Consulting Agreement with CJM Group,
      Inc. and its relationship with Strong Wilken, Inc.





See
      Note
      2 - “Notes Payable” relating to a $2,000,000 loan from Richard Strain to the
      Company.





On
      June
      25, 2004, Stan Abrams retired from employment with Nathaniel Energy and resigned
      as a director and the Chief Executive Officer. Under the terms of Stan Abrams'
      retirement, his employment agreement terminated. Mr. Abrams agreed not to
      compete with Nathaniel Energy in the Gasifier and gasification, helium and
      natural gas, renewable energy and/or tire recycling businesses for two years.
      Mr. Abrams waived any rights to the return of our patents pursuant to the
      Amended and Restated Patent Reassignment -Agreement between him, Brett Abrams
      and Nathaniel Energy. That agreement, by its terms terminated.





On
      June
      25, 2004, Brett Abrams resigned as Vice President, Fuel Processing of Nathaniel
      Energy on terms similar to Stan Abrams' retirement.





Mr.
      Abrams agreed to limit the public resale of Nathaniel Energy common stock which
      he and his son Brett Abrams own to a total of 50,000, 75,000 and 100,000 shares
      for three consecutive 90 day periods respectively. Stan Abrams also agreed
      to
      limit public resale of the remaining shares he owns in amounts equal to
      Securities Act Rule 144 volume limitations for two years after that.





During
      the June 2004 quarter we wrote off a $264,587 related party receivable from
      Ripetouch Greenhouse LLC, an entity controlled by our former chief executive
      officer, Stan Abrams since debt collection has been determined to be uncertain.
      In prior years, we paid certain expenses related to site clean-up on behalf
      of
      Ripetouch Greenhouse LLC.





**5.
      Subsequent Events**





During
      August 2005, we signed a mutual release and settlement agreement and executed
      a
      promissory note for $728,637 with a vendor that provided engineering and
      consulting services to us for the design and installation of two Thermal
      GasifiersTM we built in Cologna Veneta, Italy. The promissory note has a two year
      term commencing July 15, 2005, bears interest at 8% per annum and replaces
      and
      cancels two previous notes dated December 21, 2005 in the original principal
      amounts of $416,135 and $325,780, outstanding accrued expenses of $89,219
      included as research and development expense in the first quarter of 2005,
      and
      accrued and unpaid interest of approximately $18,000.





**6.
      Asset Impairment**





During
      the quarter ended June 30, 2004, management changes prompted a review and update
      of the expected cash flows on long lived assets. Based on this review, operating
      costs were higher than previously estimated, and an impairment of $1,403,046
      was
      recognized on the assets at the fuel processing facility in Hutchins, Texas.
      The
      Company discounted the cash flows expected from the impaired long lived assets
      to determine their current value and the impairment amount.


10





**7.
      Inventory**





During
      the quarter ended June 30, 2004, management changes prompted a review and update
      of the net realizable value of the tire shred inventory at the tire fuel
      processing facility. Based on this review, the costs to process the tire shred
      inventory were higher than previously estimated and the operating condition
      of
      our equipment would not allow us to process that inventory to salable form
      during the fiscal period while continuing to process waste tires we were
      accepting in our day to day operation .
      We
      wrote down the inventory by $274,000 to a net realizable value of zero. The
      net
      realizable value was calculated using estimated selling prices less estimated
      costs to process the inventory into a salable form.





**Business
      Segments**





The
      Company conducts business in three separate facilities presently managed as
      three energy operating business segments, helium and gas processing, tire fuel
      processing and alternate energy. The location and use of our facilities are
      shown as follows:





-
      the
      natural gas processing, natural gas liquids and helium production in Keyes,
      Oklahoma,


-
      the
      tire fuel processing operation in Hutchins, Texas, and


-
      the
      alternate energy engineering and corporate offices in Englewood,
      Colorado.





**Item
      2. Management's Discussion and Analysis of Results of Operations.**





**FORWARD
      LOOKING STATEMENTS**





Certain
      information contained in this report may include "forward-looking statements"
      within the meaning of the Private Securities Litigation Reform Act of 1995,
      and
      is subject to the safe harbor created by that act. The safe harbor created
      by
      the Securities Litigation Reform Act will not apply to certain "forward looking
      statements" because we issued "penny stock" (as defined in Section
      3(a)(51) of the Securities Exchange Act of 1934 and Rule 3a51-1 under the
      Exchange Act) during the three year period preceding the date(s) on which those
      forward looking statements were first made, except to the extent otherwise
      specifically provided by rule, regulation or order of the Securities and
      Exchange Commission. We caution readers that certain important factors may
      affect our actual results and could cause such results to differ materially
      from
      any forward-looking statements which may be deemed to have been made in this
      Report or which are otherwise made by or on behalf of us. For this purpose,
      any
      statements contained in this report that are not statements of historical fact
      may be deemed to be forward-looking statements. Without limiting the generality
      of the foregoing, words such as "may", "will", "expect", "believe", "explore",
      "consider", "anticipate", "intend", "could", "estimate", "plan", or "continue"
      or the negative variations of those words or comparable terminology are intended
      to identify forward-looking statements. Factors that may affect our results
      include, but are not limited to, the risks and uncertainties associated with:





o
      Our
      ability to raise capital necessary to implement our business plan.


o
      Our
      ability to finance and complete planned projects and facilities upgrades.


o
      Our
      ability to execute our business plan and commercialize the Thermal GasifierTM
      technology, including building Thermal GasifiersTM that meet customers'
      specifications and that meet local regulatory environmental and permit
      requirements.


o
      Risks
      related to dependency on a small number of customers.


o
      Our
      ability to satisfy our customers' expectations.


o
      Our
      ability to employ and retain qualified management and employees.


o
      Changes
      in government regulations which are applicable to our business.


o
      The
      availability of a consistent, economically viable, and sustainable waste stream
      supply to fuel the Thermal GasifierTM operations.


o
      Changes
      in the demand for our products and services, including the impact from changes
      in governmental regulation and funding for alternative energy.


11


o
      The
      degree and nature of our competition, including the reliability and pricing
      of
      traditional energy sources, economic viability of other alternative energy
      sources such as wind and solar power.


o
      Our
      ability to pay debt service on loans as they come due.


o
      Our
      ability to generate sufficient cash to pay our creditors.


o
      Disruption in the economic and financial conditions primarily from the impact
      of
      terrorist attacks in the United States and overseas, threats of future attacks,
      police and military activities and other disruptive worldwide political events.





We
      are
      also subject to other risks detailed from time to time in other Securities
      and
      Exchange Commission filings and elsewhere in this report. Any one or more of
      these uncertainties, risks and other influences could materially affect our
      results of operations and whether forward-looking statements made by us
      ultimately prove to be accurate. Our actual results, performance and
      achievements could differ materially from those expressed or implied in these
      forward-looking statements. We undertake no obligation to publicly update or
      revise any forward-looking statements, whether from new information, future
      events or otherwise.


12





**Company
      Overview**





Our
      mission is to become an environmental partner with municipalities and commercial
      and industrial businesses for the diversion of solid waste from landfills,
      while
      providing an economically cost effective, clean energy alternative to fossil
      fuels worldwide. Our operational plan focuses on three major business models
      in
      the commercialization of our Thermal GasifierTM technology: licensing; creating
      energy infrastructures; and building, owning and operating small
      hydrocarbon-based waste-to-energy plants. Revenue generated by our largest
      business, the helium and gas processing business, provides operating capital
      funds for improving our current tire fuel processing operation and further
      advancing it toward a full service fuel procurement operation, in addition
      to,
      furthering the commercialization of our Thermal GasifiersTM. By improving and
      advancing our fuel processing division and furthering the commercialization
      of
      our patented technology, we plan to secure hydrocarbon-based waste-to-energy
      projects through our newly formed subsidiary, Cleanergy, Inc. Cleanergy, Inc.
      has had no activity to date.





Our
      helium and gas processing business, generated 97% and 95% and 96% and 96% of
      our
      revenue, or $3,755,235 and $3,440,371 and $7,478,013 and $6,659,027 during
      the
      three and six months ended June 30, 2005 and 2004, respectively. The tire fuel
      processing operation generated 3% and 5% and 3% and 4% of the revenue, or
      $111,966 and $168,981 and $242,330 and $297,117 during the three and six months
      ended June 30, 2005 and 2004, respectively. We have recognized no revenue from
      our Thermal GasifierTM business segment to date, however, we have recognized
      $80,000 of revenue (or 1% of our revenue) during the six months ended June
      30,
      2005 for consulting services provided our customer related to the start-up
      of
      the Thermal GasifiersTM built in Cologna Veneta, Italy.





Our
      long
      term goal is to produce the majority of our revenue and cash flow from the
      commercialization of our Thermal GasifierTM technology through hydrocarbon-based
      waste-to-energy projects. During the first quarter 2005, we formed Cleanergy,
      Inc., a Delaware corporation ,as a wholly owned subsidiary of the Company for
      the purpose of advancing our business plan to commercialize our Thermal
      GasifierTM technology. We plan to focus the majority of our resources on this
      business operation, which will be supported through the advancement of our
      fuel
      processing division’s expansion for fuel procurement for the hydrocarbon-based
      waste-to-energy projects.





Historically,
      we have not had difficulty finding potential project opportunities and we have
      employed the services of an experienced senior executive to develop a sales
      pipeline of hydrocarbon-based waste-to-energy projects and business development
      activities. Worldwide, industries and municipalities seek solutions for
      diverting solid waste from landfills and lower cost and clean energy
      alternatives to fossil fuels. Demand for these solutions is expected to grow.
      A
      key to our success will be wisely choosing among project opportunities and
      focusing our resources on projects with the greatest chance of success and
      returns for stockholders.





Once
      we
      have obtained final acceptance for the two Thermal GasifierTM units in Cologna
      Veneta, Italy, we will have access to an operating commercial facility to use
      in
      marketing, testing and additional research and development efforts. Our 2005
      mission is to develop a sales pipeline of qualified hydrocarbon-based
      waste-to-energy projects, contract for one or more of those projects and
      initiate implementation as a partner or joint venture member in at least one
      commercial operation utilizing our Thermal GasifierTM technology, which activity
      will be supported through the wholly owned subsidiary, Cleanergy, Inc. and
      the
      senior executive charged with project development responsibilities.





At
      the
      same time, we are developing the infrastructure and business development
      activities to support our energy infrastructure and small hydrocarbon-based
      waste-to-energy plant opportunities utilizing our Thermal GasifierTM technology.
      Additionally, we plan to seek project funding that will be based on the size,
      configuration and business structure of the project. We anticipate that the
      timeframe from identification of a project to completion will be 12 to 24
      months, provided we obtain the requisite project financing.


13


We
      began
      to implement our planned improvements to the tire fuel processing operations
      at
      our facility located in Hutchins, Texas during June 2005 that included;
      purchasing new processing equipment, improving our handling systems, expansion
      of our operations facility and site offices and regulatory compliance upgrades.
      The tire fuel processing facility improvements and expansion provide the
      foundation for its diversification toward alternative fuel procurement.. The
      facility is strategically located less than a mile from the third largest train
      intermodal station in the nation and is currently the only storage and
      processing facility licensed by the State of Texas to operate in the Dallas
      Metro area. Upon completion of the equipment installation and site improvements,
      the facility will ramp its production and will be able to increase the volume
      of
      waste tires it processes. The increased production will result in increased
      tipping fee revenue, and increased revenue from the sale of tire shreds. The
      addition of new equipment combined with existing equipment in conjunction with
      facility improvements provides the ability to sign new contracts for the
      acceptance of waste tires and supply agreements for the sale of tire shreds.
      We
      believe that the new equipment will also improve the quality of the tire shreds
      thereby enabling us to increase our prices for the higher quality tire shreds.
      The improvements should enable us to obtain increased revenue and cash flow
      from
      this operation.





**Results
      of Operations**




The
      following tables set forth certain unaudited quarterly results of operations
      of
      Nathaniel Energy for the first two quarters of 2005. The quarterly operating
      results are not necessarily indicative of future results of operations.








Three
                Months Ended (unaudited)March
                31
              2005
              __________
            
            
            June
                30
              2005
              
              ____________
            
            
            June
                30
              2004
              
              _____________
            
            
            June
                2005
              increase
              $
              __________
            
            
            vs.
                2004 (decrease)
              %
              __________Revenue
            
            $
            3,933,142
            
            $
            3,867,201
            
            $
            3,609,352
            
            $
            257,849
            
            
            7
            %Cost
                of revenue
            
            
            3,171,681
            
            
            3,413,791
            
            
            3,154,537
            
            
            259,254
            
            
            8__________
            
            
            ____________
            
            
            _____________
            
            
            ____________
            
            
            __________Gross
                profit
            
            
            761,461
            
            
            453,410
            
            
            454,815
            
            
            (1,405
            )
            
            -Selling
                general andadministrative
                expense
            
            
            572,702
            
            
            490,212
            
            
            569,066
            
            
            (78,854
            )
            
            (14
            )Write-down
                of inventory
            
            
            --
            
            
            --
            
            
            274,000Research
                and development expense
            
            
            117,125
            
            
            --
            
            
            126,426Impairment
                of assets
            
            
            --
            
            
            --
            
            
            1,403,046__________
            
            
            ____________
            
            
            _____________Operating
                income(loss)
            
            
            71,634
            
            
            (36,802
            )
            
            (1,917,723
            )Interest
                expense
            
            
            (152,026
            )
            
            (152,986
            )
            
            (131,068
            )Other
                non-operatingincome
                (expense)
            
            
            --
            
            
            7,842
            
            
            (217,699
            )__________
            
            
            ____________
            
            
            _____________Loss
                before income taxes andminority
                interest
            
            
            (80,392
            )
            
            (181,946
            )
            
            (2,266,490
            )Income
                tax expense
            
            
            (141,152
            )
            
            (68,509
            )
            
            (131,272
            )Minority
                interest (103,747)
            
            
            (62,343
            )
            
            (99,638
            )Net
                loss
            
            $
            (325,291
            )
            $
            (312,798
            )
            $
            (2,497,400
            )__________
            
            
            ___________
            
            
            _____________Significant
                non cash charges and expenses:Depreciation
                and amortization
            
            $
            211,687
            
            $
            212,115
            
            $
            279,778Asset
                impairment
            
            $
            --
            
            $
            -
            
            $
            1,403,046Related
                party receivablewrite
                off
            
            $
            --
            
            $
            --
            
            $
            264,587Inventory
                write down
            
            $
            -
            
            $
            --
            
            $
            274,000







For
      the
      three months ended June 30, 2005 revenue increased by $257,849, or 7%, to
      $3,867,201 from $3,609,352 during the same period in 2004. The revenues and
      expenses of our 51% owned subsidiary, Nathaniel Energy Oklahoma Holdings, which
      operates the Keyes Helium plant, the Sturgis gas plant and the Keyes gathering
      system are consolidated within total operations. Revenue from the helium and
      gas
      processing operations was $3,755,235 for the three months ended June 30, 2005,
      an increase of $314,864 or 9% over revenue of $3,440,371 for the three months
      ended June 30, 2004. The increase is due to an increase in helium revenue of
      $119,374 resulting from an increase in helium production and deliveries
      including helium tolling revenue, an increase in natural gas liquids revenue
      of
      $172,787 resulting from increased production and selling price of natural gas
      liquids, and a net increase of $22,703 in revenue from gathering and processing
      fees offset by a reduction in natural gas revenues. Revenue from tire fuel
      processing operations decreased $57,015 from $168,981 for the three months
      ended
      June 30, 2004 to $111,966 for the three months ended June 30, 2005 due primarily
      to production down time for equipment repair and disruption to the operation
      in
      June 2005 while we reorganized the processing line to accept delivery and began
      to install new tire fuel processing equipment. The equipment installation is
      in
      addition to the facility improvements both of which were planned for the fuel
      processing division’s expansion and upgrade. We expect the tire fuel processing
      operation to begin to generate an increase in revenue in the third quarter
      of
      2005 as the new equipment is placed in service and operating improvements at
      the
      facility allow us to accept more waste tires. These improvements increase our
      tipping fee revenue, produce a greater volume and improve the quality of tire
      shreds, thereby increasing our tire fuel revenue .


14





For
      the
      six months ended June 30, 2005, revenue increased by $844,199, or 12 %, to
      $7,800,343 from $6,956,144 during the same period in 2005. Revenue from the
      helium and gas processing operations was $7,478,013 for the six months ended
      June 30, 2005, and increase of $818,986, or 12%, over revenue of $6,659,027
      for
      the six months ended June 30, 2004. The increase is due primarily to an increase
      in helium revenue of $614,906 resulting from an increase in production and
      deliveries and helium tolling revenue, an increase in gas gathering and
      processing fees of $115, 168, an increase of $501,194 in revenue from natural
      gas liquids due to improved market value and volumes, offset by a decline in
      natural gas revenue $412,282. The decline in natural gas revenue is a result
      of
      the increase in volume of natural gas liquids which reduces the volume and
      energy content of our natural gas available for sale. Revenue from tire fuel
      processing operations decreased $54,787, from $297,117 for the six months ended
      June 30, 2004 to $242,330 for the same period in the current year. The decrease
      is primarily due to production down time for equipment repair and preparations
      to replace existing equipment and make site improvements. We also  we
      recognized $80,000 of revenue for start-up consulting services provided to
      our
      customer for the Thermal GasifierTM built in Cologna Veneta, Italy during the six
      months ended June 30, 2005 with no such revenue recognized during the comparable
      period in the prior year.





Gross
      profit for the three months ended June 30, 2005 was $453,410, a slight decrease
      of $1,405 compared to gross profit of $454,815 for the three months ended June
      30, 2004. In the second quarter of 2005, the helium and gas processing operation
      gross profit was $527,847, a decrease of $6,783 from gross profit of $534,630
      for the second quarter of 2004, due primarily to the increase in our cost of
      natural gas. In addition, during June 2005, one of our compressors was taken
      out
      of service for scheduled maintenance which reduced the volume of gas processed
      during that month. The compressor was fully operating as of July 2005. Gross
      loss from our tire fuel processing operation decreased by $8,628 from $79,815
      for the three months ended June 30, 2004 to $71,187 for the three months ended
      June 30, 2005 due primarily to a reduction in depreciation expense offset by
      an
      increase in repair and maintenance expense. Depreciation expense for our tire
      fuel processing operation for the three months ended June 30, 2005 decreased
      as
      a result of an asset impairment during the second quarter 2004, which reduced
      the carrying value of those assets and the related depreciation expense for
      all
      periods subsequent to that impairment. In addition, we recognized travel
      expenses included in our gross loss of $3,250 for consulting services in our
      Thermal GassificationTM operation, related to the start-up of the two Thermal
      GasifiersTM we built for our customer in Cologna Veneta, Italy.





Gross
      profit for the six months ended June 30, 2005 was $1,214,871, an increase of
      $304,640 compared to gross profit of $910,231 for the six months ended June
      30,
      2004. Our helium and gas processing operation gross profit for the six months
      ended June 30, 2005 was $1,305,072, an increase of $224,417 over gross profit
      of
      $1,080,655 during the same period in 2004 due primarily to increased volumes
      of
      helium processed and delivered in the first quarter of 2005. Gross loss from
      our
      tire fuel processing operation decreased by $43,087 from $170,424 during the
      six
      months ended June 30, 2004 to $127,337 in the current year due primarily to
      a
      reduction in depreciation expense offset by an increase in repair and
      maintenance expense. Gross profit from consulting services for the start-up
      of
      the Thermal GasifiersTM built in Cologna Veneta, Italy was $37,136 for the six
      months ended June 30, 2005. We recognized no gross profit from our Thermal
      GasifierTM business during the same period in 2004.





Total
      selling, general and administrative expenses decreased by $78,854 or 14% from
      $569,066 for the three months ended June 30, 2004 to $490,212 for the three
      months ended June 30, 2005. The decrease in selling, general and administrative
      expenses is due primarily to a decrease in payroll and related employee expenses
      of approximately $32,000 resulting from a reduction in headcount and a decrease
      in legal and consulting expenses of approximately $50,000. For the six months
      ended June 30, 2005, selling, general and administrative expenses decreased
      slightly by $16,589, a 2% decrease, to $1,062,914 from $1,079,503 during the
      same period in 2004. The decrease is primarily due to a decrease in payroll
      and
      related employee expenses of approximately $66,000 resulting from a reduction
      in
      headcount which was offset by an increase in consulting fees of approximately
      $42,000 which includes $37,500 for services provided by CJM Group, Inc., a
      related party, for senior management and consulting services, contract
      negotiation and deal structure services, and business and planning services
      during the first quarter of 2005.


15




For
      the
      three months ended June 30, 2005, research and development costs which include
      only third party engineering and related out of pocket expenses, decreased
      from
      $126,426 for the three months ended June 30, 2004 to none for the three months
      ended June 30, 2005. The reduction is a result of our use of internal personnel
      to monitor and assist our customer in Cologna Veneta, Italy with the start
      up of
      two of our Thermal GasifiersTM we built for that customer. We had no third party
      professional engineering assistance during the three months ended June 30,
      2005.
      Research and development costs decreased by $173, 871 from $290,996 for the
      six
      months ended June 30, 2004 to $117, 125 for the same period in 2005. The
      decrease is due to a reduction in outside professional engineering design and
      support service requirements for the Thermal GasifiersTM built in Cologna Veneta,
      Italy.





Interest
      expense increased by $21,918 from $131,068 for the three months ended June
      30,
      2004 to $152,986 for the three months ended June 30, 2005 and increased by
      $29,362 from $275,650 for the six months ended June 30, 2004 to $305,012 for
      the
      six months ended June 30, 2005 due primarily to an increase in interest expense
      from vendor provided interest bearing promissory notes in the fourth quarter
      of
      2004 related to the design, construction and start-up of the Thermal GasifiersTM
      built in Cologna Veneta, Italy.


16





**Liquidity
      and Capital Resources**





As
      of
      March 31, 2005 we owed $619,508 to financial institutions under installment
      notes with an average interest rate of 6.4%,of which, $410,664 is secured by
      land or equipment.





In
      addition, we have $8,892,151 in secured loans from Richard Strain with an
      average interest rate of 6.0%. During March 2004, we borrowed $2,000,000 of
      this
      total with principal and interest payable in four quarterly payments of $540,000
      each on October 1, 2005, and January 1, April 1, and July 1, 2006 with an
      effective interest rate of 3.49%. The remaining amount due Mr. Strain of
      $6,892,151 is due in quarterly principal and interest payments of $572,876
      from
      March 2007 through December 31, 2009. All loan amounts from Mr. Strain may
      be
      converted, at Mr. Strain's option, into shares of our common stock at a
      conversion rate equal to 103% of the average closing price on the five trading
      days prior to March 17, 2004. On April 14, 2005, Mr. Strain agreed to
      restructure payment terms on the outstanding debt and accrued interest due
      from
      us so that no payments will be required during our fiscal year ending 2005
      and
      that we would revise the debt repayment schedule to allow us to satisfy those
      payments from either operating cash flows or other financing activities. The
      terms and conditions of the debt restructuring have not yet been completed;
      however, we believe these terms and conditions will be favorable to us and
      expect to complete the restructuring during the third quarter of this
      year.





As
      of
      June 30, 2005, we had $728,637 of unsecured notes bearing interest of 6.5%
      due
      Merrick and Company, a vendor, for services they provided us designing,
      installing and starting-up our Thermal GasifiersTM in Italy. As of May 6, 2005,
      Merrick and Company sent us a letter ostensibly serving as notice to us that
      we
      were in default on those unsecured notes for two monthly payments. We had a
      dispute with that vendor regarding certain deliverables that were not provided,
      the value of services they provided and invoiced us and other issues pertaining
      to our proprietary technology. During August 2005, we reached a settlement
      with
      Merrick and Company, effective August 3, 2005, whereby we signed a mutual
      release and settlement agreement, executed a two year term unsecured promissory
      note in the amount of $728,637, bearing interest of 8%, and extinguished the
      previous unsecured notes in the same amount including unpaid interest through
      July 15, 2005, the date of the new note, including invoices outstanding from
      Merrick and Company for services provided during the first quarter of 2005.
      We
      are permitted to settle the promissory note for approximately $595,000, should
      we make principal payments of that amount on or before September 15, 2005.





The
      remaining indebtedness consists of miscellaneous notes to unaffiliated third
      parties of $17,000.





The
      following is a summary of Nathaniel Energy's cash flows sources (uses) from
      operating, investing, and financing activities during the periods indicated:





Period
                ended June 30,2005
            
            
            2004Operating
                activities
            
            $
            884,174
            
            $
            (919,697
            )Investing
                activities
            
            
            (451,705
            )
            
            (673,977
            )Financing
                activities
            
            
            82,102
            
            
            1,963,259Net
                effect on cash
            
            $
            514,571
            
            $
            369,585











For
      the
      period ended June 30, 2005, the net cash provided by operating activities of
      $884,174 is due primarily to a net loss of $638,089, an increase in prepaid
      expenses of $181,095, and an increase in other assets of $111,494, primarily
      deposits on new equipment for our tire fuel processing operation, offset by
      non-cash operating expenses including depreciation and amortization of $423,802
      and minority interest of $166,090 and changes in operating assets and
      liabilities which increased net cash as a result of a reduction in inventory
      of
      $483,230, restricted cash of $237,000, accounts receivable of $228,082 and
      an
      increase in accounts payable and accrued expenses of $276,619.


17





The
      change in net cash used in investing activities of $451,705 is due to the
      purchase of equipment and facility improvements, primarily at our tire fuel
      processing operation during the six months ended June 30, 2005.





The
      change in net cash provided from financing activities of $82,102 is due to
      principal repayments of debt of $139,505 offset by issuance of notes of $221,607
      during the six months ended June 30, 2005.





For
      the
      period ended June 30, 2004, the net cash used in operating activities is due
      to
      a net loss for the quarter of $3,076,631, an increase in inventory of $1,914,339
      primarily for the construction two Thermal GasifiersTM in Cologna Venetta, Italy,
      and an increase in accounts receivable of $363,856 offset by non-cash operating
      expenses including depreciation and amortization of $516,094, loss on related
      party receivables of $264,587, write-down of inventory of $274,000, impairment
      of assets of $1,403,046 and an increase in accounts payable and accrued expenses
      of $1,326,114.





The
      change in net cash used in investing activities of $673,977 is due primarily
      to
      the purchase of equipment and upgrades at the Keyes helium and gas processing
      operation during the six months ended June 30, 2004.





The
      change in net cash provided by financing activities of $1,963,259 is due to
      a
      $2,000,000 debt issuance, offset by debt repayments of $36,741 during the six
      months ended June 30, 2004.





Nathaniel
      Energy had cash of $1,082,722 at June 30, 2005 which will be used to fund the
      Company's operations, pay current debts, partially fund the execution of our
      Thermal GasificationTM business plan and make improvements at our tire fuel
      processing operation in Hutchins, Texas. During July 2005, we obtained a one
      year bank line of credit for $500,000, interest payable at the prime lending
      rate, for purposes of funding improvements at our tire fuel processing
      operation. The line of credit is supported by a standby letter of credit, issued
      in our bank’s favor, and provided by Mr. Richard Strain, our major shareholder
      and creditor. No amount has been drawn on the line of credit as of June 30,
      2005. We plan to complete these improvements during the third quarter 2005,
      at
      which time we expect the tire fuel processing operation to generate positive
      net
      cash flows from operating activities, which will be sufficient to repay all
      short term financing and provide additional funding for our corporate overhead
      expenses and implementation of our Thermal GasificationTM business plan. In
      addition, we expect positive cash flows provided by operating activities from
      our helium and gas processing operations in Keyes, Oklahoma to be sufficient
      to
      make certain scheduled maintenance and improvements to equipment at that
      location during the third quarter of 2005.





Our
      working capital deficit as of June 30, 2005 was $1,561,411. We plan to reduce
      this deficit by restructuring our stockholder notes payable including accrued
      interest and certain vendor notes payable during the third quarter of 2005
      and
      increasing our operating cash flows as a result of our installing new equipment
      and improving our tire fuel processing operations during the third quarter.
      In
      addition, we plan to complete the start-up of the second of two Thermal
      GasifiersTM sold to our customer in Italy and seek additional payments under our
      agreement.




**Item
      3. Controls and Procedures**





As
      of the
      end of the period covered by this report, the company conducted an evaluation,
      under the supervision and with the participation of the Chief Executive Officer
      and Chief Financial Officer, of the company's disclosure controls and procedures
      (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange
      Act
      of 1934). Based on this evaluation, the Chief Executive Officer and Chief
      Financial Officer concluded that the company's disclosure controls and
      procedures are effective to ensure that information required to be disclosed
      by
      the company in reports that it files or submits under the Exchange Act is
      recorded, processed, summarized and reported within the time periods specified
      in Securities and Exchange Commission rules and forms.





The
      company's disclosure controls and procedures include, among other things,
      controls and procedures designed to ensure that information required to be
      disclosed by the company in the reports that it files or submits under the
      Exchange Act is accumulated and communicated to the company's management,
      including its Chief Executive Officer and Chief Financial Officer, to allow
      timely decisions regarding required disclosure.





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


18


**PART
      2: OTHER INFORMATION**





**Item
      1. Legal Proceedings.**





Nathaniel
      Energy is involved in litigation in the normal course of its business, none
      of
      which is anticipated to have a material adverse effect on its financial
      condition, operations or prospects.





**Item
      2. Changes in Securities and Small Business Issuer Purchases of Equity**


**Securities.**





None.





**Item
      3. Defaults Upon Senior Securities.**





Not
      Applicable





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





Not
      Applicable





**Item
      5. Other Information.**





**Item
      6. Exhibits.**


(a)
      Exhibits.





3(i).1
      Certificate of Incorporation*


3(i).2
      Articles of Amendment to Articles of Incorporation, as amended on August 6,
      1999*


3(i).3
      Certificate of Amendment of Certificate of Incorporation, as amended on April
      24, 2002*


3(ii).1
      Amended and Restated By-Laws**


31.1
      Certification of the Principal Executive Officer pursuant to Rule 13a-14(a)or
      Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
      of
      2002


31.2
      Certification of the Principal Financial Officer pursuant to Rule 13a-14(a)or
      Rule 15d-14(a) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
      of
      2002


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


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





*Denotes
      document filed as an exhibit to our Current Report on Form 8-K for an event
      dated December 31, 2002 and incorporated herein by reference.





**Denotes
      document filed as an exhibit to our Annual Report on Form 10-KSB for the year
      ended December 31, 2003 and incorporated herein by reference.


19




**SIGNATURES**





In
      accordance with the requirements of the Exchange Act, the Registrant caused
      this
      report to be signed on its behalf by the undersigned, thereunto duly authorized.





**NATHANIEL
      ENERGY CORPORATION**


(Registrant)





Date:
      August 15, 2005











By:
            */s/
                George A. Cretecos*George
                A. Cretecos
              Chief
                Executive Officer
              Nathaniel
                Energy Corporation